<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
STARLIGHT ENTERTAINMENT, INC.
(Name of small business issuer in its charter)
Colorado 7830 84-1457591
(State of jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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. [_]
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock 1,150,000 $7.50 $8,625,000 $2,544.38
- -----------------------------------------------------------------------------------------------------
Common Stock 1,150,000 (2) (2) (2)
Purchase Warrants
- -----------------------------------------------------------------------------------------------------
Common Stock 1,150,000 $9.00 $10,350,000 $3,053.25
underlying (3)
Common Stock
Purchase Warrants
- -----------------------------------------------------------------------------------------------------
Representative's 100,000 $.001 $100 $0.03
Warrants
- -----------------------------------------------------------------------------------------------------
Common Stock 100,000 $9.00 $900,000 $265.50
underlying (3)
Representative's
Warrants
- -----------------------------------------------------------------------------------------------------
Common Stock 100,000 (2) (2) (2)
Purchase Warrants (3)
underlying
Representative's
Warrants
- -----------------------------------------------------------------------------------------------------
Common Stock 100,000 $9.00 $900,000 $265.50
underlying (3)
Common Stock
Purchase Warrants
- -----------------------------------------------------------------------------------------------------
Total $20,775,100 $6,128.66
- -----------------------------------------------------------------------------------------------------
</TABLE>
(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.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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 JUNE 24, 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
anticipated 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 price sale 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 American Stock
Exchange ("AMEX") under the symbols "SLN.U", "SLN" and "SLN.W", respectively.
There can be no assurance that the application for listing on the AMEX 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.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Unit.................................. $ $ $
- --------------------------------------------------------------------------------
Total(3).................................. $ $ $
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
(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.
<PAGE>
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 its Common Stock on the American Stock
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 American Stock Exchange at 86 Trinity
Place, New York, New York 10006.
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
<PAGE>
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 four movie theatres with 19 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 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 65,000 square feet. 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'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 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, 42% of the Company's screens
were located in its discount 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. Cinema Saver was
incorporated in Colorado in 1991, and Pitchers! was incorporated in Colorado in
1989. The Company's executive offices are located at 10831 South Crossroads
Drive, Parker, Colorado 80134, and its telephone number is (303) 805-8377.
3
<PAGE>
The Offering
Securities offered hereby......... 1,000,000 Units, each Unit consisting of one
share of Common Stock and one Common Stock
Purchase Warrant. Each Warrant entitles the
holder to purchase one share of Common Stock
at an anticipated 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). See "Description of
Securities."
Description of the Warrants........ The Warrants are not immediately exercisable
and are not transferable separately from the
Shares until ______, 1998 [six months after
the date of this Prospectus], unless earlier
separated upon prior written notice from the
Representative to the Company. The Warrants
are redeemable by the Company at $0.01 per
Warrant under certain conditions. See
"Description of Securities."
Common Stock to be outstanding
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
to expand the operations of the Company and
for working capital. 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 American Stock Exchange
symbols
Units............................ "SLN.U"
Common Stock..................... "SLN"
Warrants......................... "SLN.W"
_______________
(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."
(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
<PAGE>
Summary Pro Forma Combined 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 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 following table presents selected unaudited pro forma combined
financial information giving effect to the pooling of interests of Cinema Saver
and Pitchers! as wholly-owned subsidiaries of the Company as if such
transactions had occurred at the beginning of each period presented. The
unaudited pro forma combined financial statements should be read in conjunction
with each company's audited financial statements and notes thereto appearing
elsewhere in this Prospectus. 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. See "Pro Forma Combined Condensed Financial Statements" and the
Financial Statements.
<TABLE>
<CAPTION>
Three Months Ended March 31, Year Ended December 31,
----------------------------- ------------------------------
1998 1997 1997 1996
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Operating Data:
- ---------------
Total revenues $ 1,928,983 $1,758,885 $7,928,138 $7,117,017
Gross Profit $ 1,248,732 124,559 $3,986,245 $3,526,622
Net Income $ 74,212 $ 92,890 $ 338,412 $ 138,937
Net Income Per Share $ 0.06 $ 0.08 $ 0.27 $ 0.11
<CAPTION>
March 31, 1998 Year Ended,
--------------------------- ------------------
Actual As Adjusted (1) December 31, 1997
------------- ------------- ------------------
<S> <C> <C> <C>
Balance Sheet Data:
- -------------------
Working Capital $ (43,162) $ 6,231,838 $ 415,800
Total assets $6,079,624 $12,354,624 $6,246,092
Total liabilities $4,766,101 $ 4,766,101 $5,006,781
Shareholders equity $1,313,523 $ 7,588,523 $1,239,311
Shares outstanding 1,234,355 2,234,355 1,234,355
- ------------
</TABLE>
(1) 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
<PAGE>
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. 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, hiring and training
competent personnel, opening the facility on schedule, and attracting and
keeping customers in the new market. See "Business - Expansion Concept."
Significant Indebtedness. At March 31, 1998, the Company, on a pro forma
combined basis, had liabilities of $4,766,101 (unaudited), as compared to
stockholders' equity of $1,313,523 (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 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."
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."
6
<PAGE>
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 limits 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 Certificate 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; American Stock 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 American Stock 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."
Potential Dilution and Adverse Impact on Additional Financing Due to
Outstanding Warrants. As of the date of this Prospectus, the Company had
outstanding warrants to acquire an aggregate of 99,903 shares of Common Stock.
To the extent that the outstanding warrants are exercised, dilution to the
interests of the Company's shareholders may occur. For the life of the warrants
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 warrants may
adversely affect the terms on which the Company can obtain additional financing,
and the holders of such warrants 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 warrants. See "Shares Eligible for Future Sale."
8
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company are estimated to be $6,275,000 ($7,400,000
if the Underwriters' over-allotment option is exercised in full). The Company
intends to use the net proceeds as follows:
<TABLE>
<CAPTION>
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 575,000 9.2%
---------- -----
Total $6,275,000 100.0%
========== =====
</TABLE>
Most of the proceeds from this offering have been allocated for expansion.
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 Representatives' 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.
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.
9
<PAGE>
DILUTION
As of March 31, 1998, the Company had an unaudited pro forma combined net
tangible book value of $1,131,930 or $0.92 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 March 31, 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 March 31, 1998 would have been $7,406,930 or
$3.32 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
$2.40 per share. Concurrently, new investors purchasing Units in this offering
would suffer substantial immediate dilution of $4.18 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>
<CAPTION>
<S> <C> <C>
Offering price per share of Common Stock $7.50
Net tangible book value per common share before offering $0.92
Increase per share attributable to new investors $2.40
-----
Pro forma net tangible book value per common
share after offering $3.32
Dilution per common share to new investors $4.18
-----
Percentage Dilution 55.7%
</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
----------------------- -------------------- --------------
Number Percent Amount Percent Per 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 include in each Unit.
See "Use of Proceeds."
10
<PAGE>
CAPITALIZATION
The following table sets forth the pro forma combined current liabilities
and capitalization of the Company as of March 31, 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>
March 31, 1998 (Unaudited)
--------------------------
<S> <C> <C>
Actual Adjusted
---------- -----------
Current liabilities $ 635,395 $ 635,395
========== ===========
Long-term debt $3,738,052 $ 3,738,052
---------- -----------
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 767,436 767,436
---------- -----------
Total stockholders' equity 1,313,523 7,588,523
---------- -----------
Total capitalization $5,051,575 $11,326,575
========== ===========
- ------------
</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."
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited balance sheet and statement of income and retained
earnings give effect to the pooling of interests of Cinema Saver and Pitchers!
as wholly-owned subsidiaries of the Company as if such transactions had
occurred at the beginning of each period presented. These pro forma combined
financial statements should be read in conjunction with each company's audited
financial statements and notes thereto appearing elsewhere in this Prospectus.
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.
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 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.
11
<PAGE>
Pro Forma Combined Condensed Balance Sheet - March 31, 1998
<TABLE>
<CAPTION>
Historical (Unaudited) Pro Forma
Pitchers! Cinema Saver Adjustments Combined
<S> <C> <C> <C> <C>
ASSETS
Current assets $ 235,215 $ 357,018 $ -- $ 592,233
Property, plant and equipment, net
Of depreciation 1,319,100 3,986,698 -- 5,305,798
Intangibles and other assets, net
of amortization 160,619 20,974 -- 181,593
---------- ---------- -------- ----------
TOTAL ASSETS $1,714,934 $4,364,690 $ $6,079,624
========== ========== ======== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities $ 284,797 $ 350,598 $ -- $ 635,395
Long-term debt 767,579 2,970,473 -- 3,738,052
Other liabilities 62,539 330,115 -- 392,654
Stockholders' equity 600,019 713,504 -- 1,313,523
---------- ---------- -------- ----------
TOTAL LIABILITIES
AND STOCKHOLDERS'
EQUITY $1,714,934 $4,364,690 $ -- $6,079,624
========== ========== ======== ==========
</TABLE>
Pro Forma Combined Condensed Balance Sheet - December 31, 1997
<TABLE>
<CAPTION>
Historical (Unaudited) Pro Forma
Pitchers! Cinema Saver Adjustments Combined
<S> <C> <C> <C> <C>
ASSETS
Current assets $ 313,255 $ 913,633 $ -- $1,226,888
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 $4,432,441 $ -- $6,246,092
========== ========== ======== ==========
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 47,579 146,000 -- 193,579
Stockholders' equity 584,501 654,810 -- 1,239,311
---------- ---------- -------- ----------
TOTAL LIABILITIES
AND STOCKHOLDERS'
EQUITY $1,813,651 $4,432,441 $ -- $6,246,092
========== ========== ======== ==========
</TABLE>
12
<PAGE>
Pro Forma Combined Condensed Statement of Income and Retained Earnings
Three Months Ended March 31, 1998
<TABLE>
<CAPTION>
Historical (Unaudited) Pro Forma
Pitchers! Cinema Saver Adjustments Combined
<S> <C> <C> <C> <C>
NET REVENUES
Restaurant $1,301,894 $ -- $ -- $1,301,894
Theatre -- 627,089 -- 627,089
---------- ---------- ----------- ----------
Total Revenues 1,301,894 627,089 -- 1,928,983
Cost of goods sold 474,818 205,433 -- 680,251
---------- ---------- ----------- ----------
Gross Profit 827,076 421,656 -- 1,248,732
General and administrative
expenses 793,561 291,685 -- 1,085,246
---------- ---------- ----------- ----------
Income from operations 33,515 129,971 -- 163,486
Other (income) expense
Interest expense 22,846 61,441 -- 84,287
Interest income 0 (8,160) -- (8,160)
Miscellaneous income, net
of expense (10,162) (2,100) -- (12,262)
---------- ---------- ----------- ----------
12,684 51,181 -- 63,865
---------- ---------- ----------- ----------
Income before income
taxes 20,831 78,790 -- 99,621
Federal and state income taxes 5,314 20,095 -- 25,409
---------- ---------- ----------- ----------
Net income $ 15,517 $ 58,695 $ -- $ 74,212
========== ========== =========== ==========
Basic Earnings Per Share $ 0.39 $ 0.02 $ 0.06
========== ========== ==========
Weighted Average Num-
ber of Shares
Outstanding 39,628 3,289,081 1,234,355
========== ========== ==========
Diluted Earnings Per Share $ 0.02 $ 0.06
========== ==========
Weighted Average Num-
ber of Shares
Outstanding - Diluted 3,749,552 1,313,538
========== ==========
</TABLE>
13
<PAGE>
Pro Forma Combined Condensed Statement of Income and Retained Earnings
Twelve Months Ended December 31, 1997
<TABLE>
<CAPTION>
Historical Pro Forma
------------- ---------------- --------------- ------------
Pitchers! Cinema Saver Adjustments Combined
<S> <C> <C> <C> <C>
NET REVENUES
Restaurant $ 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 net
income, 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 before income
taxes 152,384 342,043 -- 494,427
Federal and state income
taxes 49,767 106,248 -- 156,015
------------ ----------- ------------- --------------
Net income $ 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 1,248,716
============ =========== ==============
Diluted Earnings per
Share $ 0.06 $ 0.26
=========== ==============
Weighted Average
Number of Shares
Outstanding -
Diluted 3,851,463 1,313,538
=========== ==============
</TABLE>
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations - Cinema Saver
Comparison of Quarters Ended March 31, 1998 and March 31, 1997
Revenues for the three months ended March 31, 1998 increased to $627,089, a
1.8% increase from the same period in 1997. The increase in revenues reflects
improved ticket sales in the Company's movie operations.
Operating expenses for the quarter ended March 31, 1998 decreased both on
an absolute basis and as a percentage of revenues. The decline in operating
expenses primarily represents reduced general and administrative expenses as
management has become more efficient in operating the theatres. For example,
staffing expense declined during the quarter despite the increase in revenues.
Operating income improved to $129,971 during the quarter ended March 31,
1998, from $96,147 in the prior year. As a percentage of revenues, operating
income was 20.7% compared to 15.6%. The improvement in operating income in 1998
reflects the decline in operating expenses as explained above. Correspondingly,
net income improved to $58,695 during the quarter ended March 31, 1998 from
$30,152 in the prior year reflecting the increase in revenues and decline in
operating expenses.
Comparison of the Years Ended December 31, 1997 and December 31, 1996
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.
Results of Operations - Pitchers!
Comparison of Quarters Ended March 31, 1998 and March 31, 1997
Revenues for the three months ended March 31, 1998 increased by 13.9% to
$1,301,894 from $1,142,995 in the same period in 1997. The increase in revenues
was primarily due to an increased number of locations.
Cost of sales for the quarter ended March 31, 1998 increased to $474,818
from $419,834 in 1997. As a percentage of sales, cost of sales was relatively
stable at 36.5% in 1998 versus 36.7% in 1997. General and administrative
expenses increased by 26.6% to $793,561 compared to $627,017 for the
corresponding quarter in 1997. The increase in general and administrative
expense reflects increased spending on advertising and personnel from the
additional Pitchers! location opened since the prior year as well as a build up
of staff to support future growth.
Operating income decreased as a percentage of revenues to 2.6% compared to
8.4% in 1997. The decline was due to the increase in general and administrative
expense explained above. As a result of the decline in operating income, net
income for the three months ended March 31, 1998 decreased to $15,517 as
compared to $62,738 in the same period last year.
15
<PAGE>
Comparison of the Years Ended December 31, 1997 and December 31, 1996
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 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 - Cinema Saver
Cinema Saver had working capital of $6,420 as of March 31, 1998 and
$484,708 as of December 31, 1997. Cinema Saver experienced a net increase in
cash of approximately $729,333 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 an existing theatre at a cost of approximately $700,000.
This renovation was the primary reason for the decline in working capital from
December 31, 1997 to March 31, 1998.
Cash provided by operations was $16,431 for the three months ended March
31, 1998 compared to $32,508 for the three months ended March 31, 1997. The
decrease was primarily due to decreases in certain current liabilities, offset
by an increase in net income.
Cash provided by operations for the fiscal year ended December 31, 1997 was
$291,369 compared to $345,993 in fiscal year end December 31, 1996. The
difference is primarily due to changes in working capital items.
Liquidity and Capital Resources - Pitchers!
Pitchers! had working capital deficiencies of $49,582 as of March 31, 1998
and $88,755 as of December 31, 1997. The improvement in the working capital
deficit was primarily due to a decline in accrued expenses.
Cash used in operations was $19,563 for the three months ended March 31,
1998 compared to cash provided by operations of $9,971 for the three months
ended March 31, 1997. The increase in cash used in operations was primarily due
to the decline in net income for the quarter ended March 31, 1998.
Cash provided by operations for the fiscal year ended December 31, 1997 was
$280,188 versus $270,667 for the fiscal year ended December 31, 1996. The
increase in cash provided by operations was primarily due to a $61,208 one-time
loss on the sale of property in 1996 that reduced net income but did not impact
cashflow. The increase in cash provided by operations was also due to an
increase in accounts payable and other accrued expenses that provided cash, net
of increases in inventory and other current assets that absorbed cash.
Liquidity and Capital Resources - The Company
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 December 31, 1997, total bank debt was
$3,993,406. Management believes that it has adequate liquidity and capital to
fund its operating activities for at least twelve months without having to incur
additional debt.
16
<PAGE>
BUSINESS
General
The Company owns Cinema Saver Theatre Corporation ("Cinema Saver"), which
operates four movie theatres with 19 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 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 65,000 square feet. 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.
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>
Number of Number of
Cinema Saver Locations Type of Operation Screens Seats
- ---------------------- ----------------- --------------- --------------
<S> <C> <C> <C>
Basemar Cinema Saver discount 2 570
2490 Baseline Road, Boulder
Bergen Park Cinemas first-run 7 1,041
1204 Bergen Parkway, Evergreen
Cinema Saver 6 discount 6 1,179
2525 Worthington Circle, Fort Collins
Parker Cinema IV first-run 4 784
10831 South Crossroads Drive, Parker
<CAPTION>
The Pitchers! locations are set forth below:
Pitchers! Locations Size of Facility Capacity
- ------------------- ---------------- --------
<S> <C> <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>
17
<PAGE>
History
The Company was formed as a Colorado corporation on April 10, 1998. 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. See "Pro Forma Combined Condensed Financial
Statements."
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.
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 leasing it to a
third party, 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.
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 theatres. The Company believes that its discount
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.
18
<PAGE>
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 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, 42% 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 65,000 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.
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.
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-run
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
19
<PAGE>
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 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.
20
<PAGE>
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 70%) 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.
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.
Seasonally
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.
21
<PAGE>
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.
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.
22
<PAGE>
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 May 20, 1998, Cinema Saver had 72 employees, 7 of whom were full-
time, and Pitchers! had 162 employees, 35 of whom were full-time. None of the
employees of Cinema Saver or Pitchers! is covered by any collective bargaining
agreements.
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.
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, except for the lessor
of the Littleton location. See "Certain Relationships and Related Transactions."
In addition, Pitchers! owns a location at 10175 East Hampden Avenue in
Denver, which it no longer operates. Pitchers! has leased this location through
March 2002 to a non-affiliated third party for $10,342 per month. It is being
operated as a restaurant/nightclub.
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.
23
<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.
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
24
<PAGE>
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 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
25
<PAGE>
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.
26
<PAGE>
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
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
Officer and directors 913,366(9) 68.56% 39.16%
as a group (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 94,958 shares issuable upon the exercise of certain options. See
"Certain Relationships and Related Transactions."
27
<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 March 31, 1998, the balance of the
note was $3,113,257. 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 March 31, 1998, the balance of the note was $184,115. 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.
28
<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 March 31, 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 March 31, 1998, the unpaid balance of these loans was $683,586.
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 of $131,556 to 1100 Drake. A non-
affiliated third party has executed an agreement to purchase this property
subject to the lease to Pitchers! 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
March 31, 1998, the unpaid balance of this loan was $131,961.
On March 16, 1998, Pitchers! obtained a line of credit in the amount of
$35,382 from Aurora National Bank. Interest accrues 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 is due 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.
None of the proceeds of this offering has been allocated to reduce debt.
See "Use of Proceeds."
29
<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 three
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.
30
<PAGE>
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 American Securities Transfer & Trust, 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 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
price quotation 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
American Securities Transfer & Trust, Inc., Denver, Colorado, will act as
the registrar and transfer agent for the Company's Common Stock.
31
<PAGE>
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.
32
<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.
The Underwriting Agreement contains covenants of indemnity by the Company
to the Underwriters against certain civil liabilities, including liabilities
under the Securities Act.
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.
The Representative has informed the Company that it does not expect sales
to accounts over which the Underwriters exercise discretionary authority.
33
<PAGE>
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.
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.
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.
American Stock Exchange
The Company has applied to list the Common Stock on the American Stock
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.
34
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
HISTORICAL FINANCIAL STATEMENTS
Balance Sheet--Cinema Saver Theatre Corporation--March 31, 1998
(unaudited)......................................................... F-1
Balance Sheet--Cinema Saver Theatre Corporation--March 31, 1997
(unaudited)......................................................... F-2
Income Statement--Cinema Saver Theatre Corporation--For the three
months ended March 31, 1998 and 1997 (unaudited).................... F-3
Statement of Cash Flows--Cinema Saver Theatre Corporation--For the
three months ended March 31, 1998 and 1997 (unaudited).............. F-4
Notes to Financial Statements--Cinema Saver Theatre Corporation--For
the three months ended March 31, 1998 and 1997 (unaudited).......... F-5
Report of Independent Certified Public Accountants--Cinema Saver
Theatre Corporation................................................. F-6
Balance Sheet--Cinema Saver Theatre Corporation--December 31, 1997... F-7
Statements of Operations--Cinema Saver Theatre Corporation--For the
years ended December 31, 1997 and 1996.............................. F-8
Statements of Changes in Stockholders' Equity--Cinema Saver Theatre
Corporation--for the years ended December 31, 1997 and 1996......... F-9
Statements of Cash Flows--Cinema Saver Theatre Corporation--For the
years ended December 31, 1997 and 1996.............................. F-10
Notes to Financial Statements--Cinema Saver Theatre Corporation--
December 31, 1997 and 1996.......................................... F-11-F-15
Balance Sheet--Pitchers!, Inc.--March 31, 1998 (unaudited)........... F-16
Balance Sheet--Pitchers!, Inc.--March 31, 1997 (unaudited)........... F-17
Income Statement--Pitchers!, Inc.--For the three months ended March
31, 1998 and 1997 (unaudited)....................................... F-18
Statement of Cash Flows--Pitchers!, Inc.--For the three months ended
March 31, 1998 and 1997 (unaudited)................................. F-19
Notes to Financial Statements--Pitchers!, Inc.--For the three months
ended March 31, 1998 and 1997 (unaudited)........................... F-20
Report of Independent Certified Public Accountants--Pitchers!, Inc... F-21
Balance Sheet--Pitchers!, Inc.--December 31, 1997.................... F-22
Statements of Operations--Pitchers!, Inc.--For the years ended
December 31, 1997 and 1996.......................................... F-23
Statements of Changes in Stockholders' Equity--Pitchers!, Inc.--for
the years ended December 31, 1997 and 1996.......................... F-24
Statements of Cash Flows--Pitchers!, Inc.--For the years ended
December 31, 1997 and 1996.......................................... F-25
Notes to Financial Statements--Pitchers!, Inc.--December 31, 1997 and
1996................................................................ F-26-F-31
PROFORMA COMBINED FINANCIAL STATEMENTS--STARLIGHT ENTERTAINMENT INC.
Introduction to Proforma Combined Financial Statements............... F-32
Proforma Combined Balance Sheet--March 31, 1998...................... F-33
Proforma Combined Statements of Operations--Three Months Ended March
31, 1998............................................................ F-34
Proforma Combined Statements of Operations--Three Months Ended March
31, 1997............................................................ F-35
Proforma Combined Balance Sheet--December 31, 1997................... F-36
Proforma Combined Statements of Operations--Year Ended December 31,
1997................................................................ F-37
Proforma Combined Statements of Operations--Year Ended December 31,
1996................................................................ F-38
Notes to Proforma Combined Financial Statements...................... F-39
</TABLE>
F-0
<PAGE>
Cinema Saver Theatre Corporation
Balance Sheet
March 31, 1998
(Unaudited)
ASSETS
Current Assets:
Cash $ 315,135
Accounts receivable 2,723
Inventory 16,871
Note receivable 11,725
Prepaid expenses 10,564
----------------
Total current assets 357,018
----------------
Property and equipment 4,635,309
Less accumulated depreciation (648,611)
----------------
3,986,698
----------------
Other assets:
Deposits 16,438
Loan fees 4,536
----------------
20,974
----------------
Total assets $ 4,364,690
================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 80,866
Accrued expenses 116,939
Income taxes payable 10,009
Notes payable, current portion 142,784
----------------
Total current liabilities 350,598
----------------
Long-term liabilities:
Notes payable 2,970,473
Shareholder notes 184,115
Deferred income taxes 146,000
----------------
3,300,588
----------------
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 486,742
----------------
713,504
----------------
Total liabilities and stockholders' equity $ 4,364,690
================
See accompanying notes
F-1
<PAGE>
Cinema Saver Theatre Corporation
Balance Sheet
March 31, 1997
(Unaudited)
ASSETS
Current Assets:
Cash $ 141,145
Accounts Receivable 6,690
Inventory 13,043
Prepaid Expenses 13,985
----------------
Total Current Assets 174,863
----------------
Property & Equipment:
Land 637,500
Buildings 2,776,695
Leasehold Improvements 94,533
Building Improvements 409,076
Theatre Equipment 630,720
Office Equipment 26,283
----------------
4,574,807
Less Accumulated Depreciation (499,739)
----------------
4,075,068
----------------
Other Assets:
Deposits 10,292
Loan Fees 3,170
----------------
13,462
----------------
Total Assets $ 4,263,393
================
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 90,619
Accrued Expenses 105,390
Income Taxes Payable 9,060
Notes Payable, Current Portion 75,698
----------------
Total Current Liabilities 280,767
----------------
Long-Term Liabilities:
Notes Payable 3,146,313
Shareholder Notes 85,000
Deferred Income Taxes 97,000
----------------
3,328,313
----------------
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 428,619
Retained Earnings 222,404
----------------
654,313
----------------
Total Liabilities & Stockholders' Equity $ 4,263,393
================
F-2
<PAGE>
Cinema Saver Theatre Corporation
Income Statement
For The Three Months Ended March 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Net revenues $ 627,089 $ 615,890
Operating expenses 205,433 214,492
General and administrative 291,685 305,251
----------- -----------
497,118 519,743
----------- -----------
Income from operations 129,971 96,147
----------- -----------
Other income (expense):
Interest income 8,160 1,263
Other income 2,100 1,036
Interest expense (61,441) (61,309)
----------- -----------
(51,181) (59,010)
----------- -----------
Income before income tax 78,790 37,137
Income tax expense 20,095 6,985
----------- -----------
Net income $ 58,695 $ 30,152
=========== ===========
Per share information
Basic net income per share $ .02 $ .01
=========== ===========
Weighted average number of shares outstanding - basic 3,289,081 3,638,567
=========== ===========
Diluted net income per share $ .02 $ .01
=========== ===========
Weighted average number of shares outstanding - diluted 3,444,481 3,793,967
=========== ===========
</TABLE>
See accompanying notes
F-3
<PAGE>
Cinema Saver Theatre Corporation
Statements of Cash Flows
For the three months ended March 31, 1998 and 1997
(Unaudited)
1998 1997
----------- -----------
Cash flows from operating activities:
Net income $ 58,695 $ 30,152
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 52,469 45,752
Net changes in assets and liabilities:
(Increase) in accounts receivable (2,723) (6,690)
(Increase) in prepaid expenses (10,564) (13,985)
Decrease in deferred tax asset 5,000 --
Decrease in other assets 3,249 16,134
(Decrease) in accounts payable (39,758) (10,137)
Increase (decrease) in accrued expenses 3,897 (7,816)
(Decrease) in accrued interest (11,945) (14,149)
(Decrease) in income taxes payable (36,889) (6,753)
(Decrease) in deferred income taxes (5,000) --
--------- ---------
Total adjustments (42,264) 2,356
--------- ---------
Net cash provided by operating activities 16,431 32,508
--------- ---------
Cash flows from investing activities:
Purchase of buildings (357,651) --
Purchase of leasehold and building improvements (24,176) (401)
Purchase of theatre equipment (168,328) --
Purchase of office equipment (1,839) --
Deposits (16,438) (10,292)
Loan fees 15,374 (3,170)
--------- ---------
Net cash used in investing activities (553,058) (13,863)
--------- ---------
Cash flows from financing activities:
Payment of long term debt (29,112) (26,681)
Payment of shareholder notes (12,639) (15,000)
--------- ---------
Net cash used in financing activities (41,751) (41,681)
--------- ---------
Net decrease in cash (578,378) (23,036)
Beginning - cash 893,513 164,181
--------- ---------
Ending - cash $ 315,135 $ 141,145
========= =========
See accompanying notes
F-4
<PAGE>
Cinema Saver Theatre Corporation
Notes to Financial Statements
For The Three Months Ended March 31, 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.
F-5
<PAGE>
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 two 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, changes in
stockholders' equity and cash flows 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
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
===========
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 (217,542) --
Issuance of stock for conversion of debt -- 15,000
Conversion of equity to debt 197,542 --
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:
Office furniture and equipment 5 - 10 years
Theater equipment 10 years
Leasehold improvements 5 years
Building 40 years
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 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. 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:
For the year ended
December 31, Amount
------------------ ----------
1998 $ 141,416
1999 181,499
2000 194,480
2001 210,203
2002 226,587
Thereafter 2,533,231
----------
$ 3,339,123
===========
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:
For the year ended
December 31, Amount
------------------ ----------
1998 $ 57,115
1999 37,870
2000 37,870
2001 37,870
----------
$ 170,725
==========
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 $186,725 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:
1997 1996
--------- --------
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
========= ========
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:
1997 1996
--------- --------
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
========= =========
A reconciliation between the statutory federal income tax rate and the
effective income tax rates based on continuing operations is as follows:
1997 1996
--------- ---------
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%
========= =========
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
released. 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, 1997 and 1996
6. Statement of Cash Flows
-----------------------
The following provides supplemental information concerning disclosure of
cash flow activities:
1997 1996
--------- ---------
Interest paid $ 313,601 $ 335,663
========= =========
Income taxes paid $ 26,163 $ -
========= =========
Secured receivable accepted for stock $ 11,725 $ -
========= =========
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>
Pitchers!, Inc.
Balance Sheet
March 31, 1998
(Unaudited)
ASSETS
Current assets:
Cash $ 43,519
Accounts receivable 15,477
Inventory 82,719
Deferred tax asset 49,609
Prepaid expenses 43,891
-------------
Total current assets 235,215
-------------
Property and equipment 1,859,086
Less accumulated depreciation (539,986)
-------------
1,319,100
-------------
Other assets:
Deposits 13,349
Organization costs 41,928
Loan fees 14,529
Goodwill 140,000
Less accumulated amortization (49,187)
-------------
160,619
-------------
Total assets $ 1,714,934
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 69,834
Accrued expenses 61,045
Income taxes payable 5,314
Capital leases 53,201
Notes payable, current portion 95,403
-------------
Total current liabilities 284,797
-------------
Long-term liabilities:
Notes payable 767,579
Shareholder notes 15,927
Deferred rent credit 33,667
Deferred income taxes 12,946
-------------
830,119
-------------
Stockholders' equity:
Common stock, no par value, 200,000 shares
authorized, 39,628 shares issued and outstanding 319,325
Retained earnings 280,693
-------------
600,018
-------------
Total liabilities and stockholders' equity $ 1,714,934
=============
See accompanying notes
F-16
<PAGE>
Pitchers!, Inc.
Balance Sheet
March 31, 1997
(Unaudited)
ASSETS
Current Assets:
Cash $ 140,575
Accounts Receivable 14,296
Inventory 80,017
Deferred Tax Asset 41,706
Prepaid Expenses 47,011
-------------
Total Current Assets 323,605
-------------
Property & Equipment:
Land 97,790
Buildings 506,785
Leasehold Improvements 228,384
Furniture & Fixtures 382,639
Office Equipment 6,141
Machinery & Equipment 139,710
Vehicles 24,008
-------------
1,385,457
Less Accumulated Depreciation (378,860)
-------------
1,006,597
-------------
Other Assets:
Deposits 12,750
Organization Costs 33,697
Loan Fees 12,360
Goodwill 140,000
Less Accumulated Amortization (34,391)
-------------
164,416
-------------
Total Assets $ 1,494,618
=============
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 7,991
Accrued Expenses 72,016
Income Taxes Payable 14,517
Capital Leases 35,981
Notes Payable, Current Portion 95,403
-------------
Total Current Liabilities 225,908
-------------
Long-Term Liabilities:
Notes Payable 638,807
Shareholder Notes 25,000
Deferred Rent Credit 37,667
Deferred Income Taxes 22,613
-------------
724,087
-------------
Stockholders' Equity:
Common Stock, no par value,
200,000 shares authorized, 39,628
shares issued and outstanding 319,325
Retained Earnings 225,298
-------------
544,623
-------------
Total Liabilities & Stockholders' Equity $ 1,494,618
=============
F-17
<PAGE>
Pitchers!, Inc.
Income Statement
For The Three Months Ended March 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Net revenues $ 1,301,894 $ 1,142,995
Cost of goods sold 474,818 419,834
----------- -----------
Gross Profit 827,076 723,161
General and administrative 793,561 627,017
----------- -----------
Income from operations 33,515 96,144
----------- -----------
Other income (expense):
Other income 10,162 1,304
Interest expense (22,846) (20,193)
----------- ------------
(12,684) (18,889)
----------- ------------
Income before income tax 20,831 77,255
Income tax expense 5,314 14,517
----------- -----------
Net income $ 15,517 $ 62,738
=========== ===========
Per share information
Basic net income per share $ .39 $ 1.59
=========== ===========
Weighted average number of shares
outstanding - basic 39,628 39,432
=========== ===========
</TABLE>
See accompanying notes
F-18
<PAGE>
Pitchers!, Inc.
Statements of Cash Flows
For the three months ended March 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 15,517 $ 62,738
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 40,707 28,095
Changes in assets and liabilities:
(Increase) in accounts receivable (15,477) (14,296)
Decrease in inventory 21,963 1,722
Decrease in prepaid expenses 11,577 11,520
Decrease in other current assets 22,479 19,688
Increase (decrease) in accounts payable 27,443 (28,180)
(Decrease) in accrued expenses (154,936) (95,854)
(Decrease) in income taxes payable (22,503) (13,128)
Increase in deferred rent credit 33,667 37,667
--------- ---------
Total adjustments (75,787) (80,861)
--------- ---------
Net cash (used in) provided by operating activities (19,563) 9,972
--------- ---------
Cash flows from investing activities:
Purchase of buildings and leasehold improvements (4,179) (3,837)
Purchase of furniture and fixtures (6,723) (925)
Purchase of equipment (495) (11,462)
Purchase of vehicles -- (454)
Deposits (8,251) 3,404
Organization costs -- (1,312)
Loan fees (382) --
--------- ---------
Net cash (used in) investing activities (20,030) (14,586)
--------- ---------
Cash flows from financing activities:
Proceeds from and (repayment of) long term debt 11,945 (7,944)
Payment under capital lease obligations (1,850) (2,466)
Repayment of shareholder notes (8,000) --
--------- ---------
Net cash provided by (used in) financing activities 2,095 (10,410)
--------- ---------
Net decrease in cash (37,498) (15,024)
Beginning - cash 81,017 155,599
--------- ---------
Ending - cash $ 43,519 $ 140,575
========= =========
</TABLE>
See accompanying notes
F-19
<PAGE>
Pitchers!, Inc.
Notes to Financial Statements
For The Three Months Ended March 31, 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 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.
F-20
<PAGE>
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-21
<PAGE>
Pitchers!, Inc.
BALANCE SHEET
December 31, 1997
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
==========
The accompanying notes are an integral part of the financial statements.
F-22
<PAGE>
Pitchers!, Inc.
STATEMENTS OF OPERATIONS
For the years ended December 31, 1997 and 1996
1997 1996
----------- -----------
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
=========== ===========
The accompanying notes are an integral part of the financial statements.
F-23
<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-24
<PAGE>
Pitchers!, Inc.
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 $ 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-25
<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:
Building 39 years
Building improvements 31.5 - 39 years
Furniture, fixtures and equipment 7 years
Vehicles 5 years
Computer equipment 5 years
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-26
<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-27
<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:
1998 $ 95,403
1999 105,392
2000 79,801
2001 26,119
2002 10,753
Thereafter 557,807
--------
$875,275
========
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.
Year ended December 31,
-----------------------
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
=======
F-28
<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:
1998 $ 391,841
1999 386,627
2000 374,481
2001 322,327
2002 250,121
--------
$ 1,725,397
===========
5. Related Party Transactions
--------------------------
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:
1997 1996
------- -------
Current income taxes paid or payable $67,337 $42,045
Increase in deferred tax assets 17,570 17,601
------- -------
$49,767 $24,444
======= =======
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:
1997 1996
------- -------
Deferred tax liabilities
Valuation of assets $36,476 $41,391
Depreciation and amortization 2,320 -
------- -------
Total deferred tax liabilities 38,796 41,391
------- -------
F-29
<PAGE>
Pitchers!, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996
6. Income Taxes (continued)
------------------------
1997 1996
------- -------
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
======= =======
A reconciliation between statutory federal income tax rate and the effective
income tax rates based on continuing operations is as follows:
1997 1996
----- -----
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%
==== ====
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-30
<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:
1997 1996
--------- ---------
Interest paid $ 102,389 $ 89,068
========= =========
Income taxes paid $ 67,337 $ 26,536
========= =========
Obligations assumed
under capital leases $ 45,158 $ 32,716
========= =========
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-31
<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 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-32
<PAGE>
Starlight Entertainment, Inc.
Proforma Combined Balance Sheet
March 31, 1998
<TABLE>
<CAPTION>
Historical Pro Forma
----------------------------------- -----------------------------------
Cinema Savers
Pitchers!, Inc. Theatre Corp. Adjustments Combined
----------------------------------- -----------------------------------
<S> <C> <C> <C> <C>
ASSETS
Current assets $ 235,215 $ 357,018 $ -- $ 592,233
Property, plant and equipment, net of depreciation 1,319,100 3,986,698 -- 5,305,798
Intangibles and other assets, net of amortization 160,619 20,974 -- 181,593
---------- ---------- ---------- ----------
TOTAL ASSETS $1,714,934 $4,364,690 $ -- $6,079,624
---------- ---------- ---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities $ 284,797 $ 350,598 $ -- $ 635,395
Long term debt 767,579 2,970,473 -- 3,738,052
Other liabilities 62,540 330,115 -- 392,655
Stockholders' equity 600,018 713,504 -- 1,313,522
---------- ---------- ---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,714,934 $4,364,690 $ -- $6,079,624
========== ========== ========== ==========
</TABLE>
F-33
<PAGE>
Starlight Entertainment, Inc.
Pro Forma Combined Statements of Operations
Three Months Ended March 31, 1998
<TABLE>
<CAPTION>
Historical Pro Forma
------------------------------------------- -------------------------------------------
Cinema Saver
Pitchers!,Inc. Theatre Corporation Adjustments Combined
--------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Net revenue
Restaurant $ 1,301,894 $ -- $ -- $ 1,301,894
Theatre -- 627,089 -- 627,089
----------- ----------- ------------ -----------
Total evenues 1,301,894 627,089 -- 1,928,983
Cost of goods sold 474,818 205,433 -- 680,251
----------- ----------- ------------ -----------
Gross Profit 827,076 421,656 -- 1,248,732
General and administrative expenses 793,561 291,685 -- 1,085,246
----------- ----------- ------------ -----------
Income from operations 33,515 129,971 -- 163,486
Other (income) expense:
Interest expense 22,846 61,441 -- 84,287
Interest income -- (8,160) -- (8,160)
Miscellaneous income, net of expense (10,162) (2,100) -- (12,262)
----------- ----------- ------------ -----------
12,684 51,181 -- 63,865
----------- ----------- ------------ -----------
Income before income taxes 20,831 78,790 -- 99,621
Income tax expense 5,314 20,095 -- 25,409
----------- ----------- ------------ -----------
Net income $ 15,517 $ 58,695 $ -- $ 74,212
=========== =========== ============ ===========
Per share information
Basic net income per share $ .39 $ .02 $ .06
=========== =========== ===========
Weighted average number of shares
outstanding - basic 39,628 3,289,081 1,234,355
=========== =========== ===========
Diluted net income per share $ .02 $ .06
=========== ===========
Weighted average number of shares
outstanding - diluted 3,749,552 1,313,538
=========== ===========
</TABLE>
F-34
<PAGE>
Starlight Entertainment, Inc.
Pro Forma Combined Statements of operations
Three Months Ended March 31, 1997
<TABLE>
<CAPTION>
Historical Pro Forma
------------------------------------------- -------------------------------------------
Cinema Saver
Pitchers!, Inc. Theatre Corporation Adjustments Combined
----------------- --------------------- -------------------- ----------------
<S> <C> <C> <C> <C>
Net revenue
Restaurant $ 1,142,995 $ -- $ -- $ 1,142,995
Theatre -- 615,890 -- 615,890
------------- ------------- ------------- --------------
Total evenues 1,142,995 615,890 -- 1,758,885
Cost of goods sold 419,834 214,492 -- 634,326
------------- ------------- ------------- --------------
Gross Profit 723,161 401,398 -- 1,124,559
General and administrative expenses 627,017 305,251 -- 932,268
------------- ------------- ------------- --------------
Income from operations 96,144 96,147 -- 192,291
Other (income) expense:
Interest expense 20,193 61,309 -- 81,502
Interest income -- (1,263) -- (1,263)
Miscellaneous income, net of expense (1,304) (1,036) -- (2,340)
------------- ------------- ------------- --------------
18,889 59,010 -- 77,899
------------- ------------- ------------- --------------
Income before income taxes 77,255 37,137 -- 114,392
Income tax expense 14,517 6,985 -- 21,502
------------- ------------- ------------- --------------
Net income $ 62,738 $ 30,152 $ -- $ 92,890
============= ============= ============= ==============
Per share information
Basic net income per share $ 1.59 $ .01 $ .08
============= ============= ==============
Weighted average number of shares
outstanding - basic 39,432 3,638,567 1,234,355
============= ============= ==============
Diluted net income per share $ .01 $ .07
============= ==============
Weighted average number of shares
outstanding - diluted 3,793,967 1,313,538
============= ==============
</TABLE>
F-35
<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 $ 913,633 $ - $1,226,888
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 $4,432,441 $ - $6,246,092
========== ========== =========== ==========
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 47,579 146,000 - 193,579
Stockholders' equity 584,501 654,810 - 1,239,311
---------- ---------- ----------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY $1,813,651 $4,432,441 $ - $6,246,092
</TABLE>
F-36
<PAGE>
<TABLE>
<CAPTION>
Starlight Entertainment, Inc.
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
Year ended December 31, 1997
Historical Pro Forma
----------------------------------- --------------------------------
Cinema Savers
Pitchers!, Inc. Theatre Corp. Adjustments Combined
--------------- --------------- --------------- ---------------
NET REVENUES
<S> <C> <C> <C> <C>
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>
F-37
<PAGE>
Starlight Entertainment, Inc.
PRO FORMA COMBINED STATEMENTS OF REVENUE AND RETAINED EARNINGS
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>
F-38
<PAGE>
Starlight Entertainment, Inc.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
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 5.05533
shares of Cinema Saver common stock, and the Pitchers shares to be exchanged
at a conversion rate of 14.73044 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-39
<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.......................................................... 9
Dividend Policy.......................................................... 9
Dilution................................................................. 10
Capitalization........................................................... 11
Pro Forma Combined Condensed Financial Statements........................ 11
Management's Discussion and Analysis of Financial Condition and Results
of Operation............................................................ 15
Business................................................................. 17
Management............................................................... 24
Principal Shareholders................................................... 26
Certain Relationships and Related Transactions........................... 28
Description of Securities................................................ 30
Shares Eligible for Future Sale.......................................... 32
Underwriting............................................................. 33
Legal Matters............................................................ 34
Experts.................................................................. 35
Index to Financial Statements............................................ F-0
</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
Category of Expense Amount
Registration fee......................................... $ 6,129
NASD filing fee.......................................... 2,578
American Stock Exchange listing fee...................... 40,000*
Transfer agent fees...................................... 5,000*
Printing costs........................................... 90,000*
Engraving costs.......................................... 2,500*
Legal fees............................................... 55,000*
Accounting fees.......................................... 20,000
Road Show expenses....................................... 80,000*
Contingency.............................................. 23,793
Representative's nonaccountable expense allowance........ 150,000
---------
Total.................................................... $ 475,000*
=========
- ---------------
*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 and Pitchers!,
Inc. 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 Theatre Corporation were exchanged for warrants to purchase the Common
Stock of the registrant. The registrant 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 shareholders of Cinema Saver
Theatre Corporation and Pitchers!, Inc. 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
Exhibit
Number Exhibit
1.1 Form of Underwriting Agreement
1.2 Form of Representative's Warrants
2.1 Agreement and Plan of Share Exchange
3.1 Articles of Incorporation
3.2 Bylaws
4.1 Warrant Agreement
5.1 Opinion re Legality
10.1 1998 Stock Option Plan
10.2 Quad City Bank and Trust Company loan documents
10.3 Cinema Saver Theatre Corporation Promissory Note to Joel Boldrey
10.4 Aurora National Bank loan documents
10.5 Business Lease with 1100 Drake, Ltd.
21.1 List of Subsidiaries
23.1 Consent of Comiskey & Company
23.2 Consent of Comiskey & Company
23.3 Consent of Dill Dill Carr Stonbraker & Hutchings, P.C. (1)
27.1 Financial Data Schedule
- -----------------------------
(1) 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 offering price set forth in the "Calculation
of Registration Fee" table in the effective registration
statement.
II-2
<PAGE>
(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 June 22, 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.
Signature Title Date
President, Treasurer and Director
(Principal Executive Officer and
/s/ R. Haydn Silleck Principal Financial Officer) June 22, 1998
- ----------------------- ---------------
R. Haydn Silleck
/s/ Herbert I. Lee Secretary and Director June 22, 1998
- ----------------------- ---------------
Herbert I. Lee
/s/ Clifford E. Godfrey Vice President and Director June 22, 1998
- ----------------------- ---------------
Clifford E. Godfrey
/s/ Lorry D. Hanson Vice President and Director June 22, 1998
- ---------------------- ---------------
Lorry D. Hanson
Director
- ---------------------- ---------------
Stanley H. Marks
Director
- ---------------------- ---------------
Lyle A. Chapman, Jr.
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.
___________) (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).
(c) The Company does not own or control, directly or indirectly, any
corporation, partnership, association or other entity.
2
<PAGE>
(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 15 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 American Stock Exchange ("AMEX"), 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 15 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 and 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 June 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.
6
<PAGE>
(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
7
<PAGE>
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
8
<PAGE>
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 AMEX and (ii) comply with all
registration, filing and reporting requirements of the Exchange Act, and AMEX
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,
9
<PAGE>
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, AMEX 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.
10
<PAGE>
(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
corporation, partnership, association or other entity.
(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 does not own any shares of capital stock or any other
equity securities of any corporation or any equity interest in any firm,
partnership, association or other entity other than as described in the
Prospectus, except for ownership interests that would not have a Material
Adverse Effect.
(v) 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 AMEX 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.
11
<PAGE>
(vi) 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.
(vii) 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).
(viii) 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.
(ix) 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.
(x) 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.
(xi) 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.
(xii) 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.
(xiii) The Company is not an investment company subject to
registration under the Investment Company Act of 1940, as amended.
12
<PAGE>
(xiv) 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.
(xv) 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.
(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
13
<PAGE>
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 the Company
for the fiscal year 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 Financial Statements of the
Company for the quarter ended March 31, 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 March 31, 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 March 31, 1998 balance
sheets 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 corresponding period in
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 March 31, 1998 and the related unaudited pro
forma combined condensed statement of income and retained earnings for the
three months ended March 31, 1998, and the summary unaudited pro forma
combined financial information as of December 31, 1997 and the year then
ended and March 31, 1998 and the three months then ended, 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 AMEX.
(h) The Company shall not have sustained any uninsured substantial loss as
a result of fire, flood, accident or other calamity.
(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
15
<PAGE>
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 AMEX;
(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; and
(i) 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.
(j) 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 from the one year anniversary of the date hereof, 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 Underwriters, (ii) in
connection with a merger, consolidation or reorganization of the Company, 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 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
(c) 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
17
<PAGE>
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), 8(b) or
8(c) 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 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(e). 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(e), 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
18
<PAGE>
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 American 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:
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
Attention: President
Facsimile: (303) _______________
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.
19
<PAGE>
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 American Securities
Transfer & Trust, 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 American
Stock Exchange ("AMEX") 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 therefore 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
2
<PAGE>
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 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
3
<PAGE>
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.
4
<PAGE>
(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
5
<PAGE>
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:
6
<PAGE>
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
7
<PAGE>
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
8
<PAGE>
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
Texas (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
9
<PAGE>
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 Texas. 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 2.1
AGREEMENT AND PLAN OF SHARE EXCHANGE
AGREEMENT AND PLAN OF SHARE EXCHANGE (the "Agreement") dated this 6th day of
May, 1998, by and among STARLIGHT ENTERTAINMENT, INC., a Colorado corporation
("STARLIGHT"), CINEMA SAVER THEATRE CORPORATION, a Colorado corporation
("CINEMA"), and PITCHERS!, INC., a Colorado corporation ("PITCHERS!").
WHEREAS, the Boards of Directors of STARLIGHT, CINEMA, and PITCHERS! deem it
advisable and in the best interests of these corporations that STARLIGHT acquire
CINEMA and PITCHERS! by exchanging all of the issued and outstanding shares of
CINEMA and PITCHERS! for shares of STARLIGHT (the "Share Exchange"); and
WHEREAS, the Boards of Directors of STARLIGHT, CINEMA, and PITCHERS! have
approved and adopted this Agreement as a "plan of reorganization" within the
meaning of Section 368(a)(1)(B) of the Internal Revenue Code of 1986, as
amended;
NOW, THEREFORE, in consideration of the premises and the mutual agreements,
provisions and conditions contained herein, and for other goods and valuable
consideration, the adequacy and receipt of which are hereby acknowledged, the
parties hereto agree that CINEMA and PITCHERS! shall be acquired by STARLIGHT,
upon and subject to the following terms and conditions:
ARTICLE I
GENERAL TERMS AND PROVISIONS
SECTION 1.01. EFFECTIVENESS. Upon the filing of Articles of Share Exchange with
the Colorado Secretary of State, (the "Effective Date"), STARLIGHT shall issue
new STARLIGHT Common Stock in exchange for all of the issued and outstanding
CINEMA Stock and PITCHERS! Stock on the terms provided herein, and CINEMA and
PITCHERS! shall become wholly-owned subsidiaries of STARLIGHT.
SECTION 1.02. OPERATION OF SUBSIDIARIES. From and after the Effective Date,
CINEMA and PITCHERS! shall continue to operate as each has in the past,
retaining their respective officers and directors.
SECTION 1.03. TAKING OF NECESSARY ACTION. STARLIGHT, CINEMA, and PITCHERS! shall
take all such actions as may be necessary or appropriate in order to effectuate
the transactions contemplated by this Agreement. If, at any time after the
Effective Date, any further action is necessary or desirable to carry out the
purpose of this Agreement or to vest STARLIGHT with title to any or all of the
properties, assets, rights, approvals, immunities, of CINEMA or PITCHERS!, the
officers and directors of STARLIGHT and its subsidiaries, at the expense of
STARLIGHT, shall take such necessary or desirable action.
<PAGE>
ARTICLE II
EXCHANGE OF SHARES
SECTION 2.01. EXCHANGE OF SHARES. On the Effective Date, STARLIGHT shall issue
650,617 shares of its STARLIGHT Common Stock to the shareholders of CINEMA and
583,738 shares to the shareholders of PITCHERS! in exchange for all of the
issued and outstanding CINEMA and PITCHERS! Common Stock, respectively. The
issuance of the STARLIGHT shares to the shareholders of CINEMA shall be on the
basis of 1 share of STARLIGHT Common Stock for every 5.05487 shares of CINEMA
Common Stock, rounding to the nearest whole share. The issuance of the STARLIGHT
shares to the shareholders of PITCHERS! shall be on the basis of 14.73119 shares
of STARLIGHT Common Stock for 1 share of PITCHERS! Common Stock, rounding to the
nearest whole share.
SECTION 2.02. STOCK LEGENDS. Certificates representing shares of STARLIGHT
Common Stock shall bear a legend restricting transfer of the shares of the
Common Stock represented by such certificate in substantially the form set forth
below:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933 (the "Act") or
applicable state law, and are "restricted securities" as that term
is defined in Rule 144 under the Act. The securities may not be
offered for sale, sold, or otherwise transferred except pursuant to
an effective registration statement under the Act and applicable
state law, the availability of which is to be established to the
satisfaction of the Company."
STARLIGHT shall, from time to time, make stop transfer notations in its records
to ensure compliance in connection with any proposed transfer of the shares with
the Act, and all applicable state securities laws.
SECTION 2.03. RESERVATION OF SHARES. There are presently issued and outstanding
warrants to purchase up to 505,000 shares of CINEMA Common Stock. These warrants
shall be exercisable to purchase STARLIGHT Common Stock on the basis of one
share of STARLIGHT Common Stock for every 5.05487 shares of CINEMA Common Stock,
rounding to the nearest whole share. The exercise price of these warrants shall
be adjusted proportionately. STARLIGHT shall reserve 99,903 shares of its Common
Stock for the exercise of these warrants.
SECTION 2.04. DISSENTING SHAREHOLDERS. None of the shareholders of CINEMA or
PITCHERS! shall have exercised their right to dissent from the Share Exchange.
2
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Each of STARLIGHT, CINEMA, and PITCHERS! represents to the others as follows:
SECTION 3.01. CAPITALIZATION. It has no obligation under any agreement with any
person to register any of its securities under the 1933 Act or any applicable
state securities laws and, during the three years preceding the date of this
Agreement, it has not sold or issued any of its securities in a transaction
which was not registered or exempt from registration under the 1933 Act or any
applicable state securities laws. There are no preemptive rights with respect to
any of its securities.
(a) STARLIGHT. STARLIGHT represents and warrants that its authorized
capital stock consists of 25,000,000 shares of Common Stock, no par
value, none of which are issued or outstanding, and 10,000,000
shares of Preferred Stock, no par value, none of which are issued or
outstanding.
(b) CINEMA. CINEMA represents and warrants that 3,288,781 shares of
Common Stock are issued and outstanding as of the date hereof and
that it has no shares of Preferred Stock issued or outstanding.
Attached to this Agreement is a list of all of its shareholders. All
of the issued and outstanding shares of CINEMA are validly issued,
fully paid, and nonassessable.
(c) PITCHERS!. PITCHERS! represents and warrants that 39,626 shares
of Common Stock are issued and outstanding as of the date hereof and
that it has no shares of Preferred Stock issued or outstanding.
Attached to this Agreement is a list of all of its shareholders. All
of the issued and outstanding shares of PITCHERS! are validly
issued, fully paid, and nonassessable.
SECTION 3.02. NO SUBSIDIARIES. It has no subsidiaries.
SECTION 3.03. OPTIONS AND OTHER RIGHTS. There are no outstanding options,
warrants, or rights to subscribe for, purchase, or receive shares of its common
stock or any other securities convertible into common stock, except for the
warrants described in Section 2.03 hereof.
3
<PAGE>
ARTICLE IV
CONDITIONS PRECEDENT TO THE MERGER
The obligations of the parties under this Agreement are subject to the
satisfaction of the following express conditions precedent at or before the
Effective Date:
SECTION 4.01. COMPLIANCE WITH LAWS. All statutory requirements for the valid
consummation by it of the transactions contemplated by this Agreement shall have
been fulfilled.
SECTION 4.02. BLUE SKY FILINGS. All Blue Sky filings and permits or orders
required to carry out the transactions contemplated by this Agreement shall have
been made and received containing no term or condition reasonably unacceptable
to it.
SECTION 4.03. ADEQUATE PROCEEDINGS. All corporate and other proceedings in
connection with the transactions contemplated herein and all documents incident
thereto shall be reasonably satisfactory in form and substance to it and its
counsel.
SECTION 4.04. NO ADVERSE CHANGE. Between the date of execution of this Agreement
and the Effective Date, STARLIGHT, CINEMA, and PITCHERS!
(a) except in the ordinary course of its business, shall not have
incurred any liabilities or obligations (direct or contingent) or
disposed of any of its assets, or entered into any material
transaction or suffered or experienced any materially adverse change
in its condition, financial or otherwise; and
(b) shall not have increased its issued and outstanding shares of
common stock or any other securities.
ARTICLE V
MISCELLANEOUS
SECTION 5.01. ASSIGNMENT. This Agreement may not be assigned nor any of the
performances hereunder delegated by operation of law or otherwise by any party
hereto, and any purported assignment or delegation shall be void.
SECTION 5.02. HEADINGS. The article and section headings of this Agreement are
inserted for convenience of reference only and do not constitute a part of this
Agreement.
SECTION 5.03. BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective heirs, successors, legal
representatives, assigns, and transferors.
4
<PAGE>
SECTION 5.04. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
of the parties hereto with respect to the subject matter hereof. There are no
representations, warranties, conditions, or other obligations except as herein
specifically provided. Any waiver, amendment, or modification hereof must be in
writing. A waiver in one instance shall not be deemed to be a continuing waiver
or waiver in other instance.
