<PAGE>
As filed with the Securities and Exchange Commission on July 5, 1996
Registration No. 333-_________
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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)
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<CAPTION>
<S> <C> <C>
Delaware 7922 95-4233050
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
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|
-------------------------------
CALCULATION OF REGISTRATION FEE
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======================================================================================================================
Proposed Maximum Proposed Maximum
Title of Each Class of Amount Being Offering Price Aggregate Offering Amount of
Securities to be Registered Registered(1) Per Security(1) Price (1) Registration Fee
--------------------------- --------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C>
Units (each Unit consisting of
four shares of Common
Stock, $.01 par value
("Common Stock"), and
two Redeemable Warrants
("Redeemable
Warrants"))(2)................ 2,300,000 $4.00 $9,200,000.00 $3,172.41
Common Stock included in
Units(3)...................... -- -- -- --
Redeemable Warrants included
in Units(3)................... -- -- -- --
Common Stock underlying the
Redeemable Warrants
included in Units(7).......... 4,600,000 $1.75 $8,050,000.00 $2,775.86
Selling Securityholder
Redeemable Warrants(4)....... 500,000 $.25 $125,000.00 $43.10
Common Stock Underlying
Selling Securityholder
Redeemable
Warrants(4)(7)................ 500,000 $1.75 $875,000.00 $301.72
Representative's Warrants to
purchase Units(5)(6).......... 200,000 -- -- --
</TABLE>
<PAGE>
<TABLE>
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Proposed Maximum Proposed Maximum
Title of Each Class of Amount Being Offering Price Aggregate Offering Amount of
Securities to be Registered Registered(1) Per Security(1) Price (1) Registration Fee
--------------------------- --------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C>
Units issuable upon exercise of
Representative's Warrants
(each Unit consisting of
four shares of Common
Stock and two Redeemable
Warrants)(7).................. 200,000 $4.80 $960,000.00 $331.03
Common Stock included in
Units issuable upon exercise
of Representative's
Warrants(3)................... -- -- -- --
Redeemable Warrants included
in Units issuable upon
exercise of Representative's
Warrants(3)(6)................ -- -- -- --
Common Stock Underlying
Redeemable Warrants
included in Units issuable
upon exercise of
Representative's
Warrants(7)................... 400,000 $1.75 $700,000 $241.37
Total Registration Fee....................................................................................$6,865.49
</TABLE>
===============================================================================
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.
===============================================================================
- ------------------------------
(1) Estimated solely for purposes of calculating the registration fee.
(2) Includes 300,000 Units which the Underwriters have the option to
purchase to cover over-allotments, if any.
(3) No separate consideration will be received for the issuance of the Common
Stock and Redeemable Warrants included in the Units.
(4) The Registration Statement also covers 500,000 Redeemable Warrants and
500,000 shares of Common Stock underlying such Redeemable Warrants, owned
by certain selling securityholders.
(5) To be issued to the Representative at Closing.
(6) No registration fee required pursuant to Rule 457(g).
(7) Also registered hereunder pursuant to Rule 416 under the Securities Act
of 1933, as amended, are an indeterminate number of securities, that may
become issuable pursuant to anti-dilution adjustments.
<PAGE>
THE PRODUCERS ENTERTAINMENT GROUP LTD.
Cross-Reference Sheet
Pursuant to Regulation S-B
THE PRODUCERS ENTERTAINMENT GROUP LTD.
Cross-Reference Sheet
Pursuant to Regulation S-B
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<CAPTION>
Form SB-2 Item Prospectus Caption
-------------- ------------------
<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. Determination of Offering Price.................. Outside Front Cover Page of Prospectus; Risk
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...................................... Management - Director Indemnification
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>
1
<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 5, 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 "Representative") 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 June 28, 1996, the closing bid price for the Common Stock on
NASDAQ was $1.125. See "Market for Common Equity and Series A Preferred Stock
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 Representative. 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 "TPGU" and "TPGX," respectively.
<PAGE>
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. SEE "RISK FACTORS" BEGINNING ON PAGE [________] 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.
<TABLE>
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=================================================================================================================================
Price to Public Underwriting Discounts(1) Proceeds to Company (2)
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
Per Unit. . . . . . . . . . .. . . . . . . . . $_________ $_________ $_________
- --------------------------------------------------------------------------------------------------------------------------------
Total (3) . . . . . . . . . .. . . . . . . . . $_________ $_________ $_________
=================================================================================================================================
</TABLE>
(1) Does not reflect additional compensation to the Representative in the form
of a non-accountable expense allowance. In addition, see "Underwriting" for
information concerning indemnification and contribution arrangements, and
other compensation payable to the Representative.
(2) Before deducting estimated expenses of $_______________ payable by the
Company, including the Representative's non-accountable expense allowance.
(3) The Company has granted the Underwriters 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 Commissions 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 Underwriters, subject to prior sale,
when, as and if delivered to and accepted by the Underwriters, and subject to
the approval of certain legal matters by their counsel and subject to certain
other conditions. The Underwriters reserve 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 Representative. Furthermore,
the Company has agreed to sell to the Representative, for nominal consideration,
Representative's Warrants to purchase from the Company 200,000 Units. The
Representative'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 second anniversary of the date of
issuance. The shares of Common Stock and Redeemable Warrants issuable upon
exercise of the Representative's Warrants are identical to those offered to the
public.
Neither the Selling Securityholder Warrants, the Selling Securityholder
Shares nor the Representative's Warrants are being offered or sold pursuant to
the Offering. The Company will not receive any proceeds from the issuance of the
Selling Securityholder Warrants or the Selling Securityholder Shares or the
resale of such securities or the Representative'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 Representative'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 UNDERWRITERS 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 OR 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 Underwriters' 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 Representative 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
Representative's Warrants and (vi) gives effect to a one-for-four reverse stock
split of the Common Stock effected on May 30, 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 the 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 discrete
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
1
<PAGE>
to establish a separate international distribution division for the distribution
of its own and other producers' 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.
2
<PAGE>
The Offering
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<S> <C>
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 its then 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
Representative 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 Representative 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)
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Use of Proceeds................................ Of the net proceeds of the Offering (1) approximately
$500,000 will be used to repay the indebtedness incurred by
the Company in the Bridge Financing and (2) an additional
$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 the completion of projects in production, interim
financing of production costs during forthcoming 12 month
period, the establishment and operation of the planned
international distribution division, acquisitions by the planned
international distribution division of products, acquisition of
rights for new projects, payment of annual cash dividends in
Series A Stock, working capital and general corporate
purposes. 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 subscribing for any of the Units.
Proposed NASDAQ
SmallCap Symbols............................... Units: TPEGU
Common Stock: TPEG
Redeemable Warrants: TPEGX
Proposed Boston Stock
Exchange Symbols............................... Units: TPGU
Common Stock: PEG
Redeemable Warrants: TPGX
</TABLE>
(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 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 1995 to render financial advisory
services to the Company at an exercise price of $4.00 per share, and
(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. As of the
date of this Prospectus, it is uncertain whether settlement of this
4
<PAGE>
litigation upon the terms described above will ultimately be effected.
See "Business -- Legal Proceedings."
(2) Includes 500,000 Selling Securityholder Warrants. See "Recent Bridge
Financing," and "Concurrent Offering."
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,
--------------------- --------------------
1995 1994 1996 1995
------ ------ ------ -----
<S> <C> <C> <C> <C>
Statement of Operations Data:
Net sales............................ $ 5,291 $ 10,783 $ 2,133 $ 4,971
(Loss) from operations............... (3,510) (5,043) (1,250) (2,435)
Net (loss)........................... (3,826) (5,490) (1,319) (2,900)
Net (loss) per share................ (1.52) (2.34) (.46) (1.17)
Average number of shares 2,513,131 2,341,500 2,898,850 2,482,694
outstanding..........................
</TABLE>
<TABLE>
<CAPTION>
June 30, March 31, 1996
---------------------- ----------------------------------------
Pro Forma
Pro As
1995 1994 Actual Forma(1) Adjusted(2)
------ ------ -------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets......................... $ 4,385 $ 7,607 $ 4,292 $ 4,792 $ 10,730
Short-term debt...................... 0 1,389 100 600 0
Long-term debt....................... 0 0 0 0 0
Total liabilities.................... 1,796 6,205 2,744 3,244 2,644
======= ======= ======= ======= =======
Total shareholders' equity........... 2,588 1,402 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
an extraordinary loss of $103,000 resulting from the early
extinguishment of the Bridge Notes. This loss arises as a result of
expensing $103,000 of unamortized deferred financing costs and original
issue discount on the Bridge Notes.
6
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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 $825,000 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
$1,155,000). 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 includes compensation and rent, aggregated $4,696,554. For the
nine months ended March 31, 1996, general and administrative expenses, which
includes 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 Representative during the 18 month
period following the effective date of this Prospectus. Accordingly, even after
giving effect to the substantial increase in the Company's liquid resources by
reason of the Offering, the cash required to satisfy such Series A Stock
dividend requirements will not be available to meet the Company's business and
working capital requirements. Since the Company, as noted under "Use of
Proceeds" and "Business," intends to establish a new international distribution
division, expand the staff of its personal management division and hire a Chief
Financial Officer and support personnel, 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.
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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 (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 and, 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
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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 material 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 Representative's Warrants and 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 $.27 per share or 27% 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, 2,572,333 shares of
Common Stock (or an additional 25.4% of the outstanding Common Stock) 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.
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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 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 Representative 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
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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.
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 Representative. 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 11,220,345 shares of Common Stock of the Company to be
outstanding upon completion of the Offering, approximately 10,576,000 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.
These freely tradeable shares include shares of Common Stock, including shares
issuable in connection with a proposed settlement of certain litigation and an
aggregate of 137,500 shares subject to
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currently outstanding options having exercise prices ranging from $1.12 to $2.20
per share which are the subject of a Registration Statement filed by the Company
and rendered effective under the Securities Act in March 1996. See "Business --
Legal Proceedings." Approximately 644,000 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 underwriters 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
Representative 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
Representative and each broker-dealer controlled by any affiliate of the
Representative at the time the "lock-up" agreement was entered into, if any,
transfers all of the Representative's Warrants and all securities issuable upon
exercise of the Representative's Warrants.
In addition, without the consent of the Representative, 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.
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
Representative. See "Recent Bridge Financing" and "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 "Underwriting" and "Selling Securityholders."
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Lack of Experience of Representative
Joseph Stevens & Company, L.P., (the "Representative") 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 Representative is a relatively small
firm and no assurance can be given that the Representative 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."
Representative's Potential Influence in the Market
It is anticipated that a significant amount of the Units will be sold
to customers of the Representative. Although the Representative 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 Representative's participation
in the market. Moreover, if the Representative sells the securities issuable
upon exercise of the Representative'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 Representative, if
commenced, will continue for any minimum or significant period of time, and the
withdrawal of the Representative 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 Representative, 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 or 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."
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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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,
(ii) 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) 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 Warrant") 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
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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; 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 Representative. Sales of such
Selling Securityholder Warrants or shares of Common Stock 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 ($7,720,000 if
the Underwriters' 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) 1.6%
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) 9.8%
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............... $420,000(5) 6.3%
Working capital and general corporate
purposes.......................................... $1,650,000 24.5%
---------- -----
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 Representative, 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.
16
<PAGE>
Any additional net proceeds realized from the exercise of the
Underwriters' 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 approximate 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.
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."
DILUTION
The following discussion and tables assume an initial public offering
price of $4.00 per Unit and attribute 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 $8,223,782 and the pro forma net tangible book value per
share would have been approximately $.73. This represents an immediate increase
in net tangible book value of $.25 per share to existing stockholders and an
immediate dilution in net tangible book value of $.27 per share or 27% per share
to purchasers of Units in the Offering, as illustrated in the following table:
17
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
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.............. $.25
====
Pro forma net tangible book value
per share after the Offering........................................... $.73
Dilution per share to new investors.................................... $.27
====
</TABLE>
If the Underwriters' 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 $.27, the pro forma net tangible book value per
share of Common Stock after the Offering would be approximately $.75 and the
dilution per share to new investors would be $.25 or 25%.
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, and (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.
18
<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 actual and pro forma,
11,220,345 outstanding 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 (824,000) (824,000) (824,000)
sale of Common Stock
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."
19
<PAGE>
(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
an extraordinary loss of $103,000 resulting from the early
extinguishment of the Bridge Notes. This loss arises as a result of
expensing unamortized 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, and (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 Common stock) at an exercise
price of $7.20 per unit granted to the Underwriters 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, and (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. As of the date of
this Prospectus, it is uncertain whether settlement of this litigation
upon the terms described above will ultimately be effected.
20
<PAGE>
MARKET FOR COMMON EQUITY AND SERIES A
PREFERRED STOCK 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.
<TABLE>
<CAPTION>
Common Stock Series A Stock Series B Warrants
--------------- -------------- -----------------
High Low High Low High Low
Bid Bid Bid Bid Bid Bid
---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C>
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 00 00
June 30, 1994 13.76 10.48 00 00
Fiscal Year - 1995:
Quarter Ended
September 30, 1994 10.00 6.48 00 00
December 31, 1994 5.24 2.76 17.00 16.00
March 31, 1995 3.00 2.00 14.48 12.00
June 30, 1995 2.88 2.00 16.00 13.24
Fiscal Year - 1996
Quarter Ended
September 30, 1995 3.00 2.64 14.00 13.00
December 31, 1995 2.64 2.24 13.48 13.00
March 31, 1996 1.24 .88 14.48 13.00
</TABLE>
On June 28, 1996, the closing bid and asked prices of the Company's
Common Stock were $1.12 and $1.37, respectively, and the closing bid and asked
prices for the Series A Stock were $2.62 and $3.62, respectively. On such date,
there were 3,305,210 shares of the Company's Common Stock outstanding held by
165 holders of record and 1,000,000 shares of the Company's Series A Stock
outstanding held by fifteen 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 "TPGU" and "TPGX,"
respectively.
21
<PAGE>
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 Representative for the dividend periods within the 18 month
period following the date of this Prospectus. See "Risk Factors."
22
<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,
---------------------------- ----------------------------
1995 1994 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenue .................. $ 5,290,745 $ 10,782,850 $ 2,132,767 $ 4,971,334
Amortization of film costs 3,768,728 4,316,300 717,000 3,746,050
Costs related to revenue . -- 5,654,113 -- --
------------ ------------ ------------ ------------
3,768,728 9,970,413 717,000 3,746,050
------------ ------------ ------------ ------------
1,522,017 812,437 1,415,767 1,225,284
Write-off of projects in
development ............ 335,233 233,903 -- --
General and administrative
expense ................ 4,696,554 5,621,365 2,665,625 3,660,150
------------ ------------ ------------ ------------
Operating (loss) ......... (3,509,770) (5,042,831) (1,249,858) (2,434,866)
Other income (expense) ... (83,482) (446,692) 249,273 (338,381)
Provision for income taxes -- -- -- --
------------
Net (loss) ............... (3,593,252) (5,489,523) (1,000,585) (2,773,247)
Dividend preferred stock . (232,600) -- (318,750) (126,350)
------------ ------------ ------------ ------------
(Net loss) ............... $ 3,825,852 $ (5,489,523) $ (1,319,335) $ (2,899,697)
============ ============ ============ ============
Net loss per share ....... $ (1.52) $ (2.34) $ (0.46) $ (1.17)
============ ============ ============ ============
Average number of shares . 2,513,130 2,341,500 2,898,850 2,482,694
outstanding
</TABLE>
<TABLE>
<CAPTION>
June 30, March 31,
------------------- ----------
1995 1994 1996
------ ------ -----
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents ........... $ 832,754 $ 964,387 $ 81,268
Accounts and notes receivable ....... 1,054,916 1,390,030 714,779
Receivables from related parties .... 116,229 458,294 14,876
Film costs, net ..................... 2,104,503 4,610,704 3,209,942
Fixed assets at cost, net ........... 76,439 93,914 58,490
Other assets ........................ 199,829 89,399 213,107
---------- ---------- ----------
Total assets .................... 4,384,670 7,606,728 4,292,462
Notes payable ....................... -- 1,388,750 100,000
Accounts payable and accrued expenses 847,595 1,348,950 491,986
Deferred revenue .................... 948,708 3,466,901 2,151,694
---------- ---------- ----------
Total liabilities ............... 1,796,303 6,204,601 2,743,680
---------- ---------- ----------
Net Stockholders' equity ............ $2,588,367 $1,402,127 $1,548,782
========== ========== ==========
</TABLE>
23
<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. 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 distribution and licensing revenues earned by the Company in any
one period are dependent on, among other factors, projects completed during any
such period and the distribution of completed projects by others. Revenues from
producers and other fees are primarily dependent on the number of projects being
produced by the Company 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 further revenues from
these sources.
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 and the level of operations of its personal management subsidiary.
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,
24
<PAGE>
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.
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 Chief Executive Officer 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 the 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
25
<PAGE>
it will reduce its general and administrative expenses from that which was
anticipated by approximately $195,000 for the year ending June 30, 1996.
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 the note receivable relates to a loan made to the
then president of DSL which is 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 based on estimated revenues" 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.
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 $714,718 (aggregate - $795,986). 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 twelve months ending March 31,
1997 include estimated base compensation to its officers and key independent
contractors of approximately $825,000, office rent of approximately $230,000 and
a note payable of $100,000 (aggregate - approximately $1,155,000). 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 $2,665,000 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
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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 Representative
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 Representative. 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 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 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
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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 restrict the availability of such net operating loss carryforward to
an estimated $_____________ per year in future fiscal years.
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 the 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.
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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.
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 during the post-production
phase. 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 generally retains 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 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.
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The personal management business is a service business which is not
capital intensive; therefore, the potential 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
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 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. See "Completed Projects." The cost of a television
series is 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. For example, the Company completed production of 74 episodes of the CBS
comedy series, Dave's World, which has aired, and is currently airing, on the
CBS television network. See "Completed Projects - TV Series" under this caption.
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
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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.
TV Series. The Company has produced 74 episodes of the CBS comedy
series, Dave's World, which airs on the CBS television network. The Company
recently received an additional production order for 22 new episodes of this
series for the 1996-1997 television season. The production of the new episodes
will commence the summer of 1996. By reason of this renewal order, 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
series consists of seven television series -- Hollywood Stuntmakers I and II,
Superstars of Action, FX Masters, Hollywood Babylon, Future Quest, Mysterious
Forces Beyond and A Day With.
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 currently airs on 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.
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Hollywood Babylon explores the hidden underside of Hollywood through live
re-creations and archival film footage and photographs.
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. 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.
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.
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 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
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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. Revenues received by the Company pursuant to such
licensing agreements during the fiscal years ended June 30, 1992, 1993, 1994 and
1995 were $604,800, $581,543, $550,765, and $406,060, respectively.
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 and profitable for the Company.
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
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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.
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
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of these regulations, they may be effectively prohibited from exhibition on
applicable television stations, networks and in foreign territories, or may be
adjusted 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, and also retained continuing revenue participations in several
DSL projects. 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
36
<PAGE>
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.
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 DSLJV 32,500 shares of its Common Stock (the "Kagan
Shares"), and to grant to DSLJV warrants (having a term of two years) to
purchase an additional 25,000 shares of its Common Stock (the "Warrants") 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.
37
<PAGE>
MANAGEMENT
Directors and Executive Officers
The directors and executive officers of the Company are as follows:
Name Age Position(s) Held
---- --- ----------------
Irwin Meyer 60 President, Chief Executive Officer and
Chairman of the Board
Arthur Bernstein 33 Senior Vice President and Director
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.
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, 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,
38
<PAGE>
a division of CBS Entertainment. In 1984, Mr. Levy formed his own production
company, Michael I. Levy Enterprises. Mr. Levy has produced 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 Corporation, 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,
39
<PAGE>
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.
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 of 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.
Compensation of Directors
No fees are paid to members of the Board of Directors of the Company
for their services as members of the Board of 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. Term of
Name of Director of Shares) Date(s) Granted Exercise Price(1) Options
---------------- ---------- --------------- -------------- -------
<S> <C> <C> <C> <C>
Michael D. Dempsey 6,250 May 29, 1996 $2.00 3 years
Michael Levy 18,750 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.
40
<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, 1995, 1994 and 1993, of those persons who were (i)
at June 30, 1995 the Chief Executive Officer and (ii) each other executive
officer of the Company whose annual compensation exceeded $100,000 (the "Named
Officers") in such fiscal years:
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
ANNUAL COMPENSATION AWARDS PAYOUTS
NAME AND OPTIONS ALL OTHER
PRINCIPAL POSITION YEAR SALARY ($) (# OF SHARES) COMPENSATION ($)
- ------------------ ----- ---------- ------------- ----------------
<S> <C> <C> <C> <C>
Irwin Meyer, 1995 281,000(1) (2) 13,500 (3)
President and Chief 18,000 (4)
Executive Officer 17,250 (5)
1994 260,000(1) -- 15,113 (3)
70,000 (5)
18,000 (4)
1993 345,000(1) -- 12,000 (4)
52,000 (6)
Arthur Bernstein 1995 108,587(7) 25,000 6,625 (4)
Senior Vice President 1994 101,058 -- 6,000 (4)
1993 95,000 -- 6,000 (4)
Harvey Bibicoff (8) 1995 141,519 100,000 --
1994 225,000 -- 9,000 (4)
1993 225,000 -- 9,000 (4)
Drew Levin 1995 100,000 -- --
President of DSL 1994 131,697 325,000(10) --
Productions Ltd.(9) 1993 131,873 -- --
William Melamed, Jr. 1995 129,878 -- 8,000
Senior Vice President, 1994 153,818 -- --
TPEG Management 1993 35,962 -- --
Jonathan Axelrod 1995 345,000 -- 18,000
1994 345,000 33,333 18,000
1993 345,000 33,333 18,000
</TABLE>
- ------------------------------
(1) Includes amounts payable to AliPat Productions Ltd. ("AliPat") or
Mountaingate Productions LLC which provided the Company with the
services of Mr. Meyer and others and, since February 1995 amounts
payable 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.
41
<PAGE>
(4) Automobile reimbursement.
(5) Advance against future compensation.
(6) Forgiveness of note receivable.
(7) Includes bonus payment of $12,000.
(8) In February 1995, the Company and Mr. Bibicoff agreed to terminate Mr.
Bibicoff's employment as the Company's Chairman of the Board and Chief
Executive Officer and he resigned as an officer and director of the
Company. At such time, the Company entered into a consulting agreement
with Bibicoff & Associates pursuant to which the Company is entitled to
receive consulting services from Mr. Bibicoff. The amounts shown on
this table include compensation paid to Mr. Bibicoff as an employee of
the Company prior to February, 1995 and compensation paid to Bibicoff &
Associates as a consultant to the Company subsequent to February, 1995
through the end of the Company's 1995 fiscal year. See "Certain
Transactions" for a description of the February, 1996 agreement among
Mr. Bibicoff, Bibicoff & Associates and the Company with regard, among
other matters, such options.
(9) Includes compensation paid to Mr. Levin by DSL Productions Ltd. ("DSL
Productions") prior to the acquisition of DSL Productions by the
Company in May 1994. Mr. Levin resigned as an officer and director of
the Company and DSL Productions in February, 1995. See "Legal
Proceedings."
(10) As a result of the termination of Mr. Levin's employment with the
Company in February 1995, 225,000 of these options were canceled. The
balance of such options were surrendered to the Company for
cancellation by Mr. Levin in connection with a settlement in June, 1996
of certain litigation between the Company and Mr. Levin and other
parties. See "Business -- Legal Proceedings."
42
<PAGE>
Option/SAR Grants Table
The following table sets forth information concerning individual grants
of stock options to purchase the Company's Common Stock made to each Named
Officer during the fiscal year ended June 30, 1995.
<TABLE>
<CAPTION>
Number of Securities % of Total Options/SARs
Underlying Options/SARs Granted to Employees in Exercise or Base Price
Name Granted (#) Fiscal Year ($/Sh) Expiration Date
---- ----------------------- ----------------------- --------------------- ---------------
<S> <C> <C> <C> <C>
(a) (b) (c) (d) (e)
Arthur Bernstein 25,000 7% $2.00 6/1/98
Harvey Bibicoff 100,000(1) -- (1) $2.00 2/27/99
</TABLE>
- ------------------------------
(1) Options granted to Mr. Bibicoff in February, 1996 in exchange for the
cancellation of certain other options. The exercise price of these
options is $2.00 per share, which was greater than the market price of
the Company's Common Stock on the date of grant. See "Certain
Transactions" for a description of the February, 1996 agreement among
Mr. Bibicoff, Bibicoff & Associates and the Company with regard to such
options, among other matters.
43
<PAGE>
Option Exercises in Each Fiscal Year and Fiscal
Year-end (June 30, 1995) Option Values
No stock options were exercised by the Named Officers during fiscal
1995. The following table sets forth certain information concerning the
outstanding options held by such Named Officers.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING VALUE OF
SHARES UNEXERCISED UNEXERCISED
ACQUIRED OPTIONS AT IN-THE-MONEY
ON VALUE FY-END OPTIONS AT
NAME EXERCISE REALIZED($) # OF SHARES FY-END - $
- ---- -------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Irwin Meyer (1) 0 0 0 Exercisable 0
0 Unexercisable 0
Arthur Bernstein 0 0 25,000 Exercisable 0
0 Unexercisable 0
Harvey Bibicoff (2) 0 0 100,000 Exercisable 0(2)
0 Unexercisable 0
William Melamed, Jr. 0 0 12,500 Exercisable 0
0 Unexercisable
</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.
(2) Options granted to Mr. Bibicoff in February, 1996 in exchange for the
cancellation of certain other options. The exercise price of these
options is $2.00 per share, which was greater than the market price of
the Company's Common Stock on the date of grant. See "Certain
Transactions" for a description of the February, 1996 agreement among
Mr. Bibicoff, Bibicoff & Associates and the Company with regard, among
other matters, to such options.
44
<PAGE>
CERTAIN TRANSACTIONS
In February, 1995, the Company and Harvey Bibicoff agreed to terminate
Mr. Bibicoff's employment as the Company's 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% will vest 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 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.
45
<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 of $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 $28.00
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 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 and as a
nominee of the 1994 Underwriters.
46
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of June 20, 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>
Percent of Class Percent of Class
Name and Address of Amount of Shares Before After
Beneficial Owner(1) Beneficially Owned(2)(3) Offering Offering
-------------------- ------------------------ ---------- ---------
<S> <C> <C> <C>
Mountaingate Productions, 650,000 17.2% 5.8%
LLC(4)
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 75,054 2.1% *
group (consisting of 6
persons)
</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
47
<PAGE>
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 $2.20
per share.
(8) Includes (i) 2,654 shares of Common Stock and Class B Warrants 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 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.
48
<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.
<TABLE>
<CAPTION>
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>
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 50,000 1.1% 50,000 *
Pismeny (JTWROS)
Nathaniel Silon, Revocable 50,000 1.1% 50,000 *
Trust
Daniel and 50,000 1.1% 50,000 *
Dianne Minc (JTWROS)
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%
49
<PAGE>
(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 Underwriters. 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 Representative. 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
Representative, and that the Selling Securityholders shall compensate the
Representative 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 Securityholder
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.
50
<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 Underwriters' 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 June 28, 1996, there were 3,305,210 shares of Common Stock that
were held by 165 stockholders of record. There will be approximately 11,305,210
shares of Common Stock outstanding (or 12,505,210 shares if the Underwriters'
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 Shares 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." 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.
51
<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 Representative
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 1,000,000 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 Class B Warrants do not possess any rights as a stockholder
of the Company unless and until they exercise the Class B Warrant.
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 Representative
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.
52
<PAGE>
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 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.
Representative's Warrants
Pursuant to the terms of the Underwriting Agreement between the Company
and the Underwriters, the Representative will receive 200,000 Representative'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.
53
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Of the 11,220,345 shares of Common Stock to be outstanding upon
completion of the Offering, approximately 10,576,000 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 644,000 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 Representative for a period of ending upon the earlier of (i)
eighteen months from the date of this Prospectus, or (ii) two months after the
Representative and each broker-dealer controlled by any affiliate of the
Representative at the time the "lock-up" agreement was entered into, if any,
transfers all of the Representative's Warrants and all securities issuable upon
exercise of the Representative'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 Representative 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 Representative, 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.
While there has been an public market for the Company's Common Stock,
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.
54
<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters"), for whom Joseph
Stevens & Company, L.P. is acting as Representative, have severally agreed,
subject to the terms and conditions contained in the Underwriting Agreement (the
"Underwriting Agreement") to purchase from the Company, and the Company has
agreed to sell to the Underwriters on a firm commitment basis, the number of
Units as set forth opposite their names:
Underwriter Number of Units
----------- ---------------
Joseph Stevens & Company, L.P....................... ______________
Total...................................... 2,000,000
The Underwriters are committed to purchase all the Units offered
hereby, if any of the Units are purchased. The Underwriting Agreement provides
that the obligations of the several Underwriters are subject to the conditions
precedent specified therein.
The Representative has advised the Company that the Underwriters
initially propose to offer the Units to the public at the public offering price
set forth on the cover page of this Prospectus and that the Underwriters 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
Representative has informed the Company that the Underwriters do not expect
sales to discretionary accounts by the Underwriters 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 allowanced 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 Representative,
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
Representative a commission which shall not exceed five percent of the aggregate
exercise price of such Redeemable Warrants, payable upon exercise. The
Representative 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 Representative 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
Representative will not be entitled to any warrant solicitation fee unless the
Representative provides bona fide services in connection with any warrant
solicitation, and the investor designates, in writing, that the Representative
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 Representative
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 Representative may have to receive a fee. As a result, the Representative
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
Representative has engaged in any of the activities prohibited by Rule 10b-6
during the periods described above, the Representative undertakes to waive
unconditionally its right to receive a commission on the exercise of such
Redeemable Warrants.
55
<PAGE>
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 Representative for a period ending upon
the earlier of (i) eighteen months from the date of this Prospectus, or (ii) two
months after the Representative and each broker-dealer controlled by any
affiliate of the Representative at the time the "lock-up" agreement was entered
into, if any, transfers all of the Representative's Warrants and all securities
issuable upon exercise of the Representative's Warrants. An appropriate legend
shall be marked on the face of certificates representing all such securities.
The Company has granted to the Underwriters 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
Representative, for nominal consideration, Representative's Warrants to purchase
from the Company 200,000 Units. The Representative'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 second anniversary of the date of issuance. The shares of Common Stock and
Redeemable Warrants issuable upon exercise of the Representative's Warrants are
identical to those offered to the public. The Representative's Warrants contain
anti-dilution provisions providing for adjustment of the number of warrants and
exercise price under certain circumstances. The Representative's Warrants grant
to the holders thereof certain rights of registration of the securities issuable
upon exercise of the Representative's Warrants.
The Company has agreed that the Representative 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 Representative may
designate one person for election to the Company's Board of Directors and that
the Company will reasonably cooperate with the Representative in respect of such
designation. The Company has also agreed to retain the Representative 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 Representative
$2,000 per month all payable in advance on the closing date set forth in the
Underwriting Agreement.
The Representative 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 Representative'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 Representative."
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. Consequently, the initial public
offering price of the Units and terms of the Redeemable Warrants were determined
by negotiation between the Company and the Representative. 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
56
<PAGE>
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 Underwriters 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 LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority or said firm as experts in accounting and auditing and giving said
reports.
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.
