As filed with the Securities and Exchange Commission on June 6, 1997.
Registration No. 33-22443
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2
TO
FORM SB-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
ILLUMINATED MEDIA INC.
(Name of Small Business Issuer in its Charter)
Minnesota 7319 41-1744582
(State of (Primary Standard Industrial (I.R.S. Employer
Incorporation) Classification Code Number) Identification No.)
15 South Fifth Street, Suite 715, Minneapolis, Minnesota 55402
Telephone 612/338-3554 FAX 612/370-0381
(Address and telephone number of principal executive offices,
and of intended principal place of business)
Robert H. Blank, Chief Executive Officer
Illuminated Media, Inc.
15 South Fifth Street, Suite 715, Minneapolis, Minnesota 55402
Telephone 612/338-3554 FAX 612/370-0381
(Name, address and telephone number of agent for service)
Copies to:
Richard P. Keller, Esq. Michael L. Berde, Esq./Kevin S. Spreng, Esq.
Keller & Lokken, P.A. Furber Timmer Zahn, PLLP
175 E. 5th Street, Suite 763 333 South Seventh St., Suite 2100
St. Paul, Minnesota 55101 Minneapolis, MN 55402
(612) 292-1001 (612) 338-3965
(612) 292-8912 (FAX) (612) 330-0959 (FAX)
Approximate date of proposed sale to the public: As soon as practicable
after the effective date of this Registration Statement.
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Proposed
Maximum Maximum
Amount Offering Aggregate Amount of
Title of Each Class of To Be Price Per Offering Registration
Securities to be Registered Registered Unit Price Fee
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Units (consisting of Common 1,500,000 $ 1.00 $ 1,500,000 $ 517.24
Stock and Warrants)
Common Stock 1,500,000 -- -- --
Warrants to Purchase
Common Stock 1,500,000 -- -- --
Common Stock (Underlying Warrants) 3,000,000 2.75 8,250,000 2,844.83
Common Stock (Underlying
Underwriter's Warrant) 150,000 1.20 180,000 62.07
Warrants to Purchase Common
Stock (Underlying Underwriter's
Warrant) 150,000 -- -- --
Common Stock (Underlying Warrants
within Underwriter's Warrant) 300,000 2.75 825,000 284.48
--------- ------ ----------- ---------
TOTAL: $10,755,000 $3,708.62
=========== =========
</TABLE>
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 Commission, acting pursuant to said Section 8(a),
may determine.
ILLUMINATED MEDIA, INC.
Registration Statement on Form SB-2
Cross Reference Sheet Between Items of Form SB-2
and Prospectus as to 1,500,000 Units
<TABLE>
<CAPTION>
Item in Form SB-2 Caption or Location in Prospectus
<S> <C> <C>
1. Front of Registration Statement and Outside Front Cover of Prospectus Front of Registration Statement; front cover page
of Prospectus
2. Inside Front and Outside Back Cover Pages of Prospectus Inside Front and outside back Cover Page
3. Summary Information and Risk Factors Summary of Offering; High Risk Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Risk Factor No. 13; Description of Securities
6. Dilution Dilution
7. Selling Security Holders Not Applicable
8. Plan of Distribution Underwriting
9. Legal Proceedings Business - Legal Proceedings
10. Directors, Executive Officers, Promoters and Control Persons Management
11. Security Ownership of Certain Beneficial Owners and Management Principal Shareholders
12. Description of Securities Description of Securities
13. Interest of Named Experts and Counsel Not applicable
14. Disclosure of Commission Position on Indemnification for Securities Management-Limitation of Directors' Liability;
Act Liabilities Item 28.c. of Registration Statement
15. Organization Within Last Five Years Certain Transactions
16. Description of Business Business
17. Management's Discussion and Analysis or Plan of Operation Management's Discussion and Analysis
18. Description of Property Business-Property
19. Certain Relationships and Related Transactions Certain Transactions
20. Market for Common Equity and Related Stockholder Matters Cover Page of Prospectus; Description of
Securities
21. Executive Compensation Management - Executive Compensation
22. Financial Statements Financial Statements
23. Changes in and Disagreements with Accountants on Accounting and Not Applicable
Financial Disclosure
</TABLE>
Legend Required by Item 501(a)(8) of RegulationS-B:
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with
the Securities and Exchange Commission. These securities may not be
sold nor may offers to buy be accepted prior to the time the
registration statement becomes effective. This prospectus shall not
constitute an offer to sell or the solicitation of an offer to buy nor
shall there by any sale of these securities in any State in which such
offer, solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such State.
For the sake of clarity and because of the limitations inherent in the
type of binding used for the registration statement, the legend required by Item
1 of Form SB-2 and Item 501(a)(8) of Regulation S-B is set forth above. No
copies of any of the Preliminary Prospectuses contained herein will be delivered
to any person without such legend appearing on the cover page thereof in
compliance with Item 501(a)(8) of Regulation S-B.
Should any copy of the Preliminary Prospectus be delivered to any
person, it will include on its cover the above legend and the following words:
Preliminary Prospectus, dated June 6, 1997
Subject to Completion
ILLUMINATED MEDIA INC.
PRELIMINARY PROSPECTUS
DATED JUNE 6, 1997, SUBJECT TO COMPLETION
MAXIMUM OFFERING: L,500,000 UNITS--MINIMUM OFFERING: 650,000 UNITS
EACH UNIT CONSISTS OF ONE SHARE OF COMMON STOCK
AND ONE REDEEMABLE WARRANT FOR THE PURCHASE OF TWO SHARES OF COMMON STOCK
Each warrant entitles the holder to purchase at any time for a period
of five years following the date of this Prospectus two shares of Common Stock
at an exercise price of $2.75 per share. The warrants are subject to redemption
by the Company for $.01 per warrant, on 30 days written notice, if the closing
bid price of the Common Stock exceeds $3.25 per share, for any 20 consecutive
trading days prior thereto. See "Description of Securities". Prior to this
offering, there has been no market for the Company's securities. The Company
will seek to have the Units listed on the NASDAQ Bulletin Board system. The
Warrants may not be exercised unless a current registration statement is in
effect with respect to the underlying shares of Common Stock. A portion of the
proceeds from $374,969 to $563,597, depending on the number of Units sold of
this offering will be used to repay debt which, in part, is owed to or
personally guaranteed by affiliates of the Company. See "Use of Proceeds".
THE UNITS ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. THE COMPANY'S ABILITY TO CONTINUE AS A GOING CONCERN MAY
BE DEPENDENT UPON THE SUCCESSFUL COMPLETION OF THIS OFFERING. SEE "RISK
FACTORS", PAGE 4.
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.
PRICE TO UNDERWRITING PROCEEDS
PUBLIC COMMISSIONS(1) TO COMPANY(2)
Per Unit $ 1.00 $ .10 $ .90
Total Minimum (3) $ 650,000 $ 65,000 $ 585,000
Total Maximum (3) $1,500,000 $150,000 $1,350,000
(1) In addition, the Company has agreed to (a) pay the Underwriter a
non-accountable expense allowance equal to 2.75% of the total offering price of
Units sold in this offering (of which $5,000 has already been advanced); (b)
sell to the Underwriter, for nominal consideration, a five-year Warrant to
purchase up to 10% of the number of Units sold in this offering at $1.20 per
Unit; and (c) indemnify the Underwriter against certain liabilities, including
liabilities under the Securities Act of 1933. See "Underwriting".
(2) Before deducting expenses of the offering, payable by the Company, estimated
at $80,000, not including the underwriter's non-accountable expense allowance.
Footnote (3) is on the next page.
The Units are offered by the Company through its agent, the
Underwriter, subject to prior sale, to withdrawal, cancellation or
modification of the offer without notice, and to certain other
conditions.
TUSCHNER & COMPANY, INC.
The date of this Prospectus is June ___, 1997.
(3) The Units are being offered on a "best-efforts, minimum-maximum" basis
through the Underwriter and possibly a group of selected dealers. There is no
minimum investment requirement. All proceeds of this offering will be deposited
in an escrow/impoundment account with (and all checks of investors must be made
payable to) BankWindsor, Minneapolis, Minnesota pending sale of a minimum of
650,000 Units on or before August ___, 1997 [60 days from the date of this
Prospectus] (which period may be extended an additional 30 days, until September
___, 1997, upon mutual consent of the Company and Underwriter), and if not sold
within such period, will be returned promptly to purchasers without interest or
deduction. Subscribers have no right to demand return of their subscription
payments during the escrow period. See "Underwriting".
[Photos of Skyway Ad platforms as installed and used in
different locations-to be added]
SUMMARY OF OFFERING
THIS SUMMARY, WHICH IS INTENDED FOR QUICK REFERENCE ONLY AND DOES NOT
CONTAIN ALL INFORMATION NEEDED FOR AN INVESTMENT DECISION, IS QUALIFIED IN ITS
ENTIRETY BY THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS, INCLUDING
NOTES, APPEARING ELSEWHERE IN THIS PROSPECTUS.
THE COMPANY: Illuminated Media Inc. (the "Company") is an advertising media
company that sells a form of indoor, out-of-home, advertising called "SKYWAY
ADS", which is pictured on the inside front and rear covers of this Prospectus.
See "BUSINESS". The Company's principal executive offices are located at 15
South 5th Street, Suite 715, Minneapolis, Minnesota 55402 and its telephone
number is (612) 338-3554, FAX (612) 370-0381.
THE OFFERING: A minimum of 650,000 and a maximum of 1,500,000 Units at $1.00 per
Unit will be offered for 60 days, subject to an extension of 30 days. Each Unit
consists of one share of Common Stock and one redeemable warrant for the
purchase of two shares of Common Stock, exercisable for five years at $2.75 per
share. The warrant is immediately exercisable and, 30 days after the date of
this Prospectus, is transferable separately from the Common Stock. The warrants
are subject to redemption by the Company for $.01 per warrant, on 30 days
written notice, if the closing bid price of the Common Stock exceeds $3.25 per
share for any 20 consecutive trading days prior thereto. See "DESCRIPTION OF
SECURITIES."
Subscribers may not withdraw their investments, unless the offering is
terminated. At the latest, funds can be held in the escrow/impoundment account
until August __, 1997, which can be extended for 30 days to September __, 1997.
At that time, if the minimum amount has not been sold, the offering will be
terminated and funds promptly returned to investors without either interest or
deduction. See "UNDERWRITING".
COMMON STOCK OUTSTANDING AND TO BE OUTSTANDING: 220,000 shares of Common Stock,
and 204,999 shares of Convertible Preferred Stock (which automatically convert
to Common Stock in connection with this offering), are outstanding as of April
30, 1997; 870,000 shares and 1,720,000 shares (or 1,074,999 shares and 1,924,999
shares after automatic conversion of preferred stock) will be outstanding,
respectively, if the minimum or the maximum number of Units offered is sold,
exclusive of the possible exercise of outstanding warrants for the purchase of
169,959 shares (as of April 30, 1997), and the possible conversion of
convertible notes held by two former shareholders and one current shareholder to
acquire up to 422,798 and 19,345 shares as of April 30, 1997, and the possible
exercise of any warrants included as part of the Units or the Underwriter's
Stock Purchase Option. See "CAPITALIZATION".
USE OF PROCEEDS: Net proceeds of $487,125, if the minimum number of Units
offered is sold, and $1,228,750, if the maximum number of Units offered is sold.
Of the net proceeds, $374,969, if the minimum is sold, and $563,597, if the
maximum is sold, will be used to repay indebtedness (of which, some has been
personally guaranteed by the Company's CEO and some is payable to affiliates).
The remaining proceeds will be used to develop products, and expand into new
geographic areas. See "USE OF PROCEEDS" and "CERTAIN TRANSACTIONS".
RISK FACTORS: This investment is highly speculative and very risky. See "HIGH
RISK FACTORS".
SELECTED FINANCIAL INFORMATION:
Two Months Ended 4/30/97(Unaudited) As of 4/30/97 (Unaudited)
- ----------------------------------- -------------------------
Revenues $ 28,967 Current Assets $ 68,553
=========
Operating Expenses 65,174 Current Liabilities $ 547,397
-------- =========
Operating Loss (36,207) Shareholders Deficit $(667,668)
=========
Other Expense 11,340 Working Capital $(478,844)
-------- =========
Net Loss $(47,547)
========
HIGH RISK FACTORS
The proposed operations and business of the Company will be subject to
a high degree of risk, thereby making the securities offered hereby a highly
speculative investment. Stated below are, in the Company's view, the principal
risk factors affecting this offering, which must be considered carefully by
prospective investors prior to making an investment decision. Prospective
investors should be able to afford, without causing personal financial
difficulty, the entire loss of their investment in the Units.
1. Prior Operating Losses. The Company had operating losses of $131,124
and $157,238, and net losses of $181,316 and $174,843 for its fiscal years ended
February 28, 1997, and February 29, 1996, respectively, and operating losses of
$36,207 and $14,762, and net losses of $47,547 and $24,571, for its two month
fiscal periods ended April 30, 1997, and April 30, 1996. Whether the Company
can, even with the proceeds of this offering, reverse these losses, cannot be
known with certainty at this time. See "BUSINESS-Corporate History" and
"FINANCIAL STATEMENTS".
2. Negative Net Worth and Negative Working Capital. At April 30, 1997,
the Company had a negative net worth of $667,668 and a negative working capital
position of $478,844. As such, unless this offering or some other type of
financing is completed in the near future, the Company may be unable to continue
in business. See "FINANCIAL STATEMENTS" and "BUSINESS".
3. Auditor's Opinion Reflects Uncertainty as to Going Concern Status.
The report of the Company's independent auditor on the Company's financial
statements as of February 28, 1997, states that, "the Company's recurring
losses, negative cash flows from operations and net working capital deficiency
raise substantial doubt as to its ability to continue as a going concern." The
Company has an urgent need for additional capital in order to continue its
operations. See "FINANCIAL STATEMENTS".
4. No Public Market; Possible Lack of Liquidity. Prior to this
offering, there has been no public market for the securities of the Company. No
assurance can be given that the Units, or their constituent securities, the
Common Stock and the Warrants, can be resold at the offering price, that a
public market will develop for any of the afore-mentioned securities following
this offering, or that such a market, if developed, will continue. Accordingly,
purchasers of the Units may not be able to readily liquidate their investment or
to pledge their shares as collateral for loans. Tuschner & Company, Inc., the
Underwriter in this offering, has advised the Company that it intends to make a
market in the Units following the offering, so long as the trading activity,
including price and volume characteristics, justifies such an undertaking.
However, it has the right to discontinue such market making at any time. The
Company will, after commencment of this offering, apply to have its securities
listed on the NASDAQ Electronic Bulletin Board system.
5. Dependence Upon Key Person. The Company will be dependent upon the
services of its Chief Executive Officer, Robert H. Blank. The loss of Mr.
Blank's services would have a material adverse effect upon the Company's
operations. The Company does not have a key person life insurance policy on the
life of Mr. Blank, nor does it have an Employment and Non-Compete Agreement with
Mr. Blank. However, the Company expects to purchase a key person life insurance
policy on the life of Mr. Blank upon the completion of this offering. See
"MANAGEMENT".
6. Applicability of "Penny Stock Rules;" Impact on Liquidity. The
Company's securities are considered "penny stock" under a Securities and
Exchange Commission rule that imposes additional sales practice requirements on
broker-dealers who sell such securities to persons other than established
customers and institutional accredited investors (generally institutions with
assets in excess of $5,000,000). For transactions covered by the rule, the
broker-dealer must make a special suitability determination for the purchaser
and have received the purchaser's written agreement to the transaction prior to
the sale. Such broker-dealers must also, prior to the purchase, provide the
customer with a risk disclosure document which identifies risks associated with
investing in "penny stocks" and which describes the market therefor as well as a
brief description of the broker-dealer's obligations under certain "Penny Stock
Rules" and rights and remedies available to customers under federal and state
securities laws. The broker-dealer must obtain a signed and dated
acknowledgement from its customer demonstrating that the customer has actually
received the required risk disclosure document before the first transaction in a
penny stock. Consequently, such rules will affect the ability of broker-dealers
to sell the Company's securities and will affect the ability of purchasers in
this offering to sell their securities in the secondary market, if any. See
"DESCRIPTION OF SECURITIES".
7. Competition. In essence, the Company sells an advertising medium,
and, as such, competes for advertiser's dollars with all other advertising
media, whether broadcast and print media or "out-of-home." Although the
percentage of dollars received by out-of-home media (the smallest of all
advertising categories) has increased recently, this trend could easily change.
There are no significant barriers to competition by other companies in
the Company's advertising category. Competitors who enter this market are likely
to be larger, more strongly capitalized, and have stronger relationships with
building managers and national advertisers than the Company. It will be
difficult, expensive, and time consuming for the Company to develop and expand
its position in the marketplace. See "BUSINESS-Marketing" and
"BUSINESS-Competition".
8. Need to Create Sales Organization. In order to obtain advertising
from national accounts, the Company believes it will have to expand into other
markets and market venues. To do that, the Company will need to expand its sales
organization, and there can be no assurance that the Company will be able to
recruit, train, motivate, and retain effective sales people to accomplish this
goal.
9. Capital Requirements for Planned Expansion. The Company intends to
expand its advertising concept to other cities. The Company also expects to
spend a significant amount of capital on developing and implementing new
technologies (such as interactive touchscreen) for use in conjunction with its
SKYWAY ADS displays. Each of these proposed activities will require the
expenditure of substantial funds by the Company. Accordingly, additional equity
or debt financing may be required in the future. There can be no assurance that
additional capital from any source will be available in the future, if and when
needed by the Company, or that such capital will be available on terms
acceptable to the Company. In addition, the Company is in immediate need of
capital to meet its operating expenses and to undertake its plans for expansion
in the foreseeable future. See "USE OF PROCEEDS" and "BUSINESS".
10. Sufficiency of Offering Proceeds/Need for Additional Financing. It
is anticipated that the proceeds of this offering will last approximately 12
months if the minimum of $650,000 is raised and 24 months if the maximum of
$1,500,000 is raised. Thereafter, the Company might require additional capital
to meet its needs either through borrowing or through additional sales of the
Company's securities. No assurances can be given that such sources of capital
will be available at all, or on terms acceptable to the Company . See "USE OF
PROCEEDS" and "BUSINESS-Competition".
11. Entry Into New Geographic Markets. Until recently, the Company
marketed its SKYWAY ADS displays almost exclusively in the Twin Cities area,
particularly downtown Minneapolis, downtown St. Paul, and at the Mall of America
in Bloomington, Minnesota. The Company intends to market in other states and
cities, which may not be as receptive to the SKYWAY ADS concept. This will
require familiarity with new markets and the development of new techniques and
tools, not previously used by the Company, for managing distant locations.
12. Potential Inability to Manage Growth Effectively. The Company hopes
to significantly expand its business, in part with the proceeds of this
offering. Such anticipated expansion will likely place further demands on the
Company's existing management and operations. The Company's future growth and
profitability will depend, in part, on its ability to successfully manage a
growing sales force and implement management and operating systems which react
efficiently and timely to short and long-term trends or changes in its business.
There can be no assurance that the Company will be able to effectively manage
any expansion of its business. See "USE OF PROCEEDS" and "MANAGEMENT."
13. Potential Inability of Holders to Exercise Warrants if Current
Registration Statement is Not in Effect Purchasers of Units will be able to
exercise the Warrants only if a current Registration Statement relating to the
shares of Common Stock underlying the Warrants is then in effect and only if
such securities are qualified for sale or exempt from qualification under the
applicable securities laws of the states in which the various holders of
Warrants reside. The Warrants have no value without a current, effective
Registration Statement. Although the Company will use its best efforts to
maintain the effectiveness of a current Registration Statement covering the
shares of Common Stock underlying the Warrants, there can be no assurance that
the Company will be able to do so. The Company will be unable to issue shares of
Common Stock to those persons desiring to exercise their Warrants if a current
Registration Statement covering the securities issuable upon the exercise of the
Warrants is not kept effective or if such securities are not qualified or exempt
from qualification in the states in which the holders of the Warrants reside.
The Company intends to qualify the Units for sale only in Minnesota and
Wisconsin.
14. Possible Redemption of Warrants. The Warrants are subject to
redemption at any time by the Company at $.01 per Warrant on 30 days prior
written notice if the closing bid price of the Common Stock exceeds $3.25 per
share for each of 20 consecutive trading days, at any time prior to such notice.
If the Warrants are redeemed, Warrant holders will lose their right to exercise
the Warrants during the balance of their five-year term except during such 30
day redemption period. If the Company redeems the Warrants, it would force the
holders to exercise the Warrants at a time when it may not be advantageous for
them to do so, or to sell the Warrants at the then market price, or to accept
the nominal redemption price. See "DESCRIPTION OF SECURITIES- Warrants".
15. Minnesota Anti-Takeover Law. The Company is subject to the
provisions of the Minnesota Business Corporation Act, which includes provisions
relating to "control share acquisitions" and restricting "business combinations"
with "interested shareholders". Such provisions could have the effect of
discouraging an attempt to acquire control of the Company.
See "DESCRIPTION OF SECURITIES-Minnesota Anti-Takeover Law".
16. Limitations of Liability. The Company's Articles of Incorporation
provide, as permitted by Minnesota law, that a director of the Company shall not
be personally liable to its shareholders for monetary damages for breach of his
or her fiduciary duty of care as a director, with certain exceptions. In
addition, the Company's bylaws provide for mandatory indemnification of
directors and officers to the fullest extent permitted by Minnesota law. See
"DESCRIPTION OF SECURITIES--Indemnification."
17. Determination of Offering Price. The offering price per Unit and
the exercise price of the Warrants was determined arbitrarily by the Company and
the Underwriter, and is not based upon net worth, earnings, or other established
investment criteria of value. Accordingly, there can be no assurance that the
Units can be resold at the offering price, if at all. See "DESCRIPTION OF
SECURITIES".
18. Outstanding Options and Warrants; Dilution. As of April 30, 1997,
the Company had outstanding warrants, exercisable at $.50 per share, to purchase
a total of 169,959 shares of Common Stock, and convertible notes held by two
former shareholders and one current shareholder which would allow them to
acquire up to 422,798 and 19,345 shares, respectively, of Common Stock at $.40
per share and $.75 per share, respectively, and upon successful completion of
this offering the Company will have an Underwriter's Stock Purchase Option
outstanding. In addition, the Company's 204,999 shares of Preferred Stock
automatically convert to Common Stock in connection with this offering. The
Company anticipates that many of the warrants may be exercised in the near
future. In addition, there are currently outstanding 220,000 shares of Common
Stock, for which the owners paid substantially less than the offering price for
the Units. Purchasers of the Units will incur immediate substantial dilution
from the offering price. The price which the Company will receive for its Common
Stock upon exercise of such options and warrants will be significantly less than
the market price for the Company's Common Stock at the time such options and
warrants are exercised. While such options and warrants are outstanding, the
holders thereof are given, at little or no cost, the opportunity to profit from
any rise in the market price of the Company's Common Stock without assuming the
risk of ownership. To the extent that any such options or warrants are
exercised, the book value and voting interests of the Company's shareholders
will be diluted proportionately. See "DILUTION", "MANAGEMENT" and "DESCRIPTION
OF SECURITIES - Stock Options and Warrants".
19. Underwriter's Stock Purchase Option. The Company has agreed to sell
to the Underwriter, for nominal consideration, a Stock Purchase Option to
purchase up to 10% of the Units sold in this offering at an exercise price of
$1.20 per Unit (the "Stock Purchase Option"). The Company has agreed to register
at its expense under the Securities Act of 1933, as amended, and applicable
state securities acts, the Units and the shares of Common Stock purchasable upon
exercise of the warrants included in the Units. Both the warrants and any
profits realized by the Underwriter on the sale of the shares underlying the
warrants could be considered additional underwriting compensation. For the life
of the warrants, the holders thereof are given, at nominal cost, the opportunity
to profit from the difference, if any, between the exercise price of the
warrants and the market price for the Common Stock with a resulting dilution in
the interest of existing shareholders. The terms on which the Company could
obtain additional capital during the exercise period of the Underwriter's Stock
Purchase Option may be adversely affected, as the holders of the Underwriter's
Stock Purchase Option may be expected to exercise them when, in all likelihood
the Company would be able to obtain any needed capital by a new placement of
securities on terms more favorable than those provided by the Underwriter's
warrants. See "UNDERWRITING".
20. Limited Experience of the Underwriter. The Underwriter commenced
business in May, 1994 and has completed two public offerings to date. The
Underwriter's relative inexperience in conducting public offerings could have an
adverse effect on the "due diligence" investigation of the Company which the
Underwriter has conducted, although the Underwriter believes that such
investigation has been thorough on its part. Moreover, although the Underwriter
believes it has exercised care in establishing the Price to Public of the Units
offered hereby, the Underwriter's inexperience in establishing the price of the
Units in this offering, and possibly in acting as a market-maker after the
effective date of this offering, could have an adverse effect on the market
value of the Units offered hereby following the completion of this offering.
John Tuschner, President of the Underwriter, has personally guaranteed $25,000
of the Company's bank loans, and holds a warrant to purchase 8,333 shares of
Common Stock. See "UNDERWRITING".
21. Absence of Dividends. The Company has never declared or paid a cash
dividend on its common stock. The Company intends to retain any earnings for use
in the operation and expansion of its business and, therefore, does not
anticipate paying any cash dividends in the foreseeable future, including on the
shares of Common Stock offered as part of the Units. See "DIVIDEND POLICY."
22. No Stabilization. In connection with this offering, the Underwriter
will not over allot or effect transactions which are intended to stabilize or
maintain the market price of the Common Stock, the Warrants, and/or the Units at
a level above that which might otherwise prevail in the open market. See
"UNDERWRITING".
23. Limited Manufacturing Experience. To date, the Company's SKYWAY ADS
platforms have only been manufactured in limited quantities and have not been
manufactured on a commercial scale, and platforms with DISCOVERSCREEN
enhancements have never been manufactured. As a result, there can be no
assurance that the Company will not encounter difficulties in obtaining reliable
and affordable contract manufacturing assistance and/or in scaling up its
manufacturing capabilities, including problems involving production yields,
per-unit manufacturing costs, quality control, component supply, and shortages
of qualified manufacturing personnel. Any such difficulties could also result in
the inability of the Company to satisfy any customer demand for its products in
a cost-effective manner and would likely have a material adverse effect on the
Company.
24. Potential Inability to Adapt to Changes in Technology. The
Company's market is subject to rapid technological change and intense
competition. There can be no assurance that the Company will be able to keep
pace with this change. The Company's products could become subject to
technological obsolescence and there can be no assurance that the Company will
be able to adapt to rapidly changing technology. If the Company is unable for
technological or other reasons to develop products on a timely basis in response
to technological changes, or if the Company's products or product enhancements
do not achieve market acceptance, the Company's business would be materially and
adversely affected.
25. Limited Sources of Supply. The Company has only limited agreements
with vendors to supply components and subassemblies on a continuing basis.
Should production requirements increase, the need for additional components and
subassemblies will increase. In the future, the Company will attempt to (i)
consummate formal supply agreement relationships, although there can be no
assurance that it will be able to do so, and (ii) obtain multiple sources of
supply for most of its components, although it may be necessary to have limited
sources of supply for certain components. Should a key supplier be unwilling or
unable to supply any such components or subassemblies in a timely manner, the
Company would be materially adversely affected. At present, although the Company
may only use one supplier for some products which it purchases, it does not have
any sole source suppliers, and expects that it could locate and use alternate
sources of supply, if needed. See "BUSINESS--The Skyway Ads Platform and Related
Products."
26. Technology. The Company intends, with some of the proceeds of this
offering, to build from existing computer products and technologies, a certain
number of units of a proposed new product called DiscoverScreen. The Company
does not own this technology, does not control its development or improvement,
and does not have the ability to prevent others from using the technology in
same or similar products. A prototype of the DiscoverScreen product has not yet
been built. The Company estimates that the costs to produce the first two
prototypes will be a total of approximately $40,000. Thereafter, additional
production DISCOVERSCREENS are expected to cost in the range of $3,000 to $5,000
each. Technological difficulties in developing, installing and maintaining new
products are common, and may occur.
27. Effect on Market Price of Shares Eligible for Future Sale. Sales of
significant amounts of Common Stock in the public market or the perception that
such sales will occur could adversely affect the market price of the Common
Stock or the future ability of the Company to raise capital through an offering
of its equity securities. Of the 1,924,999 shares of Common Stock to be
outstanding upon completion of a maximum offering, only the 1,500,000 shares
offered as part of the Units will be eligible for immediate sale in the public
market without restriction (unless some of such shares are held by "affiliates"
of the Company within the meaning of Rule 144 under the Securities Act). The
remaining 424,999 shares of Common Stock held by existing stockholders upon
completion of this offering will be "restricted securities" as that term is
defined in Rule 144 under the Securities Act. Of these shares, 274,999 are
currently eligible for resale in the open market pursuant to Rule 144 under the
Securities Act beginning 90 days after the date of this Prospectus. An
additional 150,000 shares will become eligible for resale under Rule 144 on or
prior to December 31, 1997. The 169,959 shares of Common Stock underlying
warrants issued in conjunction with bridge financing will be eligible for sale
under Rule 144 one year after exercise of the warrants. The Company and certain
of its stockholders have agreed that they will not sell, directly or indirectly,
any Common Stock, without the prior written consent of the Underwriter (which
will not be unreasonably withheld), for a period of one year from the date of
this Prospectus. In additon, certain warrant holders have the right, subject to
certain conditions, to participate in future Company registrations and to cause
the Company to register certain shares of Common Stock owned by them upon
exercise of currently outstanding warrants. See "DESCRIPTION OF
SECURITIES-Shares Eligible for Future Sale."
28. No Intellectual Property Protection/Possible Unavailability of
Licenses. The Company holds no patents and has not made any patent applications.
The Company believes that its use of the technology described in the
DISCOVERSCREEN, IM3-D and LASERTAINMENT do not infringe upon patents or rights
held by others, but the Company cannot give any assurances that such
infringements do not exist.
While the Company believes it will not be necessary to acquire
additional technologies in order to market its current planned products, there
is no assurance that the person or organization owning any additionally required
technologies will grant licenses to the Company at all, or, if licenses are
available, that the terms and conditions of such licenses will be acceptable to
the Company.
SELECTED FINANCIAL DATA
The following selected financial data of the Company at and for each of
the fiscal years ended February 28, 1997 and February 29, 1996 have been derived
from audited financial statements of the Company. The selected financial data is
qualified by reference to, and should be read in conjunction with, the financial
statements for such periods and related notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations",
included elsewhere in this Prospectus. All adjustments for the unaudited interim
period were of a normal, recurring nature.
<TABLE>
<CAPTION>
Two Month Period Ended
------------------------
Year Ended Year Ended April 30, April 30,
February 28, February 29, 1997 1996
1997(1) 1996(1) (Unaudited) (Unaudited)
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues $ 242,146 $ 236,932 $ 28,967 $ 40,430
--------- --------- --------- ---------
Operating expenses:
General and administrative -
related party -- 33,660 -- --
General and administrative 373,270 360,510 65,174 55,192
--------- --------- --------- ---------
Total operating expenses 373,270 394,170 65,174 55,192
--------- --------- --------- ---------
Loss from operations (131,124) (157,238) (36,207) (14,762)
Other Income (expense):
Interest expense (50,027) (17,239) (11,340) (9,809)
Miscellaneous income -- 2,442 -- --
Loss on disposal of property
and equipment (165) (2,808) -- --
--------- --------- --------- ---------
Total other income (expense) (50,192) (17,605) (11,340) (9,809)
--------- --------- --------- ---------
Net loss $(181,316) $(174,843) $ (47,547) $ (24,571)
Net loss per share (2) $ (.74) $ (.30) $ (.16) $ (.10)
========= ========= ========= =========
Weighted average number of
shares outstanding 244,979 574,075 304,979 244,979
========= ========= ========= =========
</TABLE>
Notes:
1. These columns are not covered by the Independent Auditor's Report.
2. See Note 1 to the Financial Statements for a discussion (under "Net
Loss Per Common Share") of the basis of presentation and Note 16
thereof which discusses supplemental earnings per share.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
THIS DISCUSSION OF THE FINANCIAL CONDITION AND THE RESULTS OF
OPERATIONS OF THE COMPANY SHOULD BE READ IN CONJUNCTION WITH, AND IS QUALIFIED
IN ITS ENTIRETY BY, THE FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED
ELSEWHERE WITHIN THE PROSPECTUS, AND THE MATERIAL CONTAINED IN THE "RISK
FACTORS" AND " BUSINESS" SECTIONS OF THE PROSPECTUS.
OVERVIEW
The Company is an advertising media company that started operations in
1993. It leases space for its advertising platforms from buildings, to which it
pays concessions, typically, 20% of advertising revenue. Each platform has three
panels, of which two are available for rent to advertisers and the third is used
for public service purposes, such as a map, or an ad for a non-
profit/charitable organization.
The Company intends, with the proceeds of the offering to expand its
operations to several other metropolitan markets, to add enhanced features to
its platforms, and to increase the percentage of panels rented to advertisers.
At April 30, 1997, the Company had 54 advertising platforms in place in the
Minneapolis-St. Paul Metropolitan area.
A single market is less attractive to national advertisers than if the
Company could offer its medium in several markets. Accordingly, the Company has
explored and will attempt to expand into other cities with connecting skyway or
underground concourse links ("networked cities") such as Des Moines, Dallas,
Houston, Cincinnati, Rochester (NY and MN) and Duluth. In addition, the Company
plans to expand into three shopping malls (Miller Hill Mall, Duluth, MN; Newport
Centre, Jersey City, NJ; and The Pavillion, San Jose, CA) managed by the same
firm that manages the Mall of America. The Company has discussed expansion and
has conducted preliminary negotiations with the respective property managers,
but no final agreement has been reached.
The Company plans to add features to its platforms, such as its
computer touchscreen product, DISCOVERSCREEN, which can be used to find
directions or information about retail and service providers, entertainment,
traffic information and the like. The Company's goal is to create a national
network of DISCOVERSCREEN services for use by national as well as local
advertisers.
The Company has formed a joint marketing venture with Skyway
Publications Inc.("SPI"), a Minneapolis-based publishing company, that sells
advertising to businesses trying to reach individuals who use the skyway
systems. SPI would assist with DISCOVERSCREEN sales.
RESULTS OF OPERATIONS
COMPARISON OF THE FISCAL YEAR ENDED FEBRUARY 28, 1997
WITH THE FISCAL YEAR ENDED FEBRUARY 29, 1996
Revenues
Revenues for fiscal 1997 increased by 2.2% to $242,146 as compared to
$236,932 for fiscal 1996. All revenue was generated by the sale of ad space for
the SKYWAY ADS platforms. During these periods, per panel fees charged by the
Company did not change. As of February 29, 1996 the Company had approximately 49
platforms and 48% of available ad panels were leased. As of February 28, 1997
the Company had approximately 54 plaforms and 47% of available ad panels were
leased.
Loss from Operations
The loss from operations for fiscal 1997 decreased by 16.6% to
($131,124) as compared to a loss of ($157,238) for fiscal 1996. The decreased
loss from operations resulted from a decrease of $20,900, or 5.3% in operating
expenses, from $394,170 for fiscal 1996 to $373,270 for fiscal 1997. The
decrease in operating expenses from fiscal 1997 to fiscal 1996 resulted
primarily because of a one-time stock grant in fiscal year 1996 to an officer
valued at $60,000. During fiscal year 1997 the Company expended approximately
$23,000 for audit fees related to its proposed public offering, and incurred an
increase of $16,800 for uncollectible accounts.
Management does not, in the future, expect to have problems of a
similar magnitude with respect to uncollectible accounts, because of a new
credit policy, which requires that the Company receive at least 2 good credit
references or up front fees from a potential new account and that a client be
carried no more than 60 days on credit.
Other Income and Expenses
Other income (expense) for fiscal 1997 increased by $32,587, to
($50,192) as compared to ($17,605) for fiscal 1996. The increased expense
resulted primarily from increased interest expense of ($50,027) in fiscal 1997
as compared to ($17,239) in fiscal 1996, which arose from debt of approximately
$542,000 as of February 28, 1997, which was incurred in connection with the
re-purchase of shares of Common Stock owned by the previous majority
shareholders, the settlement of certain accounts payable owed to them, and to
fund operations pending the proposed public offering.
COMPARISON OF THE TWO MONTH FISCAL PERIOD ENDED APRIL 30, 1997 WITH
THE TWO MONTH FISCAL PERIOD ENDED APRIL 30, 1996 (UNAUDITED)
Revenues
Revenues for the two month period ended April 30, 1997, decreased by
28.4% to $28,967 as compared to $40,430 for the two month period ended April 30,
1996. Revenues for the period were less than expected because sales efforts by
management were interrupted by the public offering, and the efforts by two new
sales employees did not begin to show results until after the end of the fiscal
period. All revenue was generated by the sale of ad space for the SKYWAY ADS
platform. The number of platforms, and the per panel fees, remained relatively
constant during these periods.
