<PAGE>
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 9, 1997
REGISTRATION NO. 333-14339
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 4
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
------------------------
ALL-COMM MEDIA CORPORATION
(EXACT NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
<TABLE>
<S> <C> <C>
NEVADA 7389 88-0085608
(STATE OF INCORPORATION) (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
------------------------
400 CORPORATE POINTE, SUITE 780
CULVER CITY, CALIFORNIA 90230
(310) 342-2800
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
------------------------
MR. BARRY PETERS
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
ALL-COMM MEDIA CORPORATION
400 CORPORATE POINTE, SUITE 780
CULVER CITY, CALIFORNIA 90230
(310) 342-2800
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
ROBERT A. ZUCCARO, ESQ. IRWIN M. ROSENTHAL, ESQ.
JONES, DAY, REAVIS & POGUE RUBIN BAUM LEVIN CONSTANT & FRIEDMAN
599 LEXINGTON AVENUE 30 ROCKEFELLER PLAZA
NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10112
(212) 326-3939 (212) 698-7700
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the 'Securities Act') check the following box. [x]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, 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 effective registration statement
for the same offering. [ ]
If 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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
________________________________________________________________________________
<PAGE>
<PAGE>
EXPLANATORY NOTE
This registration statement (the 'Registration Statement') contains two
prospectuses. The first prospectus (the 'Prospectus') relates to the
underwritten public offering (the 'Underwritten Offering') of 2,100,000 shares
of common stock, par value $.01 per share (the 'Common Stock') of All-Comm Media
Corporation (the 'Company'), 1,750,000 of which are being offered by the Company
and the remaining 350,000 of which are being offered by certain selling
stockholders of the Company (the 'Selling Stockholders'), and 315,000 shares of
Common Stock to cover over-allotments, if any, the first 124,173 shares of which
are being offered by certain selling stockholders of the Company (the 'Over-
Allotment Selling Stockholders') and the remaining 190,827 shares of which are
being offered by the Company. The form of Prospectus in the exact form in which
it is to be used after the effective date will be filed with the Securities and
Exchange Commission (the 'Commission') pursuant to Rule 424(b) under the
Securities Act of 1933, as amended (the 'Securities Act'). The second Prospectus
(the 'Delayed Prospectus') relates to the offering (the 'Delayed Offering') of
1,381,056 shares of Common Stock by certain selling stockholders of the Company
(the 'Delayed Selling Stockholders') on a delayed basis following the
Underwritten Offering, but not as part of the Underwritten Offering. Of such
shares to be offered on a delayed basis, 1,291,588 shares will be subject to
certain lock-up arrangements. Following the Prospectus are certain alternate
pages of the Delayed Prospectus, including alternate front outside and back
outside cover pages, an alternate 'The Offering' section of the 'Prospectus
Summary,' an alternate 'Use of Proceeds' section, an alternate first page of the
'Shares Eligible for Future Sale' section and new sections entitled 'The
Underwritten Offering' and 'Delayed Selling Stockholders and Plan of
Distribution.' Each of the alternate pages for the Delayed Prospectus included
herein is labeled 'Alternate Page for Delayed Prospectus.' All other sections of
the Prospectus, other than 'Underwriting,' 'The Delayed Offering' and the
legends for California and Washington residents, are to be used in the Delayed
Prospectus. In addition, cross-references in the Prospectus will be adjusted in
the Delayed Prospectus to refer to the appropriate sections.
<PAGE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JANUARY , 1997
PROSPECTUS
2,100,000 SHARES
ALL-COMM MEDIA CORPORATION [LOGO]
COMMON STOCK
This Prospectus relates to an offering (the 'Underwritten Offering') of
2,100,000 shares of common stock, par value $.01 per share (the 'Common Stock'),
of which 1,750,000 shares are being offered by All-Comm Media Corporation
('All-Comm' or the 'Company') and 350,000 shares are being offered by certain
stockholders of the Company (the 'Selling Stockholders'). The Company will not
receive any of the proceeds from the sale of the Common Stock by the Selling
Stockholders. See 'Principal and Selling Stockholders.' The Common Stock is
quoted on The Nasdaq SmallCap MarketSM under the symbol 'ALCM.' On January 7,
1997 the last sale price of the Common Stock, as reported by The Nasdaq SmallCap
MarketSM, was $4 per share. See 'Price Range of Common Stock.' In addition,
1,381,056 shares of Common Stock (the 'Delayed Shares') are being offered (the
'Delayed Offering') by certain selling stockholders of the Company (the 'Delayed
Selling Stockholders') on a delayed basis from time to time, and not as part of
the Underwritten Offering. Of the Delayed Shares, 1,291,588 shares will be
subject to certain lock-up arrangements for a period of nine months after the
date of this Prospectus, subject to earlier termination if the final Prospectus
relating to the Underwritten Offering is not filed with the Securities and
Exchange Commission (the 'Commission') by March 31, 1997 pursuant to Rule 424(b)
under the Securities Act of 1933, as amended (the 'Securities Act'). Cruttenden
Roth Incorporated (the 'Lead Representative') has indicated to the Company and
certain representatives of the holders of an aggregate of 1,250,000 of the
Delayed Shares subject to such lock-up arrangements that, upon consummation of
the Underwritten Offering, it would be willing to release some or all of the
Common Stock held or beneficially owned by such holders from the provisions of
such lock-up arrangements prior to the expiration of such nine-month period
under certain circumstances. As of the date of this Prospectus, there is no
agreement (oral or written) with any of such holders as to the specific date
that any release of shares from the provisions of such lock-up arrangements
would be granted or as to the number of shares subject to such lock-up
arrangements that would be so released. See 'The Delayed Offering' and 'Shares
Eligible for Future Sale.'
SEE 'RISK FACTORS' BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN MATERIAL
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE DISCOUNTS AND PROCEEDS TO SELLING
TO PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
<S> <C> <C> <C> <C>
Per Share........................... $ $ $ $
Total(3)........................... $ $ $ $
</TABLE>
(1) Excludes (a) warrants (the 'Representatives' Warrants') to be issued to the
Lead Representative and LT Lawrence & Co., Inc. (the 'Other Representative,'
and together with the Lead Representative, the 'Representatives'), each in
its individual capacity and not as representative of the underwriters (the
'Underwriters'), to purchase 210,000 shares of Common Stock at an exercise
price per share equal to 120% of the initial price to public per share and
(b) a non-accountable expense allowance payable to the Representatives equal
to 3% of the gross proceeds of the Underwritten Offering. The Company has
agreed to indemnify the Underwriters against, or contribute to losses
arising out of, certain liabilities, including liabilities under the
Securities Act. See 'Underwriting.'
(2) Before deducting expenses payable by the Company estimated to be $ ,
including the Representatives' non-accountable expense allowance. See
'Underwriting.'
(3) The Company, certain of the Selling Stockholders and certain other
stockholders (the 'Over-Allotment Selling Stockholders') have granted to the
Underwriters options, exercisable within 45 days of the date hereof, to
purchase, in the aggregate, up to 315,000 additional shares of Common Stock,
upon the same terms and conditions as the shares of Common Stock offered
hereby, solely to cover over-allotments, if any. If the Underwriters
exercise the over-allotment options in full, the total Price to Public,
Underwriting Discounts and Commissions, Proceeds to Company, Proceeds to
Selling Stockholders and the proceeds to the Over-Allotment Selling
Stockholders will be $ , $ , $ , $ and $ , respectively.
The Company will not receive any proceeds from the sale of Common Stock by
the Selling Stockholders and the Over-Allotment Selling Stockholders. See
'Principal and Selling Stockholders' and 'Underwriting.'
------------------------
The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if issued to and accepted by
them, subject to the approval of certain legal matters by counsel for the
Underwriters and to certain other conditions. It is expected that delivery of
the shares will be made against payment therefor at the office of Cruttenden
Roth Incorporated, 18301 Von Karman, Suite 100, Irvine, California 92612, on or
about January , 1997.
------------------------
CRUTTENDEN ROTH LT LAWRENCE & CO., INC.
INCORPORATED
JANUARY , 1997
<PAGE>
<PAGE>
[Photographs]
IN CONNECTION WITH THE UNDERWRITTEN OFFERING, THE UNDERWRITERS MAY
OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE
OF THE COMMON STOCK ON THE OVER-THE-COUNTER MARKET OR OTHERWISE AT A LEVEL ABOVE
THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
<PAGE>
FOR CALIFORNIA RESIDENTS ONLY
WITH RESPECT TO SALES OF THE SECURITIES BEING OFFERED HEREBY TO CALIFORNIA
RESIDENTS, SUCH SECURITIES MAY BE SOLD ONLY TO (1) 'ACCREDITED INVESTORS' WITHIN
THE MEANING OF RULE 501 OF REGULATION D UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, (2) BANKS, SAVINGS AND LOAN ASSOCIATIONS, TRUST COMPANIES, INSURANCE
COMPANIES, INVESTMENT COMPANIES REGISTERED UNDER THE INVESTMENT COMPANY ACT OF
1940, PENSION AND PROFIT SHARING TRUSTS, ANY CORPORATIONS OR OTHER ENTITIES,
WHICH, TOGETHER WITH SUCH CORPORATION'S OR OTHER ENTITY'S AFFILIATES, HAVE A NET
WORTH ON A CONSOLIDATED BASIS ACCORDING TO THEIR MOST RECENT REGULARLY PREPARED
FINANCIAL STATEMENTS (WHICH SHALL HAVE BEEN REVIEWED BUT NOT NECESSARILY
AUDITED, BY OUTSIDE ACCOUNTANTS) OF NOT LESS THAN $14,000,000 AND SUBSIDIARIES
OF THE FOREGOING, (3) ANY CORPORATION, PARTNERSHIP OR ORGANIZATION (OTHER THAN A
CORPORATION, PARTNERSHIP OR ORGANIZATION FORMED FOR THE SOLE PURPOSE OF
PURCHASING THE SECURITIES BEING OFFERED HEREBY) WHO PURCHASES AT LEAST
$1,000,000 AGGREGATE AMOUNT OF THE SECURITIES OFFERED HEREBY, OR (4) ANY NATURAL
PERSON WHO (A) HAS INCOME OF $65,000 AND A NET WORTH OF $250,000, OR (B) HAS A
NET WORTH OF $500,000 (IN EACH CASE, EXCLUDING HOME, HOME FURNISHINGS AND
PERSONAL AUTOMOBILES). EACH CALIFORNIA RESIDENT PURCHASING THE SECURITIES
OFFERED HEREBY WILL NOT SELL OR OTHERWISE TRANSFER SUCH SECURITY TO A CALIFORNIA
RESIDENT UNLESS THE TRANSFEREE COMES WITHIN ONE OF THE AFOREMENTIONED CATEGORIES
AND WILL ADVISE THE TRANSFEREE OF THIS CONDITION WHICH TRANSFEREE, BY BECOMING
SUCH, WILL BE DEEMED TO BE BOUND BY THE SAME RESTRICTIONS ON RESALE.
FOR WASHINGTON RESIDENTS ONLY
WITH RESPECT TO SALES OF THE SECURITIES BEING OFFERED HEREBY TO WASHINGTON
RESIDENTS, SUCH SECURITIES MAY BE SOLD ONLY TO (1) 'ACCREDITED INVESTORS' WITHIN
THE MEANING OF RULE 501 OF REGULATION D UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, (2) BANKS, SAVINGS AND LOAN ASSOCIATIONS, TRUST COMPANIES, INSURANCE
COMPANIES, INVESTMENT COMPANIES REGISTERED UNDER THE INVESTMENT COMPANY ACT OF
1940, PENSION AND PROFIT SHARING TRUSTS, ANY CORPORATIONS OR OTHER ENTITIES,
WHICH, TOGETHER WITH SUCH CORPORATION'S OR OTHER ENTITY'S AFFILIATES, HAVE A NET
WORTH ON A CONSOLIDATED BASIS ACCORDING TO THEIR MOST RECENT REGULARLY PREPARED
FINANCIAL STATEMENTS (WHICH SHALL HAVE BEEN REVIEWED BUT NOT NECESSARILY
AUDITED, BY OUTSIDE ACCOUNTANTS) OF NOT LESS THAN $14,000,000 AND SUBSIDIARIES
OF THE FOREGOING, OR (3) ANY CORPORATION, PARTNERSHIP OR ORGANIZATION (OTHER
THAN A CORPORATION, PARTNERSHIP OR ORGANIZATION FORMED FOR THE SOLE PURPOSE OF
PURCHASING THE SECURITIES BEING OFFERED HEREBY) WHO PURCHASES AT LEAST
$1,000,000 AGGREGATE AMOUNT OF THE SECURITIES BEING OFFERED HEREBY. EACH
WASHINGTON RESIDENT PURCHASING THE SECURITIES OFFERED HEREBY WILL NOT SELL OR
OTHERWISE TRANSFER SUCH SECURITY TO A WASHINGTON RESIDENT UNLESS THE TRANSFEREE
COMES WITHIN ONE OF THE AFOREMENTIONED CATEGORIES AND WILL ADVISE THE TRANSFEREE
OF THIS CONDITION WHICH TRANSFEREE, BY BECOMING SUCH, WILL BE DEEMED TO BE BOUND
BY THE SAME RESTRICTIONS ON RESALE.
3
<PAGE>
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information, including the financial statements and the notes thereto,
included elsewhere in this Prospectus. All-Comm conducts its business through
two wholly-owned operating subsidiaries: Stephen Dunn & Associates, Inc.
('SD&A') and Metro Services Group, Inc. ('Metro'). SD&A was acquired by Alliance
Media Corporation ('Alliance'), which was simultaneously acquired by the
Company, in April 1995. Metro was acquired by the Company in October 1996.
References to 'All-Comm' and the 'Company' include All-Comm Media Corporation
(and predecessor entities) and its consolidated subsidiaries, Alliance, SD&A and
Metro, unless the context otherwise requires. Unless indicated otherwise, the
information in this Prospectus assumes that the Underwriters' over-allotment
options will not be exercised. The Company's fiscal year ends on June 30 of each
year. All share and per share information has been adjusted to reflect a
one-for-four reverse stock split of the Common Stock effected August 22, 1995.
On December 23, 1996, the Company and certain of its securityholders effected
changes in the Company's outstanding capital stock and related securities as
described below under 'The Recapitalization.' All information herein which gives
effect to the Underwritten Offering, including pro forma as adjusted financial
information, also gives effect to such recapitalization. Certain capitalized
terms used in the Prospectus Summary are defined elsewhere in this Prospectus.
Certain totals contained herein may not add due to rounding adjustments.
THE COMPANY
All-Comm provides database management services, custom
telemarketing/telefundraising services and other direct marketing services to a
diverse group of approximately 600 clients located throughout the United States.
These services include customer and market data analysis, database creation and
analysis, data warehousing, merge/purge, predictive behavioral modeling, list
processing, brokerage and management, data enhancement, other direct marketing
information services and custom outbound telemarketing/telefundraising services.
The Company believes its expertise in applying these direct marketing tools
increases the productivity of its clients' marketing expenditures.
The Company's services have enabled it to become a leading provider of
direct marketing services to performing arts and cultural institutions in the
United States. The Company's clients include Lincoln Center for the Performing
Arts, Kennedy Center for the Performing Arts, Carnegie Hall, Boston Symphony,
New York University and numerous public broadcasting stations. In addition, the
Company renders database management and direct marketing services to such
commercial clients as The Shubert Organization, Crain Communications, The CIT
Group, Mitsubishi Electronics and UNOCAL. Since January 1996, the Company has
begun providing services to new clients including Walt Disney Company, Avery
Dennison and Countrywide Insurance. Giving effect to the Company's acquisition
of Metro, on a pro forma basis, revenues for the Company's fiscal year ended
June 30, 1996 were $24.0 million.
INDUSTRY OVERVIEW
The use of direct marketing by businesses to target and communicate with
customers has increased over the last few years due in part to the relative cost
efficiency of direct marketing compared to mass marketing methods, as well as
the rapid development of more powerful and more cost-effective information
technology and data capture capabilities. According to the Direct Marketing
Association (the 'DMA'), expenditures for direct marketing services in 1995 were
approximately $134.0 billion, the largest component of which, $54.1 billion, was
attributable to telemarketing. The DMA has estimated that annual telemarketing
expenditures may grow to $78.9 billion by the year 2000. According to other
industry sources, total expenditures for database management services in the
United States, including services used by direct marketing and other industries,
were estimated to have been $3.2 billion in 1993 and are projected to grow at a
compound annual rate of 29% through 1998.
The direct marketing industry is extremely fragmented. According to
industry sources, there are almost 11,000 direct marketing service and database
service businesses in the United States. The Company believes that most of such
businesses are small, specialized companies which offer limited services and/or
limited expertise and industry specialization. However, industry consolidation
has increased in the last few years resulting in a greater number of large
companies providing services similar to those provided by the Company. The
Company believes that much of this consolidation is due to: (i) economies of
scale in hardware, software and other marketing resources; (ii) cross-selling
services; and (iii) coordinating various components of direct marketing and
media programs within a
4
<PAGE>
<PAGE>
single, reliable environment. The Company believes these trends are likely to
continue due in part to client demand for more cost-effective service to perform
increasingly complex functions.
STRATEGY
All-Comm's strategy to enhance its position as a value-added premium
provider of database management, custom telemarketing/telefundraising services
and other direct marketing services is to:
Increase revenues by expanding the range of direct marketing services
offered and by cross-selling;
Deepen market penetration in new industries and market segments as well as
those currently served by the Company;
Develop existing and create new proprietary database software and database
management applications;
Increase capacity for telemarketing/telefundraising services and enhance
on-site data and calling systems; and
Pursue strategic acquisitions, joint ventures and marketing alliances to
expand direct marketing services offered and industries served.
RECAPITALIZATION
On December 23, 1996, the Company and certain of its securityholders
effected changes in the Company's outstanding capital stock and related
securities (the 'Recapitalization'). See 'The Recapitalization' and 'Certain
Transactions.'
------------------------
The Company's principal executive offices are located at 400 Corporate
Pointe, Suite 780, Culver City, California 90230 and its telephone number is
(310) 342-2800.
5
<PAGE>
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the Company................ 1,750,000 shares(1)
Common Stock Offered by the Selling Stockholders... 350,000 shares(1)
Common Stock to be Outstanding Following the
Underwritten Offering............................ 10,008,108 shares(1)(2)(3)
Use of Proceeds.................................... The Company will use the net proceeds of the Underwritten
Offering for capital expenditures, repayment of certain
outstanding indebtedness and general corporate purposes,
including possible future acquisitions. The Company will not
receive any of the proceeds from the sale of Common Stock by
the Selling Stockholders or the Over-Allotment Selling
Stockholders in the Underwritten Offering or by the Delayed
Selling Stockholders in the Delayed Offering. See 'Use of
Proceeds' and 'The Delayed Offering.'
Dividend Policy.................................... The Company intends to retain future earnings, if any, to
finance the growth and development of its business and
therefore does not anticipate paying cash dividends on the
Common Stock in the foreseeable future. See 'Dividend
Policy.'
The Nasdaq SmallCap MarketSM Symbol................ ALCM
Risk Factors....................................... See 'Risk Factors' beginning on page 10 for a discussion of
certain material factors that should be considered by
prospective purchasers of the Common Stock.
</TABLE>
- ------------
(1) Does not include up to 315,000 shares of Common Stock that may be sold by
the Company, certain of the Selling Stockholders and the Over-Allotment
Selling Stockholders pursuant to the Underwriters' over-allotment options.
See 'Principal and Selling Stockholders' and 'Underwriting.' In satisfaction
of certain pre-existing contractual arrangements with certain of its
stockholders, the registration statement of which this Prospectus forms a
part also includes a prospectus (the 'Delayed Prospectus') with respect to
the Delayed Offering whereby 1,381,056 shares of Common Stock are being
offered by the Delayed Selling Stockholders on a delayed basis pursuant to
Rule 415 under the Securities Act, and not as part of the Underwritten
Offering. See 'The Delayed Offering.'
(2) Does not include up to 5,380,927 shares of Common Stock issuable upon
conversion or exercise of certain securities or other contractual rights, as
follows: (i) warrants issued to holders of the Company's Series B Redeemable
Convertible Preferred Stock, par value $.01 per share (the 'Series B
Preferred Stock'), which are currently exercisable for 3,100,000 shares of
Common Stock; (ii) the Representatives' Warrants, exercisable for 210,000
shares of Common Stock; (iii) warrants to be issued upon consummation of the
Underwritten Offering to certain stockholders of the Company as
consideration for their agreement to certain lock-up arrangements,
exercisable for an aggregate of up to 160,414 shares of Common Stock,
depending on the extent to which the Underwriters' over-allotment options
are exercised, if at all -- see 'Shares Eligible for Future Sale' and
'Underwriting;' (iv) all other outstanding options, warrants and other
contractual rights, which are currently exercisable for an aggregate of
1,245,135 shares of Common Stock; (v) the promissory notes issued to the
former shareholders of Metro in connection with the Company's acquisition of
Metro, which are currently convertible into an aggregate of 185,874 shares
of Common Stock -- see 'Certain Transactions;' and (vi) 479,504 shares of
Common Stock reserved for issuance but not yet issued under the Company's
1991 Stock Option Plan. See 'Management -- Stock Option Plan,' 'Description
of Capital Stock' and 'Underwriting.' Although no assurance can be given
that any of the
(footnotes on following page)
6
<PAGE>
<PAGE>
(footnotes from previous page)
foregoing options, warrants or other contractual rights will be exercised,
if all of such options, warrants and other contractual rights having
exercise prices at or below the assumed initial price to public of $5 per
share were exercised, the aggregate proceeds to the Company resulting
therefrom would be approximately $11.5 million. The Company expects that it
would use such proceeds, if any, for general corporate purposes, including
possible future acquisitions.
(3) Includes 3,168,840 shares of Common Stock issued in connection with the
Recapitalization. See 'The Recapitalization.'
7
<PAGE>
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following table sets forth (i) summary historical financial data of the
Company as of June 30, 1996 and September 30, 1996, in the case of balance sheet
data, and for the years ended June 30, 1995 and 1996 and the three months ended
September 30, 1995 and 1996, in the case of operating data, and (ii) unaudited
summary pro forma as adjusted financial data of the Company as of September 30,
1996, in the case of balance sheet data, and for the year ended June 30, 1996
and the three months ended September 30, 1996, in the case of operating data.
The unaudited summary pro forma as adjusted financial information is for
illustrative purposes only and is not necessarily indicative of what the actual
results of operations and financial position of the Company would have been as
of and for the periods indicated, nor does it purport to represent the Company's
future financial position and results of operations. The summary financial
information should be read in conjunction with 'Management's Discussion and
Analysis of Financial Condition and Results of Operations' and the financial
statements and notes thereto included elsewhere in this Prospectus. See 'Index
to Financial Statements.'
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER
YEAR ENDED JUNE 30,(1) 30,(1)
----------------------------------- ----------------------------------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
------------------- AS ADJUSTED ------------------ AS ADJUSTED
1995(2) 1996 1996 1995 1996 1996
------- ------- ----------- ------ ------- -----------
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:(3)
Revenues............................. $ 3,631 $15,889 $23,983 $3,926 $ 3,932 $ 6,148
Salaries and benefits................ 3,139 12,712 14,690 3,162 4,953 5,480
Direct costs......................... 102 807 5,357 130 145 1,401
Selling, general and
administrative..................... 1,121 1,843 2,804 387 545 787
Amortization of intangible assets.... 65 362 812 90 96 208
Total operating costs and expenses... 4,887 16,350 24,470 3,914 5,907 8,115
Income (loss) from operations........ (1,256) (460) (487) 13 (1,975) (1,967)
Total other income (expense)......... 1,200 (493) (599) (96) (15) (42)
Loss from continuing operations
before income taxes................ (56) (953) (1,086) (83) (1,991) (2,008)
Net income (loss).................... $ 110 $(1,094) $(1,256) $ (136) $(1,994) $(2,018)
Weighted average common and common
equivalent shares outstanding(4)... 1,807,540 3,068,278 9,801,118 3,016,028 3,214,884 9,947,724
Net income (loss) per common
share(5)........................... $ 0.06 $ (0.36) $ (0.13) $(0.05) $ (0.62) $ (0.20)
------- ------- ----------- ------ ------- -----------
------- ------- ----------- ------ ------- -----------
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30, 1996(1)
1996(1) ----------------------
------- PRO FORMA
ACTUAL ACTUAL AS ADJUSTED
------- ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:(3)
Cash and cash equivalents..................................................... $ 1,393 $ 1,180 $ 8,642
Working capital............................................................... 1,651 1,580 7,653
Intangible assets at cost, net................................................ 7,851 7,755 15,976
Total assets.................................................................. 13,301 11,891 28,759
Long-term obligations to related parties less current portion(6).............. 1,517 1,342 2,262
Redeemable Convertible Preferred Stock........................................ 1,306 1,667 --
Total stockholders' equity.................................................... $ 6,945 $ 6,745 $22,015
</TABLE>
(footnotes on next page)
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(footnotes from previous page)
(1) Each of SD&A and Metro had a fiscal year ending December 31 prior to its
acquisition by the Company.
(2) Reflects operations of Alliance and SD&A for the period beginning with the
acquisition by the Company of Alliance on April 25, 1995.
(3) See 'Management's Discussion and Analysis of Financial Condition and Results
of Operations' for discussion of businesses discontinued and acquired in
fiscal 1995 and 1996.
(4) Pro forma as adjusted data includes 1,814,000 shares of Common Stock issued
to the former shareholders of Metro in connection with the Company's
acquisition of Metro, 1,750,000 shares of Common Stock being sold in the
Underwritten Offering by the Company and 3,168,840 shares of Common Stock
issued in connection with the Recapitalization, but does not include up to
5,380,927 shares of Common Stock issuable upon conversion or exercise of
certain securities or other contractual rights as described in footnote (2)
under 'Prospectus Summary -- The Offering.'
(5) Primary and fully diluted income (loss) per common share are the same in all
periods presented. See Note 2 of Notes to Consolidated Financial Statements
of All-Comm.
(6) Pro forma as adjusted data includes $1.0 million aggregate face amount of
promissory notes issued by the Company to the former shareholders of Metro,
discounted to $0.9 million to reflect an estimated effective interest rate
of 10%, which is in excess of the stated rate of 6%, in connection with the
Company's acquisition of Metro.
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RISK FACTORS
An investment in the Common Stock offered hereby involves a high degree of
risk. Prospective investors should carefully consider all of the information in
this Prospectus including the following risk factors.
LIMITED BUSINESS HISTORY; ABSENCE OF COMBINED OPERATING HISTORY; LACK OF
CONSOLIDATED PROFITABLE OPERATIONS
All-Comm may be considered to be a new company without an operating history
because of: (i) the recent date of the acquisitions of All-Comm's operating
subsidiaries, Metro and SD&A; (ii) the change in All-Comm's management and its
board of directors (the 'Board of Directors' and each member thereof
individually a 'Director') arising out of the Company's acquisition of Alliance
on April 25, 1995; and (iii) the related sale in March 1995 of the Company's
then principal operating business, Sports-Tech International, Inc. ('STI').
Accordingly, there can be no assurance that the Company will be able to
successfully manage or integrate Metro and SD&A and their separate operations,
employees and management or that the Company's overall operations will be
successful. As of June 30, 1996 and September 30, 1996, the Company had an
accumulated deficit of $6,125,500 and $8,119,981, respectively. On a
consolidated basis, the Company had losses from operations of $0.5 million, $1.3
million and $2.0 million for the years ended June 30, 1996 and 1995 and the
three months ended September 30, 1996, respectively. The Company generated
losses due, in part, to costs in fiscal 1995 and 1996 and the first quarter of
fiscal 1997 associated with increased legal, accounting and administrative
expenses related to identifying, evaluating and negotiating potential
acquisitions consistent with the Company's growth strategy and with the
obtaining of financing for such acquisitions, some of which acquisitions were
never consummated. In addition, in the first quarter of fiscal 1997, the Company
incurred a non-recurring, non-cash charge of $1.7 million to compensation
expense relating to options granted to two principal executive officers. Such
charge was incurred because the exercise price of each such option, which was
based upon the market price of the Common Stock on May 30, 1996 (the date which
the Company intended as the effective date of the grant) rather than the market
price on September 26, 1996 (the actual effective date of the grant), was lower
than the market price of the Common Stock on September 26, 1996. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview.' Although expenses related to the Company's growth
strategy are likely to continue as the Company pursues new acquisitions, the
Company believes that by implementing a plan to reduce overhead and
administrative expenses and by including earnings generated by Metro and
increasing earnings generated by SD&A, which reported net income of $0.4 million
and $1.2 million, respectively, for the year ended June 30, 1996 (which in the
case of Metro is unaudited), the Company has the ability to become profitable.
No assurance can be given as to whether or when the Company will be able to
attain profitability.
RISKS ASSOCIATED WITH ACQUISITION AND GROWTH STRATEGY
As a key component of its growth strategy, the Company has pursued and
intends to continue to pursue acquisitions of companies that provide direct
marketing, interactive and other media services. The Company acquired SD&A in
April 1995 and Metro in October 1996, for a total of approximately $15.0 million
(not including any earn-out or other contingent payments that may be payable
after the date of this Prospectus in connection therewith), and seeks to acquire
additional companies. Execution of its growth strategy requires the Company's
management to, among other things: (i) identify new industries and market
segments to which the Company can provide its direct marketing services and in
which the Company can successfully compete; (ii) identify acquisition candidates
who are willing to be acquired at prices acceptable to the Company; (iii)
consummate identified acquisitions; and (iv) obtain financing for future
acquisitions. Certain risks are inherent in an acquisition strategy, such as
dilution of outstanding equity securities, increased leverage and debt service
requirements and the difficulty in combining different company cultures and
facilities, any of which could materially adversely affect the Company's
operating results or the market price of the Common Stock prevailing from time
to time. The success of any completed acquisition will depend in part on the
Company's ability to effectively integrate the acquired business, which
integration may involve unforeseen difficulties and may require a
disproportionate amount of management's attention and the Company's financial
and other resources.
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The Company is currently considering several acquisitions of companies that
have a client base in certain targeted industries and/or a business focus on
direct marketing services that complement or expand the Company's current range
of direct marketing services in order to enlarge its core competencies, enable
it to enter new industries and market segments and increase its potential for
cross-selling. No agreement, definitive or otherwise, with respect to any of
such potential acquisitions has been reached. From time to time the Company has,
and in the future may continue to, enter into negotiations with respect to
potential acquisitions for these purposes, some of which have resulted or may
result in preliminary agreements. In the course of the Company's negotiations
and/or due diligence, these negotiations and/or preliminary agreements may be
abandoned or terminated. No assurance can be given that the Company will
complete the acquisitions currently under consideration, that additional
suitable acquisition candidates will be identified, that such future
acquisitions will be financed and made on acceptable terms, or that future
acquisitions, if completed, will be successful. In March 1996, the Company's
agreement to acquire Bullseye Database Marketing, Inc. was terminated and, in
February 1996, the Company abandoned its negotiations to acquire Forms Direct,
Inc.
The Company's business has changed significantly since the Company's
acquisitions of Alliance and SD&A, which has placed demands on the Company's
administrative, operational and financial resources. Any continued growth of the
Company's client base and its services could place an additional strain on its
capacity, management and operations. The Company's future performance and
profitability will depend in part on its ability to successfully implement
improved financial and management systems, to add capacity as and when needed
and to hire qualified personnel to respond to changes in its business. The
failure to implement such systems, add any such capacity or hire such qualified
personnel may have a material adverse effect on the Company's business,
financial condition and results of operations. See 'Management's Discussion and
Analysis of Financial Condition and Results of Operations.'
COMPETITION
Many of the Company's services, and service capabilities that the Company
may acquire, are sold in highly competitive markets in the United States,
including the markets for planning and developing direct marketing strategies
and the implementation of various direct marketing programs that include
gathering information and tracking and analysis of direct marketing campaigns.
In addition, many formats, including television, radio and newspapers, compete
for the marketing expenditures of the Company's clients. The Company competes
with a number of entities, or divisions of entities, many of which have more
extensive financial, technical, marketing and other resources than the Company
and may be able to respond more quickly to new or emerging technologies and
other competitive pressures. Some of these entities have growth strategies that
involve the acquisition of companies which the Company may have identified as
acquisition candidates. The Company also competes with in-house telemarketing
and direct mail operations of certain of its clients or potential clients. See
'Business -- Competition.'
RAPID TECHNOLOGICAL CHANGE
The market for the Company's services is characterized by rapidly changing
technology and frequent new and enhanced services. The Company believes that its
future success will be highly dependent upon its ability to enhance existing
services and to develop and introduce new services to respond to changing client
needs. There can be no assurance that the Company can successfully identify,
develop and bring new and enhanced services to market in a timely manner, that
such services will be commercially successful or that services or technologies
developed by others will not render the Company's services non-competitive.
LIMITED PROPRIETARY PROTECTION
The Company holds no registered patents, trademarks or copyrights. The
Company depends in part upon its know-how and proprietary applications of
computer programs and database information systems to differentiate its services
from those of its competitors. The Company also relies on a
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combination of contract rights (including non-competition agreements with key
employees) and trade secret laws to protect its know-how. There can be no
assurance, however, that competitors will not obtain unauthorized access to the
Company's know-how or that the Company's contractual or legal remedies will be
sufficient to protect the Company's interests.
RISK OF EQUIPMENT FAILURE
SD&A maintains a telemarketing calling center in Berkeley, California which
contributed 16.7% and 13.1% of the Company's revenues in fiscal 1996 and the
first quarter of fiscal 1997, respectively. Although SD&A maintains business
interruption insurance and has not had a major failure of equipment at its
Berkeley calling center, the risk of such failure does exist and, if the
Company's back-up procedures prove inadequate, such failure could have a
material adverse effect on the Company's business. Similarly, Metro maintains
extensive computer processing equipment at its facilities in New York City,
which equipment represents the substantial majority of its data services
capability. Although back-up client files and databases are maintained off-site
and Metro maintains business interruption insurance and has not had a major
failure of its equipment, the risk of such failure does exist and, if Metro's
back-up systems and databases prove inadequate, such failure could have a
material adverse effect on the Company's business.
CYCLICALITY
The direct marketing services industry relies upon marketing expenditures
by clients. Such expenditures are dependent upon the level of economic activity,
in general, and the specific industry of the client in respect of cyclical
effects that may bear upon that industry. Various segments of the direct
marketing industry, such as business to business or business to consumer
activity, may be affected by business cycle conditions. Insofar as marketing
budgets are related to availability of funds and general economic conditions,
product manufacturers or service providers may choose to reduce expenditures for
direct marketing services.
RELIANCE UPON SUBSIDIARIES
The parent company's assets consist primarily of the stock of its
subsidiaries. Accordingly, the Company's ability to meet its cash obligations is
partially dependent upon the ability of its subsidiaries to make cash
distributions to the Company. No assurance can be given that any or all of its
subsidiaries will be able to make such cash distributions, or, if made, that
such distributions will be adequate to meet the Company's financial obligations.
Accordingly, the Company may be dependent upon external financing to continue
its business plan.
DEPENDENCE ON LABOR FORCE
As is common in the telemarketing industry, the Company's
telemarketing/telefundraising services are labor-intensive and historically have
been characterized by a high level of personnel turnover. Unskilled and
semi-skilled employees typically work part-time and receive relatively modest
hourly wages; skilled employees commonly work full-time and command higher
wages. Increases in the turnover rate would result in higher recruiting and
training costs. If the Company were unable to recruit and retain a sufficient
number of employees, it would be forced to limit its growth or possibly modify
its operations. The Company may not be able to continue to hire and retain a
sufficient number of qualified personnel, which would have a material adverse
effect on the Company's business, financial condition and results of operations.
See 'Business -- Personnel and Training.'
DEPENDENCE UPON KEY PERSONNEL
The Company's decentralized management philosophy delegates day-to-day
operating decisions to the subsidiary managers. As a result, the Company is
highly dependent upon the effectiveness of a small group of people at the
subsidiary level and a small group of people at the corporate level. The loss of
any key person could have a significant bearing upon the Company's
profitability, its ability to
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consummate future acquisitions and its ability to finance, manage or develop
marketing programs. The Company's operational success is contingent upon its
ability to retain and expand its staff of qualified personnel on a timely basis.
There can be no assurance that adequate replacements could be found if the
Company were to lose the services of any key employees. The Company is also
dependent upon the specialized skills of certain other personnel and may need to
hire additional skilled personnel if it experiences growth in its business.
Competition for such personnel is intense and the inability to attract or
maintain qualified employees could materially and adversely affect the Company's
business, financial condition and results of operations.
The Company does not maintain key person life insurance.
POSSIBLE DECLINE IN EFFECTIVENESS OF TELEMARKETING
Although the telemarketing industry has grown significantly in the last
five years, advances in new forms of direct marketing, such as the development
of interactive commerce through television, computer networks, interactive media
(including the Internet) and other media, could have an adverse effect on the
demand for telemarketing as a form of direct marketing. As the industry
continues to grow, telemarketing's effectiveness as a direct marketing tool may
also decrease as a result of consumer saturation and consumer resistance to
telemarketing generally. Although the Company attempts to monitor industry
trends and to respond accordingly, the Company may not be able to anticipate and
successfully respond to such trends in a timely manner.
DEPENDENCE ON RELATIONSHIPS WITH DATA COMPILERS
The Company's database management services utilize both clients'
proprietary information and information licensed by the Company from leading
data compilers. Such licenses generally have a one year term. While such
information is presently available to the Company from several sources, there
can be no assurance that the Company will be able to economically access such
information in the future. Failure to do so could have an adverse effect on the
Company's business, financial condition and results of operations. See
'Business -- Services -- Database Management Services.'
DEPENDENCE ON TELEPHONE AND POSTAL SERVICE
Certain aspects of the direct marketing services industry depend upon
services provided by various local and long distance telephone companies and the
United States Postal Service ('USPS'). Possible future modifications by the USPS
of its rate structure or increases in the rates currently paid by the Company
for local and long distance telephone service could have an adverse effect on
the Company's operating expenses which, in turn, may materially adversely affect
its operating results, to the extent that the Company is unable to pass any such
increase through to its clients. Any significant interruption or capacity
limitation in any such services could also have an adverse effect on the
Company's business, financial condition and results of operations.
AMORTIZATION OF INTANGIBLE ASSETS
Approximately $16.0 million, or 54%, of the Company's pro forma total
assets as of September 30, 1996 consisted of goodwill and other intangible
assets arising from the Company's acquisitions of Metro and SD&A. Such goodwill
and other intangible assets represent the difference between the aggregate
purchase price for the assets acquired and the amount of such purchase price
allocated to the tangible assets so acquired for purposes of the Company's pro
forma balance sheet. The goodwill is amortized over a 40-year period and the
other intangible assets are amortized over a three- or five-year period,
depending on the intangible asset, with the amounts amortized in a particular
period constituting non-cash expenses that would decrease the Company's net
income (or increase its net loss) in that period. The reduction in net income
(or increase in net loss) resulting from the amortization of goodwill as a
result of past or possible future acquisitions may have an adverse impact upon
the market price of the Common Stock prevailing from time to time.
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FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company's revenues and operating results are subject to significant
fluctuation between fiscal quarters. A significant portion of the Company's
quarterly revenues is derived from new projects and contracts for direct
marketing services, the timing of which is subject to a variety of factors
outside the Company's control, such as client marketing budgets and
modifications in client strategies. In part due to certain seasonal marketing
patterns and subscriptions, the Company generated net losses during the second
and third quarters of fiscal 1996 and the first quarter of fiscal 1997. Metro
(which was not acquired until October 1996) generated net losses during its
fiscal equivalents of the Company's third and fourth quarters of fiscal 1996.
The Company cannot predict the degree to which, on a consolidated basis, these
trends will continue. Additionally, the Company periodically incurs cost
increases due to both hiring and training of new employees and computer capacity
upgrades in anticipation of future growth. In addition, the size, timing and
integration of possible future acquisitions may cause substantial fluctuations
in operating results from quarter to quarter. As a result, operating results for
any fiscal quarter may not be indicative of the results that may be achieved for
any subsequent fiscal quarter or for a full fiscal year. These fluctuations
could adversely affect the market price of the Common Stock.
POSSIBLE NEED FOR ADDITIONAL FINANCING
In addition to the management challenges presented by the continued
implementation of the Company's growth strategy, future growth will require
significant capital. The Company's acquisition of SD&A was financed with seller
financing and the Company's acquisition of Metro was financed with both seller
financing and equity. No assurance can be given that the Company will be able to
finance possible future acquisitions on those or any other terms. Although the
Company currently estimates that the net proceeds of the Underwritten Offering,
together with cash generated from operations, will be sufficient to finance its
current operations and planned capital expenditure requirements through fiscal
1998, there can be no assurance that the Company will not require additional
capital at an earlier date, especially in light of the Company's acquisition
program. The Company may, from time to time, seek additional funding through
public or private financing, including debt or equity financing. There can be no
assurance that adequate funding will be available as needed or, if available, on
terms acceptable to the Company. If additional funds are raised by issuing
equity securities, existing stockholders may experience dilution. Insufficient
funds may require the Company to scale back or eliminate some or a significant
part of its services or possible future acquisitions. See 'Use of Proceeds' and
'Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources.'
LACK OF LONG-TERM CONTRACTS
The Company's contracts or other arrangements with its clients are
generally entered into on a project by project basis. Moreover, if the Company
were to lose a long-standing client, replacing such client with a comparable
client may require significant lead time. In addition, new client programs often
begin with a pilot project that is smaller in scale and more limited in scope
and has a smaller marketing budget than projects conducted with long-standing
clients. Although the Company believes that historically SD&A and Metro have
achieved satisfactory levels of client retention, no assurance can be given that
the Company will be able to do so in the future.
POSSIBLE LIMITATION ON ABILITY TO DO BUSINESS WITH CERTAIN POTENTIAL CLIENTS
The Company may determine from time to time in the exercise of its business
judgment that it is not prudent to pursue business opportunities with or accept
business from competitors of existing or potential clients or from groups which
may have interests adverse to interests of the Company's clients. Although to
date such considerations have not significantly impaired the Company's ability
to do business with new clients, no assurance can be given that these
considerations will not increase in the future and reduce opportunities that
would otherwise be available to the Company.
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SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market, or the
perception that such sales could occur, could adversely affect the market price
of the Common Stock prevailing from time to time. Upon completion of the
Underwritten Offering, the Company will have 10,008,108 shares of Common Stock
outstanding. At such time, up to an additional 5,380,927 shares of Common Stock
will be issuable upon the conversion or exercise of outstanding securities or
other contractual rights, all of which are currently exercisable or convertible.
Of the Common Stock outstanding as of the date of this Prospectus,
5,321,228 shares will be freely tradeable without restriction under the
Securities Act or will be eligible for sale in the public market without regard
to the availability of current public information, volume limitations, manner of
sale restrictions or notice requirement under Rule 144(k), except for any such
shares held by or purchased from persons deemed to be 'affiliates' of the
Company which are subject to certain resale limitations pursuant to Rule 144
under the Securities Act. The remaining 4,686,880 shares of Common Stock
outstanding will be 'restricted securities' within the meaning of Rule 144
('Restricted Shares'). As of April 25, 1997, approximately 837,415 Restricted
Shares may become eligible for sale pursuant to Rule 144, or continue to be
eligible for sale under other exemptions from registration, under the Securities
Act.
Holders of an aggregate of up to 7,832,897 shares of Common Stock,
consisting of up to 4,058,532 Restricted Shares outstanding as of the date of
this Prospectus and up to 3,774,365 Restricted Shares issuable upon the
conversion or exercise of other securities or other contractual rights then
outstanding and then convertible or exercisable, in each case depending on the
extent to which the Underwriters' over-allotment options are exercised, if at
all, will have demand and/or piggyback rights to have such Restricted Shares
registered under the Securities Act pursuant to various registration rights
agreements with the Company. The Company, its Directors and officers and certain
of its stockholders and holders of options, warrants, conversion or contractual
rights to acquire Common Stock, who will hold in the aggregate up to 10,202,092
Restricted Shares outright or issuable upon exercise of such rights, depending
on the extent to which the Underwriters' over-allotment options are exercised,
if at all, have agreed to certain lock-up arrangements. The Lead Representative
may from time to time in its sole discretion release some or all of the
stockholders who have agreed to such lock-up arrangements from the restrictions
thereof. See 'Shares Eligible for Future Sale.'
No prediction can be made as to the effect, if any, that future sales of
additional shares of Common Stock or the availability of such shares for sale,
either pursuant to exercised registration rights or under Rule 144, will have on
the market price of the Common Stock prevailing from time to time. The
possibility that substantial amounts of Common Stock may be sold in the public
market may adversely affect the market price of the Common Stock prevailing from
time to time and could impair the ability of the Company to raise capital
through the sale of its equity securities.
MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE
Although the Common Stock is quoted on The Nasdaq SmallCap MarketSM, at
times the Common Stock has been and may be thinly traded. Such quotation does
not provide any assurance that an active public market for the Common Stock will
develop or be sustained. If an active public market does not develop or is not
sustained, the market price and liquidity of the Common Stock may be adversely
affected. In addition, the stock market in recent years has experienced extreme
price and volume fluctuations that often have been unrelated or disproportionate
to the operating performance of companies. These fluctuations as well as general
economic and market conditions may adversely affect the market price of the
Common Stock prevailing from time to time.
GOVERNMENT REGULATION AND PRIVACY ISSUES
The telemarketing industry has become subject to an increasing amount of
federal and state regulation during the past five years. The federal Telephone
Consumer Protection Act of 1991 (the 'TCPA') limits the hours during which
telemarketers may call consumers and prohibits the use of automated telephone
dialing equipment to call certain telephone numbers. The federal Telemarketing
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and Consumer Fraud and Abuse Prevention Act of 1994 (the 'TCFAPA') broadly
authorizes the Federal Trade Commission (the 'FTC') to issue regulations
prohibiting misrepresentations in telemarketing sales. The FTC's new
telemarketing sales rules prohibit misrepresentations of the cost, terms,
restrictions, performance or duration of products or services offered by
telephone solicitation, prohibit a telemarketer from calling a consumer when
that consumer has instructed the telemarketer not to contact him or her,
prohibit a telemarketer from calling prior to 8:00 a.m. or after 9:00 p.m. and
specifically address other perceived telemarketing abuses in the offering of
prizes and the sale of business opportunities or investments. Violation of these
rules may result in injunctive relief, monetary penalties or disgorgement of
profits and can give rise to private actions for damages. While the FTC's new
rules have not caused the Company to alter its operating procedures, additional
federal or state consumer-oriented legislation could limit the telemarketing
activities of the Company or its clients or significantly increase the Company's
costs of regulatory compliance.
Several of the industries which the Company intends to serve, including the
financial services and healthcare industries, are subject to varying degrees of
government regulation. Although compliance with these regulations is generally
the responsibility of the Company's clients, the Company could be subject to a
variety of enforcement or private actions for its failure or the failure of its
clients to comply with such regulations.
In addition, the growth of information and communications technology has
produced a proliferation of information of various types and has raised many new
issues concerning the privacy of such information. Congress and various state
legislatures have considered legislation which would restrict access to, and the
use of, credit and other personal information for direct marketing purposes. The
direct marketing services industry, including the Company, could be negatively
impacted in the event any of these or similar types of legislation are enacted.
NO INTENTION TO PAY DIVIDENDS
The Company does not intend to pay any cash dividends on its Common Stock
for the foreseeable future. The Company has not paid cash dividends on any of
its capital stock in at least the last six years. It is anticipated that future
earnings, if any, will be used to finance future growth of the Company. In
addition, there can be no assurance that operations will generate sufficient
revenues to enable the Company to declare or pay dividends.
CERTAIN ANTI-TAKEOVER PROVISIONS
The Amended and Restated Articles of Incorporation of the Company, as
amended (the 'Restated Articles'), the by-laws of the Company, as amended (the
'By-Laws'), and certain employment agreements between the Company and certain
executives may have the effect of hindering, delaying or deterring a third party
acquisition of the Company which may, in turn, adversely affect the market price
of the Common Stock. Pursuant to the terms of the Restated Articles, certain
business combinations and reclassifications involving the Company require the
approval of the holders of 75% of the outstanding Common Stock and the holders
of a majority of the outstanding Common Stock not held by the potential
acquiror. In addition, the Restated Articles establish a classified Board of
Directors and provide that Directors may only be removed upon the affirmative
vote of 75% of the outstanding Common Stock. See 'Management -- Board of
Directors.' Furthermore, upon a change in control of the Company, each of the
Company's Chief Executive Officer and President has the right to terminate his
respective employment contract, whereupon he becomes entitled to severance
payments equal to two year's salary. See 'Management -- Executive
Compensation -- Employment Agreements.'
The Company has unissued preferred stock, which could be issued to a third
party selected by current management, or used as the basis for a stockholders'
rights plan, which could have the effect of deterring a potential acquiror.
Pursuant to the Restated Articles, shares of the Company's preferred stock may
be issued in the future without further stockholder approval and upon such terms
and conditions, and having such rights, privileges and preferences (including
the right to vote and the right to convert into Common Stock) as the Board of
Directors may determine. Furthermore, certain provisions of the By-Laws may have
the effect of limiting or delaying a change in control of the Company.
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The effect of such provisions, together with certain provisions of Nevada
law limiting the voting rights of an acquiror of a controlling interest in a
Nevada corporation (such as the Company), as well as restrictions on certain
business combinations (including certain mergers and exchanges), may be to
reduce the probability of, or the premiums that stockholders would receive in
connection with, an acquisition of the Company. See 'Management -- Change in
Control Provisions of the Restated Articles and Nevada Corporate Law.'
RISK OF DILUTION
Purchasers of Common Stock in the Underwritten Offering will experience
immediate substantial dilution in pro forma net tangible book value per share of
Common Stock offered hereby in an amount estimated at $4.40 per share of Common
Stock. See 'Dilution.'
In addition, up to 5,380,927 shares of Common Stock are issuable upon
conversion or exercise of certain securities of or other contractual rights
granted by the Company, as described in footnote (2) to 'Prospectus
Summary -- The Offering.' No assurance can be given that these options, warrants
or contractual rights will or will not be exercised in whole or in part or at
all. However, if all of such options, warrants and other contractual rights
having exercise prices at or below the assumed initial price to public of $5 per
share were exercised, purchasers of Common Stock in the Underwritten Offering
would experience immediate substantial dilution in percentage voting power, pro
forma net tangible book value, and earnings (loss), in each case per share of
Common Stock offered hereby.
The Company's acquisitions of SD&A and Metro involved, and possible future
acquisitions may involve, the issuance of additional Common Stock and/or
payments based on earnings formulas which could require the issuance of
additional Common Stock. See 'Management's Discussion and Analysis of Financial
Condition and Results of Operation -- Liquidity and Capital Resources.'
Moreover, certain employees and Directors of the Company have received, and may
receive, options to purchase Common Stock at the discretion of the Board of
Directors. No assurance can be given that any future share issuances will be at
a valuation that would avoid potential dilution to existing stockholders.
LACK OF UNDERWRITING HISTORY
LT Lawrence & Co., Inc. was organized in February 1992 and first registered
as a broker-dealer in 1994. Prior to the Underwritten Offering, LT Lawrence &
Co., Inc. has participated as a sole or co-manager in four public offerings.
Prospective purchasers of the Common Stock offered hereby should consider the
lack of experience of LT Lawrence & Co., Inc. in being a manager of an
underwritten public offering. See 'Underwriting.'
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain Statements in the Prospectus Summary and under the captions 'Risk
Factors,' 'Use of Proceeds,' 'Dilution,' 'Management's Discussion and Analysis
of Financial Condition and Results of Operations,' 'Business' and elsewhere in
this Prospectus constitute 'forward-looking statements' within the meaning of
the Private Securities Litigation Reform Act of 1995 (the 'Reform Act'). Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
the Company, or industry results, to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the following
general economic and business conditions: industry capacity; direct marketing
and other industry trends; demographic changes; competition; the loss of any
significant customers; changes in business strategy or development plans;
availability and successful integration of acquisition candidates; availability,
terms and deployment of capital; advances in technology; quality of management;
business abilities and judgment of personnel; availability of qualified
personnel; changes in, or the failure to comply with, government regulations;
computer, telephone and postal costs; and other factors discussed in this
Prospectus. See 'Risk Factors.'
17
<PAGE>
<PAGE>
THE DELAYED OFFERING
The Company had previously entered into contractual arrangements with
certain of its stockholders whereby it agreed to register certain securities
owned by such stockholders for resale under the Securities Act. As a result of
negotiations with these stockholders, the Company has agreed to satisfy certain
of such obligations by registering the Delayed Shares, consisting of 1,381,056
shares of Common Stock, on behalf of the Delayed Selling Stockholders.
Accordingly, the registration statement of which this Prospectus forms a part
also includes the Delayed Prospectus with respect to the offering of the Delayed
Shares by the Delayed Selling Stockholders on a delayed basis pursuant to Rule
415 under the Securities Act, and not as part of the Underwritten Offering. Of
such Delayed Shares, 1,291,588 shares will be subject to certain lock-up
arrangements for a period of nine months after the date of this Prospectus,
subject to earlier termination if the final Prospectus relating to the
Underwritten Offering is not filed with the Commission by March 31, 1997
pursuant to Rule 424(b) under the Securities Act. The Lead Representative has
indicated to the Company and certain representatives of the holders of an
aggregate of 1,250,000 of the Delayed Shares subject to such lock-up
arrangements that, upon consummation of the Underwritten Offering, it would be
willing to release some or all of the Common Stock held or beneficially owned by
such holders from the provisions of such lock-up arrangements prior to the
expiration of such nine-month period under certain circumstances. As of the date
of this Prospectus, there is no agreement (oral or written) with any of such
holders as to the specific date that any release of shares from the provisions
of such lock-up arrangements would be granted or as to the number of shares
subject to such lock-up arrangements that would be so released. See 'Shares
Eligible for Future Sale.' The Company will not receive any proceeds from the
sale of the Delayed Stock by the Delayed Selling Stockholders. Expenses of the
Delayed Offering, other than selling commissions, will be paid by the Company.
Sales of the Delayed Stock by the Delayed Selling Stockholders or the potential
for such sales may have an adverse effect on the market price of the shares
offered hereby. See 'Risk Factors -- Shares Eligible for Future Sale.'
18
<PAGE>
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of 1,750,000 shares of Common
Stock offered by the Company hereby are estimated to be $7.3 million based on an
assumed initial price to public of $5 per share of Common Stock, after deducting
underwriting discounts and commissions and estimated offering expenses. The
Company will not receive any of the proceeds from the sale of Common Stock by
the Selling Stockholders or the Over-Allotment Selling Stockholders in the
Underwritten Offering, or by the Delayed Selling Stockholders in the Delayed
Offering.
Of such net proceeds to the Company, approximately $4.0 million will be
applied to expand the Company's business by investing approximately $2.3 million
for technology (including computer systems, software and telemarketing
equipment), approximately $1.2 million for technical support, sales and
marketing personnel and approximately $0.5 million for advertising and promotion
of the Company's services. In addition, approximately $1.0 million of such
proceeds will be used to repay the promissory notes (the 'Series C Notes')
issued to the former holders of the Company's Series C Redeemable Convertible
Preferred Stock, par value $.01 per share (the 'Series C Preferred Stock'),
issued in connection with the repurchase thereof as part of the
Recapitalization, and approximately $1.0 million of such proceeds will be used
to repay the promissory notes (the 'Metro Notes') issued to the former
shareholders of Metro in connection with the Company's acquisition of Metro. The
Metro Notes bear interest at a rate of 6% per annum, mature June 30, 1998 and
are convertible at the option of the holders thereof into 185,874 shares of
Common Stock, based on a conversion price of $5.38 per share. The Series C Notes
bear interest at a rate of 8% per annum and are payable on demand at any time
from and after the date of consummation of the Underwritten Offering or any
other underwritten public offering of Common Stock, and in any event mature June
7, 1998. To the extent the Company does not use all or any portion of the $2.0
million of proceeds from the Underwritten Offering to repay the Metro Notes
and/or the Series C Notes, such proceeds will be used to augment general working
capital, including, without limitation, for marketing of the Company's services
and new business development on behalf of SD&A and Metro. The balance will be
used for general corporate purposes, including possible future acquisitions.
Pending application of such net proceeds as described above, such net proceeds
will be invested in short-term, interest-bearing money market instruments. The
foregoing represents the Company's best estimate of the allocation of the net
proceeds to the Company of the Underwritten Offering. Future events such as
changes in economic or competitive conditions may result in the Company
reallocating such proceeds. In addition, there can be no assurance that the
Company's estimates will prove to be accurate or that unforeseen expenses will
not occur.
In addition, up to 5,380,927 shares of Common Stock are issuable upon
conversion or exercise of certain securities or other contractual rights of the
Company, as described in footnote (2) to 'Prospectus Summary -- The Offering.'
Although no assurance can be given that any of these options, warrants or
contractual rights will or will not be exercised in whole or in part or at all,
if all of such options, warrants and other contractual rights having exercise
prices at or below the assumed initial price to public of $5 per share were
exercised, the aggregate proceeds to the Company resulting therefrom would be
approximately $11.5 million. The Company expects that it would use such
proceeds, if any, for general corporate purposes, including possible future
acquisitions. The exercise of these options, warrants and contractual rights is
not required as a condition to the sale of any of the shares of Common Stock
being offered hereby or in the Delayed Offering and none of such securities is
being offered either as part of the Underwritten Offering or as part of the
Delayed Offering.
19
<PAGE>
<PAGE>
PRICE RANGE OF COMMON STOCK
The Common Stock is quoted on The Nasdaq SmallCap MarketSM under the symbol
'ALCM.' Prior to August 1995, when the Company changed its name to All-Comm
Media Corporation, the Common Stock was quoted under the symbol 'SPTK.' The
following table sets forth the high and low sales prices for the Common Stock
for the fiscal quarters indicated, as furnished by the National Association of
Securities Dealers, Inc. ('NASD'), adjusted to reflect a one-for-four reverse
stock split of the Common Stock effected August 22, 1995:
<TABLE>
<CAPTION>
HIGH LOW
------------- -------------
<S> <C> <C>
Fiscal 1997
Third Quarter (through January 7)..................................... $4 1/16 $3 13/16
Second Quarter........................................................ 5 5/8 3 3/16
First Quarter......................................................... 6 1/8 4 5/8
Fiscal 1996
Fourth Quarter........................................................ $6 3/8 $2 1/8
Third Quarter......................................................... 4 7/16 3
Second Quarter........................................................ 5 1 7/8
First Quarter......................................................... 8 1/4 3 5/8
Fiscal 1995
Fourth Quarter........................................................ $9 3/4 $6 1/2
Third Quarter......................................................... 8 5 1/4
Second Quarter........................................................ 6 3/4 3 1/2
First Quarter......................................................... 6 3
</TABLE>
As of December 23, 1996, there were approximately 850 registered holders of
record of the Common Stock.
DIVIDEND POLICY
The Company has not paid any cash dividends on any of its capital stock in
at least the last six years. The Company intends to retain future earnings, if
any, to finance the growth and development of its business and therefore does
not anticipate paying cash dividends on the Common Stock for the foreseeable
future. See 'Risk Factors -- No Intention to Pay Dividends.'
20
<PAGE>
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company: (i) at
September 30, 1996; (ii) pro forma to give effect to the acquisition of Metro as
if it had occurred on September 30, 1996; and (iii) pro forma as adjusted to
give effect to such acquisition, the Recapitalization, the Underwritten Offering
and the application of the net proceeds to the Company therefrom as if each such
event had occurred on September 30, 1996. The following table should be read in
conjunction with 'Management's Discussion and Analysis of Financial Condition
and Results of Operations' and the Company's consolidated financial statements
and the notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term obligations to related parties less current portion(1)............. $ 1,342 $ 2,262 $ 2,262
------- --------- -----------
Redeemable Convertible Preferred Stock, $.01 par value, consisting of:
6,200 shares of Series B Convertible Preferred Stock issued and
outstanding actual and pro forma; none issued and outstanding pro
forma as adjusted; and
2,000 shares of Series C Convertible Preferred Stock issued and
outstanding actual and pro forma; none issued and outstanding pro
forma as adjusted..................................................... 1,667 1,667 --
------- --------- -----------
Stockholders' equity:
Convertible Preferred Stock, $.01 par value; 50,000 shares authorized at
September 30, 1996; 8,200 redeemable shares issued and outstanding
actual and pro forma; none issued and outstanding pro forma as
adjusted.............................................................. -- -- --
Common Stock, $.01 par value; 36,250,000 shares authorized at September
30, 1996; 3,303,207 issued and 3,291,407 outstanding; 5,117,207 issued
and 5,105,407 outstanding pro forma; 10,036,047 issued and 10,024,247
outstanding pro forma as adjusted(2).................................. 33 51 100
Additional paid-in capital................................................... 14,967 22,205 30,245
Accumulated deficit.......................................................... (8,120) (8,120) (8,195)
Less 11,800 shares of common stock in treasury, at cost...................... (135) (135) (135)
------- --------- -----------
Total stockholders' equity.............................................. 6,745 14,001 22,015
------- --------- -----------
Total capitalization............................................... $ 9,754 $17,930 $24,277
------- --------- -----------
------- --------- -----------
</TABLE>
- ------------
* Less than $1,000.
(1) The pro forma and pro forma as adjusted data each include $1.0 million
aggregate face amount of promissory notes issued by the Company to the
former shareholders of Metro in connection with the Company's acquisition of
Metro. The promissory notes, which have a stated interest rate of 6%, were
discounted to $0.9 million to reflect an estimated effective interest rate
of 10%.
(2) Includes the following issuances: (a) pro forma -- 1,814,000 shares of
Common Stock issued to former shareholders of Metro in connection with the
Company's acquisition of Metro and (b) pro forma as adjusted -- the shares
described in clause (a) above plus the 1,750,000 shares being sold in the
Underwritten Offering by the Company plus (i) the conversion of all 6,200
shares of Series B Preferred Stock into 2,480,000 shares of Common Stock,
(ii) the exchange of 3,000,000 warrants issued in conjunction with the
Series C Preferred Stock into 600,000 shares of Common Stock and the related
repurchase of all 2,000 shares of Series C Preferred Stock for promissory
notes in an aggregate principal amount of $1.0 million, (iii) the conversion
of $145,753 in interest on the Series B Preferred Stock and the Series C
Preferred Stock into 88,840 shares of Common Stock (calculated based on
conversion on December 23, 1996) and (iv) cancellation at no cost to the
Company of options exercisable for 300,000 shares of Common Stock granted to
two principal executive officers. Also includes an additional 16,139 shares
of Common Stock which have been approved for issuance but will not be issued
until completion of appropriate documentation by the persons to whom such
shares are to be issued. Does not include up to 5,380,927 shares of Common
Stock issuable upon conversion or exercise of certain securities or other
contractual rights as described in footnote (2) under 'Prospectus
Summary -- The Offering.'
21
<PAGE>
<PAGE>
DILUTION
Purchasers of the Common Stock offered hereby will experience an immediate
substantial dilution in the pro forma net tangible book value of their Common
Stock from the assumed initial price to public of $5 per share.(1) As of
September 30, 1996, after giving pro forma effect to the Metro acquisition, the
Company had a deficit in pro forma net tangible book value of $(0.3) million or
$(0.06) per share of Common Stock. The deficit in pro forma net tangible book
value per share represents the amount by which total liabilities exceed total
net tangible assets, divided by the number of outstanding shares of Common
Stock. As of September 30, 1996, after giving effect to the application of the
estimated net proceeds to the Company from the sale of the 1,750,000 shares of
Common Stock by the Company at an assumed initial price to public of $5 per
share, after deducting the estimated underwriting discounts and commissions and
estimated expenses of the Underwritten Offering payable by the Company and after
giving effect to the Recapitalization, the pro forma as adjusted net tangible
book value of the Company would have been $6.0 million or $0.60 per share of
Common Stock. This represents an immediate increase in pro forma net tangible
book value of $0.66 per share to existing stockholders and an immediate dilution
of $4.40 per share to new investors purchasing shares in the Underwritten
Offering. The following table illustrates the dilution per share as described
above:
<TABLE>
<S> <C> <C>
Assumed initial price to public................................................................. $5.00
Deficit in pro forma net tangible book value before the Underwritten Offering................... $(0.06)
Increase attributable to new investors.......................................................... 0.66
------
Pro forma as adjusted net tangible book value after the Underwritten Offering................... 0.60
------
Dilution in pro forma net tangible book value to new investors.................................. $4.40
------
------
</TABLE>
Based on the foregoing assumptions, the following table sets forth, as of
September 30, 1996, giving effect to the Underwritten Offering and the
Recapitalization, the number of shares of Common Stock purchased from the
Company, the total consideration paid to the Company by the existing
stockholders and the new investors purchasing shares of Common Stock in the
Underwritten Offering and the average price per share paid by each group:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------- -------------------- PRICE PER
NUMBER % AMOUNT % SHARE
---------- ----- ----------- ----- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders(2)................................ 8,274,247 82.5% $18,352,056 67.7% $2.22
New investors(2)........................................ 1,750,000 17.5 8,750,000 32.3 $5.00
---------- ----- ----------- -----
Total.............................................. 10,024,247 100.0% $27,102,056 100.0% $2.70
---------- ----- ----------- -----
---------- ----- ----------- -----
</TABLE>
In addition, up to 5,380,927 shares of Common Stock are issuable upon the
exercise of certain options, warrants and other contractual rights. No assurance
can be given that these options, warrants or contractual rights will or will not
be exercised in whole or in part or at all. However, if all of such options,
warrants and contractual rights having exercise prices at or below the assumed
initial price to public of $5 per share were exercised, purchasers of the Common
Stock in the Underwritten Offering would experience immediate and substantial
dilution in percentage voting power, pro forma net tangible book value and
earnings (loss), in each case per share of Common Stock.
- ------------
(1) The Underwritten Offering being made by the Company pursuant to this
Prospectus is not the Company's initial public offering.
(2) Does not include up to 5,380,927 shares of Common Stock issuable upon
conversion or exercise of certain securities or other contractual rights, as
follows: (i) warrants issued to holders of Series B Preferred Stock, which
are currently exercisable for 3,100,000 shares of Common Stock; (ii) the
Representatives' Warrants, exercisable for 210,000 shares of Common Stock;
(iii) warrants to be issued upon consummation of the Underwritten Offering
to certain stockholders of the Company as consideration for their agreement
to certain lock-up arrangements, exercisable for an aggregate of up to
160,414 shares of Common Stock, depending on the extent to which the
Underwriters' over-allotment options are exercised, if at all -- see 'Shares
Eligible for Future Sale' and 'Underwriting;' (iv) all other outstanding
options, warrants and other contractual rights, which are currently
exercisable for an aggregate of 1,245,135 shares of Common Stock; (v) the
promissory notes issued to the former shareholders of Metro in connection
with the Company's acquisition of Metro, which are currently convertible
into an aggregate of 185,874 shares of Common Stock -- see 'Certain
Transactions;' and (vi) 479,504 shares of Common Stock reserved for issuance
but not yet issued under the Company's 1991 Stock Option Plan. See
'Management -- Stock Option Plan,' 'Description of Capital Stock' and
'Underwriting.'
22
<PAGE>
<PAGE>
PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(UNAUDITED)
The following unaudited Pro Forma Condensed Combined Balance Sheets have
been prepared based upon the unaudited interim condensed consolidated balance
sheet of the Company as of September 30, 1996 and the unaudited interim
condensed balance sheet of Metro as of September 30, 1996 and give effect to:
(i) the Company's acquisition of Metro; (ii) the Recapitalization; and (iii) the
application of the estimated net proceeds to the Company from the Underwritten
Offering (after deducting underwriting discounts and commissions and estimated
expenses of the Underwritten Offering payable by the Company), as if each had
occurred as of September 30, 1996. The following unaudited Pro Forma Condensed
Combined Statements of Operations for the fiscal year ended June 30, 1996 have
been prepared based on the audited historical consolidated statement of
operations of the Company for the year ended June 30, 1996 and the unaudited
historical statements of operations of Metro for the last six months of the year
ended December 31, 1995 and the six months ended June 30, 1996. The following
unaudited Pro Forma Condensed Combined Statements of Operations for the three
months ended September 30, 1996 have been prepared based on the unaudited
interim condensed consolidated statement of operations of the Company for such
period and the unaudited interim condensed statement of operations of Metro for
such period. All of such unaudited Pro Forma Condensed Combined Statements of
Operations give effect to the acquisition of Metro, the Recapitalization and the
Underwritten Offering as if each such event had occurred as of July 1, 1995. Pro
forma adjustments for each such pro forma financial statement are described in
the accompanying notes.
The following unaudited pro forma condensed combined financial information
is not necessarily indicative of the actual results of operations or financial
condition of the Company that would have been reported if the events described
above had occurred as of July 1, 1995 or September 30, 1996, as the case may be,
nor does such information purport to indicate either the results of the
Company's future operations or the Company's future financial condition. In the
opinion of management, all adjustments necessary to present fairly such pro
forma financial information have been made.
The pro forma condensed combined financial information should be read in
conjunction with 'Capitalization' and 'Management's Discussion and Analysis of
Financial Condition and Results of Operations' and with the financial statements
and notes thereto included elsewhere in this Prospectus.
23
<PAGE>
<PAGE>
PRO FORMA CONDENSED COMBINED BALANCE SHEETS
AS OF SEPTEMBER 30, 1996
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
-------------------------------- PRO FORMA
ALL-COMM MEDIA METRO SERVICES -----------------------
CORPORATION GROUP, INC. ADJUSTMENTS COMBINED
-------------- -------------- ----------- --------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................... $ 1,180 $ 349 $ 7,263 (A) $ 8,642
(150)(B)
Accounts receivable net of allowance for
doubtful account of $6 for
All-Comm Media Corporation.................... 1,864 1,839 -- 3,704
Other current assets............................ 561 55 -- 616
-------------- ------- ----------- --------
3,606 2,243 7,113 12,961
Property and equipment at cost, net............. 494 243 -- 737
Intangible assets at cost, net.................. 7,755 -- 8,070 (B) 15,976
150 (B)
Other assets.................................... 36 50 -- 86
-------------- ------- ----------- --------
Total assets............................... $ 11,891 $2,536 $15,333 $29,759
-------------- ------- ----------- --------
-------------- ------- ----------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings........................... $ 102 -- $ 1,000 (D) $ 1,102
Trade accounts payable.......................... 317 $2,189 -- 2,506
Accrued salaries and wages...................... 421 -- -- 421
Other accrued expenses.......................... 485 -- -- 485
Income taxes payable............................ -- 10 -- 10
Capital lease obligation, current portion....... -- 59 -- 59
Long-term obligations to related party, current
portion....................................... 700 -- -- 700
Related party payable........................... -- 25 -- 25
-------------- ------- ----------- --------
Total current liabilities.................. 2,026 2,283 1,000 5,309
Long-term obligations to related party, less current
portion............................................ 1,342 -- 920 (B) 2,262
Capital lease obligation less current portion........ -- 113 -- 113
Other liabilities.................................... 111 34 (84)(D) 61
-------------- ------- ----------- --------
Total liabilities.......................... 3,478 2,430 1,836 7,744
-------------- ------- ----------- --------
Redeemable convertible preferred stock............... 1,667 -- (1,667)(D) --
-------------- -----------
Stockholders' equity:
Common stock.................................... 33 1 18 (A) 101
18 (B)
(1)(B)
32 (D)
Additional paid-in capital...................... 14,967 -- 7,245 (A) 30,245
7,238 (B)
75 (C)
(948)(D)
1,667 (D)
Retained earnings (accumulated deficit)......... (8,120) 105 (105)(B) (8,195)
(75)(C)
Treasury stock.................................. (135) -- -- (135)
-------------- ------- ----------- --------
Total stockholders' equity................. 6,745 106 15,164 22,015
-------------- ------- ----------- --------
Total liabilities and stockholders'
equity.............................. $ 11,891 $2,536 $15,333 $29,759
-------------- ------- ----------- --------
-------------- ------- ----------- --------
</TABLE>
See accompanying Notes to these unaudited pro forma condensed combined balance
sheets.
24
<PAGE>
<PAGE>
NOTES TO PRO FORMA CONDENSED COMBINED BALANCE SHEETS
(UNAUDITED)
The unaudited Pro Forma Condensed Combined Balance Sheets present the
historical balance sheets of All-Comm and Metro and pro forma adjustments as if
the Underwritten Offering and the acquisition of Metro by the Company had taken
place as of September 30, 1996. The pro forma purchase accounting adjustments
are summarized as follows:
(A) Represents $8.8 million in cash proceeds to the Company from the
Underwritten Offering of 1,750,000 shares of Common Stock at $5 per share,
less estimated offering costs of $1.5 million.
(B) Represents the purchase of Metro, which had net tangible assets of
$0.1 million, for $8.2 million (1,814,000 shares of Common Stock valued at
$4 per share and $1.0 million aggregate face amount of promissory notes
issued by the Company to the former shareholders of Metro; the promissory
notes, which have a stated interest rate of 6%, were discounted to $0.9
million to reflect an estimated effective interest rate of 10%). In
connection with the acquisition, the Company obtained three year covenants
not to compete from the former shareholders of Metro. Acquisition costs are
estimated to be $0.2 million.
The acquisition was accounted for as a purchase and assets and
liabilities were recorded at fair market values, which approximated net
book values. The purchase is summarized as follows (in thousands):
<TABLE>
<S> <C> <C>
Value of stock paid....................................................... $ 7,256
Promissory notes payable.................................................. 920
-------
Total purchase price................................................. 8,176
Acquisition costs......................................................... 150
-------
Total cost........................................................... 8,326
Less fair market value of:
Assets acquired...................................................... (2,536)
Liabilities assumed.................................................. 2,430
-------
Net tangible assets.................................................. (106)
------
Costs in excess of tangible net assets.................................... 8,220
Less estimated value of:
Covenants not to compete............................................. 650
Proprietary software................................................. 250
------
Goodwill.................................................................. $7,320
------
------
</TABLE>
(C) Represents the estimated value of warrants issued by the Company
in connection with the Underwritten Offering to certain holders of
Restricted Shares and warrants having registration rights relating thereto
in consideration for such holders consent to certain modifications of their
respective registration rights. See 'Shares Eligible for Future Sale.' The
expense is non-recurring and will be charged in the fiscal quarter in which
the Underwritten Offering is consummated.
(D) Represents (i) conversion of all 6,200 shares of Series B
Preferred Stock into 2,480,000 shares of Common Stock, (ii) exchange of
3,000,000 warrants issued in conjunction with the Series C Preferred Stock
for 600,000 shares of Common Stock and the related repurchase of all 2,000
shares of Series C Preferred Stock for promissory notes in an aggregate
principal amount of $1.0 million, which notes bear interest at 8% and are
repayable on demand at any time from and after the date of consummation of
the Underwritten Offering, or any other underwritten public offering of
Common Stock, and in any event mature June 7, 1998, (iii) conversion of
$145,753 in interest on the Series B Preferred Stock and the Series C
Preferred Stock into 88,840 shares of Common Stock (calculated based on
conversion on December 23, 1996) and (iv) cancellation at no cost to the
Company of options exercisable for 300,000 shares of Common Stock granted
to two principal executive officers.
