As Filed with the Securities and Exchange Commission on February 5, 1997
Registration No. 333-14525
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
FORM SB-2
REGISTRATION STATEMENT* UNDER THE
SECURITIES ACT OF 1933
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AMENDMENT NO. 1
LASER STORM, INC.
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(Name of small business issuer in its charter)
Colorado 9504 84-1139159
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(State or jurisdiction of (Primary Standard (I.R.S. Employer
incorporation or organization) Industrial Classification Identification
Code Number) No.)
Robert J. Cooney
7808 Cherry Creek South Drive, 7808 Cherry Creek South Drive,
Unit 301 Unit 301
Denver, Colorado 80231 Denver, Colorado 80231
(303) 751-8545 (303) 751-8545
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(Address and telephone number of (Name, address and telephone number
principal executive offices and of agent for service)
address of principal place of business)
With Copies to:
Thomas S. Smith, Esq.
Smith, McCullough & Ferguson, P.C.
1610 Wynkoop Street, Suite 300
Denver, Colorado 80202
(303) 892-6000
Approximate date of proposed sale to the public: As soon as practicable
following the date on which the Registration Statement becomes effective.
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
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the Prospectus is expected to be made pursuant to Rule 434
under the Securities Act, please check the following box. [ ]
*Pursuant to Rule 429 adopted under the Securities Act of 1933, this
Registration Statement also constitutes Post-Effective Amendment No. 2 to
Registration Statement No. 33-98578.
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CALCULATION OF REGISTRATION FEE
Proposed Proposed
Maximum Maximum Amount of
Title of Each Class of Amount to be Offering Price Aggregate Registration
Securities To Be Registered(1) Registered Per Share(2) Offering Price Fee
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Common Stock, $0.001 par value.......... 32,500 Shares $2.3125 $75,156.25 (2)
135,625 Shares $ .635 $86,121.88 (2)
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Total $100
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(1) Does not include the Units, shares of Common Stock and Warrants
previously registered pursuant to Registration Statement No. 33-98578 for which
a filing fee of approximately $7,000 was paid.
(2) In accordance with Rule 457(c) under the Securities Act of 1933, as
amended, the registration fee is the minimum fee based on the average of the
high and low prices of the Registrant's Common Stock reported on the Nasdaq
Small-Cap Market on October 15, 1996 and January 31, 1997, respectively. The
$100 registration fee was previously paid.
The Registrant hereby deregisters 71,929 Units and 71,929 shares of Common
Stock which were registered pursuant to Registration Statement No. 33-98578, for
issuance based upon an estimated amount of dividends which could be converted
into Units upon conversion of outstanding Series A and Series B 12% Convertible
Preferred Stock. After the conversion of all outstanding Series A and Series B
12% Convertible Stock, together with the actual accrued and unpaid dividends
thereon, which were converted into Units at the close of the Company's public
offering on April 26, 1996, there remained 71,929 Units and 71,929 shares of
Common Stock which had been registered but were not necessary to be issued upon
such conversion.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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LASER STORM, INC.
Cross Reference Sheet
PART I
INFORMATION REQUIRED IN THE PROSPECTUS
Item
Number Form SB-2 Item Number Caption or Location in Prospectus
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1. Front of Registration Statement and Outside Front of Registration Statement and Outside
Front Cover of Prospectus Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages Inside Front and Outside Back Cover Pages of
of Prospectus Prospectus
3. Summary Information and Risk Factors Prospectus Summary and Risk Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Risk Factors
6. Dilution Not Applicable
7. Selling Security Holders Selling Security Holders
8. Plan of Distribution Plan of Distribution
9. Legal Proceedings Litigation
10. Directors, Executive Officers, Promoters and Management
Control Persons
11. Security Ownership of Certain Beneficial Principal Shareholders
Owners and Management
12. Description of Securities Description of Securities
13. Interests of Named Experts and Counsel Not Applicable
14. Disclosure of Commission Position on Not Applicable
Indemnification for Securities Act Liabilities
15. Organization Within Last Five Years Not Applicable
16. Description of Business Business
17. Management's Discussion and Analysis or Management's Discussion and Analysis or Plan
Plan of Operation of Operations
18. Description of Property Business
19. Certain Relationships and Related Certain Transactions
Transactions
20. Market for Common Equity and Related Market Prices of Common Equity, Dividend
Stockholder Matters Policy and Related Stockholder Matters
21. Executive Compensation Management
22. Financial Statements Financial Statements
23. Changes In and Disagreements With Not Applicable
Accountants on Accounting and Financial
Disclosure
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PROSPECTUS
2,518,196 Shares of Common Stock
and
629,961 Units
Consisting of 629,961 Shares of Common Stock and
629,961 Warrants
---------------------------------
This Prospectus relates to (i) the issuance of 1,495,000 shares of the
Company's Common Stock upon the exercise of redeemable Common Stock Purchase
Warrants (the "Warrants") issued in the public offering of Laser Storm, Inc.
("Company") in April 1996, (ii) the resale by the holders (the "Selling Security
Holders") named herein, for their own accounts, of up to 629,961 Units of the
Company, each Unit consisting of one share of Common Stock and one Warrant, and
(iii) up to an additional 1,023,196 shares of Common Stock (hereinafter
sometimes collectively referred to as the "Securities"). Of the additional
1,023,196 shares of Common Stock, 325,000 shares of Common Stock are issuable
upon exercise of options held by three persons, 629,961 shares of Common Stock
are issuable upon exercise of the Warrants contained in the Units, and 68,125
shares of Common Stock are currently outstanding. The Securities are not being
underwritten in this offering, and the Company will not receive any proceeds
from their sale, although the Company will receive up to approximately $962,500
upon exercise of the options and up to $629,961 (based on an exercise price of
$1.00 par share of Common Stock) upon exercise of the Warrants, of which there
is no assurance. See "Description of Securities--Warrants." However, the holders
of the options and Warrants will have to exercise them in order to sell the
underlying shares of Common Stock.
Brokers and dealers who propose to effect transactions in the Securities
should assure themselves of the existence of appropriate exemptions from the
securities registration requirements of the blue sky or securities laws of the
applicable jurisdictions or effectuate such registrations in connection with any
offers or sales of the Securities.
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF
RISK. PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE DISCUSSION UNDER "RISK
FACTORS" COMMENCING ON PAGE 7 OF THIS PROSPECTUS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is , 1997.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and related notes appearing elsewhere in
this Prospectus.
The Company
Laser Storm, Inc. (the "Company") designs, manufactures and operates
interactive laser tag game systems which the Company markets under the trademark
Laser Storm(R). The Laser Storm(R) game systems are computer controlled, are
capable of being varied to fit individual operator needs and customer demands
and are designed to incorporate a themed adventure within an interactive
environment emphasizing team play.
Each game Laser Storm(R) system is comprised of blasters, controllers,
adjustable vests, headsets and targets, and may include themed arenas with
special effects such as moveable and fixed colored barriers, fog, sound,
specialty lighting effects, software developed by the Company and other
elements. The Company's game equipment is designed to be lightweight and easy
for all ages to use. The Company currently markets five different, themed laser
games: Galaxy 2000(TM), Galactic Marauders(TM), Circuit Commandos(TM), STARGATE
and Marvel Comics' X-Men. The Company recently has obtained an exclusive license
to build laser tag games based on Marvel Comic's X-Men which includes the
superhero characters Wolverine and Cyclops. The Company introduced this themed
laser game in November 1996. See "Business--Products." In November 1995, at the
International Association of Amusement Parks and Attractions (IAAPA) annual
convention in New Orleans, Louisiana, the Company was awarded a First Place Best
New Product award, in the category of Family Entertainment Center
Ride/Attraction for the Company's STARGATE themed game system. Games typically
are played in arenas ranging in size from 1,000 square feet to 4,000 square
feet. Additional space is required for support, retail sales and administration.
Operators of Laser Storm(R) game systems generally charge admissions ranging
from $3.00 to $7.00, and game durations can be programmed to vary from one
minute to 40 minutes, but typically last 10 minutes.
The Company has been developing and producing state-of-the-art themed laser
tag game systems and, since its inception in March 1990 through December 31,
1996, the Company has sold and shipped a total of approximately 190 Laser
Storm(R) game systems of which 161 were sold in 44 states in the United States
and of which 29 were sold for use outside of the United States. Although since
its inception the Company has been engaged principally in developing, marketing
and selling Laser Storm(R) game systems to independent operators, the Company
also owns and operates five Laser Storm(R) game facilities and has entered into
revenue sharing arrangements that are still in effect for six Laser Storm(R)
game facilities. The Company intends to increase the number of company owned
facilities. The Company anticipates that the average cost of a Company-owned
Laser Storm(R) facility may vary from approximately $100,000 to $500,000 based
primarily on the location and size of the facility. The actual number of new
Laser Storm(R) game facilities that the Company will be able to acquire and open
will depend on the funds available to the Company and the percentage interest
the Company will have in each facility.
No assurance can be given that the Company will be successful in its plans
to acquire, open and operate additional Laser Storm(R) game facilities. See
"Risk Factors."
Because of substantially greater than expected expenditures incurred by the
Company in connection with the development of an earlier version of a laser tag
game system, the Company elected in November 1992 to file for reorganization
under Chapter 11 of the United States Bankruptcy Code. In November 1993, the
Company's Plan of Reorganization was confirmed, and, in November 1994, the court
ordered the proceedings to be closed. The Company was incorporated under the
laws of the state of Colorado in March 1990 under the name "The Crimson
Corporation--a Holding Company" and, in November 1994, changed its name to
"Laser Storm, Inc."
In April 1996, the Company completed an initial public offering of
1,495,000 Units from which the Company realized net proceeds of approximately
$4,700,000. Each Unit consisted of one share of Common Stock and one Warrant to
purchase one share of Common Stock initially at $4.00 per share. The Company
expects that the exercise price will be reduced to $1.00 per share pursuant to
the terms of the Warrants. See "Management's Discussion and Analysis or Plan of
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Operations" and "Description of Securities--Warrants." The Units were initially,
but are no longer, quoted on the Nasdaq Small-Cap Market. The Common Stock and
Warrants are currently quoted separately. The Company's executive offices are
located at 7808 Cherry Creek South Drive, Unit 301, Denver, Colorado 80231 and
its telephone number is (303) 751-8545.
3
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This Offering
<S> <C>
Securities Offered by the Company............................ 1,495,000 shares of Common Stock issuable upon
exercise of Warrants.
Securities Offered for
the Accounts of Selling Security Holders.................... 1,023,196 shares of Common Stock and 629,961
Units consisting of 629,961 shares of Common
Stock and Warrants.
Use of proceeds.............................................. The Company will not receive any proceeds
from the sale of the Securities. Any proceeds
which the Company may receive upon exercise
of the Warrants or options will be used for
general corporate purposes.
Risk Factors ................................................ An investment in the Units and Common Stock
involves a high degree of risk and should be
considered only by persons who can afford the
loss of their entire investment. Prospective
investors should review carefully the entire
Prospectus and should consider, among other
things, the matters described in "Risk
Factors."
NASDAQ trading symbols....................................... Common Stock: LAZR
Warrants: LAZRW
The Units are no longer quoted on the Nasdaq
Small-Cap Market.
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Summary Financial Information
(Dollars in thousands, except per share data)
The following summary financial data for the periods set forth below have
been derived from the Company's financial statements included elsewhere in this
Prospectus. The summary financial data should be read in conjunction with
Management's Discussion and Analysis of Financial Condition or Plan of
Operations and the Financial Statements and the related Notes thereto included
elsewhere in this Prospectus. The data for the nine months ended September 30,
1995 and 1996 and as of September 30, 1996, is derived from unaudited financial
statements. In the opinion of management, all adjustments (consisting of only
normal recurring adjustments) necessary for the fair presentation of financial
position, results of operations and cash flows for the unaudited periods have
been made.
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Fiscal Year Ended Nine Months Ended
December 31, September 30,
-------------------- -------------------
1994 1995 1995 1996
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Statement of Operations Data:
Revenue ............................................................. $ 2,787 $ 5,478 $ 4,065 $ 5,125
Costs and expenses .................................................. 3,004 5,255 3,612 5,247
Net income (loss)(1) ................................................ (217) 223 453 (122)
Net income (loss) applicable to common shareholders ................. (217) 205 453 (168)
Earnings per share applicable to common shareholders ................ N/A .10 0.22 (0.06)
Net cash provided by (used in) operating activities ................. 300 (104) 176 (3,204)
<CAPTION>
December 31, September 30,
1995 1996
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Balance Sheet Data:
Total assets ........................................................ $ 2,023 $ 7,046
Total liabilities ................................................... 1,610 1,027
Shareholders' equity ................................................ 413 6,020
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(1) Operating income for the year ended December 31, 1995, has been reduced
by approximately $270,000 that the Company accrued for a judgment and for
contingent settlements of two other lawsuits. See Financial Statements.
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RISK FACTORS
An investment in the Securities is speculative in nature and involves a
high degree of risk. In analyzing the offering, prospective investors should
carefully consider the following risk factors, among others, which relate to
this offering.
Limited Operating History, Erratic Profit History, Financial Status and
Operating Deficits. The Company commenced operations in March 1990. The Company
had a net loss of approximately $217,000 in 1994 and earned net income of
approximately $223,000 in 1995. For the nine months ended September 30, 1996,
the Company's net loss was approximately $122,000 compared with net income of
approximately $453,000 for the nine months ended September 30, 1995. For the
nine months ended September 30, 1996, the Company used approximately $3,024,000
of cash in operations. See the Financial Statements. The Company expects to
incur a substantial loss for the year ended December 31, 1996. See "Management's
Discussion and Analysis or Plan of Operations - Subsequent Events". There are no
assurances that the Company's activities will be successful or result in profits
to the Company in the future. While management will endeavor to operate the
Company in accordance with the objectives set forth in this Prospectus, no
assurance can be given that such objectives will in fact be met or that
sufficient capital will be available to accomplish such objectives. There is no
assurance that additional capital will be available when needed in the future.
See "Management's Discussion and Analysis or Plan of Operations."
Seasonality. The Company has historically experienced and might continue to
experience seasonal fluctuations in its sales of Laser Storm(R) game systems,
with the most system sales typically occurring in the third calendar quarter and
the least number of system sales typically occurring in the first calendar
quarter. Management believes that the increased sales during the third calendar
quarter are primarily attributable to customers' desires to upgrade their indoor
entertainment facilities prior to the Thanksgiving and Christmas holiday season.
As a result of cyclical sales, the Company's operating results could fluctuate
widely from quarter to quarter and investors should put more emphasis on the
Company's results for a fiscal year rather than on the Company's quarterly
results. The Company's quarterly results of operations may also fluctuate
significantly as a result of a variety of factors including the timing of new
facility openings, revenue contributed by new facilities and increased
operational and management costs relating to such new facilities. No assurance
can be given that the Company will achieve consistent results on a quarterly or
annual basis.
Dependence Upon Management. The Company is greatly dependent on Robert J.
Cooney, the Company's Chief Executive Officer, and William R. Bauerle, the
Company's President, for strategic planning and its day-to-day operations. The
loss of the services of either Mr. Cooney or Mr. Bauerle would likely have a
significant adverse effect on the Company's business. The Company has obtained
key man life insurance in the amounts of $2,000,000 each on the lives of Messrs.
Cooney and Bauerle.
Limited Experience in Owning and Operating Laser Storm(R) Game Facilities.
In July 1996 the Company acquired an existing Laser Storm(R) game facility from
a nonaffiliated person for a total of $30,000 cash and 32,500 shares of the
Company's Common Stock and in July 1996 the Company opened another Laser
Storm(R) game facility. In November 1996, the Company acquired another existing
Laser Storm(R) game facility from a nonaffiliated person for a total of $91,353
in cash and 35,625 shares of the Company's Common Stock. As of the date hereof,
the Company operates five Laser Storm(R) game facilities located in Littleton,
Colorado, Longmont, Colorado, Thornton, Colorado, Cincinnati, Ohio and Coral
Springs, Florida and, thus, has had limited experience in owning and operating
any such facilities. The Company's ownership and operation of Laser Storm(R)
game facilities, as is contemplated, will require significant additional time by
management of the Company. No assurances can be given that the Company will be
able to operate Laser Storm(R) game facilities at a profit.
Control by Principal Shareholders. The officers and directors of the
Company own approximately 24% of the outstanding shares of Common Stock.
Accordingly, they are likely to continue to exercise substantial influence or
control over the Company's affairs, business and election of members of the
Company's board of directors. See "Principal Shareholders" and "Description of
Securities."
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Competition. Currently, the Company faces substantial competition from
numerous other persons for sales of systems and equipment, locations for game
centers and customers. Management of the Company expects additional competitors
to enter the industry in the next several years. The Company expects to continue
to enhance its Laser Storm(R) game systems and also intends to develop Laser
Storm(R) game facilities in which the Company will have an interest, but no
assurances can be given that the game enhancements or facilities will be or
remain competitive with present or future products of others or facilities
operated by others. See "Use of Proceeds."
Uninsured Risks. Although the Company carries general liability insurance
which it deems adequate for current operations, the Company's insurance may not
fully cover certain risks and the occurrence of a significant event not fully
insured could have a material adverse affect on the Company's financial
position.
Possibility that the Company is Subject to Laws Governing Sales of
Franchises or Business Opportunities. Various state and federal laws define and
govern the sale of "franchises" and "business opportunities." These laws
require, among other things, that sellers of franchises and business
opportunities register the offering of such sales with governmental authorities
and provide prescribed disclosure documents to potential purchasers. Management
believes that the Company's activities are not subject to such laws. If the
Company's activities are deemed to involve the sale of "franchises" or "business
opportunities," franchise laws permit customers who have been sold franchises in
violation of such laws recourse against the franchisor, including rescission of
the purchase agreements with the Company. In addition, the Company would be
subject to potential government actions against the Company for violation of
franchise or business opportunities laws which could result in fines, penalties,
injunctions, or a combination of these, being levied against the Company. To
date, the Company has received no complaints from its customers and, except as
described below, no regulatory authority has notified the Company that such
authority believes sales of Laser Storm(R) systems are sales of franchises or
business opportunities. If a determination were made that franchise or business
opportunity laws and regulations are applicable to the Company and customers or
governmental regulators were successful in prosecuting actions against the
Company, there could be a material adverse effect on the Company selling its
Laser Storm(R) game systems in a particular market or in general and, depending
upon the remedies imposed against the Company, there could be a material adverse
effect on the Company's business, operating results and financial condition.
The Department of Corporations of the State of California ("Department")
has reviewed the issue as to whether or not the prior sales by the Company of
Laser Storm(R) game systems in California may have involved the sale of
"franchises" under the California Franchise Investment Law ("Act"). No formal
determination was issued by the Department after such review. The Company then
sought an interpretive opinion pursuant to Section 31510 of the Act as to
whether proposed future sales by the Company of Laser Storm (R) game systems in
California would constitute the sale of "franchises" under the Act. The
Department declined to issue an interpretive opinion because the response might
impact a past transaction. The Department did offer the Company informal
guidance as to whether the sale of Laser Storm(R) game systems in California
would constitute the sale of "franchises" under the Act. Until the matter can be
resolved with the Department or through administrative or legal proceedings, the
Company will prohibit future purchasers of Laser Storm(R) game systems in
California from using the Company's trademark in connection with the Company's
game systems. Although the Company can provide no assurances in this regard, the
Company does not believe that prohibiting future purchasers from using the
Company's trademarks in California will limit future sales by the Company of the
Company's game systems in California.
To date, the Department has not indicated to the Company what, if any,
action the Department will take against the Company if the Department determines
the Company's prior sales in California involved the sale of "franchises" under
the Act. Such actions may include instituting proceedings to enjoin the Company
from violating the Act or to force the Company to comply with the Act, to seek
restitution or disgorgement or damages on behalf of any persons that the
Department may deem to have been injured by the Company's sales or to seek
penalties, including a penalty of up to $2,500 for each violation of the Act. If
persons who purchased the Company's Laser Storm(R) game systems in California
believe that the sale to them by the Company violated the Act, such persons may
be able to sue the Company for damages caused thereby or for rescission, if they
believe the violation was willful. In such event, the Company may have the right
to offset any such claim by the amount of any income realized by such persons
from their operation of the game systems. At this time, the Company has not been
threatened with any suit for violation of the Act by any person who purchased
the Company's Laser Storm(R) game systems. There are no assurances that the
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Company will not be threatened with such suits in the future. If a claim for
damages or rescission were brought against the Company or if the Company deemed
it otherwise appropriate to offer rescission to previous purchasers of the
Company's Laser Storm(R) game systems in California, the Company may use a
portion of the cash at that time available to the Company to consummate such
purchases. Upon making any such purchase, the Company would either continue to
operate the Laser Storm(R) game facility or utilize the equipment to open a new
Laser Storm(R) game facility. See "Use of Proceeds."
No assurance can be given that other jurisdictions will not review the
Company's activities to determine whether or not they deem such activities to
involve the sale of "franchises" or "business opportunities." Any such review
could cause the Company to change the Company's sales practices.
Lack of License Agreements in Early Sales. In connection with the sales of
approximately 14 Laser Storm(R) game systems sold by the Company in the past,
the Company did not enter into license agreements with the purchasers of the
systems permitting the use of the Laser Storm(R) name. It is possible that such
purchasers could move their Laser Storm(R) game systems into areas where other
purchasers of Laser Storm(R) game systems are operating their systems under
written license agreements with the Company. In such event, a dispute could
arise as to whether or not the Company granted a purchaser who executed a
license agreement an exclusive right to use the Laser Storm(R) game system and
name in the area. In order to remedy this possible problem, the Company is
attempting to have each non-licensed purchaser of Laser Storm(R) game systems
execute an appropriate license agreement in connection with purchases by such
persons of additional equipment from the Company and in connection with
extensions of warranty agreements between such persons and the Company. There
are no assurances that the Company will be successful in its efforts to have all
non-licensed purchasers execute such agreements.
Intellectual Property. The Company attempts to protect its trademarks,
trade secrets, proprietary software and other intellectual property by the use
of the trademark and copyright laws, through license agreements with customers
and by use of confidentiality agreements with certain suppliers, employees and
consultants. There can be no assurance that these measures will be successful in
protecting the Company's trade secrets, proprietary software and know how, or
that the trademarks will afford the Company with any competitive advantages. The
Company has registered Laser Storm(R) as a trademark in the United States and
has applied to register the trademark in Japan and South Korea. The Company
intends to apply to register the trademark in other countries. The Company does
not currently hold any patents but may apply for patents in the future where
applicable.
Public Market; Units Not Quoted. The Company's Common Stock and Warrants
have been listed for quotation on the Nasdaq Small-Cap Market under the symbols
LAZR and LAZRW, respectively, since April 1996. The Units were formerly quoted
under the symbol LAZRU but are no longer quoted. Accordingly, purchasers of
Units offered hereby will have to trade separately the Common Stock and Warrants
which comprised the Units. No assurance can be given that a public market for
any of the Company's securities will be sustained.
Maintenance Criteria for Nasdaq Securities. The National Association of
Securities Dealers, Inc. (the "NASD"), which administers the Nasdaq Small-Cap
Market, has established criteria for continued eligibility on the Nasdaq
Small-Cap Market. In order to continue to be included on the Nasdaq Small-Cap
Market, the Company must maintain $2 million in total assets, a $200,000 market
value of its public float and $1 million in total capital and surplus. In
addition, continued inclusion requires two market-makers, at least 300 holders
of the Common Stock and a minimum bid price of the Common Stock of $1 per share;
provided, however, that if the Company's Common Stock falls below such minimum
bid price, it will remain eligible for continued inclusion on the Nasdaq
Small-Cap Market if the market value of the public float is at least $1 million
and the Company has $2 million in capital and surplus. The NASD recently
announced that it intended to propose new maintenance requirements for companies
traded on the Nasdaq Small-Cap Market, including increased financial standards
and requiring the companies to have at least two independent directors and an
audit committee, a majority of which are independent directors. The Company's
failure to meet the maintenance criteria in the future may result in the
discontinuance of the inclusion of its securities on the Nasdaq Small-Cap
Market. In such event, trading, if any, in the securities may then continue to
be conducted in the non-Nasdaq over-the-counter market in what are commonly
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referred to as the electronic bulletin board and the "pink sheets." As a result,
an investor may find it more difficult to dispose of or to obtain accurate
quotations as to the market value of the securities. In addition, the Company
would be subject to a rule promulgated by the Securities and Exchange Commission
(the "Commission") that, if the Company fails to meet criteria set forth in such
rule, imposes various sales practice requirements on broker-dealers who sell
securities governed by the rule to persons other than established customers and
accredited investors. For these types of transactions, the broker-dealer must
make a special suitability determination for the purchaser and have received the
purchaser's written consent to the transactions prior to sale. Consequently, the
rule may have an adverse effect on the ability of broker-dealers to sell the
Company's securities, which may affect the ability of purchasers to sell the
Company's securities in the secondary market.
Shares Eligible for Future Sale. Certain factors, such as sales of Common
Stock into the market by existing shareholders and market conditions generally,
could cause the market prices of the Common Stock and Warrants to fluctuate
substantially and could have a material adverse effect on the market prices of
the Common Stock and Warrants. The Company's principal shareholders, directors
and officers and a consultant have agreed not to sell any Common Stock until
October 23, 1997 without the prior written consent of Laidlaw Equities, Inc.
("Laidlaw"), the representative of the underwriters of the Company's initial
public offering which was completed in April 1996. Subject to certain
limitations, additional shares of Common Stock could be sold in the public
market upon the exercise of outstanding Warrants and options.
Possible Issuance of Additional Shares of Common Stock Without Shareholder
Approval. The Company has an aggregate of approximately 3,856,836 shares of
Common Stock outstanding and 3,469,500 shares of Common Stock reserved for
issuance upon exercise or conversion of outstanding options and warrants leaving
12,673,664 shares of Common Stock authorized but unissued and not reserved for
specific purposes. The issuance of additional shares could result in the
dilution of the voting power of the Common Stock. Under Colorado law, all of any
such additional shares may be issued without any action or approval by the
Company's shareholders. Any shares of Common Stock issued in the future would
further dilute the percentage ownership of the Company held by the current
shareholders. See "Description of Securities."
Unissued Preferred Stock. The Company's Restated Articles of Incorporation,
as amended, authorize issuance of 2,000,000 shares of preferred stock. See
"Description of Securities." Previously, the Company issued an aggregate of
340,000 shares of preferred stock in two series, both of which were converted
into Units in April 1996. Such Units are included in the Securities offered
hereby. The unissued shares of preferred stock may be issued from time to time
in one or more series as may be determined by the Board of Directors without
shareholder approval. Further, the voting powers and preferences, the relative
rights of each such series, and the qualifications, limitations and restrictions
of the unissued shares of preferred stock may be established by the Board of
Directors without shareholder approval. Any further issuance of preferred stock
could adversely affect the rights of the holders of Common Stock by, among other
things, establishing preferential dividends, liquidation rights or voting
powers. The issuance of preferred stock could be used to discourage or prevent
efforts to acquire control of the Company through acquisition of shares of
Common Stock.
Although the Company has no present intention to issue any additional
shares of its preferred stock, no assurance can be given that the Company will
not do so in the future.
The Company has paid no dividends on its Common Stock and does not
anticipate paying such dividends in the foreseeable future. The Company expects
that all of its income in the foreseeable future will be retained for the
development and expansion of its business. See "Dividend Policy."
Market Overhang From Warrants and Options. In addition to the options and
the Warrants included in the Units offered hereby, the Company has outstanding
Warrants and options to purchase 3,469,500 shares of Common Stock, including
1,495,000 Warrants contained in the Units sold in the April 1996 public
offering, 1,844,500 shares of Common Stock issuable upon exercise of certain
incentive and other options granted to employees, non-employee directors, a
consultant, a public relations firm and a previous manufacturer for the Company
and 130,000 shares of Common Stock and Warrants to purchase 130,000 shares of
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Common Stock underlying the Unit Purchase Option granted to Laidlaw in
connection with the initial public offering. During the terms of the Warrants
and options, the holders thereof are given the opportunity to profit from a rise
in the market price of the Common Stock and/or Warrants. Moreover, the terms
upon which the Company will be able to obtain additional equity capital may be
adversely affected since the holders of the outstanding Warrants and options can
be expected to exercise them, to the extent they are able to, at a time when the
Company would, in all likelihood, be able to obtain any needed capital on terms
more favorable to the Company than those provided in the Warrants and options.
Furthermore, sales of shares of Common Stock held by or issuable to the Warrant
and option holders, or merely the potential of such sales, could have an adverse
effect on the market price of the Company's Common Stock.
Risk of Redemption of Warrants. Commencing 30 days after the Company
publicly reports its audited financial results for the year ended December 31,
1996, and unaudited financial results for the quarter ending March 31, 1997, the
Warrants may be redeemed by the Company at a redemption price of $0.05 per
Warrant upon 30 days' written notice any time after the closing price (as
defined herein) of the Common Stock exceeds $1.75 per share (based on an
exercise price of $1.00 per share of Common Stock) for 30 consecutive trading
days. Redemption of the Warrants could force the holders to exercise the
Warrants and pay the exercise price at a time when it may be disadvantageous for
the holders to do so, to sell the Warrants at the then current market price when
they might otherwise wish to hold the Warrants, or to accept the redemption
price, which is likely to be substantially less than the market value of the
Warrants at the time of redemption. See "Description of Securities--Warrants."
Effective Federal and State Registrations Required to Exercise
Warrants; Possible Redemption of Warrants. Purchasers of Securities offered
hereby will be able to exercise the Warrants only if a registration statement
covering the Common Stock underlying the Warrants is then in effect under the
Securities Act of 1933, as amended (the "Securities Act"), and only if such
Common Stock is qualified for sale or exempt from qualification under applicable
securities laws of the states in which the holders of the Warrants reside.
Although the Company will use its best efforts (i) to maintain the effectiveness
of a registration statement covering the Common Stock underlying the Warrants
pursuant to the Securities Act and (ii) to maintain the registration of such
Common Stock under the securities laws of the states in which the Company
initially qualified the Units for sale in the public offering, there can be no
assurance that the Company will be able to do so. The Company will not be able
to issue shares of Common Stock to those persons desiring to exercise the
Warrants if a registration statement is not effective under the Securities Act
or if the Common Stock underlying the Warrants is not qualified or exempt from
qualification in the state where the holders of the Warrants reside. In such a
case, the holders of the Warrants could lose the benefit of owning the Warrants
unless they are able to resell the Warrants. See "Description of
Securities--Warrants."
Limitations on Director Liability. The Company's Restated Articles of
Incorporation with Amendments, as amended, ("Restated Articles of
Incorporation") provide, as permitted by Colorado law, that a director of the
Company shall not be personally liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director, with certain
exceptions. These provisions may discourage stockholders from bringing suit
against a director for breach of fiduciary duty and may reduce the likelihood of
derivative litigation brought by stockholders on behalf of the Company against a
director. In addition, the Company's Restated Articles of Incorporation and
bylaws provide for mandatory indemnification of directors and officers to the
fullest extent permitted by Colorado law and the Company maintains a $3,000,000
directors' and officers' liability insurance policy. See "Description of
Securities."
USE OF PROCEEDS
The Company will receive no proceeds from the sale of the Securities
offered hereby. The Company has allocated the net proceeds, if any, from
exercise of the Warrants and options for general corporate purposes. Pending use
of the proceeds, the Company may invest the funds in short-term money market,
government and federal agency obligations, bank certificates of deposit and
savings deposits. It is uncertain when, if at all, the Company will receive
proceeds from exercise of the Warrants or options. See "Selling Security
Holders," "Description of Securities" and "Plan of Distribution."
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MARKET PRICES OF COMMON EQUITY, DIVIDEND POLICY AND
RELATED STOCKHOLDER MATTERS
Market Information. The Company's Common Stock has been quoted on Nasdaq
Small-Cap Market under the symbol LAZR, only since April 23, 1996. For the
period from April 23, 1996 to June 30, 1996, the high and low bid prices of the
Common Stock were $4.25 and $2.91, respectively. For the period from July 1,
1996, to September 30, 1996, the high and low bid prices of the Common Stock
were $3.50 and $2.13, respectively. For the period from October 1, 1996, to
December 31, 1996, the high and low bid prices of the Common Stock were $2.875
and $0.625, respectively.
Dividend Policy. To date, the Company has neither declared nor paid any
dividends on its Common Stock, nor does the Company anticipate that dividends
will be paid on its Common Stock in the foreseeable future. The Company's board
of directors presently intends to cause the Company to follow a policy of
retaining earnings, if any, for the purpose of expanding the business of the
Company. Any future determination to pay dividends on the Common Stock will
depend on the Company's results of operations, financial condition and capital
requirements. No assurance can be given that any holder of Common Stock will
receive any cash, stock or other dividends in respect of the holder's shares of
Common Stock.
Stockholders. As of December 31, 1996, the Company had 46 holders of record
of the Company's Common Stock.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATIONS
Results of Operations
Overview
The Company's primary source of revenue has been from the sale of Laser
Storm(R) game systems, including arenas. The Company's systems consist of an
"electronics platform" comprised of various components, including blasters,
controllers, headsets, targets, infrared data links and a computer with
operating software. The arenas consist of themed, moveable or fixed barriers,
props and, in most cases, lighting and sound packages. The Company contracts
third-party manufacturers to assemble the system electronics and incurs labor
costs mainly upon final configuration of the systems and system software. With
the exception of turn key arenas, which are provided by a third-party
manufacturer, the arena components are final assembled by the Company.
The Company has a warranty program under a renewable annual contract
whereby customers pay a monthly usage fee. Historically, the Company's total
revenue under this program has not been significant (i.e., less than 5% of total
revenue). The Company has incurred a marginal financial loss from this program,
but believes it is beneficial for continuing customer satisfaction. Management
has recently implemented a program of increasing fees charged for warranty work
and believes that the program will result in less of a loss for the year ending
December 31, 1996. The Company also provides its customers with a 90-day
material defects warranty on all system components.
Through September 30, 1996, the Company derived approximately 3% of total
revenues from the operation of Company owned Laser Storm(R) game facilities and
Laser Storm(R) game facilities for which the Company has a revenue participation
arrangement. The Company intends to expand the number of Company-owned
facilities, and, therefore, proportionately increase both the percentages of
revenues derived from Laser Storm(R) game facility operations, as well as the
associated costs to manage and operate the facilities.
Nine Months Ended September 30, 1996 compared to Nine Months Ended September 30,
1995
Net revenues for the nine months ended September 30, 1996 increased 26% to
$5,124,852, as compared to $4,065,407 for the nine months ended September 30,
1995. The primary reason for this increase is the increase in arena and warranty
sales and the acquisition or opening of two Company-owned facilities. Also
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contributing to the increase was the promotion of upgrade options to the
Company's existing customer base, most of which took place during the quarter
ended June 30, 1996. A specific breakdown of revenues is as follows:
Nine Months Ended September 30,
------------------------------
1996 1995
---- ----
System Sales................. $2,486,156 $2,499,858
Upgrade Sales................ 136,036 --
Arena Sales.................. 1,446,766 763,689
Warranty Sales............... 289,548 189,505
Accessories Sales........... 706,770 612,355
Company-owned Facilities..... 59,576 --
--------- ---------
Net Revenues............. $5,124,852 $4,065,407
========== ==========
The Company introduced a new financing program during the quarter ended
June 30, 1996 which accounted for 44% of net revenues for the nine months ended
September 30, 1996. In October 1996, the Company entered into an agreement with
a financing institution which will purchase these receivables, provided they
meet the credit requirements outlined in the agreement.
Gross profit as a percent of net revenues increased during the nine months
ended September 30, 1996 to 58.1% compared to 56.0% for the nine months ended
September 30, 1995. This increase is the result of lower direct material and
direct labor costs. The Company has realized efficiencies from increased
volumes, improved purchasing management and improved assembly processes. The
increase was offset by a decrease in margin during the quarter ended September
30, 1996 primarily as a result of selling two "hardwall" arenas during the
quarter which are at lower than normal margins. The hardwall arenas have a lower
margin because they are manufactured by an independent vendor, rather than by
the Company. The hardwall arena is considered a turnkey opportunity for the
customer in that it includes the normal themed barriers and other game
components as well as carpet, sales counters and a sign package.
Selling, general and administrative expenses ("SGA expenses") increased
$1,360,611 or 89.5% to $2,881,093 for the nine months ended September 30, 1996,
compared to $1,520,482 for the nine months ended September 30, 1995. "SGA
expenses" as a percent of net revenues increased from 37.4% to 56.2% for the
nine month periods ended September 30, 1995 and 1996, respectively. The increase
was primarily the result of additions to sales staff and administrative staff in
anticipation of opening Company owned and Company operated facilities and as a
result of the Company being a publicly held company. The Company did acquire one
Company owned facility (Longmont, Colorado) and opened one Company operated
facility (Cincinnati, Ohio) during the quarter ended September 30, 1996.
Revenues from these two facilities were $59,576 for the quarter ended September
30, 1996. The Company has executed agreements and is moving forward with opening
six Company owned facilities in a cooperative agreement with Namco
Cybertainment, Inc. which owns and operates approximately 500 video arcades
throughout the United States. Further, the Company has either executed or is in
final lease negotiations on six additional locations with scheduled openings in
the first quarter of 1997. Additionally, the Company is developing a new themed
laser game called Marvel Comics' X-Men Danger Room Laser Tag. The Company
acquired the exclusive rights to the Marvel Comics' X-Men license from Marvel
Comics, Inc. The Marvel Comics' X-Men based laser tag was introduced to the
amusement trade in November 1996 at the International Association of Amusement
Parks and Attractions (IAAPA). The first Marvel Comics' X-Men laser tag facility
is expected to open in March 1997.
During the nine months ended September 30, 1996 the Company increased its
sales and marketing efforts by approximately $560,000 in order to support the
above projects. The Company believes it is now positioned to meet its sales
objectives with new product introductions as well as its objectives of opening
future Company owned and Company operated facilities. The Company did incur
approximately $350,000 in expenditures related to becoming a public company and
moving into a new facility which meets its capacity requirements for the
foreseeable future.
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Product development expenses increased to $175,016 for the nine months
ended September 30, 1996 compared to $105,835 for the nine months ended
September 30, 1995. This increase is primarily the result of the design and
development of the new X-Men game and other new game features. The Company is
planning to continue to update and improve the design of its themed laser games.
Interest income was $57,929 for the nine months ended September 30, 1996
compared to interest expense of $5,414 for the nine months ended September 30,
1995.
The Company realized a $251,567 operating loss during the nine months ended
September 30, 1996 compared to operating income of $573,455 for the nine months
ended September 30, 1995. The operating loss for the nine month period ended
September 30, 1996 is a result of the additional operating expenses incurred in
establishing the Company owned and Company operated facilities, in designing and
developing the X-Men game and arena, and in expanding the sales efforts into the
international market and as a result of the increased costs of the Company
becoming a publicly held company.
