<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 18, 1996
REGISTRATION NO. 333-07675
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------
AMENDMENT NO. 1
to
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
THE PRODUCERS ENTERTAINMENT GROUP LTD.
(Exact name of registrant as specified in its charter)
Delaware 7922 95-4233050
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
9150 Wilshire Boulevard
Beverly Hills, California 90212
(310) 285-0400
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
Arthur Bernstein
Senior Vice President
9150 Wilshire Blvd.
Beverly Hills, California 90212
(310) 285-0400
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
Copies to:
Melvin Katz, Esq. Rubi Finkelstein, Esq.
Maloney, Gerra, Mehlman & Katz Orrick, Herrington & Sutcliffe
405 Lexington Avenue 666 Fifth Avenue
New York, New York 10174 New York, New York 10103
(212) 973-6900 (212) 506-5000
Approximate date of commencement of proposed sale to the 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, check the following box. [X]
------
The Registrant hereby amends this Registration Statement on such dates as
may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the Registration Statement shall
become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
==============================================================================
<PAGE>
THE PRODUCERS ENTERTAINMENT GROUP LTD.
CROSS-REFERENCE SHEET
PURSUANT TO REGULATION S-B
<TABLE>
<CAPTION>
Form SB-2 Item Prospectus Caption
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<S> <C> <C>
1. Front of Registration Statement and Outside Front
Cover Page of Prospectus ............................... Outside Front Cover Page of Prospectus
2.
Inside Front and Outside Back Cover Pages of
Prospectus.............................................. Inside Front and Outside Back Cover Pages of
Prospectus
3. Summary Information and Risk Factors.................... Prospectus Summary; Risk Factors
4. Use of Proceeds......................................... Prospectus Summary; Use of Proceeds
5. Outside Front Cover Page of Prospectus; Risk
Determination of Offering Price......................... Factors; Underwriting
6. Dilution ............................................... Dilution
7. Selling Security Holders ............................... Selling Securityholders
8. Plan of Distribution.................................... Underwriting
9. Legal Proceedings....................................... Legal Proceedings
10. Directors, Executive Officers, Promoters and
Control Persons......................................... Management
11. Security Ownership of Certain Beneficial
Owners.................................................. Principal Stockholders
12. Description of Securities............................... Description of Securities
13. Interest of Named Experts and Counsel................... Legal Matters; Experts
14. Disclosure of Commission Position on Indemnification
For Securities Act
Liabilities............................................. Not Applicable
15. Organization Within Last Five Years..................... Prospectus Summary; The Company; Risk Factors; Recent Bridge
Financing; Dividend Policy; Selected Financial Data;
Management's Discussion and Analysis of Financial Condition
and Results of Operations; Business; Management; Certain
Transactions; Principal Stockholders; Financials
16. Description of Business ................................ Business
17.
Management's Discussion and Analysis of Plan of
Operation .............................................. Management's Discussion and Analysis of Financial Condition
and Results of Operations
18. Description of Property ................................ Business
19. Certain Relationships and Related
Transactions............................................ Certain Transactions
20. Market for Common Equity and Related Stockholder
Matters................................................. Market for Common Equity and Series A Preferred Stock
21. Executive Compensation.................................. Management
22. Financial Statements.................................... Financial Statements
23.
Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure..................... Experts
</TABLE>
<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 JULY 18, 1996
PROSPECTUS
THE PRODUCERS ENTERTAINMENT GROUP LTD.
2,000,000 UNITS
EACH UNIT CONSISTING OF FOUR SHARES OF COMMON STOCK
AND TWO REDEEMABLE WARRANTS
------
This Prospectus relates to an offering (the "Offering") of 2,000,000 units
(the "Units"), each Unit consisting of four shares of common stock, $.001 par
value per share (the "Common Stock"), and two redeemable common stock
purchase warrants ("Redeemable Warrants") of The Producers Entertainment
Group Ltd., a Delaware corporation ("TPEG" or the "Company"). The Units,
Common Stock and Redeemable Warrants will be separately tradeable commencing
upon the date of their issuance. Each Redeemable Warrant entitles the
registered holder thereof to purchase one share of Common Stock at a price of
$1.75, subject to adjustment, at any time from issuance until
_______________, 2001, [the fifth anniversary of the date of this
Prospectus,] (the "Expiration Date"). The Redeemable Warrants are subject to
redemption by the Company commencing _______________, 1997, [12 months from
the date of this Prospectus,] at a redemption price of $0.05 per Redeemable
Warrant on 30 days' prior written notice, provided that (i) the average
closing bid price (or last sales price) of the Common Stock as reported on
the National Association of Securities Dealers Automated Quotation System (or
on such exchange on which the Common Stock is then traded), equals or exceeds
150% of the per share exercise price of the Redeemable Warrants, subject to
adjustment, for any 20 trading days within a period of 30 consecutive trading
days ending on the fifth trading day prior to the date of notice of
redemption and (ii) the Company shall have obtained written consent from
Joseph Stevens & Company, L.P. (the "Underwriter") to redeem the Redeemable
Warrants. See "Description of Securities."
The Company's Common Stock is publicly traded on NASDAQ's SmallCap Market
("NASDAQ") under the symbol "TPEG" and on the Boston Stock Exchange under the
symbol "PEG." On July 16, 1996, the closing bid price for the Common Stock on
NASDAQ was $1.12. See "Market for Common Equity and Related Shareholder
Matters." Prior to the Offering, there has been no public market for the
Units or the Redeemable Warrants, and there can be no assurance that markets
for these securities will develop after the completion of the Offering or, if
developed, that such markets will be sustained. The initial public offering
price per Unit and the term of the Redeemable Warrants were determined by
negotiation between the Company and the Underwriter. For information
regarding the factors considered in determining the initial public offering
price of the Units and the terms of the Redeemable Warrants, see "Risk
Factors" and "Underwriting." Application has been made for, and it is
anticipated that upon the consummation of the Offering, the Units and the
Redeemable Warrants will be approved for quotation on NASDAQ under the
symbols "TPEGU" and "TPEGX," respectively, and listed on the Boston Stock
Exchange ("BSE") under the symbols "PEGU" and "PEGX," respectively.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. SEE "RISK FACTORS" BEGINNING ON PAGE 7 AND
"DILUTION."
------
THE 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.
=============================================================================
Price Underwriting Proceeds to
to Public Discounts(1) Company(2)
- -----------------------------------------------------------------------------
Per Unit .... $ $ $
- -----------------------------------------------------------------------------
Total (3) ... $ $ $
=============================================================================
(1) Does not reflect additional compensation to the Underwriter in the form
of a non-accountable expense allowance. In addition, see "Underwriting"
<PAGE>
for information concerning indemnification and contribution arrangements,
and other compensation payable to the Underwriter.
(2) Before deducting estimated expenses of $525,000 payable by the Company,
including the Underwriter's non-accountable expense allowance.
(3) The Company has granted the Underwriter an option, exercisable within 45
days from the date of this Prospectus, to purchase up to 300,000
additional Units upon the same terms set forth above, solely to cover
over-allotments, if any. If such over-allotment option is exercised in
full, the total Price to Public, Underwriting Discounts and Proceeds to
the Company will be $_______________, $_______________ and
$_______________, respectively. See "Underwriting."
JOSEPH STEVENS & COMPANY, L.P.
_______________, 1996
<PAGE>
(continued from cover page)
The Units are being offered by the Underwriter, subject to prior sale,
when, as and if delivered to and accepted by the Underwriter, and subject to
the approval of certain legal matters by their counsel and subject to certain
other conditions. The Underwriter reserves the right to withdraw, cancel or
modify the Offering and to reject any order in whole or in part. It is
expected that delivery of the Units offered hereby will be made against
payment therefor at the offices of Joseph Stevens & Company, L.P., New York,
New York on or about _______________, 1996.
This Prospectus also relates to 500,000 redeemable warrants (the "Selling
Securityholder Warrants") which will be issued upon consummation of the
Offering to certain security holders (the "Selling Securityholders") upon the
automatic conversion of warrants (the "Bridge Warrants") issued to the
Selling Securityholders in a private financing in June, 1996 (the "Bridge
Financing"). The terms and conditions of the Selling Securityholder Warrants
are identical to those governing the Redeemable Warrants. From and after the
date of consummation of the Offering, the Selling Securityholders may offer
for resale at any time or from time to time pursuant to this Prospectus such
Selling Securityholders Warrants and/or the 500,000 shares of Common Stock
(the "Selling Securityholder Shares") issuable upon exercise of such Selling
Securityholder Warrants. Neither the Selling Securityholder Warrants nor the
Selling Securityholder Shares may be sold for a period of 18 months from the
effective date of the Registration Statement without the prior written
consent of the Underwriter. Furthermore, the Company has agreed to sell to
the Underwriter, for nominal consideration, Underwriter's Warrants to
purchase from the Company 200,000 Units. The Underwriter's Warrants are
initially exercisable at a price equal to 120% of the initial public offering
price per Unit and may be exercised at any time during the four year period
commencing on the first anniversary of the date of issuance. The Units
issuable upon exercise of the Underwriter's Warrants are identical to those
offered to the public.
Neither the Selling Securityholder Warrants, the Selling Securityholder
Shares nor the Underwriter's Warrants are being offered or sold pursuant to
the Offering. The Company will not receive any proceeds from the sale of the
Selling Securityholder Warrants, the Selling Securityholder Shares, the
Underwriter's Warrants or the securities underlying the Underwriter's
Warrants by the holders thereof, although the Company will receive proceeds
from the exercise, if any, of the Selling Securityholder Warrants, or the
Redeemable Warrants underlying the Underwriter's Warrants. See "Underwriting"
and "Selling Securityholders."
The Company intends to furnish to registered holders of Units, Redeemable
Warrants and Common Stock, annual reports containing financial statements
examined by an independent accounting firm and quarterly reports for the
first three quarters of each fiscal year containing interim unaudited
financial information.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE UNITS,
COMMON STOCK AND REDEEMABLE WARRANTS AT LEVELS ABOVE THAT WHICH MIGHT
OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON
NASDAQ, THE BOSTON STOCK EXCHANGE OR OTHERWISE. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
PROSPECTUS SUMMARY
The following summary does not purport to be complete and is qualified in
its entirety by the more detailed information and financial data appearing
elsewhere in this Prospectus. An investment in the securities offered hereby
is highly speculative in nature, involves a high degree of risk and should
only be made by investors who can bear the economic risk of a potential loss
of their entire investment. Prospective purchasers should carefully consider
the information set forth under "Risk Factors" before purchasing such
securities. Unless otherwise indicated, all information contained in this
Prospectus (i) assumes no exercise of the Underwriter's over-allotment
option, (ii) excludes shares of Common Stock issuable upon exercise of the
common stock purchase warrants (the "Placement Agent Warrants"), issued to
the Underwriter in connection with the Bridge Financing, all of which will be
canceled prior to consummation of the Offering, (iii) excludes shares of
Common Stock issuable upon exercise of the Redeemable Warrants included in
the Units offered hereby, (iv) excludes shares of Common Stock issuable upon
exercise of the Selling Securityholder Warrants, (v) excludes securities
issuable upon exercise of the Underwriter's Warrants and (vi) gives effect to
a one-for-four reverse stock split of the Common Stock effected on June 3,
1996 (the "Reverse Stock Split").
THE COMPANY
The Producers Entertainment Group Ltd. (the "Company") is engaged in the
acquisition, development, production and distribution of dramatic, comedy,
documentary and instructional television series, movies and theatrical motion
pictures ("projects"). The Company's projects are distributed in the United
States and in international markets for exhibition on standard broadcast
television (network and syndication), basic cable and pay cable, video and
theatrical release. The Company is also engaged in the business of personal
management of performers and writers.
The Company's completed projects include Dave's World, a comedy series
that airs on the CBS television network, Lily Dale, a movie produced for the
Showtime cable network, Future Quest, a series that originally aired on the
Public Broadcasting System ("PBS"), and What's Love Got To Do With It, a
theatrical motion picture released by Disney's Touchstone Pictures in 1993.
The Company receives fees for providing producer and executive producer
services and is generally also entitled to a profit participation from the
projects.
To produce a project, the Company first acquires the rights to a story,
book or script ("property"). The Company then typically secures a financing
or production commitment for the project from third parties, such as
broadcast and cable networks, studios, distributors, and independent
investors, prior to expending substantial funds in the development process.
However, the Company does advance its own funds to meet the interim costs of
development and production which amounts are generally repaid to the Company
pursuant to the production contracts.
The Company then "packages" the property, assembling the screenplay,
teleplay or outline of the program with the director and actors. Upon
approval of the third party that is financing or purchasing the project, the
Company commences pre-production, selecting locations, securing agreements
with performers, director and production staff, and procuring necessary sets,
props and other equipment. During the principal photography phase, the
project is produced on tape or film pursuant to a predetermined schedule and
budget. The film or tape is then transformed into a completed project during
the post-production phase, through editing, the addition of sound effects,
musical scoring and other technical processes.
Completed projects not purchased outright are distributed by independent
third parties who have the distribution rights in certain territories for a
specific period of time. The Company typically retains certain distribution
rights after such period expires. The Company may obtain advances against
domestic and international distribution revenues in order to finance
development and production. The Company intends to establish a separate
international distribution division for the distribution of its own and other
producers' projects.
3
<PAGE>
The Company manages the careers of 15 performers and writers, including
Julia Louis-Dreyfus (Seinfeld), George Newborn (Father of the Bride),
Rosaline Allen (Seaquest), and Michael Stoyanov (Blossom). The Company
intends to increase the staff of its personal management division in order to
attempt to expand its client roster.
THE OFFERING
Securities Offered By the
Company...................... 2,000,000 Units, each consisting of four
shares of Common Stock and two Redeemable
Warrants. The Common Stock and Redeemable
Warrants will be separately tradeable
immediately upon issuance. See "Description
of Securities -- Units." Each Redeemable
Warrant entitles the holder to purchase one
share of Common Stock for $1.75 per share,
subject to adjustment, exercisable from the
date of issuance until _______________,
2001, [the fifth anniversary of the date of
this Prospectus]. The Company may redeem the
Redeemable Warrants commencing
_______________, 1997, [12 months from the
date of this Prospectus], at a redemption
price of $0.05 per Redeemable Warrant on
thirty days' prior written notice, provided
that (i) the average closing bid price (or
last sales price) of the Common Stock as
reported on NASDAQ (or on such exchange on
which the Common Stock is then traded)
equals or exceeds 150% of the per share
exercise price of the Redeemable Warrants,
subject to adjustment, for any 20 trading
days within a period of 30 consecutive
trading days ending on the fifth trading day
prior to the date on which the notice of
redemption is given and (ii) the Company
shall have obtained written consent from the
Underwriter to redeem the Redeemable
Warrants. See "Description of Securities."
Securities offered by Selling
Securityholders.............. 500,000 Selling Securityholders Warrants,
which will be issued to the Selling
Securityholders upon the automatic
conversion of the Bridge Warrants, and an
aggregate of 500,000 shares of Common Stock
issuable upon exercise of the Selling
Securityholder Warrants. The Selling
Securityholder Warrants and the shares of
Common Stock being registered for the
account of the Selling Securityholders at
the Company's expense are not being
underwritten in the Offering, but may be
offered for resale at any time on or after
the date hereof by the Selling
Securityholders provided prior consent is
given by the Underwriter to the Selling
Securityholders. The Company will not
receive any proceeds from the sale of these
securities, although it will receive
proceeds from the exercise, if any, of the
Selling Securityholder Warrants. See "Recent
Bridge Financing," "Concurrent Offering" and
"Selling Securityholders."
Common Stock Outstanding
Before Offering............... 3,305,210 shares (1)
After Offering................ 11,305,210 shares (1)
Redeemable Warrants
Outstanding After the
Offering..................... 4,500,000 Redeemable Warrants (2)
Use of Proceeds................ Of the net proceeds of the Offering (i)
approximately $500,000 will be used to repay
the indebtedness incurred by the Company in
the Bridge Financing and (ii) approximately
$100,000 will be used to repay a short term
working capital loan. The balance of such
net proceeds will be utilized by the Company
for interim financing of
4
<PAGE>
production costs during forthcoming 12 month
period (approximately $1,200,000), the
establishment and operation of the planned
international distribution division
(approximately $650,000), acquisitions by
the planned international distribution
division of products (approximately
$2,000,000), acquisition of rights for new
projects (approximately $150,000), payment
of annual cash dividends on its Series A
Stock (approximately $425,000), working
capital and general corporate purposes
(approximately $1,650,000). See "Use of
Proceeds."
Risk Factors................... The securities offered hereby are highly
speculative and involve a high degree of
risk. Prospective investors should carefully
review and consider the factors set forth
under "Risk Factors" and "Dilution" as well
as other information contained herein,
before purchasing any of the Units.
Proposed NASDAQ SmallCap
Symbols...................... Units: TPEGU
Common Stock: TPEG
Redeemable Warrants: TPEGX
Proposed Boston Stock Exchange
Symbols...................... Units: PEGU
Common Stock: PEG
Redeemable Warrants: PEGX
- ------
(1) Excludes (i) 357,917 shares of Common Stock issuable upon the exercise of
outstanding stock options at exercise prices ranging between $1.12 per
share and $13.00 per share, (ii) 250,000 shares of Common Stock issuable
upon the exercise of the Company's Class B Warrants at an exercise price
of $8.00 per share, (iii) up to 1,250,000 shares of Common Stock issuable
upon the conversion of the Company's Series A 8 1/2 % Convertible
Preferred Stock, $.001 par value (the "Series A Stock") on the basis of
1.25 shares of Common Stock for each outstanding share of Series A Stock,
(iv) 40,250 shares of Common Stock issuable upon the exercise of warrants
which were issued in connection with the Company's 1993 bridge financing
at an exercise price of $7.70 per share, (v) 150,000 shares of Common
stock issuable in connection with the option to purchase units (each unit
consisting of one share of Series A Stock and one Class B Warrant) at an
exercise price of $7.00 per unit granted to the underwriter with respect
to the Company's public offering of such securities in December 1994,
(vi) 41,667 shares of Common Stock issuable in connection with the option
to purchase units (each unit consisting of two shares of Common stock) at
an exercise price of $7.20 per unit granted to the underwriter with
respect to the Company's 1993 public offering of securities, (vii) up to
250,000 shares of Common Stock issuable pursuant to options which may be
granted under the Company's Stock Option Plan, (viii) 187,500 shares of
Common Stock issuable upon the exercise of outstanding stock options
granted to an investment banking firm and its affiliate in connection
with an agreement in 1995 to render financial advisory services to the
Company at an exercise price of $4.00 per share, (ix) 57,500 shares of
Common Stock which may become issuable pursuant to the terms and
conditions of an agreement in principle with respect to the proposed
settlement of the action DSL Entertainment, Joint Venture, a California
Joint Venture v. DSL Productions, Inc., and (x) 50,000 shares of Common
Stock issuable upon the exercise of stock options to be granted in August
1996 to the Company's recently appointed Chief Financial Officer at an
exercise price equal to the fair market value of the Common Stock on the
date of grant. As of the date of this Prospectus, it is uncertain whether
the action referred to in (ix) above will become the subject of a
definitive settlement on the terms described therein. See "Business --
Legal Proceedings.
(2) Includes 500,000 Selling Securityholder Warrants. See "Recent Bridge
Financing," "Concurrent Offering," and "Selling Securityholders."
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The summary financial information set forth below is derived from the
financial statements of the Company appearing elsewhere in this Prospectus.
In May 1994, the Company acquired DSL Productions, Inc. and its affiliates
("DSL") for 32,500 shares of Common Stock. The acquisition was accounted for
as a pooling of interests and accordingly all of the information below has
been restated to reflect the combined results. This information should be
read in conjunction with such financial statements, including the notes
thereto, appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended June 30, March 31,
-------------------------- --------------------------
1994 1995 1995 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenues ............................ $ 10,783 $ 5,291 $ 4,971 $ 2,133
(Loss) from operations .............. (5,043) (3,510) (2,435) (1,250)
Net (loss) .......................... (5,490) (3,826) (2,900) (1,319)
Net (loss) per share ................ (2.34) (1.52) (1.17) (.46)
Average number of shares outstanding . 2,341,500 2,513,130 2,482,694 2,898,850
</TABLE>
<TABLE>
<CAPTION>
June 30, March 31, 1996
--------------------- ------------------------------------
Pro Forma
Pro As
1994 1995 Actual Forma(1) Adjusted(2)
-------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets ............. $7,607 $4,385 $4,292 $4,792 $10,730
Short-term debt .......... 1,389 0 100 600 0
Long-term debt ........... 0 0 0 0 0
Total liabilities ........ 6,205 1,796 2,744 3,244 2,644
Total shareholders' equity . 1,402 2,588 1,549 1,549 8,086
</TABLE>
- ------
(1) As adjusted to reflect the consummation (a) on June 7, 1996 of a bridge
financing (the "Bridge Financing") pursuant to which the Company issued
an aggregate of (i) $500,000 principal amount of promissory notes (the
"Bridge Notes") which bear interest at the rate of 10% per annum and will
be repaid from the proceeds of the Offering and (ii) 500,000 warrants
(the "Bridge Warrants"), each warrant entitling the holder to purchase
one share of Common Stock at an initial exercise price of $1.12, which
Bridge Warrants will be automatically exchanged for the Selling
Securityholder Warrants upon consummation of the Offering. As part of the
Bridge Financing, approximately $138,000 has been reflected as deferred
financing costs and original issue discount. See " Recent Bridge
Financing."
(2) As adjusted to reflect the sale of the Units offered by the Company
hereby at the assumed initial public offering price of $4.00 per Unit and
the application of the net proceeds therefrom. See "Use of Proceeds."
Upon repayment of the Bridge Notes, the Company will record a loss of
approximately $138,000 resulting from the extinguishment of the Bridge
Notes. This loss arises as a result of expensing approximately $138,000
of the deferred financing costs and original issue discount on the Bridge
Notes.
6
<PAGE>
RISK FACTORS
The securities offered hereby are speculative in nature and involve a high
degree of risk. Each prospective investor should carefully consider, along
with the other matters discussed in this Prospectus, the following risk
factors inherent in, and affecting the business of, the Company before making
an investment decision.
In addition to the historical information contained herein, the discussion
in this Prospectus contains forward-looking statements with respect to the
Company and its operations that involve risks and uncertainties. The
Company's actual results could differ materially from those discussed herein.
Factors that could cause or contribute to such differences include, but are
not limited to, those discussed under this caption, "Management's Discussion
and Analysis of Financial Condition and Results Operations" ("MD&A"), and
elsewhere in this Prospectus.
FACTORS AFFECTING THE COMPANY'S LIQUIDITY AND CAPITAL RESOURCES
The Company's cash commitments for the forthcoming 12 months include
aggregate minimum base compensation of approximately $975,000 to its existing
officers and key independent contractors and minimum office rent of
approximately $230,000 and a note payable of $100,000 (aggregating
approximately $1,305,000). The Company also incurs overhead and other costs
such as salaries, related benefits, office expenses, professional fees and
similar expenses. For the Company's fiscal year ended June 30, 1995, general
and administrative expenses, which included compensation and rent, aggregated
$4,696,554. For the nine months ended March 31, 1996, general and
administrative expenses, which included compensation and rent, aggregated
approximately $2,666,000. The Company also advances considerable funds on the
production and development of projects. Dividends on the Company's
outstanding Series A Stock aggregate $425,000 annually and, at the Company's
option, may be paid in shares of Common Stock or in cash. Assuming
consummation of the Offering, however, the Company has agreed that it will
not pay such dividends on the Series A Stock in shares of its Common Stock
without the consent of the Underwriter during the 18 month period following
the effective date of this Prospectus. The cash required to satisfy such
Series A Stock dividend requirements will not be available for business and
working capital purposes. Since the Company, as noted under "Use of Proceeds"
and "Business," has hired a new Chief Financial Officer and intends to hire
support personnel, establish a new international distribution division and
expand the staff of its personal management division, these working capital
requirements will increase significantly.
At March 31, 1996, the Company had cash and cash equivalents of $81,268
and accounts receivable of $714,779 (aggregating approximately $796,000). At
March 31, 1996, the Company also had accounts payable and accrued expenses
aggregating approximately $492,000. As of the date hereof, the Company has no
arrangements for external sources of financing such as bank lines of credit.
If the Company continues to report losses and expends additional funds on
development and production of projects in excess of its current resources and
future cash receipts, the Company will be required to reduce its expenses to
a level commensurate with revenues, raise additional capital and/or borrow
funds to sustain its operations.
The Company believes that the estimated net proceeds to be received by it
from the Offering, together with funds derived from its operations, will be
sufficient to meet the Company's working capital requirements for a period of
at least 12 months following the consummation of this Offering. Thereafter,
if the Company is unable to generate sufficient working capital from its
operations to meet its then prevailing business requirements, it will be
required to seek additional debt or equity financing from external sources
and there can be no assurance that such financing, if any, will then be
available on terms acceptable to the Company. If such financing becomes
necessary and is not available, the Company's business would be materially
adversely affected.
Furthermore, if external sources of financing are not available to the
Company and future cash revenues are not sufficient to meet the Company's
cash needs, the Company plans to reduce the compensation of its officers,
office staff and other personnel and the number of development projects that
it will fund. While management has effected significant reductions in its
general and administrative expenses during the past year, the Company has not
made any specific plans or entered into any agreements to reduce the level of
its expenditures in the event that such reductions become necessary in the
future.
HISTORY OF OPERATING LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY; ACCUMULATED
DEFICIT
For the fiscal years ended June 30, 1993, 1994 and 1995, the Company had
revenues of $7,180,569, $10,782,850 and $5,290,745, respectively, and
incurred net losses of $4,284,207, $5,489,523 and $3,593,252
7
<PAGE>
(without giving effect to dividends of $232,600 with respect to the Series A
Stock which were paid by the Company by issuing shares of Common Stock),
respectively, including the impact of the Company's acquisition of DSL
Productions Inc. and its affiliates (collectively, "DSL Productions") in May
1994 on a pooling of interests basis. For the nine months ended March 31,
1996, the Company had revenues of $2,132,767 and incurred a net loss of
$1,000,585 (without giving effect to dividends of $318,750 with respect to
the Series A Stock which were paid by the Company by issuing shares of its
Common Stock). The Company expects to incur a loss from operations for its
fiscal year ending June 30, 1996. As the Company increases its operating
expenses to establish an international distribution division and increase the
staff of the personal management division, operating losses are expected to
increase in the short-term future. There can be no assurance that the Company
will become profitable in future fiscal periods. As of March 31, 1996, the
Company's operations have resulted in an accumulated deficit of $12,735,629.
As indicated in Note 2 of Notes to Consolidated Financial Statements of the
Company, such Financial Statements have been prepared on a basis which
contemplates the continuation of the Company as a going concern including the
realization of assets and liquidation of liabilities in the ordinary course
of business. See "Notes to Consolidated Financial Statements."
