<PAGE>
U.S. Securities and Exchange Commission
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL
BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
GALAXY ENTERPRISES, INC.
(Name of Small Business Issuer in its charter)
Nevada 88-0315212
(State of other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
890 North Industrial Park Drive, Orem, Utah 84057
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (801) 227-0004
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be registered each class is to be registered
None None
Securities to be registered under Section 12(g) of the Act:
Common Stock
(Title of class)
INFORMATION REQUIRED IN REGISTRATION
STATEMENT
PART I
Item 1. Description of Business.
(a) Business Development
(1) Form and year of organization
Galaxy Enterprises, Inc. ("Issuer", "Company" or "Galaxy") was
incorporated as a Nevada corporation on March 3, 1994 as Cipher Voice, Inc.
On December 4, 1996 the Issuer (then known as Cipher Voice, Inc.) acquired all
of the outstanding common stock of Galaxy Mall, Inc. ("GMI") in exchange for
3,600,000 shares of the Issuer's common stock. GMI, a Wyoming corporation
incorporated June 7, 1996, thus became a wholly-owned subsidiary of the
Issuer. On December 16, 1996 Cipher Voice, Inc. changed its name to Galaxy
Enterprises, Inc.
(2) Bankruptcy, receivership or similar proceedings.
Galaxy has not been the subject of any bankruptcy, receivership or
similar proceeding.
(3) Material reclassifications, mergers, consolidation, or
purchase or sale of a significant amount of assets not in the ordinary
course of business.
Effective October 1, 1997 the Issuer, through its wholly-owned
subsidiary GMI, acquired the assets and liabilities of Profit Education
Systems, ("PES"), a Wyoming corporation organized April 26, 1993. The Issuer
previously had used the services of PES as a marketer of the Issuer's services
and as a provider and conductor of the Issuer's Internet education seminars.
As part of the PES acquisition, the Issuer acquired PES's marketing
strategies and products, employees and assets.
Also effective October 1, 1997 the Issuer, again through GMI, acquired
the assets and liabilities of CO-OP Business Services, Inc., ("CO-OP"), a
Utah corporation organized August 31, 1989. CO-OP previously had provided
GMI with customer support, electronic storefront programming, and merchant and
client interface programs for GMI's storefronts on the Galaxy Mall. As part
of the transaction, the Issuer agreed to assume all of CO-OP payables and
liabilities, and assumed future payment of certain existing equipment and
other leases. CO-OP agreed to transfer to GMI its assets including computers,
office equipment, customer service systems and procedures, and inventory.
(b) Business of Issuer
(1) Principal products or services and their markets
The Issuer was originally organized to engage in the research and
development, production and marketing of equipment related to computer
hardware security, known as a digital voice encryption-decryption electronic
device. The business was not successful, the Issuer having expended its
available capital without completing research and development necessary to
produce the computer hardware desired.
Since the acquisition of Galaxy Mall, Inc., the Issuer has been engaged
in the business of selling to its customers electronic home pages, or
"storefronts", on its Galaxy Mall, an Internet shopping mall, and hosts those
storefront sites on its Internet server. The customer thus acquires a
presence on the Internet to advertise its products or services. Storefronts
designed by or for the customers are then programmed by the Issuer for display
on the Mall. The Galaxy Mall is located at http://www.galaxymall.com.
The Issuer contracts with consultants and independent contractors, or
creates and produces in-house, various products which it markets. Such
products include the following:
Commercial Web Sites/Web Hosting: The Company programs commercial
web sites with the most current and up to date types of Internet programming,
such as HTML, JavaScript, and Perl. Each site programmed for its
customer/merchants has available on-line ordering capabilities. All orders
processed on-line are supported by encrypted security, which provides
merchants and their customers confidence in the safety of ordering products
and services on-line. Galaxy either hosts the sites on its own infrastructure
(servers), or provides virtual hosting, which give the customer/merchant's
site the appearance of having its own web pages hosted by such
customer/merchant.
Auto-responders: Galaxy sets up e-mail based services for its
merchants that send back to the individual requesting information an instant
reply, then forwards the original message to the owner of the auto-responder.
Similar to fax-on-demand, auto-responders are a powerful marketing tool for
merchants offering products or services. A merchant can write advertising
copy for its product and when someone inquires to the merchant's e-mail
address, the ad copy immediately is sent to the potential customer.
Tracking Software: The Company provides software for a merchant's
web site which tracks the volume of traffic to that web site. It also
provides the merchant with information concerning the derivation of its
potential customer and such person's referring universal resource locator.
This enables the merchant to track its marketing efforts to determine if its
potential customer found the merchant through the merchant's Internet
advertisements or its listings in search directories.
Internet Classified Advertisements: Galaxy sells 200 word
classified ads on its classified ad network. Each classified ad runs on the
network for 90 days. This network is comprised of thousands of listings.
Merchant Accounts: Galaxy sells merchant accounts combined with
software which allows the customer to have real time on-line processing for
credit cards and checks.
Banner Course/Banner License: The Banner Course consists of over
200 pages and 10 audio cassettes of instruction. Banners are the equivalent
of billboards. They are graphical images placed throughout the Internet
advertising specific web pages. Internet users simply click on the image and
they are taken immediately to the site the image is advertising. The purpose
of this course is to help merchants better understand how banner advertising
works on the Internet. It helps them benefit their own Internet business by
learning how to properly use banner advertising to promote their Internet
site. The banner license, which is sold in conjunction with the course,
allows the customer to put banners on multiple sites within the Galaxy Mall,
as well as benefit from ongoing discounts for future impression and banner
purchases.
Banner/Impressions: Galaxy designs and programs banners for its
customers. These banners are then advertised on Galaxy's network of over
20,000 Internet sites. The number of banner impressions is determined by the
number of times the banner advertisement is uploaded, or displayed, on one of
Galaxy's Internet sites. Galaxy's customer purchases a number of impressions
based upon its specific marketing and advertising needs.
Executive Mentor Program: Galaxy's mentoring program is a one-
year program in which a select number of Galaxy's customers become involved.
This program provides a personal coach to the customer who works with the
customer one-on-one to help the customer build its business on the Internet.
(2) Distribution methods of the products or services
The Issuer attracts its customers through Internet marketing workshops
presented periodically. The Issuer rents on a daily basis hotel conference
rooms from time to time in various cities throughout the United States and
Canada in which it hosts its preview sessions and Internet training workshops.
The Issuer uses an informational seminar representing a 90-minute preview of
the Galaxy Mall and the Internet. Preview attendees are then invited to
attend a one day workshop at which the Issuer provides an intensive training
course on Internet and e-mail use, news groups, auto-responders, classified
ads, and search engines used to market their products and services on the
Galaxy Mall. Interested attendees are then offered the opportunity to acquire
a "storefront" presence on the Galaxy Mall to market their products and
services. As a customer of the Issuer, the customer acquires a website hosted
by Galaxy Mall created and maintained by the Issuer for which it charges the
customer a fee.
The Issuer advertises its preview sessions and workshops in direct mail
solicitations targeted to certain potential customers meeting certain
demographic criteria established by the Issuer, which solicitations are mailed
to persons and small businesses located in cities scheduled to be visited by
the Issuer's workshop personnel. Mailing lists approximating the demographics
established by the Issuer are obtained from list brokers. Announcements of
upcoming preview sessions and workshops also appear in newspaper
advertisements in scheduled cities.
The Issuer uses a telemarketing company to advertise and/or market
Galaxy products and services, including advertising preview sessions and
workshops at selected locations.
(3) Status of any publicly announced new product or service
On May 27, 1998 Galaxy announced the introduction of a new product known
as BannerSource. BannerSource is a means by which merchants with storefronts
on the Internet can increase traffic to their sites by using banner
advertising on the World Wide Web. The Galaxy BannerSource network currently
markets in excess of one million banner impressions daily to businesses doing
commerce on the Internet. (www.bannersource.com).
On December 1, 1998 Galaxy announced the completion of successful testing
of a new search engine developed by the Company called MatchSite. This search
engine allows Internet users to browse the Web and find sites of interest.
When a Web user types in a search request, MatchSite sends the query to
several different resources, including the leading major search engines. The
responses are then returned to the user organized into a uniform format and
ranked by relevance. (www.matchsite.com).
(4) Competitive business conditions and the small business
issuer's competitive position in the industry and methods of
competition
Prior to the creation of GMI, and while associated with PES, certain of
Galaxy's principals were instrumental in creating in 1995 what is now know as
the Internet marketing workshop industry. To the knowledge of Galaxy there
were no other businesses engaged in the Internet marketing workshop industry
at that time. Also to the knowledge of Galaxy it enjoys a strong competitive
position in the industry. According to the December, 1998 edition of Internet
World, Galaxy is considered "one of the large general malls".
Galaxy is aware of several companies previously active in the Internet
marketing workshop industry that no longer are connected with the industry.
Galaxy is aware of only three companies currently in the industry with which
it competes, and to the knowledge of Galaxy, only one of such competitors has
been engaged in the industry as long as has Galaxy.
Anticipated and expected technological advances associated with the
Internet itself, increasing use of the Internet, and new software products,
are welcome advancements expected to attract more interest in the Internet and
broaden its potential as a viable marketplace and industry. Galaxy
anticipates it can compete successfully, building on its three-year head start
in its segments of the industry by relying on its infrastructure, existing
marketing strategies and techniques, systems and procedures, and by adding
additional products and services in future and by periodic revision of such
methods of doing business as deemed necessary.
(5) Sources and availability of raw materials and the names of
principal suppliers
Galaxy does not rely on any raw materials for its business operation.
(6) Dependence on one or a few major customers
The Issuer does not rely nor is it dependent on one or a few major
customers.
(7) Patents, trademarks, licenses, franchises, concessions,
royalty agreements or labor contracts, including duration
Galaxy claims no patents, trademarks, licenses, franchises, concessions
or royalty agreements. It has no labor contracts.
(8) Need for any government approval of principal products or
services
The Issuer does not require any government approval for its business
operation.
(9) Effect of existing or probable governmental regulations on
the business
The Issuer is unaware of any existing or probable governmental
regulations of its business as presently conducted. Currently sales on the
Internet are not taxed. Whether or when governmental agencies impose sales
taxes on Internet sales, it is expected they will be passed on to the consumer
as in traditional marketing and sales.
(10) Estimate of amount spent during each of the last two fiscal
years on research and development activities, and the cost
thereof borne directly by customers
During the last two fiscal years Galaxy has engaged in extensive
research and development activities, developing the various products and
services described above. Galaxy also has developed the following:
(a) An on-line order processing system allowing its customers to
have real time verification and processing of all their orders.
(b) A "shopping cart" system allowing unlimited products to be
added to an on-line order. It calculates the product price totals and adds
shipping, handing and other applicable charges.
(c) Specialized "bridges" allowing faster access to on-line
processing of credit cards by credit card processors.
(d) A "window shopping" feature allowing users to surf through
random storefronts with greater ease.
(e) Automated auto-responder software allowing a Galaxy customer
to log in to make changes to the customer's auto-responder, rather than
relying on Galaxy's programmers to make such changes manually.
(f) A database driven merchant registration service allowing
Galaxy to monitor and keep secure its "Merchants Only" section of the Galaxy
Mall.
(g) Integrated directory database and billing database, providing
Galaxy with faster and easier billing of its customers.
(h) New banner exchange software and search engine software
allowing Galaxy to sell advertising space based upon the impressions each site
generates. The banner exchange is located at bannersource.com and the search
engine is located at matchsite.com.
The Issuer estimates that it spent approximately $150,000 during 1997 and
$250,000 during 1998 on such research and development activities. In
addition, the Issuer spent during such time in excess of $100,000 in marketing
research, development and market testing to introduce its products and
services to the Canadian market.
(11) Costs and effects of compliance with environmental laws
(federal, state and local)
Galaxy's business operations are not regulated by environmental laws and
regulations.
(12) Number of total employees and number of full time employees
Galaxy has 84 employees, 55 of whom work full time. Of the total
employees, three are executive personnel, 35 are technical personnel, and 24
are in marketing and sales and 22 were administrative, accounting, information
systems, and clerical personnel.
Item 2. Management's Discussion and Analysis or Plan of Operation.
Management's Discussion and Analysis of Financial Condition and Results
of Operation
Revenues. Galaxy sales for the calendar year ending December 31, 1998 were
$11,448,392 as compared to $2,495,096 for the twelve months ending December
31, 1997. This increase was due in part to the purchase by the Company of the
assets and business interests of PES and CO-OP. Both companies were acquired
on October 1, 1997 and, therefor, the revenues from them were included in 1998
for the full year, but in 1997 for only the fourth quarter. The Company does
not break down sales for the business acquired from PES and CO-OP, and
consequently the Company cannot give meaningful comparisons of the revenue
attributable to the fourth quarter of each year.
Cost of Services/Products Sold. Cost of sales during 1998 was $5,105,614
which is equal to 44.6% of revenues. Cost of sales during 1997 totaled
$1,056,579, which is equal to 42.3% of revenues. This increase in the cost of
sales as a percentage of revenues is primarily due to the increase in
telemarketing sales which have lower margins. Cost of sales is made up of the
cost of tangible products sold, the cost to conduct Internet training
workshops, the cost to program customer storefronts and contract and
telemarketing services. Cost of sales does not include any depreciation.
Selling, General and Administrative Expenses. Selling, General and
Administrative Expenses plus depreciation were equal to $6,244,453 in 1998
compared to $1,167,880 in 1997. The increase in these expenses as a percentage
of sales is attributable to increases in royalty payments, legal expenses,
telephone expenses and rent for larger quarters, as well as postage and
mailing expenses to solicit persons to attend the Company's preview sessions
and workshops that are disproportionately higher than the increase in
revenues. The Company anticipates that such expenses, as a percentage of
sales, will stay the same because the Company had a significant moving expense
in 1998 which will not occur in 1999 and mailing costs are anticipated to stay
substantially the same.
Amortization. During 1998 amortization of Goodwill and Deferred Charges was
$80,175 compared to $36,826 in 1997. Total Goodwill at the end of 1998 was
$794,753 and Deferred Charges were $67,127 (net of the amortization). The
Goodwill arose through the purchase by GMI of PES and CO-OP. The Company
believes the combination of the three companies will reduce costs and provide
the Company with greater control over its business activities.
Non-Recurring Expenses. An expense item in the income statement for the
fiscal year 1997 called "Merger Expenses" was a one time, nonrecurring charge
relative to an investment in Books Now, Inc. ("Books Now"). The Company
entered into an agreement to purchase Books Now in a stock for
stock exchange and to provide working capital for the implementation of its
business plan. Pursuant to the purchase agreement, $108,000 was advanced to
Books Now. A settlement was negotiated and the companies signed a mutual
release of claims against each other. The advance was written off the
financial records of the Company.
Income Taxes. Income tax benefit for 1998 was $15,951. The net benefit arose
as a result of tax refunds from prior years and a reversal of a prior year
over-accrual, offset by the current year income tax liability.
Net Income/Loss. The Company reported Net Income of $35,375 for the calendar
year ending December 31, 1998 as compared to Net Income of $87,328 for the
twelve-month period ending December 31, 1997. On a per share basis this
amounted to a profit of $.0067 per share in 1998 as compared to a profit of
$.02 per share in 1997.
Capital Resources
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New Investments. Since the end of fiscal year 1998 the Company (i) sold a
$500,000 convertible note to the Augustine Fund through Augustine Capital
Management, an institutional investor based in Chicago, Illinois, and (ii)
entered into an agreement with Invest Linc Capital Corp. ("Invest Linc")
whereby Invest Linc, through certain related funds, will invest up to
$1,000,000 in exchange for equity in the Company. During January and
February, 1999, The Augustine Fund converted the note into 169,189 shares of
the Company's common stock at a weighted average price of $2.96 per share.
Invest Linc has invested a total of $1,000,000 in exchange for 250,000 shares
of the Company's common stock and a two-year stock purchase warrant for
purchase of up to 250,000 shares at $2.84 per share. This capital infusion
has significantly improved the Company's liquidity and its ability to meet
ongoing working capital needs.
Cash. Cash on hand at December 31, 1998 totaled $24,718 as compared to
$113,144 at the end of 1997. Total current assets were $268,292 and $202,042,
respectively.
Accounts Payable. Accounts payable at December 31, 1998 were $651,473. There
was also a bank overdraft of $179,301 bringing the total payable to $830,774
as compared to $738,004 at the end of 1997. Some of the proceeds of the sale
of the convertible note were used to retire the overdraft. Total current
liabilities at December 31, 1998 were $1,068,270 compared to $1,052,555 at
December 31, 1997.
Equipment and Property. Equipment increased during 1998 from $121,702, to
$171,868 net of depreciation of $6,592 in 1997 and $59,773 in 1998. This was
due to the need for additional computer and other equipment to conduct the
Company' s business. Additional capital equipment purchases will be necessary
as the company grows. The Company also leases equipment. Leasing allows the
Company the use of equipment without the need to disburse cash at the time of
acquisition. As of December 31, 1998 future aggregate minimum obligations
under leases for the year 1999 were $141,027. This includes both the corporate
offices and equipment leases.
Stockholders' Equity. Total Stockholders' Equity increased to $256,285 during
1998 from $207,160 at December 31, 1997, an increase of $49,125. This
resulted from net income together with the sale of 10,000 shares of stock to a
member of the board of directors for $13,750.
Liquidity.
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Ratios. At December 31, 1998 the Company's current ratio, current assets
compared to current liabilities, was a negative 4 to 1 compared to a negative
5.2 to 1 as of December 31, 1997. This out-of-balance situation is being
corrected by projected profitable operations and through the sale of Company
stock.
Financing Arrangements. The Issuer has worked out extended payment plans with
hotels and other vendors and is meeting its commitments to them under such
plans. On July 30, 1998 the Company was able to arrange a bank line of credit
for $100,000 with Far West Bank of Provo, Utah. This line is intended to
assist the Company through seasonal slow periods it experiences. From July 15
through Labor Day and again from Thanksgiving Day until January 15 of the
following year, the Issuer's business is slower than at other times during the
year. This is the result of fewer attendees at the Company's Internet
training seminars during these traditional vacation and holiday periods.
Cash Flows. Current cash flow from operations plus cash from the sale of
Company stock will allow the Company to meet its current obligations. The
Company has worked with two financial consultants to raise equity, e.g.,
Bridgewater Capital Corporation and Invest Linc Capital Corporation. Through
these sources $1,500,000 in equity financing were obtained by the Company in
February and March, 1999. A finder's fee of $50,000 was paid to Bridgewater
Capital Corporation, for net proceeds to the Company of $1,450,000. (See
under caption New Investments, above). This cash inflow enabled the Company
to begin implementing its strategic plan for future growth, but it will not be
sufficient to fund the entire business plan. Thus it will be necessary for
the Issuer to obtain long-term financing from commercial banks or other
financial institutions or seek additional equity funding to meets its long
term growth goals. The Company anticipates it will sell additional stock
through either private or registered public offerings during 1999, and will
continue its efforts to improve its financial condition in order to qualify
for long-term loans from commercial banking institutions.
Business Development.
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In October, 1997 the Company embarked on a campaign to increase sales by
telemarketing to its customers and other interested parties. Independent
firms under contract to the Company provided the telemarketing services. The
program was successful and sales during fiscal year 1998 from telemarketing
efforts were $4,338,663 compared to $74,320 for the fourth quarter 1997.
After the end of fiscal year 1998 the Company signed a letter of intent to
acquire Impact Media L.L.C. ("Impact"). Impact is a product development
company and produces products that can be sold to the Company's customers.
The Company estimates that one-half of these additional sales will occur via
telemarketing. With the acquisition of Impact, the Company believes it will
be able to significantly increase sales.
Year 2000 Compliance
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In general, the Year 2000 issue related to computers and other systems
being unable to distinguish between the years 1900 and 2000 because they use
two digits, rather than four, to define the applicable year. Systems that
fail to properly recognize such information likely will generate erroneous
data or cause a system to fail possibly resulting in a disruption of
operations. The Company's products and services to incorporate such date
coding so the Company's efforts to address the Year 2000 issue fall in the
following three areas: (i) the Company's information technology ("IT")
systems; (ii) the Company's non-IT systems (i.e., machinery, equipment and
devices which utilize technology which is "Built in" such as embedded
microcontrollers); and (iii) third-party suppliers. Management has initiated
a program to prepare for compliance in these three areas and expects such
program to be implemented and completed by June 1999. Costs will be expensed
as incurred and currently are not expected to be material.
The Company believes its current IT systems, with a few exceptions which
are being addressed are year 2000 compliant. The Company is currently
conducting an inventory of non-IT systems which may have inadequate date
coding and will commence efforts to remedy any non-compliant systems by the
end of the first quarter 1999. Third party suppliers and customers present a
different problem in that the Company cannot control the efforts of such third
parties. The Company has requested confirmations from third party suppliers
that they are year 2000 compliant to avoid disruptions of services and
supplies. However, any failure on the part of such companies with whom the
Company transacts business to be year 2000 compliant on a timely basis may
adversely affect the operations of the Company.
The foregoing statements are based upon management's current assumptions.
Item 3. Description of Property.
(a) Principal property
The Issuer's principal office is located at 890 North Industrial Park
Drive, Orem, Utah 84057. The property is an unfurnished two-story office
building having approximately 8,000 square feet, and includes landscaping and
a paved parking area adequate for employee and customer vehicle parking. The
property is leased from an unaffiliated third party for a period of three
years for an annual rental of $72,000, payable monthly in the amount of
$6,000. The Issuer maintains tenant fire and casualty insurance on its
property located in such building in an amount deemed adequate by the Issuer.
Galaxy rents on a daily basis hotel conference rooms and facilities from
time to time in various cities throughout the United States and Canada at
which it hosts its preview session and Internet training workshops.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
(a) Security ownership of certain beneficial owners
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(1) (2) (3) (4)
Title of Class Name and Address of Amount and Nature of Percent of Class
Beneficial Owner Beneficial Owner
Common Stock Sue Ann Cochran 302,000(1) 5.2
102 South Aspen Drive
Mapleton, Utah 84057
(b) Security ownership of management
- ------------------------------------------------------------------------------
(1) (2) (3) (4)
Title of Class Name and Address of Amount and Nature of Percent of Class(3)
Beneficial Owner Beneficial Owner (2)
Common stock John J. Poelman 1,020,213(4) 17.8
4009 N. Quail Run Drive
Provo, Utah 84604
Common stock Brandon B. Lewis 41,000(5) .7
2952 W. 1060 North
Provo, Utah 84601
Frank C. Heyman 30,000(5) .5
8468 Jardim Way
Sandy, Utah 84093
Darral G. Clarke 10,000(6) .2
4102 N. Quail Run Drive
Provo, Utah 84604
Billie Ray Anderson 11,500 .2
300 Plaza Alicante #800
Garden Grove, California 92804
All officers and directors 1,112,713(7) 19.5
as a group(5 persons)
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(1) Includes 2,000 shares held by husband.
(2) Includes both voting and dispositive control. Where applicable, amounts
shown include shares subject to presently exercisable options.
(3) The percentage shown for each beneficial owner is calculated based upon
the outstanding common stock including shares subject to presently
exercisable options held by such beneficial owner which are deemed to
be outstanding.
(4) Includes 40,000 shares subject to presently exercisable options. Does
not include 300 shares owned by an adult child of Mr. Poelman who resides
with him, and as to such shares Mr. Poelman disclaims any beneficial
interest.
(5) Includes 30,000 shares subject to presently exercisable options.
(6) Includes 10,000 shares subject to presently exercisable options.
(7) Includes 110,000 shares subject to presently exercisable options.
Item 5. Directors, Executive Officers, Promoters and Control Persons.
(a) Directors and Executive Officers
John J. Poelman, age 55. Mr. Poelman is the President, Chief Executive
Officer and a Director of Galaxy. He has served as a Director of the Issuer
since December, 1996. His present term as a Director will expire at Galaxy's
annual meeting of shareholders to be held in 1999. His past business
experience includes seventeen years with AM International, Inc. where he
served as director of manpower development and training, Chief Operating
Officer for Newcastle Financial Corporation, a regional company specializing
in estate and financial planning for the very wealthy. From April, 1993 until
October 1, 1997 Mr. Poelman was the president and chief executive officer of
Profit Education Systems. From December, 1996 until the present he has been
the president and chief executive officer of Galaxy Enterprises, Inc.