Loss from Operations
The loss from operations for the two month period ended April 30, 1997,
increased by 145% to ($36,207) as compared to a loss of ($14,762) for the two
month period ended April 30, 1996. The increased loss resulted primarily from a
decrease in revenues, and secondarily from an increase of $9,982 or 18.1% in
operating expenses, from $55,192 for the 1996 period to $65,174 for the 1997
period. The increased operating expenses resulted primarily from the addition of
two new salespersons who were hired (one in December, 1996, one in January,
1997) in anticipation of the early completion of this offering.
Other Income and Expense
Other income (expense) for the two months ended April 30, 1997,
increased by $1,531, or 15.6%, to ($11,340) as compared to ($9,809) for the two
months ended April 30, 1996. The increased expense resulted primarily from
increased interest expense of ($11,340) for the period ended April 30, 1997, as
compared to ($9,809) for the period ended April 30, 1996. The interest expense
increase resulted from debt of approximately $564,000 as of April 30, 1997,
which was incurred in connection with the re-purchase of shares of Common Stock
owned by the previous majority shareholders, the settlement of certain accounts
payable owed to them, and to fund operations pending a proposed public offering.
LIQUIDITY AND CAPITAL RESOURCES
The Company's current capital resources have been derived from the
private sale of debentures (which were accompanied by warrants for the purchase
of Common Stock) and from loans provided by financial institutions. As of
February 28, 1997, and April 30, 1997, the Company had approximately $7,651 and
zero, respectively, in cash.
Since inception the Company incurred net losses because of start-up
expenses, fixed costs and financing costs. The Company is currently experiencing
negative cash flow from operations (see "Statement of Cash Flow") and expects
that such situation will continue until its debt is reduced and until a
combination of expanded marketing efforts and product enhancements, all of which
will be financed from the proposed public offering, lead to positive cash flow.
As of April 30, 1997 the approximate break-even point for sales was $33,000 per
month less one time expenses and less debt maintenance.
The Company's future capital requirements relate to two major goals,
each of which is reflected in the structure of the proposed public offering. If
the minimum offering is sold, the Company will be able to pay off much of its
debt, and commence modest additional marketing efforts. The Company expects that
as a result of a minimum offering the Company can expand into a few new markets
and put in place enough new units such that it would expect to generate cash
flow sufficient to meet its on going operations and continue the modest
expansion. If the maximum offering is sold, the Company will be able to pay off
all of its debt, significantly expand its marketing efforts and significantly
expand its range of enhanced product improvements. The Company's management
expects that if a minimum offering is sold, proceeds will last a minimum of
twelve months, and if a maximum offering is sold, proceeds will last a minimum
of twenty-four months.
The Company does not currently have in place any financing arrangements
for working capital needs nor does the Company have any unused sources of
liquidity other than its cash reserves and on-going sales. There is no
arrangement for the Company's on-going capital equipment purchases.
The Company does have sufficient unused capacity with its existing ad
spaces such that, if more were rented, it could generate revenue sufficient to
cover its operating expenses and make minor capital investments. However,
management's primary goal is to acquire the capital which will enable the
Company to acquire units, both standard and specialized, and place them in new
markets, thereby expanding capacity and leading to significantly greater
revenues.
If the Company's proposed public offering is not completed in the near
future, it will seek alternate sources of financing, such as a private placement
of equity, to provide its capital resources.
DILUTION
The following discussion assumes that all of the purchase price for
each Unit is allocated solely to the one share of Common Stock included therein;
that none of the purchase price is allocated to the warrants; and that the
204,999 shares of Preferred Stock, which automatically convert to Common Stock
in connection with this offering, have been converted to 204,999 shares of
Common Stock as of April 30, 1997. In other words, this discussion assumes that
424,999 shares of Common Stock (220,000 shares already outstanding, and 204,999
shares from the conversion of Preferred Stock) are outstanding prior to this
offering.
The Net Tangible Book Value of the Company at April 30, 1997 was
$(667,668), or approximately $(1.57) per share (assuming that there were then
424,999 shares of Common Stock outstanding). "Net Tangible Book Value"
represents the tangible assets of the Company (total assets less intangible
assets) less all liabilities, excluding contingent liabilities. After giving
effect to the sale of a minimum of 650,000 shares, and a maximum of 1,500,000
shares at $1.00 per share and the receipt of net proceeds therefrom,
respectively, of $487,125 and $1,228,750, the Adjusted Net Tangible Book Value
of the Company at April 30, 1997 would have been $(180,543), or $(.17) per
share, assuming sale of the minimum offering; and Net Tangible Book Value of
$561,082, or $.29 per share if the maximum offering is sold. This represents an
immediate increase in the Net Tangible Book Value of $1.40 per share to current
holders of Common Stock and an immediate dilution of $1.17 per share to new
investors, if the minimum is sold. If the maximum offering had been sold, there
would have been an immediate increase in the Net Tangible Book Value of $1.86
per share to current shareholders, and an immediate dilution of $.71 to new
investors. Dilution per share is determined by subtracting net tangible book
value per share after the offering from the offering price as illustrated by the
following table:
Minimum Maximum
------- -------
Public Offering price per share $ 1.00 $ 1.00
Net Tangible Book Value per share
at April 30, 1997 $(1.57) $(1.57)
Increase attributable to offering $ 1.40 $ 1.86
Net Tangible Book Value
per share after offering $ (.17) $ .29
------ ------
Dilution to new investors $ 1.17 $ .71
====== ======
The following table sets forth, as of April 30, 1997, a comparison of
the respective investments of persons who are presently shareholders of the
Company, and of persons who purchase Units, on both a minimum and maximum basis,
in the public offering.
<TABLE>
<CAPTION>
Total Percent
Amount Capital No. of Percent of Total
Paid Invest- Shares of Total Shares Held
Per Share ment Held Capital Invested After Closing
--------- ---- ---- ---------------- -------------
Minimum/Maximum Minimum/Maximum
--------------- ---------------
<S> <C> <C> <C> <C> <C>
CURRENT
INVESTORS
Common (1)
Shareholders $ .32 $ 70,500 220,000 9.0%/4.3% 20.5%/11.4%
Preferred(2)
Shareholders .30 61,500 204,999 7.9%/3.8% 19.0%/10.7%
---------- --------- ---------- -----------
Average or
Total .31 132,000 424,999 16.9%/8.1% 39.5%/22.1%
PUBLIC
INVESTORS(3)
Upon Completion of
Minimum
Offering 1.00 650,000 650,000 83.1% 60.5%
---------- --------- ---------- -----------
Total $ 782,000 1,074,999 100% 100%
========== ========= ========== ===========
Maximum 1.00 1,500,000 1,500,000 91.9% 77.9%
Offering ---------- --------- ---------- -----------
Total $1,632,000 1,924,999 100% 100%
========== ========= ========== ===========
</TABLE>
(1) Reflects the issuance of 70,000 shares for $10,500 cash and during
fiscal year 1996 150,000 shares for services valued at $60,000.
(2) These shares automatically convert to shares of Common Stock in
connection with this offering.
(3) No value is assigned to the Warrants included as part of the Units.
The foregoing discussion assumes: (i) no exercise of the Warrants
included in the Units; (ii) no exercise of the Underwriter's Stock Purchase
Option; and (iii) no exercise of currently outstanding options and warrants to
purchase Common Stock. The issuance of shares upon the exercise of such options
or warrants may result in additional dilution to shareholders. See
"Capitalization", "Underwriting" and "Description of Securities - Stock Options
and Warrants".
USE OF PROCEEDS
The net proceeds to the Company from the sale of Units offered hereby,
after deducting underwriting commissions, the underwriter's non-accountable
expense allowance and the estimated offering expenses payable by the Company,
are estimated to be $1,228,750, assuming the maximum offering is sold, and
$487,125 if the minimum is sold. The Company intends to use the net proceeds
from this offering substantially as follows:
If Minimum Sold If Maximum Sold
--------------- ---------------
Repayment of Debt $374,969(1) $ 563,597(2)
Marketing and
Sales Promotion (3) 30,000 411,000
Product Development
and Introduction (4) 55,000 240,000
Accumulated dividends to
preferred shareholders(5) 10,500 10,500
Working Capital 16,656 3,653
-------- ----------
Total $487,125(6) $1,228,750
======== ==========
(1) Includes $208,000, as of April 30, 1997, in principal amount of 10%
subordinated debentures (some of which are held by affiliates of the Company)
which mature in June 1997, and $166,969 in bank loans (all of which has been
personally guaranteed by Robert H. Blank, CEO, and four other individuals who
are not affiliates, but one of whom was John Tuschner, President of the
Underwriter); these include two variable rate bank loans in the aggregate amount
of $135,000 ($100,000 and $35,000, each maturing June 13, 1997, each with an
interest rate of 2.5% above the reference rate, which, at April 30, 1997, was
9.0%), long term debt of $18,576 and current portion of $13,393, as of April 30,
1997). The proceeds of these debentures and loans were used for "bridge
financing" and working capital pending the completion of the Company's public
offering. See "FINANCIAL STATEMENTS" and "CERTAIN TRANSACTIONS".
(2) Includes the items mentioned in footnote (1), above, plus $169,119 (as of
April 30, 1997) in principal amount of 11% notes (of which approximately
one-half has been personally guaranteed by Mr. Blank) to the Lease Brothers
which are payable monthly through the year 2003, and $19,509 in Notes due
shareholders, as of April 30, 1997. The obligation to the Lease Brothers was
incurred in November, 1995, as part of a stock redemption agreement. See
"CERTAIN TRANSACTIONS" and "FINANCIAL STATEMENTS".
(3) Includes sales materials, travel, sales and support staff and advertising.
(4) Includes $5,000 for IM 3-D, $40,000 for DiscoverScreen, and $10,000 for
Lasertainment, if the minimum is sold, and $115,000 for Lasertainment, $100,000
for DiscoverScreen, and $25,000 for IM 3-D, if the maximum is sold.
(5) This amount is not shown in the Company's financial statements because it
does not become due and payable until the Company makes a public offering. See
"Description of Securities- Capital Stock" and Note 16 of Notes to Financial
Statements.
(6) Subsequent to April 30,1997, the Company sold an additional $38,000 in
principal amount of Debentures, and if only the minimum is sold, the Company
expects that the maturity date of some portion of the $61,000 in principal
amount of Debentures in which its two executive officers have a beneficial
interest will be extended.
The amounts set forth above reflect the Company's present proposed
application of proceeds. The actual expenditure of proceeds may vary from the
amounts indicated above, depending upon factors such as costs for marketing, the
extent to which operating revenues are generated, and the extent to which the
Company uses its present cash on hand.
Pending utilization of the proceeds as described above, the funds will
be invested temporarily in government securities, certificates of deposit, or
other similar financial instruments.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
April 30, 1997, and, as adjusted, to reflect the sale of the minimum and maximum
number of Units offered hereby.
<TABLE>
<CAPTION>
AS ADJUSTED
--------------------------------
OUTSTANDING AS OF MINIMUM MAXIMUM
APRIL 30, 1997 OFFERING OFFERING
----------- ----------- ---------
<S> <C> <C> <C>
Bank debt $ 135,000 $ -0- $ -0-
10% Debentures 208,000 -0- -0-
Notes-Shareholders 19,509 19,509 -0-
Current Portion long-term debt 40,256 26,863 -0-
Long-term debt (1) 18,576 -0- -0-
Long-term debt-related party 142,256 142,256 -0-
----------- ----------- ---------
Total short and long-term debt 563,597 188,628 -0-
----------- ----------- ---------
Redeemable convertible preferred stock (2):
Series A; 99,999 shares outstanding 30,000 -0- -0-
Series B; 105,000 shares outstanding 31,500 -0- -0-
----------- ----------- ---------
Total redeemable preferred stock 61,500 -0-(2) -0-(2)
----------- ----------- ---------
Shareholders' equity (deficit):
Common stock, 10,000,000 shares
authorized and
220,000 issued and outstanding 2,200 10,750 19,250
Additional paid-in capital 72,329 612,404 1,345,529
Accumulated equity (deficit) (742,197) (742,197) (742,197)
----------- ----------- ---------
Total shareholder equity (deficit) (667,668) (119,043)(3) 622,582(4)
Total Capitalization $ (42,571) $ 69,585 $ 622,582
=========== =========== =========
Number of Shares of Common
Stock Outstanding 220,000 1,074,999(5) 1,924,999(5)
=========== =========== =========
</TABLE>
(1) Does not include real estate lease obligations for SKYWAY ADS platforms
nor office space.
(2) 265,000 shares of Preferred Stock, stated value $.30 each, are
authorized; and automatically convert into an equivalent number of
shares of Common Stock in connection with this offering, shown under
"as adjusted"
(3) Reflects application of estimated net proceeds of 487,125 resulting
from sale of minimum number of Units.
(4) Reflects application of estimated net proceeds of 1,228,750 resulting
from sale of maximum number of Units.
(5) Does not include the possible exercise of outstanding warrants for the
purchase of up to 169,959 shares, nor the possible conversion of
convertible notes into 442,143 shares (based on April 30, 1997 note
balances), nor the possible exercise of any warrants included as part
of the Units offered herey, or the Underwriter's Stock Purchase Option.
BUSINESS
IN GENERAL
Illuminated Media Inc. (the "Company" or "IMI") is an advertising media
company that has developed and is selling a new form of "out-of-home"
advertising called "SKYWAY ADS". The Company's business involves the acquisition
of leased spaces accessible to large numbers of pedestrians, the installation
and maintenance of advertising platforms, and the marketing and sale of
advertising used on those platforms. The Company generates revenues through the
sale of advertising. Photos of the platforms are contained on the inside front
and rear covers of this Prospectus.
The Company was incorporated in the State of Minnesota on March 9,
1993.
The most typical form of "out-of-home" advertising is billboards, large
displays intended to attract the attention and influence the spending decisions
of passing motorists. SKYWAY ADS are intended to attract the attention and to
influence the spending decisions of individuals passing on foot. Each SKYWAY ADS
"platform" consists of three back-lit panels which hold transparent advertising
messages. SKYWAY ADS are placed in skyway corridors and shopping centers, and
can also be placed in parking ramps, bus and train stations, airports, and
wherever there is a high volume of pedestrian traffic. SKYWAY ADS are presently
used at locations throughout the central business/shopping districts of
Minneapolis and St. Paul, Minnesota and at the Mall of America in suburban
Bloomington, Minnesota.
BACKGROUND:
Advertising is often broken down into three categories: broadcast,
print and "out-of- home". The first two categories include television, radio,
newspapers, magazines, direct mail, telemarketing, and new forms such as ads on
the Internet. Examples of out-of-home advertising are billboards along public
highways, transit and airport posters, and storefront signs. SKYWAY ADS are a
form of out-of-home advertising directed toward individual consumers in
metropolitan areas who are moving about on foot.
Many metropolitan areas now have buildings connected by "skyways", and
tunnels or concourses. The use of these skyways and other connections has, in
many cities, created a new form and pattern of pedestrian traffic that does not
use city streets or sidewalks. The Company calls these types of metropolitan
areas, "Networked Cities."
Before the advent of skyways, or similar connections, pedestrian
traffic in cities took place along city sidewalks, or, in the case of suburban
areas, in large enclosed malls. In the downtown areas of American cities that
are inter-connected by skyways or underground concourses, most pedestrian
traffic moves through those skyways or concourses. This allows pedestrians,
whether shoppers, workers, visitors, or residents, to walk around a central
business district, from building to building, without going outside, and without
using city streets or sidewalks.
In addition to the convenience for individuals traveling in downtown
areas by foot, the development of downtown areas connected by skyways or
concourses has brought advantages to building owners and business interests in
the area as well. The development of connected downtowns was, in fact, a
competitive response to suburban shopping malls, by offering a similar free flow
of pedestrian traffic, unimpeded by vehicle traffic and by affording protection
from inclement weather. Although no one portion of a downtown area typically has
as large an open space as that in a typical suburban mall, collectively there
are usually as many shops and stores "indoors" within the connected area as in
any one suburban mall. The Company is of the view that the 52 blocks which are
connected by skyway in downtown Minneapolis make it the largest "shopping mall"
in the world. "Networked Cities" such as Minneapolis create a market for a new
type of advertising which the Company is trying to deliver with its SKYWAY ADS
platforms.
Although individual stores and buildings have long used different
advertising media to reach pedestrians, skyways and tunnels create a new
category of wall space that is not within individual stores. This new category,
which consists of walls along corridors and around public areas, is typically
controlled by the building owner. This new category has, in the Company's view,
created a new market for a different kind of advertising media.
Although the Company's SKYWAY ADS platforms were originally designed
for skyways and downtown corridors, the Company has placed some of its platforms
in the Mall of America (the largest enclosed mall in the United States). The
Company intends to continue the exploration of shopping and suburban malls as a
second major type of market for its platforms.
The Company acquires, from building owners, in the areas where it
operates, the right to use wall space for the purpose of installing platforms.
Space is typically acquired under the terms of a 2 to 3 year lease and involves
the payment to the building owner of a percentage of the revenues received,
often with a minimum rental.
After the lease is obtained, the Company installs one or more of its
platforms. This requires making the necessary electrical connections and hanging
the platform. After installation, the Company arranges for regular maintenance,
inspection, and cleaning of the platform.
After platforms are in place, the Company attempts to sell advertising
for its platforms. It uses its own sales persons, and attempts to sell both to
advertisers directly and to agencies.
THE SKYWAY ADS PLATFORM AND RELATED PRODUCTS
Each SKYWAY ADS advertising platform has three 24 inch by 36 inch
panels. It has a slim profile, extending no more than four inches from the wall.
It has interior lighting, known in the advertising industry as "backlit".
Platforms fit on the walls of skyway corridors, shopping malls (entrances and
interiors), building lobbies, and transit/transportation facilities. The basic
SKYWAY ADS platform holds three transparency ads in a sectored format, although
a non- sectored format is also available.
The Company has announced the availability of two new modifications for
its SKYWAY ADS platform. One is a touchscreen interactive display called
DISCOVERSCREEN . The other is a thin film three-dimensional process called
IM3-D. Both of these devices are designed to fit within the standard SKYWAY ADS
platform.
DiscoverScreen
The DISCOVERSCREEN is based on recently developed technology already
used in other products. Earlier technology could not, however, be placed within
a four inch deep compartment, and could only be used in places, such as kiosks,
that had more than four inches of depth. The DISCOVERSCREEN allows passing
pedestrians to push any one of several on-screen buttons which cause various
types of information to appear on a screen. Then, depending on the interests and
preferences of the user, additional information can be obtained, either on the
screen, or in a printed format. Until recently, this technology, allowing use of
the DISCOVERSCREEN within the confines of the Company's four inch SKYWAY ADS
platform, was not available.
The Company has engineering drawings of DISCOVERSCREEN, and has ordered
the production of a prototype. The Company will, depending on the number of
Units sold in this offering, purchase a number of DISCOVERSCREEN units with some
of the proceeds of this offering.
See "Use of Proceeds."
The components of DISCOVERSCREEN are "off-the-shelf", standard computer
parts that the Company can buy from any of several computer retailers or
distributors, and the software that runs the product will be designed by
software engineers to the Company's specifications. The Company estimates that
the costs to produce the first two prototypes will be approximately $40,000.
Thereafter, additional production of DISCOVERSCREENS should cost in the range of
$3,000 to $5,000 each, and the number of Units purchased will depend on market
acceptance. The Company does not and will not own the DISCOVERSCREEN technology
(and, therefore, will not be able to prevent others from using the technology in
same or similar products), but it will own whatever DISCOVERSCREEN units it
buys.
The Company expects that DISCOVERSCREEN will appeal to passing
individuals, and also allows the Company to sell an additional form of
advertising space.
IM3-D
The IM3-D product is a thin film transparency, which presents a
three-dimensional image to passing individuals. IM3-D costs substantially more
to produce than standard transparencies used in SKYWAY ADS platforms, about
$4,000 or more for the first image, as compared to $100 for a standard image.
The greater cost and the lack of any installed IM3-D product have presented a
barrier to the Company's sales to advertisers to date. The Company has
prototypes of the IM3- D product which it shows to advertisers, but it has not
yet installed any. The IM3-D product will fit in the standard SKYWAY ADS
platform. The Company intends, in an effort to dislodge the afore-mentioned
barrier to sales, to use some of the proceeds (about $5,000 in a minimum
offering) from the offering to produce one or two ads in cooperation with a
paying client, so that the advantages of such IM3-D ads are seen by advertisers
and consumers alike. The Company has a production agreement with a local company
owned by Steven Unverzagt, a director of the Company, to help advertisers create
IM3-D images. Under such Agreement (which provides for cross referrals by the
parties of any future customer generated by either of them) Mr. Unverzagt will
help arrange for the creation and production of the three dimensional image for
the advertisers, including the appropriate process.
MARKETS
As of April 30, 1997, there were 54 SKYWAY ADS platforms in place in
the Minneapolis- St. Paul, Minnesota metropolitan area, 26 in the downtown
skyway system of Minneapolis, 8 in St. Paul, and 20 at the Mall of America in
Bloomington, Minnesota.
Contracts have been signed, or are in the final stages of negotiation,
for several platforms to be placed in the Calhoun Square specialty shopping mall
in Minneapolis, and in the Des Moines Building in Des Moines, Iowa. The Company
has investigated the possible use of SKYWAY ADS in, among other cities, Dallas,
Houston, Cincinnati, Sioux City, Iowa and Winnipeg.
A table in an article in the September 30, 1996, edition of ADVERTISING
AGE magazine, which is the industry's primary trade publication, showed that
"out-of-home" advertising is the smallest media sector when compared to
broadcast and print, but that it was, from 1994 to 1995, the second fastest
growing sector in the advertising business. The table showed that 1995
expenditures by all advertisers amounted to $160.9 billion, of which the
"out-of-home" category amounted to $1.11 billion, or 0.7% of the total, which
was an increase from 0.6% in 1994.
The Company currently markets and sells its advertising primarily to
businesses located in the Minneapolis-St. Paul area. Management believes that
its ability to sell advertising space to national advertisers will be enhanced
if the Company expands its advertising space holdings into several other
markets.
TARGET MARKET SECTORS
The Company's three major target market sectors are Networked Cities,
suburban shopping malls and office buildings, and Business Improvement
Districts.
"Networked Cities"
Networked Cities have developed or are developing their downtown areas
on the Minneapolis model; that is, the core blocks of retail, commercial and
office development are connected by a series of skyways and/or concourses
(tunnels). Among the "Networked Cities" that the Company has identified so far
are: Minneapolis/St. Paul; Duluth and Rochester, Minnesota; Des Moines and Sioux
City, Iowa; Dallas and Houston, Texas; Rochester, New York; Atlanta, Georgia;
Charlotte, North Carolina; Cincinnati, Ohio; and the Canadian cities of Calgary,
Edmonton, Montreal, Toronto and Winnipeg. There can be no assurance that the
Company will be successful in placing SKYWAY ADS platforms in these cities or in
selling SKYWAY ADS advertising.
Suburban Shopping Malls and Office Buildings
The Company has installed 20 SKYWAY ADS platforms at the entrances to
the Mall of America in Bloomington, Minnesota. It has an arrangement with Simon
Property Group, the manager of the Mall of America, pursuant to which the
Company has been invited to install SKYWAY ADS platforms, on a trial basis in
three more properties managed by the same company: THE PAVILION, in San Jose,
California; NEWPORT CENTRE, in Jersey City, New Jersey; and MILLER HILL MALL, in
Duluth, Minnesota. Each of these is a smaller sized suburban mall, but it
represents a possible expansion into this market category. The same management
company owns and/or manages several other suburban mall properties around North
America.
The Company will explore expansion into shopping malls and other retail
properties owned and/or managed by other property managers as well. The Company
has also identified suburban office building lobbies as having appropriate
characteristics for SKYWAY ADS units with DISCOVERSCREEN.
Business Improvement Districts
The Company has received substantial interest in the DISCOVERSCREEN
product from a diverse group of smaller cities and Business Improvement
Districts ("BIDs) in larger cities. BIDs have been established in recent years
to develop sections of many larger cities through tax incentives and other
inducements. Examples of BIDs that have expressed interest include New York City
(34th Street BID, Grand Central BID and Times Square BID); Los Angeles (Fashion
District BID); and Santa Monica Business District, California. Upon competion of
this offering, the Company will seek to implement its marketing efforts aimed at
converting such expression of interest into sales.
Although the expressions of interest are encouraging, there can be no
assurance that they will result in signed lease agreements with building owners
and managers, or even if they do, that sales of advertising using the
DiscoverScreen medium will result.
The Company also intends to take SKYWAY ADS and DISCOVERSCREEN into
suburban office buildings and similar properties.
SELLING AD SPACE
The Company currently sells ad space to local and national accounts
through its full-time staff of five, as of April 30, 1997. A Manager of Direct
Marketing directs the telemarketing effort, which establishes meetings with ad
agencies and potential advertisers. The Company uses walking tours of skyway or
Mall of America locations, and/or videotape production of such locations as some
of its sales tools.
The Company expects to add a Director of Sales, who will develop and
supervise a small staff of sales representatives and a Director of Properties
and Operations, who will locate new markets and properties for the Company and
oversee the administration of all markets and properties in which the Company
has a presence.
PROSPECTIVE JOINT MARKETING VENTURES
The Company has reached written agreement for a joint sales program
with the publishers of Skyway News, a weekly newspaper distributed free to
workers, shoppers and others who utilize the skyway systems in downtown
Minneapolis and St. Paul. Under the proposed agreement, sales personnel from
Skyway News will attempt to sell ad space for DISCOVERSCREEN panels to current
local and national accounts of Skyway News in the Minneapolis-St. Paul area. The
Company and Skyway News will share any revenues generated, with the proportion
received by the Company increasing after one year.
The Company has reached written agreement for a joint marketing
agreement with Lasertainment, Inc., of Roseville, Minnesota to market its laser
imaging services to the advertising community. Lasertainment is a production
company specializing in industrial shows and special events, both indoor
(closing time shows at shopping malls and/or at certain skyway locations) and
outdoor (walls of buildings in downtown locations). The Company will try to
market the Lasertainment services to several advertisers at the same location,
as an adjunct to its existing out of home, indoor SKYWAY ADS platform. Revenues
will be shared on a basis that varies with the complexity and term of the
project.
PLANS FOR EXPANSION
If only the minimum offering is sold, the Company's ability to expand
will be limited. However, if an amount closer to the maximum is sold, the
Company intends to use a significant amount of the net proceeds to expand its
products and services into all identified markets and to expend the
proportionate amount shown from the "Marketing and Sales Promotion" category of
the "Use of Proceeds" section: Networked Cities (one-half), Suburban Shopping
Malls and office buildings (one-fourth), and BIDs (one-fourth). See "USE OF
PROCEEDS".
Subject to selling an amount of Units in this offering closer to the
maximum, within the following two years, the Company plans to expand into
another ten Networked Cities in North America and to substantially expand its
presence into numerous BIDs and suburban office centers and shopping malls.
The Company plans, whether a minimum or maximum offering results, to
place SKYWAY ADS units with interactive DISCOVERSCREEN in additional suburban
shopping malls within the first year after the completion of this offering.
COMPETITION
The Company is offering advertisers what it considers a relatively new
and effective medium for advertising directed at a relatively well defined group
of potential buyers. Even so, the Company competes for advertising dollars with
all other forms of advertising. This means that the Company is vulnerable to two
major competitive threats: either advertisers could decide to direct more of
their advertising dollars to other media, or strong competitors could enter the
Company's existing marketplace or its potential markets before the Company does.
The advertising industry is categorized into broadcast, print and
"out-of-home" media. The first two include television, magazines, newspapers,
radio, telemarketing and Internet, all of which compete in some sense, with the
Company for a limited number of advertising dollars. Out- of-home includes
billboards and other signage, roadside and rooftop billboards and other
advertising signage, each of which also competes with the Company.
There are no barriers to entry into the Company's marketplace by strong
competitors, who can be expected to have much larger capital and larger sales
organizations, so that they can obtain leased space more readily, and once
obtained, can sell more readily to national and regional advertisers.
INTELLECTUAL PROPERTY PROTECTION
The Company has no patented products. The Company believes that its use
of the technology described in the DISCOVERSCREEN, IM3-D and LASERTAINMENT do
not infringe upon patents or rights held by others, but the Company cannot give
any assurances that such infringements do not exist. The Company intends to
apply for trademark protection for the names Illuminated Media Inc.,
DISCOVERSCREEN, IM3-D, and SKYWAY ADS.
Even if granted, trademark protection can be limited because
infringement is still possible and, if detected, enforcement action, at the
Company's expense, would be needed.
REGULATION
Generally, display advertising such as that engaged in by the Company
is not subject to regulation. However, some municipalities require, or may
require, local licensing, or pre- installation approval. The Company expects to
be able to comply with substantially all of such regulation in a cost-effective
manner.
LEGAL PROCEEDINGS
The Company is not presently a party to any material pending legal
proceedings.
EMPLOYEES
As of April 30, 1997, the Company had five full-time employees.
PROPERTY
The Company leases, for $500 per month, approximately 1,500 square feet
of office in downtown Minneapolis that it considers adequate for its current
needs.
The Company owns all of the SKYWAY ADS platforms which it uses.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to each
of the Directors and Executive Officers of the Company:
NAME AGE POSITION(S) HELD
---- --- -------------------------------------
Robert H. Blank 55 Chief Executive Officer, Director
Richard D. Kothe 44 President, Chief Financial Officer,
Director
Kenneth A. Olsen 35 Director
Gail Emerson 48 Director
Mark Verplaetse 44 Director
Mark T. Hepburn 34 Director
Steven Unverzagt 43 Director
ROBERT H. BLANK has been a director and officer of the Company since it
was founded in 1993. In November, 1995 he became Chairman of the Board of
Directors and Chief Executive Officer. Prior to 1993, Mr. Blank served, for
three years, as Chief Financial Officer of the Coborn Trust in St. Cloud,
Minnesota. Prior to that, Mr. Blank spent over 12 years in the securities
industry, ten years as a registered representative with various broker dealer
firms and two years with the Minnesota Department of Commerce.
RICHARD D. KOTHE has been an officer and director of the Company since
January, 1996. Prior to joining the Company, Mr. Kothe served as the President
of the Kemps Marigold Credit Union of Minneapolis from 1993 to 1995. From 1991
to 1993 he was the President of his own firm, CU-Tech, which provided strategic
and technology consulting services to small and medium size financial
institutions with emphasis on credit unions. In the previous 10 years, Mr. Kothe
worked in the marketing of technology services for companies including Anacomp
and First Financial Management Corp. as well as three years with
Citicorp/Citibank. Mr. Kothe has worked for or provided marketing and consulting
services to financial institutions since 1975.
KENNETH A. OLSEN is the Vice President of Business Development of Dahl
Consulting, Inc., a computer consulting firm. Previously he was the Director of
Sales and Marketing for Staff-Plus, Inc., Minneapolis, Minnesota. He was
appointed to the Board of Directors of Illuminated Media Inc. in December, 1995.
Mr. Olsen received a B.A. degree in Education from the University of
Minnesota-Duluth in 1985, and began his career in sales with Herman's World of
Sporting Goods in St. Paul. Mr. Olsen remained in the sporting goods business
until 1989, becoming District Sales Manager for Team Choice Sporting Goods
Stores for the Minnesota-Wisconsin district. In 1989, Mr. Olsen joined Central
Parking Systems in Denver, Colorado as a commercial property manager. In 1992,
he returned to Minnesota and joined Staff-Plus. Mr. Olsen is active in the
Minneapolis Downtown Council and chairs two Downtown Skyway events.
GAIL EMERSON is President of Emerson Enterprises, Inc., a
globally-focused marketing consulting firm she founded in 1988. She has a B.A.
and M.S. from the University of Wisconsin- Madison. Her 20-year carer includes
3M, Carmichael-Lynch Advertising, and, most recently, her own business. She has
successfully directed new product launches, new company start-ups, strategic
market research projects, award-winning advertising campaigns, and innovative
global expansion programs. Ms. Emerson's areas of expertise include marketing
research, strategic marketing planning, and marketing communications. She
mentors local micro-enterprise entrepreneurs and is a volunteer team leader for
Global Volunteers, an international volunteer service organization.
MARK VERPLAETSE has spent the last 18 years working in the computer
technology arena. He has been employed by a division of Apertus Technologies in
Minneapolis, MN since 1994. The division, which was acquired by Candle
Corporation in spring, 1997, provides service to Fortune 500 companies to
develop and integrate their MIS networks. From 1992 to 1994 Mr. Verplaetse was
an independent consultant working with Fortune 1000 companies in project
development for computer technologies. He also worked for Data Trend of Mpls, MN
from 1990 to 1992 as a Project Manager for MIS Development. Prior to that he
spent 14 years, beginning in 1976 with Deluxe Corp., working in management of
the MIS department.
MARK T. HEPBURN has been in various sales and executive positions with
General Electric Company since 1985, and is currently Branch Manager of GE
Supply for the Oklahoma City and Tulsa districts, and is responsible for all
aspects of a $15 million wholesale distribution operation. Mr. Hepburn holds a
Bachelor of Engineering degree from the University of Minnesota's Institute of
Technology, and is a graduate of several GE programs, including the Experienced
Manager Course, Advanced Financial Management Seminar, and Modern Marketing
Program, among others. Mr. Hepburn is the oldest of two sons of Robert H. Blank,
Chairman and CEO of the Company.
STEVEN UNVERZAGT is currently Advertising Manager, Art Instruction
Schools, Minneapolis and is also the owner of Sun Consulting, Inc., which holds
certain marketing rights for 3-D technology currently being marketed by the
Company. Mr. Unverzagt has been Advertising and Promotions Manager for
Rollerblade, Inc., and an account manager for Colle & McVoy Advertising, Inc.,
of Minneapolis, and Grey Advertising, Inc.'s Minneapolis office. Mr. Unverzagt
received his Bachelor of Arts Degree from Augustana College, Sioux Falls, South
Dakota, and took graduate studies at the University of Minnesota Medical School
(Bio-Medical Research), and at South Dakota State University, Brookings, South
Dakota.
All directors of the Company hold office until the next annual meeting
of stockholders and until their successors have been elected and qualified or
until their death, resignation, or removal from office. The officers of the
Company are appointed by the Board of Directors and hold office until their
successors are chosen and qualified or until death, resignation, or removal from
office. There are no family relationships among any of the directors and
officers except that Mark Hepburn is the son of Robert H. Blank.
EXECUTIVE COMPENSATION
The following table sets forth all cash compensation paid by the
Company, for the fiscal year ended February 28, 1997, to each of the Company's
executive officers:
<TABLE>
<CAPTION>
OTHER ANNUAL TOTAL
NAME OF INDIVIDUAL/POSITION CASH COMPENSATION COMPENSATION COMPENSATION
- ---------------------------- ----------------- ------------- ------------
<S> <C> <C> <C>
Robert H. Blank/Chief Executive Officer $46,800 $-0- $46,800
</TABLE>
EMPLOYMENT AGREEMENTS
The Company has no employment agreements with its two officers.
However, it has adopted a form of employment agreement which provides for
matters such as compensation, term, termination, and non-competition, which the
Company expects to execute upon the completion of this offering. The Company's
Board of Directors has authorized salaries for Mr. Blank of $75,000 and for Mr.
Kothe of $63,750 for fiscal year 1998, once the agreements are executed.
STOCK OPTION PLAN
The Board of Directors has adopted a Stock Option Plan as a tool to
attract and retain key employees. As of the date of this Prospectus, no options
have been granted under such plan.
COMPENSATION OF DIRECTORS
Non-employee directors were not paid any fees or remuneration for
services as members of the Board of Directors during fiscal year 1997.
LIMITATION OF DIRECTOR'S LIABILITY
The Company has included provisions in its Articles of Incorporation
and Bylaws to (i) eliminate the personal liability of its directors for monetary
damages resulting from breaches of their fiduciary duty (such provisions do not
eliminate liability for breaches of the duty of loyalty, acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, the improper payment of dividends or redemption of stock or for any
transaction from which the director derived an improper personal benefit) and
(ii) indemnify its directors and officers to the fullest extent permitted by
Minnesota law. The Company believes that these provisions are necessary to
attract and retain qualified persons as directors and officers.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling the
Company pursuant to the foregoing provisions, the Company has been informed that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
CERTAIN TRANSACTIONS
The Company was formed in March, 1993 by Michael Lease and Mark Lease
(the "Lease Brothers") and by Robert H. Blank, each of whom may be considered a
founder of the Company. The Company issued an aggregate of 490,000 shares to
such persons in consideration of services, valued at $4,900, rendered by them to
the Company.
Later in March, 1993, the Company acquired by assignment the rights of
the Lease Brothers to an Asset Purchase Agreement, whereby the Lease Brothers
had agreed to acquire the assets of Le Cole Indoor, a division of Le Cole, Inc.