The Company recognized an income tax benefit of $72,000 for the nine months
ended September 30, 1996. The benefit is based upon an effective tax rate of
37%. The provision for income taxes of $115,000 for the nine months ended
September 30, 1995 is net of full utilization of net operating loss carry-overs
from prior years.
1995 compared to 1994
Net revenues are sales, net of discounts, for Laser Storm(R) game systems
and are recognized upon shipment of an order to a customer. The Company
recognizes warranty revenues in the month during which they are earned. Net
revenues for the year ended December 31, 1995, increased by 97% to $5,477,540,
as compared to $2,786,850 for the year ended December 31, 1994. The increase was
primarily due to more system sales to new customers resulting from increased
marketing and was enhanced by expanded capacity of third party manufacturers to
produce systems. Also, as more customers have purchased arenas and computers
with the purchase of their Laser Storm(R) game systems, the average sales price
has risen to $80,000 per system for the year ended December 31, 1995, from
$52,000 per system for the year ended December 31, 1994. Arena sales as a
percentage of total sales has risen from 18% in 1994 to 24% in 1995. Management
believes that arena sales, as a percentage of total sales, will increase in
future years but that the increase will be incrementally less than the increase
experienced in 1995. A specific breakdown of sales is as follows:
December 31,
--------------------------------
1994 1995
---- ----
System Sales.......................... $2,150,023 $3,771,439
Arena Sales........................... 507,054 1,335,819
Warranty Sales........................ 102,108 285,983
Miscellaneous Sales................... 27,665 84,299
--------- ----------
Net Revenues................. $ 2,786,850 $ 5,477,540
========= =========
System sales are cyclical during the calendar (and fiscal) year, with most
system sales typically occurring in the third calendar quarter, and the least
number of system sales typically occurring in the first calendar quarter.
Management believes that the increased sales during the third quarter are
primarily attributable to desires of customers to upgrade their indoor
entertainment facilities prior to the Thanksgiving and Christmas holiday
seasons. Third quarter 1995 sales were $1,738,169, representing 31.7% of net
revenues for the year ended December 31, 1995. This compares to third quarter
1994 sales of $1,033,617, representing 37.1% of net revenues for the year ended
December 31, 1994.
Gross profit equals net revenues less cost of goods sold, which consists
primarily of material and direct labor costs. Gross profit for the year ended
December 31, 1995, increased 121% to $3,124,934, as compared to gross profit of
$1,411,482 for the year ended December 31, 1994. Gross profit as a percentage of
net revenues increased slightly during the year ended December 31, 1995, to 57%,
compared to 51% for the year ended December 31, 1994.
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The increase in the gross profit percentage in 1995 reflects a decrease in
direct materials cost which is somewhat offset by an increase in direct labor
costs. The increase in direct labor costs has two components. First, systems
labor costs increased in 1995 because the manufacturer used by the Company in
1994 provided a turn-key system that required little additional set-up and
configuration by the Company; whereas, in 1995, the Company used multiple
manufacturers to assemble the system electronics, resulting in the Company
incurring additional labor costs to set up the systems. Second, arena sales have
increased as a percentage of total sales and the Company incurs higher labor
costs associated with arenas than with systems. Therefore, direct labor costs as
a percentage of net revenues tend to be higher.
As indicated, the increase in direct labor costs has been offset by a
decrease in material costs, particularly system material costs. The decrease in
system material costs is also directly attributable to the aforementioned change
in the third-party manufacturer. With the change from a single turn-key
manufacturer used in 1994 to multiple subcontracted system assemblers used in
1995, the Company was able to make its own material purchases and thereby reduce
material costs.
Selling, general and administrative expenses ("SGA expenses") increased by
60% to $2,366,924 for the year ended December 31, 1995, compared to $1,482,106
for the year ended December 31, 1994. However, as a percentage of net revenues,
SGA expenses fell to 43% in 1995 from 53% in 1994. A substantial portion of the
percentage drop in SGA expenses came from a smaller percentage increase in the
amounts expended for marketing and advertising in 1995. With the exception of
small increases in general and administrative salaries and insurance costs,
management has been able to maintain or reduce SGA expenses as a percentage of
net revenues. The increase in salaries reflects additions to the administrative
staff in anticipation of diversifying its business to include more Company
operated Laser Storm(R) game facilities and becoming a publicly-held company.
Product development costs increased by 42% to $139,979 for the year ended
December 31, 1995, compared to $98,593 for the year ended December 31, 1994.
However, product development remained as a relatively constant 3% of net
revenues for both periods. Product development costs for systems and arena
theming are expensed in the period in which they are incurred.
In December 1995, the Company was served with two lawsuits. To avoid
extensive litigation, the Company entered into settlement agreements with both
parties. Also, in January 1996, a court ruled that the Company must pay a former
employee approximately $90,000. Therefore, at December 31, 1995 the Company
accrued a total of $270,000 in connection with the settlements and the court
ruling. The Company paid a total of $242,500 to settle these matters in the
second quarter of 1996.
With slightly higher gross profit margins for the years ended December 31,
1995 and 1994, the realization of $231,848 in operating income for the year
ended December 31, 1995, compared to the realization of an operating loss of
$216,783 for the year ended December 31, 1994, occurred primarily as a result of
the higher 1995 sales levels, lower direct materials costs and a slower growth
in SGA expenses.
Because of net operating loss carryovers from 1990 through 1992 and the
operating loss incurred throughout 1994, the Company did not incur an income tax
liability for the year ended December 31, 1994. The income tax liability for the
year ended December 31, 1995 gives effect to the application of the net
operating loss carryovers, thereby yielding an effective income tax rate
(federal and state) of 4%.
As of December 31, 1995, the Company has a net current deferred tax asset
of $111,000, which is principally the result of contingent settlements being
deducted for financial statement purposes, but which cannot be deducted for tax
reporting purposes. The Company also has a long term deferred tax liability of
$60,000, plus a current income tax liability of $60,000. Accordingly, the
Company believes that the deferred tax asset of $111,000 is fully realizable in
the future.
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Subsequent Events
The Company is in the process of completing its financial statements for
the year ended December 31, 1996. Based on preliminary results, the Company
estimates that its net revenues in 1996 increased by approximately 8% to
$5,900,000 from $5,478,000 in 1995, in part due to $268,000 contributed by
Company owned Laser Storm(R) facilities. However, the Company estimates that it
incurred a loss for 1996 of approximately $2,500,000 as compared to net income
of $223,000 in 1995. Most of the losses were incurred in the fourth quarter of
1996 and related primarily to: $219,000 of salaries and travel related to the
start-up of Company owned Laser Storm(R) facilities; $210,000 related to
termination of employment contracts with certain management staff; $250,000 due
to acquisition negotiations which were abandoned by the Company after the market
price of the Company's Common Stock dropped from approximately $2.00 per share
to under $1.00 per share in December 1996; and $400,000 expensed for development
and exhibition of the Company's new X-Men theme. The remaining $1,300,000 of
losses related primarily to the costs of increased staffing, increased facility
costs and the costs of professional services associated with the Company's
transition from a private to public Company and its transition from being a
sales driven organization to a facility operator. The Company has taken action
to reduce its annualized overhead costs by $1,700,000 to respond to 1996 losses.
The Company is also taking steps to attempt to convert $2,700,000 of current
accounts receivable, notes receivable and inventory into cash to provide capital
necessary to assist in the Company's planned opening of Company owned Laser
Storm(R) facilities in 1997.
Liquidity and Capital Resources
The Company's operations used cash flow of $3,024,257 for the nine months
ended September 30, 1996, but provided cash flow of $176,437 for the same period
ended September 30, 1995. Cash flow was used during the first nine months of
1996 to fund sales made through both the new extended term financing program
being offered by the Company ($1,558,069) and an increase in the accounts
receivable ($293,317). The Company increased its inventory levels ($220,083) in
anticipation of increased sales and the opening of Company owned and Company
operated facilities. Payments were also made on both accounts payable
($224,739), which had become aged when cash was being conserved until the public
offering was completed; and to settle the contingent liabilities the Company had
incurred during 1995. The Company made payments for initial minimum royalties of
$60,000 to Marvel Characters, Inc. and for development costs of the new X-Men
game ($131,000). In October 1996, the Company entered into an agreement with a
financial institution which purchases certain notes receivable under the
Company's extended terms program. The financial institution determines the
credit worthiness of the customer and then, if appropriate, purchases the
receivable at a discount (14% as of October 31, 1996).
Capital expenditures for the nine months ended September 30, 1996 were
$700,377 compared to $97,340 for the same period last year. The Company made
payments of $406,426 to fund up front capital requirements associated with
opening of Company owned and Company operated facilities, two of which were
acquired or opened by September 30, 1996. The remaining $293,951 in capital
expenditures was for the purchase of new trade show equipment and office
equipment as well as to make some leasehold improvements in the Company's new
office and assembly space.
Financing activities provided $5,862,154 of cash flow for the nine months
ended September 30, 1996 as compared to a use of cash of $29,642 for the nine
months ended September 30, 1995. In February 1996, the Company completed the
sale of 200,000 shares of Series B 12% Convertible Cumulative Preferred Stock
and received net proceeds of $890,185. In April 1996, the Company completed the
sale of 1,495,000 units at $4.00 per unit. Each unit sold consisted of one share
of common stock and one warrant. Net proceeds from the sale were $4,707,967.
Management believes the proceeds from the public offering of units will
support the Company's current operations associated with direct system and arena
sales and opening and operating Company owned Laser Storm(R) game facilities and
will provide working capital for anticipated growth.
The Company may require additional capital to finance enhancements to, and
expansion of, its manufacturing capacity and future Laser Storm(R) game
facilities. Management believes that the need for working capital will continue
to grow at a rate relative to the growth of the Company's operations. Although
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no assurance can be given that financing will be available on terms acceptable
to the Company, the Company may seek additional funds, from time to time,
through public or private debt or equity offerings, bank borrowings or leasing
arrangements.
The Company has entered into the following financial commitments in
anticipation of continued growth from ongoing operations and in Company owned
and revenue participation Laser Storm(R) game facilities:
In 1995, the Company entered into a ten year lease for new office and
assembly space, the term of which began in March 1996. Annual commitments
under the lease will be approximately $248,000, with periodic escalation
beginning in 1999. This annual commitment was made to accommodate the
Company's continued growth.
The Company has employment agreements with two of the Company's
executive officers which provide aggregate annual compensation of
approximately $300,000 until December 1998. The agreements may be
terminated by the Company without cause upon 30 days' notice. In the event
of a termination without cause, the Company would be required to pay 100%
of the remaining payments until expiration of the agreement with the
Company's chief executive officer and for a six-month period for the
president. The Company entered into the employment agreements with the two
executives to formalize their employment status at existing salary levels.
Accordingly, the employment agreements will not result in a significant
change in the Company's business. In December of 1996, and January of 1997,
the Company terminated employment agreements with three executives. In
accordance with the terms of the three employment agreements $115,000 in
compensation will be paid to two of the executives by June 30, 1997, and
$50,000 in compensation will be paid to one of the executives by July 31,
1997.
In July 1996, the Company purchased an existing Laser Storm(R) game center
located in Longmont, Colorado from unaffiliated persons. The total consideration
was $160,000, which was paid at closing by paying $30,000 in cash and by paying
the balance of $130,000 by issuing 32,500 shares of the Company's common stock
to one of the sellers. Pursuant to the terms of the purchase agreement, the
Company is registering the 32,500 shares for resale. The seller has 90 days from
the date hereof to sell the shares. If at the end of the 90 day period the
seller has sold all or a portion of the shares for less than $130,000, the
Company will immediately pay the seller the difference between the sales price
of the shares and $130,000. Any remaining shares will be returned to the
Company. If the sales price of the shares sold is more than $130,000, the
Company has no further obligation to the seller and the seller is entitled to
retain any unsold shares. In connection with the purchase, the Company also
loaned the seller approximately $46,380 to pay seller's bank loan. The loan is
evidenced by a promissory note and is secured by a first in priority interest in
the shares. All proceeds from the sale of the shares shall be applied first to
retiring the loan.
In November 1996, the Company purchased an existing Laser Storm(R) game
center located in Coral Springs, Florida from unaffiliated persons. The total
consideration was $300,000, which was paid at closing by paying $142,500 in
cash, the cancellation of a $15,000 receivable and by paying the balance of
$142,500 by issuing 35,625 shares of the Company's common stock. Pursuant to the
terms of the asset purchase agreement, the Company is registering the 35,625
shares for resale. The seller has 90 days from the date hereof to sell the
shares. If at the end of the 90 day period the seller has sold the shares for
less than $142,500, the Company will immediately pay the seller the difference
between the sales price of the shares and $142,500. Any remaining shares will be
returned to the Company. If the sales price is more than $142,500, the Company
has no further obligation to the seller and the seller is entitled to retain any
excess shares or purchase price.
BUSINESS
The Company designs, manufactures and operates interactive laser tag game
systems which the Company markets under the trademark Laser Storm(R). The
Company currently markets Laser Storm(R) game systems which are computer
controlled, are capable of being varied to fit individual operator needs and
customer demands and are designed to incorporate a themed adventure within an
interactive environment emphasizing team play.
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Each game system is comprised of blasters, controllers, adjustable vests,
headsets and targets, and may include themed arenas with special effects such as
moveable and fixed colored barriers, fog, sound, specialty lighting effects,
software developed by the Company and other elements. The Company's game
equipment is designed to be lightweight and easy for all ages to use. The
Company currently markets five different, themed game systems: Galaxy 2000(TM),
Galactic Marauders(TM), Circuit Commandos(TM), STARGATE and Marvel Comics'
X-Men. The Company recently obtained a license to utilize the comic book
characters owned by Marvel Characters, Inc. as part of a themed game system
which the Company introduced and began to market in November 1996. Games
typically are played in arenas ranging in size from 1,000 square feet to 4,000
square feet. Additional space is required for support, retail sales and
administration. Operators of Laser Storm(R) game systems generally charge
admissions ranging from $3.00 to $7.00 and game durations can be programmed to
vary from one minute to 40 minutes but typically last 10 minutes.
The Company has been developing and producing state of the art themed laser
tag game systems and, since its inception in March 1990 through December 1996,
the Company has sold a total of approximately 190 Laser Storm(R) game systems,
of which 161 were sold in the United States and of which 29 were sold for use
outside of the United States. Although since its inception the Company has been
engaged principally in developing, marketing and selling Laser Storm(R) game
systems to independent operators, the Company also owns and operates 4 Laser
Storm(R) game facilities and has entered into revenue sharing arrangements that
are still in effect for 7 Laser Storm(R) game facilities. The Company intends to
increase the number of facilities in which it will have an ownership interest.
The Company anticipates that the cost of a Company owned Laser Storm(R) facility
will be approximately $250,000. However, the Company estimates that the actual
cost of any Company owned facility will vary from approximately $100,000 to
$500,000 based primarily on the location and size of the facility. The actual
number of new Laser Storm(R) game facilities that the Company will be able to
acquire and open will depend on the funds available to the Company and the
percentage interest the Company will have in each facility.
The Company was incorporated under the laws of the state of Colorado in
March 1990 under the name "The Crimson Corporation--a Holding Company" and
conducted business under the names "Space Sport, Ltd." and "Laser Storm." In
November 1994, the Company changed its name to "Laser Storm, Inc."
Products
The Laser Storm(R) interactive game system uses proprietary custom software
developed by the Company and is designed to allow operators to set up live
action themed, "tag" type games staged between or among teams of opponents. The
Company has developed and currently markets game systems embodying five
different themes, each with numerous configurations. These games are played in
themed arenas, which contain special effects, including colored, movable or
fixed barriers, fog, sound, lighting and other decorative elements. The
equipment is designed to be lightweight and easy to use for all ages. The arenas
are flexible, easily reconfigured, safe and may accommodate 2 to 48 players.
The Laser Storm(R) player unit includes a blaster which emits simulated
laser beams from a solid-state light source. Unlike an actual laser, the beam
will project, in tight disbursement, a harmless colored light for up to 100
feet. The blaster is attached to a belt that contains a battery pack and
electronics and a lightweight headset that is similar to a set of headphones.
All of the equipment weighs under three pounds. The unit is designed for use by
persons three years of age and older. The battery pack utilizes a velcro
fastener which may be adjusted to fit almost any customer. The compact blaster
and unique thumb trigger accommodate a variety of hand sizes.
All Laser Storm(R) game systems are designed to emphasize teamwork. Each
team has a mission to accomplish during the game. Players are instructed by an
operator or watch a pre-game video which set the stage for the game, give a
brief introduction to the theme and explain the mission's parameters.
A computer controls the play of the game. An operator can change the game
configuration easily before each game, making every game a different experience.
Game components, such as duration, points per player hit, points per target hit
and target duration, can be varied by the operator with the click of a mouse.
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During the game, players can keep track of the score by watching a
scoreboard in the center of the arena. A database keeps track of the number of
times each player's blaster achieves the activation of another player's unit. At
the end of the game, each player receives an individualized, computer generated
scorecard, showing details of the mission, as well as each player's performance.
Games typically last approximately 10 minutes, though the time of each game
may be programmed to last from one minute to 40 minutes. Charges per play
generally range from approximately $3.00 to $7.00. Efficient operators with
sufficient working equipment can run up to six 10-minute games per hour.
The Company presently offers five totally different interactive game themes
for use with the Laser Storm(R) game system.
1. Galaxy 2000(TM) is a high tech version of dodge ball, where two teams
blast for control of the "neutral zone." This is the oldest and one of the most
popular of the current games.
2. Galactic Marauders(TM) is a series of games based on the story of evil
estranged twin brothers, Ick and Yuck DuVraggo, who are battling over the rights
to control the "Milky Main" in deep space. The first game in the Galactic
Marauders(TM) series is staged in the DNA laboratory of the fictional Minerex
Corporation, where Dr. Carl Sterling first created raw DNA strands. Each team's
mission is for its leader to capture as much DNA as possible in order to create
either Northern Monsters or Southern Zombies. With the help of these hideous
creatures, each team hopes to mine the riches of its home planet, thus giving it
the ultimate ability to rule the galaxy.
3. Circuit Commandos(TM) is the themed adventure involving a crack team of
computer experts whose assigned mission is to blast a virus, created by a team
of brilliant hackers, out of the "International Economic Computer Network."
Players go through a simulated miniaturization chamber and then enter an arena,
which is designed to look like the inside of a huge computer. Each team's
immediate objective is to capture as many computer chips as possible in the
correct sequence, thus activating the microprocessor. The first team to activate
and destroy the microprocessor wins the game. The Company is developing
variations of this theme to accommodate different levels of special effects
sophistication and facility cost.
4. STARGATE. Themes from the motion picture "STARGATE" have been
incorporated into a series of games designed to be progressively more
challenging. Players are briefed in a central control room in advance of
commencing play and then are sent through a mysterious Stargate to a distant
galaxy on an exploratory mission to find seven symbols and save the planet from
extinction. The players are instructed that hostile forces may be encountered,
but not to fire upon them unless they feel threatened. The story progresses as
new targets and diversions are introduced. The arena is designed to resemble the
inner sanctum of an ancient pyramid with exotic, fluorescent hieroglyphics,
Anubis targets, Horace targets that shoot back, and other special effects.
Management proposes to add new variations or enhancements to keep the game
exciting even for the most avid repeat players.
5. Marvel Comics' X-Men Laser Tag. Themes based on the Marvel Comics' X-Men
comic books and the Marvel Comics' X-Men animated series are being used by the
Company to develop Marvel Comics' X-MEN games which will offer players the
chance to train alongside superheros Wolverine, Rogue, Cyclops, and Storm. The
games will take place inside Marvel Characters, Inc.'s ("Marvel") well known
"Danger Room." From the moment players enter an Marvel Comics' X-Men game center
they will be escaping into a fantasy based experience. Every aspect of the
facility from staff uniforms to the "Danger Room" itself will be carefully
designed to support a seamless, fantasy based theme. The actual "Danger Room"
game will introduce new game play features.
The Company is producing four different scorecards for Marvel Comics' X-MEN
games featuring original artwork from Marvel artists. With the help of Marvel's
illustration team, each scorecard will feature a different, unique character
rendering to encourage collecting. The strategy is to entice players to return
to play again and to collect all four scorecards.
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The Company obtained its license to utilize themes and develop and market
merchandise based on the motion picture STARGATE in October 1995. The term of
the license continues until August 17, 1997, after which date no new licensed
articles may be manufactured, sold or distributed by the Company. However, the
Company may continue to use and operate the licensed articles through August 1,
2000. The Company is required to pay the licensor a royalty on gross ticket
sales for all locations using the licensed articles. Credited against the
royalty is an amount of $50,000 which has been paid by the Company as an advance
royalty.
The Company has obtained a license from Marvel granting the Company the
exclusive right to use trade- marked cartoon characters owned by Marvel through
February 1, 2000, solely upon and in connection with the Company's
licensee-owned and sublicensee-owned laser tag facilities in the United States
and Canada. Marvel reserves the right to approve the site location of each Laser
Storm facility, which facilities may not be located within 60 miles of any
Marvel themed amusement park. The Company must pay royalties to Marvel of a
percentage of gross revenues. The term of the Marvel license agreement may be
extended for successive one year periods through December 31, 2003 provided that
no breach has occurred and provided that a minimum amount of royalties have been
paid in the preceding term. The term for Laser Storm(R) game facilities
sublicensed (rather than owned by Laser Storm) is limited to three years from
the date of original purchase. The Company does not believe, but cannot assume,
that Marvel's recent filing for reorganization under Chapter 11 of the United
States Bankruptcy Code will have any effect on the Company's license from
Marvel.
Product Development
The Company continuously designs and develops new and modified equipment,
computer software and hardware, game themes and related accessories and
merchandise, and applications for the software. Such developments have included
alphanumeric scoreboards with messaging capabilities, new targets with
individual programmability, updated infrared and audio transmissions, new color
optics for use in LED beams emitted by the blasters which help differentiate
team members and merchandise for retail sales.
There is no assurance that the products and promotions currently in
development will lead to final products or that any such products or promotions
will be commercially viable or profitable to the Company.
Intellectual Property
The Laser Storm(R) game system is an interactive experience. Game play
involves interacting with both the player's own team members and those of the
opposing team. Through a computer tracking system developed by the Company, a
playability log unfolds over the course of the game which is recorded and logged
by the software. Upon exiting the arena, each player receives a computer
generated score card quantifying the player's achievements. In this instance,
the software helps conclude the activity by giving players the opportunity to
take a tangible piece of their game experience home.
The software controls the Laser Storm(R) game systems. Accordingly, the
systems can be altered with relatively simple software adjustments. The Company
continuously makes system enhancements that make the games that much more
interactive.
The Company's current operating software is proprietary, functioning only
with the Company's hardware system. While the software controls the game,
players interface with the software through unique infrared communications
platforms made up of individual player units. Without these blasters, the
software itself is useless. Nevertheless, when the two are coupled and set
inside a themed arena environment, an interactive entertainment experience is
created. While the software is a critical element of the game mix, the
management of the Company believes that the software has little utility
separated from the laser tag game environment.
The Company attempts to protect its trademarks, trade secrets and other
intellectual property by the use of the trademark and copyright laws, through
license agreements with customers and by use of confidentiality agreements with
certain suppliers, employees and consultants. There can be no assurance that
these measures will be successful in protecting the Company's trade secrets and
know how, or that the trademarks will afford the Company with any competitive
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advantages. The Company has registered Laser Storm(R) as a trademark in the
United States and has applied to register the trademark in Japan and South
Korea. The Company also intends to apply to register the trademark in other
countries. Currently, the Company does not hold any patents but may apply for
patents in the future where applicable.
Markets
Domestic
Laser Storm(R) game facilities attract a wide demographic range of
customers. Customer demographics by age and gender vary depending on location
selection, advertising, facility activities, operations hours and game themes.
The Company has not developed any accurate data on the game users and relies
entirely on anecdotal verbal remarks from operators regarding customer
demographics. Based upon this information supplied by the Company's operators,
the Company estimates that the Laser Storm(R) game system users are one-third
aged 12 and under, one-third aged 13 to 17, and one-third age 18 and over.
However, two of the owners of indoor playground facilities which cater to a
younger age group and which have Laser Storm(R) game systems, have indicated to
the Company that they estimate that approximately 80% of their customer base is
in the age 12 and under category and the remaining 20% are parents. Conversely,
another owner of a Laser Storm(R) game system has estimated to the Company that
80% of its customer base is in the age 16 and over category. The Company is
unaware of any independent information available to support the Company's
estimates.
Laser Storm(R) game systems are currently located in amusement parks,
family entertainment centers, skating rinks, movie theaters, shopping malls and
bowling centers. The Company currently bases its marketing plan on the placement
of not more than one facility per five mile radius or 200,000 population base,
depending on population density.
International
Although the Company has sold 29 Laser Storm(R) game systems outside of the
United States, the Company has determined to focus its marketing efforts more in
the United States and to increase its efforts to open additional company-owned
Laser Storm(R) game facilities. Therefore, the Company is not currently actively
marketing its Laser Storm(R) game systems in foreign countries. However, the
Company will continue to affirmatively respond to any inquiries from prospective
customers in foreign countries.
The Company has an exclusive agreement with Target Technology P.T.E., Ltd.
("Target"), a Singapore Company, pursuant to which the Company has authorized
Target to sell Laser Storm(R) equipment in Singapore and Malaysia until July
2000. The Company has sold three systems to Target to date. There are no
assurances Target will purchase any additional Laser Storm(R) game systems
pursuant to the agreement.
The Company has an agreement with Cyber Amusement Co., Ltd. ("Cyber")
whereby the Company has appointed Cyber as the sole and exclusive distributor
and licensee for the Company's Laser Storm(R) game systems in the country of
Thailand. Cyber has agreed to purchase five or more Laser Storm(R) game systems
by January 31, 1999. The agreement is in effect through January 1999 and can be
renewed annually thereafter by Cyber. The Company does not have Cyber financial
information and there are no assurances that Cyber has the financial capability
to purchase any Laser Storm(R) game systems from the Company. To date, Cyber has
not purchased any, and there are no assurances that Cyber will purchase any,
Laser Storm(R) game systems pursuant to the agreement.
The Company has entered into an non-exclusive letter agreement with a
company to market the Company's Laser Storm(R) game systems throughout Central
and South America on a commission basis. The agreement is for an initial period
of one year commencing July 24, 1996, and is renewed automatically unless either
party provides 60 days notice of cancellation. As of the date hereof, no sales
have been made pursuant to the letter agreement.
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Sales and Facilities Operations
The Company's business plan currently contemplates three types of Laser
Storm(R) game facilities: 1) those owned by independent owner/operators to whom
the Company sells Laser Storm(R) game systems and arenas; 2) Company owned
facilities; and 3) revenue sharing facilities in which the Company provides
equipment at little or no charge and shares the revenue with the facility
operator. Each of these formats has various advantages and each requires a
somewhat different marketing strategy. The Company believes that it must
integrate all three sales approaches in its marketing plan to pursue profitable
growth.
Sales
Since its inception in March 1990 through December 1996, the Company has
sold and shipped approximately 190 Laser Storm(R) systems worldwide. For most
sales of its systems, the Company utilizes agreements which contain provisions
relating to site protection, change orders, warranty, liability and
responsibilities of ownership. The Company usually requires the buyer to pay 50%
of the purchase price to the Company upon signing the sales agreement, with the
balance to be paid in two equal installments 60 days prior to installation and
upon delivery, respectively. As an alternative, the Company requires the buyer
to make an advance deposit ranging from 30% to 40% of the purchase price to the
Company upon signing the sales agreement, with the balance to be paid over a
period ranging from 24 to 36 months. These payment schedules relieve the Company
of most out of pocket manufacturing expenditures, since the cost of
manufacturing is covered in the initial deposit. In connection with each sale
the Company generally grants a license to the operator to use the Laser Storm(R)
trademark and computer software in connection with the operation of the facility
for so long as the operator maintains the Laser Storm(R) game system at the
original site. Under these agreements, if an operator moves a system without
Company approval, which will not be unreasonably withheld, the license to use
the software and trademark ceases.
The Company installs the system and provides initial training on its proper
use. The Company also services the system under warranty against material
defects. The warranty is typically 90 days, however, most customers purchasing
systems also participate voluntarily in the Company's warranty program under
renewable annual contracts for a current charge of from $0.12 to $0.15 per play.
The Company also sells to operators merchandise, such as T-shirts and hats,
containing the Company's logos, as well as operating supplies, including fog
fluid and scorecards.
Although the Company does not require its operators to purchase arenas (the
themed, barriers, props and, in some cases, lighting and sound packages, all of
which together create the theme atmosphere) at operators' facilities,
approximately 77% of the Laser Storm(R) operators have acquired the entire
system.
Domestic Sales. Since inception in March 1990 through December 1996, the
Company has sold and shipped 190 Laser Storm(R) game systems for operation in 43
states.
International Sales. Since inception in March 1990 through December 1996,
the Company has sold and shipped 29 Laser Storm(R) game systems for use outside
of the United States.
Company Owned Facilities
The Company intends to acquire existing and open new Laser Storm(R) game
facilities which will be owned and operated by the Company or in which the
Company will participate under a revenue sharing arrangement. The actual number
of such facilities that the Company will be able to acquire and develop will
vary depending principally on factors such as the funds available to the
Company, the percentage interest the Company will have in each facility, the
location of each facility and the size of each facility. The Company owned Laser
Storm(R) game facilities usually will be entertainment centers that feature at
least one Laser Storm(R) arena and may include any combination of video, arcade,
food and party rooms and a retail-style store featuring licensed Laser Storm(R)
merchandise and related items. The Company anticipates that the cost for
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furniture, fixtures and equipment of a typical Company owned Laser Storm(R) game
facility will be approximately $250,000. However, the Company estimates that the
actual cost of any Company owned facility, however, will vary from approximately
$100,000 to $500,000 based primarily on the location and size of the facility.
As of the date hereof, the Company owns and operates five Laser Storm(R) game
facilities. One of the five Laser Storm(R) game facilities is a 48-player
facility, featuring a STARGATE theme, in an entertainment and amusement area
leased by Namco Cybertainment, Inc. ("Namco"), which operates over 500 family
entertainment centers in the United States. The Company pays Namco a percentage
of the Company's adjusted gross sales (with a specified minimum) from the
facility. In addition, the Company has entered into agreements and/or leases for
an additional six Laser Storm(R) game facilities that will be owned and operated
by the Company. All of the six Laser Storm(R) game facilities will be in
entertainment and amusement areas leased or owned by Namco. The Company will pay
Namco a percentage of the Company's adjusted gross sales (with specified
minimums) from such facilities.
No assurance can be given that the Company will be successful in its plans
to acquire, open and operate any additional facilities.
Revenue Participation Facilities
The Company intends to enter into agreements with certain operators whereby
the Company will provide equipment at minimal or no cost to the operators who
will operate Laser Storm(R) game facilities and share the gross revenue with the
Company. The Company will evaluate the quality of the location, commitment and
stability of the operator and the possible return on investment, among other
factors, to determine whether to enter into such an arrangement.
The Company is currently pursuing revenue sharing ventures for several
reasons: 1) the on going annual gross revenue stream participation from such
facilities historically has exceeded the profits involved in system sales, 2)
the Company believes it needs to have greater involvement in operations than it
currently has through systems sales if it is to manage its corporate image and
accelerate revenue growth, and 3) management believes there are family
entertainment centers, bowling centers and skating rinks whose owners may be
interested in adding a Laser Storm(R) game facility to their operations if those
owners have little risk, minimal or no outlay of capital and limited managerial
oversight.
As of the date hereof, the Company is involved in the following revenue
sharing arrangements:
Laser Storm Waikiki Limited Liability Company: The Company has entered into
an agreement with Laser Storm Waikiki Limited Liability Company ("LLC"),
pursuant to which the Company installed a system in Honolulu, Hawaii, at a
facility which is owned and operated by an unaffiliated entity. The members of
the LLC are the Company and Teraji Entertainment, Inc., an entity unaffiliated
with the Company. Teraji Entertainment, Inc. and the Company have orally agreed
to share equally revenues net of the LLC's expenses. The facility began
operations in December 1994, and the operator pays $1.00 per play to the LLC.
The facility accommodates a 48- player system in a 2,300 square foot arena. The
equipment is owned by the LLC.
Funplex Center: The Company owns a 50% interest in Laser Hall L.L.C. which
was formed in September 1995, as a Colorado limited liability company, to
renovate and operate an approximately 2,700 square foot Laser Storm(R) game
facility within FunPlex Center, a 144,000 square foot amusement center, in
Littleton, Colorado. The Company sold Laser Hall L.L.C. the equipment for the
FunPlex facility at the Company's cost. The balance of Laser Hall L.L.C.
membership interests are owned by unaffiliated parties.
The Company, on behalf of Laser Hall L.L.C., agreed with the owners of
Funplex Center, in which a Laser Storm(R) game system has operated since March
1990, to renovate that facility. The facility affords a local showcase for the
Company's product which will provide an ongoing revenue source; and will provide
a location where new products and merchandise can be test marketed in a
Company-controlled, fully operational environment. Laser Hall L.L.C. owns the
system, and pays a space rental fee to Funplex Center. The Company provides all
facility upgrades, as well as the equipment and operational personnel. The newly
renovated facility opened in November 1995.
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Fun City Amusement Centers, Inc. ("Fun City"): The Company has entered into
an agreement with Fun City, a 150,000 square foot indoor family entertainment
center in North York, Ontario, Canada, a Northern suburb of Toronto, which
currently operates a 24-player Laser Storm(R) game system in a 2,500 square foot
arena. Facility attractions include an indoor, electric go-cart track, major
arcade area and multiple party rooms and concession facilities. The agreement
provides for the participation by the Company in revenue from operations and
requires that Fun City pay to the Company a per-person-per-game use fee based on
45% of the price per game, currently $2.68 Canadian, exclusive of any sales, use
or other taxes that may be imposed upon each use. Payments are made to the
Company monthly based on the number of player activations utilized in the
previous month of operation. Fun City paid $24,250 to the Company as a
prepayment under the revenue sharing agreement. These fees are to be recovered
by Fun City before the Company participates in revenues from operations. The
Company provided and retains ownership of the equipment.
M. W. Recreation Corporation ("Fun Machine"): In November 1995, the Company
installed a Circuit Commando(TM) inflatable unit for a Fun Machine location on a
revenue share basis. The term of the revenue share is for a period of 12 months,
renewable annually and the Company is to receive 50% of the gross revenues
realized from the unit. In exchange for the use of the inflatable unit, the
Company agreed to pay the manufacturer 30% of the payments received by the
Company which result from the use of the unit. The inflatable unit is included
in a full service Fun Machine amusement center located in Longwood, Florida.
This revenue share agreement was renewed in 1996.
Tunica Partners II, LP ("Harrah's"): In February 1996, the Company entered
into an agreement with Tunica Partners II, LP ("Tunica Partners") that owns the
casino business which is managed for Tunica Partners by Harrah's Tunica
Corporation ("Harrah's"). Pursuant to the agreement, the Company installed a
STARGATE Laser Storm(R) game system in approximately 2,400 square feet of space
in a new arcade and child care facility operated for Tunica Partners by The
Planet Kidz, Inc. ("Planet Kidz") in the Harrah's Casino in Tunica, Mississippi.
The Company supplied all equipment, service, repair and warranty work for the
game system for which the Company is to receive 50% of the revenue (less any
taxes) received from the operation of the game system. The Laser Storm(R) game
system opened in April 1996.
Harrah's Vicksburg: In November 1996, the Company finalized an agreement
pursuant to which the Company provided the equipment, service, repair and
warranty work for a Galaxy 2000(TM) Laser Storm(R) game system in approximately
1,000 of square feet in a Harrah's Casino in Vicksburg, Mississippi. The Company
receives 50% of the gross revenue (excluding taxes) from the operation of the
Laser Storm(R) game system, which opened in February 1996.
Marketing/Sales
The Company employs a variety of marketing techniques, including placing
advertisements in trade and business publications, attending trade shows,
telemarketing and conducting direct mail efforts.
Print. The Company advertises in industry-specific magazines and trade
publications to generate leads for direct sales. All advertisements will
emphasize new themes and games as they become available, as management believes
these new themes and games are the basis for the Company's competitive strength.
Trade Shows. In 1995 and 1996 the Company attended and exhibited at major
trade shows worldwide. The Company plans to continue to exhibit at selected
trade shows in the United States, Asia, Europe, South America and Mexico. This
marketing strategy will primarily support direct sales and Company-owned
facilities. Trade shows constitute the primary source of leads for sales of
Laser Storm(R) game systems. The Company's ability to demonstrate its thematic
games will be a primary consideration in selecting shows. In November 1995, at
the International Association of Amusement Parks and Attractions (IAAPA) annual
convention in New Orleans, Louisiana, the Company was awarded a First Place Best
New Product award, in the category of Family Entertainment Center
Ride/Attraction for the Company's STARGATE themed game system.
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Telemarketing. The Company's telemarketing activities consist of responding
to inquiries and contacting potential customers from names obtained at trade
shows. The Company also utilizes various other lists acquired from industry
organizations and developed by others for its telemarketing activities. These
activities are conducted by the Company's sales and marketing personnel.
Direct Mail. Management believes that direct mail efforts support sales of
systems and promote revenue participation activities, as direct mail may be
aimed at highly focused target markets. The Company utilizes a number of mailing
lists from different amusement industry sources. The Company also has special
lists prepared from time to time for certain promotions or to target specific
markets.
The Company plans to make additional mailings to very specific markets such
as to military entertainment service buyers. It is also planned that sales
letters will be sent out in locations where the Company is participating in
trade shows to encourage meeting with potential operators and to demonstrate the
Company's products.
Public Relations. To enhance name and brand recognition, engender customer
loyalty and quickly disseminate news of product development and offerings, the
Company has employed a public relations firm which will be responsible for
generating stories in print and broadcast media about the Company and its Laser
Storm(R) game systems.
The Company has sales video tapes which contain information on the
Company's thematic games (Circuit Commandos(TM) and STARGATE), professional exit
interviews, owner/operator sound bytes, entertainment statistics and imagery
that are intended to appeal to landlords, entrepreneurs, potential operators and
the general public and is also preparing a television commercial which will
feature the reactions of families exiting a typical Laser Storm(R) game facility
intercut with flash cuts of family play.
Credit. Within the past 18 months, the Company has established arrangements
with various leasing companies to provide lease financing for the Company's
customers. All require an advance payment and can finance leases in principal
amounts ranging between $10,000 and $150,000, with terms varying from 24-72
months. Lease rates and dollar amounts will vary based on the creditworthiness
of the applicant and no assurance can be given that all applicants will be
approved.
The Company purchases or prepares family entertainment center mailing lists
which will be used to believed to offer both a competitive advantage and a means
to accelerate system payment.