57
<PAGE>
>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Auditors..............................................F-1
Consolidated Balance Sheets - March 31, 1996 (unaudited)
and June 30, 1995 and 1994.........................................F-2
Consolidated Statements of Operations -
Nine months ended March 31, 1996 and 1995 (unaudited)
and Years Ended June 30, 1995, 1994 and 1993 ......................F-3
Consolidated Statement of Shareholders' Equity
Nine months ended March 31, 1996 (unaudited)
and Years Ended June 30, 1995, 1994 and 1993 ......................F-4
Consolidated Statements of Cash Flows -
Nine months ended March 31, 1996 and 1995 (unaudited)
and Years Ended June 30, 1995, 1994 and 1993 ..............F-5 and F-6
Notes to Consolidated Financial Statements.....................F-7 through F-19
58
<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-1
<PAGE>
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
March 31, June 30,
--------------- -----------------------------------
1 9 9 6 1 9 9 5 1 9 9 4
--------------- --------------- ----------------
(Unaudited)
<S> <C> <C> <C>
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-2
<PAGE>
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Ended
March 31, Years ended June 30,
--------------------------- --------------------------------------------
1 9 9 6 1 9 9 5 1 9 9 5 1 9 9 4 1 9 9 3
------------ ------------ ------------- ------------- -------------
(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-3
<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 - - 481,66 482 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-4
<PAGE>
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine months ended
March 31, Years ended June 30,
-------------------------- ----------------------------------------
1 9 9 6 1 9 9 5 1 9 9 5 1 9 9 4 1 9 9 3
------------ ------------ ------------ ------------ -----------
(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-5
<PAGE>
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
Nine months ended
March 31, Years ended June 30,
------------------------ -----------------------------------------
1 9 9 6 1 9 9 5 1 9 9 5 1 9 9 4 1 9 9 3
--------- ---------- ---------- ----------- ---------
(Unaudited)
<S> <C> <C> <C> <C> <C>
CASH PAID FOR:
Interest $ - $ 21,741 $ 39,000 $ 157,200 $ 54,300
========= ========== ========== =========== =========
</TABLE>
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-6
<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.
F-7
<PAGE>
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
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.
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.
F-8
<PAGE>
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
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.
F-9
<PAGE>
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
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.
F-10
<PAGE>
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - RELATED PARTY TRANSACTIONS - CONTINUED
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).
NOTE 4 - FILM COSTS
Film costs consists of the following:
<TABLE>
<CAPTION>
March 31, June 30, June 30,
1 9 9 6 1 9 9 5 1 9 9 4
--------- -------- --------
(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.
F-11
<PAGE>
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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-12
<PAGE>
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
F-13
<PAGE>
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - EMPLOYMENT AGREEMENTS - CONTINUED
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.
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.
F-14
<PAGE>
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - COMMITMENTS AND CONTINGENCIES - CONTINUED
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.
F-15
<PAGE>
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
NOTES TO 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 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.
F-16
<PAGE>
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - UNAUDITED FINANCIAL INFORMATION - CONTINUED
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.
F-17
<PAGE>
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - UNAUDITED FINANCIAL INFORMATION - CONTINUED
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 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.
F-18
<PAGE>
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - UNAUDITED FINANCIAL INFORMATION - CONTINUED
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-19
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
- ------------------------------------------------------- -------------------------------------------------------
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 Shares Eligible for Future Sale..............
given or made, such information or representations must Underwriting ................................
not be relied upon as having been authorized by the Legal Matters................................
Company or Underwriters. Neither the delivery of this Experts......................................
Prospectus nor any sale made hereunder shall, under any Additional Information.......................
circumstances, create any implication that the Index to Financial Statements................
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 THE PRODUCERS
not authorized or in which the person making such offer ENTERTAINMENT GROUP
or solicitation is not qualified to do so or to anyone
whom it is unlawful to make such offer or solicitation. LTD.
--------------------------- 2,000,000 Units
Each Unit Consisting of Four
Shares of Common Stock and Two
TABLE OF CONTENTS Redeemable Warrants
Page -------------------------------------------------------
PROSPECTUS
Prospectus Summary...........................
Risk Factors................................. -------------------------------------------------------
The Company..................................
Recent Bridge Financing......................
Concurrent Offering..........................
Use of Proceeds..............................
Dilution.....................................
Capitalization............................... JOSEPH STEVENS &
Market for Common Equity and COMPANY, L.P.
Series A Preferred Stock and Related
Shareholder Matters....................... _______________, 1996
Dividend Policy..............................
Selected Financial Data......................
Management's Discussion and Analysis
of Financial Condition and Results of
Operations................................
Business.....................................
Management...................................
Certain Transactions.........................
Principal Stockholders.......................
Selling Securityholders......................
Description of Securities....................
- ------------------------------------------------------- -------------------------------------------------------
</TABLE>
<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.
II-1
<PAGE>
The Underwriting Agreement also contains provisions under which
the Company and the Underwriters have agreed to indemnify each other (including
officers and directors of the Company and the Underwriters, 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").
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) are estimated as follows:
SEC registration fee..................................... $6,865.49
NASD Fees 2,491.00
Blue Sky Filing Fees and Expenses........................ 40,000
Transfer Agent's Fees and Expenses....................... 5,000
Listing Fees............................................. (1)
Accounting Fees and Expenses............................. 10,000
Legal Fees and Expenses.................................. 100,000
Printing Expenses........................................ 100,000
Miscellaneous............................................ 20,643.51
Total.......................................... 285,000.00(2)
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
--------
1 To be filed by Amendment.
2 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.
II-2
<PAGE>
"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.
(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.
(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.
II-3
<PAGE>
Item 27 Exhibits
(a) Exhibits
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 Representative'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.
II-4
<PAGE>
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).
- -----------------------------
All schedules are omitted because the information is included in the
consolidated financial statements or notes thereto or is not applicable.
(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.
II-5
<PAGE>
(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.
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.
II-6
<PAGE>
(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-7
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1993,
the Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filings on Form SB- 2 and authorized this
Registration Statement to be signed on its behalf by the undersigned in the City
of Beverly Hills, State of California, on June 28, 1996.
THE PRODUCERS ENTERTAINMENT
GROUP LTD.
By: /s/ Irwin Meyer
-------------------------------------
Irwin Meyer
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Irwin Meyer and Arthur Bernstein
severally as his attorney-in-fact, each with the powers of substitution, for him
in any and all capacities, to sign any amendments to this Registration
Statement, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorney-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
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 June 28, 1996
- ------------------------------- and Chairman of the Board
Irwin Meyer (Principal Executive Officer)
/s/ Arthur Bernstein Senior Vice President and Director June 28, 1996
- ------------------------------- (Principal Financial and
Arthur Bernstein Accounting Officer)
/s/ Michael D. Dempsey Director June 28, 1996
- -------------------------------
Michael D. Dempsey
/s/ Michael Levy Director June 28, 1996
- -------------------------------
Michael Levy
Director June , 1996
- -------------------------------
Ben Lichtenberg
</TABLE>
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Document Page
<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 Representative'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 (to be supplied by Amendment).
10.1.1 -- Agreement of Restructuring and Settlement dated February 27, 1995
among the Registrant, Drew Levin and DSL Productions Inc.(4)
</TABLE>
II-9
<PAGE>
<TABLE>
<CAPTION>
Document Page
<S> <C>
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)
</TABLE>
II-10
<PAGE>
<TABLE>
<CAPTION>
Document Page
<S> <C>
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.
(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.
II-11
<PAGE>
(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.
II-12
<PAGE>
2,000,000 Units, Each
Unit Consisting of Four Shares of
Common Stock and Two Redeemable Warrants
THE PRODUCERS ENTERTAINMENT GROUP LTD.
UNDERWRITING AGREEMENT
New York, New York
, 1996
JOSEPH STEVENS & COMPANY, L.P.
As Representative of the
Several Underwriters listed
on Schedule A hereto
33 Maiden Lane, 8th Floor
New York, New York 10038
Ladies and Gentlemen:
The Producers Entertainment Group Ltd., a Delaware corporation
(the "Company"), confirms its agreement with Joseph Stevens & Company, L.P.
("JSLP") and each of the several underwriters named in Schedule A hereto
(collectively, the "Underwriters", which term shall also include any underwriter
substituted as hereinafter provided in Section 11) for whom JSLP is acting as
representative (in such capacity, JSLP shall hereinafter be referred to as "you"
or the "Representative"), with respect to the sale by the Company and the
purchase by the Representative of 2,000,000 units (the "Units"), each Unit
consisting of four (4) shares of common stock, $0.001 par value (the "Common
Stock") and two (2) redeemable warrants (the "Redeemable Warrants"). Each
Redeemable Warrant is exercisable for one share of Common Stock. The Common
Stock and Redeemable Warrants will be separately tradeable upon issuance and are
hereinafter referred to as the "Firm Units." The Redeemable Warrants are
exercisable commencing ________________, 1996 [the effective date of the
Registration Statement] until _____________, 2001 [60 months from the effective
date of the Registration Statement], unless previously redeemed by the Company,
at an initial exercise price equal to 1.75 per share, subject to adjustment. The
Redeemable Warrants may be redeemed by the Company, in whole, and not in part,
at a redemption price of five cents ($.05) per Redeemable Warrant at any time
commencing ______________, 1997 [12 months after the effective date of the
Registration Statement] on 30 days' prior written notice provided that the
average closing bid price (or sale price) of the Common Stock equals or exceeds
150% of the then exercise price per share
<PAGE>
(subject to adjustment) for any twenty (20) trading days within a period of
thirty (30) consecutive trading days ending on the fifth (5th) trading day prior
to the date of the notice of redemption and the Company shall have obtained the
prior written consent of JSLP. Upon the Representative's request, as provided in
Section 2(b) of this Agreement, the Company shall also issue and sell to the
Underwriters up to an additional 300,000 Units for the purpose of covering
over-allotments, if any. Such 300,000 Units are hereinafter collectively
referred to as the "Option Units." The Company also proposes to issue and sell
to the Representative or its designees warrants (the "Representative's
Warrants"), pursuant to the Representative's Warrant Agreement (the
"Representative's Warrant Agreement"), for the purchase of an additional 200,000
Units (the "Representative's Units"). The Representative's Units, the shares of
Common Stock and the Redeemable Warrants underlying the Representative's Units
and the shares of Common Stock underlying the Redeemable Warrants underlying the
Representative's Units are hereinafter collectively referred to as the
"Representative's Securities." The shares of Common Stock issuable upon exercise
of the Redeemable Warrants, including the Redeemable Warrants underlying the
Representative's Units, are hereinafter referred to as the "Warrant Shares."
Further, an additional 500,000 Redeemable Warrants (the "Selling Securityholder
Warrants") and 500,000 shares of Common Stock underlying the Selling
Securityholder Warrants (the "Selling Securityholder Shares"), are being
registered for the account of certain selling security holders in connection
with this offering which are not being underwritten by the Underwriters. The
Selling Securityholder Warrants and the Selling Securityholder Shares are
hereinafter collectively referred to as the "Selling Securityholder Securities."
The Firm Units, the Option Units, the Representative's Warrants, the
Representative's Units, the Selling Securityholder Securities and the Warrant
Shares are hereinafter collectively referred to as the "Securities" and are more
fully described in the Registration Statement and the Prospectus referred to
below.
1. Representations and Warranties of the Company. The Company
represents and warrants to, and covenants and agrees with, the Representative as
of the date hereof, and as of the Closing Date (hereinafter defined) and the
Option Closing Date (hereinafter defined), if any, as follows:
(a) The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement, and amendments
thereto, on Form SB-2 (Registration No. __________), including any related
preliminary prospectus or prospectuses (each a "Preliminary Prospectus"), for
the registration of the Securities, under the Securities Act of 1933, as amended
(the "Act"), which registration statement and amendment or amendments have been
prepared by the Company in conformity with the requirements of the Act, and the
rules and regulations of the Commission under the Act. The Company will not file
any other amendment to such registration statement which the Representative
shall have objected to in writing after having been furnished with a copy
thereof. Except as the context may otherwise require, such registration
statement, as amended, on file with the Commission at the time it becomes
effective (including the prospectus, financial statements, schedules, exhibits
and all other documents filed as a part thereof or incorporated therein
(including, but not limited to, those documents or that information incorporated
by reference therein) and all information deemed to be a part thereof as of such
time pursuant to paragraph (b) of Rule 430A of the rules and regulations under
the Act), is hereinafter called the "Registration Statement," and the form
2
<PAGE>
of prospectus in the form first filed with the Commission pursuant to Rule
424(b) of the rules and regulations under the Act is hereinafter called the
"Prospectus." For purposes hereof, "Rules and Regulations" mean the rules and
regulations adopted by the Commission under either the Act or the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), as applicable.
(b) Neither the Commission nor any state regulatory authority
has issued any order preventing or suspending the use of any Preliminary
Prospectus, the Registration Statement or the Prospectus or any part of any
thereof and no proceedings for a stop order suspending the effectiveness of the
Registration Statement or any of the Company's securities have been instituted
or are pending or threatened. Each of the Preliminary Prospectus and the
Registration Statement and the Prospectus, at the time of filing thereof,
conformed with the requirements of the Act and the Rules and Regulations, and
none of the Preliminary Prospectus, the Registration Statement nor the
Prospectus, at the time of filing thereof, contained an untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading; provided, however, that this
representation and warranty does not apply to statements made or statements
omitted in reliance upon and in conformity with written information furnished to
the Company with respect to the Underwriters by or on behalf of the Underwriters
expressly for use in such Preliminary Prospectus, the Registration Statement or
the Prospectus. The Company has filed all reports, forms or other documents
required to be filed under the Act and the Exchange Act and the respective Rules
and Regulations thereunder, and all such reports, forms or other documents, when
so filed or as subsequently amended, complied in all material respects with the
Act and the Exchange Act and the respective Rules and Regulations thereunder.
(c) When the Registration Statement becomes effective and at
all times subsequent thereto up to the Closing Date and each Option Closing
Date, if any, and during such longer period as the Prospectus may be required to
be delivered in connection with sales by the Representative or a dealer, the
Registration Statement and the Prospectus will contain all statements which are
required to be stated therein in accordance with the Act and the Rules and
Regulations, and will conform to the requirements of the Act and the Rules and
Regulations; and, at and through such dates, neither the Registration Statement
nor the Prospectus, nor any amendment or supplement thereto, will contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances in which they were made, not misleading; provided, however,
that this representation and warranty does not apply to statements made or
statements omitted in reliance upon and in conformity with written information
furnished to the Company with respect to the Underwriters by or on behalf of the
Underwriters expressly for use in the Registration Statement or the Prospectus
or any amendment thereof or supplement thereto.
(d) The Company owns one hundred percent (100%) of the issued
and outstanding capital stock of each of Tales of Midnite Productions, Inc.
(formerly known as Helpless Productions, Inc.), TPEG Management, Inc., Plan of
Attack Productions, Inc., In for Life, Inc., DSL Productions, Inc., Out of
Pocket Pictures, Inc., DSL Venture I Acquisition Corp. d/b/a Future Quest, DSL
Venture I, Superstars of Action, Inc., Home Green Home, Inc., and Light and Easy
Cooking, Inc. (collectively, the "Wholly-Owned Subsidiaries"). In addition, the
Company owns 49% of the capital stock of Babylon Productions, Inc. (the
remaining 51%
3
<PAGE>
of Babylon Productions, Inc.'s capital stock is owned by Kaleidoscope
Entertainment, Inc., a Canadian corporation) (collectively, the Wholly-Owned
Subsidiaries and Babylon Productions, Inc. are hereinafter referred to as the
"Subsidiaries"). Each of the Company and the Subsidiaries has been duly
organized and is validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation, except that each of Light and
Easy Cooking, Inc., DSL Venture I and DSL Venture I Acquisition Corp. d/b/a
Future Quest has been suspended under the laws of its respective jurisdiction of
incorporation. Each of the Company and the Subsidiaries is duly qualified and
licensed and in good standing as a foreign corporation in each jurisdiction in
which their respective ownership or leasing of any properties or the character
of their respective operations require such qualification or licensing. None of
the Company nor any of the Subsidiaries owns, directly or indirectly, an
interest in any other corporation, partnership, trust, joint venture or other
business entity except as set forth in this Section 1(d). Each of the Company
and the Subsidiaries has all requisite power and authority (corporate and
other), and has obtained any and all necessary authorizations, approvals,
orders, licenses, certificates, franchises and permits of and from all
governmental or regulatory officials and bodies (including, without limitation,
those having jurisdiction over environmental or similar matters), to own or
lease their respective properties and conduct their respective business as
conducted on the date hereof and as described in the Prospectus; each of the
Company and the Subsidiaries is and has been doing business in compliance with
all such authorizations, approvals, orders, licenses, certificates, franchises
and permits and with all federal, state, local and foreign laws, rules and
regulations to which each of them is subject; and none of the Company nor any of
the Subsidiaries has received any notice of proceedings relating to the
revocation or modification of any such authorization, approval, order, license,
certificate, franchise or permit which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would materially and
adversely affect the condition, financial or otherwise, or the earnings,
prospects, stockholders' equity, value, operations, properties, business or
results of operations of the Company or the Subsidiaries. The disclosure in the
Registration Statement concerning the effects of federal, state, local and
foreign laws, rules and regulations on the Company's and the Subsidiaries'
business as currently conducted and as contemplated are correct in all respects
and do not omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading.
(e) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus under "Capitalization" and
"Description of Securities" and will have the adjusted capitalization set forth
therein on the Closing Date and the Option Closing Date, if any, based upon the
assumptions set forth therein, and none of the Company nor any of the
Subsidiaries is not a party to or bound by any instrument, agreement or other
arrangement providing for any of them to issue any capital stock, rights,
warrants, options or other securities, except for this Agreement, the
Representative's Warrant Agreement and the Warrant Agreement (as defined in
Section 1(ff) hereof of this Agreement) and as described in the Prospectus. The
Securities and all other securities issued or issuable by the Company on or
prior to the Closing Date and each Option Closing Date, if any, conform or, when
issued and paid for, will conform, in all respects to the descriptions thereof
contained in the Registration Statement and the Prospectus. All issued and
outstanding securities of each of the Company and the Subsidiaries have been
duly authorized and validly issued and are fully paid and non-assessable; the
holders
4
<PAGE>
thereof have no rights of rescission with respect thereto and are not subject to
personal liability by reason of being such holders; and none of such securities
were issued in violation of the preemptive rights of any holder of any security
of the Company or the Subsidiaries or any similar contractual right granted by
the Company or the Subsidiaries. The Securities to be sold by the Company
hereunder and pursuant to the Representative's Warrant Agreement and the Warrant
Agreement are not and will not be subject to any preemptive or other similar
rights of any stockholder, have been duly authorized and, when issued, paid for
and delivered in accordance with the terms hereof and thereof, will be validly
issued, fully paid and non-assessable and conform to the descriptions thereof
contained in the Prospectus; the holders thereof will not be subject to any
liability solely as such holders; all corporate action required to be taken for
the authorization, issue and sale of the Securities has been duly and validly
taken; and the certificates representing the Securities, when delivered by the
Company, will be in due and proper form. Upon the issuance and delivery pursuant
to the terms hereof, the Warrant Agreement and the Representative's Warrant
Agreement of the Securities to be sold by the Company hereunder and thereunder
to the Underwriters, the Underwriters will acquire good and marketable title to
such Securities, free and clear of any lien, charge, claim, encumbrance, pledge,
security interest, defect or other restriction or equity of any kind whatsoever
asserted against the Company or any affiliate (within the meaning of the Rules
and Regulations) of the Company.
(f) The audited consolidated financial statements of the
Company and the notes thereto included in the Registration Statement, each
Preliminary Prospectus and the Prospectus fairly present the financial position,
income, changes in stockholders' equity and the results of operations of the
Company at the respective dates and for the respective periods to which they
apply. Such financial statements have been prepared in conformity with generally
accepted accounting principles and the Rules and Regulations, consistently
applied throughout the periods involved. There has been no adverse change or
development involving a material prospective change in the condition, financial
or otherwise, or in the earnings, prospects, stockholders' equity, value,
operations, properties, business or results of operations of the Company or the
Subsidiaries, whether or not arising in the ordinary course of business, since
the date of the financial statements included in the Registration Statement and
the Prospectus; and the outstanding debt, the property, both tangible and
intangible, and the business of the Company and the Subsidiaries conform in all
respects to the descriptions thereof contained in the Registration Statement and
the Prospectus. The financial information set forth in the Prospectus under the
headings "The Company," "Capitalization," "Selected Financial Data" and
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" fairly presents, on the basis stated in the Prospectus, the
information set forth therein and such financial information has been derived
from or compiled on a basis consistent with that of the audited consolidated
financial statements included in the Prospectus.
(g) The Company (i) has paid all federal, state, local and
foreign taxes for which it is liable, including, but not limited to, withholding
taxes and amounts payable under Chapters 21 through 24 of the Internal Revenue
Code of 1986, as amended (the "Code"), and has furnished all information returns
it is required to furnish pursuant to the Code, (ii) has established adequate
reserves for such taxes which are not due and payable, and (iii) does not have
any tax deficiency or claims outstanding, proposed or assessed against it.
5
<PAGE>
(h) No transfer tax, stamp duty or other similar tax is
payable by or on behalf of the Underwriters in connection with (i) the issuance
by the Company of the Securities, (ii) the purchase by the Underwriters of the
Securities from the Company, (iii) the consummation by the Company of any of its
obligations under this Agreement, the Warrant Agreement, or the Representative's
Warrant Agreement, or (iv) resales of the Securities in connection with the
distribution contemplated hereby.
(i) Each of the Company and the Subsidiaries maintains
insurance policies, including, but not limited to, general liability, property,
personal and product liability insurance, and surety bonds which insure the
Company and the Subsidiaries and their respective employees against such losses
and risks generally insured against by comparable businesses. None of the
Company nor any of the Subsidiaries (i) has failed to give notice or present any
insurance claim with respect to any insurable matter under the appropriate
insurance policy or surety bond in a due and timely manner, (ii) has any
disputes or claims against any underwriter of such insurance policies or surety
bonds, nor has the Company or any Subsidiary failed to pay any premiums due and
payable thereunder, or (iii) has failed to comply with all conditions contained
in such insurance policies and surety bonds. There are no facts or circumstances
under any such insurance policy or surety bond which would relieve any insurer
of its obligation to satisfy in full any valid claim of the Company or any of
the Subsidiaries.
(j) There is no action, suit, proceeding, inquiry,
arbitration, investigation, litigation or governmental proceeding (including,
without limitation, those pertaining to environmental or similar matters),
domestic or foreign, pending or threatened against (or circumstances that may
give rise to the same), or involving the properties or business of, the Company
or any of the Subsidiaries which (i) questions the validity of the capital stock
of the Company or any of the Subsidiaries, this Agreement, the Representative's
Warrant Agreement, the Warrant Agreement or the Consulting Agreement (as defined
in Section 1(gg) hereof) or of any action taken or to be taken by the Company
pursuant to or in connection with this Agreement, the Representative's Warrant
Agreement, the Warrant Agreement or the Consulting Agreement, (ii) is required
to be disclosed in the Registration Statement which is not so disclosed (and
such proceedings as are summarized in the Registration Statement are accurately
summarized in all respects), or (iii) might materially and adversely affect the
condition, financial or otherwise, or the earnings, prospects, stockholders'
equity, value, operations, properties, business or results of operations of the
Company or any of the Subsidiaries.
(k) The Company has full legal right, power and authority to
authorize, issue, deliver and sell the Securities, to enter into this Agreement,
the Representative's Warrant Agreement, the Warrant Agreement and the Consulting
Agreement and to consummate the transactions provided for in such agreements;
and each of this Agreement, the Representative's Warrant Agreement, the Warrant
Agreement and the Consulting Agreement have been duly and properly authorized,
executed and delivered by the Company. Each of this Agreement, the
Representative's Warrant Agreement, the Warrant Agreement and the Consulting
Agreement constitutes a legal, valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms (except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to or
affecting the enforcement of creditors' rights and the application of
6
<PAGE>
equitable principles in any motion, legal or equitable, and except as
obligations to indemnify or contribute to losses may be limited by applicable
law). None of the Company's issue and sale of the Securities, execution or
delivery of this Agreement, the Representative's Warrant Agreement, the Warrant
Agreement or the Consulting Agreement, its performance hereunder and thereunder,
its consummation of the transactions contemplated herein and therein, or the
conduct of its business as described in the Registration Statement and the
Prospectus and any amendments or supplements thereto, conflicts with or will
conflict with or results or will result in any breach or violation of any of the
terms or provisions of, or constitutes or will constitute a default under, or
result in the creation or imposition of any lien, charge, claim, encumbrance,
pledge, security interest, defect or other restriction or equity of any kind
whatsoever upon, any property or assets (tangible or intangible) of the Company
or any of the Subsidiaries pursuant to the terms of (i) the respective
certificates of incorporation or by-laws of the Company or any of the
Subsidiaries, (ii) any license, contract, indenture, mortgage, lease, deed of
trust, voting trust agreement, stockholders' agreement, note, loan or credit
agreement or other agreement or instrument evidencing an obligation for borrowed
money, or any other agreement or instrument to which the Company or any of the
Subsidiaries is a party or by which the Company or any of the Subsidiaries is or
may be bound or to which their respective properties or assets (tangible or
intangible) are or may be subject, or (iii) any statute, judgment, decree,
order, rule or regulation applicable to any of the Company or the Subsidiaries
of any arbitrator, court, regulatory body or administrative agency or other
governmental agency or body (including, without limitation, those having
jurisdiction over environmental or similar matters), domestic or foreign, having
jurisdiction over any of the Company or the Subsidiaries or any of their
respective activities or properties.
(l) No consent, approval, authorization or order of, and no
filing with, any arbitrator, court, regulatory body, administrative agency,
government agency or other body, domestic or foreign, is required for the
issuance of the Securities pursuant to the Prospectus and the Registration
Statement, this Agreement, the Representative's Warrant Agreement and the
Warrant Agreement, the performance of this Agreement, the Representative's
Warrant Agreement, the Warrant Agreement and the Consulting Agreement and the
transactions contemplated hereby and thereby, except such as have been obtained
under the Act, state securities laws and the rules of the National Association
of Securities Dealers, Inc. (the "NASD") in connection with the Underwriter's
purchase and distribution of the Securities.
(m) All executed agreements, contracts or other documents or
copies of executed agreements, contracts or other documents filed as exhibits to
the Registration Statement to which the Company is a party or by which the
Company or any of the Subsidiaries may be bound or to which their respective
assets, properties or business may be subject have been duly and validly
authorized, executed and delivered by the Company or the applicable Subsidiary,
as the case may be, and constitute legal, valid and binding agreements of the
Company or such Subsidiary, as the case may be, enforceable against the Company
or such Subsidiary, as the case may be, in accordance with their respective
terms (except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
relating to or affecting the enforcement of creditors' rights and the
application of equitable principles in any motion, legal or equitable, and
except as obligations to indemnify or contribute to losses may be limited by
applicable law). The descriptions in the Registration
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Statement of agreements, contracts and other documents are accurate and fairly
present the information required to be shown with respect thereto by Form SB-2;
and there are no agreements, contracts or other documents which are required by
the Act to be described in the Registration Statement or filed as exhibits to
the Registration Statement which are not described or filed as required; and the
exhibits which have been filed are complete and correct copies of the documents
of which they purport to be copies.
(n) Subsequent to the respective dates as of which information
is set forth in the Registration Statement and the Prospectus, and except as may
otherwise be indicated or contemplated herein or therein, none of the Company
nor any of the Subsidiaries has (i) issued any securities or incurred any
liability or obligation, direct or contingent, for borrowed money, (ii) entered
into any transaction other than in the ordinary course of business, or (iii)
declared or paid any dividend or made any other distribution on or in respect of
any class of its capital stock; and, subsequent to such dates, and except as may
otherwise be disclosed in the Prospectus, there has not been any change in the
capital stock, debt (long or short term) or liabilities of the Company or any of
the Subsidiaries or any material change in the condition, financial or
otherwise, or the earnings, prospects, stockholders' equity, value, operations,
properties, business or results of operations of the Company or any of the
Subsidiaries.
(o) No default exists in the due performance and observance of
any term, covenant or condition of any license, contract, indenture, mortgage,
lease, deed of trust, voting trust agreement, stockholders' agreement, note,
loan or credit agreement or any other agreement or instrument evidencing an
obligation for borrowed money, or any other agreement or instrument to which the
Company is a party or by which the Company is or may be bound or to which the
property or assets (tangible or intangible) of the Company is or may be subject.
(p) Each of the Company and the Subsidiaries has generally
enjoyed a satisfactory employer-employee relationship with their respective
employees and each of the Company and the Subsidiaries is in compliance with all
federal, state, local and foreign laws, rules and regulations respecting
employment, employment practices, terms and conditions of employment and wages
and hours. There are no pending investigations involving any of the Company or
the Subsidiaries by the United States Department of Labor or any other
governmental agency responsible for the enforcement of any federal, state, local
or foreign laws, rules and regulations relating to employment. There is no
unfair labor practice charge or complaint against the any of Company or the
Subsidiaries pending before the National Labor Relations Board or any strike,
picketing, boycott, dispute, slowdown or stoppage pending or threatened against
or involving any of the Company or the Subsidiaries, or any predecessor entity,
and none has ever occurred. No representation question exists respecting the
employees of any of the Company or the Subsidiaries, and no collective
bargaining agreement or modification thereof is currently being negotiated by
any of the Company or the Subsidiaries. No grievance or arbitration proceeding
is pending under any expired or existing collective bargaining agreements of the
Company or the Subsidiaries. No labor dispute with the employees of any of the
Company or the Subsidiaries exists or is imminent.
(q) None of the Company nor any of the Subsidiaries maintain,
sponsor or contribute to any program or arrangement that is an "employee pension
benefit plan," an
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"employee welfare benefit plan" or a "multiemployer plan," as such terms are
defined in Sections 3(2), 3(l) and 3(37), respectively, of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") ("ERISA Plans").
None of the Company nor any of the Subsidiaries maintain or contribute, now or
at any time previously, to a defined benefit plan, as defined in Section 3(35)
of ERISA. No ERISA Plan (or any trust created thereunder) has engaged in a
"prohibited transaction" within the meaning of Section 406 of ERISA or Section
4975 of the Code which could subject the Company or any of the Subsidiary to any
tax penalty on prohibited transactions and which has not adequately been
corrected. Each ERISA Plan is in compliance with all material reporting,
disclosure and other requirements of the Code and ERISA as they relate to any
such ERISA Plan. Determination letters have been received from the Internal
Revenue Service with respect to each ERISA Plan which is intended to comply with
Code Section 401(a), stating that such ERISA Plan and the attendant trust are
qualified thereunder. None of the Company nor any of the Subsidiaries has ever
completely or partially withdrawn from a "multiemployer plan."
(r) Neither the Company, any of the Subsidiaries, nor any of
their respective employees, directors, stockholders or affiliates (within the
meaning of the Rules and Regulations), has taken or will take, directly or
indirectly, any action designed to or which has constituted or which might be
expected to cause or result in, under the Exchange Act or otherwise, the
stabilization or manipulation of the price of any security of the Company,
whether to facilitate the sale or resale of the Securities or otherwise.
(s) To the best of the Company's knowledge, none of the
trademarks, trade names, service marks, service names, copyrights, patents and
patent applications, and none of the licenses and rights to the foregoing,
presently owned or held by the Company or any of the Subsidiaries are in dispute
or are in conflict with the right of any other person or entity. Each of the
Company and the Subsidiaries (i) owns or has the right to use, free and clear of
all liens, charges, claims, encumbrances, pledges, security interests, defects
or other restrictions or equities of any kind whatsoever, all trademarks, trade
names, service marks, service names, copyrights, patents and patent
applications, and licenses and rights with respect to the foregoing, used in the
conduct of its business as now conducted or proposed to be conducted without
infringing upon or otherwise acting adversely to the right or claimed right of
any person, corporation or other entity under or with respect to any of the
foregoing and (ii) is not obligated or under any liability whatsoever to make
any payments by way of royalties, fees or otherwise to any owner or licensee of,
or other claimant to, any trademark, trade name, service mark, service name,
copyright, patent or patent application except as set forth in the Registration
Statement or the Prospectus. There is no action, suit, proceeding, inquiry,
arbitration, investigation, litigation or governmental or other proceeding,
domestic or foreign, pending or threatened (or circumstances that may give rise
to the same) against the Company or any of the Subsidiaries which challenges the
exclusive rights of the Company or any of the Subsidiaries with respect to any
trademarks, trade names, service marks, service names, copyrights, patents,
patent applications or licenses or rights to the foregoing used in the conduct
of its business.