The price for such assets was $29,330. Concurrently, the Company entered into a
Management Agreement with Lease Companies, a general partnership of the Lease
Brothers, pursuant to which an aggregate of $93,300 in management fees were
accrued through November, 1995, at which time the Stock Redemption Agreement,
described below was executed. Such Management Agreement was terminated in
November, 1995.
In November, 1995 the Company executed and closed a Stock Redemption
Agreement with the Lease Brothers, its two former major shareholders (who were
also, at that time, officers and directors of the Company), and with an
affiliated entity owned by them. Under such Agreement, the Company acquired for
$.40 per share, or an aggregate of $176,000, all 440,000 shares owned by the
Lease Brothers. In addition, the Company agreed to repay $109,300 in loans and
advances made by the Lease Brothers. The Company made an initial payment of
$100,000, and issued three 11% Promissory Notes for the balance of $185,300. All
of such notes have a term of seven years and three months, maturing on March 1,
2003, are payable monthly, and are convertible at the option of the Lease
Brothers (the "Lease Option"), with respect to any principal amount then
outstanding, into shares of Common Stock of the Company at the rate of $.40 per
share. (At April 30, 1997, the principal amount of such notes, which declines
monthly, could have been converted into 422,798 shares of Common Stock.) The
Company is unable to determine when, if ever, the Lease Option will be
exercised, and, in particular does not know if it will be exercised upon
successful completion of this offering. One of such notes, in favor of the
affiliated entity, in the original amount of $93,300, was secured by the assets
of the Company and personally guaranteed by Robert H. Blank, the Company's CEO.
The Company will prepay part of the Notes to the Lease Brothers, including the
Note to the affiliated entity, out of the proceeds of this offering, if greater
than the minimum number of Units offered is sold. The Company does not have any
knowledge as to the possible intent of the Lease Brothers to convert their
notes. See "USE OF PROCEEDS."
In November, 1995, in connection with the payment of $100,000 as part
of the closing of the Stock Redemption Agreement, the Company borrowed $150,000
from Norm Winer pursuant to the terms of a 10% Promissory Note, secured by all
the assets of the Company and personally guaranteed by Robert H. Blank, the
Company's present CEO. As part of that transaction the Company issued warrants
for 50,000 shares at $.50 per share to such individual, and subsequently issued
an additional warrant for 5,000 shares to such individual as part of an
agreement to extend the maturity date of such loan.
In February, 1996, the Board of Directors authorized the issuance of
150,000 shares of Common Stock, valued at $.40 per share, or $60,000, to Robert
H. Blank, Chief Executive Officer, as partial consideration for services
previously rendered by him.
In May, 1996, the Company obtained bank loans in the aggregate amount
of $135,000, personally guaranteed by Robert H. Blank, CEO and four other
individuals (none of whom was an affiliate of the Company, but one of whom was
John M. Tuschner, President of the Underwriter, who guaranteed $25,000 in
principal amount), the proceeds of which were used, in part, to repay the
$150,000 10% Promissory Note of November, 1995, mentioned above. The Company
issued warrants for an aggregate of 45,000 shares to the four individuals, as
part of this transaction. The Company will use part of the proceeds of this
offering to repay this debt.
During the period May, 1996 through January, 1997, the Company issued
and sold an aggregate of $135,000 in principal amount of 10% Subordinated
Debentures, and as part of such transaction, issued warrants for an aggregate of
45,667 shares. Two of the four purchasers were Mark Verplaetse and Mark T.
Hepburn, directors of the Company and the other two were individual investors.
The terms of the purchase arrangements for all purchasers were the same as for
non- affliated purchasers.
In late January and February, 1997, the Company issued and sold an
aggregate of $48,000 in principal amount of 10% Subordinated Debentures to three
accredited investors, namely, Norm Winer, Richard D. Kothe, an officer/director
and the spouse of Robert H. Blank, an officer/director, and as part of such
transaction issued warrants for an aggregate of 15,960 shares. The terms of
their purchase arrangements were the same as for non-affliated purchasers.
In March and April, 1997 the Company issued and sold an aggregate of
$25,000 in principal amount of 10% Subordinated Debentures to two accredited
investors, namely, the spouse of Robert H. Blank, an officer/director and Donald
Wimmer (who is also the uncle of Richard D. Kothe an officer/director). As a
part of such transaction, the Company issued warrants for an aggregate of 8,332
shares. The terms of the purchase arrangements for all purchasers were the same
as for non-affiliated purchasers.
Subsequent to April 30, 1997 the Company issued and sold an aggregate
of $38,000 in principal amount of Subordinated Debentures, at varying interest
rates, to three accredited investors, namely, Norm Winer, Richard D. Kothe, an
officer/director and the spouse of Robert H. Blank, an officer/director, and as
part of such transaction issued warrants for an aggregate of 12,668 shares. The
terms of the purchase arrangements for all purchasers were the same as for
non-affiliated purchasers.
The Company's management believes that the terms of the afore-mentioned
transactions were no less favorable to the Company than those generally
available from unaffiliated third parties. The Company has not engaged in any
material transactions with its promoters other than those mentioned above.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of April 30, 1997, and as adjusted to
give effect to this offering by (i) each person known by the Company to be the
beneficial owner of 5% or more of the outstanding Common Stock; (ii) each
director and executive officer of the Company; and (iii) all executive officers
and directors of the Company as a group. Unless otherwise indicated, each of the
following persons has sole voting and investment authority with respect to the
shares of Common Stock set forth opposite their respective names.
<TABLE>
<CAPTION>
PERCENT OF CLASS (1)
----------------------------------
NUMBER OF SHARES AFTER AFTER
NAME AND ADDRESS OF BENEFICIALLY OWNED BEFORE MINIMUM MAXIMUM
BENEFICIAL OWNER AS OF APRIL 30, 1997 OFFERING OFFERING (2) OFFERING(3)
- ---------------- -------------------- -------- -------- --------
<S> <C> <C> <C> <C>
Robert H. Blank 221,632(4) 50.8% 20.4% 11.4%
15 S. Fifth Street, Suite 715
Minneapolis, MN 55402
Richard Kothe 2,666(5) .1 * *
15 S. Fifth Street, Suite 715
Minneapolis, MN 55402
Kenneth A. Olsen -0- -- -- --
15 S. Fifth Street, Suite 715
Minneapolis, MN 55402
Gail Emerson -0- -- -- --
15 S. Fifth Street, Suite 715
Minneapolis, MN 55402
Mark Verplaetse 16,667(5) 3.8 1.5 .9
15 S. Fifth Street, Suite 715
Minneapolis, MN 55402
Mark T. Hepburn 5,000(5) 1.2 .5 .3
15 S. Fifth Street, Suite 715
Minneapolis, MN 55402
Steven Unverzagt -0- -- -- --
15 S. Fifth Street, Suite 715
Minneapolis, MN 55402
Norm Winer 68,660(5) 13.9 6.0 3.4
15 S. Fifth Street, Suite 715
Minneapolis, MN 55402
Sona T. Plummer 46,345(6) 9.8 4.2 2.3
15 S. Fifth Street, Suite 715
Minneapolis, MN 55402
Rick Johnson 204,999(7) 48.2 21.0 10.6
15 S. Fifth Street, Suite 715
Minneapolis, MN 55402
Lease Brothers 422,798(8) 49.8 28.2 18.0
15 S. Fifth Street, Suite 715
Minneapolis, MN 55402
* less than .1%
All executive officers and directors
as a group (7 persons) (9) 245,965 53.4% 22.1% 12.5%
</TABLE>
(1) This calculation is based on 220,000 shares of Common Stock and 204,999
shares of Convertible Preferred Stock (which have the same voting
rights as Common Stock and which are automatically convertible into
Common Stock as part of this offering), or an aggregate of 424,999
shares outstanding with voting power as of April 30, 1997.
(2) Includes only the 650,000 shares and not the 650,000 warrants which are
part of the Units.
(3) Includes only the 1,500,000 shares and not the 1,500,000 warrants which
are part of the Units.
(4) Includes 21,632 shares (10,000 shares directly, and 11,632 shares
pursuant to a warrant) owned by Mr. Blank's spouse. Mr. Blank disclaims
any beneficial interest in such 21,632 shares.
(5) All of such shares are held only in the form of warrants for the
purchase of shares of Common Stock.
(6) Of such shares, 10,000 shares of Common Stock are held directly and the
remaining shares are held indirectly in the form of warrants for the
purchase of 17,000 shares of Common Stock and notes convertible into
19,345 shares of Common Stock.
(7) Consists of Preferred Stock only. Some of such shares are held in the
name of Mr. Johnson's children.
(8) Consists only of convertible promissory notes which can, as of April
30, 1997, be converted into the number of shares of Common Stock shown.
See "CERTAIN TRANSACTIONS".
(9) This table does not take account of the possible exercise of presently
outstanding warrants for the purchase of 169,959 shares, (see "CERTAIN
TRANSACTIONS") nor the possible exercise of any warrants sold as part
of this offering nor the possible exercise of any part of the
Underwriter's Stock Purchase Option that is issuable upon completion of
this offering, but does include all shares owned beneficially by the
officers and directors shown (including 35,966 shares subject to
warrants).
DESCRIPTION OF SECURITIES
UNITS
Each unit offered hereby consists of one share of Common Stock and one
redeemable Warrant. Warrants are immediately exercisable and separately
transferable from the Common Stock. Each Warrant entitles the holder to
purchase, at any time until redemption or five years following the Effective
Date, two shares of Common Stock at an exercise price of $2.75 per share,
subject to adjustment.
The Company is not presently aware of any arrangements which may result
in a change in its control, except to the extent that the successful completion
of the offering described in this Prospectus would place more than 50% of
outstanding voting shares in the hands of public investors.
CAPITAL STOCK
The Company's authorized capital stock consists of 10,000,000
undesignated shares, $.01 par value. After the closing of this offering, there
will be, prior to the automatic conversion of Preferred Stock, issued and
outstanding 870,000 shares of Common Stock, in case of the sale of the minimum
offering; and 1,720,000 shares of Common Stock in case of the sale of the
maximum offering. After automatic conversion of Preferred Stock in connection
with this offering, there will be 1,074,999 and 1,924,999 shares outstanding,
respectively, in the event of a minimum or maximum offering.
In addition, the Company has issued and outstanding 99,999 shares of
Class A Convertible Preferred Stock, par value $.01, stated value $.30; and
105,000 shares of Class B Convertible Preferred Stock, par value $.01, stated
value $.30. All outstanding shares of Preferred Stock will automatically be
converted into shares of Common Stock in connection with this offering.
As of the date hereof, there were three record holders of Common Stock
and four record holders (but only one beneficial holder) of Preferred Stock.
COMMON STOCK
There are no preemptive, subscription, conversion or redemption rights
pertaining to the Common Stock. The absence of preemptive rights could result in
a dilution of the interest of existing shareholders should additional shares of
Common Stock be issued. Holders of the Common Stock are entitled to receive such
dividends as may be declared by the Board of Directors out of assets legally
available therefore, and to share ratably in the assets of the Company available
upon liquidation.
Each share of Common Stock is entitled to one vote for all purposes and
cumulative voting is not permitted in the election of directors. The Class A and
Class B Convertible Preferred Stock have the same voting rights as the Common
Stock. Collectively these three classes of stock are referred to as the "voting
stock". Accordingly, the holders of more than fifty percent of all of the
outstanding shares of voting stock can elect all of the directors. Significant
corporate transactions such as amendments to the articles of incorporation,
mergers, sales of assets and dissolution or liquidation require approval by the
affirmative vote of the majority of the outstanding shares of the voting stock.
Other matters to be voted upon by the holders of voting stock normally require
the affirmative vote of a majority of the shares present at the particular
shareholder's meeting. The Company's directors and officers as a group
beneficially own 53.4% of the outstanding voting stock of the Company. Upon
completion of this offering, assuming the minimum and maximum number of shares
offered is sold, respectively, such persons will beneficially own either 22.1%
or 12.5% of the outstanding shares.
The rights of holders of the shares of Common Stock may become subject
in the future to prior and superior rights and preferences in the event the
Board of Directors establishes one or more additional classes of Common Stock or
one or more additional series of Preferred Stock. The Board of Directors has no
present plans to establish any such additional class or series.
REDEEMABLE WARRANTS
The redeemable warrants included as part of the Units will be issued
under and governed by the provisions of a Warrant Agreement (the "Warrant
Agreement") between the Company and Norwest Bank as Warrant Agent (the "Warrant
Agent"). The following summary of the Warrant Agreement is not complete, and is
qualified in its entirety by reference to the Warrant Agreement, a copy of which
has been filed as an exhibit to the Registration Statement of which this
Prospectus is part.
The shares of Common Stock and the redeemable warrants offered as part
of the Units are detachable and separately transferable. One redeemable warrant
entitles the holder ("warrant holder") to purchase two shares of Common Stock
during the five years following the Effective Date, subject to earlier
redemption, provided that at such time a current Registration Statement relating
to the shares of Common Stock issuable upon exercise of the warrants is in
effect and the issuance of such shares is qualified for sale or exempt from
qualification under applicable state securities laws. Each redeemable warrant
will be exercisable at a price equal to $2.75 per share, subject to adjustment
in certain events.
The redeemable warrants are subject to redemption by the Company, on
not less than 30 days written notice, at a price of $.01 per warrant at any time
following a period of 20 consecutive trading days where the per share closing
price of the Common Stock exceeds $3.25 (subject to adjustment). For these
purposes, the closing price of the Common Stock, if the Common Stock is listed
on a national securities exchange, shall be determined by the last reported sale
price on the primary exchange on which the Common Stock is traded. Holders of
the redeemable warrants will automatically forfeit all rights thereunder except
the right to receive the $.01 redemption price per warrant unless the redeemable
warrants are exercised before they are redeemed.
The warrant holders are not entitled to vote, receive dividends or
exercise any of the rights of holders of shares of Common Stock for any purpose.
The redeemable warrants are in registered form and may be presented for
transfer, exchange, or exercise at the office of the Warrant Agent. There is
currently no established market for the redeemable warrants and there is no
assurance that any such market will develop.
The Warrant Agreement provides for adjustment of the exercise price and
the number of shares of Common Stock purchasable upon exercise of the redeemable
warrants, to protect warrant holders against dilution in certain events,
including stock dividends, stock splits, reclassification, and any combination
of Common Stock, or the merger, consolidation, or disposition of substantially
all the assets of the Company.
The redeemable warrants may be exercised upon surrender of the
certificate therefor on or prior to the expiration date (or earlier redemption
date) at the offices of the Warrant Agent, with the form of "Election to
Purchase" on the reverse side of the certificate properly completed and executed
as indicated, accompanied by payment of the full exercise price (by certified or
cashier's check payable to the order of the Company) for the number of
redeemable warrants being exercised.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, assuming sale of the maximum number
of shares offered, and assuming the automatic conversion of 204,999 shares of
Convertible Preferred Stock into an equivalent number of shares of Common Stock,
there will be 1,924,999 shares of Common Stock issued and outstanding. The
shares purchased in this offering will be freely tradable without registration
or other restriction under the Securities Act of 1933, as amended (the
"Securities Act"), except for any shares purchased by an "affiliate" of the
Company (as defined in the Act).
All the currently outstanding shares of Common Stock and Preferred
Stock were acquired in reliance upon the "private placement" exemption provided
by Section 4(2) of the Securities Act and are deemed restricted securities
within the meaning of Rule 144 ("Restricted Shares"). Restricted Shares may not
be sold unless they are registered under the Securities Act or are sold pursuant
to an applicable exemption from registration, including an exemption under Rule
144. Of the 424,999 Restricted Shares presently outstanding, 274,999 are
eligible for sale under Rule 144 commencing on the 90th day following the
Effective Date; and the balance of 150,000 will become eligible for sale under
Rule 144 not later than December, 1997, assuming all of the other requirements
of Rule 144 have been satisfied. However, the holders of all Restricted Shares,
except for two individuals who each own 10,000 shares, have agreed, as a
condition of the Underwriting Agreement between the Company and the Underwriter,
that they will not sell or grant any option for the sale of, or otherwise
dispose of any equity securities of the Company (or any securities convertible
into or exchangeable for equity securities of the Company) for 12 months after
the date hereof, without the prior consent of the Underwriter, which will not
unreasonably be withheld. See CAPITALIZATION and HIGH RISK FACTORS, No. 17, for
information as to outstanding options and warrants and securities convertible
into Common Stock.
In general, under Rule 144 as currently in effect, any person (or
persons whose shares are aggregated) including persons deemed to be affiliates,
whose restricted securities have been fully paid for and held for at least two
years from the later of the date of issuance by the Company or acquisition from
an affiliate, may sell such securities in broker's transactions or directly to
market makers, provided that the number of shares sold in any three month period
may not exceed the greater of 1% of the then outstanding shares of Common Stock
or the average weekly trading volume of the shares of Common Stock in the
over-the-counter market during the four calendar weeks preceding the sale. Sales
under Rule 144 are also subject to certain notice requirements and the
availability of current public information about the Company. After three years
have elapsed from the later of the issuance of restricted securities from the
Company or their acquisition from an affiliate, such securities may be sold
without limitation by persons who are not affiliates under the rule.
In general, under Rule 701 as currently in effect, any employee,
consultant or advisor of the Company who purchases shares from the Company by
exercising a stock option outstanding on the date of the offering is eligible to
resell such shares 90 days after the date of the Prospectus in reliance on Rule
144, but without compliance with certain restrictions contained in Rule 144,
including the holding period requirement. Currently, the Company has no stock
options outstanding that could be exercised under Rule 701, and there are no
plans to issue any such options in the foreseeable future.
Following this offering, the Company cannot predict the effect, if any,
that sales of the Common Stock or the availability of such Common Stock for
sale, will have on the market price prevailing from time to time. Nevertheless,
sales by existing shareholders of substantial amounts of Common Stock could
adversely affect prevailing market prices for the Common Stock if and when a
public market exists.
MINNESOTA ANTI-TAKEOVER LAW
The Company is governed by the provisions of Sections 302A.671 and
302A.673 of the Minnesota Business Corporation Act. In general, Section 302A.671
provides that the shares of a corporation acquired in a "control share
acquisition" have no voting rights unless voting rights are approved in a
prescribed manner. A "control share acquisition" is an acquisition, directly or
indirectly, of beneficial ownership of shares that would, when added to all the
other shares beneficially owned by the acquiring person, entitle the acquiring
person to have voting power of 20% or more in the election of directors. In
general, Section 302A.673 prohibits a publicly held Minnesota corporation from
engaging in a "business combination" with an "interested shareholder" for a
period of four years after the date of the transaction in which the person
became an interested shareholder, unless the business combination is approved in
a prescribed manner. "Business combination" includes mergers, asset sales and
other transactions resulting in a financial benefit to the interested
shareholder. An "interested shareholder" is a person who is the beneficial
owner, directly or indirectly, of 10% or more of the corporation's voting stock
or who is an affiliate or associate of the corporation and at any time within
four years prior to the date in question was the beneficial owner, directly or
indirectly, of 10% or more of the corporation's voting stock.
TRANSFER AGENT AND REGISTRAR
The Company has selected Norwest Shareowner Services, Norwest Bank
Minnesota, N.A., 161 North Concord Exchange, P.O. Box 738, South St. Paul,
Minnesota 55075-0738, telephone (612) 450-4061, to act as Registrar and Transfer
Agent for the Company's Common Stock and Warrant Agent for the Redeemable
Warrants.
INDEMNIFICATION
The Company's Bylaws and the provisions of the Minnesota Business
Corporation Act, which govern the actions of the Company, provide that present
and former directors and officers of the Company shall be indemnified against
certain liabilities and expenses which any of them may incur as a result of
being, or having been, a director or officer of the Company. Indemnification is
contingent upon certain conditions being met, including, that the person: has
not been previously indemnified by another party for the same matter; has acted
in good faith; has received no improper personal benefit; and, in the case of a
criminal proceeding, has no reason to believe that the conduct complained of was
unlawful and reasonably believed that the conduct complained of was in the best
interests of the Company, or in certain circumstances, reasonably believed that,
the conduct complained of was not opposed to the best interests of the Company.
In addition, the Company's Articles of Incorporation provide that a
director of the Company shall not be liable for monetary damages for a breach of
such director's fiduciary duty, except for a breach of the duty of loyalty, acts
not in good faith or in knowing violation of law, violations of state securities
laws, or for actions from which the director derived an improper personal
benefit. The Company has not obtained directors and officers liability
insurance.
Insofar, as the indemnification of liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Company pursuant to the provisions of its Articles of Incorporation,
Bylaws and the provisions of the Minnesota Business Corporation Act, or
otherwise, 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 Securities Act and is, therefore, unenforceable.
UNDERWRITING
The Company through its Underwriter, Tuschner & Company, Inc., is
offering hereby a Minimum of 650,000 Units and up to a Maximum of 1,500,000
Units at the offering price of $1.00 per Unit. The Company and the Underwriter
have entered into an Underwriting Agreement whereby the Underwriter has been
retained as the exclusive agent of the Company to use its best efforts to offer
and sell these Units to the public in states in which this offering is
authorized for sale. There is no assurance that any of the securities offered
hereby will be sold, and there is no firm commitment from the Underwriter or any
other broker-dealer or person to sell or pay for any Units offered hereby. The
Underwriter intends to seek certain selected broker-dealers to participate in
this offering, who must agree to act as agents in the sale of these securities
and who are members of the National Association of Securities Dealers ("NASD").
The Company will pay the Underwriter a 10% sales commission and a 2.75%
non accountable expense allowance relating to the sale of the Units offered
hereby of which $5,000 has been advanced. The Underwriter may reallow all or a
portion of its agency selling commissions and expense allowance to any selected
dealers in regard to Units sold by them in this offering. The Underwriting
Agreement also provides for certain indemnification of the Underwriter and any
selected dealers by the Company, including certain liabilities arising out of
the Securities Act of 1933, as amended. Insofar as indemnification under this
Act may be permitted by the provisions of the Underwriting Agreement, the
Company is informed that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy and thus
unenforceable.
All funds received for the sale of the Minimum 650,000 Units offered
hereby will be deposited in an impoundment account with Bank Windsor,
Minneapolis, Minnesota, acting as Impoundment Agent pursuant to the terms of a
written Impoundment Agreement, to be held until the earlier of (i) the date the
minimum offering proceeds have been received in such escrow account, or (ii) the
60th day after the effective date of this Prospectus (plus an additional 30-day
period if extended by the mutual consent of the Underwriter and the Company). In
the event the minimum offering is not sold during this 60-day period, or 90-day
period if extended, the proceeds from the sale of Units in this offering will be
refunded to subscribers promptly in full, without interest thereon or deduction
therefrom. Until such time as the proceeds of this offering have been released
from escrow, purchasers will be deemed subscribers and not shareholders of the
Company, and they will have no right to demand return of their subscription
payments during the escrow period. After sale of the Minimum Units, the Company
and the Underwriter may continue to offer the balance of this offering for any
remainder of the 60-day, or extended 90-day, period of this offering.
The Underwriter has informed the Company that the Underwriter does not
intend to confirm sales of Units offered hereby to any accounts over which it
exercises discretionary authority and that the Underwriter and any participating
broker dealer will transmit to Bank Windsor, the Impoundment Agent, any funds
received from investors by noon of the next business day after receipt.
The Company's securities are considered "penny stock" under a
Securities and Exchange Commission rule that imposes additional sales practice
requirements on underwriters and broker-dealers who sell such securities to
persons other than established customers and institutional accredited investors
(generally institutions with assets in excess of $5,000,000). For transactions
covered by the rule, the underwriter or broker-dealer must make a special
suitability determination about the purchaser (which concerns financial and
business sophistication, previous investment experience and financial condition)
and have received the purchaser's written agreement to the transaction prior to
the sale. Such underwriters or broker-dealers must also, prior to the purchase,
provide the customer with a risk disclosure document which identifies risks
associated with investing in "penny stocks" and which describes the market
therefor as well as a brief description of the broker-dealer's obligations under
certain "Penny Stock Rules" and rights and remedies available to customers under
federal and state securities laws. The broker-dealer must obtain a signed and
dated acknowledgement from its customer demonstrating that the customer has
actually received the required risk disclosure document before the first
transaction in a penny stock. Consequently, such rules will affect the ability
of the Underwriter and any broker-dealers to sell the Company's securities and
will affect the ability of purchasers in this offering to sell their securities
in the secondary market, if any.
The Company also has agreed to issue a Stock Purchase Option granting
the Underwriter the right to purchase that number of shares of the Company's
Common Stock equal to 10% of the total Units sold in this offering, with this
option exercisable over a four-year period commencing one year from the date of
this Prospectus at an exercise price of $1.20 per Unit. The rights under this
Stock Purchase Option are not transferable for a one-year period except to
officers or shareholders of the Underwriter. The Stock Purchase Option contains
standard adjustments to prevent dilution in the event of stock splits or
dividends, mergers, or other business combinations, and other such events. In
addition, these warrants also provide the Underwriter with certain registration
rights including "piggy-back" participatory rights and a one-time demand
registration right. If the Stock Purchase Option is exercised and any underlying
securities of the Company are later sold at prices exceeding the exercise price
of this option, the Underwriter may be deemed to have received additional
underwriting compensation.
Upon the exercise of each Warrant which is exercised after
_____________, 1997, the Company will pay the Underwriter a fee of three percent
(3%) of the aggregate exercise price, of which one percent (1%) may be
re-allowed to any dealer who solicited the exercise (which may also be the
Underwriter) if: (i) the closing bid price of the Company's Common Stock on the
date the Warrant is exercised is greater than the then exercise price of the
Warrants; (ii) the exercise of the Warrant is solicited by a member of the
National Association of Securities Dealers, Inc.; (iii) the Warrant is not held
in a discretionary account; and (iv) the solicitation of the exercise of the
Warrant was not in violation of Rule 10b-6 promulgated under the Securities and
Exchange Act of 1934.
The Units offered hereby are subject to prior sales or withdrawal,
cancellation, or suspension of the offering without notice, and to the right of
the Underwriter to reject offers to purchase such Units in whole or in part.
There is no provision for any installment sales in this offering, and all shares
of Common Stock involved in these Units will be fully-paid and nonassessable
upon the Units being purchased in this offering.
The Underwriter was incorporated in 1993 and commenced business as a
Minneapolis- based broker-dealer in May, 1994. This is the second public
offering in which it has served as a managing or lead underwriter or exclusive
agent for the sale of securities.
None of the officers or directors of the Company plan to purchase any
of the Units offered hereby. Although affiliates of the Company may purchase
Units in this offering in order to attain completion of the minimum offering
hereby, the Company is not aware of any such planned purchase by an affiliate.
Any such purchases will be made for investment purposes only, and not for
redistribution.
John M. Tuschner, President of the Underwriter, owns warrants for the
purchase of 8,333 shares which were acquired as compensation for personally
guaranteeing some of the Company's bank debt in 1996. See "CERTAIN
TRANSACTIONS."
Pursuant to the Underwriting Agreement, all directors and five percent
shareholders of the Company have agreed not to sell, transfer or otherwise
dispose of an aggregate of 404,999 shares of Common Stock during a one-year
lock-up period commencing on the date of this Prospectus without the prior
written consent of the Underwriter.
REPORTS TO SHAREHOLDERS
The Company is not currently a reporting company. After completion of
this offering, the Company intends to make available to its shareholders annual
reports containing audited financial statements and a report by independent
certified public accountants, and quarterly reports for the first three quarters
of each fiscal year containing unaudited financial information.
LEGAL MATTERS
The validity of the issuance of the Units offered hereby will be passed
upon for the Company by Keller & Lokken, P.A., St. Paul, Minnesota. Certain
legal matters will be passed upon for the Underwriter by Furber Timmer Zahn,
PLLP, Minneapolis, Minnesota.
EXPERTS
The balance sheets of the Company as of February 28, 1997 and February
29, 1996 and the related statements of income, shareholders' deficit and cash
flows for the years then ended included in this Prospectus have been audited by
Silverman Olson Thorvilson & Kaufmann, LTD, certified public accountants, as set
forth in their reports thereon (which contains an explanatory paragraph with
respect to substantial doubt about the Company's ability to continue as a going
concern and management's plans described in Note 2 of the financial statements)
appearing elsewhere in the Registration Statement. Such financial statements are
included in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
AVAILABLE AND ADDITIONAL INFORMATION
The Company is not at present a reporting company under the Securities
Exchange Act of 1934, as amended, and therefore is not required and does not
file periodic reports with the Securities and Exchange Commission.
The Company has filed a Registration Statement on Form SB-2 under the
Securities Act (the "Registration Statement"), with respect to the securities
offered hereby, with the Securities and Exchange Commission ("SEC") in
Washington, D.C. This Prospectus, filed as part of the Registration Statement,
does not contain all the information set forth in the Registration Statement and
the exhibits and schedules thereto, certain portions of which have been omitted
in accordance with the rules and regulations of the SEC. For further information
with respect to the Company and the shares offered hereby, reference is made to
the Registration Statement and to the exhibits and schedules thereto, which may
be inspected without charge, or copies of which may be obtained from the SEC's
Washington, D.C. office, 450 Fifth Street N.W., Washington, D.C. 20549 upon
payment of the prescribed fees. In addition, such information is available
without charge through use of the SEC's EDGAR system, which allows interested
persons to obtain on-line access to such information.
The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission, including the Company. The address is
(http://www.sec.gov).
Although all of the Company's material contracts are described in the
Prospectus, statements made in the Prospectus as to the contents of any
contract, agreement or document referred to are not necessarily complete, and in
each instance, reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, and each such statement is
qualified in its entirety by such reference.
The Company will provide without charge to each person who receives a
prospectus, upon written or oral request of such person, a copy of any exhibits
to the Registration Statement. Inquiries should be directed to Richard D. Kothe,
Illuminated Media Inc., 15 S. Fifth Street, Suite 715, Minneapolis, MN 55402,
telephone number 612-338-3554, FAX 612-370-0381.
ILLUMINATED MEDIA, INC.
FINANCIAL STATEMENTS
FOR THE YEARS ENDED
FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
AND THE TWO MONTHS ENDED
APRIL 30, 1997 AND 1996 (UNAUDITED)
ILLUMINATED MEDIA, INC.
INDEX TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
AND THE TWO MONTHS ENDED APRIL 30, 1997 AND 1996 (UNAUDITED)
Independent Auditors' Report 1
Balance Sheet 2
Statement of Operations 3
Statement of Shareholders' Deficit 4
Statement of Cash Flows 5-6
Notes to the Financial Statements 7-19
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Illuminated Media, Inc.
Minneapolis, Minnesota
We have audited the accompanying balance sheet of Illuminated Media, Inc. as of
February 28, 1997 and February 29, 1996, and the related statements of
operations, shareholders' deficit and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 Illuminated Media, Inc. as of
February 28, 1997 and February 29, 1996, and the results of its operations and
cash flows for the years then ended in conformity with generally accepted
accounting principles.
As discussed in Note 2 to the financial statements, the Company's recurring
losses, negative cash flows from operations and net working capital deficiency
raise substantial doubt as to its ability to continue as a going concern.
Management's plans as to these matters are also described in Note 2. The 1997
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ SILVERMAN OLSON THORVILSON & KAUFMANN LTD
SILVERMAN OLSON THORVILSON & KAUFMANN LTD
CERTIFIED PUBLIC ACCOUNTANTS
Minneapolis, Minnesota
May 13, 1997
ILLUMINATED MEDIA, INC.
BALANCE SHEET
FEBRUARY 28, 1997 AND FEBRUARY 29, 1996 AND APRIL 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
APRIL 30,
1997
ASSETS 1997 1996 (UNAUDITED)
--------- --------- ---------
<S> <C> <C> <C>
Current assets:
Cash $ 7,651 $ 4,795 $ --
Accounts receivable, net of allowance for
doubtful accounts of $ -0-, $24,818 and
$-0-, respectively 22,648 10,287 20,271
Prepaid expenses 49,646 5,000 47,447
Other receivables - related parties (Note 3) 445 6,590 835
--------- --------- ---------
Total current assets 80,390 26,672 68,553
Property and equipment, net (Note 4) 34,638 42,675 33,342
Other assets 199 398 166
--------- --------- ---------
Total assets $ 115,227 $ 69,745 $ 102,061
========= ========= =========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Checks drawn in excess of available funds $ -- $ -- $ 2,137
Note payable (Note 5) -- 150,000 --
Notes payable - bank (Note 6) 135,000 -- 135,000
Notes payable - shareholders (Note 7) 19,509 19,509 19,509
Debentures payable (Note 8) 40,000 -- 50,000
Debentures payable-related party (Note 8) 143,000 -- 158,000
Accounts payable 116,592 49,713 122,412
Accrued expenses - related parties (Note 15) 3,396 65,916 7,227
Accrued expenses 11,796 6,096 12,856
Current portion of long-term debt (Note 9) 13,402 11,710 13,393
Current portion of long-term debt -
related parties (Note 10) 21,085 12,826 26,863
--------- --------- ---------
Total current liabilities 503,780 315,770 547,397
Long-term debt (Note 9) 20,349 31,290 18,576
Long-term debt - related parties (Note 10) 149,719 172,474 142,256
--------- --------- ---------
Total liabilities 673,848 519,534 708,229
--------- --------- ---------
Contingencies and commitments (Notes 14 and 15) -- -- --
Redeemable preferred stock:
Series A convertible preferred stock,
$.30 stated value; 110,000 shares authorized
and 99,999 shares issued and outstanding (Note 11) 30,000 30,000 30,000
Series B convertible preferred stock
$.30 stated value; 155,000 shares authorized
and 105,000 shares issued and outstanding (Note 11) 31,500 31,500 31,500
--------- --------- ---------
Total redeemable preferred stock 61,500 61,500 61,500
--------- --------- ---------
Shareholders' deficit:
Common Stock, $.01 par value; 10,000,000 shares
authorized and 220,000, 70,000 and 220,000
issued and outstanding, respectively 2,200 700 2,200
Additional paid-in capital 72,329 1,345 72,329
Accumulated deficit (694,650) (513,334) (742,197)
--------- --------- ---------
Total shareholders deficit (620,121) (511,289) (667,668)
--------- --------- ---------
Total liabilities, redeemable preferred
stock and shareholders' deficit $ 115,227 $ 69,745 $ 102,061
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
ILLUMINATED MEDIA, INC.
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
AND THE TWO MONTHS ENDED APRIL 30, 1997 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
APRIL APRIL
30, 1997 30, 1996
1997 1996 (UNAUDITED) (UNAUDITED)
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues $ 242,146 $ 236,932 $ 28,967 $ 40,430
--------- --------- --------- ---------
Operating expenses:
General and administrative - related party -- 33,660 -- --
General and administrative 373,270 360,510 65,174 55,192
--------- --------- --------- ---------
Total operating expenses 373,270 394,170 65,174 55,192
--------- --------- --------- ---------
Loss from operations (131,124) (157,238) (36,207) (14,762)
Other income (expense):
Interest expense (50,027) (17,239) (11,340) (9,809)
Miscellaneous income -- 2,442 -- --
Loss on disposal of property and equipment (165) (2,808) --
--------- --------- --------- ---------
Total other income (expense) (50,192) (17,605) (11,340) (9,809)
--------- --------- --------- ---------
Net loss $(181,316) $(174,843) $ (47,547) $ (24,571)
========= ========= ========= =========
Net loss per share $ (.74) $ (.30) $ (.16) $ (.10)
========= ========= ========= =========
Weighted average number of
shares outstanding 244,979 574,075 304,979 244,979
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
ILLUMINATED MEDIA, INC.
STATEMENT OF SHAREHOLDERS' DEFICIT
FOR THE YEARS ENDED FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
AND THE TWO MONTHS ENDED APRIL 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------------ PAID ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT IN CAPITAL DEFICIT DEFICIT
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance at February 28, 1995 510,000 5,100 9,800 (175,346) (160,446)
Common stock redemption (Note 12) (440,000) (4,400) (8,455) (163,145) (176,000)
Net loss -- -- -- (174,843) (174,843)
--------- --------- --------- --------- ---------
Balance at February 29, 1996 70,000 700 1,345 (513,334) (511,289)
Issuance of common stock bonus 150,000 1,500 58,500 -- 60,000
Issuance of warrants in connection with
debentures and bank guarantees -- -- 12,484 -- 12,484
Net loss -- -- -- (181,316) (181,316)
--------- --------- --------- --------- ---------
Balance at February 28, 1997 220,000 2,200 72,329 (694,650) (620,121)
Net loss (Unaudited) -- -- -- (47,547) (47,547)
--------- --------- --------- --------- ---------
Balance at April 30, 1997 (Unaudited) 220,000 $ 2,200 $ 72,329 $(742,197) $(667,668)
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
ILLUMINATED MEDIA, INC.
