-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SNDrBp833DIwfoHpSAEEgfbOoBwjodbwRB/07pQIk9GqYTVYPFHH/bk5MroBGgku QLlYZUdwRIpDcdw4UzvZ2g== 0000950133-98-003672.txt : 19981105 0000950133-98-003672.hdr.sgml : 19981105 ACCESSION NUMBER: 0000950133-98-003672 CONFORMED SUBMISSION TYPE: SB-2/A PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 19981104 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STUDIO CITY HOLDING CORP CENTRAL INDEX KEY: 0001069067 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MOTION PICTURE & VIDEO TAPE PRODUCTION [7812] IRS NUMBER: 133227032 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SB-2/A SEC ACT: SEC FILE NUMBER: 333-62551 FILM NUMBER: 98737329 BUSINESS ADDRESS: STREET 1: 4400 SW 46TH CT CITY: OCALA STATE: FL ZIP: 34473 BUSINESS PHONE: 3523473947 MAIL ADDRESS: STREET 1: 4400 SW 46TH CT CITY: OCALA STATE: FL ZIP: 34473 SB-2/A 1 AMENDMENT NO.1 TO FORM SB-2 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 3, 1998 REGISTRATION NO. 333-62551 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ AMENDMENT NO. 1 TO FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ STUDIO CITY HOLDING CORPORATION (NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER) NEW YORK 7812 13-322-7032 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) NO.)
14400 SOUTHWEST 46TH COURT OCALA, FLORIDA 34473 (352) 347-3947 (ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES) ------------------------ COPY TO: LARRY D. FAW DAVID J. LEVENSON STUDIO CITY HOLDING CORPORATION MCGUIRE WOODS BATTLE & BOOTHE LLP 14400 SOUTHWEST 46TH COURT 1627 EYE STREET, NW OCALA, FLORIDA 34473 WASHINGTON, DC 20006 (352) 347-3947 (202) 857-1757
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE) APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as possible after the 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, check the following box. [X] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the Following box ad list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of this prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] CALCULATION OF REGISTRATION FEE - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PROPOSED MAXIMUM PROPOSED MAXIMUM TITLE OF EACH CLASS OF SECURITIES TO BE AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF REGISTERED BE REGISTERED PER UNIT (1) OFFERING PRICE (1) REGISTRATION FEE - ----------------------------------------------------------------------------------------------------------------------------------- Common Stock, $.002 par value.......... 27,482,001 $.002 $54,964 $16 Class B Preferred Stock, $.0001 par value.................................. 3,825,834 .0001 $383 1 TOTAL.................................. 17 - ----------------------------------------------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------------------------------------------
(1) Estimated solely for purposes of calculating the registration fee. (2) Calculated in accordance with Rule 457(g). ------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRATION 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. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 STUDIO CITY HOLDING CORPORATION ------------------ CROSS REFERENCE SHEET
FORM SB-2 ITEM CAPTION IN PROSPECTUS -------------- --------------------- PART I 1. Front of Registration Statement and Outside Front Cover of Prospectus..................... Cover Page; Outside Front 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................................. Use of Proceeds 5. Determination of Offering Price................. Determination of Offering Price 6. Dilution........................................ Not Applicable 7. Selling Security Holders........................ Selling Security Holders and Plan of Distribution 8. Plan of Distribution............................ Selling Security Holders and Plan of Distribution 9. Legal Proceedings............................... Not Applicable 10. Director, Executive Officers, Promoters and Control Persons............................... Management; Principal Stockholders 11. Security Ownership of Certain Beneficial Owners and Management................................ Principal Stockholders 12. Description of Securities....................... Description of Securities 13. Interest of Named Experts and Counsel........... Legal Matters; Experts 14. Disclosures of Commission Position on Indemnification for Securities Act Liabilities................................... Management -- Limitation of Liability and Indemnification Matters 15. Organization Within Last Five Years............. Business 16. Description of Business......................... Business 17. Management's Discussion and Analysis or Plan of Operation..................................... Management's Discussion and Analysis of Financial Condition and Results of Operations 18. Description of Property......................... Business -- Properties 19. Certain Relationships and Related Transactions.................................. Certain Transactions 20. Market for Common Equity and Related Stockholder Matters....................................... Not Applicable 21. Executive Compensation.......................... Management -- Executive Compensation 22. Financial Statements............................ Financial Statements 23. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure........... Not Applicable PART II 24. Indemnification of Directors and Officers....... Indemnification of Directors and Officers 25. Other Expenses of Issuance and Distribution..... Other Expenses of Issuance and Distribution 26. Recent Sales of Unregistered Securities......... Recent Sales of Unregistered Securities 27. Exhibits........................................ Exhibits 28. Undertakings.................................... Undertakings
3 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 NOVEMBER 3, 1998 PROSPECTUS STUDIO CITY HOLDING CORPORATION 27,482,001 SHARES OF COMMON STOCK 3,825,834 SHARES OF CLASS B PREFERRED STOCK This securities of Studio City Holding Corporation, a New York corporation (together with its subsidiaries, the "Company") to which this Prospectus relates are: (i) 27,482,001 shares (the "Shares") of Common Stock, $.002 par value (the "Common Stock) and (ii) 3,825,834 shares of Class B Preferred Stock, $.0001 par value per share (the "Class B Preferred Stock"), all of which securities are to be offered and sold from time to time by and on behalf of the holders of such securities, referred to herein as "Selling Security Holders." The names of such Selling Security Holders and their respective holdings are set forth in Appendix A under "Selling Security Holders." The securities of the Company to which this Prospectus relates were issued without compliance with the registration provisions of the Securities Act of 1933 in reliance upon exemptions therefrom the Company believed were available. Since the exemptions from registration relied upon by the Company may not have been available, the Company is effecting registration of all such securities in the Registration Statement of which this Prospectus is a part, so that the holders of the securities, most of whom acquired their securities more than two years ago, may publicly offer and sell their securities freely and without limitation (unless they are "affiliates" of the Company). None of the proceeds from the sale of the securities by the Selling Security Holders pursuant to this Prospectus will be received by the Company. The securities may be offered by the Selling Security Holders from time to time in transactions for their own accounts in the over-the-counter market in negotiated transactions, or in a combination of such methods of sale, at negotiated prices, in that there is no established trading market for such securities. The Selling Security Holders may effect such transactions by selling to or through broker-dealers, and such broker-dealers may receive compensation in the form of discounts, concessions or commissions from the Selling Security Holders or the purchasers of the securities for whom/which such broker-dealers may act as agent or to whom/which they sell as principal, or both (which compensation as to a particular broker-dealer might be in excess of customary commissions). The Selling Security Holders and any broker-dealers that act in connection with the sale of the securities may be deemed to be "underwriters" within the meaning of Section 2(l1) of the Securities Act and any commissions received by them and any profit on the resale of the securities as principal might be deemed to be underwriting compensation under the Securities Act. The holders of Class B Preferred Stock have no voting rights except as required by law. The holders of Class B Preferred Stock are entitled to receive, out of funds legally available therefor, cumulative preferential dividends at the rate of 12% per annum per share, based on earnings. Shares of Class B Preferred Stock may be converted into shares of Common Stock on the basis of one share of Class B Preferred Stock for ten shares of Common Stock. See "Description of Securities." There is currently no public trading market for any securities of the Company and there can be no assurance that any such market will develop in the future. In that there is no public trading market, the initial public offering prices for the securities has been arbitrarily determined by the Company as the par value of such securities and may not be indicative of the prices at which such securities may be offered or sold by the Selling Security Holders. THESE SECURITIES ARE SUBJECT TO A HIGH DEGREE OF RISK. POTENTIAL PURCHASERS SHOULD CAREFULLY CONSIDER THE MATTERS SET FORTH UNDER "RISK FACTORS." COMMENCING ON PAGE 4 HEREOF. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
ESTIMATED UNDERWRITING PROCEEDS TO PRICE TO DISCOUNTS & PROCEEDS TO SELLING SECURITY PUBLIC COMMISSIONS COMPANY(*) HOLDERS(*) --------- ------------ ----------- ---------------- Per Share of Common Stock................................ $ .002 $-0- -0- $ .002 Total............................................... $54,964 $-0- -0- $54,964 Per Share of Class B Preferred Stock..................... $ .0001 $-0- -0- $ .0001 Total............................................... $ 383 $-0- -0- $ 1,000
- --------------- (*) The expenses of the offering, including registration fees, and printing, legal and accounting fees, estimated at $150,000, will be borne by the Company from its general funds; none of such expenses will be borne by the Selling Security Holders. The date of this Prospectus is November , 1998. 4 The Company currently is not a reporting company under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). As a result of the offering made hereby, the Company will become subject to the periodic and other informational requirements of the Exchange Act. The Company intends to distribute to its shareholders Annual Reports containing audited financial statements and may distribute quarterly reports as determined by the Board of Directors of the Company. No person has been authorized to give any information or to make any representation not contained in or incorporated by reference in this Prospectus, and, if given or made, such information or representation not contained herein must not be relied upon as having been authorized. This Prospectus does not constitute an offer to sell, or the solicitation of an offer to purchase, any of the securities offered by this Prospectus, in any jurisdiction to or from any person to or from whom it is unlawful to make such offer or solicitation of an offer, or proxy solicitation in such jurisdiction. Neither the delivery of this Prospectus nor the issuance or sale of any securities hereunder shall under any circumstances create any implication that there has been no change in the information set forth herein since the date hereof or delivered and incorporated by reference herein since the date hereof. 2 5 PROSPECTUS SUMMARY The following is a brief summary of the information contained in this Prospectus. This Prospectus Summary is not intended to be complete and is qualified in its entirety by the more detailed information contained elsewhere in this Prospectus. Unless otherwise defined herein, capitalized terms used in this Prospectus Summary have the respective meanings assigned to them elsewhere in this Prospectus. Unless the context otherwise requires, the "Company" refers to Studio City Holding Corporation and its predecessors and subsidiaries. Potential investors should read carefully this Prospectus in its entirety. THE OFFERING The securities of Studio City Holding Corporation, a New York corporation (together with its subsidiaries, the "Company") to which this Prospectus relates are: (i) 27,482,001 shares (the "Shares") of Common Stock, $.002 par value (the "Common Stock") and (ii) 3,825834 shares of Class B Preferred Stock, $.0001 par value per share (the "Class B Preferred Stock"), all of which are to be offered and sold from time to time by and on behalf of the holders of such securities, referred to herein as "Selling Security Holders." The names of such Selling Security Holders and their respective holdings are set forth in Appendix A under "Selling Security Holders." None of the proceeds from the sale of the securities by the Selling Security Holders pursuant to this Prospectus will be received by the Company. The securities may be offered by the Selling Security Holders from time to time in transactions for their own accounts in the over-the-counter market, in negotiated transactions, or in a combination of such methods of sale, at negotiated prices. The Selling Security Holders may effect such transactions by selling to or through broker-dealers, and such broker-dealers may receive compensation in the form of discounts, concessions or commissions from the Selling Security Holders or the purchasers of securities for whom/which such broker-dealers may act as agent or to whom/which they sell as principal, or both (which compensation as to a particular broker-dealer might be in excess of customary commissions). As of October 1, 1998, there were issued and outstanding 31,282,001 shares of Common Stock (including 3,800,000 treasury shares), 10,000,000 shares of Class A Preferred Stock and 3,825,834 shares of Class B Preferred Stock. None of the securities covered by this Prospectus will be offered by the Company and there will continue to be 31,282,001 shares of Common Stock, 10,000,000 shares of Class A Preferred Stock and 3,825,834 shares of Class B Preferred Stock issued and outstanding after giving effect to the offering by the Selling Security Holders. Also outstanding are warrants to purchase 500,000 shares of Common Stock at $3.00 per share until December 31, 1999 and warrants to purchase 5,000,000 shares of Common Stock at $1.00 per share until February 16, 2003. THE COMPANY The Company is a development stage media holding company specializing in the creation of "entertainment franchises" and the development of its fifteen wholly-owned or majority-owned media subsidiaries. An "entertainment franchise" is an intellectual property which can create substantial revenues from at least five different and non-related sources of revenue creation; it is purposefully created and designed to be recognized as a "brand name" with multiple areas of revenue generators. For example, an intellectual property which is an entertainment franchise could create revenues from (1) publishing, (2) motion picture distribution, (3) television broadcast, (4) home video sales, (5) audio product sales, (6) licensing, (7) spinoff product sales, (8) merchandising, (9) ancillary products and (10) segmented usage. The Company, through its subsidiaries, owns a portfolio of intellectual properties and production rights. The Company plans to provide its operating subsidiaries with financing and management services, including accounting, planning, budgeting and human resources management. The Company's subsidiaries are media companies which intend to produce products in the motion picture, television, publishing and other industries. Except for certain limited operations, the Company's activities to date have consisted primarily of raising capital, obtaining financing, acquiring intellectual properties, and administrative activities relating to the foregoing. The Company's proposed business, including both expansion of its current limited operations and its proposed activities, requires substantial additional equity or debt financing, which may not be available in a 3 6 timely manner, on commercially reasonable terms, or at all. Since the Company is in the development stage, it is subject to all the risks inherent in undertaking a new business venture. See "Risk Factors." Each of its subsidiaries also is in the development stage with a limited or no operating history. Consequently, the subsidiaries have generated little or no revenues as of the date hereof. In addition, there can be no assurance that any of the subsidiaries will achieve significant operations, generate significant revenues or attain profitability. The Company was incorporated in New York under the name "CVT Corp. of America" ("CVT") in March 1984. From 1984 to 1993, CVT was engaged in limited sales, manufacturing and marketing operations of continuous variable speed transmissions. Unable to finance the research and development necessary to continue operations, CVT ceased operations in 1993. On June 28, 1996, CVT changed its name to "Studio City Holding Corporation" and, effective July 1, 1996, merged with Studio City Incorporated Holding, a Florida corporation ("Studio City-Florida"), a development stage media holding company. The Company's principal executive office is located at 14400 Southwest 46th Court, Ocala, Florida 34484, where its telephone number is (352) 347-3947. The Company's corporate offices are located in care of Dante S. Alberi, Esq., 153 Stevens Avenue, Suite 7, Mount Vernon, New York 10550, where the telephone number is (914)668-5020. Studio City-Florida was a development stage multimedia company incorporated in 1991 to engage in asset development, business management, production and post-production studio operation, motion picture studio operation, tourist attraction operation, the development of motion pictures for theatrical exhibition, for television and home video, and in the development, production and distribution of printed publications. At the time of the merger with CVT Corp. of America, Studio City-Florida owned a large number of intellectual properties and a partial interest in other intellectual properties, but had not generated significant revenues. RISK FACTORS An investment in the securities offered hereby is highly speculative in nature, involves a high degree of risk and should be made only by investors who can afford the loss of their entire investment. In addition to the factors set forth elsewhere in this Prospectus, prospective investors should give careful consideration to the following risk factors in evaluating the Company and its business before purchasing any securities offered hereby. Substantial Operating Losses; No Assurance of Success. During the years ended December 31, 1995, 1996 and 1997, and the five months ended May 31, 1998, the Company had net losses of $316,578, $557,405, $539,002 and $187,881 respectively. At May 31, 1998, the Company had cumulative deficits since inception of $1,942,162. The cumulative deficits reflect the cost of developmental and other start-up activities, without significant offsetting revenues. The Company's business is capital intensive. The Company expects to continue to incur significant losses in the future. The Company's proposed operations are subject to numerous risks associated with establishing any new business, including unforeseeable expenses, delays and complications, as well as specific risks of the highly competitive entertainment industry. There can be no assurance that the Company's business plan will be successful, that it will be able to market any product on a commercial scale, that it will achieve or sustain profitable operations or that it will be able to remain in business. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business." Possible Contingent Liability. Effective July 1, 1996, Studio City-Florida merged with and into the Company, pursuant to an Agreement and Plan of Merger dated October 12, 1995 (the "Plan of Merger"), approved by the vote of the shareholders of such constituent corporations. Pursuant to the Plan of Merger (i) 100,000,000 shares of Common Stock of Studio City-Florida held by Larry D. Faw, the President and Chairman of the Board of the Company, were converted into 10,000,000 shares of the Company's Class A Preferred Stock, (ii) 10,000,000 shares of Common Stock of Studio City-Florida held by Mr. Faw were converted into 1,000,000 shares of the Company's Class B Preferred Stock, (iii) 1,000,000 shares of the Class B Preferred Stock of Studio City-Florida held by Mr. Faw were converted into 1,000,000 shares of Class B Preferred Stock of the Company, (iv) warrants to purchase 5,000,000 shares of Common Stock of Studio City-Florida were converted into Warrants to purchase 5,000,000 shares of the Company's Common Stock, at $1.00 per share, and (v) each of the remaining issued and outstanding shares of Common Stock of Studio City-Florida were converted into one share of the Company's Common Stock. These securities were 4 7 issued without compliance with the registration requirements of the federal securities laws or any state securities laws, in reliance upon exemptions therefrom the Company believed to be available therefor. However, the exemptions relied upon may not have been available, because of the number of persons involved, and, consequently, the Company may be contingently liable up to $1,125,405. Need for Additional Financing; Working Capital Deficit. The entertainment industry generally requires constant infusions of new and substantial capital to finance projects. There can be no assurance that such funds will be available to the Company or, if available, that the funds can be obtained on terms favorable to the Company. The Company's ability to operate as a going concern is contingent upon such infusions of capital or the ability of the Company to attract financing for its projects from other sources. Any equity financings could result in dilution to the Company's then existing stockholders. At September 30, 1998, the Company had a working capital deficit of $142,561. The Company's business plan for the next fiscal year contemplates the need for more than $900,000, exclusive of the liability to Mr. Faw, see "Business -- Faw Purchase Agreement," with no known sources of liquidity. See "Management's Discussion and Analysis of Financial Condition and Results of Operation." The Company's failure to pay its liability to Mr. Faw, or to other creditors, could result in its bankruptcy. Valuation Uncertainty. In 1993, Studio City-Florida acquired various intellectual properties from Mr. Faw which had an estimated value of $7,226,000, in exchange for a demand promissory note for $1,554,027 and certain securities. The purchase price was determined by reference to industry standards as detailed in the National Labor Relations Board's Collective Bargaining Agreement between the Alliance of Motion Picture and Television Producers and the Writers Guild of America, which reflects the minimum replacement costs and pass through financial obligations to industry-wide motion picture and television producers and purchasers of intellectual properties. The industry standards referred to in that agreement may have no relationship to commercial, economic or fair market value of the intangible assets. Risk of Low-Priced Stocks. Currently, the Company's Common Stock is considered a "penny stock" for purposes of the Exchange Act. Rules The penny stock regulations, set forth in Rules 15g-I through 15g-9 promulgated under the Exchange Act, impose sales practice and disclosure requirements on certain brokers and dealers who engage in certain transactions involving penny stock. Under the penny stock regulations, unless the broker or dealer or the transaction is otherwise exempt, a broker or dealer selling penny stock to anyone other than an established customer or "accredited investor" (generally, an individual with net worth in excess of $ 1,000,000 or annual income exceeding $200,000, or $300,000 together with his or her spouse) must make a special suitability determination for the purchaser and must receive the purchaser's written consent to the transaction prior to sale. In addition, the penny stock regulations require the broker or dealer to deliver, prior to any transaction involving a penny stock, a disclosure schedule prepared by the Securities and Exchange Commission (the "Commission") relating to the penny stock market. A broker or dealer is also required to disclose commissions payable to the broker or dealer and the registered representative and current quotations for the securities. In addition, a broker or dealer is required to send monthly statements disclosing recent price information with respect to the penny stock held in a customer's account and information with respect to the limited market in penny stocks. The additional sales practice and disclosure requirements imposed by the penny stock regulations could impede the sale of the Company's Common Stock in the secondary market. In addition, the market liquidity for the Company's securities may be severely adversely affected, with concomitant adverse effects on the price of the Company's securities. Entertainment Industry. The entertainment industry is highly competitive and involves a considerable degree of risk. Each entertainment project is an individual artistic work, and its commercial success is primarily determined by audience reaction, which is unpredictable. Accordingly, there can be no assurance as to the financial success of any motion picture or entertainment project. Furthermore, there can be no assurance that the audiences for motion pictures or entertainment projects will remain constant. The motion picture and entertainment industries are extremely competitive. The Company competes with many other motion picture and entertainment companies, including the "major" motion picture studios, which are larger and have financial resources which are substantially greater than those of the Company. The major motion 5 8 picture studios are typically large, diversified entertainment concerns or subsidiaries of diversified corporations which have strong relationships with creative talent, exhibitors and others involved in the entertainment industry, and whose non-motion picture operations often provide stable sources of earnings that offset variations in the financial performance of their motion picture operations. Reliance Upon Management. The business of the Company will be managed by Larry D. Faw who shall serve as the Company's President and Chairman of the Board of Directors, as well as the executive producer and the director of its productions. The loss of Mr. Faw, particularly in the early stages of the Company's operations, would materially adversely affect the Company. The Company has no key man insurance in effect for Mr. Faw. See "Management." Competition. The Company's entertainment projects will be competing with other motion pictures or films and projects attempting to gain distribution. The major studios and many independents have established relationships with successful filmmakers and are able to obtain distribution agreements with comparatively favorable terms. Many of these companies have the ability to offer potential distributors and promoters a number of films or projects which may be more attractive than a single film or project. Although some industry practices have enabled smaller independents with viable products to find distribution for a single reasonably budgeted film, the Company will not possess many of the advantages in distribution which are enjoyed by the larger well established film producers. Once the Company has contracted with a distributor, its motion pictures and projects will be competing with other products for exhibition time in the various markets. There is no assurance that the Company's products will be able to compete successfully under these circumstances. See "Business-Competition." No Trademark Protection. The Company's trademarks and rights to characters are the principal assets of the Company. The Company presently has no trademarks, but plans to file applications for trademark and copyright protection for each of its titles and featured characters before the end of 1998. There can be no assurance that any such application, when filed, will be approved, or that the Company will have the financial and other resources necessary to enforce its proprietary rights against infringement by others. The inability of the Company to obtain adequate protection of or to enforce its proprietary rights could have a material adverse effect on the Company. Effect of Outstanding Warrants and Convertible Securities. As of the date of this Prospectus, the Company has outstanding warrants to purchase 5,000,000 shares of Common Stock at $1.00 per share, warrants to purchase 500,000 shares of Common Stock at $3.00 per share, and 3,825,834 shares of Class B Preferred Stock convertible into 38,258,340 shares of Common Stock. As long as such warrants and convertible securities remain unexercised or are not converted, as the case may be, the terms under which the Company could obtain additional capital may be adversely affected. Control by Present Stockholders. The Company's President and Chairman of the Board of Directors, Larry Faw, beneficially owns 10,000,000 shares of Class A Preferred Stock and 10,196,277 shares of Common Stock representing approximately 83.1% of the total voting power of the Company. As a result, he will be able to continue to influence the election of the Company's directors and otherwise control the Company's management and operations. See "Principal Stockholders" and "Description of Securities." Collective Bargaining Agreements. A substantial number of the artists, talent and crafts-people involved in the entertainment industry are represented by trade unions with industry-wide collective bargaining agreements. An industry-wide strike causing a prolonged disruption in project production could have a material adverse effect on the Company's business. No Distribution Agreement. The Company currently does not have a pre-production distribution agreement in place for any of its products and can not offer any assurance to investors that a distribution agreement can be obtained or if obtained that such agreement will be profitable. It is difficult for a small independent producer to market a product to the networks or for independent syndication. The success of such marketing effort is dependent upon many factors including (a) the quality of the product, (b) the fit of the product to the network's or syndicate's other program mix and selection criteria, (c) perceived public trends, (d) the reputation of the producers, and (e) in part the individual producers interpersonal relationships within 6 9 the industry. Although management believes favorable distribution agreements can be obtained, the lack of a pre-production agreement substantially increases the risk to the investors. Determination of Offering Price; Market Illiquidity. The initial offering price of $.002 per share for the Common Stock and $.0001 for the Class B Preferred Stock was arbitrarily determined by the Company and represents the respective par value of each of those securities. The price is not based upon earnings or any history of operations and should not be construed as indicative of the present or anticipated future value of the securities. There is currently no public trading market for the securities and there can be no assurance that one will develop in the future. The price at which these securities may be offered to the public by Selling Security Holders may be greater than the market price for the securities following the offering. Due to the lack of earnings history of the Company and the absence of a reasonable expectation of dividends in the near future, there can be no assurance of an active and liquid trading market for the Common Stock or any other securities of the Company developing in the future. A purchaser of securities in this offering may face difficulties in finding a purchaser for his or her securities and may expect to receive a lower price for such securities than otherwise may be the case. See "Determination of Offering Price." The offer and sale of substantial amounts of Common Stock in the public market could adversely affect the market price prevailing from time to time. No Dividends. The Company has not paid any cash dividends on any of its shares of Class A Preferred Stock, Class B Preferred Stock or Common Stock and does not presently intend to pay cash in the foreseeable future. Rather, any future earnings will be used to satisfy the considerable financing requirements of the Company. However, to the extent that earnings permit, the Company will pay a dividend of 12% per annum on its shares of Class B Preferred Stock. It is not likely that any cash dividends will be paid in the foreseeable future. Forward-Looking Statements. Certain statements throughout this Prospectus regarding the Company's financial position, business strategy and the plans and objectives of Company management for future operations, are forward-looking statements rather than historical or current facts. When used in this Prospectus, words such as "anticipate," "believe," "estimate," "expect," "intend" and similar expressions, as they relate to the Company or its management, identify forward-looking statements. Such forward-looking statements are based on the beliefs of the Company's management as well as assumptions made by and information currently available to the Company's management. Such statements are inherently uncertain, and there can be no assurance that the underlying assumptions will prove to be valid. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors, such as those disclosed under "Risk Factors," including but not limited to the Company's lack of operating history, competitive factors, and general economic conditions. Such statements reflect the current views of the Company with respect to future events and are subject to these and other risks, uncertainties and assumptions relating to the operations, results of operations, growth strategy and liquidity of the Company. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by this paragraph. USE OF PROCEEDS The Company will not receive any proceeds upon the sale of any securities by the Selling Security Holders. The net proceeds to the Company with respect to the exercise of any of the Warrants will be used for general corporate purposes and working capital, in order to pay administrative costs of operating the Company, including salaries, rent, legal and accounting fees and expenses. However, there can be no assurance that any of the Warrants will be exercised and due to the lack of market for the Common Stock the Company does not expect any of the Warrants to be exercised at this time. The expenses of this offering, estimated at $150,000, will be paid solely by the Company. DETERMINATION OF OFFERING PRICE The initial offering price of $.002 per share for the Common Stock and $.0001 for the Class B Preferred Stock was arbitrarily determined by the Company and represents the par value of the Company's Common Stock. The price is not based upon earnings or any history of operations and should not be construed as indicative of the present or anticipated future value of the Common Stock. There is currently no public market 7 10 for the shares of Common Stock or Class B Preferred Stock. The price at which these shares are being offered to the public may be greater than the market price for the Common Stock and Class B Preferred Stock following the offering. Due to the lack of earnings history of the Company and the absence of a reasonable expectation or assurance of dividends in the near future, there can be no assurance of an active and liquid market for the Common Stock and Class B Preferred Stock developing in the future. A purchaser of securities in this offering may face difficulties in finding a purchaser for his or her securities and may expect to receive a lower price for such securities than otherwise may be the case. SELLING SECURITY HOLDERS The Shares and Class B Preferred Stock are to be offered and sold from time to time by and on behalf of the Selling Security Holders named in Appendix A, in the manner and under the circumstances described on the cover page of this Prospectus and under "The Offering" and "Plan of Distribution." Appendix A to this Prospectus sets forth for each Selling Security Holder the number of Shares and Class B Preferred Stock beneficially owned prior to the offering and the number to be offered and sold; assuming that each Selling Security Holder sells all his or her securities, the number and percentage of shares of Common Stock and Class B Preferred Stock to be owned by each after completion of the offering will be zero. Except as described, there are no material relationships between any of the Selling Security Holders and the Company or any of its predecessors or affiliates, nor have any such material relationships existed within the past three years. PLAN OF DISTRIBUTION The Shares and Class B Preferred Stock may be offered by the Selling Security Holders from time to time in transactions for their own account (which may include block transactions) in the over-the-counter market, in negotiated transactions, or a combination of such methods of sale, at negotiated prices, in that there is no established trading market for such securities. The Selling Security Holders may effect the sale of the Shares and Class B Preferred Stock by selling the securities to or through broker-dealers, and such broker-dealers may receive compensation in the form of discounts, concessions or commissions from the Selling Security Holders or the purchasers for whom/which such broker-dealers may act as agent or to whom/which they sell as principal, or both (which compensation as to a particular broker-dealer might be in excess of customary commissions). The Selling Security Holders and any broker-dealers that act in connection with the sale of the securities may be deemed to be "underwriters" within the meaning of Section 2(l1) of the Securities Act and any commissions received by them and any profit on the resale of the securities as principal might be deemed to be underwriting compensation under the Securities Act. There is no established public trading market for any securities of the Company and there is no assurance that any such market will develop in the future. Moreover, the initial offering prices for the securities have been arbitrarily determined by the Company as the par value of each of such securities and may not be indicative of the prices at which such securities may be offered and sold by the Selling Security Holders. BUSINESS GENERAL The Company is a development stage media holding company specializing in the creation of "entertainment franchises" and the development of its fifteen media subsidiaries. The Company, through its subsidiaries, owns a portfolio of intellectual properties and production rights. The properties include stories and titles, some of which are copyrighted and others of which are works in progress or under development. The Company plans to provide its operating subsidiaries with financing and management services, including accounting, planning, budgeting and human resources management. The Company's subsidiaries also are development stage media companies which intend to produce products in the motion picture, television, publishing and other industries. Except for certain limited operations, the Company's activities to date have consisted primarily of raising capital, obtaining financing, acquiring intellectual properties, and administrative activities relating to the foregoing. The Company's proposed business, including both expansion of its current limited operations and its 8 11 proposed activities, requires substantial additional equity or debt financing, which may not be available in a timely manner, on commercially reasonable terms, or at all. The Company has not exploited any of the properties acquired from Mr. Faw in 1993 due to the lack of necessary financing. Since the Company is in the development stage, it is subject to all the risks inherent in undertaking a new business venture. FAW PURCHASE AGREEMENT In February 1993, Studio City-Florida entered into an agreement with Larry D. Faw, the President and Chairman of the Board of the Company, to acquire direct ownership of various intellectual properties having an estimated value of $7,226,000, including 72 motion picture properties, four television pilot properties, 48 books for publication, four inventions, one franchise program and one specialty product design and marketing program, in exchange for a promissory note payable on February 16, 1995 in the amount of $1,554,027 (the "Faw Note"), and warrants to purchase 5,000,000 shares of Common Stock of Studio City-Florida. Interest on the Faw Note accrues at the rate of 2% per annum and the principal amount was due and payable on February 16, 1995. Since 1993, interest payments of $130,000 have been made on the Faw Note and accrued interest payable to Mr. Faw at July 1, 1998 is $360,449. Since maturity, the Faw Note has been extended for consecutive six month terms at the annual interest rate of 9%. The warrants are exercisable until 2003 at $1.00 per share. In addition, Mr. Faw received 1,000,000 shares of Class Preferred B Stock. See "Description of Securities -- Warrants" and "Certain Transactions." THE MERGER Effective July 1, 1996, Studio City-Florida merged with and into the Company, pursuant to the Plan of Merger. Except for certain shares held by Larry D. Faw, the President and Chairman of the Board, each of the issued and outstanding shares of common stock of Studio City-Florida were converted into one share of the Company's Common Stock, and 100,000,000 shares of common stock of Studio City-Florida held by Larry D. Faw, were converted into 10,000,000 shares of the Company's Class A Preferred Stock. See "Description of Securities." Pursuant to the federal and state securities laws, it is unlawful to sell any security unless the security is registered or exempt from the registration requirements of such laws. The shares of the Company's Common Stock and Class A Preferred Stock issued pursuant to the Plan of Merger were not registered and may not have been exempt from registration. Consequently, although the Company believed exemptions to be available, the offer and sale of the shares of Common Stock may have been made in violation of federal and state securities laws. The federal securities laws and most state laws provide for rights of redress (in the form of rescission, or damages if the security has been sold) for purchasers of securities sold in violation of the applicable registration provisions of such laws. There can be no assurance that claims asserting violations of state or federal securities laws will not be asserted. A successful claim brought against the Company could have a material adverse effect on the Company's business, financial condition and results of operations. SUBSIDIARIES Set forth below is a description of the Company's subsidiaries. Unless otherwise indicated, all of the subsidiaries described below are wholly-owned by the Company. Each of its subsidiaries is in the development stage with a limited or no operating history. Consequently, none of the subsidiaries has generated significant revenues as of the date hereof. In addition, there can be no assurance that any of the Company's subsidiaries will achieve significant sales of its products or attain profitability. Fawnsworth International Pictures Corporation, a Florida corporation ("FIPC"), was incorporated in October 1991 to engage in motion picture production and distribution. FIPC currently owns fifteen intellectual properties, which are all ready for production. FIPC also owns options to acquire over one hundred intellectual properties. Poc-It Publishers, Incorporated, a Florida corporation ("PPI"), was incorporated in May 1993 to assemble, acquire, produce and publish various literary properties. PPI currently owns the rights to forty-four titles, as well as options for more. 9 12 Poc-It Comics, Incorporated, a Florida corporation ("PCI"), was incorporated in March 1994, and is a comic book publisher. It owns three comic book franchises for development which it plans to produce as comic books, television series (live action and animation), video games and interactive CD-ROM's. In May 1995, PCI published and distributed its first issue of the comic book "Shadow Raven," which sold approximately 5,000 copies. PCI is 96.0% owned. Zweig Knights Publishing Corporation ("Zweig"), a Florida corporation incorporated in March 1994, is a publisher of limited first editions and special editions of hardback children's books and inspirational family related publications, that owns the rights to forty-four titles. In 1995, Zweig entered into an agreement with Calico Animation and Creations to create the "animation key cel art" (a combination of character studies, backgrounds and moves in flat artwork) and "master paintings" (original watercolor paintings) for an entertainment franchise entitled "The Nicholas Stories," a collection of three children's books. An animated broadcast version of one of the books, "The Boy with a Wish," was produced and in December 1996 was broadcast regionally on a local cable and television station in the Tampa Bay, Florida region. Zweig is 64.3% owned. Larry Faw, Harry Knights, Genevieve Faw, Vincent Neville, Charles Flood, executive officers of the Company, a family trust of Roger Hefler, the former chief executive officer, and 29 unrelated persons each beneficially own less than 1%. The International Children's Television Network, Inc., a Florida corporation ("ICT Net"), was incorporated in April 1994 to develop certain children's and youth oriented television properties and programming. ICT Net currently has 15 literary properties which will provide approximately 12 hours of children's programming. In 1995, ICT Net's literary property entitled "Willie's Adventures" was published as a weekly serial in Knight-Ridder newspapers as a children's travel and adventure weekly feature. ICT Net is 99.9% owned; an unrelated person beneficially owns less than 1%. Quagga Entertainment Corporation ("Quagga"), incorporated in Florida in March 1995, was formed to engage in the exploitation of motion picture and television properties. Quagga completed its first production video: "Zoo Toonz Volume I," a children's television pilot project narrated by two puppet characters. The pilot was premiered at the National Association of Program and Television Executives convention in Las Vegas, Nevada during January 1996. Subsequently, a second generation of Zoo Toonz has been produced for Volume I and five additional volumes are currently in post production. In addition, a third generation of Zoo Toonz is being developed into a television pilot and 25 episodes of a new children's educational television series. Quagga is 94.95% owned; Larry Faw, Genevieve Faw, Vincent Neville, directors and executive officers of the Company, and a private investor each own 1.25% and two unrelated investors each beneficially own less than 1%. Studio City Amusements, Inc., incorporated in Florida in November 1994, owns two theatrical musical productions and was formed to develop and manage entertainment properties and develop and produce specialty entertainment projects (non-intellectual properties and asset management projects with real property which provide continuous cash flows and revenue streams). Non-Existent Major League Fantasy Sports Association, Incorporated was incorporated in Florida in November 1994 to develop a series of interactive radio and television fantasy sporting events. It owns "The 1994 Fan's Choice Fantasy World Championship of Baseball," a 12-hour radio play of a fantasy baseball world series, the first in a series of radio and television fantasy sporting events. Accinemetron Releasing Corporation ("Accinemetron"), incorporated in Florida in March 1995, was formed to coordinate the distribution of various product lines including films, television programming, videocassettes, audio products and ancillary merchandise. The Magic Shop, Inc. was incorporated in Florida in October 1995 to serve as a production center and business incubator for entertainment related companies. Zollipe Cyberspace Corporation was incorporated in Florida in June 1996 to develop computer programming and software for interactive games and information. Zzoonzuit, Inc. was incorporated in Florida in June 1996 to design and manufacture a new line of beachwear, swimwear and athletic clothing. 10 13 Xenomorph Digital Post, Inc. ("Xenomorph"), was incorporated in Florida in June 1996 to be a digital broadcast and video post production center and on-line producer of television programming. Xenomorph entered into a lease purchase agreement to purchase an Avid Media 1000 digital nonlinear editing system and has expanded its post production capabilities by purchasing television broadcast production and post production equipment for a total purchase price of $348,400. Pro-Sports Entertainment Group, Inc. was incorporated in November 1996 to be a motion picture and television production group to produce entertainment products focused on minority role models. Zingrr N-2Aktiv Television Network, Inc. ("Zingrr") was incorporated in November 1994 to serve as a partner in development, creation, maintenance and programming of FCC licensed wireless cable stations and systems. DISTRIBUTION Distribution of Films. If and when produced, the Company will seek distribution of its proposed films either to theaters or as original television movies. These could be marketed to the networks, HBO, Showtime or for similar movie channel distribution, or for syndicated distribution to independents. Once a pilot has been produced, the Company will attempt to market to the networks or through syndication to independents. The Company currently does not have a pre-production distribution agreement in place for any of its products and cannot offer any assurance that a distribution agreement can be obtained or if obtained that such agreement will be profitable. It is difficult for a small independent producer to market a product to the networks or for independent syndication. The success of such a marketing effort is dependent upon many factors including (a) the quality of the product, (b) the fit of the product to the network or syndicate's other program mix and selection criteria, (c) perceived public trends, (d) the reputation of the producers, and (e) in part, the individual producer's interpersonal relationships within the industry. Although management believes favorable distribution agreements can be obtained, the lack of a preproduction agreement substantially increases the risk to these projects and to the inventors. Distribution of Literary Properties. The Company intends to seek distribution of its literary properties through two of its subsidiaries, Zweig and Accinematron, by direct sales, televised infomercials and special events. The Company intends to seek to finance operations through a combination of funding sources, including borrowings from management and principal shareholders and public and private securities offerings. There are no present agreements, contracts, understandings or other arrangements for such necessary financing. TRADEMARKS The Company's rights to characters are principal assets of the Company. Although used in interstate commerce, such proprietary information is not subject to any trademark, service mark or similar registration or protection at this time. There can be no assurance that any such application, if and when filed, will be approved, or that the Company will have the financial and other resources necessary to enforce its proprietary rights against infringement by others. The inability of the Company to obtain adequate protection of, or to enforce, its proprietary rights could have a material adverse effect on the Company. ROYALTY AGREEMENTS Under certain royalty agreements with various unaffiliated individuals, the Company is obligated to make contingent payments, royalties and profit participation payments ranging from 1% to 10% of the gross net profits. COLLECTIVE BARGAINING AGREEMENT The Company is represented by the Alliance of Motion Picture and Television Producers in its Collective Bargaining Agreement under the auspice of the National Labor Relations Board, which includes Signatory status with various Unions and Guilds. The Collective Bargaining Agreement requires that the Company meet negotiated requirements to the various Unions and Guilds, when applicable, and maintain a minimum cost 11 14 from service contracts for various Union and Guild members. These costs are carried over into future production and pass-through to any purchaser. These costs and obligations are considered to be perpetual. COMPETITION The entertainment business in general, and the film and television entertainment industry in particular, is undergoing significant changes. Alternative forms of filmed entertainment have become available, including expanded pay and basic cable television, pay-per-view programming, and home entertainment equipment. Given technological developments and shifting consumer tastes, it is difficult to predict what effect these changes will have on the potential overall revenue for feature-length motion pictures. Management believes however that these changes within the television industry will create an increased demand for new products and, in this respect, these trends are favorable to the Company. Competition in the film industry. There is substantial competition in the industry for a limited number of producers, directors, actors and properties which are able to attract major distribution in all media and all markets throughout the world. The motion picture business is highly competitive and extremely high profile in terms of name recognition, with relatively insignificant barriers to entry and with numerous firms competing for the same directors, producers, actors/actresses, distributors and theaters, among other items. There is intense competition within the film industry for exhibition times at theaters, as well as for distribution in other media, and for the attention of the movie-going public and other viewing audiences. Competition for distribution in other media is intense. Each of its subsidiaries is in the development stage with a limited or no operating history. Consequently, none of the subsidiaries has generated revenues as of the date hereof. In addition, there can be no assurance that any of the Company's subsidiaries will achieve significant sales of product or attain profitability. FAW PURCHASE AGREEMENT In February 1993, Studio City-Florida entered into an agreement to acquire direct ownership of various intellectual properties having an estimated value of $7,226,000, including 72 motion picture properties, four television pilot properties, 48 books for publication, four inventions, one franchise program and one specialty product design and marketing program in exchange for a promissory note payable in the amount of $1,554,027 (the "Faw Note") payable to Larry D. Faw, the President and Chairman of the Board of the Company, and warrants to purchase 5,000,000 shares of Common Stock of Studio City-Florida exercisable at $1.00 per share until February 16, 2003. The principal amount was due and payable on February 16, 1995, with interest at the annual rate of 2%. Since maturity, when the Company was unable to pay the Faw Note, it has been extended for consecutive six month terms at an annual interest rate of 9%. Since 1993, the Company has paid $130,000 interest on the Faw Note and accrued interest payable to Mr. Faw at July 1, 1998 was $360,449. In addition, Mr. Faw received 1,000,000 shares of Class Preferred B Stock. See "Description of Securities" and "Certain Transactions." The Faw Note is a demand obligation, but there is no schedule for repayment of principal or interest. The purchase price of the intangible assets was determined by reference to industry standards as detailed in the National Labor Relations Board's Collective Bargaining Agreement between the Alliance of Motion Picture and Television Producers and the Writers Guild of America which reflects the minimum replacement costs and pass through financial obligations to industry-wide motion picture and television producers and purchasers of intellectual properties. The industry standards referred to in that agreement may have no relationship to commercial, economic or fair market value of the intangible assets. See "Collective Bargaining Agreement." EMPLOYEES At June 1, 1998, the Company had two full-time employees. The Company has never experienced a work stoppage or interruption due to a labor dispute. In 1998, employment agreements, which expire on April 8, 2000 unless renewed, were negotiated and completed with the following persons to serve in the following positions: Larry D. Faw, Chairman of the Board and President; Vincent J. Neville, Vice Chairman and Chief Executive Officer; Genevieve H. Faw, Director and Senior Vice President; Andrew C. Rigrod, Chief Operations Officer; Walter Johnson Williams, Chief Financial Officer;; Harry B. Knights, Senior Vice 12 15 President-Operations; Charles H. Flood, Senior Vice President-Sales; Wallis M. Spence, Senior Vice President-Financial Marketing; James W. Courchaine, Senior Vice President-Logistics; and John A. Churchill, Jr., Controller. See "Management" and "Employment Agreements." The Company expects to retain additional employees in the areas of production and post production as permitted by its financial condition and required by its business. Most screenwriters, performers, directors and technical personnel who will be involved in the Company's films are members of guilds or unions which bargain collectively with producers on an industry-wide basis from time to time. REAL PROPERTIES The Company currently leases approximately 410 square feet for its executive offices, at 14400 Southwest 46th Court, Ocala, Florida, for $400 per month on a month-to-month basis from Larry D. Faw, the Chairman of the Board and President. The Company believes that the terms of such leasing arrangement are no less favorable to the Company than those that could have been obtained from an independent third party. The Company also leases approximately 1700 square feet at $675 per month for its studio located at 4716 North Lois Avenue, Tampa, Florida. The one-year lease expires April 30, 1999. LEGAL PROCEEDINGS As a multimedia holding company in the entertainment industry, the Company is often required to defend its rights and license for intellectual properties that it either owns or serves as a joint venture partner. Currently, the Company and its subsidiary, Poc-It Comics, Incorporated, are defending their rights in the production and distribution of an entertainment franchise based on a comic book story entitled "Shadow Raven." The principals are currently attempting to resolve the issues in negotiation. The Company and its subsidiary, Quaggga Entertainment Corporation, are defending a challenge to the companies' rights associated with a joint venture to create, produce, distribute and exploit an intellectual property entitled "Zoo Toonz," a joint venture where the timeliness of the creation of finished products are in question. Litigation is pending in this matter, and it has been determined that the production will be completed without the assistance of the joint venture partner, and the Company and its financial partners will seek to recoup all of their investment. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Studio City-Florida was a development stage multimedia company incorporated in 1991 to engage in asset development, business management, production and post-production studio operation, motion picture studio operation, tourist attraction operation, the development of motion pictures for theatrical exhibition, for television and home video, and in the development, production and distribution of printed publications. At the time of the merger with CVT Corp. of America, Studio City-Florida owned a large number of intellectual properties and a partial interest in other intellectual properties, but had not generated significant revenues. The Company was incorporated in New York under the name "CVT Corp. of America" ("CVT") in March 1984 and, until 1993, was engaged in limited sales, manufacturing and marketing operations of continuous variable speed transmissions. Unable to finance the research and development necessary to continue operation, CVT ceased operations in 1993. On June 28, 1996, CVT changed its name to "Studio City Holding Corporation" and, effective July 1, 1996, merged with Studio City-Florida, a development stage media holding company. The Company is a development stage media holding company specializing in the creation of "entertainment franchises" and the development of its fifteen wholly-owned or majority-owned media subsidiaries. Except for certain limited operations, the Company's activities to date primarily have consisted of raising capital, obtaining financing, acquiring intellectual properties, and administrative activities relating to the foregoing. Each of its subsidiaries is in the development stage with a limited or no operating history. Consequently, the subsidiaries have generated limited or no revenues as of the date hereof. In addition, there can be no assurance that any of the Company's subsidiaries will achieve significant sales of its products or attain profitability. 13 16 During the years ended December 31, 1995, 1996 and 1997, and the nine months ended September 30, 1998, the Company had net losses of $316,578, $558,221, $540,455 and $342,205, respectively. The interim financial statements of the Company as of September 30, 1998 are unaudited and include all adjustments which in the opinion of management are necessary in order to make such financial statements not misleading. At December 31, 1997, the cumulative deficit since inception was $1,942,162, reflecting the cost of development and other start-up activities without significant offsetting revenues. The Company's business is capital intensive and it expects to continue to incur significant losses in the future. Depending upon the availability of necessary financing, of which there can be no assurance, the Company's plan of operation for the next 12 months includes release by Zweig of "The First Flight of St. Nicholas," the second book of "The Nicholas Stories" trilogy, before December 31, 1998, and publication of "The Maiden Voyage of Kris Kringle, the third book of the trilogy, during the fourth quarter of 1999; publication by PPI of a second comic book series during 1999; participation by FIPC as a strategic partner in one Hollywood-based motion picture production during 1999; and technical production by Xenormorph of a children's video series during 1999. The Company's proposed business, including both expansion of its current limited operations and its proposed activities, requires substantial additional equity or debt financing, which may not be available in a timely manner, on commercially reasonable terms, or at all. The Company will have to raise funds to satisfy its cash requirements in the next 12 months. As of the date hereof, the Company has no agreement, arrangement or understanding with any person for the necessary financing. Therefore, the Company anticipates that it will continue to meet its cash requirements by the private sale of securities, as well as advances from management, the main source of liquidity in the past. There are no plans to purchase significant equipment, nor are any significant changes in the number of employees expected. Year 2000. Because many computer and computer applications define date by the last two digits of the year, "00" may not be properly identified as the year 2000. This error could result in miscalculations or systems failure in computer systems, network elements, software applications and other business systems that have time sensitive programs. Management does not anticipate that the so-called Year 2000 issue will have a significant impact on its business or require a significant commitment of resources to resolve potential problems associated with this issue. There can be no assurance, however, that the Company will be unaffected by the Year 2000 issue affecting its customers or suppliers, but the Company does not believe the Year 2000 readiness of its customers or suppliers will have a material impact on the Company's business or financial statements. 14 17 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The directors and executive officers of the Company are as follows:
NAME AGE POSITION ---- --- ------------------------------------------ Larry D. Faw.............................. 50 Chairman of the Board and President Vincent J. Neville........................ 67 Vice Chairman of the Board and Chief Executive Officer Genevieve H. Faw.......................... 38 Senior Vice President, Secretary and Director Andrew C. Rigrod.......................... 56 Chief Operations Officer Walter Johnson Williams................... 49 Chief Financial Officer Harry B. Knights.......................... 51 Senior Vice President -- Operations Charles H. Flood.......................... 48 Senior Vice President -- Sales Wallis M. Spence.......................... 50 Senior Vice President -- Financial James W. Courchaine....................... 67 Marketing John A. Churchill, Jr..................... 59 Senior Vice President -- Logistics Controller
Each director is elected to hold office until the next annual meeting of stockholders and until his successor is elected and qualified. All officers serve at the discretion of the Board of Directors. Of all the directors and executive officers of the Company, only Mr. Faw, Mrs. Faw and Mr. Knights devote full time and attention to its affairs. The following sets forth certain biographical information with respect to the directors and executive officers of the Company: Larry D. Faw has served as Chairman of the Board of Directors and President of the Company since inception of Studio City-Florida in 1991. Mr. Faw has twenty-six years of experience in the financing, production, and distribution of feature motion pictures, documentaries, television commercials, and short films. Mr. Faw is the husband of Genevieve Faw. Vincent J. Neville was a director and Senior Vice President of the Company from November 1995 until December 1997, when he became Vice Chairman and Chief Executive Officer. He has served as President of Finest Security Service Inc., Flushing, New York, since 1986, and as President of T.J. Catering Inc., Flushing, New York, since June 1997. Also, Mr. Neville has over twenty years experience in law enforcement as a former Detective with the New York City Police Department, where for eleven years he served as an Investigator and Personal Bodyguard for the District Attorney of Queens County. Genevieve H. Faw has served as an Senior Vice President, Secretary and director of the Company since inception of Studio City-Florida in 1991. Ms. Faw's background includes accounting, business management, feature-length motion picture production, and the publication of children's books and specialty niche market publications. Ms. Faw is the wife of Larry Faw. Andrew C. Rigrod has served as Chief Operations Officer since April 1998. Mr. Rigrod, who graduated from Cornell Law School in 1966 and was an editor of the Cornell Law Review, has been practicing law for 30 years, specializing in entertainment law exclusively for the last 24 years, representing producers, writers, directors and actors. Walter Johnson Williams has served as Chief Financial Officer since January 1998. Mr. Williams has served as an adviser to the Company since 1992. Mr. Williams is the President of American Business Econometrics, Inc., an economic consultancy firm he founded in 1983 which publishes The Straight Shooter Newsletter and analyzes government reports through the Shadow Bureau of Government Statistics. He also provides consulting services to major financial institutions and Fortune 500 companies, as well as to private individuals; he also provides economic commentary to financial newspapers, journals and other publications and radio and television business and finance programs. 15 18 Harry B. Knights has served as Senior Vice President-Operations since March 1998. Mr. Knights also has served as Co-Publisher and Chief Operations Officer of Zweig Knights Publishing Corporation, a majority owned subsidiary, since May 1994. Mr. Knights authored "The Nicholas Stories: The Boy With A Wish, The First Flight of St. Nicholas; The Maiden Voyage of Kris Kringle;" and "The Spirit of Christmas" and "The Homecoming." He was discharged from personal bankruptcy in April 1994. Charles H. Flood has served as Senior Vice President-Sales since October 1996. Mr. Flood also has served as Co-Publisher and President of National Sales of the Eleemosynary/Traditional Publishing Division of Zweig Knights Publishing Corporation, since July 1994. Mr. Flood has over twenty years of experience in sales management, product development, marketing, education and publishing. His experience includes custom publishing, interactive CD ROM development, sub-rights and co-publishing for animation, joint venture television and publishing programs, and, eleemosynary publishing. Wallis M. Spence has served as Senior Vice President-Financial Marketing since February 1998. He owns The Striker Steel Co. (steel framed homes), since February 1996, and is a self-employed financial consultant specializing in portfolio/pension funds for long term investment, since 1989. James W. Courchaine has served as Senior Vice President-Logistics since June 1998. In 1979, Mr. Courchaine retired from the United States Air Force after twenty years and became a self-employed financial consultant specializing in financial services and planning for insurance companies. He was discharged from personal bankruptcy in October 1995. John A. Churchill, Jr. will serve as Controller after the effective date of the Registration Statement of which this Prospectus is a part. He owns Central Business Services Corporation, a financial services company, since 1990. He serves as Treasurer of E.L. Trevena, Inc., a demolition company, since 1996, and was Chairman of Agrovit, Inc., a fertilizer brokerage, from 1991 to 1996. EXECUTIVE COMPENSATION Neither the Chief Executive Officer nor any other executive officer of the Company received total salary and bonus in excess of $100,000 in any of the fiscal years ended December 31, 1995, 1996 or 1997. Roger Hefler, who died on December 26, 1997, received $24,000 as Vice Chairman and Chief Executive Officer during each of the fiscal years ended December 31, 1996 and 1997. DIRECTORS' COMPENSATION Directors of the Company are not compensated for their services. EMPLOYMENT AGREEMENTS On April 8, 1998, the Company entered into employment agreements with all executive officers. The employee agreements provide for remuneration, stock awards, and performance awards. Each executive officer will receive (i) a sign-on award of 25,000 shares of stock, (ii) cash compensation at the end of recapitalization level 1 ($1,000,000 in new capital) of $48,000 per annum; (iii) stock award of 25,000 shares at the end of the 1st year of employment; (iv) cash compensation at the end of capitalization level 2 ($10,000,000 in new capital) of $75,000 per annum; (v) stock award of 25,000 shares at the end of the 2nd year of employment; and (vi) stock award of 25,000 shares at the end of the 3rd year of employment. Each employment agreement expires on April 8, 2000. Pursuant to the employment agreements, Larry D. Faw serves as Chairman of the Board of Directors and President, Vincent J. Neville serves as Vice Chairman and Chief Executive Officer, Genevieve H. Faw serves as a Director, Secretary and Senior Vice President-Children's Programming, Andrew C. Rigrod, Esquire serves as Chief Operations Officer, Walter Johnson Williams serves as Chief Financial Officer, Wallis M. Spence serves as Senior Vice President-Financial Marketing, Harry B. Knights serves as a Senior Vice President-Operations, Charles H. Flood serves as Senior Vice President-Sales, James W. Courchaine serves as Senior Vice President-Logistics; and John A. Churchill, Jr. serves as Controller. Each of the executive officers will be entitled to receive reimbursement for all reasonable expenses incurred in connection with the performance of any of his/her obligations pursuant to the Employment Agreements. The Employment Agreements contain a covenant not to compete and an agreement to keep confidential certain information. 16 19 LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS The Certificate of Amendment and Restated Certificate of Incorporation, and the By-Laws of the Company, as amended, provide that the Company shall indemnify its officers and directors to the full extent permitted by the Business Corporation Law of the State of New York. Reference is hereby made to Section 402(b) of the Business Corporation Law of the State of New York relating to the indemnification of officers and directors, which Section is hereby incorporated herein by reference. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or others pursuant to the foregoing provisions, the Company has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is therefore unenforceable. INCENTIVE STOCK OPTION PLAN In March 1993, the Board of Directors and shareholders approved in principle an Employee Incentive Stock Option Plan (the "Plan") for full time employees including executive officers. Under the Plan, the Company would issue options to purchase shares of the Company's Common Stock, exercisable at the current market value (110% of current market value only to 10% or greater stockholders) up to $100,000 annually. The Plan would terminate on March 1, 2001, unless renewed. Under the Plan, any officer or director owning 10% of the voting plan of the Company would be restricted from exercising his/her options to three years after the receipt of such Grant. Additional provisions would be as follows: (1) options terminated or expired, revert back to the Plan, (2) unpurchased option shares remain in the Plan, (3) options are exercisable by the optionee or his/her estate, (4) options are not transferable, and, (5) carryover amounts from one year to the next year cannot exceed 50% of the Plan. The Company will reserve 500,000 shares of Common Stock for issuance under the Plan. The Plan has not been implemented and no options have been granted under the Plan. CERTAIN TRANSACTIONS FAW PURCHASE AGREEMENT In February 1993, Studio City-Florida entered into an agreement with Larry D. Faw, Chairman of the Board of Directors and President, to acquire direct ownership of various intellectual properties having an estimated value of $7,226,000, including 72 motion picture properties, four television pilot properties, 48 books for publication, four inventions, one franchise program and one specialty product design and marketing program, in exchange for a promissory note payable in the amount of $1,554,027 and warrants to purchase 5,000,000 shares of Common Stock of Studio City-Florida exercisable at $1.00 per share until February 16, 2003. The principal amount was due and payable on February 16, 1995, with interest at the annual rate of 2%. Since maturity, when the Company was unable to pay the Faw Note, it has been extended for consecutive six month terms at an annual interest rate of 9%. Since 1993, the Company has paid $130,000 in interest on the Faw Note and accrued interest payable to Mr. Faw at September 30, 1998 was $360,449. The Faw Note is a demand obligation, but there is no schedule for repayment of principal or interest. The purchase price of the intangible assets was determined by reference to industry standards as detailed in the National Labor Relations Board's Collective Bargaining Agreement between the Alliance of Motion Picture and Television Producers and the Writers Guild of America which reflects the minimum replacement costs and pass through financial obligations to industry-wide motion picture and television producers and purchasers of intellectual properties. The industry standards referred to in that agreement may have no relationship to commercial, economic or fair market value of the intangible assets. See "Collective Bargaining Agreement." Effective July 1, 1996, Studio City-Florida merged with and into the Company, pursuant to the Plan of Merger. Pursuant to the Plan of Merger (i) 100,000,000 shares of Common Stock of Studio City-Florida held by Larry D. Faw were converted into 10,000,000 shares of the Company's Class A Preferred Stock, (ii) 10,000,000 shares of Common Stock of Studio City-Florida held by Mr. Faw were converted into 17 20 1,000,000 shares of the Company's Class B Preferred Stock, (iii) warrants to purchase 5,000,000 shares of Common Stock of Studio City-Florida were converted into warrants to purchase 5,000,000 shares of Common Stock of the Company, and (iv) each of the remaining issued and outstanding shares of Common Stock of Studio City-Florida were converted into one share of the Company's Common Stock. In addition, Mr. Faw received 1,000,000 shares of Class Preferred B Stock in connection with the merger. See "Business -- Subsidiaries" for information about the interests of certain directors and executive officers in subsidiaries of the Company. PRINCIPAL STOCKHOLDERS The following table sets forth, as of July 1, 1998, the beneficial ownership of shares of the Common Stock of the Company by any person known to the Company to be the beneficial owner of more than five per cent; each of the directors and executive officers; and all directors and executive officers as a group.
AMOUNT AND NATURE OF BENEFICIAL NAME OF BENEFICIAL OWNER OWNERSHIP OF COMMON STOCK(1)(2) PER CENT OF TOTAL VOTING POWER(2) ------------------------ ------------------------------- --------------------------------- Larry D. Faw......................... 10,196,277(2)(3) 83.1% 14400 Southwest 46th Court Ocala, Florida 34473 Vincent J. Neville................... 442,000(4) * Genevieve H. Faw..................... 10,196,277(2)(3) 83.1% 14400 Southwest 46th Court Ocala, Florida 34473 Andrew C. Rigrod..................... 25,000 * Walter Johnson Williams.............. 526,000 * Harry B. Knights..................... 181,000(5) * Charles H. Flood..................... 30,000 * Wallis M. Spence..................... 25,000 * James W. Courchaine.................. 289,400(6) * John A. Churchill, Jr................ 1,154,400(7) * All directors and officers as a group.............................. 12,869,077 85.2%
- --------------- * Less than one per cent. (1) Except as otherwise indicated, each of the persons named has sole voting and investment power with respect to all shares of Common Stock beneficially owned. Beneficial ownership is calculated in accordance with Rule 13d-3(d) of the Securities Exchange Act of 1934. (2) The Company has two classes of voting securities, Common Stock and Class A Preferred Stock. Holders of Class A Preferred Stock vote together with holders of Common Stock and are entitled to ten votes for each share of Class A Preferred Stock on all matters voted upon by the shareholders of the Company. Larry D. Faw, Chairman of the Board and President of the Company beneficially owns all outstanding shares of Class A Preferred Stock, or 100% of that class, and therefore is the beneficial owner of 83.1% of the voting power of the Company. The Class A Preferred Stock is included in the calculation of the per cent of total voting power. The Class B Preferred Stock, each share of which is convertible into ten shares of Common stock at the annual rate of 20% commencing two years after acquisition, are not included in the calculation. (3) Includes: 2,870,000 shares held by Larry D. Faw, Incorporated, of which Mr. Faw is the President; 401,277 shares held by the Von Falconbourg Family Trust, of which Mr. Faw is the Managing Trustee; 1,000,000 shares held by Morgan Rothchild Anzo, Inc. for the account and benefit of Mr. Faw; warrants to purchase 5,000,000 shares at $1.00 per share; and 925,000 shares held by Genevieve H. Faw, Mr. Faw's wife. Does not include 10,000,000 shares of Class A Preferred Stock held by Mr. Faw, or 1,000,000 shares of Class B Preferred Stock held by each of Mr. Faw and the Von Falconbourg Family 18 21 trust or 300,000 shares of Class B Preferred Stock held by Mrs. Faw. Each of Mr. Faw and Mrs. Faw disclaims beneficial ownership of the other's shares. (4) Includes 5,000 shares held by Mr. Neville's wife. (5) Includes 6,000 shares held jointly with Mr. Knight's wife. Does not include 35,000 shares of Class B Preferred Stock. (6) Includes 153,400 shares held by the Courchaine Family Partnership, of which Mr. Courchaine is the managing partner. Includes 10,000 shares held jointly with Mr. Courchaine's wife. Does not include 35,000 shares of Class B Preferred Stock held jointly with Mr. Courchaine's wife. (7) Includes 12,000 shares held by five members of Mr. Churchill's family. DESCRIPTION OF SECURITIES GENERAL The aggregate number of shares that the Corporation had authority to issue is 85,000,000 shares, consisting of (i) 40,000,000 shares of Common Stock, (ii) 10,000,000 shares of Class A Preferred Stock, (iii) 25,000,000 shares of Class B Preferred Stock and (iv) 10,000,000 shares of Preferred Stock, $.0001 per share par value, to be issued in series. The Board of Directors has the authority to issue Preferred Stock in series, fix the number of shares to be included in such series, the dividends payable on the shares of such series, the redemption price of the shares of such series, if any, and the terms and conditions of such redemption, the terms and conditions under which the shares of such series are convertible, if they are convertible, and other rights, preferences and limitations pertaining to such series. The relative rights, preferences and limitations of the shares of each class are as follows: Voting. Every holder of Common Stock is entitled to one vote for each share of Common Stock on all matters voted upon by the shareholders of the Corporation. Every holder of Class A Preferred Stock is entitled to ten votes for each share of Class A Preferred Stock on all matters voted upon by the shareholders of the Corporation and shall vote as a class with the holders of Common Stock of the Corporation on all matters. The holders of Class B Preferred Stock have no voting rights except as required by law. Dividends. The holders of Class B Preferred Stock are entitled to receive, out of funds legally available therefor, cumulative preferential dividends at the rate of 12% per annum per share of Class B Preferred Stock, based on net income before taxes. Dividends are payable on the Common Stock when and if declared by the Board of Directors after payment of dividends on the Class B Preferred Stock. Liquidation. In the event of the voluntary or involuntary liquidation, dissolution or other termination of the Company, the holders of the Class A Preferred Stock are entitled to be paid $.06 per share of the Class A Preferred Stock and an amount equal to any unpaid accrued dividends before any amount shall be paid to the holders of the Class B Preferred Stock or the Common Stock; and after such payment to the holders of the Class A Preferred Stock, the holders of the Class B Preferred Stock are entitled to be paid $.06 per share of the Class B Preferred Stock and an amount equal to any unpaid accrued dividends before any amount shall be paid to the holders of the Common Stock. After payment shall have been made to the holders of Class A Preferred Stock and Class B Preferred Stock of the full amounts to which they shall be entitled, the holders of Class A Preferred Stock, Class B. Preferred Stock and Common Stock are entitled to share ratably in all remaining assets of the Corporation available for distribution, according to the number of shares of capital stock held, with the holders of Class B Preferred Stock and the holders of Common Stock to share ratably according to the number of shares of Class B Preferred Stock and/or Common Stock held by them, and the holders of Class A Preferred Stock to share ratably according to the number of shares of Common Stock into which such shares of Class A Preferred Stock may be converted. Conversion. Shares of Class B Preferred Stock may be converted into shares of Common Stock on the basis of one share of Class B Preferred Stock for ten shares of Common Stock, at the rate of 20% per year commencing two years after issuance, which ranges from 1993 for the 1,000,000 shares held by Mr. Faw to 1998 for the 2,825,834 shares held by others. 19 22 Warrants. Warrants to purchase 500,000 shares of Common Stock are exercisable at $3.00 per share and expire on December 31, 1999. Warrants to purchase 5,000,000 shares of Common Stock, held by Mr. Faw, are exercisable at $1.00 per share and expire on February 16, 2003. None of the Warrants entitle the holder to any voting rights or other rights as a stockholder of the Company. TRANSFER AGENT The Company's transfer agent is Continental Stock Transfer & Trust Company, 2 Broadway, New York, New York 10004. SELLING SECURITY HOLDERS The name of each Selling Security Holder, any position or office held with the Company and the amount of securities owned before the offering and after the offering is complete are set forth in Appendix A. The percentages of the classes before the offering is less than one percent for all Selling Security Holders except as indicated under "Principal Shareholders," and the percentages of the classes after the offering is complete is zero (-0-) for all Selling Security Holders, assuming all securities offered are sold. SHARES ELIGIBLE FOR FUTURE SALE Upon completion of this Offering, there will continue to be outstanding 31,282,001 shares of Common Stock (including 3,800,000 treasury shares) and 3,825,834 shares of Class B Preferred Stock. Such shares of Common Stock and Class B Preferred offered hereby will be freely tradable in the public market without restriction under the Securities Act of 1933, as amended (the "Securities Act"). There is no public trading market for such shares at present and there can be no assurance that such a market will develop in the future. No prediction can be made as to the effect, if any, that future sales of shares, or the availability of shares for future sale, will have on the market price of the Common Stock prevailing from time to time. Sales of substantial amounts of Common Stock in the public market, or the perception that such sales could occur, could adversely affect prevailing market prices for the Common Stock. If such sales reduce the market price of the Common Stock, the Company's ability to raise additional capital in the equity markets also could be adversely affected. LEGAL MATTERS The validity of the securities offered hereby has been passed upon for the Company by Gerald Weinberg, P.C., Albany, New York. EXPERTS The financial statements of the Company at December 31, 1995, 1996 and 1997 and for the years then ended, appearing in this Prospectus and Registration Statement have been audited by Peel Schatzel & Wells, P.A., independent auditors, as set forth in their report thereon appearing elsewhere herein and in the Registration Statement, and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. ADDITIONAL INFORMATION The Company has filed with the Commission the Registration Statement under the Securities Act with respect to the securities offered by this Prospectus. As permitted by the rules and regulations of the Commission, this Prospectus does not contain all the information set forth in the Registration Statement and the exhibits thereto. Statements contained in this Prospectus as to the contents of any contract or other documents referred to herein are not necessarily complete, and in each instance reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference. For further information with respect to the Company and the securities offered hereby, reference is made to the Registration Statement and the exhibits thereto, which may be may be inspected and copied at certain regional offices of the Commission located at Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and 75 Park Place, 14th Floor, 20 23 New York, New York 10007, and may be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549-1004. In addition, the Company is required to file electronic versions of these documents with the Commission through the Commission's Electronic Data Gathering, Analysis and Retrieval (EDGAR) system. The Commission maintains a World Wide Web site at http://www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. 21 24 INDEX TO FINANCIAL STATEMENTS Report of Peel Schatzel & Wells, P.A., Independent Auditors.................................................. F-2 Consolidated Balance Sheets................................. F-3 Consolidated Statements of Operations....................... F-4 Consolidated Statements of Changes in Stockholders' Equity.................................................... F-5 Consolidated Statement of Cash Flows........................ F-6 Notes to Consolidated Financial Statements.................. F-7
F-1 25 INDEPENDENT AUDITOR'S REPORT To the Board of Directors and Stockholders Studio City Holding Corporation We have audited the accompanying consolidated balance sheets of Studio City Holding Corporation (a New York corporation) (a development stage company) and subsidiaries (development stage companies) as of December 31, 1997 and 1996, and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for the years ended December 31, 1991 through 1997 (inception through December 31, 1997). These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Studio City Holding Corporation and subsidiaries as of December 31, 1997 and 1996, and the results of their operations, changes in stockholders' equity and their cash flows for the years ended December 31, 1991 through 1997 (inception through December 31, 1997) in conformity with generally accepted accounting principles. /s/ Peel, Schatzel & Wells, P.A. St. Petersburg, Florida July 9, 1998 F-2 26 STUDIO CITY HOLDING CORPORATION AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED BALANCE SHEETS
DECEMBER 31, (UNAUDITED) ------------------------- SEPTEMBER 30, 1996 1997 1998 ----------- ----------- ------------- ASSETS Cash and cash equivalents............................. $ 6,650 $ 18,448 $ 107,220 Intangible assets..................................... 7,320,458 7,303,315 7,303,315 Investment in joint ventures and stock................ 56,823 56,823 56,823 Prepaid services...................................... 3,469 3,469 3,469 Office equipment (cost $44,343, $52,506 and $52,506; accumulated depreciation $17,973, $23,493 and $28,275)............................................ 26,370 29,013 24,231 Organization costs (net of accumulated amortization)....................................... 1,126 782 782 Offering costs........................................ 32,051 32,051 32,051 Stock subscriptions receivable........................ 53,000 ----------- ----------- ----------- TOTAL ASSETS..................................... $ 7,446,947 $ 7,496,901 $ 7,527,891 =========== =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Note payable-stockholder............................ $ 1,554,027 $ 1,554,027 $ 1,554,027 Accrued interest.................................... 194,456 290,518 358,803 Accrued expenses.................................... 27,803 37,841 7,750 Loans from stockholders............................. 245,500 CONTINGENT LIABILITIES -- Collective Bargaining Agreement (Note 3).................................. -- -- -- LEASE COMMITMENTS -- (Note 15)........................ -- -- -- ----------- ----------- ----------- TOTAL LIABILITIES................................ 1,776,286 1,882,386 2,166,080 STOCKHOLDERS' EQUITY Common stock - par value $.0001 in 1996 and $.002 in 1997 and 1998; 150,000,000 shares authorized; 150,000,000, 31,028,500 and 31,057,001 shares issued and outstanding in 1996, 1997 and 1998 respectively..................................... 15,000 62,057 62,114 Common stock warrants............................... 5,000,000 5,000,000 5,000,000 Preferred stock -- A - par value $.0001 in 1997 and 1998; 10,000,000 shares authorized, issued and outstanding in 1997 and 1998..................... 1,000 1,000 Preferred stock -- B - no par value in 1996, $.0001 par value in 1997 and 1998; 10,000,000 shares authorized; 3,825,834 issued and outstanding in 1997 and 1998.................................... 671,974 383 383 Additional paid-in capital.......................... 1,197,513 2,305,356 2,394,800 Deficit accumulated during development stage........ (1,213,826) (1,754,281) (2,096,486) ----------- ----------- ----------- TOTAL STOCKHOLDERS' EQUITY....................... 5,670,661 5,614,515 5,361,811 ----------- ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY....... $ 7,446,947 $ 7,496,901 $ 7,527,891 =========== =========== ===========