SECTION 5.05. COUNTERPARTS. This Agreement may be executed in counterparts and
each counterpart hereof shall be deemed to be an original, but all such
counterparts together shall constitute but one agreement an original, but all
such counterparts together shall constitute but one agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day
and year first above written.
STARLIGHT ENTERTAINMENT, INC.
By: /s/ R. Haydn Silleck
------------------------------------
R. Haydn Silleck, President
CINEMA SAVER THEATRE CORPORATION
By: /s/ R. Haydn Silleck
------------------------------------
R. Haydn Silleck, President
PITCHERS!, INC.
By: /s/ Herbert I. Lee
------------------------------------
Herbert I. Lee, President
5
<PAGE>
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
STARLIGHT ENTERTAINMENT, INC.
The undersigned, who is a natural person eighteen years or older, acting as the
incorporator of a corporation to be incorporated under the laws of the State of
Colorado, adopts these Articles of Incorporation.
ARTICLE I
NAME
The name of the Corporation is Starlight Entertainment, Inc.
ARTICLE II
AUTHORIZED CAPITAL
The Corporation shall have authority to issue 25,000,000 shares of Common Stock,
No Par Value and 10,000,000 shares of Preferred Stock, No Par Value.
COMMON STOCK. After the requirements with respect to preferential dividends on
the preferred stock, if any, shall have been met, and after the Corporation
shall have complied with all the requirements, if any, with respect to the
setting aside of sums as sinking funds or redemption or purchase accounts, then,
and not otherwise, the holders of the common stock shall be entitled to receive
such dividends as may be declared from time to time by the Board of Directors of
the Corporation.
After distribution in full of the preferential amount, if any, to be distributed
to the holders of the preferred stock in the event of voluntary or involuntary
liquidation, distribution, or sale of assets, dissolution, or winding-up of the
Corporation, the holders of the common stock shall be entitled to receive all of
the remaining assets of the Corporation, tangible and intangible, of whatever
kind available for distribution to shareholders, ratably in proportion to the
number of shares of the common stock held by them respectively.
Except as may otherwise be required by law, each holder of the common stock
shall have one vote in respect of each share of the common stock held by such
holder on all matters voted upon by the shareholders.
PREFERRED STOCK. Shares of preferred stock may be divided into such series as
may be established, from time to time, by the Board of Directors. The Board of
Directors, from time to time, may fix and determine the relative rights and
preferences of the shares of any series so established.
<PAGE>
ARTICLE III
OFFICES
The street address of the initial registered office of the Corporation is 455
Sherman Street, Suite 300, Denver, Colorado 80203, and the name of the initial
registered agent at that address is Fay M. Matsukage. The written consent of the
initial registered agent to be appointed as such is stated below.
The address of the Corporation's initial principal office is 10831 South
Crossroads Drive, Parker, Colorado 80134.
ARTICLE IV
INCORPORATOR
The name and address of the incorporator is Fay M. Matsukage, 455 Sherman
Street, Suite 300, Denver, Colorado 80203.
ARTICLE V
PURPOSES
The purposes for which the Corporation is organized and its powers are as
follows:
To engage in all lawful business; and
To have, enjoy, and exercise all of the rights, powers, and
privileges conferred upon corporations incorporated pursuant to
Colorado law, whether now or hereafter in effect, and whether or not
herein specifically mentioned.
ARTICLE VI
QUORUM FOR SHAREHOLDERS' MEETINGS
One-third of the votes entitled to be cast on any matter by each voting group
entitled to vote on a matter shall constitute a quorum of that voting group for
action on that matter.
ARTICLE VII
BOARD OF DIRECTORS
The corporate powers shall be exercised by or under the authority of, and the
business and affairs of the Corporation shall be managed under the direction of,
a board of directors.
2
<PAGE>
The names and addresses of the initial directors are:
R. Haydn Silleck
10831 South Crossroads Drive
Parker, Colorado 80134
Herbert I. Lee
5300 East Sanford Circle
Englewood, Colorado 80110
Clifford E. Godfrey
10831 South Crossroads Drive
Parker, Colorado 80134
The directors shall be elected at each annual meeting of shareholders, provided
that vacancies may be filled by election by the remaining directors, though less
than a quorum or by the shareholders at a special meeting called for that
purpose. Despite the expiration of his or her term, a director continues to
serve until his or her successor is elected and qualifies.
ARTICLE VIII
CUMULATIVE VOTING
Cumulative voting shall not be permitted in the election of directors.
ARTICLE IX
LIMITATION ON DIRECTOR LIABILITY
A director of the Corporation shall not be personally liable to the Corporation
or to its shareholders for monetary damages for breach of fiduciary duty as a
director; except that this provision shall not eliminate or limit the liability
of a director to the Corporation or to its shareholders for monetary damages
otherwise existing for (i) any breach of the director's duty of loyalty to the
Corporation or to its shareholders; (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law; (iii) acts
specified in Section 7-108-403 of the Colorado Business Corporation Act; or (iv)
any transaction from which the director directly or indirectly derived any
improper personal benefit. If the Colorado Business Corporation Act is hereafter
amended to eliminate or limit further the liability of a director, then, in
addition to the elimination and limitation of liability provided by the
preceding sentence, the liability of each director shall be eliminated or
limited to the fullest extent permitted by the Colorado Business Corporation Act
as so amended. Any repeal or modification of this Article IX shall not adversely
affect any right or protection of a director of the Corporation under this
Article IX, as in effect immediately prior to such
3
<PAGE>
repeal or modification, with respect to any liability that would have accrued,
but for this Article IX, prior to such repeal or modification.
ARTICLE X
INDEMNIFICATION
The Corporation shall indemnify, to the fullest extent permitted by applicable
law in effect from time to time, any person, and the estate and personal
representative of any such person, against all liability and expense (including
attorneys' fees) incurred by reason of the fact that he is or was a director or
officer of the Corporation or, while serving as a director or officer of the
Corporation, he is or was serving at the request of the Corporation as a
director, officer, partner, trustee, employee, fiduciary, or agent of, or in any
similar managerial or fiduciary position of, another domestic or foreign
corporation or other individual or entity or of an employee benefit plan. The
Corporation shall also indemnify any person who is serving or has served the
Corporation as director, officer, employee, fiduciary, or agent, and that
person's estate and personal representative, to the extent and in the manner
provided in any bylaw, resolution of the shareholders or directors, contract, or
otherwise, so long as such provision is legally permissible.
In witness whereof, the undersigned incorporator has executed these Articles of
Incorporation this 10th day of April, 1998.
/s/ Fay M. Matsukage
---------------------------------
Fay M. Matsukage, Incorporator
The undersigned consents to the appointment as the initial registered agent of
Starlight Entertainment, Inc.
/s/ Fay M. Matsukage
---------------------------------
Fay M. Matsukage
4
<PAGE>
EXHIBIT 3.2
BYLAWS
OF
STARLIGHT ENTERTAINMENT, INC.
ARTICLE I SHAREHOLDERS.....................................................1
1.1. Annual Shareholders' Meeting.....................................1
1.2. Special Shareholders' Meeting....................................1
1.3. Record Date for Determination of Shareholders....................1
1.4. Voting List......................................................2
1.5. Notice to Shareholders...........................................2
1.6. Quorum...........................................................3
1.7. Voting Entitlement of Shares.....................................4
1.8. Proxies; Acceptance of Votes and Consents........................4
1.9. Waiver of Notice.................................................4
1.10. Action by Shareholders Without a Meeting.........................5
1.11. Meetings by Telecommunications...................................5
ARTICLE II DIRECTORS........................................................5
2.1. Authority of the Board of Directors..............................5
2.2. Number...........................................................5
2.3. Qualification....................................................5
2.4. Election.........................................................6
2.5. Term.............................................................6
2.6. Resignation......................................................6
2.7. Removal..........................................................6
2.8. Vacancies........................................................6
2.9. Meetings.........................................................7
2.10. Notice of Special Meeting........................................7
2.11. Quorum...........................................................7
2.12. Waiver of Notice.................................................7
2.13. Attendance by Telephone..........................................8
2.14. Deemed Assent to Action..........................................8
2.15. Action by Directors Without a Meeting............................8
ARTICLE III COMMITTEES OF THE BOARD OF DIRECTORS.............................9
3.1. Committees of the Board of Directors.............................9
ARTICLE IV OFFICERS........................................................10
4.1. General.........................................................10
4.2. Term............................................................10
4.3. Removal and Resignation.........................................10
4.4. President.......................................................10
4.5. Vice President..................................................11
4.6. Secretary.......................................................11
4.7. Assistant Secretary.............................................11
<PAGE>
4.8. Treasurer.......................................................12
4.9. Assistant Treasurer.............................................12
4.10. Compensation....................................................12
ARTICLE V INDEMNIFICATION.................................................12
5.1. Definitions.....................................................12
5.2. Authority to Indemnify Directors................................13
5.3. Mandatory Indemnification of Directors..........................14
5.4. Advance of Expenses to Directors................................14
5.5. Court-ordered Indemnification of Directors......................15
5.6. Determination and Authorization of Indemnification of Directors.15
5.7. Indemnification of Officers, Employees, Fiduciaries, and Agents.16
5.8. Insurance.......................................................17
5.9. Notice to Shareholders of Indemnification of Director...........17
ARTICLE VI SHARES..........................................................17
6.1. Certificates....................................................17
6.2. Facsimile Signatures............................................18
6.3. Transfer of Shares..............................................18
6.4. Shares Held for Account of Another..............................19
ARTICLE VII MISCELLANEOUS...................................................19
7.1. Corporate Seal..................................................19
7.2. Fiscal Year.....................................................19
7.3. Receipt of Notices by the Corporation...........................19
7.4. Amendment of Bylaws.............................................20
<PAGE>
BYLAWS
OF
STARLIGHT ENTERTAINMENT, INC.
ARTICLE I
SHAREHOLDERS
1.1. ANNUAL SHAREHOLDERS' MEETING. The annual shareholders' meeting shall be
held on the date and at the time and place fixed from time to time by the board
of directors; provided, however, that the first annual meeting shall be held on
a date that is within six months after the close of the first fiscal year of the
Corporation, and each successive annual meeting shall be held on a date that is
within the earlier of six (6) months after the close of the last fiscal year or
fifteen (15) months after the last annual meeting.
1.2. SPECIAL SHAREHOLDERS' MEETING. A special shareholders' meeting for any
purpose or purposes, may be called by the board of directors or the president.
The Corporation shall also hold a special shareholders' meeting in the event it
receives, in the manner specified in Section 7.3., one or more written demands
for the meeting, stating the purpose or purposes for which it is to be held,
signed and dated by the holders of shares representing not less than one-tenth
of all of the votes entitled to be cast on any issue at the meeting. Special
meetings shall be held at the principal office of the Corporation or at such
other place as the board of directors or the president may determine.
1.3. RECORD DATE FOR DETERMINATION OF SHAREHOLDERS.
(a) In order to make a determination of shareholders (1) entitled to
notice of or to vote any shareholders' meeting or at any adjournment of a
shareholders' meeting, (2) entitled to demand a special shareholders'
meeting, (3) entitled to take any other action, (4) entitled to receive
payment of a share dividend or a distribution, or (5) for any other
purpose, the board of directors may fix a future date as the record date
for such determination of shareholders. The record date may be fixed not
more than seventy (70) days before the date of the proposed action.
(b) Unless otherwise specified when the record date is fixed, the time of
day for determination of shareholders shall be as of the Corporation's
close of business on the record date.
(c) A determination of shareholders entitled to be given notice of or to
vote at a shareholders' meeting is effective for any adjournment of the
meeting unless the board of directors fixes a new record date, which the
board shall do
1
<PAGE>
if the meeting is adjourned to a date more than one hundred twenty (120)
days after the date fixed for the original meeting.
(d) If no record date is otherwise fixed, the record date for determining
shareholders entitled to be given notice of and to vote at an annual
meeting or special shareholders' meeting is the day before the first
notice is given to shareholders.
(e) The record date for determining shareholders entitled to take action
without a meeting pursuant to Sections 1.10. and 1.11. is the date a
writing upon which the action is taken is first received by the
Corporation.
1.4. VOTING LIST.
(a) After a record date is fixed for a shareholders' meeting, the
secretary shall prepare a list of names of all its shareholders who are
entitled to be given notice of the meeting. The list shall be arranged by
voting groups and within each voting group by class or series of shares,
shall be alphabetical within each class or series, and shall show the
address of, and the number of shares of each such class and series that
are held by, each shareholder.
(b) The shareholders' list shall be available for inspection by any
shareholders, beginning the earlier of ten (10) days before the meeting
for which the list was prepared or two (2) business days after notice of
the meeting is given and continuing through the meeting, and any
adjournment thereof, at the Corporation's principal office or at a place
identified in the notice of the meeting in the city where the meeting will
be held.
(c) The secretary shall make the shareholders' list available at the
meeting, and any shareholder or agent or attorney of a shareholder is
entitled to inspect the list at any time during the meeting or any
adjournments.
1.5. NOTICE TO SHAREHOLDERS.
(a) The secretary shall give notice to shareholders of the date, time,
and place of each annual and special shareholders' meeting no fewer than
ten (10) nor more than sixty (60) days before the date of the meeting;
except that, if the articles of incorporation are to be amended to
increase the number of authorized shares, at least thirty (30) days'
notice shall be given. Except as otherwise required by the Colorado
Business Corporation Act, the secretary shall be required to give such
notice only to shareholders entitled to vote at the meeting.
(b) Notice of an annual shareholders' meeting need not include a
description of the purpose or purposes for which the meeting is called
unless a purpose of
2
<PAGE>
the meeting is to consider an amendment to the articles of incorporation,
a restatement of the articles of incorporation, a plan of merger or share
exchange, disposition of substantially all of the property of the
Corporation, consent by the Corporation to the disposition of property by
another entity, or dissolution of the Corporation.
(c) Notice of a special shareholders' meeting shall include a description
of the purpose or purposes for which the meeting is called.
(d) Notice of a shareholders' meeting shall be in writing and shall be
given
(1) by deposit in the United States mail, properly addressed to the
shareholder's address shown in the Corporation's current record of
shareholders, first class postage prepaid, and, if so given, shall be
effective when mailed; or
(2) by telegraph, teletype, electronically transmitted facsimile,
electronic mail, mail, or private carrier or by personal delivery to
the shareholder, and, if so given, shall be effective when actually
received by the shareholder.
(e) If an annual or special shareholders' meeting is adjourned to a
different date, time, or place, notice need not be given of the new date,
time, or place if the new date, time, or place is announced at the meeting
before adjournment; provided, however, that, if a new record date for the
adjourned meeting is fixed pursuant to Section 1.3.(c), notice of the
adjourned meeting shall be given to persons who are shareholders as of the
new record date.
(f) If three (3) successive notices are given by the Corporation, whether
with respect to a shareholders' meeting or otherwise, to a shareholder and
are returned as undeliverable, no further notices to such shareholder
shall be necessary until another address for the shareholder is made known
to the Corporation.
1.6. QUORUM. Shares entitled to vote as a separate voting group may take
action on a matter at a meeting only if a quorum of those shares exists with
respect to that matter. One-third of the votes entitled to be cast on the matter
by the voting group shall constitute a quorum of that voting group for action on
the matter. If a quorum does not exist with respect to any voting group, the
president or any shareholder or proxy that is present at the meeting, whether or
not a member of that voting group, may adjourn the meeting to a different date,
time, or place, and (subject to the next sentence) notice need not be given of
the new date, time, or place if the new date, time, or place is announced at the
meeting before adjournment. If a new record date for the adjourned meeting is or
must be fixed pursuant to Section 1.3.(c), notice of the
3
<PAGE>
adjourned meeting shall be given pursuant to Section 1.5. to persons who are
shareholders as of the new record date. At any adjourned meeting at which a
quorum exists, any matter may be acted upon that could have been acted upon at
the meeting originally called; provided, however, that, if new notice is given
of the adjourned meeting, then such notice shall state the purpose or purposes
of the adjourned meeting sufficiently to permit action on such matters. Once a
share is represented for any purpose at a meeting, including the purpose of
determining that a quorum exists, it is deemed present for quorum purposes for
the remainder of the meeting and for any adjournment of that meeting unless a
new record date is or shall be set for that adjourned meeting.
1.7. VOTING ENTITLEMENT OF SHARES. Except as stated in the articles of
incorporation, each outstanding share, regardless of class, is entitled to one
vote, and each fractional share is entitled to a corresponding fractional vote,
on each matter voted on at a shareholders' meeting.
1.8. PROXIES; ACCEPTANCE OF VOTES AND CONSENTS.
(a) A shareholder may vote either in person or by proxy.
(b) An appointment of a proxy is not effective against the Corporation
until the appointment is received by the Corporation. An appointment is
valid for eleven (11) months unless a different period is expressly
provided in the appointment form.
(c) The Corporation may accept or reject any appointment of a proxy,
revocation of appointment of a proxy, vote, consent, waiver, or other
writing purportedly signed by or for a shareholder, if such acceptance or
rejection is in accordance with the provisions of Sections 7-107-203 and
7-107-205 of the Colorado Business Corporation Act.
1.9. WAIVER OF NOTICE.
(a) A shareholder may waive any notice required by the Colorado Business
Corporation Act, the articles of incorporation, or these Bylaws, whether
before or after the date or time stated in the notice as the date or time
when any action will occur or has occurred. The waiver shall be in
writing, be signed by the shareholder entitled to the notice, and be
delivered to the Corporation for inclusion in the minutes or filing with
the corporation records, but such delivery and filing shall not be
conditions of the effectiveness of the waiver.
(b) A shareholder's attendance at a meeting waives objection to lack of
notice or defective notice of the meeting, unless the shareholder at the
beginning of the meeting objects to holding the meeting or transacting
business
4
<PAGE>
at the meeting because of lack of notice or defective notice, and waives
objection to consideration of a particular matter at the meeting that is
not within the purpose or purposes described in the meeting notice, unless
the shareholder objects to considering the matter when it is presented.
1.10. ACTION BY SHAREHOLDERS WITHOUT A MEETING. Any action required or permitted
to be taken at a shareholders' meeting may be taken without a meeting if all of
the shareholders entitled to vote thereon consent to such action in writing.
Action taken pursuant to this section shall be effective when the Corporation
has received writings that describe and consent to the action, signed by all of
the shareholders entitled to vote thereon. Action taken pursuant to this section
shall be effective as of the date the last writing necessary to effect the
action is received by the Corporation, unless all of the writings necessary to
effect the action specify another date, which may be before or after the date
the writings are received by the Corporation. Such action shall have the same
effect as action taken at a meeting of shareholders and may be described as such
in any document. Any shareholder who has signed a writing describing and
consenting to action taken pursuant to this section may revoke such consent by a
writing signed by the shareholder describing the action and stating that the
shareholder's prior consent thereto is revoked, if such writing is received by
the Corporation before the effectiveness of the action.
1.11. MEETINGS BY TELECOMMUNICATIONS. Any or all of the shareholders may
participate in an annual or special shareholders' meeting by, or the meeting may
be conducted through the use of, any means of communication by which all persons
participating in the meeting may hear each other during the meeting. A
shareholder participating in a meeting by this means is deemed to be present in
person at the meeting.
ARTICLE II
DIRECTORS
2.1. AUTHORITY OF THE BOARD OF DIRECTORS. The corporate powers shall be
exercised by or under the authority of, and the business and affairs of the
Corporation shall be managed under the direction of, a board of directors.
2.2. NUMBER. The number of directors shall be fixed by resolution of the board
of directors from time to time and may be increased or decreased by resolution
adopted by the board of directors from time to time, but no decrease in the
number of directors shall have the effect of shortening the term of any
incumbent director.
2.3. QUALIFICATION. Directors shall be natural persons at least eighteen (18)
years old but need not be residents of the State of Colorado or shareholders of
the Corporation.
5
<PAGE>
2.4. ELECTION. The board of directors shall be elected at the annual meeting
of the shareholders or at a special meeting called for that purpose.
2.5. TERM. Each director shall be elected to hold office until the next annual
meeting of shareholders and until the director's successor is elected and
qualified.
2.6. RESIGNATION. A director may resign at any time by giving written notice
of his or her resignation to any other director or (if the director is not also
the secretary) to the secretary. The resignation shall be effective when it is
received by the other director or secretary, as the case may be, unless the
notice of resignation specifies a later effective date. Acceptance of such
resignation shall not be necessary to make it effective unless the notice so
provides.
2.7. REMOVAL. Any director may be removed by the shareholders of the voting
group that elected the director, with or without cause, at a meeting called for
that purpose. The notice of the meeting shall state that the purpose, or one of
the purposes, of the meeting is removal of the directors. A director may be
removed only if the number of votes cast in favor of removal exceeds the number
of votes cast against removal.
2.8. VACANCIES.
(a) If a vacancy occurs on the board of directors, including a vacancy
resulting from an increase in the number of directors:
(1) The shareholders may fill the vacancy at the next annual meeting
or at a special meeting called for that purpose; or
(2) The board of directors may fill the vacancy; or
(3) If the directors remaining in office constitute fewer than a
quorum of the board, they may fill the vacancy by the affirmative
vote of a majority of all the directors remaining in office.
(b) Notwithstanding Section 2.8.(a), if the vacant office was held by a
director elected by a voting group of shareholders, then, if one or more
of the remaining directors were elected by the same voting group, only
such directors are entitled to vote to fill the vacancy if it is filled by
directors, and they may do so by the affirmative vote of a majority of
such directors remaining in office; and only the holders of shares of that
voting group are entitled to vote to fill the vacancy if it is filled by
the shareholders.
(c) A vacancy that will occur at a specific later date, by reason of a
resignation that will be come effective at a later date under Section 2.6.
or
6
<PAGE>
otherwise, may be filled before the vacancy occurs, but the new director
may not take office until the vacancy occurs.
2.9. MEETINGS. The board of directors may hold regular or special meetings in
or out of Colorado. A regular meeting shall be held, without other notice than
these Bylaws, immediately after and at the same place as the annual meeting of
shareholders. The board of directors may, by resolution, establish other dates,
times, and places for additional regular meetings, which may thereafter be held
without further notice. Special meetings may be called by the president or by
any two directors and shall be held at the principal office of the Corporation
unless another place is consented to by every director. At any time when the
board consists of a single director, that director may act at any time, date, or
place without notice.
2.10. NOTICE OF SPECIAL MEETING. Notice of a special meeting shall be given to
every director at least twenty-four (24) hours before the time of the meeting,
stating the date, time, and place of the meeting. The notice need not describe
the purpose of the meeting. Notice may be given orally to the director,
personally, or by telephone or other wire or wireless communication. Notice may
also be given in writing by telegraph, teletype, electronically transmitted
facsimile, electronic mail, mail, or private carrier. Notice shall be effective
at the earliest of the time it is received; five days after it is deposited in
the United States mail, properly addressed to the last address of the director
shown on the records of the Corporation, first class postage prepaid; or the
date shown on the return receipt if mailed by registered or certified mail,
return receipt requested, postage prepaid, in the United States mail and if the
return receipt is signed by the director to whom the notice is addressed.
2.11. QUORUM. Except as provided in Section 2.8., a majority of the number of
directors fixed in accordance with these Bylaws shall constitute a quorum for
the transaction of business at all meetings of the board of directors. The act
of the majority of the directors present at any meeting at which a quorum is
present shall be the act of the board of directors, except as otherwise
specifically required by law.
2.12. WAIVER OF NOTICE.
(a) A director may waive any notice of a meeting before or after the time
and date of the meeting stated in the notice. Except as provided by
Section 2.12.(b), the waiver shall be in writing and shall be signed by
the director. Such waiver shall be delivered to the secretary for filing
with the corporate records, but such delivery and filing shall not be
conditions of the effectiveness of the waiver.
(b) A director's attendance at or participation in a meeting waives any
required notice to him or her of the meeting unless, at the beginning of
the meeting or promptly upon his or her later arrival, the director
objects to holding
7
<PAGE>
the meeting or transacting business at the meeting because of lack of
notice or defective notice and does not thereafter vote for or assent to
action taken at the meeting.
2.13. ATTENDANCE BY TELEPHONE. One or more directors may participate in a
regular or special meeting by, or conduct the meeting through the use of, any
means of communication by which all directors participating may hear each other
during the meeting. A director participating in a meeting by this means is
deemed to be present in person at the meeting.
2.14. DEEMED ASSENT TO ACTION. A director who is present at a meeting of the
board of directors when corporate action is taken shall be deemed to have
assented to all action taken at the meeting unless:
(a) The director objects at the beginning of the meeting, or promptly
upon his or her arrival, to holding the meeting or transacting business at
the meeting and does not thereafter vote for or assent to any action taken
at the meeting;
(b) The director contemporaneously requests that his or her dissent or
abstention as to any specific action taken be entered in the minutes of
the meeting; or
(c) The director causes written notice of his or her dissent or
abstention as to any specific action to be received by the presiding
officer of the meeting before adjournment of the meeting or by the
secretary (or, if the director is the secretary, by another director)
promptly after adjournment of the meeting.
The right of dissent or abstention pursuant to this Section 2.14. as to a
specific action is not available to a director who votes in favor of the action
taken.
2.15. ACTION BY DIRECTORS WITHOUT A MEETING. Any action required or permitted by
law to be taken at a board of directors' meeting may be taken without a meeting
if all members of the board consent to such action in writing. Action shall be
deemed to have been so taken by the board at the time the last director signs a
writing describing the action taken, unless, before such time, any director has
revoked his or her consent by a writing signed by the director and received by
the secretary or any other person authorized by the Bylaws or the board of
directors to receive such a revocation. Such action shall be effective at the
time and date it is so taken unless the directors establish a different
effective time or date. Such action has the same effect as action taken at a
meeting of directors and may be described as such in any document.
8
<PAGE>
ARTICLE III
COMMITTEES OF THE BOARD OF DIRECTORS
3.1. COMMITTEES OF THE BOARD OF DIRECTORS.
(a) Subject to the provisions of Section 7-109-106 of the Colorado
Business Corporation Act, the board of directors may create one or more
committees and appoint one or more members of the board of directors to
serve on them. The creation of a committee and appointment of members to
it shall require the approval of a majority of all the directors in office
when the action is taken, whether or not those directors constitute a
quorum of the board.
(b) The provisions of these Bylaws governing meetings, action without
meeting, notice, waiver of notice, and quorum and voting requirements of
the board of directors apply to committees and their members as well.
(c) To the extent specified by resolution adopted from time to time by a
majority of all the directors in office when the resolution is adopted,
whether or not those directors constitute a quorum of the board, each
committee shall exercise the authority of the board of directors with
respect to the corporate powers and the management of the business and
affairs of the Corporation; except that a committee shall not:
(1) Authorize distributions;
(2) Approve or propose to shareholders action that the Colorado
Business Corporation Act requires to be approved by shareholders;
(3) Fill vacancies on the board of directors or on any of its
committees;
(4) Amend the articles of incorporation pursuant to Section 7-110-
102 of the Colorado Business Corporation Act;
(5) Adopt, amend, or repeal bylaws;
(6) Approve a plan of merger not requiring shareholder approval;
(7) Authorize or approve reacquisition of shares, except according
to a formula or method prescribed by the board of directors; or
(8) Authorize or approve the issuance or sale of shares, or a
contract for the sale of shares, or determine the designation and
relative rights, preferences, and limitations of a class or series of
shares; except that the
9
<PAGE>
board of directors may authorize a committee or an officer to do so
within limits specifically prescribed by the board of directors.
(d) The creation of, delegation of authority to, or action by, a
committee does not alone constitute compliance by a director with
applicable standards of conduct.
ARTICLE IV
OFFICERS
4.1. GENERAL. The Corporation shall have as officers a president, a secretary,
and a treasurer, who shall be appointed by the board of directors. The board of
directors may appoint as additional officers a chairman and other officers of
the board. The board of directors, the president, and such other subordinate
officers as the board of directors may authorize from time to time, acting
singly, may appoint as additional officers one or more vice presidents,
assistant secretaries, assistant treasurers, and such other subordinate officers
as the board of directors, the president, or such other appointing officers deem
necessary or appropriate. The officers of the Corporation shall hold their
offices for such terms and shall exercise such authority and perform such duties
as shall be determined from time to time by these Bylaws, the board of
directors, or (with respect to officers who are appointed by the president or
other appointing officers) the persons appointing them; provided, however, that
the board of directors may change the term of offices and the authority of any
officer appointed by the present or other appointing officers. Any two or more
offices may be held by the same person. The officers of the Corporation shall be
natural persons at least eighteen (18) years old.
4.2. TERM. Each officer shall hold office from the time of appointment until
the time of removal or resignation pursuant to Section 4.3. or until the
officer's death.
4.3. REMOVAL AND RESIGNATION. Any officer appointed by the board of directors
may be removed at any time by the board of directors. Any officer appointed by
the president or other appointing officer may be removed at any time by the
board of directors or by the person appointing the officer. Any officer may
resign at any time by giving written notice of resignation to any director (or
to any director other than the resigning officer if the officer is also a
director), to the president, to the secretary, or to the officer who appointed
the officer. Acceptance of such resignation shall not be necessary to make it
effective, unless the notice so provides.
4.4. PRESIDENT. The president shall preside at all meetings of shareholders,
and the president shall also preside at all meetings of the board of directors
unless the board of directors has appointed a chairman, vice chairman, or other
officer of the board and has authorized such person to preside at meetings of
the board of directors instead of the president. Subject to the direction and
control of the board of directors, the
10
<PAGE>
president shall be the chief executive officer and of the Corporation and as
such shall have general and active management of the business of the Corporation
and shall see that all orders and resolutions of the board of directors are
carried into effect. The president may negotiate, enter into, and execute
contracts, deeds and other instruments on behalf of the Corporation as are
necessary and appropriate to the conduct of the business and affairs of the
Corporation or as are approved by the board of directors. The president shall
have such additional authority and duties as are appropriate and customary for
the office of president and chief executive officer, except as the same may be
expanded or limited by the board of directors from time to time.
4.5. VICE PRESIDENT. The vice president, if any, or, if there are more than
one, the vice presidents in the order determined by the board of directors or
the president (or, if no such determination is made, in the order of their
appointment), shall be the officer or officers next in seniority after the
president. Each vice president shall have such authority and duties as are
prescribed by the board of directors or president. Upon the death, absence, or
disability of the president, the vice president, if any, or, if there are more
than one, the vice presidents in the order determined by the board of directors
or the president, shall have the authority and duties of the president.
4.6. SECRETARY. The secretary shall be responsible for the preparation and
maintenance of minutes of the meetings of the board of directors and of the
shareholders and of the other records and information required to be kept by the
Corporation under Section 7-116-101 of the Colorado Business Corporation Act and
for authenticating records of the Corporation. The secretary shall also give, or
cause to be given, notice of all meetings of the shareholders and special
meetings of the board of directors, keep the minutes of such meetings, have
charge of the corporate seal and have authority to affix the corporate seal to
any instrument requiring it (and, when so affixed, it may be attested by the
secretary's signature), be responsible for the maintenance of all other
corporate records and files and for the preparation and filing of reports to
governmental agencies (other than tax returns), and have such other authority
and duties as are appropriate and customary for the office of secretary, except
as the same may be expanded or limited by the board of directors from time to
time.
4.7. ASSISTANT SECRETARY. The assistant secretary, if any, or, if there are
more than one, the assistant secretaries in the order determined by the board of
directors or the secretary (or, if no such determination is made, in the order
of their appointment) shall, under the supervision of the secretary, perform
such duties and have such authority as may be prescribed from time to time by
the board of directors or the secretary. Upon the death, absence, or disability
of the secretary, the assistant secretary, if any, or if there are more than
one, the assistant secretaries in the order designated by the board of directors
or the secretary (or, if no such determination is made, in the order of their
appointment), shall have the authority and duties of the secretary.
11
<PAGE>
4.8. TREASURER. The treasurer shall have control of the funds and the care and
custody of all stocks, bonds, and other securities owned by the Corporation, and
shall be responsible for the preparation and filing of tax returns. The
treasurer shall receive all moneys paid to the Corporation and, subject to any
limits imposed by the board of directors, shall have authority to give receipts
and vouchers, to sign and endorse checks and warrants in the Corporation's name
and on the Corporation's behalf, and give full discharge for the same. The
treasurer shall also have charge of disbursement of funds of the Corporation,
shall keep full and accurate records of the receipts and disbursements, and
shall deposit all moneys and other valuable effects in the name and to the
credit of the Corporation in such depositories as shall be designated by the
board of directors. The treasurer shall have such additional authority and
duties as are appropriate and customary for the office of treasurer, except as
the same may be expanded or limited by the board of directors from time to time.
4.9. ASSISTANT TREASURER. The assistant treasurer, if any, or, if there are
more than one, the assistant treasurers in the order determined by the board of
directors or the treasurer (or, if no such determination is made, in the order
of their appointment) shall, under the supervision of the treasurer, perform
such duties and have such authority as may be prescribed from time to time by
the board of directors or the treasurer. Upon the death, absence, or disability
of the treasurer, the assistant treasurer, if any, or, if there are more than
one, the assistant treasurers in the order designated by the board of directors
or the treasurer (or, if no such determination is made, in the order of their
appointment), shall have the authority and duties of the treasurer.
4.10. COMPENSATION. Officers shall receive such compensation for their services
as may be authorized or ratified by the board of directors. Election or
appointment of an officer shall not of itself create a contractual right to
compensation for services performed as such officer.
ARTICLE V
INDEMNIFICATION
5.1. DEFINITIONS. As used in this article:
(a) "Corporation" includes any domestic or foreign entity that is a
predecessor of the Corporation by reason of a merger or other transaction
in which the predecessor's existence ceased upon consummation of the
transaction.
(b) "Director" means an individual who is or was a director of the
Corporation or an individual who, while a director of the Corporation, is
or was serving at the Corporation's request as a director, officer,
partner, trustee, employee, fiduciary, or agent of another domestic or
foreign corporation or other person or of an employee benefit plan. A
director is considered to be serving an employee benefit plan at the
Corporation's request if his or her duties to the
12
<PAGE>
Corporation also impose duties on, or otherwise involve services by, the
director to the plan or to participants in or beneficiaries of the plan.
"Director" includes, unless the context requires otherwise, the estate or
personal representative of a director.
(c) "Expenses" includes counsel fees.
(d) "Liability" means the obligation incurred with respect to a
proceeding to pay a judgment, settlement, penalty, fine, including an
excise tax assessed with respect to an employee benefit plan, or
reasonable expenses.
(e) "Official capacity" means, when used with respect to a director, the
office of director in the Corporation and, when used with respect to a
person other than a director as contemplated in Section 5.1.(a), the
office in the Corporation held by the officer or the employment,
fiduciary, or agency relationship undertaken by the employee, fiduciary,
or agent on behalf of the Corporation. "Official capacity" does not
include service for any other domestic or foreign corporation or other
person or employee benefit plan.
(f) "Party" includes a person who was, is, or is threatened to be made a
named defendant or respondent in a proceeding.
(g) "Proceeding" means any threatened, pending, or completed action,
suit, or proceeding, whether civil, criminal, administrative, or
investigative and whether formal or informal.
5.2. AUTHORITY TO INDEMNIFY DIRECTORS.
(a) Except as provided in Section 5.2.(d), the Corporation may indemnify
a person made a party to a proceeding because the person is or was a
director against liability incurred in the proceeding if:
(1) The person conducted himself or herself in good faith; and
(2) The person reasonably believed:
(A) In the case of conduct in an official capacity with the
Corporation, that his or her conduct was in the Corporation's
best interests; and
(B) In all other cases, that his or her conduct was at least
not opposed to the Corporation's best interests; and
13
<PAGE>
(3) In the case of any criminal proceeding, the person had no
reasonable cause to believe his or her conduct was unlawful.
(b) A director's conduct with respect to an employee benefit plan for a
purpose the director reasonably believed to be in the interests of the
participants in or beneficiaries of the plan is conduct that satisfies the
requirement of Section 5.2.(a)(2)(B). A director's conduct with respect to
an employee benefit plan for a purpose that the director did not
reasonably believe to be in the interests of the participants in or
beneficiaries of the plan shall be deemed not to satisfy the requirements
of Section 5.2.(a)(1).
(c) The termination of a proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent is not, of
itself, determinative that the director did not meet the standard of
conduct described in this Section 5.2.
(d) The Corporation may not indemnify a director under this Section 5.2.
(1) In connection with a proceeding by or in the right of the
Corporation in which the director was adjudged liable to the
Corporation; or
(2) In connection with any other proceeding charging that the
director derived an improper personal benefit, whether or not
involving action in an official capacity, in which proceeding the
director was adjudged liable on the basis that he or she derived an
improper personal benefit.
(e) Indemnification permitted under this Section 5.2. in connection with
a proceeding by or in the right of the Corporation is limited to
reasonable expenses incurred in connection with the proceeding.
5.3. MANDATORY INDEMNIFICATION OF DIRECTORS. The Corporation shall indemnify a
person who was wholly successful, on the merits or otherwise, in the defense of
any proceeding to which the person was a party because the person is or was a
director, against reasonable expenses incurred by him or her in connection with
the proceeding.
5.4. ADVANCE OF EXPENSES TO DIRECTORS.
(a) The Corporation may pay for or reimburse the reasonable expenses
incurred by a director who is a party to a proceeding in advance of final
disposition of the proceeding if:
(1) The director furnishes to the Corporation a written affirmation
of the director's good faith belief that he or she has met the
standard of conduct described in Section 5.2.
14
<PAGE>
(2) The director furnishes to the Corporation a written undertaking,
executed personally or on the director's behalf, to repay the advance
if it is ultimately determined that he or she did not meet the
standard of conduct; and
(3) A determination is made that the facts then known to those
making the determination would not preclude indemnification under
this article.
(b) The undertaking required by Section 5.4.(a)(2) shall be an unlimited
general obligation of the director but need not be secured and may be
accepted without reference to financial ability to make repayment.
(c) Determinations and authorizations of payments under this Section 5.4.
shall be made in the manner specified in Section 5.6.
5.5. COURT-ORDERED INDEMNIFICATION OF DIRECTORS. A director who is or was a
party to a proceeding may apply for indemnification to the court conducting the
proceeding or to another court of competent jurisdiction. On receipt of an
application, the court, after giving any notice the court considers necessary,
may order indemnification in the following manner:
(a) If it determines that the director is entitled to mandatory
indemnification under Section 5.3., the court shall order indemnification,
in which case the court shall also order the Corporation to pay the
director's reasonable expenses incurred to obtain court-ordered
indemnification.
(b) If it determines that the director is fairly and reasonably entitled
to indemnification in view of all the relevant circumstances, whether or
not the director met the standard of conduct set forth in Section 5.2.(a)
or was adjudged liable in the circumstances described in Section 5.2.(d),
the court may order such indemnification as the court deems proper; except
that the indemnification with respect to any proceeding in which liability
shall have been adjudged in the circumstances described in Section 5.2.(d)
is limited to reasonable expenses incurred in connection with the
proceeding and reasonable expenses incurred to obtain court-ordered
indemnification.
5.6. DETERMINATION AND AUTHORIZATION OF INDEMNIFICATION OF DIRECTORS.
(a) The Corporation may not indemnify a director under Section 5.2.
unless authorized in the specific case after a determination has been made
that indemnification of the director is permissible in the circumstances
because the director has met the standard of conduct set forth in Section
5.2. The Corporation shall not advance expenses to a director under
Section 5.4. unless
15
<PAGE>
authorized in the specific case after the written affirmation and
undertaking required by Sections 5.4.(a)(1) and 5.4.(a)(2) are received
and the determination required by Section 5.4.(a)(3) has been made.
(b) The determination required by Section 5.6.(a) shall be made:
(1) By the board of directors by a majority vote of those present at
a meeting at which a quorum is present, and only those directors not
parties to the proceeding shall be counted in satisfying the quorum;
or
(2) If a quorum cannot be obtained, by a majority vote of a
committee of the board of directors designated by the board of
directors, which committee shall consist of two or more directors not
parties to the proceeding; except that directors who are parties to
the proceeding may participate in the designation of directors for
the committee.
(c) If a quorum cannot be obtained as contemplated in Section 5.6.(b)(1),
and a committee cannot be established under Section 5.6.(b)(2) if a quorum
is obtained or a committee is designated, if a majority of the directors
constituting such quorum or such committee so directs, the determination
required to be made by Section 5.6.(a) shall be made:
(1) By independent legal counsel selected by a vote of the board of
directors or the committee in the manner specified in Section
5.6.(b)(1) of 5.6.(b)(2), or, if a quorum of the full board cannot be
obtained and a committee cannot be established, by independent legal
counsel selected by a majority vote of the full board of directors;
or
(2) By the shareholders.
(d) Authorization of indemnification and advance of expenses shall be
made in the same manner as the determination that indemnification or
advance of expenses is permissible; except that, if the determination that
indemnification or advance of expenses is permissible is made by
independent legal counsel, authorization of indemnification and advance of
expenses shall be made by the body that selected such counsel.
5.7. INDEMNIFICATION OF OFFICERS, EMPLOYEES, FIDUCIARIES, AND AGENTS.
(a) An officer is entitled to mandatory indemnification under Section
5.3. and is entitled to apply for court-ordered indemnification under
Section 5.5., in each case to the same extent as a director;
16
<PAGE>
(b) The Corporation may indemnify and advance expenses to an officer,
employee, fiduciary, or agent of the Corporation to the same extent as to
a director; and
(c) The Corporation may also indemnify and advance expenses to an
officer, employee, fiduciary, or agent who is not a director to a greater
extent than is provided in these Bylaws, if not inconsistent with public
policy, and if provided for by general or specific action of its board of
directors or shareholders or by contract.
5.8. INSURANCE. The Corporation may purchase and maintain insurance on behalf
of a person who is or was a director, officer, employee, fiduciary, or agent of
the Corporation, or who, while a director, officer, employee, fiduciary, or
agent of the Corporation, is or was serving at the request of the Corporation as
a director, officer, partner, trustee, employee, fiduciary, or agent of another
domestic or foreign corporation or other person or of an employee benefit plan,
against liability asserted against or incurred by the person in that capacity or
arising from his or her status as a director, officer, employee, fiduciary, or
agent, whether or not the Corporation would have power to indemnify the person
against the same liability under Sections 5.2., 5.3., or 5.7. Any such insurance
may be procured from any insurance company designated by the board of directors,
whether such insurance company is formed under the laws of this state or any
other jurisdiction of the United States or elsewhere, including any insurance
company in which the Corporation has an equity or any other interest through
stock ownership or otherwise.
5.9. NOTICE TO SHAREHOLDERS OF INDEMNIFICATION OF DIRECTOR. If the Corporation
indemnifies or advances expenses to a director under this article in connection
with a proceeding by or in the right of the Corporation, the Corporation shall
give written notice of the indemnification or advance to the shareholders with
or before the notice of the next shareholders' meeting. If the next shareholder
action is taken without a meeting at the instigation of the board of directors,
such notice shall be given to the shareholders at or before the time the first
shareholder signs a writing consenting to such action.
ARTICLE VI
SHARES
6.1. CERTIFICATES. Certificates representing shares of the capital stock of
the Corporation shall be in such form as is approved by the board of directors
and shall be signed by the chairman or vice chairman of the board of directors
(if any), or the president or any vice president, and by the secretary or an
assistant secretary or the treasurer or an assistant treasurer. All certificates
shall be consecutively numbered, and the names of the owners, the number of
shares, and the date of issue shall be
17
<PAGE>
entered on the books of the Corporation. Each certificate representing shares
shall state upon its face
(a) That the Corporation is organized under the laws of the State of
Colorado;
(b) The name of the person to whom issued;
(c) The number and class of the shares and the designation of the series,
if any, that the certificate represents;
(d) The par value, if any, of each share represented by the certificate;
(e) A conspicuous statement, on the front or the back, that the
Corporation will furnish to the shareholder, on request in writing and
without charge, information concerning the designations, preferences,
limitations, and relative rights applicable to each class, the variations
in preferences, limitations, and rights determined for each series, and
the authority of the board of directors to determine variations for future
classes or series; and
(f) Any restrictions imposed by the Corporation upon the transfer of the
shares represented by the certificate.
6.2. FACSIMILE SIGNATURES. Where a certificate is signed
(a) By a transfer agent other than the Corporation or its employee, or
(b) By a registrar other than the Corporation or its employee, any or all
of the officers' signatures on the certificate required by Section 6.1.
may be facsimile. If any officer, transfer agent, or registrar who has
signed, or whose facsimile signature or signatures have been placed upon,
any certificate, shall cease to be such officer, transfer agent, or
registrar, whether because of death, resignation, or otherwise, before the
certificate is issued by the Corporation, it may nevertheless be issued by
the Corporation with the same effect as if he or she were such officer,
transfer agent, or registrar at the date of issue.
6.3. TRANSFER OF SHARES. Transfers of shares shall be made on the books of the
Corporation only upon presentation of the certificate or certificates
representing such shares properly endorsed by the person or persons appearing
upon the face of such certificate to be the owner, or accompanied by a proper
transfer or assignment separate from the certificate, except as may otherwise be
expressly provided by the statutes of the State of Colorado or by order of a
court of competent jurisdiction. The officers or transfer agents of the
Corporation may, in their discretion, require a signature guaranty before making
any transfer. The Corporation shall be entitled to treat the person in whose
name any shares are registered on its books as the owner
18
<PAGE>
of those shares for all purposes and shall not be bound to recognize any
equitable or other claim or interest in the shares on the part of any other
person, whether or not the Corporation shall have notice of such claim or
interest.
6.4. SHARES HELD FOR ACCOUNT OF ANOTHER. The board of directors may adopt by
resolution a procedure whereby a shareholder of the Corporation may certify in
writing to the Corporation that all or a portion or the shares registered in the
name of such shareholder are held for the account of a specified person or
persons. The resolution shall set forth
(a) The classification of shareholders who may certify;
(b) The purpose or purposes for which the certification may be made;
(c) The form of certification and information to be contained herein;
(d) If the certification is with respect to a record date or closing of
the stock transfer books, the time after the record date or the closing of
the stock transfer books within which the certification must be received
by the Corporation; and
(e) Such other provisions with respect to the procedure as are deemed
necessary or desirable. Upon receipt by the Corporation of a certification
complying with the procedure, the persons specified in the certification
shall be deemed, for the purpose or purposes set forth in the
certification, to be the holders of record of the number of shares
specified in place of the shareholders making the certification.
ARTICLE VII
MISCELLANEOUS
7.1. CORPORATE SEAL. The board of directors may adopt a seal, circular in form
and bearing the name of the Corporation and the words "SEAL" and "COLORADO,"
which, when adopted, shall constitute the seal of the Corporation. The seal may
be used by causing it or a facsimile of it to be impressed, affixed, manually
reproduced, or rubber stamped with indelible ink.
7.2. FISCAL YEAR. The board of directors may, by resolution, adopt a fiscal
year for the Corporation.
7.3. RECEIPT OF NOTICES BY THE CORPORATION. Notices, shareholder writings
consenting to action, and other documents or writings shall be deemed to have
been received by the Corporation when they are received
(a) At the registered office of the Corporation in the State of Colorado.
19
<PAGE>
(b) At the principal office of the Corporation (as that office is
designated in the most recent document filed by the Corporation with the
Secretary of State for the State of Colorado designating a principal
office) addressed to the attention of the secretary of the Corporation;
(c) By the secretary of the Corporation wherever the secretary may be
found; or
(d) By any other person authorized from time to time by the board of
directors, the president, or the secretary to receive such writings,
wherever such person is found.
7.4. AMENDMENT OF BYLAWS. These Bylaws may at any time and from time to time
be amended, supplemented, or repealed by the board of directors.
The foregoing Bylaws were duly adopted by the Board of Directors as the initial
bylaws of Starlight Entertainment, Inc., effective as of April 10, 1998.
/s/ HERBERT I. LEE
-------------------------
Herbert I. Lee, Secretary
20
<PAGE>
EXHIBIT 4.1
WARRANT AGREEMENT
Between
STARLIGHT ENTERTAINMENT, INC.
And
AMERICAN SECURITIES TRANSFER & TRUST, 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 American Securities Transfer & Trust, 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
$________ 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 Bale, 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 Dallas, Texas
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 _______________, 1998, 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 the event of an
adjustment in the Warrant Price pursuant to Section 8, the Redemption Price
shall also be automatically adjusted. 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 Dallas, Texas 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:
American Securities Transfer & Trust, Inc.
--------------------------------------------
Denver, Colorado ________________
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 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, or 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
AMERICAN SECURITIES TRANSFER & TRUST, 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 $____ 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
AMERICAN SECURITIES TRANSFER & TRUST, INC.,
as Warrant Agent
By:
-----------------------------------------
<PAGE>
(FORM OF)
ELECTION TO PURCHASE
--------------------
Starlight Entertainment, Inc.
c/o American Securities Transfer & Trust, 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 5.1
June 24, 1998
Starlight Entertainment, Inc.
10831 South Crossroads Drive
Parker, Colorado 80134
Gentlemen:
As counsel for your company, we have reviewed your Articles of Incorporation,
Bylaws, and such other corporate records, documents, and proceedings and such
questions of law as we have deemed relevant for the purpose of this opinion.
We have also examined the Registration Statement of your company on Form SB-2
which was transmitted for filing with the Securities and Exchange Commission
(the "Commission") on June 24, 1998, covering the registration under the
Securities Act of 1933, as amended, of the following:
(a) 1,150,000 shares of Common Stock to be sold to the public pursuant to the
terms of the Underwriting Agreement;
(b) 1,150,000 Common Stock Purchase Warrants (the "Warrants") to be sold to the
public pursuant to the terms of the Underwriting Agreement;
(c) 1,150,000 shares of Common Stock issuable upon exercise of the Warrants;
(d) 100,000 Representative's Warrants to purchase shares of the Common Stock
and Warrants;
(e) 100,000 shares of Common Stock underlying the Representative's Warrants;
(f) 100,000 Warrants underlying the Representative's Warrants; and
(g) 100,000 shares of Common Stock issuable upon exercise of the Warrants,
including the exhibits and form of prospectus (the "Prospectus") filed
therewith.
<PAGE>
Starlight Entertainment, Inc.
June 24, 1998
Page 2
On the basis of such examination, we are of the opinion that:
1. The Company is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Colorado with all requisite
corporate power and authority to own, lease, license, and use its
properties and assets and to carry on the businesses in which it is now
engaged.
2. The Company has an authorized capitalization as set forth in the
Prospectus.
3. The shares of Common Stock of the Company to be issued pursuant to the
Underwriting Agreement or the exercise of the Representative's Warrants are
validly authorized and, when (a) the pertinent provisions of the Securities
Act of 1933 and such "blue sky" and securities laws as may be applicable
have been complied with and (b) such shares have been duly delivered
against payment therefor as contemplated by the Underwriting Agreement or
the Representative's Warrants, such shares will be validly issued, fully
paid, and nonassessable.
4. The Warrants have been duly authorized and, when (a) the pertinent
provisions of the Securities Act of 1933 and of such "blue sky" and
securities laws as may be applicable have been complied with, (b) the
Warrants have been executed and authenticated in the manner set forth in
the Warrant Agreement, and (c) the Warrants have been issued and delivered
in the manner set forth in the Prospectus or the Representative's Warrants
against payment therefor, the Warrants will have been validly executed,
authenticated, issued, and delivered, will constitute the legal, valid, and
binding obligations of the Company, will (subject to applicable bankruptcy,
insolvency, and other laws affecting the enforceability of creditors'
rights generally) be enforceable as to the Company in accordance with their
terms and the terms of the Warrant Agreement or the Representative's
Warrants, and will be entitled to the benefits provided by the Warrant
Agreement or the Representative's Warrants.
5. The shares of Common Stock of the Company to be issued upon the exercise of
the Warrants are validly authorized and, assuming (a) the shares of Common
Stock so issuable will be validly authorized on the dates of exercise, (b)
on the dates of exercise, the Warrants will have been duly executed,
authenticated, issued, and delivered, the Warrant Agreement will have been
duly executed and delivered, the Warrants and the Warrant Agreement will
constitute the legal, valid, and binding obligations of the Company, the
Warrants and the Warrant Agreement will (subject to applicable bankruptcy,
insolvency, and other laws affecting the enforceability of creditors' right
generally) be enforceable as to the Company in accordance with their terms
and the terms of the Warrant Agreement (in the case of the Warrants) and in
accordance with its terms (in the case of the Warrant Agreement), and the
Warrants will be entitled to the benefits provided by the Warrant
Agreement, and (c) no change occurs in the applicable law or the pertinent
facts, when (d) the pertinent provisions of such "blue sky" and securities
laws as may be applicable have been complied with and (e)
<PAGE>
Starlight Entertainment, Inc.
June 24, 1998
Page 3
the Warrants are exercised in accordance with their terms and the terms of
the Warrant Agreement, the shares of Common Stock so issuable will be
validly issued, fully paid, and nonassessable.
6. The Representative's Warrants have been duly authorized and, when (a) the
pertinent provisions of the Securities Act of 1933 and of such "blue sky"
and securities laws as may be applicable have been complied with, (b) the
Representative's Warrants have been executed and (c) the Representative's
Warrants have been issued and delivered in the manner set forth in the
Prospectus against payment therefor, the Representative's Warrants will
have been validly executed, issued, and delivered, will constitute the
legal, valid, and binding obligations of the Company, will (subject to
applicable bankruptcy, insolvency, and other laws affecting the
enforceability of creditors' rights generally) be enforceable as to the
Company in accordance with their terms.
We hereby consent to the use of our name in the Registration Statement and
Prospectus in the section captioned "Legal Matters," and we also consent to the
filing of this opinion as an exhibit thereto. In giving this consent, we do not
thereby admit that we are within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933 or the rules and
regulations of the Commission thereunder.
Very truly yours,
/s/ Dill Dill Carr Stonbraker & Hutchings, P.C.
DILL DILL CARR STONBRAKER
& HUTCHINGS, P.C.
<PAGE>
EXHIBIT 10.1
STARLIGHT ENTERTAINMENT, INC.
1998 STOCK OPTION PLAN
1. PURPOSE; EFFECTIVENESS OF THE PLAN.
(a) The purpose of this Plan is to advance the interests of the
Company and its stockholders by helping the Company obtain and
retain the services of employees, officers, consultants, and
directors, upon whose judgment, initiative and efforts the
Company is substantially dependent, and to provide those
persons with further incentives to advance the interests of
the Company.
(b) This Plan will become effective on the date of its adoption by
the Board, provided the Plan is approved by the stockholders
of the Company (excluding holders of shares of Stock issued by
the Company pursuant to the exercise of options granted under
this Plan) within twelve months before or after that date. If
the Plan is not so approved by the stockholders of the
Company, any options granted under this Plan will be rescinded
and will be void. This Plan will remain in effect until it is
terminated by the Board or the Committee (as defined
hereafter) under section 9 hereof, except that no ISO (as
defined herein) will be granted after the tenth anniversary of
the date of this Plan's adoption by the Board. This Plan will
be governed by, and construed in accordance with, the laws of
the State of Colorado.
2. CERTAIN DEFINITIONS.
Unless the context otherwise requires, the following defined terms
(together with other capitalized terms defined elsewhere in this Plan)
will govern the construction of this Plan, and of any stock option
agreements entered into pursuant to this Plan:
(a) "10% Stockholder" means a person who owns, either directly or
indirectly by virtue of the ownership attribution provisions
set forth in Section 424(d) of the Code at the time he or she
is granted an Option, stock possessing more than ten percent
(10%) of the total combined voting power or value of all
classes of stock of the Company and/or of its subsidiaries;
(b) "1933 Act" means the federal Securities Act of 1933, as
amended;
(c) "Board" means the Board of Directors of the Company;
(d) "Called for under an Option," or words to similar effect,
means issuable pursuant to the exercise of an Option;
<PAGE>
(e) "Code" means the Internal Revenue Code of 1986, as amended
(references herein to Sections of the Code are intended to
refer to Sections of the Code as enacted at the time of this
Plan's adoption by the Board and as subsequently amended, or
to any substantially similar successor provisions of the Code
resulting from recodification, renumbering or otherwise);
(f) "Committee" means a committee of two or more Disinterested
Directors, appointed by the Board, to administer and interpret
this Plan; provided that the term "Committee" will refer to
the Board during such times as no Committee is appointed by
the Board;
(g) "Company" means Starlight Entertainment, Inc., a Colorado
corporation;
(h) "Disability" has the same meaning as "permanent and total
disability," as defined in Section 22(e)(3) of the Code;
(i) "Disinterested Director" means a member of the Board who is
not during the period of one year prior to his or her service
as an administrator of the Plan, or during the period of such
service, granted or awarded Stock, options to acquire Stock,
or similar equity securities of the Company under this Plan or
any similar plan of the Company, other than the grant of a
Formula Option pursuant to section 6(m) of this Plan;
(j) "Eligible Participants" means persons who, at a particular
time, are employees, officers, consultants, or directors of
the Company or its subsidiaries;
(k) "Fair Market Value" means, with respect to the Stock and as of
the date an ISO or a Formula Option is granted hereunder, the
market price per share of such Stock determined by the
Committee, consistent with the requirements of Section 422 of
the Code and to the extent consistent therewith, as follows:
(i) If the Stock was traded on a stock exchange on the
date in question, then the Fair Market Value will be
equal to the closing price reported by the applicable
composite-transactions report for such date;
(ii) If the Stock was traded over-the-counter on the date
in question and was classified as a national market
issue, then the Fair Market Value will be equal to
the last-transaction price quoted by the NASDAQ
system for such date;
2
<PAGE>
(iii) If the Stock was traded over-the-counter on the date
in question but was not classified as a national
market issue, then the Fair Market Value will be
equal to the average of the last reported
representative bid and asked prices quoted by the
NASDAQ system for such date; and
(iv) If none of the foregoing provisions is applicable,
then the Fair Market Value will be determined by the
Committee in good faith on such basis as it deems
appropriate.