Brandon B. Lewis, age 27. Mr. Lewis the Executive Vice President, Chief
Operating Officer and a Director of the Issuer, having served as a Director
since September, 1997. His term as a Director will expire at Galaxy's annual
meeting of shareholders to be held in 1999. He is a graduate of Brigham
Young University with a B.S. degree in English. His past business experience
includes employment from May 1992 to August, 1994 as Collection Manager for
Co-Op Communications, Inc., a company specializing in "dial-one long
distance". From August, 1994 to September, 1997 he was employed as Vice
President of Marketing and Director of Sales for Profit Education Systems,
Inc. From October, 1997 to the present he has been employed by the Issuer in
the above described positions. His term as a Director will expire at the
annual meeting of shareholders to be held in 1999.
Frank C. Heyman, age 61. Mr. Heyman is a Vice President, the Secretary,
Treasurer and Chief Financial Officer and a Director of Galaxy. He is a
graduate of the University of Utah with a B.S. degree in accounting. Prior to
1992 Mr. Heyman served for twelve years as Chief Financial Officer for Scan-
Tron Corporation, a manufacturer of optical mark reading equipment used in
test scoring by the educational community, followed by employment for five
years as Vice President and Chief Financial Officer of GC Industries, Inc., a
manufacturer of calibration systems for toxic gas monitors. From June, 1992
to May, 1996 he served as Financial Vice President and Chief Financial Officer
and a Director of NYB Corporation, a manufacturer of women's sports clothing.
From June, 1996 to April, 1997 he was employed as Controller of Provider
Solutions, Inc., a business consulting firm. Since July, 1997 he has been
employed by Galaxy. Mr. Heyman became a member of Issuer's Board of
Directors on July 15, 1997. His term as a Director will expire at the annual
meeting of shareholders to be held in 1999.
Darral G. Clarke, age 58. Mr. Clarke, a Director of the company,
obtained his A.B. from the University of Utah, M.S. from Ohio State University
and a Ph.D. from Purdue University. During the periods 1972 to 1976 and from
1981 to 1986, Mr. Clarke was a faculty professor at Harvard University's
School of Business, and has served as a visiting professor at the University
of Chicago. From 1986 to the present, he has been the G. Dennis O'Brien
Professor of Management at Brigham Young University, and served as the
Director of its MBA program during 1990-1992. His term as a Director will
expire at the annual meeting of shareholders to be held in 1999.
B. Ray Anderson, age 65. Mr. Anderson is a Director of the Company. He
obtained his B.S. degree from Brigham Young University and his J.D. from
George Washington University School of Law. From 1988 to 1992 he was the
president of Fenton Enterprises, a confections manufacturer. From March, 1992
to the present, he served as general counsel to Western Dental Services,
Inc., a dental health maintenance organization. He is currently engaged in
the private practice of law. His term as a Director will expire at the annual
meeting of shareholders to be held in 1999.
Galaxy has no material employment agreements with management or any key
employee.
Item 6. Executive Compensation.
The following table sets forth the aggregate compensation paid by the
Company for services rendered during the periods indicated:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Secur-
ities All
Other Rest- Under- LTIP Other
Name and Annual rictedlying Pay- Comp-
Principal Salary Bonus Compen-Stock Optionsouts ensat'n
Postition Year ($) ($) sation$(1)Award /SAR#($) ($)(2)
- -----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John Jay
Poelman, 1998 75,000 0 0 0 200,000 0 3,638
Chairman,1997 0 0 0 0 0 0 3,638
President1996 0 0 0 0 0 0 0
CEO
</TABLE>
No other officer of the Company received total salary and bonus of $100,000 or
more.
(1) The Company provides health, dental and other perquisites to each of its
officers but they do not exceed the lesser of $50,000 or 10% of the
officer's total annual salary and bonus.
(2) Included are amounts contributed by the Company for life insurance
premiums.
Stock Option Plan.
------------------
1997 Stock Option Plan. The 1997 Stock Option Plan (the "Plan")
authorizes the grant of incentive and nonqualified stock options to officers,
directors, key employees, consultants and advisers. The 1997 Plan covers a
maximum of 1,000,000 shares of the Company's common stock, subject to
adjustment. Options issued under the Plan may have an exercise price at the
fair market value on the date of grant and a term of not more than 10 years.
Options are generally not transferable and are exercisable in accordance with
vesting schedule established by the Compensation Committee of the Board of
Directors administering the Plan.
On March 23, 1998 the Company issued pursuant to such Plan stock options
to certain Directors. Mr. Poelman was issued 200,000 stock options, and Mr.
Lewis and Mr. Heyman each were issued 150,000 stock options. (See under the
caption "Recent Sales of Unregistered Securities", Part II, Item 4 of this
Registration Statement). During 1998 the Company granted a total of 908,250
options under the Plans. On April 23, 1999 there were 832,250 shares subject
to options outstanding and 167,760 shares available for further issuance. The
difference between the options granted and currently outstanding is
represented by 76,000 options forfeited by employees having terminated their
employment.
Option Grants in Last Fiscal Year
The following table sets forth a summary of certain stock options granted
to certain of the Company's named officers during 1998.
Individual Grants
(a) (b) (c) (d) (e)
No. of % of 908,250
Options Options granted Exercise Price Expiration
Name Granted to Employees Per Share Date
John J. Poelman 200,000 22 $0.83 3/22/08
Option Exercises During 1998 and
1998 Year-End Value Table
The following table sets forth certain information regarding the exercise
and value of stock options held by the named officers during the 1998.
Aggregated Option Exercises in 1998 and 1998 Year-End Value Table
(a) (b) (c) (d) (e)
Value of unexercised
# of unexercised In-The Money Options
Options at Fiscal at Fiscal year-end
Shares Acquired Value year-end exercisable/ exercisable/
Name on exercise realized unexercisable unexercisable
John J.
Poelman -0- -0- 40,000/160,000 $126,800/$507,200
- ---------------------
On August 10, 1998 the Issuer granted to Messrs. Clarke and Anderson
10,000 stock options each. (See under the caption "Recent Sales of
Unregistered Securities", Part II, Item 4 of this Registration Statement).
Mr. Anderson since has exercised his option at a price of $1.375 per share.
Item 7. Certain Relationships and Related Transactions.
(a) Transactions during the last two years involving:
(1) Any Director or Executive Officer of Galaxy:
On December 4, 1996 the Issuer issued 3,600,000 shares of its common
stock for all the issued and outstanding shares of Galaxy Mall, Inc., a
Wyoming corporation. Galaxy Mall, Inc. ("GMI") thus became a wholly-owned
subsidiary of the Issuer. As a result of that transaction, the following
officers and/or directors of the Issuer acquired shares of the Issuer in the
following amounts:
Name of Director Number of
or Executive Officer Shares Issued
Brandon B. Lewis 8,000
John J. Poelman 980,213
C. Parker Garlitz* 273,126
______________________
* C. Parker Garlitz served as President of the Company from December, 1996 to
November, 1997 and as a Director from December, 1996 to June 17, 1998.
On August 1, 1996 GMI entered into an exclusive marketing agreement with
Profit Education Systems, Inc. ("PES"), a Wyoming corporation, whereby PES
agreed to provide marketing services for GMI in return for 90% of the gross
receipts from all GMI Internet training events. Such marketing services
included the creation of sales and marketing materials and the conducting of
Internet workshops for GMI.
Effective October 1, 1997 GMI purchased all the assets and business
interests of PES and agreed to assume all its liabilities. GMI assumed
approximately $1,017,000 of outstanding payables of PES, and acquired assets
consisting of approximately $224,000 which included pre-paid marketing costs,
computers and miscellaneous office equipment, merchant account deposits, and
other miscellaneous inventory. GMI also acquired PES employees and obtained
all PES created marketing programs and materials. The exclusive PES marketing
agreement was canceled, and all GMI marketing and workshop functions were
assumed by GMI. The effective consideration paid by GMI to PES was $793,393.
John J. Poelman, President, Chief Executive Officer and a Director of the
Issuer, was a 50% stockholder of PES. The Valuation of assets acquired by
GMI from PES in this transaction was based on fair market value on October 1,
1997 as determined by Mr. Frank Heyman, the Treasurer of the Company. Cash
and receivables were valued at actual value and other assets were valued at
estimated fair value.
In addition to its direct sales efforts, the Issuer utilizes the
services of American Marketing Systems, Inc. ("AMS"), a Nevada corporation.
AMS provides telemarketing services to its various clients, including Galaxy.
It sells coaching (mentoring) services to Galaxy Mall merchants, and coaching
services and Galaxy products to prospects who have not previously purchased
Galaxy products. During the year ended December 31, 1998 and 1997 Galaxy paid
AMS $1,441,800 and $220,237, respectively. John J. Poelman, President, Chief
Executive Officer and a Director of the Issuer is a 30% shareholder of AMS.
Galaxy utilizes the services of Electronic Commerce International, Inc.
("ECI"), a Utah corporation, which provides merchant accounts and leasing
services to small businesses. ECI processes the financing of Galaxy
merchants' storefront leases and also wholesales software to Galaxy used for
on-line processing of credit card transactions. For the year ended December
31, 1998 Galaxy paid ECI $306,400 for credit card processing software in lease
processing fees. The Company also has receivable from ECI for leases in
process at December 31, 1998 of $38,910. John J. Poelman, President, Chief
Executive Officer and a Director of the Issuer is the sole stockholder of ECI.
(2) Transactions with others:
Effective October 1, 1997 GMI acquired all the assets and assumed all
the liabilities of CO-OP Business Services, Inc., a Utah corporation "(CO-
OP"). Commencing August 1, 1996 CO-OP became the exclusive customer service
and computer programming provider to GMI customers and clients, and storefront
merchants on The Galaxy Mall. At October 1, 1997 CO-OP had liabilities of
approximately $135,000 which GMI assumed in exchange for CO-OP assets
consisting of computers, office equipment and miscellaneous inventory having a
value of approximately $61,000. The prior agreement of August 1, 1996 was
terminated and GMI assumed all customer service and programming functions for
merchants and clients of GMI and/or The Galaxy Mall. Vicki B. Poelman was the
sole stockholder of CO-OP. She is the wife of John Jay Poelman, Company
President, CEO and Director. The valuation of assets acquired by GMI from CO-
OP in this transaction was based on fair market value on October 1, 1997 as
determined by Mr. Frank Heyman, the Treasurer of the Company. Cash was valued
at actual value, and other assets were valued at estimated fair value.
Also effective October 1, 1997 Galaxy entered into a nonexclusive three
year consulting and marketing agreement with Gary Cochran ("Cochran"), the
husband of Sue Ann Cochran who owns in excess of 5% of the Issuer's
outstanding stock. Such consulting and marketing agreement requires Mr.
Cochran to provide services to improve existing marketing programs of Galaxy,
assist in developing brochures, advertisements and other marketing materials,
training potential sales personnel and evaluating future business products,
opportunities or strategies. Compensation payable to Mr. Cochran is $60,000
per year commencing January 1, 1998, and increasing 10% per year commencing
the second year and subsequent years. The agreement is automatically
renewable unless terminated prior thereto by consent of the parties. The
Issuer further agrees to pay Cochran royalties in various amounts on its sales
of Cochran created training and Internet educational materials. Payments to
Cochran under this agreement totaled $63,000 in 1998.
Effective May 1, 1998 Galaxy entered into a royalty and consulting
agreement with Cochran in which Galaxy agrees to pay Cochran a royalty on
Galaxy's sales of training manuals, audio tape presentations and related
educational items on marketing techniques for the Internet user created by
Cochran. Such items are designed to explain Internet banner advertising and
are used by Galaxy to promote sales of its banner impressions, BannerWeb
License, and BannerWeb Network. The term of the agreement is for three years,
and is renewable yearly thereafter provided Galaxy continues to use or
distribute such Cochran created materials. The agreement can be canceled at
any time upon consent of both parties. During 1998 the Company paid Cochran
$60,500 pursuant to this agreement.
During the years ended December 31, 1996 and 1997, PES paid a total of
$196,815 to Sue Ann Cochran, who owns in excess of 5% of the Issuer's
outstanding securities. Such payments were for marketing and consulting
services provided by her to the Company. During the year ended December 31,
1998 the Company paid her $46,586.64 for similar services. (See under caption
"Security Ownership of Certain Beneficial Owners and Management", Part I, Item
4 of this Registration Statement.
Estimated combined payments during 1999 to Sue Ann and Gary Cochran under
existing agreements will be approximately $171,000.
The Company has no policy prohibiting it from entering into future
transactions with control persons or related parties.
Item 8. Description of Securities.
The Issuer is authorized to issue 25,000,000 shares of common stock of
$.007 par value per share, of which 5,700,841 shares were outstanding as of
April 23, 1999. Each share is entitled to one vote on all matters on which
shareholders are entitled to vote. Cumulative voting is not allowed. Holders
of common stock share ratably in all dividends declared by the Issuer's board
of directors out of funds legally available therefore, and share ratably in
company assets available for distribution upon liquidation, dissolution or
winding up of the company. Fully-paid shares are not liable to further calls
or assessments, and holders of common stock are not liable for any liabilities
of the company. The common stock has no preemptive or other subscription
rights, conversion rights or redemption or sinking fund provisions.
PART II
Item 1. Market Price of and Dividends on the Registrant's Common Equity and
Other Shareholder Matters.
(a) Market information.
The Issuer's common stock is traded over-the-counter on the OTC Bulletin
Board, stock symbol GLXY.
The price range of high and low bid for the Issuer's common stock for
the periods shown is set forth below:
Period High Low
January 1, 1999-March 31, 1999 $6.50 $2.75
October 1 - December 31, 1998 6.815 .5625
July 1 - September 30, 1998 2.375 .6875
April 1 - June 30, 1998 2.125 .75
January 1 - March 31, 1998 2.50 .75
October 1 - December 31, 1997 3.00 1.375
July 1 - September 30, 1997 3.875 1.50
April 1 - June 30, 1997 5.25 3.00
January 6 - March 31, 1997 6.00 2.50
January 1 - January 5, 1997 Stock not traded - no quote available
October 1 - December 31, 1996 " " " " " "
July 1 - September 30, 1996 " " " " " "
May 7 - June 30, 1996 " " " " " "
April 1 - May 6, 1996 .01 .01
January 1 - March 31, 1996 .016 .01
The source of the above market information has been obtained from Stock
Cite, found on the Internet at http://www.stockcite.com. Such quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commission
and may not represent actual transactions.
(b) Stockholders.
As of April 23, 1999 there were approximately 146 shareholders of
record of Galaxy common stock.
(c) Dividends.
The Issuer has never declared a cash dividend.
Article VIII, Section 2(e) of the Issuer's articles of incorporation
authorizes the Board of Directors to determine whether any, and if so, what
part, of the Issuer's earned surplus shall be paid in dividends to
shareholders.
Nevada Revised Statutes Section 78.288 limits the Issuer's ability to pay
dividends on its common stock if any such dividend would render the company
insolvent.
Item 2. Legal Proceedings.
On May 14, 1998 the Issuer initiated legal action against a competitor,
certain of its officers and employees, and others, in the Third Judicial
District Court of Salt Lake County, State of Utah in a proceeding entitled
Galaxy Enterprises, Inc. vs. Cyberworks Institute, Inc., The Commercium, Inc.,
Scott Alexander, Marek Shon, Curtis Matsko, Adam Maher, and John Does I
through XX, case number 980904883. In this action, the Issuer asserts claims
of breach of contract, misappropriation of trade secrets, common law unfair
competition, interference with contract and economic advantage, breach of duty
of good faith and fair dealing, breach of fiduciary duty and common law duty
of loyalty, and conspiracy for which the Company seeks a minimum of
$3,000,000. The case is still in the discovery stage and no trial date has
yet been scheduled.
On June 18, 1998 the Commonwealth of Kentucky filed an action against
Galaxy Mall, Inc., a wholly-owned subsidiary of the Issuer, in a proceeding
filed in the Fayette County Circuit Court entitled Commonwealth of Kentucky,
ex rel. A.B. Chandler III, Attorney General, vs. Galaxy Mall, Inc., civil
action number 98CI2257. The action alleges Galaxy Mall, Inc. offered for sale
in Kentucky business opportunities without first registering with the Attorney
General or posting a surety bond as required by Kentucky law. The suit seeks
to enjoin Galaxy Mall, Inc. from further sales unless first registered, $2,000
civil penalty, and cancellation of any contracts made in Kentucky and return
of funds to Kentucky purchasers. Galaxy Mall, Inc. has denied all
allegations. On December 15, 1998 an Order of Dismissal was entered based on
Galaxy agreeing to advise the Kentucky Attorney General's office of any
complaints from Galaxy customers in Kentucky for a period of twelve months
from the date of entry of the Order of Dismissal.
In December, 1998 the Issuer and Galaxy Mall, Inc. were served as
defendants in a purported class action filed in the Superior Court of Orange
County, State of California, in a case entitled Pamela Chang, vs. Busting Out,
Inc., De'Nae Walker, New Body, Inc., Steven Olschwanger, Natural Curves LLC,
New Woman, Ltd, Galaxy Enterprises, Inc., Galaxy Mall, Inc., The Barnstead
Trust, East Bay Products, LLC, Rick Raynford, et al., in which the plaintiff
claims to have been damaged in that she was offered the opportunity to
purchase a certain product from various web sites on the Internet operated by
defendants. Plaintiff alleges the product was offered for sale through
unfair, deceptive, untrue or misleading advertising intended to result in the
sale of the product, in violation of applicable California law. Plaintiff
seeks to enjoin the use of such alleged deceptive practices, an accounting of
all money received and all profits acquired as a result of such practices, an
order of restitution to all persons of funds acquired by such alleged
practices, a distribution of any moneys recovered, unspecified actual damages,
unspecified punitive damages, attorney's fees and costs. Galaxy Mall, Inc.
has denied all allegations and has asserted numerous affirmative defenses.
Galaxy Enterprises, Inc. has filed a motion to quash service of the summons
for lack of jurisdiction. On March 17,1999 the Superior Court granted such
motion to quash. Consequently, the Superior Court has no jurisdiction over
the Company. However, Galaxy Mall, Inc. remains as a defendant in the action,
which is just entering the discovery stage.
Item 3. Changes in and Disagreements with Accountants.
The Issuer changed accountants for the year ended December 31, 1996.
There have been no changes in or disagreements with accountants
requiring disclosure.
Item 4. Recent Sales of Unregistered Securities.
During the period November 11, 1996 to December 2, 1996 the Issuer
publicly offered 2,000,000 common shares at $.025 per share pursuant to Rule
504 under Regulation D, for a total public offering price of $50,000. Such
offering was self-underwritten. A total of 1,130,000 shares were sold. A
total of $28,250 was received from such sales. Net proceeds were $1,757
following various expenses of the offering including legal, accounting, stock
issuance and sales expenses.
In December, 1996 the Company issued 16,300 common shares to 28
employees as a year-end stock bonus, All share certificates issued pursuant
to this stock bonus bore an appropriate restrictive legend. The Issuer relied
on an exemption from registration as provided by Section 4(2) of the
Securities Act of 1933, as amended. Recipients of such shares were familiar
with the operations of the Company and its financial condition and had access
to general corporate information.
On December 4, 1996 the Company issued a total of 3,600,000 common
shares to 37 persons in exchange for their respective stockholdings in Galaxy
Mall, Inc., thereby acquiring Galaxy Mall, Inc. as a wholly-owned subsidiary.
All share certificates issued in this transaction bore an appropriate
restrictive legend. The Issuer relied on an exemption from registration as
provided by Section 4(2) of the Securities Act of 1933, as amended. All
recipients of shares were then current employees of Galaxy Mall, Inc. or
consultants to or independent contractors of Galaxy Mall, Inc. As such, they
were familiar with the operations of Galaxy Mall, Inc. and its financial
condition, and had access to general corporate information.
During the period March 23, 1998 to December 31, 1998 the Company issued
to 35 persons pursuant to a qualified employee stock option plan a total of
908,250 stock options, 20% of which are exercisable on or after March 23,
1999, and 20% on the option grant anniversary each year thereafter, at an
exercise price of $.75 per share. The Company relied on an exemption from
registration as provided by Rule 701 under the Securities Act.
On August 10, 1998 the Company issued to two members of its board of
directors stock options for 10,000 common shares each at an exercise price of
$1.375 per share. The option expires August 10, 2008 as to any options not
exercised prior thereto. The Company relied on an exemption from registration
as provided by Section 4(2) of the Securities Act of 1933, as amended. On
December 16, 1998, one such optionee-director exercised his options. The
optionees are considered accredited investors.
During January, 1999 the Company sold to an institutional investor a
$500,000 convertible note. During January and February, 1999 the purchaser
converted the note into 169,189 common shares of the Company at a weighted
average price of $2.96 per share. During February and March, 1999 the Company
sold 250,000 common shares and issued a two-year, 250,000 share warrant to an
institutional investor for $1,000.000. Such investors were considered
accredited investors.
Item 5. Indemnification of Directors and Officers.
The Nevada Revised Statutes concerning corporations, and the Issuer's
articles of incorporation and bylaws, provide for indemnification of its
officers, directors and others in most instances for any liability suffered by
them or arising out of their activities as officers, directors, employees or
agents of the Company if they were not engaged in intentional misconduct,
fraud or knowing violation of the law.
Specifically, NRS 78.7502 (1) and (2) grant discretionary authority on
corporations to indemnify such persons under certain conditions, and (3)
mandates indemnification of any such person who has successfully defended on
the merits any action, suit or proceeding, or any claim, issue or matter
therein, against expenses, including attorneys' fees, actually and reasonably
incurred in such defense. NRS 78.751 provides that any discretionary
indemnification, unless ordered by a court, may be made only as authorized in
the specific case upon a determination that indemnification of the officer,
director, officer, employee or agent is proper in the circumstances, which
determination must be made: (a) by the stockholders; (b) by the board of
directors by majority vote of a quorum consisting of directors who were not
parties to the action, suit or proceeding; (c) if a majority of non-party
directors directs, by independent legal counsel in a written opinion; or (d)
if a quorum of non-party directors cannot be obtained, by independent legal
counsel in a written opinion. Officer and director expenses incurred in
defending a civil or criminal action, suit or proceeding must be paid by the
corporation as incurred and in advance of final disposition of the action,
suit or proceeding, upon receipt of an undertaking by or on behalf of the
officer or director to repay the amount if it is ultimately determined by a
court that he is not entitled to be indemnified by the corporation. The
Company's articles of incorporation and bylaws are essentially the same as the
statutory provisions except that indemnification is not allowed for judgments,
fines, excise taxes or penalties imposed under the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or other excise taxes or
penalties.
PART F/S
Index to Financial Statements
Report of Certified Public Accountants
Financial Statements
(i) Audited Financial Statements
Consolidated Financial Statements for the
Years Ended December 31, 1997 and 1996
Independent Auditors' Report
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders'
Equity
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial
Statements
(ii) Audited Financial Statements of Profit Education Systems, Inc.
Financial Statements for the Years Ended September 30, 1997 and 1996
Independent Auditors' Report
Balance Sheets
Statements of Operations
Statements of Cash Flows
Notes to the Financial Statements
(iii) Audited Financial Statements of CO-OP Business Services, Inc.
Financial Statements for the Year Ended September 30, 1997
Balance Sheets
Statements of Operations and Retained Earnings
Statements of Cash Flows
Notes to the Financial Statements
PART III
Item 1. Index to Exhibits
The following exhibits are filed as a part of this Registration
Statement:
Exhibit
Number Description*
10.10 Letter dated October 10, 1997 from Breakthrough Electronics, Inc.
canceling license agreement
10.11 Office lease agreement with ICS Capital dated May 27, 1998.
10.12 Bank line of credit loan agreement with Far West Bank dated July 30,
1998, amended January 7, 1999.
23.2 Consent of Wisan, Smith, Racker & Prescott, LLP relating to
consolidated financial statements of Galaxy Enterprises, Inc. and
Subsidiary
23.3 Consent of Wisan, Smith, Racker & Prescott, LLP relating to
financial statements of Profit Education Systems, Inc.
