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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
(AMENDMENT NO. 1)
STARLIGHT ENTERTAINMENT, INC.
(Name of small business issuer in its charter)
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COLORADO 7830 84-1457591
(State of jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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10831 SOUTH CROSSROADS DRIVE, PARKER, COLORADO 80134
(303) 805-8377
(Address and telephone number of principal executive offices)
10831 SOUTH CROSSROADS DRIVE, PARKER, COLORADO 80134
(Address or principal place of business or intended principal place of business)
R. HAYDN SILLECK, PRESIDENT
STARLIGHT ENTERTAINMENT, INC.
10831 SOUTH CROSSROADS DRIVE
PARKER, COLORADO 80134
(303) 805-8377
(Name, address and telephone number of agent for service)
Copies of all communications to:
Fay M. Matsukage, Esq. Norman R. Miller, Esq.
Dill Dill Carr Stonbraker & Hutchings, P.C. Wolin, Ridley & Miller LLP
455 Sherman Street, Suite 300 3100 Bank One Center
Denver, Colorado 80203 1717 Main Street
(303) 777-3737 Dallas, Texas 75201-4681
fax (303) 777-3823 (214) 939-4900
(214) 939-4949 fax
Approximate date of proposed sale to public: As soon as practicable after the
effective date of the Registration Statement
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_] __________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] __________________
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] __________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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CALCULATION OF REGISTRATION FEE
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Title of each class Dollar Proposed maximum Proposed maximum
of securities to be amount to be offering price per aggregate offering Amount of
registered registered unit (1) price registration fee
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Common Stock 1,150,000 $7.50 $ 8,625,000 $2,544.38
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Common Stock 1,150,000 (2) (2) (2)
Purchase Warrants
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Common Stock 1,150,000 $9.00 $10,350,000 $3,053.25
underlying (3)
Common Stock
Purchase Warrants
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Representative's 100,000 $.001 $ 100 $ 0.03
Warrants
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Common Stock 100,000 $9.00 $ 900,000 $ 265.50
underlying (3)
Representative's
Warrants
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Common Stock 100,000 (2) (2) (2)
Purchase Warrants (3)
underlying
Representative's
Warrants
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Common Stock 100,000 $9.00 $ 900,000 $ 265.50
underlying (3)
Common Stock
Purchase Warrants
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Total $20,775,100 $6,128.66
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(1) Estimated solely for the purpose of calculating the registration fee.
(2) Pursuant to Rule 457(g), a separate registration fee is not required.
(3) An indeterminate number of additional securities are registered hereunder
which may be issued, as provided in the Representative's Warrants and
Warrant Agreement, in the event provisions against dilution become
operative. No additional consideration will be received by the Registrant
upon issuance of such additional securities.
The Registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED AUGUST , 1998
PROSPECTUS
1,000,000 UNITS
STARLIGHT ENTERTAINMENT, INC.
CONSISTING OF 1,000,000 SHARES OF COMMON STOCK AND1,000,000 REDEEMABLE COMMON
STOCK PURCHASE WARRANTS
Starlight Entertainment, Inc. (the "Company") is hereby offering 1,000,000
Units, each unit (the "Unit") consisting of one share (the "Shares") of Common
Stock, no par value (the "Common Stock"), and one Redeemable Common Stock
Purchase Warrant (the "Warrants"). The Units, the Shares and the Warrants are
referred to collectively as the "Securities." The Shares and Warrants included
in the Units may not be separately traded until [six months after the date of
this Prospectus], unless earlier separated upon ten days' prior written notice
from Tejas Securities Group, Inc. (the "Representative") to the Company. Each
Warrant entitles the holder thereof to purchase one share of Common Stock at an
exercise price of $9.00 per share, commencing at any time after the Shares and
Warrants become separately tradable and until [five years from the date of this
Prospectus]. Commencing on [12 months from the date of this Prospectus], the
Warrants are subject to redemption by the Company at $0.01 per Warrant at any
time on thirty days' prior written notice, provided that the closing sale price
for the Common Stock has equalled or exceeded $ for ten consecutive trading
days. The Warrant exercise price is subject to adjustment under certain
circumstances. See "Description of Securities."
Prior to this offering, there has been no public market for the Securities,
and there can be no assurance that an active market will develop. It is
currently anticipated that the initial public offering price of the Units will
be $7.50 per Unit. See "Underwriting" for information relating to the factors
considered in determining the initial public offering price. The Company has
applied to list the Units, Common Stock and Warrants on the Pacific Exchange
("PCX") under the symbols "SLN.U", "SLN" and "SLN.W", respectively. There can
be no assurance that the application for listing on the PCX will be approved.
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE SECTION ENTITLED "RISK
FACTORS" BEGINNING ON PAGE 6 HEREOF CONCERNING THE COMPANY AND THIS OFFERING.
PROSPECTIVE INVESTORS SHOULD ALSO CONSIDER THE FACT THAT THEIR INVESTMENT WILL
RESULT IN IMMEDIATE SUBSTANTIAL DILUTION. SEE "DILUTION."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
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Per Unit.................................. $ $ $
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Total(3).................................. $ $ $
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(1) In addition, the Company has agreed to pay the Representative, a 2.00%
nonaccountable expense allowance and to sell to the Representative warrants
exercisable for four years commencing one year from the date of this
Prospectus to purchase 100,000 Warrants at 120% of the public offering
price (the "Representative's Warrants"). The Company has agreed to
indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, as amended (the "Securities
Act"). See "Underwriting."
(2) Before deducting estimated expenses of $475,000 payable by the Company,
including the Representative's 2.00% nonaccountable expense allowance.
(3) The Company has granted to the Underwriters an option, exercisable within
45 days from the date of this Prospectus, to purchase up to 150,000 Units
on the same terms set forth above, solely for the purpose of covering over-
allotments, if any. If the Underwriters' over-allotment option is exercised
in full, the total Price to the Public, Underwriting Discounts and
Commissions, and Proceeds to the Company will be $ , $ and $ ,
respectively. See "Underwriting."
The Securities are being offered, subject to prior sale, when, as and if
delivered to and accepted by the Underwriters and subject to approval of
certain legal matters by counsel and subject to certain other conditions. The
Underwriters reserve the right to withdraw, cancel or modify the offering
without notice and to reject any order, in whole or in part. It is expected
that delivery of Common Stock and Warrant certificates will be made against
payment therefor at the offices of Tejas Securities Group, Inc. in Austin,
Texas on or about , 1998.
TEJAS SECURITIES GROUP, INC.
The date of this Prospectus is , 1998.
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ADDITIONAL INFORMATION
The Company has not previously been subject to the reporting requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The
Company has filed with the Securities and Exchange Commission (the "Commission")
a Registration Statement on Form SB-2 (including amendments thereto, the
"Registration Statement") under the Securities Act with respect to the
Securities offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
Securities, reference is made to the Registration Statement and the exhibits and
schedules thereto. Statements made in this Prospectus regarding the contents of
any contract or document filed as an exhibit to the Registration Statement are
not necessarily complete and, in each instance, reference is hereby made to the
copy of such contract or document so filed. Each such statement is qualified in
its entirety by such reference. The Registration Statement and the exhibits and
the schedules thereto filed with the Commission may be inspected, without
charge, at the office of the Commission at Judiciary Plaza, 450 Fifth Street,
NW, Washington, D.C. 20549. Copies of such materials may also be obtained from
the Public Reference Section of the Commission at 450 Fifth Street, NW,
Washington, D.C. 20549, at prescribed rates. The Commission maintains a Web
site that contains reports, proxy and information statements, and other
information regarding issuers that file electronically with the Commission at
http://www.sec.gov.
As a result of this offering, the Company will become subject to the
reporting requirements of the Exchange Act, and in accordance therewith will
file periodic reports, proxy statements, and other information with the
Commission. The Company will furnish its shareholders with annual reports
containing audited financial statements certified by independent public
accountants following the end of each fiscal year, proxy statements, and
quarterly reports containing unaudited financial information for the first three
quarters of each fiscal year following the end of such fiscal quarter.
The Company has applied to list the Securities on the Pacific Exchange. If
the Company's application is accepted, then reports, proxy statements, and other
information concerning the Company will be available for inspection at the
principal office of the Pacific Exchange at 301 Pine Street, San Francisco,
California 94104.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING THE ENTRY OF STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS, OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
2
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements (including notes thereto) appearing
elsewhere in this Prospectus. Unless otherwise indicated, the information
herein assumes the Underwriters' over-allotment option and the Representative's
Warrants are not exercised. The securities offered hereby involve a high degree
of risk. Investors should carefully consider the information set forth under
"Risk Factors."
Prospective investors should note that this Prospectus contains certain
"forward-looking statements," including without limitation, statements
containing the words "believes," "anticipates," "expects," "intends," "plans,"
"should," "seeks to," and similar words. Prospective investors are cautioned
that such forward-looking statements are not guarantees of future performance
and involve risks and uncertainties. Actual results may differ materially from
those in the forward-looking statements as a result of various factors,
including but not limited to, the risk factors set forth in this Prospectus.
The accompanying information contained in this Prospectus identifies certain
important factors that could cause such differences.
THE COMPANY
The Company owns Cinema Saver Theatre Corporation ("Cinema Saver"), which
operates five movie theatres with 25 screens, and Pitchers! Inc. ("Pitchers!"),
which operates four sports restaurants, all of which are located in Colorado.
Cinema Saver currently has two first-run movie theatres and one discount
admission theatre in the suburbs of Denver and two discount admission theatres
in towns within one hour from Denver. Pitchers! has three sports restaurants in
the suburbs of Denver and one in a town within one hour from Denver. Through
its ownership of Cinema Savers and Pitchers!, the Company expects to combine
certain administrative functions and achieve operating efficiencies.
The Company plans to construct and operate new destination entertainment
complexes initially in secondary markets and suburban areas of Colorado in which
both Cinema Saver theatres and Pitchers! sports restaurants, as well as other
entertainment-oriented businesses, will be located. The Company expects that
Cinema Saver theatres, Pitchers! sports restaurants and the other attractions to
be located in the new destination entertainment complexes will draw a
significant number of customers and permit the Company to engage in joint
marketing of its theatres and sports restaurants.
The new destination entertainment complexes which the Company plans to
build will range from approximately 35,000 square feet to 60,000 square feet at
a cost of roughly $6,000,000 to $7,500,000. A Pitchers! sports restaurant is
expected to occupy approximately 12,000 square feet, with seating capacity of
450-500, and a Cinema Saver theatre will occupy approximately 20,000 to 24,000
square feet. The remainder, if any, will be leased to other entertainment-
oriented businesses such as a video game arcade, pizza restaurants, ice cream
shops and video rental stores. The Company estimates that construction of a
complex would take from 8 to 18 months, depending upon the size of the complex,
zoning requirements, and other factors particular to the site.
The Company's theatres typically contain auditoriums consisting of 100 to
300 seats each and feature large screens, modern seating with cupholder
armrests, digital sound, attractive and functional concession stands, and video
game areas. New theatres will have all of these amenities as well as a modified
stadium seating configuration and will generally contain from 8 to 12
auditoriums. The Company's discount admission theatres generally have higher
attendance, lower film costs and a greater proportion of concession revenues
than its first run theatres. As of the date of this Prospectus, 56% of the
Company's screens were located in its discount admission theatres.
Each Pitchers! sports restaurant combines casual dining with specific
entertainment alternatives, such as large screen TV's, dancing, pool tables,
video games, and other amusement games. Separate customer areas permit
different customer groups to enjoy the facility simultaneously. The varied uses
of the restaurant space allows for greater continuous occupancy throughout the
day and evening. The Company believes that this results in more even monthly
and seasonal revenue flows, plus an ability to compete more effectively in
saturated markets. Pitchers! serves casual American fare, with menu items
ranging from $4.95 to $13.95. Pitchers! derives revenues primarily from sales
of alcoholic beverages (approximately 65%) and food (approximately 30%), with
video games, pool, and clothing accounting for the remainder.
The Company, which was formed as a Colorado corporation on April 10, 1998,
acquired Cinema Saver and Pitchers! as wholly-owned subsidiaries through a
stock-for-stock exchange effective as of June 4, 1998, accounted for as a
pooling of interests. Cinema Saver was incorporated in Colorado in 1991, and
Pitchers! was incorporated in Colorado in 1989. The Company, a holding company,
has executive offices are located at 10831 South Crossroads Drive, Parker,
Colorado 80134, and its telephone number is (303) 805-8377.
3
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THE OFFERING
Securities offered hereby 1,000,000 Units, each Unit consisting
of one share of Common Stock and one
Common Stock Purchase Warrant. See
"Description of Securities."
Description of the Warrants The Warrants are not immediately
exercisable and are not transferable
separately from the Shares until
______, 1999 [six months after the
date of this Prospectus], unless
earlier separated upon 10 days' prior
written notice from the
Representative to the Company. Each
Warrant entitles the holder to
purchase one share of Common Stock at
a price of $9.00 per share at any
time after the Shares and Warrants
become separately tradable and until
___________, 2003 [5 years after the
date of this Prospectus]. Commencing
on [12 months from the date of this
Prospectus], the Warrants are
redeemable by the Company at $0.01
per Warrant under certain conditions.
See "Description of Securities."
Common Stock outstanding
before the offering 1,234,355 Shares
after the offering 2,234,355 Shares (1)
Warrants to be outstanding
after the offering 1,000,000 Warrants (2)
Use of proceeds The net proceeds of this offering,
estimated to be approximately
$6,275,000, will be used primarily to
expand the operations of the Company.
See "Use of Proceeds."
Risk factors The Securities offered hereby are
speculative and involve a high degree
of risk and should not be purchased
by investors who cannot afford the
loss of their entire investment. See
"Risk Factors."
Proposed Pacific Exchange symbols
Units "SLN.U"
Common Stock "SLN"
Warrants "SLN.W"
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(1) Does not include an aggregate up to 1,599,903 shares issuable upon exercise
of (i) the Warrants, (ii) the Underwriters' over-allotment option, (iii) the
Representative's Warrants and (iv) existing stock options. See "Certain
Relationships and Related Transactions" and "Underwriting."
(2) Does not include up to 150,000 Warrants issuable upon exercise of the
Underwriters' over-allotment option or the 100,000 Warrants underlying the
Representative's Warrants.
4
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SUMMARY SELECTED FINANCIAL INFORMATION
On May 20, 1998, the shareholders of Cinema Saver and Pitchers! approved an
Agreement and Plan of Share Exchange (the "Plan") pursuant to which Cinema Saver
and Pitchers! were acquired by the Company, a corporation which was formed for
this purpose (the "Acquisition"). As a result of the Acquisition, Cinema Saver
and Pitchers! became wholly-owned subsidiaries of the Company. The Plan, which
was effected as of June 4, 1998, provided for the exchange of the outstanding
shares of Cinema Saver common stock and Pitchers! common stock for restricted
shares of the Company's Common Stock.
The Acquisition was accounted for as a pooling of interests of Cinema Saver
and Pitchers!. Accordingly, the interim period financial statements are
prepared based on the assumption that the companies were combined for the full
six-month period. The information shown below as of and for the years ended
December 31, 1997 and 1996 were derived from pro forma financial statements,
which give effect to the pooling of interests of Cinema Saver and Pitchers! as
wholly-owned subsidiaries of the Company as if such transaction had occurred at
the beginning of each period presented. The pro forma financial statements were
derived from the historical audited financial statements of Cinema Saver and
Pitchers!. Accordingly, the information shown below should be read in
conjunction with the Company's historical financial statements, pro forma
financial statements, and the notes thereto appearing elsewhere in this
Prospectus. The interim period information is not necessarily indicative of the
Company's results for the remainder of the year. See the Financial Statements.
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SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
-------------------------- --------------------------
1998 1997 1997 1996
---------- ----------- ---------- ----------
OPERATING DATA: (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
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Total revenues $3,829,716 $ 3,660,352 $7,928,138 $7,117,017
Gross profit $2,379,423 $ 2,194,038 $3,986,245 $3,526,622
Net income $ 105,883 $ 98,492 $ 338,412 $ 138,937
Net income per share $0.09 $0.08 $0.27 $ 0.11
<CAPTION>
JUNE 30, 1998 DECEMBER 31,
--------------------------
ACTUAL AS ADJUSTED* 1997
---------- ------------ ----------
BALANCE SHEET DATA: (UNAUDITED) (UNAUDITED)
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Working capital $ (216,693) $ 358,307 $ 420,800
Total assets $6,104,109 $12,379,109 $6,251,092
Total liabilities $4,758,915 $ 4,758,915 $5,011,781
Shareholders' equity $1,345,194 $ 7,620,194 $1,239,311
Shares outstanding 1,234,355 2,234,355 1,234,355
</TABLE>
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* Adjusted to reflect the sale of the Units offered by this Prospectus at an
assumed offering price of $7.50 per Unit and application of the net proceeds
of $6,275,000.
5
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RISK FACTORS
This offering involves substantial risks associated with the Company and
its business including, among others, risks associated with substantial industry
competition, significant indebtedness, and dependence on management. Prospective
investors should consider carefully, among other factors, the risk factors and
other special considerations relating to the Company and this offering set forth
below.
THE COMPANY
PLANS FOR EXPANSION NOT PROVEN. The Company's plan for expansion into
additional secondary markets has not been proven or tested by the Company. In
recent years, entertainment complexes have been constructed in urban areas
supported by large populations, but not outlying areas. Management believes
that the Company will have less competition by expanding in the secondary
markets; however a lack of competition may be an indication that the secondary
markets will not support an entertainment complex. Management's plans are based
on the historical operations of Cinema Saver and Pitchers! and their perceptions
of the market, as opposed to market research. See "Business - Expansion
Concept."
PROBLEMS ASSOCIATED WITH EXPANSION EFFORTS. While a portion of the
proceeds of this offering has been allocated for the land acquisition costs and
the purchase of furniture, fixture, and equipment in connection with
entertainment complexes to be built by the Company, such proceeds will provide
roughly half of the estimated cost of such complexes. The Company proposes to
finance the other half of the estimated cost through bank or other institutional
debt financing. There can be no assurance that the Company will be able to
obtain such financing on terms favorable to the Company. In addition, the
Company will likely encounter problems generally associated with the expansion
of a business: selecting the right location of its new entertainment complexes,
negotiating favorable terms for the purchase of land and construction of
facilities, keeping construction costs within the established budget, hiring and
training competent personnel, opening the facility on schedule, and attracting
and keeping customers in the new market. See "Use of Proceeds" and "Business -
Expansion Concept."
SIGNIFICANT INDEBTEDNESS. At June 30, 1998, the Company, on a consolidated
basis, had liabilities of $4,758,915 (unaudited), as compared to stockholders'
equity of $1,345,194 (unaudited). The bank debt of Cinema Saver and Pitchers!
is secured by substantially all of the assets of these companies. If either
company should fail to generate sufficient cash flow to service the bank debt,
foreclosure on the pledged assets would impair the operations of the Company.
None of the net proceeds from this offering has been allocated to reduce debt.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements.
RESTAURANT INDUSTRY. The restaurant industry is subject to certain risks,
including rapidly changing public tastes, generally high working capital
requirements, high volumes and relatively low profit margins, the need for
effective quality control in food processing and preparation, the need for
effective inventory control over alcoholic beverages, the need for strict
supervision over the handling, storage, and dispensing of alcoholic beverages,
and the risk of employee dishonesty. Although the Company believes that it
adequately addresses these risks, no assurance can be given that the Company
will be successful in meeting all of them. See "Business."
COMPETITION. Cinema Saver and Pitchers! compete with other similar types
of theatres and restaurants, as well as other forms of entertainment. These
other forms of entertainment include sporting events, concerts, museums, and
outdoor activities, among many others, some of which have greater assets, name
recognition, and financial, managerial, and marketing resources than the
Company. See "Business - Competition."
GEOGRAPHIC CONCENTRATION. All of the Company's theatres and restaurants
are located in the Front Range of Colorado, within one hour of Denver. The
Company intends to continue to open new locations in the State of Colorado.
There is no assurance that the Company will enter these or other markets or that
if the Company does expand to new markets, it will generate sufficient revenues
that exceed the costs associated with activities in such new markets. There is
no assurance that business activity in the new markets will match that achieved
in the Front Range area. Whether the Company enters into new geographic
markets, the Company's results of operations and financial condition will be
significantly affected by general trends in the economy of the greater Denver
area for the foreseeable future. See "Business."
6
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AUTHORIZATION OF PREFERRED STOCK. The Company is authorized to issue up to
10,000,000 shares of preferred stock, in one or more series, with such rights,
preferences, qualifications, limitations, and restrictions as shall be fixed and
determined by the Company's Board of Directors from time to time. Any such
preferences may operate to the detriment of the rights of the holders of the
Common Stock. See "Description of Securities - Preferred Stock."
DEPENDENCE ON MANAGEMENT. The Company is dependent upon the management of
Cinema Saver and Pitchers! for the day-to-day operation of its business and in
particular is dependent upon the services of R. Haydn Silleck, Clifford E.
Godfrey, Herbert I. Lee, and Lorry Hanson. The loss of services of any of these
officers for any reason could have a material adverse effect on the Company's
existing business and its plans for expansion. No assurance can be given that
the Company would be able to replace any of these men should the Company lose
their services. The Company does not carry key man insurance. See
"Management."
LIABILITY CLAIMS. The Company faces the risk of exposure to premises
liability claims if customers are injured while in the Company's theatres or
restaurants. While the Company will continue to attempt to take appropriate
precautions, there can be no assurance that it will avoid significant premises
liability exposure. In addition, the Company and Pitchers! are exposed to
further liability if patrons of Pitchers! should consume alcoholic beverages and
injure others. While the Company will continue to attempt to take appropriate
precautions, there can be no assurance that it will avoid significant product
liability exposure. Although management believes that the Company has adequate
liability insurance based on its historical coverage, there can be no assurance
that its current insurance coverage is adequate, that economically affordable
insurance coverage can be maintained or will be available at all in the future,
or that a liability claim would not materially adversely affect the business or
financial condition of the Company. See "Business - Legal Proceedings."
LICENSING AND REGULATION. The Company is subject to a variety of
regulations at the state, county, and municipal levels which pertain to
environmental, building, and zoning requirements; the preparation and sale of
food; designation of non-smoking areas; the operation of amusement devices, such
as billiard tables and pinball machines; accessibility of the premises to
disabled customers; and minimum wage and overtime requirements. In addition,
Pitchers! must comply with significant federal, state, and municipal alcoholic
beverage control regulations. The failure to comply with these regulations
could cause Pitchers!' licenses to be revoked and force it to cease the sale of
alcoholic beverages at its restaurants. In connection with its proposed
expansion, the Company will need to obtain construction and operating licenses,
permits, and approvals. Delays or failures in obtaining such licenses, permits,
and approvals could delay or prevent the opening of new theatres and
restaurants. See "Business - Licensing and Regulation."
INDEMNIFICATION AND LIMITATION OF LIABILITY OF DIRECTORS AND OFFICERS.
Pursuant to the Articles of Incorporation and Bylaws of the Company, the
officers, directors, employees and agents of the Company are entitled to
indemnification from the Company for liabilities incurred in connection with the
business or activities undertaken in their official capacities where the acts
involved did not constitute intentional misconduct, a knowing violation of the
law, or the receipt of an impermissible personal benefit. Furthermore, the
Articles of Incorporation of the Company limit the personal liability of
directors to the Company and its shareholders for monetary damages, except for
liability for any breach of the director's duty of loyalty, for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, for unlawful payment of dividends, for unlawful stock purchase
or redemption, or for any transaction from which the director derived any
improper personal benefit. Therefore, while the directors and officers may be
accountable to the Company and its shareholders as fiduciaries, the Company and
its shareholders have a more limited right of action than they would, absent the
indemnification and limitation of liability provisions contained in the
Company's Articles of Incorporation and Bylaws.
DEPENDENCE ON DISCRETIONARY CONSUMER SPENDING. The entertainment industry
is dependent on the amount of discretionary spending by consumers, which may be
adversely affected by general economic conditions. A decrease in the disposable
income of residents in the markets in which the Company operates could have an
adverse effect on the Company's financial condition and results of operations.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Results of Operations" and "Business."
7
<PAGE>
THE OFFERING
CONTROL BY MANAGEMENT. Following completion of this offering, the present
management of the Company will own, assuming no exercise of the Warrants or
other stock options, approximately 36.5% of the outstanding Common Stock. Given
the lack of cumulative voting and the fact that one-third of the Company's
outstanding Common Stock constitutes a quorum, persons not affiliated with
management may not have the power to elect a single director. As a practical
matter, the current management will continue to effectively control the Company.
See "Principal Shareholders."
ABSENCE OF A PUBLIC MARKET; PACIFIC EXCHANGE LISTING. Prior to this
offering, there has been no public market for the Common Stock. The Company has
applied to have the Common Stock listed on the Pacific Exchange. There can be
no assurance that the Company's Common Stock will be approved for listing. Such
listing, if granted, does not imply that a meaningful, sustained market for the
Common Stock will develop. There can be no assurance that an active trading
market for the Common Stock offered hereby will develop or, if it should
develop, will continue. From time to time after this offering, there also may
be significant volatility in the market price for the Common Stock. See
"Underwriting."
ACQUISITION BY EXISTING STOCKHOLDERS AT LESS COST THAN INVESTORS IN THIS
OFFERING. The existing shareholders of the Company acquired their shares at an
average cost of $0.44 per share, substantially less than the offering price of
the Common Stock. Investors in this offering will experience dilution in
ownership of the Company and in their investment. See "Dilution."
SHARES ELIGIBLE FOR FUTURE SALE. All of the 1,234,355 shares of Common
Stock currently outstanding are "restricted securities" and may in the future be
sold in compliance with Rule 144 under the Securities Act of 1933, as amended
(the "Securities Act"). Rule 144 generally provides that beneficial owners of
shares who have held such shares for one year may sell within a three-month
period a number of shares not exceeding 1% of the total outstanding shares or
the average trading volume of the shares during the four calendar weeks
preceding such sale. Sales of substantial amounts of Common Stock in the public
market after the offering pursuant to Rule 144 or otherwise, or the perception
that such sales could occur, may adversely affect prevailing market prices of
the Common Stock. See "Shares Eligible for Future Sale."
DIVIDENDS. The Company does not contemplate paying cash dividends on
Common Stock in the foreseeable future since it will use all of its earnings, if
any, to finance expansion of its operations. See "Dividend Policy" and
"Description of Securities."
UNDERWRITERS' INFLUENCE ON THE MARKET. A significant amount of the Units
may be sold to customers of the Underwriters. Such customers subsequently may
engage in transactions for the sale or purchase of such securities through or
with the Underwriters. Although they have no legal obligation to do so, the
Underwriters from time to time in the future may make a market in and otherwise
effect transactions in the Company's securities. To the extent the Underwriters
do so, they may be a dominating influence in any market that might develop and
the degree of participation by the Underwriters may significantly affect the
price and liquidity of the Company's securities. Such market making activities,
if commenced, may be discontinued at any time or from time to time by the
Underwriters without obligation or prior notice. If a dominating influence at
such time, the Underwriters' discontinuance of market making activities could
adversely affect the price and liquidity of the securities. See "Underwriting."
CURRENT PROSPECTUS REQUIRED TO EXERCISE WARRANTS. Holders of Warrants may
exercise them only if a current prospectus relating to the Common Stock
underlying the Warrants is then in effect. Although the Company has undertaken
to make a good faith effort to maintain the effectiveness of a current
prospectus covering the Common Stock underlying the Warrants, there can be no
assurance that the Company will be able to do so. The Warrants may be deprived
of any value in the event this Prospectus or another prospectus covering the
shares issuable upon exercise of the Warrants is not kept effective. See
"Description of Securities - Warrants."
8
<PAGE>
POTENTIAL DILUTION AND ADVERSE IMPACT ON ADDITIONAL FINANCING DUE TO
OUTSTANDING OPTIONS. As of the date of this Prospectus, the Company had
outstanding options to acquire an aggregate of 99,903 shares of Common Stock. To
the extent that the outstanding options are exercised, dilution to the interests
of the Company's shareholders may occur. For the life of the options described
above, the holders will have the opportunity to profit from a rise in the price
of the underlying Common Stock. The existence of such options may adversely
affect the terms on which the Company can obtain additional financing, and the
holders of such options can be expected to exercise them at a time when the
Company would, in all likelihood, be able to obtain additional capital by an
offering of its unissued capital stock on terms more favorable to the Company
than those provided by such options. See "Shares Eligible for Future Sale."
REPRESENTATIVE'S EXPERIENCE. The Representative does not have substantial
experience in public offerings. Tejas Securities Group, Inc. has managed and
completed three firm-commitment public offerings of equity securities in the
past nine months. Principals of the Representative, however, have had
substantial experience in connection with public offerings of equity securities.
There can be no assurance that the Representative's lack of experience will not
adversely affect the offering. See "Underwriting."
RISK OF REDEMPTION OF WARRANTS. Commencing twelve months from the date of
this Prospectus, the Company may redeem the Warrants for $0.01 per Warrant at
any time upon 30 days' prior written notice, provided that the closing sale
price of the Common Stock on the Pacific Exchange has been at least $______ for
ten consecutive trading days. Notice of redemption of the Warrants could force
the holders thereof: (i) to exercise the Warrants and pay the exercise price at
a time when it may be disadvantageous or difficult for the holders to do so;
(ii) to sell the Warrants at the current market price when they might otherwise
wish to hold the Warrants; or (iii) to accept the redemption price, which is
likely to be less than the market value of the Warrants at the time of the
redemption. See "Description of Securities -Warrants."
EFFECT OF THE WARRANTS AND REPRESENTATIVE'S WARRANTS. Until the expiration
of five years from the date of this Prospectus, the holders of the Warrants and
Representative's Warrants are given an opportunity to profit from a rise in the
market price of the Common Stock, with a resulting dilution in the interests of
the other shareholders. The shares of Common Stock underlying the
Representative's Warrants have certain registration rights. Further, the terms
on which the Company might obtain additional financing during that period may be
adversely affected by the existence of the Warrants and Representative's
Warrants. The holders of the Warrants and Representative's Warrants may
exercise the Warrants and Representative's Warrants at a time when the Company
might be able to obtain additional capital through a new offering of securities
on terms more favorable than those provided herein. The Company has agreed
that, under certain circumstances, it will register under federal and state
securities laws the Representative's Warrants and/or the securities issuable
thereunder. Exercise of these registration rights could involve substantial
expense to the Company at a time when it could not afford such expenditures and
may adversely affect the terms upon which the Company may obtain financing. See
"Description of Securities - Warrants" and "Underwriting."
9
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company are estimated to be $6,275,000 ($7,265,000
if the Underwriters' over-allotment option is exercised in full). The Company
intends to use the net proceeds as follows:
<TABLE>
<CAPTION>
APPLICATION OF PROCEEDS AMOUNT PERCENT
----------- --------
<S> <C> <C>
Land acquisition costs for new locations........................... $2,850,000 45.4%
Furniture, fixtures and equipment for new Cinema Saver locations... 1,630,000 26.0%
Furniture, fixtures and equipment for new Pitchers! locations...... 1,000,000 15.9%
Improvements to existing locations................................. 220,000 3.5%
Working capital (1)................................................ 575,000 9.2%
---------- -----
Total.............................................................. $6,275,000 100.0%
========== =====
</TABLE>
- --------------------
(1) Elements of working capital include cash, accounts receivable, inventory,
accounts payable, accrued expenses, and other current assets and
liabilities. These elements fluctuate with the day-to-day operations of
the Company.
While most of the net proceeds of this offering have been allocated for
expansion, such proceeds will provide roughly half of the estimated cost of the
entertainment complexes to be constructed by the Company. The Company proposes
to finance the other half of the estimated cost through bank or other
institutional debt financing. There can be no assurance that the Company will
be able to obtain such financing on terms favorable to the Company. Further,
pending final approval and receipt of funds through such debt financing, it is
possible that the Company will provide its own bridge financing and that more
than the amounts allocated above will be used on a temporary basis for expansion
costs. See "Business - Expansion Concept."
These allocations indicate the Company's present intentions for the use of
proceeds. However, future events may require a change in the allocation of
funds. Any changes in proposed expenditures will be made at the discretion of
the Board of Directors of the Company.
The proceeds from any exercise of the Underwriters' over-allotment option,
and Warrants, and the Representative's Warrants will be added to working
capital.
Pending such uses, the Company intends to invest the proceeds from this
offering in short term, investment-grade, interest bearing securities.
10
<PAGE>
DILUTION
As of June 30, 1998, the Company had an unaudited net tangible book value
of $1,074,870 or $0.87 per share of Common Stock. Net tangible book value per
share of Common Stock represents total tangible assets reduced by total
liabilities, divided by the number of outstanding shares of Common Stock.
Without taking into account any changes in net tangible book value after June
30, 1998, after giving effect to the sale by the Company of the 1,000,000 Units
offered hereby for net proceeds of $6,275,000 (and attributing no part of the
proceeds to the Warrants), the pro forma net tangible book value of the
Company's Common Stock at June 30, 1998 would have been $7,435,508 or $3.33 per
share. Accordingly, after the offering, the net tangible book value of the
shares of Common Stock held by the present shareholders would have increased
$2.46 per share. Concurrently, new investors purchasing Units in this offering
would suffer substantial immediate dilution of $4.17 per share.
The following table illustrates the foregoing dilution of a new investor's
equity in a share of Common Stock assuming that the entire offering price is
attributed to the Common Stock:
<TABLE>
<S> <C>
Offering price per share of Common Stock $7.50
Net tangible book value per common share before offering... $0.87
Increase per share attributable to new investors........... $2.46
-----
Pro forma net tangible book value per common
share after offering $3.33
-----
Dilution per common share to new investors $4.17
Percentage Dilution 55.6%
</TABLE>
The following table sets forth, as of the date of this Prospectus, a
comparison of the respective investment and equity of the current shareholders
and investors purchasing Units in this offering. Such table assumes that no
part of the proceeds is attributed to the Warrants.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------- ------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
------ ------- ------ ------- -----
<S> <C> <C> <C> <C> <C>
Existing shareholders 1,234,355 55.2% 546,087 6.8% $0.44
New investors 1,000,000 44.8% 7,500,000 93.2% $7.50(2)
--------- ----- --------- -----
Total 2,234,355(1) 100.0% 8,046,087 100.0%
========= ===== ========= =====
</TABLE>
___________
(1) Does not include an aggregate up to 1,599,903 shares issuable upon exercise
of (i) the Warrants, (ii) the Underwriter's over-allotment option, (iii) the
Representative's Warrants and (iv) existing stock options. To the extent
that these options and warrants are exercised, there will be further share
dilution to new investors.
(2) This amount assumes the attribution of the Unit purchase price solely to the
Common Stock included in each Unit. See "Use of Proceeds."
11
<PAGE>
CAPITALIZATION
The following table sets forth the current liabilities, long-term debt and
capitalization of the Company as of June 30, 1998, and as adjusted to give
effect to the sale by the Company of 1,000,000 Units offered hereby at an
assumed offering price of $7.50 per Unit and the application of the net proceeds
of $6,275,000. The table should be read in conjunction with the financial
statements and notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1998
------------------------
(UNAUDITED)
ACTUAL ADJUSTED
---------- -----------
<S> <C> <C>
Current liabilities........................................ $ 616,380 $ 616,380
========== ===========
Long-term debt............................................. $4,142,535 $ 4,142,535
---------- -----------
Stockholders' equity:
Common stock, no par value per share;
25,000,000 shares authorized, 1,234,355 shares issued,
2,234,355 issued as adjusted for the offering (1)........ 546,087 6,821,087
Retained earnings......................................... 799,107 799,107
---------- -----------
Total stockholders' equity................................. 1,345,194 7,620,194
---------- -----------
Total capitalization $5,487,729 $11,762,729
========== ===========
</TABLE>
- ------------
(1) Does not include an aggregate up to 1,599,903 shares issuable upon exercise
of (i) the Warrants, (ii) the Underwriter's over-allotment option, (iii) the
Representative's Warrants and (iv) existing stock options. See "Certain
Relationships and Related Transactions" and "Underwriting."
DIVIDEND POLICY
The Company does not anticipate paying dividends on the Common Stock at any
time in the foreseeable future. The Company's Board of Directors plans to retain
earnings for the development and expansion of the Company's business. The Board
of Directors also plans to regularly review the Company's dividend policy. Any
future determination as to the payment of dividends will be at the discretion of
the Board of Directors of the Company and will depend on a number of factors,
including future earnings, capital requirements, financial condition and such
other factors as the Board of Directors may deem relevant.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1998 AND JUNE 30, 1997
For the six months ended June 30, 1998, revenues increased to $3,829,716
from $3,660,352, a 4.6% increase over the same period in 1997. Net profit for
1998 increased to $105,883 as compared to $98,492 for the 1997 six-month period,
a 7.5% increase.
Revenues at the Company's movie theatres were down slightly from the prior
year's results ($1,255,373 in 1998 as compared to $1,306,028 in 1997) due
primarily to the lack of any summer "blockbuster" releases through June 30,
1998. Theatre gross profit remained essentially unchanged. Expenses were also
down in 1998 with the decreases evenly split between operating expenses and
interest costs. This resulted in an increase in theatre net profit of $36,210
over the same period in 1997. With the addition of a new theatre in Littleton,
the full effect of the added screens in Evergreen, and an expected drop in
revenues and profit in Parker due to recently added competition, it is
anticipated that results for the full year will be in line with those of last
year.
Revenues increased, but net profit decreased, at the Company's restaurant
operations for the six months ended June 30, 1998 as compared to 1997. The
Lakewood location, which opened in July, 1997, added to 1998 revenues and
expenses. With the closure of the Denver restaurant in January 1998, the
Company continues to incur certain expenses without generating any revenue from
that location. The property is currently under contract to be sold, which sale
is expected to close during the third quarter of this year. If the sale is
consummated, the Company will recover all of the prior losses at this facility
and realize a gain on the sale. Management expects that results for the full
year will be comparable to those of last year.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996
CINEMA SAVER. Revenues in 1997 were $2,681,545 compared to $2,656,821 in
1996, an increase of 1.0%. The increase was primarily due to improvement in the
Company's concessions revenues, although admissions and other operating revenues
experienced modest growth.