(t) Each of the Company and the Subsidiaries owns and has the
unrestricted right to use all trade secrets, know-how (including all unpatented
and/or unpatentable proprietary or confidential information, systems or
procedures), inventions, technology, designs, processes,
9
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works of authorship, computer programs and technical data and information that
are material to the development, manufacture, operation and sale of all products
and services sold or proposed to be sold by the Company or any of the
Subsidiaries, free and clear of and without violating any right, lien, or claim
of others, including, without limitation, former employers of its employees.
(u) Each of the Company and the Subsidiaries has good and
marketable title to, or valid and enforceable leasehold estates in, all items of
real and personal property currently used in the conduct of business or stated
in the Prospectus to be owned or leased by it, free and clear of all liens,
charges, claims, encumbrances, pledges, security interests, defects or other
restrictions or equities of any kind whatsoever, other than liens for taxes not
yet due and payable.
(v) Kellog & Andelson whose reports are filed with the
Commission as a part of the Registration Statement, are independent certified
public accountants as required by the Act and the Rules and Regulations.
(w) The holders of at least _____ shares of Common Stock of
the Company, including each director, officer and principal stockholder of the
Company's Common Stock, have executed an agreement (collectively, the "Lock-Up
Agreements") pursuant to which he, she or it has agreed, that for a period
ending upon the earlier of (i) eighteen (18) months following the effective date
of the Registration Statement and (ii) two (2) months after the Representative
and each broker-dealer controlled by any affiliate of the Representative as of
the date of the respective Lock-Up Agreement ("Affiliated Broker-Dealer"), if
any, transfers all of the Representative's Warrants and/or securities issuable
upon exercise of the Representative's Warrants (the "Lock-Up Period"), not to,
directly or indirectly, offer, offer to sell, sell, grant an option for the
purchase or sale of, transfer, assign, pledge, hypothecate or otherwise encumber
(whether pursuant to Rule 144 of the Rules and Regulations or otherwise) any
securities issued or issuable by the Company, whether or not owned by or
registered in the name of such persons, or dispose of any interest therein,
without the prior written consent of the Representative and (ii) for a period
extending twenty-four (24) months following the effective date of the
Registration Statement, as long as the Representative or an Affiliated
Broker-Dealer is acting as a market maker with respect to the Company's
securities that all sales of such securities issued by the Company shall be made
through JSLP in accordance with its customary brokerage policies. The Company
will cause its transfer agent to mark an appropriate legend on the face of stock
certificates representing all of such securities and to place "stop transfer"
orders on the Company's stock ledgers.
(x) There are no claims, payments, issuances, arrangements or
understandings, whether oral or written, for services in the nature of a
finder's or origination fee with respect to the sale of the Securities hereunder
or any other arrangements, agreements, understandings, payments or issuances
that may affect the Underwriters' compensation, as determined by the NASD.
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(y) The Units, the Common Stock and the Redeemable Warrants
have been approved for quotation on The Nasdaq SmallCap Market ("Nasdaq") and
for listing on the Boston Stock Exchange.
(z) Neither the Company nor any of its Subsidiaries, nor any
of their respective directors, officers, stockholders, employees, agents or any
other person acting on behalf of the Company or any of the Subsidiaries has,
directly or indirectly, given or agreed to give any money, gift or similar
benefit (other than legal price concessions to customers in the ordinary course
of business) to any customer, supplier, employee or agent of a customer or
supplier, or any official or employee of any governmental agency or
instrumentality of any government (domestic or foreign) or instrumentality of
any government (domestic or foreign) or any political party or candidate for
office (domestic or foreign) or any other person who was, is or may be in a
position to help or hinder the business of the Company or any of the
Subsidiaries (or assist the Company or any of the Subsidiaries in connection
with any actual or proposed transaction) which (i) might subject the Company or
any of the Subsidiaries or any other such person to any damage or penalty in any
civil, criminal or governmental litigation or proceeding (domestic or foreign),
(ii) if not given in the past, might have had a material and adverse effect on
the condition, financial or otherwise, or the earnings, business affairs,
prospects, stockholders' equity, value, operations, properties, business or
results of operations of the Company or any of the Subsidiaries, or (iii) if not
continued in the future, might materially and adversely affect the condition,
financial or otherwise, or the earnings, business affairs, prospects,
stockholders' equity, value, operations, properties, business or results of
operations of the Company or any of the Subsidiaries. Each of the Company's and
the Subsidiaries' internal accounting controls are sufficient to cause the
Company and the Subsidiaries to comply with the Foreign Corrupt Practices Act of
1977, as amended.
(aa) The Company confirms as of the date hereof that each of
the Company and its Subsidiaries is in compliance with all provisions of Section
1 of Laws of Florida, Chapter 92- 198, An Act Relating to Disclosure of Doing
Business with Cuba, and the Company further agrees that if it or any affiliate
commences engaging in business with the government of Cuba or with any person or
affiliate located in Cuba after the date the Registration Statement becomes or
has become effective with the Commission or with the Florida Department of
Banking and Finance (the "Department"), whichever date is later, or if the
information reported or incorporated by reference in the Prospectus, if any,
concerning the Company's, or any affiliate's, business with Cuba or with any
person or affiliate located in Cuba changes in any material way, the Company
will provide the Department notice of such business or change, as appropriate,
in a form acceptable to the Department.
(bb) Except as set forth in the Prospectus, no officer,
director or stockholder of the Company, or any of the Subsidiaries and no
affiliate or associate (as these terms are defined in the Rules and Regulations)
of any of the foregoing persons or entities, has or has had, either directly or
indirectly, (i) an interest in any person or entity which (A) furnishes or sells
services or products which are furnished or sold or are proposed to be furnished
or sold by the Company or any of the Subsidiaries, or (B) purchases from or
sells or furnishes to the Company or any of the Subsidiaries any goods or
services, or (ii) a beneficial interest in any contract or agreement to which
the Company is a party or by which the Company or any of the Subsidiaries
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may be bound. Except as set forth in the Prospectus under "Certain
Transactions," there are no existing agreements, arrangements, understandings or
transactions, or proposed agreements, arrangements, understandings or
transactions, between or among the Company or any of the Subsidiaries and any
officer, director or any person listed in the "Principal Stockholders" section
of the Prospectus or any affiliate or associate of any of the foregoing persons
or entities.
(cc) The minute books of the Company and the Subsidiaries have
been made available to the Representative, contain a complete summary of all
meetings and actions of the directors and stockholders of the Company and the
Subsidiaries since the time of their respective incorporation, and reflect all
transactions referred to in such minutes accurately in all respects.
(dd) Except and to the extent described in the Prospectus, no
holder of any securities of the Company or of any options, warrants or other
convertible or exchangeable securities of the Company has the right to include
any securities issued by the Company in the Registration Statement or any
registration statement to be filed by the Company or to require the Company to
file a registration statement. Except as set forth in the Prospectus, no person
or entity holds any anti-dilution rights with respect to any securities of the
Company.
(ee) Any certificate signed by any officer of the Company and
delivered to the Representative or to Underwriters' Counsel (as defined in
Section 4(d) herein), shall be deemed a representation and warranty by the
Company to the Representative as to the matters covered thereby.
(ff) The Company has entered into a warrant agreement,
substantially in the form filed as Exhibit ___ to the Registration Statement
(the "Warrant Agreement"), with OTR Stock Transfer Company, in form and
substance satisfactory to the Representative, with respect to the Redeemable
Warrants and providing for the payment of warrant solicitation fees contemplated
by Section 4(x) hereof. The Warrant Agreement has been duly and validly
authorized by the Company and, assuming due execution by the parties thereto
other than the Company, constitutes a valid and legally binding agreement of the
Company, enforceable against the Company in accordance with its terms (except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to or
affecting the enforcement of creditors' rights and the application of equitable
principles in any action, legal or equitable, and except as obligations to
indemnify or contribute to losses may be limited by applicable law).
(gg) The Company has entered into a financial advisory and
consulting agreement substantially in the form filed as Exhibit ____ to the
Registration Statement (the "Consulting Agreement") with the Representative,
with respect to the rendering of consulting services by the Representative to
the Company. The Consulting Agreement provides that the Representative shall be
retained by the Company commencing on the consummation of the proposed public
offering and ending 24 months thereafter, at a monthly retainer of $2,000, all
of which is payable on consummation of the proposed public offering. The
Consulting Agreement has been duly and validly authorized by the Company and
assuming due execution by the parties thereto other than the Company,
constitutes a valid and legally binding agreement of the Company, enforceable
against the Company in accordance with its terms (except as such
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<PAGE>
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to or
affecting enforcement of creditors' rights and the application of equitable
principles in any action, legal or equitable, and except as rights to indemnity
or contribution may be limited by applicable law).
(hh) The Company has filed a Form 8-A with the Commission
providing for the registration under the Exchange Act of the Securities and such
Form 8-A has been declared effective by the Commission.
(ii) Each outstanding warrant being converted into a
Redeemable Warrant (each a "Selling Securityholder Warrant") has been
automatically converted into a Redeemable Warrant without any action by the
holder thereof and all of such Redeemable Warrants, as converted and the Selling
Securityholder Shares, have been registered in the Registration Statement.
2. Purchase, Sale and Delivery of the Securities.
(a) On the basis of the representations, warranties, covenants
and agreements herein contained, but subject to the terms and conditions herein
set forth, the Company agrees to sell to the Underwriters, and the Underwriters
agree to purchase from the Company, the Firm Units at a price equal to $____ per
Unit [90% of the initial public offering price].
(b) In addition, on the basis of the representations,
warranties, covenants and agreement, herein contained, but subject to the terms
and conditions herein set forth, the Company hereby grants an option to the
Underwriters to purchase all or any part of the Option Units at a price equal to
$________ per Unit [90% of the initial public offering price]. The option
granted hereby will expire forty-five (45) days after (i) the date the
Registration Statement becomes effective, if the Company has elected not to rely
on Rule 430A under the Rules and Regulations, or (ii) the date of this Agreement
if the Company has elected to rely upon Rule 430A under the Rules and
Regulations, and may be exercised in whole or in part from time to time only for
the purpose of covering over-allotments which may be made in connection with the
offering and distribution of the Firm Units upon notice by the Representative to
the Company setting forth the number of Option Units as to which the
Representative is then exercising the option and the time and date of payment
and delivery for any such Option Units. Any such time and date of delivery (an
"Option Closing Date") shall be determined by the Representative, but shall not
be later than seven (7) full business days after the exercise of said option,
nor in any event prior to the Closing Date, unless otherwise agreed upon by the
Representative and the Company. Nothing herein contained shall obligate the
Representative to exercise the option granted hereby. No Option Units shall be
delivered unless the Firm Units shall be simultaneously delivered or shall
theretofore have been delivered as herein provided.
(c) Payment of the purchase price for, and delivery of
certificates for, the Firm Units shall be made at the offices of the
Representative at 33 Maiden Lane, New York, New York 10038, or at such other
place as shall be agreed upon by the Representative and the Company. Such
delivery and payment shall be made at 10:00 a.m. (New York City time) on
_________, 1996 or at such other time and date as shall be agreed upon by the
Representative
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and the Company, but not less than three (3) nor more than seven (7) full
business days after the effective date of the Registration Statement (such time
and date of payment and delivery being herein called the "Closing Date"). In
addition, in the event that any or all of the Option Units are purchased by the
Representative, payment of the purchase price for, and delivery of certificates
for, such Option Units shall be made at the above mentioned office of the
Representative or at such other place as shall be agreed upon by the
Representative and the Company. Delivery of the certificates for the Firm Units
and the Option Units, if any, shall be made to the Representative against
payment by the Representative of the purchase price for the Firm Units and the
Option Units, if any, to the order of the Company by New York Clearing House
funds. Certificates for the Firm Units and the Option Units, if any, shall be in
definitive, fully registered form, shall bear no restrictive legends and shall
be in such denominations and registered in such names as the Representative may
request in writing at least two (2) business days prior to the Closing Date or
the relevant Option Closing Date, as the case may be. The certificates for the
Firm Units and the Option Units, if any, shall be made available to the
Representative at such offices or such other place as the Representative may
designate for inspection, checking and packaging no later than 9:30 a.m. on the
last business day prior to the Closing Date or the relevant Option Closing Date,
as the case may be.
(d) On the Closing Date, the Company shall issue and sell to
the Representative or its designees the Representative's Warrants for an
aggregate purchase price of $.0001 per warrant, which warrants shall entitle the
holders thereof to purchase an aggregate of an additional 200,000 Units. The
Representative's Warrants shall be exercisable for a period of four (4) years
commencing one (1) year from the effective date of the Registration Statement at
a price equaling one hundred and twenty percent (120%) of the initial public
offering price of the Units. The Representative's Warrant Agreement and the form
of the certificates for the Representative's Warrant shall be substantially in
the form filed as Exhibit ____ to the Registration Statement. Payment for the
Representative's Warrants shall be made on the Closing Date.
3. Public Offering of the Units. As soon after the
Registration Statement becomes effective as the Representative deems advisable,
the Underwriters shall make a public offering of the Firm Units and such of the
Option Units as the Representative may determine (other than to residents of or
in any jurisdiction in which qualification of the Units is required and has not
become effective) at the price and upon the other terms set forth in the
Prospectus. The Representative may from time to time increase or decrease the
public offering price after distribution of the Units has been completed to such
extent as the Representative, in its sole discretion, deems advisable. The
Representative may enter into one or more agreements as the Representative, in
its sole discretion, deems advisable with one or more broker-dealers who shall
act as dealers in connection with such public offering.
4. Covenants and Agreements of the Company. The Company
covenants and agrees with the Underwriters as follows:
(a) The Company shall use its best efforts to cause the
Registration Statement and any amendments thereto to become effective as
promptly as practicable and will not at any time, whether before or after the
effective date of the Registration Statement, file any
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<PAGE>
amendment to the Registration Statement or supplement to the Prospectus or file
any document under the Act or the Exchange Act before termination of the
offering of the Securities to the public by the Underwriters of which the
Representative shall not previously have been advised and furnished with a copy,
or to which the Representative shall have objected or which is not in compliance
with the Act, the Exchange Act and the Rules and Regulations.
(b) As soon as the Company is advised or obtains knowledge
thereof, the Company will advise the Representative and confirm the same in
writing, (i) when the Registration Statement, as amended, becomes effective,
when any post-effective amendment to the Registration Statement becomes
effective and, if the provisions of Rule 430A promulgated under the Act will be
relied upon, when the Prospectus has been filed in accordance with said Rule
430A, (ii) of the issuance by the Commission of any stop order or of the
initiation, or the threatening, of any proceeding the outcome of which may
result in the suspension of the effectiveness of the Registration Statement or
any order preventing or suspending the use of the Preliminary Prospectus or the
Prospectus, or any amendment or supplement thereto, or the institution of any
proceedings for that purpose, (iii) of the issuance by the Commission or by any
state securities commission of any proceedings for the suspension of the
qualification of any of the Securities for offering or sale in any jurisdiction
or of the initiation, or the threatening, of any proceeding for that purpose,
(iv) of the receipt of any comments from the Commission, and (v) of any request
by the Commission for any amendment to the Registration Statement or any
amendment or supplement to the Prospectus or for additional information. If the
Commission or any state securities regulatory authority shall enter a stop order
or suspend such qualification at any time, the Company will make every effort to
obtain promptly the lifting of such order.
(c) The Company shall file the Prospectus (in form and
substance satisfactory to the Representative) with the Commission, or transmit
the Prospectus by a means reasonably calculated to result in filing the same
with the Commission, pursuant to Rule 424(b)(1) of the Rules and Regulations
(or, if applicable and if consented to by the Representative, pursuant to Rule
424(b)(4) of the Rules and Regulations) within the time period specified in Rule
424(b)(1) (or, if applicable and if consented to by the Representative, Rule
424(b)(4)).
(d) The Company will give the Representative notice of its
intention to file or prepare any amendment to the Registration Statement
(including any post-effective amendment) or any amendment or supplement to the
Prospectus (including any revised prospectus which the Company proposes for use
in connection with the offering of any of the Securities which differs from the
corresponding prospectus on file at the Commission at the time the Registration
Statement becomes effective, whether or not such revised prospectus is required
to be filed pursuant to Rule 424(b) of the Rules and Regulations), and will
furnish the Representative with copies of any such amendment or supplement a
reasonable amount of time prior to such proposed filing or use, as the case may
be, and will not file any such amendment or supplement to which the
Representative or Orrick, Herrington & Sutcliffe, its counsel ("Underwriters'
Counsel"), shall object.
(e) The Company shall endeavor in good faith, in cooperation
with the Representative, at or prior to the time the Registration Statement
becomes effective, to qualify the Securities for offering and sale under the
securities laws of such jurisdictions as the
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Representative may reasonably designate to permit the continuance of sales and
dealings therein for as long as may be necessary to complete the distribution
contemplated hereby, and shall make such applications, file such documents and
furnish such information as may be required for such purpose; provided, however,
the Company shall not be required to qualify as a foreign corporation or file a
general or limited consent to service of process in any such jurisdiction. In
each jurisdiction where such qualification shall be effected, the Company will,
unless the Representative agrees that such action is not at the time necessary
or advisable, use all reasonable efforts to file and make such statements or
reports at such times as are or may reasonably be required by the laws of such
jurisdiction to continue such qualification.
(f) During the time when a prospectus is required to be
delivered under the Act, the Company shall use all reasonable efforts to comply
with all requirements imposed upon it by the Act, the Exchange Act and the Rules
and Regulations so far as necessary to permit the continuance of sales of or
dealings in the Securities in accordance with the provisions hereof and the
Prospectus, or any amendments or supplements thereto. If, at any time when a
prospectus relating to the Securities is required to be delivered under the Act,
any event shall have occurred as a result of which, in the opinion of counsel
for the Company or Underwriters' Counsel, the Prospectus, as then amended or
supplemented, includes an untrue statement of a material fact or omits to state
a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances in which they were made,
not misleading, or if it is necessary at any time to amend or supplement the
prospectus to comply with the Act, the Company will notify the Representative
promptly and prepare and file with the Commission an appropriate amendment or
supplement in accordance with Section 10 of the Act, each such amendment or
supplement to be satisfactory to Underwriters' Counsel, and the Company will
furnish to the Representative copies of such amendment or supplement as soon as
available and in such quantities as the Representative may request.
(g) As soon as practicable, but in any event not later than
forty five (45) days after the end of the 12-month period beginning on the day
after the end of the fiscal quarter of the Company during which the effective
date of the Registration Statement occurs (ninety (90) days in the event that
the end of such fiscal quarter is the end of the Company's fiscal year), the
Company shall make generally available to its security holders, in the manner
specified in Rule 158(b) of the Rules and Regulations, and to the
Representative, an earnings statement which will be in the detail required by,
and will otherwise comply with, the provisions of Section 11(a) of the Act and
Rule 158(a) of the Rules and Regulations, which statement need not be audited
unless required by the Act, covering a period of at least twelve (12)
consecutive months after the effective date of the Registration Statement.
(h) During a period of seven (7) years after the date hereof,
the Company will furnish to its stockholders, as soon as practicable, annual
reports (including financial statements audited by independent public
accountants) and unaudited quarterly reports of earnings and will deliver to the
Representative:
i) concurrently with furnishing such quarterly reports
to its stockholders statements of income of the Company for
such quarter in the form
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<PAGE>
furnished to the Company's stockholders and certified by the
Company's principal financial and accounting officer;
ii) concurrently with furnishing such annual reports
to its stockholders, a balance sheet of the Company as at the
end of the preceding fiscal year, together with statements of
operations, stockholders' equity and cash flows of the Company
for such fiscal year, accompanied by a copy of the report
thereon of the Company's independent certified public
accountants;
iii) as soon as they are available, copies of all
reports (financial or other) mailed to stockholders;
iv) as soon as they are available, copies of all
reports and financial statements furnished to or filed with
the Commission, the NASD or any securities exchange;
v) every press release and every material news item or
article of interest to the financial community in respect of
the Company or its affairs which was released or prepared by
or on behalf of the Company; and
vi) any additional information of a public nature
concerning the Company (and any future subsidiaries) or its
business which the Representative may request.
During such seven-year period, if the Company has active subsidiaries,
the foregoing financial statements will be on a consolidated basis to the extent
that the accounts of the Company and its subsidiaries are consolidated, and will
be accompanied by similar financial statements for any significant subsidiary
which is not so consolidated.
(i) The Company will maintain a transfer and warrant agent
and, if necessary under the jurisdiction of incorporation of the Company, a
registrar (which may be the same entity as the transfer agent) for the Units,
the Common Stock and the Redeemable Warrants.
(j) The Company will furnish to the Representative, without
charge and at such place as the Representative may designate, copies of each
Preliminary Prospectus, the Registration Statement and any pre-effective or
post-effective amendments thereto (one of which will be signed and will include
all financial statements and exhibits), the Prospectus, and all amendments and
supplements thereto, including any prospectus prepared after the effective date
of the Registration Statement, in each case as soon as available and in such
quantities as the Representative may request.
(k) On or before the effective date of the Registration
Statement, the Company shall provide the Representative with originally-executed
copies of duly executed, legally binding and enforceable Lock-Up Agreements
which are in form and substance satisfactory to the Representative. On or before
the Closing Date, the Company shall deliver instructions to its transfer agent
authorizing such transfer agent to place appropriate legends on the certificates
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<PAGE>
representing the securities of the Company subject to the Lock-Up Agreements and
to place appropriate stop transfer orders on the Company's ledgers.
(l) The Company agrees that, for a period of eighteen (18)
months commencing on the effective date of the Registration Statement, and
except as contemplated by this Agreement, it and its present and future
subsidiaries will not, without the prior written consent of the Representative
(i) issue, sell, contract or offer to sell, grant an option for the purchase or
sale of, assign, transfer, pledge, distribute or otherwise dispose of, directly
or indirectly, any shares of capital stock or any option, right or warrant with
respect to any shares of capital stock or any security convertible, exchangeable
or exercisable for capital stock, except pursuant to stock options or warrants
issued by the Company or any other person or entity on the date hereof, or (ii)
file any registration statement for the offer or sale by the Company or any
other person or entity securities issued or to be issued by the Company or any
present or future subsidiaries.
(m) Neither the Company nor any of the Subsidiaries nor any of
their respective officers, directors, stockholders or affiliates (within the
meaning of the Rules and Regulations) will take, directly or indirectly, any
action designed to stabilize or manipulate the price of any securities of the
Company, or which might in the future reasonably be expected to cause or result
in the stabilization or manipulation of the price of any such securities.
(n) The Company shall apply the net proceeds from the sale of
the Securities offered to the public in the manner set forth under "Use of
Proceeds" in the Prospectus. No portion of the net proceeds will be used,
directly or indirectly, to acquire any securities issued by the Company.
(o) The Company shall timely file all such reports, forms or
other documents as may be required (including, but not limited to, any Form SR
required by Rule 463 under the Act) from time to time under the Act, the
Exchange Act, and the Rules and Regulations, and all such reports, forms and
documents will comply as to form and substance with the applicable requirements
under the Act, the Exchange Act and the Rules and Regulations.
(p) The Company shall furnish to the Representative as early
as practicable prior to each of the date hereof, the Closing Date and each
Option Closing Date, if any, but no later than two (2) full business days prior
thereto, a copy of the latest available unaudited interim financial statements
of the Company (which in no event shall be as of a date more than thirty (30)
days prior to the date hereof, the Closing Date or the relevant Option Closing
Date, as the case may be) which have been read by the Company's independent
public accountants, as stated in their letters to be furnished pursuant to
Section 6(j) hereof.
(q) The Company shall cause the Units, the Common Stock and
the Redeemable Warrants to be quoted on Nasdaq and listed on the Boston Stock
Exchange and, for a period of seven (7) years from the date hereof, use its best
efforts to maintain the Nasdaq quotation and the Boston Stock Exchange listing
of the Units, the Common Stock and the Redeemable Warrants to the extent
outstanding.
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<PAGE>
(r) For a period of five (5) years from the Closing Date, the
Company shall at the request of the Representative, furnish or cause to be
furnished to the Representative and at the Company's sole expense, (i) daily
consolidated transfer sheets relating to the Units, the Common Stock and the
Redeemable Warrants and (ii) a list of holders of all of the Company's
securities.
(s) For a period of five (5) years from the Closing Date, the
Company shall, at the Company's sole expense, (i) promptly provide the
Representative, upon any and all requests of the Representative, with a "blue
sky trading survey" for secondary sales of the Company's securities, prepared by
counsel to the Company, and (ii) take all necessary and appropriate actions to
further qualify the Company's securities in all jurisdictions of the United
States in order to permit secondary sales of such securities pursuant to the
"blue sky" laws of those jurisdictions, provided that such jurisdictions do not
require the Company to qualify as a foreign corporation.
(t) As soon as practicable, but in no event more than thirty
(30) days after the effective date of the Registration Statement, the Company
agrees to take all necessary and appropriate actions to be included in Standard
and Poor's Corporation Descriptions and Moody's OTC Manual and to continue such
inclusion for a period of not less than seven (7) years.
(u) Without the prior written consent of the Representative,
the Company hereby agrees that it will not, for a period of eighteen (18) months
from the effective date of the Registration Statement, (i) adopt, propose to
adopt or otherwise permit to exist any employee, officer, director, consultant
or compensation plan or arrangement permitting the grant, issue, sale or entry
into any agreement to grant, issue or sell any option, warrant or other contract
right (x) at an exercise price that is less than the greater of fifty (50%) of
the initial public offering price of the Units set forth herein and the fair
market value per share of Common Stock on the date of grant or sale or (y) to
any of its executive officers or directors or to any holder of five percent (5%)
or more of the Common Stock or any holder of five percent (5%) or more of the
Common Stock as the result of the exercise or conversion of equivalent
securities, including, but not limited to options, warrants or other contract
rights and securities convertible, directly or indirectly, into shares of Common
Stock or any affiliate of the foregoing; (ii) permit the maximum number of
shares of Common Stock or other securities of the Company purchasable at any
time pursuant to options, warrants or other contract rights to exceed [________]
shares of Common Stock, excluding the Representative's Warrants and the
Redeemable Warrants; (iii) permit the existence of stock appreciation rights,
phantom options or similar arrangements; or (iv) permit the payment for such
securities with any form of consideration other than cash.
(v) Until the completion of the distribution of the Units to
the public, and during any period during which a prospectus is required to be
delivered, the Company shall not, without the prior written consent of the
Representative, issue, directly or indirectly, any press release or other
communication or hold any press conference with respect to the Company or its
activities or the offering contemplated hereby, other than trade releases issued
in the ordinary course of the Company's business consistent with past practices
with respect to the Company's operations.
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<PAGE>
(w) For a period of five (5) years after the effective date of
the Registration Statement, the Company shall cause one (1) individual selected
by the Representative, subject to the good faith approval of the Company, to be
elected to the Board of Directors of the Company (the "Board"), if requested by
the Representative. In the event the Representative shall not have designated
such individual at the time of any meeting of the Board or such person has not
been elected or is unavailable to serve, the Company shall notify the
Representative of each meeting of the Board. An individual selected by the
Representative shall be permitted to attend all meetings of the Board and to
receive all notices and other correspondence and communications sent by the
Company to members of the Board. The Company shall reimburse the
Representative's designee for his or her out-of-pocket expenses reasonably
incurred in connection with his or her attendance of the Board meetings.
(x) Commencing one year from the date hereof, to pay the
Representative a warrant solicitation fee equal to five percent (5%) of the
exercise price of the Redeemable Warrants, payable on the date of the exercise
thereof on terms provided in the Warrant Agreement. The Company will not solicit
the exercise of the Redeemable Warrants through any solicitation agent other
than the Representative. The Representative will not be entitled to any warrant
solicitation fee unless the Representative provides bona fide services in
connection with any warrant solicitation and the investor designates, in
writing, that the Representative is entitled to such fee.
(y) For a period equal to the lesser of (i) seven (7) years
from the date hereof, and (ii) the sale to the public of the Representative's
Securities, the Company will not take any action or actions which may prevent or
disqualify the Company's use of Form SB-2 or S-1 (or other appropriate form) for
the registration under the Act of the Representative's Securities.
(z) For a period of twenty four (24) months after the
effective date of the Registration Statement, the Company shall not restate,
amend or alter any term of any written employment, consulting or similar
agreement entered into between the Company and any officer, director or key
employee as of the effective date of the Registration Statement in a manner
which is more favorable to such officer, director or key employee, without the
prior written consent of the Representative.
(aa) The Company will use its best efforts to maintain the
effectiveness of the Registration Statement for a period of five years after the
date hereof.
(bb) The Company agrees that, for a period of three (3) years
beginning with the effective date of the Registration Statement, JSLP shall have
a right of first refusal for all sales of any securities made by the Company or
any of its present or future affiliates or subsidiaries.
(cc) The Company agrees for a period commencing on the date
hereof and ending 18 months after the effective date of the Registration
Statement (i) to pay all cumulative quarterly dividends payable with respect to
the Company's Series A 8-1/2% Convertible Preferred Stock in cash unless (A) the
Company has obtained the prior written consent of the Representative to pay such
dividend in Common Stock or (B) on the date such quarterly
20
<PAGE>
dividends are declared, the Company would not be legally able to pay such
dividends in cash, and (ii) to obtain the written consent of the Representative
prior to amending, modifying or supplementing the terms of the Series A 8-1/2%
Convertible Preferred Stock of the Company.
5. Payment of Expenses.
(a) The Company hereby agrees to pay (such payment to be made,
at the discretion of the Representative, on the Closing Date and any Option
Closing Date (to the extent not paid on the Closing Date or a previous Option
Closing Date)) all expenses and fees (other than fees of Underwriters' Counsel)
incident to the performance of the obligations of the Company under this
Agreement, the Representative's Warrant Agreement and the Warrant Agreement,
including, without limitation, (i) the fees and expenses of accountants and
counsel for the Company, (ii) all costs and expenses incurred in connection with
the preparation, duplication, printing, (including mailing and handling charges)
filing, delivery and mailing (including the payment of postage, overnight
delivery or courier charges with respect thereto) of the Registration Statement
and the Prospectus and any amendments and supplements thereto and the printing,
mailing (including the payment of postage, overnight delivery or courier charges
with respect thereto) and delivery of this Agreement, the Representative's
Warrant Agreement, the Warrant Agreement, and agreements with selected dealers,
and related documents, including the cost of all copies thereof and of each
Preliminary Prospectus and of the Prospectus and any amendments thereof or
supplements thereto supplied to the Representative and such dealers as the
Representative may request, in such quantities as the Representative may
request, (iii) the printing, engraving, issuance and delivery of the Securities,
(iv) the qualification of the Securities under state or foreign securities or
"blue sky" laws and determination of the status of such securities under legal
investment laws, including the costs of printing and mailing the "Preliminary
Blue Sky Memorandum," the "Supplemental Blue Sky Memorandum" and "Legal
Investments Survey," if any, and disbursements and fees of counsel in connection
therewith, (v) advertising costs and expenses, including, but not limited to
costs and expenses in connection with "road shows," information meetings and
presentations, bound volumes and prospectus memorabilia and "tombstone"
advertisement expenses, (vi) costs and expenses in connection with due diligence
investigations, including, but not limited to, the fees of any independent
counsel or consultants, (vii) fees and expenses of a transfer and warrant agent
and registrar for the Securities, (viii) applications for assignments of a
rating of the Securities by qualified rating agencies, (ix) the fees payable to
the Commission and the NASD, and (x) the fees and expenses incurred in
connection with the quotation of the Securities on Nasdaq and listing on the
Boston Stock Exchange and any other exchange.
