<PAGE>
KALEIDOSCOPE MEDIA GROUP, INC.
Common Stock
This Prospectus relates to 9,213,876 shares of Common Stock, par value
$0.001 per share (the "Common Stock"), of Kaleidoscope Media Group, Inc. (the
"Company"), which shares are being offered for sale by the persons named herein
under the caption "Selling Stockholders" (the "Selling Stockholders"). Such
shares of Common Stock are comprised of 4,665,010 shares which are currently
issued and outstanding and 4,548,866 shares which may be issued subsequent
hereto upon exercise of certain outstanding warrants. The Company will not
receive any of the proceeds from the sale of shares by the Selling Stockholders.
See "Selling Stockholders."
See "Risk Factors" commencing on page 9.
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 Company has agreed to pay all expenses of registration in
connection with this offering but will not receive any of the proceeds from the
sale of the Shares being offered hereby. All brokerage commissions and other
similar expenses incurred by the Selling Stockholders will be borne by the
Selling Stockholders. The aggregate proceeds to the Selling Stockholders from
the sale of the Shares will be the purchase price of the Shares sold, less the
aggregate brokerage commissions and underwriters' discounts, if any, and other
expenses of issuance and distribution not borne by the Company.
The Common Stock being offered hereby by the Selling Stockholders has
not been registered for sale under the securities laws of any state or
jurisdiction as of the date of this Prospectus. Brokers or dealers effecting
transactions in the Common Stock should confirm the registration thereof under
the securities law of the state in which such transactions occur, or the
existence of any exemption from registration.
The Common Stock is quoted on the OTC Bulletin Board. On May 14,
1998,(1) the closing bid price of the Common Stock was $1.29 per share.
The date of this Prospectus is May 18, 1998
- --------
(1) The closing bid price of the Common Stock on April 27, 1998 was $1.35 per
share.
2
<PAGE>
[The following language is located on the
left margin of the preliminary prospectus]
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.
3
<PAGE>
TABLE OF CONTENTS
Page
Available Information......................................................4
Incorporation of Certain Documents by Reference............................5
The Company................................................................6
Risk Factors...............................................................9
Selling Stockholders......................................................13
Plan of Distribution......................................................15
Description of Securities.................................................16
Legal Matters.............................................................18
Experts...................................................................18
No dealer, salesperson or other person has been authorized to give any
information or to make any representations not contained in this Prospectus or
incorporated by reference to this Prospectus, and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Company. This Prospectus does not constitute an offer to sell, or a
solicitation of an offer to buy, the securities offered hereby in any
jurisdiction to any person to whom it is unlawful to make such offer or
solicitation in such jurisdiction. The delivery of this Prospectus at any time
does not imply that the information contained herein is correct as of any time
subsequent to its date.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). In accordance
therewith, the Company files reports and other information with the Securities
and Exchange Commission (the "Commission"). Reports, proxy statements and other
information filed by the Company can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the Regional Offices of the
Commission at 7 World Trade Center, New York, New York 10048 and Northwestern
Atrium Center, 500 West Madison Street, Chicago, Illinois 60621. Copies of such
material may be obtained from the Public Reference Section of the Commission at
prescribed rates by writing to the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. In addition, the Commission maintains a Web site on the
Internet at http://www.sec.gov that contains reports, proxy and information
statements and other information of issuers that file electronically with the
Commission. The Company has filed with the Commission a Registration Statement
on Form S-3 under the Securities Act, with respect to the Common Stock offered
hereby. This Prospectus does not contain all the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information, reference
is made to the Registration Statement, copies of which can be obtained from the
Public Reference Section of the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, upon payment of the fees prescribed by the Commission.
4
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Incorporated herein by reference are the following documents filed by
the Company with the Commission (File No. 0-17591) under the Exchange Act:
(a) The Company's Annual Report on Form 10-KSB for its fiscal year
ended December 31, 1997.
(b) The Company's Quarterly Report on Form 10-QSB for the fiscal
quarter ended March 31, 1998.
(c) The Company's Report on Form 8-K filed with the Securities and
Exchange Commission on February 13, 1998.
(d) The Company's Report on Form 8-K filed with the Securities and
Exchange Commission on March 5, 1998.
