<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 13, 1999
REGISTRATION NO. 333-82581
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
S.M.A. REAL TIME INC.
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
NEW YORK 7812 13-3724883
(STATE OR JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION) CLASSIFICATION CODE NUMBER IDENTIFICATION NUMBER)
</TABLE>
------------------------
100 AVENUE OF THE AMERICAS, 10TH FLOOR
NEW YORK, NEW YORK 10013
(212) 226-7474
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES
AND PRINCIPAL PLACE OF BUSINESS)
------------------------
MICHAEL J. MORRISSEY, PRESIDENT
100 AVENUE OF THE AMERICAS, 10TH FLOOR
NEW YORK, NEW YORK 10013
(212) 226-7474
(ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
------------------------
Copies to:
<TABLE>
<S> <C>
STEPHEN M. ROBINSON LAWRENCE B. FISHER, ESQ.
STEPHEN M. ROBINSON, P.A. ORRICK, HERRINGTON & SUTCLIFFE LLP
172 TUCKERTON ROAD 666 FIFTH AVENUE
MEDFORD, NEW JERSEY 08055 NEW YORK, NEW YORK 10103
(856) 596-5530 (212) 506-5000
(856) 596-3340 FAX (212) 506-5151 FAX
</TABLE>
------------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after this registration statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier registration
statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier registration
statement for the same offering. / /
If the delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER 13, 1999.
The information in this preliminary prospectus is not complete and may be
changed. These securities may not be sold until the registration statement filed
with the Securities and Exchange Commission is effective. This preliminary
prospectus is not an offer to sell nor does it seek an offer to buy these
securities in any jurisdiction where the offer or sale is not permitted.
2,000,000 SHARES
S.M.A. REAL TIME INC.
COMMON STOCK
------------------------
This is an initial public offering of 2,000,000 shares of common stock of
S.M.A. Real Time Inc. We anticipate that the initial public offering price will
be between $8.00 and $10.00 per share.
Prior to this offering, there has been no public market for our common
stock. We have applied to list our common stock on the American Stock Exchange
under the symbol "VTV."
PLEASE SEE "RISK FACTORS" BEGINNING ON PAGE 7 TO READ ABOUT FACTORS YOU
SHOULD CONSIDER BEFORE BUYING SHARES OF OUR COMMON STOCK.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THE DISCLOSURES IN THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
<S> <C> <C>
Initial public offering price............................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds, before expenses, to SMA........................... $ $
</TABLE>
------------------------
We have granted the underwriters the right to purchase up to 300,000
additional shares at the initial public offering price minus the underwriting
discount, to cover any over-allotments.
Delivery of the shares of common stock will be made on or about
, 1999, in New York, New York. The underwriters are offering the shares
of common stock on a firm commitment basis.
------------------------
DIRKS & COMPANY, INC.
PROSPECTUS DATED , 1999.
<PAGE>
The inside front cover contains the words, "Virtual Set Technology" and a series
of eight pictures depicting various aspects of a virtual set production
involving Barbara Walters.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Prospectus Summary.......................................................................................... 4
Risk Factors................................................................................................ 7
Cautionary Note Regarding Forward-Looking Statements........................................................ 11
Use of Proceeds............................................................................................. 11
Dividend Policy............................................................................................. 12
Capitalization.............................................................................................. 12
Dilution.................................................................................................... 13
Selected Financial Information.............................................................................. 14
Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 15
Business.................................................................................................... 21
Management.................................................................................................. 29
Certain Transactions........................................................................................ 35
Principal Stockholders...................................................................................... 38
Description of Securities................................................................................... 39
Shares Eligible for Future Sale............................................................................. 40
Underwriting................................................................................................ 42
Legal Matters............................................................................................... 44
Experts..................................................................................................... 44
Financial Statements........................................................................................ F-1
</TABLE>
3
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with more detailed
information and SMA's combined financial statements and the notes to those
statements appearing elsewhere in this prospectus.
OUR BUSINESS
SMA is video and film studio that combines traditional video and film
production techniques with state of the art technology and expertise to offer
virtual and digital production and post-production services.
We are equipped to manage every aspect of the production process beginning
with production planning, to the original shoot, through editing to final
commercial release. We provide these services to advertising agencies, creative
editorial companies, Fortune 500 companies, freelance producers, internet
producers, movie studios, production companies, television networks, and
television producers.
We use animation equipment, digital equipment, film cameras, infrared
tracking, pattern recognition, super computers and video cameras. In combination
with our experienced staff, they form the basis for us to offer the following
services:
o Location production
o Film to video transfer
o Studio/stage production
o Computer animation
o Virtual production
o Graphic design services
o Blue/green screen effects production
o On-line editing
o Motion control production
o Videotape duplication services
o Computer program/database creation
OUR STRATEGY
Our goal is to be the leading production and post-production studio for all
types of media including film, internet and television. In order to achieve this
goal, we will implement the following strategies:
o Continue to expand our facilities, production capabilities and service
offerings to strengthen our brand and provide our customers with a
one-stop-shop for all of their video and film production and
post-production needs;
o Continue to make significant investments in state-of-the-art technologies
as a vehicle to enhance product offerings, improve service, increase
sales and foster growth. We are committed to a number of technological
investments in order to capitalize on the developing high definition
television and internet markets;
o Continue to expand our technical talent, focusing on experts in the
field. We are committed to strengthening our talent base by recruiting
individuals who have expertise, are motivated and energetic and
comprehend the notion of teamwork and customer service;
o Increase our marketing and sales efforts to expand our client base and
further solidify and penetrate existing client business;
o Create and accumulate programming to establish new revenue sources;
o Expand our virtual television production capabilities into new
application areas; and
o Capitalize on the opportunities provided by our fully digital facility.
4
<PAGE>
OUR OFFICES
Our executive offices, virtual studio and production facilities are located
at 100 Avenue of the Americas, New York, New York 10013; our telephone number is
(212) 226-7474; and our web site can be accessed at www.smavid.com. Information
contained in our web site is not part of this prospectus.
CORPORATE BACKGROUND
We began business in 1985 under the name SMA Video, Inc. S.M.A. Real Time
Inc. was formed as a New York corporation in May 1993 to be the operating
company for parts of our business. In April 1999, two corporate subsidiaries,
Fly Films, Inc. and SMA Visual Effects Corp. were merged into SMA Video, Inc.,
and SMA Video became a wholly owned subsidiary of S.M.A. Real Time Inc. All
references to "S.M.A. Real Time Inc.," "we," "our," or "us" include the
operations of SMA Video, Inc. and its predecessor entities.
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by us................ 2,000,000 shares
Common stock to be outstanding after this
offering................................ 5,700,000 shares, assuming the underwriters do not exercise their
over-allotment option
Use of proceeds........................... o Expansion and improvements to facilities and other capital
expenditures;
o Expansion of internal operations;
o Sales and marketing expenditures;
o Repayment of promissory notes; and
o Working capital and general corporate purposes
Proposed Amex symbol...................... "VTV"
</TABLE>
Except as noted, all of the information in this prospectus assumes that
neither the warrants that we will issue to the representative of the
underwriters or the underwriter's over-allotment option are exercised, and does
not reflect the issuance of any of our 500,000 shares of common stock available
for future grants pursuant to our 1999 stock incentive plan.
5
<PAGE>
SUMMARY FINANCIAL DATA
You should read the following summary financial data together with the
section of this prospectus entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our financial statements and
notes thereto included elsewhere in this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
SEPTEMBER 30, JUNE 30,
------------------------ ------------------------
1997 1998 1998 1999
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................................. $5,850,308 $6,469,142 $4,895,985 $5,407,482
Cost of revenues..................................... 3,628,295 4,044,591 3,066,416 3,702,220
---------- ---------- ---------- ----------
Gross margin......................................... 2,222,013 2,424,551 1,829,569 1,705,262
Selling, general and administrative.................. 1,652,506 1,611,515 1,226,958 1,320,344
---------- ---------- ---------- ----------
Income from operations............................... 569,507 813,036 602,611 384,918
---------- ---------- ---------- ----------
Interest expense, net of interest income............. 540,795 509,513 385,403 310,146
Amortization of deferred financing costs............. -- -- -- 345,556
Other expense........................................ 5,432 2,219 959 512
---------- ---------- ---------- ----------
Total other expenses................................. 546,227 511,732 386,362 656,214
---------- ---------- ---------- ----------
Income (loss) before income taxes.................... 23,280 301,304 216,249 (271,296)
Provision for (recovery of) income taxes............. 7,998 142,000 97,500 (122,083)
---------- ---------- ---------- ----------
Net income (loss).................................... $ 15,282 $ 159,304 $ 118,749 $ (149,213)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Basic and diluted earnings (loss) per share.......... $ .01 $ .05 $ .03 $ (.04)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Shares used in basic and diluted earnings (loss) per
share.............................................. 3,490,000 3,490,000 3,490,000 3,513,333
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
The pro forma balance sheet below, as of June 30, 1999, has been adjusted
to reflect the sale of common stock offered at an assumed initial public
offering price of $9.00 per share, representing the mid point of the filing
range, and the receipt of the estimated net proceeds.
<TABLE>
<CAPTION>
AS OF AS OF JUNE 30, 1999
SEPTEMBER 30, --------------------------
1998 ACTUAL PRO FORMA
------------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Total working capital (deficit)................................. $(1,282,117) $(1,625,260) $13,476,090
Total assets.................................................... $ 6,162,661 $ 7,502,650 $20,693,206
Total liabilities............................................... $ 4,888,100 $ 4,902,302 $ 3,932,419
Total stockholders' equity...................................... $ 1,274,561 $ 2,600,348 $16,760,787
</TABLE>
6
<PAGE>
RISK FACTORS
An investment in our common stock involves a high degree of risk. In addition to
the other information contained in this prospectus, you should carefully
consider the following risk factors and other information in this prospectus
before investing in our common stock.
BECAUSE WE PLAN TO EXPAND OUR FACILITIES, INTERNAL OPERATIONS AND OUR SALES AND
MARKETING EFFORTS, WE MAY NOT BE ABLE TO SUCCESSFULLY MANAGE OUR BUSINESS OR
CONTINUE TO ACHIEVE PROFITABILITY.
We expect that our sales and marketing, product development and
administrative expenses will increase in the future and, as a result, we will
need to generate significant revenues to achieve and maintain profitability.
Although our revenues have grown in recent quarters, we cannot assure you that
we will achieve sufficient revenues for profitability. To stay profitable, we
must, among other things:
o successfully develop and deliver new products and services;
o respond quickly and effectively to competitive, market and technological
developments;
o expand sales and marketing operations;
o broaden production and post-production capabilities;
o retain and attract highly qualified employees;
o improve customer support; and
o control expenses.
If revenues grow slower than we anticipate, or operating expenses exceed our
expectations or cannot be adjusted accordingly, our business, results of
operations, and financial condition will be materially and adversely affected.
WE ARE CURRENTLY DEPENDENT UPON A SMALL NUMBER OF CUSTOMERS FOR A LARGE PORTION
OF OUR REVENUES.
Our largest customer, ABC News, accounted for approximately 13% and 11% of
our revenues in fiscal year 1998 and 1997. We do not have a contract with this
customer. In fiscal 1998, our five largest customers, ABC News, Berwyn
Editorial, Inc., Orbital Power & Light, Inc., Progressive Image Group, Inc. and
Shoot First Editorial, accounted for 32% of our revenues. In fiscal 1997, our
five largest customers, ABC News, Berwyn Editorial, Inc., Girialdi Suarez
Productions, Inc., Lost Planet Editorial, Inc. and Progressive Image Group, Inc.
accounted for 38% of our revenues. For the nine months ended June 30, 1999, ABC
News and the Children's Television Workshop accounted for approximately 24% of
our revenue. For the nine months ended June 30, 1998, ABC News accounted for
approximately 13% of our revenues. The loss of these customers would likely have
a material adverse effect on our business, financial condition and results of
operations.
Our business and financial condition would be materially adversely affected
if we do not attain substantial additional business from these customers, or if
we lose the business of any of these customers, and if we fail to attain
substantial additional business from other customers.
o technical difficulties with respect to the use of our services;
o management of our growth; and
o general economic conditions.
OUR SERVICES ARE TECHNOLOGY INTENSIVE AND TO BE SUCCESSFUL, WE NEED TO KEEP UP
WITH RAPID TECHNOLOGICAL CHANGE.
Our market is characterized by rapid technological change and frequent new
product announcements. Significant technological changes could render our
existing technology obsolete. We will frequently need to upgrade our facilities
to meet the evolving demands of high definition television, as well as
technological changes arising out of utilization of high definition graphics on
7
<PAGE>
the internet. If we are unable to successfully respond to these developments or
do not respond in a cost-effective way, our business, financial condition and
results of operations will be materially adversely affected. To be successful,
we must adapt to our rapidly changing market by continually improving the
responsiveness, services and features of our products and services and by
developing new features to meet customer needs. Our success will depend, in
part, on our ability to adapt to rapidly changing technologies, to enhance our
existing services and to develop new services and technologies that address the
needs of our customers.
WE CURRENTLY HAVE NO SALES AND MARKETING EMPLOYEES AND WILL NEED TO ESTABLISH AN
IN HOUSE MARKETING AND SALES STAFF IN ORDER TO INCREASE OUR CUSTOMER BASE.
Currently we have no sales and marketing employees and have obtained work
through recommendations by existing clients, the use of demo-reels and limited
participation in trade shows rather than extensive marketing campaigns.
Following the completion of this offering, we intend to hire an in-house sales
and marketing staff, but our efforts to develop a sufficient sales and marketing
group may be inadequate. Our inability to develop a sufficient sales and
marketing group would have a negative effect on our ability to increase and
better penetrate our customer base.
WE MAY BE UNABLE TO MEET OUR FUTURE CAPITAL REQUIREMENTS WHICH COULD RESULT IN
US NEEDING TO RAISE ADDITION CAPITAL IN THE FUTURE CAUSING OUR STOCKHOLDERS
DILUTION OR THE CURTAILMENT OF OUR BUSINESS PLAN.
Based on our current operating plan, we anticipate that the net proceeds of
this offering and cash provided by operations will allow us to meet our cash
requirements for at least the 12 months following the date of this prospectus.
We may require additional funding sooner than anticipated. In addition,
unplanned acquisition and development opportunities and other contingencies may
arise, which could require us to raise additional capital. We cannot be certain
that additional financing will be available on commercially reasonable terms, if
at all. If we raise additional capital through the sale of equity, including
preferred stock or convertible debt securities, the percentage ownership of our
then existing stockholders will be diluted.
THERE IS INTENSE COMPETITION FOR PRODUCTION AND POST-PRODUCTION SERVICES.
The production and post-production industry is highly competitive and
constantly evolving. Specifically we face competition from the following
segments in the industry for the services we offer and plan to offer:
o commercial post-production such as: The Tape House, Inc. and Nice Shoes,
LLC.;
o virtual set production such as: LRP Productions and Atlantic Video, Inc.;
o motion film developing lab such as: Technicolor East Coast, Inc. and
Duart Film and Video;
o high definition post-production such as: The Tape House, Inc.;
o video audio design and mixing such as: ToddAO Studios East, Photomagnetic
Sound Studios, Inc. and Eastside Audio and Video;
o high definition production such as: in-house production studios of CBS
and the MSG Network; and
o internet content production, such as: Razor Fish, Concrete Media,
Broadcast.com, and Funny Garbage.
We believe that the principal competitive factors in our markets include the
ability to customize technology to a customer's particular use, cost for
services and service offerings. Many of our current and potential competitors
have substantially greater human and financial resources, experience and brand
recognition than us and may be competitive through other lines of business and
existing relationships. Furthermore, these competitors may introduce new
products and services addressing these markets in the future. There can be no
assurance that our competitors will not
8
<PAGE>
develop services that are superior to our services or that achieve greater
market acceptance than our offerings.
OUR MANAGEMENT WILL CONTROL 50.17% OF OUR COMMON STOCK AFTER THIS OFFERING AND
AS A RESULT, YOU MAY HAVE NO EFFECTIVE VOICE IN OUR MANAGEMENT.
The interests of our management could conflict with the interests of our
other stockholders. Following this offering, our executive officers and
directors will beneficially own a total of approximately 50.17%, and 47.66% if
the underwriter's over-allotment option is exercised in full, of our outstanding
common stock. Accordingly, if they act together, they will have the power to
control the election of all of our directors and the approval of actions for
which the approval of our shareholders is required. If you purchase shares of
our common stock, you may have no effective voice in our management.
OUR SUCCESS DEPENDS ON THE EFFORTS OF, AND OUR ABILITY TO RETAIN, OUR PRESIDENT
AND CHIEF EXECUTIVE OFFICER AND OUR EXECUTIVE VICE PRESIDENT.
We believe the efforts of our executive officers, Michael Morrissey, our
president and chief executive officer, and David Satin, our executive
vice-president, are essential to our operations and growth. The loss of the
services of either Mr. Morrissey or Mr. Satin would have a material adverse
effect on our business. These individuals are responsible for drafting and
implementing our business plan. We maintain key-man life insurance on the lives
of both Mr. Morrissey and Mr. Satin, each policy in the amount of $500,000.
However, the proceeds of such insurance have been assigned to Citibank, N.A. as
collateral for obligations owed to Citibank, N.A. We have made application to
obtain additional life insurance policies of $1,500,000 on the lives of
Mr. Morrissey and Mr. Satin. Mr. Morrissey and Mr. Satin have also personally
guaranteed approximately 27 capital leases and various bank loans.
COMPETITION FOR EXPERIENCED PERSONNEL IN OUR INDUSTRY IS HIGHLY COMPETITIVE AND
IF WE LOSE OUR KEY PERSONNEL OR ARE UNABLE TO RECRUIT ADDITIONAL PERSONNEL, OUR
BUSINESS MAY SUFFER.
In addition to our senior management personnel, we are dependent upon
several key employees with artistic talent and graphics expertise, namely Leslie
Rudner, our chief engineer; Todd Ruff, our director of graphics; Jim Suhre, our
virtual set designer and 3D graphics designer; and Eli Friedman, our senior
colorist. Our success is dependent upon our ability to retain our key employees
and to attract, assimilate and retain other highly qualified employees. If we do
not succeed in retaining or motivating our current personnel or in hiring
additional qualified employees, our business will be adversely affected and our
services will be impaired. Competition for personnel in our industry,
particularly those with expertise, is intense, and we do not know if we will be
able to attract and retain the necessary personnel. In addition, we do not have
employment agreements with all of our key personnel.
OUR MANAGEMENT WILL HAVE SUBSTANTIAL DISCRETION OVER THE USE OF PROCEEDS OF THIS
OFFERING AND MAY NOT APPLY THEM EFFECTIVELY.
Our management will have significant flexibility in applying the net
proceeds of this offering and may apply the proceeds in ways with which you do
not agree. The failure of our management to apply these funds effectively could
materially harm our business. The proposed allocation of the net proceeds of
this offering represents our management's best estimate of the expected
utilization of funds to finance our activities in accordance with our
management's current objectives and market conditions.
9
<PAGE>
OUR STOCK PRICES MAY FLUCTUATE, WHICH MAY MAKE IT DIFFICULT TO RESELL YOUR
SHARES AT ATTRACTIVE PRICES.
The market price of our common stock may be highly volatile. The market
prices of securities of other production companies are highly volatile. Factors
that could cause volatility in our stock price include:
o fluctuations in our quarterly operating results;
o changes in the market valuations of other production companies and stock
market price and volume fluctuations generally;
o economic conditions specific to the production and post-production
industry;
o announcements by us or our competitors relating to new services or
technologies, significant acquisitions, strategic relationships, joint
ventures or capital commitments;
o regulatory developments; and
o additions or departures of our key personnel.
THE REPRESENTATIVE OF THE UNDERWRITERS WILL CONTINUE TO HAVE INFLUENCE OVER US,
INCLUDING THE OWNERSHIP OF OUR SECURITIES AND THE RIGHT TO DESIGNATE AN
INDIVIDUAL TO OUR BOARD OF DIRECTORS, FOLLOWING THE COMPLETION OF THIS OFFERING.
Dirks & Company, the representative of the underwriters, has been given the
right, for a period of five years from the completion of this offering, to
designate a person to our board of directors. Upon completion of this offering,
the representative will also receive, for nominal consideration, warrants to
purchase 200,000 shares of our common stock. The representative was also given
21,000 warrants to purchase 21,000 shares of our common stock as compensation in
connection with our May private placement. Accordingly, the representative will
continue to have influence over our operations following the completion of this
offering.
OUR FAILURE TO PROTECT OUR PROPRIETARY RIGHTS COULD IMPAIR OUR COMPETITIVE
POSITION AND PROTECTION OF OUR INTELLECTUAL PROPERTY RIGHTS MAY RESULT IN COSTLY
LITIGATION.
We regard our trade secrets and similar intellectual property as important
to our success. However, our efforts to establish and protect our proprietary
rights may be inadequate to prevent misappropriation or infringement of our
proprietary property. We need to safeguard our intellectual property rights, in
order to safeguard our name and goodwill. We do not know if third parties will
bring claims of copyright or trademark infringement against us or claim that our
use of certain technologies violates a patent. Further, do not know if third
parties will claim that we misappropriated their creative ideas or formats or
otherwise infringed on their proprietary rights in connection with the content
we have or will create. Any claims of infringement, with or without merit, could
be time consuming to defend, result in costly litigation, divert management
attention, require us to enter into costly royalty or licensing arrangements or
prevent us from using important technologies or methods, any of which could
damage our business and financial condition.
YEAR 2000 RISKS COULD NEGATIVELY IMPACT OUR BUSINESS.
Many currently installed computer systems and software products only accept
two digits to identify the year in any date. Thus, the year 2000 will appear as
"00," which the system might consider to be the year 1900 rather than the year
2000. This could result in system failures, delays or miscalculations causing
disruptions to our operations. The failure of systems maintained by third
parties to be Year 2000 compliant could cause us to incur significant expense to
remedy any problems, reduce our revenues from such third parties or otherwise
seriously damage our business. Our failure to correct a material Year 2000
problem could result in an interruption in, or a failure of, some of our normal
business activities or operations and thus, damage our client's confidence in
us.
10
<PAGE>
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. These forward-looking
statements are not historical facts, but rather are based on our current
expectations, estimates and projections about our industry, our beliefs and
assumptions. Words including "may," "could," "would," "will," "anticipates,"
"expects," "intends," "plans," "projects," "believes," "seeks," "estimates" and
similar expressions are intended to identify forward-looking statements. These
statements are not guarantees of future performance and are subject to certain
risks, uncertainties and other factors, some of which are beyond our control,
are difficult to predict and could cause actual results to differ materially
from those expressed or forecasted in the forward-looking statements. These
risks and uncertainties are described in "Risk Factors" and elsewhere in this
prospectus.
We caution you not to place undue reliance on these forward-looking
statements, which reflect our management's view only as of the date of this
prospectus. We are not obligated to update these statements or publicly release
the result of any revisions to them to reflect events or circumstances after the
date of this prospectus or to reflect the occurrence of unanticipated events.
USE OF PROCEEDS
We estimate that we will receive net proceeds of approximately $15,100,000
from our sale of the 2.0 million shares of common stock offered hereby, assuming
an initial public offering price of $9.00, the mid-point of the filing range. If
the underwriters exercise their over-allotment option in full, we will receive
net proceeds of approximately $17,400,000. That amount is after deducting
estimated underwriting discounts and commissions and after fees and expenses of
approximately $560,000 payable by us.
<TABLE>
<CAPTION>
NET PROCEEDS PERCENT OF TOTAL
------------ ----------------
<S> <C> <C>
Expansion and improvements to facilities....................................... $ 8,450,000 56.0%
Expansion of internal operations............................................... 1,650,000 10.9%
Sales and marketing expenditures............................................... 2,600,000 17.2%
Repayment of promissory notes.................................................. 735,000 4.9%
Working capital and general corporate purposes................................. 1,665,000 11.0%
------------ ------
Total........................................................................ 15,100,000 100.0%
------------ ------
------------ ------
</TABLE>
Expansion and improvements to facilities. We intend to design, purchase and
install high definition television and data equipment, a new motion picture lab,
a new HDTV virtual studio, and a digital audio mixing and design studio which we
intend to locate in approximately 50,000 square feet of space in Manhattan which
we intend to rent and fit out for these purposes. We are negotiating for
sufficient additional space in the 100 Avenue of the Americas building where our
corporate headquarters are located. If this negotiation is not successful, we
will continue our efforts to locate space as close to our offices as feasible.
Expansion of internal operations. We intend to create a new division which
will focus upon developing content. Although we have experience developing
content, this development was primarily in response to requests from our
customers, and the material we produced was generally the property of our
customers. The new division will develop an inventory of content which will be
our property, not only for the purpose of permitting us to more readily respond
to the requests from broadcast, theatrical and Internet customers for
programming, but also for the purpose of producing our own television shows and
motion pictures. Furthermore, we intend to repackage existing programming, which
we intend to purchase, into new shows.
Sales and marketing expenditures. We intend to create a new sales and
marketing division with additional sales and marketing staff, and to increase
advertising and trade show related activities. We intend that this staff will
consist of a director of marketing who will supervise three to four sales people
who will promote our new services to existing clients and the full range of our
services to potential clients under the one-stop-shop umbrella.
Repayment of promissory notes. We intend to repay $700,000 of promissory
notes, issued during May 1999 plus accrued interest at 10% per annum of
approximately $35,000.
Working capital and general corporate purposes. Working capital may be
used, among other things, to pay salaries and wages, professional fees, rent and
other operating expenses.
11
<PAGE>
We anticipate that the net proceeds from this offering and cash provided by
operations will be sufficient to fund our operations and cash requirements for
at least the 12 months following the date of this prospectus. We cannot assure
you, however, that such funds will not be expended earlier due to unanticipated
changes in economic conditions or other circumstances that we cannot foresee. In
the event our plans or assumptions change or prove to be inaccurate, we might
seek additional financing sooner than currently anticipated. Any net proceeds
from the sale of the underwriter's over-allotment option will be allocated to
working capital and general corporate purposes.
The proposed allocation of the net proceeds represents our management's
best estimate of and the current intentions concerning the expected use of funds
to finance our activities in accordance with our management's current objectives
and market conditions. Our management and board of directors may allocate the
funds in significantly different proportions, depending on their needs at the
time. Pending application of the net proceeds in the manner mentioned above, we
intend to invest the net proceeds in short-term, interest-bearing,
investment-grade securities.
DIVIDEND POLICY
We have never declared or paid any cash or stock dividends on our capital
stock. We presently intend to reinvest earnings to fund the development and
expansion of our business and, therefore, do not anticipate paying cash
dividends on our common stock in the foreseeable future. The declaration of
dividends will be at the discretion of our board of directors and will depend
upon our earnings, capital requirements and financial position, general economic
conditions and other pertinent factors.
CAPITALIZATION
The following table sets forth our:
o actual capitalization as of June 30, 1999;
o pro forma capitalization as of June 30, 1999 which gives effect to the
sale of 2,000,000 shares of common stock in this offering at an assumed
initial public offering price of $9.00 per share, representing the mid
point of the filing range, after deducting estimated underwriting
discounts, the underwriter's non-accountable expense allowance and
estimated offering expenses, and the application of the net proceeds
which includes the repayment of the face amount of the promissory notes
issued in the May 1999 private placement of $700,000. Pro forma retained
earnings reflects the amortization of the remaining deferred financing
costs of $1,209,444, net of an estimated tax benefit limited to the
deferred tax liability at June 30, 1999 of $269,883.
This table should be read in conjunction with the financial statements and
notes thereto appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
--------------------------
ACTUAL PRO FORMA
----------- -----------
(UNAUDITED)
<S> <C> <C>
Notes payable and capital lease obligations, less current maturities............... $ 1,455,342 $ 1,455,342
----------- -----------
Promissory notes--private placement................................................ $ 700,000 $ --
----------- -----------
Stockholders' equity:
Preferred stock--$.0001 par value; (10,000,000 shares authorized and -0- shares
outstanding at June 30, 1999).................................................... $ -- $ --
Common stock--$.0001 par value; 50,000,000 shares authorized; 3,700,000 shares
outstanding, actual; and 5,700,000 shares outstanding, pro forma................. 370 570
Additional paid-in capital......................................................... 1,515,390 16,615,190
Retained earnings.................................................................. 1,084,588 145,027
----------- -----------
Total stockholders' equity....................................................... $ 2,600,348 $16,760,787
----------- -----------
Total capitalization............................................................. $ 4,755,690 $18,216,129
----------- -----------
----------- -----------
</TABLE>
12
<PAGE>
The preceding table excludes:
o 21,000 shares issuable upon exercise of outstanding placement agent
warrants;
o 300,000 shares issuable upon exercise of the underwriter's over allotment
option;
o 200,000 shares issuable upon exercise of the representative's warrants;
and
o 500,000 shares reserved for issuance under our 1999 stock incentive plan.
DILUTION
As of June 30, 1999, our net tangible book value was $1,155,274, or
approximately $.31 per share of common stock. Net tangible book value per share
represents the amount of our total tangible assets less total liabilities,
divided by the number of shares of common stock issued and outstanding.
After giving effect to the sale of the 2,000,000 shares of common stock
offered, and after deducting estimated underwriting discounts and offering
expenses, our pro forma net tangible book value at June 30, 1999 would have been
$16,760,787, or $2.94 per share of common stock. This represents an immediate
increase in net tangible book value of $2.63 per share of common stock to
existing stockholders and an immediate dilution in net tangible book value of
$6.06 per share of common stock, or approximately 67%, to new investors. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share of common stock...................... $9.00
Net tangible book value per share prior to the offering.............................. $0.31
Increase in net tangible book value per share attributable to the offering........... 2.63
-----
Pro forma net tangible book value per share after the offering....................... 2.94
-----
Dilution of net tangible book value per share to investors in the offering........... $6.06
-----
-----
</TABLE>
If the over-allotment option is exercised in full, our pro forma net
tangible book value after the offering would have been $19,100,787, or $3.18 per
share of common stock. This represents an immediate increase in net tangible
book value of $2.87 per share of common stock to existing stockholders and an
immediate dilution in net tangible book value of $5.82 per share of common
stock, or approximately 65%, to new investors.
The following table summarizes on a pro forma basis, as of June 30, 1999,
the number of shares of common stock purchased from us, the total consideration
paid and the average price per share paid by existing stockholders of common
stock and the investors in the offering, assuming the sale of the 2,000,000
shares offered by this prospectus, assuming an initial public offering price of
$9.00 per share. The calculations are based upon total consideration given by
new investors and existing stockholders before any deduction of underwriting
discounts and offering expenses payable by us.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders.................. 3,700,000 65% $ 40,760 .2% $ .01
New investors.......................... 2,000,000 35% 18,000,000 99.8% $9.00
--------- --- ----------- -----
Total............................. 5,700,000 100% $18,040,760 100%
--------- --- ----------- -----
--------- --- ----------- -----
</TABLE>
13
<PAGE>
SELECTED FINANCIAL INFORMATION
The historical selected financial data as of September 30, 1998 and for the
years ended September 30, 1997 and 1998 are derived from and should be read in
conjunction with our audited financial statements and accompanying notes
included elsewhere in the prospectus. The historical selected financial data as
of June 30, 1999 and for the nine months ended June 30, 1998 and 1999 are
derived from and should be read in conjunction with our unaudited financial
statements included elsewhere in the prospectus. In the opinion of management,
the unaudited financial statements include all material adjustments, consisting
of only normal, recurring adjustments, necessary for a fair presentation of the
financial position and results of operations for the period. The data presented
below should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the financial statements
and accompanying notes appearing elsewhere in the prospectus.
Shares of common stock outstanding have been restated to reflect the stock
splits and other reorganization transactions described in Note 10 to the
accompanying financial statements.
The pro forma balance sheet below, as of June 30, 1999, has been adjusted
to reflect the sale of common stock offered at an assumed initial public
offering price of $9.00 per share, representing the mid point of the filing
range, and the receipt and application of the estimated net proceeds.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
SEPTEMBER 30, JUNE 30,
------------------------ ------------------------
1997 1998 1998 1999
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................................. $5,850,308 $6,469,142 $4,895,985 $5,407,482
Cost of revenues..................................... 3,628,295 4,044,591 3,066,416 3,702,220
---------- ---------- ---------- ----------
Gross margin......................................... 2,222,013 2,424,551 1,829,569 1,705,262
Selling, general and administrative.................. 1,652,506 1,611,515 1,226,958 1,320,344
---------- ---------- ---------- ----------
Income from operations............................... 569,507 813,036 602,611 384,918
---------- ---------- ---------- ----------
Interest expense, net of interest income............. 540,795 509,513 385,403 310,146
Amortization of deferred financing costs............. -- -- -- 345,556
Other expense........................................ 5,432 2,219 959 512
---------- ---------- ---------- ----------
Total other expenses................................. 546,227 511,732 386,362 656,214
---------- ---------- ---------- ----------
Income (loss) before income taxes.................... 23,280 301,304 216,249 (271,296)
Provision for (recovery of) income taxes............. 7,998 142,000 97,500 (122,083)
---------- ---------- ---------- ----------
Net income (loss).................................... $ 15,282 $ 159,304 $ 118,749 $ (149,213)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Basic and diluted earnings (loss) per share.......... $ .01 $ .05 $ .03 $ (.04)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Shares used in basic and diluted earnings (loss) per
share.............................................. 3,490,000 3,490,000 3,490,000 3,513,333
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF JUNE 30, 1999
SEPTEMBER 30, --------------------------
1998 ACTUAL PRO FORMA
------------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Total working capital (deficit)................................. $(1,282,117) $(1,625,260) $13,476,090
Total assets.................................................... $ 6,162,661 $ 7,502,650 $20,693,206
Total liabilities............................................... $ 4,888,100 $ 4,902,302 $ 3,932,419
Total stockholders' equity...................................... $ 1,274,561 $ 2,600,348 $16,760,787
</TABLE>
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following management's discussion and analysis of the financial
condition and results of operations should be read in conjunction with our
financial statements and the accompanying notes appearing elsewhere in this
prospectus. In addition to historical information, this management discussion
and analysis of financial condition and results of operations contain
forward-looking statements. Our actual results could differ materially from
those anticipated in the forward-looking statements as a result of factors,
including those set forth under "Risk Factors" and in other parts of this
prospectus.
OVERVIEW
Revenues are generated at our video and film studios, where we provide a
wide range of production and post-production services to companies that produce
commercials, television programs, music videos and feature films.
We combine traditional video and film production techniques with state of
the art technology and expertise in the fields of virtual and digital
production. Our services include
o studio production,
o film to video transfer,
o creation of high-end computer visual effects (computer animation),
o on-line editing and
o videotape duplication services. Most of our services are performed at our
headquarters in lower Manhattan, New York.
Our two largest customers, ABC News and the Children's Television Workshop,
accounted for 24% of our revenues for the nine month period ended June 30, 1999.
ABC News accounted for 13% of our revenues for the nine month period ended
June 30, 1998. For the fiscal years ended September 30, 1998 and 1997, ABC News
accounted for 13% and 11% of revenues. We anticipate that ABC News and the
Children's Television Workshop will continue to account for a significant
portion of our revenues in the future.
Over the last 14 years, we have invested significant resources and capital
in the acquisition of new equipment and the design and construction of our
studios. Our goal is to be the leading production and post-production studio for
all types of media including film, internet and television. To that end, we
intend to continue to allocate a major portion of our capital to technological
development.
RESULTS OF OPERATIONS
COMPARISON OF NINE MONTHS ENDED JUNE 30, 1999 TO NINE MONTHS ENDED JUNE 30, 1998
Revenues. Revenues increased to approximately $5,407,000 for the nine
months ended June 30, 1999 from approximately $4,896,000 for the nine months
ended June 30, 1998. The increase of $511,000, or 10%, was primarily due to an
increase in revenue from virtual studio production services. For the nine months
ended June 30, 1999, post production revenue and virtual studio and other
production revenue accounted for approximately 62% and 31% of revenue,
respectively. For the nine months ended June 30, 1998, post production revenue
and virtual studio and other production revenue accounted for approximately 71%
and 20% of revenue, respectively.
Cost of revenues. Cost of revenues consist primarily of facility and
production costs, production salaries, depreciation expense, outside contracting
services and supplies. Cost of revenues increased to approximately $3,702,000,
or 68% of revenues, for the nine months ended June 30, 1999 from approximately
$3,066,000, or 63% of revenues, for the nine months ended June 30, 1998. The
increase of $636,000, or 21%, was primarily due to the 10% increase in revenues
during the period and an increase in labor costs related to a joint venture,
Flicker FX at
15
<PAGE>
SMA LLC, entered into in November 1998 to provide production of television, film
and multimedia graphics products. For the nine months ended June 30, 1999,
depreciation and amortization, salaries, and contract labor accounted for
approximately 24%, 22% and 11% of revenues, respectively. For the nine months
ended June 30, 1998, depreciation and amortization, salaries and contract labor
accounted for approximately 26%, 24% and 4% of revenues, respectively. We expect
our cost of revenues to continue to increase in dollar amount while declining as
a percentage of revenues as Flicker expands its customer base and from increases
in revenues from our higher margin virtual studio services.
Gross margin. Gross margin decreased approximately $125,000, or 7%, to
approximately $1,705,000 for the nine months ended June 30, 1999 from
approximately $1,830,000 for the nine months ended June 30, 1998. As a
percentage of revenues, gross margin was approximately 32% and approximately 37%
for the nine months ended June 30, 1999 and 1998, respectively. The primary
reason for the decrease was an increase in fixed labor costs related to the
Flicker joint venture.
Selling, general and administrative expenses. Selling, general and
administrative expenses consist primarily of salaries, employee benefits, rent
and utilities. Selling, general and administrative expenses increased to
approximately $1,320,000, approximately $93,000, or 8%, for the nine months
ended June 30, 1999 from approximately $1,227,000 for the nine months ended
June 30, 1998. As a percentage of revenues, selling, general and administrative
expenses was 24% for the nine months ended June 30, 1999 as compared to 25.0%
for the nine months ended June 30, 1998. The increase consisted primarily of
increases in health insurance and professional fees of $38,000 and $79,000,
respectively, in the same periods. These increases are related to the Flicker
joint venture. We anticipate that we will incur significant increases in
selling, general and administrative expenses as we continue to hire personnel
and incur various expenses related to the growth of our business and operations.
Interest expense, net of interest income. Interest expense includes
interest income from our cash balances and interest expense related to our
financing obligations including bank loans and capital leases. Interest expense,
net of interest income decreased to approximately $310,000 for the nine months
ended June 30, 1999 from approximately $385,000 for the nine months ended
June 30, 1998. The decrease of approximately $75,000, or 20%, is attributable to
the repayment of principal portions of capital leases and long term debt.
Amortization of deferred financing costs. Amortization of deferred
financing cost consist of (i) a non-cash cost valued at $1,470,000, attributable
to the issuance of 210,000 shares of common stock in connection with a Private
Placement completed in May of 1999 and (ii) expenses related to such financing
approximating $85,000. The deferred financing costs are being amortized over the
nine-month period commencing May 1, 1999. Amortization of the deferred financing
costs for the period ended June 30, 1999 was $345,556. The unamortized deferred
financing costs at June 30, 1999 approximates $1,209,000 and will be charged to
operations over the earlier of the effective date of the closing of an initial
public offering of the Company's securities or the period ending February 1,
2000.
Net income. Net income was approximately $118,000 for the nine months ended
June 30, 1998 as compared to a net loss of $149,000 for the nine months ended
June 30, 1999. The decrease was due primarily to the loss of approximately
$170,000 from the Flicker joint venture and a non-cash charge to earnings of
approximately $346,000 from the amortization of the deferred financing costs.
Our fourth quarter ended September 30, 1999 is expected to result in a net loss
due to the amortization of the deferred financing costs.
COMPARISON OF FISCAL YEAR ENDED SEPTEMBER 30, 1998 TO FISCAL YEAR ENDED
SEPTEMBER 30, 1997
Revenues. Revenues increased to approximately $6,469,000 for fiscal 1998
from approximately $5,850,000 for fiscal 1997. The increase of $619,000, or
10.6%, was primarily due to an increase in revenues from the virtual studio
production services of approximately $407,000. For fiscal 1998, post production
revenues and virtual studio and other production revenues accounted for
16
<PAGE>
approximately 75.4% and 22.2% of revenues, respectively. For fiscal 1997, post
production revenues and virtual studio and other production revenues accounted
for approximately 77.1%, and 15.6% of revenues, respectively.
Cost of revenues. Cost of revenues increased to approximately $4,045,000,
or 62.5% of revenues, for fiscal 1998 from approximately $3,628,000, or 62.0% of
revenues, for fiscal 1997. The increase of $417,000, or 11.5%, was primarily due
to an increase in depreciation and amortization, salaries and wages and contract
labor with an offsetting decrease in facility and production costs. For fiscal
1998, depreciation and amortization, salaries and contract labor accounted for
approximately 26.2%, 24.5% and 4.0% of revenues, respectively. For fiscal 1997,
depreciation and amortization, salaries and contract labor accounted for
approximately 23.0%, 25.7% and 3.4% of revenues, respectively.
Gross margin. Gross margin for fiscal 1998 increased approximately
$203,000, or 9.1%, to approximately $2,425,000 from approximately $2,222,000 for
fiscal 1997. As a percentage of revenues, gross margin was 37.5 % and 38.0% for
fiscal 1998 and 1997, respectively. The primary reason for the increase in gross
margin was due to an increase in virtual studio production revenue offset by an
increase in depreciation expense.
Selling, general and administrative expenses. Selling, general and
administrative expenses for fiscal 1998 decreased $41,000, or 2.5%, to
approximately $1,612,000 from approximately $1,653,000 for fiscal 1997. As a
percentage of revenues, such expenses decreased to 24.9% for fiscal 1998 as
compared to 28.2% for fiscal 1997. The decrease consisted primarily of decreases
in utilities costs, office expenses and bad debts aggregating approximately
$27,000.
Interest expense, net of interest income. Interest expense, net of interest
income for fiscal 1998, decreased 5.8% to approximately $510,000 compared to
approximately $541,000 for fiscal 1997. The decrease of approximately $31,000,
or 5.7%, is attributable to the repayment of principal portions of capital
leases and long-term debt.
Net income. Net income increased from approximately $15,000 for the fiscal
year ended September 30, 1997 to approximately $159,000 for the fiscal year
ended September 30, 1998 due primarily to an increase in virtual studio
production revenue and related gross margin contributions.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have financed our operations through bank debt,
capital lease financing arrangements and from a $700,000 private placement
completed in May, 1999. As of June 30, 1999, we had approximately $509,000 in
cash.
Net cash provided by operating activities. Net cash provided by operating
activities decreased to approximately $1,365,000 for the nine months ended
June 30, 1999 from approximately $1,452,000 for the nine months ended June 30,
1998. The decrease was primarily due to the decrease in net income and an
increase in accounts receivable and prepaid expenses offset by an increase in
accounts payable. For the year ended September 30, 1998, our net cash provided
by operating activities increased to approximately $1,866,000 from approximately
$1,260,000 for the year ended September 30, 1997. The increase was primarily due
to an increase in net income of approximately $144,000 and an increase in
depreciation expense for the year ended September 30, 1998 of approximately
$345,000.
Net cash used in investing activities. Cash flows used in investing
activities decreased to approximately $114,000 for the nine months ended
June 30, 1999 from approximately $118,000 for the nine months ended June 30,
1998. Cash flows used in investing activities decreased primarily because of an
increase in proceeds received from the sale of equipment in the nine months
ended June 30, 1999 as compared to the nine months ended June 30, 1998. Cash
flows used in investing activities increased to approximately $174,000 for
fiscal 1998 from approximately $148,000 for fiscal 1997. The increase was
primarily due to an increase in purchases of property and equipment and a
decrease in proceeds from disposals for the year ended September 30, 1998.
During these
17
<PAGE>
periods, most of our new equipment acquisitions were pursuant to capital lease
transactions requiring a minimal initial outlay of cash.
Net cash used in financing activities. Cash flows used in financing
activities decreased from approximately $1,167,000 for the nine months ended
June 30, 1998 to $864,000 for the nine months ended June 30, 1999. The decrease
was primarily due to the receipt of $700,000 of gross proceeds from the
completion of a private placement in May of 1999 offset by a reduction in
proceeds received from the line of credit of approximately $28,000 and costs
incurred in connection with this offering and the private placement offering of
approximately $316,000. Net cash used in financing activities increased during
fiscal 1998 to approximately $1,570,000 from approximately $1,150,000 in fiscal
1997. The increase was primarily due to an increase in repayments of term loans
of approximately $85,000 and an increase in repayments of principal under
capital lease obligations of approximately $345,000.
As explained in Note 5 to the accompanying financial statements, we had a
$250,000 revolving line of credit with a bank, of which $223,000 was
outstanding, as of June 30, 1999, three-term loans, with total outstanding
balances of $113,000, as of June 30, 1999, and various obligations under
twenty-four capital leases, which aggregate $2,999,000, as of June 30, 1999. The
indebtedness outstanding under the revolving line of credit and term loans are
collateralized by all of our assets. The obligations under capital leases are
collateralized by the underlying equipment for each loan. Substantially all of
our obligations are personally guaranteed by our two principal shareholders.
In May 1999, we completed a private placement whereby we sold seven units
for aggregate gross proceeds of $700,000. Each unit consists of:
(a) a $100,000 promissory note bearing interest at 10% per annum,
payable the earlier of nine months from the issuance date, or upon closing
of this offering; and
(b) 30,000 shares of our common stock. The 210,000 shares of common
stock issued in connection with this financing were valued at $1,470,000
and have been reflected on our June 30, 1999 balance sheet as an increase
to non-current assets entitled deferred financing costs and an increase to
common stock for $21 and an increase to additional paid-in capital of
$1,469,979. Such deferred financing costs are being amortized as interest
expense over the nine-month term of the notes commencing May 1, 1999.
Costs incurred in connection with the private placement include a $70,000
fee to the placement agent, approximately $10,000 in legal fees and warrants to
the placement agent to purchase 21,000 shares of our common stock at an exercise
price equal to 120% of the initial public offering price.
In November 1998, we entered into a joint venture agreement with an
unrelated corporation and organized Flicker FX at SMA, LLC to provide the
production of television, film and multimedia graphics products. The agreement
provides for, among other things:
(a) that until the joint venture achieves sufficient revenues to fund
its operations, we shall contribute start-up capital funds and guaranteed
annual salaries and benefits aggregating $550,000, of which $50,000 is to
be compensation to each of our two principal shareholders;
(b) use of our equipment and facilities; and
(c) that the operating profits, as defined, shall be allocated 60% to
us. The agreement also provides that we may terminate the agreement in the
event that the joint venture does not achieve certain defined financial
goals as of the first anniversary date of the agreement.
In May 1999, we entered into five-year employment agreements with our two
principal shareholders, which commence upon the closing of this offering. Each
employment agreement provides for, among other things, a base salary of $250,000
per year and annual increases for costs of living.
18
<PAGE>
In addition, in May 1999, we also entered into employment contracts with
two of our key technicians, one for a five-year term providing for a base salary
of $175,000 per year and a second contract for a three-year term providing for a
base salary of $230,000 per year.
In May 1999, we entered into a six-month consulting agreement with an
unrelated individual to assist us in our sales and marketing efforts in the area
of digital audio. The agreement commences on June 1, 1999 and provides for
minimum payments aggregating $140,000 through November 30, 1999 and commissions
based on new clients and new business generated during the term of the agreement
and for the five-year period thereafter.
In July 1999, we entered into an agreement with a consultant providing for
the supervision of the design, construction and operation of an audio post
production facility. The agreement provides for weekly payments of $2,500
beginning July 15, 1999 until completion and reimbursement of expenses. Upon
completion of the facility, it is agreed that the consultant performing the
services will enter into an employment agreement with us at terms to be then
determined.
Our capital requirements have grown since our inception consistently with
the growth of our operations and staffing. We expect our capital requirements to
continue to increase in the future in order to maintain our state of the art
facility and to remain a competitive force in this industry. We intend to use
approximately $8,450,000 of the net proceeds from this initial public offering
for expansion and improvements to our facilities and purchase of related
equipment. We believe that the cash flow from operations, combined with our
borrowing capabilities and the net proceeds from this offering will be
sufficient to meet our anticipated working capital and capital expenditure
requirements for at least the twelve month-period following this offering.
RECENTLY ISSUED ACCOUNTING STANDARDS
Effective October 1, 1997, we adopted the provisions of SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 establishes standards for
reporting comprehensive income, defined as all changes in equity from non-owner
sources. Adoption of SFAS No. 130 did not have a material effect on our
financial position or net income.
Effective October 1, 1997, we adopted the provisions of SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information." SFAS No.
131 establishes standards for the way public enterprises report information
about operating segments in annual financial statements and requires those
enterprises to report selected information about operating segments in interim
financial reports issued to stockholders. Adoption of SFAS No. 131 did not have
a material effect on our financial position or net income.
Effective October 1, 1997, we adopted American Institute of Certified
Public Accountants Statement of Position 97-2, "Software Revenue Recognition."
SOP 97-2 generally requires revenue earned on software arrangements involving
multiple elements, such as software products, upgrades, enhancements,
post-contract customer support, installation and training to be allocated to
each element based on the relative fair values of the elements. The adoption of
SOP 97-2 did not have an effect on our financial position or net income.
Effective December 29, 1997, we adopted Statement of Financial Accounting
Standards (SFAS) No. 132, "Employers' Disclosures About Pensions and
Postretirement Benefits," which standardizes the disclosure requirements for
pensions and other postretirement benefits. The Statement addresses disclosure
only. It does not address liability measurement or expense recognition. There
was no effect on our financial position or net income as a result of adopting
SFAS No.132.
In March 1998, the American Institute of Certified Public Accountants
issued SOP 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use," which revises the accounting for software
development costs and will require the capitalization of certain costs. The
adoption of SOP 98-1 did not have an effect on our financial position or net
income.
19
<PAGE>
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. These systems and
software products will need to accept four digit entries to distinguish 21st
century dates from 20th century dates. As a result, computer systems and/or
software used by many companies and governmental agencies may need to be
upgraded to comply with such Year 2000 requirements or risk system failure or
miscalculations causing disruptions of normal business activities.
State of readiness
We have made an assessment of our Year 2000 readiness of our operating,
financial and administrative systems, including the hardware and software that
support our systems. Our assessment consisted of:
o quality assurance testing of our internally developed proprietary
software and hardware;
o contacting third-party vendors and licensors of material hardware,
software and services that are both directly and indirectly related
to the delivery of our products and services;
o contacting vendors of third-party systems;
o assessing repair or replacement requirements;
o implementing repair or replacement; and
o creating contingency plans in the event of Year 2000 failures.
We have confirmed our Year 2000 compliance by obtaining representations by
third party vendors of their products' Year 2000 compliance, as well as specific
testing of our products.
Costs
We have not incurred significant costs to date complying with Year 2000
requirements and we do not believe that we will incur significant costs for
these purposes in the foreseeable future. However, should products or systems
maintained by third parties or our products and systems fail to be Year 2000
compliant, despite the representations of third parties and the testing of our
products, we could incur significant expenses to remedy any problems. Such
expenses could have a material adverse effect on our business, results of
operations and financial condition.
Risks
Our failure to identify and correct a Year 2000 problem could result in an
interruption of normal business activities and operations. Although there is an
inherent uncertainty in the Year 2000 issue, we believe the impact on our
business will not be material. Most of the equipment involved in delivering our
product to our clients does not make use of date information at all. We believe
our greatest risk to be suppliers and utilities whose Year 2000 programs are
outside of our control. A disruption caused by a utility or supplier whose
systems are not compliant may have a direct and negative effect on our business.
Contingency plan
We make use of redundancy as part of our general business model in order to
provide the best and most reliable service to our clients as possible. We
believe this model will continue to serve us in reducing business risks
associated with the Year 2000 problem. We have identified alternate sources for
critical supplies where alternate sources exist and we have created a task force
led by our chief technical and financial personnel to address any Year 2000
issues as they arise. We will continue to develop a contingency plan throughout
the first three quarters of 1999, and expect to be fully compliant at such time.
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BUSINESS
OVERVIEW
SMA is a video and film studio that offers virtual and digital production
and post-production services to (a) advertising agencies, (b) creative editorial
companies, (c) Fortune 500 companies, (d) freelance producers, (e) Internet
producers, (f) movie studios, (g) production companies, (h) television networks,
and (i) television producers.
SERVICES
Location production. Location production involves the transportation of
equipment, crew, talent, clients and support facilities to an indoor or outdoor
location for the purpose of using the location as part of a production. All of
the elements required for a production need to be on-site and available while
shooting. Our role in this process is multifaceted. We generally arrange for
transportation for the crew and talent and provide lighting, grip (the rigging
apparatus for lights and scenery), electrical generators, camera supplies and
other support facilities such as catering, wardrobe, makeup trailers, and rest
rooms. We are also responsible for the shooting.
We believe location production often presents unique challenges and
requires a balance between creative and logistical concerns. For example, we
took over an entire MCI Facility in Phoenix, Arizona while working on a
production for an MCI advertising campaign. Prior to filming, the MCI facility
had to be made "camera ready." Fourteen days were required to modify this
facility for the shoot. We installed lighting grids and trusses and arranged for
additional air conditioning and power. Transporting lighting and grip equipment
alone required three 48-foot trailers. Throughout the preparation, shoot and
clean-up, we were responsible for providing three meals a day for over 300
people, and accommodations and amenities for 120 crew people. We were
responsible for a scene that required a snowstorm that extend over the entire
50,000 square feet facility. After the shoot, we spent five days restoring the
facility to its original condition.
Studio/stage production. Studio/stage production takes place in a film or
television studio/stage. Stages and studios are production-friendly environments
equipped with the electrical, air-conditioning and technical requirements for
production. Most of the lighting and grip equipment required for production is
on site as well as support areas for production departments. Additional
equipment and support is readily available.
The major expense of stage production is set creation. Set designers and
construction crews generally have a limited amount of time to construct a
realistic-looking environment in what is essentially a bare space. Complex sets
usually are built first on construction stages, and when completed, are broken
down and reconstructed on the shooting stage. We have the ability to construct
sets.
Set construction, from design to completion, generally takes a week to
30 days. After the set is in place, crews install lighting and prepare the set
for production followed by the actual shooting. Upon completion of shooting, the
set is broken down, and all lights are taken from the lighting grid and
returned. Rentals of props and equipment are sorted and returned to the vendors.
In our experience, this process may involve as many as 25 to 30 separate
deliveries.
A recent example of our studio/stage production work is our current
production of Elmo's World, for the Children's Television Workshop. This shoot
required a television facility including a studio equipped with a video control
room, engineering support and cameras. Since we own the majority of the
equipment necessary for this production, we rented a regular stage and installed
the components required for the production. Our contract with the Children's
Television Workshop dated April 15, 1999 is for production and post-production
of up to ten segments of Elmo's World. Our work on Elmo's World includes all
phases of the (a) computer graphics, (b) imaging, (c) real time animation
process, (d) all color correction, (e) compositing, (f) rotoscoping and
(g) blue-screen clean-up. We have completed the production phase of Elmo's World
for which we have been paid
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$662,141, and we have started the post-production phase and have completed one
segment of Elmo's World for which we have been paid $18,500. This contract prov
ides that we will post-produce nine additional segments of Elmo's World at
$18,500 per segment.
Virtual production. Virtual production is the creation of sets and scenery
by computer graphic artists using super computers to replace conventional sets.
In virtual productions, super computers integrate virtual sets stored in the
computer on screen with live performances. As the camera moves, the computer
changes the angle of the scene as if the set was actually there. Since virtual
production sets are three-dimensional computer models, actors moving around a
specially equipped virtual production stage appear, on screen, to be on stage
with the virtual objects and the scenery of the virtual set. The virtual
illusion allows an actor to appear to walk behind a virtual object. Generally,
only a limited number of physical props are needed for virtual production,
usually when there must be some physical interaction between the object and the
actor, for example, when a newscaster sits at a desk during a television news
broadcast.