TELEVISION AND FEATURE FILM INDUSTRY; INTENSE COMPETITION
The television industry is highly competitive and involves a substantial
degree of risk. The Company competes with many other television and motion
picture producers which are significantly larger and have financial resources
which are far greater than those available to the Company now or in the
foreseeable future. The television industry is subject to technological
developments, the effects of which management is unable to predict. The
television industry is also subject to governmental regulation by the Federal
Communications Commission (the "FCC"). The networks are currently limited by
the Financial Interest and Syndication Rules of the FCC in the amount of
programming they may produce and the rights which they may retain in
programs. These rules were recently relaxed in favor of the networks. The
relaxation in the Financial Interest and Syndication Rules could adversely
impact the Company as a result of potential increased competition from the
networks. The Company also expects to derive revenues from the feature film
industry. The feature film industry is also highly competitive and involves a
substantial degree of risk. The Company competes with major film studios and
other independent producers, most of which are significantly larger and have
financial resources which are far greater than those available to the Company
now or in the foreseeable future. The Company's success depends upon its
ability to produce programming for television and theatrical release which
will appeal to markets characterized by changing popular tastes. There is no
assurance that the Company will continue to acquire and develop products
which can be made into made-for-television movies, television series or
theatrical releases which will result in profits to the Company in light of
the competition confronting the Company.
LABOR RELATIONS
Many individuals associated with the Company's productions, including
actors, writers and directors, are members of guilds or unions which bargain
collectively with producers on an industry-wide basis from time to time. The
Company's operations are dependent on its compliance with the provisions of
collective bargaining agreements governing relationships with these guilds
and unions. Strikes or other work stoppages by members of these unions could
delay or disrupt the Company's activities but the extent to which the
existence of collective bargaining agreements may affect the Company in the
future is not currently determinable.
BROAD DISCRETION IN APPLICATION OF PROCEEDS
A significant portion of the estimated net proceeds of this Offering has
been allocated to working capital and general corporate purposes. Management
will have broad discretion as to the application of such proceeds.
RELIANCE ON KEY PERSONNEL
The Company is substantially dependent upon the services of a limited
number of executives, including Irwin Meyer, Chief Executive Officer,
President and Chairman, the loss of whose services would have a mate-
8
<PAGE>
rial adverse effect on the Company and its operations. Currently, the Company
does not have "key-person" life insurance with respect to any of its
executives; however, the Company has agreed to apply for "key-person" life
insurance on the life of Mr. Meyer in the amount of $1,000,000. The proceeds
of such policy will be payable solely to the Company.
DILUTION
Purchasers of Units offered hereby will incur an immediate and substantial
dilution in the net tangible book value of the Common Stock. Dilution
represents the difference between the price of the Common Stock sold hereby
and the pro forma net tangible book value per share of the Company after the
Offering. Additional dilution to future net tangible book value per share may
occur upon the exercise of the Redeemable Warrants, the Selling
Securityholders Warrants the Underwriter's Warrants and other options and
warrants (currently outstanding or subsequently granted) to purchase the
Company's Common Stock. The immediate dilution per share of Common Stock, to
purchasers of the Units offered hereby is $.28 per share or 28% per share
(assuming an initial public offering price of $4.00 per Unit and assuming no
value is attributable to the Redeemable Warrants included in the Units). See
"Dilution."
EFFECT OF OUTSTANDING OPTIONS, WARRANTS AND CONVERTIBLE STOCK
For the respective terms of the outstanding options and warrants granted
by the Company and the outstanding Series A Stock, the holders thereof are
given an opportunity to profit from a rise in the market price of the
Company's Common Stock. As of the date of this Prospectus, 2,277,334 shares
of Common Stock (or an additional 20.1% of the outstanding Common Stock after
consummation of the Offering) are issuable upon the exercise of outstanding
options and warrants granted by the Company and conversion of the Company's
outstanding Series A Stock at prices ranging from $1.12 to $13.00 per share.
Although these options and warrants and shares of convertible stock are
exercisable or convertible at prices which significantly exceed the currently
prevailing market prices of the Company's Common Stock, their existence could
potentially limit the scope of increases in the market value of the Company's
Common Stock which might otherwise be realized. The terms on which the
Company may obtain additional financing during the respective terms of these
outstanding stock options, warrants and convertible stock may be adversely
affected by their existence. The holders of such stock options, warrants and
convertible stock may exercise or convert such securities, as the case may
be, at times when the Company might be able to obtain additional capital
through one or more new offerings of securities or other forms of financing
on terms more favorable than those provided by such stock options, warrants
and convertible stock.
ANTITAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND
DELAWARE LAW
The Company's Certificate of Incorporation authorizes the issuance of up
to 10,000,000 shares of "blank check" Preferred Stock. The Company has
1,000,000 shares of Series A Stock issued and outstanding and an additional
100,000 shares of Series A Stock reserved for issuance. The balance of
8,900,000 authorized shares of Preferred Stock are available for issuance.
The Board of Directors has the authority to issue the Preferred Stock in one
or more series and to fix the relative rights, preferences and privileges and
restrictions thereof, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series of such
Preferred Stock or the designation of such series. The issuance of Preferred
Stock may have the effect of delaying, deferring or preventing a change in
control of the Company without further action by the stockholders of the
Company. The issuance of Preferred Stock with voting and conversion rights
may adversely affect the voting power of the holders of the Common Stock,
including the loss of voting control to others. See "Description of
Securities."
The Company is subject to Section 203 of the Delaware General Corporation
Law which, subject to certain exceptions, prohibits a Delaware corporation
from engaging in any business combination with any interested stockholder for
a period of three years following the date that such stockholder became an
interested stockholder. In general, Section 203 defines an interested
stockholder as any entity or person beneficially owning 15% or more of the
outstanding voting stock of the corporation and any entity or person
affiliated with or controlling or controlled by such entity or person. The
foregoing provisions could have the effect of discouraging others from
9
<PAGE>
making tender offers for the Company's shares of Common Stock and, as a
consequence, they also may inhibit fluctuations in the market price of the
Company's shares that could result from actual or rumored takeover attempts.
Such provisions also may have the effect of preventing changes in the
management of the Company. See "Description of Securities."
ABSENCE OF DIVIDENDS
The Company has never paid cash dividends on its Common Stock and no cash
dividends are expected to be paid on the Common Stock in the foreseeable
future. Holders of the Company's Series A Stock are entitled to annual
dividends of 8 1/2% (aggregating $425,000 annually assuming no conversion),
payable quarterly in cash or, at the Company's option, in shares of Common
Stock. The Company has agreed that it will not pay such dividends on the
Series A Stock in shares of its Common Stock without the consent of the
Underwriter during the 18 month period following the effective date of this
Prospectus. The Company anticipates that for the foreseeable future all of
its cash resources and earnings, if any, will be retained for the operation
and expansion of the Company's business, except to the extent required to
satisfy its obligations under the terms of the Series A Stock.
POSSIBLE DELISTING FROM NASDAQ AND RESULTING MARKET ILLIQUIDITY
The Company's Common Stock is quoted on NASDAQ and listed on the BSE and
it is anticipated that Units and Redeemable Warrants will be quoted initially
on NASDAQ and listed on the BSE. Continued inclusion of such securities on
NASDAQ will require, among other criteria, that (i) the Company maintain at
least $2,000,000 in total assets and $1,000,000 in capital and surplus, (ii)
the minimum bid price for the Common Stock be at least $1.00 per share, (iii)
the public float consists of at least 100,000 shares of Common Stock, valued
in the aggregate at more than $200,000, (iv) the Common Stock have at least
two active market makers and (v) the Common Stock be held by at least 300
holders. Continued inclusion on the BSE will require, among other criteria,
that (i) the Company maintain at least $1,000,000 in total assets, (ii) a
public float of 150,000 shares with market value equal to at least $500,000,
(iii) a minimum of at least 250 shareholders and (iv) total stockholders'
equity of $500,000. The Company recently effected the Reverse Stock Split for
the purpose, among others, of enabling the Common Stock to qualify for
continued listing on NASDAQ. If, however, the Company is unable to satisfy
such maintenance requirements in future periods, the Company's securities may
be delisted from NASDAQ and/or BSE. In such event, trading, if any, in the
Units, Common Stock and Redeemable Warrants would thereafter be conducted in
the over-the-counter market in the "pink sheets" or the NASD's "Electronic
Bulletin Board." Consequently, the liquidity of the Company's securities
could be materially impaired, not only in the number of securities that can
be bought and sold at a given price, but also through delays in the timing of
transactions and reduction in security analysts' and the media coverage of
the Company, which could result in lower prices for the Company's securities
than might otherwise prevail and could also result in larger spreads between
the bid and asked prices for the Company's securities.
In addition, if the Common Stock is delisted from trading on NASDAQ and
the BSE and the trading price of the Common Stock is less than $5.00 per
share, trading in the Common Stock would also be subjected to the
requirements of Rule 15g-9 promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act"). Under that Rule, broker/dealers, who
recommend such low-priced securities to persons other than established
customers and accredited investors, must satisfy special sales practice
requirements, including a requirement that they make an individualized
written suitability determination for the purchaser and receive the
purchaser's written consent prior to the transaction. The Securities
Enforcement Remedies and Penny Stock Reform Act of 1990 also requires
additional disclosure in connection with any trades involving a stock defined
as a penny stock (generally, according to recent regulations adopted by the
Securities and Exchange Commission, any equity security not traded on an
exchange or quoted on NASDAQ that has a market price of less than $5.00 per
share, subject to certain exceptions), including the delivery, prior to any
penny stock transaction, of a disclosure schedule explaining the penny stock
market and the risks associated therewith. Such requirements could severely
limit the market liquidity of the Units, the Common Stock and the Redeemable
Warrants and the ability of purchasers in the Offering to sell their
securities in the secondary market. There can be no assurance that the Units,
the Common Stock and the Redeemable Warrants will not be delisted or treated
as penny stock.
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<PAGE>
PRICING OF UNITS; LIMITED MARKETS FOR SECURITIES
The initial public offering price of the Units and the terms of the
Redeemable Warrants have been determined by negotiations between the Company
and the Underwriter. While such price reflects currently prevailing market
prices for the Company's Common Stock, it does not necessarily bear any
relationship to the Company's assets, book value, results of operations or
other established valuation criteria. See "Underwriting." There is no public
market for the Units or the Redeemable Warrants and there can be no assurance
that an active market for either such security will develop or be sustained.
In addition, while there currently is a public trading market for the
Company's publicly issued Common Stock on NASDAQ and the BSE, there can be no
assurance concerning the depth or liquidity of that market in future periods.
Furthermore, the market prices of the Units, the Common Stock and the
Redeemable Warrants may be highly volatile. The lack of an active public
trading market for such securities could have a substantial negative effect
on their value. Such volatility may be the result of a number of factors,
including without limitation, the financial performance of the Company,
general conditions of the securities markets, the number of publicly traded
securities and the securities markets' perception of the entertainment
industry in which the Company is engaged in business.
SHARES ELIGIBLE FOR FUTURE SALE
Of the 11,305,210 shares of Common Stock of the Company to be outstanding
upon completion of the Offering, approximately 10,406,000 shares of Common
Stock, including 8,000,000 shares underlying the Units offered hereby, will
be freely tradeable without restriction under the Securities Act except for
any shares of Common Stock purchased by an "affiliate" of the Company (as
that term is defined under the rules and regulations of the Securities Act),
which will be subject to the resale limitations of Rule 144 under the
Securities Act. Approximately 899,210 remaining outstanding shares of Common
Stock are "restricted" securities within the meaning of Rule 144 under the
Securities Act and only may be sold pursuant to the conditions of such rule,
including satisfaction of certain holding period requirements. The Company is
unable to predict the effect that sales made under Rule 144, or otherwise,
may have on the then prevailing market price of the Company's securities
although any future sales of substantial amounts of securities pursuant to
Rule 144 could adversely affect prevailing market prices. The holders of
options and warrants to acquire approximately 400,000 shares of Common Stock
(including 125,000 shares of Common Stock issuable upon conversion of shares
of Series A Stock which are, in turn, issuable upon exercise of certain of
such options) have certain registration rights under the Securities Act.
These securities include 100,000 units to acquire 150,000 shares of Common
Stock (upon conversion of shares of Series A Stock and exercise of Class B
Warrants included in such units) held by two investment banking firms, which
acted as underwriter for the Company's December 1994 offering of such units,
who have agreed to waive their registration rights with respect to such units
and underlying securities for a period of 18 months after the date of this
Prospectus.
However, holders of options to purchase an aggregate of 233,750 shares of
Common Stock and holders of 500,000 restricted shares, including all officers
and directors of the Company have agreed that, without the consent of the
Underwriter they shall not, directly or indirectly, issue, offer to sell,
sell, grant an option for the sale of, assign, transfer, pledge, hypothecate
or otherwise encumber of dispose of (collectively, "Transfer") any securities
of the Company, including Common Stock or securities convertible into or
exchangeable for or evidencing any right to purchase or subscribe for any
shares of Common Stock, for a period ending upon the earlier of (i) 18 months
from the effective date of the Registration Statement, or (ii) two months
after the Underwriter and each broker-dealer controlled by any affiliate of
the Underwriter at the time the "lock-up" agreement was entered into, if any,
transfers all of the Underwriter's Warrants and all securities issuable upon
exercise of the Underwriter's Warrants.
In addition, without the consent of the Underwriter, the Company has
agreed not to sell or offer for sale any of its securities for a period of 18
months following the effective date of the Registration Statement, except
pursuant to outstanding options and warrants and pursuant to the Company's
existing option plans provided that no option to be granted during such 18
month period shall have an exercise price that is less than the fair market
value per share of Common Stock on the date of grant.
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The Redeemable Warrants underlying the Units offered hereby and the shares
of Common Stock underlying such Redeemable Warrants, upon exercise thereof,
will be freely tradeable without restriction under the Securities Act, except
for any Redeemable Warrants or shares of Common Stock purchased by an
"affiliate" of the Company, which will be subject to the resale limitations
of Rule 144 under the Securities Act. In addition, 500,000 Selling
Securityholder Warrants and the shares of Common Stock underlying such
Selling Securityholder Warrants are being registered in the Concurrent
Offering. Holders of such Redeemable Warrants have agreed not to Transfer
such Redeemable Warrants, or the underlying shares of Common Stock, for a
period of 18 months from the effective date of the Registration Statement,
without the prior written consent of the Underwriter. See "Recent Bridge
Financing," "Concurrent Offering" and "Selling Securityholders."
No prediction can be made as to the effect, if any, that sales of the
Selling Securityholder Warrants and/or underlying Common Stock or the
availability of such securities for sale will have on the market prices
prevailing from time to time for the Units, the Redeemable Warrants and/or
the Common Stock. Nevertheless, the possibility that substantial amounts of
such securities may be sold in the public market may adversely affect
prevailing market prices for the Company's equity securities, and could
impair the Company's ability to raise capital in the future through its sale
of equity securities. See "Selling Securityholders."
LACK OF EXPERIENCE OF UNDERWRITER
Joseph Stevens & Company, L.P., (the "Underwriter") commenced operations
in May 1994 and does not have extensive experience as an underwriter of
public offerings of securities. The Underwriter has acted as the managing
underwriter for four public offerings. The Underwriter is a relatively small
firm and no assurance can be given that the Underwriter will be able to
participate as a market maker in the Units, Common Stock or Redeemable
Warrants, and no assurance can be given that any broker-dealer will make a
market in the Units, Common Stock or Redeemable Warrants. See "Underwriting."
UNDERWRITER'S POTENTIAL INFLUENCE IN THE MARKET
It is anticipated that a significant amount of the Units will be sold to
customers of the Underwriter. Although the Underwriter has advised the
Company that it intends to make a market in the Units, Common Stock and
Redeemable Warrants, it will have no legal obligation to do so. The prices
and the liquidity of the Units, Common Stock and Redeemable Warrants may be
significantly affected by the degree, if any, of the Underwriter's
participation in the market. Moreover, if the Underwriter sells the
securities issuable upon exercise of the Underwriter's Warrants, it may be
required under the Exchange Act, as amended, to temporarily suspend its
market-making activities. No assurance can be given that any market
activities of the Underwriter, if commenced, will continue for any minimum or
significant period of time, and the withdrawal of the Underwriter from market
making activities in any of such securities could materially adversely affect
the prevailing market prices therefor. See "Underwriting."
POTENTIAL ADVERSE EFFECT OF REDEMPTION OF REDEEMABLE WARRANTS
Commencing twelve months after the date of this Prospectus, and subject to
the consent of the Underwriter, the Company will have the right to redeem
all, but not less than all, of the Redeemable Warrants under certain
conditions. Redemption of the Redeemable Warrants could encourage holders to
exercise the Redeemable Warrants and pay the exercise price at a time when it
may be disadvantageous for the holders to do so, to sell the Redeemable
Warrants at the current market price when they might otherwise wish to hold
the Redeemable Warrants, or to accept the redemption price, which may be
substantially less than the market value of the Redeemable Warrants at the
time of redemption. The holders of the Redeemable Warrants will automatically
forfeit their rights to purchase the shares of Common Stock issuable upon
exercise of such Redeemable Warrants unless the Redeemable Warrants are
exercised before they are redeemed. The holders of Redeemable Warrants will
not possess any rights as stockholders of the Company unless and until such
Redeemable Warrants are exercised. See "Description of Securities --
Redeemable Warrants."
12
<PAGE>
CURRENT PROSPECTUS REQUIREMENT AND STATE BLUE SKY REGISTRATION IN CONNECTION
WITH EXERCISE OF REDEEMABLE WARRANTS
Commencing upon issuance, the Redeemable Warrants constituting part of the
Units offered hereby will be separately tradeable. The Company will be able
to issue shares of its Common Stock upon exercise of the Redeemable Warrants
only if there is a then current prospectus relating to the Common Stock
issuable upon the exercise of the Redeemable Warrants under an effective
registration statement filed with the Securities and Exchange Commission (the
"Commission"), and only if such Common Stock is then qualified for sale or
exempt from qualification under applicable state securities laws of the
jurisdictions in which the various holders of Redeemable Warrants reside.
Although the Company has agreed to use its best efforts to meet such
requirements, there can be no assurance that the Company will be able to do
so. The failure of the Company to meet such requirements may deprive the
Redeemable Warrants of any value and cause the resale or other disposition of
Common Stock issued upon the exercise of the Redeemable Warrants to become
unlawful. See "Description of Securities -- Redeemable Warrants."
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<PAGE>
THE COMPANY
The Producers Entertainment Group Ltd. (together with its subsidiaries,
the "Company") was organized under the laws of the state of Delaware on
August 10, 1989 as Ventura Motion Picture Group Ltd., a wholly owned
subsidiary of Ventura Entertainment Group Ltd. ("Ventura"). In 1991, the
Company changed its name to The Producers Entertainment Group Ltd. In July,
1994, Ventura distributed substantially all of the Company's Common Stock
that it owned to Ventura's shareholders. As a result of that distribution, no
relationship currently exists between the Company and Ventura.
The Company completed its initial public offering of securities in
December 1989 and, in January 1990, commenced operations. In April 1993 and
in December 1994, the Company completed additional offerings of its equity
securities. In May 1994, the Company acquired all of the outstanding common
stock of DSL Productions, Inc. and its affiliates ("DSL") in exchange for
32,500 shares of Common Stock. The acquisition was treated as a pooling of
interests.
Unless the context indicates otherwise, the term "Company" includes The
Producers Entertainment Group Ltd. and all of its subsidiaries. The Company's
Common Stock is listed on the National Association of Securities Dealers,
Inc. Automated Quotation System and is traded on NASDAQ's SmallCap Market,
under the symbol "TPEG." The Company's Common Stock is also listed on the BSE
and traded under the symbol "PEG."
The Company's offices are located at 9150 Wilshire Boulevard, Suite 205,
Beverly Hills, California 90212. Its telephone number is (310) 285-0400.
RECENT BRIDGE FINANCING
On June 7, 1996 the Company consummated a bridge financing (the "Bridge
Financing"), pursuant to which it issued an aggregate of (i) $500,000
principal amount of promissory notes (the "Bridge Notes") which bear interest
at the rate of 10% per annum and are due and payable upon the earlier of (a)
the consummation of any financing of the Company from which the Company
receives gross proceeds of at least $1,000,000 or (b) one year from the date
of issuance, and (ii) 500,000 warrants (the "Bridge Warrants"), each Bridge
Warrant entitling the holder to purchase one share of Common Stock at an
exercise price of $1.12 (subject to adjustment upon the occurrence of certain
events) during the three-year period commencing one year from the date of
issuance. The net proceeds of the Bridge Financing were used by the Company
to complete film projects then in production, to commence the production and
development of new projects and to meet working capital and general corporate
requirements. The Company intends to use a portion of the proceeds of this
Offering to repay the entire principal amount of, and accrued interest on,
the Bridge Notes. See "Use of Proceeds."
Upon consummation of the Offering, each Bridge Warrant shall automatically
be converted into a Redeemable Warrant (referred to herein as the "Selling
Securityholder Warrants") having terms identical to those of the Redeemable
Warrants underlying the Units offered hereby. The Selling Securityholder
Warrants and the underlying shares of Common Stock issuable upon exercise of
the Selling Securityholder Warrants are included in the Registration
Statement of which this Prospectus is a part. See "Concurrent Offering."
CONCURRENT OFFERING
The Registration Statement of which this Prospectus is a part also
includes 500,000 Redeemable Warrants (the "Selling Securityholder Warrants")
and 500,000 shares of Common Stock (the "Selling Securityholder Shares")
underlying such Warrants, owned by certain selling securityholders (the
"Selling Securityholders"). The Selling Securityholder Warrants and the
Selling Securityholder Shares are not being offered or sold pursuant to the
Offering. Such Selling Securityholder Warrants and the Selling Securityholder
Shares may be sold in the open market, in privately negotiated transactions
or otherwise, directly by the Selling Securityholders. The Company will not
receive any proceeds from the sale of such Selling Securityholder Warrants or
Selling Securityholder Shares; however, the Company will receive proceeds
from the exercise, if any, of the Selling Securityholder Warrants. Expenses
of the Concurrent Offering, other than fees and expenses of counsel to the
Selling Securityholders and selling commissions, will be paid by the Company.
Neither the Selling Securityholder Warrants nor the Selling Securityholder
Shares may be sold for a period of 18 months from the effective date of the
Registration Statement without the prior written consent of the Underwriter.
Sales of such Selling Securityholder Warrants or Selling Securityholder
Shares by the Selling Securityholders or the potential of such sales may have
an adverse effect on the market price of the securities offered hereby. See
"Risk Factors."
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USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the Units
offered by the Company hereby at the assumed initial public offering price of
$4.00 per Unit, after deducting underwriting discounts and expenses of the
Offering payable by the Company, are estimated to be $6,675,000 ($7,719,000
if the Underwriter's over-allotment option is exercised in full). The Company
presently intends to devote the net proceeds of the Offering to the following
purposes:
<TABLE>
<CAPTION>
Application of Net Approximate Percentage of
Proceeds Amount Net Proceeds
------------------ --------------- ---------------
<S> <C> <C>
Repayment of bridge notes ........................................... $ 500,000(1) 7.5%
Repayment of working capital loan ................................... $ 100,000(2) 1.5%
Interim financing of estimated production
costs during forthcoming 12 month period ........................... $1,200,000(3) 18.0%
Establishment and operation of planned
international distribution division ................................ $ 650,000(4) 9.7%
Acquisition by planned international distribution division of products
from, and distribution advance payments to, unaffiliated producers . $2,000,000(4) 30.0%
Acquisition of rights for new projects .............................. $ 150,000 2.3%
Annual cash dividends on Series A Stock ............................. $ 425,000(5) 6.4%
Working capital and general corporate purposes ...................... $1,650,000 24.6%
--------------- ---------------
Total ............................................................... $6,675,000 100 %
=============== ===============
</TABLE>
- ------
(1) The Company's repayment of the Bridge Notes will include accrued interest
thereon. See "Recent Bridge Financing."
(2) This loan was incurred by the Company for working capital purposes in May
1996 and is due and payable, including accrued interest thereon at the
rate of 10% per annum, on July 31, 1996. This loan is secured by the
Company's adjusted gross participation in the revenues deriving from the
distribution of a television series produced by the Company.
(3) As noted under "Business," while the Company generally does not risk its
own capital to finance productions, it advances its own funds on an
interim basis to finance productions. Such advances are generally
reimbursed to the Company pursuant to production or distribution
agreements with broadcast or cable networks, studios, distributors and
independent financing sources.
(4) These amounts represent management's estimates of the cost of operations
and the cost of acquisition of products (including distribution advances)
from other producers by the Company's planned international distribution
division during the first year of its operations.
(5) Represents annual dividends of 8 1/2 % of the outstanding $5,000,000 of
Series A Stock, payable quarterly. Pursuant to the provisions governing
the Series A Stock, the Company has the option to pay dividends thereon
in cash or in shares of its Common Stock. However, the Company has agreed
that, without the consent of the Underwriter, it will not pay such
dividends in shares of Common Stock for the dividend periods within the
18 month period following the date of this Prospectus.
Any additional net proceeds realized from the exercise of the
Underwriter's over-allotment option or the exercise of the Redeemable
Warrants included in the Units will be added to the Company's working
capital.
The allocation of proceeds described in the foregoing table is subject to
change by reason of certain contingencies, including the fact that the
Company might undertake a greater or lesser number of production projects
during the forthcoming year than is anticipated by management of the Company
as of this date or may acquire rights to properties and projects in addition
to those currently planned by management. In addition, during the first year
of operation of its new international distribution division, the Company may
not be able to acquire productions from unaffiliated producers in the
estimated aggregate dollar amount indicated in the foregoing table. Any such
changes in the allocation of proceeds would either be met out of the
Company's working capital or result in additions to its working capital.
15
<PAGE>
The Company believes that the estimated net proceeds to be received by it
from the Offering, together with funds derived from its operations, will be
sufficient to meet the Company's working capital requirements for a period of
at least 12 months following the consummation of this Offering. Thereafter,
if the Company is unable to generate sufficient working capital from its
operations to meet its then prevailing business requirements, it will be
required to seek additional debt or equity financing from external sources
and there can be no assurance that such financing, if any, will be available
on terms acceptable to the Company. If such financing becomes necessary and
is not available, the Company's business would be materially adversely
affected. See "Risk Factors."
Proceeds not immediately required for the purposes described above will be
invested by the Company principally in short-term bank certificates of
deposit, highly rated short-term debt securities, United States government
obligations, money market instruments or other high grade interest-bearing
investments having maturities of less than one year.
The Company will not receive any of the proceeds from the sale of the
Selling Securityholder Warrants or the Selling Securityholder Shares;
however, the Company will receive proceeds from the exercise, if any, of the
Selling Securityholder Warrants. See "Concurrent Offering."
16
<PAGE>
DILUTION
The following discussion and table assumes an initial public offering
price of $4.00 per Unit and attributes no value to the Redeemable Warrants
included in the Units.