(l) "Formula Option" means an NSO granted to members of the
Committee pursuant to section 6(m) hereof;
(m) "ISO" has the same meaning as "incentive stock option," as
defined in Section 422 of the Code;
(n) "Just Cause Termination" means a termination by the Company of
an Optionee's employment by and/or service to the Company (or
if the Optionee is a director, removal of the Optionee from
the Board by action of the stockholders or, if permitted by
applicable law and the by-laws of the Company, the other
directors), in connection with the good faith determination of
the Company's board of directors (or of the Company's
stockholders if the Optionee is a director and the removal of
the Optionee from the Board is by action of the stockholders,
but in either case excluding the vote of the Optionee if he or
she is a director or a stockholder) that the Optionee has
engaged in any acts involving dishonesty or moral turpitude or
in any acts that materially and adversely affect the business,
affairs or reputation of the Company or its subsidiaries;
(o) "NSO" means any option granted under this Plan whether
designated by the Committee as a "non-qualified stock option,"
a "non-statutory stock option" or otherwise, other than an
option designated by the Committee as an ISO, or any option so
designated but which, for any reason, fails to qualify as an
ISO pursuant to Section 422 of the Code and the rules and
regulations thereunder;
(p) "Option" means an option granted pursuant to this Plan
entitling the option holder to acquire shares of Stock issued
by the Company pursuant to the valid exercise of the option;
1998 Stock Option Plan 3
<PAGE>
(q) "Option Agreement" means an agreement between the Company and
an Optionee, in form and substance satisfactory to the
Committee in its sole discretion, consistent with this Plan;
(r) "Option Price" with respect to any particular Option means the
exercise price at which the Optionee may acquire each share of
the Option Stock called for under such Option;
(s) "Option Stock" means Stock issued or issuable by the Company
pursuant to the valid exercise of an Option;
(t) "Optionee" means an Eligible Participant to whom Options are
granted hereunder, and any transferee thereof pursuant to a
Transfer authorized under this Plan;
(u) "Plan" means this 1998 Stock Option Plan of the Company;
(v) "QDRO" has the same meaning as "qualified domestic relations
order" as defined in Section 414(p) of the Code;
(w) "Stock" means shares of the Company's Common Stock, no par
value;
(x) "Subsidiary" has the same meaning as "Subsidiary Corporation"
as defined in Section 424(f) of the Code;
(y) "Transfer," with respect to Option Stock, includes, without
limitation, a voluntary or involuntary sale, assignment,
transfer, conveyance, pledge, hypothecation, encumbrance,
disposal, loan, gift, attachment or levy of such Option Stock,
including without limitation an assignment for the benefit of
creditors of the Optionee, a transfer by operation of law,
such as a transfer by will or under the laws of descent and
distribution, an execution of judgment against the Option
Stock or the acquisition of record or beneficial ownership
thereof by a lender or creditor, a transfer pursuant to a
QDRO, or to any decree of divorce, dissolution or separate
maintenance, any property settlement, any separation agreement
or any other agreement with a spouse (except for estate
planning purposes) under which a part or all of the shares of
Option Stock are transferred or awarded to the spouse of the
Optionee or are required to be sold; or a transfer resulting
from the filing by the Optionee of a petition for relief, or
the filing of an involuntary petition against such Optionee,
under the bankruptcy laws of the United States or of any other
nation.
1998 Stock Option Plan 4
<PAGE>
3. ELIGIBILITY.
The Company may grant Options under this Plan only to persons who are
Eligible Participants as of the time of such grant. Subject to the
provisions of sections 4(d), 5 and 6 hereof, there is no limitation on
the number of Options that may be granted to an Eligible Participant.
4. ADMINISTRATION.
(a) COMMITTEE. The Committee, if appointed by the Board, will
administer this Plan. If the Board, in its discretion, does
not appoint such a Committee, the Board itself will administer
this Plan and take such other actions as the Committee is
authorized to take hereunder; provided that the Board may take
such actions hereunder in the same manner as the Board may
take other actions under the Company's Articles of
incorporation and by-laws generally.
(b) AUTHORITY AND DISCRETION OF COMMITTEE. The Committee will have
full and final authority in its discretion, at any time and
from time to time, subject only to the express terms,
conditions and other provisions of the Company's Articles of
incorporation, by-laws and this Plan, and the specific
limitations on such discretion set forth herein:
(i) to select and approve the persons who will be granted
Options under this Plan from among the Eligible
Participants, and to grant to any person so selected
one or more Options to purchase such number of shares
of Option Stock as the Committee may determine;
(ii) to determine the period or periods of time during
which Options may be exercised, the Option Price and
the duration of such Options, and other matters to be
determined by the Committee in connection with
specific Option grants and Options Agreements as
specified under this Plan;
(iii) to interpret this Plan, to prescribe, amend and
rescind rules and regulations relating to this Plan,
and to make all other determinations necessary or
advisable for the operation and administration of
this Plan; and
(iv) to delegate all or a portion of its authority under
subsections (i) and (ii) of this section 4(b) to one
or more directors of the Company who are executive
officers of the Company, but only in
1998 Stock Option Plan 5
<PAGE>
connection with Options granted to Eligible
Participants who are not subject to the reporting and
liability provisions of Section 16 of the Securities
Exchange Act of 1934, as amended, and the rules and
regulations thereunder, and subject to such
restrictions and limitations (such as the aggregate
number of shares of Option Stock called for by such
Options that may be granted) as the Committee may
decide to impose on such delegate directors.
(c) LIMITATION ON AUTHORITY. Notwithstanding the foregoing, or any
other provision of this Plan, the Committee will have no
authority:
(i) to grant Options to any of its members, whether or
not approved by the Board; and
(ii) to determine any matters, or exercise any discretion,
in connection with the Formula Options under section
6(m) hereof, to the extent that the power to make
such determinations or to exercise such discretion
would cause one or more members of the Committee no
longer to be "Disinterested Directors" within the
meaning of section 2(i) above.
(d) DESIGNATION OF OPTIONS. Except as otherwise provided herein,
the Committee will designate any Option granted hereunder
either as an ISO or as an NSO. To the extent that the Fair
Market Value (determined at the time the Option is granted) of
Stock with respect to which all ISOs are exercisable for the
first time by any individual during any calendar year
(pursuant to this Plan and all other plans of the Company
and/or its subsidiaries) exceeds $100,000, such option will be
treated as an NSO. Notwithstanding the general eligibility
provisions of section 3 hereof, the Committee may grant ISOs
only to persons who are employees of the Company and/or its
subsidiaries.
(e) OPTION AGREEMENTS. Options will be deemed granted hereunder
only upon the execution and delivery of an Option Agreement by
the Optionee and a duly authorized officer of the Company.
Options will not be deemed granted hereunder merely upon the
authorization of such grant by the Committee.
5. SHARES RESERVED FOR OPTIONS.
(a) OPTION POOL. The aggregate number of shares of Option Stock
that may be issued pursuant to the exercise of Options granted
under this Plan initially will not exceed Two Hundred Twenty-
Three Thousand (223,000)
1998 Stock Option Plan 6
<PAGE>
(the "Option Pool"), provided that such number automatically
shall be adjusted annually on the beginning of the Company's
fiscal year to a number equal to 10% of the number of shares
of Stock of the Company outstanding at the end of the
Company's last completed fiscal year, or Two Hundred Twenty-
Three Thousand (223,000) shares, whichever is greater, and
provided further that such number will be increased by the
number of shares of Option Stock that the Company subsequently
may reacquire through repurchase or otherwise. Shares of
Option Stock that would have been issuable pursuant to
Options, but that are no longer issuable because all or part
of those Options have terminated or expired, will be deemed
not to have been issued for purposes of computing the number
of shares of Option Stock remaining in the Option Pool and
available for issuance.
(b) ADJUSTMENTS UPON CHANGES IN STOCK. In the event of any change
in the outstanding Stock of the Company as a result of a stock
split, reverse stock split, stock dividend, recapitalization,
combination or reclassification, appropriate proportionate
adjustments will be made in:
(i) the aggregate number of shares of Option Stock in the
Option Pool that may be issued pursuant to the
exercise of Options granted hereunder;
(ii) the Option Price and the number of shares of Option
Stock called for in each outstanding Option granted
hereunder; and
(iii) other rights and matters determined on a per share
basis under this Plan or any Option Agreement
hereunder. Any such adjustments will be made only by
the Board, and when so made will be effective,
conclusive and binding for all purposes with respect
to this Plan and all Options then outstanding. No
such adjustments will be required by reason of the
issuance or sale by the Company for cash or other
consideration of additional shares of its Stock or
securities convertible into or exchangeable for
shares of its Stock.
6. TERMS OF STOCK OPTION AGREEMENTS.
Each Option granted pursuant to this Plan will be evidenced by an
agreement (an "Option Agreement") between the Company and the person to
whom such Option is granted, in form and substance satisfactory to the
Committee in its sole discretion, consistent with this Plan. Without
limiting the foregoing, each Option Agreement (unless otherwise stated
therein) will be deemed to include the following terms and conditions:
1998 Stock Option Plan 7
<PAGE>
(a) COVENANTS OF OPTIONEE. At the discretion of the Committee, the
person to whom an Option is granted hereunder, as a condition
to the granting of the Option, must execute and deliver to the
Company a confidential information agreement approved by the
Committee. Nothing contained in this Plan, any Option
Agreement or in any other agreement executed in connection
with the granting of an Option under this Plan will confer
upon any Optionee any right with respect to the continuation
of his or her status as an employee of, consultant or
independent contractor to, or director of, the Company or its
subsidiaries.
(b) VESTING PERIODS. Subject to the Optionee continuing to be an
Eligible Participant and the occurrence of any other event
(including the passage of time) that would result in the
cancellation or termination of the Option, no portion of the
Option will be exercisable prior to the first anniversary of
the Grant Date set forth in the Option Agreement. In addition
to the foregoing vesting requirement, each Option Agreement
may specify additional periods of time within which each
Option or portion thereof will first become exercisable (the
"Vesting Period") with respect to the total number of shares
of Option Stock called for thereunder (the "Total Award Option
Stock"). Such Vesting Periods will be fixed by the Committee
in its discretion, and may be accelerated or shortened by the
Committee in its discretion.
(c) EXERCISE OF THE OPTION.
(i) MECHANICS AND NOTICE. An Option may be exercised to
the extent exercisable (1) by giving written notice
of exercise to the Company, specifying the number of
full shares of Option Stock to be purchased and
accompanied by full payment of the Option Price
thereof and the amount of withholding taxes pursuant
to subsection 6(c)(ii) below; and (2) by giving
assurances satisfactory to the Company that the
shares of Option Stock to be purchased upon such
exercise are being purchased for investment and not
with a view to resale in connection with any
distribution of such shares in violation of the 1933
Act; provided, however, that in the event the Option
Stock called for under the Option is registered under
the 1933 Act, or in the event resale of such Option
Stock without such registration would otherwise be
permissible, this second condition will be
inoperative if, in the opinion of counsel for the
Company, such condition is not required under the
1933 Act, or any other applicable law, regulation or
rule of any governmental agency.
1998 Stock Option Plan 8
<PAGE>
(ii) WITHHOLDING TAXES. As a condition to the issuance of
the shares of Option Stock upon full or partial
exercise of an NSO granted under this Plan, the
Optionee will pay to the Company in cash, or in such
other form as the Committee may determine in its
discretion, the amount of the Company's tax
withholding liability required in connection with
such exercise. For purposes of this subsection
6(c)(ii), "tax withholding liability" will mean all
federal and state income taxes, social security tax,
and any other taxes applicable to the compensation
income arising from the transaction required by
applicable law to be withheld by the Company.
(d) PAYMENT OF OPTION PRICE. Each Option Agreement will specify
the Option Price with respect to the exercise of Option Stock
thereunder, to be fixed by the Committee in its discretion,
but in no event will the Option Price for an ISO granted
hereunder be less than the Fair Market Value (or, in case the
Optionee is a 10% Stockholder, one hundred ten percent (110%)
of such Fair Market Value) of the Option Stock at the time
such ISO is granted, and in no event will the Option Price for
an NSO granted hereunder be less than eighty-five percent
(85%) of Fair Market Value. The Option Price will be payable
to the Company in United States dollars in cash or by check
or, such other legal consideration as may be approved by the
Committee, in its discretion.
(i) For example, the Committee, in its discretion, may
permit a particular Optionee to pay all or a portion
of the Option Price, and/or the tax withholding
liability set forth in subsection 6(c)(ii) above,
with respect to the exercise of an Option either by
surrendering shares of Stock already owned by such
Optionee or by withholding shares of Option Stock,
provided that the Committee determines that the fair
market value of such surrendered Stock or withheld
Option Stock is equal to the corresponding portion of
such Option Price and/or tax withholding liability,
as the case may be, to be paid for therewith.
(ii) If the Committee permits an Optionee to pay any
portion of the Option Price and/or tax withholding
liability with shares of Stock with respect to the
exercise of an Option (the "Underlying Option") as
provided in subsection 6(d)(i) above, then the
Committee, in its discretion, may grant to such
Optionee (but only if Optionee remains an Eligible
Participant at that time) additional NSOs, the number
of shares of Option Stock called for thereunder to be
equal to all or a portion of the Stock so surrendered
or withheld (a "Replacement Option"). Each
Replacement Option will be
1998 Stock Option Plan 9
<PAGE>
evidenced by an Option Agreement. Unless otherwise
set forth therein, each Replacement Option will be
immediately exercisable upon such grant (without any
Vesting Period) and will be coterminous with the
Underlying Option. The Committee, in its sole
discretion, may establish such other terms and
conditions for Replacement Options as it deems
appropriate.
(e) TERMINATION OF THE OPTION. Except as otherwise provided
herein, each Option Agreement will specify the period of time,
to be fixed by the Committee in its discretion, during which
the Option granted therein will be exercisable, not to exceed
ten years from the date of grant in the case of an ISO (the
"Option Period"); provided that the Option Period will not
exceed five years from the date of grant in the case of an ISO
granted to a 10% Stockholder. To the extent not previously
exercised, each Option will terminate upon the expiration of
the Option Period specified in the Option Agreement; provided,
however, that each such Option will terminate, if earlier:
(i) ninety days after the date that the Optionee ceases
to be an Eligible Participant for any reason, other
than by reason of death or disability or a Just Cause
Termination;
(ii) twelve months after the date that the Optionee ceases
to be an Eligible Participant by reason of such
person's death or disability; or
(iii) immediately as of the date that the Optionee ceases
to be an Eligible Participant by reason of a Just
Cause Termination.
In the event of a sale or all or substantially all of the
assets of the Company, or a merger or consolidation or other
reorganization in which the Company is not the surviving
corporation, or in which the Company becomes a subsidiary of
another corporation (any of the foregoing events, a "Corporate
Transaction"), then notwithstanding anything else herein, the
right to exercise all then outstanding Options will vest
immediately prior to such Corporate Transaction and will
terminate immediately after such Corporate Transaction;
provided, however, that if the Board, in its sole discretion,
determines that such immediate vesting of the right to
exercise outstanding Options is not in the best interests of
the Company, then the successor corporation must agree to
assume the outstanding Options or substitute therefor
comparable options of such successor corporation or a parent
or subsidiary of such successor corporation.
1998 Stock Option Plan 10
<PAGE>
(f) OPTIONS NONTRANSFERABLE. No Option will be transferable by the
Optionee otherwise than by will or the laws of descent and
distribution, or in the case of an NSO, pursuant to a QDRO.
During the lifetime of the Optionee, the Option will be
exercisable only by him or her, or the transferee of an NSO if
it was transferred pursuant to a QDRO.
(g) QUALIFICATION OF STOCK. The right to exercise an Option will
be further subject to the requirement that if at any time the
Board determines, in its discretion, that the listing,
registration or qualification of the shares of Option Stock
called for thereunder upon any securities exchange or under
any state or federal law, or the consent or approval of any
governmental regulatory authority, is necessary or desirable
as a condition of or in connection with the granting of such
Option or the purchase of shares of Option Stock thereunder,
the Option may not be exercised, in whole or in part, unless
and until such listing, registration, qualification, consent
or approval is effected or obtained free of any conditions not
acceptable to the Board, in its discretion.
(h) ADDITIONAL RESTRICTIONS ON TRANSFER. By accepting Options
and/or Option Stock under this Plan, the Optionee will be
deemed to represent, warrant and agree as follows:
(i) SECURITIES ACT OF 1933. The Optionee understands that
the shares of Option Stock have not been registered
under the 1933 Act, and that such shares are not
freely tradeable and must be held indefinitely unless
such shares are either registered under the 1933 Act
or an exemption from such registration is available.
The Optionee understands that the Company is under no
obligation to register the shares of Option Stock.
(ii) OTHER APPLICABLE LAWS. The Optionee further
understands that Transfer of the Option Stock
requires full compliance with the provisions of all
applicable laws.
(iii) INVESTMENT INTENT. Unless a registration statement is
in effect with respect to the sale of Option Stock
obtained through exercise of Options granted
hereunder: (1) Upon exercise of any Option, the
Optionee will purchase the Option Stock for his or
her own account and not with a view to distribution
within the meaning of the 1933 Act, other than as may
be effected in compliance with the 1933 Act and the
rules and regulations promulgated thereunder; (2) no
one else will have any beneficial interest in the
1998 Stock Option Plan 11
<PAGE>
Option Stock; and (3) he or she has no present
intention of disposing of the Option Stock at any
particular time.
(i) COMPLIANCE WITH LAW. Notwithstanding any other provision of
this Plan, Options may be granted pursuant to this Plan, and
Option Stock may be issued pursuant to the exercise thereof by
an Optionee, only after there has been compliance with all
applicable federal and state securities laws, and all of the
same will be subject to this overriding condition. The Company
will not be required to register or qualify Option Stock with
the Securities and Exchange Commission or any State agency,
except that the Company will register with, or as required by
local law, file for and secure an exemption from such
registration requirements from, the applicable securities
administrator and other officials of each jurisdiction in
which an Eligible Participant would be granted an Option
hereunder prior to such grant.
(j) STOCK CERTIFICATES. Certificates representing the Option Stock
issued pursuant to the exercise of Options will bear all
legends required by law and necessary to effectuate this
Plan's provisions. The Company may place a "stop transfer"
order against shares of the Option Stock until all
restrictions and conditions set forth in this Plan and in the
legends referred to in this section 6(k) have been complied
with.
(k) NOTICES. Any notice to be given to the Company under the terms
of an Option Agreement will be addressed to the Company at its
principal executive office, Attention: Corporate Secretary, or
at such other address as the Company may designate in writing.
Any notice to be given to an Optionee will be addressed to the
Optionee at the address provided to the Company by the
Optionee. Any such notice will be deemed to have been duly
given if and when enclosed in a properly sealed envelope,
addressed as aforesaid, registered and deposited, postage and
registry fee prepaid, in a post office or branch post office
regularly maintained
(l) OTHER PROVISIONS. The Option Agreement may contain such other
terms, provisions and conditions, including such special
forfeiture conditions, rights of repurchase, rights of first
refusal and other restrictions on Transfer of Option Stock
issued upon exercise of any Options granted hereunder, not
inconsistent with this Plan, as may be determined by the
Committee in its sole discretion.
(m) FORMULA OPTIONS. On the date on which the Board appoints, or
the stockholders of the Company elect, a person who is not an
employee of
1998 Stock Option Plan 12
<PAGE>
the Company or a director of one of the Company's subsidiaries
as a member of the Board for the first time, such director
will be granted a Formula Option to purchase up to $10,000 of
shares of Stock, based on the Fair Market Value at the time
the Option is granted. Formula Options will have an Option
Price equal to the Fair Market Value of the Stock as of the
date of such grant. Except as otherwise specifically provided
in this section 6(m), the terms of this Plan, including the
vesting provisions of section 6(b), will apply to all Formula
Options granted pursuant to this section 6(m).
7. PROCEEDS FROM SALE OF STOCK.
Cash proceeds from the sale of shares of Option Stock issued from time
to time upon the exercise of Options granted pursuant to this Plan will
be added to the general funds of the Company and as such will be used
from time to time for general corporate purposes.
8. MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS.
Subject to the terms and conditions and within the limitations of this
Plan, and except with respect to Formula Options, the Committee may
modify, extend or renew outstanding Options granted under this Plan, or
accept the surrender of outstanding Options (to the extent not
theretofore exercised) and authorize the granting of new Options in
substitution therefor (to the extent not theretofore exercised).
Notwithstanding the foregoing, however, no modification of any Option
will, without the consent of the holder of the Option, alter or impair
any rights or obligations under any Option theretofore granted under
this Plan.
9. AMENDMENT AND DISCONTINUANCE.
The Board may amend, suspend or discontinue this Plan at any time or
from time to time; provided that no action of the Board will cause ISOs
granted under this Plan not to comply with Section 422 of the Code
unless the Board specifically declares such action to be made for that
purpose and provided further that no such action may, without the
approval of the stockholders of the Company, materially increase (other
than by reason of an adjustment pursuant to section 5(b) hereof) the
maximum aggregate number of shares of Option Stock in the Option Pool
that may be issued under Options granted pursuant to this Plan or
materially increase the benefits accruing to Plan participants or
materially modify eligibility requirements for the participants.
Provided, further, that the provisions of section 6(m) hereof may not
be amended more often than once during any six (6) month period, other
than to comport with changes in the Code, the Employee Retirement
Income Security Act, or the rules and
1998 Stock Option Plan 13
<PAGE>
regulations thereunder. Moreover, no such action may alter or impair
any Option previously granted under this Plan without the consent of
the holder of such Option.
10. PLAN COMPLIANCE WITH RULE 16B-3.
With respect to persons subject to Section 16 of the Securities
Exchange Act of 1934, transactions under this plan are intended to
comply with all applicable conditions of Rule 16b-3 or its successors
under the 1934 Act. To the extent any provision of the plan or action
by the plan administrators fails so to comply, it shall be deemed null
and void, to the extent permitted by law and deemed advisable by the
plan administrators.
11. COPIES OF PLAN.
A copy of this Plan will be delivered to each Optionee at or before the
time he or she executes an Option Agreement.
***
Date Plan Adopted by Board of Directors: May 6, 1998
Date Plan Approved by Stockholders: May 20, 1998
1998 Stock Option Plan 14
<PAGE>
EXHIBIT 10.2
PROMISSORY NOTE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$3,255,000.00 11-12-1996 11-15-2006 1082002715 410 80 101
- ------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this
document to an particular loan or item.
- ------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C>
Borrower: Cinema Saver Theatre Corporation (TIN: ) Lender: QUAD CITY BANK AND TRUST COMPANY
1422 Delgany Street, Suite LL3 2118 MIDDLE ROAD
Denver, CO 80202 P.O. BOX 395
BETTENDORF, IA 52722
</TABLE>
================================================================================
<TABLE>
<S> <C> <C> <C>
Principal Amount: $3,255,000.00 Interest Rate: 9.250% Date of Note: November 12, 1996
</TABLE>
PROMISE TO PAY. Cinema Saver Theatre Corporation ("Borrower") promises to pay to
QUAD CITY BANK AND TRUST COMPANY ("Lender"), or order, in lawful money of the
United States of America, the principal amount of Three Million Two Hundred
Fifty Five Thousand & 00/100 Dollars ($3,255,000.00), together with interest at
the rate of 9.250% per annum on the unpaid principal balance from November 12,
1996, until paid In full.
PAYMENT. Borrower will pay this loan in 119 regular payments of $33,529.81 each
and one irregular last payment estimated at $1,639,338.47. Borrower's first
payment is due December 15, 1996, and all subsequent payments are due on the
same day of each month after that. Borrower's final payment due November 15,
2006, will be for all principal and all accrued interest not yet paid. Payments
include principal and interest. Interest on this Note is computed on a 365/365
simple interest basis; that is, by applying the ratio of the annual interest
rate over the number of days in a year, multiplied by the outstanding principal
balance, multiplied by the actual number of days the principal balance is
outstanding. Borrower will pay Lender at Lender's address shown above or at such
other place as Lender may designate in writing. Unless otherwise agreed or
required by applicable law, payments will be applied first to accrued unpaid
interest, then to principal, and any remaining amount to any unpaid collection
costs and late charges.
PREPAYMENT; MINIMUM INTEREST CHARGE. In any event, even upon full prepayment of
this Note, Borrower understands that Lender is entitled to a minimum interest
charge of $7.50. Other than Borrower's obligation to pay any minimum interest
charge, Borrower may pay without penalty all or a portion of the amount owed
earlier than it is due. Early payments will not, unless agreed to by Lender in
writing, relieve Borrower of Borrower's obligation to continue to make payments
under the payment schedule. Rather, they will reduce the principal balance due
and may result in Borrower making fewer payments.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this Note or
any agreement related to this Note, or in any other agreement or loan Borrower
has with Lender. (c) Any representation or statement made or furnished to Lender
by Borrower or on Borrower's behalf is false or misleading in any material
respect either now or at the time made or furnished. (d) Borrower becomes
insolvent, a receiver is appointed for any part of Borrower's property, Borrower
makes an assignment for the benefit of creditors, or any proceeding is commenced
either by Borrower or against Borrower under any bankruptcy or insolvency laws.
(e) Any creditor tries to take any of Borrower's property on or in which Lender
has a lien or security interest. This includes a garnishment of any of
Borrower's accounts with Lender. (f) Any guarantor dies or any of the other
events described in this default section occurs with respect to any guarantor of
this Note. (g) A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness is impaired.
If any default, other than a default in payment, is curable and if Borrower has
not been given a notice of a breach of the same provision of this Note within
the preceding twelve (12) months, it may be cured (and no event of default will
have occurred) if Borrower, after receiving written notice from Lender demanding
cure of such default: (a) cures the default within twenty (20) days; or (b) if
the cure requires more than twenty (20) days, immediately initiates steps which
Lender deems in Lender's sole discretion to be sufficient to cure the default
and thereafter continues and completes all reasonable and necessary steps
sufficient to produce compliance as soon as reasonably practical.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon default, including failure
to pay upon final maturity, Lender, at its option, may also, if permitted under
applicable law, increase the interest rate on this Note 2.000 percentage points.
The interest rate will not exceed the maximum rate permitted by applicable law.
Lender may hire or pay someone else to help collect this Note if Borrower does
not pay. Borrower also will pay Lender that amount. This includes, subject to
any limits under applicable law, Lender's attorneys' fees and Lender's legal
expenses whether or not there is a lawsuit, including attorneys' fees and legal
expenses for bankruptcy proceedings (including efforts to modify or vacate any
automatic stay or injunction), appeals, and any anticipated post-judgment
collection services. If not prohibited by applicable law, Borrower also will pay
any court costs, in addition to all other sums provided by law. This Note has
been delivered to Lender and accepted by Lender in the State of Iowa. If there
is a lawsuit, Borrower agrees upon Lender's request to submit to the
jurisdiction of the courts of SCOTT County, the State of Iowa. This Note shall
be governed by and construed in accordance with the laws of the State of Iowa.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA and Keogh accounts,
and all trust accounts for which the grant of a security interest would be
prohibited by law. Borrower authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on this Note against any and
all such accounts.
COLLATERAL. This Note is secured by Colorado mortgage dated November 12, 1996 on
property located at 10831 Crossroads Drive, Parker CO., Colorado mortgage dated
November 12, 1996 on property located at 2525 Worthington Circle, Fort Collins,
CO, Colorado mortgage dated November 12, 1996 on property 1204 Highway 74,
Bergen Park, CO, Assignment of Lease dated November 12, 1996, & General Security
Agreement dated November 12, 1996.
PURPOSE OF LOAN. The specific purpose of this loan is: Refinance existing debt.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person who
signs, guarantees or endorses this Note, to the extent allowed by law, waive
presentment, demand for payment, protest and notice of dishonor. Upon any change
in the terms of this Note, and unless otherwise expressly stated in writing, no
party who signs this Note, whether as maker, guarantor, accommodation maker or
endorser, shall be released from liability. All such parties agree that Lender
may renew or extend (repeatedly and for any length of time) this loan, or
release any party or guarantor or collateral; or impair, fail to realize upon or
perfect Lender's security interest in the collateral; and take any other action
deemed necessary by Lender without the consent of or notice to anyone.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE. BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF
A COMPLETED COPY OF THE NOTE AND ALL OTHER DOCUMENTS RELATING TO THIS DEBT.
BORROWER:
Cinema Saver Theatre Corporation
By: By:
-------------------------------- ---------------------------------
R. Haydn Silleck, President Joel D. Boldrey, Secretary
================================================================================
<PAGE>
COMMERCIAL GUARANTY
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C> <C>
410 80 101
- ------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the a applicability of this
document to any particular loan or item.
- ------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C>
Borrower: Cinema Saver Theatre Corporation (TIN: ) Lender: QUAD CITY BANK AND TRUST COMPANY
1422 Delgany Street, Suite LL3 2118 MIDDLE ROAD
Denver, CO 80202 P.O. BOX 395
BETTENDORF, IA 52722
Guarantor: Clifford E. Godfrey
</TABLE>
================================================================================
AMOUNT OF GUARANTY. The amount of this Guaranty is Unlimited.
CONTINUING UNLIMITED GUARANTY. For good and valuable consideration, Clifford E.
Godfrey ("Guarantor") absolutely and unconditionally guarantees and promises to
pay to QUAD CITY BANK AND TRUST COMPANY ("Lender") or its order, in legal tender
of the United States of America, the Indebtedness (as that term is defined
below) of Cinema Saver Theatre Corporation ("Borrower") to Lender on the terms
and conditions set forth in this Guaranty. Under this Guaranty, the liability of
Guarantor is unlimited and the obligations of Guarantor are continuing.
DEFINITIONS. The following words shall have the following meanings when used in
this Guaranty:
Borrower. The word "Borrower" means Cinema Saver Theatre Corporation.
Guarantor. The word "Guarantor" means Clifford E. Godfrey.
Guaranty. The word "Guaranty" means this Guaranty made by Guarantor for the
benefit of Lender dated November 12,1996.
Indebtedness. The word "Indebtedness" is used in its most comprehensive
sense and means and includes any and all of Borrower's liabilities,
obligations, debts, and indebtedness to Lender, now existing or hereinafter
incurred or created, including, without limitation, all loans, advances,
interest, costs, debts, overdraft indebtedness, credit card indebtedness,
lease obligations, other obligations, and liabilities of Borrower, or any
of them, and any present or future judgments against Borrower, or any of
them; and whether any such Indebtedness is voluntarily or involuntarily
incurred, due or not due, absolute or contingent, liquidated or
unliquidated, determined or undetermined; whether Borrower may be liable
individually or jointly with others, or primarily or secondarily, or as
guarantor or surety; whether recovery on the Indebtedness may be or may
become barred or unenforceable against Borrower for any reason whatsoever;
and whether the Indebtedness arises from transactions which may be voidable
on account of infancy, insanity, ultra vires, or otherwise.
Lender. The word "Lender" means QUAD CITY BANK AND TRUST COMPANY, its
successors and assigns. Related Documents. The words "Related Documents"
mean and include without limitation all promissory notes, credit
agreements, loan agreements, environmental agreements, guaranties, security
agreements, mortgages, deeds of trust, and all other instruments,
agreements and documents, whether now or hereafter existing, executed in
connection with the Indebtedness.
NATURE OF GUARANTY. Guarantor's liability under this Guaranty shall be open and
continuous for so long as this Guaranty remains in force. Guarantor intends to
guarantee at all times the performance and prompt payment when due, whether at
maturity or earlier by reason of acceleration or otherwise, of all Indebtedness.
Accordingly, no payments made upon the Indebtedness will discharge or diminish
the continuing liability of Guarantor in connection with any remaining portions
of the Indebtedness or any of the Indebtedness which subsequently arises or is
thereafter incurred or contracted.
DURATION OF GUARANTY. This Guaranty will take effect when received by Lender
without the necessity of any acceptance by Lender, or any notice to Guarantor or
to Borrower, and will continue in full force until all Indebtedness incurred or
contracted before receipt by Lender of any notice of revocation shall have been
fully and finally paid and satisfied and all other obligations of Guarantor
under this Guaranty shall have been performed in full. If Guarantor elects to
revoke this Guaranty, Guarantor may only do so in writing. Guarantor's written
notice of revocation must be mailed to Lender, by certified mail, at the address
of Lender listed above or such other place as Lender may designate in writing.
Written revocation of this Guaranty will apply only to advances or new
Indebtedness created after actual receipt by Lender of Guarantor's written
revocation. For this purpose and without limitation, the term "new Indebtedness"
does not include Indebtedness which at the time of notice of revocation is
contingent, unliquidated, undetermined or not due and which later becomes
absolute, liquidated, determined or due. This Guaranty will continue to bind
Guarantor for all Indebtedness incurred by Borrower or committed by Lender prior
to receipt of Guarantor's written notice of revocation, including any
extensions, renewals, substitutions or modifications of the Indebtedness. All
renewals, extensions, substitutions, and modifications of the Indebtedness
granted after Guarantor's revocation, are contemplated under this Guaranty and,
specifically will not be considered to be new Indebtedness. This Guaranty shall
bind the estate of Guarantor as to Indebtedness created both before and after
the death or incapacity of Guarantor, regardless of Lender's actual notice of
Guarantor's death. Subject to the foregoing, Guarantor's executor or
administrator or other legal representative may terminate this Guaranty in the
same manner in which Guarantor might have terminated it and with the same
effect. Release of any other guarantor or termination of any other guaranty of
the Indebtedness shall not affect the liability of Guarantor under this
Guaranty. A revocation received by Lender from any one or more Guarantors shall
not affect the liability of any remaining Guarantors under this Guaranty. It is
anticipated that fluctuations may occur in the aggregate amount of Indebtedness
covered by this Guaranty, and it is specifically acknowledged and agreed by
Guarantor that reductions in the amount of Indebtedness, even to zero dollars
($0.00), prior to written revocation of this Guaranty by Guarantor shall not
constitute a termination of this Guaranty. This Guaranty is binding upon
Guarantor and Guarantor's heirs, successors and assigns so long as any of the
guaranteed indebtedness remains unpaid and even though the Indebtedness
guaranteed may from time to time be zero dollars ($0.00).
GUARANTOR'S AUTHORIZATION TO LENDER. Guarantor authorizes Lender, either before
or after any revocation hereof, without notice or demand and without lessening
Guarantor's liability under this Guaranty, from time to time: (a) prior to
revocation as set forth above, to make one or more additional secured or
unsecured loans to Borrower, to lease equipment or other goods to Borrower, or
otherwise to extend additional credit to Borrower; (b) to alter, compromise,
renew, extend, accelerate, or otherwise change one or more times the time for
payment or other terms of the Indebtedness or any part of the Indebtedness,
including increases and decreases of the rate of interest on the Indebtedness;
extensions may be repeated and may be for longer than the original loan term;
(c) to take and hold security for the payment of this Guaranty or the
Indebtedness, and exchange, enforce, waive, subordinate, fail or decide not to
perfect, and release any such security, with or without the substitution of new
collateral; (d) to release, substitute, agree not to sue, or deal with any one
or more of Borrower's sureties, endorsers, or other guarantors on any terms or
in any manner Lender may choose; (e) to determine how, when and what application
of payments and credits shall be made on the Indebtedness; (f) to apply such
security and direct the order or manner of sale thereof, including without
limitation, any nonjudicial sale permitted by the terms of the controlling
security agreement or deed of trust, as Lender in its discretion may determine;
(g) to sell, transfer, assign, or grant participations in all or any part of the
Indebtedness; and (h) to assign or transfer this Guaranty in whole or in part.
GUARANTOR'S REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants to
Lender that (a) no representations or agreements of any kind have been made to
Guarantor which would limit or qualify in any way the terms of this Guaranty;
(b) this Guaranty is executed at Borrower's request and not at the request of
Lender; (c) Guarantor has full power, right and authority to enter into this
Guaranty; (d) the provisions of this Guaranty do not conflict with or result in
a default under any agreement or other instrument binding upon Guarantor and do
not result in a violation of any law, regulation, court decree or order
applicable to Guarantor; (e) Guarantor has not and will not, without the prior
written consent of Lender, sell, lease, assign, encumber, hypothecate, transfer,
or otherwise dispose of all or substantially all of Guarantor's assets, or any
interest therein; (f) upon Lender's request, Guarantor will provide to Lender
financial and credit information in form acceptable to Lender, and all such
financial information which currently has been, and all future financial
information which will be provided to Lender is and will be true and correct in
all material respects and fairly present the financial condition of Guarantor as
of the dates the financial information is provided; (g) no material adverse
change has occurred in Guarantor's financial condition since the date of the
most recent financial statements provided to Lender and no event has occurred
which may materially adversely affect Guarantor's financial condition; (h) no
litigation, claim, investigation, administrative proceeding or similar action
(including those for unpaid taxes) against Guarantor is pending or threatened;
(i) Lender has made no representation to Guarantor as to the creditworthiness of
Borrower; and (j) Guarantor has established adequate means of obtaining from
Borrower on a continuing basis information regarding Borrower's financial
condition. Guarantor agrees to keep adequately informed from such means of any
facts, events, or circumstances which might in any way affect Guarantor's risks
under this Guaranty, and Guarantor further agrees that, absent a request for
information, Lender shall have no obligation to disclose to Guarantor any
information or documents acquired by Lender in the course of its relationship
with Borrower.
GUARANTOR'S WAIVERS. Except as prohibited by applicable law, Guarantor waives
any right to require Lender (a) to continue lending money or to extend other
credit to Borrower; (b) to make any presentment, protest, demand, or notice of
any kind, including notice of any nonpayment of the Indebtedness or of any
nonpayment related to any collateral, or notice of any action or nonaction on
the part of Borrower, Lender, any surety, endorser, or other guarantor in
connection with the Indebtedness or in connection with the creation of new or
additional loans or obligations; (c) to resort for payment or to proceed
directly or at once against any person, including Borrower or any other
guarantor; (d) to proceed directly against or exhaust any collateral held by
Lender from Borrower, any other guarantor, or any other person; (e) to give
notice of the terms, time, and place of any public or
<PAGE>
11-12-1996 COMMERCIAL GUARANTY Page 2
Loan No 1082002715 (Continued)
================================================================================
private sale of personal property security held by Lender from Borrower or to
comply with any other applicable provisions of the Uniform Commercial Code; (f)
to pursue any other remedy within Lender's power; or (g) to commit any act or
omission of any kind, or at any time, with respect to any matter whatsoever.
If now or hereafter (a) Borrower shall be or become insolvent, and (b) the
Indebtedness shall not at all times until paid be fully secured by collateral
pledged by Borrower, Guarantor hereby forever waives and relinquishes in favor
of Lender and Borrower, and their respective successors, any claim or right to
payment Guarantor may now have or hereafter have or acquire against Borrower, by
subrogation or otherwise, so that at no time shall Guarantor be or become a
"creditor" of Borrower within the meaning of 11 U.S.C. section 547(b), or any
successor provision of the Federal bankruptcy laws.
Guarantor also waives any and all rights or defenses arising by reason of (a)
any "one action" or "anti-deficiency" law or any other law which may prevent
Lender from bringing any action, including a claim for deficiency, against
Guarantor, before or after Lender's commencement or completion of any
foreclosure action, either judicially or by exercise of a power of sale; (b) any
election of remedies by Lender which destroys or otherwise adversely affects
Guarantor's subrogation rights or Guarantor's rights to proceed against Borrower
for reimbursement, including without limitation, any loss of rights Guarantor
may suffer by reason of any law limiting, qualifying, or discharging the
Indebtedness; (c) any disability or other defense of Borrower, of any other
guarantor, or of any other person, or by reason of the cessation of Borrower's
liability from any cause whatsoever, other than payment in full in legal tender,
of the Indebtedness; (d) any right to claim discharge of the Indebtedness on the
basis of unjustified impairment of any collateral for the Indebtedness; (e) any
statute of limitations, if at any time any action or suit brought by Lender
against Guarantor is commenced there is outstanding Indebtedness of Borrower to
Lender which is not barred by any applicable statute of limitations; or (f) any
defenses given to guarantors at law or in equity other than actual payment and
performance of the Indebtednes. If payment is made by Borrower, whether
voluntarily or otherwise, or by any third party, on the Indebtedness and
thereafter Lender is forced to remit the amount of that payment to Borrower's
trustee in bankruptcy or to any similar person under any federal or state
bankruptcy law or law for the relief of debtors, the Indebtedness shall be
considered unpaid for the purpose of enforcement of this Guaranty.
Guarantor further waives and agrees not to assert or claim at any time any
deductions to the amount guaranteed under this Guaranty for any claim of setoff,
counterclaim, counter demand, recoupment or similar right, whether such claim,
demand or right may be asserted by the Borrower, the Guarantor, or both.
GUARANTOR'S UNDERSTANDING WITH RESPECT TO WAIVERS. Guarantor warrants and agrees
that each of the waivers set forth above is made with Guarantor's full knowledge
of its significance and consequences and that, under the circumstances, the
waivers are reasonable and not contrary to public policy or law. If any such
waiver is determined to be contrary to any applicable law or public policy, such
waiver shall be effective only to the extent permitted by law or public policy.
LENDER'S RIGHT OF SETOFF. In addition to all liens upon and rights of setoff
against the moneys, securities or other property of Guarantor given to Lender by
law, Lender shall have, with respect to Guarantor's obligations to Lender under
this Guaranty and to the extent permitted by law, a contractual possessory
security interest in and a right of setoff against, and Guarantor hereby
assigns, conveys, delivers, pledges, and transfers to Lender all of Guarantor's
right, title and interest in and to, all deposits, moneys, securities and other
property of Guarantor now or hereafter in the possession of or on deposit with
Lender, whether held in a general or special account or deposit, whether held
jointly with someone else, or whether held for safekeeping or otherwise,
excluding however all IRA, Keogh, and trust accounts. Every such security
interest and right of setoff may be exercised without demand upon or notice to
Guarantor. No security interest or right of setoff shall be deemed to have been
waived by any act or conduct on the part of Lender or by any neglect to exercise
such right of setoff or to enforce such security interest or by any delay in so
doing. Every right of setoff and security interest shall continue in full force
and effect until such right of setoff or security interest is specifically
waived or released by an instrument in writing executed by Lender.
SUBORDINATION OF BORROWER'S DEBTS TO GUARANTOR. Guarantor agrees that the
Indebtedness of Borrower to Lender, whether now existing or hereafter created,
shall be prior to any claim that Guarantor may now have or hereafter acquire
against Borrower, whether or not Borrower becomes insolvent. Guarantor hereby
expressly subordinates any claim Guarantor may have against Borrower, upon any
account whatsoever, to any claim that Lender may now or hereafter have against
Borrower. In the event of insolvency and consequent liquidation of the assets of
Borrower, through bankruptcy, by an assignment for the benefit of creditors, by
voluntary liquidation, or otherwise, the assets of Borrower applicable to the
payment of the claims of both Lender and Guarantor shall be paid to Lender and
shall be first applied by Lender to the Indebtedness of Borrower to Lender.
Guarantor does hereby assign to Lender all claims which it may have or acquire
against Borrower or against any assignee or trustee in bankruptcy of Borrower;
provided however, that such assignment shall be effective only for the purpose
of assuring to Lender full payment in legal tender of the Indebtedness. If
Lender so requests, any notes or credit agreements now or hereafter evidencing
any debts or obligations of Borrower to Guarantor shall be marked with a legend
that the same are subject to this Guaranty and shall be delivered to Lender.
Guarantor agrees, and Lender hereby is authorized, in the name of Guarantor,
from time to time to execute and file financing statements and continuation
statements and to execute such other documents and to take such other actions as
Lender deems necessary or appropriate to perfect, preserve and enforce its
rights under this Guaranty.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Guaranty:
Amendments. This Guaranty, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to
the matters set forth in this Guaranty. No alteration of or amendment to
this Guaranty shall be effective unless given in writing and signed by the
party or parties sought to be charged or bound by the alteration or
amendment.
Applicable Law. This Guaranty has been delivered to Lender and accepted by
Lender in the State of Iowa. If there is a lawsuit, Guarantor agrees upon
Lender's request to submit to the jurisdiction of the courts of SCOTT
County, State of Iowa. This Guaranty shall be governed by and construed in
accordance with the laws of the State of Iowa.
Attorneys' Fees; Expenses. Guarantor agrees to pay upon demand all of
Lender's costs and expenses, including attorneys' fees and Lender's legal
expenses, incurred in connection with the enforcement of this Guaranty.
Lender may pay someone else to help enforce this Guaranty, and Guarantor
shall pay the costs and expenses of such enforcement. Costs and expenses
include Lender's attorneys' fees and legal expenses whether or not there
is a lawsuit, including attorneys' fees and legal expenses for bankruptcy
proceedings (and including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post-judgment collection
services. Guarantor also shall pay all court costs and such additional
fees as may be directed by the court.
Notices. All notices required to be given by either party to the other
under this Guaranty shall be in writing, may be sent by telefacsimilie,
and, except for revocation notices by Guarantor, shall be effective when
actually delivered or when deposited with a nationally recognized
overnight courier, or when deposited in the United States mail, first
class postage prepaid, addressed to the party to whom the notice is to be
given at the address shown above or to such other addresses as either
party may designate to the other in writing. All revocation notices by
Guarantor shall be in writing and shall be effective only upon delivery to
Lender as provided above in the section titled "DURATION OF GUARANTY." If
there is more than one Guarantor, notice to any Guarantor will constitute
notice to all Guarantors. For notice purposes, Guarantor agrees to keep
Lender informed at all times of Guarantor's current address.
Interpretation. In all cases where there is more than one Borrower or
Guarantor, then all words used in this Guaranty in the singular shall be
deemed to have been used in the plural where the context and construction
so require; and where there is more than one Borrower named in this
Guaranty or when this Guaranty is executed by more than one Guarantor, the
words "Borrower" and "Guarantor" respectively shall mean all and any one
or more of them. The words "Guarantor," "Borrower," and Lender" include
the heirs, successors, assigns, and transferees of each of them. Caption
headings in this Guaranty are for convenience purposes only and are not to
be used to interpret or define the provisions of this Guaranty. If a court
of competent jurisdiction finds any provision of this Guaranty to be
invalid or unenforceable as to any person or circumstance, such finding
shall not render that provision invalid or unenforceable as to any other
persons or circumstances, and all provisions of this Guaranty in all other
respects shall remain valid and enforceable. If any one or more of
Borrower or Guarantor are corporations or partnerships, it is not
necessary for Lender to inquire into the powers of Borrower or Guarantor
or of the officers, directors, partners, or agents acting or purporting to
act on their behalf, and any Indebtedness made or created in reliance upon
the professed exercise of such powers shall be guaranteed under this
Guaranty.
Waiver. Lender shall not be deemed to have waived any rights under this
Guaranty unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender
of a provision of this Guaranty shall not prejudice or constitute a waiver
of Lender's right otherwise to demand strict compliance with that
provision or any other provision of this Guaranty. No prior waiver by
Lender, nor any course of dealing between Lender and Guarantor, shall
constitute a waiver of any of Lender's rights or of any of Guarantor's
obligations as to any future transactions. Whenever the consent of Lender
is required under this Guaranty, the granting of such consent by Lender in
any instance shall not constitute continuing consent to subsequent
instances where such consent is required and in all cases such consent may
be granted or withheld in the sole discretion of Lender.
<PAGE>
11-12-1996 COMMERCIAL GUARANTY Page 3
Loan No 1082002715 (Continued)
================================================================================
EACH UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS
GUARANTY AND AGREES TO ITS TERMS. IN ADDITION, EACH GUARANTOR UNDERSTANDS THAT
THIS GUARANTY IS EFFECTIVE UPON GUARANTOR'S EXECUTION AND DELIVERY OF THIS
GUARANTY TO LENDER AND THAT THE GUARANTY WILL CONTINUE UNTIL TERMINATED IN THE
MANNER SET FORTH IN THE SECTION TITLED "DURATION OF GUARANTY." NO FORMAL
ACCEPTANCE BY LENDER IS NECESSARY TO MAKE THIS GUARANTY EFFECTIVE. EACH
UNDERSIGNED GUARANTOR ACKNOWLEDGES RECEIPT OF A COPY OF THIS GUARANTY AND ALL
OTHER DOCUMENTS RELATING TO THIS DEBT. THIS GUARANTY IS DATED NOVEMBER 12, 1996.
GUARANTOR:
X
---------------------------------------
Clifford E. Godfrey
- --------------------------------------------------------------------------------
INDIVIDUAL ACKNOWLEDGMENT
STATE OF _____________________________)
) SS
COUNTY OF ____________________________)
On this ____________ day of ______________________,A.D., 19___, before me a
Notary Public in and for said County and State personally appeared Clifford E.
Godfrey, to me known to be the person named in and who executed the foregoing
instrument and acknowledged that he or she executed the same as his or her
voluntary act and deed.
-----------------------------------
Notary Public in the State of
--------------------
================================================================================
LASER PRO, Reg. U.S. Pat. & T.M. Off., Ver. 3.22b(c) 1996 CFI ProServices, Inc.
All rights reserved. [IA-E20 F3.22a CINEMA1.LN C17.OVL]
<PAGE>
COMMERICAL GUARANTY
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C> <C>
410 80 101
- ------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this
document to any particular loan or item.
- ------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C>
Borrower: Cinema Saver Theatre Corporation (TIN: ) Lender: QUAD CITY BANK AND TRUST COMPANY
1422 Delgany Street, Suite LL3 2118 MIDDLE ROAD
Denver, CO 80202 P.O. BOX 395
BETTENDORF, IA 52722
</TABLE>
Guarantor: Lyle A. Chapman, Jr.
================================================================================
AMOUNT OF GUARANTY. The amount of this Guaranty is Unlimited.
CONTINUING UNLIMITED GUARANTY. For good and valuable consideration, Lyle A.
Chapman, Jr. ("Guarantor") absolutely and unconditionally guarantees and
promises to pay to QUAD CITY BANK AND TRUST COMPANY ("Lender") or its order, in
legal tender of the United States of America, the Indebtedness (as that term is
defined below) of Cinema Saver Theatre Corporation ("Borrower") to Lender on the
terms and conditions set forth in this Guaranty. Under this Guaranty, the
liability of Guarantor is unlimited and the obligations of Guarantor are
continuing.
DEFINITIONS. The following words shall have the following meanings when used in
this Guaranty:
Borrower. The word "Borrower" means Cinema Saver Theatre Corporation.
Guarantor. The word "Guarantor" means Lyle A. Chapman, Jr.
Guaranty. The word "Guaranty" means this Guaranty made by Guarantor for the
benefit of Lender dated November 12, 1996.
Indebtedness. The word "Indebtedness" is used in its most comprehensive
sense and means and includes any and all of Borrower's liabilities,
obligations, debts, and indebtedness to Lender, now existing or hereinafter
incurred or created, including, without limitation, all loans, advances,
interest, costs, debts, overdraft indebtedness, credit card indebtedness,
lease obligations, other obligations, and liabilities of Borrower, or any
of them, and any present or future judgments against Borrower, or any of
them; and whether any such indebtedness is voluntarily or involuntarily
incurred, due or not due, absolute or contingent, liquidated or
unliquidated, determined or undetermined; whether Borrower may be liable
individually or jointly with others, or primarily or secondarily, or as
guarantor or surety; whether recovery on the Indebtedness may be or may
become barred or unenforceable against Borrower for any reason whatsoever;
and whether the Indebtedness arises from transactions which may be voidable
on account of infancy, insanity, ultra vires, or otherwise.
Lender. The word "Lender" means QUAD CITY BANK AND TRUST COMPANY, its
successors and assigns.
Related Documents. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Indebtedness.
NATURE OF GUARANTY. Guarantor's liability under this Guaranty shall be open and
continuous for so long as this Guaranty remains in force. Guarantor intends to
guarantee at all times the performance and prompt payment when due, whether at
maturity or earlier by reason of acceleration or otherwise, of all Indebtedness.
Accordingly, no payments made upon the Indebtedness will discharge or diminish
the continuing liability of Guarantor in connection with any remaining portions
of the Indebtedness or any of the Indebtedness which subsequently arises or is
thereafter incurred or contracted.
DURATION OF GUARANTY. This Guaranty will take effect when received by Lender
without the necessity of any acceptance by Lender, or any notice to Guarantor or
to Borrower, and will continue in full force until all Indebtedness incurred or
contracted before receipt by Lender of any notice of revocation shall have been
fully and finally paid and satisfied and all other obligations of Guarantor
under this Guaranty shall have been performed in full. If Guarantor elects to
revoke this Guaranty, Guarantor may only do so in writing. Guarantor's written
notice of revocation must be mailed to Lender, by certified mail, at the address
of Lender listed above or such other place as Lender may designate in writing.
Written revocation of this Guaranty will apply only to advances or new
Indebtedness created after actual receipt by Lender of Guarantor's written
revocation. For this purpose and without limitation, the term "new Indebtedness"
does not include Indebtedness which at the time of notice of revocation is
contingent, unliquidated, undetermined or not due and which later becomes
absolute, liquidated, determined or due. This Guaranty will continue to bind
Guarantor for all Indebtedness incurred by Borrower or committed by Lender prior
to receipt of Guarantor's written notice of revocation, including any
extensions, renewals, substitutions or modifications of the Indebtedness. All
renewals, extensions, substitutions, and modifications of the Indebtedness
granted after Guarantor's revocation, are contemplated under this Guaranty and,
specifically will not be considered to be new Indebtedness. This Guaranty shall
bind the estate of Guarantor as to Indebtedness created both before and after
the death or incapacity of Guarantor, regardless of Lender's actual notice of
Guarantor's death. Subject to the foregoing, Guarantor's executor or
administrator or other legal representative may terminate this Guaranty in the
same manner in which Guarantor might have terminated it and with the same
effect. Release of any other guarantor or termination of any other guaranty of
the Indebtedness shall not affect the liability of Guarantor under this
Guaranty. A revocation received by Lender from any one or more Guarantors shall
not affect the liability of any remaining Guarantors under this Guaranty. It is
anticipated that fluctuations may occur in the aggregate amount of Indebtedness
covered by this Guaranty, and it is specifically acknowledged and agreed by
Guarantor that reductions in the amount of Indebtedness, even to zero dollars
($0.00), prior to written revocation of this Guaranty by Guarantor shall not
constitute a termination of this Guaranty. This Guaranty is binding upon
Guarantor and Guarantor's heirs, successors and assigns so long as any of the
guaranteed Indebtedness remains unpaid and even though the Indebtedness
guaranteed may from time to time be zero dollars ($0.00).
GUARANTOR'S AUTHORIZATION TO LENDER. Guarantor authorizes Lender, either before
or after any revocation hereof, without notice or demand and without lessening
Guarantor's liability under this Guaranty, from time to time: (a) prior to
revocation as set forth above, to make one or more additional secured or
unsecured loans to Borrower, to lease equipment or other goods to Borrower, or
otherwise to extend additional credit to Borrower; (b) to alter, compromise,
renew, extend, accelerate, or otherwise change one or more times the time for
payment or other terms of the Indebtedness or any part of the Indebtedness,
including increases and decreases of the rate of interest on the Indebtedness;
extensions may be repeated and may be for longer than the original loan term;
(c) to take and hold security for the payment of this Guaranty or the
Indebtedness, and exchange, enforce, waive, subordinate, fail or decide not to
perfect, and release any such security, with or without the substitution of new
collateral; (d) to release, substitute, agree not to sue, or deal with any one
or more of Borrower's sureties, endorsers, or other guarantors on any terms or
in any manner Lender may choose; (e) to determine how, when and what application
of payments and credits shall be made on the Indebtedness; (f) to apply such
security and direct the order or manner of sale thereof, including without
limitation, any nonjudicial sale permitted by the terms of the controlling
security agreement or deed of trust, as Lender in its discretion may determine;
(g) to sell, transfer, assign, or grant participations in all or any part of the
Indebtedness; and (h) to assign or transfer this Guaranty in whole or in part.