Competition
In general, the Company faces competition from numerous other companies in
the entertainment and amusement industry and more specifically from other
providers of laser tag game systems. The Company has not conducted any formal
studies or surveys, and does not have any reliable independent support from
third parties for the following estimates of its market share and competitive
position. The method the Company used in making such estimates was based
strictly on anecdotal accounts, and the actual numbers could vary significantly
from the estimates. As qualified by the foregoing, and based on conversations
with the owners of the Company's laser tag games and on conversations with
competitors of the Company, the Company estimates that it currently has over 50%
of the market in the United States for sales of laser tag game systems, based
upon the number of systems the management of the Company believes are in
operation.
The Company believes that its current success has been due to an emphasis
on thematic game environments and the simplicity of its electronics, which are
combined to provide games that are exciting and fun to play, yet challenging.
Because the laser tag game market is in its infancy and growing, management
anticipates that additional competitors are likely to enter the market. To
remain competitive, the Company intends to offer enhanced products (price
competitive, thematically unique) and to expedite its domestic sales growth to
enter and expand in markets as quickly as possible within the limits of economic
and personnel resources. The Company believes that the games its competitors
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produce generally are more complicated to play than Laser Storm(R) games, are
more costly and complex to maintain and are far less capable of being easily
modified. There is no assurance that the Company will be able to sustain a
competitive position for its products.
Manufacturing; Customer Service
The Company has returned to its original plan of manufacturing and building
its game systems to order and generally maintaining an inventory of raw
materials, finished goods and product held for replacement which totalled
approximately $686,000 at September 30, 1996.
The Company currently outsources the fabrication of the game system
components to multiple vendors. Virtually every component is either
multi-sourced or has multiple sources available. The exception involves plastic
blaster shells and plastic headset parts, which are fabricated from injection
molds. While there are any number of injection molders available, the Company
only has one multi-cavity mold for each of these components. Therefore, the
Company only uses one source of supply at a time for components using plastic
shells. Upon receipt of the components from various vendors, Company personnel
configure the "systems" to suit each customer's needs. Currently, the Company
offers system configurations ranging in size from 12- to 48-player units which
can accommodate a variety of peripheral components such as target pods.
With the exception of turn key arenas which are provided by a third party
manufacturer, arena barriers are printed by outside vendors, then cut and
assembled in the Company's Denver facility. The Company provides CAD/CAM
generated three dimensional renderings of proposed arena layouts to the facility
operator, and, once approved, the facility is constructed by the owner/operator.
After construction, the Company personnel install the game system components at
the facility site for a moderate installation charge which covers the Company's
costs.
The Company currently provides annual maintenance contracts for a per play
charge of from $0.12 to $0.15. The Company offers a 90-day factory warranty
period and assesses surcharges for obvious abuses of equipment. The Company
believes it excels in the areas of customer service and warranty repair,
offering 24-hour customer service access and overnight advanced shipment to
replace failed components. The Company strives to assure its operators that it
will keep all equipment serviceable and has generated a database program capable
of tracking each facility operator and the operator's repair history. This
information is intended to direct research efforts to replace parts that
commonly fail and to forecast the Company's parts and warranty service
requirements. One of the facts learned by reviewing operator service reports was
a high rate of "No Problem Found" ("NPF") components. In an effort to eliminate
NPF returns, management has increased both its customer service and installation
training and now is charging customers for NPF returns. Management believes that
these efforts will allow most NPF problems to be resolved by the operator.
Customer service representatives are also encouraged to provide operators
with marketing information, such as industry trends and operations techniques,
and to apprise operators of new Company product offerings.
Governmental Regulation
Various state and federal laws define and govern the sale of "franchises"
and "business opportunities." These laws require, among other things, that
sellers of franchises and business opportunities register the offering of such
sales and provide prescribed written disclosures to potential purchasers. State
franchise laws provide customers who have been sold franchises in violation of
such laws recourse against the franchisor, including rescission of the purchase
agreements with the franchisor. In addition, federal and state laws prescribe
remedies against sellers of franchises and business opportunities, consisting of
fines, penalties, injunctions, or a combination of these, being levied against
the sellers of franchises and business opportunities. Management believes that
the Company sales of Laser Storm(R) game systems are not subject to such laws.
If a determination were made that franchise or business opportunity laws and
regulations are applicable to the Company and customers or governmental
regulators were successful in prosecuting actions against the Company, there
could be a material adverse effect on the Company selling its Laser Storm(R)
25
<PAGE>
game systems in a particular market or in general and, depending upon the
remedies imposed against the Company, there could be a material adverse effect
on the Company's business, operating results and financial condition.
The Department of Corporations of the State of California ("Department")
has reviewed the issue as to whether or not the prior sales by the Company of
Laser Storm(R) game systems in California may have involved the sale of
"franchises" under the California Franchise Investment Law ("Act"). No formal
determination was issued by the Department after such review. The Company then
sought an interpretive opinion pursuant to Section 31510 of the Act as to
whether proposed future sales by the Company of Laser Storm (R) game systems in
California would constitute the sale of "franchises" under the Act. The
Department declined to issue an interpretive opinion because the response might
impact a past transaction. The Department did offer the Company informal
guidance as to whether the sale of Laser Storm(R) game systems in California
would constitute the sale of "franchises" under the Act. Until the matter can be
resolved with the Department or through administrative or legal proceedings, the
Company will prohibit future purchasers of Laser Storm(R) game systems in
California from using the Company's trademark in connection with the Company's
game systems. Although the Company can provide no assurances in this regard, the
Company does not believe that prohibiting future purchasers from using the
Company's trademarks in California will limit future sales by the Company of the
Company's game systems in California.
To date, the Department has not indicated to the Company what, if any,
action the Department will take against the Company if the Department determines
the Company's prior sales in California involved the sale of "franchises" under
the Act. Such actions may include instituting proceedings to enjoin the Company
from violating the Act or to force the Company to comply with the Act, to seek
restitution or disgorgement or damages on behalf of any persons that the
Department may deem to have been injured by the Company's sales or to seek
penalties, including a penalty of up to $2,500 for each violation of the Act. If
persons who purchased the Company's Laser Storm(R) game systems in California
believe that the sale to them by the Company violated the Act, such persons may
be able to sue the Company for damages caused thereby or for rescission, if they
believe the violation was willful. In such event, the Company may have the right
to offset any such claim by the amount of any income realized by such persons
from their operation of the game systems. At this time, the Company has not been
threatened with any suit for violation of the Act by any person who purchased
the Company's Laser Storm(R) game systems. There are no assurances that the
Company will not be threatened with such suits in the future. If a claim for
damages or rescission were brought against the Company or if the Company deemed
it otherwise appropriate to offer rescission to previous purchasers of the
Company's Laser Storm(R) game systems in California, the Company. Upon making
any such purchase, the Company would either continue to operate the Laser
Storm(R) game facility or utilize the equipment to open a new Laser Storm(R)
game facility.
No assurance can be given that other jurisdictions will not review the
Company's activities to determine whether or not they deem such activities to
involve the sale of "franchises" or "business opportunities."
Bankruptcy Filing
Because of substantially greater than expected expenditures incurred by the
Company in connection with the development of an earlier version of a laser tag
game system, the Company elected in November 1992 to file for reorganization
under Chapter 11 of the United States Bankruptcy Code. In November 1993, the
Company's Plan of Reorganization was confirmed, and, in November 1994, the court
ordered the proceedings to be closed. Robert J. Cooney, who is the chairman of
the Board and Chief Executive Officer of the Company, was an executive officer
of the Company at the time of the bankruptcy filing.
Financial Public Relations
The Company has entered into an agreement with Michelson Group, Inc.
("Michelson") pursuant to which Michelson is to provide financial public
relations to the Company. The agreement is to be in effect until October 28,
1997. The Company pays Michelson monthly fees of $6,000 and has granted
Michelson an option to purchase 100,000 shares of the Company's Common Stock at
a price of $2.25 per share. The Company and Michelson are discussing reducing
the exercise price of the option to an exercise price that is closer to the
current market price of the Company's Common Stock.
26
<PAGE>
Employees
As of December 31, 1996, the Company had 64 full-time employees and 36
part-time employees. The Company's employees are not unionized.
Facilities
The Company leases approximately 26,350 square feet of office and warehouse
space pursuant to a lease which expires on January 31, 2006. The lease requires
base rental payments of $20,645 per month for the first 36 months with increases
thereafter tied to the Consumer Price Index. Robert J. Cooney, the Company's
Chairman of the Board and Chief Executive Officer, has individually guaranteed
the obligations of the Company under the new lease until December 31, 2000. The
Company also leases space for the company owned Laser Storm(R) game facilities.
MANAGEMENT
The following table sets forth the names and ages of the current directors
and executive officers of the Company, the principal offices and positions with
the Company held by each person and the date such person became a director or
executive officer of the Company. Each director serves a one year term and until
the director's successor is elected or until the director's death, resignation
or removal.
<TABLE>
<CAPTION>
Officer
and/or
Names of Executive Director
Officers and Directors Age Since Position
- ---------------------- --- -------- --------
<S> <C> <C> <C>
Robert J. Cooney..................... 32 1990 Chairman of the Board, Chief Executive
Officer and Director
William R. Bauerle................... 46 1994 President, Chief Operating Officer,
Secretary and Director
John E. McNutt....................... 40 1996 Chief Financial Officer and Treasurer
Frank J. Ball........................ 42 1994 Director
Harrison A. Price.................... 75 1995 Director
Harold Skripsky...................... 48 1995 Director
- ------------------
</TABLE>
Robert J. Cooney has been the Chairman of the Board and Chief Executive
Officer of the Company since March 1990, and the Treasurer of the Company since
October 1994. Mr. Cooney was President of the Company from February 1992 to
April 1994. From September 1989 to March 1990, Mr. Cooney was a Manager with
NBSI Capital Corp., a company which had developed a rudimentary laser tag game.
William R. Bauerle has been the President and the Chief Operating Officer
of the Company since April 1994 and a director and the Secretary of the Company
since July 1994. From 1985 to 1994, Mr. Bauerle was President and Director of
Asset Development Corporation, a software development and business consulting
firm. From 1989 to 1991, Mr. Bauerle was the Executive Vice President and, from
1990 to 1991 was a director, of Analytical Development Corporation, a company
which provides a wide range of analytical services to the chemical industry. Mr.
Bauerle received a bachelor's degree in business administration from the
University of Notre Dame with a major in marketing research.
27
<PAGE>
John E. McNutt has been the Company's Chief Financial Officer and Treasurer
of the Company since February 1997 and was Vice President of Finance of the
Company from July 1996 to February 1997. From 1981 to July 1996 Mr. McNutt was
associated with CAIRE, Inc., formerly Mountain Medical Equipment, Inc., a
manufacturer and seller of home health care respiratory equipment, where Mr.
McNutt served in various capacities including corporate controller and Vice
President of a subsidiary, Mountain Medical Leasing Co. From 1979 to 1991 Mr.
McNutt was a staff accountant with Dewey A. Rippy, CPA. Mr. McNutt is a
certified public accountant with over 15 years experience in corporate and
manufacturing accounting and finance including public accounting. His
responsibilities have included designing and implementation of manufacturing
accounting systems, development of budgeting and forecasting systems, corporate
taxation, directing external audits and financial reporting to the Securities
and Exchange Commission. Mr. McNutt received a bachelor of science degree in
business administration, accounting from Colorado State University.
Frank J. Ball has been a director of the Company since October 1995 and was
Executive Vice President of the Company from November 1994 to December 1996 and
General Counsel of the Company from inception of the Company until December
1996. From 1989 to the present, Mr. Ball has also been engaged in the private
practice of law focusing on trial work regarding domestic relations, criminal
and commercial litigation. Mr. Ball received a bachelor's degree in marketing
and organizational management from the University of Colorado, masters degrees
in business administration and public administration, and a Juris Doctor degree
from the University of Denver.
Harrison A. ("Buzz") Price has been a director of the Company since October
1995. Since 1978 Mr. Price has been the Chairman and the President of Harrison
Price Company, which is engaged in amusement attraction and entertainment
planning and which focuses, among other attractions, on themed amusement parks,
museums, family entertainment centers and performance and sports facilities. Mr.
Price has conducted site location and economic feasibility studies for
Disneyland and Disney World. Harrison Price Company has directed site selection
and feasibility studies for other Walt Disney Productions projects and conducted
studies for the Six Flags theme parks, several winter resorts, aquariums, Sea
World parks and hotels and conference centers. From 1973 to 1978 Mr. Price was
the Senior Vice President--Marketing and then the Chairman of Planning Research
Corporation. From 1958 to 1973, Mr. Price was a founder and President of
Economics Research Associates. He previously served as general manager of
Defense Plants Division, Harvey Aluminum, and was a research economist and the
manager for the Southern California Division of Stanford Research Institute. Mr.
Price currently is a director of Electronics Scales International, a privately
held corporation. He is a trustee of the California Institute of the Arts. Mr.
Price received a bachelor of science degree from the California Institute of
Technology and a masters degree in business administration from Stanford
University.
Harold Skripsky has been a director of the Company since October 1995. Mr.
Skripsky has been engaged in the restaurant and entertainment business since
1973. Since February 1996, Mr. Skripsky has been the owner and operator of The
Enchanted Castle, a theme oriented restaurant and entertainment center which he
co-founded and owned from 1981 to 1993. In 1993, Mr. Skripsky sold the Enchanted
Castle to Discovery Zone. From 1993 to February 1996, Mr. Skripsky was Vice
President of Operations for the Family Entertainment Center Division of
Discovery Zone where he has headed special projects and new concepts for the
Discovery Zone Fun Centers and corporate operations. Discovery Zone filed for
reorganization under Chapter 11 of the United States Bankruptcy Code in March
1996. From 1981 to 1992, Mr. Skripsky was engaged in the development, ownership
and operation of family style restaurants, including the development and opening
of the Enchanted Castle, a theme-oriented restaurant and entertainment center.
In 1993 Mr. Skripsky expanded Enchanted Castle and included a 32-player live
action laser game from Q-Zar. Mr. Skripsky is a director for the International
Family Entertainment Center Association and is a member of a number of other
industry organizations. He received his bachelor of science in business and
marketing from Northwest Missouri State University.
There are no family relationships among any of the officers or directors of
the Company.
The Company has purchased insurance in the amounts of $1,000,000 and
$532,258 on the lives of Robert J. Cooney and William R. Bauerle, respectively.
At death or surrender of the policies, the Company will recover its cumulative
share of the premiums paid for the cash values (in the case of surrender) or the
death benefit (in the case of death). The employees or their beneficiaries are
28
<PAGE>
entitled to receive cash values in excess of the cumulative premiums (in the
case of policy surrender) or the death benefit in excess of cumulative premiums.
The Company has also obtained key man life insurance in the amounts of
$2,000,000 each on the lives of Messrs. Cooney and Bauerle, respectively. The
Company is the sole beneficiary of this insurance.
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the
compensation paid by the Company for services rendered in all capacities to the
Company for the fiscal years ended December 31, 1996, 1995 and 1994, of those
persons who were, at December 31, 1996 (i) the chief executive officer and (ii)
the other most highly compensated executive officers of the Company whose annual
salary and bonus from the Company exceeded $100,000 for the fiscal year ended
December 31, 1996.
<TABLE>
<CAPTION>
Summary Compensation Table
Long Term
Annual Compensation Compensation
-------------------------------- ------------
Securities
Name and Principal Other Annual Underlying All Other
Positions at 12/31/96 Year Salary Bonus Compensation(1) Options Compensation
- --------------------- ---- ------ ----- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Robert J. Cooney..................... 1996....$ 150,000 - 0 - $ 23,942 -0- None
Chairman of the Board and 1995....$ 150,000 - 0 - $ 24,335 -0- None
Chief Executive Officer 1994....$ 97,500 - 0 - $ 3,883 -0- None
William R. Bauerle................... 1996....$ 150,000 -0- $26,681 -0- -0-
President and Secretary 1995....$ 150,000 -0- $21,099(2) 75,000 -0-
1994....$ 71,250 -0- $ 2,934(2) -0- $21,727(3)
Eric B. Schwartzman.................. 1996....$ 100,000 -0- $11,294 -0- -0-
Vice President of Marketing 1995....$ -0- -0- $ -0- -0- -0-
and Product Development until 1994....$ -0- -0- $ -0- -0- -0-
January 1997
Frank J. Ball........................ 1996....$ 120,000 -0- $12,016 -0- $15,238(6)
Executive Vice President, 1995....$ 45,411 -0- $ 5,685(5) -0- $14,020(6)
Operations and General 1994....$ -0- -0- -0- -0- $14,000(6)
Counsel until December
1996 and Director
Michael D. Kessler................... 1996....$ 110,000 -0- $43,571(7) -0- -0-
Vice President of Retail 1995....$ 13,749 -0- -0- -0- -0-
Operations until December 1994....$ -0- -0- -0- -0- -0-
1996
- ------------------
</TABLE>
(1) Includes amounts paid by the Company for automobile expenses ($12,159
in 1996, $8,988 in 1995 and $3,218 in 1994), health club dues ($1,490 in 1996,
$1,559 in 1995 and $665 in 1994), life insurance premiums advanced on behalf of
Mr. Cooney ($12,110 in 1996 and $12,111 in 1995) and disability insurance
premiums ($3,183 in 1996 and $1,677 in 1995).
(2) Includes amounts paid by the Company for automobile expenses ($11,637
in 1996 and $7,204 in 1995), health club dues ($250 in 1995 and $660 in 1994),
life insurance premiums advanced on behalf of Mr. Bauerle ($11,635 in 1996,
$11,635 in 1995 and $1,939 in 1994) and disability insurance premiums ($3,407 in
1996, $2,010 in 1995 and $335 in 1994).
(3) Represents consulting fees paid to a corporation owned by Mr. Bauerle
prior to Mr. Bauerle becoming an employee of the Company.
29
<PAGE>
(4) Includes amounts paid by the Company for automobile expenses ($11,244
in 1996).
(5) Includes amounts paid by the Company for automobile expenses ($10,526
in 1996 and $4,605 in 1995), health club dues ($1,490 in 1996 and $1,080 in
1995).
(6) Represents amounts paid in legal fees for services rendered by the law
firm owned by Mr. Ball.
(7) Includes amounts paid by the Company for automobile expenses ($8,742 in
1996, health club dues ($1,320 in 1996) and a commission ($33,509 in 1996).
Value of Options at December 31, 1996
<TABLE>
<CAPTION>
Aggregate Fiscal Year End Option Values
---------------------------------------------------------------
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at Fiscal Year End at Fiscal Year End
Exercisable/Unexercisable Exercisable/Unexercisable
-------------------------- -------------------------
<S> <C> <C>
Robert J. Cooney............... - 0 - - 0 -
William R. Bauerle............. 50,000/25,000 $40,000/$20,000(1)
Eric B. Schwartzman............ 25,000/50,000 - 0 -
Frank J. Ball.................. -0- - 0 -
Michael D. Kessler............. 25,000/50,000 - 0 -
- ----------------------
</TABLE>
(1) The value is based on the closing sale price of $1.00 of the Company's
Common Stock on December 31, 1996 minus the exercise price of the options.
No options to purchase the Company's Common Stock were exercised by Messrs.
Cooney, Bauerle, Schwartzman, Ball or Kessler during the Company's fiscal year
ended December 31, 1996.
Until December 31, 1997, the Company has agreed with Laidlaw that the
Company will not increase, without shareholder approval, the compensation of
Messrs. Cooney and Bauerle by more than an aggregate of 15% per annum above
current levels. Subject to the foregoing limitations, the Company may reserve up
to 10% of net pre-tax profits over $1,000,000 for bonuses to Company executives
and employees.
Option Grants in the Last Fiscal Year
No options were granted by the Company to Robert J. Cooney, William R.
Bauerle, Eric B. Schwartzman, Frank J. Ball or Michael D. Kessler during the
Company's fiscal year ended December 31, 1996.
Messrs. Cooney and Bauerle have employment agreements with the Company.
Each employment agreement contains provisions that the employee will not
disclose Company confidential information and will not compete with the Company
for 24 months after termination of their agreements.
Mr. Cooney's agreement was effective October 1, 1994, extends through
September 10, 1998 and provides for an annual salary of $150,000. Effective
February 1, 1997, Mr. Cooney temporarily reduced his annual salary to $100,000.
The Company may terminate the agreement with or without cause. If the Company
terminates Mr. Cooney's agreement without cause, the Company must continue to
pay Mr. Cooney his salary until September 10, 1998.
Mr. Bauerle's agreement was effective October 1, 1994, extends through
September 10, 1998 and provides for an annual salary of $150,000. Effective
February 1, 1997, Mr. Bauerle temporarily reduced his annual salary to $100,000.
The Company may terminate the agreement with or without cause. If the Company
terminates Mr. Bauerle's agreement without cause, the Company must pay Mr.
Bauerle his salary for six months after the termination.
30
<PAGE>
Mr. McNutt does not have an employment agreement with the Company, Mr.
McNutt receives a salary of $78,000 annually, and was granted options to
purchase 75,000 shares of the Company's Common Stock at an exercise price of
$2.25 per share. The options vest 25,000 on August 15, 1997, 25,000 on August
15, 1998, and 25,000 on November 1, 1999, and expire on August 15, 2002, August
15, 2003, and October 31, 2004, respectively.
Each executive officer also receives a $725 per month vehicle allowance and
is reimbursed for all other business related expenses.
Termination Arrangements with Former Officers
Frank J. Ball, the former Executive Vice President and General Counsel of
the Company and a Director of the Company had an employment agreement with the
Company that was terminated on December 6, 1996. As a result, the Company must
pay Mr. Ball his salary through June 1997.
Michael D. Kessler, the former Vice President of Retail Operations of the
Company, had an employment agreement with the Company that was terminated on
December 6, 1996. As a result, the Company must pay Mr. Kessler his salary
through June 1997.
Eric B. Schwartzman, the former Vice President of Marketing and Product
Development, had an employment agreement with the Company that was terminated on
January 16, 1997. As a result, the Company must pay Mr. Schwartzman his salary
through July 1997.
Amended Stock Incentive Plan
The Company has adopted an Amended Stock Incentive Plan ("Plan") which
authorizes the Company to grant incentive stock options within the meaning of
Section 422A of the Internal Revenue Code of 1986, as amended, to grant
nonstatutory stock options and to make restricted stock grants. The Plan relates
to a total of 300,000 shares of Common Stock. Options relating to 30,500 shares
have been exercised and options relating to 248,800 shares are outstanding. The
options vest in three equal annual installments over a three-year period from
their respective dates of grant. The options are exercisable at $0.20 per share
for 135,500 shares, $2.00 per share for 28,500 shares, $4.00 per share for
34,800 shares and $2.25 per share for 50,000 shares. The outstanding options
must be exercised within five years from the date of vesting and no later than
three months after termination of employment, except that any optionee who is
unable to continue employment due to total and permanent disability may exercise
such options within one year of termination and the options of an optionee who
is employed or disabled and who dies must be exercised within one year after the
date of death.
The Plan requires that the exercise prices of options granted must be at
least equal to the fair market value of a share of Common Stock on the date of
grant, provided that if an employee owns more than 10% of the Company's
outstanding Common Stock then the exercise price of an incentive option must be
at least 110% of the fair market value of a share of the Company's Common Stock
on the date of grant, and the maximum term of such option may be no longer than
five years. The aggregate fair market value of Common Stock, determined at the
time the option is granted, for which incentive stock options become exercisable
by an employee during any calendar year is limited to $100,000.
The Plan is to be administered by the Company's Board of Directors or a
committee thereof which determines the terms of options granted, including the
exercise price, the number of shares of Common Stock subject to the option, and
the terms and conditions of exercise. No option granted under the Plan is
transferrable by the optionee other than by will or the laws of descent and
distribution, and each option is exercisable during the lifetime of the optionee
only by such optionee.
Restricted stock grants to employees may also be made under the Plan on
such terms and conditions as the Board of Directors or committee determines.
31
<PAGE>
1996 Incentive and Nonstatutory Stock Option Plan
The Company has adopted, subject to shareholder approval, the 1996
Incentive and Nonstatutory Stock Option Plan ("1996 Plan") which authorizes the
Company to grant incentive stock options within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended, and to grant nonstatutory stock
options. The 1996 Plan relates to a total of 1,000,000 shares of common stock.
No shares have been exercised and options relating to 25,000 are outstanding,
all of which were granted to an officer of the Company. See "Principal
Shareholders." The options vest in 1999. The outstanding options must be
exercised within five years from the date of vesting and no later than three
months after the termination of employment, except that any optionee who is
unable to continue employment due to total and permanent disability may exercise
such options within one year of termination and the options of an optionee who
is employed or disabled and who dies must be exercised within one year after the
date of death.
The 1996 Plan requires that the exercise prices of options granted must be
at least equal to the fair market value of a share of common stock on the date
of grant, provided that if an employee owns more than 10% of the Company's
common stock, then the exercise price of an incentive option must be at least
110% of the fair market value of a share of the Company's common stock on the
date of grant, and the maximum term of such option may be no longer than five
years. The aggregate fair market value of common stock, determined at the time
the option is granted, for which incentive stock options become exercisable by
an employee during any calendar year is limited to $100,000. The options may be
granted to any person selected by the board. Incentive stock options may be
granted only to employees. The 1996 Plan is to be administered by the Company's
board of directors or a committee of two or more non-employee directors which
determines the terms of the options granted, including the exercise price,
number of shares of common stock subject to the option, and the terms and
conditions of exercise. No option granted under the 1996 Plan is transferable by
the optionee other than by will or the laws of descent and distribution. Each
option is exercisable during the lifetime of the optionee only by such optionee.
Compensation of Directors
The Company compensates its non-employee directors $20,000 per year,
payable in quarterly installments, and has granted each non-employee director an
option to purchase 50,000 shares of Common Stock at $4.00 per share. One-half of
each option vested in October 1995, one quarter of each option vested in October
1996 and one quarter of each option will vest in October 1997. The options must
be exercised within five (5) years from the date of vesting. The options were
not granted under the Plan or the 1996 Plan.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock, outstanding as of January 31, 1997, by
(i) each person who is known to the Company to own beneficially more than 5% of
the outstanding Common Stock with the address of each such person, (ii) each of
the Company's directors and officers, and (iii) all of the Company's officers
and directors as a group.
<TABLE>
<CAPTION>
Name and Address of Beneficial Owner Amount and Nature of Percent of
or Name of Officer or Director Beneficial Ownership(1) Class(2)
- ------------------------------------ ---------------------- ----------
<S> <C> <C>
Robert J. Cooney................................................ 841,800 21.8%
7808 Cherry Creek South Drive, Unit 301
Denver, Colorado 80231
William R. Bauerle................................................. 151,250(3) 3.8%
7808 Cherry Creek South Drive, Unit 301
Denver, Colorado 80231
32
<PAGE>
<CAPTION>
Name and Address of Beneficial Owner Amount and Nature of Percent of
or Name of Officer or Director Beneficial Ownership(1) Class(2)
- ------------------------------------ ---------------------- ----------
<S> <C> <C>
John E. McNutt..................................................... 75,000(4) 1.9%
7808 Cherry Creek South Drive, Unit 301
Denver, Colorado 80231
Harrison A. Price.................................................. 50,000(5) 1.3%
222 West 6th Street, Suite 1000
San Pedro, California 90731
Harold Skripsky.................................................... 50,000(6) 1.3%
1103 South Main Street
Lombard Pines Plaza
Lombard, Illinois 60148
All Officers and Directors as a Group (5 Persons).................. 1,168,050(7) 28.4%
Edward J. Bonis.................................................... 411,750 10.7%
7808 Cherry Creek South Drive, Unit 301
Denver, Colorado 80231
- -----------------
</TABLE>
(1) The beneficial owners listed have sole voting and investment power with
respect to the shares of Common Stock.
(2) Assumes the stock option of each person who has a stock option is
exercised whether or not the stock option is vested.
(3) Includes 75,000 shares of Common Stock underlying stock options, 50,000
shares of which are currently exercisable and the balance of which become
exercisable in December 1997.
(4) Consists of 75,000 shares of Common Stock underlying stock options,
none of which are exercisable until August 1997.
(5) Consists of 50,000 shares of Common Stock underlying stock options,
37,500 of which are currently exercisable and 12,500 of which are not
exercisable until October 1997.
(6) Consists of 50,000 shares of Common Stock underlying stock options,
37,500 of which are currently exercisable and 12,500 of which are not
exercisable until October 1997.
(7) Includes 400,000 shares of Common Stock underlying the outstanding
stock options described above.
CERTAIN TRANSACTIONS
Robert J. Cooney, the Company's Chairman of the Board and Chief Executive
Officer, has individually guaranteed, until December 31, 2000, the obligations
of the Company under the lease for the Company's facilities. The lease expires
on January 31, 2006 and requires base rental rate payments of $20,645 per month
for the first 36 months with increased rentals thereafter tied to the Consumer
Price Index. See "Business--Office and Warehouse Facilities."
Harold Skripsky, a director of the Company since October 1995, was Vice
President of Operations for the Family Entertainment Center Division of
Discovery Zone from 1993 to February 1996. Discovery Zone purchased six Laser
Storm(R) systems from the Company during the summer of 1994. Discovery Zone
filed for reorganization under Chapter 11 of the United States Bankruptcy Code
in March 1996. The Company has made no determination what effect, if any, the
reorganization will have on any future purchases by Discovery Zone.
33
<PAGE>
DESCRIPTION OF SECURITIES
Authorized Stock
The authorized capital stock of the Company consists of 20,000,000 shares
of Common Stock, $0.001 par value per share, and 2,000,000 shares of preferred
stock, $0.001 par value per share. All of the issued and outstanding capital
stock of the Company is fully paid and nonassessable. The following summary
descriptions of the Company's preferred stock and Common Stock are qualified in
their entirety by reference to the Company's Restated Articles of Incorporation,
which were filed as exhibits to the Registration Statement of which this
Prospectus is a part and which are available from the Company upon request. See
"Additional Information."
Common Stock
As of December 31, 1996, there were 3,856,836 shares of Common Stock
outstanding, held of record by 46 shareholders. The holders of Common Stock are
entitled to receive ratable dividends when and as declared by the Board of
Directors from funds legally available therefor and to one vote for each share
held of record on each matter submitted to a vote of shareholders. In the event
of a liquidation, dissolution or winding-up of the Company, holders of Common
Stock are entitled to share ratably in all assets remaining after payments to
creditors and other payments required by law. Holders of Common Stock have no
preemptive rights and no rights to convert their Common Stock into any other
securities. The outstanding shares of Common Stock are fully paid and
nonassessable.
Warrants
Unless previously redeemed, each Warrant entitles the registered holder
thereof to purchase one share of Common Stock at any time until April 23, 2001,
at $5.00 per share, subject to adjustment in certain circumstances. The exercise
price of the Warrants will be reduced by $0.20 per share for every $0.01 that
the Company's reported audited net after tax earnings per share for the
Company's four fiscal quarters ending March 31, 1997, are less than $0.40 (but
in no event will the exercise price be reduced to less than $1.00 per share).
For purposes of computing earnings per share for the determination of the
exercise price of the Warrants, the computation will be made using fully diluted
audited net after tax earnings per share based on the weighted average number of
shares outstanding for the Company's four fiscal quarters ending March 31, 1997
(using the treasury stock method). The dilutive effect of the Warrants on the
earnings per share computation will be computed using the $5.00 per unit. Should
the Company's audited net after tax earnings for the four fiscal quarters ending
March 31, 1997 be less than $0.40 per share, the weighted average number of
shares outstanding will not be recomputed to give effect to the adjustments to
the exercise price of the Warrants. As of the date hereof, the management of the
Company expects that the Company will incur a loss for the four fiscal quarters
ending March 31, 1997, and that the adjusted exercise price per share of the
Warrants will be reduced to $1.00 per share.
Commencing on a date that is 30 days after the date the Company publicly
reports its audited financial results for the year ending December 31, 1996 and
unaudited financial results for the quarter ending March 31, 1997, the Company
may redeem the Warrants at $0.05 per Warrant upon 30 days' prior written notice
any time after a period of 30 consecutive trading days that the closing price of
the Common Stock exceeds $1.75 per share (based on an adjusted exercise price of
$1.00 per share) because of the expected loss for the four fiscal quarters
ending March 31, 1997). For these purposes, the closing price of the Common
Stock will be determined by the closing bid price, as reported by NASDAQ, or, if
the Common Stock is listed on a national stock exchange or on the Nasdaq
National Market System, the closing price will be determined by the closing sale
price on the primary exchange on which the Common Stock is traded or on the
Nasdaq National Market System, if such shares are not listed on a national stock
exchange.
34
<PAGE>
The Warrants have been issued in registered form pursuant to the terms of a
Warrant Agreement dated as of April 23, 1996 (the "Warrant Agreement") between
the Company and American Securities Transfer & Trust, Inc., Denver, Colorado, as
Warrant Agent. Reference is made to said Warrant Agreement (which has been filed
as an Exhibit to the Registration Statement of which this Prospectus is a part)
for a complete description of the terms and conditions thereof. The description
herein is qualified in its entirety by reference to the Warrant Agreement.
The exercise prices and number of shares of Common Stock or other
securities issuable on exercise of the Warrants are also subject to adjustment
in certain circumstances, including in the event of a stock dividend, stock
split, recapitalization, reorganization, merger or consolidation of the Company
or certain sales of the Company's Common Stock below the then current market
price. However, the Warrants are not subject to adjustment for issuances of
Common Stock upon exercise of outstanding options, or options to be granted
pursuant to the Company's Amended Stock Incentive Plan.
The Warrants may be exercised upon surrender of the Warrant certificate on
or prior to the expiration date at the offices of the Warrant Agent, with the
exercise form on the reverse side of the Warrant certificate completed and
executed as indicated, accompanied by full payment of the exercise price (by
certified check payable to the Company) to the Warrant Agent for the number of
warrants being exercised. The Warrant holders do not have the rights or
privileges of holders of Common Stock.
Limitation of Directors' Liability. The Company's Restated Articles of
Incorporation eliminate, subject to certain exceptions, the personal liability
of directors to the Company or its shareholders from monetary damages for breach
of fiduciary duty by such directors. The Company's Restated Articles of
Incorporation do not provide for the elimination of or any limitation on the
personal liability of directors for (i) any breach of the director's duty of
loyalty to the Company or its shareholders, (ii) acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) unlawful corporate distributions, or (iv) any transaction from which such
director derives an improper personal benefit. This provision of the Restated
Articles of Incorporation will limit the remedies available to a shareholder who
is dissatisfied with a decision of the Board of Directors protected by this
provision; such shareholder's only remedy may be to bring a suit to prevent the
action of the Board. This remedy may not be effective in many situations because
shareholders are often unaware of a transaction or event prior to Board action
in respect of such transaction or event. In these cases, the shareholders and
the Company could be injured by a Board's decision and have no effective remedy.
The Company has officer and director liability insurance and the Company's
Restated Articles of Incorporation provide that the Company shall indemnify its
directors and officers to the fullest extent permitted by Colorado law. Insofar
as the indemnification for liabilities arising under the Securities Act of 1933,
as amended, may be permitted to directors, officers and controlling persons of
the Company, the Company 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.
Transfer Agent, Registrar and Warrant Agent
American Securities Transfer & Trust, Incorporated, Denver, Colorado, is
the transfer agent and registrar for the Common Stock and warrant agent for the
Warrants.
SELLING SECURITY HOLDERS
The following table sets forth certain information regarding the Units
and shares of Common Stock owned by the Selling Security Holders. As of the date
hereof, all or a part of the Units shown as being offered by the Selling
Security Holders could already have been sold. The Selling Security Holders are
not required, and may choose not, to sell any of their Units or shares of Common
Stock.
35
<PAGE>
<TABLE>
<CAPTION>
Units or Shares Units or Shares
Owned Prior Units or Shares Owned After
Name of Selling Security Holder to Offering Being Offered Offering
- ------------------------------- --------------- --------------- ---------------
<S> <C> <C> <C>
Gregory J. Ashwill....................................... 1,899 1,899 --0--
Mitchel R. Ashwill....................................... 3,801 3,801 --0--
Philip R. Beuth.......................................... 9,500 9,500 --0--
William F. Coffin Corporation Defined
Benefit Plan............................................ 5,700 5,700 --0--
Martin W. Greenwald...................................... 3,794 3,794 --0--
Michael J. Heller........................................ 3,800 3,800 --0--
Mitchell Knapp........................................... 28,019 28,019 --0--
Larry Kupferberg......................................... 28,019 28,019 --0--
Chin-Wen Lai............................................. 93,181 93,181 --0--
Michael Miller........................................... 56,363 56,363 --0--
OK Associates Pension Trust.............................. 17,075 17,075 --0--
Lynne Carole Pearse...................................... 3,794 3,794 --0--
RehCam Investments L.P................................... 7,598 7,598 --0--
Tryon N. Sisson.......................................... 18,972 18,972 --0--
Chen-Ya Lin Tsou and Tien-Tseng Tsou..................... 74,833 74,833 --0--
Universal Partners, L.P.................................. 19,001 19,001 --0--
Aarnel Funding Corp. Pension Plan........................ 36,418 36,418 --0--
Chaim Drizin............................................. 9,095 9,095 --0--
Allan R. Lyons........................................... 9,095 9,095 --0--
Steven Gryczman.......................................... 9,095 9,095 --0--
Warren Gilbert........................................... 27,314 27,314 --0--
Stanley Snyder........................................... 27,287 27,287 --0--
Abe New.................................................. 9,095 9,095 --0--
Stanley Kaplan........................................... 9,090 9,090 --0--
Janice Halle-Nesses...................................... 36,383 36,383 --0--
Hung Ming Chen........................................... 21,851 21,851 --0--
Ross Asset Management Limited............................ 9,095 9,095 --0--
Ralph H. Grills, Jr...................................... 3,636 3,636 --0--
Greg Simonds............................................. 1,818 1,818 --0--
Greg Skufca.............................................. 1,818 1,818 --0--
R. Andrew Girardot, Jr................................... 3,636 3,636 --0--
I.A.C.................................................... 3,636 3,636 --0--
Thomas G. Williams IRA................................... 7,272 7,272 --0--
Arthur W. Zarlengo....................................... 3,636 3,636 --0--
Gordon E. Beckstead Asso., Inc. Pension Trust............ 3,636 3,636 --0--
R. Gerald Hughes......................................... 3,636 3,636 --0--
G. A. Partnership........................................ 7,272 7,272 --0--
Russell Casement, DDS, PC Employee Profit
Sharing Plan............................................ 7,272 7,272 --0--
Charles R. Harrison...................................... 3,636 3,636 --0--
RELA, Inc................................................ 175,000(1) 175,000 --0--
Bertrand T. Ungar........................................ 50,000(2) 50,000 --0--
Laser Storm of Longmont.................................. 32,500(3) 32,500 --0--
Ridgeworld North, Inc.................................... 35,625(3) 35,625 --0--
Michelson Group, Inc..................................... 100,000(1) 100,000 --0--
---------- -------
Totals................................................. 1,023,196 1,023,196 --0--
- -----------------
</TABLE>
(1) Consists of shares underlying a presently exercisable option.