The accompanying notes are an integral part of these financial statements. F-3 27 STUDIO CITY HOLDING CORPORATION AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF OPERATIONS
CUMULATIVE FOR THE YEAR ENDED (UNAUDITED) FROM INCEPTION DECEMBER 31, FOR THE NINE OCTOBER 21, 1991 --------------------- MONTHS ENDED TO SEPTEMBER 30, 1998 1996 1997 SEPTEMBER 30, 1998 --------------------- --------- --------- ------------------ INCOME.............................. $ 234,147 $ 175,727 $ 15,693 $ 14,005 EXPENSES Accounting fees................... 88,518 28,500 24,209 12,694 Advertising....................... 15,556 4,228 Amortization -- organization costs.......................... 1,208 341 342 Auto expenses..................... 159,172 32,661 24,712 10,515 Bad debts......................... 167,695 167,695 Bank charges...................... 786 157 Commissions....................... 36,906 36,906 Consulting fees................... 119,318 46,082 19,506 6,872 Contributions..................... 227 Depreciation...................... 28,274 6,172 5,520 4,782 Dues and publications............. 15,715 2,021 3,986 3,199 Equipment rental.................. 190,923 36,858 80,058 68,415 Insurance......................... 24,089 7,146 8,367 892 Interest.......................... 576,779 139,862 139,862 108,638 Legal fees........................ 123,038 9,069 66,180 26,582 Licenses.......................... 19,520 4,306 3,212 2,417 Meals............................. 26,408 9,495 2,654 1,606 Medical reimbursement -- officer....... 8,517 5,298 Miscellaneous expenses............ 48,015 8,073 8,485 19,240 Office expenses................... 119,304 19,998 15,746 9,164 Officer compensation.............. 5,000 Postage........................... 49,707 11,991 11,363 7,910 Professional fees................. 91,221 48,229 25,382 5,110 Project costs..................... 126,763 85,833 40,930 Rent.............................. 129,626 53,149 14,358 13,419 Seminars.......................... 604 Telephone expense................. 72,563 28,411 8,340 6,459 Travel............................ 52,315 22,205 4,435 4,169 Utilities......................... 18,949 2,089 3,598 3,040 Wages............................. 13,917 3,153 ----------- --------- --------- --------- TOTAL EXPENSES...................... 2,330,633 733,938 556,148 356,210 ----------- --------- --------- --------- DEFICIT ACCUMULATED DURING DEVELOPMENT STAGE.......... $(2,096,486) $(558,211) $(540,455) $(342,205) =========== ========= ========= ========= EARNINGS (LOSS) PER COMMON SHARE (Basic and Diluted Loss Per Share are the same--See Note 2)...... $ (0.0169) $ (0.0038) $ (0.0175) $ (0.0061) =========== ========= ========= =========
The accompanying notes are an integral part of these financial statements. F-4 28 STUDIO CITY HOLDING CORPORATION AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
COMMON STOCK DEFICIT -------------------------------------------------- ACCUMULATED ADDITIONAL COMMON DURING COMMON PAID-IN STOCK PREFERRED PREFERRED DEVELOPMENT SHARES AMOUNT CAPITAL WARRANTS STOCK A STOCK B STAGE ------------ -------- ----------- ---------- --------- --------- ----------- Issuance of common stock........ 748,000 $ 11,920 $ 1,138,500 $ -- $ -- $ -- $ -- Common shareholder loss for period October 21, 1991 to December 31, 1991............. (35,455) ------------ -------- ----------- ---------- ------ --------- ----------- Balance at December 31, 1991.... 748,000 11,920 1,138,500 -- -- -- (35,455) Issuance of common stock........ 610,201 1,662 72,770 Common shareholder loss for year ended December 31, 1992....... (57,999) ------------ -------- ----------- ---------- ------ --------- ----------- Balance at December 31, 1992.... 1,358,201 13,582 1,211,270 -- -- -- (93,454) Stock split 1 to 100............ 134,461,899 Shares for properties........... (1,151,004) Issuance of common and preferred stock and common warrants..... 16,749,900 1,675 56,976 5,000,000 671,974 Common shareholder loss for year ended December 31, 1993....... (73,409) ------------ -------- ----------- ---------- ------ --------- ----------- Balance at December 31, 1993.... 152,570,000 15,257 117,242 5,000,000 -- 671,974 (166,863) Issuance of common stock........ (13,420,000) (1,342) 242,670 Common shareholder loss for year ended December 31, 1994....... (172,174) ------------ -------- ----------- ---------- ------ --------- ----------- Balance at December 31, 1994.... 139,150,000 13,915 359,912 5,000,000 -- 671,974 (339,037) Issuance of common stock........ 4,150,000 415 406,095 Common shareholder loss for year ended December 31, 1995....... (316,578) ------------ -------- ----------- ---------- ------ --------- ----------- Balance at December 31, 1995.... 143,300,000 14,330 766,007 5,000,000 -- 671,974 (655,615) Issuance of common stock........ 6,700,000 670 431,506 Common shareholder loss for year ended December 31, 1996....... (558,211) ------------ -------- ----------- ---------- ------ --------- ----------- Balance at December 31, 1996.... 150,000,000 15,000 1,197,513 5,000,000 -- 671,974 (1,213,826) Issuance of common stock........ 155,000 310 541,633 Common shareholder loss for year ended December 31, 1997....... (540,455) Shares issued, exchanged or converted..................... (119,126,500) (11,000) 9,000 1,000 1,182 Merger adjustments.............. 57,747 557,210 (672,773) ------------ -------- ----------- ---------- ------ --------- ----------- Balance at December 31, 1997.... 31,028,500 62,057 2,305,356 5,000,000 1,000 383 (1,754,281) Issuance of common stock (Unaudited)................... 28,501 57 89,444 Common shareholder loss for nine months ended September 30, 1998 (Unaudited).............. (342,205) ------------ -------- ----------- ---------- ------ --------- ----------- Balance at September 30, 1998... 31,057,001 $ 62,114 $ 2,394,800 $5,000,000 $1,000 $ 383 $(2,096,486) ============ ======== =========== ========== ====== ========= =========== TOTAL STOCKHOLDERS' EQUITY ------------- Issuance of common stock........ $ 1,150,420 Common shareholder loss for period October 21, 1991 to December 31, 1991............. (35,455) ----------- Balance at December 31, 1991.... 1,114,965 Issuance of common stock........ 74,432 Common shareholder loss for year ended December 31, 1992....... (57,999) ----------- Balance at December 31, 1992.... 1,131,398 Stock split 1 to 100............ Shares for properties........... (1,151,004) Issuance of common and preferred stock and common warrants..... 5,730,625 Common shareholder loss for year ended December 31, 1993....... (73,409) ----------- Balance at December 31, 1993.... 5,637,610 Issuance of common stock........ 241,328 Common shareholder loss for year ended December 31, 1994....... (172,174) ----------- Balance at December 31, 1994.... 5,706,764 Issuance of common stock........ 406,510 Common shareholder loss for year ended December 31, 1995....... (316,578) ----------- Balance at December 31, 1995.... 5,796,696 Issuance of common stock........ 432,176 Common shareholder loss for year ended December 31, 1996....... (558,211) ----------- Balance at December 31, 1996.... 5,670,661 Issuance of common stock........ 541,943 Common shareholder loss for year ended December 31, 1997....... (540,455) Shares issued, exchanged or converted..................... 182 Merger adjustments.............. (57,816) ----------- Balance at December 31, 1997.... 5,614,515 Issuance of common stock (Unaudited)................... 89,501 Common shareholder loss for nine months ended September 30, 1998 (Unaudited).............. (342,205) ----------- Balance at September 30, 1998... $ 5,361,811 ===========
The accompanying notes are an integral part of these financial statements. F-5 29 STUDIO CITY HOLDING CORPORATION AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF CASH FLOWS
CUMULATIVE FOR THE YEAR ENDED (UNAUDITED) FROM INCEPTION DECEMBER 31, FOR THE NINE TO OCTOBER 21, 1991 --------------------- MONTHS ENDED SEPTEMBER 30, 1998 1996 1997 SEPTEMBER 30, 1998 ------------------- --------- --------- ------------------ OPERATING ACTIVITIES Deficit accumulated during development stage................ $(2,096,486) $(558,211) $(540,455) $(342,205) Amortization and depreciation....... 29,482 6,511 5,862 4,782 Changes in operating assets and liabilities: Increase in prepaid services..... (1,024) Increase in organizational costs.......................... (1,860) (488) Increase in offering costs....... (32,051) (10,551) (Increase) decrease in stock subscription................... 20,000 (53,000) 53,000 Increase (decrease) in accrued expenses....................... 7,750 23,794 14,047 (30,091) Increase in accrued interest payable........................ 358,803 85,863 96,062 68,285 Decrease in intangible assets -- project costs........ 19,750 19,750 Decrease in other liabilities.... (100) ----------- --------- --------- --------- Net cash used in operating activities.......................... (1,715,636) (433,182) (457,734) (246,229) INVESTING ACTIVITIES Investment in CVT Corporation of America.......................... (12,000) Investment in joint ventures and stocks........................... (56,824) (32,088) Investment in subsidiaries.......... (34,036) (10,912) Acquisition of equipment............ (52,505) (12,637) (8,163) Acquisition of properties........... (96,966) (43,479) (2,605) ----------- --------- --------- --------- Net cash used in investing activities.......................... (252,331) (99,116) (10,768) -- FINANCING ACTIVITIES Borrowings from stockholders........ 318,237 245,500 Proceeds for issuance of common stock............................ 1,855,970 502,511 480,300 89,501 Repayment of stockholders loans..... (77,740) (33,474) Loan to affiliated company.......... (21,280) (2,701) ----------- --------- --------- --------- Net cash provided by financing activities.......................... 2,075,187 466,336 480,300 335,001 ----------- --------- --------- --------- Cash and cash equivalents -- increase (decrease).......................... 107,220 (65,962) 11,798 88,772 Cash and cash equivalents -- Beginning............ -- 72,612 6,650 18,448 ----------- --------- --------- --------- Cash and cash equivalents -- Ending... $ 107,220 $ 6,650 $ 18,448 $ 107,220 =========== ========= ========= ========= Supplemental Disclosures of Cash Flow Information: Cash paid for interest.............. $ 177,626 $ 53,999 $ 43,803 $ 36,612 =========== ========= ========= ========= Noncash financing transaction: Value of Studio City shares issued for services............ $ 3,647 $ 171 $ 114 $ -- =========== ========= ========= =========
The accompanying notes are an integral part of these financial statements. F-6 30 STUDIO CITY HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 21, 1991 (INCEPTION) THROUGH SEPTEMBER 30, 1998 NOTE 1 -- ORGANIZATION, BACKGROUND INFORMATION AND BASIS OF PRESENTATION Organization and Background Information STUDIO CITY INCORPORATED HOLDING (the Company) was incorporated in the State of Florida on October 25, 1991 as Studio City Incorporated. Prior to incorporation, pre-incorporation operations commenced in February of 1991. The Company is engaged in asset development, business management, production and post-production studio operation, motion picture studio operation, tourist attraction operation, the development of motion pictures for theatrical exhibition, for television (i.e. network, cable, pay-per-view, etc.) and home video, and in the development, production, and distribution of printed publications. The Company owns a significant number of intellectual properties and has a partial interest in other intellectual properties. FAWNSWORTH INTERNATIONAL PICTURES CORPORATION (FIPC) was incorporated in the State of Florida on October 21, 1991. Prior to incorporation, pre-incorporation operations commenced in February of 1991. FIPC is a full service motion picture and television production and distribution company. As a result of the stockholders of FIPC receiving 491,150 shares of common stock of Studio City with a par value of $1.00 in exchange for their ownership in the shares of FIPC, FIPC became a wholly owned subsidiary of the Company on October 18, 1992. The Company owns 100% of the voting stock of FIPC. Prior to the stock exchange and transfer, the stockholders of Studio City Incorporated voted unanimously to increase the amount of common stock authorized from 1,000,000 shares to 1,500,000 to accommodate the exchange with FIPC stockholders. The end result was that Studio City, Incorporated became the parent company of FIPC (a wholly owned subsidiary) with both companies being developmental stage companies. In a unanimous vote of the stockholders of the Company, it was voted to change the name of the Company to Studio City Incorporated Holding, which also operated under the name SCI Holding. In a unanimous vote of its stockholders, the Company was instructed to execute a stock split to fully dilute the stock of the Company. The 100 to 1 stock split was executed on March 1, 1993. On that date, the total authorized common stock of 150,000,000 shares includes all of the stock authorized including 500,000 shares reserved under the Company's Employee Incentive Stock Option Plan. The common stock of the Company originally had a par value of $1.00 per share and was amended to $.01 per share at the time of the stock split. Subsequent to the stock split, the par value has again been amended to reflect the par value at $.0001 per share, and this is the par value per share for each of the subsidiaries subsequently formed. Realizing the necessity for expansion, the Company created another subsidiary, POC-IT PUBLISHERS, INCORPORATED (Poc-It). Poc-It was incorporated in the State of Florida on May 3, 1993. The Company owns 100% of the voting stock. This subsidiary was created to assemble, acquire, produce and publish various literary properties owned by Studio City Incorporated Holding. On December 14, 1993, the Company entered into an agreement to acquire 77.5% of CVT CORPORATION OF AMERICA (CVT), an inactive New York based public company. The cost of the stock was $12,000 plus the Company assumed certain debts. The purpose of this acquisition was as follows: (i) to reactivate the operations of CVT after a subsequent reorganization, (ii) prepare CVT for a merger, (iii) merge the Company into CVT, thus becoming Studio City Holding Corporation, a New York public company, (iv) prepare the merged entity for SEC and NASD registration, and (v) prepare the merged entity for a Secondary Offering. The Company and its subsidiaries are in the developmental stage and have not generated significant revenues. In addition, the development of commercial products using the Company's proprietary technology and inventory of intellectual properties have not been completed and will require significant additional F-7 31 STUDIO CITY HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 21, 1991 (INCEPTION) THROUGH SEPTEMBER 30, 1998 -- CONTINUED NOTE 1 -- ORGANIZATION, BACKGROUND INFORMATION AND BASIS OF PRESENTATION -- CONTINUED financing. There is no assurance that commercially successful products will be developed and that the Company will achieve a profitable level of operations. Realizing the necessity to develop certain intellectual properties and assets through the expansion of operations, the Company created six subsidiaries in 1994. They are as follows: The Company formed POC-IT COMICS, INCORPORATED on March 29, 1994 as a Florida corporation. The Company owns 96.93% of the voting stock. Poc-It Comics has three comic book franchises for development -- "THE EARTH WARRIORS" created by Larry Faw; "MAGNET MAN" created by Paul Piterski; and "SHADOW RAVEN" created by Frank Zanca. Poc-It Comics owns literary properties, as well as character artwork. The first comic book -- SHADOW RAVEN PREMIER EDITION was distributed in May 1995. The Company formed ZWEIG KNIGHTS PUBLISHING CORPORATION on March 29, 1994 as a Florida corporation. The Company owns 64.30% of the voting stock. Zweig Knights Publishing owns twenty six literary properties for future development and publication. On November 11, 1997, Zweig Knights published its first in a series of "Limited First Editions", The Nicholas Stories: The Boy With A Wish. The second book of The Nicholas Stories series, The First Flight of St. Nicholas, is scheduled for release on November 1, 1998, and the third book in the series, The Maiden Voyage of Kris Kringle, is scheduled for release on October 1, 1999. An animated television special of The Nicholas Stories: A Holiday Classic is currently in pre-production. The Company formed The INTERNATIONAL CHILDREN'S TELEVISION NETWORK, INCORPORATED on April 14, 1994 as a Florida corporation. The Company owns 99.96% of the voting stock. The International Children's Television Network has fifteen literary properties, which is the equivalent of twelve hours of children's programming. The Company formed STUDIO CITY AMUSEMENTS, INC. on November 10, 1994 as a Florida corporation. The Company owns 100% of the voting stock. Studio City Amusements owns two theatrical musical productions entitled "SLICING UP THE BIG APPLE" and "TINTYPES ON AN INTERGALACTICAL STAGE". Studio City Amusements purpose is to develop and manage entertainment properties, and to develop and produce Specialty Entertainment Projects. The Company formed NON-EXISTENT MAJOR LEAGUE FANTASY SPORTS ASSOCIATION, INCORPORATED on November 10, 1994 as a Florida corporation. The Company owns 100% of the voting stock. Non-Existent Major League Fantasy Sports Association owns "The 1994 Fan's Choice Fantasy World Championship of Baseball", the first in a series of interactive radio and television fantasy sporting events. This satirical 12 hour long radio play of a "fantasy world series of baseball" was completed December 1, 1994 and is now ready for radio broadcast and/or distribution. The Company formed ZINGRR N-2-AKTIV TELEVISION NETWORK, INC. on November 22, 1994 as a Florida corporation. The Company owns 94.95% of the voting stock. Zingrr N-2-Aktiv was created to serve as a partner in development, creation, maintenance and programming of FCC Licensed Wireless Cable Stations and Systems. The following seven subsidiaries were formed subsequently for the purposes of diversification and expansion. They are as follows: The Company formed QUAGGA ENTERTAINMENT CORPORATION on March 30, 1995 as a Florida corporation. The Company owns 93.33% of the voting stock. Quagga is in the development stage and is engaged in the F-8 32 STUDIO CITY HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 21, 1991 (INCEPTION) THROUGH SEPTEMBER 30, 1998 -- CONTINUED NOTE 1 -- ORGANIZATION, BACKGROUND INFORMATION AND BASIS OF PRESENTATION -- CONTINUED exploitation of motion picture and television properties including the creation of revenue streams and profits from captive intellectual and franchiseable properties. These activities would include creating products for television, theatrical release, spin-off book products, and ancillary spin-offs. The Company formed ACCINEMATRON RELEASING CORPORATION on September 13, 1995 as a Florida corporation. The Company owns 100% of the voting stock. Accinematron was created to coordinate the distribution of various product lines which include films, television programming, videocassettes, audio products, and ancillary merchandise. The Company formed The MAGIC SHOP, INC. on October 7, 1995 as a Florida corporation. The Company owns 100% of the voting stock. The Magic Shop was created to serve as a production center and business incubator for entertainment related companies. The Company formed ZOLLIPE CYBERSPACE CORPORATION on June 14, 1996 as a Florida corporation. The Company owns 100% of the voting stock. Zollipe was created to develop computer programming and software for interactive games and information from both the CD-ROM platform and worldwide web. The Company formed ZZOONZUIT, INC. on June 14, 1996 as a Florida corporation. The Company owns 100% of the voting stock. Zzoonzuit was created to design and manufacture a new line of beachwear, swimwear, and athletic clothing. The Company formed XENOMORPH DIGITAL POST, INC. on June 14, 1996 as a Florida corporation. The Company owns 100% of the voting stock. Xenomorph was created to be a digital broadcast and video post-production center and on-line producer of television programming. The Company formed PRO-SPORTS ENTERTAINMENT GROUP, INC. on November 1, 1996 as a Florida corporation. The Company owns 100% of the voting stock. Pro-sports was created as a motion picture and television production group to produce entertainment products focused on minority role models. Basis of Presentation The consolidated financial statements include the accounts of Studio City Holding Corporation, and all subsidiaries. All significant intercompany accounts and transactions have been eliminated. These consolidated financial statements have been prepared to comply with disclosure requirements of Securities and Exchange Commission Regulation S-X and conform to S-B format. NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES Cash and Cash Equivalents: The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Office Furniture and Equipment: Office furniture and equipment is stated on the basis of cost. Depreciation is computed by the straight-line method over useful lives of 5-10 years. Organization Costs: Costs to organize the corporations have been capitalized and are stated on the basis of cost. Amortization is computed by the straight-line method over 60 months. F-9 33 STUDIO CITY HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 21, 1991 (INCEPTION) THROUGH SEPTEMBER 30, 1998 -- CONTINUED NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED Offering Costs: As discussed in Note 16, Quagga incurred specific incremental costs in connection with a proposed Securities Act of 1993 Regulation D-504 offering. These offering costs will be charged against the offering proceeds. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that effect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Earnings (Loss) Per Common Share: Basic Earnings (Loss) Per Share is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding during the year. Diluted Earnings (Loss) Per Share is computed the same as Basic but also giving effect to all dilutive potential common shares such as options, warrants and convertible preferred stock. However, the computation of Diluted Earnings (Loss) Per Share does not assume conversion of any potential common shares if that has an antidilutive effect on earnings per share. Since there is a loss from operations, Diluted Earnings (Loss) Per Share is computed the same as Basic Earnings (Loss) Per Share. This is computed by dividing the net loss by weighted average number of common shares outstanding during the year. The Earnings (Loss) Per Share are as follows:
YEAR NET LOSS WEIGHTED AVERAGE SHARES LOSS PER SHARE ---- -------- ----------------------- -------------- 1998..................................... $342,205 31,042,751 $(.0110) 1997..................................... $540,455 30,950,955 $(.0175) 1996..................................... $558,211 146,650,000 $(.0038) 1995..................................... $316,578 141,225,000 $(.0022) 1994..................................... $172,174 145,703,500 $(.0012) 1993..................................... $ 73,409 144,038,550 $(.0005) 1992..................................... $ 57,999 1,071,101 $(.0541) 1991..................................... $ 35,455 784,000 $(.0452)
NOTE 3 -- INTANGIBLE ASSETS AND RELATED OBLIGATIONS Intangible assets consists of ownership of and rights to a significant number of literary properties. In October 1991, the date of incorporation of the Company and FIPC, stock was issued for rights to several literary properties. 750,000 shares of Studio City Incorporated Holding stock and 400,000 shares of Fawnsworth International Pictures Corporation were issued at $1.00 per share in exchange for property rights and exploitation. Therefore, the recorded amount of these intangible assets for the years 1991 and 1992 was $750,000 for the Company and was $400,000 for FIPC. Purchase Agreement: On February 16, 1993, the Company entered into an agreement to acquire the direct ownership of various intellectual properties in the amount of $7,226,000, which included 72 motion picture properties, 4 television pilot properties, 48 books for publication, 4 inventions, 1 franchise program and 1 Specialty Product Design and marketing program. The Company's Purchase Agreement for these properties included an obligation in the form of a promissory demand note in the amount of $1,554,027 payable to Larry D. Faw, the majority stockholder. In addition, the Company granted to Larry D. Faw warrants with the option to purchase 5,000,000 shares of common stock, which was considered to be partial payment under the F-10 34 STUDIO CITY HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 21, 1991 (INCEPTION) THROUGH SEPTEMBER 30, 1998 -- CONTINUED NOTE 3 -- INTANGIBLE ASSETS AND RELATED OBLIGATIONS -- CONTINUED Purchase Agreement. These warrants are exercisable at $1.00 per share at a maximum of 25% per year beginning the first anniversary of the effective date of the grant and continues until one of the following occurs: (i) to the year 2003, or, (ii) when all warrants have been exercised, or, (iii) all rights to such warrants have been terminated in a mutually agreed upon written agreement. The Purchase Agreement additionally provided for the requirement that 51% of the Company's preferred stock be issued to Larry D. Faw. The amount of preferred stock was later decreased to 1,000,000 shares of redeemable convertible and callable preferred B stock, with each share of preferred stock being entitled to noncumulative dividends at 6% annual rate upon declaration of the Board of Directors. The preferred stock was recorded in the amount of $671,973, which was the purchase price of the assets less the amount attributed to the promissory demand note and the common stock warrants. The Company, as part of the Purchase Agreement issued 1,000,000 shares of its preferred B stock on February 15, 1995. The preferred stock can be converted to common stock at market price, or, callable at any time by the Company at a fixed price of $50 per share for preferred B stock and $105 per share for preferred A stock, or in parts, on or after February 16, 1996, and will be redeemable and/or callable until February 16, 2006. In summary, the Purchase Agreement includes the $1,554,027 promissory demand note, the $5,000,000 common stock warrants and $671,973 value of preferred stock for a total price of $7,226,000. Management believes this Purchase Agreement was at a significant discount which is evidenced by the Independent Valuation as discussed below in Note 3. Pre-existing Rights: Ownership of certain literary properties were transferred from the Company to its subsidiaries in 1993. Properties with a value of $600,000 were transferred to Fawnsworth International Pictures Corporation, increasing the intangible asset value from $400,000 to $1,000,000 (note: properties were purchased in 1993 for $100, increasing intangible assets to $1,000,100) and increasing its additional paid-in capital from $433,880 to $1,033,880. Properties with a value of $1,200,000 were transferred to Poc-It Publishers, Incorporated in exchange for its common stock. After these transfers, the Company's intangible assets were $5,026,000. Incidental costs have subsequently been incurred increasing the asset costs. The purchase price of the intangible assets acquired from the majority stockholder, Larry D. Faw, was determined by Industry Standards (i.e. Union Minimums as detailed in the Writers Guild of America 1992 Minimum Basic Agreement as collectively bargained with the Alliance of Motion Picture and Television Producers, Producers Guild of America, Directors Guild of America, and all other signatory union business franchise valuation methods, and other similar industry standards for product and merchandise development). Independent Valuation: In 1995, the Company engaged a major U.S. investment banking firm to conduct an analysis of the Companies' intellectual properties as an independent third party consultant. This Independent Valuation was in direct response as a requirement of the Securities and Exchange Commission's Chief Accounting Office. This Independent Valuation was prepared as a Preliminary Valuation prior to a public offering and was created as an internal document, which due to its sensitive contents, has been made available to the Securities and Exchange Commission as a confidential sealed document. The Preliminary Independent Valuation was prepared through the following: (1) Independent Research: (a) the investment banker's Research Analysts Reports, (b) Standard & Poor's Industry Surveys, (c) Mergers and Acquisitions from Securities Data Corporation, and, (d) financial reports from publicly traded media holding companies and motion picture/television production companies. F-11 35 STUDIO CITY HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 21, 1991 (INCEPTION) THROUGH SEPTEMBER 30, 1998 -- CONTINUED NOTE 3 -- INTANGIBLE ASSETS AND RELATED OBLIGATIONS -- CONTINUED (2) Industry Guidelines. (3) Analysis of the Collective Bargaining Agreements: The 1992 Writers Guild of America-Alliance of Motion Picture & Television Producers Theatrical and Television Basic Agreement, Amended and Effective May 2, 1992 through May 1, 1995; and the 1995 Writers Guild of America-Alliance of Motion Picture & Television Producers Theatrical and Television Basic Agreement, Amended and Effective May 2, 1995 through May 1, 1998, and ratified and amended on May 2, 1998 through May 1, 2001. All of which are Collective Bargaining Agreements under the auspices of the National Labor Relations Board. (4) Management Interviews. The Preliminary Valuation Summary was prepared utilizing two valuation methodologies for 22 of the Companies' intellectual properties: (1) Cost Approach projected as $9,700,000 and, (2) Discounted Cash Flow projected as $46,000,000. Based on the two methodologies, the preliminary value achieved was $9,659,980 for 22 intellectual properties having a projected costs/obligations/value of $439,090 for each of the 22 intellectual properties. At the time of the Independent Valuation, Studio City Holding Corporation and its subsidiaries owned 152 intellectual properties, the majority of which were not utilized in calculations of the Preliminary Valuation. Contingent Liabilities-Collective Bargaining Agreement: Studio City Holding Corporation, Fawnsworth International Pictures Corporation, the International Children's Television Network, Incorporated, and Zingrr N-2-Aktiv Television Network, Inc. are registered signatory companies to the 1995 Writer's Guild of America-Alliance of Motion Picture & Television