As filed with the Securities and Exchange Commission on July 21, 1997.
Registration No. 333-22443
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 3
TO
FORM SB-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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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.
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
Proposed Proposed
Maximum Maximum
Title of Each Class of Amount Offering Aggregate Amount of
Securities to be Registered To Be Price Per Offering Registration
Registered Unit Price Fee
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<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.
<TABLE>
<CAPTION>
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
- --------------------------------------------------------------------------------------------------------------------------
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 Act Management-Limitation of Directors' Liability;
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 Regulation S-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 July 21, 1997
Subject to Completion
PRELIMINARY PROSPECTUS ILLUMINATED MEDIA INC.
DATED JULY 21, 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 during the five year
period following the date of this Prospectus (except for the first one year
period after the date hereof) two shares of Common Stock at an exercise price of
$2.75 per share. The warrants are, commencing fourteen months after the date
hereof,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 during the first one
year period following the date of this Prospectus, and thereafter only if 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 $1.61 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 July ___, 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 September ___, 1997 [60 days from the date of this
Prospectus] (which period may be extended an additional 30 days, until October
___, 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 until five years (other than
the first one year) after the date of this Prospectus at $2.75 per share. The
warrant is exercisable commencing one year after the date of this Prospectus
and, 30 days after the date of this Prospectus, is transferable separately from
the Common Stock. Commencing 14 months after the date of this Prospectus, 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 September __, 1997, which can be extended for 30 days to October __, 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 (subsequently reduced to 33,161 shares) 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 Unit 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 nationaladvertisers 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 (commencing
one year after the date of this Prospectus) 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, Wisconsin and Colorado.
14. Possible Redemption of Warrants. The Warrants are, commencing
fourteen months after the date of this Prospectus, 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 (subsequently reduced to 33,161 shares) and 19,345 shares,
respectively, of Common Stock at $.51 per share and $.75 per share,
respectively, and upon successful completion of this offering the Company will
have an Underwriter's Unit 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 Unit Purchase Option. The Company has agreed to sell
to the Underwriter, for nominal consideration, a Unit Purchase Option to
purchase up to 10% of the Units sold in this offering at an exercise price of
$1.61 per Unit (the "Unit 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 Unit
Purchase Option may be adversely affected, as the holders of the Underwriter's
Unit 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. 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:
<TABLE>
<CAPTION>
Minimum Maximum
<S> <C> <C>
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
==== ====
</TABLE>
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> <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 (3) .31 132,000 424,999 16.9%/8.1% 39.5%/22.1%
PUBLIC
INVESTORS(4)
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) Does not include 85,000 restricted Units acquired upon conversion of
$85,000 in principal amount of Debentures subsequent to April 30, 1997.
If included, "Total Capital Investment" for Current Investors would
become $217,000.
(4) 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 Unit 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 $258,000 (1) $ 446,628 (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/Reserve 133,625 120,622
------- -------
Total $487,125 (6) $1,228,750
======== =========
(1) Includes (a) $123,000, as of April 30, 1997, in principal amount of 10%
subordinated debentures (of which $43,000 is held by officers and directors of
the Company) which mature on or will be extended to August 30, 1997, and (b)
$135,000 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 August 13, 1997, each with an interest rate of 2.5% above the reference
rate, which, at April 30, 1997, was 9.0%). 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 holders of an aggregate of $85,000 in
principal amount of Debentures converted them to restricted Units. Of such
amount, $65,000 was held either directly or beneficially by officers and
directors of the Company. In addition, subsequent to April 30, 1997, the Company
sold an additional $69,000 in principal amount of Debentures.
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 (1-A) 208,000 -0- -0-
Notes-Shareholders 19,509 19,509 -0-
Current Portion long-term debt 40,256 40,256 13,393
Long-term debt (1) 18,576 18,576 18,576
Long-term debt-related party 142,256 142,256 -0-
----------- -------- -------
Total short and long-term debt 563,597 220,597 31,969
----------- -------- -------
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) 622,582(4)
Total Capitalization $ (42,571) $ 101,554 $ 654,551
=========== ======== =======
Number of Shares of Common
Stock Outstanding 220,000 1,074,999 1,924,999
=========== ========= =========
</TABLE>
1-A Subsequent to April 30, 1997, $85,000 in principal amount of Debentures
were converted by the holders into 85,000 restricted Units.
(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 hereby, nor the Underwriter's Unit Purchase
Option. Also, does not include 85,000 restricted Units issued
subsequent to April 30, 1997 (see note 1-A, above). If the shares,
which are part of such Units, were included in this table, the number
of shares outstanding would be 1,159,999 in a minimum offering and
2,009,999 in a maximum offering.
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, and up to $25,000 in a maximum 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. Such agreement, which by its terms, expired on June 30,
1997, is expected to be renewed. It provides for the payment of a 5% commission
to Mr. Unverzagt's company for images developed by it.
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 (for which
there is no specific term, and which will not involve any compensation to either
party, except to the extent that the parties might someday enter into a standard
lease agreement) 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, with a term expiring in
July, 1998, 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, on the basis of 40% to the Company and 60% to Skyway News in
the first year, and 60% to the Company and 40% to Skyway News after one year.
The Company has reached written agreement with a term expiring in
January 1998, 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, and will need to be worked out in
greater detail if and when projects develop.
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. Any
such expansion would be funded from the proceeds of an offering closer to the
maximum and from the expected increase in cash flow from operations that result
from the expanded marketing efforts and product enhancements attributable to a
maximum offering.
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:
<TABLE>
<CAPTION>
NAME AGE POSITION(S) HELD
---- --- -------------------------------------
<S> <C> <C>
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
</TABLE>
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. However, as the result of a determination by the Minnesota Department of
Commerce in July, 1997, affecting them only, the Lease Brothers waived the Lease
Option with respect to 90% of the outstanding notes, and agreed that, as to the
balance, the conversion price would be $.51 per share, thereby reducing to
33,161 the number of shares that could be acquired by them upon any conversion
of such 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 (although Mr. Tuschner subsequently waived his right to
his 8,333 warrants). 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 $69,000 in principal amount of Subordinated Debentures, at varying interest
rates, to four accredited investors, three of whom were affiliates, 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 to such
four investors for an aggregate of 21,002 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.
The Company has agreed with the Minnesota Department of Commerce that
so long as the Company's securities are registered in such state, or one year
from the date of this prospectus, whichever is longer, the Company will not make
loans to its officers, directors, employees, or principal shareholders, except
for loans made in the ordinary course of business, such as travel advances,
expense account advances, relocation advances, or reasonable salary advances.
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)(6) .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 (7) 9.8 4.2 2.3
15 S. Fifth Street, Suite 715
Minneapolis, MN 55402
Rick Johnson 204,999 (8) 48.2 21.0 10.6
15 S. Fifth Street, Suite 715
Minneapolis, MN 55402
Lease Brothers 422,798 (9) 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) (10) 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. Subsequent to April 30,
1997, Mr. Blank, or his spouse, acquired a beneficial interest in an
additional 10,667 shares subject to warrant.
(5) All of such shares are held only in the form of warrants for the
purchase of shares of Common Stock.
(6) Subsequent to April 30, 1997, Mr. Kothe acquired a beneficial interest
in an additional 2,334 shares subject to warrant.
(7) 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.
(8) Consists of Preferred Stock only. Some of such shares are held in the
name of Mr. Johnson's children.
(9) Consists only of convertible promissory notes which can, as of April
30, 1997, be converted into the number of shares of Common Stock shown.
Subsequently, the number of shares that could be acquired upon
conversion of such notes was reduced to 33,161, which would cause the
percentage calculations to be reduced to 7.2%, 3.0% and 1.7%,
respectively. See "CERTAIN TRANSACTIONS".
(10) This table does not take account of the possible exercise of warrants
outstanding as of April 30, 1997, 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 Unit 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 as of April 30, 1997).
DESCRIPTION OF SECURITIES
UNITS
Each unit offered hereby consists of one share of Common Stock and one
redeemable Warrant. Warrants are exercisable commencing one year after the date
of this Prospectus but are immediately transferable separate from the Common
Stock. Each Warrant entitles the holder to purchase, at any time until
redemption or until five years following the Effective Date (the date of this
Prospectus), 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 immediately detachable and separately transferable. One
redeemable warrant entitles the holder ("warrant holder"), commencing one year
after the date of this Prospectus, to purchase two shares of Common Stock until
five years after 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,
commencing fourteen months after the date of this Prospectus, 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 Unit Purchase Option granting
the Underwriter the right to purchase that number of Units of the Company 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 $1.61 per Unit. The rights under this Unit Purchase Option
are not transferable for a one-year period except to officers or shareholders of
the Underwriter. The Unit 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 Unit
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 July __,
1998, [one year after the date of this Prospectus] 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. However, as a condition to
registration of this offering in the State of Minnesota, Mr. Tuschner waived his
right to such warrants. 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.
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.
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.