36
<PAGE>
(2) Consists of shares underlying a presently exercisable option. Mr. Ungar
has agreed not to sell any shares issued upon exercise of his option until
October 26, 1997 without the prior written consent of Laidlaw. See
"Business--Consulting Agreement."
(3) Consists of outstanding shares.
PLAN OF DISTRIBUTION
Sales of the Securities may be made pursuant to this Prospectus and
pursuant to Rule 144 adopted under the Securities Act of 1933, as amended. It is
anticipated that the per share selling price for the Securities will be at or
between the "bid" and "asked" prices of the Company's Common Stock and Warrants,
respectively, as quoted in the over-the-counter market immediately preceding the
sale. Expenses of any such sale will be borne by the buyer and seller as they
may agree.
The Selling Security Holders may effect transactions in their Securities by
selling their securities directly to purchasers, through broker-dealers acting
as agents for the Selling Security Holders or to broker-dealers who may purchase
the Selling Security Holders' Securities as principals and thereafter sell such
securities from time to time in the over-the-counter market, in negotiated
transactions, or otherwise. Such broker-dealers, if any, may receive
compensation in the form of discounts, concessions or commissions from the
Selling Security Holders and or the purchasers for whom such broker-dealers may
act as agents or to whom they may sell as principals or both.
The sale of the Securities may be effected from time to time in
transactions (which may include block transactions by or for the account of the
Selling Security Holders) in the over-the-counter market or in negotiated
transactions, through a combination of such methods of sale or otherwise. Sales
may be made at fixed prices which may be changed, at market prices prevailing at
the time of sale, or at negotiated prices. If any Selling Security Holder sells
any Securities pursuant to this Prospectus at a fixed price or at a negotiated
price which is, in either case, other than the prevailing market price, or in a
block transaction to a purchaser who resells, or if any Selling Security Holder
pays compensation to a broker-dealer that is other than the usual and customary
discounts, concessions or commissions, or if there are any arrangements either
individually or in the aggregate that would constitute a distribution of the
Securities, a post-effective amendment to the Registration Statement of which
this Prospectus is a part may need to be filed and declared effective by the
Securities and Exchange Commission ("SEC") before such Selling Security Holder
could make such sale, pay such compensation or make such a distribution.
LEGAL MATTERS
The validity of the issuance of 168,125 of the shares of Common Stock being
offered hereby by Laser Storm of Longmont, Ridgeworld North, Inc. and Michelson
Group, Inc. and the validity of the remaining shares of Common Stock being
offered hereby have been passed upon for the Company by Smith, McCullough &
Ferguson, P.C., and by Hopper and Kanouff, P.C., Denver, Colorado, respectively.
EXPERTS
The balance sheet of the Company as of December 31, 1995 and the statements
of operations, shareholders' equity and cash flows for the fiscal years ended
December 31, 1995 and 1994 have been included herein in reliance upon the report
of HEIN + ASSOCIATES LLP, independent certified public accountants, given upon
the authority of that firm as experts in accounting and auditing.
37
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the SEC a registration statement ("Registration
Statement") under the Securities Act of 1933, as amended ("1933 Act") with
respect to the Securities offered hereby. This Prospectus, which is part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto, certain items of
which are omitted in accordance with the rules and regulations of the SEC. For
further information with respect to the Company and the securities offered
hereby, reference is hereby made to the Registration Statement and such exhibits
and schedules thereto, which may be examined at the SEC's offices without
charge, or copies of which may be obtained from the SEC upon payment of the
prescribed fees. Statements made in this Prospectus as to the contents of any
contract, agreement or document are not necessarily complete, and in each
instance reference is made to the copy of such contract, agreement or other
document filed as an exhibit to the Registration Statement, and each such
statement is qualified in its entirety by such reference. The Company is a
reporting company registered under the Securities Exchange Act of 1934, as
amended ("1934 Act") and in accordance therewith files reports and other
information with the SEC. All of such reports and other information may be
inspected and copied at the public reference facilities maintained by the SEC at
450 Fifth Street, N.W., Washington, D.C. 20549 and at regional offices of the
SEC located at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and
7 World Trade Center, Suite 1300, New York, New York 10048. The Commission
maintains a web site that contains reports, proxy and information statements and
other information regarding issuers that file electronically with the
Commission. The address of such site is http:\\www.sec.gov.
The Company intends to furnish its shareholders with annual reports
containing audited financial statements and, upon request, quarterly reports
containing unaudited financial information for each of the first three quarters
of each fiscal year.
37
<PAGE>
LASER STORM, INC.
INDEX TO FINANCIAL STATEMENTS
PAGE
Independent Auditor's Report................................................F-2
Balance Sheet - December 31, 1995...........................................F-3
Statements of Operations - For the Years Ended
December 31, 1994 and 1995 ............................................F-4
Statements of Changes in Stockholders' Equity - For the Years Ended
December 31, 1994 and 1995 ............................................F-5
Statements of Cash Flows - For the Years Ended
December 31, 1994 and 1995 ............................................F-6
Notes to Financial Statements...............................................F-7
Unaudited Condensed Balance Sheet - September 30, 1996 .....................F-18
Unaudited Condensed Statements of Operations - Nine Months Ended
September 30, 1996 and 1995 ...........................................F-20
Unaudited Condensed Statement of Changes in Stockholders' Equity -
Nine Months Ended September 30, 1996 ..................................F-21
Unaudited Condensed Statements of Cash Flows - Nine Months Ended
September 30, 1996 and 1995 ...........................................F-22
Notes to Condensed Financial Statements - ..................................F-23
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Laser Storm, Inc.
Denver, Colorado
We have audited the accompanying balance sheet of Laser Storm, Inc. as of
December 31, 1995 and the related statements of operations, changes in
stockholders' equity, and cash flows for the years ended December 31, 1994 and
1995. These financial statements are the responsibility of the Company's manage
ment. Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Laser Storm, Inc. as of
December 31, 1995, and the results of its operations and its cash flows for the
years ended December 31, 1994 and 1995, in conformity with generally accepted
accounting principles.
HEIN + ASSOCIATES LLP
Denver, Colorado
February 9, 1996, except for Note 8,
for which the date is February 29, 1996
F-2
<PAGE>
LASER STORM, INC.
BALANCE SHEET
DECEMBER 31, 1995
<TABLE>
<CAPTION>
DECEMBER 31,
1995
-----------
ASSETS
<S> <C>
CURRENT ASSETS:
Cash ................................................................... $ 10,473
Accounts receivable - trade, net of allowance for
doubtful accounts of $30,000 ........................................ 613,949
Inventories ............................................................ 442,545
Deferred income taxes .................................................. 111,000
Prepaid expenses and other ............................................. 57,524
----------
Total current assets ........................................... 1,235,491
----------
PROPERTY AND EQUIPMENT, net ................................................ 337,602
OTHER ASSETS:
Deferred offering costs ................................................ 277,929
Software development, net of accumulated amortization of $71,554 ....... 88,536
License fees, net of accumulated amortization of $5,833 ................ 53,667
Deposits and other ..................................................... 29,473
----------
Total other assets ............................................. 449,605
----------
TOTAL ASSETS ............................................................... $ 2,022,698
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ....................................................... $ 722,755
Accrued expenses ....................................................... 104,019
Accrued compensation ................................................... 127,238
Income taxes payable ................................................... 60,000
Current maturities of long-term debt ................................... 20,294
Customer deposits and deferred revenue ................................. 214,805
Contingent settlements ................................................. 270,000
----------
Total current liabilities ...................................... 1,519,111
LONG-TERM DEBT, less current maturities .................................... 30,884
DEFERRED INCOME TAXES ...................................................... 60,000
COMMITMENTS AND CONTINGENCIES (NOTES 5, 6, AND 7)
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value; 2,000,000 shares authorized:
Series A 12% Convertible Cumulative Preferred Stock,
140,000 shares issued and outstanding, liquidation preference
of $718,000 .................................................. 140
Series B 12% Convertible Cumulative Preferred Stock, no shares
authorized at December 31, 1995 ................................ --
Common stock, $.001 par value; 20,000,000 shares authorized;
1,601,250 shares issued and outstanding ............................ 1,601
Additional paid in capital ............................................. 575,136
Accumulated deficit .................................................... (164,174)
----------
Total stockholders' equity ..................................... 412,703
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ................................. $ 2,022,698
==========
</TABLE>
See accompanying notes to these financial statements.
F-3
<PAGE>
LASER STORM, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-------------------------------
1994 1995
---- ----
<S> <C> <C>
NET REVENUES ........................................................ $ 2,786,850 $ 5,477,540
COST OF GOODS SOLD .................................................. 1,375,368 2,352,606
------------------ ----------------
GROSS PROFIT .................................................... 1,411,482 3,124,934
EXPENSES:
General and administrative ...................................... 895,673 1,546,453
Selling and marketing ........................................... 586,433 820,471
Depreciation and amortization ................................... 47,566 116,183
Product development ............................................. 98,593 139,979
Contingent settlements .......................................... -- 270,000
------------------ ----------------
Total expenses ............................................. 1,628,265 2,893,086
------------------ ----------------
OPERATING INCOME (LOSS) ............................................. (216,783) 231,848
Income tax expense .............................................. -- (9,000)
------------------ ----------------
NET INCOME (LOSS) ................................................... $ (216,783) $ 222,848
================== ================
NET INCOME (LOSS) APPLICABLE TO COMMON STOCKHOLDERS ................. $ (216,783) $ 204,848
================== ================
PRO FORMA NET INCOME PER SHARE APPLICABLE TO
COMMON STOCKHOLDERS ............................................... $ .10
================
PRO FORMA COMMON SHARES OUTSTANDING 2,033,000
================
</TABLE>
See accompanying notes to these financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
LASER STORM, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
PREFERRED STOCK COMMON STOCK
------------------------ ----------------------
Shares Amount Shares Amount
------------ --------- ---------- --------
<S> <C> <C> <C> <C>
BALANCES, January 1, 1994 ...................................... -- $ -- 305,000 $ 305
Issuance of common stock for services ..................... -- -- 1,296,250 1,296
Net loss .................................................. -- -- -- --
------------ -------- ---------- ----------
BALANCES, December 31, 1994 .................................... -- -- 1,601,250 1,601
Private placement of Series A 12% Convertible
Cumulative Preferred Stock .......................... 140,000 140 -- --
Offering costs related to private placement ............... -- -- -- --
Net income ................................................ -- -- -- --
------------ -------- ---------- ---------
BALANCES, December 31, 1995 .................................... 140,000 $ 140 1,601,250 $1,601
============ ======== ========== ========
<CAPTION>
Additional
Paid-In Accumulated
Capital Deficit Total
--------- ----------- ---------
<S> <C> <C> <C>
BALANCES, January 1, 1994 ....................................... $ -- $(170,239) $(169,934)
Issuance of common stock for services ...................... 18,529 -- 19,825
Net loss ................................................... -- (216,783) (216,783)
--------- --------- ---------
BALANCES, December 31, 1994 ..................................... 18,529 (387,022) (366,892)
Private placement of Series A 12% Convertible
Cumulative Preferred Stock ........................... 699,860 -- 700,000
Offering costs related to private placement ................ (143,253) -- (143,253)
Net income ................................................. -- 222,848 222,848
--------- --------- ---------
BALANCES, December 31, 1995 ..................................... $ 575,136 $(164,174) $ 412,703
========= ========= =========
</TABLE>
See accompanying notes to these financial statements.
F-5
<PAGE>
LASER STORM, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-------------------
1994 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .................................................... $ (216,783) $ 222,848
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization .................................. 47,566 116,183
Loss on asset disposition ...................................... 7,111 16,054
Provision for bad debts ........................................ 7,877 21,540
Issuance of common stock for services .......................... 19,825 --
Deferred income taxes .......................................... -- (51,000)
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable ....................................... (185,372) (362,288)
Inventories ............................................... (281,349) (80,410)
Other ..................................................... 71,813 (87,032)
Increase (decrease) in:
Accounts payable .......................................... 313,212 139,516
Accrued expenses .......................................... 106,729 146,266
Customer deposits and deferred revenue .................... 409,553 (456,081)
Contingent settlements .................................... -- 270,000
-------------- ---------
Net cash provided by (used in) operating activities ............ 300,182 (104,404)
-------------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and equipment ...................... (99,389) (194,858)
Software development costs ........................................... (71,443) (31,015)
License costs ........................................................ -- (52,500)
-------------- ---------
Net cash used in investing activities .......................... (170,832) (278,373)
-------------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of Series A 12% Convertible
Cumulative Preferred Stock ........................................ -- 700,000
Deferred offering costs .............................................. (16,128) (311,211)
Principal payments on notes payable .................................. (148,384) (11,767)
-------------- ---------
Net cash provided by (used in) financing activities ............ (164,512) 377,022
-------------- ---------
DECREASE IN CASH ........................................................... (35,162) (5,755)
CASH, at beginning of year ................................................. 51,390 16,228
-------------- ---------
CASH, at end of year ....................................................... $ 16,228 $ 10,473
============== =========
SUPPLEMENTAL CASH FLOW INFORMATION -
Cash paid for interest ............................................... $ 3,396 $ 9,252
============== =========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES -
Debt incurred for purchase of equipment .............................. $ -- $ 30,025
============== =========
</TABLE>
See accompanying notes to these financial statements.
F-6
<PAGE>
LASER STORM, INC.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES:
Nature of Operations - The Company was incorporated in Colorado in 1990
under the name "The Crimson Corporation - a Holding Company." In
November 1994, the Company changed its name to "Laser Storm, Inc."
In November 1992, the Company filed for reorganization under Chapter 11
of the United States Bankruptcy Code. In November 1993, the Company's
Plan of Reorganization was confirmed by the Bankruptcy Court. In
November 1994, the Court ordered the proceedings to be closed. The
confirmed plan provided for the payment of $26,000 in settlement of
$172,000 of trade payables. The bankruptcy proceeding did not result in
an alteration of the relative ownership interests of the Company.
The Company has developed interactive laser tag game systems ("Laser
Systems") which it sells primarily to independent operators generally
throughout the United States. The Company's revenues are predominantly
derived from the sale of Laser Systems and arenas. The games are played
between teams of opponents in themed arenas utilizing special effects
for sound, lighting, barriers, and other decorative elements.
Inventories - Inventories are stated at the lower of cost or market,
determined by the first-in, first-out method and consist of the
following at December 31, 1995:
Raw materials ................... $225,702
Finished goods .................. 124,649
Product held for replacement ..... 92,194
--------
Total inventory ......... $442,545
========
Product held for replacement is used to replace components of the Laser
Systems received under the Company's warranty program. These components
are stated net of a reserve for the estimated cost to refurbish.
Property and Equipment - Property and equipment is stated at cost.
Depreciation is calculated using declining balance and straight-line
methods over the estimated useful lives of the respective assets as
follows:
Years
-----
Trade show demonstration equipment ..... 2-5
Office furniture and equipment ........ 3-7
Laser Systems and arenas .............. 3-5
Tooling equipment and other ........... 1-5
The cost of normal maintenance and repairs is charged to operating
expenses as incurred. Material expenditures which increase the life of
an asset are capitalized and depreciated over the estimated remaining
useful life of the asset. The cost of properties sold, or otherwise
disposed of, and the related accumulated depreciation are removed from
the accounts, and any gains or losses are reflected in current
operations.
F-7
<PAGE>
LASER STORM, INC.
NOTES TO FINANCIAL STATEMENTS
Deferred Offering Costs - Deferred offering costs represent costs
incurred in connection with the proposed public offering of the
Company's units. Such costs will be offset against the proceeds if the
offering is successful, or expensed to operations if the offering is
unsuccessful.
Income Taxes - Income taxes are provided for in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes." SFAS No. 109 requires an asset and liability approach in
the recognition of deferred tax liabilities and assets for the expected
future tax consequences of temporary differences between the carrying
amounts and the tax bases of the Company's assets and liabilities.
Financial Instruments - Statement of Financial Accounting Standards No.
107 requires all entities to disclose the fair value of certain
financial instruments in their financial statements. Accordingly,
management's best estimate is that the carrying amount of cash,
receivables, notes payable, accounts payable, and accrued expenses
approximates fair value due to the short maturity or the immaterial
difference between fair value and carrying value for these instruments.
Revenue Recognition - The Company generally recognizes sales of Laser
Systems and arenas upon shipment to the customer if there are no
unresolved conditions related to the sale. Prior to shipment, the
Company generally collects a deposit of approximately 50% of the
purchase price.
Revenue Participation Interests - The Company has an interest in certain
revenue participation arrangements whereby it will receive a continuing
revenue interest from Laser System operations. At December 31, 1995, the
Company's investment in these ventures amounted to $84,543 which is
included in property and equipment. Revenue participation is recognized
as earned; however, through December 31, 1995, such revenue was not
significant in relation to net sales.
Warranty - The Company generally provides a 90-day warranty on all sales
of Laser Systems. In addition, the Company has a warranty program under
renewable annual contracts whereby customers pay a monthly usage fee.
Such fees are recognized in the month in which they are earned.
Product Development Costs - Product development costs are charged to
operations in the period incurred.
Intangible Assets - The Company capitalizes computer software
development costs to develop and update software for which technological
feasibility has been established. This software is an integral component
in the Company's Laser Systems and is not sold separately. These costs
are capitalized and amortized over an estimated useful life of five
years.
License fees relate to the purchase of rights which permit the Company
to utilize a specific theme for the development of arenas. Such costs
are being amortized over three years utilizing the straight-line method.
Amortization expense was approximately $21,000 and $35,000 for the years
ended December 31, 1994 and 1995, respectively.
F-8
<PAGE>
LASER STORM, INC.
NOTES TO FINANCIAL STATEMENTS
Pro Forma Net Income Per Share - Pro forma net income per share is
computed based on common stock outstanding and common stock equivalents.
For common stock and common stock equivalents, including the preferred
stock discussed in Notes 7 and 8 issued at prices below the $4.00 per
unit price, for the Company's public offering, the Company included such
stock and equivalents in the weighted average calculation as if they
were outstanding for the full year ended December 31, 1995 (using the
treasury stock method).
Accounting Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts
reported in the financial statements and the accompanying notes. The
actual results could differ from those estimates.
The Company's financial statements are based on a number of significant
estimates, including the allowance for doubtful accounts, possible
technological obsolescence of inventories, realizability of intangible
assets, the estimated useful lives selected for property and equipment,
warranty reserve, and contingent liability settlements. As discussed in
Note 6, the settlements which were reached in February 1996 are
contingent upon the completion of the Company's initial public offering
and, if the offering is not successful, the parties can refile their
claims. If this occurs, the actual amount could vary from the amount
recorded. Additionally, if the Company's appeal is successful in the
wrongful termination case, the estimated cost of this contingency will
be reversed. For these reasons, management believes that it is
reasonably possible that its estimates for contingent liabilities could
materially change within the next year.
As discussed in Note 5, the Company entered into a five-year lease
agreement in connection with a revenue participation arrangement. The
lease provides for minimum annual payments of $50,000 through November
2000. If this venture's cash flow is inadequate to meet this obligation,
the Company will be required to provide any necessary funding to the
extent of this commitment. Management presently believes that it is
unlikely the Company will be required to provide such funding.
Significant Concentrations - The Company's sales are generally higher
dollar value items with no major concentrations among customer groups.
At December 31, 1995, the Company, however, had a trade receivable of
approximately $102,000, which was due from a single customer.
The Company's letter of intent for its initial public offering is with
an investment banking firm that was also responsible for the sale of
preferred stock in the private placements discussed in Notes 7 and 8.
Impact of Recently Issued Accounting Standards - In March 1995, the
Financial Accounting Standards Board issued a new statement titled
"Accounting for Impairment of Long-Lived Assets." This new standard is
effective for years beginning after December 15, 1995, and would change
the Company's method of determining impairment of long-lived assets.
Although the Company has not performed a detailed analysis of the impact
of this new standard on the Company's financial statements, the Company
does not believe that adoption of the new standard will have a material
effect on the financial statements.
F-9
<PAGE>
LASER STORM, INC.
NOTES TO FINANCIAL STATEMENTS
In October 1995, the Financial Accounting Standards Board issued a new
statement titled "Accounting for Stock-Based Compensation" (FAS 123).
The new statement is effective for fiscal years beginning after December
15, 1995. FAS 123 encourages, but does not require, companies to
recognize compensation expense for grants of stock, stock options, and
other equity instruments to employees based on fair value. Companies
that do not adopt the fair value accounting rules must disclose the
impact of adopting the new method in the notes to the financial
statements. Transactions in equity instruments with non-employees for
goods or services must be accounted for on the fair value method. The
Company currently does not intend to adopt the fair value accounting
prescribed by FAS 123, and will be subject only to the disclosure
requirements prescribed by FAS 123.
2. PROPERTY AND EQUIPMENT:
At December 31, 1995, property and equipment consists of the following:
Trade show demonstration equipment ....... $ 181,566
Office furniture and equipment ........... 115,939
Laser Systems and arenas ................. 84,543
Tooling equipment and other .............. 66,129
---------
Total property and equipment .. 448,177
Less accumulated depreciation ............ (110,575)
---------
Net property and equipment .... $ 337,602
=========
Depreciation expense amounted to approximately $27,000 and $81,000 for the
years ended December 31, 1994 and 1995, respectively.
3. LONG-TERM DEBT:
At December 31, 1995, long-term debt consists of the following:
Notes payable, interest at 7%, monthly payments of $662
including interest, due October 1999, unsecured ........ $ 24,757
Contract payable, interest at 36%, monthly payments of
$1,781 including interest, due August 1997 ............. 26,421
--------
Total long-term debt ............................ 51,178
Less current maturities ................................ (20,294)
--------
Long-term debt, less current maturities ......... $ 30,884
========
F-10
<PAGE>
LASER STORM, INC.
NOTES TO FINANCIAL STATEMENTS
Aggregate maturities required on long-term debt at December 31, 1995, are
due as follows:
YEARS ENDING DECEMBER 31,
------------------------
1996 ............................. $20,294
1997 ............................. 19,410
1998 ............................. 7,370
1999 ............................. 4,104
-------
$51,178
=======
4. INCOME TAXES:
A reconciliation of the income tax benefit (expense) at the statutory rate
to income tax benefit (expense) from continuing operations at the
Company's effective rate is as follows:
YEARS ENDED
DECEMBER 31,
------------------
1994 1995
---- ----
Computed tax benefit (expense) at the expected
statutory rate .................................... $ 17,700 $(78,800)
Increase (reduction) in income taxes resulting from:
State income taxes, net of Federal benefit ..... 1,600 (7,000)
Nondeductible expenses ......................... -- (14,700)
Reduction in valuation allowance due to
utilization of net operating loss carryovers . -- 91,500
Decrease (increase) in valuation allowance ..... (19,300) --
-------- --------
$ -- $ (9,000)
======== ========
The components of the Company's provision for income taxes consist of
the following:
YEARS ENDED DECEMBER 31,
-----------------------
1994 1995
---- ----
Current provision .................. $ -- $(60,000)
Deferred benefit ................... -- 51,000
------- -------
Total .......................... $ -- $ (9,000)
======= ========
F-11
<PAGE>
LASER STORM, INC.
NOTES TO FINANCIAL STATEMENTS
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities are presented below:
DECEMBER 31,
1995
-----------
Deferred Tax Assets:
Contingent settlements ........................ $ 76,200
Accounts receivable ........................... 10,900
Accrued vacation and warranty ................. 19,800
Other ......................................... 4,100
---------
Deferred tax asset, current ............... $ 111,000
=========
Deferred Tax Liabilities:
Software development costs .................... $ (32,800)
Property and equipment ........................ (27,200)
---------
Deferred tax liability, long-term ......... $ (60,000)
=========
5. COMMITMENTS:
Office Lease - The Company leases office space, equipment and warehouse
facilities under noncancellable operating leases. Total rental expense
was approximately $58,000 and $87,000 for the years ended December 31,
1994 and 1995, respectively. In 1995, the Company entered into a new
ten-year lease which commenced in February 1996. An officer of the
Company has personally guaranteed the Company's obligations for
approximately the first five years under this lease. As of December 31,
1995, the total minimum rental commitments under all operating leases,
including the new lease, are as follows:
YEARS ENDING DECEMBER 31,
------------------------
1996 ......................... $292,000
1997 ......................... 306,000
1998 ......................... 306,000
1999 ......................... 333,000
2000 ......................... 329,000
After 2000 ...................... 1,596,000
---------
$3,162,000
=========
The rental commitment amounts shown above include $50,000 per year through
November 2000 in connection with a lease, which the Company entered into
with respect to a revenue participation arrangement.
F-12
<PAGE>
LASER STORM, INC.
NOTES TO FINANCIAL STATEMENTS
Royalty Arrangements - In October 1995, the Company entered into a license
agreement to utilize the name, logo, and characters from the motion
picture STARGATE. The Company agreed to pay a royalty based on revenues
derived from the STARGATE Laser Systems. The Company is required to pay
$50,000 of advance royalties which will offset royalties otherwise payable
under the license agreement. At December 31, 1995, the Company had paid
advance royalties of $25,000.
Employment Agreements - The Company has entered into employment agreements
with six of the Company's executive officers which provide for aggregate
annual compensation of $708,000 in 1996, $708,000 in 1997, and $580,000 in
1998. The agreements may be terminated by the Company without cause upon
30 days' notice. In the event of a termination without cause, the Company
would be required to pay 100% of the remaining payments until expiration
of the agreement with the Company's chief executive officer. The president
and the other four officers are entitled to receive their respective
salaries for three to six-month periods.
Consulting Agreement - In August 1995, the Company entered into an
agreement with a consultant to assist management with business expansion
plans and product distribution and licensing arrangements. The agreement
provides for 17 monthly payments of $10,500 commencing on October 1, 1995
and a final payment of $9,000 on March 1, 1997. Additionally, the Company
agreed to grant the consultant an option to purchase 50,000 shares of the
Company's common stock for $.75 per share. If not previously exercised,
this option will expire on February 28, 1997.
Liquidity - The Company has experienced liquidity problems in the past and
at December 31, 1995, had a working capital deficit of $283,620 and an
accumulated deficit of $164,174. Additionally, as discussed in Note 1, the
Company emerged from bankruptcy in November 1994.
As reflected in the Company's financial statements, the Company's sales
have increased during the year ended December 31, 1995, which has also
resulted in improved financial performance. As discussed further in Note
8, the Company obtained additional capital of approximately $890,000
through a private placement of Series B 12% Convertible Cumulative
Preferred Stock, which was completed in February 1996. Additionally, the
Company is in the process of undertaking a proposed public offering of
units consisting of common stock and warrants.
6. CONTINGENCIES:
The Company has accrued $270,000 for legal contingencies during the year
ended December 31, 1995. A discussion of the underlying legal proceedings
and settlements is presented below.
In December 1995, the Company was served with a lawsuit that was filed by
a previous manufacturer (the "Manufacturer") of the Company's laser tag
system alleging, among other things, past due royalties. The Company
believes prior royalty arrangements with the Manufacturer were terminated
as part of its Plan of Reorganization. However, to avoid extensive
litigation, the Company entered into a settlement agreement with the
Manufacturer pursuant to which the Manufacturer agreed to dismiss its
complaint without prejudice, and the Company agreed to dismiss its
counterclaims against the Manufacturer without prejudice. The Company
agreed to pay the Manufacturer $100,000 out of the proceeds of the public
F-13
<PAGE>
LASER STORM, INC.
NOTES TO FINANCIAL STATEMENTS
offering of the Company's units, granted the Manufacturer a five-year
option to purchase 175,000 shares of the Company's common stock at $4.00
per share, and agreed to purchase certain inventory (at cost) from the
Manufacturer for $35,000. In 1995, the Company has accrued a liability to
cover the settlement.
In November 1994, the Company entered into an agreement with a consulting
firm (the "Consultant") which agreed to provide consulting services to the
Company for the six-month period ended April 30, 1995, for a fee of
$10,000 per month. The Company made one payment in November 1994
conditioned on the Consultant providing the Company with a letter of
intent for a public offering. The Consultant never provided such letter of
intent and the Company made no further payments. In December 1995, the
Consultant filed a lawsuit against the Company. In February 1996, the
Company entered into a settlement agreement with the Consultant pursuant
to which the Consultant agreed to dismiss its complaint without prejudice
and the Company agreed to pay the Consultant $60,000 out of the proceeds
of the Company's public offering and agreed that the Consultant would have
the right to purchase 100,000 units in the public offering at the public
offering price. The Company accrued this settlement in the financial
statements as of December 31, 1995.
During 1995, an employee was terminated and a lawsuit was filed alleging
wrongful termination. In January 1996, a court ruled that the Company must
pay the former employee $90,000 plus interest, attorney's fees, and other
costs of litigation. As of December 31, 1995, the Company accrued a
liability for this judgment, even though the Company has appealed the
court's decision.
7. STOCKHOLDERS' EQUITY:
Stock Split - On November 1, 1994, the Company effected a 3.05 for one
stock split and changed the no par value common stock to common stock with
a par value of $.001. Accordingly, all share and per share amounts in the
accompanying financial statements have been retroactively restated to give
effect to the stock split.
Stock Issuances - During 1994, the Company issued a total of 1,296,250
shares of common stock for services performed by officers and directors of
the Company. These shares were valued by the Company's Board of Directors
based on their estimate of the value of the common stock at the time the
shares were issued.
Stock Options - The Company has adopted an Amended Stock Incentive Plan
which reserves 300,000 shares of the Company's common stock for grants to
employees. The exercise price for options granted under the Plan will not
be less than 100% of the fair value of the Company's common stock on the
date of grant and the exercise period cannot exceed ten years.
In December 1994, the Company granted options for 141,000 shares of common
stock which are exercisable for $.20 per share. In June 1995, the Company
granted additional options for 75,000 shares of common stock which are
exercisable for $.75 per share. The Company's Board of Directors valued
thee options at fair value of the underlying common stock on the issuance
date. Although there was no market for the underlying shares, the $.75
F-14
<PAGE>
LASER STORM, INC.
NOTES TO FINANCIAL STATEMENTS
option valuation gives effect to the Company's improving earnings; however,
a negative net worth, a working capital deficit and continued earnings
inconsistencies were also factors considered in determining the fair value
of the common stock. In August 1995, the Company granted options for an
additional 28,500 shares of common stock which are exercisable for $2.00
per share. In addition to improved earnings the Company's Board of
Directors also considered the discussions with the underwriter, which began
in August 1995 and included discussions related to the structure of the
possible sale of convertible preferred stock (see "Preferred Stock" below),
as factors affecting the fair value of the underlying common stock for the
$2.00 options.
The Company has granted options under the Plan as follows:
Number of Shares Vesting In:
Number Exercise -----------------------------------
Grant Date of Shares Price 1995 1996 1997 1998
----------------- --------- --------- ------- ------- ------- ------
December 1994 .... 141,000 $ .20 47,000 47,000 47,000 --
June 1995 ........ 75,000 .75 25,000 25,000 25,000 --
August 1995 ...... 28,500 2.00 -- 9,500 9,500 9,500
November 1995 .... 55,500 10,100 18,500 18,500 8,400
-------- ------- ------- ------- ------- ------
Total ......... 300,000 82,100 100,000 100,000 17,900
======== ======= ====== ======= ======= ======
The options granted in November 1995 are exercisable $4.00 per share.
Through December 31, 1995, none of the options have been exercised. If
not previously exercised, all of the options expire five years after
the date on which vesting occurs. Subsequent to year-end, options for
5,100 shares were forfeited when two employees terminated.
In October through December 1995, the Company's Board of Directors
approved the grant of non-qualified options to certain officers and
directors of the Company for a total of 250,000 shares. The exercise
price for these options will be equal to the initial public offering
price for the Company's units.
These options vest as follows:
YEAR ENDING DECEMBER 31,
-----------------------
1995 ...................... 50,000
1996 ...................... 75,000
1997 ...................... 75,000
1998 ...................... 50,000
-------
250,000
=======
As discussed in Notes 5 and 6, the Company granted nonqualified options
for 50,000 and 175,000 shares to a consultant and the Manufacturer.
Preferred Stock - In September 1995, the Company's Board of Directors
and shareholders approved the authorization of 2,000,000 shares of
preferred stock which may be issued in series with such rights and
preferences as determined by the Company's Board of Directors.
F-15
<PAGE>
LASER STORM, INC.
NOTES TO FINANCIAL STATEMENTS
The Board of Directors has designated 140,000 shares as Series A 12%
Convertible Cumulative Preferred Stock ("Series A Preferred Stock"). In
October 1995, the Company sold 140,000 shares of Series A Preferred
Stock for $5.00 per share. These shares of Series A Preferred Stock are
voting and convertible into units (as discussed below) at 70% of the
unit price, if converted at the time of the public offering, or common
stock at 70% of the market price of the Company's publicly traded common
stock, if converted at a subsequent date. The Company paid a 10%
commission and a 3% non-accountable expense allowance related to this
offering. The Series A Preferred Stock has a liquidation preference of
$700,000, plus accrued but unpaid dividends. As of December 31, 1995,
accumulated dividends were $18,000.
The dividend rate of Series A Preferred Stock shall be increased from
$.60 to $.75 per share as of October 15, 1996, a one-for-five stock
dividend of the Series A Preferred Stock will be paid on October 15,
1996 and a sinking fund equal to 2% of the Company's net revenues will
be established to redeem the Series A Preferred stock, plus accrued but
unpaid dividends, beginning on October 15, 1996, if by October 15, 1996,
the Company has not completed one of the following: the effectiveness of
a registration statement under the Securities Act of 1933 for the
offering of the Company's common stock, the merger with a public
company, the filing of a Form 10 under the Securities Exchange Act of
1934, or the preparation and dissemination of the information required
by Rule 15c2-11 under the Securities Exchange Act of 1934 so as to
permit a trading market for the common stock of the Company. The Company
may redeem the Series A Preferred Stock after October 15, 1996, at a
price of $6.25 per share plus accrued and unpaid dividends.
Also see Note 8 regarding a Series B Preferred Stock offering after
year-end.
Proposed Public Offering - The Company has entered into a letter of
intent (LOI) with an underwriter for the proposed sale of 1,300,000
units at a price which may range between $4.00 to $5.00 per unit. Each
unit will consist of one share of common stock and one warrant. The
warrants will be exercisable for a period of five years and will entitle
the holder to purchase one share of common stock at an exercise price of
125% of the initial unit offering price. However, if the Company does
not report net after tax earnings of at least $.40 per share (target
earnings) for the four fiscal quarters ending March 31, 1997, then the
exercise price per share will be reduced by $.20 for each $.01 shortfall
from the target earnings, but such exercise price will not be reduced
below $1.00 per share. The warrants are redeemable by the Company under
certain circumstances at $.05 per warrant provided that for at least 30
consecutive trading days the market price of the Company's common stock
is at least 175% of the initial unit offering price. In connection with
the offering, the underwriter will receive a 10% discount, a 3%
nonaccountable expense allowance ($45,000 of which will be prepaid on an
accountable basis), and a 4% commission on proceeds received from the
exercise of warrants solicited by the underwriter. The underwriter will
also receive a warrant, exercisable for 130,000 units at 125% of the
initial offering price per unit for a period of four years, beginning
one year after the offering, to purchase 130,000 units. The LOI is
subject to cancellation and/or change.
F-16
<PAGE>
LASER STORM, INC.
NOTES TO FINANCIAL STATEMENTS
8. SUBSEQUENT EVENTS:
In February 1996, the Board of Directors designated 200,000 shares of
preferred stock as Series B 12% Cumulative Convertible Preferred Stock
("Series B Preferred Stock"). On February 29, 1996, the Company
completed the sale of all 200,000 shares of Series B Preferred Stock for
$5.00 per share. After payment of commissions, the Company received net
proceeds of $900,000. Other costs of this offering are estimated to be
approximately $10,000.
The Series B Preferred Stock has similar rights and preferences as the
Series A Preferred Stock except the Company can redeem the Series B
Preferred Stock at any time after February 15, 1997. Additionally, the
increase in the dividend rate from $.60 to $.75 per share does not occur
until February 15, 1997, and the sinking fund is not required until
February 15, 1997.
F-17
<PAGE>
<TABLE>
<CAPTION>
LASER STORM, INC.
CONDENSED BALANCE SHEETS
(UNAUDITED)
SEPTEMBER 30,
1996
-------------
ASSETS
<S> <C>
CURRENT ASSETS:
Cash and Equivalents .................................................... $ 2,033,974
Accounts receivable - trade, net ........................................ 895,656
Trade notes receivable, current ......................................... 840,731
Inventories ............................................................. 686,338
Deferred income taxes ................................................... 189,833
Prepaid expenses and other .............................................. 425,198
-----------
Total current assets ................................................ 5,071,730
PROPERTY AND EQUIPMENT, net ................................................. 1,070,334
OTHER ASSETS:
Deferred offering costs ................................................. --
Software development, net ............................................... 64,523
License fees, net ....................................................... 95,191
Notes receivable, non-current ........................................... 699,977
Deposits and other ...................................................... 44,628
-----------
Total other assets .................................................. 904,319
TOTAL ASSETS ................................................................ $ 7,046,383
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ........................................................ $ 515,725
Accrued expenses ........................................................ 172,251
Accrued compensation .................................................... 154,835
Income taxes payable .................................................... --
Current maturities of long-term debt .................................... 24,666
Customer deposits and deferred revenue .................................. 88,102
Contingent settlements .................................................. --
-----------
Total current liabilities ........................................... 955,579
LONG-TERM DEBT, less current maturities ..................................... 12,087
DEFERRED INCOME TAXES ....................................................... 59,000
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value; 2,000,000 shares authorized:
Series A 12% Convertible Cumulative Preferred Stock, no shares issued --
Series B 12% Convertible Cumulative Preferred Stock, no shares issued --
Common stock, $.001 par value; 20,000,000 shares authorized:
3,761,211 outstanding ............................................... 3,761
Additional paid in capital .............................................. 6,301,768
Accumulated deficit ..................................................... (285,812)
-----------
Total stockholders' equity .......................................... 6,019,717
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .................................. $ 7,046,383
===========
</TABLE>
See accompanying notes to these financial statements.