All documents filed by the Company with the Commission pursuant to
Sections 13, and 14 and 15(d) of the Exchange Act subsequent hereto, but prior
to the termination of this offering, shall be deemed to be incorporated herein
by reference and to be a part hereof from their respective dates of filing. Any
statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement which also is or
is deemed to be incorporated by reference herein modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy
of this Prospectus is delivered, upon the written and oral request of any such
person, a copy of any or all of the documents referred to above which have been
incorporated into this Prospectus by reference (other than the exhibits to such
documents). Requests for such copies should be directed to:
Irving Greenman, Chief Financial Officer
Kaleidoscope Media Group. Inc.
345 Park Avenue South
New York, New York 10010
Telephone Number: (212) 779-6600
5
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THE COMPANY
General
The Company is a diversified entertainment, sports and direct marketing
company that operates, through subsidiaries, under three divisions.
The Entertainment Division (primarily consisting of the activities of
the Company's SeaGull Entertainment Subsidiary ("SeaGull")) is primarily engaged
in the business of developing, producing and distributing (domestically and
internationally) entertainment properties and exploiting the related licensing
and merchandising opportunities. It also provides consulting services in the
development of specialty television programming and is involved in the
acquisition and distribution of entertainment library properties.
In 1997 the Entertainment Division began production of its new
made-for-television movie "Merlin: The Magic Begins" based on that legendary
character. The title role has been cast with Jason Connery (son of Sean Connery)
and Deborah Moore (daughter of Roger Moore). This movie was delivered in March
1998 and was fully financed by the Company. The Company expects that this movie
will be distributed for broadcast internationally in 1998 and in the United
States in 1999.
In 1997, the Company began pre-production on its "Team Xtreme" series,
which represents a multi-national co-production with partners in France, Germany
and Canada. "Team Xtreme" is a weekly one-hour dramatic action series with an
ensemble cast of youthful extreme sports enthusiasts that lead the audience
through engaging plots complete with danger, drama, intrigue and passion, all
against a backdrop of extreme sports such as skysurfing, mountain climbing and
snow boarding. The Company expects that the series will be distributed for
broadcast in the Fall of 1998 in the U.S. and other territories.
In December 1997, the Company, through its Entertainment Division,
obtained rights from the Beachport Entertainment Corp. to distribute ice skating
specials. The "Ice Fantasies Collection" consists of six specials with an
all-star cast of world-class skaters such as Brian Boitano, Oksana Baiul, Elvis
Stojko, Michelle Kwan, Viktor Petrenko, Nancy Kerrigan and others.
In December 1997, the Company obtained the worldwide distribution
rights to a new 22 one-hour dramatic action TV series entitled "D.R.E.A.M.
Team." Three agents, all supermodels, are part of a covert group -- code name
D.R.E.A.M. -- whose sole purpose is to infiltrate and diffuse volatile
situations, from counter-espionage to international criminals and terrorists.
Under the cover of their photo-shoots, the supermodels work together with an
ex-CIA agent whose intelligence and espionage background set the stage for
action and adventure.
6
<PAGE>
In February 1998, the Company acquired Redrock Management's Library for
worldwide distribution of a package of specials, documentaries, movies and
mini-series. These programs enhance and expand the Company's current library of
series and specials programming.
The Company recently acquired the rights to a new children's television
property and toy line entitled "Micronauts." The Company expects that the
television property to be introduced in the Fall of 1998 as a two-hour movie
and/or five half-hour mini-series. The Company also expects that the toy line
will begin limited distribution in the Fall of 1998 and worldwide distribution
in 1999. The movie and series are based on the popular 1970's Marvel comic book
and toy line of the same name.
In 1996 SeaGull entered into a joint venture agreement with Keller
Entertainment, Inc. under the name Keller Siegel Entertainment (the "Joint
Venture"). The Joint Venture produced and distributed a two-hour movie pilot and
20 episodes of the "Tarzan: The Epic Adventures" syndicated television series
domestically in 1996 and internationally in 1997. Beginning in the Fall of 1997,
the "Tarzan: The Epic Adventures" series was renewed for another season without
any new production, but previously produced half-hours (made into hours) were
syndicated for the U.S. market only. The Joint Venture continues to maintain the
license from Edgar Rice Burroughs for the "live-action" rights to "Tarzan." The
Joint Venture intends to produce and distribute a new program entitled "The New
Adventures of Young Tarzan" via a movie pilot in 1998 and a series in 1999.