Operating expenses increased as a percentage of revenues to 84.4% in 1997
versus 83.6% in the prior year. The increase reflects increased spending on
advertising and film expense, offset by lower concession costs and general and
administrative expenses. Due to the increase in operating expenses in 1997,
operating income declined to $419,385 during the year compared to $434,729 in
1996.
Despite the decline in revenues and operating income, net income increased
to $235,795 in 1997 compared to $88,792 in 1996. The improvement in net income
was primarily due to a gain before taxes of $215,594 from the sale of one of
the Company's theatres which was subsequently leased back to the Company. Net
income also benefited from a moderate decline in interest expense stemming from
a reduction in long term debt.
PITCHERS!. Revenues for the fiscal year ended December 31, 1997 improved
to $5,246,593 from $4,460,196 in fiscal year 1996, an increase of 17.6%. The
increase was primarily due to an additional Pitchers! location opened up in 1997
combined with increased awareness of existing locations, resulting in increased
customer visits.
Operating expenses increased to $5,004,861 in 1997 versus $4,238,290 in
1996. The increase reflected the additional support needed for the new
Pitchers! location opened in 1997. Operating expenses as a percentage of
revenues were relatively stable at 95.4% compared to 95.0% in the prior year.
Operating income was $241,732 in 1997 compared to $221,906, an increase of
8.9%. The increase in operating income was primarily due to the increased
revenue base from the expansion in 1997.
Net income increased by 104.6% to $102,617 in 1997 from $50,145 in 1996.
The increase was primarily due to the increase in revenues combined with a one-
time loss of $62,934 in 1996 that negatively impacted net income in
13
<PAGE>
that year. The reported financial results include losses (net of tax) of $50,591
in 1997 and $48,785 in 1996 from unprofitable operations at two of the Company's
locations. These two operating facilities have since been closed.
LIQUIDITY AND CAPITAL RESOURCES
The Company has experienced a net decrease in cash of $830,064 for the six
months ended June 30, 1998, as compared to a net decrease of $85,992 for the six
months ended June 30, 1997. The difference can be attributed primarily to the
following 1998 events: the expansion and upgrade of the theatre in Evergreen
and the decision to engage in this public offering. Through June 30, 1998, the
Company incurred $758,847 in expansion/upgrade costs and $85,638 in deferred
offering costs.
Cinema Saver experienced a net increase in cash of $729,332 during 1997
from the sale/leaseback of a theatre which generated $697,534 from the sale of
the property. These proceeds were used to expand and upgrade the Evergreen
theatre.
During 1997, Pitchers! had a net decrease in cash of $74,582 due to the
purchase of equipment for the Lakewood restaurant. During 1996, cash increased
$88,877.
The Company had a working capital deficiency of $216,693 at June 30, 1998,
as compared to positive working capital of $415,800 at December 31, 1997, due to
the capital expense of the Evergreen theatre expansion of approximately
$632,000. Total assets have also decreased slightly at June 30, 1998, due
primarily to decreases in both current assets and long-term debt, which are also
consistent with the increase in retained earnings.
The Company's normal operations have generated sufficient cash flow to meet
all normal operating requirements. Management believes that it has adequate
liquidity and capital to fund its operating activities (exclusive of any
expansion) for at least twelve months without having to incur additional debt.
The costs incurred in conjunction with this offering have been funded through a
combination of cash flow from operations and short-term borrowings.
To date, expansion of both subsidiaries has been funded primarily through
bank debt, relying upon the personal guarantees of the officers, directors, and
principal shareholders of the respective companies. See "Certain Relationships
and Related Transactions." As of June 30, 1998 and December 31, 1997, total
bank debt was $3,954,215 and $3,993,406, respectively. The Company currently
has no commitments that would require funds beyond those required and generated
through normal, ongoing operations. The Company is negotiating to purchase two
parcels of land which would be consistent with the expansion plans discussed
elsewhere in this Prospectus, but any commitments that might be entered into in
this regard will be subject to the successful completion of this offering. See
"Business - Expansion Concept."
14
<PAGE>
BUSINESS
GENERAL
The Company owns Cinema Saver Theatre Corporation ("Cinema Saver"), which
operates five movie theatres with 25 screens, and Pitchers! Inc. ("Pitchers!"),
which operates four sports restaurants, all of which are located in Colorado.
Cinema Saver currently has two first-run movie theatres and one discount
admission theatre in the suburbs of Denver and two discount admission theatres
in towns within one hour from Denver. Pitchers! has three sports restaurants in
the suburbs of Denver and one in a town within one hour from Denver. Through
its ownership of Cinema Savers and Pitchers!, the Company expects to combine
certain administrative functions and achieve operating efficiencies.
The Company plans to construct and operate new destination entertainment
complexes initially in secondary markets (generally towns with a population of
25,000 to 200,000) and suburban areas of Colorado in which both Cinema Saver
theatres and Pitchers! sports restaurants, as well as other entertainment-
oriented businesses, will be located. The Company expects that Cinema Saver
theatres, Pitchers! sports restaurants and the other attractions to be located
in the new destination entertainment complexes will draw a significant number of
customers and permit the Company to engage in joint marketing of its theatres
and sports restaurants.
The new destination entertainment complexes which the Company plans to
build will range from approximately 35,000 square feet to 60,000 square feet at
a cost of roughly $6,000,000 to $7,500,000. A Pitchers! sports restaurant is
expected to occupy approximately 12,000 square feet, with seating capacity of
450-500, and a Cinema Saver theatre will occupy approximately 20,000 to 24,000
square feet. The remainder, if any, will be leased to other entertainment-
oriented businesses such as a video game arcade, pizza restaurants, ice cream
shops and video rental stores. The Company estimates that construction of a
complex would take from 8 to 18 months, depending upon the size of the complex,
zoning requirements, and other factors particular to the site.
In addition to co-locating in new entertainment complexes, Cinema Saver and
Pitchers! may expand by opening separate facilities, should the right situations
be presented.
The Cinema Saver locations are set forth below:
<TABLE>
<CAPTION>
CINEMA SAVER LOCATIONS TYPE OF OPERATION NUMBER OF SCREENS NUMBER OF SEATS
- ---------------------- ----------------- ----------------- ---------------
<S> <C> <C> <C>
Basemar Cinema Saver discount admission 2 570
2490 Baseline Road, Boulder
Bergen Park Cinemas first-run 7 1,041
1204 Bergen Parkway, Evergreen
Cinema Saver 6 discount admission 6 1,179
2525 Worthington Circle, Fort Collins
Parker Cinema IV first-run 4 784
10831 South Crossroads Drive, Parker
Cinema Saver 6 discount admission 6 1,342
6014 South Kipling, Littleton
</TABLE>
The Pitchers! locations are set forth below:
<TABLE>
<CAPTION>
PITCHERS! LOCATIONS SIZE OF FACILITY CAPACITY
- ------------------- ---------------- --------
<S> <C>
1670 South Chambers Road, Aurora 6,500 square feet 195
1100 West Drake Road, Fort Collins 8,300 square feet 248
146 Van Gordon, Lakewood 12,100 square feet 491
2852 West Bowles Avenue, Littleton 11,500 square feet 450
</TABLE>
15
<PAGE>
HISTORY
The Company was formed as a Colorado corporation on April 10, 1998 for the
purpose of acquiring Cinema Saver and Pitchers! and has no other business other
than as a holding company. On May 20, 1998, the shareholders of Cinema Saver
and Pitchers! approved an Agreement and Plan of Share Exchange (the "Plan")
pursuant to which Cinema Saver and Pitchers! were acquired by the Company (the
"Acquisition"). As a result of the Acquisition, Cinema Saver and Pitchers!
became wholly-owned subsidiaries of the Company. The Plan provided for the
exchange of the outstanding shares of Cinema Saver common stock and Pitchers!
common stock solely for restricted shares of the Company's Common Stock.
Cinema Saver was founded on August 23, 1991 as a Colorado corporation to
develop a movie theatre company based on a combination of first-run and discount
admission theatres. That company's first efforts were directed toward
remodeling an older, first-run theatre in Boulder, Colorado, which had been
dormant for over a year, and re-opening it as Boulder's first discount admission
theatre in November 1991. The Basemar Cinema Saver, with two screens and 570
seats, has been operating profitably since early 1992. In 1994, Cinema Saver
expanded its operations with two first-run theatres in the suburbs of Denver,
Colorado. Cinema Saver purchased an existing 784-seat four-plex in Parker,
Colorado, in May 1994, and built a new 800-seat four-plex in Evergreen,
Colorado, which opened in May 1994. In December 1993, Cinema Saver purchased a
3.3-acre parcel of land in Fort Collins, Colorado, and built a 1,179-seat six-
plex which opened in March 1995 as a discount admission operation. In March
1998, Cinema Saver completed the expansion of the Evergreen location to 1,041
seats with seven screens. In July 1998, at the request of the landlord Cinema
Saver took over the operation of an existing 1,342-seat six-screen theatre in
Littleton, which operates as a discount admission theatre.
Pitchers! was incorporated on July 28, 1989, as a Colorado corporation, to
operate a sports restaurant in Aurora, Colorado. In 1993, Pitchers! expanded by
leasing a facility in Fort Collins, Colorado, and purchasing a building in
Denver, Colorado, in 1994. In 1996, the fourth facility was leased in
Littleton, Colorado, and a fifth location was leased in Lakewood, Colorado, in
1997. Pitchers! closed the Denver location in January 1998 and is in the
process of selling it, leaving Pitchers! with four operating restaurants.
EXPANSION CONCEPT
As indicated above, Cinema Saver and Pitchers! operate in both secondary
markets and Denver suburban areas. These companies combined on the assumption
that they could expand more rapidly as one company. Management believes that
the combination of two "destination" type of entertainment venues, together with
complementary smaller businesses, will create a new complex that can dominate
the entertainment options in the right secondary markets. Using the latest
Pitchers! (Lakewood) as the model, which has incorporated the best aspects of
each of the other operations, and putting it together with either a first-run or
discount admission movie theatre, management believes that it will create the
core critical mass necessary to insure that the Company's complex is the
entertainment "hot spot" of the town. These targeted secondary markets will
typically have a population of 25,000 to 200,000. While the Company's complexes
will not be of the size of some of the entertainment mega-complexes being built
in large cities throughout the United States, it is expected they will have the
same relative impact in the secondary markets in which the Company plans to
expand.
The Company believes that the attractiveness, comfort and viewing
experience that will be provided by its new modern facilities will result in the
Company's theatres being the preferred destination for moviegoers in its
markets.
Management believes the Company's new multiplex facilities will increase
per screen revenues and operating margins and enhance its operating
efficiencies. Such theatres allow the Company to present films appealing to
several segments of the moviegoing public while serving patrons from common
facilities (such as box office, concession stands, restrooms and game areas).
Larger multiplexes will also provide increased flexibility in the length of time
that a film will play. The Company can lengthen the run of a film by switching
it to a smaller auditorium after the initial peak weeks. The later weeks of a
film's run have the potential to generate higher profits as film license
agreements typically provide for lower film rent to be paid.
16
<PAGE>
The Company intends to continue operating both first run and discount
admission theatres. The decision as to which to operate will be made on a
market by market basis. Generally, if there is little or no first run
competition, the Company will operate as a first run theatre. In other markets,
however, the company will operate discount admission theatres. The Company
believes that its discount admission theatres allow it to serve patrons who miss
a film during its first run exhibition or who may not be able to afford to
attend first run theatres on a frequent basis, thereby increasing the number of
potential customers beyond traditional first run moviegoers.
The Company's theatres typically contain auditoriums consisting of 100 to
300 seats each and feature large screens, modern seating with cupholder
armrests, digital sound, attractive and functional concession stands, and video
game areas. New theatres will have all of these amenities as well as a modified
stadium seating configuration and will generally contain from 8 to 12
auditoriums. The Company's discount admission theatres generally have higher
attendance, lower film costs and a greater proportion of concession revenues
than its first run theatres. As of the date of this Prospectus, 56% of the
Company's screens were located in its discount theatres.
The Company proposes to acquire land in these markets and build new
facilities in a development that would range from approximately 35,000 square
feet to 60,000 square feet. The Cinema Saver theatre and Pitchers! restaurant
would occupy 35,000 to 40,000 square feet of the space, while the balance, if
any, would be leased to other businesses that are compatible with or complement
the entertainment theme, such as a video game arcade, ice cream/sandwich shop,
video rental outlet, or pizza restaurant. As the destination entertainment
center in a market, management believes that each operation in the complex will
be able to draw customers from the other, thereby attracting more customers
collectively than individually and creating an operating synergy.
The Company estimates that construction of a complex would take from 8 to
18 months, depending upon the size of the complex, zoning requirements, and
other factors particular to the site, at a cost of roughly $6,000,000 to
$7,500,000.
As separate companies, Cinema Saver and Pitchers! lacked the size to
justify certain operating mechanisms. There is now sufficient mass as a combined
company to bring certain operating functions in-house and operate more
efficiently and, in some cases, economically. Management plans to combine the
administrative functions of both companies and to engage in joint marketing
efforts.
While the trend among both major theatre operators and national restaurant
operators has been away from the smaller markets in favor of the larger ones,
with the construction of multi-plexes and large expensive decor restaurants,
management of the Company believes that on a per capita basis the secondary
markets can be just as profitable as the larger ones. With less competition in
these secondary markets, the Company can obtain a much greater market share than
is possible in the large markets. Actual attendance at Cinema Saver's theatres
appear to validate this assumption. Also, many operating expenses in these
markets are considerably less than in the large urban areas, particularly
advertising, wages, and occupancy costs. Finally, it is much easier to maintain
a market share in small communities because new forms of entertainment are
established with less frequency in these communities than in the cities.
Management believes that all of these factors create a stable operating and
marketing environment.
With Cinema Saver having developed and built new theatre complexes in
Evergreen and Fort Collins and Pitchers! having remodeled four restaurant
facilities, the Company has basic architectural, mechanical, and engineering
plans for both theatre and restaurant facilities. These plans have been
developed and designed to promote operating efficiencies for the Company while
providing a first-class entertainment environment for the customers. The
theatre auditoriums have been designed with digital surround sound, wide
screens, and reclining seats with cup holders, while lobbies have been designed
with common box office and concession areas enabling Cinema Saver to more
efficiently utilize staff and minimize congestion. As a result of having to
adapt to existing leased spaces, Pitchers! has had to operate in several very
different configurations, each of which has succeeded in some way. With each
new location, Pitchers! has gained experience in what works best, and the newest
location (Lakewood) has been remodeled to take advantage of this experience.
That location, in particular, has attractive eating, dancing, and amusement
spaces, which includes an outdoor patio, excellent transition between the
different venues, and an efficient kitchen. It is anticipated that future
restaurant facilities, proposed to range between 10,000 and 14,000 square feet,
will incorporate all of these attributes.
17
<PAGE>
The Company is in the process of negotiating for sites immediately outside
of the Denver metropolitan area. As of the date of this Prospectus, no
agreements, understandings, or arrangements have been reached. Pitchers! has
entered into an option to sublease approximately 10,500 square feet of space in
Arvada, Colorado, a suburb of Denver. The deadline to exercise the option is
August 31, 1998. The sublease would be for a term of approximately four and
one-half years, requiring rent of $6.00 per square foot plus property taxes.
The estimated cost to remodel and equip the space is $300,000. The Company
would exercise the option only if this offering is completed.
OPERATIONS
CINEMA SAVER. Cinema Saver was founded for the purpose of developing a
movie theatre company based on a combination of first-run and discount admission
theatres in secondary markets. Revenues are derived primarily from box office
receipts (approximately 68%) and concession sales (approximately 30%).
Additional revenues, which are not material, come from video games installed in
the theatre lobbies and on-screen advertising, both of which have been managed
by outside, independent companies on a revenue-sharing basis.
Theatrical exhibition is the primary distribution outlet for new motion
picture releases. The Company believes that the successful domestic release of
a motion picture plays an important role in the success of the "downstream"
outlets such as home video, pay-per-view, network and syndicated television.
The Company further believes that the emergence of new outlets for motion
pictures has not adversely affected attendance at theatres, as they do not
provide an experience that can compare to that of viewing a movie in a state-of-
the-art theatre. The Company believes the public will continue to prefer the
viewing of movies on large screens with superior sound and visual quality while
enjoying a snack of choice from the concession stand.
The Company's corporate office is responsible for theatre development and
site selection, lease negotiation, theatre design and construction, film
licensing and settlements, concession vendor negotiations, and financial and
accounting activities. Theatre managers are responsible for the day-to-day
operations of the Company's theatres including optimizing staffing, developing
innovative theatre promotions, preparing movie schedules, purchasing concession
inventories, maintaining a clean and functioning facility, and training theatre
staff.
The Company continually evaluates existing and new markets for potential
theatre locations. The Company generally seeks to develop theatres in markets
that are under-screened as a result of changing demographic trends or that are
served by distant or aging theatre facilities. Some of the factors the Company
considers in determining whether to develop a theatre in a particular location
are the market's population and average household income, the proximity to
retail corridors, convenient roadway access and the proximity to competing
theatres.
Films are typically licensed from film distributors owned by major film
production companies and from independent film distributors that distribute
films for smaller production companies. Prior to negotiating for a particular
film, Cinema Saver's management evaluates its prospects. The criteria used
include, but are not limited to, the cast, director, plot, MPAA rating, past
performance of similar films, and expected film rental terms. Success in
booking depends on the availability of commercially popular films and an
understanding of the tastes of residents in each particular market.
The Company licenses films through its corporate headquarters. The
Company's management has significant experience in the theatre industry and has
developed long-standing relationships with film distributors. The Company
licenses films from all of the major distributors and is not dependent on any
one studio for motion picture product.
A film license typically specifies a rental fee to be paid to the
distributor based on the higher result of either a gross receipts formula or a
theatre admissions revenue sharing formula. Under a gross receipts formula, the
distributor receives a specified percentage of the box office receipts, with the
percentage generally declining over the term of the run. First run film rental
percentages usually begin at 70% of box office receipts and gradually decline to
as low as 30% over a period of four to seven weeks. Second run film rental
percentages typically begin at 35% of box office receipts and often decline to
30% after the first week. Under the theatre admissions revenue sharing formula
(commonly known
18
<PAGE>
as the "90/10" clause), the distributor receives a specified percentage (i.e.
90%) of the excess of box office receipts over a negotiated reimbursement for
theatre expenses. In general, most distributors follow an industry practice of
adjusting or renegotiating the terms of a film license subsequent to exhibition
based upon the film's success.
Concession sales are the Cinema Saver's second largest revenue source,
representing 30% of total revenues for the twelve months ending December 31,
1997. The Company management devotes a considerable amount of effort to
increasing sales and improving the operating margins from concession sales.
The Company's primary concession sales come from soft drinks, popcorn, and
candy. In addition to these basic items, the Company sells bottled water,
nachos, fruit drinks, flavored teas and coffee-type beverages as alternatives
for its customers. The Company offers "combos" of a pre-selected assortment of
concession items for both adults and children.
The Company's newest theatres have multiple station concession stands which
are designed to serve larger numbers of customers rapidly.
The Company currently purchases all its concession supplies for all
theatres from two regional suppliers. The Company has a formal agreement with
Pepsi Cola(R) ("Pepsi(R)") to purchase all fountain products at existing and
future locations from that company. In exchange, Cinema Saver receives
Pepsi(R)'s favorable national pricing and Pepsi(R) provides all fountain
equipment at no cost to the Company.
PITCHERS! Each facility combines casual dining with specific entertainment
alternatives, such as large screen TVS, dancing, pool tables, video games, and
other amusement games. Separate customer areas permit different customer groups
to enjoy the facility simultaneously. For example, family and middle-aged
customers often frequent the restaurant dining area, while singles and young
couples dominate the amusement and games space. Many patrons use both customer
areas during a single visit. The varied uses of the restaurant space allows for
greater continuous occupancy throughout the day and evening. Management also
believes that it results in more even monthly and seasonal revenue flows, plus
an ability to compete effectively in highly saturated restaurant markets.
Pitchers! derives revenues primarily from sales of alcoholic beverages
(approximately 65%) and food (approximately 30%), with video games, pool, and
clothing accounting for the final 5%. Profit margins are significantly higher
on sales of alcoholic beverages (approximately 75%) than food (approximately
55%). Pitchers! serves casual American fare, with menu items ranging from $4.95
to $13.95.
Pitchers! negotiates directly with suppliers for key food and beverage
products to assure uniform quality and freshness of products in its restaurants,
and to obtain competitive prices. Food and beverage products and supplies are
shipped directly to the restaurants as Pitchers! does not maintain a central
product warehouse. Pitchers! has not experienced any significant delays in
receiving restaurant products, supplies, or equipment.
MARKETING
CINEMA SAVER. As is fairly standard for the movie theatre business, Cinema
Saver relies heavily on advertisements and movie schedules published in local
newspapers to inform the public of films currently showing and show times. It
also runs previews of coming attractions and previews of other films currently
showing on other screens in the same theatre complex, and displays lobby posters
and other promotional materials supplied by the distributors. In addition, the
theatres benefit from national advertising campaigns run by film distributors.
Each theatre is also equipped with a telephone "movie information line" which
has a recorded message listing the features and show times, and is listed on the
World Wide Web through various entertainment information bureaus.
19
<PAGE>
PITCHERS! In the past, marketing has consisted primarily of big
promotional grand openings involving sponsorships by beer distributors,
extensive use of coupons in specifically targeted local areas, and a substantial
amount of softball league sponsorships. Pitchers! tested more conventional
marketing methods during the fall of 1997: sponsoring pre-game and post-game
shows of the radio broadcast of Denver Bronco football games, advertising on an
afternoon weekday radio sports show, and monthly drawings at the restaurants for
trips to Las Vegas, a Super Bowl trip, a motorcycle, and Bronco game tickets.
FUTURE EFFORTS. With the combination of the companies, marketing efforts
will emphasize the image of a complete destination entertainment complex,
appealing to everyone in the local community. The Company plans to utilize
local newspaper and radio advertising, continue to sponsor softball and other
local participatory sport activities in the community, and cross-sell each side
of the business at the other location. Prior to the combination of these
companies, the two companies conducted a modest amount of cross-selling in Fort
Collins, where Cinema Saver 6 and Pitchers! are located across the street from
each other. The theatre advertises Pitchers! in the lobby and on-screen during
intermission, while Pitchers! has used theatre tickets as promotional items with
lunches and dinners. In the proposed new complexes where the facilities will be
located together, it is anticipated that more extensive use of such promotions
will further enhance the Company's marketing efforts.
SEASONALITY
CINEMA SAVER. The major film distributors generally release those films
which are anticipated to be the most successful during the summer and holiday
periods. As a results, first-run revenues are generally higher during these
periods. Cinema Saver's revenues, however, are somewhat more level due to its
mixture of first-run and discount admission operations. The first-run revenue
streams follow national trends relating to this release schedule, while discount
admission revenue flows generally lag behind first-run revenues streams by 30 to
120 days.
PITCHERS! The sports restaurant business typically is stronger in the
first and fourth quarters of the calendar year. While this is also true for
Pitchers!, it is offset somewhat through its significant sponsorship of softball
teams at all locations, which attracts customers during the second and third
calendar quarters. As of June 1, 1998, Pitchers! was sponsoring approximately
115 teams.
COMPETITION
CINEMA SAVER. Cinema Saver competes against both local and national
exhibitors, many of which have substantially greater financial resources than
the Company. The amount of competition varies depending upon the geographic
areas in which Cinema Saver's theatres are located. Competition can be intense
with respect to licensing motion pictures, attracting patrons, and finding new
theatre sites. Management of the Company believes that the principal
competitive factors with respect to film licensing include theatre location,
seating capacity, and the quality of the facilities versus those of other
exhibitors. The competition for patrons is dependent upon factors such as the
availability of popular motion pictures, the location and number of theatres and
screens in a given market, the comfort and quality of the theatres, and pricing.
The theatrical exhibition industry also faces competition from other
distribution channels for filmed entertainment, such as cable television, pay-
per-view, and home video systems, as well as from all other forms of
entertainment.
PITCHERS! The restaurant industry is intensely competitive. Pitchers!
competes with other casual dining restaurants and bars primarily on the basis of
service, atmosphere, location, quality of food, and perception of value. The
restaurant industry is affected by changes in consumer tastes, economic
conditions, weather conditions, demographic trends, traffic patterns, and the
type, number, and location of competing restaurants and bars. Management of the
Company believes that Pitchers! ability to compete effectively will continue to
depend upon its ability to offer good food, service, and entertainment value.
20
<PAGE>
LICENSING AND REGULATION
Both Cinema Saver and Pitchers! are subject to regulation by federal
agencies and to licensing and regulation by state and local health, sanitation,
safety, fire, and other departments relating to the development and operation of
movie theatres and restaurants, respectively. These regulations include matters
relating to environmental, building and zoning requirements; the preparation and
sale of food; designation of non-smoking areas; the operation of amusement
devices, such as billiard tables and pinball machines; and accessibility of the
premises to disabled customers. Various federal and state labor laws govern the
relationships between these companies and their employees, including minimum
wage requirements, overtime, working conditions, and immigration requirements.
Significant additional government-imposed increases in minimum wages, paid
leaves of absences and mandated health benefits, or increased tax reporting and
tax payment requirements for employees who receive gratuities could have an
adverse effect on the Company's results of operations. Delays or failures in
obtaining the required construction and operating licenses, permits, or
approvals could delay or prevent the opening of new theatres and restaurants.
Management believes that Cinema Saver and Pitchers! are operating in substantial
compliance with applicable laws and regulations governing their respective
operations.
CINEMA SAVER. The distribution of motion pictures is in large part
regulated by federal and state antitrust laws and historically has been the
subject of numerous antitrust cases. As a result of these cases, distributors
of motion pictures are required to offer and license them to exhibitors,
including Cinema Saver, on a film-by-film and theatre-by-theatre basis.
Consequently, Cinema Saver cannot assure itself of a supply of motion pictures
by entering into long-term arrangements with major distributors, but must
compete for its licenses on a film-by-film and theatre-by-theatre basis.
PITCHERS! Each of Pitchers! restaurants is subject to licensing and
regulation by a number of governmental authorities. Pitchers! operates its
restaurants in compliance with federal licensing requirements imposed by the
Bureau of Alcohol, Tobacco and Firearms of the United States Department of the
Treasury, as well as the licensing requirements of Colorado. Alcoholic beverage
control regulations require each of the Company's restaurants to apply to the
Colorado Department of Revenue Liquor Enforcement Division and, in most
locations, municipal authorities for a license and permit to sell alcoholic
beverages on premises. Typically, licenses must be renewed annually and may be
revoked or suspended for cause at any time. Alcoholic beverage control
regulations are related to numerous aspects of the daily operations of Pitchers!
restaurants, including minimum age of patrons and employees hours of operation,
advertising, wholesale purchasing, inventory control, and the handling, storage,
and dispensing of alcoholic beverages. Management of Pitcher! believes it has
all material regulatory permits and licenses necessary to operate its
restaurants. Failure on the part of Pitchers! to comply with federal, state, or
local regulations could cause Pitchers! licenses to be revoked and force it to
cease the sale of alcohol beverages at its restaurants. In addition, changes in
legislation, regulations, or administrative interpretation of liquor laws after
the opening of restaurants in a jurisdiction may prevent or hinder Pitchers!
expansion or operations in that jurisdiction. The failure to receive or retain,
or a delay in obtaining, a liquor license in a particular location could
adversely affect Pitchers! ability to obtain such a license elsewhere.
Pitchers! is subject to "dram-shop" laws in Colorado and will be subject to
such statutes in certain other states for future sites. These laws generally
provide a person injured by an intoxicated person the right to recover damages
from an establishment which wrongfully served alcoholic beverages to such
person. Pitchers! carries liquor liability coverage as part of its existing
comprehensive general liability insurance which it believes is consistent with
coverage carried by other entities in the restaurant industry. However, a
judgment against Pitchers! under a dram-shop statute in excess of its liability
coverage could have a material adverse effect on the Company.
EMPLOYEES
As of July 24, 1998, Cinema Saver had 90 employees, 8 of whom were full-
time, and Pitchers! had 152 employees, 48 of whom were full-time. None of the
employees of Cinema Saver or Pitchers! is covered by any collective bargaining
agreements.
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<PAGE>
PROPERTIES
CINEMA SAVER. Cinema Saver owns its locations in Evergreen and Fort
Collins. Parker Cinema IV is leased from a non-affiliated third party pursuant
to a lease which expires September 1, 1998, and requires monthly rental payments
of $7,500. Cinema Saver plans to continue to lease this facility on a month-to-
month basis after the termination of this lease. Basemar Cinema Saver is leased
from a non-affiliated third party pursuant to a lease which expires December 1,
2001, and requires monthly rental payments of $3,156 plus 10% of monthly gross
sales in excess of $40,000. The lease may be renewed for two additional five-
year terms.
The Littleton location is leased from a non-affiliated third party on a
percentage rent basis through July 31, 1999. After payment of taxes, insurance,
and common area operating costs, Cinema Saver is paid an equal amount as a
management fee. Cinema Saver and the landlord then split the net cash flow
before deductions for overhead, debt service, and depreciation. Cinema Saver
has the right to terminate this lease on 30 days' written notice to the
landlord. Cinema Saver may extend this lease for two three-year periods under
the same terms.
PITCHERS! Pitchers! leases all of its locations as follows:
<TABLE>
<CAPTION>
LOCATION LEASE EXPIRATION DATE MONTHLY RENT PAYMENT
- -------- --------------------- --------------------
<S> <C> <C>
1670 South Chambers Road, Aurora April 30, 2002 $ 4,373
1100 West Drake Road, Fort Collins March 28, 2006 $ 6,563
146 Van Gordon, Lakewood November 30, 2010 $12,197
2852 West Bowles Avenue, Littleton April 30, 2001 $ 8,811
</TABLE>
All of the lessors are non-affiliated third parties.
In addition, Pitchers! owns a location at 10175 East Hampden Avenue in
Denver, which it no longer operates. Pitchers! has entered into a contract to
sell this location to a non-affiliated third party. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
LEGAL PROCEEDINGS
The Company, through its operating subsidiaries, Cinema Saver and
Pitchers!, are involved in various legal proceedings which are normal to its
business, including premises liability and workers' compensation claims. The
Company believes that none of this litigation is likely to have a material
adverse effect on its financial condition or operations. The Company faces the
risk of exposure to premises liability claims if customers are injured while in
the Company's theatres or restaurants. While the Company will continue to
attempt to take appropriate precautions, there can be no assurance that it will
avoid significant premises liability exposure. Based on historical experience,
Cinema Saver and Pitchers! have liability coverage which the Company believes is
adequate.
Cinema Saver, together with Cinamerica Theatres, L.P. and United Artist
Theatre Circuit, Inc. (collectively the "Theatres"), has sued the City of
Boulder, Colorado, challenging the constitutionality of the City's admissions
tax. The case was filed initially in the District Court for the County of
Boulder, Colorado, on March 17, 1997. On January 21, 1998, the court granted
the City of Boulder's motion for summary judgment and affirmed the City's
administrative determination to deny the Theatres' claims for refund of the
Boulder Admissions Tax. The Theatres appealed this ruling to the Colorado Court
of Appeals on February 20, 1998. If the Theatres were to prevail, Cinema Saver
would receive a refund of approximately $100,000 in taxes.
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<PAGE>
MANAGEMENT
The officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --- --- --------
<S> <C> <C>
R. Haydn Silleck 53 President, Treasurer and Director of Company
President, Treasurer and Director of Cinema Saver
Herbert I. Lee 57 Secretary and Director of Company President and
Director of Pitchers! Director of Cinema Saver
Clifford E. Godfrey 49 Vice President and Director of Company
Vice President, Secretary and Director of Cinema Saver
Lorry D. Hanson 39 Vice President and Director of Company
Vice President and Director of Pitchers!
Stanley H. Marks 54 Director of Company
Director of Cinema Saver
Lyle A. Chapman, Jr. 49 Director of Company
Director of Cinema Saver
</TABLE>
The directors of the Company are elected to hold office until the next
annual meeting of stockholders and until their respective successors have been
elected and qualified. Officers of the Company are elected annually by the
Board of Directors and hold office until their successors are duly elected and
qualified.
R. Haydn Silleck has been the President, Treasurer, and a director of the
Company since its inception, and the Treasurer and a director of Cinema Saver
since the inception of that company in August 1991. He has been the President
of Cinema Saver since February 1993, and is responsible for the general
management, finance, and accounting of that company. Mr. Silleck was the
president, treasurer, and a director of Starlight Acquisitions, Inc., Denver,
Colorado, from January 1989 to May 1996. Starlight Acquisitions, Inc., a public
company, acquired Toucan Mining Limited in May 1996. From July 1988 to April
1989, he served as the president, treasurer, and a director of Starwood
Ventures, Inc., Denver, Colorado, a publicly-traded company which acquired Cine-
Source, Inc. in April 1989. Mr. Silleck has also been the president of Starwood
Investments, Inc., a private company involved in various investment activities,
since January 1984. From March 1976 to December 1983, he co-founded and was
employed by Gold C Enterprises, Inc., Denver, Colorado, a national publisher of
coupon books, as chairman and treasurer. Mr. Silleck was a commercial and
personal banking officer at the United Bank of Denver (now Norwest Bank),
Denver, Colorado, from September 1971 to September 1975. He received a
master's degree in business administration from Harvard University in 1971, and
a bachelor's degree in Latin American Studies from Yale University in 1966.
Herbert I. Lee has been the Secretary and a director of the Company since
its inception, the President and a director of Pitchers! since that company's
inception in 1989, and a director of Cinema Saver since its inception in 1991.
He is responsible for the general management of Pitchers! From 1986 to 1989, he
was the owner of Diversions Inc. (Softball America), Aurora, Colorado, a company
engaged in recreational softball. He was also the executive director for
Eastern Canada of Entertainment Publications Inc., Broomfield, Michigan, an
international company engaged in discount books. From 1974 to 1986, Mr. Lee was
president of Gold C Enterprises, Inc., Denver, Colorado, a national publisher of
coupon books which he co-founded. He was a vice president of United Bank of
Denver (now Norwest Bank) from 1963 to 1974. Mr. Lee received a bachelor's
degree from the University of Colorado in 1962.
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<PAGE>
Clifford E. Godfrey has been a director of the Company since its inception,
the Vice President of Company since May 1998, and the Vice President and a
director of Cinema Saver since that company's inception in 1991. He has also
been the secretary of Cinema Saver since May 1997. He is responsible for the
film buying for Cinema Saver, as well as the day-to-day operations. He was the
vice president and secretary of Summit Theatre Corporation from February 1991 to
December 1994, which operated a drive-in movie theatre in Aurora, Colorado.
From January 1981 to September 1989, Mr. Godfrey was in the film buying
department of Commonwealth Theatres, serving the last five years as the regional
film buyer responsible for film licensing agreements for approximately 150 of
that company's theatre screens. From October 1989 to January 1991, he performed
the same duties when these theatres were purchased by United Artists Theatres,
Englewood, Colorado. He has worked in the movie theatre business since 1965 in
various capacities in California, Colorado, Kansas, Missouri, Oklahoma, Texas,
and Wyoming.
Lorry D. Hanson has been the Vice President and a director of the Company
since May 1998, and the Vice President and director of Pitchers! since that
company's inception in 1989. He has been responsible for the construction of
all Pitchers! locations and restaurant management since 1989. Prior to being
employed by Pitchers!, Mr. Hanson was the general manager of Softball America.
From 1977 to 1987, he worked with Hanson Companies, contractors and homebuilders
in the Denver area.
Stanley H. Marks has been a director of the Company since May 1998 and a
director of Cinema Saver since the inception of that company in 1991. He has
been engaged in the private practice of law in Denver, Colorado, since 1972,
focusing his practice in criminal law, with emphasis in securities and white
collar criminal defense. Mr. Marks was certified as an arbitrator for the
National Association of Securities Dealers in 1996. He has been licensed to
practice in the State of Colorado since 1971. Mr. Marks received his law degree
from the Cincinnati College of Law in 1970 and bachelor's degrees from Wright
State University and Miami University of Ohio in 1967.
Lyle A. Chapman, Jr. has been a director of the Company since May 1998 and
a director of Cinema Saver since May 1994. Since 1990, he has been engaged in
private investments. He was the general manager and owner of Durant Foundry and
Machine Co., Inc., Durant, Iowa, a company which is engaged in the manufacture
of aluminum sand castings, from 1970 to 1990. Mr. Chapman received a bachelor's
degree in economics from Iowa State University in 1970.
EXECUTIVE COMPENSATION
Since the Company is recently formed, no compensation was paid to any
executive officers of the Company during the last fiscal year.
COMPENSATION OF DIRECTORS
There are no standard arrangements pursuant to which directors of the
Company are compensated for any services provided as a director, except for the
award of stock options pursuant to the Company's 1998 Stock Option Plan. No
options have been awarded as of the date of this Prospectus. See "Management -
Stock Option Plan."
STOCK OPTION PLAN
On May 20, 1998, the shareholders of the Company adopted the 1998 Stock
Option Plan, which provides for the granting of both incentive stock options and
non-qualified options to eligible employees, officers, and directors of the
Company. An aggregate of 223,000 shares of Common Stock initially have been
reserved for issuance pursuant to the exercise of stock options under this Plan
(the "Option Pool"). The Option Pool is adjusted annually on the beginning of
the Company's fiscal year to a number equal to 10% of the number of shares of
Common Stock of the Company outstanding at the end of the Company's last
completed fiscal year, or 223,000 shares, whichever is greater. The Plan is
administered by the Compensation Committee of the Board of Directors.
The Plan provides that disinterested directors, defined as non-employee
directors or persons who are not directors of one of the Company's subsidiaries,
will receive automatic option grants to purchase $10,000 of shares of
24
<PAGE>
Common Stock upon their appointment or election to the Board of Directors of the
Company. Options shall have an option price equal to 100% of the fair market
value of the Common Stock on the grant date and shall have a minimum vesting
period of one year from the date of grant.