GUARANTOR'S REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants to
Lender that (a) no representations or agreements of any kind have been made to
Guarantor which would limit or qualify in any way the terms of this Guaranty;
(b) this Guaranty is executed at Borrower's request and not at the request of
Lender; (c) Guarantor has full power, right and authority to enter into this
Guaranty; (d) the provisions of this Guaranty do not conflict with or result in
a default under any agreement or other instrument binding upon Guarantor and do
not result in a violation of any law, regulation, court decree or order
applicable to Guarantor; (e) Guarantor has not and will not, without the prior
written consent of Lender, sell, lease, assign, encumber, hypothecate, transfer,
or otherwise dispose of all or substantially all of Guarantor's assets, or any
interest therein; (f) upon Lender's request, Guarantor will provide to Lender
financial and credit information in form acceptable to Lender, and all such
financial information which currently has been, and all future financial
information which will be provided to Lender is and will be true and correct in
all material respects and fairly present the financial condition of Guarantor as
of the dates the financial information is provided; (g) no material adverse
change has occurred in Guarantor's financial condition since the date of the
most recent financial statements provided to Lender and no event has occurred
which may materially adversely affect Guarantor's financial condition; (h) no
litigation, claim, investigation, administrative proceeding or similar action
(including those for unpaid taxes) against Guarantor is pending or threatened;
(i) Lender has made no representation to Guarantor as to the creditworthiness of
Borrower; and (j) Guarantor has established adequate means of obtaining from
Borrower on a continuing basis information regarding Borrower's financial
condition. Guarantor agrees to keep adequately informed from such means of any
facts, events, or circumstances which might in any way affect Guarantor's risks
under this Guaranty, and Guarantor further agrees that, absent a request for
information, Lender shall have no obligation to disclose to Guarantor any
information or documents acquired by Lender in the course of its relationship
with Borrower.
GUARANTOR'S WAIVERS. Except as prohibited by applicable law, Guarantor waives
any right to require Lender (a) to continue lending money or to extend other
credit to Borrower; (b) to make any presentment, protest, demand, or notice of
any kind, including notice of any nonpayment of the Indebtedness or of any
nonpayment related to any collateral, or notice of any action or nonaction on
the part of Borrower, Lender, any surety, endorser, or other guarantor in
connection with the Indebtedness or in connection with the creation of new or
additional loans or obligations; (c) to resort for payment or to proceed
directly or at once against any person, including Borrower or any other
guarantor; (d) to proceed directly against or exhaust any collateral held by
Lender from Borrower, any other guarantor, or any other person; (e) to give
notice of the terms, time, and place of any public or
<PAGE>
11-12-1996 COMMERCIAL GUARANTY Page 2
Loan No 1082002715 (Continued)
================================================================================
private sale of personal property security held by Lender from Borrower or to
comply with any other applicable provisions of the Uniform Commercial Code; (f)
to pursue any other remedy within Lender's power; or (g) to commit any act or
omission of any kind, or at any time, with respect to any matter whatsoever.
If now or hereafter (a) Borrower shall be or become insolvent, and (b) the
Indebtedness shall not at all times until paid be fully secured by collateral
pledged by Borrower, Guarantor hereby forever waives and relinquishes in favor
of Lender and Borrower, and their respective successors, any claim or right to
payment Guarantor may now have or hereafter have or acquire against Borrower, by
subrogation or otherwise, so that at no time shall Guarantor be or become a
"creditor" of Borrower within the meaning of 11 U.S.C. section 547(b), or any
successor provision of the Federal bankruptcy laws.
Guarantor also waives any and all rights or defenses arising by reason of (a)
any "one action" or "anti-deficiency" law or any other law which may prevent
Lender from bringing any action, including a claim for deficiency, against
Guarantor, before or after Lender's commencement or completion of any
foreclosure action, either judicially or by exercise of a power of sale; (b) any
election of remedies by Lender which destroys or otherwise adversely affects
Guarantor's subrogation rights or Guarantor's rights to proceed against Borrower
for reimbursement, including without limitation, any loss of rights Guarantor
may suffer by reason of any law limiting, qualifying, or discharging the
Indebtedness; (c) any disability or other defense of Borrower, of any other
guarantor, or of any other person, or by reason of the cessation of Borrower's
liability from any cause whatsoever, other than payment in full in legal tender,
of the Indebtedness; (d) any right to claim discharge of the Indebtedness on the
basis of unjustified impairment of any collateral for the Indebtedness; (e) any
statute of limitations, if at any time any action or suit brought by Lender
against Guarantor is commenced there is outstanding Indebtedness of Borrower to
Lender which is not barred by any applicable statute of limitations; or (f) any
defenses given to guarantors at law or in equity other than actual payment and
performance of the Indebtedness. If payment is made by Borrower, whether
voluntarily or otherwise, or by any third party, on the Indebtedness and
thereafter Lender is forced to remit the amount of that payment to Borrower's
trustee in bankruptcy or to any similar person under any federal or state
bankruptcy law or law for the relief of debtors, the indebtedness shall be
considered unpaid for the purpose of enforcement of this Guaranty.
Guarantor further waives and agrees not to assert or claim at any time any
deductions to the amount guaranteed under this Guaranty for any claim of setoff,
counterclaim, counter demand, recoupment or similar right, whether such claim,
demand or right may be asserted by the Borrower, the Guarantor, or both.
GUARANTOR'S UNDERSTANDING WITH RESPECT TO WAIVERS. Guarantor warrants and agrees
that each of the waivers set forth above is made with Guarantor's full knowledge
of its significance and consequences and that, under the circumstances, the
waivers are reasonable and not contrary to public policy or law. If any such
waiver is determined to be contrary to any applicable law or public policy, such
waiver shall be effective only to the extent permitted by law or public policy.
LENDER'S RIGHT OF SETOFF. In addition to all liens upon and rights of setoff
against the moneys, securities or other property of Guarantor given to Lender by
law, Lender shall have, with respect to Guarantor's obligations to Lender under
this Guaranty and to the extent permitted by law, a contractual possessory
security interest in and a right of setoff against, and Guarantor hereby
assigns, conveys, delivers, pledges, and transfers to Lender all of Guarantor's
right, title and interest in and to, all deposits, moneys, securities and other
property of Guarantor now or hereafter in the possession of or on deposit with
Lender, whether held in a general or special account or deposit, whether held
jointly with someone else, or whether held for safekeeping or otherwise,
excluding however all IRA, Keogh, and trust accounts. Every such security
interest and right of setoff may be exercised without demand upon or notice to
Guarantor. No security interest or right of setoff shall be deemed to have been
waived by any act or conduct on the part of Lender or by any neglect to exercise
such right of setoff or to enforce such security interest or by any delay in so
doing. Every right of setoff and security interest shall continue in full force
and effect until such right of setoff or security interest is specifically
waived or released by an instrument in writing executed by Lender.
SUBORDINATION OF BORROWER'S DEBTS TO GUARANTOR. Guarantor agrees that the
Indebtedness of Borrower to Lender, whether now existing or hereafter created,
shall be prior to any claim that Guarantor may now have or hereafter acquire
against Borrower, whether or not Borrower becomes insolvent. Guarantor hereby
expressly subordinates any claim Guarantor may have against Borrower, upon any
account whatsoever, to any claim that Lender may now or hereafter have against
Borrower. In the event of insolvency and consequent liquidation of the assets of
Borrower, through bankruptcy, by an assignment for the benefit of creditors, by
voluntary liquidation, or otherwise, the assets of Borrower applicable to the
payment of the claims of both Lender and Guarantor shall be paid to Lender and
shall be first applied by Lender to the indebtedness of Borrower to Lender.
Guarantor does hereby assign to Lender all claims which it may have or acquire
against Borrower or against any assignee or trustee in bankruptcy of Borrower;
provided however, that such assignment shall be effective only for the purpose
of assuring to Lender full payment in legal tender of the Indebtedness. If
Lender so requests, any notes or credit agreements now or hereafter evidencing
any debts or obligations of Borrower to Guarantor shall be marked with a legend
that the same are subject to this Guaranty and shall be delivered to Lender.
Guarantor agrees, and Lender hereby is authorized, in the name of Guarantor,
from time to time to execute and file financing statements and continuation
statements and to execute such other documents and to take such other actions as
Lender deems necessary or appropriate to perfect, preserve and enforce its
rights under this Guaranty.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Guaranty:
Amendments. This Guaranty, together with any Related Documents, constitutes
the entire understanding and agreement of the parties as to the matters set
forth in this Guaranty. No alteration of or amendment to this Guaranty
shall be effective unless given in writing and signed by the party or
parties sought to be charged or bound by the alteration or amendment.
Applicable Law. This Guaranty has been delivered to Lender and accepted by
Lender in the State of Iowa. If there is a lawsuit, Guarantor agrees upon
Lender's request to submit to the jurisdiction of the courts of SCOTT
County, State of Iowa. This Guaranty shall be governed by and construed in
accordance with the laws of the State of Iowa.
Attorneys' Fees; Expenses. Guarantor agrees to pay upon demand all of
Lender's costs and expenses, including attorneys' fees and Lender's legal
expenses, incurred in connection with the enforcement of this Guaranty.
Lender may pay someone else to help enforce this Guaranty, and Guarantor
shall pay the costs and expenses of such enforcement. Costs and expenses
include Lender's attorneys' fees and legal expenses whether or not there is
a lawsuit, including attorneys' fees and legal expenses for bankruptcy
proceedings (and including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post-judgment collection
services. Guarantor also shall pay all court costs and such additional fees
as may be directed by the court.
Notices. All notices required to be given by either party to the other
under this Guaranty shall be in writing, may be sent by telefacsimilie,
and, except for revocation notices by Guarantor, shall be effective when
actually delivered or when deposited with a nationally recognized overnight
courier, or when deposited in the United States mail, first class postage
prepaid, addressed to the party to whom the notice is to be given at the
address shown above or to such other addresses as either party may
designate to the other in writing. All revocation notices by Guarantor
shall be in writing and shall be effective only upon delivery to Lender as
provided above in the section titled "DURATION OF GUARANTY." If there is
more than one Guarantor, notice to any Guarantor will constitute notice to
all Guarantors. For notice purposes, Guarantor agrees to keep Lender
informed at all times of Guarantor's current address.
Interpretation. In all cases where there is more than one Borrower or
Guarantor, then all words used in this Guaranty in the singular shall be
deemed to have been used in the plural where the context and construction
so require; and where there is more than one Borrower named in this
Guaranty or when this Guaranty is executed by more than one Guarantor, the
words "Borrower" and "Guarantor" respectively shall mean all and any one or
more of them. The words "Guarantor," "Borrower," and "Lender" include the
heirs, successors, assigns, and transferees of each of them. Caption
headings in this Guaranty are for convenience purposes only and are not to
be used to interpret or define the provisions of this Guaranty. If a court
of competent jurisdiction finds any provision of this Guaranty to be
invalid or unenforceable as to any person or circumstance, such finding
shall not render that provision invalid or unenforceable as to any other
persons or circumstances, and all provisions of this Guaranty in all other
respects shall remain valid and enforceable. If any one or more of Borrower
or Guarantor are corporations or partnerships, it is not necessary for
Lender to inquire into the powers of Borrower or Guarantor or of the
officers, directors, partners, or agents acting or purporting to act on
their behalf, and any Indebtedness made or created in reliance upon the
professed exercise of such powers shall be guaranteed under this Guaranty.
Waiver. Lender shall not be deemed to have waived any rights under this
Guaranty unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender of
a provision of this Guaranty shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or
any other provision of this Guaranty. No prior waiver by Lender, nor any
course of dealing between Lender and Guarantor, shall constitute a waiver
of any of Lender's rights or of any of Guarantor's obligations as to any
future transactions. Whenever the consent of Lender is required under this
Guaranty, the granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in the
sole discretion of Lender.
<PAGE>
11-12-1996 COMMERCIAL GUARANTY Page 3
Loan No 1082002715 (Continued)
================================================================================
EACH UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS
GUARANTY AND AGREES TO ITS TERMS. IN ADDITION, EACH GUARANTOR UNDERSTANDS THAT
THIS GUARANTY IS EFFECTIVE UPON GUARANTOR'S EXECUTION AND DELIVERY OF THIS
GUARANTY TO LENDER AND THAT THE GUARANTY WILL CONTINUE UNTIL TERMINATED IN THE
MANNER SET FORTH IN THE SECTION TITLED "DURATION OF GUARANTY." NO FORMAL
ACCEPTANCE BY LENDER IS NECESSARY TO MAKE THIS GUARANTY EFFECTIVE. EACH
UNDERSIGNED GUARANTOR ACKNOWLEDGES RECEIPT OF A COPY OF THIS GUARANTY AND ALL
OTHER DOCUMENTS RELATING TO THIS DEBT. THIS GUARANTY IS DATED NOVEMBER 12, 1996.
GUARANTOR:
X
---------------------------------------
Lyle A. Chapman, Jr.
- --------------------------------------------------------------------------------
INDIVIDUAL ACKNOWLEDGMENT
STATE OF __________________)
) SS
COUNTY OF _________________)
On this ____________ day of ______________________,A.D., 19___, before me a
Notary Public in and for said County and State personally appeared Lyle A.
Chapman, Jr., to me known to be the person named in and who executed the
foregoing instrument and acknowledged that he or she executed the same as his or
her voluntary act and deed.
---------------------------------------
Notary Public in the State of
------------------------
================================================================================
LASER PRO, Reg. U.S. Pat. & T.M. Off., Ver. 3.22b (c) 1996 CFI ProServices,
Inc. All rights reserved. [IA-E20 F3.22a CINEMA1.LN C17.OVL]
THIS GUARANTY IS SECURED BY A SECURITY AGREEMENT DATED 11/15/96 COVERING STOCK.
<PAGE>
FIDLAR & CHAMBERS CO APPROVED FORM UCC-41
CAVEAT: As to limi-
tations upon the gen-
eral use of this form.
consider Code Sections
554.9104, 554.9103(4).
554.9102 and 322.3
subparagraph 6.
SECURITY AGREEMENT - GENERAL FORM
CONSUMER GOODS, EQUIPMENT, FIXTURES, FARM PRODUCTS OR INVENTORY GOODS
(UNIFORM COMMERCIAL CODE SECTION 554.9109 AND FOLLOWING)
NOVEMBER 15, 1996
(Date)
1. PARTIES--PROPERTY: The undersigned Debtor (jointly and severally) for
value received hereby grants to the undersigned Secured Party or Lender, a
security interest in the following described property
8000 SHS OF CSX CORPORATION STOCK
7920 SHS OF E.I. DUPONT DE NEMOURS & COMPANY STOCK
12000 SHS OF PEPSICO STOCK
6000 SHS OF UNION PACIFIC STOCK
18000 SHS OF WM. WRIGLEY JR. COMPANY STOCK
all products of additions to and replacements thereof and all accessories,
accessions, parts and equipment now or hereafter affixed thereto or used in
connection therewith, and the proceeds of all property secured hereby as set out
below.
2. IF FARM PRODUCTS, CROPS OR FIXTURES ARE COLLATERAL: If this instrument
includes livestock, then as additional collateral, Debtor assigns, transfers and
conveys to Secured Party a security interest in and to all increase and issue
thereof and additions, replacements and substitutions therefor, and all feed,
both hay and grain, owned by Debtor, all water privileges, and all equipment,
used in feeding and handling said livestock and also all of Debtor's right,
title and interest in all leases covering lands for pasture and grazing
purposes. If crops this agreement includes annual and perennial crops and
products thereof growing or planted on the following described property, either
before or after harvest and all additions and substitutions therefor, or if the
property covered hereby is livestock, crops or fixtures, it is and will be
located on the following described property in _______________________________
County, Iowa;
A LANDOWNER: If other than Debtor, the record owner of the land above
described is ___________________________________________________________________
________________________________________________________________________________
3. IF INVENTORY IS COLLATERAL: If this instrument includes inventory then
Debtor hereby grants to Lender a security interest in all of his inventory now
owned or hereafter acquired and all replacements, substitutions, and additions
thereto, and a security interest in all of Debtor's merchandise, raw materials,
work in process and finished products.
A. Upon execution of this agreement and upon request of Secured Party at
any time while the indebtedness hereby secured remains unpaid Debtor will
furnish to Secured Party a signed statement, in form satisfactory to Secured
Party, showing the current status of the inventory herein secured to include for
any given period designated by Secured Party, the opening inventory, inventory
acquired, inventory sold and delivered, inventory sold and held for future
delivery, inventory returned or repossessed, inventory used or consumed in
Debtor's business and closing inventory.
B. If at any given time the value of the collateral does not equal or
exceed the total amount of indebtedness of Debtor to Secured Party, Debtor shall
at once pay the excess of indebtedness to Secured Party or transfer additional
collateral to Secured Party to meet Secured Party's satisfaction.
4. OBLIGATIONS SECURED--OPEN END: This security interest is given to secure
the performance of the covenants and agreements herein set forth and for the
payment of an indebtedness in the face amount of $3,255,000.00 as evidenced
by a promissory note(s) or other instrument(s) executed by Debtor payable to the
order of said Secured Party as therein provided, and with interest as therein
set forth and for all costs and expenses incurred in the collection of same
including a reasonable attorney's fee and enforcement of Secured Party's rights
thereunder, and for the payment of all extensions and renewals thereof and all
changes in form of said indebtedness which may be from time to time effected by
agreement between Secured Party and Debtor, and for all advances made by Secured
Party for taxes, levies and repairs to or maintenance of said collateral or to
protect or reserve the collateral against the claims of others and for all costs
and expenses incurred in the collection of same and enforcement of Secured
Party's rights hereunder and all money heretofore and hereafter advanced by
Secured Party at his option to or for the account of Debtor and all other
present or future direct or contingent liabilities of Debtor to Secured Party of
any nature whatsoever and however arising or acquired and for interest on any
money expended by Secured Party for taxes, levies and repairs to or maintenance
of said collateral for interest on any money expended for costs and expenses
incurred in the collection of said note or instrument and the enforcement of
Secured Party's rights hereunder. All sums payable hereunder shall be paid at
the place stated in the promissory note or instrument, if any, and if none then
at the location of the Secured Party as stated below, and if none, then at the
place of residence of the Secured Party.
5. This instrument shall be void upon payment of all obligations secured
hereby.
6. INFORMATIONAL (Check one or more).
[X] The address of the Debtor, below, is his residence.
[_] Such address is where the Collateral is kept.
[_] Such address is the Debtors chief place of business.
[_] Debtor is a non-resident of Iowa.
7. USE OF PROPERTY: Debtor warrants, covenants and agrees that: The property
is or is to be used by Debtor primarily (check 1, 2 or 3):
[_] Equipment
1. In business
[_] Inventory
[_] 2. For personal, family
or household purposes:
[_] Farm Product
3. In farming operations.
[_] Farm Equipment
8. PURPOSE: The security interest herein is given on this collateral
[_] for a purchase money loan; [X] otherwise
9. THIS AGREEMENT SPECIFICALLY INCLUDES ALL OF THE ADDITIONAL PROVISIONS
SET FORTH ON THE REVERSE SIDE HEREOF. THE SAME BEING INCORPORATED HEREIN BY
REFERENCE. DEBTOR(S) HEREBY ACKNOWLEDGE(S) RECEIPT OF A COPY OF THIS INSTRUMENT.
X QUAD CITY BANK & TRUST COMPANY
- ------------------------------- --------------------------------------
LYLE CHAPMAN, JR. (Debtor)
X by
- ------------------------------- ------------------------------------
RITA M. CHAPMAN (Debtor) MICHAEL A. BAUER, PRESIDENT (secured
4301 S. DOWNING Party) 4500 BRADY STREET, SUITE 100
- ------------------------------- ------------------------------------
(Number and Street) [Number and Street)
ENGLEWOOD DAVENPORT
- ------------------------------- ------------------------------------
(City) (City)
CO 80110 IA 52806
- ------------------------------- ------------------------------------
(County) (State) (County) (State)
*Consider the desirability of joinder of spouse. Although Code Section 556.1
has been repealed by Section 554.10102, there remains Code Chapter 627 and the
practicalities of determining title to any exempt property.
SECURITY AGREEMENT--GENERAL FORM
<PAGE>
F.R. U-1
O.M.B. No.7100-0115
Approval expires July 31, 1998
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
Statement of Purpose for an Extension of Credit Secured By Margin Stock
(Federal Reserve Form U-1)
QUAD CITY BANK AND TRUST COMPANY
------------------------------------
Name of Bank
This report is required by law (15 U.S.C. 78g and 78w; 12 CFR 221).
Public reporting burden for this collection of information is estimated to
average 4.2 minutes (0.07 hours) per response, including the time for reviewing
instructions, searching existing data sources, gathering and maintaining the
data needed, and completing and reviewing the collection of information. Send
comments regarding this burden estimate, including suggestions for reducing this
burden, to Secretary, Board of Governors of the Federal Reserve System, 20th and
C Streets, N.W., Washington, D.C. 20551; and to the Office of Management and
Budget, Paperwork Reduction Project (7100--0115), Washington, D.C. 20503.
INSTRUCTIONS
1. This form must be completed when a bank extends credit in excess of
$100,000 secured directly or indirectly, in whole or in part, by any margin
stock.
2. The term "margin stock" is defined in Regulation U (12 CFR 221) and
includes, principally: (1) stocks that are registered on a national
securities exchange or that are on the Federal Reserve Board's List of
Marginable OTC Stocks; (2) debt securities (bonds) that are convertible
into margin stocks; (3) any over-the-counter security designated as
qualified for trading in the National Market System under a designation
plan approved by the Securities and Exchange Commission (NMS security); and
(4) shares of mutual funds, unless 95 per cent of the assets of the fund
are continuously invested in U.S. government, agency, state, or municipal
obligations.
3. Please print or type (if space is inadequate, attach separate sheet).
PART I. To be completed by borrower(s).
1. What is the amount of the credit being extended? $3,255,000.00
---------------------------
2. Will any part of this credit be used to purchase or carry margin stock?
[_] Yes [X] No
If the answer Is "no", describe the specific purpose of the credit.
REFINANCING EXISTING DEBT.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
I (we) have read this form and certify that to the best of my (our) knowledge
and belief the information given is true, accurate, and complete, and that the
margin stock and any other securities collateralizing this credit are authentic,
genuine, unaltered, and not stolen, forged, or counterfeit.
Signed: Signed:
X 11/15/96 X 11/15/96
- -------------------------------- -----------------------------------
Borrower's Signature Date Borrower's Signature Date
LYLE CHAPMAN RITA M. CHAPMAN
- -------------------------------- -----------------------------------
Print or Type Name Print or Type Name
This form should not be signed if blank.
A borrower who falsely certifies the purpose of a credit on this form or
otherwise willfully or intentionally evades the provisions of Regulation U will
also violate Federal Reserve Regulation X, "Borrowers of Securities Credit."
<PAGE>
11-15-1996 FEDERAL RESERVE FORM U-1 Page 2
Loan No 1072002725 (Continued)
================================================================================
PART II. To be completed by bank only if the purpose of the credit is to
purchase or carry margin securities (Part I (2) answered "yes").
1. List the margin stock securing this credit; do not include debt securities
convertible into margin stock. The maximum loan to value of margin stock is 50
per cent of its current market value under the current Supplement to Regulation
U.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
No. of Issue Market price Date and source Total market
shares per share of valuation value per issue
(See note below)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
2. List the debt securities convertible into margin stock securing this credit.
The maximum loan value of such debt securities is 50 per cent of the current
market value under the current Supplement to Regulation U.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Principal Issue Market price Date and source Total market
amount of valuation value per issue
(See note below)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
3. List other collateral including nonmargin stock securing this credit.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Describe briefly Market price Date and source Good faith
of valuation loan value
(See note below)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: Bank need not complete "Date and source of valuation" if the market value
was obtained from regularly published information in a journal of general
circulation or an automated quotation system.
PART III. To be signed by a bank officer in all instances.
I am a duly authorized representative of the bank and understand that this
credit secured by margin stock may be subject to the credit restrictions of
Regulation U. I have read this form and any attachments, and I have accepted the
customer's statement in Part I in good faith as required by Regulation U*, and I
certify that to the best of my knowledge and belief, all the information given
is true, accurate, and complete. I also certify that if any securities that
directly secure the credit are not or will not be registered in the name of the
borrower or its nominee, I have or will cause to have examined the written
consent of the registered owner to pledge such securities. I further certify
that any securities that have been or will be physically delivered to the bank
in connection with this credit have been or will be examined, that all
validation procedures required by bank policy and the Securities Exchange Act of
1934 (section 17 (f), as amended) have been or will be performed, and that I am
satisfied to the best of my knowledge and belief that such securities are
genuine and not stolen or forged and their faces have not been altered.
Signed: QUAD CITY BANK & TRUST COMPANY
NOVEMBER 15, 1996 BY:
- --------------------------- ----------------------------------------
Date Bank officer's signature
PRESIDENT MICHAEL A. BAUER
- --------------------------- ----------------------------------------
Title Print or type name
* To accept the customer's statement in good faith, the officer of the bank must
be alert to the circumstances surrounding the credit and, if in possession of
any information that would cause a prudent person not to accept the statement
without inquiry, must have investigated and be satisfied that the statement is
truthful. Among the facts which would require such investigation are receipt of
the statement through the mail or from a third party.
This form must be retained by the lender for at least three years after the
credit is extinguished.
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C> <C>
410 80 101
- ------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this
document to any particular loan or item.
- ------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C>
Borrower: Cinema Saver Theatre Corporation (TIN: ) Lender: QUAD CITY BANK AND TRUST COMPANY
1422 Delgany Street, Suite LL3 2118 MIDDLE ROAD
Denver, CO 80202 P.O. BOX 395
BETTENDORF, IA 52722
Guarantor: R. Haydn Silleck
</TABLE>
================================================================================
AMOUNT OF GUARANTY. The amount of this Guaranty is Unlimited.
CONTINUING UNLIMITED GUARANTY. For good and valuable consideration, R. Haydn
Silleck ("Guarantor") absolutely and unconditionally guarantees and promises to
pay to QUAD CITY BANK AND TRUST COMPANY ("Lender") or its order, in legal tender
of the United States of America, the Indebtedness (as that term is defined
below) of Cinema Saver Theatre Corporation ("Borrower") to Lender on the terms
and conditions set forth in this Guaranty. Under this Guaranty, the liability of
Guarantor is unlimited and the obligations of Guarantor are continuing.
DEFINITIONS. The following words shall have the following meanings when used in
this Guaranty:
Borrower. The word "Borrower" means Cinema Saver Theatre Corporation.
Guarantor. The word "Guarantor" means R. Haydn Silleck.
Guaranty. The word "Guaranty" means this Guaranty made by Guarantor for the
benefit of Lender dated November 12, 1996.
Indebtedness. The word "Indebtedness" is used in its most comprehensive
sense and means and includes any and all of Borrower's liabilities,
obligations, debts, and indebtedness to Lender, now existing or
hereinafter incurred or created, including, without limitation, all loans,
advances, interest, costs, debts, overdraft indebtedness, credit card
indebtedness, lease obligations, other obligations, and liabilities of
Borrower, or any of them, and any present or future judgments against
Borrower, or any of them; and whether any such Indebtedness is voluntarily
or involuntarily incurred, due or not due, absolute or contingent,
liquidated or unliquidated, determined or undetermined; whether Borrower
may be liable individually or jointly with others, or primarily or
secondarily, or as guarantor or surety; whether recovery on the
Indebtedness may be or may become barred or unenforceable against Borrower
for any reason whatsoever; and whether the Indebtedness arises from
transactions which may be voidable on account of infancy, insanity, ultra
vires, or otherwise.
Lender. The word "Lender" means QUAD CITY BANK AND TRUST COMPANY, its
successors and assigns.
Related Documents. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Indebtedness.
NATURE OF GUARANTY. Guarantor's liability under this Guaranty shall be open and
continuous for so long as this Guaranty remains in force. Guarantor intends to
guarantee at all times the performance and prompt payment when due, whether at
maturity or earlier by reason of acceleration or otherwise, of all Indebtedness.
Accordingly, no payments made upon the Indebtedness will discharge or diminish
the continuing liability of Guarantor in connection with any remaining portions
of the Indebtedness or any of the Indebtedness which subsequently arises or is
thereafter incurred or contracted.
DURATION OF GUARANTY. This Guaranty will take effect when received by Lender
without the necessity of any acceptance by Lender, or any notice to Guarantor or
to Borrower, and will continue in full force until all Indebtedness incurred or
contracted before receipt by Lender of any notice of revocation shall have been
fully and finally paid and satisfied and all other obligations of Guarantor
under this Guaranty shall have been performed in full. If Guarantor elects to
revoke this Guaranty, Guarantor may only do so in writing. Guarantor's written
notice of revocation must be mailed to Lender, by certified mail, at the address
of Lender listed above or such other place as Lender may designate in writing.
Written revocation of this Guaranty will apply only to advances or new
Indebtedness created after actual receipt by Lender of Guarantor's written
revocation. For this purpose and without limitation, the term "new Indebtedness"
does not include Indebtedness which at the time of notice of revocation is
contingent, unliquidated, undetermined or not due and which later becomes
absolute, liquidated, determined or due. This Guaranty will continue to bind
Guarantor for all Indebtedness incurred by Borrower or committed by Lender prior
to receipt of Guarantor's written notice of revocation, including any
extensions, renewals, substitutions or modifications of the Indebtedness. All
renewals, extensions, substitutions, and modifications of the Indebtedness
granted after Guarantor's revocation, are contemplated under this Guaranty and,
specifically will not be considered to be new Indebtedness. This Guaranty shall
bind the estate of Guarantor as to Indebtedness created both before and after
the death or incapacity of Guarantor, regardless of Lender's actual notice of
Guarantor's death. Subject to the foregoing, Guarantor's executor or
administrator or other legal representative may terminate this Guaranty in the
same manner in which Guarantor might have terminated it and with the same
effect. Release of any other guarantor or termination of any other guaranty of
the Indebtedness shall not affect the liability of Guarantor under this
Guaranty. A revocation received by Lender from any one or more Guarantors shall
not affect the liability of any remaining Guarantors under this Guaranty. It is
anticipated that fluctuations may occur in the aggregate amount of Indebtedness
covered by this Guaranty, and it is specifically acknowledged and agreed by
Guarantor that reductions in the amount of Indebtedness, even to zero dollars
($0.00), prior to written revocation of this Guaranty by Guarantor shall not
constitute a termination of this Guaranty. This Guaranty is binding upon
Guarantor and Guarantor's heirs, successors and assigns so long as any of the
guaranteed Indebtedness remains unpaid and even though the Indebtedness
guaranteed may from time to time be zero dollars ($0.00).
GUARANTOR'S AUTHORIZATION TO LENDER. Guarantor authorizes Lender, either before
or after any revocation hereof, without notice or demand and without lessening
Guarantor's liability under this Guaranty, from time to time: (a) prior to
revocation as set forth above, to make one or more additional secured or
unsecured loans to Borrower, to lease equipment or other goods to Borrower, or
otherwise to extend additional credit to Borrower; (b) to alter, compromise,
renew, extend, accelerate, or otherwise change one or more times the time for
payment or other terms of the Indebtedness or any part of the Indebtedness,
including increases and decreases of the rate of interest on the Indebtedness;
extensions may be repeated and may be for longer than the original loan term;
(c) to take and hold security for the payment of this Guaranty or the
Indebtedness, and exchange, enforce, waive, subordinate, fail or decide not to
perfect, and release any such security, with or without the substitution of new
collateral; (d) to release, substitute, agree not to sue, or deal with any one
or more of Borrower's sureties, endorsers, or other guarantors on any terms or
in any manner Lender may choose; (e) to determine how, when and what application
of payments and credits shall be made on the Indebtedness; (f) to apply such
security and direct the order or manner of sale thereof, including without
limitation, any nonjudicial sale permitted by the terms of the controlling
security agreement or deed of trust, as Lender in its discretion may determine;
(g) to sell, transfer, assign, or grant participations in all or any part of the
Indebtedness; and (h) to assign or transfer this Guaranty in whole or in part.
GUARANTOR'S REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants to
Lender that (a) no representations or agreements of any kind have been made to
Guarantor which would limit or qualify in any way the terms of this Guaranty;
(b) this Guaranty is executed at Borrower's request and not at the request of
Lender; (c) Guarantor has full power, right and authority to enter into this
Guaranty; (d) the provisions of this Guaranty do not conflict with or result in
a default under any agreement or other instrument binding upon Guarantor and do
not result in a violation of any law, regulation, court decree or order
applicable to Guarantor; (e) Guarantor has not and will not, without the prior
written consent of Lender, sell, lease, assign, encumber, hypothecate, transfer,
or otherwise dispose of all or substantially all of Guarantor's assets, or any
interest therein; (f) upon Lender's request, Guarantor will provide to Lender
financial and credit information in form acceptable to Lender, and all such
financial information which currently has been, and all future financial
information which will be provided to Lender is and will be true and correct in
all material respects and fairly present the financial condition of Guarantor as
of the dates the financial information is provided; (g) no material adverse
change has occurred in Guarantor's financial condition since the date of the
most recent financial statements provided to Lender and no event has occurred
which may materially adversely affect Guarantor's financial condition; (h) no
litigation, claim, investigation, administrative proceeding or similar action
(including those for unpaid taxes) against Guarantor is pending or threatened;
(i) Lender has made no representation to Guarantor as to the creditworthiness of
Borrower; and (j) Guarantor has established adequate means of obtaining from
Borrower on a continuing basis information regarding Borrower's financial
condition. Guarantor agrees to keep adequately informed from such means of any
facts, events, or circumstances which might in any way affect Guarantor's risks
under this Guaranty, and Guarantor further agrees that, absent a request for
information, Lender shall have no obligation to disclose to Guarantor any
information or documents acquired by Lender in the course of its relationship
with Borrower.
GUARANTOR'S WAIVERS. Except as prohibited by applicable law, Guarantor waives
any right to require Lender (a) to continue lending money or to extend other
credit to Borrower; (b) to make any presentment, protest, demand, or notice of
any kind, including notice of any nonpayment of the Indebtedness or of any
nonpayment related to any collateral, or notice of any action or nonaction on
the part of Borrower, Lender, any surety, endorser, or other guarantor in
connection with the Indebtedness or in connection with the creation of new or
additional loans or obligations; (c) to resort for payment or to proceed
directly or at once against any person, including Borrower or any other
guarantor; (d) to proceed directly against or exhaust any collateral held by
Lender from Borrower, any other guarantor, or any other person; (e) to give
notice of the terms, time, and place of any public or
<PAGE>
11-12-1996 COMMERCIAL GUARANTY Page 2
Loan No 1082002715 (Continued)
================================================================================
private sale of personal property security held by Lender from Borrower or to
comply with any other applicable provisions of the Uniform Commercial Code; (f)
to pursue any other remedy within Lender's power; or (g) to commit any act or
omission of any kind, or at any time, with respect to any matter whatsoever.
If now or hereafter (a) Borrower shall be or become insolvent, and (b) the
Indebtedness shall not at all times until paid be fully secured by collateral
pledged by Borrower, Guarantor hereby forever waives and relinquishes in favor
of Lender and Borrower, and their respective successors, any claim or right to
payment Guarantor may now have or hereafter have or acquire against Borrower, by
subrogation or otherwise, so that at no time shall Guarantor be or become a
"creditor" of Borrower within the meaning of 11 U.S.C. section 547(b), or any
successor provision of the Federal bankruptcy laws.
Guarantor also waives any and all rights or defenses arising by reason of (a)
any "one action" or "anti-deficiency" law or any other law which may prevent
Lender from bringing any action, including a claim for deficiency, against
Guarantor, before or after Lender's commencement or completion of any
foreclosure action, either judicially or by exercise of a power of sale; (b) any
election of remedies by Lender which destroys or otherwise adversely affects
Guarantor's subrogation rights or Guarantor's rights to proceed against Borrower
for reimbursement, including without limitation, any loss of rights Guarantor
may suffer by reason of any law limiting, qualifying, or discharging the
Indebtedness; (c) any disability or other defense of Borrower, of any other
guarantor, or of any other person, or by reason of the cessation of Borrower's
liability from any cause whatsoever, other than payment in full in legal tender,
of the Indebtedness; (d) any right to claim discharge of the Indebtedness on the
basis of unjustified impairment of any collateral for the indebtedness; (e) any
statute of limitations, if at any time any action or suit brought by Lender
against Guarantor is commenced there is outstanding indebtedness of Borrower to
Lender which is not barred by any applicable statute of limitations; or (f) any
defenses given to guarantors at law or in equity other than actual payment and
performance of the indebtedness. if payment is made by Borrower, whether
voluntarily or otherwise, or by any third party, on the indebtedness and
thereafter Lender is forced to remit the amount of that payment to Borrower's
trustee in bankruptcy or to any similar person under any federal or state
bankruptcy law or law for the relief of debtors, the Indebtedness shall be
considered unpaid for the purpose of enforcement of this Guaranty.
Guarantor further waives and agrees not to assert or claim at any time any
deductions to the amount guaranteed under this Guaranty for any claim of setoff,
counterclaim, counter demand, recoupment or similar right, whether such claim,
demand or right may be asserted by the Borrower, the Guarantor, or both.
GUARANTOR'S UNDERSTANDING WITH RESPECT TO WAIVERS. Guarantor warrants and agrees
that each of the waivers set forth above is made with Guarantor's full knowledge
of its significance and consequences and that, under the circumstances, the
waivers are reasonable and not contrary to public policy or law, if any such
waiver is determined to be contrary to any applicable law or public policy, such
waiver shall be effective only to the extent permitted by law or public policy.
LENDER'S RIGHT OF SETOFF. In addition to all liens upon and rights of setoff
against the moneys, securities or other property of Guarantor given to Lender by
law, Lender shall have, with respect to Guarantor's obligations to Lender under
this Guaranty and to the extent permitted by law, a contractual possessory
security interest in and a right of setoff against, and Guarantor hereby
assigns, conveys, delivers, pledges, and transfers to Lender all of Guarantor's
right, title and interest in and to, all deposits, moneys, securities and other
property of Guarantor now or hereafter in the possession of or on deposit with
Lender, whether held in a general or special account or deposit, whether held
jointly with someone else, or whether held for safekeeping or otherwise,
excluding however all IRA, Keogh, and trust accounts. Every such security
interest and right of setoff may be exercised without demand upon or notice to
Guarantor. No security interest or right of setoff shall be deemed to have been
waived by any act or conduct on the part of Lender or by any neglect to exercise
such right of setoff or to enforce such security interest or by any delay in so
doing. Every right of setoff and security interest shall continue in full force
and effect until such right of setoff or security interest is specifically
waived or released by an instrument in writing executed by Lender.
SUBORDINATION OF BORROWER'S DEBTS TO GUARANTOR. Guarantor agrees that the
Indebtedness of Borrower to Lender, whether now existing or hereafter created,
shall be prior to any claim that Guarantor may now have or hereafter acquire
against Borrower, whether or not Borrower becomes insolvent. Guarantor hereby
expressly subordinates any claim Guarantor may have against Borrower, upon any
account whatsoever, to any claim that Lender may now or hereafter have against
Borrower. In the event of insolvency and consequent liquidation of the assets of
Borrower, through bankruptcy, by an assignment for the benefit of creditors, by
voluntary liquidation, or otherwise, the assets of Borrower applicable to the
payment of the claims of both Lender and Guarantor shall be paid to Lender and
shall be first applied by Lender to the Indebtedness of Borrower to Lender.
Guarantor does hereby assign to Lender all claims which it may have or acquire
against Borrower or against any assignee or trustee in bankruptcy of Borrower;
provided however, that such assignment shall be effective only for the purpose
of assuring to Lender full payment in legal tender of the indebtedness. If
Lender so requests, any notes or credit agreements now or hereafter evidencing
any debts or obligations of Borrower to Guarantor shall be marked with a legend
that the same are subject to this Guaranty and shall be delivered to Lender.
Guarantor agrees, and Lender hereby is authorized, in the name of Guarantor,
from time to time to execute and file financing statements and continuation
statements and to execute such other documents and to take such other actions as
Lender deems necessary or appropriate to perfect, preserve and enforce its
rights under this Guaranty.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Guaranty:
Amendments. This Guaranty, together with any Related Documents, constitutes
the entire understanding and agreement of the parties as to the matters set
forth in this Guaranty. No alteration of or amendment to this Guaranty
shall be effective unless given in writing and signed by the party or
parties sought to be charged or bound by the alteration or amendment.
Applicable Law. This Guaranty has been delivered to Lender and accepted by
Lender in the State of Iowa. If there is a lawsuit, Guarantor agrees upon
Lender's request to submit to the jurisdiction of the courts of SCOTT
County, State of Iowa. This Guaranty shall be governed by and construed in
accordance with the laws of the State of Iowa.
Attorneys' Fees; Expenses. Guarantor agrees to pay upon demand all of
Lender's costs and expenses, including attorneys' fees and Lender's legal
expenses, incurred in connection with the enforcement of this Guaranty.
Lender may pay someone else to help enforce this Guaranty, and Guarantor
shall pay the costs and expenses of such enforcement. Costs and expenses
include Lender's attorneys' fees and legal expenses whether or not there is
a lawsuit, including attorneys' fees and legal expenses for bankruptcy
proceedings (and including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post-judgment collection
services. Guarantor also shall pay all court costs and such additional fees
as may be directed by the court.
Notices. All notices required to be given by either party to the other
under this Guaranty shall be in writing, may be sent by telefacsimile,
and, except for revocation notices by Guarantor, shall be effective when
actually delivered or when deposited with a nationally recognized overnight
courier, or when deposited in the United States mail, first class postage
prepaid, addressed to the party to whom the notice is to be given at the
address shown above or to such other addresses as either party may
designate to the other in writing. All revocation notices by Guarantor
shall be in writing and shall be effective only upon delivery to Lender as
provided above in the section titled "DURATION OF GUARANTY." If there is
more than one Guarantor, notice to any Guarantor will constitute notice to
all Guarantors. For notice purposes, Guarantor agrees to keep Lender
Informed at all times of Guarantor's current address.
Interpretation, in all cases where there is more than one Borrower or
Guarantor, then all words used in this Guaranty in the singular shall be
deemed to have been used in the plural where the context and construction
so require; and where there is more than one Borrower named in this
Guaranty or when this Guaranty is executed by more than one Guarantor, the
words "Borrower" and "Guarantor" respectively shall mean all and any one or
more of them. The words "Guarantor," "Borrower," and "Lender" include the
heirs, successors, assigns, and transferees of each of them. Caption
headings in this Guaranty are for convenience purposes only and are not to
be used to interpret or define the provisions of this Guaranty. If a court
of competent jurisdiction finds any provision of this Guaranty to be
invalid or unenforceable as to any person or circumstance, such finding
shall not render that provision invalid or unenforceable as to any other
persons or circumstances, and all provisions of this Guaranty in all other
respects shall remain valid and enforceable. If any one or more of Borrower
or Guarantor are corporations or partnerships, it is not necessary for
Lender to inquire into the powers of Borrower or Guarantor or of the
officers, directors, partners, or agents acting or purporting to act on
their behalf, and any indebtedness made or created in reliance upon the
professed exercise of such powers shall be guaranteed under this Guaranty.
Waiver. Lender shall not be deemed to have waived any rights under this
Guaranty unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender of
a provision of this Guaranty shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or
any other provision of this Guaranty. No prior waiver by Lender, nor any
course of dealing between Lender and Guarantor, shall constitute a waiver
of any of Lender's rights or of any of Guarantor's obligations as to any
future transactions. Whenever the consent of Lender is required under this
Guaranty, the granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in the
sole discretion of Lender.
<PAGE>
11-12-1996 COMMERCIAL GUARANTY Page 3
Loan No 1082002715 (Continued)
================================================================================
EACH UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS
GUARANTY AND AGREES TO ITS TERMS. IN ADDITION, EACH GUARANTOR UNDERSTANDS THAT
THIS GUARANTY IS EFFECTIVE UPON GUARANTOR'S EXECUTION AND DELIVERY OF THIS
GUARANTY TO LENDER AND THAT THE GUARANTY WILL CONTINUE UNTIL TERMINATED IN THE
MANNER SET FORTH IN THE SECTION TITLED "DURATION OF GUARANTY." NO FORMAL
ACCEPTANCE BY LENDER IS NECESSARY TO MAKE THIS GUARANTY EFFECTIVE. EACH
UNDERSIGNED GUARANTOR ACKNOWLEDGES RECEIPT OF A COPY OF THIS GUARANTY AND ALL
OTHER DOCUMENTS RELATING TO THIS DEBT. THIS GUARANTY IS DATED NOVEMBER 12, 1996.
GUARANTOR:
X
-------------------------------------
R. Haydn Silleck
- --------------------------------------------------------------------------------
INDIVIDUAL ACKNOWLEDGMENT
STATE OF ______________________)
) SS
COUNTY OF _____________________)
On this ____________ day of ______________________,A.D., 19___, before me a
Notary Public in and for said County and State personally appeared R. Haydn
Silleck, to me known to be the person named in and who executed the foregoing
Instrument and acknowledged that he or she executed the same as his or her
voluntary act and deed.
-------------------------------------
Notary Public in the State of
------------------
================================================================================
LASER PRO, Reg. U.S. Pat. & T.M. Off., Ver. 3.22b(c) 1996 CFI ProServices, Inc.
All rights reserved. [IA-E20 F3.22a CINEMA1.LN c17.OVL]
<PAGE>
COMMERCIAL GUARANTY
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C> <C>
410 80 101
- ------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this
document to any particular loan or item.
- ------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C>
Borrower: Cinema Saver Theatre Corporation (TIN: ) Lender: QUAD CITY BANK AND TRUST COMPANY
1422 Delgany Street, Suite LL3 2118 MIDDLE ROAD
Denver, CO 80202 P.O. BOX 395
BETTENDORF, IA 52722
Guarantor: Joel D. Boldrey
</TABLE>
================================================================================
AMOUNT OF GUARANTY. The amount of this Guaranty Is Unlimited.
CONTINUING UNLIMITED GUARANTY. For good and valuable consideration, Joel D.
Boldrey ("Guarantor") absolutely and unconditionally guarantees and promises to
pay to QUAD CITY BANK AND TRUST COMPANY ("Lender") or its order, in legal tender
of the United States of America, the Indebtedness (as that term is defined
below) of Cinema Saver Theatre Corporation ("Borrower") to Lender on the terms
and conditions set forth in this Guaranty. Under this Guaranty, the liability of
Guarantor is unlimited and the obligations of Guarantor are continuing.
DEFINITIONS. The following words shall have the following meanings when used in
this Guaranty:
Borrower. The word "Borrower" means Cinema Saver Theatre Corporation.
Guarantor. The word "Guarantor" means Joel D. Boldrey.
Guaranty. The word "Guaranty" means this Guaranty made by Guarantor for the
benefit of Lender dated November 12, 1996.
Indebtedness. The word "Indebtedness" is used in its most comprehensive
sense and means and includes any and all of Borrower's liabilities,
obligations, debts, and indebtedness to Lender, now existing or hereinafter
incurred or created, including, without limitation, all loans, advances,
interest, costs, debts, overdraft indebtedness, credit card indebtedness,
lease obligations, other obligations, and liabilities of Borrower, or any
of them, and any present or future judgments against Borrower, or any of
them; and whether any such Indebtedness is voluntarily or involuntarily
incurred, due or not due, absolute or contingent, liquidated or
unliquidated, determined or undetermined; whether Borrower may be liable
individually or jointly with others, or primarily or secondarily, or as
guarantor or surety; whether recovery on the Indebtedness may be or may
become barred or unenforceable against Borrower for any reason whatsoever;
and whether the Indebtedness arises from transactions which may be voidable
on account of infancy, insanity, ultra vires, or otherwise.
Lender. The word "Lender" means QUAD CITY BANK AND TRUST COMPANY, its
successors and assigns.
Related Documents. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Indebtedness.
NATURE OF GUARANTY. Guarantor's liability under this Guaranty shall be open and
continuous for so long as this Guaranty remains in force. Guarantor intends to
guarantee at all times the performance and prompt payment when due, whether at
maturity or earlier by reason of acceleration or otherwise, of all Indebtedness.
Accordingly, no payments made upon the Indebtedness will discharge or diminish
the continuing liability of Guarantor in connection with any remaining portions
of the Indebtedness or any of the Indebtedness which subsequently arises or is
thereafter incurred or contracted.
DURATION OF GUARANTY. This Guaranty will take effect when received by Lender
without the necessity of any acceptance by Lender, or any notice to Guarantor or
to Borrower, and will continue in full force until all Indebtedness incurred or
contracted before receipt by Lender of any notice of revocation shall have been
fully and finally paid and satisfied and all other obligations of Guarantor
under this Guaranty shall have been performed in full. If Guarantor elects to
revoke this Guaranty, Guarantor may only do so in writing. Guarantor's written
notice of revocation must be mailed to Lender, by certified mail, at the address
of Lender listed above or such other place as Lender may designate in writing.
Written revocation of this Guaranty will apply only to advances or new
Indebtedness created after actual receipt by Lender of Guarantor's written
revocation. For this purpose and without limitation, the term "new Indebtedness"
does not include Indebtedness which at the time of notice of revocation is
contingent, unliquidated, undetermined or not due and which later becomes
absolute, liquidated, determined or due. This Guaranty will continue to bind
Guarantor for all Indebtedness incurred by Borrower or committed by Lender prior
to receipt of Guarantor's written notice of revocation, including any
extensions, renewals, substitutions or modifications of the Indebtedness. All
renewals, extensions, substitutions, and modifications of the Indebtedness
granted after Guarantor's revocation, are contemplated under this Guaranty and,
specifically will not be considered to be new Indebtedness. This Guaranty shall
bind the estate of Guarantor as to Indebtedness created both before and after
the death or incapacity of Guarantor, regardless of Lender's actual notice of
Guarantor's death. Subject to the foregoing, Guarantor's executor or
administrator or other legal representative may terminate this Guaranty in the
same manner in which Guarantor might have terminated it and with the same
effect. Release of any other guarantor or termination of any other guaranty of
the Indebtedness shall not affect the liability of Guarantor under this
Guaranty. A revocation received by Lender from any one or more Guarantors shall
not affect the liability of any remaining Guarantors under this Guaranty. It is
anticipated that fluctuations may occur in the aggregate amount of Indebtedness
covered by this Guaranty, and it is specifically acknowledged and agreed by
Guarantor that reductions in the amount of Indebtedness, even to zero dollars
($0.00), prior to written revocation of this Guaranty by Guarantor shall not
constitute a termination of this Guaranty. This Guaranty is binding upon
Guarantor and Guarantor's heirs, successors and assigns so long as any of the
guaranteed Indebtedness remains unpaid and even though the Indebtedness
guaranteed may from time to time be zero dollars ($0.00).
GUARANTOR'S AUTHORIZATION TO LENDER. Guarantor authorizes Lender, either before
or after any revocation hereof, without notice or demand and without lessening
Guarantor's liability under this Guaranty, from time to time: (a) prior to
revocation as set forth above, to make one or more additional secured or
unsecured loans to Borrower, to lease equipment or other goods to Borrower, or
otherwise to extend additional credit to Borrower; (b) to alter, compromise,
renew, extend, accelerate, or otherwise change one or more times the time for
payment or other terms of the Indebtedness or any part of the Indebtedness,
Including increases and decreases of the rate of interest on the Indebtedness;
extensions may be repeated and may be for longer than the original loan term;
(c) to take and hold security for the payment of this Guaranty or the
Indebtedness, and exchange, enforce, waive, subordinate, fail or decide not to
perfect, and release any such security, with or without the substitution of new
collateral; (d) to release, substitute, agree not to sue, or deal with any one
or more of Borrower's sureties, endorsers, or other guarantors on any terms or
in any manner Lender may choose; (e) to determine how, when and what application
of payments and credits shall be made on the Indebtedness; (f) to apply such
security and direct the order or manner of sale thereof, including without
limitation, any nonjudicial sale permitted by the terms of the controlling
security agreement or deed of trust, as Lender in its discretion may determine;
(g) to sell, transfer, assign, or grant participations in all or any part of the
Indebtedness; and (h) to assign or transfer this Guaranty in whole or in part.
GUARANTOR'S REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants to
Lender that (a) no representations or agreements of any kind have been made to
Guarantor which would limit or qualify in any way the terms of this Guaranty;
(b) this Guaranty is executed at Borrower's request and not at the request of
Lender; (c) Guarantor has full power, right and authority to enter into this
Guaranty; (d) the provisions of this Guaranty do not conflict with or result in
a default under any agreement or other instrument binding upon Guarantor and do
not result in a violation of any law, regulation, court decree or order
applicable to Guarantor; (e) Guarantor has not and will not, without the prior
written consent of Lender, sell, lease, assign, encumber, hypothecate, transfer,
or otherwise dispose of all or substantially all of Guarantor's assets, or any
interest therein; (f) upon Lender's request, Guarantor will provide to Lender
financial and credit information in form acceptable to Lender, and all such
financial information which currently has been, and all future financial
information which will be provided to Lender is and will be true and correct in
all material respects and fairly present the financial condition of Guarantor as
of the dates the financial information is provided; (g) no material adverse
change has occurred in Guarantor's financial condition since the date of the
most recent financial statements provided to Lender and no event has occurred
which may materially adversely affect Guarantor's financial condition; (h) no
litigation, claim, investigation, administrative proceeding or similar action
(including those for unpaid taxes) against Guarantor is pending or threatened;
(i) Lender has made no representation to Guarantor as to the creditworthiness of
Borrower; and (j) Guarantor has established adequate means of obtaining from
Borrower on a continuing basis information regarding Borrower's financial
condition. Guarantor agrees to keep adequately informed from such means of any
facts, events, or circumstances which might in any way affect Guarantor's risks
under this Guaranty, and Guarantor further agrees that, absent a request for
information, Lender shall have no obligation to disclose to Guarantor any
information or documents acquired by Lender in the course of its relationship
with Borrower.
GUARANTOR'S WAIVERS. Except as prohibited by applicable law, Guarantor waives
any right to require Lender (a) to continue lending money or to extend other
credit to Borrower; (b) to make any presentment, protest, demand, or notice of
any kind, including notice of any nonpayment of the Indebtedness or of any
nonpayment related to any collateral, or notice of any action or nonaction on
the part of Borrower, Lender, any surety, endorser, or other guarantor in
connection with the Indebtedness or in connection with the creation of new or
additional loans or obligations; (c) to resort for payment or to proceed
directly or at once against any person, including Borrower or any other
guarantor; (d) to proceed directly against or exhaust any collateral held by
Lender from Borrower, any other guarantor, or any other person; (e) to give
notice of the terms, time, and place of any public or
<PAGE>
11-12-1996 COMMERCIAL GUARANTY Page 2
Loan No 1082002715 (Continued)
================================================================================
private sale of personal property security held by Lender from Borrower or to
comply with any other applicable provisions of the Uniform Commercial Code; (f)
to pursue any other remedy within Lender's power; or (g) to commit any act or
omission of any kind, or at any time, with respect to any matter whatsoever.
If now or hereafter (a) Borrower shall be or become insolvent, and (b) the
Indebtedness shall not at all times until paid be fully secured by collateral
pledged by Borrower, Guarantor hereby forever waives and relinquishes in favor
of Lender and Borrower, and their respective successors, any claim or right to
payment Guarantor may now have or hereafter have or acquire against Borrower, by
subrogation or otherwise, so that at no time shall Guarantor be or become a
"creditor" of Borrower within the meaning of 11 U.S.C. section 547(b), or any
successor provision of the Federal bankruptcy laws.
Guarantor also waives any and all rights or defenses arising by reason of (a)
any "one action" or "anti-deficiency" law or any other law which may prevent
Lender from bringing any action, including a claim for deficiency, against
Guarantor, before or after Lender's commencement or completion of any
foreclosure action, either judicially or by exercise of a power of sale; (b) any
election of remedies by Lender which destroys or otherwise adversely affects
Guarantor's subrogation rights or Guarantor's rights to proceed against Borrower
for reimbursement, including without limitation, any loss of rights Guarantor
may suffer by reason of any law limiting, qualifying, or discharging the
Indebtedness; (c) any disability or other defense of Borrower, of any other
guarantor, or of any other person, or by reason of the cessation of Borrower's
liability from any cause whatsoever, other than payment in full in legal tender,
of the Indebtedness; (d) any right to claim discharge of the Indebtedness on the
basis of unjustified impairment of any collateral for the Indebtedness; (e) any
statute of limitations, if at any time any action or suit brought by Lender
against Guarantor is commenced there is outstanding Indebtedness of Borrower to
Lender which is not barred by any applicable statute of limitations; or (f) any
defenses given to guarantors at law or in equity other than actual payment and
performance of the Indebtedness. If payment is made by Borrower, whether
voluntarily or otherwise, or by any third party, on the Indebtedness and
thereafter Lender is forced to remit the amount of that payment to Borrower's
trustee in bankruptcy or to any similar person under any federal or state
bankruptcy law or law for the relief of debtors, the Indebtedness shall be
considered unpaid for the purpose of enforcement of this Guaranty.