In March 1997, the Company, through its Sports Division, and Sports
Marketing, Inc. reached an agreement to create a joint venture to develop,
produce and distribute boxing tournaments both domestically and internationally.
The two companies collaborated on "Boxcino", a series of round robin boxing
matches featuring fighters from eight Latin American countries. The quarter- and
semi-finals aired on ESPN2 in May and July 1997, respectively, and the finals in
each weight class aired on ESPN in September 1997. The Company expects to
continue this franchise as well as to stage other boxing matches in 1998. As a
result, the joint venture has signed contracts with the winners and finalists in
each weight category making eight new boxers ranked in the top 10 nationally.
The Company also has the worldwide distribution rights to two daily
fitness series ("Crunch" and "Cyberfit") currently being broadcast on ESPN2 and
available for distribution in territories outside the United States. The Company
believes that "Crunch" and "Cyberfit" are two of ESPN2's highest rated fitness
series because of their high energy and employment of state of the art fitness
techniques.
The Sports Division retained from its sale of certain sports properties
to Kaleidoscope Sports and Entertainment LLC ("KS&E") its sports franchise in
boxing ("Boxcino") and fitness ("Crunch" and "Cyberfit") as well as distribution
rights to golf, air racing and other properties developed by the Sports
Division. KS&E and the Company have reached an agreement in principle to form a
joint venture to develop sports properties as well as the creation of ad sales
operations.
7
<PAGE>
The Direct Marketing Division was initiated in January 1997 when the
Company entered into a joint venture agreement with HSN Direct to form Hollywood
Connection LLC ("HC LLC"). HC LLC produced and distributed "Hollywood
Discoveries," a one-hour daily shopping program, which was broadcast in the
United States by over-the-air broadcasters and cable and satellite systems.
"Hollywood Discoveries" is designed to provide home shopping programming using
stage, screen, television, music and sports personalities to market merchandise
via taped programming in the domestic and international markets. The program met
with moderate success in the United States. The current plan for the
international market, which is expected to launch in 1998, is to offer a weekly
"best of" episode(s) and/or format rights to broadcast entities, with product
fulfillment to be handled by the various international companies associated with
HSN Direct.
As start-ups, both "Boxcino" and "Hollywood Discoveries" required
significant investments in Company resources and the Company anticipates that
they will not generate profits until 1998 and 1999.
The principal executive offices of the Company are located at 345 Park
Avenue South, New York, New York and its telephone number is (212) 779-6601.
Recent Developments
The Company has engaged Cofima Finanz AG as its placement agent in
connection with the offering, to accredited investors, of up to $4,500,000 of
the Company's Common Stock at a per share purchase price equal to the average
bid price of the Company's Common Stock during the 10 trading days prior to each
purchase provided that such purchase price shall not be less than $1.00 per
share or greater than $2.00 per share.
8
<PAGE>
RISK FACTORS
Each prospective investor should carefully consider the following risk
factors, as well as all other information set forth elsewhere in this Prospectus
and the documents incorporated by reference.
This Prospectus and the documents incorporated by reference contain
certain forward-looking statements. Actual results could differ materially from
those projected in the forward-looking statements as a result of the factors set
forth below and elsewhere in this Prospectus and the documents incorporated by
reference, including, but not limited to, (i) general economic conditions; (ii)
competitive market influence; (iii) audience appeal and cultural reviews of its
television programs; and (iv) the ability to identify, acquire the rights to,
and to develop quality properties.
Risk Factors Relating to the Company
Losses. The Company had a net loss in 1997 of $280,094 even though it
had pre-tax income of $1,172,500. The net loss was primarily due to the tax
consequences of the sale by the Company of a significant portion of the
Company's Sports Division in 1997. In 1996 the Company had $430,745 income
before taxes and $235,955 in income after taxes.
Unpredictability of Business. The entertainment and sports industry is
highly speculative and historically has involved a substantial degree of risk.