25
<PAGE>
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
FOR THE FISCAL YEAR ENDED JUNE 30, 1996
AND THE THREE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1996
---------------------------------------------------------------
HISTORICAL
-------------------------------- PRO FORMA
ALL-COMM MEDIA METRO SERVICES ---------------------------
CORPORATION GROUP, INC. ADJUSTMENTS COMBINED
--------------- -------------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues............. $ 15,889 $8,094 -- $ 23,983
--------------- ------ ----------- ---------
Salaries and
benefits........... 12,712 1,978 -- 14,690
Direct costs......... 807 4,550 -- 5,357
Selling, general and
administrative..... 1,843 961 -- 2,804
Professional fees.... 626 181 -- 806
Amortization of
intangible
assets............. 362 -- $ 450 (A) 812
--------------- ------ ----------- ---------
Total operating
costs and
expenses....... 16,350 7,670 450 24,470
--------------- ------ ----------- ---------
Income (loss) from
operations......... (460) 424 (450) (487)
Gain from sale of
land............... -- -- -- --
Interest income...... 12 -- -- 12
Interest expense..... (505) -- (106) (B) (611)
--------------- ------ ----------- ---------
Income (loss) before
income taxes....... (953) 424 (556) (1,086)
Provision for income
taxes.............. (141) (29) -- (C) (170)
--------------- ------ ----------- ---------
Net income (loss).... $ (1,094) $ 395 $ (556) $ (1,256)
--------------- ------ ----------- ---------
--------------- ------ ----------- ---------
Primary and fully
diluted loss
per share...... $(0.36) $(0.13)
------ ------
------ ------
Weighted average
common and common
equivalent shares
outstanding........ 3,068,278 6,732,840 (D) 9,801,118
--------------- ----------- ---------
--------------- ----------- ---------
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 1996
-------------------------------------------------------------
HISTORICAL
------------------------------- PRO FORMA
ALL-COMM MEDIA METRO SERVICES --------------------------
CORPORATION GROUP, INC. ADJUSTMENTS COMBINED
-------------- -------------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues............. $ 3,932 $2,216 $ 6,148
-------------- ------ ---------
Salaries and
benefits........... 4,953 527 5,480
Direct costs......... 145 1,256 1,401
Selling, general and
administrative..... 545 242 787
Professional fees.... 168 69 238
Amortization of
intangible
assets............. 96 -- $ 112 (A) 208
-------------- ------ ----------- ---------
Total operating
costs and
expenses....... 5,907 2,095 112 8,115
-------------- ------ ----------- ---------
Income (loss) from
operations......... (1,975) 121 (112) (1,967)
Gain from sale of
land............... 90 -- 90
Interest income...... 10 -- 10
Interest expense..... (115) -- (27)(B) (142)
-------------- ------ ----------- ---------
Income (loss) before
income taxes....... (1,991) 121 (139) (2,008)
Provision for income
taxes.............. (4) (5) (C) (9)
-------------- ------ ----------- ---------
Net income (loss).... $ (1,994) $ 116 $ (139) $ (2,018)
-------------- ------ ----------- ---------
-------------- ------ ----------- ---------
Primary and fully
diluted loss
per share...... $(0.62) $(0.20)
------ ------
------ ------
Weighted average
common and common
equivalent shares
outstanding........ 3,214,884 6,732,840 (D) 9,947,724
-------------- ----------- ---------
-------------- ----------- ---------
</TABLE>
See accompanying Notes to these unaudited pro forma condensed combined
statements of operations.
26
<PAGE>
<PAGE>
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED)
The unaudited Pro Forma Condensed Combined Statements of Operations for the
year ended June 30, 1996 combine the results of operations of the Company for
its fiscal year ended June 30, 1996 with the results of operations of Metro for
the year then ended. The unaudited Pro Forma Condensed Combined Statements of
Operations for the three months ended September 30, 1996 combine the results of
operations of the Company for the three months then ended with the results of
operations of Metro for the three months then ended. The revenues and results of
operations of the combined businesses included in such pro forma financial
statements are not considered by management to be indicative of the anticipated
results of the business for the periods subsequent to the acquisition of Metro
by the Company, nor are they considered to be indicative of the results of
operations which might have been attained for the period presented.
The pro forma purchase accounting adjustments reflect the effect on the
combined results for the fiscal year ended June 30, 1996 and the three months
ended September 30, 1996 as if the Underwritten Offering, the Recapitalization
and the acquisition of Metro by the Company had taken place as of July 1, 1995.
The adjustments are summarized as follows:
(A) Reflects amortization of $8.2 million in excess of costs over the
fair value of the net tangible assets acquired, including $0.7 million in
the aggregate in covenants not to compete and $0.3 million in proprietary
software. The covenants are amortized over their three year durations, the
proprietary software over its expected benefit period of five years and the
remainder of the excess of costs over fair value over its expected benefit
period of 40 years.
(B) Reflects interest expense incurred on $1.0 million aggregate face
amount of 6% promissory notes issued to former shareholders of Metro in
connection with the Company's acquisition of Metro, which promissory notes
were discounted to $0.9 million to reflect an estimated effective interest
rate of 10% and assumes repayment from the proceeds of the Underwritten
Offering of the promissory notes issued to the former holders of the Series
C Preferred Stock in connection with the Recapitalization.
(C) Prior to its acquisition by All-Comm, Metro had elected to be
taxed under the provisions of Subchapter S of the Internal Revenue Code of
1986, as amended (the 'Code') and, as a result, Metro's federal taxable
income or loss and tax credits were passed through to Metro's former
shareholders. Metro's provision for income taxes resulted from income taxes
due on taxable income for states which did not recognize Metro's S
corporation status. No pro forma tax provision has been made for federal
taxes in the pro forma condensed combined statements of operations due to
the availability of All-Comm's net operating loss carryforwards.
(D) Pro forma primary and fully diluted earnings per share include the
effect of issuance of (i) 1,814,000 shares of Common Stock in connection
with the Company's acquisition of Metro, (ii) 1,750,000 shares of Common
Stock in connection with the Underwritten Offering and (iii) 3,168,840
shares of Common Stock in connection with the Recapitalization, as if each
such event had occurred on July 1, 1995. Pro forma net income (loss)
attributable to common stockholders does not reflect a non-recurring
dividend upon conversion of the Series B Preferred Stock and the Series C
Preferred Stock and accumulated interest thereon in connection with the
Recapitalization estimated to be $8.5 million. This charge is non-cash and
does not impact net income (loss).
27
<PAGE>
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data of the Company as of June 30, 1996,
in the case of balance sheet data, and for the years ended June 30, 1995 and
1996, in the case of operating data, have been derived from the Company's
audited consolidated financial statements included elsewhere in this Prospectus.
The following selected financial data of the Company as of September 30, 1996,
in the case of balance sheet data, and for the three months ended September 30,
1995 and 1996, in the case of operating data, have been derived from the
Company's unaudited interim condensed consolidated financial statements included
elsewhere in this Prospectus. Operating results for the three months ended
September 30, 1996 are not necessarily indicative of the results of operations
for any subsequent period.
The following selected financial data of Metro as of December 31, 1995, in
the case of balance sheet data, and for the years ended December 31, 1994 and
1995, in the case of operating data, have been derived from Metro's audited
financial statements included elsewhere in this Prospectus. The selected
financial data of Metro presented below as of and for the nine months ended
September 30, 1995 and 1996 have been derived from Metro's unaudited financial
statements included elsewhere in this Prospectus. Metro's unaudited financial
statements include all adjustments, consisting of normal recurring accruals,
that the Company considers necessary for a fair presentation of Metro's
financial position and results of operations for those periods. Operating
results for the nine months ended September 30, 1996 are not necessarily
indicative of the results of operations for any subsequent period.
The data set forth below should be read in conjunction with 'Management's
Discussion and Analysis of Financial Condition and Results of Operations' and
the financial statements and notes thereto included elsewhere in this
Prospectus.
ALL-COMM MEDIA CORPORATION
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JUNE 30,(1) SEPTEMBER 30,(1)
------------------------ ------------------------
1995(2) 1996 1995 1996
---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
OPERATING DATA:(3)
Revenues............................................ $ 3,631 $ 15,889 $ 3,926 $ 3,932
Salaries and benefits............................... 3,139 12,712 3,162 4,953
Direct costs........................................ 102 807 130 145
Selling, general and administrative................. 1,121 1,843 387 545
Professional fees................................... 459 626 145 168
Amortization of intangible assets................... 65 362 90 96
Total operating costs and expenses.................. 4,887 16,350 3,914 5,907
Income (loss) from operations....................... (1,256) (460) 13 (1,975)
Total other income (expenses)....................... 1,200 (493) (96) (15)
Loss from continuing operations before income
taxes............................................. (56) (953) (83) (1,991)
Provision for income taxes.......................... (75) (141) (53) (4)
Loss from continuing operations before discontinued
operations........................................ (131) (1,094) (136) (1,994)
Net gain from discontinued operations............... 241 -- -- --
Net income (loss)................................... $ 110 $ (1,094) $ (136) $ (1,994)
Weighted average common and common equivalent shares
outstanding....................................... 1,807,540 3,068,278 3,016,028 3,214,884
Net income (loss) per common share(4)............... $ 0.06 $ (0.36) $ (0.05) $ (0.62)
</TABLE>
28
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 1996 SEPTEMBER 30, 1996
------------- ------------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:(3)
Cash and cash equivalents................................................ $ 1,393 $ 1,180
Working capital.......................................................... 1,651 1,580
Intangible assets at cost, net........................................... 7,851 7,755
Total assets............................................................. 13,301 11,891
Long-term obligations to related party less current portion.............. 1,517 1,342
Redeemable Convertible Preferred Stock................................... 1,306 1,667
Total stockholders' equity............................................... $ 6,945 $ 6,745
</TABLE>
- ------------
(1) SD&A had a fiscal year ending December 31 prior to its acquisition by the
Company.
(2) Reflects operations of Alliance and SD&A for the period beginning with the
Company's acquisition of Alliance on April 25, 1995.
(3) See 'Management's Discussion and Analysis of Financial Condition and Results
of Operations' for discussion of businesses discontinued and acquired in
1995.
(4) Primary and fully diluted income (loss) per common share are the same for
all periods presented. See Note 2 of Notes to Consolidated Financial
Statements of All-Comm.
METRO SERVICES GROUP, INC.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER
YEAR ENDED DECEMBER 31,(1) 30,(1)
--------------------------- ---------------------------
1994 1995 1995 1996
------------- ------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
OPERATING DATA:
Revenues..................................... $ 5,914 $ 8,096 $ 5,714 $ 5,769
Direct costs................................. 3,290 4,653 3,330 3,175
Salaries and benefits........................ 1,672 1,792 1,315 1,567
Selling, general and administrative.......... 868 899 652 746
Total operating expenses..................... 5,964 7,520 5,448 5,662
Income (loss) before provision for income
taxes...................................... (50) 576 266 107
Provision for income taxes(2)................ 7 35 16 5
Net income (loss)............................ $ (57) $ 541 $ 250 $ 101
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995(1) SEPTEMBER 30, 1996
-------------------- ------------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash.............................................................. $ 8 $ 349
Working capital (deficit)......................................... 178 (40)
Total assets...................................................... 2,505 2,536
Total shareholders' equity (deficit).............................. $ 235 $ 106
</TABLE>
- ------------
(1) Metro had a fiscal year ending December 31 prior to its acquisition by the
Company.
(2) Prior to its acquisition by the Company, Metro had elected to be taxed under
the provisions of Subchapter S of the Code and, as a result, Metro's federal
taxable income or loss and tax credits were passed through to Metro's former
shareholders. Metro's provision for income taxes resulted from income taxes
due on taxable income for states which did not recognize Metro's S
corporation status.
29
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with All-Comm's,
Metro's and SD&A's financial statements and notes thereto included elsewhere in
this Prospectus and the other financial and operating information included
elsewhere in this Prospectus. Certain statements under this caption
'Management's Discussion and Analysis of Financial Condition and Results of
Operations' constitute 'forward-looking statements' under the Reform Act. See
'Risk Factors -- Special Note Regarding Forward-Looking Statements.' For a more
complete understanding of the Company's operations, see 'Risk Factors' and
'Business.'
OVERVIEW
The Company acquired Alliance, which simultaneously acquired SD&A, on April
25, 1995. Accordingly, the Company's consolidated statements of operations and
consolidated statements of cash flows include the operations of Alliance and
SD&A starting on April 25, 1995. Because the Company's fiscal year ends on June
30 of each year, only approximately two months of Alliance's and SD&A's
operations were included in the Company's results of operations for fiscal 1995
but their results of operations for the entire year were included in fiscal
1996.
In addition, because the Company acquired Metro in October 1996, Metro's
operations are not included in any of the Company's historical consolidated
financial statements contained in this Prospectus, but are included separately.
See 'Index to Financial Statements.' For certain pro forma condensed combined
financial information which gives effect to the acquisition of Metro, see 'Pro
Forma Condensed Combined Financial Information.' In order to conform with
industry standards and to provide for a more meaningful comparison between the
Company's historical financial statements and such pro forma financial
information (and future financial statements), the Company has reclassified
certain accounts. See Note 2 of Notes to Consolidated Financial Statements of
All-Comm.
The Company has accounted for the acquisitions of Alliance and SD&A, and
will account for the acquisition of Metro, under the purchase method of
accounting.
During 1991, under the prior management, the Company acquired a 100%
interest in STI and changed the Company's name from Bristol Holdings, Inc. to
Sports-Tech, Inc. In 1993, the Company acquired the business of High School
Gridiron Report ('HSGR'). STI and HSGR supplied information services and
technology as well as academic, athletic and video data to high school, college
and professional coaches and student athletes. In November 1994, after a failed
business strategy, the prior management of the Company discontinued these
operations through the sale of STI and the cessation of the HSGR operation and
the Company's consolidated financial statements were reclassified to report the
net assets, operating results, gain on disposition and cash flows of these
operations as discontinued operations. In August 1995, following the
acquisitions of Alliance and SD&A, the Company again changed its name from
Sports-Tech, Inc. to All-Comm Media Corporation.
As a result of the Alliance and SD&A acquisitions and discontinued
operations, the Company's results of operations for fiscal years 1995 and 1996
are not directly comparable and the Company's historical results of operations
may not be indicative of future results.
The Company's revenues in fiscal 1995 and fiscal 1996 and for the three
months ended September 30, 1995 and 1996 consisted principally of fees earned by
the Company from telemarketing and telefundraising campaigns conducted on-site
at client locations and off-site at the Company's calling center in Berkeley,
California. Revenues from on-site campaigns are recorded when pledged cash is
received by the Company's clients. Revenues from operations at the Berkeley
calling center are recorded when the services are provided. On-site
telemarketing and telefundraising fees are generally based on an agreed upon
percentage of amounts received by a client from a campaign. Off-site fees are
typically based on an agreed upon amount per contact with a potential donor.
During fiscal 1995 and 1996 and for the three months ended September 30, 1995
and 1996, the Company's margins relating to off-site campaigns were generally
higher than margins relating to on-site campaigns.
For fiscal 1995 and 1996 and for the three months ended September 30, 1995
and 1996, salaries and benefits were the Company's principal expense category
and accounted for 86.5%, 80.0%, 80.5% and
30
<PAGE>
<PAGE>
126.0%, respectively, of revenues, and 64.2%, 77.8%, 80.8% and 83.9%,
respectively, of total operating expenses. Salaries and benefits for the three
months ended September 30, 1996 included a non-recurring, non-cash charge of
$1.7 million to compensation expense relating to options granted to two
principal executive officers. Although the Company intended that these options,
half of which are exercisable at a price of $2.50 and half of which are
exercisable at a price of $3.00, be granted as of May 30, 1996, at which time
the market price of the Common Stock was $2.50, upon further research the
Company determined that the corporate and other records relating to the grant of
such options are not consistent with the Company's intent. Based on these
records, the grant of the options was not effective until such grant was
ratified by the Board of Directors on September 26, 1996 and, prior thereto, the
agreements which purported to grant such options had no legal effect. Such
charge was incurred because the exercise price of each such option, which was
based upon the market price of the Common Stock on May 30, 1996 (the date which
the Company intended as the effective date of the grant) rather than the market
price on September 26, 1996 (the actual effective date of the grant), was lower
than the market price of the Common Stock on September 26, 1996. On December 23,
1996, in connection with the Recapitalization, half of these options exercisable
for 300,000 shares of Common Stock at an exercise price of $3.00 per share were
canceled at no cost to the Company.
Selling, general and administrative expenses were the Company's second most
significant expense category in fiscal 1995 and fiscal 1996 and for the three
months ended September 30, 1995 and 1996. Such expenses include the cost of
services the Company provides to manage its operating subsidiaries, and in
fiscal 1995 and for the three months ended September 30, 1995, its discontinued
operations. These expenses include rent, depreciation, public relations costs,
insurance premiums and costs relating to the identification and evaluation of
potential acquisitions and financing sources (excluding professional fees).
Direct costs include telephone, postage and other sales expenses relating
to the Berkeley calling center and costs associated with advertising for staff
for on-site campaigns. Professional fees include fees for outside consultants,
accountants and attorneys principally related to acquisition and financing
efforts and recurring audit and public reporting requirements.
Amortization of intangible assets relates to intangible assets acquired in
the simultaneous acquisitions of Alliance and SD&A on April 25, 1995. The
purchase prices for these acquisitions were substantially in excess of the book
value of the acquired assets. As a consequence, these acquisitions have
generated significant goodwill and have generated, and will continue to
generate, significant levels of amortization. Although amortization is a
non-cash charge, it decreases reported net income (or increases reported net
losses). Accordingly, the faster the Company expands by making such
acquisitions, the more likely it will be to incur additional amortization
charges. See Notes 2 and 3 of Notes to Consolidated Financial Statements of
All-Comm.
Interest expense for fiscal 1995 and fiscal 1996 and for the three months
ended September 30, 1995 and 1996 includes interest on indebtedness of the
Company to the former owner of SD&A (the 'SD&A Seller Debt'). See 'Certain
Transactions -- Transactions Under Current Management After Alliance
Acquisition -- Transactions With Mr. Dunn.' In 1996, interest expense also
includes amounts payable to the holders of the Series B Preferred Stock and the
Series C Preferred Stock.
As of September 30, 1996, the Company had consolidated net operating loss
carryforwards of $2.0 million which may offset future income for U.S. federal
income tax purposes. The Company incurs state income taxes on taxable income at
the subsidiary level which cannot be reduced by losses incurred at the corporate
level.
RESULTS OF OPERATIONS
The following table sets forth for the fiscal periods indicated (i)
information derived from the Company's audited historical consolidated
statements of operations for the fiscal years ended June 30, 1995 and 1996, (ii)
information derived from the Company's unaudited interim condensed consolidated
statements of operations for the three months ended September 30, 1995 and 1996
and (iii) information derived from the unaudited historical statements of
operations of Metro for the nine months ended September 30, 1995 and 1996, in
each case expressed as a percentage of revenues.
31
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
ALL-COMM MEDIA ALL-COMM MEDIA METRO SERVICES
CORPORATION CORPORATION GROUP, INC.
---------------- ---------------- ----------------
THREE MONTHS NINE MONTHS
YEAR ENDED JUNE ENDED SEPTEMBER ENDED SEPTEMBER
30, 30, 30,
---------------- ---------------- ----------------
1995 1996 1995 1996 1995 1996
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Revenues............................................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
----- ----- ----- ----- ----- -----
Salaries and benefits................................ 86.5 80.0 80.5 126.0 23.0 27.2
Direct costs......................................... 2.8 5.1 3.3 3.7 58.3 55.0
Selling, general and administrative.................. 30.9 11.6 9.8 13.9 11.4 12.9
Professional fees.................................... 12.7 3.9 3.7 4.3 2.7 3.0
Amortization of intangible assets.................... 1.8 2.3 2.3 2.4 -- --
----- ----- ----- ----- ----- -----
Total operating costs and expenses........... 134.6 102.9 99.7 150.2 95.4 98.2
----- ----- ----- ----- ----- -----
Income (loss) from operations........................ (34.6) (2.9) 0.3 (50.2) 4.6 1.8
Other income (expense)............................... 33.1 (3.1) 2.4 (0.4) -- --
Provision for income taxes........................... (2.1) (0.9) (1.4) (0.1) (0.3) (0.1)
----- ----- ----- ----- ----- -----
Income (loss) from continuing operations before
discontinued operations............................ (3.6) (6.9) (3.5) (50.7) 4.4 1.8
Net gain from discontinued operations................ 6.6 -- -- -- -- --
----- ----- ----- ----- ----- -----
Net income (loss).................................... 3.0% (6.9)% (3.5)% (50.7)% 4.4% 1.8%
----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- -----
</TABLE>
ALL-COMM MEDIA CORPORATION
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Revenues of $3,932,000 in the three months ended September 30, 1996 (the
'Current Period') increased by $6,000 over revenues of $3,926,000 in the three
months ended September 30, 1995 (the 'Prior Period'). Revenues from on-site
telemarketing and telefundraising campaigns totaled $3,417,000 and $3,421,000,
respectively, or 86.9% and 87.1% of revenues in the Current and Prior Periods,
respectively. Revenues from off-site campaigns totaled $516,000 and $505,000,
respectively, or 13.1% and 12.9% of revenues, respectively, in the Current and
Prior Periods. During the three months ended September 30, 1995 and 1996, the
Company's margins relating to off-site campaigns were generally higher than
margins relating to on-site campaigns.
Salaries and benefits of $4,953,000 in the Current Period increased by
$1,792,000 over the Prior Period total of $3,161,000. Salaries and benefits also
increased as a percentage of revenues, from 80.5% in the Prior Period, to 126.0%
in the Current Period. Telemarketing sales labor expense increased by $152,000
in the Current Period. This increase was largely due to the commencement of
on-site campaigns for new clients in the Current Period (which generally require
a higher labor expense in the early years). Off-site and administrative salaries
at SD&A increased by $58,000, the majority of which, $32,000, was attributable
to salaries of newly-hired telemarketing sales representatives to staff the
relocated and expanded Berkeley calling center, and the balance of which
included the salary of a newly-hired human resources director. These increases
were partially offset by a $68,000 reduction in parent company administrative
salaries in the Current Period as compared to the Prior Period. In addition, in
the Current Period the Company incurred a non-recurring, non-cash charge of $1.7
million to compensation expense relating to options granted to two principal
executive officers. Such charge was incurred because the exercise price of each
such option, which was based upon the market price of the Common Stock on May
30, 1996 (the date which the Company intended as the effective date of the
grant) rather than the market price on September 26, 1996 (the actual effective
date of the grant), was lower than the market price of the Common Stock on
September 26, 1996. See ' -- Overview.'
Direct costs of $145,000 in the Current Period increased by $15,000 over
direct costs of $130,000 in the Prior Period, primarily attributable to higher
telephone costs incurred for off-site campaigns.
Selling, general and administrative expenses of $545,000 in the Current
Period increased by $158,000, or 41%, over comparable expenses of $387,000 in
the Prior Period. Of the increase, $101,000 was attributable to SD&A and $57,000
to corporate administration. At SD&A, travel expense increased by $47,000 in the
Current Period principally as a result of bringing campaign managers to Los
Angeles for training on SD&A's new on-site software. Of the SD&A increase,
$11,000 was a one-time moving and additional rent expense due to relocating the
off-site calling center in August 1996 and the
32
<PAGE>
<PAGE>
remaining increase of $43,000 resulted principally from an increase in printing,
promotion and advertising expenses. At the parent company level, public
relations expenses increased by $41,000 due to the hiring of a new firm in the
Current Period. Parent company travel expenses increased by $12,000 due to
increased acquisition and financing efforts. Directors fees of $9,000 were
incurred for a September 1996 meeting; no such meeting was held in the Prior
Period. Net decreases of $5,000 resulted from reductions in director and officer
insurance premiums and other miscellaneous items.
Professional fees of $168,000 in the Current Period increased by $23,000
over professional fees of $145,000 in the Prior Period. The Current Period
included a non-recurring charge of approximately $76,000 in consulting fees
attributable to the value of warrants acquired by former consultants during the
period. The Prior Period included accounting and legal fees incurred for
finalization of issues related to prior operations of the Company.
Amortization of intangible assets of $96,000 in the Current Period
increased by $6,000 over amortization of $90,000 in the Prior Period.
Amortization of the goodwill and a covenant-not-to-compete associated with the
Alliance and SD&A acquisitions on April 25, 1995 increased in the Current Period
due to an increase in goodwill of $850,000 as of June 30, 1996 resulting from
payments made to the former owner of SD&A based on the achievement of defined
results of operations of SD&A for the year then ended.
The Company recorded a net gain of $90,000 from the sale of its undeveloped
parcel of land in Laughlin, Nevada in August 1996, which gain was recorded net
of commissions and related selling expenses.
Interest expense of $115,000 in the Current Period increased by $16,000
compared to $99,000 in the Prior Period due to amounts payable to the holders of
the Series B Preferred Stock and the Series C Preferred Stock in the Current
Period, principal payments on the SD&A seller debt and reductions in the
interest rate.
The provision for income taxes of $4,000 in the Current Period decreased by
$49,000 compared to $53,000 in the Prior Period. Despite consolidated losses
from continuing operations, the provision resulted from state and local taxes
incurred on taxable income at the operating subsidiary level which could not be
offset by losses incurred at the corporate level. As a result of the foregoing
factors, the Company's net loss increased from $136,000 (or $0.05 per share) in
the Prior Period to $1,994,481 (or $0.62 per share) in the Current Period.
ALL-COMM MEDIA CORPORATION
FISCAL YEARS ENDED JUNE 30, 1996 AND 1995
Revenues of $15.9 million in fiscal 1996 increased by $12.3 million over
fiscal 1995 revenues, principally due to the inclusion of a full year of
operations of SD&A in fiscal 1996 as compared with the period from the date of
acquisition (April 25, 1995) to June 30, 1995 in fiscal 1995. Fiscal 1996
revenues from off-site campaigns totaled $2.7 million (16.7% of revenues) and
revenues from on-site telemarketing and telefundraising campaigns totaled $13.2
million (83.3% of revenues). During fiscal 1995 and 1996, the Company's margins
relating to off-site campaigns were generally higher than margins relating to
on-site campaigns.
Salaries and benefits of $12.7 million in fiscal 1996 increased by $9.6
million over salaries and benefits of $3.1 million in fiscal 1995, principally
due to the inclusion of a full year of operations of SD&A in fiscal 1996. As a
percentage of revenues, however, salaries and benefits declined from 86.5% to
80.0% because, in fiscal 1995 and fiscal 1996, the Company had a full year of
administrative salaries and benefits at the corporate level (including
administrative salaries and benefits associated with the Company's former
management prior to the acquisition of Alliance) but only approximately two
months of revenues from the operations of SD&A in fiscal 1995.
Direct costs of $0.8 million in fiscal 1996 increased by $0.7 million over
direct costs of $0.1 million in fiscal 1995, principally due to the inclusion of
costs associated with the Berkeley calling center operations for all of fiscal
1996 as well as $0.2 million in costs associated with advertising for staff for
on-site campaigns in fiscal 1996.
33
<PAGE>
<PAGE>
Selling, general and administrative expenses of $1.8 million in fiscal 1996
increased by $0.7 million, or 64.4%, over $1.1 million of such expenses in
fiscal 1995, principally due to the inclusion of a full year of operations of
SD&A in fiscal 1996. Professional fees of $0.6 million in 1996 increased by
$166,323, or 36.2%, over professional fees of $0.5 million in fiscal 1995,
principally due to legal and accounting fees incurred in connection with the
evaluation of potential acquisitions and financing sources.
Amortization of intangible assets of $0.4 million in fiscal 1996 increased
by $0.3 million over amortization of approximately $65,000 in fiscal 1995, due
to the amortization of the goodwill and a covenant-not-to-compete associated
with the Alliance and SD&A acquisitions on April 25, 1995.
The Company had other expense of $0.5 million in fiscal 1996 compared to
other income of $1.2 million in fiscal 1995, a decrease of $1.7 million,
principally due to increases in fiscal 1996 interest expense related to the SD&A
Seller Debt. In fiscal 1995, the Company had nonrecurring net gains from sales
of securities of $1.6 million, which were partially offset by a loan commitment
fee of $0.3 million in connection with the original purchase of such securities.
See 'Certain Transactions -- Transaction Under Former Management Prior to
Alliance Acquisition -- Florida Gaming Corporation Loan.'
The provision for income taxes in fiscal 1996 of $141,000 increased by
approximately $66,000, or 88.1%, over the provision for income taxes of $75,000
in 1995. The provision for income taxes increased, despite losses from
continuing operations, as a result of state and local taxes incurred on taxable
income at the operating subsidiary level. Under applicable tax law, such taxes
at the operating subsidiary level could not be offset by losses incurred at the
corporate level.
The gain on sale of, and loss from, discontinued operations in fiscal 1995
relates to the STI and HSGR operations which were either sold or closed in
fiscal 1995 as a condition precedent to the acquisition of Alliance. No amounts
related to discontinued operations were incurred in fiscal 1996.
As a result of the foregoing factors, the Company had a net loss of $1.1
million in fiscal 1996 as compared to net income of $0.1 million in 1995.
METRO SERVICES GROUP, INC.
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Metro generates revenues from the development and marketing of
information-based services used primarily in direct marketing programs and
fundraising campaigns. These services, which are usually integrated, include:
(i) database management, which includes updating and maintaining client
databases; (ii) data processing; (iii) list services; and (iv) as an ancillary
service (through outsourcing), creating, printing and mailing of brochures. See
'Business -- Services.' Metro recognizes revenues as services are performed.
Revenues of $5.8 million for the first nine months of 1996 increased by $55,000,
or 1.0% compared to $5.7 million for the first nine months of the prior year,
notwithstanding the loss of Metro's two largest clients. Such clients were to be
acquired by other firms during the first quarter of 1996 and, as a result, no
longer required Metro's services. On a combined basis, those two clients
accounted for 17.0%, 13.1% and 2.0% of Metro's revenues for the year ended
December 31, 1995 and the nine months ended September 30, 1995 and 1996,
respectively. The loss of such revenues in the first nine months of 1996 was
offset by $0.8 million in revenues from new clients during the same period.
Subsequent to June 30, 1996, one such client resumed business with Metro after
its proposed acquisition was not consummated.
Salaries and benefits of $1.6 million for the nine months ended September
30, 1996 increased by approximately $0.3 million, or 19.2%, compared to $1.3
million for the first nine months of the prior year. The increase was primarily
due to staffing increases in the 1996 period in connection with anticipated
client activity as well as the opening of a Los Angeles sales office.
Direct costs for Metro are principally the costs of lists and other data
purchased for clients from third parties. Direct costs for Metro also include
commissions payable to third party list owners for lists rented to clients, as
well as printing and fulfillment costs incurred on behalf of clients. Direct
costs of $3.2 million for the first nine months of 1996 decreased by $155,544,
or 4.7%, from direct costs of $3.3 million for the comparable period in 1995
reflecting the approximately equal revenues in both years. As a percentage of
revenues, direct costs decreased from 58.3% to 55.0%, which levels are
consistent with historical patterns.
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Selling, general and administrative expenses for Metro are principally
comprised of rent, promotion, insurance, utilities, and postage and delivery.
Selling, general and administrative expenses of $0.8 million for the first nine
months of 1996 increased by approximately $95,000, or 14.5%, from $0.7 million
for the first nine months of 1995. The increase was principally the result of
increases in promotional expenses relating to advertising and depreciation
expenses related to fixed asset additions, partially offset by a decrease in
rent expense relating to the expiration of a lease for the Company's former
facilities which the Company had sublet at a loss.
Prior to its acquisition by All-Comm, Metro had elected to be taxed under
the provisions of Subchapter S of the Code and, as a result, Metro's federal
taxable income or loss and tax credits were passed through to Metro's former
shareholders. Metro's provision for income taxes resulted from income taxes due
on taxable income for states which did not recognize Metro's S corporation
status.
Primarily as a result of the foregoing factors, Metro had net income of
approximately $80,000 for the first nine months of 1996 compared to net income
of approximately $0.2 million for the first nine months of 1995.
METRO SERVICES GROUP, INC.
YEARS ENDED DECEMBER 31, 1995 AND 1994
Revenues of $8.1 million in 1995 increased by $2.2 million, or 36.9%, over
revenues of $5.9 million in 1994, principally due to increases in revenues from
database management and list brokerage, and increasing penetration of the
financial services sector. In 1995, 17.0% of Metro's revenues were generated by
two clients as compared to 10.9% in 1994.
Salaries and benefits of $1.8 million in 1995 increased by $0.1 million, or
7.2%, over $1.7 million in 1994, principally due to merit pay increases in 1995.
As a percentage of revenues, however, salaries and benefits decreased from 28.3%
in 1994 to 22.1% in 1995, principally due to Metro's limiting its hiring
activities in 1995 to active projects rather than hiring in anticipation of
growth as had been done in 1994.
Direct costs of $4.7 million in 1995 increased by $1.4 million, or 41.4%,
from direct costs of $3.3 million in 1994, principally as a result of the
related increases in revenues. As a percentage of revenues, however, direct
costs increased from 55.6% in 1994 to 57.5% in 1995, which levels are consistent
with historical patterns.
Selling, general and administrative expenses of $0.9 million in 1995
increased by approximately $31,000, or 3.6%, compared to the 1994 level, due in
part to increased travel and entertainment expenses associated with the growth
of Metro's out-of-state business.
Prior to its acquisition by All-Comm, Metro had elected to be taxed under
the provisions of Subchapter S of the Code and, as a result, Metro's federal
taxable income or loss and tax credits were passed through to Metro's former
shareholders. Metro's provision for income taxes resulted from income taxes due
on taxable income for states which did not recognize Metro's S corporation
status.
Principally as a result of the foregoing factors, the Company had net
income of $0.5 million in 1995 compared to a net loss of approximately $57,000
in 1994.
LIQUIDITY AND CAPITAL RESOURCES
ALL-COMM MEDIA CORPORATION
The parent company's assets consist primarily of the stock of its
subsidiaries. At September 30, 1996 and June 30, 1996, on a consolidated basis,
the Company had cash and cash equivalents of $1.2 million and $1.4 million,
respectively, and accounts receivable, net of allowances for doubtful accounts,
of $1.9 million and $2.7 million, respectively. On August 16, 1996, the Company
sold its land in Laughlin, Nevada for $1.0 million in cash.
The Company generated losses from operations of $1.3 million in fiscal
1995, $0.5 million in fiscal 1996, and $2.0 million in the Current Period. These
losses in the Current Period were due, in part, to a non-recurring, non-cash
charge of $1.7 million to compensation expense relating to options granted to
two principal executive officers incurred by the Company. Such charge was
incurred because the exercise price of each such option, which was based upon
the market price of the Common
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Stock on May 30, 1996 (the date which the Company intended as the effective date
of the grant) rather than the market price on September 26, 1996 (the actual
effective date of the grant), was lower than the market price of the Common
Stock on September 26, 1996. See ' -- Overview.' In April 1996, at the parent
company level, the Company was unable to satisfy its payroll and other
compensation obligations solely as a result of the prohibition on the
upstreaming of cash from SD&A contained in the operating covenants agreement,
terminated in June 1996, with Mr. Dunn, the seller of SD&A. The Company met
these and its other liquidity requirements in fiscal 1995 and 1996 and the
Current Period principally through financing activities in the form of private
placements of Common Stock, preferred stock and warrants. In the Current Period,
$0.5 million was used in the Company's financing activities. In fiscal 1996, the
Company's financing activities provided $1.6 million. See Note 13 of Notes to
Consolidated Financial Statements of All-Comm. At June 30, 1996, SD&A had a $0.5
million line of credit with a bank, which was fully drawn at such date. During
the Current Period, the Company repaid $0.4 million on the line. The Company is
exploring the possible replacement of such line of credit with a larger credit
facility with a different institution. No assurance can be given that the
Company will be able to obtain such a replacement credit facility, or that any
such replacement credit facility will be larger than the existing facility.
The Company used $0.4 million in cash for operating activities in the
Current Period. Due to seasonal decreases in revenues and certain related
expenses between the fourth and first fiscal quarters, at September 30, 1996,
accounts receivable relating to the SD&A operation decreased $0.8 million and
trade accounts payable and accrued liabilities decreased $0.9 million compared
to levels at June 30, 1996, respectively. In part due to certain seasonal
marketing patterns and subscriptions, revenues are expected to decrease during
the second and third fiscal quarters. However, starting in October 1996, the
Company will recognize the results of operations of Metro. The fourth calendar
quarter, which is the Company's second fiscal quarter, has historically been
Metro's strongest. The Company cannot predict the degree to which, on a
consolidated basis, these trends will continue.
In fiscal 1996, the Company used $0.9 million in cash for operating
activities, principally due to net losses incurred during the first full year
following the acquisition of SD&A. While the SD&A operations generated both
income from operations and net income during fiscal 1996, such amounts were
offset by legal, accounting and other expenditures of approximately $1.4 million
incurred by the parent company in connection with the implementation of the
Company's business strategy, including identification and evaluation of
potential acquisitions and financing sources, and obligations associated with a
prior registration statement and other remaining obligations associated with the
activities of the prior management. The Company's management has satisfied
substantially all known remaining payment obligations arising from activities of
the prior management. Additional cash used in fiscal 1996 resulted from an
increase in accounts receivable at SD&A of $0.6 million due to increases in
sales.
In the Current Period, net cash of $0.6 million was provided from investing
activities. In fiscal 1996, the Company used $0.6 million in investing
activities, most of which ($0.425 million) was a contingent cash payment to Mr.
Stephen Dunn, the former shareholder and current President of SD&A, as a result
of SD&A's meeting specified financial targets with respect to such fiscal year.
Capital expenditures in fiscal 1996 of $0.1 million were principally leasehold
improvements to increase the usable space at SD&A's offices. The Company moved
its Berkeley calling center in August 1996 at a cost of approximately $0.1
million. Purchases of property and equipment of $0.2 million resulted primarily
from the Company's relocation and expansion of its Berkeley calling center in
August 1996. The Company intends to refinance approximately $0.14 million of the
expansion and relocation costs through bank borrowings under SD&A's credit
facility.
On April 25, 1995, Alliance and SD&A were acquired for 1,025,000 shares of
Common Stock valued at $2.7 million plus approximately $0.5 million of
acquisition costs. Liabilities assumed as a result of such acquisitions totaled
$6.7 million including the SD&A Seller Debt in the original aggregate principal
amount of $4.5 million, payable with interest at prime over a four year period.
Payments due in fiscal 1996 on the SD&A Seller Debt originally totaled $1.5
million, payable in quarterly installments. Additional contingent payments of up
to $0.85 million per year over the three year period ending June 30, 1998 may be
required to be made to Mr. Dunn based on achievement of defined results of
operations of SD&A. At the Company's option, up to one half of the additional
contingent payments may be made with restricted Common Stock of the Company
subject to certain registration rights.
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SD&A achieved its defined results of operations during fiscal 1996 and $0.425
million was paid in cash and $0.425 million accrued in stock, as of June 30,
1996. See 'Certain Transactions -- Transactions Under Current Management After
Alliance Acquisition -- Transactions with Mr. Dunn.'
In October 1995, the Company increased its cash balances by entering into
an option agreement whereby, in consideration of a cash payment to the Company
of $0.15 million, an unaffiliated third party was granted an option to purchase
the Company's undeveloped land in Laughlin, Nevada, for $2.0 million. The option
agreement expired on April 8, 1996, and was extended until July 8, 1996. The
Company bought back the option in July 1996 for $0.15 million, pursuant to a put
provision in the option agreement. On August 16, 1996 the land was sold to
another unaffiliated third party, by auction, for $1.0 million in cash. The
Company received proceeds of $0.9 million from the sale, net of commissions and
related selling expenses.
In June 1996, the Company completed a private placement with certain
accredited investors of 6,200 shares of Series B Preferred Stock for $3.1
million and 2,000 shares of Series C Preferred Stock for $1.0 million.
In addition, the Company issued warrants to the holders of the Series B
Preferred Stock to purchase a total of 3,100,000 shares of Common Stock at an
exercise price of $2.50 per share exercisable for three years, starting with and
subject to the availability of shares following stockholder authorization of
additional common shares. The Company also issued warrants to holders of the
Series C Preferred Stock to purchase 3,000,000 shares of Common Stock at an
exercise price of $3.00 per share exercisable for three years, starting with and
subject to the availability of shares following stockholder authorization of
additional common shares.
The proceeds of the sale of Series B Preferred Stock and the Series C
Preferred Stock were used by the Company to pay approximately $2.0 million on
account of the SD&A Seller Debt. The remaining $2.1 million of long-term
obligations to Mr. Dunn are payable in 36 monthly principal payments of $58,333
plus interest at 8%, beginning September 19, 1996. In June 1996, the Company
paid $0.8 million in connection with the repurchase of 10,000 shares of
previously outstanding Series A Preferred Stock issued in the private placement
in May 1996. The balance of the proceeds are being used for working capital and
general corporate purposes.
Due to contingent payments earned as of June 30, 1996 based on SD&A's
earnings, amortization expense will increase by $22,000 in fiscal 1997.
Additional contingent payments may be due at the end of fiscal 1997 and 1998,
which will continue to increase amortization expense in subsequent years. Also,
the acquisition of Metro in October 1996 will result in increased amortization
expense during fiscal 1997, currently estimated to be $0.3 million in fiscal
1997.
Due to prepayment and restructuring in June 1996, interest on the SD&A
Seller Debt will decrease significantly in fiscal 1997. See 'Certain
Transactions -- Transactions Under Current Management After Alliance
Acquisition -- Transactions with Mr. Dunn.'
In July 1996, All-Comm publicly announced the proposed acquisition of
Metro. The announcement contained a forward-looking statement that the Company
expected Metro's revenues 'to be comfortably in excess of $10.0 million for the
fiscal year ending June 30, 1997.' Such forward-looking statement is only an
estimate and is not a guarantee of future results. Metro's revenues for such
year may vary from the estimate and such variations may be material. Numerous
factors, many of which are beyond the Company's control, could cause Metro's
actual revenues for such year to be materially different from those expected at
the time of the public announcement. Such factors include those listed under the
heading 'Risk Factors,' in particular those under the subheadings 'Limited
Operating History; Absence of Combined Operating History; Lack of Consolidated
Profitable Operations,' 'Risks Associated with Acquisition and Growth Strategy,'
'Lack of Long-Term Contracts,' 'Government Regulation and Privacy Issues,'
'Rapid Technological Change,' 'Risk of Equipment Failure,' 'Cyclicality,'
'Competition,' 'Dependence upon Key Personnel' and 'Dependence on Relationships
with Data Compilers.'
In October 1996, in connection with the Metro acquisition, the Company
issued promissory notes to the former shareholders of Metro in an aggregate face
amount of $1.0 million. Such notes bear interest at 6% per annum, are scheduled
to mature June 30, 1998 and are convertible at the option of
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the holders thereof into 185,874 shares of Common Stock. The Company intends to
repay such notes out of the proceeds of the Underwritten Offering. See 'Use of
Proceeds.'
In December 1996, in connection with the Recapitalization, the Company
issued promissory notes to the former holders of the Series C Preferred Stock in
an aggregate principal amount of $1.0 million. Such notes bear interest at 8%
per annum and are payable on demand at any time from and after the date of
consummation of the Underwritten Offering, or any other underwritten public
offering of Common Stock, and in any event mature June 7, 1998. The Company
intends to repay such notes out of the proceeds of the Underwritten Offering.
See 'The Recapitalization' and 'Use of Proceeds.'
The Company believes that the net proceeds of the Underwritten Offering and
funds available from operations, including the operations of Metro, and from the
August 1996 sale of the Laughlin, Nevada land should be adequate to finance its
operations and enable the Company to meet interest and debt obligations through
its fiscal year ending June 30, 1998. In conjunction with the Company's
acquisition and growth strategy, additional financing may be required to
complete such acquisitions and to meet potential contingent acquisition
payments. There can be no assurance, however, that such capital, if required,
will be available on terms acceptable to the Company, if at all. See 'Risk
Factors -- Possible Need for Additional Financing.'
The Company generated losses due, in part, to costs in fiscal 1995 and 1996
and in the first quarter of fiscal 1997 associated with increased legal,
accounting and administrative expenses related to identifying, evaluating and
negotiating potential acquisitions consistent with the Company's growth strategy
and with the obtaining of financing for such acquisitions, some of which
acquisitions were never consummated. Although expenses related to the Company's
growth strategy are likely to continue as the Company pursues new acquisitions,
the Company believes that by implementing a plan to reduce overhead and
administrative expenses and by including earnings generated by Metro and
increasing earnings generated by SD&A, which reported net income of $0.4 million
and $1.2 million, respectively, for the year ended June 30, 1996 (which in the
case of Metro is unaudited), the Company has the ability to become profitable.
No assurance can be given as to whether or when the Company will be able to
attain profitability.
The Company will incur a non-recurring non-cash charge estimated to be
$75,000 in the fiscal quarter in which the Underwritten Offering is consummated,
as a result of the issuance by the Company of warrants exercisable for an
aggregate of up to 160,414 shares of Common Stock to certain stockholders of the
Company as consideration for the agreement of such stockholders to certain
lock-up arrangements. The estimated charge is based on the estimated fair value
of such warrants. Such warrants are exercisable at an exercise price equal to
the initial price to public of the Common Stock in the Underwritten Offering
(except in the case of warrants exercisable for an aggregate of up to 9,386
shares of Common Stock to be issued to two stockholders, the exercise price of
which is $1.00 above such initial price to public). In addition, up to 5,380,927
shares of Common Stock are issuable upon exercise of certain options, warrants
or other contractual rights, depending on the extent to which the Underwriters'
over-allotment options are exercised, if at all. Although no assurance can be
given that any of such options, warrants or other contractual rights will or
will not be exercised in whole or in part or at all, if all of such options,
warrants and other contractual rights having exercise prices at or below the
assumed price to public for the Common Stock of $5 per share were exercised, the
aggregate proceeds to the Company resulting therefrom would be approximately
$11.5 million. The Company expects that it would use such proceeds, if any, for
general corporate purposes, including possible future acquisitions.
METRO SERVICES GROUP, INC.
Metro's primary source of working capital is cash provided by operating
activities. In the year ended December 31, 1995 and the first nine months of
1996, Metro generated cash from operating activities of approximately $39,000
and $0.7 million, respectively. The cash provided by operating activities in the
first nine months of 1996 was generated largely from increases in collections of
accounts receivable. Metro's days revenue in accounts receivable, which
typically ranges from 70 days to 100 days, is expected to continue and is not
expected to significantly impact the Company's liquidity. Cash at
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September 30, 1996 was approximately $0.3 million. Metro had no committed lines
of credit at such date and does not have any current plans to obtain any such
commitment.
Metro's capital expenditures consist primarily of computer hardware,
software and related equipment and office equipment. Investments in such fixed
assets in 1995 and the first nine months of 1996 were approximately $43,000 and
$0.2 million, respectively, including a purchase of computer equipment under a
capital lease obligation. Metro expects to receive from All-Comm between $1.7
million and $2.0 million of the net proceeds of the Underwritten Offering for
investments in such fixed assets, principally computer hardware and software.
Prior to its acquisition by All-Comm, Metro had elected to be taxed under
the provisions of Subchapter S of the Code and, as a result, Metro's federal
taxable income or loss and tax credits were passed through to Metro's former
shareholders. Metro's provision for income taxes resulted from income taxes due
on taxable income for states which did not recognize Metro's S corporation
status. In addition, in order to permit its shareholders to meet their tax
obligations resulting from Metro's 1995 operations, during the first nine months
of 1996 Metro paid dividends of approximately $0.2 million to its shareholders.
As a result of All-Comm's acquisition of Metro, Metro is no longer an S
corporation. During the first nine months of 1996, Metro advanced $50,000 to one
of its shareholders. In addition, during the first nine months of 1996, Metro
repaid a loan from a related party of $6,797. See 'Certain
Transactions -- Transactions Under Current Management After Alliance
Acquisition.'
NEW ACCOUNTING PRONOUNCEMENTS
Financial and Accounting Standards Board ('FASB') Statement of Financial
Accounting Standards No. 121, 'Accounting for the Impairment of Long-Lived
Assets for Long-Lived Assets to be Disposed of,' which is effective for
financial statements for fiscal years beginning after December 15, 1995, is not
anticipated to have a material effect on the Company's consolidated financial
statements.
Statement of Financial Accounting Standards No. 123, 'Accounting for
Stock-Based Compensation' ('SFAS 123'), which is effective for financial
statements for fiscal years beginning after December 15, 1995, establishes new
financial accounting and reporting standards for stock-based compensation plans.
Entities will be allowed to measure compensation cost for stock-based
compensation under SFAS 123 or APB Opinion No. 25, 'Accounting for Stock Issued
to Employees.' The Company has elected to continue the accounting treatment of
such compensation pursuant to APB Opinion No. 25. However, effective for fiscal
1997 the Company is required to make pro forma disclosure of net income and
earnings per share as if the provisions of SFAS 123 had been applied.
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BUSINESS
All-Comm provides database management services, custom
telemarketing/telefundraising services and other direct marketing services to a
diverse group of approximately 600 clients located throughout the United States.
These services include customer and market data analysis, database creation and
analysis, data warehousing, merge/purge, predictive behavioral modeling, list
processing, brokerage and management, data enhancement, other direct marketing
information services and custom outbound telemarketing/telefundraising services.
The Company believes its expertise in applying these direct marketing tools
increases the productivity of its clients' marketing expenditures.
The Company's services have enabled it to become a leading provider of
direct marketing services to performing arts and cultural institutions in the
United States. The Company's clients include Lincoln Center for the Performing
Arts, Kennedy Center for the Performing Arts, Art Institute of Chicago, Carnegie
Hall, New York Philharmonic, Los Angeles Philharmonic, Boston Symphony, New York
University, UCLA and numerous public broadcasting stations. In addition, the
Company renders database management and direct marketing services to such
commercial clients as Crain Communications, The CIT Group, 3Com Corporation,
Mitsubishi Electronics and UNOCAL. Since January 1996, the Company has begun
providing services to new clients including Walt Disney Company, Avery Dennison,
and Countrywide Insurance.
The Company utilizes industry specific knowledge and proprietary database
software applications to produce customized data management and direct marketing
solutions. The Company's telemarketing/telefundraising services are conducted
both on-site at client-provided facilities and also at the Company's calling
center in Berkeley, California. The Company seeks to become an integral part of
its clients' marketing programs and foster long-term client relationships
thereby providing recurring revenue opportunities.
THE DIRECT MARKETING INDUSTRY
Overview. Direct marketing is used for a variety of purposes including
lead-generation, prospecting for new customers, enhancing existing customer
relationships, exploring the potential for new products and services and
establishing new products. Unlike traditional mass marketing aimed at a broad
audience and focused on creating image and general brand or product awareness,
successful direct marketing requires the identification and analysis of
customers and purchasing patterns. Such patterns enable businesses to more
easily identify and create a customized message aimed at a highly defined
audience. Previous direct marketing activity consisted principally of direct
mail, but now has expanded into the use of multiple mediums including
telemarketing, print, television, radio, video, CD-ROM, on-line services, the
Internet and a variety of other interactive marketing formats.
The success of a direct marketing program is the result of the analysis of
customer information and related marketing data. Database management
capabilities allow for the creation of customer lists with specific,
identifiable attributes. Direct marketers use these lists to customize messages
and marketing programs to generate new customers whose purchasing patterns can
be statistically analyzed to isolate key determinants. In turn, this enables
direct marketers to continually evaluate and adjust their marketing programs, to
measure customer response rates in order to assess returns on marketing
expenditures and to increase the effectiveness of such marketing programs.
Database management covers a range of services, including general marketing
consultation, execution of marketing programs and the creation and development
of customer databases and sales tracking and data analysis software. Data
analysis software consolidates and analyzes customer profile information to find
common characteristics among buyers of certain products. The results of such
tracking and analysis are used to define and match customer and product
attributes from millions of available database files for future direct marketing
applications. The process is one of continual refinement, as the number of
points of contact with customers increases, together with the proliferation of
mediums available to reach customers.
Telemarketing/telefundraising projects generally require significant
amounts of customer information supplied by the client or third party sources.
Custom telemarketing/ telefundraising programs seek to maximize a client's
direct marketing results by utilizing appropriate databases to communicate with
a
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specific audience. This customization is often achieved through sophisticated
and comprehensive data analysis which identifies psychographic, cultural and
behavioral patterns in specific geographic markets.
Industry Growth. The use of direct marketing has increased over the last
few years due in part to the relative cost efficiency of direct marketing
compared to mass marketing, as well as the rapid development of more powerful
and more cost-effective information technology and data capture capabilities.
According to industry sources, over the next decade, demographic shifts and
changes in lifestyle, combined with new marketing mediums, are expected to
create higher demand by businesses for marketing information and services to
provide businesses with direct access to their customers and a more efficient
means of targeting specific audiences and developing long-term customer
relationships. According to the DMA, expenditures for direct marketing services
in 1995 were approximately $134.0 billion, the largest component of which, $54.1
billion, was attributable to telemarketing. The DMA has estimated that annual
telemarketing expenditures may grow to $78.9 billion by the year 2000.
Corporate marketing departments often lack the technical expertise to
create, manage and control highly technical aspects of the direct marketing
process. As a result, the Company believes that there is a growing trend among
direct marketers to outsource direct marketing programs.
Industry Consolidation. The direct marketing industry is extremely
fragmented. According to industry sources, there are almost 11,000 direct
marketing service and database service businesses in the United States. The
Company believes that most of such businesses are small, specialized companies
which offer limited services. However, industry consolidation has increased in
the last few years resulting in a greater number of large companies providing
services similar to those provided by the Company. See ' -- Competition.' The
Company believes that much of this consolidation is due to: (i) economies of
scale in hardware, software and other marketing resources; (ii) cross-selling of
services; and (iii) coordinating various components of direct marketing and
media programs within a single, reliable environment. The Company believes these
trends are likely to continue due in part to client demand for more
cost-effective service to perform increasingly complex functions.
GROWTH STRATEGY
As clients for the Company's services demand more sophisticated database
management services, custom telemarketing/telefundraising services and other
direct marketing services, the Company believes there are significant growth
opportunities to expand its business. Accordingly, the key elements of the
Company's growth strategy are as follows:
Expand the Range of Services Offered and Cross-Selling. The Company intends
to offer a wider range of direct marketing services while maintaining its
current level of quality and performance. To effect this strategy, the Company
will focus on assembling a spectrum of direct marketing services, including
expanding outbound custom telemarketing/telefundraising services, market
research, training, marketing, consulting and database management services as
well as an array of ancillary services. These services include electronic and
other multimedia mediums, including the Internet, for inclusion within a
client's marketing programs. The Company intends to utilize its technological
and industry expertise to provide flexible integrated solutions to meet clients'
specialized requirements and to improve coordination between database
capabilities and value-added premium telemarketing services.
Expand Market Penetration. The Company intends to capitalize on core
competencies and industry specific expertise, particularly in the performing
arts and cultural markets, which it believes will enable it to maintain a
competitive advantage. For example, the live entertainment and events marketing
industry spends substantial amounts on advertising and direct marketing programs
which utilize many of the Company's services, such as audience analysis,
customer profiling, database creation and management, list processing services,
telemarketing and direct marketing support. The Company believes its expertise
in database management and custom telemarketing will permit it, over time, to
gain a larger market share.
In addition, the Company believes that its developed expertise and
experience, as well as its broad and well-known client base and quality service,
will enable it to gain further acceptance in such industries as publishing, live
entertainment and events marketing, public broadcasting, financial services
(including credit card, home mortgage and home equity services), education,
travel and leisure and healthcare.
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Develop Existing and Create New Proprietary Software and Database
Management Applications. The Company intends to continue to develop existing and
new proprietary customized data processing software products and services that
allow enhancement of a client's direct marketing databases. These software
products and services also improve the effectiveness of telemarketing programs
and the management of client information. The Company intends to continue to
expand its direct marketing service offerings, particularly with software
designed to create and manage large relational and/or multidimensional
databases, and its ability to integrate such data with different marketing
programs developed in collaboration with its clients.
Increase Capacity for Telemarketing/Telefundraising Services; Enhance
On-Site Data and Calling Systems. The Company has recently expanded its calling
center in Berkeley, California to accommodate more calling stations and upgraded
technology in order to increase revenues, improve margins and increase
efficiency. The Company intends to implement similar technological improvements
at on-site locations through new technology configurations and software systems
that link information with client databases and direct marketing programs and to
further upgrade both the Berkeley calling center and other on-site locations as
needed.
Pursue Strategic Acquisitions, Joint Ventures and Marketing Alliances. The
Company believes that as the direct marketing industry consolidates, breadth of
skills, industry knowledge and size will become critical. As a result, the
Company intends to expand its capabilities to increase industry knowledge and
help clients to improve returns on marketing expenditures. Although the Company
has not specifically identified any particular geographic market, the Company
believes it can enter new geographic markets and increase penetration of
targeted industries by acquiring companies with clients in such new geographic
markets whose business focus will complement and/or expand the Company's current
range of services. As a result, the Company seeks and is considering
acquisitions in order to enlarge core competencies in database management and
custom telemarketing/telefundraising services and to increase its potential for
cross-selling and providing other direct marketing services. No agreement,
definitive or otherwise, has been reached with respect to any acquisition
currently being considered and no assurance can be given that the Company will
complete either the acquisitions under consideration or any other acquisition,
or that any acquisition, if completed, will be successful. See 'Risk Factors --
Risks Associated with Acquisition Strategy.'
The Company also intends to continue to grow internally by investing in
systems, technology and personnel development to enable clients to utilize,
within a single environment, various services such as database creation, data
warehousing, database management and decision support capabilities, list
processing, modeling, and response measurement and analysis. Because these
services provide the fundamental support systems for direct marketing and media
selection processes, the Company seeks to expand its base of technology.
SERVICES
The Company's operating businesses provide comprehensive database
management services, custom telemarketing/telefundraising services and other
direct marketing services. The principal advantages of these customized services
include: (i) the ability to expand and adapt a database to the client's changing
business needs; (ii) the ability to have services operate on a flexible basis
consistent with the client's goals; and (iii) the integration with other direct
marketing services of database management services and list processing services,
which is necessary to keep a given database current. Some services offered by
the Company are described below.
Database Management Services. The Company's database management services
begin with database creation and development. This includes both the planning
stages and analytical processes to review all of the client's customer and
operational files. Utilizing both proprietary and commercial software, the
Company consolidates all of the separate information and relationships across
multiple files and converts the client's raw information into a consolidated
format. Once the client's customer data is consolidated and the database
created, the data is enhanced using a wide selection of demographic, geographic,
census and lifestyle information for over 95 million households and 153 million
individuals to identify patterns and probabilities of behavior. The Company
licenses this information from a variety of leading data compilers. See 'Risk
Factors -- Dependence on Relationships with Data Compilers.'
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The combination of each client's proprietary customer information with
external data files provides a customized profile of a client's customer base,
enabling the client, through the use of the Company's behavior modeling and
analysis services, to design a direct marketing program for its customers.
Through the development of a scoring model, the client can segment its database
and determine its best customers and prospects in each marketplace. The entire
process results in a customized direct marketing program that can be targeted to
distinct audiences with a high propensity to buy the client's products or
services. Because of the dynamic nature and complexity of these databases,
clients frequently request that the Company update such databases with the
results of recent marketing programs and periodically perform list processing
services as part of the client's ongoing direct marketing efforts.
Data Processing. The Company's primary data processing service is to manage
from the Company's data center all or a portion of a client's marketing
information processing needs. After migrating a client's raw data to the
Company's data center, the Company's technology allows the client to continue to
request and access all available information from remote sites. The database can
also be verified for accuracy and overlayed with external data elements to
further identify specific consumer behavior.
Other data processing services provided include migration (takeover and
turnover) support for database maintenance or creation, merge/purge, data
overlay and postal qualification. The Company also offers on-line and batch
processing capacity, technical support, and data back-up and recovery.
List Services. List processing includes the preparation and generation of
comprehensive name and address lists which are used in direct marketing
promotions. The Company's state-of-the-art data center in New York City and
large volume processing capabilities allow the Company to meet the list
processing needs of its clients through its advanced list processing software
applications, list brokerage and list management operations. The Company
customizes list processing solutions by utilizing a variety of licensed software
products and services, such as Address Conversion and Reformat, Address
Standardization and Enhanced Merge/Purge, as well as National Change of Address
(NCOA), Delivery Sequence File and Locatable Address Conversion System. Other
licensed products include databases used for suppressions such as the DMA Mail
Preference File and the American Correctional Association Prison Suppress File.
The Company also offers an array of list acquisition techniques.
Approximately 12,000 lists are available for rental in the list industry. The
Company's account managers, most of whom are hired from existing Company
accounts, use their industry experience as well as sophisticated computer
profiles to recommend particular lists for customer acquisition campaigns. The
Company acquires hundreds of millions of records annually for customer
acquisition campaigns. The Company also manages over 75 lists for rental
purposes on behalf of list owners.
Database Product Development. To further leverage its database management
and list processing services, the Company has developed a new product using
client/server technology. The product is a scalable, three-tiered client/server
data warehouse system that provides desktop, real-time decision support and
marketing analysis to a non-technical user. This application is an intuitive,
graphical user interface tool that offers both flexibility and the ability to
access and analyze large customer files exceeding 100 million records. The
incorporation of third-party software, relational and multidimensional database
technology in an open system environment is intended to allow the Company's
clients to take advantage of the latest developments in high-speed computing,
utilizing both single and multi-processor hardware. See 'Risk Factors -- Rapid
Technological Change.'
Custom Telemarketing/Telefundraising Services. Custom
telemarketing/telefundraising services are designed according to the client's
existing database and any other databases which may be purchased or rented on
behalf of the client to create a direct marketing program or fundraising
campaign to achieve specific objectives. After designing the program according
to the marketing information derived from the database analysis, it is
conceptualized in terms of the message content of the offer or solicitation, and
an assessment is made of other supporting elements, such as the use of a direct
mail letter campaign.
Typically, a campaign is designed in collaboration with a client, tested
for accuracy and responsiveness and adjusted accordingly, after which the full
campaign is commenced. The full
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campaign runs for a mutually agreed period, which can be shortened or extended
depending on the results achieved.
An important feature of the custom telemarketing/telefundraising campaign
is that it can be implemented either on-site at a client-provided facility or at
the Company's calling center in Berkeley, California. On-site campaigns are
generally based on what is called a 'relationship' or 'affinity' sale.
Telemarketing campaigns often require multiple calls whereby a caller must be
knowledgeable about the organization and the subject matter and will seek to
engage a prospect selected from the client's database in an extended
conversation which serves to: (i) gather information; (ii) convey the offer,
describe its merits and cost, and solicit gifts or donations; and (iii) conclude
with a purchase, donation or pledge. Telefundraising from the Company's calling
center usually involves campaigns that do not use the multiple call format, but
instead use computer driven predictive dialing systems which are designed to
maximize the usage rate for all telephones as the system works through the
calling database.
Market Analysis. The Company's market research services include problem
conceptualization, program design, data gathering and results analysis. These
services are conducted through telephone, mail and focus groups. Through the use
of data capture technology, the Company is also able to obtain data from a
statistically projectable sample of market survey contacts. The Company then
tabulates and analyzes data using multi-variate statistical techniques, and
produces detailed reports to answer clients' marketing questions and suggest
further marketing opportunities.
Direct Mail Support Services. The Company's direct mail support services
include preparing and coordinating database services and custom
telemarketing/telefundraising services for use in addressing and mailing
materials to current and potential customers. The Company obtains name and
address data from clients and other external sources, processes the data to
eliminate duplicates, corrects errors, sorts for postal discounts and
electronically prepares the data for other vendors who will address pre-printed
materials.
MARKETING AND SALES
The Company's marketing strategy is to offer customized solutions to
clients' database management, telemarketing/telefundraising and other direct
marketing requirements. Historically, the Company's operating businesses have
acquired new clients and marketed their services by attending trade shows,
advertising in industry publications, responding to requests for proposals,
pursuing client referrals and cross-selling to existing clients. The Company
targets those companies that have a high probability of generating recurring
revenues because of their ongoing direct marketing needs, as well as companies
which have large customer bases that can benefit from targeted direct marketing
database services and customized telemarketing/telefundraising services.
The Company markets its database management services, custom
telemarketing/telefundraising services and other direct marketing services
through a sales force consisting of both salaried and commissioned sales
persons. In some instances, account representatives will coordinate a client's
database management, custom telemarketing/telefundraising and/or other direct
marketing needs to identify cross-selling opportunities.
Account representatives are responsible for keeping existing and potential
clients informed of the results of recent marketing campaigns, industry trends
and new developments in the Company's technical database resources. Often, the
Company develops an initial pilot program for new or potential clients to
demonstrate the effectiveness of its services. Access to data captured during
such pilot programs allows the Company and its clients to identify previously
unrecognized target market opportunities and to modify or enhance the client's
marketing effort on the basis of such information. Additionally, the Company is
able to provide its clients with current updates on the progress of ongoing
direct marketing programs.
Pricing for database management services, custom
telemarketing/telefundraising services and other direct marketing services is
dependent upon the complexity of the services required. In general, the Company
establishes pricing for clients by detailing a broad range of service options
and quotation proposals for specific components of a direct marketing program.
These quotes are based in part on the volume of records to be processed and the
level of customization required. Additionally, if the level of up-front
customization is high, the Company charges a one-time development fee. Pricing
for data
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processing services is dependent upon the anticipated range of computer resource
consumption. Typically, clients are charged a flat or stepped-up rate for data
processing services provided under multi-year contracts. If the processing time,
data storage, retrieval requirements and output volume exceed the budgeted
amounts, the client may be subject to an additional charge. Minimum charges and
early termination charges are typically included in contracts or other
arrangements between the Company and the client.
On-site telemarketing and telefundraising fees are generally based on a
mutually agreed percentage of amounts received by the Company's clients from a
campaign. Off-site fees are typically based on a mutually agreed amount per
contact with a potential donor.
PERSONNEL AND TRAINING
The Company believes that the quality and training of its employees is a
key element of client satisfaction. The Company further believes that its
strategy of recruiting personnel with industry specific experience, technical
knowledge or affinities related to the client's purpose, particularly with
respect to its custom telemarketing/telefundraising on-site calling services,
attracts a more effective work force. The Company offers in-house and on-the-job
training programs for personnel, including instruction on the nature and purpose
of the specific projects, as well as regular briefings concerning regulatory
matters and proper telemarketing and data capture techniques. Calls are
typically made from a lead provided by the client or other third party sources.
Callers are always required to identify themselves and the institution they
represent, in advance of any dialogue. Since calls are meant to be non-intrusive
and friendly, it often takes two or more calls to a customer to confirm a
transaction.
Approximately 80% of the Company's service representatives are part-time
employees who are compensated on an hourly basis with a commission and/or
performance bonus, which is typical for the telemarketing industry. The
Company's use of calling facilities provided by a client relates in part to a
high level of dedication to customer service and to the localized talent pool
found by the Company to be most effective for employee retention. As of
September 30, 1996, the Company had approximately 100 full-time employees. In
addition, during peak periods, the Company has employed as many as 1,000
part-time or temporary employees. None of the Company's employees is represented
by a labor union and the Company believes it has satisfactory relations with its
employees.
CLIENT BASE
The Company believes that its large and diversified client base is a
primary asset which contributes to stability and the opportunity for growth in
revenues. The Company has approximately 600 clients who utilize various database
management services, custom telemarketing/telefundraising services and other
direct marketing services. These clients are comprised of leading arts and
cultural institutions, advocacy groups, and commercial companies in the
publishing, live entertainment and events marketing, public broadcasting,
financial services (including credit card, home mortgage and home equity
services), education, travel and leisure and healthcare industries. No single
client accounted for more than 6% of such total revenue in fiscal 1996 or in the
three months ended September 30, 1996 on a pro forma basis.
QUALITY ASSURANCE
Each of the Company's operating businesses has consistently emphasized
service and employee training. In particular, the Company's quality assurance
program with respect to its telemarketing/telefundraising services includes the
selection and training of qualified calling representatives, the training and
professional development of call center management personnel, monitoring of
calls and sales verification and editing. Both the Company and its clients are
able to perform real time on-site and remote call monitoring to maintain quality
and efficiency. Sales confirmations may be recorded (with customer consent), and
calls may also be monitored by management personnel to verify the accuracy and
authenticity of transactions.
The Company diligently pursues its policies of good practice and has had
satisfactory experience with regulators concerning its activities. Although the
telemarketing industry has had, in certain instances, a history of abusive
practices, many of which have been targeted at the elderly or uneducated
segments of the population, the individuals targeted by the Company generally
consist of affinity group
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members who are receptive to the calls, often volunteering valuable marketing
information to the institution for which the representative is calling.
COMPETITION
The direct marketing services industry is highly competitive and
fragmented, with no single dominant competitor. The Company competes with
companies that have more extensive financial, marketing and other resources and
substantially greater assets than those of the Company, thereby enabling such
competitors to have an advantage in obtaining client contracts where sizable
asset purchases or investments are required. The Company also competes with
in-house database management, telemarketing/telefundraising and direct mail
operations of certain of its clients or potential clients.
Competition is based on quality and reliability of products and services,
technological expertise, historical experience, ability to develop customized
solutions for clients, technological capabilities and price. The Company
believes that it competes favorably, especially in the performing arts and
cultural sectors. The Company's principal competitors in the database management
services field are Acxiom, Inc., Dimac Corporation, Direct Marketing Technology,
Fair - Isaac, Inc., Harte-Hanks Communications, Inc. and May & Speh, Inc. The
Company's principal competitors in the custom telemarketing/telefundraising
field are Arts Marketing, Inc. and Ruffalo, Cody & Associates, and, with respect
to the operation of calling centers, The Share Group and Great Lakes
Communications.
COMPETITIVE STRENGTHS
Customized Premium Services. The Company believes a competitive advantage
of its services is the custom nature and value-added component it provides
within a client's overall marketing process. This customization arises from
enhancing and integrating data provided by clients to achieve the most
productive and cost-effective marketing program. The Company not only
collaborates on message content but also assists its client in identifying which
medium or mix of mediums is best suited to implement the client's marketing
program.
Long-Term Client Relationships and Recurring Revenue Streams. The Company
has approximately 600 clients and believes the reason a majority of its clients
have been clients for many years is because of the Company's ability to provide
quality services on a customized basis. The Company has been able to gain
knowledge of and experience with a client's customer base and market dynamics.
The Company seeks recurring revenues by becoming an integral part of clients'
marketing programs by offering a wide breadth of ongoing interrelated services.
Although many of the Company's arrangements with clients are entered into on a
project by project basis, it has been the Company's experience that its database
management clients cannot easily change service providers due to the breadth and
nature of the ongoing services provided. These services often become a key
element of the clients' marketing operations and there are significant costs
associated with making such a change. See 'Risk Factors -- Lack of Long-Term
Contracts.'
Continuity of Management, Industry Specific Expertise and Investment in
Technical Personnel. The Company believes that its industry focused approach
creates a competitive advantage over other providers of database management,
custom telemarketing/telefundraising services and other direct marketing
services who have a more generalized approach. The Company has hired and seeks
to hire many individuals with industry specific experience who understand the
nature of the clients' customers and the dynamics of the marketplace. The
Company considers such personnel better able to apply the Company's proprietary
software programs to meet the client's direct marketing and data processing
needs.
State-of-the-Art Technology. The Company's investment in state-of-the-art
technology has enabled it to provide quality service to clients for whom the use
of timely, accurate data is critical for the success of their direct marketing
programs. This is particularly true with respect to the Company's database
management services designed to drive higher response rates within a specific
time period allotted for a marketing program. In addition, much outsourced data
processing requires prompt turnaround time for marketing decisions.
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TECHNOLOGICAL RESOURCES AND FACILITIES
The Company maintains a state-of-the-art outbound
telemarketing/telefundraising calling center in Berkeley, California. The
Berkeley calling center increases the efficiency of its outbound calling by
using a computerized predictive dialing system supported by a UNIX-based call
processing server system and networked computers. The predictive dialing system,
using relational database software, supports 72 outbound telemarketers and
maximizes calling efficiency by reducing the time between calls for each calling
station and reducing the number of calls connected to wrong numbers, answering
machines and electronic devices. The system provides on-line real time reporting
of caller efficiency and client program efficiency as well as flexible and
sophisticated reports analyzing caller sales results and client program results
against Company and client selected parameters. The Berkeley calling center has
the capacity to serve up to 15 separate clients or projects simultaneously and
can produce 27,000 valid contacts per week (1,400,000 per year) or 3,400 calling
hours per week (176,800 per year) on a single shift basis. A valid contact
occurs when the caller speaks with the intended person and receives a 'yes,'
'no' or 'will consider' response. The existing platform can be expanded to
accommodate 100 predictive dialing stations with a single shift capacity of
approximately 1,900,000 valid contacts per year.
The Company leases all of its real property. The Company leases facilities
for its headquarters in Culver City, California. The Company also maintains
sales and service offices in New York City and Los Angeles, California, its data
center in New York City and its telemarketing calling center in Berkeley,
California. The Company's administrative office for its
telemarketing/telefundraising operations in Los Angeles, California is located
in office space leased from Mr. Dunn, which lease the Company believes is on
terms no less favorable than those that would be available from independent
third parties. See 'Certain Transactions -- Transactions Under Current
Management After Alliance Acquisition -- Transactions with Mr. Dunn.' The
Company believes that all of its facilities are in good condition and are
adequate for its current needs through fiscal 1998. However, further increases
in off-site telemarketing/telefundraising activities could necessitate the
leasing of additional space for calling center expansion. If such additional
space were to be needed, the Company believes it would be readily available at
commercially reasonable rates and on commercially reasonable terms. The Company
also believes that its technological resources, including the mainframe computer
and other data processing and data storage computers and electronic machinery at
its data center in New York City, as well as its related operating, processing
and database software, are all adequate for its current needs through fiscal
1998. Nevertheless, the Company intends to expand its technological resources,
including computer systems, software, telemarketing equipment and technical
support with proceeds from the Underwritten Offering. See 'Use of Proceeds.' Any
such expansion may require the leasing of additional operating office space.
INTELLECTUAL PROPERTY RIGHTS
The Company relies upon its trade secret protection program and
non-disclosure safeguards to protect its proprietary computer technologies,
software applications and systems know-how. In the ordinary course of business,
the Company enters into license agreements and contracts which specify terms and
conditions prohibiting unauthorized reproduction or usage of the Company's
proprietary technologies and software applications. In addition, the Company
generally enters into confidentiality agreements with its employees, clients,
potential clients and suppliers with access to sensitive information and limits
the access to and distribution of its software documentation and other
proprietary information. No assurance can be given that steps taken by the
Company will be adequate to deter misuse or misappropriation of its proprietary
rights or trade secret know-how. The Company believes that there is rapid
technological change in its business and, as a result, legal protections
generally afforded through patent protection for its products are less
significant than the knowledge, experience and know-how of its employees, the
frequency of product enhancements and the timeliness and quality of customer
support in the usage of such products.
GOVERNMENT REGULATION AND PRIVACY ISSUES
The telemarketing industry has become subject to an increasing amount of
federal and state regulation during the past five years. The TCPA limits the
hours during which telemarketers may call consumers and prohibits the use of
automated telephone dialing equipment to call certain telephone
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numbers. The TCFAPA broadly authorizes the FTC to issue regulations prohibiting
misrepresentations in telemarketing sales. The FTC's new telemarketing sales
rules prohibit misrepresentations of the cost, terms, restrictions, performance
or duration of products or services offered by telephone solicitation, prohibit
a telemarketer from calling a consumer when that consumer has instructed the
telemarketer not to contact him or her, prohibit a telemarketer from calling
prior to 8:00 a.m. or after 9:00 p.m. and specifically address other perceived
telemarketing abuses in the offering of prizes and the sale of business
opportunities or investments. Violation of these rules may result in injunctive
relief, monetary penalties or disgorgement of profits and can give rise to
private actions for damages.
While the FTC's new rules have not caused the Company to alter its
operating procedures, additional federal or state consumer-oriented legislation
could limit the telemarketing activities of the Company or its clients or
significantly increase the Company's costs of regulatory compliance.
Several of the industries which the Company intends to serve, including the
financial services, and healthcare industries, are subject to varying degrees of
government regulation. Although compliance with these regulations is generally
the responsibility of the Company's clients, the Company could be subject to a
variety of enforcement or private actions for its failure or the failure of its
clients to comply with such regulations.
In addition, the growth of information and communications technology has
produced a proliferation of information of various types and has raised many new
issues concerning the privacy of such information. Congress and various state
legislatures have considered legislation which would restrict access to, and the
use of, credit and other personal information for direct marketing purposes. The
direct marketing services industry, including the Company, could be negatively
impacted in the event any of these or similar types of legislation are enacted.
Currently the Company trains its service representatives and other
personnel to comply with the regulations of the TCPA, the TCFAPA and the FTC and
the Company believes that it is in substantial compliance with all such
regulations.
LEGAL PROCEEDINGS
The Company is, and, from time to time may be, a party to routine legal
proceedings incidental to its business. The outcome of these legal proceedings
is not expected to have a material adverse effect on the consolidated financial
condition, operating results or liquidity of the Company, based on the Company's
current understanding of the relevant facts and law.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Company's executive officers, Directors and significant employees and
their positions with the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------ --- ---------------------------------------------------------------------
<S> <C> <C>
Barry Peters........................ 56 Chairman of the Board of Directors and Chief Executive Officer
E. William Savage................... 54 Director, President, Chief Operating Officer, Secretary and Treasurer
J. Jeremy Barbera................... 40 Director and Vice President of All-Comm and President and Chief
Executive Officer of Metro
Stephen Dunn........................ 46 Vice President of All-Comm and President and Chief Executive Officer
of SD&A
Robert M. Budlow.................... 35 Vice President of All-Comm and Executive Vice President and Chief
Operating Officer of Metro
Scott A. Anderson................... 39 Chief Financial Officer
Thomas Scheir....................... 43 Vice President and Chief Operating Officer of SD&A
S. James Coppersmith................ 63 Director
Seymour Jones....................... 65 Director
C. Anthony Wainwright............... 63 Director
</TABLE>
Mr. Peters has been Chairman of the Board and Chief Executive Officer of
the Company since the acquisition of Alliance in April 1995 and has 26 years of
experience in business development and corporate finance. Prior thereto, Mr.