Producers Theatrical and Television Basis Agreement ("MBA"), Amended and Effective May 2, 1995 through May 1, 1998. Studio City Holding Corporation and its subsidiaries are exclusively represented by the Alliance of Motion Picture & Television Producers, Inc. The collective bargaining agreement is under the auspices of the National Labor Relations Board and is deemed to be a contingent liability for Studio City Holding Corporation and its subsidiaries in regards to all literary properties owned by the companies for development and/or sale. All aspects of intellectual properties represented by the "MBA" have been tabulated and have pre-set financial obligations that pass through to the Company and/or other type of ownership, and, directly passes through to any and all purchasers of the intellectual properties. The contingent liabilities, requisite costs, and expense calculations as determined under the 1995 "MBA" are restrictive and compliance is dictated by law. NOTE 4 -- INVESTMENT IN JOINT VENTURE AND STOCK The Companies currently own (in entirety) literary properties whose "replacement cost/value" and/or "1995 Minimum Basic Agreements" contingent liabilities/obligation and/or associated direct pass-through costs for production and distribution are tabulated under the Agreement as of December 31, 1996 as $811,931 per intellectual property. Studio City Holding Corporation and its subsidiaries current portfolio of intellectual properties are required to comply with all of the aspects pertaining to the collective bargaining agreement in its most current form, and, those contingent liabilities pass through to the owner of record. This investment represents costs of $6,823 paid by FIPC on behalf of Florida Screen Gems Partners, a partnership of which the FIPC is a partner. The Partnership is in the development stage. The Company has also invested in two Corporations -- Environmental Production Systems and Florida Film Investment Company. These investments are recorded at cost for a total of $50,000. F-12 36 STUDIO CITY HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 21, 1991 (INCEPTION) THROUGH SEPTEMBER 30, 1998 -- CONTINUED NOTE 5 -- PREPAID SERVICES The Company and FIPC issued common stock to several individuals in exchange for future services and expertise. The amount recorded as an asset is equal to the number of shares of common stock issued at its then current par value. NOTE 6 -- OFFICE FURNITURE AND EQUIPMENT AND NOTE PAYABLE-STOCKHOLDER At the time of incorporation in October 1991, FIPC acquired office furniture and equipment from a stockholder, Genevieve Faw in the amount of $13,600. The Company became indebted for this amount plus $1,520 for supplies that was expensed in 1991. Therefore, the total liability to the stockholder for this transaction was $15,120 since 1991. In 1994 the liability was satisfied. In 1995, the Company and Poc-It Comics acquired office furniture and equipment. In 1996 and 1997, the Company acquired additional office furniture and equipment. Office furniture and equipment is recorded at cost, less accumulated depreciation. The provision for depreciation is computed on the straight-line method over the estimated useful lives of the assets which range from 5 to 7 years. NOTE 7 -- NOTE PAYABLE-STOCKHOLDER As discussed in Note 3 above, the Company became obligated under the Purchase Agreement to its majority stockholder, Larry D. Faw. The promissory demand note is dated the date of the Purchase Agreement, which is February 16, 1993. The promissory demand note contains the following provisions: (i) due upon demand, (ii) payments may be made at any time, and (iii) a balloon payment is due on February 16, 1995. The note has an initial annual interest rate of 2%. On February 16, 1995, the note became due and subsequently was extended for six months at an annual interest rate of 9%. Since August 16, 1995, the note has been extended six times through February 16, 1999. No principal payments have been made on this note, but partial interest payments have been made in 1995, 1996, 1997 and 1998 Accrued interest on this note was $358,803 as of September 30, 1998, and $290,518, $194,456, $108,593, $58,158 and $27,078 as of December 31, 1997, 1996, 1995, 1994 and 1993 respectively. NOTE 8 -- RELATED PARTY TRANSACTIONS In February of 1991, both the Company and FIPC started incurring pre-incorporation expenses that were expensed by the companies and were paid by its majority stockholder, Larry D. Faw. This practice has continued through the present and both companies have reimbursed the stockholder for these expenses. The nature of these expenses were automobile expense, office rent expense, telephone expense, office supplies expense and other operational expenses. These expenses were corporate expenses that were paid by the majority stockholder, Larry D. Faw and charged to the companies. The Company incurred automobile expenses and reimbursed Larry D. Faw at the mileage rates as prescribed by the Internal Revenue Service. Additionally, the Company incurred office rent and utilities and reimbursed Larry D. Faw $500 and $84 per month respectively. Additional expenses were incurred and reimbursed to Larry D. Faw such as telephone expenses, office supplies, and other operational expenses. As discussed in Note 3, the Company acquired various intellectual properties from the majority stockholder, Larry D. Faw, for $7,226,000 in exchange for a promissory demand note, preferred stock and warrants to purchase common stock at a fixed price. The Company executed a statutory merger with CVT Corporation of America (name changed to Studio City Holding Corporation) on July 1, 1996 with Studio City Holding Corporation (a New York Corporation) F-13 37 STUDIO CITY HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 21, 1991 (INCEPTION) THROUGH SEPTEMBER 30, 1998 -- CONTINUED NOTE 8 -- RELATED PARTY TRANSACTIONS -- CONTINUED being the surviving entity. Subsequently, the operations of Studio City Incorporated Holding (a Florida Corporation) were wound up and the corporation dissolved. (See Note 17 -- Merger). NOTE 9 -- STOCKHOLDERS' EQUITY Common Stock and Preferred Stock Studio City Holding Corporation immediately after the Merger and as of December 31, 1996 (See Note 17) had 150,000,000 shares authorized, issued and outstanding with a par value of $.01 per share. Upon the Merger, Larry D. Faw, the principal stockholder converted 100,000,000 shares of common stock into 10,000,000 shares of Class A Preferred Stock and 10,000,000 shares of common stock into 1,000,000 shares of Class B Preferred Stock. Additionally, the former stockholders of CVT exchanged their shares for 9,123,250 shares of common stock. Additionally, some shareholders elected the option to exchange their common shares for Class B Preferred Stock (10 shares of common for 1 share of Class B Preferred Stock). 18,258,340 shares of common stock were exchanged for 1,825,834 shares of Class B Preferred Stock. Additional shares of common were issued during 1997. As of September 30, 1998 and December 31, 1997, there were 31,057,001 and 31,028,500 shares issued and outstanding. The par value was amended to $.002 per share. As discussed above, Larry D. Faw, the principal stockholder, converted common stock into 10,000,000 shares of Class A Preferred Stock. This is the amount of shares issued and outstanding as of September 30, 1998 and December 31, 1997. The par value is $.0001 per share. As discussed above, Larry D. Faw, the principal stockholder, converted common stock into 1,000,000 shares of Class B Preferred Stock. He previously had 1,000,000 shares prior to this conversion. Additionally, other stockholders exchanged common stock for 1,825,834 shares of Class B Preferred Stock. As of September 30, 1998 and December 31, 1997, there were 3,825,834 shares issued and outstanding. The par value is $.0001 per share. Fawnsworth International Pictures Corporation has 500,000 shares authorized. The par value is $.01 per share. There were 491,150 shares issued and outstanding as of December 31, 1997 with Studio City being the registered beneficial owner. Poc-It Publishers, Incorporated has 10,000,000 shares authorized, issued and outstanding. The par value is $.0001 per share. Poc-It Comics, Incorporated has one class of common stock and it is voting (one share, one vote). The par value is $.0001 per share with 10,000,000 authorized. 10,000,000 shares are issued and outstanding. Poc-It Comics has 5,000,000 shares authorized, issued and outstanding of Class A Preferred Stock at $.0001 par value per share which is callable, voting and convertible to common. There are also 5,000,000 shares authorized, issued and outstanding Class B Preferred Stock at $.0001 par value per share which is non-voting with preferential dividends. Quagga Entertainment Corporation has one class of common stock and it is voting (one share, one vote). The par value is $.001 per share with 10,000,000 shares authorized and 7,000,000 shares issued and outstanding. Quagga has 5,000,000 shares of Class A Preferred Stock authorized, issued, and outstanding. The par value of the Classes A shares is zero. The Class A shares (1) are voting -- one share, one vote (2) receive no dividends (3) are not convertible (4) are not redeemable (5) are callable at $25.00 per share. F-14 38 STUDIO CITY HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 21, 1991 (INCEPTION) THROUGH SEPTEMBER 30, 1998 -- CONTINUED NOTE 9 -- STOCKHOLDERS' EQUITY -- CONTINUED Quagga has 5,000,000 shares of Class B Preferred Stock of which 2,500,000 are issued and outstanding. The par value of the Class B shares is zero. The Class B shares (1) are non-voting (2) have special dividend rights based on earnings (3) have the initial price of $6.00 (4) have a fixed dividend of 12% per annum based on earnings (5) are callable at $7.50 per share after the first year's dividend (6) are callable after 3 years at $10.00 per share (7) are convertible to common (8) have preferential liquidation treatment above all other shares. Additionally, Quagga has 500,000 shares of Class C Preferred Stock, however, no shares have been issued. The par value of the Class C shares is zero. The Class C shares (1) are non-voting (2) have special dividend rights based on earnings (3) have the initial price of $2.00 (4) are callable any time after issuance for $2.00 for a period up to two years (5) are callable for $2.50 after two years (6) are convertible to common after three years on a one to one basis (7) have preferential liquidation treatment over common stock and Class A Preferred stock. All other entities presented in these financial statements other than those referred to above in this note, have one class of common stock and it is voting (one share, one vote). The par value is $.0001 per share with 10,000,000 authorized, issued and outstanding. There are 5,000,000 shares authorized, issued and outstanding each of Class A and B Preferred Stock at $.0001 par value per share. Class A is voting and convertible to common and Class B is non-voting with preferential dividends. NOTE 10 -- TRADEMARKS, COPYRIGHTS AND LICENSES The Company uses its own and licensed trademarks from its subsidiaries for spinoff product development and merchandising from its various intellectual properties. The Company owns 126 copyrights and will seek patents for 4 products. Additionally, the Company will be purchasing new products and literary properties for development, and/or, enter into joint ventures for the development of intellectual properties or consumer products. Each such instance will be earmarked by distinct contractual requirements and obligations by the Company. NOTE 11 -- EMPLOYEES, EMPLOYMENT AGREEMENTS AND EMPLOYEE BENEFITS The Company has had no full-time employees from inception to date except for Quagga Entertainment Corporation during 1995. The Company has had contractual relationships with independent contractors. Operations are managed by officers, directors, and stockholders who receive no monetary compensation. The Company has had no employment agreements with key officers from inception to date. However, the Company anticipates entering into employment agreements with key personnel and intends to obtain key-man insurance when the Company emerges from the development stage. The Company does maintain a medical reimbursement plan whereby the majority stockholder, Larry D. Faw, is reimbursed for his medical costs. This does not include any other family members. NOTE 12 -- ADDITIONAL CONTINGENT PAYMENTS As of September 30, 1998, the Company was obligated to make future contingent payments under research and development contracts, which are based upon actual utilization of certain intellectual properties in pre-publication, published or cinematic form. These contingent payments will continue for an indeterminable length of time, and will be payable in all cases at the time of funding for each respective project. Under certain of these contracts, the Company is obligated to pay royalties ranging from 1.5% to 5% of the gross net profits which are distributable from the commercialization and merchandising of these properties. F-15 39 STUDIO CITY HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 21, 1991 (INCEPTION) THROUGH SEPTEMBER 30, 1998 -- CONTINUED NOTE 12 -- ADDITIONAL CONTINGENT PAYMENTS -- CONTINUED The Company has agreements with various individuals who will receive funds from the initial distribution proceeds from the exploitation of certain literary properties. These amounts are uncalculable because they are percentage rights in individual properties which are identified in the Company's unaudited financial statements and inventory analysis. These contracts and percentage rights are as follows: For the motion picture property "Bawdyhouse Bandits": Frederick G. Spriggs................................... 1% profit participation Norman T. Godheim...................................... 1% profit participation Heflar Family Trust.................................... 2% profit participation Darlene C. Barror...................................... 1% profit participation Suzanne Quinonez....................................... 1% profit participation Genevieve H. Faw....................................... 2% profit participation
For each of the following motion picture properties -- "Return To Treasure Island", "Bad News", "TampaVice or The Comic Misadventures of Nipit and Budd", "Mistaken Identity", "Love Can Kill", "Billion Dollar Bunnies", "The Love Bugs", "A Touch of Evil", "Eyes of Terror", "Rail Rider", "Swingtime", "Whooz Choice", "The War Lords", "Captain J Ride Again", "Midnight Blues", "Belle of Berry Hill", "Hells Revenge", "Vendetta", "A Miracle In Tibet", "The Junkyard Gang", "Land of the GaNodds", "So Far From My Heart", "Water Drop Series", "Damon Runyon Series", "Way Off Broadway", "Paparazzi", "Love Bugs-Television Game Show", "Fright Night", "Fountain Blue", "The Worlds Greatest Escapes", and "Seminole" -- the following contractual agreements exist: Genevieve H. Faw -- 2%. For each of the following motion picture properties under option -- "Cut Throat Ridge", "The Plunderers", "The Last Glider", "Silence Awaits", "Stihlman and the Firestone", "The Orion Murders", "Battle of Buck Mountain", "A Delicate Obsession", "Seven Eleven Sorority Street", "Happy Bob", "Ghost Rider", "Teeth of Lions", "Dali", "The Hillsville Courthouse Murder Massacre", "The Last Great Adventure", "Otto", "Wheels", "Freefalling", and "Like A Butterfly" -- the following contractual agreements exist: Genevieve H. Faw -- 1%. For the following book rights and motion picture rights on "Cain and Abel Revisited: The True Life Story of Earle Don Fagan, Jr." -- the following contractual agreement exists: The E. Don Fagan, Jr. Trust....................... $50,000 on contract to sale $25,000 new purchase 1% net profit participation
The Company has separate contractual royalty agreements with Genevieve H. Faw for deferred fees and royalties for each of the following inventions -- "Enviro Tools"(tm), "Boot Valet"(r), "Book Lounge"(r), and "Radius Gauge"(r). The following contracts exist: Genevieve H. Faw -- 1% royalty per number sold. The Company has separate contractual agreements for royalties for books under the research and development phase of the Company's wholly owned subsidiary, Poc-It Publishers, Incorporated. All of the following book titles in each series have royalty fees -- "Reward Series" (13 titles), "The Poc-It Mania Series" (11 titles), "Self Help Manuals" (11 titles), and "Contemporary Career Guide Series" (10 titles): The following contracts exist: Genevieve H. Faw -- 1% royalty per number sold. There are separate contractual agreements in connection with the assignment of Artistic Property Agreement between Fawnsworth International Pictures Corporation and Michael Fields for ownership rights F-16 40 STUDIO CITY HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 21, 1991 (INCEPTION) THROUGH SEPTEMBER 30, 1998 -- CONTINUED NOTE 12 -- ADDITIONAL CONTINGENT PAYMENTS -- CONTINUED of original art for 4 comic books characters created by Larry D. Faw. These 4 characters are "Taren", "Mercer", "Shrieve", and "Quant", all from the "Earth Warrior" series. Poc-It Comics, Incorporated issued 10,000 shares of common stock to Michael Fields in addition to $100 cash per contract -- $400 total. Additionally, Fields is to receive a flat fee of $5,000 for each agreement payable when and if the art design is utilized in the production of a movie or animation product -- $20,000 total if all character art is utilized. There is a separate Purchase & Profit Participation Agreement between Fawnsworth International Pictures Corporation and Paul and Brahm Piterski for the ownership of the literary rights and artwork of the comic book character "Willy the Magnet Man". Poc-It Comics, Incorporated issued 50,000 shares of common stock to Piterski in addition to $100 cash. Additionally, Piterski is to receive a $15,000 consultant/production fee at time of movie production plus 10% of the net profits generated from the exploitation of the entertainment franchise. There is a separate Agreement between the Company, Roger H. Hefler, Larry D. Faw and Frank Zanca/ Wingspan Productions for the ownership rights of the literary property "Shadow Raven", which are assigned to Poc-It Comics, Incorporated. Poc-It Comics, Incorporated issued 50,000 shares of common stock and 100,000 shares of Class B preferred stock to Zanca. There is a separate Assignment of Artistic Property Agreement between Fawnsworth International Pictures Corporation and Calvin B. Clarke for the ownership rights of original art for the comic book character created by Larry D. Faw. The character is "Hafro", another character from the "Earth Warrior" series. Clarke received $100 cash plus he will receive a $5,000 consultant fee if the art is utilized plus a pro rata percentage from 5% allocated to Talent Pool. There is a separate Assignment of Artistic Property Agreement between Fawnsworth International Pictures Corporation and Ricardo Colon for the ownership rights of original art for the comic book character "Un-named". Colon received $100 cash plus he will receive a $5,000 consultant fee if the art is utilized plus a pro rata percentage from 5% allocated to Talent Pool. There is a separate Assignment of Artistic Property Agreement between Fawnsworth International Pictures Corporation and Marco Antonio Nazario for the ownership rights of original art for the comic book character created by Larry D. Faw. The character is "Sunspot", another character from the "Earth Warrior" series. Clarke received $100 cash plus he will receive a $5,000 consultant fee if the art is utilized plus a pro rata percentage from 5% allocated to Talent Pool. There is a separate Assignment of Artistic Property Agreement between Fawnsworth International Pictures Corporation and Melissa Polizzi for the ownership rights of original art for 3 comic book characters created by Larry D. Faw. The characters are "Marilise", "Lilian", and "Renata", triplet characters from the "Earth Warrior" series. Polizzi received $100 cash plus she will receive a $5,000 consultant fee if the art is utilized plus a pro rata percentage from 5% allocated to Talent Pool. There is a separate Assignment of Rights and Profit Participation Agreement between Fawnsworth International Pictures Corporation and Larry D. Faw for the licensing rights of the literary property "Earth Warriors", which consists of 12 characters. This Agreement is for a 5 year period ending October 9, 1998. Faw received no cash but did receive 50,000 shares of Poc-It Comics, Incorporated on March 29, 1994. If the rights are utilized, Faw will receive $15,000 for print format, $50,000 for motion picture and/or other multi-media plus 5% of the net profits attributable to this entertainment franchise. F-17 41 STUDIO CITY HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 21, 1991 (INCEPTION) THROUGH SEPTEMBER 30, 1998 -- CONTINUED NOTE 12 -- ADDITIONAL CONTINGENT PAYMENTS -- CONTINUED There is a separate Agreement between the Company and Harry B. Knights, the author of "The Nicholas Stories", who serves as Senior Vice-President of the Company and Chief Operations Officer of Zweig Knights Publishing Corporation, a subsidiary of the Company. The contractual obligation to Harry B. Knights was met by issuing to him 1,250,000 shares of Preferred A and 1,250,000 of shares of Preferred B stock of Zweig Knights Publishing Corporation plus 100,000 shares of restricted common stock of the Company in April 1994. Additionally, Harry B. Knights received a cash consulting fee of $5,000 on the 1997 production of "The Nicholas Stories". There is a separate pass-through Agreement between Harry B. Knights which is contingent upon the publication and/or cinematic adaptation of any of these intellectual properties. He is to receive a consultant fee and a profit participation in each of these properties. On July 1, 1995, the Company entered into a joint venture with Quagga Television Partners Limited Partnership for the production and distribution of low budget motion pictures and television programming. Larry D. Faw is the Managing Partner of Quagga Television Partners and is the largest contributor as a limited partner. Quagga Television Partners furnished the majority of the funding for the production of Zoo Toonz. Quagga Television Partners owns a library of video footage of exotic animals for the creation of animal music videos. As of this date, Quagga Television Partners has not licensed use of this footage. The Company has entered into a series of Joint Venture Agreements with Lisa Moody/Tin Woman Music, Inc. for the creation of music for the first generation of Zoo Toonz. Larry D. Faw and Quagga Television Partners Limited Partnership have contributed capital for these joint ventures. To date, 5 contractual arrangements have been made for the creation of 27 songs for the Zoo Toonz project. The songwriter has been prepaid for the creation of these songs and separate funds have been expended for the production of Recording Masters. A contingent liability passes through to the Company for any profits associated with the useage of these songs, if the songs are utilized. The Company had entered into an Agreement for the use of 2 puppets, Clyde and Alfred, for the utilization in volume one of Zoo Toonz, with John C. Cummings, Jr. Additional puppet footage was shot at Disney-MGM Studios, however, the footage was unacceptable. Due to contractual restrictions placed on the Company by Disney for Volume one of Zoo Toonz, the release and distribution was cancelled. The Joint Venture Agreement was terminated by John C. Cummings, Sr. on October 2, 1996. A Contingent Production Joint Venture was entered into by the Company with Marc Rose and Radio Cinema for the creation of various products and merchandise which could be created from the distribution and cinematic adaptation of a series of radio shows entitled "Dry Smoke and Whispers". This contingent agreement may be terminated. On June 17, 1996, the Company purchased the patents and trademarks for "Uncle Tuffy's French Security Window". The purchase was made between the Company and Paul Piterski, the inventor and patent owner for $2,000 in cash plus 5% of the gross profits attributable to the sale, licensing, or other profits due to the Company for the exploitation of this patented product. In July 1996, the Company placed a $10,000 option on the right to purchase literary properties written by science fiction writer Andre Norton. The properties which were optioned were "The Wraiths of Time" and "A New Property Adaptation From The Screenplay of The Wraiths of Time". The option still exists, however, original funding was to be realized from the public offering of Quagga Entertainment Corporation's D-504, which expired. Publishing Corporation, has entered into an Agreement to be a corporate general partner in ZK F-18 42 STUDIO CITY HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 21, 1991 (INCEPTION) THROUGH SEPTEMBER 30, 1998 -- CONTINUED NOTE 12 -- ADDITIONAL CONTINGENT PAYMENTS -- CONTINUED Partners Limited Partnership. This Partnership is currently being formed for the financing of an animation for "The Nicholas Stories", and is currently in the development stage. NOTE 13 -- EMPLOYEE INCENTIVE STOCK OPTION PLAN On March 1, 1993, the Board of Directors adopted in Outline Form an Employee Incentive Stock Option Plan for future full time employees and officers. Under the Proposed Outline, the Company may issue options exercisable at the current market value (110% of current market value only to 10% or greater stockholders) up to $100,000 annually. The Proposed Plan was extended from March 1, 1998, to terminate on March 1, 2002. Under the Proposed Plan, any person owning 10% of the voting power of the Company is restricted from exercising his/her options to three years after the receipt of such grant. Additional stipulations are as follows: (1) options terminated or expired revert back into the Plan, (2) unpurchased option shares remain in the Plan, (3) options are only exercisable by the optionee or his/her estate, (4) options are not transferable, (5) carryover amounts from one year to the next year can not exceed 50% of the option, and (6) option shares are restricted until SEC registration. The Company has reserved 500,000 shares of common stock for issuance under the Proposed Plan. No options have been granted under the Proposed Plan from inception to date. NOTE 14 -- INCOME TAXES The Company and its subsidiaries have filed separate corporate income tax returns since each corporation's inception through December 31, 1997. As of December 31, 1997, there have been no timing differences in the recognition of revenue and expense for financial reporting and income tax purposes. As of December 31, 1997, the Company and its subsidiaries each have available net operating loss carryforwards for federal and state income tax purposes (which are the same amount) that will be available to offset future F-19 43 STUDIO CITY HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 21, 1991 (INCEPTION) THROUGH SEPTEMBER 30, 1998 -- CONTINUED NOTE 14 -- INCOME TAXES -- CONTINUED taxable income of the Company. If unused, net operating loss carryforwards expire after 15 years. The loss carryforwards are summarized as follows:
YEAR LOSS YEAR LOSS CARRYFORWARD INCURRED EXPIRES AMOUNT --------- --------- ------------ Studio City Incorporated Holding...................... 1991 2006 $ 15,596 1992 2007 $ 24,000 1993 2008 $ 63,543 1994 2009 $158,468 1995 2010 $309,995 1996 2011 $496,761 1997 2012 $451,266 Fawnsworth International Pictures Corporation......... 1991 2006 $ 19,859 1992 2007 $ 33,999 1993 2008 $ 9,850 1994 2009 $ 5,746 1995 2010 $ 3,815 1996 2011 $ 3,000 1997 2012 $ 1,228 Poc-It Publishers, Incorporated....................... 1993 2008 $ 16 1994 2009 $ 7,894 1995 2010 $ 1,221 1996 2011 $ 258 1997 2012 $ 523 Other Entities........................................ 1994 2009 $ 66 1995 2010 $ 1,547 1996 2011 $ 57,386 1997 2012 $ 87,038
(This space is intentionally left blank.) F-20 44 STUDIO CITY HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 21, 1991 (INCEPTION) THROUGH SEPTEMBER 30, 1998 -- CONTINUED NOTE 15 -- RENTALS UNDER OPERATING LEASES The Company's leasing operations consist principally of the leasing of broadcast television equipment, various computer, video and sound equipment under operating leases that expire over the next three to five years. Due to a cross default by a joint venture partner, a portion of the equipment under two of the leases was reposessed by the lessor for late payment (see note 18 regarding "Zoo Toonz"). The Company has continued making monthly payments on all lease obligations and expects to satisfy all obligations and obtain full use of all equipment under lease. The following is a schedule by years of future minimum rental payments required under operating leases that have initial or remaining noncancelable lease terms in excess of one year as of December 31, 1997:
YEAR ENDING DECEMBER 31, AMOUNT ------------------------ -------- 1998........................................................ $ 84,324 1999........................................................ 83,595 2000........................................................ 53,084 2001........................................................ 44,199 2002........................................................ 2,177 Later years................................................. 0 -------- $267,379 --------