23.4 Consent of Wisan, Smith, Racker & Prescott, LLP relating to
financial statement of CO-OP Business Services, Inc.
* Summaries of exhibits contained within this Registration Statement are
modified in their entirety by reference to the actual exhibits.
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf
by the undersigned, thereunto duly authorized.
GALAXY ENTERPRISES, INC.
By/s/John J. Poelman 5/10/99
- ------------------------------------ --------------------
John J. Poelman, President, Date
Chief Executive Officer and Director
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Galaxy Enterprises, Inc.
Orem, Utah
We have audited the accompanying consolidated balance sheets of Galaxy
Enterprises, Inc. and Subsidiary as of December 31, 1997 and 1996, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years then ended for Galaxy Enterprises, Inc. and the year ended
December 31, 1997 and the period from inception (June 7, 1996) through
December 31, 1996 for the Subsidiary. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Galaxy
Enterprises, Inc. and Subsidiary as of December 31, 1997 and 1996, and the
results of its consolidated operations and its cash flows for the years then
ended for Galaxy Enterprises, Inc. and the year ended December 31, 1997 and
the period from inception (June 7, 1996) through December 31, 1996 for the
Subsidiary, in conformity with generally accepted accounting principles.
/s/Wisan Smith Racker & Prescott, LLP
Salt Lake City, Utah
April 29, 1998
<PAGE>
<TABLE>
GALAXY ENTERPRISES, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<CAPTION>
June 30, December 31,
1998 1997
(Unaudited)(Unaudited) 1997 1996
ASSETS
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash $ 116,106 $ 38,523 $ 113,144 $ 10,168
Accounts receivable 393,980 - 41,109 -
Accounts receivable -
related entity - 105,515 - 87,787
Prepaid expenses 5,859 - - -
Employee advances - - 1,000 -
Credit card reserves 1,472 - 46,789 -
TOTAL CURRENT ASSETS 517,417 144,038 202,042 97,955
EQUIPMENT 131,975 - 121,702 -
OTHER ASSETS
Deposits 13,015 10,847 16,016 -
Deferred charges 78,314 100,691 89,502 111,878
Goodwill 828,826 - 852,553 -
920,155 111,538 958,071 111,878
TOTAL ASSETS $1,569,547 $ 255,576 $1,281,815 $ 209,833
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Accounts payable $ 608,554 $ 121,851 $ 738,004 $ -
Accounts payable -
related entity - - - 1,219
Accrued expenses 350,351 - 280,043 -
Income taxes
currently payable - 3,287 27,636 1,109
Unearned income - - 6,872 87,787
TOTAL CURRENT
LIABILITIES 958,905 125,138 1,052,555 90,115
DEFERRED INCOME TAXES 7,100 - 7,100 -
NOTE PAYABLE 15,000 - 15,000 -
STOCKHOLDERS' EQUITY
Common stock, par value
$.007 Authorized 25,000,000
shares 5,271,652 and
5,255,352 shares issued
and outstanding,
respectively 36,901 36,787 36,901 36,787
Additional paid-in capital 78,279 78,279 78,279 78,279
Retained earnings 473,362 15,372 91,980 4,652
TOTAL STOCKHOLDERS'
EQUITY 588,542 130,438 207,160 119,718
TOTAL LIABILITIES
AND EQUITY $1,569,547 $255,576 $1,281,815 $ 209,833
</TABLE>
<TABLE>
GALAXY ENTERPRISES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Six Months Ended June 30, Year Ended December 31,
1998 1997
(Unaudited) (Unaudited) 1997 1996
<S> <C> <C> <C> <C>
REVENUE
Sales $ 6,168,018 $ 179,650 $2,495,096 $ 16,376
Cost of sales 2,720,205 82,350 1,056,579 -
GROSS PROFIT 3,447,813 97,300 1,438,517 16,376
OPERATING EXPENSES
Selling 2,241,851 58,613 856,073 -
General and
administrative 520,304 13,493 305,215 10,615
Depreciation 27,152 - 6,592 -
Amortization 34,915 11,187 36,826 -
Merger expenses - - 108,000 -
TOTAL OPERATING
EXPENSES 2,824,222 83,293 1,312,706 10,615
OPERATING INCOME 623,591 14,007 125,811 5,761
OTHER (INCOME)
EXPENSES
Interest income - - (31) -
Interest expense 780 - 433 -
TOTAL OTHER EXPENSES 780 - 402 -
Income before income
taxes 622,811 14,007 125,409 5,761
Income taxes 241,429 3,287 38,081 1,109
NET INCOME $ 381,382 $ 10,720 $ 87,328 $ 4,652
NET INCOME PER SHARE $ 0.070 $ 0.002 $ .02 $ -
Weighted average number
of shares outstanding 5,271,652 5,271,652 5,271,652 1,342,931
</TABLE>
<TABLE>
GALAXY ENTERPRISES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<CAPTION>
Additional
Common Stock Paid in Retained
Shares Amount Capital Earnings
<S> <C> <C> <C> <C>
Balance, June 7, 1996 - $ - $ - $ -
Common stock issued for
cash at approximately
$.007 per share 3,600,000 25,200 - -
Common stock issued for
stock of the Subsidiary
at approximately $.052
per share 1,713,209 11,992 77,874 -
Cancellation of
treasury shares,
reacquired at no cost (57,857) (405) 405 -
Net income for the
period ended
December 31, 1996 - - - 4,652
Balance, December 31,
1996 5,255,352 36,787 78,279 4,652
Common stock issued for
bonuses at $.007 per
share 16,300 114 - -
Net income for the year
ended December 31, 1997 - - - 87,328
Balance, December 31,
1997 5,271,652 $ 36,901 $ 78,279 $91,980
</TABLE>
<TABLE>
GALAXY ENTERPRISES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Six Months Ended June 30, Year Ended December 31,
1998 1997
(Unaudited) (Unaudited) 1997 1996
<S> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income $ 381,382 $ 10,720 $ 87,328 $ 4,652
Adjustments to
reconcile net income
to net cash flows
from (used by)
operating activities:
Depreciation 27,152 - 6,592 -
Amortization 34,915 11,187 36,826 -
Changes in operating
assets and
liabilities:
Increase in credit
card reserves 45,317 - (46,789) -
Increase in accounts
receivable (352,871) - (41,109) -
Increase in employee
advances 1,000 - (1,000) -
Increase in prepaid
expenses (5,859) - - -
(Increase) decrease
in accounts receivable
- related entity - 87,787 87,787 (87,787)
Increase in notes
receivable - (105,515) - -
Increase in deposits 3,001 (10,847) (16,015) -
Increase in deferred
charges - - - (111,878)
Increase in goodwill - - (867,004) -
Increase in accounts
payable (129,450) 121,851 738,004 -
Increase (decrease)
in accounts payable
- related entity - (1,219) (1,219) 1,219
Increase in accrued
expenses 70,308 - 280,043 -
Increase in income
taxes payable (27,636) 2,178 26,527 1,109
Increase (decrease)
in unearned income (6,872) (87,787) (80,915) 87,787
Increase in deferred
taxes - - 7,100 -
Net cash flows from
(used by) operating
activities 40,387 28,355 216,156 (104,898)
CASH FLOWS FROM
INVESTING ACTIVITIES
Purchase of equipment (37,425) - (128,294) -
Net cash used by
investing activities (37,425) - (128,294) -
CASH FLOWS FROM
FINANCING ACTIVITIES
Cash from notes payable - - 15,000 -
Common stock issued for
cash - - - 25,200
Common stock issued in
reorganization - - - 89,866
Common stock issued for
bonuses - - 114 -
Net cash flows from
financing activities - - 15,114 115,066
NET INCREASE IN CASH
AND CASH EQUIVALENTS 2,962 28,355 102,976 10,168
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 113,144 10,168 10,168 -
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 116,106 $ 38,523 $113,144 $ 10,168
</TABLE>
GALAXY ENTERPRISES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Organization and Operating History
The Company was incorporated in the State of Nevada on March 3, 1994
under the name of Cipher Voice, Inc. The Company was originally organized to
engage in the research and development for the production of equipment related
to computer hardware security. Initial capitalization consisted of $10,000 in
cash from incorporators for 821,429 shares of common stock (all shares are
post reverse split 1:7). In 1994 the Company received $100,059 as the net
proceeds from a public stock offering; 404,571 shares of common stock were
issued. During 1994 and 1995, 1,293,858 shares of common stock were
reacquired, at no cost, and canceled. Also, during 1994, 1995, and 1996,
651,067 shares of common stock were issued for service rendered. During 1996,
the Company completed a public offering with net proceeds of $1,757; 1,130,000
shares of common stock were issued. The Company expended all of the capital
raised in the 1994 initial public offering without completing the research and
development necessary to produce the computer hardware desired. The Company
was then considered to be a development stage company. On October 30, 1996
the Company changed its authorized capital to 25,000,000 shares of $.007 par
value shares, by amending its articles of incorporation, following the
authorization of a 1 for 7 reverse stock split.
On December 4, 1996, the Company acquired all of the outstanding
common stock of Galaxy Mall, Inc., (the Subsidiary) for 3,600,000 shares of
the Company's common stock. For accounting purposes, the acquisition of the
Subsidiary has been treated as an acquisition of the Company by the Subsidiary
and as a recapitalization of the Subsidiary. The acquired company, the
Subsidiary, is treated as the surviving entity for accounting purposes. The
Subsidiary was formed on June 7, 1996 in the state of Wyoming. The Subsidiary
is engaged in the field of Internet marketing, training and providing
storefronts in an Internet shopping mall through seminars conducted throughout
the United States.
The Company changed its name to Galaxy Enterprises, Inc. by amending
its articles of incorporation on December 16, 1996. Due to the operations
conducted and revenues generated, the Company is no longer considered a
development stage company.
The Company purchased all of the assets of both Profit Education
Systems, Inc. (PES) and CO-OP Business Services (CO-OP) on September 30, 1997.
The Company agreed to assume the liabilities of PES and CO-OP in exchange for
their assets. The liabilities assumed by the Company in excess of the assets
acquired in these transactions produced goodwill for the Company in the amount
of $867,004.
Accounting Method
The Company's financial statements are prepared using the accrual
method of accounting and the Company has selected a December 31 year end.
Net Income per Share
The computation of net income per share of common stock is based on
the weighted average number of shares outstanding at the date of the financial
statements.
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
income taxes resulting from temporary differences between tax and accounting
bases of assets.
Reverse Stock Split
In 1996 the Company's common stock was reverse split on a 1 share for
7 shares basis. All references to shares issued and outstanding have been
restated to reflect the reverse stock split on a retroactive basis.
Amortization
Deferred charges are amortized using the straight-line method over
five years for organization and startup costs. Goodwill is amortized using
the straight-line method over fifteen years.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles 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.
Advertising and Promotion
All costs associated with advertising and promoting the Company's
goods and services, amounting to $524,055 and $0 in 1997 and 1996,
respectively, are expensed in the year incurred.
Principles of Consolidation
The consolidated financial statements include those of Galaxy
Enterprises, Inc. and its wholly-owned subsidiary, Galaxy Mall. All
significant intercompany accounts and transactions have been eliminated.
NOTE 2 - EQUIPMENT
Equipment as of December 31, 1997 and 1996 is detailed in the
following summary:
<TABLE>
Accumulated Net Book
1997 Costs Depreciation Value
<S> <C> <C> <C>
Office furniture and computers $128,294 $ 6,592 $ 121,702
Accumulated Net Book
1996 Costs Depreciation Value
Office furniture and computers $ - $ - $ -
</TABLE>
NOTE 3 - COMMITMENTS AND CONTINGENCIES
Leases
The Company leases certain of its equipment and corporate offices
under long-term lease agreements expiring at various dates through 2002.
Future aggregate minimum obligations under operating leases as of December 31,
1997, exclusive of taxes and insurance, are as follows:
Operating
Leases
Year ending December 31,
1998 $ 228,885
1999 228,993
2000 220,927
2001 169,927
2002 36,776
Total $ 885,508
Rental expense under the operating lease agreements totaled
approximately $83,000 for the year ended December 31, 1997.
NOTE 4 - DEFERRED CHARGES
Deferred charges consist of the following:
1997 1996
Organization costs $ 7,955 $ 7,955
Startup costs 103,923 103,923
111,878 111,878
Accumulated amortization (22,376) -
$ 89,502 $ 111,878
NOTE 5 - GOODWILL
Goodwill is comprised of the following amounts, resulting from the
purchase of assets from the corresponding entities:
1997 1996
Profit Education System (PES) $ 793,394 $ -
CO-OP Business Services (CO-OP) 73,610 -
867,004 -
Accumulated amortization (14,451) -
$ 852,553 $ -
NOTE 6 - INCOME TAXES PAYABLE
The Company accounts for income taxes using an asset and liability
approach to financial accounting and reporting for income taxes. The
difference between the financial statement and tax bases of assets and
liabilities is determined annually. Deferred income tax assets and
liabilities are computed for those differences that have future tax
consequences using the currently enacted tax laws and rates that apply to the
periods in which they are expected to affect taxable income. Valuation
allowances are established, if necessary, to reduce the deferred tax asset to
the amount that will more likely than not be realized. Income tax expense is
the current tax payable or refundable for the period plus or minus the net
change in the deferred tax assets and liabilities.
Income taxes payable as of December 31, 1997 and 1996 include income
taxes currently payable and deferred income tax liabilities as detailed in the
summary below:
1997 1996
Deferred income tax liability $ 7,100 $ -
Deferred income tax asset - -
Net deferred income tax liability 7,100 -
Noncurrent deferred income tax
liability 7,100 -
Current deferred income tax liability - -
Current income tax liability 27,636 1,109
$ 27,636 $ 1,109
The deferred income tax liability results primarily from the use of
accelerated methods of depreciation of property and equipment for income tax
purposes.
The components of income tax expense related to continuing operations
are as follows:
1997 1996
Current $ 30,981 $ 1,109
Deferred 7,100 -
$ 38,081 $ 1,109
The Company's income tax expense differed from the statutory federal
rate due to primarily state income taxes, surtax exemptions and taxes paid in
conjunction with the purchases of PES and CO-OP.
NOTE 7 - NOTE PAYABLE
The Company has a note payable to an individual at December 31, 1997.
Interest is charged at 8.5%. The Company does not expect to make any
principal payments on this note in 1998. The note payable balance at December
31, 1997 is $15,000.
NOTE 8 - STOCKHOLDERS' EQUITY
The Company was initially capitalized with 25,000,000 shares of common
stock authorized at $.001 per share. On October 30, 1996, the sole director
of the Company approved a resolution for a reverse split of its common stock
on a 1 share for 7 shares basis, and amended the Company's articles of
incorporation returning the authorized capital to 25,000,000 shares at a par
value of $.007 per share.
NOTE 9 - RELATED ENTITY TRANSACTIONS
The Subsidiary had entered into an exclusive marketing agreement with
Profit Education Systems, Inc. (PES), in which PES may act as the worldwide
marketing agent for "storefronts" and advertising using the Subsidiary's
principal product ("Galaxy Mall"). PES was wholly-owned by John J. Poelman,
President, Chief Executive Officer and a Director of the Company.
Through December 31, 1996, PES had agreed to pay all marketing,
programming and set-up costs for the use of the Galaxy Mall without charging
the Subsidiary for such costs. In return, the Subsidiary had agreed to pay
PES, 90% of all amounts received from training and storefront leases that are
marketed by PES prior to, or at introductory workshops conducted by PES. In
addition, the Subsidiary was required to pay to PES 35% of all amounts
received from commercial advertising sold on the Galaxy Mall and for various
other services developed by the Subsidiary in connection with the Galaxy
Mall. An additional 35% of proceeds from storefront lease renewals and
activations that were not prepaid were required to be paid as follows; 15% to
PES and 20% to CO-OP Business Services (CO-OP), a company owned by Vicki B.
Poelman, the wife of John J. Poelman, President, Chief Executive Officer and a
Director of the Company. CO-OP had been paying the cost of programming and
set up for Galaxy Mall activation. At December 31, 1996, PES owed the
Subsidiary $87,787 for amounts PES received in the form of pre-paid storefront
leases, which has been included in accounts receivable-related entity.
Accordingly, the Subsidiary has also recorded pre-paid storefront leases as
unearned revenue until such services are performed. Such receivable was
subsequently collected in full.
At December 31, 1996, the Company had expended substantially all of
its capital resources in the research and development of computer security
equipment. The Company had entered into a license agreement with Breakthrough
Electronics, Inc. (BEI), a Nevada public corporation, whereby BEI had granted
the Company an exclusive license to the use of BEI's Conus Code 2100 Encryptor
in exchange for forty percent (40%) of the net profits to be received by the
Company from the sale of the voice encryption-decryption electric device. In
addition, BEI provided the Company with the methodology and technology in
conjunction with the basic design of the anticipated final Company product.
BEI has provided substantial amounts of these services, and has been paid the
cumulative amount of $81,000 as of December 31, 1996. As of December 31,
1997, the Company offers no such product, and is no longer associated with
BEI.
As discussed in Note 1, on October 1, 1997, the Subsidiary purchased
the assets and business interest of Profit Education Systems, Inc. (PES).
Until such date, PES had been working under contract with the Subsidiary,
providing marketing services for its Internet workshops. The purchase price
of PES was equal to the obligations of PES which were assumed by the
Subsidiary.
Also discussed in Note 1, on October 1, 1997, the Subsidiary purchased
the assets and business interests of CO-OP Business Services, Inc. (CO-OP).
Until such date, CO-OP had been working under contract to the Subsidiary
providing customer services to its merchants on the Galaxy Mall, an Internet
shopping mall. The purchase price was equal to the obligations of CO-OP
assumed by the Subsidiary.
In addition to its direct sales efforts, the Company utilizes the
services of American Marketing Systems, Inc. ( AMS ), a Nevada corporation.
AMS provides telemarketing services to its various clients, including the
Company. It sells coaching (mentoring) services to Galaxy Mall merchants, and
coaching services and Company products to prospects who have not previously
purchased Company products. During the year ended December 31, 1997 the
Company paid AMS $220,237 in sales commissions. John J. Poelman, President,
Chief Executive Officer and a Director of the Company is a 30% shareholder of
AMS.
The Company utilizes the services of Electronic Commerce
International, Inc. ( ECI ), a Utah corporation, which provides merchant
accounts and leasing services to small businesses. ECI processes the
financing of Company merchants storefront leases and also wholesales software
to the Company used for on-line processing of credit card transactions. John
J. Poelman, President, Chief Executive Officer and a Director of the Company
is the sole stockholder of ECI.
NOTE 10 - MERGER EXPENSES
On June 23, 1997, the Company entered into an agreement with Books
Now, Inc. (Books) to purchase Books in a stock for stock exchange and to
provide working capital for the implementation of Books business plan. The
Company advanced $30,000 upon signing of the agreement and made additional
advances from time to time so that the total advanced during the year was
$108,000. No stock was exchanged between the companies.
By December, 1997 it became clear that it was not in the best interest
of the Company to continue this arrangement since Books needed significantly
more cash than the Company had advanced to implement its business plan. A
settlement was negotiated and the companies signed a mutual release of claims
against each other. This caused the advances made by the Company to be
worthless and they were written off accordingly. It did, however, protect the
Company from any liability in the future for breach of contract or any other
claim that may have been filed by Books.
<PAGE>
PROFIT EDUCATION SYSTEMS, INC.
FINANCIAL STATEMENTS
September 30, 1997 and 1996
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Profit Education Systems, Inc.
Orem, Utah
We have audited the accompanying balance sheets of Profit Education Systems,
Inc. as of September 30, 1997 and 1996, and the related statements of
operations and retained earnings, 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 audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Profit Education Systems,
Inc. as of September 30, 1997 and 1996, and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.
/s/Wisan, Smith, Racker & Prescott
Salt Lake City, Utah
April 8, 1999
<TABLE>
PROFIT EDUCATION SYSTEMS, INC.
BALANCE SHEETS
September 30, 1997 and 1996
<CAPTION>
1997 1996
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash $ 41,190 $ 177,012
Related party receivable 27,395 -
Employee advances - 48,670
Credit card reserves 43,940 165,114
TOTAL CURRENT ASSETS 112,525 390,796
EQUIPMENT 83,651 49,746
OTHER 5,235 345
TOTAL ASSETS $ 201,411 $ 440,887
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 586,319 $ 221,824
Accrued expenses 309,906 45,586
Income taxes payable - 50,727
Notes payable related parties 106,289 15,000
TOTAL CURRENT LIABILITIES 1,002,514 333,137
NOTES PAYABLE 15,000 -
STOCKHOLDERS' EQUITY
Preferred stock, par value $.01
Authorized 500 shares, no shares issued
Common stock, par value $.01
Authorized and issued 1,000 shares 10 10
Additional paid-in capital 7,874 7,874
Retained earnings (deficit) (823,987) 99,866
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (816,103) 107,750
TOTAL LIABILITIES AND EQUITY $ 201,411 $ 440,887
</TABLE>
<TABLE>
PROFIT EDUCATION SYSTEMS, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
Years ended September 30, 1997 and 1996
<CAPTION>
1997 1996
<S> <C> <C>
REVENUE
Sales $6,244,995 $ 4,085,675
Cost of sales 2,508,201 1,896,892
GROSS PROFIT 3,736,794 2,188,783
OPERATING EXPENSES
Selling 3,488,834 1,657,178
General and administrative 1,130,425 409,232
Depreciation 24,728 8,285
TOTAL OPERATING EXPENSES 4,643,987 2,074,695
OPERATING INCOME (LOSS) (907,193) 114,088
OTHER (INCOME) EXPENSES
Interest income (3) (41)
Other expense 14,775 1,916
Interest expense 1,888 4,235
TOTAL OTHER (INCOME) EXPENSES 16,660 6,110
Income (loss) before income taxes (923,853) 107,978
Income tax expense (benefit) - 50,727
NET INCOME (LOSS) (923,853) 57,251
RETAINED EARNINGS (DEFICIT)
Balance - beginning of year 99,866 42,615
Balance - end of year $(823,987) $ 99,866
</TABLE>
<TABLE>
PROFIT EDUCATION SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
Years ended September 30, 1997 and 1996
<CAPTION>
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(923,853) $ 57,251
Adjustments to reconcile net income (loss) to net
cash flows from (used by) operating activities:
Depreciation 24,728 8,285
Changes in operating assets and liabilities:
Increase in credit card reserves 121,174 (111,086)
Increase in employee advances 48,670 -
(Increase) decrease in trade accounts
receivable - related entity (27,395) -
Increase in other assets (4,890) 230
Increase (decrease) in trade accounts payable 364,495 221,824
Increase (decrease) in accrued expenses 264,320 42,403
Increase (decrease) in income taxes payable (50,727) 40,646
Net cash flows from (used by) operating activities (183,478) 259,553
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment (58,633) (57,142)
Net cash used by investing activities (58,633) (57,142)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash from notes payable 15,000 -
Cash from (to) related party notes payable 91,289 (46,001)
Net cash flows from (used by) financing activities 106,289 (46,001)
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS (135,822) 156,410
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 177,012 20,602
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 41,190 $ 177,012
</TABLE>
PROFIT EDUCATION SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 1997 and 1996
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Business Activity
Profit Education Systems, Inc. (the Company) provides and conducts
internet education seminars. The Company also markets the services of
Galaxy Enterprises. For each customer the Company signs up to use
Galaxy Enterprises' services, the Company pays 10% of its sales
related to that customer to Galaxy Enterprises. During 1997 and 1996,
the Company paid Galaxy Enterprises approximately $132,000 and
$87,000, respectively. The Company markets its services throughout
the United States.
Cash and Cash Equivalents
Cash equivalents are generally comprised of certain highly liquid
investments with maturities of less than three months.
Property and Equipment
Depreciation expense is computed principally on the straight-line
method in amounts sufficient to write off the cost of depreciable
assets over their estimated useful lives.
Normal maintenance and repair items are charged to costs and expenses
as incurred. The cost and accumulated depreciation of property and
equipment sold or otherwise retired are removed from the accounts and
gain or loss on disposition is reflected in net income in the period
of disposition.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles 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.
Revenue Recognition
Revenue is recognized when services are provided to customers.