July __________, 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. (In July, 1997, the Lease Brothers agreed to waive their right to
convert 90% of the outstanding balance of such notes, and agreed that the
remaining balance would be convertible at $.51 per share; as such, at April 30,
1997, they could have acquired 33,161 shares upon conversion of such notes.)
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
$69,000 in principal amount of its Subordinated Debentures, at varying interest
rates, together with an aggregate of 21,002 Warrants to purchase Common Stock to
three individual investors (Mr. Winer, Mr. Kothe, an officer and director of the
Registrant, the spouse of Mr. Blank, an officer and director and Dr Eelkema).
The Registrant did not receive any separate consideration for the granting of
such Warrants.
k. Subsequent to April 30, 1997 the holders (all of whom were
accredited investors) of an aggregate of $85,000 in principal amount of
debentures converted and exchanged them for 85,000 restricted Units, at the
ratio of one Unit for each $1.00 in principal amount.
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).
<TABLE>
<CAPTION>
Item 27. Exhibits.
<S> <C> <C>
(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.
1.1A Form of Underwriting Agreement between the Registrant and Tuschner &
Co., Inc.-Revised.
1.2 Form of Underwriter's Unit Purchase Option.
1.3 Form of Escrow Agreement.
1.4 Form of Impoundment Agreement.
1.5 Form of Underwriter's Stock Purchase Option.
1.6 Selected Dealer Agreement.
3.1 Articles of Incorporation of the Registrant, dated March 9, 1993, with
amendments.
3.1A Articles of Amendment to Second Amended Articles of Incorporation.
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.
10.12 Bank Windsor Loan Documents.
24.1 Consent of Silverman Olson Thorvilson & Kaufmann LTD., Independent
Auditor.
24.1 Consent of Silverman Olson Thorvilson & Kaufmann LTD,
Independent Auditor, updated to a current date.
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.
27.2A Financial Data Schedule-2/28/97
27.2B Financial Data Schedule-4/30/97
(ii) The following exhibits are filed as part of this Amendment No. 2:
1.2A Form of Underwriter's Unit Purchase Option, as revised.
4.1A Form of Warrant Agreement by and away the Registrant, Tuschner & Co.,
Inc. And the Warrant Agent, as revised.
10.13 Agreement as to Change of Convertibility Terms, dated
July 17, 1997, between the Registrant and the Lease
Brothers.
24.1 Consent of Silverman Olson Thorvilson & Kaufmann LTD,
Independent Auditor, updated to a current date.
</TABLE>
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. 3 to its Registration Statement to be signed on its behalf by the
undersigned, in the City of Minneapolis, State of Minnesota, on July 21, 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.3 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, July 21, 1997
Robert H. Blank and Director (Principal
Executive Officer)
/s/Richard D. Kothe Chief Financial Officer, July 21, 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 )
) July 21, 1997
* Director )
Mark T. Hepburn )
* Executed by Robert H. Blank as Attorney-in-Fact
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. 3
to its Registration Statement to be signed on its behalf by the undersigned, in
the City of Minneapolis, State of Minnesota, on July 21, 1997.
ILLUMINATED MEDIA, INC.
By: Robert H. Blank,
Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
Amendment No. 3 to its Registration Statement was signed by the following
persons in the capacities and on the dates stated.
Signature Title Dated:
Chief Executive Officer, July 21, 1997
Robert H. Blank and Director (Principal
Executive Officer)
Chief Financial Officer, July 21, 1997
Richard D. Kothe President, and Director
(Principal Financial Officer,
Principal Accounting Officer)
Director )
Gail Emerson )
)
)
Director )
Kenneth Olsen )
)
)
Director ) By:_______________________
Mark Verplaeste ) Robert H. Blank
) Attorney-in-Fact
)
Director )
Steve Unverzagt )
) July 21, 1997
)
Director )
Mark T. Hepburn )
As filed with the Securities and Exchange Commission on July 21, 1997.
Registration No. 333-22443
- --------------------------------------------------------------------------------
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
<TABLE>
<CAPTION>
EXHIBITS PAGE NO.
(i) Previously filed:
<S> <C>
1.1 Form of Underwriting Agreement between the Registrant and Tuschner & Co.,Inc.
1.1A Form of Underwriting Agreement between the Registrant and Tuschner & Co.,
Inc.-Revised.
1.2 Form of Underwriter's Unit Purchase Option.
1.3 Form of Escrow Agreement.
1.4 Form of Impoundment Agreement.
1.5 Form of Underwriter's Stock Purchase Option.
1.6 Selected Dealer Agreement.
3.1 Articles of Incorporation of the Registrant, dated March 9, 1993, with
amendments.
3.1A Articles of Amendment to Second Amended Articles of Incorporation.
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.
10.12 Bank Windsor Loan Documents.
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.
27.2A Financial Data Schedule-2/28/97
27.2B Financial Data Schedule-4/30/97
(ii) The following exhibits are filed herewith:
1.2A Form of Underwriter's Unit Purchase Option, as revised.
4.1A Form of Warrant Agreement by and away the Registrant, Tuschner & Co., Inc.
And the Warrant Agent, as revised.
10.13 Agreement as to Change of Convertibility Terms, dated July 17, 1997, between
the Registrant and the Lease Brothers.
24.1 Consent of Silverman Olson Thorvilson & Kaufmann LTD., Independent Auditor.
</TABLE>
Exhibit 1.2a
EXHIBIT A
ILLUMINATED MEDIA, INC.
UNIT 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),
____________ Units, each Unit consisting of one share of the Company's common
stock, par value $0.01 (the "Common Stock"), as now constituted, and one warrant
to purchase two shares of such Common Stock at $2.75 per share. This option (the
"Unit Purchase Option") together with Unit Purchase Options of like tenor, has
been issued pursuant to the Underwriting Agreement dated _____ __, 199_, between
Tuschner & Company, Inc. and the Company. The Units 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
$1.61 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 Units so purchased shall be and are deemed to be issued to the holder hereof
as the record owner of such Units as of the close of business on the date on
which this Option shall have been surrendered and payment made for such Units as
aforesaid. Subject to the provisions of the next succeeding paragraph,
certificates for the shares of Common Stock and Warrants 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 Units, 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 persons who are both
officers and shareholders 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 "Warrant" or "Warrants" shall
mean those Warrants described in the Registration Statement filed by
the Company on, October 10, 1995, as thereafter amended, and identical
to those warrants included in the Units sold pursuant to such
Registration Statement and such Warrants shall, except as otherwise
provided for herein, be governed by that certain Warrant Agreement of
____________ ___, 199_, executed by the Company and filed as part of
such Registration Statement.
(b) 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 and Warrants 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.
(c) The Warrants shall: (i) be exercisable for a period of
three years from the date of exercise of this Option, and (2) the
Warrants shall not be redeemable by the Company.
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 of the shares 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.
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 Option and the Warrants
included herein have 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 and Warrants 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 and Warrants that such registration is to be
effected. The Company shall include in such registration statement such
Common Stock and Warrants 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 and Warrants 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 and Warrants 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 and Warrants covered
thereby, and the holders of such Common Stock and Warrants 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 and Warrants, then the holders of
such Common Stock and Warrants shall not be deemed to have exercised
their right to require the Company to register Common Stock and
Warrants 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 Units,
Common Stock and Warrants. 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 and Warrants, 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 and Warrants 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 and/or Warrants 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 or Warrant 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 or Warrants
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 Warrant
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 Warrant upon the exercise hereof will
be entitled to receive the number of shares of Common Stock included in
the Units 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 included in the Units in effect
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 Units 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 Warrant, 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 Warrant
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 Warrant Holder
______________________________________
Name of Warrant 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 Warrant:
[ ] 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
Warrant exercisable into the remaining shares to the undersigned.
Date: ___________________
________________________________________
Signature of Warrant Holder
________________________________________
Name of Warrant Holder
WARRANT AGREEMENT
AGREEMENT, dated as of this ____ day of __________, 199_, by and among
ILLUMINATED MEDIA, INC. a Minnesota corporation (the "Company"), NORWEST BANK
MINNESOTA, N.A., as Warrant Agent (the "Warrant Agent"), and TUSCHNER & COMPANY,
INC., a Minnesota corporation ("Tuschner").
W I T N E S S E T H
WHEREAS, in connection with a public offering (the "Offering") of up to
1,500,000 units ("Units"), each unit consisting of one share of the Company's
Common Stock, no par value, and one Redeemable Common Stock Purchase Warrant
pursuant to an underwriting agreement (the "Underwriting Agreement") dated
__________, 199_, between the Company and Tuschner, and the issuance to Tuschner
or its designees of a Unit Purchase Option to purchase additional Units, dated
as of ____________, 199_ (the "Unit Purchase Option"), the Company will issue up
to ______________ Redeemable Common Stock Purchase Warrants ("Warrants"); and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act, in connection with the
issuance, registration, transfer exchange and redemption of the Warrants, the
issuance of certificates representing the Warrants, the exercise of the
Warrants, and the rights of the holders thereof;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth and for the purpose of defining the terms and
provisions of the Warrants and the certificates representing the Warrants and
the respective rights and obligations thereunder of the Company, the holders of
certificates representing the Warrants, and the Warrant Agent, the parties
hereto agree as follows:
SECTION 1. Definitions. As used herein, the following terms shall have
the following meanings, unless the context shall otherwise require:
(a) "Tuschner Certificate" shall mean a certificate executed on behalf
of Tuschner by its Chairman of the Board, President or a Vice President, and by
its Secretary or an Assistant Secretary, duplicate originals of which are
delivered to the Company and the Warrant Agent.