The net tangible book value of the Common Stock as of March 31, 1996 was
$1,548,782, and the net tangible book value per share as of March 31, 1996
was approximately $.48. Net tangible book value represents the amount of the
Company's total tangible assets less total liabilities. Dilution per share
represents the difference between the attributed amount per share paid by
purchasers of shares of Common Stock included in the Units sold in the
Offering and the pro forma net tangible book value per share of Common Stock
immediately after completion of the Offering. After giving effect to the sale
in the Offering of 2,000,000 Units and the application of the estimated net
proceeds therefrom, the pro forma net tangible book value of the Company as
of March 31, 1996 would have been $8,086,000 and the pro forma net tangible
book value per share would have been approximately $.72. This represents an
immediate increase in net tangible book value of $.24 per share to existing
stockholders and an immediate dilution in net tangible book value of $.28 per
share or 28% per share to purchasers of Units in the Offering, as illustrated
in the following table:
Assumed initial public offering price per share .............. $1.00
Net tangible book value per share before the Offering ....... $.48
Increase per share attributable to new investors ............ $.24
======
Pro forma net tangible book value per share after the Offering . $ .72
Dilution per share to new investors ........................... $ .28
=======
If the Underwriter's over-allotment option is exercised in full, the
increase in net tangible book value per share as of March 31, 1996
attributable to new investors would have been $.25, the pro forma net
tangible book value per share of Common Stock after the Offering would be
approximately $.73 and the dilution per share to new investors would be $.27
or 27%.
The foregoing information excludes (i) 357,917 shares of Common Stock
issuable upon the exercise of outstanding stock options at exercise prices
ranging between $1.l2 per share and $13.00 per share, (ii) 250,000 shares of
Common Stock issuable upon the exercise of the Company's Class B Warrants at
an exercise price of $8.00 per share, (iii) up to 1,250,000 shares of Common
Stock issuable upon the conversion of the Company's Series A Stock on the
basis of 1.25 shares of Common Stock for each outstanding share of Series A
Stock, (iv) 40,250 shares of Common Stock issuable upon the exercise of
warrants which were issued in connection with the Company's 1993 bridge
financing at an exercise price of $7.70 per share, (v) 150,000 shares of
Common stock issuable in connection with the option to purchase units (each
unit consisting of one share of Series A Stock and one Class B Warrant) at an
exercise price of $7.00 per unit granted to the underwriters with respect to
the Company's public offering of such securities in December 1994, (vi)
41,667 shares of Common Stock issuable in connection with the option to
purchase units (each unit consisting of two shares of Common stock) at an
exercise price of $7.20 per unit granted to the underwriter with respect to
the Company's 1993 public offering of securities, (vii) up to 250,000 shares
of Common Stock issuable pursuant to options which may be granted under the
Company's Stock Option Plan, (viii) 187,500 shares of Common Stock issuable
upon the exercise of outstanding stock options granted to an investment
banking firm and its affiliate in connection with an agreement in April 1995
to render financial advisory services to the Company at an exercise price of
$4.00 per share, (ix) 32,500 shares of Common Stock which may become issuable
pursuant to the terms and conditions of an agreement in principle with
respect to the proposed settlement of the action DSL Entertainment, Joint
Venture, a California Joint Venture v. DSL Productions, Inc., (x) 50,000
shares of Common Stock issuable upon the exercise of stock options, to be
granted in August 1996 to the Company's recently appointed Chief Financial
Officer at an exercise price equal to the fair market value of the Common
Stock on the date of grant, and (xi) 84,865 shares of Common Stock which were
issued as dividends on the Company's outstanding Series A Stock subsequent to
March 31, 1996. As of the date of this Prospectus, it is uncertain whether
the action referred to in (ix) above will become the subject of a definitive
settlement on the terms described therein. See "Business -- Legal
Proceedings."
17
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at March
31, 1996, actual; pro forma to give effect to the consummation of the Bridge
Financing on June 7, 1996 and application by the Company of the aggregate net
proceeds therefrom and pro forma as adjusted to give effect to the issuance
and sale of the Units offered by the Company hereby (at an assumed initial
public offering price of $4.00 per Unit) and the initial application by the
Company of the estimated net proceeds therefrom. See "Use of Proceeds" and
"Recent Bridge Financing."
<TABLE>
<CAPTION>
March 31, 1996
------------------------------------------------
Pro Forma
As
Actual Pro Forma(1) Adjusted(2)
-------------- -------------- --------------
<S> <C> <C> <C>
Short-term debt ........................................ $ 100,000 $ 100,000 -0-
Bridge Notes, net of $137,513 of deferred financing costs
and original issue discount ........................... -0- 362,487 -0-
Shareholders' equity:
Preferred Stock, $.001 par value, 10,000,000 shares
authorized; 1,000,000 shares of Series A Stock issued
and outstanding ................................... 1,000 1,000 1,000
Common Stock, $.001 par value; 50,000,000 shares authorized;
3,500,954 shares issued and outstanding (including
280,609 shares held in treasury) actual and pro forma,
11,500,954 shares issued and outstanding (including
280,609 shares held in treasury) pro forma as adjusted(3) 3,501 3,501 11,501
Additional paid-in capital ........................... 16,114,102 16,114,102 22,781,102
Accumulated deficit .................................. (12,735,629) (12,735,629) (12,873,142)
Treasury stock 280,609 shares at cost ................ (1,010,192) (1,010,192) (1,010,192)
Notes receivable related parties from sale of Common Stock (824,000) (824,000) (824,000)
Total shareholders' equity ........................... 1,548,782 1,548,782 8,086,269
------------ ------------ ------------
Total capitalization ................................. $ 1,648,782 $ 2,011,269 $ 8,086,269
============ ============ ============
</TABLE>
- ------
(1) As adjusted to reflect the consummation of the Bridge Financing. As part
of the Bridge Financing, approximately $137,513 has been reflected as
deferred financing costs and original issue discount incurred in
connection with the Bridge Notes. See "Recent Bridge Financing."
(2) As adjusted to reflect the sale of the Units offered by the Company
hereby (at an assumed initial public offering price of $4.00 per Unit)
and the initial application of the net proceeds therefrom. See "Use of
Proceeds." Upon repayment of the Bridge Notes, the Company will record a
loss of $137,513 resulting from the extinguishment of the Bridge Notes.
This loss arises as a result of expensing the deferred financing costs
and original issue discount on the Bridge Notes.
(3) Excludes (i) 357,917 shares of Common Stock issuable upon the exercise of
outstanding stock options at exercise prices ranging between $1.12 and
$13.00 per share, (ii) 250,000 shares of Common Stock issuable upon the
exercise of the Company's Class B Warrants at an exercise price of $8.00
per share, (iii) up to 1,250,000 shares of Common Stock issuable upon the
conversion of the Company's Series A Preferred Stock on the basis of 1.25
shares of Common Stock for each outstanding share of Series A Stock, (iv)
40,250 shares of Common Stock issuable upon the exercise of warrants
which were issued in connection with the Company's 1993 bridge financing
at an exercise price of $7.70 per share, (v) 150,000 shares of Common
stock issuable in connection with the option to purchase units (each unit
consisting of one share of Series A Stock and one Class B Warrant) at an
exercise price of $7.00 per unit granted to the underwriter with respect
to the Company's public offering of securities in December 1994, (vi)
41,667 shares of Common Stock issuable in connection with the option to
purchase units (each unit consisting of two shares of Com-
18
<PAGE>
mon stock) at an exercise price of $7.20 per unit granted to the
Underwriter with respect to the Company's 1993 public offering of
securities, (vii) up to 250,000 shares of Common Stock issuable pursuant
to options which may be granted under the Company's Stock Option Plan,
(viii) 187,500 shares of Common Stock issuable upon the exercise of
outstanding stock options granted to an investment banking firm and its
affiliate in connection with an agreement in April 1995 to render
financial advisory services to the Company at an exercise price of $4.00
per share, (ix) 57,500 shares of Common Stock which may become issuable
pursuant to the terms and conditions of the current agreement in
principle with respect to the proposed settlement of the action DSL
Entertainment, Joint Venture, a California Joint Venture v. DSL
Productions, Inc., (x) 50,000 shares of Common Stock issuable upon the
exercise of stock options to be granted in August 1996 to the Company's
recently appointed Chief Financial Officer at an exercise price equal to
the fair market value of the Common Stock on the date of grant, and (xi)
84,865 shares of Common Stock which were issued as dividends on the
Company's outstanding Series A Stock subsequent to March 31, 1996. As of
the date of this Prospectus, it is uncertain whether the action referred
to in (ix) above will become the subject of a definitive settlement on
the terms described therein. See "Business -- Legal Proceedings."
19
<PAGE>
MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's Common Stock is currently traded on NASDAQ under the symbol
"TPEG" and on the BSE under the symbol "PEG." The following table sets forth
the high and low bid prices on NASDAQ for the periods indicated, as reported
by the National Quotation Bureau, Incorporated. The quotations are
inter-dealer prices without adjustment for retail mark-ups, mark-downs or
commissions, and do not necessarily represent actual transactions. These
prices may not necessarily be indicative of any reliable market value.
Common Stock
------------------------------------
High Low
Bid Bid
------- -------
Fiscal Year -- 1994:
Quarter Ended
September 30, 1993 ............ 13.24 11.00
December 31, 1993 ............ 15.48 13.48
March 31, 1994 ............... 10.76 9.76
June 30, 1994 ................ 13.76 10.48
Fiscal Year -- 1995:
Quarter Ended
September 30, 1994 ............ 10.00 6.48
December 31, 1994 ............. 5.24 2.76
March 31, 1995 ............... 3.00 2.00
June 30, 1995 ................ 2.88 2.00
Fiscal Year -- 1996:
Quarter Ended
September 30, 1995 ............ 3.00 2.64
December 31, 1995 ............ 2.64 2.24
March 31, 1996 ............... 1.24 .88
June 30, 1996 ................ 1.37 .87
On July 16, 1996, the closing bid and asked prices of the Company's Common
Stock were $1.12 and $1.12, respectively. On such date, there were 3,305,210
shares of the Company's Common Stock outstanding held by 167 holders of
record.
Application has been made for, and it is anticipated that upon
consummation of the Offering, the Units and the Redeemable Warrants will be
approved for quotation on NASDAQ under the symbols "TPEGU" and "TPEGX,"
respectively, and for listing on the BSE under the Symbols "PEGU" and "PEGX,"
respectively.
DIVIDEND POLICY
The Company has never paid a cash dividend on the Common Stock and
presently intends to retain any future earnings for investment and use in its
business operations. There can be no assurance that the Company's operations
will generate the revenues and cash flow required to declare cash dividends
on the Company's outstanding Common Stock in future fiscal periods or that
the Company will have legally available funds to pay dividends on such Common
Stock. Consequently, no cash dividends are expected to be paid in the
foreseeable future except to the extent required to satisfy the Company's
obligations with respect to its outstanding Series A Stock.
Pursuant to the terms of the Company's outstanding Series A Stock, which
it issued in a public offering consummated in December 1994, the Company, at
its option, may pay dividends on such stock in cash or in shares of its
Common Stock when, as and if declared by the Company's Board of Directors out
of funds legally available therefor. The Company has agreed that it will not
pay dividends on the Series A Stock in shares of its Common Stock without the
consent of the Underwriter for the dividend periods within the 18 month
period following the date of this Prospectus. See "Risk Factors."
20
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data for the years ended June 30, 1995 and 1994
have been derived from the audited financial statements of the Company. The
selected financial data for the nine months ended March 31, 1996 and 1995 are
unaudited. In the opinion of management of the Company, such unaudited data
includes all adjustments (consisting only of normal recurring accruals)
necessary for a fair presentation of the financial position and results of
operations for such period. The results of operations for the nine months
ended March 31, 1996 are not necessarily indicative of the results to be
expected for the year ended June 30, 1996. The following table of Selected
Financial Data gives effect to the Reverse Stock Split and should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the audited financial statements and notes
thereto of the Company which are included elsewhere herein.
<TABLE>
<CAPTION>
Year Ended June 30, Nine Months Ended March 31,
-------------------------------- ----------------------------------
1994 1995 1995 1996
--------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenues ............................... $10,782,850 $ 5,290,745 $ 4,971,334 $ 2,132,767
Amortization of film costs ............. 4,316,300 3,768,728 3,746,050 717,000
Costs related to revenue ............... 5,654,113 -- -- --
Write-off of projects in development ... 233,903 335,233 -- --
General and administrative expense ..... 5,621,365 4,696,554 3,660,150 2,665,625
----------- ------------- --------------- ---------------
Operating (loss) ....................... (5,042,831) (3,509,770) (2,434,866) (1,249,858)
Other income (expense) ................. (446,692) (83,482) (338,381) 249,273
Provision for income taxes ............. -- -- -- --
----------- ------------- --------------- ---------------
Net (loss) ............................. (5,489,523) (3,593,252) (2,773,247) (1,000,585)
Dividend preferred stock ............... -- (232,600) (126,350) (318,750)
----------- ------------- --------------- ---------------
(Net loss) applicable to common
shareholders ......................... $ (5,489,523) $ 3,825,852 $(2,899,697) $(1,319,335)
============= ============= =============== ===============
Net loss per share ..................... $ (2.34) $ (1.52) $ (1.17) $ (0.46)
============= ============= =============== ===============
Average number of shares outstanding ... 2,341,500 2,513,130 2,482,694 2,898,850
</TABLE>
<TABLE>
<CAPTION>
June 30, March 31,
---------------------------- -----------
1994 1995 1996
------------- ------------ -----------
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents .......... $ 964,387 $ 832,754 $ 81,268
Accounts and notes receivable ...... 1,390,030 1,054,916 714,779
Receivables from related parties ... 458,294 116,229 14,876
Film costs, net .................... 4,610,704 2,104,503 3,209,942
Fixed assets at cost, net .......... 93,914 76,439 58,490
Other assets ....................... 89,399 199,829 213,107
---------- ------------ -----------
Total assets .................... 7,606,728 4,384,670 4,292,462
========== ============ ===========
Notes payable ...................... 1,388,750 -- 100,000
Accounts payable and accrued expenses 1,348,950 847,595 491,986
Deferred revenue ................... 3,466,901 948,708 2,151,694
---------- ------------ -----------
Total liabilities ............... 6,204,601 1,796,303 2,743,680
---------- ------------ -----------
Net shareholders' equity ........... $1,402,127 $2,588,367 $1,548,782
========== ============ ===========
</TABLE>
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The following discussion and analysis should be read in conjunction with
the Company's consolidated Financial Statements and notes thereto appearing
elsewhere in this Prospectus.
The Company's revenues are principally derived from the production and
distribution of completed projects, producers fees and personal management
fees. The amount of revenues derived by the Company in any one period is
dependent on, among other factors, projects completed during any such period
and the distribution of completed projects. Revenues from producers and other
fees are primarily dependent on the number of projects being produced and the
agreements relating to such projects. Accordingly, year to year comparisons
of revenues representing distribution, producers and other fees are not
necessarily indicative of future revenues from these sources. Furthermore,
the Company's results of operations have fluctuated significantly from fiscal
period to fiscal period primarily by reason of the fact that the number of
its projects completed and number of its projects in production have
fluctuated from period to period. In addition, results of operations for
specific periods reflect revenues derived from one project which has
accounted for a substantial or even major percentage of the Company's total
revenues during such periods, whereas that is not the case in other periods.
Accordingly, the amount of revenues in any period reported upon hereon are
not necessarily indicative of revenues to be derived by the Company in future
periods.
Amounts received as license fees for projects in production are deferred
until the project becomes available for broadcast in accordance with the
terms of the licensing agreement and are recognized as revenues at such time.
Additional licensing and distribution fees are recognized as earned in
accordance with the terms of the related agreements. Revenues from the sale
of completed projects are recognized upon their sale.
Revenues from completed projects owned by the Company are recognized when
the project becomes contractually available for telecasting or exhibition by
the licensee. Amortization of film costs are charged to operations on an
individual-film basis in a ratio that the current year's revenues bears to
management's estimate of total gross revenue (current and future years) from
all sources. This is commonly referred to as the individual-film forecast
method.
The amount of general and administrative expenses to be incurred in the
future is dependent on the level of the Company's operations, including
projects in production, the level of operations of its personal management
division which the Company intends to expand and the level of operations of
its planned international distribution division. See "Use of Proceeds" and
"Business."
DSL was formed in January 1992. In May, 1994, the Company acquired DSL in
a transaction accounted for as a pooling of interests. Accordingly, the
Company's historical financial statements have been retroactively restated to
include the accounts of DSL from its inception on January 2, 1992.
NINE MONTHS ENDED MARCH 31, 1996 AS COMPARED TO NINE MONTHS ENDED MARCH 31,
1995
Revenues for the nine months ended March 31, 1996 were $2,132,767 compared
to $4,971,334 for the nine months ended March 31, 1995. Revenues for the nine
months ended March 31, 1996 included revenues from the distribution of
completed projects, producer fees from currently airing television series,
personal management fees, and producers fees from the made-for-television
movie, Lily Dale which was in the production phase. Revenues for the nine
months ended March 31, 1995 included production and distribution revenues,
fees received from a television series and personal management fees. Included
in revenues for the nine months ended March 31, 1995 is approximately
$3,607,000 related to the completion of the television series Future Quest
which aired on PBS. Amortization of film costs for the nine months ended
March 31, 1996 and 1995 were $717,000 and $3,746,050, respectively, using the
individual film-forecast method.
22
<PAGE>
General and administrative expenses for the nine months ended March 31,
1996 were $2,665,625 as compared to $3,660,150 for the nine months ended
March 31, 1995. The $994,525 decrease in general and administrative expenses
was primarily attributable to the termination of certain unprofitable
operations of DSL, including related compensation and other expenses,
somewhat offset by legal fees incurred in connection with lawsuits with the
former president and owner of DSL.
During the nine months ended March 31, 1996, the Company agreed to settle
various litigation relating to DSL. The Company recorded $267,663 of income
relating to these settlement agreements for that period. One of such
settlement agreements has since been consummated upon terms described under
"Business -- Legal Proceedings." During the nine months ended March 31, 1996,
the Company forgave the note receivable and accrued interest (aggregate -
$68,016) that was due from a company (owned by Alison and Patricia Meyer, who
are the adult children of Irwin Meyer, the President, Chief Executive Officer
and Chairman of the Company) that formerly provided the Company with the
services of its present President and Chief Executive Officer and others.
During the nine months ended March 31, 1996, the Company recorded $39,000
of interest income on notes receivable from related parties that were
received in connection with sales of the Company's Common Stock. Exclusive of
this interest income, the decrease in interest income was primarily due to a
reduction in funds available for investment and lower interest rates.
Interest and financing expense for fiscal 1995 primarily consisted of
interest paid on the Company's 7% subordinated notes including $275,000
representing the market value of the shares of Common Stock issued to the
noteholders upon the repayment of the notes in December 1994.
YEAR ENDED JUNE 30, 1995 COMPARED TO YEAR ENDED JUNE 30, 1994
Revenues for the fiscal year ended June 30, 1995 were $5,290,745 compared
to $10,782,850 for the fiscal year ended June 30, 1994. Revenues for the year
ended June 30, 1995 primarily consisted of distribution fees from completed
projects (primarily Future Quest), fees from the television series Dave's
World which is airing on CBS and personal management fees. Revenues for the
year ended June 30, 1994 included $5,486,000 received from the
made-for-television movie Against the Wall, $4,365,104 of distribution fees
from completed projects, fees from Dave's World, and personal management
fees.
Amortization of film costs for fiscal 1995 and 1994 was $3,768,728 and
$4,316,300, respectively. Amortization of film costs in fiscal 1995 and 1994
included $729,000 and $1,000,000, respectively, related to revisions in
estimates of amounts to be received in the future from certain completed
projects. Costs related to revenues in fiscal 1994 consisted of amounts
expended on Against the Wall. Write-offs of projects in the development stage
were $335,233 and $233,903 for the years ended June 30, 1995 and 1994,
respectively.
General and administrative expenses decreased to $4,696,554 in fiscal 1995
from $5,621,365 in fiscal 1994 or a decrease of $924,811. This decrease was
primarily attributable to the termination of certain unprofitable operations
of DSL, and related reductions of compensation and other expenses as of
February 27, 1995. In connection with the restructuring of the Company's
management, the Company estimates that it will reduce its general and
administrative expenses from that which was anticipated by approximately
$195,000 for the year ending June 30, 1996.
Interest income for the fiscal year ended June 30, 1995 was $63,166
compared to $110,485 for the fiscal year ended June 30, 1994. The decrease in
interest income was primarily due to reduced funds available for investment
and lower interest rates. Interest and financing expense for fiscal 1995
includes interest on the Company's 7% subordinated notes including $275,000
representing the market value of the shares of Common Stock that were issued
to the noteholders upon the repayment of the notes.
The provision for note receivable of $270,000 for fiscal year June 30,
1995 relates to a loan made to the then president of DSL which was secured by
stock options previously granted to this individual. Since the market price
of the Company's Common Stock was substantially below the exercise price of
these options, the Company established an allowance for the entire amount of
this note. Reduction in "Deferred participations" of $427,260 represents
adjustments relating to the estimated amounts payable to a third party based
on certain revenues to be derived by the Company (a portion of which is
payable to such third party) from certain completed projects based on
projections of these revenues.
23
<PAGE>
The amount of general and administrative expenses to be incurred in the
future is dependent on the level of the Company's operations including
projects in production. As noted under "Use of Proceeds" and "Business," the
Company plans to expand its personal management division and to form an
international distribution division as well as hire a Chief Financial Officer
and support staff. These developments are likely to result in a material
increase in the Company's general administration expenses during the
forthcoming twelve months.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1996, the Company had cash of $81,268 and accounts
receivable of $714,779 (aggregate -- $796,047). At such date, the Company
also had accounts payable and accrued expenses of $491,986 and a note payable
of $100,000 (aggregate -- $591,986).
The Company's cash commitments for the forthcoming twelve months include
estimated base compensation to its officers and key independent contractors
of approximately $975,000, office rent of approximately $230,000 and a note
payable of $100,000 (aggregate -- approximately $1,305,000). The lease for
the Company's office has been extended to September 30, 1997. The Company
also incurs other costs such as salaries, related benefits, office expenses,
professional fees and similar expenses. General and administrative expenses,
including compensation to officers and key independent contractors,
aggregated approximately $2,666,000 for the nine months ended March 31, 1996.
The Company's cash receipts are principally derived from exhibition and
distribution of its completed projects, producers fees and personal
management fees. The Company's cash receipts are affected by various factors
including the timing of the exhibition and distribution of its completed
projects and the number of projects produced for which the Company receives
producers fees. Therefore, the Company is unable to precisely predict the
level or timing of its future cash receipts.
For the nine months ended March 31, 1996, the Company's cash receipts were
primarily derived from producers fees from currently airing television
series, personal management fees, international distribution licensing
revenue and a production fee received from a made-for-television movie which
aired in June, 1996. This movie was produced by the Company pursuant to an
agreement which provides for payments to the Company for production costs.
Included in accounts payable and accrued expenses at March 31, 1996 is
approximately $298,000 representing the excess of payments received over
amounts expended on production of this movie. The Company expended additional
funds since March 31, 1996 to complete this movie. Cash received from the
distribution of the Company's completed projects aggregated approximately
$389,000 for the nine months ended March 31, 1996. As of March 25, 1996, the
Company borrowed $100,000 from related parties for working capital purposes.
This loan was subsequently repaid from the proceeds of a note issued in May
1996 to an unrelated party. This note bears interest at the rate of 10% per
annum, is secured by the Company's adjusted gross participation in revenues
to be derived by the Company with respect to the distribution of the Dave's
World television series and is due and payable (together with accrued
interest) on the earlier of July 31, 1996 or the effective date of the
Registration Statement pertaining to the Offering. See "Use of Proceeds." The
lender has also received from the Company $13,500 in fees pursuant to a
consultation agreement.
The Company is obligated to pay dividends on the shares of Series A Stock
which were sold in its December 1994 public offering. Dividends on the Series
A Stock, which aggregate $425,000 annually, may be paid in shares of the
Company's Common Stock; however, the Company has agreed with the Underwriter
that the Company will not pay dividends on the Series A Stock in shares of
Common Stock during the 18-month period following the date of this Prospectus
without the consent of the Underwriter. During the nine months ended March
31, 1996, the Company issued an aggregate of 151,291 shares of its Common
Stock in payment of dividends on the Series A Stock accrued through December
31, 1995.
During the nine months ended March 31, 1996, the Company's cash receipts
and cash balance at June 30, 1995 were primarily used for the payment of
general and administrative expenses, including compensation to its officers
and key independent contractors.
The Company's operations during the prior two fiscal years have been
primarily financed by the net proceeds received from public offerings of its
securities in 1993 and in 1994 which aggregated approximately $8,910,000. As
of March 31, 1996, the Company's outstanding stock options and warrants were
exercisable at
24
<PAGE>
prices substantially above the then prevailing market price of the Company's
Common Stock and management does not anticipate that the Company will derive
significant additional capital from the exercise of its outstanding options
or warrants unless the market price of its Common Stock increases
significantly during the remaining terms of such options and warrants as to
which there can be no assurance.
For the nine months ended March 31, 1996, the Company incurred an
operating loss of $1,249,858, a net loss of $1,000,585 (without giving effect
to dividends of $318,750 with respect to the Series A Stock which were paid
by the Company by issuing shares of Common Stock) and used $748,310 of cash
in its operations. Included in the Company's net loss is $68,016 representing
the forgiveness of a note receivable from a related party. See "Certain
Transactions."
As of the date hereof, the Company has no arrangements for external
sources of financing such as bank lines of credit. If the Company continues
to report losses and expends additional funds on development and production
of projects in excess of its current resources and future cash receipts, the
Company will be required to reduce its expenses to a level commensurate with
revenues, raise additional capital and/or borrow funds to sustain its
operations.
The Company believes that the estimated net proceeds to be received by it
from the Offering, together with funds derived from its operations, will be
sufficient to meet the Company's working capital requirements for a period of
at least 12 months following the consummation of this Offering. Thereafter,
if the Company is unable to generate sufficient working capital from its
operations to meet its then prevailing business requirements, it will be
required to seek additional debt or equity financing from external sources
and there can be no assurance that such financing, if any, will be available
on terms acceptable to the Company. If such financing becomes necessary and
is not available, the Company's business would be materially adversely
affected.
Furthermore, if external sources of financing are not available to the
Company and future cash revenues are not sufficient to meet the Company's
cash needs, the Company plans to reduce the compensation of its officers,
office staff and other personnel and the number of development projects that
it will fund. While management has effected significant reductions in its
general and administrative expenses during the past year, the Company has not
made any specific plans or entered into any agreements to reduce the level of
its expenditures in the event that such reductions become necessary in the
future.