Guarantor further waives and agrees not to assert or claim at any time any
deductions to the amount guaranteed under this Guaranty for any claim of setoff,
counterclaim, counter demand, recoupment or similar right, whether such claim,
demand or right may be asserted by the Borrower, the Guarantor, or both.
GUARANTOR'S UNDERSTANDING WITH RESPECT TO WAIVERS. Guarantor warrants and agrees
that each of the waivers set forth above is made with Guarantor's full knowledge
of its significance and consequences and that, under the circumstances, the
waivers are reasonable and not contrary to public policy or law. If any such
waiver is determined to be contrary to any applicable law or public policy, such
waiver shall be effective only to the extent permitted by law or public policy.
LENDER'S RIGHT OF SETOFF. In addition to all liens upon and rights of setoff
against the moneys, securities or other property of Guarantor given to Lender by
law, Lender shall have, with respect to Guarantor's obligations to Lender under
this Guaranty and to the extent permitted by law, a contractual possessory
security interest in and a right of setoff against, and Guarantor hereby
assigns, conveys, delivers, pledges, and transfers to Lender all of Guarantor's
right, title and interest in and to, all deposits, moneys, securities and other
property of Guarantor now or hereafter in the possession of or on deposit with
Lender, whether held in a general or special account or deposit, whether held
jointly with someone else, or whether held for safekeeping or otherwise,
excluding however all IRA, Keogh, and trust accounts. Every such security
interest and right of setoff may be exercised without demand upon or notice to
Guarantor. No security interest or right of setoff shall be deemed to have been
waived by any act or conduct on the part of Lender or by any neglect to exercise
such right of setoff or to enforce such security interest or by any delay in so
doing. Every right of setoff and security interest shall continue in full force
and effect until such right of setoff or security interest is specifically
waived or released by an instrument in writing executed by Lender.
SUBORDINATION OF BORROWER'S DEBTS TO GUARANTOR. Guarantor agrees that the
Indebtedness of Borrower to Lender, whether now existing or hereafter created,
shall be prior to any claim that Guarantor may now have or hereafter acquire
against Borrower, whether or not Borrower becomes insolvent. Guarantor hereby
expressly subordinates any claim Guarantor may have against Borrower, upon any
account whatsoever, to any claim that Lender may now or hereafter have against
Borrower. In the event of insolvency and consequent liquidation of the assets of
Borrower, through bankruptcy, by an assignment for the benefit of creditors, by
voluntary liquidation, or otherwise, the assets of Borrower applicable to the
payment of the claims of both Lender and Guarantor shall be paid to Lender and
shall be first applied by Lender to the Indebtedness of Borrower to Lender.
Guarantor does hereby assign to Lender all claims which it may have or acquire
against Borrower or against any assignee or trustee in bankruptcy of Borrower;
provided however, that such assignment shall be effective only for the purpose
of assuring to Lender full payment in legal tender of the Indebtedness. If
Lender so requests, any notes or credit agreements now or hereafter evidencing
any debts or obligations of Borrower to Guarantor shall be marked with a legend
that the same are subject to this Guaranty and shall be delivered to Lender.
Guarantor agrees, and Lender hereby is authorized, in the name of Guarantor,
from time to time to execute and file financing statements and continuation
statements and to execute such other documents and to take such other actions as
Lender deems necessary or appropriate to perfect, preserve and enforce its
rights under this Guaranty.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Guaranty:
Amendments. This Guaranty, together with any Related Documents, constitutes
the entire understanding and agreement of the parties as to the matters set
forth in this Guaranty. No alteration of or amendment to this Guaranty
shall be effective unless given in writing and signed by the party or
parties sought to be charged or bound by the alteration or amendment.
Applicable Law. This Guaranty has been delivered to Lender and accepted by
Lender in the State of Iowa. If there is a lawsuit, Guarantor agrees upon
Lender's request to submit to the jurisdiction of the courts of SCOTT
County, State of Iowa. This Guaranty shall be governed by and construed in
accordance with the laws of the State of Iowa.
Attorneys' Fees; Expenses. Guarantor agrees to pay upon demand all of
Lender's costs and expenses, including attorneys' fees and Lender's legal
expenses, incurred in connection with the enforcement of this Guaranty.
Lender may pay someone else to help enforce this Guaranty, and Guarantor
shall pay the costs and expenses of such enforcement. Costs and expenses
include Lender's attorneys' fees and legal expenses whether or not there is
a lawsuit, including attorneys' fees and legal expenses for bankruptcy
proceedings (and including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post-judgment collection
services. Guarantor also shall pay all court costs and such additional fees
as may be directed by the court.
Notices. All notices required to be given by either party to the other
under this Guaranty shall be in writing, may be sent by telefacsimile,
and, except for revocation notices by Guarantor, shall be effective when
actually delivered or when deposited with a nationally recognized overnight
courier, or when deposited in the United States mail, first class postage
prepaid, addressed to the party to whom the notice is to be given at the
address shown above or to such other addresses as either party may
designate to the other in writing. All revocation notices by Guarantor
shall be in writing and shall be effective only upon delivery to Lender as
provided above in the section titled "DURATION OF GUARANTY." If there is
more than one Guarantor, notice to any Guarantor will constitute notice to
all Guarantors. For notice purposes, Guarantor agrees to keep Lender
informed at all times of Guarantor's current address.
Interpretation. In all cases where there is more than one Borrower or
Guarantor, then all words used in this Guaranty in the singular shall be
deemed to have been used in the plural where the context and construction
so require; and where there is more than one Borrower named in this
Guaranty or when this Guaranty is executed by more than one Guarantor, the
words "Borrower" and "Guarantor" respectively shall mean all and any one or
more of them. The words "Guarantor," "Borrower," and "Lender" include the
heirs, successors, assigns, and transferees of each of them. Caption
headings in this Guaranty are for convenience purposes only and are not to
be used to interpret or define the provisions of this Guaranty. If a court
of competent jurisdiction finds any provision of this Guaranty to be
invalid or unenforceable as to any person or circumstance, such finding
shall not render that provision invalid or unenforceable as to any other
persons or circumstances, and all provisions of this Guaranty in all other
respects shall remain valid and enforceable. If any one or more of Borrower
or Guarantor are corporations or partnerships, it is not necessary for
Lender to inquire into the powers of Borrower or Guarantor or of the
officers, directors, partners, or agents acting or purporting to act on
their behalf, and any Indebtedness made or created in reliance upon the
professed exercise of such powers shall be guaranteed under this Guaranty.
Waiver. Lender shall not be deemed to have waived any rights under this
Guaranty unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender of
a provision of this Guaranty shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or
any other provision of this Guaranty. No prior waiver by Lender, nor any
course of dealing between Lender and Guarantor, shall constitute a waiver
of any of Lender's rights or of any of Guarantor's obligations as to any
future transactions. Whenever the consent of Lender is required under this
Guaranty, the granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in the
sole discretion of Lender.
<PAGE>
11-12-1996 COMMERCIAL GUARANTY Page 3
Loan No 1082002715 (Continued)
================================================================================
EACH UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS
GUARANTY AND AGREES TO ITS TERMS. IN ADDITION, EACH GUARANTOR UNDERSTANDS THAT
THIS GUARANTY IS EFFECTIVE UPON GUARANTOR'S EXECUTION AND DELIVERY OF THIS
GUARANTY TO LENDER AND THAT THE GUARANTY WILL CONTINUE UNTIL TERMINATED IN THE
MANNER SET FORTH IN THE SECTION TITLED "DURATION OF GUARANTY." NO FORMAL
ACCEPTANCE BY LENDER IS NECESSARY TO MAKE THIS GUARANTY EFFECTIVE. EACH
UNDERSIGNED GUARANTOR ACKNOWLEDGES RECEIPT OF A COPY OF THIS GUARANTY AND ALL
OTHER DOCUMENTS RELATING TO THIS DEBT. THIS GUARANTY IS DATED NOVEMBER 12, 1996.
GUARANTOR:
X
----------------------------------
Joel D. Boldrey
- --------------------------------------------------------------------------------
INDIVIDUAL ACKNOWLEDGMENT
STATE OF ___________________)
) SS
COUNTY OF __________________)
On this ____________ day of ______________________, A.D., 19___, before me a
Notary Public in and for said County and State personally appeared Joel D.
Boldrey, to me known to be the person named in and who executed the foregoing
Instrument and acknowledged that he or she executed the same as his or her
voluntary act and deed.
-------------------------------------
Notary Public in the State of
----------------------
================================================================================
<PAGE>
LANDLORD'S CONSENT
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C> <C>
11-12-1996. 11-15-2006 1082002715 410 80 101
- ------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the a applicability of this
document to an particular loan or item.
- ------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C>
Borrower: Cinema Saver Theatre Corporation (TIN: ) Lender: QUAD CITY BANK AND TRUST COMPANY
1422 Delgany Street, Suite LL3 2118 MIDDLE ROAD
Denver, CO 80202 P.O. BOX 395
BETTENDORF, IA 52722
</TABLE>
================================================================================
THIS LANDLORD'S CONSENT is entered into among Cinema Saver Theatre Corporation
("Borrower"), whose address is 1422 Delgany Street, Suite LL3, Denver, CO 80202;
QUAD CITY BANK AND TRUST COMPANY ("Lender"), whose address is 2118 MIDDLE ROAD,
P.O. BOX 395, BETTENDORF, IA 52722; and Skunk Creek Investors ("Landlord"),
whose address is C/O Rose Realty P.O. Box 720, Denver, CO 80201. Borrower and
Lender have entered into, or are about to enter into, an agreement whereby
Lender has acquired or will acquire a security interest or other interest in the
Collateral. Some or all of the Collateral may be affixed or otherwise become
located on the Premises. To induce Lender to extend the Loan to Borrower against
such security interest in the Collateral and for other valuable consideration,
Landlord hereby agrees with Lender and Borrower as follows.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All references
to dollar amounts shall mean amounts in lawful money of the United States of
America.
Agreement. The word "Agreement" means this Landlord's Consent, as this
Landlord's Consent may be amended or modified from time to time, together
with all exhibits and schedules attached to this Landlord's Consent from
time to time.
Borrower. The word "Borrower" means Cinema Saver Theatre Corporation.
Collateral. The word "Collateral" means certain of Borrower's personal
property in which Lender has acquired or will acquire a security interest,
including without limitation the following specific property:
All inventory, Accounts, Equipment and General Intangibles
Landlord. The word "Landlord" means Skunk Creek Investors. The term
"Landlord" is used for convenience purposes only. Landlord's interest in
the Premises may be that of a fee owner, lessor, sublessor or lienholder,
or that of any other holder of an Interest in the Premises which may be, or
may become, prior to the interest of Lender.
Lease. The word "Lease" means that certain lease of the Premises, dated
August 8, 1991, between Landlord and Borrower.
Lender. The word "Lender" means QUAD CITY BANK AND TRUST COMPANY, its
successors and assigns.
Loan. The word "Loan" means the loan, or any other financial
accommodations, Lender has made or is making to Borrower.
Premises. The word "Premises" means the real property located in Boulder
County, State of Colorado.
BORROWER'S ASSIGNMENT OF LEASE. Borrower hereby assigns to Lender all of
Borrower's rights in the Lease, as partial security for the Loan. The parties
intend that this assignment will be a present transfer to Lender of all of
Borrower's rights under the Lease, subject to Borrower's rights to use the
Premises and enjoy the benefits of the Lease while not in default on the Loan or
Lease. Upon full performance by Borrower under the Loan, this assignment shall
be ended, without the necessity of any further action by any of the parties.
This assignment includes all renewals of and amendments to the Lease or the
Loan, until the Loan is paid in full. No amendments may be made to the Lease
without Lender's prior written consent, which shall not be unreasonably withheld
or delayed.
CONSENT OF LANDLORD. Landlord consents to the above assignment. If Borrower
defaults under the Loan or the Lease, Lender may reassign the Lease, and
Landlord agrees that Landlord's consent to any such reassignment will not be
unreasonably withheld or delayed. So long as Lender has not entered the Premises
for the purpose of operating a business, Lender will have no liability under the
Lease, including without limitation liability for rent. Whether or not Lender
enters into possession of the Premises for any purpose, Borrower will remain
fully liable for all obligations of Borrower as lessee under the Lease. While
Lender is in possession of the Premises, Lender will cause all payments due
under the Lease and attributable to that period of time to be made to Landlord.
If Lender later reassigns the Lease or vacates the Premises, Lender will have no
further obligation to Landlord.
LEASE DEFAULTS. Both Borrower and Landlord agree and represent to Lender that,
to the best of their knowledge, there is no breach or offset existing under the
Lease or under any other agreement between Borrower and Landlord. Landlord
agrees not to terminate the Lease, despite any default by Borrower, without
giving Lender written notice of the default and an opportunity to cure the
default within a period of sixty (60) days from the receipt of the notice. If
the default is one that cannot reasonably be cured by Lender (such as
insolvency, bankruptcy, or other judicial proceedings against Borrower), then
Landlord will not terminate the Lease so long as Landlord receives all sums due
under the Lease for the period during which Lender is in possession of the
Premises, or so long as Lender reassigns the Lease to a new lessee reasonably
satisfactory to Landlord.
MISCELLANEOUS PROVISIONS. This Agreement shall extend to and bind the respective
heirs, personal representatives, successors and assigns of the parties to this
Agreement. The covenants of Borrower and Landlord respecting subordination of
the claim or claims of Landlord in favor of Lender shall extend to, include, and
be enforceable by any transferee or endorsee to whom Lender may transfer any
claim or claims to which this Agreement shall apply. Lender need not accept this
Agreement in writing or otherwise to make it effective. This Agreement shall be
governed by and construed in accordance with the laws of the State of Colorado.
If Landlord is other than an individual, any agent or other person executing
this Agreement on behalf of Landlord represents and warrants to Lender that he
or she has full power and authority to execute this Agreement on Landlord's
behalf. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is in writing and signed by Lender. Without notice
to Landlord and without affecting the validity of this Consent, Lender may do or
not do anything it deems appropriate or necessary with respect to the Loan, any
obligors on the Loan, or any Collateral for the Loan; including without
limitation extending, renewing, rearranging, or accelerating any of the Loan
indebtedness. No delay or omission on the part of Lender in exercising any right
shall operate as a waiver of such right or any other right. A waiver by Lender
of a provision of this Agreement shall not constitute a waiver of or prejudice
Lender's right otherwise to demand strict compliance with that provision or any
other provision. Whenever consent by Lender is required in this Agreement, the
granting of such consent by Lender in any one instance shall not constitute
continuing consent to subsequent instances where such consent is required.
ACKNOWLEDGMENT OF RECEIPT OF COPIES. Borrower hereby acknowledges the receipt of
a copy of this Agreement.
BORROWER AND LANDLORD ACKNOWLEDGE HAVING READ ALL THE PROVISIONS OF THIS
LANDLORD'S CONSENT, AND BORROWER AND LANDLORD AGREE TO ITS TERMS. THIS AGREEMENT
IS DATED NOVEMBER 12, 1996.
BORROWER:
Cinema Saver Theatre Corporation
By: By:
-------------------------------- -------------------------------
R. Haydn Silleck, President Joel D. Boidrey, Secretary
LANDLORD: LENDER:
Skunk Creek Investors QUAD CITY BANK AND TRUST COMPANY
X By:
-------------------------------- -------------------------------
Landlord's SIgnature Authorized Officer
================================================================================
LASER PRO, Reg. U.S. Pat. & T.M. Off., Ver. 3.22b(c) 1996 CFI ProServices, Inc.
All rights reserved. [IA-E45 CINEMA1.LN C17.OVL]
<PAGE>
COMMERCIAL SECURITY AGREEMENT
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$3,255,000.00 11-12-1996 11-15-2006 1082002715 410 80 101
- ------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the a applicability of this
document to an particular loan or item.
- ------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C>
Borrower: Cinema Saver Theatre Corporation (TIN: ) Lender: QUAD CITY BANK AND TRUST COMPANY
1422 Delgany Street, Suite LL3 2118 MIDDLE ROAD
Denver, CO 80202 P.O. BOX 395
BETTENDORF, IA 52722
</TABLE>
================================================================================
THIS COMMERCIAL SECURITY AGREEMENT Is entered Into between Cinema Saver Theatre
Corporation (referred to below as "Grantor"); and QUAD CITY BANK AND TRUST
COMPANY (referred to below as "Lender"). For valuable consideration, Grantor
grants to Lender a security Interest in the Collateral to secure the
Indebtedness and agrees that Lender shall have the rights stated in this
Agreement with respect to the Collateral, in addition to all other rights which
Lender may have by law.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All references
to dollar amounts shall mean amounts in lawful money of the United States of
America.
Agreement. The word "Agreement" means this Commercial Security Agreement,
as this Commercial Security Agreement may be amended or modified from time
to time, together with all exhibits and schedules attached to this
Commercial Security Agreement from time to time.
Collateral. The word "Collateral" means the following described property of
Grantor, whether now owned or hereafter acquired, whether now existing or
hereafter arising, and wherever located:
All inventory, accounts, equipment and general intangibles
In addition, the word "Collateral" includes all the following, whether now
owned or hereafter acquired, whether now existing or hereafter arising, and
wherever located:
(a) All attachments, accessions, accessories, tools, parts, supplies,
increases, and additions to and all replacements of and substitutions
for any property described above.
(b) All products and produce of any of the property described in this
Collateral section.
(c) All accounts, general intangibles, instruments, rents, monies,
payments, and all other rights, arising out of a sale, lease, or other
disposition of any of the property described in this Collateral
section.
(d) All proceeds (including insurance proceeds) from the sale,
destruction, loss, or other disposition of any of the property
described in this Collateral section.
(e) All records and data relating to any of the property described in
this Collateral section, whether in the form of a writing, photograph,
microfilm, microfiche, or electronic media, together with all of
Grantor's right, title, and interest in and to all computer software
required to utilize, create, maintain, and process any such records or
data on electronic media.
Event of Default. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "Events of Default."
Grantor. The word "Grantor" means Cinema Saver Theatre Corporation, its
successors and assigns.
Guarantor. The word "Guarantor" means and includes without limitation each
and all of the guarantors, sureties, and accommodation parties in
connection with the Indebtedness.
Indebtedness. The word "Indebtedness" means the indebtedness evidenced by
the Note, including all principal and interest, together with all other
indebtedness and costs and expenses for which Grantor is responsible under
this Agreement or under any of the Related Documents.
Lender. The word "Lender" means QUAD CITY BANK AND TRUST COMPANY, its
successors and assigns.
Note. The word "Note" means the note or credit agreement dated November 12,
1996, in the principal amount of $3,255,000.00 from Cinema Saver Theatre
Corporation to Lender, together with all renewals of, extensions of,
modifications of, refinancings of, consolidations of and substitutions for
the note or credit agreement.
Related Documents. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Indebtedness.
RIGHT OF SETOFF. Grantor hereby grants Lender a contractual possessory security
interest in and hereby assigns, conveys, delivers, pledges, and transfers all of
Grantor's right, title and interest in and to Grantor's accounts with Lender
(whether checking, savings, or some other account), including all accounts held
jointly with someone else and all accounts Grantor may open in the future,
excluding, however, all IRA and Keogh accounts, and all trust accounts for which
the grant of a security interest would be prohibited by law. Grantor authorizes
Lender, to the extent permitted by applicable law, to charge or setoff all
Indebtedness against any and all such accounts.
OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender as follows:
Organization. Grantor is a corporation which is duly organized, validly
existing, and in good standing under the laws of the State of Colorado.
Grantor has its chief executive office at 1422 Delgany Street, Suite LL3,
Denver, CO 80202. Grantor will notify Lender of any change in the location
of Grantor's chief executive office.
Authorization. The execution, delivery, and performance of this Agreement
by Grantor have been duly authorized by all necessary action by Grantor and
do not conflict with, result in a violation of, or constitute a default
under (a) any provision of its articles of incorporation or organization,
or bylaws, or any agreement or other instrument binding upon Grantor or (b)
any law, governmental regulation, court decree, or order applicable to
Grantor.
Perfection of Security Interest. Grantor agrees to execute such financing
statements and to take whatever other actions are requested by Lender to
perfect and continue Lender's security interest in the Collateral. Upon
request of Lender, Grantor will deliver to Lender any and all of the
documents evidencing or constituting the Collateral, and Grantor will note
Lender's interest upon any and all chattel paper if not delivered to Lender
for possession by Lender. Grantor hereby appoints Lender as its irrevocable
attorney-in-fact for the purpose of executing any documents necessary to
perfect or to continue the security interest granted in this Agreement.
Lender may at any time, and without further authorization from Grantor,
file a carbon, photographic or other reproduction of any financing
statement or of this Agreement for use as a financing statement. Grantor
will reimburse Lender for all expenses for the perfection and the
continuation of the perfection of Lender's security interest in the
Collateral. Grantor promptly will notify Lender before any change in
Grantor's name including any change to the assumed business names of
Grantor.
No Violation. The execution and delivery of this Agreement will not violate
any law or agreement governing Grantor or to which Grantor is a party, and
its certificate or articles of incorporation and bylaws do not prohibit any
term or condition of this Agreement.
Enforceability of Collateral. To the extent the Collateral consists of
accounts, chattel paper, or general intangibles, the Collateral is
enforceable in accordance with its terms, is genuine, and complies with
applicable laws concerning form, content and manner of preparation and
execution, and all persons appearing to be obligated on the Collateral have
authority and capacity to contract and are in fact obligated as they appear
to be on the Collateral. At the time any account becomes subject to a
security interest in favor of Lender, the account shall be a good and valid
account representing an undisputed, bona fide indebtedness incurred by the
account debtor, for merchandise held subject to delivery instructions or
theretofore shipped or delivered pursuant to a contract of sale, or for
services theretofore performed by Grantor with or for the account debtor;
there shall be no setoffs or counterclaims against any such account; and no
agreement under which any deductions or discounts may be claimed shall have
been made with the account debtor except those disclosed to Lender in
writing.
Location of the Collateral. Grantor, upon request of Lender, will deliver
to Lender in form satisfactory to Lender a schedule of real properties and
Collateral locations relating to Grantor's operations, including without
limitation the following: (a) all real property owned or being purchased by
Grantor; (b) all real property being rented or leased by Grantor; (c) all
storage facilities owned, rented, leased, or being used by Grantor; and (d)
all other properties where Collateral is or may be located. Except in the
ordinary course of its business, Grantor shall not remove the Collateral
from its existing locations without the prior written consent of Lender.
Removal of Collateral. Grantor shall keep the Collateral (or to the extent
the Collateral consists of intangible property such as accounts, the
records concerning the Collateral) at Grantor's address shown above, or at
such other locations as are acceptable to Lender. Except in the ordinary
course of its business, including the sales of inventory, Grantor shall not
remove the Collateral from its existing locations without the prior
<PAGE>
11-12-1996 COMMERCIAL SECURITY AGREEMENT Page 2
Loan No 1082002715 (Continued)
================================================================================
written consent of Lender. To the extent that the Collateral consists of
vehicles, or other titled property, Grantor shall not take or permit any
action which would require application for certificates of title for the
vehicles outside the State of Colorado, without the prior written consent
of Lender.
Transactions Involving Collateral. Except for inventory sold or accounts
collected in the ordinary course of Grantor's business, Grantor shall not
sell, offer to sell, or otherwise transfer or dispose of the Collateral.
While Grantor is not in default under this Agreement, Grantor may sell
inventory, but only in the ordinary course of its business and only to
buyers who qualify as a buyer in the ordinary course of business. A sale in
the ordinary course of Grantor's business does not include a transfer in
partial or total satisfaction of a debt or any bulk sale. Grantor shall not
pledge, mortgage, encumber or otherwise permit the Collateral to be subject
to any lien, security interest, encumbrance, or charge, other than the
security interest provided for in this Agreement, without the prior written
consent of Lender. This includes security interests even if junior in right
to the security interests granted under this Agreement. Unless waived by
Lender, all proceeds from any disposition of the Collateral (for whatever
reason) shall be held in trust for Lender and shall not be commingled with
any other funds; provided however, this requirement shall not constitute
consent by Lender to any sale or other disposition. Upon receipt, Grantor
shall immediately deliver any such proceeds to Lender.
Title. Grantor represents and warrants to Lender that it holds good and
marketable title to the Collateral, free and clear of all liens and
encumbrances except for the lien of this Agreement. No financing statement
covering any of the Collateral is on file in any public office other than
those which reflect the security interest created by this Agreement or to
which Lender has specifically consented. Grantor shall defend Lender's
rights in the Collateral against the claims and demands of all other
persons.
Collateral Schedules and Locations. As often as Lender shall require, and
insofar as the Collateral consists of accounts and general intangibles,
Grantor shall deliver to Lender schedules of such Collateral, including
such information as Lender may require, including without limitation names
and addresses of account debtors and agings of accounts and general
intangibles. Insofar as the Collateral consists of inventory and equipment,
Grantor shall deliver to Lender, as often as Lender shall require, such
lists, descriptions, and designations of such Collateral as Lender may
require to identify the nature, extent, and location of such Collateral.
Such information shall be submitted for Grantor and each of its
subsidiaries or related companies.
Maintenance and Inspection of Collateral. Grantor shall maintain all
tangible Collateral in good condition and repair. Grantor will not commit
or permit damage to or destruction of the Collateral or any part of the
Collateral. Lender and its designated representatives and agents shall have
the right at all reasonable times to examine, inspect, and audit the
Collateral wherever located. Grantor shall immediately notify Lender of all
cases involving the return, rejection, repossession, loss or damage of or
to any Collateral; of any request for credit or adjustment or of any other
dispute arising with respect to the Collateral; and generally of all
happenings and events affecting the Collateral or the value or the amount
of the Collateral.
Taxes, Assessments and Liens. Grantor will pay when due all taxes,
assessments and liens upon the Collateral, its use or operation, upon this
Agreement, upon any promissory note or notes evidencing the Indebtedness,
or upon any of the other Related Documents. Grantor may withhold any such
payment or may elect to contest any lien if Grantor is in good faith
conducting an appropriate proceeding to contest the obligation to pay and
so long as Lender's interest in the Collateral is not jeopardized in
Lender's sole opinion, If the Collateral is subjected to a lien which is
not discharged within fifteen (15) days, Grantor shall deposit with Lender
cash, a sufficient corporate surety bond or other security satisfactory to
Lender in an amount adequate to provide for the discharge of the lien plus
any interest, costs, attorneys' fees or other charges that could accrue as
a result of foreclosure or sale of the Collateral. In any contest Grantor
shall defend itself and Lender and shall satisfy any final adverse judgment
before enforcement against the Collateral. Grantor shall name Lender as an
additional obligee under any surety bond furnished in the contest
proceedings.
Compliance With Governmental Requirements. Grantor shall comply promptly
with all laws, ordinances, rules and regulations of all governmental
authorities, now or hereafter in effect, applicable to the ownership,
production, disposition, or use of the Collateral. Grantor may contest in
good faith any such law, ordinance or regulation and withhold compliance
during any proceeding, including appropriate appeals, so long as Lender's
interest in the Collateral, in Lender's opinion, is not jeopardized.
Hazardous Substances. Grantor represents and warrants that the Collateral
never has been, and never will be so long as this Agreement remains a lien
on the Collateral, used for the generation, manufacture, storage,
transportation, treatment, disposal, release or threatened release of any
hazardous waste or substance, as those terms are defined in the
Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the Superfund
Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499 ("SARA"),
the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et
seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901,
et seq., or other applicable state or Federal laws, rules, or regulations
adopted pursuant to any of the foregoing. The terms "hazardous waste" and
"hazardous substance" shall also include, without limitation, petroleum and
petroleum by-products or any fraction thereof and asbestos. The
representations and warranties contained herein are based on Grantor's due
diligence in investigating the Collateral for hazardous wastes and
substances. Grantor hereby (a) releases and waives any future claims
against Lender for indemnity or contribution in the event Grantor becomes
liable for cleanup or other costs under any such laws, and (b) agrees to
indemnify and hold harmless Lender against any and all claims and losses
resulting from a breach of this provision of this Agreement. This
obligation to indemnity shall survive the payment of the Indebtedness and
the satisfaction of this Agreement.
Maintenance of Casualty Insurance. Grantor shall procure and maintain all
risks insurance, including without limitation fire, theft and liability
coverage together with such other insurance as Lender may require with
respect to the Collateral, in form, amounts, coverages and basis reasonably
acceptable to Lender and issued by a company or companies reasonably
acceptable to Lender. Grantor, upon request of Lender, will deliver to
Lender from time to time the policies or certificates of insurance in form
satisfactory to Lender, including stipulations that coverages will not be
cancelled or diminished without at least ten (10) days' prior written
notice to Lender and not including any disclaimer of the insurer's
liability for failure to give such a notice. Each insurance policy also
shall include an endorsement providing that coverage in favor of Lender
will not be impaired in any way by any act, omission or default of Grantor
or any other person. In connection with all policies covering assets in
which Lender holds or is offered a security interest, Grantor will provide
Lender with such loss payable or other endorsements as Lender may require.
If Grantor at any time fails to obtain or maintain any insurance as
required under this Agreement, Lender may (but shall not be obligated to)
obtain such insurance as Lender deems appropriate, including if it so
chooses "single interest insurance," which will cover only Lender's
interest in the Collateral.
Application of insurance Proceeds. Grantor shall promptly notify Lender of
any loss or damage to the Collateral. Lender may make proof of loss if
Grantor fails to do so within fifteen (15) days of the casualty. All
proceeds of any insurance on the Collateral, including accrued proceeds
thereon, shall be held by Lender as part of the Collateral. If Lender
consents to repair or replacement of the damaged or destroyed Collateral,
Lender shall, upon satisfactory proof of expenditure, pay or reimburse
Grantor from the proceeds for the reasonable cost of repair or restoration.
If Lender does not consent to repair or replacement of the Collateral,
Lender shall retain a sufficient amount of the proceeds to pay all of the
Indebtedness, and shall pay the balance to Grantor. Any proceeds which have
not been disbursed within six (6) months after their receipt and which
Grantor has not committed to the repair or restoration of the Collateral
shall be used to prepay the Indebtedness.
Insurance Reserves. Lender may require Grantor to maintain with Lender
reserves for payment of insurance premiums, which reserves shall be created
by monthly payments from Grantor of a sum estimated by Lender to be
sufficient to produce, at least fifteen (15) days before the premium due
date, amounts at least equal to the insurance premiums to be paid. If
fifteen (15) days before payment is due, the reserve funds are
insufficient, Grantor shall upon demand pay any deficiency to Lender. The
reserve funds shall be held by Lender as a general deposit and shall
constitute a non-interest-bearing account which Lender may satisfy by
payment of the insurance premiums required to be paid by Grantor as they
become due. Lender does not hold the reserve funds in trust for Grantor,
and Lender is not the agent of Grantor for payment of the insurance
premiums required to be paid by Grantor. The responsibility for the payment
of premiums shall remain Grantor's sole responsibility.
Insurance Reports. Grantor, upon request of Lender, shall furnish to Lender
reports on each existing policy of insurance showing such information as
Lender may reasonably request including the following: (a) the name of the
insurer; (b) the risks insured; (c) the amount of the policy; (d) the
property insured; (e) the then current value on the basis of which
insurance has been obtained and the manner of determining that value; and
(f) the expiration date of the policy. In addition, Grantor shall upon
request by Lender (however not more often than annually) have an
independent appraiser satisfactory to Lender determine, as applicable, the
cash value or replacement cost of the Collateral.
GRANTOR'S RIGHT TO POSSESSION AND TO COLLECT ACCOUNTS. Until default and except
as otherwise provided below with respect to accounts, Grantor may have
possession of the tangible personal property and beneficial use of all the
Collateral and may use it in any lawful manner not inconsistent with this
Agreement or the Related Documents, provided that Grantor's right to possession
and beneficial use shall not apply to any Collateral where possession of the
Collateral by Lender is required by law to perfect Lender's security interest in
such Collateral. Until otherwise notified by Lender, Grantor may collect any of
the Collateral consisting of accounts. At any time and even though no Event of
Default exists, Lender may exercise its rights to collect the accounts and to
notify account debtors to make payments directly to Lender for application to
the Indebtedness. If Lender at any time has possession of any Collateral,
whether before or after an Event of Default, Lender shall be deemed to have
exercised reasonable care in the custody and preservation of the Collateral if
Lender takes such action for that purpose as Grantor shall request or as Lender,
in Lender's sole discretion, shall deem appropriate under the circumstances, but
failure to honor any request by Grantor shall not of itself be deemed to be a
failure to exercise reasonable care. Lender shall not be required to take any
steps necessary to preserve any rights in the Collateral against prior parties,
nor to protect, preserve or maintain any security interest given to secure the
Indebtedness.
EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement, including without limitation
all taxes, liens, security interests, encumbrances, and
<PAGE>
11-12-1996 COMMERCIAL SECURITY AGREEMENT Page 3
Loan No 1082002715 (Continued)
================================================================================
other claims, at any time levied or placed on the Collateral. Lender also may
(but shall not be obligated to) pay all costs for insuring, maintaining and
preserving the Collateral. All such expenditures incurred or paid by Lender for
such purposes will then bear interest at the rate charged under the Note from
the date incurred or paid by Lender to the date of repayment by Grantor. All
such expenses shall become a part of the Indebtedness and, at Lender's option,
will (a) be payable on demand, (b) be added to the balance of the Note and be
apportioned among and be payable with any installment payments to become due
during either (i) the term of any applicable insurance policy or (ii) the
remaining term of the Note, or (c) be treated as a balloon payment which will be
due and payable at the Note's maturity. This Agreement also will secure payment
of these amounts. Such right shall be in addition to all other rights and
remedies to which Lender may be entitled upon the occurrence of an Event of
Default.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
Default on Indebtedness. Failure of Grantor to make any payment when due on
the Indebtedness.
Other Defaults. Failure of Grantor to comply with or to perform any other
term, obligation, covenant or condition contained in this Agreement or in
any of the Related Documents or in any other agreement between Lender and
Grantor.
False Statements. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Grantor under this Agreement, the
Note or the Related Documents is false or misleading in any material
respect, either now or at the time made or furnished.
Defective Collateralization. This Agreement or any of the Related Documents
ceases to be in full force and effect (including failure of any collateral
documents to create a valid and perfected security interest or lien) at any
time and for any reason.
Insolvency. The dissolution or termination of Grantor's existence as a
going business, the insolvency of Grantor, the appointment of a receiver
for any part of Grantor's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Grantor.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Grantor or by any
governmental agency against the Collateral or any other collateral securing
the Indebtedness. This includes a garnishment of any of Grantor's deposit
accounts with Lender. However, this Event of Default shall not apply if
there is a good faith dispute by Grantor as to the validity or
reasonableness of the claim which is the basis of the creditor or
forfeiture proceeding and if Grantor gives Lender written notice of the
creditor or forfeiture proceeding and deposits with Lender monies or a
surety bond for the creditor or forfeiture proceeding, in an amount
determined by Lender, in its sole discretion, as being an adequate reserve
or bond for the dispute.
Events Affecting Guarantor. Any of the preceding events occurs with respect
to any Guarantor of any of the Indebtedness or such Guarantor dies or
becomes incompetent. Lender, at its option, may, but shall not be required
to, permit the Guarantor's estate to assume unconditionally the obligations
arising under the guaranty in a manner satisfactory to Lender, and, in
doing so, cure the Event of Default.
Adverse Change. A material adverse change occurs in Grantor's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness is impaired.
Insecurity. Lender, in good faith, deems itself insecure.
Right to Cure. If any default, other than a Default on Indebtedness, is
curable and if Grantor has not been given a prior notice of a breach of the
same provision of this Agreement, it may be cured (and no Event of Default
will have occurred) if Grantor, after Lender sends written notice demanding
cure of such default, (a) cures the default within twenty (20) days; or
(b), if the cure requires more than twenty (20) days, immediately initiates
steps which Lender deems in Lender's sole discretion to be sufficient to
cure the default and thereafter continues and completes all reasonable and
necessary steps sufficient to produce compliance as soon as reasonably
practical.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender shall have all the rights of a secured
party under the Colorado Uniform Commercial Code. In addition and without
limitation, Lender may exercise any one or more of the following rights and
remedies:
Accelerate Indebtedness. Lender may declare the entire Indebtedness,
including any prepayment penalty which Grantor would be required to pay,
immediately due and payable, without notice.
Assemble Collateral. Lender may require Grantor to deliver to Lender all or
any portion of the Collateral and any and all certificates of title and
other documents relating to the Collateral. Lender may require Grantor to
assemble the Collateral and make it available to Lender at a place to be
designated by Lender. Lender also shall have full power to enter upon the
property of Grantor to take possession of and remove the Collateral. If the
Collateral contains other goods not covered by this Agreement at the time
of repossession, Grantor agrees Lender may take such other goods, provided
that Lender makes reasonable efforts to return them to Grantor after
repossession.
Sell the Collateral. Lender shall have full power to sell, lease, transfer,
or otherwise deal with the Collateral or proceeds thereof in its own name
or that of Grantor. Lender may sell the Collateral at public auction or
private sale. Unless the Collateral threatens to decline speedily in value
or is of a type customarily sold on a recognized market, Lender will give
Grantor reasonable notice of the time after which any private sale or any
other intended disposition of the Collateral is to be made. The
requirements of reasonable notice shall be met if such notice is given at
least ten (10) days before the time of the sale or disposition. All
expenses relating to the disposition of the Collateral, including without
limitation the expenses of retaking, holding, insuring, preparing for sale
and selling the Collateral, shall become a part of the Indebtedness secured
by this Agreement and shall be payable on demand, with interest at the Note
rate from date of expenditure until repaid.
Appoint Receiver. To the extent permitted by applicable law, Lender shall
have the following rights and remedies regarding the appointment of a
receiver: (a) Lender may have a receiver appointed as a matter of right,
(b) the receiver may be an employee of Lender and may serve without bond,
and (c) all fees of the receiver and his or her attorney shall become part
of the Indebtedness secured by this Agreement and shall be payable on
demand, with interest at the Note rate from date of expenditure until
repaid. The receiver may be appointed by a court of competent jurisdiction
upon ex parte application and without notice, notice being expressly
waived.
Collect Revenues, Apply Accounts. Lender, either itself or through a
receiver, may collect the payments, rents, income, and revenues from the
Collateral. Lender may at any time in its discretion transfer any
Collateral into its own name or that of its nominee and receive the
payments, rents, income, and revenues therefrom and hold the same as
security for the Indebtedness or apply it to payment of the Indebtedness in
such order of preference as Lender may determine. Insofar as the Collateral
consists of accounts, general intangibles, insurance policies, instruments,
chattel paper, choses in action, or similar property, Lender may demand,
collect, receipt for, settle, compromise, adjust, sue for, foreclose, or
realize on the Collateral as Lender may determine, whether or not
Indebtedness or Collateral is then due. For these purposes, Lender may, on
behalf of and in the name of Grantor, receive, open and dispose of mail
addressed to Grantor; change any address to which mail and payments are to
be sent; and endorse notes, checks, drafts, money orders, documents of
title, instruments and items pertaining to payment, shipment, or storage of
any Collateral. To facilitate collection, Lender may notify account debtors
and obligors on any Collateral to make payments directly to Lender.
Obtain Deficiency. If Lender chooses to sell any or all of the Collateral,
Lender may obtain a judgment against Grantor for any deficiency remaining
on the Indebtedness due to Lender after application of all amounts received
from the exercise of the rights provided in this Agreement. Grantor shall
be liable for a deficiency even if the transaction described in this
subsection is a sale of accounts or chattel paper.
Other Rights and Remedies. Lender shall have all the rights and remedies of
a secured creditor under the provisions of the Uniform Commercial Code, as
may be amended from time to time. In addition, Lender shall have and may
exercise any or all other rights and remedies it may have available at law,
in equity, or otherwise.
Cumulative Remedies. All of Lender's rights and remedies, whether evidenced
by this Agreement or the Related Documents or by any other writing, shall
be cumulative and may be exercised singularly or concurrently. Election by
Lender to pursue any remedy shall not exclude pursuit of any other remedy,
and an election to make expenditures or to take action to perform an
obligation of Grantor under this Agreement, after Grantor's failure to
perform, shall not affect Lender's right to declare a default and to
exercise its remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
Amendments. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
matters set forth in this Agreement. No alteration of or amendment to this
Agreement shall be effective unless given in writing and signed by the
party or parties sought to be charged or bound by the alteration or
amendment.
Applicable Law. This Agreement has been delivered to Lender and accepted by
Lender in the State of Iowa. If there is a lawsuit, Grantor agrees upon
Lender's request to submit to the jurisdiction of the courts of the State
of Iowa. This Agreement shall be governed by and construed in accordance
with the laws of the State of Iowa.
Attorneys' Fees; Expenses. Grantor agrees to pay upon demand all of
Lender's costs and expenses, including attorneys' fees and Lender's legal
expenses, incurred in connection with the enforcement of this Agreement.
Lender may pay someone else to help enforce this Agreement, and Grantor
shall pay the costs and expenses of such enforcement. Costs and expenses
include Lender's attorneys' fees and legal expenses whether or not there is
a lawsuit, including attorneys' fees and legal expenses for bankruptcy
proceedings (and including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post-judgment collection
services. Grantor also shall pay all court costs and such additional fees
as may be directed by the court.
<PAGE>
11-12-1996 COMMERCIAL SECURITY AGREEMENT Page 4
Loan No 1082002715 (Continued)
================================================================================
Caption Headings. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.
Multiple Parties; Corporate Authority. All obligations of Grantor under
this Agreement shall be joint and several, and all references to Grantor
shall mean each and every Grantor. This means that each of the Borrowers
signing below is responsible for all obligations in this Agreement.
Notices. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimilie, and shall be effective
when actually delivered or when deposited with a nationally recognized
overnight courier or deposited in the United States mail, first class,
postage prepaid, addressed to the party to whom the notice is to be given
at the address shown above. Any party may change its address for notices
under this Agreement by giving formal written notice to the other parties,
specifying that the purpose of the notice is to change the party's address.
To the extent permitted by applicable law, if there is more than one
Grantor, notice to any Grantor will constitute notice to all Grantors. For
notice purposes, Grantor will keep Lender informed at all times of
Grantor's current address(es).
Power of Attorney. Grantor hereby appoints Lender as its true and lawful
attorney-in-fact, irrevocably, with full power of substitution to do the
following: (a) to demand, collect, receive, receipt for, sue and recover
all sums of money or other property which may now or hereafter become due,
owing or payable from the Collateral; (b) to execute, sign and endorse any
and all claims, instruments, receipts, checks, drafts or warrants issued in
payment for the Collateral; (c) to settle or compromise any and all claims
arising under the Collateral, and, in the place and stead of Grantor, to
execute and deliver its release and settlement for the claim; and (d) to
file any claim or claims or to take any action or institute or take part in
any proceedings, either in its own name or in the name of Grantor, or
otherwise, which in the discretion of Lender may seem to be necessary or
advisable. This power is given as security for the Indebtedness, and the
authority hereby conferred is and shall be irrevocable and shall remain in
full force and effect until renounced by Lender.
Severability. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending provision
cannot be so modified, it shall be stricken and all other provisions of
this Agreement in all other respects shall remain valid and enforceable.
Successor Interests. Subject to the limitations set forth above on transfer
of the Collateral, this Agreement shall be binding upon and inure to the
benefit of the parties, their successors and assigns.
Waiver. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender of
a provision of this Agreement shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or
any other provision of this Agreement. No prior waiver by Lender, nor any
course of dealing between Lender and Grantor, shall constitute a waiver of
any of Lender's rights or of any of Grantor's obligations as to any future
transactions. Whenever the consent of Lender is required under this
Agreement, the granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in the
sole discretion of Lender.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY
AGREEMENT, AND GRANTOR AGREES TO ITS TERMS. THIS AGREEMENT IS DATED NOVEMBER 12,
1996.
GRANTOR:
Cinema Saver Theatre Corporation
By: By:
------------------------------- --------------------------------
R. Haydn Silleck, President Joel D. Boldrey, Secretary
LENDER:
QUAD CITY BANK AND TRUST COMPANY
By:
-------------------------------
Authorized Officer
================================================================================
LASER PRO, Reg. U.S. Pat. & T.M. Off., Ver. 3.22b(c) 1996 CFI ProServices, Inc.
All rights reserved. [CO-E40 F3.22 CINEMA1.LN C17.OVL]
<PAGE>
RECORDATION REQUESTED BY:
QUAD CITY BANK AND TRUST COMPANY
2118 MIDDLE ROAD
P.O. BOX 395
BETTENDORF, IA 52722
WHEN RECORDED MAIL TO:
QUAD CITY BANK AND TRUST COMPANY
2118 MIDDLE ROAD
P.O. BOX 395
BETTENDORF, IA 52722
SEND TAX NOTICES TO:
Cinema Saver Theatre Corporation
1422 Delgany Street, Suite LL3
Denver, CO 80202
SPACE ABOVE THIS LINE IS
FOR RECORDER'S USE ONLY
- --------------------------------------------------------------------------------
MORTGAGE
THIS MORTGAGE IS DATED NOVEMBER 12, 1996, between Cinema Saver Theatre
Corporation, whose address is 1422 Delgany Street, Suite LL3, Denver, CO 80202
(referred to below as "Grantor"); and QUAD CITY BANK AND TRUST COMPANY, whose
address is 2118 MIDDLE ROAD, P.O. BOX 395, BETTENDORF, IA 52722 (referred to
below as "Lender").
GRANT OF MORTGAGE. For valuable consideration, Grantor mortgages and conveys to
Lender all of Grantor's right, title, and interest in and to the following
described real property, together with all existing or subsequently erected or
affixed buildings, improvements and fixtures; all easements, rights of way, and
appurtenances; all water, water rights, watercourses and ditch rights (including
stock in utilities with ditch or irrigation rights); and all other rights,
royalties, and profits relating to the real property, including without
limitation all minerals, oil, gas, geothermal and similar matters, located in
Douglas County, State of Colorado (the "Real Property"):
See attached Attachment "A"
The Real Property or its address is commonly known as 10831 Crossroads Drive,
Parker, CO 80134.
Grantor presently assigns to Lender all of Grantor's right, title, and interest
in and to all leases of the Property and all Rents from the Property. In
addition, Grantor grants to Lender a Uniform Commercial Code security interest
in the Personal Property and Rents.
DEFINITIONS. The following words shall have the following meanings when used in
this Mortgage. Terms not otherwise defined in this Mortgage shall have the
meanings attributed to such terms in the Uniform Commercial Code. All references
to dollar amounts shall mean amounts in lawful money of the United States of
America.
Grantor. The word "Grantor" means Cinema Saver Theatre CorporatIon. The
Grantor is the mortgagor under this Mortgage.
Guarantor. The word "Guarantor" means and includes without limitation each
and all of the guarantors, sureties, and accommodation parties in
connection with the Indebtedness.
Improvements. The word "Improvements" means and includes without limitation
all existing and future improvements, buildings, structures, mobile homes
affixed on the Real Property, facilities, additions, replacements and other
construction on the Real Property.
Indebtedness. The word "Indebtedness" means all principal and interest
payable under the Note and any amounts expended or advanced by Lender to
discharge obligations of Grantor or expenses incurred by Lender to enforce
obligations of Grantor under this Mortgage, together with interest on such
amounts as provided in this Mortgage.
Lender. The word "Lender" means QUAD CITY BANK AND TRUST COMPANY, its
successors and assigns. The Lender is the mortgagee under this Mortgage.
Mortgage. The word "Mortgage" means this Mortgage between Grantor and
Lender, and includes without limitation all assignments and security
interest provisions relating to the Personal Property and Rents.
Note. The word "Note" means the promissory note or credit agreement dated
November 12, 1996, in the original principal amount of $3,255,000.00 from
Grantor to Lender, together with all renewals of, extensions of,
modifications of, refinancings of, consolidations of, and substitutions for
the promissory note or agreement. The maturity date of this Mortgage is
November 15, 2006.
Personal Property. The words "Personal Property" mean all equipment,
fixtures, and other articles of personal property now or hereafter owned by
Grantor, and now or hereafter attached or affixed to the Real Property;
together with all accessions, parts, and additions to, all replacements of,
and all substitutions for, any of such property; and together with all
proceeds (including without limitation all insurance proceeds and refunds
of premiums) from any sale or other disposition of the Property.
Property. The word "Property" means collectively the Real Property and the
Personal Property.
Real Property. The words "Real Property" mean the property, interests and
rights described above in the "Grant of Mortgage" section.
Related Documents. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Indebtedness.
Rents. The word "Rents" means all present and future rents, revenues,
income, issues, royalties, profits, and other benefits derived from the
Property.
THIS MORTGAGE, INCLUDING THE ASSIGNMENT OF RENTS AND THE SECURITY INTEREST IN
THE RENTS AND PERSONAL PROPERTY, IS GIVEN TO SECURE (1) PAYMENT OF THE
INDEBTEDNESS AND (2) PERFORMANCE OF ALL OBLIGATIONS OF GRANTOR UNDER THIS
MORTGAGE AND THE RELATED DOCUMENTS. THIS MORTGAGE IS GIVEN AND ACCEPTED ON THE
FOLLOWING TERMS:
PAYMENT AND PERFORMANCE. Except as otherwise provided in this Mortgage, Grantor
shall pay to Lender all amounts secured by this Mortgage as they become due, and
shall strictly perform all of Grantor's obligations under this Mortgage.
POSSESSION AND MAINTENANCE OF THE PROPERTY. Grantor agrees that Grantor's
possession and use of the Property shall be governed by the following
provisions:
Possession and Use. Until in default, Grantor may remain in possession and
control of and operate and manage the Property and collect the Rents from
the Property.
Duty to Maintain. Grantor shall maintain the Property in tenantable
condition and promptly perform all repairs, replacements, and maintenance
necessary to preserve its value.
Hazardous Substances. The terms "hazardous waste," "hazardous substance,"
"disposal," "release," and "threatened release," as used in this Mortgage,
shall have the same meanings as set forth in the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as
amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the Superfund
Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499 ("SARA"),
the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et
seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901,
et seq., or other applicable state or Federal laws, rules, or regulations
adopted pursuant to any of the foregoing. The terms "hazardous waste" and
"hazardous substance" shall also include, without limitation, petroleum and
petroleum by-products or any fraction thereof and asbestos. Grantor
represents and warrants to Lender that: (a) During the period of Grantor's
ownership of the Property, there has been no use, generation, manufacture,
storage, treatment, disposal, release or threatened release of any
hazardous waste or substance by any person on, under, about or from the
Property; (b) Grantor has no knowledge of, or reason to believe that there
has been, except as previously disclosed to and acknowledged by Lender in
writing, (i) any use, generation, manufacture, storage, treatment,
disposal, release, or threatened release of any hazardous waste or
substance on, under, about or from the Property by any prior owners or
occupants of the Property or (ii) any actual or threatened litigation or
claims of any kind by any person relating to such matters; and (c) Except
as previously disclosed to and acknowledged by Lender in writing, (i)
neither Grantor nor any tenant, contractor, agent or other authorized user
of the Property shall use, generate, manufacture, store, treat, dispose of,
or release any hazardous waste or substance on, under, about or from the
Property and (ii) any such activity shall be
<PAGE>
11-12-1996 MORTGAGE Page 2
Loan No 1082002715 (Continued)
================================================================================
conducted in compliance with all applicable federal, state, and local laws,
regulations and ordinances, including without limitation those laws,
regulations, and ordinances described above. Grantor authorizes Lender and
its agents to enter upon the Property to make such inspections and tests,
at Grantor's expense, as Lender may deem appropriate to determine
compliance of the Property with this section of the Mortgage. Any
inspections or tests made by Lender shall be for Lender's purposes only and
shall not be construed to create any responsibility or liability on the
part of Lender to Grantor or to any other person. The representations and
warranties contained herein are based on Grantor's due diligence in
investigating the Property for hazardous waste and hazardous substances.
Grantor hereby (a) releases and waives any future claims against Lender for
indemnity or contribution in the event Grantor becomes liable for cleanup
or other costs under any such laws, and (b) agrees to indemnify and hold
harmless Lender against any and all claims, losses, liabilities, damages,
penalties, and expenses which Lender may directly or indirectly sustain or
suffer resulting from a breach of this section of the Mortgage or as a
consequence of any use, generation, manufacture, storage, disposal, release
or threatened release occurring prior to Grantor's ownership or interest in
the Property, whether or not the same was or should have been known to
Grantor. The provisions of this section of the Mortgage, including the
obligation to indemnify, shall survive the payment of the Indebtedness and
the satisfaction and reconveyance of the lien of this Mortgage and shall
not be affected by Lender's acquisition of any interest in the Property,
whether by foreclosure or otherwise.
Nuisance, Waste. Grantor shall not cause, conduct or permit any nuisance
nor commit, permit, or suffer any stripping of or waste on or to the
Property or any portion of the Property. Without limiting the generality of
the foregoing, Grantor will not remove, or grant to any other party the
right to remove, any timber, minerals (including oil and gas), soil, gravel
or rock products without the prior written consent of Lender.
Removal of Improvements. Grantor shall not demolish or remove any
Improvements from the Real Property without the prior written consent of
Lender. As a condition to the removal of any Improvements, Lender may
require Grantor to make arrangements satisfactory to Lender to replace such
Improvements with Improvements of at least equal value.
Lender's Right to Enter. Lender and its agents and representatives may
enter upon the Real Property at all reasonable times to attend to Lender's
interests and to inspect the Property for purposes of Grantor's compliance
with the terms and conditions of this Mortgage.
Compliance with Governmental Requirements. Grantor shall promptly comply
with all laws, ordinances, and regulations, now or hereafter in effect, of
all governmental authorities applicable to the use or occupancy of the
Property, including without limitation, the Americans With Disabilities
Act. Grantor may contest in good faith any such law, ordinance, or
regulation and withhold compliance during any proceeding, including
appropriate appeals, so long as Grantor has notified Lender in writing
prior to doing so and so long as, in Lender's sole opinion, Lender's
interests in the Property are not jeopardized. Lender may require Grantor
to post adequate security or a surety bond, reasonably satisfactory to
Lender, to protect Lender's interest.
Duty to Protect. Grantor agrees neither to abandon nor leave unattended the
Property. Grantor shall do all other acts, in addition to those acts set
forth above in this section, which from the character and use of the
Property are reasonably necessary to protect and preserve the Property.
DUE ON SALE -- CONSENT BY LENDER. Lender may, at its option, declare immediately
due and payable all sums secured by this Mortgage upon the sale or transfer,
without the Lender's prior written consent, of all or any part of the Real
Property, or any interest in the Real Property. A "sale or transfer" means the
conveyance of Real Property or any right, title or interest therein; whether
legal, beneficial or equitable; whether voluntary or involuntary; whether by
outright sale, deed, instalment sale contract, land contract, contract for deed,
leasehold interest with a term greater than three (3) years, lease-option
contract, or by sale, assignment, or transfer of any beneficial interest in or
to any land trust holding title to the Real Property, or by any other method of
conveyance of Real Property interest. If any Grantor is a corporation,
partnership or limited liability company, transfer also includes any change in
ownership of more than twenty-five percent (25%) of the voting stock,
partnership interests or limited liability company interests, as the case may
be, of Grantor. However, this option shall not be exercised by Lender if such
exercise is prohibited by federal law or by Colorado law.
TAXES AND LIENS. The following provisions relating to the taxes and liens on the
Property are a part of this Mortgage.
Payment. Grantor shall pay when due (and in all events prior to
delinquency) all taxes, payroll taxes, special taxes, assessments, water
charges and sewer service charges levied against or on account of the
Property, and shall pay when due all claims for work done on or for
services rendered or material furnished to the Property. Grantor shall
maintain the Property free of all liens having priority over or equal to
the interest of Lender under this Mortgage, except for the lien of taxes
and assessments not due, and except as otherwise provided in the following
paragraph.
Right To Contest. Grantor may withhold payment of any tax, assessment, or
claim in connection with a good faith dispute over the obligation to pay,
so long as Lender's interest in the Property is not jeopardized. If a lien
arises or is filed as a result of nonpayment, Grantor shall within fifteen
(15) days after the lien arises or, if a lien is filed, within fifteen (15)
days after Grantor has notice of the filing, secure the discharge of the
lien, or if requested by Lender, deposit with Lender cash or a sufficient
corporate surety bond or other security satisfactory to Lender in an amount
sufficient to discharge the lien plus any costs and attorneys' fees or
other charges that could accrue as a result of a foreclosure or sale under
the lien. In any contest, Grantor shall defend itself and Lender and shall
satisfy any adverse judgment before enforcement against the Property.