Each option granted under the Plan will be evidenced by a written option
agreement between the Company and the optionee. Incentive stock options may be
granted only to employees (as defined by the Internal Revenue Code). The option
price of any incentive stock option may not be less than 100% of the fair market
value per share on the date of grant of the option; provided, however, that any
incentive stock option granted under the Plan to a person owning more than 10%
of the total combined voting power of the Common Stock will have an option price
of not less than 110% of the fair market value per share on the date of grant of
the incentive stock option. Each non-qualified stock option granted under the
Plan will be at a price no less than 85% of the fair market value per share on
the date of grant thereof, except that the automatic stock option grants to
disinterested directors will be at a price equal to the fair market value per
share on the date of grant. The exercise period of options granted under the
Plan may not exceed ten years from the date of grant thereof. Incentive stock
options granted to a person owning more than 10% of the total combined voting
power of the Common Stock will be for no more than five years. No portion of
any option will be exercisable prior to the first anniversary of the grant date.
An option may not be exercised unless the optionee then is an employee,
officer, or director of the Company or a subsidiary of the Company, and unless
the optionee has remained continuously as an employee, officer, or director of
the Company since the date of grant of the option. If the optionee ceases to be
an employee, officer, or director of the Company or subsidiary of the Company
other than by reason of death, disability, retirement, or for cause, all options
granted to such optionee, fully vested to such optionee but not yet exercised,
will terminate 90 days after the date the optionee ceases to be an employee,
officer, or director of the Company. All options which are not vested to an
optionee, under the conditions stated in this paragraph for which employment
ceases, will immediately terminate on the date the optionee ceases employment or
association.
As of the date of this Prospectus, no options have been granted under this
Plan.
PRINCIPAL SHAREHOLDERS
The following table sets forth information, as of the date of this
Prospectus, with respect to the beneficial ownership of shares of Common Stock
of the Company, its only class of voting securities outstanding, by each person
known by the Company to be the beneficial owner of more than five percent
thereof, by its directors, and by its officers and directors as a group:
<TABLE>
<CAPTION>
PERCENT OF CLASS (1)
---------------------
NAME AND ADDRESS OF NUMBER OF SHARES BEFORE AFTER
BENEFICIAL OWNER BENEFICIALLY OWNED OFFERING OFFERING
------------------ -------- --------
<S> <C> <C> <C>
Herbert I. Lee 267,650 21.68% 11.98%
2852 W. Bowles Avenue
Littleton, Colorado 80120
R. Haydn Silleck (2) 164,858(3) 12.86% 7.23%
10831 S. Crossroads Drive
Parker, Colorado 80134
Clifford E. Godfrey (4) 148,212 (3) 11.56% 6.50%
10831 S. Crossroads Drive
Parker, Colorado 80134
Stanley H. Marks (5) 114,260 9.26% 5.11%
1775 Sherman Street
Denver, Colorado 80203
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
PERCENT OF CLASS (1)
--------------------
NAME AND ADDRESS OF NUMBER OF SHARES BEFORE AFTER
BENEFICIAL OWNER BENEFICIALLY OWNED OFFERING OFFERING
------------------ -------- --------
<S> <C> <C> <C>
Lyle A Chapman, Jr. (6) 113,750 (7) 9.19% 5.08%
4301 S. Downing Street
Englewood, Colorado 80010
Carol A VanGytenbeek 110,484 8.95% 4.95%
2852 W. Bowles Avenue
Littleton, Colorado 80120
Lorry D. Hanson 104,636 8.48% 4.68%
2852 W. Bowles Avenue
Littleton, Colorado 80120
Jean A. Sertich 85,912 6.72% 3.85%
15001 E. Alameda Avenue
Aurora, Colorado 80012
Officers and directors as a group 913,366(9) 68.56% 39.16%
(6 persons) (8)
</TABLE>
______________
(1) Where persons listed on this table have the right to obtain additional
shares of Common Stock through the exercise of outstanding options or
warrants or the conversion of convertible securities within 60 days from
the date of this Prospectus, these additional shares are deemed to be
outstanding for the purpose of computing the percentage of Common Stock
owned by such persons, but are not deemed to be outstanding for the purpose
of computing the percentage owned by any other person. Percentages are
based on 1,234,355 shares outstanding before the offering and 2,234,355
shares outstanding after the offering.
(2) Includes 31,653 shares held of record by his wife, 14,578 shares held of
record by Starwood Investments Profit Sharing Plan, and 43,988 shares held
of record by his two children.
(3) Includes 47,479 shares issuable upon the exercise of certain options. See
"Certain Relationships and Related Transactions."
(4) Includes 12,364 shares held of record by his wife and 4,946 shares held of
record by his child.
(5) Includes 101,387 shares held of record by his wife, 10,895 shares held of
record by his law firm's profit sharing plan, and 1,978 shares held of
record by his two children.
(6) Includes 63,057 shares held of record by his three children.
(7) Includes 2,967 shares issuable upon the exercise of certain options. See
"Certain Relationships and Related Transactions."
(8) See notes (2), (3), (4), (5), (6), and (7) above.
(9) Includes 97,925 shares issuable upon the exercise of certain options. See
"Certain Relationships and Related Transactions."
26
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CINEMA SAVER
On November 11, 1996, Cinema Saver acquired the one-half interest in
Evergreen Cinemas, Ltd. which it did not own from Lyle A. Chapman, Jr., a
director of Cinema Saver, and his family. Evergreen Cinemas, Ltd. was
originally formed to develop the Bergen Park theatre with Cinema Saver and the
Chapman being equal owners. The Chapmans were paid for their equity capital
account and their share of net earnings in the limited partnership, and were
repaid loans that had been made in the partnership. The partnership was
subsequently merged into Cinema Saver.
On November 12, 1996, Cinema Saver refinanced its then existing debt with a
loan from Quad City Bank and Trust Company in the amount of $3,255,000. The
promissory note, which requires monthly payments of $33,529.81 and accrues
interest at the rate of 9.25% per annum, was personally guaranteed by R. Haydn
Silleck, Clifford E. Godfrey, Lyle A. Chapman, Jr., and Joel D. Boldrey, then
officers and directors of Cinema Saver. The note is secured by mortgages on the
Fort Collins and Bergen Park locations and an assignment of lease on the Boulder
location, as well as a security interest in the inventory, accounts, equipment,
and general intangibles of Cinema Saver. At June 30, 1998, the balance of the
note was $3,085,053. See "Business."
On May 15, 1997, Cinema Saver purchased 467,090 shares of Cinema Saver
common stock and warrants to purchase shares of Cinema Saver common stock from
Joel D. Boldrey, a former officer and director of Cinema Saver, for $217,542.
Cinema Saver paid $20,000 in cash and delivered a promissory note for $197,542.
Mr. Boldrey was also released as a guarantor on the loan by Quad City Bank
described above. The promissory note, which is due May 15, 2007, requires
payments of $2,250 per month and accrues interest at the rate of six percent per
annum. At June 30, 1998, the balance of the note was $178,757. Cinema Saver
reissued the warrants to R. Haydn Silleck, Clifford E. Godfrey, and Lyle A.
Chapman, Jr. for their increased exposure on their personal guarantees of bank
loans made to Cinema Saver. The warrants, as reissued to Messrs. Silleck,
Godfrey, and Chapman, permitted each of them to purchase up to 32,500, 32,500,
and 15,000 shares, respectively, at $0.134 per share. The warrants, which were
originally granted as consideration for personal guarantees of bank loans made
to Cinema Saver, expire one year after the guarantors are released from all
liability arising from such guarantees. In consideration for increased
responsibilities placed on Messrs. Silleck and Godfrey due to the departure of
Mr. Boldrey, Messrs. Silleck and Godfrey were each granted an option to purchase
up to 155,000 shares at $.417 per share. The options expires May 15, 2007.
Messrs. Silleck and Godfrey subsequently transferred part of the options to two
employees of Cinema Saver.
As a result of the Share Exchange, the options and warrants to purchase
shares of Cinema Saver common stock were converted to options to purchase shares
of the Company's Common Stock. The outstanding options are as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES EXERCISE PRICE
OPTION HOLDER PURCHASABLE PER SHARE EXPIRATION DATE
- ------------- ----------- --------- ---------------
<S> <C> <C> <C>
R. Haydn Silleck 29,674 $2.108 05/15/2007
R. Hayden Silleck 17,805 $0.677 one year after release of liability for
guarantee of bank loans
Clifford E. Godfrey 29,674 $2.108 05/15/2007
Clifford E. Godfrey 17,805 $0.677 one year after release of liability for
guarantee of bank loans
Lyle A. Chapman, Jr. 2,967 $0.677 one year after release of liability for
guarantee of bank loans
Employee 989 $2.108 01/07/2003*
Employee 989 $2.108 01/07/2003*
</TABLE>
- -----------
* Reverts back to Messrs. Silleck and Godfrey equally if not exercised before
expiration date or if employee leaves Cinema Saver before expiration date.
27
<PAGE>
PITCHERS
On December 14, 1993, Pitchers! borrowed $12,500 each from Herbert I. Lee
and Lorry D. Hanson, officers, directors, and shareholders of that company. As
of June 30, 1998, $3,964 and $11,964 were owed to Messrs. Lee and Hanson,
respectively. Interest is paid at the rate of 7% per annum. The loans are
unsecured.
On May 24, 1994, Pitchers! obtained an SBA loan in the amount of $800,000
from Aurora National Bank (now known as Citywide National Bank). One promissory
note, in the original principal amount of $600,000, is due May 24, 2019, accrues
interest at the prime rate plus 2.75% per annum, and currently requires payments
of $5,957 per month. The second promissory note in the original principal amount
of $200,000 is due May 24, 2001, accrues interest at the prime rate plus 2.75%
per annum, and currently requires payments of $3,394 per month. Repayment of
the loan is guaranteed by Herbert I. Lee, Lorry D. Hanson, Jean A. Sertich, and
Carol A. VanGytenbeek, all of whom are officers and directors of Pitchers!. The
proceeds of the loans were used to purchase, remodel, and equip the restaurant
at 10175 East Hampden Avenue. A deed of trust on this location and a security
interest in the furniture, fixtures, equipment, and inventory secure this loan.
At June 30, 1998, the unpaid balance of these loans was $674,842. Pitchers!
proposes to sell the Hampden Avenue restaurant. If the sale is completed, these
loans would be assumed by the purchaser.
On April 25, 1996, Pitchers! entered into a lease for its Littleton
location with 1100 Drake, Ltd., a Colorado limited partnership ("1100 Drake").
The general partner of 1100 Drake is Starwood Investments, Inc., a company
controlled by R. Haydn Silleck. Over 78% of the limited partnership interests
of 1100 Drake are owned by shareholders of the Company, including the following
officers and directors of Cinema Saver and/or Pitchers!: Herbert I. Lee,
Clifford E. Godfrey, Lorry D. Hanson, Carol A. VanGytenbeek, Jean A. Sertich,
and R. Haydn Silleck indirectly through Starwood Investments Profit Sharing
Plan. Pitchers! believes that the terms of the lease are more favorable than
what could be obtained from a non-affiliated third party. For the year ended
December 31, 1997, Pitchers! paid rent, common area maintenance expenses, and
taxes of $131,556 to 1100 Drake. A non-affiliated third party purchased this
property subject to the lease to Pitchers! on July 10, 1998. See "Business -
Properties."
On May 6, 1997, Pitchers! borrowed $171,787 from Aurora National Bank to
remodel the Lakewood restaurant. The note is due May 5, 2000, accrues interest
at 9.75% per annum, requires monthly payments of $5,533.77, and is guaranteed by
Herbert I. Lee, Lorry D. Hanson, Jean A. Sertich, and Carol A. VanGytenbeek.
The loan is secured by a third deed of trust on 10175 East Hampden Avenue,
Denver, Colorado, together with the inventory, furniture, fixtures, and
equipment. At June 30, 1998, the unpaid balance of this loan was $118,538.
On March 16, 1998, Pitchers! obtained a line of credit in the amount of
$35,382 from Aurora National Bank. Interest accrued at the rate of 9.75% per
annum and the loan was guaranteed by Herbert I. Lee, Lorry D. Hanson, Jean A.
Sertich, and Carol A. VanGytenbeek. The loan was paid on its due date of June
16, 1998.
Also on March 16, 1998, Pitchers! borrowed $75,782 from Aurora National
Bank to provide cash for certain of the costs of this offering. Interest
accrues at the rate of 9.75% per annum on this loan, which is due September 16,
1998. Repayment of the loan is guaranteed by Herbert I. Lee, Lorry D. Hanson,
Jean A. Sertich, and Carol A. VanGytenbeek.
On July 17, 1998, Pitchers! borrowed $20,000 from Herbert I. Lee for 90
days, with interest to accrue on the loan at 8%. On July 27, 1998, Pitchers!
borrowed $10,000 from Lorry D. Hanson for 90 days, with interest to accrue on
the loan at 8%. Both loans are unsecured.
None of the net proceeds of this offering has been allocated to reduce
debt. See "Use of Proceeds."
28
<PAGE>
DESCRIPTION OF SECURITIES
UNITS
Each Unit consists of one share of Common Stock and one Warrant. The
Shares and the Warrants included in the Units may not be separately traded for
six months after the date of this Prospectus, unless earlier separated upon ten
days' written notice from the Representative to the Company.
COMMON STOCK
The Company is authorized to issue 25,000,000 shares of common stock, no
par value (the "Common Stock"). As of the date of this Prospectus, there were
1,234,355 shares of Common Stock issued and outstanding, held by 51 holders.
VOTING RIGHTS. All shares of the Company's Common Stock have equal voting
rights, with one vote per share, on all matters submitted to the stockholders
for their consideration. The shares of Common Stock do not have cumulative
voting rights.
DIVIDENDS. Subject to the prior rights of the holders of any series of
preferred stock which may be issued, holders of Common Stock are entitled to
receive dividends, when and if declared by the Board of Directors, out of funds
of the Company legally available therefor.
PREEMPTIVE AND LIQUIDATION RIGHTS. Holders of shares of Common Stock do
not have any preemptive rights or other rights to subscribe for additional
shares, or any conversion rights. Upon a liquidation, dissolution, or winding
up of the affairs of the Company, holders of the Common Stock will be entitled
to share ratably in the assets available for distribution to such stockholders
after the payment of all liabilities and after the liquidation preference of any
preferred stock outstanding at the time.
OTHER. There are no sinking fund provisions applicable to the Common
Stock. The Shares offered hereby will be fully paid and non-assessable when
issued.
PREFERRED STOCK
The Articles of Incorporation authorize the Board of Directors to issue, by
resolution, 10,000,000 shares of preferred stock, no par value, in classes,
having such designations, powers, preferences, rights, and limitations and on
such terms and conditions as the Board of Directors may from time to time
determine, including the rights, if any, of the holders of such preferred stock
with respect to voting, dividends, redemptions, liquidation and conversion. See
"Risk Factors - Authorization of Preferred Stock." As of the date of this
Prospectus, no classes of preferred stock have been designated and no shares
have been issued.
WARRANTS
The Warrants will be issued in registered form under, governed by, and
subject to the terms of a warrant agreement (the "Warrant Agreement") between
the Company and Corporate Stock Transfer, Inc. as warrant agent (the "Warrant
Agent"). The following statements are brief summaries of certain provisions of
the Warrant Agreement. Copies of the Warrant Agreement may be obtained from the
Company or the Warrant Agent and have been filed with the Securities and
Exchange Commission as an exhibit to the Registration Statement of which this
Prospectus is a part. See "Additional Information."
Each Warrant entitles the holder thereof to purchase one share of Common
Stock at a price of $9.00 (the "Warrant Exercise Price") at any time after the
Shares and Warrants become separately tradable until _______ [5 years from the
date of this Prospectus]. The right to exercise the Warrants will terminate at
the close of business on ___________. The Warrants contain provisions that
protect the Warrant holders against dilution by adjustment of the
29
<PAGE>
exercise price in certain events including, but not limited to, stock dividends,
stock splits, reclassifications, or mergers. A Warrant holder will not possess
any rights as a stockholder of the Company. The shares of Common Stock, when
issued upon the exercise of the Warrants in accordance with the terms thereof,
will be fully paid and non-assessable.
Commencing on ___________, 1999 [twelve months from the date of this
Prospectus], the Company may redeem some or all of the Warrants at a call price
of $0.01 per Warrant, upon thirty (30) days' prior written notice if the closing
sale price for the Common Stock has equaled or exceeded $_____ for ten (10)
consecutive trading days.
The Warrants may be exercised only if a current prospectus relating to the
underlying Common Stock is then in effect and only if the shares are qualified
for sale or exempt from registration under the securities laws of the state or
states in which the purchaser resides. So long as the Warrants are outstanding,
the Company has undertaken to file all post-effective amendments to the
Registration Statement required to be filed under the Securities Act, and to
take appropriate action under federal law and the securities laws of those
states where the Warrants were initially offered to permit the issuance and
resale of the Common Stock issuable upon exercise of the Warrants. However,
there can be no assurance that the Company will be in a position to effect such
action, and the failure to do so may cause the exercise of the Warrants and the
resale or other disposition of the Common Stock issued upon such exercise to
become unlawful. The Company may amend the terms of the Warrants, but only by
extending the termination date or lowering the exercise price thereof. The
Company has no present intention of amending such terms. However, there can be
no assurances that the Company will not alter its position in the future with
respect to this matter.
TRANSFER AGENT AND REGISTRAR
Corporate Stock Transfer, Inc., Denver, Colorado, will act as the registrar
and transfer agent for the Company's Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
All of the currently outstanding 1,234,355 shares of Common Stock are
restricted and will not be eligible for sale under Rule 144 of the Securities
Act until June 1999. In general, under Rule 144 as currently in effect, a
person (or persons whose shares are aggregated) who has beneficially owned
restricted shares for at least one year, is entitled to sell, within any three-
month period, that number of shares that does not exceed the greater of (a) one
percent of the then outstanding shares or (b) the average weekly trading volume
of the then outstanding shares during the four calendar weeks preceding each
such sale. Furthermore, a person who is not deemed an "affiliate" of the
Company and who has beneficially owned shares for at least two years is entitled
to sell such shares under Rule 144 without regard to the volume limitations
described above.
The Representative has required in the underwriting agreement that sales of
the outstanding shares may not commence until 12 months from the date of this
Prospectus, without the prior written consent of the Representative.
There are also outstanding as of the date of this Prospectus, options to
purchase 99,903 shares of Common Stock, all of which are currently exercisable
at prices which are substantially less than the public offering price. Upon
exercise of these options, the holders would be issued restricted shares of
Common Stock that could be sold in Rule 144 sales one year from the date of
exercise. See "Certain Relationships and Related Transactions."
No predictions can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sale, will have on the market
price of the Common Stock prevailing from time to time. The Company is unable
to estimate the number of shares that may be sold in the public market under
Rule 144, since this will depend on the trading volume, the market price for the
Common Stock, and other factors. Nevertheless, sales of substantial amounts of
Common Stock, or the perception that such sales could occur, could have a
material adverse effect on prevailing market prices.
30
<PAGE>
UNDERWRITING
Pursuant to the terms and subject to the conditions contained in the
Underwriting Agreement, the Company has agreed to sell to the Underwriters named
below, and each of the Underwriters, for whom Tejas Securities Group, Inc. (the
"Representative") is acting as Representative, has severally agreed to purchase
the number of Units set forth opposite its name in the following table:
UNDERWRITERS NUMBER OF UNITS
------------ ---------------
Tejas Securities Group
Total 1,000,000
=========
The Representative has advised the Company that the Underwriters propose to
offer the Units to the public at the initial public offering price per Unit set
forth on the cover page of this Prospectus and to certain dealers at such price
less a concession of not more than $_____ per Unit, of which $______ may be
reallowed to other dealers. After the initial public offering, the public
offering price, concession, and reallowance to dealers may be reduced by the
Representative.
The Company has granted to the Underwriters an option, exercisable during
the 45-day period after the date of this Prospectus, to purchase up to 150,000
additional Units to cover over-allotments, if any, at the same price per Unit as
the Company will receive for the 1,000,000 Units that the Underwriters have
agreed to purchase. To the extent that the Underwriters exercise such option,
each of the Underwriters will have a firm commitment to purchase approximately
the same percentage of such additional Units that the number of Units to be
purchased by it shown in the above table represents as a percentage of the
1,000,000 Units offered hereby. If purchased, such additional Units will be
sold by the Underwriters on the same terms as those on which the 1,000,000 Units
are being sold.
All of the existing shareholders of the Company have agreed with the
Representative that, until one year after the date of this Prospectus, subject
to certain limited exceptions, they will not offer, sell, contract to sell, or
otherwise dispose of any shares of Common Stock, any options to purchase shares
of Common Stock, or any securities convertible into, exercisable for, or
exchangeable for shares of Common Stock, owned directly by such holders or with
respect to which they have the power of disposition, or enter into any swap or
similar agreement that transfers, in whole or in part, the economic risk of
ownership of the Common Stock, without the prior written consent of the
Representative. Substantially all of such shares will be eligible for immediate
public sale following the expiration of the lock-up period, subject to the
provisions of Rule 144. In addition, the Company has agreed that until one year
after the date of this Prospectus, the Company will not, without the prior
written consent of the Representative, subject to certain limited exceptions,
issue, sell, contract to sell, or otherwise dispose of, any shares of Common
Stock, any options to purchase any shares of Common Stock, or any securities
convertible into, exercisable for, or exchangeable for shares of Common Stock,
or enter into any swap or similar agreement that transfers, in whole or in part,
the economic risk of ownership of the Common Stock, other than the Company's
sales of shares in this offering, the issuance of Common Stock upon the exercise
of outstanding options or warrants, or the issuance of options under its
employee stock option plan. See "Shares Eligible for Future Sale."
Certain persons participating in this offering may over-allot or effect
transactions which stabilize, maintain, or otherwise affect the market price of
the Common Stock at levels above those which might otherwise prevail in the open
market, including by entering stabilizing bids, effecting syndicate covering
transactions, or imposing penalty bids. A stabilizing bid means the placing of
any bid or effecting of any purchase, for the purpose of pegging, fixing or
maintaining the price of the Common Stock. A syndicate covering transaction
means the placing of any bid on behalf of the underwriting syndicate or the
effecting of any purchase to reduce a short position created in connection with
this offering. A penalty bid means an arrangement that permits the Underwriters
to reclaim a selling concession from a syndicate member in connection with this
offering when shares of Common Stock sold by the syndicate member are purchased
in syndicate covering transactions. Such stabilizing, if commenced, may be
discontinued at any time.
31
<PAGE>
The Representative has informed the Company that it does not expect sales
to accounts over which the Underwriters exercise discretionary authority.
The Company has agreed to pay the Representative a non-accountable expense
allowance of 2.0% of the gross amount of the Units sold at the closing of the
offering. The Underwriters' expenses in excess thereof will be paid by the
Representative. To the extent that the expenses of the underwriting are less
than that amount, such excess shall be deemed to be additional compensation to
the Underwriters.
The Company has agreed that for a period of five years from the closing of
the sale of the Units offered hereby, it will nominate for election as a
director a person designated by the Representative, and during such time as the
Representative has not exercise such right, the Representative shall have the
right to designate an observer, who shall be entitled to attend all meetings of
the board and receive all correspondence and communications sent by the Company
to the members of the Board. The Representative has not yet identified to the
Company the person who is to be nominated for election as a director or
designated as an observer.
The Underwriting Agreement provides for indemnification between the Company
and the Underwriters against certain civil liabilities, including liabilities
under the Securities Act. In addition, the Representative's Warrants provide
for indemnification between the Company and the holders of the Representative's
Warrants and underlying securities against certain civil liabilities, including
liabilities under the Securities Act and the Exchange Act.
The Representative does not have substantial experience in public
offerings. Tejas Securities Group, Inc. has managed and completed three firm-
commitment public offerings of equity securities in the past nine months.
Principals of the Representative, however, have had substantial experience in
connection with public offerings of equity securities. There can be no assurance
that the Representative's lack of experience will not adversely affect the
offering.
REPRESENTATIVE'S WARRANTS
Upon the closing of this offering, the Company has agreed to sell to the
Representative for nominal consideration, the Representative's Warrants. The
Representative's Warrants are exercisable at 120% of the public offering price
for a four-year period commencing one year from the effective date of this
offering. The Representative's Warrants may not be sold, transferred, assigned,
or hypothecated for a period of one year from the date of this offering except
to the officers or the Underwriters and their successors and dealers
participating in the offering and/or their partners or officers. The
Representative's Warrants contain antidilution provisions providing for
appropriate adjustment of the number of shares subject to the Warrants under
certain circumstances. The holders of the Representative's Warrants have no
voting, dividend, or other rights as shareholders of the Company with respect to
shares underlying the Representative's Warrants until the Representative's
Warrants have been exercised. The holders of the Representative's Warrants have
certain demand and piggyback registration rights with respect to the underlying
shares of Common Stock.
SOLICITATION FEE
If the Representative, at its election, at any time one year from the date
of this Prospectus, solicits the exercise of the Warrants, the Company will be
obligated, subject to certain conditions, to pay the Representative a
solicitation fee equal to 5% of the aggregate proceeds received by the Company
as a result of the solicitation. No Warrant solicitation fees will be paid
within one year after the date of the Prospectus. No solicitation fee will be
paid if the market price of the Common Stock is lower than the then current
exercise price of the Warrants; no solicitation fee will be paid if the Warrants
being exercised are held in a discretionary account at the time of exercise,
except where prior specific approval for exercise is received from the customer
exercising the Warrants; and no solicitation fee will be paid unless the
customer exercising the Warrants states in writing that the exercise was
solicited and designates in writing the Representative or other broker-dealer to
receive compensation in connection with the exercise. The Representative may
reallow a portion of the fee to soliciting broker-dealers. Solicitation of the
exercise of the Warrants by the Representative will not be made during the
restricted periods of Regulation M under the Securities Exchange Act of 1934, as
amended.
32
<PAGE>
DETERMINATION OF OFFERING PRICE
The initial public offering price was determined by negotiations between
the Company and the Representative. The factors considered in determining the
public offering price include the combined revenue growth of the Company's
subsidiaries since their organization, the industry in which the Company
operates, the Company's business potential and earning prospects, and the
general condition of the securities markets at the time of the offering. Prices
for the shares of Common Stock after this offering will be determined in the
market and may be influenced by many factors including the depth and liquidity
of the market for the Common Stock, investor perception of the Company, and the
entertainment industry as a whole.
Prior to this offering, there has been no public market for the Common
Stock, and there can be no assurance that an active market will develop.
PACIFIC EXCHANGE
The Company has applied to list the Common Stock on the Pacific Exchange
under the trading symbol "SLN".
LEGAL MATTERS
The validity of the issuance of the securities offered hereby will be
passed upon for the Company by Dill Dill Carr Stonbraker & Hutchings, P.C.,
Denver, Colorado. Certain legal matters in connection with the sale of the
securities offered hereby will be passed upon for the Underwriters by Wolin,
Ridley & Miller LLP, Dallas, Texas.
EXPERTS
The financial statements of Cinema Saver and Pitchers! as of and for the
period ending December 31, 1997, included in this Prospectus have been audited
by Comiskey & Company, P.C., independent public accountants, as indicated in
their reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in auditing and accounting, in giving said
reports.
33
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
HISTORICAL FINANCIAL STATEMENTS
<S> <C>
Starlight Entertainment, Inc.:
Consolidated Balance Sheet as of June 30, 1998 (unaudited) F-1
Consolidated Statements of Operations for the Six Months Ended
June 30, 1998 and 1997 (unaudited)......................................................... F-2
Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 1998 and 1997 (unaudited)......................................................... F-3
Notes to Consolidated Financial Statements for the Six Months Ended
June 30, 1998 and 1997 (unaudited)......................................................... F-4
Cinema Saver Theatre Corporation:
Report of Independent Certified Public Accountants............................................ F-6
Balance Sheet as of December 31, 1997......................................................... F-7
Statements of Operations for the Years Ended December 31, 1997 and 1996....................... F-8
Statement of Changes in Stockholders' Equity for the Years Ended December 31, 1997 and 1996... F-9
Statements of Cash Flows for the Years Ended December 31, 1997 and 1996....................... F-10
Notes to Financial Statements - December 31, 1997 and 1996.................................... F-11
Pitchers!, Inc.:
Report of Independent Certified Public Accountants............................................ F-16
Balance Sheet as of December 31, 1997......................................................... F-17
Statements of Operations for the Years Ended December 31, 1997 and 1996....................... F-18
Statement of Changes in Stockholders' Equity for the Years Ended December 31, 1997 and 1996... F-19
Statements of Cash Flows for the Years Ended December 31, 1997 and 1996....................... F-20
Notes to Financial Statements - December 31, 1997 and 1996.................................... F-21
PRO FORMA COMBINED FINANCIAL STATEMENTS
Starlight Entertainment, Inc.:
Introduction to Pro Forma Combined Financial Statements....................................... F-27
Balance Sheet as of December 31, 1997......................................................... F-28
Statements of Operations for the Year Ended December 31, 1997................................. F-29
Statements of Operations for the Year Ended December 31, 1996................................. F-30
Notes to Pro Forma Financial Statements - December 31, 1997................................... F-31
</TABLE>
34
<PAGE>
Starlight Entertainment, Inc.
BALANCE SHEET
June 30, 1998
(Unaudited)
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS
Cash $ 144,466
Other current assets 255,221
----------
Total Current Assets 399,687
PROPERTY AND EQUIPMENT, net of accumulated depreciation 5,434,098
OTHER ASSETS 270,324
----------
TOTAL ASSETS $6,104,109
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 336,920
Other current liabilities 279,460
----------
Total current liabilities 616,380
LONG-TERM LIABILITIES
Notes payable, less current portion 3,755,238
Other long term liabilities 387,297
----------
4,142,535
STOCKHOLDERS' EQUITY
Preferred stock, no par value, 10,000,000 shares
authorized, no shares issued or outstanding -
Common stock, no par value, 25,000,000 shares
authorized, 1,234,355 shares issued and outstanding 546,087
Retained earnings 799,107
----------
1,345,194
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $6,104,109
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-1
<PAGE>
STARLIGHT ENTERTAINMENT, INC.
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
REVENUES
Restaurant operations $2,574,343 $2,354,324
Theater operations 1,255,373 1,306,028
---------- ----------
3,829,716 3,660,352
COST AND EXPENSES
Cost of goods sold, restaurant operations 931,370 902,653
Direct operating cost, theater operations 518,923 563,661
General & administrative expenses 2,090,653 1,861,207
Interest expense 184,914 193,895
Other income (51,127) (6,356)
---------- ----------
3,674,733 3,515,060
---------- ----------
Income before income taxes 154,983 145,292
Provision for income taxes 49,100 46,800
---------- ----------
NET INCOME $ 105,883 $ 98,492
========== ==========
PER SHARE INFORMATION
BASIC EARNINGS PER SHARE $ 0.09 $ 0.08
========== ==========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING - BASIC 1,234,355 1,234,355
========== ==========
DILUTED EARNINGS PER SHARE $ 0.08 $ 0.08
========== ==========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING - DILUTED 1,367,559 1,267,656
========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
F-2
<PAGE>
Starlight Entertainment, Inc.
STATEMENTS OF CASH FLOWS
For the six months ended June 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 105,883 $ 98,492
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and Amortization 163,577 54,877
Net changes in operating assets and liabilities (224,318) (127,892)
--------- ---------
Net cash provided by operating activities 45,142 25,477
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (758,847) (129,462)
--------- ---------
Net cash used by investing activities (758,847) (129,462)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in deferred offering cost (85,638) -
Retirement of equity interest - (20,000)
Repayment of installment debt (132,438) (118,570)
Proceeds from installment debt 75,782 171,787
Other cash provided (used) by financing activities 25,935 (15,224)
--------- ---------
Net cash provided (used) by financing activities (116,359) 17,993
--------- ---------
NET INCREASE IN CASH (830,064) (85,992)
CASH AND EQUIVALENTS, BEGINNING OF YEAR 974,530 333,335
--------- ---------
CASH AND EQUIVALENTS, END OF YEAR $ 144,466 $ 247,343
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
Starlight Entertainment, Inc.
NOTES TO FINANCIAL STATEMENTS
For the six months ended June 30, 1998 and 1997
(Unaudited)
1. BASIS OF PRESENTATION
---------------------
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and Item 310(b) of Regulation SB. They do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting only of normal recurring
adjustments) considered necessary for a fair presentation have been
included. The results of operations for the periods presented are not
necessarily indicative of the results to be expected for the full year. For
further information, refer to the financial statements of the Company as of
December 31, 1997 and for the two years then ended, including notes thereto
included elsewhere in this registration statement.
2. POOLING OF INTERESTS
--------------------
On June 4, 1998, the Company acquired Pitchers!, Inc. ("Pitchers") and
Cinema Saver Theatre Corporation ("Cinema Saver") in a business combination
accounted for as a pooling of interests. Pitchers, which operates four
sports restaurants, became a wholly owned subsidiary of the Company through
the exchange of 583,738 shares of the Company's common stock for all of the
outstanding stock of Pitchers. Cinema Saver, which operates five movie
theaters, became a wholly owned subsidiary of the Company through the
exchange of 650,617 shares of the Company's common stock for all of the
outstanding stock of Cinema Saver. The accompanying financial statements
1998 are based on the assumption that the companies were combined for the
full six month period, and financial statements for the prior year have
been restated to give effect to the combination.
Summarized results of operations of the separate companies for the period
from January 1, 1998 through June 30, 1998 are as follows:
<TABLE>
<CAPTION>
Company Pitchers Cinema Saver
------- ---------- ------------
<S> <C> <C> <C>
Revenue $ - $2,574,343 $ 1,255,373
======= ========== ============
Net Income $ - $ 39,877 $ 66,006
======= ========== ============
</TABLE>
There were no adjustments to amounts previously reported for 1997.
Prior to June 4, 1998, there were no intercompany transactions between the
Company and Pitchers or Cinema Saver, nor were there any transactions
between Pitchers and Cinema Saver.
F-4
<PAGE>
Starlight Entertainment, Inc.
NOTES TO FINANCIAL STATEMENTS
For the six months ended June 30, 1998 and 1997
(Unaudited)
3. SEGMENT INFORMATION
-------------------
The Company's operations are classified into two principal industry
segments: restaurant and movie theater. The Company's reportable segments
are strategic business units that offer different products and services.
They are managed separately. The Company evaluates performance based upon
profit or loss after income taxes. There are no intersegment revenues.
Following is a summary of segment information for 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Revenue from external customers
Restaurant industry $2,574,343 $2,354,324
Movie theater industry 1,255,373 1,306,028
Segment profits
Restaurant industry $ 39,877 $ 68,696
Movie theater industry 66,066 29,796
Total assets of each segment
Restaurant industry $1,316,769 $1,543,735
Movie theater industry 4,112,300 4,240,269
</TABLE>
The total of the segments' profits are equal to the Company's consolidated
net income and therefore there are no reconciling items.
F-5
<PAGE>
[LETTERHEAD OF COMISKEY & COMPANY]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
And Stockholders of Cinema
Saver Theatre Corporation
Parker, Colorado
We have audited the accompanying balance sheet of Cinema Saver Theatre
Corporation as of December 31, 1997, and the related statements of operations,
cash flows, and changes in stockholders' equity for each of the years ended
December 31, 1997. These 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.
These standards require that we plan and perform the audit to obtain reasonable
assurance that 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. 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 Cinema Saver Theatre
Corporation at December 31, 1997, and the results of its operations, cash flows,
and changes in stockholders' equity for each of the two years ended December 31,
1997, in conformity with generally accepted accounting principles.