Using virtual sets, we believe most physical scenes and locations can be
replicated and the need for expensive location production is reduced or
eliminated. Our virtual scenery is high definition television compatible and its
quality is limited primarily by the skill of the virtual set designer.
As we continue to design virtual scenes, we are building a library of
common virtual elements which can be used in future productions, as is, or with
modifications. Furthermore, virtual sets exist only in a computer, a much
smaller space than is required for a similar physical set. In addition, a
virtual production stage need only be large enough for the physical objects and
action of the scene. We believe virtual sets can be superior visually, quicker
to create and substantially less expensive than physical sets. Based on our
experience to date, physical sets on the average cost five (5) times more than
their virtual counterparts. A recent example of our virtual production is the
set for ESPN's Fifty Greatest Athletes which was taped in our virtual studio.
Our contract with ESPN dated October 15, 1998 provides that we will supply the
facilities, equipment and manpower necessary for the production of shows for
ESPN's 50 Greatest Athletes. The contract expires on January 31, 2000. We have
completed 31 shows under this contract, for which we have received $371,733.
Blue/green screen effects production. Blue/green screen effects production
is the addition of background scenes not present during shooting. The actor is
placed before a blue or green screen and the camera remains fixed. The blue and
green colors are electronically removed and replaced with pre-filmed
backgrounds. Our recent productions in this format were commercials for the
plays Footloose, and A Christmas Carol.
Motion control production. Motion control production uses robotic special
effects photography to replicate specific shots by computer programing of the
motion of the shots. The position of the camera is controlled by motors which
are controlled by a computer, so that movement of the camera may be replicated
from shot to shot. We own both studio and portable robotic camera systems which
allows film or video shot on location to be combined with models in the studio.
This system also can be used when an actor plays multiple characters in a shot.
We used this technique for a music video in which T-Boz played multiple
characters within the same scene. We also used motion control photography for
MCI's Big Board campaign in which over 185 layers of camera shots were combined
to make the finished commercial.
Computer program/database creation. Computer program/database creation is
the programming and creation of custom software for specific production
specifications such as the generation of virtual graphics. When computer
software packages are not available or tailored for specific production needs,
our computer engineers write computer programs to accomplish the needed effects.
We were employed by the USA Network for the 1997 US Open tennis tournament where
we created a custom computer database to update scores and feature the winners
of each match using graphics generated in real time for live television.
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Graphic design services. Graphic design services involve the creation of
signature graphic design for the titling of movies, television shows,
commercials, websites and plays. Examples of our graphic design work are the
logos created for the Cartoon Network and the plays Jekyll and Hyde and Rent.
Computer animation. Computer animation is the electronic creation of
high-end computer visual effects. We use super computers and animation systems
to create animations for commercials, television shows and movies. Our recent
computer animation work included the titles and floating Cupids for a Cover Girl
commercial, and the floating in space effects and the effects of eyes changing
into laser discs for a Panasonic commercial.
Film to video transfer. Film to video transfer is an integral component of
every film post-production project and is the transfer of film to videotape. Our
colorist has the ability to take motion picture footage and enhance the images
on our film to tape telecine machine. The overall palette, tonality and coloring
of a project is created and transferred to a digital format. A color corrector
is also used to correct video tape in a video to video process.
On-line editing. On-line editing is the process by which video tape,
animations, audio and transferred film footage are assembled to a broadcast
format. It is at this point that any post-effects editing or layering will be
added. We perform this service in one of our digital editing suites and this
layering may take the form of compositing work created in our computer graphics
departments or by utilizing our special effects equipment. This is the final
step before presentation.
Videotape duplication services. Videotape duplication is the process of
making multiple copies of existing videotapes. We have the capability of making
duplicates in both NTSC (a standard used in North America, portions of South
America and Japan) and PAL. PAL formatting is required for material that will be
broadcast overseas (Europe, Asia, and portions of South America and Africa).
Some production needs require multiple copies of tapes. For example, completed
commercials will require multiple copies for distribution to many television
stations across the country.
INDUSTRY BACKGROUND
The production and post-production industry in New York City for which we
provide our segment of services includes commercial production, television
production and feature films. The total gross estimated revenues in 1998 for the
entire segment, from which we could receive a small fraction of these revenues,
was $2.6 billion according to the New York Mayor's Office of Film, Theatre and
Broadcasting. Growth in overall production between 1997 and 1998 was 11% and
segments of this industry have shown steady growth, television 113% (1993-1998)
and feature films 189% (1993-1998).
The key cost components of video/film production are:
o Labor
o Equipment rental
o Studio rental
o Set design and construction
o Talent costs
o Film/video stock
o Location expense
o Film development
o Post-production and finishing costs
TRENDS--We believe that two communications trends, the advent of HDTV and
the expansion of broad band internet access, will impact the commercial video
and film production services industry in the next decade. Our expansion plans
are intended to target opportunities arising from these trends.
o The advent of high definition television--The Telecommunications Act of
1996 mandated that all television stations implement digital TV and return their
analog channel space not later than 2006. Furthermore, the United States House
of Representatives Telecommunications Subcommittee mandated that the major
networks standard broadcast be HDTV no later than 2006. In his September 15,
1998 remarks to the International Radio and Television Society, William E.
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Kennard, Chairman of the Federal Communications Commission, stated that 175
stations had filed applications with the FCC to begin digital TV broadcasting.
Digital television is expected to become the television broadcast norm. The
FCC November 1998 Digital Television Consumer Information Bulletin states that
50% of households in the United States are projected to be able to receive this
service by the end of 1999 and 100% by 2002. Furthermore, the bulletin states
that television stations will relinquish their analog service and make the
change to all digital television service by the end of 2006. ABC has announced
that the next Superbowl will be broadcast in HDTV.
Currently, traditional production sets are generally constructed with the
least expensive materials necessary to convey the scene. For example, if a scene
requires the use of a marble counter top, television productions may represent
the surface with a wooden mock-up which is painted to give the appearance of
real marble as it would be prohibitively expensive to use actual marble for a
temporary set. In many productions, entire rooms are represented using this faux
construction. The illusion works because the low resolution of traditional
television masks fine details and construction flaws. The higher resolution of
HDTV images shows the flaws of current set construction. Following the
implementation of the HDTV standard, television producers will be forced to
either build sets of much higher quality or rely on location production. We
believe both options will significantly increase the production costs of
television programs currently relying on traditional sets.
Virtual sets present producers with a third option. Since virtual sets are
constructed on supercomputers as high resolution images, they are compatible
with HDTV production. We intend to use a portion of the net proceeds of this
offering to construct a virtual studio to enable us to replace traditionally
constructed physical sets with virtual sets that provide sufficient detail to be
used for HDTV.
o The expansion of broad band internet access--We believe an important
factor in driving the growth of overall consumer demand to log on to the
internet will be the development of the visual/audio quality and download speed
of content on the Web, i.e. broad band solutions such as digital subscriber line
(DSL) and cable modems. Increased bandwidth will allow the internet to offer
real-time video and sound capabilities of television. Media providers will be
able to broadcast movies, commercials, live news and other television-style
content directly over the internet.
We also believe that the convergence of television and the internet will
increase the need for digital content (programming), of which we have extensive
experience over the past fourteen years. In April 1997, FCC Chairman Reed E.
Hunt stated, "As a result of the revised standard, computer manufacturers have
already announced plans to build massive numbers of digital television
compatible computers so that by the time television manufacturers will have made
one million digital television sets, computer manufacturers will have sold 20 to
50 million digital television compatible computers." If the demand for digital
television content increases, we believe the demand for our existing content
library as well as for our services to create new content, will also increase.
INTENDED PRODUCTS AND SERVICES
Our one-stop-shop approach is designed to provide our customers with a
total solution for their production and post-production needs. To execute our
one-stop-shop strategy, capitalize on the emerging HDTV and internet markets and
build on our current business, we intend to:
o Purchase and install high definition television and data equipment -
Although our current studio complex has the infrastructure required to
post-produce high definition television projects, we intend to expand our
facilities and invest in new technologies to meet the HDTV demands of our
customers.
o Design, purchase, build and install a new motion picture lab--Our film to
tape transfer department currently works on an excess of 70 film projects
per month. We believe that the
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establishment of a new "state of the art" film lab will further solidify
our client base, and should open up new client prospects as well. We
believe the creation of a film lab will provide us with an opportunity to
increase our film to tape revenue.
o Design, purchase, build and install a new HDTV virtual studio--The higher
resolution of HDTV images show the flaws, usually from inferior
construction, of current sets. Virtual sets are constructed with
supercomputers as high resolution images and therefore are compatible
with HDTV production. A new virtual studio will enable us to replace
traditional sets with virtual sets that have a much more realistic look.
We intend to acquire additional space in Manhattan for this purpose.
o Design, create and build a digital audio facility--We intend for this to
be a THX Certified 5.1 channel surround sound digital audio mixing and
design studio. 5.1 channel surround sound is the format selected for
HDTV. We intend that the new digital audio facility will include mix to
picture capabilities, foley pit, automatic dialogue replacement with
sound design and sound effects production capabilities. We intend for
this facility to be flexible, with the capability to mix both long form
productions, e.g. movies, and short form productions, e.g. commercials,
quickly and efficiently.
o Create a new division for content development, accumulation, and
programming for our broadcast, theatrical and Internet business,
concentrating on building and improving web sites and enhancing virtual
elements on Internet sites utilizing high resolution technology.
CUSTOMERS
We have a diverse customer base, with approximately 300 accounts during
1998. We provided our production and post-production services for commercials,
television programs, special events and music videos to Fortune 500 companies in
the entertainment, communications, manufacturing and services fields. During our
14 year history, we have been engaged to work on projects including or for the
following:
o TV commercials--AT&T, Coca Cola, Cover Girl Cosmetics, Domino's Pizza,
GE, Heineken Beer, Intel, Kodak, MCI, Molson Ale, Nike, Panasonic, Pepsi
Cola, Pizza Hut and Visa;
o Broadcast--ABC, CBS, NBC, ESPN, Home Box Office, ShowTime, The Movie
Channel, The Cartoon Network and The Classic Sports Network;
o Music videos--Alanis Morissette, Natalie Cole, Kenny G., Hanson and
T-Boz;
o Feature films--A New Life, Blue Steel, Big, Joe's Apartment and Money
Train;
o Virtual sets--ABC News, CBS, The Discovery Channel, ESPN, The Learning
Channel and Madison Square Garden;
o Advertising agencies--BBDO Worldwide, Cliff Freeman & Partners, Grey
Advertising, Inc., J. Walter Thompson Co., McCann-Erickson Worldwide,
Inc., Messner Vetere Berger McNamee Schmetterer/Euro RSCG, Saatchi &
Saatchi North America Inc. and Uni-World Group, Inc.
SALES AND MARKETING
Our marketing goal is to position SMA as the leading production and
post-production company providing a one-stop-shop for all media. We currently
sell our services to advertising agencies, cable television program suppliers,
independent producers, local television stations, motion picture studios,
national television networks, program distributors and program syndicators.
Historically, we have not engaged in marketing campaigns but rather obtained new
clients from recommendations of existing clients, the use of demo-reels based on
an inventory of work produced over our 14 year history and limited participation
in video and film trade shows. We believe the demo reels have provided us with
an authority image as such reels demonstrate our work with
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Fortune 500 companies and recognized media celebrities including Danny Glover,
Bryant Gumbel, Dennis Hopper and Barbara Walters.
We believe that building a strong brand recognition of our services is
critical to attracting and expanding our client base. Following the completion
of this offering, we intend to hire an in-house marketing and sales staff. We
intend that this staff will consist of a director of marketing who will
supervise three to four sales people who will promote our new services to
existing clients and the full range of our services to potential clients under
the one-stop-shop umbrella. Our marketing efforts will be intended to further
penetrate our current existing client base by targeting new divisions and
subsidiaries as well adding to the services which we currently provide to such
clients. In such efforts, we intend to explore the use of print media and other
promotional campaigns. We also intend to use our website as well as links to
other complementary sites to increase our Internet communications client base.
We believe our in-house design team gives us the additional advantage of
creating customized advertising and targeted promotional material to support our
branding efforts.
COMPETITION
The production and post-production industry is highly competitive and
constantly evolving. Specifically, we face competition from the following
segments in the industry for the services we offer and plan to offer:
o Commercial post-production such as: The Tape House, Inc. and Nice Shoes,
LLC.
o Virtual set production such as: LRP Productions and Atlantic Video, Inc.
o Motion film developing lab such as: Technicolor East Coast, Inc. and
Duart Film and Video, Inc.
o High definition post-production such as: The Tape House, Inc.
o Audio design and mixing such as: Todd-AO Studios East, Photomagnetic
Sound Studios, Inc. and Eastside Audio and Video, Inc.
o High definition production such as: the in-house production studios of
CBS and the MSG Network
o Internet content producers such as: Razor Fish, Inc., Concrete Media,
Inc., Broadcast.com, Inc. and Funny Garbage, Inc.
We believe that the principal competitive factors in our markets include
the ability to customize technology to a customer's particular use, cost and
service offerings. Many of our current and potential competitors have
substantially greater human and financial resources, experience and brand
recognition than us and may have competitive advantages through other lines of
business and existing relationships. Furthermore, our competitors may introduce
new products and services addressing our markets in the future. Some of our
customers also have the in-house capability to provide a portion of the services
which we offer. Specifically, CBS and the MSG Network have in-house
high-definition production facilities, and CBS runs a virtual studio for in-
house use. There can be no assurance that our competitors will not develop
products and/or services that are superior to our products and/or services or
that achieve greater market acceptance than the services which we offer or plan
to offer. Competition could have a material adverse effect on our business,
financial condition and results of our operations.
INTELLECTUAL PROPERTY
Our success and ability to compete depends in part on the protection of our
proprietary technology and on the good will associated with our trade names,
service marks and other proprietary rights. We rely on copyright laws to protect
the content that we develop for our
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website. We have registered the following internet domain names: "smavid.com,"
"hdvtv.com," "smavtv.com," "flickerfx.com" and "smarealtime.com."
We rely on trade secret and copyright laws to protect the proprietary
technologies that we may develop, but there can be no assurance that those laws
will provide us with sufficient protection, that others will not develop
technologies that are similar or superior to ours, or that third parties will
not copy or otherwise obtain or use our technologies without our authorization.
We have no patents or patent applications filed or pending.
In addition, we rely on certain technology licensed from third parties and
may be required to license additional technologies in the future. There can be
no assurance that these third party licenses will be available or will continue
to be available to us on acceptable commercial terms or at all. The inability to
enter into and maintain any of these licenses could negatively affect our
business.
Policing the unauthorized use of our proprietary technology and other
intellectual property rights could entail significant expense. In addition,
there can be no assurance that third parties will not bring claims of copyright
or trademark infringement against us or claim that our use of certain
technologies violates a patent. Any claims of infringement with or without
merit, could be time consuming to defend, result in costly litigation, divert
management attention, require us to enter into costly royalty or licensing
arrangements or prevent us from using important technologies or methods. The
occurrence of any of these could negatively affect our business.
INSURANCE
We believe that our insurance coverage for our business is generally in
accordance with industry standards and is adequate in light of our business and
the risks to which we are subject. We maintain insurance policies on the lives
of Mr. Morrissey and Mr. Satin in the amounts of $500,000 each. The proceeds of
such insurance policies have been assigned to Citibank N.A. as collateral for
obligations owed to Citibank, N.A. We have made application to obtain additional
life insurance policies of $1,500,000 each on the lives of both Mr. Morrissey
and Mr. Satin. We intend to obtain directors and officers liability insurance
prior to or upon completion of this offering.
EMPLOYEES
As of August 31, 1999, we had 35 full-time employees of whom 3 are in
accounting and finance, 4 are administrative, 16 are in creative and technical,
3 are in engineering, 7 are in operations, and 2 are in production. All
employees are based at our offices in New York City. Our future success will
depend in part, upon our ability to attract, retain and motivate qualified
personnel. While several of our employees are union members for the purpose of
facilitating union production on union projects, we are a non-union facility.
None of our employees are covered by a collective bargaining agreement and our
management considers relations with our employees to be good. We regularly enter
into subcontracts with free-lance personnel as production technicians from union
guilds. When using freelance personnel, it is our practice to use payroll
services which are recognized as the employer of record.
FACILITIES
Our principal executive offices, virtual studio and production facility are
located in New York, New York, where we lease approximately 25,000 square feet
of space at a current monthly rental of $27,084. The lease terminates on
December 31, 2005.
We also lease 2,500 square feet of space for a production studio and for
storage, in New York, New York at a current monthly rental of $2,800. The lease
terminates on May 31, 2000.
We also lease 3,000 square feet of warehouse space in Little Ferry, New
Jersey. We lease this space on a month to month basis, at a current monthly
rental of $995. To effect our expansion program, we anticipate that we will
require an additional 50,000 square feet of unfinished industrial
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space located in Manhattan. Based upon our recent search for such space, we
believe that such facilities are available at market rates ranging from $10 to
$50 per square foot. We are negotiating for sufficient additional space in the
100 Avenue of the Americas building where our corporate headquarters are
located. If this negotiation is not successful, we will continue our efforts to
locate space as close to our offices as feasible. We occasionally rent temporary
space based on production needs and generally such costs are passed on to our
clients.
LEGAL PROCEEDINGS
We are not involved in any pending, or to our knowledge, threatened legal
proceedings. We may from time to time become a party to various legal
proceedings arising in the ordinary course of business.
HOW TO GET MORE INFORMATION ABOUT US
We have filed with the Securities and Exchange Commission a registration
statement on Form SB-2 under the Securities Act regarding the securities offered
by this prospectus. This prospectus, which forms a part of the registration
statement, does not contain all the information in the registration statement,
as permitted by the rules and regulations of the Commission.
For further information about us and the securities offered by this
prospectus, reference is made to the registration statement. Statements
contained in this prospectus as to the contents of any contract or other
document that we have filed as an exhibit to the registration statement are
qualified in their entirety by reference to the exhibits for a complete
statement of their terms and conditions.
The registration statement and other information may be read and copied at
the Commission's Public Reference Room at 450 Fifth Street N.W., Washington,
D.C. 20549, and at the Commission's Regional Offices located at 7 World Trade
Center, Suite 1300, New York, New York, 10048, and 500 West Madison Street,
Suite 1400, Chicago, Illinois, 60661. The public may obtain information on the
operation of the Public Reference Room by calling the Commission at
1-800-SEC-0330. The Commission maintains a Web site at http://www.sec.gov that
contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the Commission.
Upon effectiveness of the registration statement, we will be subject to the
reporting and other requirements of the Securities Exchange Act of 1934 and we
intend to furnish our shareholders annual reports containing financial
statements audited by our independent auditors and to make available quarterly
reports containing unaudited financial statements for each of the first three
quarters of each year.
We have applied for the listing of our common stock on the American Stock
Exchange under the symbol "VTV." After this offering is effective, you may
obtain information about us on AMEX's Internet site
(http://www.Nasdaq-Amex.com).
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Our executive officers and directors, and their ages at August 31, 1999,
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------- --- -----------------------------------------------
<S> <C> <C>
Michael J. Morrissey........................... 42 Chief Executive Officer, President, Director
David Satin.................................... 39 Executive Vice President, Secretary, Treasurer,
Director
Rafael A. Estevez, Jr.......................... 35 Chief Financial Officer and Principal
Accounting Officer
Darryl J. Kramer............................... 52 Director Nominee
Richard P. Aschman............................. 49 Director Nominee
Marc Goodman................................... 51 Director Nominee
</TABLE>
Michael J. Morrissey has served as our president, chief executive officer
and a director since our inception in 1985. From 1983 to 1985, Mr. Morrissey
served as vice-president of operations for RVI Industries Inc., a production and
post-production company. During part of 1981, Mr. Morrissey served as a
technical consultant for the construction of Movielab Video Inc., and for the
remainder of 1981 through 1983, as operations manager for Movielab Video Inc.
From 1977 to 1981, Mr. Morrissey was a freelance producer/technical director
working in commercials, art videos, documentaries, television, cable and feature
films, including special effects for the movie Swamp Thing in 1979.
Mr. Morrissey won an ANDY Award in 1992 for the production of the MCI commercial
"Earthquake." In 1993, Mr. Morrissey won Adsweek Magazine's award for Best of
1993, for the MCI commercial "Communicating." Mr. Morrissey received a BAA
degree from Bergen Community College in 1977.
David Satin has served as our executive vice president, director of
engineering and a director since our inception in 1985, and currently serves as
the managing director of the SMA Virtual Programming Division. From 1983 to
1985, Mr. Satin served as vice president of engineering for RVI Industries Inc.
From 1982 to 1983, Mr. Satin was a consultant to Panavision, Inc. for the
development of the Panacam, a video camera that uses film lenses. From 1982 to
1986, Mr. Satin served on the advisory board of CMX Corp., a technology company
that manufactures editing systems. In 1988, Mr. Satin was nominated for an Emmy
Award for Outstanding Technical Direction for a Mini-Series or Special for the
PBS special "Dance in America: Gregory Hines Tap Dance in America." Mr. Satin
attended Syracuse University from 1978 to 1980.
Rafael A. Estevez, Jr. has served as our chief financial officer and
principal accounting officer since 1995. From 1994 to 1995, Mr. Estevez was
employed as an accountant for the firm of Jack Kane and Company. From 1989 until
1994, Mr. Estevez held various positions at the advertising agency of Rosenfeld,
Sirowitz, Humphrey and Strauss, including Controller. From 1986 to 1989,
Mr. Estevez was employed as Assistant Controller at HBM/Creamer Inc., a division
of Euro/RSCG, Worldwide. Mr. Estevez received a B.B.A degree in accounting from
Iona College in 1988.
Darryl J. Kramer has agreed to serve as one of our directors upon
completion of this offering. Since 1990, Mr. Kramer has been a partner of Kramer
& Kramer, a law firm located in New York, New York. Mr. Kramer received a B.A.
from the University of Pennsylvania in 1969 and a J.D. from Columbia University
School of Law and a joint masters degree in business administration from the
Columbia Graduate School of Business in 1973.
Richard P. Aschman has agreed to serve as one of our directors upon
completion of this offering. Mr. Aschman is vice president of Eastman Kodak
Company and president and chief operating officer of Kodak's Professional Motion
Imaging Division. Mr. Aschman has been employed by Eastman Kodak since 1972. In
1991, Mr. Aschman was appointed regional business general manager and vice
president for Kodak's commercial imaging group in the Asia Pacific
29
<PAGE>
region. In 1996, Mr. Aschman was appointed president and chief operating officer
of Kodak's Professional Motion Imaging division, or PMI, and became president of
the division in January 1997. Mr. Aschman is also chairman of the board of
Cinesite, a PMI subsidiary which is a leading visual effects organization.
Mr. Aschman has served on the board and executive committee of the Computer and
Business Equipment Manufacturer Association, and is currently a member of the
Academy of Motion Picture Arts and Sciences, the Academy of Television Arts and
Sciences, and the American Society of Cinematographers. Mr. Aschman received a
B.S. degree in marketing from Ohio State University in 1972.
Marc Goodman has agreed to serve as one of our directors upon completion of
this offering. Mr. Goodman is president and a co-founder of Kenmar Advisory
Corp., a global investment management firm formed in 1983, and headquartered in
Greenwich, Connecticut. From 1974 to 1983, Mr. Goodman was a vice president and
director of Pasternak, Baum & Co., Inc., an international cash commodity firm.
Mr. Goodman is chairman of the board of the Stacy Joy Goodman Memorial
Foundation, a non-profit charity committed to finding a cure for juvenile
diabetes; and is a member of the Board of Diabetes Research Institute
Foundation, a not for profit organization affiliated with the University of
Miami School of Medicine. Mr. Goodman sits on the New York Advisory Board of
Youth EnterNet of America, Inc., a non-profit organization working to improve
the lives of America's youth. Mr. Goodman received a B.B.A. in 1969 and an
M.B.A. in Finance and Investments in 1971 from the Bernard M. Baruch School of
Business of the City University of New York.
KEY EMPLOYEES
In addition to our directors and executive officers, we employ the
following key employees:
Leslie Rudner has been our chief engineer since 1989. In addition to
supervising our daily technical operations, Mr. Rudner develops new technologies
for us and our clients. From 1987 to 1989, Mr. Rudner served as president of JNL
Technologies, designing peripherals for computers. From 1984 to 1987,
Mr. Rudner was employed as electronic technician for Inscom Electronics,
responsible for final testing and troubleshooting of electronic sub-systems.
While employed at SMA, Mr. Rudner developed image tracking software that
integrated virtual elements into footage shot with sensor or motion control
data, and a database and front end GUI control system for the live 3D graphics
for scores and statistics presented throughout the 1997 U.S. Open. Mr. Rudner
attended Adelphi University from September 1985 through June 1987.
Todd Ruff has been our director of graphics since 1995. From 1990 through
1995, Mr. Ruff was director of graphics for Caesar's Video Graphics, Inc.
Mr. Ruff has been nominated for seven Emmy Awards and won four Emmy Awards for
animation design including three for Adam Smith (PBS) and one for Nick News
(Nickelodeon). Mr. Ruff received a B.A. degree from Yale University in 1975.
Jim Suhre has been our virtual set designer and 3D graphics designer since
1993. From 1993 to 1996, Mr. Suhre was also employed as a graphics design artist
for MTV. From 1989 to 1993, Mr. Suhre was a graphics designer for Young &
Rubicam. Mr. Suhre's credits include the creation of virtual sets currently used
by ABC News, PBS, Madison Square Garden Network, and the Discovery Channel.
Mr. Suhre received a B.A. degree from Stanford University in 1988.
Eli Friedman has been our senior colorist since 1996. Mr. Friedman has
17 years' experience as a colorist at various companies in the New York City
area, including Devlin, Magno Video, TVC Video and Editel. In 1993,
Mr. Friedman received a Monitor Award for AT&T's Tree of Life Spot.
Mr. Friedman received a BA degree from Queens College in 1979.
Larry Trosko has been with our colorist since 1998. Over the past
23 years, Mr. Trosko has been a colorist at many of New York City's
post-production facilities, including Teletronics, Editel NY and Manhattan
Transfer. In 1994, Mr. Trosko was presented a Monitor Award for his work on a
campaign for Corning Ware. Mr. Trosko received a BA degree from Pace University
in 1973.
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<PAGE>
BOARD COMPOSITION
At each annual meeting of our stockholders, all of our directors will be
elected to serve from the time of election and qualification until the next
annual meeting following election. In addition, our bylaws provide that the
authorized number of directors, which is a minimum of two and a maximum of ten,
may be changed only by resolution of the board of directors.
We have also granted to the representative of the underwriters the right,
for a period of 5 years from the closing of this offering, to nominate a
designee of the representative for election to our board of directors. The
representative has not yet exercised its right to designate this person. If the
representative elects not to exercise this right, then the representative may
designate one person to attend meetings of our board of directors.
Each officer is elected by, and serves at the discretion of, our board of
directors. Each of our officers and directors, other than non-employee
directors, devotes his full time to our affairs. Our non-employee directors
devote such time to our affairs as is necessary to discharge their duties. There
are no family relationships among any of our directors, officers or key
employees.
BOARD COMMITTEES
Upon completion of this offering, we intend to appoint both a compensation
committee and an audit committee composed of members of our board of directors.
The audit committee will review with our independent public accountants the
scope and adequacy of the audit to be performed by the independent public
accountants, the accounting practices, our procedures and policies, and all
related party transactions. The compensation committee will recommend to our
board of directors, the compensation to be paid to our officers and directors,
administer our stock option plan and approve the grant of options under the
stock option plan. We have not determined who will serve as the members of these
committees, although we will appoint non-employee directors to serve as members
of each committee.
DIRECTORS' COMPENSATION
Directors who are also our employees receive no additional compensation for
attendance at board meetings. Non-employee directors will receive $500 for
attendance at each board meeting or any committee of the board that they attend
and will be reimbursed for their travel, lodging and other out-of-pocket
expenses in connection with their attendance at board and commitee meetings. No
directors' fees have been paid to date. We anticipate that our board of
directors will hold regularly scheduled meetings quarterly.
EXECUTIVE COMPENSATION
The following table sets forth the total compensation paid to our president
and chief executive officers and each other executive officer whose 1998
compensation exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION YEAR SALARY
- ---------------------------------------------------------------------------------------------- ---- --------
<S> <C> <C>
Michael J. Morrissey,
president and chief executive officer....................................................... 1998 $110,589
1997 $101,720
1996 $101,198
David Satin,
executive vice president.................................................................... 1998 $110,589
1997 $101,570
1996 $101,198
</TABLE>
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<PAGE>
The aggregate compensation paid to all persons who served in the capacity
of director or executive officer during our fiscal year ended September 30, 1998
(3 persons) was approximately $287,178.
OPTION GRANTS
No options have ever been granted to any of our directors, officers,
employees or consultants.
EMPLOYMENT AGREEMENTS
We have entered into employment agreements with Michael J. Morrissey, our
chief executive officer and president, and David J. Satin, our executive vice
president and director of engineering, which will commence upon the completion
of this offering, and will continue for a five-year period. Following the
initial five year period, the agreements will automatically renew for one-year
terms, unless terminated by either party upon ninety days written notice prior
to the end of any term, or for cause.
Under the terms of their respective employment agreements, Mr. Morrissey
and Mr. Satin have agreed to work for us full time, and will each receive an
annual base salary of $250,000, with annual percentage increases equal to the
percentage of increase in the cost of living, and an annual bonus at the
discretion of our board of directors. The agreements also provide for health
insurance benefits and contain non-competition provisions that prohibit them
from competing with us. The period covered by the non-competition provisions
will end either one year after the expiration of the agreement or one year after
their resignation or termination.
In addition, the agreements provide that if either Mr. Morrissey or
Mr. Satin is terminated without cause, they will receive a severance
consideration of three months' salary. A state court may determine not to
enforce, or only partially to enforce, certain provisions of these agreements.
Furthermore, Mr. Morrissey and Mr. Satin are each to be compensated in the
amount of $50,000 per annum for their efforts in connection with our joint
venture with Flicker FX Corp. As per the joint venture agreement, we will
guarantee these annual salaries until the joint venture achieves sufficient
revenues to fund its operations and pay the salaries.
We have entered into an employment agreement with our senior colorist, Eli
Friedman, for a term of three years commencing May 11, 1999. Mr. Friedman has
agreed to provide film-to-tape and tape-to-tape color correction services
exclusively for us on a full time basis. We have agreed to pay Mr. Friedman an
annual salary of $230,000. We have also agreed to pay Mr. Friedman a commission
based on our billings to customers for work performed by Mr. Friedman at a rate
of 10% of the first $1 million billed per year, and 20% of any billings in
excess of $1 million per year. Mr. Friedman's employment agreement also contains
health insurance benefits, vacation benefits and sick leave.
We have also entered into an employment agreement with Larry Trosko, one of
our colorists, for a term of five years commencing May 12, 1999. Mr. Trosko has
agreed to provide film-to-tape and tape-to-tape color correction services
exclusively for us on a full time basis. We have agreed to pay Mr. Trosko an
annual salary of $175,000. We have also agreed to pay Mr. Trosko a commission
based on our billings to customers for work performed by Mr. Trosko at a rate of
10% of such billings in excess of $350,000 per year. Mr. Trosko's employment
agreement also contains health insurance benefits, vacation benefits and sick
leave.
LIMITATION ON LIABILITY OF AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
Overview. Under our certificate of incorporation and New York law, our
directors are not liable for monetary damages for breach of fiduciary duties
except in special situations as described below. In addition, under our
certificate of incorporation, we are required to indemnify our directors and
officers against all losses to the fullest extent permitted by New York law.
Finally, under New York law, we are entitled to obtain insurance on behalf of
our directors and officers to protect them against liabilities that may occur in
their official capacities.
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<PAGE>
Limitations on liability of directors. Under New York law, a corporation
may adopt a charter provision eliminating or limiting the personal liability of
its directors to the corporation or its stockholders for breach of fiduciary
duties except:
o liability if a judgment or other final adjudication adverse to a director
establishes that his or her acts or omissions were in bad faith or
involved intentional misconduct or a knowing violation of law; or
o liability when the director personally gained a financial profit or other
advantage to which he or she was not legally entitled; or
o liability for any act or omission prior to the adoption by us of the
above indemnity provision; or
o liability when the director's acts violated New York Business Corporation
Law Section 719.
We have adopted a charter provision eliminating the personal liability of
our directors to the fullest extent permitted under New York law except under
the four provisions noted above.
Indemnification for directors and officers. Under New York law, a
corporation may indemnify its present and former directors and officers for a
variety of court or administrative proceedings. We have adopted a provision
which requires us to indemnify and hold harmless any person involved in any
action, suit or proceeding because that person is or was a director or officer
of ours. This provision does not, however, require us to indemnify an officer or
director in a proceeding they initiate without the authorization of our
directors.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of ours,
we have been advised that in the opinion of the Securities and Exchange
Commission, indemnification for liabilities is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
We have entered into indemnification agreements with our officers and
directors containing provisions which may require us, among other things, to
indemnify our officers and directors against certain liabilities that may arise
by reason of their status or service as officers or directors, other than
liabilities arising from willful misconduct of a culpable nature, and to advance
their expenses incurred as a result of any proceeding against them as to which
they could be indemnified.
Insurance for directors and officers. Under New York law, a corporation may
obtain insurance on behalf of its directors and officers against liabilities
incurred by them in those capacities. We have adopted a provision which permits
us to maintain insurance to protect us and our directors and officers against
expenses, liabilities and losses whether or not we would have the power to
indemnify these persons under New York law. We intend to have in place at or
promptly after the closing of this offering a directors' and officers' liability
and company reimbursement liability insurance policy.
1999 STOCK INCENTIVE PLAN
Purpose. We believe it is in our best interest to provide incentives for
the continued services of key and valuable employees, directors and
non-employees who perform services for us. Our 1999 stock incentive plan,
adopted in May 1999, allows us to award both incentive and non-qualified stock
options to these persons.
We have reserved 500,000 shares of our common stock for issuance under the
stock incentive plan. Shares of common stock covered by expired or terminated
options generally will be available for subsequent awards. No stock options have
been issued to date.
Awards and eligibility. The board of directors (or a committee appointed by
the board of directors) will administer the stock incentive plan.
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<PAGE>
Exercise price. The option price per share for any option granted under the
plan will be determined by the board of directors. The option price per share
will not be less than 100% of the fair market value of our common stock at the
time of the grant.
Option term. The board of directors determines the term of each option. No
option may be exercised after the expiration of ten years from the date the
option is granted. Incentive stock options may not be exercised after five years
from the date of the grant. The board of directors may determine that all or a
stated percentage of the shares covered by these options will become exercisable
or "vest" in installments after the completion of specified service requirement
by the holder.
Special rules for 10% stockholder. The option price per share of an
incentive stock option granted to an employee who owns more than 10% of the
total combined voting power of all classes of our stock will be at least 110% of
the fair market value of our stock at the time of the grant.
EMPLOYEE BENEFIT PLANS
We have a profit sharing plan, which covers substantially all full time
employees who meet certain service requirements and are not covered by the union
pension plan as disclosed below. During the years ended September 30, 1997 and
1998, and the six-month periods ended March 31, 1998 and 1999, we did not make
any contributions to this plan.
We have several employees covered by a union sponsored, multi-employer
pension plan. We contributed and charged to expense $8,048 and $14,037 for the
years ended September 30, 1997 and 1998, respectively, and $11,115 and $11,916
for the nine months ended June 30, 1998 and 1999, respectively. The
contributions are determined in accordance with provisions of the plan and are
generally based on the number of hours worked.
We adopted a non-contributory 401K plan effective January 1, 1998. The plan
covers all non-union employees who are at least 21 years of age with no minimum
service requirements. There were no contributions to the plan for the year ended
September 30, 1998 and the nine months ended June 30, 1999.
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<PAGE>
CERTAIN TRANSACTIONS
On March 28, 1994, Mr. Morrissey, our president and chief executive
officer, and Mr. Satin, our executive vice president, secretary and treasurer,
guaranteed (a) a construction loan to CitiBank, N.A. for $300,000, and (b) an
equipment loan to CitiBank, N.A. for $300,000. The construction and equipment
term loan agreements both provided for equal monthly principal payments of
$5,000 each, commencing September 1, 1994. A final payment of the unpaid
principal was made on September 1, 1999, plus interest at 1.5% above the prime
rate (9.75% at September 30, 1998 and 9.50% at June 30, 1999). Substantially all
of our assets had been pledged to collateralize the indebtedness.
On June 1, 1995, Mr. Morrissey and Mr. Satin personally guaranteed the
lease, expiring in December 2005, for our executive offices and production
facilities located at 100 Avenue of the Americas, New York, New York. The lease
provides for monthly rental payments of $25,000 through September 1, 1997,
$27,083 through September 1, 2000 and $29,333.33 thereafter through expiration.
On August 15, 1995, Mr. Morrissey and Mr. Satin jointly borrowed $103,722
from the SMA Video Profit Sharing Plan and SMA Video Money Purchase Pension Plan
and loaned $103,722 to us. We have been repaying the loan in monthly
installments of $2,093.39 including interest at 7% per annum directly to the SMA
Video Profit Sharing Plan and SMA Video Money Purchase Pension Plan in
accordance with the instructions of Mr. Morrissey and Mr. Satin. The loan is due
on November 21, 2000, is unsecured, and as of August 31, 1999, had a balance of
$29,982.
On June 4, 1997, Mr. Morrissey and Mr. Satin personally guaranteed a
$250,000 term loan with CitiBank, N.A. as part of an amendment to our CitiBank
revolving line of credit agreement. We have been repaying the loan in 36 monthly
payments of principal and interest of $8,037.48. The loan bears interest at
9.75% per annum. Substantially all of our assets are pledged to collateralize
this loan.
On June 4, 1997, we assigned our $500,000 William Penn Life insurance
policy on the life of Mr. Morrissey and our $500,000 American Mayflower
insurance policy on the life of Mr. Satin to CitiBank, N.A. as additional
collateral for our $250,000 line of credit.
Mr. Morrissey and Mr. Satin personally guaranteed the following
twenty-seven capital leases, which aggregated $3,762,508, as of June 30, 1999.
The obligations under the capital leases are collateralized by the underlying
equipment for each loan. Such capital leases are for equipment which we use on a
day to day basis in our business, including color television cameras, portable
robotic motion control systems, super computers, videotape recorders, sound
monitoring and mixing equipment and lighting equipment.
o equipment lease with Tilden Financial Corp. dated May 5, 1995 in the
amount of $269,000 payable in forty eight monthly installments (final
payment made April 15, 1999);
o equipment lease agreement with Citicorp Leasing dated June 21, 1994 in
the amount of $142,650, payable in sixty monthly installments (final
payment made May 25, 1999);
o term promissory note (Equipment Loan ) with Citibank, N.A. dated
March 28, 1994 in the amount of $300,000, payable in sixty monthly
installments (final payment made September 1, 1999);
o term promissory note (Leasehold Improvement Loan) with Citibank, N.A.
dated March 28, 1994 in the amount of $300,000, payable in sixty monthly
installments (final payment made September 1, 1999);
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<PAGE>
o equipment lease agreement with CreditAmerica dated March 1, 1995 in the
amount of $332,880, payable in forty eight monthly installments (final
payment made March 31, 1999);
o equipment lease agreement with WASCO Funding Corp dated March 7, 1995 in
the amount of $45,365.76, payable in 48 monthly installments (final
payment made March 24, 1999);
o business loan agreement with Citibank dated June 7, 1997 in the amount of
$250,000, payable in thirty six monthly installments;
o equipment lease agreement with LCA Leasing Corp dated May 5, 1995 in the
amount of $976,673.40, payable in sixty monthly installments;
o equipment lease agreement with CreditAmerica dated May 12, 1995 in the
amount of $178,800, payable in forty eight monthly installments (final
payment made April 15, 1999);
o equipment lease agreement with CreditAmerica dated May 12, 1995 in the
amount of $239,520, payable in forty eight monthly installments (final
payment made May 11, 1999);
o equipment lease with CIT Group/Equipment Financing, dated June 6, 1995 in
the amount of $339,620.64, payable in forty eight monthly installments
(final payment made May 14, 1999);
o equipment lease with CIT Group/Equipment Financing, dated June 6, 1995 in
the amount of $148,265.28, payable in forty eight monthly installments
(final payment made June 17, 1999);
o equipment lease with Charter Financial dated September 22, 1995 in the
amount of $1,090,080, payable in sixty monthly installments;
o equipment lease with The Terminal Marketing Company, Inc. dated June 26,
1996 in the amount of $467,340 payable in sixty monthly installments;
o equipment lease with Gateway Funding Inc dated October 16, 1996 in the
amount of $50,255.25, payable in forty eight monthly installments;
o equipment lease with Independent Resources, Inc. dated September 12, 1996
in the amount of $1,254,477 payable in 64 monthly installments;
o equipment lease with Independent Resources, Inc. dated September 12, 1996
in the amount of $390,690 payable in 65 monthly installments;
o equipment lease with Independent Resources, Inc. dated September 12, 1996
in the amount of $433,855 payable in 65 monthly installments;
o equipment lease with Independent Resources, Inc. dated September 12, 1996
in the amount of $234,059 payable in 65 monthly installments;
o equipment lease--Charter Financial Inc dated February 5, 1997 in the
amount of $1,076,100, payable in sixty monthly installments;
o purchase order with ORAD, Inc. dated July 16, 1997 in the amount of
$300,000, payable in thirty monthly installments;
o equipment lease with Gateway Funding dated May 18, 1998 in the amount of
$109,250, payable in forty eight monthly installments; and
o equipment lease with Gateway Funding dated November 2, 1998 in the amount
of $115,442.50, payable in forty eight monthly installments.
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<PAGE>
o equipment lease with Gateway Funding dated April 30, 1999 in the amount
of $291,528, payable in thirty six monthly installments.
o equipment lease with Gateway Funding dated December 10, 1998 in the
amount of $225,984, payable in forty eight monthly installments.
o purchase order with ORAD Inc. dated June 1, 1999 in the amount of
$61,873, payable in thirty monthly installments.
o purchase order with ORAD Inc. dated January 8, 1998 in the amount of
$37,123, payable in thirty monthly installments.
Our board of directors has adopted a policy that all future transactions
with our officers, directors or stockholders owning 5% or more of our
outstanding common stock, and their respective affiliates, will be on terms no
less favorable than could be obtained from unaffiliated third parties and will
be approved by a majority of our independent, disinterested directors with
access to independent counsel.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock, as of the date of this prospectus. The
information in this table provides the ownership information for:
o each person known by us to be the beneficial owner of more than 5% of our
common stock;
o each of our directors and director nominees;
o each of our executive officers; and
o our executive officers, directors and director nominees as a group.
Beneficial ownership has been determined in accordance with the rules and
regulations of the Securities and Exchange Commission and includes voting or
investment power with respect to the shares. Unless otherwise indicated, the
persons named in the table have sole voting and investment power with respect to
the number of shares indicated as beneficially owned by them. The number of
shares of common stock outstanding used in calculating the percentage ownership
for each person listed below includes shares of common stock underlying options
or warrants held by the person that are exercisable within 60 days of the date
of this prospectus, but excludes shares of common stock underlying options or
warrants held by any other person. Common stock beneficially owned and
percentage ownership are based on 3,700,000 shares outstanding before this
offering and 5,700,000 shares to be outstanding after the completion of this
offering, assuming no exercise of the underwriters' over-allotment option.
Unless otherwise indicated, the address of each beneficial owner is c/o
S.M.A. Real Time Inc., 100 Avenue of the Americas, 10th Floor, New York, New
York 10013.
<TABLE>
<CAPTION>
PERCENTAGE OF COMMON STOCK
BENEFICIALLY OWNED
NAME, ADDRESS AND TITLE NUMBER OF SHARES ---------------------------------
OF BENEFICIAL OWNER BENEFICIALLY OWNED BEFORE OFFERING AFTER OFFERING
- ---------------------------------------------------------- ------------------ --------------- --------------
<S> <C> <C> <C>
Michael J. Morrissey, CEO, president...................... 1,394,850 37.70% 24.47%
David Satin, executive vice president,
secretary, treasurer.................................... 1,394,850 37.70% 24.47%
Rafael A. Estevez, Jr., chief financial
officer and principal accounting officer................ * * *
Darryl J. Kramer, director nominee
708 3rd Avenue
New York, New York 10017................................ 69,800 1.89% 1.22%
Richard P. Aschman, director nominee
Eastman Kodak Company
343 State Street
Rochester, New York 14650............................... * * *
Marc Goodman, director nominee
2 American Lane
Greenwich, CT 06831-8150................................ * * *
All executive officers, directors, and
director nominees as a group
(6 persons)............................................. 2,859,500 77.28% 50.17%
</TABLE>
- ------------------
* Represents beneficial ownership of less than 1% of the common stock
38
<PAGE>
DESCRIPTION OF SECURITIES
Our authorized capital stock consists of (a) 50,000,000 shares of common
stock, par value $.0001 per share, and (b) 10,000,000 shares of preferred stock,
par value $0.0001 per share, the rights and preferences of which may be
established from time to time by our board of directors. Assuming no exercise of
the underwriter's over-allotment option, upon completion of this offering, there
will be (a) 5,700,000 shares of our common stock issued and outstanding, (b) no
preferred stock outstanding, and (c) excluding the representative's warrants,
there will be 21,000 placement agent's warrants outstanding.
The description of our securities are summaries and do not contain all the
information that may be important to you. For more complete information, you
should read our certificate of incorporation and its amendments, the form of
promissory note issued to purchasers of units in May 1999 and the form of
placement agent's warrant agreement which are all filed as exhibits to the
registration statement of which this prospectus forms a part.
COMMON STOCK
Holders of our common stock are entitled to one vote for each share held on
all matters submitted to a vote of stockholders and do not have cumulative
voting rights. Accordingly, holders of a majority of the shares of our common
stock entitled to vote in any election of directors may elect all of the
directors standing for election. Subject to preferences that may be applicable
to any shares of preferred stock outstanding at the time, holders of our common
stock are entitled to receive dividends ratably, if any, as may be declared from
time to time by our board of directors out of funds legally available therefore.
Upon the liquidation, dissolution or winding up of us, the holders of our common
stock are entitled to receive ratably, our net assets available after the
payment of all liabilities and liquidation preferences on any outstanding
preferred stock.
Holders of our common stock have no preemptive, subscription, redemption or
conversion rights, and there are no redemption or sinking fund provisions
applicable to the common stock. The outstanding shares of our common stock are,
and the shares offered by us in this offering will be, when issued and paid for,
validly issued, duly authorized, fully paid and nonassessable. The rights,
preferences and privileges of holders of common stock may be adversely affected
by, the rights of the holders of shares of any series of preferred stock which
we may designate and issue in the future.
PREFERRED STOCK
Our board of directors is authorized, without further stockholder approval,
to issue up to 10,000,000 shares of preferred stock in one or more series and to
fix the rights, preferences, privileges and restrictions of these shares,
including dividend rights, conversion rights, voting rights, terms of redemption
and liquidation preferences, and to fix the number of shares constituting any
series and the designations of these series. These shares may have rights senior
to our common stock. The issuance of preferred stock may have the effect of
delaying or preventing a change in control of us. The issuance of preferred
stock could decrease the amount of earnings and assets available for
distribution to the holders of common stock or could adversely affect the rights
and powers, including voting rights, of the holders of our common stock. At
present, we have no plans to issue any shares of our preferred stock.
OUTSTANDING WARRANTS
Prior to the sale of shares in this offering, we issued 21,000 warrants to
a placement agent as compensation in connection with our private placement in
May 1999. Each placement agent warrant is exercisable into one share of common
stock at an exercise price of 120% of the initial public offering price per
share. These placement agent warrants are for a period of five years, and may be
exercised after May 26, 2000. These warrants have demand and piggyback
registration rights. These warrants also have cashless exercise provisions
whereby the holder may, in lieu of
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<PAGE>
payment of the exercise price in cash, surrender the warrant and receive a net
amount of shares, based on the fair market value of our common stock at the time
of the exercise of the warrant, after deducting the aggregate exercise price.
We have agreed to issue to the representative of the underwriters, for a
total of $20.00, warrants to purchase an aggregate of 200,000 shares of common
stock exercisable for a period of four years commencing one year after the
effective date of the registration statement of which this prospectus is a part,
at a price equal to 120% of the initial public offering price of the shares of
common stock. The representative's warrants contain anti-dilution provisions
providing for automatic adjustments of the exercise price and number of shares
issuable on exercise price and number of shares issuable on exercise of the
representative's warrants upon the occurrence of some events, including stock
dividends, stock splits, mergers, acquisitions and recapitalizations.
The representative's warrants contain demand and piggyback registration
rights relating to the issuance of 200,000 shares of common stock. For the life
of the representative's warrants, the representative will have the opportunity
to profit from a rise in the market price for the 200,000 shares of common
stock. The holders of the representative's warrants will have no voting,
dividend or other stockholder rights with respect to those warrants. The holders
of shares of common stock issued upon exercise of those warrants will have the
voting, dividend, and other stockholder rights of holders of shares of common
stock. The representative's warrants are restricted from sale, transfer,
assignment or hypothecation for the one year period from the date of this
prospectus, except to officers or partners of the underwriters and members of
the selling group and/or their officers or partners.
REGISTRATION RIGHTS
During a five year period commencing 12 months after May 21, 1999, a
majority of the holders of 210,000 shares of common stock issued in connection
with our May 1999 private placement will be entitled to demand that we file a
registration statement with respect to the registration of such shares under the
Securities Act if we are subject to the reporting requirements of the Exchange
Act of 1934.
Such holders are also entitled to "piggy-back" registration rights in
connection with any registration by us of our securities for our own account or
for the account of other security holders. In the event that we propose to
register any shares of common stock under the Securities Act, the holders are
entitled to receive notice and are entitled to include their shares in the
registration statement. The placement agent's warrants and the representative's
warrants also have demand and piggyback registration rights.
TRANSFER AGENT AND REGISTRAR
We intend to appoint Continental Stock Transfer and Trust Company as
transfer agent for our common stock.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has not been any public market for our
securities and we do not know if a significant public market for any of our
securities will be developed or sustained after this offering. Sales of
substantial amounts of our common stock in the public market after this
offering, or the possibility of those sales occurring, could adversely affect
prevailing market prices of our common stock or our future ability to raise
capital through an offering of equity securities. We are unable to predict the
number of shares of our common stock that will be sold after this offering,
whether in the public markets or under Rule 144 under the Securities Act or
otherwise, as this will depend on the market price of our securities, personal
circumstances of the seller, and other factors.
40
<PAGE>
Upon completion of this offering, we will have outstanding 5,700,000 shares
of common stock, assuming no exercise of the underwriters' over-allotment
option. Of these 5,700,000 shares of common stock, 2,000,000 shares will be
freely tradeable without restriction under the Securities Act, except for any
shares purchased by an "affiliate" of ours, as that term is defined under the
rules and regulations of the Securities Act, which will be governed by the
resale limitations of Rule 144 under the Securities Act.
The remaining 3,700,000 shares are "restricted securities" as defined under
Rule 144. These restricted securities were issued and sold by us in private
transactions in reliance upon exemptions from registration under the Securities
Act. In general, under Rule 144, beginning 90 days after the completion of this
offering, a person, or persons whose shares are aggregated, who has beneficially
owned restricted securities for at least one year, including the holding period
of any prior owner who is not an affiliate of ours, would be entitled to sell
within any three-month period a number of common shares that does not exceed the
greater of (a) one percent of the then outstanding common shares, approximately
57,000 shares following this offering, or (b) the average weekly trading volume
of our common stock during the four calendar weeks preceding that sale. Sales
under Rule 144 are also subject to certain manner of sale and notice
requirements and to the availability of current public information about us.
Under Rule 144(k), a person who is not deemed to have been an affiliate of
ours at any time during the 90 days preceding a sale and who has beneficially
owned the shares proposed to be sold for at least two years, including the
holding period of any prior owner who is not an affiliate of ours, is entitled
to sell such common stock without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.
Holders of an aggregate of 210,000 shares of our common stock have certain
piggyback registration rights with regard to the resale of these shares.
Following the completion of this offering, these holders could require us to
register for resale their shares, and the shares would then be freely tradeable,
subject to the lock-up agreements described below.
Holders of placement agent's warrants to purchase an aggregate of 21,000
shares of our common stock have certain demand and piggyback registration rights
with regard to the resale of the shares issuable upon exercise of their
warrants. Following the completion of this offering, these holders could require
us to register for resale the shares issuable upon exercise of the warrants, and
these shares would then be freely tradeable, subject to the lock-up agreements
described below.
41
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement, the form
of which is filed as an exhibit to the registration statement filed with the
Commission of which this prospectus is a part, the underwriters named below
have, severally and not jointly, agreed through Dirks & Company, Inc., as the
representative of the underwriters, to purchase from us, and we have agreed to
sell to the underwriters, the aggregate number of shares of our common stock set
forth opposite their respective names:
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERWRITERS OF COMMON STOCK
- ------------------------------------------------------------------------ ----------------
<S> <C>
Dirks & Company, Inc....................................................
----------
Total................................................................. 2,000,000
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters under that agreement depend upon certain conditions, including the
absence of any material adverse change in our business and the receipt of
certificates, opinions and letters from our counsel and our independent public
accountants. The underwriters are committed to take and to pay for all of the
shares offered hereby, if any are purchased. In the event of a default by any of
the underwriters, purchase commitments of the non-defaulting underwriters may be
increased or the underwriting agreement may be terminated.
The underwriters have advised us that they propose to offer all or part of
the shares of common stock offered hereby directly to the public initially at
the price set forth on the cover page of this prospectus. They have also advised
us that they may offer shares of common stock to certain dealers at a price that
represents a concession of not more than $. per share, and that the
underwriters may allow, and these dealers may reallow, a concession of not more
than $. per share to certain other dealers. After the completion of this
offering, the price to the public and the concessions may be changed.
We have granted the underwriters an option, exercisable within 45 days
after the effective date of the registration statement of which this prospectus
is a part, to purchase up to an additional 300,000 shares of our common stock at
the same price per share as the initial 2,000,000 shares of common stock to be
purchased by the underwriters. The underwriters may exercise this option only to
cover over-allotments, if any. If the underwriters exercise this option, each of
the underwriters will have a firm commitment, subject to some conditions, to
purchase the same percentage of the additional shares of common stock as the
percentage of the initial 2,000,000 shares of common stock to be purchased by
that underwriter.
We have agreed to indemnify the underwriters and their controlling persons
against certain liabilities, including liabilities under the Securities Act, and
to contribute to payments the underwriters and their controlling persons may be
required to make.
We have agreed to pay the representative of the underwriters a
non-accountable expense allowance equal to 3% of the gross proceeds of this
offering, of which none has been paid as of the date of this prospectus. We have
also agreed to pay all expenses in connection with qualifying the securities
under the laws of those states the representative may designate, including fees
and expenses of counsel retained for such purposes by the representative and the
costs and disbursements in connection with qualifying the offering with the
National Association of Securities Dealers, Inc.
We have agreed to issue to the representative of the underwriters, for a
total of $20.00, warrants to purchase an aggregate of 200,000 shares of common
stock exercisable for a period of four years commencing one year after the
effective date of the registration statement of which this prospectus is a part,
at a price equal to 120% of the initial public offering price of the shares of
common stock. The representative's warrants contain anti-dilution provisions
providing for automatic adjustments of the exercise price and number of shares
issuable on exercise price and
42
<PAGE>
number of shares issuable on exercise of the representative's warrants upon the
occurrence of some events, including stock dividends, stock splits, mergers,
acquisitions and recapitalizations.