Grantor shall name Lender as an additional obligee under any surety bond
furnished in the contest proceedings.
Evidence of Payment. Grantor shall upon demand furnish to Lender
satisfactory evidence of payment of the taxes or assessments and shall
authorize the appropriate governmental official to deliver to Lender at any
time a written statement of the taxes and assessments against the Property.
Notice of Construction. Grantor shall notify Lender at least fifteen (15)
days before any work is commenced, any services are furnished, or any
materials are supplied to the Property, if any mechanic's lien,
materialmen's lien, or other lien could be asserted on account of the work,
services, or materials. Grantor will upon request of Lender furnish to
Lender advance assurances satisfactory to Lender that Grantor can and will
pay the cost of such improvements.
PROPERTY DAMAGE INSURANCE. The following provisions relating to insuring the
Property are a part of this Mortgage.
Maintenance of Insurance. Grantor shall procure and maintain policies of
fire insurance with standard extended coverage endorsements on a
replacement basis for the full insurable value covering all Improvements on
the Real Property in an amount sufficient to avoid application of any
coinsurance clause, and with a standard mortgagee clause in favor of
Lender. Grantor shall also procure and maintain comprehensive general
liability insurance in such coverage amounts as Lender may request with
Lender being named as additional insureds in such liability insurance
policies. Additionally, Grantor shall maintain such other insurance,
including but not limited to hazard, business interruption and boiler
insurance as Lender may require. Policies shall be written by such
insurance companies and in such form as may be reasonably acceptable to
Lender. Grantor shall deliver to Lender certificates of coverage from each
insurer containing a stipulation that coverage will not be cancelled or
diminished without a minimum of ten (10) days' prior written notice to
Lender and not containing any disclaimer of the insurer's liability for
failure to give such notice. Each insurance policy also shall include an
endorsement providing that coverage in favor of Lender will not be impaired
in any way by any act, omission or default of Grantor or any other person.
Should the Real Property at any time become located in an area designated
by the Director of the Federal Emergency Management Agency as a special
flood hazard area, Grantor agrees to obtain and maintain Federal Flood
Insurance for the full unpaid principal balance of the loan, up to the
maximum policy limits set under the National Flood Insurance Program, or as
otherwise required by Lender, and to maintain such insurance for the term
of the loan.
Application of Proceeds. Grantor shall promptly notify Lender of any loss
or damage to the Property. Lender may make proof of loss if Grantor fails
to do so within fifteen (15) days of the casualty. Whether or not Lender's
security is impaired, Lender may, at its election, apply the proceeds to
the reduction of the Indebtedness, payment of any lien affecting the
Property, or the restoration and repair of the Property. If Lender elects
to apply the proceeds to restoration and repair, Grantor shall repair or
replace the damaged or destroyed Improvements in a manner satisfactory to
Lender. Lender shall, upon satisfactory proof of such expenditure, pay or
reimburse Grantor from the proceeds for the reasonable cost of repair or
restoration if Grantor is not in default hereunder. Any proceeds which have
not been disbursed within 180 days after their receipt and which Lender has
not committed to the repair or restoration of the Property shall be used
first to pay any amount owing to Lender under this Mortgage, then to prepay
accrued interest, and the remainder, if any, shall be applied to the
principal balance of the Indebtedness. If Lender holds any proceeds after
payment in full of the Indebtedness, such proceeds shall be paid to
Grantor.
Unexpired Insurance at Sale. Any unexpired insurance shall inure to the
benefit of, and pass to, the purchaser of the Property covered by this
Mortgage at any trustee's sale or other sale held under the provisions of
this Mortgage, or at any foreclosure sale of such Property.
Grantor's Report on Insurance. Upon request of Lender, however not more
than once a year, Grantor shall furnish to Lender a report on each existing
policy of insurance showing: (a) the name of the Insurer; (b) the risks
Insured; (c) the amount of the policy; (d) the property insured, the then
current replacement value of such property, and the manner of determining
that value; and (e) the expiration date of the policy. Grantor shall, upon
request of Lender, have an independent appraiser satisfactory to Lender
determine the cash value replacement cost of the Property.
EXPENDITURES BY LENDER. If Grantor fails to comply with any provision of this
Mortgage, or if any action or proceeding is commenced that would materially
affect Lender's interests in the Property, Lender on Grantor's behalf may, but
shall not be required to, take any action that Lender deems appropriate. Any
amount that Lender expends in so doing will bear interest at the rate provided
for in the Note from the date incurred or paid by Lender to the date of
repayment by Grantor. All such expenses, at Lender's option, will (a) be payable
on demand, (b) be added to the balance of the Note and be apportioned among and
be payable with any instalment payments to become due during either (i) the term
of any applicable insurance policy or (ii) the remaining term of the Note, or
(c) be treated as a balloon payment which will be due and payable at the Note's
maturity. This Mortgage also will secure payment of these amounts. The rights
provided for in this paragraph shall be in addition to any other rights or any
remedies to which Lender may be entitled on account of the default. Any such
action by Lender shall not be construed as curing the default so as to bar
Lender from any remedy that it otherwise would have had.
<PAGE>
11-12-1996 MORTGAGE Page 3
Loan No 1082002715 (Continued)
================================================================================
WARRANTY; DEFENSE OF TITLE. The following provisions relating to ownership of
the Property are a part of this Mortgage.
Title. Grantor warrants that: (a) Grantor holds good and marketable title
of record to the Property in fee simple, free and clear of all liens and
encumbrances other than those set forth in the Real Property description or
in any title insurance policy, title report, or final title opinion issued
in favor of, and accepted by, Lender in connection with this Mortgage, and
(b) Grantor has the full right, power, and authority to execute and deliver
this Mortgage to Lender.
Defense of Title. Subject to the exception in the paragraph above, Grantor
warrants and will forever defend the title to the Property against the
lawful claims of all persons. In the event any action or proceeding is
commenced that questions Grantor's title or the interest of Lender under
this Mortgage, Grantor shall defend the action at Grantor's expense.
Grantor may be the nominal party in such proceeding, but Lender shall be
entitled to participate in the proceeding and to be represented in the
proceeding by counsel of Lender's own choice, and Grantor will deliver, or
cause to be delivered, to Lender such instruments as Lender may request
from time to time to permit such participation.
Compliance With Laws. Grantor warrants that the Property and Grantor's use
of the Property complies with all existing applicable laws, ordinances, and
regulations of governmental authorities.
CONDEMNATION. The following provisions relating to condemnation of the Property
are a part of this Mortgage.
Application of Net Proceeds. If all or any part of the Property is
condemned by eminent domain proceedings or by any proceeding or purchase in
lieu of condemnation, Lender may at its election require that all or any
portion of the net proceeds of the award be applied to the Indebtedness or
the repair or restoration of the Property. The net proceeds of the award
shall mean the award after payment of all reasonable costs, expenses, and
attorneys' fees incurred by Lender in connection with the condemnation.
Proceedings. If any proceeding in condemnation is filed, Grantor shall
promptly notify Lender in writing, and Grantor shall promptly take such
steps as may be necessary to defend the action and obtain the award.
Grantor may be the nominal party in such proceeding, but Lender shall be
entitled to participate in the proceeding and to be represented in the
proceeding by counsel of its own choice, and Grantor will deliver or cause
to be delivered to Lender such instruments as may be requested by it from
time to time to permit such participation.
IMPOSITION OF TAXES, FEES AND CHARGES BY GOVERNMENTAL AUTHORITIES. The following
provisions relating to governmental taxes, fees and charges are a part of this
Mortgage:
Current Taxes, Fees and Charges. Upon request by Lender, Grantor shall
execute such documents in addition to this Mortgage and take whatever other
action is requested by Lender to perfect and continue Lender's lien on the
Real Property. Grantor shall reimburse Lender for all taxes, as described
below, together with all expenses incurred in recording, perfecting or
continuing this Mortgage, including without limitation all taxes, fees,
documentary stamps, and other charges for recording or registering this
Mortgage.
Taxes. The following shall constitute taxes to which this section applies:
(a) a specific tax upon this type of Mortgage or upon all or any part of
the Indebtedness secured by this Mortgage; (b) a specific tax on Grantor
which Grantor is authorized or required to deduct from payments on the
Indebtedness secured by this type of Mortgage; (c) a tax on this type of
Mortgage chargeable against the Lender or the holder of the Note; and (d) a
specific tax on all or any portion of the Indebtedness or on payments of
principal and interest made by Grantor.
Subsequent Taxes. If any tax to which this section applies is enacted
subsequent to the date of this Mortgage, this event shall have the same
effect as an Event of Default (as defined below), and Lender may exercise
any or all of its available remedies for an Event of Default as provided
below unless Grantor either (a) pays the tax before it becomes delinquent,
or (b) contests the tax as provided above in the Taxes and Liens section
and deposits with Lender cash or a sufficient corporate surety bond or
other security satisfactory to Lender.
SECURITY AGREEMENT; FINANCING STATEMENTS. The following provisions relating to
this Mortgage as a security agreement are a part of this Mortgage.
Security Agreement. This instrument shall constitute a security agreement
to the extent any of the Property constitutes fixtures or other personal
property, and Lender shall have all of the rights of a secured party under
the Uniform Commercial Code as amended from time to time.
Security Interest. Upon request by Lender, Grantor shall execute financing
statements and take whatever other action is requested by Lender to perfect
and continue Lender's security interest in the Rents and Personal Property.
In addition to recording this Mortgage in the real property records, Lender
may, at any time and without further authorization from Grantor, file
executed counterparts, copies or reproductions of this Mortgage as a
financing statement. Grantor shall reimburse Lender for all expenses
incurred in perfecting or continuing this security interest. Upon default,
Grantor shall assemble the Personal Property in a manner and at a place
reasonably convenient to Grantor and Lender and make it available to Lender
within three (3) days after receipt of written demand from Lender.
Addresses. The mailing addresses of Grantor (debtor) and Lender (secured
party), from which information concerning the security interest granted by
this Mortgage may be obtained (each as required by the Uniform Commercial
Code), are as stated on the first page of thIs Mortgage.
FURTHER ASSURANCES; ATTORNEY-IN-FACT. The following provisions relating to
further assurances and attorney-in-fact are a part of this Mortgage.
Further Assurances. At any time, and from time to time, upon request of
Lender, Grantor will make, execute and deliver, or will cause to be made,
executed or delivered, to Lender or to Lender's designee, and when
requested by Lender, cause to be filed, recorded, refiled, or rerecorded,
as the case may be, at such times and in such offices and places as Lender
may deem appropriate, any and all such mortgages, deeds of trust, security
deeds, security agreements, financing statements, continuation statements,
instruments of further assurance, certificates, and other documents as may,
in the sole opinion of Lender, be necessary or desirable in order to
effectuate, complete, perfect, continue, or preserve (a) the obligations of
Grantor under the Note, this Mortgage, and the Related Documents, and (b)
the liens and security interests created by this Mortgage as first and
prior liens on the Property, whether now owned or hereafter acquired by
Grantor. Unless prohibited by law or agreed to the contrary by Lender in
writing, Grantor shall reimburse Lender for all costs and expenses incurred
in connection with the matters referred to in this paragraph.
Attorney-In-Fact. If Grantor fails to do any of the things referred to in
the preceding paragraph, Lender may do so for and in the name of Grantor
and at Grantor's expense. For such purposes, Grantor hereby irrevocably
appoints Lender as Grantor's attorney-in-fact for the purpose of making,
executing, delivering, filing, recording, and doing all other things as may
be necessary or desirable, in Lender's sole opinion, to accomplish the
matters referred to in the preceding paragraph.
FULL PERFORMANCE. If Grantor pays all the Indebtedness when due, and otherwise
performs all the obligations imposed upon Grantor under this Mortgage, Lender
shall execute and deliver to Grantor a suitable satisfaction of this Mortgage
and suitable statements of termination of any financing statement on file
evidencing Lender's security interest in the Rents and the Personal Property.
Grantor will pay, if permitted by applicable law, any reasonable termination fee
as determined by Lender from time to time.
DEFAULT. Each of the following, at the option of Lender, shall constitute an
event of default ("Event of Default") under this Mortgage:
Default on Indebtedness. Failure of Grantor to make any payment when due on
the Indebtedness.
Default on Other Payments. Failure of Grantor within the time required by
this Mortgage to make any payment for taxes or insurance, or any other
payment necessary to prevent filing of or to effect discharge of any lien.
Compliance Default. Failure of Grantor to comply with any other term,
obligation, covenant or condition contained in this Mortgage, the Note or
in any of the Related Documents.
False Statements. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Grantor under this Mortgage, the
Note or the Related Documents is false or misleading in any material
respect, either now or at the time made or furnished.
Defective Collateralization. This Mortgage or any of the Related Documents
ceases to be in full force and effect (including failure of any collateral
documents to create a valid and perfected security interest or lien) at any
time and for any reason.
Insolvency. The dissolution or termination of Grantor's existence as a
going business, the insolvency of Grantor, the appointment of a receiver
for any part of Grantor's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Grantor.
Foreclosure, Forfeiture, etc. Commencement of foreclosure or forfeiture
proceedings, whether by judicial proceeding, self-help, repossession or
any other method, by any creditor of Grantor or by any governmental agency
against any of the Property. However, this subsection shall not apply in
the event of a good faith dispute by Grantor as to the validity or
reasonableness of the claim which is the basis of the foreclosure or
forefeiture proceeding, provided that Grantor gives Lender written notice
of such claim and furnishes reserves or a surety bond for the claim
satisfactory to Lender.
Breach of Other Agreement. Any breach by Grantor under the terms of any
other agreement between Grantor and Lender that is not remedied within any
grace period provided therein, including without limitation any agreement
concerning any indebtedness or other obligation of Grantor to Lender,
whether existing now or later.
Events Affecting Guarantor. Any of the preceding events occurs with respect
to any Guarantor of any of the Indebtedness or any Guarantor dies or
becomes incompetent, or revokes or disputes the validity of, or liability
under, any Guaranty of the Indebtedness. Lender, at its option, may, but
<PAGE>
11-12-1996 MORTGAGE Page 4
Loan No 1082002715 (Continued)
================================================================================
shall not be required to, permit the Guarantor's estate to assume
unconditionally the obligations arising under the guaranty in a manner
satisfactory to Lender, and, in doing so, cure the Event of Default.
Adverse Change. A material adverse change occurs in Grantor's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness is impaired.
Insecurity. Lender in good faith has reasonable cause to believe it is
insecure or that its collateral is impaired.
Right to Cure. If such a failure is curable and if Grantor has not been
given a notice of a breach of the same provision of this Mortgage within
the preceding twelve (12) months, it may be cured (and no Event of Default
will have occurred) if Grantor, after Lender sends written notice demanding
cure of such failure: (a) cures the failure within twenty (20) days; or (b)
if the cure requires more than twenty (20) days, immediately initiates
steps sufficient to cure the failure and thereafter continues and completes
all reasonable and necessary steps sufficient to produce compliance as soon
as reasonably practical.
RIGHTS AND REMEDIES ON DEFAULT. Upon the occurrence of any Event of Default and
at any time thereafter but subject to any limitation in the Note or any
limitation in this Mortgage, Lender, at its option, may exercise any one or more
of the following rights and remedies, in addition to any other rights or
remedies provided by law:
Accelerate indebtedness. Lender shall have the right at its option without
notice to Grantor to declare the entire Indebtedness immediately due and
payable, including any prepayment penalty which Grantor would be required
to pay.
UCC Remedies. With respect to all or any part of the Personal Property,
Lender shall have all the rights and remedies of a secured party under the
Uniform Commercial Code.
Collect Rents. Lender shall have the right, without notice to Grantor, to
take possession of the Property and collect the Rents, including amounts
past due and unpaid, and apply the net proceeds, over and above Lender's
costs, against the Indebtedness. In furtherance of this right, Lender may
require any tenant or other user of the Property to make payments of rent
or use fees directly to Lender. If the Rents are collected by Lender, then
Grantor irrevocably designates Lender as Grantor's attorney-in-fact to
endorse instruments received in payment thereof in the name of Grantor and
to negotiate the same and collect the proceeds. Payments by tenants or
other users to Lender in response to Lender's demand shall satisfy the
obligations for which the payments are made, whether or not any proper
grounds for the demand existed. Lender may exercise its rights under this
subparagraph either in person, by agent, or through a receiver.
Appoint Receiver. Lender shall have the right to have a receiver appointed
to take possession of all or any part of the Property, with the power to
protect and preserve the Property, to operate the Property preceding
foreclosure or sale, and to collect the Rents from the Property and apply
the proceeds, over and above the cost of the receivership, against the
Indebtedness. The receiver may serve without bond if permitted by law.
Lender's right to the appointment of a receiver shall exist whether or not
the apparent value of the Property exceeds the Indebtedness by a
substantial amount. Employment by Lender shall not disqualify a person from
serving as a receiver.
Judicial Foreclosure. Lender may obtain a judicial decree foreclosing
Grantor's interest in all or any part of the Property.
Nonjudicial Sale. If permitted by applicable law, Lender may foreclose
Grantor's interest in all or in any part of the Personal Property or the
Real Property by nonjudicial sale.
Deficiency Judgment. If permitted by applicable law, Lender may obtain a
judgment for any deficiency remaining in the Indebtedness due to Lender
after application of all amounts received from the exercise of the rights
provided in this section.
Tenancy at Sufferance. If Grantor remains in possession of the Property
after the Property is sold as provided above or Lender otherwise becomes
entitled to possession of the Property upon default of Grantor, Grantor
shall become a tenant at sufferance of Lender or the purchaser of the
Property and shall, at Lender's option, either (a) pay a reasonable rental
for the use of the Property, or (b) vacate the Property immediately upon
the demand of Lender.
Other Remedies. Lender shall have all other rights and remedies provided in
this Mortgage or the Note or available at law or in equity.
Sale of the Property. To the extent permitted by applicable law, Grantor
hereby waives any and all right to have the property marshalled. In
exercising its rights and remedies, Lender shall be free to sell all or any
part of the Property together or separately, in one sale or by separate
sales. Lender shall be entitled to bid at any public sale on all or any
portion of the Property.
Notice of Sale. Lender shall give Grantor reasonable notice of the time and
place of any public sale of the Personal Property or of the time after
which any private sale or other intended disposition of the Personal
Property is to be made. Reasonable notice shall mean notice given at least
ten (10) days before the time of the sale or disposition.
Waiver; Election of Remedies. A waiver by any party of a breach of a
provision of this Mortgage shall not constitute a waiver of or prejudice
the party's rights otherwise to demand strict compliance with that
provision or any other provision. Election by Lender to pursue any remedy
shall not exclude pursuit of any other remedy, and an election to make
expenditures or take action to perform an obligation of Grantor under this
Mortgage after failure of Grantor to perform shall not affect Lender's
right to declare a default and exercise its remedies under this Mortgage.
Attorneys' Fees; Expenses. If Lender institutes any suit or action to
enforce any of the terms of this Mortgage, Lender shall be entitled to
recover such sum as the court may adjudge reasonable as attorneys' fees at
trial and on any appeal. Whether or not any court action is involved, all
reasonable expenses incurred by Lender that in Lender's opinion are
necessary at any time for the protection of its Interest or the enforcement
of its rights shall become a part of the Indebtedness payable on demand and
shall bear interest from the date of expenditure until repaid at the rate
provided for in the Note. Expenses covered by this paragraph include,
without limitation, however subject to any limits under applicable law,
Lender's attorneys' fees and Lender's legal expenses whether or not there
is a lawsuit, including attorneys' fees for bankruptcy proceedings
(including efforts to modify or vacate any automatic stay or injunction),
appeals and any anticipated post-judgment collection services, the cost of
searching records, obtaining title reports (including foreclosure reports),
surveyors' reports, and appraisal fees, and title insurance, to the extent
permitted by applicable law. Grantor also will pay any court costs, in
addition to all other sums provided by law.
NOTICES TO GRANTOR AND OTHER PARTIES. Any notice under this Mortgage, including
without limitation any notice of default and any notice of sale to Grantor,
shall be in writing, may be be sent by telefacsimilie, and shall be effective
when actually delivered, or when deposited with a nationally recognized
overnight courier, or, if mailed, shall be deemed effective when deposited in
the United States mail first class, certified or registered mail, postage
prepaid, directed to the addresses shown near the beginning of this Mortgage.
Any party may change its address for notices under this Mortgage by giving
formal written notice to the other parties, specifying that the purpose of the
notice is to change the party's address. All copies of notices of foreclosure
from the holder of any lien which has priority over this Mortgage shall be sent
to Lender's address, as shown near the beginning of this Mortgage. For notice
purposes, Grantor agrees to keep Lender informed at all times of Grantor's
current address.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Mortgage:
Amendments. This Mortgage, together with any Related Documents, constitutes
the entire understanding and agreement of the parties as to the matters set
forth in this Mortgage. No alteration of or amendment to this Mortgage
shall be effective unless given in writing and signed by the party or
parties sought to be charged or bound by the alteration or amendment.
Annual Reports. If the Property is used for purposes other than Grantor's
residence, Grantor shall furnish to Lender, upon request, a certified
statement of net operating income received from the Property during
Grantor's previous fiscal year in such form and detail as Lender shall
require. "Net operating income" shall mean all cash receipts from the
Property less all cash expenditures made in connection with the operation
of the Property.
Applicable Law. This Mortgage has been delivered to Lender and accepted by
Lender in the State of Iowa. Except as set forth hereinafter, this Mortgage
shall be governed by, construed and enforced in accordance with the laws of
the State of Iowa, except and only to the extent of procedural matters
related to the perfection and enforcement by Lender of its rights and
remedies against the Property, which matters shall be governed by the laws
of the State of Colorado. However, in the event that the enforceability or
validity of any provision of this Mortgage is challenged or questioned,
such provision shall be governed by whichever applicable state or federal
law would uphold or would enforce such challenged or questioned provision.
The loan transaction which is evidenced by the Note and this Mortgage
(which secures the Note) has been applied for, considered, approved and
made in the State of Iowa.
Caption Headings. Caption headings in this Mortgage are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Mortgage.
Merger. There shall be no merger of the interest or estate created by this
Mortgage with any other interest or estate in the Property at any time held
by or for the benefit of Lender in any capacity, without the written
consent of Lender.
Multiple Parties; Corporate Authority. All obligations of Grantor under
this Mortgage shall be joint and several, and all references to Grantor
shall mean each and every Grantor. This means that each of the persons
signing below is responsible for all obligations in this Mortgage.
Severability. If a court of competent jurisdiction finds any provision of
this Mortgage to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such
<PAGE>
11-12-1996 MORTGAGE Page 5
Loan No 1082202715 (Continued)
================================================================================
offending provision shall be deemed to be modified to be within the limits
of enforceability or validity; however, if the offending provision cannot
be so modified, it shall be stricken and all other provisions of this
Mortgage in all other respects shall remain valid and enforceable.
Successors and Assigns. Subject to the limitations stated in this Mortgage
on transfer of Grantor's interest, this Mortgage shall be binding upon and
inure to the benefit of the parties, their successors and assigns. If
ownership of the Property becomes vested in a person other than Grantor,
Lender, without notice to Grantor, may deal with Grantor's successors with
reference to this Mortgage and the Indebtedness by way of forbearance or
extension without releasing Grantor from the obligations of this Mortgage
or liability under the Indebtedness.
Time is of the Essence. Time is of the essence in the performance of this
Mortgage.
Waiver of Homestead Exemption. Grantor hereby releases and waives all
rights and benefits of the homestead exemption laws of the State of
Colorado as to all Indebtedness secured by this Mortgage.
Waivers and Consents. Lender shall not be deemed to have waived any rights
under this Mortgage (or under the Related Documents) unless such waiver is
in writing and signed by Lender. No delay or omission on the part of Lender
in exercising any right shall operate as a waiver of such right or any
other right. A waiver by any party of a provision of this Mortgage shall
not constitute a waiver of or prejudice the party's right otherwise to
demand strict compliance with that provision or any other provision. No
prior waiver by Lender, nor any course of dealing between Lender and
Grantor, shall constitute a waiver of any of Lender's rights or any of
Grantor's obligations as to any future transactions. Whenever consent by
Lender is required in this Mortgage, the granting of such consent by Lender
in any instance shall not constitute continuing consent to subsequent
instances where such consent is required.
Acknowledgment of Receipt of Copies. Grantor hereby acknowledges the
receipt of a copy of this Mortgage.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS MORTGAGE, AND
GRANTOR AGREES TO ITS TERMS.
GRANTOR:
Cinema Saver Theatre Corporation
By: By:
------------------------------------- ----------------------------
R. Haydn Silleck, President Joel D. Boldrey, Secretary
- --------------------------------------------------------------------------------
CORPORATE ACKNOWLEDGMENT
STATE OF ______________________________)
) SS
COUNTY OF _____________________________)
On this __________ day of ______________________, 19 , before me, the
undersigned Notary Public, personally appeared R. Haydn Silleck, President; and
Joel D. Boldrey, Secretary of Cinema Saver Theatre Corporation, and known to me
to be authorized agents of the corporation that executed the Mortgage and
acknowledged the Mortgage to be the free and voluntary act and deed of the
corporation, by authority of its Bylaws or by resolution of its board of
directors, for the uses and purposes therein mentioned, and on oath stated that
they are authorized to execute this Mortgage and in fact executed the Mortgage
on behalf of the corporation.
By Residing at
-------------------------------- ------------------------
Notary Public in and for the State of ______ My commission expires _____________
================================================================================
LASER PRO, Reg. U.S. Pat. & T.M. Off., Ver. 3.22b (c) 996 CFI ProService., Inc.
All right. reserved. [IA-G03 CINEMA1.LN C17.OVL]
<PAGE>
RECORDATION REQUESTED BY:
QUAD CITY BANK AND TRUST COMPANY
2118 MIDDLE ROAD
P.O. BOX 395
BETTENDORF, IA 52722
WHEN RECORDED MAIL TO:
QUAD CITY BANK AND TRUST COMPANY
2118 MIDDLE ROAD
P.O. BOX 395
BETTENDORF, IA 52722
SEND TAX NOTICES TO:
QUAD CITY BANK AND TRUST COMPANY
2118 MIDDLE ROAD
P.O. BOX 395
BETTENDORF, IA 52722
SPACE ABOVE THIS LINE IS
FOR RECORDER'S USE ONLY
- --------------------------------------------------------------------------------
MORTGAGE
THIS MORTGAGE IS DATED NOVEMBER 12, 1996, between Cinema Saver Theatre
Corporation, whose address is 1422 Delgany Street, Suite LL3, Denver, CO 80202
(referred to below as "Grantor"); and QUAD CITY BANK AND TRUST COMPANY, whose
address is 2118 MIDDLE ROAD, P.O. BOX 395, BETTENDORF, IA 52722 (referred to
below as "Lender").
GRANT OF MORTGAGE. For valuable consideration, Grantor mortgages and conveys to
Lender all of Grantor's right, title, and interest in and to the following
described real property, together with all existing or subsequently erected or
affixed buildings, improvements and fixtures; all easements, rights of way, and
appurtenances; all water, water rights, watercourses and ditch rights (including
stock in utilities with ditch or irrigation rights); and all other rights,
royalties, and profits relating to the real property, including without
limitation all minerals, oil, gas, geothermal and similar matters, located in
Larimer County, State of Colorado (the "Real Property"):
See attached Addendum "A"
The Real Property or its address is commonly known as 2525 Worthington Circle,
Fort Collins, CO 80521.
Grantor presently assigns to Lender all of Grantor's right, title, and interest
in and to all leases of the Property and all Rents from the Property. In
addition, Grantor grants to Lender a Uniform Commercial Code security interest
in the Personal Property and Rents.
DEFINITIONS. The following words shall have the following meanings when used in
this Mortgage. Terms not otherwise defined in this Mortgage shall have the
meanings attributed to such terms in the Uniform Commercial Code. All references
to dollar amounts shall mean amounts in lawful money of the United States of
America.
Grantor. The word "Grantor" means Cinema Saver Theatre Corporation. The
Grantor is the mortgagor under this Mortgage.
Guarantor. The word "Guarantor" means and includes without limitation each
and all of the guarantors, sureties, and accommodation parties in
connection with the Indebtedness.
Improvements. The word "Improvements" means and includes without limitation
all existing and future improvements, buildings, structures, mobile homes
affixed on the Real Property, facilities, additions, replacements and other
construction on the Real Property.
Indebtedness. The word "Indebtedness" means all principal and interest
payable under the Note and any amounts expended or advanced by Lender to
discharge obligations of Grantor or expenses incurred by Lender to enforce
obligations of Grantor under this Mortgage, together with interest on such
amounts as provided in this Mortgage.
Lender. The word "Lender" means QUAD CITY BANK AND TRUST COMPANY, its
successors and assigns. The Lender is the mortgagee under this Mortgage.
Mortgage. The word "Mortgage" means this Mortgage between Grantor and
Lender, and includes without limitation all assignments and security
interest provisions relating to the Personal Property and Rents.
Note. The word "Note" means the promissory note or credit agreement dated
November 12, 1996, in the original principal amount of $3,255,000.00 from
Grantor to Lender, together with all renewals of, extensions of,
modifications of, refinancings of, consolidations of, and substitutions for
the promissory note or agreement.
Personal Property. The words "Personal Property" mean all equipment,
fixtures, and other articles of personal property now or hereafter owned by
Grantor, and now or hereafter attached or affixed to the Real Property;
together with all accessions, parts, and additions to, all replacements of,
and all substitutions for, any of such property; and together with all
proceeds (including without limitation all insurance proceeds and refunds
of premiums) from any sale or other disposition of the Property.
Property. The word "Property" means collectively the Real Property and the
Personal Property.
Real Property. The words "Real Property" mean the property, interests and
rights described above in the "Grant of Mortgage" section.
Related Documents. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Indebtedness.
Rents. The word "Rents" means all present and future rents, revenues,
income, issues, royalties, profits, and other benefits derived from the
Property.
THIS MORTGAGE, INCLUDING THE ASSIGNMENT OF RENTS AND THE SECURITY INTEREST IN
THE RENTS AND PERSONAL PROPERTY, IS GIVEN TO SECURE (1) PAYMENT OF THE
INDEBTEDNESS AND (2) PERFORMANCE OF ALL OBLIGATIONS OF GRANTOR UNDER THIS
MORTGAGE AND THE RELATED DOCUMENTS. THIS MORTGAGE IS GIVEN AND ACCEPTED ON THE
FOLLOWING TERMS:
PAYMENT AND PERFORMANCE. Except as otherwise provided in this Mortgage, Grantor
shall pay to Lender all amounts secured by this Mortgage as they become due, and
shall strictly perform all of Grantor's obligations under this Mortgage.
POSSESSION AND MAINTENANCE OF THE PROPERTY. Grantor agrees that Grantor's
possession and use of the Property shall be governed by the following
provisions:
Possession and Use. Until in default, Grantor may remain in possession and
control of and operate and manage the Property and collect the Rents from
the Property. Duty to Maintain. Grantor shall maintain the Property in
tenantable condition and promptly perform all repairs, replacements, and
maintenance necessary to preserve its value. Hazardous Substances. The
terms "hazardous waste," "hazardous substance," "disposal," "release," and
"threatened release," as used in this Mortgage, shall have the same
meanings as set forth in the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended, 42 U.S.C. Section
9601, et seq. ("CERCLA"), the Superfund Amendments and Reauthorization Act
of 1986, Pub. L. No. 99-499 ("SARA"), the Hazardous Materials
Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., or other
applicable state or Federal laws, rules, or regulations adopted pursuant to
any of the foregoing. The terms "hazardous waste" and "hazardous substance"
shall also include, without limitation, petroleum and petroleum
by-products or any fraction thereof and asbestos. Grantor represents and
warrants to Lender that: (a) During the period of Grantor's ownership of
the Property, there has been no use, generation, manufacture, storage,
treatment, disposal, release or threatened release of any hazardous waste
or substance by any person on, under, about or from the Property; (b)
Grantor has no knowledge of, or reason to believe that there has been,
except as previously disclosed to and acknowledged by Lender in writing,
(i) any use, generation, manufacture, storage, treatment, disposal,
release, or threatened release of any hazardous waste or substance on,
under, about or from the Property by any prior owners or occupants of the
Property or (ii) any actual or threatened litigation or claims of any kind
by any person relating to such matters; and (c) Except as previously
disclosed to and acknowledged by Lender in writing, (i) neither Grantor nor
any tenant, contractor, agent or other authorized user of the Property
shall use, generate, manufacture,
<PAGE>
11-12-1996 MORTGAGE Page 2
Loan No 1082002715 (Continued)
================================================================================
store, treat, dispose of, or release any hazardous waste or substance on,
under, about or from the Property and (ii) any such activity shall be
conducted in compliance with all applicable federal, state, and local laws,
regulations and ordinances, including without limitation those laws,
regulations, and ordinances described above. Grantor authorizes Lender and
its agents to enter upon the Property to make such inspections and tests,
at Grantor's expense, as Lender may deem appropriate to determine
compliance of the Property with this section of the Mortgage. Any
inspections or tests made by Lender shall be for Lender's purposes only and
shall not be construed to create any responsibility or liability on the
part of Lender to Grantor or to any other person. The representations and
warranties contained herein are based on Grantor's due diligence in
investigating the Property for hazardous waste and hazardous substances.
Grantor hereby (a) releases and waives any future claims against Lender for
indemnity or contribution in the event Grantor becomes liable for cleanup
or other costs under any such laws, and (b) agrees to indemnify and hold
harmless Lender against any and all claims, losses, liabilities, damages,
penalties, and expenses which Lender may directly or indirectly sustain or
suffer resulting from a breach of this section of the Mortgage or as a
consequence of any use, generation, manufacture, storage, disposal, release
or threatened release occurring prior to Grantor's ownership or interest in
the Property, whether or not the same was or should have been known to
Grantor. The provisions of this section of the Mortgage, including the
obligation to indemnify, shall survive the payment of the Indebtedness and
the satisfaction and reconveyance of the lien of this Mortgage and shall
not be affected by Lender's acquisition of any interest in the Property,
whether by foreclosure or otherwise.
Nuisance, Waste. Grantor shall not cause, conduct or permit any nuisance
nor commit, permit, or suffer any stripping of or waste on or to the
Property or any portion of the Property. Without limiting the generality of
the foregoing, Grantor will not remove, or grant to any other party the
right to remove, any timber, minerals (including oil and gas), soil, gravel
or rock products without the prior written consent of Lender.
Removal of Improvements. Grantor shall not demolish or remove any
Improvements from the Real Property without the prior written consent of
Lender. As a condition to the removal of any Improvements, Lender may
require Grantor to make arrangements satisfactory to Lender to replace such
Improvements with Improvements of at least equal value.
Lender's Right to Enter. Lender and its agents and representatives may
enter upon the Real Property at all reasonable times to attend to Lender's
interests and to inspect the Property for purposes of Grantor's compliance
with the terms and conditions of this Mortgage.
Compliance with Governmental Requirements. Grantor shall promptly comply
with all laws, ordinances, and regulations, now or hereafter in effect, of
all governmental authorities applicable to the use or occupancy of the
Property, including without limitation, the Americans With Disabilities
Act. Grantor may contest in good faith any such law, ordinance, or
regulation and withhold compliance during any proceeding, including
appropriate appeals, so long as Grantor has notified Lender in writing
prior to doing so and so long as, in Lender's sole opinion, Lender's
interests in the Property are not jeopardized. Lender may require Grantor
to post adequate security or a surety bond, reasonably satisfactory to
Lender, to protect Lender's interest.
Duty to Protect. Grantor agrees neither to abandon nor leave unattended the
Property. Grantor shall do all other acts, in addition to those acts set
forth above in this section, which from the character and use of the
Property are reasonably necessary to protect and preserve the Property.
DUE ON SALE -- CONSENT BY LENDER. Lender may, at its option, declare immediately
due and payable all sums secured by this Mortgage upon the sale or transfer,
without the Lender's prior written consent, of all or any part of the Real
Property, or any interest in the Real Property. A "sale or transfer" means the
conveyance of Real Property or any right, title or interest therein; whether
legal, beneficial or equitable; whether voluntary or involuntary; whether by
outright sale, deed, instalment sale contract, land contract, contract for deed,
leasehold interest with a term greater than three (3) years, lease-option
contract, or by sale, assignment, or transfer of any beneficial interest in or
to any land trust holding title to the Real Property, or by any other method of
conveyance of Real Property interest. If any Grantor is a corporation,
partnership or limited liability company, transfer also includes any change in
ownership of more than twenty-five percent (25%) of the voting stock,
partnership interests or limited liability company interests, as the case may
be, of Grantor. However, this option shall not be exercised by Lender if such
exercise is prohibited by federal law or by Colorado law.
TAXES AND LIENS. The following provisions relating to the taxes and liens on the
Property are a part of this Mortgage.
Payment. Grantor shall pay when due (and in all events prior to
delinquency) all taxes, payroll taxes, special taxes, assessments, water
charges and sewer service charges levied against or on account of the
Property, and shall pay when due all claims for work done on or for
services rendered or material furnished to the Property. Grantor shall
maintain the Property free of all liens having priority over or equal to
the interest of Lender under this Mortgage, except for the lien of taxes
and assessments not due, and except as otherwise provided in the following
paragraph.
Right To Contest. Grantor may withhold payment of any tax, assessment, or
claim in connection with a good faith dispute over the obligation to pay,
so long as Lender's interest in the Property is not jeopardized. If a lien
arises or is filed as a result of nonpayment, Grantor shall within fifteen
(15) days after the lien arises or, if a lien is filed, within fifteen (15)
days after Grantor has notice of the filing, secure the discharge of the
lien, or if requested by Lender, deposit with Lender cash or a sufficient
corporate surety bond or other security satisfactory to Lender in an amount
sufficient to discharge the lien plus any costs and attorneys' fees or
other charges that could accrue as a result of a foreclosure or sale under
the lien. In any contest, Grantor shall defend itself and Lender and shall
satisfy any adverse judgment before enforcement against the Property.
Grantor shall name Lender as an additional obligee under any surety bond
furnished in the contest proceedings.
Evidence of Payment. Grantor shall upon demand furnish to Lender
satisfactory evidence of payment of the taxes or assessments and shall
authorize the appropriate governmental official to deliver to Lender at any
time a written statement of the taxes and assessments against the Property.
Notice of Construction. Grantor shall notify Lender at least fifteen (15)
days before any work is commenced, any services are furnished, or any
materials are supplied to the Property, if any mechanic's lien,
materialmen's lien, or other lien could be asserted on account of the work,
services, or materials. Grantor will upon request of Lender furnish to
Lender advance assurances satisfactory to Lender that Grantor can and will
pay the cost of such improvements.
PROPERTY DAMAGE INSURANCE. The following provisions relating to insuring the
Property are a part of this Mortgage.
Maintenance of Insurance. Grantor shall procure and maintain policies of
fire insurance with standard extended coverage endorsements on a
replacement basis for the full insurable value covering all Improvements on
the Real Property in an amount sufficient to avoid application of any
coinsurance clause, and with a standard mortgagee clause in favor of
Lender. Grantor shall also procure and maintain comprehensive general
liability insurance in such coverage amounts as Lender may request with
Lender being named as additional insureds in such liability insurance
policies. Additionally, Grantor shall maintain such other insurance,
including but not limited to hazard, business interruption and boiler
insurance as Lender may require. Policies shall be written by such
insurance companies and in such form as may be reasonably acceptable to
Lender. Grantor shall deliver to Lender certificates of coverage from each
insurer containing a stipulation that coverage will not be cancelled or
diminished without a minimum of ten (10) days' prior written notice to
Lender and not containing any disclaimer of the insurer's liability for
failure to give such notice. Each insurance policy also shall include an
endorsement providing that coverage in favor of Lender will not be impaired
in any way by any act, omission or default of Grantor or any other person.
Application of Proceeds. Grantor shall promptly notify Lender of any loss
or damage to the Property. Lender may make proof of loss if Grantor fails
to do so within fifteen (15) days of the casualty. Whether or not Lender's
security is impaired, Lender may, at its election, apply the proceeds to
the reduction of the Indebtedness, payment of any lien affecting the
Property, or the restoration and repair of the Property. If Lender elects
to apply the proceeds to restoration and repair, Grantor shall repair or
replace the damaged or destroyed Improvements in a manner satisfactory to
Lender. Lender shall, upon satisfactory proof of such expenditure, pay or
reimburse Grantor from the proceeds for the reasonable cost of repair or
restoration if Grantor is not in default hereunder. Any proceeds which have
not been disbursed within 180 days after their receipt and which Lender has
not committed to the repair or restoration of the Property shall be used
first to pay any amount owing to Lender under this Mortgage, then to prepay
accrued interest, and the remainder, if any, shall be applied to the
principal balance of the Indebtedness. If Lender holds any proceeds after
payment in full of the Indebtedness, such proceeds shall be paid to
Grantor.
Unexpired Insurance at Sale. Any unexpired insurance shall inure to the
benefit of, and pass to, the purchaser of the Property covered by this
Mortgage at any trustee's sale or other sale held under the provisions of
this Mortgage, or at any foreclosure sale of such Property.
Grantor's Report on Insurance. Upon request of Lender, however not more
than once a year, Grantor shall furnish to Lender a report on each existing
policy of insurance showing: (a) the name of the insurer; (b) the risks
insured; (c) the amount of the policy; (d) the property insured, the then
current replacement value of such property, and the manner of determining
that value; and (e) the expiration date of the policy. Grantor shall, upon
request of Lender, have an independent appraiser satisfactory to Lender
determine the cash value replacement cost of the Property.
EXPENDITURES BY LENDER. If Grantor fails to comply with any provision of this
Mortgage, or if any action or proceeding is commenced that would materially
affect Lender's interests in the Property, Lender on Grantor's behalf may, but
shall not be required to, take any action that Lender deems appropriate. Any
amount that Lender expends in so doing will bear interest at the rate provided
for in the Note from the date incurred or paid by Lender to the date of
repayment by Grantor. All such expenses, at Lender's option, will (a) be payable
on demand, (b) be added to the balance of the Note and be apportioned among and
be payable with any instalment payments to become due during either (i) the term
of any applicable insurance policy or (ii) the remaining term of the Note, or
(c) be treated as a balloon payment which will be due and payable at the Note's
maturity. This Mortgage also will secure payment of these amounts. The rights
provided for in this paragraph shall be in addition to any other rights or any
remedies to which Lender may be entitled on account of the default. Any such
action by Lender shall not be construed as curing the default so as to bar
Lender from any remedy that it otherwise would have had.
WARRANTY; DEFENSE OF TITLE. The following provisions relating to ownership of
the Property are a part of this Mortgage.
<PAGE>
11-12-1996 MORTGAGE Page 3
Loan No 1082002715. (Continued)
================================================================================
Title. Grantor warrants that: (a) Grantor holds good and marketable title
of record to the Property in fee simple, free and clear of all liens and
encumbrances other than those set forth in the Real Property description or
in any title insurance policy, title report, or final title opinion issued
in favor of, and accepted by, Lender in connection with this Mortgage, and
(b) Grantor has the full right, power, and authority to execute and deliver
this Mortgage to Lender.
Defense of Title. Subject to the exception in the paragraph above, Grantor
warrants and will forever defend the title to the Property against the
lawful claims of all persons. In the event any action or proceeding is
commenced that questions Grantor's title or the interest of Lender under
this Mortgage, Grantor shall defend the action at Grantor's expense.
Grantor may be the nominal party in such proceeding, but Lender shall be
entitled to participate in the proceeding and to be represented in the
proceeding by counsel of Lender's own choice, and Grantor will deliver, or
cause to be delivered, to Lender such instruments as Lender may request
from time to time to permit such participation.
Compliance With Laws. Grantor warrants that the Property and Grantor's use
of the Property complies with all existing applicable laws, ordinances, and
regulations of governmental authorities.
CONDEMNATION. The following provisions relating to condemnation of the Property
are a part of this Mortgage.
Application of Net Proceeds. If all or any part of the Property is
condemned by eminent domain proceedings or by any proceeding or purchase in
lieu of condemnation, Lender may at its election require that all or any
portion of the net proceeds of the award be applied to the Indebtedness or
the repair or restoration of the Property. The net proceeds of the award
shall mean the award after payment of all reasonable costs, expenses, and
attorneys' fees incurred by Lender in connection with the condemnation.
Proceedings. If any proceeding in condemnation is filed, Grantor shall
promptly notify Lender in writing, and Grantor shall promptly take such
steps as may be necessary to defend the action and obtain the award.
Grantor may be the nominal party in such proceeding, but Lender shall be
entitled to participate in the proceeding and to be represented in the
proceeding by counsel of its own choice, and Grantor will deliver or cause
to be delivered to Lender such instruments as may be requested by it from
time to time to permit such participation.
IMPOSITION OF TAXES, FEES AND CHARGES BY GOVERNMENTAL AUTHORITIES. The following
provisions relating to governmental taxes, fees and charges are a part of this
Mortgage:
Current Taxes, Fees and Charges. Upon request by Lender, Grantor shall
execute such documents in addition to this Mortgage and take whatever other
action is requested by Lender to perfect and continue Lender's lien on the
Real Property. Grantor shall reimburse Lender for all taxes, as described
below, together with all expenses incurred in recording, perfecting or
continuing this Mortgage, including without limitation all taxes, fees,
documentary stamps, and other charges for recording or registering this
Mortgage.
Taxes. The following shall constitute taxes to which this section applies:
(a) a specific tax upon this type of Mortgage or upon all or any part of
the Indebtedness secured by this Mortgage; (b) a specific tax on Grantor
which Grantor is authorized or required to deduct from payments on the
Indebtedness secured by this type of Mortgage; (c) a tax on this type of
Mortgage chargeable against the Lender or the holder of the Note; and (d) a
specific tax on all or any portion of the Indebtedness or on payments of
principal and interest made by Grantor.
Subsequent Taxes. If any tax to which this section applies is enacted
subsequent to the date of this Mortgage, this event shall have the same
effect as an Event of Default (as defined below), and Lender may exercise
any or all of its available remedies for an Event of Default as provided
below unless Grantor either (a) pays the tax before it becomes delinquent,
or (b) contests the tax as provided above in the Taxes and Liens section
and deposits with Lender cash or a sufficient corporate surety bond or
other security satisfactory to Lender.
SECURITY AGREEMENT; FINANCING STATEMENTS. The following provisions relating to
this Mortgage as a security agreement are a part of this Mortgage.
Security Agreement. This instrument shall constitute a security agreement
to the extent any of the Property constitutes fixtures or other personal
property, and Lender shall have all of the rights of a secured party under
the Uniform Commercial Code as amended from time to time.
Security Interest. Upon request by Lender, Grantor shall execute financing
statements and take whatever other action is requested by Lender to perfect
and continue Lender's security interest in the Rents and Personal Property.
In addition to recording this Mortgage in the real property records, Lender
may, at any time and without further authorization from Grantor, file
executed counterparts, copies or reproductions of this Mortgage as a
financing statement. Grantor shall reimburse Lender for all expenses
incurred in perfecting or continuing this security interest. Upon default,
Grantor shall assemble the Personal Property in a manner and at a place
reasonably convenient to Grantor and Lender and make it available to Lender
within three (3) days after receipt of written demand from Lender.
Addresses. The mailing addresses of Grantor (debtor) and Lender (secured
party), from which information concerning the security interest granted by
this Mortgage may be obtained (each as required by the Uniform Commercial
Code), are as stated on the first page of this Mortgage.
FURTHER ASSURANCES; ATTORNEY-IN-FACT. The following provisions relating to
further assurances and attorney-in-fact are a part of this Mortgage.
Further Assurances. At any time, and from time to time, upon request of
Lender, Grantor will make, execute and deliver, or will cause to be made,
executed or delivered, to Lender or to Lender's designee, and when
requested by Lender, cause to be filed, recorded, refiled, or rerecorded,
as the case may be, at such times and in such offices and places as Lender
may deem appropriate, any and all such mortgages, deeds of trust, security
deeds, security agreements, financing statements, continuation statements,
instruments of further assurance, certificates, and other documents as may.
in the sole opinion of Lender, be necessary or desirable in order to
effectuate, complete, perfect, continue, or preserve (a) the obligations of
Grantor under the Note, this Mortgage, and the Related Documents, and (b)
the liens and security interests created by this Mortgage as first and
prior liens on the Property, whether now owned or hereafter acquired by
Grantor. Unless prohibited by law or agreed to the contrary by Lender in
writing, Grantor shall reimburse Lender for all costs and expenses incurred
in connection with the matters referred to in this paragraph.
Attorney-in-Fact. If Grantor fails to do any of the things referred to in
the preceding paragraph, Lender may do so for and in the name of Grantor
and at Grantor's expense. For such purposes, Grantor hereby irrevocably
appoints Lender as Grantor's attorney-in-fact for the purpose of making,
executing, delivering, filing, recording, and doing all other things as may
be necessary or desirable, in Lender's sole opinion, to accomplish the
matters referred to in the preceding paragraph.
FULL PERFORMANCE. If Grantor pays all the Indebtedness when due, and otherwise
performs all the obligations imposed upon Grantor under this Mortgage, Lender
shall execute and deliver to Grantor a suitable satisfaction of this Mortgage
and suitable statements of termination of any financing statement on file
evidencing Lender's security interest in the Rents and the Personal Property.
Grantor will pay, if permitted by applicable law, any reasonable termination fee
as determined by Lender from time to time.
DEFAULT. Each of the following, at the option of Lender, shall constitute an
event of default ("Event of Default") under this Mortgage:
Default on Indebtedness. Failure of Grantor to make any payment when due on
the Indebtedness.
Default on Other Payments. Failure of Grantor within the time required by
this Mortgage to make any payment for taxes or insurance, or any other
payment necessary to prevent filing of or to effect discharge of any lien.
Compliance Default. Failure of Grantor to comply with any other term,
obligation, covenant or condition contained in this Mortgage, the Note or
in any of the Related Documents.
False Statements. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Grantor under this Mortgage, the
Note or the Related Documents is false or misleading in any material
respect, either now or at the time made or furnished.
Defective Collateralization. This Mortgage or any of the Related Documents
ceases to be in full force and effect (including failure of any collateral
documents to create a valid and perfected security interest or lien) at any
time and for any reason.
Insolvency. The dissolution or termination of Grantor's existence as a
going business, the insolvency of Grantor, the appointment of a receiver
for any part of Grantor's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Grantor.
Foreclosure, Forfeiture, etc. Commencement of foreclosure or forfeiture
proceedings, whether by judicial proceeding, self-help, repossession or
any other method, by any creditor of Grantor or by any governmental agency
against any of the Property. However, this subsection shall not apply in
the event of a good faith dispute by Grantor as to the validity or
reasonableness of the claim which is the basis of the foreclosure or
forefeiture proceeding, provided that Grantor gives Lender written notice
of such claim and furnishes reserves or a surety bond for the claim
satisfactory to Lender.
Breach of Other Agreement. Any breach by Grantor under the terms of any
other agreement between Grantor and Lender that is not remedied within any
grace period provided therein, including without limitation any agreement
concerning any indebtedness or other obligation of Grantor to Lender,
whether existing now or later.
Events Affecting Guarantor. Any of the preceding events occurs with respect
to any Guarantor of any of the Indebtedness or any Guarantor dies or
becomes incompetent, or revokes or disputes the validity of, or liability
under, any Guaranty of the Indebtedness. Lender, at its option, may, but
shall not be required to, permit the Guarantor's estate to assume
unconditionally the obligations arising under the guaranty in a manner
satisfactory
<PAGE>
11-12-1996 MORTGAGE Page 4
Loan No 1082002715 (Continued)
to Lender, and, in doing so, cure the Event of Default.
Adverse Change. A material adverse change occurs in Grantor's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness is impaired.
Insecurity. Lender in good faith has reasonable cause to believe it is
insecure or that its collateral is impaired.
Right to Cure. If such a failure is curable and if Grantor has not been
given a notice of a breach of the same provision of this Mortgage within
the preceding twelve (12) months, it may be cured (and no Event of Default
will have occurred) if Grantor, after Lender sends written notice demanding
cure of such failure: (a) cures the failure within twenty (20) days; or (b)
if the cure requires more than twenty (20) days, immediately initiates
steps sufficient to cure the failure and thereafter continues and completes
all reasonable and necessary steps sufficient to produce compliance as soon
as reasonably practical.
RIGHTS AND REMEDIES ON DEFAULT. Upon the occurrence of any Event of Default and
at any time thereafter but subject to any limitation in the Note or any
limitation in this Mortgage, Lender, at its option, may exercise any one or more
of the following rights and remedies, in addition to any other rights or
remedies provided by law:
Accelerate Indebtedness. Lender shall have the right at its option without
notice to Grantor to declare the entire Indebtedness immediately due and
payable, including any prepayment penalty which Grantor would be required
to pay.
UCC Remedies. With respect to all or any part of the Personal Property,
Lender shall have all the rights and remedies of a secured party under the
Uniform Commercial Code.
Collect Rents. Lender shall have the right, without notice to Grantor, to
take possession of the Property and collect the Rents, including amounts
past due and unpaid, and apply the net proceeds, over and above Lender's
costs, against the Indebtedness. In furtherance of this right, Lender may
require any tenant or other user of the Property to make payments of rent
or use fees directly to Lender. If the Rents are collected by Lender, then
Grantor irrevocably designates Lender as Grantor's attorney-in-fact to
endorse instruments received in payment thereof in the name of Grantor and
to negotiate the same and collect the proceeds. Payments by tenants or
other users to Lender in response to Lender's demand shall satisfy the
obligations for which the payments are made, whether or not any proper
grounds for the demand existed. Lender may exercise its rights under this
subparagraph either in person, by agent, or through a receiver.
Appoint Receiver. Lender shall have the right to have a receiver appointed
to take possession of all or any part of the Property, with the power to
protect and preserve the Property, to operate the Property preceding
foreclosure or sale, and to collect the Rents from the Property and apply
the proceeds, over and above the cost of the receivership, against the
Indebtedness. The receiver may serve without bond if permitted by law.
Lender's right to the appointment of a receiver shall exist whether or not
the apparent value of the Property exceeds the Indebtedness by a
substantial amount. Employment by Lender shall not disqualify a person from
serving as a receiver.
Judicial Foreclosure. Lender may obtain a judicial decree foreclosing
Grantor's interest in all or any part of the Property.
Nonjudicial Sale. If permitted by applicable law, Lender may foreclose
Grantor's interest in all or in any part of the Personal Property or the
Real Property by nonjudicial sale.
Deficiency Judgment. If permitted by applicable law, Lender may obtain a
judgment for any deficiency remaining in the Indebtedness due to Lender
after application of all amounts received from the exercise of the rights
provided in this section.
Tenancy at Sufferance. If Grantor remains in possession of the Property
after the Property is sold as provided above or Lender otherwise becomes
entitled to possession of the Property upon default of Grantor, Grantor
shall become a tenant at sufferance of Lender or the purchaser of the
Property and shall, at Lender's option, either (a) pay a reasonable rental
for the use of the Property, or (b) vacate the Property immediately upon
the demand of Lender.
Other Remedies. Lender shall have all other rights and remedies provided in
this Mortgage or the Note or available at law or in equity.
Sale of the Property. To the extent permitted by applicable law, Grantor
hereby waives any and all right to have the property marshalled. In
exercising its rights and remedies, Lender shall be free to sell all or any
part of the Property together or separately, in one sale or by separate
sales. Lender shall be entitled to bid at any public sale on all or any
portion of the Property.
Notice of Sale. Lender shall give Grantor reasonable notice of the time and
place of any public sale of the Personal Property or of the time after
which any private sale or other intended disposition of the Personal
Property is to be made. Reasonable notice shall mean notice given at least
ten (10) days before the time of the sale or disposition.
Waiver; Election of Remedies. A waiver by any party of a breach of a
provision of this Mortgage shall not constitute a waiver of or prejudice
the party's rights otherwise to demand strict compliance with that
provision or any other provision. Election by Lender to pursue any remedy
shall not exclude pursuit of any other remedy, and an election to make
expenditures or take action to perform an obligation of Grantor under this
Mortgage after failure of Grantor to perform shall not affect Lender's
right to declare a default and exercise its remedies under this Mortgage.