Denver, Colorado
May 1, 1998
/s/ Comiskey & Company
PROFESSIONAL CORPORATION
F-6
<PAGE>
Cinema Saver Theatre Corporation
BALANCE SHEET
December 31, 1997
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS
Cash and equivalents $ 893,513
Inventory 16,871
Deferred tax asset 5,000
Other assets 3,249
----------
Total Current Assets 918,633
PROPERTY AND EQUIPMENT
Buildings 2,360,288
Leasehold improvements 503,209
Theater equipment 631,036
Office equipment 26,282
Land 562,500
----------
4,083,315
Less accumulated depreciation 596,142
----------
3,487,173
OTHER ASSETS
Secured note receivable 11,725
Other Assets 19,910
----------
31,635
----------
TOTAL ASSETS $4,437,441
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 120,624
Accrued expenses and taxes 113,042
Accrued interest 11,945
Income taxes payable 46,898
Current maturities on long term debt 116,570
Notes payable to shareholders 24,846
----------
Total current liabilities 433,925
LONG-TERM LIABILITIES
Long term debt, net of current portion 3,025,799
Shareholder loans 171,908
Deferred tax liability 151,000
----------
3,348,707
STOCKHOLDERS' EQUITY
Common stock, $0.001 par value, 25,000,000 shares
authorized, 3,289,081 shares issued and outstanding 3,290
Additional paid-in capital 223,472
Retained earnings 428,047
----------
654,809
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $4,437,441
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE>
Cinema Saver Theatre Corporation
STATEMENTS OF OPERATIONS
For the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Revenues:
Admissions $ 1,840,242 $ 1,836,177
Concessions 823,312 803,593
Other operating revenues 17,991 17,051
----------- -----------
Total revenues 2,681,545 2,656,821
Operating expenses:
Film expense 833,471 829,355
Advertising 47,590 37,263
Cost of concessions 169,049 174,491
Theatre operating expenses 871,604 828,336
Depreciation and amortization 183,718 184,326
General and administrative expenses 156,728 168,321
----------- -----------
Total operating expenses 2,262,160 2,222,092
----------- -----------
Income from operations 419,385 434,729
Non-operating (income) and expense
Interest income (9,381) (3,860)
Interest expense 309,597 326,512
Miscellaneous income (6,212) (16,467)
Other income (1,068) (1,061)
Gain on sale of building (215,594) -
----------- -----------
Total non-operating income and expense 77,342 305,124
----------- -----------
Income before income tax 342,043 129,605
Income tax expense 106,248 40,813
----------- -----------
NET INCOME $ 235,795 $ 88,792
=========== ===========
BASIC EARNINGS PER SHARE $ 0.07 $ 0.02
=========== ===========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING - BASIC 3,367,183 3,639,562
=========== ===========
DILUTED EARNINGS PER SHARE $ 0.06 $ 0.02
=========== ===========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING - DILUTED 3,851,463 3,835,989
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-8
<PAGE>
Cinema Saver Theatre Corporation
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Common Stock
------------------ Additional
Number Paid-in Retained
of Shares Amount Capital Earnings Total
--------- -------- ---------- -------- -------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1996 3,622,420 $3,622 $410,272 $103,460 $517,354
Common stock issued for debt
conversion, January 19, 1996,
$0.80 per share 10,938 11 8,739 - 8,750
Common stock issued for debt
conversion, February 20, 1996,
$0.80 per share 7,813 8 6,242 - 6,250
Common stock issued for cash,
warrant exercise, December 31,
1996, $0.13 per share 22,500 23 2,992 - 3,015
Net income - - - 88,792 88,792
--------- -------- -------- -------- --------
Balance, December 31, 1996 3,663,671 3,664 428,245 192,252 624,161
Repurchase and retirement of
common stock, May 3, 1997,
$0.47 per share (467,090) (467) (217,075) - (217,542)
Common stock issued for cash,
September 16, 1997, $0.134
per share 5,000 5 665 - 670
Common stock issued for
mortgage note receivable,
warrant exercise, November 12,
1997, $0.134 per share 87,500 88 11,637 - 11,725
Net Income - - - 235,795 235,795
--------- --------- -------- -------- --------
3,289,081 $3,290 $223,472 $428,047 $654,809
========= ========= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-9
<PAGE>
Cinema Saver Theatre Corporation
STATEMENTS OF CASH FLOWS
For the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 235,795 $ 88,792
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and Amortization 183,976 184,326
Gain on sale of building (215,594) -
Deferred income taxes 49,000 25,000
Net changes in operating assets and liabilities:
Inventories (3,827) (741)
Other assets (7,025) 27,343
Accounts payable 19,867 (21,829)
Accrued expenses and other liabilities 29,177 43,102
--------- -----------
Net cash provided by operating activities 291,369 345,993
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment (61,080) (100,853)
Acquisition of property - (405,000)
Proceeds from sale of building 725,483 -
--------- -----------
Net cash provided (used) by investing activities 664,403 (505,853)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of stock 670 3,015
Retirement of stock/equity interest (20,000) -
Issuance of stock for conversion of debt - 15,000
Proceeds from installment debt - 3,285,000
Repayment of installment debt (207,110) (3,097,845)
--------- -----------
Net cash provided (used) by financing activities (226,440) 205,170
--------- -----------
NET INCREASE IN CASH 729,332 45,310
CASH AND EQUIVALENTS, BEGINNING OF YEAR 164,181 118,871
--------- -----------
CASH AND EQUIVALENTS, END OF YEAR $ 893,513 $ 164,181
========= ===========
</TABLE>
The accompanying notes are an integral part of the financial statements
F-10
<PAGE>
Cinema Saver Theatre Corporation
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Nature of Operations
Cinema Saver Theatre Corporation (the Company) was incorporated under the
laws of the State of Colorado on August 23, 1991. The Company started
operations in November 1991 when it opened its first movie theater. The
Company currently operates four movie theaters in the Colorado front range
area.
ACCOUNTING METHOD
The Company records revenues and expenses on the accrual method.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Depreciation is provided using
the straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Office furniture and equipment 5 - 10 years
Theater equipment 10 years
Leasehold improvements 5 years
Building 40 years
</TABLE>
INVENTORIES
Inventory of concession supplies is valued at the lower of cost or market,
determined on a first-in, first-out basis.
INCOME TAXES
Deferred income taxes are provided on temporary timing differences between
financial statement and income tax reporting. These differences are
primarily the result of the use of accelerated methods of depreciation for
income tax purposes. Deferred taxes are classified as current or noncurrent,
depending on the classification of the assets and liabilities to which they
relate.
STATEMENT OF CASH FLOWS
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents.
EARNINGS PER SHARE
Earnings per share have been computed using the weighted average number of
shares outstanding.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's cash and equivalents, notes
receivable, and long-term debt approximate their fair value at December 31,
1997 and 1996.
CONCENTRATION OF RISK
The Company maintains cash in excess of federally insured limits. The amount
in excess at December 31, 1997 was $722,507.
USE OF ESTIMATES
The preparation of financial statements of Cinema Saver theatre Corporation
in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts
reported in these financial statements and accompanying notes. Actual
results could differ from these estimates.
F-11
<PAGE>
Cinema Saver Theatre Corporation
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------------------
IMPACT OF NEWLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board has recently released Statement of
Financial Accounting Standards No. 130--Reporting Comprehensive Income, and
Statements of Financial Accounting Standards No. 131--SAS Segment Reporting.
SFAS 130 requires companies to present comprehensive income (consisting
primarily of net income items plus other direct equity changes and credits)
and its components as part of the basic financial statements. SFAS 131
supercedes SFAS 14, and requires disclosure of disaggregated information by
operating segment. Both standards are effective for years beginning after
December 31, 1997. The Company has not elected early adoption of either
standard, and does not anticipate a material impact on operations as a
result of future adoption of these standards.
2. LONG-TERM DEBT
--------------
Long-term debt consists of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
SHAREHOLDER LOANS
8.00% promissory notes, unsecured. Interest
payments payable quarterly, Principal due
December 31, 1998. $ - $ 90,000
9.25% promissory notes, unsecured. Interest
payments payable quarterly, Principal due
January 3, 1998. 10,000 10,000
6.00% unsecured note payable. Principal
and interest payments of $2,250 due
monthly through May 2007 186,754 -
---------- ----------
Total shareholder loans 196,754 100,000
Less current portion 24,846 10,000
---------- ----------
Long-term portion $ 171,908 $ 90,000
========== ==========
BANK LOANS
9.25% note payable secured by all real
property and personally guaranteed by
the officers and directors of the Company.
Principal and interest payments of
$33,530 due monthly through October
2006 with the balance of $1,639,306 due
November 2006. $3,142,369 $3,248,692
Less current portion 116,570 106,323
---------- ----------
Long-term portion $3,025,799 $3,142,369
========== ==========
</TABLE>
F-12
<PAGE>
Cinema Saver Theatre Corporation
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996
2. LONG-TERM DEBT (CONTINUED)
--------------------------
As of December 31, 1997, annual maturities of long-term debt outstanding for
the next five years and through maturity are as follows:
<TABLE>
<CAPTION>
For the year ended
December 31, Amount
------------------- ----------------
<S> <C>
1998 $ 141,416
1999 181,499
2000 194,480
2001 210,203
2002 226,587
Thereafter 2,533,231
----------
$ 3,339,123
===========
</TABLE>
3. COMMITMENTS AND CONTINGENCIES
-----------------------------
Operating Leases
The Company leases theater space under operating leases extending through
December 2001. Future minimum lease payments under this lease are as
follows:
<TABLE>
<CAPTION>
For the year ended
December 31, Amount
------------------ ---------------
<S> <C>
1998 $ 57,115
1999 37,870
2000 37,870
2001 37,870
--------------
$ 170,725
==============
</TABLE>
Rent expense for the two years ended December 31, 1997 and 1996 was $81,161
and $74,486, respectively.
SALE LEASEBACK OF BUILDING
Effective December 1997, the Company sold, and agreed to lease back for a
period of one year, one of its cinema buildings and the associated land. The
transaction has been accounted for as a sale-leaseback and consequently, all
profit from the sale, an aggregate of $215,594 has been recognized currently
-------
in the financial statements. The Company continues to operate the cinema in
this location but retains no continuing involvement in the property other
than that associated with the leaseback.
FILM RENTAL CONTRACTS
The Company maintains ongoing contracts with certain movie companies, which
are subject to negotiation. These contracts define the terms for film rental
expenses. Final settlements are held open until such time as sales results
are analyzed and contract terms finalized. At December 31, 1997, $14,053 has
been accrued for these film rental costs.
F-13
<PAGE>
Cinema Saver Theatre Corporation
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996
3. COMMITMENTS AND CONTINGENCIES (CONTINUED)
-----------------------------------------
CONSTRUCTION IN PROGRESS
On October 28, 1997, the Company entered into a fee construction contract
for expansion of the Company's Bergen Park Theatre. The Company has
committed to approximately $400,000 of construction fees under this
contract. At December 31, 1997 approximately $58,500 of the construction had
been completed with an estimated $341,500 remaining.
4. INCOME TAXES
------------
Components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Current income taxes paid or payable $ 57,248 $ 15,813
Increase in deferred taxes 49,000 25,000
-------- --------
Income tax expense $106,248 $ 40,813
======== ========
</TABLE>
Deferred income taxes are provided on temporary timing differences between
financial statement and income tax reporting. The components of deferred
income tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Deferred tax liabilities
Depreciation and amortization $151,000 $131,000
Deferred tax assets
Accrued liabilities (5,000) (34,000)
-------- --------
Net deferred tax liability $146,000 $ 97,000
======== ========
</TABLE>
A reconciliation between the statutory federal income tax rate and the
effective income tax rates based on continuing operations is as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Statutory federal income tax rate 34.0% 34.0%
State income taxes, net of federal benefit 3.3 3.3
Graduated tax rates (2.1) (7.3)
Other differences - net (4.1) 1.5
--------- --------
Effective income tax rates 31.1% 31.5%
========= ========
</TABLE>
5. STOCKHOLDERS' EQUITY
--------------------
Stock Options
At December 31, 1997 the Company had 505,000 stock options outstanding. This
total is comprised of 195,000 and 310,000 stock options exercisable for one
share of common stock at a price of $0.134 per share and $0.417 per share,
respectively. The warrants were exercisable upon issuance and are
transferable. The $0.134 per share options expire one year after the option
holders' personal guarantees associated with the Company's debt are release
the remaining stock options expire May 2007.
REPURCHASE OF STOCK
Effective May 15, 1997, the Company entered into an agreement to repurchase
467,090 shares of outstanding common stock and remaining rights to acquire
additional stock through existing warrants or options from one of its
shareholders for $.465 per share. This purchase was funded with an initial
payment of $20,000 and the issuance of a note in the amount of $197,542. At
December 31, 1997, $186,754 remained outstanding under this note as
described in note 2.
F-14
<PAGE>
Cinema Saver Theatre Corporation
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 and 1996
6. STATEMENT OF CASH FLOWS
-----------------------
The following provides supplemental information concerning disclosure of
cash flow activities:
<TABLE>
<CAPTION>
1997 1996
--------- --------
<S> <C> <C>
Interest paid $313,601 $335,663
======== ========
Income taxes paid $ 26,163 $ -
======== =========
Schedule of non-cash investing and financing activities:
Secured receivable accepted for stock $ 11,725 $ -
======== =========
Conversion of equity to debt $197,542 $ -
======== =========
</TABLE>
7. SUBSEQUENT EVENTS
-----------------
On May 20, 1998, the shareholders of the Company approved an agreement and
plan of share exchange (the "Plan") pursuant to which the Company and
Pitchers!, Inc. ("Pitchers") would be acquired by Starlight Entertainment,
Inc., a corporation which has been formed for this purpose (the
"Acquisition"). As a result of the Acquisition, the Company and Pitchers
became wholly-owned subsidiaries of Starlight Entertainment, Inc. The Plan
provided for the exchange of the outstanding shares of the Company's common
stock and shares of Pitchers common stock for restricted shares of Starlight
Entertainment, Inc. common stock.
F-15
<PAGE>
[LETTERHEAD OF COMISKEY COMPANY]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
and Stockholders of
Pitchers!, Inc.
Littleton, Colorado
We have audited the accompanying balance sheet of Pitchers!, Inc. as of December
31, 1997, and the related statements of operations, stockholders equity, and
cash flows for each of the two 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 Pitchers!, Inc. as of December
31, 1997 and 1996, the results of its operations, changes in stockholders'
equity and its cash flows for each of the two years then ended in conformity
with generally accepted accounting principles.
Denver, Colorado
May 4, 1998
/s/ Comiskey & Company
PROFESSIONAL CORPORATION
F-16
<PAGE>
Pitchers!, Inc.
BALANCE SHEET
December 31, 1997
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS
Cash $ 81,017
Inventory 104,682
Prepaid expenses 55,468
Other current assets 22,479
Deferred tax asset 49,609
----------
Total current assets 313,255
PROPERTY AND EQUIPMENT
Land 97,790
Buildings and improvements 910,393
Furniture and fixtures 475,927
Computers, machinery and equipment 340,025
Vehicles 23,554
----------
1,847,689
Less accumulated depreciation 502,522
----------
1,345,167
OTHER ASSETS
Deposits 5,098
Organization costs, net of amortization 17,994
Loan fees, net of amortization 10,804
Goodwill, net of amortization 121,333
----------
155,229
----------
TOTAL ASSETS $1,813,651
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities on long term debt $ 95,403
Obligations under capital leases 20,418
Accounts payable 42,391
Accrued expenses 215,981
Income taxes payable 27,817
----------
Total current liabilities 402,010
LONG-TERM LIABILITIES
Long-term debt 755,634
Obligations under capital leases 34,633
Loans payable - officers & shareholders 23,927
Deferred tax liability 12,946
----------
827,140
STOCKHOLDERS' EQUITY
Common stock, no par value; 200,000 shares authorized,
39,628 shares issued and outstanding 319,325
Retained earnings 265,176
----------
584,501
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,813,651
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-17
<PAGE>
Pitchers!, Inc.
STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Gross sales, net of discounts $5,246,593 $4,460,196
Cost of goods sold 1,836,461 1,536,624
---------- ----------
GROSS PROFIT 3,410,132 2,923,572
General and administrative expenses 3,168,400 2,701,666
---------- ----------
INCOME FROM OPERATIONS 241,732 221,906
Other (income) expense
Interest income (1,624) (686)
Loss on disposition of fixed assets 1,320 62,934
Miscellaneous income, net of expense (8,530) (5,750)
Interest expense 98,182 90,819
---------- ----------
Total other expense 89,348 147,317
---------- ----------
INCOME BEFORE INCOME TAXES 152,384 74,589
Income tax expense 49,767 24,444
---------- ----------
NET INCOME $ 102,617 $ 50,145
========== ==========
BASIC EARNINGS PER SHARE $ 2.59 $ 1.27
========== ==========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING - BASIC 39,550 39,335
========== ==========
DILUTED EARNINGS PER SHARE $ 2.59 $ 1.27
========== ==========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING - DILUTED 39,550 39,335
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-18
<PAGE>
Pitchers!, Inc.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Common Stock
-------------------------------
Number Retained
of Shares Amount Earnings Total
------------ ---------- ----------- --------
<S> <C> <C> <C> <C>
Balance, January 1, 1996 39,238 $315,000 $112,414 $427,414
Shares issued for services 388 4,325 - 4,325
Net income for year - - 50,145 50,145
---------- ---------- ---------- ----------
Balance, December 31, 1996 39,626 319,325 162,559 481,884
Net income for year - - 102,617 102,617
---------- ---------- ---------- ----------
Balance, December 31, 1997 39,626 $319,325 $265,176 $584,501
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-19
<PAGE>
<TABLE>
<CAPTION>
Pitchers!, Inc.
STATEMENTS OF CASH FLOWS
For the years ended December 31, 1997 and 1996
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 102,617 $ 50,145
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 163,310 139,685
Loss on sale of property and equipment - 61,208
Changes in assets and liabilities:
Increase in inventory (22,943) (9,695)
(Increase) decrease in prepaid expenses 3,063 (23,053)
(Increase) decrease in other current assets (2,791) 24,445
Increase in deferred tax asset (7,903) (38,499)
Increase (decrease) in deferred tax liability (9,667) 22,613
Increase (decrease) in accounts payable 6,219 (20,754)
Increase in accrued expenses 48,111 47,571
Increase in income taxes payable 172 17,001
----------- ----------
Net cash provided by operating activities 280,188 270,667
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment (478,910) (81,846)
Deposits 11,056 2,911
Organization costs (9,543) -
Loan fees (1,787) -
----------- ----------
Net cash used in investing activities (479,184) (78,935)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds (reduction) of long term-debt 108,883 (117,645)
Increase of capital lease obligations 16,604 10,465
Issuance of common stock - 4,325
Reduction of officer loans (1,073) -
----------- ----------
Net cash provided (used) by financing activities 124,414 (102,855)
----------- ----------
NET INCREASE (DECREASE) IN CASH (74,582) 88,877
CASH, BEGINNING OF YEAR 155,599 66,722
----------- ----------
CASH, END OF YEAR $ 81,017 $ 155,599
=========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
F-20
<PAGE>
Pitchers!, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
NATURE OF OPERATIONS
The Company owns and operates five bar-restaurants, four in the Denver
metropolitan area of Colorado, and the fifth in Ft. Collins, Colorado.
ACCOUNTING METHOD
The Company records revenues and expenses on the accrual method.
PROPERTY AND EQUIPMENT
Depreciation and amortization of property and equipment are computed by the
straight-line and declining balance methods at rates adequate to allocate the
cost of applicable assets over their estimated useful lives as follows:
<TABLE>
<S> <C>
Building 39 years
Building improvements 31.5 - 39 years
Furniture, fixtures and equipment 7 years
Vehicles 5 years
Computer equipment 5 years
</TABLE>
ORGANIZATION COSTS, LOAN FEES AND GOODWILL
Organizational costs are being amortized on the straight-line method over a
period of five years.
Loan fees are being amortized on the straight-line method over the terms of
the loans, which range from three to 25 years.
Goodwill is being amortized on the straight-line method over a 20-year
period.
INVENTORIES
Inventory of food, beer, and liquor is valued at the lower of cost or market,
determined on a first-in, first-out basis.
INCOME TAXES
Deferred income taxes are provided on temporary differences between financial
statement and income tax reporting, principally from the difference in
inventory and depreciation methods used for tax purposes.
STATEMENT OF CASH FLOWS
For the purpose of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents.
ADVERTISING
Advertising costs are generally charged to operations in the year incurred.
Total advertising costs were $49,946 and $28,461 in 1997 and 1996,
respectively.
EARNINGS PER SHARE
Earnings per share have been computed using the weighted average number of
shares outstanding.
F-21
<PAGE>
Pitchers!, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------------------
FAIR VALUES OF FINANCIAL INSTRUMENTS
Unless otherwise indicated, the fair value of all reported assets and
liabilities which represent financial instruments (none of which are held for
trading purposes) approximate the carrying values of such amount.
CONCENTRATION OF CREDIT RISK
At certain time during the year, the Company has maintained cash balances in
excess of federally insured limits with a single institution.
USE OF ESTIMATES
The preparation of the Company's financial statements, in conformity with
generally accepted accounting principles, requires the Company's management
to make estimates and assumptions that affect the amounts reported in these
financial statements and accompanying notes. Actual results could differ from
those estimates.
IMPACT OF NEWLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board has recently released Statement of
Financial Accounting Standards No. 130 Reporting Comprehensive Income, and
Statements of Financial Accounting Standards No. 131 Segment Reporting. SFAS
130 requires companies to present comprehensive income (consisting primarily
of net income items plus other direct equity changes and credits) and its
components as part of the basic financial statements. SFAS 131 supercedes
SFAS 14, and requires disclosure of disaggregated information by operating
segment. Both standards are effective for years beginning after December 31,
1997. The Company has not elected early adoption of either standard, and does
not anticipate a material impact on operations as a result of future adoption
of these standards.
2. LONG-TERM DEBT
--------------
Long-term debt consists of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
---------- -----------
<S> <C> <C>
SHAREHOLDER LOANS
Two 7%, $12,500 loans with
two of its officer-
shareholders. Loans are
unsecured and do
not require monthly
payments. $ 23,927 $ 25,000
=========== ===========
OTHER LOANS
Two 2.75% + prime bank
notes. $600,000, 75%
guaranteed by the U.S.
Small Business
Administration
(SBA). $200,000, 84%
guaranteed by the
SBA. Secured by
deed of trust on real
property, operating
equipment and
inventory, and personally
guaranteed by all
officer-shareholders of
the Company. Principal
and interest of $9,351 due
monthly. Mature May 2019
and May 2001, respectively. $ 692,497 $ 724,924
9.9% GMAC note. Principal
and interest due
monthly of $453. Matures
October 2000. 13,414 17,230
</TABLE>
F-22
<PAGE>
Pitchers!, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996
2. LONG-TERM-DEBT (CONTINUED)
--------------------------
<TABLE>
<CAPTION>
1997 1996
---------- -----------
<S> <C> <C>
9.75% bank note.
Principal and interest due
monthly of $5,534.
Secured by equipment.
Matures May 2000. 145,127 -
-------- --------
Total long-term debt 851,038 742,154
Current portion 95,403 36,243
-------- --------
Long-term portion $755,635 $705,911
======== ========
</TABLE>
As of December 31, 1997, annual maturities of long-term debt outstanding for the
next five years and through maturity are as follows:
<TABLE>
<S> <C>
1998 $ 95,403
1999 105,392
2000 79,801
2001 26,119
2002 10,753
Thereafter 557,807
--------
$875,275
========
</TABLE>
3. CAPITAL LEASES
--------------
The Company leases certain property and equipment under non-cancelable
capital leases. The capitalized cost of this equipment is $94,485 and is
included in furniture, fixtures and equipment in the accompanying financial
statements.
The following is a schedule, by years, of future minimum lease payments under
the capital leases, together with the present value of the net minimum lease
payments as of December 31, 1997.
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
<S> <C>
1998 $27,738
1999 19,878
2000 14,147
2001 6,648
2002 1,813
-------
Total minimum lease payments 70,224
Less amount representing interest 15,173
-------
Present value of net minimum lease payments 55,051
Current portion 20,418
-------
Long-term portion of capital lease obligations $34,633
=======
</TABLE>
F-23
<PAGE>
Pitchers!, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996
4. COMMITMENTS
-----------
The Company leases various facilities and operating equipment under
noncancelable operating leases and reflects lease payments as expenses of the
period to which they relate. Total rental expense under these leases amounted
to $369,620 and $268,528 for the years ended December 31, 1997 and 1996,
respectively.
At December 31, 1997, the aggregate minimum rental payments due under
noncancelable operating leases are as follows:
<TABLE>
<S> <C>
1998 $ 391,841
1999 386,627
2000 374,481
2001 322,327
2002 250,121
-----------
$ 1,725,397
===========
</TABLE>
5. RELATED PARTY TRANSACTION
--------------------------
Since April 1996, the Company has leased one of its bar-restaurants from a
partnership. Three of the partners in this partnership are also officer-
shareholders of the Company. This lease is considered an operating lease and
is reflected in Note 4 above. For the years ended December 31, 1997 and 1996,
total rent and common area maintenance expense under this related party lease
was $131,556 and $110,463, respectively.
6. INCOME TAXES
------------
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Current income taxes paid or payable $67,337 $42,045
Increase in deferred tax assets 17,570 17,601
------- -------
$49,767 $24,444
======= =======
</TABLE>
Deferred income taxes are provided on temporary timing differences between
financial statement and income tax reporting. The components of deferred
income tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Deferred tax liabilities
Valuation of assets $36,476 $41,391
Depreciation and amortization 2,320 -
------- -------
Total deferred tax liabilities 38,796 41,391
------- -------
</TABLE>
F-24
<PAGE>
Pitchers!, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996
6. INCOME TAXES (CONTINUED)
------------------------
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Deferred tax assets
Section 263a adjustments 49,609 39,770
Depreciation and amortization - 485
Capital leases & accrued expenses 25,850 20,229
------- -------
Total deferred tax assets 75,459 60,484
------- -------
Net deferred tax assets $36,663 $19,093
======= =======
Included in the balance sheet as follows:
Current deferred tax assets $49,609 $41,706
Long-term deferred tax liability 12,946 22,613
------- -------
Net deferred tax asset $36,663 $19,093
======= =======
</TABLE>
A reconciliation between statutory federal income tax rate and the effective
income tax rates based on continuing operations is as follows:
<TABLE>
<CAPTION>
1997 1996
----- -----
<S> <C> <C>
Statutory federal income tax rate 34.0% 34.0%
State income taxes, net of
federal tax benefit 3.3 3.3
Other differences, net (4.6) (4.5)
---- ----
Effective income tax rates 32.7% 32.8%
==== ====
</TABLE>
7. SITE CLOSURES
-------------
On September 30, 1995, the Company closed its Lowry operation. This location
was operated as a sandwich shop on the Lowry Air Force Base in Aurora,
Colorado. The closing of the sandwich shop including the loss on disposal of
assets has been recorded and is shown as a component of continuing operations
in 1996.
On December 15, 1997, the Company decided to close one of its Denver
locations and actually closed this location January 17, 1998. Similarly, this
is shown as an element of continuing operations for the year ended December
31, 1997.
F-25
<PAGE>
Pitchers!, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996
8. STATEMENT OF CASH FLOWS
-----------------------
The following provides supplemental information concerning disclosure of cash
flow activities:
<TABLE>
<CAPTION>
1997 1996
--------- --------
<S> <C> <C>
Interest paid $102,389 $89,068
======== =======
Income taxes paid $ 67,337 $26,536
======== =======
Obligations assumed
under capital leases $ 45,158 $32,716
======== =======
</TABLE>
9. SUBSEQUENT EVENTS
-----------------
On May 20, 1998, the shareholders of the Company approved an agreement and
plan of share exchange (the "Plan") pursuant to which the Company and Cinema
Saver Theatre Corporations ("Cinema Saver") would be acquired by Starlight
Entertainment, Inc., a corporation which has been formed for this purpose
(the "Acquisition"). As a result of the Acquisition, the Company and Cinema
Saver became wholly-owned subsidiaries of Starlight Entertainment, Inc. The
Plan provided for the exchange of the outstanding shares of the Company's
common stock and shares of Cinema Saver common stock for restricted shares of
Starlight Entertainment, Inc. common stock.
F-26
<PAGE>
The accompanying unaudited pro forma combined financial statements give effect
to the pooling of interests of Pitchers!, Inc. and Cinema Savers Theatre Corp.
as wholly owned subsidiaries of Starlight Entertainment, Inc. as if such
transactions had occurred, at the beginning of each period presented. These
unaudited pro forma combined financial statements should be read in conjunction
with the each company's audited financial statements and notes thereto appearing
elsewhere in this filing. The pro forma information is not necessarily
indicative of the results that would have been reported had such events actually
occurred on the dates specified, nor is it indicative of the Company's future
results.
F-27
<PAGE>
STARLIGHT ENTERTAINMENT, INC.
PRO FORMA COMBINED BALANCE SHEET
December 31, 1997
<TABLE>
<CAPTION>
Historical Pro Forma
--------------------------------- ----------------------------
Cinema Savers
Pitchers!, Inc. Theatre Corp. Adjustments Combined
--------------- ------------ ----------- --------
<S> <C> <C> <C> <C>
ASSETS
Current assets $ 313,255 $ 918,633 $ - $1,231,888
Property, plant and equipment, net of depreciation 1,345,167 3,487,173 - 4,832,340
Intangibles and other assets, net of amortization 155,229 31,635 - 186,864
---------- ---------- ---------- ----------
TOTAL ASSETS $1,813,651 $4,437,441 $ - $6,251,092
========== ========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities $ 402,010 $ 409,078 $ - $ 811,088
Long-term debt 779,561 3,222,553 - 4,002,114
Other liabilities 47,579 151,000 - 198,579
Stockholders' equity 584,501 654,810 - 1,239,311
---------- ---------- ---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY $1,813,651 $4,437,441 $ - $6,251,092
========== ========== ========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
F-28
<PAGE>
Starlight Entertainment, Inc.
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
Year ended December 31, 1997
<TABLE>
<CAPTION>
Historical Pro Forma
--------------------------------- ------------------------------
Cinema Savers
Pitchers!, Inc. Theatre Corp. Adjustments Combined
---------------- --------------- -------------- ----------
<S> <C> <C> <C> <C>
NET REVENUES
Restaurant, net of discounts $5,246,593 $ - $ - $5,246,593
Theatre - 2,681,545 - 2,681,545
---------- ----------- ---------- ----------
Total revenues 5,246,593 2,681,545 - 7,928,138
Cost of goods sold 1,836,461 2,105,432 - 3,941,893
---------- ----------- ---------- ----------
Gross profit 3,410,132 576,113 - 3,986,245
General and administrative expenses 3,168,400 156,728 - 3,325,128
---------- ----------- ---------- ----------
Income from operations 241,732 419,385 - 661,117
Other (income) expense
Interest expense 98,182 309,597 - 407,779
Interest income (1,624) (9,381) - (11,005)
Miscellaneous income, net of expense (8,530) (7,280) - (15,810)
Loss (gain) on disposition of assets 1,320 (215,594) - (214,274)
---------- ----------- ---------- ----------
89,348 77,342 - 166,690
---------- ----------- ---------- ----------
Income from continuing
operations before income taxes 152,384 342,043 - 494,427
Federal and state income taxes 49,767 106,248 - 156,015
---------- ----------- ---------- ----------
Net income from continuing operations $ 102,617 $ 235,795 $ - $ 338,412
========== =========== ========== ==========
Basic Earnings Per Share $ 2.59 $ 0.07 $ 0.27
========== =========== ==========
Weighted Average Number of
Shares Outstanding 39,550 3,367,183 1,234,355
========== =========== ==========
Diluted Earnings Per Share $ 2.59 $ 0.06 $ 0.26
========== =========== ==========
Weighted Average Number of
Shares Outstanding - Diluted 39,550 3,851,463 1,313,538
========== =========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
F-29
<PAGE>
Starlight Entertainment, Inc.
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
Year ended December 31, 1996
<TABLE>
<CAPTION>
Historical Pro Forma
----------------------------------- ------------------------------------
Cinema Savers
Pitchers!, Inc. Theatre Corp. Adjustments Combined
-------------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
NET REVENUES
Restaurant, net of discounts $4,460,196 $ - $ - $4,460,196
Theatre - 2,656,821 - 2,656,821
---------- ------------- ---------- ----------
Total revenues 4,460,196 2,656,821 - 7,117,017
Cost of goods sold 1,536,624 2,053,771 - 3,590,395
---------- ------------- ---------- ----------
Gross profit 2,923,572 603,050 - 3,526,622
General and administrative expenses 2,701,666 168,321 - 2,869,987
---------- ------------- ---------- ----------
Income from operations 221,906 434,729 - 656,635
Other (income) expense
Interest expense 90,819 326,512 - 417,331
Interest income (686) (3,860) - (4,546)
Miscellaneous income, net of expense (5,750) (17,528) - (23,278)
Loss (gain) on disposition of assets 62,934 - - 62,934
---------- ------------- ---------- ----------
147,317 305,124 - 452,441
---------- ------------- ---------- ----------
Income from continuing
operations before income taxes 74,589 129,605 - 204,194
Federal and state income taxes 24,444 40,813 - 65,257
---------- ------------- ---------- ----------
Net income from continuing operations $ 50,145 $ $88,792 $ - $ 138,937
========== ============= ========== ==========
Basic Earnings Per Share $ 1.27 $ $0.02 $ 0.11
========== ============= ==========
Weighted Average Number of
Shares Outstanding 39,335 3,639,562 1,234,355
========== ============= ==========
Diluted Earnings Per Share $ 1.27 $ $0.02 $ 0.11
========== ============= ==========
Weighted Average Number of
Shares Outstanding - Diluted 39,335 3,835,989 1,313,538
========== ============= ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-30
<PAGE>
Starlight Entertainment, Inc.
NOTES TO PRO FORMA FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. NATURE OF EVENTS
----------------
On May 20, 1998, the shareholders of Cinema Saver Theatre Corporation
("Cinema Saver") and Pitchers!, Inc. ("Pitchers") approved an agreement and
plan of share exchange (the "Plan") pursuant to which the Cinema Saver and
Pitchers would be acquired by Starlight Entertainment, Inc., ("Starlight") a
corporation which has been formed for this purpose (the "Acquisition"). As a
result of the Acquisition, the Cinema Saver and Pitchers became wholly-owned
subsidiaries of Starlight Entertainment, Inc. The Plan provided for the
exchange of the outstanding shares of the Company's common stock and shares
of Pitchers common stock for restricted shares of Starlight Entertainment,
Inc. common stock.
On the effective date of this agreement, Starlight issued a total of
1,234,355 shares of common stock in exchange for all of the issued and
outstanding shares of Cinema Saver (3,289,081 shares) and Pitchers (39,628
shares). The Agreement called for the Cinema Saver shares to be exchanged at
a conversion rate of 1 share of Starlight common stock for every 5.05487
shares of Cinema Saver common stock, and the Pitchers shares to be exchanged
at a conversion rate of 14.73119 shares of Starlight common stock for every
1 share of Pitchers common stock held. The outstanding warrants for Cinema
Saver common stock will be exercisable for Starlight common stock at a rate
of 1 share of Starlight common stock for every 5.05487 shares of Cinema
Saver common stock exercised.
2. EARNINGS PER SHARE
------------------
Pro Forma earnings per share was calculated assuming the shares issued in
the plan of share exchange mentioned above have been outstanding as of the
beginning of each period reported. The effect of dilutive securities was
determined with respect to the combined entity's public offering price of
$7.50.
F-31
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY
UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCE, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
-----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Additional Information................................................... 2
Prospectus Summary....................................................... 3
Risk Factors............................................................. 6
Use of Proceeds.......................................................... 10
Dilution................................................................. 11
Capitalization........................................................... 12
Dividend Policy.......................................................... 12
Management's Discussion and Analysis of Financial Condition and Results
of Operation............................................................ 13
Business................................................................. 15
Management............................................................... 23
Principal Shareholders................................................... 25
Certain Relationships and Related Transactions........................... 27
Description of Securities................................................ 29
Shares Eligible for Future Sale.......................................... 30
Underwriting............................................................. 31
Legal Matters............................................................ 33
Experts.................................................................. 33
Index to Financial Statements............................................ 34
</TABLE>
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1,000,000 UNITS
EACH UNIT CONSISTING OF ONE SHARE OF COMMON STOCK AND ONE REDEEMABLE COMMON
STOCK PURCHASE WARRANT
STARLIGHT ENTERTAINMENT, INC.
OFFERING PRICE
$ PER UNIT
-----------------
PROSPECTUS
-----------------
, 1998
TEJAS SECURITIES GROUP, INC.
(214) 692-3544
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Colorado Business Corporation Law and Article X of the Registrant's Articles
of Incorporation permit the Registrant to indemnify its officers and directors
and certain other persons against expenses in defense of a suit to which they
are parties by reason of such office, so long as the persons conducted
themselves in good faith and the persons reasonably believed that their conduct
was in the corporation's best interests, not opposed to the corporation's best
interests, or unlawful. Indemnification is not permitted in connection with a
proceeding by or in the right of the corporation in which the officer or
director was adjudged liable to the corporation or in connection with any other
proceeding charging that the officer or director derived an improper personal
benefit, whether or not involving action in an official capacity, in which
proceeding the officer or director was adjudged liable on the basis that he or
she derived an improper personal benefit.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<CAPTION>
CATEGORY OF EXPENSE AMOUNT
<S> <C>
Registration fee.................................... $ 6,129
NASD filing fee..................................... 2,578
Pacific Exchange listing and application fee........ 25,500*
Blue sky filing fees................................ 7,500*
Transfer agent fees................................. 5,000*
Printing costs...................................... 90,000*
Engraving costs..................................... 2,500*
Legal fees.......................................... 62,000*
Accounting fees..................................... 20,000
Road Show expenses.................................. 80,000*
Contingency......................................... 23,793*
Representative's nonaccountable expense allowance... 150,000
---------
Total............................................... $475,000*
=========
- ---------------
</TABLE>
*Estimated
ITEM 26. UNREGISTERED SECURITIES ISSUED OR SOLD WITHIN ONE YEAR
On June 4, 1998, the registrant issued a total of 1,234,355 shares of its Common
Stock to the shareholders of Cinema Saver Theatre Corporation ("Cinema Saver")
and Pitchers!, Inc.("Pitchers") in exchange for all of the issued and
outstanding shares of common stock of those companies. In addition, warrants to
purchase the common stock of Cinema Saver were exchanged for warrants to
purchase the Common Stock of the registrant. The registrant, which was formed
for the purpose of acquiring Cinema Saver and Pitchers, relied upon the
exemption from registration contained in Section 4(2) of the Securities Act of
1933. No underwriters were involved in the transaction. The offerees were
limited to the existing shareholders of the companies being acquired, the
majority of whom are accredited investors, members of management of Cinema Saver
and Pitchers, and/or family members of management. The shareholders of Cinema
Saver and Pitchers approved the Agreement and Plan of Share Exchange in
accordance with the requirements of the Colorado Business Corporation Act
pursuant to which the foregoing exchange of securities was made.
II-1
<PAGE>
ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT CONSECUTIVE
NUMBER EXHIBIT PAGE NUMBER
<C> <S> <C>
1.1 Form of Underwriting Agreement ___
1.2 Form of Representative's Warrants ___
2.1 Agreement and Plan of Share Exchange (1)
3.1 Articles of Incorporation (1)
3.2 Bylaws (1)
4.1 Warrant Agreement ___
5.1 Opinion re Legality (1)
10.1 1998 Stock Option Plan (1)
10.2 Quad City Bank and Trust Company loan documents (1)
10.3 Cinema Saver Theatre Corporation Promissory Note to Joel Boldrey (1)
10.4 Aurora National Bank loan documents (1)
10.5 Business Lease with 1100 Drake, Ltd. (1)
21.1 List of Subsidiaries (1)
23.1 Consent of Comiskey & Company ___
23.2 Consent of Comiskey & Company ___
23.3 Consent of Dill Dill Carr Stonbraker & Hutchings, P.C. (2)
27.1 Financial Data Schedule ___
</TABLE>
- -----------------------------
(1) Filed previously.
(2) Incorporated by reference to exhibit 5.1
ITEM 28. UNDERTAKINGS
(a) The registrant will:
(1) File, during any period in which it offers or sells securities, a post-
effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate
II-2
<PAGE>
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement.
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act, treat each post-
effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the
initial bona fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
(b) The registrant will provide to the underwriter at the closing specified in
the underwriting agreement certificates in such denominations and
registered in such names as required by the underwriter to permit prompt
delivery to each purchaser.