The representative's warrants contain certain demand and piggyback
registration rights relating to the 200,000 shares of common stock issuable
thereunder. For the life of the representative's warrants, the representative
will have the opportunity to profit from a rise in the market price for the
200,000 shares of common stock. The holders of the representative's warrants
will have no voting, dividend or other stockholder rights with respect to those
warrants. The holders of shares of common stock issued upon exercise of those
warrants will have the voting, dividend, and other stockholder rights of holders
of shares of common stock. The representative's warrants are restricted from
sale, transfer, assignment or hypothecation for the one year period from the
date of this prospectus, except to officers or partners of the underwriters and
members of the selling group and/or their officers or partners.
We have also granted to the representative of the underwriters the right,
for a period of 5 years from the closing of this offering, to nominate a
designee of the representative for election to our board of directors. The
representative has not yet exercised their right to designate this person. If
the representative elects not to exercise this right, then the representative
may designate one person to attend meetings of our board of directors.
We and our officers, directors and present shareholders have agreed that,
for a period of 365 days after the completion of this offering, without the
prior written consent of the representative of the underwriters, none of us will
sell or otherwise dispose of any of our respective equity securities or
securities convertible into our equity securities, except for the sale of shares
to the underwriters under the terms of the underwriting agreement.
The representative of the underwriters has informed us that the
underwriters do not expect any sales of the shares of common stock offered by
this prospectus to be made to discretionary accounts controlled by the
underwriters.
Prior to this offering, there has been no established market in the United
States or elsewhere for our securities. The public offering price will be
determined by us in consultation with the representative of the underwriters. It
is expected that the price determination will take several factors into account,
including our results of operations, our future prospects and the prevailing
market and economic conditions at the time of this offering.
The representative, on behalf of the underwriters, may engage in
(a) over-allotment, (b) stabilizing transactions, (c) syndicate covering
transactions and (d) penalty bids. Over-allotment involves syndicate sales in
excess of this offering size, which creates a syndicate short position.
Stabilizing transactions permit bids to purchase the shares of common stock
being offered so long as the stabilizing bids do not exceed a specified maximum.
Syndicate covering transactions involve purchases of the shares of common
stock in the open market after the distribution has been completed in order to
cover syndicate short positions. Penalty bids permit the representative to
reclaim a selling concession from a syndicate member when the shares of common
stock originally sold by the syndicate member are purchased in a syndicate
covering transaction to cover syndicate short positions.
Stabilizing transactions, syndicate covering transactions and penalty bids
may cause the price of the shares of common stock to be higher than it would
otherwise be in the absence of such transactions. These transactions may be
effected on the AMEX or otherwise and, if commenced, may be discontinued at any
time. In addition, the underwriters may engage in passive market making
transactions in our securities on the AMEX in accordance with Rule 103 of
Regulation M. Neither we nor the underwriters make any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the securities offered by this
prospectus.
43
<PAGE>
Certain persons participating in this offering may engage in transactions
that stabilize, maintain or otherwise affect the price of the common stock
offered in this prospectus. These actions include purchasing common stock to
cover some or all of a short position of common stock maintained by the
representative and the imposition of penalty bids.
LEGAL MATTERS
The legality of the common stock offered by this prospectus will be passed
upon for us by Stephen M. Robinson, P.A., Medford, New Jersey, our legal
counsel. Certain legal matters will be passed upon for the underwriters by
Orrick, Herrington & Sutcliffe LLP, New York, New York.
EXPERTS
Our financial statements for the periods ended September 30, 1997 and
September 30, 1998 included in this prospectus and registration statement have
been audited by Tabb, Conigliaro & McGann, P.C., independent certified public
accountants, as set forth in their report contained herein. The financial
statements have been included in reliance upon the report of Tabb, Conigliaro &
McGann, P.C., given upon the authority of such firm as experts in accounting and
auditing.
44
<PAGE>
INDEX TO COMBINED FINANCIAL STATEMENTS
S.M.A. REAL TIME INC. AND AFFILIATES
<TABLE>
<CAPTION>
PAGE NOS.
---------
<S> <C>
PART I--FINANCIAL INFORMATION:
ITEM I--FINANCIAL STATEMENTS
REPORT OF INDEPENDENT ACCOUNTANTS................................................................. F-2
COMBINED BALANCE SHEETS
At September 30, 1998 (Audited)
At June 30, 1999 (Unaudited)................................................................... F-3
COMBINED STATEMENTS OF INCOME
For the Years Ended September 30, 1997 and 1998 (Audited)
For the Nine Months Ended June 30, 1998 and 1999 (Unaudited)................................... F-4
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended September 30, 1997 and 1998 (Audited)
For the Nine Months Ended June 30, 1999 (Unaudited)............................................ F-5
COMBINED STATEMENTS OF CASH FLOWS
For the Years Ended September 30, 1997 and 1998 (Audited)
For the Nine Months Ended June 30, 1998 and 1999 (Unaudited)................................... F-6
NOTES TO COMBINED FINANCIAL STATEMENTS............................................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders
S.M.A. Real Time Inc.
New York, NY
We have audited the accompanying combined balance sheet of S.M.A. Real Time Inc.
and Affiliates as of September 30, 1998, and the related combined statements of
income, stockholders' equity and cash flows for the years ended September 30,
1997 and 1998. These combined financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined 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 financial statements referred to above present fairly, in
all material respects, the combined financial position of S.M.A. Real Time Inc.
and Affiliates as of September 30, 1998, and the combined statements of income,
stockholders' equity and cash flows for the years ended September 30, 1997 and
1998 in conformity with generally accepted accounting principles.
TABB, CONIGLIARO & MCGANN, P.C.
New York, NY
December 9, 1998
(Except as to Note 10 dated as of May 28, 1999)
F-2
<PAGE>
S.M.A. REAL TIME INC. AND AFFILIATES
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT JUNE 30,
1998 1999
---------------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................................................... $ 123,543 $ 509,486
Accounts receivable (net of allowance for doubtful accounts of $34,669 at
both September 30, 1998 and June 30, 1999, respectively).................. 941,725 944,118
Prepaid expenses and other current assets.................................... 27,034 94,213
---------- -----------
Total Current Assets...................................................... 1,092,302 1,547,817
Property and equipment--at cost, net of accumulated depreciation............... 4,882,014 4,302,507
Deferred offering costs........................................................ -- 235,630
Deferred financing costs....................................................... -- 1,209,444
Other assets................................................................... 188,345 207,252
---------- -----------
Total Assets.............................................................. $6,162,661 $ 7,502,650
---------- -----------
---------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit--bank......................................................... $ 223,000 $ 223,000
Current maturities of long-term debt and capital lease obligations........... 1,506,643 1,656,619
Note payable--Private Placement.............................................. -- 700,000
Accounts payable and accrued liabilities..................................... 472,992 568,179
Income taxes payable......................................................... 6,132 429
Deferred taxes payable....................................................... 143,350 1,350
Current portion of shareholders loans........................................ 22,302 23,500
---------- -----------
Total Current Liabilities................................................. 2,374,419 3,173,077
Long-term debt, less current maturities........................................ 2,221,880 1,455,342
Deferred taxes payable......................................................... 268,533 268,533
Shareholders' loans............................................................ 23,268 5,350
---------- -----------
Total Liabilities......................................................... 4,888,100 4,902,302
---------- -----------
Commitments, Contingencies and Other Matters (Notes 4, 5, 7, 9, and 10)
STOCKHOLDERS' EQUITY:
Common stock--.0001 par value; 50,000,000 shares authorized;
3,490,000 and 3,700,000 shares issued and outstanding at September 30,
1998 and June 30, 1999, respectively (Note 10)............................ 349 370
Paid-in capital.............................................................. 40,411 1,515,390
Retained earnings............................................................ 1,233,801 1,084,588
---------- -----------
Total Stockholders' Equity................................................ 1,274,561 2,600,348
---------- -----------
Total Liabilities and Stockholders' Equity..................................... $6,162,661 $ 7,502,650
---------- -----------
---------- -----------
</TABLE>
See notes to financial statements.
F-3
<PAGE>
S.M.A. REAL TIME INC. AND AFFILIATES
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE NINE MONTHS
SEPTEMBER 30, ENDED JUNE 30,
------------------------ ------------------------
1997 1998 1998 1999
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues............................................. $5,850,308 $6,469,142 $4,895,985 $5,407,482
Cost of Revenues..................................... 3,628,295 4,044,591 3,066,416 3,702,220
---------- ---------- ---------- ----------
Gross margin....................................... 2,222,013 2,424,551 1,829,569 1,705,262
Selling, general and administrative expenses......... 1,652,506 1,611,515 1,226,958 1,320,344
---------- ---------- ---------- ----------
Income from operations............................... 569,507 813,036 602,611 384,918
---------- ---------- ---------- ----------
Other expenses:
Interest expense, net of interest income........... 540,795 509,513 385,403 310,146
Amortization of deferred financing costs........... -- -- -- 345,556
Other expense...................................... 5,432 2,219 959 512
---------- ---------- ---------- ----------
Total Other Expenses............................ 546,227 511,732 386,362 656,214
---------- ---------- ---------- ----------
Income (loss) before income taxes.................... 23,280 301,304 216,249 (271,296)
Provision for (recovery of) income taxes............. 7,998 142,000 97,500 (122,083)
---------- ---------- ---------- ----------
Net Income (loss).................................... $ 15,282 $ 159,304 $ 118,749 $ (149,213)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Basic and diluted earnings (loss) per share.......... $ .01 $ .05 $ .03 $ (.04)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average common shares used in basic and
diluted earnings (loss) per share.................. 3,490,000 3,490,000 3,490,000 3,513,333
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
See notes to financial statements.
F-4
<PAGE>
S.M.A. REAL TIME INC. AND AFFILIATES
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1997 AND 1998 AND
THE SIX MONTHS ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
--------- ------ ---------- ---------- ----------
(1)
<S> <C> <C> <C> <C> <C>
Year Ended September 30, 1997:
Balance--September 30, 1996................ 3,490,000 $349 $ 40,411 $1,059,215 $1,099,975
Net income................................. -- -- -- 15,282 15,282
--------- ---- ---------- ---------- ----------
Balance--September 30, 1997................ 3,490,000 $349 $ 40,411 $1,074,497 $1,115,257
Net income................................. -- -- -- 40,859 40,859
--------- ---- ---------- ---------- ----------
--------- ---- ---------- ---------- ----------
Year Ended September 30, 1998:
Balance--September 30, 1997................ 3,490,000 $349 $ 40,411 $1,074,497 $1,115,257
Net income................................. -- -- -- 159,304 159,304
--------- ---- ---------- ---------- ----------
Balance--September 30, 1998................ 3,490,000 $349 $ 40,411 $1,233,801 $1,274,561
--------- ---- ---------- ---------- ----------
--------- ---- ---------- ---------- ----------
Nine Months Ended June 30, 1999:
(Unaudited)
Balance--September 30, 1998................ 3,490,000 $349 $ 40,411 $1,233,801 $1,274,561
Issuance of stock pursuant to
Private Placement........................ 210,000 21 1,469,979 -- 1,470,000
Value assigned to issuance of 21,000
placement agent warrants................. -- -- 5,000 -- 5,000
Net loss................................... -- -- -- (149,213) (149,213)
--------- ---- ---------- ---------- ----------
Balance--June 30, 1999 (Unaudited)......... 3,700,000 $370 $1,515,390 $1,084,588 $2,600,348
--------- ---- ---------- ---------- ----------
--------- ---- ---------- ---------- ----------
</TABLE>
- ------------------
(1) Share amounts have been restated to reflect the stock splits and other
reorganization transactions effected in April and May of 1999 (Note 10).
See notes to financial statements.
F-5
<PAGE>
S.M.A. REAL TIME INC. AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE NINE MONTHS
SEPTEMBER 30, ENDED JUNE 30,
-------------------------- --------------------------
1997 1998 1998 1999
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net income.......................................... $ 15,282 $ 159,304 $ 118,749 $ (149,213)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................... 1,347,353 1,693,114 1,278,210 1,285,271
(Gain) loss from sale of equipment............... (4,278) -- -- 5,057
Deferred income taxes............................ 2,876 128,004 87,000 (142,000)
Amortization of deferred financing costs......... -- -- -- 345,556
Changes in assets and liabilities:
(Increase) decrease in accounts receivable--
net......................................... (210,937) 58,839 20,021 (2,393)
Decrease in prepaid expenses and other current
assets...................................... 44,582 9,781 10,133 (67,179)
Increase (decrease) in accounts payable and
accrued liabilities......................... 63,676 (181,148) (58,718) 95,187
Increase (decrease) in income taxes payable.... 1,624 (1,624) (3,598) (5,703)
----------- ----------- ----------- -----------
Net cash provided by operating activities........ 1,260,178 1,866,270 1,451,797 1,364,583
----------- ----------- ----------- -----------
Cash flows from investing activities
Purchase of property and equipment.................. (130,025) (171,539) (115,336) (128,272)
Increase in other assets............................ (34,427) (2,720) (2,720) (18,907)
Proceeds from sale of property and equipment........ 15,802 -- -- 32,860
----------- ----------- ----------- -----------
Net cash used in investing activities............ (148,650) (174,259) (118,056) (114,319)
----------- ----------- ----------- -----------
Cash flows from financing activities
Proceeds from Private Placement..................... -- -- -- 700,000
Expenditures for Private Placement.................. -- -- -- (80,000)
Expenditures for offering costs..................... -- -- -- (235,630)
Principal payments under capital lease
obligations...................................... (1,004,972) (1,353,219) (1,032,561) (1,079,483)
Net change under revolving line of credit........... (5,000) 28,000 28,000 --
Repayments of term loans............................ (137,398) (222,146) (147,053) (152,488)
Repayments of loans--stockholders................... (10,962) (21,103) (15,462) (16,720)
----------- ----------- ----------- -----------
Net cash used in financing activities............ (1,158,332) (1,568,468) (1,167,076) (864,321)
----------- ----------- ----------- -----------
(Decrease) Increase in cash and cash equivalents...... (46,804) 123,543 166,665 385,943
Cash and cash equivalents--beginning.................. 46,804 -- -- 123,543
----------- ----------- ----------- -----------
Cash and cash equivalents--ending..................... $ -- $ 123,543 $ 166,665 $ 509,486
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest......................................... $ 546,868 $ 499,751 $ 388,499 $ 289,054
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Corporate income taxes........................... $ 3,498 $ 15,620 $ 14,376 $ 25,620
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Supplemental disclosure of non-cash investing
activities:
Purchase of property and equipment under capital
leases........................................... $ 2,929,057 $ 150,995 150,995 $ 615,409
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See notes to financial statements.
F-6
<PAGE>
S.M.A. REAL TIME INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO JUNE 30, 1999 AND
THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Combined Statements
The accompanying financial statements include the accounts of S.M.A. Real
Time Inc. and its affiliates, SMA Video, Inc., SMA Visual Effects Corp. and Fly
Films, Inc. (collectively, the "Company"), all of which were incorporated in the
state of New York and are related through common ownership and management. The
Company commenced operations in 1985 under the name SMA Video, Inc. Commencing
November 9, 1998, the financial statements include the accounts of Flicker FX at
SMA, LLC, a joint venture controlled by the Company (Note 10).
As discussed in Note 10, the companies were reorganized during April and
May of 1999. As a result of the reorganization, SMA Visual Effects Corp. and Fly
Films, Inc. were merged into SMA Video, Inc. and SMA Video, Inc. became a
wholly-owned subsidiary of S.M.A. Real Time Inc. All common shares and related
per share data, reflected in the accompanying financial statements and notes
thereto, have been adjusted to give retroactive effect to the reorganization
transactions.
All material intercompany transactions and balances have been eliminated in
combination.
Description of Business
The Company provides a wide range of production and post-production
services to companies that produce commercials, television programs, music
videos and feature films. The Company's principal activities include studio
videotape recording, film to videotape transfer, computer generated visual
effects and the coloring, creation of customized virtual studio sets, editing
and dubbing of various form of emerging media, including film and video. Most of
the Company's services are performed at its headquarters in lower Manhattan, New
York.
Unaudited Interim Information
The information presented as of June 30, 1999 and for the nine-month
periods ended June 30, 1998 and 1999 has not been audited. In the opinion of
management, the unaudited interim financial statements include all adjustments,
consisting only of normal recurring adjustments, necessary to present fairly the
information set forth therein. The net income for the nine months ended
June 30, 1999 is not necessarily indicative of the results for the year ended
September 30, 1999.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
Cash and cash equivalents, accounts receivable, accounts payable, accrued
expenses and loans payable are reflected in the accompanying balance sheets at
amounts considered by management to reasonably approximate fair value.
F-7
<PAGE>
S.M.A. REAL TIME INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED WITH RESPECT TO JUNE 30, 1999 AND
THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
Property and Equipment
Property and equipment are recorded at cost. Depreciation and amortization
are provided by accelerated and straight line methods over the estimated useful
lives of the assets as follows:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE
-----------
<S> <C>
Machinery and equipment........................................................ 5
Furniture and fixtures......................................................... 7
Computers and office equipment................................................. 5
Leasehold improvements......................................................... 10
</TABLE>
Maintenance and repairs are charged to income as incurred. The asset and
related accumulated depreciation accounts are relieved in respect of items
replaced, retired or otherwise disposed of.
The inherent uncertainties in the estimates of the useful lives and pattern
of usage, make it at least reasonably possible that the Company's estimates of
depreciation and amortization could change in the near term.
Income Taxes
The provision for income taxes for the years ended September 30, 1997 and
1998 is based on the elements of income and expenses as reported in the
accompanying statements of income and retained earnings.
Deferred tax liabilities and assets are determined based on the difference
between the financial statements carrying amounts and tax bases of assets and
liabilities using enacted rates in effect in the years in which the differences
are expected to reverse.
Deferred Offering Costs
Deferred offering costs relate to costs incurred through June 30, 1999 with
respect to a proposed initial public offering of the Company's securities
discussed in Note 10 to the financial statements. In the event the proposed
initial public offering of the Company's securities is not consummated, the
deferred offering costs will be expensed.
Deferred Financing Costs
Deferred financing costs consist of (i) a non-cash cost valued at
$1,470,000, attributable to the issuance of 210,000 shares of common stock in
connection with a Private Placement completed in May of 1999 and (ii) expenses
related to such financing approximating $85,000. The deferred financing costs
are being amortized over the nine-month period commencing May 1, 1999.
Amortization of the deferred financing costs for the period ended June 30, 1999
was $345,556.
F-8
<PAGE>
S.M.A. REAL TIME INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED WITH RESPECT TO JUNE 30, 1999 AND
THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Revenue Recognition
Substantially all revenues are derived from the performance of video and
commercial film production and post production work. Revenue is recognized at
the time services are rendered.
Advertising
Advertising costs are charged to operations when incurred. Advertising
expense for the years ended September 30, 1997 and 1998 approximated $3,100 and
$1,000, respectively, and for the nine months ended June 30, 1998 and 1999
approximated $850 and $1,000, respectively.
Stock-Based Compensation
As permitted by SFAS No. 123, "Accounting for Stock-Based Compensation,"
the Company accounts for its stock-based compensation arrangements pursuant to
APB Opinion No. 25, "Accounting for Stock Issued to Employees." In accordance
with the provisions of SFAS No. 123, the Company discloses the pro forma effects
of accounting for these arrangements using the minimum value method to determine
fair value.
Earnings Per Share
Basic earnings per share ("Basic EPS") is computed by dividing net income
available to common stockholders by the weighted average number of common shares
outstanding during the period. Diluted earnings per share ("Diluted EPS") gives
effect to all dilutive potential common shares outstanding during a period. In
computing Diluted EPS, the treasury stock method is used in determining the
number of shares assumed to be purchased from the conversion of common stock
equivalents.
Impairment of Long-Lived Assets
The Company evaluates the recoverability of long-lived assets by measuring
the carrying amount of the assets against 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 value of such assets, the assets are adjusted to their
fair values. Based on these evaluations, there were no adjustments to the
carrying value of long-lived assets.
Impact of Recently Issued Accounting Standards
Effective October 1, 1997, the Company adopted the provisions of SFAS
No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards
for reporting comprehensive income, defined as all changes in equity from
non-owner sources. Adoption of SFAS No. 130 did not have a material effect on
the Company's financial position or net income.
Effective October 1, 1997, the Company adopted the provisions of SFAS
No. 131, "Disclosures About Segments of an Enterprise and Related Information."
SFAS No. 131 establishes standards for the way public enterprises report
information about operating segments in annual financial statements and requires
those enterprises to report selected information about operating segments in
interim financial reports issued to stockholders. Adoption of SFAS No. 131 did
not have a material effect on the Company's financial position or net income.
Effective October 1, 1997, the Company adopted American Institute of
Certified Public Accountants Statement of Position 97-2, "Software Revenue
Recognition" ("SOP 97-2"). SOP 97-2 generally requires revenue earned on
software arrangements involving multiple elements, such
F-9
<PAGE>
S.M.A. REAL TIME INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED WITH RESPECT TO JUNE 30, 1999 AND
THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
as software products, upgrades, enhancements, post-contract customer support,
installation and training to be allocated to each element based on the relative
fair values of the elements. The adoption of SOP 97-2 did not have an effect on
the Company's financial position or net income.
Effective December 29, 1997, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 132, "Employers' Disclosures About Pensions and
Postretirement Benefits," which standardizes the disclosure requirements for
pensions and other postretirement benefits. The Statement addresses disclosure
only. It does not address liability measurement or expense recognition. There
was no effect on financial position or net income as a result of adopting SFAS
No. 132.
In March 1998, the American Institute of Certified Public Accountants
issued SOP 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use," which revises the accounting for software
development costs and will require the capitalization of certain costs. The
adoption of SOP 98-1 did not have an effect on the Company's financial position
or net income.
Reclassifications
Certain prior year balances have been reclassified to conform with the
current year presentation.
NOTE 2. PROPERTY AND EQUIPMENT--NET
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
AT AT
SEPTEMBER 30, JUNE 30,
1998 1999
------------- -----------
<S> <C> <C>
Property held under capital leases.................................... $ 6,468,682 $ 7,084,091
Machinery and equipment............................................... 2,588,067 2,600,029
Leasehold improvements................................................ 1,390,584 1,390,934
Office equipment...................................................... 198,857 228,338
Furniture and fixtures................................................ 108,771 109,053
------------- -----------
10,754,961 11,412,445
Less: Accumulated depreciation........................................ (5,872,947) (7,109,938)
------------- -----------
Property and Equipment--Net......................................... $ 4,882,014 $ 4,302,507
------------- -----------
------------- -----------
</TABLE>
The property under capital leases had a net book value of $3,438,872 and
$3,054,258 at September 30, 1998 and June 30, 1999, respectively.
Depreciation and amortization of property and equipment for the years ended
September 30, 1997 and 1998 amounted to $1,347,353 and $1,693,114, respectively,
and $1,278,210 and $1,285,271 for the nine months ended June 30, 1998 and 1999,
respectively.
NOTE 3. OTHER ASSETS
In connection with an operating lease for its office space, the Company has
$58,936 in a non-interest bearing account with the landlord as security.
In connection with the purchase of equipment under a capital lease, the
Company placed $100,000 on deposit with the lender. The agreement provides that
the lender shall accrue interest at the rate of 3.5% per annum. Included in
other assets is $106,543 related to this deposit at September 30, 1998 and
June 30, 1999.
F-10
<PAGE>
S.M.A. REAL TIME INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED WITH RESPECT TO JUNE 30, 1999 AND
THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999)
NOTE 4. REVOLVING LOAN--BANK
On June 4, 1997, the Company amended its revolving credit facility
providing for a revolving line of credit of up to $250,000 and a term loan of
$250,000 as described below in Note 5. The revolving loan bears interest at 1%
above prime (9.25% at September 30, 1998 and 9.0% at June 30, 1999), and is
collateralized by substantially all of the assets of the Company. As of
September 30, 1998 and June 30, 1999, there was $27,000 of available credit
remaining under this credit facility.
The credit agreement provides for, among other things, the maintenance of
minimum tangible net worth, restrictions and limitations on additional
indebtedness and the maintenance of defined current and leverage ratios.
The agreement provides for a personal guarantee by the two principal
shareholders of the Company and additional security guarantee through the
assignment of a $500,000 keyman life insurance policy on each of the two
principal shareholders.
NOTE 5. LONG-TERM DEBT
On March 28, 1994, the Company entered into two term loan agreements, one
for $300,000, which funded costs in connection with the construction of a studio
and other facility improvements and one for $300,000, which funded the purchase
of equipment.
The construction and equipment term loan agreements both provide for equal
monthly principal payments of $5,000 each, commencing September 1, 1994, and a
final payment of the unpaid principal due on September 1, 1999, plus interest at
1.5% above the prime rate (9.75% at September 30, 1998 and 9.5% at June 30,
1999), payable monthly. Substantially all of the assets of the Company are
pledged to collateralize the indebtedness.
As part of the amendments to the revolving credit agreement, discussed in
Note 4, on June 4, 1997, $250,000 of indebtedness outstanding under the
Company's revolving line of credit was converted to a term loan. The term loan
agreement provides for 36 equal monthly payments of principal and interest of
$8,037.48. The loan bears interest at 9.75% per annum. Substantially all of the
assets of the Company are pledged to collateralize the indebtedness.
Each of these obligations have been personally guaranteed by the two
principal shareholders of the Company.
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
AT AT
SEPTEMBER 30, JUNE 30,
1998 1999
------------- ----------
<S> <C> <C>
$300,000 term loan--bank, principal payments of $5,000 payable monthly, plus
interest at 1.5% above prime.................................................... $ 55,000 $ 10,000
$300,000 term loan--bank, principal payments of $5,000 payable monthly, plus
interest at 1.5% above prime.................................................... 55,000 10,000
$250,000 term loan--bank, with interest at 9.75% requiring monthly payments of
principal and interest of $8,037.48 for 36 months............................... 155,455 92,968
Obligations under capital leases collateralized the by related equipment (see
Note 9)......................................................................... 3,463,068 2,998,993
----------- ----------
Total........................................................................... 3,728,523 3,111,961
Less: Current maturities.......................................................... 1,506,643 1,656,619
----------- ----------
Long-Term Debt.................................................................. $ 2,221,880 $1,455,342
----------- ----------
</TABLE>
F-11
<PAGE>
S.M.A. REAL TIME INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED WITH RESPECT TO JUNE 30, 1999 AND
THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999)
NOTE 5. LONG-TERM DEBT--(CONTINUED)
Aggregate maturities required on long-term debt are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
- ------------------------------------------------------
<S> <C>
1999.................................................. $ 1,506,643
2000.................................................. 1,175,581
2001.................................................. 716,233
2002.................................................. 330,066
2003.................................................. --
-----------
$ 3,728,523
-----------
-----------
</TABLE>
NOTE 6. INCOME TAXES
Components of the provision for (recovery of) income taxes are as follows:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
FOR THE YEARS ENDED ENDED
SEPTEMBER 30, JUNE 30,
------------------- ---------------------
1997 1998 1998 1999
------ -------- ------- ---------
<S> <C> <C> <C> <C>
Current:
Federal........................................ $ -- $ -- $ -- $ --
State and local................................ 5,122 13,996 10,500 19,917
------ -------- ------- ---------
5,122 13,996 10,500 19,917
------ -------- ------- ---------
Deferred:
Federal........................................ 2,876 82,000 56,000 (91,000)
State and local................................ -- 46,004 31,000 (51,000)
------ -------- ------- ---------
2,876 128,004 87,000 (142,000)
------ -------- ------- ---------
Totals...................................... $7,998 $142,000 $97,500 $(122,083)
------ -------- ------- ---------
------ -------- ------- ---------
</TABLE>
The effects of the significant temporary differences that comprise the
deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
AT AT
SEPTEMBER 30, JUNE 30,
1998 1999
------------- --------
<S> <C> <C>
Assets:
Accounts receivable.................................................... $ 15,602 $ 15,602
Net operating loss carryforward........................................ -- 149,515
--------- --------
Total deferred tax assets........................................... 15,602 165,117
--------- --------
Liabilities:
Property and equipment................................................. 427,485 435,000
--------- --------
Net deferred tax liabilities..................................... $ 411,883 $269,883
--------- --------
--------- --------
</TABLE>
F-12
<PAGE>
S.M.A. REAL TIME INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED WITH RESPECT TO JUNE 30, 1999 AND
THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999)
NOTE 6. INCOME TAXES--(CONTINUED)
A reconciliation of the federal statutory income tax rate to the Company's
effective tax rate as reported is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED
SEPTEMBER 30,
-----------------
1997 1998
---- ----
<S> <C> <C>
Taxes at federal statutory rate.................................................. 34% 34%
State and local income taxes--net of federal tax benefit......................... 19 13
Effect of graduated federal tax rates............................................ (19) --
---- --
Effective income tax rate........................................................ 34% 47%
---- --
---- --
</TABLE>
NOTE 7. EMPLOYEE BENEFIT PLANS
The Company has a profit sharing plan, which covers substantially all full
time employees who meet certain service requirements and are not covered by the
union pension plan as disclosed below. During the years ended September 30, 1997
and 1998, and the nine-month periods ended June 30, 1998 and 1999, the Company
did not make any contributions to this plan.
The Company has several employees covered by a union sponsored,
multi-employer pension plan. The Company contributed and charged to expense
$8,048 and $14,037 for the years ended September 30, 1997 and 1998,
respectively, and $11,115 and $11,916 for the nine months ended June 30, 1998
and 1999, respectively. The contributions are determined in accordance with
provisions of the plan and are generally based on the number of hours worked.
The Company adopted a non-contributory 401K plan effective January 1, 1998.
The plan covers all non-union employees who are at least 21 years of age with no
minimum service requirements. There were no contributions to the plan for the
year ended September 30, 1998 and the nine months ended June 30, 1999.
NOTE 8. SHAREHOLDERS' LOANS PAYABLE
In August 1995, pursuant to one promissory note agreement, the two
principal shareholders of the Company loaned the Company $103,772. The
promissory note provides for 60 monthly payments of $2,093.39, inclusive of
interest at 7% per annum, commencing December 1995 and is unsecured. Interest
paid on such debt during the years ended September 30, 1997 and 1998 amounted to
$5,725 and $4,019, respectively. During the nine months ended June 30, 1998 and
1999, the interest expense related to this debt amounted to $3,379 and $2,261,
respectively.
F-13
<PAGE>
S.M.A. REAL TIME INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED WITH RESPECT TO JUNE 30, 1999 AND
THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999)
NOTE 9. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
Leases
The Company leases various production and post-production equipment under
capital leases expiring at various dates through 2002. Interest rates on these
leases vary from approximately 8% to 14% and are imputed based on the Company's
incremental borrowing rate at inception of the lease or the lessor's implicit
rate of return. Substantially all of the capital lease obligations have been
personally guaranteed by the two principal shareholders of the Company.
The Company leases space utilized as a production facility and office space
in New York City under an operating lease expiring in December 2005. The lease
provides for monthly rental payments of $25,000 through September 1, 1997,
$27,083 through September 1, 2000 and $29,333.33 thereafter through expiration.
The lease contains escalation clauses relating to increases in real property
taxes as well as certain maintenance costs and has been personally guaranteed by
the two principal shareholders of the Company.
In addition, the Company leases a studio for the production of commercial
video tapes and films and storage facility for film production equipment under
an operating lease expiring in May 2000, with monthly rental payments of $2,800.
The lease provides that payment of all real estate taxes imposed and utility
costs shall be borne by the Company.
The Company also leases a storage facility in New Jersey on a
month-to-month basis at a rate of $995 per month.
Future minimum lease payments are as follows:
<TABLE>
<CAPTION>
YEARS ENDED OPERATING OBLIGATIONS UNDER
SEPTEMBER 30, LEASES CAPITAL LEASES
- -------------------------------------------------------- ---------- -----------------
<S> <C> <C>
1999.................................................... $ 358,600 $ 1,611,497
2000.................................................... 349,650 1,278,636
2001.................................................... 352,000 794,026
2002.................................................... 352,000 342,651
2003.................................................... 352,000 --
Thereafter.............................................. 440,000 --
---------- -----------
Total minimum obligations............................... $2,204,250 4,026,810
----------
----------
Less: Amount representing interest expense.............. 563,742
-----------
Present value of minimum lease payments................. 3,463,068
Less: Current portion................................... 1,310,672
-----------
Long-Term Portion....................................... $ 2,152,396
-----------
-----------
</TABLE>
Rent expense relating to the operating leases included in general and
administrative expenses amounted to $361,689 and $368,274 for the years ended
September 30, 1997 and 1998, respectively, and $283,579 and $295,204 for the
nine months ended June 30, 1998 and 1999, respectively.
F-14
<PAGE>
S.M.A. REAL TIME INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED WITH RESPECT TO JUNE 30, 1999 AND
THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999)
NOTE 9. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS--(CONTINUED)
Concentrations of Credit Risk
Financial instruments, which potentially subject the Company to
concentrations of credit risk, are primarily cash and cash equivalents and trade
accounts receivable.
With respect to trade receivables, ongoing credit evaluations of customers'
financial condition are performed and generally, no collateral is required. The
Company maintains a reserve for potential credit losses and such losses, in the
aggregate, have not exceeded management's expectations.
At September 30, 1998, one customer accounted for approximately 11% of the
accounts receivable balance. For the year ended September 30, 1998, the same one
customer accounted for approximately 13% of net revenues. For the year ended
September 30, 1997, the same one customer accounted for 11% of net revenues.
At June 30, 1999, the one customer referred to above accounted for
approximately 12% of the accounts receivable balance. For the nine months ended
June 30, 1998, the same one customer accounted for approximately 13% of net
revenues. For the nine months ended June 30, 1999, two customers accounted for
approximately 24% of net revenues.
NOTE 10. SUBSEQUENT EVENTS
Joint Venture
In November 1998, the Company and an unrelated corporation organized
Flicker FX at SMA, LLC and entered into a joint venture agreement to provide the
production of television, film and multimedia graphics products. The agreement
provides for, among other things: (i) that until the joint venture achieves
sufficient revenues to fund its operations, the Company shall contribute start-
up capital funds and guaranteed annual salaries and benefits aggregating
$550,000, of which $50,000 is to each of the Company's two principal
shareholders; (ii) use of the Company's equipment and facilities; and
(iii) that the operating profits, as defined, shall be allocated 60% to the
Company. The agreement also provides that the Company may terminate the
agreement in the event that the joint venture does not achieve certain defined
financial goals as of the first anniversary date of the agreement.
The results of operations of the joint venture for the period from
inception (November 9, 1998) through June 30, 1999 have been combined in the
accompanying unaudited financial statements in accordance with the Accounting
Principles Board Release No. 51.
Proposed Public Offering
In March 1999, the Company signed a letter of intent with an underwriter
("the Underwriter"), with respect to a proposed public offering of the Company's
securities. There is no assurance that such offering will be consummated. In
connection therewith, the Company anticipates incurring substantial costs, which
if the offering is not consummated, will be charged to expense.
The Company has agreed to issue to the Underwriter on the closing date of
the initial public offering warrants to purchase 200,000 shares of S.M.A. Real
Time Inc.'s common stock at 120% of
F-15
<PAGE>
S.M.A. REAL TIME INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED WITH RESPECT TO JUNE 30, 1999 AND
THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999)
NOTE 10. SUBSEQUENT EVENTS--(CONTINUED)
the initial public offering price. The warrants shall be exercisable for a
four-year period commencing one year after the effective date of the initial
public offering.
Reorganization
In April of 1999, the shareholders of S.M.A. Real Time Inc. authorized an
amendment to its Certificate of Incorporation to increase the authorized number
of common shares from 1,000,000 to 50,000,000, to amend the par value of the
common stock from no par to a par value of $.0001, and to effect a 50-for-1
stock split applicable to all issued and outstanding shares of S.M.A. Real Time
Inc.'s common stock, increasing the issued and outstanding shares of common
stock to 1,250,000.
In addition, in April of 1999, the shareholders of each of the Companies
included in this combined group authorized (i) the merger of SMA Visual Effects
Corp. and Fly Films, Inc. with SMA Video, Inc. and (ii) the exchange of all of
their common shares of SMA Video, Inc. for 1,250,000 post split common shares of
S.M.A. Real Time Inc. These transactions were effected in April of 1999 and, as
a result, the issued and outstanding shares of S.M.A. Real Time Inc. common
stock increased to 2,500,000 as of April 30, 1999 and SMA Video, Inc. became a
wholly-owned subsidiary of S.M.A. Real Time Inc.
On May 10, 1999, the stockholders of S.M.A. Real Time Inc. authorized a
1.396-to-1 stock split of its common shares, which increased the outstanding
common shares of S.M.A. Real Time Inc. to 3,490,000 as of such date. All common
shares and related per-share data, reflected in the accompanying financial
statements and notes thereto, have been adjusted to give retroactive effect to
the above reorganization transactions.
Private Placement
In May 1999, the Company completed a Private Placement, pursuant to which
the Company sold 7 units for aggregate gross proceeds to the Company of
$700,000. Each unit consists of (i) a $100,000 promissory note bearing interest
at 10% per annum, payable the earlier of nine months from the issuance date, or
the closing of an initial public offering of the Company's securities and
(ii) 30,000 shares of the Company's common stock. The 210,000 shares of common
stock issued in connection with this financing were valued at $1,470,000 and
have been reflected on the Company's June 30, 1999 balance sheet as an increase
to non-current assets entitled deferred financing costs and an increase to
common stock for $21 and an increase to additional paid-in capital of
$1,469,979. Such deferred financing costs are being amortized as interest
expense over the initial term of the notes. Costs incurred in connection with
the Private Placement include a $70,000 fee to the placement agent,
approximately $10,000 in legal fees and warrants to the placement agent to
purchase 21,000 shares of the Company's common stock at an exercise price equal
to 120% of the initial public offering price. Amortization of the deferred
financing costs for the period through June 30, 1999 was $345,556.
Stock Options
During May of 1999, the Board of Directors and the stockholders of the
Company approved the 1999 Stock Option Plan (the "Plan"), which provides for the
granting of up to 500,000 shares of common stock, pursuant to which officers,
employees, directors and consultants are eligible to receive incentive and/or
nonstatutory stock options. Options granted under the Plan are exercisable for a
period of up to 10 years from date of grant at an exercise price which is not
less than the fair
F-16
<PAGE>
S.M.A. REAL TIME INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED WITH RESPECT TO JUNE 30, 1999 AND
THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999)
NOTE 10. SUBSEQUENT EVENTS--(CONTINUED)
value on date of grant, except that the exercise period of options granted to a
stockholder owning more than 10% of the outstanding capital stock may not exceed
five years and their exercise price may not be less than 110% of the fair value
of the common stock at date of grant. The Plan provides for the options to
include vesting provisions. No options under this Plan have been granted.
Employment Agreements
In May of 1999, the Company entered into five-year employment agreements
with its two principal shareholders, which commence upon the closing of an
initial public offering of the Company's securities. Each employment agreement
provides for, among other things, a base salary of $250,000 per year and annual
increases for costs of living.
In addition, in May of 1999, the Company entered into employment contracts
with two of its key technicians, one for a five-year term providing for a base
salary of $175,000 per year and a second contract for a three-year term
providing for a base salary of $230,000 per year.
Consulting Agreement
In May of 1999, the Company entered into a six-month consulting agreement
with an unrelated individual to assist the Company in its sales and marketing
efforts in the area of digital audio. The agreement commences on June 1, 1999
and provides for minimum payments of $140,000 through November 30, 1999 and
commissions based on new clients and new business generated during the term of
the agreement and for the five-year period thereafter.
In July 1999, the Company entered into an agreement with a consultant
providing for the supervision of the design, construction and operation of an
audio post production facility. The agreement provides for weekly payments of
$2,500 beginning July 15, 1999 until completion and reimbursement of expenses.
Upon completion of the facility, it is agreed that the consultant performing the
services will enter into an employment agreement with the Company at terms to be
determined.
Preferred Stock
In May of 1999, the Company authorized the issuance of up to 10,000,000
shares of preferred stock--par value $.0001 per share. The Board of Directors
has the authority to issue the preferred stock in one or more series and to
determine the powers, preferences and rights and the qualifications, limitations
or restrictions granted to or imposed upon any wholly unissued series of
undesignated preferred stock and to fix the number of shares constituting any
series and the designation of such series, without any further vote or action by
the stockholders.
F-17
<PAGE>
A two-page fold-out containing thirty examples of SMA's graphic design services,
computer animation and virtual set production.
<PAGE>
The inside back cover contains a photograph of the reception area of SMA's
executive offices and a photograph of one of SMA's editing suites at their
Manhattan facility.
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE ANY
INFORMATION OR REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST NOT
RELY ON ANY UNAUTHORIZED INFORMATION OR REPRESENTATIONS. THIS PROSPECTUS IS AN
OFFER TO SELL ONLY THE SHARES OFFERED HEREBY, BUT ONLY UNDER CIRCUMSTANCES AND
IN JURISDICTIONS WHERE IT IS LAWFUL TO DO SO. THE INFORMATION CONTAINED IN THIS
PROSPECTUS IS CURRENT ONLY AS OF ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary............................. 4
Risk Factors................................... 7
Cautionary Note Regarding Forward-Looking
Statements................................... 11
Use of Proceeds................................ 11
Dividend Policy................................ 12
Capitalization................................. 12
Dilution....................................... 13
Selected Financial Information................. 14
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 15
Business....................................... 21
Management..................................... 29
Certain Transactions........................... 35
Principal Stockholders......................... 38
Description of Securities...................... 39
Shares Eligible for Future Sale................ 40
Underwriting................................... 42
Legal Matters.................................. 44
Experts........................................ 44
Financial Statements........................... F-1
</TABLE>
------------------------
UNTIL , 1999, 25 DAYS AFTER THE DATE OF THIS PROSPECTUS, ALL
DEALERS THAT BUY, SELL OR TRADE THESE SECURITIES, WHETHER OR NOT PARTICIPATING
IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION
TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,000,000 SHARES
COMMON STOCK
------------------------
PROSPECTUS
------------------------
DIRKS & COMPANY, INC.
, 1999
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Limitations on Liability of Directors. Under New York law, a corporation
may adopt a charter provision eliminating or limiting the personal liability of
its directors to the corporation or its stockholders for breach of fiduciary
duties except:
o liability if a judgment or other final adjudication adverse to a director
establishes that his or her acts or omissions were in bad faith or
involved intentional misconduct or a knowing violation of law; or
o liability when the director personally gained a financial profit or other
advantage to which he or she was not legally entitled; or
o liability for any act or omission prior to the adoption by us of the
above indemnity provision; or
o liability when the director's acts violated New York Business Corporation
Law Section 719.
We have adopted a charter provision eliminating the personal liability of
our directors to the fullest extent permitted under New York law except under
the four provisions noted above.
Indemnification for Directors and Officers. Under New York law, a
corporation may indemnify its present and former directors and officers for a
variety of court or administrative proceedings. We have adopted a provision
which requires us to indemnify and hold harmless any person involved in any
action, suit or proceeding because that person is or was a director or officer
of ours. This provision does not, however, require us to indemnify an officer or
director in a proceeding they initiate without the authorization of our
directors.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of ours
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the Securities and Exchange Commission indemnification for
liabilities is against public policy as expressed in the Securities Act and is,
therefore, unenforceable.
We have entered into indemnification agreements with our officers and
directors containing provisions which may require us, among other things, to
indemnify our officers and directors against certain liabilities that may arise
by reason of their status or service as officers or directors, other than
liabilities arising from willful misconduct of a culpable nature, and to advance
their expenses incurred as a result of any proceeding against them as to which
they could be indemnified.
Insurance for Directors and Officers. Under New York law, a corporation may
obtain insurance on behalf of its directors and officers against liabilities
incurred by them in those capacities. We have adopted a provision which permits
us to maintain insurance to protect us and our directors and officers against
expenses, liabilities and losses whether or not we would have the power to
indemnify these persons under New York law. We intend to have in place at or
promptly after the closing of this offering a directors' and officers' liability
and company reimbursement liability insurance policy.
II-1
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses (other than selling
commissions and other fees paid to the underwriters) payable by the Registrant
in connection with the issuance and distribution of the securities being
registered. Except for the SEC and NASD filing fees, all expenses have been
estimated.
<TABLE>
<S> <C>
SEC Registration Fee.............................................................. $ 7,061
American Stock Exchange Listing Fee............................................... $ 35,000
NASD Filing Fee................................................................... $ 5,000
Accounting Fees and Expenses...................................................... $100,000
Printing and Engraving............................................................ $100,000
Legal Fees and Expenses........................................................... $200,000
Blue Sky Fees and Expenses........................................................ $ 30,000
Transfer Agent and Registrar Fees................................................. $ 10,000
Miscellaneous Expenses............................................................ $ 72,939
--------
Total................................................................... $560,000
--------
--------
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, the Registrant has issued unregistered
securities in the transactions described below:
In May 1999, the Company completed a private placement solely to accredited
investors, in reliance upon the exemption provided by Rule 506 of Regulation D
of the Securities Act, pursuant to which the Company sold 7 units for gross
proceeds to the Company of $700,000. Each unit consists of
(i) a $100,000 promissory note bearing interest at 10% per annum,
payable the earlier of nine months from the issuance date, or the closing
of an initial public offering of the Company's securities and
(ii) 30,000 shares of the Company's common stock.
The Company also issued 21,000 warrants to Dirks & Company as placement
agent, as compensation in connection with the Company's private placement in May
1999. Each warrant is exercisable into one share of common stock at an exercise
price equal to 120% of the initial public offering price. These placement agent
warrants are for a period of five years from the closing date of this offering,
and may be exercised after the closing date of this public offering. These
warrants have demand and piggyback registration rights. These warrants also have
exercise provisions under which the holder may, in lieu of payment of the
exercise price in cash, surrender the warrant and receive a net amount of
shares, based on the fair market value of our common stock at the time of the
exercise of the warrant, after deducting the aggregate exercise price. These
securities were issued pursuant to the exemption provided by Rule 506 of
Regulation D of the Securities Act.
ITEM 27. EXHIBITS
The following exhibits are filed as part of this Registration Statement
with the Securities and Exchange Commission pursuant to Item 601 of Regulation
S-B. All exhibits refer to S.M.A. Real Time Inc. unless otherwise indicated.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
1.1 -- Form of Underwriting Agreement
1.2 -- Form of Representative's Warrant Agreement
1.3 -- Form of Representative's Warrant (included in the form of Representative's Warrant Agreement)
*3.1 -- Certificate of Incorporation, filed with the Department of State of New York on May 26, 1993
*3.2 -- Certificate of Amendment to Certificate of Incorporation filed with the Department of State of New
York on November 18, 1998
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
*3.3 -- Certificate of Amendment to Certificate of Incorporation filed with the Department of State of New
York on April 16, 1999
*3.4 -- Certificate of Amendment to Certificate of Incorporation filed with the Department of State of New
York authorizing preferred stock
*3.5 -- By-Laws
4.1 -- Specimen Common Stock Certificate
5.1 -- Opinion of Stephen M. Robinson, P.A.
*10.1 -- Form of Indemnification Agreement between Registrant and each of its officers and directors
*10.2 -- 1999 Stock Incentive Plan
*10.3 -- Employment Agreement with Michael Morrissey
*10.4 -- Employment Agreement with David Satin
*10.5 -- Employment Agreement with Eli Friedman
*10.6 -- Employment Agreement with Larry Trosko
*10.7 -- Consulting Agreement with Edvardo Bissiccio
*10.8 -- Lease dated December 27, 1993, amended June 29, 1995 between The Rector Church-Wardens and Vestrymen
of Trinity Church in the City of New York, and Registrant
*10.9 -- Lease dated June 1, 1995 between Dominick Incantalupo and Fly Films, Inc.
10.10 -- Standard Contractor Agreement dated April 15, 1999 between Children's Television Workshop and SMA
Video, Inc.
10.11 -- Production Facilities Agreement dated October 15, 1998 between ESPN, Inc. and Registrant
*10.12 -- Promissory Note dated August 15, 1995 to David Satin and Michael Morrissey from S.M.A. Real Time Inc.
**10.13 -- Form of Promissory Note aggregating $700,000 issued to purchasers of Units in May 1999
*10.14 -- Form of Equipment Lease with Charter Financial, Inc.
*10.15 -- Form of Equipment Lease with Terminal Marketing Company
*10.16 -- Form of Equipment Lease with Independent Resources, Inc.
*10.17 -- Form of Business Ready Credit Agreement with Citibank
*10.18 -- Form of Business Loan Agreement with Citibank
*10.19 -- Form of Equipment Lease Agreement with LCA Leasing Corp.
**10.20 -- Form of Placement Agent's Warrant Agreement
*10.21 -- SMA Video, Inc. Profit Sharing Plan
*10.22 -- Chase Manhattan Bank Standardized 401(k) Profit Sharing Plan
10.23 -- Union-Sponsored Multi-Employer Pension Plan
10.24 -- Joint Venture Agreement dated November 5, 1998 between Flicker FX Corp. and Registrant
10.25 -- Agreement dated July 7, 1999 between Post Force Inc., Patrick Griffith and Registrant
*21.1 -- Subsidiaries of Registrant
23.1 -- Consent of Stephen M. Robinson, P.A. (Included in Exhibit 5.1)
23.2 -- Consent of Tabb, Conigliaro & McGann, P.C.
23.3 -- Consent of Darryl J. Kramer (Director Nominee)
23.4 -- Consent of Richard P. Aschman (Director Nominee)
23.5 -- Consent of Marc Goodman (Director Nominee)
*24 -- Power of Attorney (included on page II-5)
27 -- Financial Data Schedule
</TABLE>
- ------------------
* Previously filed
** To be filed by amendment
II-3
<PAGE>
ITEM 28. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) of (4), or 497(h)
under the Securities Act as part of this registration statement as of the time
it was declared effective.
For determining any liability under the Securities Act, treat each post
effective amendment that contains a form of prospectus as a new registration
statement for the securities offered in the registration statement, and the
offering of such securities at that time as the initial bona fide offering of
those securities.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant, the Registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and has authorized this registration
statement or amendment thereto to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York, State of New York on the
13th day of September, 1999.
S.M.A. REAL TIME INC.
By: /s/ MICHAEL J. MORRISSEY
----------------------------------
Michael J. Morrissey
President and Chief Executive
Officer
(Principal Executive Officer)
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT OR AMENDMENT THERETO HAS BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES STATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------------------- -------------------
<S> <C> <C>
/s/ MICHAEL J. MORRISSEY President, Chief Executive Officer and September 13, 1999
- ------------------------------------------ Director (Principal Executive Officer)
Michael J. Morrissey
* Executive Vice President, Secretary and September 13, 1999
- ------------------------------------------ Treasurer
David Satin
* Chief Financial Officer (Principal September 13, 1999
- ------------------------------------------ Financial Officer and Principal Accounting
Rafael A. Estevez, Jr. Officer)
</TABLE>
- ------------------
* Michael J. Morrissey,
as Power of Attorney
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
1.1 -- Form of Underwriting Agreement
1.2 -- Form of Representative's Warrant Agreement
1.3 -- Form of Representative's Warrant (included in the form of Representatives's Warrant Agreement)
*3.1 -- Certificate of Incorporation, filed with the Department of State of New York on May 26, 1993
*3.2 -- Certificate of Amendment to Certificate of Incorporation filed with the Department of State of New
York on November 18, 1998
*3.3 -- Certificate of Amendment to Certificate of Incorporation filed with the Department of State of New
York on April 16, 1999
*3.4 -- Certificate of Amendment to Certificate of Incorporation filed with the Department of State of New
York authorizing preferred stock
*3.5 -- By-Laws
4.1 -- Specimen Common Stock Certificate
5.1 -- Opinion of Stephen M. Robinson, P.A.
*10.1 -- Form of Indemnification Agreement between Registrant and each of its officers and directors
*10.2 -- 1999 Stock Incentive Plan
*10.3 -- Employment Agreement with Michael Morrissey
*10.4 -- Employment Agreement with David Satin
*10.5 -- Employment Agreement with Eli Friedman
*10.6 -- Employment Agreement with Larry Trosko
*10.7 -- Consulting Agreement with Edvardo Bissiccio
*10.8 -- Lease dated December 27, 1993, amended June 29, 1995 between The Rector Church-Wardens and Vestrymen
of Trinity Church in the City of New York, and Registrant
*10.9 -- Lease dated June 1, 1995 between Dominick Incantalupo and Fly Films, Inc.
10.10 -- Standard Contractor Agreement dated April 15, 1999 between Children's Television Workshop and SMA
Video, Inc.
10.11 -- Production Facilities Agreement dated October 15, 1998 between ESPN, Inc. and Registrant
*10.12 -- Promissory Note dated August 15, 1995 to David Satin and Michael Morrissey from S.M.A. Real Time Inc.
**10.13 -- Form of Promissory Note aggregating $700,000 issued to purchasers of Units in May 1999
*10.14 -- Form of Equipment Lease with Charter Financial, Inc.
*10.15 -- Form of Equipment Lease with Terminal Marketing Company
*10.16 -- Form of Equipment Lease with Independent Resources, Inc.
*10.17 -- Form of Business Ready Credit Agreement with Citibank
*10.18 -- Form of Business Loan Agreement with Citibank
*10.19 -- Form of Equipment Lease Agreement with LCA Leasing Corp.
**10.20 -- Form of Placement Agent's Warrant Agreement
*10.21 -- SMA Video, Inc. Profit Sharing Plan
*10.22 -- Chase Manhattan Bank Standardized 401(k) Profit Sharing Plan
10.23 -- Union-Sponsored Multi-Employer Pension Plan
10.24 -- Joint Venture Agreement dated November 5, 1998 between Flicker FX Corp. and Registrant
10.25 -- Agreement dated July 7, 1999 between Post Force Inc., Patrick Griffith and Registrant
*21.1 -- Subsidiaries of Registrant
23.1 -- Consent of Stephen M. Robinson, P.A. (Included in Exhibit 5.1)
23.2 -- Consent of Tabb, Conigliaro & McGann, P.C.
23.3 -- Consent of Darryl J. Kramer (Director Nominee)
23.4 -- Consent of Richard P. Aschman (Director Nominee)
23.5 -- Consent of Marc Goodman (Director Nominee)
*24 -- Power of Attorney (included on page II-5)
27 -- Financial Data Schedule
</TABLE>
- ------------------
* Previously filed
** To be filed by amendment
<PAGE>
2,000,000 Shares of Common Stock
S.M.A. REAL TIME INC.
UNDERWRITING AGREEMENT
New York, New York
, 1999
DIRKS & COMPANY, INC.
As Representative of the
several Underwriters named
in Schedule A to Exhibit A
annexed hereto
520 Madison Avenue
10th Floor
New York, New York 10022
Ladies and Gentlemen:
S.M.A. Real Time Inc., a New York corporation (the "Company"), confirms
its agreement with Dirks & Company, Inc. ("Dirks") and each of the underwriters
named in Schedule A hereto (collectively, the "Underwriters," which term shall
also include any underwriter substituted as hereinafter provided in Section 11),
for whom Dirks is acting as Representative (in such capacity, Dirks shall
hereinafter be referred to as "you" or the "Representative"), with respect to
the sale by the Company and the purchase by the Underwriters, acting severally
and not jointly, of the respective number of shares ("Shares") of the Company's
common stock, $0.0001 par value per share ("Common Stock"). The aggregate
2,000,000 shares of Common Stock are hereinafter referred to as the "Firm
Securities."