In June 1996, the Company consummated the Bridge Financing pursuant to
which the Company received net proceeds of approximately $362,000 and issued
the Bridge Notes in the aggregate principal amount of $500,000 and the Bridge
Warrants. The net proceeds of the Bridge Financing were used by the Company
to complete film projects then in production, to commence the production and
development of new projects and to meet working capital and general corporate
requirements. The Company intends to use a portion of the proceeds of this
Offering to repay the principal amount, together with accrued interest, of
the Bridge Notes. See "Recent Bridge Financing" and "Use of Proceeds."
For income tax reporting purposes, the Company uses an October 1 year-end.
At June 30, 1995, the Company had unutilized federal and state net operating
loss carryforwards of approximately $11,100,000 which expire through 2008.
Utilization of these net operating loss carryforwards may be limited in any
one year by other factors. Upon consummation of the Offering, an "ownership
change" within the meaning of Section 382 of the Internal Revenue Code will
have occurred which, in turn, will significantly restrict the availability of
such net operating loss carryforwards by reason of the foregoing provision of
the Internal Revenue Code and the rules and regulations thereunder.
INFLATION
Inflation has not had a material effect on the Company.
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BUSINESS
The Company is engaged in the acquisition, development, production and
distribution of dramatic, comedy, documentary and instructional television
series, movies and theatrical motion pictures ("projects"). The Company's
projects are distributed in the United States and in international markets
for exhibition on standard broadcast television (network and syndication),
basic cable and pay cable, video and theatrical release. The Company is also
engaged in the business of personal management of performers and writers.
The Company's completed projects include Dave's World, a comedy series
that airs on the CBS television network, Lily Dale, a movie produced for the
Showtime cable network, Future Quest, a series that originally aired on the
Public Broadcasting System ("PBS"), and What's Love Got To Do With It, a
theatrical motion picture released by Disney's Touchstone Pictures. The
Company receives fees for providing producer and executive producer services
and is generally also entitled to a profit participation from the projects.
The Company manages the careers of 15 performers and writers, including
Julia Louis-Dreyfus (Seinfeld), George Newborn (Father of the Bride),
Rosaline Allen (Seaquest), and Michael Stoyanov (Blossom). The Company
intends to increase the staff of its personal management division in order to
attempt to expand its client roster.
Acquisition of Properties. Properties are usually acquired by the Company
through options for a nominal fee against a more substantial purchase price.
Options enable the Company to develop the property during the option period
before committing to its acquisition. Having an option also enables the
Company to secure a financing or production commitment including payment of
the purchase price of the property before actually purchasing such property.
Option periods customarily run for a minimum of one year and contain
provisions that enable the Company to extend the option for additional
periods upon payment of an extension fee. Terms of options vary significantly
and are dependent upon, among other factors, the professional reputation and
standing of the author or other owner of the property, the level of revenues
or profits that the Company estimates may be derived from the exploitation of
the property and the estimated cost of further development and production of
the property. Various agreements relating to these projects provide for
payments to writers upon their production. Certain options also provide for
the optionee to participate in net profits.
Development and Packaging of Projects. Projects may be developed from true
stories or original fictional material in the form of outlines or first-draft
screenplays or teleplays. The Company is continuously engaged in acquiring
and developing new properties. It is the Company's practice to secure a
financing or production commitment for a project from third parties,
including broadcast and cable networks, studios, distributors and independent
financing sources, prior to expending substantial sums in the development
process. However, the Company does advance its own funds to meet the interim
costs of development and production for these projects which are then repaid
to the Company pursuant to the production contracts.
During the development phase of a project, a screenplay, teleplay or
outline of the program is written, tentative commitments are sought from
buyers or licensees, such as studios, networks, and independent financing
sources, and a proposed production schedule and budget are prepared. Often
these projects are created, acquired and developed (including specifically
selected talent such as directors and actors), so that they may be offered to
broadcast, financial and distribution entities as a more attractive project.
This process is known in the entertainment business as "packaging." The
Company believes that packaging a literary property enhances its ability and
opportunities to obtain favorable production, financing and distribution
commitments.
Production, Producer and Executive Producer Services. Production of a
project is divided into three phases: pre-production, principal photography
and post-production.
Upon receiving final approval from its buyer or financing source (such as
a television network or studio), the project is put into the pre-production
phase. During this phase, agreements with talent including performers, a
director and the production staff are completed. Locations are selected and
arrangements are made for sets, props, equipment and other production
requirements. The pre-production phase may continue for several weeks for a
made-for-television movie and up to several months for a theatrical motion
picture. After pre-production is completed, the production enters the
principal photography phase.
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During the principal photography phase, the project is produced on tape or
film. Actors perform on sets, in the studio and on location in accordance
with a pre-determined schedule and budget established by the producer.
Principal photography for a made-for-television movie is usually completed in
approximately three to four weeks while principal photography for a
theatrical motion picture could require several months. Upon completion of
principal photography, the project enters the post-production phase.
During the post production phase, the film shot during principal
photography is transformed into a completed project. The post-production
phase includes editing, addition of sound effects, musical scoring and
implementing other technical processes required to complete the project.
The Company provides producer and executive producer services in
connection with the production of its projects and is involved in all phases
of their production. The Company receives fees for these services and is
generally entitled to a percentage of future profits from these projects. The
Company received producers fees for producing the theatrical motion picture
What's Love Got to Do With It and executive producer fees for each of its
movies-for-television and for the television series Dave's World and Can't
Hurry Love. The Company was not responsible for any of the production costs
of these projects, but is entitled to participate in profits from each of
these projects.
Distribution of Completed Projects. Pursuant to its agreements with third
party financing sources, the Company may retain certain rights to distribute
its projects in international and domestic markets. The Company then
distributes the projects after a certain period of time has expired or after
the project has been exhibited or released on a specific number of occasions.
Completed projects are distributed by the Company or by independent third
parties who have the right to distribute these properties in domestic and
international markets for specific periods of time. These distribution
companies retain a percentage of the revenues received from the distribution
of the projects and are entitled to recover certain expenses relating to such
distribution. Where available, the Company obtains advances against domestic
and international licensing revenues. On certain occasions, these advances
may be used to finance development and production of these projects. See
"International Sales and Distribution."
Personal Management. The Company's personal management division currently
manages the careers of 15 performers and writers at various stages in their
careers. The compensation paid is based on the income generated by these
clients. Among the Company's client's are Julia Louis-Dreyfus (Seinfeld),
George Newborn (Father Of The Bride), Rosaline Allen (Seaquest), Michael
Stoyanov (Blossom), Nancy Allen, John Robert Hoffman, Douglas Sills and Linda
Kozlowski.
The Company's production and development capabilities may provide a source
of projects and opportunities for the actors and writers whose careers are
managed by the personal management division of the Company. The personal
management business complements the Company's production and development
capabilities by providing sources of talent for the "packaging" of projects,
an increasingly important aspect of the entertainment industry. Personal
managers often function as producers or executive producers with respect to
projects for which their clients have been engaged, realizing a greater
amount of revenue in the form of producer or executive producer fees, in lieu
of a management fee, as well as potentially obtaining a profit participation
in such projects.
The personal management business is a service business which is not
capital intensive; therefore, the revenues and profits derived from the
operation of the personal management business are usually significantly
greater than the costs of conducting such operations.
The Company is increasing the staff of its personal management division in
order to allow its principal manager to concentrate on the expansion of the
number of higher income generating clients. The remaining members of the
staff of the division will attempt to build a larger base of clients whose
careers have not yet reached the highest levels of professional achievement,
but who have demonstrated the potential for such achievement.
MARKETS FOR COMPANY PRODUCTIONS
Movies-for-Television. There is a significant domestic and international
market for movies-for-television ("MFT"). The Company has produced five
movies-for-television since 1991. See "Completed Projects." The
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Company has been able, and believes it will continue to be able, to develop
and produce motion pictures for television at costs which do not exceed its
domestic license fees and any applicable international advances. These
license fees, whether paid to the Company by networks, cable or pay-TV
companies and international broadcasters, generally allow the licensee to
broadcast the movies-for-television a limited number of times. In certain
instances, all of the remaining rights to these MFTs belong to the Company.
Additional profits may be realized from domestic syndication and the
exploitation of the MFTs in basic cable, pay cable and video in domestic and
international markets. The Company intends actively to continue to produce
movies-for-television. The Company may also produce MFT's on a fee basis,
where the broadcaster bears all of the production risks and the Company
receives a production fee plus a percentage of profits.
Television Series. Television series represent a source of current and
future revenues for the Company. The Company has produced an aggregate of six
television series since 1991, including Dave's World, which has aired, and is
currently airing, on the CBS television network. See "Completed Projects - TV
Series" under this caption. See "Completed Projects." The cost of a
television series may be financed (in whole or in part) from licensing fees
and international distribution advances. These fees are derived from domestic
television networks and/or foreign broadcasters in exchange for exclusive
rights to broadcast or distribute the series in specified markets for
specified periods of time. After the expiration of these rights, additional
revenues may be derived from relicensing these series in the same or other
markets such as domestic syndication and basic cable, pay cable and video in
domestic and international markets.
Theatrical Motion Pictures. There are very active domestic and
international markets for theatrical films. To date, the Company has produced
one film, What's Love Got To Do With It, which was released in June 1993 by
Disney's Touchstone Pictures. To the extent that the Company produces
theatrical motion pictures in the future, it will seek to have such
productions financed by major film studios, distributors, independent
financing sources or a combination thereof.
COMPLETED PROJECTS
The Company has produced programming in the following categories:
Movies-For-Television. From 1991 to the present, the Company has developed
and produced five movies-for-television consisting of The Price She Paid
(CBS), The Secret Passion of Robert Clayton (USA), When A Stranger Calls . . .
Back (Showtime), Against The Wall (HBO) and Lily Dale (Showtime).
The Company's first movie-for-television, The Price She Paid, starred Loni
Anderson and Anthony John Denison and was broadcast on the CBS television
network in March 1992 and April 1993. This movie was put into development by
CBS, which paid all development costs, and was packaged by Creative Artists
Agency, Inc. The Company has licensed this movie to World International
Network for broadcast outside North America and Canada under the title Plan
of Attack for 25 years.
During fiscal 1992, the Company produced a movie-for-television, The
Secret Passion of Robert Clayton, starring John Mahoney and Scott Valentine,
which aired on the USA Network and was produced in association with Wilshire
Court Productions, a Paramount Communications Company. The movie is owned by
Wilshire Court Productions. The Company received executive producer fees for
this movie and a continuing profit participation.
The Company's television movie, When A Stranger Calls . . . Back, staring
Charles Durning and Carol Kane was aired on Showtime on April 4, 1993. This
project is owned by MCA Television Entertainment. For its services as
executive producer, the Company received executive producer fees and a
continuing profit participation.
The Company produced the movie-for-television, Against The Wall, which
premiered on Home Box Office on March 26, 1994, staring Kyle MacLachlan and
Samuel Jackson, Jr. The project is owned by Home Box Office. The Company
received executive producer fees and a continuing profit participation.
In June 1996, the Company's television movie Lily Dale, written by
Pulitzer Prize and two time Academy Award winning author Horton Foote, aired
on Showtime. The movie starred Mary Stuart Masterson, Sam Shepard, Stockard
Channing, Jean Stapleton and Tim Guinee. The movie is owned by Showtime. The
Company received executive producer fees and a continuing profit
participation.
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TV Series. The Company has produced 74 episodes of the CBS comedy series,
Dave's World, which airs on the CBS television network. CBS has ordered 22
new episodes of this series for the 1996-1997 television season. The
production of the new episodes will commence in the summer of 1996. The
Company anticipates that in the event of the syndication of the series, it
will derive revenues from the syndication of this series in future fiscal
periods. The Company also produced 19 half-hour episodes of Can't Hurry Love
which began airing on CBS in September 1995. This series has not been
renewed.
Reality/Documentary Programming. The Company's reality/documentary
programming consists of six television series -- Hollywood Stuntmakers I and
II, Superstars of Action, FX Masters, Hollywood Babylon, Future Quest and
Mysterious Forces Beyond -- and A Day With a one hour special.
Hollywood Stuntmakers I and II, a 26 half-hour episode television series
hosted by James Coburn for the Discovery Channel, features Hollywood's best
stuntmen and women in action. The series initially aired on The Learning
Channel.
Superstars of Action, a 26 half-hour episode television series hosted by
Robert Wagner, is a biography series that profiles various action stars
including Steve McQueen and Arnold Schwarzenegger. Superstars of Action is
produced for the German broadcaster Beta-Taurus and is licensed to The
Learning Channel.
FX Masters, a 13 half-hour episode television series hosted by Christopher
Reeve for The Learning Channel, takes a behind the scenes look at how special
effects and movie magic are made. FX Masters is currently licensed to the
Discovery Network.
Hollywood Babylon is a 26 half-hour episode television series hosted by
Tony Curtis. This series is based primarily on the original international
best selling book of the same name by Kenneth Anger. Hollywood Babylon
explores the hidden underside of Hollywood through live re-creations and
archival film footage and photographs. Hollywood Babylon is being distributed
worldwide by Pandora International.
Future Quest, is a 22 half-hour episode television series hosted by actor
Jeff Goldblum. Experts in several science disciplines compare the futuristic
visions of pop culturists with the current breakthrough advances in science
and technology. The series continues to be licensed overseas. Future Quest
aired on the Public Broadcasting System ("PBS").
Mysterious Forces Beyond is a 26 half-hour episode television series which
explores psychic phenomenon. The investigative series employs its news
gathering resources to uncover the facts behind some of the world's most
confounding mysteries, including telekinesis, psychic healing and ghosts.
Mysterious Forces Beyond aired on The Learning Channel and has also been
pre-sold to Canadian broadcaster Western International Communication, where
the series was produced.
The Company also completed production of a one-hour reality special
entitled A Day With where famous entertainment personalities, including Tom
Hanks, were interviewed. A Day With aired on the Fox Broadcasting Network in
June, 1996.
"How To" Instructional Programming. The Company has produced 65 episodes
of Laurie Cooks Light & Easy, a cooking show which aired on the Learning
Channel. Cookbook author Laurie Burrows Grad shows viewers how to prepare
light and easy meals. Laurie is joined in the kitchen by a series of chefs
and celebrity friends, including Wolfgang Puck, Jill St. John and Florence
Griffith Joyner. Laurie Cooks Light & Easy is licensed to The Learning
Channel and being distributed internationally by Unapix International. The
Company has also produced ten episodes of Home Green Home, an instructional
series concerning home gardening hosted by Keely Shaye Smith. Home Green Home
is licensed to PBS and is being distributed internationally by Unapix
International.
Management of the Company is currently seeking to generate additional
revenue sources from its "How To" Instructional Programming as well as
considering the potential expansion of its business through the development
of additional programming of this type. Since "How To" Instructional
Programming is often consumer-product related and lends itself to
interactive programming, the Company is currently evaluating the advisability
of establishing computer web sites, direct video sales, endorsed product
sales by the individual personalities (hosts) of each "How To" series and
tie-ins with corporations that manufacture or sell products in the specific
areas (for example, cooking and gardening) as potential sources of additional
revenue. There can be no assurance, however, that the Company will succeed in
expanding this area of its business, or that such expansion, if implemented,
will be profitable to the Company.
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Theatrical Motion Pictures. The Company produced the theatrical film
What's Love Got To Do With It for which each of its stars, Angela Bassett and
Laurence Fishburne, was nominated for an Academy Award. The film was released
by Disney's Touchstone Pictures in June, 1993. Touchstone Pictures owns the
copyright for this film. The Company received executive producer fees and has
a continuing profit participation for its services as producer.
Although the Company does not, and does not currently intend to, invest
funds in the production of additional theatrical motion pictures, it
continues to develop and acquire rights to theatrical motion picture
projects. If the Company is successful in its attempts to develop these
theatrical motion picture projects, the Company anticipates that the studio,
independent finance source, distributor, or a combination of these sources,
would be responsible for the financing the production of such theatrical
projects. In such event, the Company would receive a fee for its production
services as well as a profit participation in the project.
PROJECTS IN DEVELOPMENT
The Company has projects in various stages of development on a continuing
basis. These projects consist of television series, movies-for-television and
theatrical motion pictures. The Company periodically evaluates the expected
use of its projects in development to determine if they will be further
developed or produced (either by itself or with others), sold or abandoned.
Decisions as to projects in development are made by management on a
case-by-case basis after considering all relevant factors.
The Company currently has agreements for the development of the following
movies-for-television projects with the following companies in various stages
of development:
The Passion of Ayn Rand - Showtime - currently casting.
Tapestry - Fox Broadcasting - teleplay being written.
Silent Cheer - ABC in association with Disney Television - teleplay being
written.
The Company has scripts, properties or projects under option which
management is now in the process of developing and renaming for submission to
networks, studios or financing sources for production for television release
or series or theatrical release. As of this date, however, there can be no
assurance that any of the specific projects identified above or any of the
scripts or other projects which the Company has under option will result in
completed projects, or if completed, that such projects will be profitable to
the Company.
INTERNATIONAL SALES AND DISTRIBUTION
From January 1991 to present, the Company entered into licensing
agreements with various international distributors relating to several of the
Company's productions including Hollywood Stuntmakers I and II, Superstars
of Action, Forces Beyond, Laurie Cooks Light & Easy, Future Quest, The Price
She Paid and Hollywood Babylon.
The Company currently intends to establish a separate international
distribution division or wholly-owned subsidiary to sell and distribute and
obtain distribution advances or guarantees for Company productions and for
productions acquired from other unaffiliated production entities. It is
management's view that the Company will benefit from the growth in
international markets for U.S. television programming, the contractual
arrangements with significant foreign broadcasters and the potential
additional revenues and profits the Company may derive from its own
international distribution operations as opposed to retaining third party
distributors. To accomplish its objectives in establishing an international
distribution division, it will be necessary for the Company to increase
significantly the number of completed projects (whether produced by the
Company or acquired from others) with respect to which it will have
international distribution rights. In certain instances, the Company may have
to advance funds to procure distribution rights from unaffiliated entities.
See "Use of Proceeds." For the foregoing reasons, there can be no assurance
that the operation of an international distribution business will be
successful or profitable for the Company.
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EMPLOYEES
The Company employs 15 persons on a full-time basis, including two
independent contractors. Of such persons, five are executives, four are
producers and the balance are clerical and administrative employees. The
Company believes that it has satisfactory relationships with its employees.
The Company plans to employ a Chief Financial Officer and support staff to
manage the financial aspects of the Company's operations and to maintain its
books and records. The addition of its own financial personnel will enable
the Company to replace the outside service organization currently retained by
the Company to perform such functions at an annual cost of approximately
$100,000. The Company also plans to establish and staff a international
distribution division as well as to expand its personal management division.
It may also add personnel to the Company's production staff. It is estimated
by management that the staffing of these new or expanded operations of the
Company will require that it hire up to nine new employees, three of whom
will be at the executive level, during the forthcoming 12 month period. See
"Use of Proceeds."
In connection with certain of its activities, such as development and
production of projects, the Company has and expects to continue to utilize
the services of independent third parties. The extent of the Company's
utilization of these services will be determined on a project-by-project
basis. The Company believes that such services are available from numerous
sources at competitive rates.
The Company is a party to collective bargaining agreements with the
Directors Guild of America, the Screen Actors Guild and the Writers Guild of
America, but it is not a party to any other collective bargaining agreement.
In connection with its production and other activities, the Company may
employ personnel, such as writers, directors and performing artists, who are
members of unions that are parties to collective bargaining agreements. It is
conceivable that some of the Company's future business activities will be
affected by the existence of collective bargaining agreements relating to
persons whom it may employ who are members of unions. Strikes or other work
stoppages by members of these unions could delay or disrupt the Company's
activities but the extent to which the existence of collective bargaining
agreements may affect the Company in the future is not currently
determinable.
COMPETITION
The television and feature film industries are highly competitive and
involve a substantial degree of risk. Many companies compete to obtain the
literary properties, creative personnel, talent, production personnel and
financing which are essential to produce and market the Company's products.
The Company's principal competitors are the major motion picture studios,
U.S. cable and television networks and numerous independent production
companies. Most of the Company's principal competitors have greater financial
resources than those currently, or in the foreseeable future likely to
become, available to the Company and are in a better position than the
Company to obtain literary properties, attract talent, produce projects and
effect broad market distribution of their completed projects. There can be no
assurance that the Company will be able to continue to initiate, develop and
complete projects which will result in the production of
movies-for-television, television series or mini-series or theatrical release
on a basis that will prove profitable to the Company in light of the intense
competition encountered by the Company in all significant phases of its
production and distribution activities.
The Company's ultimate success also depends, and will continue to depend,
upon its ability to produce programming for television and theatrical release
which has significant appeal in highly competitive entertainment markets
which are subject to such unpredictable factors as the preferences of the
viewing public. Preferences of the public change and a shift in demand could
cause the Company's current projects to lose their appeal. Television and
feature films also compete with many other forms of entertainment and leisure
time activities, certain of which include new areas of technology (i.e.,
video games and home videos), the impact of which cannot be predicted.
REGULATION OF MOTION PICTURE AND TELEVISION INDUSTRY
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 motion pictures. U.S.
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television stations and networks, as well as foreign governments, impose
restrictions on the content of television programming. To the extent that the
Company's projects do not comply with certain of these regulations, they may
be effectively prohibited from exhibition on applicable television stations,
networks and in foreign territories, or may be edited accordingly.
The television industry is subject to governmental regulation by the
Federal Communications Commission (the "FCC"). The networks are currently
limited by the Financial Interest and Syndication Rules of the FCC in the
amount of programming they may produce and the rights which they may retain
in programs. These rules were recently relaxed in favor of the networks. The
relaxation of the Financial Interest and Syndication Rules could adversely
impact the Company as a result of potential increased competition from the
networks.
PROPERTIES
The Company leases approximately 6,350 square feet located at 9150
Wilshire Boulevard, Beverly Hills, California for its corporate offices
pursuant to a lease which expires on September 30, 1997. The current annual
rent expense is approximately $230,000. The Company believes that its current
facilities are sufficient for its current needs and its needs for the
foreseeable future.
LEGAL PROCEEDINGS
In December 1995, the Company's Board of Directors terminated the
employment of Ronald Lightstone and removed him as the Company's Chairman of
the Board. On January 4, 1996, the Company instituted legal proceedings
against Mr. Lightstone in the Los Angeles County Superior Court (the
"California Superior Court"), seeking, among other relief, compensatory
damages arising out of alleged breaches by Mr. Lightstone of his fiduciary
duties to the Company, rescission of the stock purchase agreement and related
documents executed in connection with Mr. Lightstone's purchase in November
1995 of 375,000 shares of the Company's Common Stock (and the cancellation of
such shares), declaratory relief with respect to the Company's rights and
duties and the terms of Mr. Lightstone's employment, and return of certain
payments made by the Company to Mr. Lightstone during the term of his
employment.
In January 1996, Mr. Lightstone filed a cross-complaint in the California
Superior Court against the Company and Irwin Meyer, the Company's President
and Chief Executive Officer, seeking damages in excess of $3,000,000 for
alleged breach of a written employment agreement. Mr. Lightstone contends,
among other matters, that the terms of his employment by the Company are
governed by a written agreement between him and the Company and that,
pursuant to such agreement, his employment was wrongfully terminated by the
Company. The Company has denied that a binding written employment agreement
was entered into with Mr. Lightstone, alleging instead that the agreement to
which Mr. Lightstone refers was never properly authorized and was expressly
rejected by the Company's Board of Directors. See "Management." The Company
believes that Mr. Lightstone's claims are without merit and intends to
vigorously defend the claims in the cross-complaint.
On June 28, 1996, the Company and its affiliates effected a settlement of
all disputes and pending litigation with Drew S. Levin, Joseph Cayre, DSL
Entertainment Group, Ltd. ("DSL") and Simply Style Productions, Inc.
(collectively, the "DSL Parties"). Pursuant to the terms of the settlement,
the Company received the sum of $308,000 (including $130,000 paid by DSL to
the Company in late January 1996), representing repayment of indebtedness
plus late payment charges. Upon receipt of such repayment, the Company caused
the cancellation of a $383,000 promissory note of Drew S. Levin currently
held by DSL Productions, Inc., a subsidiary of the Company, and released
shares of DSL which represented a 14.9% equity interest in DSL and which had
been pledged to the Company as security for the repayment of such
indebtedness. In connection with the settlement, Mr. Levin surrendered to the
Company for cancellation options to purchase 100,000 shares of Common Stock
of the Company which constituted the remaining portion of the options that
had been granted to him in 1994 (See "Management -- Executive Compensation").
In addition, under the settlement, Joseph Cayre retained ownership of 31,250
shares of the Company's Common Stock which were issued to Mr. Cayre in
connection with the acquisition of DSL Productions, Inc. by the Company in
May, 1994. As part of the settlement, however, Mr. Cayre relinquished his
right to a participation in revenues to be derived from certain TV series,
the value of which participation at the time of such settlement was carried
on the books of the Company at $280,000.
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Simultaneously with the foregoing settlement, the Company sold its 5%
equity interest in DSL for a payment in cash of $209,500.
The Company has also agreed in principle to settle the lawsuit entitled
DSL Entertainment, Joint Venture, a California Joint Venture v. DSL
Productions, Inc. et al. pending in California Superior Court. In connection
with such settlement, the Company has agreed to pay to DSL Entertainment,
Joint Venture, a California Joint Venture ("DSLJV") $50,000 in equal monthly
installments of $5,000, to issue to Cypress Entertainment - 1, L.P.
("Cypress") 32,500 shares of its Common Stock and to grant to Cypress
warrants (having a term of two years) to purchase an additional 25,000 shares
of its Common Stock for an exercise price equal to the market price of the
Company's Common Stock on the day immediately preceding the date of issuance
of such warrants. The settlement of this action is subject to execution by
the parties of a definitive settlement agreement and related documentation
and, as of the date of this Prospectus, it is uncertain whether the
settlement of this litigation upon the terms described above will ultimately
be effected.
The Company is not a party to any other material legal proceedings.
33
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
Name Age Position(s) Held
------------------- ----- ------------------------------------------------
Irwin Meyer ....... 61 President, Chief Executive Officer and Chairman
of the Board
Arthur Bernstein .. 33 Senior Vice President and Director
Lenore Nelson ..... 46 Vice President -- Finance and Chief Financial
Officer
Michael D. Dempsey . 53 Director
Michael Levy ...... 55 Director
Ben Lichtenberg ... 41 Director
Directors are elected to an annual term that expires at the Company's
annual meeting of stockholders.
Irwin Meyer has served as a director of the Company since its inception in
1989. From August 1989 until February 1990, he served as President and Chief
Executive Officer of the Company. In February 1990, Mr. Meyer became
Co-Chairman of the Board of the Company and, in January 1991, became Chairman
of the Board, a position he held until June 1992. From 1988 to July 1994, Mr.