Peters served as Chairman and Chief Executive Officer of Alliance, which he
co-founded, since its formation in 1994. Prior to the formation of Alliance,
from 1972 to 1993, Mr. Peters served as the Managing Director of Vector
Holdings, Inc. and its predecessor companies, an investment concern which
specialized in sponsoring management groups for buyouts and restructurings of
companies including: ESB Ray-O-Vac Corp., Time, Inc., Avco/Embassy Pictures
Corp., Signal Companies, Inc., ITT Corporation, Borg-Warner Corporation and F.
Schumacher & Co., Inc.
Mr. Savage has been a Director and President, Chief Operating Officer,
Secretary and Treasurer of the Company since the acquisition of Alliance in
April 1995 and has 27 years of executive business experience with emphasis on
operations, marketing and business development. Prior thereto, he served as
President of Alliance, which he co-founded, since its formation in 1994. In
addition, Mr. Savage has been serving since 1991 as a director and as President
of Movie Theatre Associates, Inc. and Movie Theatre Holdings, Inc., a general
partner and a limited partner, respectively, of Movie Theatre Investors Ltd., an
investment partnership that owns and operates movie theatres.
Mr. Barbera has been a Director and Vice President of the Company since
October 1996 and President and Chief Executive Officer of Metro since its
formation in 1987. Mr. Barbera has 15 years of experience in data management
services, and over 20 years of experience in the entertainment marketing area.
Mr. Dunn has been Vice President of the Company since September 1996 and
has also been President and Chief Executive Officer of SD&A, which he
co-founded, since its formation in 1983. Previously, Mr. Dunn served as a
consultant for the Los Angeles Olympic Organizing Committee for the Olympic Arts
Festival, as Director of Marketing for the New World Festival of the Arts, and
as Director of Marketing for the Berkeley Repertory Theater.
Mr. Budlow has been Vice President of the Company since October 1996 and
Executive Vice President and Chief Operating Officer of Metro since 1990. He has
10 years of experience in database management services and subscription,
membership and donor renewal programs.
Mr. Anderson has been Chief Financial Officer of the Company since May 1996
and was Controller from May 1995 to May 1996 and a Director of the Company from
May 1996 to August 1996. Prior thereto, from December 1994 to April 1995, he was
associated with the accounting firm of Coopers & Lybrand L.L.P., and, from 1988
to 1994, he was a manager in the assurance department of an affiliate of the
accounting firm of Deloitte & Touche, LLP. Mr. Anderson is a Certified Public
Accountant.
Mr. Scheir has been Vice President and Chief Operating Officer of SD&A
since September 1996. Prior thereto, from 1990 to September 1996, he was Chief
Financial Officer of SD&A, and from 1983 to
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1990, he served as Business Manager of SD&A. Prior to joining SD&A, Mr. Scheir
was List Manager with the San Francisco Symphony's marketing department.
Mr. Coppersmith has been a Director of the Company since June 1996. Since
1994, Mr. Coppersmith has been Chairman of the Board of Trustees of Boston's
Emerson College. Until his retirement in 1994, he held various senior executive
positions with Metromedia Broadcasting where he managed its television
operations in Los Angeles, New York, and Boston, and served as President and
General Manager of Boston's WCVB-TV, an ABC affiliate owned by The Hearst
Corporation. Mr. Coppersmith also serves as a director for WABAN, Inc., Sun
America Asset Management Corporation, Chyron Corporation, Uno Restaurant Corp.,
Kushner/Locke, Inc., and The Boston Stock Exchange.
Mr. Jones has been a Director of the Company since June 1996. Since
September 1995, Mr. Jones has been a professor of Accounting at New York
University. Prior thereto, from April 1974 to September 1995, Mr. Jones was a
senior partner of the accounting firm of Coopers & Lybrand L.L.P. Mr. Jones has
over 35 years of accounting experience and over 10 years of experience as an
arbitrator and as an expert witness, particularly in the area of mergers and
acquisitions.
Mr. Wainwright has been a Director of the Company since August 1996 and
also served as a Director of the Company from the acquisition of Alliance until
May 1996. Prior thereto, he was a director of Alliance. Mr. Wainwright also has
been Chairman and Chief Executive Officer of the advertising firm Harris Drury
Cohen, Inc. since 1995. Prior thereto, from 1994 to 1995, he served as a senior
executive with Cordiant P.L.C.'s Compton Partners, a unit of the advertising
firm Saatchi & Saatchi World Advertising, and, from 1989 to 1994, as Chairman
and Chief Executive Officer of Campbell Mithun Esty, a unit of the advertising
firm Saatchi & Saatchi World Advertising, in New York. Mr. Wainwright also
serves as a director of Gibson Greeting, Inc., Del Webb Corporation, American
Woodmark Corporation and Specialty Retail Group, Inc.
BOARD OF DIRECTORS
Classification of Board
The Board of Directors of the Company currently consists of six members and
is divided into three classes (designated Class I, Class II and Class III).
Class I consists of Messrs. Peters and Savage, Class II consists of Messrs.
Jones and Barbera and Class III consists of Messrs. Coppersmith and Wainwright,
each of whom will serve until the annual meetings of the Company to be held for
fiscal 1996, in the case of the Class I and Class II Directors, and for fiscal
1997, in the case of the Class III Directors. At the 1996 annual meeting of the
Company, each of the Class I and Class II Directors will stand for re-election
for terms which will expire in 1998, in the case of the Class I Directors, and
1999, in the case of the Class II Directors. At each annual stockholders'
meeting, Directors nominated to the class of Directors whose term is expiring at
that annual meeting will be elected for a term of three years, and the remaining
Directors will continue in office until their respective terms expire.
Accordingly, at each annual meeting at least two of the Company's six Directors
will be elected, and each Director will be required to stand for election once
every three years. In addition, the Restated Articles provide that Directors may
only be removed upon the affirmative vote of 75% of the outstanding Common
Stock.
Compensation of Directors
Directors who are not employees of the Company currently receive an annual
retainer fee of $10,000 for serving on the Board of Directors and an annual
retainer fee of $1,500 for serving as a member of any committee thereof. Such
Directors will also be reimbursed for their reasonable expenses for attending
board and committee meetings. Any Director who is also an employee of the
Company is not entitled to any compensation or reimbursement of expenses for
serving as a Director of the Company or a member of any committee thereof.
Committees
The Board of Directors has established two directorate committees -- an
audit review committee (the 'Audit Committee'), comprised of Messrs. Coppersmith
and Jones, and a compensation committee (the 'Compensation Committee'),
comprised of Messrs. Coppersmith and Wainwright, all of whom are independent
Directors and are not eligible to receive options or other rights under any
employee stock or other benefit plan for so long as such Director is a member of
the Compensation Committee (other than the right of each such Director to
receive options exercisable for 15,000 shares
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of Common Stock granted in April of each year, if such Director is then serving
in such capacity, pursuant to a resolution adopted by the Board of Directors).
The functions of the Audit Committee are to recommend annually to the Board of
Directors the appointment of the independent public accountants of the Company,
discuss and review the scope and the fees of the prospective annual audit,
review the results thereof with the Company's independent public accountants,
review compliance with existing major accounting and financial policies of the
Company, review the adequacy of the financial organization of the Company,
review management's procedures and policies relative to the adequacy of the
Company's internal accounting controls and compliance with federal and state
laws relating to accounting practices, and review and approve (with the
concurrence of a majority of the independent Directors of the Company)
transactions, if any, with affiliated parties. The functions of the Compensation
Committee are to formulate the Company's policy on compensation of executive
officers, to review and approve annual salaries and bonuses for all officers, to
review, approve and recommend to the Board of Directors the terms and conditions
of all employee benefit plans or changes thereto, and to administer the
Company's stock option plans.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table (the 'Summary Compensation Table') provides information
relating to compensation for the fiscal years ended June 30, 1996 and June 30,
1995 for the Chairman of the Board and Chief Executive Officer, each of the
other executive officers of the Company whose compensation is required to be
disclosed by the rules and regulations of the Commission during such years as
shown in the table and, because the Company does not have four other executive
officers whose compensation is required to be so disclosed, two key employees
(collectively, the 'Named Executive Officers').
<TABLE>
<CAPTION>
FISCAL ANNUAL COMPENSATION
YEAR ----------------------------------------
ENDED OTHER ANNUAL
NAME AND PRINCIPAL POSITION JUNE 30,(1) SALARY($) BONUS($) COMPENSATION($)
- ---------------------------------- ----------- --------- -------- ---------------
<S> <C> <C> <C> <C>
Barry Peters ..................... 1996 100,626 -- --
Chairman of the Board and Chief 1995 26,442 -- --
Executive Officer
E. William Savage ................ 1996 100,626 -- --
President, Chief Operating 1995 26,442 -- --
Officer, Secretary and Treasurer
Stephen Dunn ..................... 1996 228,462 -- --
Vice President of All-Comm and 1995 42,308 -- --
President and Chief Executive
Officer of SD&A
Thomas Scheir .................... 1996 128,461 -- --
Executive Vice President of SD&A 1995 21,635 -- --
<CAPTION>
LONG-TERM COMPENSATION
--------------------------------------
AWARDS PAYOUTS
------------------------ ----------
SECURITIES
RESTRICTED UNDERLYING
STOCK OPTIONS/ LTIP ALL OTHER
NAME AND PRINCIPAL POSITION AWARDS($) SARS(#) PAYOUTS($) COMPENSATION($)
- ---------------------------------- ---------- ---------- ---------- ---------------
<S> <C> <C> <C> <C>
Barry Peters ..................... 32,058 150,000 -- --
Chairman of the Board and Chief -- -- -- --
Executive Officer
E. William Savage ................ 32,058 150,000 -- --
President, Chief Operating -- -- -- --
Officer, Secretary and Treasurer
Stephen Dunn ..................... -- 5,000 -- --
Vice President of All-Comm and -- -- -- --
President and Chief Executive
Officer of SD&A
Thomas Scheir .................... -- 12,500 -- --
Executive Vice President of SD&A -- -- -- --
</TABLE>
- ------------
(1) Prior to the acquisition of Alliance in April 1995, none of the Named
Executive Officers was an officer or employee of the Company. Therefore,
compensation for each of the Named Executive Officers is shown only for the
prior two fiscal years. In addition, because the acquisition of Alliance
took place in April 1995, the compensation shown for each of the Named
Executive Officers for the fiscal year ended June 30, 1995 reflects only two
months of compensation in such fiscal year.
In October 1996, the Company acquired Metro. Based on their current
arrangements with the Company, if Messrs. Jeremy Barbera, Vice President of the
Company and President and Chief Executive Officer of Metro, and Robert Budlow,
Vice President of the Company and Executive Vice President of Metro, had been
executive officers of the Company at the beginning of fiscal 1996, they would
have been among the most highly compensated executive officers of the Company
for such fiscal year. Based on their current arrangements with the Company, the
Company expects that Messrs. Barbera and Budlow will be among the Company's most
highly compensated executive officers for fiscal 1997. See
'Management -- Executive Compensation -- Employment Contracts.'
Stock Option Grants
The table below provides information relating to stock options granted to
the Named Executive Officers during the fiscal year ended June 30, 1996.
51
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1) POTENTIAL REALIZABLE
-------------------------------------------------------------- VALUE AT ASSUMED ANNUAL
NUMBER OF % OF TOTAL RATES OF STOCK
SECURITIES OPTIONS/SARS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM(2)
OPTIONS/SARS EMPLOYEES IN BASE PRICE($) EXPIRATION ---------------------------
NAME GRANTED(#) FISCAL YEAR(3) (PER SHARE(4)) DATE 5% 10%
- ---------------------------------- ------------ -------------- -------------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Barry Peters...................... 150,000 29% $ 2.00 12/01/02 $122,130 $ 284,615
E. William Savage................. 150,000 29% 2.00 12/01/02 122,130 284,615
Stephen Dunn...................... 5,000 1% 3.38 01/08/99 2,660 5,586
Thomas Scheir..................... 12,500 2% 2.00 12/01/02 10,178 23,718
</TABLE>
- ------------
(1) Since June 30, 1996 through the date hereof, options currently exercisable
for 300,000 shares of Common Stock have been granted to each of Mr. Peters
and Mr. Savage. On December 23, 1996, in connection with the
Recapitalization, options covering 150,000 of each such 300,000 shares were
cancelled at no cost to the Company. No other additional options have been
granted during this period to any of the Named Executive Officers.
(2) Potential realizable value was calculated using an assumed annual compounded
growth rate over the term of the option of 5% and 10%, respectively. Use of
this model should not be viewed in any way as a forecast of the future
performance of the Common Stock, which will be determined by future events
and unknown factors.
(3) During the fiscal year ended June 30, 1996, all employees and all
non-employee Directors of the Company received stock options for a total of
525,003 shares of Common Stock.
(4) Exercise price is the closing sales price of the Common Stock as reported on
The Nasdaq SmallCap MarketSM on the date of the grant.
The following table sets forth information regarding the exercise of
options during the Company's fiscal year ended June 30, 1996 and the number and
value of securities underlying unexercised stock options held by the Named
Executive Officers as of June 30, 1996.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING
UNEXERCISED VALUE OF UNEXERCISED
OPTIONS/SARS IN-THE-MONEY
AT FISCAL OPTIONS/SARS AT
YEAR FISCAL YEAR END
SHARES END(#) ($)(1)
ACQUIRED ON VALUE ------------ --------------------
EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($) UNEXERCISABLE UNEXERCISABLE
- --------------------------------------------------------- ----------- -------- ------------ --------------------
<S> <C> <C> <C> <C>
Barry Peters............................................. -- -- 150,000/0 506,250/0
E. William Savage........................................ -- -- 150,000/0 506,250/0
Stephen Dunn............................................. -- -- 5,000/0 10,000/0
Thomas Scheir............................................ -- -- 12,500/0 42,188/0
</TABLE>
- ------------
(1) Fair market value of $5 3/8 per share at June 30, 1996 was used to determine
the value of in-the-money options.
Stock Option Plan
The following summary of the material features of the 1991 Stock Option
Plan is qualified in its entirety by reference to the full text of the 1991
Stock Option Plan.
Purpose, Participants, Effective Date and Duration. On April 15, 1992 the
Company's stockholders ratified and approved the All-Comm Media Corporation
(formerly, Bristol Holdings, Inc.) 1991 Stock Option Plan (the 'Stock Option
Plan'). The purpose of the Stock Option Plan is to advance the interests of the
Company by providing an additional incentive to attract and retain qualified and
competent employees upon whose efforts and judgment the success of the Company
is largely dependent, through stock ownership in the form of options to acquire
Common Stock ('Options'). The Stock Option Plan will terminate 10 years from the
date of its adoption, unless earlier terminated by the Board of Directors.
Termination of the Stock Option Plan will not affect awards made prior to
termination, but awards will not be made after termination.
Eligibility. Officers, directors and employees of, and consultants to, the
Company, its subsidiaries and other companies in which the Company holds a
substantial ownership interest (collectively, the 'Optionees'), are eligible to
be granted Options under the Stock Option Plan. Participation is solely at the
discretion of the Option Plan Committee (as defined below under
' -- Administration').
Shares Subject to the Stock Option Plan. The total number of shares of
Common Stock that may be subject to Options under the Stock Option Plan
(including any Options granted and outstanding as of December 23, 1996) may not
exceed 1,450,000 or such other number as the Board of Directors may, in its sole
discretion, determine from time to time, of which 479,504 remain available for
issuance (the 'Reserved Shares'). These shares may be authorized but unissued
shares or treasury shares. In the event of any change in the number or kind of
Common Stock outstanding pursuant to a reorganization, recapitalization,
exchange of shares, stock dividend or split or combination of shares,
appropriate adjustments to the Reserved Shares and the number of shares subject
to outstanding grants or awards,
52
<PAGE>
<PAGE>
in the exercise price per share of outstanding Options and in the kind of shares
which may be distributed under the Stock Option Plan, will be made. Under the
Stock Option Plan, there is no maximum or minimum number of shares that may be
covered by Options granted to a single person. Shares will be deemed issued
under the Stock Option Plan only to the extent actually issued pursuant to an
award or settled in cash or shares. To the extent that an award under the Stock
Option Plan lapses or is forfeited, any shares subject to such award will again
become available for grant under the terms of the Stock Option Plan.
As of December 23, 1996, Options for 809,807 shares of Common Stock had
been granted and were outstanding under the Stock Option Plan at exercise prices
ranging from $2.00 to $16.00, and 179,504 shares of Common Stock were available
for grants of Options under the Stock Option Plan.
Administration. The Stock Option Plan is administered by a committee
appointed by the Board of Directors (the 'Option Plan Committee'). The Option
Plan Committee consists of three or more persons appointed by the Board of
Directors, each of whom may be a 'disinterested person' within the meaning of
former Rule 16b-3(d)(3) promulgated by the Staff of the Commission under the
Securities Exchange Act of 1934, as amended (the 'Exchange Act'), as such Rule
was in effect prior to May 1, 1991. Because the Board of Directors has not
appointed such an Option Plan Committee, as required by the terms of the Stock
Option Plan, the term 'Option Plan Committee' refers to the entire Board of
Directors.
Subject to the terms of the Stock Option Plan, the Option Plan Committee
has authority to:
(i) construe and interpret the provisions of the Stock Option Plan or
of any Option or Option Agreement (as defined below), adopt, amend and
rescind all rules, regulations and procedures and otherwise make any
determinations which it deems necessary or advisable for the administration
of the Stock Option Plan, such interpretations, rule making and
determinations to be final, conclusive and binding on all persons having
any interest therein;
(ii) determine who shall be granted Options;
(iii) determine the number of shares with respect to which Options
shall be granted and the exercise price per share of any Options granted;
and
(iv) subject to the terms of the Stock Option Plan, specify the terms
and conditions of any Options granted, including, without limitation, (A)
prescribing the date or dates on which an Option becomes exercisable, (B)
providing that an Option accrues or becomes exercisable in installments
over a period of years or upon the attainment of stated goals, or both, and
(C) relating an Option to the continued employment of the Optionee for a
stated period of time, provided that such terms and conditions are not more
favorable to an Optionee than those expressly permitted in the Stock Option
Plan.
Stock Options. The Option Plan Committee may grant awards to Optionees
under the Stock Option Plan solely in the form of Options. With regard to each
Option, the Option Plan Committee determines the number of shares of Common
Stock subject to the Option, the exercise price of the Option, and the manner
and time of exercise of the Option. Options granted under the Stock Option Plan
are non-qualified stock options, which are not entitled to special tax treatment
afforded 'incentive stock options,' as defined in Section 422 of the Code.
The duration of the Options granted under the Stock Option Plan may be
specified pursuant to each respective stock option agreement ('Option
Agreement'), but in no event can any Option be exercisable after the expiration
of 10 years after the date of grant. The Option Plan Committee, in its
discretion, may provide that any Option is exercisable during its entire
duration or during any lesser period of time. The option exercise price may be
paid in cash, by certified or cashier's check, by money order, surrender of
Common Stock, or a combination of the foregoing. The Stock Option Plan includes
provisions that limit the duration of an Option following the termination of
employment of an Optionee for a reason other than death, disability (as defined)
or cause (as defined) and that terminate
unexercised Options upon termination of the Optionee's employment for cause (as
defined). The resale of securities obtained under the Stock Option Plan is
subject to limitations of the Securities Act and must be sold in connection with
a registration statement or pursuant to Rule 144 of the Securities Act. In
addition, the Stock Option Plan is not qualified under Section 401(a) of the
Code.
As a condition of any sale or issuance of shares of Common Stock upon
exercise of any Option, the Stock Option Committee may require such agreements
or undertakings, if any, as the Stock Option
53
<PAGE>
<PAGE>
Committee may deem necessary or advisable to assure compliance with any federal
or state securities law or regulation including, but not limited to, the
following: (a) a representation and warranty by the Optionee to the Company, at
the time any Option is exercised, that such Optionee is acquiring the shares to
be issued to such Optionee for investment and not with a view to, or for sale in
connection with, the distribution of any such shares; and (b) a representation,
warranty or agreement to be bound by any legends that are, in the opinion of the
Stock Option Committee, necessary or appropriate to comply with the provisions
of any law or regulation deemed by the Stock Option Committee to be applicable
to the issuance of the shares and are endorsed upon the share certificates.
Furthermore, an Option is only transferable by the Optionee by will or the laws
of descent and distribution.
The following description of the federal income tax consequences of Options
is general and does not purport to be complete.
Tax Treatment of Options. An Optionee realizes no taxable income when an
Option is granted. Instead, the difference between the fair market value of the
Common Stock subject to the Option and the exercise price paid is taxed as
ordinary compensation income when the Option is exercised. The difference is
measured and taxed as of the date of exercise if the stock is not subject to a
'substantial risk of forfeiture,' or as of the date or dates on which the risk
terminates in other cases. An Optionee may elect to be taxed on the difference
between the exercise price and the fair market value of the Common Stock on the
date of exercise, even though some or all of the Common Stock acquired is
subject to a substantial risk of forfeiture. Gain on the subsequent sale of the
Common Stock is taxed as capital gain. The Company receives no tax deduction on
the grant of an Option, but is entitled to a tax deduction when the Optionee
recognizes taxable income on or after exercise of the Option, in the same amount
as the income recognized by the Optionee.
Parachute Payments. Under certain circumstances, an accelerated vesting or
the cash out of Options in connection with the events discussed below might be
deemed an 'excess parachute payment' for purposes of the golden parachute tax
provisions of Section 280G of the Code. To the extent it is so considered, an
Optionee may be subject to a 20% excise tax and the Company may be denied an
income tax deduction.
Effect of Certain Corporate Transactions. Unless otherwise provided in any
Option Agreement, each outstanding Option shall become immediately and fully
exercisable (i) if there occurs any transaction (which shall include a series of
transactions occurring within 60 days or occurring pursuant to a plan), which
has the result that stockholders of the Company immediately before such
transaction cease to own at least 51% of the voting stock of the Company or of
any entity which results from the participation of the Company in a
reorganization, consolidation, merger, liquidation or any form of corporate
transaction; (ii) if the stockholders of the Company shall approve a plan of
merger, consolidation, reorganization, liquidation or dissolution in which the
Company does not survive (unless the approved merger, consolidation,
reorganization, liquidation or dissolution is subsequently abandoned); or (iii)
if the stockholders of the Company shall approve a plan for the sale, lease,
exchange or other disposition of all or substantially all the property and
assets of the Company (unless such plan is subsequently abandoned). The Stock
Option Committee may, in its sole discretion, accelerate the date on which any
Option may be exercised and may accelerate the vesting of an Option that is not
immediately exercisable. The Stock Option Committee, in its sole discretion, by
giving a written cancellation notice to all Optionees may cancel, effective upon
the date of the consummation of any corporate transaction described in clauses
(ii) and (iii), above, any Option which remains unexercised on such date. Such
cancellation notice shall be given a reasonable period of time prior to the
proposed date of such cancellation and may be given either before or after
stockholder approval of such corporate transaction.
Amendments to Stock Option Plan. The Board of Directors may modify, revise
or terminate the Stock Option Plan at any time and from time to time, except
that no amendment of the Stock Option Plan or any Option issued under the Stock
Option Plan shall substantially impair any Option previously granted to any
Optionee without the consent of such Optionee, or make any other change that
requires stockholder approval under applicable law.
Options Issuable to Directors
Pursuant to a resolution of the Board of Directors, in April of each year
commencing in April 1996, each non-employee Director who is then serving in such
capacity is granted options exercisable for
54
<PAGE>
<PAGE>
15,000 shares of Common Stock at an exercise price equal to the market price of
the Common Stock prevailing on the date such options are granted.
Employment Contracts
The Company entered into a separate employment agreement with each of Mr.
Barry Peters and Mr. E. William Savage providing for Mr. Peters' employment as
Chairman of the Board and Chief Executive Officer of the Company and for Mr.
Savage's employment as President of the Company, respectively. Each such
agreement provides for an initial term of employment of three years expiring on
June 30, 1998 and is renewable for an additional three-year term at the
discretion of the employee covered thereby, subject to termination as provided
therein. The base salary for Mr. Peters during the term of his employment
agreement is $137,500 for the first year, $195,000 for the second year and
$270,500 for the third year. The base salary for Mr. Savage during the term of
his employment agreement is $125,000 for the first year, $175,000 for the second
year and $245,000 for the third year. In addition, pursuant to the terms of the
relevant employment agreement, each of Mr. Peters and Mr. Savage has options to
acquire 300,000 shares of Common Stock at an exercise price of $2.50 per share
for the first 150,000 shares and $3.00 per share for the remaining 150,000
shares. In connection with the Recapitalization, the options granted to Mr.
Peters exercisable for 150,000 shares of Common Stock at an exercise price of
$3.00 per share and the options granted to Mr. Savage exercisable for 150,000
shares of Common Stock at an exercise price of $3.00 per share, in each case
under their respective employment agreements, were cancelled at no cost to the
Company. See 'The Recapitalization.' At the end of each year, or as otherwise
may be deemed appropriate in the sole discretion of the Board of Directors, each
of Mr. Peters and Mr. Savage may be paid a bonus, payable in whole or part in
Common Stock at the election of the employee. In addition, each year the Board
of Directors may grant to each of Mr. Peters and Mr. Savage such number of
options to purchase shares of Common Stock at such prices as the Board of
Directors may determine from time to time to be appropriate. During the first
year of his employment, Mr. Peters elected to receive less than the full amount
of cash salary due to him under his employment agreement and was paid a total of
$100,626 in cash and $32,058 in the form of 16,029 shares of Common Stock.
During the second year of Mr. Peters' employment up to and including September
30, 1996, Mr. Peters again elected to receive less than the full amount of cash
salary due to him under his employment agreement and was paid a total of $18,750
in cash. Similarly, during the first year of his employment, Mr. Savage elected
to receive less than the full amount of cash salary due to him under his
employment agreement and was paid a total of $100,626 in cash and $32,058 in the
form of 16,029 shares of Common Stock. During the second year of Mr. Savage's
employment up to and including September 30, 1996, Mr. Savage again elected to
receive less than the full amount of cash salary due to him under his employment
agreement and was paid a total of $18,750 in cash. The Company has not entered
into any supplemental arrangements with Messrs. Peters and/or Savage to
compensate either of them for accepting less than the cash salaries due to them
under their respective employment agreements. Each of Mr. Peters and Mr. Savage
has agreed in his respective employment agreement not to compete with the
Company or engage in any business similar to that of the Company during the term
of such employment agreement. In the event the employment of Mr. Peters or Mr.
Savage, as the case may be, is terminated for other than good cause, or if Mr.
Peters or Mr. Savage, as the case may be, resigns for 'good reason' (as defined
below), then Mr. Peters or Mr. Savage, as the case may be, will be entitled to
receive severance pay in an amount equal to (i) one year's base salary then in
effect, payable in accordance with normal payroll practices for the remainder of
the term, plus (ii) the amount determined under clause (i) but payable in a lump
sum on the effective date of such termination.
For purposes of each of Mr. Peters' and Mr. Savage's respective employment
agreement, 'good reason' includes a Change in Control of the Company (as defined
therein), which is deemed to occur if (a) after a merger or consolidation, the
Company is not the surviving corporation and the Company's stockholders do not
continue to own at least 80% of the Company's assets, (b) there is a sale of
substantially all of the assets of the Company, (c) the stockholders approve a
plan for the liquidation or dissolution of the Company, (d) any person becomes a
30% or more beneficial owner of the outstanding Common Stock, or (e) the
employee ceases to be a Director for any reason, other than his voluntary
resignation or voluntary election not to stand for re-election as a Director.
55
<PAGE>
<PAGE>
Effective as of April 25, 1995, SD&A entered into a separate employment
agreement with each of Mr. Stephen Dunn and Mr. Thomas Scheir providing for Mr.
Dunn's employment as President of SD&A and Mr. Scheir's employment as Chief
Financial Officer of SD&A, respectively. Each such agreement provides for an
initial term expiring on April 25, 1997 and is renewable for an additional
one-year term at the discretion of the employee covered thereby, subject to
termination as provided therein. The base salary for Mr. Dunn during the term of
his employment agreement is $225,000 for the first year, $250,000 for the second
year and $275,000 for the third year. The base salary for Mr. Scheir during the
term of his employment is $125,000 for the first year, $150,000 for the second
year and $175,000 for the third year. At the end of each year, in the sole
discretion of the board of directors of SD&A, each of Mr. Dunn and Mr. Scheir
may be paid a cash bonus. The agreements also provide for other fringe benefits
as may be approved by the board of directors of SD&A. Each of Mr. Dunn and Mr.
Scheir has agreed in his respective employment agreement not to (i) own, become
employed by, or become a partner of any similar business during the term of his
employment agreement, except that each may own 1% or less of any similar
business or (ii) compete with SD&A for a period of three years after the
termination of his employment.
Effective as of October 1, 1996, Metro entered into a separate employment
agreement with each of Mr. Jeremy Barbera, Mr. Robert Budlow and Ms. Janet
Sautkulis providing for Mr. Barbera's employment as President and Chief
Executive Officer of Metro, Mr. Budlow's employment as Executive Vice President
and Chief Operating Officer of Metro and Ms. Sautkulis' employment as Executive
Vice President and General Manager of Metro, respectively. Each such agreement
provides for an initial term expiring on September 30, 1999 (the 'Employment
Term') and is renewable for an additional three-year term unless Metro or the
employee gives written notice to the other party, at least sixty (60) days prior
to the expiration of the Employment Term, of its intention not to renew the
employment agreement. The base salary for Mr. Barbera during the Employment Term
is $150,000 for the first year, $200,000 for the second year and $250,000 for
the third year. Pursuant to the relevant employment agreement, the base salary
for each of Mr. Budlow and Ms. Sautkulis during the Employment Term is $125,000
for the first year, $165,000 for the second year and $200,000 for the third
year. Pursuant to the terms of the relevant agreement, during each year of the
Employment Term, Mr. Barbera, Mr. Budlow and Ms. Sautkulis are each eligible to
receive raises and bonuses based upon the achievement of earnings and other
targeted criteria if and as determined by the Compensation Committee of the
Board of Directors. The agreements also provide for the granting to Mr. Barbera,
Mr. Budlow and Ms. Sautkulis of options to acquire Common Stock if and as
determined by the Option Plan Committee. Each of Mr. Barbera, Mr. Budlow and Ms.
Sautkulis has agreed in his or her respective employment agreement (i) not to
compete with Metro or to be associated with any other similar business during
the Employment Term, except that Mr. Barbera, Mr. Budlow and Ms. Sautkulis may
each own up to 5% of the outstanding common stock of certain corporations, as
described more fully in the relevant employment agreement, and (ii) upon
termination of employment with Metro, not to solicit or encourage certain
clients of Metro (as more fully described in the relevant employment agreement),
to cease doing business with Metro, and not to do business with any other
similar business, for a period of three years from the date of such termination.
Metro has the right to terminate the employment of Mr. Barbera, Mr. Budlow or
Ms. Sautkulis, as the case may be, 'for cause' (as defined below), after giving
notice to such employee, in which event such employee will be entitled only to
receive his or her salary at the rate provided above to the date on which
termination takes effect, plus any compensation which is accrued but unpaid on
the date of termination. In the event of a disposition after October 1, 1996 of
the properties and business of Metro by merger, consolidation, sale of assets,
sale of stock, or otherwise, Metro has the right to assign each employment
agreement and all of Metro's rights and obligations thereunder to the acquiring
or surviving corporation. If, for any reason, such employment agreements are not
assigned to, or assumed by, such acquiring or surviving corporation, the
employee covered thereby may terminate such employment agreement by giving
written notice thereof within six months of the date of any such acquisition or
disposition, and upon such termination, or, if the employment agreement is
terminated by Metro without cause, such employee will be entitled to receive
severance pay consisting of a single lump sum distribution (with no present
value adjustment) equal to the base salary as provided above then in effect for
a period of one year, notwithstanding that such one-year period might extend
beyond the Employment Term.
56
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For purposes of each of Mr. Barbera's, Mr. Budlow's and Ms. Sautkulis'
respective employment contract, 'for cause' includes circumstances whereby the
relevant employee shall (i) be convicted of a felony crime, (ii) commit any act
or omit to take any action in bad faith and to the detriment of Metro, (iii)
commit an act of moral turpitude to the detriment of Metro, (iv) commit an act
of fraud against Metro, or (v) materially breach any term of the employment
agreement and fail to correct the breach within 10 days after written notice
thereof; provided that in the case of clause (ii), (iii) or (iv) above, such
determination must be made by the Board of Directors after a meeting at which
such employee shall have been given an opportunity to explain such actions.
Consulting Agreements
On April 15, 1996, the Company entered into an agreement with Mr. Seymour
Jones to retain his services as a financial consultant and advisor to the
Company on a non-exclusive basis for a period of one year. Effective July 1996,
the agreement was terminated. Notwithstanding such termination, pursuant to the
terms of such agreement, in August 1996 Mr. Jones purchased from the Company,
for $2,500 in the aggregate, warrants exercisable for 50,000 shares of Common
Stock at an exercise price of $2.50 per share for the first 25,000 shares, $3.00
per share for the next 15,000 shares and $3.50 per share for the remaining
10,000 shares. The warrants are currently exercisable and expire on April 15,
2000.
On April 17, 1996, the Company entered into an agreement with Mr. S. James
Coppersmith to retain his services as a financial consultant and advisor to the
Company on a non-exclusive basis for a period of one year. Effective July 1996,
the agreement was terminated. Notwithstanding such termination, pursuant to the
terms of such agreement, in September 1996 Mr. Coppersmith purchased from the
Company, for $2,500 in the aggregate, warrants exercisable for 50,000 shares of
Common Stock at an exercise price of $2.50 per share for the first 25,000
shares, $3.00 per share for the next 15,000 shares and $3.50 per share for the
remaining 10,000 shares. The warrants are currently exercisable and expire on
May 15, 2000.
On June 3, 1996, the Company entered into an agreement with Mr. C. Anthony
Wainwright to retain his services as a financial consultant and advisor to the
Company on a non-exclusive basis for a period of two years. As compensation for
such services, Mr. Wainwright is entitled to receive the sum of $1,000 per month
for the term of the agreement plus all out-of-pocket expenses incurred by Mr.
Wainwright in the performance of such services, provided that prior
authorization from the Company shall have been received with respect to any such
expense. In addition, pursuant to the terms of such agreement, Mr. Wainwright
has the right, which right, as of the date hereof, has not been exercised, to
purchase from the Company, for $2,500 in the aggregate, warrants exercisable for
50,000 shares of Common Stock at an exercise price of $4.00 per share for the
first 25,000 shares, $4.50 per share for the next 15,000 shares and $5.00 per
share for the remaining 10,000 shares. The warrants may be exercised over a
four-year period commencing June 3, 1996. The agreement is only assignable
without the prior written consent of the other party in the event of a sale of
all or substantially all of the business of the party desiring to assign the
agreement. The agreement also provides for indemnification of Mr. Wainwright and
his affiliates (and their respective directors, officers, stockholders, general
and limited partners, employees, agents and controlling persons and the
successors and assigns of all of the foregoing) by the Company for any losses or
claims arising out of the rendering of the services provided for in the
agreement, other than for negligence or willful misconduct.
CHANGE IN CONTROL PROVISIONS OF THE RESTATED ARTICLES AND NEVADA CORPORATE LAW
Restated Articles. The Restated Articles require certain specified
supermajority stockholder approvals (the 'Business Combination Special Vote')
for 'Business Combinations' with an 'Other Entity,' which is defined generally
as any corporation, person or other entity (excluding certain employee plans)
that is not controlled by or under common control with the Company. Such
Business Combinations include: (i) any merger or consolidation of the Company,
or any of its affiliates, with or into any other corporation; (ii) any sale,
lease, exchange, loan, distribution, dividend or other disposition of all, or a
substantial part, of the assets of the Company; or (iii) any sale, lease,
exchange, loan, distribution, dividend or other disposition of all, or a
substantial part, of the assets of another entity in exchange for equity
securities of the Company or its affiliates. The Business Combination Special
Vote required to approve a Business Combination is the affirmative vote of both
(i) the holders of 75% of the outstanding shares of stock entitled to vote for
the election of Directors, and (ii) the
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holders of a majority of the outstanding shares of stock entitled to vote for
the election of Directors, other than those beneficially owned by the Other
Entity.
A Business Combination Special Vote is not required to approve a Business
Combination, if certain conditions are met which include, but are not limited
to: (i) that the consideration to be received by the holders of the Common Stock
is not less than (a) the highest per share price paid by such Other Entity in
acquiring any shares of Common Stock and (b) the highest market price of the
Common Stock (I) during the 30 trading days immediately prior to the public
announcement of such Business Combination and (II) during the 30 trading days
immediately prior to the public announcement or the commencement, whichever
occurs first, of the acquisition of any Common Stock by such Other Entity; (ii)
that after such Other Entity has acquired 10% of the Common Stock, and prior to
the consummation of such Business Combination, the Board of Directors shall have
included at all times one or more Directors of the Company who shall have been
in office on October 1, 1988 (a 'Continuing Director'), or a Director designated
as a Continuing Director by such Director or other Continuing Directors; (iii)
that after such Other Entity has acquired 10% of the Common Stock, the Other
Entity has not (a) received the benefit, directly or indirectly (except
proportionately, as a stockholder), of any loans, advances, guarantees, pledges
or other financial assistance or any tax credits or other tax advantages
provided by the Company or (b) received the benefit, directly or indirectly, of
the extension of trade terms by the Company, which are less favorable to the
Company than those made available to a majority of the Company's clients for
similar products; and (iv) except as may have been approved by a unanimous vote
of the entire Board of Directors, made any major change in the Company's
business or equity capital structure.
The Restated Articles further provide that certain 'Reclassifications'
require the affirmative vote (the 'Reclassification Special Vote') of both (i)
the holders of 75% of the outstanding shares of stock entitled to vote for the
election of Directors and (ii) the holders of a majority of the outstanding
shares of stock entitled to vote for the election of Directors other than those
beneficially owned by any Other Entity. Such Reclassifications include (a) any
reclassification of securities (including any reverse stock split), reverse
capitalization, reorganization, issuer tender offer, purchase of shares by the
Company or by its affiliates, exchange offer by the Company or by any of its
affiliates, or any other transaction designed to reduce materially, or having
the effect of reducing materially, the percentage of Common Stock which is not
held by affiliates of the Company or (b) the adoption of any plan or proposal
for the liquidation or dissolution of the Company. The Reclassification Special
Vote is only required if there is an Other Entity for which a Business
Combination Special Vote would be required in the event of a Business
Combination, and it is not required if any such amendment is unanimously
recommended to the stockholders by the Continuing Directors.
Other provisions of the Restated Articles and the By-Laws may have the
effect of limiting, or delaying, a change in control of the Company. These
provisions include: provisions of the By-Laws which provide for 60 days' notice
by the stockholders of any business they wish to conduct at a stockholders'
meeting, a prohibition of stockholder action by written consent, and provisions
of the Restated Articles that limit the ability to remove Directors. See 'Risk
Factors -- Certain Anti-Takeover Provisions' and ' -- Board of Directors.'
Nevada Corporate Law. Under Sections 78.378 to 78.3793 (the 'Control Share
Act') of the Nevada Revised Statutes (the 'NRS'), an 'acquiring person,' who
acquires a 'controlling interest' in an 'issuing corporation,' may not exercise
voting rights on any 'control shares' unless such voting rights are conferred by
a majority vote of the disinterested stockholders of the issuing corporation at
a special meeting of such stockholders held upon the request and at the expense
of the acquiring person. If the control shares are accorded full voting rights
and the acquiring person acquires control shares with a majority or more of all
the voting power, any stockholder, other than the acquiring person, who does not
vote for authorizing voting rights for the control shares, is entitled to demand
payment for the fair value of such stockholder's shares, and the corporation
must comply with the demand. For purposes of these provisions, 'acquiring
person' means (subject to certain exceptions) any person who, individually or in
association with others, acquires or offers to acquire, directly or indirectly,
a controlling interest in an issuing corporation. 'Controlling interest' means
the ownership of outstanding voting shares of an issuing corporation sufficient
to enable the acquiring person, individually or in association with others,
directly or indirectly, to exercise (i) one-fifth or more but less than
one-third,
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<PAGE>
(ii) one-third or more but less than a majority, and/or (iii) a majority or more
of the voting power of the issuing corporation in the election of directors.
Voting rights must be conferred by a majority of the disinterested stockholders
as each threshhold is reached and/or exceeded. 'Control Shares' means those
outstanding voting shares of an issuing corporation which an acquiring person
acquires or offers to acquire in an acquisition or within 90 days immediately
preceding the date when the acquiring person became an acquiring person.
'Issuing corporation' means a corporation that is organized in Nevada, has 200
or more stockholders (at least 100 of whom are stockholders of record and
residents of Nevada) and does business in Nevada directly or through an
affiliated corporation. The above does not apply if the articles of
incorporation or by-laws of the corporation in effect on the 10th day following
the acquisition of a controlling interest by an acquiring person provide that
said provisions do not apply. The Restated Articles and the By-laws do not
expressly opt out of the restrictions imposed by such provisions.
Sections 78.411 to 78.444 (the 'Business Combinations Act') of the NRS
restrict the ability of a 'resident domestic corporation' to engage in any
combination with an 'interested stockholder' for three years following the
interested stockholder's date of acquiring the shares that cause such
stockholder to become an interested stockholder, unless the combination or the
purchase of shares by the interested stockholder on the interested stockholder's
date of acquiring the shares that cause such stockholder to become an interested
stockholder is approved by the board of directors of the resident domestic
corporation before that date. If the combination was not previously approved,
the interested stockholder may effect a combination after the three-year period
only if such stockholder receives approval from a majority of the disinterested
shares or the offer meets certain fair price criteria. For purposes of these
provisions, 'resident domestic corporation' means a Nevada corporation that has
200 or more stockholders. The provisions of the Business Combinations Act do not
apply, however, to any combination of a resident domestic corporation which does
not, as of the date of acquiring shares, have a class of voting shares
registered with the Commission under Section 12 of the Exchange Act, unless the
corporation's articles of incorporation provide otherwise. 'Interested
stockholder,' when used in reference to any resident domestic corporation, means
any person, or its subsidiaries, who is (i) the beneficial owner, directly or
indirectly, of 10% or more of the voting power of the outstanding voting shares
of the resident domestic corporation or (ii) an affiliate or associate of the
resident domestic corporation and, at any time within three years immediately
before the date in question, was the beneficial owner, directly or indirectly,
of 10% or more of the voting power of the then outstanding shares of the
resident domestic corporation. These provisions do not apply to corporations
that so elect in a charter amendment approved by a majority of the disinterested
shares. Such a charter amendment, however, does not become effective until 18
months after its passage and would apply only to stock acquisitions occurring
after its effective date. The Restated Articles do not expressly opt out of the
restrictions imposed by such provisions.
59
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<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of December 23, 1996 and as adjusted to reflect the
sale of shares of Common Stock offered hereby by: (i) each Director and each of
the Named Executive Officers; (ii) all executive officers and Directors of the
Company as a group; (iii) each person known by the Company to own beneficially
more than 5% of the outstanding shares of Common Stock; (iv) each Selling
Stockholder; and (v) each Over-Allotment Selling Stockholder. All of the
following information gives effect to the Recapitalization, which occurred on
December 23, 1996.
<TABLE>
<CAPTION>
COMMON STOCK COMMON STOCK
BENEFICIALLY OWNED BENEFICIALLY OWNED
AFTER THE AFTER THE
UNDERWRITTEN UNDERWRITTEN OFFERING
COMMON STOCK OFFERING ASSUMING ASSUMING FULL
BENEFICIALLY OWNED NO EXERCISE OF THE EXERCISE OF THE
PRIOR TO THE UNDERWRITERS' OVER- UNDERWRITERS' OVER-
UNDERWRITTEN ALLOTMENT ALLOTMENT
OFFERING SHARES OPTIONS OPTIONS
-------------------- BEING -------------------- ----------------------
NAME(1) NUMBER PERCENT OFFERED NUMBER PERCENT NUMBER PERCENT
- ---------------------------------------------- --------- ------- ------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
DIRECTORS AND NAMED EXECUTIVE OFFICERS
Barry Peters(2)............................... 526,536 6.2% -- 526,536 5.1% 526,536 5.0%
E. William Savage(3).......................... 522,868 6.1 -- 522,868 5.1 522,868 5.0
S. James Coppersmith(4)....................... 50,000 1.0 -- 50,000 * 50,000 *
Seymour Jones(4).............................. 25,000 * -- 25,000 * 25,000 *
C. Anthony Wainwright(5)...................... 68,408 * -- 68,408 * 68,408 *
J. Jeremy Barbera(6).......................... 1,199,924 14.3 -- 1,199,924 11.9 1,199,924 11.6
Stephen Dunn(7)............................... 138,716 1.7 -- 138,716 1.4 138,716 1.4
Thomas Scheir(8).............................. 12,875 * -- 12,875 * 12,875 *
All Directors and executive officers as a
group (9 persons)........................... 2,586,482 28.2 -- 2,586,482 23.9 2,586,482 23.2
5% STOCKHOLDERS(9)
Naomi Bodner(10).............................. 2,040,891 21.8 -- 2,040,891 18.3 2,040,891 18.0
Laura Huberfeld(10)........................... 2,040,891 21.8 -- 2,040,891 18.3 2,040,891 18.0
Robert Budlow(11)............................. 599,962 7.2 -- 599,962 6.0 599,962 5.9
SELLING STOCKHOLDERS AND OVER-ALLOTMENT
SELLING STOCKHOLDERS
Alan I. Annex................................. 3,433 * 3,433 -- -- -- --
Bais Kaila Torah H.S.(12)..................... 22,829 * 10,000 12,829 * 12,829 *
Kenneth Berg(13).............................. 36,968 * 16,838 20,130 * -- --
Marguerite E. Cascio(14)...................... 10,492 * 4,621 4,621 * 4,621 *
Congregation Ahavas Tzdokoh Vchesed
Inc.(15).................................... 68,223 * 20,000 48,223 * 48,223 *
Congregation Beth Shalom...................... 2,000 * 2,000 -- -- -- --
Stephen A. Cooper and Randy E. Cooper, as
joint tenants............................... 9,242 * 4,621 4,621 * 4,621 *
Sheldon Finkel(13)............................ 6,722 * 3,062 3,660 * -- --
ForwardIssue Ltd.(13)(16)..................... 18,484 * -- 27,726 * 20,795 *
Juliet Gal.................................... 9,242 * 4,621 4,621 * 4,621 *
Maxine Ganer.................................. 9,242 * 4,621 4,621 * 4,621 *
The Hebrew Academy of the Five Towns.......... 3,000 * 3,000 -- -- -- --
Barbara M. Henagan............................ 9,242 * 4,621 4,621 * 4,621 *
Norton Herrick(13)............................ 110,902 1.3 50,513 60,389 * -- --
Seymour Huberfeld(17)......................... 45,658 * 20,000 25,658 * 25,658 *
Harry Karten.................................. 18,484 * 18,484 -- -- -- --
Jewish Communal Fund.......................... 35,416 * 30,795 4,621 * 4,621 *
Marshall Kiev................................. 1,718 * 1,718 -- -- -- --
The Lederer Family Trust(14).................. 10,492 * 4,621 5,871 * 5,871 *
Thierry Liverman.............................. 4,621 * 2,311 2,310 * 2,310 *
Jonathan Mayer(18)............................ 13,697 * 6,000 7,697 * 7,697 *
Millennium Capital Corp.(13)(19).............. 19,000 * 4,270 14,730 * 9,625 *
David Miller(13).............................. 18,484 * 8,419 10,065 * -- --
Moshe Mueller(20)............................. 54,789 * 1,000 53,789 * 53,789 *
Charles Nebenzahl(21)......................... 45,658 * 16,000 29,658 * 29,658 *
Ohr Somayach Tannbaum Education Center(22).... 45,658 * 20,000 25,658 * 25,658 *
Lee M. Polster(14)............................ 10,492 * 4,621 4,621 * 4,621 *
Ronald M. Resch(14)........................... 10,492 * 4,621 4,621 * 4,621 *
Mark Schachner(13)............................ 18,484 * 8,419 10,065 * -- --
Shekel Hakodesh(23)........................... 54,789 * 6,915 47,085 * 47,085 *
Andrea Tessler................................ 1,718 * 1,718 -- -- -- --
G. Van Mourik & J. Van Mourik Revocable
Trust....................................... 4,621 * 2,311 2,310 * 2,310 *
Claudia Kaufmann Walters(13).................. 9,242 * 4,209 5,033 * -- --
Whale Securities Co., L.P.(13)(24)............ 19,300 * 4,270 15,030 * 9,925 *
Yeshiva of Telshe Alumni(25).................. 45,658 * 20,000 25,658 * 25,658 *
Zapco Holdings, Inc........................... 9,242 * 4,621 4,621 * 4,621 *
Zapco Holdings, Inc. Deferred Compensation
Plan Trust.................................. 9,242 * 9,242 -- -- --
Mark Zborowski(26)............................ 14,722 * 13,484 1,238 * 1,238 *
</TABLE>
(footnotes on next page)
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<PAGE>
(footnotes from previous page)
* Less than 1%.
(1) Unless otherwise indicated in these footnotes, each stockholder has sole
voting and investment power with respect to the shares beneficially owned
and all addresses are in care of the Company. All share amounts reflect
beneficial ownership determined pursuant to Rule 13d-3 under the Exchange
Act. All information with respect to beneficial ownership has been
furnished by the respective Director, executive officer or stockholder, as
the case may be.
(2) Includes 300,000 beneficially owned shares of Common Stock issuable upon
the exercise of currently exercisable options and 31,375 beneficially owned
shares of Common Stock owned by family members with respect to which Mr.
Peters disclaims beneficial ownership.
(3) Includes 300,000 beneficially owned shares of Common Stock issuable upon
the exercise of currently exercisable options and 21,878 beneficially owned
shares of Common Stock owned by family members with respect to which Mr.
Savage disclaims beneficial ownership.
(4) Includes 25,000 beneficially owned shares of Common Stock issuable upon the
exercise of currently exercisable warrants.
(5) Includes 15,000 beneficially owned shares of Common Stock issuable upon the
exercise of currently exercisable options and 50,000 beneficially owned
shares of Common Stock issuable upon the exercise of a contractual right to
purchase warrants exercisable for such Common Stock pursuant to Mr.
Wainwright's consulting agreement with the Company.
(6) Includes 111,524 beneficially owned shares of Common Stock issuable upon
the conversion of a convertible promissory note of the Company in the
aggregate face amount of $600,000 issued to Mr. Barbera in connection with
the Company's acquisition of Metro.
(7) Includes 5,000 beneficially owned shares of Common Stock issuable upon the
exercise of currently exercisable warrants.
(8) Includes 12,500 beneficially owned shares of Common Stock issuable upon the
exercise of currently exercisable warrants.
(9) The address for each of the 5% Stockholders (other than Mr. Budlow) is as
follows: c/o Broad Capital Associates, Inc., 152 West 57th Street, New
York, New York 10019.
(10) 1,000,000 of this 5% Stockholder's total number of beneficially owned
shares of Common Stock are issuable upon the exercise of currently
exercisable warrants subject to this 5% Stockholder's sole investment power
and 117,500 beneficially owned shares of Common Stock are beneficially
owned by the Laura Huberfeld/Naomi Bodner Partnership (the
'Bodner/Huberfeld Partnership') and are issuable upon the exercise of
currently exercisable warrants subject to a shared investment power. Each
of Naomi Bodner and Laura Huberfeld disclaims beneficial ownership of the
shares of Common Stock beneficially owned by the other and the shares of
Common Stock beneficially owned by the Bodner/Huberfeld Partnership.
(11) Includes 55,762 beneficially owned shares of Common Stock issuable upon the
conversion of a convertible promissory note of the Company in the aggregate
face amount of $300,000 issued to Mr. Budlow in connection with the
Company's acquisition of Metro.
(12) Includes 12,500 beneficially owned shares of Common Stock issuable upon the
exercise of currently exercisable warrants.
(13) The number of shares subject to the Underwriters' over-allotment option
from this stockholder is as set forth next to such stockholder's name
below:
(footnotes continued on next page)
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<PAGE>
(footnotes continued from previous page)
<TABLE>
<CAPTION>
SHARES SUBJECT TO
NAME UNDERWRITERS OVER-ALLOTMENT OPTION
- ---------------------------------------------------------- ----------------------------------
<S> <C>
Kenneth Berg......................................... 20,130
Sheldon Finkel....................................... 3,660
ForwardIssue, Ltd.................................... 4,621
Norton Herrick....................................... 60,389
Millennium Capital Corp.............................. 5,105
David Miller......................................... 10,065
Mark Schachner....................................... 10,065
Claudia Kaufmann Walters............................. 5,033
Whale Securities Co., L.P............................ 5,105
----------
Total........................................... 124,173
----------
----------
</TABLE>
In addition, the Company has granted to the Underwriters an option to
purchase up to 190,827 shares of Common Stock to cover over-allotments, if
any. See 'Underwriting.'
(14) 1,250 of this Selling Stockholder's beneficially owned shares of Common
Stock are issuable upon the exercise of currently exercisable warrants.
(15) Includes 37,500 beneficially owned shares of Common Stock issuable upon the
exercise of currently exercisable warrants.
(16) After the Underwritten Offering, (i) assuming no exercise of the
Underwriters' over-allotment option, 9,242, and (ii) assuming full exercise
of the Underwriters' over-allotment option, 6,932, of this Over-Allotment
Selling Stockholder's total number of beneficially owned shares of Common
Stock will be issuable upon the exercise of then exercisable warrants.
(17) Includes 25,000 beneficially owned shares of Common Stock issuable upon the
exercise of currently exercisable warrants.
(18) Includes 7,500 beneficially owned shares of Common Stock issuable upon the
exercise of currently exercisable warrants.
(19) Includes 9,625 beneficially owned shares of Common Stock issuable upon the
exercise of currently exercisable warrants.
(20) Includes 30,000 beneficially owned shares of Common Stock issuable upon the
exercise of currently exercisable warrants.
(21) Includes 25,000 beneficially owned shares of Common Stock issuable upon the
exercise of currently exercisable warrants.
(22) Includes 25,000 beneficially owned shares of Common Stock issuable upon the
exercise of currently exercisable warrants.
(23) Includes 30,000 beneficially owned shares of Common Stock issuable upon the
exercise of currently exercisable warrants.
(24) Includes 9,925 beneficially owned shares of Common Stock issuable upon the
exercise of currently exercisable warrants.
(25) Includes 25,000 beneficially owned shares of Common Stock issuable upon the
exercise of currently exercisable warrants.
(26) Includes 1,238 beneficially owned shares of Common Stock issuable upon the
exercise of currently exercisable warrants.
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<PAGE>
THE RECAPITALIZATION
On December 23, 1996, the Company and certain of its securityholders
effected changes in the Company's outstanding capital stock and related
securities whereby: (i) all 6,200 outstanding shares of the Series B Preferred
Stock were converted in accordance with their terms and without the payment of
additional consideration into 2,480,000 shares of Common Stock; (ii) all 2,000
outstanding shares of the Series C Preferred Stock were repurchased by the
Company for $1.0 million aggregate principal amount of promissory notes; (iii)
warrants issued to the holders of the Series C Preferred Stock, which were
exercisable for 3,000,000 shares of Common Stock, were exchanged for an
aggregate of 600,000 shares of Common Stock; (iv) all accrued interest on the
Series B Preferred Stock and the Series C Preferred Stock ($145,753 in the
aggregate at December 23, 1996) was converted into 88,840 shares of Common
Stock; (v) agreements to issue warrants exercisable for an aggregate of up to
1,038,503 shares of Common Stock, which the Company entered into with certain of
its securityholders in consideration for such securityholders' agreement to
certain lockup arrangements, were rescinded; and (vi) options held by two of the
Company's executive officers to purchase an aggregate of 300,000 shares of
Common Stock were cancelled at no cost to the Company. See 'Certain
Transactions.' Upon conversion of the Series B Preferred Stock and accumulated
interest thereon into Common Stock on December 23, 1996, the Company incurred a
non-cash, non-recurring dividend for the difference between the conversion price
and the market price of the Common Stock estimated to be $8.5 million. This
dividend will not impact net income (loss), but will impact net income (loss)
attributable to common stockholders in the calculation of earnings per share.
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<PAGE>
CERTAIN TRANSACTIONS
TRANSACTIONS UNDER CURRENT MANAGEMENT AFTER ALLIANCE ACQUISITION
The Company believes that all of the following transactions were entered
into on terms as favorable to the Company as those that could have been obtained
from unaffiliated third parties. The Company does not currently have any plans
to enter into additional transactions with affiliated parties. Any transactions
with affiliates that may be proposed in the future will be subject to the
approval of a majority of the disinterested members of the Board of Directors.
In connection with future acquisitions, the Company may enter into arrangements
with the sellers, who may later become affiliates of the Company as a result of
the consummation of such acquisitions.
Transactions with Mr. Dunn. In connection with the acquisition of SD&A on
April 25, 1995, Alliance issued promissory notes in an aggregate principal
amount of $4.5 million to Mr. Dunn. Interest on such notes was payable monthly
at a rate equal to the prime rate of Bank of America, N.T. & S.A., as in effect
from time to time, subject to a maximum of 10% and a minimum of 8%. Principal
payments were due quarterly, and originally $1.5 million was due in quarterly
installments during fiscal 1996. All of the outstanding common shares of SD&A
were initially pledged to collateralize such notes but were released in June
1996. In connection with such notes, an operating covenants agreement between
the Company and Mr. Dunn included, among other things, provisions requiring that
SD&A have a minimum level of working capital and cash levels, subject to
periodic increases based on sales, before dividend payments could be made to the
parent company. In June 1996, the operating covenants agreement was terminated.
Prior to October 1995, the Company made all principal payments in the
aggregate amount of $375,000 when due. Each of the principal payments due
October 1, 1995, January 1, 1996 and April 1, 1996 were deferred as they became
due and thereafter from time to time. In June 1996, principal payments of
approximately $2.0 million were made and the remaining obligations were
restructured such that the remaining $2.1 million is now payable in installments
of $58,333 per month, plus interest at 8%, starting September 19, 1996. All such
payments have been made when due.
In connection with the Company's acquisition of SD&A, additional contingent
payments of up to $850,000 per year over the period ending June 30, 1998 may be
required to be paid by the Company to Mr. Dunn based on the achievement of
certain defined results of operations of SD&A. At the Company's option, up to
half of each such additional contingent payment may be paid through the issuance
of shares of Common Stock, the number of such shares to be determined based on
the then current market price of the Common Stock; the balance of each such
contingent payment is required to be paid in cash. In June 1996, the Company
paid Mr. Dunn $425,000 in cash in partial payment of the contingent payment
earned by Mr. Dunn for the year ended June 30, 1996 and in September 1996, the
Company paid the remainder by issuing to Mr. Dunn 96,748 shares of Common Stock.
SD&A leases its corporate business premises from Mr. Dunn. The lease
requires monthly rental payments of $11,805 through January 1, 1999, with an
option to renew. SD&A incurs all costs of insurance, maintenance and utilities.
Total rent paid by SD&A to Mr. Dunn during 1996 and from the date of acquisition
to June 30, 1995 was approximately $138,000 and $26,000, respectively.
Indebtedness of Management. In February 1996, Mr. Barbera, then a
shareholder of Metro, borrowed $50,000 from Metro. Interest on such indebtedness
accrues at a rate of 6% per annum. The principal of such indebtedness, together
with accrued interest thereon, is repayable in four equal quarterly installments
starting March 31, 1998.
Transactions with Former Shareholders of Metro. In connection with the
Company's acquisition of Metro, effective as of October 1, 1996, the Company
issued promissory notes in an aggregate face amount of $1,000,000 to Mr.
Barbera, Mr. Budlow and Ms. Sautkulis, the former shareholders of Metro. Such
promissory notes have a stated interest rate of 6% per annum, mature June 30,
1998 and are convertible at the option of the holders thereof into 185,874
shares of Common Stock, based on a conversion price of $5.38 per share. In
addition, the holders of such notes have the right, at any time after the
earlier of January 1, 1997 and the consummation by the Company of a public
offering of Common Stock, to demand, upon 10 days notice, repayment of all
principal of and all accrued interest on such notes.
Bank Credit Line. Mr. Dunn is currently a guarantor of SD&A's unsecured
credit line. If such credit line is replaced with another credit facility, the
Company does not currently expect that Mr. Dunn
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<PAGE>
would be a guarantor of such replacement credit facility. See 'Management's
Discussion of Financial Condition and Results of Operations -- Liquidity and
Capital Resources -- All-Comm Media Corporation.'
Recapitalization Transactions. On December 23, 1996, the Company and
certain of its securityholders effected changes in the Company's outstanding
capital stock and related securities whereby: (i) all 6,200 outstanding shares
of the Series B Preferred Stock were converted in accordance with their terms
and without the payment of additional consideration into 2,480,000 shares of
Common Stock, including the shares held by each of Naomi Bodner and Laura
Huberfeld, in their individual capacities (each a beneficial holder of more than
10% of the outstanding Common Stock), and the Bodner/Huberfeld Partnership; (ii)
all 2,000 outstanding shares of the Series C Preferred Stock were repurchased by
the Company from the holders thereof, including Newark Sales Corp. and Saleslink
Ltd. (prior to the Recapitalization, each a beneficial holder of more than 10%
of the outstanding Common Stock), for promissory notes in an aggregate principal
amount of $1.0 million, which promissory notes bear interest at a rate of 8% and
are repayable on demand at any time from and after the date of consummation of
the Underwritten Offering, or any other underwritten public offering of Common
Stock, and in any event mature June 7, 1998; (iii) warrants issued to the
holders of the Series C Preferred Stock, including Newark Sales Corp. and
Saleslink Ltd., exercisable for 3,000,000 shares of Common Stock, were exchanged
for an aggregate of 600,000 shares of Common Stock; (iv) all accrued interest on
the Series B Preferred Stock and the Series C Preferred Stock ($145,754 in the
aggregate at December 23, 1996) was converted into 88,840 shares of Common
Stock; (v) agreements to issue warrants exercisable for an aggregate of up to
1,038,503 shares of Common Stock, which the Company had entered into with
certain of its securityholders in consideration for such securityholders'
agreement to certain lock-up arrangements, were rescinded; and (vi) options
currently held by two of the Company's principal executive officers and
Directors, Barry Peters and E. William Savage, to purchase an aggregate of
300,000 shares of Common Stock at an exercise price of $3.00 per share were
cancelled at no cost to the Company. See 'The Recapitalization' and 'Certain
Transactions.'
TRANSACTIONS UNDER FORMER MANAGEMENT PRIOR TO ALLIANCE ACQUISITION
Former Company Counsel. Robert L. McDonald, Sr., a former director of the
Company who resigned in April 1995, is a senior partner of McDonald, Carano,
Wilson, McCune, Bergin, Frankovich & Hicks ('McDonald Carano'), former general
counsel to the Company. The total amount of fees paid by the Company for
services rendered by McDonald Carano for the fiscal years ended June 30, 1995
and 1994 did not exceed 5% of the firm's total revenues. Additionally, Mr. A.J.
Hicks, a partner in McDonald Carano, previously served as Assistant Secretary to
the Company and to its subsidiaries.
Investment Banking Services. Marshall S. Geller, a former director of the
Company who resigned in April 1995 and former chairman of its Executive
Committee, was a Senior Managing Director of Golenberg & Geller, Inc., a private
merchant banking firm. The former management of the Company retained Golenberg &
Geller, Inc. during the 1995 and 1994 fiscal years to perform investment banking
and financial advisory services. The amount of fees paid by the Company for
services rendered by Mr. Geller's firm for the fiscal years ended June 30, 1995
and 1994 were $5,700 and $21,000, respectively. At that time, the Company also
retained Golenberg & Geller, Inc. and Whale Securities Co., L.P. ('Whale') to
perform investment banking and financial advisory services in connection with
the acquisition by the Company of Alliance. In connection with the Company's
acquisition of Alliance, a finder's fee in the aggregate amount of $200,000 was
paid as follows: $100,000 to Golenberg & Geller, Inc.; $50,000 to Whale; and
$50,000 to Millennium Capital Corp., one of the co-finders in the transaction
('Millennium'). In addition, each of Mr. Geller, Mr. Golenberg, Whale and
Millennium received 9,375 shares of Common Stock and a warrant exercisable for
6,250 shares of Common Stock over a period of three years from the date of issue
at an exercise price of $8.00 per share in further payment for their services.
Florida Gaming Corporation Loan. On July 15, 1994, in order to fund the
exercise price of the warrant which the Company owned to acquire shares of
Florida Gaming Corporation ('FGC'), the former management of the Company entered
into a loan agreement (the 'FGC Loan') for $1,000,000 with a group of lenders
(the 'Lenders'), which included Messrs. Marshall Geller (former director),
Arnold Rosenstein (former president), and Neil Rosenstein (former Chairman of
the Board and Chief Executive Officer) (the 'Affiliated Lenders'). The Company
borrowed the $1,000,000 available under
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the Loan Agreement on July 22, 1994. Borrowings were secured by a pledge of the
common stock of FGC issuable upon exercise of the warrant. Each of the
Affiliated Lenders lent the Company 20% of the total FGC Loan, or $200,000.
Pursuant to the terms of the FGC Loan, borrowings accrued interest at a
rate of 7.75% per annum. In addition, the Company was obligated to pay the
Lenders, pro rata, a commitment fee of $0.3 million, and to pay the Lenders'
attorneys' fees and other expenses incurred in connection with the extension of
the FGC Loan. The FGC Loan, including interest of $9,000 and the commitment fee,
was repaid prior to September 21, 1994. During the period from July 1994 to
March 1995, the Company sold the FGC common stock.
Mortgage Loan to Subsidiary. On June 9, 1994, under the former management
of the Company, All-Comm Holdings, Inc. (formerly named Bullhead Casino
Corporation), a wholly-owned subsidiary of the Company, borrowed $350,000 from
the Company's former chief executive officer and its president, evidenced by a
promissory note and secured by a mortgage on its parcel of land in Laughlin,
Nevada. All-Comm Holdings, Inc. loaned the borrowed funds to the Company. The
note was due July 31, 1995 with interest at the rate of 7.75% per annum, but was
repaid in October 1994.
Purchase of Property and Equipment. In April 1995, prior to the acquisition
of Alliance, the Company's former chairman purchased property and equipment, for
$11,000, owned by the Company having a cost of $160,000 and net book value of
$6,000.
Indebtedness of Former Management. Pursuant to the terms of his employment
agreement with the Company, which has expired, Arnold Rosenstein was issued
25,000 shares of Common Stock in exchange for a promissory note in the principal
amount of $0.2 million. The promissory note accrued interest at 10.5% per annum
payable at maturity on November 1, 1994. On January 21, 1994, Mr. Rosenstein
paid $133,333, per resolutions of the Board of Directors, for the early
retirement of the $0.2 million note receivable for shares issued to him. The
$66,667 allowance was charged to additional paid-in capital in the 1994 fiscal
year. Also, on December 31, 1993, accrued interest of $87,500 was discounted to
$58,334 and paid to the Company.
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DESCRIPTION OF CAPITAL STOCK
The following is a summary of the material terms of the Company's capital
stock which are contained in the Restated Articles and the By-Laws, which are
filed as exhibits to the Registration Statement of which this Prospectus is a
part. Reference is made to such exhibits for a more complete description of the
Company's capital stock.
COMMON STOCK
General
The Company is authorized to issue 36,250,000 shares of Common Stock in
accordance with an amendment to its Restated Articles approved by the Board of
Directors and stockholders effective August 1996. The shares of Common Stock
being sold by the Delayed Selling Stockholders in the Delayed Offering and by
the Selling Stockholders and the Over-Allotment Selling Stockholders in the
Underwritten Offering are, and the shares of Common Stock being sold by the
Company in the Underwritten Offering (when issued against payment therefor in
accordance with the Underwriting Agreement) will be, legally issued, fully paid
and nonassessable.
Quorum and Voting Rights
Each share of Common Stock is entitled to one vote on all matters as to
which the holders of Common Stock are entitled to vote. The affirmative vote of
a majority of the stock having voting power present or represented by a proxy at
a meeting at which a quorum is present is required as to any matter which
requires the approval of the holders of Common Stock, other than (i) the
approval of certain Business Combinations and Reclassifications (as such terms
are defined above in 'Management -- Change in Control Provisions of the Restated
Articles and Nevada Corporate Law'), (ii) the amendment of certain provisions of
the Restated Articles, and (iii) the amendment of certain provisions of the
By-Laws, which require the approval of 75% of the outstanding shares of stock
entitled to vote for the election of Directors. In the case of certain Business
Combinations and Reclassifications, the approval of a majority of the
outstanding shares of stock entitled to vote for the election of Directors other
than those beneficially owned by the other party to the Business Combination is
required.
At any meeting of the stockholders of the Company at which the holders of
Common Stock are entitled to vote, the presence, in person or by proxy, of a
majority of the stock issued and outstanding, and entitled to vote thereat,
constitutes a quorum. No action may be taken at any meeting, other than to
adjourn such meeting, unless a quorum of each class entitled to vote is present.
Dividends
The Board of Directors may cause dividends to be paid to the holders of
Common Stock from time to time out of funds legally available therefor. When and
as dividends are declared, they may be payable in cash, in property or in shares
of Common Stock. See 'Risk Factors -- No Intention to Pay Dividends.'
Registration Rights
The Company has granted to certain of its securityholders rights to have
certain shares of Common Stock held by or issuable to such persons registered
for resale under the Securities Act.
PREFERRED STOCK
General
The Company has authorized 50,000 shares of Convertible Preferred Stock,
which the Company has issued from time to time in the form of designated series
as set forth below.
Series A Preferred Stock. In May 1996, the Company issued 10,000 shares of
Series A Convertible Preferred Stock. Subsequently, in June 1996 these shares
were repurchased and canceled as a condition precedent to the purchase of the
Series B Preferred Stock and the Series C Preferred Stock by the holders
thereof, and are currently held by the Company as authorized but unissued
shares.
Series B Preferred Stock. In June 1996, the Company issued 6,200 shares of
Series B Preferred Stock. The Company also issued warrants (the 'Series B
Warrants') to the holders of Series B Preferred Stock exercisable for 3,100,000
shares of Common Stock at an exercise price of $2.50 per
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share for three years. In December 1996, all of the outstanding shares of Series
B Preferred Stock were converted into 2,480,000 shares of Common Stock, in
accordance with the terms thereof, as part of the Recapitalization. See 'The
Recapitalization.' Notwithstanding the conversion of all of the shares of Series
B Preferred Stock into Common Stock in connection with the Recapitalization, the
Series B Warrants remain outstanding and in full force and effect. In addition,
pursuant to an agreement dated June 7, 1996 with the holders of the Series B
Preferred Stock and the Series B Warrants, the Company agreed to file, on or
before October 5, 1996 (120 days after the date of such agreement), a
registration statement on Form S-3 or Form S-1 for the public resale by the
holders of the shares of Common Stock issuable upon conversion of the Series B
Preferred Stock or upon exercise of the Series B Warrants. The holders of the
Series B Warrants and the holders of the shares of Common Stock into which the
Series B Preferred Stock was converted continue to have these registration
rights with respect to the shares of Common Stock issued upon conversion of the
Series B Stock and the shares of Common Stock issuable upon the exercise of the
Series B Warrants; however, the requirement to have the registration statement
relating thereto filed by October 5, 1996 has been waived by the holders of the
Series B Warrants. See 'Shares Eligible for Future Sale -- Registration Rights
and Certain Lock-Up Arrangements -- Holders of Series B Preferred Stock.'
Series C Preferred Stock. In September 1996, the Company issued,
retroactive to June 1996, 2,000 shares of Series C Preferred Stock. The Company
also issued warrants (the 'Series C Warrants') to the holders of the Series C
Preferred Stock exercisable for 3,000,000 shares of Common Stock at an exercise
price of $3.00 per share for three years. In December 1996, all of the
outstanding shares of Series C Preferred Stock were repurchased for promissory
notes in an aggregate principal amount of $1.0 million, and the Series C
Warrants were exchanged for 600,000 shares of Common Stock, in each case as part
of the Recapitalization. See 'The Recapitalization.' In addition, pursuant to an
agreement dated September 10, 1996, but effective as of June 7, 1996, with the
holders of the Series C Preferred Stock and the Series C Warrants, the Company
agreed to file, on or before October 7, 1996, a registration statement on Form
S-3 or Form S-1 for the public resale by the holders of the shares of Common
Stock issuable upon conversion of the Series C Preferred Stock or upon exercise
of the Series C Warrants. The holders of the shares of Common Stock into which
the Series C Warrants were exchanged continue to have these registration rights
with respect to the shares of Common Stock issued upon exchange of the Series C
Warrants; however, the requirement to have the registration statement relating
thereto filed by October 7, 1996 has been waived by the holders of the Series B
Warrants. See 'Shares Eligible for Future Sale -- Registration Rights and
Certain Lock-Up Arrangements -- Holders of Series B Preferred Stock.'
OTHER OPTIONS AND WARRANTS
In addition to the Series B Warrants and the Series C Warrants described
above, the Company, on various dates ranging from April 21, 1995 to September
26, 1996, issued to several persons 383,077 warrants (the 'Warrants') that are
fully vested as of the date of this Prospectus including the warrants issued to
Mr. Coppersmith and Mr. Jones in connection with their respective consulting
agreements with the Company. See 'Management -- Executive Compensation --
Consulting Agreements,' and the Other Warrants described under 'Shares Eligible
for Future Sale -- Registration Rights and Certain Lock-up Arrangements --
Warrants.' Each Warrant entitles the holder to one share of Common Stock at
exercise prices ranging from $1.60 to $8.00 per share. The Warrants expire on
dates ranging from April 21, 1998 to February 26, 2001. The Company granted to
the holders of 118,077 of the Warrants piggyback registration rights, as
described more fully below.
The Company has also granted to Mr. Wainwright, by the terms of his
consulting agreement with the Company, the right to purchase from the Company,
for $2,500, warrants exercisable for 50,000 shares of Common Stock at an
exercise price of $4.00 per share for the first 25,000 shares, $4.50 per share
for the next 15,000 shares and $5.00 per share for the remaining 10,000 shares.
These warrants, if purchased, will be exercisable at the time of purchase and
will expire on June 3, 2000. See 'Management -- Executive
Compensation -- Consulting Agreements.'
In connection with the Company's acquisition of HSGR, in June 1993, the
Company issued options to the former owners of HSGR. These options are currently
exercisable for 2,250 shares of Common Stock in the aggregate at an exercise
price of $16.00 per share. The options expire in June 1998.
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Upon consummation of the Underwritten Offering, the Company will issue
warrants exercisable for an aggregate of 160,414 shares of Common Stock to
certain stockholders as consideration for such stockholders' agreement to
certain of the lock-up arrangements described under 'Shares Eligible for Future
Sale.' These warrants will be exercisable for a period of two or three years
after the date of consummation of the Offering (the 'Closing') at an exercise
price equal to the initial price to public of the Common Stock in the
Underwritten Offering (except that, in the case of warrants exercisable for up
to 9,386 shares of Common Stock to be issued to two stockholders, the exercise
price with respect to such warrants will be $1.00 above such initial price to
public).
The exercise price of any option for shares of Common Stock granted by the
Company after the date of this Prospectus exercisable for shares of Common Stock
will be equal to at least 85% of the market value of the Common Stock on the
date of such grant.
LIMITATION OF DIRECTORS LIABILITY; INDEMNIFICATION
The Restated Articles provide that Directors and officers of the Company
shall not be personally liable to the Company or its stockholders for damages
for breach of fiduciary duty as a Director or officer, except for (i) acts or
omissions which involve intentional misconduct, fraud, or a knowing violation of
law or (ii) the payment of dividends in violation of the provisions of Chapter
78 of the NRS. The Restated Articles further provide that, if the NRS is amended
to authorize corporate action further eliminating or limiting the personal
liability of Directors and officers, then the liability of a Director or officer
of the Company shall be eliminated or limited to the full extent permitted by
the NRS. Any repeal or modification of all or any portion of the limitation on
liability contained in the Restated Articles by the stockholders of the Company
shall not adversely affect any right or protection of a Director or officer of
the Company with respect to any acts or omissions occurring prior to the time of
such repeal or modification.