F-18
<PAGE>
<TABLE>
<CAPTION>
LASER STORM, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30
------------------------
1996 1995
---- ----
<S> <C> <C>
NET REVENUES ..................................... $ 5,124,852 $ 4,065,407
COST OF GOODS SOLD ............................... 2,148,355 1,787,704
----------- -----------
GROSS PROFIT ..................................... 2,976,497 2,277,703
EXPENSES:
Selling, general and administrative .......... 2,881,093 1,520,482
Depreciation and amortization ................ 171,955 77,931
Product development .......................... 172,016 105,835
----------- -----------
Total expenses .......................... 3,228,064 1,704,248
----------- -----------
OPERATING INCOME (LOSS) .......................... (251,567) 573,455
Interest Income (expense) .................... 57,929 (5,414)
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES ................ (193,638) 568,041
Income tax benefit (expense) ................. 72,000 (115,000)
----------- -----------
NET INCOME (LOSS) ................................ $ (121,638) $ 453,041
Accrued preferred dividends .................. (45,890) --
----------- -----------
INCOME (LOSS) APPLICABLE TO COMMON SHAREHOLDERS .. $ (167,528) $ 453,041
=========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING ....... 2,906,000 2,033,000
=========== ===========
INCOME (LOSS) PER SHARE APPLICABLE TO COMMON
SHAREHOLDERS ..................................... $ (0.06) $ 0.22
=========== ===========
</TABLE>
See accompanying notes to these financial statements.
F-19
<PAGE>
<TABLE>
<CAPTION>
LASER STORM, INC.
CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
PREFERRED STOCK COMMON STOCK
--------------------- -----------------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
BALANCES, December 31, 1995 ....................... 140,000 $ 140 1,601,250 $ 1,601
Private placement of Series B 12%
Convertible Cumulative Preferred Stock ...... 200,000 200 -- --
Offering costs related to private placement ... -- -- -- --
Public offering of 1,495,000 units ............ -- -- 1,495,000 1,495
Offering costs related to public offering ..... -- -- -- --
Conversion of Series A and B 12%
Convertible Cumulative Preferred Stock,
including accrued dividends ..................... (340,000) (340) 629,961 630
Exercise of employee stock options ............ -- -- 2,500 3
Issuance of common stock for purchase of
Laser Storm Game Center ..................... -- -- 32,500 32
Net loss ...................................... -- -- -- --
----------- ----------- ----------- ----------
BALANCES, September 30, 1996 ...................... -- $ -- 3,761,211 $ 3,761
=========== =========== =========== ==========
<CAPTION>
Additional
Paid-In Accumulated
Capital Deficit Total
---------- ----------- -----
<S> <C> <C> <C>
BALANCES, December 31, 1995 ...................... $ 575,136 $ (164,174) $ 412,703
Private placement of Series B 12%
Convertible Cumulative Preferred Stock ..... 999,800 -- 1,000,000
Offering costs related to private placement .. (109,815) -- (109,815)
Public offering of 1,495,000 units ........... 5,978,505 -- 5,980,000
Offering costs related to public offering .... (1,272,033) -- (1,272,033)
Conversion of Series A and B 12%
Convertible Cumulative Preferred Stock,
including accrued dividends .................... (290) -- --
Exercise of employee stock options ........... 497 -- 500
Issuance of common stock for purchase of
Laser Storm Game Center .................... 129,968 -- 130,000
Net loss ..................................... -- (121,638) (121,638)
----------- ----------- -----------
BALANCES, September 30, 1996 ...................... $ 6,301,768 $ (285,812) $ 6,019,717
=========== =========== ===========
</TABLE>
See accompanying notes to these financial statements.
F-20
<PAGE>
<TABLE>
<CAPTION>
LASER STORM, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .................................................................... $ (121,638) $ 453,041
Adjustments to reconcile net income (loss) to net cash provided by (used
in) operating activities:
Depreciation and amortization ........................................................ 171,955 77,930
Loss (gain) on asset disposition ..................................................... (6,821) 5,841
Provision for bad debts .............................................................. 22,000 21,540
Deferred income tax (benefit) ........................................................ (79,833) 33,000
Notes receivable for sale of Laser Systems ........................................... (1,558,069) --
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable .......................................................... (293,317) (188,199)
Inventories .................................................................. (220,083) 122,577
Other ........................................................................ (352,837) (67,040)
Increase (decrease) in:
Accounts payable ............................................................. (224,739) 41,407
Accrued expenses ............................................................. 95,828 148,621
Income taxes payable ......................................................... (60,000) --
Customer deposits and deferred revenue ....................................... (126,703) (472,281)
Contingent settlements ....................................................... (270,000) --
----------- -----------
Net cash provided by (used in) operating activities .................................. (3,024,257) 176,437
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and equipment ...................................... (700,377) (97,340)
Software development costs ........................................................... -- (24,709)
License costs ........................................................................ (85,000) (12,500)
Collection of principal balance of notes receivable .................................. 17,361 --
Loan Advanced to seller of Laser Storm Game Center ................................... (46,380) --
----------- -----------
Net cash used in investing activities .......................................... (814,396) (134,549)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of Series B 12% Convertible Cumulative
Preferred Stock ................................................................... 890,185 --
Proceeds from sale of Common Stock in public offering ................................ 5,202,600 --
Proceeds from exercise of employee stock options ..................................... 500 --
Deferred offering costs .............................................................. (216,706) (22,631)
Principal payments on notes payable .................................................. (14,425) (7,011)
----------- -----------
Net cash provided by (used in) financing activities ............................ 5,862,154 (29,642)
----------- -----------
NET INCREASE IN CASH ....................................................................... 2,023,501 (29,642)
CASH AND EQUIVALENTS, at beginning of period ............................................... 10,473 16,228
----------- -----------
CASH AND EQUIVALENTS, at end of period ..................................................... $ 2,033,974 $ 28,474
</TABLE>
F-21
<PAGE>
LASER STORM, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. Interim Financial Statements:
In the opinion of management of the Company, the accompanying unaudited
financial statements include all adjustments necessary, all of which were of a
normal recurring nature, to make the financial statements not misleading.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission. These condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and related notes for the fiscal year ended December 31, 1995
contained in the Company's definitive prospectus dated April 23, 1996.
The results of operations for the nine months ended September 30, 1996, are not
necessarily indicative of the results to be expected for the full year.
2. Public Offering:
In April 1996, the Company completed a public offering of 1,495,000 units at a
price of $4.00 per unit. Each unit consists of one share of common stock and one
warrant. The warrants are exercisable for a period of five years and entitle the
holder to purchase one share of common stock at an exercise price of $5.00 per
share. However, if the Company does not report net after tax earnings of at
least $.40 per share (target earnings) for the four fiscal quarters ending March
31, 1997, then the exercise price per share will be reduced by $.20 for each
$.01 shortfall from the target earnings, but such exercise price will not be
reduced below $1.00 per share. The warrants are redeemable by the Company under
certain circumstances at $.05 per warrant provided that for at least 30
consecutive trading days the market price of the Company's common stock is at
least $7.00 per share. In connection with the offering, the underwriters
received a 10% discount and a 3% nonaccountable expense allowance and, subject
to certain limitations, the representative of the underwriters will receive a 4%
commission on proceeds received from the exercise of warrants solicited by the
representative of the underwriters. The representative of the underwriters also
received a warrant, exercisable for 130,000 units at $5.40 per unit for a period
of four years, beginning on April 23, 1997. Net proceeds from the public
offering were $4,707,967, after paying the aforementioned discounts and expenses
to the underwriters and other offering costs totaling $494,633. Also in April
1996, an additional 629,961 units were issued as a result of the conversion of
140,000 shares of Series A 12% Convertible Cumulative Preferred Stock 200,000
shares of Series B 12% Convertible Cumulative Preferred Stock, and accrued but
unpaid dividends of approximately $46,000 related to the Series A and Series B
Preferred Stock on the date of conversion.
3. Notes Receivable:
In June 1996, the Company began offering a financing program to its customers
for sales of its systems and arenas. The program requires an advanced deposit
ranging from 30% to 40% and the balance plus interest to be paid over a period
ranging from 24 to 36 months. Through September 30, 1996, sales under this
program total $2,235,845, and the amount financed as of September 30, 1996 is
$1,540,708.
4. Earnings Per Share:
For the quarter and nine months ended September 30, 1995, the calculation of
weighted average shares outstanding includes all common stock options and the
Series A and Series B 12% Convertible Cumulative Preferred Stock, which were
issued prior to the Company's initial public offering at prices below the $4.00
per unit offering price. Such preferred stock and options to purchase common
stock are included in the calculation for the entire nine months ended September
30, 1995, using the treasury stock method based on the $4.00 per unit offering
price.
For the nine months ended September 30, 1996, common stock equivalents are
excluded from the weighted average shares since they were anti-dilutive.
F-22
<PAGE>
LASER STORM, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
CONTINUED
5. Purchase of Laser Storm Game Center:
In July 1996, the Company purchased an existing Laser Storm Game Center located
in Longmont, Colorado from unaffiliated persons. The total consideration was
$160,000, which was paid at closing by paying $30,000 in cash and by paying the
balance of $130,000 by issuing 32,500 shares of the Company's common stock to
one of the sellers. Pursuant to the terms of the asset purchase agreement, the
Company is registering the 32,500 shares for resale. The seller has 90 days from
the date of the prospectus to sell the shares. If the seller has sold the shares
for less than $130,000, the Company will immediately pay the seller the
difference between the sales price of the shares and $130,000. Based upon a
closing sale price of $1.00 per share at December 31, 1996, the Company would
have to pay $97,500. Any remaining shares will be returned to the Company. If
the sales price of the shares is more than $130,000, the Company has no further
obligation to the seller and the seller is entitled to retain any excess shares
or purchase price. In connection with the purchase, the Company also loaned the
seller approximately $46,380 to pay the seller's bank loan. The loan is
evidenced by a promissory note and is secured by a first in priority interest in
the shares. All proceeds from the sale of the shares shall be applied first to
retiring the loan.
6. Concentration of Credit Risk:
At September 30, 1996, cash and equivalents included an investment in a money
market fund in the amount of $2,033,000.
7. Subsequent Events:
In November 1996, the Company purchased an existing Laser Storm Game Center
located in Coral Springs, Florida from unaffiliated persons. The total
consideration was $300,000, which was paid at closing by paying $142,500 in
cash, the cancellation of a $15,000 receivable and by paying the balance of
$142,500 by issuing 35,625 shares of the Company's common stock. Pursuant to the
terms of the asset purchase agreement, the Company is registering the 35,625
shares for resale. The seller has 90 days from the date of the prospectus to
sell the shares. If the seller has sold the shares for less than $142,500, the
Company will immediately pay the seller the difference between the sales price
of the shares and $142,500. Based upon a closing sale price of $1.00 per share
at December 31, 1996, the Company would have to pay $106,875. Any remaining
shares will be returned to the Company. If the sales price is more than
$142,500, the Company has no further obligation to the seller and the seller is
entitled to retain any excess shares or purchase price.
During the third and fourth quarters of 1996 the Company entered into lease
agreements for Company-owned and operated facilities. The future minimum rental
commitments under these leases are as follows:
Years Ending December 31,...
1996 $ 69,000
1997 447,000
1998 506,000
1999 642,000
After 2000 $4,020,000
==========
During the fourth quarter of 1996, the Company's board of directors adopted,
subject to shareholder approval, the 1996 Incentive and Nonstatutory Stock
Option Plan ("1996 Plan") which authorizes the Company to grant incentive stock
options within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended, and to grant nonstatutory stock options. The 1996 Plan relates to a
total of 1,000,000 shares of common stock. No shares have been exercised and
options relating to 25,000 are outstanding, all of which were granted to an
officer of the Company. The options vest in 1999. The outstanding options must
be exercised within five years from the date of vesting and no later than three
months after the termination of employment, except that any optionee who is
unable to continue employment due to total and permanent disability may exercise
such options within one year of termination and the options of an optionee who
is employed or disabled and who dies must be exercised within one year after the
date of death.
F-23
<PAGE>
LASER STORM, INC.
NOTES TO FINANCIAL STATEMENTS
The 1996 Plan requires that the exercise prices of options granted must be at
least equal to the fair market value of a share of common stock on the date of
grant, provided that if an employee owns more than 10% of the Company's common
stock, then the exercise price of an incentive option must be at least 110% of
the fair market value of a share of the Company's common stock on the date of
grant, and the maximum term of such option may be no longer than five years. The
aggregate fair market value of common stock, determined at the time the option
is granted, for which incentive stock options become exercisable by an employee
during any calendar year is limited to $100,000. The options may be granted to
any person selected by the board. Incentive stock options may be granted only to
employees. The 1996 Plan is to be administered by the Company's board of
directors or a committee of two or more non-employee directors which determines
the terms of the options granted, including the exercise price, number of shares
of common stock subject to the option, and the terms and conditions of exercise.
No option granted under the 1996 Plan is transferable by the optionee other than
by will or the laws of descent and distribution. Each option is exercisable
during the lifetime of the optionee only by such optionee.
F-24
<PAGE>
- --------------------------------------------------------------------------------
No person has been authorized to give any
information or to make any representation in 2,518,196 Shares and
connection with the offering being made 629,961 Units
hereby not contained in this Prospectus, and,
if given or made, such information or
representation must not be relied upon as
having been authorized. This Prospectus does
not constitute an offer to sell or
solicitation of an offer to buy any of the
securities offered hereby in any jurisdiction
in which it is unlawful to make such offer or
solicitation in such jurisdiction. Neither LASER STORM, INC.
the delivery of this Prospectus nor any sale
made hereunder shall under any circumstances
create an implication that information
contained herein is correct as of any time
subsequent to the date hereof.
-------------------------
Page No.
------- The Units Consist of 629,961
Shares of Common Stock and
PROSPECTUS SUMMARY........................ 2 629,961 Warrants
RISK FACTORS.............................. 6
USE OF PROCEEDS........................... 10
MARKET PRICES OF COMMON EQUITY,
DIVIDEND POLICY AND RELATED
STOCKHOLDER MATTERS..................... 11 ----------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATIONS................... 11 PROSPECTUS
BUSINESS.................................. 16
MANAGEMENT................................ 27 ----------------------
EXECUTIVE COMPENSATION.................... 29
PRINCIPAL SHAREHOLDERS.................... 32
CERTAIN TRANSACTIONS...................... 33
DESCRIPTION OF SECURITIES................. 34
SELLING SECURITY HOLDERS.................. 35
PLAN OF DISTRIBUTION...................... 37
LEGAL MATTERS............................. 37
EXPERTS................................... 37
ADDITIONAL INFORMATION.................... 38
FINANCIAL STATEMENTS .....................F-1
, 1997
---------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
The statutes, charter provisions, bylaws, contracts, or other arrangements
under which any controlling person, director, or officer of the Registrant is
insured or indemnified in any manner against liability which he or she may incur
in his or her capacity as such are as follows:
(a) Sections 7-109-102 to 7-109-110, inclusive, of the Colorado Business
Corporation Act give Colorado corporations powers to indemnify their directors,
officers, employees, fiduciaries and agents against liability incurred in any
proceeding to which they are made parties by reason of being or having served in
such capacities, subject to specified conditions and exclusions; authorize the
payment for or reimbursement of reasonable expenses incurred by such persons in
such proceedings; mandate indemnification of directors and officers who are
successful on the merits; and permit corporations to obtain directors' and
officers' liability insurance.
(b) Article VI of Registrant's Restated Articles of Incorporation with
Amendments, as amended, provides with respect to indemnification that a director
of the corporation shall not be personally liable to the corporation or to its
shareholders for monetary damages for breach of fiduciary duty as a director;
except that this provision shall not eliminate or limit the liability of a
director to the corporation or to its shareholders for monetary damages
otherwise existing for (i) any breach of the director's duty of loyalty to the
corporation or to its shareholders; (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law; (iii) acts
specified in Section 7-108-403 of the Colorado Business Corporation Act, as it
may be amended from time to time; or (iv) any transaction from which the
director directly or indirectly derived any improper personal benefit. If the
Colorado Business Corporation Act is amended to eliminate or limit further the
liability of a director, then, in addition to the elimination and limitation of
liability provided by the preceding sentence, the liability of each director
shall be eliminated or limited to the fullest extent permitted by the Colorado
Business Corporation Act as so amended.
Paragraph 3 of Article VII of Registrant's Restated Articles of
Incorporation With Amendments provides that Registrant shall indemnify to the
maximum extent permitted by law in effect from time to time, any person who is
or was a director, officer, agent, fiduciary or employee of the corporation
against any claim, liability or expense arising against or incurred by such
person made party to a proceeding because he is or was a director, officer,
agent, fiduciary or employee of the corporation or because he is or was serving
another entity as a director, officer, partner, trustee, employee, fiduciary or
agent at the corporation's request. The corporation shall further have the
authority to the maximum extent permitted by law to purchase and maintain
insurance providing such indemnification.
(c) Article VI of the Registrant's Bylaws provides that Registrant shall
indemnify any director, officer, employee, fiduciary or agent of Registrant or
one who is or was serving at the request of Registrant in a like capacity for
any corporation, partnership, joint venture, trust, unincorporated association,
limited liability company, or other enterprise or employee benefit plan who is,
was or threatened to be made, a party to any threatened, pending or completed
action, suit or proceeding by reason of serving in such capacity, against
reasonably incurred expenses, judgments, penalties, fines and settlements
reasonably incurred, if he conducted himself in good faith and that he
reasonably believed (i) in the case of conduct in his official capacity with the
corporation, that his conduct was in the corporation's best interests, or (ii)
in all other cases (except criminal cases), that his conduct was at least not
opposed to the corporation's best interests, or (iii) in the case of any
criminal proceeding, that he had no reasonable cause to believe his conduct was
unlawful; or who was wholly successful in defense of the action, suit or
proceeding to which he was entitled to indemnification.
Article VII of the Registrant's Bylaws permits Registrant to obtain
insurance against any liability asserted against or incurred by any director,
officer, employee, fiduciary or agent of Registrant arising out of the service
of such persons in such capacity.
II-1
<PAGE>
(d) The Registrant has obtained a $1,500,000 Directors' and Officers'
Liability Insurance policy which, in general, provides that the insurance
carrier will pay on behalf of the Registrant's directors or officers, or will
reimburse the Registrant for amounts it pays under indemnity provisions to its
directors and officers, for damages, settlements and costs of defense which the
directors or officers are legally obligated to pay for any actual or alleged
error, misstatement, misleading statement, act or omission, or neglect or breach
of duty by the directors or officers in the discharge of their duties solely in
their capacities as directors or officers of the Registrant, its subsidiaries
and certain joint ventures. Excluded are amounts the directors or officers are
required to pay for criminal or civil fines or penalties imposed by law,
punitive or exemplary damages or the two-thirds portion of any treble damage
award, taxes, or any matter which may be deemed uninsurable under the law
pursuant to which the insurance policy is construed. Also excluded are amounts
paid for claims which arise out of such things as the directors or officers
realizing illegal profits, having to return nonapproved remuneration, committing
fraudulent criminal or dishonest acts, various torts, being liable for seepage,
pollution or contamination and being subject to claims by the Company or its
affiliates.
Item 25. Other Expenses of Issuance and Distribution.
Expenses (none of which will be paid or reimbursed by the Selling
Shareholders to the Registrant) payable in connection with the issuance and
distribution of the securities being registered hereby are as follows:
Securities and Exchange Commission Registration Fee ..... $ 200
Accounting Fees and Expenses ............................ 5,000
Legal Fees and Expenses ................................. 10,000
Printing, Freight and Engraving ......................... 1,000
Miscellaneous ........................................... 1,800
-------
Total ............................................ $18,000
Item 26. Recent Sales of Unregistered Securities.
The following is information with respect to all unregistered securities
sold by the Registrant within the past three years:
(a) Since the inception of the Registrant, the Registrant has issued
1,601,250 shares of Registrant's Common Stock to nine persons who at the time
were either officers, directors and/or employees of the Registrant. The shares
were issued in reliance upon the exemption from registration provided by Section
4(2) of the Securities Act of 1933, as amended ("Securities Act"). The facts
relied upon for such exemption are that the purchasers had full information
available to them concerning the Registrant because of their relationships to
the Registrant and did not need the protection afforded by the registration
provisions of the Securities Act and the certificates representing the shares of
Common Stock issued have an appropriate restrictive legend under the Securities
Act typed thereon and are restricted from transfer. No underwriters were
involved in connection with the issuances of the 1,601,250 shares of Common
Stock.
(b) In October 1995, Registrant completed a private placement of 140,000
shares of Series A 12% Convertible Cumulative Preferred Stock ("Series A Stock")
for a total offering price of $700,000. The Series A Stock was sold in reliance
upon the exemption from registration provided by Section 4(6) of the Securities
Act and Regulation D promulgated thereunder. The facts relied upon for such
exemption are that the 16 purchasers represented that they acquired the
securities for their own accounts for investment purposes only and not with the
present intent of distributing or reselling the Series A Stock and that they
were accredited investors as such term is defined in Regulation D and a Form D
was timely filed. The Series A Stock certificates had an appropriate restrictive
legend under the Securities Act typed thereon and were restricted from transfer.
The firm of Laidlaw Equities, Inc. sold the Series A Stock as agent for the
Registrant and was paid a commission of $70,000 and a nonaccountable expense
allowance of $21,000. In April 1996, all Series A Stock was converted into
shares of Common Stock and Warrants to purchase shares of Common Stock. Such
issuances were made by the Company in reliance upon the exemption from
registration provided by Section 3(a)(9) of the Securities Act.
II-2
<PAGE>
(c) Effective August 9, 1995, the Registrant issued one accredited person
an option to purchase 50,000 shares of the Registrant's Common Stock as a part
of the compensation payable to the person pursuant to a consulting agreement
between the Registrant and the person. The option was issued in reliance upon
the exemption from Registration provided by Section 4(2) of the Securities Act.
The facts relied upon for such exemption are that the person had full
information available to him concerning the Registrant because of his
relationship with the Registrant and did not need the protection afforded by the
registration provisions of the Securities Act. Further, the option is
nontransferable other than pursuant to the laws of descent and distribution. No
underwriters were involved in connection with the issuance of the option.
(d) The Registrant has issued stock options to the Registrant's employees
and non-employee directors to purchase shares of Registrant's Common Stock. No
consideration was paid by the employees or directors for such options and
Registrant does not consider that any sales occurred as a result of the
issuances of such options.
(e) In February 1996, Registrant completed a private placement of 200,000
shares of Series B 12% Convertible Cumulative Preferred Stock ("Series B Stock")
for a total offering price of $1,000,000. The Series B Stock was sold in
reliance upon the exemption from registration provided by Section 3(b) of the
Securities Act and Rule 504 of Regulation D promulgated thereunder. The facts
relied upon for such exemption are that the 26 purchasers represented that they
acquired the securities for their own accounts for investment purposes only and
not with the present intent of distributing or reselling the Series B Stock and
that they were accredited investors as such term is defined in Regulation D and
a Form D was timely filed. The Series B Stock certificates had an appropriate
restrictive legend under the Securities Act typed thereon and were restricted
from transfer. The firms of Laidlaw Equities Inc. and Rocky Mountain Securities
and Investments, Inc. sold the Series B Stock as agents for the Registrant and
were paid commissions of $86,000 and $14,000, respectively. In April 1996, all
Series B Stock was converted into shares of Common Stock and Warrants to
purchase shares of Common Stock. Such issuances were made by the Company in
reliance upon the exemption from registration provided by Section 3(a)(9) of the
Securities Act.
(f) Effective February 9, 1996, the Registrant agreed to issue one
corporation an option to purchase 175,000 shares of the Registrant's Common
Stock as a part of an agreement to settle a lawsuit. The option was issued in
reliance upon the exemption from registration provided by Section 4(2) of the
Securities Act. The facts relied upon for such exemption are that the
corporation represented that it was an accredited investor and did not desire
any further information concerning the Registrant. Registrant believes the
corporation did not need the protection afforded by the registration provisions
of the Securities Act. No underwriters were involved in connection with the
issuance of the option.
(g) In July 1996, Registrant issued 32,500 shares of Registrant's Common
Stock to one person in connection with the purchase by Registrant of the assets
of Laser Storm of Longmont, Inc. The shares were issued in reliance upon the
exemption from registration provided by Section 4(2) of the Securities Act and
the facts relied upon for such exemption are that the purchaser had full
information available to him concerning the Registrant, did not need the
protection afforded by the registration provisions of the Securities Act and the
certificate representing the shares of Common Stock issued has an appropriate
restrictive legend under the Securities Act typed thereon and is restricted from
transfer. No underwriters were involved in connection with the issuance of the
32,500 shares of Common Stock.
(h) In October 1996, Registrant issued an option to purchase 100,000
shares of Registrant's Common Stock to one corporation pursuant to a financial
public relations agreement. The option was issued in reliance upon the exemption
from registration provided by Section 4(2) of the Securities Act. The facts
relied upon for such exemption are that Registrant believes the corporation did
not need the protection afforded by the Securities Act. No underwriters were
involved in connection with the issuance of the option.
(i) In November 1996, Registrant issued 35,625 shares of Registrant's
Common Stock to one person in connection with the purchase by Registrant of the
assets of Ridgeworld North, Inc. The shares were issued in reliance upon the
exemption from registration provided by Section 4(2) of the Securities Act. The
facts relied upon for such exemption are that the purchaser had full information
available to it concerning the Registrant, did not need the protection afforded
by the registration provisions of the Securities Act and the certificate
representing the shares of Common Stock issued has an appropriate restrictive
legend under the Securities Act typed thereon and is restricted from transfer.
No underwriters were involved in connection with the issuance of the 35,625
shares of Common Stock.
II-3
<PAGE>
(j) The Registrant has stated one exemption from registration relied upon
in each of the issuances of unregistered securities described in paragraphs (a)
through (c) and (e) through (i). Other exemptions from registration may have
been available with respect to some or all of such issuances. The Registrant
reserves the right to assert in the future any or all other exemptions from
registration which were available with respect to such issuances.
Item 27. Exhibits.
The following is a list of all exhibits filed as part of this Registration
Statement. The exhibit numbers for previously filed exhibits correspond to the
Exhibit List in Registration Statement No. 33-98578 to which such exhibits are
incorporated by reference.
Exhibit No. Description and Method of Filing
- ---------- --------------------------------
(1.4) Laidlaw Equities, Inc. Unit Purchase Option.*
(3.1) Restated Articles of Incorporation With Amendments of Registrant.*
(3.2) Articles of Amendment to Restated Articles of Incorporation With
Amendments of Registrant filed on September 27, 1995.*
(3.3) Articles of Amendment to Restated Articles of Incorporation With
Amendments of Registrant filed on October 3, 1995.*
(3.4) Bylaws of Registrant.*
(3.5) Certificate of Correction to the Articles of Amendment to Restated
Articles of Incorporation With Amendments of Registrant filed on
January 29, 1996.*
(3.6) Articles of Amendment to Restated Articles of Incorporation With
Amendments of Registrant filed on February 13, 1996.*
(4.5) Warrant Agreement between Registrant and American Securities Transfer
Incorporated, as Warrant Agent.*
(5.1) Opinion dated March 5, 1996, of Hopper and Kanouff P.C. regarding
legality of the securities being registered.*
(5.2) Opinion dated March 5, 1996, of Hopper and Kanouff, P.C. regarding
liquidation preference.*
(5.3) Opinion of Smith, McCullough & Ferguson, P.C. regarding legality of
securities being registered.
(10.1) Employment Agreement dated effective October 1, 1994, between
Registrant and Robert J. Cooney and amendments thereto dated October
4, 1995 and October 6, 1995.*
(10.2) Employment Agreement dated effective October 1, 1994, between
Registrant and William R. Bauerle and amendments thereto dated
October 4, 1995 and October 6, 1995.*
(10.3) Employment Agreement dated effective September 13, 1995, between
Registrant and Frank J. Ball and amendment thereto dated October 6,
1995.*
(10.4) Employment Agreement dated effective September 13, 1995, between
Registrant and Robert S. Scholz and amendment thereto dated October
6, 1995.*
(10.5) Amended Stock Incentive Plan.*
II-4
<PAGE>
(10.6) Forms of Option Granted to Employees.*
(10.7) Agreement between Registrant and Bertrand T. Ungar.*
(10.8) Agreement dated July 17, 1995, among Registrant, Creative Licensing
Corporation and Le Studio Canal + (U.S.).*
(10.9) Lease Agreement dated May 10, 1995, between Registrant and Dennis A.
Trescott and addenda thereto dated June 22, 1995, October 13, 1995,
and November 6, 1995.*
(10.10) Exclusive Agreement dated July 10, 1995, between Registrant and
Target Technology Pte., Ltd.*
(10.11) Articles of Organization of Laser Hall L.L.C. and Laser Hall L.L.C.
Operating Agreement.*
(10.12) Articles of Organization of Laserstorm Waikiki Limited Liability
Company.*
(10.13) Agreement dated January 27, 1994 between Registrant and Sports and
Games.*
(10.14) Agreement dated August 8, 1995 between Registrant and Fun City
Amusement Centers, Inc.*
(10.15) Agreement dated effective July 1, 1995 between Registrant and
Santa's Village, Ltd.*
(10.16) Sales Agreement dated in August 1995 between Registrant and TAMS
Stationers.*
(10.17) Options Granted to Harrison A. Price and Harold Skripsky.*
(10.18) Lease Agreement dated October 19, 1995, between Registrant and
Funplex Partnership.*
(10.19) Employment Agreement dated effective December 1, 1995, between
Registrant and Michael D. Kessler.*
(10.20) Employment Agreement dated effective December 16, 1995, between
Registrant and Eric Schwartzman.*
(10.21) Options granted to Michael D. Kessler and Eric Schwartzman.*
(10.22) Agreement dated February 8, 1996, between Registrant and Tunica
Partners II, LP.*
(10.23) Addendum dated March 27, 1996, to the Employment Agreement dated
effective September 13, 1995, between Registrant and Robert S.
Scholz.*
(10.24) License Agreement dated August 1, 1996, between Marvel Characters,
Inc. and Registrant.***
(10.25) Amendment dated August 15, 1996, to Amended Stock Incentive Plan.**
(10.26) Asset Purchase Agreement dated July 23, 1996, among Registrant,
Laser Storm of Longmont, Inc. and Kevin J. Barker.**
(10.27) Asset Purchase Agreement dated November 1, 1996 between Registrant
and Ridgeworld North, Inc.****
(10.28) 1996 Incentive and Nonstatutory Stock Option Plan.
(23.1) Consent of HEIN + ASSOCIATES, LLP, Independent Certified Public
Accountants.
(23.2) Consent dated March 5, 1996 of Hopper and Kanouff, P.C.*
(23.3) Consent of Smith, McCullough & Ferguson, P.C. (included as a part of
Exhibit (5)).
(24) Power of Attorney.**
------------------
* Incorporated by reference to the same exhibit number of Registration
Statement 33-98578.
** Previously filed as an Exhibit to Registration Statement 333-14525.
*** Confidential treatment being requested in a separate filing.
**** Certain of the Schedules and Exhibits to the Asset Purchase Agreements
have been omitted and will be provided to the United States Securities
and Exchange Commission upon request.
II-5
<PAGE>
Item 28. Undertakings
The undersigned Registrant hereby undertakes that it will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this Registration Statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in
the registration statement; and
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act, 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) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its legal counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
II-6
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in the City and County
of Denver, State of Colorado on February 3, 1997.
LASER STORM, INC.
By: /s/ Robert J. Cooney
---------------------------------------------
Robert J. Cooney, Chief Executive Officer
By: /s/ John E. McNutt
--------------------------------------------
John E. McNutt, Chief Financial Officer,
Principal Accounting Officer and Treasurer
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities and
on the dates stated:
Signature Title Date
- ---------- ----- ----
/s/ Robert J. Cooney
- ---------------------------------
Robert J. Cooney Director February 3, 1997
/s/ William R. Bauerle
- ---------------------------------
William R. Bauerle Director February 3, 1997
/s/ Frank J. Ball
- ---------------------------------
Frank J. Ball Director February 3, 1997
/s/ Harrison A. Price
- ---------------------------------
Harrison A. Price Director February 3, 1997
/s/ Harold Skripsky
- ---------------------------------
Harold Skripsky Director February 3, 1997
*By /s/ Robert J. Cooney February 3, 1997
-----------------------------------
Robert J. Cooney, Power of Attorney
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description and Method of Filing Page No.
- ------- -------------------------------- -------
<S> <C> <C>
(1.4) Laidlaw Equities, Inc. Unit Purchase Option.* N/A
(3.1) Restated Articles of Incorporation With Amendments of Registrant.* N/A
(3.2) Articles of Amendment to Restated Articles of Incorporation With N/A
Amendments of Registrant filed on September 27, 1995.*
(3.3) Articles of Amendment to Restated Articles of Incorporation With N/A
Amendments of Registrant filed on October 3, 1995.*
(3.4) Bylaws of Registrant.* N/A
(3.5) Certificate of Correction to the Articles of Amendment to Restated N/A
Articles of Incorporation With Amendments of Registrant filed on
January 29, 1996.*
(3.6) Articles of Amendment to Restated Articles of Incorporation With N/A
Amendments of Registrant filed on February 13, 1996.*
(4.5) Warrant Agreement between Registrant and American Securities Transfer N/A
Incorporated, as Warrant Agent.*
(5.1) Opinion dated March 5, 1996, of Hopper and Kanouff P.C. regarding N/A
legality of the securities being registered.*
(5.2) Opinion dated March 5, 1996, of Hopper and Kanouff, P.C. regarding N/A
liquidation preference.*
(5.3) Opinion of Smith, McCullough & Ferguson, P.C. regarding legality of
securities being registered.
(10.1) Employment Agreement dated effective October 1, 1994, between N/A
Registrant and Robert J. Cooney and amendments thereto dated October
4, 1995 and October 6, 1995.*
(10.2) Employment Agreement dated effective October 1, 1994, between N/A
Registrant and William R. Bauerle and amendments thereto dated
October 4, 1995 and October 6, 1995.*
(10.3) Employment Agreement dated effective September 13, 1995, between N/A
Registrant and Frank J. Ball and amendment thereto dated October 6,
1995.*
(10.4) Employment Agreement dated effective September 13, 1995, between N/A
Registrant and Robert S. Scholz and amendment thereto dated October
6, 1995.*
(10.5) Amended Stock Incentive Plan.* N/A
(10.6) Forms of Option Granted to Employees.* N/A
(10.7) Agreement between Registrant and Bertrand T. Ungar.* N/A
<PAGE>
(10.8) Agreement dated July 17, 1995, among Registrant, Creative Licensing N/A
Corporation and Le Studio Canal + (U.S.).*
(10.9) Lease Agreement dated May 10, 1995, between Registrant and Dennis A. N/A
Trescott and addenda thereto dated June 22, 1995, October 13, 1995,
and November 6, 1995.*
(10.10) Exclusive Agreement dated July 10, 1995, between Registrant and N/A
Target Technology Pte., Ltd.*
(10.11) Articles of Organization of Laser Hall L.L.C. and Laser Hall L.L.C. N/A
Operating Agreement.*
(10.12) Articles of Organization of Laserstorm Waikiki Limited Liability N/A
Company.*
(10.13) Agreement dated January 27, 1994 between Registrant and Sports and N/A
Games.*
(10.14) Agreement dated August 8, 1995 between Registrant and Fun City N/A
Amusement Centers, Inc.*
(10.15) Agreement dated effective July 1, 1995 between Registrant and N/A
Santa's Village, Ltd.*
(10.16) Sales Agreement dated in August 1995 between Registrant and TAMS N/A
Stationers.*
(10.17) Options Granted to Harrison A. Price and Harold Skripsky.* N/A
(10.18) Lease Agreement dated October 19, 1995, between Registrant and N/A
Funplex Partnership.*
(10.19) Employment Agreement dated effective December 1, 1995, between N/A
Registrant and Michael D. Kessler.*
(10.20) Employment Agreement dated effective December 16, 1995, between N/A
Registrant and Eric Schwartzman.*
(10.21) Options granted to Michael D. Kessler and Eric Schwartzman.* N/A
(10.22) Agreement dated February 8, 1996, between Registrant and Tunica N/A
Partners II, LP.*
(10.23) Addendum dated March 27, 1996, to the Employment Agreement dated N/A
effective September 13, 1995, between Registrant and Robert S.
Scholz.*
(10.24) License Agreement dated August 1, 1996, between Marvel Characters,
Inc. and Registrant.***
(10.25) Amendment dated August 15, 1996, to Amended Stock Incentive Plan.** N/A
(10.26) Asset Purchase Agreement dated July 23, 1996, among Registrant, N/A
Laser Storm of Longmont, Inc. and Kevin J. Barker.**
(10.27) Asset Purchase Agreement dated November 1, 1996 between Registrant
and Ridgeworld North, Inc.****
(10.28) 1996 Incentive and Nonstatutory Stock Option Plan.
(23.1) Consent of HEIN + ASSOCIATES, LLP, Independent Certified Public
Accountants.
<PAGE>
(23.2) Consent dated March 5, 1996 of Hopper and Kanouff, P.C.* N/A
(23.3) Consent of Smith, McCullough & Ferguson, P.C. (included as a part of N/A
Exhibit (5)).
(24) Power of Attorney. ** N/A
------------------
</TABLE>
* Incorporated by reference to the same exhibit number of Registration
Statement 33-98578.
** Previously filed as an Exhibit to Registration Statement 333-14525.
*** Confidential treatment being requested in a separate filing.
**** Certain of the Schedules and Exhibits to the Asset Purchase Agreements
have been omitted and will be provided to the United States Securities
and Exchange Commission upon request.
SMITH, McCULLOUGH & FERGUSON, P.C.
1610 Wynkoop Street, Suite 300
Denver, Colorado 80202
February 3, 1997
Laser Storm, Inc.
7808 Cherry Creek South Drive, Unit 301
Denver, Colorado 80231
Gentlemen:
You have requested our opinion as to certain matters arising under the
Colorado Business Corporation Act which relate to the 68,125 issued and
outstanding shares of $0.001 par value common stock ("Common Stock") and the
100,000 shares of common stock underlying an outstanding option ("Option
Shares") which are described on the cover page of Amendment No. 1 to the
Registration Statement on Form SB-2 (File No. 333-14525) to be filed by Laser
Storm, Inc. ("Company") with the United States Securities and Exchange
Commission.
We have reviewed the Restated Articles of Incorporation with Amendments, as
amended, of the Company, the minutes of the Board of Directors and of the
shareholders of the Company, and such other documents that we considered
necessary in order to render this opinion. As a result of our review, we are of
the opinion that the Shares of Common Stock and the Option Shares are validly
authorized, and assuming the Option Shares are paid for upon exercise of the
option described in such Registration Statement, the shares of Common Stock and
the Option Shares when issued will be validly issued, fully paid and
nonassessable under the Colorado Business Corporation Act.
This opinion is limited to the applicability of the Colorado Business
Corporation Act to the issuance of the shares of Common Stock and Option Shares.
This opinion does not offer or in any way relate to the applicability of, or
compliance by the Company with, any other law, including any federal or state
securities laws, any state common law, or any other federal law.
We consent to your describing this firm as having issued this opinion in
the Prospectus which is a part of the Registration Statement referenced above.
SMITH, McCULLOUGH & FERGUSON, P.C.
/s/ Thomas S. Smith
--------------------------------------
Thomas S. Smith, Director
LICENSE AGREEMENT D96054R
License Agreement (this "Agreement"), when executed by both parties, is
effective as of the 1st day of August, 1996, by and between Marvel Characters,
Inc., a Delaware corporation with an office at 26707 West Agoura Road,
Calabasas, California 91302 ("Marvel"), and the party identified below
("Licensee").