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
AND THE TWO MONTHS ENDED APRIL 30, 1997 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
APRIL 30, APRIL 30,
1997 1996
1997 1996 (UNAUDITED) (UNAUDITED)
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(181,316) $(174,843) $ (47,547) $ (24,571)
Adjustments to reconcile net loss
to net cash used in operating activities
Depreciation and amortization 13,390 15,076 1,717 2,059
Loss on disposal of property
and equipment 165 2,808 -- --
Interest expense of debenture and loan
guarantee warrants 12,484 -- -- --
Decrease (increase) in assets:
Accounts receivable (12,361) (2,887) 2,377 (9,249)
Prepaid expenses (44,646) (5,000) 2,199 --
Other receivables - related parties 6,145 (6,390) (390) 6,515
Increase (decrease) in liabilities:
Accounts payable 66,879 20,329 5,820 13,980
Accrued expenses - related parties (2,520) 98,990 3,831 --
Accrued expense 5,700 2,413 1,060 94
Deferred revenue -- (1,000) -- --
--------- --------- --------- ---------
Net cash used in operating activities (136,080) (50,504) (30,933) (11,172)
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (5,319) (15,206) (388) (332)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in note payable (150,000) 150,000 -- (150,000)
Proceeds from the issuance of:
Notes payable - bank 135,000 -- -- 90,000
Note payable - shareholders -- 14,509 -- --
Debentures payable 40,000 -- 10,000 --
Debentures payable-related party 143,000 -- 15,000 65,000
Long-term debt -- -- -- --
Redemption of common stock -- (84,000) -- --
Payment of long-term debt (9,249) (9,759) (1,782) (756)
Payment of long-term debt - related parties (14,496) -- (1,685) --
Increase (decrease) in checks drawn
in excess of available funds -- (245) 2,137 2,465
--------- --------- --------- ---------
Net cash provided by
financing activities 144,255 70,505 23,670 6,709
--------- --------- --------- ---------
Increase (decrease) in cash 2,856 4,795 (7,651) (4,795)
Cash - beginning of year/period 4,795 -- 7,651 4,795
--------- --------- --------- ---------
Cash - end of year/period $ 7,651 $ 4,795 $ -- $ --
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
ILLUMINATED MEDIA, INC.
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED FEBRUARY 28 1997 AND FEBRUARY 29 1996
AND THE TWO MONTHS ENDED APRIL 30, 1997 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
APRIL APRIL
30, 1997 30, 1996
1997 1996 (UNAUDITED) (UNAUDITED)
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 38,279 $ 7,937 $ 7,364 $ 9,809
========= ========= ========= =========
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
For the year ended February 28, 1997:
The company issued 150,000 shares of common stock valued at $60,000 as
payment of accrued stock bonus (Note 15)
The company recognized revenues and expenses of $19,782 through barter
activity.
For the year ended February 29, 1996:
The Company converted $93,300 of accrued expenses - related parties to
a long-term note payable (Note 10).
As partial redemption of 440,000 shares of $.01 par value common stock,
the Company issued long-term debt aggregating $92,000 (Note 12).
The company recognized revenues and expenses of $28,151 through barter
activity.
The accompanying notes are an integral part of the financial statements.
ILLUMINATED MEDIA, INC.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
AND THE TWO MONTHS ENDED APRIL 30, 1997 AND 1996 (UNAUDITED)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Organization:
Illuminated Media, Inc. (formerly Skyway Advertising, Inc.) or
the "Company" is engaged in the business of providing a medium
for out-of-home advertising called Skyway Ads. Each Skyway Ad
unit consists of three back-lit advertising panels. Skyway Ads
units are located primarily in skyway corridors, shopping
centers and parking ramps in the Minneapolis/St. Paul
metropolitan area.
Property and Equipment:
Property and equipment is stated at cost. Depreciation is
computed using accelerated methods and is charged to expense
based on the estimated useful lives of the assets.
Expenditures for additions and improvements are capitalized,
while repairs and maintenance are expense as incurred.
Other Assets:
Other assets consist of organization costs and are being
amortized straight-line over five years.
Income Taxes:
Income taxes are provided for the tax effects of transactions
reported in the financial statements and consist of taxes
currently due plus deferred taxes, if any. Deferred taxes
represent the net tax effects of temporary differences between
the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax
purposes.
Net Loss Per Share of Common Stock:
Net loss per share has been calculated in accordance with
Staff Accounting Bulletin Topic 4D, which requires that all
common stock, options and warrants issued within one year
prior to the Company's filing of its initial public offering
or issued in contemplation of the public offering be
considered outstanding for all periods presented, even if the
impact of the incremental shares is anti-dilutive. For all of
the years and periods presented, the weighted average number
of shares actually outstanding, has been increased for the
number of shares that would be outstanding assuming that all
of the warrants (Note 14) were exercised and the 150,000 share
common stock grant (Note 15) were issued; less the shares
assumed to be reacquired by the Company using the initial
public offering proceeds, at $1.00 per share.
Concentrations of Credit Risk:
Financial instruments that potentially subject the Company to
concentration of credit risk consist principally of trade
accounts receivable. Accounts receivable arise from the sale
of advertising space to a diversified customer base located
primarily in Minnesota. The Company performs ongoing credit
evaluations of its customers' financial condition, and
generally requires no collateral from its customers.
Estimates:
The preparation of financial statements in conformity with
generally accepted accounting principals requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
Cash Equivalents:
For purposes of the statement of cash flows, the Company
considers all highly liquid debt instruments and time deposits
of three months or less from the date of purchase to be cash
equivalents. The company had no cash equivalents during the
years ended February 28, 1997 and February 29, 1996 or during
the periods ended April 30, 1997 and 1996.
Basis of Presentation:
The unaudited two month periods ended April 30, 1997 and 1996
reflect all adjustments which, in the opinion of management,
are necessary for the fair presentation of the Company's
financial position, results of operations and cash flows.
Barter Transactions:
Included in revenues and expenses are nonmonetary transaction
arising from advertising panels bartered by the company for
certain goods and services.
Revenue from such "barter" transactions is based on the fair
market value of the goods and services received, and is
recognized when the related advertisements are posted. Expense
or capitalization related to the usage of such goods and
services is recognized when they are used or placed in
service.
During the years ended February 28, 1997 and February 29,
1996, barter revenue and expense aggregated $19,782 and
$28,151, respectively. There was no barter revenue or expense
during the two month periods ended April 30, 1997 and 1996.
NOTE 2: CONTINUED EXISTENCE AND MANAGEMENT'S PLANS
During 1997, the Company incurred a net loss of $(181,316) and negative
cash flows from operations of $(136,080), resulting in a negative
working capital of $(423,390) and an accumulated deficit of $(694,650)
at February 28, 1997.
During the two months ended April 30, 1997, the Company incurred a net
loss of $(47,547) and negative cash flows from operations of $(30,933),
resulting in a negative working capital of $(478,844) and an
accumulated deficit of $(742,197). As a result of the Company's
financial position, management believes that additional capital will be
necessary to enable the Company to continue its operations.
The Company has engaged a brokerage firm to raise a minimum of $650,000
to a maximum of $1,500,000 of capital through the sale of common stock
in a public offering. Management also believes that the Company's
expansion into new markets and the addition of product enhancements,
both financed through the public offering, as well as the establishment
of a new credit policy will result in improved operating results.
Management believes that the amount to be raised and the expected
improvements in operating results, will be adequate to fund the cash
requirements of the Company through February 28, 1998 if the minimum
offering is raised and through February 28, 1999 if the maximum is
raised. No assurance can be provided, however, that the amount of
capital raised, if any, or the improved operating results will be
sufficient to meet these needs.
No adjustments of the recorded basis for assets and liabilities have
been reflected on the accompanying financial statements as a result of
this uncertainty.
NOTE 3: OTHER RECEIVABLES - RELATED PARTIES
Other receivables - related parties consisted of the following at:
April 30,
February February 1997
28, 1997 29, 1996 (Unaudited)
-------- -------- --------
Director/ shareholders $ -- $ 5,840 $ --
Employee 445 750 835
-------- -------- --------
$ 445 $ 6,590 $ 835
======== ======== ========
Other receivables are unsecured and due on demand.
NOTE 4: PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at:
April
February February 30, 1997
28, 1997 29, 1996 (Unaudited)
--------- --------- ---------
Advertising panels $ 71,275 $ 66,663 $ 71,663
Furniture 1,548 1,217 1,548
Equipment 3,017 3,359 3,017
--------- --------- ---------
75,840 71,239 76,228
Less accumulated depreciation (41,202) (28,564) (42,886)
--------- --------- ---------
Property and equipment, net $ 34,638 $ 42,675 $ 33,342
========= ========= =========
All property and equipment is being depreciated over estimated useful
lives of 5-7 years.
Depreciation expense was $13,191 and $14,877 and for the years ended
February 28, 1997 and February 29, 1996, respectively. For the periods
ended April 30, 1997 and 1996, depreciation expense was $1,684 and
$2,026, respectively.
NOTE 5: NOTE PAYABLE
At February 29, 1996, note payable consisted of a short term loan
bearing interest at 10%, payable at the earlier of March 27, 1996 or
the closing of the Company's initial public offering. The note was
secured by substantially all corporate assets and guaranteed by two of
the Company's shareholders. In addition, the Company issued warrants to
the note holder to purchase up to 55,000 shares of the Company's common
stock at a per share price of $.50 (Note 14). The note was repaid
during 1997.
NOTE 6: NOTES PAYABLE - BANK
As of February 28, 1997 and April 30, 1997, the Company has two notes
from a bank aggregating $135,000. The notes bear interest at a variable
rate (10.75% at February 28, 1997) with an original maturity of May 13,
1997, but extended to June 13, 1997. The notes are secured by
substantially all corporate assets and personally guaranteed by four
unrelated individuals. As inducement for these guarantees, the Company
has issued these individuals warrants to purchase 45,000 shares of the
Company's common stock at $.50 per share expiring September 1998 (Note
14).
NOTE 7: NOTES PAYABLE - SHAREHOLDERS
Notes payable - shareholders consisted of the following at:
<TABLE>
<CAPTION>
April
February February 30, 1997
28, 1997 29, 1996 (Unaudited)
--------- --------- ---------
<S> <C> <C> <C>
Note payable to an officer/shareholder
with interest at 5%. The note is unsecured
and due on demand. $ 5,000 $ 5,000 $ 5,000
Note payable to a shareholder with interest at 12% payable
monthly. The note is secured by advertising panels and is due
on demand. At the option of the holder, the note can be
converted into the Company's common stock at a conversion
price of $.75 per share anytime before September 1999. 14,509 14,509 14,509
--------- --------- ---------
Total notes payable - shareholders $ 19,509 $ 19,509 $ 19,509
========= ========= =========
</TABLE>
NOTE 8: DEBENTURES PAYABLE
As of February 28, 1997 and April 30, 1997, the Company has issued
debentures aggregating $183,000 and $208,000, respectively. The
debentures bear interest at 10% payable at various original maturity
dates through June 1997. During April 1997, the debenture maturity
dates were all extended to June 30, 1997. The debentures are secured by
substantially all corporate assets. As inducement to the debenture
holders, the Company had issued warrants to purchase 61,627 and 69,959
shares of the Company's common stock as of February 28, 1997 and April
30, 1997, respectively (Note 14). At February 28, 1997 and April 30,
1997, debentures aggregating $143,000 and $158,000, respectively, and
the related warrants to purchase 47,967 and 52,966 shares,
respectively, of the Company's common stock were issued to current
shareholders and directors of the Company.
NOTE 9: LONG-TERM DEBT
As of February 28, 1997, February 29, 1996 and April 30, 1997, the
Company has a note payable to a credit union aggregating $33,751,
$43,000 and $31,969, respectively. The note accrues interest at 13.5%
payable monthly. The note is secured by substantially all corporate
assets and guaranteed by an officer/shareholder of the Company. The
note matures in May 1999.
Future maturities of long-term debt are as follows at February 28:
1998 $ 13,402
1999 15,309
2000 5,040
---------
Total $ 33,751
=========
NOTE 10: LONG-TERM DEBT - RELATED PARTIES
Long-term debt - related parties consisted of the following at:
<TABLE>
<CAPTION>
April
February February 30, 1997
28, 1997 29, 1996 (Unaudited)
--------- --------- ---------
<S> <C> <C> <C>
Note payable to a Partnership (Note 15) owned by former
officers/shareholders of the Company with interest 11%,
principal and interest payable monthly beginning April 1996.
The note is secured by substantially all corporate assets and
is guaranteed by an officer/ shareholder of the Company. The
note matures in March 2003. $ 84,803 $ 93,300 $ 83,966
Notes payable - common stock redemption (Note 12) to two
former officer/shareholders of the Company with interest at
11%, principal and interest payable monthly beginning April
1996. The notes are secured by substantially all corporate
assets and are guaranteed by an officer/ shareholder of the
Company. The notes mature in March 2003. 86,001 92,000 85,153
--------- --------- ---------
170,804 185,300 169,119
Less current portion (21,085) (12,826) (26,863)
--------- --------- ---------
Long-term debt - related parties $ 149,719 $ 172,474 $ 142,256
========= ========= =========
</TABLE>
The holders of the notes payable - common stock redemption have an
unqualified option to convert any remaining unpaid notes payable into
shares of the Company's common stock at a conversion price of $.40 per
share (Note 15).
Future maturities of long-term debt - related parties are as follows at
February 28:
1998 $ 21,085
1999 23,522
2000 26,245
2001 29,279
2002 32,670
Thereafter 38,003
----------
$ 170,804
==========
NOTE 11: PREFERRED STOCK
Series A Convertible/Redeemable Preferred Stock:
The Company has outstanding 99,999 shares of voting,
cumulative, convertible, redeemable series A preferred stock
with a stated value of $.30 per share. Each share of series A
preferred stock is convertible into one share of common stock
beginning in June 1995 at the option of the holder, or is
automatically converted at the date that the Company initiates
a public offering of its capital stock. The holders of series
A preferred stock have the right to require the Company to
redeem all or a portion of the preferred shares at a
redemption price equal to the stated value of the stock plus
any accumulated and unpaid dividends. Dividends are payable
annually on December 31 of each year, if declared, at a rate
of 8% of the stated value of the preferred shares. No
dividends were declared during the years ended February 28,
1997 and February 29, 1996 or during the period ended April
30, 1997.
Series B Convertible/Redeemable Preferred Stock:
The Company has outstanding 105,000 shares of voting,
cumulative, convertible, redeemable series B preferred stock
with a stated value of $.30 per share. The holder of the
shares has the option to either convert each share of series B
preferred stock into one share of common stock or require that
the Company redeem the preferred stock at a redemption price
of $.50 per share. In addition, each share of series B
preferred stock is automatically converted into one share of
common stock at the date that the Company initiates a public
offering of its capital stock. Dividends are payable monthly,
if declared, at a rate of 8% of the stated value of the
preferred shares. Series B preferred stock has dividend
preferences over both common stock and Series A preferred
stock. No dividends were declared during the years ended
February 28, 1997 and February 29, 1996 or during the period
ended April 30, 1997.
NOTE 12: COMMON STOCK REDEMPTION
During the year ended February 29, 1996, the Company redeemed 440,000
shares of its common stock by paying the shareholders $84,000 and
issuing notes aggregating $92,000 (Note 10).
NOTE 13: INCOME TAXES
For the years ended February 28, 1997 and February 29, 1996, the
effective rate varies from the maximum federal statutory rate as a
result of the following items:
1997 1996
----- -----
Tax benefit computed at maximum
federal statutory rate (34.0)% (34.0)%
Benefit of federal tax brackets 10.0 10.0
Loss to be carried forward 24.0 24.0
----- -----
Provision for income taxes --% --%
===== =====
For the period ended April 30, 1997 and 1996, the effective rate varies
from the maximum federal statutory rate as a result of the following
items:
1997 1996
(Unaudited) (Unaudited)
----- -----
Tax benefit computed at maximum
federal statutory rate (34.0)% (34.0)%
Benefit of federal tax brackets 10.0 10.0
Loss to be carried forward 24.0 24.0
----- -----
Provision for income taxes --% --%
===== =====
For financial statement purposes, no tax benefit has been reported for
the years ended February 28, 1997 and February 29, 1996 or the periods
ended April 30, 1997 and 1996 as the Company has had significant losses
in recent years and realization of the tax benefit is uncertain.
Accordingly, a valuation allowance has been established for the full
amount of the deferred tax asset.
Deferred taxes represent the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
Temporary differences result primarily from using the cash basis of
accounting for income tax reporting versus the accrual basis used for
financial reporting, and from the net operating loss carryforwards.
Deferred taxes consisted of the following at:
<TABLE>
<CAPTION>
April
February February 30, 1997
28, 1997 29, 1996 (Unaudited)
--------- --------- ---------
<S> <C> <C> <C>
Asset:
Net operating loss carryforward $ 88,000 $ 37,400 $ 94,800
Adjustments to cash basis:
Accounts payable 22,600 34,000 24,500
Accrued expenses 2,000 15,000 4,800
--------- --------- ---------
Net deferred tax asset 112,600 86,400 124,100
Less valuation allowance (112,600) (86,400) (124,100)
--------- --------- ---------
Net deferred tax asset $ -- $ -- $ --
========= ========= =========
</TABLE>
The net change in the deferred tax valuation allowance was an increase
of $26,200 and $47,400 for the years ended February 28, 1997 and
February 29, 1996, respectively, and $11,500 and $3,600 for the periods
ended April 30, 1997 and 1996, respectively.
As of February 28, 1997, the Company had net operating loss
carryforwards for income tax purposes as follows:
Carryforwards Net Operating
Expires Loss
February 28 Carryforwards
----------- -------------
2009 $ 61,000
2010 43,000
2011 43,000
2012 220,000
---------
$ 367,000
=========
An ownership change under Section 382 of the Internal Revenue Code may
occur as a result of the Company's proposed initial public offering,
may limit the availability of the $367,000 of net operating loss in
future years.
NOTE 14: COMMITMENTS AND CONTINGENCIES
Operating Leases:
The Company leases space for its advertising panels from
various skyway systems and shopping centers located in the
Minneapolis and St. Paul area. These non-cancelable leases
provide for contingent payments based upon a percentage
(ranging from 20% to 40%, with the majority at 20%) of
advertising revenues generated from each location. These
leases have terms of two to five years and expire at various
dates through November 1998.
The company also leases its office facilities and various
equipment under noncancelable operating leases expiring at
various dates through February 2000 future minimum lease
payments were as follows for the years ended February 28:
1988 $ 12,619
1999 5,872
2000 550
--------
$ 19,041
========
Rent expense under these leases for the years ended February
28, 1997 and February 29, 1996 was $69,659 and $60,296,
respectively. For the periods ended April 30, 1997 and 1996,
rent expense was $8,370 and $14,978, respectively.
Stock Warrants:
Beginning in fiscal 1996, the Company issued warrants as an
inducement for short-term financing and loan guarantees (Notes
5, 6 and 8). As of February 28, 1997 and February 29, 1996,
the Company had outstanding warrants to purchase 161,627 and
55,000 shares, respectively of common stock exercisable at
$.50 per share. As of April 30, 1996, the Company had warrants
to purchase 50,000 shares of common stock outstanding and
exercisable at $.50 per share. As of April 30, 1997, the
following warrants to purchase shares of the Company's common
stock were outstanding and exercisable.
Common Shares Exercise Price
Under Warrants Per Share Expiration Date
-------------- --------- ---------------
50,000 $ .50 November 1997
5,000 $ .50 February 1998
66,667 $ .50 September 1998
48,292 $ .50 November 1998
-------
169,959
=======
Upon completion of the Company's initial public offering, the
exercise price on the warrants to purchase 169,959 common
shares, including 52,966 issued to current shareholders and
directors (Note 8), is adjusted to one-half of the price of
the Company's common shares in its initial public offering.
During the years ended February 28, 1997 and February 29, 1996
and during the two month periods ended April 30, 1997 and
1996, no warrants were exercised or expired.
Included in the table above are warrants issued in connection
with debentures and personal guarantees of other short-term
financing. The value of these warrants was charged to interest
expense over the term of the related debt agreements and
during the years ended February 28, 1997 and February 29, 1996
the Company incurred interest expense aggregating
approximately $12,484 and $-0-, respectively. The value of the
warrants related to the issuance of new debt was determined
based on the difference between the stated interest rate and
the Company's estimated effective borrowing rate.
Significant Customers:
During the years ended February 28, 1997 and February 29, 1996
and the two months ended April 30, 1997 and 1996, significant
customers comprised the following percent of total sales.
(Unaudited)
February 28, April 30,
------------ -----------
1997 1996 1997 1996
---- ---- ---- ----
Customer A 21.0% 19.3% 28.6% 20.6%
Customer B 13.7 15.2 -- 14.8
Customer C 11.6 12.2 16.1 11.5
Customer D -- -- 20.7 --
---- ---- ---- ----
Total significant
customers 46.3% 46.7% 65.4% 46.9%
==== ==== ==== ====
NOTE 15: RELATED PARTY TRANSACTIONS
Lease Companies:
During fiscal 1996, the Company had a management agreement
with Lease Companies, a partnership owned by former
officers/shareholders of the Company. Pursuant to the
management agreement, the Company paid Lease Companies $4,050
per month plus 10% of monthly revenue in excess of $21,500 in
exchange for administrative, accounting and sales services.
During the year ended February 29, 1996, the Company incurred
management fees of $33,660. During 1996, the contract
terminated and unpaid management fees aggregating $93,000 were
converted into a long-term note payable (Note 10).
Stock Grants:
In fiscal 1996, an officer/shareholder of the Company was
granted 150,000 shares of the Company's common stock in
recognition for past service to the Company. The grant has
been valued at $60,000 and is included in accrued expenses -
related parties on the accompanying balance sheet at February
29, 1996. During 1997, the shares were issued.
Stock Options:
During fiscal 1996 in connection with the redemption of the
Company's common stock (Notes 10 and 12), the Company issued
two former officers/shareholders an unqualified option to
convert their notes payable into shares of the Company's
common stock at a conversion price of $.40 per share. The
options expires in December 1997.
During fiscal 1996 in connection with a loan from a Company
shareholder (Note 7), the Company issued the shareholder an
unqualified option to convert the note payable into shares of
the Company's common stock at a conversion price of $.75 per
share. The option expires in September 1999.
During fiscal 1994, the Company sold series B
convertible/redeemable preferred stock in a private placement
(Note 11). In accordance with the private placement, all
purchasers of the preferred stock received an option to
purchase preferred stock at $.30 per share. In connection with
the series B preferred stock issuance, a board member was
issued an unqualified option to purchase 50,000 shares of
preferred stock at an option price of $.30 per share. These
options expired in January 1997.
NOTE 16: SUPPLEMENTAL EARNINGS PER SHARE
The Company has initiated efforts for the registration of a minimum of
650,000 to a maximum of 1,500,000 shares of common stock at $1.00 per
share, in an initial public offering (IPO) with the Securities and
Exchange Commission. Upon the successful completion, the Company has
estimated that approximate proceeds, from $375,000, if the minimum is
sold, to $564,000, if the maximum is sold, will be used to retire debt
outstanding as of February 28, 1997 and April 30, 1997. In connection
with the IPO, series A and B preferred stock outstanding of 99,999 and
105,000, respectively, will be converted into 204,999 shares of common
stock (Note 11) and preferred dividends of $10,500 will be declared and
paid.
Summarized below is the unaudited proforma supplemental earnings per
share assuming, as of the beginning of the year and the two month
period presented below, that the minimum and maximum amount of common
shares being offered in the IPO were sold and outstanding, that the
preferred stock was converted to common stock, the preferred stock
dividends are declared and paid and that a portion of the proceeds were
used to repay debt.
<TABLE>
<CAPTION>
Minimum Offering Maximum Offering
----------------------- ------------------------
February 28, April February 28, April
1997 30, 1997 1997 30, 1997
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net loss $ (168,469) $ (50,170) $ (141,789) $ (46,707)
========== ========== ========== ==========
Net loss per share
adjusted for preferred $ (.15) $ (.04) $ (.07) $ (.02)
stock dividend ========== ========== ========== ==========
Weighted average number
of shares outstanding 1,099,978 1,159,978 1,949,978 2,009,978
========== ========== ========== ==========
</TABLE>
[Photos of Skyway Ads platforms to be added]
UNTIL (INSERT DATE) ALL DEALERS EFFECTING TRANSACTIONS IN THE
REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO
THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
TABLE OF CONTENTS
Summary of Offering....................................................
The Company............................................................
High Risk Factors......................................................
Selected Financial Data................................................
Management's Discussion................................................
Dilution...............................................................
Use of Proceeds........................................................
Dividend Policy........................................................
Capitalization.........................................................
Business...............................................................
Management.............................................................
Principal Shareholders.................................................
Certain Transactions...................................................
Description of Securities..............................................
Underwriting...........................................................
Legal Matters..........................................................
Experts................................................................
Additional Information.................................................
Financial Statements...................................................
-----------------------------
No dealer, salesman or other person has been authorized to give any information
or to make any representations other than those contained in this Prospectus
and, if given or made, such information or representations must not be relied
upon as having been authorized by the Company. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, imply
that there has been no change in the affairs of the Company since the date
hereof. This Prospectus does not constitute an offer to sell or a solicitation
of an offer to buy in any state in which such offer or solicitation is not
lawful, or to any person to whom it is unlawful to make such an offer or
solicitation.
1,500,000 UNITS
ILLUMINATED MEDIA INC.
Each Unit Consists of One Share of
Common Stock and One Common Stock
Warrant to Purchase Two
Shares of Common Stock
PROSPECTUS
TUSCHNER & COMPANY, INC.
June , 1997
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Under Section 302A.521, Minnesota Statutes, the Company is required to
indemnify its directors, officers, employees, and agents against liability under
certain circumstances, including liability under the Securities Act of 1933, as
amended (the "Act"). See also Article VII of the Company's Articles of
Incorporation, filed herewith as Exhibit 3.1. The general effect of such
provisions is to relieve the directors and officers of the Company from personal
liability which may be imposed for certain acts performed in their capacity as
directors or officers of the Company, except where such persons have not acted
in good faith.
Insofar as indemnification for liabilities arising out of the
Securities Act of 1933 may be permitted to directors, officers or persons
controlling the Registrant pursuant to the foregoing provisions, the Registrant
has been informed that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy, as expressed in the
Act, and is, therefore, unenforceable.
Item 25. Other Expenses of Issuance and Distribution.
The estimated expenses of the Registrant in connection with the
issuance and distribution of the securities registered hereby are set forth in
the following table:
SEC Registration Fee $ 3,709
Blue Sky Registration Fees 1,000
NASD Filing Fee 3,609
Transfer agent 7,500
Printing and engraving 12,000
Legal 33,500
Accounting 18,500
Miscellaneous 182
--------
Total: $ 80,000
Note: The foregoing estimated expenses do not include commissions, nor the
Underwriter's non-accountable expense allowance, nor the fees and
expenses of Underwriter's counsel, payable by the Registrant.
Item 26. Recent Sales of Unregistered Securities.
Since November 30, 1993, the Registrant has sold securities in the
amounts, at the times and for the consideration listed below.
a. In February, 1994, the Registrant sold 105,000 shares of its Series
B Convertible Preferred Stock to one individual investor, Rick Johnson, for $.30
per share, or an aggregate of $31,500. In connection with that transaction, the
Registrant granted to such investor, for no additional consideration, an option
(which has now expired, unexercised), until January 28, 1997, to purchase 50,000
shares of Preferred Stock at $.30 per share.
b. In September, 1995, the Registrant sold to one individual a 12%
note, in the aggregate amount of $14,509.00, which by its terms was convertible
until September, 1999 to Common Stock of the Registrant at the rate of $.75 per
share, or an aggregate of 19,345 shares.
c. As part of a stock redemption agreement in November, 1995, with two
individuals (the Lease Brothers, who were officers and directors of the
Registrant) and a business entity wholly owned by them, the Registrant issued
three Promissory Notes to such persons in the aggregate principal amount of
$185,300 and granted such persons an option for the life of the outstanding
principal balance owing to them, to convert such balance into shares of the
Registrant's Common Stock at $.40 per share (which, at April 30, 1997, would
have entitled them to purchase up to 422,798 shares of Common Stock). The
Registrant did not receive any separate consideration for the granting of such
option.
d. In November, 1995, in connection with a $150,000 loan transaction,
the Registrant issued a Warrant for 50,000 shares to the individual, Norm Winer,
who made the loan and subsequently issued a Warrant for an additional 5,000
shares to such individual, as part of an agreement to extend the maturity date
of such loan. The Registrant did not receive any separate consideration for the
issuance of such Warrants.
e. On various dates between May, 1996 and November, 1996, the
Registrant sold an aggregate of $135,000 in principal amount of 10% Subordinated
Debentures, together with an aggregate of 45,667 Warrants to purchase Common
Stock to four individual investors (of whom two, Mr. Verplaetse and Mr. Hepburn,
were directors of the Registrant, the third, Mr. Winer, was an accredited
investor, and the fourth was a sophisticated investor who was already a
shareholder of the Registrant). The Registrant did not receive any separate
consideration for the granting of such Warrants.
f. In February, 1996, the Board of Directors authorized the issuance of
150,000 shares of Common Stock, valued at $.40 per share, or $60,000, to Robert
H. Blank, Chief Executive Officer, as partial consideration for services
previously rendered by him. Such shares were issued in December, 1996.
g. In August, 1996, in connection with the obtaining of two bank loans
aggregating $135,000, the Registrant issued Warrants for an aggregate of 45,000
shares of Common Stock to four individuals who personally guaranteed such loan.
In addition, as security for their guarantees, the Registrant issued 10%
debentures to each of such individuals in an amount equivalent to that which
they personally guaranteed, and such individuals have confirmed in writing that
such debentures will bear interest and become due and payable only at such time,
if ever, as there is a default on the bank loans and the individual advances
funds to the bank. None of such individuals was an affiliate of the Company,
although one, John M. Tuschner, was a principal of the Underwriter in this
transaction, and each was considered sophisticated. The Registrant did not
receive any separate consideration for the granting of such Warrants or
Debentures.
h. On various dates in late January, 1997, and February, 1997, the
Registrant sold an aggregate of $48,000 in principal amount of 10% Subordinated
Debentures, together with an aggregate of 15,960 Warrants to purchase Common
Stock to three individual investors ( Mr. Kothe, an officer and director of the
Registrant, Mr. Winer, and the spouse of Mr. Blank, an officer and director).
The Registrant did not receive any separate consideration for the granting of
such Warrants.
i. On various dates in March, 1997, and April, 1997, the Registrant
sold an aggregate of $25,000 in principal amount of 10% Subordinated Debentures,
together with an aggregate of 8,332 Warrants to purchase Common Stock to two
individual investors (an uncle of Mr. Kothe, an officer and director of the
Registrant, and the spouse of Mr. Blank, an officer and director). The
Registrant did not receive any separate consideration for the granting of such
Warrants.
j. Subsequent to April 30, 1997, the Registrant sold an aggregate of
$38,000 in principal amount of its Subordinated Debentures, at varying interest
rates, together with an aggregate of 12,668 Warrants to purchase Common Stock to
three individual investors (Mr. Winer, Mr. Kothe, an officer and director of the
Registrant, and the spouse of Mr. Blank, an officer and director). The
Registrant did not receive any separate consideration for the granting of such
Warrants.
There were no underwriting discounts or commissions paid by the
Registrant as part of any such transactions. However, a registered securities
broker-dealer did assist with the loan transaction in November, 1995, described
in Item 26.c., and, as a result, became entitled to a 7% cash commission,
payable by the Registrant after the lender was repaid.
All securities transactions listed for this Item 26 were made in
reliance upon the exemptions from registration provided by Rule 504 under
Section 3(b) and by Section 4(2) of the Securities Act of 1933, as amended (in
that sales were made for an aggregate of less than $1,000,000 in any 12 month
period to a small number of persons, many of whom were accredited investors, and
all of whom considered sophisticated and were required to purchase for
investment purposes only, and each of the instruments recited that they were
issued for investment purposes only).
Item 27. Exhibits.
(a) Exhibits filed and to be filed.
(i) The following Exhibits were previously filed as part
of this Registration Statement:
1.1 Form of Underwriting Agreement between the Registrant
and Tuschner & Co.,Inc.
1.2 Form of Underwriter's Unit Purchase Option.
1.3 Form of Escrow Agreement.
1.4 Form of Impoundment Agreement.
3.1 Articles of Incorporation of the Registrant, dated
March 9, 1993, with amendments.
3.2 Bylaws of the Registrant, dated March 9, 1993, as
amended May 5, 1993.
4.1 Form of Common Stock certificate.
4.2 Form of Warrant Agreement by and among the
Registrant, the Underwriter, and the Warrant Agent,
including a Form of Warrant Certificate.
4.3 Form of the Registrant's 10% Subordinated Debenture
Due September 30, 1996, and other dates.
4.4 Form of the Registrant's Warrant to Purchase Common
Shares, expiring November 10, 1998, and other dates.
4.5 Form of Maturity Extension Agreement for Debentures.
5.1 Opinion of Keller & Lokken, P.A. regarding legality
of securities.
10.1 Stock Redemption Agreement, dated November 28, 1995,
between the Regisrant and various Lease Brothers
entities, together with exhibits thereto, namely
three promissory notes, a personal guaranty and a
security agreement.
10.2 Bridge Financing Agreement, dated November 27, 1995,
between the Registrant and Norman Winer, together
with exhibits thereto, namely Promissory Note,
Security Agreement, Guaranty of Re-Payment, form of
Subordination Agreement and form of Temporary Waiver
of Right to Put.
10.3 Form of lease with building for space for Skway Ad
platform.
10.4 Form of advertising contract for Skyway Ad.
10.5 Lease Agreement between Registrant and its lessor.
10.6 Registrant's Corporate Stock Option Plan.
10.7 Form of Executive Employment Agreement.
10.8 Letter Agreement with Simon Property Group.
10.9 Letter Agreement with Lasertainment Productions
International.
10.10 Joint Marketing Agreement with Skyway Publications,
Inc.
10.11 Consulting Agreement with Sun Consulting, Inc.
24.1 Consent of Silverman Olson Thorvilson & Kaufmann
LTD., Independent Auditor.
24.2 Consent of Keller & Lokken, P.A. Contained in Exhibit
5.1 to this Registration Statement.
25.1 Form of Power of Attorney, running from each of the
Registrant's directors namely Robert H. Blank,
Richard D. Kothe, Gail Emerson, Mark Verplaetse,
Kenneth A. Olsen, Steven Unverzagt, and Mark T.
Hepburn, to Robert H. Blank and Richard D. Kothe, CEO
and CFO of the Registrant, respectively, with respect
to signing of this Registration Statement and any
amendments.
27.1 Financial Data Schedule.
(ii) The following exhibits are filed as part of this
Amendment No. 2:
1.1A Form of Underwriting Agreement between the Registrant
and Tuschner & Co.,Inc. - Revised.
1.5 Form of Underwriter's Stock Purchase Option.
1.6 Selected Dealer Agreement.
3.1A Articles of Amendment to Second Amended Articles of
Incorporation.
10.12 Bank Windsor Loan Documents.
24.1 Consent of Silverman Olson Thorvilson & Kaufmann LTD,
Independent Auditor, updated to a current date.
27.2A Financial Data Schedule-2/28/97
27.2B Financial Data Schedule-4/30/97
Item 28. Undertaking.
a. Rule 415 Offering [Item 512(a) of Regulation S-B] The small business
issuer 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.
b. Equity offerings of nonreporting small business issuers [Item 512(d)
of Regulation S-B]:
The small business issuer will provide to the underwriter, at the
closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
c. Request for Acceleration of Effective Date [Item 512(e) of
Regulation S-B]:
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Act") may be permitted to directors, officers and controlling persons
of the small business issuer pursuant to the foregoing provisions, or otherwise,
the small business issuer 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.
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer or controlling person of the small business issuer
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 small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
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 for filing on Form SB-2 and authorized this Amendment No. 2
to its Registration Statement to be signed on its behalf by the undersigned, in
the City of Minneapolis, State of Minnesota, on June 2, 1997.
ILLUMINATED MEDIA, INC.
/s/Robert H. Blank
By: Robert H. Blank,
Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
Amendment No.2 to its Registration Statement was signed by the following persons
in the capacities and on the dates stated.
Signature Title Dated:
--------- ----- ------
/s/ Robert H. Blank Chief Executive Officer, June 2, 1997
Robert H. Blank and Director (Principal
Executive Officer)
/s/Richard D. Kothe Chief Financial Officer, June 2, 1997
President, and Director
(Principal Financial Officer,
Principal Accounting Officer)
* Director )
Gail Emerson )
)
* Director )
Kenneth Olsen )
)
* Director ) By: /s/ Robert H. Blank
Mark Verplaeste ) Robert H. Blank
) Attorney-in-Fact
* Director )
Steve Unverzagt )
) June 2, 1997
* Director )
Mark T. Hepburn )
* Executed by Robert H. Blank as Attorney-in-Fact
As filed with the Securities and Exchange Commission on June 6, 1997.