(b) If this Agreement is terminated by the Representative in
accordance with the provisions of Section 6, Section 10(a) or Section 11 hereof,
the Company shall reimburse and indemnify the Representative for all of its
actual out-of-pocket expenses, including the fees and disbursements of
Underwriters' Counsel, less any amounts already paid pursuant to Section 5(c)
hereof.
(c) The Company further agrees that, in addition to the
expenses payable pursuant to Section 5(a) hereof, it will pay to the
Representative on the Closing Date by certified or bank cashier's check, or, at
the election of the Representative, by deduction from the
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<PAGE>
proceeds of the offering of the Firm Units, a non-accountable expense allowance
equal to three percent (3%) of the gross proceeds received by the Company from
the sale of the Firm Units, twenty-five thousand dollars ($25,000) of which has
been paid to date by the Company. In the event the Representative elects to
exercise the overallotment option described in Section 2(b) hereof, the Company
further agrees to pay to the Representative on each Option Closing Date, by
certified or bank cashier's check, or, at the Representative's election, by
deduction from the proceeds of the Option Units purchased on such Option Closing
Date, a non-accountable expense allowance equal to three percent (3%) of the
gross proceeds received by the Company from the sale of such Option Units.
6. Conditions of the Underwriters' Obligations. The
obligations of the Underwriters hereunder shall be subject to the continuing
accuracy of the representations and warranties of the Company herein as of the
date hereof and as of the Closing Date and each Option Closing Date, if any, as
if they had been made on and as of the Closing Date and each Option Closing
Date, as the case may be; the accuracy on and as of the Closing Date and each
Option Closing Date, if any, of the statements of officers of the Company made
pursuant to the provisions hereof; the performance by the Company on and as of
the Closing Date and each Option Closing Date, if any, of its covenants and
obligations hereunder; and to the following further conditions:
(a) The Registration Statement shall have become effective not
later than 12:00 p.m., New York time, on the date of this Agreement or such
later date and time as shall be consented to in writing by the Representative,
and, at the Closing Date and each Option Closing Date, if any, no stop order
suspending the effectiveness of the Registration Statement shall have been
issued and no proceedings for that purpose shall have been instituted or shall
be pending or contemplated by the Commission and any request on the part of the
Commission for additional information shall have been complied with to the
reasonable satisfaction of Underwriters' Counsel. If the Company has elected to
rely upon Rule 430A of the Rules and Regulations, the price of the Units and any
price-related information previously omitted from the effective Registration
Statement pursuant to such Rule 430A shall have been transmitted to the
Commission for filing pursuant to Rule 424(b) of the Rules and Regulations
within the prescribed time period, and prior to the Closing Date the Company
shall have provided evidence satisfactory to the Representative of such timely
filing, or a post-effective amendment providing such information shall have been
promptly filed and declared effective in accordance with the requirements of
Rule 430A of the Rules and Regulations.
(b) The Representative shall not have advised the Company that
the Registration Statement, or any amendment thereto, contains an untrue
statement of fact which, in the Representative's opinion, is material, or omits
to state a fact which, in the Representative's opinion, is material and is
required to be stated therein or is necessary to make the statements therein, in
light of the circumstances in which they were made not misleading, or that the
Prospectus, or any supplement thereto, contains an untrue statement of fact
which, in the Representative's opinion, is material, or omits to state a fact
which, in the Representative's opinion, is material and is required to be stated
therein or is necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading.
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<PAGE>
(c) On or prior to the Closing Date, the Representative shall
have received from Underwriters' Counsel such opinion or opinions with respect
to the organization of the Company, the validity of the Securities, the
Registration Statement, the Prospectus and such other related matters as the
Representative may request and Underwriters' Counsel shall have received such
papers and information as they may request in order to enable them to pass upon
such matters.
(d) On the Closing Date, the Underwriters shall have received
the favorable opinion of Maloney, Gerra, Mehlman & Katz, counsel to the Company,
dated the Closing Date, addressed to the Underwriters, in form and substance
satisfactory to Underwriters' Counsel, to the effect that:
[Need to indicate which opinions will be opined to by Dempsey &
Johnson in Section 6(e) hereof]
i) each of the Company and the Subsidiaries (A) has
been duly organized and is validly existing as a corporation
in good standing under the laws of its jurisdiction of
incorporation, (B) is duly qualified and licensed and in good
standing as a foreign corporation in each jurisdiction in
which its ownership or leasing of any properties or the
character of its operations requires such qualification or
licensing, and (C) has all requisite power and authority
(corporate and other) and has obtained any and all necessary
authorizations, approvals, orders, licenses, certificates,
franchises and permits of and from all governmental or
regulatory officials and bodies (including, without
limitation, those having jurisdiction over environmental or
similar matters), to own or lease its properties and conduct
its business as described in the Prospectus; each of the
Company and the Subsidiaries is and has been doing business in
compliance with all such authorizations, approvals, orders,
licenses, certificates, franchises and permits obtained by it
from governmental or regulatory officials and agencies and all
federal, state, local and foreign laws, rules and regulations
to which it is subject; and, none of the Company nor any of
the Subsidiaries has received any notice of proceedings
relating to the revocation or modification of any such
authorization, approval, order, license, certificate,
franchise or permit which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would
materially and adversely affect the condition, financial or
otherwise, or the earnings, prospects, stockholders' equity,
value, operations, properties, business or results of
operations of the Company or the Subsidiaries. The disclosure
in the Registration Statement concerning the effects of
federal, state, local and foreign laws, rules and regulations
on the Company's and the Subsidiaries' business as currently
conducted and as contemplated are correct in all respects and
do not omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light
of the circumstances in which they were made, not misleading;
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<PAGE>
ii) none of the Company nor the Subsidiaries own,
directly or indirectly, an interest in any corporation,
partnership, joint venture, trust or other business entity
except for the Subsidiaries;
iii) the Company has a duly authorized, issued and
outstanding capitalization as set forth in the Prospectus
under "Capitalization" and except as set forth in the
Prospectus, none of the Company or any of the Subsidiaries is
not a party to or bound by any instrument, agreement or other
arrangement providing for it to issue any capital stock,
rights, warrants, options or other securities, except for this
Agreement, the Representative's Warrant Agreement and the
Warrant Agreement and as described in the Prospectus. The
Securities and all other securities issued or issuable by the
Company conform, or when issued and paid for, will conform, in
all respects to the descriptions thereof contained in the
Registration Statement and the Prospectus. All issued and
outstanding securities of the Company and the Subsidiaries
have been duly authorized and validly issued and are fully
paid and non-assessable; the holders thereof have no rights of
rescission with respect thereto and are not subject to
personal liability by reason of being such holders; and none
of such securities were issued in violation of the preemptive
rights of any holders of any security of the Company or any of
the Subsidiaries or any similar contractual right granted by
the Company or any of the Subsidiaries. The Securities to be
sold by the Company hereunder and under the Representative's
Warrant Agreement and the Warrant Agreement are not and will
not be subject to any preemptive or other similar rights of
any stockholder, have been duly authorized and, when issued,
paid for and delivered in accordance with the terms hereof and
thereof, will be validly issued, fully paid and non-assessable
and conform to the descriptions thereof contained in the
Prospectus; the holders thereof will not be subject to any
liability solely as such holders; all corporate action
required to be taken for the authorization, issue and sale of
the Securities has been duly and validly taken; and the
certificates representing the Securities are in due and proper
form. The Representative's Warrants constitute valid and
binding obligations of the Company to issue and sell, upon
exercise thereof and payment therefor, the number and type of
securities of the Company called for thereby. Upon the
issuance and delivery pursuant to this Agreement, the
Representative's Warrant Agreement and the Warrant Agreement
of the Securities to be sold by the Company hereunder and
thereunder, the Representative will acquire good and
marketable title to such Securities, free and clear of any
lien, charge, claim, encumbrance, pledge, security interest,
defect or other restriction or equity of any kind whatsoever
asserted against the Company or any affiliate (within the
meaning of the Rules and Regulations) of the Company. No
transfer tax is payable by or on behalf of the Underwriters in
connection with (A) the issuance by the Company of the
Securities, (B) the purchase by the Underwriters of the
Securities from the Company, (C) the consummation by the
Company of any of its obligations under this Agreement, the
Representative's Warrant Agreement or the Warrant Agreement,
or (D) resales of the Securities in connection with the
distribution contemplated hereby;
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<PAGE>
iv) the Registration Statement is effective under the
Act, and, if applicable, filing of all pricing information has
been timely made in the appropriate form under Rule 430A, and
no stop order suspending the use of the Preliminary
Prospectus, the Registration Statement or the Prospectus or
any part of any thereof or suspending the effectiveness of the
Registration Statement has been issued and no proceedings for
that purpose have been instituted or are pending, threatened
or contemplated under the Act;
v) each of the Preliminary Prospectus, the
Registration Statement, and the Prospectus and any amendments
or supplements thereto (other than the financial statements
and schedules and other financial and statistical data
included therein, as to which no opinion need be rendered)
comply as to form in all material respects with the
requirements of the Act and the Rules and Regulations;
vi) to such counsel's knowledge, (A) there are no
agreements, contracts or other documents required by the Act
to be described in the Registration Statement and the
Prospectus or required to be filed as exhibits to the
Registration Statement (or required to be filed under the
Exchange Act if upon such filing they would be incorporated,
in whole or in part, by reference therein) other than those
described in the Registration Statement and the Prospectus and
filed as exhibits thereto, and the exhibits which have been
filed are correct copies of the documents of which they
purport to be copies; (B) the descriptions in the Registration
Statement and the Prospectus and any supplement or amendment
thereto of agreements, contracts and other documents to which
the Company or any of the Subsidiaries is a party or by which
the Company or any of the Subsidiaries is bound are accurate
and fairly represent the information required to be shown by
Form SB-2; (C) there is no action, suit, proceeding, inquiry,
arbitration, investigation, litigation or governmental
proceeding (including, without limitation, those pertaining to
environmental or similar matters), domestic or foreign,
pending or threatened against (or circumstances that may give
rise to the same), or involving the properties or business of,
the Company or any of the Subsidiaries which (I) is required
to be disclosed in the Registration Statement which is not so
disclosed (and such proceedings as are summarized in the
Registration Statement are accurately summarized in all
respects), or (II) questions the validity of the capital stock
of the Company or any of the Subsidiaries or of this
Agreement, the Representative's Warrant Agreement, the Warrant
Agreement or the Consulting Agreement or of any action taken
or to be taken by the Company pursuant to or in connection
with any of the foregoing; (D) no statute or regulation or
legal or governmental proceeding required to be described in
the Prospectus is not described as required; and (E) there is
no action, suit or proceeding pending or threatened against or
affecting the Company or any of the Subsidiaries before any
court, arbitrator or governmental body, agency or official (or
any basis thereof known to such counsel) in which there is a
reasonable possibility of an adverse decision which may result
in a material adverse change in the condition, financial or
otherwise, or the earnings, prospects, stockholders' equity,
value, operation, properties, business or results
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<PAGE>
of operations of the Company or any of the Subsidiaries taken
as a whole, which could adversely affect the present or
prospective ability of the Company to perform its obligations
under this Agreement, the Representative's Warrant Agreement,
the Warrant Agreement or the Consulting Agreement or which in
any manner draws into question the validity or enforceability
of this Agreement, the Representative's Warrant Agreement, the
Warrant Agreement or the Consulting Agreement;
vii) the Company has full legal right, power and
authority to enter into each of this Agreement, the
Representative's Warrant Agreement, the Warrant Agreement and
the Consulting Agreement and to consummate the transactions
provided for herein and therein; and each of this Agreement,
the Representative's Warrant Agreement, the Warrant Agreement
and the Consulting Agreement has been duly authorized,
executed and delivered by the Company. Each of this Agreement,
the Representative's Warrant Agreement, the Warrant Agreement
and the Consulting Agreement, assuming due authorization,
execution and delivery by each other party thereto,
constitutes a legal, valid and binding agreement of the
Company, enforceable against the Company in accordance with
its terms (except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium
or other laws of general application relating to or affecting
the enforcement of creditors' rights and the application of
equitable principles in any action, legal or equitable, and
except as obligations to indemnify or contribute to losses may
be limited by applicable law). None of the Company's execution
or delivery of this Agreement, the Representative's Warrant
Agreement, the Warrant Agreement or the Consulting Agreement,
its performance hereunder and thereunder, its consummation of
the transactions contemplated herein and therein, or the
conduct of the Company's or any of the Subsidiaries' business
as described in the Registration Statement and the Prospectus
and any amendments or supplements thereto, conflicts with or
will conflict with or results or will result in any breach or
violation of any of the terms or provisions of, or constitutes
or will constitute a default under, or result in the creation
or imposition of any lien, charge, claim, encumbrance, pledge,
security interest, defect or other restriction or equity of
any kind whatsoever upon, any property or assets (tangible or
intangible) of the Company or any of the Subsidiaries pursuant
to the terms of (A) the certificate of incorporation or
by-laws of the Company or any of the Subsidiaries, (B) any
license, contract, indenture, mortgage, lease, deed of trust,
voting trust agreement, stockholders' agreement, note, loan or
credit agreement or any other agreement or instrument
evidencing an obligation for borrowed money, or any other
agreement or instrument to which the Company is a party or by
which the Company or any of the Subsidiaries is or may be
bound or to which their respective properties or assets
(tangible or intangible) are or may be subject, (C) any
statute applicable to the Company or any of the Subsidiaries
or (D) any judgment, decree, order, rule or regulation
applicable to the Company or any of the Subsidiaries of any
arbitrator, court, regulatory body or administrative agency or
other governmental agency or body (including, without
limitation, those having jurisdiction over
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environmental or similar matters), domestic or foreign, having
jurisdiction over the Company or any of the Subsidiaries or
any of their respective activities or properties;
viii) no consent, approval, authorization or order of,
and no filing with, any arbitrator, court, regulatory body,
administrative agency, government agency or other body,
domestic or foreign (other than such as may be required under
"blue sky" laws, as to which no opinion need be rendered), is
required in connection with the issuance of the Securities
pursuant to the Prospectus, the Registration Statement, this
Agreement, the Representative's Warrant Agreement and the
Warrant Agreement, or the performance of this Agreement, the
Representative's Warrant Agreement, the Warrant Agreement and
the Consulting Agreement and the transactions contemplated
hereby and thereby;
ix) the properties and business of the Company and the
Subsidiaries conform to the description thereof contained in
the Registration Statement and the Prospectus; and the Company
and the Subsidiaries has good and marketable title to, or
valid and enforceable leasehold estates in, all items of real
and personal property stated in the Prospectus to be owned or
leased by it, in each case free and clear of all liens,
charges, claims, encumbrances, pledges, security interests,
defects or other restrictions or equities of any kind
whatsoever, other than those referred to in the Prospectus and
liens for taxes not yet due and payable;
x) none of the Company nor any of the Subsidiaries is
in breach of, or in default under, any term or provision of
any license, contract, indenture, mortgage, lease, deed of
trust, voting trust agreement, stockholders' agreement, note,
loan or credit agreement or any other agreement or instrument
evidencing an obligation for borrowed money, or any other
agreement or instrument to which the Company or any of the
Subsidiaries is a party or by which the Company or any of the
Subsidiaries is or may be bound or to which their respective
property or assets (tangible or intangible) are or may be
subject; and none of the Company or any of the Subsidiaries is
in violation of any term or provision of (A) its certificate
of incorporation or by-laws, (B) any authorization, approval,
order, license, certificate, franchise or permit of any
governmental or regulatory official or body, or (C) any
judgement, decree, order, statute, rule or regulation to which
it is subject;
xi) the statements in the Prospectus under "Prospectus
Summary," "Risk Factors," "The Company," "Recent Bridge
Financings," "Concurrent Offering," "Business," "Management,"
"Principal Stockholders," "Selling Securityholders," "Certain
Transactions," "Shares Eligible For Future Sale," and
"Description of Securities" have been reviewed by such
counsel, and insofar as they refer to statements of law,
descriptions of statutes, licenses, rules or regulations or
legal conclusions, are correct in all material respects;
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xii) the Units, the Common Stock and the Redeemable
Warrants have been accepted for quotation on Nasdaq and
listing on the Boston Stock Exchange;
xiii) each of the Company and the Subsidiaries owns or
possesses, free and clear of all liens or encumbrances and
right thereto or therein by third parties, the requisite
licenses or other rights to use all trademarks, service marks,
copyrights, service names, tradenames, patents, patent
applications and licenses necessary to conduct their
respective business (including without limitation any such
licenses or rights described in the Prospectus as being owned
or possessed by the Company or any of the Subsidiaries) and
there is no claim or action by any person pertaining to, or
proceeding, pending or threatened, which challenges the
exclusive rights of the Company or any of the Subsidiaries
with respect to any trademarks, service marks, copyrights,
service names, trade names, patents, patent applications and
licenses used in the conduct of the Company's or any of the
Subsidiaries' business (including, without limitation, any
such licenses or rights described in the Prospectus as being
owned or possessed by the Company or any of the Subsidiaries);
xiv) the persons listed under the captions "Principal
Stockholders" and "Selling Securityholders" in the Prospectus
are the respective "beneficial owners" (as such phrase is
defined in Rule 13d-3 under the Exchange Act) of the
securities set forth opposite their respective names
thereunder as and to the extent set forth therein;
xv) except as disclosed in the Prospectus, no person,
corporation, trust, partnership, association or other entity
has the right to include and/or register any securities of the
Company in the Registration Statement, require the Company to
file any registration statement or, if filed, to include any
security in such registration statement;
xvi) there are no claims, payments, issuances,
arrangements or understandings, whether oral or written, for
services in the nature of a finder's or origination fee with
respect to the sale of the Securities hereunder or financial
consulting arrangement or any other arrangements, agreements,
understandings, payments or issuances that may affect the
Underwriters' compensation, as determined by the NASD; and
xvii) assuming due execution by the parties thereto, the
Lock-Up Agreements are legal, valid and binding obligations of
the parties thereto, enforceable against such parties and any
subsequent holder of the securities subject thereto in
accordance with their terms.
Such counsel shall state that such counsel has participated in
conferences with officers and other representatives of the Company and
representatives of the independent public accountants for the Company, at which
conferences such counsel made inquiries of such officers, representatives and
accountants and discussed the contents of the Preliminary Prospectus, the
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<PAGE>
Registration Statement, the Prospectus and related matters and, although such
counsel is not passing upon and does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Preliminary Prospectus, the Registration Statement or the Prospectus, on the
basis of the foregoing, no facts have come to the attention of such counsel
which lead them to believe that either the Registration Statement or any
amendment thereto, at the time such Registration Statement or amendment became
effective, or the Preliminary Prospectus or the Prospectus, or any amendment or
supplement thereto, as of the date of the Preliminary Prospectus and the
Prospectus, and as of the date of such opinion, contained any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading (it being understood that
such counsel need express no opinion with respect to the financial statements
and schedules and other financial and statistical data included in the
Preliminary Prospectus, the Registration Statement or the Prospectus, or any
supplements or amendments thereto).
In rendering such opinion, such counsel may rely (a) as to
matters involving the application of laws other than the laws of the United
States and jurisdictions in which they are admitted, to the extent such counsel
deems proper and to the extent specified in such opinion, if at all, upon an
opinion or opinions (in form and substance satisfactory to Underwriters'
Counsel) of other counsel acceptable to Underwriters' Counsel, familiar with the
applicable laws; and (b) as to matters of fact, to the extent they deem proper,
on certificates and written statements of responsible officers of the Company
and certificates or other written statements of officers of departments of
jurisdictions having custody of documents respecting the corporate existence or
good standing of the Company, provided that copies of any such statements or
certificates shall be delivered to Underwriters' Counsel, if requested. The
opinion of such counsel for the Company shall state that the opinion of any such
other counsel is in form satisfactory to such counsel and that the
Representative and they are justified in relying thereon. Such opinion shall
also state that the Underwriters' Counsel is entitled to rely thereon. Such
opinion shall not state that it is to be governed or qualified by, or that it is
otherwise subject to, any treatise, written policy or other document relating to
legal opinions, including without limitation, the Legal Opinion Accord of the
ABA Section of Business Law (1991) or any comparable state accord.
At each Option Closing Date, if any, the Underwriters shall
have received the favorable opinion of Maloney, Gerra, Mehlman & Katz, counsel
to the Company, dated the relevant Option Closing Date, addressed to the
Underwriters, and in form and substance satisfactory to Underwriters' Counsel
confirming as of the Option Closing Date, the statements made by Maloney, Gerra,
Mehlman & Katz in its opinion delivered on the Closing Date.
(e) On the Closing Date, the Underwriters shall have received
the favorable opinion of Dempsey & Johnson, P.C., counsel to the Company, dated
the Closing Date, addressed to the Underwriters, in substantially the form
attached hereto as Exhibit A and in form and substance satisfactory to
Underwriters' Counsel to the effect that:
[Need to indicate which opinions from Section 6(d) Dempsey & Johnson
will opine to]
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Such counsel shall state that such counsel has participated in
conferences with officers and other representatives of the Company and
representatives of the independent public accountants for the Company, at which
conferences such counsel made inquiries of such officers, representatives and
accountants and discussed the contents of the Preliminary Prospectus, the
Registration Statement, the Prospectus and related matters and, although such
counsel is not passing upon and does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Preliminary Prospectus, the Registration Statement or the Prospectus, on the
basis of the foregoing, no facts have come to the attention of such counsel
which lead them to believe that either the Registration Statement or any
amendment thereto, at the time such Registration Statement or amendment became
effective, or the Preliminary Prospectus or the Prospectus, or any amendment or
supplement thereto, as of the date of the Preliminary Prospectus and the
Prospectus, and as of the date of such opinion, contained any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading (it being understood that
such counsel need express no opinion with respect to the financial statements
and schedules and other financial and statistical data included in the
Preliminary Prospectus, the Registration Statement or the Prospectus, or any
supplements or amendments thereto).
In rendering such opinion, such counsel may rely (a) as to
matters involving the application of laws other than the laws of the United
States and jurisdictions in which they are admitted, to the extent such counsel
deems proper and to the extent specified in such opinion, if at all, upon an
opinion or opinions (in form and substance satisfactory to Underwriters'
Counsel) of other counsel acceptable to Underwriters' Counsel, familiar with the
applicable laws; and (b) as to matters of fact, to the extent they deem proper,
on certificates and written statements of responsible officers of the Company
and certificates or other written statements of officers of departments of
jurisdictions having custody of documents respecting the corporate existence or
good standing of the Company, provided that copies of any such statements or
certificates shall be delivered to Underwriters' Counsel, if requested. The
opinion of such counsel for the Company shall state that the opinion of any such
other counsel is in form satisfactory to such counsel and that the
Representative and they are justified in relying thereon. Such opinion shall
also state that the Underwriters' Counsel is entitled to rely thereon. Such
opinion shall not state that it is to be governed or qualified by, or that it is
otherwise subject to, any treatise, written policy or other document relating to
legal opinions, including without limitation, the Legal Opinion Accord of the
ABA Section of Business Law (1991) or any comparable state accord.
At each Option Closing Date, if any, the Underwriters shall
have received the favorable opinion of Dempsey & Johnson, P.C., dated the
relevant Option Closing Date, addressed to the Underwriters and in form and
substance satisfactory to Underwriters' Counsel confirming, as of the Option
Closing Date, the statements made by Dempsey & Johnson, P.C.
in its opinion delivered on the Closing Date.
(f) On or prior to each of the Closing Date and each Option
Closing Date, if any, Underwriters' Counsel shall have been furnished with such
documents, certificates and opinions as they may reasonably require for the
purpose of enabling them to review or pass upon
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<PAGE>
the matters referred to in Section 6(c) hereof, or in order to evidence the
accuracy, completeness or satisfaction of any of the representations, warranties
or conditions of the Company herein contained.
(g) Prior to the Closing Date and each Option Closing Date, if
any, (i) there shall have been no material adverse change or development
involving a prospective adverse change in the condition, financial or otherwise,
or the earnings, stockholders' equity, value, operations, properties, business
or results of operations of the Company or any of the Subsidiaries, whether or
not in the ordinary course of business, from the latest dates as of which such
matters are set forth in the Registration Statement and the Prospectus; (ii)
there shall have been no transaction, not in the ordinary course of business,
entered into by the Company or any of the Subsidiaries from the latest date as
of which the financial condition of the Company is set forth in the Registration
Statement and the Prospectus; (iii) none of the Company nor any of the
Subsidiaries shall be in default under any provision of any instrument relating
to any outstanding indebtedness; (iv) none of the Company nor any of the
Subsidiaries shall have issued any securities (other than the Securities) or
declared or paid any dividend or made any distribution in respect of its capital
stock of any class and there shall not have been any change in the capital
stock, debt (long or short term) or liabilities or obligations of the Company
(contingent or otherwise) from the latest dates as of which such matters are set
forth in the Registration Statement and the Prospectus; (v) no material amount
of the assets of the Company or any of the Subsidiaries shall have been pledged
or mortgaged, except as set forth in the Registration Statement and the
Prospectus; (vi) no action, suit, proceeding, inquiry, arbitration,
investigation, litigation or governmental or other proceeding, domestic or
foreign, shall be pending or threatened (or circumstances giving rise to same)
against the Company or any of the Subsidiaries or affecting any of their
respective properties or business before or by any court or federal, state or
foreign commission, board or other administrative agency wherein an unfavorable
decision, ruling or finding may materially and adversely affect the condition,
financial or otherwise, or the earnings, stockholders' equity, value,
operations, properties, business or results of operations of the Company or the
Subsidiaries taken as a whole, except as set forth in the Registration Statement
and Prospectus; and (vii) no stop order shall have been issued under the Act
with respect to the Registration Statement and no proceedings therefor shall
have been initiated, threatened or contemplated by the Commission.
(h) At the Closing Date and each Option Closing Date, if any,
the Underwriters shall have received a certificate of the Company signed by the
principal executive officer and by the chief financial or chief accounting
officer of the Company, dated the Closing Date or the relevant Option Closing
Date, as the case may be, to the effect that each of such persons has carefully
examined the Registration Statement, the Prospectus and this Agreement, and
that:
i) The representations and warranties of the Company
in this Agreement are true and correct, as if made on and as
of the Closing Date or the Option Closing Date, as the case
may be, and the Company has complied with all agreements and
covenants and satisfied all conditions contained in this
Agreement on its part to be performed or satisfied at or prior
to such Closing Date or Option Closing Date, as the case may
be;
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ii) No stop order suspending the effectiveness of the
Registration Statement or any part thereof has been issued,
and no proceedings for that purpose have been instituted or
are pending or, to the best of each of such person's
knowledge, are contemplated or threatened under the Act;
iii) The Registration Statement and the Prospectus and,
if any, each amendment and each supplement thereto contain all
statements and information required to be included therein,
and none of the Registration Statement, the Prospectus or any
amendment or supplement thereto includes any untrue statement
of a material fact or omits to state any material fact
required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which
they were made, not misleading and neither the Preliminary
Prospectus nor any supplement thereto included any untrue
statement of a material fact or omitted to state any material
fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which
they were made, not misleading; and
iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and the
Prospectus, (A) none of the Company nor any of the
Subsidiaries has not incurred any material liabilities or
obligations, direct or contingent; (B) none of the Company nor
any of the Subsidiaries has paid or declared any dividends or
other distributions on its capital stock; (C) none of the
Company nor any of the Subsidiaries has entered into any
transactions not in the ordinary course of business; (D) there
has not been any change in the capital stock or long-term debt
or any increase in the short-term borrowings (other than any
increase in short-term borrowings in the ordinary course of
business) of the Company or any of the Subsidiaries; (E) none
of the Company nor any of the Subsidiaries has sustained any
material loss or damage to their respective property or
assets, whether or not insured; (F) there is no litigation
which is pending or threatened (or circumstances giving rise
to same) against the Company or any of the Subsidiaries or any
affiliate (within the meaning of the Rules and Regulations) of
the foregoing which is required to be set forth in an amended
or supplemented Prospectus which has not been set forth; and
(G) there has occurred no event required to be set forth in an
amended or supplemented Prospectus which has not been set
forth.
References to the Registration Statement and the Prospectus in this Section 6(h)
are to such documents as amended and supplemented at the date of such
certificate.
(i) By the Closing Date, the Underwriters will have received
clearance from the NASD as to the amount of compensation allowable or payable to
the Underwriters, as described in the Registration Statement.
(j) At the time this Agreement is executed, the Underwriters
shall have received a letter, dated such date, addressed to the Underwriters and
in form and substance satisfactory in all respects (including the non-material
nature of the changes or decreases, if any,
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referred to in clause (iii) below) to the Underwriters and Underwriters'
Counsel, from Kellog & Andelson.
i) confirming that they are independent certified
public accountants with respect to the Company within the
meaning of the Act and the Rules and Regulations;
ii) stating that it is their opinion that the
consolidated financial statements of the Company included in
the Registration Statement comply as to form in all material
respects with the applicable accounting requirements of the
Act and the Rules and Regulations and that the Underwriters
may rely upon the opinion of Kellog & Andelson with respect to
such financial statements and supporting schedules included in
the Registration Statement;
iii) stating that, on the basis of a limited review
which included a reading of the latest unaudited interim
consolidated financial statements of the Company, a reading of
the latest available minutes of the stockholders and board of
directors and the various committees of the board of directors
of the Company, consultations with officers and other
employees of the Company responsible for financial and
accounting matters and other specified procedures and
inquiries, nothing has come to their attention which would
lead them to believe that (A) the unaudited consolidated
financial statements and supporting schedules of the Company
included in the Registration Statement do not comply as to
form in all material respects with the applicable accounting
requirements of the Act and the Rules and Regulations or are
not fairly presented in conformity with generally accepted
accounting principles applied on a basis substantially
consistent with that of the audited consolidated financial
statements of the Company included in the Registration
Statement, or (B) at a specified date nor more than five (5)
days prior to the effective date of the Registration
Statement, there has been any change in the capital stock or
long-term debt of the Company, or any decrease in the
stockholders' equity or net current assets or net assets of
the Company as compared with amounts shown in the March 31,
1996 balance sheet included in the Registration Statement,
other than as set forth in or contemplated by the Registration
Statement, or, if there was any change or decrease, setting
forth the amount of such change or decrease, and (C) during
the period from March 31, 1996 to a specified date not more
than five (5) days prior to the effective date of the
Registration Statement, there was any decrease in net
revenues, net earnings or net earnings per share of Common
Stock, in each case as compared with the corresponding period
beginning March 31, 1995, other than as set forth in or
contemplated by the Registration Statement, or, if there was
any such decrease, setting forth the amount of such decrease;
iv) setting forth, at a date not later than five (5)
days prior to the effective date of the Registration
Statement, the amount of liabilities of the Company (including
a break-down of commercial paper and notes payable to banks);
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v) stating that they have compared specific dollar
amounts, numbers of shares, percentages of revenues and
earnings, statements and other financial information
pertaining to the Company set forth in the Prospectus, in each
case to the extent that such amounts, numbers, percentages,
statements and information may be derived from the general
accounting records, including work sheets, of the Company and
excluding any questions requiring an interpretation by legal
counsel, with the results obtained from the application of
specified readings, inquiries and other appropriate procedures
(which procedures do not constitute an audit in accordance
with generally accepted auditing standards) set forth in the
letter and found them to be in agreement; and
vi) statements as to such other matters incident to
the transaction contemplated hereby as the Underwriters may
request.
(k) At the Closing Date and each Option Closing Date, if any,
the Underwriters shall have received from Kellog & Andelson a letter, dated as
of the Closing Date or the relevant Option Closing Date, as the case may be, to
the effect that (i) it reaffirms the statements made in the letter furnished
pursuant to Section 6(j), (ii) if the Company has elected to rely on Rule 430A
of the Rules and Regulations, to the further effect that Kellog & Andelson has
carried out procedures as specified in clause (v) of Section 6(j) hereof with
respect to certain amounts, percentages and financial information as specified
by the Underwriters and deemed to be a part of the Registration Statement
pursuant to Rule 430A(b) and have found such amounts, percentages and financial
information to be in agreement with the records specified in such clause (v).