Income Taxes
The Company accounts for income taxes using an asset and liability
approach to financial accounting and reporting for income taxes. The
difference between the financial statement and tax bases of assets and
liabilities is determined annually. Deferred income tax assets and
liabilities are computed for those differences that have future tax
consequences using the currently enacted tax laws and rates that apply
to the periods in which they are expected to affect taxable income.
Valuation allowances are established, if necessary, to reduce the
deferred tax asset to the amount that will more likely than not be
realized. Income tax expense is the current tax payable or refundable
for the period plus or minus the net change in the deferred tax assets
and liabilities.
Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income," which establishes new rules for
the reporting and display of comprehensive income and its components.
Application of SFAS No. 130 is anticipated to have no impact on the
Company's net income or stockholders' equity.
Advertising and Promotion
All costs associated with advertising and promoting the Company's
services are expensed in the period incurred. Advertising costs
expensed amounted to $445,697 and $1,044,662 for the years ended
September 30, 1997 and 1996, respectively.
NOTE 2 - CASH AND CASH EQUIVALENTS
The Company maintains its cash in bank deposit accounts which, at
times, may exceed federally insured limits. The Company has not
experienced any losses in such accounts. The Company believes it is
not exposed to any significant credit risk on cash and cash
equivalents.
NOTE 3 - EQUIPMENT
Equipment as of September 30, 1997 and 1996 is detailed in the
following summary:
Accumulated Net Book
1997 Cost Depreciation Value
Computer and office
equipment $ 136,696 $ 53,045 $ 83,651
Accumulated Net Book
1996 Cost Depreciation Value
Computer and office
equipment $ 78,063 $ 28,317 $ 49,746
NOTE 4 - COMMITMENTS AND CONTINGENCIES
Leases
The Company leases certain of its equipment and corporate offices
under operating lease agreements. Future aggregate minimum
obligations under operating leases as of September 30, 1997 are as
follows:
Operating
Leases
Year ending September 30,
1998 $ 12,000
1999 -
2000 -
2001 -
2002 -
Total $ 12,000
Rental expense under the operating lease agreements totaled
approximately $74,000 and $28,600 for the years ended September 30,
1997 and 1996, respectively.
NOTE 5 - INCOME TAXES
The components of income tax expense (benefit) related to continuing
operations are as follows:
1997 1996
Current $ - $ 50,727
Deferred - -
$ - $ 50,727
Differences between the U.S. statutory
and effective tax rates
U.S. statutory rate $ - $ 36,713
State income taxes, net of
federal tax effect - 3,560
Other, net - 10,454
Effective tax expense (benefit) $ - $ 50,727
The net deferred income taxes in the accompanying balance sheets
include the following amounts of deferred income tax assets and
liabilities:
1997 1996
Deferred tax assets
Net operating loss $ 351,100 $ -
Deferred tax liabilities - -
351,100 -
Valuation allowance (351,100) -
Net deferred tax assets $ - $ -
Cash paid for income taxes $ 50,727 $ 10,081
NOTE 6 - RELATED PARTY - NOTES PAYABLE
Related party - notes payable as of September 30, 1997 and 1996 are
detailed in the following summary:
1997 1996
Note payable to a Company with
common shareholders,
noninterest-bearing, unsecured,
payable on demand 106,289 15,000
Less current portion (106,289) (15,000)
Long-term portion $ - $ -
NOTE 7 - NOTES PAYABLE
Notes payable as of September 30, 1997 and 1996 are detailed in the
following summary:
1997 1996
Note payable to an individual, interest at 8.5%,
unsecured, no repayment terms specified $ 15,000 $ -
Less current portion - -
Long-term portion $ 15,000 $ -
Interest paid during the years ended September 30, 1997 and 1996 was
approximately $1,900 and $4,200, respectively.
NOTE 8 - SUBSEQUENT EVENTS
On October 1, 1997, Galaxy Enterprises, Inc. purchased the Company's
net assets by assuming all liabilities of the Company. Effective
October 1, 1997, the operations of the company ceased and business
activities related to the Company were performed by Galaxy
Enterprises, Inc.
<PAGE>
CO-OP BUSINESS SERVICES, INC.
FINANCIAL STATEMENTS
September 30, 1997
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
CO-OP Business Services, Inc.
Orem, Utah
We have audited the accompanying balance sheet of CO-OP Business Services,
Inc. as of September 30, 1997, and the related statements of operations and
retained earnings and cash flows for the year 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 audit.
We conducted our audit 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 audit provides 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 CO-OP Business Services, Inc.
as of September 30, 1997, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
/s/Wisan, Smith, Racker & Prescott, LLP
Salt Lake City, Utah
April 8, 1999
<TABLE>
CO-OP BUSINESS SERVICES, INC.
BALANCE SHEET
September 30, 1997
<CAPTION>
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash $ 50,414
Employee advances 1,000
TOTAL CURRENT ASSETS $ 51,414
EQUIPMENT 7,005
OTHER 600
TOTAL ASSETS $ 59,019
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 62,077
Accrued expenses 13,053
Income taxes currently payable 847
Accrued payroll taxes 36,627
Related party notes payable 22,000
TOTAL CURRENT LIABILITIES $ 134,604
STOCKHOLDERS' DEFICIT
Common stock, par value $1.00
Authorized 50,000 shares
1,000 shares issued and outstanding 1,000
Retained earnings (deficit) (76,585)
TOTAL STOCKHOLDERS' DEFICIT (75,585)
TOTAL LIABILITIES AND DEFICIT $ 59,019
</TABLE>
<TABLE>
CO-OP BUSINESS SERVICES, INC.
STATEMENT OF OPERATIONS
Year ended September 30, 1997
<CAPTION>
<S> <C> <C>
REVENUE
Sales $ 335,862
Cost of sales 127,279
GROSS PROFIT $ 208,583
OPERATING EXPENSES
Selling 156,268
General and administrative 158,420
Depreciation 6,000
TOTAL OPERATING EXPENSES 320,688
OPERATING LOSS (112,105)
OTHER (INCOME) EXPENSES
Other expense 948
Interest expense 169
TOTAL OTHER (INCOME) EXPENSES 1,117
Loss before income taxes (113,222)
Income tax expense (benefit) -
NET LOSS (113,222)
RETAINED EARNINGS (DEFICIT)
Balance - beginning of year 36,637
Balance - end of year $ (76,585)
</TABLE>
<TABLE>
CO-OP BUSINESS SERVICES, INC.
STATEMENT OF CASH FLOWS
September 30, 1997
<CAPTION>
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (113,222)
Adjustments to reconcile net loss to net
cash flows from operating activities:
Depreciation $ 6,000
Changes in operating assets and liabilities:
Decrease in trade accounts receivable 84,910
Decrease in employee advances 2,801
Increase (decrease) in trade accounts payable 18,521
Increase (decrease) in accrued expenses 31,020 143,252
Net cash flows from operating activities 30,030
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment (1,616)
Net cash used by investing activities (1,616)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash from related party notes payable 22,000
Net cash flows from financing activities 22,000
NET INCREASE IN CASH
AND CASH EQUIVALENTS 50,414
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR -
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 50,414
</TABLE>
CO-OP BUSINESS SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 1997
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Business Activity
CO-OP Business Services, Inc. (CO-OP) provides customer services and
programming support for its clients. During 1997 approximately 59% of
the Company's business was with Galaxy Enterprises, Inc. The Company
markets its services throughout the United States.
Cash and Cash Equivalents
Cash equivalents are generally comprised of certain highly liquid
investments with maturities of less than three months.
Property and Equipment
Depreciation expense is computed principally on the straight-line
method in amounts sufficient to write off the cost of depreciable
assets over their estimated useful lives.
Normal maintenance and repair items are charged to costs and expenses
as incurred. The cost and accumulated depreciation of property and
equipment sold or otherwise retired are removed from the accounts and
gain or loss on disposition is reflected in net income in the period
of disposition.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles 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.
Revenue Recognition
Revenue is recognized when services are provided to customers.
Income Taxes
The Company accounts for income taxes using an asset and liability
approach to financial accounting and reporting for income taxes. The
difference between the financial statement and tax bases of assets and
liabilities is determined annually. Deferred income tax assets and
liabilities are computed for those differences that have future tax
consequences using the currently enacted tax laws and rates that apply
to the periods in which they are expected to affect taxable income.
Valuation allowances are established, if necessary, to reduce the
deferred tax asset to the amount that will more likely than not be
realized. Income tax expense is the current tax payable or refundable
for the period plus or minus the net change in the deferred tax assets
and liabilities.
Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income," which establishes new rules for
the reporting and display of comprehensive income and its components.
Application of SFAS No. 130 is anticipated to have no impact on the
Company's net income or stockholders' equity.
Advertising and Promotion
All costs associated with advertising and promoting the Company's
products are expensed in the period incurred. Advertising expense
amounted to $500 for the year ended September 30, 1997.
NOTE 2 - EQUIPMENT
Equipment as of September 30, 1997 is detailed in the following
summary:
Accumulated Net Book
Cost Depreciation Value
Computer equipment $ 32,864 $ 25,960 $ 6,904
Furniture and fixtures 146 45 101
$ 33,010 $ 26,005 $ 7,005
NOTE 3 - COMMITMENTS AND CONTINGENCIES
Leases
The Company leases certain of its equipment and corporate offices
under operating lease agreements. As of September 30, 1997, all
operating leases were month to month. Rental expense under the
operating lease agreements totaled approximately $53,100 for the year
ended September 30, 1997.
NOTE 4 - INCOME TAXES
The components of income tax expense (benefit) related to continuing
operations are as follows:
Current $ -
Deferred -
$ -
The net deferred income taxes include the following amounts of
deferred income tax assets and liabilities:
Deferred tax assets
Net operating loss $ 43,000
Deferred tax liabilities -
43,000
Valuation allowance (43,000)
Total deferred tax assets -
Net deferred tax asset (liabilities) $ -
NOTE 5 - RELATED PARTY NOTES PAYABLE
Related party notes payable as of September 30, 1997 are detailed in
the following summary:
Note payable to a Company with common
shareholders, noninterest-bearing, payable
on demand, unsecured $ 22,000
Less current portion (22,000)
Long-term portion $ -
Interest paid during the year ended September 30, 1997 was
approximately $170.
NOTE 6 - SUBSEQUENT EVENT
On October 1, 1997, Galaxy Enterprises, Inc. purchased the Company's
assets by assuming all liabilities of the Company. Effective October
1, 1997, the operations of the Company ceased and business activities
related to the Company were performed by Galaxy Enterprises, Inc.
Breakthrough Electronics, Inc. [letterhead]
October 10, 1997
Cipher Voice, Inc./Galaxy Enterprises, Inc.
2800 W. Sahara Avenue, Suite a-G
Las Vegas, Nevada 89102
Gentlemen:
In the spring of 1996, an exclusive licensing agreement was granted to your
company for the technology and use of our Conus 2100 Encryptor in exchange for
forty (40) percent of the net profits received by your company from the sale
of this electronic device.
The agreement stipulated that Breakthrough would be providing the methodology
and technology in conjunction with the basic design of the Cipher Voice
device. Due to various financial difficulties, Breakthrough has been unable
to provide the necessary expertise required to allow Cipher Voice to bring any
product to market level.
It is the understanding by this writer that in subsequent reports by Certified
Public Accountants no sales were every recorded, and that there were no asset
accounts currently listed on the Cipher Voice balance sheets.
Inasmuch as new technology since 1996 has been developed by other companies,
Breakthrough considers the licensing of its products to be completely
out-moded, and of no value whatsoever.
Consequently, Breakthrough withdraws its licensing agreement with your company
effective as of the date first written above.
If you have any questions as to this action, please contact the undersigned at
the address above.
Yours truly yours,
By:/s/Lawrence Sapperstein
Lawrence Sapperstein
President and CEO
3101 West Charleston, Suite D, Las Vegas, Nevada, 89102
(702) 877-8774 Fax (702) 877-9406
IOS CAPITAL [letterhead]
Lease Agreement
P.0. Box 9115, Macon, GA 31210
Lease Agreement Lease Number 704639
Thank you for choosing IKON! This lease agreement has been written in clear,
easy to understand language. Please take time to review the terms. When we use
"you" or "your", we are referring to you, our customer. When we use "IKON",
we are referring to IKON Office Solutions, Inc. one of the largest
distributors of office solutions in the world. When we use "we","us" and
"our" we are referring to IOS Capital. Inc. a subsidiary of IKON Office
Solutions,Inc. created exclusively to support IKON. We are committed to
providing you quality service!
CUSTOMER INFORMATION Customer Billing Contact
Galaxy Mall
890 N. Industrial Park Drive
Orem, Utah UT 84057
EQUIPMENT DESCRIPTION
Quantity Description, Make, Model & Serial Number
1 Canon NP 6412F
__ Check if Additional Equipment Schedule attached
PAYMENT SCHEDULE
Lease Term: Payment Due: Monthly Payment Advance Payment: $ Documentation
36 Monthly $72.00 Apply Other 1st and --0--
Last
ADDITIONAL PROVISIONS:
Sales Tax Exempt __ YES (Attach Exemption Certificate)
Addendum(s) attached: __YES (Total number of addendums)_
Customer Billing Reference Number (P.O. #,etc.)
TERMS AND CONDITIONS 1. Lease Agreement: You agree to lease from us the
Equipment listed above. THIS LEASE IS NONCANCELLABLE. You agree to all of the
terms and conditions contained in this Lease. You agree this Lease is for the
entire lease term indicated above. You also agree that the Equipment will be
used solely for business purposes and not for personal, family or household
purposes and the "Customer Location" is a business address. Our acceptance of
this Lease is indicated by our signature. (See reverse side for more terms
and conditions.)
AUTHORIZED SIGNER THE PERSON SIGNING THIS LEASE ON BEHALF OF THE CUSTOMER
REPRESENTS THEY HAVE THE AUTHORITY TO DO SO.
X/S/Craig Peterson Date 5/27/98 Craig Peterson Office Manager
PERSONAL GUARANTY I guaranty that the Customer will make all lease payments
and pay all other charges required under the Lease when they are due, and that
the Customer will perform all other obligations under the Lease fully and
promptly. I also agree that IOS Capital may modify the Lease or make other
arrangements with the Customer and I will still be responsible for those
payments and other obligations under the Lease. I agree that IOS Capital does
not need to notify me of any modification or default under the Lease. I will
pay all amounts due under the terms of the Lease. In addition, I will
reimburse IOS Capital for any cost or attorney fees incurred in enforcing
their rights.
X Date Home Address
(Authorized Signer Signature) City State Zip
Home Phone SSN
Date
(Printed Name of Guarantor)
DELIVERY AND ACCEPTANCE You certify that all the Equipment described above has
been delivered and is accepted. You acknowledge that such Equipment is in good
condition and is performing satisfactorily.
X Date
Printed Name Title
2. Ownership of Equipment: We are the sole owner and title holder to the
Equipment. YOU HAVE NO RIGHT TO SELL, TRANSFER, ENCUMBER, SUBLET OR ASSIGN THE
EQUIPMENT OR THIS LEASE WITHOUT OUR PRIOR WRITTEN CONSENT.
3. Taxes and Filing Costs: In addition to lease payments, you agree to pay
all taxes, fees, and filing costs related to the possession and use of the
Equipment during the lease term. If we are required to file and pay property
tax. you agree to reimburse us. We will bill you the property tax as soon as
an invoice is received from the local jurisdiction. At our request,
you agree to file and pay taxes directly to the taxing jurisdiction or pay to
us taxes in advance of the time that the taxes are due to the taxing authority
based on our reasonable estimates of the tax.
4. UCC Filing: You authorize us or our designee to sign. on your behalf. any
documents in connection with the Uniform Commercial Code filing and to insert
the serial number(s) of the Equipment in this Lease (including any schedules)
and in any filings. At our request, you will sign and provide such documents
for filing purposes.
5. Warranties: Since we are a leasing company and neither the manufacturer or
the distributor of the Equipment. WE MAKE NO WARRANTIES, EXPRESS, OR IMPLIED.
INCLUDING WARRANTIES OF MERCHANTABILITY OR FITNESS FOR USE OR FOR A PARTICULAR
PURPOSE.
6. Maintenance and Care of Our Equipment and Agency: You agree to install (if
required), use and maintain the Equipment in accordance with manufacturers' or
IKON's specifications and to use only those supplies which meet such
specifications. If you have contracted for maintenance and support activities
regarding the Equipment. IKON is responsible for all those services. IKON and
IOS Capital are not agents for each other.
7. Liability, Insurance and Indemnity. Because you have possession and
control of this Equipment you are fully responsible for damage, injury or loss
caused by or to the Equipment or property resulting from any misuse, accident.
or other casualty. You agree to maintain insurance to cover the Equipment for
your and our benefit and you agree to indemnify us. We will be responsible
for damage or injury to third persons when the damage or Injury is caused
exclusively by our negligent acts or omissions. We should be named additional
insured and loss payee on your insurance policy. If you fall to provide
evidence of insurance, you authorize us to obtain coverage on your behalf and
you agree to pay for this coverage. In the event of loss or damage to the
Equipment, you agree to remain responsible for the payment obligations under
this Lease until the payment obligations are fully satisfied.
8. Renewal and Return of Equipment. After the minimum term or any extension,
this Lease will renew on a month-to-month basis unless you notify us in
writing at least 30 days prior to the expiration of the minimum term or
extension. You must pay any additional lease payments due until the Equipment
is returned by you and Is received in good condition and working order by us
or our designees. IKON will bear shipping charges so long as replacement
Equipment Is selected from IKON.
9. Lease Payments: Payments will begin on the agreement date or delivery
date, whichever is later. You agree to pay us each lease payment when it Is
due. and If any payment is more that 10 days late, you agree to pay a late
charge of 5% or $5 (whichever is greater but not to exceed the maximum amount
allowed by applicable law) on the overdue amount. You also agree to pay $25
for each check returned for Insufficient funds or any other reason. You
agree to pay a one time documentation fee if it appears on the front of this
agreement.
10. Location of Equipment: You will keep the Equipment at the customer
location specified in this Lease. You must obtain our written permission,
which will not be unreasonably withheld. to move the Equipment. With
reasonable notice, you will allow us or our designee to conduct inspections of
the Equipment.
11. Default: If you do not pay any amount when it Is due. or breach any other
term of this Lease, you are in default. If you default, we have the right to
exercise any and all legal remedies available to us by applicable laws,
including Article 2A of the Uniform Commercial Code. You acknowledge this is
a Finance Lease as defined In Article 2A and you waive any and all rights and
remedies you have thereunder. In addition, we are entitled to all past due
payments and we may accelerate and require you to immediately pay us the
future payments due under the Lease present valued at the discount rate of 6%
to the date of default plus the residual value placed on the Equipment by
us. We may repossess the Equipment and pursue you for any deficiency
balance after we dispose of the Equipment, all to the extent permitted by
law. You waive the rights you may have to notice before we seize any of the
Equipment. You agree that all rights and remedies are cumulative and not
exclusive. You promise to pay reasonable attorney fees and any cost
associated with any action to enforce the Lease. This action will not avoid
your responsibility to maintain and care for the Equipment nor will IKON be
liable for any action taken on our behalf. Default shall also include your
becoming insolvent, your assignment of assets for the benefit of creditors,
your filing for bankruptcy protection or the failure of the guarantor to honor
its commitments.
12. Business Agreement and Choice of Law-YOU AGREE THAT THIS AGREEMENT WILL BE
GOVERNED UNDER THE APPLICABLE LAW OF THE STATE OF GEORGIA. YOU ALSO AGREE TO
SUBMIT TO THE JURISDICTION OF THE COURTS OF GEORGIA, OR AT OUR OPTION, THE
COURTS OF THE STATE WHERE IKON IS LOCATED TO RESOLVE ANY ACTION UNDER THIS
LEASE. WE BOTH WAIVE THE RIGHT TO A TRIAL BY JURY IN THE EVENT OF A
LAWSUIT.
13. No Waiver or Set Off- You agree that our delay, or failure to exercise any
rights, does not prevent us from exercising them at a later time. If any part
of this Lease is found to be Invalid, then it shall not invalidate any of the
other parts and the Lease shall be modified to the minimum extent as permitted
by law. All lease payments to us are "net" and are not subject to set
off or reduction without our consent.
14. Entire Agreement: This agreement represents the entire agreement
(including addendums referenced on the face of the Agreement, signed and
attached) between us and you. Neither of us will be bound by any amendment,
waiver, or other change unless agreed to in writing and signed by both. Any
purchase order, or other ordering documents will not modify or affect
this agreement, nor have any other legal effect and shall serve only the
purpose of Identifying the Equipment ordered.
/s/Debra F. Carter
Accepted by IOS Capital. Inc:
X Date
Judith 6/19/98
CORPORATE RESOLUTION TO BORROW
Principal Loan Date Maturity Loan No. Collateral Officer
$100,000.00 7/30/1998 7/30/1999 55-50118-3 0100 COMM
References In the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
Borrower: GALAXY MALL (TIN: 87-0562539) Lender: Far West Bank
890 NORTH INDUSTRIAL DRIVE 2191 North Canyon Rd.
OREM, UT 84057 Provo, UT 84604
I, the undersigned Secretary or Assistant Secretary of GALAXY MALL (the
"Corporation"), HEREBY CERTIFY that the Corporation is organized and existing
under and by virtue of the laws of the State of Utah as a corporation for
profit, with its principal office at 890 NORTH INDUSTRIAL DRIVE, OREM, UT
84057, and is duly authorized to transact business in the State of Utah.
I FURTHER CERTIFY that at a meeting of the Directors of the Corporation, duly
called and held on_______________________ at which a quorum was present and
voting, or by other duly authorized corporate action in lieu of a meeting, the
following resolutions were adopted:
BE IT RESOLVED, that any one (1) of the following named officers, employees,
or agents of this Corporation, whose actual signatures are shown below:
NAME POSITION ACTUAL SIGNATURE
JOHN J. POLEMAN PRESIDENT X/s/John J. Poleman
acting for and on behalf of the Corporation and as its act and deed be, and he
or she hereby is, authorized and empowered:
Borrow Money. To borrow from time to time from Far West Bank ("Lender"), on
such terms as may be agreed upon between the Corporation and Lender, such sum
or sums of money as in his or her judgment should be borrowed, without
limitation.
Execute Notes. To execute and deliver to Lender the promissory note or notes,
or other evidence of credit accommodations of the Corporation, on Lender's
forms, at such rates of interest and on such terms as may be agreed upon,
evidencing the sums of money so borrowed or any indebtedness of the
Corporation to Lender, and also to execute and deliver to Lender one or more
renewals, extensions, modifications, refinancings, consolidations, or
substitutions for one or more of the notes, any portion of the notes, or any
other evidence of credit accommodations.
Grant Security. To mortgage, pledge, transfer, endorse, hypothecate, or
otherwise encumber and deliver to Lender, as security for the payment of any
loans or credit accommodations so obtained, any promissory notes so executed
(including any amendments to or modifications, renewals, and extensions of
such promissory notes), or any other or further Indebtedness of the
Corporation to Lender at any time owing, however the same may be evidenced,
any property now or hereafter belonging to the Corporation or In which the
Corporation now or hereafter may have an Interest, Including without
limitation all real property and all personal property (tangible or
Intangible) of the Corporation. Such property may be mortgaged, pledged,
transferred, endorsed, hypothecated, or encumbered at the time such loans are
obtained or such Indebtedness Is Incurred, or at any other time or times, and
may be either In addition to or In lieu of any property theretofore mortgaged,
pledged, transferred, endorsed, hypothecated, or encumbered.
Execute Security Documents. To execute and deliver to Lender the forms of
mortgage, dead of trust, pledge agreement, hypothecation agreement, and other
security agreements and financing statements which may be submitted by Lender,
and which shall evidence the terms and conditions under and pursuant to which
such liens and encumbrances, or any of them, are given; and also to execute
and deliver to Lender any other written Instruments, any chattel paper, or any
other collateral, of any kind or nature, which he or she may In his or her
discretion deem reasonably necessary or proper in connection with or
pertaining to the giving of the liens and encumbrances.