Upon your request, as provided in Section 2(b) of this Agreement, the
Company shall also issue and sell to the Underwriters, acting severally and not
jointly, up to an additional 300,000 shares of Common Stock for the purpose of
covering over-allotments, if any. Such 300,000 shares of Common Stock are
hereinafter collectively referred to as the "Option Securities." The Company
also proposes to issue and sell to you warrants (the "Representative's
Warrants") pursuant to the Representative's Warrant Agreement (the
"Representative's Warrant Agreement") for the purchase of an additional 200,000
shares of Common Stock. The shares of Common Stock issuable upon exercise of the
Representative's Warrants are hereinafter referred to as the "Representative's
Securities." The Firm Securities, the Option Securities, the Representative's
Warrants and the Representative's Securities (collectively, hereinafter referred
<PAGE>
to as the "Securities") are more fully described in the Registration Statement
and the Prospectus referred to below.
1. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, each of the Underwriters as of the
date hereof, and as of the Closing Date (as hereinafter defined) and each Option
Closing Date (as hereinafter defined), if any, as follows:
(a) The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement, and an
amendment or amendments thereto, on Form SB-2 (No. 333-_________), including any
related preliminary prospectus ("Preliminary Prospectus"), for the registration
of the Firm Securities, the Option Securities and the Representative's
Securities under the Securities Act of 1933, as amended (the "Act"), which
registration statement and amendment or amendments have been prepared by the
Company in conformity with the requirements of the Act, and the rules and
regulations (the "Regulations") of the Commission under the Act. The Company
will promptly file a further amendment to said registration statement in the
form heretofore delivered to the Underwriters and will not file any other
amendment thereto to which the Underwriters shall have objected in writing after
having been furnished with a copy thereof. Except as the context may otherwise
require, such registration statement, as amended, on file with the Commission at
the time the registration statement becomes effective (including the prospectus,
financial statements, schedules, exhibits and all other documents filed as a
part thereof or incorporated therein (including, but not limited to those
documents or information incorporated by reference therein) and all information
deemed to be a part thereof as of such time pursuant to paragraph (b) of Rule
430(A) of the Regulations), is hereinafter called the "Registration Statement",
and the form of prospectus in the form first filed with the Commission pursuant
to Rule 424(b) of the Regulations, is hereinafter called the "Prospectus." For
purposes hereof, "Rules and Regulations" mean the rules and regulations adopted
by the Commission under either the Act or the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), as applicable.
(b) Neither the Commission nor any state regulatory authority has
issued any order preventing or suspending the use of any Preliminary Prospectus,
the Registration Statement or Prospectus or any part of any thereof and no
proceedings for a stop order suspending the effectiveness of the Registration
Statement or any of the Company's securities have been instituted or are pending
or threatened. Each of the Preliminary Prospectus, the Registration Statement
and Prospectus at the time of filing thereof conformed with the requirements of
the Act and the Rules and Regulations, and none of the Preliminary Prospectus,
the Registration Statement or Prospectus at the time of filing thereof contained
an untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, except
that this representation and warranty does not apply to statements made in
reliance upon and in conformity with written information furnished to the
Company with respect to the Underwriters by or on behalf of the Underwriters
expressly for use in such Preliminary Prospectus, Registration Statement or
Prospectus or any amendment thereof or supplement thereto.
2
<PAGE>
(c) When the Registration Statement becomes effective and at all
times subsequent thereto up to the Closing Date (as defined herein) and each
Option Closing Date (as defined herein), if any, and during such longer period
as the Prospectus may be required to be delivered in connection with sales by
the Underwriters or a dealer, the Registration Statement and the Prospectus will
contain all statements which are required to be stated therein in accordance
with the Act and the Rules and Regulations, and will conform to the requirements
of the Act and the Rules and Regulations; neither the Registration Statement nor
the Prospectus, nor any amendment or supplement thereto, will contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, provided, however,
that this representation and warranty does not apply to statements made or
statements omitted in reliance upon and in strict conformity with information
furnished to the Company in writing by or on behalf of any Underwriter expressly
for use in the Preliminary Prospectus, Registration Statement or Prospectus or
any amendment thereof or supplement thereto.
(d) Each of the Company, a New York corporation, and the
Company's wholly-owned subsidiary, SMA Video, Inc., a New York corporation ("SMA
Video") (such subsidiary is hereinafter referred to as the "Subsidiary"), has
been duly organized and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its organization. Except as set forth in
the Prospectus, neither Company nor the Subsidiary owns an interest in any
corporation, partnership, trust, joint venture or other business entity. Each of
the Company and the Subsidiary is duly qualified and licensed and in good
standing as a foreign corporation in each jurisdiction in which its ownership or
leasing of any properties or the character of its operations requires such
qualification or licensing. The Company owns, directly or indirectly, one
hundred percent (100%) of the outstanding capital stock or other ownership
interests of the Subsidiary, and all of such shares or other ownership interests
have been validly issued, are fully paid and non-assessable, were not issued in
violation of any preemptive rights and are owned free and clear of any liens,
charges, claims, encumbrances, pledges, security interests, defects or other
restrictions or equities of any kind whatsoever. Each of the Company and the
Subsidiary has all requisite power and authority (corporate and other), and has
obtained any and all necessary authorizations, approvals, orders, licenses,
certificates, franchises and permits of and from all governmental or regulatory
officials and bodies (including, without limitation, those having jurisdiction
over environmental or similar matters), to own or lease its properties and
conduct its business as described in the Prospectus; each of the Company and the
Subsidiary is and has been doing business in compliance with all such
authorizations, approvals, orders, licenses, certificates, franchises and
permits and all applicable federal, state, local and foreign laws, rules and
regulations; and neither the Company nor the Subsidiary has received any notice
of proceedings relating to the revocation or modification of any such
authorization, approval, order, license, certificate, franchise, or permit
which, singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would materially and adversely affect the condition,
financial or otherwise, or the earnings, position, prospects, value, operation,
properties, business or results of operations of the Company. The Reorganization
(as discussed in the "Corporate Background" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" Sections of the
Prospectus and Note 10 to the Company's Combined Financial Statements contained
in the Prospectus) pursuant to which the Company became the parent company of
the Subsidiary has been consummated as described in the Prospectus. The
disclosures in the Registration Statement concerning the effects of domestic and
foreign laws,
3
<PAGE>
rules and regulations on the Company's and the Subsidiary's business as
currently conducted and as contemplated are correct in all material respects and
do not omit to state a material fact required to be stated therein or necessary
to make the statements contained therein not misleading in light of the
circumstances under which they were made.
(e) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus under "Capitalization" and
"Description of Securities" and will have the adjusted capitalization set forth
therein on the Closing Date and each Option Closing Date, if any, based upon the
assumptions set forth therein, and the Company is not a party to or bound by any
instrument, agreement or other arrangement providing for it to issue any capital
stock, rights, warrants, options or other securities, except for this Agreement,
the Representative's Warrant Agreement and as described in the Prospectus. The
Securities and all other securities issued or issuable by the Company conform
or, when issued and paid for, will conform, in all respects to all statements
with respect thereto contained in the Registration Statement and the Prospectus.
All issued and outstanding securities of the Company and the Subsidiary have
been duly authorized and validly issued and are fully paid and non-assessable
and the holders thereof have no rights of rescission with respect thereto, and
are not subject to personal liability by reason of being such holders; and none
of such securities were issued in violation of the preemptive rights of any
holders of any security of the Company or similar contractual rights granted by
the Company. The Securities are not and will not be subject to any preemptive or
other similar rights of any stockholder, have been duly authorized and, when
issued, paid for and delivered in accordance with the terms hereof, will be
validly issued, fully paid and non-assessable and will conform to the
description thereof contained in the Prospectus; the holders thereof will not be
subject to any liability solely as such holders; all corporate action required
to be taken for the authorization, issue and sale of the Securities has been
duly and validly taken; and the certificates representing the Securities will be
in due and proper form. Upon the issuance and delivery pursuant to the terms
hereof of the Securities to be sold by the Company hereunder, the Underwriters
or the Representative, as the case may be, will acquire good and marketable
title to such Securities free and clear of any lien, charge, claim, encumbrance,
pledge, security interest, defect or other restriction or equity of any kind
whatsoever.
(f) The combined financial statements of the Company, the
Subsidiary and Affiliates, together with the related notes and schedules
thereto, included in the Registration Statement, each Preliminary Prospectus and
the Prospectus fairly present the financial position, income, changes in cash
flow, changes in stockholders' equity and the results of operations of the
Company and the Subsidiary at the respective dates and for the respective
periods to which they apply and such financial statements have been prepared in
conformity with generally accepted accounting principles and the Rules and
Regulations, consistently applied throughout the periods involved and such
financial statements as are audited have been examined by Tabb, Conigliaro &
McGann, P.C., who are independent certified public accountants within the
meaning of the Act and the Rules and Regulations, as indicated in their
respective reports filed therewith. There has been no adverse change or
development involving a prospective adverse change in the condition, financial
or otherwise, or in the earnings, position, prospects, value, operation,
properties, business, or results of operations of the Company or the Subsidiary,
whether or not arising in the ordinary course of business, since the date of the
financial statements included in the Registration Statement and the Prospectus
and the outstanding debt, the property, both tangible and intangible, and the
business of the Company and the Subsidiary, conform in all
4
<PAGE>
material respects to the descriptions thereof contained in the Registration
Statement and the Prospectus. Financial information (including, without
limitation, any pro forma financial information) set forth in the Prospectus
under the headings "Summary Financial Data," "Selected Financial Data,"
"Capitalization," and "Management's Discussion and Analysis of Financial
Condition and Plan of Operation," fairly present, on the basis stated in the
Prospectus, the information set forth therein, and have been derived from or
compiled on a basis consistent with that of the audited financial statements
included in the Prospectus; and, in the case of pro forma financial information,
if any, the assumptions used in the preparation thereof are reasonable and the
adjustments used therein are appropriate to give effect to the transactions and
circumstances referred to therein. The amounts shown as accrued for current and
deferred income and other taxes in such financial statements are sufficient for
the payment of all accrued and unpaid domestic and foreign income taxes,
interest, penalties, assessments or deficiencies applicable to the Company and
the Subsidiary, whether disputed or not, for the applicable period then ended
and periods prior thereto; adequate allowance for doubtful accounts has been
provided for unindemnified losses due to the operations of the Company and the
Subsidiary; and the statements of income do not contain any items of special or
nonrecurring income not earned in the ordinary course of business, except as
specified in the notes thereto.
(g) Each of the Company and the Subsidiary (i) has paid all
domestic and foreign taxes for which it is liable, (ii) has established adequate
reserves for such taxes which are not due and payable, and (iii) does not have
any tax deficiency or claims outstanding, proposed or assessed against it.
(h) No transfer tax, stamp duty or other similar tax is payable
by or on behalf of the Underwriters in connection with (i) the issuance by the
Company of the Securities, (ii) the purchase by the Underwriters of the Firm
Securities and the Option Securities from the Company and the purchase by the
Representative of the Representative's Warrants from the Company, (iii) the
consummation by the Company of any of its obligations under this Agreement, or
(iv) resales of the Firm Securities and the Option Securities in connection with
the distribution contemplated hereby.
(i) Each of the Company and the Subsidiary maintains insurance
policies, including, but not limited to, general liability, and property
insurance, which insures each of the Company, the Subsidiary and their
respective employees, against such losses and risks generally insured against by
comparable businesses. Neither the Company nor the Subsidiary (A) has failed to
give notice or present any insurance claim with respect to any matter, including
but not limited to the Company's business, property or employees, under any
insurance policy or surety bond in a due and timely manner, (B) has any disputes
or claims against any underwriter of such insurance policies or surety bonds or
has failed to pay any premiums due and payable thereunder, or (C) has failed to
comply with all conditions contained in such insurance policies and surety
bonds. There are no facts or circumstances under any such insurance policy or
surety bond which would relieve any insurer of its obligation to satisfy in full
any valid claim of the Company or the Subsidiary.
(j) There is no action, suit, proceeding, inquiry, arbitration,
investigation, litigation or governmental proceeding (including, without
limitation, those having jurisdiction over environmental or similar matters),
domestic or foreign, pending or threatened against (or
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circumstances that may give rise to the same), or involving the properties or
business of, the Company or the Subsidiary which (i) questions the validity of
the capital stock of the Company, this Agreement or the Representative's Warrant
Agreement, or of any action taken or to be taken by the Company pursuant to or
in connection with this Agreement or the Representative's Warrant Agreement,
(ii) is required to be disclosed in the Registration Statement which is not so
disclosed (and such proceedings as are summarized in the Registration Statement
are accurately summarized in all material respects), or (iii) might materially
and adversely affect the condition, financial or otherwise, or the earnings,
position, prospects, stockholders' equity, value, operation, properties,
business or results of operations of the Company or the Subsidiary.
(k) The Company has full legal right, power and authority to
authorize, issue, deliver and sell the Securities, enter into this Agreement and
the Representative's Warrant Agreement and to consummate the transactions
provided for in this Agreement and the Representative's Warrant Agreement; and
this Agreement and the Representative's Warrant Agreement have each been duly
and properly authorized, executed and delivered by the Company. Each of this
Agreement and the Representative's Warrant Agreement constitutes a legal, valid
and binding agreement of the Company enforceable against the Company in
accordance with its terms, and none of the Company's issue and sale of the
Securities, execution or delivery of this Agreement or the Representative's
Warrant Agreement, its performance hereunder and thereunder, its consummation of
the transactions contemplated herein and therein, or the conduct of its business
as described in the Registration Statement, the Prospectus, and any amendments
or supplements thereto, conflicts with or will conflict with or results or will
result in any breach or violation of any of the terms or provisions of, or
constitutes or will constitute a default under, or result in the creation or
imposition of any lien, charge, claim, encumbrance, pledge, security interest,
defect or other restriction or equity of any kind whatsoever upon, any property
or assets (tangible or intangible) of the Company or the Subsidiary pursuant to
the terms of (i) the Certificate of Incorporation or By-Laws of the Company or
the Certificate of Incorporation or Bylaws of the Subsidiary, (ii) any license,
contract, collective bargaining agreement, indenture, mortgage, deed of trust,
lease, voting trust agreement, stockholders agreement, note, loan or credit
agreement or any other agreement or instrument to which the Company or the
Subsidiary is a party or by which the Company or the Subsidiary is or may be
bound or to which its or assets (tangible or intangible) is or may be subject,
or any indebtedness, or (iii) any statute, judgment, decree, order, rule or
regulation applicable to the Company or the Subsidiary of any arbitrator, court,
regulatory body or administrative agency or other governmental agency or body
(including, without limitation, those having jurisdiction over environmental or
similar matters), domestic or foreign, having jurisdiction over the Company or
the Subsidiary or any of its or their respective activities or properties.
(l) No consent, approval, authorization or order of, and no
filing with, any court, regulatory body, government agency or other body,
domestic or foreign, is required for the issuance of the Securities pursuant to
the Prospectus and the Registration Statement, the performance of this Agreement
and the Representative's Warrant Agreement and the transactions contemplated
hereby and thereby, including without limitation, any waiver of any preemptive,
first refusal or other rights that any entity or person may have for the issue
and/or sale of any of the Securities, except such as have been or may be
obtained under the Act or may be required under state securities or Blue Sky
laws in connection with the Underwriters' purchase and distribution of the Firm
Securities and the Option Securities, and the Representative's Warrants
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<PAGE>
to be sold by the Company hereunder. All authorizations, approvals, consents,
orders, registrations, licenses or permits of any court or governmental agency
or body necessary for the consummation of the organization of the Company and
the transfer of the Subsidiary's shares to the Company have been obtained or
effected and are in full force and effect.
(m) All executed agreements, contracts or other documents or
copies of executed agreements, contracts or other documents filed as exhibits to
the Registration Statement to which the Company or the Subsidiary is a party or
by which it or they may be bound or to which its or their respective assets,
properties or business may be subject have been duly and validly authorized,
executed and delivered by the Company or the Subsidiary and constitute the
legal, valid and binding agreements of the Company or the Subsidiary, as the
case may be, enforceable against it in accordance with its terms. The
descriptions in the Registration Statement of agreements, contracts and other
documents are accurate and fairly present the information required to be shown
with respect thereto by Form SB-2, and there are no contracts or other documents
which are required by the Act to be described in the Registration Statement or
filed as exhibits to the Registration Statement which are not described or filed
as required, and the exhibits which have been filed are complete and correct
copies of the documents of which they purport to be copies.
(n) Subsequent to the respective dates as of which information is
set forth in the Registration Statement and Prospectus, and except as may
otherwise be indicated or contemplated herein or therein, neither the Company
nor the Subsidiary has (i) issued any securities or incurred any liability or
obligation, direct or contingent, for borrowed money, (ii) entered into any
transaction other than in the ordinary course of business, or (iii) declared or
paid any dividend or made any other distribution on or in respect of its capital
stock of any class, and there has not been any change in the capital stock, or
any change in the debt (long or short term) or liabilities or material adverse
change in or affecting the general affairs, management, financial operations,
stockholders' equity or results of operations of the Company or the Subsidiary.
(o) No default exists in the due performance and observance of
any term, covenant or condition of any license, contract, collective bargaining
agreement, indenture, mortgage, installment sale agreement, lease, deed of
trust, voting trust agreement, stockholders agreement, partnership agreement,
note, loan or credit agreement, purchase order, or any other agreement or
instrument evidencing an obligation for borrowed money, or any other material
agreement or instrument to which the Company or the Subsidiary is a party or by
which the Company or the Subsidiary may be bound or to which the property or
assets (tangible or intangible) of the Company or the Subsidiary is subject or
affected.
(p) Each of the Company and the Subsidiary has generally enjoyed
a satisfactory employer-employee relationship with its employees and is in
compliance with all domestic and foreign laws and regulations respecting
employment and employment practices, terms and conditions of employment and
wages and hours. There are no pending investigations involving the Company or
the Subsidiary by any governmental agency responsible for the enforcement of
such domestic or foreign laws and regulations. There is no unfair labor practice
charge or complaint against the Company or the Subsidiary or any lockout,
strike, picketing, boycott, dispute, slowdown or stoppage pending or threatened
against or involving the Company or the
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Subsidiary, or any predecessor entity, and none has ever occurred. No
representation question exists respecting the employees of the Company or the
Subsidiary, and no collective bargaining agreement or modification thereof is
currently being negotiated by the Company or the Subsidiary. No grievance or
arbitration proceeding is pending under any expired or existing collective
bargaining agreements of the Company or the Subsidiary. No labor dispute with
the employees of the Company or the Subsidiary exists, or, is imminent.
(q) Neither the Company nor the Subsidiary maintains, sponsors or
contributes to any program or arrangement that is an "employee pension benefit
plan," an "employee welfare benefit plan," or a "multiemployer plan" as such
terms are defined in Sections 3(2), 3(1) and 3(37), respectively, of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") ("ERISA
Plans"). Neither the Company nor the Subsidiary maintains or contributes, now or
at any time previously, to a defined benefit plan, as defined in Section 3(35)
of ERISA. No ERISA Plan (or any trust created thereunder) has engaged in a
"prohibited transaction" within the meaning of Section 406 of ERISA or Section
4975 of the Code, which could subject the Company or the Subsidiary to any tax
penalty on prohibited transactions and which has not adequately been corrected.
Neither the Company nor the Subsidiary has never completely or partially
withdrawn from a "multiemployer plan."
(r) Neither the Company, the Subsidiary nor any of its or their
respective employees, directors, stockholders, partners, or affiliates (within
the meaning of the Rules and Regulations) of any of the foregoing has taken or
will take, directly or indirectly, any action designed to or which has
constituted or which might be expected to cause or result in, under the Exchange
Act, or otherwise, stabilization or manipulation of the price of any security of
the Company to facilitate the sale or resale of the Securities or otherwise.
(s) Except as otherwise disclosed in the Prospectus, none of the
patents, patent applications, trademarks, service marks, trade names and
copyrights, and licenses and rights to the foregoing presently owned or held by
the Company or the Subsidiary, are in dispute so far as known by the Company or
are in any conflict with the right of any other person or entity. Each of the
Company and the Subsidiary (i) owns or has the right to use, free and clear of
all liens, charges, claims, encumbrances, pledges, security interests, defects
or other restrictions or equities of any kind whatsoever, all patents,
trademarks, service marks, trade names and copyrights, technology and licenses
and rights with respect to the foregoing, used in the conduct of its business as
now conducted or proposed to be conducted without infringing upon or otherwise
acting adversely to the right or claimed right of any person, corporation or
other entity under or with respect to any of the foregoing and (ii) is not
obligated or under any liability whatsoever to make any payment by way of
royalties, fees or otherwise to any owner or licensee of, or other claimant to,
any patent, trademark, service mark, trade name, copyright, know-how, technology
or other intangible asset, with respect to the use thereof or in connection with
the conduct of its business or otherwise. No picture, photograph, or logo
contained in any preliminary or final prospectus or Registration Statement will
infringe upon the rights of any individual, corporation or affiliate of the
same.
(t) Each of the Company and the Subsidiary owns and has the
unrestricted right to use all trade secrets, know-how (including all other
unpatented and/or unpatentable proprietary or confidential information, systems
or procedures), inventions, designs, processes,
8
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works of authorship, computer programs and technical data and information
(collectively herein "intellectual property") that are material to the
development, manufacture, operation and sale of all products and services sold
or proposed to be sold by the Company, free and clear of and without violating
any right, lien, or claim of others, including without limitation, former
employers of its employees; provided, however, that the possibility exists that
other persons or entities, completely independent of the Company or the
Subsidiary, or its or their respective employees or agents, could have developed
trade secrets or items of technical information similar or identical to those of
the Company or the Subsidiary. Neither the Company nor the Subsidiary is aware
of any such development of similar or identical trade secrets or technical
information by others.
(u) Each of the Company and the Subsidiary has good and
marketable title to, or valid and enforceable leasehold estates in, all items of
real and personal property stated in the Prospectus to be owned or leased by it,
free and clear of all liens, charges, claims, encumbrances, pledges, security
interests, defects, or other restrictions or equities of any kind whatsoever,
other than those referred to in the Prospectus and liens for taxes not yet due
and payable.
(v) Tabb, Conigliaro & McGann, P.C., whose report is filed with
the Commission as a part of the Registration Statement, are independent
certified public accountants as required by the Act and the Rules and
Regulations.
(w) The Company has caused to be duly executed legally binding
and enforceable agreements pursuant to which each of the Company's officers,
directors, stockholders and holders of securities exchangeable or exercisable
for or convertible into shares of Common Stock has agreed not to, directly or
indirectly, issue, offer, offer to sell, sell, grant any option for the sale or
purchase of, assign, transfer, pledge, hypothecate or otherwise encumber or
dispose of any shares of Common Stock or securities convertible into,
exercisable or exchangeable for or evidencing any right to purchase or subscribe
for any shares of Common Stock (either pursuant to Rule 144 of the Rules and
Regulations or otherwise) or dispose of any beneficial interest therein for a
period of not less than twelve (12) months following the effective date of the
Registration Statement (the "Lock-Up Period") without the prior written consent
of the Representative and the Company. During the 12 month period commencing on
the effective date of the Registration Statement, the Company shall not, without
the prior written consent of the Representative, sell, contract or offer to
sell, issue, transfer, assign, pledge, distribute, or otherwise dispose of,
directly or indirectly, any shares of Common Stock or any options, rights or
warrants with respect to any shares of Common Stock. The Company will cause the
Transfer Agent (as hereinafter defined) to mark an appropriate legend on the
face of stock certificates representing all of such securities and to place
"stop transfer" orders on the Company's stock ledgers.
(x) There are no claims, payments, issuances, arrangements or
understandings, whether oral or written, for services in the nature of a
finder's or origination fee with respect to the sale of the Securities hereunder
or any other arrangements, agreements, understandings, payments or issuance with
respect to the Company, or any of its officers, directors, stockholders,
partners, employees or affiliates, that may affect the Underwriters'
compensation, as determined by the National Association of Securities Dealers,
Inc. ("NASD").
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<PAGE>
(y) The Common Stock has been approved for listing on the
American Stock Exchange ("Amex").
(z) Neither the Company, the Subsidiary nor any of their
respective officers, employees, agents or any other person acting on behalf of
the Company or the Subsidiary has, directly or indirectly, given or agreed to
give any money, gift or similar benefit (other than legal price concessions to
customers in the ordinary course of business) to any customer, supplier,
employee or agent of a customer or supplier, or official or employee of any
governmental agency (domestic or foreign) or instrumentality of any government
(domestic or foreign) or any political party or candidate for office (domestic
or foreign) or other person who was, is, or may be in a position to help or
hinder the business of the Company or the Subsidiary (or assist the Company or
the Subsidiary in connection with any actual or proposed transaction) which (a)
might subject the Company or the Subsidiary, or any other such person to any
damage or penalty in any civil, criminal or governmental litigation or
proceeding (domestic or foreign), (b) if not given in the past, might have had a
material adverse effect on the assets, business or operations of the Company or
the Subsidiary, or (c) if not continued in the future, might adversely affect
the assets, business, condition, financial or otherwise, earnings, position,
properties, value, operations or prospects of the Company or the Subsidiary. The
Company's internal accounting controls are sufficient to cause the Company to
comply with the Foreign Corrupt Practices Act of 1977, as amended.
(aa) Except as set forth in the Prospectus, no officer, director,
stockholder or partner of the Company, or any "affiliate" or "associate" (as
these terms are defined in Rule 405 promulgated under the Rules and Regulations)
of any of the foregoing persons or entities has or has had, either directly or
indirectly, (i) an interest in any person or entity which (A) furnishes or sells
services or products which are furnished or sold or are proposed to be furnished
or sold by the Company or the Subsidiary, or (B) purchases from or sells or
furnishes to the Company or the Subsidiary any goods or services, or (ii) a
beneficial interest in any contract or agreement to which the Company or the
Subsidiary is a party or by which it may be bound or affected. Except as set
forth in the Prospectus under "Certain Transactions," there are no existing
agreements, arrangements, understandings or transactions, or proposed
agreements, arrangements, understandings or transactions, between or among the
Company or the Subsidiary, and any officer, director, or 5% or greater
securityholder of the Company, or any partner, affiliate or associate of any of
the foregoing persons or entities.
(bb) Any certificate signed by any officer of the Company, and
delivered to the Underwriters or to Underwriters' Counsel (as defined herein)
shall be deemed a representation and warranty by the Company to the Underwriters
as to the matters covered thereby.
(cc) The minute books of each of the Company and the Subsidiary
have been made available to the Underwriters and contain a complete summary of
all meetings and actions of the directors (including committees thereof) and
stockholders of the Company and the Subsidiary, since the time of their
respective incorporation, and reflect all transactions referred to in such
minutes accurately in all material respects.
(dd) Except and to the extent described in the Prospectus, no
holders of any securities of the Company or of any options, warrants or other
convertible or exchangeable
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<PAGE>
securities of the Company have the right to include any securities issued by the
Company in the Registration Statement or any registration statement to be filed
by the Company or to require the Company to file a registration statement under
the Act and no person or entity holds any anti-dilution rights with respect to
any securities of the Company.
(ee) The Company has as of the effective date of the Registration
Statement entered into an employment agreement with each of Michael J. Morrissey
and David Satin in the form filed as Exhibits 10.3 and 10.4, respectively, to
the Registration Statement.
(ff) The Company confirms as of the date hereof that it is in
compliance with all provisions of Section 1 of Laws of Florida, Chapter 92-198,
An Act Relating to Disclosure of Doing Business with Cuba, and the Company
further agrees that if it or any affiliate commences engaging in business with
the government of Cuba or with any person or affiliate located in Cuba after the
date the Registration Statement becomes or has become effective with the
Commission or with the Florida Department of Banking and Finance (the
"Department"), whichever date is later, or if the information reported or
incorporated by reference in the Prospectus, if any, concerning the Company's,
or any affiliate's, business with Cuba or with any person or affiliate located
in Cuba changes in any material way, the Company will provide the Department
notice of such business or change, as appropriate, in a form acceptable to the
Department.
(gg) The Company is not, and upon the issuance and sale of the
Securities as herein contemplated and the application of the net proceeds
therefrom as described in the Prospectus under the caption "Use of Proceeds"
will not be, an "investment company" or an entity "controlled" by an "investment
company" as such terms are defined in the Investment Company Act of 1940, as
amended (the "1940 Act").
(hh) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management's general or specific authorizations;
(ii) transactions are recorded as necessary to permit preparations of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorizations; and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(ii) Each of the Company and the Subsidiary has reviewed its
operations and that of any third parties with which the Company or the
Subsidiary has a material relationship to evaluate the extent to which the
business or operations of the Company or the Subsidiary will be affected by the
Year 2000 Problem. As a result of such review, the disclosure in the
Registration Statement under Year 2000 is accurate and complies in all material
respects with the rules and regulations of the Act. The "Year 2000 Problem" as
used herein means any significant risk that computer hardware or software used
in the receipt, transmission, processing, manipulation, storage, retrieval,
retransmission or other utilization of data or in the operation of mechanical or
electrical systems of any kind will not, in the case of dates or time periods
occurring after December 31, 1999, function at least as effectively as in the
case of dates or time periods occurring prior to January 1, 2000.
11
<PAGE>
2. Purchase, Sale and Delivery of the Securities.
(a) On the basis of the representations, warranties, covenants
and agreements herein contained, but subject to the terms and conditions herein
set forth, the Company agrees to sell to each Underwriter, and each Underwriter,
severally and not jointly, agrees to purchase from the Company at a price of
$_______ [90% of the initial public offering price per share of Common Stock]
per share of Common Stock, that number of Firm Securities set forth in Schedule
A opposite the name of such Underwriter, subject to such adjustment as the
Representative in its sole discretion shall make to eliminate any sales or
purchases of fractional shares, plus any additional number of Firm Securities
which such Underwriter may become obligated to purchase pursuant to the
provisions of Section 11 hereof.
(b) In addition, on the basis of the representations, warranties,
covenants and agreements herein contained, but subject to the terms and
conditions herein set forth, the Company hereby grants an option to the
Underwriters, severally and not jointly, to purchase all or any part of an
additional 300,000 shares of Common Stock at a price of $_________ per share of
Common Stock [90% of the initial public offering price per share of Common
Stock]. The option granted hereby will expire forty-five (45) days after (i) the
date the Registration Statement becomes effective, if the Company has elected
not to rely on Rule 430A under the Rules and Regulations, or (ii) the date of
this Agreement if the Company has elected to rely upon Rule 430A under the Rules
and Regulations, and may be exercised in whole or in part from time to time only
for the purpose of covering over-allotments which may be made in connection with
the offering and distribution of the Firm Securities upon notice by the
Representative to the Company setting forth the number of Option Securities as
to which the several Underwriters are then exercising the option and the time
and date of payment and delivery for any such Option Securities. Any such time
and date of delivery (an "Option Closing Date") shall be determined by the
Representative, but shall not be later than three (3) full business days after
the exercise of said option, nor in any event prior to the Closing Date, as
hereinafter defined, unless otherwise agreed upon by the Representative and the
Company. Nothing herein contained shall obligate the Underwriters to make any
over-allotments. No Option Securities shall be delivered unless the Firm
Securities shall be simultaneously delivered or shall theretofore have been
delivered as herein provided.
(c) Payment of the purchase price for, and delivery of
certificates for, the Firm Securities shall be made at the offices of the
Representative at 520 Madison Avenue, 10th Floor, New York, New York 10022, or
at such other place as shall be agreed upon by the Representative and the
Company. Such delivery and payment shall be made at 10:00 a.m. (New York City
time) on ________, 1999 or at such other time and date as shall be agreed upon
by the Representative and the Company, but not less than three (3) nor more than
five (5) full business days after the effective date of the Registration
Statement (such time and date of payment and delivery being herein called the
"Closing Date"). In addition, in the event that any or all of the Option
Securities are purchased by the Underwriters, payment of the purchase price for,
and delivery of certificates for, such Option Securities shall be made at the
above-mentioned office of the Representative or at such other place as shall be
agreed upon by the Representative and the Company on each Option Closing Date as
specified in the notice from the Representative to the Company. Delivery of the
certificates for the Firm Securities and the Option Securities, if any,
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<PAGE>
shall be made to the Underwriters against payment by the Underwriters, severally
and not jointly, of the purchase price for the Firm Securities and the Option
Securities, if any, to the order of the Company for the Firm Securities and the
Option Securities, if any, by New York Clearing House funds. In the event such
option is exercised, each of the Underwriters, acting severally and not jointly,
shall purchase that proportion of the total number of Option Securities then
being purchased which the number of Firm Securities set forth in Schedule A
hereto opposite the name of such Underwriter bears to the total number of Firm
Securities, subject in each case to such adjustments as the Representative in
its discretion shall make to eliminate any sales or purchases of fractional
shares. Certificates for the Firm Securities and the Option Securities, if any,
shall be in definitive, fully registered form, shall bear no restrictive legends
and shall be in such denominations and registered in such names as the
Underwriters may request in writing at least two (2) business days prior to the
Closing Date or the relevant Option Closing Date, as the case may be. The
certificates for the Firm Securities and the Option Securities, if any, shall be
made available to the Representative at such office or such other place as the
Representative may designate for inspection, checking and packaging no later
than 9:30 a.m. on the last business day prior to the Closing Date or the
relevant Option Closing Date, as the case may be.
(d) On the Closing Date, the Company shall issue and sell to the
Representative Representative's Warrants at a purchase price of $.0001 per
warrant, which Representative's Warrants shall entitle the holders thereof to
purchase an aggregate of 200,000 shares of Common Stock. The Representative's
Warrants shall be exercisable for a period of four (4) years commencing one (1)
year from the effective date of the Registration Statement at a price equaling
one hundred twenty percent (120%) of the respective initial public offering
price of the Shares. The Representative's Warrant Agreement and form of Warrant
Certificate shall be substantially in the form filed as Exhibit 4.1 to the
Registration Statement. Payment for the Representative's Warrants shall be made
on the Closing Date.
3. Public Offering of the Shares. As soon after the Registration
Statement becomes effective as the Representative deems advisable, the
Underwriters shall make a public offering of the Shares (other than to residents
of or in any jurisdiction in which qualification of the Securities is required
and has not become effective) at the price and upon the other terms set forth in
the Prospectus. The Representative may from time to time increase or decrease
the public offering price after distribution of the Shares has been completed to
such extent as the Representative, in its sole discretion deems advisable. The
Underwriters may enter into one of more agreements as the Underwriters, in each
of their sole discretion, deem advisable with one or more broker-dealers who
shall act as dealers in connection with such public offering.
4. Covenants and Agreements of the Company. The Company covenants and
agrees with each of the Underwriters as follows:
(a) The Company shall use its best efforts to cause the
Registration Statement and any amendments thereto to become effective as
promptly as practicable and will not at any time, whether before or after the
effective date of the Registration Statement, file any amendment to the
Registration Statement or supplement to the Prospectus or file any document
under the Act or Exchange Act before termination of the offering of the Shares
by the Underwriters of which the Representative shall not previously have been
advised and furnished with a copy, or to which the
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<PAGE>
Representative shall have objected or which is not in compliance with the Act,
the Exchange Act or the Rules and Regulations.
(b) As soon as the Company is advised or obtains knowledge
thereof, the Company will advise the Representative and confirm the notice in
writing (i) when the Registration Statement, as amended, becomes effective, if
the provisions of Rule 430A promulgated under the Act will be relied upon, when
the Prospectus has been filed in accordance with said Rule 430A and when any
post-effective amendment to the Registration Statement becomes effective; (ii)
of the issuance by the Commission of any stop order or of the initiation, or the
threatening, of any proceeding suspending the effectiveness of the Registration
Statement or any order preventing or suspending the use of the Preliminary
Prospectus or the Prospectus, or any amendment or supplement thereto, or the
institution of proceedings for that purpose; (iii) of the issuance by the
Commission or by any state securities commission of any proceedings for the
suspension of the qualification of any of the Securities for offering or sale in
any jurisdiction or of the initiation, or the threatening, of any proceeding for
that purpose; (iv) of the receipt of any comments from the Commission; and (v)
of any request by the Commission for any amendment to the Registration Statement
or any amendment or supplement to the Prospectus or for additional information.
If the Commission or any state securities commission shall enter a stop order or
suspend such qualification at any time, the Company will make every effort to
obtain promptly the lifting of such order.
(c) The Company shall file the Prospectus (in form and substance
satisfactory to the Representative) or transmit the Prospectus by a means
reasonably calculated to result in filing with the Commission pursuant to Rule
424(b)(1) (or, if applicable and if consented to by the Representative, pursuant
to Rule 424(b)(4)) not later than the Commission's close of business on the
earlier of (i) the second business day following the execution and delivery of
this Agreement and (ii) the fifth business day after the effective date of the
Registration Statement.
(d) The Company will give the Representative notice of its
intention to file or prepare any amendment to the Registration Statement
(including any post-effective amendment) or any amendment or supplement to the
Prospectus (including any revised prospectus which the Company proposes for use
by the Underwriters in connection with the offering of the Securities which
differs from the corresponding prospectus on file at the Commission at the time
the Registration Statement becomes effective, whether or not such revised
prospectus is required to be filed pursuant to Rule 424(b) of the Rules and
Regulations), and will furnish the Representative with copies of any such
amendment or supplement a reasonable amount of time prior to such proposed
filing or use, as the case may be, and will not file any such prospectus to
which the Representative or Orrick, Herrington & Sutcliffe LLP ("Underwriters'
Counsel") shall object.
(e) The Company shall endeavor in good faith, in cooperation with
the Representative, at or prior to the time the Registration Statement becomes
effective, to qualify the Securities for offering and sale under the securities
laws of such jurisdictions as the Representative may designate to permit the
continuance of sales and dealings therein for as long as may be necessary to
complete the distribution, and shall make such applications, file such documents
and furnish such information as may be required for such purpose; provided,
however, the Company shall not be required to qualify as a foreign corporation
or file a general
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or limited consent to service of process in any such jurisdiction. In each
jurisdiction where such qualification shall be effected, the Company will,
unless the Representative agrees that such action is not at the time necessary
or advisable, use all reasonable efforts to file and make such statements or
reports at such times as are or may reasonably be required by the laws of such
jurisdiction to continue such qualification.
(f) During the time when a prospectus is required to be delivered
under the Act, the Company shall use all reasonable efforts to comply with all
requirements imposed upon it by the Act and the Exchange Act, as now and
hereafter amended and by the Rules and Regulations, as from time to time in
force, so far as necessary to permit the continuance of sales of or dealings in
the Securities in accordance with the provisions hereof and the Prospectus, or
any amendments or supplements thereto. If at any time when a prospectus relating
to the Securities is required to be delivered under the Act, any event shall
have occurred as a result of which, in the opinion of counsel for the Company or
Underwriters' Counsel, the Prospectus, as then amended or supplemented, includes
an untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading, or if
it is necessary at any time to amend the Prospectus to comply with the Act, the
Company will notify the Representative promptly and prepare and file with the
Commission an appropriate amendment or supplement in accordance with Section 10
of the Act, each such amendment or supplement to be satisfactory to
Underwriters' Counsel, and the Company will furnish to the Underwriters copies
of such amendment or supplement as soon as available and in such quantities as
the Underwriters may request.
(g) As soon as practicable, but in any event not later than
forty-five (45) days after the end of the 12-month period beginning on the day
after the end of the fiscal quarter of the Company during which the effective
date of the Registration Statement occurs (ninety (90) days in the event that
the end of such fiscal quarter is the end of the Company's fiscal year), the
Company shall make generally available to its security holders, in the manner
specified in Rule 158(b) of the Rules and Regulations, and to the
Representative, an earnings statement which will be in the detail required by,
and will otherwise comply with, the provisions of Section 11(a) of the Act and
Rule 158(a) of the Rules and Regulations, which statement need not be audited
unless required by the Act, covering a period of at least twelve (12)
consecutive months after the effective date of the Registration Statement.
(h) During a period of five (5) years after the date hereof, the
Company will furnish to its stockholders, as soon as practicable, annual reports
(including financial statements audited by independent public accountants) and
unaudited quarterly reports of earnings, and will deliver to the Representative:
(i) concurrently with furnishing such quarterly reports to
its stockholders, statements of income of the Company for each
quarter in the form furnished to the Company's stockholders and
certified by the Company's principal financial or accounting
officer;
(ii) concurrently with furnishing such annual reports to
its stockholders, a balance sheet of the Company as at the end of
the preceding fiscal year,
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together with statements of operations, stockholders' equity, and
cash flows of the Company for such fiscal year, accompanied by a
copy of the certificate thereon of independent certified public
accountants;
(iii) as soon as they are available, copies of all reports
(financial or other) mailed to stockholders;
(iv) as soon as they are available, copies of all reports
and financial statements furnished to or filed with the
Commission, the NASD or any securities exchange;
(v) every press release and every material news item or
article of interest to the financial community in respect of the
Company, or its affairs, which was released or prepared by or on
behalf of the Company; and
(vi) any additional information of a public nature
concerning the Company (and any future subsidiary) or its
businesses which the Representative may request.
During such seven-year period, if the Company has an active subsidiary,
the foregoing financial statements will be on a consolidated basis to the extent
that the accounts of the Company and its subsidiary(ies) are consolidated, and
will be accompanied by similar financial statements for any significant
subsidiary which is not so consolidated.
(i) The Company will maintain a transfer agent ("Transfer Agent")
and, if necessary under the jurisdiction of incorporation of the Company, a
Registrar (which may be the same entity as the Transfer Agent) for its Common
Stock.
(j) The Company will furnish to the Representative or on the
Representative's order, without charge, at such place as the Representative may
designate, copies of each Preliminary Prospectus, the Registration Statement and
any pre-effective or post-effective amendments thereto (two of which copies will
be signed and will include all financial statements and exhibits), the
Prospectus, and all amendments and supplements thereto, including any prospectus
prepared after the effective date of the Registration Statement, in each case as
soon as available and in such quantities as the Representative may request.
(k) On or before the effective date of the Registration
Statement, the Company shall provide the Representative with true original
copies of duly executed, legally binding and enforceable agreements pursuant to
which, for a period of twelve (12) months from the effective date of the
Registration Statement, each of the Company's stockholders and holders of
securities exchangeable or exercisable for or convertible into shares of Common
Stock agrees that it or he or she will not, directly or indirectly, issue, offer
to sell, sell, grant an option for the sale or purchase of, assign, transfer,
pledge, hypothecate or otherwise encumber or dispose of any shares of Common
Stock or securities convertible into, exercisable or exchangeable for or
evidencing any right to purchase or subscribe for any shares of Common Stock
(either pursuant to Rule 144 of the Rules and Regulations or otherwise) or
dispose of any beneficial interest therein without the prior consent of the
Representatives (collectively, the "Lock-up Agreements"). During the 12 month
period commencing on the effective date of the Registration Statement, the
Company
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<PAGE>
shall not, without the prior written consent of the Representative, sell,
contract or offer to sell, issue, transfer, assign, pledge, distribute, or
otherwise dispose of, directly or indirectly, any shares of Common Stock or any
options, rights or warrants with respect to any shares of Common Stock. On or
before the Closing Date, the Company shall deliver instructions to the Transfer
Agent authorizing it to place appropriate legends on the certificates
representing the securities subject to the Lock-up Agreements and to place
appropriate stop transfer orders on the Company's ledgers.
(l) Neither the Company, the Subsidiary, nor any of their
respective officers, directors, stockholders, nor any of their respective
affiliates (within the meaning of the Rules and Regulations) will take, directly
or indirectly, any action designed to, or which might in the future reasonably
be expected to cause or result in, stabilization or manipulation of the price of
any securities of the Company.
(m) The Company shall apply the net proceeds from the sale of the
Securities in the manner, and subject to the conditions, set forth under "Use of
Proceeds" in the Prospectus. No portion of the net proceeds will be used,
directly or indirectly, to acquire any securities issued by the Company.
(n) The Company shall timely file all such reports, forms or
other documents as may be required (including, but not limited to, a Form SR as
may be required pursuant to Rule 463 under the Act) from time to time, under the
Act, the Exchange Act, and the Rules and Regulations, and all such reports,
forms and documents filed will comply as to form and substance with the
applicable requirements under the Act, the Exchange Act, and the Rules and
Regulations.
(o) The Company shall furnish to the Representative as early as
practicable prior to each of the date hereof, the Closing Date and each Option
Closing Date, if any, but no later than two (2) full business days prior
thereto, a copy of the latest available unaudited interim financial statements
of the Company (which in no event shall be as of a date more than thirty (30)
days prior to the date of the Registration Statement) which have been read by
the Company's independent public accountants, as stated in their letters to be
furnished pursuant to Sections 6(j) hereof.
(p) The Company shall cause the Common Stock to be quoted on Amex
and, for a period of five (5) years from the date hereof, use its best efforts
to maintain the Amex quotation of the Common Stock to the extent outstanding.
(q) For a period of five (5) years from the Closing Date, the
Company shall furnish to the Representative at the Company's sole expense, (i)
daily consolidated transfer sheets relating to the Common Stock, (ii) the list
of holders of all of the Company's securities and (iii) a Blue Sky "Trading
Survey" for secondary sales of the Company's securities prepared by counsel to
the Company.
(r) As soon as practicable, (i) but in no event more than five
(5) business days before the effective date of the Registration Statement, file
a Form 8-A with the Commission providing for the registration under the Exchange
Act of the Securities and (ii) but in no event
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<PAGE>
more than thirty (30) days after the effective date of the Registration
Statement, take all necessary and appropriate actions to be included in Standard
and Poor's Corporation Descriptions and Moody's OTC Manual and to continue such
inclusion for a period of not less than five (5) years.
(s) The Company hereby agrees that it will not, for a period of
twelve (12) months from the effective date of the Registration Statement, adopt,
propose to adopt or otherwise permit to exist any employee, officer, director,
consultant or compensation plan or similar arrangement permitting (i) the grant,
issue, sale or entry into any agreement to grant, issue or sell any option,
warrant or other contract right (x) at an exercise price that is less than the
greater of the public offering price of the Shares set forth herein and the fair
market value on the date of grant or sale or (y) to any of its executive
officers or directors or to any holder of 5% or more of the Common Stock; (ii)
the payment for such securities with any form of consideration other than cash;
or (iii) the existence of stock appreciation rights, phantom options or similar
arrangements.
(t) Until the completion of the distribution of the Securities,
the Company shall not, without the prior written consent of the Representative
and Underwriters' Counsel, issue, directly or indirectly, any press release or
other communication or hold any press conference with respect to the Company or
its activities or the offering contemplated hereby, other than trade releases
issued in the ordinary course of the Company's business consistent with past
practices with respect to the Company's operations.
(u) For a period equal to the lesser of (i) five (5) years from
the date hereof, and (ii) the sale to the public of the Representative's
Securities, the Company will not take any action or actions which may prevent or
disqualify the Company's use of Form SB-2 (or other appropriate form) for the
registration under the Act of the Representative's Securities.
(v) For a period of five (5) years after the effective date of
the Registration Statement, the Representative shall have the right to designate
for election one person to the board of directors of the Company. In the event
that the Representative shall not have designated such individual at the time of
any meeting of the Company's board of directors or in the event that such
individual has not been elected or is unavailable to serve, the Company shall
notify the Representative of each meeting of its board of directors, and in such
event, an individual selected by the Representative shall be permitted to attend
all meetings of the Company's board of directors as a non-voting advisor and to
receive all notices and other correspondence and communications sent by the
Company to the members of its board of directors. Such board member or
non-voting advisor shall receive no more or less director compensation than is
paid to other non-officer directors of the Company for attendance at meetings of
the Company's board of directors and such board member or non-voting advisor
shall be entitled to receive reimbursement for all reasonable costs incurred in
attending such meetings, including but not limited to, food, lodging and
transportation. The Company hereby agrees to indemnify and hold such director or
non-voting advisor harmless, to the maximum extent permitted by law, against any
and all actions, suits, proceedings, inquiries, arbitrations, investigations,
litigation, governmental or other proceedings, domestic or foreign, and awards
and judgments arising out of such individual's service as a director or
non-voting advisor and, in the event that the Company maintains a liability
insurance policy affording coverage for the acts of its officer and
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<PAGE>
directors, and/or in the event that the Company has entered into an
indemnification agreement with any of its officers or directors, the Company
agrees to include such director or non-voting advisor as an insured under such
insurance policy and/or to enter into an indemnification agreement with such
director or non-voting advisor which is at least as favorable to such individual
as any indemnification agreement that the Company has entered into with any of
its officers or directors. The rights and benefits of such indemnification and
the benefits of such insurance shall, to the maximum extent possible, extend to
the Representatives insofar as it may be or may be alleged to be responsible for
such director or non-voting advisor.
5. Payment of Expenses.
(a) The Company hereby agrees to pay on each of the Closing Date
and the Option Closing Date (to the extent not paid at the Closing Date) all
expenses and fees (other than fees of Underwriters' Counsel, except as provided
in (iv) below) incident to the performance of the obligations of the Company
under this Agreement and the Representative's Warrant Agreement, including,
without limitation, (i) the fees and expenses of accountants and counsel for the
Company, (ii) all costs and expenses incurred in connection with the
preparation, duplication, printing (including mailing and handling charges),
filing, delivery and mailing (including the payment of postage with respect
thereto) of the Registration Statement and the Prospectus and any amendments and
supplements thereto and the printing, mailing (including the payment of postage
with respect thereto) and delivery of this Agreement, the Representative's
Warrant Agreement, the Agreement Among Underwriters, the Selected Dealer
Agreements, and related documents, including the cost of all copies thereof and
of the Preliminary Prospectuses and of the Prospectus and any amendments thereof
or supplements thereto supplied to the Underwriters and such dealers as the
Underwriters may request, in quantities as hereinabove stated, (iii) the
printing, engraving, issuance and delivery of the Securities including, but not
limited to, (x) the purchase by the Underwriters of the Firm Securities and the
Option Securities and the purchase by the Representative of the Representative's
Warrants from the Company, (y) the consummation by the Company of any of its
obligations under this Agreement and the Representative's Warrant Agreement, and
(z) resale of the Firm Securities and the Option Securities by the Underwriters
in connection with the distribution contemplated hereby, (iv) the qualification
of the Securities under state or foreign securities or "Blue Sky" laws and
determination of the status of such securities under legal investment laws,
including the costs of printing and mailing the "Preliminary Blue Sky
Memorandum", the "Supplemental Blue Sky Memorandum" and "Legal Investments
Survey," if any, and disbursements and fees of counsel in connection therewith,
(v) costs and expenses incurred by the Company in connection with the "road
show", (vi) fees and expenses of the Transfer Agent and registrar and all issue
and transfer taxes, if any, (vii) applications for assignment of a rating of the
Securities by qualified rating agencies, (viii) the fees payable to the
Commission and the NASD, and (ix) the fees and expenses incurred in connection
with the quotation of the Securities on Amex and any other exchange.
(b) If this Agreement is terminated by the Underwriters in
accordance with the provisions of Section 6 or Section 12, the Company shall
reimburse and indemnify the Underwriters for all of their actual out-of-pocket
expenses, including the fees and disbursements of Underwriters' Counsel, less
any amounts already paid pursuant to Section 5(c) hereof.
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<PAGE>
(c) The Company further agrees that, in addition to the expenses
payable pursuant to subsection (a) of this Section 5, it will pay to the
Representative on the Closing Date by certified or bank cashier's check or, at
the election of the Representative, by deduction from the proceeds of the
offering of the Firm Securities, a non-accountable expense allowance equal to 2%
of the gross proceeds received by the Company from the sale of the Firm
Securities.
6. Conditions of the Underwriters' Obligations. The obligations of the
Underwriters hereunder shall be subject to the continuing accuracy of the
representations and warranties of the Company herein as of the date hereof and
as of the Closing Date and each Option Closing Date, if any, as if they had been
made on and as of the Closing Date or each Option Closing Date, as the case may
be; the accuracy on and as of the Closing Date or Option Closing Date, if any,
of the statements of the officers of the Company made pursuant to the provisions
hereof; and the performance by the Company on and as of the Closing Date and
each Option Closing Date, if any, of its covenants and obligations hereunder and
to the following further conditions:
(a) The Registration Statement shall have become effective not
later than 12:00 P.M., New York time, on the date of this Agreement or such
later date and time as shall be consented to in writing by the Representative,
and, at the Closing Date and each Option Closing Date, if any, no stop order
suspending the effectiveness of the Registration Statement shall have been
issued and no proceedings for that purpose shall have been instituted or shall
be pending or contemplated by the Commission and any request on the part of the
Commission for additional information shall have been complied with to the
reasonable satisfaction of Underwriters' Counsel. If the Company has elected to
rely upon Rule 430A of the Rules and Regulations, the price of the Shares and
any price-related information previously omitted from the effective Registration
Statement pursuant to such Rule 430A shall have been transmitted to the
Commission for filing pursuant to Rule 424(b) of the Rules and Regulations
within the prescribed time period and, prior to the Closing Date, the Company
shall have provided evidence satisfactory to the Representative of such timely
filing, or a post-effective amendment providing such information shall have been
promptly filed and declared effective in accordance with the requirements of
Rule 430A of the Rules and Regulations.
(b) The Representative shall not have advised the Company that
the Registration Statement, or any amendment thereto, contains an untrue
statement of fact which, in the Representative's opinion, is material, or omits
to state a fact which, in the Representative's opinion, is material and is
required to be stated therein or is necessary to make the statements therein not
misleading, or that the Prospectus, or any supplement thereto, contains an
untrue statement of fact which, in the Representative's opinion, is material, or
omits to state a fact which, in the Representative's opinion, is material and is
required to be stated therein or is necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
(c) On or prior to each of the Closing Date and each Option
Closing Date, if any, the Representative shall have received from Underwriters'
Counsel, such opinion or opinions with respect to the organization of the
Company, the validity of the Securities, the Registration Statement, the
Prospectus and other related matters as the Representative may request and
Underwriters' Counsel shall have received such papers and information as they
request to enable them to pass upon such matters.
20
<PAGE>
(d) At the Closing Date, the Underwriters shall have received the
favorable opinion of Stephen M. Robinson, P.A., counsel to the Company, dated
the Closing Date, addressed to the Underwriters and in form and substance
satisfactory to Underwriters' Counsel, to the effect that:
(i) each of the Company and the Subsidiary (A) has been
duly organized and is validly existing as a corporation in good
standing under the laws of its jurisdiction, (B) is duly qualified and
licensed and in good standing as a foreign corporation in each
jurisdiction in which its ownership or leasing of any properties or the
character of its operations requires such qualification or licensing,
and (C) has all requisite corporate power and authority, and has
obtained any and all necessary authorizations, approvals, orders,
licenses, certificates, franchises and permits of and from all
governmental or regulatory officials and bodies (including, without
limitation, those having jurisdiction over environmental or similar
matters), to own or lease its properties and conduct its business as
described in the Prospectus; each of the Company and the Subsidiary is
and has been doing business in compliance with all such authorizations,
approvals, orders, licenses, certificates, franchises and permits and
all domestic and foreign laws, rules and regulations; and, neither the
Company nor the Subsidiary has received any notice of proceedings
relating to the revocation or modification of any such authorization,
approval, order, license, certificate, franchise, or permit which,
singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would materially adversely affect the business,
operations, condition, financial or otherwise, or the earnings,
business affairs, position, prospects, value, operation, properties,
business or results of operations of the Company or the Subsidiary. The
disclosures in the Registration Statement concerning the effects of
domestic and foreign laws, rules and regulations on the Company's
business as currently conducted and as contemplated are correct in all
material respects and do not omit to state a fact required to be stated
therein or necessary to make the statements contained therein not
misleading in light of the circumstances in which they were made.
(ii) the Company owns, directly or indirectly, one hundred
percent (100%) of the outstanding capital stock or other ownership
interests of the Subsidiary, and all such shares or other ownership
interests have been validly issued, are fully paid and non-assessable,
were not issued in violation of any preemptive rights and are owned
free and clear of any liens, charges, claims, encumbrances, pledges,
security interests, defects or other restrictions or equities of any
kind whatsoever.