(l) The Company shall have received a letter, dated such date,
addressed to the Company, in form and substance satisfactory in all respects to
the Representative, from Kellog & Andelson stating that they have not during the
immediately preceding five (5) year period brought to the attention of the
Company's management any "weakness," as defined in Statement of Auditing
Standard No. 60 "Communication of Internal Control Structure Related Matters
Noted in an Audit," in any of the Company's internal controls.
(m) On each of Closing Date and Option Closing Date, if any,
there shall have been duly tendered to the Underwriters the appropriate number
of Securities.
(n) No order suspending the sale of the Securities in any
jurisdiction designated by the Underwriters pursuant to Section 4(e) hereof
shall have been issued on either the Closing Date or the Option Closing Date, if
any, and no proceedings for that purpose shall have been instituted or shall be
contemplated.
(o) On or before the effective date of the Registration
Statement, the Company shall have executed and delivered to the Representative,
the Representative's Warrant Agreement, substantially in the form filed as
Exhibit to the Registration Statement. On or before the Closing Date, the
Company shall have executed and delivered to the Representative the
Representative's Warrants in such denominations and to such designees as shall
have been provided to the Company.
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(p) On or before Closing Date, the Units, the Common Stock and
the Redeemable Warrants shall have been duly approved for quotation on Nasdaq,
subject to official notice of issuance and listing on the Boston Stock Exchange.
(q) On or before Closing Date, there shall have been delivered
to the Representative all of the Lock-Up Agreements, in form and substance
satisfactory to Underwriters' Counsel.
(r) On or before the Closing Date, the Company shall have (i)
executed and delivered to the Representative the Consulting Agreement,
substantially in the form filed as Exhibit ____ to the Registration Statement
and (ii) paid the Representative $48,000 representing the retainer fee pursuant
to the Consulting Agreement.
(s) On or before the effective date of the Registration
Statement, the Company and OTR Stock Transfer Company shall have executed and
delivered to the Representative the Warrant Agreement, substantially in the form
filed as Exhibit to the Registration Statement.
(t) At least two (2) full business days prior to the date
hereof, the Closing Date and each Option Closing Date, if any, the Company shall
have delivered to the Representative the unaudited interim consolidated
financial statements required to be so delivered pursuant to Section 4(p) of
this Agreement.
If any condition to the Representative's or the Underwriters'
obligations hereunder to be fulfilled prior to or at the Closing Date or at any
Option Closing Date, as the case may be, is not so fulfilled, the Representative
may terminate this Agreement or, if the Representative so elects, it may waive
any such conditions which have not been fulfilled or extend the time for their
fulfillment.
7. Indemnification
(a) The Company agrees to indemnify and hold harmless each of
the Underwriters (for purposes of this Section 7, "Underwriters" shall include
the officers, directors, partners, employees, agents and counsel of the
Underwriters including specifically each person who may be substituted for an
Underwriter as provided in Section 11 hereof), and each person, if any, who
controls the Underwriter ("controlling person") within the meaning of Section 15
of the Act or Section 20(a) of the Exchange Act, from and against any and all
losses, claims, damages, expenses or liabilities, joint or several (and actions,
proceedings, investigations, inquiries and suits in respect thereof), whatsoever
(including but not limited to any and all costs and expenses whatsoever
reasonably incurred in investigating, preparing or defending against such
action, proceeding, investigation, inquiry or suit commenced or threatened, or
any claim whatsoever), as such are incurred, to which the Underwriter or such
controlling person may become subject under the Act, the Exchange Act or any
other statute or at common law or otherwise or under the laws of foreign
countries, arising out of or based upon (A) any untrue statement or alleged
untrue statement of a material fact contained (i) in any Preliminary Prospectus,
the Registration Statement or the Prospectus (as from time to time amended and
supplemented); (ii) in any post-effective amendment or amendments or any new
registration
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statement and prospectus in which is included securities of the Company issued
or issuable upon exercise of the Securities; or (iii) in any application or
other document or written communication (in this Section 7, collectively
referred to as "applications") executed by the Company or based upon written
information furnished by the Company filed, delivered or used in any
jurisdiction in order to qualify the Securities under the securities laws
thereof or filed with the Commission, any state securities commission or agency,
the NASD, Nasdaq or any securities exchange; (B) the omission or alleged
omission therefrom of a material fact required to be stated therein or necessary
to make the statements therein not misleading (in the case of the Prospectus, in
light of the circumstances in which they were made); or (C) any breach of any
representation, warranty, covenant or agreement of the Company contained herein
or in any certificate by or on behalf of the Company or any of its officers
delivered pursuant hereto, unless, in the case of clause (A) or (B) above, such
statement or omission was made in reliance upon and in conformity with written
information furnished to the Company with respect to any Underwriter by or on
behalf of such Underwriter expressly for use in any Preliminary Prospectus, the
Registration Statement or any Prospectus, or any amendment thereof or supplement
thereto, or in any application, as the case may be. The indemnity agreement in
this Section 7(a) shall be in addition to any liability which the Company may
have at common law or otherwise.
(b) Each of the Underwriters agrees severally, but not
jointly, to indemnify and hold harmless the Company, each of its directors, each
of its officers who signed the Registration Statement, and each person, if any,
who controls the Company within the meaning of the Act, to the same extent as
the foregoing indemnity from the Company to the Underwriters but only with
respect to statements or omissions, if any, made in any Preliminary Prospectus,
the Registration Statement or the Prospectus or any amendment thereof or
supplement thereto or in any application made in reliance upon, and in strict
conformity with, written information furnished to the Company with respect to
any Underwriter by such Underwriter expressly for use in such Preliminary
Prospectus, the Registration Statement or Prospectus or any amendment thereof or
supplement thereto or in any such application, provided that such written
information or omissions only pertain to disclosures in the Preliminary
Prospectus, the Registration Statement or the Prospectus directly relating to
the transactions effected by the Underwriters in connection with the offering
contemplated hereby. The Company acknowledges that the statements with respect
to the public offering of the Securities set forth under the heading
"Underwriting" and the stabilization legend in the Prospectus have been
furnished by the Underwriters expressly for use therein and constitute the only
information furnished in writing by or on behalf of the Underwriters for
inclusion in any Preliminary Prospectus, the Registration Statement or the
Prospectus. The indemnity agreement in this Section 7(b) shall be in addition to
any liability which the Underwriters may have at common law or otherwise.
(c) Promptly after receipt by an indemnified party under this
Section 7 of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against one or more
indemnifying parties under this Section 7, notify each party against whom
indemnification is to be sought in writing of the commencement thereof (but the
failure to so notify an indemnifying party shall not relieve it from any
liability which it may have under this Section 7 (except to the extent that it
has been prejudiced in any material respect by such failure) or from any
liability which it may have otherwise). In case any such action, investigation,
inquiry, suit or proceeding is brought against any indemnified party, and it
notifies
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an indemnifying party or parties of the commencement thereof, the indemnifying
party or parties will be entitled to participate therein, and to the extent it
or they may elect by written notice delivered to the indemnified party promptly
after receiving the aforesaid notice from such indemnified party, to assume the
defense thereof with counsel reasonably satisfactory to such indemnified party.
Notwithstanding the foregoing, an indemnified party shall have the right to
employ its own counsel in any such case but the fees and expenses of such
counsel shall be at the expense of such indemnified party unless (i) the
employment of such counsel shall have been authorized in writing by the
indemnifying parties in connection with the defense of such action at the
expense of the indemnifying party, (ii) the indemnifying parties shall not have
employed counsel reasonably satisfactory to such indemnified party to have
charge of the defense of such action within a reasonable time after notice of
commencement of the action, or (iii) such indemnified party shall have
reasonably concluded that there may be defenses available to it which are
different from or additional to those available to one or all of the
indemnifying parties (in which event the indemnifying parties shall not have the
right to direct the defense of such action, investigation, inquiry, suit or
proceeding on behalf of the indemnified party or parties), in any of which
events such fees and expenses of one additional counsel shall be borne by the
indemnifying parties. In no event shall the indemnifying parties be liable for
fees and expenses of more than one counsel (in addition to any local counsel)
separate from their own counsel for all indemnified parties in connection with
any one action, investigation, inquiry, suit or proceeding or separate but
similar or related actions, investigations, inquiries, suits or proceedings in
the same jurisdiction arising out of the same general allegations or
circumstances. An indemnifying party will not, without the prior written consent
of the indemnified parties, settle, compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified parties are actual or potential
parties to such claim or action), unless such settlement, compromise or consent
(i) includes an unconditional release of each indemnified party from all
liability arising out of such claim, action, suit or proceeding and (ii) does
not include a statement as to or an admission of fault, culpability or a failure
to act by or on behalf of any indemnified party. Anything in this Section 7 to
the contrary notwithstanding, an indemnifying party shall not be liable for any
settlement of any claim or action effected without its written consent;
provided, however, that such consent may not be unreasonably withheld.
(d) In order to provide for just and equitable contribution in
any case in which (i) an indemnified party makes a claim for indemnification
pursuant to this Section 7, but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
the express provisions of this Section 7 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of any
indemnified party, then each indemnifying party shall contribute to the amount
paid as a result of such losses, claims, damages, expenses or liabilities (or
actions, investigations, inquiries, suits or proceedings in respect thereof) (A)
in such proportion as is appropriate to reflect the relative benefits received
by each of the contributing parties, on the one hand, and the party to be
indemnified, on the other hand, from the offering of the Securities or (B) if
the allocation provided by clause (A) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative benefits
37
<PAGE>
referred to in clause (A) above but also the relative fault of each of the
contributing parties, on the one hand, and the party to be indemnified, on the
other hand, in connection with the statements or omissions that resulted in such
losses, claims, damages, expenses or liabilities, as well as any other relevant
equitable considerations. In any case where the Company is a contributing party
and the Underwriters are the indemnified party, the relative benefits received
by the Company, on the one hand, and the Underwriters, on the other, shall be
deemed to be in the same proportion as the total net proceeds from the offering
of the Securities (before deducting expenses) bear to the total underwriting
discounts received by the Underwriters hereunder, in each case as set forth in
the table on the cover page of the Prospectus. Relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or by the
Underwriters, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such untrue statement or omission. The
amount paid by an indemnified party as a result of the losses, claims, damages,
expenses or liabilities (or actions, investigations, inquiries, suits or
proceedings in respect thereof) referred to in the first (1st) sentence of this
Section 7(d) shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any such action, claim, investigation, inquiry suit or proceeding.
Notwithstanding the provisions of this Section 7(d), the Underwriters shall not
be required to contribute any amount in excess of the underwriting discount
applicable to the Securities purchased by the Underwriters hereunder. No person
guilty of fraudulent misrepresentation (within the meaning of Section 12(f) of
the Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. For purposes of this Section 7(d), each
person, if any, who controls the Company or the Underwriter within the meaning
of the Act, each officer of the Company who has signed the Registration
Statement and each director of the Company shall have the same rights to
contribution as the Company or the Underwriter, as the case may be, subject in
each case to this Section 7(d). Any party entitled to contribution will,
promptly after receipt of notice of commencement of any action, suit, inquiry,
investigation or proceeding, against such party in respect to which a claim for
contribution may be made against another party or parties under this Section
7(d), notify such party or parties from whom contribution may be sought, but the
omission to so notify such party or parties shall not relieve the party or
parties from whom contribution may be sought from any obligation it or they may
have hereunder or otherwise than under this Section 7(d), or to the extent that
such party or parties were not adversely affected by such omission.
Notwithstanding anything in this Section 7 to the contrary, no party will be
liable for contribution with respect to the settlement of any action or claim
effected without its written consent. The contribution agreement set forth above
shall be in addition to any liabilities which any indemnifying party may have at
common law or otherwise.
8. Representations, Warranties, Covenants and Agreements to
Survive Delivery. All representations, warranties, covenants and agreements of
the Company contained in this Agreement, or contained in certificates of
officers of the Company submitted pursuant hereto, shall be deemed to be
representations, warranties, covenants and agreements at the Closing Date and
each Option Closing Date, if any, and such representations, warranties,
covenants and agreements of the Company, and the respective indemnity and
contribution agreements contained in Section 7 hereof, shall remain operative
and in full force and effect
38
<PAGE>
regardless of any investigation made by or on behalf of any Underwriter, the
Company, any controlling person of any Underwriter or the Company, and shall
survive the termination of this Agreement or the issuance and delivery of the
Securities to the Underwriters.
9. Effective Date. This Agreement shall become effective at
10:00 a.m., New York City time, on the next full business day following the date
hereof, or at such earlier time after the Registration Statement becomes
effective as the Representative, in its discretion, shall release the Securities
for sale to the public; provided, however, that the provisions of Sections 5, 7
and 10 of this Agreement shall at all times be effective. For purposes of this
Section 9, the Securities to be purchased hereunder shall be deemed to have been
so released upon the earlier of dispatch by the Representative of telegrams to
securities dealers releasing such shares for offering or the release by the
Representative for publication of the first newspaper advertisement which is
subsequently published relating to the Securities.
10. Termination.
(a) Subject to Section 10(b) hereof, the Representative shall
have the right to terminate this Agreement: (i) if any domestic or international
event or act or occurrence has materially adversely disrupted, or in the
Representative's opinion will in the immediate future materially adversely
disrupt, the financial markets; or (ii) if any material adverse change in the
financial markets shall have occurred; or (iii) if trading generally shall have
been suspended or materially limited on or by, as the case may be, any of the
New York Stock Exchange, the American Stock Exchange, the NASD, the Boston Stock
Exchange, the Commission or any governmental authority having jurisdiction over
such matters; or (iv) if trading of any of the securities of the Company shall
have been suspended, or if any of the securities of the Company shall have been
delisted, on any exchange or in any over-the-counter market; or (v) if the
United States shall have become involved in a war or major hostilities, or if
there shall have been an escalation in an existing war or major hostilities, or
a national emergency shall have been declared in the United States; or (vi) if a
banking moratorium shall have been declared by any state or federal authority;
or (vii) if a moratorium in foreign exchange trading shall have been declared;
or (viii) if the Company shall have sustained a material or substantial loss by
fire, flood, accident, hurricane, earthquake, theft, sabotage or other calamity
or malicious act which, whether or not such loss shall have been insured, will,
in the Representative's opinion, make it inadvisable to proceed with the
delivery of the Securities; or (ix) if there shall have occurred any outbreak or
escalation of hostilities or any calamity or crisis or there shall have been
such a material adverse change in the conditions or prospects of the Company, or
if there shall have been such a material adverse change in the general market,
political or economic conditions, in the United States or elsewhere, as in the
Representative's judgment would make it inadvisable to proceed with the
offering, sale and/or delivery of the Securities; or (x) if Irwin Meyer shall no
longer serve the Company in his present capacities.
(b) If this Agreement is terminated by the Representative in
accordance with the provisions of Section 6, Section 10(a) or Section 11 hereof
the Company shall promptly reimburse and indemnify the Representative for all
its actual out-of-pocket expenses, including the fees and disbursements of
Underwriters' Counsel, less amounts previously paid pursuant to Section 5(c)
hereof. In addition, the Company shall remain liable for all "blue sky" counsel
fees
39
<PAGE>
and expenses and "blue sky" filing fees. In addition, the Company shall remain
liable for all "blue sky" counsel fees and expenses and "blue sky" filing fees.
Notwithstanding any contrary provision contained in this Agreement, any election
hereunder or any termination of this Agreement (including, without limitation,
pursuant to Sections 6, 10(a) and 11 hereof), and whether or not this Agreement
is otherwise carried out, the provisions of Section 5 and Section 7 shall not be
in any way be affected by such election or termination or failure to carry out
the terms of this Agreement or any part hereof.
11. Substitution of the Underwriters. If one or more of the
Underwriters shall fail otherwise than for a reason sufficient to justify the
termination of this Agreement under the provisions of Section 6, Section 10 or
Section 12 hereof) to purchase the Securities which it or they are obligated to
purchase on such date under this Agreement (the "Defaulted Securities"), the
Representative shall have the right, within 24 hours thereafter, to make
arrangement for one or more of the non-defaulting Underwriters, or any other
Underwriters, to purchase all, but not less than all, of the Defaulted
Securities in such amounts as may be agreed upon and upon the terms herein set
forth; if, however, the Representative shall not have completed such
arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed 10%
of the total number of Firm Units to be purchased on such date, the
non-defaulting Underwriters shall be obligated to purchase the full amount
thereof in the proportions that their respective underwriting obligations
hereunder bear to the underwriting obligations of all non-defaulting
Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the
total number of Firm Units, this Agreement shall terminate without liability on
the part of any non-defaulting Underwriters.
No action taken pursuant to this Section shall relieve any
defaulting Underwriter from liability in respect of any default by such
Underwriter under this Agreement.
In the event of any such default which does not result in a
termination of this Agreement, the Representative shall have the right to
postpone the Closing Date for a period not exceeding seven days in order to
effect any required changes in the Registration Statement or Prospectus or in
any other documents or arrangements.
12. Default by the Company. If the Company shall fail at the
Closing Date or any Option Closing Date, as applicable, to sell and deliver the
number of Securities which it is obligated to sell hereunder on such date, then
this Agreement shall terminate (or, if such default shall occur with respect to
any Option Units to be purchased on an Option Closing Date, the Representative
may, at its option, by notice from the Representative to the Company, terminate
the Representative's obligation to purchase Option Units from the Company on
such date) without any liability on the part of any non-defaulting party other
than pursuant to Section 5, Section 7 and Section 10 hereof. No action taken
pursuant to this Section 12 shall relieve the Company from liability, if any, in
respect of such default.
40
<PAGE>
13. Notices. All notices and communications hereunder, except
as herein otherwise specifically provided, shall be in writing and shall be
deemed to have been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriters shall be directed to the
Representative at Joseph Stevens & Company, L.P., 33 Maiden Lane, 8th Floor, New
York, NY 10038, Attention: Mr. Joseph Sorbara, with a copy to Orrick, Herrington
& Sutcliffe, 666 Fifth Avenue, New York, New York 10103, Attention: Rubi
Finkelstein, Esq. Notices to the Company shall be directed to the Company at The
Producers Entertainment Group Ltd., 9150 Wilshire Boulevard, Suite 205, Beverly
Hills, California 90212, Attention: Irwin Meyer, President, with a copy to
Maloney, Gerra, Mehlman & Katz, Chrysler Building, 405 Lexington Avenue, New
York, New York 10174, Attention: Melvin Katz, Esq.
14. Parties. This Agreement shall inure solely to the benefit
of, and shall be binding upon, the Underwriters, the Company and the controlling
persons, directors and officers referred to in Section 7 hereof, and their
respective successors, legal representatives and assigns, and no other person
shall have or be construed to have any legal or equitable right, remedy or claim
under or in respect of or by virtue of this Agreement or any provisions herein
contained. No purchaser of Units from the Underwriters shall be deemed to be a
successor by reason merely of such purchase.
15. Construction. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York,
without giving effect to choice of law or conflict of laws principles.
16. Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original, and all of
which taken together shall be deemed to be one and the same instrument.
17. Entire Agreement; Amendments. This Agreement, the
Representative's Warrant Agreement and the Consulting Agreement constitute the
entire agreement of the parties hereto and supersede all prior written or oral
agreements, understandings and negotiations with respect to the subject matter
hereof and thereof. This Agreement may not be amended except in a writing signed
by the Representative and the Company.
41
<PAGE>
If the foregoing correctly sets forth the understanding
between the Underwriters and the Company, please so indicate in the space
provided below for that purpose, whereupon this letter shall constitute a
binding agreement between us.
Very truly yours,
THE PRODUCERS ENTERTAINMENT GROUP LTD.
By:
------------------------------------------------
Name: Irwin Meyer
Title: President and Chief Executive Officer
Confirmed and accepted as of the date first above written.
JOSEPH STEVENS & COMPANY, L.P.
As Representative of the
Several Underwriters
By:
----------------------------------------
Name:
Title:
42
<PAGE>
SCHEDULE A
============================================================================
Underwriter Firm Units
============================================================================
Joseph Stevens & Company, L.P................................
- ----------------------------------------------------------------------------
Total............................................... 2,000,000
============================================================================
43
<PAGE>
FINANCIAL ADVISORY AND CONSULTING AGREEMENT
This Agreement is made and entered into as of this __ day of
________, 1996, by and between THE PRODUCERS ENTERTAINMENT GROUP LTD., a
Delaware corporation (the "Company"), an Joseph Stevens & Company, L.P. (the
"Consultant").
In consideration of and for the mutual promises and covenants
contained herein, and for other good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereto hereby agree as follows:
1. Purpose. The Company hereby retains the Consultant during
the term specified in Section 2 hereof to render consulting advice to the
Company as an investment banker relating to financial and similar matters, upon
the terms and conditions as set forth herein.
2. Term. Subject to the provisions of Sections 8, 9 and 10
hereof, this Agreement shall be effective for a period of twenty-four (24)
months commencing _______ __, 1996.
3. Duties of Consultant. During the term of this Agreement,
the Consultant will provide the Company with such regular and customary
consulting advice as is reasonably requested by the Company, provided that the
Consultant shall not be required to undertake duties not reasonably within the
scope of the consulting advisory service contemplated by this Agreement. In
performance of these duties, the Consultant shall provide the Company with the
benefits of its best judgment and efforts. It is understood and acknowledged by
the parties that the value of the Consultant's advice is not measurable in any
quantitative manner, and that the Consultant shall be obligated to render
advice, upon the request of the Company, in good faith, but shall not be
obligated to spend any specific amount of time in doing so. The Consultant's
duties may include, but will not necessarily be limited to:
A. Providing sponsorship and exposure in connection with the
dissemination of corporate information regarding the Company to the investment
community at large under a systematic planned approach.
B. Rendering advice and assistance in connection with the
preparation of annual and interim reports and press releases.
C. Arranging, on behalf of the Company and its
representatives, at appropriate times, meetings with securities analysts of
major regional investment banking firms.
D. Assisting in the Company's financial public relations,
including discussions between the Company and the financial community.
<PAGE>
E. Rendering advice with regard to internal operations,
including:
(1) advice regarding formation of corporate goals and their
implementation;
(2) advice regarding the financial structure of the Company
and its divisions or subsidiaries or any programs and
projects of such entities;
(3) advice concerning the securing, when necessary and if
possible, of additional financing through banks, insurance
companies and/or other institutions; and
(4) advice regarding corporate organization and personnel.
F. Rendering advice with respect to any acquisition program of
the Company.
G. Rendering advice regarding a future public or private
offering of securities of the Company or of any subsidiary.
4. Relationships with Others. The Company acknowledges that
the Consultant and its affiliates are in the business of providing financial
services and consulting advice (of all types contemplated by this Agreement) to
others. Nothing herein contained shall be construed to limit or restrict the
Consultant or its affiliates from rendering such services or advice to others.
5. Consultant's Liability. In the absence of gross negligence
or willful misconduct on the part of the Consultant, or the Consultant's breach
of this Agreement, the Consultant shall not be liable to the Company, or to any
officer, director, employee, shareholder or creditor of the Company, for any act
or omission in the course of or in connection with the rendering or providing of
advice hereunder. Except in those cases where the gross negligence or willful
misconduct of the Consultant or the breach by the Consultant of this Agreement
is alleged and proven, the Company agrees to defend, indemnify and hold the
Consultant harmless from and against any and all reasonable costs, expenses and
liability (including, but not limited to, attorneys' fees paid in the defense of
the Consultant) which may in any way result from services rendered by the
Consultant pursuant to or in any connection with this Agreement.
6. Expenses. The Company, upon receipt of appropriate
supporting documentation, shall reimburse the Consultant for any and all
reasonable out-of-pocket expenses incurred by the Consultant in connection with
services rendered by the Consultant to Company pursuant to this Agreement,
including, but not limited to, hotel, food and associated expenses, all charges
for travel and long-distance telephone calls and all other expenses incurred by
the Consultant in connection with services rendered by the Consultant to the
Company pursuant to this Agreement. Expenses payable under this Section 6 shall
not include allocable overhead expenses of the Consultant, including, but not
limited to, attorneys' fees, secretarial charges and rent.
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<PAGE>
7. Compensation. As compensation for the services to be
rendered by the Consultant to the Company pursuant to Section 3 hereof, the
Company shall pay the Consultant a financial consulting fee of two thousand
dollars ($2,000) per month for twenty-four (24) months commencing on ______ __
1996. Forty-Eight Thousand Dollars ($48,000), representing payment in full of
all amounts due the Consultant pursuant to this Section 7, shall be paid by the
Company on _______ __, 1996.
8. Other Advice. In addition to the duties set out in Section
3 hereof, the Consultant agrees to furnish advice to the Company in connection
with the acquisition of and/or merger with other companies, joint ventures with
any third parties, license and royalty agreements and any other financing (other
than the private or public sale of the Company's securities for cash),
including, but not limited to, the sale of the Company itself (or any
significant percentage, subsidiaries or affiliates thereof).
In the event that any such transactions are directly or
indirectly originated by the Consultant for a period of five (5) years from the
date hereof, the Company shall pay fees to the Consultant as follows:
Legal Consideration Fee
------------------- ---
1. $ -0- - $3,000,000 5% of legal consideration
2. $ 3,000,001 - $4,000,000 Amount calculated pursuant to line 1
of this computation, plus 4% of
excess over $3,000,000
3. $ 4,000,001 - 5,000,000 Amount calculated pursuant to lines
1 and 2 of this computation, plus 3%
of excess over $4,000,000
4. above $ 5,000,000 Amount calculated pursuant to lines
1, 2 and 3 of this computation, plus
2% of excess over $5,000,000.
Legal consideration is defined, for purposes of this
Agreement, as the total of stock (valued at market on the day of closing, or if
there is no public market, valued as set forth herein for other property), cash
and assets and property or other benefits exchanged by the Company or received
by the Company or its shareholders (all valued at fair market value as agreed
or, if not, by any independent appraiser), irrespective of period of payment or
terms.
9. Sales or Distributions of Securities. If the Consultant
assists the Company in the sale or distribution of securities to the public or
in a private transaction, the Consultant shall receive fees in the amount and
form to be arranged separately at the time of such transaction.
3
<PAGE>
10. Form of Payment. All fees due to the Consultant pursuant
to Section 8 hereof are due and payable to the Consultant, in cash or by
certified check, at the closing or closings of a transaction specified in such
Section 8 or as otherwise agreed between the parties hereto; provided, however,
that in the case of license and royalty agreements specified in Section 8
hereof, the fees due the Consultant in receipt of such license and royalty
agreements shall be paid as and when license and/or royalty payments are
received by the Company. In the event that this Agreement shall not be renewed
for a period of at least twelve (12) months at the end of the five (5) year
period referred to in Section 8 hereof or if terminated for any reason prior to
the end of such five (5) year period then, notwithstanding any such non-renewal
or termination, the Consultant shall be entitled to the full fee for any
transaction contemplated under Section 8 hereof which closes within twelve (12)
months after such non-renewal or termination.
11. Limitation Upon the Use of Advice and Services.
(a) No person or entity, other than the Company or any of its
subsidiaries, shall be entitled to make use of or rely upon the advice of the
Consultant to be given hereunder, and the Company shall not transmit such advice
to others, or encourage or facilitate the use of or reliance upon such advice by
others, without the prior written consent of the Consultant.
(b) It is clearly understood that the Consultant, for services
rendered under this Agreement, makes no commitment whatsoever as to making a
market in the securities of the Company or to recommend or advise its clients to
purchase the securities of the Company. Research reports or corporate finance
reports that may be prepared by the Consultant will, when and if prepared, be
done solely on the merits or judgment of analysts of the Consultant or senior
corporate finance personnel of the Consultant.
(c) The use of the Consultant's name in any annual report or
other report of the Company, or any release or similar document prepared by or
on behalf of the Company, must have the prior written approval of the Consultant
unless the Company is required by law to include the Consultant's name in such
annual report, other report or release, in which event the Consultant will be
furnished with a copy of such annual report, other report or release using
Consultant's name in advance of publication by or on behalf of the Company.
(d) Should any purchases of securities be requested to be
effected through the Consultant by the Company, its officers, directors,
employees or other affiliates, or by any person on behalf of any profit sharing,
pension or similar plan of the Company, for the account of the Company or the
individuals or entities involved, such orders shall be taken by a registered
account executive of the Consultant, shall not be subject to the terms of this
Agreement, and the normal brokerage commission as charged by the Consultant will
apply in conformity with all rules and regulations of the New York Stock
Exchange, the National Association of Securities Dealers, Inc. or other
regulatory bodies. Where no regulatory body sets the fee, the normal established
fee as used by the Consultant shall apply.
4
<PAGE>
(e) The Consultant shall not disclose confidential information
which it learns about the Company as a result of its engagement hereunder,
except as such disclosure as may be required for Consultant to perform its
duties hereunder.
12. Indemnification. Since the Consultant will be acting on
behalf of the Company in connection with its engagement hereunder, the Company
and Consultant have entered into a separate indemnification agreement
substantially in the form attached hereto as Exhibit A and dated the date
hereof, providing for the indemnification of Consultant by the Company. The
Consultant has entered into this Agreement in reliance on the indemnities set
forth in such indemnification agreement.
13. Severability. Every provision of this Agreement is
intended to be severable. If any term or provision hereof is deemed unlawful or
invalid for any reason whatsoever, such unlawfulness or invalidity shall not
affect the validity of the remainder of this Agreement.
14. Miscellaneous.
(a) Any notice or other communication between the parties
hereto shall be sent by certified or registered mail, postage prepaid, if to the
Company, addressed to it at 9150 Wilshire Blvd., Suite 205, Beverly Hills,
California 90212-3414, Attention: Irwin Meyer, Chief Executive Officer, with a
copy to Maloney, Gerra, Mehlman & Katz, Chrysler Bldg., 405 Lexington Ave., New
York, New York 10174, Attention: Melvin Katz, Esq. or, if to the Consultant,
addressed to it at 33 Maiden Lane, 8th Floor, New York, New York 10038,
Attention: Joseph Sorbara, Chief Executive Officer, with a copy to Orrick,
Herrington & Sutcliffe, 666 Fifth Avenue, New York, New York 10103, Attention:
Rubi Finkelstein, Esq., or to such address as may hereafter be designated in
writing by one party to the other. Such notice or other communication shall be
deemed to be given on the date of receipt.
(b) If, during the term hereof, the Consultant shall cease to
do business, the provisions hereof relating to the duties of the Consultant and
compensation by the Company as it applies to the Consultant shall thereupon
cease to be in effect, except for the Company's obligation of payment for
services rendered prior thereto. This Agreement shall survive any merger of,
acquisition of, or acquisition by the Consultant and, after any such merger or
acquisition, shall be binding upon the Company and the corporation surviving
such merger or acquisition.
(c) This Agreement embodies the entire agreement and
understanding between the Company and the Consultant and supersedes any and all
negotiations, prior discussions and preliminary and prior agreements and
understandings related to the central subject matter hereof.
(d) This Agreement has been duly authorized, executed and
delivered by and on behalf of the Company and the Consultant.
(e) This Agreement shall be construed and interpreted in
accordance with laws of the State of New York, without giving effect to
conflicts of laws.
5
<PAGE>
(f) This Agreement and the rights hereunder may not be
assigned by either party (except by operation of law) and shall be binding upon
and inure to the benefit of the parties and their respective successors, assigns
and legal representatives.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date hereof.
THE PRODUCERS ENTERTAINMENT
GROUP LTD.
By:
--------------------------------------
Irwin Meyer
Chief Executive Officer
JOSEPH STEVENS & COMPANY, L.P.