Audience appeal and profitability depend upon factors which cannot be
ascertained reliably in advance and over which the Company may have no or very
limited control, including, among other things, the unpredictability of critical
reviews and changing public tastes. Furthermore, even a production involving
highly experienced and respected talent may not be necessarily successful. The
ultimate profitability to the Company of properties and ventures in which it has
or may acquire an interest will depend upon many factors including those over
which the Company will have little or no control.
Dependence on New Products. The Company's growth will be dependent on
its ability to identify, acquire the rights to, and develop quality properties
which can be produced and sold at acceptable profit margins. It will also be
dependent on the Company's ability to negotiate in its production contracts the
necessary rights to oversee and generate revenue from the development,
production, distribution and sale of ancillary products related to the project.
There can be no assurance that the Company will be successful in identifying,
acquiring the rights to and developing quality properties that will be
successfully produced, distributed and marketed to the public. There also can be
no assurances that in its production contracts, the Company will be able to
negotiate and maintain the rights to such produced projects to generate revenue
from the sale of ancillary products. A failure to identify, acquire and develop
new properties for production, distribution and marketing to the public or a
failure to retain sufficient rights to generate revenue from the sale of
ancillary products would have an adverse impact on the Company's future
performance.
9
<PAGE>
Possible Loss of Project Development Costs. Although the Company has
participated in creating and producing many projects, the Company has had to
forego retaining substantial equity and control of distribution rights in return
for the total funding of its productions. To increase equity positions in
projects, the Company, prior to production, will be required to make larger
financial commitments for acquisition of film rights in various properties and
to bear the risk of loss of the cost of these film rights if the acquired
or developed property is not sold or produced. There can be no assurances,
however, that the Company will be able to recover all development costs or
maintain significant equity positions or distribution rights in these
productions.
Need for Additional Financing and Financing Arrangements. In order to
realize its objectives, the Company may have a need for additional capital in
the future. If so, the Company intends to seek such capital through public or
private borrowing or equity financings. Any additional equity financings may be
dilutive to stockholders, and debt financing, if available, may involve
restrictions on dividends. Adequate funds, whether obtained through financial
markets or other arrangements with corporate partners or other sources, may not
be available when needed or on terms acceptable to the Company. Insufficient
funds may require the Company to delay, scale back or eliminate some or all of
its development projects, with an adverse effect on the Company's future
performance.
The Company from time to time has obtained additional financing from
the sale of its securities and may do so in the future. The Company has also
issued warrants in connection with loans and advances to it and may do so in the
future. Finally, the Company is contemplating forming one or more limited
liability corporations to finance its projects. See, Recent Developments.
Competition. Competition in the television production industry and
multimedia industries is intense since there are numerous suppliers of product.
In the television production business the Company will compete for the
acquisition of artistic properties and the services of creative and technical
personnel with major entertainment companies that are engaged in the television
production business. The Company will also be competing for available production
financing and favorable television arrangements, and for the public's interest
in, and acceptance of, its creative products. However, as the Company attempts
to expand its product base, it expects to face greater competition from larger,
better financed and more experienced entities.
Labor Considerations in the Entertainment Industry. The cost of
producing and distributing entertainment programming has increased substantially
in recent years due to, among other things, the increasing demands of creative
talent and industry-wide collective bargaining agreements. Most scriptwriters,
performers, directors and technical personnel involved in the Company's
productions are members of guilds or unions that bargain collectively on an
industry-wide basis from time to time. Action by these guilds or other unions
can significantly disrupt production and have a material adverse effect on the
Company.
10
<PAGE>
Protection of Propriety Rights. Although the Company plans to take what
management believes are appropriate and reasonable measures to secure, protect
and maintain or obtain agreements to secure protect and maintain copyright and
other protections for all of its properties under the laws of applicable
jurisdictions, no assurance can be given that it will be successful in
implementing these actions or that others will not infringe upon the Company's
proprietary rights, in which event, the Company may not have sufficient
resources to enforce or defend these rights.
Regulation of Television and Motion Picture Industry. United States
television stations and networks, as well as foreign governments, impose
restrictions on the content of its programs. The Code and Ratings Administration
of the Motion Picture Association of America, an industry trade association,
decides ratings for age group suitability for domestic theatrical distribution
of its programs. Although it is unlikely that any of the Company's present
productions would fail to meet the criteria established for domestic and foreign
broadcast, to the extent that the Company's projects do not comply with such
standards and practices, they may be required to be edited before exhibition on
applicable television stations, networks and in foreign territories.