Meyer was a director of Ventura Entertainment Group Ltd., the Corporation's
former parent ("Ventura"), and from May 1988 to December 1990 he was
President of Ventura. Mr. Meyer was elected President and Chief Executive
Officer of the Company in February, 1995 and has served as Chairman of the
Board since April, 1996. Mr. Meyer was an Executive Producer of five of the
Company's made-for-television movies and the television series Hollywood
Babylon. Mr. Meyer was nominated for the Producer of the Year by the
Producers Guild of America in 1995. In 1977, he produced the musical Annie
for which he received the Antoinette Perry ("Tony") Award, the New York Drama
Critics Circle Award, the Drama Desk Award, the Outer Critics Circle Award
and the Cue Magazine Golden Apple Award. Mr. Meyer is a member of the Academy
of Motion Picture Arts and Sciences and the Academy of Television Arts and
Sciences. He holds a B.S. from New York University.
Arthur Bernstein has served as a director of the Company since March,
1995, served as Vice President -- Business and Legal Affairs of the Company
from September, 1991 to June, 1992 and has served as Senior Vice President
since June, 1992. From July, 1989 to August, 1991, Mr. Bernstein was Director
of Legal and Business Affairs for New World Entertainment Ltd. From 1987 to
June, 1989, he was Assistant General Counsel of Four Star International, Inc.
Mr. Bernstein holds a Bachelor of Science degree in finance and marketing
from Philadelphia College of Textiles and Sciences and a Juris Doctor degree
from Temple University.
Lenore Nelson has served as the Company's Vice President -- Finance and
Chief Financial Officer since July, 1996. From 1994 until joining the
Company, Ms. Nelson served as Executive Vice President and Chief Financial
Officer of The Kushner-Locke Company, a publicly-traded diversified
entertainment company. From 1990 to 1994, she served as a Senior Vice
President of the Entertainment Industries Group of Imperial Bank, a
publicly-traded bank. Prior thereto, she was employed as a Vice President of
the Entertainment Industries Group of the Bank of California, a subsidiary of
Mitsubishi Bank of Japan, and held various financial and other positions with
companies in the entertainment industry. Ms. Nelson holds a Bachelor of
Science degree in film and broadcasting from Boston University and Masters
degree in business management from California State University Northridge.
Michael Levy has served as a director of the Company since February, 1995.
Mr. Levy began his career as a theatrical agent in 1964. He represented
numerous actors (Angelica Huston, Debra Winger, Sophia Loren and Peter
O'Toole) and directors (Milos Forman, Sidney Sheldon, Billy Wilder and Ingmar
Bergman) and has been responsible for packaging numerous major motion
pictures and television series. Mr. Levy left the agency business in 1981 to
become President and CEO of the CBS Theatrical Film Group, a division of CBS
Entertainment. In 1984, Mr. Levy formed his own production company, Michael
I. Levy Enterprises. Mr. Levy has pro-
34
<PAGE>
duced a number of theatrical feature films including Francis Ford Coppola's
Gardens of Stone (Tri-Star), Masquerade (MGM), Prelude to a Kiss (Twentieth
Century Fox) and Eye for an Eye (Paramount). Since 1993, Mr. Levy has also
provided personal management services to actors, writers and directors.
Ben Lichtenberg has served as a director of the Company since May, 1996.
Mr. Lichtenberg is currently a Managing Director of First Colonial Securities
Group, an investment banking and brokerage firm headquartered in New Jersey.
Prior to joining First Colonial in 1992, Mr. Lichtenberg served in similar
capacities with other investment firms, including Butcher & Singer and Bryn
Mawr Investment Group. Prior thereto, he was employed as a certified public
accountant. Mr. Lichtenberg is a graduate of the Wharton School of the
University of Pennsylvania.
Michael D. Dempsey has served as a director of the Company since May,
1996. Mr. Dempsey is a senior partner of the law firm of Dempsey & Johnson,
P.C., Los Angeles. Prior to his founding such firm, he was a partner at
various other firms, including Lillick, McHose & Charles (now merged into
Pilsbury, Madison & Sutro); Finley, Kumble, Underberg, Wagner, Heine, Manley,
Myerson & Casey; Myerson & Kuhn, and Shea & Gould. Mr. Dempsey has been a
practicing attorney for over 25 years. He graduated magna cum laude from San
Fernando Valley State College (now California State University -- Northridge)
and holds a Juris Doctor degree from the University of California Los Angeles
School of Law.
DIRECTOR INDEMNIFICATION
The Delaware Supreme Court has held that a director's duty of care to a
corporation and its stockholders requires the exercise of an informed
business judgment. Having become informed of all material information
reasonably available to them, directors must act with requisite care in the
discharge of their duties. The Delaware General Corporation Law permits a
corporation through its Certificate of Incorporation to indemnify its
directors from personal liability to the corporation or its stockholders for
monetary damages for breach of fiduciary duty of care as a director, with
certain exceptions. The exceptions include a breach of the director's duty of
loyalty, acts or omissions not in good faith or which involve intentional
misconduct or knowing violations of law, improper declarations of dividends,
and transactions from which the directors derived an improper personal
benefit. The Company's Certificate of Incorporation indemnifies its
directors, acting in such capacity, from monetary liability to the extent
permitted by this statutory provision. The limitation of liability provision
does not eliminate a stockholder's right to seek nonmonetary, equitable
remedies such as injunction or rescission to redress an action taken by
directors. However, as a practical matter, equitable remedies may not be
available in all situations and there may be instances in which no effective
remedy is available.
EMPLOYMENT AGREEMENTS
In October, 1995, the Company entered into agreements with Irwin Meyer,
for his services as Chief Executive Officer of the Company, and with
Mountaingate Productions LLC ("Mountaingate") for the services of Mr. Meyer
and others as producers and/or executive producers and to perform other
duties. Mountaingate is a California limited liability company of which
Alison Meyer and Patricia Meyer, the adult daughters of Irwin Meyer, are the
sole members. The agreement with Mountaingate provides for annual
compensation to Mountaingate of $262,000 plus a $1,500 monthly automobile
allowance and the agreement with Mr. Meyer provides for annual compensation
to Mr. Meyer of $50,000. The term of each such agreement expires on June 30,
1998. The agreements are terminable by the Company in the event of Mr.
Meyer's death or disability. In such event, the Company shall pay
Mountaingate a guaranteed fee of $262,000 for one year. The Company may also
terminate these agreements for "cause" (as defined in the agreements).
Mountaingate and Mr. Meyer may terminate their respective agreements in the
event of a material breach thereof by the Company or for "good reason" (as
defined in the agreements). In such event, the Company shall be obligated to
pay all amounts due thereunder for the balance of their respective terms. In
the event that the Company materially breaches either agreement after a
"change in control" (as defined in the agreements), Mountaingate and Mr.
Meyer, respectively, shall be entitled to a lump sum payment equal to three
times their then current total annual compensation. In November 1995, the
Company also sold 500,000 shares of its Common Stock to Mountaingate. See
"Certain Transactions." Irwin Meyer has no direct or indirect economic
interest in such securities and he expressly disclaims beneficial ownership
of any shares of Common Stock owned by Mountaingate.
35
<PAGE>
Arthur Bernstein is employed as Senior Vice President of the Company
pursuant to an employment agreement, as amended, which expires on December
31, 1996. Mr. Bernstein's annual compensation is $105,000 plus a $750 monthly
automobile allowance. In connection with the amendment of his employment
agreement, Mr. Bernstein received a $12,000 bonus. The agreement is
terminable by the Company in the event of Mr. Bernstein's death or
disability. In such event, the Company is obligated to pay the aforesaid
compensation for one year. The Company may also terminate the employment
agreement for "cause" (as defined in this agreement). Mr. Bernstein may
terminate this agreement in the event of a material breach by the Company or
for "good reason" (as defined in this agreement). In such event, the Company
will be obligated to pay him all amounts due thereunder for the balance of
its term and all unvested stock options held by him shall vest. In the event
of a "change in control" (as defined in this agreement) of the Company, all
stock options issued to Mr. Bernstein shall vest and the Company shall, at
Mr. Bernstein's option, purchase shares of Common Stock owned by him at the
then market price and shall acquire all of his stock options for the
difference between the exercise price of such options and the greater of the
price at which the new controlling entity acquired its interest in the
Company or the then market price of the Common Stock.
In July, 1996, the Company employed Lenore Nelson as its Vice President --
Finance and Chief Financial Officer. Ms. Nelson's compensation includes a
base salary of $150,000 plus incentives. In addition, (i) she will be granted
options, on August 15, 1996, to purchase 50,000 shares of Common Stock at an
exercise price equal to the fair market value of the Common Stock on such
date, 50% of such options shall vest on August 15, 1996 and the remainder
shall vest on August 15, 1997 provided that Ms. Nelson is employed with the
Company on such dates and (ii) commencing with the Company's fiscal year
ending June 30, 1997, in each year, if any, in which the Company achieves a
net profit of at least $1,000,000, she will be granted options to purchase
25,000 shares of Common Stock at an exercise price equal to the average
market price of the Common Stock during the month of June for the applicable
year. Ms. Nelson has agreed, on the same terms as those applicable to the
other officers of the Company, not to Transfer any such options, or any
shares of Common Stock issuable upon exercise of such options, for up to 18
months from the effective date of the Registration Statement without the
consent of the Underwriter. See "Shares Eligible for Future Sale." All such
options granted or to be granted to Ms. Nelson prior to the end of such
"lock-up" period are or will be exercisable for a period of three years from
the end of the lock-up period. Ms. Nelson does not currently have a written
employment agreement with the Company; however, the Company has agreed that
her employment will not be terminated without at least 60 days' prior notice
to her.
COMPENSATION OF DIRECTORS
No fees are paid to members of the Board of Directors of the Company for
their services as directors. However, the independent directors of the
Company have been granted and currently hold options to purchase shares of
Common Stock at the following exercise prices:
<TABLE>
<CAPTION>
Options (No. Exercise Term of
Name of Director of Shares) Date(s) Granted Price(1) Options
------------------- ------------- --------------- --------------- ---------
<S> <C> <C> <C> <C>
Michael D. Dempsey . 6,250 May 29, 1996 $2.00 3 years
Michael Levy ...... 6,250 May 29, 1996 $2.00 3 years
12,500 March 1, 1995 $2.00 3 years
Ben Lichtenberg ... 6,250 May 29, 1996 $2.00 3 years
</TABLE>
- ------
(1) The exercise price of each such option exceeded the market prices of the
Common Stock on date of grant.
It is the policy of the Company to reimburse directors for reasonable
travel and lodging expenses incurred in attending meetings of the Board of
Directors.
36
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the annual and
long-term compensation for services in all capacities to the Company for the
fiscal years ended June 30, 1996, 1995 and 1994, of those persons who were
(i) at June 30, 1996 the Chief Executive Officer and (ii) each other
executive officer of the Company whose annual compensation exceeded $100,000
(the "Named Officers") in such fiscal years:
<TABLE>
<CAPTION>
Long Term Compensation
Payouts
Awards All Other
Name and Annual Compensation Options Compensation
Principal Position Year Salary ($) (# of Shares) ($)
---------------------- ------ ------------ ------------- --------------
<S> <C> <C> <C> <C>
Irwin Meyer, 1996 312,000 -- 18,000 (4)
President and Chief 1995 281,000(1) (2) 13,500 (3)
Executive Officer 18,000 (4)
17,250 (5)
1994 260,000(1) -- 15,113 (3)
70,000 (5)
18,000 (4)
Arthur Bernstein 1996 109,040 -- 9,000 (4)
Senior Vice President 1995 108,587(6) 25,000 6,625 (4)
1994 101,058 -- 6,000 (4)
William Melamed, Jr. 1996 325,007(7) 12,500 12,000 (4)
Senior Vice President, 1995 129,878 -- 8,000 (4)
TPEG Management 1994 153,818 -- --
</TABLE>
- ------
(1) Includes amounts paid to AliPat Productions Ltd. ("AliPat") or
Mountaingate Productions LLC which provided the Company with the
services of Mr. Meyer and others and amounts paid to Mr. Meyer in his
capacity as President and Chief Executive Officer of the Company.
(2) See "Certain Transactions."
(3) Represents participations in producer fees and net profits on projects
produced. These participations in producer fees and net profits on
projects produced have been discontinued.
(4) Automobile reimbursement.
(5) Advance against future compensation.
(6) Includes bonus payment of $12,000.
(7) Includes a base salary of $130,105 and commissions.
37
<PAGE>
OPTION/SAR GRANTS TABLE
The following table sets forth information concerning individual grants of
stock options to purchase the Company's Common Stock made to each Named
Officer during the fiscal year ended June 30, 1996.
<TABLE>
<CAPTION>
Number of Securities % of Total Options/SARs
Underlying Options/SARs Granted to Employees in Exercise or Base Price
Name Granted (#) Fiscal Year ($/Sh) Expiration Date
------------------ ----------------------- ----------------------- ---------------------- ---------------
(a) (b) (c) (d) (e)
<S> <C> <C> <C> <C>
William Melamed,
Jr. 12,500(1) 100% $1.12 --
</TABLE>
- ------
(1) Options granted to Mr. Melamed in May, 1996 at an exercise of $1.12 per
share.
OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL
YEAR-END (JUNE 30, 1996) OPTION VALUES
No stock options were exercised by the Named Officers during fiscal 1996.
The following table sets forth certain information concerning the outstanding
options held by such Named Officers.
<TABLE>
<CAPTION>
Number of
Securities
Underlying Value of
Shares Unexercised Unexercised
Acquired Options at In-The-Money
On Value FY-End Options at
Name Exercise Realized($) # of Shares FY-End - $
-------------------- ---------- ----------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Irwin Meyer (1) 0 0 0 Exercisable 0
0 Unexercisable 0
Arthur Bernstein 0 0 25,000 Exercisable 0
0 Unexercisable 0
William Melamed, Jr. 0 0 12,500 Exercisable 0
0 Unexercisable 0
</TABLE>
- ------
(1) Does not include options to purchase 75,000 shares of Common Stock
exercisable at $2.00 per share held by each of Alison Meyer and Patricia
Meyer, the adult daughters of Mr. Meyer. Mr. Meyer has no direct or
indirect economic interest in any such securities and he expressly
disclaims beneficial ownership of the options and underlying shares of
Common Stock held by Alison and Patricia Meyer.
38
<PAGE>
CERTAIN TRANSACTIONS
In February, 1995, the Company and Harvey Bibicoff agreed to terminate Mr.
Bibicoff's employment as the Company's Chairman of the Board and Chief
Executive Officer and he resigned as an officer and director of the Company.
At such time, the Company entered into a consulting agreement with Bibicoff &
Associates, Inc., which is owned by Harvey Bibicoff, pursuant to which the
Company is entitled to receive consulting and advisory services from Mr.
Bibicoff. Compensation under this agreement, which expires on June 30, 1999,
consists of annual compensation of $80,000 and an annual bonus of not less
than 2% of all qualified offerings, as defined in the agreement, that he
arranges for the Company. To date, neither Mr. Bibicoff or Bibicoff &
Associates has arranged any offerings on behalf of the Company and such
persons will not receive any fees, bonuses or compensation in connection with
the Offering. In February, 1996, the Company, Mr. Bibicoff and Bibicoff &
Associates agreed, among other matters, to terminate all of the approximately
214,500 options to purchase Common Stock then held by Mr. Bibicoff and
Bibicoff & Associates (which options were exercisable at prices ranging from
$5.00 to $13.00 per share) and to issue to Mr. Bibicoff new options to
purchase 100,000 shares of Common Stock at an exercise price of $2.00 per
share. Such new options expire on the third anniversary of the date of grant.
In November, 1995, the Company sold, subject to the vesting requirements
described below, 500,000 shares of its Common Stock, at a purchase price of
$2.00 per share, to Mountaingate Productions, LLC, a California limited
liability company of which Alison Meyer and Patricia Meyer, the adult
daughters of Irwin Meyer, are the sole members ("Mountaingate"). Irwin Meyer
has no direct or indirect economic interest in any such securities and he
expressly disclaims beneficial ownership of the shares of Common Stock
purchased by Mountaingate.
The purchase price for these shares of Common Stock was paid by
Mountaingate by delivery of a promissory note (the "Note") to the Company.
The Note bears interest at the rate of 7% per annum, compounded semiannually.
Twenty five percent (25%) of the outstanding principal balance, and accrued
interest thereon, due under the Note are with recourse to the purchaser and
the remaining seventy five percent (75%) of the amounts due thereunder are
without recourse against the purchaser. The entire amount of principal and
accrued interest under the Note is secured by a pledge to the Company of the
Common Stock purchased with the proceeds of such borrowing. Twelve and
one-half percent (12.5%) of the original principal amount of the Note,
together with interest thereon, is due and payable on April 1, 1997; twelve
and one-half percent (12.5%) of the original principal amount of the Note,
together with interest thereon, is due and payable on October 1, 1998; and
the balance of the principal of and interest on the Note is due and payable
on October 1, 2000.
The shares of Common Stock acquired by Mountaingate are subject to
forfeiture to the Company (with a corresponding reduction in the Note) in the
event the employment of Mr. Meyer is terminated (other than termination as a
result of his death or disability or termination by the Company without
cause) prior to the applicable vesting date of such shares. Fifty percent
(50%) of the Common Stock purchased by Mountaingate vested on April 1, 1996,
25% vested on June 30, 1996, and 25% will vest on June 30, 1997.
Notwithstanding such vesting schedule, Mountaingate is entitled to vote all
of such shares of Common Stock.
In connection with the agreement between Mountaingate and the Company
pursuant to which Mountaingate provides the Company with the services of
Irwin Meyer and others, the agreement between the Company and AliPat
Productions Ltd. ("AliPat"), which formerly provided the Company with the
services of Mr. Meyer and others, was terminated and indebtedness of AliPat
to the Company in the amount of $68,016 was cancelled.
In addition, in November, 1995 the Company issued to Ronald Lightstone,
then its Chairman, and to Charles Weber, then its Chief Operating Officer,
375,000 shares of Common Stock and 25,000 shares of Common Stock,
respectively, on substantially the same terms as those described above. None
of such shares issued to Mr. Lightstone had vested as of the date the Company
terminated Mr. Lightstone's employment and such shares were therefore
forfeited to the Company at such time. See "Business -- Legal Proceedings."
In connection with Mr. Weber's resignation from the Company in April, 1996,
the Company waived the vesting and forfeiture provisions applicable to the
shares issued to Mr. Weber.
In May 1996, the Company issued to each of Alison Meyer and Patricia Meyer
options to purchase 75,000 shares of Common Stock at an exercise price of
$2.00 per share.
39
<PAGE>
Dempsey & Johnson, P.C., a law firm of which Michael Dempsey, a director
since May 1996, is a partner, currently provides legal services to the
Company and, since January 1, 1995, received fees for such services in the
amount of approximately $217,000.
First Colonial Securities Group, an investment banking firm of which Mr.
Lichtenberg, a director since May, 1996, is a managing director and a
stockholder, served as an underwriter in a public offering of securities by
the Company in December, 1994. In such transaction, First Colonial and its
affiliates received compensation in the form of underwriters' discounts and
other fees totaling approximately $225,000 and was granted a five year option
to purchase up to 11,250 of the Units sold in such offering at a price of
$7.00 per Unit, $8.00 per Unit above the public offering price thereof. Such
options have since been transferred by First Colonial to certain employees of
such firm, including Mr. Lichtenberg. First Colonial is continuing, but is
under no obligation, to act as a market maker in the Company's securities for
which it receives no compensation from the Company.
The Company has agreed to file on one occasion, at the Company's expense,
and upon the request of M.H. Meyerson & Company, Inc. ("Meyerson") and First
Colonial Securities Group, Ltd.("First Colonial"), which acted as
underwriters (the "1994 Underwriters") of the public offering of units
consisting of the Series A Stock and the Class B Warrants in December 1994, a
registration statement under the Securities Act to permit the public sale of
the 1994 Underwriters' Options and/or the underlying securities. The Company
has also agreed to provide "piggy-back" registration rights to the holders of
the 1994 Underwriters' Options. Both Meyerson and First Colonial have agreed
to waive their rights to have the Underwriters' Options and underlying
securities included in the Registration Statement pursuant to which this
Offering is being effected or to include any of such securities in any
registration statement filed by the Company within 18 months after the date
hereof.
The Company also agreed to pay the 1994 Underwriters fees for services
rendered in the event that they originate a merger, acquisition, joint
venture or other transaction to which the Company is a party during the five
years following the closing of the December, 1994 Offering. The amount of the
fee will range from 2% to 5% of the total consideration paid in any such
transaction. Neither Mr. Lichtenberg, a Director of the Company, First
Colonial nor Meyerson will receive any fees or other compensation in
connection with this Offering.
The Company also granted the 1994 Underwriters the right to nominate one
person for the Company's Board of Directors for a period of three years. Such
nominee may be a director, officer, partner, employee or affiliate of the
underwriters. Mr. Lichtenberg, a Managing Director of First Colonial, was
elected a member of the Company's Board of Directors in May, 1996, as a
nominee of the 1994 Underwriters.
40
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of June 28, 1996, adjusted
to reflect the sale of the shares of Common Stock underlying the Units
offered hereby, with respect to the beneficial ownership of Common Stock by
(i) each person known by the Company to be the beneficial owner of five
percent or more of the Company's Common Stock, (ii) each of the Named
Officers, (iii) each director, and (iv) all executive officers and directors
as a group:
<TABLE>
<CAPTION>
Amount of Shares Percent of Percent of
Name and Address of Beneficially Class Before Class After
Beneficial Owner(1) Owned(2)(3) Offering(3) Offering(3)
------------------- ----------------- -------------- -------------
<S> <C> <C> <C>
Mountaingate Productions, LLC(4) ................ 650,000 18.8% 5.7%
12610 Promontory Rd.
Los Angeles, CA 90049
Irwin Meyer(5) .................................. 0 0 0
Arthur Bernstein(6) ............................. 25,000 * *
Michael Levy(7) ................................. 18,750 * *
Ben Lichtenberg(8) .............................. 12,554 * *
Michael Dempsey(9) .............................. 6,250 * *
William Melamed, Jr.(10) ........................ 12,500 * *
Officers and directors as a group (consisting of 6
persons)(11) ................................... 75,054 2.2% *
</TABLE>
- ------
* less than 1%
(1) The address of each of Messrs. Meyer, Levy, Melamed and Bernstein is
9150 Wilshire Boulevard, Beverly Hills, California 90212. The address of
Mr. Dempsey is 1925 Century Park East, Ste 2350, Los Angeles, California
90067 and the address of Mr. Lichtenberg is 401 N. Route 73, Marlton,
New Jersey 08053.
(2) See "Management -- Executive Compensation" and "Business -- Legal
Proceedings."
(3) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, and includes voting and investment
power with respect to shares. Shares of Common Stock subject to options
or warrants currently exercisable or exercisable within 60 days of the
applicable measurement date are deemed outstanding for computing the
percentage ownership of the person holding such options or warrants, but
are not deemed outstanding for purposes of computing the percentage
ownership of any other person.
(4) Includes (i) 500,000 shares of Common Stock purchased by Mountaingate
Productions, LLC, a California limited liability company
("Mountaingate"), in November, 1995 and (ii) currently exercisable
options to purchase an aggregate of 150,000 shares of Common Stock at an
exercise price of $2.00 per share held by Alison Meyer and Patricia
Meyer, the sole members of Mountaingate. Alison and Patricia Meyer are
the adult children of Irwin Meyer. Irwin Meyer has no direct or indirect
economic interest in any such securities and he expressly disclaims
beneficial ownership of the shares of Common Stock owned by Mountaingate
and the options held by Alison Meyer and Patricia Meyer.
(5) Does not include 500,000 shares of Common Stock owned by Mountaingate,
in which Mr. Meyer has no direct or indirect economic interest and in
which he disclaims any beneficial ownership.
(6) Consists of 25,000 shares of Common Stock which are issuable upon the
exercise of outstanding options at an exercise price of $2.00 per share.
(7) Consists of 18,750 shares of Common Stock which are issuable upon the
exercise of outstanding options at an exercise price of $2.00 per share.
(8) Includes (i) 2,654 shares of Common Stock and options to purchase 6,250
shares of Common Stock at an exercise price of $2.00 per share, all of
which are held by First Colonial Securities Profit Sharing Plan FBO Ben
Lichtenberg, (ii) 275 shares of the Company's Preferred Stock held by
such plan FBO Ben Lichtenberg and (iii) 3,375 underwriter's options held
by Mr. Lichtenberg which were transferred to him by First
41
<PAGE>
Colonial Securities Corp. following the public offering of such units by
the Company in December, 1994. Each such underwriter's option entitles
the holder thereof to purchase one unit (consisting of one share of
Series A Stock and one Class B Warrant to purchase a share of Common
Stock at an exercise price of $8.00) at an exercise price of $7.00 per
unit.
(9) Consists of 6,250 shares of the Common Stock issuable upon the exercise
of outstanding options at an exercise price of $2.00 per share.
(10) Consists of 12,500 shares of Common Stock which are issuable upon the
exercise of outstanding options at an exercise price of $1.12 per share.
(11) Includes (i) 68,750 shares of Common Stock issuable upon the exercise of
outstanding options at exercise prices ranging from $1.12 to $2.00 per
share, (ii) 275 shares of the Company's Preferred Stock and (iii) 3,375
underwriter's options, each of which entitles the holder thereof to
purchase one unit (consisting of one share of Series A Stock and one
Class B Warrant) at an exercise price of $7.00 per unit.
42
<PAGE>
SELLING SECURITYHOLDERS
An aggregate of 500,000 Redeemable Warrants which will be issued to
certain Selling Securityholders in exchange for the Bridge Warrants, together
with 500,000 shares of Common Stock issuable upon their exercise, are being
offered hereby, at the expense of the Company, for the account of such
Selling Securityholders. See "Recent Bridge Financing," "Concurrent Offering"
and "Shares Eligible for Future Sale." The Bridge Warrants were issued as
part of a private placement by the Company of Units consisting of $500,000
aggregate principal amount of 10% promissory notes and the Bridge Warrants
which was completed in June, 1996. The $500,000 principal amount of Bridge
Notes, including accrued interest thereon, are to be repaid out of the
proceeds of this Offering. See "Use of Proceeds."
Sales of the Selling Securityholder Warrants and the underlying shares of
Common Stock may depress the price of the Units and the Common Stock or
Redeemable Warrants underlying the Units in any markets for such securities.
The following table sets forth information with respect to persons for
whom the Company is registering the Selling Securityholder Warrants and the
Selling Securityholder Shares for resale to the public in the Concurrent
Offering. Beneficial ownership of Redeemable Warrants and Common Stock by
such Selling Securityholders after the Offering will depend on the number of
securities sold by each Selling Securityholder in the Concurrent Offering.
None of the Selling Securityholders would own any securities, assuming that
each Selling Securityholder sold all securities offered hereby.