(b) "Common Stock" shall mean stock of the Company of any class,
whether now or hereafter authorized, which has the right to participate in the
distribution of earnings and assets of the Company without limit as to amount or
percentage, which at the date hereof (including the shares of Common Stock to be
issued pursuant to the Underwriting Agreement) consists of ______________ shares
of Common Stock, no par value.
(c) "Corporate Office" shall mean the office of the Warrant Agent (or
its successor) at which at any particular time its principal business shall be
administered, which office is located at the date hereof at 90 South Seventh
Street, Minneapolis, Minnesota 55402.
(d) "Exercise Date" shall mean, as to any Warrant, the date on which
the Warrant Agent shall have received both (a) the Warrant Certificate
representing such Warrant, with the exercise form thereon duly executed by the
Registered Holder thereof or his attorney duly authorized in writing, and (b)
payment in cash, or by official bank or certified check made payable to the
Company, of an amount in lawful money of the United States of America equal to
the applicable Purchase Price.
(e) "Initial Exercise Date" shall mean the first anniversary of the
date the Company's Registration Statement on Form SB-2, File No. 333-22443, is
declared effective by the Securities and Exchange Commission.
(f) "Purchase Price" shall mean the purchase price to be paid upon
exercise of each Warrant in accordance with the terms hereof, which price shall
be $2.75 per share, subject to adjustment from time to time pursuant to the
provisions of Section 9 hereof.
(g) "Redemption Price" shall mean the price at which the Company may,
at its option, redeem the Warrants, in accordance with the terms hereof, which
price shall be $0.01 per Warrant, subject to adjustment from time to time
pursuant to the provisions of Section 9 hereof.
(h) "Registered Holder" shall mean the person in whose name any
certificate representing Warrants shall be registered on the books maintained by
the Warrant Agent pursuant to Section 6.
(i) "Transfer Agent" shall mean American Securities Transfer, Inc., as
the Company's transfer agent, or its authorized successor, as such.
(j) "Warrant Expiration Date" shall mean 5:00 P.M. (Minneapolis time)
on ________________, 2001, or the Redemption Date as defined in Section 8,
whichever is earlier; provided that if such date shall in the State of Minnesota
be a holiday or a day on which banks are authorized to close, then 5:00 P.M.
(Minnesota time) on the next following day which in the State of Minnesota is
not a holiday or a day on which banks are authorized to close. Notwithstanding
the foregoing, as to the Warrants subject to the Unit Purchase Option, the
Warrant Expiration Date shall instead be five years after the date of exercise
of the portion of the Unit Purchase Option to which the Warrants relate.
SECTION 2. Warrants and Issuance of Warrant certificates.
(a) A Warrant shall initially entitle the Registered Holder of the
Warrant Certificate representing such Warrant to purchase two shares of Common
Stock upon the exercise thereof, in accordance with the terms hereof, subject to
modification and adjustment as provided in Section 9.
(b) Upon execution of this Agreement, Warrant Certificates representing
the number of Warrants sold pursuant to the Underwriting Agreement shall be
executed by the Company and delivered to the Warrant Agent. Upon written order
of the Company signed by its Chairman of the Board, President or a Vice
President, and by its Secretary or an Assistant Secretary, the Warrant
Certificates shall be countersigned, issued and delivered by the Warrant Agent
as part of the Units.
(c) From time to time, up to the Warrant Expiration Date, the Transfer
Agent shall countersign and deliver stock certificates in required whole number
denominations representing up to an aggregate of ______________ shares of Common
Stock, subject to adjustment as described herein, upon the exercise of Warrants
in accordance with this Agreement.
(d) From time to time, up to the applicable Warrant Expiration date,
the Warrant Agent shall deliver Warrant Certificates in required whole number
denominations to the persons entitled thereto in connection with any transfer or
exchange permitted under this Agreement; provided that no warrant certificates
shall be issued except: (i) those initially issued hereunder, (ii) those issued
on or after the Initial Warrant Exercise Date, upon the exercise of fewer than
all Warrants represented by any Warrant Certificate to represent any unexercised
Warrants held by the Registered Holder, (iii) those issued upon any transfer or
exchange pursuant to Section 6; (iv) those issued in replacement of lost,
stolen, destroyed or mutilated Warrant Certificates pursuant to Section 7; (v)
those issued pursuant to the Unit Purchase Option; and (vi) at the option of the
Company in such form as may be approved to reflect any adjustment or change or
adjustment in the Purchase Price the number of shares of Common Stock
purchasable upon exercise of the Warrants, or the Redemption Price Pursuant to
Section 9.
(e) Pursuant to the terms of the Unit Purchase Option, Tuschner may
purchase up to _________ Units, which include up to ________ Warrants.
Notwithstanding anything to the contrary contained herein, the Warrants included
in the Unit Purchase Option shall expire five years after the date on which the
Unit Purchase Option relating to such Warrants is exercised and shall not be
subject to redemption by the Company.
SECTION 3. Form and Execution of Warrant certificates.
(a) The Warrant Certificates shall be substantially in the form annexed
hereto as Exhibit A (the provisions of which are hereby incorporated herein) and
may have such letters, numbers, or other marks of identification or designation,
and such legends, summaries, or endorsements printed, lithographed, or engraved
thereon as the Company may deem appropriate and as are not inconsistent with the
provisions of this Agreement, or as may be required to comply with any law or
with any rule or regulation made pursuant thereto or with any rule or regulation
of any stock exchange on which the Warrants may be listed, or to conform to
usage. The Warrant Certificates shall be dated the date of issuance thereof
(whether upon initial issuance, transfer, exchange or in lieu of mutilated,
lost, stolen or destroyed Warrant Certificates) and issued in registered form.
Warrants shall be numbered serially with the letter W.
(b) Warrant Certificates shall be executed on behalf of the Company by
its Chairman of the Board, President or Vice President, and by its Secretary or
an Assistant Secretary, by manual signatures or by facsimile signatures printed
thereon and shall have imprinted thereon a facsimile of the Company's seal.
Warrant Certificates shall be countersigned by the Warrant Agent and shall not
be valid for any purpose unless so countersigned. In case any officer of the
Company who shall have signed any of the Warrant Certificates shall cease to be
such officer of the Company before the date of issuance of the Warrant
Certificates or before countersignature by the Warrant Agent and issue and
delivery thereof, such Warrant Certificates may nevertheless be countersigned by
the Warrant Agent, issued, and delivered with the same force and effect as
though the person who signed such Warrant Certificates had not ceased to be such
officer of the Company. After countersignature by the Warrant Agent, Warrant
Certificates shall be delivered by the Warrant Agent to the Registered Holder
without further action by the Company, except as otherwise provided by Section
4(a) hereof.
SECTION 4. Exercise.
(a) Each Warrant may be exercised by the Registered Holder thereof at
any time on or after the Initial Exercise Date, but not after the Expiration
Date, upon the terms and subject to the conditions set forth herein and in the
applicable Warrant Certificate. A Warrant shall be deemed to have been exercised
immediately prior to the close of business on the Exercise Date, and the person
entitled to receive the securities deliverable upon such exercise shall be
treated for all purposes as the holder upon exercise thereof as of the close of
business on the Exercise Date. As soon as practicable on or after the Exercise
Date, the Warrant Agent shall promptly remit the payment received from the
exercise of a Warrant to the Company or as the Company may direct in writing and
shall notify the Company in writing of the exercise of the Warrants. Promptly
following, and in any event within five days after the date of such notice from
the Warrant Agent or such longer period as shall be required to satisfy the
Company of the clearance of checks drawn on banks outside Minneapolis, Minnesota
delivered upon exercise, the Company shall give notice to the Warrant Agent to
cause to be issued and delivered by the Transfer Agent promptly thereafter, to
the person or persons entitled to receive the same, a certificate or
certificates for the securities deliverable upon such exercise (plus a
certificate for any remaining unexercised Warrants of the Registered Holder).
SECTION 5. Reservation of Shares; Listing; Payment of Taxes.