(iii) except as described in the Prospectus, neither the
Company nor the Subsidiary owns an interest in any other corporation,
partnership, joint venture, trust or other business entity;
(iv) the Company has a duly authorized, issued and
outstanding capitalization as set forth in the Prospectus, and any
amendment or supplement thereto, under "CAPITALIZATION", and neither
the Company nor the Subsidiary is a party to or bound by any
instrument, agreement or other arrangement providing for it to issue,
sell, transfer, purchase or redeem any capital stock, rights, warrants,
options or other securities, except for this Agreement and the
Representative's Warrant Agreement and as described in the Prospectus.
The Securities and all other securities issued or issuable by
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<PAGE>
the Company conform in all material respects to all statements with
respect thereto contained in the Registration Statement and the
Prospectus. All issued and outstanding securities of the Company and
the Subsidiary have been duly authorized and validly issued and are
fully paid and non-assessable; the holders thereof have no rights of
rescission with respect thereto, and are not subject to personal
liability by reason of being such holders; and none of such securities
were issued in violation of the preemptive rights of any holders of any
security of the Company or any similar rights granted by the Company.
The Securities to be sold by the Company hereunder and under the
Representative's Warrant Agreement are not and will not be subject to
any preemptive or other similar rights of any stockholder, have been
duly authorized and, when issued, paid for and delivered in accordance
with the terms hereof, will be validly issued, fully paid and
non-assessable and conform to the description thereof contained in the
Prospectus; the holders thereof will not be subject to any liability
solely as such holders; all corporate action required to be taken for
the authorization, issue and sale of the Securities has been duly and
validly taken; and the certificates representing the Securities are in
due and proper form. The Representative's Warrants constitute valid and
binding obligations of the Company to issue and sell, upon exercise
thereof and payment therefor, the number and type of securities of the
Company called for thereby. Upon the issuance and delivery pursuant to
this Agreement of the Firm Securities and the Option Securities and the
Representative's Warrants to be sold by the Company, the Underwriters
and the Representative, respectively, will acquire good and marketable
title to the Firm Securities and the Option Securities and the
Representative's Warrants free and clear of any pledge, lien, charge,
claim, encumbrance, pledge, security interest, or other restriction or
equity of any kind whatsoever. No transfer tax is payable by or on
behalf of the Underwriters in connection with (A) the issuance by the
Company of the Securities, (B) the purchase by the Underwriters of the
Firm Securities and the Option Securities from the Company, and the
purchase by the Representative of the Representative's Warrants from
the Company (C) the consummation by the Company of any of its
obligations under this Agreement or the Representative's Warrant
Agreement, or (D) resales of the Firm Securities and the Option
Securities in connection with the distribution contemplated hereby.
(v) the Registration Statement is effective under the Act,
and, if applicable, filing of all pricing information has been timely
made in the appropriate form under Rule 430A, and no stop order
suspending the use of the Preliminary Prospectus, the Registration
Statement or Prospectus or any part of any thereof or suspending the
effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending or, to
the best of such counsel's knowledge, threatened or contemplated under
the Act;
(vi) each of the Preliminary Prospectus, the Registration
Statement, and the Prospectus and any amendments or supplements thereto
(other than the financial statements and other financial and
statistical data included therein, as to which no opinion need be
rendered) comply as to form in all material respects with the
requirements of the Act and the Rules and Regulations.
(vii) to the best of such counsel's knowledge, (A) there
are no agreements, contracts or other documents required by the Act to
be described in the
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Registration Statement and the Prospectus and filed as exhibits to the
Registration Statement other than those described in the Registration
Statement (or required to be filed under the Exchange Act if upon such
filing they would be incorporated, in whole or in part, by reference
therein) and the Prospectus and filed as exhibits thereto, and the
exhibits which have been filed are correct copies of the documents of
which they purport to be copies; (B) the descriptions in the
Registration Statement and the Prospectus and any supplement or
amendment thereto of contracts and other documents to which the Company
or the Subsidiary is a party or by which it is bound, including any
document to which the Company or the Subsidiary is a party or by which
it is bound, incorporated by reference into the Prospectus and any
supplement or amendment thereto, are accurate and fairly represent the
information required to be shown by Form SB-2; (C) there is not pending
or threatened against the Company or the Subsidiary any action,
arbitration, suit, proceeding, inquiry, investigation, litigation,
governmental or other proceeding (including, without limitation, those
having jurisdiction over environmental or similar matters), domestic or
foreign, pending or threatened against (or circumstances that may give
rise to the same), or involving the properties or business of the
Company or the Subsidiary which (x) is required to be disclosed in the
Registration Statement which is not so disclosed (and such proceedings
as are summarized in the Registration Statement are accurately
summarized in all respects), (y) questions the validity of the capital
stock of the Company or this Agreement or the Representative's Warrant
Agreement, or of any action taken or to be taken by the Company
pursuant to or in connection with any of the foregoing; (D) no statute
or regulation or legal or governmental proceeding required to be
described in the Prospectus is not described as required; and (E) there
is no action, suit or proceeding pending, or threatened, against or
affecting the Company or the Subsidiary before any court or arbitrator
or governmental body, agency or official (or any basis thereof known to
such counsel) in which there is a reasonable possibility of a decision
which may result in a material adverse change in the condition,
financial or otherwise, or the earnings, position, prospects,
stockholders' equity, value, operation, properties, business or results
of operations of the Company or the Subsidiary, which could adversely
affect the present or prospective ability of the Company to perform its
obligations under this Agreement or the Representative's Warrant
Agreement or which in any manner draws into question the validity or
enforceability of this Agreement or the Representative's Warrant
Agreement;
(viii) the Company has full legal right, power and
authority to enter into each of this Agreement and the Representative's
Warrant Agreement, and to consummate the transactions provided for
therein; and each of this Agreement and the Representative's Warrant
Agreement has been duly authorized, executed and delivered by the
Company. Each of this Agreement and the Representative's Warrant
Agreement, assuming due authorization, execution and delivery by each
other party thereto constitutes a legal, valid and binding agreement of
the Company enforceable against the Company in accordance with its
terms (except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of
general application relating to or affecting enforcement of creditors'
rights and the application of equitable principles in any action, legal
or equitable, and except as rights to indemnity or contribution may be
limited by applicable law), and none of the Company's execution or
delivery of this Agreement and the Representative's Warrant Agreement,
its performance hereunder or
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<PAGE>
thereunder, its consummation of the transactions contemplated herein or
therein, or the conduct of its business as described in the
Registration Statement, the Prospectus, and any amendments or
supplements thereto, conflicts with or will conflict with or results or
will result in any breach or violation of any of the terms or
provisions of, or constitutes or will constitute a default under, or
result in the creation or imposition of any lien, charge, claim,
encumbrance, pledge, security interest, defect or other restriction or
equity of any kind whatsoever upon, any property or assets (tangible or
intangible) of the Company or the Subsidiary pursuant to the terms of,
(A) the Certificate of Incorporation or By-Laws of the Company or the
Certificate of Incorporation or By-laws of the Subsidiary, (B) any
license, contract, collective bargaining agreement, indenture,
mortgage, deed of trust, lease, voting trust agreement, stockholders
agreement, note, loan or credit agreement or any other agreement or
instrument to which the Company or the Subsidiary is a party or by
which it is or they are or may be bound or to which any of its or their
respective properties or assets (tangible or intangible) is or may be
subject, or any indebtedness, or (C) any statute, judgment, decree,
order, rule or regulation applicable to the Company or the Subsidiary
of any arbitrator, court, regulatory body or administrative agency or
other governmental agency or body (including, without limitation, those
having jurisdiction over environmental or similar matters), domestic or
foreign, having jurisdiction over the Company or the Subsidiary or any
of their respective activities or properties.
(ix) no consent, approval, authorization or order, and no
filing with, any court, regulatory body, government agency or other
body (other than such as may be required under Blue Sky laws, as to
which no opinion need be rendered) is required in connection with the
issuance of the Firm Securities and the Option Securities pursuant to
the Prospectus and the Registration Statement, the issuance of the
Representative's Warrants, the performance of this Agreement and the
Representative's Warrant Agreement, and the transactions contemplated
hereby and thereby;
(x) the properties and business of each of the Company and
the Subsidiary conforms in all material respects to the description
thereof contained in the Registration Statement and the Prospectus; and
each of the Company and the Subsidiary has good and marketable title
to, or valid and enforceable leasehold estates in, all items of real
and personal property stated in the Prospectus to be owned or leased by
it, in each case free and clear of all liens, charges, claims,
encumbrances, pledges, security interests, defects or other
restrictions or equities of any kind whatsoever, other than those
referred to in the Prospectus and liens for taxes not yet due and
payable;
(xi) neither the Company nor the Subsidiary is in breach
of, or in default under, any term or provision of any license,
contract, collective bargaining agreement, indenture, mortgage,
installment sale agreement, deed of trust, lease, voting trust
agreement, stockholders' agreement, partnership agreement, note, loan
or credit agreement or any other agreement or instrument evidencing an
obligation for borrowed money, or any other agreement or instrument to
which the Company or the Subsidiary is a party or by which the Company
or the Subsidiary may be bound or to which the properties or assets
(tangible or intangible) of the Company or the Subsidiary is subject or
affected; and neither the Company nor the Subsidiary is in violation of
any term or provision of its Certificate of Incorporation or By-Laws
with respect to the Company and
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the Certificate of Incorporation or By-laws with respect to the
Subsidiary or in violation of any franchise, license, permit, judgment,
decree, order, statute, rule or regulation;
(xii) the statements in the Prospectus under "CORPORATE
BACKGROUND," "RISK FACTORS," "BUSINESS," "MANAGEMENT," "PRINCIPAL
STOCKHOLDERS," "CERTAIN TRANSACTIONS," "DESCRIPTION OF SECURITIES" and
"SHARES ELIGIBLE FOR FUTURE SALE" have been reviewed by such counsel,
and insofar as they refer to statements of law, descriptions of
statutes, licenses, rules or regulations or legal conclusions, are
correct in all material respects;
(xiii) the Securities have been accepted for quotation on
Amex;
(xiv) the persons listed under the caption "PRINCIPAL
STOCKHOLDERS" in the Prospectus are the respective "beneficial owners"
(as such phrase is defined in regulation 13d-3 under the Exchange Act)
of the securities set forth opposite their respective names thereunder
as and to the extent set forth therein;
(xv) neither the Company nor the Subsidiary, nor any of
their respective officers, stockholders, employees or agents, nor any
other person acting on behalf of the Company or the Subsidiary has,
directly or indirectly, given or agreed to give any money, gift or
similar benefit (other than legal price concessions to customers in the
ordinary course of business) to any customer, supplier, employee or
agent of a customer or supplier, or official or employee of any
governmental agency or instrumentality of any government (domestic or
foreign) or any political party or candidate for office (domestic or
foreign) or other person who is or may be in a position to help or
hinder the business of the Company or the Subsidiary (or assist it in
connection with any actual or proposed transaction) which (A) might
subject the Company or the Subsidiary to any damage or penalty in any
civil, criminal or governmental litigation or proceeding, (B) if not
given in the past, might have had an adverse effect on the assets,
business or operations of the Company or the Subsidiary, as reflected
in any of the financial statements contained in the Registration
Statement, or (C) if not continued in the future, might adversely
affect the assets, business, operations or prospects of the Company or
the Subsidiary;
(xvi) no person, corporation, trust, partnership,
association or other entity has the right to include and/or register
any securities of the Company in the Registration Statement, require
the Company to file any registration statement or, if filed, to include
any security in such registration statement;
(xvii) except as described in the Prospectus, there are no
claims, payments, issuances, arrangements or understandings for
services in the nature of a finder's or origination fee with respect to
the sale of the Securities hereunder or financial consulting
arrangements or any other arrangements, agreements, understandings,
payments or issuances that may affect the Underwriters' compensation,
as determined by the NASD;
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(xviii) assuming due execution by the parties thereto
other than the Company, the Lock-up Agreements are legal, valid and
binding obligations of the parties thereto, enforceable against the
party and any subsequent holder of the securities subject thereto in
accordance with its terms (except as such enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application relating to or affecting enforcement
of creditors' rights and the application of equitable principles in any
action, legal or equitable, and except as rights to indemnity or
contribution may be limited by applicable law);
(xix) except as described in the Prospectus, neither the
Company nor the Subsidiary (A) maintains, sponsors or contributes to
any ERISA Plans, (B) maintains or contributes, now or at any time
previously, to a defined benefit plan, as defined in Section 3(35) of
ERISA, and (C) has ever completely or partially withdrawn from a
"multiemployer plan";
(xx) the Company is in compliance with all provisions of
Section 1 of Laws of Florida, Chapter 92-198, An Act Relating to
Disclosure of Doing Business with Cuba;
(xxi) neither the Company, the Subsidiary or any of their
affiliates shall be subject to the requirements of or shall be deemed
an "Investment Company," pursuant to and as defined under,
respectively, the Investment Company Act.
Such counsel shall state that such counsel has participated in
conferences with officers and other representatives of the Company, and
representatives of the independent public accountants for the Company, at which
conferences such counsel made inquiries of such officers, representatives and
accountants and discussed the contents of the Preliminary Prospectus, the
Registration Statement, the Prospectus, and related matters and, although such
counsel is not passing upon and does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Preliminary Prospectus, the Registration Statement and Prospectus, on the basis
of the foregoing, no facts have come to the attention of such counsel which lead
them to believe that either the Registration Statement or any amendment thereto,
at the time such Registration Statement or amendment became effective or the
Preliminary Prospectus or Prospectus or amendment or supplement thereto as of
the date of such opinion contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading (it being understood that such
counsel need express no opinion with respect to the financial statements and
schedules and other financial and statistical data included in the Preliminary
Prospectus, the Registration Statement or the Prospectus). Such counsel shall
further state that its opinions may be relied upon by Underwriters' Counsel in
rendering its opinion to the Underwriters.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws other than the laws of the United States and
jurisdictions in which they are admitted, to the extent such counsel deems
proper and to the extent specified in such opinion, if at all, upon an opinion
or opinions (in form and substance satisfactory to Underwriters' Counsel) of
other counsel acceptable to Underwriters' Counsel, familiar with the applicable
laws; (B) as to matters of fact, to the extent they deem proper, on certificates
and written statements of
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responsible officers of the Company and certificates or other written statements
of officers of departments of various jurisdictions having custody of documents
respecting the corporate existence or good standing of the Company, provided
that copies of any such statements or certificates shall be delivered to
Underwriters' Counsel if requested. The opinion of such counsel for the Company
shall state that the opinion of any such other counsel is in form satisfactory
to such counsel and that the Representative, Underwriters' Counsel and they are
each justified in relying thereon. Any opinion of counsel for the Company and
the Subsidiary shall not state that it is to be governed or qualified by, or
that it is otherwise subject to, any treatise, written policy or other document
relating to legal opinions, including, without limitation, the Legal Opinion
Accord of the ABA Section of Business Law (1991) or any comparable state accord.
(e) At each Option Closing Date, if any, the Underwriters shall
have received the favorable opinions of Stephen M. Robinson, P.A., counsel to
the Company and the Subsidiary, dated such Option Closing Date, addressed to the
Underwriters and in form and substance satisfactory to Underwriters' Counsel
confirming as of such Option Closing Date the statements made by Haythe & Curley
in their opinion delivered on the Closing Date.
(f) On or prior to each of the Closing Date and each Option
Closing Date, if any, Underwriters' Counsel shall have been furnished such
documents, certificates and opinions as they may reasonably require for the
purpose of enabling them to review or pass upon the matters referred to in
subsection (c) of this Section 6, or in order to evidence the accuracy,
completeness or satisfaction of any of the representations, warranties or
conditions of the Company herein contained.
(g) Prior to each of the Closing Date and each Option Closing
Date, if any, (i) there shall have been no material adverse change nor
development involving a prospective change in the condition, financial or
otherwise, earnings, position, value, properties, results of operations,
prospects, stockholders' equity or the business activities of the Company or the
Subsidiary, whether or not in the ordinary course of business, from the latest
dates as of which such condition is set forth in the Registration Statement and
Prospectus; (ii) there shall have been no transaction, not in the ordinary
course of business, entered into by the Company or the Subsidiary, from the
latest date as of which the financial condition of the Company is set forth in
the Registration Statement and Prospectus which is adverse to the Company; (iii)
neither the Company nor the Subsidiary shall be in default under any provision
of any instrument relating to any outstanding indebtedness; (iv) the Company
shall not have issued any securities (other than the Securities) or declared or
paid any dividend or made any distribution in respect of its capital stock of
any class and there has not been any change in the capital stock or any material
change in the debt (long or short term) or liabilities or obligations of the
Company (contingent or otherwise); (v) no material amount of the assets of the
Company or the Subsidiary shall have been pledged or mortgaged, except as set
forth in the Registration Statement and Prospectus; (vi) no action, suit or
proceeding, at law or in equity, shall have been pending or threatened (or
circumstances giving rise to same) against the Company or the Subsidiary, or
affecting any of its or their respective properties or businesses before or by
any court or federal, state or foreign commission, board or other administrative
agency wherein an unfavorable decision, ruling or finding may adversely affect
the business, operations, earnings, position, value, properties, results of
operations, prospects or financial condition or income of the Company or the
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<PAGE>
Subsidiary; and (vii) no stop order shall have been issued under the Act and no
proceedings therefor shall have been initiated, threatened or contemplated by
the Commission.
(h) At each of the Closing Date and each Option Closing Date, if
any, the Underwriters shall have received a certificate of the Company signed by
the principal executive officer and by the chief financial or chief accounting
officer of the Company, dated the Closing Date or Option Closing Date, as the
case may be, to the effect that each of such persons has carefully examined the
Registration Statement, the Prospectus and this Agreement, and that:
(i) The representations and warranties of the Company and
the Subsidiary in this Agreement are true and correct, as if made on
and as of the Closing Date or the Option Closing Date, as the case may
be, and the Company has complied with all agreements and covenants and
satisfied all conditions contained in this Agreement on its part to be
performed or satisfied at or prior to such Closing Date or Option
Closing Date, as the case may be;
(ii) No stop order suspending the effectiveness of the
Registration Statement or any part thereof has been issued, and no
proceedings for that purpose have been instituted or are pending or, to
the best of each of such person's knowledge, are contemplated or
threatened under the Act;
(iii) The Registration Statement and the Prospectus and,
if any, each amendment and each supplement thereto, contain all
statements and information required to be included therein, and none of
the Registration Statement, the Prospectus nor any amendment or
supplement thereto includes any untrue statement of a material fact or
omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading and neither the
Preliminary Prospectus or any supplement thereto included any untrue
statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; and
(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus,
(a) neither the Company nor the Subsidiary has incurred up to and
including the Closing Date or the Option Closing Date, as the case may
be, other than in the ordinary course of its business, any material
liabilities or obligations, direct or contingent; (b) neither the
Company nor the Subsidiary has paid or declared any dividends or other
distributions on its capital stock; (c) neither the Company nor the
Subsidiary has entered into any transactions not in the ordinary course
of business; (d) there has not been any change in the capital stock or
long-term debt or any increase in the short-term borrowings (other than
any increase in the short-term borrowings in the ordinary course of
business) of the Company or the Subsidiary; (e) neither the Company nor
the Subsidiary has sustained any loss or damage to its properties or
assets, whether or not insured; (f) there is no litigation which is
pending or threatened (or circumstances giving rise to same) against
the Company or the Subsidiary or any affiliated party which is required
to be set forth in an amended or supplemented Prospectus which has not
been set forth; and (g) there has occurred no event required to be set
forth in an amended or supplemented Prospectus which has not been set
forth.
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<PAGE>
References to the Registration Statement and the Prospectus in this subsection
(i) are to such documents as amended and supplemented at the date of such
certificate.
(i) By the Closing Date, the Underwriters will have received
clearance from the NASD as to the amount of compensation allowable or payable to
the Underwriters, as described in the Registration Statement.
(j) At the time this Agreement is executed, the Underwriters
shall have received a letter, dated such date, addressed to the Underwriters in
form and substance satisfactory (including the non-material nature of the
changes or decreases, if any, referred to in clause (iii) below) in all respects
to the Underwriters and Underwriters' Counsel, from Tabb, Conigliaro & McGann,
P.C.:
(i) confirming that they are independent certified public
accountants with respect to the Company and the Subsidiary within the
meaning of the Act and the applicable Rules and Regulations;
(ii) stating that it is their opinion that the financial
statements and supporting schedules of the Company included in the
Registration Statement comply as to form in all material respects with
the applicable accounting requirements of the Act and the Rules and
Regulations thereunder and that the Representative may rely upon the
opinion of Tabb, Conigliaro & McGann, P.C. with respect to the
financial statements and supporting schedules included in the
Registration Statement;
(iii) stating that, on the basis of a limited review which
included a reading of the latest available unaudited interim financial
statements of the Company, a reading of the latest available minutes of
the stockholders and board of directors and the various committees of
the board of directors of the Company, consultations with officers and
other employees of the Company responsible for financial and accounting
matters and other specified procedures and inquiries, nothing has come
to their attention which would lead them to believe that (A) the
unaudited financial statements and supporting schedules of the Company
included in the Registration Statement do not comply as to form in all
material respects with the applicable accounting requirements of the
Act and the Rules and Regulations or are not fairly presented in
conformity with generally accepted accounting principles applied on a
basis substantially consistent with that of the audited financial
statements of the Company included in the Registration Statement, or
(B) at a specified date not more than five (5) days prior to the
effective date of the Registration Statement, there has been any change
in the capital stock or long-term debt of the Company, or any decrease
in the stockholders' equity or net current assets or net assets of the
Company as compared with amounts shown in the March 31, 1999 balance
sheet included in the Registration Statement, other than as set forth
in or contemplated by the Registration Statement, or, if there was any
change or decrease, setting forth the amount of such change or
decrease, and (C) during the period from March 31, 1999 to a specified
date not more than five (5) days prior to the effective date of the
Registration Statement, there was any decrease in net revenues, net
earnings or increase in net earnings per common share of any of the
Company or the Subsidiary, in each case as compared with the
corresponding period beginning March 31, 1999, other than as set
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<PAGE>
forth in or contemplated by the Registration Statement, or, if there
was any such decrease, setting forth the amount of such decrease;
(iv) setting forth, at a date not later than five (5) days
prior to the date of the Registration Statement, the amount of
liabilities of the Company and the Subsidiary taken as a whole
(including a break-down of commercial paper and notes payable to
banks);
(v) stating that they have compared specific dollar
amounts, numbers of shares, percentages of revenues and earnings,
statements and other financial information pertaining to the Company
set forth in the Prospectus in each case to the extent that such
amounts, numbers, percentages, statements and information may be
derived from the general accounting records, including work sheets, of
the Company and excluding any questions requiring an interpretation by
legal counsel, with the results obtained from the application of
specified readings, inquiries and other appropriate procedures (which
procedures do not constitute an examination in accordance with
generally accepted auditing standards) set forth in the letter and
found them to be in agreement;
(vi) statements as to such other matters incident to the
transaction contemplated hereby as the Representatives may request.
(k) At the Closing Date and each Option Closing Date, if any, the
Underwriters shall have received from Tabb, Conigliaro & McGann, P.C., a letter,
dated as of the Closing Date or the Option Closing Date, as the case may be, to
the effect that they reaffirm the statements made in the letter furnished
pursuant to subsection (j) of this Section, except that the specified date
referred to shall be a date not more than five (5) days prior to the Closing
Date or the Option Closing Date, as the case may be, and, if the Company has
elected to rely on Rule 430A of the Rules and Regulations, to the further effect
that they have carried out procedures as specified in clause (v) of subsection
(j) of this Section with respect to certain amounts, percentages and financial
information as specified by the Representative and deemed to be a part of the
Registration Statement pursuant to Rule 430A(b) and have found such amounts,
percentages and financial information to be in agreement with the records
specified in such clause (v).
(l) On each of the Closing Date and each Option Closing Date, if
any, there shall have been duly tendered to the Representative for the several
Underwriters' accounts the appropriate number of Securities.
(m) No order suspending the sale of the Securities in any
jurisdiction designated by the Representative pursuant to subsection (e) of
Section 4 hereof shall have been issued on either the Closing Date or the Option
Closing Date, if any, and no proceedings for that purpose shall have been
instituted or shall be contemplated.
(n) On or before the Closing Date, the Company shall have
executed and delivered to the Representative, (i) the Representative's Warrant
Agreement substantially in the form filed as Exhibit 1.2 to the Registration
Statement, in final form and substance satisfactory to
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the Representative, and (ii) the Representative's Warrants in such denominations
and to such designees as shall have been provided to the Company.
(o) On or before the Closing Date, the Firm Securities and Option
Securities shall have been duly approved for quotation on Amex, subject to
official notice of issuance.
(p) On or before the Closing Date, there shall have been
delivered to the Representative all of the Lock-up Agreements, in form and
substance satisfactory to Underwriters' Counsel.
If any condition to the Underwriters' obligations hereunder to be
fulfilled prior to or at the Closing Date or the relevant Option Closing Date,
as the case may be, is not so fulfilled, the Representative may terminate this
Agreement or, if the Representative so elects, it may waive any such conditions
which have not been fulfilled or extend the time for their fulfillment.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless each of the
Underwriters (for purposes of this Section 7 "Underwriter" shall include the
officers, directors, partners, employees, agents and counsel of the Underwriter,
including specifically each person who may be substituted for an Underwriter as
provided in Section 11 hereof), and each person, if any, who controls the
Underwriter ("controlling person") within the meaning of Section 15 of the Act
or Section 20(a) of the Exchange Act, from and against any and all losses,
claims, damages, expenses or liabilities, joint or several (and actions,
proceedings, investigations, inquiries, suits and litigation in respect
thereof), whatsoever (including but not limited to any and all expenses
whatsoever reasonably incurred in investigating, preparing or defending against
any such claim, action, proceeding, investigation, inquiry, suit or litigation,
commenced or threatened, or any claim whatsoever), as such are incurred, to
which the Underwriter or such controlling person may become subject under the
Act, the Exchange Act or any other statute or at common law or otherwise or
under the laws of foreign countries, arising out of or based upon (A) any untrue
statement or alleged untrue statement of a material fact contained (i) in any
Preliminary Prospectus, the Registration Statement or the Prospectus (as from
time to time amended and supplemented); (ii) in any post-effective amendment or
amendments or any new registration statement and prospectus in which is included
securities of the Company issued or issuable upon exercise of the Securities; or
(iii) in any application or other document or written communication (in this
Section 7 collectively called "application") executed by the Company or based
upon written information furnished by the Company in any jurisdiction in order
to qualify the Securities under the securities laws thereof or filed with the
Commission, any state securities commission or agency, Amex or any other
securities exchange; (B) the omission or alleged omission therefrom of a
material fact required to be stated therein or necessary to make the statements
therein not misleading (in the case of the Prospectus, in the light of the
circumstances under which they were made), or (C) any breach of any
representation, warranty, covenant or agreement of the Company contained herein
or in any certificate by or on behalf of the Company or any of its officers
delivered pursuant hereto, unless, in the case of clause (A) or (B) above, such
statement or omission was made in reliance upon and in strict conformity with
written information furnished to the Company with respect to any Underwriter by
or on behalf of such Underwriter expressly for use in any Preliminary
Prospectus, the Registration Statement or
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<PAGE>
Prospectus, or any amendment thereof or supplement thereto, or in any
application, as the case may be.
The indemnity agreement in this subsection (a) shall be in addition to
any liability which the Company may have at common law or otherwise.
(b) Each of the Underwriters agrees severally, but not jointly,
to indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the Registration Statement, and each other person, if
any, who controls the Company within the meaning of the Act, to the same extent
as the foregoing indemnity from the Company to the Underwriters but only with
respect to statements or omissions, if any, made in any Preliminary Prospectus,
the Registration Statement or Prospectus or any amendment thereof or supplement
thereto or in any application made in reliance upon, and in strict conformity
with, written information furnished to the Company with respect to any
Underwriter by such Underwriter expressly for use in such Preliminary
Prospectus, the Registration Statement or Prospectus or any amendment thereof or
supplement thereto or in any such application, provided that such written
information or omissions only pertain to disclosures in the Preliminary
Prospectus, the Registration Statement or Prospectus directly relating to the
transactions effected by the Underwriters in connection with this Offering. The
Company acknowledges that the statements with respect to the public offering of
the Firm Securities and the Option Securities set forth under the heading
"Underwriting" and the stabilization legend in the Prospectus have been
furnished by the Underwriters expressly for use therein and constitute the only
information furnished in writing by or on behalf of the Underwriters for
inclusion in the Prospectus.
(c) Promptly after receipt by an indemnified party under this
Section 7 of notice of the commencement of any claim, action, suit,
investigation, inquiry, proceeding or litigation, such indemnified party shall,
if a claim in respect thereof is to be made against one or more indemnifying
parties under this Section 7, notify each party against whom indemnification is
to be sought in writing of the commencement thereof (but the failure so to
notify an indemnifying party shall not relieve it from any liability which it
may have under this Section 7 except to the extent that it has been prejudiced
in any material respect by such failure or from any liability which it may have
otherwise). In case any such claim, action, suit, investigation, inquiry,
proceeding or litigation is brought against any indemnified party, and it
notifies an indemnifying party or parties of the commencement thereof, the
indemnifying party or parties will be entitled to participate therein, and to
the extent it may elect by written notice delivered to the indemnified party
promptly after receiving the aforesaid notice from such indemnified party, to
assume the defense thereof with counsel reasonably satisfactory to such
indemnified party. Notwithstanding the foregoing, the indemnified party or
parties shall have the right to employ its or their own counsel in any such case
but the fees and expenses of such counsel shall be at the expense of such
indemnified party or parties unless (i) the employment of such counsel shall
have been authorized in writing by the indemnifying parties in connection with
the defense of thereof at the expense of the indemnifying party, (ii) the
indemnifying parties shall not have employed counsel reasonably satisfactory to
such indemnified party to have charge of the defense thereof within a reasonable
time after notice of commencement thereof, or (iii) such indemnified party or
parties shall have reasonably concluded that there may be defenses available to
it or them which are different from or additional to those available to one or
all of the indemnifying parties (in which case the indemnifying parties shall
not have the right to direct the defense thereof on behalf of
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<PAGE>
the indemnified party or parties), in any of which events such fees and expenses
of one additional counsel shall be borne by the indemnifying parties. In no
event shall the indemnifying parties be liable for fees and expenses of more
than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one claim, action,
suit, investigation, inquiry, proceeding or litigation or separate but similar
or related claims, actions, suits, investigations, inquiries, proceedings or
litigation in the same jurisdiction arising out of the same general allegations
or circumstances. Anything in this Section 7 to the contrary notwithstanding, an
indemnifying party shall not be liable for any settlement of any claim, action,
suit, investigation, inquiry, proceeding or litigation effected without its
written consent; provided, however, that such consent was not unreasonably
withheld. An indemnifying party will not, without the prior written consent of
the indemnified parties, settle, compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit,
investigation, inquiry, proceeding or litigation in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified parties are actual or potential parties to such claim, action, suit,
investigation, inquiry, proceeding or litigation), unless such settlement,
compromise or consent (i) includes an unconditional release of each indemnified
party from all liability arising out of such claim, action, suit, investigation,
inquiry, proceeding or litigation and (ii) does not include a statement as to or
an admission of fault, culpability or a failure to act by or on behalf of any
indemnified party.
(d) In order to provide for just and equitable contribution in
any case in which (i) an indemnified party makes claim for indemnification
pursuant to this Section 7, but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
the express provisions of this Section 7 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of any
indemnified party, then each indemnifying party shall contribute to the amount
paid as a result of such losses, claims, damages, expenses or liabilities (or
actions in respect thereof) (A) in such proportion as is appropriate to reflect
the relative benefits received by each of the contributing parties, on the one
hand, and the party to be indemnified on the other hand, from the offering of
the Firm Securities and the Option Securities or (B) if the allocation provided
by clause (A) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of each of the contributing parties, on the
one hand, and the party to be indemnified on the other hand in connection with
the statements or omissions that resulted in such losses, claims, damages,
expenses or liabilities, as well as any other relevant equitable considerations.
In any case where the Company is the contributing party and the Underwriters are
the indemnified party, the relative benefits received by the Company on the one
hand, and the Underwriters, on the other, shall be deemed to be in the same
proportion as the total net proceeds from the offering of the Firm Securities
and the Option Securities (before deducting expenses) bear to the total
underwriting discounts received by the Underwriters hereunder, in each case as
set forth in the table on the Cover Page of the Prospectus. Relative fault shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company, or by the
Underwriters, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such untrue statement or omission. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages, expenses or liabilities (or actions in respect thereof)
referred to above in this subsection
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(d) shall be deemed to include any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this subsection (d), the
Underwriters shall not be required to contribute any amount in excess of the
underwriting discount applicable to the Firm Securities and the Option
Securities purchased by the Underwriters hereunder. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 7, each person, if
any, who controls the Company or the Underwriter within the meaning of the Act,
each officer of the Company who has signed the Registration Statement, and each
director of the Company shall have the same rights to contribution as the
Company or the Underwriter, as the case may be, subject in each case to this
subsection (d). Any party entitled to contribution will, promptly after receipt
of notice of commencement of any action, suit or proceeding against such party
in respect to which a claim for contribution may be made against another party
or parties under this subsection (d), notify such party or parties from whom
contribution may be sought, but the omission so to notify such party or parties
shall not relieve the party or parties from whom contribution may be sought from
any obligation it or they may have hereunder or otherwise than under this
subsection (d), or to the extent that such party or parties were not adversely
affected by such omission. The contribution agreement set forth above shall be
in addition to any liabilities which any indemnifying party may have at common
law or otherwise.
8. Representations and Agreements to Survive Delivery. All
representations, warranties and agreements contained in this Agreement or
contained in certificates of officers of the Company submitted pursuant hereto,
shall be deemed to be representations, warranties and agreements at the Closing
Date and the Option Closing Date, as the case may be, and such representations,
warranties and agreements of the Company and the indemnity agreements contained
in Section 7 hereof, shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any Underwriter, the
Company, any controlling person of any Underwriter or the Company, and shall
survive termination of this Agreement or the issuance and delivery of the
Securities to the Underwriters and the Representative, as the case may be.
9. Effective Date. This Agreement shall become effective at 10:00 a.m.,
New York City time, on the next full business day following the date hereof, or
at such earlier time after the Registration Statement becomes effective as the
Representative, in its discretion, shall release the Securities for sale to the
public; provided, however, that the provisions of Sections 5, 7 and 10 of this
Agreement shall at all times be effective. For purposes of this Section 9, the
Securities to be purchased hereunder shall be deemed to have been so released
upon the earlier of dispatch by the Representative of telegrams to securities
dealers releasing such securities for offering or the release by the
Representative for publication of the first newspaper advertisement which is
subsequently published relating to the Securities.
10. Termination.
(a) Subject to subsection (b) of this Section 10, the
Representative shall have the right to terminate this Agreement, (i) if any
domestic or international event or act or occurrence has materially adversely
disrupted, or in the Representative's opinion will in the immediate future
materially adversely disrupt, the financial markets; or (ii) if any material
adverse change
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in the financial markets shall have occurred; or (iii) if trading generally
shall have been suspended or materially limited on or by, as the case may be,
any of the New York Stock Exchange, the American Stock Exchange, the NASD, the
Boston Stock Exchange, the Commission or any governmental authority having
jurisdiction over such matters; or (iv) if trading of any of the securities of
the Company shall have been suspended, or any of the securities of the Company
shall have been delisted, on any exchange or in any over-the-counter market; (v)
if the United States shall have become involved in a war or major hostilities,
or if there shall have been an escalation in an existing war or major
hostilities or a national emergency shall have been declared in the United
States; or (vi) if a banking moratorium has been declared by a state or federal
authority; or (vii) if a moratorium in foreign exchange trading has been
declared; or (viii) if the Company or the Subsidiary shall have sustained a loss
material or substantial to the Company or the Subsidiary by fire, flood,
accident, hurricane, earthquake, theft, sabotage or other calamity or malicious
act which, whether or not such loss shall have been insured, will, in the
Representative's opinion, make it inadvisable to proceed with the offering, sale
and/or delivery of the Securities; or (ix) if there shall have been such a
material adverse change in the conditions or prospects of the Company, or such
material adverse change in the general market, political or economic conditions,
in the United States, Turkey or elsewhere, that, in each case, in the
Representative's judgment, would make it inadvisable to proceed with the
offering, sale and/or delivery of the Securities or (x) if either David R. Paolo
or Raymond Paolo shall no longer serve the Company in their respective present
capacities.
(b) If this Agreement is terminated by the Representative in
accordance with the provisions of Section 10(a) the Company shall promptly
reimburse and indemnify the Representative for all of its actual out-of-pocket
expenses, including the fees and disbursements of counsel for the Underwriters
(less amounts previously paid pursuant to Section 5(c) above). Notwithstanding
any contrary provision contained in this Agreement, if this Agreement shall not
be carried out within the time specified herein, or any extension thereof
granted to the Representative, by reason of any failure on the part of the
Company to perform any undertaking or satisfy any condition of this Agreement by
it to be performed or satisfied (including, without limitation, pursuant to
Section 6 or Section 12) then, the Company shall promptly reimburse and
indemnify the Representative for all of its actual out-of-pocket expenses,
including the fees and disbursements of counsel for the Underwriters (less
amounts previously paid pursuant to Section 5(c) above). In addition, the
Company shall remain liable for all Blue Sky counsel fees and disbursements,
expenses and filing fees. Notwithstanding any contrary provision contained in
this Agreement, any election hereunder or any termination of this Agreement
(including, without limitation, pursuant to Sections 6, 10, 11 and 12 hereof),
and whether or not this Agreement is otherwise carried out, the provisions of
Section 5 and Section 7 shall not be in any way affected by such election or
termination or failure to carry out the terms of this Agreement or any part
hereof.
11. Substitution of the Underwriters. If one or more of the
Underwriters shall fail (otherwise than for a reason sufficient to justify the
termination of this Agreement under the provisions of Section 6, Section 10 or
Section 12 hereof) to purchase the Securities which it or they are obligated to
purchase on such date under this Agreement (the "Defaulted Securities"), the
Representative shall have the right, within 24 hours thereafter, to make
arrangement for one or more of the non-defaulting Underwriters, or any other
underwriters, to purchase all, but not less than all, of the Defaulted
Securities in such amounts as may be agreed upon and upon the
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terms herein set forth; if, however, the Representative shall not have completed
such arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed 10% of
the total number of Firm Securities to be purchased on such date, the
non-defaulting Underwriters shall be obligated to purchase the full
amount thereof in the proportions that their respective underwriting
obligations hereunder bear to the underwriting obligations of all
non-defaulting Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the
total number of Firm Securities, this Agreement shall terminate without
liability on the part of any non-defaulting Underwriters (or, if such
default shall occur with respect to any Option Securities to be
purchased on an Option Closing Date, the Underwriters may at the
Representative's option, by notice from the Representative to the
Company, terminate the Underwriters' obligation to purchase Option
Securities from the Company on such date).
No action taken pursuant to this Section 11 shall relieve any
defaulting Underwriter from liability in respect of any default by such
Underwriter under this Agreement.
In the event of any such default which does not result in a termination
of this Agreement, the Representative shall have the right to postpone the
Closing Date for a period not exceeding seven (7) days in order to effect any
required changes in the Registration Statement or Prospectus or in any other
documents or arrangements.
12. Default by the Company. If the Company shall fail at the Closing
Date or at any Option Closing Date, as applicable, to sell and deliver the
number of Securities which it is obligated to sell hereunder on such date, then
this Agreement shall terminate (or, if such default shall occur with respect to
any Option Securities to be purchased on an Option Closing Date, the
Underwriters may at the Representative's option, by notice from the
Representative to the Company, terminate the Underwriters' obligation to
purchase Option Securities from the Company on such date) without any liability
on the part of any non-defaulting party other than pursuant to Section 5,
Section 7 and Section 10 hereof. No action taken pursuant to this Section 12
shall relieve the Company from liability, if any, in respect of such default.
13. Notices. All notices and communications hereunder, except as herein
otherwise specifically provided, shall be in writing and shall be deemed to have
been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriters shall be directed to the
Representative at Dirks & Company, Inc., 520 Madison Avenue, 10th Floor, New
York, New York 10022, Attention: Jessy W. Dirks, with a copy to Orrick,
Herrington & Sutcliffe LLP, 666 Fifth Avenue, New York, New York 10103,
Attention: Lawrence B. Fisher, Esq. Notices to the Company shall be directed to
the Company at S.M.A. Real Time Inc., 100 Avenue of the Americas, 10th Floor
10013, Attention: Michael J. Morrissey, with a copy to Stephen M. Robinson,
P.A., 172 Tuckerton Road, Medford, New Jersey 08055, Attention: Steve Robinson,
Esq.
14. Parties. This Agreement shall inure solely to the benefit of and
shall be binding upon, the Underwriters, the Company and the controlling
persons, directors and officers referred
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<PAGE>
to in Section 7 hereof, and their respective successors, legal representatives
and assigns, and no other person shall have or be construed to have any legal or
equitable right, remedy or claim under or in respect of or by virtue of this
Agreement or any provisions herein contained. No purchaser of Securities from
any Underwriter shall be deemed to be a successor by reason merely of such
purchase.
15. Construction. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York without giving
effect to the choice of law or conflict of laws principles.
16. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
taken together shall be deemed to be one and the same instrument.
17. Entire Agreement; Amendments. This Agreement and the Representative's
Warrant Agreement constitute the entire agreement of the parties hereto and
supersede all prior written or oral agreements, understandings and negotiations
with respect to the subject matter hereof. This Agreement may not be amended
except in a writing, signed by the Representative and the Company.
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If the foregoing correctly sets forth the understanding between the
Underwriters and the Company, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement among
us.
Very truly yours,
S.M.A. REAL TIME INC.
By:
-------------------------------------
Name:
Title:
Confirmed and accepted as of
the date first above written.
DIRKS & COMPANY, INC.
For itself and as Representative of the
several Underwriters named in
Schedule A hereto.
By:
---------------------------------
Name:
Title:
38
<PAGE>
SCHEDULE A
Number of Shares
Name of Underwriters to be Purchased
- -------------------- ---------------
Dirks & Company, Inc..................................
Total.................................................
-----------------------
2,000,000
=======================
<PAGE>
- --------------------------------------------------------------------------------
S.M.A. REAL TIME INC.
AND
DIRKS & COMPANY, INC.
REPRESENTATIVE'S
WARRANT AGREEMENT
Dated as of _____, 1999
- --------------------------------------------------------------------------------
<PAGE>
REPRESENTATIVE'S WARRANT AGREEMENT dated as of _________, 1999
between S.M.A. REAL TIME INC., a New York corporation (the "Company"), and DIRKS
& COMPANY, INC. ("Dirks") (Dirks is hereinafter referred to variously as the
"Holder" or "Holders" or the "Representative").
W I T N E S S E T H:
WHEREAS, the Company proposes to issue to the Representative
or its designee(s) warrants ("Warrants") to purchase up to an aggregate 200,000
shares (the "Shares) of common stock, $.0001 par value per Share ("Common
Stock"), of the Company; and
WHEREAS, the Representative has agreed pursuant to the
underwriting agreement (the "Underwriting Agreement") dated as of the date
hereof between the Company and the several Underwriters listed therein to act as
the Representative in connection with the Company's proposed public offering of
2,000,000 shares of Common Stock at a public offering price of $______ per Share
(the "Public Offering"); and
WHEREAS, the Warrants to be issued pursuant to this Agreement
will be issued on the Closing Date (as such term is defined in the Underwriting
Agreement) by the Company to the Representative in consideration for, and as
part of the Representative's compensation in connection with, the Representative
acting as the Representative pursuant to the Underwriting Agreement;
NOW, THEREFORE, in consideration of the premises, the payment
by the Representative to the Company of an aggregate twenty dollars ($20.00),
the agreements herein set forth and other good and valuable consideration,
hereby acknowledged, the parties hereto agree as follows:
1. Grant. The Representative (or its designees) is hereby
granted the right to purchase, at any time from _____________, 2000 [twelve
months after date of this Agreement],
2
<PAGE>
until 5:30 P.M., New York time, on ___________, 2004 [five years after date of
this Agreement], up to an aggregate of 200,000 Shares of Common Stock, at an
initial exercise price (subject to adjustment as provided in Section 8 hereof)
of $_____ per Share [120% of initial public offering price per share of Common
Stock], subject to the terms and conditions of this Agreement.
2. Warrant Certificates. The warrant certificates (the
"Warrant Certificates") delivered and to be delivered pursuant to this Agreement
shall be in the form set forth in Exhibit A, attached hereto and made a part
hereof, with such appropriate insertions, omissions, substitutions, and other
variations as required or permitted by this Agreement.
3. Exercise of Warrant.
3.1 Method of Exercise. The Warrants initially are exercisable
at an aggregate initial exercise price (subject to adjustment as provided in
Section 8 hereof) per Share set forth in Section 6 hereof payable by certified
or official bank check in New York Clearing House funds, subject to adjustment
as provided in Section 8 hereof. Upon surrender of a Warrant Certificate with
the annexed Form of Election to Purchase duly executed, together with payment of
the Exercise Price (as hereinafter defined) for the Shares purchased at the
Company's principal executive offices (presently located at 100 Avenue of the
Americas, 10th Floor, New York, New York 10013) the registered holder of a
Warrant Certificate ("Holder" or "Holders") shall be entitled to receive a
certificate or certificates for the shares of Common Stock so purchased. The
purchase rights represented by each Warrant Certificate are exercisable at the
option of the Holder thereof, in whole or in part (but not as to fractional
shares of the Common Stock). Warrants may be exercised to purchase all or part
of the Shares represented thereby. In the case of the purchase of less than all
the Shares purchasable under any Warrant Certificate, the Company shall cancel
said Warrant Certificate upon the surrender thereof and shall execute and
3
<PAGE>
deliver a new Warrant Certificate of like tenor for the balance of the Shares
purchasable thereunder.
3.2 Exercise by Surrender of Warrant. In addition to the
method of payment set forth in Section 3.1 and in lieu of any cash payment
required thereunder, the Holder(s) of the Warrants shall have the right at any
time and from time to time to exercise the Warrants in full or in part by
surrendering the Warrant Certificate in the manner specified in Section 3.1 in
exchange for the number of Shares equal to the product of (x) the number of
Shares as to which the Warrants are being exercised, multiplied by (y) a
fraction, the numerator of which is the Market Price (as defined in Section 3.3
hereof) of the Shares minus the Exercise Price of the Shares and the denominator
of which is the Market Price per Share. Solely for the purposes of this Section
3.2, Market Price shall be calculated either (i) on the date on which the form
of election attached hereto is deemed to have been sent to the Company pursuant
to Section 14 hereof ("Notice Date") or (ii) as the average of the Market Price
for each of the five trading days immediately preceding the Notice Date,
whichever of (i) or (ii) results in a greater Market Price.
3.3 Definition of Market Price.
(a) As used herein, the phrase "Market Price of the Shares" at
any date shall be deemed to be the last reported sale price, or, in case no such
reported sale takes place on such day, the average of the last reported sale
prices for the last three (3) trading days, in either case as officially
reported by the principal securities exchange on which the Common Stock is
listed or admitted to trading or by the Nasdaq National Market ("Nasdaq/NM") or
the Nasdaq Small Cap Market ("Nasdaq Small Cap"), or, if the Common Stock is not
listed or admitted to trading on any national securities exchange or quoted by
the National Association of Securities Dealers Automated Quotation System
("Nasdaq"), the average closing bid price as furnished by the National
4
<PAGE>
Association of Securities Dealers, Inc. ("NASD") through Nasdaq or similar
organization if Nasdaq is no longer reporting such information.
(b) If the Market Price of the Common Stock cannot be
determined pursuant to Section 3.3(a) above, the Market Price of the Common
Stock shall be determined in good faith (using customary valuation methods) by
resolution of the members of the Board of Directors of the Company, based on the
best information available to it.
4. Issuance of Certificates. Upon the exercise of the
Warrants, the issuance of certificates for shares of Common Stock shall be made
forthwith (and in any event such issuance shall be made within five (5) business
days thereafter) without charge to the Holder thereof including, without
limitation, any tax which may be payable in respect of the issuance thereof, and
such certificates shall (subject to the provisions of Sections 5 and 7 hereof)
be issued in the name of, or in such names as may be directed by, the Holder
thereof.
The Warrant Certificates and the certificates representing the
shares of Common Stock shall be executed on behalf of the Company by the manual
or facsimile signature of the then present Chairman or Vice Chairman of the
Board of Directors or President or Vice President of the Company under its
corporate seal reproduced thereon, attested to by the manual or facsimile
signature of the then present Secretary or Assistant Secretary or Treasurer or
Assistant Treasurer of the Company. Warrant Certificates shall be dated the date
of execution by the Company upon initial issuance, division, exchange,
substitution or transfer.
5. Restriction On Transfer of Warrants. The Holder of a
Warrant Certificate, by its acceptance thereof, covenants and agrees that the
Warrants are being acquired as an investment and not with a view to the
distribution thereof; that the Warrants may not be sold, transferred, assigned,
hypothecated or otherwise disposed of, in whole or in part, for a period of one
(1) year from the date hereof, except to officers or partners of the
Representative.
5
<PAGE>
6. Exercise Price.
6.1 Initial and Adjusted Exercise Price. Except as otherwise
provided in Section 8 hereof, the initial exercise price of each Warrant shall
be 120% of the initial public offering price of the securities to be offered.
The adjusted exercise price shall be the price which shall result from time to
time from any and all adjustments of the initial exercise price in accordance
with the provisions of Section 8 hereof.
6.2 Exercise Price. The term "Exercise Price" herein shall
mean the initial exercise price or the adjusted exercise price, depending upon
the context.
7. Registration Rights.
7.1 Registration Under the Securities Act of 1933. The
Warrants and the shares of Common Stock underlying the Warrants and the other
securities issuable upon exercise of the Warrants (collectively, the "Warrant
Securities") have been registered under the Securities Act of 1933, as amended
(the "Act") pursuant to the Company's Registration Statement on Form SB-2
(Registration No. 333-_____) (the "Registration Statement"). All the
representations and warranties of the Company and the Subsidiary contained in
the Underwriting Agreement relating to the Registration Statement, the
Preliminary Prospectus and Prospectus (as such terms are defined in the
Underwriting Agreement) and made as of the dates provided therein, are hereby
incorporated by reference. The Company agrees and covenants promptly to file
post effective amendments to such Registration Statement as may be necessary to
maintain the effectiveness of the Registration Statement as long as any Warrants
are outstanding. In the event that, for any reason, whatsoever, the Company
shall fail to maintain the effectiveness of the Registration Statement, upon
exercise, in part or in whole, of the Warrants, certificates representing the
shares of Common Stock underlying the Warrants shall bear the following legend:
6
<PAGE>
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended
("Act"), and may not be offered, sold, pledged, hypothecated,
assigned or transferred except pursuant to (i) an effective
registration statement under the Act, (ii) to the extent
applicable, Rule 144 under the Act (or any similar rule under
such Act relating to the disposition of securities), or (iii)
an opinion of counsel, if such opinion shall be reasonably
satisfactory to counsel to the issuer, that an exemption from
registration under such Act is available.
7.2 Piggyback Registration. If, at any time commencing after
the Closing Date of the public offering hereof and expiring seven (7) years
thereafter, the Company proposes to register any of its securities under the Act
(other than pursuant to Form S-8, S-4 or a comparable registration statement)
the Company will give written notice by registered mail, at least thirty (30)
days prior to the filing of each such registration statement, to the
Representative and to all other Holders of the Warrants and/or the Warrant
Securities of its intention to do so. If the Representative or other Holders of
the Warrants and/or Warrant Securities notifies the Company within twenty (20)
days after receipt of any such notice of its or their desire to include any such
securities in such proposed registration statement, the Company shall afford the
Representative and such Holders of the Warrants and/or Warrant Securities the
opportunity to have any such Warrant Securities registered under such
registration statement.
Notwithstanding the provisions of this Section 7.2, the
Company shall have the right at any time after it shall have given written
notice pursuant to this Section 7.2 (irrespective of whether a written request
for inclusion of any such securities shall have been made) to elect not to file
any such proposed registration statement, or to withdraw the same after the
filing but prior to the effective date thereof.
7.3 Demand Registration.
(a) At any time commencing after the Closing Date of the
public offering hereof and expiring five (5) years thereafter, the Holders of
the Warrants and/or Warrant Securities representing a "Majority" (as hereinafter
defined) of such securities (assuming the exercise of all of
7
<PAGE>
the Warrants) shall have the right (which right is in addition to the
registration rights under Section 7.2 hereof), exercisable by written notice to
the Company, to have the Company prepare and file with the Securities and
Exchange Commission (the "Commission"), on one occasion, a registration
statement and such other documents, including a prospectus, as may be necessary
in the opinion of both counsel for the Company and counsel for the
Representative and Holders, in order to comply with the provisions of the Act,
so as to permit a public offering and sale of their respective Warrant
Securities for nine (9) consecutive months by such Holders and any other Holders
of the Warrants and/or Warrant Securities who notify the Company within ten (10)
days after receiving notice from the Company of such request.
(b) The Company covenants and agrees to give written notice of
any registration request under this Section 7.3 by any Holder or Holders to all
other registered Holders of the Warrants and the Warrant Securities within ten
(10) days from the date of the receipt of any such registration request.
(c) Notwithstanding anything to the contrary contained herein,
if the Company shall not have filed a registration statement for the Warrant
Securities within the time period specified in Section 7.4(a) hereof pursuant to
the written notice specified in Section 7.3(a) of a Majority of the Holders of
the Warrants and/or Warrant Securities, the Company shall have the option, upon
the written notice of election of a Majority of the Holders of the Warrants
and/or Warrant Securities to repurchase (i) any and all Warrant Securities at
the higher of the Market Price per share of Common Stock on (x) the date of the
notice sent pursuant to Section 7.3(a) or (y) the expiration of the period
specified in Section 7.4(a) and (ii) any and all Warrants at such Market Price
less the Exercise Price of such Warrant. Such repurchase shall be in immediately
available funds and shall close within two (2) days after the later of (i) the
expiration of the period specified in Section 7.4(a) or (ii) the delivery of the
written notice of election specified in this Section 7.3(c).
8
<PAGE>
(d) In addition to the registration rights under Section 7.2
and subsection (a) of this Section 7.3, at any time commencing after the date
hereof and expiring five (5) years thereafter, any Holder of Warrants and/or
Warrant Securities shall have the right, exercisable by written request to the
Company, to have the Company prepare and file, on one occasion, with the
Commission a registration statement so as to permit a public offering and sale
for nine (9) consecutive months by any such Holder of its Warrant Securities
provided, however, that the provisions of Section 7.4(b) hereof shall not apply
to any such registration request and registration and all costs incident thereto
shall be at the expense of the Holder or Holders making such request.
7.4 Covenants of the Company With Respect to Registration. In
connection with any registration under Section 7.2 or 7.3 hereof, the Company
covenants and agrees as follows:
(a) The Company shall use its best efforts to file a
registration statement within thirty (30) days of receipt of any demand
therefor, shall use its best efforts to have any registration statement
declared effective at the earliest possible time, and shall furnish
each Holder desiring to sell Warrant Securities such number of
prospectuses as shall reasonably be requested.
(b) The Company shall pay all costs (excluding fees and
expenses of Holder(s)' counsel and any underwriting or selling
commissions), fees and expenses in connection with all registration
statements filed pursuant to Sections 7.2 and 7.3(a) hereof including,
without limitation, the Company's legal and accounting fees, printing
expenses, blue sky fees and expenses. The Holder(s) will pay all costs,
fees and expenses in connection with any registration statement filed
pursuant to Section 7.3(d). If the Company shall fail to comply with
the provisions of Section 7.4(a), the Company shall, in addition to any
other equitable or other relief available to the Holder(s), be liable
for any or all incidental or special
9
<PAGE>
damages sustained by the Holder(s) requesting registration of their
Warrant Securities, excluding consequential damages.