NOTE 16 -- CHANGING ECONOMIC CONDITIONS AND SUBSEQUENT EVENTS From September 1995 to September 1996 Studio City Incorporated Holding entered into a "First Right of Refusal/Space Lease Agreement" with The Walt Disney Company on product produced on the Disney-MGM Studios by Studio City. The Company entered into a one year space lease/first right of refusal/production agreement to expend a minimum of $1,200,000 at the studio for its projects. The Company entered into this agreement with Disney based on an agreement with a New York investment banker taking a contractual (dated August 28, 1995) equity position of $1,200,000 in Quagga Entertainment Corporation, the production arm which was located with the Company at Disney/MGM Studios. Quagga Entertainment Corporation was to achieve total capitalization in 1996 of $8,500,000 based on a registered public offering in Connecticut. The Company was also qualified to sell the offering in the state of New York as a registered broker/dealer. The Company was represented by an investment banker/consultant in Connecticut, who contractually committed to raising Quagga's capital needs through a registered D-504 offering. Also, the Company had the option to create and market a "red herring" D-506 private placement. The Company chose "Shadow Raven", a low-budget feature motion picture, to be the first project. However, due to expanded costs associated with the contingent joint venture production partners, the project was postponed until sufficient capitalization was realized. Quagga's D-504 offering was registered in Connecticut on April 12, 1996. The investment banker was to commence the financial marketing of the offering, but failed to do so. The New York equity investor could not meet the contractual commitment. As a result, the D-504 offering expired on April 12, 1997 and the "red herring" D-506 was withdrawn as a viable funding plan. With the lack of alternative financing available to the Company, the contract with Walt Disney Company expired on September 15, 1996 along with the contingent joint venture production partnerships. In April 1997, the Company expanded its operations by relocating to Tampa, Florida into a facility which provides a small soundstage, office operations, and edit suite. This new organization of its operations in Tampa is anticipated to increase revenue production, while providing low costs to the Company for its own projects. F-21 45 STUDIO CITY HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 21, 1991 (INCEPTION) THROUGH SEPTEMBER 30, 1998 -- CONTINUED NOTE 17 -- MERGER On June 29, 1996, CVT Corporation of America restated and amended its articles of incorporation to allow for a name change, the creation of Class A and B Preferred Stock, the reorganization of operations, and limiting the liability of its Directors and Officers. CVT Corporation changed its name to Studio City Holding Corporation (a New York Corporation). 10,000,000 shares of Class A Preferred Stock with special voting powers were created and 25,000,000 shares of Class B Preferred Stock with preferential dividends and various rights were created. The Company adopted a new set of By-Laws which streamlined its operations as a public company and adopted a set of procedures which limited the liability of its Directors and Officers. On July 1, 1996, Studio City Incorporated Holding (a Florida Corporation) and its subsidiaries merged with and into Studio City Holding Corporation (a New York Corporation) in a statutory merger. The merger transaction was executed in a "like kind" stock exchange, share for share of common stock of Studio City Incorporated Holding for common stock of Studio City Holding Corporation. On October 24, 1996, Studio City Incorporated Holding was dissolved, with the surviving entity being Studio City Holding Corporation. All of the assets and liabilities of Studio City Incorporated Holding and its subsidiaries were merged with and into Studio City Holding Corporation. As per the Merger Agreement, Larry D. Faw, principal stockholder of Studio City Incorporated Holding, was required to convert 100,000,000 shares of voting common stock of Studio City Incorporated Holding into 10,000,000 shares of Studio City Holding Corporation Class A Preferred Stock and was also required to convert 10,000,000 shares of common stock into 1,000,000 shares of Class B Preferred Stock. On October 29, 1997, the Company called for a name change and exchange of shares from both former CVT stockholders and Studio City Incorporated Holding stockholders. This exchange was executed in a "like-kind" share for share exchange. Additionally, all of the stockholders in the Merged Entity had the option to convert any, all, or none of their shares of common stock into Class B Preferred Stock at a ratio of 10 shares of common for 1 share of Class B Preferred Stock. NOTE 18 -- PENDING LITIGATION When the merger occurred, there were no significant changes in the operations of the Company and its subsidiaries. Studio City Holding Corporation and its subsidiaries continued its operations as the merged entity. The Company being an entertainment company is often required to defend its rights and licenses for intellectual properties that the Company either owns or serves as a joint venture partner. This type of litigation is common in the entertainment industry, and considering that the Company owns numerous intellectual properties and owns various types of licenses and joint participations in intellectual properties, it can safely be assumed that the Company will be required to defend its rights, presently and in the future. Currently, the Company and its subsidiary, Poc-It Comics, Incorporated, are defending their rights in the production and distribution of an entertainment franchise based on a comic book story entitled "Shadow Raven". The principals are currently attempting to resolve their issues in negotiation. Secondly, the Company and its subsidiary, Quagga Entertainment Corporation, are defending a challenge to the Companies' rights associated with a joint venture to create, produce, distribute and exploit an intellectual property entitled "Zoo Toonz", a joint venture where the timeliness of the creation of finished products are in question. Litigation is pending in this matter, and, it has been determined that the products will be completed without the assistance of the joint venture partner. The Company and its financial partners will seek to recoup all of its investment. F-22 46 STUDIO CITY HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 21, 1991 (INCEPTION) THROUGH SEPTEMBER 30, 1998 -- CONTINUED NOTE 19 -- LOANS FROM STOCKHOLDERS During 1998, various minority stockholders loaned the Company money. These unsecured, short-term (less than one year) loans accrue interest at 10% per annum. The total amount outstanding is $245,500 as of September 30, 1998. F-23 47 APPENDIX A 48 APPENDIX A-1
COMMON STOCK - ----------------------------------------------------------------------------------------------------- BENEFICIAL OWNERSHIP MAXIMUM SELLING SECURITYHOLDER PRIOR TO OFFERING AMOUNT TO BE SOLD - ----------------------------------------------------------- -------------------- ----------------- Harry E. Abel.............................................. 3,000 3,000 Raymond Abrams............................................. 2,000 2,000 Edward & Milred Adelman.................................... 2,000 2,000 Farrell E. Aderholt, Jr. .................................. 5,500 5,500 Jonathan A. Ahrens......................................... 4,188 4,188 Dante Alberi............................................... 350,000 350,000 Peter B. Allen............................................. 100,000 100,000 Frank & Julie Amaral....................................... 2,400 2,400 Ameritrade................................................. 2,300 2,300 Andy & Cha-oom Ampie....................................... 5,000 5,000 Henry R. Anderson, Jr. .................................... 2,000 2,000 George Andeloudakis........................................ 5,000 5,000 Sam Angelo................................................. 4,000 4,000 John G. Anselmo............................................ 4,000 4,000 Robert Anthony............................................. 6,000 6,000 Edgar Arvelo............................................... 32,500 32,500 Chester & Ruth Badgett..................................... 4,000 4,000 Bant Enterprises, Inc. .................................... 6,000 6,000 Elmer A. Barce............................................. 1,000 1,000 Darlene Calzon Barror...................................... 1,000,000 1,000,000 Dovie Bass................................................. 2,500 2,500 Marc Bear.................................................. 18,000 18,000 Marcus Barth............................................... 1,000 1,000 Alex Bekanich.............................................. 1,000 1,000 Plummer (deceased) & Marilyn Bell.......................... 27,000 27,000 Lily A. Bennett............................................ 500 500 Carl Bensen................................................ 2,000 2,000 Robert Benson.............................................. 4,000 4,000 John Bevell................................................ 1,000 1,000 BHC Securities, Inc. ...................................... 1,500 1,500 John & Diane Batcha........................................ 5,000 5,000 Brad H. Bienvenu........................................... 10,000 10,000 Anthony Blandi............................................. 2,500 2,500 Herbert Bloomenthol........................................ 2,500 2,500 John P. Boghosian.......................................... 3,000 3,000 Karon & Aimee Bondy........................................ 3,300 3,300 Domenic Borello............................................ 700,000 700,000 Jon Bottone................................................ 13,500 13,500 Michael Brown.............................................. 400 400 Peter A. Boudreau.......................................... 2,500 2,500 Joseph Boyan............................................... 2,000 2,000 John L. Brine.............................................. 1,500 1,500 Don Brown & Lavon Ellerman................................. 600 600 Joseph Burkhart............................................ 4,000 4,000 Wesley L. Burchardt........................................ 27,000 27,000 David A. Buffkin........................................... 6,000 6,000 Russell & Roselyn Burrell.................................. 2,000 2,000 Ronald R. Bussetti......................................... 422,000 422,000
49
COMMON STOCK - ----------------------------------------------------------------------------------------------------- BENEFICIAL OWNERSHIP MAXIMUM SELLING SECURITYHOLDER PRIOR TO OFFERING AMOUNT TO BE SOLD - ----------------------------------------------------------- -------------------- ----------------- Butcher & Singer, Inc. .................................... 1,500 1,500 Rex & Joyce Butler......................................... 2,000 2,000 Joseph M. Campbell......................................... 6,000 6,000 Lisa S. Carlton............................................ 1,500 1,500 Joanne Carature............................................ 1,000 1,000 Anthony Carfagno........................................... 50,000 50,000 Mindy A. Carr (custodian).................................. 100 100 Dan & Linda Cashman........................................ 4,000 4,000 Cash Unlimited............................................. 300,000 300,000 Noel A. Casiroghi.......................................... 5,000 5,000 Carrucci Family Partners................................... 89,900 89,900 William D. Cattucci........................................ 10,000 10,000 Cede & Company............................................. 832,500 832,500 Ed Cheetham................................................ 10,000 10,000 Marie Chevas............................................... 10,000 10,000 * Donna B. Churchill....................................... 500 500 * Greg Churchill........................................... 10,000 10,000 * John A. Churchill, Jr. .................................. 1,142,400 1,142,400 * John G. Churchill........................................ 500 500 * Lindsey B. Churchill..................................... 500 500 * Steven N. Churchill...................................... 500 500 William Cianelli........................................... 20,000 20,000 Arthur Ciccone............................................. 5,000 5,000 James M. Clancy............................................ 15,000 15,000 Lena Clancy................................................ 100,000 100,000 Scott Clemens.............................................. 12,000 12,000 Brian Clark................................................ 1,600 1,600 Henry & Christine Coleman.................................. 1,000 1,000 Celeste Como............................................... 8,000 8,000 Jennifer Como.............................................. 16,000 16,000 Ronald A. Como............................................. 50,000 50,000 Richard Cornell............................................ 1,500 1,500 Gabrial P. Costenzo........................................ 2,700 2,700 * Courchaine Family Partnership............................ 153,400 153,400 * James & Doris Courchaine................................. 10,000 10,000 James W. Courchaine........................................ 126,000 126,000 Charles & Kathleen Crano................................... 700 700 John C. Cummings........................................... 10,000 10,000 D & D Auto Sales........................................... 1,101,000 1,101,000 Mary Dabal................................................. 6,000 6,000 Leo Darian................................................. 4,000 4,000 Wayne Daughtridge.......................................... 48,000 48,000 Randy DeFazio.............................................. 1,000 1,000 Harold & Martha Dellerman.................................. 3,000 3,000 Phillip DeMasco............................................ 7,500 7,500 Phillip J. DeMasco......................................... 5,000 5,000 Phillip L. DeMasco......................................... 7,500 7,500 Arthur Denfield............................................ 3,000 3,000
- --------------- * Director or executive officer or affiliate or associate thereof. 50
COMMON STOCK - ----------------------------------------------------------------------------------------------------- BENEFICIAL OWNERSHIP MAXIMUM SELLING SECURITYHOLDER PRIOR TO OFFERING AMOUNT TO BE SOLD - ----------------------------------------------------------- -------------------- ----------------- August Dennis.............................................. 2,000 2,000 Isabel Rita Dennis......................................... 25,000 25,000 Olivia Dergis & J.C. Worthington........................... 1,000 1,000 Neil & Sonal Desai......................................... 10,000 10,000 Barbara Deveronica......................................... 700 700 Rose DiFabio............................................... 2,700 2,700 Dimitri Dimitri............................................ 5,000 5,000 Joe Distefano.............................................. 25,000 25,000 Francisca Y. Donahue....................................... 1,000 1,000 William M. Donahue......................................... 1,000 1,000 Chic Donchin............................................... 2,000 2,000 Alison & Beth Donovan...................................... 400 400 Alison Donovan............................................. 4,800 4,800 Michael Dooley............................................. 2,000 2,000 Randell L. Drovdhal........................................ 1,500 1,500 William Drubel............................................. 25,000 25,000 Ralph Drum................................................. 3,000 3,000 James & Janet Dunn......................................... 15,000 15,000 Charles & Helen Dustin..................................... 1,000 1,000 Sherry Eden................................................ 250 250 James Edmonson............................................. 7,000 7,000 A. G. Edwards, Inc. ....................................... 24,000 24,000 Leonard & Rosemarie Eichhorn............................... 200 200 Robert F. Ely.............................................. 2,000 2,000 Frances G. Emerson......................................... 3,000 3,000 David & Janet Engel........................................ 2,500 2,500 Orvill K. England.......................................... 1,300 1,300 Douglas H. Erbeck.......................................... 1,800 1,800 James C. Etheridge......................................... 24,000 24,000 Harry & Theresa Evans...................................... 1,000 1,000 E.D. Fagan & J.C. Worthington.............................. 50,000 50,000 E.D. Fagan & J.C. Worthington.............................. 100,000 100,000 * von Falconbourg Family Trust............................. 401,277 401,277 Phyllis & Joe Farenkamm.................................... 60,000 60,000 John Farrell............................................... 1,500 1,500 * Genevieve H. Faw......................................... 925,000 925,000 * Larry D. Faw............................................. 395,000 395,000 * Larry D. Faw, Incorporated............................... 2,870,000 2,870,000 Bernard Filiac............................................. 10,000 10,000 Financial Clearing Services................................ 15,900 15,900 Glen Fitzpatrick (custodian)............................... 2,000 2,000 Fitzgerald DeArman & Roberts............................... 5,000 5,000 Paul Flinn................................................. 3,500 3,500 * Charles H. Flood......................................... 30,000 30,000 Anthony Formisaro.......................................... 4,000 4,000 Ralph Forte................................................ 300,000 300,000 Russell & Donna Foster..................................... 4,000 4,000 Kenneth M. Fournie......................................... 1,200 1,200
- --------------- * Director or executive officer or affiliate or associate thereof. 51
COMMON STOCK - ----------------------------------------------------------------------------------------------------- BENEFICIAL OWNERSHIP MAXIMUM SELLING SECURITYHOLDER PRIOR TO OFFERING AMOUNT TO BE SOLD - ----------------------------------------------------------- -------------------- ----------------- William R. Freund.......................................... 5,000 5,000 Sandra Gallman............................................. 1,000,000 1,000,000 Rene Gandelman............................................. 2,000 2,000 Carlos Garcia.............................................. 25,000 25,000 Gilbert Garcia............................................. 2,000 2,000 James & Patrice Gauger..................................... 2,000 2,000 Stephanie Gehring.......................................... 1,500 1,500 Jane & Santo Genovese...................................... 1,000 1,000 Vernon G. Gerdes........................................... 7,000 7,000 Mark H. German............................................. 6,000 6,000 Charles Gettig............................................. 2,000 2,000 Williard & Helen Gilkerson................................. 2,000 2,000 John Giovannucci........................................... 250,000 250,000 The Godheim Family Partnership............................. 200 200 Norman Godheim............................................. 4,584 4,584 Jeffrey & Susan Gold....................................... 4,000 4,000 Leon & Evelyn Goldapple.................................... 1,000 1,000 Alan R. Golden............................................. 3,000 3,000 Alan R. Golden............................................. 1,000 1,000 Kathy Gomberg.............................................. 2,000 2,000 Bradley Gompers............................................ 2,000 2,000 Samuel Gompers............................................. 2,000 2,000 Helen Gompers-Foster....................................... 2,000 2,000 Humberto Gonzalez, Jr. .................................... 55,000 55,000 Steve Gonzalez............................................. 912,000 912,000 Joel Goodman............................................... 5,000 5,000 Gordon Development Corp. .................................. 500 500 Emily R. Grande............................................ 1,000 1,000 Timothy Greenwood.......................................... 5,000 5,000 John & Barbara Green....................................... 1,000 1,000 Dorothy Grooms............................................. 2,000 2,000 John Haer.................................................. 6,000 6,000 Kevin & Karen Hand......................................... 1,500 1,500 Joseph & Jeanne Hanes...................................... 2,000 2,000 John C. Hanner............................................. 11,000 11,000 Rita Hansen................................................ 1,000 1,000 Roy Hansen................................................. 2,000 2,000 Donald Harmon.............................................. 2,000 2,000 Jack & Sue Hauser.......................................... 1,500 1,500 William & Jean Hayden...................................... 3,500 3,500 Haywood Securities......................................... 5,000 5,000 Mary I. Hearne............................................. 2,000 2,000 Doris Hefler............................................... 1,000 1,000 Hefler Family Trust........................................ 910,100 910,100 Steve Heidmann............................................. 25,500 25,500 Robert Hood................................................ 3,000 3,000 David & Marion Hooper...................................... 12,000 12,000 Linda Hyer................................................. 500 500
- --------------- * Director or executive officer or affiliate or associate thereof. 52
COMMON STOCK - ----------------------------------------------------------------------------------------------------- BENEFICIAL OWNERSHIP MAXIMUM SELLING SECURITYHOLDER PRIOR TO OFFERING AMOUNT TO BE SOLD - ----------------------------------------------------------- -------------------- ----------------- Rachelle G. Jacover........................................ 2,000 2,000 Bill James................................................. 1,300 1,300 Bipin & Pratibha Jhaveri................................... 1,000 1,000 Thomas S. Jennings......................................... 8,000 8,000 Kenneth & Elisabeth Jester................................. 15,000 15,000 Timothy Jewett............................................. 3,000 3,000 Josephthal & Company, Inc. ................................ 2,500 2,500 Abdellattif & Hikmat Juma.................................. 6,000 6,000 Mark A. Kasrel............................................. 1,000 1,000 James L. Kaufman........................................... 1,250 1,250 Glen Keller/Trustee........................................ 8,000 8,000 Patrick J. Keenan.......................................... 15,000 15,000 Kenny Family Security Trust................................ 500 500 Kenny Family Security Trust................................ 2,500 2,500 Thomas J. Kinney........................................... 1,000 1,000 Firasat Khan............................................... 4,000 4,000 * Harry B. Knights......................................... 175,000 175,000 * Harry & Elizabeth Knights................................ 6,000 6,000 Benjamin Koester........................................... 3,000 3,000 Walter Kosic............................................... 10,000 10,000 Laurence Krasick........................................... 200 200 Scott Krasick & Abby Bacal................................. 300 300 Kray & Company............................................. 299,000 299,000 Anthony Labarbera.......................................... 1,000 1,000 Beverly Lamar.............................................. 5,000 5,000 Stanley & Loretta Lamble................................... 5,000 5,000 Dori W. Lapp............................................... 4,000 4,000 Anthony Latona............................................. 6,000 6,000 Anthony Latona............................................. 1,000 1,000 Cynthia Laub............................................... 200 200 Mildred & Millicent Lecount................................ 2,500 2,500 Philip Leon................................................ 1,000 1,000 Winnona Lesher............................................. 1,000 1,000 Alan M. Levine............................................. 400,000 400,000 Winifred & Alan Levinson................................... 10,000 10,000 Lexus International, Inc. ................................. 51,100 51,100 Maurice & Gloria Lieber.................................... 1,000 1,000 Diane Limoli............................................... 1,000 1,000 Dorthoy Lindsey............................................ 1,500 1,500 A.G. Little................................................ 1,000 1,000 Michael A. Littman......................................... 6,000 6,000 S. Michael Long............................................ 300 300 Oscar Louik................................................ 3,000 3,000 John & Ruth Lovas.......................................... 500 500 Bill Love G.W. Garrett..................................... 11,000 11,000 Herbert Lubowsky........................................... 15,000 15,000 Joseph Lucmon/J.C. Worthington............................. 1,000 1,000 Amy MacCallum.............................................. 500 500
- --------------- * Director or executive officer or affiliate or associate thereof. 53
COMMON STOCK - ----------------------------------------------------------------------------------------------------- BENEFICIAL OWNERSHIP MAXIMUM SELLING SECURITYHOLDER PRIOR TO OFFERING AMOUNT TO BE SOLD - ----------------------------------------------------------- -------------------- ----------------- Myra & John Mack........................................... 5,000 5,000 Scott Mann & Mary Mahone................................... 1,500 1,500 George & Frances Markham................................... 2,500 2,500 Harold Markle.............................................. 800 800 Paul E. Martineau.......................................... 2,500 2,500 Steven & Barbara Marz...................................... 2,000 2,000 Andrew D. Marzano.......................................... 2,500 2,500 Juan Martinez.............................................. 11,000 11,000 Larry Matthews............................................. 5,000 5,000 Nena Maybury............................................... 5,500 5,500 Mark J. Mazzone............................................ 2,500 2,500 James McDade............................................... 500 500 James McDade............................................... 1,500 1,500 Robert L. McGee............................................ 140,000 140,000 Michael/Hugh McHugh (deceased)............................. 2,500 2,500 Brad McKinney.............................................. 320 320 Michael J. McKinney........................................ 100 100 Morley G. Melden........................................... 2,000 2,000 Merrill Lynch Pierce Fenner & Smith........................ 32,500 32,500 Jane A. Miller............................................. 2,000 2,000 Mike Mirabelli............................................. 7,000 7,000 Carl Misenheimer........................................... 12,000 12,000 Charlotte & Leroy Molitor.................................. 2,000 2,000 Lisa Moody................................................. 10,000 10,000 Morgan Olmstead Kennedy & Gardner, Inc. ................... 1,300 1,300 Morgan Rothchild Anzo, Inc. ............................... 1,000,000 1,000,000 Raymond & Irene Morse...................................... 1,000 1,000 Olin & Rosemarie Morrison.................................. 3,000 3,000 Dominick & Marie Muggeo.................................... 12,500 12,500 Eugene J. Mullen, Jr. (custodian).......................... 500 500 Nicholas Munger, Esq....................................... 10,000 10,000 Elpidio Pete Munoz......................................... 235,000 135,000 Nicholas Stuart Munson..................................... 10,000 10,000 Grover Hulan Nasworthy, Jr. ............................... 31,000 31,000 Patrica Neenan............................................. 5,000 5,000 Barry F. Neer.............................................. 10,000 10,000 Frank Neer................................................. 10,000 10,000 * Mahrukh Neville.......................................... 5,000 5,000 * Vincent J. Neville....................................... 437,000 437,000 Cynthia Nolan.............................................. 1,000 1,000 Norsedatter Imports, Inc. ................................. 500 500 John P. O'Donnell.......................................... 2,000 2,000 Donald F. O'Neill.......................................... 5,000 5,000 Mark Ornoff................................................ 5,000 5,000 Angiolina & Bob Owens...................................... 3,000 3,000 Celesete Padgett........................................... 10,000 10,000 Mark & Karen Palermo....................................... 27,000 27,000 Gus W. Pappas.............................................. 3,500 3,500
- --------------- * Director or executive officer or affiliate or associate thereof. 54
COMMON STOCK - ----------------------------------------------------------------------------------------------------- BENEFICIAL OWNERSHIP MAXIMUM SELLING SECURITYHOLDER PRIOR TO OFFERING AMOUNT TO BE SOLD - ----------------------------------------------------------- -------------------- ----------------- Amy Parbury................................................ 5,000 5,000 Wayne A. Parker............................................ 4,000 4,000 James & Bonnie Parsons..................................... 300 300 H. Steven Passion.......................................... 10,000 10,000 Danai & Rawiwarn Pechkam................................... 5,000 5,000 Josephine Pecoraro......................................... 6,000 6,000 Howard Pelkey.............................................. 1,600 1,600 James J. Petroff........................................... 2,000 2,000 Philadep & Company......................................... 20,000 20,000 Donald & Elly Pine......................................... 1,300 1,300 Paul J. Piterski........................................... 15,000 15,000 Pittco..................................................... 4,700 4,700 Janis & Donald Plym........................................ 1,000 1,000 Christopher & Josephine Porter............................. 3,400 3,400 Robert W. Presley.......................................... 50,000 50,000 Ernest & Cherie Previch.................................... 1,500 1,500 Pro-Tech Appliance Service, Inc. .......................... 11,000 11,000 Don & Beverly Quinn........................................ 3,000 3,000 Jeffrey F. Rahrig.......................................... 2,000 2,000 William Raisis............................................. 9,000 9,000 Kathleen Reavey............................................ 500 500 Freda Z. Reeves............................................ 8,000 8,000 Lou Anne Reeves............................................ 1,000 1,000 Tommi Reeves............................................... 1,000 1,000 Tommi & LouAnne Reeves..................................... 500,000 500,000 Refco Securities, Inc. .................................... 3,000 3,000 Regional Clearing Corp. ................................... 40,500 40,500 Jill Ressler............................................... 500 500 Retirement Accounts fbo Howard Dennis...................... 49,000 49,000 Retirement Accounts fbo Charles H. Flood................... 3,000 3,000 Retirement Accounts fbo Charles Grande..................... 38,316 38,316 Retirement Accounts fbo Robert L. McGee.................... 128,962 128,962 Retirement Accounts fbo Thomas L. Rotunno.................. 5,000 5,000 Retirement Accounts fbo Etty Segal......................... 13,834 13,834 Retirement Accounts fbo Israel Segal....................... 49,305 49,305 Retirement Accounts fbo Ross Hagstoc....................... 2,000 2,000 Anna & James Revis......................................... 1,000 1,000 Leo Rice................................................... 2,000 2,000 Ronald & Susan Richardson.................................. 1,500 1,500 * Andrew C. Rigrod......................................... 25,000 25,000 Rimco...................................................... 400 400 Marc Rose.................................................. 10,000 10,000 Armin D. Rosencranz........................................ 12,000 12,000 Seymour & Judith Rosenfield................................ 1,500 1,500 Michael Rossetti........................................... 1,000 1,000 Doug B. Ross............................................... 1,000 1,000 David Rotunno.............................................. 6,000 6,000 Elizabeth Rottuno.......................................... 7,000 7,000