(a) The Company covenants that it will at all times reserve and keep
available out of its authorized Common Stocks solely for the purpose of issue
upon exercise of Warrants such number of shares of Common Stock as shall then be
issuable upon the exercise of all outstanding Warrants (including Warrants
includable in Units subject to the Unit Purchase Option). The Company covenants
that all shares of Common Stock which shall be issuable upon exercise of the
Warrants shall, at the time of delivery, be duly and validly issued, fully paid,
nonassessable, and free from all taxes, liens, and charges with respect to the
issue thereof (other than those which the Company shall promptly pay or
discharge), and that upon issuance such shares shall be listed on each national
securities exchange, if any, on which the other shares of outstanding Common
Stock of the Company are then listed.
(b) The Company covenants that if any securities to be reserved for the
purpose of exercise of Warrants hereunder require registration with, or approval
of, any governmental authority under any federal securities law before such
securities may be validly issued or delivered upon such exercise, then the
Company will in good faith and as expeditiously as reasonably possible, endeavor
to secure such registration or approval. The Company will use reasonable efforts
to obtain appropriate approvals or registrations under state "blue sky"
securities laws. With respect to any such securities, however, Warrants may not
be exercised by, or shares of Common Stock issued to, any Registered Holder in
any state in which such exercise would be unlawful.
(c) The Company shall pay all documentary, stamp or similar taxes, and
other governmental charges that may be imposed with respect to the issuance of
Warrants, or the issuance or delivery of any shares upon exercise of the
Warrants; provided, however, that if the shares of Common Stock are to be
delivered in a name other than the name of the Registered Holder of the Warrant
Certificate representing any Warrant being exercised, then no such delivery
shall be made unless the person requesting the same has paid to the Warrant
Agent the amount of transfer taxes or charges incident thereto, if any.
(d) The Warrant Agent is hereby irrevocably authorized to requisition
the Company's Transfer Agent from time to time for certificates representing
shares of Common Stock required upon exercise of the Warrants, and the Company
will authorize the Transfer Agent to comply with all such proper requisitions.
The Company will file with the Warrant Agent a statement setting forth the name
and address of the Transfer Agent of the Company for shares of Common Stock
issuable upon exercise of the Warrants.
SECTION 6. Exchange and Registration of Transfer.
(a) Warrant Certificates may be exchanged for other warrant
Certificates representing an equal aggregate number of warrants of the same
class or may be transferred in whole or in part. Warrant Certificates to be
exchanged shall be surrendered to the Warrant Agent at its Corporate Office, and
upon satisfaction of the terms and provisions hereof, the Company shall execute
and the Warrant Agent shall countersigns issue and deliver in exchange therefor
the Warrant Certificate or Certificates which the Registered Holder making the
exchange shall be entitled to receive.
(b) The Warrant Agent shall keep at its office books in which, subject
to such reasonable regulations as it may prescribe, it shall register Warrant
Certificates and the transfer thereof in accordance with its regular practice.
Upon due presentment for registration of transfer of any Warrant Certificate at
such office, the Company shall execute and the Warrant Agent shall issue and
deliver to the transferee or transferees a new Warrant Certificate or
Certificates representing an equal aggregate number of Warrants.
(c) With respect to all Warrant Certificates presented for registration
or transfer, or for exchange or exercise, the subscription form on the reverse
thereof shall be duly endorsed, or be accompanied by a written instrument or
instruments of transfer and subscription, in form satisfactory to the Company
and the Warrant Agent, duly executed by the Registered Holder or his
attorney-in-fact duly authorized in writing.
(d) A service charge may be imposed by the Warrant Agent for any
exchange or registration of transfer of Warrant Certificates. In addition, the
Company may require payment by such holder of a sum sufficient to cover any tax
or other governmental charge that may be imposed in connection therewith.
(e) All Warrant Certificates surrendered for exercise or for exchange
in case of mutilated Warrant Certificates shall be promptly canceled by the
Warrant Agent and thereafter retained by the Warrant Agent until termination of
this Agreement or resignation as Warrant Agent, or, with the prior written
consent of Tuschner, disposed of or destroyed, at the direction of the Company.
(f) Prior to due presentment for registration of transfer thereof, the
Company and the Warrant Agent may deem and treat the Registered Holder of any
Warrant Certificate as the absolute owner thereof and of each Warrant
represented thereby (notwithstanding any notations of ownership or writing
thereon made by anyone other than a duly authorized officer of the Company or
the Warrant Agent) for all purposes and shall not be affected by any notice to
the contrary. The Warrants, which are being publicly offered in Units with
shares of Common stock pursuant to the Underwriting Agreement, will be
detachable from the Common Stock and transferable separately therefrom from and
after thirty (30) days following the Initial Warrant Exercise Date.
SECTION 7. Loss or Mutilation. Upon receipt by the Company and the
Warrant Agent of evidence satisfactory to them of the ownership of and loss,
theft, destruction, or mutilation of any Warrant Certificate and (in case of
loss, theft or destruction) of indemnity satisfactory to them, or (in the case
of mutilation) upon surrender and cancellation thereof, the Company shall
execute and the Warrant Agent shall (in the absence of notice to the Company
and/or Warrant Agent that the Warrant Certificate has been acquired by a bona
fide purchaser) countersign and deliver to the Registered Holder in lieu thereof
a new Warrant Certificate of like tenor representing an equal aggregate number
of Warrants. Applicants for a substitute Warrant Certificate shall comply with
such other reasonable regulations and pay such other reasonable charges as the
Warrant Agent may prescribe.
SECTION 8. Redemption.
(a) Subject to the provisions of paragraph 2(e) hereof, on not less
than 30 days notice given at any time after the last day of the second month
following the Initial Exercise Date, the Warrants may be redeemed, at the Option
of the Company, at a redemption price of $0.01 per Warrant provided the market
price of the Common Stock receivable upon exercise of such Warrant shall exceed
120% of the Purchase Price. "Market price" for the purpose of this Section 8
shall mean (i) the average closing bid price of the Common Stock for 10
consecutive trading days as reported by the National Association of Securities
Dealers, Inc. Automated Quotation System ("NASDAQ") or (ii) if the Common Stock
is traded on a national securities exchange, the average reported sale price for
10 consecutive trading days on the primary exchange on which the Common Stock is
traded. All Warrants of a class, except those comprising the Unit Purchase
Option, must be redeemed if any of that class are redeemed.
(b) In case the Company shall desire to exercise its right so to redeem
the Warrants, it shall request Tuschner to mail a notice of redemption to each
of the Registered Holders of the Warrants to be redeemed, first class, postage
prepaid, not later than the 30th day before the date fixed for redemption, at
their last address as shall appear on the records of the Warrants. Any notice
mailed in the manner provided herein shall be conclusively presumed to have been
duly given whether or not the Registered Holder receives such notice. The
Company agrees to pay Tuschner its reasonable fees and expenses.
(c) The notice of redemption shall specify the (i) the redemption
price, (ii) the date fixed for redemption, (iii) the place where the Warrant
Certificates shall be delivered and the redemption price paid, (iv) that
Tuschner will assist each Registered Holder of a Warrant in connection with the
exercise thereof, and (v) that the right to exercise the Warrant shall terminate
at 5:00 P.M. (Minneapolis time) on the business day immediately preceding the
date fixed for redemption. The date fixed for the redemption of the Warrants
shall be the Redemption Date. Neither the failure to mail such notice nor any
defect therein or in the mailing thereof shall affect the validity of the
proceedings for such redemption except as to a holder (a) to whom notice was not
mailed or (b) whose notice was defective. An affidavit of the Warrant Agent or
of the Secretary or an Assistant Secretary of Tuschner or the Company that
notice of redemption has been mailed shall, in the absence of fraud, be prima
facie evidence of the facts stated therein.
(d) Any right to exercise a Warrant shall terminate at 5:00 P.M.
(Minneapolis time) on the business day immediately preceding the Redemption
Date. On and after the Redemption Dates, Holders of the Warrants shall have no
further rights except to receive, upon surrender of the Warrant, the Redemption
Price.
(e) From and after the date specified for redemption, the Company
shall, at the place specified in the notice of redemption, upon presentation and
surrender to the Company by or on behalf of the Registered Holder thereof of one
or more Warrants to be redeemed, deliver or cause to be delivered to or upon the
written order of such Holder a sum in cash equal to the redemption price of each
such Warrant. From and after the date fixed for redemption and upon the deposit
or setting aside by the Company of a sum sufficient to redeem all the Warrants
called for redemption, such Warrants shall expire and become void, and all
rights hereunder and under the Warrant Certificates, except the right to receive
payment of the redemption price, shall cease.
SECTION 9. Adjustment of Exercise Price and Number of Shares of Common
Stock or Warrants.