Retention of Key Personnel. The Company's operations are dependent upon
the services of Henry Siegel and Paul Siegel. The loss of Henry Siegel or Paul
Siegel could have a material adverse effect on the Company's business. The
Company's success also depends upon its ability to attract and retain
highly-skilled management and other personnel. Competition for such personnel is
intense, and the inability to attract and retain additional qualified employees
or the loss of current key employees could materially and adversely affect the
Company's business, operating results and financial condition.
Preferred Stock. The Company's Certificate of Incorporation authorizes
the issuance of 15,000,000 shares of Preferred Stock with designation, rights
and preferences determined from time to time by its Board of Directors.
Accordingly, the Company's Board of Directors is empowered, without stockholder
approval, to issue Preferred Stock with dividend, liquidation, conversion,
voting or other rights that could adversely affect the voting power or other
rights of the holders of the Common Stock. In the event of issuance, the
Preferred Stock could be used, under certain circumstances, as a method of
discouraging, delaying or preventing a change in control of the Company.
Risks Relating to this Offering
Volatility of Common Stock. There has been volatility in the market
price of securities of entertainment companies. Future announcements concerning
the Company or its competitors, including variations in financial results,
changes in general market conditions, governmental regulations or other
developments may have a significant impact on the market price of the Company's
Common Stock and could cause the market price of the Company's Common Stock to
fluctuate significantly. In addition, broad market fluctuations and general
economic or political conditions may adversely affect the market price of each
of the Company's securities, regardless of the Company's actual performance.
11
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No Assurance of Active Market. The Common Stock is quoted on the OTC
Bulletin Board and traded on the Frankfurt and Berlin Stock Exchanges. There can
be no assurance that an active market in the Common Stock will develop. In the
absence of an active public trading market, an investor may be unable to
liquidate his or her investment.
Nonpayment of Dividends. The Company has never declared or paid a cash
dividend on its Common Stock and does not expect to pay cash dividends in the
foreseeable future.
Dilutive Effect of Options, Warrants and Convertible Securities. As of
the date hereof, there were options and warrants outstanding to purchase an
aggregate of 5,372,866 shares of Common Stock, with exercise prices ranging from
$.25 to $1.10 per share and which will expire on various dates through March 20,
1999. If the outstanding options and warrants are exercised, the percentage of
capital stock then held by the existing stockholders will be reduced.
Furthermore, the outstanding options and warrants can be expected to be
exercised at a time when the Company would be able to obtain funds from the sale
of Common Stock or other securities at a price higher than the exercise prices
thereof. The Company has registered the sale of 4,548,866 shares of Common
Stock underlying such warrants pursuant to a registration statement of which
this Prospectus forms a part.
12
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SELLING STOCKHOLDERS
The following table sets forth certain information as of May 15, 1998
with respect to the Selling Stockholders. The number of Shares that may actually
be sold by the Selling Stockholders will be determined by the Selling
Stockholders, which may depend upon a number of factors, including, among other
things, the market price of the Common Stock.