The By-Laws provide for indemnification of the officers and Directors of
the Company, as the case may be, against any liability, cost or expense incurred
by such Director or officer by reason of the fact that such person is or was a
Director, officer, employee or agent of the Company, except to the extent that
such indemnification is prohibited by Chapter 78 of the NRS.
Section 78.751 of the NRS provides that a corporation may, and in certain
cases, must, indemnify any person who was or is a party, or is threatened to be
made a party, to any threatened, pending or completed action, suit or proceeding
(other than certain actions by, or in right of, the Corporation), by reason of
the fact that such person is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses, including attorneys' fees,
and, in the case of a non-derivative action, judgments, fines and amounts paid
in settlement, actually and reasonably incurred by such person, in connection
with the action, suit or proceeding, if, in either type of action, such person
acted in good faith and in a manner which such person reasonably believed to be
in, or not opposed to, the best interests of the corporation. The termination of
any action, suit or proceeding by judgment, order, settlement, conviction or
upon a plea of nolo contendere or its equivalent does not, of itself, create a
presumption that the person did not act in good faith and in a manner which such
person reasonably believed to be in, or not opposed to, the best interests of
the corporation and that, with respect to any criminal action or proceeding,
such person had reasonable cause to believe that such person's conduct was
unlawful.
Indemnification may not be made, in a derivative action, for any claim,
issue or matter as to which such a person had been adjudged by a court of
competent jurisdiction, after exhaustion of all appeals therefrom, to be liable
to the corporation, or for amounts paid in settlement to the corporation,
unless, and only to the extent that, the court in which the action or suit was
brought or other court of competent jurisdiction determines upon application
that, in view of all the circumstances of the case, the person is fairly and
reasonably entitled to indemnity for such expenses as the court deems proper.
The Company's By-Laws provide that the expenses of officers and Directors
incurred in defending a civil or criminal action, suit or proceeding must be
paid by the corporation as they are incurred, and in advance of the final
disposition of the action, upon receipt of an undertaking by, or on behalf of,
the Director or officer to repay the amount if it is ultimately determined by a
court of competent jurisdiction that such person is not entitled to be
indemnified by the corporation. Unless ordered by a
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court or advanced (as described above), any indemnification must be made by the
corporation, only as authorized in the specific case, upon a determination that
the indemnification of the Director, officer, employee or agent is proper in the
circumstances. The determination must be made either by the stockholders, or by
the Board of Directors by a majority vote of a quorum consisting of Directors
who were not parties to the act, suit or proceeding. If a majority vote of a
quorum consisting of Directors who were not parties to the act, suit or
proceeding so orders, or if a quorum consisting of Directors who were not
parties to the act, suit or proceeding cannot be obtained, the determination
must be made by independent legal counsel in a written opinion.
Insofar as indemnification for Directors, officers and controlling persons
of the Company with respect to liabilities arising under the Securities Act may
be granted pursuant to the provisions described above, or otherwise, the Company
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.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is Continental Stock
Transfer & Trust Company and its address is 2 Broadway, New York, New York
10004.
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SHARES ELIGIBLE FOR FUTURE SALE
The following discussion of shares eligible for future sale excludes up to
4,901,423 shares of Common Stock (subject to lock-up provisions described below)
which may be issued pursuant to currently outstanding options, warrants and
contractual rights.
Upon completion of the Underwritten Offering, the Company will have a total
of 10,008,108 shares of Common Stock outstanding (10,189,935 if the
Underwriters' over-allotment options are exercised in full). As of the date of
this Prospectus, 5,321,228 shares of the outstanding Common Stock, including the
2,100,000 shares of Common Stock offered hereby (plus an additional 315,000
shares if the Underwriters' over-allotment options are exercised in full) and
the 1,381,056 shares of Common Stock being sold by the Delayed Selling
Stockholders in the Delayed Offering will be freely tradeable without
restriction or registration under the Securities Act or will be eligible for
sale in the public market without regard to the availability of current public
information, volume limitations, manner of sale restrictions or notice
requirements under Rule 144(k), in each case by persons other than 'affiliates'
(as defined under the Securities Act) of the Company.
All the remaining 4,686,880 Restricted Shares were issued and sold by the
Company in private transactions in reliance upon the exemption from registration
contained in Section 4(2) of the Securities Act and are restricted securities
under Rule 144 of the Securities Act. Restricted Shares may not be sold unless
they are registered under the Securities Act or are sold pursuant to an
applicable exemption from registration, including pursuant to Rule 144. In
general, under Rule 144 as currently in effect, beginning 90 days after the
Underwritten Offering, a person (or persons whose shares are aggregated) who has
beneficially owned Restricted Shares for at least two years, including
affiliates of the Company, would be entitled to sell in brokers' transactions or
to market makers within any three-month period a number of Restricted Shares
that does not exceed the greater of (i) 1% of the then outstanding shares of
Common Stock (approximately 100,081 shares, based on the number of shares to be
outstanding after the Underwritten Offering, assuming no exercise of the
Underwriters' over-allotment options) or (ii) the average weekly trading volume
of the Common Stock on The Nasdaq SmallCap MarketSM during the four calendar
weeks preceding the date on which notice of the sale is filed with the
Commission. Sales under Rule 144 are also subject to certain manner of sale
provisions, notice requirements and the availability of current public
information about the Company. A person who is not an affiliate of the Company
at any time during the 90 days preceding a sale, and who has beneficially owned
Restricted Shares for at least three years, is currently entitled to sell such
Restricted Shares under Rule 144(k) without regard to the availability of
current public information, volume limitations, manner of sale restrictions or
notice requirements. However, under Rule 144, Restricted Shares held by
affiliates must continue, after the three-year holding period, to be sold in
brokers' transactions or to market makers subject to the volume limitations
described above. The above is a summary of Rule 144 and is not intended to be a
complete description thereof. As of April 25, 1997, approximately 837,415
Restricted Shares may become eligible for sale pursuant to Rule 144, or continue
to be eligible for sale under other exemptions from registration, under the
Securities Act.
Holders of an aggregate of up to 7,832,897 shares of Common Stock,
consisting of 4,068,532 Restricted Shares outstanding as of the date of this
Prospectus and up to 3,774,365 Restricted Shares issuable upon conversion or
exercise of other securities or other contractual rights then outstanding and
then convertible or exercisable, in each case depending on the extent to which
the Underwriters' over-allotment options are exercised, if at all, will have
demand and/or piggyback rights to have such Restricted Shares registered under
the Securities Act pursuant to various registration rights agreements with the
Company. See ' -- Registration Rights and Certain Lock-Up Arrangements.' The
Company, its Directors and officers and certain of its stockholders and holders
of options, warrants, conversion or contractual rights to acquire Common Stock,
who will hold in the aggregate up to 10,202,092 Restricted Shares outright or
issuable upon exercise of such rights, depending on the extent to which the
Underwriters' over-allotment options are exercised, if at all (10,199,782
Restricted Shares if the Underwriters' over-allotment options are exercised in
full), have agreed that they will not, directly or indirectly, offer, sell,
offer to sell, contract to sell, pledge, grant any option to purchase or
otherwise dispose of or transfer (or announce any offer, sale, offer of sale,
pledge, contract of sale, grant of any option to purchase or other disposition
or transfer of) any shares of Common Stock or any capital stock or any other
securities convertible into or exercisable for, or any right to purchase or
acquire, Common
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Stock or any other capital stock, for a period of nine months after the date of
this Prospectus, subject to termination if the final Prospectus relating to the
Underwritten Offering is not filed with the Commission by March 31, 1997
pursuant to Rule 424(b) under the Securities Act (such period being the 'Lock-Up
Period'), without the prior written consent of the Lead Representative, on
behalf of the Underwriters, except (x) in the case of the Company, with respect
to (i) private issuances in connection with acquisitions if the holders thereof
agree to be bound by the foregoing nine-month restriction to the same extent as
the Company and (ii) grants of Options and other rights pursuant to the Stock
Option Plan and issuances of Common Stock pursuant to the exercise of currently
outstanding employee options and (y) in the case of the holders, with respect to
bona fide gifts of shares of Common Stock or securities convertible into or
exchangeable for Common Stock provided that the donee agrees in writing to be
bound by the foregoing provisions. See ' -- Registration Rights and Certain
Lock-up Arrangements.'
The Lead Representative may from time to time in its sole discretion
release some or all of the stockholders who have executed such a lock-up
agreement from the restrictions thereof. The determination whether to grant such
a release will be made by the Lead Representative on a case-by-case basis, based
on such considerations as the Lead Representative may deem relevant, including
but not limited to market conditions and public demand for additional securities
of the Company. In connection with any such release, the Lead Representative may
negotiate with any such stockholder for the purchase (for the Lead
Representative's own account or the account of others) of the securities held by
such stockholder at prices which may or may not relate to the then current
market price of the Common Stock. Although as of the date of this Prospectus, no
definitive agreement has been reached between the Lead Representative and any
stockholder regarding the release of any such lock-up agreement, the Lead
Representative has indicated to the Company and certain representatives of the
holders (the 'Holders') of the shares of Common Stock into which the Series B
Preferred Stock was converted and the Series B Warrants that it would be willing
to release, following consummation of the Underwritten Offering, some or all of
the Common Stock held or beneficially owned by such Holders from the provisions
of the lock-up agreements entered into by such Holders prior to the expiration
of the Lock-up Period in the event that: (i) the financial performance of the
Company following the Underwritten Offering is satisfactory to the Lead
Representative, in its sole discretion; and (ii) the Lead Representative
determines, in its sole discretion, that the level of investor interest in the
Common Stock is sufficient so as to permit the sale of shares of Common Stock
released from the provisions of such lock-up agreements on terms that the Lead
Representative determines would not adversely affect the prevailing market price
of the Common Stock at the time of any such sale. Although no agreement (oral or
written) exists between the Lead Representative and such Holders for the sale of
any Common Stock upon release of shares from the provisions of such lock-up
agreements by or through the Lead Representative, in the event that the Lead
Representative were to act as placement agent in respect of any such sale of
Common Stock on behalf of such Holders, such services would be provided on
customary terms and conditions with a standard commission. As of the date of
this Prospectus, there is no agreement (oral or written) with any of such
Holders as to the specific date that any release of shares from the provisions
of such lock-up arrangements would be granted or as to the number of shares
subject to such lock-up arrangements that would be so released.
The Company currently expects to file a registration statement under the
Securities Act to register shares reserved for issuance under the Stock Option
Plan. Shares issued pursuant to the Stock Option Plan or upon exercise of
outstanding Options after the effective date of such registration statement,
other than shares held by affiliates of the Company (which are subject to the
resale restrictions of Rule 144), generally will be tradeable without
restriction under the Securities Act, subject to the lock-up provisions
described above.
REGISTRATION RIGHTS AND CERTAIN LOCK-UP ARRANGEMENTS
The following summaries are qualified in their entirety by the full text of
the various registration rights ageements and other registration rights
provisions filed as exhibits to the Registration Statement of which this
Prospectus forms a part.
There are ten sources of registration rights applicable to the Company as
of the date of this Prospectus: (1) the registration rights granted to the
holders of Alliance common stock (the 'Reg D
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Investors') pursuant to the Placement Memorandum dated February, 1995 (the
'Placement Memorandum'); (2) the registration rights granted to Mr. Glenn
Golenberg, Mr. Marshall Geller, Whale and Millennium pursuant to an aggrement
dated February 7, 1995 among the Company, Whale and Golenberg and Geller, Inc.,
and a letter dated March 21, 1995 from Whale to the Company (the 'Finder's Fee
Agreements') in connection with certain finder's fees related to the Company's
acquisition of Alliance; (3) the registration rights granted to Mr. Golenberg
and Mr. Geller pursuant to two agreements (the 'Golenberg/Geller Agreements')
dated May 19, 1995 between the Company and Mr. Golenberg and the Company and Mr.
Geller, respectively; (4) the registration rights attached to the 62,500 shares
issued to Mighty Net, Inc. (previously named Membership Development, Inc.)
('MNI') by the Company pursuant to a Settlement and Release Agreement dated June
17, 1994 between the Company, Sheldon Kasower ('Kasower') and MNI; (5) the
registration rights granted to the holders of the Series B Preferred Stock; (6)
the registration rights granted to the holders of the Series C Preferred Stock;
(7) the registration rights attached to the warrants issued by the Company
pursuant to various warrant certificates; (8) the registration rights granted to
Mr. Stephen Dunn pursuant to the Stock Purchase Agreement (the 'Stock Purchase
Agreement') dated January 31, 1995 between Mr. Dunn and Alliance; (9) the
registration rights granted to Mr. Barbera, Mr. Budlow and Ms. Sautkulis
pursuant to the Registration Rights Agreement (the 'Registration Agreement')
dated as of October 9, 1996 between the Company, Mr. Barbera, Mr. Budlow and Ms.
Sautkulis; and (10) the registration rights attached to the Representatives'
Warrants.
Reg D Investors. Subject to certain conditions and limitations, in
connection with the issuance of 563,750 shares of Common Stock pursuant to the
Placement Memorandum (the 'Reg D Registrable Securities'), the holders of an
aggregate of at least two-thirds of the Reg D Registrable Securities have the
right to require one time that the Company use its best efforts to effect a
registration of all the Reg D Registrable Securities. This demand registration
right may not be exercised before the date which is the earlier of (i) nine
months from the date of the closing of the 'Offering' (as defined in the
Placement Memorandum) and (ii) six months after a 'Qualified Public Offering'
(as defined in the Placement Memorandum).
Subject to certain conditions and limitations, the Reg D Investors also
have piggyback registration rights pursuant to which the Company must notify the
Reg D Investors of the Company's intention to register any Common Stock for its
own account and include in such registration all Reg D Registrable Securities
requested by the Reg D Investors to be so included.
Certain of the Reg D Registrable Securities of the Reg D Investors who are
also Delayed Selling Stockholders (an aggregate of 78,556 shares of Common
Stock) are being registered under the Securities Act by the registration
statement of which this Prospectus forms a part for resale on a delayed basis
pursuant to Rule 415 under the Securities Act. See 'The Delayed Offering.'
Certain of the Reg D Registrable Securities of the Reg D Investors who are
also Selling Stockholders (an aggregate of 183,881 shares of Common Stock) are
being registered under the Securities Act by the registration statement of which
this Prospectus forms a part for resale as part of the Underwritten Offering.
See 'Principal and Selling Stockholders.'
Reg D Investors who are also Selling Stockholders have agreed, except as
set forth in the next sentence, to irrevocably waive any and all of their
piggyback and demand registration rights and not to sell any shares of Common
Stock or certain related securities except: (i) pursuant to the Underwritten
Offering or the exercise of the Underwriters' over-allotment options; (ii) in
accordance with all of the applicable provisions of Rule 144 under the
Securities Act; or (iii) in transactions exempt from the registration
requirements of the Securities Act. Such agreements terminate if the final
Prospectus relating to the Underwritten Offering is not filed with the
Commission by March 31, 1997 pursuant to Rule 424(b) under the Securities Act.
All of the Reg D Investors (other than the Reg D Investors who are Delayed
Selling Stockholders or the Selling Stockholders described in the preceding
paragraph), including the Reg D Investors who are also Over-Allotment Selling
Stockholders, have agreed not to exercise their demand or piggyback registration
rights and not to make sales of Common Stock or certain related securities
during the Lock-Up Period with respect to any Reg D Registrable Securities held
by them that are not sold pursuant to the Underwritten Offering or the exercise
of the Underwriters' over-allotment options. As consideration for these
lock-ups, upon consummation of the Underwritten Offering, the Company will issue
to
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the Reg D Investors agreeing thereto (other than to such Reg D Investors who are
Selling Stockholders), warrants exercisable for one share of Common Stock for
each two shares of Common Stock that are subject to such lock-ups (such new
warrants to be exercisable for an aggregate of up to 77,142, shares of Common
Stock). Such warrants will be exercisable for a period of two years from the
date of the Closing at an exercise price equal to the initial price to public of
the Common Stock in the Underwritten Offering (except that, in the case of
warrants exercisable for up to 9,386 shares of Common Stock issued to two
stockholders, the exercise price with respect to such warrants will be $1.00
above such initial price to public). Reg D Investors who are Selling
Stockholders are not entitled to any such warrants.
Recipients of Finder's Fee. Subject to certain conditions and limitations
and pursuant to the Finder's Fee Agreements, Whale, Millennium, Mr. Golenberg
and Mr. Geller have piggyback registration rights with respect to an aggregate
of 37,500 shares of Common Stock owned outright and an aggregate of 25,000
shares of Common Stock issuable upon the exercise of warrants (the 'Finder's Fee
Warrants').
Whale and Millennium have agreed, except as set forth in the next sentence,
to irrevocably waive any and all of their piggyback registration rights and not
to sell any shares of Common Stock or certain related securities except: (i)
pursuant to the Underwritten Offering or the exercise of the Underwriters'
over-allotment options; (ii) in accordance with all of the applicable provisions
of Rule 144 under the Securities Act; or (iii) in transactions exempt from the
registration requirements of the Securities Act. Such agreements terminate if
the final Prospectus relating to the Underwritten Offering is not filed with the
Commission by March 31, 1997 pursuant to Rule 424(b) under the Securities Act.
Mr. Golenberg and Mr. Geller have agreed not to exercise their piggyback
registration rights and not to make sales of Common Stock or certain related
securities during the Lock-Up Period. As consideration for these lock-ups, upon
consummation of the Underwritten Offering, the Company will issue to each of Mr.
Golenberg and Mr. Geller warrants exercisable for one share of Common Stock for
each two shares of Common Stock that are subject to such lock-ups (such new
warrants to be exercisable for an aggregate of 15,626 shares of Common Stock).
Such warrants will be exercisable for a period of three years from the date of
the Closing at an exercise price equal to the initial price to public of the
Common Stock in the Underwritten Offering.
Golenberg and Geller. Subject to certain conditions and limitations and
pursuant to the Golenberg/Geller Agreements, the Company agreed to include an
aggregate of 56,250 shares of Common Stock held by Mr. Golenberg and Mr. Geller
outright or issuable upon the exercise of warrants (the 'Golenberg/Geller
Warrants') in a registration statement to be filed on or before December 1,
1995.
Mr. Golenberg and Mr. Geller have agreed not to exercise their registration
rights and not to make sales of Common Stock or certain related securities
during the Lock-Up Period. As consideration for these lock-ups, upon
consummation of the Underwritten Offering, the Company will issue to each of Mr.
Golenberg and Mr. Geller warrants exercisable for one share of Common Stock for
each two shares of Common Stock that are subject to such lock-ups (such new
warrants to be exercisable for an aggregate of 28,125 shares of Common Stock).
Such warrants will be exercisable for a period of three years from the date of
the Closing at an exercise price equal to the initial price to public of the
Common Stock in the Underwritten Offering.
Kasower and MNI. Pursuant to a Settlement and Release Agreement dated June
17, 1994 between the Company, Kasower and MNI, the Company agreed to file a
registration statement with respect to 62,500 shares of Common Stock delivered
to MNI in connection with such settlement and release not later than sixty (60)
days after the filing of the Company's Form 10-K for the fiscal year ended June
30, 1994.
Pursuant to such obligations, the Company filed a registration statement on
Form S-3 on June 17, 1995 and Amendment No. 1 thereto on July 25, 1996 (as
amended, the 'S-3') with respect to which the Company has submitted a letter to
the Commission requesting withdrawal. See ' -- S-3.' Kasower and MNI have agreed
to the Company's withdrawal of the S-3 and MNI has included all remaining 52,500
shares of Common Stock issued to it in connection with such Settlement and
Release Agreement in the Delayed Offering. See 'The Delayed Offering.'
Holders of Series B Preferred Stock. Pursuant to an agreement dated June 7,
1996 with the holders of the Series B Preferred Stock, the Company agreed to
file on or before October 5, 1996 (120 days
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after the date of such agreement) a registration statement on Form S-3 or Form
S-1 for the public resale of all of the shares of Common Stock issuable on
conversion of the Series B Preferred Stock and all of the shares of Common Stock
issuable upon exercise of the Series B Warrants. Subject to certain conditions
and limitations, the Company is required to use its best efforts to cause such
registration statement to become effective not later than 90 days after the date
of filing, and to keep such registration statement effective for two years, in
the case of Common Stock issued upon conversion of the Series B Preferred Stock,
and for three years, in the case of Common Stock issued upon exercise of the
Series B Warrants.
In connection with the Recapitalization, (i) all 6,200 outstanding shares
of the Series B Preferred Stock were converted without the payment of additional
consideration into 2,480,000 shares of Common Stock and (ii) all accrued
interest on the Series B Preferred Stock ($101,918 in the aggregate) was
converted into 81,534 shares of Common Stock. Holders of the shares of Common
Stock into which the Series B Preferred Stock was converted and the Series B
Warrants have agreed not to exercise their registration rights and agreed not to
make sales of Common Stock or Series B Warrants during the Lock-Up Period,
except as part of the Underwritten Offering. See 'Principal and Selling
Stockholders' and 'Certain Transactions.'
Holders of Series C Preferred Stock. Pursuant to an agreement dated
September 10, 1996, but effective as of June 7, 1996, with the holders of the
Series C Preferred Stock, the Company agreed to file a registration statement on
Form S-3 or Form S-1 for the public resale of all of the shares of Common Stock
issuable on conversion of the Series C Preferred Stock and all of the shares of
Common Stock issuable upon exercise of the Series C Warrants. Subject to certain
conditions and limitations, the Company is required to use its best efforts to
cause such registration statement to become effective not later than 90 days
after the date of filing, and to keep such registration statement effective for
two years, in the case of Common Stock issued upon conversion of the Series C
Preferred Stock, and for three years, in the case of Common Stock issued upon
exercise of the Series C Warrants.
In connection with the Recapitalization, (i) all 2,000 outstanding shares
of the Series C Preferred Stock were repurchased by the Company for $1.0 million
aggregate principal amount of promissory notes; (ii) warrants issued to holders
of Series C Preferred Stock, exercisable for 3,000,000 shares of Common Stock,
were exchanged for an aggregate of 600,000 shares of Common Stock; and (iii) all
accrued interest on the Series C Preferred Stock ($43,836 in the aggregate) was
converted into 7,306 shares of Common Stock. Holders of the shares of Common
Stock for which the Series C Warrants were exchanged have agreed to waive their
registration right and not to make sales of Common Stock during the Lock-Up
Period.
Warrants. In addition to the Finder's Fee Warrants, the Golenberg/Geller
Warrants, the Series B Warrants and the Series C Warrants, the Company has
issued warrants containing registration rights (the 'Other Warrants'), as more
fully described below, exercisable for an aggregate of 40,577 shares of Common
Stock to various persons (the 'Warrant Holders'). The Other Warrants (and the
related registration rights) expire on various dates ranging from January 8,
1999 to July 15, 2000. Pursuant to such Other Warrants, the Company must provide
each Warrant Holder with at least forty-five (45) days prior written notice of
any registration of any securities of the Company. Subject to certain conditions
and limitations, all such Warrant Holders have the right to require the Company
to include such number of shares of Common Stock underlying the Other Warrants
held by them in any registered offering of Common Stock by the Company.
Such Warrant Holders have agreed not to exercise their piggyback
registration rights and agreed not to make sales of Common Stock or certain
related securities during the Lock-Up Period. As consideration for the foregoing
lock-ups, upon consummation of the Underwritten Offering, the Company will issue
to such Warrant Holders, new warrants exercisable for one share of Common Stock
for each two shares of Common Stock issuable upon exercise of the Other Warrants
held by such Warrant Holders that are subject to such lock-ups (such new
warrants to be exercisable for an aggregate of 16,068 shares of Common Stock).
These new warrants will be exercisable for a period of two years from the date
of the Closing at an exercise price equal to the initial price to public of the
Common Stock in the Underwritten Offering.
In addition, pursuant to an option agreement dated October 1, 1995 between
the Company and the three individuals named therein, the Company agreed to file
with the Commission, on or before
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December 1, 1995, a shelf registration statement with regard to 30,000 shares of
Common Stock issuable to such persons upon exercise of warrants granted to them
in such option agreement. Subject to certain conditions and limitations, the
Company agreed to use its best efforts to have such registration statement
declared effective as soon as possible after the filing thereof and to keep the
shelf registration statement continuously effective thorough December 31, 1996.
In addition, in connection with the extension of such option agreement in April
1996, the Company issued to such three individuals warrants exercisable for
22,500 shares of Common Stock in the aggregate, together with piggyback
registration rights having terms and conditions similar to those given to the
Warrant Holders.
Each of such persons has agreed not to exercise his registration rights and
not to make sales of Common Stock or certain related securities during the
Lock-Up Period. As consideration for each of the foregoing lock-ups, the Company
will issue, upon consummation of the Underwritten Offering, to each of such
persons, new warrants exercisable for one share of Common Stock for each two
shares of Common Stock issuable upon exercise of the warrants granted to such
person under the option agreement that are subject to such lock-ups (such new
warrants to be exercisable for an aggregate of 26,250 shares of Common Stock).
These warrants will be exercisable for a period of two years from the date of
the Closing at an exercise price equal to the initial price to public of the
Common Stock in the Underwritten Offering.
Stephen Dunn. Pursuant to a Stock Purchase Agreement dated January 31,
1995, the Company may satisfy up to one-half of any contingent payment due in
respect of the purchase price for SD&A with restricted Common Stock. With
respect to any such Common Stock issued to Mr. Dunn in satisfaction of any such
contingent payment, Mr. Dunn has the right to make two demands, commencing in
September 1997, that the Company prepare, file and cause to become effective a
registration statement as to such number of shares of Common Stock so issued to
Mr. Dunn as he may request to be included therein in a notice to the Company.
Mr. Dunn has agreed not to exercise such registration rights and agreed not
to make sales of Common Stock or certain related securities during the Lock-Up
Period.
Metro. In connection with the Company's acquisition of Metro, the Company
issued 1,814,000 shares of Common Stock to the former shareholders of Metro.
Pursuant to a Registration Rights Agreement dated as of October 9, 1996, subject
to certain conditions and limitations contained therein, commencing nine months
after the consummation of an underwritten public offering by the Company of its
securities (or, if such an underwritten public offering has not been consummated
by March 31, 1997, commencing December 31, 1997), such former shareholders or
any permitted transferee or assignee thereof have piggyback registration rights
with respect to the Common Stock so issued to them in the event the Company
files a registration statement on any form that would permit the registration of
their Common Stock (other than on Form S-4 or S-8 or in connection with an
exchange offer or an offering of securities solely to the Company's existing
stockholders). The Company is required to give such former shareholders or any
permitted transferee or assignee thereof at least 40 days' prior written notice
of the filing of any such registration statement. In addition, in the event that
such a registration statement is not filed within nine months of the
consummation of an underwritten public offering by the Company of its securities
(or, if such an underwritten public offering has not been consummated by March
31, 1997, prior to December 31, 1997), such former shareholders or any permitted
transferee or assignee thereof have the right to demand one time that the
Company file a registration statement with respect to the Common Stock so issued
to them and use its best efforts to have such registration statement declared
effective.
The former shareholders of Metro have agreed not to exercise their demand
registration rights and their piggyback registration rights and agreed not to
make sales of Common Stock or certain related securities during the Lock-Up
Period.
Representatives' Warrants. Upon the completion of the Underwritten
Offering, the Company will sell to the Representatives, individually and not as
representatives of the Underwriters, the Representatives' Warrants for
consideration of one mil ($.001) per Representatives' Warrant, exercisable for
210,000 shares of Common Stock in the aggregate. Each Representatives' Warrant
shall (i) entitle the holder thereof to purchase one share of Common Stock at an
exercise price equal to 120% of the initial price to public per share of the
Common Stock offered by the Company hereby; (ii) be exercisable for a period of
four years commencing one year after the date of this Prospectus; and
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(iii) contain appropriate anti-dilution provisions. Such anti-dilution
provisions include protection against dilution in both price and percentage of
the Company (to the extent permitted by the rules and regulations of the NASD)
upon (a) any issuance of Common Stock, warrants or other securities convertible
into Common Stock at a price below the then market value of the Common Stock
during a period of five years from the date of this Prospectus; (b) any issuance
of Common Stock, warrants or other securities convertible into Common Stock as a
dividend; or (c) a subdivision or combination of the outstanding Common Stock,
warrants or other securities convertible into Common Stock as the result of a
merger, consolidation, spin-off or otherwise.
During the four-year period commencing one year from the date of this
Prospectus, the Company is required to use its best efforts to assist the
holders of the Representatives' Warrants and the underlying securities in
publicly selling such Representatives' Warrants and the underlying securities,
when and if requested by the holders of a majority thereof. These best efforts
include the preparation and filing of one or more registration statements during
such four-year period at the demand of the holders of not less than a majority
of the Representatives' Warrants or underlying securities (treated as one
class), and the maintenance of the effectiveness thereof for at least six
months, the first of which such filings is at the Company's sole cost and
expense, including, without limitation, blue sky fees and expenses and the fees
and expenses (not to exceed $15,000) of one counsel to the holders of the
Representatives' Warrants or underlying securities, but not including any
underwriting or selling commissions, discounts or other charges of any
broker-dealer acting on behalf of such holders. In addition, for the period from
the first through the seventh anniversary of the date of this Prospectus, the
Company is required to notify all holders of the Representatives' Warrants and
underlying securities of the Company's intention to undertake another public
offering of the Company's securities (whether by the Company or by any security
holder of the Company). If requested by any holder of Representatives' Warrants,
the Company is required to include in such public offering any Representatives'
Warrants and underlying securities of such requesting holder at the Company's
sole cost and expense (other than (i) fees and disbursements of counsel for any
holder of Representatives' Warrants and (ii) any applicable underwriting
discounts or commissions, but including, without limitation, blue sky fees and
expenses) and maintain the effectiveness of any registration statement relating
to such public offering for at least six months after the date such registration
statement is declared effective. The Representatives' Warrants will not be
transferable, saleable, assignable or hypothecatable except that they may be
assigned in whole or in part to any officer, director or principal of, or
successor to, either of the Representatives.
S-3. In addition to Kasower and MNI, all of the other persons referred to
in the S-3 as 'Selling Stockholders' have agreed to the Company's withdrawal of
the S-3.
Other Lock-Up Arrangements. The Company and its Directors and executive
officers have agreed not to make sales of Common Stock or certain related
securities during the Lock-Up Period.
New Warrants. All of the warrants to be issued by the Company upon
consummation of the Underwritten Offering as consideration for certain of the
lock-up arrangements described above, exercisable for an aggregate of 160,414
shares of Common Stock, will grant to the holders thereof the same registration
rights as the underlying securities subject to the lock-up arrangement in
respect of which such new warrants are being issued.
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UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, for whom Cruttenden Roth Incorporated and LT Lawrence
& Co., Inc. are acting as the Representatives, have severally agreed to purchase
from the Company and the Selling Stockholders, and the Company and the Selling
Stockholders have severally agreed to sell to the Underwriters, the aggregate
respective number of shares of Common Stock set forth opposite each
Underwriter's name below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
------------ ---------
<S> <C>
Cruttenden Roth Incorporated ....................................................
LT Lawrence & Co., Inc. .........................................................
---------
Total.................................................................. 2,100,000
---------
---------
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to certain conditions precedent, including
the absence of any material adverse change in the Company's business and the
receipt of certain certificates, opinions and letters from the Company. The
nature of the Underwriters' obligations is such that they are committed to
purchase and pay for all the shares of Common Stock if any are purchased.
The Company has been advised by the Representatives that the Underwriters
propose initially to offer the shares of Common Stock to the public at the price
to public set forth on the cover page of this Prospectus and to certain
securities dealers at such price less a concession not in excess of $. per
share. The Underwriters may allow, and such selected dealers may reallow, a
concession not in excess of $. per share to certain brokers and dealers.
After the Underwritten Offering, the price to public, concession, allowance and
reallowance may be changed by the Lead Representative.
The Company, the Selling Stockholders and the Over-Allotment Selling
Stockholders have granted to the Underwriters options to purchase up to 315,000
additional shares of Common Stock solely to cover over-allotments, if any. The
options are exercisable within 45 days from the date of this Prospectus at the
initial price to public, less the underwriting discount set forth on the cover
page of this Prospectus. To the extent the Underwriters exercise the options,
the Underwriters will be committed, subject to certain conditions, to purchase
the additional shares. The Company has agreed with the Selling Stockholders and
the Over-Allotment Selling Stockholders that the first 124,173 shares as to
which the Underwriters' over-allotment options are exercised will be sold by
such Selling Stockholders and Over-Allotment Selling Stockholders on a pro rata
basis based on the relative amounts subject to sale by such persons as set forth
under 'Principal and Selling Stockholders,' and any of the remaining 190,827
shares as to which the Underwriters' over-allotment options are exercised will
be sold by the Company.
See 'Shares Eligible for Future Sale' for a description of certain lock-up
agreements.
The Underwriting Agreement provides that the Company, the Selling
Stockholders and the Over-Allotment Selling Stockholders will indemnify the
Underwriters and their controlling persons against certain liabilities under the
Securities Act, or contribute to payments the Underwriters and their controlling
persons may be required to make in respect thereof.
The Company has paid the Other Representative $50,000 on account of the
Underwriters' expenses in connection with the Underwritten Offering to be
applied to a non-accountable expense allowance equal to 3% of the aggregate
offering price of the shares of Common Stock to be sold in the Underwritten
Offering.
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The Company has agreed to issue to the Representatives, for total
consideration of one mill ($.001), the Representatives' Warrants. The
Representatives' Warrants have an exercise price equal to 120% of the initial
price to public in the Underwritten Offering, are exercisable for a period of
four years commencing one year from the date of this Prospectus, and are not
transferable except to officers, directors or principals of, or successors to,
either of the Representatives. The Representatives' Warrants include net
exercise provisions permitting the holders to pay the exercise price by
cancellation of a number of shares with a fair market value equal to the
exercise price of the Representatives' Warrants. The holders of the
Representatives' Warrants will have no voting, dividend or other stockholders
rights until the Representatives' Warrants are exercised. In addition, the
Company has granted certain rights to holders of the Representatives' Warrants
to register the Representatives' Warrants and the Common Stock underlying the
Representatives' Warrants. The Representatives may allow to certain dealers, and
such dealers may reallow, a portion of the Representatives' Warrants.
In the ordinary course of its investment banking activities, the Lead
Representative was paid by the Company (i) $25,000 (in two equal installments of
$12,500 each in November 1995 and January 1996) for services rendered in
connection with a proposed private placement of debt securities of the Company,
which was never consummated, and (ii) $33,750 in July 1996 in connection with
rendering a fairness opinion relating to the sale by the Company of the Series B
Preferred Stock and Series C Preferred Stock and related transactions (see
'Description of Capital Stock -- Preferred Stock').
LT Lawrence & Co., Inc. was organized in February 1992 and was registered
as a broker-dealer in 1994. Prior to this Offering, LT Lawrence & Co., Inc. has
participated as a sole or co-manager in four public offerings. See 'Risk
Factors -- Lack of Underwriting History.'
The Representatives have informed the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.
VALIDITY OF SHARES
The validity of the securities offered hereby is being passed upon for the
Company by Lionel, Sawyer & Collins, Las Vegas, Nevada and for the underwriters
by Gordon & Silver Ltd., Las Vegas, Nevada. Certain other legal matters in
connection with the Underwritten Offering will be passed upon for the Company by
Jones, Day, Reavis & Pogue, New York, New York and for the Underwriters by Rubin
Baum Levin Constant & Friedman, New York, New York.
EXPERTS
The Company's consolidated balance sheet as of June 30, 1996 and the
consolidated statements of operations, stockholders' equity and cash flows for
each of the two years in the period ended June 30, 1996 included in this
Prospectus have been included herein in reliance on the report of Coopers &
Lybrand L.L.P., independent accountants, given on the authority of that firm as
experts in accounting and auditing. The balance sheet of SD&A as of December 31,
1994 and the statements of income, shareholder's equity and cash flows for the
year ended December 31, 1994 included in this Prospectus have been included
herein in reliance on the report of Coopers & Lybrand L.L.P., independent
accountants, given on the authority of that firm as experts in accounting and
auditing. Metro's balance sheet as of December 31, 1995 and the statements of
operations, shareholders' equity and cash flows for each of the two years in the
period ended December 31, 1995 included in this Prospectus have been included
herein in reliance on the report of Coopers & Lybrand L.L.P., independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission, Washington, D.C. 20549 a
Registration Statement on Form SB-2 under the Securities Act with respect to the
shares of Common Stock offered hereby. This Prospectus does not contain all of
the information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information pertaining to the securities offered
hereby and to the Company, reference is made to the Registration Statement and
the exhibits and schedules filed
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therewith. Statements contained in the Prospectus concerning the provisions of
any document to which reference is made are not necessarily complete and, in
each instance, reference is made to the copy of such document filed as an
exhibit to the Registration Statement. Each such statement is qualified in its
entirety by such reference. A copy of the Registration Statement may be
inspected without charge at the offices of the Commission in Washington, D.C.
20549, and copies of all or any part of the Registration Statement may be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 upon the payment of the fees prescribed by
the Commission.
The Company is subject to the informational reporting requirements of the
Exchange Act, and accordingly, files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information filed with the Commission are available for inspection and copying
at the public reference facilities maintained by the Commission at Room 1025,
450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549 and at certain
regional offices of the Commission, located at Suite 1400, Northwestern Atrium
Center, 500 West Madison Street, Chicago, IL 60621 and 7 World Trade Center, New
York, NY 10048. Copies of such material can be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549 upon the payment of the fees prescribed by the
Commission. In addition, the Commission maintains a website that contains
reports, proxy statements and other information filed with the Commission. The
address of such site is http://www.sec.gov.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF ALL-COMM MEDIA CORPORATION
Condensed Consolidated Balance Sheets
June 30, 1996 (unaudited) and September 30, 1996 (unaudited)........................................ F-2
Condensed Consolidated Statements of Operations
Three Months Ended September 30, 1995 (unaudited) and 1996 (unaudited).............................. F-3
Condensed Consolidated Statements of Cash Flows
Three Months Ended September 30, 1995 (unaudited) and 1996 (unaudited).............................. F-4
Notes to Interim Condensed Consolidated Financial Statements (unaudited).............................. F-6
ANNUAL FINANCIAL STATEMENTS OF ALL-COMM MEDIA CORPORATION
Report of Independent Accountants..................................................................... F-9
Consolidated Balance Sheet
June 30, 1996....................................................................................... F-10
Consolidated Statements of Operations
Years Ended June 30, 1995 and 1996.................................................................. F-11
Consolidated Statements of Stockholders' Equity
Years Ended June 30, 1995 and 1996.................................................................. F-12
Consolidated Statements of Cash Flows
Years Ended June 30, 1995 and 1996.................................................................. F-13
Notes to Consolidated Financial Statements............................................................ F-15
FINANCIAL STATEMENTS OF METRO SERVICES GROUP, INC.
Report of Independent Accountants..................................................................... F-28
Balance Sheets
December 31, 1995 and September 30, 1996 (unaudited)................................................ F-29
Statements of Operations
Years Ended December 31, 1994 and 1995 and Nine Months Ended September 30, 1995 (unaudited) and 1996
(unaudited).......................................................................................... F-30
Statements of Shareholders' Equity (Deficit)
Years Ended December 31, 1994 and 1995 and Nine Months Ended September 30, 1996 (unaudited)......... F-31
Statements of Cash Flows
Years Ended December 31, 1994 and 1995 and Nine Months Ended September 30, 1995 (unaudited) and 1996
(unaudited).......................................................................................... F-32
Notes to Financial Statements......................................................................... F-33
SELECTED FINANCIAL STATEMENTS OF STEPHEN DUNN & ASSOCIATES, INC.
Audited
Report of Independent Accountants..................................................................... F-37
Balance Sheet
December 31, 1994................................................................................... F-38
Statement of Income
Year Ended December 31, 1994........................................................................ F-39
Statement of Shareholder's Equity
Year Ended December 31, 1994........................................................................ F-40
Statement of Cash Flows
Year Ended December 31, 1994........................................................................ F-41
Notes to Financial Statements......................................................................... F-42
Unaudited
Balance Sheet
March 31, 1995...................................................................................... F-46
Statement of Operations
Three Months Ended March 31, 1995................................................................... F-47
Statement of Shareholder's Equity
Three Months Ended March 31, 1995................................................................... F-48
Statement of Cash Flows
Three Months Ended March 31, 1995................................................................... F-49
Notes to Interim Financial Statements................................................................. F-50
</TABLE>
F-1
<PAGE>
<PAGE>
ALL-COMM MEDIA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1996 AND SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1996 1996
----------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................................... $ 1,393,044 $ 1,180,129
Accounts receivable, net of allowance for doubtful accounts of $34,906 at June
30 and $6,000 at September 30................................................ 2,681,748 1,864,425
Land held for sale at cost.................................................... 921,465
Other current assets.......................................................... 107,658 560,968
----------- -------------
Total current assets..................................................... 5,103,915 3,605,522
Property and equipment at cost, net................................................ 299,045 494,031
Intangible assets at cost, net..................................................... 7,851,060 7,755,414
Other assets....................................................................... 47,046 35,846
----------- -------------
Total assets............................................................. $13,301,066 $11,890,813
----------- -------------
----------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings......................................................... $ 500,000 $ 102,224
Trade accounts payable........................................................ 470,706 317,228
Accrued salaries and wages.................................................... 706,039 420,773
Other accrued expenses........................................................ 758,112 485,404
Income taxes payable.......................................................... 10,000
Long-term obligations to related party, current portion....................... 583,333 700,000
Related party payable......................................................... 425,000
----------- -------------
Total current liabilities................................................ 3,453,190 2,025,629
Long-term obligations to related party less current portion........................ 1,516,667 1,341,667
Other liabilities.................................................................. 80,315 111,105
----------- -------------
Total liabilities........................................................ 5,050,172 3,478,401
----------- -------------
Commitments and contingencies
Redeemable Convertible Preferred Stock, $.01 par value, consisting of: 6,200 shares
of Series B Convertible Preferred Stock issued and outstanding; 2,000 shares of
Series C Convertible Preferred Stock issued and outstanding...................... 1,306,358 1,667,434
----------- -------------
Stockholders' equity:
Convertible Preferred Stock, $.01 par value; 50,000 Shares authorized; 8,200
redeemable shares issued and outstanding..................................... -- --
Common stock -- authorized 6,250,000 shares of $.01 par value at June 30,
1996, increased in August 1996 to 36,250,000; 3,198,534 and 3,303,207 shares
issued, respectively......................................................... 31,985 33,032
Additional paid-in capital.................................................... 13,173,520 14,967,396
Accumulated deficit........................................................... (6,125,500) (8,119,981)
Less 11,800 shares of common stock in treasury, at cost....................... (135,469) (135,469)
----------- -------------
Total stockholders' equity............................................... 6,944,536 6,744,978
----------- -------------
Total liabilities and stockholders' equity.......................... $13,301,066 $11,890,813
----------- -------------
----------- -------------
</TABLE>
See Notes to Interim Condensed Consolidated Financial Statements.
F-2
<PAGE>
<PAGE>
ALL-COMM MEDIA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1996
---------- -----------
<S> <C> <C>
Revenues............................................................................. $3,926,438 $ 3,932,030
---------- -----------
Operating costs and expenses:
Salaries and benefits........................................................... 3,161,669 4,953,499
Direct costs.................................................................... 129,713 145,230
Selling, general and administrative............................................. 386,575 544,636
Professional fees............................................................... 145,428 168,187
Amortization of intangible assets............................................... 90,226 95,646
---------- -----------
Total operating costs and expenses......................................... 3,913,611 5,907,198
---------- -----------
Income (loss) from operations.............................................. 12,827 (1,975,168)
---------- -----------
Other income (expense):
Gain from sale of land.......................................................... 90,021
Interest income................................................................. 3,244 9,561
Interest expense................................................................ (98,802) (114,917)
---------- -----------
Total...................................................................... (95,558) (15,335)
---------- -----------
Loss before income taxes............................................................. (82,731) (1,990,503)
Provision for income taxes........................................................... (53,295) (3,978)
---------- -----------
Net loss................................................................... $ (136,026) $(1,994,481)
---------- -----------
---------- -----------
Net loss per common share............................................................ $ (.05) $ (.62)
---------- -----------
---------- -----------
Weighted average common and common equivalent shares outstanding..................... 3,016,028 3,214,884
---------- -----------
---------- -----------
</TABLE>
See Notes to Interim Condensed Consolidated Financial Statements.
F-3
<PAGE>
<PAGE>
ALL-COMM MEDIA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1996
---------- -----------
<S> <C> <C>
Operating activities:
Net loss.................................................................................... $ (136,026) $(1,994,481)
Adjustments to reconcile loss to net cash provided by (used in) operating activities:
Gain from sale of land................................................................. (90,021)
Depreciation........................................................................... 44,863 38,086
Amortization........................................................................... 90,226 95,646
Option issuances to two principal executive officers................................... 1,650,000
Warrant issuances to consultants....................................................... 76,000
Accrued interest on redeemable convertible preferred stock............................. 66,500
Changes in assets and liabilities:
Accounts receivable.................................................................... 208,627 817,323
Other current assets................................................................... (9,326) (128,310)
Other assets........................................................................... (4,087) (6,500)
Trade accounts payable................................................................. (28,106) (153,478)
Accrued expenses and other current liabilities......................................... (64,249) (749,942)
Income taxes payable................................................................... (19,838) (10,000)
---------- -----------
Net cash provided by (used in) operating activities.................................... 82,084 (389,177)
---------- -----------
Investing activities:
Net proceeds from sale of land.............................................................. 860,443
Proceeds from issuances of warrants......................................................... 5,000
Purchase of property and equipment.......................................................... (13,696) (233,072)
Payments relating to acquisition of Alliance and SD&A....................................... (40,806)
---------- -----------
Net cash provided by (used in) investing activities.................................... (54,502) 632,371
---------- -----------
Financing activities:
Repayments of bank loans.................................................................... (19,588) (397,776)
Repayments of notes payable other........................................................... (18,000)
Repayment of acquisition debt............................................................... (375,000) (58,333)
---------- -----------
Net cash used in financing activities.................................................. (412,588) (456,109)
---------- -----------
Net decrease in cash and cash equivalents........................................................ (385,006) (212,915)
Cash and cash equivalents at beginning of period............................................ 1,217,772 1,393,044
---------- -----------
Cash and cash equivalents at end of period....................................................... $ 832,766 $ 1,180,129
---------- -----------
---------- -----------
</TABLE>
See Notes to Interim Condensed Consolidated Financial Statements.
F-4
<PAGE>
<PAGE>
Supplemental Schedule of Non-Cash Investing and Financing Activities:
In October 1995, in accordance with the acquisition agreement between
Alliance Media Corporation and the former owner of SD&A the purchase price
was increased by $92,702.
In September 1996, the Company issued 96,748 shares of common stock,
valued at $425,000, as an earn out payment to the former owner of SD&A for
achieving certain targeted earnings for the fiscal year ended June 30,
1996.
In September 1996, the Company incurred approximately $325,000 in
accrued professional fees related to acquisitions and registration
statement preparation which were deferred as of September 30, 1996.
Accrued and unpaid interest on shares of Redeemable Convertible
Preferred Stock during the three months ended September 30, 1996 totaled
$66,500 which is payable in common stock.
See Notes to Interim Condensed Consolidated Financial Statements.
F-5
<PAGE>
<PAGE>
ALL-COMM MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited Interim Condensed Consolidated Financial
Statements include the accounts of All-Comm Media Corporation and Subsidiaries
(the 'Company'). They have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-QSB and Item 310(b) of Regulation S-B. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three month period ended September 30, 1996 are not necessarily
indicative of the results that may be expected for the fiscal year ending June
30, 1997. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual report on Form
10-K for the fiscal year ended June 30, 1996. Certain reclassifications have
been made in the fiscal 1996 interim financial statements to conform with the
fiscal 1997 presentation. Certain amounts have been reclassified to conform with
industry standards.
2. NET LOSS PER COMMON SHARE
Net loss per common share is computed based upon the weighted average
number of shares outstanding during the periods presented and common stock
equivalents unless antidilutive. Primary and fully diluted loss per share are
the same in the periods presented.
3. ACQUISITION OF ALLIANCE MEDIA CORPORATION AND STEPHEN DUNN & ASSOCIATES, INC.
On April 25, 1995, the Company acquired all of the outstanding common
shares of Alliance Media Corporation ('Alliance') which simultaneously acquired
Stephen Dunn & Associates, Inc. ('SD&A').
These acquisitions were accounted for using the purchase method. The
operating results of these acquisitions are included in the results of
operations from the date of acquisition.
4. LONG-TERM OBLIGATIONS TO RELATED PARTY
In connection with the acquisition of SD&A on April 25, 1995, Alliance
issued promissory notes totaling $4,500,000 to SD&A's current president and
former sole shareholder. The notes bore interest at the prime rate, not to
exceed 10% or drop below 8%, payable monthly. Principal payments were due
quarterly, and originally $1,500,000 was due in quarterly installments during
fiscal 1996. During 1996, principal payments of $2,400,000 were made and the
long-term obligations were restructured such that the remaining obligations of
$2,100,000 are now payable at $58,333 per month, plus interest at 8%, starting
September 19, 1996.
5. INCOME TAXES
In the three month periods ended September 30, 1995 and 1996, the income
tax provision totaled $53,000 and $4,000 on losses from operations of $83,000
and $274,000, respectively. The provisions resulted from state and local income
taxes incurred on taxable income at the operating subsidiary level which could
not be offset by losses incurred at the corporate level.
6. GAIN FROM SALE OF LAND
The Company, through its wholly-owned subsidiary, All-Comm Holdings, Inc.,
owned approximately seven acres of undeveloped land in Laughlin, Nevada, which
had a carrying value of $921,465 as of June 30, 1996. During fiscal 1996, a bond
measure was passed by Clark County, Nevada authorities, resulting in a special
assessment to fund improvements which would benefit the land. The principal
balance assessed to the Company totaled $154,814 plus interest at 6.4% and was
payable in semi-annual
F-6
<PAGE>
<PAGE>
ALL-COMM MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
installments over twenty years. The principal was capitalized by the Company in
fiscal 1996. On August 16, 1996, the land was sold to, and liability assumed by,
an unaffiliated third party, by auction, for $952,000 in cash, resulting in a
net gain after commissions and other selling costs of approximately $90,000.
7. STOCK OPTIONS
On September 26, 1996, the Board of Directors approved the increase in the
number of shares available under the 1991 Stock Option Plan by 600,000 shares,
to 1,450,000, and granted options exercisable for 300,000 shares of common
stock, par value $.01 per share (the 'Common Stock') to each of the Company's
Chief Executive Officer and Chief Operating Officer. Options exercisable for the
first 150,000 shares were granted to each such officer at an exercise price of
$2.50 per share, and the remaining 150,000 each were granted at an exercise
price of $3.00 per share. The options vest and are exercisable immediately and
expire on July 1, 2001. In connection with the grant of these options, the
Company incurred a non-recurring, non-cash charge of $1,650,000 to compensation
expense.
8. SUBSEQUENT EVENTS
Effective as of October 1, 1996, the Company acquired Metro Services Group,
Inc. ('Metro') pursuant to a merger agreement. In exchange for all of the then
outstanding shares of Metro, the Company issued 1,814,000 shares of its Common
Stock valued at $7,256,000 and promissory notes (the 'Notes') totaling
$1,000,000. The Notes shall be due and payable, together with interest thereon
at the rate of 6% per annum, on June 30, 1998, subject to earlier repayment, at
the option of the holder, upon completion by the Company of a public offering of
its equity securities. The Notes are convertible on or before maturity, at the
option of the holder, into shares of Common Stock at an exchange rate of $5.38
per share. Metro develops and markets information-based services, used primarily
in direct marketing by a variety of commercial and not-for-profit organizations,
principally in the United States.
On October 17, 1996, the Company filed a Form SB-2 registration statement
(the 'Registration Statement') with the Securities and Exchange Commission. The
Registration Statement relates to an underwritten public offering (the
'Underwritten Offering') of 2,100,000 shares of Common Stock, of which 1,750,000
shares are being offered by the Company and 350,000 are being offered by certain
stockholders of the Company. It also relates to the sale of 1,381,056 shares
(the 'Delayed Shares') of Common Stock by certain selling stockholders on a
delayed basis pursuant to Rule 415 of the Securities Act of 1933, as amended,
none of whom are members of, or affiliated with, the Board or management. Of
such Delayed Shares, 1,291,588 shares will be subject to 'lock up' provisions
that prohibit resale of such shares for a period of nine months from the date of
consummation of the Underwriten Offering.
In connection with the Company's filing on Form SB-2, the Convertible
Preferred Stock in the accompanying financial statements has been reclassified
in accordance with the Securities and Exchange Commission's requirements.
Accordingly, the Redeemable Convertible Preferred Stock is no longer presented
as part of stockholders' equity and its initial carrying value is being
increased to its redemption value by periodic accretions against paid in
capital.
The Company and certain of its securityholders have agreed, on December 23,
1996, to effect a recapitalization of the Company's capital stock, whereby: (i)
the Company's Series B Convertible Preferred Stock, par value $.01 per share
(the 'Series B Preferred Stock'), will be converted, in accordance with its
terms without the payment of additional consideration, into 2,480,000 shares of
Common Stock; (ii) the Company's Series C Convertible Preferred Stock, par value
$.01 per share (the 'Series C Preferred Stock'), will be repurchased for
promissory notes in an aggregate principal amount of $1.0 million, which
promissory notes will bear interest at a rate of 8% per annum and will be
repayable on demand at any time from and after the date of the consummation of
an underwritten public offering by the Company of Common Stock, but in any event
such notes will mature June 7,
F-7
<PAGE>
<PAGE>
ALL-COMM MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
1998; (iii) all accrued interest on the Series B Preferred Stock and the Series
C Preferred Stock will be converted into 88,840 shares of Common Stock (assuming
conversion on December 23, 1996); (iv) warrants related to the Series C
Preferred Stock, currently exercisable for 3,000,000 shares of Common Stock,
will be exchanged for 600,000 shares of Common Stock; (v) agreements with
certain of the Company's securityholders to issue, upon consummation of the
Underwritten Offering, warrants exercisable for 1,038,503 shares of Common Stock
in consideration for such securityholders' agreement to certain lock-up
arrangements will be rescinded at no cost to the Company; and (vi) options held
by two of the Company's principal executive officers to purchase 300,000 shares
of common stock will be cancelled at no cost to the Company. Upon conversion of
the Series B Preferred Stock and accumulated interest thereon into Common Stock
on December 23, 1996, the Company incurred a non-cash, non-recurring dividend
for the difference between the conversion price and the market price of the
Common Stock estimated to be $8.5 million. This dividend will not impact net
income (loss), but will impact net income (loss) attributable to common
stockholders in the calculation of earnings per share.
In connection with the Underwritten Offering, the Company will incur a
non-recurring non-cash charge estimated to be $75,000 in the fiscal quarter in
which the Underwritten Offering is consummated, as a result of the issuance by
the Company of warrants exercisable for an aggregate of up to 160,414 shares of
Common Stock to certain stockholders of the Company as consideration for the
agreement of such stockholders to certain lock-up arrangements.
F-8
<PAGE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Stockholders of
ALL-COMM MEDIA CORPORATION
We have audited the consolidated balance sheet of All-Comm Media
Corporation and Subsidiaries as of June 30, 1996 and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
two years in the period ended June 30, 1996. These financial statements are the
responsibility of All-Comm Media Corporation's management. Our responsibility is
to express an opinion on these 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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of All-Comm Media
Corporation and Subsidiaries as of June 30, 1996, and the consolidated results
of their operations and their cash flows for each of the two years in the period
ended June 30, 1996, in conformity with generally accepted accounting
principles.
/s/ COOPERS & LYBRAND L.L.P.
Los Angeles, California
September 19, 1996, except
for Note 19 as to which
the date is December 17, 1996
F-9
<PAGE>
<PAGE>
ALL-COMM MEDIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................................................... $ 1,393,044
Accounts receivable, net of allowance for doubtful accounts of $34,906........................ 2,681,748
Land held for sale at cost.................................................................... 921,465
Other current assets.......................................................................... 107,658
-----------
Total current assets..................................................................... 5,103,915
Property and equipment at cost, net................................................................ 299,045
Intangible assets at cost, net..................................................................... 7,851,060
Other assets....................................................................................... 47,046
-----------
Total assets............................................................................. $13,301,066
-----------
-----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings......................................................................... $ 500,000
Trade accounts payable........................................................................ 470,706
Accrued salaries and wages.................................................................... 706,039
Other accrued expenses........................................................................ 758,112
Income taxes payable.......................................................................... 10,000
Long-term obligations to related party, current portion....................................... 583,333
Related party payable......................................................................... 425,000
-----------
Total current liabilities................................................................ 3,453,190
Long-term obligations to related party less current portion........................................ 1,516,667
Other liabilities.................................................................................. 80,315
-----------
Total liabilities........................................................................ 5,050,172
-----------
Commitments and contingencies
Redeemable Convertible Preferred Stock, $.01 par value, consisting of: 6,200 shares of Series B
Convertible Preferred Stock issued and outstanding, involuntary liquidation preference of
$3,112,130; 2,000 shares of Series C Convertible Preferred Stock issued and outstanding,
involuntary liquidation preference of $1,005,360................................................. 1,306,358
-----------
Stockholders' equity:
Convertible Preferred Stock, $.01 par value; 50,000 shares authorized, 8,200 redeemable shares
issued and outstanding....................................................................... --
Common stock -- authorized 6,250,000 shares of $.01 par value at June 30, 1996, increased in
August 1996 to 36,250,000; 3,198,534 shares issued........................................... 31,985
Additional paid-in capital.................................................................... 13,173,520
Accumulated deficit........................................................................... (6,125,500)
Less 11,800 shares of common stock in treasury, at cost....................................... (135,469)
-----------
Total stockholders' equity............................................................... 6,944,536
-----------
Total liabilities and stockholders' equity.......................................... $13,301,066
-----------
-----------
</TABLE>
See Notes to Consolidated Financial Statements.
F-10
<PAGE>
<PAGE>
ALL-COMM MEDIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Revenues........................................................................... $ 3,630,828 $15,889,210
----------- -----------
Operating costs and expenses:
Salaries and benefits......................................................... 3,139,232 12,712,150
Direct costs.................................................................. 102,052 807,057
Selling, general and administrative........................................... 1,121,023 1,843,236
Professional fees............................................................. 459,344 625,667
Amortization of intangible assets............................................. 65,101 361,537
----------- -----------
Total operating costs and expenses....................................... 4,886,752 16,349,647
----------- -----------
Loss from operations..................................................... (1,255,924) (460,437)
----------- -----------
Other income (expense):
Gain from sales of securities................................................. 1,579,539 --
Loan commitment fee........................................................... (300,000) --
Interest income............................................................... 13,679 12,276
Interest expense.............................................................. (94,200) (505,128)
Other, net.................................................................... 1,047 --
----------- -----------
Total.................................................................... 1,200,065 (492,852)
----------- -----------
Loss from continuing operations before income taxes........................... (55,859) (953,289)
Provision for income taxes.................................................... (75,000) (141,084)
----------- -----------
Loss from continuing operations before discontinued operations..................... (130,859) (1,094,373)
Gain on sale of discontinued operations............................................ 322,387 --
Loss from discontinued operations.................................................. (81,131) --
----------- -----------
Net income (loss)........................................................ $ 110,397 $(1,094,373)
----------- -----------
----------- -----------
Income (loss) per common share:
From continuing operations.................................................... $ (.07) $ (.36)
From discontinued operations.................................................. $ .13 --
----------- -----------
Net income (loss) per common share................................................. $ .06 $ (.36)
----------- -----------
----------- -----------
Weighted average common and common equivalent shares outstanding................... 1,807,540 3,068,278
----------- -----------
----------- -----------
</TABLE>
Primary and fully diluted income (loss) per common share are the same in fiscal
years 1995 and 1996.
See Notes to Consolidated Financial Statements.
F-11
<PAGE>
<PAGE>
ALL-COMM MEDIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1995 AND 1996
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL
--------------- ------------------ PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
------- ------ --------- ------- -----------
<S> <C> <C> <C> <C> <C>
Balance June 30, 1994 1,436,833 $14,368 $ 5,928,542
Effect of change in accounting
principle..............................
Change in net unrealized gain on
available-for-sale investments.........
Issuance of restricted shares for
litigation settlement.................. 37,500 375 149,625
Issuance of restricted shares for merger
with Alliance Media Corporation........ 1,025,000 10,250 2,734,750
Issuance of restricted shares as finder's
fees................................... 42,500 425 138,325
Private placement of shares -- cash...... 413,759 4,138 1,014,537
Shares issued upon exercise of stock
options and warrants................... 72,500 725 207,193
Discounts granted on exercise of
options................................ 127,875
Net income...............................
--------- ------- -----------
Balance June 30, 1995.................... 3,028,092 30,281 10,300,847
Issuance of common shares as compensation
to employees, directors and
consultants............................ 95,442 954 218,974
Sale of shares (including 12,500 to
related parties)....................... 75,000 750 119,250
Sale of Series A Convertible Preferred
Stock.................................. 10,000 $ 100 686,669
Repurchase of Series A Convertible
Preferred Stock........................ (10,000) (100) (812,400)
Warrants issued with Series B and Series
C Convertible Preferred Stock.......... 2,672,522
Warrants issued to consultants........... 82,626
Accretion of Redeemable Convertible
Preferred Stock........................ (94,968)
Net loss.................................
------- ------ --------- ------- -----------
Balance June 30, 1996.................... -- $-- 3,198,534 $31,985 $13,173,520
------- ------ --------- ------- -----------
------- ------ --------- ------- -----------
<CAPTION>
NET
UNREALIZED
GAIN ON
AVAILABLE- TREASURY STOCK
FOR-SALE ACCUMULATED ------------------
INVESTMENTS DEFICIT SHARES AMOUNT TOTALS
------------ ----------- ------- --------- -----------
<S> <C> <C> <C> <C> <C>
Balance June 30, 1994 $(5,141,524) (11,800) $(135,469) $ 665,917
Effect of change in accounting
principle.............................. $ 1,579,539 1,579,539
Change in net unrealized gain on
available-for-sale investments......... (1,579,539) (1,579,539)
Issuance of restricted shares for
litigation settlement.................. 150,000
Issuance of restricted shares for merger
with Alliance Media Corporation........ 2,745,000
Issuance of restricted shares as finder's
fees................................... 138,750
Private placement of shares -- cash...... 1,018,675
Shares issued upon exercise of stock
options and warrants................... 207,918
Discounts granted on exercise of
options................................ 127,875
Net income............................... 110,397 110,397
------------ ----------- ------- --------- -----------
Balance June 30, 1995.................... -- (5,031,127) (11,800) (135,469) 5,164,532
Issuance of common shares as compensation
to employees, directors and
consultants............................ 219,928
Sale of shares (including 12,500 to
related parties)....................... 120,000
Sale of Series A Convertible Preferred
Stock.................................. 686,769
Repurchase of Series A Convertible
Preferred Stock........................ (812,500)
Warrants issued with Series B and Series
C Convertible Preferred Stock.......... 2,672,522
Warrants issued to consultants........... 82,626
Accretion of Redeemable Convertible
Preferred Stock........................ (94,968)
Net loss................................. (1,094,373) (1,094,373)
------------ ----------- ------- --------- -----------
Balance June 30, 1996.................... $ -- $(6,125,500) (11,800) $(135,469) $ 6,944,536
------------ ----------- ------- --------- -----------
------------ ----------- ------- --------- -----------
</TABLE>
See Notes to Consolidated Financial Statements.
F-12
<PAGE>
<PAGE>
ALL-COMM MEDIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Operating activities:
Net income (loss)............................................................................. $ 110,397 $(1,094,373)
Adjustments to reconcile loss to net cash used in operating activities:
Gains from sales of securities........................................................... (1,579,539) --
Gain on sale of discontinued operations.................................................. (322,387) --
Depreciation............................................................................. 52,348 139,881
Amortization............................................................................. 65,101 361,537
Loss on disposal of assets............................................................... 30,319 --
Discount on exercise of options.......................................................... 127,875 --
Stock issuances to employees, directors and consultants.................................. -- 193,677
Warrant issuances to consultants......................................................... -- 82,626
Accrued interest on redeemable convertible preferred stock............................... -- 17,490
Changes in assets and liabilities net of effects from acquisition:
Accounts receivable...................................................................... (377,631) (613,771)
Other current assets..................................................................... (16,844) 38,710
Other assets............................................................................. 20,519 (8,346)
Trade accounts payable................................................................... (147,360) 105,068
Accrued expenses and other current liabilities........................................... 6,757 (21,674)
Income taxes payable..................................................................... 55,000 (84,565)
Discontinued operations, net............................................................. (152,662) --
----------- -----------
Net cash used in operating activities.................................................... (2,128,107) (883,740)
----------- -----------
Investing activities:
Proceeds from sales of investments in securities.............................................. 2,682,811 --
Purchase of investment in securities.......................................................... (1,063,272) --
Proceeds from sale of discontinued operations................................................. 800,000 --
Proceeds from sales of fixed assets........................................................... 11,000 --
Acquisition of Alliance Media Corporation, net of cash acquired of $567,269................... 259,088 --
Payments relating to acquisition of Alliance and SD&A......................................... -- (477,704)
Purchase of property and equipment............................................................ (43,905) (94,772)
Land development costs........................................................................ (10,526) --
----------- -----------
Net cash provided by (used in) investing activities...................................... 2,635,196 (572,476)
----------- -----------
Financing activities:
Repurchase of Series A Convertible Preferred Stock............................................ -- (812,500)
Proceeds from issuances of common stock....................................................... 1,226,593 120,000
Proceeds from issuances of Series B and Series C Redeemable Convertible Preferred Stock and
warrants..................................................................................... -- 4,570,682
Proceeds from land option..................................................................... -- 150,000
Proceeds from bank loans...................................................................... -- 500,000
Repayments of bank loans...................................................................... (513,059) (49,694)
Proceeds from note payable other.............................................................. 1,000,000 --
Repayments of note payable other.............................................................. (1,072,000) (72,000)
Related party repayment....................................................................... (350,000) (2,775,000)
----------- -----------
Net cash provided by financing activities..................................................... 291,534 1,631,488
----------- -----------
Net increase in cash and cash equivalents.......................................................... 798,623 175,272
Cash and cash equivalents at beginning of year................................................ 419,149 1,217,772
----------- -----------
Cash and cash equivalents at end of year........................................................... $ 1,217,772 $ 1,393,044
----------- -----------
----------- -----------
Supplemental disclosures of cash flow data:
Cash paid during the year for:
Interest................................................................................. $ 60,422 $ 455,276
Financing charge......................................................................... $ 300,000 --
Income taxes............................................................................. $ 15,000 $ 155,025
</TABLE>
See Notes to Consolidated Financial Statements.
F-13
<PAGE>
<PAGE>
Supplemental Schedule of Non-cash Investing and Financing Activities:
In fiscal 1995, the Company purchased all of the capital stock of
Alliance Media Corporation for 1,025,000 shares of common stock valued at
$2,745,000. Additionally, 37,500 shares of common stock valued at $100,000
were issued as a finder's fee. Other direct costs of the acquisition
totaled approximately $500,000. In conjunction with the acquisition, net
assets acquired and liabilities assumed, less payments prior to year end,
were:
<TABLE>
<S> <C>
Working capital, other than cash............................................... $ 601,729
Property and equipment......................................................... (326,320)
Costs in excess of net assets of companies acquired............................ (7,337,870)
Other assets................................................................... (23,451)
Long-term debt................................................................. 4,500,000
Common stock issued............................................................ 2,845,000
-----------
$ 259,088
-----------
-----------
</TABLE>
Five thousand shares of common stock valued at $38,750 were issued as
a commission on the sale of Sports-Tech International, Inc. during 1995.
The Company issued 37,500 shares of common stock valued at $150,000 in
fiscal 1995 in settlement of a 1994 liability for early termination of a
consulting agreement.
In October, 1995, in accordance with the acquisition agreement between
Alliance Media Corporation and the former owner of SD&A, the purchase price
was increased by $85,699.
In October, 1995, the Company issued 6,250 shares of common stock in
settlement of a liability of $26,250.
In November, 1995, a special county bond measure, with principal
totaling $154,814, was assessed on the Company's land and was recorded as a
land improvement, offset by a liability in accrued other expenses.
In April, 1996, the Company issued 89,192 shares of common stock in
settlement of liabilities to employees, directors and consultants of
$193,678.
During the year ended June 30, 1996, the Company issued warrants to
consultants valued at $82,626.
Accrued and unpaid interest on shares of Redeemable Convertible
Preferred Stock during fiscal 1996 totaled $17,490.
On June 30, 1996, intangible assets were increased by $425,000 for
accrued restricted common stock payable to the former owner of SD&A as an
additional payment resulting from achievement of defined results of
operations. See Note 3.
See Notes to Consolidated Financial Statements.
F-14
<PAGE>
<PAGE>
ALL-COMM MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
All-Comm Media Corporation (the 'Company') was formerly known as
Sports-Tech, Inc. The name change was approved at a Special Meeting of
Stockholders held on August 22, 1995. On April 25, 1995, the Company, through a
wholly-owned subsidiary, was merged with Alliance Media Corporation ('Alliance')
and its wholly-owned subsidiary, Stephen Dunn & Associates, Inc. ('SD&A'). The
shareholders of Alliance received 1,025,000 shares of the Company's common
stock, par value $.01 per share ('Common Stock'). Upon consummation of the
merger, the members of the board of directors of the Company ('Directors')
resigned and a new board was appointed. Through SD&A, the Company currently
operates in one industry segment, providing telemarketing and telefundraising to
not-for-profit arts and other organizations principally in the United States.
The Company's mission is to create a growth-oriented direct marketing and media
services company through acquisitions and internal growth. The Company also
owned approximately seven acres of undeveloped land in Laughlin, Nevada, which
was sold on August 16, 1996.
Prior to the merger with Alliance, the Company's principal activities were
the investigation of non-gaming acquisitions. In fiscal 1992, the Company
acquired a 100% interest in Sports-Tech International, Inc. ('STI'), and in
fiscal 1993 acquired 100% of the assets and certain liabilities of High School
Gridiron Report ('HSGR'). STI was engaged in the development, acquisition,
integration and sale of advanced computer software, computer equipment and
computer aided video systems used by sports programs at the professional,
collegiate and high school levels. HSGR provided academic and video data to aid
in pre-qualifying high school athletes to colleges and universities. In fiscal
1995, the Company discontinued the operations of STI and HSGR.
The Company believes that funds available from operations and from the
August, 1996 sale of the Laughlin, Nevada land will be adequate to finance its
current operations and meet interest and debt obligations in its fiscal year
ending June 30, 1997. Thereafter, and in conjunction with the Company's
acquisition and growth strategy, additional financing may be required to meet
potential acquisition payment requirements. The Company believes that it has the
ability to raise funds through private placements or public offerings of debt
and/or equity securities to meet these requirements. There can be no assurance,
however, that such capital will be required or available at terms acceptable to
the Company, if at all.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, All-Comm Holdings, Inc. (formerly Bullhead
Casino Corporation), All-Comm Acquisition Corporation (formerly BH Acquisitions,
Inc.), STI (sold during fiscal year 1995), HSGR (dissolved during fiscal year
1996), Alliance, SD&A and BRST Mining Company (dissolved during fiscal year
1996). STI and HSGR are presented as discontinued operations in the consolidated
financial statements. All material intercompany accounts and transactions are
eliminated in consolidation.
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 at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. The estimates and assumptions made in the
preparation of the consolidated financial statements relate to the assessment of
the carrying value of assets and liabilities. Actual results could differ from
those estimates.
Cash and Cash Equivalents/Statement of Cash Flows
Highly liquid investments with an original maturity of three months or less
are considered to be cash equivalents.
F-15
<PAGE>
<PAGE>
ALL-COMM MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Available-for-sale Investments
Pursuant to SFAS No. 115, 'Accounting for Certain Investments in Debt and
Equity Securities,' the Company's marketable equity securities are accounted for
at market value (Note 15). The fair market value of short- and long-term
investments is determined based on quoted market prices for those investments.
Land Held for Sale
The cost of acquiring, improving and planning the development of land was
capitalized. Costs related to development were written off when such plans were
abandoned. Interest cost was capitalized in periods in which activities
specifically related to the development of the land took place. The land was
valued at lower of cost or market. The land was sold on August 16, 1996. See
Note 6.
Property and Equipment
Property and equipment is recorded at cost less accumulated depreciation.
Maintenance and repairs are expensed as incurred. The cost and related
accumulated depreciation and amortization of property and equipment sold or
retired are removed from the accounts and resulting gains or losses are included
in current operations. Depreciation and amortization are provided on a
straight-line basis over the useful lives of the assets involved, limited as to
leasehold improvements by the term of the lease, as follows:
<TABLE>
<S> <C>
Equipment..................................... 5 years
Furniture and fixtures........................ 2 to 7 years
Computer equipment and software............... 3 to 5 years
Leasehold improvements........................ over the useful life of the assets or term of
the lease, whichever is shorter
</TABLE>
Intangible Assets
Excess of cost over net assets acquired in connection with the Alliance and
SD&A acquisitions are being amortized over the period of expected benefit of 40
years. Covenants not to compete are stated at cost and are amortized over the
period of expected benefit of five years. For each of its investments, the
Company assesses the recoverability of its goodwill by determining whether the
amortization of the goodwill balance over its remaining life can be recovered
through projected undiscounted future cash flows over the remaining amortization
period. If projected future cash flows indicate that unamortized goodwill will
not be recovered, an adjustment will be made to reduce the net goodwill to an
amount consistent with projected future cash flows discounted at the Company's
incremental borrowing rate. Cash flow projections are based on trends of
historical performance and management's estimate of future performance, giving
consideration to existing and anticipated competitive and economic conditions.
Revenue Recognition
Revenues represent fees earned by SD&A which are recorded when pledged cash
is received by SD&A's clients for on-site campaigns and when services are
provided for off-site campaigns.
Income taxes
Deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax basis of assets and liabilities using
enacted tax rates and laws applicable to the years in which the differences are
expected to reverse. Valuation allowances, if any, are established when
necessary to reduce deferred tax assets to the amount that is more likely than
not to be realized. Income tax expense is the tax payable for the period and the
change during the period in deferred tax assets and liabilities.
F-16
<PAGE>
<PAGE>
ALL-COMM MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration
of credit risk consist primarily of temporary cash investments and trade
receivables. The Company restricts investment of temporary cash investments to
financial institutions with high credit standing. Credit risk on trade
receivables is minimized as a result of the large and diverse nature of the
Company's customer base.
Earnings (Loss) Per Share
Primary earnings (loss) per common and common equivalent share and earnings
per common and common equivalent share assuming full dilution are computed based
on the weighted average number of common shares outstanding and common share
equivalents attributable to the effects, if dilutive, of the assumed exercise of
outstanding stock options and warrants, and the conversion of all Redeemable
Convertible Preferred Stock.
Reclassifications
Certain prior year items have been reclassified to conform with current
year presentation. Certain amounts have been reclassified to conform with
industry standards.
3. ACQUISITION OF ALLIANCE AND SD&A
On April 25, 1995, the Company, through a statutory merger, acquired all of
the outstanding common shares of Alliance. The purchase price was approximately
$2,745,000, consisting of issuance of 1,025,000 shares of restricted Common
Stock to former stockholders of Alliance valued at $2.68 per share. These shares
have registration rights as of December 1, 1995. Direct costs of the acquisition
approximated $500,000. Pursuant to the terms of the merger agreement, upon
consummation of the merger the then current Directors resigned, and a new board
consisting of six persons designated by Alliance was appointed.
The assets of Alliance acquired by the Company consisted primarily of: (i)
all the issued and outstanding stock of SD&A, which Alliance had acquired
simultaneously with the merger; (ii) a five year covenant not to compete with
the former owner of SD&A; and (iii) the cash proceeds of $1,509,750 (net of
certain payments, including the payment of $1.5 million made pursuant to the
acquisition of SD&A) of a private placement of equity securities of Alliance,
which securities, upon consummation of the merger, were converted into Common
Stock. The purchase price of SD&A paid by Alliance was $1.5 million in cash,
plus $4.5 million in long-term obligations yielding prime rate, payable over
four years. Additional contingent payments of up to $850,000 per year over the
period ending June 30, 1998 may be required based on the achievement of defined
results of operations of SD&A after its acquisition. At the Company's option, up
to one half of the additional contingent payments may be made with restricted
Common Stock. These additional shares have demand registration rights commencing
in September 1997. Alliance and SD&A entered into an operating covenant
agreement relating to the operations of SD&A and Alliance pledged all of the
common shares of SD&A acquired to collateralize its obligations under that
agreement.