1. BASIC INFORMATION AND TERMS
The following information and terms appear for ease of reference in
this Section 1 and are set forth in greater detail in the indicated sections of
this Agreement which follow. This Section 1 is not itself a contract, but only a
part of this Agreement.
Licensee: Laser Storm Inc.
7808 Cherry Creek South Drive
Denver, CO 80231
Characters: The following characters as they appear in
Marvel's comic book publications limited to: X-Men
(01XM), Beast (01BE), Cyclops (01CC), Gambit
(01GM), Archangel (01AA), Jean Grey (01JG),
Professor X (01PX), Psylocke (01PE), Rogue (01RO),
Storm (01ST), Wolverine (01WV), Iceman (01IC),
Bishop (02BS), Cannonball (01CN). Friends:
Starjammers (02SJ), Hepzibah (01HP), Raza (01RA),
Nereel (02NR), Corsair (01CS), Ch'od (01CD),
Princess Lilandra (01PR). Enemies: Apocalypse
(01AP), Avalanche (01AE), Blob (01BL), Gladiator
(02GL), Imperial Guard (02IM), Juggernaut (01JU),
Magneto (01MG), Mojo (01MJ), Mr. Sinister (03MS),
Omega Red (03OR), Pyro (01PY), Sauron (02SA),
Sebastian Shaw (07SS), Sentinels (02SE), Spiral
(01SL), Hellfire Club (02HF), Exodus (05EX),
Acolytes (02AC), Holocaust (02HL), Brood (02BR),
Brood Queen (04BR), Arcade (01AC), Phantasia
(02PH), Commando (02CM), Toad (01T0), Lady
Deathstrike (05LD), Cyber (03CY). Additional
characters may be added to and deleted from this
Agreement as each comic book series develops and
warrants, subject to Marvel's prior written
approval.
#2
Licensed Rights: Listed on Exhibit A #3(a)
Territory: Licensee-owned and sublicensee-owned (subject to Marvel's
approval as specified in Section 21(f) hereof) entertainment centers
located in The United States of America, its territories and possessions
and Canada. #3(b)
Laser Storm Inc. -1- (Rev. 8/29/96) 7/19/96:av
<PAGE>
Commencement Date: August 1, 1996
Expiration Date: February 1, 2000 #3(c)
Notwithstanding the foregoing, the term for any entertainment centers not owned
by Licensee but rather sublicensed in accordance with Section 21(f) hereof shall
be three (3) years from the date of original purchase.
Royalty Rate: [ * ] #5(a)
Calendar Period for royalty payments: Quarterly #5(a)
Royalty Report due with payment 30 days after end of
Calendar Period. #5(a),(d)
Minimum Royalty Guarantee:
payable as follows:
[ * ] #5(b)
Advance: [ * ] payable upon signing. #5(b)
Remaining Balance: [ * ] , payable on or before; [ * ]
[ * ] , payable on or before; [ * ]
[ * ] , payable on or before; [ * ] and
[ * ] , payable on or before. [ * ]
Currency for all payments: United States Dollars #5(c)
Royalty Reports and payments sent to: Accounts Receivable, Marvel
Characters, Inc., 26707 West Agoura Road, Calabasas, California 91302
with a copy of reports to: Accounts Receivable, Marvel Entertainment
Group, Inc., 387 Park Avenue So., New York, NY 10016 ("Marvel's New
York Office") #5(d)
Examination/Audit Fee: $500.00 per diem.
Examination/Audit Maximum: $2,500.00 #5(e)
Trademark and Copyright Notices:
[Name(s) of character(s)] and Copyright (C) [year of first
the distinctive likeness(es) publication of Marvel material
thereof are Trademarks of by Licensee, in Arabic numerals]
Marvel Characters, Inc. Marvel Characters, Inc.
and are used with permission. All Rights Reserved. #7(b),(h)
Notice of Supervision:
This [identify the Licensed Article] is produced under
license from Marvel Characters, Inc. #7(c)
Product Development/Submission Date: November 1, 1996 #8(a)
Laser Storm Inc. -2- (Rev. 8/29/96) 7/19/96:av
[ * ] omitted material has been filed separately with the Commission under
a request for confidential treatment.
<PAGE>
Submission to Marvel for approval:
One (1) sample of each item comprising the Licensed Rights
upon completion of first production and each different piece
of Associated Material therefor prior to sale or publication.
One (1) sample of each item comprising the finished Licensed
Rights and each different piece of Associated Material
annually
thereafter. #9(a)
Insurance: A Combined Single Limit of $3,000,000 per occurrence. #10(e)
2. RECITALS
(a) Marvel has rights in and to the names, characters, stories,
storylines, plots, dialogue, incidents, language, artwork, symbols, designs,
depictions, likenesses, formats, poses, concepts, themes and graphic,
photographic and other visual representations of, relating to and associated
with the Characters identified in Section 1 hereof (which names, characters,
etc. and/or each of the individual components thereof shall hereinafter be
referred to as the "Property"), said Property being known and recognized by the
general public and associated in the public mind with Marvel.
(b) Licensee desires to utilize the Property in the manner hereinafter
described.
3. GRANT OF LICENSE
(a) Licensed Rights. Upon the terms and conditions and with the
limitations and exceptions hereinafter set forth, Marvel hereby grants to
Licensee and Licensee hereby accepts the exclusive license right during the
initial term hereof to utilize the Property but solely upon and in connection
with the entertainment centers identified on Exhibit A.
Upon the terms and conditions and with the limitations and exceptions
hereinafter set forth, Marvel hereby grants to Licensee and Licensee hereby
accepts the non-exclusive license right during any Extension Period(s) hereof to
utilize the Property but solely upon and in connection with the entertainment
centers identified on Exhibit A.
The articles, products and/or services identified on Exhibit A
collectively referred to as "Licensed Articles."
(b) Territory. The license hereby granted extends only to the Territory
identified in Section 1. Licensee expressly acknowledges and agrees that it is
not licensed or authorized to use the Property, directly or indirectly, in any
other area, and that it is not licensed to and will not knowingly sell the
Licensed Rights to persons who intend or are likely to exploit them in any other
area, to the extent this provision is permitted by the applicable law at the
time of such use, license or sale.
(c) Term. The license hereby granted shall commence on the
Commencement Date and terminate automatically on the Expiration Date set forth
in Section 1, or the expiration of any renewal as provided herein, unless sooner
terminated in accordance with the provisions hereof. In the event Licensee
commences any activities in connection with the Property prior to the
Commencement Date, all provisions of this Agreement for the benefit and
protection of Marvel shall apply in full to such activities.
Laser Storm Inc. -3- (Rev. 8/29/96) 7/19/96:av
<PAGE>
Provided Licensee is not in breach of any of the provisions of this
Agreement and provided that Licensee has paid Marvel no less than Three Hundred
Thousand Dollars ($300,000.00) in earned royalties during initial term of this
Agreement, and provided further that Licensee gives written notice to Marvel of
its desire to extend this Agreement within five (5) months prior to expiration
of this Agreement, then this Agreement shall be extended for a one (1) year
period ("Extension Period"). Thereafter, this Agreement shall be extended for
successive one (1) year periods (each the "Extended Period") terminating
December 31, 2003 provided during the preceding twelve (12) month period
Licensee is not in breach of this Agreement and Licensee has paid Marvel no less
than Three Hundred Thousand Dollars ($300,000.00) in earned royalties and
provided further that Licensee gives written notice to Marvel of its desire to
extend this Agreement within five (5) months prior to expiration of the initial
term of this Agreement or, if any, the Extension Period in effect.
Notwithstanding the foregoing, if Licensee has not paid Marvel the sum
of Three Hundred Thousand Dollars ($300,000.00)in earned royalties during the
initial term of this Agreement or any Extension Period, the Extension Period
will not become effective and this License shall be terminated as of the
expiration of the initial term of this Agreement or, if any, the Extension
Period in effect.
(d) Scope of License. Notwithstanding anything contained herein to the
contrary, nothing in this Agreement shall be construed to prevent Marvel from
granting any other licenses for the use of the Property or from utilizing the
Property in any manner whatsoever, except that Marvel agrees that (except as
provided herein), it will grant no other licenses for the Territory to which
this license extends during the initial term of this license for the use of the
Property, (other than solely for manufacturing for sale outside the Territory),
in connection with the Licensed Articles without the prior written consent of
Licensee. It is further understood and agreed that, in accordance with its
practice, Marvel may have previously granted and may continue to grant
permissions to others to use the property or portions thereof in connection with
the Articles for noncommercial, educational or experimental purposes. Moreover,
it is further understood that, under prior terminated license agreements
relating to the use of the Property for the Articles in the Territory, Marvel
reserves the right to have granted to expired or terminated licensees rights
similar to those set forth in #16(e) hereof to dispose of Articles on hand or in
process within the Territory during the first sixty (60) days of the term
hereof. It is also agreed and understood that nothing in this Agreement shall be
construed to prevent Marvel from granting any other licenses for the use of the
Property, in connection with the Licensed Rights, for the Territory to which
this license extends, during the Extension Period(s) of this license or from
utilizing the Property in any manner whatsoever. Licensee hereby acknowledges
that the aforesaid licenses do not conflict with or derogate from any rights
being granted to Licensee hereunder.
4. RESERVATION OF RIGHTS
(a) General. Marvel hereby reserves all rights not herein specifically
granted to Licensee, including but not limited to all rights with respect to
Laser Storm Inc. -4- (Rev. 8/29/96) 7/19/96:av
<PAGE>
the Licensed Rights for any and all channels of trade, modes of distribution
and/or delivery, including but not limited to premiums or giveaways, direct
mail, electronic shopping (e.g., "QVC"), Marvel's Direct Sales Marketplace (as
defined in Section 13) and vending machines and for sale at commercial venues
presenting a live stage show based upon the Property such as an arena show or a
touring mall show. As between the parties, such reserved rights are the sole and
exclusive property of, and may be used or exercised solely by, Marvel. Any use
or license by Marvel of such reserved rights, in any manner whatsoever, shall
not be deemed unfair competition with, interference with, breach of or
infringement of any of Licensee's rights hereunder. It is also understood that
Marvel is not required to itself continue the production of the Property or any
part thereof.
(b) Television, etc. Except only for the visual reproduction or
presentation of the actual Licensed Rights licensed hereunder or of the actual
packaging therefor or as may be expressly provided in this Agreement, Licensee
shall not use the Property or Licensed Articles identified with the Property on
or in connection with any manner of television, radio, motion picture,
filmstrip, sound and/or visual recording or transmission device or media, or
anything similar to the foregoing now known or hereafter developed without
Marvel's prior written approval. The name and/or likeness of any performer
portraying any character included within the Property on radio, television, or
in any other media or form shall not be deemed to be included in the Property,
and the use thereof is not licensed.
5. ROYALTIES, PAYMENTS, REPORTS AND RECORDS
(a) Royalties. Licensee agrees to pay Marvel royalties at the Royalty
Rate identified in Section 1. Royalties shall be calculated by applying the
Royalty Rate to Licensee's Gross Revenues. Gross Revenues shall mean the total
amount of money received by Licensee, its agents, affiliates, associates,
subsidiaries or other related persons or companies ("Related Entities") from
admission tickets to the entertainment centers or other exploitation of the
Licensed Rights or from any use of the Property permitted hereunder. No set-offs
or deductions of any kind may be taken in the determination of Gross Revenues or
the royalties due Marvel hereunder,except that Licensee may deduct any federal,
state or local taxes imposed on the sale of an admission ticket, provided
Licensee supplies Marvel with documentation of having paid such taxes. Royalties
as specified herein shall become due on the last day of each Calendar Period
specified in Section 1, for all Gross Revenues accruing in that Calendar Period
and shall be paid not later than the number of days thereafter specified in
Section 1, accompanied by the Royalty Report required herein. Gross Revenues
shall be deemed accrued for all purposes hereunder no later than Licensee's
receipt of such monies.
(b) Advance and Minimum Royalty Guarantee. Licensee agrees to pay
Marvel the Minimum Royalty Guarantee specified in Section 1 as a minimum
guarantee against royalties to be paid Marvel during the Term of this license.
As the first installment of the Minimum Royalty Guarantee, upon the signing
hereof, Licensee shall pay Marvel the Advance specified in Section 1. Any unpaid
balance of said Minimum Royalty Guarantee shall be paid to Marvel as provided in
Section 1. No part of the Advance or Minimum Royalty Guarantee shall in any
event be repayable to Licensee.
Laser Storm Inc. -5- (Rev. 8/29/96) 7/19/96:av
<PAGE>
(c) Currency and Taxes. All payments to Marvel shall be made in the
currency set forth in Section 1, which amounts shall be computed at the exchange
rate existing at noon on the last business day preceding the day payment is due
to be made hereunder. If payment is late, Marvel has the option to require that
payment be made at the exchange rate existing on the day preceding payment. All
taxes, levies, charges or duties imposed on license rights, artwork or similar
material, or payments therefor, shall be paid by Licensee and no deductions for
such taxes, levies, charges or duties shall be made from amounts owed Marvel
hereunder, it being the intent hereof that all royalties payable to Marvel be
free and clear of any taxes, levies, charges or duties of any kind whatsoever.
(d) Royalty Reports. For each Calendar Period specified in Section 1,
commencing with the end of the Calendar Period following the Commencement Date
of this license and continuing until a final certification of wind-up is
delivered, Licensee shall furnish Marvel with a detailed Royalty Report
certified to be accurate by an authorized officer of Licensee, showing all
information called for by the statement form annexed hereto as Exhibit B
(whether or not there has been any actual exploitation of said Licensed Rights),
additional copies of which may be obtained from Marvel. Each such Royalty Report
shall be furnished to Marvel to the attention of the persons designated in
Section 1, within the time specified in Section 1 after the end of the Calendar
Period for which such Royalty Report is made, and shall be accompanied by
payment to Marvel of any and all monies due Marvel and by Licensee's most
current admission price for the Licensed Rights. Such Royalty Report shall be
furnished to Marvel whether or not there are any Gross Revenues during the
preceding Calendar Period, and whether or not any monies are then due Marvel.
The failure or refusal of Licensee to timely furnish any such Royalty Report or
payment shall be deemed a substantial and material breach of this Agreement and
shall entitle Marvel to terminate this license as set forth in Section 15(a)
hereof. The receipt or acceptance by Marvel of any of the Royalty Reports
furnished pursuant to this Agreement or of any payments made hereunder (or the
cashing of any checks paid hereunder) shall not preclude Marvel from questioning
its accuracy at any time, and in the event that any inconsistencies or mistakes
are discovered in such Royalty Reports or payments, they shall immediately be
rectified and the appropriate payment made by Licensee, together with interest
on any overdue payments at the rate specified in Section 17(c) hereof.
(e) Records. Licensee shall maintain at its expense, detailed,
accurate, full and complete records and books of account covering all
transactions by it relating to this Agreement, and Marvel and its duly
authorized representatives shall have the right, at least twice during each
calendar year during normal business hours, to examine and/or audit such records
and books of account and all other documents and materials in the possession or
under the control of Licensee relating or pertaining to the subject matter or
provisions of this Agreement and to make copies and/or extracts therefrom. In
the event that Marvel's duly authorized representatives shall discover a
deficiency for any accounting period of five percent (5%) or more by any such
examination and/or audit, Licensee shall pay to Marvel the cost of such
examination and/or audit. The Examination Audit Fee per diem shall be as set
forth in Section 1. In no event, however, shall Licensee be charged for any
individual examination in excess of the Examination Audit Maximum set forth in
Section 1. Upon Marvel's demand, Licensee shall at its own expense furnish
Marvel with a detailed report by an independent certified public accountant on
Laser Storm Inc. -6- (Rev. 8/29/96) 7/19/96:av
<PAGE>
the accuracy and preparation of the aforesaid Royalty Reports. Licensee shall
keep all such books of account and records available to Marvel for at least two
(2) years after the termination or expiration of this license. If Licensee fails
to keep and disclose such records, Marvel shall have the right to estimate, and
have payment for, such additional royalty as may be indicated owing by such
trade information as may be available.
6. MARVEL'S TITLE AND GOODWILL
(a) General. Licensee acknowledges that Marvel is the owner of all
right, title and interest in and to the Property, and further acknowledges the
great value of the goodwill associated with the Property and that the Property
has acquired secondary meaning in the mind of the public and that the trademarks
and copyrights included in the Property, and the registrations therefor, are
valid and subsisting, and further agrees that it shall not during the Term of
this license or at any time thereafter dispute or contest directly or
indirectly, or do or cause to be done any act which in any way contests, impairs
or tends to impair Marvel's exclusive rights and title to the Property, as well
as any properties owned by Marvel which are not licensed hereunder, or the
validity thereof or the validity of this Agreement, and shall not assist others
in so doing.
(b) Representations of Ownership, etc. Licensee shall not in any manner
represent that it has any ownership in the Property, or in any properties owned
by Marvel which are not licensed hereunder, or in any trademarks or copyrights
included in the Property (or registrations therefor), but may, only during the
Term of this license, and only if Licensee has complied with all laws and
registration requirements within the Territory for so doing, represent that it
is a "licensee" or "official licensee" hereunder. Licensee shall not register or
attempt to register any copyright or trademark in the Property, or in any
properties owned by Marvel which are not licensed hereunder, in its own name or
that of any third party, nor shall it assist any third party in doing so.
(c) Use for Benefit of Marvel. Licensee agrees that any and all uses
and sales by Licensee of the Property under this Agreement shall inure to the
benefit of Marvel and that neither such uses or sales nor anything contained in
this Agreement shall give or assign Licensee or any other person or entity any
right, title or interest in the Property, or in any properties owned by Marvel
which are not licensed hereunder, except the right to use the Property
specifically in accordance with the provisions of this Agreement.
7. PROTECTION OF RIGHTS-INCLUDING COPYRIGHTS AND TRADEMARKS
(a) General. Licensee shall cooperate fully and in good faith with
Marvel for the purpose of Marvel's securing and preserving Marvel's (or any
grantor of Marvel's) rights in and to the Property. Upon creation of Licensed
Rights embodying the Property, Licensee shall be deemed to have automatically
assigned to Marvel all copyrights in the Property (and all adaptations,
compilations, modifications, translations and versions thereof) embodied in the
Licensed Rights. In addition, Licensee shall execute any instruments requested
by Marvel to accomplish or confirm the foregoing and hereby irrevocably appoints
Marvel as its attorney-in-fact to execute such instruments if Licensee does not
do so. Any such assignment shall be without other consideration than the mutual
covenants and considerations of this Agreement.
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(b) Trademarks. Licensee acknowledges and agrees that the names,
characters, symbols, designs, likenesses, and visual representations, among
other things, comprising the Property are owned by Marvel, and that it shall
cause to appear on everything which uses, bears or displays the Property or any
part thereof, including all items comprising the Licensed Rights, tags, labels
and the advertising, promotional, packaging and display material therefor, a
notice proclaiming and identifying the relevant portions of the Property
appearing therein as properties of Marvel, as, for example, by labeling each
name and character likeness with the notice specified in Section 1, or otherwise
as Marvel may deem appropriate.
(c) Notice of Supervision. Every item comprising the Licensed Rights
and all advertising, promotional, packaging and display material therefor shall
also bear the notice of supervision specified in Section 1 (or an equivalent if
given prior written approval by Marvel) in order to notify the public that
Marvel's standards are maintained.
(d) Reference to Source. It is agreed that all trademarks and other
references used by Licensee in connection with the Licensed Rights which might
suggest that they are indicias of source, shall, with all of the goodwill
relating thereto, inure to the benefit of and be the sole property of Marvel,
except only that Licensee may use a house mark upon the items comprising the
Licensed Rights without being deemed to have assigned it to Marvel, provided it
fairly appears only as Licensee's house mark.
(e) Confusing Use. Licensee shall not use, and shall use its best
efforts to keep others from using, the Property in any manner likely to cause
confusion or doubt in the mind of the public as to the ownership and control
thereof or in any manner that does not make clear that the Property is owned and
controlled exclusively by Marvel. In addition, Licensee shall not use or
co-mingle with the Property, and shall use its best efforts to keep others from
using or co-mingling with the Property, any other trademarks, characters or
properties, whether owned by Licensee or another, so as to suggest that such
other trademarks, etc. may have been created or may be owned, controlled,
licensed or approved by Marvel or that they are in any way related to the
Property or Marvel unless approved in writing by Marvel.
(f) Registration. Licensee agrees to fully cooperate with and assist
Marvel in the prosecution of any copyright, trademark or service mark
applications concerning the Property that Marvel may desire to file, and for
that purpose, Licensee shall, upon request, supply to Marvel enough samples of
the items comprising the Licensed Rights or other material as may be required in
connection with any such application. Furthermore, Licensee shall execute any
instrument Marvel shall reasonably deem necessary or desirable to record or
cancel Licensee as a registered user of the trademarks of Marvel included in the
Property, it being understood and agreed that Licensee's right to use the
Property and the trademarks included therein in any country for which the filing
of a registered user application is required, or is requested by Marvel, shall
commence only upon the filing of such registered user application, but shall
continue only so long as this license remains in effect.
(g) Customer Complaints. Licensee shall, in connection with its duty to
use the Property so as to promote the continuing goodwill thereof, give
immediate attention and take necessary action to satisfy all legitimate customer
complaints brought against Licensee in connection with the Licensed Rights or
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other materials using the Property. Licensee shall give Marvel immediate notice
of all material complaints that might affect the good standing of the Property
or the reputation of Marvel and also of all complaints that might result in
legal action between Marvel and any third party, and cooperate with Marvel upon
request to achieve as good a reputation and press for the Property as possible.
(h) Copyright Notice. It is a condition of this license that prior to
public distribution, Licensee shall cause to appear the copyright notice
specified in Section 1 on all items comprising the Licensed Rights, tags, labels
and the advertising, promotional, packaging and display materials therefor, or
otherwise as Marvel may instruct in writing or approve upon request.
(i) Secure Copyrights, etc. Marvel may secure, in its name (or the name
of another, including Licensee, if desired by Marvel), to the fullest extent
possible, the copyrights in the Property and the registrations, renewals and
extensions thereof, embodied in the Licensed Rights, including all adaptations,
translations, modifications and versions of the Property. It is also a condition
of this license that the Licensed Rights and other materials produced under this
Agreement shall be produced as works made for hire for Marvel.
(j) Claims by Licensee. Licensee shall not commence any court or
administrative action against Marvel or against any other licensee of Marvel
under the Property without giving Marvel thirty (30) days prior written notice
and an opportunity by Marvel and/or such licensee to cure or correct the matter
giving rise to the proposed action during said thirty (30) day period. In the
event of any such action, Licensee shall give Marvel at least fifteen (15) days
prior written notice before seeking any interim injunctive relief or restraining
order.
8. QUALITY OF MERCHANDISE AND SERVICES; LICENSEE NAME ON LICENSED RIGHTS
(a) Prior to the Product Development/Submission Date provided in
Section 1, Licensee agrees to send representatives responsible for product
development and marketing to Marvel to attend an initial product development and
marketing meeting at a date and time to be specified by Marvel.
(b) Licensee agrees that the Licensed Rights shall be of a high
standard and of such style, appearance and quality as shall, in the judgment of
Marvel, be adequate and suited to their exploitation to the best advantage and
to the protection and enhancement of the Property and the goodwill pertaining
thereto; that the items comprising the Licensed Rights shall be manufactured,
packaged, sold, distributed, advertised and serviced in accordance with all
applicable laws; that the policy of sale, distribution, and/or exploitation by
Licensee shall be of equivalent high standard and style; and that the same shall
in no manner reflect adversely upon the Property or Marvel. Licensee further
agrees that all rights granted herein shall be exploited and exercised so as not
to interfere with, detract from, or alter the concepts used by Marvel or known
to the public and that Licensee shall use its best efforts to preserve the
concepts therein. Accordingly, Licensee further specifically covenants and
agrees to keep Marvel informed of its plans for use of the Property, and to
consult Marvel as the items comprising the Licensed Rights are being prepared,
so that there will be full opportunity for Marvel to deter Licensee from any use
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that would alter the successful concepts associated with the Property. Licensee
will consult with Marvel at every stage in designing the items comprising the
Licensed Rights regarding the utilization of the Characters and the Property and
shall work with Marvel to obtain Marvel's creative input concerning the
Characters and the Property and the overall look and direction of the Licensed
Rights. In connection therewith, Licensee shall be faithful in the portrayal of
the Characters to the basic conceptualization of the Characters and the
Property. To this end, before the first display of any kind of the Licensed
Rights or such other materials, but in no event later than the Product
Development/Submission Date provided in Section 1, Licensee shall submit to
Marvel, for written approval without charge, and in a form acceptable to Marvel,
all rough designs, concepts and/or prototypes of each item, class, part or
category of the Licensed Rights and/or with respect to any Character licensed
hereunder. After such rough material has been approved by Marvel, and before any
public display, Licensee shall further submit to Marvel, for written approval
without charge, and in a form acceptable to Marvel, a pre-production sketch or
model of each item, class, part or category of the Licensed Rights and/or with
respect to any Character licensed hereunder. Any item submitted to Marvel shall
be deemed disapproved unless the same shall be approved in writing within twenty
(20) days of receipt of the item. Licensee's failure to comply with any of the
provisions of this section shall be deemed a substantial and material breach of
this Agreement and shall entitle Marvel to terminate this license as set forth
in Section 15(e) hereof.
(c) The Marvel Comic's logo and Licensee's name, trade name (or a
trademark of Licensee which Licensee has advised Marvel in writing that it is
using) shall appear on permanently affixed labeling on each item comprising the
Licensed Rights and, if any item comprising the Licensed Rights are packaged or
in a container, printed on such packaging or a container so that the public can
identify the supplier of the Licensed Rights. Licensee shall advise Marvel in
writing of all trade names or trademarks it is using on any item comprising the
Licensed Rights under this license if such names or marks differ from your
corporate name as indicated herein.
9. INSPECTION AND APPROVAL
(a) Samples for Approval. The nature, quality, style and labeling of
any item comprising the Licensed Rights and the packaging, labels, advertising
and promotional material therefor shall have the prior written approval of
Marvel. To this end, before the first sale, distribution, display or release of
any kind or in any media of the Licensed Rights or such other materials,
Licensee shall submit to Marvel, for Marvel's written approval without charge,
the number of samples specified in Section 1 of each item comprising the
Licensed Rights manufactured hereunder upon completion of the first production,
and each different piece of advertising, promotional, packaging and label
material ("Associated Material") therefor. Annually thereafter, Licensee shall
submit to Marvel, free of cost, for Marvel's written approval, the number of
samples specified in Section 1 of each of the items comprising the finished
Licensed Rights and each different piece of Associated Material therefor. Any
item submitted to Marvel shall be deemed disapproved unless the same shall be
approved in writing within twenty (20) days of receipt of the samples. After
samples have been approved pursuant to this section, Licensee shall not depart
therefrom in any respect without Marvel's prior written consent. No approval of
any submitted product or item by Marvel shall be construed to expand or enlarge
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the scope of the license granted hereunder. Licensee shall use reasonable
efforts to make such changes as are reasonably requested by Marvel after an
inadvertent approval or a change of conditions. In the event that this license
involves the manufacture and/or sale of a food or drink product or a product
intended for human use in the manner of a soap, shampoo, or a similar product,
then it is an essential condition of this license, and Licensee covenants and
agrees, that there shall not be the slightest departure from the quality or the
formula approved by Marvel without the written consent of Marvel obtained in
advance.
(b) Inspection. Marvel or its authorized agents or representatives
shall have access to each entertainment center where Licensee has an owner
interest at all reasonable times, upon reasonable notice, with the right to a
full inspection of any exploitation of the Licensed Rights in order to satisfy
itself that its standards are maintained. In addition, Marvel shall have the
same right to a full inspection in each entertainment center operated by an
authorized sublicensee, provided such rights were granted to Licensee under the
sublicense agreement. Licensee shall use its best efforts to insure that such
rights are included in each sublicense agreement entered into by Licensee.
10. INDEMNIFICATION, LITIGATION AND INSURANCE
(a) In its use of the Property, or any element or portion thereof,
under this Agreement, Licensee shall exercise reasonable care, and shall
cooperate fully with Marvel, to avoid infringing any rights found to be owned by
others in the Territory. Upon learning of the existence or possible existence of
rights held by others which may be infringed by the use of any element or
portion of the Property under this Agreement, Licensee shall promptly notify
Marvel in writing.
(b) Infringement. Licensee shall promptly notify Marvel, in writing, of
any imitations or infringements of the Property or the rights licensed hereunder
which may come to Licensee's attention. Marvel shall have the sole right to
determine whether or not any demand, suit or other action shall be taken on
account of or with reference to any such infringements or imitations, and
Licensee shall not institute any suit or take any action on account of any such
infringements or imitations without first obtaining the written consent of
Marvel to do so. Marvel, if it so desires, may commence or prosecute any suits
or make any such demands in its own name or in the name of Licensee or join
Licensee as a party thereto. Licensee shall cooperate with Marvel and in any
manner that Marvel may request in connection with any such demands, suits,
claims or other actions. If Marvel elects not to sue, Licensee may request
permission to bring suit and, with written permission, may bring suit at its own
expense, provided Licensee indemnifies Marvel against any loss or damage,
including any loss or damage to reputation or goodwill, and provided that trial
counsel is approved by Marvel, keeps Marvel fully informed, and further provided
that Marvel shall have the right to assume control of the litigation at any
time, but is thereupon responsible for its own further litigation expense.
Nothing herein shall be construed as imposing any obligation upon Marvel to take
action against any alleged infringer, nor to relieve Licensee from full
compliance with any of the terms of this Agreement in the event that Marvel does
not take such action.
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(c) Indemnification of Licensee. Marvel shall defend, indemnify and
hold Licensee harmless of, from and against any charges, suits, damages, costs,
expenses (including attorneys' fees), judgments, penalties, claims, liabilities
or losses of any kind or nature whatsoever, which may be sustained or suffered
by or secured against Licensee based upon or arising out of any actual or
alleged trademark or copyright infringement arising solely out of the use by
Licensee of the Property as authorized in this Agreement, provided that: prompt
notice is given to Marvel of any such claims or suits and provided further that:
Marvel shall have the option to undertake and conduct the defense and/or
settlement of any such claims or suits and that Licensee cooperates with Marvel
in the defense of any such claims or suits and Licensee acts to mitigate any
damages, and that no settlement of any such claims or suits is made without the
prior written consent of Marvel. Marvel does not warrant any present or future
commercial value of the Property.
(d) Indemnification of Marvel. Licensee shall defend, indemnify and
hold Marvel, its parents, subsidiaries, associated and affiliated companies,
harmless of, from and against any charges, suits, damages, costs, expenses
(including attorneys' fees), judgments, penalties, claims, liabilities or losses
of any kind or nature whatsoever, which may be sustained or suffered by or
secured against Marvel in connection with the Licensed Rights, or based upon or
arising out of any actual or alleged unauthorized use of any patent, trade
secret, process, idea, method or device, or any copyright or trademark, other
than under this license, or the packaging, distribution, promotion, sale or
exploitation of the Licensed Rights, any actual or alleged defect in Licensee's
use of the Licensed Rights or their packaging, whether latent or patent,
including failure of Licensee's exploitation of said Licensed Rights or their
packaging, distribution, promotion, sale or exploitation to meet any Federal,
State or local laws or standards; or any other actual or alleged unauthorized
action of Licensee, including a breach of any term of this Agreement.
(e) Insurance. Licensee shall obtain at its own expense and maintain
during the Term of this Agreement and for seven (7) years thereafter, general
liability insurance including advertising, blanket contractual, product
liability and completed operations liability coverages. In the event the
Licensed Rights include books or other published materials or are of an
electronic nature such as software, computer programs, etc., Licensee also shall
obtain at its own expense and maintain during the Term of this Agreement and for
seven (7) years thereafter (ten (10) years if the policy form is claims made)
publishers liability insurance which provides coverage for claims arising out of
the published material and shall include but not be limited to the allegations
of defamation, copyright infringement, invasion of right of privacy, or other
personal injury and breach of implied contract. All insurance must be provided
by a recognized insurance company having a Best's Rating of no less than "A"
providing adequate protection at least in the amounts specified in Section 1 for
personal bodily injury and property damage for Marvel and also for Licensee.
Said insurance shall be primary and non-contributory with respect to any
insurance carried by Marvel. As proof of such insurance, a fully paid
certificate of insurance naming Marvel, its parent, subsidiary, associated and
affiliated companies as insured parties shall be submitted to Marvel's New York
Office by Licensee before any of the Licensed Rights are exploited, displayed or
sold, and at the latest within thirty (30) days after execution of this
Agreement. Said insurance coverage shall be effective as of the date first
written above. Any proposed change in the insurance policy(ies) affecting
Marvel's coverage shall be submitted for review as to the policy compliance with
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the terms and conditions of this Agreement, to Marvel's New York Office. Marvel
shall be entitled, throughout the Term of this Agreement, to a copy of the
prevailing policy(ies) of insurance, which shall be furnished to Marvel's New
York Office by Licensee. The policy(ies) of insurance must be non-cancellable
except after thirty (30) days prior written notice to Marvel's New York Office.
As used in Section 10(b) and (d), "Marvel" shall also include the agents,
employees, assignees and any sponsor of Marvel, any advertising agency, and
their respective officers, directors, agents and employees. This provision shall
survive the termination or expiration of this Agreement.
11. ARTWORK
Marvel shall supply Licensee with reasonable amounts of artwork from
the Marvel Style Guide depicting the Property for use in the development of the
Licensed Rights upon reasonable request by Licensee. The cost of providing
copies of such style guide artwork, and the cost of both producing and providing
copies of artwork, other than style guide artwork, which is specifically
requested by and specifically prepared for Licensee or the reproduction thereof
shall be paid by Licensee upon invoicing therefor. Licensee understands that in
the event any fees or royalties are due creators or artists as a result of
certain artwork or storylines, Licensee shall be responsible for the payment of
such fees and/or royalties upon invoicing therefor. Payment of artwork and any
fees associated therewith shall not be credited against any guarantee or other
amount due Marvel. In addition, Licensee may produce within the Territory,
directly or through other persons approved by Marvel, any artwork Licensee needs
in connection with this license and, subject to obtaining Marvel's approval
pursuant to Section 9(a) hereof, may reproduce and use such artwork for the
purposes set forth in, and subject to the limitations imposed by, this
Agreement. No such artwork may be reproduced or used unless the notices required
under Section 7 are included thereon. All artwork involving the Property, or any
reproduction thereof, and all copyrights therein shall, notwithstanding its
creation or use by Licensee or other persons for Licensee, be and remain solely
the property of Marvel and Marvel shall be entitled to use the same and to
license the use of the same by others. Any reproduction or use of such artwork
shall be on a non-exclusive basis. Licensee shall obtain and promptly furnish to
Marvel's New York Office on the form annexed hereto as Exhibit C, an agreement
signed by each person who creates, prepares or produces for or on behalf of
Licensee (whether as an employee, an independent contractor or otherwise) any
artwork involving the Property or any reproduction thereof, stating that such
artwork is a work made for hire for Licensee under the U.S. Copyright Laws and
acknowledging that such person has no copyright or other rights of any kind in
or to such artwork. Licensee shall be deemed to have automatically assigned to
Marvel all copyrights in such artwork created by or for Licensee. Further,
Licensee shall execute any instruments requested by Marvel to accomplish or
confirm the foregoing assignment, and hereby irrevocably appoints Marvel as its
attorney-in-fact to execute such instruments if Licensee does not do so.
12. PROMOTION
(a) Marvel shall have the right, but shall not be under any obligation,
to use the Property and/or the name of Licensee so as to give the Property,
Licensee, Marvel and/or programs connected with the Property full and favorable
prominence and publicity. If the Licensed Rights appear in film produced by or
under authority of Marvel, there shall be no obligation by Marvel to discontinue
use of such film or any part thereof at the expiration or termination of this
license and such continued use shall in no way be construed as an extension of
the Term hereof or of this license.
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(b) Licensee shall purchase a minimum of three (3) full page
advertising insertions in the Marvel Network during the initial term of this
Agreement, and one (1) full page advertising insertion in the Marvel Network
during each year of any Extension Period(s), for use in advertising the Licensed
Rights. The cost for each advertising insertion shall be no greater than the
lowest price offered to any other Marvel licensee. Licensee understands that the
failure to purchase the requisite number of advertising pages shall be
considered a material breach of this Agreement.
13. DISTRIBUTION AND ADVERTISING
(a) Licensee shall diligently and continuously use its best efforts
throughout the entire Territory licensed hereunder and during the entire Term of
this license to operate and maintain in a first class manner consistent with the
highest standards of the interactive entertainment center industry, to promote
and expand its sales hereunder to achieve the highest Gross Revenues practicably
obtainable and to compete with any similar businesses, products or services.
(b) Licensee agrees to use its best efforts to purchase from other
Marvel licensees, Marvel licensed product for resale in each laser tag venue,
including arcade video games for placement in each laser tag venue. All such
purchases shall be subject to Marvel's prior approval. All revenues derived by
Licensee from such sales shall be on a royalty free basis.
(c) Licensee shall commit a minimum of five percent (5%) of Licensee's
gross revenues derived from the exploitation of the Licensed Rights for the
purpose of establishing a fund for the promotion of the Licensed Rights during
each year of the Term of this Agreement (the "Advertising and Promotion
Commitment Fund"). The amount of the Advertising and Promotion Commitment Fund
shall not be deducted from royalties owed Marvel. The Advertising and Promotion
Commitment Fund shall be used solely for promoting the Licensed Rights. All such
use shall be subject to the approval provisions set forth in Section 9(a). Any
other materials for which Licensee desires to use the Fund must be first
approved by Marvel in writing. Licensee shall be responsible for maintaining the
Advertising and Promotion Commitment Fund. Licensee shall report its
expenditures from the Advertising and Promotion Commitment Fund every twelve
(12) months to Marvel's New York Office accompanied by supporting documentation.
14. SALE TO MARVEL
(a) At Marvel's request, Licensee agrees to provide Marvel with at
least one hundred (100) complimentary entrance passes to each of Licensee's
Marvel licensed laser game venues.
15. TERMINATION
(a) In the event of failure by Licensee to furnish the royalty payments
and/or Royalty Reports required hereunder in accordance with Section 5 hereof
within forty-five (45) days of their becoming due, or failure by Licensee to
submit samples prior to production or exploitation of the Licensed Rights in
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accordance with Section 9(a) hereof, or failure by Licensee to obtain Marvel's
written approval of the samples submitted by Licensee in accordance with Section
9(a) hereof, this Agreement will automatically terminate with no prior notice to
Licensee being required.