(c) The Company will take all necessary action which may be
required in qualifying or registering the Warrant Securities included
in a registration statement for offering and sale under the securities
or blue sky laws of such states as reasonably are requested by the
Holder(s), provided that the Company shall not be obligated to execute
or file any general consent to service of process or to qualify as a
foreign corporation to do business under the laws of any such
jurisdiction.
(d) The Company shall indemnify the Holder(s) of the Warrant
Securities to be sold pursuant to any registration statement and each
person, if any, who controls such Holders within the meaning of Section
15 of the Act or Section 20(a) of the Securities Exchange Act of 1934,
as amended ("Exchange Act"), against all loss, claim, damage, expense
or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to
which any of them may become subject under the Act, the Exchange Act or
otherwise, arising from such registration statement but only to the
same extent and with the same effect as the provisions pursuant to
which the Company has agreed to indemnify the Underwriters contained in
Section 7 of the Underwriting Agreement. The Company further agree(s)
that upon demand by an indemnified person, at any time or from time to
time, it will promptly reimburse such indemnified person for any loss,
claim, damage, liability, cost or expense actually and reasonably paid
by the indemnified person as to which the Company has indemnified such
person pursuant hereto. Notwithstanding the foregoing provisions of
this Section 7.4(d) any such payment or reimbursement by the Company of
fees, expenses or disbursements incurred by an indemnified person in
any proceeding in which a final judgment by a court of competent
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<PAGE>
jurisdiction (after all appeals or the expiration of time to appeal) is
entered against the Company or such indemnified person as a direct
result of the Holder(s) or such person's gross negligence or willful
misfeasance will be promptly repaid to the Company.
(e) The Holder(s) of the Warrant Securities to be sold
pursuant to a registration statement, and their successors and assigns,
shall severally, and not jointly, indemnify the Company, its officers
and directors and each person, if any, who controls the Company within
the meaning of Section 15 of the Act or Section 20(a) of the Exchange
Act, against all loss, claim, damage or expense or liability (including
all expenses reasonably incurred in investigating, preparing or
defending against any claim whatsoever) to which they may become
subject under the Act, the Exchange Act or otherwise, arising from
information furnished by or on behalf of such Holders, or their
successors or assigns, for specific inclusion in such registration
statement to the same extent and with the same effect as the provisions
contained in Section 7 of the Underwriting Agreement pursuant to which
the Underwriters have agreed to indemnify the Company. The Holder(s)
further agree(s) that upon demand by an indemnified person, at any time
or from time to time, they will promptly reimburse such indemnified
person for any loss, claim, damage, liability, cost or expense actually
and reasonably paid by the indemnified person as to which the Holder(s)
have indemnified such person pursuant hereto. Notwithstanding the
foregoing provisions of this Section 7.4(e) any such payment or
reimbursement by the Holder(s) of fees, expenses or disbursements
incurred by an indemnified person in any proceeding in which a final
judgment by a court of competent jurisdiction (after all appeals or the
expiration of time to appeal) is entered against the Company or such
indemnified person as a direct result of the Company or such person's
gross negligence or willful misfeasance will be promptly repaid to the
Holder(s).
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(f) Nothing contained in this Agreement shall be construed as
requiring the Holder(s) to exercise their Warrants prior to the initial
filing of any registration statement or the effectiveness thereof.
(g) The Company shall not permit the inclusion of any
securities other than the Warrant Securities to be included in any
registration statement filed pursuant to Section 7.3 hereof, or permit
any other registration statement to be or remain effective during the
effectiveness of a registration statement filed pursuant to Section 7.3
hereof, without the prior written consent of the Holders of the
Warrants and Warrant Securities representing a Majority of such
securities (assuming the exercise of all of the Warrants).
(h) The Company shall furnish to each Holder participating in
the offering and to each underwriter, if any, a signed counterpart,
addressed to such Holder or underwriter, of (i) an opinion of counsel
to the Company, dated the effective date of such registration statement
(and, if such registration includes an underwritten public offering, an
opinion dated the date of the closing under the underwriting
agreement), and (ii) a "cold comfort" letter dated the effective date
of such registration statement (and, if such registration includes an
underwritten public offering, a letter dated the date of the closing
under the underwriting agreement) signed by the independent public
accountants who have issued a report on the Company's financial
statements included in such registration statement, in each case
covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) and, in
the case of such accountants' letter, with respect to events subsequent
to the date of such financial statements, as are customarily covered in
opinions of issuer's counsel and in accountants' letters delivered to
underwriters in underwritten public offerings of securities.
12
<PAGE>
(i) The Company shall as soon as practicable after the
effective date of the registration statement, and in any event within
15 months thereafter, make "generally available to its security
holders" (within the meaning of Rule 158 under the Act) an earnings
statement (which need not be audited) complying with Section 11(a) of
the Act and covering a period of at least 12 consecutive months
beginning after the effective date of the registration statement.
(j) The Company shall deliver promptly to each Holder
participating in the offering requesting the correspondence and
memoranda described below and to the managing underwriter, if any,
copies of all correspondence between the Commission and the Company,
its counsel or auditors and all memoranda relating to discussions with
the Commission or its staff with respect to the registration statement
and permit each Holder and underwriter to do such investigation, upon
reasonable advance notice, with respect to information contained in or
omitted from the registration statement as it deems reasonably
necessary to comply with applicable securities laws or rules of the
NASD. Such investigation shall include access to books, records and
properties and opportunities to discuss the business of the Company
with its officers and independent auditors, all to such reasonable
extent and at such reasonable times and as often as any such Holder or
underwriter shall reasonably request.
(k) The Company shall enter into an underwriting agreement
with the managing underwriter selected for such underwriting by Holders
holding a Majority of the Warrant Securities requested to be included
in such underwriting, which may be the Representative. Such agreement
shall be satisfactory in form and substance to the Company, each Holder
and such managing underwriter, and shall contain such representations,
warranties and covenants by the Company and such other terms as are
customarily contained in agreements
13
<PAGE>
of that type used by the managing underwriter. The Holders shall be
parties to any underwriting agreement relating to an underwritten sale
of their Warrant Securities and may, at their option, require that any
or all of the representations, warranties and covenants of the Company
to or for the benefit of such underwriters shall also be made to and
for the benefit of such Holders. Such Holders shall not be required to
make any representations or warranties to or agreements with the
Company or the underwriters except as they may relate to such Holders
and their intended methods of distribution.
(l) In addition to the Warrant Securities, upon the written
request therefor by any Holder(s), the Company shall include in the
registration statement any other securities of the Company held by such
Holder(s) as of the date of filing of such registration statement,
including without limitation, restricted shares of Common Stock,
options, warrants or any other securities convertible into shares of
Common Stock.
(m) For purposes of this Agreement, the term "Majority" in
reference to the Holders of Warrants or Warrant Securities shall mean
in excess of fifty percent (50%) of the then outstanding Warrants or
Warrant Securities that (i) are not held by the Company, an affiliate,
officer, creditor, employee or agent thereof or any of their respective
affiliates, members of their family, persons acting as nominees or in
conjunction therewith and (ii) have not been resold to the public
pursuant to a registration statement filed with the Commission under
the Act.
8. Adjustments to Exercise Price and Number of Securities.
8.1 Subdivision and Combination. In case the Company shall at
any time subdivide or combine the outstanding shares of Common Stock, the
Exercise Price shall forthwith be proportionately decreased in the case of
subdivision or increased in the case of combination.
14
<PAGE>
8.2 Stock Dividends and Distributions. In case the Company
shall pay dividend in, or make a distribution of, shares of Common Stock or of
the Company's capital stock convertible into Common Stock, the Exercise Price
shall forthwith be proportionately decreased. An adjustment made pursuant to
this Section 8.2 shall be made as of the record date for the subject stock
dividend or distribution.
8.3 Adjustment in Number of Securities. Upon each adjustment
of the Exercise Price pursuant to the provisions of this Section 8, the number
of Warrant Securities issuable upon the exercise at the adjusted Exercise Price
of each Warrant shall be adjusted to the nearest whole number by multiplying a
number equal to the Exercise Price in effect immediately prior to such
adjustment by the number of Warrant Securities issuable upon exercise of the
Warrants immediately prior to such adjustment and dividing the product so
obtained by the adjusted Exercise Price.
8.4 Definition of Common Stock. For the purpose of this
Agreement, the term "Common Stock" shall mean (i) the class of stock designated
as Common Stock in the Certificate of Incorporation of the Company as may be
amended or restated as of the date hereof, or (ii) any other class of stock
resulting from successive changes or reclassifications of such Common Stock
consisting solely of changes in par value, or from par value to no par value, or
from no par value to par value.
8.5 Merger or Consolidation or Sale.
(a) In case of any consolidation of the Company with, or
merger of the Company with, or merger of the Company into, another corporation
(other than a consolidation or merger which does not result in any
reclassification or change of the outstanding Common Stock), the corporation
formed by such consolidation or merger shall execute and deliver to the Holder a
supplemental warrant agreement providing that the holder of each Warrant then
outstanding or to be outstanding shall have the right thereafter (until the
expiration of such Warrant) to receive, upon
15
<PAGE>
exercise of such Warrant, the kind and amount of shares of stock and other
securities and property receivable upon such consolidation, merger, sale or
transfer by a holder of the number of shares of Common Stock of the Company for
which such Warrant might have been exercised immediately prior to such
consolidation, merger, sale or transfer. Such supplemental warrant agreement
shall provide for adjustments which shall be identical to the adjustments
provided in this Section 8. The above provision of this subsection shall
similarly apply to successive consolidations or mergers.
(b) In the event of (i) the sale by the Company of all or
substantially all of its assets, or (ii) the engagement by the Company or any of
its affiliates in a "Rule 13e-3 transaction" as defined in paragraph (a)(3) of
Rule 13e-3 of the General Rules and Regulations under the Securities Exchange
Act of 1934, as amended, or (iii) a distribution to the Company's stockholders
of any cash, assets, property, rights, evidences of indebtedness, securities or
any other thing of value, or any combination thereof, the Holders of the
unexercised Warrants shall receive notice of such sale, transaction or
distribution twenty (20) days prior to the date of such sale or the record date
for such transaction or distribution, as applicable, and, if they exercise such
Warrants prior to such date, they shall be entitled, in addition to the shares
of Common Stock issuable upon the exercise thereof, to receive such property,
cash, assets, rights, evidence of indebtedness, securities or any other thing of
value, or any combination thereof, on the payment date of such sale, transaction
or distribution.
8.6 No Adjustment of Exercise Price in Certain Cases. No
adjustment of the Exercise Price shall be made if the amount of said adjustment
shall be less than ten cents (10 cents) per Warrant Security, provided, however,
that in such case any adjustment that would otherwise be required then to be
made shall be carried forward and shall be made at the time of and together with
the next subsequent adjustment which, together with any adjustment so carried
forward, shall amount to at least ten cents (10 cents) per Warrant Security.
16
<PAGE>
9. Exchange and Replacement of Warrant Certificates. Each
Warrant Certificate is exchangeable without expense, upon the surrender thereof
by the registered Holder at the principal executive office of the Company, for a
new Warrant Certificate of like tenor and date representing in the aggregate the
right to purchase the same number of Shares in such denominations as shall be
designated by the Holder thereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any Warrant
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it, and reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
the Warrants, if mutilated, the Company will make and deliver a new Warrant
Certificate of like tenor, in lieu thereof.
10. Elimination of Fractional Interests. The Company shall not
be required to issue certificates representing fractions of shares of Common
Stock upon the exercise of the Warrants, it being the intent of the parties that
all fractional interests shall be eliminated by rounding any fraction up to the
nearest whole number of shares of Common Stock, or other securities, properties
or rights.
11. Reservation and Listing of Securities. The Company shall
at all times reserve and keep available out of its authorized shares of Common
Stock, solely for the purpose of issuance upon the exercise of the Warrants,
such number of shares of Common Stock or other securities, properties or rights
as shall be issuable upon the exercise thereof. The Company covenants and agrees
that, upon exercise of the Warrants and payment of the Exercise Price therefor,
all shares of Common Stock and other securities issuable upon such exercise
shall be duly and validly issued, fully paid, non-assessable and not subject to
the preemptive rights of any stockholder. As long as the Warrants shall be
outstanding, the Company shall use its best efforts to
17
<PAGE>
cause all shares of Common Stock issuable upon the exercise of the Warrants to
be listed (subject to official notice of issuance) on all securities exchanges
on which the Common Stock issued to the public in connection herewith may then
be listed and/or quoted on Nasdaq National Market or Nasdaq Small Cap Market.
12. Notices to Warrant Holders. Nothing contained in this
Agreement shall be construed as conferring upon the Holders the right to vote or
to consent or to receive notice as a stockholder in respect of any meetings of
stockholders for the election of directors or any other matter, or as having any
rights whatsoever as a stockholder of the Company. If, however, at any time
prior to the expiration of the Warrants and their exercise, any of the following
events shall occur:
(a) the Company shall take a record of the holders of its
shares of Common Stock for the purpose of entitling them to receive a
dividend or distribution payable otherwise than in cash, or a cash
dividend or distribution payable otherwise than out of current or
retained earnings, as indicated by the accounting treatment of such
dividend or distribution on the books of the Company; or
(b) the Company shall offer to all the holders of its Common
Stock any additional shares of capital stock of the Company or
securities convertible into or exchangeable for shares of capital stock
of the Company, or any option, right or warrant to subscribe therefor;
or
(c) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation or merger) or a sale of
all or substantially all of its property, assets and business as an
entirety shall be proposed;
then, in any one or more of said events, the Company shall give written notice
of such event at least twenty (20) days prior to the date fixed as a record date
or the date of closing the transfer books for
18
<PAGE>
the determination of the stockholders entitled to such dividend, distribution,
convertible or exchangeable securities or subscription rights, or entitled to
vote on such proposed dissolution, liquidation, winding up or sale. Such notice
shall specify such record date or the date of closing the transfer books, as the
case may be. Failure to give such notice or any defect therein shall not affect
the validity of any action taken in connection with the declaration or payment
of any such dividend, or the issuance of any convertible or exchangeable
securities, or subscription rights, options or warrants, or any proposed
dissolution, liquidation, winding up or sale.
13. Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
duly made when delivered, or mailed by registered or certified mail, return
receipt requested:
(d) If to the registered Holder of the Warrants, to the
address of such Holder as shown on the books of the Company; or
(e) If to the Company, to the address set forth in Section 3
hereof or to such other address as the Company may designate by notice
to the Holders.
14. Supplements and Amendments. The Company and the
Representative may from time to time supplement or amend this Agreement without
the approval of any Holders of Warrant Certificates (other than the
Representative) in order to cure any ambiguity, to correct or supplement any
provision contained herein which may be defective or inconsistent with any
provisions herein, or to make any other provisions in regard to matters or
questions arising hereunder which the Company and the Representative may deem
necessary or desirable and which the Company and the Representative deem shall
not adversely affect the interests of the Holders of Warrant Certificates.
19
<PAGE>
15. Successors. All the covenants and provisions of this
Agreement shall be binding upon and inure to the benefit of the Company, the
Holders and their respective successors and assigns hereunder.
16. Termination. This Agreement shall terminate at the close
of business on __________, 2004. Notwithstanding the foregoing, the
indemnification provisions of Section 7 shall survive such termination until the
close of business on _____________, 2009.
17. Governing Law, Submission to Jurisdiction. This Agreement
and each Warrant Certificate issued hereunder shall be deemed to be a contract
made under the laws of the State of New York and for all purposes shall be
construed in accordance with the laws of said State without giving effect to the
rules of said State governing the conflicts of laws.
The Company, the Representative and the Holders hereby agree
that any action, proceeding or claim against it arising out of, or relating in
any way to, this Agreement shall be brought and enforced in the courts of the
State of New York or of the United States of America for the Southern District
of New York, and irrevocably submits to such jurisdiction, which jurisdiction
shall be exclusive. The Company, the Representative and the Holders hereby
irrevocably waive any objection to such exclusive jurisdiction or inconvenient
forum. Any such process or summons to be served upon any of the Company, the
Representative and the Holders (at the option of the party bringing such action,
proceeding or claim) may be served by transmitting a copy thereof, by registered
or certified mail, return receipt requested, postage prepaid, addressed to it at
the address as set forth in Section 14 hereof. Such mailing shall be deemed
personal service and shall be legal and binding upon the party so served in any
action, proceeding or claim. The Company, the Representative and the Holders
agree that the prevailing party(ies) in any such action or proceeding shall be
entitled to recover from the other party(ies) all of its/their reasonable legal
costs and
20
<PAGE>
expenses relating to such action or proceeding and/or incurred in connection
with the preparation therefor.
18. Entire Agreement; Modification. This Agreement (including
the Underwriting Agreement to the extent portions thereof are referred to
herein) contains the entire understanding between the parties hereto with
respect to the subject matter hereof and may not be modified or amended except
by a writing duly signed by the party against whom enforcement of the
modification or amendment is sought.
19. Severability. If any provision of this Agreement shall be
held to be invalid or unenforceable, such invalidity or unenforceability shall
not affect any other provision of this Agreement.
20. Captions. The caption headings of the Sections of this
Agreement are for convenience of reference only and are not intended, nor should
they be construed as, a part of this Agreement and shall be given no substantive
effect.
21. Benefits of this Agreement. Nothing in this Agreement
shall be construed to give to any person or corporation other than the Company
and the Representative and any other registered Holder(s) of the Warrant
Certificates or Warrant Securities any legal or equitable right, remedy or claim
under this Agreement; and this Agreement shall be for the sole and exclusive
benefit of the Company and the Representative and any other Holder(s) of the
Warrant Certificates or Warrant Securities.
22. Counterparts. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and such counterparts shall to either constitute but one and
the same instrument.
21
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, as of the day and year first above written.
S.M.A. REAL TIME INC.
By:
---------------------------------
Name:
Title:
Attest:
- ----------------------------------
Secretary
DIRKS & COMPANY, INC.
By:
---------------------------------
Name:
Title:
22
<PAGE>
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
(ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE
UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION
OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE
ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., NEW YORK TIME, ________, 2004
No. W-01 200,000 Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that __________, or
registered assigns, is the registered holder of __________ Warrants to purchase
initially, at any time from ____________, 2000 [one year from the effective date
of the Registration Statement] until 5:00 p.m. New York time on ____________,
2004 [five years from the effective date of the Registration Statement]
("Expiration Date"), up to 200,000 Shares of common stock, $.0001 par value
("Common Stock") of S..M.A. REAL TIME INC., a New York corporation (the
"Company"), at the initial exercise price, subject to adjustment in certain
events (the "Exercise Price"), of $_____________ [120% of the public offering
price per Share] per Share upon surrender of this Warrant Certificate and
payment of the Exercise Price at an office or agency of the Company, or by
surrender of this Warrant Certificate in lieu of cash payment, but subject to
the conditions set forth herein and in the warrant agreement dated as of
_________________, 1999 between the Company and Security Capital Trading, Inc.
(the "Warrant Agreement"). Payment of the Exercise Price shall be made by
certified or official bank check in New York Clearing House funds payable to the
order of the Company or by surrender of this Warrant Certificate.
No Warrant may be exercised after 5:00 p.m., New York time, on
the Expiration Date, at which time all Warrants evidenced hereby, unless
exercised prior thereto, hereby shall thereafter be void.
<PAGE>
The Warrants evidenced by this Warrant Certificate are part of
a duly authorized issue of Warrants issued pursuant to the Warrant Agreement,
which Warrant Agreement is hereby incorporated by reference in and made a part
of this instrument and is hereby referred to for a description of the rights,
limitation of rights, obligations, duties and immunities thereunder of the
Company and the holders (the words "holders" or "holder" meaning the registered
holders or registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of
certain events the Exercise Price and the type and/or number of the Company's
securities issuable thereupon may, subject to certain conditions, be adjusted.
In such event, the Company will, at the request of the holder, issue a new
Warrant Certificate evidencing the adjustment in the Exercise Price and the
number and/or type of securities issuable upon the exercise of the Warrants;
provided, however, that the failure of the Company to issue such new Warrant
Certificates shall not in any way change, alter, or otherwise impair, the rights
of the holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this
Warrant Certificate at an office or agency of the Company, a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing in the
aggregate a like number of Warrants shall be issued to the transferee(s) in
exchange for this Warrant Certificate, subject to the limitations provided
herein and in the Warrant Agreement, without any charge except for any tax or
other governmental charge imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced
by this Certificate, the Company shall forthwith issue to the holder hereof a
new Warrant Certificate representing such Warrant.
The Company may deem and treat the registered holder(s) hereof
as the absolute owner(s) of this Warrant Certificate (notwithstanding any
notation of ownership or other writing hereon made by anyone), for the purpose
of any exercise hereof, and of any distribution to the holder(s) hereof, and for
all other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined
in the Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed under its corporate seal.
Dated as of ___________, 1999
S.M.A. REAL TIME INC.
[SEAL] By:
--------------------------------
Name:
Title:
Attest:
- ----------------------------------
Secretary
3
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.1]
The undersigned hereby irrevocably elects to exercise the
right, represented by this Warrant Certificate, to purchase _____________ Shares
and herewith tenders in payment for such securities a certified or official bank
check payable in New York Clearing House Funds to the order of S.M.A. Real Time
Inc. in the amount of $__________, all in accordance with the terms of Section
3.1 of the Representative's Warrant Agreement dated as of ___________, 1999
between S.M.A. Real Time Inc. and Dirks & Company, Inc. The undersigned requests
that certificates for such securities be registered in the name of
_______________ whose address is __________________________ and that such
certificates be delivered to ______________________________ whose address is
____________________________.
Dated:
Signature
-------------------------
(Signature must conform in all
respects to name of holder as
specified on the face of the
Warrant Certificate.)
----------------------------------
(Insert Social Security or Other
Identifying Number of Holder)
4
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.2]
The undersigned hereby irrevocably elects to exercise the
right, represented by this Warrant Certificate, to purchase ____________ Shares
all in accordance with the terms of Section 3.2 of the Representative's Warrant
Agreement dated as of ______________, 1999 between S.M.A. Real Time Inc. and
Dirks & Company, Inc. The undersigned requests that certificates for such
securities be registered in the name of __________________ whose address is
_______________________ and that such certificates be delivered to
_____________________ whose address is ____________________________________.
Dated:
Signature
-------------------------
(Signature must conform in all
respects to name of holder as
specified on the face of the
Warrant Certificate.)
----------------------------------
(Insert Social Security or Other
Identifying Number of Holder)
5
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such
holder desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED _____________ hereby sells, assigns and
transfers unto
-----------------------------------------------------------------
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint ________________ Attorney, to
transfer the within Warrant Certificate on the books of the within-named
Company, with full power of substitution.
Dated: Signature:
----------------------------- ----------------------------
(Signature must conform in all
respects to name of holder as
specified on the face of the Warrant
Certificate.)
--------------------------------------
(Insert Social Security or Other
Identifying Number of Holder)
6
<PAGE>
NUMBER S.M.A. REAL TIME INC. SHARES
SMA INCORPORATED UNDER THE LAWS OF THE STATE OF NEW YORK
COMMON STOCK CUSIP 784451 10 6
SEE REVERSE FOR CERTAIN DEFINITIONS
THIS CERTIFIES THAT
IS THE RECORD HOLDER OF
FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK, $.0001 PAR VALUE, OF
S.M.A. REAL TIME INC.
transferable on the books of the Corporation by the holder hereof in person or
by a duly authorized attorney upon surrender of this Certificate properly
endorsed. The holder hereof accepts said shares of common stock with notice of
and subject to the provisions of the Corporation's Certificate of Incorporation
and Bylaws and all amendments thereto. This Certificate is not valid unless
countersigned and registered by the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated
CORPORATE
/s/ SEAL /s/
PRESIDENT SECRETARY
COUNTERSIGNED AND REGISTERED:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
(New York, N.Y.)
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED OFFICER
<PAGE>
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT-_____________Custodian_____________
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right
of survivorship and not as Under Uniform Gifts to Minors
tenants in common Act _________________________
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For Value Received,______________________ hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________________
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Company with
full power of substitution in the premises.
Dated____________________
_________________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAME AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed:
____________________________________________
THE SIGNATURE(S) MUST BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION
PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, MUTILATED OR
DESTROYED, THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO
THE ISSUANCE OF A REPLACEMENT CERTIFICATE.
<TABLE>
<S> <C>
AMERICAN BANK NOTE COMPANY PRODUCTION COORDINATOR MARY TARTAGLIA: 215-830-2184
680 BLAIR MILLER ROAD PROOF OF SEPTEMBER 9, 1999
HORSHAM, PA 19044 S.M.A. REAL TIME INC.
(215) 657-3480 H 63407 bk
- ---------------------------------- ---------------------------------------------------
SALES: J. NAPOLITANO: 212-593-5700 OPERATOR: JW
- ---------------------------------- ---------------------------------------------------
/NET/BANKNOTE/HOME 14 / SMA 63407 NEW
</TABLE>
<PAGE>
S.M.A. Real Time, Inc.
100 Avenue of the Americas
10th Floor
New York, NY 10017
RE: S.M.A. Real Time, Inc. Registration Statement on Form SB-2
Gentlemen:
We have acted as counsel to S.M.A. Real Time, Inc., a New York corporation (the
"Company"), in connection with the proposed issuance and sale by the Company of
up to 2,300,000 shares of the Company's Common Stock (the "Shares") pursuant to
the Company's Registration Statement on Form SB-2 (the "Registration Statement")
filed with the Securities and Exchange Commission under the Securities Act of
1933, as amended (the "Act"). This opinion is being furnished in accordance with
the requirements of Item 27 of Form SB-2 and Item 601(b)(5)(i) of Regulation
S-B.
We have reviewed the Company's charter documents and the corporate proceedings
taken by the Company in connection with the issuance and sale of the Shares.
Based on such review, we are of the opinion that the Shares have been duly
authorized, and if, as and when issued in accordance with the Registration
Statement and the related prospectus (as amended and supplemented through the
date of issuance) will be legally issued, fully paid and nonassessable. We
consent to the filing of this opinion letter as Exhibit 5.1 to the Registration
Statement and to the reference to this firm under the caption "Legal Matters" in
the prospectus which is part of the Registration Statement.
Very truly yours,
STEPHEN M. ROBINSON, P.A.
By: Stephen M. Robinson
SMR:cab
<PAGE>
EXHIBIT 10.10
STANDARD CONTRACTOR AGREEMENT
Date: April 15, 1999
--------------------
Agreement between
+--- ---+
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CHILDREN'S TELEVISION WORKSHOP
One Lincoln Plaza hereinafter called "CTW", "we", "our"
New York, New York 10023 or "us"
| |
+--- ---+
and
+--- ---+
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SMA VIDEO, INC.
100 Avenue of the
Americas - 10th Floor hereinafter called "Contractor".
New York, NY 10013
Attn: Dave Satin
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This Agreement is made between Children's Television Workshop and Contractor
subject to and in accordance with the provisions set forth below and contained
on the attached Standard Terms and Conditions which are made a part hereof.
1. Description of Services and/or Deliverables: Production and Post Production
of up to 10 Elmo's World Inserts ("EWs"). Number of EWs may be revised by
CTW. Contractor estimates 17 days of studio production, including, but not
limited to, 12 CGI shooting days. Sesame Street producers set all
production and delivery schedules.
2. Contact Person: Dave Satin
3. Term: Pre Production beginning in May, 1999. Production: On or about June
1, 1999 through June 28, 1999; Post Production: On or about July 1, 1999
through October 15, 1999.
4. Compensation: $667,511 subject to paragraph 1 hereof. In event number of EWs
is revised, compensation hereunder will be adjusted accordingly.
5. Payment Terms: Total contract $667,511. Payment terms to change if number
of EWs decreases.
1) $30,000.00 start up costs, payable upon signing this
agreement.
2) $30,000.00 due May 10th (upon start of Pre Production start).
3) $75,500.00 due May 24th
4) $75,500.00 due June 1, 1999.
5) $122,000.00 due June 14, 1999.
6) $99,511.00 due June 29, 1999.
7) $50,000.00 due July 5, 1999.
8-19) $185,000 (x10) upon delivery and approval of each EWs
(totaling ($185,000.00).
6. Other Terms and Conditions:
a. Contractor shall deliver to CTW copies of all third party contracts
which contracts shall evidence CTW's unqualified ownership in and to
all elements of the EWs delivered hereunder.
b. CGI Elements - Includes all phases of the Computer Graphics
Imagining/Realtime Animation Process relevant to producing EWs.
Includes total cost for Pre Production, Production and Post-Production
to deliver 10 EW inserts and each insert not be limited by any
restrictions regarding length.
c. Post Production Bid - Includes completion of Post Production Process
for 10 EW inserts,
<PAGE>
regardless of length, and includes all Color Correction, Compositing,
Rotoscoping and Blue Screen clean up (Total $185,000 or $185,000.00 per
insert). Contractor shall deliver all CGI elements in format and number
designated by Producer. Post production to deliver 10 EW inserts and
each insert not to be limited by any restrictions regarding length.
d. Studio Facilities/Studio Production: All manpower charges will be
invoiced to CTW on an as used basis. All other facility production
charges are part of the attached budget as revised by Contractor and
approved by CTW.
e. Crew Costs: Crew costs are additional and are approximated at
$175,255.00, and will be billed on separate invoice. Each week will be
billed in advance as an estimate one week prior to week worked and then
be reconciled by Sesame Street producer.
f. Overages: Overages can only be billed if general premises set forth
in this agreement change or when overages relate to approved crew
costs.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.
SMA Video Inc. CHILDREN'S TELEVISION WORKSHOP
- -------------------------------------- -----------------------------------
Contractor
By: A By: /s/ illegible
----------------------------------- --------------------------------
B-3294628
- --------------------------------------
Federal Employer Identification Number or Social Security Number
<PAGE>
STANDARD TERMS AND CONDITIONS
1. Services. Contractor agrees to provide, on a first priority basis, the
services described in Attachment A and such other services as CTW may
reasonably designate from time to time. Such services shall be subject to CTW's
specifications and approval. It is understood and agreed that CTW shall be
under no obligation to utilize Contractor's services or the results thereof.
Subject to Contractor's obligations hereunder, he or she shall be free to
perform services for others.
2. Term and Termination. The term of this Agreement shall commence as of the
Commencement Date set forth in Attachment A and shall expire on the Expiration
Date set forth in Attachment A, unless earlier terminated. Either party may
terminate this Agreement upon ten (10) days written notice to the other party.
CTW may terminate this Agreement immediately for cause. "Cause" shall include,
but not be limited to, willful misconduct, gross negligence, failure to perform
satisfactorily or conduct which in CTW's reasonable opinion is unprofessional
or reflects unfavorably upon CTW or its affiliated companies. The rights and
remedies provided in this section are not exclusive and are in addition to any
other rights and remedies provided by law or in this Agreement.
3. Payment. In full consideration for all rights and services provided by
Contractor hereunder, Contractor shall receive the Payment sum set forth in
Attachment A. All payments hereunder, including reimbursement of out-of-pocket
expenses, if any, due to Contractor will be contingent upon CTW's receipt and
approval of a budget as well as invoices from Contractor setting forth an
accurate account of all such payments, and of proper receipts and/or vouchers
for all such expenses. Contractor shall maintain books and records which CTW
may examine during normal business hours upon reasonable notice. Contractor
understands and agrees that, as a Contractor, he or she is not eligible for
unemployment or other benefits. Contractor further understands and agrees that
he or she is not an agent of CTW and has no right to employ or contract with
any person on behalf of CTW. Contractor shall have sole responsibility for the
payment of all taxes of every kind applicable or relating to all amounts paid
to him or her hereunder.
4. Work-Made-For-Hire and Assignement. To the extent permitted by law, all
works furnished to CTW by Contractor, including but not limited to all ideas,
concepts, business plans, scripts, logos, artistic and literary works and
intellectual property created, developed, and/or designed by Contractor, either
individually or in collaboration with others, (the "Work") shall be
work-made-for-hire under the U.S. Copyright laws owned by CTW. In the event any
of the Work is not work-made-for-hire or is not a copyrightable subject matter,
Contractor hereby assigns to CTW exclusively all of his or her right, title and
interest in and to the Work, for use in any and all media, now known or
hereafter created, and for any and all purposes. Contractor agrees to execute
all documents and to take all steps as CTW finds appropriate to evidence CTW's
unqualified ownership in and to the Work. Contractor shall deliver the work
free and clear of any third party liabilities and shall deliver to CTW upon
execution hereof documentation evidencing the same including, without
limitation, any third party contracts and/or licenses (which documents shall
grant to CTW all rights in all media in perpetuity). This paragraph shall
survive any termination of this Agreement.
5. Use of Contractor's Name. CTW shall have the right, but not the
obligation, to use Contractor's name or likeness for any publicity or
advertising purpose in connection with the Work or the services rendered under
this Agreement. CTW is under no obligation to accord Contractor credit for any
production.
6. Warranty of Rights. Contractor represents and warrants that (i) he or she
has the right to grant all of the rights granted herein without any limitation
whatsoever, (ii) Contractor is a fully incorporated legal entity or that he or
she has attested to a true and accurate affidavit attached hereto as Attachment
B, (iii) the Work is wholly original to Contractor (unless specifically agreed
upon) and (iv) no materials (including the Work) furnished by Contractor, nor
any use thereof, as contemplated in this Agreement will infringe upon or
violate any rights of any third party. The parties acknowledge CTW intends to
use the work worldwide, in all media in perpetuity.
7. Confidentiality. Contractor agrees and acknowledges that both the Work and
certain information and materials which CTW provides to him or her for the
purposes of performing his or her services may contain valuable, proprietary,
and confidential information and trade secrets that belong solely to CTW.
Contractor agrees not to disclose to other, use for his or her own benefit, or
otherwise appropriate or copy any such confidential information or trade
secrets, including proprietary aspects of the Work, except as required in the
performance of his or her services during the Term of this Agreement.
Contractor further agrees not to disclose the financial terms of this Agreement
except in connection with obtaining legal or financial advice or fulfilling any
tax-reporting obligation with respect to this engagement. This paragraph shall
survive any termination of this Agreement.
<PAGE>
8. Idemnification. Contractor shall defend, indemnify and hold harmless CTW,
its officers, trustees, affiliates, employees, agents, assigns and
representatives from and against any and all claims, actions, damages, costs
and expenses (including, but not limited to, reasonable attorneys' fees)
arising out of or in connection with any breach by Contractor of any of the
representations or warranties contained in this Agreement. This paragraph shall
survive any termination of this Agreement.
9. Assignment. CTW shall have the right to assign this Agreement or all or any
part of its rights hereunder to any third party.
10. Miscellaneous. No waiver of any provision or any breach of this Agreement
shall be held to be a continuing waiver of that or any other provision or
breach of this Agreement. This Agreement supersedes all prior or
contemporaneous agreements and statements, whether written or oral, concerning
the terms of engagement, and no amendment or modification of this Agreement
shall be binding against CTW unless set forth in writing signed by CTW and
delivered to Contractor. The language of all parts of this Agreement shall be
construed as a whole, according to its fair meaning and not strictly for or
against either party. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without regard to conflicts
of laws rules. New York County shall be the exclusive forum for the resolution
of disputes between the parties arising out of this Agreement or its
performance.
<PAGE>
EXHIBIT 10.11
ESPN INC.
PRODUCTION FACILITIES AGREEMENT
THIS AGREEMENT, dated as of October 15, 1998, is between SMA Realtime,
Inc. a New York corporation, with offices at 100 Avenue of the Americas, New
York, New York, 10013 ("SMA"), and ESPN, Inc., a Delaware corporation, with
offices at ESPN Plaza, Bristol, Connecticut 06010-7454 ("ESPN").
SMA hereby agrees to provide to ESPN the services and facilities described
below in accordance with the BASIC PROVISIONS set forth below and the attached
GENERAL TERMS AND CONDITIONS.
BASIC PROVISIONS
I. THE SHOOT
(a) SMA will provide the facilities, equipment and manpower specified in
Section II (collectively, the "Services".) in connection with the
production of television programs (or portions thereof) forming a part
of ESPN's SportsCentury Project (the "Programs").
(b) Dates, Times, and Site: The Services shall be made available at SMA's
business location/studio facility at 100 Avenue of the Americas, New York,
New York (the "Site"); and shall be available to ESPN no fewer than forty
(40) days (each 9:00 a.m. to 5:00 p.m.- except Fridays, which shall be
11:30 a.m. to 7:30 p.m. -- minimum) for shooting (each a "Shoot Day"). In
addition (and at no additonal charge hereunder), the Facilities, Equipment
and such Manpower as is necessary for the purpose, shall be available as
necessary to allow ESPN to conduct walk-throughs, camera tests, graphic
and film tests and other tests to satisfy itself regarding the readiness
and suitability of the Facilities (including, without limitation, the
Virtual Set) and Equipment for the Shoot Days. In connection with such
testing, ESPN shall have the right to make, retain, and utilize
audiovisual recordings for test and review purposes. SMA represents and
warrants that all of the Services shall be available to ESPN on the dates
set forth in Schedule A attached hereto. As soon as ESPN has determined a
reasonable number of additional dates on which it wishes to use the
Services, it will so notify SMA. SMA shall make the Services available to
ESPN on such dates and will not cause or allow any of the applicable
Services to be utilized in connection with any other services that would
conflict with their availability to ESPN. Notwithstanding the foregoing,
if at the time that ESPN notifies SMA of such additional dates, SMA has
an existing, binding commitment to make the Services available to a third
party which commitment, despite SMA's commercially reasonable efforts,
cannot be rescheduled, then SMA shall inform ESPN of all then-available
dates and ESPN shall have the right to select dates from
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<PAGE>
among them, one for each date as to which such a conflict exists. SMA
acknowledges that ESPN's specifications may necessitate access to
Facilities, Manpower and/or Equipment in addition to those specified
herein or at times other than during regular business hours. Should ESPN
require services in addition to those specified hereunder, SMA will
provide such services on an "as-needed" basis at rates no less favorable
than those offered to other customers for equivalent services.
(c) ESPN will provide all "above the line" personnel and announcers and
other elements not specifically provided for in Section II, below, for
production of the Programs at SMA's Site.
(d) All Manpower specified in Section II below will perform its duties
related to the Programs under ESPN's supervision and control. All
Facilities, Equipment and Manpower will be available to ESPN on all days
Monday through Sundays.
II. FACILITIES, EQUIPMENT AND MANPOWER
(a) Facilities: SMA shall construct a "virtual set" pursuant to and in
conformity with designs and specifications provided by ESPN (the "Virtual
Set") and to ESPN's reasonable satisfaction. The Virtual Set shall be
completed no later than December 7, 1998. Facilities shall include: a
studio and stage reasonably satisfactory to ESPN, both incorporating the
Virtual Set; associated full control room; videotape playback and record;
full voiceover facilities; and the complete Orad computer system.
(b) Equipment:
Camera
Audio equipment(of reasonable professional quality, equal to or
better than that customarily utilized in programming telecast on the ESPN
Network)
Light and Grip
Ultimatte
Three (3) BetaSP VTRs
One (1) DigiBeta VTR
Teleprompter
SGI RE3 Computer
Digital Disc Recorder
Control Room
(c) Manpower:
Production Coordinator
Lighting Director
Camera Operator
Gaffer
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<PAGE>
EIC/SVO
Technical Director
SGI Director
Teleprompter Operator
(d) Other Terms and Services: Video raw stock as required by ESPN.
III. COMPENSATION
For the Facilities, Equipment and Manpower supplied to it by SMA as
specified above in Paragraph II, ESPN shall pay SMA as follows:
(a) For construction of the Virtual Set: $60,000 within thirty days
following the execution hereof.
(b) For all Facilities, Equipment and Manpower provided by SMA under
this Agreement, ESPN shall pay SMA $9,000.00 per Shoot Day, payable as
follows: (i) $40,000.00 (the "Shoot Day Deposit") within the later of
delivery of the Virtual Set pursuant to Section II(a), above, and thirty
days of execution hereof ($1,000.00 of which shall be attributable to each
anticipated Shoot Day) and (ii) $8,000.00 per Shoot Day within forty-five
days after ESPN's receipt of an invoice from SMA for each Shoot Day
actually used, which invoicing shall occur no more frequently than weekly.
ESPN shall be entitled to an evaluation period from the date of completion
of the Virtual Set through and including January 31, 1999 (the "Evaluation
Period"). At any time during the Evaluation Period, ESPN shall be
entitled to terminate this Agreement for any reason or no reason, in its
sole discretion, with no further obligation to SMA hereunder and shall be
entitled to an immediate refund of that portion of the Shoot Day Deposit
attributable to Shoot Days not used. If ESPN does not terminate this
Agreement during the Evaluation Period and SMA performs all of its
obligations under this Agreement, ESPN agrees to pay SMA for at least
twenty-five (25) Shoot Days in the aggregate, being $225,000.00 (the
"Guaranteed Amount") except where actual usage of less than twenty-five
Shoot Days results from SMA's failure to make the Services available to
ESPN on a sufficient number of mutually agreeable dates. Subject to the
foregoing sentence, upon expiration of this Agreement, SMA shall invoice
ESPN for the difference between the sums paid by ESPN pursuant to this
Section III(b) (including the Shoot Day Deposit) and the Guaranteed Amount
and ESPN shall pay such amount within thirty days after its receipt of
such invoice.
(c) For video raw stock supplied by SMA at ESPN's request, SMA shall
invoice ESPN at a rate no less favorable than that offered to any other
SMA customer.
(d) ESPN represents and warrants that, to the best of its knowledge and
belief, the manufacturers' exemption under New York State laws regarding
sales taxes applies to the entire subject matter of this agreement. If
the New York Department of Taxation and Finance
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<PAGE>
("NYDTF") makes a final assessment to the contrary, ESPN shall reimburse
SMA for the portion of such assessment directly attributable to the sales
taxes assessed on this transaction, but the foregoing is conditioned on
SMA's promptly notifying ESPN if NYDTF questions the applicability of the
exemption and affording ESPN a full and continuing right to participate
in all phases of dealing with NYDTF in determining the taxability of this
transaction.
IN WITNESS WHEREOF the parties hereto have executed this Agreement as of
the day and year first written above.
SMA REALTIME INC. ESPN, INC.
By:/s/ [illegible] By:/s/ Howard Katz
------------------- -------------------------
Howard Katz
Executive Vice President
Production
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<PAGE>
GENERAL TERMS AND CONDITIONS
1. THE EVENTS
ESPN may delete or add Shoot Days to those listed in Paragraph I of the
BASIC PROVISIONS and may change the Dates previously listed from time to time
and at any time upon ten days' prior notice to SMA, but, except as provided in
I(b) of the BASIC PROVISIONS, SMA may decline without penalty to render its
service hereunder for any added Shoot Days or changed Dates by giving ESPN seven
days' prior notice. Failure to give ESPN such notice shall be deemed to be
acceptance by SMA of such additions or changes.
2. THE SHOOT
(a) Only "below-the-line" (and "above-the-line" if appropriate) personnel
and elements approved by ESPN shall be used by SMA in the furnishing of services
under this Agreement. ESPN hereby approves of the named personnel, if any, and
elements specified above in Paragraph II of this Agreement.
(b) SMA shall be fully responsible for paying all persons providing
services hereunder at least the amount required under any union or guild
collective-bargaining agreement and for the exercise of ESPN's rights
hereunder, if any.
(c) SMA shall deliver the Equipment and Manpower to the applicable Site at
or before the Time and Date specified above in Paragraph I. "Production Day"
shall mean a twenty-four hour period beginning with the later of the Time
specified in Paragraph I or the actual time of delivery of the Equipment and
Manpower by SMA and each succeeding twenty-four hour period in which the use of
the Equipment and Manpower is required by ESPN under this Agreement.
3. TERM AND TERMINATION
(a) The term of this Agreement shall commence on the date hereof and
end on January 31, 2000.
(b) Subject to the terms of III(b), in the BASIC PROVISIONS regarding
compensation, ESPN may terminate this Agreement upon seven days' prior written
notice to SMA or immediately upon any breach of its terms by SMA by so
notifying SMA.
4. COMPENSATION
(a) The payments specified by Paragraph III of the BASIC PROVISIONS are
intended by the parties to be the entire and only amounts payable to SMA for
its services under this Agreement. No additional payments shall be made for
rental equipment or meal penalties, or overtime charges for personnel or any
other extra charges except as
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<PAGE>
specifically agreed to by ESPN in advance in writing on ESPN's standard
contract amendment form (attached) only.
5. EXCLUSIVITY
As between SMA and ESPN, all rights to any audio-video Program(s) produced
of the Events by ESPN (the "Programs"), including any property rights therein,
shall be exclusive to ESPN, and SMA shall not deliver any such Programs or
convey any interest in any Program to any third person without ESPN's prior
written consent. ESPN shall be the sole owner thereof and shall have the right
to affix to each Program a notice designating ESPN as the owner of the
copyright. Nothing in this Agreement shall require ESPN to actually distribute
such Program(s), and ESPN shall have discharged its obligations to SMA under
this Agreement by paying to it the compensation provided above in Paragraph M
in. accordance with the terms of this Agreement.
6. WARRANTIES
(a) Each party represents and warrants to the other that it has the right
to enter into this Agreement and perform all of its obligations under it.
(b) SMA represents and warrants to ESPN (i) that it has obtained, or will
obtain, and will faithfully perform all its obligations under all necessary and
appropriate clearances, licenses, rights agreements, union, guild and other
collective bargaining agreements, employment and other agreements involving all
elements of the Program(s) to be provided by SMA under this Agreement and all
persons and services in connection with it (ii) that ESPN's exercise of its
rights under this Agreement will not give rise to any obligations or
liabilities with respect thereto, and (iii) that all of ESPN's rights under
this Agreement can be fully and freely exercised without any claim of future
payment of any kind with respect to any of the Program(s).
(c) ESPN represents and warrants to SMA that it has obtained, or will
obtain, and will faithfully perform all its obligations under all necessary and
appropriate clearances, licenses, and rights agreements involving all elements
of the set design to be provided by ESPN to SMA under this Agreement.
(d) SMA acknowledges that this Agreement's scope is limited to its
specific subject matter and it does not entitle either SMA or ESPN to any future
rights or expectations with respect to each other except as explicitly provided
herein.
7. FORCE MAJEURE
If the staging of any Shoot Day should be prevented or cancelled due to an
act of God, inevitable accident, strike or other labor dispute, fire, riot or
civil commotion, government action or decree, inclement weather, failure of
technical, production or television equipment, or for any other reason beyond
the control of SMA or ESPN, then neither
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<PAGE>
SMA nor ESPN shall be obligated in any manner to the other with respect to the
Shoot Day (including any compensation for the Shoot Day), but all other rights
ESPN may have in this Agreement shall remain in effect and shall not be
affected in any manner. If, however, any of the Shoot Days should be postponed
or delayed due to one of the causes enumerated above, then ESPN shall have the
right to elect to cause SMA to provide the services and facilities specified in
the BASIC PROVISIONS in connection with the Shoot Day on its rescheduled date
in accordance with all the terms hereof or to not provide the services and
facilities specified in the BASIC PROVISIONS in connection with the rescheduled
Shoot Day, in which case ESPN shall not be obligated in any manner to SMA
therefor (including for payment), but all ESPN's other rights in this Agreement
shall survive.
8. INDEMNIFICATION
A. ESPN and SMA will each indemnify, defend and hold harmless the other,
the other's officers, directors, employees, shareholders, parent and
affiliated companies, agents and contractors from any and all claims,
costs, liabilities, judgments, losses, demands, expenses or damages
(including reasonable attomeys' fees), including those for, but not limited
to, bodily injury, including death resulting therefrom, personal injury and
property damage arising out of any act, omission or negligence, any breach
or alleged breach of this Agreement, performance of the obligations
hereunder, or any misrepresentation made by it herein.
B. In any case in which indemnification is sought hereunder:
(i) the party seeking indemnification shall promptly notify the
indemnifying party of any claim or litigation to which the
indemnification relates; and
(ii) the party seeking indemnification shall afford the
indemnifying party the opportunity to participate in and at the
indemnifying party's option, fully control any compromise,
settlement, litigation or other resolution or disposition in such
claim or litigation, but the indemnifying party shall not make any
agreement that prospectively compromises or limits the other party's
substantive rights without such party's prior, written consent
(which shall not be unreasonably withheld); in no case shall any
such compromise or limitation implicate rights, obligations or
property beyond the subject matter of this Agreement.
C. SMA shall, at its own expense, carry liability insurance of the
following types and limits under the Agreement:
(i) worker's compensation insurance covering all persons employed by
it in connection with the furnishing by it of the services under the
Agreement in compliance with and in the maximum amounts and form
specified by the state law
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<PAGE>
of the state in which such persons render such services and employers'
liability insurance with a limit of not less than $100,000.00 per
occurrence covering its employees; and
(ii) comprehensive general liability insurance covering all liability
for bodily injury including death resulting therefrom, personal
injury and property damage to third parties, having a combined
single limit for injuries to any persons of not less than
$3,000,000.00 for all claims arising out of the same accident or
occurrence, which insurance shall include ESPN as an additional
named insured;
SMA shall provide ESPN with certificates of insurance showing compliance
with the foregoing requirements. Such certificates shall provide no less
than thirty days' prior notice to ESPN by the insurance company in the
event of any material change or cancellation of the required insurances. All
such insurance shall cover ESPN, its affiliated companies and the officers,
directors, employees and agents of all the foregoing. The insurance required
to be carried by SMA shall be primary and noncontributory with any similar
insurance carried by ESPN and shall be written on an occurrence basis and
form.
D. ESPN shall, at its own expense, carry liability insurance of the
following types and limits under the Agreement:
(i) worker's compensation insurance covering all persons employed by ESPN
in connection with its production of the Programs, in compliance with and
in the maximum amounts and form specified by the state law of the state in
which such persons render such services and employers liability of the
state in which such persons render such services and employers' liability
insurance with a limit of not less than $100,000.00 per occurrence covering
its employees.
ESPN shall provide SMA with a certificate of insurance showing compliance
with the foregoing requirements.
9. INDEPENDENT CONTRACTORS
SMA and ESPN are independent contractors with respect to each other, and
nothing in this Agreement shall create any association, partnership, joint
venture or agency relationship between them. As between ESPN and SMA, all
persons employed by SMA in connection with its performance under this Agreement
shall be SMA's employees and SMA shall be fully responsible for them, except as
otherwise explicitly provided in this Agreement.
10. FINANCIAL DISCLOSURE
In conformity with Section 507 of the U.S. Federal Communications Act
concerning broadcasting matters and disclosure required thereunder, SMA
warrants and represents
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<PAGE>
that it has not accepted or agreed to accept, and will not permit its
employees, agents, representatives, contractors, or affiliate entities to
accept any monies, services, or other consideration for the inclusion of any
commercial material or matter in or as part of any Programs(s).
11. ENTIRE AGREEMENT AND AMENDMENT
This Agreement contains the full and complete understanding of the parties
to it, supersedes all prior agreements and understandings whether written or
oral pertaining to its subject matter and cannot be modified or amended except
by a written instrument signed by each party, substantially in the form of the
ESPN standard amendment attached hereto.
12. NOTICE
All notices and other communications from either party to the other under
this Agreement shall be in writing and shall be deemed received when delivered
in person or three days after mailing, postage prepaid, addressed to the other
party at the address specified at the beginning of this Agreement, or at such
other address as that other party may supply by written notice.
13. ASSIGNMENT
SMA shall not assign any of its rights or obligations under this Agreement
without the prior written consent of ESPN, and any purported assignment without
such prior written consent shall be null and void and of no force or effect.
14. GOVERNING LAW AND INTERPRETATION
This Agreement shall be governed by the laws of the State of Connecticut.
The language of all parts of this Agreement shall in all cases be construed as
a whole according to its fair meaning and not strictly for or against any of
the parties.
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<PAGE>
SCHEDULE A
SCHEDULED SHOOT DAYS AS OF THE DATE HEREOF
December 16, 1998
December 21, 1998
January 18, 1998
February 3, 1998
February 18, 1998
February 24, 1998
February 25, 1998
March 4, 1998
March 22, 1998
April 7, 1998
April 14,1998
April 23, 1998
April 28, 1998
May 2,1998
May 7,1998
May 10, 1998
May 19, 1998
May 26, 1998
June 25, 1998
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<PAGE>
ESPN, INC.
AMENDMENT TO STANDARD ESPN PRODUCTION FACILITIES AGREEMENT
THIS AMENDMENT, dated as of _____ is made to the production facilities
agreement dated as of ________, (the "Agreement") between ESPN and SMA and is
made a part thereof.
A. ESPN hereby requests and authorizes the following additional Equipment,
Manpower, and/or supplies for the Production Day(s) on ________of the Shoot
covered by this Agreement:
ITEM COST
______________________ _________________________
______________________ _________________________
______________________ _________________________
______________________ _________________________
B. ESPN hereby authorizes time in excess of __ hours for the Production Day(s)
on _________ for the following Manpower:
[date(s)]
____________________________
____________________________
____________________________
____________________________
C. ESPN hereby requests and authorizes that the Services requirements be
changed as follows:
______________________________________
______________________________________
______________________________________
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<PAGE>
D. Sums payable by ESPN as a consequence of rendered services authorized by
this Amendment shall be paid by ESPN's mailing its check to SMA within sixty
days of ESPN's receiving SMA's invoice therefor.
[Full legal name for SMA:] ESPN, INC.
By ________________________ By __________________________
Title _____________________ Title _______________________
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<PAGE>
Motion Picture Industry Pension and Individual Account Plans
11365 Ventura Boulevard
Mailing Address: P.O. Box 1999 o Studio City, California 91614-1999
Outside Southern California: (888) 369-2007
On the Internet: www.mpiphp.org
Phone: (818 or 310) 769-0007 o Main FAX: (818) 508-4714
To All Participants:
As Directors of the Motion Picture Industry Pension and Individual Account
Plans (the "Plans"), we are pleased to provide you with this Summary Plan
Description, which outlines the highlights of the Pension and Individual Account
Plans. We strongly urge you to read this booklet very carefully in order to
understand your rights and obligations as a Participant.
The Plans actually consist of two different plans: the Motion Picture
Industry Pension Plan ("Pension Plan") and the Motion Picture Industry
Individual Account Plan ("IAP" or "Individual Account Plan"). While a number of
the provisions under the two Plans are the same, there are differences which
could affect your benefits from one Plan and not the other. The Pension Plan is
a defined benefit plan and the Individual Account Plan is a defined contribution
plan.
Please note that if the facts and circumstances of a particular situation
occurred prior to September 1, 1998, the provisions of the Plans in effect at
the relevant date must be applied. (Those provisions may be different from the
rules currently in effect and contained in this booklet.)
This summary does not try to cover all the detailed provisions contained in
the Plan documents and related Trust Agreements. The specific legal rules that
govern the administration of the Plans and your rights under the Plans are found
in the applicable Plan and related Trust documents. In the event of any conflict
between the Plan documents and this Summary Plan Description (or any other
written or oral communication), the Plan documents will control.
It is very important to keep the Plan Office informed of any change in your
mailing address to ensure that you receive all communications promptly.
How to Get Information:
Please telephone the Plan Office at the numbers above if you have any
questions or need assistance.