Registration No. 33-22443
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBITS
TO
FORM SB-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
ILLUMINATED MEDIA INC.
INDEX TO EXHIBITS
EXHIBITS PAGE NO.
(i) Previously filed:
1.1 Form of Underwriting Agreement between the Registrant and
Tuschner & Co.,Inc.
1.2 Form of Underwriter's Unit Purchase Option.
1.3 Form of Escrow Agreement.
1.4 Form of Impoundment Agreement.
3.1 Articles of Incorporation of the Registrant, dated March 9,
1993, with amendments.
3.2 Bylaws of the Registrant, dated March 9, 1993, as amended May
5, 1993
4.1 Form of Common Stock certificate.
4.2 Form of Warrant Agreement by and among the Registrant, the
Underwriter, and the Warrant Agent, including a Form of
Warrant Certificate.
4.3 Form of the Registrant's 10% Subordinated Debenture Due
September 30, 1996, and other dates.
4.4 Form of the Registrant's Warrant to Purchase Common Shares,
expiring November 10, 1998, and other dates.
4.5 Form of Maturity Extension Agreement for Debentures.
5.1 Opinion of Keller & Lokken, P.A. regarding legality of
securities.
10.1 Stock Redemption Agreement, dated November 28, 1995, between
the Regisrant and various Lease Brothers entities, together
with exhibits thereto, namely three promissory notes, a
personal guaranty and a security agreement.
10.2 Bridge Financing Agreement, dated November 27, 1995, between
the Registrant and Norman Winer, together with exhibits
thereto, namely Promissory Note, Security Agreement, Guaranty
of Re-Payment, form of Subordination Agreement and form of
Temporary Waiver of Right to Put.
10.3 Form of lease with building for space for Skway Ad platform.
10.4 Form of advertising contract for Skyway Ad.
10.5 Lease Agreement between Registrant and its lessor.
10.6 Registrant's Corporate Stock Option Plan.
10.7 Form of Executive Employment Agreement.
10.8 Letter Agreement with Simon Property Group.
10.9 Letter Agreement with Lasertainment Productions International.
10.10 Joint Marketing Agreement with Skyway Publications, Inc.
10.11 Consulting Agreement with Sun Consulting, Inc.
24.1 Consent of Silverman Olson Thorvilson & Kaufmann LTD.,
Independent Auditor.
24.2 Consent of Keller & Lokken, P.A. Contained in Exhibit 5.1 to
this Registration Statement.
25.1 Form of Power of Attorney, running from each of the
Registrant's directors namely Robert H. Blank, Richard D.
Kothe, Gail Emerson, Mark Verplaetse, Kenneth A. Olsen, Steven
Unverzagt, and Mark T. Hepburn, to Robert H. Blank and Richard
D. Kothe, CEO and CFO of the Registrant, respectively, with
respect to signing of this Registration Statement and any
amendments.
27.1 Financial Data Schedule.
(ii) The following exhibits are filed herewith:
1.1A Form of Underwriting Agreement between the Registrant and Tuschner
& Co.,Inc. - Revised.
1.5 Form of Underwriter's Stock Purchase Option.
1.6 Selected Dealer Agreement.
3.1A Articles of Amendment to Second Amended Articles of Incorporation.
10.12 Bank Windsor Loan Documents.
24.1 Consent of Silverman Olson Thorvilson & Kaufmann LTD.,
Independent Auditor.
27.2A Financial Data Schedule-2/28/97
27.2B Financial Data Schedule-4/30/97
ILLUMINATED MEDIA, INC.
UNDERWRITING AGREEMENT
Minneapolis, Minnesota
June ____, 1996
Tuschner & Company, Inc.
Suite 1500, TCF Tower
121 South Eighth Street
Minneapolis, MN 55402
Gentlemen:
Illuminated Media, Inc. (the "Company"), a Minnesota corporation,
proposes to issue and sell exclusively through you (the "Underwriter"), pursuant
to this Underwriting Agreement (the "Agreement"), up to 1,500,000 Units (the
"Units" or a "Unit"), at a purchase price of $1.00 per Unit, each Unit
consisting of one share of the Company's common stock and one redeemable common
stock purchase warrant to purchase two shares of such common stock at $2.75 per
share (the "Warrants" or a "Warrant"). Each Warrant entitles the holder to
purchase two shares of common stock for $2.75 per share from the date hereof
until five years from the Effective Date, subject to adjustment in certain
instances, and is redeemable in certain instances commencing 60 days from the
date of this Agreement at $.10 per Warrant. The offering of the Units is further
described in the Registration Statement No. _________, filed on Form SB-2 with
the United States Securities and Exchange Commission (the "Commission" ).
The Units to be sold by the Company hereunder will be offered for the
Company by you on an "all or none" basis with respect to 650,000 Units and on a
"best efforts" with respect to an additional 850,000 Units. The shares of
common stock included in the Units and in the Stock Purchase Option (defined in
Section 6) which the Company agrees herein to sell to you are referred to herein
as the "Shares." The shares of common stock issuable on exercise of the Warrants
included in the Units and in the Warrants included in the Units subject to the
Stock Purchase Option are referred to herein as the "Warrant Shares." The
Warrants included in the Units subject to the Stock Purchase Option are referred
to herein as the "Underwriter's Warrants." All securities included in the Units
and in the Stock Purchase Option (and securities which may be acquired on
exercise thereof) are sometimes referred to herein as the "Underlying
Securities."
1. Covenants, Representations, and Warranties of the Company. In order
to induce the Underwriter to enter into this Agreement, the Company covenants,
represents, and warrants to you as follows, as of the date hereof and as of the
date of each Closing, as if made on such date:
(a) The Company has filed the Registration Statement relating to the
Units with the Commission pursuant to the Securities Act of 1933 ("Act"), as
amended, and pursuant to the Commission's rules and regulations promulgated
thereunder (the "Regulations"). The Company has furnished to the Underwriter and
to its legal counsel four signed and ten conformed copies of the Registration
Statement together with all amendments, and exhibits. As used in this Agreement,
the term "Registration Statement" means the Registration Statement, including
the Prospectus, the exhibits and financial statements included therein, and all
amendments including any amendments after the effective date of the Registration
Statement. The term "Prospectus" means the prospectus filed as a part of Part I
of the Registration Statement, including all pre-effective and post-effective
amendments and supplements thereto.
(b) The Registration Statement and all other documents previously filed
or filed after the date hereof with the Commission conform and will conform with
all of the requirements of the Act and the Regulations in all material respects.
Neither the Registration Statement, the Prospectus, nor the other material filed
or to be filed with the Commission contains or will contain any untrue
statements of material fact nor are there or will there be any omissions of
material facts required to be stated therein or that are necessary to make the
statements therein not misleading, except that this warranty does not apply to
any statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by and with respect to the
Underwriter, or any dealer through the Underwriter, expressly for use in the
Registration Statement or Prospectus or any amendment or supplement thereto.
(c) The Company has used its best efforts to qualify the Units for
offering in every state reasonably designated by the Underwriter. The
applications to register the Units and documents filed therewith, whether
previously filed or filed after the date hereof with any state do not and will
not contain any untrue statements of material fact nor are there or will there
be any omissions of material facts required to be stated therein or that are
necessary to make the statements therein not misleading.
(d) The outstanding capital stock of the Company has been duly and
validly authorized and issued, is fully paid and assessable, and conforms to all
statements made in Registration Statement and Prospectus with respect thereto.
The Units, and the Stock Purchase Option have been duly and validly authorized
by all necessary corporation by the Company. The Warrants, the Stock Purchase
Option, and Underwriter's Warrants, when sold and delivered by the Company as
provided herein and therein, will constitute valid and binding obligations of
the Company, enforceable in accordance with their terms. A sufficient number of
shares of common stock have been reserved for issuance upon exercise of the
Warrants, the Stock Purchase Option and the Underwriter's Warrants, and when
delivered upon due exercise, will be validly issued, fully paid and
nonassessable. The Units, Stock Purchase Option, and the Underlying Securities
conform to all statements respecting them in the Registration Statement and
Prospectus. Upon delivery of and payment for the Stock Purchase Option to be
sold by the Company as set forth in this Agreement, the Underwriter and its
designees will receive good and marketable title thereto, free and clear of all
liens, encumbrances, charges and claims except those created by, through, or
under the Underwriter and except restrictions on transfer arising under federal
and state securities laws. The Shares and Warrant Shares, upon issuance, will
not be subject to the preemptive rights of any shareholders of the Company.
(e) The Company has been legally incorporated and is a validly existing
corporation under the laws of the state of its incorporating jurisdiction, and
is lawfully qualified to conduct the business for which it was organized and
which it proposes to conduct. The Company is qualified to conduct business as
foreign corporation in each Jurisdiction where the nature of its business
requires such qualification except where failure to so qualify would not have a
material adverse effect on the Company.
(f) The Company's capitalization is as stated in the Registration
Statement. There are no outstanding options, warrants, or other rights to
purchase or require the issuance of (by conversion or otherwise) any securities
of the Company, however characterized, except as described in the Registration
Statement. With respect to the offer to sell, sale, offer to purchase, or
purchase of any of its securities, the Company has not committed any violations
of the of the federal securities laws; the Regulations; or the laws, rules, or
regulations of any jurisdiction wherein such securities transactions or
solicitations occurred. All prior sales of the Company's securities were exempt
from the registration and prospectus delivery requirements of the Act and
applicable state law.
(g) The Board of Directors of the Company and the shareholders of the
Company have adopted an Incentive Stock Option Plan designed to qualify under
Section 422A of the Internal Revenue Code. The Incentive Stock Option Plan and
all outstanding options thereunder are as described in the Registration
Statement.
(h) During the period of the offering of the Units and for one year
from the date the Commission declares the Registration Statement to be effective
(the "Effective Date"), the Company will not sell any securities (except:
options issued pursuant to the Company's Incentive Stock Option Plan; except any
shares issued upon the exercise of such options; any shares issued upon the
exercise of any other options or warrants outstanding on the Effective Date; and
the Warrants, Stock Purchase Option, and Underwriter's Warrants) without the
Underwriter's prior written consent, which will not be unreasonably withheld.
(i) The Company has caused each of its officers, directors, and each of
its other shareholders owning 5% or more of the Company's outstanding common
stock to enter into an agreement with the Underwriter pursuant to the terms of
which each such Person has agreed not to sell any shares owned directly or
indirectly by such person for a period of 12 months from the Effective Date
without the Underwriter's prior written consent, which will not be unreasonably
withheld.
(j) Except as described in the Registration Statement, the Company has
no subsidiaries nor contemplates acquiring subsidiaries or engaging in mergers
with or the acquisition of any companies. The Company owns all or a majority of
the outstanding capital stock of its subsidiaries, free of any liens,
encumbrances, or adverse claims of any kind.
(k) The financial statements, together with related schedules and
notes, included in the Registration Statement and Prospectus present fairly the
financial condition and results of operations of the Company as of the dates and
for the periods indicated, and are reported upon by independent public
accountants according to generally accepted accounting principles and as
required by the Regulations.
(1) Except as disclosed in the Registration Statement and the
Prospectus, the Company does not have any direct or contingent liabilities,
obligations, or claims pending, nor has it or they received threats of claims or
regulatory action by any government agency or other party. Further, except as
disclosed in the Registration Statement and the Prospectus, subsequent to the
date information is given in the Registration Statement and Prospectus: (a)
there has been no material adverse change in the management, condition
(financial or otherwise), or prospects of the Company or in its business taken
as a whole; (b) there has been no material transaction entered into by the
Company other than transactions in the ordinary course of business; (c) the
Company has not incurred any material obligations, contingent or otherwise,
which are not disclosed in the Registration Statement and the Prospectus (except
liabilities incurred in the ordinary course of business which do not in the
aggregate result in a material adverse change in the financial or other
condition, business, or prospects of the Company); (d) there has been no change
in the capital or long term debt (except current payments) of the Company or any
subsidiary; (e) the Company has not paid or declared any dividends or other
distributions on its common shares; and (f) the Company has not committed to any
of the foregoing.
(m) The Company's securities, however characterized, are not subject to
preemptive or registration rights. No shareholder of the Company has any
cumulative or extraordinary voting rights by agreement or otherwise.
(n) The Company has the legal right and authority and has taken all
necessary corporate action to enter into this Agreement, and, upon its
execution, to effect the proposed sale of the Units, to execute and deliver the
Stock Purchase Option and the Warrant Agreement, and to effect all other
transactions contemplated by this Agreement. This Agreement, the Stock Purchase
Option, the Impoundment Agreement, and the Warrant Agreement are valid and
binding agreements of the Company and are enforceable against the Company in
accordance with their respective terms, except as enforcement may be limited by
bankruptcy, moratorium, or similar laws governing creditors' rights generally;
except as the availability of equitable remedies is subject to the exercise of
judicial discretion; and except as provisions pertaining to indemnification may
be unenforceable under federal or state securities laws.
(o) The Company knows of no person who has rendered any services in
connection with the introduction of the Company to the Underwriter. No broker's
or other finder's fees are due and payable by the Company and none will be paid
by it.
(p) The Company is eligible to use Form SB-2 for offering the Units.
(q) The Company and its affiliates are not currently offering any
securities nor has the Company or its affiliates offered or sold any securities
except as required to be described (and as so described) in the Registration
Statement.
(r) The Company will not file any amendment or supplement to the
Registration Statement, Prospectus, or exhibits unless the Underwriter and its
counsel have been previously furnished a copy, and unless the Underwriter or its
counsel have consented in writing to the filing of the amendment or supplement,
nor will the Company request that the Registration Statement be declared
effective without the Underwriter's consent.
(s) The Company possesses adequate certificates or permits issued by
the appropriate federal, state, and local regulatory authorities necessary to
conduct its business and to retain possession of its properties. The Company has
not received any notice of any proceeding relating to the revocation or
modification of any of these certificates or permits.
(t) The Company filed all tax returns required to be filed and is not
in default in the payment of any taxes which have become due pursuant to any law
or any assessment. No tax return is the subject of any current or announced
examination by any taxing authority.
(u) The Company has marketable title or a valid leasehold interest to
all properties, including intellectual properties, described in the Registration
Statement as owned or used by it. The properties are free and clear of all
liens, charges, encumbrances, or restrictions, however characterized, except as
described in the Registration Statement. All of the contracts, leases,
subleases, patents, copyrights, licenses, and agreements, however characterized,
under which the Company holds properties as described in the Registration
Statement are in full force and effect. The Company is not in default under any
of the material terms or provisions of any contracts, leases, subleases,
patents, copyrights, licenses, or agreements under which the Company holds its
properties. There are no known claims against the Company concerning the
Company's under such leases, subleases, patents, copyrights, licenses, and
agreements and concerning its right to continued possession of its properties.
(v) All original documents (or genuine copies thereof) and other
information relating to the Company's affairs have and will continue to be made
available upon request to the Underwriter and to its counsel at the
Underwriter's office or at the office of the Underwriter's counsel and copies of
any such documents will be furnished upon request to the Underwriter and to its
counsel. Included within the documents made available have been at least the
Articles of Incorporation and any Amendments; minutes of all of the meetings of
the Incorporators, Directors and Shareholders; all financial statements; and
copies of all contracts, leases, patents, copyrights, licenses, or agreements to
which the Company is a party or in which the Company has an interest.
(w) The Company has appointed Norwest Bank Minnesota, N.A.,
Minneapolis, Minnesota, as the Company's transfer and warrant agent. The Company
will continue to retain a transfer agent reasonably satisfactory to the
Underwriter for so long as the Company is subject to the reporting requirements
under Section 12(a) or Section 15(d) of the Securities Exchange Act of 1934, or
so long as the Underwriter is a principal market-maker in shares of the
Company's common stock, and so long as the Warrants are outstanding. The Company
will make arrangements to have available at the office of the transfer agent
sufficient quantities of the Company's common stock and warrant certificates as
may be needed for the quick and efficient transfer of the Shares and exercise of
the Warrants.
(x) The Company will use the proceeds from the sale of the Units
substantially as set forth under "Use of Proceeds" in the Registration Statement
and Prospectus.
(y) There are no contracts or other documents required to he described
in the Registration Statement or to be filed as exhibits to the Registration
Statement which have not been described or filed as required.
(z) The Company is not (with or without notice or lapse of time) in
material default under any of the contracts, leases, licenses commitments,
debentures, notes, or agreements to which it is a party or by which it or its
properties is bound. The execution and delivery of this Agreement and the
consummation of the transactions herein contemplated and compliance with the
terms of this Agreement will not (with or without notice or lapse of time)
conflict with or result in a breach of or give any party the right to accelerate
or declare a default under any of the material terms, conditions or provisions
of, or constitute a material default under, the Articles of Incorporation or
Bylaws of the Company, or any note, indenture, mortgage, deed of trust, or other
agreement or instrument to which the Company is a party or by which it or any of
its property is bound, or result in a violation of any existing law, order,
rule, regulation, writ, injunction, or decree of any government, governmental
instrumentality, agency or body, arbitration tribunal or court, domestic or
foreign, having jurisdiction over the Company, or its property. The consent,
approval, authorization, or order of any court or governmental instrumentality,
agency, or body is not required for the consummation of the transactions herein
contemplated except such as may be required under the Act, under the Blue Sky or
securities laws of any state or jurisdiction, or the rules of the National
Association of Securities Dealers, Inc. (the "NASD").
(aa) Each contract to which the Company and its subsidiaries is a party
has been duly and validly executed, is in full force and effect in all material
respects in accordance with their respective terms, and no contracts have been
assigned by the Company, except as disclosed in the Registration Statement and
Prospectus. The Company knows of no present situation, condition, or fact which
would prevent compliance with the terms of such contracts. Except for amendments
or modifications of contracts in the ordinary course of business and except as
disclosed in the Registration Statement and Prospectus, the Company has no
intention of exercising any right which would cancel any of its obligations
under any contract, and has no knowledge that any other party to any contract in
which the Company has an interest has any intention not to render full
performance under such contract.
(bb) The Company has not made any representation, whether oral or in
writing, to anyone, whether an existing shareholder or not, that any of the
Shares will be reserved for or directed to them during the proposed public
offering.
(cc) The Company has caused each of its current shareholders to agree
in writing with respect to shares acquired by them prior to the Effective Date
that they have acquired the shares for investment purposes only and they
acknowledge that they hold "restricted securities" as defined in Rule 144 of the
Commission.
(dd) Except as disclosed in the Registration Statement and Prospectus,
there is no action, suit, or proceeding pending before any court or governmental
agency, authority or body or, to the knowledge of the Company, threatened which
might result in judgments against the Company not adequately covered by
insurance or which collectively might result in any material adverse change in
the condition (financial or otherwise), the business, or the prospects of the
Company, or which would materially affect the properties or assets of the
Company.
(ee) All of the above representations and warranties shall survive the
Closing performance, or termination of this Agreement.
2. Covenants, Representations, and Warranties of the Underwriter. The
Underwriter represents and warrants as follows as of the date hereof and as of
each closing date as if made on such date:
(a) It is registered as a broker-dealer with the Commission, in good
standing with the Minnesota Department of Commerce, and is registered, to the
extent registration is required, with the appropriate governmental agency in
each state in which it offers or sells the shares and is a member of the
National Association of Securities Dealers, Inc. ("NASD") and will use its best
efforts to maintain such registrations, qualifications, and memberships
throughout the term of the offering.
(b) To the knowledge of the Underwriter, no action or proceeding is
pending against the Underwriter or any of its officers or directors concerning
the Underwriter's activities as a broker or dealer that would affect the
Company's offering of the Shares.
(c) The Underwriter will offer the Units only in those states and in
the quantities that are identified in the Blue Sky Memoranda from the
Underwriter's counsel to the Underwriter that the offering of the Units has been
qualified for sale under the applicable state statutes and regulations. The
Underwriter, however, may offer the Units in other states if (i) the transaction
is exempt from the registration requirements in that state, (ii) the Company's
counsel has received notice ten days prior to the proposed sale, and (iii) the
Company's counsel does not object within said ten day period.
(d) The Underwriter knows of no person who rendered any services in
connection with the introduction of the Company to the Underwriter. No person
acting by, through or under the Underwriter will be entitled to receive from the
Underwriter or from the Company any finder's fees or similar payments.
(e) The written information provided by the Underwriter for inclusion
in the Registration Statement and Prospectus consists of certain information on
the front and back Prospectus cover pages, and that set forth under
"Underwriting" in the Prospectus. Such information contains no misstatement of a
material fact and does not omit any material fact necessary to make such
statements not misleading.
(f) The Underwriter will, reasonably promptly after the Closing date,
supply the Company with all information required from the Underwriter for the
completion of Form SR and such additional information as the Company may
reasonably request to be supplied to the securities commissions of such states
in which the Units have been qualified for sale.
(g) All of the above representations and warranties shall survive the
performance or termination of this Agreement.
3. Employment of the Underwriter In reliance upon the representations
and warranties and subject to the terms and conditions of this Agreement:
(a) The Company employs the Underwriter as its exclusive agent to sell
for the Company's account the Units, on a cash basis only, at a price of $1.00
per Unit. The Underwriter agrees to use its best efforts, as agent for the
Company, to sell the Units subject to the terms and conditions set forth in this
Agreement. It is understood between the parties that there is no firm commitment
by the Underwriter to purchase any or all of the Shares.
(b) The obligation of the Underwriter to offer the Units is subject to
receipt by it of written advice from the Commission that the Registration
Statement is effective, is subject to the Units being qualified for offering
under applicable laws in the states as may be reasonably designated by the
Underwriter, is subject to the absence of any prohibitory action by any
governmental body, agency or official, and is subject to the terms and
conditions contained in this Agreement and in the Registration Statement
covering the offering to which this Agreement relates.
(c) The Company and the Underwriter agree that the agency between the
Company and the Underwriter will terminate ninety (90) days from the Effective
Date (which period may be extended for an additional period not to exceed thirty
(30) days by mutual agreement between the Company and the Underwriter). If the
agency between the Company and the Underwriter terminates without at least
650,000 Units being sold, the full proceeds which have been paid for the Units
shall be returned to the purchasers. Prior to the sale of all of the Units to be
offered, all proceeds received from the sale of the Shares will be deposited in
an impoundment account entitled "BankWindsor-Illuminated Media, Inc." with
BankWindsor, Minneapolis, Minnesota.
(d) The Company, the Underwriter and BankWindsor, Minneapolis,
Minnesota, will, prior to offering the Units, enter into an Impoundment
Agreement in form satisfactory to the parties and approval by the Minnesota
Commissioner of Securities. The parties mutually agree to faithfully perform
their obligations under the an Impoundment Agreement. The Underwriter will
promptly deliver the funds into the impoundment account in accordance with Rule
15(c)2-4 of the Securities Exchange Act of 1934, as amended but in any event not
to exceed noon of the next business day after receipt of such funds.
(e) The Underwriter shall have the right to associate with other
dealers as it may determine and shall have the right to grant to such persons
such concessions out of the commissions to be received by the Underwriter as the
Underwriter may determine, under and pursuant to a Selected Dealer Agreement in
the form filed as an exhibit to the Registration Statement.
(f) Subject to the sale of at least 650,000 Units, the Company agrees
to pay to the Underwriter an underwriting commission computed at the rate of
$.10 (10% of the public offering price) for each of the Unit sold by the
Underwriter at the public offering price of $1.00 per Unit. This commission
shall be payable in certified funds upon the release of the funds which have
been deposited in the escrow account.
4. Expenses of the Underwriter.
(a) Subject to the sale of at least 650,000 Units, and subject to the
provisions of paragraph 14(e) hereof, the Company shall reimburse the
Underwriter for its expenses on a non-accountable basis in an amount of 2.75% of
the offering proceeds. The Underwriter acknowledges that it has received $5,000
cash of the non-accountable expense allowance. Subject to the provisions of
paragraph 14(e) hereof, the remaining non-accountable expense allowance is due
on the release of the funds in the impoundment account to the Company.
(b) Except as stated in subparagraph 14(e) of this Agreement, the
Underwriter agrees that out of its non-accountable expense allowance the
Underwriter will pay all costs incurred or to be incurred by the Underwriter or
by its personnel in connection with the offering of the Units, except those to
be paid by the Company as described in paragraph 5 hereof.
5. Expenses of the Company.
The Company will pay, whether or not the transactions contemplated
hereunder are consummated or this Agreement is prevented from becoming effective
or is terminated, all costs and expenses incident to the performance of its
obligations under this Agreement, including (without limitation) (i) all
expenses incident to the authorization of the Units and their issue and delivery
to the Underwriter; (ii) any original issue taxes in connection therewith and
all transfer taxes, if any, incident to the initial sale of the Units to the
public; (iii) the costs and expenses incident to the preparing, printing, and
filing the Registration Statement and Prospectus under the Act and with the NASD
of the Registration Statement, any Preliminary Prospectus, and the definitive
Prospectus and any amendments or supplements thereto; (iv) the cost of printing,
reproducing, and filing all exhibits to the Registration Statement, the
underwriting documents, and the Selected Dealers Agreement; (v) the cost of
printing and furnishing to the Underwriter copies of the Registration Statement
and copies of the Prospectus as herein provided; (vi) the cost of "tombstone" or
other similar advertising permitted under the Act (subject to our mutual
agreement as to the amount); and (vii) the cost of qualifying the Units under
the state securities or Blue Sky laws as provided herein, including expenses and
disbursements of the Underwriter and the Underwriter's counsel fees incurred in
connection with such qualification if the Underwriter's counsel undertakes to
effect such qualification.
6. Stock Purchase Option.
Subject to the sale of all of the Shares, the Company agrees to sell to
the Underwriter (or its designees) an option (the "Stock Purchase Option"), in
form attached as Exhibit A hereto, for a purchase price of $100, entitling the
Underwriter to purchase that number of the Company's shares of Common Stock
equal to 10% of the Units sold in the offering.
7. Threat of Regulatory Action.
The Company and the Underwriter agree to advise each other immediately
and confirm in writing the receipt of any threat of or the initiation of any
steps or procedures which would impair or prevent the right to offer the Shares
or the issuance of any suspension or stop orders or other prohibitions
preventing or impairing the proposed offering of the Units. In the case of the
happening of any such event, neither the Company nor the Underwriter will
acquiesce in such steps, procedures, or suspension orders if such acquiescence
would adversely affect the other party or this offering and, in such event, each
party agrees to actively defend any such actions or orders unless both parties
agree in writing to acquiesce in such actions or orders or unless counsel for
each party advises the parties that the probability of successfully defending
against such actions or orders is remote.
8. Further Covenants of the Company. The Company further covenants and
agrees with the Underwriter as follows:
(a) The Company will advise the Underwriter as soon as the Company is
advised of any comments by the Commission, of any request made by the Commission
for an amendment to the Registration Statement or Prospectus or for supplemental
information, and of any order or of the institution of any adverse proceedings
with respect to the offering of the Units. The Company will immediately deliver
to the Underwriter copies of any letters or other documents containing such
comments, requests, or notice of such proceedings involved.
(b) The Company will use its best efforts to qualify the sale of the
Units in such states as shall be reasonably designated by the Underwriter. The
officers, directors, promoters, and shareholders of the Company will comply with
applicable state escrow requirements, including those pertaining to the escrow
of shares, provided that the period of escrow shall not exceed two years from
the Effective Date and provided that the period of escrow shall only be based
upon the passage of time.
(c) The Company will provide the Underwriter and its counsel with
copies of all applications for the registration or qualification of Units filed
with the various state authorities and will provide the Underwriter and its
counsel with copies of all comments and orders received from these authorities.
(d) The Company will deliver to the Underwriter and to other
broker-dealers as directed by the Underwriter as many copies of preliminary
Prospectuses as the Underwriter may reasonably request during the period
following filing the Registration Statement. The Company will deliver to the
Underwriter and to other broker-dealers as requested by the Underwriter as many
copies of the definitive Prospectus as the Underwriter may reasonably request
during the period of the offering and for 90 days after the Effective Date.
(e) The Company will furnish to the Underwriter for so long as the
Company's common stock is registered under the Securities Exchange Act of 1934
and for so long as the Warrants are outstanding with the following:
(1) Within 90 days after the close of each fiscal year of the
Company, a financial report of the Company and its subsidiaries, if
any, on a consolidated basis, such report to include such information
in such form as the Company shall be required to include in reports for
that fiscal year to be filed with the Commission and such report to be
certified by independent public accountants;
(2) Within 60 days after the end of each quarterly fiscal
period of the Company other than the last quarterly fiscal period in
any fiscal year, copies in printable form of the financial statements
of the Company and its subsidiaries, if any, on a consolidated basis,
for that period and as of the end of that period, which financial
statements shall include a narrative discussion of such financial
statements and of the business conducted by the Company and its
subsidiaries, if any, during such fiscal quarter and such information
in such form as the Company shall be required to include in reports for
that period to be filed with the Commission, all subject to year-end
adjustment, signed by the principal financial or accounting officer of
the Company;
(3) As soon as is available, a copy of each report of the
Company mails to shareholders or files with the Commission;
(4) Copies of all news, press, or public information releases
when made;
(5) Upon request in writing from the Underwriter, such other
information as may reasonably be requested concerning the properties,
business and affairs of the Company and its subsidiaries, if any.
(f) The Company agrees to notify the Underwriter immediately of any
event that materially affects the Company or its securities and that should be
set forth in an amendment or supplement to the Registration Statement or the
Prospectus in order to make the statements made therein not misleading.
Similarly, the Company agrees to prepare and furnish to the Underwriter as many
copies as the Underwriter may request of an amended Prospectus or a supplement
to the Prospectus in order that the Prospectus as amended or supplemented will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or that is necessary in order to
make the statements made therein not misleading.
(g) The Company will file with the Commission the required Reports on
Form SR and will file with the appropriate state securities commissioners any
sales and other reports required by the rules and regulations of such agencies
and will supply copies to the Underwriter.
(h) As soon as practicable after successful termination of the offering
of the Units, the Company will make a filing under Section 12(g) of the
Securities Exchange Act of 1934, as amended, on Form 8-A with respect to its
common stock, Units, and Warrants, and will use its best efforts to cause it to
become effective. The Company agrees to deliver a copy of the Form 8-A to the
Underwriter and to its counsel when filed.
(i) Except with the Underwriter's approval, the Company agrees that the
Company will not do the following until (a) the completion of the offering of
the Units, or (b) the termination of this Agreement, or (c) 90 days after the
Effective Date, whichever occurs later:
(1) Undertake or authorize any change in its capital structure or
authorize, issue, or permit any public or private offering of additional
securities;
(2) Authorize, create, issue, or sell any funded obligations, notes or
other evidences of indebtedness, except in the ordinary course of business and
within 12 months of their creation;
(3) Consolidate or merge with or into any other corporation; or
(4) Create any mortgage or any lien upon any of its properties or
assets except in the ordinary course of its business.
(j) For so long as the Company's Units, common stock or warrants are
registered under the Securities Exchange Act of 1934, as amended, the Company
will hold an annual meeting of shareholders for the election of directors within
180 days after the end of each of the Company's fiscal years and, within 180
days after the end of each of the Company's fiscal years, will provide the
Company shareholders with the audited financial statements of the Company as of
the end of the fiscal year just completed prior thereto. Such financial
statements shall be those required by Rule 14a-3 under the Securities Exchange
Act of 1934, as amended, and shall be included in an annual report meeting the
requirements of the Rule. Further, the Company agrees to make available to the
Underwriter and the Company's shareholders in printable form within 60 days
after the end of each fiscal quarter of the Company (other than the last fiscal
quarter in any fiscal year) reasonably itemized financial statements of the
Company and its subsidiaries, if any, for the fiscal quarter just ended and a
narrative discussion of such financial statements and the business conducted by
the Company and its subsidiaries, if any, during such quarter.
(k) As soon as practical, but in any event not later than fifteen
months after the Effective Date, the Company will make generally available to
its securities holders, according to Section ll(a) of the Act, an earnings
statement of the Company in reasonable detail covering a period of at least
twelve months beginning after the Effective Date and will advise the Underwriter
in writing that such statement has been made available.
(1) The Company agrees to have the Units and Underlying Securities
listed on NASDAQ on the first day of trading in the Units. The Company and the
Underwriter will agree upon the NASDAQ symbol to be used. The Company will
obtain a CUSIP number for its common stock, Units, and Warrants.
(m) Within 30 days after the successful termination of the offering of
the Shares, the Company agrees to submit information about the Company to be
included in various securities manuals, including Moody's Over-The-Counter
Manual and/or Standard & Poor's, Standard Corporation Records to facilitate
secondary trading in the Shares.
(n) The Company will qualify the Units for secondary trading in
California as soon as possible.
(o) The Company agrees to cause the stock certificates of all of the
current shareholders of the Company and of any future officers or directors of
the Company to be clearly legended as being restricted against transfer without
compliance with the Act and to cause the Company's transfer agent to put stop
transfer instructions against such stock certificates.
(p) The officers and directors of the Company at the time of the filing
of the Company's Registration Statement and at the effective date of the
Company's Registration Statement shall be reasonably acceptable to the
Underwriter.
(q) The Company shall keep the Registration Statement and qualification
under such Blue Sky laws as reasonably requested by the Underwriter effective
for so long as the Warrants are outstanding and shall distribute to the Warrant
holders supplemented or amended Prospectuses as required by the Act to permit
exercise thereof.
(r) Prior to the first Closing, the Company shall execute a warrant
agreement with the warrant agent satisfactory to the Underwriter.
(s) As soon as practicable, the Company shall deliver to the
Underwriter a cash budget and projections of cash flow, capital expenditures,
and profit or loss, all in form and containing such information as is reasonably
satisfactory to the Underwriter.
(t) Until this Agreement is terminated as provided herein, the Company
will not engage another underwriter or agent to offer the Units.
9. Indemnification By Company.
The Company agrees to indemnify and hold harmless the Underwriter and
each person who controls the Underwriter within the meaning of Section 15 of the
Act against any and all losses, claims, damages or liabilities, joint or
several, to which they or any of them may become subject under the Act or any
other statute or at common law and to reimburse persons indemnified as above for
any legal or other expenses (including the cost of any investigation and
preparation) incurred by them in connection with any litigation, whether or not
resulting in any liability, but only insofar as such losses, claims, damages,
liabilities and litigation arise out of or are based upon any untrue statement
or alleged untrue statement of a material fact contained in the Registration
Statement or any amendment thereto or any application or other document filed in
order to qualify the Shares under the Blue Sky or securities laws of the states
where filings were made, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, all as of the date when the Registration Statement or
such amendment, as the case may be, becomes effective, or any untrue statement
or alleged untrue statement of a material fact contained in the Prospectus (as
amended or supplemented if the Company shall have filed with the Commission any
amendments thereof or supplements thereto), or the omission or alleged omission
to state therein a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided, however, that the indemnity agreement contained in this
Section 9 shall not apply to amounts paid in settlement of any such litigation
if such settlements are effected without the consent of the Company, nor shall
it apply to the Underwriter or any person controlling the Underwriter in respect
of any such losses, claims, damages, liabilities, or actions arising out of or
based upon any such untrue statements or alleged untrue statement, or any such
omission or alleged omission, if such statement or omission was made in reliance
upon information peculiarly within the knowledge of the Underwriter and
furnished in writing to the Company by the Underwriter specifically for use in
connection with the preparation of the Registration Statement and Prospectus or
any such amendment or supplement thereto. This indemnity agreement is in
addition to any other liability which the Company may otherwise have to the
Underwriters. The Underwriter agrees within ten days after the receipt by it of
written notice of the commencement of any action against them or against any
person controlling them as aforesaid, in respect of which indemnity may be
sought from the Company on account of the indemnity agreement contained in this
Section 9 to notify the Company in writing of the commencement thereof. The
failure of the Underwriter so to notify the Company of any such action shall
relieve the Company from any liability which it may have to the Underwriters or
any person controlling them as aforesaid on account of the indemnity agreement
contained in this Section 9, but shall not relieve the Company from any other
liability which it may have to the Underwriters or such controlling person. In
case any such action shall be brought against the Underwriters or any such
controlling person and the Underwriters shall notify the Company of the
commencement thereof, the Company shall be entitled to participate in (and, to
the extent that it shall wish, to direct) the defense thereof at its own
expense, but such defense shall be conducted by counsel of recognized standing
and reasonably satisfactory to the Underwriter or such controlling person or
persons, defendant or defendants in such litigation. The Company agrees to
notify the Underwriter promptly of commencement of any litigation or proceedings
against it or any of its officers or directors, of which it may be advised, in
connection with the issue and sale of any of its securities and to furnish to
the Underwriter, at its request, copies of all pleadings therein and permit the
Underwriter to be an observer therein and apprise the Underwriter of all
developments therein, all at the Company's expense. Provided, however, that in
no event shall the indemnification agreement contained in this Section 9 inure
to the benefit of any Underwriter (or any person controlling such Underwriter)
on account of any losses, claims, damages, liabilities or actions arising from
the sale of the Units based upon any misstatement of a material fact or omission
to state a material fact in any information included in the Registration
Statement furnished by the Underwriter and pertaining to the Underwriter.