Negotiate Items. To draw, endorse, and discount with Lender all draft, trade
acceptances, promissory notes, or other evidences of Indebtedness payable to
or belonging to the Corporation In which the Corporation may have an Interest,
and either to receive cash for the same or to cause such proceeds to be
credited to the account of the Corporation with Lender, or to cause such other
disposition of the proceeds derived therefrom as they may deem advisable.
Further Acts. In the case of lines of credit, to designate additional or
alternate Individuals as being authorized to request advances thereunder, and
In all cases, to do and perform such other acts and things, to pay any and all
fees and costs, and to execute and deliver such other documents and agreements
as he or she may In his or her discretion deem reasonably necessary or proper
In order to carry Into effect the provisions of these Resolutions. The
following person or persons currently are authorized to request advances and
authorize payments under the line of credit until Lender receives written
notice of revocation of their authority: JOHN J. POLEMAN, PRESIDENT.
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to these
Resolutions and performed prior to the passage of these Resolutions are hereby
ratified and approved, that these Resolutions shall remain In full force and
effect and Lender may rely on these Resolutions until written notice of his or
her revocation shall have been delivered to and received by Lender. Any such
notice shall not affect any of the Corporation's agreements or commitments In
effect at the time notice Is given.
BE IT FURTHER RESOLVED, that the Corporation will notify Lender In writing at
Lender's address shown above (or such other addresses as Lender may designate
from time to time) prior to any (a) change In the name of the Corporation, (b)
change In the assumed business name(s) of the Corporation, (c) change in the
management of the Corporation,, (d) change In the authorized signer(s), (e)
conversion of the Corporation to a now or different type of business entity,
or (f) change In any other aspect of the Corporation that directly or
Indirectly relates to any agreements between the Corporation and Lender. No
change In the name of the Corporation will take effect until after Lender has
been notified.
I FURTHER CERTIFY that the officer, employee, or agent named above Is duly
elected, appointed, or employed by or for the Corporation, as the case may be,
and occupies the position set opposite the name; that the foregoing
Resolutions now stand of record on the books of the Corporation; and that the
Resolutions are In full force and effect and have not been modified or revoked
In any manner whatsoever. The Corporation has no corporate seal, and
therefore, no seal Is affixed to this certificate.
IN TESTIMONY WHEREOF, I have hereunto set my hand on July 30, 1998 and attest
that the signatures set Opposite the names listed above are their genuine
signatures.
CERTIFIED TO AND ATTESTED BY:
X
X/s/Fred C. Hyman
NOTE: In case the Secretary or other certifying officer Is designated by the
foregoing resolutions as one of the signing officers, It Is advisable to have
this certificate signed by a second Officer or Director of the Corporation.
<PAGE>
This FINANCING STATEMENT Is presented to a filing officer for filing pursuant
to the Uniform Commercial Code.
1.Debtor(s)(Last Name First) and address(es)2.Secured Party(ies)andaddress(es)
GALAXY MALL SSN/TIN: 87-0562539 Far West Bank
890 NORTH INDUSTRIAL DRIVE 2191 North Canyon Rd.
OREM, UT 84057 Provo, UT 84604
4. This Financing Statement covers the following types (or Items) of property:
See Attached Exhibit to UCC Financing Statement dated July 30, 1998
6. Gross sales price of collateral
$ _______________ Sales or use tax paid to State of
The Secured party Is Is not 5. Assignee(s) of Secured
Party and
purchase money lender of the collateral. Address(es)
This statement Is filed without the debtor's signature to perfect a security
interest in collateral. (Check if so) Microfilm No.
__ already subject to a security Interest In another jurisdiction when It was
brought Into this state.
__ which is proceeds of the original collateral described above In which a
security interest was perfected:
Check X if covered: X Proceeds of Collateral are also covered. X Products of
collateral are also covered. No. of additional Sheets presented: 1
3. Maturity date (if any): Approved by Department of Commerce
Division of Corporations
and Commercial Code.
John J. Poleman, President Far West Bank
By:/s/John J. Poleman
signature(s) of Debtor(s) Signature(s) of Secured Party(ies)
STANDARD FORM - FORM UCC-1.
(5) DEBTOR COPY
<PAGE>
EXHIBIT TO UCC-1 FINANCING STATEMENT
DEBTOR July 30, 1998
GALAXY MALL SSN / Tax ID # 87-0562539
MAILING ADDRESS:
890 NORTH INDUSTRIAL DRIVE, OREM, UT 84057
COLLATERAL DESCRIPTION:
All Equipment; together with the following specifically described property:
SEE ATTACHED LIST; whether any of the foregoing Is owned now or acquired
later; all accessions, additions, replacements, and substitutions relating to
any of the foregoing; all records of any kind relating to any of the
foregoing; all proceeds relating to any of the foregoing (including Insurance,
general Intangibles and accounts proceeds).
This Exhibit is executed on the same date as the UCC-1 Financing
Statement by Far West Bank and the undersigned.
JOHN J. POLEMAN, PRESIDENT Far West Bank
By:/s/John J. Poleman BY:
Signature(s) of Debtor(s) Signature(s) of Secured Party(ies)
<PAGE>
NOTICE OF FINAL AGREEMENT
Principal Loan Date Maturity Loan No. Collateral Officer
$100,000.00 7/30/1998 7/30/1999 55-50118-3 0100 COMM
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or Item.
Borrower: Lender:
GALAXY MALL (TIN: 87-0662639) Far West Bank
890 NORTH INDUSTRIAL DRIVE 2191 North Canyon Rd.
OREM, UT 84057 Provo, UT 84604
BY SIGNING THIS DOCUMENT EACH PARTY REPRESENTS AND AGREES THAT: (A) THE
WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES, (B)
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES, AND (C) THE
WRITTEN LOAN AGREEMENT MAY NOT BE CONTRADICTED BY EVIDENCE OF ANY PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OR UNDERSTANDINGS OF THE
PARTIES.
As used In this Notice, the following terms have the following meanings:
Loan. The term "Loan" means the following described loan: a Variable Rate
(3.000% over THE WALL STREET JOURNAL PRIME RATE, making an Initial rate of
11.500%), Nondisclosable Revolving Line of Credit Loan to a Corporation for
$100,000.00 due on July 30, 1999.
Parties. The term "Parties" means Far West Bank and any and all entities or
Individuals who are obligated to repay the loan or have pledged property as
security for the Loan, including without limitation the following:
Borrower: GALAXY MALL
Guarantor: JOHN J. POLEMAN
Loan Agreement. The term "Loan Agreement means one or more promises,
promissory notes, agreements, undertakings, security agreements, deeds of
trust or other documents, or commitments, or any combination of those actions
or documents, relating to the Loan, Including without limitation the
following:
NECESSARY FORMS
Corporate Resolution to Borrow Promissory Note / Change In Terms Agr.
Commercial Guaranty Security Agreement
Commercial Pledge Agreement Irrevocable Stock or Bond Power
UCC - 1 Collateral Receipt
Agreement to Provide Insurance Disbursement Request and Authorization
Notice of Final Agreement
OPTIONAL FORMS
Verification from Corporate Commissioner
Each Party who signs below, other than Far West Bank, acknowledges,
represents, and warrants to Far West Bank that It has received, read this
Notice of Final Agreement. This Notice Is dated July 30, 1998.
BORROWER:
GALAXY MALL
By:
JOHN J. POLEMAN, PRESIDENT
GUARANTOR:
X
JOHN J. POLEMAN
LENDER:
Far West Bank
By:
Authorized Officer
<PAGE>
COMMERCIAL GUARANTY
References In the shaded area are for Lenders use only and-do not limit the
applicability of this document to any particular loan or item.
Borrower: GALAXY MALL (TIN: 87-0562539) Lender: Far West Bank
890 NORTH INDUSTRIAL DRIVE 2191 North Canyon Rd.
OREM, UT 84057 Provo, UT 84604
Guarantor: JOHN J. POLEMAN
4009 QUAIL RUN DRIVE
PROVO, UT 84604
AMOUNT OF GUARANTY. The principal amount of this Guaranty Is One Hundred
Thousand & 00/100 Dollars ($100,000.00).
GUARANTY. For good and valuable consideration, JOHN J. POLEMAN ("Guarantor")
absolutely and unconditionally guarantees and promises to pay to Far West Bank
("Lender") or Its order, on demand, In legal tender of the United States of
America, the Indebtedness (as that term Is defined below) of GALAXY MALL
("Borrower") to Lender on the terms and conditions set forth In this Guaranty.
DEFINITIONS. The following words shall have the following meanings when used
in this Guaranty:
Borrower. The word "Borrower" means GALAXY MALL.
Guarantor. The word "Guarantor" means JOHN J. POLEMAN.
Guaranty. The word "Guaranty" means this Guaranty made by Guarantor for the
benefit of Lender dated July 30, 1998.
Indebtedness. The word "Indebtedness" means the Note, Including (a) all
principal, (b) all interest, (c) all late charges, (d) all loan fees and loan
charges, and (a) all collection costs and expenses relating to the Note or to
any collateral for the Note. Collection costs and expenses Include without
limitation all of Lender's reasonable attorneys' fees and Lender's legal
expenses, whether or not suit is Instituted, and reasonable attorneys' fees
and legal expenses for bankruptcy proceedings (including efforts to modify or
vacate any automatic stay or Injunction), appeals, and any anticipated
post-judgment collection services.
Lender. The word "Lender" means Far West Bank, Its successors and assigns.
Note. The word "Note" means the promissory note or credit agreement dated July
30, 1998, In the original principal amount of $100,000.00 from Borrower to
Lender, together with all renewals of, extensions of, modifications of,
refinancings of, consolidations of, and substitutions for the promissory note
or agreement. Notice to Guarantor: The Note evidences a revolving line of
credit from Lender to Borrower.
Related Documents. The words "Related Documents" mean and Include without
limitation all promissory notes. credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds of
trust, and all other instruments, agreements and documents, whether now or
hereafter existing, executed in connection with the Indebtedness.
MAXIMUM LIABILITY. The maximum liability of Guarantor under this Guaranty
shall not exceed at any one time the sum of the principal amount of
$100,000.00, plus all Interest thereon, plus all of Lender's costs, expenses,
and attorneys' fees Incurred In connection with or relating to (a) the
collection of the Indebtedness, (b) the collection and sale of any collateral
for the Indebtedness or this Guaranty, or (c) the enforcement of this
Guaranty. Attorneys' fees Include, without limitation, attorneys' fees whether
or not there Is a lawsuit, and It there Is a lawsuit, any fees and costs for
trial and appeals. The above limitation on liability is not a restriction on
the amount of the Indebtedness of Borrower to Lender either In the aggregate
or at any one time. If Lender presently holds one or more guaranties, or
hereafter receives additional guaranties from Guarantor, the rights of Lender
under all guaranties shall be cumulative. This Guaranty shall not (unless
specifically provided below to the contrary) affect or invalidate any
such other guaranties. The liability of Guarantor will be the aggregate
liability of Guarantor under the terms of this Guaranty and any such other
unterminated guaranties.
NATURE OF GUARANTY. Guarantor Intends to guarantee at all times the
performance and prompt payment when due, whether at maturity or earlier by
reason of acceleration or otherwise, of all Indebtedness within the limits set
forth In the preceding section of this Guaranty. This Guaranty covers a
revolving line of credit and guarantor understands and agrees that this
guarantee shall be open and continuous until the line of credit Is
terminated and the Indebtedness Is paid In full, as provided below.
DURATION OF GUARANTY. This Guaranty will take effect when received by Lender
without the necessity of any acceptance by Lender, or any notice to Guarantor
or to Borrower, and will continue In full force until all Indebtedness shall
have been fully and finally paid and satisfied and all other obligations of
Guarantor under this Guaranty shall have been performed In full. Release of
any other guarantor or termination of any other guaranty of the Indebtedness
shall not affect the liability of Guarantor under this Guaranty. A revocation
received by Lender from any one or more Guarantors shall not affect the
liability of any remaining Guarantors under this Guaranty. This Guaranty
covers a revolving line of credit and It Is specifically anticipated that
fluctuations will occur In the aggregate amount of Indebtedness owing from
Borrower to Lender. Guarantor specifically acknowledges and agrees that
fluctuations In the amount of Indebtedness, even to zero dollars ($ 0.00),
shall not constitute a termination of this Guaranty. Guarantor's liability
under this Guaranty shall terminate only upon (a) termination In writing by
Borrower and Lender of the line of credit, (b) payment of the Indebtedness In
full In legal tender, and (c) payment In full In legal tender of all other
obligations of Guarantor under this Guaranty.
GUARANTOR'S AUTHORIZATION TO LENDER. Guarantor authorizes Lender, without
notice or demand and without lessening Guarantor's liability under this
Guaranty, from time to time: (a) to make one or more additional secured or
unsecured loans to Borrower, to lease equipment or other goods to Borrower, or
otherwise to extend additional credit to Borrower; (b) to alter, compromise,
renew, extend, accelerate, or otherwise change one or more times the time for
payment or other terms of the Indebtedness or any part of the Indebtedness,
Including Increases and decreases of the rate of Interest on the Indebtedness;
extensions may be repeated and may be for longer than the original loan
term; (c) to take and hold security for the payment of this Guaranty or the
Indebtedness, and exchange, enforce, waive, subordinate, fall or decide not to
perfect, and release any such security, with or without the substitution of
new collateral; (d) to release, substitute, agree not to sue, or deal with any
one or more of Borrower's sureties, endorsers, or other guarantors on any
terms or In any manner Lender may choose; (e) to determine how, when and what
application of payments and credits shall be made an the Indebtedness; (0 to
apply such security and direct the order or manner of sale thereof, Including
without limitation, any nonjudicial sale permitted by the terms of the
controlling security agreement or deed of trust, as Lender In Its discretion
may determine; (g) to sell, transfer, assign, or grant participations In all
or any part of the Indebtedness; and (h) to assign or transfer this Guaranty
In whole or In part.
GUARANTOR'S REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants
to Lender that (a) no representations or agreements of any kind have been made
to Guarantor which would limit or quality In any way the terms of this
Guaranty; (b) this Guaranty is executed at Borrower's request and not at the
request of Lender; (c) Guarantor has full power, right and authority to enter
Into this Guaranty; (d) the provisions of this Guaranty do not conflict with
or result In a default under any agreement or other instrument binding upon
Guarantor and do not result In a violation of any law, regulation, court
decree or order applicable to Guarantor; (a) Guarantor has not and will not,
without the prior written consent of Lender, sell, lease, assign, encumber,
hypothecate, transfer, or otherwise dispose of all or substantially all of
Guarantor's assets, or any Interest therein; (f) upon Lender's request,
Guarantor will provide to Lender financial and credit Information In form
acceptable to Lender, and all such financial Information which currently has
been, and all future financial Information which will be provided to Lender Is
and will be true and correct In all material respects and fairly present the
financial condition of Guarantor as of the dates the financial Information Is
provided; (g) no material adverse change has occurred In Guarantor's financial
condition since the date of the most recent financial statements provided to
Lender and no event has occurred which may materially adversely affect
Guarantor's financial condition; (h) no litigation, claim, Investigation,
administrative proceeding or similar action (including those for unpaid taxes)
against Guarantor is pending or threatened; (I) Lender has made no
representation to Guarantor as to the creditworthiness of Borrower; and 0)
Guarantor has established adequate means of obtaining from Borrower on a
continuing basis information regarding Borrower's financial condition.
Guarantor agrees to keep adequately informed from such means of any facts,
events, or circumstances which might In any way affect Guarantor's risks under
this Guaranty, and Guarantor further agrees that, absent a request for
information, Lender shall have no obligation to disclose to Guarantor any
Information or documents acquired by Lender in the course of its relationship
with Borrower.
GUARANTOR'S WAIVERS. Except as prohibited by applicable law, Guarantor waives
any right to require Lender (a) to continue lending money or to extend other
credit to Borrower; (b) to make any presentment, protest, demand, or notice of
any kind, Including notice of any nonpayment of the Indebtedness or of any
nonpayment related to any collateral, or notice of any action or nonaction on
the part of Borrower, Lender, any surety, endorser, or other guarantor In
connection with the Indebtedness or In connection with the creation of new or
additional loans or obligations; (c) to resort for payment or to proceed
directly or at once against any person, Including Borrower or any other
guarantor; (d) to proceed directly against or exhaust any collateral held by
Lender from Borrower, any other guarantor, or any other person; (a) to give
notice of the terms, time, and place of any public or private sale of personal
property security held by Lender from Borrower or to comply with any other
applicable provisions of the Uniform Commercial Code; (f) to pursue any other
remedy within Lender's power; or (g) to commit any act or omission of any
kind, or at any time, with respect to any matter whatsoever.
Guarantor also waives and agrees not to assert or take advantage of (a) any
right (including the right, If any, under Utah's one-action rule as set forth
In Utah Code Annotated, 1963, Section 7847-1) to require Lander to proceed
against or exhaust any security held by Lender at any time or to pursue any
other remedy In Lender's power before proceeding against Guarantor-, (b) the
release or surrender of any security held for the payments of the:
Indebtedness; or (c) any defense based upon an election of remedies
(including, It available, an election of remedies to proceed by non-judicial
foreclosure) by Lender which destroys or otherwise Impairs the subrogation
rights of Guarantor or the right of Guarantor to proceed against Borrower for
reimbursement, or both.
Guarantor further waives and agrees not to assert or claim at any time any
deductions to the amount guaranteed under this Guaranty for any claim o
setoff, counterclaim, counter demand, recoupment or similar right, whether
such claim, demand or right may be asserted by the Borrower, the Guarantor, or
both.
GUARANTOR'S UNDERSTANDING WITH RESPECT TO WAIVERS. Guarantor warrants and
agrees that each of the waivers set forth above Is made with Guarantor's full
knowledge of Its significance and consequences and that, under the
circumstances, the waivers are reasonable and not contrary to public policy or
law. If any such waiver Is determined to be contrary to any applicable law or
public policy, such waiver shall be effective only to the extent permitted by
law or public policy.
LENDER'S RIGHT OF SETOFF. In addition to all lions upon and rights of setoff
against the moneys, securities or other property of Guarantor given to Lender
by law, Lander shall have, with respect to Guarantor's obligations to Lender
under this Guaranty and to the extent permitted by law, a contractual security
Interest In and a right of setoff against, and Guarantor hereby assigns,
convoys, delivers, pledges, and transfers to Lender all of Guarantor's right,
title and Interest in and to, all deposits, moneys, securities and other
property of Guarantor now or hereafter In the possession of or on deposit with
Lender, whether held In a general or special account or deposit, whether held
jointly with someone else, or whether hold for safekeeping or otherwise,
excluding however all IRA, Keogh, and trust accounts. Every such security
interest and right of setoff may be exercised without demand upon or notice to
Guarantor. No security interest or right of setoff shall be deemed to have
been waived by any act or conduct on the part of Lender or by any neglect to
exercise such right of setoff or to enforce such security Interest or by any
delay In so doing. Every right of setoff and security Interest shall continue
In full force and effect until such right of setoff or security Interest Is
specifically waived or released by an instrument In writing executed by
Lender.
SUBORDINATION OF BORROWER'S DEBTS TO GUARANTOR. Guarantor agrees that the
Indebtedness of Borrower to Lender, whether now existing or hereafter created,
shall be prior to any claim that Guarantor may now have or hereafter acquire
against Borrower, whether or not Borrower becomes Insolvent. Guarantor hereby
expressly subordinates any claim Guarantor may have against Borrower, upon any
account whatsoever, to any claim that Lender may now or hereafter have against
Borrower. In the event of Insolvency and consequent liquidation of the assets
of Borrower, through bankruptcy, by an assignment for the benefit of
creditors, by voluntary liquidation, or otherwise, the assets of Borrower
applicable to the payment of the claims of both Lender and Guarantor shall be
paid to Lender and shall be first applied by Lender to the Indebtedness of
Borrower to Lender. Guarantor does hereby assign to Lender all claims which It
may have or acquire against Borrower or against any assignee or trustee In
bankruptcy of Borrower; provided however, that such assignment shall be
effective only for the purpose of assuring to Lender full payment in legal
tender of the Indebtedness. If Lander so requests, any notes or credit
agreements now or hereafter evidencing any debts or obligations of Borrower
to Guarantor shall be marked with a legend that the same are subject to this
Guaranty and shall be delivered to Lender. Guarantor agrees.. and Lender
hereby Is authorized, in the name of Guarantor, from time to time to execute
and file financing statements and continuation statements and to execute such
other documents and to take such other actions as Lender deems necessary or
appropriate to perfect, preserve and enforce its rights under this Guaranty.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Guaranty:
Amendments. This Guaranty, together with any Related Documents, constitutes
the entire understanding and agreement of the parties as to the matters set
forth In this Guaranty. No alteration of or amendment to this Guaranty shall
be effective unless given In writing and signed by the party or parties sought
to be charged or bound by the alteration or amendment.
Applicable Law. This Guaranty has been delivered to Lender and accepted by
Lender In the State of Utah. If there Is a lawsuit, Guarantor agrees upon
Lender's request to submit to the jurisdiction of the courts of Utah County,
State of Utah. This Guaranty shall be governed by and construed In accordance
with the laws of the State of Utah.
Attorneys' Fees; Expenses. Guarantor agrees to pay upon demand all of
Lender's costs and expenses, Including reasonable attorneys' fees and Lender's
legal expenses, Incurred In connection with the enforcement of this Guaranty.
Lender may pay someone else to help enforce this Guaranty, and Guarantor shall
pay the costs and expenses of such enforcement. Costs and expenses include
Lender's reasonable attorneys' fees and legal expenses whether or not a
salaried employee of Lender and whether or not there is a lawsuit, including
reasonable attorneys' fees and legal expenses for bankruptcy proceedings (and
Including efforts to modify or vacate any automatic stay or injunction),
appeals, and any anticipated post-judgment collection services. Guarantor also
shall pay all court costs and such additional fees as may be directed by the
court.
Notices. All notices required to be given by either party to the other under
this Guaranty shall be In writing, may be sent by telefacsimile (unless
otherwise required by law), and shall be effective when actually delivered or
when deposited with a nationally recognized overnight courier, or when
deposited In the United States mail, first class postage prepaid, addressed to
the party to whom the notice is to be given at the address shown above or to
such other addresses as either party may designate to the other In writing. If
there Is more than one Guarantor, notice to any Guarantor will constitute
notice to all
Guarantors. For notice purposes, Guarantor agrees to keep Lender informed at
all times of Guarantor's current address.
Interpretation. In all cases where there Is more than one Borrower or
Guarantor, then all words used In this Guaranty In the singular shall be
deemed to have been used In the plural where the context and construction so
require; and where there Is more than one Borrower named In this Guaranty or
when this Guaranty Is executed by more than one Guarantor, the words
"Borrower" and "Guarantor" respectively shall mean all and any one or more of
them. The words "Guarantor," "Borrower," and "Lender" include the heirs,
successors, assigns, and transferees of each of them. Caption headings In this
Guaranty are for convenience purposes only and are not to be used to Interpret
or define the provisions of this Guaranty. If a court of competent
jurisdiction finds any provision of this Guaranty to be Invalid or
unenforceable as to any person or circumstance, such finding shall not render
that provision invalid or unenforceable as to any other persons or
circumstances, and all provisions of this Guaranty In all other respects shall
remain valid and enforceable. If any one or more of Borrower or Guarantor are
corporations or partnerships, it is not necessary for Lender to inquire Into
the powers of Borrower or Guarantor or of the officers, directors, partners,
or agents acting or purporting to act on their behalf, and any Indebtedness
made or created In reliance upon the professed exercise of such powers shall
be guaranteed under this Guaranty.
Waiver. Lender shall not be deemed to have waived any rights under this
Guaranty unless such waiver Is given In writing and signed by Lender. No delay
or omission on the part of Lender In exercising any right shall operate as a
waiver of such right or any other right. A waiver by Lander of a provision of
this Guaranty shall not prejudice or constitute a waiver of Lender's right
otherwise to demand strict compliance with that provision or any other
provision of this Guaranty. No prior waiver by Lander, nor any course of
dealing between Lander and Guarantor, shall constitute a waiver of any of
Lender's rights or of any of Guarantor's obligations as to any future
transactions. Whenever the consent of Lander Is required under this Guaranty,
the granting of such consent by Lander In any Instance shall not constitute
continuing consent to subsequent Instances where such consent Is required and
In all cases such consent may be granted or withheld in the sole discretion of
Lender.