By:
----------------------------------------
6
<PAGE>
EXHIBIT A
_________________, 1996
JOSEPH STEVENS & COMPANY, L.P
33 Maiden Lane
8th Floor
New York, New York 10038
Ladies and Gentlemen:
In connection with our engagement of JOSEPH STEVENS & COMPANY,
L.P. (the "Consultant") as our financial advisor and investment banker, we
hereby agree to ndemnify and hold the Consultant and its affiliates, and the
directors, officers, partners, shareholders, agents and employees of the
Consultant (collectively the "Indemnified Persons"), harmless from and against
any and all claims, actions, suits, proceedings (including those of
shareholders), damages, liabilities and expenses incurred by any of them
(including, but not limited to, fees and expenses of counsel) which are (A)
related to or arise out of (i) any actions taken or omitted to be taken
(including any untrue statements made or any statements omitted to be made) by
us, or (ii) any actions taken or omitted to be taken by any Indemnified Person
in connection with our engagement of the Consultant pursuant to the Financial
Advisory and Consulting Agreement, of even date herewith, between the Consultant
and us (the "Consulting Agreement"), or (B) otherwise related to or arising out
of the Consultant's activities on our behalf pursuant to the Consultant's
engagement under the Consulting Agreement, and we shall reimburse any
Indemnified Person for all expenses (including, but not limited to, fees and
expenses of counsel) incurred by such Indemnified Person in connection with
investigating, preparing or defending any such claim, action, suit or proceeding
(collectively a "Claim"), whether or not in connection with pending or
threatened litigation in which any Indemnified Person is a party. We will not,
however, be responsible for any Claim which is finally judicially determined to
have resulted exclusively from the gross negligence or willful misconduct of any
person seeking indemnification hereunder. We further agree that no Indemnified
Person shall have any liability to us for or in connection with the Consultant's
engagement under the Consulting Agreement except for any Claim incurred by us
solely as a direct result of any Indemnified Person's gross negligence or
willful misconduct.
We further agree that we will not, without the prior written
consent of the Consultant settle, compromise or consent to the entry of any
judgment in any pending or threatened Claim in respect of which indemnification
may be sought hereunder (whether or not
<PAGE>
any Indemnified Person is an actual or potential party to such Claim), unless
such settlement, compromise or consent includes a legally binding,
unconditional, and irrevocable release of each Indemnified Person hereunder from
any and all liability arising out of such Claim.
Promptly upon receipt by an Indemnified Person of notice of
any complaint or the assertion or institution of any Claim with respect to which
indemnification is being sought hereunder, such Indemnified Person shall notify
us in writing of such complaint or of such assertion or institution, but failure
to so notify us shall not relieve us from any obligation we may have hereunder,
unless, and only to the extent that, such failure results in the forfeiture by
us of substantial rights and defenses, and such failure to so notify us will not
in any event relieve us from any other obligation or liability we may have to
any Indemnified Person otherwise than under this Agreement. If we so elect or
are requested by such Indemnified Person, we will assume the defense of such
Claim, including the employment of counsel reasonably satisfactory to such
Indemnified Person and the payment of the fees and expenses of such counsel. In
the event, however, that such Indemnified Person reasonably determines in its
sole judgment that having common counsel would present such counsel with a
conflict of interest or such Indemnified Person concludes that there may be
legal defenses available to it or other Indemnified Persons different from or in
addition to those available to us, then such Indemnified Person may employ its
own separate counsel to represent or defend it in any such Claim and we shall
pay the reasonable fees and expenses of such counsel. Notwithstanding anything
herein to the contrary, if we fail timely or diligently to defend, contest, or
otherwise protect against any Claim, the relevant Indemnified Party shall have
the right, but not the obligation, to defend, contest, compromise, settle,
assert crossclaims or counterclaims, or otherwise protect against the same, and
shall be fully indemnified by us therefor, including, but not limited to, for
the fees and expenses of its counsel and all amounts paid as a result of such
Claim or the compromise or settlement thereof. In any Claim in which we assume
the defense, the Indemnified Person shall have the right to participate in such
defense and to retain its own counsel therefor at its own expense.
We agree that if any indemnity sought by an Indemnified Person
hereunder is held by a court to be unavailable for any reason, then (whether or
not the Consultant is the Indemnified Person) we and the Consultant shall
contribute to the Claim for which such indemnity is held unavailable in such
proportion as is appropriate to reflect the relative benefits to us, on the one
hand, and the Consultant, on the other, in connection with the Consultant's
engagement by us under the Consulting Agreement, subject to the limitation that
in no event shall the amount of the Consultant's contribution to such Claim
exceed the amount of fees actually received by the Consultant from us pursuant
to the Consultant's engagement under the Consulting Agreement. We hereby agree
that the relative benefits to us, on the one hand, and the Consultant, on the
other hand, with respect to the Consultant's engagement under the Consulting
Agreement shall be deemed to be in the same proportion as (a) the total value
paid or proposed to be paid or received by us or our stockholders as the case
may be, pursuant to the transaction (whether or not consummated) for which the
Consultant is engaged to render services bears to (b) the fee paid or proposed
to be paid to the Consultant in connection with such engagement.
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Our indemnity, reimbursement and contribution obligations
under this Agreement shall be in addition to, and shall in no way limit or
otherwise adversely affect any rights that an Indemnified Part may have at law
or at equity.
Should the Consultant, or any of its directors, officers,
partners, shareholders, agents or employees, be required or be requested by us
to provide documentary evidence or testimony in connection with any proceeding
arising from or relating to the Consultant's engagement under the Consulting
Agreement, we agree to pay all reasonable expenses (including but not limited to
fees and expenses of counsel) in complying therewith and one thousand dollars
($1,000) per day for any sworn testimony or preparation therefor, payable in
advance.
We hereby consent to personal jurisdiction and service of
process and venue in any court in which any claim for indemnity is brought by
any Indemnified Person.
It is understood that, in connection with the Consultant's
engagement under the Consulting Agreement, the Consultant may be engaged to act
in one or more additional capacities and that the terms of the original
engagement or any such additional engagement may be embodied in one or more
separate written agreements. The provisions of this Agreement shall apply to the
original engagement and any such additional engagement and shall remain in full
force and effect following the completion or termination of the Consultant's
engagement(s).
Very truly yours,
THE PRODUCERS ENTERTAINMENT
GROUP LTD.
By:
------------------------------------
Irwin Meyer
Chief Executive Officer
CONFIRMED AND AGREED TO:
JOSEPH STEVENS & COMPANY, L. .
By:
-------------------------------
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THE PRODUCERS ENTERTAINMENT GROUP LTD.
AND
OTR STOCK TRANSFER COMPANY
----------------
WARRANT AGREEMENT
Dated as of ______________, 1996
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- -------------------------------------------------------------------------------
<PAGE>
WARRANT AGREEMENT, dated this ___ day of ________ 1996 [the effective
date of the Registration Statement], by and between THE PRODUCERS ENTERTAINMENT
GROWTH LTD., a Delaware corporation (the "Company"), and OTR STOCK TRANSFER
COMPANY.
WITNESSETH:
WHEREAS, in connection with (i) the offering (the "Offering") to the
public of 2,000,000 units (the "Units"), each Unit consisting of four shares of
the Company's common stock, $.001 par value per share (the "Common Stock"), and
two redeemable warrants (the "Warrants"), each redeemable warrant entitling the
holder thereof to purchase one share of Common Stock, (ii) the over-allotment
option granted to Joseph Stevens & Company, L.P., the representative (the
"Representative") of the several underwriters (the "Underwriters") in the public
offering referred to above, to purchase up to an additional 300,000 Units (the
"Over- Allotment Option"), (iii) the sale to the Representative of warrants (the
"Representative's Warrants") to purchase up to 200,000 Units and (iv) 500,000
Warrants to be issued upon consummation of the Offering and registered for the
account of the certain security holders of the Company in exchange for certain
warrants issued in connection with the Company's bridge financing consummated in
June 1996 (the "Bridge Financing"), the Company will issue up to 5,500,000
Warrants (subject to increase as provided herein);
WHEREAS, the Company desires to provide for the issuance of
certificates representing the Warrants; and
WHEREAS, the Company desires the Warrant Agent (as defined in Section
1(u) hereof) to act on behalf of the Company, and the Warrant Agent is willing
to so act, in connection with
<PAGE>
the issuance, registration, transfer and exchange of certificates representing
the Warrants and the exercise of the Warrants.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth and for the purpose of defining the terms and
provisions of the Warrants and the certificates representing the Warrants and
the respective rights and obligations thereunder of the Company, the
Representative, the holders of certificates representing the Warrants and the
Warrant Agent, the parties hereto agree as follows:
SECTION 1. Definitions. As used herein, the following terms shall have
the following meanings, unless the context shall otherwise require:
(a) "Act" shall mean the Securities Act of 1933, as amended.
(b) "Commission" shall mean the Securities and Exchange
Commission.
(c) "Common Stock" shall have the meaning set forth in Section
8(d) hereof.
(d) "Company" shall have the meaning assigned to such term in
the first (1st) paragraph of this Agreement.
(e) "Corporate Office" shall mean the office of the Warrant
Agent at which at any particular time its principal business in Portland, Oregon
shall be administered, which office is located on the date hereof at 1130
Southwest Morrison #250, Portland, Oregon 92705.
(f) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
(g) "Exercise Date" shall mean, subject to the provisions of
Section 5(b) hereof, as to any Warrant, the date on which the Warrant Agent
shall have received both (i) the Warrant Certificate representing such Warrant,
with the exercise form thereon duly executed by the Registered Holder (as
defined in Section 1(m) hereof) thereof or his attorney duly authorized
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<PAGE>
in writing, and (ii) payment in cash or by check made payable to the Warrant
Agent for the account of the Company of an amount in lawful money of the United
States of America equal to the applicable Purchase Price (as defined in Section
1(k) hereof).
(h) "Initial Warrant Exercise Date" shall mean __________,
1996 [the effective date of the Registration Statement].
(i) "Initial Warrant Redemption Date" shall mean __________,
1997 [the date twelve (12) months after the effective date of the Registration
Statement].
(j) "NASD" shall mean the National Association of Securities
Dealers, Inc.
(k) "Purchase Price" shall mean, subject to modification and
adjustment as provided in Section 8 hereof, $1.75 per Share.
(l) "Redemption Date" shall mean the date (which may not occur
before the Initial Warrant Redemption Date) fixed for the redemption of the
Warrants in accordance with the terms hereof.
(m) "Registered Holder" shall mean the person in whose name
any certificate representing the Warrants shall be registered on the books
maintained by the Warrant Agent pursuant to Section 6(b) hereof.
(n) "Representative's Warrant Agreement" shall mean the
agreement dated as of __________, 1996 between the Company and the
Representative relating to and governing the terms and provisions of the
Representative's Warrants.
(o) "Subsidiary" or "Subsidiaries" shall mean any corporation
or corporations, as the case may be, of which stock having ordinary power to
elect a majority of the board of directors of such corporation or corporations
(regardless of whether or not at the time the stock of any other class or
classes of such corporation shall have or may have voting
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power by reason of the happening of any contingency) is at the time directly or
indirectly owned by the Company or by one or more Subsidiaries, or by the
Company and one or more Subsidiaries.
(p) "Transfer Agent" shall mean OTR Stock Transfer Company of
Portland, Oregon or its authorized successor.
(q) "Underwriting Agreement" shall mean the underwriting
agreement dated _______________, 1996 [the effective date of the Registration
Statement] between the Company and the Representative relating to the purchase
for resale to the public of 2,000,000 Units (without giving effect to the
Over-Allotment Option).
(r) "Warrant Agent" shall mean OTR Stock Transfer Company of
Portland, Oregon or its authorized successor.
(s) "Warrant Certificate" shall mean a certificate
representing each of the Warrants substantially in the form annexed hereto as
Exhibit A.
(t) "Warrant Expiration Date" shall mean, unless the Warrants
are redeemed as provided in Section 9 hereof prior to such date, 5:00 p.m. (New
York time) on __________, 2001 [the 60 month anniversary of issuance] or, if
such date shall in the State of New York be a holiday or a day on which banks
are authorized to close, then 5:00 p.m. (New York time) on the next following
day which in the State of New York is not a holiday or a day on which banks are
authorized to close, subject to the Company's right, prior to the Warrant
Expiration Date, with the consent of the Representative, to extend such Warrant
Expiration Date on five (5) business days prior written notice to the Registered
Holders.
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SECTION 2. Warrants and Issuance of Warrant Certificates.
(a) One Warrant shall initially entitle the Registered Holder
of the Warrant Certificate representing such Warrant to purchase at the Purchase
Price therefor from the Initial Warrant Exercise Date until the Warrant
Expiration Date one (1) share of Common Stock upon the exercise thereof, subject
to modification and adjustment as provided in Section 8 hereof.
(b) Upon execution of this Agreement, Warrant Certificates
representing 4,000,000 Warrants to purchase up to an aggregate of 4,000,000
shares of Common Stock (subject to modification and adjustment as provided in
Section 8 hereof), shall be executed by the Company and delivered to the Warrant
Agent.
(c) Upon exercise of the Over-Allotment Option, in whole or in
part, Warrant Certificates representing up to 600,000 Warrants to purchase up to
an aggregate of 600,000 shares of Common Stock (subject to modification and
adjustment as provided in Section 8 hereof) shall be executed by the Company and
delivered to the Warrant Agent.
(d) Upon exercise of the Representative's Warrants as provided
therein, Warrant Certificates representing 400,000 Warrants to purchase up to an
aggregate of 400,000 shares of Common Stock (subject to modification and
adjustment as provided in Section 8 hereof and in the Representative's Warrant
Agreement), shall be countersigned, issued and delivered by the Warrant Agent
upon written order of the Company signed by its Chairman of the Board, President
or a Vice President and by its Treasurer or an Assistant Treasurer or its
Secretary or an Assistant Secretary.
(e) Upon consummation of the Offering, Warrant Certificates
representing 500,000 Warrants, issued to certain security holders of the Company
in exchange for certain warrants issued in connection with the Bridge Financing,
entitling the holders thereof to purchase
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<PAGE>
up to an aggregate of 500,000 shares of Common Stock (subject to modification
and adjustment as provided in Section 8) shall be executed by the Company and
delivered to the Warrant Agent.
(f) From time to time, up to the Warrant Expiration Date, the
Warrant Agent shall countersign and deliver Warrant Certificates in required
denominations of one or whole number multiples thereof to the person entitled
thereto in connection with any transfer or exchange permitted under this
Agreement. No Warrant Certificates shall be issued except (i) Warrant
Certificates initially issued hereunder, (ii) Warrant Certificates issued upon
any transfer or exchange of Warrants, (iii) Warrant Certificates issued in
replacement of lost, stolen, destroyed or mutilated Warrant Certificates
pursuant to Section 7 hereof, and (iv) Warrant Certificates issued pursuant to
the Representative's Warrant Agreement (including Warrants in excess of the
400,000 Representative's Warrants issued as a result of the antidilution
provisions contained in the Representative's Warrant Agreement) and (v) at the
option of the Company, Warrant Certificates in such form as may be approved by
its Board of Directors, to reflect any adjustment or change in the Purchase
Price, the number of shares of Common Stock purchasable upon the exercise of a
Warrant or the redemption price therefor.
SECTION 3. Form and Execution of Warrant Certificates.
(a) The Warrant Certificates shall be substantially in the
form annexed hereto as Exhibit A (the provisions of which are hereby
incorporated herein) and may have such letters, numbers or other marks of
identification or designation and such legends, summaries or endorsements
printed, lithographed or engraved thereon as the Company may deem appropriate
and as are not inconsistent with the provisions of this Agreement, or as may be
required to comply with any law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange on which the
Warrants may be listed, or to conform to usage.
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<PAGE>
The Warrant Certificates shall be dated the date of issuance thereof (whether
upon initial issuance, transfer, exchange or in lieu of mutilated, lost, stolen
or destroyed Warrant Certificates).
(b) Warrant Certificates shall be executed on behalf of the
Company by its Chairman of the Board, President or any Vice President and by its
Treasurer or an Assistant Treasurer or its Secretary or an Assistant Secretary,
by manual signatures or by facsimile signatures printed thereon, and shall have
imprinted thereon a facsimile of the Company's seal. Warrant Certificates shall
be manually countersigned by the Warrant Agent and shall not be valid for any
purpose unless so countersigned. In case any officer of the Company who shall
have signed any of the Warrant Certificates shall cease to be such officer of
the Company before the date of issuance of the Warrant Certificates or before
countersignature by the Warrant Agent and issue and delivery thereof, such
Warrant Certificates, nevertheless, may be countersigned by the Warrant Agent
and issued and delivered with the same force and effect as though the officer of
the Company who signed such Warrant Certificates had not ceased to hold such
office.
SECTION 4. Exercise.
(a) Warrants in denominations of one or whole number multiples
thereof may be exercised commencing at any time on or after the Initial Warrant
Exercise Date, but not after the Warrant Expiration Date, upon the terms and
subject to the conditions set forth herein (including the provisions set forth
in Sections 5 and 9 hereof) and in the applicable Warrant Certificate. A Warrant
shall be deemed to have been exercised immediately prior to the close of
business on the Exercise Date, provided that the Warrant Certificate
representing such Warrant, with the exercise form thereon duly executed by the
Registered Holder thereof or his attorney duly authorized in writing, together
with payment in cash or by check made payable
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<PAGE>
to the Warrant Agent for the account of the Company of an amount in lawful money
of the United States of America equal to the applicable Purchase Price, have
been received by the Warrant Agent. The person entitled to receive the
securities deliverable upon such exercise shall be treated for all purposes as
the holder of such securities as of the close of business on the Exercise Date.
As soon as practicable on or after the Exercise Date and in any event within
five (5) business days after such date, the Warrant Agent, on behalf of the
Company, shall cause to be issued to the person or persons entitled to receive
the same a Common Stock certificate or certificates for the shares of Common
Stock deliverable upon such exercise, and the Warrant Agent shall deliver the
same to the person or persons entitled thereto. Upon the exercise of any
Warrants, the Warrant Agent shall promptly notify the Company in writing of such
fact and of the number of securities delivered upon such exercise and, subject
to Section 4(b) hereof, shall cause all payments in cash or by check made
payable to the order of the Company in respect of the Purchase Price to be
deposited promptly in the Company's bank account or delivered to the Company.
(b) At any time upon the exercise of any Warrants after one
year and one day from the date hereof, the Warrant Agent shall, on a daily
basis, within two business days after such exercise, notify the Representative,
its successors or assigns of the exercise of any such Warrants and shall, on a
weekly basis (subject to collection of funds constituting the tendered Purchase
Price, but in no event later than five business days after the last day of the
calendar week in which such funds were tendered), for services rendered by the
Representative to the Registered Holders of the Warrants then being exercised,
remit to the Representative an amount equal to five percent (5%) of the Purchase
Price of such Warrants then being exercised unless the Representative shall have
notified the Warrant Agent that the payment of such amount
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<PAGE>
with respect to such Warrant is violative of the General Rules and Regulations
promulgated under the Exchange Act, or the rules and regulations of the NASD or
applicable state securities or "blue sky" laws, or the Warrants are those
underlying the Representative's Warrants in which event, the Warrant Agent shall
have to pay such amount to the Company; provided, that, the Warrant Agent shall
not be obligated to pay any amounts pursuant to this Section 4(b) during any
week that such amounts payable are less than $1,000 and the Warrant Agent's
obligation to make such payments shall be suspended until the amount payable
aggregates $1,000, and provided further, that, in any event, any such payment
(regardless of amount) shall be made not less frequently than monthly.
(c) The Company shall not be obligated to issue any fractional
share interests or fractional warrant interests upon the exercise of any Warrant
or Warrants, nor shall it be obligated to issue scrip or pay cash in lieu of
fractional interests. Any fractional interest shall be eliminated by rounding
any fraction up to the next full share or Warrant, as the case may be, or other
securities, properties or rights.
SECTION 5. Reservation of Shares, Listing, Payment of Taxes, etc.
(a) The Company covenants that it will at all times reserve
and keep available out of its authorized Common Stock, solely for the purpose of
issuance upon the exercise of Warrants, such number of shares of Common Stock as
shall then be issuable upon the exercise of all outstanding Warrants. The
Company covenants that, upon exercise of the Warrants and payment of the
Purchase Price for the shares of Common Stock underlying the Warrants, all
shares of Common Stock which shall be issuable upon such exercise shall be duly
and validly issued, fully paid, non-assessable, free from all preemptive or
similar rights, and free from all taxes, liens and charges with respect to the
issuance thereof, and that upon issuance
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<PAGE>
such shares shall be listed or quoted on each securities exchange, if any, on
which the other shares of outstanding Common Stock are then listed or quoted, or
if not then so listed or quoted on each place (whether the Nasdaq Stock Market,
Inc., the NASD OTC Electronic Bulletin Board, the National Quotation Bureau
"pink sheets" or otherwise) on which the other shares of outstanding Common
Stock are listed or quoted.
(b) The Company covenants that if any securities reserved for
the purpose of exercise of Warrants hereunder require registration with, or
approval of, any governmental authority under any federal securities law before
such securities may be validly issued or delivered upon such exercise, then the
Company will file a registration statement under the federal securities laws or
a post-effective amendment to a registration statement, use its best efforts to
cause the same to become effective, keep such registration statement current
while any of the Warrants are outstanding and deliver a prospectus which
complies with Section 10(a)(3) of the Act, to the Registered Holder exercising
the Warrant (except, if in the opinion of counsel to the Company, such
registration is not required under the federal securities law or if the Company
receives a letter from the staff of the Commission stating that it would not
take any enforcement action if such registration is not effected). The Company
will use its best efforts to obtain appropriate approvals or registrations under
the state "blue sky" securities laws of all states in which Registered Holders
reside. Warrants may not be exercised by, nor may shares of Common Stock be
issued to, any Registered Holder in any state in which such exercise would be
unlawful.
(c) The Company shall pay all documentary, stamp or similar
taxes and other governmental charges that may be imposed with respect to the
issuance of Warrants, or the issuance or delivery of any shares of Common Stock
upon exercise of the Warrants; provided,
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however, that if shares of Common Stock are to be delivered in a name other than
the name of the Registered Holder of the Warrant Certificate representing any
Warrant being exercised, then no such delivery shall be made unless the person
requesting the same has paid to the Warrant Agent the amount of transfer taxes
or charges incident thereto, if any.
(d) The Warrant Agent is hereby irrevocably authorized as the
Transfer Agent to requisition from time to time certificates representing shares
of Common Stock or other securities required upon exercise of the Warrants, and
the Company will comply with all such requisitions.
SECTION 6. Exchange and Registration of Transfer.
(a) Warrant Certificates may be exchanged for other Warrant
Certificates representing an equal aggregate number of Warrants or may be
transferred in whole or in part. Warrant Certificates to be so exchanged shall
be surrendered to the Warrant Agent at its Corporate Office, and the Company
shall execute and the Warrant Agent shall countersign, issue and deliver in
exchange therefor the Warrant Certificate or Certificates which the Registered
Holder making the exchange shall be entitled to receive.
(b) The Warrant Agent shall keep, at such office, books in
which, subject to such reasonable regulations as it may prescribe, it shall
register Warrant Certificates and the transfer thereof. Upon due presentment for
registration of transfer of any Warrant Certificate at such office, the Company
shall execute and the Warrant Agent shall issue and deliver to the transferee or
transferees a new Warrant Certificate or Certificates representing an equal
aggregate number of Warrants.
(c) With respect to any Warrant Certificates presented for
registration of transfer, or for exchange or exercise, the subscription or
assignment form, as the case may be,
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<PAGE>
on the reverse thereof shall be duly endorsed or be accompanied by a written
instrument or instruments of subscription or assignment, in form satisfactory to
the Company and the Warrant Agent, duly executed by the Registered Holder
thereof or his attorney duly authorized in writing.
(d) No service charge shall be made for any exchange or
registration of transfer of Warrant Certificates. However, the Company may
require payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection therewith.
(e) All Warrant Certificates surrendered for exercise or for
exchange shall be promptly cancelled by the Warrant Agent.
(f) Prior to due presentment for registration or transfer
thereof, the Company and the Warrant Agent may deem and treat the Registered
Holder of any Warrant Certificate as the absolute owner thereof of each Warrant
represented thereby (notwithstanding any notations of ownership or writing
thereon made by anyone other than the Company or the Warrant Agent) for all
purposes and shall not be affected by any notice to the contrary.
SECTION 7. Loss or Mutilation. Upon receipt by the Company and the
Warrant Agent of evidence satisfactory to them of the ownership of and the loss,
theft, destruction or mutilation of any Warrant Certificate and (in the case of
loss, theft or destruction) of indemnity satisfactory to them, and (in case of
mutilation) upon surrender and cancellation thereof, the Company shall execute
and the Warrant Agent shall countersign and deliver in lieu thereof a new
Warrant Certificate representing an equal number of Warrants. Applicants for a
substitute Warrant Certificate shall also comply with such other reasonable
regulations and pay such other reasonable charges as the Warrant Agent may
prescribe.
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SECTION 8. Adjustments to Purchase Price and Number of Securities.
(a) Subdivision and Combination. In case the Company shall at
any time subdivide or combine the outstanding shares of Common Stock, the
Purchase Price shall forthwith be proportionately decreased in the case of
subdivision or increased in the case of combination.
(b) Stock Dividends and Distributions. In case the Company
shall pay dividend in, or make a distribution of, shares of Common Stock or of
the Company's capital stock convertible into Common Stock, the Purchase Price
shall forthwith be proportionately decreased. An adjustment made pursuant to
this Section 8(b) shall be made as of the record date for the subject stock
dividend or distribution.
(c) Adjustment in Number of Securities. Upon each adjustment
of the Purchase Price pursuant to the provisions of this Section 8, the number
of Warrant Securities issuable upon the exercise at the adjusted Purchase Price
of each Warrant shall be adjusted to the nearest whole number by multiplying a
number equal to the Purchase Price in effect immediately prior to such
adjustment by the number of Warrant Securities issuable upon exercise of the
Warrants immediately prior to such adjustment and dividing the product so
obtained by the adjusted Purchase Price.
(d) Definition of Common Stock. For the purpose of this
Agreement, the term "Common Stock" shall mean (i) the class of stock designated
as Common Stock in the Certificate of Incorporation of the Company as may be
amended or restated as of the date hereof, or (ii) any other class of stock
resulting from successive changes or reclassifications of such Common Stock
consisting solely of changes in par value, or from par value to no par value, or
from no par value to par value. In the event the Company shall after the date
hereof
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issue Common Stock with greater or superior voting rights than the shares of
Common Stock outstanding as of the date hereof, each Holder, at its option, may
receive upon exercise of any Warrant either shares of Common Stock or a like
number of such securities with greater or superior voting rights.
(e) Merger or Consolidation or Sale.
(i) In case of any consolidation of the Company with, or
merger of the Company with, or merger of the Company into, another corporation
(other than a consolidation or merger which does not result in any
reclassification or change of the outstanding Common Stock), the corporation
formed by such consolidation or surviving such merger shall execute and deliver
to the Holder a supplemental warrant agreement providing that the holder of each
Warrant then outstanding or to be outstanding shall have the right thereafter
(until the expiration of such Warrant) to receive, upon exercise of such
Warrant, the kind and amount of shares of stock and other securities and
property receivable upon such consolidation, merger, sale or transfer by a
Holder of the number of shares of Common Stock of the Company for which such
Warrant might have been exercised immediately prior to such consolidation,
merger, sale or transfer. Such supplemental warrant agreement shall provide for
adjustments which shall be identical to the adjustments provided in this Section
8. The above provision of this subsection shall similarly apply to successive
consolidations or mergers.
(ii) In the event of (A) the sale by the Company of all or
substantially all of its assets, or (B) the engagement by the Company or any of
its affiliates in a "Rule 13e-3 transaction" as defined in paragraph (a)(3) of
Rule 13e-3 of the General Rules and Regulations under the Exchange Act or (C) a
distribution to the Company's stockholders of any cash, assets, property,
rights, evidences of indebtedness, securities or any other thing of value, or
any
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combination thereof, the Holders of the unexercised Warrants shall receive
notice of such sale, transaction or distribution twenty (20) days prior to the
date of such sale or the record date for such transaction or distribution, as
applicable, and, if they exercise such Warrants prior to such date, they shall
be entitled, in addition to the shares of Common Stock issuable upon the
exercise thereof, to receive such property, cash, assets, rights, evidence of
indebtedness, securities or any other thing of value, or any combination
thereof, on the payment date of such sale, transaction or distribution.
(f) No Adjustment of Exercise Price in Certain Cases. No
adjustment of the Exercise Price shall be made if the amount of said adjustment
shall be less than ten cents (10(cent)) per share of Common Stock, provided,
however, that in such case any adjustment that would otherwise be required then
to be made shall be carried forward and shall be made at the time of and
together with the next subsequent adjustment which, together with any adjustment
so carried forward, shall amount to at least ten cents (10(cent)) per share of
Common Stock.
SECTION 9. Redemption.
(a) Commencing on the Initial Warrant Redemption Date, the
Company may (but only with the prior written consent of the Representative), on
thirty (30) days' prior written notice, redeem all of the Warrants, in whole and
not in part, at a redemption price of five cents ($.05) per Warrant; provided,
however, that before any such call for redemption of Warrants can take place,
the (i) average closing bid price for the Common Stock, as reported by the
National Association of Securities Dealers Automated Quotation System, or (ii)
if not so quoted, as reported by any other recognized quotation system on which
the Common Stock is quoted, shall have for any twenty (20) trading days within a
period of thirty (30) consecutive trading days ending on the fifth (5th) trading
day prior to the date on which the notice contemplated by
15
<PAGE>
Sections 9(b) and 9(c) hereof is given, equalled or exceeded 150% of the then
exercise price per share of Common Stock (subject to adjustment in the event of
any stock splits or other similar events as provided in Section 8 hereof).
(b) In case the Company shall exercise its right to redeem all
of the Warrants, it shall give or cause to be given notice to the Registered
Holders of the Warrants, by mailing to such Registered Holders a notice of
redemption, first class, postage prepaid, at their last address as shall appear
on the records of the Warrant Agent. Any notice mailed in the manner provided
herein shall be conclusively presumed to have been duly given whether or not the
Registered Holder receives such notice. Not less than five (5) business days
prior to the mailing to the Registered Holders of the Warrants of the notice of
redemption, the Company shall deliver or cause to be delivered to the
Representative or its successors or assigns a similar notice telephonically and
confirmed in writing, together with a list of the Registered Holders (including
their respective addresses and number of Warrants beneficially owned by them) to
whom such notice of redemption has been or will be given.
(c) The notice of redemption shall specify (i) the redemption
price, (ii) the date fixed for redemption, which shall in no event be less than
thirty (30) days after the date of mailing of such notice, (iii) the place where
the Warrant Certificates shall be delivered and the redemption price shall be
paid, and (iv) that the Representative is the Company's exclusive warrant
solicitation agent and shall receive the commission contemplated by Section 4(b)
hereof and (v) that the right to exercise the Warrant shall terminate at 5:00
p.m. (New York time) on the business day immediately preceding the date fixed
for redemption. The date fixed for the redemption of the Warrants shall be the
"Redemption Date" for purposes of this Agreement. No failure to mail such notice
nor any defect therein or in the mailing thereof shall affect the
16
<PAGE>
validity of the proceedings for such redemption except as to a holder (A) to
whom notice was not mailed or (B) whose notice was defective. An affidavit of
the Warrant Agent or the Secretary or Assistant Secretary of the Company that
notice of redemption has been mailed shall, in the absence of fraud, be prima
facie evidence of the facts stated therein.
(d) Any right to exercise a Warrant shall terminate at 5:00
p.m. (New York time) on the business day immediately preceding the Redemption
Date. The redemption price payable to the Registered Holders shall be mailed to
such persons at their addresses of record.
(e) The Company shall indemnify the Representative and each
person, if any, who controls the Representative within the meaning of Section 15
of the Act or Section 20(a) of the Exchange Act against all loss, claim, damage,
expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which any
of them may become subject under the Act, the Exchange Act or otherwise, arising
from the registration statement or prospectus referred to in Section 5(b) hereof
to the same extent and with the same effect (including the provisions regarding
contribution) as the provisions pursuant to which the company has agreed to
indemnify the Representative contained in Section 7 of the Underwriting
Agreement.