<TABLE>
<CAPTION>
Beneficial Ownership After the Offering and
Prior to Sales in the Concurrent Offering (1)
----------------------------------------------------
Redeemable Warrants Common Stock
------------------------- -------------------------
Selling Securityholder Number Percentage Number Percentage
- ------------------------------------- ---------- ------------ --------- ------------
<S> <C> <C> <C> <C>
Kal Zeff ........................... 50,000 1.1% 50,000 *
Barry A. Saunders .................. 50,000 1.1% 50,000 *
Harlan I. Cohen .................... 45,000 1.0% 45,000 *
Katty N. Cohen ..................... 5,000 * 5,000 *
Stephen J. Nicholas, M.D. .......... 50,000 1.1% 50,000 *
Bernard and Miriam Pismeny (JTWROS) . 50,000 1.1% 50,000 *
Nathaniel Silon, Revocable Trust ... 50,000 1.1% 50,000 *
Daniel and Dianne Minc (JTWROS) .... 50,000 1.1% 50,000 *
Dean H. Roller ..................... 50,000 1.1% 50,000 *
Daniel A. Marino ................... 50,000 1.1% 50,000 *
Silver Limited ..................... 50,000 1.1% 50,000 *
---------
Total .............................. 500,000 11.1% 500,000 4.36
========= ============ ========= ============
</TABLE>
- ------
* Less than 1%
(1) Assuming no purchase by any Selling Securityholder of any Common Stock or
Redeemable Warrants in the Offering.
There are no material relationships between any of the Selling
Securityholders and the Company or any of its predecessors of affiliates. The
Securities offered by the Selling Securityholders are not being underwritten
by the Underwriter. The Selling Securityholders may sell the Selling
Securityholder Warrants and/or the Selling Securityholder Shares at any time
on or after the date hereof, provided that during the 18 month period
commencing on the date of this Prospectus prior consent is given by the
Underwriter. In addition, the Selling Securityholders have agreed that,
during the period ending on the second anniversary of the date of this
Prospectus, the Selling Securityholders will not sell such securities other
than through the Underwriter, and that the Selling Securityholders shall
compensate the Underwriter in accordance with its customary compensation
practices. Subject to these restrictions, sales of the Selling Securityholder
Warrants and/or the Selling Securityholder Shares may be effected from time
to time in transactions (which may include block transactions) in the over-
the-counter market, in negotiated transactions, or a combination of such
methods of sale, at fixed prices that may be changed, at market prices
prevailing at the time of sale, or at negotiated prices. The Selling
Securityholders may effect such transactions by selling the Selling
Securityholder Warrants and/or the Selling Security-
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<PAGE>
holder Shares directly to purchasers or through broker-dealers that may act
as agents or principals. Such broker-dealers may receive compensation in the
form of discounts, concessions or commissions from the Selling
Securityholders and/or the purchasers of the Selling Securityholder Warrants
and/or the Selling Securityholder Shares for whom such broker-dealers may act
as agents or to whom they sell as principals, or both (which compensation as
to a particular broker-dealer might be in excess of customary commissions).
The Selling Securityholders and any broker-dealers that act in connection
with the sale of the Selling Securityholder Warrants and/or the Selling
Securityholder Shares as principals may be deemed to be "underwriters" within
the meaning of Section 2(11) of the Securities Act and any commission
received by them and any profit on the resale of such securities as
principals might be deemed to be underwriting discounts and commissions under
the Securities Act. The Selling Securityholders may agree to indemnify any
agent, dealer or broker-dealer that participates in transactions involving
sales of such securities against certain liabilities, including liabilities
arising under the Securities Act. The Company will not receive any proceeds
from the sales of the Selling Securityholder Warrants and/or the Selling
Securityholder Shares by the Selling Securityholders, although the Company
will receive proceeds from the exercise of the Selling Securityholder
Warrants. Sales of the Selling Securityholder Warrants and/or the Selling
Securityholder Shares by the Selling Securityholders, or even the potential
of such sales, would likely have an adverse effect on the market price of the
Units, the Redeemable Warrants and Common Stock.
At the time a particular offer of Selling Securityholder Warrants and/or
the Selling Securityholder Shares is made, except as herein contemplated, by
or on behalf of the Selling Securityholder, to the extent required, a
Prospectus will be distributed which will set forth the number of Selling
Securityholder Warrants and/or the Selling Securityholder Shares being
offered and the terms of the offering, including the name or names of any
underwriters, dealers or agents, if any, the purchase price paid by any
underwriter for shares purchased from the Selling Securityholder and any
discounts, commissions or concessions allowed or reallowed or paid to
dealers.
Under the Exchange Act, and the regulations thereunder, any person engaged
in a distribution of the securities of the Company offered by this Prospectus
may not simultaneously engage in market-making activities with respect to
such securities of the Company during the applicable "cooling-off" period
(two or nine days) prior to the commencement of such distribution. In
addition, and without limiting the foregoing, the Selling Securityholders
will be subject to applicable provisions of the Exchange Act and the rules
and regulations thereunder, including, without limitation, Rules 10b-6 and
10b-7, in connection with transactions in such securities, which provisions
may limit the timing of purchases and sales of such securities by the Selling
Securityholders.
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<PAGE>
DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 50,000,000 shares
of Common Stock, $.001 par value, and 10,000,000 shares of Preferred Stock,
$.001 par value.
UNITS
Upon consummation of the Offering, 2,000,000 Units will be outstanding
(2,300,000 Units if the Underwriter's over-allotment option is exercised in
full). Each Unit consists of four shares of Common Stock and two Redeemable
Warrants. The securities included in each Unit will be separately tradeable
immediately upon issuance.
COMMON STOCK
As of July 16, 1996, there were 3,305,210 shares of Common Stock that were
held by 167 stockholders of record. There will be approximately 11,305,210
shares of Common Stock outstanding (or 12,505,210 shares if the Underwriter's
over-allotment option is exercised in full) after giving effect to the sale
of the Common Stock included in the Units.
The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may
be applicable to any outstanding Preferred Stock, the holders of Common Stock
are entitled to receive ratably such dividends, if any, as may be declared
from time to time by the Board of Directors out of funds legally available
therefor. See "Dividend Policy." In the event of the liquidation, dissolution
or winding up of the Company, the holders of Common Stock are entitled to
share ratably in all assets remaining after payment of liabilities, subject
to prior distribution rights of Preferred Stock, if any, then outstanding.
The Common Stock has no preemptive or conversion rights or other subscription
rights. There are no redemption or sinking funds provisions applicable to the
Common Stock. All outstanding shares of Common Stock are fully paid and
nonassessable, and the shares of Common Stock to be issued upon completion of
the Offering will be fully paid and nonassessable.
PREFERRED STOCK
The Company's authorized capital stock includes 10,000,000 shares of
Preferred Stock $.001 par value per share. As of the date of this Prospectus,
the Company has no shares of Preferred Stock outstanding except for 1,000,000
shares of Series A 8 1/2% Convertible Preferred Stock (the "Series A Stock")
described below. The Board of Directors has the authority, without
shareholder approval, to issue the Preferred Stock in one or more series and
to fix the relative rights and preferences thereof. The terms of such
Preferred Stock could include the right to vote, separately or with any other
series of Preferred Stock, on any proposed amendment to the Company's
Certificate of Incorporation or any other proposed corporate action,
including business combinations and other transactions. Such rights could
adversely affect the voting power of the holders of Common Stock. The Board
of Directors does not currently contemplate the issuance of any shares of
Preferred Stock. In addition, the ability of the Company to issue the
authorized but unissued shares of Preferred Stock could be utilized to impede
potential take-overs of the Company.
SERIES A STOCK
As of the date hereof, 1,000,000 shares of Series A Stock are issued and
outstanding. Each share of Series A Stock is convertible at any time into
1.25 shares of the Company's Common Stock. Holders of the Series A Stock are
entitled to annual dividends of 8 1/2% payable in cash or Common Stock of
the Company, at the Company's option based on the market price of the Common
Stock on the date of declaration of the dividend. See "Dividends" under this
caption. The holders of the Series A Stock are entitled to receive $5.00 per
share (plus accrued dividends) upon the liquidation, dissolution or winding
up of the Company, prior to any distributions to the holder of Common Stock.
The Series A Stock is nonvoting.
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<PAGE>
DIVIDENDS
The Company has never paid a cash dividend on the Common Stock and
presently intends to retain any future earnings for investment and use in its
business operations. Furthermore, there can be no assurance that the
Company's operations will generate the revenues and cash flow required to
declare a cash dividend or that the Company will have legally available funds
to pay dividends on such Common Stock. Consequently, no cash dividends are
expected to be paid in the foreseeable future except to the extent required
to satisfy the Company's obligations with respect to its outstanding Series A
Stock.
Pursuant to the terms of the Company's outstanding Series A Stock which it
issued in a public offering consummated in December 1994, the Company, at its
option, may pay dividends on such stock in cash or in shares of its Common
Stock. The Company has agreed that it will not pay dividends on the Series A
Stock in shares of its Common Stock without the consent of the Underwriter
during the 18 month period commencing on the effective date of this
Prospectus. See "Risk Factors."
WARRANTS
As of the date of this Prospectus, the Company has outstanding warrants to
purchase an aggregate of 315,250 shares of Common Stock. The warrants include
Class B Warrants to purchase 250,000 shares of the Company's Common Stock at
$8.00 per share which were issued as part of the units consisting of
1,000,000 Shares of the Company's Series A Stock and 250,000 Class B Warrants
offered and sold by the Company in December, 1994.
The Class B Warrants contain provisions that protect the holders thereof
against dilution by adjustment of the exercise price in certain events, such
as stock dividends, stock splits, mergers, and other unusual events (other
than employee benefit and stock option plans for employees or consultants to
the Company).
Holders of warrants do not possess any rights as a stockholder of the
Company unless and until they exercise the warrants.
REDEEMABLE WARRANTS
The Redeemable Warrants will be issued pursuant to a warrant agreement
(the "Redeemable Warrant Agreement") between the Company and OTR Stock
Transfer Company (the "Warrant Agreement"), and will be evidenced by warrant
certificates in registered form. The following summary is qualified in its
entirety by the text of the Warrant Agreement, a copy of which has been filed
as an exhibit to the Registration Statement.
Each Redeemable Warrant entitles the registered holder thereof to purchase
one share of Common Stock at a price of $1.75 per share, subject to
adjustment, commencing on the date of issuance. The Redeemable Warrants
expire on _______________, 2001 [the fifth anniversary of the effective
date], (the "Expiration Date"). Commencing _______________, 1997, [12 months
after the effective date of the Registration Statement], the Redeemable
Warrants are subject to redemption by the Company at a redemption price of
$.05 per Redeemable Warrant on 30 days' prior written notice, provided that
either (i) the average closing bid price (or last sales price) of the Common
Stock, as reported on NASDAQ (or on such exchange on which the Common Stock
is then traded), equals or exceeds 150% of the exercise price per share,
subject to adjustment, for any 20 trading days within a period of 30
consecutive trading days ending on the fifth trading day prior to the date of
notice or redemption and (ii) the Company shall have obtained written consent
from the Underwriter to redeem the Redeemable Warrants. The holder of a
Redeemable Warrant will lose his right to purchase if such right is not
exercised prior to redemption by the Company on the date for redemption
specified in the Company's notice of redemption or any later date specified
in a subsequent notice. Notice of redemption by the Company shall be given by
first class mail to the holders of the Redeemable Warrants at their addresses
set forth in the Company's records.
The exercise price of the Redeemable Warrants and the number and kind of
shares of Common Stock or other securities and property to be obtained upon
exercise of the Redeemable Warrants are subject to adjustment in certain
circumstances including a stock split of, or stock division, combination or
recapitalization of, the Common Stock. Additionally, an adjustment would be
made upon the consolidation of the Company with or the
46
<PAGE>
merger of the Company with or into another corporation (other than a
consolidation or merger which does not result in any reclassification or
change of the outstanding Common Stock) so as to enable Redeemable Warrant
holders to purchase the kind and number of shares of stock or other
securities or property (including cash) receivable in such event by a holder
of the number of shares of Common Stock that might otherwise have been
purchased upon exercise of such Redeemable Warrant. No adjustment for cash
dividends, if any, will be made upon exercise of the Redeemable Warrants.
The exercise price of the Redeemable Warrants bears no relation to any
objective criteria of value and should not be regarded as an indication of
the future market price of the securities offered hereby. The Redeemable
Warrants do not confer upon the holder any voting or any other rights of a
stockholder of the Company. Upon notice to the Redeemable Warrant holders,
the Company has the right to reduce the exercise price or extend the
expiration date of the Redeemable Warrants.
The Redeemable Warrants may be exercised upon surrender of the Redeemable
Warrant certificate on or prior to the expiration date (or earlier redemption
date) of such Redeemable Warrant at the offices of the Warrant Agent, with
the form of "Election to Purchase" on the reverse side of the Redeemable
Warrant certificate completed and executed as indicated, accompanied by
payment of the full exercise price (by cashier's or certified check payable
to the order of the Warrant Agent) for the number of Redeemable Warrants
being exercised. The Redeemable Warrants will become void and of no value
upon the Expiration Date. If a market for the Redeemable Warrants develops,
the holder may sell the Redeemable Warrants instead of exercising them. There
can be no assurance, however, that a market for the Redeemable Warrants will
develop or continue. If a prospectus covering the shares of Common Stock
issuable upon the exercise or Redeemable Warrants is not kept effective and
current or if such shares are not qualified for sale in certain states,
holders of Redeemable Warrants desiring to exercise the Redeemable Warrants
will have no choice but either to sell such Redeemable Warrants or let them
expire. See "Risk Factors -- Potential Adverse Effect of Redemption of
Redeemable Warrants."
The Warrant Agreement provides that it may be amended at any time with the
written consent of registered holders representing at least 66 2/3% of the
Redeemable Warrants then outstanding.
UNDERWRITER'S WARRANTS
Pursuant to the terms of the Underwriting Agreement between the Company
and the Underwriter, the Underwriter will receive 200,000 Underwriter's
Warrants for nominal consideration. See "Underwriting."
TRANSFER AGENT, REGISTRAR AND WARRANT AGENT
The Transfer Agent and Registrar for the Units, Common Stock and
Redeemable Warrants is OTR Stock Transfer Company, Portland, Oregon. The
address of the Transfer Agent is 1130 Southwest Morrison, #250, Portland,
Oregon 92705. OTR will also act as Warrant Agent for the Redeemable Warrants.
SHARES ELIGIBLE FOR FUTURE SALE
Of the 11,305,210 shares of Common Stock to be outstanding upon completion
of the Offering, approximately 10,406,000 shares of Common Stock, including
the 8,000,000 shares underlying the Units offered hereby, will be freely
tradeable without restriction under the Securities Act except for any shares
of Common Stock purchased by an "affiliate" of the Company (as that term is
defined under the rules and regulations of the Securities Act), which will be
subject to the resale limitations of Rule 144 under the Securities Act. The
remaining 899,210 shares of Common Stock outstanding are "restricted"
securities within the meaning of Rule 144 under the Securities Act and may be
sold pursuant to the conditions of such rule, including satisfaction of
certain holding period requirements. Holders of approximately 233,750
restricted shares, including all officers and directors of the Company have
agreed not to directly or indirectly, issue, offer to sell, sell, grant an
option for the sale of, assign, transfer, pledge, hypothecate or otherwise
encumber or dispose of (collectively, "Transfer") any securities issued by
the Company without the prior written consent of the Underwriter for a period
of ending upon the earlier of (i) eighteen months from the date of this
Prospectus, or (ii) two months after the Underwriter and each
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<PAGE>
broker-dealer controlled by any affiliate of the Underwriter at the time the
"lock-up" agreement was entered into, if any, transfers all of the
Underwriter's Warrants and all securities issuable upon exercise of the
Underwriter's Warrants. An appropriate legend shall be marked on the face of
the certificates representing such securities.
The Redeemable Warrants underlying the Units offered hereby and the shares
of Common Stock underlying such Redeemable Warrants, upon exercise thereof,
will be freely tradeable without restriction under the Securities Act, except
for any Redeemable Warrants or shares of Common Stock purchased by an
"affiliate" of the Company, which will be subject to the resale limitations
of Rule 144 under the Securities Act. In addition, 500,000 Redeemable
Warrants and the shares of Common Stock underlying such Redeemable Warrants
are being registered in the Concurrent Offering. Holders of such Redeemable
Warrants have agreed not to Transfer such Redeemable Warrants, or the
underlying shares of Common Stock, for a period of 18 months from the date of
this Prospectus, without the prior written consent of the Underwriter and the
Company. An appropriate legend shall be marked on the face of the
certificates representing such securities.
In addition, without the consent of the Underwriter, the Company has
agreed not to sell or offer for sale any of its securities for a period of 18
months following the effective date of this Prospectus, except pursuant to
outstanding options and warrants and pursuant to the Company's existing
option plans provided that no option so granted shall have an exercise price
that is less than the fair market value per share of Common Stock on the date
of grant.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are required to be aggregated), including any affiliate of the
Company, who beneficially owns "restricted shares" for a period of at least
two years is entitled to sell within any three-month period, shares equal in
number to the greater of (i) 1% of the then-outstanding shares of the
Company's Common Stock or (ii) the average weekly trading volume of the
Company's Common Stock during the four calendar weeks preceding the filing of
the required notice of sale with the Securities and Exchange Commission. The
seller also must comply with the notice and manner of sale requirements of
Rule 144, and there must be current public information available about the
Company. In addition, any person (or persons whose shares are aggregated) who
is not, at the time of the sale, nor during the preceding three months, an
affiliate of the Company, and who has beneficially owned restricted shares
for at least three years, can sell such shares under Rule 144 without regard
to notice, manner of sale, public information or the volume limitations
described above.
No predictions can be made concerning the effect, if any, that future
sales of shares or the availability of shares for sale will have on the
market price prevailing from time to time. Nevertheless, sales of substantial
amounts of the Company's Common Stock in the public market could adversely
affect the then prevailing market price of the Common Stock.
48
<PAGE>
UNDERWRITING
Joseph Stevens & Company, L.P. (the "Underwriter") has entered into an
Underwriting Agreement with the Company pursuant to which, and subject to the
terms and conditions thereof, it has agreed to purchase from the Company, and
the Company has agreed to sell to the Underwriter on a firm commitment basis
all of the Units offered by the Company hereby.
The Underwriter has advised the Company that the Underwriter initially
proposes to offer the Units to the public at the public offering price set
forth on the cover page of this Prospectus and that the Underwriter may allow
to certain dealers concessions not in excess of $_____ per Unit, of which
amount a sum not in excess of $_____ per Unit may in turn be reallowed by
such dealers to other dealers. After the commencement of this Offering, the
public offering price, the concessions and the reallowances may be changed.
The Underwriter has informed the Company that the Underwriter does not expect
sales to discretionary accounts by the Underwriter to exceed five percent of
the securities offered by the Company hereby.
The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act. The company has
agreed to pay to the Underwriter a non-accountable expense allowance equal to
three percent (3%) of the gross proceeds derived from the sale of the Units
underwritten, $25,000 of which has been paid to date.
Upon the exercise of any Redeemable Warrants more than one year after the
date of this Prospectus, which exercise was solicited by the Underwriter, and
to the extent not inconsistent with the guidelines of the NASD and the Rules
and Regulations of the Commission, the Company has agreed to pay the
Underwriter a commission which shall not exceed five percent of the aggregate
exercise price of such Redeemable Warrants, payable upon exercise. The
Underwriter may act as the Company's exclusive agent with respect to the
solicitation of Redeemable Warrants, if any. However, no compensation will be
paid to the Underwriter in connection with the exercise of the Redeemable
Warrants if (a) the market price of the Common Stock is lower than the
exercise price, (b) the Redeemable Warrants were held in a discretionary
account, or (c) the Redeemable Warrants are exercised in an unsolicited
transaction. The Underwriter will not be entitled to any warrant solicitation
fee unless the Underwriter provides bona fide services in connection with any
warrant solicitation, and the investor designates, in writing, that the
Underwriter is entitled to such fee. Unless granted an exemption by the
Commission from Rule 10b-6 under the Securities Exchange Act of 1934, as
amended, the Underwriter will be prohibited from engaging in any
market-making activities with regard to the Company's securities for the
period from nine business days (or other such applicable periods as Rule
10b-6 may provide) prior to any solicitation of the exercise of the
Redeemable Warrants until the later of the termination of such solicitation
activity or the termination (by waiver or otherwise) of any right the
Underwriter may have to receive a fee. As a result, the Underwriter may be
unable to continue to provide a market for the Company's securities during
certain periods while the Redeemable Warrants are exercisable. If the
Underwriter has engaged in any of the activities prohibited by Rule 10b-6
during the periods described above, the Underwriter undertakes to waive
unconditionally its right to receive a commission on the exercise of such
Redeemable Warrants.
All officers and directors of the Company, and certain holders of Common
Stock and securities exercisable, convertible or exchangeable for shares of
Common Stock, have agreed not to, directly or indirectly, offer, sell,
transfer, pledge, assign, hypothecate or otherwise encumber any shares of
Common Stock or convertible securities, or otherwise dispose of any interest
therein, without the prior written consent of the Underwriter for a period
ending upon the earlier of (i) eighteen months from the date of this
Prospectus, or (ii) two months after the Underwriter and each broker-dealer
controlled by any affiliate of the Underwriter at the time the "lock-up"
agreement was entered into, if any, transfers all of the Underwriter's
Warrants and all securities issuable upon exercise of the Underwriter's
Warrants. An appropriate legend shall be marked on the face of certificates
representing all such securities.
The Company has granted to the Underwriter an option, exercisable within
45 days of the date of the Registration Statement to purchase from the
Company at the initial public offering price per Unit less underwriting
discounts and the non-accountable expense allowance, up to an aggregate of an
additional 300,000 Units for the sole purpose of covering over-allotments, if
any.
In connection with this Offering, the Company has agreed to sell to the
Underwriter, for nominal consideration, Underwriter's Warrants to purchase
from the Company 200,000 Units. The Underwriter's Warrants are
49
<PAGE>
initially exercisable at a price equal to 120% of the initial public offering
price per Unit and may be exercised at any time during the four year period
commencing on the second anniversary of the date of issuance. The shares of
Common Stock and Redeemable Warrants issuable upon exercise of the
Underwriter's Warrants are identical to those offered to the public. The
Underwriter's Warrants contain anti-dilution provisions providing for
adjustment of the number of warrants and exercise price under certain
circumstances. The Underwriter's Warrants grant to the holders thereof
certain rights of registration of the securities issuable upon exercise of
the Underwriter's Warrants.
The Company has agreed that the Underwriter has a right of first refusal
for a period of three years from the date of this Prospectus with respect to
any sale of securities made by the Company or any of its present or future
affiliates or subsidiaries. The Company has agreed that for five years from
the effective date of the Registration Statement, the Underwriter may
designate one person for election to the Company's Board of Directors and
that the Company will reasonably cooperate with the Underwriter in respect of
such designation. The Company has also agreed to retain the Underwriter as
the Company's financial consultant for a period of 24 months commencing upon
the consummation of the proposed public offering and to pay the Underwriter
$2,000 per month all payable in advance on the closing date set forth in the
Underwriting Agreement.
The Underwriter acted as Placement Agent for the Bridge Financing and
received in connection therewith a commission of $50,000, a non-accountable
expense allowance of $15,000 and 150,000 placement agent warrants (the
"Placement Agent's Warrants") to purchase 150,000 shares of Common Stock at
an exercise price of $1.12 per share. The Placement Agent's Warrants will be
canceled upon the consummation of this Offering. The Company also paid the
fees and disbursements of the Underwriter's legal counsel.
Joseph Stevens & Company, L.P. commenced operations in May 1994 and
therefore does not have extensive experience as an underwriter of public
offerings of securities. Joseph Stevens & Company, L.P., has acted as the
managing underwriter for four public offerings. Joseph Stevens & Company,
L.P. is a relatively small firm and no assurance can be given that it will be
able to participate as a market maker in the Units and no assurance can be
given that another broker-dealer will make a market in the Units, the Common
Stock or the Redeemable Warrants. See "Risk Factors -- Lack of Experience of
Underwriter."
Prior to the Offering there has been a limited public market for the
Common Stock and no public market for the Units or the Redeemable Warrants.
The Common Stock is currently traded on NASDAQ and the BSE. Consequently, the
initial public offering price of the Units and terms of the Redeemable
Warrants were determined by negotiation between the Company and the
Underwriter. Among the factors considered in determining such price and
terms, in addition to prevailing market conditions, included the history of
and the prospects for the industry in which the Company competes, the market
price of the Common Stock, an assessment of the Company's management, the
prospects of the Company, its capital structure and such other factors that
were deemed relevant. The offering price does not necessarily bear any
relationship to the assets, results of operations or net worth of the
Company.
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to a
copy of each such agreement which are filed as exhibits to the Registration
Statement. See "Additional Information."
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by Dempsey & Johnson, P.C., Los Angeles, California. Maloney, Gerra,
Mehlman & Katz, New York, New York has acted as special counsel to the
Company in connection with the Offering. Orrick, Herrington & Sutcliffe, New
York, New York has acted as counsel to the Underwriter in connection with
this Offering.
EXPERTS
The financial statements included in this Prospectus and the Registration
Statement of which this Prospectus is a part have been audited by Kellogg &
Andelson Accountancy Corporation, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in accounting and
auditing and giving said reports.
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ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission,
Washington, D.C. 20549, a Registration Statement on Form SB-2 under the
Securities Act with respect to the Units offered hereby. This Prospectus does
not contain all of the information set forth in the Registration Statement
and the exhibits and schedules to the Registration Statement. For further
information with respect to the Company and such Units offered hereby,
reference is made to the Registration Statement and the exhibits and
schedules filed as a part of the Registration Statement. Statements contained
in this Prospectus concerning the contents of any contract or any other
document referred to are not necessarily complete; reference is made in each
instance to the copy of such contract or document filed as an exhibit to the
Registration Statement. Each such statement is qualified in all respects by
such reference to such exhibit. The Registration Statement, including
exhibits and schedules thereto, may be inspected without charge at the
Securities and Exchange Commission's principal office in Washington, D.C.,
and copies of all or any part thereof may be obtained from such office after
payment of fees prescribed by the Securities and Exchange Commission.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Auditors ............................................F-2
Consolidated Balance Sheets -- March 31, 1996 (unaudited) and June 30, 1995
and 1994 ..................................................................F-3
Consolidated Statements of Operations -- Nine months ended March 31, 1996 and
1995 (unaudited) and Years Ended June 30, 1995, 1994 and 1993 .............F-4
Consolidated Statement of Shareholders' Equity Nine months ended March 31,
1996 (unaudited) and Years Ended June 30, 1995, 1994 and 1993 .............F-5
Consolidated Statements of Cash Flows -- Nine months ended March 31, 1996 and
1995 (unaudited) and Years Ended June 30, 1995, 1994 and 1993 .............F-6
Notes to Consolidated Financial Statements ................................F-8
F-1
<PAGE>
Board of Directors
The Producers Entertainment Group Ltd.