10. Indemnification By Underwriter.
The Underwriter agrees, to the extent of and in the same manner as set
forth in Section 9 above, to indemnify and hold harmless the Company, the
directors of the Company and each person, if any, who controls the Company
within the meaning of Section 15 of the Act with respect to any statement in or
omission from the Registration Statement or any amendment thereto, or the
Prospectus (as amended or as supplemented, if amended or supplemented as
aforesaid) or any application or other document filed in any state or
jurisdiction in order to qualify the Units under the blue sky or securities laws
thereof, if such statement or omission was made in reliance upon information
peculiarly within its knowledge and furnished in writing to the Company by the
Underwriter on its behalf specifically for use in connection with the
preparation thereof or supplement thereto. The Underwriter shall not be liable
for amounts paid in settlement of any such litigation if such settlement was
effected without the consent of the Underwriter. In case of commencement of any
action in respect of which indemnity may be sought from the Underwriter on
account of the indemnity agreement contained in this Section10, each person
agreed to be indemnified by the Underwriter shall have the same obligation to
notify the Underwriter as the Underwriter have toward the Company in Section 9
above, subject to the same loss of indemnity in the event such notice is not
given, and the Underwriter shall have the same right to participate in (and, to
the extent that it shall wish, to direct) the defense of such action at its own
expense, but such defense shall be conducted by counsel of recognized standing
and satisfactory to the Company. The Underwriter agrees to notify the Company
promptly of the commencement of any litigation or proceeding against the
Underwriter,, or against any such controlling person, of which it may be
advised, in connection with the issue and sale of any of the securities of the
Company, and to furnish to the Company at its request copies of all pleadings
therein and apprise it of all the developments therein, all at the Underwriter's
expense, and permit the Company to be an observer therein.
11. Contribution.
If the indemnification provided for in Sections 9 or 10 is unavailable
to or insufficient to hold harmless an indemnified party in respect of any
losses, claims, damages, expenses or liabilities (or actions in respect thereof)
referred to therein, then each indemnifying party shall in lieu of indemnifying
such indemnified party contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, expenses or
liabilities (or actions in respect thereof) in such proportion as is appropriate
to reflect not only (i) the relative benefits received by the Company on the one
hand and the Underwriter on the other from the offering of the Shares, but also
(ii) the relative fault of the Company and the Underwriter in connection with
the statements or omissions which resulted in such losses, claims, damages,
expenses or liabilities (or action in respect thereof), as well as any other
relevant equitable considerations. The relative benefits received by the Company
on the one hand and the Underwriter on the other shall be deemed to be in the
same proportion as the total net proceeds from the offering of the Shares
(before deducting expenses other than the non-accountable expense allowance
payable by the Company to the Underwriter) received by the Company bear to the
total underwriting commissions and expense allowance received by the Underwriter
in each case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company or the Underwriter, and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or omission.
The Company and the Underwriter agree that it would not be just and equitable if
contribution pursuant to this Section 11 were determined by pro rata allocation
or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 11. The amount paid
or payable by an indemnified party as a result of the losses, claims, damages,
expenses or liabilities (or actions in respect thereof) referred to above in
this Section 11 shall he deemed to include any legal or other expenses to which
such indemnified party would be entitled if Section 9 and 10 were applied.
Notwithstanding the provisions of this Section 11, the Underwriter shall not be
required to contribute any amount in excess of the amount by which the total
price which the Shares underwritten by it and distributed to the public exceeds
the amount of any damages which the Underwriter has otherwise been required to
pay by reason of such untrue or alleged untrue statement or omission or alleged
omission plus the Underwriter's proportionate share of such legal or other
expenses; and any punitive or exemplary damages if the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by or statements made by the
Underwriter. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11 of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
12. Conditions Precedent to the Obligations of the Underwriter.
All obligations of the Underwriter under this Agreement, and
disbursement of the proceeds of this offering to the Company are subject to the
following conditions precedent:
(a) The Registration Statement shall have become effective on or prior
to 12:00 Noon Minneapolis time, on February 15, 1997, or such later date as the
Underwriter may agree to. On or prior to the Closing Date, no order suspending
the effectiveness of the Registration Statement shall have been issued and no
proceeding for that purpose shall have been initiated or threatened by the
Commission or be pending; any request for additional information on the part of
the Commission (to be included in the Registration Statement or Prospectus or
otherwise) shall have been complied with to the satisfaction of the Commission;
and neither the Registration Statement or the Prospectus nor any amendment
thereto shall have been filed to which counsel to the Underwriter shall have
reasonably objected in writing or have not given their consent.
(b) The Underwriter shall not have disclosed in writing to the Company
that the Registration Statement or the Prospectus or any amendment thereof or
supplement thereto contains an untrue statement of a fact which, in the opinion
of counsel to the Underwriter, is material, or omits to state a fact which, in
the opinion of such counsel, is material and is required to be stated therein,
or is necessary to make the statements therein not misleading.
(c) The Company's warranties and representations set forth herein shall
be true as of the Closing Date and the Company shall have kept and observed all
covenants required of it to such date.
(d) The authorization of the Units, the Warrants, the Stock Purchase
Option, and the Underlying Securities, the Registration Statement and the
Prospectus, and all corporate proceedings and other legal matters incident
thereto and to this Agreement shall be reasonably satisfactory in all respects
to counsel to the Underwriter. The Underwriter shall have received an opinion
dated as of the Closing Date from its counsel, substantially in the form of the
opinion called for by Section (d), qualified in such manner as the Underwriter
may deem acceptable.
(e) The Company (which term shall include any subsidiaries of the
Company) shall have furnished to the Underwriter the opinion, dated the Closing
Date, addressed to the Underwriter, from Keller & Lokken, P.A., counsel to the
Company, to the effect that based upon a review by them of the Registration
Statement; the Prospectus, and the Company's Articles of incorporation, bylaws,
and relevant corporate proceedings; an examination of such statutes they deem
necessary, and such other investigation by such counsel as they deem necessary
to express such opinion:
(i) The Company has been duly incorporated and is a validly
existing corporation in good standing under the laws of Minnesota, with
full corporate power and authority to own and operate its properties
and to carry on its business as set forth in the Registration Statement
and Prospectus.
(ii) The Company is not required to qualify or register as a
foreign corporation in any state, and there are no jurisdictions in
which the Company's ownership of property or its conduct of business
requires such qualification or registration and where the failure to so
qualify would have a material adverse effect on its operations.
(iii) The Company has authorized and outstanding capital
capital stock as set forth in the Registration Statement and
Prospectus; the capitalization of the Company, the Units, the Warrants,
and the Stock Purchase Option conform to the statements concerning them
in the Registration Statement and Prospectus; the outstanding capital
stock of the Company has been duly and validly issued and is fully-paid
and nonassessable and contain no preemptive or other stock purchase
rights; the Shares have been, and the Shares and Warrant Shares
issuable upon due exercise of the Warrants will be, when delivered
against payment, duly and validly authorized and, upon issuance thereof
and payment therefor in accordance with this Agreement and the
Warrants, will be duly and validly issued, fully paid, and
nonassessable, and will not be subject to the preemptive rights of any
shareholder of the Company.
(iv) The Stock Purchase Option has been duly and validly
authorized and issued and is a valid and binding instrument enforceable
against the Company in accordance with its terms, except as enforcement
may be limited by bankruptcy or similar laws affecting creditors'
rights general application affecting creditors' rights, except as the
availability of equitable remedies requires the exercise of judicial
discretion, and except as enforcement of the indemnification provisions
therein may be limited by federal or state securities laws.
(v) A sufficient number of shares of the Company's common
stock have been duly reserved for issuance upon exercise of the
Warrants, the Stock Purchase Option and the Underwriter's Warrants. The
shares of Common Stock issuable on due exercise of the Stock Purchase
Option and the Warrants included therein will be validly issued fully
paid, and non-assessable.
(vi) No consents, approvals, authorizations, or orders of
agencies, officers, or other regulatory authorities are known to such
counsel which are necessary for the valid authorization, issue, or sale
of the Units and Warrant Shares hereunder, except as required under the
Act or blue sky or state securities laws.
(vii) The issuance and sale of the Units, the Shares, the
Warrants, the Warrant Shares, the Stock Purchase Option and the
Underwriter's Warrants Regulatory and the consummation of the
transactions herein contemplated, and compliance with the terms of this
Agreement and the transactions contemplated therein will not (with or
without notice or lapse of time) conflict with or result in a breach of
any of the terms, conditions, or provisions of or constitute a default
or give another party a right to accelerate under the articles of
incorporation or bylaws of the Company, or under any note, indenture,
mortgage, deed of trust, or other agreement or instrument known to such
counsel after reasonable investigation to which the Company is a party
or by which the Company or any of its property is bound, or under any
existing law (provided this paragraph shall not relate to federal or
state securities laws), order, rule, regulation, writ, injunction, or
decree known to such counsel of any government, governmental
instrumentality, agency, body, arbitration tribunal, or court, domestic
or foreign, having jurisdiction over the Company or its property.
(viii) The Registration Statement has become effective under
the Act and, to the best knowledge of such counsel after reasonable
investigation, no order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that
purpose have been instituted or are pending or contemplated by the
Commission under the Act or by any authority acting under any state
securities or blue-sky law; and the Registration Statement and
Prospectus, and each amendment and supplement thereto, comply as to
form in all material respects with the requirements of the Act and the
Regulations thereunder.
(ix) Such counsel is familiar with all contracts referred to
in the Registration Statement or Prospectus and such contracts are
sufficiently summarized or disclosed therein or filed as exhibits
thereto as required, and such counsel, after a reasonable
investigation, does not know of any contracts required to be summarized
or disclosed or filed, and such counsel, after a reasonable
investigation, does not know of any legal or governmental proceedings
pending or threatened to which the Company is the subject of such a
character required to be disclosed in the Registration Statement or the
Prospectus which are not disclosed and properly described therein.
(x) This Agreement, the Warrant Agreement, the Impoundment
Agreement, and the Stock Purchase Option have been duly authorized and
executed by the Company and are valid and binding agreements of the
Company and are enforceable against the Company in accordance with
their terms,; except as enforcement may be limited by bankruptcy or
similar laws affecting creditors' rights except as the availability of
equitable remedies requires the exercise of judicial discretion, and
except as enforcement of the indemnification provisions therein may be
limited by federal or state securities laws.
(x) After a reasonable investigation such counsel has no
reason to believe that either the Registration Statement nor the
Prospectus or any such amendment or supplement contains any untrue
statement of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances under which made (except that
no opinion need be expressed as to financial statements contained in
the Registration Statement or Prospectus).
As to routine factual matters such as the issuance of stock
certificates and receipt of payment therefor, the states in which the Company
transacts business, the adoption of resolutions reflected by the Company's
minute book and the like, such counsel may rely on the certificate of an
appropriate officer of the Company. Such opinion shall also cover such other
matters incident to the transactions contemplated by this Agreement as the
Underwriter shall reasonably request.
(f) Intentionally omitted.
(h) Between the date hereof and the Closing Date, there shall be no
litigation instituted or threatened against the Company and there shall be no
proceeding instituted or threatened against the Company before or by any federal
or state commission, regulatory body or administrative agency or other
governmental body, domestic or foreign, wherein an unfavorable ruling, decision
or finding would materially adversely affect the business, franchises, licenses,
patents, operations or financial condition or income of the Company considered
as an entity.
(i) The Company shall have furnished to the Underwriter a certificate
by the chief executive officer and chief financial officer, dated as of the
Closing Date, to the effect that:
(i) The representations and warranties of the Company in this
Agreement are true and correct at and as of the Closing Date, and the
Company has complied with all the agreements and has satisfied all the
conditions on its part to be performed or satisfied at or prior to the
Closing Date.
(ii) The Registration Statement has become effective and no
order suspending the effectiveness of the Registration Statement has
been issued and to the best of the knowledge of the respective signers,
no proceeding for that purpose has been initiated or is threatened by
the Commission.
(iii) The respective signers have each carefully examined the
Registration Statement and Prospectus and any amendments and
supplements thereto, and the Registration Statement and the Prospectus
and any amendments and supplements thereto contain all statements
required to be stated therein, and all statements contained therein are
true and correct, and neither the Registration Statement nor Prospectus
nor any amendment or supplement thereto includes any untrue statement
of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading and, since the effective date of the Registration Statement,
there has occurred no event required to be set forth in an amended or a
supplemented Registration Statement or Prospectus which has not been so
set forth.
(j) All of the Units being offered by the Company and the Warrants
being purchased from the Company by the Underwriter shall be tendered for
delivery in accordance with the terms and provisions of this Agreement.
(k) The Units shall be qualified in such states as the Underwriter may
reasonably request pursuant to Section 5.04, and each such qualification shall
be in effect and not subject to any stop order or other proceeding on the
Closing Date.
(l) All opinions, letters, certificates, and evidence mentioned above
or elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance satisfactory to counsel
to the Underwriter, whose approval shall not be unreasonably withheld. The
suggested form of such documents shall be provided to the counsel for the
Underwriter at least one business day before the Closing Date. The Underwriter's
counsel will provide a written memorandum stating such closing documents which
he deems necessary for their review. Such memorandum shall be delivered five
business days before the Closing Date to counsel for the Company.
(m) Any certificate signed by an officer of the Company and delivered
to the Underwriter or to counsel for the Underwriter will be deemed a
representation and warranty by the Company to the Underwriter as to the
statements made therein.
13. Delivery, Payment, and Closing.
"Closing", as referred to herein, shall mean each event at which
proceeds from the sale of the Units are delivered to or received by the Company.
A "Closing Date" shall be a date on which a closing is held. The Closing shall
occur at 10:00 a.m., Minneapolis time, on the fifth business day following the
date on which 650,000 Units have been sold, at the offices of the Underwriter,
unless some other time, date, and place is mutually agreed upon by the Company
and the Underwriter. Thereafter, one or more Closings will be held at monthly or
more frequent intervals as agreed upon until the Termination Date. The
provisions of Section 12 and this Section 13 shall apply to each such Closing.
At the Closing, certificates for the Units to be sold through the Underwriter
shall be registered in such names and denominations as the Underwriter shall
request at least two full business days prior to the Closing Date. Such
certificates shall be made available to the Underwriter in definitive form for
the purpose of inspection at least one day before the commencement of the
Closing.
14. Termination.
(a) This Agreement may be terminated by the Underwriter by notice to
the Company in the event that the Company shall have failed or been unable to
comply with any of the terms, conditions, or provisions of this Agreement on the
part of the Company to be performed, complied with or fulfilled within the
respective times herein provided for, unless compliance therewith or performance
or satisfaction thereof shall have been expressly waived by the Underwriter in
writing.
(b) This Agreement may be terminated by the Underwriter by notice to
the Company if the Underwriter believes in its sole judgment that any adverse
changes have occurred in the management of the Company; that material adverse
changes have occurred in the financial condition or obligations of the Company;
or if the Company shall have sustained a loss by strike, fire, flood, accident
or other calamity of such a character as, in the sole judgment of the
Underwriter, may interfere materially with the conduct of the Company's business
and operations regardless of whether or not such loss shall have been insured.
(c) This Agreement may be terminated by the Underwriter by notice to
the Company at any time if, in the sole judgment of the Underwriter, payment for
and delivery of the Shares is rendered impracticable or inadvisable because (i)
additional material governmental restrictions not in force and effect on the
date hereof shall have been imposed upon the trading in securities generally, or
minimum or maximum prices shall have been generally established on the New York
or American Stock Exchange, or trading in securities generally on either such
Exchange shall have been suspended, or a general moratorium shall have been
established by federal or state authorities; or (ii) a war or other national
calamity shall have occurred; or (iii) substantial and material changes in the
condition of the market (either generally or with reference to the sale of the
Shares to be offered hereby) beyond normal fluctuations are such that it would
be undesirable, impracticable or inadvisable in the sole judgment of the
Underwriter to proceed with this Agreement or with the public offering; or (iv)
of any matter materially adversely affecting the Company.
(d) In the event any action or proceeding shall be instituted or
threatened against the Underwriter, either in any court of competent
jurisdiction, before the Commission or any state securities commission
concerning its activities as a broker or dealer that would prevent the
Underwriter from acting as such, at any time prior to the effective date
hereunder, or in any court pursuant to any federal, state, local or municipal
statute, a petition in bankruptcy or insolvency or for reorganization or for the
appointment of a receiver or trustee of the Underwriter's assets or if the
Underwriter makes an assignment for the benefit of creditors, the Company shall
have the right on three days' written notice to the Underwriter to terminate
this Agreement without any liability to the Underwriter of any kind except for
the payment of expenses as provided in Section 4(a) and 5 herein.
(e) Any termination of this Agreement pursuant to this Section 14 shall
be without liability of any character (including, but not limited to, loss of
anticipated profits or consequential damages) on the part of any party thereto,
except that in such event (i) the Underwriter shall provide the Company with a
statement of its accountable expenses, which shall include but are not limited
to, the Underwriter's counsel fees, consultants' fees, entertainment expenses,
travel expenses, postage expenses, advertising costs, due diligence meeting
expenses, duplication expenses, long-distance telephone expenses, and other
expenses directly attributable to this offering (but not general office expenses
or overhead) incurred in connection with the proposed offering and (ii) if such
accountable expenses are more than $20,000 (including Underwriter's counsel
fees), the Underwriter shall bear such excess but the Company shall reimburse
the Underwriter for all such accountable expenses up to $20,000 or if such
accountable expenses are less than $20,000, the Underwriter shall refund any
excess payment it has received.
15. Notices. All notices shall he in writing and shall be delivered at
or mailed to the following addresses or sent by telegram to the following
addresses with written confirmation thereafter:
To the Company:
ILLUMINATED MEDIA, INC. .
15 South Fifth Street
Suite 715
Minneapolis, MN 55402
ATTN: President
With copy to
Richard P. Keller, Esq.
Keller & Lokken, P.A.
175 East Fifth Street
Suite 763
St. Paul, MN 55101
To the Underwriter:
TUSCHNER & COMPANY, INC.
Suite 1500, TCF Tower
121 South Eighth Street
Minneapolis, MN 55402
ATTN: President
With copy to
Michael L. Berde, Esq.
Furber Timmer Zahn, PLLP
2100 Metropolitan Centre
333 South Seventh Street
Minneapolis, MN 55402
16. Binding Effect.
This Agreement shall inure to the benefit of and be binding upon the
Company and the Underwriter (including the selected dealers as provided in
Sections 9 and 10) and their successors. Nothing expressed in this Agreement is
intended to give any Person other than the persons mentioned in the preceding
sentence any legal or equitable right, remedy or claim under this Agreement.
However, the representations, warranties and indemnity and defense obligations
of the Company included in this Agreement also inure to the benefit of any
person who controls the Underwriter and participating dealers within the meaning
of Section 15 of the Act and the representations, warranties, indemnities and
defense obligations of the Underwriter and participating dealers inure to the
benefit of each officer who signs the Registration Statement, each director of
the Company and each person who controls the Company within the meaning of
Section 15 of the Act.
17. Miscellaneous Provisions.
(a) Time shall be of the essence of this Agreement.
(b) This Agreement shall be construed according to the laws of the
state of Colorado.
(c) The representations and warranties made in this Agreement shall
survive the termination of this Agreement and shall continue in full force and
effect regardless of any investigation made by the party relying upon any such
representation or warranty.
(d) This Agreement is made solely for the benefit of the Company and
its officers, directors and controlling persons within the meaning of Section 15
of the Act and of the Underwriter and its officers, directors and controlling
persons within the meaning of Section 15 of the Act, and their respective
successors, heirs and Personal representatives, and no other person shall
acquire or have any right under or by virtue of this Agreement. The term
"successor" as used in this Agreement shall not include any purchaser, as such,
of the Units.
(e) The Underwriter will provide upon closing a list of all the names
and addresses of all participating dealers and shall provide the Company with
such changes of the address or name of such participating dealers as occur and
of which the Underwriter is notified. Further, the Underwriter shall use its
best efforts to maintain the current name and address of all participating
dealers during the terms of this Agreement.
If this Agreement correctly sets forth our understanding please
indicate your acceptance in the space provided below for that purpose.
Very truly yours,
ILLUMINATED MEDIA, INC.
By __________________________
President
Confirmed and accepted as of the date of this Agreement:
TUSCHNER & COMPANY, INC.
By___________________________
John M. Tuschner, President
EXHIBIT A
ILLUMINATED MEDIA, INC.
STOCK PURCHASE OPTION
Illuminated Media, Inc., a Minnesota corporation (the "Company"),
hereby agrees that, for value received, Tuschner & Company, Inc., a Minnesota
Corporation, (herein called the "Holder") or permitted assigns, is entitled to
subscribe for and purchase from the Company, at the price specified below (the
"Purchase Price"), (subject to adjustment as noted below), at any time after
______ __, _____ (one year from the date hereof) and before 5:00 p.m.,
Minneapolis time on _____________ __, ____ (five years from the date hereof),
____________ shares of the Company's common stock, par value $0.01 (the "Common
Stock"). This option (the "Option") has been issued pursuant to the Underwriting
Agreement dated _____ __, 199_, between Tuschner & Company, Inc. and the Company
for an offering of the Company's Units. The Units are described in and have been
registered under a Registration Statement on Form SB-2, File No. 33-___________,
declared effective by the Securities and Exchange Commission on _____________,
199__.
The Purchase Price (subject to adjustment as noted below) shall be
$1.20 per Unit.
This Option is subject to the following provisions, terms and
conditions:
1. The rights represented by this Option may be exercised by the holder
hereof, in whole or in part, by written notice of exercise delivered to the
Company 20 days prior to the intended date of exercise and by the surrender of
this Option (properly endorsed if required) at the principal office of the
Company and upon payment to it of the Purchase Price. The Company agrees that
the Common Stock so purchased shall be and are deemed to be issued to the holder
hereof as the record owner of such Common Stock as of the close of business on
the date on which this Option shall have been surrendered and payment made for
such Common Stock as aforesaid. Subject to the provisions of the next succeeding
paragraph, certificates for the shares of Common Stock so purchased shall be
delivered to the holder hereof within a reasonable time, not exceeding 5
calendar days, after the rights represented by this Option shall have been so
exercised, and, unless this Option has expired, a new Option representing the
number of shares of Common Stock, if any, with respect to which this Option
shall not then have been exercised shall also be delivered to the holder thereof
within such time.
2. Negotiability. This Option is issued upon the following terms, to
which each taker or owner hereof consents and agrees:
(a) Except for transfer (1) to and among the officers of the
holder, (2) pursuant to testamentary instrument or the laws of descent
and distribution, or (3) pursuant to order of a court of competent
jurisdiction in connection with to the dissolution or liquidation of a
corporate holder hereof, title to this Option may not be sold,
assigned, hypothecated or transferred for one year from the date
hereof.
(b) Subject to Section 5, the foregoing subparagraph (a), and
the next subparagraph (c), any person authorized to be a holder as
specified in subparagraph (a) above, in possession of this Option
properly endorsed, is authorized to represent himself as absolute owner
hereof and is granted power to transfer absolute title hereto by
endorsement and delivery hereof to a holder in due course. Each prior
taker or owner waives and renounces all of his equities or rights in
this Option in favor of every such holder in due course, and every such
holder in due course shall acquire absolute title hereto and to all
rights represented hereby.
(c) Transfers permitted by the terms hereof shall not be
effective until the Company is satisfied that all requirements
hereunder have been met and the transferor has executed and the Company
has received the Assignment Form attached hereto with the transferor's
signature duly guaranteed by a bank or member of the National
Association of Securities Dealers, Inc. Until this Option is
transferred on the books of the Company, the Company may treat the
registered holder of this Option as absolute owner hereof for all
purposes without being affected by any notice to the contrary.
3. (a) As used herein, the term "Common Stock" shall mean and include
the Company's presently authorized shares of Common Stock and shall also include
any capital stock of any class of the Company hereafter authorized which shall
not be limited to fixed sum or percentage of par value in respect to the rights
of the holders thereof to participate in dividends or in the distribution of
assets upon the voluntary or involuntary liquidation, dissolution or winding up
of the Company; provided that the shares purchasable pursuant to this Option
shall include shares designated as Common Stock of the Company on the date of
original issue of this Option or, in the case of any reclassification of the
outstanding shares thereof, the stock, securities or assets provided for in
paragraph above.
4. This Option shall not entitle the holder hereof to any voting rights
or other rights as a stockholder of the Company.
5. The holder of this Option, by acceptance hereof, agrees to give
written notice to the Company before transferring this Option or transferring
any Common Stock issuable or issued upon the exercise hereof of such holder's
intention to do so, describing briefly the manner of any proposed transfer of
this Option or such holder's intention as to the disposition to be made of
shares of Common Stock issuable and issued upon the exercise hereof. Such holder
shall also provide the Company with an opinion of counsel satisfactory to the
Company to the effect that the proposed transfer of this Option or disposition
of shares may be effected without registration or qualification (under any
Federal or State law) of this Option or the shares of Common Stock issuable or
issued upon the exercise hereof. Upon receipt of such written notice and opinion
by the Company, such holder shall be entitled to transfer this Option, or to
exercise this Option in accordance with its terms and dispose of the shares
received upon such exercise or to dispose of shares of Common Stock received
upon the previous exercise of this Option, all in accordance with the terms of
the notice delivered by such holder to the Company, provided that an appropriate
legend respecting the aforesaid restrictions on transfer and disposition may be
endorsed on this Option or the certificates for such shares.
6. Subject to the provisions of paragraph 5 hereof, this Option and all
rights hereunder are transferable, in whole or in part, at the principal office
of the Company by the holder hereof in person or by duly authorized attorney,
upon surrender of this Option properly endorsed. Each taker and holder of this
Option, by taking or holding the same, consents and agrees that the bearer of
this Option, when endorsed, may be treated by the Company and all other persons
dealing with this Option as the absolute owner hereof for any purpose and as the
person entitled to exercise the rights represented by this Option, or to the
transfer hereof on the books of the Company, any notice to the contrary
notwithstanding; but until such transfer on such books, the Company may treat
the registered holder hereof as the owner for all purposes.
7. This Option is exchangeable, upon the surrender hereof by the holder
hereof at the principal office of the Company, for new Options of like tenor
representing in the aggregate the right to subscribe for and purchase the number
of shares which may be subscribed for and purchased hereunder, each of such new
Options to represent the right to subscribe for and purchase such number of
shares as shall be designated by said holder hereof at the time of such
surrender.
SECTION 8 INTENTIONALLY OMITTED
9. The holder hereof shall have the following rights regarding
registration of the Common Stock and Warrants issuable upon exercise of this
Option:
(a) If, at any time the Company receives a written request
therefor from the record holder or holders of an aggregate of at least
a majority of the Common Stock held by the holders hereof (assuming for
the purposes of this Section 9 that this has Option has been exercised
in full regardless of actual exercise) not theretofore registered under
the Securities Act and sold, or otherwise sold in a public market
(hereafter in this Article 9 the "Shares") the Company shall prepare
and file a registration statement under the Securities Act (except on
Forms S-4 or S-8) covering the Common Stock which are the subject of
such requests and shall use its best efforts to cause such registration
statement to become effective. In addition, upon the receipt of such
request, the Company shall promptly give written notice to all other
record holders of the Common Stock or options of the like tenor that
such registration is to be effected. The Company shall include in such
registration statement such Common Stock for which it has received
written requests to register by such other record holders within 10
business days after the Company's written notice to such other record
holders. The Company shall be obligated to prepare, file and cause to
become effective only one registration statement pursuant to this
Section 9(a). Notwithstanding the foregoing, the record holder or
record holders of a majority of the Common Stock not theretofore
registered under the Securities Act and sold may require, pursuant to
this Section 9(a), the Company to file any number of registration
statements on Form S-3 (or any successor form promulgated by the
Commission) if (a) such form is then available for use by the Company
and such record holder or holders, and (b) such record holder or
holders agree to reimburse the Company for the expenses incurred by it
in the preparation and filing of each Form S-3 so filed by the Company.
In the event that the holders of a majority of the Common Stock for
which registration has been requested pursuant to this section
determine for any reason not to proceed with a registration at any time
before the registration statement has been declared effective by the
Commission, and such registration statement, if theretofore filed with
the Commission, is withdrawn with respect to the Common Stock covered
thereby, and the holders of such Common Stock agree to bear their own
expenses incurred in connection therewith and to reimburse the Company
for the expenses incurred by it attributable to the registration of
such Common Stock, then the holders of such Common Stock shall not be
deemed to have exercised their right to require the Company to register
Common Stock pursuant to this Section 9(a). The registration rights
granted by this Section 9(a) shall expire five years from the date of
the effective date of the Registration Statement.
(b) For a period of seven years from the effective date of the
Registration Statement, each time the Company shall determine to
proceed with the actual preparation and filing of a registration
statement under the Securities Act in connection with the proposed
offer and sale for money of any of its securities by it or any of its
security holders, the Company will give written notice of its
determination to all record holders of this Option and the Common
Stock. Upon the written request of a record holder of any of the Common
Stock given within 10 business days after receipt of any notice from
the Company, the Company will, except as herein provided, cause all
such Common Stock, the record holders of which have so requested
registration thereof, to be included in such registration statement,
all to the extent requisite to permit the sale or other disposition by
the prospective seller or sellers of the Common Stock to be so
registered; provided, however, that nothing herein shall prevent the
Company from, at any time, abandoning or delaying any registration;
provided further, however, that if the Company determines not to
proceed primarily based upon the anticipated public offering price of
the securities to be sold by the Company, the Company, unless the
Company is not then subject to the requirements of Sections 13 or 15
(d) of the Securities Exchange Act of 1934, shall promptly complete the
registration for the benefit of those selling securities holders who
wish to proceed with a public offering of their securities and who bear
all expenses incurred by the Company as a result of such registration
after the Company has decided not to proceed.
(c) If and whenever the Company is required by the provisions
of Section 9(a) or 9(b) to effect the registration of any of the Common
Stock under the Securities Act (but subject to the rights of the
Company to elect not to proceed with any registration, as set forth in
Section 9(b)), the Company will:
(1) prepare and file with the Commission a
registration statement with respect to such securities, and
use its best efforts to cause such registration statement to
become and remain effective for such period as may be
reasonably necessary to effect the sale of such securities,
not to exceed nine months;
(2) prepare and file with the Commission such
amendments to such registration statement and supplements to
the prospectus contained therein as may be necessary to keep
such registration statement effective for such period as may
be reasonably necessary to effect the sale of such securities,
not to exceed nine months;
(3) furnish to the security holders participating in
such registration and to the underwriters of the securities
being registered such reasonable number of copies of the
registration statement, preliminary prospectus, final
prospectus and such other documents as such underwriters may
reasonably request in order to facilitate the public offering
of such securities;
(4) use its best efforts to register or qualify the
securities covered by such registration statement under such
state securities or blue sky laws of such jurisdictions as
such participating holders may reasonably request within 20
days following the original filing of such registration
statement, except that the Company shall not for any purpose
be required to execute a general consent to service of process
or to qualify to do business as a foreign corporation in any
jurisdiction wherein it is not so qualified;
(5) notify the security holders participating in such
registration, promptly after it shall receive notice thereof,
of the time when such registration statement has become
effective or a supplement to any prospectus forming a part of
such registration statement has been filed;
(6) notify such holders promptly of any request by
the Commission for amending or supplementing of such
registration statement or prospectus or for additional
information;
(7) prepare and file with the Commission, promptly
upon the request of any such holders, any amendments or
supplements to such registration statements or prospectus
which, in the opinion of counsel for such holders (and
concurred in by counsel for the Company), is required under
the Securities Act or the rules and regulations thereunder in
connection with the distribution of the Shares by such holder;
(8) prepare and promptly file with the Commission and
promptly notify such holders of the filing of such amendment
or supplement to such registration statement or prospectus as
may be necessary to correct any statements or omissions if, at
the time when a prospectus relating to such securities is
required to be delivered under the Securities Act, any event
shall have occurred as a result of which any such prospectus
or any other prospectus as then in effect would include an
untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the
light of the circumstances in which they were made, not
misleading;
(9) advise such holders, promptly after it shall
receive notice or obtain knowledge thereof, of the issuance of
any stop order by the Commission suspending the effectiveness
of such registration statement or the initiation or
threatening of any proceeding for that purpose and promptly
use its best efforts to prevent the issuance of any stop order
or to obtain its withdrawal if such stop order should be
issued;
(10) not file any amendment or supplement to such
registration statement or prospectus to which a majority in
interest of such holders shall have reasonably objected on the
grounds that such amendment or supplement does not comply in
all material respects with the requirements of the Securities
Act or the rules and regulations thereunder, after having been
furnished with a copy thereof at least five business days
prior to the filing thereof, unless, in the opinion of counsel
for the Company, the filing of such amendment or supplement is
reasonably necessary to protect the Company from any
liabilities under any applicable federal or state law and such
filing will not violate applicable law; and
(11) at the request of any such holder, furnish on
the effective date of the registration statement and, if such
registration includes an underwritten public offering, at the
closing provided for in the underwriting agreement: (i)
opinions, dated such respective dates, of the counsel
representing the Company for the purposes of such
registration, addressed to the underwriters, if any, and to
the holder or holders making such request, covering such
matters as such underwriters and holder or holders may
reasonably request, in which opinion such counsel shall state
(without limiting the generality of the foregoing) that (a)
such registration statement has become effective under the
Securities Act; (b) to the best of such counsel's knowledge no
stop order suspending the effectiveness thereof has been
issued and no proceedings for that purpose have been
instituted or are pending or contemplated under the Securities
Act; (c) the registration statement and each amendment or
supplement thereto comply as to form in all material respects
with the requirements of the Securities Act and the applicable
rules and regulations of the Commission thereunder (except
that such counsel need express no opinion as to information
provided by the selling shareholders or financial statements
contained therein); (d) to the best of such counsel's
knowledge neither the registration statement nor any amendment
nor supplement thereto contains any untrue statement of a
material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading (except that such counsel need express no opinion
as to financial statements contained therein); (e) the
description in the registration statement or any amendment or
supplement thereto of legal and governmental proceedings and
contracts is accurate and fairly presents the information
required to be shown; and (f) such counsel does not know of
any legal or governmental proceedings, pending or threatened,
required to be described in the registration statement or any
amendment or supplement thereto which are not described as
required or of any contracts or documents or instruments of
the character required to be described in the registration
statement or amendment or supplement thereto or to be filed as
exhibits to the registration statement, which are not
described or filed as required; and (ii) letters, dated such
respective dates, from the independent certified public
accountants of the Company, addressed to the underwriters, if
any, and to the holder or holders making such request,
covering such matters as such underwriters and holder or
holders may reasonably request, in which letters such
accountants shall state (without limiting the generality of
the foregoing) that they are independent certified public
accountants within the meaning of the Securities Act and that
in the opinion of such accountants the financial statements
and other financial data of the Company included in the
registration statement or any amendment or supplement thereto
comply in all material respects with applicable accounting
requirements of the Securities Act.
(d) With respect to a registration requested pursuant to
Section 9(a) (except as otherwise provided in such section with respect
to registrations voluntarily terminated at the request of the
requesting security holders and except as otherwise provided in that
section with respect to registrations on Form S-3) and with respect to
each inclusion of any of the Shares in a registration statement
pursuant to Section 9(b), (except as otherwise provided in Section 9(b)
with respect to registrations terminated by the Company), the Company
shall bear the following fees, costs and expenses: all registration,
filing and NASD fees, printing expenses, fees and disbursements of
counsel and accountants for the Company, fees and disbursements of
counsel for the underwriter or underwriters of such securities (if the
Company and/or selling security holders are required to bear such fees
and disbursements), the premiums and other costs of policies of
insurance against liability arising out of the public offering, and all
legal fees and disbursements and other expenses of complying with state
securities or blue sky laws of any jurisdiction in which the securities
to be offered are to be registered or qualified. Underwriting discounts
and commissions and transfer taxes for selling security holders and any
other expenses incurred by the selling security holders not expressly
included above shall be borne by the selling security holders.
(e)(1) The Company will indemnify and hold harmless each
holder of any of the Common Stock which are included in a registration
statement pursuant to the provisions of this Section 9 and any
underwriter (as defined in the Securities Act) for such holder and each
person, if any, who controls such holder or such underwriters within
the meaning of the Securities Act, from and against any and all loss,
damage, liability, cost and expense to which such holder or any such
underwriter or controlling person may become subject under the
Securities Act or otherwise, insofar as such losses, damages,
liabilities, costs or expenses are caused by any untrue statement or
alleged untrue statement of any material fact contained in such
registration statement, any prospectus contained therein or any
amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading; provided, however, that the Company will not be liable in
any such case to the extent that any such loss, damage, liability, cost
or expense arises out of or is based upon an untrue statement or
alleged untrue statement so made in conformity with information
furnished to the Company in writing by such holder, such underwriter or
such controlling person and stated to be specifically for use therein
or any omission or alleged omission with respect thereto.