(c) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
(d) The registrant will:
(1) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant under Rule 424(b)(1), or (4)
or 497(h) under the Securities Act as part of this registration
statement as of the time the Commission declared it effective.
(2) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration
statement, and that offering of the securities at that time as the
initial bona fide offering of those securities.
II-3
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of Parker,
State of Colorado, on August 3, 1998.
STARLIGHT ENTERTAINMENT, INC.
By: /s/ R. Haydn Silleck
----------------------------------
R. Haydn Silleck, President
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities and
on the dates stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
President, Treasurer and Director
(Principal Executive Officer and
/s/ R. Haydn Silleck Principal Financial Officer) August 3, 1998
- -------------------------
R. Haydn Silleck
/s/ Herbert I. Lee Secretary and Director August 3, 1998
- -------------------------
Herbert I. Lee
/s/ Clifford E. Godfrey Vice President and Director August 3, 1998
- -------------------------
Clifford E. Godfrey
- -------------------------
Lorry D. Hanson Vice President and Director August 3, 1998
/s/ Stanley H. Marks Director August 3, 1998
- -------------------------
Stanley H. Marks
/s/ Lyle A. Chapman Director August 3, 1998
- -------------------------
Lyle A. Chapman, Jr.
</TABLE>
II-4
<PAGE>
EXHIBIT 1.1
1,000,000 Units
Starlight Entertainment, Inc.
Each Unit Consisting of
One Share of Common Stock and
One Redeemable Common Stock Purchase Warrant
______________, 1998
UNDERWRITING AGREEMENT
----------------------
TEJAS SECURITIES GROUP, INC.
As Representative of the Several Underwriters
1250 Capital of Texas Hwy. South
Building Two, Suite 500
Austin, Texas 78746
Dear Sirs:
Starlight Entertainment, Inc., a Colorado corporation (together with its
subsidiaries, the "Company"), proposes to sell to you and the other underwriters
named in Schedule I hereto (collectively, the "Underwriters"), for whom Tejas
Securities Group, Inc. is acting as managing underwriter and representative (the
"Representative"), in the respective amounts set forth opposite each
Underwriter's name in Schedule I hereto, an aggregate of 1,000,000 units (the
"Units"), each consisting of one share of the Company's Common Stock, no par
value (the "Common Stock"), and one redeemable common stock purchase warrant
(the "Warrants"), which entitles the holder thereof to purchase one share of
Common Stock at a price of $_______ per share. The Units, together with (a) the
shares of Common Stock and Warrants comprising the Units and (b) the shares of
Common Stock issuable upon exercise of the Warrants are collectively referred to
herein as the "Underwritten Securities". The Company also proposes to grant to
the Underwriters the Underwriters' Option (described in Section 2(b) hereof) to
purchase up to an aggregate of 150,000 additional Units solely to cover over-
allotments in the sale of the Underwritten Securities (such additional Units,
together with (a) the shares of Common Stock and Warrants comprising such
additional Units and (b) the shares of Common Stock issuable upon exercise of
the Warrants, are collectively referred to herein as the "Option Securities");
and to issue to the Representative the Representative's Warrants (described in
Section 7 hereof) to purchase 100,000 additional Units, which additional Units
are identical to the Units described above (individually, the Representative's
Warrants and additional Units, together with (a) the shares of Common Stock and
Warrants comprising such additional Units and (b) the shares of Common Stock
issuable upon exercise of such Warrants, are collectively referred to herein as
the "Representative's Securities"). The Underwritten Securities, the Option
Securities and the Representative's Securities are collectively referred to
herein as the "Securities."
The terms which follow, when used in this Agreement, shall have the
meanings indicated. The term "Effective Date" shall mean each date that the
Registration Statement (as defined below) and any post-effective amendment or
amendments thereto became or become effective. "Execution Time" shall mean the
date and time that this Agreement is executed and delivered by the parties
hereto. The term "Preliminary Prospectus" shall mean any preliminary prospectus
referred to in Section 1(a) below with respect to the offering of the
Securities, and any preliminary prospectus included in the Registration
Statement on the Effective Date that omits Rule 430A Information (as defined
below). Capitalized terms not otherwise defined herein shall have the meanings
ascribed to them in the most recent Preliminary Prospectus which predates or
coincides with the Execution Time. "Prospectus" shall mean the final prospectus
with respect to the offering of the Securities that contains the Rule 430A
Information. "Registration Statement" shall mean (a) the registration statement
referred to in Section 1(a) below, including Exhibits and Financial Statements,
in the form in which it has or shall become effective, (b) in the event any
post-effective amendment thereto becomes effective prior to the Closing Date (as
defined in Section 3(a) hereof) or any settlement date pursuant to Section 3(b)
hereof, such
<PAGE>
registration statement as so amended on such date, and (c) in the event of the
filing of any abbreviated registration statement increasing the size of the
offering (a "Rule 462 Registration Statement"), pursuant to Rule 462(b) (as
defined below), which registration statement became effective upon filing the
Rule 462 Registration Statement. Such term shall include Rule 430A Information
(as defined below) deemed to be included therein at the Effective Date as
provided by Rule 430A. "Rule 424," "Rule 462(b)" and "Rule 430A" refer to such
rules promulgated under the Securities Act of 1933, as amended (the "Act").
"Rule 430A Information" means information with respect to the Securities and the
offering thereof permitted to be omitted from the Registration Statement when it
becomes effective pursuant to Rule 430A.
1. Representations and Warranties of the Company.
(I) The Company represents and warrants to, and agrees with, each
Underwriter that:
(a) The Company meets the requirements for the use of Form SB-2 under
the Act and has filed with the Securities and Exchange Commission (the
"Commission") a registration statement, including a related preliminary
prospectus ("Preliminary Prospectus"), on Form SB-2 (Commission File No.
333-57561) (the "Registration Statement") for the registration under the
Act of the Securities. The Company may have filed one or more amendments
thereto, including related Preliminary Prospectuses, each of which has
previously been furnished to you. The Company will next file with the
Commission either prior to effectiveness of such Registration Statement, a
further amendment thereto (including the form of Prospectus) or, after
effectiveness of such Registration Statement, a Prospectus in accordance
with Rules 430A and 424(b)(1) or (4). As filed, such amendment and form of
Prospectus, or such Prospectus, shall include all Rule 430A Information
and, except to the extent the Representative shall agree in writing to a
modification, shall be in all substantive respects in the form furnished to
you prior to the Execution Time or, to the extent not completed at the
Execution Time, shall contain only such specific additional information and
other changes (beyond that contained in the latest Preliminary Prospectus)
as the Company has advised you in writing, prior to the Execution Time,
will be included or made therein.
(b) The Preliminary Prospectus, at the time of filing, conformed in
all material respects with the applicable requirements of the Act and the
rules and regulations thereunder and did not include any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein not
misleading. If the Effective Date is prior to or simultaneous with the
Execution Time, (i) on the Effective Date, the Registration Statement
conformed in all material respects to the requirements of the Act and the
rules and regulations thereunder and did not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein not
misleading, and (ii) at the Execution Time, the Registration Statement
conforms, and at the time of filing of the Prospectus pursuant to Rule
424(b), the Registration Statement and the Prospectus will conform, in all
material respects to the requirements of the Act and the rules and
regulations thereunder, and neither of such documents includes, or will
include, any untrue statement of a material fact or omits, or will omit, to
state a material fact required to be stated therein or necessary in order
to make the statements therein (and, in the case of the Prospectus, in the
light of the circumstances under which they were made) not misleading. If
the Effective Date is subsequent to the Execution Time, on the Effective
Date, the Registration Statement and the Prospectus will conform in all
material respects to the requirements of the Act and the rules and
regulations thereunder, and neither of such documents will contain any
untrue statement of any material fact or will omit to state any material
fact required to be stated therein or necessary to make the statements
therein (and, in the case of the Prospectus, in the light of the
circumstances under which they were made) not misleading. The two preceding
sentences do not apply to statements in or omissions from the Registration
Statement or the Prospectus (or any supplements thereto) based upon and in
conformity with information furnished in writing to the Company by or on
behalf of any Underwriter through the Representative specifically for use
in connection with the preparation of the Registration Statement or the
Prospectus (or any supplements thereto).
2
<PAGE>
(c) The Company does not own or control, directly or indirectly, any
shares of capital stock or equity interests in any corporation,
partnership, association or other entity, except as set forth in the
Prospectus.
(d) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the jurisdiction in which
it is chartered or organized, with full corporate power and corporate
authority to own its properties and conduct its business as described in
the Prospectus, and is duly qualified to do business as a foreign
corporation and is in good standing under the laws of each jurisdiction in
which it conducts its business or owns property and in which the failure,
individually or in the aggregate, to be so qualified would have a material
adverse effect on the properties, assets, operations, business, condition
(financial or otherwise) or prospects of the Company ("Material Adverse
Effect"). The Company has all necessary authorizations, approvals, orders,
licenses, certificates and permits of and from all government regulatory
officials and bodies, to own its properties and conduct its business as
described in the Prospectus except where the absence of any such
authorization, approval, order, license, certificate or permit would not
have a Material Adverse Effect.
(e) The Company does not own any shares of capital stock or any other
securities of any corporation or any equity interest in any firm,
partnership, association or other entity other than as described in the
Registration Statement and ownership interests that would not have a
Material Adverse Effect.
(f) The Company's equity capitalization is as set forth in the
Prospectus; the capital stock of the Company conforms in all material
respects to the description thereof contained in the Prospectus; all
outstanding shares of Common Stock (including, without limitation, the
shares of Common Stock underlying (i) the Units to be sold by the Company
hereunder, (ii) the Warrants, and (iii) the Representative's Warrants) have
been duly and validly authorized and issued and are fully paid and
nonassessable, and the certificates therefor are in valid and sufficient
form; there are, and, on the Effective Date, the Closing Date (and any
settlement date pursuant to Section 3(b) hereof), there will be, no other
classes of stock outstanding except Common Stock; all outstanding options
to purchase shares of Common Stock have been duly and validly authorized
and issued; except as described in the Registration Statement, there are,
and, on the Closing Date (and any settlement date pursuant to Section 3(b)
hereof), there will be, no options, warrant or rights to acquire, or debt
instruments convertible into or exchangeable for, or other agreements or
understandings to which the Company is a party, outstanding or in
existence, entitling any person to purchase or otherwise acquire shares of
capital stock of the Company; the issuance and sale of the Securities have
been duly and validly authorized and, when issued and delivered and paid
for, the Securities will be fully paid and nonassessable and free from
preemptive rights, and will conform in all respects to the description
thereof contained in the Prospectus; the Warrants and Representative's
Warrants will, when issued, constitute valid and binding obligations of the
Company enforceable in accordance with their terms and the Company has
reserved a sufficient number of shares of Common Stock for issuance upon
exercise thereunder; the Securities will, when issued, possess the rights,
privileges and characteristics as described in the Prospectus; and the
certificates for the Securities are in valid and sufficient form. Each
offer and sale of securities of the Company referred to in Item 26 of Part
II of the Registration Statement was effected in compliance with the Act
and the rules and regulations thereunder.
(g) The Securities (other than the Representative's Warrants) have
been approved for listing on the Pacific Stock Exchange ("PSE"), upon
official notice of issuance.
(h) Other than as described in the Prospectus, there is no pending or,
to the best knowledge of the Company, threatened action, suit or proceeding
before any court or governmental agency, authority or body, domestic or
foreign, or any arbitrator involving the Company of a character required to
be disclosed in the Registration Statement or the Prospectus. There is no
contract or other document of a character required to be described in the
Registration Statement or Prospectus or to be filed as an exhibit that is
not described or filed as required.
3
<PAGE>
(i) This Agreement has been duly authorized, executed and delivered by
the Company and constitutes the legal, valid and binding agreement of the
Company, enforceable against the Company in accordance with its terms,
except as rights of indemnity and contribution hereunder may be limited by
public policy and except as the enforceability hereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' rights generally and general principles of equity.
(j) The Company has full corporate power and corporate authority to
enter into and perform its obligations under this Agreement and to issue,
sell and deliver the Securities in the manner provided in this Agreement.
The Company has taken all necessary corporate action to authorize the
execution and delivery of, and the performance of its obligations under,
this Agreement.
(k) Neither the offering, issuance and sale of the Securities, nor the
consummation of any other of the transactions contemplated herein, nor the
fulfillment of the terms hereof, will conflict with or result in a breach
or violation of, or constitute a default under, or result in the imposition
of a lien on any properties of the Company or an acceleration of
indebtedness pursuant to, the Articles of Incorporation or bylaws of the
Company, as currently in effect, or any of the terms of any indenture or
other agreement or instrument to which the Company is a party or by which
the Company or any of its properties are bound, or any law, order,
judgment, decree, rule or regulation applicable to the Company of any
court, regulatory body, administrative agency, governmental body, stock
exchange or arbitrator having jurisdiction over the Company. The Company is
not in violation of its Articles of Incorporation or bylaws, as currently
in effect, or, except as described in the Prospectus, in breach of or
default under any of the terms of any indenture or other agreement or
instrument to which it is a party or by which it or its properties are
bound, which breach or default would, individually or in the aggregate,
have a Material Adverse Effect.
(l) Except as disclosed in the Prospectus, no person has the right,
contractual or otherwise, to cause the Company to issue to it any shares of
capital stock in consequence of the issue and sale of the Securities, nor
does any person have preemptive rights, or rights of first refusal or other
rights to purchase any of the Securities. Except as referred to in the
Prospectus, no person holds a right to require or participate in a
registration under the Act of Common Stock, Preferred Stock or any other
equity securities of the Company.
(m) The Company has not (i) taken and will not take, directly or
indirectly, any action designed to cause or result in, or which has
constituted or which might reasonably be expected to cause or result in,
under the Exchange Act, or otherwise, stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of
the Securities (other than those actions permitted by applicable law) or
(ii) effected any sales of shares of securities that are required to be
disclosed in response to Item 26 of Part II of the Registration Statement
(other than transactions disclosed in the Registration Statement or the
Prospectus).
(n) No consent, approval, authorization or order of, or declaration or
filing with, any court or governmental agency or body is required to be
obtained or filed by or on behalf of the Company in connection with the
transactions contemplated herein, except such as may have been obtained or
made for registration of the Securities under the Act, and such as may be
required under the Blue Sky laws of any jurisdiction in connection with the
purchase and distribution of the Securities by the Underwriters.
(o) The accountants who have certified the Financial Statements filed
or to be filed with the Commission as part of the Registration Statement
are independent accountants as required by the Act.
(p) No stop order preventing or suspending the use of any Preliminary
Prospectus has been issued, and no proceedings for that purpose are pending
or, to the best knowledge of the Company, threatened or contemplated by the
Commission; no stop order suspending the sale of the Securities in any
jurisdiction has been issued and no proceedings for that purpose have been
instituted or, to the best knowledge of the Company, threatened or are
contemplated; and any request of the Commission for additional information
(to be included in the Registration Statement or the Prospectus or
otherwise) has been complied with.
4
<PAGE>
(q) The Company has not sustained, since January 1, 1998 any material
loss or interference with its business from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any labor dispute or
court or governmental action, order or decree, and, since the respective
dates as of which information is given in the Registration Statement and
the Prospectus, there have not been any changes in the capital stock or
long-term debt of the Company, or any material adverse change, or a
development known to the Company that could reasonably be expected to cause
or result in a material adverse change, in the general affairs, management,
financial position, stockholders' equity, results of operations or
prospects of the Company, otherwise than as set forth in the Prospectus.
Except as set forth in the Prospectus, there exists no present condition or
state of facts or circumstances known to the Company involving its
customers which the Company can now reasonably foresee would have a
Material Adverse Effect or which would result in a termination or
cancellation of any agreement with any customer whose purchases,
individually or in the aggregate, are material to the business of the
Company, or which would result in any material decrease in sales to any
such customer or purchases from any supplier, or which would prevent the
Company from conducting its business as described in the Prospectus in
essentially the same manner in which it has heretofore been conducted.
(r) The Financial Statements and the related notes of the Company's
subsidiaries, included in the Registration Statement and the Prospectus
present fairly the financial position, results of operations, cash flow and
changes in shareholders' equity of the Company at the dates and for the
periods indicated, subject in the case of the Financial Statements for
interim periods, to normal and recurring year-end adjustments. The
unaudited pro forma combined condensed statements of the Company present
fairly the financial position and the results of operations at the dates
and for the periods indicated. Such Financial Statements and the unaudited
pro forma combined financial information of the Company were prepared in
conformity with the Commission's rules and regulations and in accordance
with generally accepted accounting principles applied on a consistent basis
throughout the periods involved. The financial information of the Company
set forth in the Prospectus under the captions "Capitalization" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" fairly present, on the basis stated in the Prospectus, the
information included therein.
(s) The Company owns or possesses, or has the right to use pursuant to
licenses, sublicenses, agreements, permissions or otherwise, adequate
patents, copyrights, trade names, trademarks, service marks, licenses and
other intellectual property rights necessary to carry on its business as
described in the Prospectus, and, except as set forth in the Prospectus,
the Company has not received any notice of either (i) default under any of
the foregoing or (ii) infringement of or conflict with asserted rights of
others with respect to, or challenge to the validity of, any of the
foregoing which, in the aggregate, if the subject of an unfavorable
decision, ruling or finding, could have a Material Adverse Effect, and the
Company knows of no fact which could reasonably be anticipated to serve as
the basis for any such notice.
(t) Subject to such exceptions as are not likely to result in a
Material Adverse Effect, (A) the Company owns all properties and assets
described in the Registration Statement and the Prospectus as being owned
by it and (B) the Company has good title to all properties and assets owned
by it, free and clear of all liens, charges, encumbrances and restrictions,
except as otherwise disclosed in the Prospectus and except for (i) liens
for taxes not yet due, (ii) mortgages and liens securing debt reflected on
the Financial Statements included in the Prospectus, (iii) materialmen's,
workmen's, vendor's and other similar liens incurred in the ordinary course
of business that are not delinquent, individually or in the aggregate, and
do not have a Material Adverse Effect on the value of such properties or
assets of the Company, or on the use of such properties or assets by the
Company, in its respective business, and (iv) any other liens that,
individually or in the aggregate, are not likely to result in a Material
Adverse Effect. All leases to which the Company is a party and which are
material to the conduct of the business of the Company are valid and
binding and no material default by the Company has occurred and is
continuing thereunder; and the Company enjoys peaceful and undisturbed
possession under all such material leases to which it is a party as lessee.
(u) The books, records and accounts of the Company accurately and
fairly reflect, in reasonable detail, the transactions in and dispositions
of the assets of the Company. The system of internal accounting controls
5
<PAGE>
maintained by the Company is sufficient to provide reasonable assurances
that (i) transactions are executed in accordance with management's general
or specific authorization; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for assets;
(iii) access to assets is permitted only in accordance with management's
general or specific authorization; and (iv) the recorded accountability for
assets is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(v) Except as set forth in the Prospectus, subsequent to the
respective dates as of which information is given in the Registration
Statement and the Prospectus, the Company has not incurred any liabilities
or obligations, direct or contingent, or entered into any transactions, in
each case, which are likely to result in a Material Adverse Effect, and
there has not been any payment of or declaration to pay any dividends or
any other distribution with respect to the shares of the capital stock of
the Company.
(w) The Company has obtained and delivered to the Representative the
written agreements, substantially in the form attached hereto as Exhibit B,
---------
of the principal shareholders of the Company restricting dispositions of
equity securities of the Company.
(x) The Company is in compliance in all material respects with all
applicable laws, rules and regulations, including, without limitation,
employment and employment practices, immigration, terms and conditions of
employment, health and safety of workers, customs and wages and hours, and
is not engaged in any unfair labor practice. No property of the Company has
been seized by any governmental agency or authority as a result of any
violation by the Company or any independent contractor of the Company of
any provisions of law. There is no pending unfair labor practice complaint
or charge filed with any governmental agency against the Company. There is
no labor strike, material dispute, slow down or work stoppage actually
pending or, to the best knowledge of the Company, threatened against or
affecting the Company; no grievance or arbitration arising out of or under
any collective bargaining agreements is pending against the Company no
collective bargaining agreement which is binding on the Company restricts
the Company from relocating or closing any of its operations and none of
the Company has experienced any work stoppage or other labor dispute at any
time.
(y) The Company has accurately, properly and timely (giving effect to
any valid extensions of time) filed all federal, state, local and foreign
tax returns (including all schedules thereto) that are required to be
filed, and has paid all taxes and assessments shown thereon. Any and all
tax deficiencies asserted or assessed against the Company by the Internal
Revenue Service ("IRS") or any other foreign or domestic taxing authority
have been paid or finally settled with no remaining amounts owed. Neither
the IRS nor any other foreign or domestic taxing authority has examined any
tax returns of the Company nor has the IRS or any foreign or domestic
taxing authority asserted a position which conflicts with any tax position
taken by the Company. The charges, accruals and reserves shown in the
Financial Statements included in the Prospectus in respect of taxes for all
fiscal periods to date are adequate, and nothing has occurred subsequent to
the date of such Financial Statements that makes such charges, accruals or
reserves inadequate. The Company is not aware of any proposal (whether oral
or written) by any taxing authority to adjust any tax return filed by the
Company.
(z) Except as set forth in the Prospectus, there are no outstanding
loans, advances or guaranties of indebtedness by the Company to or for the
benefit of its affiliates, or any of its officers or directors, or any of
the members of the families of any of them, which are required to be
disclosed in the Registration Statement or the Prospectus.
(aa) The Company is not an investment company subject to registration
under the Investment Company Act of 1940, as amended.
(bb) Except as set forth in the Prospectus, the Company has insurance
of the types and in the amounts that it reasonably believes is adequate for
its business, including, but not limited to, casualty and general liability
insurance covering all real and personal property owned or leased by the
Company, as applicable, against theft, damage, destruction, acts of
vandalism and all other risks customarily insured against.
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(cc) The Company has not at any time (i) made any contributions to any
candidate for political office, or failed to disclose fully any such
contribution, in violation of law; (ii) made any payment to any state,
federal or foreign governmental officer or official, or other person
charged with similar public or quasi-public duties, other than payments
required or allowed by all applicable laws; or (iii) violated, nor is it in
violation of, any provision of the Foreign Corrupt Practices Act of 1977.
(dd) The preparation and the filing of the Registration Statement with
the Commission have been duly authorized by and on behalf of the Company,
and the Registration Statement has been duly executed pursuant to such
authorization by and on behalf of the Company.
(ee) All documents delivered or to be delivered by the Company or any
of its directors or officers to the Underwriters, the Commission or any
state securities law administrator in connection with the issuance and sale
of the Securities were, on the dates on which they were delivered, and will
be, on the dates on which they are to be delivered, true, complete and
correct in all material respects.
(ff) With such exceptions as are not likely to result in a Material
Adverse Effect, the Company is in compliance with all Federal, state,
foreign and local laws and regulations relating to pollution or protection
of human health or the environment ("Environmental Laws"), there are no
circumstances that may prevent or interfere with such compliance other than
as set forth in the Prospectus, and the Company has not received any notice
or other communication alleging a currently pending violation of any
Environmental Laws. With such exceptions as are not likely to result in a
Material Adverse Effect, other than as set forth in the Prospectus, there
are no past or present actions, activities, circumstances, conditions,
events or incidents, including, without limitation, the release, emission,
discharge or disposal of any chemicals, pollutants, contaminants, wastes,
toxic substances, petroleum and petroleum products, that may result in the
imposition of liability on the Company or any claim against the Company or,
to the Company's best knowledge, against any person or entity whose
liability for any claim the Company has or may have assumed either
contractually or by operation of law, and the Company has not received any
notice or other communication concerning any such claim against the Company
or such person or entity.
(gg) Except as described in the Prospectus, the Company does not
maintain, nor does any other person maintain on behalf of the Company, any
retirement, pension (whether deferred or non-deferred, defined contribution
or defined benefit) or money purchase plan or trust. There are no unfunded
liabilities of the Company with respect to any such plans or trusts that
are not accrued or otherwise reserved for on the Financial Statements.
(hh) Any certificates signed by an officer of the Company and
delivered to the Representative or the Underwriters or to counsel for the
Underwriters shall also be deemed a representation and warranty of the
Company to the Underwriters as to the matters covered thereby. Any
certificate delivered by the Company to its counsel for purposes of
enabling such counsel to render the opinions referred to in Section 6(b)
will also be furnished to the Representative and counsel for the
Underwriters and shall be deemed to be additional representations and
warranties by the Company to the Underwriters as to the matters covered
thereby.
2. Purchase and Sale.
(a) Subject to the terms and conditions and in reliance upon the
representations and warranties herein set forth, the Company agrees to issue and
sell to the Underwriters an aggregate of 1,000,000 Units. Each of the
Underwriters agrees, severally and not jointly, to purchase from the Company the
number of Units set forth opposite its name in Schedule I hereto. The purchase
price per Unit to be paid by the several Underwriters to the Company shall be
$______ per Unit. No value shall be attributable to the Warrants.
(b) Subject to the terms and conditions and in reliance upon the
representations and warranties herein set forth, the Company hereby grants an
option (the "Underwriters' Option") to the several Underwriters to purchase,
severally and not jointly, up to an aggregate of 150,000 Units at the same
purchase price for use solely in covering any over-allotments made by the
Representative for the account of the Underwriters in the sale and distribution
of the
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Underwritten Securities. The Underwriters' Option may be exercised in whole or
in part at any time on or before the 45th day after the Effective Date upon
written or telegraphic notice by the Representative to the Company setting forth
the number of Units which the several Underwriters are electing to purchase
pursuant to the Underwriters' Option and the settlement date. Delivery of
certificates for such Units by the Company and payment therefor to the Company
shall be made as provided in Section 3 hereof. The number of Units purchased by
each Underwriter pursuant to the Underwriters' Option shall be determined by
multiplying the number of Units to be sold by the Company pursuant to the
Underwriters' Option, as exercised, by a fraction, the numerator of which is the
number of Units to be purchased by such Underwriter as set forth opposite its
name in Schedule I and the denominator of which is the total number of Units to
be purchased by all of the Underwriters as set forth on Schedule I (subject to
such adjustments to eliminate any fractional Unit purchases as the
Representative in its discretion may make).
3. Delivery and Payment.
(a) If the Underwriters' Option described in Section 2(b) hereof is
exercised on or before the third business day prior to the Closing Date (as
defined below), delivery of the certificates for the Common Stock and Warrants
comprising the Units described in Sections 2(a) and 2(b) hereof shall be made by
the Company through the facilities of the Depository Trust Company ("DTC"), and
payment therefor shall be made at _____ a.m. ________ time, on
__________________, 1998 or such later date (not later than _______________,
1998) as the Representative shall designate, which date and time may be
postponed by agreement among the Representative and the Company or as provided
in Section 9 hereof (such date, time of delivery and payment for such Securities
being herein called the "Closing Date"). Delivery of the certificates for such
Securities to be purchased on the Closing Date shall be made as provided in the
preceding sentence for the respective accounts of the several Underwriters
against payment by the several Underwriters through Tejas Securities Group, Inc.
of the aggregate purchase price of such Underwritten Securities by wire transfer
in same day funds. Certificates for such Underwritten Securities shall be
registered in such names and in such denominations as the Representative may
request not less than one full business day in advance of the Closing Date. The
Company agrees to have the certificates for the Underwritten Securities to be
purchased on the Closing Date available at the office of the DTC, not later than
_______ a.m. Dallas, Texas time at least one business day prior to the Closing
Date.
(b) If the Underwriters' Option is exercised after the third business day
prior to the Closing Date, (i) delivery of the certificates for the Units
described in Section 2(a) hereof and payment therefor will be governed by the
provisions of Section 3(a) hereof and (ii) the Company will deliver (at the
expense of the Company) on the date specified by the Representative (which shall
not be less than one nor more than five business days after exercise of the
Underwriters' Option), certificates for the Common Stock and Warrants comprising
the Units described in Section 2(b) hereof in such names and denominations as
the Representative shall have requested against payment at the office of Tejas
Securities Group, Inc. of the purchase price by wire transfer in same day funds.
If settlement for such Securities occurs after the Closing Date, the Company
will deliver to the Representative on the settlement date for such Securities,
and the obligation of the Underwriters to purchase such Securities shall be
conditions upon receipt of, supplemental opinions, certificates and letters
confirming as of such date the opinions, certificates and letters delivered on
the Closing Date pursuant to Section 6 hereof. The Company agrees to have the
certificates for the Securities to be purchased after the Closing Date available
at the office of the DTC, not later than _______ a.m. Dallas, Texas time at
least one business day prior to the settlement date.
4. Offering by Underwriters. It is understood that the several Underwriters
propose to offer the Securities for sale to the public as set forth in the
Prospectus.
5. Agreements. The Company agrees with the several Underwriters that:
(a) The Company will use its best efforts to cause the Registration
Statement, and any amendment thereof, if not effective at the Execution Time, to
become effective as promptly as possible. If the Registration Statement has
become or becomes effective pursuant to Rule 430A, or filing of the Prospectus
is otherwise required under Rule 424(b), the Company will file the Prospectus,
properly completed, pursuant to Rule 424(b) within the time period prescribed
and will provide evidence satisfactory to the Representative of such timely
filing. The Company will promptly advise the Representative (i) when the
Registration Statement shall have become effective, (ii) when any post-effective
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amendment thereto shall have become effective, (iii) of any request by the
Commission for any amendment or supplement of the Registration Statement or the
Prospectus or for any additional information with respect thereto, (iv) of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or of the receipt by the Company of any notification with
respect to the institution or threatening of any proceeding for that purpose and
(v) of the receipt by the Company of any notification with respect to the
suspension of the qualification of the Securities for sale in any jurisdiction
or the initiation or threatening of any proceeding for such purpose. The Company
will use its best efforts to prevent the issuance of any such stop order or
suspension and, if issued, to obtain as soon as possible the withdrawal thereof.
The Company will not file any amendment to the Registration Statement or
supplement to the Prospectus without the prior consent of the Representative.
The Company will prepare and file with the Commission, promptly upon your
request, any amendment to the Registration Statement or supplement to the
Prospectus that you reasonably determine to be necessary or advisable in
connection with the distribution of the Securities by you, and will use its best
efforts to cause the same to become effective as promptly as possible.
(b) If, at any time when a prospectus relating to the Securities is
required to be delivered under the Act, any event occurs as a result of which
the Prospectus as then supplemented would include any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or if it otherwise shall be necessary to supplement the
Prospectus to comply with the Act or the rules or regulations thereunder, the
Company will promptly prepare and file with the Commission, subject to Section
5(a) hereof, a supplement that will correct such statement or omission or a
supplement that will effect such compliance.
(c) As soon as practicable (but not later than eighteen months after the
effective date of the Registration Statement), the Company will make generally
available to its security holders and to the Representative an earnings
statement or statements (which need not be audited) of the Company covering a
period of at least twelve months after the Effective Date (but in no event
commencing later than 90 days after such date), which will satisfy the
provisions of Section 11(a) of the Act and Rule 158 promulgated thereunder.
(d) The Company will furnish to each of you and counsel for the
Underwriters, without charge, one signed copy of the Registration Statement and
any amendments thereto (including exhibits thereto) and to each other
Underwriter a conformed copy of the Registration Statement and any amendments
thereto (without exhibits thereto) and, so long as delivery of a prospectus by
an Underwriter or dealer may be required by the Act, as many copies of the
Prospectus and each Preliminary Prospectus and any supplements thereto as the
Representative may reasonably request.
(e) The Company will take all actions necessary for the registration or
qualification of the Securities for sale under the laws of such jurisdictions
within the United States and its territories as the Representative may
designate, will maintain such qualifications in effect so long as required for
the distribution of the Securities and will pay the fee of the National
Association of Securities Dealers, Inc. (the "NASD") in connection with its
review of the offering, provided that the Company shall not be required to
qualify as a foreign corporation or to consent to service of process under the
laws of any such jurisdiction (except service of process with respect to the
offering and sale of the Securities). Without limiting the foregoing, the
Company will use its best efforts to register or qualify the shares of Common
Stock underlying the Warrants in any jurisdiction where the registered holders
of 5% or more of such Warrants reside, and will use its best efforts to keep
such registrations or qualifications in effect during the term of the Warrants.
(f) The Company will apply the net proceeds from the offering received by
it in the manner set forth under the caption "Use of Proceeds" in the
Prospectus.
(g) The Company will (i) cause the Securities (other than the
Representative's Warrants) to be listed on PSE and (ii) comply with all
registration, filing and reporting requirements of the Exchange Act, and PSE
which may from time to time be applicable to the Company.
(h) During the five-year period commencing on the date hereof, the Company
will furnish to its shareholders, as soon as practicable after the end of each
respective period, annual reports (including financial statements audited by
independent certified public accountants) and unaudited quarterly reports of
earnings and will furnish to you and, upon request, to the other Underwriters
hereunder (i) concurrent with furnishing such quarterly reports to its
shareholders,
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statements of income and other information of the Company for such quarter in
the form furnished to the Company's shareholders; (ii) concurrent with
furnishing such annual reports to its shareholders, a balance sheet of the
Company as at the end of such fiscal year, together with statements of income
and surplus and of cash flow of the Company for such fiscal year, all in
reasonable detail and accompanied by a copy of the certificate or report thereon
of its independent certified public accountants; (iii) as soon as they are
available, copies of all reports and financial statements furnished to or filed
with the Commission, the NASD, PSE or any other securities exchange on which any
of the Company's securities may be listed; (iv) every press release and every
material news item or article in respect of the Company or its affairs which was
released or prepared by the Company; and (v) any additional information of a
public nature concerning the Company or its business that you may reasonably
request. During such five-year period, if the Company shall have active
subsidiaries, the foregoing financial statements shall be on a consolidated
basis to the extent that the accounts of the Company and its subsidiaries are
consolidated, and shall be accompanied by similar financial statements for any
significant subsidiary that is not so consolidated.
(i) The Company will maintain a transfer agent and, if necessary under the
jurisdiction of incorporation of the Company, a registrar (which may be the same
entity as the transfer agent) for the Securities.
(j) The Company will not, for a period of 365 days following the Effective
Date, without the prior written consent of the Representative, offer, sell,
contract to sell (including, without limitation, any short sale), transfer,
assign, pledge, encumber, hypothecate or grant any option to purchase or
otherwise dispose of, any capital stock, or any options, rights or warrants to
purchase any capital stock of the Company, or any securities or indebtedness
convertible into or exchangeable for shares of capital stock of the Company,
except for (i) sales of Securities as contemplated by this Agreement and (ii)
sales of Common Stock upon the exercise of the Warrants or outstanding options
described in the Prospectus.
(k) The Company has reserved and shall continue to reserve a sufficient
number of shares of Common Stock for issuance upon exercise of the
Representative's Warrants and the Warrants.
(l) If the Company elects to rely on Rule 462(b), the Company shall file a
Rule 462(b) Registration Statement with the Commission in compliance with Rule
462(b) by 10:00 p.m., Washington D.C. time, on the date of this Agreement, and
the Company shall at the time of filing either pay to the Commission the filing
fee for the Rule 462(b) Registration Statement or give irrevocable instructions
for the payment of such fee pursuant to Rule 111(b) under the Act.
(m) For the five year period from the Closing Date, the Company will
nominate for election as a director a person designated by the Representative,
and during such time as the Representative shall not have exercised such right,
the Representative shall have the right to designate an observer, who shall be
entitled to attend all meetings of the Board of Directors and receive all
correspondence and communications sent by the Company to the members of the
Board of Directors.
6. Conditions to the Obligations of the Underwriters. The obligations of the
Underwriters to purchase the Units described in Sections 2(a) and 2(b) hereof
shall be subject to (i) the accuracy of the representations and warranties on
the part of the Company contained herein as of the Execution Time, the Closing
Date and (in the case of any Units delivered after the Closing Date, any
settlement date pursuant to Section 3(b) hereof), (ii) the accuracy of the
statements of the Company made in any certificates delivered pursuant to the
provisions hereof, (iii) the performance by the Company of its obligations
hereunder, and (iv) the following additional conditions:
(a) The Registration Statement shall have become effective (or, if a post-
effective amendment is required to be filed pursuant to Rule 430A under the Act,
such post-effective amendment shall become effective) not later than 5:00 p.m.
Eastern Standard Time, on the execution date hereof or at such later date and
time as the Representative may approve in writing and, at the Closing Date (and
any settlement date pursuant to Section 3(b) hereof), no stop order suspending
the effectiveness of the Registration Statement or any qualification in any
jurisdiction shall have been issued and no proceedings for that purpose shall
have been initiated or, to the best knowledge of the Company, threatened by the
Commission.
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(b) The Company shall have furnished to the Representative the opinion of
Dill, Dill, Carr, Stonbraker & Hutchings, counsel for the Company, addressed to
the Underwriters and dated the Closing Date (and any settlement date pursuant to
Section 3(b) hereof), or other evidence satisfactory to the Representative to
the effect that:
(i) The Registration Statement has become effective under the Act; any
required filing of the Prospectus or any supplements thereto pursuant to
Rule 424(b) has been made in the manner and within the time period required
by Rule 424(b); to the best knowledge of such counsel, no stop order
suspending the effectiveness of the Registration Statement or any
qualification in any jurisdiction has been issued and no proceedings for
that purpose have been instituted or threatened; any request from the
Commission for additional information has been complied with; the
Registration Statement and the Prospectus (and any supplements thereto)
comply as to form in all material respects with the applicable requirements
of the Act and the rules and regulations thereunder (except that such
counsel need express no opinion with respect to the Financial Statements
and schedules included in the Registration Statement and Prospectus).
(ii) The Company does not own or control, directly or indirectly, any
shares of capital stock or equity interests in any corporation,
partnership, association or other entity, except as set forth in the
Prospectus.
(iii) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the jurisdiction in
which it is chartered or organized, with full corporate power and corporate
authority to own its properties and conduct its business as described in
the Prospectus, and is duly qualified to do business as a foreign
corporation and is in good standing under the laws of each jurisdiction in
which it conducts its business or owns property and in which the failure,
individually or in the aggregate, to be so qualified would have a Material
Adverse Effect. The Company has all necessary and material authorizations,
approvals, orders, licenses, certificates and permits of and from all
government regulatory officials and bodies, to own its properties and
conduct its business as described in the Prospectus, except where failure
to obtain such authorizations, approvals, orders, licenses, certificates or
permits would not have a Material Adverse Effect.