These acquisition terms were revised pursuant to the Company private
placement financing which occurred on June 7, 1996 (see 'Stockholders'
Equity -- Preferred Stock') whereby the long-term obligations were revised and
approximately $2.0 million was paid in June, 1996. The balance of $2.1 million
is payable in 36 monthly principal payments of $58,333, plus interest at 8%,
starting September 19, 1996.
The assets of SD&A acquired by Alliance (and therefore by the Company upon
consummation of the merger) consisted primarily of cash and cash equivalents,
accounts receivable and furniture, fixtures and equipment.
These acquisitions were accounted for using the purchase method. The
purchase price was allocated to assets acquired based on their estimated fair
value. This treatment initially resulted in
F-17
<PAGE>
<PAGE>
ALL-COMM MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
approximately $6.3 million of costs in excess of net assets required, after
recording a covenant not to compete of approximately $1.0 million. The excess
was increased by $850,000 on June 30, 1996, $425,000 of which was paid in cash
in June 1996 and $425,000 of which is payable in 96,748 shares of Common Stock,
due to achievement of defined results of operations of SD&A for the year ended
June 30, 1996. Such excess, which may increase for any further contingent
payments, is being amortized over the remainder of the expected period of
benefit of 40 years.
The operating results of these acquisitions are included in the
consolidated results of operations from the date of acquisition. The following
summary, prepared on a pro forma basis, combines the consolidated results of
operations as if Alliance and SD&A had been acquired as of the beginning of the
period presented, after including the impact of certain adjustments, such as:
amortization of intangibles, increased interest on the acquisition debt, and
adjustment of officer salary for new contract.
<TABLE>
<CAPTION>
1995
-----------
(UNAUDITED)
<S> <C>
Revenues............................................................. $15,013,000
Income (loss) from continuing operations............................. (113,911)
Income (loss) from continuing operations per common share............ $(.04)
</TABLE>
The unaudited pro forma information is provided for informational purposes
only. It is based on historical information and is not necessarily indicative of
the actual results that would have occurred nor is it necessarily indicative of
future results of operations of the combined entities.
4. DISCONTINUED OPERATIONS
On December 7, 1994, the Company entered into a definitive agreement for
the sale of the Company's subsidiary, STI. The proposed purchase price for STI's
operations was $1,100,000 of which $300,000 was paid as of the agreement date.
By mutual agreement, the closing date was accelerated to March 8, 1995, and
the purchase price reduced to $800,000, a reduction of $300,000 on the original
sales price, out of which $80,000 was paid as a commission to STI's former
president. The former president of STI also received $38,750 in Common Stock and
warrants to purchase 2,500 shares of Common Stock at $8.00 per share in
connection with such transaction. The Company realized a gain on the sale of
$322,387. No tax is allocable to this gain due to net operating loss
carryforwards.
Concurrent with the closing of the sale of STI, all operations of HSGR
ceased and all unrecoverable assets were written off, which amounted to
approximately $22,000. Accordingly, STI and HSGR are reported as discontinued
operations at June 30, 1995, and the consolidated financial statements have been
reclassified to report separately the net assets, operating results, gain on
disposition and cash flows of these operations.
Revenues of these discontinued operations for fiscal 1995 were $1,147,829.
5. PROPERTY AND EQUIPMENT
Property and equipment of continuing operations at June 30, 1996 consisted
of the following:
<TABLE>
<S> <C>
Office furnishings and equipment........................................ $302,607
Leasehold improvements.................................................. 169,771
--------
472,378
Less accumulated depreciation and amortization.......................... (173,333)
--------
$299,045
--------
--------
</TABLE>
F-18
<PAGE>
<PAGE>
ALL-COMM MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. LAND HELD FOR SALE
The Company, through its wholly-owned subsidiary, All-Comm Holdings, Inc.,
owned approximately seven acres of undeveloped land in Laughlin, Nevada, which
had a carrying value of $921,465 as of June 30, 1996. During fiscal 1996, a bond
measure was passed by Clark County, Nevada authorities, resulting in a special
assessment to fund improvements which would benefit the land. The principal
balance assessed to the Company totaled $154,814 plus interest at 6.4% and was
payable in semi-annual installments over twenty years. The principal was
capitalized by the Company in fiscal 1996. On August 16, 1996, the land was sold
to, and liability assumed by, an unaffiliated third party, by auction, for
$952,000 in cash, resulting in a net gain of approximately $90,000.
7. INTANGIBLE ASSETS
Intangible assets at June 30, 1996, consisted of the following:
<TABLE>
<S> <C>
Covenant not to compete............................................... $1,000,000
Goodwill.............................................................. 7,277,698
----------
8,277,698
Less accumulated amortization......................................... (426,638)
----------
$7,851,060
----------
----------
</TABLE>
Intangible assets increased during fiscal 1996 principally due to recording
of a contingent payment of $850,000 due to the former owner of SD&A subsequent
to the achievement of defined results of operations of SD&A during the year
ended June 30, 1996.
8. SHORT-TERM BORROWINGS AND NOTE PAYABLE TO BANK
During fiscal 1996, SD&A's $350,000 line of credit from a bank was
increased to $500,000 and was fully used at June 30, 1996. The line bears
interest at prime plus 1/2% (8.75% at June 30, 1996), is collateralized by
substantially all of SD&A's assets and is personally guaranteed by SD&A's
president. The line of credit also contains certain financial covenants,
including current ratio, working capital, debt and net worth, capital
expenditure, and cash flow requirements.
At June 30, 1995, SD&A had a note payable outstanding totaling $49,694,
which bore interest at the bank's prime rate plus 1.75%. The note payable
required monthly principal repayments of $6,529 plus interest and was paid in
full during 1996.
9. OTHER ACCRUED EXPENSES
Accrued expenses at June 30, 1996 consisted of the following:
<TABLE>
<S> <C>
Accrued professional fees............................................... $290,897
Other................................................................... 467,215
--------
Total.............................................................. $758,112
--------
--------
</TABLE>
10. LONG-TERM OBLIGATIONS TO RELATED PARTY
In connection with the acquisition of SD&A on April 25, 1995, Alliance
issued promissory notes totaling $4,500,000 to SD&A's current president and
former sole shareholder. The notes bore interest at prime rate, not to exceed
10% or drop below 8%, and were payable monthly. Principal payments were due
quarterly, and originally $1,500,000 was due in quarterly installments during
fiscal 1996. All the outstanding common shares of SD&A were initially pledged to
collateralize these notes but were released in June 1996. In connection with
these notes, an operating covenant agreement included, among other things,
provisions requiring that SD&A have a minimum level of working capital and cash
levels, subject to periodic increases based on sales, before dividend payments
could be made to the parent company. In June 1996 the operating covenant
agreement was terminated.
F-19
<PAGE>
<PAGE>
ALL-COMM MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During 1996 the July 1, 1996 principal payment of $375,000 was made and the
long-term obligations were restructured to defer principal payments due October
1, 1995, January 1, 1996 and April 1, 1996, until June 1996. In June, 1996,
principal payments of $2,025,000 were made and the remaining obligations of
$2,100,000 are now payable at $58,333 per month, plus interest at 8%, starting
September 19, 1996.
11. EMPLOYMENT CONTRACTS
Subject to execution of definitive agreements, the Company has entered into
three-year employment arrangements with current officers of the Company. The
arrangements provide for annual base salaries, base increases, cash and option
bonuses which are payable if specified management goals are achieved, and
certain termination benefits. The aggregate liability in the event of
termination by the Company without cause or by the executives for 'good cause'
as defined in such employment agreements of these employees is approximately
$1,000,000 based on current salary levels.
The Company also had employment contracts with certain members of the prior
management of the Company. In fiscal 1995 severance payments totaling
approximately $60,000 were fully paid under the contracts. A contract with a
prior key member of management also required the issuance of 25,000 shares of
Common Stock in exchange for a $200,000 non-recourse promissory note receivable.
The note receivable was due on November 1, 1994, along with accrued interest at
10.5% per annum. In fiscal 1994, the Company's Directors approved discounting
the interest receivable and note receivable by one third. The discount of the
interest receivable of $29,166 was charged against operations and the $66,667
discount of the note receivable was charged to additional paid in capital.
12. COMMITMENTS AND CONTINGENCIES
Leases
SD&A leases its corporate business premises from its former owner, who is a
current stockholder and officer of the Company. The lease requires monthly
rental payments of $11,805 through January 1, 1999, with an option to renew.
SD&A incurs all costs of insurance, maintenance and utilities. Also, the Company
leases its corporate office space, copier, phones and automobiles under
long-term leases.
Future minimum rental commitments under all non-cancelable leases, as of
fiscal years ending June 30, are as follows:
<TABLE>
<S> <C>
1997........................................................ $ 324,978
1998........................................................ 310,968
1999........................................................ 199,609
2000........................................................ 130,858
2001........................................................ 130,858
----------
$1,097,271
----------
----------
</TABLE>
Rent expense for continuing operations was approximately $89,000 and
$297,000 for fiscal years 1995 and 1996, respectively. Total rent paid by SD&A
to its former owner from the date of acquisition to June 30, 1995 and during
1996 was approximately $26,000 and $138,000, respectively.
Litigation
Pursuant to a Settlement and Release Agreement dated June 17, 1994 with
Membership Development, Inc. ('MDI'), a non-affiliated direct marketing company
that was providing marketing services to STI, in fiscal 1994 the Company issued
25,000 shares of STI stock valued at $250,000, executed an unsecured
non-interest bearing promissory note for $144,000 and in fiscal 1995 issued an
additional 37,500 shares of stock valued at $150,000. In May 1995, MDI exercised
its right to require the Company to file a registration statement registering
these securities for sale. A registration statement was filed but has not yet
been declared effective. The entire $544,000 of consideration was expensed in
fiscal 1994 in discontinued operations.
F-20
<PAGE>
<PAGE>
ALL-COMM MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company is party to various routine legal proceedings incidental to its
business. The outcomes of these legal proceedings are not expected to have a
material adverse effect on the financial condition or operation of the Company
based on the Company's current understanding of the relevant facts and law.
13. REDEEMABLE CONVERTIBLE PREFERRED STOCK
On June 7, 1996, the Company completed the private placements with
accredited investors of 6,200 shares of Series B Redeemable Convertible
Preferred Stock, par value $.01 per share (the 'Series B Preferred Stock') for
$3,100,000. In addition, the Company issued warrants in connection with the
issuance of the Series B Preferred Stock for 3,100,000 shares of Common Stock
exercisable for three years at $2.50 per share. The Series B Preferred Stock is
preferred as to the Company's assets over the Common Stock in the event of
liquidation, dissolution or winding-up of the Company, prior to distribution of
assets to the Company's common stockholders. The holders of the Series B
Preferred Stock are entitled to their original investment, plus accrued, unpaid
dividends or, if unavailable, a ratable distribution of existing assets. The
holders of Series B Preferred Stock are entitled to receive a dividend payable
only on redemption or credited against conversion, which shall accrue at the
rate of 6% per annum. The holders of the Series B Preferred Stock have the
right, at any time prior to the second anniversary of the date of issuance, to
convert, first, the outstanding accrued dividends, and then the Series B
Preferred Stock, in whole or in part. The outstanding accrued dividends on each
share of Series B Preferred Stock are convertible into that number of shares of
Common Stock equal to the quotient of the amount of such outstanding accrued
dividends divided by the lesser of (i) $1.25 and (ii) 80% of the average of the
closing bid price of the Common Stock during the five trading days prior to such
conversion. Each share of Series B Preferred Stock is convertible into that
number of shares of Common Stock equal to the quotient of $500, which is the
redemption value per share of Series B Preferred Stock, divided by the lesser of
(i) $1.25 and (ii) 80% of the average of the closing bid price of the Common
Stock during the five trading days prior to such conversion. If not theretofore
converted, the Series B Preferred Stock is automatically deemed converted at
such price on the second anniversary of the date of issuance, unless (i) the
Common Stock is not then trading on NASDAQ or another U.S. securities exchange
or (ii) the Company has not theretofore had declared effective a registration
statement with respect to the Common Stock issuable upon conversion of the
Series B Preferred Stock or the exercise of such warrants. See 'Shares Eligible
for Future Sale -- Registration Rights -- Holders of Series Preferred Stock.' In
such event, the Company is required to redeem the Series B Preferred Stock at a
redemption price payable in cash equal to $500 per share plus all accrued and
unpaid dividends thereon.
On June 7, 1996, the Company completed the private placements with
accredited investors of $1,000,000 of convertible notes and warrants for
3,000,000 shares of Common Stock. Subsequent to year end, the notes and warrants
were rescinded retroactive to June 7, 1996 and replaced with 2,000 shares of
Series C Redeemable Convertible Preferred Stock, par value $.01 per share (the
'Series C Preferred Stock') for $1,000,000. In addition, the Company issued
warrants in connection with the issuance of the Series C Preferred Stock for
3,000,000 shares of Common Stock exercisable at $3.00 per share for three years.
The Series C Preferred Stock is preferred as to the Company's assets over the
Common Stock in the event of liquidation, dissolution or winding-up of the
Company, prior to distribution of assets to the Company's common stockholders.
The holders of the Series C Preferred Stock are entitled to their original
investment, plus accrued unpaid dividends or, if unavailable, a ratable
distribution of existing assets. The holders of the Series C Preferred Stock are
entitled to receive a dividend payable only on redemption or credited against
conversion, which shall accrue at the rate of 8% per annum. The holders of the
Series C Preferred Stock have the right, at any time prior to June 7, 1998, to
convert, first, the outstanding accrued dividends, and then the Series C
Preferred Stock, in whole or in part. The outstanding accrued dividends on each
share of Series C Preferred Stock are convertible into that number of shares of
Common Stock equal to the quotient of the amount of such outstanding accrued
dividends divided by $6.00. Each share of Series C Preferred Stock is
convertible into that number of
F-21
<PAGE>
<PAGE>
ALL-COMM MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
shares of Common Stock equal to the quotient of $500, which is the redemption
value per share of Series C Preferred Stock, divided by $6.00. If not
theretofore converted, the Series C Preferred Stock is automatically deemed
converted at such price on June 7, 1998, unless (i) the Common Stock is not then
listed on NASDAQ (or another U.S. securities exchange) or (ii) the Company has
not theretofore had declared effective a registration statement with respect to
the Common Stock issuable upon conversion of the Series C Preferred Stock or the
exercise of such warrants. See 'Shares Eligible for Future Sale -- Registration
Rights -- Holders of Series C Preferred Stock.' In such event, the Company is
required to redeem the Series C Preferred Stock at a redemption price payable in
cash equal to $500 per share plus all accrued and unpaid dividends thereon. In
addition, if the Company has not had declared effective by October 7, 1996 such
registration statement, the dividend rate is increased to 24% per annum and at
the option of the holders of the Series Preferred Stock, the Series C Preferred
Stock shall not be redeemable by the Company, and shall remain convertible and
accrue dividends, until the earlier of (x) the date designated by such holders
and (y) the date 180 days after such registration statement is declared
effective.
The Company allocated the net proceeds received on the sales of each series
of preferred shares and warrants based on the relative fair values of the
securities at the time of issuance.
14. STOCKHOLDERS' EQUITY
Preferred Stock
On May 9, 1996, the Company completed the private placement with an
institutional investor of 10,000 shares of Series A Convertible Preferred Stock,
par value $.01 per share (the 'Series A Preferred Stock') for $750,000, $687,000
net after offering costs. The Series A Preferred Stock was convertible into
shares of Common Stock at the lesser of the price paid divided by $2.50, or 80%
of the average closing bid price of the Common Stock for the five trading days
immediately prior to the conversion date, and was subject to certain
restrictions.
In connection with the June 7, 1996 transactions as described above, the
Company reacquired the 10,000 shares of Series A Preferred Stock for $800,000
plus fees of $12,500.
Common Stock
The Directors approved a one-for-four reverse stock split of the Company's
authorized and issued Common Stock, effective August 22, 1995. The Directors
also approved reducing the number of authorized shares of Common Stock to
6,250,000 with a par value of $.01 per share, from the 25,000,000 shares of
Common Stock previously authorized. Accordingly, all share and per share data,
as appropriate, reflect the effect of the reverse split.
Effective August 1996, the number of authorized shares of Common Stock was
increased from 6,250,000 to 36,250,000.
During 1996, the Company issued 95,442 shares of restricted Common Stock as
compensation to various employees, Directors and consultants.
In March 1996, the Company sold 75,000 shares of restricted Common Stock
for $120,000 to four individuals, including 12,500 shares to related parties.
In May 1995, the Company completed a private placement of 413,759 shares of
restricted Common Stock, at $2.68 per share. These shares have registration
rights as of December 1, 1995. Net proceeds from this offering totaled
$1,018,675.
As discussed in Note 3, in connection with the acquisition of Alliance and
SD&A, the Company issued 1,025,000 restricted shares of Common Stock to the
former shareholders of Alliance. These shares have registration rights. Also in
connection with the acquisition, the Company issued 37,500 restricted shares of
Common Stock valued at $100,000 and warrants to purchase 43,077 shares of Common
Stock at exercise prices ranging from $6.00 to $8.00 per share to investment
banking firms, a
F-22
<PAGE>
<PAGE>
ALL-COMM MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
shareholder, a director and a law firm which represented the Company. These
warrants expire between April 25, 1998 and April 25, 2000.
In connection with the sale of STI, the Company approved the issuance to
its former president of 5,000 restricted shares of Common Stock valued at
$38,750 and warrants to purchase 2,500 shares of Common Stock at an exercise
price of $8.00 per share through April 25, 1995.
On July 26, 1991, the Company sold warrants to purchase up to 62,500 shares
of Common Stock to a private investor for $250 in cash, exercisable at $6.00 per
share through July 31, 1996. This investor was subsequently elected to the
Company's board of directors. On January 31, 1994, this Director exercised
warrants to purchase 25,000 shares of Common Stock at $4.00 per share (which had
previously been reduced by the Directors from $6.00 to $4.00) by paying $100,000
to the Company. On June 9, 1994, this Director sold, in a private transaction,
18,750 of these warrants to another stockholder of the Company. In May, 1995,
the Directors approved the temporary reduction of the exercise price of these
warrants from $6.00 to $2.68 and, on May 31, 1995, these 37,500 warrants were
exercised for $100,500 in cash payments.
As of June 30, 1996, the Company has the following outstanding warrants to
purchase 6,370,577 shares of Common Stock:
<TABLE>
<CAPTION>
DATE SHARES OF COMMON EXERCISE PRICE PER
DATE ISSUED EXERCISABLE STOCK UPON EXERCISE SHARE OF COMMON STOCK
- ------------------------------------ --------------- ------------------- ---------------------
<S> <C> <C> <C>
April 1995.......................... April 1995 33,750 $6.00 - $8.00
May 1995............................ May 1995 11,827 $6.00
October 1995........................ October 1995 30,000 $2.50
January 1996........................ January 1996 32,500 $3.375 - 8.00
February 1996....................... February 1996 15,000 $3.00 - 4.00
April 1996.......................... April 1996 22,500 $1.60
May 1996............................ May 1996 100,000 $4.50
June 1996........................... June 1996 25,000 $4.50
June 1996........................... August 1996 6,100,000 $2.50 - $3.00
-------------------
Total as of June 30, 1996........................ 6,370,577
-------------------
-------------------
</TABLE>
In addition, warrants for 150,000 shares at exercise prices ranging from
$2.50 to $3.50 per share, and exercisable at dates through May 2000, may be
purchased for a total of $7,500.
Stock Options
In 1991, the Company adopted a non-qualified stock option plan (the 'Stock
Option Plan') for key employees, officers, directors and consultants to purchase
up to 250,000 shares of Common Stock. In November, 1995, the Directors increased
the number of available shares by 600,000. The Stock Option Plan is administered
by the Directors, who have the authority to determine which officers and key
employees of the Company will be granted options to acquire Common Stock
('Options'), the exercise price of the Options and the term of the Options. In
no event shall an Option expire more than 10 years after grant.
F-23
<PAGE>
<PAGE>
ALL-COMM MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following summarizes the Option transactions under the Stock Option
Plan for the two fiscal years ended June 30, 1996:
<TABLE>
<CAPTION>
NUMBER OPTION PRICE
OF SHARES PER SHARE
--------- ---------------
<S> <C> <C>
Outstanding at June 30, 1994............................................. 107,892 $6.00 to $22.00
Granted............................................................. 8,750 $5.24 to $7.00
Exercised........................................................... (22,500) $2.68 to $5.24
Canceled............................................................ (3,334) $6.00
---------
Outstanding at June 30, 1995............................................. 90,808
Granted............................................................. 525,003 $2.00 to $3.00
Canceled............................................................ (91,004) $6.00 to $22.00
---------
Outstanding at June 30, 1996............................................. 524,807
---------
---------
</TABLE>
All the outstanding Options under the Stock Option Plan are exercisable and
expire as follows: fiscal 1998 -- 2,084, fiscal 2000 -- 5,000 and fiscal
2003 -- 517,723. All Options granted in fiscal years 1995 and 1996 were issued
at fair market value. In May, 1995, a $128,000 discount was given to a former
Director of the Company to exercise 18,750 Options and was recognized as
compensation expense. At June 30, 1996, 179,504 Options were available for
grant.
In addition to the Stock Option Plan, the Company has other option
agreements with former officers, directors, employees and owners of an acquired
company.
The following summarizes transactions outside the Stock Option Plan for the
two fiscal years ended June 30, 1996:
<TABLE>
<CAPTION>
NUMBER OPTION PRICE
OF SHARES PER SHARE
--------- ---------------
<S> <C> <C>
Outstanding at June 30, 1994............................................. 73,791 $3.00 to $16.00
Exercised........................................................... (12,500) $3.00
Canceled............................................................ (28,875) $6.00 to $16.00
---------
Outstanding at June 30, 1995............................................. 32,416
Canceled............................................................ (30,166) $4.50 to $6.00
---------
Outstanding at June 30, 1996............................................. 2,250
---------
---------
</TABLE>
All the outstanding Options under these agreements are exercisable and
expire in fiscal 1999. A one-third discount, totaling $86,334 was given to
non-affiliates when 36,083 Options were exercised in January 1994 and was
recognized as compensation expense.
Common Stock in Treasury
The Company has purchased 26,800 shares of its Common Stock for a total
cost of $214,579 (or an average of $8.00 per share). In connection with the
acquisition of HSGR assets, 15,000 shares were issued from the treasury stock.
The remaining treasury shares have a total cost of $135,469 (or an average of
$11.48 per share).
F-24
<PAGE>
<PAGE>
ALL-COMM MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. INCOME TAXES
Income tax expense from continuing operations is as follows:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
---------------------
1995 1996
------- --------
<S> <C> <C>
Current:
Federal.................................................................. -- --
State and local.......................................................... $75,000 $141,084
Deferred...................................................................... -- --
------- --------
Total............................................................... $75,000 $141,084
------- --------
------- --------
</TABLE>
A reconciliation of the federal statutory income tax rate to the effective
income tax rate based on pre-tax loss from continuing operations follows:
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Statutory rate................................................................ (34)% (34)%
Increase (decrease) in tax rate resulting from:
Loss limitations and valuation allowance................................. 34 34
State income taxes....................................................... 134 15
------- -------
Effective rate........................................................... 134% 15%
------- -------
------- -------
</TABLE>
Deferred tax assets and liabilities at June 30, are as follows:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards......................................... $ 374,000 $ 691,100
Amortization of intangibles.............................................. 133,000 142,300
Other.................................................................... 158,800 95,900
--------- ---------
Total deferred tax assets..................................................... 665,800 929,300
Valuation allowance...................................................... (364,400) (789,800)
--------- ---------
Net deferred tax assets....................................................... 301,400 139,500
--------- ---------
Deferred tax liabilities:
Cash to accrual adjustment............................................... (262,500) (139,500)
Other.................................................................... (38,900) --
--------- ---------
Total deferred tax liabilities...................................... (301,400) (139,500)
--------- ---------
Total deferred taxes, net........................................... $ -- $ --
--------- ---------
--------- ---------
</TABLE>
The Company has a net operating loss of approximately $2,032,000 available
which expires from 2008 through 2011. These losses can only offset future
income.
No income taxes are allocable to the gain on sale of discontinued
operations during 1995 due to utilization of net operating loss carryforwards.
16. GAINS FROM SALES OF SECURITIES
In July, 1994, the Company borrowed $1,000,000 to fund the exercise by the
Company of a common stock purchase warrant. The loan was collateralized by a
pledge of such common stock pursuant to the terms of a pledge agreement. The
parties to the $1,000,000 loan included, among others, the Company's former
chairman, former president, a former director and a stockholder, who each
provided $200,000. The other lenders were non-affiliates. The lenders received
the repayment of the $1,000,000 loan, interest at 7.75% totaling $9,493 and a
$300,000 commitment fee from the proceeds of the subsequent sales of such common
stock. Effective July 1, 1994, the Company adopted SFAS No. 115, 'Accounting for
Certain Investments in Debt and Equity Securities.' In accordance with SFAS No.
115, the Company's marketable equity securities were considered
'available-for-sale' investments and were
F-25
<PAGE>
<PAGE>
ALL-COMM MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
carried at market value with the difference between cost and market value
recorded as a component of stockholders' equity. The cost of available-for-sale
investments that were sold was based on specific identification. The Company
subsequently sold all these securities and recognized a gain of $1,580,000 in
fiscal 1995.
17. RELATED PARTY TRANSACTIONS
A former Director of the Company is the senior managing director of a
private merchant banking firm, which was paid approximately $5,700 for
investment advisory services in fiscal 1995. In connection with the acquisition
of Alliance, a finder's fee totaling $100,000 was paid in fiscal 1995 to the
merchant banking firm. In addition, the former director and the other principal
owner of the merchant banking firm each received 9,375 restricted shares of
Common Stock valued at $2.67 per share and warrants to purchase 6,250 shares of
Common Stock exercisable at $8.00 per share.
On June 9, 1994, the Company borrowed $350,000 from the Company's former
chief executive officer and its former president and pledged its equity interest
in the Laughlin land as security for repayment of the loan. The note was due
July 31, 1995 with interest at the rate of 7.25% (the Bank of America Nevada
prime rate at the time of execution). The promissory note and interest of $8,695
were repaid in advance on October 4, 1994.
A former Director of the Company, and another person serving as assistant
secretary in 1993, were each partners in different law firms that provided legal
services for which the Company recognized expenses aggregating approximately
$31,000 in 1995.
In April 1995, the former chairman of the Company purchased property and
equipment owned by the Company with a cost of $160,109 and net book value of
$5,870 for a discounted appraised value of $11,000 in cash.
See Notes 3, 10, 11, 12, 13 and 15 for additional related party
transactions.
18. NEW ACCOUNTING PRONOUNCEMENTS
Adoption of the Financial and Accounting Standards Board ('FASB') Statement
of Financial Accounting No. 121, 'Accounting for the Impairment of Long-Lived
Assets for Long-Lived Assets to be Disposed of,' which is effective for
financial statements for fiscal years beginning after December 15, 1995, is not
anticipated to have a material effect on the Company's consolidated financial
statements.
The FASB recently issued Statement of Financial Accounting No. 123,
'Accounting for Stock-Based Compensation' ('SFAS 123'), which is effective for
financial statements for fiscal years beginning after December 15, 1995. SFAS
123 establishes new financial accounting and reporting standards for stock-based
compensation plans. Entities will be allowed to measure compensation cost for
stock-based compensation under SFAS 123 or APB Opinion No. 25, 'Accounting for
Stock Issued to Employees.' The Company has elected to continue the accounting
treatment of such compensation pursuant to APB Opinion No. 25. However, starting
in the first quarter of fiscal 1997, the Company will be required to make pro
forma disclosure of net income and earnings per share as if the provisions of
SFAS 123 had been applied.
19. SUBSEQUENT EVENTS
Effective as of October 1, 1996, the Company acquired Metro Services Group,
Inc. ('Metro') pursuant to a merger agreement. In exchange for all of the then
outstanding shares of Metro, the Company issued 1,814,000 shares of its Common
Stock valued at $7,256,000 and promissory notes (the 'Notes') totaling
$1,000,000. The Notes shall be due and payable, together with interest thereon
at the rate of 6% per annum, on June 30, 1998, subject to earlier repayment, at
the option of the holder, upon completion by the Company of a public offering of
its equity securities. The Notes are convertible on or before maturity, at the
option of the holder, into shares of Common Stock at a conversion rate of $5.38
per share. Metro develops and markets information-based services, used primarily
in direct marketing by a variety of commercial and not-for-profit organizations,
principally in the United States.
F-26
<PAGE>
<PAGE>
ALL-COMM MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On October 17, 1996, the Company filed a Form SB-2 registration statement
(the 'Registration Statement') with the Securities and Exchange Commission. The
Registration Statement relates to an underwritten public offering (the
'Underwritten Offering') of 2,100,000 shares of Common Stock, of which 1,750,000
shares are being offered by the Company and 350,000 are being offered by certain
stockholders of the Company. It also relates to the sale of 1,381,056 shares
(the 'Delayed Shares') of Common Stock by certain selling stockholders on a
delayed basis pursuant to Rule 415 under the Securities Act of 1933, as amended,
none of whom are members of, or affiliated with, the Board or management. Of
such Delayed Shares, 1,291,588 shares will be subject to 'lock up' provisions
that prohibit resale of such shares for a period of nine months from the date of
consummation of the Underwritten Offering.
In connection with the Company's filing on Form SB-2, the Convertible
Preferred Stock in the accompanying financial statements has been reclassified
in accordance with the Securities and Exchange Commission's requirements.
Accordingly, the Redeemable Convertible Preferred Stock is no longer presented a
part of stockholders' equity and its initial carrying value is being increased
to its redemption value by periodic accretions against paid in capital.
The Company and certain of its securityholders have agreed, on December 23,
1996, to effect a recapitalization of the Company's capital stock, whereby: (i)
the Company's Series B Preferred Stock, will be converted, in accordance with
its terms without the payment of additional consideration, into 2,480,000 shares
of the Company's common stock, par value $.01 per share (the 'Common Stock');
(ii) the Company's Series C Preferred Stock, will be repurchased for promissory
notes in an aggregate principal amount of $1.0 million, which promissory notes
will bear interest at a rate of 8% per annum and will be repayable on demand at
any time from and after the date of the consummation of an underwritten public
offering by the Company of Common Stock, but in any event such notes will mature
June 7, 1998; (iii) all accrued interest on the Series B Preferred Stock and the
Series C Preferred Stock will be converted into 88,840 shares of Common Stock
(assuming conversion on December 23, 1996); (iv) warrants related to the Series
C Preferred Stock, currently exercisable for 3,000,000 shares of Common Stock,
will be exchanged for 600,000 shares of Common Stock; (v) agreements with
certain of the Company's securityholders to issue, upon consummation of the
Underwritten Offering, warrants exercisable for 1,038,503 shares of Common Stock
in consideration for such securityholders' agreement to certain lock-up
arrangements will be rescinded at no cost to the Company; and (vi) options held
by two of the Company's principal executive officers to purchase 300,000 shares
of common stock will be cancelled at no cost to the Company. Upon conversion of
the Series B Preferred Stock and accumulated interest thereon into Common Stock
on December 23, 1996, the Company incurred a non-cash, non-recurring dividend
for the difference between the conversion price and the market price of the
Common Stock estimated to be $8.5 million. This dividend will not impact net
income (loss), but will impact net income (loss) attributable to common
stockholders in the calculation of earnings per share.
In connection with the Underwritten Offering, the Company will incur a
non-recurring non-cash charge estimated to be $75,000 in the fiscal quarter in
which the Underwritten Offering is consummated, as a result of the issuance by
the Company of warrants exercisable for an aggregate of up to 160,414 shares of
Common Stock to certain stockholders of the Company as consideration for the
agreement of such stockholders to certain lock-up arrangements.
F-27
<PAGE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of
METRO SERVICES GROUP, INC.:
We have audited the accompanying balance sheet of Metro Services Group,
Inc. as of December 31, 1995, and the related statements of operations,
shareholders' equity (deficit), and cash flows for each of the two years in the
period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Metro Services Group, Inc.
at December 31, 1995, and the results of its operations, and its cash flows for
each of the two years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
New York, New York
August 29, 1996.
F-28
<PAGE>
<PAGE>
METRO SERVICES GROUP, INC.
BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND SEPTEMBER 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash.......................................................................... $ 7,918 $ 349,446
Accounts receivable billed, net of allowance of $82,118 and $39,700
(unaudited), respectively.................................................... 1,168,602 1,009,584
Accounts receivable, unbilled................................................. 1,233,596 829,547
Other......................................................................... 7,663 54,537
------------ -------------
Total current assets..................................................... 2,417,779 2,243,114
Due from shareholder.......................................................... -- 50,000
Fixed assets, net............................................................. 87,522 242,726
------------ -------------
Total assets............................................................. $2,505,301 $ 2,535,840
------------ -------------
------------ -------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.............................................................. $2,142,688 $ 2,189,188
Due to shareholders and other related parties, net............................ 31,797 25,000
Capital lease obligation, current............................................. 59,258
Sales and income taxes payable................................................ 65,273 9,532
------------ -------------
Total current liabilities................................................ 2,239,758 2,282,978
Capital lease obligation, non-current.............................................. 112,837
Deferred rent...................................................................... 30,583 34,146
------------ -------------
Total liabilities........................................................ 2,270,341 2,429,961
------------ -------------
Commitments
Shareholders' equity (deficit):
Common stock, no par value; 200 shares authorized, 100 shares issued and
outstanding.................................................................. 1,000 1,000
Retained earnings............................................................. 233,960 104,879
------------ -------------
Total shareholders' equity............................................... 234,960 105,879
------------ -------------
Total liabilities and shareholders' equity (deficit)................ $2,505,301 $ 2,535,840
------------ -------------
------------ -------------
</TABLE>
The accompanying Notes are an integral part of the financial statements.
F-29
<PAGE>
<PAGE>
METRO SERVICES GROUP, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 AND
THE (UNAUDITED) NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------ --------------------------
1994 1995 1995 1996
---------- ---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues................................................. $5,914,079 $8,096,307 $ 5,713,514 $ 5,768,664
---------- ---------- ----------- -----------
Operating expenses:
Direct costs........................................ 3,290,265 4,652,820 3,330,490 3,174,946
Salaries and benefits............................... 1,672,496 1,792,203 1,314,522 1,567,365
Selling, general and administrative................. 867,845 899,323 651,502 746,071
Professional fees................................... 133,073 175,855 151,499 173,660
---------- ---------- ----------- -----------
Total operating expenses....................... 5,963,679 7,520,201 5,448,013 5,662,042
---------- ---------- ----------- -----------
Income (loss) before provision for income
taxes........................................ (49,600) 576,106 265,501 106,622
Provision for income taxes............................... 7,072 35,490 15,930 5,280
---------- ---------- ----------- -----------
Net income (loss).............................. $ (56,672) $ 540,616 $ 249,571 $ 101,342
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Pro forma data (unaudited) (Note 10):
Historical income (loss) before provision for income
taxes............................................. $ (49,600) $ 576,106 $ 265,501 $ 106,622
---------- ---------- ----------- -----------
Pro forma provision for income taxes................ 7,072 224,681 103,545 33,314
---------- ---------- ----------- -----------
Pro forma net income (loss)......................... $ (56,672) $ 351,425 $ 161,956 $ 73,308
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
</TABLE>
The accompanying Notes are an integral part of the financial statements.
F-30
<PAGE>
<PAGE>
METRO SERVICES GROUP, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 AND
THE (UNAUDITED) NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK EARNINGS
---------------- (ACCUMULATED
SHARES AMOUNT DEFICIT) TOTAL
------ ------ ------------- ---------
<S> <C> <C> <C> <C>
Balance at January 1, 1994........................................ 100 $1,000 $(249,984) $(248,984)
Net loss..................................................... -- -- (56,672) (56,672)
------ ------ ------------- ---------
Balance at December 31, 1994...................................... 100 1,000 (306,656) (305,656)
Net income................................................... -- -- 540,616 540,616
------ ------ ------------- ---------
Balance at December 31, 1995...................................... 100 1,000 233,960 234,960
Dividends paid............................................... -- -- (230,423) (230,423)
Net income................................................... -- -- 101,342 101,342
------ ------ ------------- ---------
Balance at September 30, 1996 (unaudited)......................... 100 $1,000 $ 104,879 $ 105,879
------ ------ ------------- ---------
------ ------ ------------- ---------
</TABLE>
The accompanying Notes are an integral part of the financial statements.
F-31
<PAGE>
<PAGE>
METRO SERVICES GROUP, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 AND
THE (UNAUDITED) NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
---------------------- --------------------------
1994 1995 1995 1996
--------- --------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)...................................... $ (56,672) $ 540,616 $ 249,571 $ 101,342
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Provision for allowances.......................... 32,414 56,342 53,063 65,551
Depreciation...................................... 63,263 59,436 44,578 49,015
Deferred rent..................................... 10,833 19,750 14,813 3,563
Changes in assets and liabilities:
(Increase) decrease in accounts receivable... (331,821) (483,614) (478,821) 497,516
Increase in other assets..................... (1,176) (848) (848) (46,874)
Increase in accounts payable................. 266,272 18,917 327,990 46,498
Increase (decrease) in accrued expenses...... 87,915 (219,952) (219,952) 0
(Decrease) increase in sales and income taxes
payable.................................... (17,425) 48,086 19,380 (55,741)
--------- --------- ----------- -----------
Net cash provided by operating
activities............................ 53,603 38,733 9,774 660,870
--------- --------- ----------- -----------
Cash flows from investing activities:
Purchase of fixed assets............................... (78,344) (42,704) (17,475) (22,938)
--------- --------- ----------- -----------
Net cash used in investing activities... (78,344) (42,704) (17,475) (22,938)
--------- --------- ----------- -----------
Cash flows from financing activities:
Principal payments on capital lease obligation......... -- -- -- (9,184)
Repayment of related party loan........................ -- -- -- (6,797)
Advance to shareholder................................. -- -- -- (50,000)
Dividends paid......................................... -- -- -- (230,423)
--------- --------- ----------- -----------
Net cash used in financing activities... -- -- -- (296,404)
--------- --------- ----------- -----------
Net (decrease) increase in cash......... (24,741) (3,971) (7,701) 341,528
Cash, beginning of period................................... 36,630 11,889 11,889 7,918
--------- --------- ----------- -----------
Cash, end of period......................................... $ 11,889 $ 7,918 $ 4,188 $ 349,446
--------- --------- ----------- -----------
--------- --------- ----------- -----------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest.......................................... $ 14,070 $ 24,405
Income taxes...................................... $ 665 $ 13,054
</TABLE>
Supplemental Schedule of Non-cash Financing and Investment Activities:
In July 1996, the Company acquired computer equipment, financed by the
vendor, for $181,281.
The accompanying Notes are an integral part of the financial statements.
F-32
<PAGE>
<PAGE>
METRO SERVICES GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION PERTAINING TO SEPTEMBER 30, 1996 AND THE NINE MONTHS ENDED
SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
1. DESCRIPTION OF THE BUSINESS
Metro Services Group, Inc. ('Metro' or the 'Company') develops and markets
information-based services used primarily in direct marketing by a variety of
commercial and not-for-profit organizations principally in the United States.
2. SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Metro recognizes revenue when its services have been fully performed and
completed (the 'Service Date') but does not bill for such services, in
accordance with industry practices, until all services relating to a client's
campaign, including services to be performed by unrelated third parties, have
been completed. The client's obligation to pay Metro for its completed services
is not contingent upon completion of the services to be performed by these
unrelated third parties. In any event, clients are billed no later than a
predetermined mailing date for their respective campaigns, which date is
generally not more than thirty days after the Service Date. Unbilled receivables
represent the portion of revenues recognized in excess of revenues billed in
accordance with this practice.
Fixed Assets
Fixed assets are stated at cost. Computer equipment and furniture and
fixtures are depreciated using the straight-line method over their estimated
useful lives of three to seven years.
Expenditures for maintenance and repairs, which do not materially extend
the useful lives of the assets, are charged to expense as incurred. The cost and
related accumulated depreciation of assets retired or sold are removed from the
respective accounts, and any gain or loss is recognized in income.
Income Taxes
The Company has elected to be treated as an S corporation for income tax
reporting purposes, which requires the Company's income or loss for federal and
certain state tax jurisdictions to be recognized by its shareholders.
Consequently, the Company provides for income taxes only in those jurisdictions
which do not recognize its S corporation status, mainly New York City. See Note
11.
The Company recognizes deferred taxes by the asset and liability method of
accounting for those jurisdictions which do not recognize its S corporation
status. Under the asset and liability method deferred income taxes are
recognized for differences between the financial statement and tax bases of
assets and liabilities at enacted tax rates applicable to the years in which the
differences are expected to reverse. In addition, valuation allowances are
established when necessary to reduce deferred tax assets to the amounts expected
to be realized.
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 dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
Recently Issued Pronouncements
In March 1995, the Financial Accounting Standards Board ('FASB') issued
Statement of Financial Accounting Standards No. 121, 'Accounting for the
Impairment of Long-Lived Assets and for Long-
F-33
<PAGE>
<PAGE>
METRO SERVICES GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO SEPTEMBER 30, 1996 AND THE NINE MONTHS ENDED
SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
Lived Assets to be Disposed of' ('SFAS 121'). SFAS 121 requires that an
impairment loss be recognized for long-lived assets and certain identifiable
intangibles when the carrying amount of these assets may not be recoverable. The
Company believes that the adoption of SFAS 121 in fiscal 1996 will not have a
material impact on the Company's results of operations or financial position.
3. FIXED ASSETS
Fixed assets comprise
<TABLE>
<CAPTION>
DECEMBER 31, 1995 SEPTEMBER 30, 1996
----------------- ------------------
(UNAUDITED)
<S> <C> <C>
Furniture and fixtures............................... $ 37,327 $ 49,180
Computer equipment................................... 273,463 465,829
----------------- ------------------
Total........................................... 310,790 515,009
Less: Accumulated depreciation....................... (223,268) (272,283)
----------------- ------------------
$ 87,522 $242,726
----------------- ------------------
----------------- ------------------
</TABLE>
Depreciation expense for the years ended December 31, 1994 and 1995 and the
nine months ended September 30, 1995 and 1996 was $63,263, $59,436, $44,578
(unaudited) and $49,015 (unaudited), respectively.
4. COMMITMENTS
Operating Lease
Metro is obligated under a 10-year lease for office space. Rent expense for
the years ended December 31, 1994 and 1995 and the nine months ended September
30, 1995 and 1996 amounted to $108,365, $162,262, $124,505 (unaudited), and
$133,379 (unaudited), respectively.
Modified in June 1994, this lease includes rent escalation at the end of
the third, fourth and eighth years of this lease. At December 31, 1995 and
September 30, 1996, Metro has recorded deferred rent expense of $19,750 and
$3,563 (unaudited), respectively.
Minimum annual lease commitments under the terms of the noncancellable
operating leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, COMMITMENTS
------------ -----------
<S> <C>
1996................................ $ 155,250
1997................................ 164,000
1998................................ 164,000
1999................................ 164,000
2000................................ 167,708
Thereafter.......................... 269,958
-----------
$1,084,916
-----------
-----------
</TABLE>
Employment Contracts
In 1993, Metro had entered into a contractual arrangement with a consultant
to provide services to the Company. The contract provides for approximately
$11,000 per year in future minimum consulting compensation through 1997.
F-34
<PAGE>
<PAGE>
METRO SERVICES GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO SEPTEMBER 30, 1996 AND THE NINE MONTHS ENDED
SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
5. RELATED PARTIES
In January 1990, a related party loaned $50,000 to the Company in the form
of a promissory note (the '1990 Note'). The loan is collateralized by a portion
of the Company's receivables. The Note bears interest at 12% per annum and is
due in equal monthly installments on the last day of each month. The principal
balance is payable at any time upon 30 days' written notice by either party. In
1993, the Company made a $25,000 advance to a party related to the owner of the
1990 Note, and in 1994, recorded the advance as a reduction of the 1990 Note.
Additionally, in 1993, approximately $18,000 of Metro's expenses were paid by a
shareholder related to the owner of the 1990 Note, and, in 1994, this receivable
was applied against the 1990 Note to reduce its outstanding principal balance to
approximately $7,000 at December 31, 1995. In 1996, the $7,000 (unaudited) was
paid in full. Interest expense incurred and paid in connection with this loan
for the years ended December 31, 1994 and 1995, was approximately $6,000 and
$4,000, respectively.
In December 1992, a minority shareholder loaned $50,000 to the Company in
the form of a promissory note. The loan is collateralized by certain accounts
receivable. The note bears interest at 12% per year and is due in equal monthly
installments on the last day of each month. The principal balance is payable at
any time upon 30 day's written notice by either party. As of December 31, 1995,
the outstanding principal balance relating to the loan was $25,000. Interest
expense incurred and paid relating to this note was $3,000 per year in 1994 and
1995.
6. MAJOR CUSTOMERS
For the years ended December 31, 1994 and 1995, sales to a single customer
amounted to 12% and 10% of revenues, respectively. Accounts receivable from this
customer at December 31, 1995 and September 30, 1996 totaled approximately
$470,000 and less than $1,000, respectively. Subsequent to 1995, the Company
ceased providing services to this customer. However, management believes that
there will not be an adverse effect on the Company's financial position due to
the loss of this customer.
7. EMPLOYEE BENEFIT PLANS
On January 1, 1994, the Company established a 401(k) retirement plan (the
'Metro Retirement Plan') for certain of its employees to make qualified
contributions, in 1% increments, limited to 20% of the contributing
participant's annual compensation. The Company did not match any employee
contributions in 1994 and 1995. Effective May 1, 1996, Metro amended the Metro
Retirement Plan to provide for employer contributions to match up to 2% of an
employee's contribution. Employer contributions for the nine months ended
September 30, 1996 was approximatey $12,000 (unaudited).
8. SUBSEQUENT EVENTS
In February 1996, the Company declared and paid a dividend to its
shareholders in the aggregate amount of $230,423. In May 1996, Metro entered
into a non-binding letter of intent to be acquired by All-Comm Media
Corporation.
9. INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(a) Basis of presentation -- The interim unaudited financial statements
reflect adjustments, consisting only of normal recurring accruals,
which are, in the opinion of the Company's management, necessary for a
fair presentation of the financial position and results of operations
for the periods presented. Revenues and net income (loss) for any
interim period are not necessarily indicative of the results for a full
year.
(b) In February 1996, a shareholder of the Company borrowed $50,000 from
the Company.
F-35
<PAGE>
<PAGE>
METRO SERVICES GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO SEPTEMBER 30, 1996 AND THE NINE MONTHS ENDED
SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
(c) The Company is contingently liable for guarantees of lease payments
owed by a related party of approximately $28,000. The Company is of the
opinion that such related party will be able to perform its payment
obligations in connection with such guaranteed lease payments and that
no payments will be required and no losses will be incurred by the
Company under such guarantees.
(d) In July, 1996, the Company purchased computer equipment for $181,281
under a capitalized lease obligation.
10. PRO FORMA DATA (UNAUDITED)
The pro forma financial information is provided to show the significant
effects on the historical financial information had the Company operated as a C
corporation. Historically, the Company has elected to be taxed under the
provisions of subchapter S of the Internal Revenue Code of 1986, as amended, and
comparable provisions of state income tax laws.
F-36
<PAGE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder of
STEPHEN DUNN & ASSOCIATES, INC.
We have audited the balance sheet of Stephen Dunn & Associates, Inc. as of
December 31, 1994 and the related statements of income, shareholder's equity and
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Stephen Dunn & Associates,
Inc. as of December 31, 1994 and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
/s/ COOPERS & LYBRAND L.L.P.
Los Angeles, California
June 2, 1995
F-37
<PAGE>
<PAGE>
STEPHEN DUNN & ASSOCIATES, INC.
BALANCE SHEET
AS OF DECEMBER 31, 1994
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash........................................................................................... $ 164,910
Accounts receivable, less allowance for doubtful accounts of $8,000............................ 1,473,712
Prepaid expenses and other current assets...................................................... 58,818
----------
Total current assets...................................................................... 1,697,440
Property and equipment -- at cost, less accumulated depreciation of $702,842 -- Note 2.............. 352,309
Deposits............................................................................................ 23,452
----------
Total assets.............................................................................. $2,073,201
----------
----------
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable............................................................................... $ 195,203
Accrued wages and payroll taxes................................................................ 262,586
Accrued expenses and other current liabilities................................................. 70,956
Current portion of long-term debt -- Note 5.................................................... 78,353
Income taxes payable........................................................................... 55,270
Deferred income taxes -- Note 8................................................................ 30,600
----------
Total current liabilities................................................................. 692,968
----------
Long-term liabilities:
Long-term debt, less current portion -- Note 5................................................. 10,517
Other taxes and licenses -- Note 6............................................................. 72,000
----------
Total long-term liabilities............................................................... 82,517
----------
Commitments and contingencies -- Notes 6 and 7
Shareholder's equity:
Common stock:
Authorized -- 1,000 shares of no par common stock, issued and
outstanding -- 400 shares.................................................................... 400
Retained earnings.............................................................................. 1,464,839
Loan receivable, shareholder................................................................... (167,523)
----------
Total shareholder's equity................................................................ 1,297,716
----------
Total liabilities and shareholder's equity........................................... $2,073,201
----------
----------
</TABLE>
The accompanying Notes are an integral part of these financial statements.
F-38
<PAGE>
<PAGE>
STEPHEN DUNN & ASSOCIATES, INC.
STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<S> <C>
Revenues........................................................................................... $13,595,763
-----------
Salaries and benefits.............................................................................. 10,344,131
Direct costs....................................................................................... 497,383
Selling, general and administrative................................................................ 1,928,980
Professional fees.................................................................................. 99,012
-----------
Total operating expenses................................................................. 12,869,506
-----------
Income from operations................................................................... 726,257
Interest income............................................................................... 7,485
Interest expense.............................................................................. (36,855)
-----------
Income before income taxes............................................................... 696,887
Provision for income taxes......................................................................... (48,405)
-----------
Net income............................................................................... $ 648,482
-----------
-----------
Pro forma data (unaudited) (Note 10):
Historical income before income taxes......................................................... $ 696,887
Pro forma provision for income taxes.......................................................... (271,786)
-----------
Pro forma net income..................................................................... $ 425,101
-----------
-----------
</TABLE>
The accompanying Notes are an integral part of these financial statements.
F-39
<PAGE>
<PAGE>
STEPHEN DUNN & ASSOCIATES, INC.
STATEMENT OF SHAREHOLDER'S EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
COMMON RETAINED LOANS TO
STOCK EARNINGS SHAREHOLDER TOTAL
------ ---------- ----------- -----------
<S> <C> <C> <C> <C>
Balance, December 31, 1993.................................. $400 $ 816,357 $ -- $ 816,757
Net income............................................. -- 648,482 -- 648,482
Loans to shareholder................................... -- -- $(167,523) (167,523)
------ ---------- ----------- -----------
Balance, December 31, 1994.................................. $400 $1,464,839 $(167,523) $ 1,297,716
------ ---------- ----------- -----------
------ ---------- ----------- -----------
</TABLE>
The accompanying Notes are an integral part of these financial statements.
F-40
<PAGE>
<PAGE>
STEPHEN DUNN & ASSOCIATES, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income....................................................................................... $648,482
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation................................................................................ 166,671
Provision for doubtful accounts............................................................. 2,000
Increase in:
Accounts receivable.................................................................... (380,219)
Prepaid expense and other current assets............................................... (31,739)
Increase (decrease) in:
Accounts payable....................................................................... 114,740
Accrued wages and payroll taxes........................................................ 73,483
Accrued expenses and other current liabilities......................................... 6,029
Income taxes payable................................................................... 54,205
Deferred income taxes.................................................................. 2,300
Other taxes and licenses............................................................... (4,300)
--------
Net cash provided by operating activities......................................... 651,652
--------
Cash flows from investing activities:
Purchase of equipment............................................................................ (84,444)
--------
Net cash used in investing activities............................................. (84,444)
--------
Cash flows from financing activities:
Payments to shareholder.......................................................................... (293,626)
Loans to shareholder............................................................................. (167,523)
Repayment of notes payable....................................................................... (78,353)
--------
Net cash used in financing activities............................................. (539,502)
--------
Net increase in cash.............................................................. 27,706
Cash at beginning of year............................................................................. 137,204
--------
Cash at end of year................................................................................... $164,910
--------
--------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest.................................................................................... $ 37,050
Income taxes................................................................................ 4,065
</TABLE>
The accompanying Notes are an integral part of these financial statements.
F-41
<PAGE>
<PAGE>
STEPHEN DUNN & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1994
1. SIGNIFICANT ACCOUNTING POLICIES
Stephen Dunn & Associates, Inc. (the 'Company') provides telemarketing and
other services related to fund-raising campaigns for non-profit entities located
throughout the United States.
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 at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. The estimates and assumptions made in the
preparation of the consolidated financial statements relate to the assessment of
the carrying value of assets and liabilities. Actual results could differ from
those estimates.
Recognition of Revenue
Revenues from on-site campaigns are earned when pledged cash is received.
Revenues from off-site campaigns are earned when the Company's services have
been provided.
Property and Depreciation
Property and equipment are reported at cost. Expenditures which improve or
extend the life of the asset are capitalized, while maintenance and repairs
which do not appreciably extend the useful lives of the related assets are
charged to expenses as incurred.
Depreciation is provided using the straight-line method over the estimated
useful lives of the assets.
Income Taxes
The Company has elected to be taxed under the provision of Subchapter S of
the Internal Revenue Code of 1986, as amended, and as a result the Company's
federal taxable income or loss and tax credits are passed through to the
individual shareholder -- see Note 10. However, the Company does have a
liability for income taxes on its net income in prior years to the extent of the
built-in gain which existed at the time of the S corporation election -- see
Note 6.
Some states either do not recognize the Company's S corporation status or
require income taxes at a reduced rate. The income tax provision relates to
income taxes due on taxable income for those states plus deferred taxes related
primarily to the differences that exist between the financial statement and the
tax bases of the assets and liabilities. These differences are primarily a
result of differences in depreciation methods and the use of the cash basis of
accounting for tax reporting.
Cash and Cash Equivalents
For purposes of the Statement of Cash Flows, the Company considers all
highly liquid investments purchased with a maturity of three months or less to
be cash equivalents.
F-42
<PAGE>
<PAGE>
STEPHEN DUNN & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1994
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<S> <C>
Office furniture and equipment.............................. $ 805,383
Automobile.................................................. 26,581
Leasehold improvements...................................... 223,187
----------
1,055,151
Less accumulated depreciation............................... (702,842)
----------
$ 352,309
----------
----------
</TABLE>
Depreciation expense for the year ended December 31, 1994 was $166,671.
3. RELATED PARTY
The Company was indebted to its sole shareholder in the amount of $293,626
as of December 31, 1993. Interest was payable at 10%. This amount was repaid in
1994. The debt at December 31, 1993 included unpaid interest of $331. Interest
expense for the year ended December 31, 1994 was $9,799.
The Company advanced funds to its sole shareholder in the amount of
$166,179 as of December 31, 1994. The advance accrues interest at 10% per annum,
does not have a specified maturity date, and is reflected as a reduction in
Shareholder's Equity. At December 31, 1994 the advance included unpaid interest
of $1,344. Interest income for the year ended December 31, 1994 was $1,344.
The Company leases its corporate business premises in Venice, California
from its sole shareholder requiring monthly rental payments of $9,905 through
January 1994 and $11,805 until the lease term expires on January 1, 1999, with
an option for renewal at such time. The Company incurs all costs of insurance,
maintenance and utilities. Total rent paid by the Company to its sole
shareholder for the year ended December 31, 1994 was $139,754. Future minimum
rental payments for this lease are as follows:
<TABLE>
<S> <C>
1995.......................................................... $141,654
1996.......................................................... 141,654
1997.......................................................... 141,654
1998.......................................................... 141,654
--------
$566,616
--------
--------
</TABLE>
4. CONCENTRATIONS OF CREDIT RISK
The Company maintains cash deposits with primarily one financial
institution amounting to $254,051 at December 31, 1994. These deposits are
insured for up to $100,000 by the U.S. Federal Deposit Insurance Corporation.
Concentrations of credit risk with respect to trade receivables are limited
due to the large number of customers comprising the Company's customer base, and
their dispersion across many different geographical regions within the United
States. At December 31, 1994, the Company had no significant concentrations of
credit risk.
5. LONG-TERM DEBT
During the year ended December 31, 1993, the Company refinanced two loans
into a single bank loan. The bank note payable requires monthly principal
payments of $6,529 plus interest based on the bank's prime rate of interest
(8.5% at December 31, 1994) plus 1.75%. The note matures on January 15, 1996.
The note is collateralized by substantially all of the Company's assets and is
guaranteed by the shareholder. The debt to the shareholder is subordinate to the
bank debt. The bank loan contains
F-43
<PAGE>
<PAGE>
STEPHEN DUNN & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1994
financial covenants including current ratio and working capital, debt/net worth,
capital expenditure limits and cash flows.
Maturity of the bank note payable is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
<S> <C>
1995........................................................ $78,353
1996........................................................ 10,517
-------
88,870
Less current maturities..................................... 78,353
-------
$10,517
-------
-------
</TABLE>
The Company also has available an unsecured $350,000 line of credit at
December 31, 1994. There were no borrowings from the line at December 31, 1994.
Total interest incurred during the year ended December 31, 1994 on bank
borrowings was $17,089.
6. COMMITMENTS AND CONTINGENCIES
Effective October 1, 1990, the Company elected to be taxed as an S
corporation. As a result, the Company is required to pay taxes on the built-in
gain which existed when the Company converted from a C corporation to an S
corporation. The Company estimates that the minimum tax on the built-in gain was
$25,500. The actual liability may be higher if goodwill for tax purposes is
determined to have existed at October 1, 1990. A provision for the minimum
expected liability has been made. Interest and penalties of $15,045 have been
estimated and recorded at December 31, 1994. Subsequent to December 31, 1994,
the Company will be taxed as a C corporation -- see Note 9.
7. LEASE COMMITMENTS
In addition to leasing corporate office space (Note 3), the Company leases
office space in Berkeley, California, requiring monthly rental payments of
$9,135. The lease term expired on October 22, 1994 and was extended to January
31, 1996 at $9,610 per month. There are no further options to renew this lease.
Total rent paid by the Company for this location for the year ended December 31,
1994 was $110,570. Future minimum rental payments for this lease are as follows:
<TABLE>
<S> <C>
1995.......................................................... $115,320
1996.......................................................... 9,610
--------
$124,930
--------
--------
</TABLE>
The Company also leases office space in New York, requiring monthly rental
payments of $550. Total rent paid by the Company for this location for the year
ended December 31, 1994 was $6,600.
8. INCOME TAXES
As of December 31, 1994, deferred state tax liabilities recognized for
taxable temporary differences totalled $30,600. There were no deferred state tax
assets or valuation allowances recognized as of December 31, 1994.
The provision for state income taxes consists of the following components:
<TABLE>
<S> <C>
Current taxes.................................................. $46,105
Deferred taxes................................................. 2,300
-------
$48,405
-------
-------
</TABLE>
F-44
<PAGE>
<PAGE>
STEPHEN DUNN & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1994
The Company has a capital loss carryforward of $10,000 available for offset
against future capital gains.
9. SUBSEQUENT EVENTS
On April 25, 1995, all of the outstanding common stock of the Company was
acquired by Alliance Media Corporation ('Alliance') and subsequently by
Sports-Tech, Inc. ('Sports-Tech') upon consummation of the merger between STI
Merger Corporation, a wholly-owned subsidiary of Sports-Tech and Alliance. The
Company has consequently changed its fiscal year-end from December 31 to June
30, and as a result of the acquisition, the Company will be taxed as a C
corporation.
10. PRO FORMA DATA (UNAUDITED)
The pro forma financial information is provided to show the significant
effects on the historical financial information had the Company operated as a C
corporation. Historically, the Company has elected to be taxed under the
provisions of Subchapter S of the Internal Revenue Code of 1986, as amended, and
comparable provisions of state income tax laws.
F-45
<PAGE>
<PAGE>
STEPHEN DUNN & ASSOCIATES, INC.
BALANCE SHEET
MARCH 31, 1995
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash........................................................................................... $ 445,897
Accounts receivable, less allowance for doubtful accounts of $6,000............................ 1,578,099
Prepaid expenses and other current assets...................................................... 70,636
----------
Total current assets...................................................................... 2,094,632
Property and equipment -- at cost, less accumulated depreciation of $744,504........................ 317,958
Deposits............................................................................................ 23,452
----------
Total assets.............................................................................. $2,436,042
----------
----------
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable............................................................................... $ 30,745
Accrued wages and payroll taxes................................................................ 628,413
Accrued expenses and other current liabilities................................................. 165,508
Current portion of long-term debt.............................................................. 78,353
Income taxes payable........................................................................... 55,270
Deferred income taxes.......................................................................... 30,600
----------
Total current liabilities................................................................. 988,889
Long-term liabilities:
Long-term debt, less current portion........................................................... 90,929
Other taxes and licenses....................................................................... 72,000
----------
Total liabilities......................................................................... 1,151,818
----------
Commitments and contingencies
Shareholder's equity:
Common stock:
Authorized -- 1,000 shares of no par common stock; issued and outstanding -- 400 shares....... 400
Retained earnings.............................................................................. 1,450,003
Loan receivable, shareholder................................................................... (166,179)
----------
Total shareholder's equity................................................................ 1,284,224
----------
Total liabilities and shareholder's equity........................................... $2,436,042
----------
----------
</TABLE>
The accompanying Notes are an integral part of these financial statements.
F-46
<PAGE>
<PAGE>
STEPHEN DUNN & ASSOCIATES, INC.
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1995
(UNAUDITED)
<TABLE>
<S> <C>
Revenues............................................................................................ $3,551,095
----------
Salaries and benefits............................................................................... 2,620,585
Direct costs........................................................................................ 187,442
Selling, general and administrative................................................................. 666,322
Professional fees................................................................................... 89,418
----------
Total operating expenses....................................................................... 3,563,767
----------
Loss from operations................................................................................ (12,672)
Interest expense.................................................................................... (2,164)
----------
Loss before income taxes............................................................................ (14,836)
Provision for income taxes.......................................................................... 0
----------
Net loss............................................................................................ $ (14,836)
----------
----------
Pro forma data (Note 10):
Historical loss before income taxes................................................................. $ (14,836)
Pro forma benefit for income taxes.................................................................. 5,786
----------
Pro forma net loss.................................................................................. $ (9,050)
----------
----------
</TABLE>
The accompanying Notes are an integral part of these financial statements.
F-47
<PAGE>
<PAGE>
STEPHEN DUNN & ASSOCIATES, INC.
STATEMENT OF SHAREHOLDER'S EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON RETAINED LOANS TO
STOCK EARNINGS SHAREHOLDER TOTAL
------ ----------- ----------- ----------
<S> <C> <C> <C> <C>
Balance, December 31, 1994.................................. $400 $ 1,464,839 $(167,523) $1,297,716
Net loss.................................................... -- (14,836) -- (14,836)
Payments by shareholder..................................... -- -- 1,344 1,344
------ ----------- ----------- ----------
Balance, March 31, 1995..................................... $400 $ 1,450,003 $(166,179) $1,284,224
------ ----------- ----------- ----------
------ ----------- ----------- ----------
</TABLE>
The accompanying Notes are an integral part of these financial statements.
F-48
<PAGE>
<PAGE>
STEPHEN DUNN & ASSOCIATES, INC.
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1995
(UNAUDITED)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss......................................................................................... $(14,836)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation................................................................................ 41,952
Increase in:
Accounts receivable......................................................................... (104,387)
Prepaid expenses and other current assets................................................... (11,818)
Increase (decrease) in:
Accounts payable............................................................................ (164,458)
Accrued wages and payroll taxes............................................................. 365,827
Accrued expenses and other current liabilities.............................................. 94,552
--------
Net cash provided by operating activities.............................................. 206,832
--------
Cash flows from investing activities:
Purchase of equipment............................................................................ (7,601)
Payments by shareholder.......................................................................... 1,344
--------
Net cash used in investing activities.................................................. (6,257)
--------
Cash flows from financing activities:
Borrowings on bank line of credit................................................................ 100,000
Payments on bank line of credit.................................................................. (19,588)
--------
Net cash provided by financing activities.............................................. 80,412
--------
Net increase in cash.................................................................................. 280,987
Cash at beginning of period........................................................................... 164,910
--------
Cash at end of period................................................................................. $445,897
--------
--------
</TABLE>
The accompanying Notes are an integral part of these financial statements.
F-49
<PAGE>
<PAGE>
STEPHEN DUNN & ASSOCIATES, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1995
(UNAUDITED)
1. GENERAL
The interim financial statements included herein were prepared by Stephen
Dunn & Associates, Inc. (the 'Company') without audit. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted. The Company believes that the disclosures are adequate to make the
information presented not misleading. The interim financial statements reflect
all adjustments that are, in the opinion of management, necessary for the fair
presentation of the results for the interim period presented. All adjustments
are of a recurring nature. These interim financial statements should be read in
conjunction with the financial statements of the Company as of December 31, 1994
and the Notes thereto.
2. SUBSEQUENT EVENT
On April 25, 1995, all of the outstanding common stock of the Company was
acquired by Alliance Media Corporation ('Alliance') and subsequently by
Sports-Tech, Inc. ('Sports-Tech') upon consummation of the merger between STI
Merger Corporation, a wholly-owned subsidiary of Sports-Tech and Alliance. The
Company has consequently changed its fiscal year-end from December 31 to June 30
and, as a result of the acquisition, the Company will be taxed as a C
corporation.
3. PRO FORMA DATA
The pro forma financial information is provided to show the significant
effects on the historical financial information had the Company operated as a C
corporation. Historically, the Company has elected to be taxed under the
provisions of Subchapter S of the Internal Revenue Code of 1986, as amended, and
comparable provisions of state income tax laws.
F-50
<PAGE>
<PAGE>
[MONTAGE OF CLIENT LOGOS]
<PAGE>
<PAGE>
_______________________________ _______________________________
NO UNDERWRITER, DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE OF THIS PROSPECTUS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary............................. 4
Risk Factors................................... 10
The Delayed Offering........................... 18
Use of Proceeds................................ 19
Price Range of Common Stock.................... 20
Dividend Policy................................ 20
Capitalization................................. 21
Dilution....................................... 22
Pro Forma Condensed Combined Financial
Information.................................. 23
Selected Financial Data........................ 28
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 30
Business....................................... 40
Management..................................... 49
Principal and Selling Stockholders............. 60
The Recapitalization........................... 63
Certain Transactions........................... 64
Description of Capital Stock................... 67
Shares Eligible for Future Sale................ 71
Underwriting................................... 78
Validity of Shares............................. 79
Experts........................................ 79
Available Information.......................... 79
Index to Financial Statements.................. F-1
</TABLE>
_______________________________ _______________________________
2,100,000 SHARES
[LOGO]
ALL-COMM MEDIA
CORPORATION
COMMON STOCK
-------------------------
PROSPECTUS
-------------------------
CRUTTENDEN ROTH
INCORPORATED
LT LAWRENCE & CO., INC.
JANUARY , 1997
_______________________________ _______________________________
<PAGE>
<PAGE>
[ALTERNATE PAGE FOR DELAYED PROSPECTUS]
PROSPECTUS
1,381,056 SHARES
ALL-COMM MEDIA CORPORATION [LOGO]
COMMON STOCK
This Prospectus relates to an offering (the 'Delayed Offering') of
1,381,056 shares (the 'Delayed Shares') of common stock, par value $.01 per
shares ('Common Stock'), of All-Comm Media Corporation (the 'Company'), by
certain stockholders of the Company (the 'Delayed Selling Stockholders'). The
Delayed Shares offered by this Prospectus may be sold from time to time by the
Delayed Selling Stockholders, provided a current registration statement with
respect to such securities is then in effect commencing on January , 1997. See
'Delayed Selling Stockholders and Plan of Distribution.' Of the shares offered
hereby, 1,291,588 shares are subject to certain lock-up arrangements for a
period of nine months after the date of this Prospectus, subject to earlier
termination if the final Prospectus relating to the Underwritten Offering (as
defined below) is not filed with the Securities and Exchange Commission (the
'Commission') by March 31, 1997 pursuant to Rule 424(b) under the Securities Act
of 1933, as amended (the 'Securities Act'). Cruttenden Roth Incorporated (the
'Lead Representative') has indicated to the Company and certain representatives
of the holders of an aggregate of 1,250,000 of the shares of Common Stock
offered hereby subject to such lock-up arrangements that, upon consummation of
the Underwritten Offering, it would be willing to release some or all of the
Common Stock held or beneficially owned by such holders from the provisions of
such lock-up arrangements prior to the expiration of such nine-month period
under certain circumstances. As of the date of this Prospectus, there is no
agreement (oral or written) with any of such holders as to the specific date
that any release of shares from the provisions of such lock-up arrangements
would be granted or as to the number of shares subject to such lock-up
arrangements that would be so released. See 'Shares Eligible for Future Sale.'
In addition, 2,100,000 shares of Common Stock are being offered (the
'Underwritten Offering') by the Company and certain selling stockholders of the
Company (the 'Selling Stockholders') in an underwritten public offering, and up
to an additional 315,000 shares of Common Stock are being offered by the Company
and certain selling stockholders of the Company (the 'Over-Allotment Selling
Stockholders') to cover over-allotments, if any. See 'The Underwritten
Offering.'
The distribution of the shares of Common Stock offered hereby by the
Delayed Selling Stockholders may be effected in one or more transactions that
may take place on the over-the-counter market, including ordinary broker's
transactions, privately negotiated transactions or through sales to one or more
dealers for resale of such securities as principals, at market prices prevailing
at the time of sale, at prices related to such prevailing market prices or at
negotiated prices. Usual and customary or specifically negotiated brokerage fees
or commissions may be paid by the Delayed Selling Stockholders. The Selling
Stockholders and intermediaries through whom such securities are sold may be
deemed 'underwriters' within the meaning of the Securities Act with respect to
the securities offered, and any profits realized or commissions received may
be deemed underwriting compensation.
The Company will not receive any of the proceeds from the sale of Common
Stock by the Delayed Selling Stockholders. Substantially all of the expenses
in connection with the registration of the Delayed Shares will be borne by the
Company, except for any underwriters', brokers' and/or dealers' commissions
and/or discounts. See 'Delayed Selling Stockholders and Plan of Distribution.'
The Common Stock is traded on The Nasdaq SmallCap MarketSM under the symbol
'ALCM.' On January 7, 1997, the last sale price of the Common Stock, as reported
by The Nasdaq SmallCap MarketSM, was $4 per share. See 'Price Range of Common
Stock.'
SEE 'RISK FACTORS' BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN MATERIAL
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON
STOCK OFFERED HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 1997
Alt-1
<PAGE>
<PAGE>
[ALTERNATE PAGE FOR DELAYED PROSPECTUS]
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered Hereby..................... 1,381,056 shares(1)(3)
Common Stock to be Outstanding Following the
Underwritten Offering......................... 10,008,108 shares(1)(2)(3)(4)
Use of Proceeds................................. The Company will not receive any of the proceeds from the sale of the
Common Stock offered hereby. The net proceeds from the Underwritten
Offering will be used by the Company for capital expenditures,
repayment of certain outstanding indebtedness and general corporate
purposes, including possible future acquisitions. See 'Use of
Proceeds.'
Dividend Policy................................. The Company intends to retain future earnings, if any, to finance the
growth and development of its business and therefore does not
anticipate paying cash dividends on the Common Stock in the
foreseeable future. See 'Dividend Policy.'
The Nasdaq SmallCap MarketSM Symbol............. ALCM
Risk Factors.................................... See 'Risk Factors' beginning on page 10 for a discussion of certain
material factors that should be considered by prospective purchasers
of the Common Stock.
</TABLE>
- ------------
(1) The Company previously entered into contractual arrangements with certain of
its stockholders, including the Delayed Selling Stockholders, whereby it
agreed to register certain securities owned by such stockholders for resale
under the Securities Act. As a result of negotiations with these
stockholders, the Company has agreed to satisfy certain of its obligations
by registering these shares of Common Stock on behalf of the Delayed Selling
Stockholders.
(2) Does not include 5,380,927 shares of Common Stock issuable upon conversion
or exercise of certain securities or other contractual rights, as follows:
(i) warrants issued to the holders of the Company's Series B Redeemable
Convertible Preferred Stock, par value $.01 per share (the 'Series B
Preferred Stock') currently exercisable for 3,100,000 shares of Common
Stock; (ii) warrants to be isssued to Cruttenden Roth Incorporated (the
'Lead Representative') and LT Lawrence & Co., Inc. (together with the Lead
Representative, the 'Representatives'), each in their individual capacity
and not as representative of the several underwriters (the 'Underwriters')
in the Underwritten Offering, exercisable for 210,000 shares of Common
Stock; (iii) warrants to be issued upon consummation of the Underwritten
Offering to certain stockholders of the Company as consideration for their
agreement to certain lock-up arrangements, exercisable for an aggregate of
up to 160,414 shares of Common Stock, depending on the extent to which the
Underwriters' over-allotment options are exercised, if at all -- see 'Shares
Eligible for Future Sale;' (vi) all other outstanding options, warrants and
other contractual rights, which are currently exercisable for an aggregate
of 1,245,135 shares of Common Stock; (v) the promissory notes issued to the
former shareholders of Metro, which are currently convertible into an
aggregate of 185,874 shares of Common Stock -- see 'Certain Transactions;'
and (vi) 479,504 shares of Common Stock reserved for issuance but not yet
issued under the Company's 1991 Stock Option Plan. See 'Management -- Stock
Option Plan' and 'Description of Capital Stock.' Although no assurance can
be given that any of the foregoing options, warrants or other contractual
rights will be exercised, if all of such options, warrants and other
contractual rights having exercise prices at or below the assumed initial
price to public of $5 per share in the Underwritten Offering were exercised,
the aggregate proceeds to the Company resulting therefrom would be
approximately $ 11.5 million. The Company expects that it would use such
proceeds, if any, for general corporate purposes, including possible future
acquisitions.
(3) An additional 2,100,000 shares of Common Stock are being offered by the
Company and the Selling Stockholders and up to 315,000 shares of Common
Stock are being offered by the Company and the Over-Allotment Selling
Stockholders to cover over-allotments, if any, in the Underwritten Offering,
none of which 315,000 shares are included in the Common Stock to be
outstanding following the Underwritten Offering.
(4) Includes 3,168,840 shares of Common Stock issued in connection with the
Recapitalization. See 'The Recapitalization.'
Alt-2
<PAGE>
<PAGE>
[ALTERNATE PAGE FOR DELAYED PROSPECTUS]
THE UNDERWRITTEN OFFERING
On the date of this Prospectus, a registration statement filed under the
Securities Act with respect to 2,100,000 shares of Common Stock being offered by
the Company and the Selling Stockholders in the Underwritten Offering, and up to
an additional 315,000 shares of Common Stock being offered by the Company and
the Over-Allotment Selling Stockholders to cover over-allotments, if any, was
declared effective by the Commission. The Company will receive net proceeds of
$ from the sale of 1,750,000 shares included in the Underwritten
Offering and the Selling Stockholders will receive net proceeds of $
from the sale of 350,000 shares included in the Underwritten Offering. The
Company will receive additional net proceeds of approximately $
and the Over-Allotment Selling Stockholders will receive net proceeds of
approximately $ if the Underwriters' over-allotment options
are exercised in full. All of such net proceeds are after the payment of
underwriting discounts and commissions and estimated expenses of the
Underwritten Offering and the Delayed Offering. Sales of securities by the
Company, the Selling Stockholders and the Over-Allotment Selling Stockholders,
or even the potential of such sales, would likely have an adverse effect on the
market price of the Common Stock. See 'Risk Factors Shares -- Eligible for
Future Sale.'
Alt-3
<PAGE>
<PAGE>
[ALTERNATE PAGE FOR DELAYED PROSPECTUS]
USE OF PROCEEDS
The net proceeds to the Company from the sale of 1,750,000 shares of Common
Stock offered by the Company in the Underwritten Offering are estimated to be
$7.3 million based on an assumed initial price to public of $5 per share of
Common Stock, after deducting underwriting discounts and commissions and
estimated offering expenses. The Company will not receive any of the proceeds
from the sale of Common Stock by the Delayed Selling Stockholders hereby, or by
the Selling Stockholders or the Over-Allotment Selling Stockholders in the
Underwritten Offering.