<TABLE>
<CAPTION>
Number of Shares of Number of Shares Shares of Common Stock
Common Stock Owned of Common Stock Owned After Sale of
Name of Stockholder Before Offering (1)(4) Being Offered All Shares (2)(4)
- ------------------- ------------------ ------------- ------------------------
Number Percent
------ -------
<S> <C> <C> <C> <C>
Mt. Pleasant Investors Corp. 10,000 10,000 -0-
Hans Ray 60,000 60,000 -0-
Eco Finanz-und Umweltberatung 25,000 25,000 -0-
Heinz Reinhart 6,000 6,000 -0-
Windcraft Ltd. 50,000 50,000 -0-
Lawewe Internat, Ltd. 30,000 30,000 -0-
Pat Finance AG 250,000 250,000 -0-
Dominik Company AG 1,000,000 1,000,000 -0-
Stichting Stroeve Global Custody 165,000 165,000 -0-
Macus Wiegand 30,000 30,000 -0-
Martin F. Ruebel 30,000 30,000 -0-
Felix Gaehwiler 25,000 25,000 -0-
Ibrahim Haken Elaldi 40,000 40,000 -0-
Arzi Bank AG 100,000 100,000 -0-
Rosemarie Caviezel 26,000 26,000 -0-
International Institute for
Research in Paraplegia 20,000 20,000 -0-
Edwin Staheli 30,000 30,000 -0-
Mario Furrer 20,000 20,000 -0-
Bank Heusser & Cie AG 83,000 83,000 -0-
LaMont Asset Management SA 135,000 135,000 -0-
Priska Niklaus 10,000 10,000 -0-
Peter Bachmann 30,000 30,000 -0-
David Berchtold 250,000 250,000 -0-
Ernst Roth 20,000 20,000 -0-
Henry Siegel 3,055,000 150,000 2,905,000 9.5%
Paul Siegel 3,055,000 150,000 2,905,000 9.5%
Ray Volpe 3,055,000 150,000 2,905,000 9.5%
Catalyst Group 200,000 200,000 -0-
</TABLE>
13
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<TABLE>
<CAPTION>
Number of Shares of Number of Shares Shares of Common Stock
Common Stock Owned of Common Stock Owned After Sale of
Name of Stockholder Before Offering Being Offered All Shares (2)
- ------------------- --------------- ------------- -------------------------
Number Percent
------ -------
<S> <C> <C> <C> <C>
Peter Bucher 140,000 140,000 -0-
Crestani Guido 20,000 20,000 -0-
Daniel Schurch 30,000 30,000 -0-
Brae Limited 1,285,250 880,000(3) 405,250 1.3%
Carloway Limited 895,800 880,000(3) 15,800 *
Craignure Limited 656,000 640,000(3) 16,000 *
Staffin Limited 1,404,560 1,150,000(3) 254,560 *
Rothesay Limited 660,602 656,502(3) 4,100 *
Aran Limited 250,000 250,000 -0-
Fiscal Concepts Corp. 112,914 92,364(3) 20,550 *
Cofima Finanz AG 200,000 200,000(3) -0-
Wall Street Strategies 170,000 170,000 -0-
Redstone Securities 200,000 200,000(3) -0-
Deodora Consulting 100,000 100,000(3) -0-
Katherine Oxenberg 25,000 25,000 -0-
Dippa Nussbaum Advertising Inc. 95,010 95,010 -0-
Anthony C. Intelisano 20,000 20,000 -0-
Chesterton Trading Ltd. 440,000 440,000 -0-
DDW & Associates 130,000 130,000 -0-
Total 9,213,876
</TABLE>
- ----------
* Less than one percent.
(1) Represents those shares of Common Stock held by the Selling
Stockholders, if any, together with those shares that such Selling
Stockholders have the right to acquire within 60 days from the date of
this Prospectus.
(2) Assumes all of the Shares being offered will be sold. Because the
Selling Stockholders may sell all, some or none of the Shares that he,
she or it holds, and because the offering contemplated by this
Prospectus is not now a "firm commitment" underwritten offering, the
actual number of Shares that will be held by the Selling Stockholders
upon or prior to termination of this offering may vary. See "Plan of
Distribution."
(3) In each case other than Staffin Limited, the number of shares
represents shares issuable upon exercise of warrants. In the case of
Staffin Limited, it represents 900,000 shares issuable upon the
exercise of warrants.
(4) Does not include unrestricted shares held by unaffiliated
shareholders, the amount of such shares varies from time to time as
the holders purchase and sell such shares periodically.
The Selling Stockholders may have sold, transferred or otherwise
disposed of all or a portion of their Shares since the date on which they
provided the information regarding their Common Stock in transactions exempt
from the registration requirements of the Securities Act. Additional information
concerning the Selling Stockholders may be set forth from time to time in
prospectus supplements to this Prospectus. See "Plan of Distribution.