(e)(2) Each holder of any of the Common Stock which are
included in a registration pursuant to the provisions of this Section 9
will indemnify and hold harmless the Company, any controlling person
and any underwriter from and against any and all loss, damage,
liability, cost or expense to which the Company or any controlling
person and/or any underwriter may become subject under the Securities
Act or otherwise, insofar as such losses, damages, liabilities, costs
or expenses are caused by any untrue or alleged untrue statement of any
material fact contained in such registration statement, any prospectus
contained therein or any amendment or supplement thereto, or arise out
of or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, in each case to the extent,
but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was so made in reliance upon
and in strict conformity with information furnished or required to be
furnished by the Securities Act by such holder.
(e)(3) Promptly after receipt by an indemnified party pursuant
to the provisions of paragraph (1) or (2) of this subsection (e) of
notice of the commencement of any action involving the subject matter
of the foregoing indemnity provisions, such indemnified party will, if
a claim thereon is to be made against the indemnifying party pursuant
to the provisions of said paragraph (a) or (b), promptly notify the
indemnifying party of the commencement thereof; but the omission to so
notify the indemnifying party will not relieve it from any liability
which it may have to any indemnified party otherwise than hereunder. In
case such action is brought against any indemnified party and it
notifies the indemnifying party of the commencement thereof, the
indemnifying party shall have the right to participate in, and, to the
extent that it may wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel
satisfactory to such indemnified party; provided, however, if the
defendants in any action include both the indemnified party and the
indemnifying party and there is a conflict of interest which would
prevent counsel for the indemnifying party from also representing the
indemnified party, the indemnified party or parties shall have the
right to select separate counsel to participate in the defense of such
action on behalf of such indemnified party or parties. After notice
from the indemnifying party to such indemnified party of its election
to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party for any legal or other expense
subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation, unless
(i) the indemnified party shall have employed counsel in accordance
with the proviso of the preceding sentence, (ii) the indemnifying party
shall not have employed counsel satisfactory to the indemnified party
to represent the indemnified party within a reasonable time after the
notice of the commencement of the action, or (iii) the indemnifying
party authorized the employment of counsel for the indemnified party at
the expense of the indemnifying party.
(f) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in this Section
9 is for any reason held, by a court of competent jurisdiction, to be
unenforceable as to any party entitled to indemnity, the Company, or
the selling shareholder, or any controlling person of the foregoing,
shall contribute to the aggregate losses, claims, damages and
liabilities (including any investigation, legal and other expenses
incurred in connection with, and any amount paid in settlement of, any
action, suit or proceeding or any claims asserted) to which the Company
and the selling shareholder or any controlling person of the foregoing,
may be subject: (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company, on the one hand, and the
selling shareholder on the other from the offering of the Securities or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the
relative fault of the Company and its controlling persons, on the one
hand, and of the selling shareholder and its controlling persons on the
other in connection with the statements or omissions which resulted in
such loss, claim, damage, liability or expense, as well as any other
relevant equitable considerations. The relative benefits received by
the Company, on the one hand, and the selling shareholder on the other
shall be deemed to be in the same proportion as the total net proceeds
from the offering (before deducting expenses) received by the Company
bear to the total sales commissions received by the selling
shareholder. The relative fault of the Company, on the one hand, and of
the selling shareholder on the other shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company, on the
one hand, or by the selling shareholder on the other and the parties'
relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
9 (a) If any capital reorganization or reclassification of the capital
stock of the Company, or consolidation or merger of the Company with another
corporation, or the sale of all or substantially all of its assets to another
corporation shall be effected in such a way that holders of Common Stock shall
be entitled to receive stock, securities or assets with respect to or in
exchange for Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate provision
shall be made whereby the holder shall thereafter have the right to purchase and
receive, upon the basis and upon the terms and conditions specified in this
Warrant and in lieu of the shares of the Common Stock of the Company immediately
theretofore purchasable and receivable, upon the exercise of the rights
represented hereby, such shares of stock, securities or assets as may be issued
or payable with respect to or in exchange for a number of outstanding shares of
such Common Stock equal to the number of shares of such stock immediately
theretofore purchasable and receivable upon the exercise of the rights
represented hereby had such reorganization, reclassification, consolidation,
merger or sale not taken place, and in any such case appropriate provision shall
be made with respect to the rights and interests of the holders of this Option
to the end that the provisions hereof shall thereafter be applicable, as nearly
as may be, in relation to any shares of stock, securities or assets thereafter
deliverable upon the exercise hereof. The Company shall not effect any such
consolidation, merger or sale, unless prior to the consummation thereof the
successor corporation (if other than the Company) resulting from such
consolidation or merger or the corporation purchasing such assets shall assume
by written instrument executed and mailed to the registered holder hereof at the
last address of such holder appearing on the books of the Company, the
obligation to deliver to such holder such shares of stock, securities or assets
as, in accordance with the foregoing provisions, such holder may be entitled to
purchase.
(b) In case the Company shall declare a dividend or other distribution
upon the Common Stock payable in securities of the Company then hereafter the
holder of this Option upon the exercise hereof will be entitled to receive the
number of shares of Common Stock to which such holder shall be entitled upon
such exercise, and, in addition and without further payment therefor, the
securities and other property which such holder would have received by way of
any such dividend or distribution if continuously since the record date for any
such dividend or distribution such holder (i) had been the record holder of the
number of shares of Common Stock then received, and (ii) had retained all
dividends or distributions in stock or securities payable in respect of such
Common Stock or in respect of any stock or securities paid as dividends or
distributions and originating directly or indirectly from such Common Stock.
(c) In case the Company shall at any time subdivide its outstanding
shares of Common Stock into a greater number of shares, the number of shares of
Common Stock which may be purchased on exercise hereof immediately prior to such
subdivision shall be proportionately increased and conversely, in case the
outstanding shares of Common Stock of the Company shall be combined into a
smaller number of shares, the number of shares of Common Stock included in the
Common Stock immediately prior to such combination shall be proportionately
reduced.
10 All questions concerning this Option will be governed and
interpreted and enforced in accordance with the internal law, not the law of
conflicts, of the State of Minnesota.
11. This Option and the rights and obligations conferred by the
securities underlying this Option shall be binding on the heirs, successors, and
assigns of the parties hereto.
IN WITNESS WHEREOF, the Company has caused this Option to be signed by
its duly authorized officer as of ____________ ___, 199_.
ILLUMINATED MEDIA, INC.
By_____________________________
Its _________________________
RESTRICTION ON TRANSFER
THE SECURITY EVIDENCED HEREBY MAY NOT BE TRANSFERRED WITHOUT (i) THE OPINION OF
COUNSEL SATISFACTORY TO THIS CORPORATION THAT SUCH TRANSFER MAY LAWFULLY BE MADE
WITHOUT REGISTRATION UNDER THE FEDERAL SECURITIES ACT OF 1933 OR (ii) SUCH
REGISTRATION.
NOTICE OF EXERCISE
To: ILLUMINATED MEDIA, INC.
1. Pursuant to the terms of the attached Option, the undersigned hereby elects
to purchase ______________ shares of Common Stock of Illuminated Media, Inc.
(the "Company"), and tenders herewith payment of the purchase price of such
shares in full.
2. Please issue a certificate or certificates representing said shares of Common
Stock, in the name of the undersigned or in such other name(s) as is/are
specified immediately below or, if necessary, on an attachment hereto: [List
names and addresses.]
3. In the event of partial exercise, please reissue an appropriate Option
exercisable into the remaining shares to the undersigned.
4. The undersigned represents that such shares shall not be sold or transferred
unless either (a) they first shall have been registered under the Securities Act
1933 and applicable state law or (b) the Company first shall have been furnished
with an opinion of legal counsel reasonably satisfactory to the Company to the
effect that such sale or transfer is exempt from the foregoing registration
requirements. The undersigned consents to a legend imprinted on certificates
representing the shares purchased hereby noting the foregoing restrictions.
Date: ___________________
______________________________________
Signature of Option Holder
______________________________________
Name of Option Holder
NOTICE OF ASSIGNMENT
To: ILLUMINATED MEDIA, INC.
1. The undersigned hereby assigns the right to purchase the common
stock of Illuminated Media, Inc. represented by the attached Option:
[ ] in whole, or
[ ] for ________________ shares,
to:
______________________________________
Name
______________________________________
Street Address
______________________________________
City, State, Zip Code
______________________________________
Social Security or Tax ID Number
(attach additional sheets for further assignees)
2. In the event of partial assignment, please reissue an appropriate
Option exercisable into the remaining shares to the undersigned.
Date: ___________________
______________________________________
Signature of Option Holder
______________________________________
Name of Option Holder
______________ UNITS
ILLUMINATED MEDIA, INC
COMMON STOCK
SELECTED DEALER AGREEMENT
Ladies and Gentlemen:
1. We, as the Underwriter named in the Prospectus referred to below
(the "Underwriter"), have agreed to sell, subject to the terms and conditions
set forth in the Underwriting Agreement referred to in the Prospectus (the
"Underwriting Agreement"), on behalf of Illuminated Media, Inc. a Minnesota
corporation (the "Company"), an aggregate of up to 1,500,000 Units of the
Company (the "Units"). The Units are described in Registration Statement Number
______, which was declared effective by the Securities and Exchange Commission
on __________, 1997.
2. The Units are to be offered to the public by the Underwriter at a
price of $1.00 per Unit (hereinafter called the "Public Offering Price") and in
accordance with the terms of offering set forth in the Prospectus.
3. The Underwriter is offering, subject to the terms and conditions
hereof, a portion of the Units for sale to (a) certain dealers which are members
of the National Association of Securities Dealers, Inc. (the "NASD") and which
agree to comply with the provisions of Rules 2420, 2730, 2740, and 2750 of the
NASD Conduct Rules (the "NASD Rules") and (b) foreign dealers or institutions
ineligible for membership in the NASD which agree (i) not to resell the Units to
purchasers in, or to persons who are nationals or residents of, the United
States of America, or when there is a public demand for the Units, to persons
specified as those to whom members of the NASD participating in a distribution
may not sell; and (ii) to comply, as though such foreign dealer or institution
were a member of the NASD, with the NASD's interpretation with respect to
free-riding and withholding and with the foregoing Sections of the NASD Rules,
to the extent applicable to foreign nonmember brokers or dealers, (such dealers
and institutions agreeing to offer the Units hereinafter referred to as
"Selected Dealers") at the Public Offering Price for a selling commission of
$.08 per Unit, payable as hereinafter provided, out of which concession an
amount not exceeding $.06 per Unit may be reallowed by Selected Dealers to
members of the NASD or to foreign dealers or institutions ineligible for
membership therein which agree as aforesaid. This offering is made subject to
delivery of the Shares and their acceptance by us, to the approval of all legal
matters by counsel, and to the terms and conditions herein set forth. The
Underwriter has agreed that, during the term of this Agreement, it will be
governed by the terms and conditions hereof whether or not such Underwriter is
included among the Selected Dealers.
4. We may buy Units from, or sell Units to, any Selected Dealer, and
any Selected Dealer may buy Units from, or sell Units to, any other Selected
Dealer or the Underwriter at the Public Offering Price After the initial public
offering we may change the Public Offering Price, the commission, and the
reallowance.
5. We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to the public offering of the
Units.
6. If you desire to offer and sell any of the Units, your indication of
interest should reach us promptly by telephone or facsimile at the offices of
Tuschner & Company, Inc., 1500 TCF Tower, 121 South 8th Street, Minneapolis, MN
55402. We reserve the right to reject all subscriptions in whole or in part, to
make allotments and to close the subscription books at any time without notice.
The Units allotted to you will be confirmed, subject to the terms and conditions
of this Agreement.
7. The privilege of offering the Units is extended to you only on
behalf of the Underwriter to those Selected Dealers that may lawfully sell the
Shares in your state.
8. Any of the Units offered or sold by you under the terms of this
Agreement must be offered and sold to the public in accordance with the terms of
the offering thereof set forth herein and in the Prospectus, subject to the
securities laws of the various states. Neither you nor any other person is or
has been authorized to give any information or to make any representations in
connection with the sale of the Units other than as contained in the Prospectus.
9. This Agreement will terminate when we shall have determined that the
public offering of the Shares has been completed and upon telegraphic or other
written notice to you of such termination, but, if not previously terminated,
this Agreement will terminate at the close of business on the 30th full business
day after the date hereof; provided, however, that we shall have the right to
extend this Agreement for, an additional period or periods not exceeding 30 full
business days in the aggregate upon telegraphic notice to you.
10. For the purpose of stabilizing the market in the Units, we have
been authorized to make purchases and sales thereof, in the open market or
otherwise, and, in arranging for sale of the Shares, to over-allot.
11. You agree to advise us from time to time upon request, prior to the
termination of this Agreement, of the number of Units to be offered by you
hereunder and remaining unsold at the time of such request, and, if in our
opinion any such Units shall be needed to make delivery of Units sold or
over-allotted for the account of the Underwriter, you will, forthwith upon our
request, grant to us for our account the right, exercisable promptly after
receipt of notice from you that such right has been granted, to purchase, at the
Public Offering Price, such number of Units owned by you as shall have been
specified in our request.
12. On becoming a Selected Dealer, and in offering and selling the
Units, you agree (which agreement shall also be for the benefit of the Company)
to comply with all applicable requirements of the Securities Act of 1933, as
amended (the "Act"), and the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). You confirm that you are familiar with Rule 15c2-8 under the
Exchange Act relating to the distribution or preliminary and final prospectuses
for securities of an issuer and confirm that you have complied and will comply
therewith.
13. Upon request, you will be informed as to the jurisdictions in which
we have been advised that the Units have been qualified for sale under the
respective securities or Blue Sky laws of such jurisdictions, but we do not
assume any obligation or responsibility as to the right of any Selected Dealer
to sell the Units in any jurisdiction or as to any sale therein. You authorize
us to file for your benefit a New York Notice, if required.
14. Additional copies of the Prospectus will be supplied to you in
reasonable quantities upon request.
15. No Selected Dealer is authorized to act as our agent, or otherwise
to act on our behalf in offering or selling the Units to the public or
otherwise.
16. We shall not be under any liability for or in respect of the value,
validity or form of the Units, or delivery of the certificates for the Units, or
the performance by anyone of any agreement on such person's part, or the
qualification of the Units for sale under the laws of any jurisdiction, or for
or in respect of any matter connected with this Agreement, except for lack of
good faith and for obligations expressly assumed by us in this Agreement. The
foregoing provisions shall not be deemed a waiver of any liability imposed under
the Act.
17. Payment for the Units sold to you hereunder is to be made at each
"Closing Date" as described in the Underwriting Agreement, by certified or
official bank check, payable to the order of Tuschner and Company, Inc., in
current funds, at such place as we shall specify on one day's notice to you
against delivery of certificates for the Units. Notwithstanding the foregoing,
if transactions in the Units can be settled through the facilities of The
Depository Trust Company, payment for and delivery of the Units purchased by you
hereunder will be made through the facilities of The Depository Trust Company,
if you are a member, unless you have otherwise notified us prior to the date
specified in our facsimile or telegram to you, or, if you are not a member,
settlement may be made through a correspondent who is a member pursuant to
instructions you may send us prior to such specified date.
18. Notice to us should be addressed to us c/o John M. Tuschner,
Tuschner and Company, Inc., 1500 TCF Tower, 121 South 8th Street, Minneapolis,
MN 55402. Notices to you shall be deemed to have been duly given if sent by
telefacsimile, telegraphed or mailed to you at the address to which this letter
is addressed.
19. This Agreement shall be governed by the internal laws of the State
of Minnesota, without giving effect to the principles thereof relating to the
conflict of laws.
20. If you desire to offer and sell any of the Units, please confirm
your subscription by signing and returning to us your confirmation overleaf on
the duplicate copy of this letter enclosed herewith even though you have
previously advised us thereof by telephone or telefacsimile.
Very truly yours,
TUSCHNER AND COMPANY, INC.
By:____________________________
Dated: ________________________
CONFIRMATION
We confirm our agreement to purchase Units of Illuminated Media, Inc.
(the "Units"), subject to all the terms and conditions set forth in the
foregoing Selected Dealers Agreement. We hereby acknowledge receipt of the
Prospectus. We further state that in purchasing the Units, we have relied upon
the Prospectus and upon no other statement whatsoever, whether written or oral.
We hereby confirm that we are a dealer actually engaged in the investment
banking or securities business and that we are either (a) a member in good
standing of the National Association of Securities Dealers, Inc. (the "NASD") or
(b) a dealer with its principal place of business located outside the United
Sates, its territories and its possessions and not registered as a broker or
dealer under the Securities Exchange Act of 1934 who hereby agrees not to make
any sales within the Unites States, its territories or its possessions or to
persons who are nationals thereof or resident therein. We hereby agree to comply
with the provisions of NASD Rules 2420, 2730, 2740, and 2750 and, if we are a
foreign dealer and not a member of the NASD, we also agree to comply with the
NASD's interpretation with respect to free-riding and withholding, to comply, as
though we were a member of the NASD, with the provisions of the above NASD Rules
as those Rules apply to non-member foreign dealers.
Dated: February _____, 1997
----------------------------------
(Print corporate or firm name of
Selected Dealer)
----------------------------------
(Signature of authorized officer or partner)
----------------------------------
(Print name of person signing)
Address:
----------------------------------
----------------------------------
State of Minnesota
Office of the Secretary of State
ARTICLES OF AMENDMENT TO SECOND AMENDED
ARTICLES OF INCORPORATION
(Adoption of Articles of Amendment to Second Amended Articles of Incorporation
of SKYWAY ADVERTISING, INC., also known as ILLUMINATED MEDIA INC.)
CORPORATE NAME: SKYWAY ADVERTISING, INC., also known as
ILLUMINATED MEDIA INC.
The following amendments of articles or modifications to the statutory
requirements regulating the above corporation were adopted:
Pursuant to Chapter 302A, the shareholders of the above corporation
approved and adopted these Articles of Amendment to Second Amended Articles of
Incorporation of Skyway Advertising, Inc. which are attached hereto, and which
Articles of Amendment of Second Amended Articles of Incorporation amend the
original Articles of Incorporation and any and all amendments thereto.
This Amendment has been approved pursuant to Chapter 302A, Minnesota
Statutes. I certify that I am authorized to execute this Articles of Amendment
and I further certify that I understand that by signing this Articles of
Amendment, I am subject to the penalties of perjury as set forth in Section
609.48 as if I had signed this Articles of Amendment under oath.
/s/ Robert H. Blank
Robert H. Blank, Chairman and CEO
AMENDMENTS TO SECOND AMENDED
ARTICLES OF INCORPORATION
Article I and Article III are amended and replaced in their entirety by
the following:
ARTICLE I
Name
The name of this corporation shall be Illuminated Media Inc.
ARTICLE III
Authorized Capital
The total authorized number of shares of this corporation is Ten
Million (10,000,000) shares. Common Stock shall have the par value of one cent
($.01) per share. The Board of Directors has the authority to establish more
than one class or series of shares and to fix the relative rights and
preferences of any such different classes or series.
BANKWINDSOR
May 12, 1997
Mr. Rick Kothe
President
Illuminated Media, Inc.
15 S 5th Street, Suite 715
Minneapolis, MN 55402
Dear Rick:
In response to your letter dated May 12, 1997, this letter will confirm that it
is Bank Windsor's intention to allow the company to pay the note off on or
before June 13, 1997. After this time we will require a formal note extension
and a 1% fee will be charged. If you have any questions, please do not hesitate
to call.
Sincerely,
/s/ Kevin How
Kevin How
Vice President
740 Marquette Avenue * IDS Center * Minneapolis, Minnesota 55402 * 612/338-2150
* FAX 612/338-2350 * FAX 612/338-3950
231 West Lake Street * Chisholm, Minnesota 55719 * 218/254-3341
* FAX 218/254-5467
313 Main Street * Nerstrand, Minnesota 55053 * 507/789-6761 * 507/334-7368
* FAX 507/334-3291
225 East Main Street * Sleepy Eye, Minnesota 56085 * 507/794-2127
* FAX 507/794-3660
BANKWINDSOR
IDS Center
740 Marquette Avenue
Minneapolis, Minnesota 55402
(612) 338-2150
"LENDER"
COMMERCIAL SECURITY
AGREEMENT
BORROWER OWNER OF COLLATERAL
SKYWAY ADVERTISING, INC. SKYWAY ADVERTISING, INC.
ROBERT H BLANK
ADDRESS ADDRESS
12 SOUTH 6TH STREET 12 SOUTH 6TH STREET
MINNEAPOLIS, MN 55402 MINNEAPOLIS, MN 55402
1. SECURITY INTEREST. For good and valuable consideration, Owner of
Collateral ("Owner") grants to Lender identified above a continuing security
interest in the Collateral described below to secure the obligations described
in this Agreement.
2. OBLIGATIONS. The Collateral shall secure the payment and performance of
all of Borrower's and Owner's present and future, joint and/or several, direct
and indirect, absolute and contingent, express and implied, indebtedness,
(including costs of collection, legal expenses and attorneys' fees, incurred by
Lender upon the occurrence of a default under this Agreement, in collecting or
enforcing payment of such indebtedness, or preserving, protecting or realizing
on the Collateral herein), liabilities, obligations and covenants (cumulatively
"Obligations") to Lender including (without limitation) those arising under or
pursuant to:
a. this Agreement and the following promissory notes and agreements:
<TABLE>
<CAPTION>
INTEREST PRINCIPAL AMOUNT/ FUNDING/ MATURITY CUSTOMER LOAN
RATE CREDIT LIMIT AGREEMENT DATE DATE NUMBER NUMBER
<S> <C> <C> <C> <C> <C>
VARIABLE $100,000.00 05/13/96 05/13/97 95267502
</TABLE>
b. all other present or future, Obligations of Borrower or Owner to Lender
(whether incurred for the same or different purposes than the
foregoing);
c. all renewals, extensions, amendments, modifications, replacements or
substitutions to any of the foregoing; and
d. applicable law.
3. COLLATERAL. The Collateral shall consist of all of the
following-described property and Owner's rights, title and interest in such
property whether now owned or hereafter acquired by Owner and wherever located:
[X] All accounts, contract rights and rights to payment in money or in kind
for goods sold or leased or for services rendered, and all guarantees
and security therefor; all returned or repossessed goods arising from or
relating to any account, contract rig ht, or right to payment; and any
rights of Owner as an unpaid seller of goods or services; including, but
not limited to, the accounts and contract rights described on Schedule A
attached hereto and incorporated herein by this reference;
[ ] All chattel paper, together with all guarantees and security therefor;
including, but not limited to, the chattel paper described on Schedule A
attached hereto and incorporated herein by this reference;
[ ] All documents of title including, but not limited to, the documents
described on Schedule A attached hereto and incorporated herein by this
reference;
[X] All equipment, machinery, and vehicles including, but not limited to,
the equipment described on Schedule A attached hereto and incorporated
herein by this reference;
[ ] All fixtures, including, but not limited to, the fixtures located or to
be located on the real property described on Schedule B attached hereto
and incorporated herein by this reference;
[X] All general intangibles of any kind or nature including, but not limited
to, goodwill, literary rights, copyrights, trademarks and patents; all
securities, stocks, bonds, partnership interests, and similar devices;
any right to performance or payment, including, without limitation,
rights to receive dividends, tax refunds, insurance claims and insurance
proceeds, pension payments, and other disbursements; things in action;
and rights in intangible property of any kind, specifically including,
but not limited to, the general intangibles described on Schedule A
attached hereto and incorporated herein by this reference;
[ ] All instruments including, but not limited to, the instruments described
on Schedule A attached hereto and incorporated herein by this reference;
[X] All inventory (goods, merchandise, and other personal property) which
are held for sale or lease, or are furnished or to be furnished under
any contract of service or are raw materials, wor -in- rocess, supplies,
or materials used or consumed in Owner's business, and any right of
Owner as an unpaid seller of goods or services, including, but not
limited to, the inventory described on Schedule A attached hereto and
incorporated herein by this reference;
[ ] All minerals or the like located on or related to the real property
described on Schedule B attached hereto and incorporated herein by this
reference;
[ ] All standing timber located on the real property described on Schedule
B attached hereto and incorporated herein by this reference;
[ ] Other:
All monies, instruments, and savings, checking or other deposit accounts that
are now or in the future in Lender's custody or control (excluding IRA, Keogh,
trust accounts, and deposits subject to tax penalties if so assigned);
All accessions, accessories, additions, amendments, attachments. modifications.
replacements and substitutions to any of the above;
All proceeds and products of any of the above;
All policies of insurance pertaining to any of the above as well as any proceeds
and unearned premiums pertaining to such policies; and
All books and records pertaining to any of the above.
LP-MN206 ~ FormAtion Technologies, Inc. (4/5/96) (800) 937-3799 Page 1 of 5
4. OWNER'S TAXPAYER IDENTIFICATION. Owner's social security number or
federal taxpayer identification number is:
5. RESIDENCY/LEGAL STATUS. [ ] Owner is an individual(s) and a resident of
the state of: ______________________________.
[X] Owner is a: Corporation duly organized, validly existing and in good
standing under the laws of the state of: MINNESOTA
6. REPRESENTATIONS, WARRANTIES, AND COVENANTS. Owner represents, warrants
and covenants to Lender that:
(a)Owner Is and shall remain the sole owner of the Collateral;
(b)Neither Owner nor, to the best of Owner's knowledge, has any other party
used, generated, released, discharged, stored, or disposed of any
hazardous material, toxic substance, or related material on any of the
Collateral. Owner shall not commit or permit such actions to be taken in
the future. The term "Hazardous Materials shall mean any substance,
material, or waste which is or becomes regulated by any governmental
authority including, but not limited to, (i) petroleum; (ii) asbestos;
(iii) polychlorinated biphenyls; (iv) those substances, materials or
wastes designated as a "hazardous substance" pursuant to Section 311 of
the Clean Water Act or listed pursuant to Section 307 of the Clean Water
Act or any amendments or replacements to these statutes; (v) those
substances, materials or wastes defined as a "hazardous waste" pursuant
to Section 1004 of the Resource Conservation and Recovery Act or any
amendments or replacements to that statute; or (vi) those substances,
materials or wastes defined as a "hazardous substance" pursuant to
Section 101 of the Comprehensive Environmental Response, Compensation
and Liability Act, or any amendments or replacements to that statute;
(c)Owner's chief executive office, chief place of business, office where
its business records are located, or residence is the address identified
above. Owner's other executive offices, places of business, locations of
its business records, or domiciles are described on Schedule C attached
hereto and incorporated herein by this reference. Owner shall
immediately advise Lender in writing of any change in or addition to the
foregoing addresses;
(d)Owner shall not become a party to any restructuring of its form of
business or participate in any consolidation, merger, liquidation or
dissolution witl,out providing Lender with thirty (30) or more days'
prior written notice of such change;
(e)Owner shall notify Lender of the nature of any intended change of
Owner's name, or the use of any trade name, and the effective date of
such change;
(f)The Collateral is and shall at all times remain free of all tax and
other liens, security interests, encumbrances and claims of any kind
except for those belonging to Lender and those described on Schedule D
attached hereto and incorporated herein by this reference. Without
waiving the event of default as a result thereof, Owner shall take any
action and execute any document needed to discharge the foregoing liens,
security interests, encumbrances and claims;
(g)Owner shall defend the Collateral against all claims and demands of all
persons at any time claiming any interest therein;
(h)All of the goods, fixtures, minerals or the (ike, and standing timber
constituting the Collateral is and shall be located at Owner's executive
offices, places of business, residence and domiciles specifically
described in this Agreement;
(i)Owner shall provide Lender with possession of all chattel paper and
instruments constituting the Collateral unless otherwise agreed by
Lender. Owner shall promptly mark all chattel paper, instruments, and
documents constituting the Collateral to show that the same are subject
to Lender's security interest;
(j)All of Owner's accounts or contract rights; chattel paper; documents;
general intangibles; instruments; and federal, state, county, and
municipal government and other permits and licenses; trusts, liens,
contracts, leases, and agreements constituting the Collateral are and
shall be valid, genuine and legally enforceable obligations and rights
belonging to Owner and not subject to any claim, defense, set-off or
counterclaim of any kind;
(k)Owner shall not amend, modify, replace, or substitute any account or
contract right; chattel paper; document; general intangible; or
instrument constituting the Collateral without the prior consent of
Lender, which shall not be unreasonably withheld;
(l)Owner has the right and is duly authorized to enter into and perform its
obligations under this Agreement. Owner's execution and performance of
these obligations do not and shall not conflict with the provisions of
any statute, regulation, ordinance, rule of (aw, contract or other
agreement which may now or hereafter be binding on Owner;
(m)No action or proceeding is pending agaInst Owner which mtght result in
any material adverse change in its business operations or financial
condition or materially affect the Collateral;
(n)Owner has not violated and shall not violate any applicable federal,
state, county or municipal statute, regulation or ordinance (including
but not limited to those governing Hazardous Materials) which may
materially and adversely affect its business operations or financial
condition or the Collateral;
(o)Owner shall, upon Lender's request, deposit all proceeds of the
Collateral into an account or accounts maintained by Owner or Lender at
Lender's institution;
(p)Owner will, upon receipt, deliver to Lender as additional Collateral all
securities distributed on account of the Collateral such as stock
dividends and securities resulting from stock splits, reorganizations
and recapitalizations; and
(q)This Agreement and the obligations described in this Agreement are
executed and incurred for business and not consumer purposes.
7. SALE OF COLLATERAL. Owner shall not assign, convey, lease, sell or
transfer any of the Collateral to any third party without the prior written
consent of Lender except for sales of inventory to buyers in the ordinary course
of business.
8. FINANCING STATEMENTS AND OTHER DOCUMENTS. Owner shall take all actions
and execute all documents required by Lender to attach, perfect and maintain
Lender's security interest in the Collateral and establish and maintain Lender's
right to receive the payment of the proceeds of the Collateral including, but
not limited to, executing any financing statements, fixture filings,
continuation statements, notices of security interest and other documents
required by the Uniform Commercial Code and other applicable law. Owner shall
pay the costs of filing such documents in all offices wherever filing or
recording is deemed by Lender to be necessary or desirable. Lender shall be
entitled to perfect its security interest in the Collateral by filing carbon,
photographic or other reproductions of the aforementioned documents with any
authority required by the Uniform Commercial Code or other applicable law.
Lender may execute and file any financing statements, as well as extensions,
renewals and amendments of financing statements in such form as Lender may
require to perfect and maintain perfection of any security interest granted in
this Agreement. Owner appoints Lender as its agent and attorney-in-fact to
endorse Owner's name on all instruments and other remittances payable to Owner
with respect to the Collateral. This power of attorney is coupled with an
interest and is irrevocable.
9. INQUIRIES AND NOTIFICATION TO THIRD PARTIES. Owner hereby authorizes
Lender to contact any third party and make any inquiry pertaining to Owner's
financial condition or the Collateral. In addition, Lender is authorized to
provide oral or written notice of its security interest in the Collateral to any
third party.
10. COLLECTION OF INDEBTEDNESS FROM THIRD PARTIES. Lender shall be entitled
to notify, and upon the request of Lender, Owner shall notify any account debtor
or other third party (including, but not limited to, insurance companies) to pay
any indebtedness or obligation owing to Owner and constituting the Collateral
(cumulatively "Indebtedness") to Lender whether or not a default exists under
this Agreement. Owner shall diligently collect the Indebtedness owing to Owner
from its account debtors and other third parties until the giving of such
notification. In the event that Owner possesses or receives possession of any
instruments or other remittances with respect to the Indebtedness following the
giving of such notification or if the instruments or other remittances
constitute the prepayment of any Indebtedness or the payment of any insurance
proceeds, Owner shall hold such instruments and other remittances in trust for
Lender apart from its other property, endorse the instruments and other
remittances to Lender, and immediately provide Lender with possession of the
instruments and other remittances. Lender shall be entitled, but not required,
to collect (by legal proceedings or otherwise), extend the time for payment,
compromise, exchange or release any obligor or collateral upon, or otherwise
settle any of the Indebtedness whether or not an event of default exists under
this Agreement. Lender shall not be liable to Owner for any action, error,
mistake, omission or delay pertaining to the actions described in this paragraph
or any damages resulting therefrom.
11. POWER OF ATTORNEY. Owner hereby appoints Lender as its attorney-in-fact
to endorse Owner's name on all instruments and other remittances payable to
Owner with respect to the Indebtedness or other documents pertaining to Lender's
actions in connection with the Indebtedness. In addition, Lender shall be
entitled, but not required, to perform any action or execute any document
required to be taken or executed by Owner under this Agreement. Lender's
performance of such action or execution of such documents shall not relieve
Owner from any obligation or cure any default under this Agreement. The powers
of attorney described in this paragraph are coupled with an interest and are
irrevocable.
12. USE AND MAINTENANCE OF COLLATERAL. Owner shall use the Collateral solely
in the ordinary course of its business, for the usual purposes intended by the
manufacturer (if applicable), with due care, and in compliance with the laws,
ordinances, regulations, requirements and rules of all federal, state, county
and municipal authorities including environmental laws and regulations and
insurance policies. Owner shall not make any alterations, additions or
improvements to the Collateral without the prior written consent of Lender.
Without limiting the foregoing, all alterations, additions and improvements made
to the Collateral shall be subject to the security interest belonging to Lender,
shall not be removed without the prior written consent of Lender, and shall be
made at Owner's sole expense. Owner shall take all actions and make any repairs
or replacements needed to maintain the Collateral in good condition and working
order.
LP-MN208 ~ FormAtion TechnoIogies, Inc. (4/5/98) (800) 937-3799 Page 2 of 5
13. LOSS OR DAMAGE. Owner shall bear the entire risk of any loss, theft,
destruction or damage (cumulatively "Loss or Damage") to all ~r any part of the
Collateral. In the event of any Loss or Damage, Owner will either restore the
Collateral to its previous condition, replace the Collateral with similar
property acceptable to Lender in its sole discretion, or pay or cause to be paid
to Lender the decrease in the fair market value of the affected Collateral.
14. INSURANCE. The Collateral will be kept insured for its full value
against all hazards including loss or damage caused by fire, collision, theft or
other casualty. If the Collateral consists of a motor vehicle, Owner will obtain
comprehensive and collision coverage in amounts at least equal to the actual
cash value of the vehicle with deductibles not to exceed $ n/a . Insurance
coverage obtained by Owner shall be from a licensed insurer subject to Lender's
approval. Owner shall assign to Lender all rights to receive proceeds of
insurance not exceeding the amount owed under the obligations described above,
and direct the insurer to pay all proceeds directly to Lender. The insurance
policies shall require the insurance company to provide Lender with at least
thirty (30) days' written notice before such policies are altered or cancel led
in any manner. The insurance policies shall name Lender as a loss payee and
provide that no act or omission of Owner or any other person shall affect the
right of Lender to be paid the insurance proceeds pertaining to the loss or
damage of the Collateral. In the event Owner fails to acquire or maintain
insurance, Lender (after providing notice as may be required by law) may in its
discretion procure appropriate insurance coverage upon the Collateral and charge
the insurance cost as an advance of principal under the promissory note. Owner
shall furnish Lender with evidence of insurance indicating the required
coverage. Lender may act as attorney-in-fact for Owner in making and settling
claims under insurance policies, cancelling any policy or endorsing Owner's name
on any draft or negotiable instrument drawn by any insurer.
15. INDEMNIFICATION. Lender shall not assume or be responsible for the
performance of any of Owner's obligations with respect to the Collateral under
any circumstances. Owner shall immediately provide Lender with written notice of
and indemnify and hold Lender and its shareholders, directors, officers,
employees and agents harmless from all claims, damages, liabilities (including
attorneys' fees and legal expenses), causes of action, actions, suits and other
legal proceedings (cumulatively "Claims") pertaining to its business operations
or the C6llaterai including, but not limited to, those arising from Lender's
performance of Owner's oDligations with respect to the Collateral. Owner, upon
the request of Lender, shall hire legal counsel to defend Lender from such
Claims, and pay the attorneys' fees, )egal expenses and other costs to the
extent permitted by applicable law, incurred in connection therewith. In the
alternative, Lender shall be entitled to employ its own legal counsel to defend
such Claims at Owner's cost.
16. TAXES AND ASSESSMENTS. Owner shall execute and file all tax returns and
pay al taxes, licenses, fees and assessments relating to its business operations
and the Collateral (including, but not limited to, income taxes, personal
property taxes, withholding taxes, sales taxes, use taxes, excise taxes and
workers' compensation premiums) in a timely manner.
17. INSPECTION OF COLLATERAL AND BOOKS AND RECORDS. Owner shall allow Lender
or its agents to examine, inspect and make abstracts and copies of the
Collateral and Owner's books and records pertaining to Owner's business
operations and financial condition or the Collateral during normal business
hours. Owner shall provide any assistance required by Lender for these purposes.