EACH UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF
THIS GUARANTY AND AGREES TO ITS TERMS. IN ADDITION, EACH GUARANTOR UNDERSTANDS
THAT THIS GUARANTY IS EFFECTIVE UPON GUARANTOR'S EXECUTION AND
DELIVERY OF THIS GUARANTY TO LENDER AND THAT THE GUARANTY WILL CONTINUE UNTIL
TERMINATED IN THE MANNER SET FORTH
IN THE SECTION TITLED "DURATION OF GUARANTY." NO FORMAL ACCEPTANCE BY LENDER
IS NECESSARY TO MAKE THIS GUARANTY EFFECTIVE. THIS GUARANTY IS DATED JULY 30,
1998.
GUARANTOR
/S/John J. Poleman
John J. Poleman, president
<PAGE>
COMMERCIAL PLEDGE AND SECURITY AGREEMENT
Principal Loan Date Maturity Loan No. Collateral Officer
$100,000.00 7/30/1998 7/30/1999 55-50118-3 0100 COMM
References In the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
Borrower: GALAXY MALL (TIN: 87-0682639) Lender: Far West Bank
890 NORTH INDUSTRIAL DRIVE 2191 North Canyon Rd.
OREM, UT 84057 Provo, UT 84604
THIS COMMERCIAL PLEDGE AND SECURITY AGREEMENT Is entered Into between GALAXY
MALL (referred to below as "Grantor"); and Far West Bank (referred to below as
"Lender").
GRANT OF SECURITY INTEREST. For valuable consideration, Grantor grants to
Lender a security Interest In the Collateral to secure the Indebtedness and
agrees that Lender shall have the rights stated In this Agreement with respect
to the Collateral, In addition to all other rights which Lender may have by
law.
DEFINITIONS. The following words shall have the following meanings when used
In this Agreement:
Agreement. The word "Agreement" means this Commercial Pledge and Security
Agreement, as this Commercial Pledge and Security Agreement may be amended or
modified from time to time, together with all exhibits and schedules attached
to this Commercial Pledge and Security Agreement from time to time.
Collateral. The word "Collateral" means the following specifically described
property, which Grantor has delivered or agrees to deliver (or cause to be
delivered or appropriate book-entries made) immediately to Lender, together
with all Income and Proceeds as described below:
101000.000 shares of GALAXY ENTERPRISES, INC 363174 10 3 #1102
In addition, the word "collateral" Includes all property of Grantor, In the
possession of Lender (or In the possession of a third party subject to the
control of Lender), whether now or hereafter existing and whether tangible or
intangible in character, Including without limitation each of the following:
(a) All property to which Lender acquires title or documents of title.
(b) All property assigned to Lender.
(c) All promissory notes, bills of exchange, stock certificates, bonds,
savings passbooks, time certificates of deposit, Insurance policies, and all
other Instruments and evidences of an obligation.
(d) All records relating to any of the property described In this Collateral
section, whether In the form of a writing, microfilm, microfiche, or
electronic media.
Event of Default. The words "Event of Default mean and include without
limitation any of the Events of Default set forth below in the section titled
"Events of Default."
Grantor. The word "Grantor" means GALAXY MALL, Its successors and assigns.
Guarantor. The word "Guarantor" means and Includes without limitation each and
all of the guarantors, sureties, and accommodation parties In connection with
the Indebtedness.
Income and Proceeds. The words "Income and Proceeds" mean all present and
future Income, proceeds, earnings, Increases, and substitutions from or for
the Collateral of every kind and nature, including without limitation all
payments, interest, profits, distributions, benefits, rights, options,
warrants, dividends, stock dividends, stock splits, stock rights, regulatory
dividends, distributions, subscriptions, monies, claims for money due and to
become due, proceeds of any Insurance on the Collateral, shares of stock of
different par value or no par value Issued In substitution or exchange for
shares Included in the Collateral, and all other property Grantor Is
entitled to receive on account of such Collateral, including accounts,
documents, Instruments, chattel paper, and general Intangibles.
Indebtedness. The word "Indebtedness" means the Indebtedness evidenced by the
Note, Including all principal and Interest, together with all other
Indebtedness and costs and expenses for which Grantor Is responsible under
this Agreement or under any of the Related Documents.
Lender. The word "Lender" means Far West Bank, Its successors and assigns.
Note. The word "Note" means the note or credit agreement dated July 30, 1998,
In the principal amount of $100,000.00 from GALAXY MALL to Lender, together
with all renewals of, extensions of, modifications of, refinancings of,
consolidations of and substitutions for the note or credit agreement.
Obligor. The word "Obligor" means and Includes without limitation any and all
persons or entities obligated to pay money or to perform some other act under
the Collateral.
Related Documents. The words "Related Documents" mean and Include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds of
trust, and all other instruments, agreements and documents, whether now or
hereafter existing, executed In connection with the Indebtedness.
RIGHT OF SETOFF. Grantor hereby grants Lender a contractual security Interest
In and hereby assigns, conveys, delivers, pledges, and transfers all of
Grantor's right, title and Interest In and to Grantor's accounts with Lender
(whether checking, savings, or some other account), including all accounts
held jointly with someone else and all accounts Grantor may open In the
future, excluding, however, all IRA and Keogh accounts, and all trust accounts
for which the grant of a security Interest would be prohibited by law.
Grantor authorizes Lender, to the extent permitted by applicable law, to
charge or setoff all Indebtedness against any and all such accounts.
GRANTOR'S REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE COLLATERAL.
Grantor represents and warrants to Lender that:
Ownership. Grantor Is the lawful owner of the Collateral free and clear of all
security Interests, liens, encumbrances and claims of others except as
disclosed to and accepted by Lender In writing prior to execution of this
Agreement.
Right to Pledge. Grantor has the full right, power and authority to enter Into
this Agreement and to pledge the Collateral.
Binding Effect. This Agreement Is binding upon Grantor, as well as Grantor's
heirs, successors, representatives and assigns, and Is legally enforceable In
accordance with Its terms.
No Further Assignment. Grantor has not, and will not, sell, assign, transfer,
encumber or otherwise dispose of any of Grantor's rights In the Collateral
except as provided In this Agreement.
No Defaults. There are no defaults existing under the Collateral, and there
are no offsets or counterclaims 'to 'he same. Grantor will strictly and
promptly perform each of the terms, conditions, covenants and agreements
contained in the Collateral which are to be performed by Grantor, if any.
No Violation. The execution and delivery of this Agreement will not violate
any law or agreement governing Grantor or to which Grantor is a party, and its
certificate or articles of Incorporation and bylaws do not prohibit any term
or condition of this Agreement.
LENDER'S RIGHTS AND OBLIGATIONS WITH RESPECT TO COLLATERAL. Lender may hold
the Collateral until all the Indebtedness has been paid and satisfied and
thereafter may deliver the Collateral to any Grantor. Lender shall have the
following rights In addition to all other rights it may have by law:
Maintenance and Protection of Collateral. Lender may, but shall not be
obligated to, take such steps as it deems necessary or desirable to protect,
maintain, insure, store, or care for the Collateral, Including payment of any
liens or claims against the Collateral. Lender may charge any cost Incurred in
so doing to Grantor.
Income and Proceeds from the Collateral. Lender may receive all Income and
Proceeds and add It to the Collateral. Grantor agrees to deliver to Lender
Immediately upon receipt, in the exact form received and without commingling
with other property, all Income and Proceeds from the Collateral which may be
received by, paid, or delivered to Grantor or for Grantor's account, whether
as an addition to, In discharge of, in substitution of, or in exchange for any
of the Collateral.
Application of Cash. At Lender's option, Lender may apply any cash, whether
Included in the Collateral or received as Income and Proceeds or through
liquidation, sale, or retirement, of the Collateral, to the satisfaction of
the Indebtedness or such portion thereof as Lender shall choose, whether or
not matured.
Transactions with Others. Lender may (a) extend time for payment or other
performance, (b) grant a renewal or change in terms or conditions, or (c)
compromise, compound or release any obligation, with any one or more Obligors,
endorsers, or Guarantors of the Indebtedness as Lender deems advisable,
without obtaining the prior written consent of Grantor, and no such
act or failure to act shall affect Lender's rights against Grantor or the
Collateral.
All Collateral Secures Indebtedness. All Collateral shall be security for the
Indebtedness, whether the Collateral is located at one or more offices or
branches of Lander and whether or not the office or branch where the
Indebtedness Is created is aware of or relies upon the Collateral.
Collection of Collateral. Lender, at Lenders option may, but need not, collect
directly from the Obligors on any of the Collateral all Income and Proceeds or
other sums of money and other property due and to become due under the
Collateral, and Grantor authorizes and directs the Obligors, If Lender
exercises such option, to pay and deliver to Lander all Income and Proceeds
and other sums of money and other property payable by the terms of the
Collateral and to accept Lender's receipt for the payments.
Power of Attorney. Grantor irrevocably appoints Lender as Grantor's
attorney-In-fact, with full power of substitution, (a) to demand, collect,
receive, receipt for, sue and recover all Income and Proceeds and other sums
of money and other property which may now or hereafter become due, owing or
payable from the Obligors In accordance with the terms of the Collateral; (b)
to execute, sign and endorse any and all instruments, receipts, checks, drafts
and warrants Issued In payment for the Collateral; (c) to settle or compromise
any and all claims arising under the Collateral, and In the place and stead of
Grantor, execute and deliver Grantor's release and acquittance for Grantor;
(d) to file any claim or claims or to take any action or Institute or take
part In any proceedings, either In Lander's own name or In the name of
Grantor, or otherwise, which In the discretion of Lander may seem to be
necessary or advisable; and (a) to execute in Grantor's name and to deliver to
the Obligors on Grantor's behalf, at the time and In the manner specified by
the Collateral, any necessary instruments or documents.
Perfection of Security Interest. Upon request of Lender, Grantor will deliver
to Lender any and all of the documents evidencing or constituting the
Collateral. When applicable law provides more than one method of perfection of
Lender's security Interest, Lender may choose the method(s) to be used. Upon
request of Lander, Grantor will sign and deliver any writings necessary to
perfect Lender's security Interest. If the Collateral consists of securities
for which no certificate has been Issued, Grantor agrees, at Lender's option,
either to request issuance of an appropriate certificate or to execute
appropriate Instructions on Lender's forms Instructing the issuer, transfer
agent, mutual fund company, or broker, as the case may be, to record on Its
books or records, by book-entry or otherwise, Lender's security interest in
the Collateral. Grantor hereby appoints Lender as Grantor's Irrevocable
attorney-in-fact for the purpose of executing any documents necessary to
perfect or to continue the security Interest granted in this Agreement. This
Is a continuing Security Agreement and will continue In effect even though all
or any part of the Indebtedness Is paid In full and even though for a period
of time Grantor may not be Indebted to Lender.
EXPENDITURES BY LENDER. If not discharged or paid when due, Lander may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement, Including without
limitation all taxes, lions, security interests, encumbrances, and other
claims, at any time levied or placed on the Collateral. Lander also may (but
shall not be obligated to) pay all costs for insuring, maintaining and
preserving the Collateral. All such expenditures Incurred or paid by Lender
for such purposes will then bear Interest at the rate charged under the Note
from the date Incurred or paid by Lender to the date of repayment by Grantor.
All such expenses shall become a part of the Indebtedness and, at Lenders
option, will (a) be payable on demand, (b) be added to the balance of the Note
and be apportioned among and be payable with any Installment payments to
become due during either (i) the term of any applicable Insurance policy or
(ii) the remaining term of the Note, or (c) be treated as a balloon payment
which will be due and payable at the Note's maturity. This Agreement also will
secure payment of these amounts. Such right shall be In addition to all other
rights and remedies to which Lender may be entitled upon the occurrence of an
Event of Default.
LIMITATIONS ON OBLIGATIONS OF LENDER. Lender shall use ordinary reasonable
care In the physical preservation and custody of the Collateral In Lenders
possession, but shall have no other obligation to protect the Collateral or
Its value. In particular, but without limitation, Lender shall have no
responsibility for (a) any depreciation In value of the Collateral or for the
collection or protection of any Income and Proceeds from the Collateral, (b)
preservation of rights against parties to the Collateral or against third
persons, (q) ascertaining any maturities, calls, conversions, exchanges,
offers, tenders, or similar matters relating to any of the Collateral, or (d)
Informing Grantor about any of the above, whether or not Lender has or Is
deemed to have knowledge of such matters. Except as provided above, Lender
shall have no liability for depreciation or deterioration of the Collateral.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
Default on Indebtedness. Failure of Grantor to make any payment when due on
the Indebtedness.
Other Defaults. Failure of Grantor to comply with or to perform any other
term, obligation, covenant or condition contained in this Agreement or in any
of the Related Documents or in any other agreement between Lender and Grantor.
False Statements. Any warranty, representation or statement made or furnished
to Lender by or on behalf of Grantor under this Agreement, the Note or the
Related Documents Is false or misleading In any material respect, either now
or at the time made or furnished.
Defective Collateralization. This Agreement or any of the Related Documents
ceases to be in full force and effect (including failure of any collateral
documents to create a valid and perfected security Interest or lien) at any
time and for any reason.
Insolvency. The dissolution or termination of Grantor's existence as a going
business, the Insolvency of Grantor, the appointment of a receiver for any
part of Grantor's property, any assignment for the benefit of creditors, any
type of creditor workout, or the commencement of any proceeding under any
bankruptcy or Insolvency laws by or against Grantor.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture
proceedings, whether by judicial proceeding, self-help, repossession or any
other method, by any creditor of Grantor or by any governmental agency against
the Collateral or any other collateral securing the Indebtedness. This
Includes a garnishment of any of Grantor's deposit accounts with Lender.
However, this Event of Default shall not apply If there Is a good faith
dispute by Grantor as to the validity or reasonableness of the claim which is
the basis of the creditor or forfeiture proceeding and If Grantor gives Lender
written notice of the creditor or forfeiture proceeding and deposits with
Lender monies or a surety bond for the creditor or forfeiture proceeding, In
an amount determined by Lender, In Its sole discretion, as being an adequate
reserve or bond for the dispute.
Events Affecting Guarantor. Any of the preceding events occurs with respect to
any Guarantor of any of the Indebtedness or such Guarantor dies or becomes
Incompetent. Lender, at Its option, may, but shall not be required to, permit
the Guarantor's estate to assume unconditionally the obligations arising under
the guaranty In a manner satisfactory to Lander, and, In doing so, cure the
Event of Default.
Adverse Change. A material adverse change occurs In Grantor's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness Is Impaired.
Right to Cure. If any default, other than a Default on Indebtedness, Is
curable and If Grantor has not been given a prior notice of a breach of the
same provision of this Agreement, It may be cured (and no Event of Default
will have occurred) if Grantor, after Lender sends written notice demanding
cure of such default, (a) cures the default within fifteen (16) days; or (b),
if the cure requires more than fifteen (15) days, immediately Initiates steps
which Lender deems in Lender's sole discretion to be sufficient to cure the
default and thereafter continues and completes all reasonable and necessary
steps sufficient to produce compliance as soon as reasonably practical.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender may exercise any one or more of the
following rights and remedies:
Accelerate Indebtedness. Declare all Indebtedness, Including any prepayment
penalty which Grantor would be required to pay, immediately due and payable,
without notice of any kind to Grantor.
Collect the Collateral. Collect any of the Collateral and, at Lender's option
and to the extent permitted by applicable law, retain possession of the
Collateral while suing on the Indebtedness.
Sell the Collateral. Sell the Collateral, at Lender's discretion, as a unit or
In parcels, at one or more public or private sales. Unless the Collateral Is
perishable or threatens to decline speedily In value or Is of a type
customarily sold on a recognized market, Lender shall give or mail to Grantor,
or any of them, notice at least ten (10) days In advance of the time and place
of any public sale, or of the date after which any private sale may be made.
Grantor agrees that any requirement of reasonable notice Is satisfied If
Lender mails notice by ordinary mail addressed to Grantor, or any of
them, at the last address Grantor has given Lender In writing. If a public
sale Is held, there shall be sufficient compliance with all requirements of
notice to the public by a single publication In any newspaper of general
circulation in the county where the Collateral is located, setting forth the
time and place of sale and a brief description of the property to be sold.
Lender may be a purchaser at any public sale.
Register Securities. Register any securities Included In the Collateral In
Lender's name and exercise any rights normally Incident to the ownership of
securities.
Sell Securities. Sell any securities Included In the Collateral In a manner
consistent with applicable federal and state securities laws, notwithstanding
any other provision of this or any other agreement. If, because of
restrictions under such laws, Lender is or believes it is unable to sell the
securities in an open market transaction, Grantor agrees that Lender shall
have no obligation to delay sale until the securities can be registered, and
may make a private sale to one or more persons or to a restricted group
of persons, even though such sale may result in a price that Is less favorable
than might be obtained In an open market transaction, and such a sale shall be
considered commercially reasonable. If any securities held as Collateral are
"restricted securities" as defined In the Rules of the Securities and Exchange
Commission (such as Regulation D or Rule 144) or state securities departments
under state "Blue Sky" laws, or if Grantor is an affiliate of the Issuer of
the securities, Grantor agrees that neither Grantor nor any member of
Grantor's family will sell or dispose of any securities of such Issuer without
obtaining Lender's prior written consent.
Foreclosure. Maintain a judicial suit for foreclosure and sale of the
Collateral.
Transfer Title. Effect transfer of Offs upon sale of all or part of the
Collateral.
For this purpose, Grantor Irrevocably appoints Lender as Its attorney--in-fact
to execute endorsements, assignments and Instruments In the name of Grantor
and each of them (if more than one) as shall be necessary or reasonable.
Other Rights and Remedies. Have and exercise any or all of the rights and
remedies of a secured creditor under the provisions of the Uniform Commercial
Code, at law, In equity, or otherwise.
Application of Proceeds. Apply any cash which Is part of the Collateral, or
which Is received from the collection or sale of the Collateral, to
reimbursement of any expenses, Including any costs for registration of
securities, commissions incurred In connection with a sale, attorney fees as
provided below, as provided below, and court costs, whether or not there Is a
lawsuit and including any fees on appeal, incurred by Lender In connection
with the collection and sale of such Collateral and to the payment of the
Indebtedness of Grantor to Lender, with any excess funds to be paid to
Grantor as the Interests of Grantor may appear. Grantor agrees, to the extent
permitted by law, to pay any deficiency after application of the proceeds of
the Collateral to the Indebtedness.
Cumulative Remedies. All of Lender's rights and remedies, whether evidenced by
this Agreement or by any other writing, shall be cumulative and may be
exercised singularly or concurrently. Election by Lender to pursue any remedy
shall not exclude pursuit of any other remedy, and an election to make
expenditures or to take action to perform an obligation of Grantor under this
Agreement, after Grantor's failure to perform, shall not affect Lender's right
to declare a default and to exercise Its remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
Amendments. This Agreement, together with any Related Documents, constitutes
the entire understanding and agreement of the parties as to the matters set
forth in this Agreement. No alteration of or amendment to this Agreement shall
be effective unless given in writing and signed by the party or parties sought
to be charged or bound by the alteration or amendment.
Applicable Law. This Agreement has been delivered to Lender and accepted by
Lender In the State of Utah. If there Is a lawsuit, Grantor agrees upon
Lender's request to submit to the jurisdiction of the courts of Utah County,
the State of Utah. This Agreement shall be governed by and construed In
accordance with the laws of the State of Utah. Attorneys' Fees; Expenses.
Grantor agrees to pay upon demand all of Lender's costs and expenses,
Including reasonable attorneys' fees and Lenders legal expenses, Incurred In
connection with the enforcement of this Agreement. Lender may pay someone else
to help enforce this Agreement, and Grantor shall pay the costs and expenses
of such enforcement. Costs and expenses include Lender's reasonable
attorneys' fees and legal expenses whether or not a salaried employee of
Lender
and whether or not there Is a lawsuit, Including reasonable attorneys' fees
and legal expenses for bankruptcy proceedings (and Including efforts to modify
or vacate any automatic stay or Injunction), appeals, and any anticipated
post-judgment collection services. Grantor also shall pay all court costs and
such additional fees as may be directed by the court.
Caption Headings. Caption headings In this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions of
this Agreement.
Notices. All notices required to be given under this Agreement shall be given
in writing, may be sent by Telefacsimile (unless otherwise required by law),
and shall be effective when actually delivered or when deposited with a
nationally recognized overnight courier or deposited In the United States
mail, first class, postage prepaid, addressed to the party to whom the notice
Is to be given at the address shown above. Any party may change Its address
for notices under this Agreement by giving formal written notice to the other
parties, specifying that the purpose of the notice Is to change the party's
address. To the extent permitted by applicable law, If there is more than one
Grantor, notice to any Grantor will constitute notice to all Grantors. For
notice purposes, Grantor will keep Lender informed at all times of Grantees
current address(es).
Severability. If a court of competent jurisdiction finds any provision of this
Agreement to be invalid or unenforceable as to any person or circumstance,
such finding shall not render that provision Invalid or unenforceable as to
any other persons or circumstances. If feasible, any such offending provision
shall be deemed to be modified to be within the limits of enforceability or
validity; however, If the offending provision cannot be so modified, It shall
be stricken and all other provisions of this Agreement In all other respects
shall remain valid and enforceable.
Successor Interests. Subject to the limitations set forth above on transfer of
the Collateral, this Agreement shall be binding upon and Inure to the benefit
of the parties, their successors and assigns.
Waiver. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver Is given In writing and signed by Lender. No
delay or omission on the part of Lender In exercising any right shall operate
as a waiver of such right or any other right. A waiver by Lender of a
provision of this Agreement shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or
any other provision of this Agreement. No prior waiver by Lender, nor any
course of dealing between Lender and Grantor, shall constitute a waiver of any
of Lender's rights or of any of Grantor's obligations as to any future
transactions. Whenever the consent of Lender Is required under this Agreement,
the granting of such consent by Lender in any instance shall not constitute
continuing consent to subsequent Instances where such consent Is required and
In all cases such consent may be granted or withheld in the sole discretion of
Lender.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS PLEDGE AND
SECURITY AGREEMENT, AND GRANTOR AGREES TO ITS TERMS. THIS AGREEMENT IS DATED
JULY 30, 1998.
GRANTOR:
GALAXY MALL
BY:/s/John J. Poleman
JOHN J. POLEMAN, PRESIDENT
<PAGE>
COMMERCIAL SECURITY AGREEMENT
Principal Loan Date Maturity Loan No. Collateral Officer
$100,000.00 7/30/1998 7/30/1999 55-50118-3 0100 COMM
References In the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or Item.
Borrower: GALAXY MALL (TIN: 87-CS82S39) Lender: Far West Bank
890 NORTH INDUSTRIAL DRIVE 2191 North Canyon Rd.
OREM, UT 84057 Provo, UT 84604
THIS COMMERCIAL SECURITY AGREEMENT Is entered Into between GALAXY MALL
(referred to below as "Grantor"); and Far West Ban (referred to below as
"Lender"). For valuable consideration, Grantor grants to Lender a security
Interest In the Collateral to secure the Indebtedness and agrees that Lender
shall have the rights stated In this Agreement with respect to the Collateral,
In addition to all of the rights which Lender may have by law.
DEFINITIONS. The following words shall have the following meanings when used
in this Agreement. Terms not otherwise defined In this Agreement shall have
the
meanings attributed to such terms In the Uniform Commercial Code. All
references to dollar amounts shall mean amounts in lawful money of the United
States of America.
Agreement. The word "Agreement" means this Commercial Security Agreement, as
this Commercial Security Agreement may be amended o modified from time to
time, together with all exhibits and schedules attached to this Commercial
Security Agreement from time to time.
Collateral. The word "Collateral means the following described property of
Grantor, whether now owned or hereafter acquired, whether nom existing or
hereafter arising, and wherever located:
All equipment, together with the following specifically described property:
SEE ATTACHED LIST
In addition, the word "Collateral" Includes all the following, whether now
owned or hereafter acquired, whether now existing or hereafter arising and
wherever located:
(a) All attachments, accessions, accessories, tools, parts, supplies,
Increases, and additions to and all replacements of and substitutions for any
property described above.