14
<PAGE>
PLAN OF DISTRIBUTION
Sales of the Shares may be made from time to time by the Selling
Stockholders, or, subject to applicable law, by pledgees, donees, distributees,
transferees or other successors in interest. Such sales may be made on the
over-the-counter market or foreign securities exchange (any of which may involve
crosses and block transactions), in privately negotiated transactions or
otherwise or in a combination of such transactions at prices and at terms then
prevailing or at prices related to the then current market price, or at
privately negotiated prices. In addition, any Shares covered by this Prospectus
which qualify for sale pursuant to Section 4(1) of the Securities Act or Rule
144 promulgated thereunder may be sold under such provisions rather than
pursuant to this Prospectus. Without limiting the generality of the foregoing,
the Shares may be sold in one or more of the following types of transactions:
(a) a block trade in which the broker-dealer so engaged will attempt to sell the
Shares as agent but may position and resell a portion of the block as principal
to facilitate the transaction; (b) purchases by a broker or dealer as principal
and resale by such broker or dealer for its account pursuant to this Prospectus;
(c) an exchange distribution in accordance with the rules of such exchange; (d)
ordinary brokerage transactions and transactions in which the broker solicits
purchasers; and (e) face-to-face transactions between sellers and purchasers
without a broker-dealer. In effecting sales, brokers or dealers engaged by the
Selling Stockholders may arrange for other brokers or dealers to participate in
the resales.
In connection with distributions of the Shares or otherwise, the
Selling Stockholders may enter into hedging transactions with broker-dealers. In
connection with such transactions, broker-dealers may engage in short sales of
the Shares registered hereunder in the course of hedging the positions they
assume with the Selling Stockholders. The Selling Stockholders may also sell
Shares short and deliver the Shares to close out such short positions. The
Selling Stockholders may also enter into option or other transactions with
broker-dealers which require the delivery to the broker-dealer of the Shares
registered hereunder, which the broker-dealer may resell pursuant to this
Prospectus. The Selling Stockholders may also pledge the Shares registered
hereunder to a broker or dealer and upon a default, the broker or dealer may
effect sales of the pledged Shares pursuant to this Prospectus.
Brokers, dealers or agents may receive compensation in the form of
commissions, discounts or concessions from the Selling Stockholders in amounts
to be negotiated in connection with the sale. Such brokers or dealers and any
other participating brokers or dealers may be deemed to be "underwriters" within
the meaning of the Securities Act in connection with such sales and any such
commission, discount or concession may be deemed to be underwriting discounts or
commissions under the Securities Act.
Information as to whether underwriters who may be selected by the
Selling Stockholders, or any other broker-dealer, is acting as principal or
agent for the Selling Stockholders, the compensation to be received by
underwriters who may be selected by the Selling Stockholders,
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or any broker-dealer, acting as principal or agent for the Selling Stockholders
and the compensation to be received by other broker-dealers, in the event the
compensation of such other broker-dealers is in excess of usual and customary
commissions, will, to the extent required, be set forth in a supplement to this
Prospectus (the "Prospectus Supplement"). Any dealer or broker participating in
any distribution of the Shares may be required to deliver a copy of this
Prospectus, including the Prospectus Supplement, if any, to any person who
purchases any of the Shares from or through such dealer or broker.
The Company has advised the Selling Stockholders that during such time
as they may be engaged in a distribution of the Shares included herein they are
required to comply with Regulation M promulgated under the Exchange Act. In
general, Regulation M precludes the Selling Stockholders, any affiliated
purchasers and any broker-dealer or other person who participates in such
distribution from bidding for or purchasing, or attempting to induce any person
to bid for or purchase any security which is the subject of the distribution
until the entire distribution is complete. A "distribution" is defined in the
rules as an offering of securities that is distinguished from ordinary trading
activities and depends on the "magnitude of the offering and the presence of
special selling efforts and selling methods." Regulation M also prohibits any
bids or purchases made in order to stabilize the price of a security in
connection with the distribution of that security.
It is anticipated that the Selling Stockholders will offer all of the
Shares for sale. Further, because it is possible that a significant number of
Shares could be sold at the same time hereunder, such sales, or the possibility
thereof, may have a depressive effect on the market price of the Common Stock.
DESCRIPTION OF SECURITIES
The following descriptions of the Company's securities are qualified in
all respects by reference to the Certificate of Incorporation and By-laws of the
Company. The Certificate of Incorporation authorizes the Company to issue
100,000,000 shares of Common Stock, $.001 par value, and 15,000,000 shares of
"blank check" Preferred Stock, $.001 par value (the "Preferred Stock").