Beverly Hills, California
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying consolidated balance sheets of The Producers
Entertainment Group Ltd. and Subsidiaries as of June 30, 1995 and 1994, and
the related consolidated statements of operations, shareholders' equity and
cash flows for the years ended June 30, 1995, 1994 and 1993. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of The Producers Entertainment Group Ltd. and Subsidiaries as of June 30,
1995 and 1994 and the results of its operations and its cash flows for the
years ended June 30, 1995, 1994 and 1993, in conformity with generally
accepted accounting principles.
KELLOGG & ANDELSON
ACCOUNTANCY CORPORATION
Sherman Oaks, California
September 1, 1995, except for Note 12,
as to which the date is June 20, 1996
F-2
<PAGE>
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, June 30,
-------------- -------------------------------
1996 1995 1994
-------------- -------------- -------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents .......................... $ 81,268 $ 832,754 $ 964,387
Accounts receivable, less allowances of $36,421, $36,421
and $113,165 ...................................... 714,779 652,074 1,390,030
Notes receivable, less allowance of $270,000 ....... -- 402,842 --
Receivables from related parties ................... 14,876 116,229 458,294
Film costs, net .................................... 3,209,942 2,104,503 4,610,704
Fixed assets, at cost, less accumulated depreciation and
amortization of $174,459, $149,344 and $117,738 ... 58,490 76,439 93,914
Other assets ....................................... 213,107 199,829 89,399
-------------- -------------- -------------
$ 4,292,462 $ 4,384,670 $ 7,606,728
============== ============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable ...................................... $ 100,000 $ -- $ 1,388,750
Accounts payable and accrued expenses .............. 491,986 847,595 1,348,950
Deferred participations based on estimated revenues . -- 350,000 --
Deferred revenue ................................... 2,151,694 598,708 3,466,901
-------------- -------------- -------------
Total liabilities ................................. 2,743,680 1,796,303 6,204,601
-------------- -------------- -------------
COMMITMENTS -- -- --
SHAREHOLDERS' EQUITY:
Preferred stock, $.001 par value
Authorized 10,000,000 shares
Issued and outstanding 1,000,000 shares --
Series A .................................... 1,000 1,000 --
Common stock, $.001 par value
Authorized -- 50,000,000 shares
Issued -- 3,500,954, 2,847,192 and 2,702,208
Outstanding -- 3,220,345, 2,566,583 and 2,421,599 3,501 2,847 2,702
Additional paid-in capital ....................... 16,114,102 15,329,756 10,551,409
Accumulated deficit .............................. (12,735,629) (11,735,044) (8,141,792)
-------------- -------------- -------------
3,382,974 3,598,559 2,412,319
Treasury stock, 280,609 shares at cost ............. (1,010,192) (1,010,192) (1,010,192)
Notes receivable from related parties from sales of common
stock, net of imputed interest discount .......... (824,000) -- --
-------------- -------------- -------------
Net shareholders' equity .................... 1,548,782 2,588,367 1,402,127
-------------- -------------- -------------
$ 4,292,462 $ 4,384,670 $ 7,606,728
============== ============== =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Ended
March 31, Years ended June 30,
---------------------------------- ----------------------------------------------------
1996 1995 1995 1994 1993
--------------- --------------- --------------- --------------- ---------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues ....................... $ 2,132,767 $ 4,971,334 $ 5,290,745 $10,782,850 $ 7,180,569
--------------- --------------- --------------- --------------- ---------------
Amortization of film costs ..... 717,000 3,746,050 3,768,728 4,316,300 3,617,778
Costs related to revenues ...... -- -- -- 5,654,113 --
--------------- --------------- --------------- --------------- ---------------
717,000 3,746,050 3,768,728 9,970,413 3,617,778
--------------- --------------- --------------- --------------- ---------------
1,415,767 1,225,284 1,522,017 812,437 3,562,791
Write-off of projects in
development ................... -- -- 335,233 233,903 2,008,731
General and administrative
expenses ...................... 2,665,625 3,660,150 4,696,554 5,621,365 5,696,851
--------------- --------------- --------------- --------------- ---------------
Operating (loss) ............. (1,249,858) (2,434,866) (3,509,770) (5,042,831) (4,142,791)
--------------- --------------- --------------- --------------- ---------------
Other income (expense):
Interest income .............. 49,656 28,260 63,166 110,485 59,609
Interest and financing expense . -- (296,741) (303,908) (157,177) (99,020)
Provision for note receivable . -- (270,000) (270,000) -- --
Settlement of lawsuit ........ 267,633 -- -- (400,000) --
Reduction in deferred
participations ............ -- 200,000 427,260 -- --
Forgiveness of notes receivable
from related parties ...... (68,016) -- -- -- (102,000)
--------------- --------------- --------------- --------------- ---------------
Total other income (expense) . 249,273 (338,481) (83,482) (446,692) (141,416)
Net (loss) ................... (1,000,585) (2,773,347) (3,593,252) (5,489,523) (4,284,207)
Dividend requirement of Series A
Preferred Stock .............. (318,750) (126,350) (232,600) -- --
--------------- --------------- --------------- --------------- ---------------
Net (loss) applicable to common
shareholders ................. $ (1,319,335) $ (2,899,697) $ (3,825,852) $ (5,489,523) $ (4,284,207)
=============== =============== =============== =============== ===============
Net (loss) per common share .... $ (.46) $ (1.17) $ (1.52) $ (2.34) $ (2.40)
=============== =============== =============== =============== ===============
Weighted average number of
common shares outstanding .... 2,898,850 2,482,694 2,513,130 2,341,500 1,789,250
=============== =============== =============== =============== ===============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1993, 1994 AND 1995 AND
NINE MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Preferred stock Common stock
----------------------- -------------------- Additional Net
Paid-in Accumulated Treasury Shareholders'
Shares Amount Shares Amount Capital Deficit Stock Equity
----------- --------- ----------- --------- ------------- --------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30,
1992 ........... -- $ -- 1,970,000 $1,970 $ 6,902,919 $ (1,342,666) $(1,010,192) $4,552,031
Issuance of common
stock and common
stock purchase
warrants for cash
consideration .. -- -- 481,667 482 4,734,342 -- -- 4,734,824
Issuance of common
stock by DSL for
cash ........... -- -- -- -- 21,182 -- -- 21,182
Net (loss) ...... -- -- -- -- -- (4,284,207) -- (4,284,207)
----------- --------- ----------- --------- ------------- --------------- -------------- -----------
Balance at June 30,
1993 ........... -- -- 2,451,667 2,452 11,658,443 (5,626,873) (1,010,192) 5,023,830
Exercise of stock
options and
warrants ....... -- -- 250,541 250 1,323,468 -- -- 1,323,718
Settlement of
lawsuit ........ -- -- -- -- 400,000 -- -- 400,000
Net loss of DSL
duplicated in
statement of
operations ..... -- -- -- -- -- 144,102 -- 144,102
Net loss of DSL
applicable to
subchapter S
shareholders ... -- -- -- -- (2,830,502) 2,830,502 -- --
Net loss ........ -- -- -- -- -- (5,489,523) -- (5,489,523)
----------- --------- ----------- --------- ------------- --------------- -------------- -----------
Balance at June 30,
1994 ........... -- -- 2,702,208 2,702 10,551,409 (8,141,792) (1,010,192) 1,402,127
Sale of preferred
stock and
warrants in
public offering . 1,000,000 1,000 -- -- 4,175,467 -- -- 4,176,467
Issuance of shares
for interest ... -- -- 69,109 69 274,931 -- -- 275,000
Exercise of stock
options ........ -- -- 75,875 76 454,299 -- -- 454,375
Dividend on
preferred stock . -- -- -- -- (126,350) -- -- (126,350)
Net (loss) ...... -- -- -- -- -- (3,593,252) -- (3,593,252)
----------- --------- ----------- --------- ------------- --------------- -------------- ----------
Balance at June 30,
1995 ........... 1,000,000 1,000 2,847,192 2,847 15,329,756 (11,735,044) (1,010,192) 2,588,367
Unaudited:
Issuance of common
stock in payment
of dividends on
preferred stock . -- -- 128,762 129 (129) -- -- --
Sale of common stock
to related
parties for notes
receivable ..... -- -- 525,000 525 784,475 -- -- 785,000
Net (loss) ...... -- -- -- -- -- (1,000,585) -- (1,000,585)
----------- --------- ----------- --------- ------------- --------------- -------------- ----------
Balance at March 31,
1996 ........... 1,000,000 $1,000 3,500,954 $3,501 $16,114,102 $(12,735,629) $(1,010,192) 2,372,782
=========== ========= =========== ========= ============= =============== ============== ===========
Less notes receivable from related parties from sales of common stock, net of imputed interest discount ............... (824,000)
---------
$1,548,782
==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine months ended
March 31, Years ended June 30,
---------------------------------- --------------------------------------------------
1996 1995 1995 1994 1993
--------------- --------------- --------------- --------------- --------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) ........................... $ (1,000,585) $ (2,773,347) $ (3,593,252) $ (5,489,523) $(4,284,207)
Net loss of DSL duplicated in
statement of operations ........... -- -- -- 144,102 --
Adjustments to reconcile net (loss) to net
cash (used in) provided by
operating activities:
Amortization of film costs ........ 717,000 3,746,050 3,768,728 4,316,300 3,617,778
Depreciation ...................... 25,115 16,591 34,688 74,026 56,386
Write-off of projects in development -- -- 335,233 223,903 2,008,731
Settlement of lawsuit ............. (137,633) -- -- 400,000 --
Forgiveness of notes receivable ... 68,016 -- -- -- 102,000
Amortization of imputed interest
discount ........................ (39,000) -- -- -- --
Provision for uncollectible notes
receivable ...................... -- 270,000 270,000 -- --
Issuance of shares of common stock for
interest ........................ -- 275,000 275,000 -- --
Reduction in deferred participations -- (200,000) (427,260) -- --
Changes in assets and liabilities:
Decrease (increase) in accounts
receivable ................... 115,295 334,117 720,588 (200,893) (111,225)
Decrease (increase) in other
assets ....................... (13,278) (2,472) 63,700 38,690 (99,165)
(Decrease) increase in accounts
payable and accrued expenses . 115,468 (484,424) (524,095) (379,902) 319,898
(Decrease) increase in deferred
revenue ...................... (598,708) (3,327,901) (2,868,193) 1,640,240 1,544,268
--------------- --------------- --------------- --------------- ------------
Net cash (used in) provided by
operating activities .............. (748,310) (2,146,386) (1,944,863) 766,943 3,154,464
--------------- --------------- --------------- --------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to film costs .............. (129,347) (1,240,767) (1,771,890) (5,168,513) (5,631,411)
Purchases of equipment ............... (7,166) (9,913) (17,213) (12,926) (42,457)
(Increase) in receivables from related
parties, net ...................... 33,337 (286,275) (43,409) (101,650) (244,639)
--------------- --------------- --------------- --------------- ------------
Net cash (used in) investing activities (103,176) (1,536,955) (1,832,512) (5,283,089) (5,918,507)
--------------- --------------- --------------- --------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of units in public offering ..... -- 4,176,467 4,176,467 -- --
Proceeds from borrowings ............. 100,000 -- -- 887,000 3,481,000
Repayments of borrowings ............. -- (588,750) (588,750) (1,504,750) (2,305,946)
Proceeds from exercise of warrants and
stock options ..................... -- 454,375 454,375 1,323,718 4,734,824
Loan to former president of DSL ...... -- -- (270,000) -- --
Payment of dividend on preferred stock . -- -- (126,350) -- --
Sale of stock by DSL ................. -- -- -- -- 21,182
--------------- --------------- --------------- --------------- ------------
Cash provided by financing activities . 100,000 4,042,092 3,645,742 705,968 5,931,060
--------------- --------------- --------------- --------------- ------------
Net (decrease) increase in cash and
cash equivalents .................. (751,486) 358,751 (131,633) (3,810,178) 3,167,017
Cash and cash equivalents:
Beginning of period .................. 832,754 964,387 964,387 4,774,565 1,607,548
--------------- --------------- --------------- --------------- ------------
End of period ........................ $ 81,268 $ 1,323,138 $ 832,754 $ 964,387 $ 4,774,565
=============== =============== =============== =============== ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Nine months ended
March 31, Years ended June 30,
-------------------- -------------------------------------
1996 1995 1995 1994 1993
------ ---------- ---------- ----------- ---------
(Unaudited)
CASH PAID FOR:
Interest .... $ -- $21,741 $39,000 $157,200 $54,300
====== ========== ========== =========== =========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
As discussed in Note 1, the Company acquired all of the common stock of
DSL in exchange for 32,500 shares of the Company's common stock in a
transaction accounted for as a pooling of interests.
As discussed in Note 10, the Company agreed to settle a lawsuit, subject
to court approval, by issuing to the plaintiff stock purchase warrants
with an aggregate value of $400,000.
As discussed in Note 3, the Company transferred certain projects in
development with carrying amount of approximately $174,000 to a new
corporation (DEG) in exchange for a 19.9% ownership interest in DEG.
The accompanying notes are an integral part of the consolidated financial
statements.
F-7
<PAGE>
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Operations
The Producers Entertainment Group Ltd. (the Company) was incorporated
under the laws of the State of Delaware on August 10, 1989. The Company
is engaged in the acquisition, development and production of
made-for-television movies, series and miniseries and theatrical motion
pictures. The Company is also engaged in personal management of the
careers of performers, writers and directors. Unless the context
indicates otherwise, the term "Company" includes The Producers
Entertainment Group Ltd. and all of its subsidiaries.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of the Company and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation. Certain
reclassifications have been made to the 1994 financial statements to
conform to the 1995 presentation.
Acquisition of DSL and Restatement of Financial Statements
In May 1994, the Company acquired all of the capital stock of DSL
Productions, Inc. and its affiliates (DSL) in exchange for 32,500 shares
of its previously unissued common stock. This transaction was accounted
for as a pooling of interests. Accordingly, the accompanying 1994
financial statements and notes have been restated to include the
accounts of DSL.
Revenue Recognition
Amounts received as license fees for projects in production are deferred
until the project becomes available for broadcast in accordance with the
terms of the licensing agreement and are recognized as revenues at such
time. Additional licensing and distribution fees are recognized as
earned in accordance with the terms of the related agreements. Revenues
from the sale of completed productions are recognized upon their sale.
Cash and Cash Equivalents
Cash and cash equivalents include money market funds and certificates of
deposit with a maturity of three months or less.
Film Costs and Amortization
Film costs include the cost of completed projects, costs of projects in
production and costs expended on projects in development. Film costs are
stated at the lower of amortized cost or estimated net realizable value.
Amortization of completed projects is charged to operations on an
individual project basis in a ratio that the current year's revenue
bears to management's estimate of total revenues (current and future
years) from all sources. This is commonly referred to as the
individual-film-forecast method. Adjustments of amortization resulting
from changes in estimates of total revenues are recognized in the
current year's amortization. When a completed project is fully
amortized, its cost and related accumulated amortization are removed
from the accounts. If, in the opinion of management, any property in the
development stage is not planned for use, the net carrying value of such
property is charged to current year's operations.
Costs Related to Revenues
Costs related to revenues consist of direct costs incurred in the
production of projects that are subsequently sold to third parties. The
Company does not retain any ownership interest in these projects and,
accordingly, upon their sale, all incurred costs are charged to
operations. Participations in future profits from projects that are sold
are included in revenues when earned.
F-8
<PAGE>
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
Depreciation and Amortization
Depreciation and amortization of fixed assets (consisting of furniture,
equipment and leasehold improvements) is provided on the straight-line
method over the estimated useful lives of the related assets which range
from three to five years.
Deferred Participations Based on Estimated Future Revenues
Deferred participations based on future revenues are payable solely from
a portion of revenues, as defined, received from certain completed
projects up to a maximum of $800,000 of which approximately $93,000 has
been paid or earned as of June 30, 1995. Deferred participations are
adjusted based on management's estimates of revenues to be earned from
these completed projects. Such adjustments are included in current
year's operations.
Unclassified Balance Sheet
The Company has elected to present unclassified balance sheets in
accordance with SFAS No. 53.
Net (Loss) Per Common Share
Net (loss) per common share has been computed after deducting (in 1995)
the dividend requirement of the Company's Series A Preferred Stock from
net (loss) and is based on the weighted average number of common shares
outstanding during the periods. The assumed conversion of the Series A
Preferred Stock and the assumed exercise of outstanding stock purchase
warrants and options have not been included because the effect would be
anti-dilutive.
NOTE 2 -- LIQUIDITY AND CAPITAL RESOURCES
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles which
contemplates the continuation of the Company as a going concern
including the realization of assets and liquidation of liabilities in
the ordinary course of business. For the years ended June 30, 1995 and
1994, the Company incurred net losses of $3,593,252 and $5,489,523,
respectively. At June 30, 1995, the Company had an accumulated deficit
of $11,735,044. The Company's operations have been primarily financed by
public sales of its securities and exercises of stock options and
warrants. Through June 30, 1995, proceeds from these sources aggregated
approximately $16,900,000.
The Company's cash commitments for the year ending June 30, 1996 include
approximately $1,777,000 of compensation to officers and key independent
contractors (including new and revised employment agreements) and office
rent. The Company also incurs other costs such as salaries, related
benefits, professional fees, office and other expenses. For the year
ended June 30, 1995, general and administrative expenses, which include
compensation and rent, aggregated $4,696,554.
During the year ended June 30, 1995, the Company took certain steps to
substantially reduce its operating losses and increase its cash flow.
These steps included restructuring the Company's management, terminating
certain unprofitable operations of DSL and reducing compensation and
operating expenses. During the year ended June 30, 1995, the Company
also completed additional projects and entered into other agreements
that will provide future revenues and cash flow. Management believes
that these steps, among other things, will enable the Company to
continue as a going concern.
NOTE 3 -- RELATED PARTY TRANSACTIONS
During the year ended June 30, 1994, the Company advanced $70,000 to a
corporation that provides the Company with the services of one of its
officers and directors. This advance was to be repaid from future
compensation payable to this corporation, bears interest at 8% per annum
and was due on
F-9
<PAGE>
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 3 -- RELATED PARTY TRANSACTIONS - (Continued)
December 31, 1994. The balance of this advance, including accrued
interest, at June 30, 1995 was $64,900 and is secured by certain stock
options. At June 30, 1995, the market price of the Company's common stock
was substantially less than the exercise prices of these stock options.
The Company has agreed to enter into or amend employment agreements with
certain officers and others (see Note 7).
The Company has agreed to sell an aggregate of 900,000 shares of its
common stock to certain of its officers, directors and others at a price
of $2.00 per share. The purchase price for these shares will be
represented by promissory notes which will bear interest at 7% per annum
and will be secured by, among other things, the purchased shares.
Prior to its acquisition by the Company, DSL made unsecured loans to its
President. These loans bear interest at 4.5% and aggregated (including
accrued interest) approximately $402,000 at June 30, 1995. The Company
has filed a legal action seeking, among other things, repayment of this
amount (see Note 9).
The former owner of DSL had made advances to DSL prior to its
acquisition by the Company. These advances aggregated $2,687,000 at the
date of acquisition of DSL by the Company. A total of $1,887,000 of
these advances has been repaid. This individual is entitled to receive
up to a maximum of $800,000 solely out of revenues, as defined, received
from certain completed projects. This individual has filed a legal
action against the Company and others claiming, among other things, that
he is due the amount payable to him out of future revenues (see Note 9).
The Company had guaranteed the repayment of a $270,000 loan made by the
then President of DSL to one of the former shareholders of DSL. During
the year ended June 30, 1995, the Company loaned this individual
$270,000 for the purpose of repaying this loan. This loan bears interest
at prime plus 1%, is due on December 31, 1997 and is secured only by
stock options previously granted to this individual which entitle him to
purchase an aggregate of 100,000 shares of the Company's common stock
through December 31, 1997 at a price of $10.88 per share. Because the
market price of the Company's common stock is substantially below the
exercise price of such stock options, the Company has established an
allowance for the entire amount of this note.
As of February 27, 1995, the Company entered into an agreement with the
former President of DSL which resulted in the termination of the
employment agreement with this individual. In connection with this
agreement, the Company transferred certain projects in development to a
new corporation (DEG) in exchange for a 19.9% ownership interest in DEG.
The remaining 80.1% of DEG is owned by the former President of DSL. The
carrying amount of the transferred projects (approximately $174,000) is
included in other assets in the accompanying consolidated balance sheet.
The Company will receive 5% of the gross revenues, as defined, from
DEG's exploitation of these transferred projects. The Company also
agreed to transfer to DEG one of its projects in production upon its
completion in exchange for 5% of future gross revenues, as defined, from
the exploitation of this project. In connection with the Company's legal
action for payment of loans, this individual has filed a cross-complaint
against the Company and others which claims, among other things,
recision of certain parts of this agreement and seeks damages (see Note
9).
F-10
<PAGE>
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 4 -- FILM COSTS
Film costs consists of the following:
<TABLE>
<CAPTION>
March 31, June 30, June 30,
1996 1995 1994
------------- -------------- -------------
(Unaudited)
<S> <C> <C> <C>
Completed projects ............ $8,127,225 $10,688,000 $7,475,715
Less: accumulated amortization . 7,333,475 9,550,328 5,781,600
------------- -------------- -------------
Released, net of amortization . 793,750 1,137,672 1,694,115
Productions in progress ....... 2,151,694 775,629 2,252,784
Projects in development ....... 264,498 191,202 663,805
------------- -------------- -------------
$3,209,942 $ 2,104,503 $4,610,704
============= ============== =============
</TABLE>
Write-offs of projects in development for the years ended June 30, 1995
and 1994 aggregated $335,233 and $233,903, respectively. Based on
management's present estimate of future revenues at June 30, 1995,
substantially all of the unamortized costs of completed projects will be
amortized by June 30, 1998.
NOTE 5 -- BRIDGE FINANCINGS AND PUBLIC OFFERINGS
During fiscal 1993, the Company issued an aggregate of 63,000 three-year
warrants in connection with a bridge financing. Each three-year warrant
is exercisable for one share of common stock at a price of $7.70 per
share. During the year ended June 30, 1994, 22,750 of these warrants
were exercised for proceeds of $175,175.
In connection with its April 1993 public offering of securities, the
Company issued an aggregate of 239,583 warrants, each of which is
exercisable for one share of common stock at a price of $16.00 through
April 1996. In connection with this offering, the underwriter received a
five-year option to purchase 20,833 units (two shares of common stock
and one warrant) at a price of $28.80 per unit.
In October 1994, the Company completed a bridge financing consisting of
subordinated notes in the aggregate principal amount of $1,100,000.
These notes bore interest at 7% per annum and were repaid from the
proceeds of the Company's December 1994 public offering. In accordance
with the terms of these notes, upon their repayment the noteholders were
issued shares of the Company's common stock with a market value equal to
25% of the principal amount of the notes ($275,000). This amount has
been included in the accompanying 1995 consolidated financial statements
as a charge to interest and financing expense with a corresponding
increase to common stock and additional paid-in capital.
In December 1994, the Company completed a public offering of its
securities, selling 1,000,000 units at a price of $5.00 per unit for net
proceeds of $4,176,467. Each unit consisted of one share of nonvoting
Series A 8.5% Convertible Preferred Stock (Series A Stock) and one Class
B Warrant. In connection with this offering, the underwriter received a
five-year option to purchase 100,000 units at a price of $7.00 per unit.
Each share of Series A Stock has a liquidating preference of $5.00
(aggregate -- $5,000,000), is convertible into 1.25 shares of common
stock (aggregate -- 1,250,000 shares) at any time and is entitled to
cumulative quarterly dividends at the annual rate of $.425 Series A
Stock and may be paid either in cash or in shares of the Company's
common stock valued at the then market price. During the year ended June
30, 1995, the first dividend on the Series A Stock ($126,350) was paid
in cash and was recorded as a charge to additional paid-in capital. The
dividend on the Series A Stock for the quarter ended June 30, 1995 in
the amount of $106,250 was subsequently paid by the Company issuing
38,665 shares of common stock. Each Class B Warrant is exercisable for
one share of common stock at a price of $8.00 through December 1997. The
Company may redeem the Class B Warrants at a price of $.01 each if the
defined market price of the Company's common stock is at least $10.40
per share.
F-11
<PAGE>
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 6 -- STOCK OPTIONS AND WARRANTS
The Company's stock option plan authorizes the granting of stock options
to officers and key employees to purchase an aggregate of 250,000 shares
of common stock. No stock options may be granted after August 1999. The
Company may also grant other stock options outside its stock option
plan. As of June 30, 1995, an aggregate of 781,500 stock options had
been granted at prices ranging from $2.00 to $13.00 per share of which
747,750 were exercisable. During the year ended June 30, 1995, 75,875
stock options were exercised for aggregate proceeds of $454,375. During
the year ended June 30, 1994, 227,791 stock options were exercised for
aggregate proceeds of $1,148,543.
The Company has the following warrants outstanding:
<TABLE>
<CAPTION>
Exercise Expiration
Title Number Price Date
--------------------------------- --------- ---------- ---------------
<S> <C> <C> <C>
Three-year warrants (see Note 5) . 40,250 $ 7.70 February 1997
Warrants (see Note 5) ........... 238,333 $16.00 April 1996
Class B Warrants (see Note 5) ... 250,000 $ 8.00 December 1997
Class C Warrants (see Note 9) ... 177,777 $16.00 April 1996
</TABLE>
The Company has also granted the underwriters of its public offerings
options to purchase units (see Note 5).
NOTE 7 -- EMPLOYMENT AGREEMENTS
The Company has entered into agreements for the services of certain of
its officers and others. These agreements expire through June 30, 1999
and provide for approximate aggregate base compensation as follows for
the years ending June 30: 1996 -- $1,125,000; 1997 -- $161,000; 1998 and
1999 -- $80,000. Certain of these agreements provide for additional
compensation based on future financing and certain revenues or other
operating results. These agreements also provide for payments by the
Company in the event of death, disability, termination or a change in
control of the Company.
The Company has agreed to enter into or amend employment agreement with
certain of its officers and others. Although the terms of these
agreements have not been finalized, they provide for additional annual
aggregate compensation of approximately $432,000 for the year ending
June 30, 1996 and $854,000 for the years ending June 30, 1997 and 1998.
NOTE 8 -- INCOME TAXES
For income tax reporting purposes, the Company uses an October 31
year-end. At June 30, 1995, the Company had unutilized federal and state
net operating loss carryforwards of approximately $11,100,000 which
expire through 2008. Utilization of these net operating loss
carryforwards may be limited in any one year by, among other things,
alternative minimum tax rules.
Prior to its acquisition by the Company, DSL had elected to have its
income taxed under Section 1362 (Subchapter S) of the Internal Revenue
Code of 1986, and applicable state statutes. Accordingly, no provision
or liability for Federal or state income taxes for DSL is reflected in
the accompanying consolidated financial statements. The accumulated loss
of DSL at June 30, 1994 $(2,672,338) has been eliminated from
accumulated deficit and charged to additional paid-in capital.