(b) All products and produce of any of the property described In this
Collateral section.
(c) All accounts, general Intangibles, Instruments, rents, monies, payments,
and all other rights, arising out of a sale, lease, or other disposition of
any of the property described In this Collateral section.
(d) All proceeds (Including Insurance proceeds) from the sale, destruction,
loss, or other disposition of any of the property described In this Collateral
section.
(e) All records and data relating to any of the property described In this
Collateral section, whether In the form of a writing, photograph, microfilm,
microfiche, or electronic media, together with all of Grantor's right, title,
and interest in and to all computer software required to utilize, create,
maintain, and process any such records or data on electronic media.
Event of Default. The words "Event of Default mean and Include without
limitation any of the Events of Default set forth below in the section titled
"Events of Default."
Grantor. The word "Grantor" means GALAXY MALL, Its successors and assigns.
Guarantor. The word "Guarantor" means and Includes without limitation each and
all of the guarantors, sureties, and accommodation parties In connection with
the Indebtedness.
Indebtedness. The word "Indebtedness" means the Indebtedness evidenced by the
Note, Including all principal and Interest, together with all other
Indebtedness and costs and expenses for which Grantor Is responsible under
this Agreement or under any of the Related Documents.
Lender. The word "Lender" means Far West Bank, Its successors and assigns.
Note. The word "Note" means the note or credit agreement dated July 30, 1998,
In the principal amount of $100,000.00 from GALAXY MALL to Lender, together
with all renewals of, extensions of, modifications of, refinancings of,
consolidations of and substitutions for the note or credit agreement.
Related Documents. The words "Related Documents" mean and Include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds of
trust, and all other instruments, agreements and documents, whether now or
hereafter existing, executed In connection with the Indebtedness.
RIGHT OF SETOFF. Grantor hereby grants Lender a contractual security Interest
in and hereby assigns, conveys, delivers, pledges, and transfers all of
Grantor's right, title and Interest in and to Grantor's accounts with Lender
(whether checking, savings, or some other account), including all accounts
hold jointly with someone else and all accounts Grantor may open In the
future, excluding, however, all IRA and Keogh accounts, and all trust accounts
for which the grant of a security Interest would be prohibited by law. Grantor
authorizes Lender, to the extent permitted by applicable law, to charge or
setoff all Indebtedness against any and all such accounts.
OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender as follows:
Organization. Grantor Is a corporation which Is duly organized, validly
existing, and In good standing under the laws of the State of Utah.
Authorization. The execution, delivery, and performance of this Agreement by
Grantor have been duly authorized by all necessary action by Grantor and do
not conflict with, result In a violation of, or constitute a default under (a)
any provision of its articles of Incorporation or organization, or bylaws, or
any agreement or other Instrument binding upon Grantor or (b) any law,
governmental regulation, court decree, or order applicable to Grantor.
Perfection of Security Interest. Grantor agrees to execute such financing
statements and to take whatever other actions are requested by Lender to
perfect and continue Lender's security Interest in the Collateral. Upon
request of Lender, Grantor will deliver to Lender any and all of the documents
evidencing or constituting the Collateral, and Grantor will note Lender's
interest upon any and all chattel paper if not delivered to Lender for
possession by Lender. Grantor hereby appoints Lender as its irrevocable
attorney-in-fact for the purpose of executing any documents necessary
to perfect or to continue the security Interest granted in this Agreement.
Lender may at any time, and without further authorization from Grantor, file a
carbon, photographic or other reproduction of any financing statement or of
this Agreement for use as a financing statement. Grantor will reimburse Lender
for all expenses for the perfection and the continuation of the perfection of
Lender's security interest in the Collateral. Grantor promptly will notify
Lender before any change in Grantor's name including any change to the assumed
business names of Grantor. This Is a continuing Security Agreement and will
continue In effect even though all or any part of the Indebtedness Is paid In
full and even though for a period of time Grantor may not be Indebted to
Lender.
No Violation. The execution and delivery of this Agreement will not violate
any law or agreement governing Grantor or to which Grantor Is a party, and Its
certificate or articles of Incorporation and bylaws do not prohibit any term
or condition of this Agreement.
Enforceability of Collateral. To the extent the Collateral consists of
accounts, chattel paper, or general intangibles, the Collateral is enforceable
in accordance with its terms, Is genuine, and complies with applicable laws
concerning form, content and manner of preparation and execution, and all
persons appearing to be obligated on the Collateral have authority and
capacity to contract and are In fact obligated as they appear to be on the
Collateral.
Removal of Collateral. Grantor shall keep the Collateral (or to the extent the
Collateral consists of Intangible property such as accounts, the records
concerning the Collateral) at Grantor's address shown above, or at such other
locations as are acceptable to Lender. Except in the ordinary course of its
business, Including the sales of Inventory, Grantor shall not remove the
Collateral from its existing locations without the prior written consent of
Lender. To the extent that the Collateral consists of vehicles, or other
titled property, Grantor shall not take or permit any action which would
require application for certificates of title for the vehicles outside the
State of Utah, without the prior written consent of Lender.
Transactions Involving Collateral. Except for Inventory sold or accounts
collected In the ordinary course of Grantor's business, Grantor shall not
sell, offer to sell, or otherwise transfer or dispose of the Collateral.
Grantor shall not pledge, mortgage, encumber or otherwise permit the
Collateral to be subject to any lien, security Interest, encumbrance, or
charge, other than the security Interest provided for In this Agreement,
without the prior written consent of Lender. This Includes security
Interests even if junior in right to the security interests granted under this
Agreement. Unless waived by Lender, all proceeds from any disposition of the
Collateral (for whatever reason) shall be held In trust for Lender and shall
not be commingled with any other funds; provided however, this requirement
shall not constitute consent by Lender to any sale or other disposition. Upon
receipt, Grantor shall immediately deliver any such proceeds to Lender.
Title. Grantor represents and warrants to Lender that It holds good and
marketable title to the Collateral, free and clear of all liens and
encumbrances except for the lien of this Agreement. No financing statement
covering any of the Collateral is on file In any public office other
than those which reflect the security Interest created by this Agreement or to
which Lender has specifically consented. Grantor shall defend Lender's rights
In the Collateral against the claims and demands of all other persons.
Collateral Schedules and Locations. Insofar as the Collateral consists of
equipment, Grantor shall deliver to Lender, as often as Lender shall require,
such lists, descriptions, and designations of such Collateral as Lender may
require to Identity the nature, extent, and location of such Collateral. Such
Information shall be submitted for Grantor and each of its subsidiaries or
related companies.
Maintenance and Inspection of Collateral. Grantor shall maintain all tangible
Collateral in good condition and repair. Grantor will not commit or permit
damage to or destruction of the Collateral or any part of the Collateral.
Lender and Its designated representatives and agents shall have the right at
all reasonable times to examine, Inspect, and audit the Collateral wherever
located. Grantor shall Immediately notify Lender of all cases Involving the
return, rejection, repossession, loss or damage of or to any Collateral; of
any request for credit or adjustment or of any other dispute arising with
respect to the Collateral; and generally of all happenings and events
affecting the Collateral or the value or the amount of the Collateral.
Taxes, Assessments and Lions. Grantor will pay when due all taxes, assessments
and liens upon the Collateral, its use or operation, upon this Agreement, upon
any promissory note or notes evidencing the Indebtedness, or upon any of the
other Related Documents. Grantor may withhold any such payment or may elect to
contest any lien if Grantor is In good faith conducting an appropriate
proceeding to contest the obligation to pay and so long as Lender's Interest
In the Collateral Is not jeopardized in Lender's sole opinion. If the
Collateral is subjected to a lien which Is not discharged within fifteen (15)
days, Grantor shall deposit with Lender cash, a sufficient corporate surety
bond or other security satisfactory to Lender In an amount adequate to provide
for the discharge of the lien plus any interest, costs, reasonable attorneys'
less or other charges that could accrue as a result of foreclosure or sale of
the Collateral. In any contest Grantor shall defend Itself and Lender and
shall satisfy any final adverse judgment before enforcement against the
Collateral. Grantor shall name Lender as an additional obliges under any
surety bond furnished In the contest proceedings.
Compliance With Governmental Requirements. Grantor shall comply promptly with
all laws, ordinances, rules and regulations of an governmental authorities,
now or hereafter In effect, applicable to the ownership, production,
disposition, or use of the Collateral. Grantor may contest In good faith any
such law, ordinance or regulation and withhold compliance during any
proceeding, including appropriate appeals, so long as Lender's Interest In the
Collateral, In Lenders opinion, Is not jeopardized.
Hazardous Substances. Grantor represents and warrants that the Collateral
never has been, and never will be so long as this Agreement remains a lien on
the Collateral, used for the generation, manufacture, storage, transportation,
treatment, disposal, release or threatened release of any hazardous waste or
substance, as those terms are defined in the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C.
Section 9601, at seq. ("CERCLA"), the Superfund Amendments and Reauthorization
Act of 1986, Pub. L. No. 99-499 ("SARA"), the Hazardous Materials
Transportation Act, 49 U.S.C. Section 1801, at seq., the Resource Conservation
and Recovery Act, 42 U.S.C. Section 6901, at seq., or other applicable state
or Federal laws, rules, or regulations adopted pursuant to any of the
foregoing. The terms "hazardous waste" and "hazardous substance" shall also
Include, without limitation, petroleum and petroleum by-products or any
fraction thereof and asbestos. The representations and warranties contained
herein are based on Grantor's due diligence In Investigating the Collateral
for hazardous wastes and substances. Grantor hereby (a) releases and waives
any future claims against Lender for Indemnity or contribution in the event
Grantor becomes liable for cleanup or other costs under any such laws, and
(b) agrees to indemnity and hold harmless Lender against any and all claims
and losses resulting from a breach of this provision of this Agreement. This
obligation to indemnity shall survive the payment of the Indebtedness and the
satisfaction of this Agreement.
Maintenance of Casualty Insurance. Grantor shall procure and maintain all
risks Insurance, Including without limitation fire, theft and liability
coverage together with such other Insurance as Lender may require with respect
to the Collateral, In form, amounts, coverages and basis reasonably acceptable
to Lender and Issued by a company or companies reasonably acceptable to
Lender. Grantor, upon request of Lender, will deliver to Lender from time to
time the policies or certificates of Insurance In form satisfactory to Lender,
Including stipulations that coverages will not be canceled or diminished
without at least ten (10) days' prior written notice to Lender and not
including any disclaimer of the Insurer's liability for failure to give such a
notice. Each Insurance policy also shall include an endorsement providing that
coverage In favor of Lender will not be Impaired In any way by any act,
omission or default of Grantor or any other person. In connection with all
policies covering assets In which Lender holds or Is offered a security
Interest, Grantor will provide Lender with such loss payable or other
endorsements as Lender may require. If Grantor at any time falls to obtain or
maintain any Insurance as required under this Agreement, Lender may (but
shall not be obligated to) obtain such Insurance as Lender deems appropriate,
Including if It so chooses "single interest Insurance," which will cover only
Lenders Interest In the Collateral.
Application of Insurance Proceeds. Grantor shall promptly notify Lender of any
loss or damage to the Collateral. Lender may make proof of loss if Grantor
fails to do so within fifteen (15) days of the casualty. All proceeds of any
Insurance on the Collateral, including accrued proceeds thereon, shall be held
by Lender as part of the Collateral. If Lender consents to repair or
replacement of the damaged or destroyed Collateral, Lender shall, upon
satisfactory proof of expenditure, pay or reimburse Grantor from the proceeds
for the reasonable cost of repair or restoration. If Lender does not consent
to repair or replacement of the Collateral, Lender shall retain a sufficient
amount of the proceeds to pay all of the Indebtedness, and shall pay the
balance to Grantor. Any proceeds which have not been disbursed within six (6)
months after their receipt and which Grantor has not committed to the repair
or restoration of the Collateral shall be used to prepay the Indebtedness.
Insurance Reserves. Lender may require Grantor to maintain with Lender
reserves for payment of Insurance premiums, which reserves shall be created by
monthly payments from Grantor of a sum estimated by Lender to be sufficient to
produce, at least fifteen (15) days before the premium due date, amounts at
least equal to the Insurance premiums to be paid. If fifteen (15) days before
payment is due, the reserve funds are Insufficient, Grantor shall upon demand
pay any deficiency to Lender. The reserve funds shall be held by Lender as a
general deposit and shall constitute a non-interest-bearing account which
Lender may satisfy by payment of the Insurance premiums required to be
paid by Grantor as they become due. Lender does not hold the reserve funds In
trust for Grantor, and Lender is not the agent of Grantor for payment of the
Insurance premiums required to be paid by Grantor. The responsibility for the
payment of premiums shall remain Grantors sole responsibility.
Insurance Reports. Grantor, upon request of Lender, shall furnish to Lender
reports on each existing policy of insurance showing such Information as
Lender may reasonably request Including the following: (a) the name of the
insurer; (b) the risks Insured; (c) the amount of the policy; (d) the property
Insured; (a) the then current value on the basis of which insurance has been
obtained and the manner of determining that value; and (f) the expiration date
of the policy. In addition, Grantor shall upon request by Lender (however not
more often than annually) have an Independent appraiser satisfactory to Lender
determine, as applicable, the cash value or replacement cost of the
Collateral.
GRANTOR'S RIGHT TO POSSESSION. Until default, Grantor may have possession of
the tangible personal property and beneficial use of all the Collateral and
may use It in any lawful manner not Inconsistent with this Agreement or the
Related Documents, provided that Grantor's right to possession and beneficial
use shall not apply to any Collateral where possession of the Collateral by
Lender Is required by law to perfect Lender's security Interest In such
Collateral. If Lender at any time has possession of any Collateral, whether
before or after an Event of Default, Lender shall be deemed to have exercised
reasonable care in the custody and preservation of the Collateral if Lender
takes such action for that purpose as Grantor shall request or as Lender, in
Lender's sole discretion, shall deem appropriate under the circumstances, but
failure to honor any request by Grantor shall not of itself be deemed to be a
failure to exercise reasonable care. Lender shall not be required to take any
steps necessary to preserve any rights in the Collateral against prior
parties, nor to protect, preserve or maintain any security interest given to
secure the Indebtedness.
EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement, Including without
limitation all taxes, liens, security Interests, encumbrances, and other
claims, at any time levied or placed on the Collateral. Lender also may (but
shall not be obligated to) pay all costs for Insuring, maintaining and
preserving the Collateral. All such expenditures Incurred or paid by Lender
for such purposes will then bear Interest at the rate charged under the Note
from the date Incurred or paid by Lender to the date of repayment by Grantor.
All such expenses shall become a part of the Indebtedness and, at Lender's
option, will (a) be payable on demand, (b) be added to the balance of the Note
and be apportioned among and be payable with any Installment payments to
become due during either (1) the term of any applicable insurance policy or
(it) the remaining term of the Note, or (c) be treated as a balloon payment
which will be due and payable at the Note's maturity. This Agreement also will
secure payment of these amounts. Such right shall be In addition to all other
rights and remedies to which Lender may be entitled upon the occurrence of an
Event of Default.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
Default on Indebtedness. Failure of Grantor to make any payment when due on
the Indebtedness.
Other Defaults. Failure of Grantor to comply with or to perform any other
term, obligation, covenant or condition contained In this Agreement or in any
of the Related Documents or in any other agreement between Lender and Grantor.
False Statements. Any warranty, representation or statement made or furnished
to Lender by or on behalf of Grantor under this Agreement, the Note or the
Related Documents Is false or misleading In any material respect, either now
or at the time made or furnished.
Defective Collateralization. This Agreement or any of the Related Documents
ceases to be in full force and effect (including failure of any collateral
documents to create a valid and perfected security interest or lien) at any
time and for any reason.
Insolvency. The dissolution or termination of Grantor's existence as a going
business, the Insolvency of Grantor, the appointment of a receiver for any
part of Grantor's property, any assignment for the benefit of creditors, any
type of creditor workout, or the commencement of any proceeding under any
bankruptcy or Insolvency laws by or against Grantor.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture
proceedings, whether by judicial proceeding, self-help, repossession or any
other method, by any creditor of Grantor or by any governmental agency against
the Collateral or any other collateral securing the Indebtedness. This
Includes a garnishment of any of Grantor's deposit accounts with Lender.
However, this Event of Default shall not apply If there Is a good faith
dispute by Grantor as to the validity or reasonableness of the claim which Is
the basis of the creditor or forfeiture proceeding and if Grantor gives Lender
written notice of the creditor or forfeiture proceeding and deposits with
Lender monies or a surety bond for the creditor or forfeiture proceeding, In
an amount determined by Lender, In Its sole discretion, as being an adequate
reserve or bond for the dispute.
Events Affecting Guarantor. Any of the preceding events occurs with respect to
any Guarantor of any of the Indebtedness or such Guarantor dies or becomes
Incompetent. Lender, at Its option, may, but shall not be required to, permit
the Guarantor's estate to assume unconditionally the obligations arising under
the guaranty In a manner satisfactory to Lender, and, In doing so, cure the
Event of Default.
Adverse Change. A material adverse change occurs In Grantor's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness Is Impaired.
Right to Cure. If any default, other than a Default on Indebtedness, is
curable and If Grantor has not been given a prior notice of a breach of the
same provision of this Agreement, It may be cured (and no Event of Default
will have occurred) if Grantor, after Lender sands written notice demanding
cure of such default, (a) cures the default within fifteen (16) days; or (b),
If the cure requires more than fifteen (16) days, Immediately Initiates steps
which Lender deems In Lender's sole discretion to be sufficient to cure the
default and thereafter continues and completes all reasonable and necessary
steps sufficient to produce compliance as soon as reasonably practical.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender shall have all the rights of a
secured party under the Utah Uniform Commercial Code. In addition and without
limitation, Lender may exercise any one or more of the following rights and
remedies:
Accelerate Indebtedness. Lender may declare the entire Indebtedness, Including
any prepayment penalty which Grantor would be required to pay, immediately due
and payable, without notice.
Assemble Collateral. Lender may require Grantor to deliver to Lender all or
any portion of the Collateral and any and all certificates of title and other
documents relating to the Collateral. Lender may require Grantor to assemble
the Collateral and make It available to Lender at a place to be designated by
Lender. Lender also shall have full power to enter upon the property of
Grantor to take possession of and remove the Collateral. If the Collateral
contains other goods not covered by this Agreement at the time of
repossession, Grantor agrees Lender may take such other goods, provided that
Lender makes reasonable efforts to return them to Grantor after repossession.
Sell the Collateral. Lender shall have full power to sell, lease, transfer, or
otherwise deal with the Collateral or proceeds thereof In Its own name or that
of Grantor. Lender may sell the Collateral at public auction or private sale.
Unless the Collateral threatens to decline speedily In value or Is of a type
customarily sold on a recognized market, Lender will give Grantor reasonable
notice of the time after which any private sale or any other Intended
disposition of the Collateral Is to be made. The requirements of reasonable
notice shall be met If such notice Is given at least ten (10) days before the
time of the sale or disposition. All expenses relating to the disposition of
the Collateral, Including without limitation the expenses of retaking,
holding, Insuring, preparing for sale and selling the Collateral, shall become
a part of the Indebtedness secured by this Agreement and shall be payable on
demand, with interest at the Note rate from date of expenditure until repaid.
Appoint Receiver. To the extent permitted by applicable law, Lender shall have
the following rights and remedies regarding the appointment of a receiver: (a)
Lender may have a receiver appointed as a matter of right, (b) the receiver
may be an employee of Lender and may serve without bond, and (c) all fees of
the receiver and his or her attorney shall become part of the Indebtedness
secured by this Agreement and shall be payable on demand, with Interest at the
Note rate from date of expenditure until repaid.
Collect Revenues, Apply Accounts. Lender, either Itself or through a receiver,
may collect the payments, rents, income, and revenues from the Collateral.
Lender may at any time In Its discretion transfer any Collateral Into Its own
name or that of Its nominee and receive the payments, rents, Income, and
revenues therefrom and hold the same as security for the Indebtedness or apply
It to payment of the Indebtedness In such order of preference as Lender may
determine. Insofar as the Collateral consists of accounts, general
intangibles, Insurance policies, instruments, chattel paper, choses In action,
or similar property, Lender may demand, collect, receipt for, settle,
compromise, adjust, sue for, foreclose, or realize on the Collateral as Lender
may determine, whether or not Indebtedness or Collateral Is then due. For
these purposes, Lender may, on behalf of and In the name of Grantor, receive,
open and dispose of mail addressed to Grantor; change any address to which
mall and payments are to be sent; and endorse notes, checks, drafts, money
orders, documents of title, Instruments and Items pertaining to payment,
shipment, or storage of any Collateral. To facilitate collection, Lender may
notify account debtors and obligors on any Collateral to make payments
directly to Lender.
Obtain Deficiency. If Lender chooses to sell any or all of the Collateral,
Lender may obtain a judgment against Grantor for any deficiency remaining on
the Indebtedness due to Lender after application of all amounts received from
the exercise of the rights provided In this Agreement. Grantor shall be liable
for a deficiency even If the transaction described In this subsection Is a
sale of accounts or chattel paper.
Other Rights and Remedies. Lender shall have all the rights and remedies of a
secured creditor under the provisions of the Uniform Commercial Code, as may
be amended from time to time. In addition, Lender shall have and may exercise
any or all other rights and remedies It may have available at law, In equity,
or otherwise.
Cumulative Remedies. All of Lender's rights and remedies, whether evidenced by
this Agreement or the Related Documents or by any other writing, shall be
cumulative and may be exercised singularly or concurrently. Election by Lender
to pursue any remedy shall not exclude pursuit of any other remedy, and an
election to make expenditures or to take action to perform an obligation of
Grantor under this Agreement, after Grantor's failure to perform, shall not
affect Lender's right to declare a default and to exercise its remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
Amendments. This Agreement, together with any Related Documents, constitutes
the entire understanding and agreement of the parties as to the matters set
forth In this Agreement. No alteration of or amendment to this Agreement shall
be effective unless given in writing and signed by the party or parties sought
to be charged or bound by the alteration or amendment.
Applicable Law. This Agreement has been delivered to Lender and accepted by
Lender In the State of Utah. If there Is a lawsuit, Grantor agrees upon
Lender's request to submit to the jurisdiction of the courts of the State of
Utah. This Agreement shall be governed by and construed In accordance with the
laws of the State of Utah.
Attorneys' Fees; expenses. Grantor agrees to pay upon demand all of Lender's
costs and expenses, Including reasonable attorneys' fees and Lender's legal
expenses, Incurred in connection with the enforcement of this Agreement.
Lender may pay someone else to help enforce this Agreement, and Grantor shall
pay the costs and expenses of such enforcement. Costs and expenses include
Lender's reasonable attorneys' fees and legal expenses whether or not a
salaried employee of Lender and whether or not there is a lawsuit, Including
reasonable attorneys' fees and legal expenses for bankruptcy proceedings (and
Including efforts to modify or vacate any automatic stay or Injunction),
appeals, and any anticipated post-judgment collection services. Grantor
also shall pay all court costs and such additional fees as may be directed by
the court.
Caption Headings. Caption headings In this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions of
this Agreement.
Notices. All notices required to be given under this Agreement shall be given
In writing, may be sent by telefacsimile (unless otherwise required by law),
and shall be effective when actually delivered or when deposited with a
nationally recognized overnight courier or deposited In the United States
mail, first class, postage prepaid, addressed to the party to whom the notice
is to be given at the address shown above.
Any party may change Its address for notices under this Agreement by giving
formal written notice to the other parties, specifying that the purpose of the
notice Is to change the party's address. To the extent permitted by applicable
law, if there is more than one Grantor, notice to any Grantor will constitute
notice to all Grantors. For notice purposes, Grantor will keep Lender Informed
at all times of Grantor's current address(es).