(f) Five business days prior to the Redemption Date, the
Company shall furnish to the Representative (i) opinions of counsel to the
Company, dated such date and addressed to the Representative, and (ii) a "cold
comfort" letter dated such date addressed to the Representative, signed by the
independent public accountants who have issued a report on the Company's
financial statements included in such registration statement, in each case
covering substantially the same matters with respect to such registration
statement (and the prospectus included therein) and, in the case of such
accountants' letter, with respect to events subsequent
17
<PAGE>
to the date of such financial statements, as are customarily covered in opinions
of issuer's counsel and in accountants' letters delivered to underwriters in
underwritten public offerings of securities, including, without limitation,
those matters covered in Sections 6(d), 6(e) and 6(j) of the Underwriting
Agreement.
(g) The Company shall as soon as practicable after the
Redemption Date, and in any event within 15 months thereafter, make "generally
available to its security holders" (within the meaning of Rule 158 under the
Act) an earnings statement (which need not be audited) complying with Section
11(a) of the Act and covering a period of at least 12 consecutive months
beginning after the Redemption Date.
(h) The Company shall deliver within five business days prior
to the Redemption Date copies of all correspondence between the Commission and
the Company, its counsel or auditors and all memoranda relating to discussions
with the Commission or its staff with respect to such registration statement and
permit the Representative to do such investigation, upon reasonable advance
notice, with respect to information contained in or omitted from the
registration statement as it deems reasonably necessary to comply with
applicable securities laws or rules of the NASD. Such investigation shall
include access to books, records and properties and opportunities to discuss the
business of the Company with its officers and independent auditors, all to such
reasonable extent and at such reasonable times and as often as the
Representative shall reasonably request.
SECTION 10. Concerning the Warrant Agent.
(a) The Warrant Agent acts hereunder as agent and in a
ministerial capacity for the Company and the Representative, and its duties
shall be determined solely by the provisions hereof. The Warrant Agent shall
not, by issuing and delivering Warrant Certificates
18
<PAGE>
or by any other act hereunder, be deemed to make any representations as to the
validity or value or authorization of the Warrant Certificates or the Warrants
represented thereby or of any securities or other property delivered upon
exercise of any Warrant or whether any stock issued upon exercise of any Warrant
is fully paid and non-assessable.
(b) The Warrant Agent shall not at any time be under any duty
or responsibility to any holder of Warrant Certificates to make or cause to be
made any adjustment of the Purchase Price provided in this Agreement, or to
determine whether any fact exists which may require any such adjustment, or with
respect to the nature or extent of any such adjustment, when made, or with
respect to the method employed in making the same. It shall not (i) be liable
for any recital or statement of fact contained herein or for any action taken,
suffered or omitted by it in reliance on any Warrant Certificate or other
document or instrument believed by it in good faith to be genuine and to have
been signed or presented by the proper party or parties, (ii) be responsible for
any failure on the part of the Company to comply with any of its covenants and
obligations contained in this Agreement or in any Warrant Certificate, or (iii)
be liable for any act or omission in connection with this Agreement except for
its own gross negligence or willful misconduct.
(c) The Warrant Agent may at any time consult with counsel
satisfactory to it (who may be counsel for the Company or the Representative)
and shall incur no liability or responsibility for any action taken, suffered or
omitted by it in good faith in accordance with the opinion or advice of such
counsel.
(d) Any notice, statement, instruction, request, direction,
order or demand of the Company shall be sufficiently evidenced by an instrument
signed by the Chairman of the Board of Directors, President or any Vice
President (unless other evidence in respect thereof is
19
<PAGE>
herein specifically prescribed). The Warrant Agent shall not be liable for any
action taken, suffered or omitted by it in accordance with such notice,
statement, instruction, request, direction, order or demand.
(e) The Company agrees to pay the Warrant Agent reasonable
compensation for its services hereunder and to reimburse it for its reasonable
expenses hereunder; the Company further agrees to indemnify the Warrant Agent
and hold it harmless against any and all losses, expenses and liabilities,
including judgments, costs and counsel fees, for anything done or omitted by the
Warrant Agent in the execution of its duties and powers hereunder except losses,
expenses and liabilities arising as a result of the Warrant Agent's gross
negligence or willful misconduct.
(f) The Warrant Agent may resign its duties and be discharged
from all further duties and liabilities hereunder (except liabilities arising as
a result of the Warrant Agent's own gross negligence or willful misconduct),
after giving thirty (30) days' prior written notice to the Company. At least
fifteen (15) days prior to the date such resignation is to become effective, the
Warrant Agent shall cause a copy of such notice of resignation to be mailed to
the Registered Holder of each Warrant Certificate at the Company's expense. Upon
such resignation the Company shall appoint in writing a new warrant agent. If
the Company shall fail to make such appointment within a period of thirty (30)
days after it has been notified in writing of such resignation by the resigning
Warrant Agent, then the Registered Holder of any Warrant Certificate may apply
to any court of competent jurisdiction for the appointment of a new warrant
agent. Any new warrant agent, whether appointed by the Company or by such a
court, shall be a bank or trust company having a capital and surplus, as shown
by its last published report to its stockholders, of not less than ten million
dollars ($10,000,000) or a stock
20
<PAGE>
transfer company doing business in New York, New York. After acceptance in
writing of such appointment by the new warrant agent is received by the Company,
such new warrant agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named herein as the warrant agent,
without any further assurance, conveyance, act or deed; but if for any reason it
shall be necessary or expedient to execute and deliver any further assurance,
conveyance, act or deed, the same shall be done at the expense of the Company
and shall be legally and validly executed and delivered by the resigning Warrant
Agent. Not later than the effective date of any such appointment, the Company
shall file notice thereof with the resigning Warrant Agent and shall forthwith
cause a copy of such notice to be mailed to the Registered Holder of each
Warrant Certificate.
(g) Any corporation into which the Warrant Agent or any new
warrant agent may be converted or merged, any corporation resulting from any
consolidation to which the Warrant Agent or any new warrant agent shall be a
party, or any corporation succeeding to the corporate trust business of the
Warrant Agent or any new warrant agent shall be a successor warrant agent under
this Agreement without any further act, provided that such corporation is
eligible for appointment as successor to the Warrant Agent under the provisions
of the preceding paragraph. Any such successor warrant agent shall promptly
cause notice of its succession as warrant agent to be mailed to the Company and
to the Registered Holders of each Warrant Certificate.
(h) The Warrant Agent, its subsidiaries and affiliates, and
any of its or their officers or directors, may buy and hold or sell Warrants or
other securities of the Company and otherwise deal with the Company in the same
manner and to the same extent and with like effect
21
<PAGE>
as though it were not Warrant Agent. Nothing herein shall preclude the Warrant
Agent from acting in any other capacity for the Company or for any other legal
entity.
(i) The Warrant Agent shall retain for a period of two (2)
years from the date of exercise any Warrant Certificate received by it upon such
exercise.
SECTION 11. Modification of Agreement.
The Warrant Agent and the Company may by supplemental agreement make
any changes or corrections in this Agreement (a) that they shall deem
appropriate to cure any ambiguity or to correct any defective or inconsistent
provision or manifest mistake or error herein contained, or (b) that they may
deem necessary or desirable and which shall not adversely affect the interests
of the holders of Warrant Certificates; provided, however, that this Agreement
shall not otherwise be modified, supplemented or altered in any respect except
with the consent in writing of the Registered Holders holding not less than
sixty-six and two-thirds percent (66- 2/3%) of the Warrants then outstanding;
provided, further, that no change in the number or nature of the securities
purchasable upon the exercise of any Warrant, and no change that increases the
Purchase Price of any Warrant, other than such changes as are specifically set
forth in this Agreement as originally executed, shall be made without the
consent in writing of each Registered Holders affected by such change. In
addition, this Agreement may not be modified, amended or supplemented without
the prior written consent of the Representative or its successors or assigns,
other than to cure any ambiguity or to correct any defective or inconsistent
provision or manifest mistake or error herein contained or to make any such
change that the Warrant Agent and the Company deem necessary or desirable and
which shall not adversely affect the interests of the Representative or its
successors or assigns.
22
<PAGE>
SECTION 12. Notices.
All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been made when delivered or
mailed first-class postage prepaid or delivered to a telegraph office for
transmission, if to the Registered Holder of a Warrant Certificate, at the
address of such holder as shown on the registry books maintained by the Warrant
Agent; if to the Company at The Producers Entertainment Group Ltd., 9150
Wilshire Blvd., Suite 205, Beverly Hills, California 90212-3414, Attention:
Irwin Meyer, President and Chief Executive Officer, or at such other address as
may have been furnished to the Warrant Agent in writing by the Company; and if
to the Warrant Agent, at its Corporate Office. Copies of any notice delivered
pursuant to this Agreement shall be delivered to Joseph Stevens & Company, L.P.,
33 Maiden Lane, 8th Floor, New York, NY 10038, Attention: Joseph Sorbara, Chief
Executive Officer or at such other address as may have been furnished to the
Company and the Warrant Agent in writing.
SECTION 13. Governing Law.
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York without giving effect to conflicts of laws
rules or principals.
SECTION 14. Binding Effect.
This Agreement shall be binding upon and inure to the benefit of the
Company, the Warrant Agent and their respective successors and assigns and the
holders from time to time of Warrant Certificates or any of them. Except as
hereinafter stated, nothing in this Agreement is intended or shall be construed
to confer upon any other person any right, remedy or claim or to impose upon any
other person any duty, liability or obligation. The Representative is, and
23
<PAGE>
shall at all times irrevocably be deemed to be, a third-party beneficiary of
this Agreement, with full power, authority and standing to enforce the rights
granted to it hereunder.
SECTION 15. Counterparts.
This Agreement may be executed in several counterparts, which taken
together shall constitute a single document.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
THE PRODUCERS ENTERTAINMENT OTR STOCK TRANSFER COMPANY
GROUP LTD. As Warrant Agent
By: By:
---------------------------- ------------------------------
Name: Name:
Title: Title:
24
<PAGE>
EXHIBIT A
No. W ___________ VOID AFTER ____________________, 2001
_________ WARRANTS
REDEEMABLE WARRANT CERTIFICATE TO
PURCHASE SHARES OF COMMON STOCK
THE PRODUCERS ENTERTAINMENT GROUP LTD.
CUSIP
THIS CERTIFIES THAT, FOR VALUE RECEIVED
or registered assigns (the "Registered Holder") is the owner of the number of
Redeemable Warrants (the "Warrants") specified above. One Warrant initially
entitles the Registered Holder to purchase, subject to the terms and conditions
set forth in this Certificate and the Warrant Agreement (as hereinafter
defined), one fully paid and non-assessable share of Common Stock, $.001 par
value per share, of The Producers Entertainment Group Ltd., a Delaware
corporation (the "Company"), at any time from _____________, 1996 [the effective
date of the Registration Statement] and prior to the Expiration Date (as
hereinafter defined) upon the presentation and surrender of this Warrant
Certificate with the Subscription Form on the reverse hereof duly executed, at
the corporate office of OTR Stock Transfer Company, 1130 Southwest Morrison
#250, Portland, Oregon 92705 as Warrant Agent, or its successor (the "Warrant
Agent"), accompanied by payment of $1.75 subject to adjustment (the "Purchase
Price"), in lawful money of the United States of America in cash or by check
made payable to the Warrant Agent for the account of the Company.
This Warrant Certificate is, and each Warrant represented hereby are,
issued pursuant to and are subject in all respects to the terms and conditions
set forth in the Warrant Agreement (the "Warrant Agreement"), dated __________,
1996 [the effective date of the Registration Statement], by and between the
Company and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price and the number of shares of Common Stock subject
to purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional interests will be issued. In the case of
the exercise of less than all of the Warrants represented hereby, the Company
shall cancel this Warrant Certificate upon the surrender hereof and shall
execute and deliver a new Warrant Certificate or Warrant Certificates of like
tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
A-1
<PAGE>
The term "Expiration Date" shall mean 5:00 p.m. (New York time) on
__________, 2001 [the 60 month anniversary of the issuance of the Warrant]. If
such date shall in the State of New York be a holiday or a day on which banks
are authorized to close, then the Expiration Date shall mean 5:00 p.m. (New York
time) on the next day which in the State of New York is not a holiday or a day
on which banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant
to the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended (the "Act"), with respect to such securities
is effective or an exemption thereunder is available. The Company has covenanted
and agreed that it will file a registration statement under the Federal
securities laws, use its best efforts to cause the same to become effective, to
keep such registration statement current, if required under the Act, while any
of the Warrants are outstanding, and deliver a prospectus which complies with
Section 10(a)(3) of the Act to the Registered Holder exercising this Warrant.
This Warrant shall not be exercisable by a Registered Holder in any state where
such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by
the Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment and payment of any tax or other
charge imposed in connection therewith or incident thereto, for registration of
transfer of this Warrant Certificate at such office, a new Warrant Certificate
or Warrant Certificates representing an equal aggregate number of Warrants will
be issued to the transferee in exchange therefor, subject to the limitations
provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a stockholder of the Company,
including, without limitation, the right to vote or to receive dividends or
other distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided in the Warrant Agreement.
Subject to the provisions of the Warrant Agreement, this Warrant may be
redeemed at the option of the Company, in whole and not in part, at a redemption
price of $.05 per Warrant, at any time commencing __________, 1997 [twelve (12)
months from issuance] provided that the average closing bid price for the
Company's Common Stock, as reported by the National Association of Securities
Dealers Automated Quotation System (or, if not so quoted, as reported by any
other recognized quotation system on which the price of the Common Stock is
quoted), shall have, for any twenty (20) trading days within a period of thirty
(30) consecutive trading days ending on the fifth (5th) trading day prior to the
date on which the Notice of Redemption (as defined below) is given, equalled or
exceeded 150% of the then exercise price per share (subject to adjustment in the
event of any stock splits or other similar events). Notice of redemption (the
"Notice of Redemption") shall be given not later than the thirtieth (30th) day
before the date fixed for redemption, all as provided in the Warrant Agreement.
On and after the date fixed for redemption, the Registered Holder shall have no
rights with respect to this Warrant except to receive the $.05 per Warrant upon
surrender of this Certificate.
A-2
<PAGE>
Prior to due presentment for registration of transfer hereof, the
Company and the Warrant Agent may deem and treat the Registered Holder as the
absolute owner hereof and of each Warrant represented hereby (notwithstanding
any notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary, except as provided in the
Warrant Agreement.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York without giving effect to
conflicts of laws.
This Warrant Certificate is not valid unless countersigned by the
Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed, manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
Dated: ___________, 1996
THE PRODUCERS ENTERTAINMENT
GROUP LTD.
[SEAL]
By:
--------------------------------
Name:
Title:
ATTEST:
By:
--------------------------------
Name:
COUNTERSIGNED: Title:
OTR STOCK TRANSFER COMPANY,
as Warrant Agent
By:
-------------------------
Authorized Officer
A-3
<PAGE>
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrant
The undersigned Registered Holder hereby irrevocably elects to exercise
_____ Warrants represented by this Warrant Certificate, and to purchase the
securities issuable upon the exercise of such Warrants, and requests that
certificates for such securities shall be issued in name of
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
---------------------------------
---------------------------------
---------------------------------
---------------------------------
(please print or type name and address)
and be delivered to
---------------------------------
---------------------------------
---------------------------------
---------------------------------
(please print or type name and address)
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
A-4
<PAGE>
IMPORTANT: PLEASE COMPLETE THE FOLLOWING:
1. If the exercise of this Warrant was
solicited by Joseph Stevens & Company,
L.P. please check the
following box
2. The exercise of this Warrant was
solicited by
--------------------------
3. If the exercise of this Warrant was
not solicited, please check the
following box
Dated: X
---------------------- --------------------------------
--------------------------------
--------------------------------
--------------------------------
Address
--------------------------------
Social Security or Taxpayer
Identification Number
--------------------------------
Signature Guaranteed
--------------------------------
A-5
<PAGE>
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, __________________________, hereby sells, assigns
and transfers unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER
----------------------------------
----------------------------------
----------------------------------
(please print or type name and address)
________________________ of the Warrants represented by this Warrant
Certificate, and hereby irrevocably constitutes and appoints
____________________ Attorney to transfer this Warrant Certificate on the books
of the Company, with full power of substitution in the premises.
Dated: X
----------------------- ---------------------------
---------------------------
Signature Guaranteed
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER AND MUST BE
GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE
AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE,
MIDWEST STOCK EXCHANGE OR BOSTON STOCK EXCHANGE.
A-6
<PAGE>
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
THE PRODUCERS ENTERTAINMENT GROUP LTD.
AND
JOSEPH STEVENS & COMPANY L.P.
-----------------
REPRESENTATIVE'S
WARRANT AGREEMENT
________, 1996
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
<PAGE>
REPRESENTATIVE'S WARRANT AGREEMENT dated as of _______ ____,
1996 by and between THE PRODUCERS ENTERTAINMENT GROUP LTD., a Delaware
corporation (the "Company"), and JOSEPH STEVENS & COMPANY, L.P. ("Joseph
Stevens") (Joseph Stevens is hereinafter referred to variously as the "Holder"
or the "Representative").
W I T N E S S E T H:
WHEREAS, the Company proposes to issue to the Representative
or its designee(s) warrants ("Warrants") to purchase up to 200,000 Units (as
defined in Section 1 hereof, each Unit consisting of four (4) shares of common
stock, $.001 par value per share, of the Company ("Common Stock") and two (2)
redeemable Common Stock purchase warrants, each to purchase one additional share
of Common Stock ("Redeemable Warrants")); and
WHEREAS, the Representative has agreed pursuant to the
underwriting agreement (the "Underwriting Agreement") dated as of the date
hereof by and among the several Underwriters listed therein and the Company to
act as the representative of the several underwriters in connection with the
proposed public offering of 2,000,000 Units at a public offering price of $4.00
per Unit; and
WHEREAS, the Warrants to be issued pursuant to this Agreement
will be issued on the Closing Date (as such term is defined in the Underwriting
Agreement) by the Company to the Representative in consideration for, and as
part of the Representative's compensation in connection with, Joseph Stevens
acting as the Representative pursuant to the Underwriting Agreement;
NOW, THEREFORE, in consideration of the premises, the payment
by the Representative to the Company of twenty dollars ($20.00), the agreements
herein set forth and
<PAGE>
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. Grant. The Representative (or its designee(s)) is hereby
granted the right to purchase, at any time from __________, 1997 [one year from
the date hereof] until 5:00 p.m., New York time, on __________, 2001, [5 years
from the date hereof] up to 200,000 Units at an initial exercise price (subject
to adjustment as provided in Section 8 hereof) of $__________ [120% of the IPO
price per Unit] per Unit subject to the terms and conditions of this Agreement.
A "Unit" consists of four (4) shares of Common Stock and two (2) Redeemable
Warrants. Each Redeemable Warrant is exercisable to purchase one additional
share of Common Stock at an initial exercise price of $1.75 per share,
commencing on the date of issuance (the "Initial Exercise Date") and ending, at
5:00 p.m. New York time on __________, 2001 [60 months from the date hereof]
(the "Redeemable Warrant Expiration Date") at which time the Redeemable Warrants
shall expire. Except as set forth herein, the Units issuable upon exercise of
the Warrants are in all respects identical to the Units being purchased by the
Underwriters for resale to the public pursuant to the terms and provisions of
the Underwriting Agreement.
2. Warrant Certificates. The warrant certificates (the
"Warrant Certificates") delivered and to be delivered pursuant to this Agreement
shall be in the form set forth in Exhibit A attached hereto and made a part
hereof, with such appropriate insertions, omissions, substitutions and other
variations as required or permitted by this Agreement.
3. Exercise of Warrant.
3.1 Method of Exercise. The Warrants are initially exercisable
at an initial exercise price per Unit set forth in Section 6 hereof payable by
certified or official bank check
2
<PAGE>
in New York Clearing House funds, subject to adjustment as provided in Section 8
hereof. Upon surrender of a Warrant Certificate, together with the annexed Form
of Election to Purchase duly executed and payment of the Exercise Price (as
hereinafter defined) for the Units purchased at the Company's principal offices
in Beverly Hills, California (presently located at 9150 Wilshire Blvd., Suite
205, Beverly Hills, California 90212-3414 the registered holder of a Warrant
Certificate ("Holder" or "Holders") shall be entitled to receive a certificate
or certificates for the shares of Common Stock so purchased and a certificate or
certificates for the Redeemable Warrants so purchased. The purchase rights
represented by each Warrant Certificate are exercisable at the option of the
Holder thereof, in whole or in part (but not as to fractional shares of the
Common Stock and Redeemable Warrants underlying the Warrants). In the event the
Company redeems all of the outstanding Redeemable Warrants, the Redeemable
Warrants underlying the Warrants may only be exercised if such exercise is
simultaneous with the exercise of the Warrants. Warrants may be exercised to
purchase all or part of the Units represented thereby. In the case of the
purchase of less than all the Units purchasable under any Warrant Certificate,
the Company shall cancel said Warrant Certificate upon the surrender thereof and
shall execute and deliver a new Warrant Certificate of like tenor for the
balance of the Units purchasable thereunder.
3.2 Exercise by Surrender of Warrant. In addition to the
method of payment set forth in Section 3.1 and in lieu of any cash payment
required thereunder, the Holder(s) of the Warrants shall have the right at any
time and from time to time to exercise the Warrants in full or in part by
surrendering the Warrant Certificate in the manner specified in Section 3.1 in
exchange for the number of Units equal to the product of (x) the number of Units
as to which the Warrants are being exercised, multiplied by (y) a fraction, the
numerator of which is the
3
<PAGE>
Market Price (as defined in Section 3.3 hereof) of the Units minus the Exercise
Price of the Units and the denominator of which is the Market Price per Unit.
Solely for the purposes of this Section 3.2, Market Price shall be calculated
either (i) on the date on which the form of election attached hereto is deemed
to have been sent to the Company pursuant to Section 14 hereof ("Notice Date")
or (ii) as the average of the Market Price for each of the five trading days
immediately preceding the Notice Date, whichever of (i) or (ii) results in a
greater Market Price.
3.3 Definition of Market Price.
(a) As used herein, the phrase "Market Price of the Units,"
the Common Stock or the Redeemable Warrants, respectively, at any date shall be
deemed to be the last reported sale price, or, in case no such reported sale
takes place on such day, the average of the last reported sale prices for the
last three (3) trading days, in either case as officially reported by the
principal securities exchange on which the Units, the Common Stock or the
Redeemable Warrants, as the case may be, are listed or admitted to trading or by
the Nasdaq National Market ("Nasdaq/NM") or the Nasdaq Small Cap Market ("Nasdaq
Small Cap"), or, if the Units, the Common Stock or the Redeemable Warrants, as
the case may be, are not listed or admitted to trading on any national
securities exchange or quoted by the National Association of Securities Dealers
Automated Quotation System ("Nasdaq"), the average closing bid price as
furnished by the National Association of Securities Dealers, Inc. ("NASD")
through Nasdaq or similar organization if Nasdaq is no longer reporting such
information (collectively, the "Appropriate Market Price").
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(b) If the Market Price of Units cannot be determined pursuant
to Section 3.3(a), the Market Price of the Units at any date shall be deemed to
be the sum of the Market Price of the Common Stock and the Market Price of the
Redeemable Warrants.
(c) If the Market Price of the Common Stock cannot be
determined pursuant to Section 3.3(a) above, the Market Price of the Common
Stock shall be determined in good faith (using customary valuation methods) by
resolution of the members of the Board of Directors of the Company, based on the
best information available to it.
(d) If the Market Price of the Redeemable Warrants cannot be
determined pursuant to Section 3.3(a) above, the Market Price of a Redeemable
Warrant shall equal the difference between the Market Price of the Common Stock
and the Exercise Price of the Redeemable Warrant.
4. Issuance of Certificates. Upon the exercise of the
Warrants, the issuance of certificates for shares of Common Stock and Redeemable
Warrants or other securities, properties or rights underlying such Warrants, and
upon the exercise of the Redeemable Warrants, the issuance of certificates for
shares of Common Stock or other securities, properties or rights underlying such
Redeemable Warrants shall be made forthwith (and in any event such issuance
shall be made within five (5) business days thereafter) without charge to the
Holder thereof including, without limitation, any tax which may be payable in
respect of the issuance thereof, and such certificates shall (subject to the
provisions of Sections 5 and 7 hereof) be issued in the name of, or in such
names as may be directed by, the Holder thereof.
The Warrant Certificates and the certificates representing the
shares of Common Stock and the Redeemable Warrants underlying the Warrants and
the shares of Common Stock underlying each Redeemable Warrant or other
securities, property or rights shall be executed
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on behalf of the Company by the manual or facsimile signature of the then
present Chairman or Vice Chairman of the Board of Directors or President or Vice
President of the Company under its corporate seal reproduced thereon, attested
to by the manual or facsimile signature of the then present Secretary or
Assistant Secretary or Treasurer or Assistant Treasurer of the Company. Warrant
Certificates shall be dated the date of execution by the Company upon initial
issuance, division, exchange, substitution or transfer.
5. Restriction On Transfer of Warrants. The Holder of a
Warrant Certificate, by its acceptance thereof, covenants and agrees that the
Warrants are being acquired as an investment and not with a view to the
distribution thereof; that the Warrants may not be sold, transferred, assigned,
hypothecated or otherwise disposed of, in whole or in part, for a period of one
(1) year from the date hereof, except to officers or partners of the
Representative.
6. Exercise Price.
6.1 Initial and Adjusted Exercise Price. Except as otherwise
provided in Section 8 hereof, the initial exercise price of each Warrant shall
be $____ per Unit [120% of the IPO price per Unit]. The adjusted exercise price
shall be the price which shall result from time to time from any and all
adjustments of the initial exercise price in accordance with the provisions of
Section 8 hereof.
6.2 Exercise Price. The term "Exercise Price" herein shall
mean the initial exercise price or the adjusted exercise price, depending upon
the context.
7. Registration Rights.
7.1 Registration Under the Securities Act of 1933. The
Warrants, the shares of Common Stock and the Redeemable Warrants underlying the
Warrants and the shares of Common Stock issuable upon exercise of the Redeemable
Warrants underlying the Warrants and
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the other securities issuable upon exercise of the Warrants (collectively, the
"Warrant Securities") have been registered under the Securities Act of 1933, as
amended (the "Act") pursuant to the Company's Registration Statement on Form
SB-2 (Registration No. __________) (the "Registration Statement"). All the
representations and warranties of the Company contained in the Underwriting
Agreement relating to the Registration Statement, the Preliminary Prospectus and
Prospectus (as such terms are defined in the Underwriting Agreement) and made as
of the dates provided therein, are hereby incorporated by reference. The Company
agrees and covenants promptly to file post effective amendments to such
Registration Statement as may be necessary to maintain the effectiveness of the
Registration Statement as long as any Warrants are outstanding. In the event
that, for any reason, whatsoever, the Company shall fail to maintain the
effectiveness of the Registration Statement, upon exercise, in part or in whole,
of the Warrants, certificates representing the shares of Common Stock and the
Redeemable Warrants underlying the Warrants, and upon exercise, in whole or in
part of the Redeemable Warrants, certificates representing the shares of Common
Stock underlying the Redeemable Warrants and the other securities issuable upon
exercise of the Warrants shall bear the following legend:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended
("Act"), and may not be offered, sold, pledged, hypothecated,
assigned or transferred except pursuant to (i) an effective
registration statement under the Act, (ii) to the extent
applicable, Rule 144 under the Act (or any similar rule under
such Act relating to the disposition of securities), or (iii)
an opinion of counsel, if such opinion shall be reasonably
satisfactory to counsel to the issuer, that an exemption from
registration under such Act is available.
7.2 Piggyback Registration. If, at any time commencing after
the date hereof and expiring seven (7) years thereafter, the Company proposes to
register any of its securities under the Act (other than pursuant to Form S-8,
S-4 or a comparable registration statement) the
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Company will give written notice by registered mail, at least thirty (30) days
prior to the filing of each such registration statement, to the Representative
and to all other Holders of the Warrants and/or the Warrant Securities of its
intention to do so. If the Representative or other Holders of the Warrants
and/or Warrant Securities notifies the Company within twenty (20) days after
receipt of any such notice of its or their desire to include any such securities
in such proposed registration statement, the Company shall afford the
Representative and such Holders of the Warrants and/or Warrant Securities the
opportunity to have any such Warrant Securities registered under such
registration statement.
Notwithstanding the provisions of this Section 7.2, the
Company shall have the right at any time after it shall have given written
notice pursuant to this Section 7.2 (irrespective of whether a written request
for inclusion of any such securities shall have been made) to elect not to file
any such proposed registration statement, or to withdraw the same after the
filing but prior to the effective date thereof.
7.3 Demand Registration.
(a) At any time commencing after the date hereof and expiring
five (5) years thereafter, the Holders of the Warrants and/or Warrant Securities
representing a "Majority" (as hereinafter defined) of such securities (assuming
the exercise of all of the Warrants and the Redeemable Warrants underlying the
Warrants) shall have the right (which right is in addition to the registration
rights under Section 7.2 hereof), exercisable by written notice to the Company,
to have the Company prepare and file with the Securities and Exchange Commission
(the "Commission"), on one occasion, a registration statement and such other
documents, including a prospectus, as may be necessary in the opinion of both
counsel for the Company and counsel for the Representative and Holders, in order
to comply with the provisions of the Act,
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so as to permit a public offering and sale of their respective Warrant
Securities for nine (9) consecutive months by such Holders and any other Holders
of the Warrants and/or Warrant Securities who notify the Company within ten (10)
days after receiving notice from the Company of such request.
(b) The Company covenants and agrees to give written notice of
any registration request under this Section 7.3 by any Holder or Holders to all
other registered Holders of the Warrants and the Warrant Securities within ten
(10) days from the date of the receipt of any such registration request.
(c) Notwithstanding anything to the contrary contained herein,
if the Company shall not have filed a registration statement for the Warrant
Securities within the time period specified in Section 7.4(a) hereof pursuant to
the written notice specified in Section 7.3(a) of a Majority of the Holders of
the Warrants and/or Warrant Securities, the Company shall have the option, upon
the written notice of election of a Majority of the Holders of the Warrants
and/or Warrant Securities to repurchase (i) any and all Warrant Securities at
the higher of the Market Price per share of Common Stock on (x) the date of the
notice sent pursuant to Section 7.3(a) or (y) the expiration of the period
specified in Section 7.4(a) and (ii) any and all Warrants at such Market Price
less the Exercise Price of such Warrant. Such repurchase shall be in immediately
available funds and shall close within two (2) days after the later of (i) the
expiration of the period specified in Section 7.4(a) or (ii) the delivery of the
written notice of election specified in this Section 7.3(c).
(d) In addition to the registration rights under Section 7.2
and subsection (a) of this Section 7.3, at any time commencing after the date
hereof and expiring five (5) years thereafter, any Holder of Warrants and/or
Warrant Securities shall have the right, exercisable
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by written request to the Company, to have the Company prepare and file, on one
occasion, with the Commission a registration statement so as to permit a public
offering and sale for nine (9) consecutive months by any such Holder of its
Warrant Securities provided, however, that the provisions of Section 7.4(b)
hereof shall not apply to any such registration request and registration and all
costs incident thereto shall be at the expense of the Holder or Holders making
such request.
7.4 Covenants of the Company With Respect to Registration. In
connection with any registration under Section 7.2 or 7.3 hereof, the Company
covenants and agrees as follows:
(a) The Company shall use its best efforts to file a
registration statement within forty-five (45) days of receipt of any
demand therefor, shall use its best efforts to have any registration
statement declared effective at the earliest possible time, and shall
furnish each Holder desiring to sell Warrant Securities such number of
prospectuses as shall reasonably be requested.