(iv) The Company has an authorized share capitalization as set forth
in the Prospectus; the capital stock of the Company conforms in all
material respects to the description thereof contained in the Prospectus;
all outstanding shares of Common Stock have been duly and validly
authorized and issued and are fully paid and nonassessable and the
certificates therefor are in valid and sufficient form in accordance with
applicable state law; there are no other classes of stock outstanding
except Common Stock; all outstanding options to purchase shares of Common
Stock have been duly and validly authorized and issued; except as described
in the Prospectus, there are no options, warrants or rights to acquire, or
debt instruments convertible into or exchangeable for, or other agreements
or understandings to which the Company is a party, outstanding or in
existence, entitling any person to purchase or otherwise acquire any shares
of capital stock of the Company; the issuance and sale of the Securities
have been duly and validly authorized and, when issued and delivered and
paid for, the Securities will be fully paid and nonassessable and free from
preemptive rights, and will conform in all respects to the description
thereof contained in the Prospectus; the Warrants and the Representative's
Warrants constitute valid and binding obligations of the Company
enforceable in accordance with their terms and the Company has reserved a
sufficient number of shares of Common Stock for issuance upon exercise
thereof; the Warrants and the Representative's Warrants possess the rights,
privileges and characteristics as represented in the forms filed as
exhibits to the Registration Statement and as described in the Prospectus;
the Securities (other than the Representative's Warrants) have been
approved for listing on PSE upon notice of issuance thereof; the
certificates for the Securities are in valid and sufficient form. Each
offer and sale of securities of the Company described in Item 26 of Part II
of the Registration Statement was effected in compliance with the Act and
the rules and regulations thereunder.
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(v) Other than as described in the Prospectus, there is no pending
or, to the best knowledge of such counsel after reasonable investigation,
threatened action, suit or proceeding before any court or governmental
agency, authority or body, domestic or foreign, or any arbitrator involving
the Company of a character required to be disclosed in the Registration
Statement or the Prospectus that is not adequately disclosed in the
Prospectus, and, to the best knowledge of such counsel, there is no
contract or other document of a character required to be described in the
Registration Statement or the Prospectus, or to be filed as an exhibit,
which is not described or filed as required.
(vi) This Agreement has been duly authorized, executed and delivered
by the Company and constitutes the legal, valid and binding agreement and
obligation of the Company enforceable against it in accordance with its
terms (subject to standard bankruptcy and equitable remedy exceptions, and
limitations under the Act as to the enforceability of indemnification
provisions).
(vii) The Company has full corporate power and corporate authority to
enter into and perform its obligations under this Agreement and to issue,
sell and deliver the Securities in the manner provided in this Agreement;
and the Company has taken all necessary corporate action to authorize the
execution and delivery of, and the performance of its obligations under,
this Agreement.
(viii) Neither the offering, issue and sale of the Securities nor the
consummation of any other of the transactions contemplated herein, nor the
fulfillment of the terms hereof, will conflict with or result in a breach
or violation of, or constitute a default under, or result in the imposition
of a lien on any properties of the Company, or an acceleration of
indebtedness pursuant to, the Articles of Incorporation (or other charter
document) or bylaws of the Company, or any of the terms of any indenture or
other agreement or instrument to which the Company is a party or by which
its properties are bound, or any law, order, judgment, decree, rule or
regulation applicable to the Company of any court, regulatory body,
administrative agency, governmental body, stock exchange or arbitrator
having jurisdiction over the Company. The Company is not in violation of
its Articles of Incorporation or bylaws or, to the best knowledge of such
counsel after reasonable investigation, in breach of or default under any
of the terms of any indenture or other agreement or instrument to which it
is a party or by which it or its properties are bound, which breach or
default would, individually or in the aggregate, have a Material Adverse
Effect.
(ix) Except as disclosed in the Prospectus, no person has the right,
contractual or otherwise, to cause the Company to issue to it any shares of
capital stock in consequence of the issue and sale of the Securities to be
sold by the Company hereunder nor does any person have preemptive rights,
or rights of first refusal or other rights to purchase any of the
Securities. Except as referred to in the Prospectus, no person holds a
right to require or participate in a registration under the Act of Common
Stock or any other equity securities of the Company.
(x) No consent, approval, authorization or order of, or declaration
or filing with, any court or governmental agency or body is required to be
obtained or filed by or on behalf of the Company in connection with the
transactions contemplated herein, except such as may have been obtained or
made and registration of the Securities under the Act, and such as may be
required under the Blue Sky laws of any jurisdiction.
(xi) To the best knowledge of such counsel after reasonable
investigation, the Company is not in violation of or default under any
judgment, ruling, decree or order or any statute, rule or regulation of any
court or other United States governmental agency or body, including any
applicable laws respecting employment, immigration and wages and hours, in
each case, where such violation or default could have a Material Adverse
Effect. The Company is not involved in any labor dispute, nor, to the best
knowledge of such counsel, is any labor dispute threatened.
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(xii) The Company is not an investment company subject to
registration under the Investment Company Act of 1940, as amended.
(xiii) The preparation and the filing of the Registration Statement
with the Commission have been duly authorized by and on behalf of the
Company, and the Registration Statement has been duly executed pursuant to
such authorization by and on behalf of the Company.
(xiv) the Company owns or possesses, or has the right to use pursuant
to licenses, sublicenses, agreements, permissions or otherwise, adequate
patents, copyrights, trade names, trademarks, service marks, licenses and
other intellectual property rights necessary to carry on its business as
described in the Prospectus, and, except as set forth in the Prospectus,
neither such counsel nor, to the knowledge of such counsel, the Company has
received any notice of either (i) default under any of the foregoing or
(ii) infringement of or conflict with asserted rights of others with
respect to, or challenge to the validity of, any of the foregoing which, in
the aggregate, if the subject of an unfavorable decision, ruling or
finding, could have a Material Adverse Effect, and counsel knows of no
facts which could reasonably be anticipated to serve as the basis for any
such notice.
In addition, such counsel shall state that such counsel has participated in
conferences with officers and other representatives of the Company,
representatives of the independent public accountants of the Company and
representatives of the Underwriters at which the contents of the Registration
Statement and Prospectus were discussed and, although such counsel is not
passing upon and does not assume responsibility for the accuracy, completeness
or fairness of the statements contained in the Registration Statement or
Prospectus (except as and to the extent stated in subparagraphs (i) and (v)
above), on the basis of the foregoing and on such counsel's participation in the
preparation of the Registration Statement and the Prospectus, nothing has come
to the attention of such counsel that causes such counsel to believe that the
Registration Statement, at the Effective Date and at the Closing Date (and any
settlement date pursuant to Section 3(b) hereof), contained or contains any
untrue statement of a material fact or omitted or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or that the Prospectus, at the date of such Prospectus or at the
Closing Date (or any settlement date pursuant to Section 3(b) hereof), contained
or contains any untrue statement of a material fact or omitted or omits to state
a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading (it being understood that such counsel need express no
comment with respect to the Financial Statements and schedules and other
financial or statistical data derived therefrom included in the Registration
Statement or Prospectus).
References to the Prospectus in this Section 6(b) shall include any
supplements thereto.
(c) The Representative shall have received from Wolin, Ridley & Miller LLP,
counsel for the Underwriters, an opinion dated the Closing Date (and any
settlement date pursuant to Section 3(b) hereof), with respect to the issuance
and sale of the Securities, and with respect to the Registration Statement, the
Prospectus and other related matters as the Representative may reasonably
require, and the Company shall have furnished to such counsel such documents as
they may reasonably request for the purpose of enabling them to pass upon such
matters.
(d) The Company shall have furnished to the Representative a certificate of
the Company, signed by its Chief Executive Officer and its Chief Financial
Officer, dated the Closing Date (and any settlement date pursuant to Section
3(b) hereof), to the effect that each has carefully examined the Registration
Statement, the Prospectus (and any supplements thereto) and this Agreement, and,
after due inquiry, that:
(i) As of the Closing Date (and any settlement date pursuant to
Section 3(b) hereof), the statements made in the Registration Statement and
the Prospectus are true and correct and the Registration Statement and the
Prospectus do not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which
they were made, not misleading.
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(ii) No order suspending the effectiveness of the Registration
Statement or the qualification or registration of the Securities under the
securities or Blue Sky laws of any jurisdiction is in effect and no
proceeding for such purpose is pending before or, to the knowledge of such
officers, threatened or contemplated by the Commission or the authorities
of any such jurisdiction; and any request for additional information with
respect to the Registration Statement or the Prospectus on the part of the
staff of the Commission or any such authorities brought to the attention of
such officers has been complied with to the satisfaction of the staff of
the Commission or such authorities.
(iii) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, there has not been any
change in the capital stock or long-term debt of the Company, except as set
forth in or contemplated by the Registration Statement and the Prospectus,
(y) there has not been any material adverse change in the general affairs,
business, prospects, properties, management, results of operations or
condition (financial or otherwise) of the Company, whether or not arising
from transactions in the ordinary course of business, in each case, other
than as set forth in or contemplated by the Registration Statement and the
Prospectus, and (z) the Company has not sustained any material interference
with its business or properties from fire, explosion, flood or other
casualty, whether or not covered by insurance, or from any labor dispute or
any court or legislative or other governmental action, order or decree,
which is not set forth in the Registration Statement and the Prospectus.
(iv) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, there has been no litigation
instituted against the Company, any of its respective officers or
directors, or, to the best knowledge of such officers, any affiliate or
promoter of the Company, and since such dates there has been no proceeding
instituted or, to the best knowledge of such officers, threatened against
the Company, any of its officers or directors, or, to the best knowledge of
such officers, any affiliate or promoter of the Company, before any
federal, state or county court, commission, regulatory body, administrative
agency or other governmental body, domestic or foreign, in which litigation
or proceeding an unfavorable ruling, decision or finding could have a
Material Adverse Effect.
(v) Each of the representations and warranties of the Company in this
Agreement is true and correct in all material respects on and as of the
Execution Time and the Closing Date (and any settlement date pursuant to
Section 3(b) hereof) with the same effect as if made on and as of the
Closing Date (and any settlement date pursuant to Section 3(b) hereof).
(vi) Each of the covenants required in this Agreement to be performed
by the Company on or prior to the Closing Date (and any settlement date
pursuant to Section 3(b) hereof) has been duly, timely and fully performed,
and each condition required herein to be complied with by the Company on or
prior to the Closing Date (and any settlement date pursuant to Section 3(b)
hereof) has been duly, timely and fully complied with.
(e) At the Execution Time and on the Closing Date (and any settlement date
pursuant to Section 3(b) hereof), Comiskey & Company, P.C. shall have furnished
to the Representative letters, dated as of such dates, in form and substance
satisfactory to the Representative, confirming that they are independent
accountants within the meaning of the Act and the applicable rules and
regulations thereunder and stating in effect that:
(i) In their opinion, the audited Financial Statements of Cinema Saver
Theatre Corporation and Pitchers!, Inc. for the two fiscal years ended
December 31, 1997, and the notes to the Financial Statements for those
periods included in the Registration Statement and the Prospectus, comply
in all material respects with generally accepted accounting principles and
the applicable accounting requirements of the Act and the applicable rules
and regulations thereunder.
[(ii) On the basis of a reading of the latest unaudited Financial
Statements made available by the Company, carrying out certain specified
procedures (but not an examination in accordance with generally accepted
auditing standards), a reading of the minutes of the meetings of the
shareholders, directors and committees of the Company, and inquiries of
certain officials of the Company who have responsibility for financial and
accounting matters of the Company, nothing came to their attention that
caused them to believe that: (i) the unaudited consolidated Financial
Statements of the Company for the six months ended June 30, 1998, and the
notes to the Financial Statements and the Financial Statement Schedules for
the period then ended included in the Registration Statement and Prospectus
do not comply in all material respects with generally accepted accounting
principles or the applicable accounting requirements of the Act and the
applicable rules and regulations thereunder; and (ii) with respect to the
period subsequent to June 30, 1998, at a specified date
14
<PAGE>
not more than five business days prior to the date of the letter, (y) there
were any changes in the long-term debt or capital stock of the Company, or
decreases in net current assets, net assets or stockholders' equity of the
Company as compared with the amounts shown on the June 30, 1998 balance
sheet included in the Registration Statement and the Prospectus, or (z)
there were any decreases in reserves, sales, net income or income from
operations, of the Company, as compared with the amounts shown in the
corresponding period of the preceding year, except for changes or decreases
which the Registration Statement discloses have occurred or may occur and
except for changes or decreases, set forth in such letter, in which case
(A) the letter shall be accompanied by an explanation by the Company as to
the significance thereof unless said explanation is not deemed necessary by
the Representative and (B) such changes or decreases and the explanation
thereof shall be acceptable to the Representative, in its sole discretion.]
(iii) They have performed certain other specified procedures as a
result of which they determined that all information of an accounting,
financial or statistical nature (which is limited to accounting, financial
or statistical information derived from the general accounting records of
the Company) set forth in the Registration Statement and the Prospectus and
specified by you prior to the Execution Time, agrees with the accounting
records of the Company.
(iv) On the basis of a reading of the unaudited pro forma combined
condensed balance sheet as of December 31, 1997 and the related unaudited
pro forma combined statements of operations for the years ended as of
December 31, 1997 and 1996, and the summary selected unaudited pro forma
financial information as of June 30, 1998 and December 31, 1997, for the
six months ended June 30, 1998 and 1997 and for the years ended December
31, 1997 and 1996, nothing came to their attention that caused them to
believe that the above described pro forma balance sheet and statements of
income had not been properly compiled on the pro forma bases described in
the notes thereto.
The Representative shall also have also received from Comiskey &
Company, P.C., a letter stating that the Company's system of internal accounting
controls taken as a whole are sufficient to meet the broad objectives of
internal accounting control insofar as those objectives pertain to the
prevention or detection of errors or irregularities in amounts that would be
material to the Financial Statements of the Company.
References to the Prospectus in this Section 6(f) shall include any
supplements thereto.
(f) Subsequent to the respective dates as of which information is given in
the Registration Statement and the Prospectus, there shall not have been (i) any
changes or decreases from that specified in the letters referred to in Section
6(f) hereof or (ii) any change, or any development involving a prospective
change, in or affecting the properties, assets, results of operations, business,
capitalization, net worth, prospects, general affairs or condition (financial or
otherwise) of the Company, the effect of which is, in the sole judgment of the
Representative, so material and adverse as to make it impractical or inadvisable
to proceed with the public offering or delivery of the Securities as
contemplated by the Registration Statement and the Prospectus.
(g) On or prior to the Effective Date, the Securities shall have been
approved for listing on PSE.
(h) The Company shall not have sustained any uninsured substantial loss as
a result of fire, flood, accident or other calamity.
15
<PAGE>
(i) The Company shall have furnished to the Representative a certificate of
the Secretary of the Company certifying as to certain information and other
matters as the Representative may reasonably request.
(j) The Company shall have furnished to the Representative such further
information, certificates and documents as the Representative may reasonably
request.
If any of the conditions specified in this Section 6 shall not have been
fulfilled in any respect when and as provided in this Agreement, or if any of
the opinions and certificates mentioned above or elsewhere in this Agreement
shall not be in all respects reasonably satisfactory in form and substance to
the Representative and its counsel, this Agreement and all obligations of the
Underwriters hereunder may be canceled at, or at any time prior to, the Closing
Date (or any settlement date, pursuant to Section 3(b) hereof), by the
Representative. Notice of such cancellation shall be given to the Company in
writing or by telephone, facsimile or telegraph confirmed in writing.
7. Fees and Expenses and the Representative's Warrants. The Company agrees to
pay or cause to be paid and issue the following:
(a) the fees, disbursements and expenses of its own counsel and counsel for
the Company and accountants in connection with the registration of the
Securities under the Act and all other expenses in connection with the
preparation, printing and filing of the Registration Statement, any Preliminary
Prospectus, any Prospectus, and any drafts thereof, and amendments and
supplements thereto, and the mailing and delivery of copies thereof to the
Underwriters and dealers;
(b) all expenses in connection with the qualification of the Securities for
offering under state securities laws, including the fees and disbursements of
counsel for the Underwriters in connection with such qualification and in
connection with the Blue Sky Memorandum;
(c) all filing and other fees in connection with filing with the NASD, and
complying with applicable review requirements thereof;
(d) the cost of preparing and printing certificates for the Securities;
(e) all expenses, taxes, fees and commissions, including, without
limitation, any and all fixed transfer duties sellers' and buyers' stamp taxes
or duties on the purchase and sale of the Securities and stock exchange
brokerage and transaction levies with respect to the purchase and, if
applicable, the sale of the Securities (the latter to the extent paid and not
reimbursed) (i) incident to the sale and delivery by the Company of the
Securities to the Underwriters and (ii) incident to the sale and delivery of the
Securities by the Underwriters to the initial purchasers thereof;
(f) the costs and charges of any transfer agent and registrar;
(g) the fees and expenses in connection with qualification of the
Securities for listing on the PSE;
(h) a nonaccountable expense allowance of 2.0% of the proceeds derived from
the offering (including the Units described in Section 2(b) hereof) payable to
the Representative;
(i) a solicitation fee to the Representative equal to 5.0% of the aggregate
proceeds received by the Company as a result of the solicitation of the exercise
of the Warrants, provided that no fee shall be payable (i) within one year after
the date of this prospectus, (ii) if the market price of the Common Stock is
lower than the exercise price of the Warrants, (iii) if the Warrants are held in
a discretionary account at the time of exercise, unless prior written approval
of the exercise of such Warrants is received from the beneficial owner of the
Warrants, or (iv) if the exercise of the Warrants is not solicited by the
Representative unless the beneficial owner of such Warrants states in writing
that the exercise was solicited by the Representative and designates in writing
the Representative to receive the solicitation fee with respect to the exercise
of such Warrants; and
(j) all other costs and expenses incident to the performance of the
Company's obligations hereunder which are not otherwise specifically provided
for in this Section 7.
(k) in addition to the sums payable to the Representative provided
elsewhere herein and in addition to the Underwriters' Option, the Representative
shall be entitled to receive on the Closing Date, as partial compensation for
its services, warrants (the "Representative's Warrants") for the purchase of an
additional 100,000 Units. The Representative's Warrants shall be issued pursuant
to the Representative's Warrant Agreement in the form of Exhibit A attached
---------
hereto and shall be exercisable, in whole or in part, for a period of four years
commencing one year from the date of the Prospectus, at 120% of the initial
public offering price of the Units. The Representative's Warrants, including the
Warrants issuable upon exercise thereof, shall be non-transferable for one year
from the date of issuance of the Representative's Warrants, except for (i)
transfers to officers or partners of the Representative, (ii) in connection with
a merger, consolidation or reorganization of the Representative, or (iii)
transfers occurring by operation of law. The terms of the Units subject to the
Representative's Warrants shall be the same as the Units sold to the public.
Without limiting in any respect the foregoing obligations of the Company,
which obligations shall survive any termination of this Agreement, if the sale
of the Securities provided for herein is not consummated because any condition
to the obligations of the Underwriters set forth in Section 6 hereof is not
satisfied, because of any termination pursuant to Section 10 hereof, or because
of any refusal, inability or failure on the part of the Company or the Company
to perform any agreement herein or comply with any provision hereof to be
performed or complied with by
16
<PAGE>
the Company or the Company other than by reason of a default by any of the
Underwriters, the Company agrees to reimburse the Underwriters, upon demand, for
all out-of-pocket expenses (including reasonable fees and disbursements of
counsel) that shall have been incurred by them in connection with the proposed
purchase and sale of the Securities to the extent the amounts paid pursuant to
Section 7(h) hereof are insufficient therefor.
8. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless each Underwriter and
each person who controls any Underwriter within the meaning of the Act or the
Exchange Act against any and all losses, claims, damages or liabilities, joint
or several, to which they or any of them may become subject under the Act, the
Exchange Act or other federal or state statutory law or regulation, at common
law or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of a material fact contained in (i) Section 1(I) of
this Agreement, the Registration Statement, any Preliminary Prospectus or the
Prospectus, or in any amendment thereof or supplement thereto, or (ii) any
application or other document, or any amendment or supplement thereto, executed
by the Company or based upon written information furnished by or on behalf of
the Company filed in any jurisdiction in order to qualify the Securities under
the securities or Blue Sky laws thereof or filed with the Commission or any
securities association or securities exchange, or arise out of or are based upon
the omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
agrees to reimburse each such indemnified party, as incurred, for any legal or
other expenses reasonably incurred by it in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the Company will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon any such untrue
statement or alleged untrue statement or omission or alleged omission made
therein in reliance upon and in conformity with written information furnished to
the Company by or on behalf of any Underwriter through the Representative
specifically for use in the Registration Statement or Prospectus; provided
further, that with respect to any untrue statement or omission, or any alleged
untrue statement or omission, made in any Preliminary Prospectus, the indemnity
agreement contained in this subsection (a) shall not inure to the benefit of any
Underwriter (or to the benefit of any person controlling any such Underwriter)
from whom the person asserting any such losses, claims, damages, liabilities or
expenses purchased the Securities concerned to the extent that such untrue
statement or omission, or alleged untrue statement or omission, has been
corrected in the Prospectus and the failure to deliver the Prospectus was not a
result of the Company's failure to comply with its obligations under Section
5(d) hereof. The indemnity agreement will be in addition to any liability which
the Company may otherwise have. The Company will not, without the prior written
consent of each Underwriter, settle or compromise or consent to the entry of any
judgment in any pending or threatened claim, action, suit or proceeding in
respect of which indemnification may be sought hereunder (whether or not such
Underwriter or any person who controls
17
<PAGE>
such Underwriter within the meaning of Section 15 of the Act or Section 20 of
the Exchange Act is a party to such claim, action, suit or proceeding), unless
the settlement or compromise or consent includes an unconditional release of
such Underwriter and each such controlling person from all liability arising out
of such claim, action, suit or proceeding, satisfactory in form and substance to
the Representative.
(b) Each Underwriter severally agrees to indemnify and hold harmless the
Company, each of its directors, each of the Company's officers who signs the
Registration Statement, and each person who controls the Company or the Company,
as the case may be, within the meaning of the Act or the Exchange Act to the
same extent as the foregoing indemnity from the Company or the Company to each
Underwriter, but only with reference to written information relating to such
Underwriter furnished to the Company by or on behalf of such Underwriter through
the Representative specifically for use in the Registration Statement or
Prospectus. The Company acknowledges that the corporate names of the
Underwriters, the stabilization legend on page 2 and the information under the
heading "Underwriting" in the Prospectus and in any Preliminary Prospectus
constitute the only information furnished in writing by or on behalf of the
several Underwriters. The obligations of each Underwriter under this subsection
(b) shall be in addition to any liability which the Underwriters may otherwise
have.
(c) Promptly after receipt by an indemnified party under this Section 8 of
notice of the commencement of any action, suit or proceeding, such indemnified
party will, if a claim in respect thereof is to be made against the indemnifying
party under this Section 8, notify the indemnifying party in writing of the
commencement thereof and the indemnifying party shall assume the defense
thereof, including the employment of counsel reasonably satisfactory to
the indemnified party and the payment of all expenses; but the omission so to
notify the indemnifying party will not relieve it from any liability which it
may have to any indemnified party, unless such omission results in the
forfeiture of substantive rights or defenses by the indemnifying party. All such
expenses shall be paid by the indemnifying party as incurred by an indemnified
party. Any such indemnified party shall have the right to employ separate
counsel in any such action and to participate in the defense thereof, but the
fees and expenses of such counsel shall be at the expense of such indemnified
party unless (i) the indemnifying party has agreed to pay such fees and expenses
or (ii) the indemnifying party shall have failed promptly after notice by such
indemnified party to assume the defense of such action or proceeding and employ
counsel reasonably satisfactory to the indemnified party in any such action,
suit or proceeding or (iii) the named parties in any such action or proceeding
(including any impleaded parties) include both such indemnified party and the
indemnifying party, and such indemnified party shall have been advised by
counsel that there may be one or more legal defenses available to such
indemnified party which are different from or additional to those available to
the indemnifying party (in which case, if such indemnified party notifies the
indemnifying party in writing that it elects to employ separate counsel at the
expense of the indemnifying party, the indemnifying party shall not have the
right to assume the defense of such action or proceeding on behalf of the
indemnified party or parties, it being understood, however, that the
indemnifying party shall not, in connection with any one such action or
proceeding or separate but substantially similar or related actions or
proceedings in the same jurisdiction arising out of the same general allegations
or circumstances, be liable for the reasonable fees and expenses of more than
one separate firm of attorneys (together with appropriate local counsel) at any
time for all such indemnified parties, which firm shall be designated in writing
to the indemnifying party). Any such fees and expenses payable by the
indemnifying party shall be paid to or on behalf of the indemnified party
entitled thereto as incurred. An indemnifying party shall not be liable for any
settlement of any action or claim effected without its consent, which consent
shall not be unreasonably withheld.
(d) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in Section 8(a) or 8(b)
is applicable in accordance with its terms but is for any reason held by a court
to be unavailable from the indemnifying party on grounds of policy or otherwise,
the Company, the Company and the Underwriters shall contribute to the aggregate
losses, claims, damages and liabilities (including legal or other expenses
reasonably incurred in connection with investigating or defending same) to which
the Company, the Company and one or more of the Underwriters may be subject in
such proportion so that the Underwriters are responsible in the aggregate for
that portion represented by the total underwriting compensation in respect of
the Securities bears to the public offering price appearing thereon and the
Company is responsible for the balance; provided, however, that (i) in no case
shall any Underwriter (except as may be provided in the Agreement Among
Underwriters relating to the offering of the Securities) be responsible for any
amount in excess of the total underwriting compensation applicable to the
Securities to be purchased by such Underwriter hereunder and (ii) no person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not guilty
18
<PAGE>
of such fraudulent misrepresentation. For purposes of this Section 8, each
person who controls an Underwriter within the meaning of the Act shall have the
same rights to contribution as such Underwriter, and each person who controls
the Company or the Company within the meaning of the Act, each officer of the
Company who shall have signed the Registration Statement and each director of
the Company shall have the same rights to contribution as the Company, subject
in each case to clause (ii) of this Section 8(d). Any party entitled to
contribution will, promptly after receipt of notice of commencement of any
action, suit or proceeding against such party in respect of which a claim for
contribution may be made against another party or parties under this Section
8(d), notify such party or parties from whom contribution may be sought, but the
omission so to notify such party or parties shall not relieve the party or
parties from whom contribution may be sought from any other obligation it or
they may have hereunder or otherwise.
9. Default by an Underwriter. If any one or more Underwriters shall fail to
purchase and pay for any of the Securities agreed to be purchased by such
Underwriter or Underwriters hereunder and such failure to purchase shall
constitute a default in the performance of its or their obligations under this
Agreement, the remaining Underwriters shall be obligated severally to take up
and pay for (in the respective proportions which the number of Units set forth
opposite their names in Schedule I hereto bears to the aggregate number of Units
set forth opposite the names of all the remaining Underwriters) the Units which
the defaulting Underwriter or Underwriters agreed but failed to purchase;
provided, however, that if the aggregate number of Units which the defaulting
Underwriter or Underwriters agreed but failed to purchase shall exceed 10% of
the aggregate number of Units set forth in Schedule I hereto, the remaining
Underwriters shall have the right to purchase all, but shall not be under any
obligation to purchase any, of such Units, and if such nondefaulting
Underwriters do not purchase all of such Units, this Agreement will terminate
without liability to any non-defaulting Underwriter or the Company except as
otherwise provided in Section 7. In the event of a default by any Underwriter as
set forth in this Section 9, the Closing Date shall be postponed for such
period, not exceeding seven days, as the Representative shall determine in order
that the required changes in the Registration Statement and the Prospectus or in
any other documents or arrangements may be effected. Nothing contained in this
Agreement shall relieve any defaulting Underwriter of its liability, if any, to
the Company or any nondefaulting Underwriter for damages occasioned by its
default hereunder.
10. Termination. This Agreement shall be subject to termination in the absolute
discretion of the Representative, by notice given to the Company prior to
delivery of and payment for the Securities, if prior to such time (a) a
suspension or material limitation in trading in securities generally on the New
York or Pacific Stock Exchange, the Nasdaq National Market or any relevant
over-the-counter market, the Chicago Board Options Exchange, the Chicago
Mercantile Exchange or the Chicago Board of Trade shall have occurred, (b) a
banking moratorium shall have been declared by federal, New York or California
state authorities, (c) the United States shall have engaged in hostilities which
shall have resulted in the declaration, on or after the date hereof, of a
national emergency or war, or (d) a change in national or international
political, financial or economic conditions or national or international equity
markets or currency exchange rates shall have occurred, if the effect of any
such event specified above is, in the sole judgment of the Representative, so
material and adverse as to make it impractical or inadvisable to proceed with
the public offering or delivery of the Securities as contemplated by the
Registration Statement and the Prospectus.
11. Representations and Indemnities to Survive. The respective agreements,
representations, warranties, indemnities and other statements of the Company,
its officers and the Underwriters set forth in, referred to in, or made pursuant
to this Agreement will remain in full force and effect, regardless of any
investigation made by or on behalf of any Underwriter or the Company or any of
the officers, directors or controlling persons referred to in Section 8 hereof,
and will survive delivery of and payment for the Securities. The provisions of
Sections 7 and 8 hereof shall survive the termination or cancellation of this
Agreement.
12. Notices. All communications hereunder will be in writing and effective only
on receipt, and will be mailed, delivered, telegraphed or sent by facsimile
transmission and confirmed:
19
<PAGE>
to the Representative at:
Tejas Securities Group, Inc.
1250 Capital of Texas Hwy. South
Building Two, Suite 500
Austin, Texas 78746
Attention: Robert A. Shuey, III
Facsimile: (512) 306-1528
to the Company at:
Starlight Entertainment, Inc.
10831 South Crossroads Drive
Parker, Colorado 80134
Attention: President
Facsimile: (303) 805-8379
13. Successors. This Agreement will inure to the benefit of and be binding upon
the parties hereto and their respective successors and the officers, directors
and controlling persons referred to in Section 8 hereof, and no other person
will have any right or obligation hereunder.
14. Counterparts. This Agreement may be signed in two or more counterparts,
each of which shall be an original, with the same effect as if the signatures
thereon and hereon were on the same instrument.
15. Applicable Law. This Agreement will be governed by and construed in
accordance with the laws of the State of Texas.
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to us the enclosed duplicate hereof, whereupon this
letter and your acceptance shall represent a binding agreement among the Company
and the several Underwriters.
Very truly yours,
STARLIGHT ENTERTAINMENT, INC.
By:
-------------------------------------
R. Haydn Silleck, President
The foregoing Agreement is hereby confirmed and accepted as of the date first
above written.
TEJAS SECURITIES GROUP, INC.,
For itself and as Representative of the several
Underwriters in Schedule I to this Underwriting Agreement.
By:
-------------------------------------
Robert A. Shuey, III
20
<PAGE>
SCHEDULE I
Number of Units
Underwriters To Be Purchased
------------ ---------------
Tejas Securities Group, Inc.
-----------
Total <1,000,000>
===========
<PAGE>
EXHIBIT A
FORM OF WARRANT AGREEMENT
<PAGE>
EXHIBIT B
FORM OF LOCK-UP AGREEMENT
Tejas Securities Group, Inc.,
As Representative of the Several Underwriters
c/o Tejas Securities Group, Inc.
1250 Capital of Texas Hwy. South
Building Two, Suite 500
Austin, Texas 78746
Ladies and Gentlemen:
The undersigned understands that you, as the Representative of the several
underwriters (the "Underwriters"), propose to enter into an Underwriting
Agreement (the "Underwriting Agreement") with Starlight Entertainment, Inc., a
Colorado corporation (the "Company"), providing for the initial public offering
by the Underwriters of an aggregate of 1,000,000 units (the "Units"), each
consisting of one share of the Company's Common Stock, no par value (the "Common
Stock"), and one redeemable common stock purchase warrant (the "Warrants"),
pursuant to the Company's Registration Statement on Form SB-2 (the "Registration
Statement") filed with the Securities and Exchange Commission.
In consideration of the Underwriters' agreement to purchase the Units, and
for other good and valuable consideration, receipt of which is hereby
acknowledged, the undersigned hereby agrees that during the period beginning on
the date of this letter and ending one (1) year (the "Lock-Up Period") after the
date of the final prospectus relating to the offer and sale of the Units, the
undersigned will not, directly or indirectly, offer, sell, contract to sell,
grant any option for the sale of, pledge, or otherwise dispose of (individually,
a "Disposition") any Common Stock, or securities exercisable, convertible, or
exchangeable for or into Common Stock (collectively, the "Securities"), that the
undersigned now owns or will own in the future (beneficially or of record),
except (i) as a bona fide gift or gifts, provided the donee or donees thereof
agree in writing to be bound by this Lock-Up Agreement, or (ii) with the prior
written consent of the Representative. The foregoing restriction is expressly
agreed to preclude the holder of Securities from engaging in any hedging or
other transaction which is designed to or reasonably expected to lead to or
result in a disposition of Securities during the Lock-Up Period, even if such
Securities would be disposed of by someone other than the undersigned. Such
prohibited hedging or other transactions would include, without limitation, any
short sale or any purchase, sale or grant of any right (including, without
limitation, any put or call option) with respect to any security (other than a
broad-based market basket or index) that includes, relates to or derives any
significant part of its value from Securities.
Sincerely,
Date: _________ ___, 1998 ----------------------------------------------
----------------------------------------------
Print Name
<PAGE>
EXHIBIT 1.2
WARRANT AGREEMENT
___________, 1998
TEJAS SECURITIES GROUP, INC.
1250 Capital of Texas Hwy. South
Building Two, Suite 500
Austin, Texas 78746
Gentlemen:
Starlight Entertainment, Inc., a Colorado corporation (the "Company"),
hereby agrees to sell to you, and you hereby agree to purchase from the Company
at an aggregate purchase price of $100, warrants (the "Representative's
Warrants") to purchase 100,000 Units (the "Units"), each consisting of one share
of the Company's Common Stock, no par value (the "Common Stock"), and one
Redeemable Common Stock Purchase Warrant (the "Warrants") of the Company, or the
underlying Common Stock and Warrants, if separately transferable, issued in
accordance with the terms of the Warrant Agreement (the "Warrant Agreement"),
dated as of _____________, 1998 between the Company and Corporate Stock
Transfer, Inc., Denver, Colorado, as warrant agent (the "Warrant Agent"). The
Representative's Warrants will be exercisable by you as to all or any lesser
number of Units, or the underlying Common Stock and Warrants, if separately
transferable, at the Purchase Price per Unit as defined below, at any time and
from time to time on and after the first anniversary of the date hereof and
ending at 5:00 p.m. on the fifth anniversary of the date hereof.
1. Definitions.
As used herein, the following terms, unless the context otherwise requires,
shall have for all purposes hereof the following meanings:
The term "Act" refers to the Securities Act of 1933, as amended.
The term "Affiliate" of any Person refers to any Person directly or
indirectly controlling, controlled by or under direct or indirect common control
with, such other Person. A Person shall be deemed to control a corporation if
such Person possesses, directly or indirectly, the power to direct or cause the
direction of the management and policies of such corporation, whether through
the ownership of voting securities, by contract or otherwise.
The term "Commission" refers to the Securities and Exchange Commission.
The term "Common Stock" refers to all stock of any class or classes
(however designated) of the Company, now or hereafter authorized, the holders of
which shall have the right without limitation as to amount, either to all or to
a part of the balance of current dividends and liquidating dividends after the
payment of dividends and distributions on any shares entitled to preference, and
the holders of which shall ordinarily, in the absence of contingency, be
entitled to vote for the election of a majority of the directors of the Company
(even though the right so to vote has been suspended by the occurrence of such a
contingency).
The term "Current Market Price" on any date refers to the average of the
daily Market Price per share for the 30 consecutive Trading Days commencing 45
Trading Days before the date in question.
The term "Exchange Act" refers to the Securities Exchange Act of 1934, as
amended.
<PAGE>
The term "Market Price" refers to the closing sale price on the Pacific
Exchange ("PCX") or, if no closing sale price is reported, the closing bid price
of the Common Stock, as quoted on the Nasdaq National Market, or, if the Common
Stock is not quoted on the Nasdaq National Market, as reported by the National
Quotation Bureau Incorporated. If Market Price cannot be established as
described above, Market Price shall be the fair market value of the Common Stock
as determined in good faith by the Board of Directors whose determination shall
be conclusive.
The term "Other Securities" refers to any securities of the Company (other
than the Units, Common Stock or Warrants) or any other person (corporate or
otherwise) which the holders of the Representative's Warrants at any time shall
be entitled to receive, or shall have received, upon the exercise of the
Representative's Warrants, in lieu of or in addition to the Units, Common Stock
or Warrants, or which at any time shall be issuable or shall have been issued in
exchange for or in replacement of Units, Common Stock, Warrants or Other
Securities pursuant to Section 6 below or otherwise.
The term "Person" refers to an individual, a partnership, a corporation, a
trust, a joint venture, an unincorporated organization and a government or any
department or agency thereof.
The term "Prospectus" shall mean the final prospectus of the Company, dated
the date hereof, relating to the offer and sale of 1,000,000 Units.
The term "Purchase Price" refers to the purchase price of the Units subject
to this Agreement. The Purchase Price shall equal to 120% of the initial
offering price to public per Unit as set forth in the Prospectus, subject to
adjustment as provided in Section 6 below.
The term "Registration Statement" refers to a Registration Statement filed
with the Commission pursuant to the Rules and Regulations of the Commission
promulgated under the Act.
The term "Trading Day" shall mean a day on which the Nasdaq Stock Market or
the principal national securities exchange on which the Common Stock is listed
or admitted to trading is open for the transaction of business.
The term "Underlying Securities" refers to the Units, Common Stock and
Warrants (or Other Securities) issuable under this Warrant Agreement, pursuant
to the exercise, in whole or in part, of the Representative's Warrants.
The term "Warrant Stock" refers to shares of Common Stock issuable upon the
exercise of the Warrants or the Representative's Warrants.