(b) Change in Character of Licensee. It is understood that the grant of
the license herein by Marvel is premised upon the present character and
composition of Licensee's management and Licensee's general good standing and
reputation in the business community, and is therefore personal to Licensee. In
the event of the sale or transfer of a substantial portion of the assets of
Licensee's business or of a change in the controlling interest in Licensee's
business or of a merger or consolidation of Licensee's business with any other
entity, or in the event of substantial change in the management of Licensee or
of Licensee's property being expropriated, confiscated or nationalized by the
government, or in the event of the de facto control of Licensee or of any its
subdivisions or agencies being assumed by a government, or government agency or
representative, Marvel may, at its option, terminate this license on thirty (30)
days' written notice to Licensee.
(c) Other Breach. If Licensee shall violate, breach or be in default of
any of its covenants or obligations under this Agreement or shall use bad faith
in carrying out the provisions of this Agreement, Marvel, in addition to all
other rights, also shall have the right to terminate this license upon written
notice, and such notice of termination shall become effective immediately upon
receipt of such notice.
(d) Other Licenses and Properties. Licensee acknowledges and agrees
that if Licensee violates any of its obligations under this Agreement, Marvel
shall have the right to terminate any other License Agreement with Licensee (or
any affiliate or approved sublicensee of Licensee). In addition, Licensee
acknowledges and agrees that if Licensee violates its obligations under any
other License Agreement between Marvel and Licensee (or any affiliate or
approved sublicensee of Licensee), or if Licensee (or any affiliate or approved
sublicensee of Licensee) uses the Property or any part thereof beyond the scope
of the license granted herein or uses any properties owned by Marvel which are
not licensed to Licensee, Marvel shall have the right to terminate this License
Agreement. In either event, Marvel's right to terminate shall be effective upon
ten (10) days notice in writing and such notice shall become effective unless
Licensee shall exercise best efforts to completely remedy the violation within
the ten (10) day period and satisfy Marvel that such violation has been remedied
or will be remedied within a time frame acceptable to Marvel.
16. OBLIGATIONS ON EXPIRATION OR TERMINATION
(a) Reversion of Right. Immediately upon the expiration or termination
of this license for any cause whatsoever, all the rights granted to Licensee
hereunder shall cease and revert to Marvel, who shall be free to license others
to use any or all of the rights granted herein effective on and after such date
of expiration or termination. To this end, Licensee will be deemed to have
automatically assigned to Marvel upon such expiration or termination, all
copyrights, trademark and service mark rights, equities, good will, titles and
other rights in or to the Property and all adaptations, compilations,
modifications, translations and versions thereof, and (except for Licensee's
house mark) all other trademarks and service marks used in connection therewith
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connection therewith which have been or may be obtained by Licensee or which may
vest in Licensee and which have not already been assigned to Marvel. Licensee
shall upon the expiration or termination of this license execute any instruments
requested by Marvel to accomplish or confirm the foregoing, and hereby
irrevocably appoints Marvel as its attorney-in-fact to execute such instruments
if Licensee does not do so. Any such assignment shall be without other
consideration than the mutual covenants and considerations of this Agreement. In
addition, upon and after such expiration or termination of this license for
whatever reasons, Licensee will, except as specifically provided in Section
16(e) hereof, forthwith refrain from further use of the Property or Marvel's
name, or any further reference to any of them, direct or indirect, or of
anything deemed by Marvel to be similar to the Property.
(b) Return of Artwork. Upon termination or expiration of this Agreement
for any reason whatsoever, Licensee shall return to Marvel's New York Office all
artwork, including but not limited to all reproductions and all artwork
specially produced for Licensee by Marvel or others, whether or not paid for by
Licensee.
(c) No Release. The termination or expiration of this license shall not
release any party of any obligation to pay any monies that became due or owing
or arose out of any transaction prior to the date of termination or expiration,
and all royalties on sales or shipments theretofore made shall become
immediately due and payable with no part of the minimum royalty guarantee being
repayable, and any balances of the minimum royalty guarantee owed to Marvel
shall be immediately due and payable.
(d) Inventory. Fifteen (15) days before the latter of expiration of
this license or any sublicense and, in the event of its termination, fifteen
(15) days after receipt of notice of termination or the happening of the event
which terminates this license where no notice is required, a statement executed
by an officer of Licensee certifying the number and description of any items
comprising the Licensed Rights shall be furnished by Licensee to Marvel's New
York Office. Marvel shall have the right to take a physical inventory to
ascertain or verify such inventory and statement, and Licensee's failure to
furnish such statement or the refusal by Licensee to submit to such physical
inventory shall constitute a material breach of this Agreement.
(e) Undisposed Licensed Articles. Upon expiration or termination of
this license, title to all remaining items comprising the Licensed Rights, if
any, and all tags, labels, packaging, advertising, promotional, and display
materials therefor, and all molds, plates, engravings and/or mechanicals used to
make any of the items comprising the Licensed Rights or any of the aforesaid
materials, shall be deemed to have automatically vested in Marvel. Licensee
shall immediately deliver such remaining materials and items to Marvel's New
York Office at no expense to Marvel, and Marvel shall have the right to enter
the business premises of Licensee and take possession of them or Licensee shall
destroy such Licensed Rights, materials and items if so requested by Marvel, and
shall furnish Marvel's New York Office with a certificate of destruction
executed by an officer of Licensee.
17. REMEDIES
(a) General. In addition to the right to terminate, Marvel may, upon
any default by Licensee, take whatever action it deems reasonably necessary to
protect its rights and interests hereunder, and termination of this license
shall be without prejudice to any rights or remedies which Marvel may otherwise
have against Licensee.
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(b) Use after Termination, etc. Licensee acknowledges that its failure
to cease the use of the Property or to cease use of the Licensed Rights at the
termination or expiration of this license, except as expressly provided herein,
will result in immediate and irreparable damage to Marvel and to the rights of
any subsequent licensee. Licensee acknowledges and admits that there is no
adequate remedy at law for such failure, and Licensee agrees that in the event
of such failure, Marvel shall be entitled to injunctive relief and such other
and further relief as any court with jurisdiction may deem just and proper.
(c) Interest, Damages and Cost. In the event Licensee shall default in
the payment of monies required to be paid to Marvel hereunder, in addition to
any remedies which Marvel may have at law or in equity to recover any such
monies as may be due and owing, Marvel shall be entitled to receive from
Licensee interest on such monies as may be owing from the date of default at a
rate equal to three percent (3%) above the prime lending rate charged by
Marvel's bank in New York on the date of default. In the event either party
commences legal action to enforce its rights hereunder and is successful in such
an action, the losing party shall pay the prevailing party its costs and
attorneys' fees in addition to any other damages or remedies to which the
prevailing party may be entitled.
18. SUBCONTRACT MANUFACTURE
Licensee may utilize a third party subcontract manufacturer approved in
writing by Marvel in connection with the manufacture and production of the items
comprising the Licensed Rights, provided that such subcontractor shall execute a
letter in the form of Exhibit D attached hereto and by this reference made a
part hereof. In such event, Licensee shall remain primarily obligated under all
of the provisions of this Agreement. In no event shall any such subcontract
manufacturer agreement include the right to grant any further sublicenses.
19. GRANT OF MARVEL SUPER-HEROES LICENSE
(a) Subject to all of the other provisions and conditions of this
Agreement, Marvel, as owner of the "Marvel Super-Heroes" trademark, hereby
grants a non-exclusive license to Licensee to use the trademark "Marvel
Super-Heroes" (and with prior written approval, the mark may be used in the
"Marvel Super Heroes", "Marvel Superheroes", "Marvel Superhero" or "Marvel Super
Hero" form) in connection with the Property and within the provisions, the
Territory and terms of this Agreement, and Licensee agrees not to use the
"Marvel Super-Heroes" or "Super-Heroes" mark except as so authorized. No
additional royalty is payable by reason of this license of the "Marvel
Super-Heroes" mark. It is understood that the license of the "Marvel
Super-Heroes" mark provided by this section shall not include any license to use
any other separately recognized name or trademark (whether or not used in
conjunction with the "Marvel Super-Heroes" mark) which if licensed at all are
licensed only as expressly provided by this Agreement. It is also understood
that the license granted by this section shall be without warranty or
representation of any kind, but shall be under all rights of Marvel to grant
this license. Except as expressly provided herein, all other provisions,
conditions and limitations of this Agreement shall remain in full force and
effect and shall apply to the license of the "Marvel Super-Heroes" mark.
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(b) The "Marvel Super-Heroes" mark shall be identified wherever it
appears in connection with the Licensed Rights, or the advertisements or
promotion thereof, with the following legend (or as Marvel otherwise expressly
requests in writing):
"Marvel Super-Heroes is a trademark owned by Marvel Characters, Inc. and
is used with permission."
20. GRANT OF MARVEL SUPER-VILLAINS LICENSE
(a) Subject to all of the other provisions and conditions of this
Agreement, Marvel as owner of the "Marvel Super-Villains" trademark, hereby
grants a non-exclusive license to Licensee to use the trademark "Marvel
Super-Villains" (and with prior approval, the mark may be used in the "Marvel
Super Villains", "Marvel Supervillains", "Marvel Super Villain", or "Marvel
Super-Villain" form) in connection with the Property and within the provisions,
the Territory and Term of this Agreement, and Licensee agrees not to use the
"Marvel Super-Villains" or "Super-Villains" mark except as so authorized. No
additional royalty is payable by reason of this license of the "Marvel
Super-Villains" mark. It is understood that the license of the "Marvel
Super-Villains" mark provided by this section shall not include any license to
use any other separately recognized name or trademark (whether or not used in
conjunction with the "Marvel Super-Villains" mark) which if licensed at all are
licensed only as expressly provided by this Agreement. It is also understood
that the license granted by this section shall be without warranty or
representation of any kind, but shall be under all rights of Marvel to grant
this license. Except as expressly provided in this section, all other
provisions, conditions and limitations of this Agreement shall remain in full
force and effect and shall apply to the license of the "Marvel Super-Villains"
mark.
(b) The "Marvel Super-Villains" mark shall be identified wherever it
appears in connection with the Licensed Rights or services, or the
advertisements or promotion thereof, with the following legend (or as Marvel
otherwise expressly requests in writing):
"Marvel Super-Villains is a trademark owned by Marvel Characters, Inc.
and is used with permission."
21. GENERAL
(a) Integrity of Agreement. This Agreement contains and embodies the
entire agreement and understanding of the parties concerning the subject matter
hereof. No warranties, representations, understandings, inducements, promises,
guarantees, agreements or conditions, express or implied, not expressly
contained herein, have been made or shall be enforceable by either party
concerning the subject matter hereof or any relationship between the parties.
Nothing contained herein shall be deemed an express or implied warranty on the
part of Marvel that efforts to gain copyright, trademark or service mark
registration will be successful, or that the Property has or will in the future
have any commercial value, and it is understood that no liability shall attach
to Marvel for any failure to secure such registration, nor shall there be any
modification hereof for such reason.
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<PAGE>
(b) Relationship Between the Parties. The relationship between the
parties hereto is that of licensor and licensee, and this Agreement is not to be
construed as creating a partnership, joint venture, master-servant,
principal-agent, or other relationship for any purpose whatsoever. Except as may
be expressly provided herein, neither party may be held for the acts either of
omission or commission of the other party, and neither party is authorized to or
has the power to obligate or bind the other party by contract, agreement,
warranty, representation or otherwise in any manner whatsoever.
(c) Force Majeure. Licensee and Marvel shall be released from their
obligations hereunder and this license shall terminate with respect to such
territory, field or part thereof as to which governmental regulations or other
causes arising out of a state of national emergency or war or causes beyond the
control of the parties renders performance impossible and one party so informs
the other in writing of such causes and its desire to be released. In such
event, all royalties on sales theretofore made with respect to such territory,
field or part and all guarantees, prorated until the time of termination, shall,
become immediately due and payable and no part of any Advance or Minimum Royalty
Guarantee shall be repayable.
(d) Mailing Addresses. All notices, reports and statements to be given
and all payments to be made hereunder, shall be given or made by first class,
Registered or Certified mail at the respective addresses of the parties as set
forth above, unless notification of a change of address is given in writing, and
the date of mailing, as post-marked, shall be deemed the date the notice, report
or statement is given. The mailing of a notice by Registered or Certified mail
shall constitute notice hereunder even in the event of non-receipt or refusal to
accept by addressee.
(e) Survival and Separability. Notwithstanding anything to the contrary
herein, all provisions hereof are hereby limited to the extent mandated by any
applicable law or decisions. If any one or more paragraphs, clauses or other
portions hereof should ever be determined to be illegal, invalid or otherwise
unenforceable by a court of competent jurisdiction or be illegal, invalid or
invalidated or unenforceable within any jurisdiction by reason of any existing
law or statute, then to that extent and within the jurisdiction in which it is
illegal, invalid or unenforceable it shall be limited, construed or severed and
deleted herefrom, and the remaining extent and/or remaining portions hereof
shall survive, remain in full force and effect and continue to be binding and
shall not be affected except insofar as may be necessary to make sense hereof,
and shall be interpreted to give effect to the intention of the parties insofar
as that is possible.
(f) Assignment or Sublicense. This Agreement and the license rights
granted hereunder are personal to Licensee and shall not in any manner
whatsoever be assigned, sublicensed, hypothecated, mortgaged, divided or
otherwise encumbered by Licensee to or with any other person or entity without
Marvel's prior written consent which it may withhold in its sole discretion but
no such assignment by Licensee shall release Licensee from any of its
obligations or liabilities hereunder. This Agreement and the provisions hereof
shall be binding at all times upon and inure to the benefit of the parties
hereto, their successors and permitted assigns. Any attempted assignment in
violation of the provisions hereof shall be void ab initio and the assignee
shall obtain no rights by reason thereof. Notwithstanding the foregoing, Marvel
Laser Storm Inc. -19- (Rev. 8/29/96) 7/19/96:av
<PAGE>
acknowledges that Licensee intends to sublicense the Licensed Rights to third
parties. Marvel shall have the absolute right of approval for all such third
parties including the specific site location. Upon receipt of Marvel's approval,
Licensee shall enter into a sublicense agreement with said third party. Said
sublicense agreement shall be identical in content and form to this Agreement
and shall be subject to Marvel's prior review and approval.
(g) Construction and Jurisdiction. This Agreement shall be construed
and interpreted in accordance with the laws of the State of New York applying to
contracts fully executed and performed in New York. Licensee agrees to submit to
jurisdiction in the courts (both Federal and State) of New York State for any
action brought by Marvel or Licensee hereunder, to bring no action in any other
Court, and Licensee further agrees to accept service of process by mail at its
above written address, and Licensee also designates the Secretary of State of
New York and the state of Licensee's incorporation to accept service of process
by mail on behalf of Licensee. The titles and headings of the sections,
subsections and other divisions of this Agreement are inserted merely for
convenience and identification and shall not be used or relied upon in
connection with the construction or interpretation of this Agreement.
(h) No Waiver. None of the provisions hereof shall be deemed to be
waived or modified, nor shall they be renewed, extended, altered, changed or
modified in any respect except by an express agreement in writing duly executed
by the party against whom enforcement of such waiver, modification, etc. is
sought. The failure of either party hereto to object to the failure on the part
of the other party to perform any of the terms, provisions or conditions hereof
or to exercise any option herein given or to require performance on the part of
the other party of any term, provision or condition hereof, or any delay in
doing so, or any custom or practice of the parties at variance therewith, shall
not constitute a waiver or modification hereof or of any subsequent breach or
default of the same or a different nature, nor affect the validity of any part
hereof, nor the right of either party thereafter to enforce the same, nor
constitute a novation or laches.
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<PAGE>
ATTEST
IN WITNESS WHEREOF, and intending to be legally bound thereby the
parties hereto have caused this instrument to be duly executed as of the day and
year first above written.
MARVEL CHARACTERS, INC.
By:
Name:
Title:
LICENSEE: Laser Storm Inc.
By:
Name:
Title:
Attachments:
Licensed Rights (Exhibit A)
Royalty Report Form (Exhibit B)
Work Made For Hire Letter Form (Exhibit C)
Subcontract Manufacturer Letter Form (Exhibit D)
Laser Storm Inc. -21- (Rev. 8/29/96) 7/19/96:av
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Exhibit A D96054R
LICENSED RIGHTS
Permanently installed, location based character-identified interactive laser tag
game in Licensee-owned and sublicensee-owned (subject to Marvel's prior written
approval) entertainment centers. Said entertainment centers shall be tentatively
named the "Danger Room." Marvel shall have the absolute right of approval for
the site location of each entertainment center. Each entertainment center shall
be a themed arena based upon the Property. The game shall be played by the
public for an admission fee. Game play shall include, but shall not be limited
to, accessories such as character-identified power packs and laser guns.
Licensee acknowledges and agrees that any such site location will not be within
sixty (60) miles of any Marvel themed amusement park whether owned or operated
by Marvel or by any third party.
Laser Storm Inc. -22- (Rev. 8/29/96) 7/19/96:av
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<TABLE>
<CAPTION>
EXHIBIT B
MARVEL CHARACTERS, INC.
ROYALTY REPORT
Contract #: D96054R
Licensee Name: All Product Codes:
Contact Person:
Phone Number: All Character Codes:
Fax Number:
Period Covered: From: To:
ROYALTY INFORMATION
<S> <C> <C> <C> <C> <C> <C> <C> <C>
====================================================================================================================================
Licensee Marvel All Characters & Product Units Unit Price Gross Royalty Royalty
SKU # Job Jkt # Respective Codes Code Sold By Item Sales % Earned
On SKU
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
Total Royalties Earned
Less Unrecouped Advance
Balance Due Marvel
Prepared By
(please print)
Check Enclosed For: $
PLEASE REMIT TO: Accounts Receivable Duplicate copy to: Accounts Receivable
Marvel Characters, Inc. Marvel Entertainment Group Inc.
26707 West Agoura Road 387 Park Avenue South
Calabasas, CA 91302 New York, NY 10016
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</TABLE>
<PAGE>
Exhibit C D96054R
AGREEMENT made this day of , 19 , between
residing at
(herein "Supplier") and Laser Storm Inc.
residing at 7808 Cherry Creek South Drive, Denver,
CO 80231 (herein "Licensee").
Licensee has been licensed by Marvel Characters, Inc. (herein "Marvel")
to produce and/or market certain merchandise based upon and utilizing literary
and/or artistic properties owned by Marvel. Supplier wishes to have Licensee
order or commission either written material or art work as a contribution to a
collective Work to be used by Licensee pursuant to the license from Marvel.
Marvel has informed Licensee that Marvel will permit the preparation of such
written material or art work only if it is commissioned on a work made-for-hire
basis.
THEREFORE, the parties agree as follows:
In consideration of Licensee's commissioning and ordering from Supplier
written material or art work and paying therefor, Supplier acknowledges, agrees
and confirms that any and all work, writing, art work material or services,
including all notes, sketches, drafts, etc. therefor (the "Work") which have
been or are in the future created, prepared or performed by or on behalf of
Supplier for Licensee involving, based upon, utilizing, derived from,
incorporating or referring to any properties, characters or materials of Marvel
have been and will be specially ordered or commissioned for use as a
contribution to a collective work; that the Work was produced under the
supervision and control and pursuant to the direction of Licensee; and that as
such, the Work was and is expressly agreed to be considered a work made for hire
pursuant to all copyright laws applicable to the Work.
Supplier expressly grants to Licensee forever all worldwide rights of
any kind and nature in and to the Work and agrees that as between Supplier and
Licensee, Licensee is the sole and exclusive copyright proprietor thereof
throughout the world. Supplier perpetually agrees (i) not to contest Licensee's
or Marvel's exclusive, complete and unrestricted ownership in and to the Work,
(ii) not to claim any ownership in the Work; (iii) not to use or exploit or
claim the right to use or exploit the Work in any manner; and (iv) not to object
to any exploitation or use of the Work or to any changes, modifications, or
revisions to the Work made by or on behalf of Licensee or Marvel, and Supplier
hereby waives any moral rights of any kind or nature in the Work.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and to the benefit of Marvel, and their respective heirs,
successors, administrators and assigns.
Laser Storm Inc. -24- (Rev. 8/29/96) 7/19/96:av
<PAGE>
In WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
Supplier: Licensee: Laser Storm Inc.
By: By:
Name: Name:
Title: Title:
Date: Date:
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<PAGE>
Exhibit D D96054R
Dated 19
Marvel Characters, Inc.
c/o Marvel Entertainment Group, Inc.
387 Park Avenue South
New York, NY 10016
This letter will serve as notice to you that pursuant to Section 18 of
the License Agreement dated August 1, 1996 between you and Laser Storm Inc., we
have been engaged as the subcontract manufacturer for Laser Storm Inc. in
connection with the manufacture or developer of the Licensed Rights defined in
the aforesaid License Agreement. We hereby acknowledge that we have received a
copy and are cognizant of the terms and conditions set forth in said License
Agreement and hereby agree to be bound by those provisions of said License
Agreement which are applicable to our function as manufacturer or developers of
the Licensed Rights, including but not limited to the right of Marvel, pursuant
to Section 5(e) of the License Agreement, to examine our Books of Account
Records with respect to the manufacture or development of the Licensed Rights.
It is understood that this engagement as subcontract manufacturer is on a
royalty-free basis, and that we have no right to sublicense or subcontract
thereunder.
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement ("Agreement") is made and entered into as of
the 1st day of November, 1996 (the "Effective Date"), by and between LASER
STORM, INC., a Colorado corporation ("Buyer"), and RIDGEWORLD NORTH, INC., a
Florida corporation ("Seller").
RECITALS
A. The Buyer designs, manufactures, operates and licenses others to operate
"laser tag" games. The Seller and the Buyer currently are parties to a Sales
Agreement dated February 15, 1995 ("Sales Agreement"), which includes licenses
to use the Buyer's proprietary software and grants Seller a territory in which
to operate the laser tag arena. The Seller currently operates a laser tag game
facility site ("Store") at Ramblewood Plaza Shopping Center, 8303 West Atlantic
Blvd., Coral Springs, County of Broward, Florida ("Real Property"). Seller
originally subleased the Real Property under a Shopping Center Sublease
Agreement dated May 30, 1995 ("Sublease") by and between Leaps and Bounds, Inc.
("Sublessor") and Seller. The sublease was rejected in Bankruptcy and McDonald's
Corporation, as guarantor of the lease, assumed the prime lease through which
the sublease was made. McDonald's Corporation and Seller were negotiating a new
sublease with an effective date of April 1, 1996. However, said lease was never
executed. In conjunction with this Asset Purchase Agreement and as a condition
precedent, Buyer will execute a sublease with McDonald's Corporation, once
approved by Landlord and subject to Landlord's execute of a written consent.
B. The Seller owns the improvements, subject to the Sublease, and the
personal property located on the Real Property.
C. The Seller desires to sell to the Buyer and the Buyer desires to
purchase from the Seller all of the improvements and personal property located
on the Real Property and to have a Sublease by and between Sublandlord and Buyer
executed, in conjunction with a consent to said Sublease executed by the
landlord, to enable the Buyer to operate the Store, as defined below, all in
accordance with this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual promises
made herein and in consideration of the representations, warranties and
covenants stated below, the parties, intending to be legally bound, agree as
follows:
ARTICLE 1
AGREEMENT TO SELL
1.1. Acquired Assets. The Seller agrees to sell and, at the Closing, will
transfer and deliver to the Buyer all of the improvements and personal property
owned by the Seller and located on the Real Property, including but not limited
to the following, hereinafter referred to as the "Purchased Assets":
<PAGE>
a. All right, title and interest of the Seller in and to the
improvements located on the Real Property, including but not limited to,
the Store located thereon, subject to all rights of the Sublandlord to such
assets in accordance with the Sublease.
b. All furniture, fixtures, appliances, equipment, computerized cash
registers, and supplies owned by the Seller and on hand at the Store as of
the date hereof, all as set forth on the Schedule of Equipment attached
hereto as Exhibit A and made a part hereof by reference (collectively, the
"Equipment");
c. All right, title and interest of the Seller in or under the
sublease, and consent copies of which are attached as Exhibit B and made a
part hereof; and
d. This Asset Purchase Agreement does not include any inventory nor
any contracts other than the transferable occupational license of the city
of Coral Springs which will be maintained at the Store.
1.2. Encumbrances. All of the Purchased Assets shall be sold, conveyed,
transferred and assigned by the Seller to the Buyer at the Closing and will be
free and clear of all security interests, liens, encumbrances or charges except
for any and all rights of the Sublessor to the improvements at the end of the
Sublease pursuant to the terms of the Sublease.
1.3. Liabilities Assumed. The Buyer is not assuming any liabilities of
Seller.
1.4. No Other Assets Transferred. Other than the assets described in
Section 1.1 and Exhibits A and B, no other assets of the Seller shall be sold or
assigned, including but not limited to, all cash on hand and accounts reveivable
which arise prior to November 1, 1996. In the event the Buyer receives payment
on any accounts receivable which arose prior to November 1, 1996, it shall,
within five days thereafter, remit said payment to the Seller.
ARTICLE 2.
PURCHASE AND PURCHASE PRICE
2.1. Agreement to Purchase. The Buyer hereby agrees to purchase, upon the
terms and subject to the conditions of this Agreement, the Purchased Assets as
described in Article 1 above and will pay to the Seller the Purchase Price, as
defined below, in the manner and upon the terms hereinafter set forth.
2.2. Purchase Price. The total consideration ("Purchase Price") to be paid
by Buyer to the Seller for the Purchased Assets has an aggregate value of
$300,000.
2
<PAGE>
2.3. Payment of Purchase Price. The Buyer shall pay the Purchase Price as
follows:
a. At Closing, Buyer will pay to Seller $91,353.31 in cash, issue 35,625
Shares ("Shares") of the Buyer's $0.001 par value common stock to
Seller, cancel a $15,000 receivable due from Seller to Buyer and Buyer
will pay to McDonald's $51,146.69 in cash as payment in full of all
rents and other charges owed by Seller to McDonald's under the
Sublease for the period of April 1, 1996 to November 1, 1996. The
Purchase Price shall be reduced by any sales, use or other taxes that
may be imposed upon the sale of the Purchased Assets by any federal,
state, or local government or any subdivision thereof. The Buyer shall
cause the Shares to be registered within 120 days after the Closing
Date, as defined below, pursuant to a registration statement to be
filed with the Securities and Exchange Commission ("Commission") for
the purpose of registering the Shares under the Securities Act of 1933
as amended (the "Act") and the Buyer shall bear the actual costs and
expenses, including attorney's fees, incurred by Buyer in connection
with the filing and prosecution of such registration statement. The
date on which the registration statement is declared effective by the
Commission shall be referred to hereinafter as the "Registration
Date;"
b. If the Registration Date has not occurred by the 125th day after the
Closing Date, Buyer will pay Seller an additional $142,500.00 in cash
and Seller will return the Shares to Buyer.
c. If the Registration Date has occurred by the 120th day after the
Closing Date, Seller will have ninety (90) days from the Registration
Date to sell the Shares through and at the direction of a
broker-dealer in securities to be selected by Buyer. On the 91st day
after the Registration Date, so long as Seller has followed all
direction or obtained the consent of such broker-dealer as to the
selling of said Shares, a transaction will occur whereby Seller will
receive from Buyer no less and no more than the balance of the
purchase price of $142,500.00 in immediately available funds in one of
the following manners:
1. If, by the close of business on the 90th day after the Registration
Date, all of the Shares have been sold at the direction and/or consent
of such broker-dealer for an amount less than $4.00 per Share
($142,500.00), net of any brokerage fees or other associated costs,
then Buyer shall pay to Seller, in immediately available funds, the
difference between $142,500.00 and the net price for which all Shares
were sold.
2. If a portion of the Shares have been sold at the direction and/or
consent of such broker-dealer and the amount received for said Shares
is less than $142,500.00, net of any brokerage fees or other
associated costs, then Buyer shall pay to Seller the difference
between the price received and $142,500.00 and Seller shall return all
right, title and interest in all remaining Shares to Buyer.
3
<PAGE>
3. If, by the close of business on the 90th day after the Registration
Date, Seller has sold all, or a portion of said Shares, at the
direction and/or consent of such broker-dealer, for a sum equal to or
greater than $142,500.00, net of any brokerage fees or other
associated costs, Buyer will have no obligation to purchase any Shares
from Seller, nor to pay Seller any additional cash. If Seller retains
ownership of any Shares, said Shares will remain the property of
Seller.
4. Buyer's agreement to reimburse Seller for the difference between the
price sold and $4.00 per Share is strictly contingent upon Seller
complying with all direction from such broker-dealer with respect to
whether or not to sell the Shares within the first ninety (90) days
after the Registration Date. If Seller acts in contradiction to the
direction of such broker-dealer or without such broker-dealer's
consent, Buyer is released from all further obligations under Section
2.3 ( c ) of this Agreement.
5. If the 90th or 91st day falls on a weekend or a holiday when the
market is closed, the next business day in which the Shares can be
traded will be considered the 90th or 91st day.
2.5. The Closing. The Closing of the transaction contemplated by this
Agreement (the "Closing") shall take place at Beilly & Pozzuoli, 790 E. Broward
Blvd., Suite 200, Ft. Lauderdale, Florida, commencing at 10:00 A.M., local time,
on November 6, 1996, or such other business day following the satisfaction or
waiver of all conditions to the obligations of the parties to consummate the
transactions contemplated hereby as the parties may mutually determine (the
"Closing Date"). Regardless of the actual date of closing, the effective date of
the closing shall be November 1, 1996 whereby Buyer will be responsible for all
expenses and received the benefit of all revenues from operation of the store.
2.6. Deliveries at the Closing. At the Closing, the parties will deliver
the following:
a. The Seller shall deliver to the Buyer:
i. a General Warranty Bill of Sale for all of the Purchased Assets;
ii. A new sublease and Consent of Landlord;
iii. the Not to Compete Agreements required by section 3.1(1) of this
Agreement, and;
iv. such other instruments of sale, transfer, conveyance and
assignment as the Buyer reasonably may request.
b. The Buyer shall deliver to the Seller:
i. the Purchase Price as specified in Section 2.3 above;
4
<PAGE>
ii. A photocopy of a letter of instruction from LSI to a transfer
Agent providing that the $0.001 par value common stock be issued
to Seller attached hereto as Exhibit "C", and
iii. A secured promissory note in the amount of $142,500.00 in the
form attached hereof as Exhibit "D" and made a part hereof and a
Security Agreement, in the form attached hereto as Exhibit "E"
and made a part hereof, providing a first in priority security
interest in the Purchased Assets to secure the obligations
evidenced by such promissory note.
iv. Executed UCC Financing Statements reasonably required and
provided by Seller, attached hereto as Exhibit "F".
ARTICLE 3.
SELLER'S REPRESENTATIONS, WARRANTIES AND COVENANTS
3.1. Representations, Warranties and Covenants of Seller. The Seller hereby
represents, warrants and covenants to the Buyer that the statements contained in
this Article 3, will be performed and will be correct and complete as of the
Closing Date.
a. Legal Status of Seller Seller is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Florida.
b. Authorization of Transaction. Seller has full power and authority
(including full corporate power and authority) to execute and deliver this
Agreement and to perform Seller's obligations hereunder, except for (i) the
execution of the sublease, which requires the consent of the Sublessor and
its Landlord.
c. Title. The Seller has good and marketable title to all of the
Purchased Assets, subject only to the Sublessor's rights to the
improvements at the end of the Sublease. There are no other security
interests, liens, encumbrances or charges on the Purchased Assets. There is
no restriction on the transfer of the Purchased Assets that would limit
Seller's right to transfer complete ownership in the Purchased Assets
hereunder.
d. Compliance With Law. The Seller is not in violation of any law,
municipal ordinance or other governmental requirement affecting the
Purchased Assets, and the Seller has no reason to believe that any
authority contemplates issuing a notice of such violation.
e. Litigation. Seller is not, and the Purchased Assets are not,
subject to litigation that would cause Buyer, in its sole discretion, to
decide that Seller, or the Purchased Assets are subject to a material
contingent liability. No litigation or proceeding is pending or threatened
relating to the Seller or the Purchased Assets, or any part thereof or in
any way relating to the business of operating the Store.
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f. Latent Defects. The Seller has no knowledge of any latent defects
with respect to the Real Property or the Purchased Assets.
g. Payment of Taxes. The Seller has, since Seller's inception:
i. timely filed all returns, schedules and declarations (including
withholding and information returns) relating to all federal, state, local
or foreign income, franchise, sales, use, excise, real and personal
property, transfer, employment, social security, unemployment, withholding
and other taxes, assessments, charges, fees or levies and any interest or
penalties on any of the foregoing (collectively "Taxes"), required to be
filed by any jurisdictions to which Seller is, or the Purchased Assets are
or have been subject, all of which Tax returns, schedules and declarations
are complete, accurate and correct;
ii. paid in full all taxes required to be paid in respect of the
periods covered by such returns and made any deposits of tax required by
such taxing authorities;
iii. fully accrued on the Seller's financial statements all taxes for
any prior period that are not yet due, the information set forth on such
financial statements being accurate and correct; and
iv. made timely payments of the Taxes required to be deducted and
withheld from the wages paid to Seller's employees or contractors. The
Seller has made available and will upon request deliver to the Buyer true
and complete copies of all tax returns of the Seller and all tax returns
filed with any federal or state taxing authority since the inception of
Seller. Since the inception of Seller, the Seller has not been delinquent
in the payment of any tax and there are no pending or threatened tax
audits, investigations or claims for or relating to any liability in
respect of taxes.
v. Seller shall indemnify and hold harmless Buyer from any action or
levy attempted on the Purchased Assets which are the subject of this Asset
Purchase Agreement.
h. Labor Matters. There are no controversies pending between the
Seller and any of its respective employees who work at the Store. There are
no employment agreements between the Seller and any of its employees who
work at the Store and no employee of the Seller who is employed at the
Store is represented by any labor union.
i. Environmental Matters. To the best of Seller's knowledge and
belief, the Real Property has not been and is not in violation of, and the
Seller is not liable for remediation costs or any other damages or
penalties under any Environmental Law; and to the best knowledge of the
Seller, there are no actions, suits, demands, notices, claims,
investigations or proceedings under any Environmental Law pending or
threatened against the Seller or relating to any Real Property. For
purposes of this Agreement, "Environmental Law" means any applicable
federal, state or local law, statute, ordinance, rule, regulation, code,
license, permit, authorization, approval, consent, order, judgment, decree,
injunction, or agreement with any governmental entity related to (i) the
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protection, preservation or restoration of the environment and/or (ii) the
use, storage, recycling, treatment, generation, transportation, processing,
handling, labeling, production, sublease or disposal of Hazardous
Substances (as defined below). The term Environmental Law includes, without
limitation: the Comprehensive Environmental Response, Compensation and
Liability Act, as amended, 42 USC ss.ss. 9601 et seq.; the Resource
Conservation and Recovery -- --- Act, as amended, 42 USCss.ss. 6901 et
seq.; the Clean Air -- --- Act, as amended, 42 USCss.ss. 7401 et seq.; the
Federal -- --- Water Pollution Control Act, as amended, 33 USCss.ss. 2151
et seq.; the Toxic Substances Control Act, as amended, 15 -- --- USCss.ss.
2601 et seq.; the Emergency Planning and -- --- Community Right to Know
Act, 42 USCss.ss. 11001, et seq.; -- --- the Safe Drinking Water Act, 42
USCss.ss. 300f, et seq.; all -- --- comparable state and local laws and any
common law that may impose liability or obligations for injuries or damages
due to or threatened as a result of the presence of or exposure to any
hazardous substance. As used in this Agreement, "Hazardous Substance" means
any substance presently or currently listed, defined, designated or
classified as hazardous, toxic, radioactive or dangerous, or otherwise
regulated under any environmental law, whether by type or by quantity,
including all material containing any such substance as a component.
j. Termination of Sales Agreement. On the Closing Date, the Sales
Agreement, dated February 15, 1995, including all licenses and any other
rights contained in the Schedules and Addenda attached thereto, but
excluding the Nondisclosure Agreement attached thereto as Schedule E, which
remains in effect according to its terms, will terminate without any
further action by Seller.
k. Noncontravention. Neither the execution and delivery of this
Agreement, nor the consummation of the transactions contemplated hereby
will (i) violate any statute, regulation, rule, judgment, order, decree,
stipulation, injunction, charge, or other restriction of any government,
governmental agency, or court to which the Seller is subject or any
provision of its Articles of Incorporation or (ii) conflict with, result in
a breach of, constitute a default under, result in the acceleration of,
create in any party the right to accelerate, terminate, modify or cancel,
or require any notice that has not been given under any contract, sublease,
sublicense, franchise, permit, indenture, agreement or mortgage for
borrowed money, instrument of indebtedness, security interest, or other
arrangement to which the Seller is a party or by which it is bound or to
which any of its assets is subject. Noncompete. Seller agrees that it will
not directly or indirectly, manage, operate, own, control, engage in or
have any interest in any other business which as a part of its operations
offers services in competition with the business of Buyer for five years
within the same territory in which Seller was licensed to operate the laser
tag arena and at closing Seller and Seller's security holders, directors,
and officers and key employees will have executed the noncompete agreement
set forth in Exhibit "G" attached hereto and incorporated herein.
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m. Sublease Seller hereby warrants that upon the payment of the past
due rent owned by Ridgeworld North, Inc. to McDonald's of $51,146.50, there
are no other outstanding debts owned arising out of its sublease on the
premises or its occupation of the demised premises and will hold buyer
harmless from any and all claims or actions brought, including costs and
attorney fees incurred in defending said claim or action.