All of the signatures and information pertaining to the Collateral or contained
in the books ana records shall be genuine, true, accurate and complete in all
respects.
18. DEFAULT. Owner shall be in default under this Agreement in the event
that Owner, Borrower or any guarantor:
(a) fails to make any payment under this Agreement or any other indebtedness
to Lender when due;
(b) fails to perform any obligation or breaches any warranty or covenant to
Lender contained in this Agreement or any other present or future
written agreement regarding this or any other indebtedness to Lender;
(c) provides or causes any false or misleading signature or representation
to be provided to Lender;
(d) allows the Collateral to be destroyed, lost or stolen, damaged in any
material respect, or subjected to seizure or confiscation;
(e) seeks to revoke, terminate or otherwise limit its liability under any
continuing guaranty;
(f) permits the entry or service of any garnishment, judgment, tax levy,
attachment or lien against Owner, any guarantor, or any of their
property;
(g) dies, becomes legally incompetent, is dissolved or terminated, ceases to
operate its business, becomes insolvent, makes an assignment for the
benefit of creditors, or becomes the subject of any bankruptcy,
insolvency or debtor rehabilitation proceeding;
(h) allows the Collateral to be used by anyone to transport or store goods,
the possession, transportation, or use of which, is illegal; or
(i) causes Lender in good faith to deem itself insecure for any reason.
19. RIGHTS OF LENDER ON DEFAULT. If there is a default under this Agreement,
Lender shall be entitled to exercise one or more of the following remedies
without notice or demand (except as required by law):
(a) to declare the Obligations immediately due and payable in full;
(b) to collect the outstanding Obligations with or without resorting to
judicial process;
(c) to retain any instruments or other remittances constituting the
Collateral;
(d) to take possession of any Collateral in any manner permitted by law;
(e)to apply for and obtain, without notice and upon ex parte application,
the appointment of a receiver for the Collateral without regard to
Owner's financial condition or solvency, the adequacy of the Collaterai
to secure the payment or performance of the obiigations, or the
existence of any waste to the Collateral;
(f) to require Owner to deliver and make available to Lender any Collateral
at a place reasonably convenient to Owner and Lender;
(g) to sell, lease or otherwise dispose of any Collateral and collect any
deficiency balance with or without resorting to legal process;
(h) to set-off Owner's obligations against any amounts due to Owner
including, but not limited to, monies, instruments, and deposit accounts
maintained with Lender; and
(i) to exercise all other rights available to Lender under any other written
agreement or applicable law.
Lender's rtghts are cumulative and may be exercised together, separately, and in
any order. If notice to Owner of intended disposition of Collateral is required
by law, Lender will provide reasonable notification of the time and place of any
sale or intended disposition as required under the Uniform Commercial Code. In
the event that Lender institutes an action to recover any Collateral or seeks
recovery of any Collateral by way of a prejudgment remedy in an action against
Owner, Owner waives the oosting of any bond which might otherwise be required.
Lender's remedies under this paragraph are in addition to those available at
common law, such as setoff.
20.APPLICATION OF PAYMENTS. Whether or not a default has occurred under this
Agreement, all payments made by or on behalf of Owner and all credits due to
Owner from the disposition of the Collateral or otherwise may be applied against
the amounts paid by Lender (including attorneys' fees and legal expenses) in
connection with the exercise of its rights or remedies described in this
Agreement and any interest thereon and then to the payment of the remaining
Obligations.
21. REIMBURSEMENT OF AMOUNTS EXPENDED BY LENDER. Owner shall reimburse Lender
for all amounts (including attorneys' fees and legal expenses) expended by
Lender in the performance of any action required to be taken by Owner or the
exercise of any right or remedy belonging to Lender under this Agreement,
together with interest t~ereon at she lower of the highest rate described in any
promissory note or credit agreement executed by Borrower or Owner or the highest
rate allowed by law from the date of payment until the date of reimbursement.
These sums shall be included in the definition of Obligations, shall be secured
by the Collateral identified in this Agreement and shall be payable upon demand.
22. ASSIGNMENT. Owner shall not be entitled to assign any of its rights,
remedies or obligations described in this Agreement without the prior written
consent of Lender. Consent may be withheld by Lender in its sole discretion.
Lender shall be entitled to assign some or all of its rights and remedies
described in this Agreement without notice to or the prior consent of Owner in
any manner.
23. MODIFICATION AND WAIVER. The modification or waiver of any of Owner's
Obligations or Lender's rights under this Agreement must be contained in a
writing signed by Lender. Lender may perform any of Owner's Obligations or delay
or fail to exercise any of its rights wtthout causing a waiver of those
Obligations or rights. A waiver on one occasion shall not constitute a waiver on
any other occasion. Owner's Obligations under this Agreement shall not be
affected if Lender amends, compromises, exchanges, fails to exercise, impairs or
releases any of the obligations belonging to any Owner or third party or any of
its rights against any Owner, third party or collateral.
24. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to the benefit of Owner and Lender and their respective successors, assigns,
trustees, receivers, administrators, personal representatives, iegatees, and
devisees.
25. NOTICES. Any notice or other communication to be provided under this
Agreement shall be in writing and sent to the parties at the addresses described
in this Agreement or such other address as the parties may designate in writing
from time to time.
26. SEVERABILITY. If any provision of this Agreement violates the law or is
unenforceable, the rest of the Agreement shall remain valid.
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27. APPLICABLE LAW. This Agreement shall be governed by the laws of the
state indicated in Lender's address. Owner consents t~ the jurisdiction and
venue of any court located in the state indicated in Lender's address in the
event of any legal proceeding pertaining t(? the negotiation, execution,
performance or enforcement of any term or condition contained in this Agreement
or any related document ana agrees not to commence or seek to remove such legal
proceeding in or to a different court.
28. COLLECTION COSTS. If Lender hires an attorney to assist in collecting
any amount due or enforcing any right or remedy under this Agrnement, Owner
agrees to pay Lender's attorneys' fees and collection costs.
29. MISCELLANEOUS. This Agreement is executed for commercial purposes. Owner
shall supply information regarding Owner's business operations and financial
condition or the Collateral in the form and manner as req uested by Lender from
time to time. All information furnished by Owner to Lender shall be true,
accurate and complete in all respects. Owner and Lender agree that time is of
the essence. Owner waives presentment, demand for payment, notice of dishonor
and protest except as required by law. All references to Owner in this Agreement
shall include all parties signing below except Lender. If there is more than one
Owner, their obligations shall be joint and several. This Agreement shall remain
in full force and effect until Lender provides Owner with written notice of
termination. This Agreement and any related documents represent the complete and
integrated understanding between Owner and Lender pertaining to the terms and
conditions of those documents.
30. WAIVER OF JURY TRIAL. LENDER AND OWNER HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE THE RIGHT EITHER MAY HAVE TO A TRIAL BY JURY IN RESPECT TO
ANY LITIGATION BASED ON, OR ARISING OUT OF, UNDER OR IN CONJUNCTION WITH THE
PROMISSORY NOTE, THIS AGREEMENT AND ANY OTHER AGREEMENT CONTEMPLATED TO BE
EXECUTED IN CONJUNCTION HEREWITH OR THEREWITH, OR ANY COURSE OF CONDUCT, COURSE
OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF EITHER PARTY.
THIS PROVISION IS A MATERIAL INDUCEMENT FOR LENDER MAKING THE LOAN EVIDENCED BY
THE PROMISSORY NOTE.
31. ADDITIONAL TERMS:
Owner acknowledges that Owner has read, understands, and agrees to the terms and
conditions of this Agreement.
Dated: MAY 13, 1996
OWNER: SKYWAY ADVERTISING, INC. 0WNER:
/s/ ROBERT H BLANK _________________________________
ROBERT H BLANK
CEO
OWNER: OWNER:
_________________________________ _________________________________
OWNER: OWNER:
_________________________________ _________________________________
OWNER: OWNER:
_________________________________ _________________________________
P-MN208 UC FormAtion Technologies, Inc. (4/5/98) (800) 937-3799 Page 4 of 5
BANKWINDSOR
IDS Center
740 Marquette Avenue
Minneapolis, Minnesota 55402
(612) 338-2150
"LENDER"
COMMERCIAL/
AGRICULTURAL
REVOLVING OR DRAW
NOTE-VARIABLE RATE
BORROWER
SKYWAY ADVERTISING, INC.
ROBERT H BLANK
ADDRESS
12 SOUTH 6TH STREET
MINNEAPOLIS, MN 55402
TELEPHONE NO. IDENTIFICATION NO.
<TABLE>
<CAPTION>
OFFICER INTEREST PRINCIPAL AMOUNT/ FUNDING/ MATURITY CUSTOMER LOAN
INITIALS RATE CREDIT LIMIT AGREEMENT DATE DATE NUMBER NUMBER
<S> <C> <C> <C> <C> <C> <C>
KRH VARIABLE $35,000.00 05/17/96 05/13/97 95267503
</TABLE>
PROMISE TO PAY
For value received, Borrower promises to pay to the order of Lender indicated
above the principal amount of THIRTY-FIVE THOUSAND AND NO/ 100 Dollars
($35,000.00) or, if less, the aggregate unpaid principal amount ot all loans or
advances made by the Lender to the Borrower, plus interest on the unpaid
principal balance at the rate and in the manner described below. All amounts
received by Lender shall be applied first to late payment charges and expenses,
then to accrued interest, and then to principal or in any other order as
determined by Lender, in Lender's sole discretion, as permitted bv law.
INTEREST RATE: This Note has a variable rate feature. Interest on the Note may
change from time to time if the Index Rate identified below changes. Interest
shall be computed on the basis of 3 60 days per year. Interest on this Note
shall be calculated at a variable rate equal to TWO AND 500 / 1000 percent
(2.500%) per annum over the Index Rate. The initial Index Rateis currently EIGHT
AND 250/1000 percent (8.250%) per annum. The initial interest rate on this Note
shall be TEN AND 7 50 /1000 percent (10.750%) per annum. Any change in the
interest rate resulting from a change in the Index Rate will be effective on:THE
DATE THE INDEX RATE CHANGES
INDEX RATE: The Index Rate for this Note shall be: FIRST BANK NATIONAL
ASSOCIATION REFERENCE RATE
MINIMUM RATE/MAXIMUM RATE: The minimum interest rate on this Note shall be TEN
AND 750/1000 percent (10.750%) per annum. The maximum interest rate on this Note
shall not exceed TWENTY-ONE AND 750/1000 percent (21.750%) per annum or the
maximum interest rate Lender is permitted to charge by law, whichever is less.
POST-MATURITY RATE:[ ] If checked, this loan is for a binding commitment of at
least $100,000.00 and after maturity, due to scheduled maturity or acceleration,
past due amounts shall bear interest at the lesser of:
_____________________________________________________, or the maximum interest
rate Lender is permitted to charge by law.
PAYMENT SCHEDULE: Borrower shall pay the principal and interest according to the
following schedule:
INTEREST ONLY PAYMENTS BEGINNING JUNE 13, 1996 AND CONTINUING AT MONTHLY
TIME INTERVALS THEREAFTER. A FINAL PAYMENT OF THE UNPAID PRINCIPAL BALANCE
PLUS ACCRUED INTEREST IS DUE AND PAYABLE ON MAY 13, 1997.
All payments will be made to Lender at its address described above and in lawful
currency of the United States of America.
RENEWAL: If checked, [ ] this Note is a renewal of loan number
________________________________________ , and is not in payment of that Note.
SECURITY: To secure the payment and performance of obligations incurred under
this Note, Borrower grants Lender a security interest in, and pledges and
assigns to Lender all of Borrower's rights, title, and interest, in all monies,
instruments, savings, checking and other deposit accounts of Borrower's,
(excluding IRA, Keogh and trust accounts and deposits subject to tax penalties
if so assigned) that are now or in the future in Lender's custody or control.
Upon default, and to the extent permitted by applicable law, Lender may exercise
any or all of its rights or remedies as a secured party with respect to such
property which rights and remedies shall be in addition to aii other rights and
remedies granted to Lender including, without limitation, Lender's common law
right of setoff. [X] If checked, the obligations under this Note are also
secured by a lien and/or security interest in the property described in the
documents executed in connection with this Note as well as any other property
designated as security now or in the future.
PREPAYMENT: This Note may be prepaid in part or in full on or before its
maturity date. If this Note contains more than one installment, all prepayments
will be credited as determined by Lender and as permitted by law. If this Note
is prepaid in full. there will be: [ ] No prepayment penalty. [ ] A prepayment
penalty of ______________ % of the principal prepaid.
LATE PAYMENT CHARGE: If a payment is received more than __n/a__ days late,
Borrower will be charged a late payment charge of __n/a%__ of the unpaid late
installment.
REVOLVING OR DRAW FEATURE: [X] This Note possesses a revolving feature. Upon
satisfaction of the conditions set forth in this Note, Borrower shall be
entitled to borrow up to the full principal amount of the Note and to repay and
reborrow from time to time during the term of this Note. [ ] This Note possesses
a draw feature. Upon satisfaction of the conditions set forth in this Note,
Borrower shall be entitled to make one or more draws under this Note. The
aggregate amount of such draws shall not exceed the full principal amount of
this Note.
Lender shall maintain a record of the amounts loaned to and repaid by Borrower
under this Note. The aggregate unpaid principal amount shown on such record
shall be rebuttable presumptive evidence of the principal amount owing and
unpaid on this Note. The Lender's failure to record the date and amount of any
loan or advance shall not limit or otherwise affect the obligations of the
Borrower under this Note to repay the principal amount of the loans or advances
together with all interest accruing thereon. Lender shall not be obligated to
provide Borrower with a copy of the record on a periodic basis. Borrower shall
be entitled to inspect or obtain a copy of the record during Lender's business
hours.
CONDITIONS FOR ADVANCES: If there is no default under this Note, Borrower shall
be entitled to borrow monies or make draws under this Note (subject to the
limitations described above) under the following conditions:
THIS NOTE EVIDENCES A DISCRETIONARY LINE OF CREDIT; IT SHALL NOT MEAN THAT THE
BANK IS OBLIGATED TO MAKE ANY ADVANCES. EACH ADVANCE ON THIS NOTE SHALL BE IN
THE SOLE DISCRETION OF THE BANK'S OFFICERS.
BORROWER ACKNOWLEDGES THAT BORROWER HAS READ, UNDERSTANDS, AND AGREES TO THE
TERMS AND CONDITIONS OF THIS NOTE INCLUDING THE PROVISIONS ON THE REVERSE SIDE.
BORROWER ACKNOWLEDGES RECEIPT OF AN EXACT COPY OF THIS NOTE.
NOTE DATE: MAY 17, 1996
BORROWER: SKYWAY ADVERTISING, INC. BORROWER: ROBERT H BLANK
/s/ ROBERT H. BLANK /s/ ROBERT H. BLANK
ROBERT H BLANK ROBERT H BLANK
CEO Individually
BORROWER: BORROWER:
__________________________________ __________________________________
BORROWER: BORROWER:
__________________________________ __________________________________
BORROWER: BORROWER:
__________________________________ __________________________________
LP-MN204 ~ FormAtion Technologies, Inc. (5/27/92) (800) 937-3799
TERMS AND CONDITIONS
1. DEFAULT: Borrower will be in default under this Note in the event that
Borrower or any guarantor or any other third party: (a) fails to make any
payment on this Note or any other indebtedness to Lender when due; (b) fails to
perform any obligation or breaches any warranty or covenant to Lender contained
in this Note or any other present or future written agreement regarding this or
any indebtedness of Borrower to Lender; (c) provides or causes any false or
misleading signature or representation to be provided to Lender; (d) allows the
collateral securing this Note (if any) to be lost, stolen, destroyed, damaged in
any material respect, or subjected to seizure or confiscation; (e) permits the
entry or service of any garnishment, judgment, tax levy, attachment or lien
against Borrower, any guarantor, or any of their property or the Collateral; (f)
dies, becomes legally incompetent, is dissolved or terminated, ceases to operate
its business, becomes insolvent, makes an assignment for the benefit of
creditors, fails to pay debts as they become due, or becomes the subject of any
bankruptcy, insolvency or debtor rehabilitation proceeding; or (g) causes Lender
to deem itself insecure for any reason, or Lender, for any reason, in good faith
deems itself insecure.
2. RIGHTS OF LENDER ON DEFAULT: If there is a default under this Note, Lender
will be entitled to exercise one or more of the following remedies without
notice or demand (except as required by law): (a) to cease making additional
advances under this Note; (b) to declare the principal amount plus accrued
interest under this Note and all other present and future obligations of
Borrower immediately due and payable in full; (c) to collect the outstanding
obligations of Borrower with or without resorting to judicial process; (d) to
take possession of any collateral in any manner permitted by law; (e) to require
Borrower to deliver and make available to Lender any collateral at a place
reasonably convenient to Borrower and Lender; (f) to sell, lease or otherwise
dispose of any collateral and collect any deficiency balance with or without
resorting to legal process; (g) to set-off Borrower's obligations against any
amounts due to Borrower including, but not limited to monies, instruments, and
deposit accounts maintained with Lender; and (h) to exercise all other rights
available to Lender under any other written agreement or applicable law.
Lender's rights are cumulative and may be exercised together, separately, and in
any order. Lender's remedies under this paragraph are in addition to those
available at common law, including, but not limited to, the right of set-off.
3. DEMAND FEATURE: If this Note contains a demand feature, Lender's right to
demand payment, at any time, and from time to time, shall be in Lender's sole
and absolute discretion, whether or not any default has occurred.
4. FINANCIAL INFORMATION: Borrower will provide Lender with current financial
statements and other financial information (including, but not limited to,
balance sheets and profit and loss statements) upon request.
5. MODIFICATION AND WAIVER: The modification or waiver of any of Borrower's
obligations or Lender's rights under this Note must be contained in a writing
signed by Lender. Lender may perform any of Borrower's obligations or delay or
fail to exercise any of its rights without causing a waiver of those obligations
or rights. A waiver on one occasion will not constitute a waiver on any other
occasion. Borrower's obligations under this Note shall not be affected if Lender
amends, compromises, exchanges, fails to exercise, impairs or releases any of
the obligations belonging to any co-borrower or guarantor or any of its rights
against any co-borrower, guarantor or collateral.
6. SEVERABILITY AND INTEREST LIMITATION: If any provision of this Note is
invalid, illegal or unenforceable, the validity, legality, and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
Notwithstanding anything contained in this Note to the contrary, in no event
shall interest accrue under this Note, before or after maturity, at a rate in
excess of the highest rate permitted by applicable law, and if interest
(including any charge or fee held to be interest by a court of competent
jurisdiction) in excess thereof be paid, any excess shall constitute a payment
of, and be applied to, the principal balance hereof, and if the principal
balance has been fully paid, then such interest shall be repaid to the Borrower.
7. ASSIGNMENT: Borrower will not be entitled to assign any of its rights,
remedies or obligations described in this Note without the prior written consent
of Lender which may be withheld by Lender in its sole discretion. Lender will be
entitled to assign some or all of its rights and remedies described in this Note
without notice to or the prior consent of Borrower in any manner.
8. NOTICE: Any notice or other communication to be provided to Borrower or
Lender under this Note shall be in writing and sent to the parties at the
addresses described in this Note or such other address as the parties may
designate in writing from time to time.
9. APPLICABLE LAW: This Note shall be governed by the laws of the state
indicated in Lender's address. Borrower consents to the jurisdiction and venue
of any court located in the state indicated in Lender's address in the event of
any legal proceeding pertaining to the negotiation, execution, performance or
enforcement of any term or condition contained in this Note or any related loan
document and agrees not to commence or seek to remove such legal proceeding in
or to a different court.
10. COLLECTION COSTS: If Lender hires an attorney to assist in collecting any
amount due or enforcing any right or remedy under this Note, Borrower agrees to
pay Lender's attorney's fees, to the extent permitted by applicable law, and
collection costs.
11. RETURNED CHECK: If a check for payment is returned to Lender for any reason,
Lender will charge an additional fee of $15.00.
12. MISCELLANEOUS: This Note is being executed for commercial/agricultural
purposes. Borrower and Lender agree that time is of the essence. Borrower waives
presentment, demand for payment, notice of dishonor and protest. If Lender
obtains a judgment for any amount due under this Note, interest will accrue on
the judgment at the judgment rate of interest permitted by law. Ajl references
to Borrower in this Note shall include all of the parties signing this Note. If
there is more than one Borrower, their obligations will be joint and several.
This Note and any related documents represent the complete and integrated
understanding between Borrower and Lender pertaining to the terms and conditions
of those documents.
13. JURY TRIAL WAIVER: BORROWER HEREBYWAIVES ANY RIGHT TO TRIAL BY JURY IN ANY
CIVIL ACTION ARISING OUT OF, OR BASED UPON, THIS NOTE OR THE COLLATERAL SECURING
THIS NOTE. 14. ADDITIONAL TERMS:
THIS NOTE IS SECURED BY AN EXISTING SECURITY AGREEMENT DATED MAY 13, 1996.
PURPOSE: WORKING CAPITAL
<TABLE>
<CAPTION>
PRINCIPAL ADVANCES AND PAYMENTS INTEREST PAYMENTS RATE CHANGE
- ------------------------------------------------------------------- ----------------------------------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Made Date Amount of Amount of Principal Undisbursed Received Date Interest Date Date Rate
By Advance Payment Balance Commitments By Paid Paid To
</TABLE>
LPMNBTC (C) FormAtion Technologies, Inc. (4/22/92) (800) 937-3799
BANKWINDSOR
IDS Center
740 Marquette Avenue
Minneapolis, Minnesota 55402
(612) 338-2150
"LENDER"
COMMERCIAL/
AGRICULTURAL
REVOLVING OR DRAW
NOTE-VARIABLE RATE
BORROWER
SKYWAY ADVERTISING, INC.
ROBERT H BLANK
ADDRESS
12 SOUTH 6TH STREET
MINNEAPOLIS, MN 55402
TELEPHONE NO. IDENTIFICATION NO.
<TABLE>
<CAPTION>
OFFICER INTEREST PRINCIPAL AMOUNT/ FUNDING/ MATURITY CUSTOMER LOAN
INITIALS RATE CREDIT LIMIT AGREEMENT DATE DATE NUMBER NUMBER
<S> <C> <C> <C> <C> <C> <C>
KRH VARIABLE $100,000.00 05/13/96 05/13/97 95267502
</TABLE>
PROMISE TO PAY
For value received, Borrower promises to pay to the order of Lender indicated
above the principal amount of ONE HUNDRED THOUSAND AND NO/100 ($100, 000.00) or,
tf less, the aggregate unpaid principal amount of all loans or advances made by
the Lender to the Borrower, plus interest on the unpaid principal balance at the
rate and in the manner described below. All amounts received by Lender shall be
applied first to late payment charges and expenses, then to accrued interest,
and then to principal or in any other order as determined by Lender, in Lender's
sole discretion, as permitted by law.
INTEREST RATE: ThIs Note has a variable rate feature. Interest on the Note may
change from time to time if the Index Rate identified below changes. Interest
shall be computed on the basis of 360 days per year. Interest on this Note shall
be calculated at a variable rate equal to TWO AND 500/1000 percent (2.500%) per
annum over the Index Rate. The initial Index Rate is currently EIGHT AND
250/1000 percent (8.250%) per annum. The initial interest rate on this Note
shall be TEN AND 750/1000 percent (10.750%) per annum. Any change in the
interest rate resulting from a change in the Index Rate will be effective on:THE
DATE THE INDEX RATE CHANGES
INDEX RATE: The Index Rate for this Note shall be: FIRST BANK NATIONAL
ASSOCIATION REFERENCE RATE
MINIMUM RATE/MAXIMUM RATE: The minimum interest rate on this Note shall be TEN
AND 750/1000 percent (10.750%) per annum. The maximum interest rate on this Note
shall not exceed TWENTY-ONE AND 750/1000 percent (21.750%) per annum or the
maximum Interest rate Lender is permitted to charge by law, whichever is less.
POST-MATURITY RATE: ~ If checked, this loan is for a binding commitment of at
least $100,000.00 and after maturity, due to scheduled maturity or acceleration,
past due amounts shall bear interest at the lesser of:_________________________
or the maximum interest rate Lender is permitted to charge by law.
PAYMENT SCHEDULE: Borrower shall pay the principal and interest according to the
following schedule:
INTEREST ONLY PAYMENTS BEGINNING JUNE 13, 1996 AND CONTINUING AT MONTHLY
TIME INTERVALS THEREAFTER. A FINAL PAYMENT OF THE UNPAID PRINCIPAL BALANCE
PLUS ACCRUED INTEREST IS DUE AND
PAYABLE ON MAY 13, 1997.
All payments will be made to Lender at its address described above and in lawful
currency of the United States of America.
RENEWAL: If checked, [ ] this Note is a renewal of loan number
________________________________________ ,and is not in payment of that Note.
SECURITY: To secure the payment and performance of obligations incurred under
this Note, Borrower grants Lender a security interest In, and pledges and
assigns to Lender all of Borrower's rights, title, and interest, in all monies,
instruments, savings, checking and other deposit accounts of Borrower's,
(excluding IRA, Keogh and trust accounts and deposits subject to tax penalties
if so assigned) that are now or in the future in Lender's custody or control.
Upon default, and to the extent permitted by applicable law, Lender may exercise
any or all of Its rights or remedies as a secured party with respect to such
property which rights and remedies shall be in addition to all other rights and
remedies granted TO Lender Including, without limitation, Lender's common law
right of setoff. [X] If checked, the obligations under this Note are also
secured by a lien and/or security interest in the property described in the
documents executed in connection with this Note as well as any other property
designated as security now or in the future.
PREPAYMENT: This Note may be prepaid in part or in full on or before its
maturity date. If this Note contains more than one installment, all prepayments
will be credited as determined by Lender and as permitted by law. If this Note
is prepaid in full, there will be: [X] No prepayment penalty. [ ] A prepayment
penalty of ______________ % of the principal prepaid.
LATE PAYMENT CHARGE: If a payment is received more than ___n/a___ days late,
Borrower will be charged a late payment charge of ___n/a%___ of the unpaid late
Installment.
REVOLVING OR DRAW FEATURE: [X] This Note possesses a revolving feature. Upon
satisfaction of the condition s set forth in this Note, Borrower shall be
entitled to borrow up to the full principal amount of the Note and to repay and
reborrow from time to time during the term of this Note. [ ] This Note possesses
a draw feature. Upon satisfaction of the conditions set forth In this Note,
Borrower shall be entitled to make one or more draws under this Note. The
aggregate amount of such draws shall not exceed the full principal amount of
this Note.
Lender shall maintain a record of the amounts loaned to and repaid by Borrower
under this Note. The aggregate unpaid principal amount shown on such record
shall be rebuttable presumptive evidence of the principal amount owing and
unpaid on this Note. The Lender's failure to record the date and amount of any
loan or advance shall not limit or otherwise affect the obligations of the
Borrower under this Note to repay the principal amount of the loans or advances
together with all interest accruing thereon. Lender shall not be obligated to
provide Borrower with a copy of the record on a periodic basis. Borrower shall
be entitled to inspect or obtain a copy of the record during Lender's business
hours.
CONDITIONS FOR ADVANCES: If there is no default under this Note, Borrower shall
be entitled to borrow monies or make draws under this Note (subject to the
limitations described above) under the following conditions:
THIS NOTE EVIDENCES A DISCRETIONARY LINE OF CREDIT; IT SHALL NOT MEAN THAT THE
BANK IS OBLIGATED TO MAKE ANY ADVANCES. EACH ADVANCE ON THIS NOTE SHALL BE IN
THE SOLE DISCRETION OF THE BANK'S OFFICERS.
BORROWER ACKNOWLEDGES THAT BORROWER HAS READ, UNDERSTANDS, AND AGREES TO THE
TERMS AND CONDITIONS OF THIS NOTE INCLUDING THE PROVISIONS ON THE REVERSE SIDE.
BORROWER ACKNOWLEDGES RECEIPT OF AN EXACT COPY OF THIS NOTE.
NOTE DATE: MAY 13, 1996
BORROWER: SKYWAY ADVERTISING, INC. BORROWER: ROBERT H BLANK
/s/ ROBERT H. BLANK /s/ ROBERT H. BLANK
ROBERT H BLANK ROBERT H BLANK
CEO Individually
BORROWER: BORROWER:
__________________________________ __________________________________
BORROWER: BORROWER:
__________________________________ __________________________________
BORROWER: BORROWER:
__________________________________ __________________________________
LP-MN204 ~ FormAtion Technologies. Inc. (5/27/92) (800) 937-3799
TERMS AND CONDITIONS
1. DEFAULT: Borrower will be in default under this Note in the event that
Borrower or any guarantor or any other third party: (a) fails to make any
payment on this Note or any other indebtedness to Lender when due; (b) fails to
perform any obligation or breaches any warranty or covenant to Lender contained
in this Note or any other present or future written agreement regarding this or
any indebtedness of Borrower to Lender; (c) provides or causes any false or
misleading signature or representation to be provided to Lender; (d) allows the
collateral securing this Note (if any) to be lost, stolen, destroyed, damaged in
any material respect, or subjected to seizure or confiscation; (e) permits the
entry or service of any garnishment, judgment, tax levy, attachment or lien
against Borrower, any guarantor, or any of their property or the Collateral; (f)
dies, becomes legally incompetent, is dissolved or terminated, ceases to operate
its business, becomes insolvent, makes an assignment for the benefit of
creditors, fails to pay debts as they become due, or becomes the subject of any
bankruptcy, insolvency or debtor rehabilitation proceeding; or (g) causes Lender
to deem itself insecure for any reason, or Lender, for any reason, in good faith
deems itself insecure.
2. RIGHTS OF LENDER ON DEFAULT: If there is a default under this Note, Lender
will be entitled to exercise one or more of the following remedies without
notice or demand (except as required by law): (a) to cease making additional
advances under this Note; (b) to declare the principal amount plus accrued
interest under this Note and all other present and future obligations of
Borrower immediately due and payable in full; (c) to collect the outstanding
obligations of Borrower with or without resorting to judicial process; (d) to
take possession of any collateral in any manner permitted by law; (e) to require
Borrower to deliver and make available to Lender any collateral at a place
reasonably convenient to Borrower and Lender; (f) to sell, lease or otherwise
dispose of any collateral and collect any deficiency balance with or without
resorting to legal process; (g) to set-off Borrower's obligations against any
amounts due to Borrower including, but not limited to monies, instruments, and
deposit accounts maintained with Lender; and (h) to exercise all other rights
available to Lender under any other written agreement or applicable law.
Lender's rights are cumulative and may be exercised together, separately, and in
any order. Lender's remedies under this paragraph are in addition to those
available at common law, including, but not limited to, the right of set-off.
3. DEMAND FEATURE: If this Note contains a demand feature, Lender's right to
demand payment, at any time, and from time to time, shall be in Lender's soje
and absolute discretion, whether or not any default has occurred.
4. FINANCIAL INFORMATION: Borrower will provide Lender with current financial
statements and other financial information (including, but not limited to,
balance sheets and profit and loss statements) upon request.
5. MODIFICATION AND WAIVER: The modification or waiver of any of Borrower's
obligations or Lender's rights under this Note must be contained in a writing
signed by Lender. Lender may perform any of Borrower's obligations or delay or
fail to exercise any of its rights without causing a waiver of those obligations
or rights. A waiver on one occasion will not constitute a waiver on any other
occasion. Borrower's obligations under this Note shall not be affected if Lender
amends, compromises, exchanges, fails to exercise, impairs or releases any of
the obligations belonging to any co-borrower or guarantor or any of its rights
against any co-borrower, guarantor or collateral.
6. SEVERABILITY AND INTEREST LIMITATION: If any provision of this Note is
invalid, illegal or unenforceable, the validity, legality, and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
Notwithstanding anything contained in this Note to the contrary, in no event
shall interest accrue under this Note, before or after maturity, at a rate in
excess of the highest rate permitted by applicable law, and if interest
(including any charge or fee held to be interest by a court of competent
jurisdiction) in excess thereof be paid, any excess shall constitute a payment
of, and be applied to, the principal balance hereof, and if the principal
balance has been fully paid, then such interest shall be repaid to the Borrower.
7. ASSIGNMENT: Borrower will not be entitled to assign any of its rights,
remedies or obligations described in this Note without the prior written consent
of Lender which may be withheld by Lender in its sole discretion. Lender will be
entitled to assign some or all of its rights and remedies described in this Note
without notice to or the prior consent of Borrower in any manner.
8. NOTICE: Any notice or other communication to be provided to Borrower or
Lender under this Note shall be in writing and sent to the parties at the
addresses described in this Note or such other address as the parties may
designate in writing from time to time.
9. APPLICABLE LAW: This Note shall be governed by the laws of the state
indicated in Lender's address. Borrower consents to the jurisdiction and venue
of any court located in the state indicated in Lender's address in the event of
any legal proceeding pertaining to the negotiation, execution, performance or
enforcement of any term or condition contained in this Note or any related loan
document and agrees not to commence or seek to remove such legal proceeding in
or to a different court.
10. COLLECTION COSTS: If Lender hires an attorney to assist in collecting any
amount due or enforcing any right or remedy under this Note, Borrower agrees to
pay Lender's attorney's fees, to the extent permitted by applicable law, and
collection costs.
11. RETURNED CHECK: If a check for payment is returned to Lender for any reason,
Lender will charge an additional fee of $15.00.
12. MISCELLANEOUS: This Note is being executed for commercial/agricultural
purposes. Borrower and Lender agree that time is of the essence. Borrower waives
presentment, demand for payment, notice of dishonor and protest. If Lender
obtains a judgment for any amount due under this Note, interest will accrue on
the judgment at the judgment rate of interest permitted by law. All references
to Borrower in this Note shall include all of the parties signing this Note. If
there is more than one Borrower, their obligations will be joint and several.
This Note and any related documents represent the complete and integrated
understanding between Borrower and Lender pertaining to the terms and conditions
of those documents.
13. JURY TRIAL WAIVER: BORROWER HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY
CIVIL ACTION ARISING OUT OF, OR BASED UPON, THIS NOTE OR THE COLLATERAL SECURING
THIS NOTE. 14. ADDITIONAL TERMS:
PURPOSE: WORKING CAPITAL
<TABLE>
<CAPTION>
PRINCIPAL ADVANCES AND PAYMENTS INTEREST PAYMENTS RATE CHANGE
- ------------------------------------------------------------------- ----------------------------------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Made Date Amount of Amount of Principal Undisbursed Received Date Interest Date Date Rate
By Advance Payment Balance Commitments By Paid Paid To
</TABLE>
LPMNBTC(c) FormAtion Technologies, Inc. (4/22/92) (800) 937-3799
EXHIBIT 24.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the inclusion in the Illuminated Media Inc. Registration
Statement Amendment No. 2 on Form SB-2 of our report, which contains an
explanatory paragraph with respect to the substantial doubt about the Company's
ability to continue as a going concern, dated May 13, 1997, on the financial
statements of Illuminated Media Inc., for the years ended February 28, 1997, and
February 29, 1996, and to the reference to our firm under the caption "Experts."
/s/Silverman Olson Thorvilson & Kaufmann LTD.
Minneapolis, Minnesota
June 6, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF ILLUMINATED MEDIA INC., AS OF AND FOR THE YEAR ENDED
FEBRUARY 28, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-END> FEB-28-1997
<CASH> 7,651
<SECURITIES> 0
<RECEIVABLES> 22,648
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 80,390
<PP&E> 75,840
<DEPRECIATION> (41,202)
<TOTAL-ASSETS> 115,227
<CURRENT-LIABILITIES> 503,780
<BONDS> 0
61,500
0
<COMMON> 2,200
<OTHER-SE> (622,321)
<TOTAL-LIABILITY-AND-EQUITY> 115,227
<SALES> 242,146
<TOTAL-REVENUES> 242,146
<CGS> 0
<TOTAL-COSTS> (373,270)
<OTHER-EXPENSES> (165)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (50,027)
<INCOME-PRETAX> (181,316)
<INCOME-TAX> 0
<INCOME-CONTINUING> (181,316)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (181,316)
<EPS-PRIMARY> (.74)
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF ILLUMINATED MEDIA INC., AS OF AN FOR THE PERIOD ENDED
APRIL 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-END> APR-30-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 20,271
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 68,553
<PP&E> 76,228
<DEPRECIATION> (42,886)
<TOTAL-ASSETS> 102,061
<CURRENT-LIABILITIES> 547,397
<BONDS> 0
61,500
0
<COMMON> 2,200
<OTHER-SE> (669,868)
<TOTAL-LIABILITY-AND-EQUITY> 102,061
<SALES> 28,967
<TOTAL-REVENUES> 28,967
<CGS> 0
<TOTAL-COSTS> (65,174)
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (11,340)
<INCOME-PRETAX> (47,547)
<INCOME-TAX> 0
<INCOME-CONTINUING> (47,547)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (47,547)
<EPS-PRIMARY> (.16)
<EPS-DILUTED> 0
</TABLE>