- --------------- * Director or executive officer or affiliate or associate thereof. 55
COMMON STOCK - ----------------------------------------------------------------------------------------------------- BENEFICIAL OWNERSHIP MAXIMUM SELLING SECURITYHOLDER PRIOR TO OFFERING AMOUNT TO BE SOLD - ----------------------------------------------------------- -------------------- ----------------- Lou Rotunno................................................ 40,500 40,500 Ralph Rotunno.............................................. 2,000 2,000 Thomas Rotunno............................................. 4,500 4,500 Rodney J. Rush............................................. 60,000 60,000 Frank & Anne Russo......................................... 12,500 12,500 Leslie & Frank Orlando..................................... 1,300 1,300 J.T. Scanlon & Philip Carroll.............................. 6,000 6,000 Joseph Scaturro............................................ 2,000 2,000 Odell Sassnett & Laura Sassnett-Furey...................... 24,000 24,000 Henry G. Scheuring......................................... 112,000 112,000 Allen & Jacklyn Schmetzer.................................. 1,000 1,000 Warren C Schmidt........................................... 1,000 1,000 W. J. Schroeder............................................ 1,000 1,000 Scinta Enterprises, Inc. .................................. 1,200 1,200 Scottsdale Securities, Inc. ............................... 1,000 1,000 Gilbert Scwwarting......................................... 2,000 2,000 Sector II Corporation...................................... 92,300 92,300 Alan T. Sedgwick........................................... 4,000 4,000 Harriet N. Segal........................................... 4,000 4,000 Roger P. Selle............................................. 2,000 2,000 Edna Shields............................................... 500 500 Sho Shiraga................................................ 1,000 1,000 Marc J. Shuman............................................. 6,000 6,000 William B. Silverman....................................... 3,000 3,000 Samual & Elizabeth Simcox.................................. 2,000 2,000 Carl Sims.................................................. 1,200 1,200 Boreen Sisolak............................................. 5,000 5,000 Smith Barney, Inc. ........................................ 30,000 30,000 Dallas Smith............................................... 13,000 13,000 Eugene F. Smith............................................ 500,000 500,000 George Smith............................................... 3,000 3,000 Stephen & Harold Solin..................................... 1,500 1,500 John Sosinski.............................................. 3,300 3,300 Edwin & Blanch Sossong..................................... 10,000 10,000 Spear Leeds & Kellogg...................................... 500 500 * Wallis M. Spence......................................... 25,000 25,000 Frank & Jeannette Spiegel.................................. 5,000 5,000 Fredrick Spriggs........................................... 301,158 301,158 Susan Stanton.............................................. 1,500 1,500 Donna Stacy & Travis Vonderhaar............................ 1,000 1,000 Alvin Starke............................................... 2,000 2,000 Thomas H. Steele........................................... 4,000 4,000 Harry Stevenson............................................ 2,500 2,500 John T. Stone.............................................. 5,000 5,000 Gary Stratton.............................................. 12,000 12,000 Bernard C. Stritt.......................................... 600,000 600,000 Kurt & Pam Stumpferrnagel.................................. 2,000 2,000 Stutz Motor Car of America................................. 125,000 125,000
- --------------- * Director or executive officer or affiliate or associate thereof. 56
COMMON STOCK - ----------------------------------------------------------------------------------------------------- BENEFICIAL OWNERSHIP MAXIMUM SELLING SECURITYHOLDER PRIOR TO OFFERING AMOUNT TO BE SOLD - ----------------------------------------------------------- -------------------- ----------------- Mickey & Henry Sunier...................................... 3,000 3,000 Richard & Joyce Sutton..................................... 2,500 2,500 Doug & Rose Swierczynski................................... 4,000 4,000 Raymond Szulc.............................................. 5,000 5,000 John & Rose Taddeo......................................... 6,000 6,000 Thomas (deceased) & Misaye Tanabe.......................... 23,000 23,000 Thomas Tausig.............................................. 10,000 10,000 Phillip J. Testa........................................... 1,001,000 1,001,000 Jean Thomas................................................ 17,000 17,000 Urias & Bessie Thomas...................................... 7,500 7,500 Robert & Barbara Thrun..................................... 200 200 John & Mary Jo Thurston.................................... 1,000 1,000 Willie & Barbara Tia....................................... 6,000 6,000 Daryl M. Tirico............................................ 80,000 80,000 Andrew Toliver............................................. 1,000 1,000 Ken Torgerson.............................................. 25,000 25,000 John Toth.................................................. 100,000 100,000 Lovie Trice................................................ 1,500 1,500 Ruth Trudeau............................................... 2,000 2,000 Mike Uttley................................................ 1,300 1,300 Kenneth Vance.............................................. 520 520 Carl Vancuren.............................................. 1,000 1,000 Manuel Vela, Jr. .......................................... 16,000 16,000 Ron Vonderhaar............................................. 2,000 2,000 Gail Waldinger............................................. 2,000 2,000 Jeanette M. Walker......................................... 7,500 7,500 Wall Street Clearing/BT Alex Brown......................... 100 100 Bruce D. Waldron........................................... 500 500 Katsuo Watanabe............................................ 7,500 7,500 David & Lola Webster, III.................................. 6,000 6,000 David Weideman............................................. 1,000 1,000 Michael Wells.............................................. 2,000 2,000 Gene & Millie Wendler...................................... 10,000 10,000 Courtney P. Wendt.......................................... 2,000 2,000 Sheila Wessner............................................. 700 700 David West................................................. 500 500 * Walter Johnson Williams.................................. 526,000 526,000 Charles N. Wilkinson....................................... 2,500 2,500 Thomas F. Williamson....................................... 800 800 Mary B. Wolfram............................................ 2,000 2,000 Rebecca L. Womble.......................................... 1,400 1,400 King Wong.................................................. 1,000 1,000 Elliott Wooton............................................. 3,000 3,000 George & Edwina Worsley.................................... 50,371 50,371 John C. Worthington........................................ 351,000 351,000 James Yaboni............................................... 5,000 5,000 Bradford Yoder............................................. 2,000 2,000 Ted Yong................................................... 20,000 20,000
- --------------- * Director or executive officer or affiliate or associate thereof. 57
COMMON STOCK - ----------------------------------------------------------------------------------------------------- BENEFICIAL OWNERSHIP MAXIMUM SELLING SECURITYHOLDER PRIOR TO OFFERING AMOUNT TO BE SOLD - ----------------------------------------------------------- -------------------- ----------------- Elmer J. Zorn.............................................. 50,000 50,000 ---------- ---------- Total................................................. 31,282,001 31,282,001 ========== ==========
- --------------- * Director or executive officer or affiliate or associate thereof. 58 APPENDIX A-2
CLASS B PREFERRED STOCK - ----------------------------------------------------------------------------------------------------- BENEFICIAL OWNERSHIP MAXIMUM SELLING SECURITYHOLDER PRIOR TO OFFERING AMOUNT TO BE SOLD - ----------------------------------------------------------- -------------------- ----------------- Jonathon A. Ahrens......................................... 419 419 Dante J. Alberi............................................ 15,000 15,000 Carter E. Allman........................................... 300 300 Willie & Yvonne Baker...................................... 500 500 John & Josephine Batcha.................................... 1,000 1,000 Domenic Borello............................................ 40,000 40,000 John Bottome............................................... 300 300 Peter & Thersea Calligandes................................ 50 50 Patrick J. Campbell........................................ 30 30 John D. Carlos............................................. 200 200 Dan & Linda Cashman........................................ 700 700 Chaffin Trust.............................................. 170 170 Walter & Ester Chapman..................................... 1,000 1,000 George Clanton............................................. 9,500 9,500 U.S. Clearing.............................................. 4,495 4,495 Celeste Como............................................... 200 200 Jennifer Como.............................................. 400 400 Ronald A. Como............................................. 1,000 1,000 David & Michelle Copeland.................................. 1,500 1,500 * Doris & James W. Courchaine.............................. 25,000 25,000 D.L. & Juanita Cremeen..................................... 300 300 Juanita Cremeen............................................ 300 300 Mary Dabal................................................. 600 600 Dean Witter Reynolds, Inc. ................................ 500 500 Tom Delaney................................................ 250 250 Patrick & Dolores Demasco.................................. 250 250 William H. Drubel, Jr. .................................... 7,600 7,600 James E. Edmonson.......................................... 200 200 Douglas Erbeck............................................. 170 170 Harry & Theresa Evans...................................... 40 40 * Geneiveve H. Faw......................................... 300,000 300,000 * Larry D. Faw............................................. 1,000,000 1,000,000 * von Falconbourg Family Trust............................. 1,000,000 1,000,000 Charles H. Flood........................................... 2,000 2,000 Ralph Forte................................................ 5,000 5,000 Stephanie Gehring.......................................... 150 150 J. W. Giovannucci.......................................... 10,000 10,000 Godheim Family Partnership................................. 160,520 160,520 C. Bradley Gompers......................................... 200 200 Samuel L. Gompers.......................................... 200 200 Helen Gompers-Foster....................................... 200 200 Steve Gonzalez............................................. 30,000 30,000 Elenor & David Govoni...................................... 300 300 Emily R. Grande............................................ 500 500 John & Barbara Green....................................... 100 100 Hefler Family Trust........................................ 300,000 300,000
- --------------- * Director or executive officer or affiliate or associate thereof. 59
CLASS B PREFERRED STOCK - ----------------------------------------------------------------------------------------------------- BENEFICIAL OWNERSHIP MAXIMUM SELLING SECURITYHOLDER PRIOR TO OFFERING AMOUNT TO BE SOLD - ----------------------------------------------------------- -------------------- ----------------- William C. Hoegler......................................... 6,000 6,000 William C. Hueston......................................... 100 100 Rachelle Jacover........................................... 200 200 Janney Montgomery Scott, Inc. ............................. 140 140 Abdellattif & Hikmat Juma.................................. 600 600 Patrick Keenan............................................. 1,500 1,500 * Harry B. Knights......................................... 35,000 35,000 Anthony Labarbera.......................................... 500 500 Jack Laramore.............................................. 100 100 Larko...................................................... 500 500 Anthony Latona............................................. 1,800 1,800 Lehman Brothers, Inc. ..................................... 2,500 2,500 Alan M. Levine............................................. 10,000 10,000 Robert & Patricia Lomas.................................... 300 300 S. Michael Long............................................ 130 130 Lundgren & McCorrison...................................... 90 90 Lundrew & McCorrison....................................... 90 90 Harold Markle.............................................. 120 120 Joe Maselli................................................ 300 300 Mike Mirabelli............................................. 300 300 Olin & Rosemarie Morrison.................................. 200 200 National Investor Services................................. 1,000 1,000 * Vincent J. Neville....................................... 60,000 60,000 Yoshiro & Sueko Oishi...................................... 450 450 Olivia Ortega.............................................. 100 100 John & Victoria Ortenzi.................................... 400 400 Russell V. Panchelli....................................... 250 250 James & Bonnie Parsons..................................... 30 30 Leo & Lois Paul............................................ 300 300 Paul J. Piterski........................................... 500 500 Leonard Platnick........................................... 50 50 Janis & Donald Plym........................................ 100 100 RAF Financial Corp. ....................................... 3,380 3,380 Kathleen Reavey............................................ 200 200 Tommi & Lou Anne Reeves.................................... 50,000 50,000 Elizabeth Rotunno.......................................... 700 700 Lou Rotunno................................................ 10,000 10,000 Ralph & Patricia Rotunno................................... 200 200 Thomas Rotunno, Sr. ....................................... 1,000 1,000 Dale E. Rue................................................ 130 130 Rodney J. Rush............................................. 1,000 1,000 Joseph Scaturro............................................ 200 200 Henry G. Scheuring......................................... 113,800 113,800 Warren C. Schmidt.......................................... 330 330 Sector II Corporation...................................... 9,230 9,230 Harriet N. Segal........................................... 300 300 Dennis Smith............................................... 250 250 Stephen & Harold Solin..................................... 100 100
- --------------- * Director or executive officer or affiliate or associate thereof. 60
CLASS B PREFERRED STOCK - ----------------------------------------------------------------------------------------------------- BENEFICIAL OWNERSHIP MAXIMUM SELLING SECURITYHOLDER PRIOR TO OFFERING AMOUNT TO BE SOLD - ----------------------------------------------------------- -------------------- ----------------- Fredrick Spriggs........................................... 80,000 80,000 Thomas H. Steele........................................... 300 300 Bernard C. Stritt.......................................... 50,000 50,000 Kurt & Pam Stumpfernagel................................... 19,800 19,800 Richard & Ellen Stupak..................................... 100 100 Phillip J. Testa........................................... 200,000 200,000 Robert & Josephine Tomasulo................................ 200 200 Kenneth H. Vance........................................... 20 20 Mauel Vela, Jr. ........................................... 1,000 1,000 Wall Street Clrg/BT Alex Brown............................. 3,100 3,100 William L. Whitacre........................................ 1,000 1,000 Tim Wickman................................................ 100 100 * Walter Johnson Williams.................................. 250,000 250,000 Mary B. Wolfram............................................ 200 200 John C. Worthington........................................ 10,000 10,000
- --------------- * Director or executive officer or affiliate or associate thereof. 61 ================================================================================ NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY, BY ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER, SOLICITATION OR SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE (DATE OF THE PROSPECTUS). ------------------------ TABLE OF CONTENTS PAGE Prospectus Summary................... 3 Risk Factors......................... 4 Use of Proceeds...................... 7 Determination of Offering Price...... 7 Selling Security Holders............. 8 Plan of Distribution................. 8 Business............................. 8 Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 13 Management........................... 15 Certain Transactions................. 17 Principal Stockholders............... 18 Description of Securities............ 19 Selling Security Holders............. 20 Shares Eligible for Future Sale...... 20 Legal Matters........................ 20 Experts.............................. 20 Additional Information............... 20 Index to Financial Statements........ F-1
Until , 1998 (90 days after the date of this Prospectus), all dealers effecting transactions in the registered securities, whether or not participating In this distribution, may be required to deliver a Prospectus. This Is in addition to the obligations of dealers to deliver a Prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. STUDIO CITY HOLDING CORPORATION COMMON STOCK CLASS B PREFERRED STOCK PROSPECTUS , 1998 ================================================================================ 62 STUDIO CITY HOLDING CORPORATION PART II. INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Restated Certificate of Incorporation, as amended, and By-Laws of the Company, as amended, provide that the Company shall indemnify its officers and directors to the full extent permitted by the Business Corporation Law of the State of New York. Reference is hereby made to Section 402(b) of the Business Corporation Law of the State of New York relating to the indemnification of officers and directors, which Section is hereby incorporated herein by reference. Insofar as indemnification for liabilities arising under the Securities Act of 1933 ("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 Act and is, therefore, unenforceable. ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. It is estimated that the following expenses will be incurred in connection with the proposed offering hereunder. All of such expenses will be borne by the Company. With the exception of the registration fees, all amounts shown are: Registration fees........................................... $20 Legal fees and expenses..................................... 50,000* Accounting fees and expenses................................ 70,000* Blue sky fees and expenses (including counsel fees)......... 2,500* Printing expenses........................................... 25,000* Miscellaneous............................................... 1,000* Total............................................. $148,520*
- --------------- * Estimated. ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES. The following sets forth certain information regarding sales of, and other transactions with respect to, securities of the Company issued within the past three years, which sales and other transactions were not registered pursuant to the Securities Act of 1933, as amended (the "Securities Act"). During 1998 (through October 28, 1998), the Company sold shares of Common Stock to 15 individuals, 5 of whom were shareholders, for aggregate consideration of $87,500. During 1997, the Company sold 85,622 shares of Common Stock to 49 individuals who were either existing stockholders, or, business associates or friends or relatives of affiliates, at $5.00 per share for net proceeds to the Company of $428,110. Also during 1997, 69,429 Units were issued to 4 individuals as compensation for services rendered. During 1996, 1,917 shares of Common Stock were issued to an individual for services rendered, 17,500 Units were issued to another individual as compensation for services rendered and 2,000 Units were issued to another individual in repayment of a loan of $ 8,371. No commissions or fees were paid in these transactions. Each Unit consisted of one share of Common Stock and one Common Stock Purchase Warrant. Each Common Stock Purchase Warrant entitles the holder to purchase one share of Common Stock at an exercise price of $3.00 and is exercisable until December 31, 1999. See "Description of Securities -- Warrants." During 1996, the Company sold shares of Common Stock to 34 individuals, 17 of whom were shareholders, for aggregate consideration of $599,596. II-1 63 In May 1996, the Company paid consulting fees of $600 to Harry B. Knights, Senior Vice President, to create a financial marketing plan for Zweig Knights Publishing Corporation, a majority owned subsidiary; in connection with this plan 1,000 shares of Common Stock were sold to an individual at $5 per share; no commissions or fees were paid. The foregoing securities were issued without registration in reliance upon exemptions the Company believed available at the time of issuance, including those afforded by Section 4(2) or Rules 505 or 506 of Regulation D of the Securities Act, based upon the following factors: (i) the issuance of the securities was to a limited number of persons; (ii) such persons were given access to all available financial and other information, (iii) such persons were sophisticated and experienced investors, (iv) such persons represented that they were acquiring the securities for investment and not with a view to distribution; and (v) the certificates evidencing the securities bore appropriate restrictive transfer legends. Effective July 1, 1996, Studio City-Florida merged with and into the Company, pursuant to the Plan of Merger. Pursuant to the Plan of Merger (i) 100,000,000 shares of Common Stock of Studio City-Florida held by Larry D. Faw, the President and Chairman of the Board of the Company, were converted into 10,000,000 shares of the Company's Class A Preferred Stock, (ii) 10,000,000 shares of Common Stock of Studio City-Florida held by Mr. Faw were converted into 1,000,000 shares of the Company's Class B Preferred Stock, (iii) 1,000,000 shares of the Class B Preferred Stock of Studio City-Florida held by Mr. Faw were converted into 1,000,000 shares of Class B Preferred Stock of the Company, (iv) warrants to purchase 5,000,000 shares of Common Stock of Studio City-Florida were converted into warrants to purchase 5,000,000 shares of Common Stock of the Company, and (v) each of the remaining issued and outstanding shares of Common Stock of Studio City-Florida were converted into one share of the Company's Common Stock. These securities were issued without compliance with the registration requirements of the federal securities laws or any state securities laws, in reliance upon exemptions therefrom the Company believed to be available therefor, including Section 4(2) and Rules 505 and 506 of Regulation D of the Securities Act of 1933. THE EXEMPTIONS RELIED UPON BY THE COMPANY MAY NOT HAVE BEEN AVAILABLE AND THE COMPANY IS EFFECTING THE REGISTRATION OF ALL ITS ISSUED AND OUTSTANDING SECURITIES IN THIS REGISTRATION STATEMENT. ITEM 27. EXHIBITS. The following exhibits are filed as part of this Registration Statement: 3.1 Certificate of Amendment and Restated Certificate of Incorporation of the Company. *3.2 Bylaws of the Company, as amended. *5.1 Opinion of Gerald Weinberg, P.C., regarding the legality of the securities being registered. *10.2 Warrant to purchase 5,000,000 shares of Common Stock. 10.3 Agreement dated December 17, 1993, between CVT Corp. of America and Studio City Incorporated Holding. 10.4 Bill of Sale and Conveyance, dated February 16, 1993, between Larry Faw and Studio City Incorporated, as amended. 10.6 Option to Acquire Filmed Entertainment Properties, dated as of February 16, 1993, between Larry Faw and Studio City Incorporated. *10.7 Agreement to Exercise Purchase Option, dated February 16, 1995, between Larry Faw and Studio City Incorporated. 10.8 Promissory Note to Larry Faw dated February 16, 1993 in the principal amount of $1,554,026.50.
II-2 64 *23.1 Consent of Peel Schatzel & Wells, P.A. *23.2 Consent of Gerald Weinberg, P.C. (included in Exhibit 5.1) *27.1 Financial Data Schedule
- --------------- * Filed herewith. ITEM 28. UNDERTAKINGS. The undersigned registrant hereby undertakes: (1) To file, during any period in which it offers or sales securities, a post-effective amendment to this Registration Statement to: (i) Include any prospectus required by Section 10(a)(3) of the Securities Act of 1933, as amended (the "Act"); (ii) Reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in the Registration Statement; (iii) Include any additional or changed material information on the plan of distribution. (2) For determining liability under the Act, to treat each post-effective amendment as a new registration statement of the securities offered, and the offering of the securities at that time to be the initial bona fide offering. (3) To file a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the offering. The undersigned registrant hereby undertakes: (1) For determining any liability under the Act, to treat the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in the form of prospectus filed by the registrant under Rule 424(b)(1) or (4), or 497(h) under the Act as part of this Registration Statement as of the time the Commission declared it effective. (2) For determining any liability under the Act, to treat each post-effective amendment that contains a form of prospectus as a new registration statement for the securities offered in the registration statement, and the offering of the securities at that time as the initial bona fide offering of those securities. Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Act") may be permitted to directors, officers and controlling persons of the Company pursuant to the governing instruments of the Company or Section 402(b) of the Business Corporation Law of the State of New York, the Company has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in that Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Company of expenses incurred or paid by a director, officer or controlling person 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 Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-3 65 SIGNATURES In accordance with the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all the requirements for filing on Form SB-2 and authorized this Registration Statement to be signed on its behalf by the undersigned, in the city of New York, state of New York on October 28, 1998. STUDIO CITY HOLDING CORPORATION By: /s/ VINCENT J. NEVILLE ------------------------------------ Vice Chairman and Chief Executive Officer In accordance with the requirements of the Securities Act of 1933, the Registration Statement has been signed below by the following persons in the capacity and in the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ VINCENT J. NEVILLE Vice Chairman and Chief October 28, 1998 - ------------------------------------------------ Executive Officer (Principal Vincent J. Neville Executive Officer) /s/ GENEVIEVE H. FAW Senior Vice President and October 28, 1998 - ------------------------------------------------ Director Genevieve H. Faw /s/ LARRY D. FAW President and Chairman of the October 28, 1998 - ------------------------------------------------ Board of Directors Larry D. Faw /s/ WALTER JOHNSON WILLIAMS Chief Financial Officer October 28, 1998 - ------------------------------------------------ Walter Johnson Williams
II-4 66 EXHIBIT INDEX
PAGE IN SEQUENTIAL EXHIBIT NUMBERING NO. SYSTEM - ------- ---------- 3.1 Certificate of Amendment and Restated Certificate of Incorporation of the Company. .............................. *3.2 Bylaws of the Company, as amended. ......................... *5.1 Opinion of Gerald Weinberg, P.C., regarding the legality of the securities being registered. ........................... *10.2 Warrant to purchase 5,000,000 shares of Common Stock. ...... 10.3 Agreement dated December 17, 1993, between CVT Corp. of America and Studio City Incorporated Holding. .............. 10.4 Bill of Sale and Conveyance, dated February 16, 1993, between Larry Faw and Studio City Incorporated, as amended. ................................................... 10.6 Option to Acquire Filmed Entertainment Properties, dated as of February 16, 1993, between Larry Faw and Studio City Incorporated. .............................................. *10.7 Agreement to Exercise Purchase Option, dated February 16, 1995, between Larry Faw and Studio City Incorporated. ...... 10.8 Promissory Note to Larry Faw dated February 16, 1993 in the principal amount of $1,554,026.50. ......................... 10.9 Form of Executive Employment Agreement. .................... *23.1 Consent of Peel Schatzel & Wells, P.A. ..................... *23.2 Consent of Gerald Weinberg, P.C. (included in Exhibit 5.1)........................................................ *27.1 Financial Data Schedule.....................................