(a) (1) Subject to the exceptions referred to in Section 9(g) below, in
the event the Company shall, at any time or from time to time after the date
hereof, sell any shares of Common Stock for a consideration consisting solely of
cash in an amount per share less than the Purchase Price, or issue any shares of
Common Stock as a stock dividend to the holders of Common Stock, or subdivide or
combine the outstanding shares of Common Stock into a greater or lesser number
of shares (any such sale, issuance, subdivision or combination being herein
called a "Change of Shares"), then, and thereafter upon each further Change of
Shares, the Purchase Price in effect immediately prior to such Change of Shares
shall be changed to a price (including any applicable fraction of a cent)
determined by dividing (i) the sum of (a) the total number of shares of Common
Stock outstanding immediately prior to such Change of Shares, multiplied by the
Purchase Price in effect immediately prior to such Change of Shares, and (b) the
consideration, if any, received by the Company upon such sale, issuance,
subdivision or combination by (ii) the total number of shares of Common Stock
outstanding immediately after such Change of Shares.
(2) Upon each adjustment of the Purchase Price pursuant to this Section
9, the total number of shares of Common Stock purchasable upon the exercise of
each Warrant shall (subject to the provisions contained in Section 9(b) hereof)
be such number of shares (calculated to the nearest tenth) purchasable at the
Purchase Price immediately prior to such adjustment multiplied by a fraction,
the numerator of which shall be the Purchase Price in effect immediately prior
to such adjustment and the denominator of which shall be the Purchase Price in
effect immediately after such adjustment.
(b) The Company may elect, upon any adjustment of the Purchase Price
hereunder, to adjust the number of warrants outstanding, in lieu of the
adjustment in the number of shares of Common Stock purchasable upon the exercise
of each Warrant as hereinabove provided, so that each Warrant outstanding after
such adjustment shall represent the right to purchase one share of Common Stock.
Each Warrant held of record prior to such adjustment of the number of Warrants
shall become that number of Warrants (calculated to the nearest tenth or
hundredth, as the Company may determine to be more appropriate) determined by
multiplying the number one by a fraction, the numerator of which shall be the
Purchase Price in effect immediately prior to such adjustment and the
denominator of which shall be the Purchase Price in effect immediately after
such adjustment. Upon each such adjustment of the number of Warrants, the
Redemption Price in effect immediately prior to such adjustment also shall be
adjusted by multiplying such Redemption Price by a fraction, the numerator of
which shall be the Purchase Price in effect immediately after such adjustment
and the denominator of which shall be the Purchase Price in effect immediately
prior to such adjustment. Upon each adjustment of the number of Warrants
pursuant to this Section 9, the Company shall, as promptly as practicable, cause
to be distributed to each Registered Holder of Warrant Certificates on the date
of such adjustment Warrant Certificates evidencing, subject to Section 11
hereof, the number of additional Warrants to which such Holder shall be entitled
as a result of such adjustment or, at the option of the Company, cause to be
distributed to such Holder in substitution and replacement for the Warrant
Certificates held by him prior to the date of adjustment (and upon surrender
thereof, if required by the Company) new Warrant Certificates evidencing the
number of Warrants to which such Holder shall be entitled after such adjustment.
(c) In case of any reclassification, capital reorganization, or other
change of outstanding shares of Common Stock, or in case of any consolidation or
merger of the Company with or into another corporation (other than a
consolidation or merger in which the Company is the continuing corporation and
which does not result in any reclassification, capital reorganization or other
change of outstanding shares of Common Stock), or in case of any sale or
conveyance to another corporation of the property of the Company as, or
substantially as, an entirety (other than a sale/leaseback, mortgage or other
financing transaction), the Company shall cause effective provision to be made
so that each holder of a Warrant then outstanding shall have the right
thereafter, by exercising such Warrant, to purchase the kind and number of
shares of stock or other securities or property (including cash) receivable upon
such reclassification, capital reorganization or other change, consolidations
merger, sale or conveyance by a holder of the number of shares of Common Stock
that might have been purchased upon exercise of such Warrant immediately prior
to such reclassification, capital reorganization or other change, consolidation,
merger, sale or conveyance. Any such provision shall include provision for
adjustments that shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 9. The foregoing provisions shall
similarly apply to successive reclassifications, capital reorganizations, and
other changes of outstanding shares of Common Stock and to successive
consolidations, mergers, sales, or conveyances.
(d) Notwithstanding of any adjustments or changes in the Purchase Price
or the number of shares of Common Stock purchasable upon exercise of the
Warrants, the Warrant Certificates theretofore and thereafter issued shall,
unless the Company shall exercise its option to issue new Warrant Certificates
pursuant to Section 2(d) hereof, continue to express the Purchase Price per
share, the number of shares purchasable thereunder, and the Redemption Price
therefor as the Purchase Price per share, as the number of shares purchasable
and the Redemption Price therefor were expressed in the Warrant Certificates
when the same were originally issued.
(e) After each adjustment of the Purchase Price pursuant to this
Section 9, the Company will promptly prepare a certificate signed by the
Chairman of the Board or President, and by the Treasurer or an Assistant
Treasurer or the Secretary or an Assistant Secretary, of the Company setting
forth: (i) the Purchase Price as so adjusted, (ii) the number of shares of
Common Stock purchasable upon exercise of each Warrant after such adjustment,
and, if the Company shall have elected to adjust the number of Warrants, the
number of Warrants to which the registered holder or each Warrant shall then be
entitled, and the adjustment in Redemption Price resulting therefrom, and (iii)
a brief statement of the facts accounting for such adjustment. The Company will
promptly file such certificate with the Warrant Agent and cause a brief summary
thereof to be sent by ordinary first class mail to Tuschner and to each
registered holder of Warrants at his or her last address as it shall appear on
the registry books of the Warrant Agent. Neither the failure to mail such notice
nor any defect therein or in the mailing thereof shall affect the validity
thereof, except as to any holder to whom the Company fails to mail such notice
or except as to the holder to whom notice is given defectively. The affidavit of
an officer of the Warrant Agent or the Secretary or an Assistant Secretary of
the Company that such notice has been mailed shall, in the absence of fraud, be
prima facie evidence of the facts stated therein.
(f) For purposes of Sections 9(a) and 9(b) hereof the following
provisions (A) to (F) shall also be applicable:
(A) The number of shares of Common Stock outstanding at any
given time shall include shares of Common Stock owned or held by or for
the account of the Company and the sale or issuance of such treasury
shares or the distribution of any such treasury shares shall not be
considered a Change of Shares for purposes of said sections.
(B) No adjustment of the Purchase Price shall be made unless
such adjustment would require an increase or decrease of at least $.10
in such price; provided that any adjustments which by reason of this
clause (B) are not required to be made shall be carried forward and
shall be made at the time of and together with the next subsequent
adjustment which, together with any adjustment(s) so carried forward,
shall require an increase or decrease of at least $.10 in the Purchase
Price then in effect hereunder.
(C) In case of (1) the sale by the Company solely for cash of
any rights or warrants to subscribe for or purchase, or any options for
the purchase of, Common Stock or any securities convertible into or
exchangeable for Common Stock without the payment of any further
consideration other than cash, if any (such convertible or exchangeable
securities being herein called "Convertible Securities"), or (2) the
issuance without the receipt by the Company of any consideration
therefor, of any rights, or warrants to subscribe for or purchase, or
any options for the purchase of, Common Stock or Convertible
Securities, in each case, if (and only if) the consideration payable
upon the exercise of such rights, warrants, or options shall consist
solely of cash, whether or not such rights, warrants, or options, or
the right to convert or exchange such Convertible Securities, are
immediately exercisable, and the price per share for which Common Stock
is issuable upon the exercise of such rights, warrants, or options or
upon the conversion or exchange of such Convertible Securities
(determined by dividing (x) the minimum aggregate consideration payable
to the Company upon the exercise of such rights, warrants, or options,
plus the consideration received by the Company for the issuance or sale
of such rights, warrants, or options, plus, in the case of such
Convertible Securities, the minimum aggregate amount of additional
consideration, if any, other than such Convertible Securities, payable
upon the conversion or exchange thereof, by (y) the total maximum
number of shares of Common Stock issuable upon the exercise of such
rights, warrants or options or upon the conversion or exchange of such
Convertible Securities issuable upon the exercise of such rights,
warrants or options) is less than the Purchase Price in effect
immediately prior to the date of the issuance or sale of such rights,
warrants or options, then the total maximum number of shares of Common
Stock issuable upon the exercise of such rights, warrants or options or
upon the conversion or exchange of such Convertible Securities (as of
the date of the issuance or sale of such rights, warrants or options)
shall be deemed to be outstanding shares of Common Stock for purposes
of Sections 9(a) and 9(b) hereof and shall be deemed to have been sold
for cash in an amount equal to such price per share.
(D) In case of the sale by the Company solely for cash of any
Convertible Securities, whether or not the right of conversion or
exchange thereunder is immediately exercisable, and the price per share
for which Common Stock is issuable upon the conversion or exchange of
such Convertible Securities (determined by dividing (x) the total
amount of consideration received by the Company for the sale of such
Convertible Securities, plus the minimum aggregate amount of additional
consideration, if any, other than such Convertible Securities, payable
upon the conversion or exchange thereof, by (y) the total maximum
number of shares of Common Stock issuable upon the conversion or
exchange of such Convertible Securities) is less than the Purchase
Price in effect immediately prior to the date of the sale of such
Convertible Securities, then the total maximum number of shares of
Common Stock issuable upon the conversion or exchange of such
Convertible Securities (as of the date of the sale of such Convertible
Securities) shall be deemed to be outstanding shares of Common Stock
for purposes of Sections 9(a) and 9(b) hereof and shall be deemed to
have been sold for cash in an amount equal to such price per share.