The purchase and sale of the Representative's Warrants shall take place,
and the purchase price therefor shall be paid by delivery of your check,
simultaneously with the purchase of and payment for 1,000,000 Units, as provided
in the Underwriting Agreement between the Company and you, dated the date
hereof.
2. Representations and Warranties.
The Company represents and warrants to you as follows:
(a) Corporate Action. The Company has all requisite corporate power and
authority, and has taken all necessary corporate action, to execute and deliver
this Agreement, to issue and deliver the Representative's Warrants and
certificates evidencing same, and to authorize and reserve for issuance, and
upon payment from time to time of the Purchase Price to issue and deliver, the
Units, including the Common Stock and the Warrants and shares of Common Stock
underlying the Warrants.
(b) No Violation. Neither the execution nor delivery of this Agreement,
the consummation of the actions herein contemplated nor compliance with the
terms and provisions hereof will conflict with, or result in a breach of, or
constitute a default or an event permitting acceleration under, any of the
terms, provisions or conditions of the Articles
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of Incorporation or Bylaws of the Company or any indenture, mortgage, deed of
trust, note, bank loan, credit agreement, franchise, license, lease, permit,
judgment, decree, order, statute, rule or regulation or any other agreement,
understanding or instrument to which the Company is a party or by which it is
bound.
3. Compliance with the Act.
(a) Transferability of Representative's Warrants. You agree that the
Representative's Warrants may not be transferred, sold, assigned or hypothecated
for a period of one (1) year from the date hereof, except to (i) persons who are
officers of you; (ii) a successor to you in a merger or consolidation; (iii) a
purchaser of all or substantially all of your assets; (iv) your shareholders in
the event you are liquidated or dissolved; and (v) persons who are officers or
partners of participating broker-dealers.
(b) Registration of Underlying Securities. The Underlying Securities
issuable upon the exercise of the Representative's Warrants have not been
registered under the Act. You agree not to make any sale or other disposition
of the Underlying Securities, except pursuant to a Registration Statement which
has become effective under the Act, setting forth the terms of such offering,
the underwriting discount and the commissions and any other pertinent data with
respect thereto, unless you have provided the Company with an opinion of counsel
reasonably acceptable to the Company that such registration is not required.
(c) Inclusion in Registration of Other Securities. If at any time
commencing one year after the date hereof but prior to the fifth anniversary of
the date hereof, the Company shall propose the registration on an appropriate
form under the Act of any shares of Common Stock or Other Securities, the
Company shall at least 30 days prior to the filing of such Registration
Statement give you written notice, or telegraphic or telephonic notice followed
as soon as practicable by written confirmation thereof, of such proposed
registration and, upon written notice, or telegraphic or telephonic notice
followed as soon as practicable by written confirmation thereof, given to the
Company within five business days after the giving of such notice by the
Company, shall include or cause to be included in any such Registration
Statement all or such portion of the Underlying Securities as you may request,
provided, however, that the Company may at any time withdraw or cease proceeding
with any such registration if it shall at the same time withdraw or cease
proceeding with the registration of such Common Stock or such Other Securities
originally proposed to be registered.
Notwithstanding any provision of this Agreement to the contrary, if
any holder of the Representative's Warrants exercises such Representative's
Warrants but shall not have included all the Underlying Securities in a
Registration Statement which complies with Section 10(a)(3) of the Act, which
has been effective for at least 30 calendar days following the exercise of the
Representative's Warrants, the registration rights set forth in this Section
3(c) shall be extended until such time as (i) such a Registration Statement
including such Underlying Securities has been effective for at least 30 calendar
days, or (ii) in the opinion of counsel satisfactory to you and the Company,
registration is not required under the Act or under applicable state laws for
resale of the Underlying Securities in the manner proposed.
(d) Company's Obligations in Registration. In connection with any offering
of Subject Stock pursuant to Section 3(c) above, the Company shall:
(i) Notify you as to the filing thereof and of all amendments or
supplements thereto filed prior to the effective date thereof;
(ii) Comply with all applicable rules and regulations of the
Commission;
(iii) Notify you immediately, and confirm the notice in writing, (1)
when the Registration Statement becomes effective, (2) of the
issuance by the Commission of any stop order or of the
initiation, or the threatening, of any proceedings for that
purpose, (3) of the receipt by the Company of any notification
with respect to the suspension of qualification of the Subject
Stock for sale in any jurisdiction or of the initiation, or the
threatening, of any
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proceedings for that purpose and (4) of the receipt of any comments,
or requests for additional information, from the Commission or any
state regulatory authority. If the Commission or any state regulatory
authority shall enter such a stop order or order suspending
qualification at any time, the Company will make every reasonable
effort to obtain the lifting of such order as promptly as practicable.
(iv) During the time when a Prospectus is required to be delivered
under the Act during the period required for the distribution of the
Subject Stock, comply so far as it is able with all requirements
imposed upon it by the Act, as hereafter amended, and by the Rules and
Regulations promulgated thereunder, as from time to time in force, so
far as necessary to permit the continuance of sales of or dealings in
the Subject Stock. If at any time when a Prospectus relating to the
Subject Stock is required to be delivered under the Act any event
shall have occurred as a result of which, in the opinion of counsel
for the Company or your counsel, the Prospectus relating to the
Subject Stock as then amended or supplemented includes an untrue
statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading, or if it is necessary at any time to amend such
Prospectus to comply with the Act, the Company will promptly prepare
and file with the Commission an appropriate amendment or supplement
(in form satisfactory to you).
(v) Endeavor in good faith, in cooperation with you, at or prior to the
time the Registration Statement becomes effective, to qualify the
Subject Stock for offering and sale under the securities laws relating
to the offering or sale of the Subject Stock of such jurisdictions as
you may reasonably designate and to continue the qualifications in
effect so long as required for purposes of the sale of the Subject
Stock; provided that no such qualification shall be required in any
jurisdiction where, as a result thereof, the Company would be subject
to service of general process, or to taxation as a foreign corporation
doing business in such jurisdiction. In each jurisdiction where such
qualification shall be effected, the Company will, unless you agree
that such action is not at the time necessary or advisable, file and
make such statements or reports at such times as are or may reasonably
be required by the laws of such jurisdiction. For the purposes of this
paragraph, "good faith" is defined as the same standard of care and
degree of effort as the Company will use to qualify its securities
other than the Subject Stock.
(vi) Make generally available to its security holders as soon as
practicable, but not later than the first day of the eighteenth full
calendar month following the effective date of the Registration
Statement, an earnings statement (which need not be certified by
independent public or independent certified public accountants unless
required by the Act or the rules and regulations promulgated
thereunder, but which shall satisfy the provisions of Section 11(a) of
the Act) covering a period of at least twelve months beginning after
the effective date of the Registration Statement.
(vii) After the effective date of such Registration Statement,
prepare, and promptly notify you of the proposed filing of, and
promptly file with the Commission, each and every amendment or
supplement thereto or to any Prospectus forming a part thereof as may
be necessary to make any statements therein not misleading; provided
that no such amendment or supplement shall be filed if you shall
object thereto in writing promptly after being furnished a copy
thereof.
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(viii) Furnish to you, as soon as available, copies of any such Registration
Statement and each preliminary or final Prospectus, or supplement or
amendment prepared pursuant thereto, all in such quantities as you may
from time to time reasonably request;
(ix) Make such representations and warranties to any underwriter of the
Subject Stock, and use your best efforts to cause Company counsel to
render such opinions to such underwriter, as such underwriter may
reasonably request; and
(x) Pay all costs and expenses incident to the performance of the
Company's obligations under Sections 3(c) and (d), including, without
limitation, the fees and disbursements of the Company's auditors and
legal counsel, fees and disbursements of legal counsel for you,
registration, listing and filing fees, printing expenses and expenses
in connection with the transfer and delivery of the Underlying
Securities; provided, however, that the Company shall not be
responsible for compensation and reimbursement of expenses to
underwriters or selling agents for the included Subject Stock.
(e) Agreements by Warrant Holder. In connection with the filing of a
Registration Statement pursuant to Section 3(c) above, if you participate in the
offering of the Subject Stock by including shares owned by you, you agree:
(i) To furnish the Company all material information requested by the
Company concerning yourself and your holdings of securities of the
Company and the proposed method of sale or other disposition of the
Subject Stock and such other information and undertakings as shall be
reasonably required in connection with the preparation and filing of
any such Registration Statement covering all or a part of the Subject
Stock and in order to ensure full compliance with the Act; and
(ii) To cooperate in good faith with the Company and its underwriters, if
any, in connection with such registration, including placing the
shares of Subject Stock to be included in such Registration Statement
in escrow or custody to facilitate the sale and distribution thereof.
(f) Indemnification. The Company shall indemnify and hold harmless you and
any underwriter (as defined in the Act) for you, and each person, if any, who
respectively controls you or such underwriter within the meaning of Section 15
of the Act or Section 20(a) of the Exchange Act, against any loss, liability,
claim, damage and expense whatsoever (including but not limited to any and all
expense whatsoever reasonably incurred in investigating, preparing or defending
against any litigation, commenced or threatened, or any claim whatsoever), joint
or several, to which any of you or such underwriter or such controlling person
becomes subject, under the Act or otherwise, insofar as such loss, liability,
claim, damage and expense (or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of any material fact
contained in (i) a Registration Statement covering the Subject Stock, in the
prospectus contained therein, or in an amendment or supplement thereto or (ii)
in any application or other document or communication (in this Section
collectively called "application") executed by or on behalf of the Company or
based upon written information furnished by or on behalf of the Company filed in
any jurisdiction in order to qualify the Subject Stock under the securities laws
thereof or filed with the Commission, or arise out of or based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading; provided,
however, that the Company shall not be obligated to indemnify in any such case
to the extent that any such loss, claim, damage, expense or liability arises out
of or is based upon any untrue statement or alleged untrue statement or omission
or alleged omission made in reliance upon, and in conformity with, written
information respectively furnished by you or such underwriter or such
controlling person for use in the Registration Statement, or any amendment or
supplement thereto, or any application, as the case may be.
If any action is brought against a person in respect of which
indemnity may be sought against, the Company pursuant to the foregoing
paragraph, such person shall promptly notify the Company in writing of the
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institution of such action and the Company shall assume the defense of the
action, including the employment of counsel (satisfactory to the indemnified
person in its reasonable judgment) and payment of expenses. The indemnified
person shall have the right to employ its or their own counsel in any such case,
but the fees and expenses of such counsel shall be at the expense of such
indemnified person or unless the employment of such counsel shall have been
authorized in writing by the Company in connection with the defense of the
action or the Company shall not have employed counsel to have charge of the
defense of the action or the indemnified person shall have reasonably concluded
that there may be defenses available to it or them which are different from or
additional to those available to the Company (in which case the Company shall
not have the right to direct the defense of the action on behalf of the
indemnified person), in any of which events these fees and expenses shall be
borne by the Company. Anything in this paragraph to the contrary
notwithstanding, the Company shall not be liable for any settlement of any claim
or action effected without its written consent. The Company's indemnity
agreements contained in this Section shall remain in full force and effect
regardless of any investigation made by or on behalf of any indemnified person,
and shall survive any termination of this Agreement. The Company agrees promptly
to notify you of the commencement of any litigation or proceedings against the
Company or any of its officers or directors in connection with the Registration
Statement pursuant to Section 3(c) above.
If you choose to include any Subject Stock in a public offering
pursuant to Section 3(c) above, then you agree to indemnify and hold harmless
the Company and each of its directors and officers who have signed any such
Registration Statement, and any underwriter for the Company (as defined in the
Act), and each person, if any, who controls the Company or such underwriter
within the meaning of the Act, to the same extent as the indemnity by the
Company in this Section 3(f) but only with respect to statements or omissions,
if any, made in such Registration Statement, or any amendment or supplement
thereto, or in any application in reliance upon, and in conformity with, written
information furnished by you to the Company for use in the Registration
Statement, or any amendment or supplement thereto, or any application, as the
case may be. In case any action shall be brought in respect of which indemnity
may be sought against you, you shall have the rights and duties given to the
Company, and the persons so indemnified shall have the rights and duties given
to you by the provisions of the first paragraph of this Section.
The Company further agrees that, if the indemnity provisions of the
foregoing paragraphs are held to be unenforceable, any holder of the
Representative's Warrants or controlling person of such a holder may recover
contribution from the Company in an amount which, when added to contributions
such holder or controlling person has theretofore received or concurrently
receives from officers and directors of the Company or controlling persons of
the Company, will reimburse such holder or controlling person for all losses,
claims, damages or liabilities and legal or other expenses; provided, however,
that if the full amount of the contribution specified in this Section 3(f) is
not permitted by law, then such holder or controlling person shall be entitled
to contribution from the Company and its officers, directors and controlling
persons to the full extent permitted by law.
4. Exercise of Representative's Warrants.
(a) Cash Exercise. Each Representative's Warrant may be exercised in full
or in part (but not as to a fractional share of Common Stock) by the holder
thereof by surrender of the Warrant Certificate, with the form of subscription
at the end thereof duly executed by such holder, to the Company at its principal
office, accompanied by payment, in cash or by certified or bank cashier's check
payable to the order of the Company, in the respective amount obtained by
multiplying the number of shares of the Underlying Securities to be purchased by
the Purchase Price per share.
(b) Net Exercise. Notwithstanding anything to the contrary contained in
Section 4(a), any holder of the Representative's Warrants may elect to exercise
the Representative's Warrants in full or in part and receive shares on a "net
exercise" basis in an amount equal to the value of the Representative's Warrants
by delivery of the form of subscription attached to the Warrant Certificate and
surrender of the Representative's Warrants at the principal office of the
Company, in which event the Company shall issue to the holder a number of shares
computed using the following formula:
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X= (P)(Y)(A-B)
-----------
A
Where: X= the number of shares of Common Stock to be issued to
holder.
P= the portion of the Representative's Warrants being exercised
(expressed as a fraction).
Y= the total number of shares of Common Stock issuable upon
exercise of the Representative's Warrants.
A= the Current Market Price of one share of Common Stock.
B= Purchase Price.
(c) Partial Exercise. Prior to the expiration of the Representative's
Warrants, upon any partial exercise, the Company at its expense will forthwith
issue and deliver to or upon the order of the purchasing holder, a new Warrant
Certificate or Certificates of like tenor, in the name of the holder thereof or
as such holder (upon payment by such holder of any applicable transfer taxes)
may request calling in the aggregate for the purchase of the number of shares of
the Underlying Securities equal to the number of such shares called for on the
face of the Warrant Certificate (after giving effect to any adjustment therein
as provided in Section 6 below) minus the number of such shares (after giving
effect to such adjustment) designated by the holder in the aforementioned form
of subscription.
(d) Company to Reaffirm Obligations. The Company will, at the time of any
exercise of the Representative's Warrants, upon the request of the holder
thereof, acknowledge in writing its continuing obligation to afford to such
holder any rights (including without limitation any right to registration of the
shares of the Underlying Securities issued upon such exercise) to which such
holder shall continue to be entitled after such exercise in accordance with the
provisions of this Agreement; provided, however, that if the holder of the
Representative's Warrants shall fail to make any such request, such failure
shall not affect the continuing obligation of the Company to afford to such
holder any such rights.
5. Delivery of Certificates on Exercise.
As soon as practicable after any exercise of the Representative's Warrants
in full or in part, and in any event within twenty days thereafter, the Company
at its expense (including the payment by it of any applicable issue taxes) will
cause to be issued in the name of and delivered to the purchasing holder
thereof, a certificate or certificates for the number of fully paid and
nonassessable Common Stock and Warrants to which such holder shall be entitled
upon such exercise, plus in lieu of any fractional share to which such holder
would otherwise be entitled, cash in an amount determined pursuant to Section
7(g), together with any other stock or other securities and property (including
cash, where applicable) to which such holder is entitled upon such exercise
pursuant to Section 6 below or otherwise.
6. Anti-dilution Provisions.
The Representative's Warrants are subject to the following terms and
conditions during the term thereof:
(a) Stock Distributions and Splits. In case (i) the outstanding shares of
Common Stock (or Other Securities) shall be subdivided into a greater number of
shares or (ii) a dividend in Common Stock (or Other Securities) shall be paid in
respect of Common Stock (or Other Securities), the Purchase Price per share in
effect immediately prior to such subdivision or at the record date of such
dividend or distribution shall simultaneously with the effectiveness of such
subdivision or immediately after the record date of such dividend or
distribution be proportionately reduced; and if outstanding shares of Common
Stock (or Other Securities) shall be combined into a smaller number of shares
thereof, the Purchase Price per share in effect immediately prior to such
combination shall simultaneously with the effectiveness
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of such combination be proportionately increased. Any dividend paid or
distributed on the Common Stock (or Other Securities) in stock or any other
securities convertible into shares of Common Stock (or Other Securities) shall
be treated as a dividend paid in Common Stock (or Other Securities) to the
extent that shares of Common Stock (or Other Securities) are issuable upon the
conversion thereof.
(b) Adjustments. Whenever the Purchase Price per share is adjusted as
provided in Section 6(a) above, the number of shares of the Underlying
Securities purchasable upon exercise of the Representative's Warrants
immediately prior to such Purchase Price adjustment shall be adjusted, effective
simultaneously with such Purchase Price adjustment, to equal the product
obtained (calculated to the nearest full share) by multiplying such number of
shares of the Underlying Securities by a fraction, the numerator of which is the
Purchase Price per share in effect immediately prior to such Purchase Price
adjustment and the denominator of which is the Purchase Price per share in
effect upon such Purchase Price adjustment, which adjusted number of shares of
the Underlying Securities shall thereupon be the number of shares of the
Underlying Securities purchasable upon exercise of the Representative's Warrants
until further adjusted as provided herein.
(c) Reorganizations. In case the Company shall be recapitalized by
reclassifying its outstanding Common Stock (or Other Securities) into a stock
with a different par value or by changing its outstanding Common Stock (or Other
Securities) with par value to stock without par value, then, as a condition of
such reorganization, lawful and adequate provision shall be made whereby each
holder of the Representative's Warrants shall thereafter have the right to
purchase, upon the terms and conditions specified herein, in lieu of the shares
of Common Stock (or Other Securities) theretofore purchasable upon the exercise
of the Representative's Warrants, the kind and amount of shares of stock and
other securities receivable upon such recapitalization by a holder of the number
of shares of Common Stock (or Other Securities) which the holder of the
Representative's Warrants might have purchased immediately prior to such
recapitalization. If any consolidation or merger of the Company with another
corporation, or the sale of all or substantially all of its assets to another
corporation, shall be effected in such a way that holders of Common Stock shall
be entitled to receive stock, securities or assets with respect to or in
exchange for Common Stock, then, as a condition of such consolidation, merger or
sale, lawful and adequate provisions shall be made whereby the holder hereof
shall thereafter have the right to purchase and receive upon the basis and upon
the terms and conditions specified in this Warrant Agreement and in lieu of the
shares of the Common Stock of the Company immediately theretofore purchasable
and receivable upon the exercise of the rights represented hereby, such shares
of stock, securities or assets as may be issued or payable with respect to or in
exchange for a number of outstanding shares of such Common Stock equal to the
number of shares of such stock immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby had such
consolidation, merger or sale not taken place, and in any such case, appropriate
provision shall be made with respect to the rights and interests of the holders
of the Representative's Warrants to the end that the provisions hereof
(including without limitation provisions for adjustments of the Purchase Price
and of the number of shares purchasable and receivable upon the exercise of the
Representative's Warrants) shall thereafter be applicable, as nearly as may be,
in relation to any shares of stock, securities or assets thereafter deliverable
upon the exercise hereof (including an immediate adjustment, by reason of such
consolidation or merger, of the Purchase Price to the value for the Common Stock
reflected by the terms of such consolidation or merger if the value so reflected
is less than the Purchase Price in effect immediately prior to such
consolidation or merger). In the event of a merger or consolidation of the
Company with or into another corporation as a result of which a number of shares
of Common Stock of the surviving corporation greater or lesser than the number
of shares of Common Stock of the Company outstanding immediately prior to such
merger or consolidation are issuable to holders of Common Stock of the Company,
then the Purchase Price in effect immediately prior to such merger or
consolidation shall be adjusted in the same manner as though there were a
subdivision or combination of the outstanding shares of Common Stock of the
Company. The Company will not effect any such consolidation, merger or sale,
unless prior to the consummation thereof the successor corporation (if other
than the Company) resulting from such consolidation or merger or the corporation
purchasing such assets shall assume by written instrument executed and mailed or
delivered to the registered holder hereof at the last address of such holder
appearing on the books of the Company, the obligation to deliver to such holder
such shares of stock, securities or assets as, in accordance with the foregoing
provisions, such holder may be entitled to purchase. If a purchase, tender or
exchange offer is made to and accepted by the holders of more than of the
outstanding shares of Common Stock of the Company, the Company shall not effect
any consolidation, merger or sale with the Person having
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made such offer or with any Affiliate of such Person, unless prior to the
consummation of such consolidation, merger or sale the holders of the
Representative's Warrants shall have been given a reasonable opportunity to then
elect to receive upon the exercise of the Representative's Warrants either the
stock, securities or assets then issuable with respect to the Common Stock of
the Company or the stock, securities or assets, or the equivalent issued to
previous holders of the Common Stock in accordance with such offer.
(d) Effect of Dissolution or Liquidation. In case the Company shall
dissolve or liquidate all or substantially all of its assets, all rights under
this Agreement shall terminate as of the date upon which a certificate of
dissolution or liquidation shall be filed with the Secretary of the State of
Colorado (or, if the Company theretofore shall have been merged or consolidated
with a corporation incorporated under the laws of another state, the date upon
which action of equivalent effect shall have been taken); provided, however,
that (i) no dissolution or liquidation shall affect the rights under Section
6(c) of any holder of the Representative's Warrants and (ii) if the Company's
Board of Directors shall propose to dissolve or liquidate the Company, each
holder of the Representative's Warrants shall be given written notice of such
proposal at the earlier of (x) the time when the Company's shareholders are
first given notice of the proposal or (y) the time when notice to the Company's
shareholders is first required.
(e) Notice of Change of Purchase Price. Whenever the Purchase Price per
share or the kind or amount of securities purchasable under the Representative's
Warrants shall be adjusted pursuant to any of the provisions of this Agreement,
the Company shall forthwith thereafter cause to be sent to each holder of the
Representative's Warrants, a certificate setting forth the adjustments in the
Purchase Price per share and/or in such number of shares, and also setting forth
in detail the facts requiring, such adjustments, including without limitation a
statement of the consideration received or deemed to have been received by the
Company for any additional shares of stock issued by it requiring such
adjustment. In addition, the Company at its expense shall within 90 days
following the end of each of its fiscal years during the term of this Agreement,
and promptly upon the reasonable request of any holder of the Representative's
Warrants in connection with any exercise from time to time of all or any portion
of the Representative's Warrants, cause independent certified public accountants
of recognized standing selected by the Company to compute any such adjustment in
accordance with the terms of the Representative's Warrants and prepare a
certificate setting forth such adjustment and showing in detail the facts upon
which such adjustment is based.
(f) Notice of a Record Date. In the event of (i) any taking by the Company
of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend (other
than a cash dividend payable out of earned surplus of the Company) or other
distribution, or any right to subscribe for, purchase or otherwise acquire any
shares of stock of any class or any other securities or property, or to receive
any other right, (ii) any capital reorganization of the Company, or any
reclassification or recapitalization of the capital stock of the Company, or any
transfer of all or substantially all of the assets of the Company to, or
consolidation or merger of the Company with or into, any other person or (iii)
any voluntary or involuntary dissolution or liquidation of the Company, then and
in each such event the Company will mail or cause to be mailed to each holder of
the Representative's Warrants a notice specifying not only the date on which any
such record is to be taken for the purpose of such dividend, distribution or
right and stating the amount and character of such dividend, distribution or
right, but also the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding-up is to take place, and the time, if any, as of which the holders of
record of Common Stock (or Other Securities) shall be entitled to exchange their
shares of Common Stock (or other Securities) for securities or other property
deliverable upon such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding-up. Such
notice shall be mailed at least 20 days prior to the proposed record date
therein specified.
7. Further Covenants of the Company.
(a) Reservation of Stock. The Company shall at all times reserve and keep
available, solely for issuance and delivery upon the exercise of the
Representative's Warrants, all shares of the Underlying Securities from time to
time issuable upon the exercise of the Representative's Warrants and shall take
all necessary actions to ensure that the
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par value per share, if any, of the Underlying Securities is, at all times equal
to or less than the then effective Purchase Price per share.
(b) Title to Units. All of the Underlying Securities delivered upon the
exercise of the Representative's Warrants shall be validly issued, fully paid
and nonassessable; each holder of the Representative's Warrants shall receive
good and marketable title to the Underlying Securities, free and clear of all
voting and other trust arrangements, liens, encumbrances, equities and adverse
claims whatsoever; and the Company shall have paid all taxes, if any, in respect
of the issuance thereof.
(c) Listing on Securities Exchanges; Registration. If the Company at any
time shall list any Units, Common Stock or Warrants on any national securities
exchange, the Company will, at its expense, simultaneously list on such
exchange, upon official notice of issuance upon the exercise of the
Representative's Warrants, and maintain such listing of, all of the Underlying
Securities from time to time issuable upon the exercise of the Representative's
Warrants; and the Company will so list on any national securities exchange, will
so register and will maintain such listing of, any Other Securities if and at
the time that any securities of like class or similar type shall be listed on
such national securities exchange by the Company.
(d) Exchange of Representative's Warrants. Subject to Section 3(a) hereof,
upon surrender for exchange of any Warrant Certificate to the Company, the
Company at its expense will promptly issue and deliver to or upon the order of
the holder thereof a new Warrant Certificate or certificates of like tenor, in
the name of such holder or as such holder (upon payment by such holder of any
applicable transfer taxes) may direct, calling in the aggregate for the purchase
of the number of shares of the Underlying Securities called for on the face or
faces of the Warrant Certificate or Certificates so surrendered.
(e) Replacement of Representative's Warrants. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of any Warrant Certificate and, in the case of any such loss, theft
or destruction, upon delivery of an indemnity agreement reasonably satisfactory
in form and amount to the Company or, in the case of any such mutilation, upon
surrender and cancellation of such Warrant Certificate, the Company, at the
expense of the warrant holder will execute and deliver, in lieu thereof, a new
Warrant Certificate of like tenor.
(f) Reporting by the Company. The Company agrees that, if it files a
Registration Statement during the term of the Representative's Warrants, it will
use its best efforts to keep current in the filing of all forms and other
materials which it may be required to file with the appropriate regulatory
authority pursuant to the Exchange Act, and all other forms and reports required
to be filed with any regulatory authority having jurisdiction over the Company.
(g) Fractional Shares. No fractional shares of Underlying Securities are to
be issued upon any exercise of the Representative's Warrants, but the Company
shall pay a cash adjustment in respect of any fraction of a share which would
otherwise be issuable in an amount equal to the same fraction of the highest
market price per share of Underlying Securities on the day of exercise, as
determined by the Company.
8. Other Holders.
The Representative's Warrants are issued upon the following terms, to all
of which each holder or owner thereof by the taking thereof consents and agrees
as follows: (a) any person who shall become a transferee, within the limitations
on transfer imposed by Section 3(a) hereof, of the Representative's Warrants
properly endorsed shall take such Representative's Warrants subject to the
provisions of Section 3(a) hereof and thereupon shall be authorized to represent
himself as absolute owner thereof and, subject to the restrictions contained in
this Agreement, shall be empowered to transfer absolute title by endorsement and
delivery thereof to a permitted bona fide purchaser for value; (b) each prior
taker or owner waives and renounces all of his equities or rights in such
Representative's Warrants in favor of each such permitted bona fide purchaser,
and each such permitted bona fide purchaser shall acquire absolute title thereto
and to all rights presented thereby; (c) until such time as the respective
Representative's Warrants is transferred on the books of the Company, the
Company may treat the registered holder thereof as the absolute owner
10
<PAGE>
thereof for all purposes, notwithstanding any notice to the contrary and (d) all
references to the word "you" in this Warrant Agreement shall be deemed to apply
with equal effect to any person to whom a Warrant Certificate or Certificates
have been transferred in accordance with the terms hereof, and where
appropriate, to any person holding the Underlying Securities.
9. Miscellaneous.
All notices, certificates and other communications from or at the request
of the Company to the holder of the Representative's Warrants shall be mailed by
first class, registered or certified mail, postage prepaid, to such address as
may have been furnished to the Company in writing by such holder, or, until an
address is so furnished, to the address of the last holder of such
Representative's Warrants who has so furnished an address to the Company, except
as otherwise provided herein. This Agreement and any of the terms hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of such change, waiver, discharge
or termination is sought. This Agreement shall be construed and enforced in
accordance with and governed by the laws of the State of Colorado. The headings
in this Agreement are for reference only and shall not limit or otherwise affect
any of the terms hereof. This Agreement, together with the forms of instruments
annexed hereto as Exhibit A, constitutes the full and complete agreement of the
---------
parties hereto with respect to the subject matter hereof.
11
<PAGE>
IN WITNESS WHEREOF, this Warrant Agreement has been duly executed on the
date hereof.
STARLIGHT ENTERTAINMENT, INC.
By:___________________________
R. Haydn Silleck, President
TEJAS SECURITIES GROUP, INC.
By:____________________________
Robert A. Shuey, III
12
<PAGE>
EXHIBIT A
---------
STARLIGHT ENTERTAINMENT, INC.
WARRANT CERTIFICATE
-------------------
Evidencing Right to Purchase 100,000 Units
This is to certify that Tejas Securities Group, Inc. (the "Representative")
or assigns, is entitled to purchase at any time or from time to time after 9
A.M., Colorado time, on ___________, 1999 and until 9 A.M., Colorado time, on
___________, 2003 up to the above referenced number of Units ("Units"), each
consisting of one share of Common Stock, no par value ("Common Stock"), and one
Common Stock Purchase Warrant ("Warrants") of Starlight Entertainment, Inc., a
Colorado corporation (the "Company"), or the underlying shares of Common Stock
and Warrants if separately transferable, for the consideration specified in
Section 4 of the Warrant Agreement, dated the date hereof, between the Company
and the Representative (the "Warrant Agreement"), pursuant to which this Warrant
is issued. All rights of the holder of this Warrant Certificate are subject to
the terms and provisions of the Warrant Agreement, copies of which are available
for inspection at the office of the Company. Capitalized terms used but not
defined herein shall have the respective meanings set forth in the Warrant
Agreement.
The Underlying Securities issuable upon the exercise of this Warrant have
not been registered under the Securities Act of 1933, as amended (the "Act"),
and no distribution of such Underlying Securities may be made until the
effectiveness of a Registration Statement under the Act covering such Underlying
Securities. Transfer of this Warrant Certificate is restricted as provided in
Section 3(a) of the Warrant Agreement.
This Warrant has been issued to the registered owner in reliance upon
written representations necessary to ensure that this Warrant was issued in
accordance with an appropriate exemption from registration under any applicable
state and federal securities laws, rules and regulations. This Warrant may not
be sold, transferred, or assigned unless, in the opinion of the Company and its
legal counsel, such sale, transfer or assignment will not be in violation of the
Act, applicable rules and regulations of the Securities and Exchange Commission,
and any applicable state securities laws.
Subject to the provisions of the Act and of such Warrant Agreement, this
Warrant Certificate and all rights hereunder are transferable, in whole or in
part, at the offices of the Company, by the holder hereof in person or by duly
authorized attorney, upon surrender of this Warrant Certificate, together with
the Assignment hereof duly endorsed. Until transfer of this Warrant Certificate
on the books of the Company, the Company may treat the registered holder hereof
as the owner hereof for all purposes.
Any Underlying Securities (or Other Securities) which are acquired pursuant
to the exercise of this Warrant shall be acquired in accordance with the Warrant
Agreement and certificates representing all securities so acquired shall bear a
restrictive legend reading substantially as follows:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OR UNDER ANY APPLICABLE STATE LAW. THEY MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR PLEDGED WITHOUT (1) REGISTRATION UNDER THE SECURITIES ACT OF
1933 AND ANY APPLICABLE STATE LAW, OR (2) AN OPINION OF COUNSEL
(SATISFACTORY TO THE CORPORATION) THAT REGISTRATION IS NOT REQUIRED.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
executed by its duly authorized officer.
Date:_________________, 1998
STARLIGHT ENTERTAINMENT, INC.
By:_____________________________
R. Haydn Silleck, President
<PAGE>
SUBSCRIPTION
------------
(To be signed only upon exercise of Warrant)
To: Starlight Entertainment, Inc.
The undersigned, the holder of the enclosed Warrant Certificate, hereby
irrevocably elects to exercise the purchase right represented by such Warrant
Certificate for, and to purchase thereunder, _________________ Units ("Units"),
each consisting of one share of Common Stock, no par value ("Common Stock"), and
one Common Stock Purchase Warrant ("Warrants") of Starlight Entertainment, Inc.,
or the underlying Common Stock and Warrants, if separately transferable, and
either tenders herewith payment of the purchase price in full in the form of
cash or a certified or cashier's check in the amount of $______________ therefor
or, if the undersigned elects pursuant to Section 4(b) of the Warrant Agreement
referred to in the Warrant Certificate to convert the enclosed Warrant
Certificate into Units or underlying Common Stock or Warrants by net issuance,
the undersigned exercises the Warrants by exchange under the terms of said
Section 4(b), and requests that the certificate or certificates for such
securities be issued in the name of and delivered to the undersigned.
Date: ______________________________
________________________________________
(Signature must conform
in all respects to name
of holder as specified on
the face of the Warrant
Certificate)
_______________________________________
_______________________________________
_______________________________________
(Address)
Please indicate in the space below the number of shares called for on the
face of the Warrant Certificate (or, in the case of a partial exercise, the
portion thereof as to which the Warrant is being exercised), in either case
without making any adjustment for additional shares or other securities or
property or cash which, pursuant to the adjustment provisions of the Warrant,
may be deliverable upon exercise and whether the exercise is a cash exercise
pursuant to Section 4(a) of the Warrant Agreement or a net issuance exercise
pursuant to Section 4(b) of the Warrant Agreement.
Number of Units (or shares of Common Stock and Warrants):______________________
Cash:____________________
Net issuance:______________
<PAGE>
ASSIGNMENT
----------
(To be signed only upon transfer of Warrant)
For value received, the undersigned hereby sells, assigns and transfers
unto ____________________________ the right represented by the enclosed Warrant
Certificate to purchase ____________________ Units ("Units"), each consisting of
one share of Common Stock, no par value ("Common Stock"), and one Common Stock
Purchase Warrant ("Warrants") of Starlight Entertainment, Inc., or the
underlying Common Stock or Warrants, with full power of substitution.
The undersigned represents and warrants that the transfer, in whole in or
in part, of such right to purchase represented by the enclosed Warrant
Certificate is permitted by the terms of the Warrant Agreement referred to in
the Warrant Certificate, and the transferee hereof, by his acceptance of this
Assignment, represents and warrants that he or she is familiar with the terms of
such Warrant Agreement and agrees to be bound by the terms thereof with the same
force and effect as if a signatory thereto.
Date:___________________
___________________________________________
(Signature must conform
in all respects to name of
holder as specified on
the face of the Warrant
Certificate)
____________________________________________
(Address)
Signed in the presence of:_______________________
<PAGE>
EXHIBIT 4.1
WARRANT AGREEMENT
Between
STARLIGHT ENTERTAINMENT, INC.
And
CORPORATE STOCK TRANSFER, INC.
As Warrant Agent
for Public Offering of 1,000,000 Units of Common Stock and
Redeemable Common Stock Purchase Warrants
Dated ______________, 1998
THIS WARRANT AGREEMENT, dated as of ______________, 1998, between Starlight
Entertainment, Inc., a Colorado corporation (hereinafter called the "Company"),
and Corporate Stock Transfer, Inc., Denver, Colorado, as warrant agent
(hereinafter called the "Warrant Agent");
WHEREAS, the Company proposes to issue 1,000,000 Redeemable Common Stock
Purchase Warrants (hereinafter called the "Warrants"), entitling the holders
thereof to purchase one share of Common Stock, no par value (hereinafter called
the "Common Stock") for each Warrant, in connection with the proposed issuance
by the Company of 1,000,000 Units, each Unit consisting of one share of Common
Stock and one Warrant, and the Company also proposes to issue up to 150,000
Warrants underlying, in part, the Underwriters' over-allotment option and
100,000 Warrants underlying, in part, a warrant to purchase Units to be granted
to the Representative of the Underwriters; and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to act in connection with the
registration, transfer, exchange and exercise of Warrants;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, the parties hereto agree as follows:
1. Appointment of Warrant Agent. The Company hereby appoints the Warrant
Agent to act as agent for the Company in accordance with the instructions
hereinafter in this Agreement set forth, and the Warrant Agent hereby accepts
such appointment.
2. Form of Warrant. The text of the Warrant and of the form of election
to purchase shares to be printed on the reverse thereof shall be substantially
as set forth in Exhibit A attached hereto. The Warrant Price to purchase one
---------
share of Common Stock shall be as provided and defined in Section 8. The
Warrants shall be executed on behalf of the Company by the manual or facsimile
signature of the present or any future Chairman of the Board or President or
Vice President of the Company, under its corporate seal, affixed or in
facsimile, attested by the manual or facsimile signature of the present or any
future Secretary or Assistant Secretary of the Company. Warrants shall be dated
as of the date of issuance thereof by the Warrant Agent either upon initial
issuance or upon transfer or exchange.
<PAGE>
3. Countersignature and Registration. The Warrant Agent shall maintain
books for the transfer and registration of the Warrants. The Warrants shall be
countersigned by the Warrant Agent (or by any successor to the Warrant Agent
then acting as warrant agent under this Agreement) and shall not be valid for
any purpose unless so countersigned. Warrants may be so countersigned, however,
by the Warrant Agent (or by its successor as warrant agent) and be delivered by
the Warrant Agent, notwithstanding that the persons whose manual or facsimile
signatures appear thereon as proper officers of the Company shall have ceased to
be such officers at the time of such countersignature or delivery.