Of such net proceeds to the Company, approximately $4.0 million will be
applied to expand the Company's business by investing approximately $2.3 million
for technology (including computer systems, software and telemarketing
equipment), approximately $1.2 million for technical support, sales and
marketing personnel and approximately $0.5 million for advertising and promotion
of the Company's services. In addition, approximately $1.0 million of such
proceeds will be used to repay the promissory notes (the 'Series C Notes')
issued to the former holders of the Company's Series C Redeemable Convertible
Preferred Stock, par value $.01 per share (the 'Series C Preferred Stock')
issued in connection with the repurchase thereof as part of the
Recapitalization, and approximately $1.0 million will be used to repay the
promissory notes (the 'Metro Notes') issued to the former shareholders of Metro
in connection with the Company's acquisition of Metro. The Metro Notes bear
interest at a rate of 6% per annum, mature June 30, 1998 and are convertible at
the option of the holders thereof into 185,174 shares of Common Stock, based on
a conversion price of $5.38 per share. The Series C Notes bear interest at a
rate of 8% per annum and are payable on demand from and after the date of
consummation of the Underwritten Offering (or any other underwritten public
offering of Common Stock), and in any event mature June 7, 1998. To the extent
the Company does not use all or any portion of the $2.0 million to repay the
Metro Notes and/or the Series C Notes, such proceeds will be used to augment
general working capital, including, without limitation, for marketing of the
Company's services and new business development on behalf of SD&A and Metro. The
balance will be used for general corporate purposes, including possible future
acquisitions. Pending their application, the net proceeds to be received by the
Company from the Underwritten Offering will be invested in short-term,
investment-grade, interest bearing securities. The foregoing represents the
Company's best estimate of the allocation of the net proceeds from the
Underwritten Offering. Future events such as changes in economic or competitive
conditions may result in the Company re-allocating such proceeds. In addition,
there can be no assurance that the Company's estimates will prove to be accurate
or that unforeseen expenses will not occur.
In addition, up to 5,380,927 shares of Common Stock are issuable upon
conversion or exercise of certain securities or other contractual rights as
described in footnote (2) to 'Prospectus Summary -- The Offering.' Although no
assurance can be given that any of the foregoing options, warrants or other
contractual rights will be exercised, if all of such options, warrants and other
contractual rights having exercise prices at or below the assumed initial price
to public of $5 per shares were exercised, the aggregate proceeds to the Company
resulting therefrom would be approximately $11.5 million. The Company expects
that it would use such proceeds, if any, for general corporate purposes,
including possible future acquisitions. The exercise of these options, warrants
and contractual rights is not required as a condition to the sale of any of the
shares of Common Stock being offered hereby or in the Underwritten Offering and
none of such securities is being offered either as part of the Delayed Offering
or as part of the Underwritten Offering.
Alt-4
<PAGE>
<PAGE>
[ALTERNATE PAGE FOR DELAYED PROSPECTUS]
DELAYED SELLING STOCKHOLDERS AND PLAN OF DISTRIBUTION
DELAYED SELLING STOCKHOLDERS
The Company has agreed to include the Delayed Shares, for the benefit of
the holders thereof, in the Registration Statement of which this Prospectus is a
part.
The following table sets forth certain information regarding the beneficial
ownership of Common Stock by the Delayed Selling Stockholders as of December 23,
1996.
<TABLE>
<CAPTION>
COMMON STOCK
BENEFICIALLY OWNED COMMON STOCK
AS OF DECEMBER 23, TO BE SOLD
1996(1) ON DELAYED BASIS
NAME OF DELAYED ------------------------- -----------------------
SELLING STOCKHOLDER NUMBER PERCENT NUMBER PERCENT
- -------------------------------------------------------- --------- ---------- ------- ----------
<S> <C> <C> <C> <C>
Seth Antine(2)........................................... 365,260 4.3% 91,000 *
Birdsall Corp., N.V.(2).................................. 45,658 * 6,400 *
Ezra Birnbaum(2)......................................... 4,566 * 640 *
Naomi Bodner(2)(3)....................................... 2,040,891 21.8 500,000 6.1
Marguerite E. Cascio(4).................................. 10,492 * 4,621 *
Stephen A. Cooper and Randy E. Cooper, as joint
tenants................................................ 9,242 * 4,621 *
Israel A. Englander(2)................................... 182,630 2.2 26,000 *
Bryan I. Finkel(2)....................................... 18,263 * 2,500 *
Seth Fireman(2).......................................... 91,315 1.1 20,220 *
Rita Folger(2)........................................... 45,658 * 6,400 *
Friends of Kiryat Meor Chaim, Inc.(2).................... 45,658 * 6,400 *
Juliet Gal............................................... 9,242 * 4,621 *
Irwin L. Gross(2)........................................ 273,945 3.3 38,000 *
Barbara M. Henagan....................................... 9,242 * 4,621 *
Laura Huberfeld(2)(3).................................... 2,040,891 21.8 500,000 6.1
Keren M.Y.C.B. Elias Foundation(2)....................... 45,658 * 6,400 *
The Lederer Family Trust(4).............................. 10,492 * 4,621 *
Chanie Lerner(2)......................................... 45,658 * 6,400 *
Thierry Liverman......................................... 4,621 * 2,310 *
Mighty Net, Inc.......................................... 52,500 * 52,500 *
Gloria Lee Morgan........................................ 9,242 * 9,242 *
Moshe Mueller(2)......................................... 54,789 * 6,000 *
The Nais Corp.(2)........................................ 45,658 * 6,400 *
Namax Corp.(2)........................................... 45,658 * 6,400 *
Charles Nebenzahl(2)..................................... 45,658 * 1,000 *
Lee M. Polster(4)........................................ 10,492 * 4,621 *
Ronald M. Resch(4)....................................... 10,492 * 4,621 *
Fred Rudy(2)............................................. 45,658 * 6,400 *
Malca Sand(2)............................................ 45,658 * 6,400 *
Joshua Schwartz(2)....................................... 4,566 * 640 *
Richard Stadtmauer....................................... 45,658 * 6,400 *
G. Van Mourik & J. Van Mourik Revocable Trust............ 4,621 * 2,310 *
Gregory Welter........................................... 10,634 * 9,242 *
Brian Welter............................................. 9,242 * 9,242 *
Neil and Betty Joan Welter, as joint tenants............. 9,242 * 9,242 *
Zapco Holdings, Inc...................................... 9,242 * 4,621 *
</TABLE>
- ------------
* Less than 1%
(1) Gives effect to the Recapitalization, but does not give effect to the
Underwritten Offering.
(2) This Delayed Selling Stockholder's beneficially owned shares of Common Stock
as of December 23, 1996 include the number of shares of Common Stock
issuable upon exercise of currently exercisable warrants as is set forth
below next to such Delayed Selling Stockholder's name:
(footnotes continued on next page)
Alt-5
<PAGE>
<PAGE>
[ALTERNATE PAGE FOR DELAYED PROSPECTUS]
(footnotes continued from previous page)
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE
NAME OF WARRANTS
- ----------------------------------------------------------------------------------- ----------------------
<S> <C>
Seth Antine..................................................................... 200,000
Birdsall Corp., N.V............................................................. 25,000
Ezra Birnbaum................................................................... 2,500
Naomi Bodner(A)................................................................. 1,117,500
Israel A. Englander............................................................. 100,000
Bryan I. Finkel................................................................. 10,000
Seth Fireman.................................................................... 50,000
Rita Folger..................................................................... 25,000
Friends of Kiryat Meor Chaim, Inc............................................... 25,000
Irwin L. Gross.................................................................. 150,000
Laura Huberfeld(A).............................................................. 1,117,500
Keren M.Y.C.B. Elias Foundation................................................. 25,000
Chanie Lerner................................................................... 25,000
Moshe Mueller................................................................... 30,000
The Nais Corp................................................................... 25,000
Namax Corp...................................................................... 25,000
Charles Nebenzahl............................................................... 25,000
Fred Rudy....................................................................... 25,000
Malca Sand...................................................................... 25,000
Joshua Schwartz................................................................. 2,500
Richard Stadtmauer.............................................................. 25,000
</TABLE>
-----------------
(A) 117,500 of this Delayed Selling Stockholder's total number of
beneficially owned shares of Common Stock issuable upon the exercise of
warrants currently exercisable are owned by the Bodner/Huberfeld
Partnership and are subject to a shared investment power. Each of Naomi
Bodner and Laura Huberfeld disclaims beneficial ownership of the shares
of Common Stock beneficially owned by the other and the shares of
Common Stock beneficially owned by the Bodner/Huberfeld Partnership.
(3) 1,000,000 of this Delayed Selling Stockholder's total number of beneficially
owned shares of Common Stock are issuable upon exercise of warrants
currently exercisable, subject to this Delayed Selling Stockholder's sole
investment power. The remaining 211,500 beneficially owned shares of Common
Stock are owned by the Bodner/Huberfeld Partnership, investment power and
include 117,500 shares of Common Stock issuable upon exercise of currently
exercisable warrants. Each of Naomi Bodner and Laura Huberfeld disclaims
beneficial ownership of the shares of Common Stock beneficially owned by the
other and the shares of Common Stock beneficially owned by the
Bodner/Huberfeld Partnership.
(4) 1,250 of this Delayed Selling Stockholder's total number of beneficially
owned shares of Common Stock are issuable upon exercise of currently
exercisable warrants.
PLAN OF DISTRIBUTION
The Delayed Shares covered by this Prospectus are being registered by the
Company for the account of the Delayed Selling Stockholders. The Company has
been informed by the Delayed Selling Stockholders that they intend to distribute
the Delayed Shares in the following manner, subject to the agreement of certain
of the Delayed Selling Stockholders, who are selling an aggregate 1,291,588
shares of Common Stock, to refrain from effecting any sales for nine months
after the date the final Prospectus relating to the Underwritten Offering has
been filed with the Commission. See 'Shares Eligible For Future Sale.'
The shares may be sold from time to time by the Delayed Selling
Stockholders, either directly in privately negotiated transactions or through
one or more brokers or dealers (which may include either
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[ALTERNATE PAGE FOR DELAYED PROSPECTUS]
of the Representatives) on the over-the-counter market, at such prices and upon
such terms as may be obtainable. In connection therewith, the Delayed Selling
Stockholders and participating brokers or dealers may be deemed to be
'underwriters' as that term is defined in the Securities Act, and commissions or
discounts or any profit realized on the sale of shares received by the Delayed
Selling Stockholders and such brokers or dealers may be deemed to be
underwriting commissions or discounts within the meaning of the Securities Act.
The Company has been informed that the Delayed Selling Stockholders do not have,
as of the date of this Prospectus, any agreement, arrangement or understanding
with any broker or dealer concerning the distribution of the Delayed Shares
covered by this Prospectus.
Notwithstanding the foregoing, the Lead Representative has informed the
Company and certain representatives of the Delayed Selling Stockholders who have
agreed to the lock-up arrangements, that it would be willing to release,
following consummation of the Underwritten Offering, some or all of the shares
of Common Stock held or beneficially owned by such Delayed Selling Stockholders
under certain circumstances. Although no agreement (oral or written) exists
between the Lead Representative and any of the Delayed Selling Stockholders for
the sale by or through the Lead Representative of any shares of Common Stock
upon release of such shares from the provisions of the lock-up arrangements to
which such shares are subject, such services would be provided on customary
terms and conditions with a standard commission. See 'Shares Eligible for Future
Sale.'
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[ALTERNATE PAGE FOR DELAYED PROSPECTUS]
SHARES ELIGIBLE FOR FUTURE SALE
The following discussion of shares eligible for future sale excludes up to
4,901,423 shares of Common Stock (subject to lock-up provisions described below)
which may be issued pursuant to currently outstanding options, warrants and
contractual rights.
Upon completion of the Underwritten Offering, the Company will have a total
of 10,008,108 shares of Common Stock outstanding (10,189,935 if the
Underwriters' over-allotment options are exercised in full). As of the date of
this Prospectus, 5,321,228 shares of the outstanding Common Stock, including the
2,100,000 shares of Common Stock being offered by the Company and the Selling
Stockholders in the Underwritten Offering (plus an additional 315,000 shares if
the Underwriters' over-allotment options are exercised in full) and the
1,381,056 shares of Common Stock offered hereby, will be freely tradeable
without restriction or registration under the Securities Act or will be eligible
for sale in the public market without regard to the availability of current
public information, volume limitations, manner of sale restrictions or notice
requirements under Rule 144(k), in each case by persons other than 'affiliates'
(as defined under the Securities Act) of the Company.
All the remaining 4,686,880 Restricted Shares were issued and sold by the
Company in private transactions in reliance upon the exemption from registration
contained in Section 4(2) of the Securities Act and are restricted securities
under Rule 144 of the Securities Act. Restricted Shares may not be sold unless
they are registered under the Securities Act or are sold pursuant to an
applicable exemption from registration, including pursuant to Rule 144. In
general, under Rule 144 as currently in effect, beginning 90 days after the
completion of the Underwritten Offering a person (or persons whose shares are
aggregated) who has beneficially owned Restricted Shares for at least two years,
including affiliates of the Company, would be entitled to sell in brokers'
transactions or to market makers within any three-month period a number of
Restricted shares that does not exceed the greater of (i) 1% of the then
outstanding shares of Common Stock (approximately 100,081 shares, based on the
number of shares to be outstanding after the Underwritten Offering, assuming no
exercise of the Underwriters' over-allotment options) or (ii) the average weekly
trading volume of the Common Stock on The Nasdaq SmallCap MarketSM during the
four calendar weeks preceding the date on which notice of the sale is filed with
the Commission. Sales under Rule 144 are also subject to certain manner of sale
provisions, notice requirements and the availability of current public
information about the Company. A person who is not an affiliate of the Company
at any time during the 90 days preceding a sale, and who has beneficially owned
Restricted Shares for at least three years, is currently entitled to sell such
Restricted Shares under Rule 144(k) without regard to the availability of
current public information, volume limitations, manner of sale restrictions or
notice requirements. However, under Rule 144, Restricted Shares held by
affiliates must continue, after the three-year holding period, to be sold in
brokers' transactions or to market makers subject to the volume limitations
described above. The above is a summary of Rule 144 and is not intended to be a
complete description thereof. As of April 25, 1997, approximately 837,415
Restricted Shares may become eligible for sale pursuant to Rule 144, or continue
to be eligible for sale under other exemptions from registration, under the
Securities Act.
Holders of an aggregate of up to 7,832,897 shares of Common Stock,
consisting of 4,058,532 Restricted Shares outstanding as of the date of this
Prospectus and up to 3,774,365 Restricted Shares issuable upon conversion or
exercise of other securities or other contractual rights then outstanding and
then convertible or exercisable, in each case depending on the extent to which
the Underwriters' over-allotment options are exercised, if at all, will have
demand and/or piggyback rights to have such Restricted Shares registered under
the Securities Act pursuant to various registration rights agreements with the
Company. See ' -- Registration Rights and Certain Lock-Up Arrangements.' The
Company, its Directors and officers and certain of its stockholders and holders
of options, warrants, conversion or contractual rights to acquire Common Stock,
who will hold in the aggregate up to 10,202,092 Restricted Shares outright or
issuable upon exercise of such rights, depending on the extent to which the
Underwriters' over-allotment options are exercised, if at all (10,199,782
Restricted Shares if the Underwriters' over-allotment options are exercised in
full), have agreed that they will not, directly or indirectly, offer, sell,
offer to sell, contract to sell, pledge, grant any option to purchase or
otherwise dispose of or transfer (or announce any offer, sale, offer of sale,
pledge, contract of sale, grant of any option to purchase or other disposition
or transfer of) any shares of Common Stock or any capital stock or any other
securities convertible into or exercisable for, or any right to purchase or
acquire, Common
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[ALTERNATE PAGE FOR DELAYED PROSPECTUS]
_______________________________ _______________________________
NO UNDERWRITER, DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE OF THIS PROSPECTUS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Prospectus Summary.............................
Risk Factors...................................
The Underwritten Offering......................
Use of Proceeds................................
Price Range of Common Stock....................
Dividend Policy................................
Capitalization.................................
Dilution.......................................
Pro Forma Condensed Combined Financial
Information..................................
Selected Financial Data........................
Management's Discussion and Analysis of
Financial Condition and Results of
Operations...................................
Business.......................................
Management.....................................
Principal and Selling Stockholders.............
Delayed Selling Stockholders and Plan of
Distribution.................................
The Recapitalization...........................
Certain Transactions...........................
Description of Capital Stock...................
Shares Eligible for Future Sale................
Validity of Shares.............................
Experts........................................
Available Information..........................
Index to Financial Statements.................. F-1
</TABLE>
1,381,056 SHARES
[LOGO]
ALL-COMM MEDIA
CORPORATION
COMMON STOCK
-------------------------
PROSPECTUS
-------------------------
JANUARY , 1997
_______________________________ _______________________________
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 78.751 of the Nevada General Corporation Law (the 'NGCL') provides,
in effect, that any person made a party to any action by reason of the fact that
such person is or was a director, officer, employee or agent of the Company may
and, in certain cases, must be indemnified by the Company against, in the case
of a non-derivative action, judgments, fines, amounts paid in settlement and
reasonable expenses (including attorney's fees) incurred by such person as a
result of such action, and in the case of a derivative action, against expenses
(including attorney's fees), if in either type of action such person acted in
good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the Company. This indemnification does not
apply, in a derivative action, to matters as to which it is adjudged that the
director, officer, employee or agent is liable to the Company, unless upon court
order it is determined that, despite such adjudication of liability, but in view
of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for expenses, and, in a non-derivative action, to any
criminal proceeding in which such person had reasonable cause to believe such
person's conduct was unlawful.
Article Seventh, Section 6 of the by-laws of the Company, as amended (the
'By-Laws') provides that the Company shall indemnify each person who is or was
an officer or director of the Company to the fullest extent permitted by Chapter
78 of the NGCL.
In addition, the Company maintains customary directors, officers and
corporate liability insurance policies.
Reference is made to Section 11(b) of the Underwriting Agreement filed as
Exhibit 1.1 hereto, pursuant to which the Underwriters have agreed to indemnify
officers and directors of the Company against certain liabilities.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses, other than underwriting
discounts and commissions, paid or payable in connection with the issuance and
distribution of the Common Stock being registered hereby (as such expenses are
estimated except as noted):
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Securities and Exchange Commission Registration Fee....................................... $ 5,015*
National Association of Securities Dealers, Inc. Filing Fee............................... 2,155*
Nasdaq SmallCap MarketSM Listing Fee...................................................... **
Printing and Engraving Expenses........................................................... **
Legal Fees and Expenses................................................................... **
Accounting Fees and Expenses.............................................................. **
Blue Sky Fees and Expenses................................................................ **
Transfer Agent and Registrar Fees......................................................... **
Miscellaneous Fees and Expenses........................................................... **
--------
Total................................................................................ $ **
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</TABLE>
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* Actual
** To be provided by Amendment.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
COMMON STOCK
In October 1996, the Company issued an aggregate of 1,814,000 shares of its
common stock, par value $.01 per share (the 'Common Stock'), valued at
$7,256,000 in the aggregate, to the three former shareholders of Metro Services
Group, Inc. ('Metro') in connection with the Company's acquisition of
Metro. There were no fees, commissions or discounts payable to any person in
connection with this
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issuance. Each of the three investors gave representations to the Company
customary for a transaction of this type. All of these shares were issued
without registration under the Securities Act of 1933, as amended (the
'Securities Act'), in connection with the Company's acquisition of Metro in an
offering not involving a public offering pursuant to the exemption afforded by
Section 4(2) of the Securities Act.
In April 1996, the Company issued to (i) to an individual, 1,459 shares of
Common Stock as payment for consulting fees of $1,750 and having an aggregate
value equal to the amount of such consulting fees, (ii) to a public relations
firm, 10,000 shares of Common Stock as payment for services rendered over a
two-month period and having a value equal to $2.00 per share, the market price
of the Common Stock on November 21, 1995 (the date such issuance was approved by
the Company's board of directors), (iii) to two former directors who were then
serving in such capacity, an aggregate of 6,270 shares of Common Stock as
payment for certain directors fees due them in lieu of cash and having a value
equal to $2.00 per share, the market price of the Common Stock on November 21,
1995 (the date such issuance was approved by the Company's board of directors),
discounted 40% for the restrictions on transferability to which such shares are
subject, and (iv) to nine employees, an aggregate of 61,462 shares of Common
Stock, valued at $2.00 per share, the market price of the Common Stock on
November 21, 1995 (the date such issuance was approved by the Company's board of
directors), discounted 40% for the restrictions on transferability to which such
shares are subject, as compensation in lieu of cash salary. All of the foregoing
shares were issued at a time when, at the parent company level, the Company was
experiencing a liquidity crisis and was unable to satisfy its payroll and other
compensation obligations as a result of the prohibition on the upstreaming of
cash from SD&A contained in the operating covenants agreement, now terminated,
with Mr. Dunn, the seller of SD&A. There were no fees or commissions payable to
any person in connection with these issuances.
Each of the investors referred to in clauses (ii) and (iii) above
represented to the Company that such investor was an 'accredited investor' as
such term is defined in Rule 501 of Regulation D of the Securities Act and gave
other representations customary for a transaction of this type. Three of the
employees referred to in clause (iv) above, who were issued an aggregate of
41,147 shares of Common Stock, were directors and/or executive officers of the
Company at the time of issuance and were 'accredited investors' as such term is
defined in Rule 501(a)(4) of Regulation D of the Securities Act. All of the
shares issued to the two former directors, the public relations firm referred to
in clause (ii) above and these three employees were issued without registration
under the Securities Act pursuant to the exemption afforded by Section 4(2) and
Regulation D of the Securities Act. The remaining six employees and the
individual consultant referred to in clause (i) above were all unaccredited
investors and the shares issued to them were issued without registration under
the Securities Act in an offering not involving a public offering pursuant to
the exemption afforded by Section 4(2) of the Securities Act.
In April 1996, the Company issued 62,500 shares of Common Stock, for
$100,000, to an individual accredited investor and an aggregate of 12,500 shares
of Common Stock to four other unaccredited investors (two as joint tenants),
each with a 'purchaser representative,' for aggregate consideration of $20,000.
There were no fees, commissions or discounts payable to any person in connection
with this issuance, nor was there a placement agent. The individual accredited
investor represented to the Company that he was an 'accredited investor' as such
term is defined in Rule 501 of Regulation D of the Securities Act and gave other
representations customary for a transaction of this type. The other four
unaccredited investors, all of whom were related parties, had a 'purchaser
representative' as such term is defined in Rule 501 of Regulation D of the
Securities Act. All of these shares were issued without registration under the
Securities Act pursuant to the exemption afforded by Section 4(2) and Regulation
D of the Securities Act.
In May 1995, the Company issued an aggregate of 413,759 shares of Common
Stock to six European institutional accredited investors for aggregate
consideration of $1,108,375 (or $2.68 per share), less fees, commissions and/or
discounts aggregating $89,745. Value Investing Partners Inc. acted as placement
agent. Each such investor represented to the Company that such investor was a
'non-U.S. investor' and gave other representations customary for a transaction
of this type. Value Investing Partners, Inc., as placement agent, represented
to the Company that (i) no offer of such shares was made to any 'U.S. person' as
such term is defined in Rule 902 of Regulation S of the Securities Act, (ii) no
'directed selling efforts', as such term is defined in Rule 902 of Regulation S
of the Securities Act, occurred in the United States and (iii) the offering
of such shares qualified as an 'offshore
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transaction' as such term is defined in Rule 902 of Regulation S of the
Securities Act and gave other representations customary for a transaction of
this type. The 413,759 shares of Common Stock were issued without registration
under the Securities Act pursuant to the exemption afforded by Section 4(2) and
Regulation S of the Securities Act. In addition, as payment for certain finders'
fees related to the issuance of such shares, the Company issued warrants
exercisable for an aggregate of 11,827 shares of Common Stock to six
individuals. These warrants were issued without registration under the
Securities Act in an offering not involving a public offering pursuant to the
exemption afforded by Section 4(2) of the Securities Act.
In April 1995, in connection with the Company's acquisition of Alliance
Media Corporation ('Alliance') and immediately prior to the merger (the
'Merger') of a subsidiary of the Company into Alliance, Alliance issued to 36
accredited investors and 6 unaccredited investors an aggregate of 22,000.0505
shares of its common stock, for consideration of $1,509,750 in the aggregate,
less fees, commissions and/or discounts aggregating $78,250. Each of W.J.
Gallagher & Company, Inc. and Whale Securities Co., L.P., acted as placement
agent. Each such accredited investor represented to the Company that such
investor was an 'accredited investor' as such term is defined in Rule 501 of
Regulation D of the Securities Act and gave other representations customary for
a transaction of this type. Each of the other investors represented to the
Company that such investor either alone or with such investor's 'purchaser
representative,' as such term is defined in Rule 501 of Regulation D of the
Securities Act, had such knowledge and experience in financial and other
business matters that such investor was capable of evaluating the merits and
risks of the investment in the Common Stock. All of these shares were issued
without registration under the Securities Act pursuant to the exemption afforded
by Section 4(2) and Regulation D of the Securities Act.
In April 1995, immediately after the private placement effected by
Alliance, in connection with the Merger and pursuant to the Acquisition
Agreement dated as of February 7, 1995, as amended, relating thereto, the
Company issued 1,025,000 shares of Common Stock, valued at $2,745,000 in the
aggregate (or $2.68 per share), to the former stockholders of Alliance in
exchange for such stockholders' shares of Alliance. Each such former stockholder
of Alliance represented to the Company that such former stockholder was an
'accredited investor' as such term is defined in Rule 501 of Regulation D of the
Securities Act or that such investor either alone or with such investor's
'purchaser representative,' as such term is defined in Rule 501 of Regulation D
of the Securities Act, had such knowledge and experience in financial and other
business matters that such investor was capable of evaluating the merits and
risks of the investment in the Common Stock and gave other representations
customary for a transaction of this type. All 1,025,000 shares were issued
without registration under the Securities Act pursuant to the exemption afforded
by Section 4(2) and Regulation D of the Securities Act. In addition, as payment
for certain finders' fees related to the Merger, the Company paid an aggregate
of $200,000 in cash and issued an aggregate of 37,500 shares of Common Stock and
warrants exercisable for 25,000 shares of Common Stock, such shares and warrants
being valued at $100,000 in the aggregate, to an investment banking firm and its
three designees, which investment banking firm and one of its designees were
institutional accredited investors and which other two designees were individual
accredited investors. Each of such investors represented to the Company that
such investor was an 'accredited investor' as such term is defined in Rule 501
of Regulation D of the Securities Act and gave other representations customary
for a transaction of this type. All of these shares were issued without
registration under the Securities Act pursuant to the exemption afforded by
Section 4(2) and Regulation D of the Securities Act.
In April 1995, in connection with the sale of Sports-Tech International,
Inc. ('STI'), the Company issued 5,000 shares of Common Stock and warrants
exercisable for an aggregate 2,500 shares of Common Stock, valued at $38,750 in
the aggregate, to the former president of STI in settlement of the termination
of his employment agreement with the Company. There were no fees, commissions
and/or discounts payable to any person in connection with this issuance. These
shares and warrants were issued without registration under the Securities Act in
an offering not involving a public offering pursuant to the exemption afforded
by Section 4(2) and Regulation D of the Securities Act.
Pursuant to a Settlement and Release Agreement dated June 17, 1994, in June
1994, the Company issued 25,000 shares of Common Stock, valued at $250,000, and
in September 1994, the Company issued 37,500 shares of Common Stock, valued at
$150,000, in each case to a former consulting firm to Sports
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Tech International, Inc., a former subsidiary of the Company, as settlement for
the termination of its consulting contract. There were no fees, commissions
and/or discounts payable to any person in connection with this issuance. These
shares were issued without registration under the Securities Act in an offering
not involving a public offering pursuant to the exemption afforded by Section
4(2) of the Securities Act.
Convertible Preferred Stock
On May 9, 1996, the Company issued 10,000 shares of its Series A
Convertible Preferred Stock (the 'Series A Preferred Stock'), convertible into
300,000 shares of Common Stock, and warrants exercisable for 100,000 shares of
Common Stock, valued at $16,000, to a non-U.S. institutional investor for
aggregate consideration of $750,000, less fees, commissions and/or discounts
aggregating $63,000. Such investor represented to the Company that such investor
was a 'non-U.S. investor' and gave other representations customary for a
transaction of this type. These shares were issued without registration under
the Securities Act pursuant to the exemption afforded by Section 4(2) and
Regulation S of the Securities Act. On June 7, 1996, in connection with the
issuance of the Series B Redeemable Convertible Preferred Stock and the
convertible notes referred to below, the Company repurchased all of the
outstanding shares of its Series A Preferred Stock for $800,000 plus fees of
$12,500. In addition, in July 1996, the Company issued (i) Warrants exercisable
for 25,000 shares of Common Stock, valued at $15,000, to the former holder of
the Series A Preferred Stock as part of the consideration for the repurchase
thereof and (ii) warrants exercisable for 12,500 shares of Common Stock, valued
at $7,500, to an investment firm for its assistance in structuring the
repurchase. These warrants were issued without registration under the Securities
Act in an offering not involving a public offering pursuant to the exemption
afforded by Section 4(2) of the Securities Act.
On June 7, 1996, the Company issued 6,200 shares of its Series B Redeemable
Convertible Preferred Stock (the 'Series B Preferred Stock'), convertible into
2,480,000 shares of Common Stock, and warrants exercisable for an aggregate
3,100,000 shares of its Common Stock to 29 accredited investors, for aggregate
consideration of $3,100,000, less fees, commission and/or discounts aggregating
$218,914, of which $80,000 was paid Jason Lyons as a finder's fee. Each of such
investors represented to the Company that such investor was an 'accredited
investor' as such term is defined in Rule 501 of Regulation D of the Securities
Act and gave other representations customary for a transaction of this type.
These shares of Series B Preferred Stock and the related warrants were issued
without registration under the Securities Act pursuant to the exemption afforded
by Section 4(2) and Regulation D of the Securities Act. On December 23, 1996,
all of the shares of the Series B Preferred Stock were converted, in accordance
with the terms thereof, into 2,480,000 shares of Common Stock and all accrued
interest thereon was converted into 81,534 shares of Common Stock. In connection
with such conversions, each of the holders of the Series B Preferred Stock
represented to the Company that it was an 'accredited investor' as such term is
defined in Rule 501 of Regulation D of the Securities Act and gave other
representations customary for a transaction of this type. The shares of Common
Stock were issued without registration under the Securities Act pursuant to the
exemption afforded by Section 4(2), Regulation D and Section 3(a)(9) of the
Securities Act.
Also on June 7, 1996, the Company issued $1,000,000 of convertible notes
due June 1, 1998 and warrants exercisable for an aggregate 3,000,000 shares of
its common stock to two accredited investors. There were no fees, commissions or
discounts payable to any person in connection therewith and there was no
placement agent. Each of such investors represented to the Company that such
investor was an 'accredited investor' as such term is defined in Rule 501 of
Regulation D of the Securities Act and gave other representations customary for
a transaction of this type. These notes and warrants were issued without
registration under the Securities Act pursuant to the exemption afforded by
Section 4(2) and Regulation D of the Securities Act.
On September 10, 1996, the convertible notes and the warrants issued to the
holders of the convertible notes referred to above were rescinded retroactive to
June 7, 1996 and replaced with (i) 2,000 shares of the Company's Series C
Redeemable Convertible Preferred Stock (the 'Series C Preferred Stock'),
convertible into 166,666 shares of Common Stock, for aggregate consideration of
$1,000,000, and (ii) warrants relating to 3,000,000 shares of Common Stock.
There were no fees, commissions or discounts. Each of such investors represented
to the Company that such investor was an
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'accredited investor' as such term is defined in Rule 501 of Regulation D of
the Securities Act and gave other representations customary for a transaction of
this type. These shares and warrants were issued without registration under the
Securities Act pursuant to the exemption afforded by Section 4(2), Regulation
D and Section 3(a)(9) of the Securities Act. On December 23, 1996, (i) all
of the shares of the Series C Preferred Stock were repurchased for promissory
notes in an aggregate principal amount of $1.0 million, (ii) all of the
warrants issued in connection with the Series C Preferred Stock were exchanged
for 600,000 shares of Common Stock and (iii) all accrued interest on the Series
C Preferred Stock was converted into 7,306 shares of Common Stock. In connection
with such exchange and conversion, each of the holders of the Series C Preferred
Stock represented to the Company that it was an 'accredited investor' as such
term is defined in Rule 501 of Regulation D of the Securities Act and gave other
representations customary for a transaction of this type. The shares of Common
Stock were issued without registration under the Securities Act pursuant to the
exemption afforded by Section 4(2), Regulation D and Section 3(a)(9) of the
Securities Act.
Warrants
Upon successful consummation of the Underwritten Offering, the Company will
issue warrants exercisable for an aggregate of 160,414 shares of Common Stock to
certain stockholders as consideration for such stockholders' agreement to
certain of the lock-up arrangements described under 'Shares Eligible for Future
Sale.' Each of the stockholders receiving such warrants will be required to
represent to the Company that such person is an 'accredited investor' as defined
in Rule 501 of Regulation D of the Securities Act or that such investor either
alone or with such investor's 'purchaser representative,' as such term is
defined in Rule 501 of Regulation D of the Securities Act, had such knowledge
and experience in financial and other business matters that such investor was
capable of evaluating the merits and risks of the investment in the warrants and
Common Stock and other customary representations customary for a transaction of
this type. These securities will be issued without registration under the
Securities Act pursuant to the exemption afforded by Section 4(2) and Regulation
D of the Securities Act.
In September 1996, the Company issued warrants exercisable for 50,000
shares of Common Stock for aggregate consideration of $2,500 to Mr. Coppersmith
pursuant to the consulting agreement between Mr. Coppersmith and the Company.
These warrants were issued without registration under the Securities Act in an
offering not involving a public offering pursuant to the exemption afforded by
Section 4(2) of the Securities Act.
In August 1996, the Company issued warrants exercisable for 50,000 shares
of Common Stock for aggregate consideration of $2,500 to Mr. Jones pursuant to
the consulting agreement between Mr. Jones and the Company. These warrants were
issued without registration under the Securities Act in an offering not
involving a public offering pursuant to the exemption afforded by Section 4(2)
of the Securities Act.
In February 1996, the Company issued warrants exercisable for 5,000 shares
of Common Stock, valued at $4,000, to an individual as payment for advisory
services rendered. There were no fees, commissions and/or discounts payable to
any person in connection with this issuance. These warrants were issued without
registration under the Securities Act in an offering not involving a public
offering pursuant to the exemption afforded by Section 4(2) of the Securities
Act.
In February 1996, the Company issued warrants exercisable for 10,000 shares
of Common Stock, valued at $7,000, to a law firm, three individuals related to
such law firm and a trust of one other individual related to such law firm for
legal services provided in connection with the private placement of Alliance
common stock pursuant to Regulation D referred to above. There were no fees,
commissions and/or discounts payable to any person in connection with this
issuance. These warrants were issued without registration under the Securities
Act in an offering not involving a public offering pursuant to the exemption
afforded by Section 4(2) of the Securities Act.
In January 1996, the Company issued warrants exercisable for 12,500 shares
of Common Stock, valued at $4,000, to a public relations firm for services
rendered. There were no fees, commissions and/or discounts payable to any person
in connection with this issuance. These warrants were issued
without registration under the Securities Act in an offering not involving a
public offering pursuant to the exemption afforded by Section 4(2) of the
Securities Act.
II-5
<PAGE>
<PAGE>
In January 1996, the Company issued warrants exercisable for 15,000 shares
of Common Stock, valued at $7,000, to an investment advisory firm for services
rendered. There were no fees, commissions and/or discounts payable to any person
in connection with this issuance. These warrants were issued without
registration under the Securities Act in an offering not involving a public
offering pursuant to the exemption afforded by Section 4(2) of the Securities
Act.
In January 1996, the Company issued warrants exercisable for 5,000 shares
of Common Stock, valued at $3,000, to Mr. Dunn, the former owner of Stephen Dunn
& Associates, Inc. ('SD&A'), in consideration for the restructuring of the
indebtedness of the Company to Mr. Dunn incurred in connection with Alliance's
acquisition of SD&A. There were no fees, commissions and/or discounts payable to
any person in connection with this issuance. These warrants were issued without
registration under the Securities Act in an offering not involving a public
offering pursuant to the exemption afforded by Section 4(2) of the Securities
Act.
In October 1995 and April 1996, the Company issued warrants exercisable for
52,500 shares of Common Stock in the aggregate, valued at $43,000, to three
individuals as an inducement to enter into an option agreement relating to the
sale of the Company's land in Laughlin, Nevada and as consideration for the
extension of the put right held by the holders of the option, respectively.
There were no fees, commissions and/or discounts payable to any person in
connection with this issuance. These warrants were issued without registration
under the Securities Act in an offering not involving a public offering pursuant
to the exemption afforded by Section 4(2) of the Securities Act.
In May 1995, the Company issued warrants exercisable for 6,250 shares of
Common Stock, which warrants were not valued, to a law firm for legal services
rendered in connection with the private placement by Alliance of its common
stock pursuant to Regulation D referred to above. There were no fees,
commissions and/or discounts payable to any person in connection with this
issuance. These warrants were issued without registration under the Securities
Act in an offering not involving a public offering pursuant to the exemption
afforded by Section 4(2) of the Securities Act.
ITEM 27. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER ITEM EXHIBIT
- --------- ------------------------------------------------------------------------------- --------------------
(SEE NOTES)(*)
<C> <S> <C> <C>
1.1 Form of Underwriting Agreement B
1.2 Form of Underwriters' Warrant Agreement B
2.1 Acquisition Agreement dated as of February 7, 1995 between Sports-Tech, Inc.,
STI Merger Corporation and Alliance Media Corporation G (1)
2.2 Amendment No. 1 to the Acquisition Agreement dated April 21, 1995 H (2)
2.3 Merger Agreement dated as of April 21, 1995 between STI Merger Corporation and
Alliance Media Corporation H (3)
2.4 Stock Purchase Agreement dated as of January 31, 1995 between Alliance Media
Corporation and Mr. Stephen Dunn H (4)
2.5 Agreement and Plan of Merger dated as of October 1, 1996 between All-Comm Media
Corporation, Metro Services Group, Inc., Metro Merger Corp. and the
Shareholders named therein K (2.1)
3.1 Amended and Restated Articles of Incorporation C (3(a)(1))
3.2 Certificate of Amendment to the Amended and Restated Articles of Incorporation A
3.3 Certificate of Amendment to the Amended and Restated Articles of Incorporation D (3(iii))
3.4 Certificate of Amendment to the Amended and Restated Articles of Incorporation E (3(v))
3.5 By-Laws C (3(c)(2))
3.6 Certificate of Designation for Series B Convertible Preferred Stock, as amended A
3.7 Certificate of Designation for Series C Convertible Preferred Stock A
5.1 Opinion of Lionel Sawyer & Collins B
10.1 1991 Stock Option Plan F (28.1)
10.2 Operating Covenants Agreement dated April 25, 1995 between Alliance Media
Corporation and Mr. Stephen Dunn H (5)
</TABLE>
II-6
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER ITEM EXHIBIT
- --------- ------------------------------------------------------------------------------- --------------------
(SEE NOTES)(*)
<C> <S> <C> <C>
10.3 Pledge Agreement dated as of April 25, 1995 between Alliance Media Corporation
and Mr. Stephen Dunn H (6)
10.4 Lease Agreement dated January 1, 1989 between Stephen Dunn & Associates, Inc.
and Mr. Stephen Dunn relating to 1728 Abbott Kinney Boulevard A
10.5 Form of promissory note of Alliance Media Corporation payable to Mr. Stephen
Dunn with respect to sale of SD&A (included in Exhibit 2.4) H (4)
10.6 Memorandums of Understanding relating to deferral of payments on long-term
obligations payable to seller of SD&A J (10.6)
10.7 Letter from Mr. Stephen Dunn agreeing to long-term obligation payment and
restructuring I (10.9)
10.8 Form of Private Placement Purchase Agreement for Convertible Notes I (10.8)
10.9 Form of Warrant Certificate (without registration rights) A
10.10 Form of promissory note of All-Comm Media Corporation issued to former
shareholders of Metro Services Group, Inc. (included in Exhibit 2.5) K (2.1)
10.11(a) Form of Registration Rights Agreement dated as of October , 1996 between
All-Comm Media Corporation and the Shareholders named therein (included in
Exhibit 2.5) K
10.11(b) Amendment No. 1 to the Registration Rights Agreement dated as of October 9,
1996 L (10.3)
10.12 Form of Employment Agreement between All-Comm Media Corporation and Mr. Barry
Peters A
10.13 Form of Employment Agreement between All-Comm Media Corporation and Mr. E.
William Savage A
10.14 Form of Employment Agreement between Stephen Dunn & Associates, Inc. and Mr.
Stephen Dunn (included in Exhibit 2.4) H (4)
10.15 Form of Employment Agreement between Stephen Dunn & Associates, Inc. and Mr.
Thomas Scheir (included in Exhibit 2.4) H (4)
10.16 Form of Employment Agreement between Metro Services Group, Inc. and Mr. J.
Jeremy Barbera (included in Exhibit 2.5) K (2.1)
10.17 Form of Employment Agreement between Metro Services Group, Inc. and Mr. Robert
M. Budlow (included in Exhibit 2.5) K (2.1)
10.18 Form of Employment Agreement between Metro Services Group, Inc. and Ms. Janet
Sautkulis (included in Exhibit 2.5) K (2.1)
10.19 Form of Consulting Agreement between All-Comm Media Corporation and Mr. Seymour
Jones A
10.20 Form of Consulting Agreement between All-Comm Media Corporation and Mr. S.
James Coppersmith A
10.21 Form of Consulting Agreement between All-Comm Media Corporation and Mr. C.
Anthony Wainwright A
10.22 Excerpt from Confidential Private Placement dated February 1995 Memorandum of
Alliance Media Corporation relating to Common Stock registration rights A
10.23(a) Letter agreement dated February 7, 1995 between Alliance Media Corporation,
Sports-Tech, Inc., Whale Securities Co., L.P. and Golenberg & Geller, Inc.
relating in part to Common Stock registration rights A
10.23(b) Letter agreement dated May 19, 1995 between All-Comm Media Corporation and
Marshall Geller relating in part to Common Stock registration rights A
10.23(c) Letter agreement dated May 19, 1995 between All-Comm Media Corporation and
Glenn Golenberg relating in part to Common Stock registration rights A
10.24(a) Settlement and Release Agreement dated as of June 17, 1994 between Sheldon
Kasower, Membership Development, Inc. and Sports-Tech, Inc. relating in part to
Common Stock registration rights A
10.24(b) Letter agreement dated January 13, 1995 between Membership Development, Inc.
and Sports-Tech, Inc. relating to Common Stock registration rights A
</TABLE>
II-7
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER ITEM EXHIBIT
- --------- ------------------------------------------------------------------------------- --------------------
(SEE NOTES)(*)
<C> <S> <C> <C>
10.25 Form of Series B Convertible Preferred Stock Subscription Agreement relating in
part to Common Stock registration rights A
10.26 Form of Series C Convertible Preferred Stock Private Placement Purchase
Agreement A
10.27 Form of Warrant Certificate (with registration rights) A
10.28(a) Option Agreement dated as of October 1, 1995 between All-Comm Media Corporation
and certain individuals named therein D (10.4)
10.28(b) Amendment to Option Agreement dated April 19, 1996 J (10.5)
10.29 Form of Transfer and Registration Rights Agreement between Mr. Stephen Dunn and
Sports-Tech, Inc. (included in Exhibit 2.4) H (4)
10.30 Form of Series B Conversion Agreement A
10.31 Form of Warrant Cancellation Agreement A
10.32 Form of Series C Repurchase and Exchange Agreement A
10.33 Form of Option Cancellation Agreement A
10.34 Form of Amended and Restated Series B Conversion Agreement A
10.35 Form of Amended and Restated Series C Repurchase and Exchange Agreement A
10.36 Form of Amended and Restated Option Cancellation Agreement A
11.1 Statement Regarding Computation of Net Income Per Share E (11)
21.1 List of Subsidiaries of the Company E (22.1)
23.1 Consent of Lionel Sawyer & Collins (included in Exhibit 5.1) B
23.2 Consent of Coopers & Lybrand L.L.P. (Sherman Oaks) B
23.3 Consent of Coopers & Lybrand L.L.P. (New York) B
23.4 Consent of Jones, Day, Reavis & Pogue A
24.1 Power of Attorney executed by Barry Peters, E. William Savage, Scott Anderson,
S. James Coppersmith, Seymour Jones, C. Anthony Wainwright and Jeremy Barbera A
27.1 Financial Data Schedule A
</TABLE>
(b) Financial Statement Schedules
None.
Notes relating to Exhibits
A Previously filed.
B Filed herewith.
C Incorporated by reference to the Company's Registration Statement on
Form S-4 No. 33-45192, declared effective on February 12, 1992.
D Incorporated by reference to the Company's Report on Form 10-K for the
fiscal year ended June 30, 1995.
E Incorporated by reference to the Company's Report on Form 10-K for the
fiscal year ended June 30, 1996.
F Incorporated by reference to the Company's Registration Statement on
Form S-8 No. 33-43520.
G Incorporated by reference to the Company's Report on Form 8-K dated
February 7, 1995.
H Incorporated by reference to the Company's Report on Form 8-K dated
April 25, 1995.
I Incorporated by reference to the Company's Report on Form 8-K dated
June 7, 1996.
J Incorporated by reference to the Company's Report on Form 10-Q for the
quarter ended March 31, 1996.
K Incorporated by reference to the Company's Report on Form 8-K dated
October 11, 1996.
L Incorporated by reference to the Company's Report on Form 10-Q for the
quarter ended September 30, 1996.
* Numbers in parentheses next to any of the above letters C through L refer to
the exhibit numbers within each document from which the Exhibit is
incorporated by reference herein.
II-8
<PAGE>
<PAGE>
ITEM 28. UNDERTAKINGS.
The Company hereby undertakes to provide to the Underwriters at the closing
specified in the Underwriting Agreement, certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company 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 Company of expenses incurred or paid by a director, officer
or controlling person of the Company in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities registered, the Company 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.
The Company hereby undertakes that:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the 'Calculation of
Registration Fee' table in the effective registration statement; and
(iii) To include any additional or changed material inform with
respect to the plan of distribution previously disclosed in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, it will treat each post-effective amendment as a
new registration statement of the securities offered, and the offering of
the securities at that time be the initial bona fide offering.
(3) To file a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of the offering.
(4) For purposes of determining any liability under the Securities
Act, 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 Company pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(5) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-9
<PAGE>
<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 authorized this Amendment No. 4
to the registrant's registration Statement on Form SB-2 to be signed on its
behalf by the undersigned, in the City of Culver City, in the State of
California, on January 9, 1997.
ALL-COMM MEDIA CORPORATION
By: /s/ BARRY PETERS
..................................
BARRY PETERS
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
In accordance with the requirements of the Securities Act of 1933, this
Amendment No. 4 to the registrant's registration statement on Form SB-2 has been
signed by the following persons in the capacities indicated on January 9, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/S/ BARRY PETERS Chairman of the Board and Chief Executive Officer (Principal
......................................... Executive Officer)
BARRY PETERS
* Director, President, Chief Operating Officer, Secretary and Treasurer
......................................... (Chief Operating Officer)
E. WILLIAM SAVAGE
* Chief Financial Officer (Principal Financial and Accounting Officer)
.........................................
SCOTT ANDERSON
* Director
.........................................
S. JAMES COPPERSMITH
* Director
.........................................
SEYMOUR JONES
* Director
.........................................
C. ANTHONY WAINWRIGHT
* Director
.........................................
JEREMY BARBERA
</TABLE>
*By: /s/ BARRY PETERS
..................................
BARRY PETERS
PURSUANT TO POWERS OF ATTORNEY
FILED PREVIOUSLY WITH THE
SECURITIES
AND EXCHANGE COMMISSION
II-10
Statement of Differences
------------------------
The service mark shall be expressed as ... SM
The section symbol shall be expressed as ....'SS'
<PAGE>
<PAGE>
2,100,000 Shares(1)
ALL-COMM MEDIA CORPORATION
Common Stock
UNDERWRITING AGREEMENT
January __, 1997
CRUTTENDEN ROTH INCORPORATED
As Lead Representative of the Several Underwriters
c/o Cruttenden Roth Incorporated
18301 Von Karman, Suite 100
Irvine, California 92715
LT LAWRENCE & CO., INC.
3 New York Plaza
New York, NY 10004
Ladies and Gentlemen:
All-Comm Media Corporation, a Nevada corporation (the "Company"),
confirms its agreement with Cruttenden Roth Incorporated (the "Lead
Representative") and LT Lawrence & Co., Inc. ("LT Lawrence"; the Lead
Representative and LT Lawrence, collectively, the "Representatives") and the
other members of the underwriting group set forth on Schedule A hereto
(collectively with the Representatives, the "Underwriters") as follows:
1. Description of Shares. The Company proposes to issue and sell
1,750,000 shares of its authorized and unissued common stock, $0.01 par value
per share ("Common Stock"), to the several Underwriters, and the stockholders of
the Company listed in Schedule B hereto (the "Selling Stockholders") propose to
sell an aggregate of 350,000 shares of Common Stock of the Company to the
several Underwriters. Such 2,100,000 Shares are hereinafter referred to as the
"Firm Shares." The Company, certain of the Selling Stockholders and certain
other stockholders named in Schedule C hereto (the "Over-Allotment Selling
Stockholders") also propose to grant to the Underwriters an option to purchase
up to
- --------
1 Plus an option to purchase up to 315,000 additional shares from the
Company and the Over-Allotment Selling Stockholders to cover
over-allotments.
<PAGE>
<PAGE>
315,000 additional shares of Common Stock for the purpose of covering
over-allotments, if any (the "Option Shares"), as provided in Section 10 hereof.
In addition, the Company proposes to sell to the Representatives, individually
and not in their capacity as Representatives, warrants (the "Underwriters'
Warrants") to purchase up to 210,000 shares of Common Stock (the "Underwriters'
Warrant Stock"), which sale will be consummated in accordance with the terms and
conditions of the Underwriters' Warrant Agreement dated the date hereof (the
"Underwriters' Warrant Agreement"). As used in this Agreement, the term "Shares"
shall include the Firm Shares and the Option Shares. All shares of Common Stock
of the Company to be outstanding after giving effect to the sales contemplated
hereby, including the Shares, are hereinafter referred to as "Common Stock."
2. Representations, Warranties and Agreements of the
Company.
The Company hereby represents and warrants to, and agrees with,
each Underwriter as of the date hereof, and as of the Closing Date (hereinafter
defined) and each Option Closing Date (hereinafter defined), if any, as follows
(it being expressly understood and agreed that "materiality" for purposes of
this Agreement shall be determined by the Lead Representative in its sole and
reasonable discretion):
(a) A registration statement on Form SB-2 (File No. 333-14339)
with respect to the Shares, the Underwriters' Warrants and the Underwriters'
Warrant Stock, including a prospectus subject to completion, has been prepared
by the Company in conformity with the requirements of the Securities Act of
1933, as amended (the "Act"), and the applicable rules and regulations of the
Securities and Exchange Commission (the "Commission") under the Act and has been
filed with the Commission (such rules and regulations under the Act and under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), are
hereinafter referred to as the "Rules and Regulations"); such amendments to such
registration statement and such amended prospectuses subject to completion as
may have been required prior to the date hereof have been similarly prepared and
filed with the Commission; and the Company will file such additional amendments
to such registration statement and such amended prospectuses subject to
completion as may hereafter be required. Copies of such registration statement
and amendments and of each related prospectus subject to completion (the
"Preliminary Prospectuses") have been delivered to the Representatives.
If the registration statement relating to the Shares has been
declared effective under the Act by the Commission, the Company will prepare and
promptly file with the Commission the information omitted from the registration
statement pursuant to Rule 430A(a) of the Rules and Regulations pursuant to
subparagraph (1) or (4) of Rule 424(b) of the Rules and Regulations or as part
of a
-2-
<PAGE>
<PAGE>
post-effective amendment to the registration statement (including a final form
of prospectus). If the registration statement relating to the Shares has not
been declared effective under the Act by the Commission, the Company will
prepare and promptly file an amendment to the registration statement, including
a final form of prospectus. The term "Registration Statement" as used in this
Agreement shall mean such registration statement, including financial
statements, schedules and exhibits, in the form in which it became or becomes,
as the case may be, effective (including, if the Company omitted information
from the registration statement pursuant to Rule 430A(a) of the Rules and
Regulations, the information deemed to be a part of the registration statement
at the time it became effective pursuant to Rule 430A(b) of the Rules and
Regulations) and, in the event of any amendment thereto after the effective date
of such registration statement, shall also mean (from and after the
effectiveness of such amendment) such registration statement as so amended. The
term "Prospectus" as used in this Agreement shall mean the prospectus relating
to the Shares as included in such Registration Statement at the time it becomes
effective (including, if the Company omitted information from the Registration
Statement pursuant to Rule 430A(a) of the Rules and Regulations, the information
deemed to be a part of the Registration Statement at the time it became
effective pursuant to Rule 430A(b) of the Rules and Regulations), except that if
any revised prospectus shall be provided to the Underwriters by the Company for
use in connection with the offering of the Shares that differs from the
prospectus on file with the Commission at the time the Registration Statement
became or becomes, as the case may be, effective (whether or not such revised
prospectus is required to be filed with the Commission pursuant to Rule
424(b)(3) of the Rules and Regulations), the term "Prospectus" shall refer to
such revised prospectus from and after the time it is first provided to the
Underwriters for such use.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus or instituted proceedings for
that purpose, and each such Preliminary Prospectus has conformed in all material
respects to the requirements of the Act and the Rules and Regulations and, as of
its date, has not included any untrue statement of a material fact or omitted to
state a material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading; and at the time
the Registration Statement became or becomes, as the case may be, effective and
at all times subsequent thereto up to and on the Closing Date (hereinafter
defined) and on any later date on which Option Shares are to be purchased (each
such date an "Option Closing Date"), (i) the Registration Statement and the
Prospectus, and any amendments or supplements thereto, contained and will
contain all material information required to be included therein by the Act and
the Rules and Regulations and will in all material respects conform to the
requirements of the Act and the Rules and Regulations, (ii) the Registration
Statement, and any
-3-
<PAGE>
<PAGE>
amendments or supplements thereto, did not and will not include any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
(iii) the Prospectus, and any amendments or supplements thereto, did not and
will not include any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided, however,
that none of the representations and warranties contained in this subparagraph
(b) shall apply to information contained in or omitted from the Registration
Statement or Prospectus, or any amendment or supplement thereto, in reliance
upon, and in conformity with, written information relating to any Underwriter,
or to any Selling Stockholder or Over-Allotment Selling Stockholder, furnished
to the Company by such Underwriter, Selling Stockholder or Over-Allotment
Selling Stockholder specifically for use in the preparation thereof.
(c) Each of the Company and its directly and indirectly
wholly-owned subsidiaries, All-Comm Acquisition Corporation (formerly BH
Acquisitions, Inc.), All-Comm Holdings, Inc. (formerly Bullhead Casino
Corporation), Alliance Media Corporation ("Alliance"), Stephen Dunn &
Associates, Inc. ("SD&A") and Metro Services Group, Inc. ("Metro") (each of the
foregoing individually a "Subsidiary" and collectively, the "Subsidiaries") has
been duly organized and is validly existing as a corporation under the laws of
the jurisdiction of its incorporation or organization with full power and
authority (corporate and other) to own, lease and operate its properties and
conduct its business as described in the Prospectus; each of the Company and the
Subsidiaries is in good standing in the jurisdiction of its incorporation or
organization (to the extent the laws of such jurisdiction provide for the good
standing of corporations); each of the Company and the Subsidiaries is duly
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction in which the ownership or leasing of its properties or the
conduct of its business requires such qualification, except where the failure to
be so qualified or be in good standing would not have a material adverse effect
on the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company and the Subsidiaries taken as a whole; no
proceeding has been instituted in any such jurisdiction revoking, limiting or
curtailing, or seeking to revoke, limit or curtail, such power and authority or
qualification; the Company and each of the Subsidiaries is in possession of and
operating in compliance with all authorizations, licenses, certificates,
consents, orders and permits from state, federal and other regulatory
authorities which are material to the conduct of its business, all of which are
valid and in full force and effect; neither the Company nor any Subsidiary is in
violation of its charter or by-laws or in default in the performance or
observance of any material obligation, agreement, covenant or condition
contained in any material bond, debenture, note or other evidence of
indebtedness, or in any
-4-
<PAGE>
<PAGE>
material lease, contract, indenture, mortgage, deed of trust, loan agreement,
joint venture or other agreement or instrument to which the Company or such
Subsidiary is a party or by which it or its properties may be bound; and neither
the Company nor any Subsidiary is in material violation of any law, order, rule,
regulation, writ, injunction, judgment or decree of any court, government or
governmental agency or body, domestic or foreign, having jurisdiction over the
Company or such Subsidiary or over its properties of which it has knowledge. The
Company does not own or control, directly or indirectly, any corporation,
association or other entity other than the Subsidiaries. Except as otherwise
noted in the Registration Statement, the Company owns, directly or indirectly,
100% of the capital stock of each of the Subsidiaries. The disclosures in the
Registration Statement concerning the effects of federal, state, local and
foreign laws, rules and regulations on each of the Company's and the
Subsidiaries' businesses as currently conducted and as contemplated are correct
in all material respects.
(d) The Company has full legal right, power and authority to
enter into this Agreement and the Underwriters' Warrant Agreement and to perform
the transactions contemplated hereby and thereby. Each of this Agreement and the
Underwriters' Warrant Agreement has been duly authorized, executed and delivered
by the Company and is a valid and binding agreement on the part of the Company,
enforceable in accordance with its terms, except as rights to indemnification or
contribution under this Agreement or the Underwriters' Warrant Agreement may be
limited by applicable law and except as the enforcement may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting creditors' rights generally or by general
equitable principles; the performance of this Agreement and the Underwriters'
Warrant Agreement and the consummation of the transactions herein or therein
contemplated will not result in a material breach or violation of any of the
terms and provisions of, or constitute a default under, (i) any material bond,
debenture, note or other evidence of indebtedness, or under any material lease,
contract, license, indenture, mortgage, deed of trust, loan agreement, joint
venture or other agreement or instrument to which the Company or any of the
Subsidiaries is a party or by which the Company's or any of the Subsidiaries'
properties or assets may be bound, (ii) the charter or by-laws of the Company,
or (iii) any law, order, rule, regulation, writ, injunction, judgment or decree
(except that no representation is made as to matters arising under any state
securities or Blue Sky law) of any court, government or governmental agency or
body, domestic or foreign, having jurisdiction over the Company or over its
properties. No consent, approval, authorization or order of or qualification
with any court, government or governmental agency or body, domestic or foreign,
having jurisdiction over the Company or over its properties is required for the
execution and delivery of this Agreement or the Underwriters' Warrant Agreement
and the consummation by the Company of the transactions herein and therein
contemplated, except such as
-5-
<PAGE>
<PAGE>
may be required under the Act or under state or other securities or Blue Sky
laws, all of which requirements have been satisfied in all material respects.
(e) There is not any pending or, to the best of the Company's
knowledge, threatened action, suit, claim or proceeding against the Company or
any of the Subsidiaries, or any of such companies' officers or any of their
properties, assets or rights before any court, government or governmental agency
or body, domestic or foreign, which (i) would or could reasonably be expected to
result in any material adverse change in the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company and the
Subsidiaries taken as a whole or might reasonably be expected to materially and
adversely affect the properties, assets or rights thereof, (ii) questions the
validity of the capital stock of the Company, this Agreement or the
Underwriters' Warrant Agreement, or of any action taken or to be taken by the
Company pursuant to or in connection with this Agreement or the Underwriters'
Warrant Agreement, (iii) might prevent consummation of the transactions
contemplated hereby or (iv) is required to be disclosed in the Registration
Statement or Prospectus and is not so disclosed; and there are no agreements,
contracts, leases or documents of a character required to be described or
referred to in the Registration Statement or Prospectus or to be filed as an
exhibit to the Registration Statement by the Act, or the Rules and Regulations
which have not been accurately described in all material respects in the
Registration Statement or Prospectus or filed as exhibits to the Registration
Statement.
(f) The Recapitalization and the agreements, documents and
instruments executed and delivered by the Company in connection therewith (the
"Recapitalization Documents") were duly authorized by all necessary corporate
action on the part of the Company. Each of the Recapitalization Documents was
executed and delivered by the Company and is a valid and binding agreement on
the part of the Company, enforceable in accordance with its terms, except as the
enforcement may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally or by general equitable principles; the performance of the
Recapitalization Documents and the consummation of the Recapitalization therein
contemplated will not result in a material breach or violation of any of the
terms and provisions of, or constitute a default under, (i) any material bond,
debenture, note or other evidence of indebtedness, or under any material lease,
contract, license, indenture, mortgage, deed of trust, loan agreement, joint
venture or other agreement or instrument to which the Company or any of the
Subsidiaries is a party or by which the Company's or any of the Subsidiaries'
properties or assets may be bound, (ii) the charter or by-laws of the Company,
or (iii) any law, order, rule, regulation, writ, injunction, judgment or decree
of any court, government or governmental agency or body, domestic or foreign,
having jurisdic-
-6-
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tion over the Company or over its properties. No consent, approval,
authorization or order of or qualification with (i) any court, government or
governmental agency or body, domestic or foreign, having jurisdiction over the
Company or over its properties or (ii) any other third party is or was required
for the execution and delivery of the Recapitalization Documents and the
consummation by the Company of the Recapitalization therein contemplated, except
for the consents which were obtained. All outstanding shares of capital stock of
the Company have been duly authorized and validly issued and are fully paid and
nonassessable, have been issued in compliance with all applicable securities
laws, were not issued in violation of or subject to any preemptive rights or
other rights to subscribe for or purchase securities, and the authorized and
outstanding capital stock of the Company is as set forth in the Prospectus under
the captions "Capitalization" and "Description of Capital Stock" and conforms in
all material respects to the statements relating thereto contained in the
Registration Statement and the Prospectus (and such statements correctly state
the substance of the instruments defining the capitalization of the Company);
the Firm Shares and the Option Shares to be sold by the Company have been duly
authorized for issuance and sale to the Underwriters pursuant to this Agreement
and, when issued and delivered by the Company against payment therefor in
accordance with the terms of this Agreement, will be duly and validly issued and
fully paid and nonassessable, and will be sold free and clear of any pledge,
lien, security interest, encumbrance, claim or equitable interest created by the
Company. No further approval or authorization of any stockholder, the Board of
Directors of the Company or others is required for the issuance and sale or
transfer of the Shares to be sold by the Company except as may be required under
the Act or under state securities or Blue Sky laws. Except as disclosed in or
contemplated by the Prospectus and the financial statements of the Company, and
the related notes thereto, included in the Prospectus, the Company has no
outstanding options to purchase, or preemptive rights or other rights to
subscribe for or to purchase, any securities or obligations convertible into, or
any contracts, plans or commitments to issue or sell, shares of its capital
stock or any such options, rights, convertible securities or obligations (other
than as disclosed in the Prospectus and other than pursuant to the 1991 Stock
Option Plan (the "Stock Option Plan"), filed as Exhibit 10.1 to the Registration
Statement).
(g) The consolidated financial statements of the Company and the
Subsidiaries set forth in the Registration Statement, together with the related
schedules and notes, fairly present the consolidated financial position, income
(loss), changes in cash flow, changes in stockholders' equity and the results of
operations of the Company and the Subsidiaries at the respective dates and for
the respective periods to which they apply; and all audited financial statements
of the Company, SD&A and Metro, together with the related schedules and notes,
and the unaudited financial information, filed with the Commission as part of
the Registration State-
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ment, have been prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods involved except as may be
otherwise stated therein. The selected and summary financial and statistical
data included in the Registration Statement and the Prospectus present fairly
the information shown therein and have been compiled on a basis consistent with
the audited financial statements presented therein. The pro forma financial
information included in the Registration Statement and the Prospectus (A) has
been prepared, in all material respects, in accordance with the applicable
requirements of Item 310(d) of Regulation S-B promulgated under the Exchange
Act, and (B) the pro forma adjustments have been properly applied on the bases
described therein and the assumptions used in the preparation of the pro forma
financial information and included in the Registration Statement and the
Prospectus are reasonable and appropriate to give effect to the transactions or
circumstances referred to therein. Other than as disclosed in the Prospectus,
there has been no material adverse change or development involving a materially
adverse prospective change in the financial condition, earnings, prospects,
operations, properties, business or results of operations of the Company and the
Subsidiaries taken as a whole 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. The outstanding debt, the property,
both tangible and intangible, and the businesses of each of the Company and the
Subsidiaries conform in all material respects to the descriptions thereof
contained in the Registration Statement and the Prospectus.
(h) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, there has not been (i) any
material adverse change in the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company or any Subsidiary,
(ii) any transaction that is material to the Company or any Subsidiary, except
transactions entered into in the ordinary course of business, (iii) any material
obligation, direct or contingent, incurred by the Company or any Subsidiary,
except obligations incurred in the ordinary course of business, (iv) any change
in the capital stock or outstanding indebtedness of the Company or any
Subsidiary that is material to the Company or such Subsidiary, (v) any dividend
or distribution of any kind declared, paid or made on the capital stock of the
Company or any Subsidiary, or (vi) any loss or damage (whether or not insured)
to the property of the Company which has been sustained or will have been
sustained which has a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company
and the Subsidiaries taken as a whole.
(i) Except as set forth in the Registration Statement and
Prospectus, (i) the Company and each of the Subsidiaries has good and marketable
title to all properties and assets owned by it,
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free and clear of any pledge, lien, security interest, encumbrance, claim or
equitable interest, other than such as would not have a material adverse effect
on the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company and the Subsidiaries taken as a whole, (ii)
assuming due execution and delivery by the parties thereto other than the
Company or any of its Subsidiaries, the agreements to which the Company or any
Subsidiary is a party described in the Registration Statement are valid
agreements, enforceable by the Company, except as the enforcement thereof may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting creditors' rights generally or by
general equitable principles and, to the best of the Company's knowledge, the
other contracting party or parties thereto are not in material breach or
material default under any of such agreements, and (iii) the Company and each of
the Subsidiaries has valid and enforceable leases for all properties and assets
leased by it, except as the enforcement thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by general equitable
principles and except for such as would not have a material adverse effect on
the condition (financial or otherwise) earnings, operations, business or
business prospects of the Company and the Subsidiaries taken as a whole. Except
as set forth in the Registration Statement and Prospectus, the Company owns or
leases all such properties as are necessary to its operations as now conducted
or as proposed to be conducted.
(j) The Company and each of the Subsidiaries has filed all
necessary federal, state and foreign income and franchise tax returns and has
paid all taxes shown thereon as due, and there is no tax deficiency or penalty
that has been or, to the best of the Company's knowledge, is threatened to be
asserted against the Company or any Subsidiary that might have a material
adverse effect on the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company, and the Company knows of no basis
for the assertion against it or any of the Subsidiaries of any such tax
deficiency or penalty. All known tax liabilities are adequately provided for on
the books of the Company.
(k) No transfer tax, stamp duty or other similar tax is payable
by or on behalf of any Underwriter in connection with (i) the issuance by the
Company of the Firm Shares and the Option Shares to be sold by it, (ii) the
purchase by any Underwriter of the Firm Shares, the Option Shares and the
Underwriters' Warrants from the Company, (iii) the consummation by the Company
of any of its obligations under this Agreement, or (iv) resales of the Firm
Shares or Option Shares sold by the Company to the Underwriters in connection
with the distribution contemplated hereby.
(l) Each of the Company and the Subsidiaries maintains insurance
with insurers of recognized financial responsibility of
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the types and in the amounts generally deemed adequate for its business and
consistent with insurance coverage maintained by companies of similar size in
similar businesses; neither the Company nor any of the Subsidiaries has been
refused any insurance coverage sought or applied for; and each of the Company
and the Subsidiaries does not have any reason to believe that it will not be
able to renew its existing insurance coverage as and when such coverage expires
or to obtain similar coverage from similar insurers as may be necessary to
continue its business at a cost that would not materially and adversely affect
the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company and the Subsidiaries taken as a whole.
(m) To the best of the Company's knowledge, no labor disturbance
by the employees of the Company or any of the Subsidiaries exists or is
imminent. No collective bargaining agreement exists with any of the Company's or
any of the Subsidiaries' employees and, to the best of the Company's knowledge,
no such agreement is imminent.
(n) The Company and each of the Subsidiaries owns or possesses
adequate rights to use all patents, patent rights, inventions, designs,
processes, works of authorship, computer programs and technical data, trade
secrets, know-how (including all other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures), trademarks,
service marks, trade names and copyrights (collectively herein "intellectual
property") which are necessary to conduct its business as described in the
Registration Statement and Prospectus, the expiration of any patents, patent
rights, trade secrets, trademarks, service marks, trade names or copyrights
would not have a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company
and the Subsidiaries taken as a whole; the Company has not received any notice
of, and has no knowledge of, any infringement of or conflict with asserted
rights of the Company or any of the Subsidiaries by others with respect to any
patent, patent rights, inventions, designs, processes, works of authorship,
computer programs, trade secrets, know-how, trademarks, service marks, trade
names or copyrights; and the Company has not received any notice of, and has no
knowledge of, any infringement of or conflict with asserted rights of others
with respect to any patent, patent rights, inventions, designs, processes, works
of authorship, computer programs, trade secrets, know-how, trademarks, service
marks, trade names or copyrights which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would or could reasonably
be expected to have a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company
and the Subsidiaries taken as a whole.
(o) Each of the Company and the Subsidiaries has taken reasonable
security measures to protect the secrecy, confidenti-
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ality and value of all their material intellectual property in all material
aspects.
(p) The Common Stock is registered pursuant to Section 12(g) of
the Exchange Act and has been approved for quotation on the Nasdaq SmallCap
Market, and the Company has taken no action designed to, or likely to have the
effect of, terminating the registration of the Common Stock under the Exchange
Act or delisting the Common Stock from the Nasdaq SmallCap Market, nor has the
Company received any notification that the Commission or the National
Association of Securities Dealers, Inc. (the "NASD") is contemplating
terminating such registration or listing.
(q) The Company has been advised concerning the Investment
Company Act of 1940, as amended (the "1940 Act"), and the rules and regulations
thereunder, and has in the past conducted, and intends in the future to conduct,
its affairs in such a manner as to ensure that it will not become an "investment
company" or a company "controlled" by an "investment company" within the meaning
of the 1940 Act and such rules and regulations.
(r) The Company has not distributed and will not distribute prior
to the later of (i) the Closing Date, or any Option Closing Date, as the case
may be, and (ii) completion of the distribution of the Shares, any offering
material in connection with the offering and sale of the Shares other than any
Preliminary Prospectuses, the Prospectus, the Registration Statement and other
materials, if any, permitted by the Act.
(s) Except as set forth in the Registration Statement and
Prospectus, (i) the Company and each of the Subsidiaries is in compliance in all
material respects with all rules, laws and regulations relating to the use,
treatment, storage and disposal of toxic substances and protection of health or
the environment ("Environmental Laws") which are applicable to its business,
(ii) the Company has received no notice from any governmental authority or third
party of an asserted claim under Environmental Laws, which claim is required to
be disclosed in the Registration Statement and the Prospectus, (iii) the Company
has no reason to believe it will be required to make future material capital
expenditures to comply with Environmental Laws and (iv) no property which is
owned, leased or occupied by the Company has been designated as a Superfund site
pursuant to the Comprehensive Response, Compensation, and Liability Act of 1980,
as amended (42 U.S.C. 'SS' 9601, et. seq.), or otherwise designated as a
contaminated site under applicable state or local law.
(t) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific authorizations,
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity
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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 authorization, and (iv) the recorded accountability for
assets is compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(u) None of the Company, the Subsidiaries, nor any of their
respective employees, directors, stockholders or affiliates (within the meaning
of the Rules and Regulations) of any of the foregoing has taken, 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.
(v) Except as disclosed to the Representatives in writing or
described in the Prospectus, neither the Company nor any of the Subsidiaries
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 any of the Subsidiaries
maintains or contributes now, or at any time previously maintained or
contributed, 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 any of the Subsidiaries to any tax
penalty on prohibited transactions and which has not adequately been corrected.
Each ERISA Plan is in compliance with all material reporting, disclosure and
other requirements of the Code and ERISA as they relate to such ERISA Plan.
Neither the Company nor any Subsidiary has ever completely or partially
withdrawn from a "multiemployer plan."
(w) The Company has caused to be duly executed legally binding
and enforceable agreements (the "Lock-up Agreements") pursuant to which the
Company, its directors and officers and certain of its stockholders and holders
of options, warrants, conversion or contractual rights to acquire Common Stock,
who will hold in the aggregate up to 10,202,092 Restricted Shares (as defined in
the Registration Statement under "Risk Factors" - "Shares Eligible for Future
Sale") outright or issuable upon exercise of such rights, depending on the
extent to which the Underwriters' over-allotment options are exercised, if at
all (10,199,782 Restricted Shares if the Underwriters' over-allotment options
are exercised in full), have agreed that they will not, directly or indirectly,
offer, sell, offer to sell, contract to sell, pledge, grant any option to
purchase or otherwise dispose of or transfer (or announce any offer, sale, offer
of sale, pledge, contract of sale, grant of any
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option to purchase or other disposition or transfer of) any shares of Common
Stock or any capital stock or any other securities convertible into or
exercisable for, or any right to purchase or acquire, Common Stock or any other
capital stock, for a period of nine (9) months after the date of the final
Prospectus, subject to earlier termination if the final Prospectus relating to
the Shares is not filed with the Commission by March 31, 1997 pursuant to Rule
424(b) under the Act (such period being the "Lock-up Period"), without the prior
written consent of the Lead Representative, on behalf of the Underwriters,
except (x) in the case of the Company, with respect to (i) private issuances in
connection with acquisitions if the holders thereof agree to be bound by the
foregoing nine-month restriction to the same extent as the Company and (ii)
grants of options and other rights pursuant to the Stock Option Plan and
issuances of Common Stock pursuant to the exercise of currently outstanding
employee options and (y) in the case of the holders of such Restricted Shares,
with respect to bona fide gifts of shares of Common Stock or securities
convertible into or exchangeable for Common Stock provided that the donee agrees
in writing to be bound by the foregoing provisions.
(x) There are no outstanding loans, advances (except normal
advances for business expenses in the ordinary course of business) or guarantees
of indebtedness by the Company to or for the benefit of any of the officers or
directors of the Company, or any of the members of the families of any of them,
required by the Rules and Regulations to be disclosed which are not disclosed as
is required.
(y) 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 Shares hereunder or
any other arrangements, agreements, understandings, payments or issuance with
respect to the Company, the Subsidiaries or any of their respective officers,
directors, stockholders, employees or affiliates that may affect the
Underwriters' compensation, as determined by the NASD other than those, if any,
arising out of commitments or actions of the Underwriters.
(z) Neither the Company nor the Subsidiaries, nor any of their
respective officers, employees, agents or any other person acting on behalf of
the Company or any of the Subsidiaries 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 any of the Subsidiaries (or assist
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the Company or any of the Subsidiaries in connection with any actual or proposed
transaction) which (a) would or could reasonably be expected to subject the
Company or any of the Subsidiaries, 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, would or could reasonably
be expected to have had a materially adverse effect on the assets, business or
operations of the Company or any of the Subsidiaries, or (c) if not continued in
the future, would or could reasonably be expected to adversely affect the
assets, business, operations or prospects of the Company or any of the
Subsidiaries.
(aa) There are no contracts, arrangements or understandings of a
character required to be disclosed in the Prospectus under Rule 404 of
Regulation S-B which are not disclosed as so required.
(ab) Any certificate signed by any officer of the Company or any
officer of any of the Subsidiaries, and delivered to any Underwriter or to Rubin
Baum Levin Constant & Friedman ("Underwriters' Counsel") shall be deemed a
representation and warranty by the Company to the Underwriters as to the matters
covered thereby.
(ac) Schedule 2.1 hereto contain a description of the minute
books of the Company and the Subsidiaries that have been made available to the
Representatives (the "Existing Records"). The Company has diligently searched
for the minute books and stock records of the Company and each of the
Subsidiaries for all periods since the respective dates of their incorporation
and, except for the Existing Records, has been unable to locate such minute
books and stock records. Each minute book included in the Existing Records
contains an accurate summary in all material respects of all meetings and
actions of the directors and stockholders of the Company and the Subsidiaries,
respectively, included therein, and reflects all transactions referred to in
such minutes accurately in all material respects. The Existing Records for all
periods beginning on or after January 1, 1992 contain accurate summaries in all
material respects of all meetings and actions of the directors and stockholders
of the Company and the Subsidiaries, respectively, during the time periods
covered thereby and reflect all transactions referred to therein accurately in
all material respects.