(E) If the exercise or purchase price provided for in any
right, warrant or option referred to in (C) above, or the rate at which
any Convertible Securities referred to in (C) or (D) above are
convertible into or exchangeable for Common Stock, shall change at any
time (other than under or by reason of provisions designed to protect
against dilution), the Purchase Price then in effect hereunder shall
forthwith be readjusted to such Purchase Price as would have obtained
(1) had the adjustments made upon the issuance or sale of such rights,
warrants, options, or Convertible Securities been made upon the basis
of the issuance of only the number of shares of Common Stock
theretofore actually delivered (and the total consideration received
therefor) upon the exercise of such rights, warrants or options or upon
the conversion or exchange of such Convertible Securities, (2) had
adjustments been made on the basis of the Purchase Price as adjusted
under clause (1) for all transactions (which would have affected such
adjusted Purchase Price) made after the issuance or sale of such
rights, warrants, options or Convertible Securities, and (3) had any
such rights, warrants, options or Convertible Securities then still
outstanding been originally issued or sold at the time of such change.
On the expiration of any such right, warrant, or option or the
termination of any such right to convert or exchange any such
Convertible Securities, the Purchase Price then in effect hereunder
shall forthwith be readjusted to such Purchase Price as would have
obtained (a) had the adjustments made upon the issuance or sale of such
rights, warrants, options or Convertible Securities been made upon the
basis of the issuance of only the number of shares of Common Stock
theretofore actually delivered (and the total consideration received
therefor) upon the exercise of such rights, warrants or options or upon
the conversion or exchange of such Convertible Securities and (b) had
adjustments been made on the basis of the Purchase Price as adjusted
under clause (a) for all transactions (which would have affected such
adjusted Purchase Price) made after the issuance or sale of such
rights, warrants, options or Convertible Securities.
(F) In case of the sale for cash of any shares of Common
Stock, any Convertible Securities, any rights or warrants to subscribe
for or purchase, or any options for the purchase of, Common Stock or
Convertible Securities, the consideration received by the Company
therefor shall be deemed to be the gross sales price therefor without
deducting therefrom any expense paid or incurred by the Company or any
underwriting discounts or commissions or concessions paid or allowed by
the Company in connection therewith.
(g) No adjustment to the Purchase Price of the Warrants or to the
number of shares of Common Stock purchasable upon the exercise of each Warrant
will be made, however,
(i) upon the grant or exercise of any stock options which may
hereafter be granted or exercised under any other employee benefit plan
of the Company;
(ii) upon the sale or exercise of the Warrants, including
without limitation the sale or exercise of any of the Warrants
comprising the Unit Purchase Option; or
(iii) upon the issuance or sale of Common Stock or Convertible
Securities upon the exercise of any rights or warrants to subscribe for
or purchase, or any options for the purchase of, Common Stock or
Convertible Securities, whether or not such rights, warrants or options
were outstanding on the date of the original sale of the Warrants or
were thereafter issued or sold; or
(iv) upon the issuance or sale of Common Stock upon conversion
or exchange of any Convertible Securities, whether or not any
adjustment in the Purchase Price was made or required to be made upon
the issuance or sale of such Convertible Securities and whether or not
such Convertible Securities were outstanding on the date of the
original sale of the Warrants or were thereafter issued or sold; or
(v) upon any amendment to or change in the terms of any rights
or warrants to subscribe for or purchase, or options for the purchase
of, Common Stock or Convertible Securities or in the terms of any
Convertible Securities, including, but not limited to, any extension of
any expiration date of any such right, warrant or option, any change in
any exercise or purchase price provided for in any such right, warrant
or option, any extension of any date through which any Convertible
Securities are convertible into or exchangeable for Common Stock or any
change in the rate at which any Convertible Securities are convertible
into or exchangeable for Common Stock (other than rights, warrants,
options or Convertible Securities issued or sold after the close of
business on the date of the original issuance of the Units (i) for
which an adjustment in the Purchase Price then in effect was
theretofore made or required to be made, upon the issuance or sale
thereof, or (ii) for which such an adjustment would have been required
had the exercise or purchase price of such rights, warrants or options
at the time of the issuance or sale thereof or the rate of conversion
or exchange of such Convertible Securities, at the time of the sale of
such Convertible Securities, or the issuance or sale of rights or
warrants to subscribe for or purchase, or options for the purchase of,
such Convertible Securities, been the price or rate as changed, in
which case the provisions of Section 9(f)(E) hereof shall be applicable
if, but only if, the exercise or purchase price thereof, as changed, or
the rate of conversion or exchange thereof, as changed, consists solely
of cash or requires the payment of additional consideration, if any,
consisting solely of cash and the Company did not receive any
consideration other than cash, if any, in connection with such change).
(h) As used in this Section 9, the term "Common Stock" shall mean and
include the Company's Common Stock authorized on the date of the original issue
of the Units and shall also include any capital stock of any class of the
Company thereafter authorized which shall not be limited to a fixed sum or
percentage in respect of the rights of the holders thereof to participate in
dividends and in the distribution of assets upon the voluntary liquidation,
dissolution or winding up of the Company; provided, however, that the shares
issuable upon exercise of the Warrants shall include only shares of such class
designated in the Company's Certificate of Incorporation as Common Stock on the
date of the original issue of the Units, or (i) in the case of any
reclassification, change, consolidation, merger, sale or conveyance of the
character referred to in Section 9(c) hereof, the stock, securities or property
provided for in such section, or (ii) in the case of any reclassification or
change in the outstanding shares of Common Stock issuable upon exercise of the
Warrants as a result of a subdivision or combination or consisting of a change
in par value, or from par value to no par value, or from no par value to par
value, such shares of Common Stock as so reclassified or changed.
(i) Any determination as to whether an adjustment in the Purchase Price
in effect hereunder is required pursuant to Section 9, or as to the amount of
any such adjustment, if required, shall be binding upon the holders of the
Warrants and the Company if made in good faith by the Board of Directors of the
Company.
(j) If and whenever the Company shall grant to the holders of Common
Stock, as such, rights or warrants to subscribe for or to purchase, or any
options for the purchase of, Common Stock or securities convertible into or
exchangeable for or carrying a right, warrant or option to purchase Common
stock, the Company shall concurrently therewith grant to each registered Holders
of the Warrants all of such rights, warrants or options to which each such
holder would have been entitled if, on the date of determination of stockholders
entitled to the rights granted by the Company, such holder were the holder of
record of the number of whole shares of Common Stock then issuable upon exercise
(assuming, for purposes of this Section 9(j), that exercise of Warrants is
permissible during periods prior to the Initial Warrant Exercise Date) of his
Warrants. Such grant by the Company to the holders of the Warrants shall be in
lieu of any adjustment which otherwise might be called for pursuant to this
Section 9.
SECTION 10. Fractional Warrants and Fractional Shares. (a) If the
number of shares of Common Stock issuable upon the exercise of each Warrant is
adjusted pursuant to Section 9 hereof the Company shall not be required to issue
fractions of shares upon exercise of the Warrants or otherwise, or to distribute
certificates that evidence fractional shares. With respect to any fraction of a
share called for upon any exercise hereof, the Company shall pay to the Holder
an amount in cash equal to such fraction multiplied by the current market value
of such fractional share, determined as follows:
(1) If the Common Stock is listed on a national securities
exchange or admitted to unlisted trading privileges on such exchange or
quoted on the NASDAQ National Market System or Small Cap Market, the
current value shall be the last reported sale price of the Common Stock
on such exchange or NASDAQ on the last business day prior to the date
of exercise of this Warrant or, if no such sale is made on such day,
the average closing bid and asked prices for such day on such exchange
or system; or
(2) If the Common Stock is not so listed or admitted to
unlisted trading privileges or quoted, the current value shall be the
mean of the last reported bid and asked prices on NASDAQ or as reported
by the National Quotation Bureau, Inc. on the last business day prior
to the date of the exercise of this Warrant; or
(3) If the Common Stock is not so listed or admitted to
unlisted trading privileges or quoted, and bid and asked prices are not
so reported, the current value shall be an amount determined in such
reasonable manner as may be prescribed by the Board of Directors of the
Company.