(b) The Company shall pay all costs (excluding fees and
expenses of Holder(s)' counsel and any underwriting or selling
commissions), fees and expenses in connection with all registration
statements filed pursuant to Sections 7.2 and 7.3(a) hereof including,
without limitation, the Company's legal and accounting fees, printing
expenses, blue sky fees and expenses. The Holder(s) will pay all costs,
fees and expenses in connection with any registration statement filed
pursuant to Section 7.3(d). If the Company shall fail to comply with
the provisions of Section 7.4(a), the Company shall be liable for any
equitable or other relief available at law to the Holder(s) requesting
registration of their Warrant Securities, excluding consequential
damages.
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(c) The Company will take all necessary action which may be
required in qualifying or registering the Warrant Securities included
in a registration statement for offering and sale under the securities
or blue sky laws of such states as reasonably are requested by the
Holder(s), provided that the Company shall not be obligated to execute
or file any general consent to service of process or to qualify as a
foreign corporation to do business under the laws of any such
jurisdiction.
(d) The Company shall indemnify the Holder(s) of the Warrant
Securities to be sold pursuant to any registration statement and each
person, if any, who controls such Holders within the meaning of Section
15 of the Act or Section 20(a) of the Securities Exchange Act of 1934,
as amended ("Exchange Act"), against all loss, claim, damage, expense
or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to
which any of them may become subject under the Act, the Exchange Act or
otherwise, arising from such registration statement but only to the
same extent and with the same effect as the provisions pursuant to
which the Company has agreed to indemnify the Underwriters contained in
Section 7 of the Underwriting Agreement. The Company further agree(s)
that upon demand by an indemnified person, at any time or from time to
time, it will promptly reimburse such indemnified person for any loss,
claim, damage, liability, cost or expense actually and reasonably paid
by the indemnified person as to which the Company has indemnified such
person pursuant hereto. Notwithstanding the foregoing provisions of
this Section 7.4(d) any such payment or reimbursement by the Company of
fees, expenses or disbursements incurred by an indemnified person in
any proceeding in which a final judgment by a court of competent
jurisdiction (after all appeals or the expiration of time
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to appeal) is entered against the Company or such indemnified person as
a direct result of the Holder(s) or such person's gross negligence or
willful misfeasance will be promptly repaid to the Company.
(e) The Holder(s) of the Warrant Securities to be sold
pursuant to a registration statement, and their successors and assigns,
shall severally, and not jointly, indemnify the Company, its officers
and directors and each person, if any, who controls the Company within
the meaning of Section 15 of the Act or Section 20(a) of the Exchange
Act, against all loss, claim, damage or expense or liability (including
all expenses reasonably incurred in investigating, preparing or
defending against any claim whatsoever) to which they may become
subject under the Act, the Exchange Act or otherwise, arising from
information furnished by or on behalf of such Holders, or their
successors or assigns, for specific inclusion in such registration
statement to the same extent and with the same effect as the provisions
contained in Section 7 of the Underwriting Agreement pursuant to which
the Underwriters have agreed to indemnify the Company. The Holder(s)
further agree(s) that upon demand by an indemnified person, at any time
or from time to time, they will promptly reimburse such indemnified
person for any loss, claim, damage, liability, cost or expense actually
and reasonably paid by the indemnified person as to which the Holder(s)
have indemnified such person pursuant hereto. Notwithstanding the
foregoing provisions of this Section 7.4(e) any such payment or
reimbursement by the Holder(s) of fees, expenses or disbursements
incurred by an indemnified person in any proceeding in which a final
judgment by a court of competent jurisdiction (after all appeals or the
expiration of time to appeal) is entered against the Company or such
indemnified person as a direct result of the
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Company or such person's gross negligence or willful misfeasance will
be promptly repaid to the Holder(s).
(f) Nothing contained in this Agreement shall be construed as
requiring the Holder(s) to exercise their Warrants prior to the initial
filing of any registration statement or the effectiveness thereof.
(g) The Company shall not permit the inclusion of any
securities other than the Warrant Securities to be included in any
registration statement filed pursuant to Section 7.3 hereof without the
prior written consent of the Holders of the Warrants and Warrant
Securities representing a Majority of such securities (assuming the
exercise of all of the Warrants and the Redeemable Warrants underlying
the Warrants).
(h) The Company shall furnish to each Holder participating in
the offering and to each underwriter, if any, a signed counterpart,
addressed to such Holder or underwriter, of (i) an opinion of counsel
to the Company, dated the effective date of such registration statement
(and, if such registration includes an underwritten public offering, an
opinion dated the date of the closing under the underwriting
agreement), and (ii) a "cold comfort" letter dated the effective date
of such registration statement (and, if such registration includes an
underwritten public offering, a letter dated the date of the closing
under the underwriting agreement) signed by the independent public
accountants who have issued a report on the Company's financial
statements included in such registration statement, in each case
covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) and, in
the case of such accountants' letter, with respect to events subsequent
to the date of such financial
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statements, as are customarily covered in opinions of issuer's counsel
and in accountants' letters delivered to underwriters in underwritten
public offerings of securities.
(i) The Company shall as soon as practicable after the
effective date of the registration statement, and in any event within
15 months thereafter, make "generally available to its security
holders" (within the meaning of Rule 158 under the Act) an earnings
statement (which need not be audited) complying with Section 11(a) of
the Act and covering a period of at least 12 consecutive months
beginning after the effective date of the registration statement.
(j) The Company shall deliver promptly to each Holder
participating in the offering requesting the correspondence and
memoranda described below and to the managing underwriter, if any,
copies of all correspondence between the Commission and the Company,
its counsel or auditors and all memoranda relating to discussions with
the Commission or its staff with respect to the registration statement
and permit each Holder and underwriter to do such investigation, upon
reasonable advance notice, with respect to information contained in or
omitted from the registration statement as it deems reasonably
necessary to comply with applicable securities laws or rules of the
NASD. Such investigation shall include access to books, records and
properties and opportunities to discuss the business of the Company
with its officers and independent auditors, all to such reasonable
extent and at such reasonable times and as often as any such Holder or
underwriter shall reasonably request.
(k) The Company shall enter into an underwriting agreement
with the managing underwriter selected for such underwriting by Holders
holding a Majority of the Warrant Securities requested to be included
in such underwriting, which may be the
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Representative. Such agreement shall be satisfactory in form and
substance to the Company, each Holder and such managing underwriter,
and shall contain such representations, warranties and covenants by the
Company and such other terms as are customarily contained in agreements
of that type used by the managing underwriter. The Holders shall be
parties to any underwriting agreement relating to an underwritten sale
of their Warrant Securities and may, at their option, require that any
or all of the representations, warranties and covenants of the Company
to or for the benefit of such underwriters shall also be made to and
for the benefit of such Holders. Such Holders shall not be required to
make any representations or warranties to or agreements with the
Company or the underwriters except as they may relate to such Holders
and their intended methods of distribution.
(l) In addition to the Warrant Securities, upon the written
request therefor by any Holder(s), the Company shall include in the
registration statement any other securities of the Company held by such
Holder(s) as of the date of filing of such registration statement,
including without limitation, restricted shares of Common Stock,
options, warrants or any other securities convertible into shares of
Common Stock.
(m) For purposes of this Agreement, the term "Majority" in
reference to the Holders of Warrants or Warrant Securities shall mean
in excess of fifty percent (50%) of the then outstanding Warrants or
Warrant Securities that (i) are not held by the Company, an affiliate,
officer, creditor, employee or agent thereof or any of their respective
affiliates, members of their family, persons acting as nominees or in
conjunction therewith and (ii) have not been resold to the public
pursuant to a registration statement filed with the Commission under
the Act.
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8. Adjustments to Exercise Price and Number of Securities.
8.1 Subdivision and Combination. In case the Company shall at
any time subdivide or combine the outstanding shares of Common Stock, the
Exercise Price shall forthwith be proportionately decreased in the case of
subdivision or increased in the case of combination.
8.2 Stock Dividends and Distributions. In case the Company
shall pay dividend in, or make a distribution of, shares of Common Stock or of
the Company's capital stock convertible into Common Stock, the Exercise Price
shall forthwith be proportionately decreased. An adjustment made pursuant to
this Section 8.2 shall be made as of the record date for the subject stock
dividend or distribution.
8.3 Adjustment in Number of Securities. Upon each adjustment
of the Exercise Price pursuant to the provisions of this Section 8, the number
of Warrant Securities issuable upon the exercise at the adjusted Exercise Price
of each Warrant shall be adjusted to the nearest whole number by multiplying a
number equal to the Exercise Price in effect immediately prior to such
adjustment by the number of Warrant Securities issuable upon exercise of the
Warrants immediately prior to such adjustment and dividing the product so
obtained by the adjusted Exercise Price.
8.4 Definition of Common Stock. For the purpose of this
Agreement, the term "Common Stock" shall mean (i) the class of stock designated
as Common Stock in the Certificate of Incorporation of the Company as may be
amended or restated as of the date hereof, or (ii) any other class of stock
resulting from successive changes or reclassifications of such Common Stock
consisting solely of changes in par value, or from par value to no par value, or
from no par value to par value.
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8.5 Merger or Consolidation or Sale.
(a) In case of any consolidation of the Company with, or
merger of the Company with, or merger of the Company into, another corporation
(other than a consolidation or merger which does not result in any
reclassification or change of the outstanding Common Stock), the corporation
formed by such consolidation or merger shall execute and deliver to the Holder a
supplemental warrant agreement providing that the holder of each Warrant then
outstanding or to be outstanding shall have the right thereafter (until the
expiration of such Warrant) to receive, upon exercise of such Warrant, the kind
and amount of shares of stock and other securities and property receivable upon
such consolidation, merger, sale or transfer by a holder of the number of shares
of Common Stock of the Company for which such Warrant might have been exercised
immediately prior to such consolidation, merger, sale or transfer. Such
supplemental warrant agreement shall provide for adjustments which shall be
identical to the adjustments provided in this Section 8. The above provision of
this subsection shall similarly apply to successive consolidations or mergers.
(b) In the event of (i) the sale by the Company of all or
substantially all of its assets, or (ii) the engagement by the Company or any of
its affiliates in a "Rule 13e-3 transaction" as defined in paragraph (a)(3) of
Rule 13e-3 of the General Rules and Regulations under the Securities Exchange
Act of 1934, as amended, or (iii) a distribution to the Company's stockholders
of any cash, assets, property, rights, evidences of indebtedness, securities or
any other thing of value, or any combination thereof, the Holders of the
unexercised Warrants shall receive notice of such sale, transaction or
distribution twenty (20) days prior to the date of such sale or the record date
for such transaction or distribution, as applicable, and, if they exercise such
Warrants prior to such date, they shall be entitled, in addition to the shares
of Common
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Stock issuable upon the exercise thereof, to receive such property, cash,
assets, rights, evidence of indebtedness, securities or any other thing of
value, or any combination thereof, on the payment date of such sale, transaction
or distribution.
8.6 No Adjustment of Exercise Price in Certain Cases. No
adjustment of the Exercise Price shall be made if the amount of said adjustment
shall be less than ten cents (10(cent)) per Warrant Security, provided, however,
that in such case any adjustment that would otherwise be required then to be
made shall be carried forward and shall be made at the time of and together with
the next subsequent adjustment which, together with any adjustment so carried
forward, shall amount to at least ten cents (10(cent)) per Warrant Security.
8.7 Adjustment of Redeemable Warrants' Exercise Price. With
respect to any of the Redeemable Warrants whether or not the Redeemable Warrants
have been exercised (or are exercisable) and whether or not the Redeemable
Warrants are issued and outstanding, the Redeemable Warrant exercise price and
the number of shares of Common Stock underlying such Redeemable Warrants shall
be automatically adjusted in accordance with Section 8 of the Warrant Agreement
between the Company and OTR Stock Transfer Company dated __________, 1996 (the
"Redeemable Warrant Agreement"), upon the occurrence of any of the events
described therein. Thereafter, the underlying Redeemable Warrants shall be
exercisable at such adjusted Redeemable Warrant exercise price for such adjusted
number of underlying shares of Common Stock or other securities, properties or
rights.
9. Exchange and Replacement of Warrant Certificates. Each
Warrant Certificate is exchangeable without expense, upon the surrender thereof
by the registered Holder at the principal executive office of the Company, for a
new Warrant Certificate of like tenor and
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date representing in the aggregate the right to purchase the same number of
Units in such denominations as shall be designated by the Holder thereof at the
time of such surrender.
Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any Warrant
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it, and reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
the Warrants, if mutilated, the Company will make and deliver a new Warrant
Certificate of like tenor, in lieu thereof.
10. Elimination of Fractional Interests. The Company shall not
be required to issue certificates representing fractions of shares of Common
Stock or Redeemable Warrants upon the exercise of the Warrants, or fractions of
shares of Common Stock upon the exercise of the Redeemable Warrants underlying
the Warrants, it being the intent of the parties that all fractional interests
shall be eliminated by rounding any fraction up to the nearest whole number of
shares of Common Stock or Redeemable Warrants, as the case may be, or other
securities, properties or rights.
11. Reservation and Listing of Securities. The Company shall
at all times reserve and keep available out of its authorized shares of Common
Stock, solely for the purpose of issuance upon the exercise of the Warrants and
the Redeemable Warrants, such number of shares of Common Stock or other
securities, properties or rights as shall be issuable upon the exercise thereof.
The Company covenants and agrees that, upon exercise of the Warrants and payment
of the Exercise Price therefor, all shares of Common Stock and other securities
issuable upon such exercise shall be duly and validly issued, fully paid,
non-assessable and not subject to the preemptive rights of any stockholder. The
Company further covenants and agrees that
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upon exercise of the Redeemable Warrants underlying the Warrants and payment of
the respective Redeemable Warrant exercise price therefor, all shares of Common
Stock and other securities issuable upon such exercises shall be duly and
validly issued, fully paid, non-assessable and not subject to the preemptive
rights of any stockholder. As long as the Warrants shall be outstanding, the
Company shall use its best efforts to cause all shares of Common Stock issuable
upon the exercise of the Warrants and the Redeemable Warrants and all Redeemable
Warrants underlying the Warrants to be listed (subject to official notice of
issuance) on all securities exchanges on which the Common Stock or the
Redeemable Warrants issued to the public in connection herewith may then be
listed and/or quoted on Nasdaq National Market or Nasdaq Small Cap Market.
12. Notices to Warrant Holders. Nothing contained in this
Agreement shall be construed as conferring upon the Holders the right to vote or
to consent or to receive notice as a stockholder in respect of any meetings of
stockholders for the election of directors or any other matter, or as having any
rights whatsoever as a stockholder of the Company. If, however, at any time
prior to the expiration of the Warrants and their exercise, any of the following
events shall occur:
(a) the Company shall take a record of the holders of its
shares of Common Stock for the purpose of entitling them to receive a
dividend or distribution payable otherwise than in cash, or a cash
dividend or distribution payable otherwise than out of current or
retained earnings, as indicated by the accounting treatment of such
dividend or distribution on the books of the Company; or
(b) the Company shall offer to all the holders of its Common
Stock any additional shares of capital stock of the Company or
securities convertible into or
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exchangeable for shares of capital stock of the Company, or any option,
right or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation or merger) or a sale of
all or substantially all of its property, assets and business as an
entirety shall be proposed;
then, in any one or more of said events, the Company shall give written notice
of such event at least twenty (20) days prior to the date fixed as a record date
or the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale. Such notice shall specify
such record date or the date of closing the transfer books, as the case may be.
Failure to give such notice or any defect therein shall not affect the validity
of any action taken in connection with the declaration or payment of any such
dividend, or the issuance of any convertible or exchangeable securities, or
subscription rights, options or warrants, or any proposed dissolution,
liquidation, winding up or sale.
13. Redeemable Warrants. The form of the certificate
representing Redeemable Warrants (and the form of election to purchase shares of
Common Stock upon the exercise of Redeemable Warrants and the form of assignment
printed on the reverse thereof) shall be substantially as set forth in Exhibit
"A" to the Redeemable Warrant Agreement. Each Redeemable Warrant issuable upon
exercise of the Warrants shall evidence the right to initially purchase one
fully paid and non-assessable share of Common Stock at an initial purchase price
of $1.75 per share commencing on the Initial Exercise Date and ending at 5:00
p.m. New York time on the Redeemable Warrant Expiration Date at which time the
Redeemable Warrants shall
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expire. The exercise price of the Redeemable Warrants and the number of shares
of Common Stock issuable upon the exercise of the Redeemable Warrants are
subject to adjustment, whether or not the Warrants have been exercised and the
Redeemable Warrants have been issued, in the manner and upon the occurrence of
the events set forth in Section 8 of the Redeemable Warrant Agreement, which is
hereby incorporated herein by reference and made a part hereof as if set forth
in its entirety herein. Subject to the provisions of this Agreement and upon
issuance of the Redeemable Warrants underlying the Warrants, each registered
holder of such Redeemable Warrants shall have the right to purchase from the
Company (and the Company shall issue to such registered holders) up to the
number of fully paid and non-assessable shares of Common Stock (subject to
adjustment as provided herein and in the Redeemable Warrant Agreement), free and
clear of all preemptive rights of stockholders, provided that such registered
holder complies with the terms governing exercise of the Redeemable Warrants set
forth in the Redeemable Warrant Agreement, and pays the applicable exercise
price, determined in accordance with the terms of the Redeemable Warrant
Agreement. Upon exercise of the Redeemable Warrants, the Company shall forthwith
issue to the registered holder of any such Redeemable Warrant in his name or in
such name as may be directed by him, certificates for the number of shares of
Common Stock so purchased. Except as otherwise provided herein, the Redeemable
Warrants underlying the Warrants shall be governed in all respects by the terms
of the Redeemable Warrant Agreement. The Redeemable Warrants shall be
transferable in the manner provided in the Redeemable Warrant Agreement, and
upon any such transfer, a new Redeemable Warrant Certificate shall be issued
promptly to the transferee. The Company covenants to, and agrees with, the
Holder(s) that without the prior written consent of the Holder(s), the
Redeemable Warrant Agreement will not be modified, amended, cancelled, altered
or superseded, and that
22
<PAGE>
the Company will send to each Holder, irrespective of whether or not the
Warrants have been exercised, any and all notices required by the Redeemable
Warrant Agreement to be sent to holders of Redeemable Warrants.
14. Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
duly made when delivered, or
mailed by registered or certified mail, return receipt requested:
(a) If to the registered Holder of the Warrants, to the
address of such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in Section 3
hereof or to such other address as the Company may designate by notice
to the Holders.
15. Supplements and Amendments. The Company and the
Representative may from time to time supplement or amend this Agreement without
the approval of any Holders of Warrant Certificates (other than the
Representative) in order to cure any ambiguity, to correct or supplement any
provision contained herein which may be defective or inconsistent with any
provisions herein, or to make any other provisions in regard to matters or
questions arising hereunder which the Company and the Representative may deem
necessary or desirable and which the Company and the Representative deem shall
not adversely affect the interests of the Holders of Warrant Certificates.
16. Successors. All the covenants and provisions of this
Agreement shall be binding upon and inure to the benefit of the Company, the
Holders and their respective successors and assigns hereunder.
17. Termination. This Agreement shall terminate at the close
of business on __________, 2003 [7 years from the date hereof]. Notwithstanding
the foregoing, the
23
<PAGE>
indemnification provisions of Section 7 shall survive such termination until the
close of business on __________, 2008 [12 years from the date hereof.]
18. Governing Law, Submission to Jurisdiction. This Agreement
and each Warrant Certificate issued hereunder shall be deemed to be a contract
made under the laws of the State of New York and for all purposes shall be
construed in accordance with the laws of said State without giving effect to the
rules of said State governing the conflicts of laws.
The Company, the Representative and the Holders hereby agree
that any action, proceeding or claim against it arising out of, or relating in
any way to, this Agreement shall be brought and enforced in the courts of the
State of New York or of the United States of America for the Southern District
of New York, and irrevocably submits to such jurisdiction, which jurisdiction
shall be exclusive. The Company, the Representative and the Holders hereby
irrevocably waive any objection to such exclusive jurisdiction or inconvenient
forum. Any such process or summons to be served upon any of the Company, the
Representative and the Holders (at the option of the party bringing such action,
proceeding or claim) may be served by transmitting a copy thereof, by registered
or certified mail, return receipt requested, postage prepaid, addressed to it at
the address as set forth in Section 14 hereof. Such mailing shall be deemed
personal service and shall be legal and binding upon the party so served in any
action, proceeding or claim. The Company, the Representative and the Holders
agree that the prevailing party(ies) in any such action or proceeding shall be
entitled to recover from the other party(ies) all of its/their reasonable legal
costs and expenses relating to such action or proceeding and/or incurred in
connection with the preparation therefor.
19. Entire Agreement; Modification. This Agreement (including
the Underwriting Agreement to the extent portions thereof are referred to
herein) and the
24
<PAGE>
Redeemable Warrant Agreement contain the entire understanding between the
parties hereto with respect to the subject matter hereof and may not be modified
or amended except by a writing duly signed by the party against whom enforcement
of the modification or amendment is sought.
20. Severability. If any provision of this Agreement shall be
held to be invalid or unenforceable, such invalidity or unenforceability shall
not affect any other provision of this Agreement.
21. Captions. The caption headings of the Sections of this
Agreement are for convenience of reference only and are not intended, nor should
they be construed as, a part of this Agreement and shall be given no substantive
effect.
22. Benefits of this Agreement. Nothing in this Agreement
shall be construed to give to any person or corporation other than the Company
and the Representative and any other registered Holder(s) of the Warrant
Certificates or Warrant Securities any legal or equitable right, remedy or claim
under this Agreement; and this Agreement shall be for the sole and exclusive
benefit of the Company and the Representative and any other Holder(s) of the
Warrant Certificates or Warrant Securities.
23. Counterparts. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and such counterparts shall to either constitute but one and
the same instrument.
25
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, as of the day and year first above written.
THE PRODUCERS ENTERTAINMENT GROUP LTD.
By:
---------------------------------------
Irwin Meyer
President and Chief Executive Officer
Attest:
- ----------------------------
Secretary
JOSEPH STEVENS & COMPANY, L.P.
By:
---------------------------------------
Name:
Title:
<PAGE>
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
(ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE
UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION
OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE
ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS
CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT
REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., NEW YORK TIME, ________, 2001
No. W- ____ Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that Joseph Stevens &
Company, L.P., or registered assigns, is the registered holder of __________
Warrants to purchase initially, at any time from ____________, 1997 [one year
from the effective date of the Registration Statement] until 5:00 p.m. New York
time on ____________, 2001 [five years from the effective date of the
Registration Statement] ("Expiration Date"), up to ______________ Units, each
Unit consisting of four (4) fully-paid and non-assessable shares of common
stock, $.001 par value ("Common Stock") of THE PRODUCERS ENTERTAINMENT GROUP
LTD., a Delaware corporation (the "Company"), and two (2) redeemable warrants
("Redeemable Warrants") (each Redeemable Warrant entitling the holder to
purchase one fully-paid and non-assessable share of Common Stock), at the
initial exercise price, subject to adjustment in certain events (the "Exercise
Price"), of $_____________ [120% of the public offering price per Unit] per Unit
upon surrender of this Warrant Certificate and payment of the Exercise Price at
an office or agency of the Company, or by surrender of this Warrant Certificate
in lieu of cash payment, but subject to the conditions set forth herein and in
the warrant agreement dated as of _________________, 1996 between the Company
and Joseph Stevens & Company, L.P. (the "Warrant Agreement"). Payment of the
Exercise Price shall be made by certified or official bank check in New York
Clearing House funds payable to the order of the Company or by surrender of this
Warrant Certificate.
1
<PAGE>
No Warrant may be exercised after 5:00 p.m., New York time, on
the Expiration Date, at which time all Warrants evidenced hereby, unless
exercised prior thereto, hereby shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of
a duly authorized issue of Warrants issued pursuant to the Warrant Agreement,
which Warrant Agreement is hereby incorporated by reference in and made a part
of this instrument and is hereby referred to for a description of the rights,
limitation of rights, obligations, duties and immunities thereunder of the
Company and the holders (the words "holders" or "holder" meaning the registered
holders or registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of
certain events the Exercise Price and the type and/or number of the Company's
securities issuable thereupon may, subject to certain conditions, be adjusted.
In such event, the Company will, at the request of the holder, issue a new
Warrant Certificate evidencing the adjustment in the Exercise Price and the
number and/or type of securities issuable upon the exercise of the Warrants;
provided, however, that the failure of the Company to issue such new Warrant
Certificates shall not in any way change, alter, or otherwise impair, the rights
of the holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this
Warrant Certificate at an office or agency of the Company, a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing in the
aggregate a like number of Warrants shall be issued to the transferee(s) in
exchange for this Warrant Certificate, subject to the limitations provided
herein and in the Warrant Agreement, without any charge except for any tax or
other governmental charge imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced
by this Certificate, the Company shall forthwith issue to the holder hereof a
new Warrant Certificate representing such Warrant.
The Company may deem and treat the registered holder(s) hereof
as the absolute owner(s) of this Warrant Certificate (notwithstanding any
notation of ownership or other writing hereon made by anyone), for the purpose
of any exercise hereof, and of any distribution to the holder(s) hereof, and for
all other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined
in the Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed under its corporate seal.
Dated as of , 1996
THE PRODUCERS ENTERTAINMENT GROUP LTD.
By:
[SEAL] ---------------------------------------
Irwin Meyer
President and Chief Executive Officer
Attest:
- ----------------------------
Secretary
3
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.1]
The undersigned hereby irrevocably elects to exercise the
right, represented by this Warrant Certificate, to purchase _____________ Units
and herewith tenders in payment for such securities a certified or official bank
check payable in New York Clearing House Funds to the order of The Producers
Entertainment Group Ltd. in the amount of $__________, all in accordance with
the terms of Section 3.1 of the Representative's Warrant Agreement dated as of
___________, 1996 between The Producers Entertainment Group Ltd. and Joseph
Stevens & Company, L.P. The undersigned requests that certificates for such
securities be registered in the name of _______________ whose address is
__________________________ and that such certificates be delivered to
______________________________ whose address is
____________________________.
Dated:
Signature
----------------------------
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant Certificate.)
---------------------------------
(Insert Social Security or Other
Identifying Number of Holder)
4
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.2]
The undersigned hereby irrevocably elects to exercise the
right, represented by this Warrant Certificate, to purchase ____________ Units
all in accordance with the terms of Section 3.2 of the Representative's Warrant
Agreement dated as of ______________, 1996 between The Producers Entertainment
Group Ltd. and Joseph Stevens & Company, L.P. The undersigned requests that
certificates for such securities be registered in the name of __________________
whose address is ___________________________________________ and that such
certificates be delivered to __________________________ whose address is
.
Dated:
Signature
----------------------------
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant Certificate.)
---------------------------------
(Insert Social Security or Other
5
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED __________ hereby sells, assigns and transfers unto
- -------------------------------------------------------------------------------
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint ________________ Attorney, to
transfer the within Warrant Certificate on the books of the within-named
Company, with full power of substitution.
Dated:
--------------------------
Signature
----------------------------
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant Certificate.)
---------------------------------
(Insert Social Security or Other
6
<PAGE>
March 29, 1996
Mr. Harvey Bibicoff
1990 Westwood Blvd., Suite 310
Los Angeles, CA 90025
RE: TPEG Stock Option Agreement
Dear Harvey:
Pursuant to our conversation, enclosed please find a copy of the Stock Option
Agreement in connection with your grant of 400,000 shares of TPEG common Stock
as set forth in the enclosed letter agreement. Please xerox an additional set
for signature.
Please execute the letter agreement, as well as, the Stock Option Agreement and
return same to my attention for counter-signature.
Please forward executed copies to my attention via facsimile, if possible today,
and mail the originals to me as listed below.
Should you have any questions, please feel free to contact me as listed below.
Best regards,
/s/ Arthur Bernstein
- -------------------------
Arthur H. Bernstein
AHB/sd
encl.
cc: (w/o encl.)
Mel Katz, Esq.
Irwin Meyer
<PAGE>
March 7, 1995
Mr. Arthur Bernstein
8228 Fountain Avenue, #3
Los Angeles, CA 90046
RE: EMPLOYMENT AGREEMENT
Dear Arthur:
Reference is made to an Employment Agreement between The Producers Entertainment
Group Ltd. (the "Company") and Arthur H. Bernstein ("Bernstein") dated as of
June 22, 1992, as amended on August 15, 1994 (the "Agreement").
The parties are now desirous of amending the Agreement. In consideration of the
mutual covenants and promises contained herein, as well as, the Company paying
to Bernstein a bonus in the amount of Twelve Thousand Dollars ($12,000.00)
payable upon execution of this Agreement, the parties agree to amend the
Agreement with respect to the following provisions:
Paragraph 2.1: The Term of the Agreement shall be extended to June 30, 1996.
Paragraph 5.3(b): Bernstein's monthly automobile reimbursement shall be
increased to $750.00.
All other terms and conditions contained in the Agreement shall remain in full
force and effect unless and until modified in writing and signed by the parties.
If the aforementioned is accepted and agreed to, please indicate such by
affixing your signature as indicated below, and together with ours shall
represent the complete Agreement.
Sincerely,
The Producers Entertainment Group Ltd.
/s/ Irwin Meyer
- -----------------------------
Irwin Meyer
President & CEO
ACCEPTED AND AGREED:
/s/ Arthur Bernstein
----------------------------------
Arthur H. Bernstein
cc: Steve Berglas
Michael Dempsey, Esq.
<PAGE>
January 25, 1996
Mr. Arthur H. Bernstein
8228 Fountain Avenue, #3
Los Angeles, CA 90046
RE: EMPLOYMENT AGREEMENT
Dear Arthur:
Reference is hereby made to an Employment Agreement between The Producers
Entertainment Group Ltd. (the "Company") and Arthur H. Bernstein ("Bernstein"),
dated as of June 22, 1992, as amended on August 15, 1994, and as further amended
on March 7, 1995 (the "Agreement").
The Parties are now desirous of amending the Agreement. In consideration of the
mutual covenants and promises contained herein, as well as, other good and
valuable consideration, the sufficiency and receipt of which is hereby
acknowledged, the parties agree to amend the Agreement such that the Term of the
Agreement listed in Paragraph 2.1 of the Agreement shall be extended from June
30, 1996 until December 31, 1996.
All other terms and conditions contained in the Agreement shall remain in full
force and effect unless and until modified in writing and signed by the parties.
If the aforementioned is accepted and agreed to, please indicate such by
affixing your signature as indicated below, and together with ours shall
represent the complete Agreement.
Sincerely,
The Producers Entertainment Group Ltd.
/s/ Irwin Meyer
- --------------------------
Irwin Meyer
President & CEO
ACCEPTED & AGREED:
/s/ Arthur H. Bernstein
----------------------------------
Arthur H. Bernstein
cc: Steve Berglas, Michael Dempsey, Esq., Charles Weber
<PAGE>
Subsidiaries of the Registrant
Name Jurisdiction of Incorporation
---- -----------------------------
Helpless Productions, Inc. (formerly known
as Tales of Midnite Productions, Inc.) California
TPEG Management, Inc. California
Plan of Attack Productions, Inc. California
In for Life, Inc. California
DSL Productions, Inc. Delaware
Out of Pocket Pictures, Inc. California
Babylon Productions, Inc. Province of Ontario, Canada
DSL Ventures I Acquisition Corp. d/b/a
Future Quest Calfornia
DSL Ventures I California
Superstars of Action, Inc. California
Home Green Home, Inc. California
Light and Easy Cooking, Inc. California
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion of our report dated September 1, 1995, except for
Note 12 as to which the date is June 20, 1996, on our audit of the financial
statements of The Producers Entertainment Group Ltd. and Subsidiaries in the
Form S-2 Registration Statement. We also consent to the reference to our firm
under the captions "Experts".
Kellogg & Andelson Accountancy Corporation
Sherman Oaks, California
July 1, 1996