BOARD OF DIRECTORS
<PAGE>
Motion Picture Industry
Pension and Individual Account Plans
September 1998
Board of Directors
Gene Allen Ronald G. Kutak
Joseph A. Aredas Hank Lachmund
Earl E. Brendlinger Marlene Mattaschiam
Stephanie A. Caprielian Patrick R. Maurice
J. Nicholas Counter, III Michael P. Messina
Anthony Cousimano Louis H. Shore
Bruce C. Doering Thomas C. Short
Steven R. Escovedo Stephen P. Taylor
Sandra Berke Jordan Marshall Wortman
Alternate Directors
Helayne 1. Antler Pamela E. Mack
Marjo R. Bernay John M. McLean
Charles Byloos Carmine A. Palazzo
Stephen C. Carroll Leo T. Reed
Michele Caylor Michael Rosenfeld
James E. Choice, III Ted D. Rubin
Harry J. Floyd Raymond B. Schillaci
Carole J. Frazier Mark A. Seay
Harry G. Isaacs William A. Sutman
Executive Administrative Director
Harley B. Blankenship
Legal Counsel
Geffner & Bush
Mitchell, Silberberg & Knupp, LLP
O'Melveny & Myers, LLP
Actuary & Consultant
William M. Mercer, Inc.
The Segal Company
Auditor
Miller, Kaplan, Arase & Company
i
<PAGE>
Contents
Some Terms and Definitions Used in this Booklet
Beneficiary ................................................................ 1
Break in Service ("BIS") ................................................... 1
Collective Bargaining Agreement ............................................ 1
Contributions .............................................................. 1
Credited Hour .............................................................. 1
Director ................................................................... 2
Employee ................................................................... 2
Employee-derived Benefit ................................................... 2
Employer ................................................................... 2
Employer-derived Benefit ................................................... 2
ERISA ...................................................................... 3
Fiduciary .................................................................. 3
IAP ........................................................................ 3
Month of Suspendible Service ............................................... 3
Nonaffiliated Employee ..................................................... 3
PBGC ....................................................................... 4
Pension Plan ............................................................... 4
Plan Year .................................................................. 4
Plans or Plan .............................................................. 4
Qualified Spouse ........................................................... 4
Qualified Year ............................................................. 4
UV & HP .................................................................... 4
Vested Hour ................................................................ 4
Vested Year ................................................................ 5
Vesting .................................................................... 5
Work in the Industry ....................................................... 6
Motion Picture Industry Pension Plan
(Defined Benefit Plan)
Pension Requirements ....................................................... 7
Retirement Benefits
Normal Retirement Pension ................................................. 8
Early Retirement Pension
Reduced Early Retirement Pension .......................................... 10
Special Reduced Early Retirement Pension .................................. 10
Unreduced Early Retirement Pension ........................................ 11
Disability Retirement Pension ............................................. 12
Late Retirement Pension ................................................... 13
ii
<PAGE>
Contents, contd.
Minimum Distribution Payments ............................................. 14
Types of Pension Payment
Basic Type of Pension Benefit for Unmarried Participants .................. 15
Life Annuity Benefit ................................................... 15
Basic Type of Pension Benefit for Married Participants .................... 15
Qualified Joint and 50% Survivor Annuity Benefit ....................... 15
Optional Retirement Benefits .............................................. 15
Joint & 100% Survivor Annuity Benefit .................................. 16
Joint & 50% Pop-up Annuity Benefit ..................................... 16
Joint & 100% Pop-up Annuity Benefit .................................... 16
Ten-Years-Certain and Life Annuity Benefit ............................. 16
Lump Sum Payments ......................................................... 18
Reemployment of Pensioner ................................................. 18
Minimum Distribution Payments for Reemployed Pensioners ................ 19
Benefits Earned During Reemployment .................................... 19
Contributions
Employer Contributions ................................................. 20
Employee Contributions ................................................. 20
Break in Service .......................................................... 21
Forfeiture of Pension Plan Benefits ....................................... 21
Unclaimed Vacation & Holiday Pay ("UV & HP") .............................. 22
Refund of Employee Contributions -
Including Unclaimed Vacation and Holiday Pay ........................... 22
Effect of Withdrawal ...................................................... 23
Return of Your Withdrawn Contributions, i.e., Buy-back ................. 24
Death Benefits
Death Benefit Before Retirement ........................................ 25
Death Benefit After Retirement ......................................... 26
iii
<PAGE>
Contents, contd.
Motion Picture Industry Individual Account Plan
(Defined Contribution Plan)
Employer Contributions ................................................. 27
Annual Allocations ..................................................... 27
Withdrawal of Account Balance .......................................... 28
Retirement Benefits .................................................... 28
Minimum Distribution Payments .......................................... 30
Reemployment of Pensioner .............................................. 30
Death Benefits ......................................................... 31
Forfeiture of Your Individual Account Plan Balance ..................... 32
Applicable Information to
Pension and Individual Account Plans
Erroneous Payments ..................................................... 33
Incapacity of Pensioner ................................................ 33
Missing Participant or Beneficiary ..................................... 33
Garnishment or Assignment of Your Benefits ............................. 33
Private Retirement Plans ............................................... 34
Provisions of the Plans Govern ......................................... 34
Information Required by the Employee Retirement
Income Security Act of 1974 ("ERISA") .................................. 35
Answers to Frequently Asked Questions ..................................... 43
APPENDIX A - 1AP/Compensation Related Allocation .......................... 47
APPENDIX B - Retiree Health Plan Benefits ................................. 49
iv
<PAGE>
Summary Plan Description -
Motion Picture Industry
Pension and Individual Account Plans
September 1998
Some Terms and Definitions
Used in this Booklet
- --------------------------------------------------------------------------------
Beneficiary
Your Beneficiary is the person or persons you last designated in the
appropriate form provided by the Plans.
For purposes of pre-retirement death benefits, if you are legally
married for at least one year on the date of your death, your current Qualified
Spouse will automatically be your Beneficiary. If you name your current spouse,
but you later become divorced, your former spouse will remain your Beneficiary
unless you complete a new Beneficiary Designation card or you subsequently
remarry and remain married for at least 1 year. If you name someone other than
your current spouse as beneficiary, the designation will be operative only if
your spouse dies or if you become divorced. We encourage you to complete a new
Beneficiary Designation card if you marry or divorce, or if death of a
designated beneficiary occurs.
Break in Service ("BIS")
A Break in Service is a period of two consecutive Plan Years with less
than 200 Vested Hours each year.
Collective Bargaining Agreement
The term "Collective Bargaining Agreement" means the Collective
Bargaining Agreement(s) in force and in effect between the respective Unions and
Employers, as amended from time to time. Copies of the Collective Bargaining
Agreements may be obtained by Participants upon a written request to the Plan
Administrator and are available for examination by Participants at the Plan
Office.
Contributions
A dollar amount determined by the Unions and Employers as set forth in
a Collective Bargaining Agreement, remitted to the Plans by Employers.
Credited Hour
The term "Credited Hour" means an hour worked or a work hour guaranteed
for which an Employer is required to make contributions to these Plans.
----------------------------
- 1 -
<PAGE>
Summary Plan Description -
Motion Picture Industry
Pension and Individual Account Plans
September 1998
Director
The term "Director" means an individual appointed as a Fiduciary with
respect to the control and management of the Plans by the Employers or Unions,
including their alternates. The Directors also have certain non-fiduciary
powers, such as the power to amend the Plans.
Employee
There are three general requirements to be an "Employee." First, you
must either (i) work for an Employer and be covered by a Collective Bargaining
Agreement which requires Employer contributions to the Plans or (ii) if you are
a Nonaffiliate, you must be part of a group designated as eligible to
participate by your Employer in a sufficient written agreement as approved by
the Board of Directors. If you are a Nonaffiliate, your right to participate in
the Plans, as well as your ability to earn any benefits under the Plans, for any
Plan Year, is subject to your employer meeting certain nondiscrimination tax
laws for that Plan Year. If your employer does not meet these rules, you may not
be able to participate in the Plans.
The second requirement is that you must be in the labor pool in the Los
Angeles area. The third is that you must be hired by an Employer in the Los
Angeles area to perform (i) services in the Los Angeles area in the Industry; or
(ii) temporary services outside the Los Angeles area in connection with motion
picture or commercial productions.
Employee-derived Benefit
The term "Employee-derived Benefit" refers to the portion of your
benefit under the Pension Plan which is based on contributions you paid to the
Pension Plan prior to October 28, 1990, and Unclaimed Vacation and Holiday Pay.
There is no Employee-derived Benefit under the IAP.
Employer
The term "Employer" means any employer which produces motion pictures
or commercials in the Los Angeles area or whose business is primarily the
furnishing of goods or services for motion picture or commercial production in
the Los Angeles area and which has executed a Collective Bargaining Agreement
with any Union, wherein such Agreement requires contributions to the Plans by
such Employer, as approved by the Board of Directors.
Employer-derived Benefit
The term "Employer-derived Benefit" refers to the portion of your
benefit which is based on Employer Contributions. After October 27, 1990, except
for Unclaimed Vacation and Holiday Pay, all additional benefits earned are
Employer-derived Benefits. Employer contributions are not subject to withdrawal
by a Participant.
----------------------------
- 2 -
<PAGE>
Summary Plan Description -
Motion Picture Industry
Pension and Individual Account Plans
September 1998
ERISA
Employee Retirement Income Security Act of 1974, as amended from time
to time.
Fiduciary
The Motion Picture Industry Pension Plan ("Pension Plan") is a defined
benefit plan and the Motion Picture Industry Individual Account Plan ("IAP") is
a defined contribution plan. These Plans are governed by Fiduciaries who are
legally bound, acting on your behalf, to make sure the Plans operate fairly and
honestly. The Fiduciaries are collectively:
o The Board of Directors of the Plans,
o The Northern Trust Company (trustee of the assets of the Plans), and
the financial managers.
IAP
Motion Picture Industry Individual Account Plan. (See page 27)
Month of Suspendible Service
o The term "Month of Suspendible Service" refers to:
o any month in which you work 40 or more Credited Hours, or
o any month in which you work 40 hours or more in the Industry unless
such hours are performed in a trade or craft in which your current or
former Employers had never been obligated to contribute to the Plans.
The term "Industry" refers to any employment in any job classification
currently covered by the Plan.
In general, if you have a "Month of Suspendible Service," your
Employer-derived Pension Plan benefits will be suspended.
Nonaffiliated Employee
A Nonaffiliated or Nonaffiliate Employee is an Employee not affiliated
with any Union or Guild. Nonaffiliate Employees participate in the Plans only if
their Employer has signed and becomes party to a Nonaffiliate agreement, as
approved by the Board of Directors.
----------------------------
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<PAGE>
Summary Plan Description -
Motion Picture Industry
Pension and Individual Account Plans
September 1998
PBGC
Pension Benefit Guaranty Corporation. (See page 39)
Pension Plan
Motion Picture Industry Pension Plan. (See page 7)
Plan Year
A Plan Year begins on the Sunday before the last Thursday of a calendar
year and ends on the Saturday before the last Thursday of the subsequent
calendar year.
Plans or Plan
Plans or Plan in this booklet refers to the Motion Picture Industry
Pension Plan and/or the Motion Picture Industry Individual Account Plan.
Qualified Spouse
The term "Qualified Spouse" means a spouse who has been legally married
to a Participant for at least 365 days.
Qualified Year
A "Qualified Year" is a Plan Year during which a Participant
accumulates at least 400 Credited Hours. However, a Participant who has retired
under the terms of the Plans must accumulate at least 870 Credited Hours in a
Plan Year (excluding those before retirement for purposes of the IAP) to earn an
additional Qualified Year.
UV & HP
Unclaimed Vacation and Holiday Pay. (See page 22)
Vested Hour
The term "Vested Hour" refers to each Credited Hour. It also includes:
o hours worked for an Employer, wherein contributions were not required
to be paid to the Plans. The hours must be immediately preceded or
followed by employment worked for the same Employer, wherein
contributions were paid to the Plan, or
----------------------------
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<PAGE>
Summary Plan Description -
Motion Picture Industry
Pension and Individual Account Plans
September 1998
o hours worked in the Armed Services of the United States if the
individual returns to work in the Industry within the period
specified by law, or
hours during a leave of absence from an Employer, if the leave is
covered by the Family Leave Act of 1993, as long as the Participant
returns to work for the same employer at the end of the leave.
For purposes of bridging a Break in Service, a Vested Hour also includes:
o an hour-up to eight hours per day-that a female Participant is not
employed because of pregnancy, birth or adoption of a Participant's
child or child care immediately following such birth or adoption, or
o an hour-up to 40 hours per week-during a period of disability that
prevents a Participant from engaging in his/her regular occupation
for at least six months.
Vested Year
The term "Vested Year" means a Plan Year in which a Participant
accumulates at least 400 Vested Hours.
Vesting
You are "vested" in the portion of your benefits that may not be
forfeited.
The fact that you have a vested benefit does not mean, however, that
you automatically have the right to receive a pension; you must still satisfy
all other requirements that exist for a retirement or death benefit. For
example, if you die before retirement and are not married, no benefits are
payable to your Beneficiary under the Pension Plan (except Employee
Contributions under the Pension Plan).
If you never become vested, you will not be entitled to any benefits
under the Plans (except Employee Contributions under the Pension Plan).
You are always vested in your Employee Contributions. To be considered
vested in your Employer-derived Benefits from the Pension Plan and Individual
Account Plan, you must:
o be a Participant affiliated with a union that participates in the
Plans, and have 10 Qualified Years; or
o be a Nonaffiliated Participant, and have five (5) Qualified Years
and accumulate at least 40 Credited Hours after 12/23/89 as a
Nonaffiliate; or
----------------------------
- 5 -
<PAGE>
Summary Plan Description -
Motion Picture Industry
Pension and Individual Account Plans
September 1998
o reach your Normal Retirement Age while you are working in the
Industry. (See page 38)
For purposes of discussion in this booklet the term "vested" will mean
to be vested in Employer-derived Benefits.
Work in the Industry
Work in the Industry includes any work in Los Angeles County, or with a Los
Angeles based company, for any employer and in any job classification, currently
covered by the Plan, whether union affiliated or unaffiliated, in the motion
picture Industry. You can be working in the Industry even though you do not earn
any Credited Hours or work for an Employer that participates in the Plan.
A job classification is considered covered by the Plan if:
o It is in connection with motion picture production (motion picture
or commercial productions or furnishing of materials or services for
motion picture or commercial productions)
o No contributions for services rendered in that job classification
are made to another multiemployer plan covering employment in the
motion picture Industry
o At least one employee is performing similar services in connection
with motion picture production, and
o You receive consideration from your employer for services, except
if you or your spouse are an officer or own at least 10% of the
voting shares of the corporation for which you are performing
services.
----------------------------
- 6 -
<PAGE>
Summary Plan Description -
Motion Picture Industry
Pension and Individual Account Plans
September 1998
Motion Picture Industry Pension Plan
(Defined Benefit Plan)
- --------------------------------------------------------------------------------
A Pension Plan Agreement establishing the Motion Picture Industry
Pension Plan was signed on October 26, 1953, by various Employers in the Motion
Picture Industry in the Los Angeles area and over 40 Unions and Guilds
representing Employees in the Motion Picture Industry. Provision was made to
allow other Employers and Unions to become parties to the Pension Plan Agreement
as they entered into a Collective Bargaining Agreement, which required
contributions to the Pension Plan.
Employer contributions to the Pension Plan first became effective
October 26, 1953. Employee Contributions began a year later and ceased on
October 27, 1990. In order to allow time for funds to accumulate, the Pension
Agreement set January 1, 1960 as the earliest date for pension payments to
start.
Pension Requirements
You must apply in writing for retirement at the Plan Office at least
two full calendar months before your desired retirement date if you want to
begin receiving benefits. For example, if your desired retirement date is
December 1, 1999, you must apply no later than September 30, 1999.
In addition, in either of the 2 months beginning on your selected
retirement date, you cannot work in the Industry at all (with an Employer), or
have a Month of Suspendible Service. Any holiday pay or weekly guarantee pay as
a result of a Collective Bargaining Agreement you receive for the week of your
retirement date will not be considered Work in the Industry, as long as you do
not actually perform services (including on-call work) on or after your
retirement date.
Proof of date of birth and a marriage certificate, if applicable, must
be submitted to the Plan Office for verification. A birth certificate, passport,
military discharge papers, or other appropriate documentation is sufficient
proof of date of birth.
----------------------------
- 7 -
<PAGE>
Summary Plan Description -
Motion Picture Industry
Pension and Individual Account Plans
September 1998
Retirement Benefits
- --------------------------------------------------------------------------------
Retirement under the Motion Picture Industry Pension Plan ("Pension
Plan") can be divided into four categories: Normal Retirement Pension, Early
Retirement Pension (Reduced and Unreduced), Disability Retirement Pension and
Late Retirement Pension.
Normal Retirement Pension
You are eligible for a Normal Retirement Pension if you have attained
your Normal Retirement Age. See page 38 for discussion on Normal Retirement Age.
Your monthly benefit will be based on the Credited Hours you have accrued. The
monthly benefit will be reduced if the type of pension payment is not a Life
Annuity. For discussion on Types of Pension Payment, see page 15.
The Normal Retirement Pension is based on Credited Hours. To earn
benefits, you must work a Qualified Year (400 Credited Hours in a Plan Year).
o The monthly benefit rate for the first 10 Qualified Years is $.024
per Credited Hour. For example, 1,000 Credited Hours in your seventh
year will earn a benefit of $24 per month payable at Normal
Retirement Age.
o The monthly benefit rate after the tenth Qualified Year is $.032
per Credited Hour. For example, 1,000 Credited Hours in your eleventh
year will earn a benefit of $32 per month payable at Normal
Retirement Age.
o After the twentieth Qualified Year, the 400 Credited Hours
requirement will not apply. You will earn benefits even if you
accumulate less than 400 Credited Hours in a Plan Year at a monthly
benefit rate of $.032 per Credited Hour. For example, 300 Credited
Hours in your 23rd year will earn a benefit of $9.60 per month
payable at Normal Retirement Age.
These rates assume you have never had a Break in Service.
The Board of Directors has previously adopted a number of Plan
amendments which increased the accrual rate applicable to active Participants or
retirees. (These increases are already reflected in the rates shown above, with
one exception: Participants who retired before January 1, 1996, are generally
entitled to three times their monthly benefit for November 1996, November 1997,
and November 1998.) While the Directors may increase the rate(s) in the future,
they are under no obligation to do so. In general, benefit increases which are
applicable to active Participants do not apply to Credited Hours earned before a
Break in Service. In effect, benefits earned before a Break in Service are
frozen and are not increased by future active benefit rate increases.
----------------------------
- 8 -
<PAGE>
Summary Plan Description -
Motion Picture Industry
Pension and Individual Account Plans
September 1998
Higher benefit accrual rates before 1990 apply to certain Participants
who were at least age 55 years old on August 1, 1979 and who,
o were Participants in the Pension Plan on August 1, 1979,
o were not Break in Service Participants on December 22, 1979, and
o worked a Credited Hour after April 30, 1979.
(However, these individuals were not eligible to participate in the Individual
Account Plan.) Starting on December 24, 1989, these Participants accrue at the
same rate as described above and may participate in the IAP.
If you are a reemployed retiree, you must work a Qualified Year (at
least 870 Credited Hours in a Plan Year) to earn benefits. (If you do not have
one Vested Hour after December 24, 1988, you cannot earn additional benefits for
reemployment after age 65.) The benefits you earn will be reduced by the value
of the Employer derived Benefits you received after attaining age 65 in Months
of Suspendible Service.
The chart below shows an example of the monthly benefit earned if 2,000
Credited Hours were accumulated each Plan Year and you never had a Break in
Service.
See page 18 for more rules regarding reemployed Pensioners.
Monthly Benefit
Normal Retirement Pension
[BAR CHART]
Qualified Years
--------------------------------------------------
5 10 15 20 25 30
$240 $480 $800 $1,120 $1,440 $1,760
Assume: 2,000 Credited Hours per Plan Year
and no Break in Service years
----------------------------
- 9 -
<PAGE>
Summary Plan Description -
Motion Picture Industry
Pension and Individual Account Plans
September 1998
Early Retirement Pension
- --------------------------------------------------------------------------------
Reduced Early Retirement Pension
You may retire with a Reduced Early Retirement Pension as early as age
55 if you meet certain eligibility requirements. Monthly early retirement
benefits will be lower than for a Normal Retirement Pension depending on your
age when you retire.
You are eligible for a Reduced Early Retirement Pension, if:
o you have 20 or more Qualified Years and you are 55 or older, or
o you have 10 or more Qualified Years and you are 62 or older.
Your Reduced Early Retirement Pension will be computed by applying the
factors below, to your Normal Retirement Pension under the Life Annuity Option,
payable at age 65. For example, if your Normal Retirement Pension at age 65 is
$1,000 per month under the Life Annuity Option and you retire at age 55, you
will receive $490 per month.
Age % Factor
Reduced
Early Retirement Benefit Factors 64 92.5
63 86.0
62 80.0
61 74.5
60 69.0
59 64.0
58 59.5
57 55.5
56 52.0
55 49.0
Special Reduced Early Retirement Pension
Effective for Participants who retire on or after August 1, 1997, if
you have at least 30 Qualified Years, 60,000 Credited Hours and are age 55 to
59, you may receive a special reduced early retirement pension. Monthly benefits
will be lower than for a normal retirement pension, but higher than for a
reduced early retirement pension. For purposes of determining
----------------------------
- 10 -
<PAGE>
Summary Plan Description -
Motion Picture Industry
Pension and Individual Account Plans
September 1998
if you are eligible for Special Reduced Early Retirement, forfeited Credited
Hours and forfeited Qualified Years will be counted, except that hours and years
prior to a withdrawal of your Employee Contributions will not be counted if such
withdrawal is not repaid with interest to the Plan in accordance with Plan rules
(see page 24, Buy-back).
Your special reduced early retirement pension will be calculated by
applying the factors below to your normal retirement pension under the life
annuity option, which is payable at age 65. For example, if your normal
retirement pension at age 65 is $1,000 per month under the life annuity option
and you retire at age 55, you will receive $710 per month-more than you would
receive if you were eligible only for a reduced early retirement pension at that
age ($490 per month).
Special Reduced Age % Factor
Early Retirement Benefit Factors
59 92.8
58 86.2
57 80.4
56 75.4
55 71.0
Unreduced Early Retirement Pension
If you have at least 30 Qualified Years and want to retire before age
65, you may receive an unreduced early retirement pension (100% of the Normal
Retirement Pension) if you are:
o age 60 with at least 60,000 Credited Hours, or
o age 61 with at least 55,000 Credited Hours, or
o age 62 or older with at least 50,000 Credited Hours.
For purposes of determining if you are eligible for Unreduced Early
Retirement, forfeited Credited Hours and forfeited Qualified Years will be
counted, except that hours and years prior to a withdrawal of your Employee
Contributions will not be counted if such withdrawal is not repaid with interest
to the Plan in accordance with Plan rules (see page 24, Buy-back).
----------------------------
- 11 -
<PAGE>
Summary Plan Description -
Motion Picture Industry
Pension and Individual Account Plans
September 1998
Disability Retirement Pension
- --------------------------------------------------------------------------------
You may be eligible for a Disability Pension if you meet all of these
conditions:
o You have become disabled, which prevents you from engaging in any
gainful employment.
o You are currently in active status and have not incurred a Break in
Service.
o You have accumulated at least 10 Qualified Years, including service
prior to a withdrawal of employee contributions, unless the service
is forfeited under the Break in Service rules.
o You have worked at least 10,000 Credited Hours, including service
prior to a withdrawal of employee contributions, unless the service
is forfeited under the Break in Service rules.
o Your total and permanent disability has been at least six months in
duration.
o You have not retired under any other provision of the Plan. However,
if upon application for Early Retirement, you provide the Plan Office
with a copy of your Social Security Administration disability benefit
application, you may start your Early Retirement Pension (if you are
eligible) and convert to a Disability Retirement Pension when your
Social Security Disability application is approved. (This conversion
only applies to the Pension Plan.)
o You have a Social Security Disability Award.
Instead of a Social Security Disability Award, the Benefits/Appeals
Committee may rely on a physician's certification that:
o you are terminally ill with a life expectancy of less than two
years, and
o because of this illness, you cannot engage in any gainful
employment.
Such certification may also be for the purpose of waiving the required
6-month period of disability. The Benefits/Appeals Committee may require an
examination by a physician of its choice.
The amount of the Disability Pension is the same amount as the Normal
Retirement Pension. However, Credited Hours and Qualified Years prior to a
withdrawal of Employee Contributions are only included in determining the
benefit amount if you buy-back (see page 24) within the allowable time period
and had at least 2 Qualified Years after the year of repayment.
----------------------------
- 12 -
<PAGE>
Summary Plan Description -
Motion Picture Industry
Pension and Individual Account Plans
September 1998
At the request of the Plan Office, you must provide proof of your
continuing Social Security Disability Benefit. If you receive a Disability
Pension under the Pension Plan and your Social Security pension stops, your
Pension Plan disability benefit will stop as well. In the event your Social
Security Disability Benefit ceases or you return to work in the Industry, please
notify the Plan Office immediately of your change of status.
Late Retirement Pension
- --------------------------------------------------------------------------------
You can postpone retirement past your Normal Retirement Age and continue Working
in the Industry (and thus earn additional Credited Hours). See page 38 for
definition of Normal Retirement Age ("NRA").
Your Late Retirement Pension is the larger of:
o your Normal Retirement Pension, calculated by including all
Credited Hours in Qualified Years through Late Retirement; or
o your Normal Retirement Pension, calculated by ignoring all Credited
Hours after NRA, with an actuarial increase for your benefits not
paid after NRA (excluding your Employer-derived Benefits in Months
of Suspendible Service). For this purpose, for each of the months in
which you work less than 40 hours, the actuarial increase is 1.2% per
month, compounded annually.
For example, suppose you are eligible for a $1,000 per month pension
at your Normal Retirement Age, but choose not to retire, and your
Employee-derived Benefit is zero. Next year you work 1,000 hours so
that you earn a $32 per month benefit. However, for seven of these
months you work less than 40 hours in the Industry. At age 66, you
make an appointment with a retirement counselor and select the
following January 1st as your retirement date. At age 66, your
monthly benefit is $1,084 per month, which equals the greater of:
o $1,032, or
o 1.2% x 7 months = 8.4%
8.4% x $1,000 (monthly benefit at age 65) = $84
$1,000 + $84 = $1,084.
----------------------------
- 13 -
<PAGE>
Summary Plan Description -
Motion Picture Industry
Pension and Individual Account Plans
September 1998
Minimum Distribution Payments
- --------------------------------------------------------------------------------
You will be required to start your late retirement benefit on the April
1 following the year you reach age 70 1/2 if you were born on or after July 1,
1917 or are a 5% owner of the stock (or voting shares) of an Employer. You will
continue to earn benefits on additional Credited Hours you work. You must work a
Qualified Year (at least 400 Credited Hours) if you have less than 20 Qualified
Years to earn additional benefits. Any adjustments on your monthly benefit will
be determined on an annual basis. Benefits will be adjusted annually in the same
manner as a reemployed retiree. (See page 9.)
If you were born before July 1, 1917, and are not a 5% owner of the
stock (or voting shares) of an Employer, your minimum distribution benefit will
start on the April 1 following your retirement.
NOTE: If you are a Minimum Distribution Recipient, you are not
considered a retired Participant until you apply for retirement and refrain from
Working in the Industry during the first 2 months of your selected retirement
date. If eligible for Retiree Health Benefits, your coverage will not start
until you retire.
In addition, until you retire, you do not need to work 870 hours to
earn a Qualified Year and you will not be eligible for retiree benefit increases
(if the Board adopts such an increase and it is in the same form as past
increases). You will be eligible for benefit increases for active Participants
(if the Board adopts such an increase and it is in the same form as past
increases) unless you have had a Break in Service.
----------------------------
- 14 -
<PAGE>
Summary Plan Description -
Motion Picture Industry
Pension and Individual Account Plans
September 1998
Types of Pension Payment
- --------------------------------------------------------------------------------
The Plan provides 2 basic and 4 optional types of pension benefit
payment. When you apply for a pension, you will be advised of the amount you
can expect to receive monthly under each type of pension benefit payment
available to you. You will then be required to select the type of payment you
desire.
IMPORTANT: After your retirement date, you cannot change to another type of
payment even if you return to work.
Basic Type of Pension Benefit for Unmarried Participants
--------------------------------------------------------
Life Annuity Benefit
Unless you elect otherwise, the type of benefit for an unmarried Participant is
a Life Annuity benefit. You will receive a monthly benefit for your lifetime
(except as provided by the reemployment rules). No benefit will be paid to any
survivor.
Basic Type of Pension Benefit for Married Participants
------------------------------------------------------
Qualified Joint and 50% Survivor Annuity Benefit
The Employee Retirement Income Security Act of 1974 (ERISA) requires a
married Participant to retire with a Qualified Joint and 50% Survivor Annuity
Benefit unless the Participant elects another available option with the
Participant's spouse's written consent.
Under this option, you will receive a reduced benefit based on your age
and your spouse's age. The monthly benefit will be paid for your lifetime
(except as provided by the reemployment rules). In the event of your death, a
monthly benefit will continue to your spouse (at the time of your retirement)
equal to 50% of the monthly amount the Participant received, payable for your
spouse's lifetime.
In the event that your spouse dies before you, the Joint and 50%
Survivor Annuity will continue for your lifetime at the same monthly amount. No
benefit will be paid to any survivor, including a new spouse if you remarry.
Optional Retirement Benefits
----------------------------
Married Participants may elect, with their spouse's consent, any of the
following options or a Life Annuity Benefit. Single Participants may elect a
Ten-Years-Certain and Life Annuity Benefit or a Life Annuity Benefit. (See next
page for information on the Ten-Years-Certain and Life Annuity Benefit.)
----------------------------
- 15 -
<PAGE>
Summary Plan Description -
Motion Picture Industry
Pension and Individual Account Plans
September 1998
Joint & 100% Survivor Annuity Benefit
The Joint & 100% Survivor Annuity Benefit Option is similar to the
Qualified Joint & 50% Survivor Annuity Benefit except that there is no reduction
in benefit to the co-annuitant spouse in the event of the Participant's death.
For this reason, the benefit is lower than the Qualified Joint and 50% Survivor
Benefit.
If you have been married for at least 1 year and you elect the
Qualified Joint & 100% Benefit during the 90 day period prior to the benefit
commencement date and you die before your retirement, your spouse will be
entitled to the 100% Survivor Benefit.
Joint & 50% Pop-up Annuity Benefit
This option pays you a monthly benefit for your lifetime (except as
provided by the reemployment rules). In the event of your death, a monthly
benefit continues to your spouse (at the time of your retirement) equal to 50%
of the monthly amount you received. However, if your spouse pre-deceases you,
your monthly benefit will pop-up to the amount you would have received if you
elected a Life Annuity Benefit. This monthly benefit paid to the Participant at
retirement is lower than the Life Annuity and the Qualified Joint & 50% Survivor
Annuity.
Joint & 100% Pop-up Annuity Benefit
The Joint & 100% Pop-up benefit is similar to the Joint & 50% Pop-up
Annuity benefit except that the monthly benefit payable to the surviving spouse
will be the same as the amount paid to the Participant. If your spouse
pre-deceases you, your monthly benefit will also pop-up to the higher Life
Annuity Benefit. The monthly benefit payable to the Participant at retirement is
lower than the Joint & 100% Survivor Annuity.
If you have been married for at least 1 year and you elect the Joint &
100% Pop-up Benefit during the 90 day period prior to the benefit commencement
date and you die before your retirement, your spouse will be entitled to the
100% Pop-up Survivor Benefit.
Ten-Years-Certain and Life Annuity Benefit
A Ten-Years-Certain and Life Annuity Benefit Option is actuarially
reduced from the amount of the Life Annuity Benefit based on the age of the
Participant at the time of retirement. (Your Reduced Early Retirement Pension
under the Ten-Years-Certain and Life Option will be computed by applying the
factors on the following page to your Normal Retirement Pension under the Life
Annuity Option payable at age 65. Additional factors apply if you are older than
65. Special factors apply to Unreduced Early Retirement Pension under the
Ten-Years-Certain and Life Option.) If you select this option at retirement, you
will receive a monthly pension benefit for your lifetime (except as provided by
the reemployment rules). In the event of your death within the first 10-year
period of your retirement, your beneficiary will receive the same
----------------------------
- 16 -
<PAGE>
Summary Plan Description -
Motion Picture Industry
Pension and Individual Account Plans
September 1998
monthly amount only for the remainder of the 10-year period. You can only
designate your spouse and/or child(ren) as your beneficiary.
In the event of your death within 30 days before your selected
retirement date and you elected the Ten-Years-Certain and Life Annuity Benefit
Option, your designated beneficiary shall be entitled to the benefit commencing
on the selected retirement date. This rule does not apply if you designated your
spouse as beneficiary and you have not been married for at least 365 days.
However, if you have been married at least 1 year, this Ten-Years-Certain and
Life Benefit will not be paid to your Beneficiary unless your spouse elects to
waive the Death Benefit described on page 26.
In the event of your death after retirement and before the expiration
of the Ten-Year period and your designated beneficiaries also die within the
Ten-Year period, the Directors may designate a beneficiary or beneficiaries,
limited to your spouse and/or child(ren).
If you retire under this option and are reemployed, the ten-year period
shall not be increased by your reemployment period.
Ten-Years-Certain
and Life Factors
Reduced Age % Factor
Early Retirement Pension 65 94.9
64 88.4
63 82.5
62 77.1
61 69.0
60 64.4
59 60.2
58 56.4
57 52.5
56 49.8
55 47.1
Ten-Years-Certain
and Life Factors
Special Reduced Age % Factor
Early Retirement Pension 59 87.3
58 81.7
57 76.1
56 72.2
55 68.2
----------------------------
- 17 -
<PAGE>
Summary Plan Description -
Motion Picture Industry
Pension and Individual Account Plans
September 1998
Lump Sum Payments
- --------------------------------------------------------------------------------
Pension Plan benefits of vested Participants are usually paid as a
monthly payment at retirement. However, effective January 1, 1998, if the
present value of the monthly payment (including the monthly benefit derived from
Unclaimed Vacation & Holiday Pay, see page 22) is $5,000 or less, the benefit
will be automatically paid in a lump sum. If the amount is at least $5,000 but
not more than $10,000, you may elect to take the entire value of your benefit in
a single lump sum.
All lump sum distributions made to Participants are subject to 20% IRS
income tax withholding. Also, if your lump sum is paid before you attain age 59
1/2, you may have to pay an additional 10% penalty tax. To avoid these
penalties, you may have your lump sum paid as a direct rollover to an individual
retirement account (IRA) other than a Roth IRA, or to another qualified plan.
Reemployment of Pensioner
You will be considered retired from the Industry:
o when you file for retirement on the form provided by the Plans, and
o during the first 2 months beginning on your selected retirement date,
if you do not Work in the Industry at all (for an Employer) or have
a Month of Suspendible Service.
If you retire and work a Month of Suspendible Service after the first 2
months beginning on your selected retirement date, you will only be entitled to
the monthly Employee derived Benefit for that month. You will permanently
forfeit your Employer-derived Benefit for that month. Your full monthly benefit
will resume the next month you do not have a Month of Suspendible Service. If
you have a Month of Suspendible Service after age 70 1/2, special rules apply
(see page 19).
If you retire with Unreduced Early Retirement benefits (see page 11),
0 and you work a Month of Suspendible Service, the Employer-derived
portion of your monthly benefit will be forfeited as described in the
preceding paragraph; and
0 if you work 400 or more Credited Hours in a Plan Year prior to reaching
age 65, all monthly Pension benefits will stop until the month following
your 65th birthday.
----------------------------
- 18 -
<PAGE>
Summary Plan Description -
Motion Picture Industry
Pension and Individual Account Plans
September 1998
Other reemployment rules apply to those who retired before 8/1/86 and
who applied for retirement before 4/1/86. You must be considered retired before
8/1/86 as described in the first paragraph of this section, for the following
rules to apply. If you are reemployed:
o before reaching age 65, you can receive a monthly benefit while
working as long as you do not work 400 or more Credited Hours in a
Plan Year. If you work 400 or more Credited Hours in a Plan Year
prior to reaching age 65, your monthly benefits will stop until the
month following your 65th birthday. Unless you retired with Unreduced
Early Retirement Benefits, your monthly benefits at age 65 will be
increased to reflect the missed payments; and
o if you are 65 or over, you are entitled to your full monthly
pension benefit regardless of your reemployment, even if you have a
Month of Suspendible Service. However, these payments will reduce any
additional benefits you earn after age 65. (See below.)
Special rules apply to Participants who are receiving a Disability
Pension and return to work. In general, if you are entitled to Social Security
Disability Benefits during your reemployment, you will also be entitled to your
Pension Plan disability benefit. However, if you are younger than 65 and
receiving a disability pension, then your monthly Plan benefit will be forfeited
if you cease to be eligible for Social Security disability due to reemployment
(whether or not in the Industry) or for any other reason.
You must immediately advise the Plan Office of your reemployment in the
Industry.
Minimum Distribution Payments for Reemployed Pensioners
If you are a retired Participant who returns to work in the Industry,
beginning on the April 1 following the year you reach age 70 1/2, you can work
unlimited hours and still receive your monthly pension. If you were born before
July 1, 1917, and retired after 1988 and you do not own 5% of the stock (or
voting shares) of an Employer, this section will apply beginning on the April 1
following the year you retire. However, any benefits you earn while reemployed
will be offset by the monthly payments made for Months of Suspendible Service.
See the next paragraph for additional details.
Benefits Earned During Reemployment
As described on page 9, you can earn additional benefits if you earn
870 Credited Hours in a Plan Year after you retire. If you retired before age
65, these benefit adjustments will not be made until you attain age 65.
----------------------------
- 19 -
<PAGE>
Summary Plan Description -
Motion Picture Industry
Pension and Individual Account Plans
September 1998
If you retire and then earn new benefits after age 65, the adjustment
will be made at the beginning of each Plan Year. However, these additional
benefits based on Credited Hours earned will be reduced by the value of the
Employer-derived Benefits paid to you previously in Months of Suspendible
Service.
As a retiree, your retirement benefit may consist of both Employee and
Employer-derived benefits (see page 2). For example, suppose you retired in
1995 at age 65 and your current monthly benefit is $1,000: $100 is
Employee-derived and $900 is Employer-derived. You work 1,000 hours in a Plan
Year and earn an additional benefit of $32 ($.032 x 1,000 [see page 8]). For
each month that you work 40 or more hours, the Employer derived benefit paid
during those months will be totaled for the year. The total has an actuarial
value which will be used to offset the additional $32 benefit earned. For
example, suppose the actuarial value based on age at retirement, your current
age, your spouse's age, and benefit option chosen, is $20. The $20 is then
subtracted from $32, and your additional pension benefit earned for that Plan
Year would be $12. Your pension benefit for the next year would be $1,012 per
month. Additional benefits accrued are recalculated annually.
In addition, you cannot change your form of benefit if you are
reemployed.
Contributions
- --------------------------------------------------------------------------------
Employer Contributions
There are three sources of employer contributions:
o 51.65 cents for each hour worked or guaranteed by the Collective
Bargaining Agreement in effect. Special rules apply for on-call and
Nonaffiliate employees.
o Until August 2000, a portion of Supplemental Markets receipts if
the Health Plan Active Employees' Fund is sufficiently funded. In
general, the contribution will be the amount necessary to pay the
total annual required contribution that is not otherwise funded by
other sources of contributions (except for the additional 1996, 1997,
and 1998 benefit payments to retired Participants.)
o Until January 1, 1999, a portion of Post '60 Theatrical Motion
Picture receipts if the Health Plan Active Employees' Fund and
Retired Employees' Fund are sufficiently funded. The contribution
will be used to pay for the additional benefit payments in November
1996, 1997 and 1998 to retired Participants.
Employee Contributions
Commencing October 28, 1990, no Participant contributions are required
or permitted under the Pension Plan (except UV & HP - see pages 22-23).
----------------------------
- 20 -
<PAGE>
Summary Plan Description -
Motion Picture Industry
Pension and Individual Account Plans
September 1998
If you were a Participant in the Pension Plan before 1990, you were
required to make Employee Contributions to the Plan. Unless you have withdrawn
your Employee Contributions (see pages 23-24), they are still held under the
Plan. Compound interest is credited on all of these unwithdrawn Employee
Contributions. The current rate of interest for each year will be equal to 120%
of the Federal mid-term rate in effect for the year. No interest is earned after
the date your pension or death benefits start.
Break in Service
If you have a period of 2 consecutive Plan Years with less than 200
Vested Hours in each year, a Break in Service ("BIS") occurs. A BIS is extremely
important because it affects your benefits in many ways. For example,
o it may result in a forfeiture of accrued benefits for non-vested
Participants (see below.);
o hours earned before your BIS will not be eligible for active
benefit rate increases (if the Board adopts such an increase and it
is in the same form as past increases);
o you may elect a refund of Employee Contributions (see page 22);
o it may delay (or prevent you from attaining) your Normal Retirement
Age and thus prevent you from vesting (see page 38);
o it may prevent you from becoming otherwise eligible for Disability
Pension Benefits (see page 12).
Forfeiture of Pension Plan Benefits
- --------------------------------------------------------------------------------
As described on page 5, you are not entitled to any benefits (except a
return of Employee Contributions) if you never become vested. For example,
assume you have 4 Qualified Years from 1994 through 1997 and you never work in
the Industry again. You will not be entitled to any benefits under either the
Pension Plan or the Individual Account Plan.
In addition, you will forfeit your Pension Plan benefits (other than
Employee Contributions) if you are a Participant who:
o is not vested, and
o incurs a Break in Service, and
----------------------------
- 21 -
<PAGE>
Summary Plan Description -
Motion Picture Industry
Pension and Individual Account Plans
September 1998
o has not earned a Qualified Year for 5 consecutive years following
your last Qualified Year. However, if you had 6 or more Qualified
Years before your BIS, you will not forfeit your benefits until you
have the same number of years without a Qualified Year as you do
Qualified Years.
If you forfeit your benefits, you also forfeit all Qualified Years,
Vested Years, Credited Hours, and Vested Hours you have accumulated. Thus, if
you later work in the Industry, you will be treated as a new Participant without
any Credited Hours or vesting service.
Once you are vested, your Pension Plan benefits cannot be forfeited.
(See page 5.)
Unclaimed Vacation & Holiday Pay ("UV & HIP")
- --------------------------------------------------------------------------------
Employers may transfer Unclaimed Vacation and Holiday Pay ("UV & HP")
to the Pension Plan based on the terms of the applicable Collective Bargaining
Agreement. If you are not a vested Participant, your UV & HP, if any, will be
paid in the same manner as your Employee Contributions as described in "Refund
of Employee Contributions," (see below).
If you are a vested Participant, at the time of retirement, you may
elect to receive your UV & HP including interest in either:
o a lump sum, or
o an equivalent monthly annuity, if the present value of your
retirement benefits and UV & HP is over $5,000.
You may apply for your UV & HP benefit when you:
o are on a Break in Service, or
o file an application for withdrawal from employment in the Industry,
or
o become covered by certain private retirement plans.
Refund of Employee Contributions -
Including Unclaimed Vacation and Holiday Pay
- --------------------------------------------------------------------------------
If you are not vested and you either leave the Industry or incur a
Break in Service ("BIS"), you may be entitled to a refund of your Employee
Contributions (including UV & HP plus any interest accrued). This withdrawal
could seriously affect future benefits if you return to Work in the Industry
(see page 24). You may choose not to withdraw your Employee Contributions
(including UV & HP) and thus continue earning interest.
----------------------------
- 22 -
<PAGE>
Summary Plan Description -
Motion Picture Industry
Pension and Individual Account Plans
September 1998
If you plan to leave the Industry and would like to receive your
Employee Contributions, you must:
o file a Withdrawal Form in the Plan Office, and
o not Work in the Industry for 3 months after filing the Form.
The Plan Office will verify that you have not worked during the 3-month
period after filing the Withdrawal Form. Payment of your benefits will normally
be made within 60 days following the 3-month period.
If you incur a Break in Service and want to receive your benefits, you
must return the completed form to the Plan Office. Your refund will be made
within 60 days after the Plan Office receives your completed BIS/Refund Form.
Your refund will be in a lump sum if your contributions (including UV &
HP plus any accrued interest) are $5,000 or less.
If your contributions (including UV & HP plus any accrued interest) are
more than $5,000, you may elect:
o a monthly single Life Annuity (a Qualified Joint & 50% Survivor
Annuity, if married) payable immediately based on the total amount,
or
o with your spouse's consent, a lump sum payment of your
contributions (including UV & HP) plus any accrued interest.
If you chose the monthly annuity, payments will not be:
o affected by benefit increases, or
o suspended or forfeited if you are reemployed in the Industry.
Vested Participants cannot withdraw Employee Contributions-only UV &
HIP.
If you were born on or after July 1, 1917, have not withdrawn your
contributions, and are not vested, you must receive your contributions the April
1 following the year you turn 70 1/2.
Effect of Withdrawal
- --------------------------------------------------------------------------------
If you withdraw your Employee Contributions, you will lose credit for all of
your Credited Hours and Qualified Years earned before the date of your
withdrawal. If you never return to work in the Industry, this will not affect
your Pension Plan benefits since you were not vested at the time of your
withdrawal. However, if you later return to work in the Industry, this could
have
----------------------------
- 23 -
<PAGE>
Summary Plan Description -
Motion Picture Industry
Pension and Individual Account Plans
September 1998
a significant impact on your future benefits since you will lose credit for your
earlier Credited Hours. Under certain circumstances, as described below, you may
buy-back your earlier service if you return to work in the Industry. Special
rules apply to forfeiture of Qualified Years and Credited Hours if you are
receiving an annuity from your Employee Contributions plus interest.
Return of Your Withdrawn Contributions, i.e., Buy-back
Subject to the rules below, if you are not vested and you receive a refund of
your Employee Contributions with interest, you may repay your refund (with
interest, at rates set forth in the Plan) to the Plan to buy back the benefits
you had earned before the refund. To buy back, you must return to work for an
Employer in the Industry. Your buy-back will be allowed only if the refund (with
interest) is repaid to the Plan and:
o the benefits you earned have not already been forfeited (see page
21), and
o the repayment is within 5 years after you return to work for an
Employer in the Industry and before you have 5 Plan Years without a
Vested Year.
For example, assume you accumulated 9 Qualified Years from 1986 through
1994. In October 1994, you received a refund of your Employee Contributions plus
accrued interest. As a result of your withdrawal, your Pension Plan benefits are
immediately forfeited. However, suppose on February 1, 1998, you returned to
work for an Employer in the Industry on a full time basis. If you comply with
the above rules, you may repay your refund (with interest) before February 2003
to buy-back benefits accrued from 1986 through 1994.
Please note: Even if you repay such contributions, your earlier Credited Hours
will be ignored for purposes of calculating the amount of your Disability
Pension, unless you earn 2 Qualified Years after you repay your contributions.
You may not repay the amount you received from Unclaimed Vacation &
Holiday Pay plus accrued interest.
Special buy-back rules apply to periods before December 25, 1988.
----------------------------
- 24 -
<PAGE>
Summary Plan Description -
Motion Picture Industry
Pension and Individual Account Plans
September 1998
Death Benefits
- --------------------------------------------------------------------------------
Death Benefit Before Retirement
In the event of a married Participant's death prior to retirement (if the
Participant has been married for 365 days or more):
o A Qualified Spouse of a vested Participant may elect:
o a monthly annuity for the life of the spouse. The amount of this
annuity is 50% of the monthly benefit that would have been payable if
the Participant had retired and had elected a Qualified Joint and 50%
Survivor Annuity Benefit. If the Participant was eligible to retire,
the annuity will start on the first of the month after the
Participant's death. If the Participant has not reached his earliest
retirement date, then the monthly annuity will be deferred until the
Participant's earliest retirement date; or
o a lump sum based on the greater of the present value of the annuity
described above or the Employee Contributions (plus any accrued
interest);
o in addition, a Qualified Spouse of a Vested Participant may receive
the Unclaimed Vacation and Holiday Pay in a lump sum. If the Qualified
Spouse elected a monthly annuity above, he or she may also elect to
receive the UV & HP in the form of an annuity.
o A Qualified Spouse of a Participant who is not vested and who has not
withdrawn any Employee Contributions (including UV & HP) plus any
accrued interest may elect:
o a monthly annuity over the life of the spouse, which is actuarially
equivalent to 50% of the Employee Contributions and interest; or
o a return of Employee Contributions plus any accrued interest.
Notwithstanding the above rules, if the present value of the benefits
payable to the Qualified Spouse is $5,000 or less, the benefits will
automatically be paid in a lump sum.
o The Beneficiary of a Participant who is not married (or does not have
a Qualified Spouse) will receive a lump sum refund of the unwithdrawn
Employee Contributions (including UV & HIP plus any accrued interest).
----------------------------
- 25 -
<PAGE>
Summary Plan Description -
Motion Picture Industry
Pension and Individual Account Plans
September 1998
NOTE: For calculation purposes, the age of the Participant and spouse, the date
of death and date of payment will be considered. Proof of date of birth,
marriage certificate and death certificate will be required.
Death Benefit After Retirement
If you elected a form of retirement benefit with a survivor benefit,
survivor benefits will be paid in accordance with the option you elected. In
addition, if a Pensioner dies before receiving total benefits equal to the
unwithdrawn Employee Contributions (including Unclaimed Vacation and Holiday
Pay) plus any accrued interest at retirement and there are no survivor benefits,
the spouse (at the time of retirement, unless the spouse later dies or divorces
the Participant) or if there is no spouse, the Beneficiary, will receive the
remaining Employee Contributions (including UV & HP plus any accrued interest at
retirement), less the benefits previously paid to you and your survivors.
----------------------------
- 26 -
<PAGE>
Summary Plan Description -
Motion Picture Industry
Pension and Individual Account Plans
September 1998
Motion Picture Industry Individual Account Plan
(Defined Contribution Plan)
- --------------------------------------------------------------------------------
The Motion Picture Industry Individual Account Plan ("IAP") started in
1979. This Plan is completely Employer-funded. In general, all Pension Plan
Participants will automatically participate in the IAP. However, Participants
who were 55 years or older on August 1, 1979 and who were eligible for the
increased Pension Plan benefits described on page 9 were not eligible to
participate in the IAP until December 24, 1989.
Participants in the IAP must work a Qualified Year to receive allocations
of Employer Contributions for that Plan Year. Special rules apply to reemployed
Pensioners.
Employer Contributions
Contributions to the IAP are normally made by Employers on one of two
bases:
o for each Credited Hour worked or guaranteed by a Participant.
o if you are a Covered Participant (as described in Appendix A), as a
percent of compensation. The term "compensation" generally means scale
regular basic hourly rate of pay (or the on-call rate, if applicable)
for affiliate employees. (However, you are deemed to earn $30 an hour
for this purpose if you are a transportation coordinator.) Certain
special definitions apply for Nonaffiliates which are described in
Appendix A.
The contributions made by Employers for a Plan Year are allocated annually
to those Participants who earned a Qualified Year for such Plan Year.
Annual Allocations
Contributions (net of administrative expenses) and forfeitures from
Participants' Accounts (see page 32) are only allocated to Participants who
complete a Qualified Year. In addition, if you are a reemployed Pensioner, you
must work 870 hours in a Plan Year to receive an allocation. You will not
receive an allocation in the Plan Year you die or retire, except that you will
receive an allocation for the year you retire if you work at least 870 Credited
Hours after your retirement date. The various allocations are described below.
First, a compensation-related allocation is made. The allocation is only
made to Covered Participants who have a Qualified Year (or 870 hours, if
applicable) for the year in question. Covered Participants are only those
Participants listed in Appendix A. The allocation equals 1%, 2% or 3% of
compensation for Credited Hours (as a Covered Participant), as set forth in
Appendix A.
----------------------------
- 27 -
<PAGE>
Summary Plan Description -
Motion Picture Industry
Pension and Individual Account Plans
September 1998
Second, for years ending in 1997-1999, certain Supplemental Market
Contributions may be made to the IAP pursuant to collective bargaining
agreements. These amounts are allocated to participants who are both (1) Covered
Participants (that is, Participants eligible to receive compensation-related
allocations-see Appendix A) on October 22, 1997, and (2) who have a Qualified
year (or 870 hours, if applicable) for the year in question. One-half of these
amounts are allocated based on your aggregate Credited Hours from 12/23/79
through the end of the Plan Year, divided by the total of such Credited Hours of
all Participants eligible to receive such an allocation. The remaining one-half
of the Supplemental Market Contributions are allocated to Participants described
above based on Credited Hours during the Plan Year, divided by the total
Credited Hours in that Plan Year of all such Participants eligible to receive
such an allocation. However, all allocations to Nonaffiliates who are eligible
for an allocation are based on Credited Hours in the applicable Plan Year.
Finally, all remaining amounts contributed to the Plan for the Plan
Year are allocated to Participants with a Qualified Year (or 870 hours, if
applicable) based on Credited Hours during the Plan Year, divided by the total
Credited Hours of such Participants in that Plan Year.
In addition, the net gains or losses are allocated annually based on
your account balance at the beginning of the Plan Year. These allocations are
not made to Participants who retired or died during the Plan Year.
A different set of allocation rules applies to Plan Years beginning
before December 23, 1990. See earlier summary plan descriptions for additional
information.
Withdrawal of Account Balance
Withdrawal of your account balance at any time prior to retirement is
not possible, even if you are vested.
Retirement Benefits
The amount of your benefit will be based on your account balance as of
the beginning of the Plan Year in which you retire. As described on the
following page, this amount will be used to either pay a lump sum benefit or to
purchase an annuity contract providing for your benefits. However, if the Trust
suffers a negative investment return of 10% or more between the beginning of the
Plan Year and the end of the month in which your retirement application is
received, the amount otherwise payable to you will be reduced by the amount of
such negative return.
The IAP provides the same categories of retirement benefits as the
Motion Picture Industry Pension Plan as follows:
o Normal Retirement Pension
----------------------------
- 28 -
<PAGE>
Summary Plan Description -
Motion Picture Industry
Pension and Individual Account Plans
September 1998
o Early Retirement Pension
o Disability Retirement Pension
o Late Retirement Pension
You will be entitled to benefits from the IAP only when you retire
under the Pension Plan. See section on Reemployment of Pensioner on page 18 for
the definition of retire. In general, you must elect to retire under the IAP at
the same time you retire under the Pension Plan. In general, unless you elect a
lump sum, the type of benefit payment under the IAP will automatically be the
same as the type you elected under the Pension Plan. However, if you elect a
Pop-up option under the Pension Plan, the corresponding non-Pop-up benefit is
paid under the IAP.
If your IAP balance is $5,000 or less, it will be paid in a lump sum.
If your IAP balance is over $5,000, you may elect to receive the balance in a
lump sum or by purchase of an annuity contract issued by an insurance company
that provides for the same type of monthly pension payment you elected under the
Pension Plan. The annuity may include retroactive payments.
In order to receive your retirement benefits from the IAP, for 2 months
beginning on your retirement date, you cannot work in the Industry at all (for
an Employer), or have a Month of Suspendible Service (see page 18). Payment of
your IAP benefits will be delayed until the IAP can determine whether you have
met this requirement. You may certify in writing to the Plan Office that you
have met this requirement. However, if you provide such a certification and you
have in fact worked in the Industry during this period, you will not be
entitled to any allocation under the Individual Account Plan for any Plan Year
ending after the date you wanted to retire.
Participants have two options available to receive their IAP allocation
distribution.
Option 1 - Two-Step Payment Process
The Participant's (or beneficiary's) first payment or annuity purchase
shall equal a percentage of the balance of the Participant's Individual
Account on the beginning of the prior year, and shall be made as soon
as practicable.(1) Then, after allocations for the prior year are
complete, the Participant (or beneficiary) will receive the remainder.
Option 2 - One-time Payment
The Participant (or beneficiary) will receive his/her payment or
annuity purchase as soon as practicable following completion of the
allocations for the prior year.
- -------------
(1) The percentage will be determined by the Plan and shall be based on
the expected investment return for the prior year, and shall be uniform for
every Participant for that Plan Year.