4. Transfers and Exchanges. The Warrant Agent shall transfer, from time
to time after the sale of the Units, any outstanding Warrants upon the books to
be maintained by the Warrant Agent for that purpose, upon surrender thereof for
transfer properly endorsed or accompanied by appropriate instructions for
transfer. Upon any such transfer, a new Warrant shall be issued to the
transferee, and the surrendered Warrant shall be cancelled by the Warrant Agent.
Warrants so cancelled shall be delivered by the Warrant Agent to the Company
from time to time. The Warrants may be exchanged at the option of the holder
thereof, when surrendered at the office of the Warrant Agent, for another
Warrant, or other Warrants of different denominations, of like tenor and
representing in the aggregate the right to purchase a like number of shares of
Common Stock. The Warrant Agent is hereby irrevocably authorized to countersign
in accordance with Section 3 of this Agreement the new Warrants required
pursuant to the provisions of this section, and the Company, whenever required
by the Warrant Agent, will supply the Warrant Agent with Warrants duly executed
on behalf of the Company for such purpose.
5. Exercise of Warrants. Subject to the provisions of this Agreement,
each registered holder of Warrants shall have the right, which may be exercised
as in such Warrants expressed, to purchase from the Company (and the Company
shall issue and sell to such registered holder of warrants) the number of fully
paid and nonassessable shares of Common Stock specified in such Warrants, upon
surrender of such Warrants to the Company at the office of the Warrant Agent,
with the form of election to purchase on the reverse thereof duly filled in and
signed, and upon payment to the Warrant Agent for the account of the Company of
the Warrant Price for the number of shares of common stock in respect of which
such Warrants are then exercised. Payment of such Warrant Price may be made in
cash, or by certified or official bank check, payable in United States dollars,
to the order of the Warrant Agent. No adjustment shall be made for any
dividends on any shares of Common Stock issuable upon exercise of a Warrant.
Upon such surrender of Warrants, and payment of the Warrant Price as aforesaid,
the Company shall issue and cause to be delivered with all reasonable dispatch
to or upon the written order of the registered holder of such Warrants and in
such name or names as such registered holder may designate, a certificate or
certificates for the number of full shares of Common Stock so purchased upon the
exercise of such Warrants. Such certificate or certificates shall be deemed to
have been issued and any person so designated to be named therein shall be
deemed to have become a holder of record of such shares as of the date of the
surrender of such Warrants and payment of the Warrant Price as aforesaid;
provided, however, that if, at the date of surrender of such Warrants and
payment of the Warrant Price, the transfer books for the Common Stock or other
class of stock purchasable upon the exercise of such Warrants shall be closed,
the certificates for the shares in respect of which such Warrants are then
exercised shall be issuable as of the date on which such books shall next be
opened and until such date the Company shall be under no duty to deliver any
certificate for such shares; provided further, however, that the transfer books
aforesaid, unless otherwise required by law, shall not be closed at any one time
for a period longer than 20 days. The rights of purchase represented by the
Warrants shall be exercisable, at the election of the registered holders
thereof, either as an entirety or from time to time for part only of the shares
specified therein, and in the event that any Warrant is exercised in respect of
less than all of the shares specified therein, a new Warrant or Warrants will be
issued for the remaining number of shares specified in the Warrant so
surrendered, and the Warrant Agent is hereby irrevocably authorized to
countersign and to deliver the required new Warrants pursuant to the provisions
of this Section and of Section 3 of this Agreement and the Company, whenever
required by the Warrant Agent, will supply the Warrant Agent with Warrants duly
executed on behalf of the Company for such purpose.
6. Mutilated or Missing Warrants. In case any of the Warrants shall be
mutilated, lost, stolen or destroyed, the Company will issue and the Warrant
Agent will countersign and deliver in exchange and substitution for and upon
cancellation of the mutilated warrant, or in lieu of and substitution for the
Warrant lost, stolen or destroyed, a new Warrant of like tenor and representing
an equivalent right or interest; but only upon receipt of evidence
2
<PAGE>
satisfactory to the Company and the Warrant Agent of such loss, theft or
destruction of such Warrant and indemnity, if requested, also satisfactory to
them. Applicants for such substitute Warrants shall also comply with such other
reasonable regulations and pay such other reasonable charges as the Company or
the Warrant Agent may prescribe.
7. Reservation and Registration of Common Stock.
A. There have been reserved, and the Company shall at all times keep
reserved, out of the authorized and unissued shares of Common Stock, a number of
shares sufficient to provide for the exercise of the rights of purchase
represented by the Warrants, and the Transfer Agent for the Common Stock and
every subsequent Transfer Agent for any shares of the Company's capital stock
issuable upon the exercise of any of the rights of purchase aforesaid are hereby
irrevocably authorized and directed at all times to reserve such number of
authorized and unissued shares as shall be requisite for such purpose. The
Company will keep a copy of this Agreement on file with the Transfer Agent for
the Common Stock and with every subsequent Transfer Agent for any shares of the
Company's capital stock issuable upon the exercise of the rights of purchase
represented by the Warrants. The Warrant Agent is hereby irrevocably authorized
to requisition from time to time such Transfer Agent for stock certificates
required to honor outstanding Warrants. The Company will supply such Transfer
Agents with duly executed stock certificates for such purpose and will itself
provide or otherwise make available any cash which may be issuable as provided
in Section 9 of this Agreement. All Warrants surrendered in the exercise of the
rights thereby evidenced shall be cancelled by the Warrant Agent and shall
thereafter be delivered to the Company, and such cancelled Warrants shall
constitute sufficient evidence of the number of shares of stock which have been
issued upon the exercise of such Warrants.
B. The Company represents that it has registered under the Securities Act
of 1933, as amended, the shares of Common Stock issuable upon exercise of the
Warrants and will use its best efforts to maintain the effectiveness of such
registration by post-effective amendment during the entire period in which the
Warrants are exercisable, and that it will use its best efforts to qualify such
Common Stock for sale under the securities laws of such states of the United
States as may be necessary to permit the exercise of the Warrants in the states
in which the Units are initially qualified and to maintain such qualifications
during the entire period in which the Warrants are exercisable.
8. Warrant Price; Adjustments.
A. The price at which Common Stock shall be purchasable upon exercise of
Warrants at any time after the Common Stock and Warrants become separately
tradable until ____________ (hereinafter called the "Warrant Price") shall be
$9.00 per share of common stock or, if adjusted as provided in this Section,
shall be such price as so adjusted.
B. The Warrant Price shall be subject to adjustment from time to time as
follows:
(1) Except as hereinafter provided, in case the Company shall at
any time or from time to time after the date hereof issue any
additional shares of Common Stock for a consideration per share less
than the Warrant Price in effect immediately prior to the issuance of
such additional shares, or without consideration, then, upon each such
issuance, the Warrant Price in effect immediately prior to the
issuance of such additional shares shall forthwith be reduced to a
price (calculated to the nearest full cent) determined by dividing:
(a) An amount equal to (i) the total number of shares of
Common Stock outstanding immediately prior to such issuance
multiplied by the Warrant Price in effect immediately prior to
such issuance, plus (ii) the consideration, if any, received by
the Company upon such issuance, by
(b) The total number of shares of Common Stock
outstanding immediately after the issuance of such additional
shares.
3
<PAGE>
(2) The Company shall not be required to make any such
adjustment of the Warrant Price in accordance with the foregoing if
the amount of such adjustment shall be less than $0.05 (adjustment
will be made when cumulative adjustment equals or exceeds $0.05) but
in such case the Company shall maintain a cumulative record of the
Warrant Price as it would have been in the absence of this provision
(the "Constructive Warrant Price"), and for the purpose of computing a
new Warrant Price after the next subsequent issuance of additional
shares (but not for the purpose of determining whether an adjustment
thereof is required under the terms of this paragraph) the
constructive Warrant Price shall be deemed to be the Warrant Price in
effect immediately prior to such issuance.
(3) For the purpose of this Section 8 the following provisions
shall also be applicable:
(a) In the case of the issuance of additional shares of
Common Stock for cash, the consideration received by the Company
therefor shall be deemed to be the net cash proceeds received by
the Company for such shares before deducting any commissions or
other expenses paid or incurred by the Company for any
underwriting of, or otherwise in connection with, the issuance of
such shares.
(b) In case of the issuance (otherwise than upon
conversion or exchange of shares of Common stock) of additional
shares of Common Stock for a consideration other than cash or a
consideration a part of which shall be other than cash, the amount
of the consideration other than cash received by the Company for
such shares shall be deemed to be the value of such consideration
as determined in good faith by the Board of Directors of the
Company, as of the date of the adoption of the resolution of said
Board, providing for the issuance of such shares for consideration
other than cash or for consideration a part of which shall be
other than cash, such fair value to include goodwill and other
intangibles to the extent determined in good faith by the Board.
(c) In case of the issuance by the Company after the date
hereof of any security (other than the Warrants) that is
convertible into shares of Common Stock or of any warrants, rights
or options to purchase shares of Common stock (except the options
and warrants referred to in subsection H of this Section 8), (i)
the Company shall be deemed (as provided in subparagraph (e)
below) to have issued the maximum number of shares of Common Stock
deliverable upon the exercise of such conversion privileges or
warrants, rights or options, and (ii) the consideration therefor
shall be deemed to be the consideration received by the Company
for such convertible securities or for such warrants, rights or
options, as the case may be, before deducting therefrom any
expenses or commissions incurred or paid by the Company for any
underwriting of, or otherwise in connection with, the issuance of
such convertible security or warrants, rights or options, plus (A)
the minimum consideration or adjustment payment to be received by
the Company in connection with such conversion, or (B) the minimum
price at which shares of Common Stock are to be delivered upon
exercise of such warrants, rights or options or, if no minimum
price is specified and such shares are to be delivered at an
option price related to the market value of the subject shares, an
option price bearing the same relation to the market value of the
subject shares at the time such warrants, rights or options were
granted; provided that as to such options such further adjustment
as shall be necessary on the basis of the actual option price at
the time of exercise shall be made at such time if the actual
option price is less than the aforesaid assumed option price. No
further adjustment of the Warrant Price shall be made as a result
of the actual issuance of the shares of Common Stock referred to
in this subparagraph (c). on the expiration of such warrants,
rights or options, or the termination of such right to convert,
the Warrant Price shall be readjusted to such Warrant Price as
would have pertained had the adjustments made upon the issuance of
such warrants, rights, options or convertible securities been made
upon the basis of the delivery of only the number of
4
<PAGE>
shares of Common Stock actually delivered upon the exercise of
such warrants, rights or options or upon the conversion of such
securities.
(d) For the purposes hereof, any additional shares of
Common Stock issued as a stock dividend shall be deemed to have
been issued for no consideration.
(e) The number of shares of Common Stock at any time
outstanding shall include the aggregate number of shares
deliverable in respect of the convertible securities, rights and
options referred to in subparagraph (C) of this paragraph; provided
that with respect to shares referred to in clause (i) of
subparagraph (c), to the extent that such warrants, options, rights
or conversion privileges are not exercised, such shares shall be
deemed to be outstanding only until the expiration dates of the
warrants, rights, options or conversion privileges or the prior
cancellation thereof.
C. In case the Company shall at any time subdivide its outstanding shares
of Common stock into a greater number of shares, the Warrant Price in effect
immediately prior to such subdivision shall be proportionately reduced and, in
case the outstanding shares of the Common Stock of the Company shall be combined
into a smaller number of shares, the Warrant Price in effect immediately prior
to such combination shall be proportionately increased.
D. Upon each adjustment of the Warrant Price pursuant to the provisions
of this Section 8, the number of shares issuable upon the exercise of each
Warrant shall be adjusted by multiplying the Warrant Price in effect prior to
the adjustment by the number of shares of Common Stock covered by the warrant
and dividing the product so obtained by the adjusted Warrant Price.
E. Except upon consolidation or reclassification of the shares of Common
Stock of the Company as provided for in subsection (c) hereof and except for
readjustment of the Warrant Price upon expiration of warrants, rights or options
as provided for in subparagraph (C) of paragraph 3 of subsection (B) hereof, the
Warrant Price in effect at any time may not be adjusted upward or increased in
any manner whatsoever.
F. Irrespective of any adjustment or change in the Warrant Price or the
number of shares of Common Stock actually purchasable under the several
Warrants, the Warrants theretofore and thereafter issued may continue to express
the Warrant Price per share and the number of shares purchasable thereunder as
the Warrant Price per share and the number of shares purchasable were expressed
in the Warrants when initially issued.
G. If any capital reorganization or reclassification of the capital stock
of the Company (other than a distribution of stock in accordance with Section
10(B)) or consolidation or merger of the Company with another corporation or the
sale of all or substantially all of its assets to another corporation shall be
effected, then, as a condition of such reorganization, reclassification,
consolidation, merger or sale, lawful and adequate provision shall be made
whereby the holder of each Warrant then outstanding shall thereafter have the
right to purchase and receive upon the basis and upon the terms and conditions
specified herein and in the Warrants and in lieu of the shares of the Common
Stock of the Company immediately theretofore purchasable and receivable upon the
exercise of the rights represented by each such Warrant, such shares of stock,
securities or assets as may be issued or payable with respect to or in exchange
for a number of outstanding shares of such Common Stock equal to the number of
shares of such Common Stock immediately theretofore purchasable and receivable
upon the exercise of the rights represented by each such Warrant had such
reorganization, reclassification, consolidation, merger or sale not taken place,
and in any such case appropriate provisions shall be made with respect to the
rights and interest of the holder of each Warrant then outstanding to the end
that the provisions thereof (including without limitation provisions for
adjustment of the Warrant Price and of the number of shares purchasable upon the
exercise of each Warrant then outstanding) shall thereafter be applicable as
nearly as may be in relation to any shares of stock, securities or assets
thereafter deliverable upon the exercise of each Warrant.
5
<PAGE>
H. No adjustment of the Warrant Price shall be made in connection with
the issuance or sale of shares of Common Stock issuable pursuant to currently
outstanding options and warrants granted to officers, directors, employees,
advisory directors, or affiliates of the Company.
I. Whenever the Warrant Price is adjusted as herein provided, the Company
shall (a) forthwith file with the Warrant Agent a certificate signed by the
Chairman of the Board or the President or a Vice President of the Company and by
the Treasurer or an Assistant Treasurer or the Secretary or an Assistant
Secretary of the Company, showing in detail the facts requiring such adjustment
and the Warrant Price and the number of shares of Common Stock purchasable upon
exercise of the Warrants after such adjustment and (b) cause a notice stating
that such adjustment has been effected and stating the adjusted Warrant Price
and the number of shares of Common Stock purchasable upon exercise of the
Warrants to be published at least once a week for two consecutive weeks in a
newspaper of general circulation in Denver, Colorado and in New York, New York.
The Company, at its option, may cause a copy of such notice to be sent by first
class mail, postage prepaid, to each registered holder of Warrants at his
address appearing on the Warrant register. The Warrant Agent shall have no duty
with respect to any such certificate filed with it except to keep the same on
file and available for inspection by holders of Warrants during reasonable
business hours. The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of a Warrant to determine whether any facts exist
which may require any adjustment of the Warrant Price, or with respect to the
nature or extent of any adjustment of the Warrant Price when made, or with
respect to the method employed in making such adjustment.
J. The Company may retain a firm of independent certified public
accountants of recognized standing (which may be the firm that regularly
examines the financial statements of the Company) selected by the Board of
Directors of the Company or the Executive Committee of said Board and approved
by the Warrant Agent, to make any computation required under this Section 8, and
a certificate signed by such firm shall be conclusive evidence of the
correctness of any computation made under this Section 8.
K. In case at any time conditions shall arise by reason of action taken
by the Company which, in the opinion of the Board of Directors of the Company,
are not adequately covered by the other provisions of this Agreement and which
might materially and adversely affect the rights of the holders of the Warrants,
or in case at any time any such conditions are expected to arise by reason of
any action contemplated by the Company, the Board of Directors of the Company
shall appoint a firm of independent certified public accountants of recognized
standing (which may be the firm that regularly examines the financial statements
of the Company), who shall give their opinion as to the adjustment, if any (not
inconsistent with the standards established in this Section 8), of the Warrant
Price and the number of shares of Common Stock purchasable pursuant hereto
(including, if necessary, any adjustment as to the property which may be
purchasable in lieu thereof upon exercise of the Warrants) which is, or would
be, required to preserve without dilution the rights of the holders of the
Warrants. The Board of Directors of the Company shall make the adjustment
recommended forthwith upon the receipt of such opinion or the taking of any such
action contemplated, as the case may be; provided, however, that no adjustment
of the Warrant Price shall be made which in the opinion of the accountant or
firm of accountants giving the aforesaid opinion would result in an increase of
the Warrant Price to more than the Warrant Price then in effect except as
otherwise provided in subsection E of this Section 8.
9. No Fractional Interests. The Company shall not be required to issue
fractions of shares of Common Stock on the exercise of Warrants. If any
fraction of a share of Common Stock would, except for the provisions of this
section, be issuable on the exercise of any warrant (or specified portions
thereof), the Company shall purchase such fraction for an amount in cash equal
to the current value of such fraction (a) computed, if the Common Stock shall be
listed or admitted to unlisted trading privileges on any national or regional
securities exchange, on the basis of the last reported sale price of the Common
Stock on such exchange on the last business day prior to the date of exercise
upon which such a sale shall have been effected (or, if the Common Stock shall
be listed or admitted to unlisted trading privileges on more than one such
exchange, on the basis of such price on the exchange designated from time to
time for such purpose by the Board of Directors of the Company) or (b) computed,
if the Common Stock shall not be listed or admitted to unlisted trading
privileges, on the basis of the average of the high and low bid prices of the
Common Stock in the Nasdaq Stock Market, on the last business day prior to the
date of exercise.
10. Notice to Warrant Holders.
6
<PAGE>
A. Nothing contained in this Agreement or in any of the Warrants shall be
construed as conferring upon the holders thereof the right to vote or to consent
or to receive notice as stockholders in respect of the meetings of stockholders
for the election of directors of the Company or any other matters, or any rights
whatsoever as stockholders of the Company; provided, however, that in the event
that a meeting of stockholders shall be called to consider and take action on a
proposal for the voluntary dissolution of the Company, other than in connection
with a consolidation, merger or sale of all, or substantially all, of its
property, assets, business and goodwill as an entirety, then and in that event
the Company shall cause a notice thereof to be published at least once a week
for two consecutive weeks in a newspaper of general circulation in Denver,
Colorado and New York, New York, such publication to be completed at least 20
days prior to the date fixed as a record date or the date of closing the
transfer books for the determination of the stock holders entitled to vote at
such meeting. The Company shall also cause a copy of such notice to be sent by
first class mail, Postage prepaid, at least 20 days prior to said date fixed as
a record date or said date of closing the transfer books, to each registered
holder of Warrants at his address appearing on the Warrant register; but failure
to mail or receive such notice or any defect therein or in the mailing thereof
shall not affect the validity of any action taken in connection with such
voluntary dissolution. If such notice shall have been so given and if such a
voluntary dissolution shall be authorized at such meeting or any adjournment
thereof, then for and after the date on which such voluntary dissolution shall
have been duly authorized by the stockholders, the purchase rights represented
by the Warrants and other rights with respect thereto shall cease and terminate.
B. If the Company shall make any distribution on, or to holders of, its
Common Stock (or other property which may be purchasable in lieu thereof upon
the exercise of Warrants) of any property (other than a cash dividend), the
Company shall cause a notice of its intention to make such distribution to be
published at least once a week for two consecutive weeks in a newspaper of
general circulation in Denver, Colorado and New York, New York, such publication
to be completed at least 20 days prior to the date fixed as a record date or the
date of closing the transfer books for the determination of the stockholders
entitled to receive such distribution. The Company shall also cause a copy of
such notice to be sent by first class mail, postage prepaid, at least 20 days
prior to said date fixed as a record date or said date of closing the transfer
books, to each registered holder of Warrants at his address appearing on the
Warrant register; but failure to mail or to receive such notice or any defect
therein or in the mailing thereof shall not affect the validity of any action
taken in connection with such distribution.
11. Disposition of Proceeds on Exercise of Warrants.
A. The Warrant Agent shall account promptly to the Company with respect
to Warrants exercised and concurrently pay to the Company all monies received by
the Warrant Agent for the purchase of shares of the Company's stock through the
exercise of such Warrants.
B. The Warrant Agent shall keep copies of this Agreement available for
inspection by holders of Warrants during normal business hours at its principal
office.
12. Redemption of Warrants.
A. At any time on or after _______________, 1999, the Company may, at its
option, redeem some or all of the outstanding Warrants at $0.01 per Warrant,
upon thirty (30) days' prior written notice, if the closing sale price of the
Common Stock on the American Stock Exchange or any other national securities
exchange, or the closing bid quotation on the Nasdaq Stock Market, has equaled
or exceeded $_______ for ten (10) consecutive trading days preceding the date
notice of redemption is given (the "Redemption Price"). In order to redeem the
Warrants, the Company must have on file with the Securities and Exchange
Commission a current registration statement pertaining to the Common Stock
underlying the Warrants.
B. The election of the Company to redeem some or all of the Warrants
shall be evidenced by a resolution of the Board of Directors of the Company.
7
<PAGE>
C. Warrants may be exercised at any time on or before the date fixed for
redemption (the "Redemption Date").
D. Notice of redemption shall be given by first class mail, postage
prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption
Date, to each holder of Warrants, at his address appearing in the Warrant
register.
All notices of redemption shall state:
(1) The Redemption Date;
(2) That on the Redemption Date the Redemption Price will become
due and payable upon each Warrant;
(3) The place where such Warrants are to be surrendered for
redemption and payment of the Redemption Price; and
(4) The current Warrant Price of the Warrants, the place or
places where such Warrants may be surrendered for exercise, and the
time at which the right to exercise the Warrants will terminate in
accordance with this Agreement.
E. Notice of redemption of Warrants at the election of the Company shall
be given by the Company or, at the Company's request, by the Warrant Agent in
the name and at the expense of the Company.
F. Prior to any Redemption Date, the Company shall deposit with the
Warrant Agent an amount of money sufficient to pay the Redemption Price of all
the Warrants which are to be redeemed on that date. If any Warrant is exercised
pursuant to Section 5, any money so deposited with the Warrant Agent for the
redemption of such Warrant shall be paid to the Company.
G. Notice of redemption having been given as aforesaid, the Warrants so
to be redeemed shall, on the Redemption Date, become redeemable at the
Redemption Price therein specified and on such date (unless the Company shall
default in the payment of the Redemption Price), such Warrants shall cease to be
exercisable and thereafter represent only the right to receive the Redemption
Price. Upon surrender of such Warrants for redemption in accordance with said
notice, such Warrants shall be redeemed by the Company for the Redemption Price.
13. Merger or Consolidation or Change of Name of Warrant Agent. Any
corporation into which the Warrant Agent may be merged or with which it may be
consolidated, or any corporation resulting from any merger or consolidation to
which the Warrant Agent shall be a party, or any corporation succeeding to the
corporate trust business of the Warrant Agent, shall be the successor to the
Warrant Agent hereunder without the execution or filing of any paper or any
further act on the part of any of the parties hereto, provided that such
corporation would be eligible for appointment as a successor warrant agent under
the provisions of Section 15 of this Agreement. In case at the time such
successor to the Warrant Agent shall succeed to the agency created by this
Agreement and at such time any of the Warrants shall have been countersigned but
not delivered, any such successor to the Warrant Agent may adopt the
countersignature of the Warrant Agent and deliver such warrants so
countersigned; and in case at the time any of the Warrants shall not have been
countersigned, any successor to the Warrant Agent may countersign such Warrants
either in the name of the predecessor Warrant Agent or in the name of the
successor warrant agent; and in all such cases such Warrants shall have the full
force provided in the Warrant and in this Agreement.
In case at any time the name of the Warrant Agent shall be changed and at
such time any of the Warrants shall have been countersigned but not delivered,
the Warrant Agent may adopt the countersignature under its prior name and
deliver warrants so countersigned; and in case at that time any of the Warrants
shall not have been countersigned, the Warrant Agent may countersign such
Warrants whether in its prior name or in its changed name; and in all such cases
such Warrants shall have the full force provided in the Warrants and in this
Agreement.
8
<PAGE>
14. Duties of Warrant Agent. The Warrant Agent undertakes the duties and
obligations imposed by this Agreement upon the following terms and conditions,
by all of which the Company and the holders of Warrants, by their acceptance
thereof, shall be bound:
A. The statements contained herein and in the Warrants shall be taken as
statements of the Company, and the Warrant Agent assumes no responsibility for
the correctness of any of the same except such as describe the Warrant Agent or
action taken or to be taken by it. The Warrant Agent assumes no responsibility
with respect to the distribution of the Warrants except as herein otherwise
provided.
B. The Warrant Agent shall not be responsible for any failure of the
Company to comply with any of the covenants contained in this Agreement or in
the Warrants to be complied with by the Company.
C. The Warrant Agent may execute and exercise any of the rights or powers
hereby vested in it to perform any duty hereunder either itself or by or through
its attorneys, agents or employees.
D. The Warrant Agent may consult at any time with counsel satisfactory to
it (who may be counsel for the Company) and the Warrant Agent shall incur no
liability or responsibility to the Company or to any holder of any Warrant in
respect of any action taken, Buffered or omitted by it hereunder in good faith
and in accordance with the opinion or the advice of such counsel, provided the
Warrant Agent shall have exercised reasonable care in the selection and
continued employment of such counsel.
E. The Warrant Agent shall incur no liability or responsibility to the
Company or to any holder of any Warrant for any action taken in reliance on any
notice, resolution, waiver, consent, order, certificate, or other paper,
document or instrument believed by it to be genuine and to have been signed,
sent or presented by the proper party or parties.
F. The Company agrees to pay to the Warrant Agent reasonable compensation
for all services rendered by the Warrant Agent in the execution of this
Agreement, to reimburse the Warrant Agent for all expenses, taxes and
governmental charges and other charges of any kind and nature incurred by the
Warrant Agent in the execution of this Agreement and to indemnify the warrant
Agent and save it harmless against any and all liabilities, including judgments,
costs and reasonable counsel fees, for anything done or omitted by the Warrant
Agent in the execution of this Agreement except as a result of the Warrant
Agent's negligence or bad faith.
G. The Warrant Agent shall be under no obligation to institute any
action, suit or legal proceeding or to take any other action likely to involve
expense unless the Company or one or more registered holders of Warrants shall
furnish the Warrant Agent with reasonable security and indemnity for any cost
and expense which may be incurred, but this provision shall not affect the power
of the Warrant Agent to take such action as the Warrant Agent may consider
proper, whether with or without any such security or indemnity. All rights of
action under this Agreement or under any of the Warrants may be enforced by the
Warrant Agent without the possession of any of the Warrants or the production
thereof at any trial or other proceeding relative thereto, and any such action,
suit or proceeding instituted by the Warrant Agent shall be brought in its name
as Warrant Agent, and any recovery of judgment shall be for the ratable benefit
of the registered holders of the Warrants, as their respective rights or
interests may appear.
H. The Warrant Agent and any stockholder, director, officer or employee
of the Warrant Agent may buy, sell or deal in any of the Warrants or other
securities of the Company or become peculiarly interested in any transaction in
which the Company may be interested, or contract with or lend money to or
otherwise act as fully and freely as though it were not Warrant Agent under this
Agreement. Nothing herein shall preclude the Warrant Agent from acting in any
other capacity for the Company or for any other legal entity.
I. The Warrant Agent shall act hereunder solely as agent and not in a
ministerial capacity, and its duties shall be determined solely by the
provisions hereof. The Warrant Agent shall not be liable for anything which it
may do or refrain from doing in connection with this Agreement except for its
own negligence or bad faith.
9
<PAGE>
15. Change of Warrant Agent. The Warrant Agent may resign and be
discharged from its duties under this Agreement by giving to the Company notice
in writing, and to the holders of the Warrants notice by publication, of such
resignation, specifying a date when such resignation shall take effect, which
notice shall be published at least once a week for two consecutive weeks in a
newspaper of general circulation in Denver, Colorado and New York, New York,
prior to the date so specified. The Warrant Agent may be removed by like notice
to the Warrant Agent from the Company and by like publication. If the Warrant
Agent shall resign or be removed or shall otherwise become incapable of acting,
the Company shall appoint a successor to the Warrant Agent. If the Company shall
fail to make such appointment within a period of 30 days after such removal or
after it has been notified in writing of such resignation or incapacity by the
resigning or incapacitated Warrant Agent or by the registered holder of a
Warrant (who shall, with such notice, submit his warrant for inspection by the
Company), then the registered holder of a Warrant may apply to any court of
competent jurisdiction for the appointment of a successor to the Warrant Agent.
Any successor warrant agent, whether appointed by the Company or by such a
court, shall be a bank or trust company having its principal office, and having
capital and surplus as shown by its last published report to its stockholders,
of at least $1,000,000. After appointment, the successor warrant agent shall be
vested with the same powers, rights, duties and responsibilities as if it had
been originally named as Warrant Agent without further act or deed; but the
former Warrant Agent shall deliver and transfer to the successor warrant agent
any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Failure to
file or publish any notice provided for in this section, however, or any defect
therein, shall not affect the legality or validity of the resignation or removal
of the Warrant Agent or the appointment of the successor warrant agent, as the
case may be.
16. Identify of Transfer Agent. Forthwith upon the appointment of any
Transfer Agent for the Common Stock or of any subsequent Transfer Agent for
shares of the Common Stock or other shares of the Company's capital stock
issuable upon the exercise of the rights of purchase represented by the
Warrants, the Company will file with the Warrant Agent a statement setting forth
the name and address of such Transfer Agent.
17. Notices. Any notice pursuant to this Agreement to be given or made by
the Warrant Agent or the registered holder of any Warrant to or on the Company
shall be sufficiently given or made if sent by first-class mail, postage
prepaid, addressed (until another address is filed in writing by the Company
with the Warrant Agent) as follows:
Starlight Entertainment, Inc.
10831 South Crossroads Drive
Parker, Colorado 80134
Attention: President
Any notice pursuant to this Agreement to be given or made by the Company or
the registered holder of any Warrant to or on the Warrant Agent shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed (until another address is filed in writing by the warrant Agent with
the Company) as follows:
Corporate Stock Transfer, Inc.
370 - 17th Street, Suite 2350
Denver, Colorado 80202-4614
18. Supplements and Amendments. The Company and the Warrant Agent may
from time to supplement or amend this Agreement without the approval of any
holders of Warrants (i) in order to cure any ambiguity or to correct or
supplement any provision contained herein which may be defective or inconsistent
with any other provision herein; (ii) to extend the expiration date of the
Warrants or lower the Warrant Price; or (iii) to make any other provisions in
regard to matters or questions arising hereunder which the Company and the
Warrant Agent may deem necessary or desirable and which shall not be
inconsistent with the provisions of the Warrants and which shall not adversely
affect the interests of the holders of Warrants.
19. Successors. All the covenants and provisions of this Agreement by or
for the benefit of the Company or the Warrant Agent shall bind and inure to the
benefit of their respective successors and assigns hereunder.
10
<PAGE>
20. Merger or Consolidation of the Company. The Company shall not effect
any consolidation or merger with, or sale of substantially all its property to,
any other corporation unless the corporation resulting from such merger (if not
the Company) or consolidation or the corporation purchasing such property shall
expressly assume, by supplemental agreement satisfactory in form to the Warrant
Agent and executed and delivered to the Warrant Agent, the due and punctual
performance and observance of each and every covenant and condition of this
Agreement to be performed and observed by the Company.
21. Colorado Contract. This Agreement and each Warrant issued hereunder
shall be deemed to be a contract made under the laws of the State of Colorado
and for all purposes shall be construed in accordance with the laws of said
state.
22. Benefits of This Agreement. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company, the
Warrant Agent and the registered holders of the Warrants any legal or equitable
right, remedy or claim under this Agreement; but this Agreement shall be for the
sole and exclusive benefit of the Company, the Warrant Agent and the registered
holders of the Warrants.
23. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes by deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date hereof.
STARLIGHT ENTERTAINMENT, INC.
By:
-----------------------------------------
R. Haydn Silleck, President
CORPORATE STOCK TRANSFER, INC.
By:
-----------------------------------------
12
<PAGE>
No. ____
EXHIBIT A
---------
(FORM OF)
STARLIGHT ENTERTAINMENT, INC.
REDEEMABLE COMMON STOCK PURCHASE WARRANT
TO PURCHASE ________ SHARES OF COMMON STOCK
EXERCISABLE ON OR BEFORE 5:00 P. M. , DENVER, COLORADO TIME, _____________
This Warrant Certifies that _____________________________________, or
registered assigns, is the holder of _______________ Warrants expiring
_________________, to purchase Common Stock, no par value per share (the "Common
Stock"), of Starlight Entertainment, Inc. a Colorado corporation (the
"Company"). Each Warrant entitles the holder to purchase from the Company on or
before 5:00 p.m. Denver, Colorado time, on ___________________, (subject to
extensions in the sole discretion of the Company, the "Expiration Date") on
fully-paid and non-assessable share of Common Stock at the exercise price (the
"Exercise Price") of $9.00 per share upon surrender of this Warrant Certificate
and payment of the Exercise Price at the office or agency of the Warrant Agent
in Denver, Colorado, but only subject to the conditions set forth herein and in
the Warrant Agreement. Payment of the Exercise Price may be made in cash or by
certified check payable to the order of the Company. As used herein, "Shares"
refers to the Common Stock and, where appropriate, to the other securities or
property issuable upon exercise of a Warrant as provided for in the Warrant
Agreement upon the happening of certain events set forth in the Warrant
Agreement.
No Warrant may be exercised after 5:00 p.m., Denver, Colorado time, on the
Expiration Date. To the extent not exercised by such time, the Warrants shall
be cancelled and retired notwithstanding delivery of the related Warrant
Certificate. All Warrants evidenced hereby shall thereafter be void.
Reference is hereby made to the further provisions of this Warrant
Certificate set forth on the reverse in hereof and such further provisions shall
for all purposes have the same effect as though fully set forth at this place.
This Warrant Certificate shall not be valid unless countersigned by the
Warrant Agent.
Dated:______________, 1998
STARLIGHT ENTERTAINMENT, INC.
By:
-----------------------------------------
R. Haydn Silleck, President
CORPORATE STOCK TRANSFER, INC.
as Warrant Agent
By:
-----------------------------------------
<PAGE>
(FORM OF)
ELECTION TO PURCHASE
--------------------
Starlight Entertainment, Inc.
c/o Corporate Stock Transfer, Inc.
- -----------------------------------
Denver, Colorado
------------------
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant for, and to purchase thereunder,
shares of the stock provided for therein, and requests that certificates for
such shares shall be issued in the name of _____________________________________
and be delivered to ____________________________________________________________
at _____________________________________________________________________________
and, if said number of shares shall not be all of the shares purchasable
thereunder, that a new Warrant for the balance remaining of the shares
purchasable under the within Warrant be registered in the name of, and delivered
to, the undersigned at the address stated below.
Date:___________________
Name of Warrant Holder:______________________________
(Please Print)
Signature:___________________________________________
(Signature must conform
in all respects to name of
holder as specified on
the face of the Warrant
Certificate)
Address:____________________________________________
____________________________________________
____________________________________________
<PAGE>
(FORM OF)
ASSIGNMENT
----------
For value received, _______________________________________________________
does hereby well, assign and transfer unto the within Warrant, together with all
right, title and interest therein, and does hereby irrevocably constitute and
appoint attorney, to transfer said Warrant on the books of the within-named
Corporation, with full power of substitution in the promises,
Date:___________________
Signature:___________________________________________
(Signature must conform
in all respects to name of
holder as specified on
the face of the Warrant
Certificate)
<PAGE>
EXHIBIT 23.1
[LETTERHEAD OF COMISKEY & COMPANY]
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the inclusion in this registration statement of our report dated
May 1, 1998, on the financial statements of Cinema Saver Theatre Corporation
and to references to our firm as experts in accounting and auditing.
/s/ Comiskey & Co.
PROFESSIONAL CORPORATION
Denver, Colorado
August 4, 1998
<PAGE>
EXHIBIT 23.2
[LETTERHEAD OF COMISKEY & COMPANY]
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the inclusion in this registration statement of our report dated
May 4, 1998, on the financial statements of Pitchers!, Inc. and to references
to our firm as experts in accounting and auditing.
/s/ Comiskey & Co.
PROFESSIONAL CORPORATION
Denver, Colorado
August 4, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STATEMENT AS
OF AND FOR THE 6 MONTHS ENDED JUNE 30, 1998 AND THE PRO FORMA STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 6-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> JUN-30-1998 DEC-31-1997
<CASH> 144,466 974,530
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 93,317 121,553
<CURRENT-ASSETS> 399,687 1,231,888
<PP&E> 6,689,851 5,931,004
<DEPRECIATION> 1,255,753 1,098,664
<TOTAL-ASSETS> 6,104,109 6,251,092
<CURRENT-LIABILITIES> 616,380 811,088
<BONDS> 3,755,238 4,002,114
0 0
0 0
<COMMON> 546,087 546,087
<OTHER-SE> 799,107 693,223
<TOTAL-LIABILITY-AND-EQUITY> 6,104,109 6,251,092
<SALES> 3,829,716 7,928,138
<TOTAL-REVENUES> 3,829,716 7,928,138
<CGS> 1,450,293 3,941,893
<TOTAL-COSTS> 1,450,293 3,941,893
<OTHER-EXPENSES> 2,090,653 3,325,128
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 184,914 407,779
<INCOME-PRETAX> 154,983 494,427
<INCOME-TAX> 49,100 156,015
<INCOME-CONTINUING> 105,883 338,412
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 105,883 338,412
<EPS-PRIMARY> 0.09 0.27
<EPS-DILUTED> 0.08 0.26
<FN>
DATA FOR THE YEAR ENDED DECEMBER 31, 1997 IS DERIVED FROM PRO FORMA FINANCIAL
STATEMENTS WHICH GIVE EFFECT TO THE POOLING OF INTERESTS OF CINEMA SAVER THEATRE
CORPORATION AND PITCHERS!, INC., AND WHICH ARE BASED ON AUDITED FINANCIAL
STATEMENTS.
</FN>
</TABLE>