Attorneys' Fees; Expenses. If Lender institutes any suit or action to
enforce any of the terms of this Mortgage, Lender shall be entitled to
recover such sum as the court may adjudge reasonable as attorneys' fees at
trial and on any appeal. Whether or not any court action is involved, all
reasonable expenses incurred by Lender that in Lender's opinion are
necessary at any time for the protection of its interest or the enforcement
of its rights shall become a part of the Indebtedness payable on demand and
shall bear interest from the date of expenditure until repaid at the rate
provided for in the Note. Expenses covered by this paragraph include,
without limitation, however subject to any limits under applicable law,
Lender's attorneys' fees and Lender's legal expenses whether or not there
is a lawsuit, including attorneys' fees for bankruptcy proceedings
(including efforts to modify or vacate any automatic stay or injunction),
appeals and any anticipated post-judgment collection services, the cost of
searching records, obtaining title reports (including foreclosure reports),
surveyors' reports, and appraisal fees, and title insurance, to the extent
permitted by applicable law. Grantor also will pay any court costs, in
addition to all other sums provided by law.
NOTICES TO GRANTOR AND OTHER PARTIES. Any notice under this Mortgage, including
without limitation any notice of default and any notice of sale to Grantor,
shall be in writing, may be be sent by telefacsimilie, and shall be effective
when actually delivered, or when deposited with a nationally recognized
overnight courier, or, if mailed, shall be deemed effective when deposited in
the United States mail first class, certified or registered mail, postage
prepaid, directed to the addresses shown near the beginning of this Mortgage.
Any party may change its address for notices under this Mortgage by giving
formal written notice to the other parties, specifying that the purpose of the
notice is to change the party's address. All copies of notices of foreclosure
from the holder of any lien which has priority over this Mortgage shall be sent
to Lender's address, as shown near the beginning of this Mortgage. For notice
purposes, Grantor agrees to keep Lender informed at all times of Grantor's
current address.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Mortgage:
Amendments. This Mortgage, together with any Related Documents, constitutes
the entire understanding and agreement of the parties as to the matters set
forth in this Mortgage. No alteration of or amendment to this Mortgage
shall be effective unless given in writing and signed by the party or
parties sought to be charged or bound by the alteration or amendment.
Annual Reports. If the Property is used for purposes other than Grantor's
residence, Grantor shall furnish to Lender, upon request, a certified
statement of net operating income received from the Property during
Grantor's previous fiscal year in such form and detail as Lender shall
require. "Net operating income" shall mean all cash receipts from the
Property less all cash expenditures made in connection with the operation
of the Property.
Applicable Law. This Mortgage has been delivered to Lender and accepted by
Lender in the State of Iowa. Except as set forth hereinafter, this Mortgage
shall be governed by, construed and enforced In accordance with the laws of
the State of Iowa, except and only to the extent of procedural matters
related to the perfection and enforcement by Lender of Its rights and
remedies against the Property, which matters shall be governed by the laws
of the State of Colorado. However, In the event that the enforceability or
validity of any provision of this Mortgage is challenged or questioned,
such provision shall be governed by whichever applicable state or federal
law would uphold or would enforce such challenged or questioned provision.
The loan transaction which Is evidenced by the Note and this Mortgage
(which secures the Note) has been applied for, considered, approved and
made In the State of Iowa.
Caption Headings. Caption headings in this Mortgage are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Mortgage.
Merger. There shall be no merger of the interest or estate created by this
Mortgage with any other interest or estate in the Property at any time held
by or for the benefit of Lender in any capacity, without the written
consent of Lender.
Multiple Parties; Corporate Authority. All obligations of Grantor under
this Mortgage shall be joint and several, and all references to Grantor
shall mean each and every Grantor. This means that each of the persons
signing below is responsible for all obligations in this Mortgage.
Severability. If a court of competent jurisdiction finds any provision of
this Mortgage to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending provision
cannot be
<PAGE>
11-1-1996 MORTGAGE Page 5
Loan No 1082002715 (Continued)
================================================================================
so modified, it shall be stricken and all other provisions of this Mortgage
in all other respects shall remain valid and enforceable.
Successors and Assigns. Subject to the limitations stated in this Mortgage
on transfer of Grantor's interest, this Mortgage shall be binding upon and
inure to the benefit of the parties, their successors and assigns. If
ownership of the Property becomes vested in a person other than Grantor,
Lender, without notice to Grantor, may deal with Grantor's successors with
reference to this Mortgage and the Indebtedness by way of forbearance or
extension without releasing Grantor from the obligations of this Mortgage
or liability under the Indebtedness.
Time Is of the Essence. Time is of the essence in the performance of this
Mortgage.
Waiver of Homestead Exemption. Grantor hereby releases and waives all
rights and benefits of the homestead exemption laws of the State of
Colorado as to all Indebtedness secured by this Mortgage.
Waivers and Consents. Lender shall not be deemed to have waived any rights
under this Mortgage (or under the Related Documents) unless such waiver is
in writing and signed by Lender. No delay or omission on the part of Lender
in exercising any right shall operate as a waiver of such right or any
other right. A waiver by any party of a provision of this Mortgage shall
not constitute a waiver of or prejudice the party's right otherwise to
demand strict compliance with that provision or any other provision. No
prior waiver by Lender, nor any course of dealing between Lender and
Grantor, shall constitute a waiver of any of Lender's rights or any of
Grantor's obligations as to any future transactions. Whenever consent by
Lender is required in this Mortgage, the granting of such consent by Lender
in any instance shall not constitute continuing consent to subsequent
instances where such consent is required.
Acknowledgment of Receipt of Copies. Grantor hereby acknowledges the
receipt of a copy of this Mortgage.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS MORTGAGE, AND
GRANTOR AGREES TO ITS TERMS.
GRANTOR:
Cinema Saver Theatre Corporation
By: By:
------------------------------------ -----------------------------
R. Haydn Silleck, President Joel D. Boldrey, Secretary
- --------------------------------------------------------------------------------
CORPORATE ACKNOWLEDGMENT
STATE OF _____________________________)
) SS
COUNTY OF ____________________________)
On this __________ day of ______________________, 19__, before me, the
undersigned Notary Public, personally appeared R. Haydn Silleck, President; and
Joel D. Boldrey, Secretary of Cinema Saver Theatre Corporation, and known to me
to be authorized agents of the corporation that executed the Mortgage and
acknowledged the Mortgage to be the free and voluntary act and deed of the
corporation, by authority of its Bylaws or by resolution of its board of
directors, for the uses and purposes therein mentioned, and on oath stated that
they are authorized to execute this Mortgage and in fact executed the Mortgage
on behalf of the corporation.
By Residing at
--------------------------------- --------------------
Notary Public in and for the State of My commission expires
------ ------------
================================================================================
<PAGE>
RECORDATION REQUESTED BY:
QUAD CITY BANK AND TRUST COMPANY
2118 MIDDLE ROAD
P.O. BOX 395
BETTENDORF, IA 52722
WHEN RECORDED MAIL TO:
QUAD CITY BANK AND TRUST COMPANY
2118 MIDDLE ROAD
P.O. BOX 395
BETTENDORF, IA 52722
SEND TAX NOTICES TO:
Cinema Saver Theatre Corporation
1422 Delgany Street, Suite LL3
Denver, CO 80202
SPACE ABOVE THIS LINE IS
FOR RECORDER'S USE ONLY
- --------------------------------------------------------------------------------
MORTGAGE
THIS MORTGAGE IS DATED NOVEMBER 12, 1996, between Cinema Saver Theatre
Corporation, whose address is 1422 Delgany Street, Suite LL3, Denver, CO 80202
(referred to below as "Grantor"); and QUAD CITY BANK AND TRUST COMPANY, whose
address is 2118 MIDDLE ROAD, P.O. BOX 395, BETTENDORF, IA 52722 (referred to
below as "Lender").
GRANT OF MORTGAGE. For valuable consideration, Grantor mortgages and conveys to
Lender all of Grantor's right, title, and interest in and to the following
described real property, together with all existing or subsequently erected or
affixed buildings, improvements and fixtures; all easements, rights of way, and
appurtenances; all water, water rights, watercourses and ditch rights (including
stock in utilities with ditch or irrigation rights); and all other rights,
royalties, and profits relating to the real property, including without
limitation all minerals, oil, gas, geothermal and similar matters, located in
Jefferson County, State of Colorado (the "Real Property"):
See attached Exhibit "A"
The Real Property or its address is commonly known as 1204 Highway 74, Bergen
Park, CO 80202.
Grantor presently assigns to Lender all of Grantor's right, title, and interest
in and to all leases of the Property and all Rents from the Property. In
addition, Grantor grants to Lender a Uniform Commercial Code security interest
in the Personal Property and Rents.
DEFINITIONS. The following words shall have the following meanings when used in
this Mortgage. Terms not otherwise defined in this Mortgage shall have the
meanings attributed to such terms in the Uniform Commercial Code. All references
to dollar amounts shall mean amounts in lawful money of the United States of
America.
Grantor. The word "Grantor" means Cinema Saver Theatre Corporation. The
Grantor is the mortgagor under this Mortgage.
Guarantor. The word "Guarantor" means and includes without limitation each
and all of the guarantors, sureties, and accommodation parties in
connection with the Indebtedness.
Improvements. The word "Improvements" means and includes without limitation
all existing and future improvements, buildings, structures, mobile homes
affixed on the Real Property, facilities, additions, replacements and other
construction on the Real Property.
Indebtedness. The word "Indebtedness" means all principal and interest
payable under the Note and any amounts expended or advanced by Lender to
discharge obligations of Grantor or expenses incurred by Lender to enforce
obligations of Grantor under this Mortgage, together with interest on such
amounts as provided in this Mortgage.
Lender. The word "Lender" means QUAD CITY BANK AND TRUST COMPANY, its
successors and assigns. The Lender is the mortgagee under this Mortgage.
Mortgage. The word "Mortgage" means this Mortgage between Grantor and
Lender, and includes without limitation all assignments and security
interest provisions relating to the Personal Property and Rents.
Note. The word "Note" means the promissory note or credit agreement dated
November 12, 1996, in the original principal amount of $3,255,000.00 from
Grantor to Lender, together with all renewals of, extensions of,
modifications of, refinancings of, consolidations of, and substitutions for
the promissory note or agreement.
Personal Property. The words "Personal Property" mean all equipment,
fixtures, and other articles of personal property now or hereafter owned by
Grantor, and now or hereafter attached or affixed to the Real Property;
together with all accessions, parts, and additions to, all replacements of,
and all substitutions for, any of such property; and together with all
proceeds (including without limitation all insurance proceeds and refunds
of premiums) from any sale or other disposition of the Property.
Property. The word "Property" means collectively the Real Property and the
Personal Property.
Real Property. The words "Real Property" mean the property, interests and
rights described above in the "Grant of Mortgage" section.
Related Documents. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Indebtedness.
Rents. The word "Rents" means all present and future rents, revenues,
income, issues, royalties, profits, and other benefits derived from the
Property.
THIS MORTGAGE, INCLUDING THE ASSIGNMENT OF RENTS AND THE SECURITY INTEREST IN
THE RENTS AND PERSONAL PROPERTY, IS GIVEN TO SECURE (1) PAYMENT OF THE
INDEBTEDNESS AND (2) PERFORMANCE OF ALL OBLIGATIONS OF GRANTOR UNDER THIS
MORTGAGE AND THE RELATED DOCUMENTS. THIS MORTGAGE IS GIVEN AND ACCEPTED ON THE
FOLLOWING TERMS:
PAYMENT AND PERFORMANCE. Except as otherwise provided in this Mortgage, Grantor
shall pay to Lender all amounts secured by this Mortgage as they become due, and
shall strictly perform all of Grantor's obligations under this Mortgage.
POSSESSION AND MAINTENANCE OF THE PROPERTY. Grantor agrees that Grantor's
possession and use of the Property shall be governed by the following
provisions:
Possession and Use. Until in default, Grantor may remain in possession and
control of and operate and manage the Property and collect the Rents from
the Property.
Duty to Maintain. Grantor shall maintain the Property in tenantable
condition and promptly perform all repairs, replacements, and maintenance
necessary to preserve its value.
Hazardous Substances. The terms "hazardous waste," "hazardous substance,"
"disposal," "release," and "threatened release," as used in this Mortgage,
shall have the same meanings as set forth in the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as
amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the Superfund
Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499 ("SARA"),
the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et
seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901,
et seq., or other applicable state or Federal laws, rules, or regulations
adopted pursuant to any of the foregoing. The terms "hazardous waste" and
"hazardous substance" shall also include, without limitation, petroleum and
petroleum by-products or any fraction thereof and asbestos. Grantor
represents and warrants to Lender that: (a) During the period of Grantor's
ownership of the Property, there has been no use, generation, manufacture,
storage, treatment, disposal, release or threatened release of any
hazardous waste or substance by any person on, under, about or from the
Property; (b) Grantor has no knowledge of, or reason to believe that there
has been, except as previously disclosed to and acknowledged by Lender in
writing, (i) any use, generation, manufacture, storage, treatment,
disposal, release, or threatened release of any hazardous waste or
substance on, under, about or from the Property by any prior owners or
occupants of the Property or (ii) any actual or threatened litigation or
claims of any kind by any person relating to such matters; and (c) Except
as previously disclosed to and acknowledged by Lender in writing, (i)
neither Grantor nor any tenant, contractor, agent or other authorized user
of the Property shall use, generate, manufacture, store, treat, dispose of,
or release any hazardous waste or substance on, under, about or from the
Property and (ii) any such activity shall be
<PAGE>
11-12-1996 MORTGAGE Page 2
Loan No 1082002715 (Continued)
================================================================================
conducted in compliance with all applicable federal, state, and local laws,
regulations and ordinances, including without limitation those laws,
regulations, and ordinances described above. Grantor authorizes Lender and
its agents to enter upon the Property to make such inspections and tests,
at Grantor's expense, as Lender may deem appropriate to determine
compliance of the Property with this section of the Mortgage. Any
inspections or tests made by Lender shall be for Lender's purposes only and
shall not be construed to create any responsibility or liability on the
part of Lender to Grantor or to any other person. The representations and
warranties contained herein are based on Grantor's due diligence in
investigating the Property for hazardous waste and hazardous substances.
Grantor hereby (a) releases and waives any future claims against Lender for
indemnity or contribution in the event Grantor becomes liable for cleanup
or other costs under any such laws, and (b) agrees to indemnify and hold
harmless Lender against any and all claims, losses, liabilities, damages,
penalties, and expenses which Lender may directly or indirectly sustain or
suffer resulting from a breach of this section of the Mortgage or as a
consequence of any use, generation, manufacture, storage, disposal, release
or threatened release occurring prior to Grantor's ownership or interest in
the Property, whether or not the same was or should have been known to
Grantor. The provisions of this section of the Mortgage, including the
obligation to indemnify, shall survive the payment of the Indebtedness and
the satisfaction and reconveyance of the lien of this Mortgage and shall
not be affected by Lender's acquisition of any interest in the Property,
whether by foreclosure or otherwise.
Nuisance, Waste. Grantor shall not cause, conduct or permit any nuisance
nor commit, permit, or suffer any stripping of or waste on or to the
Property or any portion of the Property. Without limiting the generality of
the foregoing, Grantor will not remove, or grant to any other party the
right to remove, any timber, minerals (including oil and gas), soil, gravel
or rock products without the prior written consent of Lender.
Removal of Improvements. Grantor shall not demolish or remove any
Improvements from the Real Property without the prior written consent of
Lender. As a condition to the removal of any Improvements, Lender may
require Grantor to make arrangements satisfactory to Lender to replace such
Improvements with Improvements of at least equal value.
Lender's Right to Enter. Lender and its agents and representatives may
enter upon the Real Property at all reasonable times to attend to Lender's
interests and to inspect the Property for purposes of Grantor's compliance
with the terms and conditions of this Mortgage.
Compliance with Governmental Requirements. Grantor shall promptly comply
with all laws, ordinances, and regulations, now or hereafter in effect, of
all governmental authorities applicable to the use or occupancy of the
Property, including without limitation, the Americans With Disabilities
Act. Grantor may contest in good faith any such law, ordinance, or
regulation and withhold compliance during any proceeding, including
appropriate appeals, so long as Grantor has notified Lender in writing
prior to doing so and so long as, in Lender's sole opinion, Lender's
interests in the Property are not jeopardized. Lender may require Grantor
to post adequate security or a surety bond, reasonably satisfactory to
Lender, to protect Lender's interest.
Duty to Protect. Grantor agrees neither to abandon nor leave unattended the
Property. Grantor shall do all other acts, in addition to those acts set
forth above in this section, which from the character and use of the
Property are reasonably necessary to protect and preserve the Property.
DUE ON SALE -- CONSENT BY LENDER. Lender may, at its option, declare immediately
due and payable all sums secured by this Mortgage upon the sale or transfer,
without the Lender's prior written consent, of all or any part of the Real
Property, or any interest in the Real Property. A "sale or transfer" means the
conveyance of Real Property or any right, title or interest therein; whether
legal, beneficial or equitable; whether voluntary or involuntary; whether by
outright sale, deed, instalment sale contract, land contract, contract for deed,
leasehold interest with a term greater than three (3) years, lease-option
contract, or by sale, assignment, or transfer of any beneficial interest in or
to any land trust holding title to the Real Property, or by any other method of
conveyance of Real Property interest. If any Grantor is a corporation,
partnership or limited liability company, transfer also includes any change in
ownership of more than twenty-five percent (25%) of the voting stock,
partnership interests or limited liability company interests, as the case may
be, of Grantor. However, this option shall not be exercised by Lender if such
exercise is prohibited by federal law or by Colorado law.
TAXES AND LIENS. The following provisions relating to the taxes and liens on the
Property are a part of this Mortgage.
Payment. Grantor shall pay when due (and in all events prior to
delinquency) all taxes, payroll taxes, special taxes, assessments, water
charges and sewer service charges levied against or on account of the
Property, and shall pay when due all claims for work done on or for
services rendered or material furnished to the Property. Grantor shall
maintain the Property free of all liens having priority over or equal to
the interest of Lender under this Mortgage, except for the lien of taxes
and assessments not due, and except as otherwise provided in the following
paragraph.
Right To Contest. Grantor may withhold payment of any tax, assessment, or
claim in connection with a good faith dispute over the obligation to pay,
so long as Lender's interest in the Property is not jeopardized. If a lien
arises or is filed as a result of nonpayment, Grantor shall within fifteen
(15) days after the lien arises or, if a lien is filed, within fifteen (15)
days after Grantor has notice of the filing, secure the discharge of the
lien, or if requested by Lender, deposit with Lender cash or a sufficient
corporate surety bond or other security satisfactory to Lender in an amount
sufficient to discharge the lien plus any costs and attorneys' fees or
other charges that could accrue as a result of a foreclosure or sale under
the lien. In any contest, Grantor shall defend itself and Lender and shall
satisfy any adverse judgment before enforcement against the Property.
Grantor shall name Lender as an additional obligee under any surety bond
furnished in the contest proceedings.
Evidence of Payment. Grantor shall upon demand furnish to Lender
satisfactory evidence of payment of the taxes or assessments and shall
authorize the appropriate governmental official to deliver to Lender at any
time a written statement of the taxes and assessments against the Property.
Notice of Construction. Grantor shall notify Lender at least fifteen (15)
days before any work is commenced, any services are furnished, or any
materials are supplied to the Property, if any mechanic's lien,
materialmen's lien, or other lien could be asserted on account of the work,
services, or materials. Grantor will upon request of Lender furnish to
Lender advance assurances satisfactory to Lender that Grantor can and will
pay the cost of such improvements.
PROPERTY DAMAGE INSURANCE. The following provisions relating to insuring the
Property are a part of this Mortgage.
Maintenance of Insurance. Grantor shall procure and maintain policies of
fire insurance with standard extended coverage endorsements on a
replacement basis for the full insurable value covering all Improvements on
the Real Property in an amount sufficient to avoid application of any
coinsurance clause, and with a standard mortgagee clause in favor of
Lender. Grantor shall also procure and maintain comprehensive general
liability insurance in such coverage amounts as Lender may request with
Lender being named as additional insureds in such liability insurance
policies. Additionally, Grantor shall maintain such other insurance,
including but not limited to hazard, business interruption and boiler
insurance as Lender may require. Policies shall be written by such
insurance companies and in such form as may be reasonably acceptable to
Lender. Grantor shall deliver to Lender certificates of coverage from each
insurer containing a stipulation that coverage will not be cancelled or
diminished without a minimum of ten (10) days' prior written notice to
Lender and not containing any disclaimer of the insurer's liability for
failure to give such notice. Each insurance policy also shall include an
endorsement providing that coverage in favor of Lender will not be impaired
in any way by any act, omission or default of Grantor or any other person.
Application of Proceeds. Grantor shall promptly notify Lender of any loss
or damage to the Property. Lender may make proof of loss if Grantor fails
to do so within fifteen (15) days of the casualty. Whether or not Lender's
security is impaired, Lender may, at its election, apply the proceeds to
the reduction of the Indebtedness, payment of any lien affecting the
Property, or the restoration and repair of the Property. If Lender elects
to apply the proceeds to restoration and repair, Grantor shall repair or
replace the damaged or destroyed Improvements in a manner satisfactory to
Lender. Lender shall, upon satisfactory proof of such expenditure, pay or
reimburse Grantor from the proceeds for the reasonable cost of repair or
restoration if Grantor is not in default hereunder. Any proceeds which have
not been disbursed within 180 days after their receipt and which Lender has
not committed to the repair or restoration of the Property shall be used
first to pay any amount owing to Lender under this Mortgage, then to prepay
accrued interest, and the remainder, if any, shall be applied to the
principal balance of the Indebtedness. If Lender holds any proceeds after
payment in full of the indebtedness, such proceeds shall be paid to
Grantor.
Unexpired Insurance at Sale. Any unexpired insurance shall inure to the
benefit of, and pass to, the purchaser of the Property covered by this
Mortgage at any trustee's sale or other sale held under the provisions of
this Mortgage, or at any foreclosure sale of such Property.
Grantor's Report on Insurance. Upon request of Lender, however not more
than once a year, Grantor shall furnish to Lender a report on each existing
policy of insurance showing: (a) the name of the insurer; (b) the risks
insured; (c) the amount of the policy; (d) the property insured, the then
current replacement value of such property, and the manner of determining
that value; and (e) the expiration date of the policy. Grantor shall, upon
request of Lender, have an independent appraiser satisfactory to Lender
determine the cash value replacement cost of the Property.
EXPENDITURES BY LENDER. If Grantor fails to comply with any provision of this
Mortgage, or if any action or proceeding is commenced that would materially
affect Lender's interests in the Property, Lender on Grantor's behalf may, but
shall not be required to, take any action that Lender deems appropriate. Any
amount that Lender expends in so doing will bear interest at the rate provided
for in the Note from the date incurred or paid by Lender to the date of
repayment by Grantor. All such expenses, at Lender's option, will (a) be payable
on demand, (b) be added to the balance of the Note and be apportioned among and
be payable with any installment payments to become due during either (i) the
term of any applicable insurance policy or (ii) the remaining term of the Note,
or (c) be treated as a balloon payment which will be due and payable at the
Note's maturity. This Mortgage also will secure payment of these amounts. The
rights provided for in this paragraph shall be in addition to any other rights
or any remedies to which Lender may be entitled on account of the default. Any
such action by Lender shall not be construed as curing the default so as to bar
Lender from any remedy that it otherwise would have had.
WARRANTY; DEFENSE OF TITLE. The following provisions relating to ownership of
the Property are a part of this Mortgage.
Title. Grantor warrants that: (a) Grantor holds good and marketable title
of record to the Property in fee simple, free and clear of all liens and
<PAGE>
11-12-1996 MORTGAGE Page 3
Loan No 1082002715 (Continued)
================================================================================
encumbrances other than those set forth in the Real Property description or
in any title insurance policy, title report, or final title opinion issued
in favor of, and accepted by, Lender in connection with this Mortgage, and
(b) Grantor has the full right, power, and authority to execute and deliver
this Mortgage to Lender.
Defense of Title. Subject to the exception in the paragraph above, Grantor
warrants and will forever defend the title to the Property against the
lawful claims of all persons. In the event any action or proceeding is
commenced that questions Grantor's title or the interest of Lender under
this Mortgage, Grantor shall defend the action at Grantor's expense.
Grantor may be the nominal party in such proceeding, but Lender shall be
entitled to participate in the proceeding and to be represented in the
proceeding by counsel of Lender's own choice, and Grantor will deliver, or
cause to be delivered, to Lender such instruments as Lender may request
from time to time to permit such participation.
Compliance With Laws. Grantor warrants that the Property and Grantor's use
of the Property complies with all existing applicable laws, ordinances, and
regulations of governmental authorities.
CONDEMNATION. The following provisions relating to condemnation of the Property
are a part of this Mortgage.
Application of Net Proceeds. If all or any part of the Property is
condemned by eminent domain proceedings or by any proceeding or purchase in
lieu of condemnation, Lender may at its election require that all or any
portion of the net proceeds of the award be applied to the Indebtedness or
the repair or restoration of the Property. The net proceeds of the award
shall mean the award after payment of all reasonable costs, expenses, and
attorneys' fees incurred by Lender in connection with the condemnation.
Proceedings. If any proceeding in condemnation is filed, Grantor shall
promptly notify Lender in writing, and Grantor shall promptly take such
steps as may be necessary to defend the action and obtain the award.
Grantor may be the nominal party in such proceeding, but Lender shall be
entitled to participate in the proceeding and to be represented in the
proceeding by counsel of its own choice, and Grantor will deliver or cause
to be delivered to Lender such instruments as may be requested by it from
time to time to permit such participation.
IMPOSITION OF TAXES, FEES AND CHARGES BY GOVERNMENTAL AUTHORITIES. The following
provisions relating to governmental taxes, fees and charges are a part of this
Mortgage:
Current Taxes, Fees and Charges. Upon request by Lender, Grantor shall
execute such documents in addition to this Mortgage and take whatever other
action is requested by Lender to perfect and continue Lender's lien on the
Real Property. Grantor shall reimburse Lender for all taxes, as described
below, together with all expenses incurred in recording, perfecting or
continuing this Mortgage, including without limitation all taxes, fees,
documentary stamps, and other charges for recording or registering this
Mortgage.
Taxes. The following shall constitute taxes to which this section applies:
(a) a specific tax upon this type of Mortgage or upon all or any part of
the Indebtedness secured by this Mortgage; (b) a specific tax on Grantor
which Grantor is authorized or required to deduct from payments on the
Indebtedness secured by this type of Mortgage; (c) a tax on this type of
Mortgage chargeable against the Lender or the holder of the Note; and (d) a
specific tax on all or any portion of the Indebtedness or on payments of
principal and interest made by Grantor.
Subsequent Taxes. If any tax to which this section applies is enacted
subsequent to the date of this Mortgage, this event shall have the same
effect as an Event of Default (as defined below), and Lender may exercise
any or all of its available remedies for an Event of Default as provided
below unless Grantor either (a) pays the tax before it becomes delinquent,
or (b) contests the tax as provided above in the Taxes and Liens section
and deposits with Lender cash or a sufficient corporate surety bond or
other security satisfactory to Lender.
SECURITY AGREEMENT; FINANCING STATEMENTS. The following provisions relating to
this Mortgage as a security agreement are a part of this Mortgage.
Security Agreement. This instrument shall constitute a security agreement
to the extent any of the Property constitutes fixtures or other personal
property, and Lender shall have all of the rights of a secured party under
the Uniform Commercial Code as amended from time to time.
Security Interest. Upon request by Lender, Grantor shall execute financing
statements and take whatever other action is requested by Lender to perfect
and continue Lender's security interest in the Rents and Personal Property.
In addition to recording this Mortgage in the real property records, Lender
may, at any time and without further authorization from Grantor, file
executed counterparts, copies or reproductions of this Mortgage as a
financing statement. Grantor shall reimburse Lender for all expenses
incurred in perfecting or continuing this security interest. Upon default,
Grantor shall assemble the Personal Property in a manner and at a place
reasonably convenient to Grantor and Lender and make it available to Lender
within three (3) days after receipt of written demand from Lender.
Addresses. The mailing addresses of Grantor (debtor) and Lender (secured
party), from which information concerning the security interest granted by
this Mortgage may be obtained (each as required by the Uniform Commercial
Code), are as stated on the first page of this Mortgage.
FURTHER ASSURANCES; ATTORNEY-IN-FACT. The following provisions relating to
further assurances and attorney-in-fact are a part of this Mortgage.
Further Assurances. At any time, and from time to time, upon request of
Lender, Grantor will make, execute and deliver, or will cause to be made,
executed or delivered, to Lender or to Lender's designee, and when
requested by Lender, cause to be filed, recorded, refiled, or rerecorded,
as the case may be, at such times and in such offices and places as Lender
may deem appropriate, any and all such mortgages, deeds of trust, security
deeds, security agreements, financing statements, continuation statements,
instruments of further assurance, certificates, and other documents as may,
in the sole opinion of Lender, be necessary or desirable in order to
effectuate, complete, perfect, continue, or preserve (a) the obligations of
Grantor under the Note, this Mortgage, and the Related Documents, and (b)
the liens and security interests created by this Mortgage as first and
prior liens on the Property, whether now owned or hereafter acquired by
Grantor. Unless prohibited by law or agreed to the contrary by Lender in
writing, Grantor shall reimburse Lender for all costs and expenses incurred
in connection with the matters referred to in this paragraph.
Attorney-in-Fact. If Grantor fails to do any of the things referred to in
the preceding paragraph, Lender may do so for and in the name of Grantor
and at Grantor's expense. For such purposes, Grantor hereby irrevocably
appoints Lender as Grantor's attorney-in-fact for the purpose of making,
executing, delivering, filing, recording, and doing all other things as may
be necessary or desirable, in Lender's sole opinion, to accomplish the
matters referred to in the preceding paragraph.
FULL PERFORMANCE. If Grantor pays all the Indebtedness when due, and otherwise
performs all the obligations imposed upon Grantor under this Mortgage, Lender
shall execute and deliver to Grantor a suitable satisfaction of this Mortgage
and suitable statements of termination of any financing statement on file
evidencing Lender's security interest in the Rents and the Personal Property.
Grantor will pay, if permitted by applicable law, any reasonable termination fee
as determined by Lender from time to time.
DEFAULT. Each of the following, at the option of Lender, shall constitute an
event of default ("Event of Default") under this Mortgage:
Default on Indebtedness. Failure of Grantor to make any payment when due on
the Indebtedness.
Default on Other Payments. Failure of Grantor within the time required by
this Mortgage to make any payment for taxes or insurance, or any other
payment necessary to prevent filing of or to effect discharge of any lien.
Compliance Default. Failure of Grantor to comply with any other term,
obligation, covenant or condition contained in this Mortgage, the Note or
in any of the Related Documents.
False Statements. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Grantor under this Mortgage, the
Note or the Related Documents is false or misleading in any material
respect, either now or at the time made or furnished.
Defective Collateralization. This Mortgage or any of the Related Documents
ceases to be in full force and effect (including failure of any collateral
documents to create a valid and perfected security interest or lien) at any
time and for any reason.
Insolvency. The dissolution or termination of Grantor's existence as a
going business, the insolvency of Grantor, the appointment of a receiver
for any part of Grantor's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Grantor.
Foreclosure, Forfeiture, etc. Commencement of foreclosure or forfeiture
proceedings, whether by judicial proceeding, self-help, repossession or
any other method, by any creditor of Grantor or by any governmental agency
against any of the Property. However, this subsection shall not apply in
the event of a good faith dispute by Grantor as to the validity or
reasonableness of the claim which is the basis of the foreclosure or
forfeiture proceeding, provided that Grantor gives Lender written notice
of such claim and furnishes reserves or a surety bond for the claim
satisfactory to Lender.
Breach of Other Agreement. Any breach by Grantor under the terms of any
other agreement between Grantor and Lender that is not remedied within any
grace period provided therein, including without limitation any agreement
concerning any indebtedness or other obligation of Grantor to Lender,
whether existing now or later.
Events Affecting Guarantor. Any of the preceding events occurs with respect
to any Guarantor of any of the Indebtedness or any Guarantor dies or
becomes incompetent, or revokes or disputes the validity of, or liability
under, any Guaranty of the Indebtedness. Lender, at its option, may, but
shall not be required to, permit the Guarantor's estate to assume
unconditionally the obligations arising under the guaranty in a manner
satisfactory to Lender, and, in doing so, cure the Event of Default.
<PAGE>
11-12-1996 MORTGAGE Page 4
Loan No 1082002715 (Continued)
================================================================================
Adverse Change. A material adverse change occurs In Grantor's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness is impaired.
Insecurity. Lender in good faith has reasonable cause to believe it is
insecure or that its collateral is impaired.
Right to Cure. If such a failure is curable and if Grantor has not been
given a notice of a breach of the same provision of this Mortgage within
the preceding twelve (12) months, it may be cured (and no Event of Default
will have occurred) if Grantor, after Lender sends written notice demanding
cure of such failure: (a) cures the failure within twenty (20) days; or (b)
if the cure requires more than twenty (20) days, immediately initiates
steps sufficient to cure the failure and thereafter continues and completes
all reasonable and necessary steps sufficient to produce compliance as soon
as reasonably practical.
RIGHTS AND REMEDIES ON DEFAULT. Upon the occurrence of any Event of Default and
at any time thereafter but subject to any limitation in the Note or any
limitation in this Mortgage, Lender, at its option, may exercise any one or more
of the following rights and remedies, in addition to any other rights or
remedies provided by law:
Accelerate Indebtedness. Lender shall have the right at its option without
notice to Grantor to declare the entire Indebtedness immediately due and
payable, including any prepayment penalty which Grantor would be required
to pay.
UCC Remedies. With respect to all or any part of the Personal Property,
Lender shall have all the rights and remedies of a secured party under the
Uniform Commercial Code.
Collect Rents. Lender shall have the right, without notice to Grantor, to
take possession of the Property and collect the Rents, including amounts
past due and unpaid, and apply the net proceeds, over and above Lender's
costs, against the Indebtedness. In furtherance of this right, Lender may
require any tenant or other user of the Property to make payments of rent
or use fees directly to Lender. If the Rents are collected by Lender, then
Grantor irrevocably designates Lender as Grantor's attorney-in-fact to
endorse instruments received in payment thereof in the name of Grantor and
to negotiate the same and collect the proceeds. Payments by tenants or
other users to Lender in response to Lender's demand shall satisfy the
obligations for which the payments are made, whether or not any proper
grounds for the demand existed. Lender may exercise its rights under this
subparagraph either in person, by agent, or through a receiver.
Appoint Receiver. Lender shall have the right to have a receiver appointed
to take possession of all or any part of the Property, with the power to
protect and preserve the Property, to operate the Property preceding
foreclosure or sale, and to collect the Rents from the Property and apply
the proceeds, over and above the cost of the receivership, against the
Indebtedness. The receiver may serve without bond if permitted by law.
Lender's right to the appointment of a receiver shall exist whether or not
the apparent value of the Property exceeds the Indebtedness by a
substantial amount. Employment by Lender shall not disqualify a person from
serving as a receiver.
Judicial Foreclosure. Lender may obtain a judicial decree foreclosing
Grantor's interest in all or any part of the Property.
Nonjudicial Sale. If permitted by applicable law, Lender may foreclose
Grantor's interest in all or in any part of the Personal Property or the
Real Property by nonjudicial sale.
Deficiency Judgment. If permitted by applicable law, Lender may obtain a
judgment for any deficiency remaining in the Indebtedness due to Lender
after application of all amounts received from the exercise of the rights
provided in this section.
Tenancy at Sufferance. If Grantor remains in possession of the Property
after the Property is sold as provided above or Lender otherwise becomes
entitled to possession of the Property upon default of Grantor, Grantor
shall become a tenant at sufferance of Lender or the purchaser of the
Property and shall, at Lender's option, either (a) pay a reasonable rental
for the use of the Property, or (b) vacate the Property immediately upon
the demand of Lender.
Other Remedies. Lender shall have all other rights and remedies provided in
this Mortgage or the Note or available at law or in equity.
Sale of the Property. To the extent permitted by applicable law, Grantor
hereby waives any and all right to have the property marshalled. In
exercising its rights and remedies, Lender shall be free to sell all or any
part of the Property together or separately, in one sale or by separate
sales. Lender shall be entitled to bid at any public sale on all or any
portion of the Property.
Notice of Sale. Lender shall give Grantor reasonable notice of the time and
place of any public sale of the Personal Property or of the time after
which any private sale or other intended disposition of the Personal
Property is to be made. Reasonable notice shall mean notice given at least
ten (10) days before the time of the sale or disposition.
Waiver; Election of Remedies. A waiver by any party of a breach of a
provision of this Mortgage shall not constitute a waiver of or prejudice
the party's rights otherwise to demand strict compliance with that
provision or any other provision. Election by Lender to pursue any remedy
shall not exclude pursuit of any other remedy, and an election to make
expenditures or take action to perform an obligation of Grantor under this
Mortgage after failure of Granter to perform shall not affect Lender's
right to declare a default and exercise its remedies under this Mortgage.
Attorneys' Fees; Expenses. If Lender institutes any suit or action to
enforce any of the terms of this Mortgage, Lender shall be entitled to
recover such sum as the court may adjudge reasonable as attorneys' fees at
trial and on any appeal. Whether or not any court action is involved, all
reasonable expenses incurred by Lender that in Lender's opinion are
necessary at any time for the protection of its interest or the enforcement
of its rights shall become a part of the Indebtedness payable on demand and
shall bear interest from the date of expenditure until repaid at the rate
provided for in the Note. Expenses covered by this paragraph include,
without limitation, however subject to any limits under applicable law,
Lender's attorneys' fees and Lender's legal expenses whether or not there
is a lawsuit, including attorneys' fees for bankruptcy proceedings
(including efforts to modify or vacate any automatic stay or injunction),
appeals and any anticipated post-judgment collection services, the cost of
searching records, obtaining title reports (including foreclosure reports),
surveyors' reports, and appraisal fees, and title insurance, to the extent
permitted by applicable law. Grantor also will pay any court costs, in
addition to all other sums provided by law.
NOTICES TO GRANTOR AND OTHER PARTIES. Any notice under this Mortgage, including
without limitation any notice of default and any notice of sale to Grantor,
shall be in writing, may be sent by telefacsimilie, and shall be effective
when actually delivered, or when deposited with a nationally recognized
overnight courier, or, if mailed, shall be deemed effective when deposited in
the United States mail first class, certified or registered mail, postage
prepaid, directed to the addresses shown near the beginning of this Mortgage.
Any party may change its address for notices under this Mortgage by giving
formal written notice to the other parties, specifying that the purpose of the
notice is to change the party's address. All copies of notices of foreclosure
from the holder of any lien which has priority over this Mortgage shall be sent
to Lender's address, as shown near the beginning of this Mortgage. For notice
purposes, Grantor agrees to keep Lender informed at all times of Grantor's
current address.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Mortgage:
Amendments. This Mortgage, together with any Related Documents, constitutes
the entire understanding and agreement of the parties as to the matters set
forth in this Mortgage. No alteration of or amendment to this Mortgage
shall be effective unless given in writing and signed by the party or
parties sought to be charged or bound by the alteration or amendment.
Annual Reports. If the Property is used for purposes other than Grantor's
residence, Grantor shall furnish to Lender, upon request, a certified
statement of net operating income received from the Property during
Grantor's previous fiscal year in such form and detail as Lender shall
require. "Net operating income" shall mean all cash receipts from the
Property less all cash expenditures made in connection with the operation
of the Property.
Applicable Law. This Mortgage has been delivered to Lender and accepted by
Lender in the State of Iowa. Except as set forth hereinafter, this Mortgage
shall be governed by, construed and enforced in accordance with the laws of
the State of Iowa, except and only to the extent of procedural matters
related to the perfection and enforcement by Lender of its rights and
remedies against the Property, which matters shall be governed by the laws
of the State of Colorado. However, in the event that the enforceability or
validity of any provision of this Mortgage is challenged or questioned,
such provision shall be governed by whichever applicable state or federal
law would uphold or would enforce such challenged or questioned provision.
The loan transaction which is evidenced by the Note and this Mortgage
(which secures the Note) has been applied for, considered, approved and
made in the State of Iowa.
Caption Headings. Caption headings in this Mortgage are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Mortgage.
Merger. There shall be no merger of the interest or estate created by this
Mortgage with any other interest or estate in the Property at any time held
by or for the benefit of Lender in any capacity, without the written
consent of Lender.
Multiple Parties; Corporate Authority. All obligations of Grantor under
this Mortgage shall be joint and several, and all references to Grantor
shall mean each and every Grantor. This means that each of the persons
signing below is responsible for all obligations in this Mortgage.
Severability, If a court of competent jurisdiction finds any provision of
this Mortgage to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending provision
cannot be so modified, it shall be stricken and all other provisions of
this Mortgage in all other respects shall remain valid and enforceable.
<PAGE>
11-12-1996 MORTGAGE Page 5
Loan No 1082202715 (Continued)
================================================================================
Successors and Assigns. Subject to the limitations stated in this Mortgage
on transfer of Grantor's interest, this Mortgage shall be binding upon and
inure to the benefit of the parties, their successors and assigns. If
ownership of the Property becomes vested in a person other than Grantor,
Lender, without notice to Grantor, may deal with Grantor's successors with
reference to this Mortgage and the Indebtedness by way of forbearance or
extension without releasing Grantor from the obligations of this Mortgage
or liability under the Indebtedness.
Time is of the Essence. Time is of the essence in the performance of this
Mortgage.
Waiver of Homestead Exemption. Grantor hereby releases and waives all
rights and benefits of the homestead exemption laws of the State of
Colorado as to all Indebtedness secured by this Mortgage.
Waivers and Consents. Lender shall not be deemed to have waived any rights
under this Mortgage (or under the Related Documents) unless such waiver is
in writing and signed by Lender. No delay or omission on the part of Lender
in exercising any right shall operate as a waiver of such right or any
other right. A waiver by any party of a provision of this Mortgage shall
not constitute a waiver of or prejudice the party's right otherwise to
demand strict compliance with that provision or any other provision. No
prior waiver by Lender, nor any course of dealing between Lender and
Grantor, shall constitute a waiver of any of Lender's rights or any of
Grantor's obligations as to any future transactions. Whenever consent by
Lender is required in this Mortgage, the granting of such consent by Lender
in any instance shall not constitute continuing consent to subsequent
instances where such consent is required.
Acknowledgment of Receipt of Copies. Grantor hereby acknowledges the
receipt of a copy of this Mortgage.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS MORTGAGE, AND
GRANTOR AGREES TO ITS TERMS.
GRANTOR:
Cinema Saver Theatre Corporation
By: By:
----------------------------------- ----------------------------
R. Haydn Silleck, President Joel D. Boldrey, Secretary
- --------------------------------------------------------------------------------
CORPORATE ACKNOWLEDGMENT
STATE OF _____________________________)
) SS
COUNTY OF ____________________________)
On this __________ day of ______________________, 19__, before me, the
undersigned Notary Public, personally appeared R. Haydn Silleck, President; and
Joel D. Boldrey, Secretary of Cinema Saver Theatre Corporation, and known to me
to be authorized agents of the corporation that executed the Mortgage and
acknowledged the Mortgage to be the free and voluntary act and deed of the
corporation, by authority of its Bylaws or by resolution of its board of
directors, for the uses and purposes therein mentioned, and on oath stated that
they are authorized to execute this Mortgage and in fact executed the Mortgage
on behalf of the corporation.
By Residing at
-------------------------------- ------------------------
Notary Public in and for the State of My commission expires
----- --------------
================================================================================
<PAGE>
NOTICE OF FINAL AGREEMENT
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$3,255,000.00 11-12-1996 11-15-2006 1082002715 410 80 101
- ------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the a applicability of this
document to an particular loan or item.
- ------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C>
Borrower: Cinema Saver Theatre Corporation (TIN: ) Lender: QUAD CITY BANK AND TRUST COMPANY
1422 Delgany Street, Suite LL3 2118 MIDDLE ROAD
Denver, CO 80202 P.O. BOX 395
BETTENDORF, IA 52722
</TABLE>
================================================================================
- --------------------------------------------------------------------------------
IMPORTANT: READ BEFORE SIGNING. THE TERMS OF THE LOAN AGREEMENT SHOULD BE READ
CAREFULLY BECAUSE ONLY THOSE TERMS IN WRITING ARE ENFORCEABLE. NO OTHER TERMS OR
ORAL PROMISES NOT CONTAINED IN THE WRITTEN LOAN AGREEMENT MAY BE LEGALLY
ENFORCED. YOU MAY CHANGE THE TERMS OF THE LOAN AGREEMENT ONLY BY ANOTHER WRITTEN
AGREEMENT.
As used In this Notice, the following terms have the following meanings:
Loan. The term "Loan" means the following described loan: a Fixed Rate
(9.250%), Nondisclosable Balloon Loan to a Corporation for $3,255,000.00
due on November 15, 2006.
Parties. The term "Parties" means QUAD CITY BANK AND TRUST COMPANY and any
and all entities or individuals who are obligated to repay the loan or have
pledged property as security for the Loan, including without limitation the
following:
Borrower: Cinema Saver Theatre Corporation
Guarantor #1: R. Haydn Silleck and Joel D. Boldrey
Guarantor #2: Clifford E. Godfrey and Lyle A. Chapman, Jr.
Loan Agreement. The term "Loan Agreement" means one or more promises,
promissory notes, agreements, undertakings, security agreements, deeds of
trust or other documents, or commitments, or any combination of those
actions or documents, relating to the Loan, including without limitation
the following:
NECESSARY FORMS
<TABLE>
<S> <C>
Corporate Resolution to Borrow Promissory Note / Change In Terms Agr.
Commercial Guaranty Security Agreement
Regulation U--1 Statement Irrevocable Stock or Bond Power
Mortgage / Security Deed Standard Flood Hazard Determination
UCC -- 1 Agreement to Provide Insurance
Disbursement Request and Authorization Notice of Final Agreement
</TABLE>
OPTIONAL FORMS
Landlord's Consent
- --------------------------------------------------------------------------------
<PAGE>
11-12-1996 NOTICE OF FINAL AGREEMENT Page 2
Loan No 1082002715 (Continued)
================================================================================
Each Party who signs below, other than QUAD CITY BANK AND TRUST COMPANY,
acknowledges, represents, and warrants to QUAD CITY BANK AND TRUST COMPANY
that it has received, read and understood this Notice of Final Agreement.
This Notice is dated November 12, 1996.
BORROWER:
Cinema Saver Theatre Corporation
By: By:
----------------------------------- ------------------------------
R. Haydn Silleck, President Joel D. Boldrey, Secretary
GUARANTOR:
X
- --------------------------------------
R. Haydn Silleck
X
- --------------------------------------
Joel D. Boldrey
GUARANTOR:
X
- --------------------------------------
Clifford E. Godfrey
X
- --------------------------------------
Lyle A. Chapman, Jr.
LENDER:
QUAD CITY BANK AND TRUST COMPANY
By:
- --------------------------------------------
Authorized Officer
================================================================================
<PAGE>
EXHIBIT 10.3
PROMISSORY NOTE
$197,542.00 Parker, Colorado
May 15, 1997
1. For value received, the undersigned ("Borrower") promises to pay to Joel D.
Boldrey, or order, ("Noteholder") the principal sum of One Hundred Ninety-Seven
Thousand Five Hundred Forty-Two dollars, with interest on the unpaid principal
balance from May 15, 1997, until paid, at the rate of six percent (6%) per
annum.
Principal and interest shall be payable at 2272 South Dearborn Street, Aurora,
Colorado 80014, or such other place as the Noteholder may designate, in monthly
payments of Two Thousand Two Hundred Fifty and 00/100th dollars ($2,250.00), due
on the 1st day of each month, beginning on June 1, 1997. Such payments shall
continue until the entire indebtedness evidenced by this Note is fully paid;
provided, however, if not sooner paid, the entire principal amount outstanding
and any accrued interest thereon, shall be due and payable on May 15, 2007.
2. Borrower shall pay to the Noteholder a late charge of two percent (2%) of
any payment not received by the Noteholder within 10 days after the payment is
due.
3. Payments received for application to this Note shall be applied first to the
payment of late charges, if any, second to the payment of accrued interest at
the rate specified above, and the balance applied in reduction of the principal
amount hereof.
4. If any payment required by this Note is not paid when due Borrower shall
have a fifteen day period during which to bring all payments then due current,
after which grace period the entire principal amount outstanding and accrued
interest thereon shall at once become due and payable at the option of the
Noteholder (Acceleration); and the indebtedness shall bear interest at the rate
of twelve percent (12%) per annum from the date of default. The Noteholder shall
be entitled to collect all reasonable costs and expenses of collection and/or
suit, including, but not limited to, reasonable attorneys' fees.
5. Borrower may prepay the principal amount outstanding under this Note, in
whole or in part, without penalty. Any partial prepayment shall be applied
against the principal amount outstanding and shall not postpone the due date of
any subsequent payments.
6. Borrower hereby waives presentment, notice of dishonor and protest, and
hereby agrees to any extensions of time of payment and partial payments before,
at, or after maturity.
7. Any notices to Borrower provided for in this Note shall be in writing and
shall be given and be effective upon (1) delivery to Borrower or (2) mailing
such notice by first class U.S. mail, addressed to Borrower at Borrower's
address state below, or to such other address as Borrower may designate by
notice to Noteholder. Any notice to Noteholder shall be in writing and shall be
given and be effective upon (1) delivery to Noteholder or (2) by mailing such
notice by first class U.S. mail, to the Noteholder at the address stated in the
first paragraph of this Note, or to such other address as Noteholder may
designate by notice to Borrower.
CINEMA SAVER THEATRE CORPORATION
BY:
----------------------------
R. Haydn Silleck, President
Borrower's address: 10831 South Crossroads Drive
Parker, Colorado 80134
<PAGE>
Loan #952-001-200
OMB Approval No. 3245-02
----------------------
U.S. Small Business Administration SBA LOAN NUMBER
----------------------
GP 690,093-30-10-DEN
----------------------
NOTE
Aurora, Colorado
------------------------
(City and State)
$600,000.00 (Date) May 24 , 1994
---------- ------------ --
For value received, the undersigned promises to pay to the order of Aurora
------
National Bank 10660 East Colfax Avenue,
- -------------------------------------------------------------------------------
(Payee)
at its office in the city of Aurora , State of Colorado
-------------- -------------------------
or at holder's option, at such other place as may be designated from time to
time by the holder Six Hundred Thousand and 00/100*****************dollars
- -------------------------------------------------------------------
(Write out amount)
with interest on unpaid principal computed from the date of each advance to the
undersigned at the rate of 9.50 percent per annum, payment to be made in
----
installments as follows:
NOTE PAYABLE, TWENTY FIVE YEARS (25) years from date of Note, with monthly
payment of principal interest in the amount of $5,242, beginning one (1)
month(s) from date of Note, with interest at the rate of nine and one half
percent (9.5%) per annum. Interest rate shall be adjusted up and down on the
first business day of the quarter following first disbursement, and the first
business day of each quarter thereafter, by adding two and three quarters
(2.75%) percentage points to the lowest New York prime rate as published in the
Wall Street Journal. Each installment should be applied first to interest
accrued to the date of receipt of said installment, the balance, if any, to
principal. Holder should give written notice to the undersigned of each increase
or decrease in the rate within thirty (30) days after the effective date of each
rate adjustment .
If the undersigned shall be in default in payment due on the indebtedness herein
and the Small Business Administration (SBA) purchases its guaranteed portion of
said indebtedness, the rate of interest herein shall become fixed at the rate in
effect as of the initial date of default. If the undersigned shall not be in
default in payment when SBA purchases its guaranteed portion, then the rate of
interest herein shall be fixed at the rate in effect as of the date of purchase
by SBA.
Notwithstanding anything stated in the above terms if the interest rate is
changed, then the principal balance due and owing on the loan shall be
reamortized for the remaining term of the loan, and monthly payment shall be
applied first to interest accrued to the date of receipt of said installment,
and the balance if any, to principal.
Borrower agrees to pay a late charge equal to 5% (cannot exceed 5%) of the
payment amount due if such payment is not received within ten (10) days of the
due date. Funds received from the Borrower will be applied first to interest to
the date of receipt, then to principal and then to the late fee.
If this Note contains a fluctuating interest rate, the notice provision is
not a pre-condition for fluctuation (which shall take place regardless of
notice). Payment of any installment of principal or interest owing on this Note
may be made prior to the maturity date thereof without penalty. Borrower shall
provide lender with written notice of intent to prepay part or all of this loan
at least three (3) weeks prior to the anticipated prepayment date. A prepayment
is any payment made ahead of schedule that exceeds twenty (20) percent of the
then outstanding principal balance. If borrower makes a prepayment and fails to
give at least three weeks advance notice of intent to prepay, then,
notwithstanding any other provision to the contrary in this note or other
document, borrower shall be required to pay lender three weeks interest on the
unpaid principal as of the date preceding such prepayment.
<PAGE>
This promissory note is given to secure a loan which SBA is making or in
which it is participating and, pursuant to Part 101 of the Rules and Regulations
of SBA (13 CF.R. 101 1(d)), this instrument is to be construed and (when SBA is
the Holder or a party in interest) enforced in accordance with applicable
Federal law.
ATTEST:
Pitchers!, Inc., A Colorado Corporation
DBA: Pitchers
/s/ Carol J. Hanson Sec./Treas.
- -------------------------------
Secretary/Treasurer
By: /s/ Herbert I. Lee, President
------------------------------------
Herbert I. Lee, President
By: /s/ Lorry D. Hanson, Vice President
------------------------------------
Lorry D. Hanson, Vice President
By: /s/ Jean A. Sertich, Vice President
------------------------------------
Jean Sertich, Vice President
By: /s/ Carol Hanson, Sec/Treasurer
------------------------------------
Carol Hanson, Secretary/Treasurer
- --------------------------------------------------------------------------------
Note.--Corporate applicants must execute Note, in corporate name, by duly
authorized officer, and seal must be affixed and duly attested: partnership
applicants must execute Note in firm name, together with signature of a general
partner.
SBA Form 147 (5-87) Page 2
U.S. GOVERNMENT PRINTING OFFICE : 1993 O - 151-355
<PAGE>
U.S. Small Business Administration SBA LOAN NUMBER
GP 690,049-30-09-DEN
NOTE
Aurora, Colorado
----------------
(City and State)
$200,000.00 (Date) May 24 , 1994
---------- --
For value received, the undersigned promises to pay to the order of Aurora
------
National Bank 10660 East Colfax Avenue
- ----------------------------------------------------------------------------
(Payee)
at its office in the city of Aurora , State of Colorado 80010
___________________ ______________
or at holder's option, at such other place as may be designated from time to
time by the holder Two Hundred Thousand Dollars and 00/100************dollars
___________________________________________________
(Write out amount)
with interest on unpaid principal computed from the date of each advance to the
undersigned at the rate of 9.50% percent annum, payment to be made in
----
installments as follows:
THIS IS A VARIABLE INTEREST RATE NOTE.
NOTE PAYABLE: SEVEN (7) years from date of Note, with monthly payment of
principal and interest in the amount of $3,269, beginning one (1) month(s) from
date of Note, with interest at the rate of nine and one half percent (9.5%) per
annum. Interest rate shall be adjusted up or down on the first business day of
the quarter following first disbursement, and the first business day of each
quarter thereafter, by adding two and three quarters (2.75%) percentage points
to the lowest New York prime rate as published in the Wall Street Journal. Each
installment should be applied first to interest accrued to the date of receipt
of said installment, and the balance, if any, to principal. Holder should give
written notice to the undersigned of each increase or decrease in the rate
within thirty (30) days after the effective date of each rate adjustment.
If the undersigned shall be in default in payment due on the indebtedness herein
and the Small Business Administration (SBA) purchases its guaranteed portion of
said indebtedness, the rate of interest herein shall become fixed at the rate in
effect as of the initial date of default. If the undersigned shall not be in
default in payment when SBA purchases its guaranteed portion, then the rate of
interest herein shall be fixed at the rate in effect as of the date of purchase
by SBA.
Notwithstanding anything stated in the above terms if the interest rate is
changed, then the principal balance due and owing on the loan shall be
reamortized for the remaining term of the loan, and monthly payment shall be
applied first to interest accrued to the date of receipt of said installment,
and the balance if any, to principal.
Borrower agrees to pay a late charge equal to 5% (cannot exceed 5%) of the
payment amount due if such payment is not received within ten (10) days of the
due date. Funds received from the Borrower will be applied first to interest to
the date of receipt, then to principal and then to the late fee.