Common Stock
As of the date hereof, there were 30,502,092 shares of Common Stock
outstanding. The holders of Common Stock are entitled to one vote for each share
held of record on all matters submitted to a vote of the stockholders. Subject
to preferential rights with respect to future outstanding Preferred Stock,
holders of Common Stock are entitled to receive ratably such dividends as may be
declared by the Board of Directors out of funds legally available therefor. In
the event of a liquidation, dissolution or winding up of the Company, holders of
Common Stock are entitled to share ratably in all assets remaining after payment
of liabilities and satisfaction of
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preferential rights and have no rights to convert their Common Stock into any
other securities. All shares of Common Stock have equal, non-cumulative voting
rights, and have no preference, exchange, preemptive or redemption rights.
Preferred Stock
As of the date hereof, there were no shares of Preferred Stock
outstanding. The Company's Certificate of Incorporation authorizes the issuance
of the Preferred Stock with designations, rights and preferences determined from
time to time by its Board of Directors. The Preferred Stock may be issued in
series, and the Preferred Stock of each series will have such rights and
preferences as are fixed by the Board of Directors in the resolutions
authorizing the issuance of that particular series. In designating any series of
the Preferred Stock, the Board of Directors may fix the number of shares of the
Preferred Stock constituting that series and fix the dividend rights, dividend
rate, conversion rights, voting rights (which may be greater or lesser than the
voting rights of the Common Stock), rights and terms of redemption (including
any sinking fund provisions) and the liquidation preferences of the series of
the Preferred Stock. It is possible, without any action of the stockholders of
the Company, that the holders of any series of the Preferred Stock, when and if
issued, will have priority claims to dividends and to any distributions upon
liquidation of the Company and that they may have other preferences over the
holders of the Common Stock. The Board of Directors may issue series of the
Preferred Stock without action of the stockholders of the Company.
The issuance of the Preferred Stock may be used as an anti-takeover
device without further action on the part of the stockholders. Furthermore, the
issuance of the Preferred Stock may dilute the voting power of holders of the
Common Stock (such as by issuing Preferred Stock with super-voting rights) and
may render more difficult the removal of current management, even if such
removal may be in the stockholders' best interests. The Company has no current
plans to issue any of the Preferred Stock.
Delaware Law and Certain Charter Provisions
The Company will be subject to Section 203 of the Delaware General
Corporation Law, which prohibits a Delaware corporation from engaging in a wide
range of specified transactions with any interested stockholder, defined to
include, among others, any person or entity who in the previous three years
obtained 15% or more of any class or series of stock entitled to vote in the
election of directors, unless, among other exceptions, the transaction is
approved by (i) the Board of Directors prior to the date the interested
stockholder obtained such status or (ii) the holders of two-thirds of the
outstanding shares of each class or series owned by the interested stockholder.
The Company's Certificate of Incorporation and By-laws contain certain
additional provisions which may have the effect of delaying or preventing a
change in control of the Company. Such provisions include blank check preferred
stock (the terms of which may be fixed by the Board of Directors without
stockholder approval). Accordingly, the Company's Board of Directors is
empowered, without stockholder approval, to issue Preferred Stock with dividend,
liquidation,
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conversion, voting or other rights that could adversely affect the voting power
or other rights of the holders of the Common Stock. In the event of issuance,
the Preferred Stock could be used, under certain circumstances, as a method of
discouraging, delaying or preventing a change in control of the Company.
Transfer and Warrant Agent
The transfer agent for the Common Stock is Holladay Stock Transfer, Inc.
LEGAL MATTERS
Certain legal matters in connection with the securities being offered
hereby will be passed upon for the Company by Parker Duryee Rosoff & Haft, New
York, New York 10017.
EXPERTS
The consolidated financial statements of the Company, included in the
Company's annual report on Form 10-KSB for the fiscal year ended December 31,
1997, which annual report has been incorporated herein by reference, have been
audited by Paneth, Haber & Zimmerman LLP, independent certified public
accountants, as indicated in their report with respect thereto, and are
incorporated herein by reference in reliance upon the report of said firm given
upon their authority as experts in accounting and auditing.
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