(ad) The Underwriters' Warrants have been duly and validly
authorized by the Company and upon delivery to the Underwriters in accordance
with the Underwriters' Warrant Agreement will be duly issued and legal, valid
and binding obligations of the Company except as the enforcement thereof may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting creditors' rights generally or by
general equitable principles.
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(ae) The Underwriters' Warrant Stock has been duly authorized and
reserved for issuance upon the exercise of the Underwriters' Warrants and, when
issued upon payment of the exercise price therefor, will be validly issued,
fully paid and nonassessable shares of Common Stock of the Company.
(af) Neither the Company nor any of its affiliates does business
with the government of Cuba or with any person or affiliate located in Cuba.
3. Representations, Warranties and Covenants of the Selling
Stockholders and the Over-Allotment Selling Stockholders with Respect to the
Shares held by them. Each of the Selling Stockholders and the Over-Allotment
Selling Stockholders, severally and not jointly, represents, warrants and
covenants to the several Underwriters as of the date hereof and as of the
Closing Date and each Option Closing Date as applicable:
(a) Such Selling Stockholder or Over-Allotment Selling
Stockholder has good and valid title to the Shares to be sold by such Selling
Stockholder or Over-Allotment Selling Stockholder hereunder, free and clear of
all voting trust agreements, restrictions on transfer, pledges, liens,
encumbrances, equities, security interests and claims whatsoever, with full
right and authority to deliver the same hereunder, subject, in the case of each
Selling Stockholder or Over-Allotment Selling Stockholder, to the rights of
Bankers Trust Company, as Custodian (the "Custodian"), and that upon the
delivery of and payment for such Shares hereunder, the several Underwriters will
receive good and marketable title thereto, free and clear of encumbrances,
equities, security interests and claims whatsoever.
(b) Certificates in negotiable form for the Shares to be sold by
such Selling Stockholder or Over-Allotment Selling Stockholder have been placed
in custody with the Custodian under a Custody Agreement for delivery under this
Agreement; such Selling Stockholder or Over-Allotment Selling Stockholder
specifically agrees that the Shares represented by the certificates so held in
custody for such Selling Stockholder or Over-Allotment Selling Stockholder are
subject to the interests of the several Underwriters and the Company, that the
arrangements made by such Selling Stockholder or Over-Allotment Selling
Stockholder for such custody, including the Power of Attorney referred to in
such Custody Agreement, are to that extent irrevocable, and that the obligations
of such Selling Stockholder or Over-Allotment Selling Stockholder hereunder and
under the Custody Agreement and the Power of Attorney shall not be terminated by
any act of such Selling Stockholder or Over-Allotment Selling Stockholder or by
operation of law, whether by the death or incapacity of such Selling Stockholder
or Over-Allotment Selling Stockholder (or, in the case of a Selling Stockholder
or Over-Allotment Selling Stockholder that is not an individual, the dissolution
or liquidation of such Selling Stockholder
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or Over-Allotment Selling Stockholder) or the occurrence of any other event; if
any such death, incapacity, dissolution, liquidation or other such event should
occur before the delivery of the shares hereunder, certificates for the Shares
shall be delivered by the Custodian in accordance with the terms and conditions
of this Agreement as if such death, incapacity, dissolution, liquidation or
other event had not occurred, regardless of whether the Custodian shall have
received notice of such death, incapacity, dissolution, liquidation or other
event.
(c) All information in the Registration Statement or the
Prospectus, or any amendment or supplement thereto, relating to such Selling
Stockholder or Over-Allotment Selling Stockholder (including, without
limitation, the information relating to such Selling Stockholder or
Over-Allotment Selling Stockholder which is set forth in the Prospectus under
the caption "Principal and Selling Stockholders"), and all representations and
warranties of such Selling Stockholder or Over-Allotment Selling Stockholder in
the Custody Agreement are true and correct in all material respects and do not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the information in the
light of the circumstances under which they were made not misleading. The sale
of the Shares by such Selling Stockholder or Over-Allotment Selling Stockholder
pursuant hereto is not promoted by such Selling Stockholder's or Over-Allotment
Selling Stockholder's knowledge of any material adverse information concerning
the Company or any of the Subsidiaries which is not set forth in the Prospectus.
(d) Such Selling Stockholder or Over-Allotment Selling
Stockholder has full power and authority to enter into this Agreement and the
Custody Agreement and perform the transactions contemplated hereby and thereby.
This Agreement and the Custody Agreement have been duly authorized, executed and
delivered by or on behalf of such Selling Stockholder or Over-Allotment Selling
Stockholder and the form of such Custody Agreement has been delivered to the
Lead Representative.
(e) The making and performance of this Agreement and the Custody
Agreement and the consummation by such Selling Stockholder or Over-Allotment
Selling Stockholder of the transactions contemplated hereby and thereby will not
result in a breach or violation by such Selling Stockholder or Over-Allotment
Selling Stockholder of any terms or provisions of, or constitute a default by
such Selling Stockholder or Over-Allotment Selling Stockholder under, any
material indenture, mortgage, deed of trust, trust (constructive or other), loan
agreement, lease, franchise, license or other material agreement or instrument
to which such Selling Stockholder or Over-Allotment Selling Stockholder is a
party or by which such Selling Stockholder or Over-Allotment Selling Stockholder
or any of their properties is bound, any statute, or any judgment, decree,
order, rule or regulation of any court or governmental agency or
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body, domestic or foreign, applicable to such Selling Stockholder or
Over-Allotment Selling Stockholder or any of their properties, nor will such
action result in any violation of the provisions of the certificate of
incorporation or by-laws of such Selling Stockholder or Over-Allotment Selling
Stockholder if such Selling Stockholder or Over-Allotment Selling Stockholder is
a corporation, the partnership agreement or other governing documents of such
Selling Stockholder or Over-Allotment Selling Stockholder if such Selling
Stockholder or Over-Allotment Selling Stockholder is a limited or general
partnership, or the governing documents of such Selling Stockholder or
Over-Allotment Selling Stockholder if such Selling Stockholder or Over-Allotment
Selling Stockholder is organized as a limited liability company, limited
liability partnership or other partnership, association or entity.
(f) Such Selling Stockholder or Over-Allotment Selling
Stockholder has not taken and will not take, directly or indirectly, any action
designed to or that might reasonably be expected to cause or result in
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Shares.
(g) No consent, approval, authorization or other order of any
court, regulatory body, administrative agency or other governmental body that
has not already been obtained is required for the execution and delivery of this
Agreement by such Selling Stockholder or Over-Allotment Selling Stockholder or
the consummation by such Selling Stockholder or Over-Allotment Selling
Stockholder of the transactions contemplated by this Agreement, the Custody
Agreement or the Power of Attorney except for compliance with the Act, the Rules
and Regulations and the Blue Sky laws applicable to the public offering of
Shares pursuant to this Agreement by the several Underwriters and the clearance
of such offering with the NASD.
(h) Such Selling Stockholder or Over-Allotment Selling
Stockholder has not distributed, and will not distribute any prospectus or other
offering material in connection with the offering and sale of the Shares.
4. Representations, Warranties and Covenants of the Selling
Stockholders and the Over-Allotment Selling Stockholders with respect to the
Company and the Registration Statement. Each Selling Stockholder and
Over-Allotment Selling Stockholder designated by the Lead Representative will
deliver a certificate or other instrument satisfactory in form and substance to
the Lead Representative as to the matters set forth in Schedule 4.1 hereto.
5. Purchase, Sale and Delivery of Shares.
(a) On the basis of the representations, warranties and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company agrees to sell to the Under-
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writers, and each Underwriter agrees, severally and not jointly, to purchase
from the Company, at a purchase price of $ _.__ per share, the respective number
of Firm Shares as hereinafter set forth. The obligation of each Underwriter to
the Company shall be to purchase from the Company that number of Firm Shares
which is set forth opposite the name of such Underwriter in Schedule A hereto
(subject to adjustment as provided in Section 13 hereof).
(b) On the basis of the representations, warranties, covenants
and agreements herein contained, but subject to the terms and conditions herein
set forth, the Company and the Selling Stockholders and Over-Allotment Selling
Stockholders listed on Schedule C hereto hereby grant options to the several
Underwriters to purchase, severally and not jointly, up to 315,000 shares of
Common Stock from the Company, such Selling Stockholders and Over-Allotment
Selling Stockholders pursuant to the provisions set forth in Section 10 hereof.
Said options may be exercised only for the purpose of covering over-allotments
which may be made in connection with the offering and distribution of the Firm
Shares upon written notice by the Lead Representative to the Company, such
Selling Stockholders and Over-Allotment Selling Stockholders, as applicable,
setting forth the number of Option Shares as to which the Underwriters are then
exercising the options and the time and date of payment and delivery for any
such Option Shares. Any such time and date of delivery (an "Option Closing
Date") shall be determined by the Lead Representative but shall not be later
than five (5) 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 Lead Representative and the Company. The Company has agreed with the
Selling Stockholders and the Over-Allotment Selling Stockholders that the first
124,173 shares as to which the Underwriters' over-allotment options are
exercised will be sold by such Selling Stockholders and Over-Allotment Selling
Stockholders on a pro rata basis based on the relative amounts subject to sale
by such persons as set forth in Schedule C, and any of the remaining 190,827
shares as to which the Underwriters' over-allotment options are exercised will
be sold by the Company.
(c) Subject to any agreement between the Company and the Lead
Representative with respect to delivery of a global certificate through
Depository Trust Company ("DTC"), delivery of definitive certificates for the
Firm Shares, and the Option Shares, if any, to be purchased by the Underwriters
pursuant to this Section 5 shall be made against payment of the purchase price
therefor by the several Underwriters by certified or official bank check or
checks drawn in next-day funds (or, at the option of the Underwriters by wire
transfer), to the order of the Company, the Selling Stockholders and the
Over-Allotment Selling Stockholders, as applicable, on the third business day
following the effective date of the Registration Statement, at the offices of
the Lead Representative at 18301 Von Karman, Suite 100, Irvine, California
92715, at 10:00 A.M. (New York City time) on _________, 1997, provided that
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the delivery of all documents and instruments required to be delivered on the
Closing Date other than the certificates for the Firm Shares and Option Shares,
if any, shall be made at the offices of Underwriter's Counsel in New York, New
York not later than the (3) 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 Shares are purchased by the Underwriters, payment of the purchase price
for, and delivery of certificates for, such Option Shares shall be made at the
above mentioned office of the Lead Representative or at such other place as
shall be agreed upon by the Lead Representative and the Company on each Option
Closing Date as specified in the notice from the Lead Representative to the
Company. Certificates for the Firm Shares and the Option Shares, if any (or the
global DTC certificate, if applicable) 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 Shares and the Option Shares,
if any, shall be made available to the Lead Representative at such office or
such other place as the Lead 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. The
certificate for the Firm Shares shall be in such form so as to qualify with the
provisions of DTC book-entry and allow for a "fast" closing in compliance with
DTC requirements.
(d) On the Closing Date, the Company shall issue and sell to the
Representatives the Underwriters' Warrants at a collective purchase price of one
mill, which warrants shall entitle the holders thereof to purchase an aggregate
of 210,000 shares of Common Stock. The Underwriters' Warrants shall be
exercisable for a period of four (4) years commencing one (1) year from the
effective date of the Registration Statement at an exercise price equal to one
hundred twenty percent (120%) of the initial price to public of the Shares. The
Underwriters' Warrant Agreement and form of Warrant Certificate shall be
substantially in the forms filed as Exhibits 1.2 and 10.9 to the Registration
Statement. Payment for the Underwriters' Warrants shall be made on the Closing
Date by New York Clearing House funds.
(e) It is understood that the Representatives, individually, and
not as the Representatives of the several Underwriters, may (but shall not be
obligated to) make payment of the purchase price on behalf of any Underwriter or
Underwriters whose check or checks shall not have been received by the
Representatives prior to the Closing Date for the Firm Shares to be purchased by
such Underwriter or Underwriters. Any such payment by the Representatives shall
not relieve any such Underwriter or Underwriters of any of its or their
obligations hereunder.
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6. Public Offering of the Shares. As soon after the Registration
Statement becomes effective as the Underwriters deem 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 Shares is required and has not become
effective) at the price and upon the other terms set forth in the Prospectus and
this Agreement. The Underwriters 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 Underwriters, in their sole discretion deem advisable. The
Underwriters may enter into one of more agreements as the Underwriters, in their
sole discretion, deem advisable with one or more broker-dealers who shall act as
dealers in connection with such public offering.
7. Further Agreements of the Company. The Company
covenants and agrees with the several Underwriters that:
(a) The Company will use its reasonable best efforts to cause the
Registration Statement and any amendment thereof, if not effective at the time
and date that this Agreement is executed and delivered by the parties hereto, to
become effective as promptly as possible; it will notify the Lead
Representative, promptly after it shall receive notice thereof, of the time when
the Registration Statement or any subsequent amendment to the Registration
Statement has become effective or any supplement to the Prospectus has been
filed; if the Company omitted information from the Registration Statement at the
time it was originally declared effective in reliance upon Rule 430A(a) of the
Rules and Regulations, the Company will provide evidence satisfactory to the
Lead Representative that the Prospectus contains such information and has been
filed, within the time period prescribed, with the Commission pursuant to
subparagraph (1) or (4) of Rule 424(b) of the Rules and Regulations or as part
of a post effective amendment to such Registration Statement as originally
declared effective which is declared effective by the Commission; if for any
reason the filing of the final form of Prospectus is required under Rule
424(b)(3) of the Rules and Regulations, it will provide evidence satisfactory to
the Lead Representative that the Prospectus contains such information and has
been filed with the Commission within the time period prescribed; it will notify
the Lead Representative promptly of any request by the Commission for the
amending or supplementing of the Registration Statement or the Prospectus or for
additional information; promptly upon the Lead Representative's request, it will
prepare and file with the Commission any amendments or supplements to the
Registration Statement or Prospectus which, in the opinion of Underwriters'
Counsel, may be necessary or advisable in connection with the distribution of
the Shares by the Underwriters; it will promptly prepare and file with the
Commission, and promptly notify the Lead Representative of the filing of, any
amendments or supplements to the Registration Statement or Prospectus which may
be necessary to correct any statements or omissions, if, at any time when a
prospectus relating to the Shares is required to be
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delivered under the Act, any event shall have occurred as a result of which the
Prospectus or any other prospectus relating to the Shares as then in effect
would include any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; in case any
Underwriter is required to deliver a prospectus nine (9) months or more after
the effective date of the Registration Statement in connection with the sale of
the Shares, it will prepare promptly upon request, but at the expense of such
Underwriter, such amendment or amendments to the Registration Statement and such
prospectus or prospectuses as may be necessary to permit compliance with the
requirements of Section 10(a)(3) of the Act; and it will file no amendment or
supplement to the Registration Statement or Prospectus which shall not
previously have been submitted to the Lead Representative a reasonable time
prior to the proposed filing thereof or to which the Lead Representative shall
reasonably object in writing, subject, however, to compliance with the Act and
the Rules and Regulations, and the provisions of this Agreement.
(b) The Company will advise the Lead Representative, promptly
after it shall receive notice or obtain knowledge, of the issuance of any stop
order by the Commission suspending the effectiveness of the Registration
Statement or of the initiation or threat of any proceeding for that purpose; and
it will promptly use its reasonable best efforts to prevent the issuance of any
stop order or to obtain its withdrawal at the earliest possible moment if such
stop order should be issued.
(c) The Company will use its reasonable best efforts to qualify
the Shares for offering and sale under the securities laws of such jurisdictions
as the Lead Representative may designate and to continue such qualifications in
effect for so long as may be required for purposes of the distribution of the
Shares, except that the Company shall not be required in connection therewith or
as a condition thereof to qualify as a foreign corporation or to execute a
general consent to service of process in any jurisdiction in which it is not
otherwise required to be so qualified or to so execute a general consent to
service of process. In each jurisdiction in which the Shares shall have been
qualified as above provided, the Company will make and file such statements and
reports in each year as are or may be reasonably required by the laws of such
jurisdiction.
(d) The Company will furnish to the Representatives, without
charge, as soon as available, at such place as the Representatives may
designate, copies of the Registration Statement and any pre-effective or
post-effective amendments thereto (two of which copies will be manually signed,
if so requested by the Representatives, and will include all financial
statements and exhibits), each Preliminary Prospectus, the Prospectus and any
amendments or supplements to such documents, including any prospectus
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prepared to permit compliance with Section 10(a)(3) of the Act all in such
quantities as the Representatives may from time to time reasonably request.
(e) The Company will make generally available to its security
holders as soon as practicable, but in any event not later than the forty-fifth
(45th) day following the end of the fiscal quarter first occurring after the
first anniversary of the effective date of the Registration Statement, an
earnings statement (which will be in reasonable detail but need not be audited)
complying with the provisions of Section 11(a) of the Act and Rule 158(a) of the
Rules and Regulations, and covering a twelve (12) month period beginning after
the effective date of the Registration Statement.
(f) 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 certified public
accountants), and unaudited quarterly reports of earnings, and will deliver to
the Representatives:
(i) concurrently with furnishing such quarterly reports to
its stockholders, statements of income of the Company and the
Subsidiaries for each quarter in the form furnished to the Company's
stockholders;
(ii) concurrently with furnishing such annual reports to
its stockholders, a balance sheet of the Company and the Subsidiaries as
at the end of the preceding fiscal year, together with statements of
operations, stockholders' equity, and cash flows of the Company and the
Subsidiaries for such fiscal year, accompanied by a copy of the report
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; and
(v) any additional information as of the date of such
delivery of a public nature concerning the Company or the Subsidiaries
(and any future subsidiaries) or their businesses which the
Representatives may reasonably request.
In addition, during such five-year period, the Company will cause the Lead
Representative to be included on the list maintained by the Company's public
relations firm for distribution of any press release, whether such distribution
is for general dissemination or for more limited distribution to certain
newswires in compliance with any federal or state securities law, rule or
regulation.
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During such five-year period, if the Company has active
subsidiaries, the foregoing financial statements will be on a consolidated basis
to the extent that the accounts of the Company and its subsidiaries are
consolidated, and will be accompanied by similar financial statements for any
significant subsidiary which is not so consolidated.
(g) The Company will (and will cause the Subsidiaries to, where
applicable), apply the net proceeds from the sale of the Shares being sold by it
in the manner set forth under the caption "Use of Proceeds" in the Prospectus.
Except as set forth in the Prospectus and except as provided in the next
sentence, for a period of three (3) years after the consummation of the Offering
(or, if earlier, until such time as the Company has provided the Lead
Representative with the accounting referred to in the last sentence of this
Section 7(g)), no portion of the net proceeds of the Offering will be used,
directly or indirectly, to acquire any securities issued by the Company or the
Subsidiaries from any person who was a stockholder of the Company prior to the
Offering or who acquired such securities from any person who was a stockholder
of the Company prior to the Offering without the prior written consent of the
Lead Representative (which consent shall not be unreasonably withheld or
delayed). Notwithstanding the foregoing, the Company and/or the Subsidiaries
shall be entitled to acquire securities of the Company or the Subsidiaries (i)
from any officer, director and/or key employee of the Company in connection with
any matter relating to such person's employment, death, disability or severance
or in connection with the settlement of any non-compete agreement with such
person, (ii) from any person (other than any person who was a stockholder of the
Company prior to the Offering and who is not a current or former officer,
director and/or key employee of the Company) in connection with any acquisition
consummated after the Offering, including without limitation, in connection with
the grant or satisfaction of any "put" or "call" right with respect to
securities of the Company or any Subsidiary in connection with any such
acquisition and (iii) in connection with any recapitalization in which all
holders of the class of securities being purchased are treated pari passu. The
Company will set apart and separately account for the net proceeds of the
Offering. Not later than 30 days after all such net proceeds have been expended,
the Company will provide the Lead Representative with an accounting of the
application of such net proceeds.
(h) The Company will maintain a 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.
(i) The Company will 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
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Act) from time to time, under the 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.
(j) If the transactions contemplated hereby are not consummated
by reason of any failure, refusal or inability on the part of the Company to
perform any agreement on its part to be performed hereunder or to fulfill any
condition of the Underwriters' obligations hereunder, in either case in
accordance with the express provisions of this Agreement, or if the Company
shall terminate this Agreement pursuant to Section 14 hereof, or if the
Underwriters shall terminate this Agreement pursuant to Section 15, the Company
will pay the several Underwriters, upon submission of reasonable supporting
documentation, all out-of-pocket expenses (including fees and disbursements of
Underwriters' Counsel) incurred by the Underwriters in investigating or
preparing to market or marketing the Shares, not to exceed 3% of the expected
proceeds of the offering.
(k) If at any time during the ninety (90) day period after the
Registration Statement becomes effective, any rumor, publication or event
relating to or affecting the Company shall occur as a result of which in the
Lead Representative's opinion the market price of the Common Stock has been or
is likely to be materially affected (regardless of whether such rumor,
publication or event necessitates a supplement to or amendment of the
Prospectus), the Company will, after written notice from the Lead Representative
advising the Company to the effect set forth above, consult with the Lead
Representative concerning a possible press release or other public statement,
with respect to such rumor, publication or event.
(l) The Company shall furnish to the Lead 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 earlier than November
30, 1996, or more than seventy-five (75) 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 Section 9(f)
hereof.
(m) The Company shall cause the Shares to be listed or quoted on
The Nasdaq SmallCap Market (or, if the Company shall qualify, Nasdaq National
Market ("NMS") or such other national securities exchange such as the New York
Stock Exchange ("NYSE") or American Stock Exchange ("AMEX")) and, for a period
of not less than five (5) years from the date hereof, use its best efforts to
maintain The Nasdaq SmallCap Market, NMS, NYSE or AMEX, as the case may be,
listing or quotation of the Shares to the extent outstanding.
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(n) Prior to the Closing Date and for a period of twenty-five
(25) days thereafter, the Company will not issue any press release or engage in
other publicity without having provided the Lead Representative with advance
notice of any such proposed press release as may be reasonable under the
circumstances and a reasonable opportunity to review and comment upon the same.
8. Expenses.
(a) The Company agrees with each Underwriter that:
(i) The Company will pay and bear all costs and expenses
in connection with the offering of the Firm Shares and the Option Shares
pursuant to this Agreement, including but not limited to, the costs of
preparing, printing and filing with the Commission the Registration Statement
and all pre- and post-effective amendments thereto; preparing, printing, filing
and delivering exhibits thereto and copies of the preliminary and final
Prospectus, and any supplements thereto; filing, copying and delivering to such
parties as are designated by the Lead Representative a reasonable number of all
underwriting and selling documents, including but not limited to this Agreement,
the Agreement Among Underwriters, the Selected Dealer Agreement and the
Underwriter's Questionnaire and any Blue Sky memoranda; and preparing, printing
and delivering stock certificates. The Company shall also be responsible for the
payment when due of all fees and disbursements incurred in connection with the
offering of the Firm Shares and the Option Shares, including but not limited to,
NASD fees; Blue Sky fees; filing fees for listing and/or quotation of the
Shares, other securities contemplated herein or otherwise; the Company's legal
and accounting fees and disbursements; issue and transfer taxes (other than
transfer taxes associated with shares being sold by the Selling Stockholders and
the Over-Allotment Selling Stockholders, which taxes shall be the responsibility
of the respective Selling Stockholders and Over-Allotment Selling Stockholders),
if any; legal fees of the Underwriters' Counsel in connection with Blue Sky
matters which shall not exceed $35,000, of which $17,500 has been heretofore
paid and such Underwriters' Counsel's reasonable disbursements in connection
with such Blue Sky matters; fees and disbursements of the transfer agent; and
the cost (not to exceed $25,000 in the aggregate) of at least one tombstone
advertisement (all of the foregoing expenses are hereinafter referred to as the
"Company Expenses").
(ii) The Company further agrees that, in addition to the
expenses payable pursuant to Section 8(a)(i) hereof, it will pay to the
Representatives a non-accountable expense allowance in the aggregate equal to
three percent (3%) of the total proceeds of the offering of the Firm Shares
(including any Option Shares sold pursuant to the over-allotment option
described above, but less the portion, if any, of such non-accountable expense
allowance paid by any Selling Stockholder or Over-Allotment Selling
Stockholder), of which $50,000 has been paid to LT Lawrence to date, to cover
the
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cost of the Representatives' advertising, mailing, telephone, telegraph, travel,
due diligence meetings and other similar expenses including legal fees of the
Underwriters' Counsel (other than legal fees in connection with Blue Sky matters
as to which fees the Company shall be responsible, as provided in Section
8(a)(i) hereof).
(iii) In addition to its other obligations under Section
11(a) hereof, the Company agrees that, as an interim measure during the pendency
of any claim, action, investigation, inquiry or other proceeding described in
Section 11(a) hereof, it will reimburse the Underwriters on a monthly basis for
all reasonable legal or other expenses incurred in connection with investigating
or defending any such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the propriety and
enforceability of the Company's obligation to reimburse the Underwriters for
such expenses and the possibility that such payments might later be held to have
been improper by a court of competent jurisdiction. To the extent that any such
interim reimbursement payment is so held to have been improper, the Underwriters
shall promptly return such payment to the Company together with interest,
compounded daily, determined on the basis of the prime rate (or other commercial
lending rate for borrowers of the highest credit standing) listed from time to
time in The Wall Street Journal which represents the base rate on corporate
loans posted by a substantial majority of the nation's thirty (30) largest banks
(the "Prime Rate"). Any such interim reimbursement payments which are not made
to the Underwriters within thirty (30) days of a request for reimbursement shall
bear interest at the Prime Rate from the date of such request.
(b) In addition to their other obligations under Section 11(b)
hereof, the Underwriters severally and not jointly agree that, as an interim
measure during the pendency of any claim, action, investigation, inquiry or
other proceeding described in Section 11(b) hereof, they will reimburse the
Company on a monthly basis for all reasonable legal or other expenses incurred
in connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the
Underwriters' obligation to reimburse the Company for such expenses and the
possibility that such payments might later be held to have been improper by a
court of competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, the Company shall
promptly return such payment to the Underwriters together with interest,
compounded daily, determined on the basis of the Prime Rate. Any such interim
reimbursement payments which are not made to the Company within thirty (30) days
of a request for reimbursement shall bear interest at the Prime Rate from the
date of such request.
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9. Conditions of Underwriters' Obligations. The obligations of
the several Underwriters to purchase and pay for the Shares as provided herein
shall be subject to the continuing accuracy, as of the date hereof and the
Closing Date and any Option Closing Date, as the case may be, of the
representations and warranties of the Company to the performance by the Company
of its obligations hereunder and to the following additional conditions:
(a) The Registration Statement shall have become effective not
later than 10:00 A.M., New York time, on the date following the date of this
Agreement, or such later date as shall be consented to in writing by the Lead
Representative; and no stop order suspending the effectiveness thereof shall
have been issued and no proceedings for that purpose shall have been initiated
or, to the knowledge of the Company or any Underwriter, threatened by the
Commission, and any request of the Commission for additional information (to be
included in the Registration Statement or the Prospectus or otherwise) shall
have been complied with to the satisfaction of Underwriters' Counsel.
(b) All corporate proceedings and other legal matters in
connection with this Agreement, the Registration Statement and the Prospectus,
and the registration, authorization, issue, sale and delivery of the Shares,
shall have been reasonably satisfactory to Underwriters' Counsel, and such
counsel shall have been furnished with such papers and information as they may
reasonably have requested to enable them to pass upon the matters referred to in
this Section 9.
(c) Subsequent to the execution and delivery of this Agreement
and prior to the Closing Date there shall not have been any change in the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company and the Subsidiaries from that set forth in the
Registration Statement or Prospectus, which, in the Lead Representative's sole
judgment, is material and adverse, and there shall not have been any adverse
change in market conditions in either case that makes it, in the Lead
Representative's sole judgment, impracticable or inadvisable to proceed with the
public offering of the Shares as contemplated by the Prospectus.
(d) The Representatives shall have received on the Closing Date
and on each Option Closing Date, as the case may be, the following opinion of
Jones, Day, Reavis & Pogue, special counsel for the Company, dated the Closing
Date or such Option Closing Date, addressed to the Underwriters and with
reproduced copies or signed counterparts thereof for each of the Underwriters,
to the effect that:
(i) Metro is a corporation duly incorporated and in
good standing under the laws of the State of New York, and
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Alliance is a corporation duly incorporated and in good standing under the laws
of the State of Delaware;
(ii) Each of Metro and Alliance has the corporate
power and authority to own, lease and operate its properties and to conduct its
business as described in the Prospectus. None of the Company or the Subsidiaries
other than Metro is required to be qualified to do business as a foreign
corporation in the State of New York;
(iii) This Agreement and the Underwriters' Warrant
Agreement have been duly executed and delivered by the Company. Each of this
Agreement and the Underwriters' Warrant Agreement, assuming due authorization by
the Company and due authorization, execution and delivery by the
Representatives, is a valid and binding agreement of the Company, enforceable in
accordance with its terms, except insofar as indemnification and contribution
provisions may be limited by applicable law and except as enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to or affecting creditors' rights generally or by general equitable
principles;
(iv) The Registration Statement has become effective
under the Act and, to such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued and no proceedings
for that purpose are pending or threatened by the Commission;
(v) The Registration Statement and the Prospectus,
and each amendment or supplement thereto (other than operating statistics,
financial statements, financial schedules and other financial and statistical
data included therein as to which such counsel need express no opinion), at the
time the Registration Statement became effective, complied as to form in all
material respects with the Act and the applicable Rules and Regulations;
(vi) The statements in the Prospectus under "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;
(vii) The description of the Recapitalization in the
Prospectus is correct in all material respects. Each of the Recapitalization
Documents was executed and delivered by the Company and, assuming due
authorization, execution and delivery by the other parties thereto, is a valid
and binding agreement on the part of the Company, enforceable in accordance with
its terms, except as such enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable principles; the
performance of the Recapitalization
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Documents and the consummation of the Recapitalization therein contemplated does
not and will not, to such counsel's knowledge, result in a material breach or
violation of any of the terms and provisions (as currently in effect) of, or
constitute a default under, any material bond, debenture, note or other evidence
of indebtedness, or under any material lease, contract, indenture, mortgage,
deed of trust, loan agreement, joint venture or other agreement or instrument
known to such counsel to which the Company is a party or by which its properties
are bound, or any applicable statute, rule or regulation known to such counsel
or, to such counsel's knowledge, any order, writ or decree of any court,
government or governmental agency or body having jurisdiction over the Company
or over any of its properties or operations. No consent, approval, authorization
or order of or qualification with (i) any court, government or governmental
agency or body having jurisdiction over the Company or over its properties or
(ii) to the best of such counsel's knowledge, any other third party is or was
required for the execution and delivery of the Recapitalization Documents and
the consummation by the Company of the Recapitalization therein contemplated,
except for the consents which were obtained;
(viii) To such counsel's knowledge, there are no
agreements, contracts, leases or other documents to which the Company is a party
of a character required to be described in the Registration Statement or
Prospectus or to be filed as exhibits to the Registration Statement that are not
described or filed as required;
(ix) The performance of this Agreement and the
Underwriters' Warrant Agreement and the consummation of the transactions herein
and therein contemplated (other than performance of the Company's
indemnification and contribution obligations hereunder or under the
Underwriters' Warrant Agreement, concerning which no opinion need be expressed)
will not, to such counsel's knowledge, result in a material breach or violation
of any of the terms and provisions (as currently in effect) of, or constitute a
default under, any material bond, debenture, note or other evidence of
indebtedness, or under any material lease, contract, indenture, mortgage, deed
of trust, loan agreement, joint venture or other agreement or instrument known
to such counsel to which the Company is a party or by which its properties are
bound, or any applicable statute, rule or regulation known to such counsel or,
to such counsel's knowledge, any order, writ or decree of any court, government
or governmental agency or body having jurisdiction over the Company or over any
of its properties or operations;
(x) No consent, approval, authorization or order of
or qualification with any court, governmental body or agency having jurisdiction
over the Company or over any of its properties or operations is required in
connection with the consummation by the Company of the transactions herein
contemplated, except such as have been obtained under the Act or such as may be
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required under state or other securities or Blue Sky laws in connection with the
purchase and the distribution of the Shares by the Underwriters;
(xi) To such counsel's knowledge, there are no legal
or governmental proceedings pending or threatened against the Company of a
character required to be disclosed in the Registration Statement or the
Prospectus by the Act or the Rules and Regulations or by the Exchange Act or the
applicable rules and regulations of the Commission thereunder that are not
described as required;
(xii) To such counsel's knowledge, the Company is not
presently in material breach of any applicable statute, rule or regulation known
to such counsel or, to such counsel's knowledge, any order, writ or decree of
any court or governmental body or agency having jurisdiction over the Company or
over any of its properties or operations;
(xiii) To such counsel's knowledge, except as set forth
in the Registration Statement and Prospectus, no holders of Common Stock or
other securities of the Company have registration rights with respect to
securities of the Company in connection with the offering under the Registration
Statement and, except as set forth in the Registration Statement and Prospectus,
all holders of securities of the Company having rights known to such counsel to
registration of such shares of Common Stock or other securities, because of the
filing of the Registration Statement by the Company have, with respect to the
offering contemplated thereby, waived such rights or such rights have expired by
reason of lapse of time following notification of the Company's intent to file
the Registration Statement or have included securities in the Registration
Statement pursuant to the exercise of and in full satisfaction of such rights;
(xiv) Assuming due execution by, and full power and
authority of, the parties thereto including the Company, the Lock-up Agreements
are legal, valid and binding obligations of the parties thereto, enforceable
against each such party and any subsequent holder of the securities subject
thereto in accordance with their respective terms.
In addition, such counsel shall state that such counsel has
participated in conferences with officials and other representatives of the
Company, the Representatives, Underwriters' Counsel and the independent
certified public accountants of the Company, at which such conferences the
contents of the Registration Statement and Prospectus and related matters were
discussed, and although they have not verified the accuracy or completeness of
the statements contained in the Registration Statement or the Prospectus,
nothing has come to the attention of such counsel which leads them to believe
that, at the time the Registration Statement became effective and at all times
subsequent thereto up to and on the
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Closing Date and on any Option Closing Date, the Registration Statement and any
amendment or supplement, when such documents became effective or were filed with
the Commission (other than the operating statistics, financial statements,
financial schedules and other financial and statistical information included
therein, as to which such counsel need express no comment) 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, or at
the Closing Date or any Option Closing Date, as the case may be, the
Registration Statement, the Prospectus and any amendment or supplement thereto
contained any untrue statement of a material fact or omitted to state a material
fact necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
Counsel rendering the foregoing opinions may rely as to questions
of fact upon representations or certificates of officers of the Company, and of
government officials, in which case its opinion is to state that they are so
relying. Copies of any representation or certificate so relied upon shall be
delivered to the Lead Representative and to Underwriters' Counsel. In addition,
counsel rendering the foregoing opinions may state that its opinions are limited
to matters arising under the laws in effect in the State of New York and the
United States of America and the General Corporation Law of the State of
Delaware.
(e) The Representatives shall have received on the Closing Date
and on each Option Closing Date, as the case may be, the following opinion of
Lionel Sawyer & Collins, special Nevada counsel for the Company, dated the
Closing Date or such Option Closing Date, addressed to the Underwriters and with
reproduced copies or signed counterparts thereof for each of the Underwriters,
to the effect that:
(i) The Company is a corporation duly incorporated
and in good standing under the laws of the jurisdiction of its incorporation;
(ii) The Company has the corporate power and authority
to own, lease and operate its properties and to conduct its business as
described in the Prospectus;
(iii) None of the Subsidiaries is required to be
qualified to do business as a foreign corporation in the State of Nevada. To
such counsel's knowledge, the Company does not own or control, directly or
indirectly, any corporation, association or other entity other than as listed in
the Registration Statement;
(iv) The Recapitalization and the Recapitalization
Documents were duly authorized by all necessary corporate action on the part of
the Company. Each of the Recapitalization Documents, assuming due execution and
delivery by
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the Company and the other parties thereto, is a valid and binding agreement on
the part of the Company, enforceable in accordance with its terms, except as
such enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles; the performance
of the Recapitalization Documents and the consummation of the Recapitalization
therein contemplated does not and will not result in a material breach or
violation of any of the terms and provisions of, or constitute a default under,
(i) the articles of incorporation or by-laws of the Company or (ii) any
applicable statute, rule or regulation known to such counsel or, to such
counsel's knowledge, any order, writ or decree of any court, government or
governmental agency or body having jurisdiction over the Company or over any of
its properties or operations. No consent, approval, authorization or order of or
qualification with any court, government or governmental agency or body having
jurisdiction over the Company or over its properties is or was required for the
execution and delivery of the Recapitalization Documents and the consummation by
the Company of the Recapitalization therein contemplated. The authorized, issued
and outstanding capital stock of the Company is as set forth in the Prospectus
under the captions "Capitalization" and "Description of Capital Stock" as of the
dates stated therein, the issued and outstanding shares of capital stock of the
Company have been duly and validly issued and are fully paid and nonassessable,
and, to such counsel's knowledge, have not been issued in violation of or
subject to any preemptive right, or other right to subscribe for and purchase
securities, the opinion with respect to the foregoing matters to be
substantially as set forth in Schedule 8(e) hereto;
(v) The Firm Shares and the Option Shares, as the
case may be, to be issued by the Company pursuant to the terms of this Agreement
each have been duly authorized and, upon issuance and delivery against payment
therefor in accordance with the terms hereof, will be duly and validly issued
and fully paid and nonassessable, and will be sold free and clear of any pledge,
lien, security interest, encumbrance, claim or equitable interest of
stockholders, the opinion with respect to the foregoing matters to be
substantially as set forth in Schedule 8(e) hereto;
(vi) The Company has the corporate power and authority
to enter into this Agreement and to issue, sell and deliver to the Underwriters
the Shares to be issued and sold by it hereunder;
(vii) The Company has the corporate power and authority
to enter into the Underwriters' Warrant Agreement and to issue, sell and deliver
to the Representatives the Underwriters' Warrants to be issued and sold by it
thereunder;
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(viii) This Agreement and the Underwriters' Warrant
Agreement each has been duly authorized by all necessary corporate action on the
part of the Company. Such counsel has been advised that Jones, Day, Reavis &
Pogue, special counsel to the Company, has on this date delivered its opinion to
the Underwriters to the effect that each of this Agreement and the Underwriters'
Warrant Agreement has been duly executed and delivered by the Company and,
assuming due authorization, execution and delivery by the Representatives, is a
valid and binding agreement of the Company, enforceable in accordance with its
terms, except insofar as indemnification and contribution provisions may be
limited by applicable law and except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws relating to
or affecting creditors' rights generally or by general equitable principles, and
there is no provision under the laws of the State of Nevada that would, in and
of itself, cause this Agreement or the Underwriters' Warrant Agreement to be
invalid or unenforceable in accordance with its terms;
(ix) The statements in the Prospectus under
"DESCRIPTION OF CAPITAL STOCK" 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;
(x) The description in the Registration Statement and
the Prospectus of the charter and by-laws of the Company and of statutes are
correct in all material respects;
(xi) The performance of this Agreement and the
Underwriters' Warrant Agreement and the consummation of the transactions herein
and therein contemplated (other than performance of the Company's
indemnification and contribution obligations hereunder or under the
Underwriters' Warrant Agreement, concerning which no opinion need be expressed)
will not (a) result in any violation of the Company's articles of incorporation
or by-laws (as currently in effect) or (b) result in a breach or violation of
any applicable statute, rule or regulation known to such counsel or, to such
counsel's knowledge, any order, writ or decree of any court, government or
governmental agency or body having jurisdiction over the Company or over any of
its properties or operations;
(xii) No consent, approval, authorization or order of
or qualification with any court, governmental body or agency having jurisdiction
over the Company or over any of its properties or operations is required in
connection with the consummation by the Company of the transactions herein
contemplated, except such as have been obtained under the Act or such as may be
required under state or other securities or Blue Sky laws in connection with the
purchase and the distribution of the Shares by the Underwriters;
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(xiii) To such counsel's knowledge, the Company is not
presently (a) in material violation of its articles of incorporation or by-laws,
or (b) in material breach of any applicable statute, rule or regulation known to
such counsel or, to such counsel's knowledge, any order, writ or decree of any
court of the state of Nevada or governmental body or agency of the state of
Nevada;
(xiv) The Underwriters' Warrant Stock to be issued by
the Company as of the date hereof pursuant to the terms of the Underwriters'
Warrants have been duly authorized and, upon issuance and delivery against
payment therefor in accordance with the terms of the Underwriters' Warrant
Agreement, will be duly and validly issued and fully paid and nonassessable.
The Company shall also deliver an opinion of California counsel
reasonably satisfactory to the Underwriters as to the matters referred to in
clauses (i) and (ii) above with respect to all Subsidiaries other than Metro and
Alliance.
Counsel rendering the foregoing opinion may rely as to questions
of fact upon representations or certificates of officers of the Company, and of
government officials, in which case its opinion is to state that they are so
relying. Copies of any representation or certificate so relied upon shall be
delivered to the Lead Representative and to Underwriters' Counsel. In addition,
counsel rendering the foregoing opinion may state that its opinions are limited
to matters arising under the laws in effect in the State of Nevada.
(f) The Lead Representative shall have received on the Closing
Date and each Option Closing Date, as the case may be, a letter from Coopers &
Lybrand L.L.P. (the "Accounting Firm"), addressed to the Company and the
Underwriters, dated the Closing Date or such Option Closing Date, as the case
may be, confirming that they are independent certified public accountants with
respect to the Company and the Subsidiaries within the meaning of the Act and
the applicable published Rules and Regulations and based upon the procedures
described in such letter delivered to the Lead Representative concurrently with
the execution of this Agreement (herein called the "Original Letter"), but
carried out to a date not more than five (5) business days prior to the Closing
Date or such Option Closing Date, as the case may be:
(i) stating that it is their opinion that the consolidated
financial statements and supporting schedules of the Company and the
Subsidiaries 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;
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(ii) stating that, on the basis of a limited review which
included a reading of the latest available unaudited interim
consolidated financial statements of the Company and the Subsidiaries
(with an indication of the date of the latest available unaudited
interim financial statements), a reading of the latest available minutes
of the stockholders and board of directors and the various committees of
the boards of directors of the Company and the Subsidiaries,
consultations with officers and other employees of the Company and the
Subsidiaries 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 and the Subsidiaries
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 consolidated financial
statements of the Company and the Subsidiaries 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 and the Subsidiaries, as compared with amounts shown in the
September 30, 1996 balance sheet, in the case of the Company and the
Subsidiaries 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 July 1, 1996 in the case of the
Company and the Subsidiaries other than Metro, and January 1, 1996 in
the case of Metro, to the latest unaudited interim financial statements
available prior to the effective date of the Registration Statement,
there was any decrease in net earnings or decrease in net earnings per
common share of the Company and the Subsidiaries, in each case as
compared with the corresponding period in the preceding year, other than
as set forth in or contemplated by the Registration Statement, or, if
there was any such decrease, setting forth the amount of such decrease;
(iii) stating that they have compared specific dollar
amounts, numbers of shares, percentages of revenues and earnings,
statements and other financial or statistical information pertaining to
the Company and the Subsidiaries 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 the Subsidiaries and excluding
any questions requiring an interpretation by legal counsel, with the
results obtained from the application of specified read-
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ings, 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; and
(iv) statements as to such other matters incident to the
transaction contemplated hereby as the Lead Underwriter may request,
including without limitation with respect to the pro forma financial
information pertaining to the Company and the Subsidiaries set forth in
the Prospectus.
In addition, the Lead Representative shall have received from the Accounting
Firm a letter addressed to the Company and made available to the Lead
Representative for the use of the Underwriters stating that its review of the
Company's system of internal accounting controls, to the extent they deemed
necessary in establishing the scope of its examination of the Company's
financial statements as of June 30, 1996 did not disclose any weaknesses in
internal controls that they considered to be material weaknesses.
(g) The Lead Representative shall have received on the Closing
Date and on any Option Closing Date, as the case may be, a certificate of the
Company, dated the Closing Date or such Option Closing Date, as the case may be,
signed by the President and Chief Financial Officer of the Company, to the
effect that, and the Lead Representative shall be satisfied that:
(i) The representations and warranties of the Company
in this Agreement are true and correct, as if made on and as of the Closing Date
or any Option Closing Date, as the case may be, and the Company has complied
with all the agreements and satisfied all the conditions on its part to be
performed or satisfied at or prior to the Closing Date or any Option Closing
Date, as the case may be;
(ii) No stop order 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 Company's knowledge, threatened under
the Act;
(iii) When the Registration Statement became effective
and at all times subsequent thereto up to the delivery of such certificate, the
Registration Statement and the Prospectus, and any amendments or supplements
thereto, contained all material information required to be included therein by
the Act and the Rules and Regulations or the Exchange Act and the applicable
rules and regulations of the Commission thereunder, as the case may be, and in
all material respects conformed to the requirements of the Act and the Rules and
Regulations or the Exchange Act and the applicable rules and regulations of the
Commission thereunder, as the case may be, the Registration Statement, and any
amendment or supplement thereto, did not and does not include any untrue state-
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ment of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, the
Prospectus, and any amendment or supplement thereto, did not and does not
include any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, and, since the effective date of the
Registration Statement, there has occurred no event required to be set forth in
an amended or supplemented Prospectus which has not been so set forth; and
(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus, there has not
been (a) any material adverse change in the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company, (b) any
transaction that is material to the Company, except transactions entered into in
the ordinary course of business, (c) any obligation, direct or contingent, that
is material to the Company, incurred by the Company, except obligations incurred
in the ordinary course of business, (d) any change in the capital stock or
outstanding indebtedness of the Company that is material to the Company, (e) any
dividend or distribution of any kind declared, paid or made on the capital stock
of the Company, or (f) any loss or damage (whether or not insured) to the
property of the Company which has been sustained or will have been sustained
which has a material adverse effect on the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company.
(h) The Company shall have furnished to the Lead Representative
such further certificates and documents as the Lead Representative shall
reasonably request (including certificates of officers of the Company as to the
accuracy of the representations and warranties of the Company, as to the
performance by the Company of its obligations hereunder and as to the other
conditions concurrent and precedent to the obligations of the Underwriters
hereunder).
(i) On or before the Closing Date, the Company shall have
executed and delivered to the Lead Representative, (i) the Underwriters' Warrant
Agreement substantially in the form filed as Exhibit 1.2 to the Registration
Statement in final form and substance satisfactory to the Lead Representative,
and (ii) the Underwriters' Warrants in such denominations and to such designees
as shall have been sold by the Company to the Underwriters pursuant thereto.
(j) The Company and each officer and director of the Company and
the holders of up to 10,229,855 shares of Common Stock referred to in the
Prospectus under "Registration Rights and Certain Lock-up Arrangements" shall
have executed and delivered the Lock-up Agreements. The Company will have
provided to Underwrit-
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ers' Counsel true, accurate and complete copies of all of the Lock-up Agreements
presently in effect. The Company hereby represents and warrants that it will not
release any of its officers, directors or other stockholders from any Lock-up
Agreements currently existing or hereafter effected without the prior written
consent of the Lead Representative.
All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
to Underwriters' Counsel. The Company will furnish the Lead Representative with
such number of conformed copies of such opinions, certificates, letters and
documents as the Lead Representative shall reasonably request.
(k) The Lead Representative shall have received on the Closing
Date and on any Option Closing Date, as the case may be, an opinion of the
Underwriters' Counsel in form and substance satisfactory to the Lead
Representative, with respect to the sufficiency of all such corporate
proceedings and other legal matters relating to this Agreement and the
transactions contemplated hereby as the Lead Representative may reasonably
require, and the Company shall have furnished to such counsel such documents as
they may have requested for the purpose of enabling them to pass upon such
matters.
10. Option Shares.
(a) On the basis of the representations, warranties and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company, certain of the Selling Stockholders and the Over-Allotment
Selling Stockholders, all as identified on Schedule C, hereby grant to the
several Underwriters, for the purpose of covering over-allotments in connection
with the distribution and sale of the Firm Shares only, nontransferable options
to purchase up to an aggregate of 315,000 Option Shares at the purchase price
per share for the Firm Shares set forth in Section 5 hereof. Such options may be
exercised by the Representatives on behalf of the several Underwriters on one
(1) or more occasions in whole or in part during the period of forty-five (45)
days after the date on which the Firm Shares are initially offered to the
public, by giving written notice to the Company, such Selling Stockholders and
Over-Allotment Selling Stockholders, as the case may be. The number of Option
Shares to be purchased by each Underwriter upon the exercise of such option
shall be the same proportion of the total number of Option Shares to be
purchased by the several Underwriters pursuant to the exercise of such option as
the number of Firm Shares purchased by such Underwriter (set forth in Schedule A
hereto) bears to the total number of Firm Shares purchased by the several
Underwriters (set forth in Schedule A hereto), adjusted by the Lead
Representative in such manner as to avoid fractional shares. The Company has
agreed with certain of the Selling Stockholders and the Over-Allotment Selling
Stockhold-
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ers and the Underwriters hereby agree that the first 124,173 shares as to which
the Underwriters' over-allotment options are exercised will be sold by such
Selling Stockholders and Over-Allotment Selling Stockholders on a pro rata basis
based on the relative amounts subject to sale by such persons as set forth under
"Principal and Selling Stockholders," and any of the remaining 190,827 shares as
to which the Underwriters' over-allotment options are exercised will be sold by
the Company.
(b) Upon exercise of any option provided for in Section 10(a)
hereof, the obligations of the several Underwriters to purchase such Option
Shares will be subject (as of the date hereof and as of the date of payment and
delivery for such Option Shares) to the accuracy of and compliance with the
representations, warranties and agreements of the Company herein, to the
accuracy of the statements of the Company and officers of the Company made
pursuant to the provisions hereof, to the performance by the Company of its
obligations hereunder, and to the condition that all proceedings taken at or
prior to the payment date in connection with the sale and transfer of such
Option Shares shall be satisfactory in form and substance to the Lead
Representative and to Underwriters' Counsel, and the Lead Representative shall
have been furnished with all such documents, certificates and opinions as the
Lead Representative may request in order to evidence the accuracy and
completeness of any of the representations, warranties or statements, the
performance of any of the covenants or agreements of the Company or the
compliance with any of the conditions herein contained.
11. Indemnification and Contribution.
(a) (i) The Company agrees to indemnify and hold harmless each
Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject under the Act, the
Exchange Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon (i)
any breach of any representation, warranty, agreement or covenant of the Company
herein contained, (ii) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement or any amendment or
supplement thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or (iii) any untrue statement or alleged untrue
statement of any material fact contained in any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, and agrees to reimburse each
Underwriter for any legal or other expenses reasonably incurred by it in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company shall not be liable in
any such
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case to the extent that any such loss, claim, damage, liability or action arises
solely out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in the Registration Statement, such
Preliminary Prospectus or the Prospectus, or any such amendment or supplement
thereto, in reliance upon, and in conformity with, written information furnished
to the Company by any Underwriter, directly or through either Representative,
any Selling Stockholder or any Over-Allotment Selling Stockholder specifically
for use in the preparation thereof and, provided further, that the indemnity
agreement provided in this Section 11(a) (i) with respect to any Preliminary
Prospectus shall not inure to the benefit of any Underwriter from whom the
person asserting any losses, claims, damages, liabilities or actions based upon
any untrue statement or alleged untrue statement of material fact or omission or
alleged omission to state therein a material fact purchased Shares, if a copy of
the Prospectus in which such untrue statement or alleged untrue statement or
omission or alleged omission was corrected had not been sent or given to such
person within the time required by the Act and the Rules and Regulations, unless
such failure is the result of noncompliance by the Company with Section 7(d)
hereof.
(ii) The Selling Stockholders and Over-Allotment Selling
Stockholders, severally and not jointly, agree to indemnify and hold harmless
each Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject under the Act, the
Exchange Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon (i)
any breach of any representation, warranty, agreement or covenant of such
Selling Stockholder or Over-Allotment Selling Stockholder herein contained, (ii)
any untrue statement or alleged untrue statement of any material fact contained
in the Registration Statement or any amendment or supplement thereto, or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
(iii) any untrue statement or alleged untrue statement of any material fact
contained in any Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, and agrees to reimburse each Underwriter for any legal or other
expenses reasonably incurred by it in connection with investigating or defending
any such loss, claim, damage, liability or action; provided, however, that no
Selling Stockholder or Over-Allotment Selling Stockholder shall be liable in any
such case to the extent that any such loss, claim, damage, liability or action
arises solely out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in the Registration Statement,
such Preliminary Prospectus or the Prospectus, or any such amendment or
supplement thereto, in reliance upon, and
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in conformity with, written information furnished by the Company or any
Underwriter, directly or through either Representative, any other Selling
Stockholder or any other Over-Allotment Selling Stockholder specifically for use
in the preparation thereof and, provided further, that the indemnity agreement
provided in this Section 11(a) (ii) with respect to any Preliminary Prospectus
shall not inure to the benefit of any Underwriter from whom the person asserting
any losses, claims, damages, liabilities or actions based upon any untrue
statement or alleged untrue statement of material fact or omission or alleged
omission to state therein a material fact purchased Shares, if a copy of the
Prospectus in which such untrue statement or alleged untrue statement or
omission or alleged omission was corrected had not been sent or given to such
person within the time required by the Act and the Rules and Regulations, unless
such failure is the result of noncompliance by the Company with Section 7(d)
hereof.
The indemnity agreement in this Section 11(a) shall extend upon
the same terms and conditions to, and shall inure to the benefit of, each
person, if any, who controls any Underwriter within the meaning of the Act or
the Exchange Act. This indemnity agreement shall be in addition to any
liabilities which the Company may otherwise have.
(b) Each Underwriter, severally and not jointly, agrees to
indemnify and hold harmless the Company, each other Underwriter, each Selling
Stockholder and each Over-Allotment Selling Stockholder against any losses,
claims, damages or liabilities, joint or several, to which the Company, such
Selling Stockholder, Over-Allotment Selling Stockholder and other Underwriter
may become subject under the Act or otherwise, specifically including, but not
limited to, losses, claims, damages or liabilities, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon (i) any breach of any representation, warranty, agreement or
covenant of such Underwriter herein contained, (ii) any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement or any amendment or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or (iii) any untrue
statement or alleged untrue statement of any material fact contained in any
Preliminary Prospectus or the Prospectus or any amendment or supplement thereto,
or the omission or alleged omission to state therein a material fact necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading, in the case of subparagraphs (ii) and (iii) of
this Section 11(b) to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in reliance upon and in conformity with written information furnished to the
Company by such Underwriter, directly or through either Representative,
specifically for use in the preparation thereof, and
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<PAGE>
<PAGE>
agrees to reimburse the Company, each Selling Stockholder, Over-Allotment
Selling Stockholder and other Underwriter for any legal or other expenses
reasonably incurred by such party in connection with investigating or defending
any such loss, claim, damage, liability or action; provided, however, that the
obligation of each Underwriter to indemnify the Company, each Selling
Stockholder, Over-Allotment Selling Stockholder and other Underwriter shall be
limited to the total price at which the Shares purchased by such Underwriter
hereunder were offered to the public. The Company, each Selling Stockholder,
Over-Allotment Selling Stockholder and other Underwriter acknowledges that the
statements with respect to the public offering of the Shares set forth under the
heading "Underwriting," the information set forth in the Risk Factors entitled
"Lack of Underwriting History" and the stabilization legend in the Prospectus
have been furnished by the Representatives expressly for use therein and
constitute the only information furnished in writing by or on behalf of the
Underwriters for inclusion in the Prospectus.
The indemnity agreement in this Section 11(b) shall extend upon
the same terms and conditions to, and shall inure to the benefit of, each
officer of the Company who signed the Registration Statement and each director
of the Company and each person, if any, who controls the Company, any Selling
Stockholder or any Over-Allotment Selling Stockholder within the meaning of the
Act or the Exchange Act. This indemnity agreement shall be in addition to any
liabilities which each Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section 11 of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against any indemnifying
party under this Section 11, notify the indemnifying party in writing of the
commencement thereof but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to any indemnified party
otherwise than under this Section 11. In case any such action is brought against
any indemnified party, and it notified the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it shall 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; provided, however, that if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to the
indemnifying party, the indemnified party or parties shall have the right to
select separate counsel to assume such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified party or
parties. Upon receipt of notice from the indemnifying party to
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<PAGE>
<PAGE>
such indemnified party of the indemnifying party's election so to assume the
defense of such action and approval by the indemnified party of counsel, the
indemnifying party will not be liable to such indemnified party under this
Section 11 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the next preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel (together with appropriate local counsel) approved by the
indemnifying party representing all the indemnified parties under Section 11(a)
or 11(b) hereof who are parties to such action), (ii) the indemnifying party
shall not have employed counsel reasonably satisfactory to the indemnified party
to represent the indemnified party within a reasonable time after notice of
commencement of the action or (iii) the indemnifying party has given prior
written authorization for the employment of counsel for the indemnified party at
the expense of the indemnifying party. In no event shall any indemnifying party
be liable in respect of any amounts paid in settlement of any action unless the
indemnifying party shall have approved the terms of such settlement; provided
that such consent shall not be unreasonably withheld. No indemnifying party
shall, without the prior written consent of the indemnified party, effect any
settlement of any-pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnification could have
been sought hereunder by such indemnified party, unless such settlement includes
an unconditional release of such indemnified party from all liability on claims
that are the subject matter of such proceeding.
(d) If the indemnification provided for in this Section 11 is
unavailable or insufficient to hold harmless an indemnified party under
subsection (a), (b) or (c) above, then each indemnifying party shall contribute
to the amount paid or payable by such indemnified party as a result of the
losses, claims, damages or liabilities referred to in subsection (a), (b) or (c)
above (i) in such proportion as is appropriate to reflect the relative benefits
received by the Company, the Selling Stockholders, the Over-Allotment Selling
Stockholders and the Underwriters from the offering of the Shares or (ii) if the
allocation provided by clause (i) 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 the Company, the
Selling Stockholders, the Over-Allotment Selling Stockholders and the
Underwriters in connection with the statements or omissions that resulted in
such losses, claims, damages or liabilities, as well as any other relevant
equitable considerations. The relative benefits received by the Company, the
Selling Stockholders, the Over-Allotment Selling Stockholders and the
Underwriters shall be deemed to be in the same proportion as the total net
proceeds from the offering of the Shares (before deducting expenses) received by
the Company bear to the total underwriting discounts and commis-
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<PAGE>
<PAGE>
sions received by the Underwriters, in each case as set forth in the table on
the cover page of the final 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 the Underwriters and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission. The Company and the
Underwriters agree that it would not be just and equitable if contributions
pursuant to this subsection (d) were to be determined by pro rata allocation
(even if the Underwriters were treated as one entity for such purpose) or by any
other method of allocation which does not take into account the equitable
considerations referred to in the first sentence of this subsection (d). The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities referred to in the first sentence of this
subsection (d) shall be deemed to include any and all costs and expenses,
including reasonable attorneys' fees, incurred by such indemnified party in
connection with investigating or defending against any action or claim which is
the subject of this subsection (d). Notwithstanding the provisions of this
subsection (d), no Underwriter shall be required to contribute any amount in
excess of the amount by which the total price at which the Shares underwritten
by it and distributed to the public were offered to the public exceeds the
amount of any damages that such Underwriter has otherwise been required to pay
by reason of such untrue or alleged untrue statement or omission or alleged
omission. 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. The Underwriters'
obligations in this subsection (d) to contribute are several in proportion to
their respective underwriting obligations and not joint. Each party entitled to
contribution agrees that upon the service of a summons or other initial legal
process upon it in any action instituted against it in respect of which
contribution may be sought, it shall promptly give written notice of such
service to the party or parties from whom contribution may be sought, but the
omission so to notify such party or parties of any such service shall not
relieve the party from whom contribution may be sought from any obligation it
may have hereunder or otherwise.
(e) The parties to this Agreement hereby acknowledge that they
are sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions hereof including, without limitation, the
provisions of this Section 11, and are fully informed regarding said provisions.
They further acknowledge that the provisions of this Section 11 fairly allocate
the risks in light of the ability of the parties to investigate the Company and
its business in order to assure that adequate disclosure is made in the
Registration Statement and Prospectus as required by the Act and the Exchange
Act. The parties are advised
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<PAGE>
<PAGE>
that federal or state public policy, as interpreted by the courts in certain
jurisdictions, may be contrary to certain of the provisions of this Section 11,
and the parties hereto hereby expressly waive and relinquish any right or
ability to assert such public policy as a defense to a claim under this Section
11 and further agree not to attempt to assert any such defense.
12. Representations, Warranties, Covenants and Agreements to
Survive Delivery. All representations, warranties, covenants and agreements of
the Company and the Underwriters herein or in certificates delivered pursuant
hereto, and the indemnity and contribution agreements contained in Section 11
hereof shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any Underwriter or any controlling person
within the meaning of the Act or the Exchange Act, or by or on behalf of the
Company or any of its officers, directors or controlling persons within the
meaning of the Act or the Exchange Act, and shall survive the delivery of the
Shares to the several Underwriters hereunder or termination of this Agreement.
13. Substitution of Underwriters and Substitution for Defaulting
Selling Stockholders or Over-Allotment Selling Stockholders.
(a) (i) If any Underwriter or Underwriters shall fail to take up
and pay for the number of Firm Shares agreed by such Underwriter or Underwriters
to be purchased hereunder upon tender of such Firm Shares in accordance with the
terms hereof, and if the aggregate number of Firm Shares which such defaulting
Underwriter or Underwriters so agreed but failed to purchase does not exceed 10%
of the Firm Shares, the remaining Underwriters shall be obligated, severally in
proportion to their respective commitments hereunder, to take up and pay for the
Firm Shares of such defaulting Underwriter or Underwriters.
(ii) If any Underwriter or Underwriters so defaults and the
aggregate number of Firm Shares which such defaulting Underwriter or
Underwriters agreed but failed to take up and pay for exceeds 10% of the Firm
Shares, the remaining Underwriters shall have the right, but shall not be
obligated, to take up and pay for (in such proportions as may be agreed upon
among them) the Firm Shares which the defaulting Underwriter or Underwriters so
agreed but failed to purchase. If such remaining Underwriters do not, at the
Closing Date, take up and pay for the Firm Shares which the defaulting
Underwriter or Underwriters so agreed but failed to purchase, the Closing Date
shall be postponed for twenty-four (24) hours to allow the several Underwriters
the privilege of substituting within twenty-four (24) hours (including
non-business hours) another underwriter or underwriters (which may include any
nondefaulting Underwriter) satisfactory to the Company. If no such underwriter
or underwriters shall have been substituted as aforesaid by such postponed
Closing Date, the Closing Date may, at the
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<PAGE>
<PAGE>
option of the Company, be postponed for a further twenty-four (24) hours, if
necessary, to allow the Company the privilege of finding another underwriter or
underwriters, satisfactory to the Lead Representative, to purchase the Firm
Shares which the defaulting Underwriter or Underwriters so agreed but failed to
purchase. If it shall be arranged for the remaining Underwriters or substituted
underwriter or underwriters to take up the Firm Shares of the defaulting
Underwriter or Underwriters as provided in this Section 13(a), (i) the Company
shall have the right to postpone the time of delivery for a period of not more
than seven (7) full business days, in order to effect whatever changes may
thereby be made necessary in the Registration Statement or the Prospectus, or in
any other documents or arrangements, and the Company agrees promptly to file any
amendments to the Registration Statement or supplements to the Prospectus which
may thereby be made necessary, and (ii) the respective number of Firm Shares to
be purchased by the remaining Underwriters and substituted underwriter or
underwriters shall be taken as the basis of their underwriting obligation. If
the remaining Underwriters shall not take up and pay for all such Firm Shares so
agreed to be purchased by the defaulting Underwriter or Underwriters or
substitute another underwriter or underwriters as aforesaid and the Company
shall not find or shall not elect to seek another underwriter or underwriters
for such Firm Shares as aforesaid, then this Agreement shall terminate.
(iii) In the event of any termination of this Agreement pursuant
to the preceding paragraph of this Section 13(a), the Company shall not be
liable to any Underwriter (except as provided in Sections 8 and 11 hereof) nor
shall any Underwriter (other than an Underwriter who shall have failed,
otherwise than for some reason permitted under this Agreement, to purchase the
number of Firm Shares agreed by such Underwriter to be purchased hereunder,
which Underwriter shall remain liable to the Company and the other Underwriters
for damages, if any, resulting from such default) be liable to the Company
(except to the extent provided in Sections 8 and 11 hereof).
The term "Underwriter" in this Agreement shall include any person
substituted for an Underwriter under this Section 13(a). Nothing herein will
relieve a defaulting Underwriter from liability for its default.
(b) If one or more of the Selling Stockholders or Over-Allotment
Selling Stockholders (each a "Defaulting Selling Stockholder") shall fail to
sell and deliver to the Underwriters the Shares to be sold and delivered by such
Defaulting Selling Stockholder, then the Company shall have the right, upon
written notice to the Lead Representative, to substitute for such Defaulting
Selling Stockholder's shares, such number of additional newly issued shares of
Common Stock as shall equal the aggregate number of shares as which such
Defaulting Selling Stockholder has failed to deliver. If one or more Defaulting
Selling Stockholder(s) shall
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<PAGE>
<PAGE>
fail to sell and deliver to the Underwriters the Shares to be sold and delivered
by them, the Closing Date shall be postponed for twenty-four (24) hours to allow
the Company the privilege of substituting within such twenty-four (24) hours
(including non-business hours) newly issued shares for the Shares of such
Defaulting Selling Stockholder. If it shall be arranged for the Company to issue
new shares to substitute for such Defaulting Selling Stockholder(s)' shares as
provided in this Section 13(b), the Company shall take any and all action as is
required, including the filing of one or more amendments, to effect whatever
changes may thereby be made necessary in the Registration Statement or the
Prospectus, or in any other documents or arrangements, and the Company agrees
promptly to file any amendments to the Registration Statement or supplements to
the Prospectus which may thereby be required.
14. Effective Date.
(a) 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 Lead
Representative, in its discretion, shall release the Shares for the sale to the
public; provided, however, that the provisions of Sections 8, 11 and 15 of this
Agreement shall at all times be effective. For purposes of this Section 14, the
Shares to be purchased hereunder shall be deemed to have been so released upon
the earlier of dispatch by the Lead Representative of telegrams to securities
dealers releasing such shares for offering or the release by the Lead
Representative for publication of the first newspaper advertisement which is
subsequently published relating to the Shares. By giving notice as set forth in
Section 16 before the time of this Agreement becomes effective, the Lead
Representative, or the Company, may prevent this Agreement from becoming
effective without liability of any party to any other party, except as provided
in Sections 7(j), 8 and 11 hereof.
15. Termination. The Lead Representative shall have the right to
terminate this Agreement by giving notice as hereinafter specified at any time
at or prior to the Closing Date or on or prior to each Option Closing Date, as
the case may be, (i) if the Company shall have failed, refused or been unable to
perform any agreement on its part to be performed, or because any other
condition of the Underwriters' obligations hereunder required to be fulfilled is
not fulfilled, including, without limitation, any change in the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company from that set forth in the Registration Statement or Prospectus,
which, in your sole judgment, is material and adverse, or (ii) if additional
material governmental restrictions, not in force and effect on the date hereof,
shall have been imposed upon trading in securities generally which in the sole
judgment of the Lead Representative make it impractical or impossible to proceed
with the Offering or mini-
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<PAGE>
<PAGE>
mum or maximum prices shall have been generally established on the New York
Stock Exchange or on the American Stock Exchange or in the over the counter
market by the NASD, or trading in securities generally shall have been suspended
on either such exchange or in the over the counter market by the NASD, or if a
banking moratorium shall have been declared by federal, New York or California
authorities, or (iii) if the Company shall have sustained a loss by strike,
fire, flood, earthquake, accident or other calamity of such character as to
interfere materially with the conduct of the business and operations of the
Company regardless of whether or not such loss shall have been insured, or (iv)
if there shall have been a material adverse change in the general political or
economic conditions or financial markets as in your reasonable judgment makes it
inadvisable or impracticable to proceed with the offering, sale and delivery of
the Shares, or (v) if any other event shall have occurred which, in the
reasonable opinion of the Lead Representative, makes it impracticable or
inadvisable to proceed with the public offering of the Shares as contemplated by
the Prospectus. In the event of termination pursuant to subparagraphs (i)
through (v) above, the Company shall also remain obligated to pay costs and
expenses pursuant to Sections 7(j), 8 and 11 hereof.
16. Default by the Company. If the Company shall fail at the Closing
Date or any Option Closing Date, as applicable, to sell and deliver the number
of Shares 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 Shares to be purchased on an Option Closing Date, the Lead Representative
may at the Lead Representative's option, by notice from the Lead Representative
to the Company, terminate the Underwriters' obligation to purchase Option Shares
from the Company on such date) without any liability on the part of any
non-defaulting party other than pursuant to Section 8, Section 11 and Section 15
hereof. No action taken pursuant to this Section 16 shall relieve the Company
from liability, if any, in respect of such default.
17. Notices. All notices or communications hereunder, except as
herein otherwise specifically provided, shall be in writing and if sent to the
Lead Representative shall be mailed, delivered, telegraphed (and confirmed by
letter) or telecopied (and confirmed by letter) to: c/o Cruttenden Roth
Incorporated, 18301 Von Karman, Suite 100, Irvine, California 92715, telecopier
number (714) 852-9603, Attention: Corporate Finance Department, with a copy to
LT Lawrence & Co., Inc., 3 New York Plaza, New York, New York 10004, Attention:
Joel L. Gold, Executive Vice President, with a copy to the Underwriters' Counsel
at Rubin Baum Levin Constant & Friedman, 30 Rockefeller Plaza, New York, New
York 10112, Attention: Irwin M. Rosenthal, Esq. Notices to the Company shall be
directed to the Company at 400 Corporate Pointe, Suite 780, Culver City,
California 90230, Attention: Barry Peters, Chairman of the Board and Chief
Executive Officer, with a copy to Jones, Day,
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<PAGE>
Reavis & Pogue, 599 Lexington Avenue, New York, New York, 10022, Attention:
Robert A. Zuccaro, Esq.
18. Parties. This Agreement shall inure to the benefit of and be
binding upon the several Underwriters and the Company and their respective
executors, administrators, successors and assigns. Nothing expressed or
mentioned in this Agreement is intended or shall be construed to give any person
or corporation, other than the parties hereto and their respective executors,
administrators, successors and assigns, and the controlling persons within the
meaning of the Act or the Exchange Act, officers and directors referred to in
Section 11 hereof, any legal or equitable right, remedy or claim in respect of
this Agreement or any provisions herein contained, this Agreement and all
conditions and provisions hereof being intended to be and being for the sole and
exclusive benefit of the parties hereto and their respective executors,
administrators, successors and assigns and said controlling persons and said
officers and directors, and for the benefit of no other person or corporation.
No purchaser of any of the Shares from any Underwriter shall be construed a
successor or assign by reason merely of such purchase.
In all dealings with the Company under this Agreement, the Lead
Representative shall act on behalf of each of the several Underwriters, and the
Company shall be entitled to act and rely upon any statement, request, notice or
agreement made or given by the Lead Representative.
19. Applicable 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 choice of law or conflict of law principles.
20. Entire Agreement; Amendments. This Agreement and the
Underwriters' 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 Representatives and the Company.
In this Agreement, the masculine, feminine and neuter genders and
the singular and the plural include one another. The section headings in this
Agreement are for the convenience of the parties only and will not affect the
construction or interpretation of this Agreement.
21. Counterparts. This Agreement may be signed in several
counterparts, each of which will constitute an original.
If the foregoing correctly sets forth the understanding among the
Company and the several Underwriters, please so indicate in the space provided
below for that purpose, whereupon this letter
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<PAGE>
shall constitute a binding agreement among the Company and the several
Underwriters.
Very truly yours,
ALL-COMM MEDIA CORPORATION
By:
______________________________________
Barry Peters
Chairman of the Board and
Chief Executive Officer
[Selling Stockholder Signatures]
________________________________
________________________________
________________________________
[Over-Allotment Selling Stockhold-
ers]
________________________________
________________________________
________________________________
Accepted as of the date first above written:
CRUTTENDEN ROTH INCORPORATED
On its behalf and on behalf of each of the several Underwriters named in
Schedule A hereto.
By: CRUTTENDEN ROTH INCORPORATED
By:
____________________________
Authorized Signatory
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<PAGE>
LT LAWRENCE & CO., INC.
On its behalf and on behalf of each
of the several Underwriters named in
Schedule A hereto.
By: LT LAWRENCE & CO., INC.
By:
____________________________
Authorized Signatory
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<PAGE>
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Number of Firm Shares
to Be Purchased
---------------
Underwriters
- -------------
<S> <C>
Cruttenden Roth Incorporated............................
LT Lawrence & Co., Inc.
Total .................................................. 2,100,000
</TABLE>
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<PAGE>
<PAGE>
SCHEDULE B
<TABLE>
<CAPTION>
Number of Firm Shares
to Be Sold
----------
Selling Stockholders
- --------------------
<S> <C>
Total ...................................................... 350,000
</TABLE>
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<PAGE>
<PAGE>
SCHEDULE C
<TABLE>
<CAPTION>
Number of Option Shares
to Be Sold
----------
Over-Allotment Selling Stockholders
- -----------------------------------
<S> <C>
Total ........................................................ 315,000
</TABLE>
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<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
ALL-COMM MEDIA CORPORATION
AND
CRUTTENDEN ROTH INCORPORATED
AND
LT LAWRENCE & CO., INC.
UNDERWRITERS'
WARRANT AGREEMENT
Dated as of January __, 1997
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
UNDERWRITERS' WARRANT AGREEMENT dated as of January __, 1997 among
ALL-COMM MEDIA CORPORATION, a Nevada corporation (the "Company"), CRUTTENDEN
ROTH INCORPORATED (the "Lead Representative") and LT LAWRENCE & CO., INC. (the
"Other Representative" and collectively with the Lead Representative referred to
as the "Representatives").
W I T N E S S E T H:
WHEREAS, the Company proposes to issue to the Representatives warrants
to purchase up to an aggregate of 210,000 shares of Common Stock (as hereinafter
defined); and
WHEREAS, the Representatives have agreed, pursuant to the underwriting
agreement (the "Underwriting Agreement") dated as of the date hereof among the
Representatives, the other underwriters set forth on Schedule A attached thereto
(the "Underwriters") and the Company, to act as the representatives of the
Underwriters in connection with the proposed public offering of up to 2,100,000
shares of Common Stock at a public offering price of $_.__ per share of Common
Stock (the "Public Offering"), of which 1,750,000 shares are to be sold by the
Company and 350,000 shares are to be sold by the Selling Stockholders (as such
term is defined in the Underwriting Agreement); and
WHEREAS, the Warrants to be issued pursuant to this Agreement will be
issued on the Closing Date (as such term is defined in the Underwriting
Agreement) by the Company to the Representatives in consideration for, and as
part of the Representatives'
<PAGE>
<PAGE>
compensation in connection with, the Representatives' acting in such capacity
pursuant to the Underwriting Agreement.
NOW, THEREFORE, in consideration of the premises, the payment by the
Representatives to the Company of an aggregate of one mill ($.001) per warrant,
the agreements herein set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Certain Definitions. As used in this Warrant, unless the context
otherwise requires:
"Additional Shares of Nonpreferred Stock" shall mean all shares of
Nonpreferred Stock issued by the Company after the date of original issuance of
the Warrants, other than the Warrant Stock.
"Affiliate" means a Person (1) that directly or indirectly controls, is
controlled by or is under common control with, the Company, (2) that
beneficially owns ten percent (10%) or more of the Voting Stock of the Company,
or (3) ten percent (10%) or more of the Voting Stock (or in the case of a Person
which is not a corporation, ten percent (10%) or more of the equity interests)
of which is owned by the Company. The term "control" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting
securities, by contract or otherwise.