- --------------- * Filed herewith. EX-3.2 2 BY-LAWS OF THE COMPANY, AS AMENDED 1 EXHIBIT 3.2 AMENDED AND RESTATED BYLAWS OF STUDIO CITY HOLDING CORPORATION ARTICLE I OFFICES Section 1.1 Principal Office. The principal office of the corporation within the State of New York shall be located in the City of Mount Vernon, County of Westchester. Section 1.2 Other Offices. The corporation may have such other offices and places of business within and without the State of New York as the business of the corporation may require. ARTICLE II SHAREHOLDERS Section 2.1 Annual Meeting. The annual meeting of the shareholders for the election of directors and for the transaction of other business shall be held at the principal office of the corporation within the State of New York, or at such other place either within or without the State of New York as may be fixed by the Board of Directors (the "Board") from time to time. The annual meeting shall be held on such full business day in each year and at such hour as shall be fixed by the Board. If the election of directors shall not be held on the date so fixed for the annual meeting, a special meeting of the shareholders for the election of directors shall be called in the manner provided here for special meetings, or as may otherwise be provided by law. (BCL Statute 602.) (This and other references to the New York Business Corporation Law are not part of the bylaws, but are included solely for the convenience in locating relevant portions of the statute). Section 2.2 Special Meetings. Special meetings of the shareholders may be held either within or without the State of New York, at such time and place and for such purpose or purposes as shall be specified in a call for 1 2 such meeting made by resolution of the Board or by a majority of the directors then in office or by the Chief Executive Officer or President, or by the holders of a majority of the shares then outstanding and entitled to vote in the election of any directors. (BCL Statute 602(c).) Section 2.3 Notice of Meetings. Notice of all meetings of shareholders shall be in writing and shall state the place, date and hour of the meeting and such other matters as may be required by law. Notice of any special meeting shall also state the purpose or purposes for which the meeting is called and shall indicate that it is being issued by or at the direction of the person or persons calling the meeting. A copy of the notice of any meeting shall be given, personally or by mail, not less than 10 nor more than 50 days before the date of the meeting to each shareholder entitled to vote at such meeting. If mailed, such notice shall be deemed given when deposited in the United States mail, with postage prepaid, directed to that shareholder at the shareholder's address as it appears on the record of shareholders, or, if the shareholder shall have filed with the Secretary of the corporation a written request that notices to the shareholders be mailed at some other address, then directed to that shareholder at such other address. Notice of any adjourned meeting of the shareholders shall not be required if the time and place to which the meeting is adjourned are announced at the meeting at which the adjournment is taken, but if after the adjournment the Board or Chief Executive Officer or President fixes a new record date for the adjourned meeting, notice of the adjourned meeting shall be given to each shareholder of record on the new record date. (BCL Statute 605.) Section 2.4 Quorum and Voting. Except as otherwise provided by law or the certificate of incorporation, the holders of a majority of the shares entitled to vote shall constitute a quorum at any meeting of the shareholders for the transaction of any business, but a lesser interest may adjourn any meeting from time to time and from place to place until a quorum is obtained. Any business may be transacted at any adjourned meeting that might have been transacted at the original meeting. When a quorum is once present to organize a meeting of shareholders, it is not broken by the subsequent withdrawal of any shareholders. Directors shall, except as otherwise required by law or the certificate of incorporation, be elected by a plurality of the votes cast at a meeting of shareholders by the holders of shares entitled to vote in the election. Any other corporate action taken by vote of the shareholders shall, except as otherwise required by law or the certificate of incorporation, be authorized by a majority of the votes cast at a 2 3 meeting of shareholders by the holders of shares entitled to vote on that action. Every shareholder of record shall be entitled at every meeting of shareholders to one vote for each share outstanding in the shareholder's name on the record of shareholders, unless otherwise provided in the certificate of incorporation. (BCL Statutes 608, 614.) Section 2.5 Proxies. Every shareholder entitled to vote at a meeting of the shareholders may authorize another person to act for the shareholder by proxy. Every proxy must be in writing and signed by the shareholder or the shareholder's attorney-in-fact. No proxy shall be valid after the expiration of 11 months from its date, unless otherwise provided in the proxy. Each proxy shall be revocable at the pleasure of the shareholder executing it, except that a proxy, which is, entitled "irrevocable proxy" and that states that it is irrevocable shall be irrevocable when and the extent permitted by law. (BCL Statute 609.) Section 2.6 List of Shareholders at Meetings. A list of shareholders as of the record date, certified by the Secretary or by the transfer agent of the corporation, shall be produced at any meeting of shareholders upon the request of any shareholder at or prior to the meeting. If the right to vote at any meeting is challenged, the inspectors of election or person presiding there shall require such list of shareholders to be produced as evidence of the right of the persons challenged to vote at such meeting, and all persons who appear from such list to be shareholders entitled to vote may vote at such meeting. (BCL Statute 607.) Section 2.7 Waiver of Notice. Notice of a shareholders' meeting need not be given to any shareholder who submits a signed waiver of notice, in person or by proxy, whether before or after the meeting. The attendance of any shareholder at a meeting, in person or by proxy, without protesting prior to the conclusion of the meeting the lack of notice of such meeting, shall constitute a waiver of notice by the shareholder. (BCL Statute 606.) Section 2.8 Inspectors at Shareholders' Meetings. The Board, in advance of any shareholders' meeting, may appoint one or more inspectors to act at the meeting or any adjournment of it and to perform such duties there as are prescribed by law. If inspectors are not so appointed, the person residing at a shareholders' meeting shall appoint one or more inspectors. In case any person appointed 3 4 fails to appear or act, the vacancy may be filled by appointment made by the Board in advance of the meeting or at the meeting by the person presiding at such. Each inspector, before entering upon the discharge of the inspectors' duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of the inspector's ability. (BCL Statute 610.) ARTICLE III DIRECTORS Section 3.1 Powers, Number, Qualifications and Term of Office. The business of the corporation shall be managed by its Board, which shall consist of not less than three nor more than seven persons, each of whom shall be at least 21 years of age. Subject to such limitation, the number of directors shall be fixed and may be increased or decreased from time to time by a majority of the entire Board. Directors need not be shareholders. If the Board has not elected a Chairman of the Board as an officer, it may choose a Chairman of the Board from among its members to preside at its meetings. (BCL Statutes 701,702,703,705.) Section 3.2 Regular Meetings. There shall be regular meetings of the Board, which may be held on such dates and without notice or upon such notice as the Board may from time to time determine. Regular meetings shall be held at the principal office of the corporation within the State of New York or at such other place either within or without the State of New York and at such specific time as may be fixed by the Board from time to time. There shall also be a regular meeting of the Board, which may be held without notice or upon such notice as the Board may from time to time determine, after the annual meeting of the shareholders or any special meeting of the shareholders at which an election of directors is held. (BCL Statutes 710, 711.) Section 3.3 Special Meetings. Special meetings of the Board may be held at any place within or without the State of New York at any time when called by the Chairman of the Board or the President or four or more directors. Notice of the time and place of special meetings shall be given to each director personally or by telephone, telecopier, e-mail or similar means at least one day prior to the time fixed for such meeting, or by mailing notice, prepaid, addressed to the directors post office address, as it appears on the books of the corporation at least five days prior to the time fixed for 4 5 such meeting. Neither the call or notice nor any waiver of notice need specify the purpose of any meeting of the Board. (BCL Statutes 710, 711.) Section 3.4 Waiver of Notice. Notice of a meeting need not be given to any director who signs a waiver of notice whether before or after the meeting, or who attends the meeting without protesting prior to attending, or at its commencement, the lack of notice to the director. (BCL Statute 711(c).) Section 3.5 Quorum and Voting. One-third of the entire Board shall constitute a quorum. A majority of the directors present, whether or not a quorum is present, may adjourn any meeting to another time and place. Notice of any adjournment and, unless the time and place of such adjournment are announced at the meeting to the other directors. The vote of a majority of the directors present at the time of the vote, if a quorum is present at such time, shall be the act of the Board, except where a larger vote is required by law, the certificate of incorporation or these bylaws. (BCL Statutes 707,708, 711(d).) Section 3.6 Action by the Board. Any reference in these bylaws to corporate action to be taken by the Board shall mean such action at a meeting of the Board. However, any action required or permitted to be taken by the Board or any committee may be taken without a meeting if all members of the Board or committee consent in writing to the adoption of a resolution authorizing the action. The resolution and the written consent to that action by the members of the Board or committee shall be filed with the minutes of the proceedings of the Board or committee. Any one or more members of the Board or any committee of the Board may participate in a meeting of such Board or committee by means of a conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other at the same time. Participation by such means shall constitute presence in person at the meeting. (BCL Statute 708.) Section 3.7 Committees of the Board. The Board by resolution adopted by a majority of the entire Board may designate from among its members one or more committees, each consisting of three or more directors. Each such committee shall have all the authority of the Board to the extent provided in such resolution, except as limited by law. No such committee shall exercise its authority in a manner inconsistent with any action, direction, or instruction of the Board. 5 6 The Board may appoint a Chairman of any committee (except for the Executive Committee, if one is established, in the case where the Chairman of the Executive Committee has been elected pursuant to Section 4.1 of these bylaws), who shall preside at meetings of their respective committees. The Board may fill any vacancy in any committee and may designate one or more directors as alternate members of such committee, who may replace any absent member or members at any meeting of such committee. Each such committee shall serve at the pleasure of the Board, but in no event beyond its first meeting following the annual meeting of the shareholders. All acts done and powers conferred by any committee pursuant to the foregoing authorization shall be deemed to be and may be certified as being done or conferred under the authority of the Board. A record of the proceedings of each committee shall be kept and submitted at the next regular meeting of the Board. At least one-third of the members of any committee shall constitute a quorum for the transaction of business, and the vote of a majority of the members present at the time of the vote, if a quorum is present at such time, shall be the act of the committee. If a committee or the Board shall establish regular meetings of any committee, such meetings may be held without notice or upon such notice as the committee may from time to time determine. Notice of the time and place of special meetings of any committee shall be given to each member of the committee in the same manner as in the case of special meetings of the Board. Notice of a meeting need not be given to any member of a committee who signs a waiver of notice whether before or after the meeting, or who attends the meeting without protesting, prior to the meeting or at its commencement, the lack of notice to the member. Except as otherwise provided in these bylaws, each committee shall adopt its own rules of procedure. (BCL Statute 712.) Section 3.8 Compensation of Directors. The Board shall have authority to fix the compensation of directors for services in any capacity (BCL Statute 713(e).) Section 3.9 Resignation and Removal of Directors. Any director may resign at any time by giving written notice to the Chief Executive Officer, the President or to the Board, and such resignation shall take effect at the time there specified without the necessity of further action. Any director 6 7 may be removed with or without cause by vote of the shareholders, or with cause by action of the Board. (BCL Statute 706.) ARTICLE IV OFFICERS AND OFFICIALS Section 4. 1 Officers. The Board shall elect a Chairman of the Board or President or both, and a Secretary, a Treasurer and a comptroller and may elect such other officers, including a Chairman of the Executive Committee and one or more Vice-Chairmen of the Board, as the Board shall determine. Each officer shall such powers and perform such duties as are provided in these bylaws and as may be provided from time to time by the Board or by the Chief Executive Officer. Each officer shall at all times be subject to the control of the Board, and any power or duty assigned to an officer by these bylaws or the Board or the Chief Executive Officer shall be subject to control, withdrawal or limitation by the Board. (BCL Statute 715.) Section 4.2 Qualifications. The Chairman of the Board, the President, the Chairman of the Executive Committee and the Vice Chairman of the Board shall be directors, but no other officer need be a director. Any person may hold two or more offices, except that neither the Chairman nor the President shall be Secretary or Treasurer. The Board may require any officer to give security for the faithful performance of the officer's duties. (BCL Statutes 715(e) and (f.) Section 4.3 Election and Termination. The Board shall elect officers at the meeting of the Board following the annual meeting of the shareholders and may elect additional officers and fill vacancies at any other time. Unless the Board shall otherwise specify, each officer shall hold office until the meeting of the Board following the next annual meeting of the shareholders, and until the officer's successor has been elected and qualifies, except as here after provided. The Board may remove any officer or terminate such officer's powers, at any time, with or without cause. Any officer may resign at any time by giving written notice to the Chief Executive Officer, the President or to the Board, or by retiring or by leaving the employ of the corporation (without being employed by a subsidiary or affiliate) and any such action shall take effect as a resignation without necessity of further 7 8 action. The Chief Executive Officer or President may suspend any officer until the next meeting of the Board. (BCL Statutes 715, 716.) Section 4.4 Delegation of Powers. Each officer may delegate to any other officer and to any official, employee or agent of the corporation, such portions of the officer's powers as the officer shall deem appropriate, subject to such limitations and expirations as the officer shall specify, and may revoke such delegation at any time. Section 4.5 Chairman of the Board. The Chairman of the Board shall be the President of the corporation, unless the Board shall otherwise specify. The Chairman shall preside at meetings of the Board and shall perform such other duties as may be prescribed by the Board. Section 4.6 Chief Executive Officer. The Chief Executive Officer shall, subject to the direction of the Board, have general and active control of the affairs and business of the corporation and general supervision of its officers, officials, employees and agents. The Chief Executive Officer shall preside at all meetings of the shareholders. He or she shall also preside at all meetings of the Board and any committee of it which he or she is a member, unless the Board or such committee shall have chosen another Chairman. The Chief Executive Officer shall see that all orders and resolutions of the Board are carried into effect, and in addition he or she shall have all the powers and perform all the duties generally appertaining to the office of the Chief Executive Officer of a corporation. The Chief Executive Officer shall designate the person or persons who shall exercise his or her powers and perform his or her duties in his or her absence or disability and the absence or disability of the President. Section 4.7 President. The President may be Chief Executive Officer if so designated by the Board. If not, he or she shall have such powers and perform such duties as are prescribed by the Chief Executive Officer or by the Board, and, in the absence or disability of the Chief Executive Officer, he or she shall have the powers and perform the duties of the Chief Executive Officer, except to the extent that the Board shall otherwise provided. Section 4.8 Chairman of the Executive Committee. The Chairman of the Executive Committee shall be a member of the Executive Committee. 8 9 He or she shall preside at meetings of the Executive Committee and shall have such other powers and perform such other duties as are prescribed by the Board or by the Chief Executive Officer. Section 4.9 Vice Chairman of the Board. Each Vice-Chairman of the Board shall have such powers and perform such duties as are prescribed by the Chief Executive Officer or by the Board. Section 4.10 Secretary. The Secretary shall attend all meetings and keep the minutes of all proceedings of the shareholders, the Board, the Executive Committee and any other committee unless it shall chose another secretary. He or she shall give notice of all such meetings and all other notices required by law or by these bylaws. He or she shall have custody of the seal of the corporation and shall have power to affix it to any instrument and to attest to it. The Secretary shall have charge of the record of shareholders required by law, which may be kept by and transfer agent or agents under the Secretary's direction. The Secretary shall maintain the records of directors and officers as required by law. The Secretary shall have charge of all documents and other records, except those for which come other officer or agent is properly accountable, and shall generally perform all duties appertaining to the office of secretary of a corporation. (BCL Statutes 605, 64, 718.) Section 4.11 Treasurer. The Treasurer shall have the care and custody of all the funds and other valuables of the corporation, except to the extent they shall be entrusted to other officers, employees or agents by direction of the Chief Executive Officer or the Board. The Treasurer may hold funds, securities and other valuables in his or her care in such vaults or safe deposit facilities, or may deposit them in and entrust them to such banks, trust companies and other depositories, all as the Treasurer shall determine with the written concurrence of the Chief Executive Officer, the President or his or her delegate. The Treasurer shall account regularly to the Comptroller for all his or her receipts, disbursements and deliveries of funds, securities and other valuables. The Treasurer or his or her delegate, jointly with the Chief Executive Officer or his or her delegate, may designate in writing and certify to any bank, trust company, safe deposit company or other depository the persons (including themselves) who are authorized, singly or jointly as they shall specify in each case, to open accounts in the name of the corporation with 9 10 banks, trusts companies and other depositories, to deposit there funds, instruments and securities belonging to the corporation, to draw checks or drafts on such accounts in amounts not exceeding the credit balances there, to order the delivery of securities from there, to rent safe deposit boxes or vaults in the name of the corporation, to have access to such facility and to deposit there and remove from there securities and other valuables. Any such designation and certification shall contain the regulations, terms and conditions applicable to such authority and may be amended or terminated at any time. Such powers may also be granted to any other officer, official, employee or agent of the corporation by resolution of the Board or by power of attorney authorized by the Board. Section 4.12 Comptroller. The Comptroller shall be the chief accounting officer of the corporation and shall have control all its books of account. The Comptroller shall see that correct and complete books of account are kept as required by law, showing fully, in such form as he or she shall prescribe, all transactions of the corporation, and he or she shall require, keep and preserve all vouchers relating to those transactions for such period as may be necessary. The Comptroller shall render periodically such financial statements and such other reports relating to the corporation's business as may be required by the Chief Executive Officer, the President or the Board. He or she shall generally perform all duties appertaining to the office of comptroller of a corporation. (BCL Statute 624.) Section 4.15 Officials and Agents. The Chief Executive Officer or his or her delegate may appoint such officials and agents of the corporation as the conduct of its business may require and assign to them such titles, powers, duties and compensation as he or she shall see fit and may remove or suspend or modify such titles, powers, duties or compensation at any time with or without cause. 10 11 ARTICLE V SHARES Section 5.1 Certificates. The shares of the corporation shall be represented by certificates in such form, consistent with law, as prescribed by the Board, and signed and sealed as provided by law. (BCL Statute 508.) Section 5.2 Transfer of Shares. Except as provided in the certificate of incorporation, upon surrender to the corporation or to its transfer agent of a certificate representing shares, duly endorsed or accompanied with proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled to it and to cancel the old certificate. The corporation shall be entitled to treat the holder of record of any shares as the holder in fact and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such shares on the part of any other person, whether or not the corporation shall have express or other notice, except as may be required by law. (BCL Statute 508(d).) Section 5.3 Record of Shareholders. The corporation shall keep at its principal office within the State of New York, or at the office of its transfer agent or registrar in the State of New York, a record in written form, or in any other form capable of being converted into written form within a reasonable time, which shall contain the names and addresses of all shareholders, the numbers and class of shares held by each, and the dates when they respectively became the owners of record. (BCL Statute 624(a).) Section 5.4 Lost or Destroyed Certificates. In case of the alleged loss, destruction or mutilation of a certificate or certificates representing shares, the Board may direct the issuance of a new replacement certificate or certificates upon such terms and conditions in conformity with law as the Board may prescribe. (BCL Statute 508(e).) Section 5.5 Fixing Record Date. The Board or the Chief Executive Officer or President may fix, in advance, a date as the record date for the purpose of determining the shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment, or for the purpose of determining shareholders entitled to receive payment of any dividend or the allotment of any rights, or for the purpose of any other action. Such date shall not be more than 50 nor less than ten day us before the date of such 11 12 meeting, nor more than 50 days prior to any other action. (BCL Statute 604.) ARTICLE VI MISCELLANEOUS Section 6.1 Fiscal Year. The fiscal year of the corporation shall be the calendar year. Section 6.2 Voting of Shares of Other Corporations. The Board may authorize any officer, agent or proxy to vote shares of any domestic or foreign corporation of any type of kind standing in the name of this corporation and to execute written consents in that respect, but in the absence of such specific authorization the Chief Executive Officer of this corporation or his or her delegate may vote such shares and may execute proxies and written consents with relation to such shares. ARTICLE VII AMENDMENTS Section 7.1 General. Except as otherwise provided by law, these bylaws may be amended or repealed or new bylaws may be adopted by the Board of Directors, or by vote of the holders of the shares at the time entitled to vote in the election of any directors, except that the Board may not amend or repeal any bylaw, or adopt any new bylaw with respect to the subject matter of any bylaw, which specifically states that it may be amended or repealed only by a vote of the shareholders. (BCL Statute 601.) Section 7.2 Amendment of This Article. This Article VII may be amended or repealed only by the shareholders entitled to vote on that matter as provided in Section 7.1 above. 12 EX-5.1 3 OPINION OF GERALD WEINBERG, P.C. 1 [GERALD WEINBERG, P.C. LETTERHEAD] August 31, 1998 Studio City Holding Corporation 14400 Southwest 46th Court Ocala, Florida 34473 RE: Studio City Holding Corporation - Registration Statement on Form SB-2 Relating to 31,282,001 Shares of Common Stock and 3,825,834 Shares of Class B Preferred Stock Ladies and Gentlemen: We have acted as counsel for Studio City Holding Corporation, a New York corporation (the "Company"), in connection with certain matters relating to a Registration Statement on Form SB-2 filed with the Securities and Exchange Commission under the Securities Act of 1933 (Registration No. 333-62551), relating to the proposed sale of 31,282,001 Shares of Common Stock, $0.002 par value, and 3,825,834 Shares of Class B Preferred Stock $0.0001 par value, by certain shareholders of the Company, referred to therein as "Selling Security Holders" (the "Registration Statement"). As such counsel, we have examined and relied upon the accuracy of original, certified, conformed or photographic copies of such records, agreements, certificates and other documents, including the Registration Statement, as we have deemed necessary or appropriate to enable us to render the opinion set forth below. In all such examinations, we have assumed the genuineness of signatures on original documents and the conformity to such original documents of all copies submitted to us as certified, conformed or photographic copies, and as to certificates of public officials, we have assumed the same to have been properly given and to be accurate. 2 GERALD WEINBERG, P.C. The opinions expressed herein are limited in all respects to the laws of the State of New York, and no opinion is expressed with respect to the laws of any other jurisdiction or any effect which such laws may have on the opinion expressed herein. This opinion is limited to the matters stated herein, and no opinion is implied or may be inferred beyond the matters expressly stated herein. Based upon the foregoing, we are of the opinion that: (1) The Company is a corporation incorporated and validly existing in good standing under the laws of the State of New York, and (2) The outstanding shares of Common Stock and Class B Preferred Stock to be sold by the Selling Security Holders have been duly authorized and are validly issued, fully paid and nonassessable. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to us under the caption "Legal Matters" in the Prospectus that is included in the Registration Statement. Very truly yours, Gerald Weinberg, P.C. /s/ LAWRENCE A. KIRSCH by: Lawrence A. Kirsch, Esq. EX-10.2 4 WARRANT TO PURCHASE 5,000,000 SHARES 1 EXHIBIT 10.2 NUMBER-95001W SHARES-*5,000,000**-Warrants To Purchase *5,000,000-Shares of Common Stock at $1.00 Per Share STUDIO CITY INCORPORATED This Certifies that Larry Dean Faw is the registered holder of ******Five Million Warrants** Shares To Purchase **5,000,000*Shares of Common Stock At $1.00@. transferable only on the books of the Corporation by the holder hereof in person or by Attorney upon surrender of this Certificate properly Endorsed. In Witness Whereof, the said Corporation has caused This Certificate to be signed by its duly authorized Officers and its Corporate Seal to be hereunto affixed This 16th day of February A.D.1995 Duly Incorporated In The State of Florida Corporate Seal The following abbreviations, when used in the inscription On the face of this certificate, shall be construed as though Were written out in full according to applicable laws or Regulations. TEN COM-as tenants in common UNIF GIFT MIN ACT-custodian-minor Under Uniform Gifts to Minors Act-[STATE] TEN ENT-as tenants by the entireties JT TEN-as joint tenants with right of Survivorship and not as tenants in common Additional abbreviations may also be used Though not in the above list. For value received, hereby sell, assign And transfer unto 2 Please print or typewrite name and address of assignee shares represented by the within Certificate, and do hereby irrevocably constitute and appoint Attorney to transfer the said shares on the books of The within-named Corporation with full power of Substitution in the premises. Dated, Signature In the presence of NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER. EX-10.7 5 AGREEMENT TO EXERCISE PURCHASE OPTION 1 AGREEMENT TO EXERCISE PURCHASE OPTION THIS AGREEMENT, made in Wildwood, Florida, on February 16, 1995, between LARRY DEAN FAW (the "seller and option owner") residing at 14400 SW 46th Court, Ocala, Florida, and Studio City Incorporated, (the "purchaser") [a Florida corporation] having an office at 22. Seminole Path. Wildwood, Sumter County, Florida. WHEREIN ITS MUTUALLY AGREED, AS FOLLOWS: 1. That both parties entering into agreement named Option To Acquire Filmed Entertainment Properties, duly executed on February 16, 1993, whereas, the Purchaser agrees to exercise its option to acquire the following Intellectual Properties from Larry Dean Faw, (as originally set forth in Exhibit A of the Option to Acquire Agreement). 1. "Cut Throat Ridge" designated copyright of 1976, 2. "The Plunderers" designated copyright of 1976, 3. "The Orion Murders" designated copyright of 1990. 4. "Battle of Buck Mountain" designated copyright of 1987, 5. "A Delicate Obsession" designated copyright of 1987. 6. "Seven Eleven Sorority Street" designated copyright of 1987, 7. "Ghost Rider" designated copyright of 1984, 8. "The Hillsville Courthouse Massacre" designated copyright of 1978, 9. "Otto" designated copyright of 1978. 10. "The Last Great Adventure" designated copyright of 1978 2. That Larry Dean Faw agrees to transfer all of his ownership rights in the above mentioned Intellectual Properties to Studio City Incorporated Holding in exchange for cash in the amount of Five Hundred Thousand Dollars for each Intellectual Property, an amount to be projected as $50,000 plus 2% of the future net distributable profits. Totalling Five Million Dollars for all ten properties. 3. Studio City Incorporated agrees to exchange Five Million Warrants to Purchase Common Stock at a purchase price of $1.00 per share to Larry Dean Faw for the ownership of the aforementioned intellectual properties. The cost of the warrants were determined by a separate agreement dated February 16, 1993 at a purchase price of $1.00 per Warrant. Totalling Five Million Dollars for the purchase price of Five Million Warrants, which would allow Larry Dean Faw to purchase Five Million shares of Common Stock in Studio City Incorporated for a purchase price of $1.00 per share of common stock. 4. That both parties agree this Agreement is a true and entire agreement under the General Statutes of the State of Florida, and agree to be bound the content and intent of this Agreement. LARRY DEAN FAW ss//Larry Dean Faw Signature of Larry Dean Faw (Seller) STUDIO CITY INCORPORATED ss//Roger H. Hefler Signature of Roger H. Hefler (Purchaser) Vice Chairman/CEO EX-23.1 6 CONSENT OF PEEL SCHATZEL & WELLS, P.A. 1 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our report dated July 9, 1998, in the Registration Statement on Form SB-2 as amended, of Studio City Holding Corporation (No. 333-62551) filed with the Securities and Exchange Commission, and the related Prospectus contained therein. /s/ PEEL, SCHATZEL & WELLS, P.A. Peel, Schatzel & Wells, P.A. St. Petersburg, Florida October 23, 1998 EX-27.1 7 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS ON PAGES 2 AND 3 OF THE COMPANY'S 1997 AUDITS. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) CONSOLIDATED FINANCIAL STATEMENTS. YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 18,448 0 53,000 0 7,396,440 0 52,506 23,493 7,496,901 0 1,882,386 0 1,383 5,062,057 551,075 7,496,901 15,693 15,693 85,833 85,833 330,453 0 139,862 (540,455) 0 (540,455) 0 0 0 (540,455) (.018) (.018) Item Number Instructions 3,469 5-02(7) Prepaid services 56,823 5-02(12) Investment in joint ventures and stock 7,303,315 5-02(15) Intangible assets-intellectual properties (Note 3) 1,986 5-02(15) Organization costs (1,204) 5-02(16) Accumulated amortization-organization costs 32,051 5-02(17) Other assets-offering costs ----------- 7,396,440 =========== 1,554,027 5-02(19)(5) Note payable-stockholder 290,518 5-02(20) Other liabilities-accrued interest 37,841 5-02(20) Other liabilities-accrued expenses ----------- 1,882,386 =========== 1,000 5-02(29) Preferred stock - A 383 5-02(29) Preferred stock - B ----------- 1,383 =========== 2,305,356 5-02(31) Additional paid-in capital (1,754,281) 5-02(31) Deficit accumulated during development stage ----------- 551,075 =========== 62,057 5-02(30) Common stock 5,000,000 5-02(30) Common stock warrants ----------- 5,062,057 =========== 85,833 5-03(b)2(a) Cost of tangible goods sold-Project costs =========== 330,453 5-03(b)4 Selling, general and administrative ===========
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