NOTE 9 -- COMMITMENTS AND CONTINGENCIES
The Company's office lease provides for minimum annual base rental
payments and payment of certain defined operating expenses. Minimum
rents payable for the years ending June 30 are approximately as follows:
1996 -- $229,000; and 1997 -- $57,000. Rent expense for the years ended
June 30, 1995 and 1994 was $197,011 and $211,852, respectively.
F-12
<PAGE>
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 9 -- COMMITMENTS AND CONTINGENCIES - (Continued)
The Company is a party to various agreements relating to its properties
that provide for payments to others upon sale, production and/or
distribution of the property. Other agreements provide for
participations by others in the net revenues and/or profits from
completed projects.
The Company has filed a legal action seeking, among other things,
payment of loans made to the former President of DSL (see Note 3). This
individual has filed a cross-complaint against the Company and others
which claims, among other things, that the Company breached its
agreement with this individual and seeks recision of certain parts of
this agreement and damages. The Company believes that the ultimate
outcome of these actions will not have a material adverse effect on its
consolidated financial statements.
The former owner of DSL has filed an action against the Company and
certain of its officers and directors which claims that he is presently
due the amount payable to him solely out of revenues, as defined,
received from certain completed projects (see Note 3). The Company has
denied these allegations and believes that the ultimate outcome of this
matter will not have a material adverse effect on its consolidated
financial statements.
In the normal course of its business, the Company is subject to various
lawsuits and claims. The Company believes that the final outcome of
these matters, either individually or in the aggregate, will not have a
material effect on its consolidated financial statements.
NOTE 10 -- SETTLEMENT OF LAWSUIT
The Company was a party to a lawsuit which claimed, among other things,
certain violations of securities laws. During the year ended June 30,
1994, the Company agreed to settle this lawsuit, subject to court
approval, by issuing to the plaintiffs stock purchase warrants with an
aggregate value of $400,000. The effect of this settlement has been
reflected in the accompanying June 30, 1994 consolidated financial
statements as a charge to operations and a corresponding increase to
additional paid-in capital. During the year ended June 30, 1995, the
Company issued an aggregate of 177,777 Class C Warrants in settlement of
this lawsuit. Each Class C Warrant is exercisable for one share of
common stock at a price of $16.00 through April 13, 1996. The issuance
of the Class C Warrants did not have any effect on the Company's
consolidated financial statements.
NOTE 11 -- CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist of cash and trade
receivables. The Company places its cash with high credit quality
financial institutions or in high quality short-term investments. At
times the cash in any one bank may exceed the FDIC $100,000 limit. In
connection with accounts receivables, the risk is relatively limited due
to most customers being either national broadcasting networks, or large
national and foreign distributors.
NOTE 12 -- SUBSEQUENT EVENTS
On May 30, 1996, the Company's shareholders approved a one for four
reverse split of the Company's common stock. The accompanying
consolidated financial statements have been restated to give effect to
this reverse stock split.
On June 7, 1996, the Company consummated a bridge financing pursuant to
which it issued (1) $500,000 of promissory notes which bear interest at
the rate of 10% per annum and are due and payable upon the earlier of
(a) consummation of any financing of the company from which the Company
receives gross proceed of at least $1,000,000 or (b) one year from date
of issuance and (2) 500,000 bridge warrants entitling the holder to
purchase on share of common stock at an initial exercise price
F-13
<PAGE>
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 12 -- SUBSEQUENT EVENTS - (Continued)
of $1.12 (subject to adjustment upon the occurrence of certain events)
during the three year period commencing one year from the date of
issuance. As part of the bridge financing, the Company was charged
$137,513 for deferred financing costs and original issue discount.
NOTE 13 -- UNAUDITED FINANCIAL INFORMATION
The financial information included herein as of March 31, 1996 and the
nine months ended March 31, 1996 and 1995 is unaudited; however, such
information reflects all adjustments consisting solely of normal
recurring accruals which are in the opinion of management necessary to
present fairly the results of operations for the periods presented.
Sale of Common Stock to Related Parties for Notes
In November 1995, the Company sold 525,000 shares of its common stock to
related parties in exchange for $1,050,000 of promissory notes. Interest
is computed at an annual rate of 7% compounded semi-annually and is
payable with the principal of the notes which are due as follows:
April 1, 1997 .. $ 131,250
October 1, 1998 . 131,250
October 1, 2000 . 787,500
-------------
$1,050,000
=============
The notes are secured by the purchased shares with the personal
liability of the purchaser limited to 25% of the principal amount
(aggregating $262,500) plus accrued interest thereto.
The promissory notes received by the Company were recorded at their
principal amount less an imputed interest discount in the aggregate
amount of approximately $265,000. This imputed interest discount is
being amortized over the term of the notes using the interest method to
provide an effective interest rate of 12% per annum. During the nine
months ended March 31, 1996, the Company recorded approximately $39,000
of interest income on these notes. The difference between this imputed
interest rate and the stated interest rate on the notes may be deemed to
be additional compensation to the purchasers of the shares.
Settlement of Litigation
During the nine months ended March 31, 1996, the Company settled various
litigation relating to DSL Productions, Inc., a wholly-owned subsidiary
of the Company ("DSL"). In pertinent part, this settlement provided for
the payment to the Company of $308,000 (of which $130,000 has been
received), elimination of the $402,842 note receivable from the former
President of DSL, the transfer of a completed project with a carrying
amount of $222,980 to a new corporation formed by the former President
of DSL ("DEG") and the release of the Company's $350,000 obligation to
pay a portion of future revenues from completed projects to the former
owner of DSL. In connection with this settlement, the Company reduced
its accounts payable and accrued expenses by $235,455 representing the
amounts previously recorded related to DSL and this litigation. This
settlement also provided for a reduction in the Company's ownership of
DEG from 19.9% to 5%. The effects of this settlement have been reflected
in the unaudited March 31, 1996 statements of operations as a separate
item.
Litigation with Former Officer and Director
As of November 14, 1995, in connection with the following employment
arrangement, the Company sold 375,000 shares of its common stock to one
of its then officers and directors in exchange for $750,000 principal
amount of promissory notes. This sale was made on the same terms as the
sale of
F-14
<PAGE>
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 13 -- UNAUDITED FINANCIAL INFORMATION - (Continued)
shares as described above. The Company also executed a purported
employment agreement (which was not approved or ratified by the Company's
Board of Directors) with this officer and director which provided for,
among other things, annual compensation of $262,000 through June 30,
1998.
In December 1995, the Company terminated the employment of this
individual and the related purported employment agreement. As a result
of such termination, the shares of common stock sold to this individual
and the related notes received by the Company for such shares were
forfeited to the Company and cancelled. The Company subsequently filed a
legal action against this individual claiming, among other things,
breach of fiduciary duty and return of amounts previously paid. This
individual has filed a cross-complaint against the Company and its
President and Chief Executive Officer claiming, among other things, that
his employment with the Company was improperly terminated and his
employment stock purchase agreements were improperly cancelled. This
cross-complaint seeks substantial damages.
Reduction of Film Costs
During the nine months ended March 31, 1996, the Company reduced the
carrying amount of certain of its completed projects by $235,622
representing the amount previously recorded as accounts payable and
accrued expenses for additional estimated expenditures relating to these
projects that were not incurred.
Note Payable to Related Parties
On March 25, 1996, the Company borrowed $100,000 from related parties
pursuant to an unsecured promissory note which bears interest at the
prime rate plus 1% and is due on June 30, 1996. This note was
subsequently repaid from the proceeds of a note issued to an unrelated
party which is payable on June 24, 1996 (subject to mandatory repayment
in certain events), bears interest at the annual rate of 10% and is
secured by the Company's participation in the revenue earned from a
currently airing television series.
Issuance of Shares of Common Stock for Preferred Stock
During the nine months ended March 31, 1996, the Company issued 128,762
shares of its common stock in payment of the dividends on its Series A
Preferred Stock.
Stock Options
During the nine months ended March 31, 1996 an aggregate of 403,000
stock options at exercise prices ranging from $4.00 to $13.00 per share
expired or were cancelled. During this period, the Company granted an
aggregate of 112,500 stock options at exercise prices of $2.00 and $2.20
per share.
F-15
<PAGE>
================================================================================
No dealer, salesman or other person has been authorized to give any
information or to make any representations 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 Underwriter.
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 date after the date hereof. This
Prospectus does not constitute an offer to sell or a solicitation of an offer
to buy the 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 whom it is
unlawful to make such offer or solicitation.
------
TABLE OF CONTENTS
Page
--------
Prospectus Summary ........................ 3
Risk Factors .............................. 7
The Company ............................... 14
Recent Bridge Financing ................... 14
Concurrent Offering ....................... 14
Use of Proceeds ........................... 15
Dilution .................................. 17
Capitalization ............................ 18
Market for Common Equity and
Related Shareholder Matters .............. 20
Dividend Policy ........................... 20
Selected Financial Data ................... 21
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ............................... 22
Business .................................. 26
Management ................................ 34
Certain Transactions ...................... 39
Principal Stockholders .................... 41
Selling Securityholders ................... 43
Description of Securities ................. 45
Shares Eligible for Future Sale ........... 47
Underwriting .............................. 49
Legal Matters ............................. 50
Experts ................................... 50
Additional Information .................... 51
Index to Financial Statements ............. F-1
================================================================================
================================================================================
THE PRODUCERS
ENTERTAINMENT GROUP
LTD.
2,000,000 UNITS
EACH UNIT CONSISTING OF FOUR
SHARES OF COMMON STOCK AND TWO
REDEEMABLE WARRANTS
------
PROSPECTUS
------
JOSEPH STEVENS &
COMPANY, L.P.
------, 1996
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 24 INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware, under
which the Company is incorporated, permits a corporation to 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, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation), by reason of the fact that he 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), judgments, fines
and amounts paid in settlement actually and reasonably incurred in connection
with such action, suit or proceeding if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests
of the corporation, and, with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful.
A corporation also may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the corporation to procure a judgment in its
favor by reason of the fact that he 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) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted
in good faith and in a manner he reasonably believed to be in or not opposed
to the best interests of the corporation. However, in such an action by or on
behalf of a corporation, no indemnification may be made in respect of any
claim, issue or matter as to which the person is adjudged liable to the
corporation unless and only to the extent that the court determines that,
despite the adjudication of liability but in view of all the circumstances,
the person is fairly and reasonably entitled to indemnity for such expenses
which the court shall deem proper.
In addition, the indemnification provided by Section 145 shall not be
deemed exclusive of any other rights to which those seeking indemnification
may be entitled under any bylaw, agreement, vote of shareholders or
disinterested directors or otherwise, both as to action in his official
capacity and as to action in another capacity whole holding such office.
The Company's Certificate of Incorporation provides that the Company shall
indemnify, in the manner and to the full extent permitted by law, any person
(or the estate of any person) who was or is a party to, or is threatened to
be made a party to, any threatened, pending or completed action, suit or
proceeding, whether or not by or in the right of the Company and whether
civil, criminal, administrative, investigative or otherwise, by reason of the
fact that such person is or was a director, officer, employee or agent of the
Company, or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or enterprise. The Company's Certificate of Incorporation also
provides that the indemnification provided thereunder shall not be deemed
exclusive of any other rights to which any person seeking indemnification
from the Company may be entitled under any agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office.
The Underwriting Agreement also contains provisions under which the
Company and the Underwriter have agreed to indemnify each other (including
officers and directors of the Company and the Underwriter, and any person who
may be deemed to control any Underwriter or the Company) against certain
liabilities under the Securities Act of 1933, as amended (the "Securities
Act").
II-1
<PAGE>
ITEM 25 OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses payable by the Registrant in connection with the issuance and
distribution of the securities being registered (other than underwriting
discounts or commissions and the non-accountable expense allowance) are
estimated as follows:
SEC registration fee ............... $ 6,865.49
NASD Fees ......................... 2,491.00
Blue Sky Filing Fees and Expenses . 40,000.00
Transfer Agent's Fees and Expenses . 5,000.00
Listing Fees ...................... 26,000.00
Accounting Fees and Expenses ...... 10,000.00
Legal Fees and Expenses ........... 100,000.00
Printing Expenses ................. 90,000.00
Miscellaneous ..................... 4,643.51
Total ........................... 285,000(1)
- ------
(1) This registration statement includes 500,000 redeemable warrants and
500,000 shares of Common Stock underlying such Warrants, owned by certain
selling securityholders (the "Selling Securityholders"). Expenses in
connection with the issuance and distribution of such securities, other
than fees and expenses of counsel to the Selling Securityholders and
selling commissions, will be paid by the Registrant and are included in
the total estimated expenses.
ITEM 26 RECENT SALES OF UNREGISTERED SECURITIES
(a) In the three years preceding the filing of this Registration
Statement, the Registrant has sold and issued the following securities which
were not registered under the Securities Act:
(1) In June 1996, the Registrant consummated a bridge financing (the "Bridge
Financing") pursuant to which it issued to accredited investors $500,000
aggregate principal amount of 10% promissory notes and 500,000 warrants
(the "Bridge Warrants"), each Bridge Warrant entitling the holder to
purchase one share of Common Stock at an initial exercise price of $1.12
(subject to adjustment upon the occurrence of certain events). Joseph
Stevens & Company, L.P. acted as Placement Agent and received in
connection with the Bridge Financing 150,000 warrants (the "Placement
Agent's Warrants") to purchase shares of Common Stock at an initial
exercise price of $1.12 per share (subject to adjustment upon the
occurrence of certain events). The Placement Agent's Warrants will be
canceled upon closing of the sale of securities offered pursuant to this
Registration Statement.
(2) In May, 1996 the Registrant issued to each of Alison Meyer and Patricia
Meyer, options to purchase 75,000 shares of Common Stock at an exercise
price of $2.00 per share. In May, 1996 the Registrant issued to William
Melamed, Jr. options to purchase 12,500 shares of Common Stock at an
exercise price of $1.12 per share.
(3) In February 1996, the Registrant issued to Harvey Bibicoff options to
purchase 100,000 shares of Common Stock at an exercise price of $2.00 per
share in connection with the termination of all options to purchase
shares of Common Stock then held by Mr. Bibicoff and Bibicoff &
Associates.
(4) In November 1995, the Registrant issued to Charles Weber 25,000 shares of
Common Stock in connection with Mr. Weber's employment with the
Registrant.
(5) In November 1995, the Registrant sold, subject to the vesting
requirements related to Mr. Meyer's employment with the Registrant,
500,000 shares of Common Stock at a purchase price of $2.00 per share to
Mountaingate Productions, LLC., a California limited liability company,
of which Alison Meyer and Patricia Meyer, the adult daughters of Irwin
Meyer, are the sole members.
(6) In October 1994, the Registrant issued $1.1 million aggregate principal
amount of 7% subordinated notes (the "7% Notes") in a private placement
to accredited investors. In connection with the repayment of the 7% Notes
in December 1994, the noteholders received shares of Common Stock having
a market value equal to 25% of the principal amount of the 7% Notes
($275,000), which were included in the Registration Statement, No.
33-84984.
II-2
<PAGE>
(7) In April 1995, the Registrant granted stock options to purchase an
aggregate 187,500 shares of Common Stock issuable upon exercise of
outstanding stock options granted to an investment banking firm and its
affiliate in connection with an agreement in 1995 to render financial
advisory services to the Company at an exercise price of $4.00 per share.
(8) In May 1994, the Registrant acquired all of the capital stock of DSL
Productions, Inc. and its affiliates in exchange for the issuance of
32,500 shares of Common Stock.
(9) During the past three years, the Registrant sold and issued Common Stock
to employees upon exercise of stock options granted under the
Registrant's Stock Option Plan.
The sale and issuance of the securities in the above transactions were
exempt from registration under the Securities Act, by virtue of Section 4(2)
thereof as transactions not involving any public offering. The recipients in
each case acquired such securities for investment only and not with a view to
the distribution thereof and appropriate legends were affixed to the stock
certificates issued in such transactions and any subsequent transfers
thereof. All recipients had full access to information about the Registrant
and were given the opportunity to verify any information furnished to them.
ITEM 27 EXHIBITS
<TABLE>
<CAPTION>
(a) Exhibits
<S> <C>
1.1 -- Proposed form of Underwriting Agreement.*
1.2 -- Proposed form of Financial Advisory and Consulting Agreement between the Registrant and Joseph Stevens
& Company, L.P.*
3.1.1 -- Restated Certificate of Incorporation, dated June 24, 1993.(7)
3.1.2 -- Certificate of Designation, as filed December 14, 1994 with the Secretary of State of
Delaware.(3)
3.1.3 -- Amendment to Certificate of Incorporation, as filed June 3, 1996 with the Secretary of State of
Delaware.(9)
3.2.1 -- By-laws of Registrant.(7)
3.2.2 -- Amendment No. 1 to By-laws of Registrant.(7)
4.1 -- Proposed form of Warrant Agreement between the Registrant and OTR Stock Transfer
Company.*
4.2 -- Proposed form of Underwriter's Warrant Agreement between the Registrant and Joseph Stevens & Company,
L.P.*
5.1 -- Opinion of Dempsey & Cross, P.C. as to legality of securities being registered.(10)
10.1.1 -- Agreement of Restructuring and Settlement dated February 27, 1995 among the Registrant, Drew Levin
and DSL Productions Inc.(4)
10.1.2 -- First Amended Agreement of Restructuring and Settlement dated February 27, 1995 among the Registrant,
Drew Levin and DSL Productions, Inc.(6)
10.1.3 -- Letter Agreement, dated December 29, 1995, with respect to settlement of litigation involving, among
others, the Registrant, DSL Entertainment Group, Ltd., Drew S. Levin and Joseph Cayre.(8)
10.2 -- Employment Agreement, dated as of October 1, 1995, between Registrant and Irwin Meyer.(5)
10.3 -- Stock Purchase Agreement and Promissory Note dated as of November 14, 1995 between
Registrant and Mountaingate Productions LLC.(5)
10.4.1 -- Letter Agreement, dated March 29, 1996, between Registrant and Harvey Bibicoff entered into in connection
with termination of existing stock options and grant of a new option.*
10.4.2 -- Stock Option Agreement dated as of February 15, 1996 between Registrant and Harvey
Bibicoff.(7)
10.5 -- Consulting Agreement, dated February 27, 1995, between Registrant and Bibicoff &
Associates, Inc.(4)
II-3
<PAGE>
10.6.1 -- 1991 Stock Option Plan.(6)
10.6.2 -- Amendment to Stock Option Plan.(1)
10.7.1 -- Employment Agreement, dated as of June 22, 1992, between Registrant and Arthur
Bernstein.(3)
10.7.2 -- Amendment to Employment Agreement, dated August 15, 1994, between Registrant and Arthur
Bernstein.(3)
10.7.3 -- Amendment to Employment Agreement, dated March 7, 1995, between Registrant and Arthur
Bernstein.*
10.7.4 -- Amendment to Employment Agreement, dated January 25, 1996, between Registrant and Arthur Bernstein.*
10.10 -- Letter Agreement dated March 10, 1995 between the Registrant and Jonathon Stanton
Company.(6)
10.11 -- Office Lease.(1)
21. -- Subsidiaries of the Registrant.*
23.1 -- Consent of Dempsey & Cross, P.C. is included in their opinion filed as Exhibit 5.
23.2 -- Consent of Kellogg & Andelson.*
24. -- Powers of Attorney (included on the signature page).*
</TABLE>
- ------
All schedules are omitted because the information is included in the
consolidated financial statements or notes thereto or is not applicable.
* Previously filed.
(1) Filed as an Exhibit to Form 10-K Annual Report (Commission File No.
18410) for Year Ended June 30, 1991 and incorporated herein by
reference.
(2) Filed as an Exhibit to Form 8-K (Commission File No. 18410), dated
October 15, 1991, and incorporated herein by reference.
(3) Filed as an Exhibit to Form SB-2 (Commission No. 33-84984), dated
December 12, 1994, and incorporated herein by reference.
(4) Filed as an Exhibit to Form 8-K (Commission File No. 18410), dated
February 27, 1995, and incorporated herein by reference.
(5) Filed s an Exhibit to Form 10-QSB Quarterly Report (Commission File
No. 18410) for Fiscal Quarter Ended December 31, 1995 and
incorporated herein by reference.
(6) Filed as an Exhibit to Form 10-QSB Quarterly Report (Commission File
No. 18410) for Fiscal Quarter Ended March 31, 1995 and incorporated
herein by reference.
(7) Filed as an Exhibit to Form S-1 Registration Statement (Commission
File No. 33- 42193) and incorporated herein by reference.
(8) Filed as an Exhibit to Form S-3 Registration Statement (Commission
File No. 33- 64595) and incorporated herein by reference.
(9) Filed as an Exhibit to Form 8-K Current Report and incorporated
herein by reference.
(10) To be supplied by Amendment.
II-4
<PAGE>
ITEM 28 UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement to (i) include any
prospectus required by section 10(a)(3) of the Securities Act (ii) 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, and (iii) include
any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change to
such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment 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.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination 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 Registrant 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.
(6) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has duly caused this Amendment No. 1 to the
Registration Statement on Form SB-2 to be signed on its behalf by the
undersigned in the City of Beverly Hills, State of California, on July 18,
1996.
THE PRODUCERS ENTERTAINMENT
GROUP LTD.
By: /s/ Irwin Meyer
--------------------------------
Irwin Meyer
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated.
<TABLE>
<CAPTION>
Signature Title Date
------------------------ --------------------------------------- ----------------
<S> <C> <C>
/s/ Irwin Meyer President, Chief Executive Officer July 18, 1996
----------------------- and Chairman of the Board
Irwin Meyer (Principal Executive Officer)
/s/ Arthur Bernstein Senior Vice President and Director July 18, 1996
----------------------- (Principal Financial and Accounting
Arthur Bernstein Officer)
Michael D. Dempsey* Director July 18, 1996
-----------------------
Michael D. Dempsey
Michael Levy* Director July 18, 1996
-----------------------
Michael Levy
Director July 18, 1996
-----------------------
Ben Lichtenberg
*By /s/ Irwin Meyer
-----------------------
Irwin Meyer
Attorney-in-fact
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Document Page
-------- -----
<S> <C> <C>
1.1 -- Proposed form of Underwriting Agreement.*
1.2 -- Proposed form of Financial Advisory and Consulting Agreement between the Registrant and Joseph Stevens
& Company, L.P.*
3.1.1 -- Restated Certificate of Incorporation, dated June 24, 1993.(7)
3.1.2 -- Certificate of Designation, as filed December 14, 1994 with the Secretary of State of Delaware.(3)
3.1.3 -- Amendment to Certificate of Incorporation, as filed June 3, 1996 with the Secretary of State of
Delaware.(9)
3.2.1 -- By-laws of Registrant.(7)
3.2.2 -- Amendment No. 1 to By-laws of Registrant.(7)
4.1 -- Proposed form of Warrant Agreement between the Registrant and OTR Stock Transfer Company.*
4.2 -- Proposed form of Underwriter's Warrant Agreement between the Registrant and Joseph Stevens & Company,
L.P.*
5.1 -- Opinion of Dempsey & Cross, P.C. as to legality of securities being registered.(10)
10.1.1 -- Agreement of Restructuring and Settlement dated February 27, 1995 among the Registrant, Drew Levin
and DSL Productions Inc.(4)
10.1.2 -- First Amended Agreement of Restructuring and Settlement dated February 27, 1995 among the Registrant,
Drew Levin and DSL Productions, Inc.(6)
10.1.3 -- Letter Agreement, dated December 29, 1995, with respect to settlement of litigation involving, among
others, the Registrant, DSL Entertainment Group, Ltd., Drew S. Levin and Joseph Cayre.(8)
10.2 -- Employment Agreement, dated as of October 1, 1995, between Registrant and Irwin Meyer.(5)
10.3 -- Stock Purchase Agreement and Promissory Note dated as of November 14, 1995 between Registrant and
Mountaingate Productions LLC.(5)
10.4.1 -- Letter Agreement, dated March 29, 1996, between Registrant and Harvey Bibicoff entered into in connection
with termination of existing stock options and grant of a new option.*
10.4.2 -- Stock Option Agreement dated as of February 15, 1996 between Registrant and Harvey Bibicoff.(7)
10.5 -- Consulting Agreement, dated February 27, 1995, between Registrant and Bibicoff & Associates, Inc.(4)
10.6.1 -- 1991 Stock Option Plan.(6)
10.6.2 -- Amendment to Stock Option Plan.(1)
10.7.1 -- Employment Agreement, dated as of June 22, 1992, between Registrant and Arthur Bernstein.(3)
10.7.2 -- Amendment to Employment Agreement, dated August 15, 1994, between Registrant and Arthur Bernstein.(3)
10.7.3 -- Amendment to Employment Agreement, dated March 7, 1995, between Registrant and Arthur Bernstein.*
10.7.4 -- Amendment to Employment Agreement, dated January 25, 1996, between Registrant and Arthur Bernstein.*
10.10 -- Letter Agreement dated March 10, 1995 between the Registrant and Jonathon Stanton Company.(6)
10.11 -- Office Lease.(1)
21. -- Subsidiaries of the Registrant.*
23.1 -- Consent of Dempsey & Cross, P.C. is included in their opinion filed as Exhibit 5.*
23.2 -- Consent of Kellogg & Andelson.*
24. -- Powers of Attorney (included on the signature page).*
</TABLE>
<PAGE>
- ------
All schedules are omitted because the information is included in the
consolidated financial statements or notes thereto or is not applicable.
* Previously filed.
** To be filed by Amendment.
(1) Filed as an Exhibit to Form 10-K Annual Report (Commission File No.
18410) for Year Ended June 30, 1991 and incorporated herein by reference.
(2) Filed as an Exhibit to Form 8-K (Commission File No. 18410), dated
October 15, 1991, and incorporated herein by reference.
(3) Filed as an Exhibit to Form SB-2 (Commission No. 33-84984), dated
December 12, 1994, and incorporated herein by reference.
(4) Filed as an Exhibit to Form 8-K (Commission File No. 18410), dated
February 27, 1995, and incorporated herein by reference.
(5) Filed s an Exhibit to Form 10-QSB Quarterly Report (Commission File No.
18410) for Fiscal Quarter Ended December 31, 1995 and incorporated herein
by reference.
(6) Filed as an Exhibit to Form 10-QSB Quarterly Report (Commission File No.
18410) for Fiscal Quarter Ended March 31, 1995 and incorporated herein by
reference.
(7) Filed as an Exhibit to Form S-1 Registration Statement (Commission File
No. 33-42193) and incorporated herein by reference.
(8) Filed as an Exhibit to Form S-3 Registration Statement (Commission File
No. 33-64595) and incorporated herein by reference.
(9) Filed as an Exhibit to Form 8-K Current Report and incorporated herein by
reference.
(10) To be supplied by Amendment.