3.2. Securities Representations and Warranties. Seller hereby acknowledges,
represents and warrants to, and agrees with, the Buyer as follows:
a. The Party understands that the sale of the Shares is intended to be
exempt from registration under the Securities Act of 1933, as amended
("Act"), by virtue of ss.ss. 4(2) and 4(6) of the Act and the provisions of
Regulation D promulgated thereunder and, in accordance therewith and in
furtherance thereof, the Party represents and warrants to and agrees with
the Buyer as follows:
i. Seller has received the Buyer's Registration Statement that
was filed with the Commission on October 21, 1996 (which document is
herein referred to as the "Information Document") has carefully
reviewed it and understands and has relied on the information
contained therein relating to the Buyer and information otherwise
provided to the Seller in writing by the Buyer relating to Seller's
acquisition of the Shares;
ii. Seller understands that all documents, records and books
pertaining to Seller's acquisition of the Shares; (including, without
limitation, the Information Document and the exhibits thereto) have
been made available for inspection by the Seller, the Seller's
attorney and/or accountant;
iii. The Seller and/or the Seller's advisor(s) have had a
reasonable opportunity to ask questions of and receive answers from a
person or persons acting on behalf of the Buyer concerning the
Seller's acquisition of the Shares and all such questions have been
answered to the full satisfaction of the Seller;
iv. No oral or written representations have been made or oral or
written information furnished to the Seller or the Seller's advisor(s)
in connection with the Seller's acquisition of the Shares which were
in any way inconsistent with the information relating to the Buyer in
the Information Document;
v. Seller is not acquiring the Shares as a result of or
subsequent to any advertisement, article, notice or other
communication published in any newspaper, magazine or similar media or
broadcast over television or radio, or any seminar or meeting whose
attendees have been invited by any general solicitation or general
advertising, or any solicitation of a subscription by a person not
previously known to the Seller in connection with investments in
securities generally;
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vi. Seller has, or together with the Seller's advisor(s), has,
such knowledge and experience in financial, tax and business matters
so as to enable the Seller to utilize the information made available
to the Seller in connection with Seller's acquisition of the Shares in
order to evaluate the merits and risks of an investment in the Shares
and to make an informed investment decision with respect thereto;
vii. Seller is acquiring the Shares solely for the Seller's own
account as principal, for investment purposes only and not with a view
to the resale or distribution thereof, except pursuant to the
Registration Statement filed and declared effective under the Act, in
whole or in part, and no other person has a direct or indirect
beneficial interest in such Shares;
viii. Seller will not sell or otherwise transfer the Shares,
without registration under the Act or an exemption therefrom and fully
understands and agrees that the Seller must bear economic risk of the
Sellers acquisition of the Shares for and indefinite period of time
because, among other reasons, the Shares have not been registered
under the Act or under the securities laws of any state and,
therefore, cannot be resold, pledged, assigned or otherwise disposed
of unless the Shares are subsequently registered under the Act and
under the applicable securities laws of such states or unless an
exemption from such registration is available;
ix. Seller understands that, except as described in this
Agreement, the Buyer is under no obligation to register the Shares on
the Seller's behalf or to assist the Seller in complying with any
exemption from registration under the Act and even if the Shares are
registered for resale in connection with the Buyer's covenant set
forth in this Agreement, the Seller agrees that the Seller will not
sell any of the Shares unless the Seller sells them to or through such
broker-dealer, selected pursuant to section 2.3 of this agreement.
x. Seller understands that sales or transfers of the Shares are
further restricted by certain state securities laws; and
b. Seller recognizes that the Buyer has a limited financial and
operating history, and that Seller's acquisition of the Shares involves
some risks, including those set forth under the caption "Risk Factors" in
the Information Document.
c. Seller is authorized and qualified to acquire the Shares and the
person signing this Agreement on behalf of Seller has been duly authorized
by such Seller to do so and appropriate documentation is attached hereto
verifying such person's authority to sign this Agreement.
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3.3. Indemnification. Seller agrees to indemnify and hold harmless the
Buyer and its officers, directors and affiliates and each other person, if any,
who controls any thereof, within the meaning of Section 15 of the Act, against
any and all loss, liability, claim, damage and expense whatsoever (including,
but not limited to, any and all expenses reasonably incurred in investigating,
preparing or defending against any litigation commenced or threatened or any
claim whatsoever) arising out of or based upon any false representation or
warranty or breach or failure by the Seller to comply with any covenant or
agreement made by the Seller in this Article 3 or in any other document
furnished by the Seller to any of the foregoing in connection with the Seller's
acquisition of the Shares.
ARTICLE 4.
BUYER'S REPRESENTATIONS, AND COVENANTS
4.1. Representations, Warranties and Covenants of Buyer. The Buyer
represents, warrants and covenants to the Seller that the statements contained
in this Article 4 will be performed, and will be correct and complete as of the
Closing Date.
a. Organization of the Buyer. The Buyer is a corporation formed under
the laws of the State of Colorado.
b. Authorization of Transaction. The Buyer has full power and
authority (including full corporate power and authority) to execute and
deliver this Agreement and to perform its obligations hereunder. This
Agreement constitutes the valid and legally binding obligation of the
Buyer, enforceable in accordance with its terms and conditions.
c. Noncontravention. Neither the execution and delivery of this
Agreement, nor the consummation of the transactions contemplated hereby
will (i) violate any statute, regulation, rule, judgment, order, decree,
stipulation, injunction, charge, or other restriction of any government,
governmental agency, or court to which the Buyer is subject or any
provision of its Articles of Incorporation or (ii) conflict with, result in
a breach of, constitute a default under, result in the acceleration of,
create in any party the right to accelerate, terminate, modify or cancel,
or require any notice that has not been given under any contract, sublease,
license, sublicense, franchise, permit, indenture, agreement or mortgage
for borrowed money, instrument of indebtedness, security interest, or other
arrangement to which the Buyer is a party or by which it is bound or to
which any of its assets is subject.
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ARTICLE 5.
CONDITIONS TO CLOSE
5.1. Conditions to Obligations of the Buyer. The obligation of the Buyer to
consummate the transactions to be performed by the Buyer in connection with the
Closing is subject to satisfaction of the following conditions:
a. Representations and Warranties. The representations and warranties
set forth in Article 3 above shall be true and correct in all material
respects at and as of the Closing Date;
b. No Litigation. No material action, suit or proceeding shall be
pending or threatened before any court or quasi-judicial or administrative
agency or any federal, state, local or foreign jurisdiction against Seller,
c. Form of Documents Satisfactory. Seller shall take all actions and
execute and deliver all documents required in connection with the
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments and other documents required to effect the
transactions contemplated hereby will be satisfactory in form and substance
to the Buyer and its counsel.
The Buyer may, at its sole election, waive any conditions specified in this
Section 5.1 if it executes a writing so stating at or prior to the Closing.
5.2. Conditions to Obligations of the Seller. The obligations to be
performed by the Seller to consummate the transactions, in connection with the
Closing, are subject to satisfaction of the following conditions:
a. Representations and Warranties. The representations and warranties
set forth in Article 4 above shall be true and correct in all material
respects at and as of the Closing Date;
b. Litigation. No material action, suit or proceeding shall be pending
or threatened against Buyer before any court or quasi- judicial or
administrative agency or any federal, state, local or foreign jurisdiction
in which an unfavorable judgment, order, decree, stipulation, injunction,
or charge would (i) prevent consummation of any of the transactions
contemplated by this Agreement or (ii) cause any of the transactions
contemplated by this Agreement to be rescinded following consummation and
no such judgment, order, decree, stipulation, injunction or charge shall be
in effect;
c. Additional Documents. The Buyer shall have executed a promissory
note in favor of the Seller and shall have pledged a security interest in
the Purchased Assets hereunder to the Seller; and
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d. Form of Documents Satisfactory. All actions to be taken by the
Buyer in connection with the consummation of the transactions contemplated
hereby and all certificates, opinions, instruments and other documents
required to effect the transactions contemplated hereby will be
satisfactory in form and substance to the Seller and its counsel.
The Seller may, at its sole discretion, waive any conditions specified in this
Section 5.2 if it executes a writing so stating at or prior to the Closing.
ARTICLE 6.
INDEMNIFICATION PROVISIONS
6.1. Indemnification of Seller The Buyer agrees to indemnify the Seller
from and against the entirety of any charges, complaints, actions, suits,
damages, claims, costs, amounts paid in settlement, taxes, liens, expenses or
fees, including all attorneys' fees and court costs, which the Seller may suffer
resulting from, arising out of or relating to or caused by:
a. The breach of any of the Buyer's representations, warranties and
covenants contained in the Agreement;
b. Any liability under the Sublease or any Contract expressly assumed
by the Buyer under this Agreement for which a claim is asserted against the
Seller and the events on which the claim is based occurred after the
Closing; and
c. Any liability relating to environmental problems, hazards or
liability on the Real Property for which a claim is asserted against the
Seller and the events on which the claim is based occurred after the
Closing.
6.2. Indemnification of Buyer. The Seller agrees to indemnify the Buyer
from and against the entirety of any charges, complaints, actions, suits,
damages, claims, costs, amounts paid in settlement, taxes, liens, expenses or
fees, including all attorneys' fees and court costs, which the Buyer may suffer
resulting from, arising out of or relating to or caused by:
a. The breach of any of the Seller's representations, warranties and
covenants contained in the Agreement;
b. Any liability arising out of the operation of the Laser tag
business up to the date of closing, under any contract or otherwise not
expressly assumed by the Buyer under this Agreement for which a claim is
asserted against the Buyer; and
c. Any matter relating to environmental problems, hazards or liability
on the Real Property the cause of which occurred prior to the Closing.
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d. Any rents or other monies due or liabilities arising out of the
Sublease through October 31, 1996 over and above the payment of rent by
Buyer to Sublandlord in the amount of $51,146.69. Seller will further
indemnify Buyer for any unusual liability outside the normal course of
business arising out of circumstances occuring between November 1, 1996 and
November 5, 1996 that Seller does not disclose to Buyer prior to closing.
6.3. Other Indemnification Provisions. The foregoing indemnification
provisions are in addition to, and not in derogation of, any statutory or common
law remedy any party may have for breach of representation, warranty, covenant
or contract.
ARTICLE 7.
MISCELLANEOUS
7.1. Survival. All of the representations, warranties and covenants of the
Buyer and the Seller contained in this Agreement shall survive the Closing.
7.2. No Third Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any person other than the parties and their respective
successors and permitted assigns.
7.3. Entire Agreement. This Agreement, including the Exhibits, Schedules,
and documents referred to herein, constitutes the entire Agreement between the
parties and supersedes any prior understandings, agreements or representations
by or between the parties, written or oral, that may have related in any way to
the subject matter hereof.
7.4. Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties named herein and their respective successors
and permitted assigns. No party may assign this Agreement or any of its rights,
interest or obligations hereunder without the prior written approval of the
other party.
7.5. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
7.6. Headings. The Section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
7.7. Notices. All notices, requests, demands, claims or other
communications shall be given in writing or by electronic facsimile. Any notice,
request, demand, claim or other communication hereunder shall be deemed duly
given if it is sent by certified mail, return receipt requested, postage prepaid
and addressed to the intended recipient as set forth below and a copy of the
communication is sent by electronic facsimile to the FAX number shown:
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a. If to Buyer:
Laser Storm, Inc
7808 Cherry Creek South Drive, Unit 301
Denver, Colorado 80231
Fax: (303) 751-8546
With a copy to:
Smith, McCullough and Ferguson, P.C.
1610 Wynkoop Street, Suite 200
Denver, Colorado 80202
Attention: Thomas S. Smith, Esq.
Fax: (303) 892-0457
b. If to Seller:
Ridgeworld North, Inc.
9130 State Route 84
Davie, Florida 33324
Fax: (303) 678-9998
with a copy to:
Brad Belly, Esq.
Belly and Pozzuoli
790 E. Broward Blvd. Suite 200
Ft. Lauderdale, FL
(954) 764-2771
Any party may change the address to which notices are to be delivered by giving
the other party notice in a manner herein set forth.
7.8. Governing Law. This Agreement shall be governed and construed in
accordance with the internal laws (and not the law of conflicts) of the state of
Colorado.
7.9. Amendments and Waivers. No amendment of any provision of this
Agreement will be valid unless the same shall be in writing and signed by the
parties. No waiver by any party of any default, misrepresentation or breach of
warranty or covenant hereunder, whether intentional or not, shall be deemed to
extend to any prior or subsequent default, misrepresentation, or breach of
warranty or covenant hereunder or affect in any way any rights arising by virtue
of any prior or subsequent such occurrence.
7.10. Severability. Any term or provision of this Agreement that is invalid
or unenforceable under law in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of a court of
competent jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the parties agree that the court making the determination of
invalidity or unenforceability shall have the power to reform the scope,
duration or area of the term or provision, to delete specific words or phrases,
or to replace any invalid or unenforceable term or provision with a term or
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provision that is valid and enforceable and that comes closer to expressing the
intentions of the invalid or unenforceable term or provision, and this Agreement
shall be enforceable as so modified after the expiration of time within which
judgment may be appealed.
7.11. Expenses. Each of the parties hereto will bear their own costs and
expenses (including legal fees and expenses) incurred in connection with this
Agreement and the transactions contemplated hereby, except for those agreed to
be borne by the Seller as set forth in Section 2.3(a) above.
7.12. Construction. The language used in this Agreement will be deemed to
be the language chosen by the parties to express their mutual intent, and no
rule of strict construction will be applied against any party. The parties
intend that each representation, warranty and covenant contained herein shall
have independent significance. If any party has breached any representation,
warranty or covenant contained herein in any respect, the fact that there exists
another representation, warranty or covenant relating to the same subject matter
(regardless of the relative levels of specificity) which the party has not
breached shall not detract from or mitigate the fact that the party is in breach
of the first representation, warranty or covenant.
7.13. Further Assurances. From time to time after the Closing, the Seller
shall, if reasonably requested by the Buyer, make, execute and deliver to the
Buyer such additional assignments, bills of sale, or other instruments of
transfer as may be necessary or proper to transfer to the Buyer all of the
Seller's right, title and interest in and to any of the Purchased Assets. The
Buyer shall likewise execute and deliver to the Seller any instruments or
documents necessary to carry out the intent and purposes of this Agreement.
7.14 Utilities and licenses. The current bills on utilities shall be paid
by Seller and Buyer in proportion to the time of transfer of ownership which
will be the effective date of November 1, 1996. The deposits made by Ridgeworld
North, Inc. including the electric and water will either be assigned to Buyer or
Buyer will make replacement deposits allowing the release the original deposit
to Seller. Buyer will pay to Seller a pro-rata share of the one year
occupational license, due on October 1, and the commercial property tax for the
current tax year. Said funds have been wired into the escrow account for Seller
and will not be disbursed until all requirements of the instruction letter have
been met.
7.15 Transition and Accounting. Seller will provide Buyer will a full
accounting of all business activity from November 1, 1996 until the transfer of
possession of the store and will comply with all reasonable requests for
assistance in completing the transition of ownership and operations. Seller will
continue to provide the current complement of arcade games now operating in the
Store until Buyer arranges for replacements. Buyer will give Seller two weeks
notice for the removal of said games. During the period from November 1, 1996
until removal, Seller and Buyer will share equally in the net revenues from said
arcade games.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
LASER STORM, INC.
By: /s/ Stephen A. Murtz
----------------------------------
Its: Corporate Counsel
RIDGEWORLD NORTH, INC.
By: /s/ Amos Tursu
----------------------------------
Its: President
Taxpayer I.D. Number 84 -1336063
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EXHIBIT D
SECURED PROMISSORY NOTE
U.S. $142,500.00 Denver, Colorado
October 25, 1996
FOR VALUE RECEIVED, Laser Storm, Inc., a Colorado corporation ("Maker") promises
to pay to the order of Ridgeworld North, Inc., a Florida corporation, having an
address 8303 West Atlantic Blvd., Coral Springs, FL., County of Broward, or its
successors or assigns (sometimes referred to herein as "Holder"), the principal
sum of One hundred Forty-two thousand, Five hundred Dollars (U.S. $ 142,500.00)
without interest from the date hereof. The amount payable hereunder will be
reduced by any amount Holder receives pursuant to sections 2.3 (b) and ( c ) of
the Asset Purchase Agreement dated 7th day of November, 1996, between Maker and
Holder ("Asset Purchase Agreement"). No amount will be due and payable under
this note until such time as Holder has not received $142,500.00 pursuant to
section 2.3(b) and ( c ) of the Asset Purchase Agreement.
All payments shall be payable to Holder at the address set forth above, or at
such other place as Holder hereof may designate from time to time in writing.
All payments shall be applied to the payment of the principal amount then
remaining unpaid. The indebtedness evidenced by this Note may be prepaid in
whole or in part without notice, penalty or premium.
This Note is secured by a first-in-priority perfected security interest in the
Purchased Assets that are the subject matter of the Asset Purchase Agreement
which are pledge by Buyer in accordance with a Security Agreement - Pledge dated
of even date herewith.
This note shall be binding upon the Maker, its successors and assigns. Maker
agrees that the time for payment hereunder may be extended from time to time by
Holder without in any way affecting the liability of the Maker.
The individual executing this Note represents and warrants that he is duly
authorized to execute and deliver this note on behalf of Maker for which he is
so executing and that this Note is binding upon the undersigned Maker in
accordance with its terms, except to the extent that enforcement of remedies is
limited by applicable bankruptcy, insolvency, and other laws affecting the
enforcement of creditors' rights generally.
This Note shall be interpreted and enforced in accordance with the laws of the
State of Colorado.
MAKER:
LASER STORM, INC.
By: /s/ Stephen A. Murtz
----------------------------------
Its: Corporate Counsel
Date: 11/7/96
<PAGE>
EXHIBIT E
SECURITY AGREEMENT - PLEDGE
1. Definitions. The following terms used in this Security Agreement Pledge are
defined as follows:
a. "Agreement" shall mean this Security Agreement - Pledge.
b. "Pledgee" shall mean Ridgeworld North, Inc.
c. "Debtor" shall mean Laser Storm, Inc.
d. "Collateral" shall mean: All assets that are the subject of this Asset
Purchase Agreement.
e. "Obligations" shall mean: all obligations of Debtor to Pledgee as
evidenced by that certain Promissory Note dated of even date herewith,
in the principal amount of $142,500.00.
2. Security Interest. Debtor hereby grants to Pledgee a security interest in the
Collateral. The security interest is given to secure the payment and performance
of the Obligations.
3. Warranties and Representations. Debtor warrants and represents to Pledgee:
a. Debtor has not incurred any indebtedness resulting in any liens,
security interests, restrictions or set-offs against the Collateral;
b. The Promissory Note is enforceable in accordance with its terms, is
genuine and complies with applicable laws concerning form, content and
manner of preparation and execution, and all persons appearing to be
obligated thereon have authority and capacity to contract and are
bound as they appear to be; and
c. Debtor has not caused any financing statement covering any of the
Collateral to be fileed in any public office other than those which
reflect the security interest created by this Agreement..
4. Default. Upon the occurrence of any default, Pledgee may with notice or
demand to Debtor declare any of the Obligations and this Agreement in default
upon which Debtor will have 30 days to remedy any such default. Thereafter,
Pledgee shall have the remedies of a secured party under the Uniform Commercial
Code as then in effect in Florida. All notice requirements under the law of
Florida shall be strictly observed.
5. General.
a. No default or any other right under this Agreement shall be waived by
Pledgee except in writing.
b. Any consent, notice or other communication required or contemplated by
this Agreement shall be in writing and shall be deemed given is
mailed, postage prepaid, to the addresses given on the front page of
this Agreement or at such other address given by notice herein
provided.
c. This Agreement shall be construed under and governed by the laws of
Colorado.
d. Unless the context otherwise requires, all terms used herein which are
defined in the Uniform Commercial Code, as in effect in Colorado,
shall have the meanings therein stated.
e. All rights of Pledgee under this Agreement inure to the benefit of
Pledgee's successors and assigns. All obligations of Debtor hereunder
shall be binding upon the heirs, legal representatives, successors and
assigns of the Debtor.
Laser Storm, Inc.
By: /s/ Stephen A. Murtz
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Its: Corporate Counsel
LASER STORM, INC.
1996 INCENTIVE AND NONSTATUTORY
STOCK OPTION PLAN
1. Purpose of the Plan. The purposes of this 1996 Incentive and
Nonstatutory Stock Option Plan are to attract and retain the best available
personnel for positions of substantial responsibility, to provide additional
incentive to the Employees and Consultants of the Company and to promote the
success of the Company's business. Options granted hereunder may be either
"incentive stock options," as defined in Section 422 of the Internal Revenue
Code of 1986, as amended, or "nonstatutory stock options," at the discretion of
the Board and as reflected in the terms of the written stock option agreement.
2. Definitions. As used herein, the following definitions shall apply:
a. "Board" shall mean the Committee, if one has been appointed, or the
Board of Directors of the Company if no Committee is appointed.
b. "Code" shall mean the Internal Revenue Code of 1986, as amended.
c. "Common Stock" shall mean the $0.001 par value common stock of the
Company.
d. "Company" shall mean Laser Storm, Inc., a Colorado corporation.
e. "Committee" shall mean the Committee appointed by the Board in
accordance with paragraph (a) of Section 4 of the Plan, if one is
appointed, or the Board if no committee is appointed.
f. "Consultant" shall mean any person who is engaged by the Company or
any Subsidiary to render consulting services and is compensated for such
consulting services, but does not include a director of the Company who is
compensated for services as a director only with the payment of a
director's fee by the Company.
g. "Continuous Status as an Employee" shall mean the absence of any
interruption or termination of service as an Employee. Continuous Status as
an Employee shall not be considered interrupted in the case of sick leave,
military leave, or any other leave of absence approved by the Board;
provided that such leave is for a period of not more than 90 days or
reemployment upon the expiration of such leave is guaranteed by contract or
statute.
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h. "Employee" shall mean any person, including officers and directors,
employed by the Company or any Parent or Subsidiary of the Company. The
payment of a director's fee by the Company shall not be sufficient to
constitute "employment" by the Company.
i. "Incentive Stock Option" shall mean an Option which is intended to
qualify as an incentive stock option within the meaning of Section 422 of
the Code and which shall be clearly identified as such in the written Stock
Option Agreement provided by the Company to each Optionee granted an
Incentive Stock Option under the Plan.
j. "Non-Employee Director" shall mean a director who:
(i) Is not currently an officer (as defined in Section 16a-1(f)
of the Securities Exchange Act of 1934, as amended) of the Company or
a Parent or Subsidiary of the Company, or otherwise currently employed
by the Company or a Parent or Subsidiary of the Company.
(ii) Does not receive compensation, either directly or
indirectly, from the Company or a Parent or Subsidiary of the Company,
for services rendered as a Consultant or in any capacity other than as
a director, except for an amount that does not exceed the dollar
amount for which disclosure would be required pursuant to Item 404(a)
of Regulation S-K adopted by the United States Securities and Exchange
Commission.
(iii) Does not possess an interest in any other transaction for
which disclosure would be required pursuant to Item 404(a) of
Regulation S-K adopted by the United States Securities and Exchange
Commission.
k. "Nonstatutory Stock Option" shall mean an Option granted under this
Plan which does not qualify as an Incentive Stock Option and which shall be
clearly identified as such in the written Stock Option Agreement provided
by the Company to each Optionee granted a Nonstatutory Stock Option under
this Plan. To the extent that the aggregate fair market value of Optioned
Stock to which Incentive Stock Options granted under Options to an Employee
are exercisable for the first time during any calendar year (under the Plan
and all plans of the Company or any Parent or Subsidiary) exceeds $100,000,
such Options shall be treated as Nonstatutory Stock Options under the Plan.
The aggregate fair market value of the Optioned Stock shall be determined
as of the date of grant of each Option and the determination of which
Incentive Stock Options shall be treated as qualified incentive stock
options under Section 422 of the Code and which Incentive Stock Options
exercisable for the first time in a particular year in excess of the
$100,000 limitation shall be treated as Nonstatutory Stock Options shall be
determined based on the order in which such Options were granted in
accordance with Section 422(d) of the Code.
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l. "Option" shall mean an Incentive Stock Option, a Nonstatutory Stock
Option or both as identified in a written Stock Option Agreement
representing such stock option granted pursuant to the Plan.
m. "Optioned Stock" shall mean the Common Stock subject to an Option.
n. "Optionee" shall mean an Employee or other person who is granted an
Option.
o. "Parent" shall mean a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
p. "Plan" shall mean this 1996 Incentive and Nonstatutory Stock Option
Plan.
q. "Share" shall mean a share of the Common Stock of the Company, as
adjusted in accordance with Section 11 of the Plan.
r. "Stock Option Agreement" shall mean the agreement to be entered
into between the Company and each Optionee which shall set forth the terms
and conditions of each Option granted to each Optionee, including the
number of Shares underlying such Option and the exercise price of each
Option granted to such Optionee under such agreement.
s. "Subsidiary" shall mean a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 11 of
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 1,000,000 shares of Common Stock. The Shares may be
authorized, but unissued, or reacquired Common Stock. If an Option should expire
or become unexercisable for any reason without having been exercised in full,
the unpurchased Shares which were subject thereto shall, unless the Plan shall
have been terminated, become available for future grant under the Plan.
4. Administration of the Plan.
a. Procedure. The Plan shall be administered by the Board or a
Committee appointed by the Board consisting of two or more Non-Employee
Directors to administer the Plan on behalf of the Board, subject to such
terms and conditions as the Board may prescribe.
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(i) Once appointed, the Committee shall continue to serve until
otherwise directed by the Board (which for purposes of this paragraph
(a)(i) of this Section 4 shall be the Board of Directors of the
Company). From time to time the Board may increase the size of the
Committee and appoint additional members thereof, remove members (with
or without cause) and appoint new members in substitution therefor,
fill vacancies however caused, or remove all members of the Committee
and thereafter directly administer the Plan.
(ii) Members of the Board who are granted, or have been granted,
Options may vote on any matters affecting the administration of the
Plan or the grant of any Options pursuant to the Plan.
b. Powers of the Board. Subject to the provisions of the Plan, the
Board shall have the authority, in its discretion:
(i) To grant Incentive Stock Options, in accordance with Section
422 of the Code, and Nonstatutory Stock Options or both as provided
and identified in a separate written Stock Option Agreement to each
Optionee granted such Option or Options under the Plan; provided
however, that in no event shall an Incentive Stock Option and a
Nonstatutory Stock Option granted to any Optionee under a single Stock
Option Agreement be subject to a "tandem" exercise arrangement such
that the exercise of one such Option affects the Optionee's right to
exercise the other Option granted under such Stock Option Agreement;
(ii) To determine, upon review of relevant information and in
accordance with Section 8(b) of the Plan, the fair market value of the
Common Stock;
(iii) To determine the exercise price per Share of Options to be
granted, which exercise price shall be determined in accordance with
Section 8(a) of the Plan;
(iv) To determine the Employees or other persons to whom, and the
time or times at which, Options shall be granted and the number of
Shares to be represented by each Option;
(v) To interpret the Plan;
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(vi) To prescribe, amend and rescind rules and regulations
relating to the Plan;
(vii) To determine the terms and provisions of each Option
granted (which need not be identical) and, with the consent of the
holder thereof, modify or amend each Option;
(viii) To accelerate or defer (with the consent of the Optionee)
the exercise date of any Option, consistent with the provisions of
Section 7 of the Plan;
(ix) To authorize any person to execute on behalf of the Company
any instrument required to effectuate the grant of an Option
previously granted by the Board; and
(x) To make all other determinations deemed necessary or
advisable for the administration of the Plan.
c. Effect of Board's Decision. All decisions, determinations and
interpretations of the Board shall be final and binding on all Optionees
and any other permissible holders of any Options granted under the Plan.
5. Eligibility.
a. Persons Eligible. Options may be granted to any person selected by
the Board. Incentive Stock Options may be granted only to Employees. An
Employee, who is also a director of the Company, its Parent or a
Subsidiary, shall be treated as an Employee for purposes of this Section 5.
An Employee or other person who has been granted an Option may, if he is
otherwise eligible, be granted an additional Option or Options.
b. No Effect on Relationship. The Plan shall not confer upon any
Optionee any right with respect to continuation of employment or other
relationship with the Company nor shall it interfere in any way with his
right or the Company's right to terminate his employment or other
relationship at any time.
6. Term of Plan. The Plan became effective on November 1, 1996, It shall
continue in effect until October 31, 2006, unless sooner terminated under
Section 13 of the Plan.
7. Term of Option. The term of each Option shall be 10 years from the date
of grant thereof or such shorter term as may be provided in the Stock Option
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Agreement. However, in the case of an Option granted to an Optionee who, at the
time the Option is granted, owns stock representing more than 10% of the total
combined voting power of all classes of stock of the Company or any Parent or
Subsidiary, if the Option is an Incentive Stock Option, the term of the Option
shall be five years from the date of grant thereof or such shorter time as may
be provided in the Stock Option Agreement.
8. Exercise Price and Consideration.
a. Exercise Price. The per Share exercise price for the Shares to be
issued pursuant to exercise of an Option shall be such price as is
determined by the Board, but the per Share exercise price under an
Incentive Stock Option shall be subject to the following:
(i) If granted to an Employee who, at the time of the grant of
such Incentive Stock Option, owns stock representing more than 10% of
the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the per Share exercise price shall not be less than
110% of the fair market value per Share on the date of grant.
(ii) If granted to any other Employee, the per Share exercise
price shall not be less than 100% of the fair market value per Share
on the date of grant.
b. Determination of Fair Market Value. The fair market value per Share
on the date of grant shall be determined as follows:
(i) If the Common Stock is listed on the New York Stock Exchange,
the American Stock Exchange or such other securities exchange
designated by the Board, or admitted to unlisted trading privileges on
any such exchange, or if the Common Stock is quoted on a National
Association of Securities Dealers, Inc. system that reports closing
prices, the fair market value shall be the closing price of the Common
Stock as reported by such exchange or system on the day the fair
market value is to be determined, or if no such price is reported for
such day, then the determination of such closing price shall be as of
the last immediately preceding day on which the closing price is so
reported;
(ii) If the Common Stock is not so listed or admitted to unlisted
trading privileges or so quoted, the fair market value shall be the
average of the last reported highest bid and the lowest asked prices
quoted on the National Association of Securities Dealers, Inc.
Automated Quotations System or, if not so quoted, then by the National
Quotation Bureau, Inc. on the day the fair market value is determined;
or
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(iii) If the Common Stock is not so listed or admitted to
unlisted trading privileges or so quoted, and bid and asked prices are
not reported, the fair market value shall be determined in such
reasonable manner as may be prescribed by the Board.
c. Consideration and Method of Payment. The consideration to be paid
for the Shares to be issued upon exercise of an Option, including the
method of payment, shall be determined by the Board and may consist
entirely of cash, check, other shares of Common Stock having a fair market
value on the date of exercise equal to the aggregate exercise price of the
Shares as to which said Option shall be exercised, or any combination of
such methods of payment, or such other consideration and method of payment
for the issuance of Shares to the extent permitted under the Colorado
Business Corporation Act.
9. Exercise of Option.
a. Procedure for Exercise: Rights as a Shareholder. Any Option granted
hereunder shall be exercisable at such times and under such conditions as
determined by the Board, including performance criteria with respect to the
Company and/or the Optionee, and as shall be permissible under the terms of
the Plan.
In the sole discretion of the Board, at the time of the grant of an
Option or subsequent thereto but prior to the exercise of an Option, an
Optionee may be provided with the right to exchange, in a cashless
transaction, all or part of the Option for Common Stock of the Company on
terms and conditions determined by the Board.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for
the Shares with respect to which the Option is exercised has been received
by the Company. Full payment, as authorized by the Board, may consist of a
consideration and method of payment allowable under Section 8(c) and this
Section 9(a) of the Plan. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of the duly authorized
transfer agent of the Company) of the stock certificate evidencing such
Shares, no right to vote or receive dividends or any other rights as a
shareholder shall exist with respect to the Optioned Stock, notwithstanding
the exercise of the Option. No adjustment will be made for a dividend or
other right for which the record date is prior to the date the stock
certificate is issued, except as provided in Section 11 of the Plan.
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Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of
the Plan and for sale under the Option, by the number of Shares as to which
the Option is exercised.
b. Termination of Status as an Employee. In the case of an Incentive
Stock Option, if any Employee ceases to serve as an Employee, he may, but
only within such period of time not exceeding three months as is determined
by the Board at the time of grant of the Option after the date he ceases to
be an Employee of the Company, exercise his Option to the extent that he
was entitled to exercise it at the date of such termination. To the extent
that he was not entitled to exercise the Option at the date of such
termination, or if he does not exercise such Option (which he was entitled
to exercise) within the time specified herein, the Option shall terminate.
c. Disability of Optionee. In the case of an Incentive Stock Option,
notwithstanding the provisions of Section 9(b) above, in the event an
Employee is unable to continue his employment with the Company as a result
of his total and permanent disability (as defined in Section 22(e)(3) of
the Code), he may, but only within such period of time not exceeding 12
months as is determined by the Board at the time of grant of the Option
from the date of termination, exercise his Option to the extent he was
entitled to exercise it at the date of such termination. To the extent that
he was not entitled to exercise the Option at the date of termination, or
if he does not exercise such Option (which he was entitled to exercise)
within the time specified herein, the Option shall terminate.
d. Death of Optionee. In the case of an Incentive Stock Option, in the
event of the death of the Optionee:
(i) During the term of the Option if the Optionee was at the time
of his death an Employee the Company and had been in Continuous Status
as an Employee or Consultant since the date of grant of the Option,
the Option may be exercised, at any time within 12 months following
the date of death, by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance,
but only to the extent of the right to exercise that would have
accrued had the Optionee continued living and remained in Continuous
Status as an Employee 12 months after the date of death; or
(ii) Within such period of time not exceeding three months as is
determined by the Board at the time of grant of the Option after the
termination of Continuous Status as an Employee, the Option may be
exercised, at any time within 12 months following the date of
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death, by the Optionee's estate or by a person who acquired the right
to exercise the Option by bequest or inheritance, but only to the
extent of the right to exercise that had accrued at the date of
termination.
10. Nontransferability of Options. In the case of an Incentive Stock
Option, the Option may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent and distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee.
11. Adjustments Upon Changes in Capitalization or Merger. Subject to any
required action by the shareholders of the Company, the number of Shares covered
by each outstanding Option, and the number of Shares which have been authorized
for issuance under the Plan but as to which no Options have yet been granted or
which have been returned to the Plan upon cancellation or expiration of any
Option, as well as the price per Share covered by each such outstanding Option,
shall be proportionately adjusted for any increase or decrease in the number of
issued Shares resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of Shares subject to an Option.
In the event of the proposed dissolution or liquidation of the Company, the
Option will terminate immediately prior to the consummation of such proposed
action, unless otherwise provided by the Board. The Board may, in the exercise
of its sole discretion in such instances, declare that any Option shall
terminate as of a date fixed by the Board and give each Optionee the right to
exercise his Option as to all or any part of the Optioned Stock, including
Shares as to which the Option would not otherwise be exercisable. In the event
of the proposed sale of all or substantially all of the assets of the Company,
or the merger of the Company with or into another corporation in a transaction
in which the Company is not the survivor, the Option shall be assumed or an
equivalent option shall be substituted by such successor corporation or a parent
or subsidiary of such successor corporation, unless the Board determines, in the
exercise of its sole discretion and in lieu of such assumption or substitution,
that the Optionee shall have the right to exercise the Option as to all of the
Optioned Stock, including Shares as to which the Option would not otherwise be
exercisable. If the Board makes an Option fully exercisable in lieu of
assumption or substitution in the event of such a merger or sale of assets, the
Board shall notify the Optionee that the Option shall be fully exercisable for a
period of 30 days from the date of such notice, and the Option will terminate
upon the expiration of such period.
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12. Time of Granting Options. The date of grant of an Option shall, for all
purposes, be the date on which the Board makes the determination granting such
Option. Notice of the determination shall be given to each Employee or other
person to whom an Option is so granted within a reasonable time after the date
of such grant. Within a reasonable time after the date of the grant of an
Option, the Company shall enter into and deliver to each Employee or other
person granted such Option a written Stock Option Agreement as provided in
Sections 2(r) and 16 hereof, setting forth the terms and conditions of such
Option and separately identifying the portion of the Option which is an
Incentive Stock Option and/or the portion of such Option which is a Nonstatutory
Stock Option.
13. Amendment and Termination of the Plan.
a. Amendment and Termination. The Board may amend or terminate the
Plan from time to time in such respects as the Board may deem advisable;
provided that, the following revisions or amendments shall require approval
of the shareholders of the Company in the manner described in Section 17 of
the Plan:
(i) An increase in the number of Shares subject to the Plan above
1,000,000 Shares, other than in connection with an adjustment under
Section 11 of the Plan;
(ii) Any change in the designation of the class of Employees
eligible to be granted Incentive Stock Options; or
(iii) Any material amendment under the Plan that would have to be
approved by the shareholders of the Company for the Board to continue
to be able to grant Incentive Stock Options under the Plan.
b. Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if the Plan had not been
amended or terminated, unless mutually agreed otherwise between the
Optionee and the Board, which agreement must be in writing and signed by
the Optionee and the Company.
14. Conditions Upon Issuance of Shares. Shares shall not be issued pursuant
to the exercise of an Option unless the exercise of such Option and the issuance
and delivery of such Shares pursuant thereto shall comply with all relevant
provisions of law, including, without limitation, the Securities Act of 1933, as
amended, the Securities Exchange Act of 1934, as amended, the rules and
regulations promulgated thereunder, applicable state securities laws, and the
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requirements of any stock exchange upon which the Shares may then be listed, and
shall be further subject to the approval of legal counsel for the Company with
respect to such compliance.
As a condition to the existence of an Option, the Company may require the
person exercising such Option to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares and such other
representations and warranties which in the opinion of legal counsel for the
Company, are necessary or appropriate to establish an exemption from the
registration requirements under applicable federal and state securities laws
with respect to the acquisition of such Shares.
15. Reservation of Shares. The Company, during the term of this Plan, will
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan. Inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's legal counsel to be necessary for the lawful issuance
and sale of any Share hereunder, shall relieve the Company of any liability
relating to the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
16. Option Agreement. Each Option granted to an Employee or other persons
shall be evidenced by a written Stock Option Agreement in such form as the Board
shall approve.
17. Shareholder Approval. Continuance of the Plan shall be subject to
approval by the shareholders of the Company on or before October 31, 1997. Such
shareholder approval and any shareholder approval required under Section 13 of
the Plan, may be obtained at a duly held shareholders meeting by the affirmative
vote of the holders of a majority of the outstanding shares of the voting stock
of the Company, who are present or represented and entitled to vote thereon, or
by unanimous written consent of the shareholders in accordance with the
provisions of the Colorado Business Corporation Act.
18. Information to Optionees. The Company shall provide to each Optionee,
during the period for which such Optionee has one or more Options outstanding,
copies of all annual reports and other information which are provided to all
shareholders of the Company. The Company shall not be required to provide such
information if the issuance of Options under the Plan is limited to key
employees whose duties in connection with the Company assure their access to
equivalent information.
19. Gender. As used herein, the masculine, feminine and neuter genders
shall be deemed to include the others in all cases where they would so apply.
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20. CHOICE OF LAW. ALL QUESTIONS CONCERNING THE CON- STRUCTION, VALIDITY
AND INTERPRETATION OF THIS PLAN AND THE INSTRUMENTS EVIDENCING OPTIONS WILL BE
GOVERNED BY THE INTERNAL LAW, AND NOT THE LAW OF CONFLICTS, OF THE STATE OF
COLORADO.
IN WITNESS WHEREOF, the Company has caused its duly authorized officer to
execute this Plan effective as of November 1, 1996.
LASER STORM, INC.,
a Colorado corporation
By:
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William R. Bauerle, President
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INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT'S CONSENT
We consent to the use in Amendment No. 1 to the Registration Statement on Form
SB-2 (Registration No. 333-14525) of Laser Storm, Inc. of our report dated
February 9, 1996, accompanying the financial statements of Laser Storm, Inc.
contained in such Registration Statement, and to the use of our name and the
statements with respect to us, as appearing under the heading "Experts" in the
Prospectus.
/s/ HEIN + ASSOCIATES LLP
HEIN + ASSOCIATES LLP
Denver, Colorado
February 3, 1997