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<PAGE>
"Appraised Value" shall mean the fair market value of all outstanding
shares of Common Stock (on a fully diluted basis including any fractional shares
and assuming the exercise in full of all then-outstanding Warrants and all other
options, warrants or other rights to purchase shares of Common Stock that are
then currently exercisable at exercise prices less than the Current Market
Price), as determined by a written appraisal prepared by an appraiser acceptable
to the Company and the holders of Warrants evidencing a majority in number of
the total number of Stock Units at the time purchasable upon the exercise of all
then outstanding Warrants. "Fair market value" is defined for this purpose as
the price in a single transaction determined on a going-concern basis that would
be agreed upon by the most likely hypothetical buyer for a 100% controlling
interest in the equity capital of the Company (on a fully diluted basis
including any fractional shares and assuming the exercise in full of all then
outstanding Warrants and all other options, warrants or other rights to purchase
shares of Common Stock that are then currently exercisable at exercise prices
less than the Current Market Price), with consideration given to the effect of a
noncompete covenant signed by the seller and employment agreements signed by key
management personnel of the Company (and of its subsidiaries), each extending
for a period of time considered sufficient by all parties to effect the transfer
of goodwill from the seller to the buyer and disregarding any discounts for
nonmarketability of Common Stock of the Company. In the event that the Company
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<PAGE>
<PAGE>
and said holders cannot, in good faith, agree upon an appraiser, then the
Company, on the one hand, and said holders, on the other hand, shall each select
an appraiser, the two appraisers so selected shall select a third appraiser, and
such third appraiser shall be directed to prepare such a written appraisal (the
"Appraisal") and the term Appraised Value shall mean the appraised value set
forth in the Appraisal prepared in accordance with this definition. Except as
otherwise set forth herein, the entire cost of the appraisal process shall be
borne by the Company, but the cost thereof shall be deemed an account payable of
the Company and shall be considered in the determination of the Appraised Value.
"Board of Directors" shall mean either the board of directors of the
Company or any duly authorized committee of that board.
"Business Day" shall mean any day other than a Saturday, Sunday or a day
on which banks in the State of California or New York are required or permitted
to close.
"Certificate of Incorporation" shall mean the articles of incorporation
of the Company, as in effect on the date of issuance of the Warrants and as at
any time amended or otherwise modified.
"Commission" shall mean the Securities and Exchange Commission and any
other similar or successor agency of the federal government administering the
Securities Act and the Exchange Act.
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"Common Stock" shall mean the Company's authorized Common Stock, par
value $.01 per share, irrespective of class unless otherwise specified, as
constituted on the date of original issuance of the Warrants, and any stock into
which such Common Stock may thereafter be changed or exchanged, and shall also
include stock of the Company of any other class, which is not preferred as to
dividends or assets over any other class of stock of the Company issued to the
holders of shares of Common Stock upon any reclassification thereof.
"Company" shall mean All-Comm Media Corporation, a Nevada corporation.
"Convertible Securities" shall mean evidences of indebtedness, shares of
stock or other securities which are convertible into or exchangeable for
Additional Shares of Nonpreferred Stock, either immediately or upon the arrival
of a specified date or the happening of a specified event.
"Current Market Price" per share of Common Stock for the purposes of any
provision of this Agreement or the Warrants at the date herein or therein
specified, shall be deemed to be the price determined pursuant to the first
applicable of the following methods:
(i) If the Common Stock is traded on a national securities
exchange or is traded in the over-the-counter market, the Current Market Price
per share of Common Stock shall be deemed to be the average of the daily market
prices for twenty (20) consecutive Business Days commencing twenty (20) Business
Days before
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such date. The market price for each such Business Day shall be, if the Common
Stock is traded on a national securities exchange or in the over-the-counter
market, its closing bid quotation on the next preceding Business Day on the
principal market for the Common Stock.
(ii) If the Current Market Price per share of Common Stock cannot
be ascertained by the method set forth in paragraph (i) immediately above, the
Current Market Price per share of Common Stock shall be deemed to be the price
equal to the quotient determined by dividing the Appraised Value by the number
of outstanding shares of Common Stock (on a fully diluted basis including any
fractional shares and assuming the exercise in full of all then-outstanding
Warrants and all other options, warrants or other rights to purchase shares of
Common Stock that are then currently exercisable at exercise prices equal to or
less than the Current Market Price).
"Current Warrant Price" per share of Common Stock, for the purpose of
any provision of this Agreement or the Warrants at the date herein or therein
specified, shall mean the amount equal to the quotient resulting from dividing
the Exercise Price in effect on such date by the number of shares (including any
fractional share) of Common Stock comprising a Stock Unit on such date.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and any similar or successor federal statute, and the rules and
regulations of the Commission thereunder, all as the same shall be in effect at
any applicable time.
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"Exercise Price" shall mean the purchase price per Stock Unit as set
forth in Section 2 of this Agreement and on the first page of the Warrants on
the date of original issuance of the Warrants and thereafter shall mean such
dollar amount as shall result from the adjustments specified in Section 6.
"Holder" or "Holders" shall mean, initially, the Lead Representative and
the Other Representative and thereafter any Person that is or Persons that are
the registered holder(s) of the Warrants or Warrant Stock as registered on the
books of the Company.
"Nonpreferred Stock" shall mean the Common Stock and shall also include
stock of the Company of any other class which is not preferred as to dividends
or assets over any other class of stock of the Company and which is not subject
to redemption.
"Person" shall include an individual, a corporation, an association, a
partnership, a trust or estate, a government, foreign or domestic, and any
agency or political subdivision thereof, or any other entity.
"Public Offering" shall have the meaning set forth in the preamble of
this Agreement.
"Register", "Registered" and "Registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"Registrable Securities" shall mean the Common Stock held from time to
time by the Holders pursuant to their exercise of
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the Warrants; provided, however, that Registrable Securities shall not include
any shares of Common Stock which have been previously Registered and sold to the
public or which have been sold in a private transaction in which the
transferor's rights under this Agreement were not transferred.
"Registration Expenses" means all expenses incurred in effecting any
Registration pursuant to this Agreement, including, without limitation, all
registration, qualification, and filing fees, printing expenses, escrow fees,
fees and disbursements of counsel for the Company, fees under state securities
or blue sky laws of any jurisdictions, and expenses of any regular or special
audits incident to or required by any such Registration, and, in connection with
the first requested Registration pursuant to Section 12.3 only, the fees and
disbursements (not to exceed $15,000) of one counsel for the selling Holders,
but shall not include Selling Expenses, fees and disbursements of additional
counsel for the Holders and the compensation of regular employees of the
Company, which compensation shall be paid in any event by the Company.
"Restricted Certificate" shall mean a certificate for Common Stock or a
Warrant bearing the restrictive legend set forth in Section 12.1.
"Restricted Securities" shall mean Restricted Stock and Restricted
Warrants.
"Restricted Stock" shall mean Common Stock evidenced by a Restricted
Certificate.
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"Restricted Warrant" shall mean a Warrant evidenced by a Restricted
Certificate.
"Rule 144" shall mean Rule 144 as promulgated by the Commission under
the Securities Act, as such rule may be amended from time to time, or any
similar successor rule that may be promulgated by the Commission.
"Rule 145" shall mean Rule 145 as promulgated by the Commission under
the Securities Act, as such rule may be amended from time to time, or any
similar successor rule that may be promulgated by the Commission.
"Securities" shall mean the Warrants issued to the Holders pursuant to
this Agreement, and the certificates and other instruments from time to time
evidencing the same.
"Securities Act" shall mean the Securities Act of 1933, as amended, and
any similar or successor federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at any applicable
time.
"Seller" shall mean a holder of Restricted Securities of the Company for
which the Company shall be required to file a registration statement or which
shall be registered under the Securities Act at the request of such holder
pursuant to any of the provisions of Section 12. Neither the Company nor any of
its Affiliates shall be deemed a "Seller" for any purposes of this Agreement.
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securi-
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ties and fees and disbursements of counsel for any Holder (other than fees and
disbursements of counsel to the Holders included in Registration Expenses).
"Stock Unit" shall constitute one share of Common Stock, as such Common
Stock was constituted on the date of original issuance of the Warrants and
thereafter shall constitute such number of shares (including any fractional
shares) of Common Stock as shall result from the adjustments specified in
Section 6.
"Voting Stock" shall mean any equity security entitling the holder of
such security to vote at meetings of shareholders except an equity security
which entitles the holder of such security to vote only upon the occurrence of
some contingency, unless that contingency shall have occurred and be continuing.
"Warrant Stock" shall mean the shares of Common Stock purchasable by the
Holder of a Warrant upon the exercise of such Warrant.
"Warrants" shall mean the warrants issued pursuant to this Agreement
evidencing rights to purchase up to an aggregate of 210,000 Stock Units, and all
Warrants issued upon transfer, division or combination of, or in substitution
for, any thereof. All Warrants shall at all times be identical as to terms and
conditions and date, except as to the number of Stock Units for which they may
be exercised.
Certain other capitalized terms used in this Agreement and the Warrants
are defined elsewhere in this Agreement.
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2. Grant. The Lead Representative and the Other Representative (along
with any Holder(s) to whom they shall transfer any Warrants) are hereby granted
the right to purchase, at any time commencing on the first anniversary of the
effective date of the registration statement filed by the Company in connection
with the Public Offering until 5:30 P.M., New York time, on January __, 2002
(the "Expiration Date"), up to 168,000 and 42,000 shares of Common Stock,
respectively at an initial exercise price, of $_.__ per share (120% of the
initial price to public of Common Stock in the Public Offering) (the "Initial
Exercise Price"), subject to adjustment as provided in Section 6 hereof, and
subject to the terms and conditions of this Agreement.
3. Warrant Certificates. The certificates evidencing the Warrants (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 or otherwise agreed to by
the Representatives and the Company.
4. Exercise of Warrant; Repurchase Rights. The Holders may, subject to
the provisions of Section 2 above, exercise the Warrants in whole at any time or
in part from time to time for the number of Stock Units which any such Holder is
then entitled to purchase thereunder. The Holders may exercise the Warrants, in
whole or in part, by either of the following methods:
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(a) A Holder may deliver to the Company at its office maintained
pursuant to Section 17 for such purpose (i) a written notice of such Holder's
election to exercise the Warrants, which notice shall specify the number of
Stock Units to be purchased, (ii) the applicable Warrant Certificates and (iii)
a sum equal to the aggregate Exercise Price therefor in immediately available
funds; or
(b) A Holder may also exercise the Warrants held by such Holder,
in whole or in part, in a "cashless" or "net-issue" exercise by delivering to
the Company at its office maintained pursuant to Section 17 for such purpose (i)
a written notice of such Holder's election to exercise the Warrants, which
notice shall specify the number of Stock Units to be delivered to such Holder
and the number of Stock Units with respect to which the Warrants are being
surrendered in payment of the aggregate Exercise Price for the Stock Units to be
delivered to the Holder, and (ii) the applicable Warrant Certificate(s). For
purposes of this subparagraph (b), each Stock Unit as to which the Warrants are
surrendered shall be attributed a value equal to the product of (x) the Current
Market Price per share of Common Stock minus the Current Warrant Price per share
of Common Stock, multiplied by (y) the number of shares of Common Stock then
comprising a Stock Unit.
Notwithstanding anything to the contrary contained in this Agreement or
the Warrants, if immediately prior to the Expiration Date, the Exercise Price
shall be less than the then Current
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Market Price, then the Warrants shall be deemed exercised without further action
on the part of any Holder, notwithstanding that such Holder did not deliver
notice of exercise, as provided for in this Section 4.
Any notice required under this Section 4 may be in the form of the
Subscription Form attached hereto as Exhibit B. Upon delivery thereof, the
Company shall as promptly as practicable and in any event within ten (10)
Business Days thereafter, cause to be executed and delivered to such Holder a
certificate or certificates representing the aggregate number of fully-paid and
nonassessable shares of Common Stock issuable upon such exercise.
The stock certificate or certificates for Warrant Stock so delivered
shall be in such denominations as may be specified in said notice and shall be
registered in the name of such Holder or, subject to Section 12, such other name
or names as shall be designated in said notice. Such certificate or certificates
shall be deemed to have been issued and such Holder or any other Person so
designated to be named therein shall be deemed to have become a Holder of record
of such shares with all rights pursuant thereto, including to the extent
permitted by law the right to vote such shares or to consent or to receive
notice as a stockholder, as of the time said notice is delivered to the Company
as aforesaid. If the Warrants shall have been exercised only in part, the
Company shall, at the time of delivery of said certificate or certificates,
deliver to such Holder a new Warrant Certificate dated the date it is issued,
evidencing the rights of
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such Holder to purchase the remaining Stock Units called for by the Warrants
held by such Holder, which new Warrant Certificate shall in all other respects
be identical with the Warrant Certificate(s) surrendered, or, at the request of
such Holder, appropriate notation may be made on the Warrant Certificate
surrendered and such Warrant Certificate shall be returned to such Holder.
The Company shall pay all expenses, taxes (other than income or similar
taxes imposed on any Holder) and other charges payable in connection with the
preparation, issuance and delivery of stock certificates under this Section 4.
Whenever shares of Common Stock are to be issued upon exercise of the Warrants
in the manner provided in paragraph (b) of this Section 4, unless the Holder
shall have delivered to the Company a certificate or other evidence reasonably
satisfactory to the Company that the Holder is not subject to withholding taxes,
the Company shall have the right to require the Holder to remit to the Company
an amount sufficient to satisfy all Federal, state and local withholding tax
requirements, if any, prior to the delivery of any certificate or certificates
for such shares. If the Holder fails to remit such amount or to deliver such
other evidence that it is not subject to such withholding taxes prior to the
scheduled date for delivery of such shares, the Company shall be entitled to
withhold such number of shares of Common Stock purchased upon exercise of the
Warrants as is sufficient to satisfy all withholding tax requirements.
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All shares of Common Stock issuable upon the exercise of this Warrant
shall be validly issued, fully paid and nonassessable, and free and clear of any
and all liens, claims and other encumbrances thereon.
Except as may otherwise be required by law, the Company shall not close
its books against the transfer of the Warrants or of any share of Warrant Stock
in any manner which interferes with the timely exercise of the Warrants. The
Company shall from time to time take all such action as may be necessary to
assure that the par value per share of the unissued Common Stock acquirable upon
exercise of the Warrants is at all times equal to or less than the Exercise
Price then in effect.
The Company shall issue certificates for fractional shares of stock upon
any exercise of the Warrants whenever, in order to implement the provisions of
this Agreement, the issuance of such fractional shares is required.
5. Transfer, Division and Combination. Subject to Section 12, the
Warrants and all rights thereunder and under this Agreement are transferable, in
whole or in part, on the books of the Company to be maintained for such purpose,
upon surrender of the applicable Warrant Certificates at the office of the
Company maintained for such purpose pursuant to Section 17, together with a
written assignment in the form attached hereto as Exhibit C duly executed by the
Holder thereof or its agent or attorney and payment of funds sufficient to pay
any stock transfer taxes payable upon the making of such transfer. Upon such
surrender and
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payment the Company shall, subject to Section 12, execute and deliver a new
Warrant Certificate or Warrant Certificates in the name of the assignee or
assignees and in the denominations specified in such instrument of assignment,
and the Warrant Certificate(s) so surrendered shall promptly be cancelled. If
and when any of the Warrant Certificates is assigned in blank (in case the
restrictions on transferability in Section 12 shall have been terminated), the
Company may (but shall not be obliged to) treat the bearer thereof as the
absolute owner of the Warrants represented by such Warrant Certificate(s) for
all purposes and the Company shall not be affected by any notice to the
contrary. The Warrants, if properly assigned in compliance with this Section 5
and Section 12, may be exercised by an assignee for the purchase of shares of
Common Stock without having a new Warrant Certificate issued.
The Warrants may, subject to Section 12, be divided or combined with
other Warrants upon presentation of the Warrant Certificate(s) therefor at the
aforesaid office of the Company, together with a written notice specifying the
names and denominations in which new Warrant Certificates are to be issued,
signed by the Holder thereof or its agent or attorney. Subject to compliance
with the preceding paragraph and with Section 12, as to any transfer which may
be involved in such division or combination, the Company shall execute and
deliver one or more new Warrant Certificate(s) in exchange for the Warrant
Certificate(s)
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representing the Warrants to be divided or combined in accordance with such
notice.
The Company shall pay all expenses, taxes (other than the aforementioned
stock transfer taxes) and other charges incurred by the Company in the
performance of its obligations in connection with the preparation, issue and
delivery of Warrant Certificates under this Section 5.
The Company agrees to maintain, at its aforesaid office, books for the
registration and transfer of the Warrants.
6. Adjustment of Stock Unit or Exercise Price. The number of shares of
Common Stock comprising a Stock Unit, and the Exercise Price per Stock Unit,
shall be subject to adjustment from time to time as set forth in this Section 6
and in Section 7. The Company shall not take any action with respect to its
Nonpreferred Stock of any class requiring an adjustment pursuant to any of the
following subsections 6.1 through 6.3 without at the same time taking like
action with respect to its Nonpreferred Stock of each other class; and the
Company shall not create any class of Nonpreferred Stock which carries any
rights to dividends or assets differing in any respect from the rights of the
Common Stock on the date of original issuance of the Warrants.
6.1. Stock Dividends, Subdivisions and Combinations. In case at any time
or from time to time the Company shall:
(a) take a record of the holders of its Nonpreferred Stock for
the purpose of entitling them to receive a divi-
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dend payable in, or other distribution of, Nonpreferred Stock, or
(b) subdivide its outstanding shares of Nonpreferred Stock into a
larger number of shares of Nonpreferred Stock, or
(c) combine its outstanding shares of Nonpreferred Stock into a
smaller number of shares of Nonpreferred Stock,
then the Exercise Price shall be adjusted to a price determined by multiplying
the Exercise Price in effect immediately prior to such distribution, subdivision
or combination by a fraction (i) the numerator of which is the total number of
shares of Common Stock outstanding prior to such distribution, subdivision or
combination, and (ii) the denominator of which is the total number of shares of
Common Stock outstanding immediately after such distribution, subdivision or
combination.
6.2. Issuance of Additional Shares of Nonpreferred Stock. In case
at any time or from time to time the Company shall (except as hereinafter
provided) issue, whether in connection with the merger of a corporation into the
Company or otherwise, any Additional Shares of Nonpreferred Stock for a
consideration per share less than the Current Market Price per share of Common
Stock, then the Exercise Price shall be reduced to the price determined by
multiplying the Exercise Price in effect immediately prior to such issuance or
sale by a fraction (i) the numerator of which is an amount equal to the sum of
(1) the total number of shares of Common Stock outstanding immediately prior to
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the issuance or sale of such shares, multiplied by the Current Market Price in
effect immediately prior to such issuance or sale, and (2) the aggregate of the
amount of all consideration, if any, received by the Company upon such issuance
or sale, and (ii) the denominator of which is the total number of shares of
Common Stock outstanding immediately after such issuance or sale multiplied by
the Current Market Price in effect immediately after such issuance or sale;
provided, however, that in no event shall the Exercise Price be adjusted
pursuant to this computation to an amount in excess of the Exercise Price in
effect immediately prior to such computation. For purposes of this subsection
6.2, the date as of which the Current Warrant Price and the Current Market Price
per share of Common Stock shall be computed shall be the earlier of (i) the date
on which the Company shall enter into a firm contract for the issuance of such
Additional Shares of Nonpreferred Stock, or (ii) the date of actual issuance of
such Additional Shares of Nonpreferred Stock. The provisions of this subsection
6.2 shall not apply to any issuance of Additional Shares of Nonpreferred Stock
for which an adjustment is provided under subsection 6.1 of this Section 6. No
adjustment of the Exercise Price shall be made under this subsection 6.2 upon
the issuance of any Additional Shares of Nonpreferred Stock which are issued
pursuant to the exercise of any options, warrants or other subscription or
purchase rights or pursuant to the exercise of any conversion or exchange rights
in any Convertible Securities, if any such adjustment shall previously have been
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made upon the issuance of such options, warrants or other rights or upon the
issuance of such Convertible Securities (or upon the issuance of any option,
warrant or other right therefor) pursuant to subsection 6.3 of this Section 6.
6.3. Issuance of Warrants, Options or Other Rights. In case at any time
or from time to time the Company shall take a record of the holders of its
Nonpreferred Stock for the purpose of entitling them to receive a distribution
of, or shall otherwise issue, any warrants, options, Convertible Securities or
other rights to subscribe for or purchase any Additional Shares of Nonpreferred
Stock or any Convertible Securities and the consideration per share for which
additional shares of Nonpreferred Stock may at any time thereafter be issuable
pursuant to such warrants, options or other rights or pursuant to the terms of
such Convertible Securities shall be less than the Current Market Price per
share of Common Stock, then the Exercise Price shall be adjusted as provided in
subsection 6.2 of this Section 6 on the basis that (i) the maximum number of
Additional Shares of Nonpreferred Stock issuable pursuant to all such warrants,
options, Convertible Securities or other rights or necessary to effect the
conversion or exchange of all such warrants, options, Convertible Securities or
other rights shall be deemed to have been issued as of the date specified in the
last sentence of this subsection 6.3, and (ii) the aggregate consideration for
such maximum number of Additional Shares of Nonpreferred Stock shall be deemed
to be the minimum consideration received and receivable by the Company
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for the issuance of such Additional Shares of Nonpreferred Stock pursuant to
such warrants, options, Convertible Securities or other rights. For purposes of
this subsection 6.3, the computation date for subclause (i) above and as of
which the Current Warrant Price and the Current Market Price per share of Common
Stock shall be computed shall be the earliest of (x) the date on which the
Company shall take a record of the holders of its Nonpreferred Stock for the
purpose of entitling them to receive any such warrants, options, Convertible
Securities or other rights, (y) the date on which the Company shall enter into a
firm contract for the issuance of such warrants, options, Convertible Securities
or other rights, and (z) the date of actual issuance of such warrants, options,
Convertible Securities or other rights.
6.4. Upon each adjustment to the Exercise Price pursuant to the
provisions of this Section 6, the number of shares of Common Stock comprising a
Stock Unit shall be adjusted by multiplying the number of shares of Common Stock
comprising a Stock Unit immediately prior to such adjustment by a fraction, (i)
the numerator of which is a number equal to the Exercise Price in effect
immediately prior to such adjustment, and (ii) the denominator of which is the
adjusted Exercise Price.
6.5. Other Provisions Applicable to Adjustments. The following
provisions shall be applicable to the making of adjustments of the number of
shares of Common Stock comprising a Stock
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Unit and the Exercise Price hereinabove provided for in this Section 6:
(a) Treasury Stock. The sale or other disposition of any issued
shares of Nonpreferred Stock owned or held by or for the account of the Company
shall be deemed an issuance thereof for purposes of this Section 6.
(b) Computation of Consideration. To the extent that any
Additional Shares of Nonpreferred Stock or any Convertible Securities or any
warrants, options or other rights to subscribe for or purchase any Additional
Shares of Nonpreferred Stock or any Convertible Securities shall be issued for a
cash consideration, the consideration received by the Company therefor shall be
deemed to be the amount of cash received by the Company therefor, or, if such
Additional Shares of Nonpreferred Stock or Convertible Securities are offered by
the Company for subscription, the subscription price, or, if such Additional
Shares of Nonpreferred Stock or Convertible Securities are sold to underwriters
or dealers for public offering without a subscription offering, the initial
public offering price, in any such case excluding any amounts paid or receivable
for accrued interest or accrued dividends and without deduction of any
compensation, discounts or expenses paid or incurred by the Company for and in
the underwriting of, or otherwise in connection with, the issue thereof. To the
extent that such issuance shall be for a consideration other than solely for
cash, then, except as herein otherwise expressly provided, the amount of such
consideration shall
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be deemed to be the fair value of such consideration at the time of such
issuance as determined in good faith by the Board of Directors. If such
determination is objected to by the Holders of Warrants evidencing a majority in
number of the total number of Stock Units at the time purchasable upon the
exercise of all then outstanding Warrants, such determination shall be made by
an independent appraiser chosen in the manner specified in the definition of
Appraised Value. The fees and expenses of any appraisers shall be paid by the
Company. The consideration for any Additional Shares of Nonpreferred Stock
issuable pursuant to any warrants, options or other rights to subscribe for or
purchase the same shall be the consideration received or receivable by the
Company for issuing such warrants, options or other rights, plus the additional
consideration payable to the Company upon the exercise of such warrants, options
or other rights. The consideration for any Additional Shares of Nonpreferred
Stock issuable pursuant to the terms of any Convertible Securities shall be the
consideration received or receivable by the Company for issuing any warrants,
options or other rights to subscribe for or purchase such Convertible
Securities, plus the consideration paid or payable to the Company in respect of
the subscription for or purchase of such Convertible Securities, plus the
additional consideration, if any, payable to the Company upon the exercise of
the right of conversion or exchange in such Convertible Securities. In case of
the issuance at any time of any Additional Shares of Nonpreferred Stock or
Convertible Securities in payment
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or satisfaction of any dividend upon any class of stock other than Nonpreferred
Stock, the Company shall be deemed to have received for such Additional Shares
of Nonpreferred Stock or Convertible Securities a consideration equal to the
amount of such dividend so paid or satisfied.
(c) When Adjustments to Be Made. The adjustments required by the
preceding subsections of this Section 6 shall be made whenever and as often as
any specified event requiring an adjustment shall occur, except that no
adjustment shall be made except pursuant to subsection 6.1 of this Section 6 if
it would decrease the number of shares of Common Stock comprising a Stock Unit
immediately prior to such adjustment. For the purpose of any adjustment, any
specified event shall be deemed to have occurred at the close of business on the
date of its occurrence.
(d) Fractional Interests. In computing adjustments under this
Section 6, fractional interests in Nonpreferred Stock shall be taken into
account to the nearest one-thousandth of a share.
(e) When Adjustment Not Required. If the Company shall take a
record of the holders of its Nonpreferred Stock for the purpose of entitling
them to receive a dividend or distribution or subscription or purchase rights
and shall, thereafter and before the distribution thereof to shareholders,
legally abandon its plan to pay or deliver such dividend, distribution,
subscription or purchase rights, then thereafter no adjustment shall be required
by reason of the taking of such record and any such
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adjustment previously made in respect thereof shall be rescinded and annulled.
6.6. Merger, Consolidation or Disposition of Assets. In case the Company
shall merge or consolidate into another corporation, or shall sell, transfer or
otherwise dispose of all or substantially all of its property, assets or
business to another corporation and pursuant to the terms of such merger,
consolidation or disposition of assets, shares of common stock of the successor
or acquiring corporation are to be received by or distributed to the holders of
Nonpreferred Stock of the Company, then each Holder of a Warrant shall have the
right thereafter to receive, upon exercise of such Warrant, Stock Units each
comprising the number of shares of common stock of the successor or acquiring
corporation receivable upon or as a result of such merger, consolidation or
disposition of assets by a holder of the number of shares of Nonpreferred Stock
comprising a Stock Unit immediately prior to such event. If, pursuant to the
terms of such merger, consolidation or disposition of assets, any cash, shares
of stock or other securities or property of any nature whatsoever (including
warrants or other subscription or purchase rights) are to be received by or
distributed to the holders of Nonpreferred Stock of the Company, there shall be
either, at the Holder's option, (i) a reduction of the Exercise Price equal to
the amount applicable to the number of shares of Common Stock then comprising a
Stock Unit of any such cash and of the fair value of any and all such shares of
stock or of other securities
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or property to be received by or distributed to the holders of Nonpreferred
Stock of the Company, or (ii) such Holder shall have the right to receive, upon
exercise of its Warrant, such cash, shares of stock or other securities or
property of any nature as a holder of the number of shares of Nonpreferred Stock
underlying a Stock Unit would have been entitled to receive upon the occurrence
of such event. Such fair value shall be determined in good faith by the Board of
Directors, provided that if such determination is objected to by the Holders of
Warrants evidencing a majority in number of the total number of Stock Units at
the time purchasable upon the exercise of all then outstanding Warrants, such
determination shall be made by an independent appraiser selected in the manner
specified in the definition of Appraised Value. The fees and expenses of any
appraisers shall be paid by the Company. In case of any such merger,
consolidation or disposition of assets, the successor acquiring corporation
shall expressly assume the due and punctual observance and performance of each
and every covenant and condition of this Warrant to be performed and observed by
the Company and all of the obligations and liabilities hereunder, subject to
such modification as shall be necessary to provide for adjustments of Stock
Units which shall be as nearly equivalent as practicable to the adjustments
provided for in this Section 6. For the purposes of this Section 6 "common stock
of the successor or acquiring corporation" shall include stock of such
corporation of any class, that is not preferred as to dividends or assets over
any other class of stock of
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such corporation and that is not subject to redemption, and shall also include
any evidences of indebtedness, shares of stock or other securities which are
convertible into or exchangeable for any such stock, either immediately or upon
the arrival of a specified date or the happening of a specified event, and any
warrants or other rights to subscribe for or purchase any such stock. The
foregoing provisions of this subsection 6.6 shall similarly apply to successive
mergers, consolidations or dispositions of assets.
6.7. Other Action Affecting Nonpreferred Stock. In case at any time or
from time to time the Company shall take any action affecting its Nonpreferred
Stock, other than an action described in any of the foregoing subsections 6.1 to
6.6, inclusive, of this Section 6, then, unless in the opinion of the Board of
Directors such action shall not have a materially adverse effect upon the rights
of the Holders of the Warrants, the number of shares of Common Stock or other
stock comprising a Stock Unit, or the Exercise Price thereof, shall be adjusted
in such manner and at such time as the Board of Directors may in good faith
determine to be equitable in the circumstances.
6.8. No Adjustment of Exercise Price in Certain Cases. Notwithstanding
anything to the contrary contained in this Section 6, no adjustment of the
Exercise Price shall be made:
(a) Upon the issuance or sale of the Warrants or
the shares of Common Stock issuable upon the exercise of the Warrants;
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(b) Upon the issuance of options to purchase a
maximum of 1,450,000 shares of Common Stock pursuant to the 1991 Stock Option
Plan as described in the registration statement relating to the Public Offering;
(c) Upon the conversion or exercise of currently
outstanding securities or other contractual rights, or options, warrants or
other contractual rights to be issued concurrently with the Public Offering, in
each case as disclosed in the registration statement relating to the Public
Offering; and
(d) If the amount of said adjustment shall be
less than two cents (2(cent)) per share of Warrant Stock; 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 two cents (2(cent)) per share of Warrant
Stock.
7. Notice to Warrant Holders.
7.1. Notice of Adjustment of Stock Unit or Exercise Price. Whenever the
number of shares of Common Stock comprising a Stock Unit, or the price at which
a Stock Unit may be purchased upon exercise of the Warrants, shall be adjusted
pursuant to Section 6, the Company shall forthwith obtain a certificate signed
by its chief financial officer setting forth, in reasonable detail, the event
requiring the adjustment and the method by which such adjustment was calculated
(including a statement of the fair
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value, as determined by the Board of Directors or by appraisal (if applicable),
of any evidences of indebtedness, shares of stock, other securities or property
or warrants or other subscription or purchase rights referred to in Section
6.5(b) or Section 6.6) and specifying the number of shares of Common Stock
comprising a Stock Unit and, if such adjustment was made pursuant to Section 6.6
or Section 6.7, describing the number and kind of any other shares of stock
comprising a Stock Unit and any change in the purchase price or prices thereof,
after giving effect to such adjustment or change. The Company shall promptly,
and in any case within three (3) Business Days after the making of such
adjustment, cause a signed copy of such certificate to be delivered to each
Holder of Warrants in accordance with Section 18. The Company shall keep at its
office or agency, maintained for the purpose pursuant to Section 17, copies of
all such certificates and cause the same to be available for inspection at said
office during normal business hours by any holder of a Warrant or any
prospective purchaser of a warrant designated by a holder thereof.
7.2. Notice of Certain Corporate Action. In case the Company shall
propose (a) to pay any dividend payable in stock of any class to the holders of
its Nonpreferred Stock or to make any other distribution to the holders of its
Nonpreferred Stock (other than a cash dividend), (b) to offer to the holders of
its Nonpreferred Stock rights to subscribe for or to purchase any Additional
Shares of Nonpreferred Stock or shares of stock of any
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class or any other securities, rights or options, (c) to effect any
reclassification of its Nonpreferred Stock (other than a reclassification
involving only the subdivision, or combination, of outstanding shares of
Nonpreferred Stock), (d) to effect any capital reorganization, (e) to effect any
consolidation, merger or sale, organic change, transfer or other disposition of
all or substantially all of its property, assets or business, or (f) to effect
the liquidation, dissolution or winding up of the Company, then, in each such
case, the Company shall deliver to each Holder of a Warrant, in accordance with
Section 18, a notice of such proposed action, which shall specify the date on
which a record is to be taken for the purposes of such stock dividend,
distribution or rights, or the date on which such reclassification,
reorganization, consolidation, merger, sale, organic change, transfer,
disposition, liquidation, dissolution, or winding up is to take place and the
date of participation therein by the holders of Nonpreferred Stock, if any such
date is to be fixed, and shall also set forth such facts with respect thereto as
shall be reasonably necessary to indicate the effect of such action on the
Nonpreferred Stock and the number and kind of any other shares of stock which
shall comprise a Stock Unit, and the purchase price or prices thereof, after
giving effect to any adjustment which shall be required as a result of such
action. Such notice shall be so delivered not less than thirty (30) days prior
to (i) the record date for determining holders of the Nonpreferred Stock for
purposes of any action covered by clause (a) or (b) above, and
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(ii) in the case of any other such action, the date of the taking of such
proposed action or the date of participation therein by the holders of
Nonpreferred Stock, whichever shall be the earlier.
8. Reservation and Authorization of Nonpreferred Stock; Registration
with or Approval of any Governmental Authority. The Company shall at all times
reserve and keep available for issuance upon the exercise of Warrants such
number of its authorized but unissued shares of Common Stock as shall be
sufficient to permit the exercise in full of all outstanding Warrants. The
Company shall not amend the Certificate of Incorporation in any respect relating
to the Common Stock other than to increase or decrease the number of shares of
authorized capital stock (subject to the provisions of the preceding sentence)
or to decrease the par value of any shares of Nonpreferred Stock. All shares of
Common Stock which shall be so issuable, when issued upon exercise of any
Warrant or upon such conversion, as the case may be, shall be duly and validly
issued and fully-paid and nonassessable.
Before taking any action which would cause an adjustment reducing the
Current Warrant Price per share of Common Stock below the then par value, if
any, of the shares of Common Stock issuable upon exercise of the Warrants, the
Company shall take any corporate action which may, in the opinion of its
counsel, be necessary in order that the Company may validly and legally issue
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fully-paid and nonassessable shares of Common Stock at such adjusted Current
Warrant Price.
Before taking any action which would result in an adjustment in the
number of shares of Common Stock comprising a Stock Unit or in the Current
Warrant Price per share of Common Stock, the Company shall obtain all such
authorizations or exemptions thereof, or consents thereto, as may be necessary
from any public regulatory body or bodies having jurisdiction thereof.
If any shares of Common Stock required to be reserved for issuance upon
exercise of warrants require registration with any governmental authority under
any federal or state law (otherwise than as provided in Section 12) before such
shares may be so issued, the Company shall in good faith and as expeditiously as
possible and at its expense endeavor to cause such shares to be duly registered.
9. Taking of Record; Stock and Warrant Transfer Books. In the case of
all dividends or other distributions by the Company to the holders of its
Nonpreferred Stock with respect to which any provision of Section 6 refers to
the taking of a record of such holders, the Company shall in each such case take
such a record and shall take such record as of the close of business on a
Business Day. The Company shall not at any time, except upon dissolution,
liquidation or winding up or as otherwise may be required by law, close its
stock transfer books or Warrant transfer books so as to result in preventing or
delaying the exercise or transfer of any Warrant.
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10. Taxes. The Company shall pay all taxes (other than federal, state,
local or foreign income taxes and the stock transfer taxes referred to in
Section 5) which may be payable in connection with the execution and delivery of
this Agreement or the Warrants or the issuance and sale of the Restricted
Securities hereunder or in connection with any modification of the Restricted
Securities and shall save the Holder harmless without limitation as to time
against any and all liabilities with respect to or resulting from any delay in
paying, or omission to pay, such taxes. Whenever shares of Common Stock are to
be issued upon exercise of the Warrants in the manner provided in paragraph (b)
of Section 4, unless the Holder shall have delivered to the Company a
certificate or other evidence reasonably satisfactory to the Company that the
Holder is not subject to withholding taxes, the Company shall have the right to
require the Holder to remit to the Company an amount sufficient to satisfy all
Federal, state and local withholding tax requirements, if any, prior to the
delivery of any certificate or certificates for such shares. If the Holder fails
to remit such amount or to deliver such other evidence that it is not subject to
such withholding taxes prior to the scheduled date for delivery of such shares,
the Company shall be entitled to withhold such number of shares of Common Stock
purchased upon exercise of the Warrants as is sufficient to satisfy all
withholding tax requirements. The obligations of the Company and the Holders
under this Section 10 shall survive any redemption,
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repurchase or acquisition of Restricted Securities by the Company.
11. No Participating Preferred Stock. So long as any Warrant remains
outstanding, the Company shall not issue any capital stock of any class
preferred as to dividends or as to the distribution of assets upon voluntary or
involuntary liquidation, dissolution or winding up unless the rights of the
holders thereof shall be limited to a fixed sum or percentage of par value in
respect of participation in dividends and in the distribution of such assets.
12. Restrictions on Transferability. The Restricted Warrants shall not
be transferable except to officers, directors or principals of and/or successors
to the Representatives.The Restricted Stock shall not be transferable except
upon the conditions specified in this Section 12. Each transferee shall be
subject to the same transfer restrictions imposed on the Holder by this
Agreement. Any transfer of Restricted Securities in violation of this Section 12
shall be null and void.
12.1. Restrictive Legend. Unless and until otherwise permitted by this
Section 12, each certificate for Warrants issued under this Agreement, each
certificate for any Warrants issued to any transferee of any such certificate,
each certificate for any Warrant Stock issued upon exercise of any Warrant and
each certificate for any Warrant Stock issued to any transferee of any such
certificate, shall be stamped or otherwise imprinted with a legend in
substantially the following form:
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"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR REGISTERED OR QUALIFIED UNDER ANY STATE SECURITIES LAWS.
SUCH SECURITIES MAY NOT BE SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED
AT ANY TIME WHATSOEVER UNLESS REGISTERED UNDER THE ACT AND APPLICABLE STATE
SECURITIES LAWS OR AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE, EXCEPT UPON
DELIVERY TO THE COMPANY OF AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT REGISTRATION IS NOT REQUIRED FOR SUCH TRANSFER OR THE SUBMISSION TO THE
COMPANY OF SUCH OTHER EVIDENCE AS MAY BE SATISFACTORY TO IT AND TO ITS COUNSEL
TO THE EFFECT THAT ANY SUCH TRANSFER WILL NOT BE IN VIOLATION OF THE ACT, OR
APPLICABLE STATE SECURITIES LAWS OR ANY RULE OR REGULATION PROMULGATED
THEREUNDER."
12.2. Notice of Proposed Transfers; Request for Registration.
(a) Prior to any transfer or attempted transfer of any Restricted
Securities, the Holder of a Restricted Certificate therefor shall give written
notice to the Company of such Holder's intention to effect such transfer. Each
such notice shall describe the manner and circumstances of the proposed
transfer in sufficient detail.
(b) Upon receipt of such notice, the Company may request an
opinion of counsel of such Holder to the effect that such proposed transfer may
be effected without registration under the Securities Act. Upon receipt of such
opinion, or if the Company does not request such an opinion, within ten (10)
Business Days after receiving notice of the proposed transfer, the Company
shall, as promptly as practicable, so notify the Holder of such Restricted
Certificate and such Holder shall thereupon be entitled to transfer such
Restricted Securities in accordance with the terms of the notice delivered by
such Holder to the Company. Each certificate evidencing the Restricted
Securities
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thus to be transferred (and each certificate evidencing any untransferred
balance of the Restricted Securities evidenced by such Restricted Certificate)
shall bear the restrictive legend set forth in Section 12.1, unless in the
opinion of the Company or the opinion of such counsel, if requested, pursuant to
Rule 144(k) promulgated pursuant to the Securities Act or otherwise, such legend
is not required in order to ensure compliance with the Securities Act. The fees
and expenses of counsel for any such opinion shall be paid by the Company.
(c) If in the opinion of the Company or, if requested, the
opinion of counsel of such Holder, the proposed transfer of the Restricted
Securities evidenced by such Restricted Certificate may not be effected without
registration under the Securities Act, the Company shall, as promptly as
practicable, so notify the Holder thereof.
12.3. Requested Registration. If at any time commencing after the first
anniversary of the effective date of the Public Offering and expiring four (4)
years thereafter, the Holders of Warrants or Warrant Stock representing a
majority of the shares of Warrant Stock issued or issuable on the exercise of
Warrants then outstanding shall request the Company to effect the Registration
of some or all of their Restricted Securities under the Securities Act, the
Company shall promptly give written notice of such proposed Registration to all
Holders of outstanding Restricted Securities and thereupon shall, as
expeditiously as
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possible, use its best efforts to effect the Registration under the Securities
Act (and to keep such Registration effective as to permit the sale for not less
than six (6) months) of:
(a) the Restricted Securities which the Company has been
requested to Register for disposition by the prospective Seller(s) in accordance
with the intended method of disposition described in the request from such
Seller(s); and
(b) all other Restricted Securities, the Holder or Holders of
which shall have made written request (stating the intended method of
disposition of such securities by the prospective Seller or Sellers) to the
Company for Registration thereof within thirty (30) days after the giving of
such written notice by the Company, all to the extent requisite to permit the
disposition (in accordance with the intended methods thereof, as aforesaid) by
the prospective Seller or Sellers of the Restricted Securities so Registered;
provided, however, that the Company will not be obligated to effect a requested
Registration pursuant to this Section 12.3 more than once every 12 months during
such four (4) year period.
In the case of an underwritten public offering of Restricted Securities
to be so registered, if the lead underwriter advises the Company that the number
of securities to be so registered is too large a number to be reasonably sold,
the number of such securities sought to be registered by each Seller shall be
reduced, pro rata in proportion to the number of securities sought to be
registered by all Sellers, to the extent necessary
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to reduce the number of securities to be registered to the number recommended by
the lead underwriter.
Without the prior written consent of the Lead Representative (which
consent shall not be unreasonably withheld or delayed), the Company shall not
grant to any Person at any time on or after the date of this Agreement the right
(a "Participation Right") to request the Company to register any securities of
the Company under the Securities Act by reason of the exercise by any Holder of
its rights under this Section 12.3 unless such Participation Right provides that
such securities shall not be registered and sold at the same time if the lead
underwriter for the Seller or Sellers advises the Company in writing that sale
of such securities would adversely affect the amount of, or price at which, the
respective Restricted Securities being registered under this Section 12.3 can be
sold.
The Company agrees (i) not to effect any public or private sale or
distribution of its securities, including a sale pursuant to Regulation D under
the Securities Act, during the ten (10) day period prior to, and during the one
hundred and eighty (180) day period beginning on, the closing date of an
underwritten offering made pursuant to a registration statement filed pursuant
to this Section 12.3 and (ii) use its best efforts to cause each holder of its
equity securities or securities convertible into equity securities (other than
equity securities distributed as part of such public offering) purchased from
the Company at any time prior to, on or after the date of this Agreement to
agree not to
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effect any public sale or distribution of any such securities during such
period.
The Company recognizes that money damages may be inadequate to
compensate a Holder for a breach by the Company of its obligations under this
Section 12.3 and Sections 12.4 and 12.6 below, and the Company agrees that in
the event of such a breach the Holder may apply for an injunction or specific
performance or the granting of such other equitable remedies as may be awarded
by a court of competent jurisdiction in order to afford the Holder the benefits
of this Section 12.3 and Sections 12.4 and 12.6 and that the Company shall not
object to such application, entry of such injunction or granting of such other
equitable remedies on the grounds that money damages shall be sufficient to
compensate the Holder.
12.4. "Piggyback" Registration.
(a) If at any time commencing after the first anniversary of the
effective date of the Public Offering and expiring six (6) years thereafter, the
Company shall determine to Register any of its securities either for its own
account or for the account of any holder of its securities (including a Holder),
other than a Registration relating solely to employee benefit plans, or a
Registration relating solely to a Rule 145 transaction or a Registration on any
Registration form that does not permit secondary sales, the Company will:
(1) promptly give to each Holder written notice
thereof;
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(2) include in such Registration (and any related
qualification under state securities or other blue sky laws or other
compliance), and in any underwriting involved therein, all the
Registrable Securities specified in a written request or requests made
within twenty (20) days after receipt of such written notice from the
Company, by any Holder or Holders, except as set forth in Section
12.4(b) hereof. Any such written request may specify all or a part of a
Holder's Registrable Securities.
(b) If the Registration of which the Company gives notice is for
a Registered public offering involving an underwriting, the Company shall so
advise the Holders as part of the written notice given pursuant to Section
12.4(a) hereof. In such event, the right of a Holder to Registration pursuant to
this Section 12.4 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein. All Holders proposing to distribute
their Registrable Securities through such underwriting shall (together with the
Company and the other holders of securities of the Company with registration
rights to participate therein distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting by the Company.
Notwithstanding any other provision of this Section 12.4, if the underwriter
advises the Company in writing that marketing factors require a
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limitation on the number of shares to be underwritten, the underwriter may limit
the amount of Registrable Securities to be included in the Registration and
underwriting, and the number of shares to be included in such underwriting or
Registration shall be allocated as set forth in Section 12.13 hereof.
12.5. Expenses of Registration. All Registration Expenses incurred in
connection with (i) any Registration, qualification or compliance pursuant to
Section 12.4 and (ii) the first Registration requested pursuant to Section 12.3
shall be borne by the Company. All Selling Expenses relating to the Registrable
Securities so Registered and all Registration Expenses relating to the
Registrable Securities Registered pursuant to the second and any subsequent
requested Registration pursuant to Section 12.3 shall be borne by the Holders of
such Registrable Securities pro rata on the basis of the number of shares of
Registrable Securities so Registered on their behalf.
12.6. Registration on Form S-3. The Company shall use its best efforts
to qualify for registration on Form S-3 or any comparable or successor form or
forms. After the Company has qualified for the use of Form S-3, in addition to
the rights contained in the foregoing provisions of this Section 12, the Holders
of Registrable Securities shall have the right to request registrations on Form
S-3 (such requests shall be in writing and shall state the number of shares of
Registrable Securities to be disposed of and the intended methods of disposition
of such shares by such Holder or Holders), provided, however, that the Company
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shall not be obligated to effect any such Registration if (1) the Company shall
have delivered to such Holder an opinion of counsel to the Company, addressed to
such Holder and reasonably satisfactory in form and substance to such Holder to
the effect that such Registrable Securities proposed to be included may lawfully
be so disposed of without Registration or (2) within a period of one hundred and
eighty (180) days after the effective date of any previous such Registration. If
the Company shall receive a written request pursuant to this Section 12.6 for
Registration from the holders of a majority of the Warrants or Warrant Stock
then outstanding, then the Company shall promptly notify all other Holders of
such request and shall use its best efforts to cause all Registrable Securities
that Holders have requested within twenty (20) days after receipt of the
Company's notice to be registered under the Securities Act. Any registration
statement filed pursuant to this Section 12.6 may, subject to the provisions of
Section 12.13 hereof, include other securities of the Company with respect to
which Registration rights have been granted.
12.7. Registration Procedures. In the case of each Registration effected
by the Company pursuant to this Section 12, the Company will keep each Holder
advised in writing as to the initiation of each Registration and as to the
completion thereof. At its expense, the Company will:
(a) prepare and file with the Commission a registration statement
with respect to such securities as soon as possi-
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ble, but in no event more than thirty (30) days following receipt of demand
therefor and cause such registration statement to become effective; provided
that no such registration statement will be filed by the Company until counsel
for the Sellers of securities included therein shall have had a reasonable
opportunity to review the same and to exercise their rights under clause (k)
below with respect thereto and no amendment to any such registration statement
naming such Sellers as selling shareholders shall be filed with the Commission
until such Sellers shall have had at least seven days to review such
registration statement as originally filed and theretofore amended and to
exercise their rights under clause (k) below;
(b) Keep such registration effective for a period of one hundred
and eighty (180) days or until the Holder or Holders have completed the
distribution described in the registration statement relating thereto, whichever
first occurs; provided, however, that (i) such one hundred and eighty (180) day
period shall be extended for a period of time equal to the period the Holder
refrains from selling any securities included in such Registration at the
request of an underwriter of Common Stock (or other securities) of the Company;
and (ii) in the case of any registration of Registrable Securities on Form S-3
which are intended to be offered on a continuous or delayed basis, such 180 day
period shall be extended, if necessary, to keep the registration statement
effective until all such Registrable Securities are sold, provided that Rule
145, or any successor rule
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under the Securities Act, permits an offering on a continuous or delayed basis,
and provided further that applicable rules under the Securities Act governing
the obligation to file a post-effective amendment permit, in lieu of filing a
post-effective amendment that (1) includes any prospectus required by Section
10(a)(3) of the Securities Act or (2) reflects facts or events representing a
material or fundamental change in the information set forth in the registration
statement, the incorporation by reference of information required to be included
in (1) and (2) above to be contained in periodic reports filed pursuant to
Section 13 or 15(d) of the Exchange Act in the registration statement;
(c) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement;
(d) Furnish such number of prospectuses and other documents
incident thereto, including any amendment of or supplement to the prospectus, as
a Holder from time to time may reasonably request;
(e) Register or qualify the securities covered by such
registration statement under the state securities laws and blue sky laws of such
jurisdictions as shall be requested by the Holders of the securities covered by
such registration statement;
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(f) At the time when any Registration statement pursuant to this
Section 12 becomes effective, and at the time when any post-effective amendment
thereto becomes effective, furnish to the Holder or Holders of the Registrable
Securities being registered under such Registration statement, an opinion of
counsel satisfactory to such Holder or Holders to the effect that (1) to the
best knowledge of such counsel, no stop order suspending the effectiveness of
the Registration statement has been issued and no proceedings for that purpose
have been instituted or are pending or contemplated under the Securities Act,
(2) the Registration statement and the prospectus, and each amendment or
supplement thereto, as of their respective effective or issue dates, comply as
to form in all material respects with the requirements of the Securities Act,
(3) such counsel has no reason to believe that the Registration statement, the
prospectus, or any amendment or supplement thereto, as of their respective
dates, 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, and (4) the descriptions in the Registration statement,
the prospectus and any amendment or supplement thereto of statutes, legal and
governmental proceedings, and contracts or other documents are accurate and
fairly present the information required to be shown, and such counsel does not
know of any legal or governmental proceedings required to be described in the
Registration statement, the prospectus or any amendment or supplement thereto
which are not
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described as required, nor of any contracts or documents of a character required
to be described in the Registration statement or prospectus or any amendment or
supplement thereto, or to be filed as exhibits to the Registration statement
which are not described and filed as required, provided that such counsel need
not express any opinion as to the financial statements and other financial or
statistical information and financial schedules included in or omitted from any
such Registration statement, prospectus or amendment or supplement thereto.
(g) Notify each seller of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading or incomplete in the light of the
circumstances then existing, and at the request of any such seller, prepare and
furnish to such seller a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such shares, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make such statements therein not misleading or
incomplete in the light of the circumstances then existing;
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(h) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange on which similar securities
issued by the Company are then listed;
(i) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant to such registration statement and a CUSIP number
for all such Registrable Securities, in each case not later than the effective
date of such registration;
(j) Otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its security
holders, as soon as reasonably practicable, an earnings statement covering the
period of at least twelve (12) months, but not more than eighteen (18) months,
beginning with the first month after the effective date of the registration
statement, which earnings statement shall satisfy the provisions of Section
11(a) of the Securities Act;
(k) Enter into an underwriting agreement in form reasonably
necessary to effect the offer and sale of Common Stock, provided such
underwriting agreement contains customary underwriting provisions and provided
further than if the underwriter so requests the underwriting agreement will
contain customary contribution provisions and cooperate with such underwriters
and take all such other reasonable actions as are necessary or advisable to
permit, expedite and facilitate the disposition of such Restricted Securities in
the manner contemplated by the related registration statement, in each case to
the same extent as if all
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the securities then being offered were for the account of the Company, and the
Company will provide to any Seller of Restricted Securities, any underwriter
participating in any distribution thereof pursuant to a registration statement,
and any attorney, accountant or other agent retained by any Seller or
underwriter, reasonable access to appropriate Company officers and employees to
answer questions and to supply information reasonably requested by any such
Seller, underwriter, attorney, accountant or agent in connection with such
registration statement; and
(l) Furnish or cause to the be furnished to each Seller of
Restricted Securities covered by such registration statement, addressed to such
Sellers, a copy of the "comfort" letter signed by the independent public
accountants who have certified the Company's financial statements included in
the registration statement, delivered on the closing date to the underwriters of
such Restricted Securities.
12.8. Furnish Information. The Holder or Holders of Registrable
Securities included in any Registration shall furnish to the Company such
information regarding such Holder or Holders and the distribution proposed by
such Holder or Holders as the Company may request in writing and as shall be
reasonably required in connection with any Registration, qualification or
compliance referred to in this Section 12.
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12.9. Indemnification.
(a) The Company will indemnify each Holder, each of its officers,
directors and partners, legal counsel, and accountants and each Person
controlling such Holder within the meaning of Section 15 of the Securities Act,
with respect to which Registration, qualification, or compliance has been
effected pursuant to this Section 12; and each underwriter, if any, and each
Person who controls within the meaning of Section 15 of the Securities Act any
underwriter, against all expenses, claims, losses, damages, and liabilities (or
actions, proceedings, or settlements in respect thereof) arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any prospectus, offering circular, or other document (including any
related registration statement, notification, or the like) incident to any such
registration, qualification, or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation by the
Company of the Securities Act or any rule or regulation thereunder applicable to
the Company and relating to action or inaction required of the Company in
connection with any such Registration, qualification, or compliance, and will
reimburse each such Holder, each of its officers, directors, partners, legal
counsel, and accountants and each person controlling such Holder, each such
underwriter, and each Person who controls any such underwriter, for any legal
and any other expenses reasonably
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incurred in connection with investigating and defending or settling any such
claim, loss, damage, liability, or action, provided that the Company will not be
liable in any such case to the extent that any such claim, loss, damage,
liability, or expense arises out of or is based on any untrue statement or
omission based upon written information furnished to the Company by such Holder
or underwriter and stated to be specifically for use therein. It is agreed that
the indemnity agreement contained in this Section 12.9(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability, or action
if such settlement is effected without the consent of the Company (which consent
has not been unreasonably withheld).
(b) Each Holder will, if Registrable Securities held by such
Holder are included in the securities as to which such Registration,
qualification, or compliance is being effected, indemnify the Company, each of
its directors, officers, partners, legal counsel, and accountants and each
underwriter, if any, of the Company's securities covered by such a registration
statement, each Person who controls the Company of such underwriter within the
meaning of Section 15 of the Securities Act, each other such Holder, and each of
their officers, directors and partners, and each person controlling such Holder
against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any such registration statement,
prospectus, offering circular, or
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other document, and will reimburse the Company and such Holders, directors,
officers, partners, legal counsel, and accountants, persons, underwriters, or
control persons for any legal or any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability, or action, in each case to the extent, but only to the extent, that
such untrue statement (or alleged untrue statement) is made in such registration
statement, prospectus, offering circular, or other document in reliance upon and
in conformity with written information furnished to the Company by such Holder
and stated to be specifically for use therein provided, however, that the
obligations of such Holder hereunder shall not apply to amounts paid in
settlement of any such claims, losses, damages, or liabilities (or actions in
respect thereof) if such settlement is effected without the consent of such
Holder (which consent shall not be unreasonably withheld); and provided that in
no event shall any indemnity under this Section 12.9(b) exceed the gross
proceeds from the offering received by such Holder.
(c) Each party entitled to indemnification under this Section
12.9 (the "Indemnified Party") shall give notice to the party required to
provide indemnity (the "Indemnifying Party") promptly after such Indemnified
Party has actual knowledge of any claim as to which indemnity may be sought, and
shall permit the Indemnifying Party to assume the defense of such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim
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or any litigation resulting therefrom, shall be approved by the Indemnified
Party (whose approval shall not unreasonably be withheld), and the Indemnified
Party may participate in such defense at such party's expense, and provided
further that the failure of any Indemnified Party to give notice as provided
herein shall not relieve the Indemnifying Party of its obligations under this
Section 12, to the extent such failure is not prejudicial. No Indemnifying
Party, in the defense of any such claim or litigation, shall, except with the
consent of each Indemnified Party, consent to entry of any judgment or enter
into any settlement that does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a release from
all liability in respect to such claim or litigation. Each Indemnified Party
shall furnish such information regarding itself or the claim in question as an
Indemnifying Party may reasonably request in writing and as shall be reasonably
required in connection with defense of such claim and litigation resulting
therefrom.
(d) If the indemnification provided for in this Section 12.9 is
held by a court of competent jurisdiction to be unavailable to an Indemnified
Party with respect to any loss, liability, claim, damage, or expense referred to
therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified
Party hereunder, shall contribute to the amount paid or payable by such
Indemnified Party hereunder as a result of such loss, liability, claim, damage,
or expense in such proportion as is
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appropriate to reflect the relative fault of the Indemnifying Party on the one
hand and of the Indemnified Party on the other in connection with the statements
or omissions that resulted in such loss, liability, claim, damage, or expense as
well as any other relevant equitable considerations. The relative fault of the
Indemnifying Party and of the Indemnified Party shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission to state a material fact relates to information
supplied by the Indemnifying Party or by the Indemnified Party and the parties'
relative intent, knowledge, access to information, and opportunity to correct or
prevent such statement or omission.
(e) The obligations of the parties under this Section 12.9 shall
survive the completion of the offering of Registrable Securities under the
registration statement and otherwise.
12.10. Limitations on Subsequent Registration Rights. From and after the
date of this Agreement, the Company shall not, without the prior written consent
of a majority in interest of the Holders (which consent shall not be
unreasonably withheld or delayed), enter into any agreement with any holder or
prospective holder of any securities of the Company giving such holder or
prospective holder any Registration rights the terms of which are more favorable
than the Registration rights granted to the Holders hereunder.
12.11. Rule 144 Reporting. With a view to making available to the
Holders the benefits of certain rules and regulations of
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the Commission that may permit the sale of the Restricted Securities to the
public without registration, the Company agrees, so long as any Holder owns
Registrable Securities, to:
(a) Make and keep public information regarding the Company
available as those terms are understood and defined in Rule 144 under the
Securities Act at all times;
(b) File with the Commission in a timely manner all reports and
other documents required of the company under the Securities Act and the
Exchange Act at all times that it is subject to such reporting requirements;
(c) Furnish to the Holder forthwith upon written request a
written statement by the Company as to its compliance with the reporting
requirements of Rule 144 and of the Securities Act and the Exchange Act, a copy
of the most recent annual or quarterly report of the Company, and such other
reports and documents so filed as a Holder may reasonably request in availing
itself of any rule or regulation of the Commission allowing a Holder to sell any
such securities without registration.
12.12. Transfer or Assignment of Registration Rights. The rights of any
Holder under this Agreement including, without limitation, the Registration
rights under this Section 12 may be transferred or assigned by a Holder only to
a transferee or assignee of not less than 1,000 shares of Registrable Securities
(as presently constituted and subject to subsequent adjustments for stock
splits, stock dividends, reverse stock splits, and the like), provided that the
Company is given written notice at the
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time of or within a reasonable time after said transfer or assignment, stating
the name and address of the transferee or assignee and identifying the
securities with respect to which such Registration rights are being transferred
or assigned.
12.13. Allocation of Registration Opportunities. Subject to the
provisions of any registration rights agreement entered into by the Company
prior to the date hereof and disclosed in the registration statement relating to
the Public Offering, in any circumstance in which all of the Registrable
Securities and other shares of Common Stock of the Company (including shares of
Common Stock issued or issuable upon conversion of shares of any currently
unissued series of Preferred Stock of the Company) with Registration rights (the
"Other Shares") requested to be included in a Registration on behalf of the
Holders or other selling stockholders cannot be so included as a result of
limitations on the aggregate number of shares of Registrable Securities and
Other Shares that may be so included, the number of shares of Registrable
Securities and Other Shares that may be so included shall be allocated among the
Holders and other selling stockholders requesting inclusion of shares pro rata
based upon the respective number of shares requested to be so included by the
Holders and such other selling stockholders. In the event a Holder or other
selling stockholder subsequently withdraws or reduces a request for inclusion in
such Registration of its Registrable Securities or Other Shares, as the case may
be, the number of Registrable Shares and Other Shares which may be so
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included shall be re-allocated in the same manner. The Company may not limit the
number of Registrable Securities to be included in a Registration pursuant to
this Agreement in order to include in such Registration securities registered
for the Company's own account.
12.14. Suspension of Registration Rights. No Holder may request
Registration pursuant to Section 12.6 at any time that all Registrable
Securities held by such Holder may immediately be sold under Rule 144 during any
ninety (90) day period.
12.15. Exercise Not Required. 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 of any
Registration.
13. Limitation of Liability. No provision hereof, in the absence of
affirmative action by the Holder hereof to purchase shares of Common Stock, and
no mere enumeration herein of the rights or privileges of the Holder hereof,
shall give rise to any liability of such Holder for the purchase price of the
Warrant Stock or as a stockholder of the Company, whether such liability is
asserted by the Company or by creditors of the Company.
14. Loss or Destruction of Warrant Certificates. Upon receipt of
evidence satisfactory to the Company of the loss, theft, destruction or
mutilation of any Warrant and, in the case of any such loss, theft or
destruction, upon receipt of indemnity or security satisfactory to the Company
(the original Warrant Holder's or any other institutional Warrant Holder's
indemnity
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being satisfactory indemnity in the event of loss, theft or destruction of any
Warrant owned by such institutional Holder), or, in the case of any such
mutilation, upon surrender and cancellation of such Warrant, the Company shall
make and deliver, in lieu of such lost, stolen, destroyed or mutilated Warrant,
a new Warrant of like tenor and representing the right to purchase the same
aggregate number of shares of Common Stock.
15. Furnish Information. The Company agrees that it shall deliver to the
Holder(s) of record of the Warrants promptly after their becoming available
copies of all financial statements, reports and proxy statements which the
Company shall have sent to its stockholders generally.
16. Supplements and Amendments. This Agreement and the terms of the
Warrants, and the observance of any term herein or therein, may be waived, but
only with the written consent of the holders of Warrants evidencing a majority
in number of the total number of Stock Units at the time purchasable upon the
exercise of all then outstanding Warrants; provided, however, that the Company
and the Lead Representative may from time to time supplement or amend this
Agreement without the approval of any Holders of Warrant Certificates (other
than the Lead Representative) in order to cure any ambiguity, to correct or
supplement any provision contained herein which may be defective or inconsistent
with any other provisions herein, or to make any other provisions in regard to
matters or questions arising hereunder which the Company and the Lead
Representative may deem necessary or desirable
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and which the Company and the Lead Representative deem shall not adversely
affect the interests of the Holders of Warrant Certificates; and provided,
further, however, that, except as provided herein, no such action may change the
number of shares of stock comprising a Stock Unit or the Exercise Price, without
the written consent of the holders of Warrants evidencing 100% in number of the
total number of Stock Units at the time purchasable upon the exercise of all
then outstanding Warrants. For the purposes of determining whether the holders
of outstanding Warrants entitled to purchase a requisite number of Stock Units
at any time have taken any action authorized by this Warrant, any Warrants owned
by the Company or any Affiliate of the Company (other than an institutional
investor which may be deemed an Affiliate solely by reason of the ownership of
Warrants) shall be deemed not to be outstanding.
17. Office of the Company. So long as any of the Warrants remains
outstanding, the Company shall maintain an office in Culver City, California
where the Warrants may be presented for exercise, transfer, division or
combination as in this Warrant provided. Such office shall be at 400 Corporate
Pointe, Suite 780, Culver City, California 90230, unless and until the Company
shall designate and maintain some other office for such purposes and deliver
written notice thereof to the Holders of all outstanding Warrants.
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18. Notices Generally.
18.1. All communications (including all required or permitted notices)
pursuant to the provisions hereof shall be in writing and shall be sent:
(a) if to Cruttenden Roth Incorporated, 18301 Von Karman, Suite
100, Irvine, California 92715-1009, or at such other address as it may have
furnished in writing to the Company and all other Holders of Warrants and
Warrant Stock at the time outstanding;
(b) if to LT Lawrence & Co., Inc., 3 New York Plaza, New York,
New York 10004, or at such other address as it may have furnished in writing to
the Company and all other Holders of Warrants and Warrant Stock at the time
outstanding;
(c) if to the Company, 400 Corporate Pointe, Suite 780, Culver
City, California 90230, or at such other address as it may have furnished in
writing to all Holders of Warrants and Warrant Stock at the time outstanding; or
(d) if to any other Person who is the registered Holder of any
Warrants or Warrant Stock, to the address of such Holder as it appears in the
stock or warrant ledger of the Company.
18.2. Any notice shall be deemed to have been duly delivered (a) when
delivered by hand, if personally delivered, (b) if sent by mail to a party whose
address is in the same country as the sender, two Business Days after being
deposited in the mail, postage prepaid, (c) if sent by facsimile transmission
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on a Business Day, when receipt is acknowledged or, if sent on a day that is not
a Business Day, on the next Business Day following the day on which receipt is
acknowledged and (d) if sent by recognized international courier, freight
prepaid, with a copy sent by telecopier, to a party whose address is not in the
same country as the sender, three Business Days after the later of (i) being
telecopied and (ii) delivery to such courier.
19. Rights of Action. All rights of action with respect to this
Agreement are vested in the respective registered Holders of the Warrants, and
any registered Holder of a Warrant may, in his own behalf and for his own
benefit, enforce against the Company his right to exercise his Warrants for the
purchase of shares of Common Stock in the manner provided in the Warrant
Certificate and this Agreement.
20. 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.
21. 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 Representatives and the Holders hereby agree that any
action, proceeding or claim against it arising out
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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 Representatives 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 Representatives 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 set forth in Section 18 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
Representatives 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 expenses relating to such action or
proceeding and/or incurred in connection with the preparation therefor.
22. 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
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duly signed by the party against whom enforcement of the modification or
amendment is sought.
23. 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.
24. 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.
25. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company and the
Representatives and any other registered Holder(s) of the Warrant Certificates
or Warrant Stock 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 Representatives and any other Holder(s) of the Warrant
Certificates or Warrant Stock.
26. 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 together constitute but one and the
same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
[SEAL] ALL-COMM MEDIA CORPORATION
By:
--------------------------------
Barry Peters
Chairman of the Board and Chief
Executive Officer
CRUTTENDEN ROTH INCORPORATED
By:
--------------------------------
[Name and Title]
LT LAWRENCE & CO., INC.
By:
--------------------------------
Joel L. Gold
Executive Vice President
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EXHIBIT A
FORM OF WARRANT CERTIFICATE
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR REGISTERED OR QUALIFIED UNDER ANY STATE SECURITIES LAWS. SUCH
SECURITIES MAY NOT BE SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED AT
ANY TIME WHATSOEVER UNLESS REGISTERED UNDER THE ACT AND APPLICABLE STATE
SECURITIES LAWS OR AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE, EXCEPT UPON
DELIVERY TO THE COMPANY OF AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT REGISTRATION IS NOT REQUIRED FOR SUCH TRANSFER OR THE SUBMISSION TO THE
COMPANY OF SUCH OTHER EVIDENCE AS MAY BE SATISFACTORY TO IT AND TO ITS COUNSEL
TO THE EFFECT THAT ANY SUCH TRANSFER WILL NOT BE IN VIOLATION OF THE ACT, OR
APPLICABLE STATE SECURITIES LAWS OR ANY RULE OR REGULATION PROMULGATED
THEREUNDER.
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
5:30 P.M., NEW YORK TIME, January __, 2002
No. W- _____ Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that __________, or registered
assigns, is the registered holder of Warrants to purchase initially, at any time
from ________ __, 1998 until 5:30 p.m. New York time on January __, 2002
("Expiration Date"), up to _____ fully-paid and non-assessable shares of common
stock, $.01 par value ("Common Stock") of ALL-COMM MEDIA CORPORATION, a Nevada
corporation (the "Company"), at the initial exercise price, subject to
adjustment in certain events (the "Exercise Price"), of $____ per share of
Common Stock upon surrender of this Warrant Certificate and payment of the
Exercise Price at an office or agency of the Company, but subject to the
conditions set forth herein and in the warrant agreement dated as of January __,
1997 among the Company, Cruttenden Roth Incorporated and LT Lawrence & Co., 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 as provided in
the Warrant Agreement.
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No Warrant may be exercised after 5:30 p.m., New York time, on
the Expiration Date, at which time all Warrants evidenced hereby, unless
exercised prior thereto, shall thereafter be void.
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 number of unexercised Warrants.
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 or notice 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.
A-2
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IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed under its corporate seal.
Dated as of January __, 1997
ALL-COMM MEDIA CORPORATION
[SEAL]
By:
--------------------------------
Barry Peters
Chairman of the Board and Chief
Executive Officer
A-3
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EXHIBIT B
SUBSCRIPTION FORM
(to be executed only upon exercise of Warrant)
The undersigned registered owner of this Warrant irrevocably exercises this
Warrant for and purchases Stock Units of All-Comm Media Corporation, a Nevada
corporation, purchasable with this Warrant, and herewith makes payment therefor
(by check in the amount of $__________), or hereby tenders Stock Units as
payment therefor, all at the price and on the terms and conditions specified in
this Warrant and requests that certificates for the shares of Common Stock
hereby purchased (and any securities or other property issuable upon such
exercise) be issued in the name of and delivered to___________________________
______________________________ whose address is ______________________________
and, if such Stock Units shall not include all of the Stock Units issuable as
provided in this Warrant that a new Warrant of like tenor and date for the
balance of the Stock Units issuable thereunder be delivered to the undersigned.
Dated:
-------------------------------
(Signature of Registered Owner)
-------------------------------
(Street Address)
-------------------------------
(City) (State) (zip Code)
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EXHIBIT C
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this Warrant
hereby sells, assigns and transfers unto the Assignee named below all of the
rights of the undersigned under this Warrant, with respect to the number of
Stock Units set forth below:
No. of Stock
Name and Address of Assignee Units
---------------------------- -----
and does hereby irrevocably constitute and appoint
______________________________ Attorney-in-Fact to make such transfer on the
books of All-Comm Media Corporation, a Nevada corporation, maintained for the
purpose, with full power of substitution in the premises.
Dated:
-------------------------------
Signature
-------------------------------
Witness
NOTICE: The signature to the assignment must correspond with
the name as written upon the face of the within Warrant
in every particular, without alteration or enlargement
or any change whatever.
The signature to this assignment must be guaranteed by a bank or
trust company having an office or correspondent in New York, New
York, or by a firm having membership on the New York Stock
Exchange.
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December 24, 1996
(702) 383-8888
Board of Directors
All-Comm Media Corporation
400 Corporate Pointe, Suite 780
Culver City, CA 90230
Re: All-Comm Media Corporation
Registration Statement on Form SB-2
Dear Sirs:
We have acted as special Nevada counsel for All-Comm Media Corporation,
a Nevada corporation (the "Company"), in connection with the preparation and
filing of a Registration Statement on Form SB-2 ("Registration Statement"), with
the Securities and Exchange Commission (the "Commission") under the Securities
Act of 1933, as amended (the "Act"), with respect to the registration by the
Company of four million six thousand fifty six (4,006,056) shares of common
stock, par value $.01 per share, of the Company (the "Shares"), consisting of:
(i) two million one hundred thousand (2,100,000) shares to be sold in an
underwritten public offering (the "Offering"), of which one million seven
hundred fifty thousand (1,750,000) shares will be newly issued shares ("New
Shares") and three hundred fifty thousand (350,000) shares outstanding
("Outstanding Underwritten Shares"), (ii) up to three hundred fifteen thousand
(315,000) shares subject to the over-allotment options granted to the several
underwriters (the "Underwriters") in connection with the Offering, of which one
hundred ninety thousand eight hundred twenty seven (190,827) shares will be
newly-issued shares (the "New Over-Allotment Shares") and one hundred twenty
four thousand one hundred seventy three (124,173) shares outstanding
("Outstanding Over-Allotment Shares"), (iii) two hundred ten thousand (210,000)
shares ("Warrant Shares") to be issued upon conversion of certain warrants
issued to the Representatives ("Warrants"), and (iv) one million three hundred
eighty one thousand fifty six (1,381,056) shares to be sold on a delayed basis
by certain stockholders of the Company pursuant to Rule 415 under
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All-Comm Media Corporation
December 24, 1996
Page 2
the Act (the "Delayed Shares"), of which one hundred thirty one thousand fifty
six (131,056) shares are outstanding shares (the "Outstanding Delayed Shares"),
and one million two hundred fifty thousand (1,250,000) shares (the "Conversion
Shares") issued upon conversion of the Company's Class B Convertible Preferred
Stock, par value $.01 per share, pursuant to the terms and conditions of such
securities (the "Conversion Provisions"), in connection with the
Recapitalization. Capitalized terms used in this Opinion Letter and not defined
herein shall have the meaning given to them in the Registration Statement. For
the purposes of this Opinion Letter, unless otherwise provided, we have assumed
that the Recapitalization has occurred.
We have assumed the authenticity of all documents submitted to us as
originals, the genuineness of all signatures, the legal capacity of natural
persons and the conformity to originals of all copies of all documents submitted
to us. We have relied upon the certificates of all public officials and
corporate officers with respect to the accuracy of all factual matters contained
therein, including, but not limited to, the officer's certificate attached
hereto as Exhibit A. In addition we have examined all corporate records of the
Company since April 1, 1992.
We understand that Continental Stock Transfer & Trust Company was
engaged as of April 1, 1992 to be the transfer agent ("Transfer Agent") for the
common stock, par value $.01 per share, of the Company ("Common Stock"), and not
the preferred stock, par value of $.01, per share, of the Company ("Preferred
Stock"). We assume the records of the Transfer Agent are true, accurate and
complete, and contain all transactions with respect to the Common Stock of the
Company since April 1, 1992. With respect to the Preferred Stock, we assume that
the records of the Company with respect thereto are true, accurate and complete,
and that all the 10,000 shares of the Series A Convertible Preferred Stock were
redeemed and canceled by the Company, and that all of the 6,200 shares of Series
B Convertible Preferred Stock and the 2,000 shares of Series C Convertible
Preferred Stock that were authorized for issuance were in fact issued for the
consideration provided for in the resolutions authorizing the same. Nothing has
come to our attention during the course of our examination of the above
referenced records to indicate such records are other than true and accurate.
Based upon and subject to the foregoing, and subject to the
qualifications, limitations, restrictions and assumptions set forth below, we
are of the opinion that upon receipt of the consideration called for in the
Underwriting Agreement, the Warrants and the Conversion Provisions, and issuance
and delivery of the New Shares and the Over-Allotment Shares, the Warrant Shares
and the Conversion Shares pursuant to the Underwriting Agreement, the Warrants
and the Conversion Provisions, respectively, the Shares will be duly authorized,
validly issued and outstanding, fully paid and nonassessable and the holders of
such Shares, as such holders, will not be personally liable for the obligations
of the Company.
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All-Comm Media Corporation
December 24, 1996
Page 3
Nothing herein shall be deemed an opinion as to the laws of any other
jurisdiction other than the State of Nevada.
This Opinion Letter is intended solely for the use of the Company in
connection with the registration of the Shares. It may not be relied upon by any
other person or for any other purpose, or reproduced or filed publicly by any
person, without the written consent of this firm; provided, however, we hereby
consent to the filing of this Opinion Letter as an exhibit to the Registration
Statement. We also consent to the reference to this firm under the caption
"Validity of Shares" in the Registration Statement. In giving this consent, we
do not hereby admit that we are in a category of persons whose consent is
required pursuant to Section 7 of the Act or the rules and regulations of the
Commission promulgated thereunder.
Very truly yours,
/s/ LIONEL SAWYER & COLLINS
LIONEL SAWYER & COLLINS
<PAGE>
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Amendment No. 4 to
Form SB-2 (File No. 333-14339) of our report dated September 19, 1996, except
for Note 19, as to which the date is December 17, 1996, on our audits of the
consolidated financial statements of All-Comm Media Corporation as of June 30,
1996 and for each of the two years ended June 30, 1996. We also consent to the
inclusion in this registration statement on Amendment No. 4 to Form SB-2 (File
No. 333-14339) of our report dated June 2, 1995, on our audit of the financial
statements of Stephen Dunn & Associates, Inc. as of December 31, 1994 and for
the year then ended. We also consent to the reference to our firm under the
caption "Experts".
/s/ COOPERS & LYBRAND L.L.P.
Coopers & Lybrand L.L.P.
Sherman Oaks, California
January 8, 1997
<PAGE>
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Amendment No. 4 to
Form SB-2 (File No. 333-14339) of our report dated August 29, 1996 on our audits
of the financial statements of Metro Services Group, Inc. as of December 31,
1995 and for each of the two years ended December 31, 1995. We also consent to
the reference to our firm under the caption "Experts".
/s/ COOPERS & LYBRAND L.L.P.
New York, New York
January 8, 1997
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