Power of Attorney. Grantor hereby appoints Lender as Its true and lawful
attorney-In-fact, irrevocably, with full power of substitution to do the
following: (a) to demand, collect, receive, receipt for, sue and recover all
sums of money or other property which may now or hereafter become due, owing
or payable from the Collateral; (b) to execute, sign and endorse any and all
claims, instruments, receipts, checks, drafts or warrants Issued In payment
for the Collateral; (c) to settle or compromise any and all claims arising
under the Collateral, and, In the place and stead of Grantor, to execute
and deliver Its release and settlement for the claim; and (d) to file any
claim or claims or to take any action or Institute or take part in any
proceedings, either in Its own name or in the name of Grantor, or otherwise,
which in the discretion of Lender may seem to be necessary or advisable. This
power Is given as security for the Indebtedness, and the authority hereby
conferred Is and shall be Irrevocable and shall remain In full force and
effect until renounced by Lender.
Severability. If a court of competent jurisdiction finds any provision of this
Agreement to be Invalid or unenforceable as to any person or circumstance,
such finding shall not render that provision Invalid or unenforceable as to
any other persons or circumstances. If feasible, any such offending provision
shall be deemed to be modified to be within the limits of enforceability or
validity; however, If the offending provision cannot be so modified, It shall
be stricken and all other provisions of this Agreement In all other respects
shall remain valid and enforceable.
Successor Interests. Subject to the limitations set forth above on transfer of
the Collateral, this Agreement shall be binding upon and Inure to
the benefit of the parties, their successors and assigns.
Waiver. Lander shall not be deemed to have waived any rights under this
Agreement unless such waiver Is given In writing and signed by Lender. No
delay or omission on the part of Lender In exercising any right shall operate
as a waiver of such right or any other right. A waiver by Lender of a
provision of this Agreement shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or
any other provision of this Agreement. No prior waiver by Lender, nor any
course of dealing between Lender and Grantor, shall constitute a waiver of any
of Lenders rights or of any of Grantor's obligations as to any future
transactions. Whenever the consent of Lender is required under this Agreement,
the granting of such consent by Lender in any Instance shall not constitute
continuing consent to subsequent Instances where such consent Is required and
In all cases such consent may be granted or withheld In the sole discretion of
Lender.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS COMMERCIAL
SECURITY AGREEMENT, AND GRANTOR AGREES TO ITS TERMS. THIS AGREEMENT IS DATED
JULY 30, 1998.
GRANTOR:
GALAXY MALL
By:/s/John J. Poleman
JOHN J. POLEMAN, PRESIDENT
<PAGE>
PROMISSORY NOTE
Principal Loan Date Maturity Loan No. Collateral Officer
$100,000.00 7/30/1998 7/30/1999 55-50118-3 0100 COMM
References In the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or Item.
Borrower: GALAXY MALL (TIN: 87-0662539) Lender: Far West Bank
890 NORTH INDUSTRIAL DRIVE 2191 North Canyon Rd.
OREM, UT 84057 Provo, UT $4604
Principal Amount: $100,000.00 Initial Rate: 11.500% Date of Note: July
30, 1998
PROMISE TO PAY. GALAXY MALL ("Borrower") promises to pay to For West Bank
("Lender"), or order, In lawful money of the United State of America, the
principal amount of One Hundred Thousand & 00/100 Dollars ($100,000.00) or so
much as may be outstanding, together with Interest on the unpaid outstanding
principal balance of each advance. Interest shall be calculated from the date
of each advance unit repayment of each advance.
PAYMENT. Borrower will pay this loan on demand, or It no demand Is made, In
one payment of all outstanding principal plus all accrued unpaid Interest on
July 30,1999. In addition, Borrower will pay regular quarterly payments of
accrued unpaid Interest beginning November 1 1998, and all subsequent Interest
payments are due on the same day of each quarter after that. Interest on this
Note Is computed on a 366/366 simple Interest basis; that Is, by applying the
ratio of the annual Interest rate over the number of days In a year,
multiplied by the outstanding principal balance, multiplied by the actual
number of days the principal balance Is outstanding. Borrower will pay Lender
at Lender's address shown above or a such other place as Lender may designate
In writing. Unless otherwise agreed or required by applicable law, payments
will be applied first to any unpaid collection costs and any late charges,
then to any unpaid Interest, and any remaining amount to principal.
VARIABLE INTEREST RATE. The Interest rate on this Note Is subject to change
from time to time based on changes In an Independent Index which Is the THE
WALL STREET JOURNAL PRIME RATE (the "Index"). The Index Is not necessarily the
lowest rate charged by Lender on Its loans. If the Index becomes unavailable
during the term of this loan, Lender may designate a substitute Index after
notice to Borrower. Lender will tell Borrower the current Index rate upon
Borrower's request. Borrower understands that Lender may make loans based on
other rates as well. The Interest rate change will not occur more often than
each MONTH. The rate change will not take effect until the first day of the
month following the change In Prime Rate as published In the Wall Street
Journal which Is the best rate on corporate loans posted by at least 75% of
the nation's largest banks. The Index currently Is 8.500% per annum. The
Interest rate to be applied to the unpaid principal balance of this Note will
be at a rate of 3.000 percentage points over the Index, resulting In an
Initial rate of 11.600% per annum.
NOTICE: Under no circumstances will the interest rate on this Note be more
than the maximum rate allowed by applicable law.
PREPAYMENT; MINIMUM INTEREST CHARGE. Borrower agrees that all loan fees and
other prepaid finance charges are earned fully as of the date of the loan and
will not be subject to refund upon early payment (whether voluntary or as a
result of default), except as otherwise required by law. In any event, even
upon full prepayment of this Note, Borrower understands that Lender is
entitled to a minimum Interest charge of $15.00. Other than Borrower's
obligation to pay any minimum interest charge, Borrower may pay without
penalty all or a portion of the amount owed earlier than it is due.
Early payments will not, unless agreed to by Lender In writing, relieve
Borrower of Borrower's obligation to continue to make payments of accrued
unpaid Interest. Rather, they will reduce the principal balance due.
LATE CHARGE. If a payment Is 10 days or more late, Borrower will be charged
6.000% of the regularly scheduled payment or $15.00, whichever Is greater.
DEFAULT. Borrower will be In default If any of the following happens: (a)
Borrower falls to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower falls to comply with or to perform
when due any other term, obligation, covenant, or condition contained In this
Note or any agreement related to this Note, or In any other agreement or loan
Borrower has with Lender. (c) Any representation or statement made or
furnished to Lender by Borrower or on Borrower's behalf Is false or misleading
In any material respect either now or at the time made or furnished. (d)
Borrower becomes Insolvent, a receiver Is appointed for any part of
Borrower's property, Borrower makes an assignment for the benefit of
creditors, or any proceeding Is commenced either by Borrower or against
Borrower under any bankruptcy or insolvency laws. (e) Any creditor tries to
take any of Borrower's property on or In which Lender has a lien or security
interest. This includes a garnishment of any of Borrower's accounts with
Lender. (f) Any guarantor dies or any of the other events described In this
default section occurs with respect to any guarantor of this Note.
(g) A material adverse change occurs In Borrower's financial condition, or
Lender believes the prospect of payment or -performance of the Indebtedness Is
impaired.
If any default, other than a default In payment, Is curable and If Borrower
has not been given a notice of a breach of the same provision of this Note
within the preceding twelve (12) months, It may be cured (and no event of
default will have occurred) If Borrower, after receiving written notice from
Lender demanding cure of such default: (a) cures the default within fifteen
(15) days; or (b) If the cure requires more than fifteen (15) days,
Immediately Initiates steps which Lender deems In Lender's sole discretion to
be sufficient to cure the default and thereafter continues and completes
all reasonable and necessary steps sufficient to produce compliance as soon as
reasonably practical.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid Interest Immediately due, without
notice, and then Borrower will pay that amount. Upon default, Including
failure to pay upon final maturity, Lender, at Its option, may also, If
permitted under applicable law, Increase the variable Interest rate on this
Note to 21.000% per annum. The Interest rate will not exceed the maximum rate
permitted by applicable law. Lender may hire or pay someone else to help
collect this Note if Borrower does not pay. Borrower also will pay Lender
that amount. This includes, subject to any limits under applicable law,
Lender's reasonable attorneys' fees and Lender's legal expenses whether or not
there Is a lawsuit, Including reasonable attorneys' fees and legal expenses
for bankruptcy proceedings (including efforts to modify or vacate any
automatic stay or Injunction), appeals, and any anticipated post-judgment
collection services. If not prohibited by applicable law, Borrower also will
pay any court costs, in addition to all other sums provided by law. This Note
has been delivered to Lender and accepted by Lender In the State of Utah. It
there Is a lawsuit, Borrower agrees upon Lender's request to submit to the
jurisdiction of the courts of Utah County, the State of Utah. This Note shall
be governed by and construed In accordance with the laws of the State of Utah.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $15.00 If Borrower
makes a payment on Borrowers loan and the check or preauthorized charge with
which Borrower pays Is later dishonored.
RIGHT OF SETOFF. Borrower grants to Lender a contractual security Interest In,
and hereby assigns, convoys, delivers, pledges, and transfers to Lender all
Borrower's right, title and Interest in and to, Borrower's accounts with
Lender (whether checking, savings, or some other account), including without
limitation all accounts hold jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA and Keogh accounts,
and all trust accounts for which the grant of a security Interest would be
prohibited by law. Borrower authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on this Note against
any and all such accounts.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under
this Note may be requested orally by Borrower or by an authorized person.
Lender may, but need not, require that all oral requests be confirmed In
writing. All communications, instructions, or directions by telephone or
otherwise to Lender are to be directed to Lender's office shown above. The
following party or parties are authorized to request advances under the line
of credit until Lender receives from Borrower at Lender's address shown above
written notice of revocation of their authority: JOHN J. POLEMAN, PRESIDENT.
Borrower agrees to be liable for all sums either: (a) advanced In accordance
with the instructions of an authorized person or (b) credited to any of
Borrower's accounts with Lender. The unpaid principal balance owing on this
Note at any time may be evidenced by endorsements on this Note or by Lender's
Internal records, Including daily computer print-outs. Lender will have no
obligation to advance funds under this Note If: (a) Borrower or any guarantor
Is In default under the terms of this Note or any agreement that Borrower or
any guarantor has with Lender, including any agreement made In connection with
the signing of this Note; (b) Borrower or any guarantor ceases doing business
or is insolvent; (c) any guarantor seeks, claims or otherwise attempts
to limit, modify or revoke such guarantor's guarantee of this Note or any
other loan with Lender; or (d) Borrower has applied funds provided pursuant to
this Note for purposes other than those authorized by Lender.
GENERAL PROVISIONS. This Note Is payable on demand. The Inclusion of specific
default provisions or rights of Lender shall not preclude Lender's right to
declare payment of this Note on Its demand. Lender may delay or forgo
enforcing any of Its rights or remedies under this Note without losing them.
Borrower and any other person who signs, guarantees or endorses this Note, to
the extent allowed by law, waive presentment, demand for payment, protest and
notice of dishonor. Upon any change In the terms of this Note, and unless
otherwise expressly stated in writing, no party who signs this Note, whether
as maker, guarantor, accommodation maker or endorser, shall be released
from liability. All such parties agree that Lender may renew or extend
(repeatedly and for any length of time) this loan, or release any party or
guarantor or collateral; or Impair, fall to realize upon or perfect Lender's
security Interest In the collateral; and take any other action deemed
necessary by Lender without the consent of or notice to anyone. All such
parties also agree that Lender may modify this loan without the consent of or
notice to anyone other than the party with whom the modification Is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETE COPY OF THE NOTE.
BORROWER:
GALAXY MALL
By:/s/John J. Poleman
JOHN J. POLEMAN
<PAGE>
CHANGE IN TERMS AGREEMENT
Principal Loan Date Maturity Loan No. Collateral Officer
$100,000.00 7/30/1998 7/30/1999 55-50118-3 0100 COMM
References In the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
Borrower: GALAXY MALL (TIN: 87-0662639) Lender: Far West Bank
890 NORTH INDUSTRIAL DRIVE 2191 North Canyon Rd.
OREM, UT 84057 Provo, UT 84604
Principal Amount: $100,000.00 Date of Agreement: January 7, 1999
FOR VALUABLE CONSIDERATION, Lender and Borrower agree to the following change
In Borrower's obligation:
DESCRIPTION OF EXISTING INDEBTEDNESS. BUSINESS LINE OF CREDIT WITH ORIGINAL
NOTE DATED 7-30-98. ORIGINAL BALANCE OF $100,000.00.
DESCRIPTION OF COLLATERAL. UCC-1 ON EQUIPMENT AND STOCK CERTIFICATE #363174103
101,000 SHARES.
DESCRIPTION OF CHANGE IN TERMS. FAR WEST BANK AGREES TO INCREASE THE LIMIT TO
$200,000.00 FOR 90 DAYS (4-8-99). WHICH AT THAT TIME THE LOAN AMOUNT WILL BE
REDUCED TO THE ORIGINAL AMOUNT OF $100,000.00. ALL OTHER TERMS AND CONDITIONS
REMAIN THE SAME.
PROMISE TO PAY. GALAXY MALL ("Borrower") promises to pay to Far West Bank
("Lender"), or order, In lawful money of the United States of America, the
principal amount of One Hundred Thousand & 00/100 Dollars ($100,000.00) or so
much as may be outstanding, together with Interest on the unpaid outstanding
principal balance of each advance. Interest shall be calculated from the date
of each advance until repayment of each advance.
PAYMENT. Borrower will pay this loan on demand, or If no demand Is made, In
one payment of all outstanding principal plus all accrued unpaid Interest on
July 30,1999. In addition, Borrower will pay regular quarterly payments of
accrued unpaid Interest beginning November 1, 1998, and all subsequent
Interest payments are due on the same day of each quarter after that. Interest
on this Agreement Is computed on a 3651365 simple Interest basis; that Is, by
applying the ratio of the annual Interest rate over the number of days In a
year, multiplied by the outstanding principal balance, multiplied by the
actual number of days the principal balance Is outstanding. Borrower will pay
Lender at Lender's address shown above or at such other place as Lender may
designate In writing. Unless otherwise agreed or required by applicable law,
payments will be applied first to any unpaid collection costs and any late
charges, then to any unpaid Interest, and any remaining amount to principal.
VARIABLE INTEREST RATE. The Interest rate on this Agreement Is subject to
change from time to time based on changes In an Independent index which is the
THE WALL STREET JOURNAL PRIME RATE (the "Index"). The Index Is not necessarily
the lowest rate charged by Lender on its loans. If the Index becomes
unavailable during the term of this loan, Lender may designate a substitute
Index after notice to Borrower. Lender will tell Borrower the current Index
rate upon Borrower's request. Borrower understands that Lender may make
loans based on other rates as well. The Interest rate change will not occur
more often than each MONTH. The rate change will not take effect until the
first day of the month following the change in Prime Rate as published In the
Wall Street Journal which Is the best rate on corporate loans posted by at
least 75% of the nation's largest banks. The Index currently Is 7.750% per
annum. The Interest rate to be applied to the unpaid principal balance of this
Agreement will be at a rate of 3.000 percentage points over the Index,
resulting In an Initial rate of 11.600% per annum. NOTICE: Under, no
circumstances will the interest rate on this Agreement be more than the
maximum rate allowed by applicable law.
PREPAYMENT; MINIMUM INTEREST CHARGE. Borrower agrees that all loan fees and
other prepaid finance charges are earned fully as of the date of the loan and
will not be subject to refund upon early payment (whether voluntary or as a
result of default), except as otherwise required by law. In any event, even
upon full prepayment of this Agreement, Borrower understands that Lender is
entitled to a minimum interest charge of $15.00. Other than Borrower's
obligation to pay any minimum Interest charge, Borrower may pay without
penalty all or a portion of the amount owed earlier than It Is due. Early
payments will not, unless agreed to by Lender In writing, relieve Borrower of
Borrower's obligation to continue to make payments of accrued unpaid Interest.
Rather, they will reduce the principal balance due.
LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged
S.000% of the regularly scheduled payment or $16.00, whichever Is greater.
DEFAULT. Borrower will be In default If any of the following happens: (a)
Borrower falls to make any payment when due. (b) Borrower breaks any
promise Borrower has made to Lender, or Borrower falls to comply with or to
perform when due any other term, obligation, covenant, or condition
contained In this Agreement or any agreement related to this Agreement, or In
any other agreement or loan Borrower has with Lender. (c) Any representation
or statement made or furnished to Lender by Borrower or on Borrower's behalf
Is false or misleading In any material respect either now or at the time made
or furnished. (d) Borrower becomes Insolvent, a receiver is appointed
for any part o; Borrower's property, Borrower makes an assignment for the
benefit of creditors, or any proceeding Is commenced either by Borrower
or against Borrower under any bankruptcy or insolvency laws. (e) Any creditor
tries to take any of Borrower's property on or In which Lender has a lien or
security Interest. This Includes a garnishment of any of Borrower's accounts
with Lender. (0 Any guarantor dies or any of the other events described In
this default section occurs with respect to any guarantor of this Agreement.
(g) A material adverse change occurs In Borrower's financial condition, or
Lender believes the prospect of payment or performance of the Indebtedness Is
Impaired.
If any default, other than a default In payment, Is curable and If Borrower
has not been given a notice of a breach of the same provision of this
Agreement within the preceding twelve (12) months, it may be cured (and no
event of default will have occurred) If Borrower, after receiving written
notice from Lender demanding cure of such default: (a) cures the default
within fifteen (15) days; or (b) if the cure requires more than fifteen
(15) days, Immediately Initiates steps which Lender deems In Lender's sole
discretion to be sufficient to cure the default and thereafter continues and
completes all reasonable and necessary steps sufficient to produce compliance
as soon as reasonably practical.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Agreement and all accrued unpaid interest Immediately due,
without notice, and then Borrower will pay that amount. Upon default,
Including failure to pay upon final maturity, Lender, at its option, may also,
If permitted under applicable law, Increase the variable Interest rate on this
Agreement to 21.000% per annum. The interest rate will not exceed the
maximum rate permitted by applicable law. Lender may hire or pay someone else
to help collect this Agreement if Borrower does not pay. Borrower also will
pay Lender that amount. This Includes, subject to any limits under applicable
law, Lender's reasonable attorneys' fees and Lender's legal expenses whether
or not there Is a lawsuit, Including reasonable attorneys' fees and legal
expenses for bankruptcy proceedings (including efforts to modify or vacate any
automatic stay or Injunction), appeals, and any anticipated post-judgment
collection services. If not prohibited by applicable law, Borrower also will
pay any court costs, in addition to all other sums provided by law.
This Agreement has been delivered to Lender and accepted by Lender In the
State of Utah.
If there Is a lawsuit, Borrower agrees upon Lender's request to submit to the
jurisdiction of the courts of Utah County, the State of Utah. This Agreement
shall be governed by and construed in accordance with the laws of the State of
Utah.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $15.00 if Borrower
makes a payment on Borrower's loan and the check or preauthorized charge with
which Borrower pays Is later dishonored.
RIGHT OF SETOFF. Borrower grants to Lender a contractual security interest In,
and hereby assigns, conveys, delivers, pledges, and transfers to Lender all
Borrower's right, title and Interest In and to, Borrower's accounts with
Lender (whether checking, savings, or some other account), including without
limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA and Keogh accounts,
and all trust accounts for which the grant of a security interest would be
prohibited by law. Borrower authorizes Lender, to the extent permitted
by applicable law, to charge or setoff all sums owing on this Agreement
against any and all such accounts.
LINE OF CREDIT. This Agreement evidences a revolving line of credit. Advances
Under this Agreement may be requested orally by Borrower or by an authorized
person. Lender may, but need not, require that all oral requests be confirmed
in writing. All communications, instructions, or directions by telephone or
otherwise to Lender are to be directed to Lender's office is shown above. The
following party"or parties are authorized to request advances under the line
of credit until Lender receives from Borrower at Lender's address shown above
written notice of revocation of their authority: JOHN J. POLEMAN, PRESIDENT.
Borrower agrees to be liable for all sums either: (a) advanced in accordance
with the instructions of an authorized person or (b) credited to any of
Borrowers accounts with Lender. The unpaid, principal balance owing on this
Agreement at any time may be evidenced by endorsements on this Agreement or by
Lender's Internal records, Including daily computer print-outs. Lender will
have no obligation to advance funds under this Agreement If: (a) Borrower or
any guarantor Is In default under the terms of this Agreement or any
agreement that Borrower or any guarantor has with Lender, Including any
agreement made In connection with the signing of this Agreement; (b) Borrower
or any guarantor ceases doing business or Is insolvent; (c) any guarantor
seeks, claims or otherwise attempts to limit, modify or revoke such
guarantor's guarantee of this Agreement or any other loan with Lender; or (d)
Borrower has applied funds provided pursuant to this Agreement for purposes
other than those authorized by Lender.
CONTINUING VALIDITY. Except as expressly changed by this Agreement, the terms
of the original obligation or obligations, Including all agreements evidenced
or securing the obligation(s), remain unchanged and In full force and affect.
Consent by Lender to this Agreement does not waive Lender's right to strict
performance of the obligation(s) as changed, nor obligate Lender to make any
future change In terms. Nothing In this Agreement will constitute a
satisfaction of the obligation(s). This Agreement Is a final expression of
the agreement between Lender and Borrower and may not be contradicted by
evidence of any alleged oral agreement. It Is the Intention of Lender to
retain as liable parties all makers and endorsers of the original
obligation(s), Including accommodation parties, unless a party Is expressly
released by Lender In writing. Any maker or endorser, including accommodation
makers, will not be released by virtue of this Agreement. If any person who
signed the original obligation does not sign this Agreement below, then all
persons signing below acknowledge that this Agreement Is given conditionally,
based on the representation to Lender that the non-signing party consents to
the changes and provisions of this Agreement or otherwise will not be released
by it. This waiver applies not only to any initial extension, modification or
release, but also to all such subsequent actions.
MISCELLANEOUS PROVISIONS. This Agreement is payable on demand. The Inclusion
of specific default provisions or rights of Lender shall not preclude Lender's
right to declare payment of this Agreement on Its demand. Lender may delay or
forgo enforcing any of its rights or remedies under this Agreement without
losing them. Borrower and any other person who signs, guarantees or endorses
this Agreement, to the extent allowed by law, waive presentment, demand for
payment, protest and notice of dishonor. Upon any change in the terms of this
Agreement, and unless otherwise expressly stated In writing, no party who
signs this Agreement, whether as maker, guarantor, accommodation maker or
endorser, shall be released from liability. All such parties agree that Lender
may renew or extend (repeatedly and for any length of time) this loan, or
release any party or guarantor or collateral; or Impair, fall to realize upon
or perfect Lender's security Interest In the collateral; and taking any other
action deemed necessary by Lender without the consent of or notice to anyone.
All such parties also agree that Lender may modify this loan without the
consent of or notice to anyone other than the party with whom the modification
Is made.
FINAL AGREEMENT. Borrower understands that this Agreement and the related loan
documents are the final expression of the agreement between Lender and
Borrower and may not be contradicted by evidence of any alleged oral
agreement.
PRIOR TO SIGNING THIS AGREEMENT, BORROWER READ AND UNDERSTOOD ALL THE
PROVISIONS OF THIS AGREEMENT, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS.
BORROWER AGREES TO THE TERMS OF THE AGREEMENT AND ACKNOWLEDGES RECEIPT OF A
COMPLETED COPY OF THE AGREEMENT.
BORROWER:
GALAXY MALL
By:/s/John J. Poleman
JOHN J. POLEMAN, PRESIDENT
Consent of Wisan, Smith, Racker & Prescott, LLP, Independent Auditors
We consent to the use in this registration statement of our report dated April
29, 1998, relating to the consolidated financial statements of Galaxy
Enterprises, Inc. and Subsidiary.
/s/Wisan, Smith, Racker & Prescott, LLP
Salt Lake City, Utah
April 27, 1999
Consent of Wisan, Smith, Racker & Prescott, LLP, Independent Auditors
We consent to the use in this registration statement of our report dated April
8, 1999, relating to the financial statements of Profit Education Systems,
Inc.
/S/Wisan, Smith, Racker & Prescott, LLP
Salt Lake City, Utah
April 27,1999
Consent of Wisan, Smith, Racker & Prescott, LLP, Independent Auditors
We consent to the use in this registration statement of our report dated April
8, 1999, relating to the financial statements of CO-OP Business Services, Inc.
/S/Wisan, Smith, Racker & Prescott, LLP
Salt Lake City, Utah
April 27, 1999