----------------------------
- 29 -
<PAGE>
Summary Plan Description --
Motion Picture Industry
Pension and Individual Account Plans
September 1998
Minimum Distribution Payments
If you are vested, you will be required to receive benefits from the
Individual Account Plan on the April 1 following the year you reach age 70 1/2.
You will then have two options available to receive your IAP allocation
distribution.
Option I - Two-Step Payment Process
On or before April 1, you will receive a payment or annuity purchase
equal to a percentage of your Individual Account Plan balance on the
beginning of the prior year. (2) Then, after allocations for the prior
year are complete, you will receive the remainder.
Option 2 - One-time Payment
A minimum benefit will be paid on or before April 1. You will receive
the balance of your IAP account or annuity purchase as soon as
practicable following completion of the allocations for the prior year.
You will be considered an Active Participant until you retire. (See
page 14) You will receive allocations if you work a Qualified Year. Additional
allocations shall be paid as soon as practicable after completion of the Annual
Allocation.
If you were born before July 1, 1917, and are not a 5% owner of the
stock (or voting shares) of an Employer, you will receive your benefits by the
April 1 following the year you retire.
Reemployment of Pensioner
If you retire and subsequently accept reemployment in the Industry, you
will be eligible to receive allocations of contributions only if you work 870 or
more Credited Hours in a Plan Year, excluding Credited Hours before your
retirement date.
If you retired early, these additional amounts will be paid to you in a
lump sum after the end of the Plan Year in which you attain age 65. (You will
not receive an allocation of investment income for the year of that
distribution.) Additional allocations of contributions you earn after age 65
shall be paid each year, as soon as practicable after completion of the Annual
Allocation.
In addition, reemployed Pensioners are not given allocations of
investment earnings in the year they retire or any year ending after they attain
age 66.
- -------------------
(2) The percentage will be determined by the Plan and shall be based on
the expected investment return for the prior year, and shall be uniform for
every Participant for that Plan Year.
----------------------------
- 30 -
<PAGE>
Summary Plan Description -
Motion Picture Industry
Pension and Individual Account Plans
September 1998
Death Benefits
Your IAP balance (that has not been forfeited, as described on page 32)
will be vested upon death.
In the event of a Participant's death before retirement:
o A Qualified Spouse of a Participant will be entitled to the
IAP balance:
o payable as a lump sum, if a lump sum is chosen in the Pension
Plan; or
o payable as a lump sum or monthly annuity, if a monthly annuity
is selected in the Pension Plan. The amount of the annuity
will be the amount that can be purchased from the insurance
company with the amount of the Participant's account balance.
The annuity will be paid for the lifetime of the surviving
spouse, starting on the date the annuity starts under the
Pension Plan.
o The Beneficiary of a Participant who is not married (or who
does not have a Qualified Spouse) will receive the Individual
Account Plan balance in a lump sum.
The death benefits will be based on the account balance at the
beginning of the Plan Year in which the death occurs.
Beneficiaries have two options available to receive their IAP
allocation distribution.
Option I - Two-Step Payment Process
The beneficiary's first payment or annuity purchase shall equal a
percentage of the balance of the Participant's Individual Account on
the beginning of the prior year, and shall be made as soon as
practicable.(3) Then, after allocations for the prior year are
complete, the beneficiary will receive the remainder.
Option 2 - One-time Payment
The beneficiary will receive his/her payment or annuity purchase as
soon as practicable following completion of the allocations for the
prior year.
- -------------------
(3) The percentage will be determined by the Plan and shall be based on
the expected investment return for the prior year, and shall be uniform for
every Participant and beneficiary for that Plan Year.
----------------------------
- 31 -
<PAGE>
Summary Plan Description --
Motion Picture Industry
Pension and Individual Account Plans
September 1998
Forfeiture of Your Individual Account Plan Balance
You will forfeit your IAP balance if you are a Participant who:
o is not vested, and
o incurs a Break in Service, and
o has not earned a Qualified Year for 5 consecutive years
following your last Qualified Year. However, if you had 6 or
more Qualified Years before your Break in Service, you will
not forfeit your benefits until you have had the same number
of years without a Qualified Year.
When you forfeit your account balance, it is returned to the Plan and
re-allocated to all the eligible Participants. You also forfeit all Qualified
Years, Vested Years, Credited Hours, and Vested Hours accumulated. Thus, if you
later Work in the Industry, you will be treated as a new Participant without any
Credited Hours or vesting service.
Once you are vested, your Individual Account Plan balance cannot be
forfeited.
----------------------------
- 32 -
<PAGE>
Summary Plan Description -
Motion Picture Industry
Pension and Individual Account Plans
September 1998
Applicable Information to Pension and
Individual Account Plans
- --------------------------------------------------------------------------------
Erroneous Payments
If a payment is made in error to a Participant, Pensioner, spouse,
Beneficiary or any other person due to the Participant's failure to retire,
reemployment, an error in computing benefits, or any other reason, the Plan
shall recover the mistaken payment by prompt repayment by the recipient or a
reduction in the amount of future payments.
Incapacity of Pensioner
In the event you become unable to care for your own affairs due to
illness, accident or incapacity, either mental or physical, any pension payments
you are due will be paid to your spouse or a duly appointed guardian or other
legal representative.
Missing Participant or Beneficiary
In the event that the Directors are unable to locate a Participant,
spouse or Beneficiary for a period of 3 years, after a retirement or death
benefit becomes payable, the interest of such in the Plans shall be forfeited
and remain in the Plans. However, if such Participant, spouse or Beneficiary
subsequently claims such benefit, it shall be reinstated and paid according to
the Plans.
Garnishment or Assignment of Your Benefits
Your benefits may not be in any way attached or garnished by any
creditors, or to the jurisdiction of any bankruptcy court or any insolvency
proceedings by operation of law. And conversely, you may not anticipate, pledge,
or assign any future benefits due you.
Except as provided by law, the sole exception to this rule is when
benefits are assigned to a spouse or a child pursuant to a "qualified domestic
relations order" in a divorce or child support action.
----------------------------
-33-
<PAGE>
Summary Plan Description -
Motion Picture Industry
Pension and Individual Account Plans
September 1998
Private Retirement Plans
Special rules may apply if you have been eligible to participate in
certain retirement plans maintained by any of the following employers:
o Metro-Goldwyn-Mayer, Inc.
o Twentieth Century-Fox Film Corporation
o R. C. A.
o RKO-Radio Pictures, Inc.
o Technicolor, Inc.
o Bing Crosby Prods., Inc.
If you participated in any of the Private Plans listed above, the
length of time that you participated may not be credited for benefits under the
Pension and Individual Account Plans.
Provisions of the Plans Govern
This booklet is intended to be a summary of the highlights of the
Plans. In the event of any inconsistency between this summary of the Plans and
the provisions of the Plans, the actual provisions of the Plans shall govern.
The benefits and conditions indicated in this summary are also subject to change
by action of the Board of Directors of the Plans. Copies of the Motion Picture
Industry Pension Plan and Motion Picture Industry Individual Account Plan Trust
Agreements are available in the Office of the Plans for inspection by all
Participants.
----------------------------
- 34 -
<PAGE>
Summary Plan Description -
Motion Picture Industry
Pension and Individual Account Plans
September 1998
Information Required by the Employee Retirement Income Security
Act of 1974 ("ERISA")
- --------------------------------------------------------------------------------
Information required by the Act specified in Section 102(b).
1. The name and type of administration of the Plans.
The Motion Picture Industry Pension Plan and Motion Picture Industry
Individual Account Plan for employees of the Motion Picture Industry are
Collectively Bargained, Joint Trusteed Labor- Management Trusts.
2. Internal Revenue Service Plan identification number and Plan Number.
o Pension Plan Employer Identification Number: 95-1810805
o Individual Account Plan Employer Identification Number:
95-0030749
o Pension Plan Number: 001
o Individual Account Plan Number: 002
3. Name and address of the persons designated as agents for service of
legal process.
Legal processes may be served on the Executive Administrative Director
at the Plan Office located at:
11365 Ventura Boulevard, 2nd Floor
Studio City, California 91604
Mailing Address:
P.O. Box 1999
Studio City, California 91614-1999
Service of legal process may also be made upon a Plan Trustee
(Director).
4. Name and Address of the Administrator:
Board of Directors
Motion Picture Industry Pension and Individual
Account Plans
11365 Ventura Boulevard
Studio City, California 91604-3161
Mailing Address: P.O. Box 1999
Studio City, California 91614-1999
----------------------------
- 35 -
<PAGE>
Summary Plan Description -
Motion Picture Industry
Pension and Individual Account Plans
September 1998
5. Name and address of any Director.
Management Directors
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Mr. Joseph A. Aredas Mr. Steven R. Escovedo Mr. Louis H. Shore
C.S.A.T.F. Twentieth Century Fox Film Corp. Paramount Pictures
15503 Ventura Boulevard 10201 W. Pico Boulevard 5555 Melrose Ave.,
Encino, CA 91436 Beverly Hills, CA 90213 Bluhdorn Bldg.
Los Angeles, CA 90038
Ms. Stephanie A. Capriellian Mr. Hank Lachmund Mr. Stephen P. Taylor
Universal City Studios Warner Bros. Television Prods. Paramount Pictures Corp.
100 Universal City Plaza 300 Television Plaza, Bldg 137 5555 Melrose Ave.,
Bldg. 507, Ste. 4-F Burbank, CA 91505 Administration #39
Universal City, CA 91608-1002 L.A., CA 90038
Mr. J. Nicholas Counter, III Mr. Michael P. Messina Mr. Marshall Wortman
A.M.P.T.P. Warner Bros. Studios Facilities % M.P.I.H.P.
15503 Ventura Boulevard 4000 Warner Boulevard 11365 Ventura Blvd., 2nd Floor
Encino, CA 91436 Bldg. 17, Room 201 Studio City, CA 91604
Burbank, CA 91522
</TABLE>
Labor Directors
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Mr. Gene Allen Mr. Bruce C. Doering Ms. Marlene Mattaschiam
c/o M.P.I.H.P. Local 600 Local 818
11365 Ventura Blvd., 2nd Floor 7715 Sunset Blvd., Suite 300 13949 Ventura Blvd., Suite 302
Studio City, CA 91604 Hollywood, CA 90046 Sherman Oaks, CA 91423
Mr. Earl E. Brendlinger Ms. Sandra Berke Jordan Mr. Patrick R. Maurice
Local 724 Local 705 IBEW-Local 40
6700 Melrose Ave. 1427 N. La Brea Avenue 5643 Vineland Avenue
Los Angeles, CA 90038 Hollywood, CA 90028 N. Hollywood, CA 91601
Mr. Anthony S. Cousimano Mr. Ronald G. Kutak Mr. Thomas C. Short
Teamsters Local 399 Local 776 I.A.T.S.E.
P.O. Box 6017 7715 Sunset Blvd., Suite 220 1515 Broadway, Ste 601
N. Hollywood, CA 91603-6017 Hollywood, CA 90046 New York, NY 10036-5741
</TABLE>
----------------------------
- 36 -
<PAGE>
Summary Plan Description -
Motion Picture Industry
Pension and Individual Account Plans
September 1998
Alternate Management Directors
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Ms. Helayne I. Antler Ms. Michele Caylor Mr. Michael Rosenfeld
A.M.P.T.P. Entertainment Partners Walt Disney Pictures & Television
15503 Ventura Boulevard 3601 W. Olive Ave., #800 500 South Buena Vista
Encino, CA 91436 Burbank, CA 91505 Burbank, CA 91521-7459
Mr. Charles Byloos Mr. Harry G. Isaacs Mr. Ted D. Rubin
Technicolor, Inc. Paramount Pictures Corp. Sony Pictures Entertainment, Inc.
4050 Lankershim Boulevard 5555 Melrose Ave. 10202 W. Washington Blvd.
N. Hollywood, CA 91608 Bluhdorn Bldg., Ste 104 Culver City, CA 90232
Los Angeles, CA 90038
Mr. Stephen C. Carroll Mr. John M. McLean Mr. William A. Sutman
Metro-Goldwyn-Mayer CBS Television City Universal City Studios, Inc.
2500 Broadway 7800 Beverly Blvd. 100 Universal City Plaza,, LRW-4
Santa Monica, CA 90404-3061 Los Angeles, CA 90036 Universal City, CA 91608
</TABLE>
Alternate Labor Directors
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Ms. Marjo R. Bernay Ms. Carole J. Frazier Mr. Leo T. Reed
Local 854 Local 892 Teamsters Local 399
13949 Ventura Blvd., Ste. 301 13949 Ventura Blvd., Suite 309 P.O. Box 6017
Sherman Oaks, CA 91423 Sherman Oaks, CA 91423 N. Hollywood, CA 91603-6017
Mr. James E. Choice III Ms. Pamela E. Mack Mr. Raymond B. Schillaci
Local 683 Local 727 Local 724
P.O. Box 7429 13949 Ventura Blvd., Suite 310 6700 Melrose Avenue
Burbank, CA 91510-7429 Sherman Oaks, CA 91423 Los Angeles, CA 90038
Mr. Harry J. Floyd Mr. Carmine A. Palazzo Mr. Mark A. Seay
I.A.T.S.E. Local 729 Local 755
13949 Ventura Blvd., Ste 300 11365 Ventura Blvd., Suite 202 13949 Ventura Blvd., Suite 305
Sherman Oaks, CA 91423 Studio City, CA 91604 Sherman Oaks, CA 91423
</TABLE>
6. The Plans' Requirements Respecting Eligibility for Participation and
Benefits, are shown on pages 7 to 26 of this booklet and Articles I,
II, III, IV, and V of the Pension Plan and on pages 27 to 32 of this
booklet and Articles I, II, III, IV, V, VI, and VII of the Individual
Account Plan.
----------------------------
- 37 -
<PAGE>
Summary Plan Description -
Motion Picture Industry
Pension and Individual Account Plans
September 1998
7. The Normal Retirement Age under the Plan is generally age 65. However,
if you do not have 5 Qualified Years or you have not been a Participant
in the Plan for 5 years (excluding service before December 25, 1988),
your Normal Retirement Age will be delayed until you meet one of these
5-year requirements. If you have had a Break in Service, a number of
special rules apply in determining whether you have 5 Qualified Years
or have participated in the Plan for 5 years. Such a Break in Service
may further delay your Normal Retirement Age or, in some circumstances,
mean that you will never attain your Normal Retirement Age and
therefore will not vest in your benefits. Please call the Plan Office
if you have any questions regarding these specific rules.
8. The Provisions of the Qualified Joint and 50% Survivor Annuity, which
provides a lifetime benefit for a surviving spouse, are set forth in
Article IV of the Pension Plan and on page 15 of this booklet and
Article VI of the Individual Account Plan and on page 28 of this
booklet.
9. Description of Circumstances Which May Result in Disqualification,
Ineligibility, Denial or Loss of Benefits.
In addition to other circumstances described elsewhere in the
Summary Plan Description (such as not being vested, the various Break
in Service rules), you may lose eligibility for benefits if any of the
following conditions apply:
a. A Pensioner who returns to Work in the Industry must inform
the Board of Directors in writing, within 1 week of his/her
reemployment. Refer to Article IV, Section 7 of the Pension
Plan and Article II of the Individual Account Plan.
b. A Pensioner is not eligible to receive a Pension Plan or
Individual Account Plan benefit until s/he has filed written
application to the Directors, filed at least 2 calendar months
prior to the selected retirement date. Refer to Article IV,
Section 1 of the Pension Plan and Article V, Section 1 of the
Individual Account Plan.
c. Pension payments may be suspended or denied for failure to
comply with a request from the Executive Administrative
Director for information regarding a disability promptly,
completely, and in good faith or reemployment or for the
willful making of a false statement material to a claim. Refer
to Article IV, Sections 5(b)(1) and 7(a)(3) of the Pension
Plan.
d. If you have not yet attained age 65, and receive a Disability
Pension but lose entitlement to your Social Security
Disability Benefit, you must inform the Board of Directors, in
writing, within 1 week of the date you receive notice from the
Social Security Administration.
e. If you stop receiving Social Security Disability Benefits
before attaining age 65, your disability retirement benefit
under the Pension Plan will stop.
----------------------------
- 38 -
<PAGE>
Summary Plan Description -
Motion Picture Industry
Pension and Individual Account Plans
September 1998
f. If you return to work in the Industry, your Pension Plan
benefits may also be forfeited. Refer to Article IV, Section 7
of the Pension Plan and pages 18-19 of this booklet.
As noted earlier, this document only provides certain highlights
contained in the Plan documents. Other Plan provisions may result in a loss of
your benefits.
10. Plan Termination Insurance
The Collective Bargaining Parties intend that these Plans continue
indefinitely. However, the Collective Bargaining Parties reserve the right,
subject to the provisions of the Trust Agreements, to terminate either of the
Plans. To terminate the Pension Plan, they must notify and get approval from a
governmental agency called the Pension Benefit Guaranty Corporation ("PBGC").
If either Plan is terminated, you will be notified as soon as possible.
You will be told the amount, if any, to which you will become entitled, with an
explanation of any election that you may have to make. Your benefits are
protected as follows. The assets in the Plan(s), after provision for
administrative expenses, will be used to provide for all benefits accrued to the
date of termination, whether those benefits are vested or not. Upon termination
of the Pension Plan, the Directors shall take such steps as they deem necessary
or desirable to comply with Sections 4041A and 4281 of ERISA.
The benefits under the Pension Plan are insured by the PBGC if the Plan
terminates. Generally, the PBGC guarantees most vested normal retirement age
benefits, early retirement benefits and certain survivor's pensions. However,
the PBGC does not guarantee all types of benefits under covered plans, and the
amount of benefit protection is subject to certain limitations.
The PBGC guarantees vested benefits at the level in effect on the date
of Pension Plan termination. However, if benefits have been increased within 5
years before Plan termination, the whole amount of the Plan's vested benefits or
the benefit increase may not be guaranteed. In addition, there is a ceiling on
the amount of monthly benefit that PBGC guarantees, which is adjusted
periodically.
For more information on the PBGC insurance program and its limitations,
direct inquiries to:
Coverage and Inquiries Branch
Pension Benefit Guaranty Corporation
1200 "K" Street, NW
Washington, DC 20006 or by calling (202) 326-4000
The PBGC does not insure any benefits provided by the Individual
Account Plan.
----------------------------
- 39 -
<PAGE>
Summary Plan Description -
Motion Picture Industry
Pension and Individual Account Plans
September 1998
11. Source of financing of the Plans and identity of any organization
through which benefits are provided.
On and after October 28, 1990, all contributions to the Plans (other
than UV & HP) are made by Employer Parties in accordance with their Collective
Bargaining or Nonaffiliate Agreements.
The Plan Office will provide you, upon request, information as to
whether a particular Employer is an Employer Party to the Plans and as such, is
remitting contributions to the Plans on your behalf.
Benefits are provided from the Plans' assets which are accumulated and
invested under the provisions of the Collective Bargaining Agreements and the
Pension and Individual Account Plans' Trust Agreements and held by the Corporate
Co-Trustee for the purpose of providing benefits to Active and Retired
Participants and defraying reasonable administrative expenses. The Northern
Trust Company has been designated as the Corporate Co-Trustee to the Plans.
The Northern Trust Company is located at 50 South LaSalle Street,
Chicago, IL 60675.
The Plans' assets are invested by financial managers. These financial
managers are:
<TABLE>
<CAPTION>
<S> <C>
Alliance Capital Lipper & Company, L.P.
American Express Asset Management McMorgan & Company
Bank of Ireland Asset Management Ltd. Nicholas/Applegate
Boston Partners Asset Management L.P. NWQ Investment Management Company
Capital Guardian Trust Company Patterson Capital Corporation
Chelsea Management Company Prudential Asset Management Company, Inc.
Heitman Capital Management Corporation Scudder Kemper Investments, Inc.
Heitman/PRA Securities Advisors, Inc. The Northern Trust
J.P. Morgan Investment Management Inc.
</TABLE>
12. Record-keeping Period/Plan Year.
The Plans are on a Fiscal Year, beginning the Sunday before the last
Thursday of a calendar year and ending on the Saturday before the last Thursday
of the subsequent calendar year.
13. Remedies available under the Plans for the redress of claims which are
denied in whole or part, including provisions required by Section 503 of the
Employee Retirement Income Security Act of 1974.
As a Participant in the Motion Picture Industry Pension or Motion
Picture Industry Individual Account Plan, you are entitled to certain rights and
protection under the Employee Retirement Income Security Act of 1974 ("ERISA"),
as amended from time to time.
----------------------------
- 40 -
<PAGE>
Summary Plan Description -
Motion Picture Industry
Pension and Individual Account Plans
September 1998
ERISA provides that you are entitled to examine, without charge at the
Plan Office, all Plan documents, including insurance contracts, Collective
Bargaining Agreements and copies of all documents filed by the Plans with the
U.S. Department of Labor, such as annual reports and plan descriptions.
You are entitled to obtain copies of all plan documents and certain
other plan information upon written request to the Pension Plan Office. A
reasonable charge may be made for all copies.
A summary of the Plans' annual financial reports, as well as an annual
statement of your total pension benefits and your total Qualified Years, will
automatically be sent to you each year.
You are also entitled to obtain a statement telling you whether you
have a right to receive a pension at normal retirement age and, if so, what your
benefit would be at normal retirement age if you stop working under the plan
now. If you do not have a right to a pension, the statement will tell you how
many more years you have to work to get a right to a pension. This statement
must be requested in writing or in person and is not required to be given more
than once a year. The Plans must provide the statement free of charge. The Plans
will provide this information to the extent it is able to, based on available
records.
In addition to creating rights for Plan Participants, ERISA imposes
obligations upon the persons who are responsible for the operation of the
employee benefit plan. The people who operate your Plans, called "Fiduciaries"
of the plans, have a duty to do so prudently and in the interest of you and
other plan Participants and beneficiaries. No one, including your Employer, your
union, or any other person, may fire you or otherwise discriminate against you
in any way to prevent you from obtaining a pension benefit or exercising your
rights under ERISA.
Under ERISA, there are steps you can take to enforce the above rights.
For instance, if you request materials from the Plans and do not receive them
within 30 days, you may file suit in a federal court. In such a case, the court
may require the Plan Executive Administrative Director to provide the materials
and pay up to $110 a day until you receive the materials, unless the materials
were not sent because of reasons beyond the control of the Executive
Administrative Director. If you have a claim for benefits which is denied or
ignored, in whole or in part, you may file suit in a state or federal court. If
it should happen that the Plans' fiduciaries misuse the Plans' money, or if you
are discriminated against for asserting your rights, you may seek assistance
from the U.S. Department of Labor, or you may file suit in a federal court. The
court will decide who should pay court costs and legal fees. If you are
successful, the court may order the person you have sued to pay these costs and
fees. If you lose, the court may order you to pay these costs and fees, for
example, if it finds your claim frivolous.
If you have any questions about your pension rights under ERISA, you
should contact the Plan Office or the nearest area Office of the U.S. Labor-
Management Services Administration, Department of Labor.
----------------------------
- 41 -
<PAGE>
Summary Plan Description -
Motion Picture Industry
Pension and Individual Account Plans
September 1998
14. What is the Claims Procedure?
Upon application for retirement (which must be made at the Plan
Office), the Plan Office will provide you with the amount of monthly income you
will receive at retirement based on the form of benefit you have selected. In
addition, you may file any other claim with respect to the Plan's operations by
writing to the Plan (to the attention of the Plan Executive Administrative
Director). In general, the Plan Office will review all applications and claims,
although they may refer certain matters to the Benefits/Appeals Committee of the
Board of Directors ("Committee").
If your application for benefits or claim under the Plan has been
denied in whole or in part, you will be notified of such decision in writing.
The notification will describe the specific reasons) for denial, contain
specific references to pertinent Plan provisions upon which the denial is based,
describe any additional material information necessary for the Participant to
perfect the claim, and explain the Plan's review procedure. This notice will be
provided within 90 days after your claim is made, although an additional 90 days
may be required under special circumstances.
If you desire further consideration of the decision denying your claim,
you may request within 60 days, a review of your benefit by writing to the Plan
(to the attention to the Plan Executive Administrative Director, who shall
forward such information to the Committee). In connection with this review, you
shall be entitled to review pertinent Plan documents and then submit issues and
comments in writing to be considered by the Committee. Failure to file a request
for review within this 60-day period shall constitute a waiver of the right to
review of the decision and such decision will be final and binding upon all
parties thereto.
Once your written request has been received, you will be notified (in
writing) of the results of the review of the situation with the specific reason
for denial. You will ordinarily be notified within 60 days, although an
additional 60 days may be required under special circumstances. The written
notice will include specific reasons for the decision and references to
pertinent Plan provisions upon which the decision is based.
The decision of the Committee shall be final and binding on all
parties, including the Participant and any person claiming on behalf of the
Participant. The foregoing provisions of this Summary Plan Description will
apply to and include any and every claim to benefits under the Plan and any
claim asserted against the Plan, regardless of the basis asserted for the claim
and regardless of when the act or omission upon which the claim is based
occurred.
----------------------------
- 42 -
<PAGE>
Summary Plan Description -
Motion Picture Industry
Pension and Individual Account Plans
September 1998
Answers to Frequently Asked Questions [GRAPHIC]
- --------------------------------------------------------------------------------
1. Who Administers the Plans?
The Plans are administered by an 18-member Board of Directors made up
of an equal number of Union and Employer appointees.
The Directors have the power and authority to administer the Plans, to
construe their provisions and terms, and to establish rules and regulations for
their operation. They settle all questions relating to the eligibility of
Employees to participate in the Plans and develop procedures for establishing
eligibility for retirement benefits and the amount of such benefits. The
Directors do not receive compensation in the performance of their duties. An
Executive Administrative Director is employed by the Board of Directors to
assist in the administration of the Plans.
2. When did pension benefits begin?
The Motion Picture Industry Pension Plan started on October 26, 1953,
and the Motion Picture Industry Individual Account Plan on August 1, 1979.
Pension payments from the Pension Plan began on January 1, 1960. (See pages 7
and 27)
3. Do I have to retire when I reach a certain age?
No. You may continue working as long as you like. Retirement under
these Plans is voluntary. There is no mandatory retirement age. However, your
pension payments will automatically begin by April 1 of the calendar year
following the year in which you turn 70 1/2 years of age even though you are
still working and you were born on or after July 1, 1917, or are a 5% owner of
the stock (or voting shares) of an Employer. (See page 14)
4. When should I apply for pension benefits?
Pension applications must be filed on a form furnished by the Plan
Office at least 2 calendar months before your desired retirement date. (See page
7)
When you are ready to retire, simply call the Plan Office to make an
appointment with a Retirement Counselor.
5. How much do I pay for my pension?
On and after October 28, 1990, all contributions received by the
Pension Plan are Employer contributions.
(Prior to October 28, 1990, 16.4 cents/hour was deducted from your pay
check each pay period and remitted to the Motion Picture Industry Pension Plan
toward your pension.)
----------------------------
- 43 -
<PAGE>
Summary Plan Description -
Motion Picture Industry
Pension and Individual Account Plans
September 1998
6. Can I withdraw pension contributions?
If you are not vested and have Employee Contributions in the Pension
Plan, you may withdraw these contributions plus interest if you leave the
Industry for a minimum of 3 months following delivery of a completed withdrawal
form to the Plan Office, or if you have a Break in Service (see page 22).
However, you will forfeit your pension benefits if you withdraw your
contributions. (See page 23.)
You may also withdraw your Unclaimed Vacation and Holiday Pay under
certain circumstances. (See page 22)
7. May anyone be a Participant in the Plans?
See the definition of Employee on page 2.
8. Will proof of age be required?
Yes, you must furnish proof of your date of birth when you retire. If
you are married, proof of your spouse's date of birth and marriage certificate
must also be furnished.
9. May I work until I receive my first pension check?
You may work through the end of the month preceding the month in which
you receive your first retirement check.
10. What happens if I incur a Break in Service?
You will be notified at your current address on record following a
Break in Service. (See page 21)
11. Do the Plans provide any benefits upon the death of an Active
Participant?
See page 25 for the Pension Plan and page 31 for the IAP.
12. Are there any benefits payable after the death of a Retiree?
There may be, depending on the type of benefit chosen and the amount of
benefits already paid. See Types of Pension Payments on page 15 and Death
Benefits After Retirement on page 26.
13. Are pension or death benefits taxable?
Yes. Please consult your tax advisor.
----------------------------
- 44 -
<PAGE>
Summary Plan Description -
Motion Picture Industry
Pension and Individual Account Plans
September 1998
14. Are statements for tax purposes furnished?
Yes. Each person who receives benefits is sent a 1099R before February
1 following the year of payment.
15. May pension benefits be assigned?
No. Please see Garnishment or Assignment of your Pension Benefits, page
33.
16. Are pension benefits available in a lump sum payment?
Pension Plan benefits of vested Participants must normally be taken in
the form of a selected annuity. However, if the present value of your monthly
benefits is more than $5,000 but not more than $10,000, the entire value may be
taken as a single lump sum. If the present value of your monthly benefits is
$5,000 or less, the entire value will automatically be paid to you in a single
lump sum. (See page 18)
Individual Account Plan benefits may be selected in a lump sum or as an
annuity. If your account balance is $5,000 or less, then it will automatically
be paid in a lump sum. (See page 28)
17. What happens if I work after I retire?
For 2 months beginning on the date you retire, you may not work in the
Industry at all (for an Employer) or have a Month of Suspendible Service.
Thereafter you may work in the Industry under certain circumstances although
this may result in a forfeiture of your pension benefits. See Reemployment of
Pensioner on pages 18 & 30.
18. If I return to work after retiring, do I gain additional credit?
Please see page 9 and Reemployment of Pensioner on pages 18 and 30 of
this booklet.
19. Do Pensioners and beneficiaries receive benefit increases?
Although there have been a number of pension increases for Retirees in
the past, the Directors are under no obligation to increase the retirement
benefit of Pensioners and beneficiaries.
20. Do Pensioners who retire before age 65 have their early retirement
factor increased as they get older?
No. The calculations are based on your age at the selected retirement
date. Your monthly pension benefit will not change because you get older.
----------------------------
- 45 -
<PAGE>
Summary Plan Description -
Motion Picture Industry
Pension and Individual Account Plans
September 1998
21. May I withdraw the Pension or Individual Account Plan contributions
made by my Employer if I am not vested?
No. (See pages 5 and 28.)
22. When are pensions paid?
Pension Plan monthly benefits are paid on the first of the month for
the current month. For example, you have selected July 1, 1998, as your
retirement date, you will receive your July 1998 pension on July 1, 1998, or as
soon as practicable thereafter. See page 28 for Individual Account Plan benefit
payment options.
23. Are pension benefits retroactive?
Benefits are not paid retroactively. The only exception is a Disability
Retirement Pension and when appropriate, monthly benefits in the Individual
Account Plan.
24. Can my pension checks be sent directly to my bank account?
Yes. As an alternative to the U.S. Postal Service, you may wish to have
your monthly pension payments directly deposited to your bank account by
Electronic Fund Transfer. Simply provide the Plan Office with a voided check of
the account desired. Please allow a couple of months to establish your transfer.
Your pension payment will be electronically transferred to your account on the
first of each month.
25. Why doesn't the Plan Office change my address when I send a change of
address to the Local or my Employer?
The Plan Office is a separate entity from any Local or Studio. When you
move, please do not forget to provide the Plan Office with your change of
address. For your convenience, a change of address/beneficiary card is provided
at the end of this booklet.
26. What do I do if I'm getting a divorce?
Have your legal representative contact the Plan Office as regards
filing a joinder and for a sample Qualified Domestic Relations Order.
----------------------------
- 46 -
<PAGE>
APPENDIX A
Motion Picture Industry Individual Account Plan
Compensation Related Allocation
- --------------------------------------------------------------------------------
As described on page 27, a compensation-related allocation is made
under the IAP. The allocation is only made to Covered Participants who have a
Qualified Year (or 870 hours, if applicable) for the year in question. Covered
Participants are only those Participants listed in the chart below. The
allocation equals 1%, 2% or 3% of compensation for Credited Hours (as a Covered
Participant), as set forth in the chart below.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
<S> <C>
Participants Covered by the Producer- 1%: 8/4/96 -- 3/28/98
I.A.T.S.E. and M.P.T.A.A.C. Basic Agreement, and 2%: 3/29/98 -- 5/29/99
Eligible Nonaffiliate Participant(4) 3%: 5/30/99 -- 7/31/2000
- --------------------------------------------------------------------------------------------
Participants Covered by the 1996 Producer- 1%: 9/29/96 -- 5/30/98
I.A.T.S.E. and M.P.T.A.A.C. Videotape Electronics 2%: 5/31/98 -- 7/31/99
Supplemental Basic Agreement 3%: 8/1/99 -- 9/30/2000
- --------------------------------------------------------------------------------------------
Participants Covered by the 1996 A.I.C.P.- 1%: 11/1/96 -- 5/30/98
I.A.T.S.E. Television Commercial Agreement 2%: 5/31/98 -- 7/31/99
3%: 8/1/99 -- 10/31/2000
- --------------------------------------------------------------------------------------------
Participants Covered by the Basic Crafts 1%: 8/3/97 -- 3/27/99
Agreements(5) 2%: 3/28/99 -- 6/2/2000
3%: 6/3/2000 -- 7/31/2001
- --------------------------------------------------------------------------------------------
Any other Participants Covered by a Collective Based on dates set forth in collective
Bargaining Agreement Requiring Compensation bargaining agreement relating to
Related Contributions compensation related contributions
- --------------------------------------------------------------------------------------------
</TABLE>
- ------------
(4) Most Nonaffiliates are not Covered Participants and thus are not
eligible to receive compensation-related allocations. The only Nonaffiliate
Covered Participants are (1) employees of the Pension Plan, IAP and Motion
Picture Industry Health Plan, (2) employees employed by union parties, (3)
employees of the Alliance of Motion Picture and Television Producers, CSATF or
Permanent Charities and (4) production office coordinators, production
accountants, and effective 9/20/98, art department coordinators. (However,
Nonaffiliates described in clauses (1), (2) or (3) are not Covered Participants
if their Employer was a party to the Plan on 8/1/96 unless the Employer elects
to make compensation-related contributions.) For Nonaffiliates described in
clauses (1), (2) or (3) above, compensation is defined as W-2 pay plus any
401(k) or cafeteria plan deferrals. For Participants described in clause (4),
compensation is the regular basic hourly rate that would be applicable if the
individual was subject to the I.A.T.S.E. Local 717 collective bargaining
agreement.
(5) Basic Crafts consists of the Operative Plasterers and Cement
Finishers' Local #755; the Studio Utility Employees, Local #724; the
International Brotherhood of Electrical Workers, Local #40; the United
Association of Journeymen and Apprentices of the Plumbing and Pipe Fitting
Industry, Local #78; and the International Brotherhood of Teamsters, Chauffeurs,
Warehousemen and Helpers of America, Local #399.
----------------------------
- 47 -
<PAGE>
Summary Plan Description - Appendix A: Compensation Related Allocation
Motion Picture Industry
Pension and Individual Account Plans
September 1998
No compensation-related allocations are made after the dates set forth above,
unless the applicable bargaining agreements are amended to provide for
compensation-related contributions. No allocations are made for hours you are
not a Covered Participant.
----------------------------
-48-
<PAGE>
APPENDIX B
Retiree Health Plan Benefits(6)
- --------------------------------------------------------------------------------
The Motion Picture Industry Health Plan ("Health Plan") provides
Retiree Health Plan benefits from the Retired Employees Fund. This coverage is
at no cost to the Retiree.
Described below is a brief summary of the eligibility requirements for
Retiree Health.
o a life insurance policy of $2,000 on the life of the
Participant, and
o hospital, medical, dental, vision and prescription benefits
for you and your eligible dependents.
To be eligible for this benefit, the Health Plan requires:
o 20,000 hours, and
o 20 Qualified Years
on which contributions were paid to the Retired Employees Fund.
For purposes of discussion in this section, the term "Qualified Year"
shall mean any Plan Year in which a Participant worked at least 400 hours on
which contributions were paid to the Retired Employees Fund.
1. With 20 Qualified Years and 20,000 Hours, your Retiree Health benefits
will commence the 1st of the month following your 62nd birthday.
2. With 30 Qualified Years and 55,000 Hours, your Retiree Health benefits
will commence the 1st of the month following your 61st birthday.
3. With 30 Qualified Years and 60,000 Hours, your Retiree Health benefits
will commence the 1st of the month following your 60th birthday.
The Disability Retirement Pension includes Retiree Health Plan
coverage. The age requirement of 62 does not apply if you retire with a
Disability Retirement Pension. To be eligible for this benefit, you must satisfy
the requirements of the Motion Picture Industry Pension Plan for a Disability
Retirement Pension (see page 12). If you have been married for at least 2 years
and your Retiree Health Certification was based on a Disability Retirement
Pension with less than 20 Qualified Years and less than 20,000 Credited Hours,
your surviving spouse at the time of your death will receive one year of
extended coverage for each Qualified Year you have earned.
- ---------------
(6) This brief summary is provided for your convenience. It is not a
Summary Plan Description. Please consult the Retiree Health Summary Plan
Description for more information.
----------------------------
- 49 -
<PAGE>
Summary Plan Description - Appendix B: Retiree Health Plan Benefits
Motion Picture Industry
Pension and Individual Account Plans
September 1998
If a Participant has been married for at least 2 years, has the
required years and hours for Retiree Health Plan benefits and:
o is at least age 62 at the time of death, the surviving spouse
will be eligible for a lifetime coverage or until remarriage;
or
o is less than age 62 at the time of death, the surviving spouse
will receive 1 year of extended coverage for each Qualified
Year that the deceased Participant has earned.
The surviving spouse who has been married to a Participant for less
than 2 years at the time of death will receive coverage for a period of 6 months
after the Participant's death if the Participant has the required years and
hours for Retiree Health Plan benefits.
----------------------------
- 50 -
<PAGE>
JOINT VENTURE AGREEMENT
THIS AGREEMENT made this 5th day of November, 1998, by and between
Flicker FX Corp. ("Flicker"), a New York corporation having an office at 7855
Boulevard East #22D, North Bergen, New Jersey 07047 and S.M.A. Real Time Inc.
("SMA"), a New York corporation, having an office at 100 Avenue of the
Americas, New York, New York 10012.
Whereas, Flicker is engaged in production and post-production of digital
graphic design and effects; and
Whereas, SMA is engaged in videotape and film editing, production and
post production; and
Whereas, the parties hereto desire to join together in a joint venture
entity (the "JV") dedicated to the production of television, film and
multimedia graphics projects, bringing together the artistic capabilities of
Flicker with the technical abilities of SMA;
Now, therefore, in consideration of the mutual promises and covenants set
forth herein, Flicker and SMA mutually agree as follows:
1. Formation of JV; Ownership Interests.
The JV shall be a limited liability company to be formed under and in
accordance with the Laws of the State of New York. Flicker shall own fifty
(50%) percent of the entity and SMA shall own the remaining fifty (50%)
percent. The cost of formation of the LLC shall be an Expense and not Capital
Contribution, as those terms are hereinafter defined.
2. JV Name.
The name of the JV is Flicker FX at SMA, LLC.
3. Purpose.
The purpose of the JV is the production of television, film and
multimedia graphics projects.
4. Place of Business.
The principal place of business of the JV shall be located at 100 Avenue
of the Americas, 10th Floor, New York, New York, or at such other address as
Flicker and SMA may designate. The JV may maintain offices and other
facilities from time to time at such locations, within the State of New York,
as may be deemed necessary or advisable. The offices of the JV shall be
located within the area presently occupied by SMA. It is understood and agreed
that, except for any space which may be designated by the parties for the
exclusive use of the JV, the facilities
<PAGE>
shall be shared with SMA and SMA's affiliated companies. The JV shall not be
obligated to pay rent to SMA for the use of the offices, including reception
and occasional secretarial services.
5. Term.
The term of the JV shall commence as of November 23, 1998 and shall
terminate on November 22, 2001 (the "Term"), but may be earlier dissolved upon
the happening of any of the following events:
(a) The cessation of the business of the JV; or
(b) The vote of Flicker and SMA; or
(c) At the sole option of SMA, (i) at any time after the first year of
the Term if Flicker shall fail to bill for production and post-production of
digital graphic design and effects (exclusive of disbursements) at the rate of
One Million Two Hundred Fifty Thousand ($1,250,000.00) Dollars per year, or,
for the second year, One Million Five Hundred Thousand ($1,500,000.00) Dollars
per year (in which case the termination date shall be on the 90th day after
SMA's election to terminate this Agreement); or (ii) if Victor Barroso, John
Miller or Susan Radice, the sole principals of Flicker (hereafter collectively
referred to as "VJS"), shall fail to remain employed by Flicker at any time
during the Term or if any representation contained in Article 9 hereof shall
not be true.
6. Capital Contributions; Expenses.
6.1 SMA shall contribute all equipment (including, without limitation, a
Hal Express and an Avid Illusion), editing rooms, start-up capital funds, and
cost of maintaining state-of-the-art technical facilities (collectively, the
"Capital Contribution"). All technical facilities, licenses and equipment
shall be and remain the sole and exclusive property of SMA. The Capital
Contribution shall be the sole obligation of SMA; Flicker shall have no
obligation to furnish any item contained within the definition of Capital
Contribution or to reimburse SMA for its Capital Contribution, nor shall
Capital Contribution be deemed expenses for the purpose of calculating
Operating Income or Operating Losses, as those terms are hereinafter defined.
6.2 Until the JV has earned sufficient funds for its operations, SMA
shall fund the operating expenses (individually an "Expense", collectively,
"Expenses"), including those listed on the annexed Schedule A, which shall
include a medical/dental benefits package and annual salary payments of
$450,000 to Flicker for distribution to VJS and annual salary of $50,000 to
each of SMA's principals Michael Morrissey and David Satin. The salaries shall
be paid and the benefits shall be made available in accordance with SMA policy
in like manner with all other SMA employees.
2
<PAGE>
7. Allocation of Operating Income and Losses
7.1 The "Operating Income" of the JV in any given year, for purposes of
this Agreement, shall be the net income after deducting all Expenses. The
"Operating Losses" of the JV in any given year shall be the amount by which
Expenses exceed income.
7.2 The Operating Income and Operating Losses shall be allocated, subject
to the provisions of Article 9 hereof, forty (40%) percent to Flicker and
sixty (60%) percent to SMA.
8. Application of Cash Receipts.
8.1 For purposes of this Agreement "Cash Receipts" shall mean all income
and payments received by the JV in cash during any year, excluding therefrom
the proceeds resulting from the sale, exchange, casualty of property of the JV
or from the liquidation of the Property of the JV following a dissolution of
the JV. Cash Receipts shall be applied in the following order of priority:
(a) to pay the debts, Expenses and obligations of the JV and to repay SMA
for all cash Expenses incurred in the operation of the business of the JV,
including, without limitation, the Expenses set forth in Schedule A to this
Agreement;
(b) to establish reasonable reserves for the operation of the business of
the JV and for any contingent liabilities or obligations of the JV;
(c) to pay any sums not expended or reserved pursuant to the foregoing
provisions of this Section 8.1 in accordance with the provisions of Section
7.2 hereof.
8.2 Distributions of available Cash Receipts shall be made at such times
and at such intervals, as the JV may deem advisable. Any distributions of
available Cash Receipts to be made in respect of any fiscal year shall be
completed not later than sixty (60) days after the end of such year.
9. Representations of Flicker and VJS.
9.1 Flicker and VJS each represent and warrant to SMA that:
9.1.1 Flicker is a corporation which has been duly formed and
is in good standing under the laws of the State of New York;
9.1.2 VJS are the sole shareholders, officers and directors of
Flicker;
9.1.3 VJS are not a party to any employment agreement or restrictive
covenant, that each of them has the right and authority to enter
into the projects contemplated by this Agreement without any
restriction of any
3
<PAGE>
kind and that this Agreement does not violate or conflict with any
other agreement to which VJS or any of them may be a party.
9.2 It is understood and agreed that the representations herein contained
are a material inducement to SMA to enter into this Agreement. In the event
that any such representation shall prove to be untrue, SMA shall suffer
serious damages and, in addition to any remedy available at law or equity, SMA
shall be entitled to immediately terminate this Agreement.
9.3 VJS have executed this Agreement to indicate their agreement with the
provisions of this Article.
10. Accounting Records, Reports and Methods.
10.1 There shall be kept complete and accurate books with respect to the
JV's business and annual financial statements of the JV shall be prepared by
the JV's Accountants. The books of the JV shall at all times be maintained at
the principal office of the JV. Each party hereto and their duly authorized
representatives shall have the right to examine the books of the JV at
reasonable times. Checks will require the signature of a principal of one of
the parties.
10.2 The books of the JV shall be reviewed not less frequently than
quarterly. The JV shall issue its statement of Profits and Losses for each
quarter within thirty (30) days after the end of the quarter. Annual
statements shall be prepared by the JV's accountants and shall be delivered to
the parties promptly after they become available.
10.3 The JV's Federal, state and local income tax returns for each year
shall be filed timely or within the time permitted by any extension duly
obtained by the JV's accountants.
10.4 The JV shall operate on a calendar year.
10.5 The JV shall report its operations for tax and all other purposes in
accordance with the accrual basis method of accounting.
10.6 All elections required or permitted to be made by the JV under the
Internal Revenue Code shall be made in such manner as will, in the opinion of
the JV's accountants, be the most advantageous to the parties taken as a
whole.
10.7 The JV's accountants shall be Tabb, Conigliaro, McGann, P.C., who
are also the accountants for SMA, or such other firm of accountants as may be
retained by SMA as the regular SMA accountants.
11. Other Interests; Non-Competition.
11.1 VJS and Flicker jointly and severally agree that they shall devote
their full time and energy to the business of the JV. They shall not engage
in any outside business activities during their hours of employment with the
JV, except for investment of personal funds not requiring
4
<PAGE>
active participation in such outside business; provided, however, that neither
VJS nor Flicker may have any interest in the ownership or profits of, or
engage in any business activity of any kind or nature at any time with, any
entity or business which competes directly with the business of the JV. SMA is
involved in other concerns and businesses. The principals and employees of SMA
shall not be required to devote their time or effort exclusively to the JV,
but shall devote so much of their time and energy as may be necessary, in
their sole discretion, to actively manage and administer the business of the
JV.
11.2 VJS and Flicker further agree that all information concerning the
JV, including by way of illustration and not limitation, its clients, its
day-to-day operations, its assets and liabilities and technological secrets,
which VJS and/or Flicker may become privy to by virtue of their ownership
interest in the JV or their work with and for the JV is strictly confidential
and is not to be disclosed to any person or entity. This agreement of
confidentiality and noncompetition is a material and substantial inducement
for SMA to enter into this Agreement, shall be enforceable in law and/or in
equity and shall survive the termination of this Agreement.
11.3 VJS have executed this Agreement to indicate their agreement with
the provisions of this Article.
12. Survival of Representations, Etc.
The covenants, representations, warranties and other written statements
set forth in this Agreement or in any exhibit hereto shall survive execution
and delivery hereof. All of the same shall be deemed to be independent
material and to have been relied upon by the party to which made.
13. Notices.
All notices, demands, or other communications hereunder shall be
effective only if in writing and sent by certified mail, return receipt
requested or by reputable overnight courier:
(a) if to the JV, to each party at the principal office of the JV; and
(b) if to any party to this Agreement, at the address set forth on the
first page of this Agreement or such other address which such party may
designate by notice to the JV.
14. Further Assurances.
Each of the parties shall hereafter execute and deliver such further
instruments and do such further acts and things as may be required or useful
to carry out the intent and purpose of this Agreement and are not inconsistent
with the terms hereof.
5
<PAGE>
15. Agreement in Counterparts.
This Agreement may be executed in one or more counterparts and all such
counterparts shall constitute one Agreement binding on all the parties
notwithstanding that all of the parties are not signatories to the original or
the same counterpart.
16. Construction.
None of the provisions of this Agreement shall be for the benefit of or
enforceable by any creditors of the JV.
17. Governing Law.
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York, without giving effect to the conflict of laws
provisions thereof.
18. Entire Agreement: Amendments.
This instrument incorporates the entire Agreement and understanding among
the parties hereto with respect to the subject matter hereof. It may not be
modified or amended except with the written consent of all of the parties
hereto.
19. Assignment; Successors in Interest.
This Agreement may not be assigned without the unanimous consent of all
of the parties hereto. Except as otherwise provided herein, all provisions of
this Agreement shall be binding upon, inure to the benefit of, and be
enforceable by and against the respective heirs, executors, administrators,
personal representatives, successors, and assigns of any of the parties
hereto.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date and year first above written.
Agreed as to Articles 9 and 11:
/s/ Victor Barroso
- --------------------------- S.M.A. Real Time Inc.
Victor Barroso
By: /s/ Michael Morrissey
-----------------------------
/s/ John Miller Michael Morrissey, President
- --------------------------
John Miller
Flicker FX Corp. Susan Radice
/s/ Susan Radice By: /s/ Victor Barroso
- --------------------------- -----------------------------
Susan Radice Victor Barroso, President
6
<PAGE>
SCHEDULE A
Flicker @ SMA Yearly
Estimated Gross Income $ 1,500,000.00
===============
Estimated Expenses:
Salaries $ (450,000.00)
Payroll taxes $ (20,339.40)
Telephone/pager (4,500.00)
Advertising/Promotion $ (12,000.00)
Office expense $ (9,000.00)
Office supplies $ (3,500.00)
Health insurance $ (21,795.60)
Professional Fees $ (10,000.00)
Administrative Salaries $ (60,000.00)
Travel & Entertainment $ (4,000.00)
Bank Charges &
Payroll Fees $ (1,500.00)
Miscellaneous Expense $ (1,000.00)
Computer Expense $ (5,000.00)
Management Salaries $ (100,000.00)
---------------
Total Estimated Expenses $ (702,635.00)
---------------
Net income 797,365.00
===============
SMA Realtime Inc. $ 478,419.00 60%
Flicker LLC $ 318,946.00 40%
<PAGE>
MEMORANDUM OF AGREEMENT
Date: July 7, 1999
Parties: SMA Video, Inc., a New York corporation
100 Avenue of the Americas
New York, New York 100 13 ("SMA")
Post Force Inc., a California corporation
24307 Magic Mountain Parkway, Suite 284
Valencia, California 91355 ("Post Force")
Patrick Griffith
24307 Magic Mountain Parkway, Suite 284
Valencia, California 91355 ("Patrick")
Agreement:
1. SMA has retained Post Force to design, construct, equip and implement the
operation of an audio post-production facility at SMA's offices (the "Project").
Post Force has agreed to assign Patrick to the Project on a full time basis.
2. Post Force shall perform the following services:
o Complex Research and Design;
o Project Supervision;
o Architectural Supervision and Implementation;
o Engineering Supervision and Implementation;
o Equipment Proposal and Cost;
o Budget for Complete Project Implementation;
o Propose a Schedule of Complete Project Implementation;
o Construction and Specification Checks;
o Sales and Marketing Research to aid in Design of Complex.
3. The Project is to commence July 15, 1999 and continue diligently until
completion, estimated to occur on or about May 15, 2000.
4. SMA shall pay to Post Force $2,500.00 per week, in advance, on the first and
fifteenth day of each month beginning July 15, 1999 until completion, estimated
to occur on or about May 15, 2000. In addition, SMA shall pay directly all
expenses for first class air travel, lodging, meals and ground transportation
incurred by Post Force in relation to the Project. All other Project related
expenses shall be reimbursed on the next following first or fifteenth day of the
month after presentation of receipts for such expenses. Post Force shall not
incur any single expense in excess of $500.00, or aggregate expenses in excess
of $10,000. 00, without the prior written consent of SMA.
SMA shall supply Post Force with a Powerbook 1999 400 MHZ G3 computer and
accessories to Post Force's specifications, shipped to the Post Force address
shown above by overnight delivery service within two (2) weeks after the date of
this agreement. After delivery of the computer, 1/200' of the cost thereof shall
be deducted from the weekly payments to be made to Post Force until the cost of
the computer has been fully reimbursed to SMA. Post Force will retain ownership
of this computer equipment after full reimbursement.
<PAGE>
5. It is the intention of the parties, and it is of the essence of this
agreement, that (a) Patrick shall personally perform each of the obligations of
Post Force under this agreement and (b) upon completion of the Project, Patrick
shall resign from Post Force and commence full time employment with SMA as
Director of the audio post-production facility at a salary of $2,500.00 per week
plus commissions and benefits in line with standard industry and SMA practices,
pursuant to an employment agreement to be executed by the SMA and Patrick, which
will provide for a term of not less than two (2) years.
6. This memorandum is intended to incorporate all of the agreements and
understandings between the parties with respect to the Project and there are no
other agreements or understandings which are not set forth herein. This
agreement is to be governed by the laws of the State of New York, and in the
event of a dispute under this agreement, same shall be resolved by arbitration
pursuant to the rules of the American Arbitration Association, at its offices in
the City and State of New York.
SMA Video, Inc. Post Force Inc.
By: /s/ Michael Morrissey By: /s/ Patrick Griffith
Michael Morrissey, President Patrick Griffith, President
/s/ Patrick Griffith
Patrick Griffith
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of SMA Real Time Inc. on
Form SB-2 of our report dated December 9, 1998 appearing in the Registration
Statement.
We also consent to the reference to us under the headings "Selected Financial
Data" and "Experts" in such Registration Statement.
TABB, CONIGLIARO & McGANN, P.C.
New York, New York
September 9, 1999
<PAGE>
EXHIBIT 23.3
CONSENT OF DIRECTOR NOMINEE
I hereby consent to being identified in the Registration Statement on Form
SB-2 of S.M.A. Real Time, Inc. (the "Company") as a nominee for election as a
director of the Company.
Dated: September 9, 1999
/S/ Darryl J. Kramer
----------------------------
Darryl J. Kramer
<PAGE>
EXHIBIT 23.4
CONSENT OF DIRECTOR NOMINEE
I hereby consent to being identified in the Registration Statement on Form
SB-2 of S.M.A. Real Time, Inc. (the "Company") as a nominee for election as a
director of the Company.
Dated: September 9, 1999
/S/ Richard Aschman
-------------------------
Richard Aschman
<PAGE>
EXHIBIT 23.5
CONSENT OF DIRECTOR NOMINEE
I hereby consent to being identified in the Registration Statement on Form
SB-2 of S.M.A. Real Time, Inc. (the "Company") as a nominee for election as a
director of the Company.
Dated: September 9, 1999
/S/ Marc Goodman
----------------------------
Marc Goodman
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from S.M.A. Real
Time Inc. balance sheets as of September 30, 1998 and June 30, 1999 and
statements of operations for the year ended September 30, 1998 and the nine
months ended June 30, 1999.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS
<FISCAL-YEAR-END> SEP-30-1998 OCT-01-1999
<PERIOD-END> SEP-30-1998 JUN-30-1999
<CASH> 124 509
<SECURITIES> 0 0
<RECEIVABLES> 977 979
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 1,092 1,548
<PP&E> 10,755 11,412
<DEPRECIATION> 5,873 7,110
<TOTAL-ASSETS> 6,163 7,503
<CURRENT-LIABILITIES> 2,374 3,173
<BONDS> 2,222 1,455
0 0
0 0
<COMMON> 1 1
<OTHER-SE> 1,274 2,600
<TOTAL-LIABILITY-AND-EQUITY> 6,163 7,503
<SALES> 6,469 5,407
<TOTAL-REVENUES> 6,469 5,407
<CGS> 4,045 3,702
<TOTAL-COSTS> 5,656 5,022
<OTHER-EXPENSES> 2 346
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 509 310
<INCOME-PRETAX> 301 (271)
<INCOME-TAX> 142 (122)
<INCOME-CONTINUING> 159 (149)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 159 (149)
<EPS-BASIC> 0.05 (0.04)
<EPS-DILUTED> 0.05 (0.04)