SECTION 11. Warrant Holders Not Deemed Stockholders. No holder of
Warrants shall, as such, be entitled to vote or to receive dividends or be
deemed the holder of Common Stock that may at any time be issuable upon exercise
of such Warrants for any purpose whatsoever, nor shall anything contained herein
be construed to confer upon the holder of Warrants, as such, any of the rights
of a stockholder of the Company or any right to vote for the election of
directors or upon any matter submitted to stockholders at any meeting thereof,
or to give or withhold consent to any corporate action (whether upon any
recapitalization, issue or reclassification of stock, change of par value or
change of stock to no par value, consolidation, merger or conveyance or
otherwise), or to receive notice of meetings, or to receive dividends or
subscription rights, until such Holder shall have exercised such Warrants and
been issued shares of Common Stock in accordance with the provisions hereof.
SECTION 12. Rights of Action. All rights of action with respect to this
Agreement are vested in the respective Registered Holders of the Warrants, and
any Registered Holder of a Warrant, without consent of the Warrant Agent or of
the holder of any other Warrant, may, in his own behalf and for his own benefit,
enforce against the Company his right to exercise his Warrants for the purchase
of shares of Common Stock in the manner provided in the Warrant Certificate and
this Agreement.
SECTION 13. Agreement of Warrant Holders. Every holder of a Warrant, by
his acceptance thereof, consents and agrees with the Company, the Warrant Agent
and every other holder of a Warrant that:
(a) The Warrants are transferable only on the registry books of the
Warrant Agent by the Registered Holder thereof in person or by his attorney duly
authorized in writing and only if the Warrant Certificates representing such
Warrants are surrendered at the office of the Warrant Agent, duly endorsed or
accompanied by a proper instrument of transfer satisfactory to the Warrant Agent
and the Company in their sole discretion, together with payment of any
applicable transfer taxes; and
(b) The Company and the Warrant Agent may deem and treat the person in
whose name the Warrant Certificate is registered as the holder and as the
absolute, true and lawful owner of the Warrants represented thereby for all
purposes, and neither the Company nor the Warrant Agent shall be affected by any
notice or knowledge to the contrary, except as otherwise expressly provided in
Section 7 hereof.
SECTION 14. Cancellation of Warrant Certificates. If the Company shall
purchase or acquire any Warrant or Warrants the Warrant Certificate or Warrant
Certificates evidencing the same shall thereupon be delivered to the Warrant
Agent and canceled by it and retired. The Warrant Agent shall also cancel Common
Stock following exercise of any or all of the Warrants represented thereby or
delivered to it for transfer, split-up, combination or exchange.
SECTION 15. Concerning the Warrant Agent.
(a) The Warrant Agent acts hereunder as agent and in a ministerial
capacity for the Company, and its duties shall be determined solely by the
provisions hereof. The Warrant Agent shall not, by issuing and delivering
Warrant Certificates or by any other act hereunder, be deemed to make any
representations as to the validity, value or authorization of the Warrant
Certificates or the Warrants represented thereby or of any securities or other
property delivered upon exercise of any Warrant or whether any shares of stock
issued upon exercise of any Warrant is fully paid and nonassessable.
(b) The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of Warrant Certificates to make or cause to be made
any adjustment of the Purchase Price or the Redemption Price provided in this
Agreement, or to determine whether any fact exists which may require any such
adjustments, or with respect to the nature or extent of any such adjustment,
when made, or with respect to the method employed in making the same. It shall
not (i) be liable for any recital or statement of facts contained herein or for
any action taken, suffered or omitted by it in reliance on any Warrant
Certificate or other document or instrument believed by it in good faith to be
genuine and to have been signed or presented by the proper party or parties,
(ii) be responsible for any failure on the part of the Company to comply with
any of its covenants and obligations contained in this Agreement or in any
Warrant Certificate, or (iii) be liable for any act or omission in connection
with this Agreement except for its own negligence or willful misconduct.
(c) The Warrant Agent may at any time consult with counsel satisfactory
to it (who may be counsel for the Company) and shall incur no liability or
responsibility for any action taken, suffered or omitted by it in good faith in
accordance with the opinion or advice of such counsel.
(d) Any notice, statement, instruction, request, direction, order or
demand of the Company shall be sufficiently evidenced by an instrument signed by
the Chairman of the Board, the President, any Vice President, the Secretary, or
any Assistant Secretary (unless other evidence in respect thereof is herein
specifically prescribed). The Warrant Agent shall not be liable for any action
taken, suffered or omitted by it in accordance with such notice, statement,
instruction, request, direction, order or demand believed by it to be genuine.
(e) The Company agrees to pay the Warrant Agent reasonable compensation
for its services hereunder and to reimburse it for its reasonable expenses
hereunder; it further agrees to indemnify the Warrant Agent and save it harmless
against any and all losses, expenses and liabilities, including judgments, costs
and counsel fees, for anything done or omitted by the Warrant Agent in the
execution of its duties and powers hereunder except losses, expenses and
liabilities arising as a result of the Warrant Agent's negligence or willful
misconduct.
(f) In the event of a dispute under this Agreement between the Company
and Tuschner regarding proceeds received by the Warrant Agent from the exercise
of the Warrants, the Warrant Agent shall have the right, but not the obligation,
to bring an interpleader action to resolve such dispute.
(g) The Warrant Agent may resign its duties and be discharged from all
further duties and liabilities hereunder (except liabilities arising as a result
of the Warrant Agent's own negligence or willful misconduct), after giving 30
days' prior written notice to the Company. At least 15 days prior to the date
such resignation is to become effective, the Warrant Agent shall cause a copy of
such notice of resignation to be mailed to the Registered Holder of each Warrant
Certificate at the Company's expense. Upon such resignation, or any inability of
the Warrant Agent to act as such hereunder, the Company shall appoint a new
warrant agent in writing. If the Company shall fail to make such appointment
within a period of 15 days after it has been notified in writing of such
resignation by the resigning Warrant Agent, then the Registered Holder of any
Warrant Certificate may apply to any court of competent jurisdiction for the
appointment of a new warrant agent. Any new warrant agent, whether appointed by
the Company or by such a court, shall be a bank or trust company having a
capital and surplus, as shown by its last published report to its stockholders,
of not less than $10,000,000 or a stock transfer company. After acceptance in
writing of such appointment by the new warrant agent is received by the Company,
such new warrant agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named herein as the Warrant Agent,
without any further assurance, conveyance, act or deed; but if for any reason it
shall be necessary or expedient to execute and deliver any further assurance,
conveyance, act, or deed, the same shall be done at the expense of the Company
and shall be legally and validly executed and delivered by the resigning Warrant
Agent. Not later than the effective date of any such appointment, the Company
shall file notice thereof with the resigning Warrant Agent and shall forthwith
cause a copy of such notice to be mailed to the Registered Holder of each
Warrant Certificate.
(h) Any corporation into which the Warrant Agent or any new warrant
agent may be converted or merged or any corporation resulting from any
consolidation to which the Warrant Agent or any new warrant agent shall be a
party or any corporation succeeding to the trust business of the Warrant Agent
shall be a successor warrant agent under this Agreement without any further act,
provided that such corporation is eligible for appointment as successor to the
Warrant Agent under the provisions of the preceding paragraph. Any such
successor warrant agent shall promptly cause notice of its succession a; warrant
agent to be mailed to the Company and to the Registers Holder of each Warrant
Certificate.
(i) The Warrant Agent, its subsidiaries and affiliates, and any of its
or their officers or directors, may buy and hood or sell Warrants or other
securities of the Company and otherwise deal with the Company in the same manner
and to the same extent and with like effects as though it were not Warrant
Agent. Nothing herein shall preclude the Warrant Agent from acting in any other
capacity for the Company or for any other legal entity.
SECTION 16. Modification of Agreement.
The Warrant Agent and the Company may by supplemental agreement make
any changes or corrections in this Agreement (i) that they shall deem
appropriate to cure any ambiguity or to correct any defective or inconsistent
provision or manifest mistake or error herein contained or (ii) that they may
deem necessary or desirable and which shall not adversely affect the interests
of the Registered Holders of Warrant Certificates; provided, however, that this
Agreement shall not otherwise be modified, supplemented or altered in any
respect except with the consent in writing of the Registered Holders of Warrant
Certificates representing not less than 50% of the Warrants then outstanding,
and provided, further, that no change in the number or nature of the securities
purchasable upon the exercise of any Warrant, or the Purchase Price therefor, or
the acceleration of the Warrant Expiration Date, shall be made without the
consent in writing of the Registered Holder of the Warrant Certificate
representing such Warrant, other than such changes as are specifically
prescribed by this Agreement as originally executed.
SECTION 17. Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
made when personally served against receipt or three days after being delivered
or mailed first class registered or certified mail, return receipt requested,
postage prepaid, as follows: if to the Registered Holder of a Warrant
Certificate, at the address of such holder as shown on the registry books
maintained by the Warrant Agent; if to the Company, at 15 South Fifth Street,
Suite 715, Minneapolis, MN 55402, attention: President, or at such other address
as may have been furnished to the Warrant Agent in writing by the Company; and
if to the Warrant Agent, at its Corporate Office; if to Tuschner, at One
Financial Plaza, Suite 800, 120 South Sixth Street, Minneapolis, MN 55402,
Attention: President.
SECTION 18. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Minnesota, without
reference to principles of conflict of laws.
SECTION 19. Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the Company and the Warrant Agent, and their respective
successors and assigns, and the holders from time to time of Warrant
Certificates. Nothing in this Agreement is intended or shall be construed to
confer upon any other person any right, remedy or claim, in equity or at law, or
to impose upon any other person any duty, liability or obligation.
SECTION 20. Termination. This Agreement shall terminate at the close of
business on the Expiration Date of all the Warrants of such earlier date upon
which all Warrants have been exercises, except that the Warrant Agent shall
account to the Company for cash held by it and the provisions of Section 15
hereof shall survive such termination.
SECTION 21. Counterparts. This Agreement may be executed in several
counterparts, which taken together shall constitute a single document.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
ILLUMINATED MEDIA, INC.
By ___________________________
President
TUSCHNER & COMPANY, INC.
By ___________________________
President
NORWEST BANK MINNESOTA, N.A.
By ___________________________
EXHIBIT A
[FORM OF FACE OF WARRANT CERTIFICATE]
VOID AFTER _______________, ________
STOCK PURCHASE WARRANT CERTIFICATE
FOR PURCHASE OF COMMON STOCK OF
ILLUMINATED MEDIA, INC.
This certifies that FOR VALUE RECEIVED, ___________________________ or
registered assigns (the "Registered Holder") is the owner of the number of
Redeemable Common Stock Purchase Warrants ("Warrants") specified above. Each
Warrant initially entitles the Registered Holder to purchase, subject to the
terms and conditions set forth in this Certificate and the Warrant Agreement (as
hereinafter defined), two fully paid and nonassessable share of Common Stock, no
par value, of Illuminated Media, Inc., a Minnesota corporation (the "Company"),
at any time between _____________, 199_ and the Expiration Date (as hereinafter
defined), upon the presentation and surrender of this Warrant Certificate with
the Subscription Form on the reverse hereof duly executed, at the corporate
office of Norwest Bank Minnesota, N.A. as warrant agent, or its successor (the
"Warrant Agent"), accompanied by payment of $2.75 per share (the "Purchase
Price") in lawful money of the united States of America in cash or by official
bank or certified check made payable to the Company.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Warrant Agreement dated ___________, 199__ (the "Warrant
Agreement"), by and among the Company, the Warrant Agent, and Tuschner and
Company., Inc.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price or the number of shares of Common Stock subject to
purchase upon the exercise of each Warrant represented hereby, and the
Redemption Price are subject to modification or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued. In
the case of the exercise of less than all the Warrants represented hereby, the
Company shall cancel this Warrant Certificate upon the surrender hereof and
shall execute and deliver a new Warrant Certificate or Warrant Certificates of
like tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
The term "Expiration Date" shall mean 5:00 P.M., Minneapolis time on
_________, ______, or such earlier date on which the Warrants shall be redeemed.
If such date shall in the State of Minnesota be a holiday or a day on which the
banks are authorized to close, then the Expiration Date shall mean 5:00 P.M.,
Minneapolis time, the next following day which in the State of Minnesota is not
a holiday or a day on which banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant
to the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended, with respect to such securities is
effective. The Company has covenanted and agreed that it will file a
registration statement and will use its best efforts to cause the same to become
effective and to keep such registration statement current while any of the
Warrants are outstanding. This Warrant shall not be exercisable by a Registered
Holder in any state where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by
the Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment with any tax or other governmental
charge imposed in connection therewith for registration of transfer of this
Warrant Certificate at such office, a new Warrant Certificate or Warrant
Certificates representing an equal aggregate number of Warrants will be issued
to the transferee in exchange therefor, subject to the limitations provided in
the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a shareholder of the Company,
including, without limitation, the right to vote or to receive dividends or
other distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided in the Warrant Agreement.
This Warrant may be redeemed at the option of the Company, at a
redemption price of $0.10 per Warrant at any time after _____ _, 199_, provided
that the market price (as defined in the Warrant Agreement) for the securities
issuable upon exercise of such Warrant shall exceed 120% of the Purchase Price.
Notice of redemption shall be given not later than the 30th day before the date
fixed for redemption, all as provided in the Warrant Agreement. On and after the
date fixed for redemption, the Registered Holder shall have no rights with
respect to this Warrant except to receive the $0.01 per Warrant upon surrender
of this Certificate.
Prior to due presentment for registration of transfer hereof, the
Company and the Warrant Agent may deem and treat the Registered Holder as the
absolute owner hereof and of each Warrant represented hereby (notwithstanding
any notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of Minnesota.
This Warrant Certificate is not valid unless countersigned by the
Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed, manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
SIGNATURES
[Corporate Seal]
To be Executed by the Registered Holder in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to exercise
Warrants represented by this Warrant Certificate, and to purchase the securities
is issuable upon the exercise of such Warrants, and requests that certificates
for such securities shall be issued in the name of
[PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER]
- -----------------------------------------------
- -----------------------------------------------
- -----------------------------------------------
- -----------------------------------------------
[please print or type name and address]
and be delivered to
- -----------------------------------------------
- -----------------------------------------------
- -----------------------------------------------
- -----------------------------------------------
[please print or type name and address]
and if such number of Warrants shall not be all the warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of and delivered to the Registered Holder at
the address stated below.
The undersigned represents that the exercise of the within Warrant was
solicited by a member of the National Association of Securities Dealers, Inc. If
not solicited by an NASD member, please write "unsolicited" in the space below.
Unless otherwise indicated, by listing the name of another NASD member firm, it
will be assumed that the exercise was solicited by Tuschner & Co., Inc.
Dated:
-----------------------
------------------------------------------
Name of NASD Member, if other
than Tuschner & Co., Inc.
------------------------------------------
Signature of Registered Holder
------------------------------------------
Address
------------------------------------------
Taxpayer Identification Number
------------------------------------------
Signature Guaranteed
THE SIGNATURE ON THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE
MINNESOTA STOCK EXCHANGE, AMERICAN STOCK EXCHANGE, PACIFIC STOCK EXCHANGE OR
MIDWEST STOCK EXCHANGE.
AGREEMENT AS TO CHANGE OF CONVERTIBILITY TERMS
PARTIES: Illuminated Media, Inc. "Company"
15 S. Fifth Street, Suite 715
Minneapolis, MN 55402
Mike & Mark Lease "Lease Brothers"
--------------------
Litchfield, MN
DATE: July 17, 1997
BACKGROUND
1. Illuminated Media, Inc. (the "Company") has applied to the
Securities Division of the Minnesota Department of Commerce (the "Department")
for the registration of certain of its securities.
2. Mike Lease and Mark Lease (collectively the "Lease Brothers") hold
an aggregate of $169,119 in principal amount of 11% convertible Notes (the
"Notes") from the Company. The Notes were acquired by the Lease Brothers in
November 1995 in connection with the redemption by the Company of the shares of
the Company's stock that they owned.
3. The Notes are convertible during their term to shares of common
stock of the Company at the rate of $.40 per share.
4. The Department has taken the position that, for purposes of
Minnesota Securities Rules, including specifically, without limitation,
Minnesota Securities Rules 2875.3010, that the Notes are "cheap stock". As such,
unless the terms are modified, the Notes must be placed in escrow as required by
2875.2410 for a period of two to three years.
5. Both the Company and the Lease Brothers are willing to agree that
the convertibility feature of the Notes can be eliminated and/or modified in
such as way that the Notes are no longer considered cheap stock under Minnesota
Securities Rules.
AGREEMENTS
In consideration of the foregoing and intending to be legally bound,
the Parties agree as follows:
1. Waiver of Convertibility Provision as to 90 Percent of
Aggregate Principal Amount of Notes.
The Lease Brothers, effective upon execution hereof, as to 90
percent of the aggregate principal amount of the Notes, waive
any right they have under the terms of the Notes to convert
the Notes to Common Stock .
2. Change in Conversion Ratio.
As to the remaining 10% in aggregate principal amount of the
Notes, the Lease Brothers and the Company agree that,
effective immediately upon execution of this Agreement, the
price at which the Notes can be converted shall be $.51 per
share.
3. Costs and Expenses; Heirs, Assigns; Governing Law.
a) The costs and expenses of preparing this Agreement
shall be borne by the Company.
b) This Agreement shall be binding upon and available
for the benefit of the heirs, representatives,
successors, and assigns of the Parties hereto, and
shall be interpreted in accordance with Minnesota
law.
IN WITNESS WHEREOF, this Agreement has been executed by the Parties in
the manner appropriate to each.
In the presence of: ILLUMINATED MEDIA, INC.
- ---------------------------- By:
-----------------------------
Its:
LEASE BROTHERS
- ---------------------------- ---------------------------------
Mike Lease
- ---------------------------- ---------------------------------
Mark Lease
EXHIBIT 24.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the inclusion in the Illuminated Media Inc. Registration
Statement Amendment No. 3 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
July 21, 1997