If this Note contains a fluctuating interest rate, the notice provision is
not a pre-condition for fluctuation (which shall take place regardless of
notice). Payment of any installment of principal or interest owing on this Note
may be made prior to the maturity date thereof without penalty. Borrower shall
provide lender with written notice of intent to prepay part or all of this loan
at least three (3) weeks prior to the anticipated prepayment date. A prepayment
is any payment made ahead of schedule that exceeds twenty (20) percent of the
then outstanding principal balance. If borrower makes a prepayment and fails to
give at least three weeks advance notice of intent to prepay, then
notwithstanding any other provision to the contrary in this note or other
document, borrower shall be required to pay lender three weeks interest on the
unpaid principal as of the date preceding such prepayment.
<PAGE>
The term "Indebtedness" as used herein shall mean the indebtedness
evidenced by this Note, including principal, interest, and expenses whether
contingent, now due or hereafter to become due and whether heretofore or
contemporaneously herewith or hereafter contracted. The term "Collateral" as
used in this Note shall mean any funds, guaranties or other property or rights
therein of any nature whatsoever or the proceeds thereof which may have been,
are, or hereafter may be, hypothecated, directly or indirectly by the
undersigned or others, in connection with, or as security for, the Indebtedness
or any part thereof. The Collateral, and each part thereof, shall secure the
Indebtedness and each part thereof. The covenants and conditions set forth or
referred to in any and all instruments of hypothecation constituting the
Collateral are hereby incorporated in this Note as covenants and conditions of
the undersigned with the same force and effect as though such covenants and
conditions were fully set forth herein.
The Indebtedness shall immediately become due and payable, without
notice or demand, upon the appointment of a receiver or liquidator, whether
voluntary or involuntary, for the undersigned or for any of its property, or
upon the filing of a petition by or against the undersigned under the provisions
of any State Insolvency law or under the provisions of the Bankruptcy Reform Act
of 1978, as amended, or upon the making by the undersigned of an assignment for
the benefit of its creditors. Holder is authorized to declare all or any part of
the Indebtedness immediately due and payable upon the happening of any of the
following events: (1) Failure to pay any part of the Indebtedness when due; (2)
nonperformance by the undersigned of any agreement with, or any condition
imposed by. Holder or Small Business Administration (hereinafter called "SBA"),
with respect to the Indebtedness; (3) Holder's discovery of the undersigned's
failure in any application of the undersigned to Holder or SBA to disclose any
fact deemed by Holder to be material or of the making therein or in any of the
said agreements, or in any affidavit or other documents submitted in connection
with said application or the indebtedness, of any misrepresentation by, on
behalf of, or for the benefit of the undersigned; (4) the reorganization, (other
than a reorganization pursuant to any of the provisions of the Bankruptcy Reform
Act of 1978, as amended) or merger or consolidation of the undersigned (or the
making of any agreement therefor) without the prior written consent of Holder;
(5) the undersigned's failure duly to account, to Holder's satisfaction, at such
time or times as Holder may require, for any of the Collateral, or proceeds
thereof, coming into the control of the undersigned; or (6) the institution of
any suit affecting the undersigned deemed by Holder to affect adversely its
interest hereunder in the Collateral or otherwise. Holder's failure to exercise
its rights under this paragraph shall not constitute a waiver thereof.
Upon the nonpayment of the Indebtedness, or any part thereof, when due,
whether by acceleration or otherwise, Holder is empowered to sell, assign, and
deliver the whole or any part of the Collateral at public or private sale,
without demand, advertisement or notice of the time or place of sale or of any
adjournment thereof, which are hereby expressly waived. After deducting all
expenses incidental to or arising from such sale or sales, Holder may apply the
residue of the proceeds thereof to the payment of the Indebtedness, as it shall
deem proper, returning the excess, if any, to the undersigned. The undersigned
hereby waives all right of redemption or appraisement whether before or after
sale.
Holder is further empowered to collect or cause to be collected or
otherwise to be converted into money all or any part of the Collateral, by suit
or otherwise, and to surrender, compromise, release, renew, extend, exchange, or
substitute any Item of the Collateral in transactions with the undersigned or
any third party, irrespective of any assignment thereof by the undersigned, and
without prior notice to or consent of the undersigned or any assignee. Whenever
any Item of the Collateral shall not be paid when due, or otherwise shall be in
default, whether or not the indebtedness, or any part thereof, has become due.
Holder shall have the same rights and powers with respect to such item of the
Collateral as are granted in this paragraph in case of nonpayment of the
indebtedness, or any part thereof, when due. None of the rights, remedies,
privileges, or powers of Holder expressly provided for herein shall be
exclusive, but each of them shall be cumulative with and in addition to every
other right, remedy, privilege, and power now or hereafter existing in favor of
Holder, whether at law or equity, by statute or otherwise.
The undersigned agrees to take all necessary steps to administer,
supervise, preserve, and protect the Collateral; and regardless of any action
taken by Holder, there shall be no duty upon Holder in this respect. The
undersigned shall pay all expenses of any nature, whether incurred in or out of
court, and whether incurred before or after this Note shall become due at its
maturity date or otherwise, including but not limited to reasonable attorney's
fees and costs, which Holder may deem necessary or proper in connection with the
satisfaction of the Indebtedness or the administration, supervision,
preservation, protection of (including, but not limited to, the maintenance of
adequate insurance) or the realization upon the Collateral. Holder is
authorized to pay at any time and from time to time any or all of such expenses,
add the amount of such payment to the amount of the Indebtedness, and charge
interest thereon at the rate specified herein with respect to the principal
amount of this Note.
The security rights of Holder and its assigns hereunder shall not be
impaired by Holder's sale, hypothecation or rehypothecation of any note of the
undersigned or any item of the Collateral, or by any indulgence, including but
not limited to (a) any renewal, extension, or modification which Holder may
grant with respect to the indebtedness or any part thereof, or (b) any
surrender, compromise, release, renewal, extension, exchange, or substitution
which Holder may grant in respect of the Collateral, or (c) any indulgence
granted in respect of any endorser, guarantor, or surety. The purchaser,
assignee, transferee, or pledges of this Note, the Collateral and guaranty, and
any other document (or any of them), sold, assigned, transferred, pledged, or
repledged, shall forthwith become vested with and entitled to exercise all the
powers and rights given by this Note and all applications of the undersigned to
Holder or SBA, as if said purchaser, assignee, transferee, or pledgee were
originally named as Payee in this Note and in said application or applications.
<PAGE>
The term "Indebtedness" as used herein shall mean the indebtedness evidenced
by this Note, including principal, interest, and expenses, whether contingent,
now due or hereafter to become due and whether heretofore or contemporaneously
herewith or hereafter contracted. The term "Collateral" as used in this Note
shall mean any funds, guaranties, or other property or rights therein of any
nature whatsoever or the proceeds thereof which may have been, are, or hereafter
may be, hypothecated directly or indirectly by the undersigned or others, in
connection with, or as security for, the Indebtedness or any part thereof. The
Collateral, and each part thereof, shall secure the indebtedness and each part
thereof. The covenants and conditions set forth or referred to in any and all
instruments of hypothecation constituting the Collateral are hereby incorporated
in this Note as covenants and conditions of the undersigned with the same force
and effect as though such covenants and conditions were fully set forth herein.
The Indebtedness shall immediately become due and payable, without notice or
demand, upon the appointment of a receiver or liquidator, whether voluntary or
involuntary, for the undersigned or for any of its property, or upon the filing
of a petition by or against the undersigned under the provisions of any State
insolvency law or under the provisions of the Bankruptcy Reform Act of 1978, as
amended, or upon the making by the undersigned of an assignment for the benefit
of its creditors. Holder is authorized to declare all or any part of the
Indebtedness immediately due and payable upon the happening of any of the
following events: (1) Failure to pay any part of the Indebtedness when due; (2)
nonperformance by the undersigned of any agreement with, or any condition
imposed by, Holder or Small Business Administration (hereinafter called "SBA"),
with respect to the indebtedness; (3) Holder's discovery of the undersigned's
failure in any application of the undersigned to Holder or SBA to disclose any
fact deemed by Holder to be material or of the making therein or in any of the
said agreements, or in any affidavit or other documents submitted in connection
with said application or the indebtedness, of any misrepresentation by, on
behalf of, or for the benefit of the undersigned; (4) the reorganization (other
than a reorganization pursuant to any of the provisions of the Bankruptcy Reform
Act of 1978, as amended) or merger or consolidation of the undersigned (or the
making of any agreement therefor) without the prior written consent of Holder;
(5) the undersigned's failure duly to account, to Holder's satisfaction, at such
time or times as Holder may require, for any of the Collateral, or proceeds
thereof, coming into the control of the undersigned; or (6) the institution of
any suit affecting the undersigned deemed by Holder to affect adversely its
interest hereunder in the Collateral or otherwise. Holder's failure to exercise
its rights under this paragraph shall not constitute a waiver thereof.
Upon the nonpayment of the indebtedness, or any part thereof, when due,
whether by acceleration or otherwise, Holder is empowered to sell assign, and
deliver the whole or any part of the Collateral at public or private sale,
without demand, advertisement or notice of the time or place of sale or of any
adjournment thereof, which are hereby expressly waived. After deducting all
expenses incidental to or arising from such sale or sales, Holder may apply the
residue of the proceeds thereof to the payment of the Indebtedness, as it shall
deem proper, returning the excess, if any, to the undersigned. The undersigned
hereby waives all right of redemption or appraisement whether before or after
sale.
Holder is further empowered to collect or cause to be collected or otherwise
to be converted into maney all or any part of the Collateral, by suit or
otherwise, and to surrender, compromise, release, renew, extend, exchange, or
substitute any item of the Collateral in transactions with the undersigned or
any third party, irrespective of any assignment thereof by the undersigned, and
without prior notice to or consent of the undersigned or any assignee. Whenever
any item of the Collateral shall not be paid when due, or otherwise shall be
in default, whether or not the indebtedness, or any part thereof, has become
due, Holder shall have the same rights and powers with respect to such item of
the Collateral as are granted in this paragraph in case of nonpayment of the
Indebtedness, or any part thereof, when due. None of the rights, remedies,
privileges, or powers of Holder expressly provided for herein shall be
exclusive, but each of them shall be cumulative with and in addition to every
other right, remedy, privilege, and power now or hereafter existing in favor of
Holder, whether at law or equity, by statute or otherwise.
The undersigned agrees to take all necessary steps to administer, supervise,
preserve, and protect the Collateral; and regardless of any action taken by
Holder, there shall be no duty upon Holder in this respect. The undersigned
shall pay all expenses of any nature, whether incurred in or out of court, and
whether incurred before or after this Note shall become due at its maturity
date or otherwise, including but not limited to reasonable attorney's fees and
costs, which Holder may deem necessary or proper in connection with the
satisfaction of the Indebtedness or the administration, supervision,
preservation, protection of (including, but not limited to, the maintenance of
adequate insurance) or the realization upon the Collateral. Holder is authorized
to pay at any time and from time to time any or all of such expenses, add the
amount of such payment to the amount of the indebtedness, and charge interest
thereon at the rate specified herein with respect to the principal amount of
this Note.
The security rights of Holder and its assigns hereunder shall not be
impaired by Holder's sale, hypothecation or rehypothecation of any note of the
undersigned or any item of the Collateral, or by any indulgence, including but
not limited to (a) any renewal, extension, or modification which Holder may
grant with respect to the Indebtedness or any part thereof, or (b) any
surrender, compromise, release, renewal, extension, exchange, or substitution
which Holder may grant in respect of the Collateral, or (c) any indulgence
granted in respect of any endorser, guarantor, or surety. The purchaser,
assignee, transferee or pledgee of this Note, the Collateral, and guaranty, and
any other document (or any of them), sold, assignee, transferred, pledged, or
repledged, shall forthwith become vested with and entitled to exercise all the
powers and rights given by this Note and all applications of the undersigned to
Holder or SBA, as if said purchaser, assignee, transferee, or pledgee were
originally named as Payee in this Note and in said application or applications.
<PAGE>
Loan #961-001-100
Pitchers, Inc.
This promissory note is given to secure a loan which SBA is making or in
which it is participating and, pursuant to Part 101 of the Rules and Regulations
of SBA (13 C.F.R. 101.1(d)), this instrument is to be construed and (when SBA is
the Holder or a party in interest) enforced in accordance with applicable
Federal law.
Pitchers!, Inc., A Colorado Corporation
DBA: Pitchers
ATTEST: By: /s/ Herbert I. Lee, Pres.
---------------------------------
Herbert I. Lee, President
/s/ Carol J. Hanson, Sec/Treasurer
- ----------------------------------
Secretary/Treasurer
By: /s/ Lorry D. Hanson, Vice Pres.
----------------------------------
Lorry D. Hanson, Vice President
By: /s/ Jean A. Sertich, Vice President
----------------------------------
Jean Sertich, Vice President
By: /s/ Carol Hanson, Sec/Treasurer
---------------------------------
Carol Hanson, Secretary/Treasurer
<PAGE>
03-16-1998 PROMISSORY NOTE Page 2
Loan No 697345083 (Continued)
=============================================================================
PRIOR TO SIGNING THIS NOTE, EACH BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS
OF THIS NOTE. EACH BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES
RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER:
PITCHERS!, INC.
By: /s/ Herbert I. Lee
--------------------------------------
HERBERT I. LEE, PRESIDENT
By: /s/ Lorry D. Hanson
--------------------------------------
LORRY D. HANSON, VICE PRESIDENT
By: /s/ Jean A. Sertich
--------------------------------------
JEAN A. SERTICH, VICE PRESIDENT
By: /s/ Carol A. Van Gytenbeek
--------------------------------------
CAROL A. VAN GYTENBEEK, SECRETARY/TREASURER
x: /s/ Herbert I. Lee
--------------------------------------
HERBERT I. LEE, Co-Borrower
x: /s/ Lorry D. Hanson
--------------------------------------
LORRY D. HANSON, Co-Borrower
x: /s/ Jean A. Sertich
--------------------------------------
JEAN A. SERTICH, Co-Borrower
x: /s/ Carol A. Van Gytenbeek
--------------------------------------
CAROL A. VAN GYTENBEEK, Co-Borrower
=============================================================================
<PAGE>
PROMISSORY NOTE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$35,382.00 03-16-1998 06-16-1998 607346083 500 35 P0263750 SG --
- ----------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this document to
any particular loan or item.
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
Borrower: PITCHERSI, INC. (TIN:84-1121594), ET. AL. Lender: Aurora National Bank
2862 W. BOWLES 19640 E. Colfax Avenue
LITTLETON, CO 80129 PO Box 128
Aurora, CO 89810-5030
</TABLE>
================================================================================
<TABLE>
<S> <C> <C>
Principal Amount: $35,382.00 Interest Rate: 9.750% Date of Note: March 16, 1998
</TABLE>
PROMISE TO PAY, PITCHERSI, INC., HERBERT I, LEE, LORRY D. HANSON, JEAN A.
SERTICH and CAROL A. VAN GYTENBEEK (referred to in this Note individually and
collectively as "Borrower") jointly and severally promise to pay to Aurora
National Bank ("Lender"), or order, in lawful money of the United States of
America, the principal amount of Thirty Five Thousand Three Hundred Eighty Two &
00/100 Dollars ($35,382.00) or so much as may be outstanding, together with
interest at the rate of 9.750% per annum on the unpaid outstanding principal
balance of each advance. Interest shall be calculated from the date of each
advance until repayment of each advance.
PAYMENT. Borrower will pay this loan in one payment of all outstanding
principal plus all accrued unpaid interest on June 16, 1998. In addition,
Borrower will pay regular monthly payments of accrued unpaid interest beginning
April 16, 1998, and all subsequent interest payments are due on the same day of
each month after that. The annual interest rate for this Note is computed on a
366/350 book; that is, by applying the ratio of the annual interest rate over a
year of 360 days, multiplied by the outstanding principal balance, multiplied by
the actual number of days the principal balance is outstanding. Borrower will
pay Lender at Lender's address shown above or at such other place as Lender may
designate in writing. Unless otherwise agreed or required by applicable law,
payments will be applied first to accrued unpaid interest, then to principal,
and any remaining amount to any unpaid collection costs and late charges.
PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance
charges are earned fully as of the date of the loan and will not be subject to
refund upon early payment (whether voluntary or as a result of default), except
as otherwise required by law. Except for the foregoing, Borrower may pay
without penalty all or a portion of the amount owed earlier than it is due.
Early payments will not, unless agreed to by Lender in writing, relieve Borrower
of Borrower's obligation to continue to make payments of accrued unpaid
interest. Rather, they will reduce the principal balance due.
LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged
5.0000% of the regularly scheduled payment.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this Note or
any agreement related to this Note, or in any other agreement or loan Borrower
has with Lender. (c) Any representation or statement made or furnished to Lender
by Borrower or on Borrower's behalf is false or misleading in any material
respect either now or at the time made or furnished. (d) Borrower becomes
insolvent, a receiver is appointed for any part of Borrower's property, Borrower
makes an assignment for the benefit of creditors, or any proceeding is commenced
either by Borrower or against Borrower under any bankruptcy or insolvency laws.
(e) Any creditor tries to take any of Borrower's property on or in which Lender
has a lien or security interest. This includes a garnishment of any of
Borrower's accounts with Lender. (f) Any guarantor dies or any of the other
events described in this default section occurs with respect to any guarantor of
this Note. (g) A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of the
indebtedness is impaired. (h) Lender in good faith deems itself insecure.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, interest
notice, and then Borrower will pay that amount. Upon default, including failure
to pay upon final maturity, Lender, at its option, may also, if permitted under
applicable law, do one or both of the following: (a) increase the interest rate
on this Note to 21.000% per annum, and (b) add any unpaid accrued interest to
principal and such sum will bear interest therefrom until paid at the rate
provided in this Note (including any increased rate). The interest rate will not
exceed the maximum rate permitted by applicable law. Lender may hire or pay
someone else to help collect this Note if Borrower does not pay. Borrower also
will pay Lender that amount. This includes, subject to any limits under
applicable law, Lender's attorneys' fees and Lender's legal expenses whether or
not there is a lawsuit, including attorneys' fees and legal expenses for
bankruptcy proceedings (including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post-judgment collection services.
If not prohibited by applicable law, Borrower also will pay any court costs, in
addition to all other sums provided by law. This Note has been delivered to
Lender and accepted by Lender in the State of Colorado. If there is a lawsuit,
Borrower agrees upon Lender's request to submit to the jurisdiction of the
courts of Arapohoe County, the State of Colorado. This Note shall be governed by
and construed in accordance with the laws of the State of Colorado.
RIGHTS OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA and Keogh accounts,
and all trust accounts for which the grant of a security interest would be
prohibited by law. Borrower authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on this Note against any and
all such accounts.
COLLATERAL. This Note is secured by SECURED BY FURNITURE, FIXTURES, EQUIPMENT,
INVENTORY AND GENERAL INTANGIBLES OF 10178 E. HAMPDEN AVE, DENVER, CO., 1100 W.
DRAKE ROAD, FT. COLLINS, CO. 80526, 1870 S. CHAMBERS ROAD, AURORA, CO. 80017,
AND 148 VAN GORDEN LAKEWOOD, CO 80228.
LINE OF CREDIT. This Note evidences a straight line of credit. Once the total
amount of principal has been advanced, Borrower is not entitled to further loan
advances. Advances under this Note may be requested either orally or in writing
by Borrower or by an authorized person. Lender may, but need not, require that
all oral requests be confirmed in writing. All communications, instructions, or
directions by telephone or otherwise to Lender are to be directed to Lender's
office shown above. The following party or parties are authorized to request
advances under the line of credit until Lender receives from Borrower at
Lender's address show above written notice of revocation of their authority:
HERBERT I. LEE, PRESIDENT; LORRY D. HANSON, VICE PRESIDENT; JEAN A. SERTICH,
VICE PRESIDENT; and CAROL A. VAN GYTENBEEK, SECRETARY/TREASURER. Borrower agrees
to be liable for all sums either: (a) advanced in accordance with the
instructions of an authorized person or (b) credited to any of Borrower's
accounts with Lender. The unpaid principal balance owing on this Note at any
time may be evidenced by endorsements on this Note or by Lender's internal
records, including daily computer print-outs. Lender will have no obligation to
advance funds under this Note if: (a) Borrower or any guarantor is in default
under the terms of this Note or any agreement that Borrower or any guarantor has
with Lender, including any agreement made in connection with the signing of this
Note; (b) Borrower or any guarantor ceases doing business or is insolvent; (c)
any guarantor seeks, claims or otherwise attempts to limit, modify or revoke
such guarantor's guarantee of this Note or any other loan with Lender; (d)
Borrower has applied funds provided pursuant to this Note for purposes other
than those authorized by Lender; or (e) Lender in good faith deems itself
insecure under this Note or any other agreement between Lender and Borrower.
CROSS-COLLATERALIZATION. THIS LOAN IS CROSS-COLLATERALIZED WITH LOAN NUMBERS
981001100, 952001200, 597341779 AND 697346091.
GENERAL PROVISIONS. Lender may delay or forego enforcing any of its rights or
remedies under this Note without losing them. Each Borrower understands and
agrees that, with or without notice to Borrower, Lender may with respect to any
other Borrower (a) make one or more additional secured or unsecured loans or
otherwise extend additional credit; (b) alter, compromise, renew, extend,
accelerate, or otherwise change one or more times the time for payment or other
terms any indebtedness, including increases and decreases of the rate of
interest on the indebtedness; (c) exchange, enforce, waive, subordinate, fail or
decide not to perfect, and release any security, with or without the
substitution of new collateral; (d) apply such security and direct the order or
manner of sale thereof, including without limitation, any nonjudicial sale
permitted by the terms of the controlling security agreements, as Lender in its
discretion may determine; (e) release, substitute, agree not to sue, or deal
with any one or more of Borrower's sureties, endorsers, or other guarantors on
any terms or in any manner Lender may choose; and (f) determine how,when and
what application of payments and credits shall be made on any other indebtedness
owing by such other borrower. Borrower and any other person who signs,
guarantees or endorses this Note, to the extent allowed by law, waive
presentment, demand for payment, protest and notice of dishonor. Upon any change
in the terms of this Note, and unless otherwise expressly stated in writing, no
party who signs this Note, whether as maker, guarantor, accommodation maker or
endorser, shall be released from liability. All such parties agree that Lender
may renew or extend (repeatedly and for any length of time) this loan, or
release any party or guarantor or collateral; or impair, fail to realize upon or
perfect Lender's security interest in the collateral; and take any other action
deemed necessary by Lender without the consent of or notice to anyone. All such
parties agree that lender may modify this loan without the consent of or notice
to anyone other than the party with whom the modification is made. The
obligations under this Note are joint and several.
<PAGE>
B A N K COMMERCIAL
East Colfax at Ironton LORRY D. HANSON PROMISSORY
P.O. Box 128 JEAN A. SERTICH NOTE
Aurora, Colorado 80040
(303) 364-7671
"Lender" ADDRESS
2852 W. BOWLES
LITTLETON, CO 80120
TELEPHONE NO. IDENTIFICATION NO.
303/798-9617
- -------------------------------------------------------------------------------
OFFICER INTEREST PRINCIPAL FUNDING MATURITY CUSTOMER LOAN
INITIALS RATE AMOUNT DATE DATE NUMBER NUMBER
KB 9.750% $171,787.00 05/06/97 05/05/00 P026375 697341779
- -------------------------------------------------------------------------------
PROMISE TO PAY
For value received, Borrower promises to pay to the order of Lender indicated
above the principal amount of ONE HUNDRED SEVENTY-ONE THOUSAND SEVEN HUNDRED
------------------------------------------------
EIGHTY-SEVEN AND NO/100 Dollars ($171,787.00) plus interest on the unpaid
- ------------------------ ----------
principal balance at the rate and in the manner described below. All amounts
received by Lender shall be applied first to late payment charges and expenses,
then to accrued interest, and then to principal.
INTEREST RATE: Interest shall be computed on the basis of 360 days and the
-------------------
actual number of days per year. So long as there is no default under this
- -----------------------
Note, interest on this Note shall be calculated at the fixed rate of NINE and
----------
750/1000 percent (9.750%) per annum or at the maximum rate of interest
- --------- ------
permitted by law, whichever is less.
DEFAULT RATE: In the event of any default under this Note, the Lender may in
its discretion, determine that all amounts owed to Lender shall bear interest at
the lessor of: 21
-------------------------------------------------------------
or the maximum interest rate Lender is permitted to charge by law.
PAYMENT SCHEDULE: Borrower shall pay the principal and interest according to
the following schedule:
35 PAYMENTS OF $5,533.77 BEGINNING JUNE 5, 1997 AND CONTINUING AT MONTHLY
TIME INTERVALS THEREAFTER. A FINAL PAYMENT OF THE UNPAID PRINCIPAL BALANCE
PLUS ACCRUED INTEREST IS DUE AND PAYABLE ON MAY 5, 2000.
All payments will be made to Lender at its address described above and in lawful
currency of the United States of America.
RENEWAL: If checked, [_] this Note is a renewal of Loan Number____________.
SECURITY: To secure the payment and performance of obligations incurred under
this Note, Borrower grants Lender a security interest in, and pledges and
assigns to Lender all of Borrower's rights, title, and interest, in all monies,
instruments, savings, checking and other deposit accounts of Borrower's,
(excluding IRA, Keogh and trust accounts and deposits subject to tax penalties
if so assigned) that are now or in the future in Lender's custody or control.
Upon default, and to the extent permitted by applicable law, Lender may exercise
its security interest in all such property which shall be in addition to
Lender's common law right of setoff. [X] If checked, the obligations under this
Note are also secured by a lien and/or security interest in the property
described in the documents executed in connection with this Note as well as any
other property designated as security now or in the future.
PREPAYMENT: This Note may be prepaid in part or in full on or before its
maturity date. If this Note contains more than one installment, all prepayments
will be credited as determined by Lender and as permitted by law. If this Note
is prepaid in full, there will be: [_] No minimum finance charge or prepayment
penalty. [X] A minimum finance charge of $ 25.00. [_] A prepayment penalty of
------
_______ % of the principal prepaid.
LATE PAYMENT CHARGE: If a payment is received more than 10 days late,
---------
Borrower will be charged a late payment charge of $ n/a or 5.000 % of
------------ ---------
the payment amount, whichever is [_] greater [_] less, as permitted by law.
- -------------------------------------------------------------------------------
BORROWER ACKNOWLEDGES THAT BORROWER HAS READ, UNDERSTANDS AND AGREES TO THE
TERMS AND CONDITIONS OF THIS NOTE INCLUDING THE PROVISIONS ON THE REVERSE SIDE.
BORROWER ACKNOWLEDGES RECEIPT OF AN EXACT COPY OF THIS NOTE.
NOTE DATE: MAY 6, 1997
BORROWER: PITCHERS!, INC. BORROWER: PITCHERS!, INC.
A COLORADO CORPORATION A COLORADO CORPORATION
By: /s/ Herbert I. Lee By: /s/ Carol A. Van Gytenbeek
----------------------------- --------------------------------
HERBERT I. LEE CAROL A. VAN GYTENBEEK
PRESIDENT SECRETARY/TREASURER
BORROWER: PITCHERS!, INC. BORROWER: PITCHERS!, INC.
A COLORADO CORPORATION A COLORADO CORPORATION
By: /s/ Lorry D. Hanson By: /s/ Jean A. Sertich
----------------------------- --------------------------------
LORRY D. HANSON JEAN A. SERTICH
VICE PRESIDENT VICE PRESIDENT
BORROWER: HERBERT I. LEE BORROWER: CAROL A. VAN GYTENBEEK
/s/ Herbert I. Lee /s/ Carol A. Van Gytenbeek
----------------------------- --------------------------------
HERBERT I. LEE CAROL A. VAN GYTENBEEK
Individually Individually
BORROWER: LORRY D. HANSON BORROWER: JEAN A. SERTICH
/s/ Lorry D. Hanson /s/ Jean A. Sertich
----------------------------- --------------------------------
LORRY D. HANSON JEAN A. SERTICH
Individually Individually
<PAGE>
(b) xxx to perform any obligation or breaches any warranty or covenant to
Lender contained in this Note or any other present or future written
agreement regarding this or any indebtedness of Borrower to Lender;
(c) provides or causes any false or misleading signature or
representation to be provided to Lender;
(d) allows the collateral securing this Note (if any) to be lost, stolen,
destroyed damaged in any material respect, or subjected to seizure or
confiscation;
(e) permits the entry or service of any garnishment, judgment, tax levy,
attachment or lien against Borrower, any guarantor, or any of their
property;
(f) dies, becomes legally incompetent, is dissolved or terminated, ceases
to operate its business, becomes insolvent, makes an assignment for
the benefit of creditors, or becomes the subject of any bankruptcy,
insolvency or debtor rehabilitation proceeding; or
(g) causes Lender to deem itself insecure for any reason, or Lender, for
any reason, in good faith deems itself insecure .
2. RIGHTS OF LENDER ON DEFAULT: If there is a default under this Note, Lender
will be entitled to exercise one or more of the following remedies without
notice or demand (except as required by law):
(a) to declare the principal amount plus accrued interest under this Note
and all other present and future obligations of Borrower immediately
due and payable in full;
(b) to collect the outstanding obligation of Borrower with or without
reporting to judicial process;
(c) to take possession of any collateral in any manner permitted by law;
(d) to require Borrower to deliver and make available to Lender any
collateral at a place reasonably convenient to Borrower and Lender;
(e) to sell, lease or otherwise dispose of any collateral and collect any
deficiency balance with or without resorting to legal process;
(f) to set-off Borrower's obligations against any amounts due to Borrower
including, but not limited to monies, instruments, and deposit
accounts maintained with Lender; and
(g) to exercise all other rights available to Lender under any other
written agreement or applicable law.
Lender's rights are cumulative and may be exercised together, separately, and in
any order. Lender's remedies under this paragraph are in addition to those
available at common law, such as the right to set-off.
3. DEMAND FEATURE: If this Note contains a demand feature, than notwithstanding
anything to the contrary contained in this Note, Lender's rights with respect to
the events of default identified above shall not be limited, restricted,
impaired or otherwise adversely affected by the demand feature of this Note.
Lender's right to demand payment, at any time, and from time to time, shall be
Lender's sole and absolute discretion, whether or not any default has occurred.
4. FINANCIAL INFORMATION: Borrower will provide Lender with current financial
statements and other financial information (including, but not limited to,
balance sheets and profit and loss statements) upon request.
5. MODIFICATION AND WAIVER: The modification or waiver of any of Borrower's
obligations or Lender's rights under this Note must be contained in a writing
signed by Lender. Lender may perform any of Borrower's obligations or date to
exercise any of its rights without causing a waiver of those obligations or
rights. A waiver on one occasion will not constitute a waiver on any other
ocassion. Borrower's obligations under this Note shall not be affected if
Lender amends, compromises, exchanges, fails to exercise, impairs of releases
any of the obligations belonging to any co-borrower or guarantor or any of its
rights against any co-borrower, guarantor or collateral.
6. SEVERABILITY AND INTEREST LIMITATION: If any provision of this Note
violates the law or is unenforceable, the rest of the Note will remain valid.
Notwithstanding anything contained in this Note to the contrary, in no event
shall interest accrue under this Note, before or after maturity, at a rate in
excess of the highest rate permitted by applicable law, and if interest
(including any charge or fee held to be interest by a court of competent
jurisdiction) in excess thereof be paid, any excess shall constitute a payment
of, and be applied to, the principal balance hereof, and if the principal
balance has been fully paid, then such interest shall be repaid to the Borrower.
7. ASSIGNMENT: Borrower will not be entitled to assign any of its rights,
remedies or obligations described in this Note without the prior written consent
of Lender which may be withheld by Lender in its sole discretion. Lender will be
entitled to assign some or all of its rights and remedies described in this Note
without notice to or the prior consent of Borrower in any manner.
8. NOTICE: Any notice or other communication to be provided to Borrower or
Lender under this Note shall be in writing and sent to the parties at the
addresses described in this Note or such other address as the parties may
designate in writing from time to time.
9. APPLICABLE LAW: This Note shall be governed by the laws of the state
indicated in Lender's address. Borrower consents to the jurisdiction and venue
of any court located in the state indicated in Lender's address in the event of
any legal proceeding pertaining to the negotiation, execution, performance or
enforcement of any term or condition contained in this Note or any related loan
document and agrees not to commence or seek to remove such legal proceeding in
or to a different court.
10. COLLECTION COSTS: If Lender hires an attorney to assist in collecting any
amount due or enforcing any right or remedy under this Note, Borrower agrees to
pay Lender's attorney's fees, to the extent permitted by applicable law, and
collection costs.
11. MISCELLANEOUS: This Note is being executed for commercial/agricultural
purposes. Borrower and Lender agree that time is of the essence. Borrower waives
presentment, demand for payment, notice of dishonor and protest. Borrower hereby
waives any right to trial by jury in any civil action arising out of, or based
upon, this Note or the collateral securing this Note. If Lender obtains a
judgment for any amount due under this Note, interest will accure on the
judgment of the Default Rate described in this Note. As reference to Borrower in
this Note shall include all of the parties signing this Note. If there is more
than one Borrower, their obligations will be joint and several. This Note and
any related documents represent the complete and integrated understanding
between Borrower and Lender pertaining to the terms and conditions of those
documents.
12. ADDITIONAL TERMS:
SECURED BY 3RD DEED OF TRUST ON 10175 E HAMPDEN AVE. DENVER CO. & INVENTORY,
FURNITURE, FIXTURES, & EQUIPMENT.
<PAGE>
DISBURSEMENT REQUEST AND AUTHORIZATION
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$35,382.00 03-16-1998 06-16-1998 697345083 500 35 P0263750 SG
- ----------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this document to
any particular loan or item.
- ----------------------------------------------------------------------------------------------------------------
Borrower: PITCHERS, INC. (TIN: 84-1121584); ET. AL. Lender: Aurora National Bank
2852 W. BOWLES 10660 E. Collax Avenue
LITTLETON, CO 80120 P O Box 128
Aurora, CO 80010-5030
================================================================================================================
</TABLE>
LOAN TYPE. This is a Fixed Rate (9.750%), Non-Revolving Line of Credit Loan to
PITCHERS, INC., HERBERT I. LEE, LORRY D. HANSON, JEAN A. SERTICH and CAROL A.
VAN GYTENBEEK for $35,382.00 due on June 16, 1998.
PRIMARY PURPOSE OF LOAN. The primary purpose of this loan is for:
[_] Personal, Family, or Household Purposes or Personal Investment
[X] Business (including Real Estate Investment).
SPECIFIC PURPOSE. The specific purpose of this loan is: PAY TAXES
DISBURSEMENT INSTRUCTIONS. Borrower understands that no loan proceeds will be
disbursed until all of Lender's conditions for making the loan have been
satisfied. Please disburse the loan proceeds of $35,382.00 as follows:
Amount paid to Borrower directly: $35,000.00
$35,000.00 Lender's Check # DISBURSED AS NEEDED
Other Charges Financed: $32.00
$32.00 RECORDING
Total Financed Prepaid Finance Charges: $350.00
$350.00 LOAN ORIGINATION FEE
--------------
Note Principal: $35,382.00
FINANCIAL CONDITION. BY SIGNING THIS AUTHORIZATION, BORROWER REPRESENTS AND
WARRANTS TO LENDER THAT THE INFORMATION PROVIDED ABOVE IS TRUE AND CORRECT AND
THAT THERE HAS BEEN NO MATERIAL ADVERSE CHANGE IN BORROWER'S FINANCIAL CONDITION
AS DISCLOSED IN BORROWER'S MOST RECENT FINANCIAL STATEMENT TO LENDER. THIS
AUTHORIZATION IS DATED MARCH 16, 1998.
BORROWER:
PITCHERS, INC.
By: /s/ Herbert I. Lee
--------------------------------------
HERBERT I. LEE, PRESIDENT
By: /s/ Lorry D. Hanson
--------------------------------------
LORRY D. HANSON, VICE PRESIDENT
By: /s/ Jean A. Sertich
--------------------------------------
JEAN A. SERTICH, VICE PRESIDENT
By: /s/ Carol A. Van Gytenbeek
--------------------------------------
CAROL A. VAN GYTENBEEK, SECRETARY/TREASURER
x /s/ Herbert I. Lee
--------------------------------------
HERBERT I. LEE, Co-Borrower
x /s/ Lorry D. Hanson
--------------------------------------
LORRY D. HANSON, Co-Borrower
x /s/ Jean A. Sertich
--------------------------------------
JEAN A. SERTICH, Co-Borrower
x /s/ Carol A. Van Gytenbeek
--------------------------------------
CAROL A. VAN GYTENBEEK, Co-Borrower
=============================================================================
<PAGE>
The term "indebtedness" as used herein shall mean the indebtedness
evidenced by this Note including principal, interest, and expenses, whether
contingent, now due or hereafter to become due and whether heretofore or
contemporaneously herewith or hereafter contracted. The term "Collateral" as
used in this Note shall mean any funds, guaranties or other property or rights
therein of any nature whatsoever or the proceeds thereof which may have been,
are, or hereafter may be, hypothecated, directly or indirectly by the
undersigned or others, in connection with, or as security for, the indebtedness
of any part thereof. The Collateral, and each part thereof, shall secure the
indebtedness and each part thereof. The covenants and conditions set forth or
referred to in any and all instruments of hypothecation constituting the
Collateral are hereby incorporated in this Note as covenants and conditions of
the undersigned with the same force and effect as though such covenants and
conditions were fully set forth herein.
The Indebtedness shall immediately become due and payable, without notice
or demand, upon the appointment of a receiver or liquidator, whether voluntary
or involuntary, for the undersigned or for any of its property, or upon the
filing of a petition by or against the undersigned under the provisions of any
State insolvency law or under the provisions of the Bankruptcy Reform Act of
1978, as amended, or upon the making by the undersigned of an assignment for the
benefit of its creditors. Holder is authorized to declare all or any part of the
Indebtedness immediately due and payable upon the happening of any of the
following events: (1) Failure to pay any part of the Indebtedness when due; (2)
nonperformance by the undersigned of any agreement with, or any condition
imposed by, Holder or Small Business Administration (hereinafter called "SSA"),
with respect to the indebtedness; (3) Holder's discovery of the undersigned's
failure in any application of the undersigned to Holder or SBA to disclose any
fact deemed by Holder to be material or of the making therein or in any of the
said agreements, or in any affidavit or other documents submitted in connection
with said application of the indebtedness, of any misrepresentation by, on
behalf of, or for the benefit of the undersigned; (4) the reorganization (other
than a reorganization pursuant to any of the provisions of the Bankcruptcy
reform act of 1978,as amended) or merger or consolidation of the undersigned (or
the making of any agreement therefor) without the prior written consent of
Holder; (5) the undersigned's failure duly to account, to Holder's satisfaction,
at such time or times as Holder may require, for any of the Collateral or
proceeds thereof,coming into the control of the undersigned; or (6)the
institution of any suit affecting the undersigned deemed by Holder to affect
adversely its interest hereunder in the collateral or otherwise. Holder's
failure to exercise its rights under this paragraph shall not constitute a
waiver thereof.
Upon the nonpayment of the indebtedness, or any part thereof, when
due, whether by acceleration or otherwise, Holder is empowered to sell, assign,
and deliver the whole or any part of the Collateral at public or private sale,
without demand, advertisment or notice of the time or place of sale or of any
adjournment thereof, which are hereby expressly waived. After deducting all
expenses incidental to or arising from such sale or sales, Holder may apply the
residue of the proceeds thereof to the payment of the indebtedness, as it shall
deem proper, returning the excess, if any, to the undersigned. The undersigned
hereby waives all right of redemption or appraisement whether before or after
the sale.
Holder is further empowered to collect or cause to be collected or
otherwise to be converted into money all or any part of the Collateral, by suit
or otherwise, and to surrender, compromise, release, renew, extend, exchange, or
substitute any item of the Collateral in transactions with the undersigned or
any third party, irrespective of any assignment thereof by the undersigned, and
without prior notice to or consent of the undersigned or any assignee. Whenever
any item of the Collateral shall not be paid when due, or otherwise shall be in
default, whether or not the indebtedness, or any part thereof, has become due.
Holder shall have the same rights and powers with respect to such item of the
Collateral as are granted in this paragraph in case of nonpayment of the
indebtedness, or any part thereof, when due. None of the rights, remedies,
privileges, or powers of Holder expressly provided for herein shall be
exclusive, but each of them shall be cumulative with and in addition to every
other right, remedy, privilege, and power now or hereafter existing in favor of
Holder, whether at law or equity, by statute or otherwise.
The undersigned agrees to take all necessary steps to administer,
supervise, preserve, and protect the Collateral; and regardless of any such
action taken by holder, there shall be no duty upon Holder in this respect. The
undersigned shall pay all expenses of any nature, whether incurred in or out of
court, and whether incurred before or after this notice shall become due at its
maturity date or otherwise, including but not limited to reasonable attorney's
fees and costs, which Holder may deem necessary or proper in connection with the
satisfaction of the indebtedness or the administration, supervision, protection
of (including, but not limited to, the maintenance of adequate insurance) or the
realization upon the collateral. Holder is authorized to pay at any time and
from time to time any or all of such expenses, add the amount of such payment to
the amount of the indebtedness,and charge interest thereon at the rate specified
herein with respect to the principal amount of the Note.
The security rights of the holder and its assignee hereunder shall not be
impaired by Holders sale, hypothecation, rehypothecation of any note of the
undersigned or any item of the Collateral, or by any indulgence, including but
not limited to (a) any renewal, extension, or modification which Holder may
grant with respect to the indebtedness or any part thereof, or (b) any
surrender, compromise, release, renewal, extension, exchange, or substitution
which Holder may grant in respect of the Collateral, or (c) any indulgence
granted in respect of any endorser, guarantor, or surety. The purchaser,
assignee, transferee, or pledges of this Note. The Collateral, and guaranty and
any other document (or any of them), sold, assigned, transferred, pledged, or
repledged, shall forthwith become vested with and entitled to exercise all the
powers and rights given by this note and all applications of the undersigned to
holder or SBA as if said purchaser, assignee, transferee, or pledges were
originally named as payee in this Note and in said application or applications.
<PAGE>
03-16-1998 PROMISSORY NOTE
Loan No 697345091 (Continued)
================================================================================
PRIOR TO SIGNING THIS NOTE, EACH BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS
OF THIS NOTE. EACH BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES
RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER:
PITCHERS!, INC.
By: /s/ Herbert I. Lee
--------------------------------------
HERBERT I. LEE, PRESIDENT
By: /s/ Lorry D. Hanson
--------------------------------------
LORRY D. HANSON, VICE PRESIDENT
By: /s/ Jean A. Sertich
--------------------------------------
JEAN A. SERTICH, VICE PRESIDENT
By: /s/ Carol A. Van Gytenbeek
--------------------------------------
CAROL A. VAN GYTENBEEK, SECRETARY/TREASURER
x /s/ Herbert I. Lee
--------------------------------------
HERBERT I. LEE, Co-Borrower
x /s/ Lorry D. Hanson
--------------------------------------
LORRY D. HANSON, Co-Borrower
x /s/ Jean A. Sertich
--------------------------------------
JEAN A. SERTICH, Co-Borrower
x /s/ Carol A. Van Gytenbeek
--------------------------------------
CAROL A. VAN GYTENBEEK, Co-Borrower
=============================================================================
<PAGE>
EXHIBIT 10.5
BUSINESS LEASE
THIS LEASE, entered into as of April 25, 1996, is between 1100 Drake, Ltd., a
Colorado Limited Partnership, which has its principal office at 1328 Starwood
Lane, Evergreen, Colorado 80439 (the "Lessor"), and Pitchers!, Inc., a Colorado
corporation, which has its principal office at 2852 West Bowles Avenue,
Littleton, Colorado 80123 (the "Lessee").
In consideration of the payment of the rent and the performance of the covenants
by the Lessee set forth below, the Lessor does hereby lease to the Lessee the
following described property situate in the County of Arapahoe, in the State of
Colorado, the street address of which is 2852 West Bowles Avenue, Littleton,
Colorado 80123:
See Attachment "A"
TO HAVE AND TO HOLD the same with all appurtenances unto the said Lessee
commencing on the date first written above and terminating on April 30, 2001, at
and for a base rental of $97,750 per year, payable in monthly installments for
the first year of $8,145.83, such payments being due on or before the first day
of each calendar month, beginning on May 1, 1996, and for the term of this lease
at the office of the Lessor at 1328 Starwood Lane, Evergreen, Colorado 80439,
without notice.
The Lessee, in consideration of the leasing of the premises, agrees that this
agreement is a triple net lease, and Lessor shall receive all rents net of
taxes, maintenance and insurance, all of which Lessee shall pay. Specifically,
Lessee agrees, but is not limited to, pay as follows:
1. To pay the rent for the premises above-described.
2. To pay rent, in addition to the base rent above-described, a cumulative
percentage increase in rent each year equal to four percent (4%) of the previous
year's rent. The increase will become effective in May of each year after the
first year of this Lease.
3. To pay those items listed below:
(a) all taxes, assessments, and other governmental charges which are
levied against and may create a statutory lien upon the leased
premises and/or personal property which are levied or assessed during
this Lease;
(b) all premiums for fire and extended coverage insurance, property
damage, and liability insurance in such amounts as the Lessor may
reasonably require;
(c) all costs and expenses of repairing and maintaining the building,
all of its components, and all land surrounding the building; except
that Lessor agrees that Lessor shall, at Lessor's sole expense,
maintain all structural elements of the building and the replacement
of the roof, so long as Lessee has provided for normal repairs and
maintenance; and
(d) all rents and other financial obligations of Lessor pertaining to
the
================================================================================
1
<PAGE>
premises under the terms and provisions of that certain lease
dated October 10, 1986 between the State of Colorado and
Riverfront Development Corporation.
4. To keep the improvements upon the premises, including sewer connections,
plumbing, wiring and glass in good repair, all at Lessee's expense, and at the
expiration of this lease to surrender the premises in as good condition as when
the Lessee entered the premises, loss by fire, inevitable accident, and ordinary
wear excepted. To keep all sidewalks on and around the premises free and clear
of ice and snow, and to keep the entire exterior premises free from all litter,
dirt, debris and obstructions; to keep the premises in a clean and sanitary
condition as required by the ordinances of the city and county in which the
property is situate.
5. To sublet no part of the premises, and not to assign the lease or any
interest therein without the written consent of the Lessor, which consent will
not be unreasonably withheld.
6. To use the premises only as a restaurant/bar and to use the premises for
no purposes prohibited by the laws of the United States or the State of
Colorado, or of the ordinances of the City of Littleton, and for no improper or
questionable purposes whatsoever.
7. To neither hold, nor attempt to hold, the Lessor liable for any injury
or damage, either proximate or remote, occurring through or caused by the
repairs, alterations, injury or accident to the premises, or adjacent premises,
or other parts of the above premises not herein demised, or by reason of the
negligence or default of the owners or occupants thereof or any other person,
nor to hold the Lessor liable for any injury or damage occasioned by defective
electric wiring, or the breakage or stoppage of plumbing or sewerage upon said
premises or upon adjacent premises, whether breakage or stoppage results from
freezing or otherwise; to neither permit nor suffer said premises, or the walls
or floors thereof, to be endangered by overloading, nor said premises to be used
for any purpose which would render the insurance thereon void or the insurance
risk more hazardous, nor make any alterations in or changes in, upon, or about
said premises without first obtaining the written consent of the Lessor
therefore, but to permit the Lessor to place a "For Rent" card or sign upon the
leased premises at any time after sixty (60) days before the end of this lease.
8. To allow the Lessor to enter upon the premises at any reasonable hour.
9. To pay all charges for water and water rents, and for heating and
lighting of the building in which said premises are located.
IT IS EXPRESSLY UNDERSTOOD AND AGREED BETWEEN LESSOR AND LESSEE AS
FOLLOWS:
10. No assent, express or implied, to any breach of any one or more of the
agreements hereof shall be deemed or taken to be a waiver of any succeeding or
other breach. Any payment by Lessee, or acceptance by Lessor, of a lesser amount
than due shall be treated only as a payment on account. Further, failure of the
Lessor to timely bill for taxes, insurance or repairs, as required herein, shall
not be deemed a waiver of the Lessee's liability to pay same.
2
<PAGE>
11. If, after the expiration of this lease, including all options periods,
the Lessee shall remain in possession of the premises and continue to pay rent
without a written agreement as to such possession, then such tenancy shall be
regarded as a month-to-month tenancy, at a monthly rental, payable in advance,
equivalent to the last month's rent paid under this lease, and subject to all
the terms and conditions of this lease.
12. If the premises are left vacant and any part of the rent reserved
hereunder is not paid, then Lessor may, without being obligated to do so, and
without terminating this lease, retake possession of the said premises and rent
the same for such rent, and upon such conditions as the Lessor may think best,
making such change and repairs as may be required, giving credit for the amount
of rent so received less all expenses of such changes and repairs, and the
Lessee shall be liable for the balance of the rent herein reserved until the
expiration of the term of this lease.
13. The Lessor and Lessee acknowledge that there is no security deposit
being held by Lessor for the faithful performance of all the terms, conditions
and covenants of this lease.
14. Lessee shall be in default if (a) any part of the rent provided to be
paid herein is not paid within ten days after written notice has been given by
Lessor to Lessee, or (b) Lessee fails to perform any other provision of this
lease if the failure to perform is not cured within thirty days after written
notice has been given by Lessor to Lessee, provided that if the default cannot
reasonably be cured within thirty days, Lessee shall not be in default if Lessee
commences to cure the default within the thirty day period and diligently and in
good faith continues to cure the default. Written notice given under this
paragraph shall specify the alleged default and the applicable lease provisions,
and shall demand that Lessee perform the provisions of this lease or pay the
rent that is in arrears, as the case may be, within the applicable period of
time, or quit the premises. If Lessee is in default, it shall be lawful for the
Lessor to declare the term ended, and to enter into the premises, either with or
without legal process, and to remove the Lessee or any other person occupying
the premises, using such force as may be necessary, without being liable to
prosecution, or in damages therefor, and to repossess the premises free and
clear of any rights of the Lessee. If, at any time, this lease is terminated
under this paragraph, the Lessee agrees to peacefully surrender the premises to
the Lessor immediately upon termination, and if Lessee remains in possession of
the premises, the Lessee shall be deemed guilty of forcible entry and detainer
of the premises, and, waiving notice, shall be subject to forcible eviction with
or without process of law.
15. In the event of any dispute arising under the terms of this lease, or
in the event of non-payment of any sums arising under this lease and in the
event the matter is turned over to an attorney, the party prevailing in such
dispute shall be entitled, in addition to other damages or costs, to receive
reasonable attorney's fees from the other party. Each of the parties hereto does
hereby waive trial by jury in any action or proceeding of any kind or nature
pertaining to the enforcement or interpretation of this lease in which action
either of the parties (or their respective guarantors, assigneds or successors
in interest) are joined as litigants.
16. In the event any payment required hereunder is not made within ten (10)
days after the payment is due, a late charge of five percent (5%) of the payment
will be paid
3
<PAGE>
by the Lessee.
17. (a) If the entire premises, at any time during the term of this lease
or any extension thereof, shall be taken by the exercise of a power of eminent
domain, this lease shall then terminate as of the date of title vesting in such
proceeding, all rentals shall be paid up to that date, and Lessee shall have no
claim against Lessor nor the condemning authority for the value of the unexpired
term of this lease.
(b) In the event of a partial taking of the building or more than 25%
of the land area, which leaves the premises unfit for the normal and proper
conduct of the business of the Lessee, then the Lessee shall have the right to
cancel and terminate this lease effective upon the actual partial taking, all
rentals shall be paid up to that date, and Lessee shall have no claim against
Lessor nor the condemning authority for the value of any unexpired term of this
lease. If this lease shall not be cancelled as above provided, it shall continue
in effect and the rental herein agreed to be paid which the value of the untaken
part of the premises, immediately after the taking, bears to the value of the
entire premises immediately before the taking. If the Lessee's continued use of
the premises requires alterations and repairs by reason of a partial taking, the
Lessor may elect to terminate this lease within thirty days after the actual
taking; or subject to Lessee's right of termination above provided, which must
be exercised in writing within thirty days after such partial taking, may elect
to continue it, in which event the Lessor shall make all necessary alterations
and repairs at its expense which are required because of such partial taking.
Until such alterations and repairs shall have been completed, an equitable
abatement of rent shall be made to Lessee for any portion of the premises unfit
for occupancy and use in the conduct of Lessee's business for the period during
which the same is unfit for such occupancy and use.
(c) In the event of any condemnation or taking as aforesaid, whether
whole or partial, Lessee shall not be entitled to any part of the award paid for
said condemnation, and Lessor is to receive the full amount of such award,
Lessee hereby expressly waiving any right or claim to any part thereof. Although
all such damages awarded in the event of any condemnation are to belong to the
Lessor when damages are awarded as compensation for diminution in value of the
leasehold or to the fee of the leased premises, Lessee shall have the right to
claim and recover from the condemning authority, but not from the Lessor, such
compensation as may be separately awarded or recoverable by Lessee in Lessee's
own right on account of any and all damages to Lessee's business by reason of
the condemnation and for or on account of any cost or loss to which Lessee might
be put in removing Lessee's merchandise, furniture, fixtures, and leasehold
improvements, and equipment.
18. Lessee agrees that with respect to the lien of any mortgage or deed of
trust which Lessor or its assigns shall make covering the premises, that
regardless of any default under any such instruments or any possession or sale
of the premises thereunder, so long as Lessee performs all covenants and
conditions of this lease and continues to pay rent to whomsoever may be lawfully
entitled to same, this lease and Lessee's possession hereunder shall not be
disturbed by the mortgagee or beneficiary or anyone claiming under or through
such mortgage or deed of trust.
19. This lease is made with the express understanding and agreement that,
in the event the Lessee is declared a bankrupt, then, the Lessor may declare
this lease ended,
4
<PAGE>
and all rights of the Lessee hereunder shall terminate and cease.
ADDITIONAL PROVISIONS:
20. (a) Lessee shall have two successive options to extend the term of this
lease. Provided Lessee is not in default under any of the terms and conditions
of this lease, it is hereby agreed that the Lessee shall have the option to
extend the term of this lease for a first additional term of five years
commencing May 1, 2001, under the same terms and conditions, with an initial
annual rental equal to the previous year's rate plus four percent (4%), with
cumulative annual increases in rent throughout the extended term as provided in
paragraph 2. Lessee shall give Lessor written notice of its intent to exercise
this option at least ninety (90) days prior to the expiration of the initial
term of this lease. If such notice is not timely given to Lessor, then Lessee
shall be deemed to have forfeited such option.
(b) Provided Lessee has exercised the foregoing first option to extend
the term of this lease and Lessee is not in default under any of the terms and
conditions of this lease, it is hereby agreed that the Lessee shall have the
option to extend the term of this lease for a second additional term of five
years commencing May 1, 2006 (the "Second Option") under the same terms and
conditions for a rental rate equivalent to the prevailing market rental rate for
the premises as of May 1, 2006, as negotiated and agreed upon in writing by
Lessor and Lessee, with cumulative annual increases in rent throughout the
extended term as provided in paragraph 2. Lessee shall give Lessor written
notice of its intent to exercise the Second Option at least one hundred eighty
days prior to the expiration of the first extended term of this lease. If such
notice is not timely given to Lessor, then Lessee shall be deemed to have
forfeited such option.
(c) If, within thirty days following the Lessee's delivery of notice of
exercise of the Second Option, Lessor and Lessee are unable to reach agreement
as to the market rental rate to be charged during the five years included in the
Second Option, then such market rental rate shall be determined by binding
arbitration administered by the American Arbitration Association in Denver,
Colorado, in accordance with the commercial arbitration rules then in effect of
the American Arbitration Association. Except as provided below, all costs of
arbitration shall be shared equally by the parties, but each party shall pay its
own attorney fees and expert witness fees. However, it is also understood and
agreed that if the market rental rate so determined by arbitration is
unacceptable to Lessee, in Lessee's sole discretion, then Lessee may, within
fifteen days following issuance of the arbitration award, by written notice to
Lessor, elect not to exercise the Second Option at the arbitrated market rental
rate, then Lessee must pay all costs of the foregoing arbitration proceeding and
must fully reimburse Lessor for Lessor's reasonable attorney fees and expert
witness fees incurred in connection with such arbitration proceeding.
21. The parties acknowledge that the premises are subject to the terms and
provisions of the Amended and Restated Common Area Maintenance Agreement ("CAM
Agreement") dated September 12, 1997 between Lessor and EchoStar Real Estate
Corporation. It is hereby agreed that Lessor (and its successors and assigns)
shall not,
5
<PAGE>
without prior written consent of Lessee, (a) revoke the CAM Agreement, (b) amend
the CAM Agreement to create any additional financial burdens upon Lessee or
additional duties to be performed by Lessee, or (c) amend the CAM Agreement in
any manner which Lessee deems would adversely affect the Lessee's business
operations at the leased premises.
22. All notices, demands, requests or other instruments required in this
lease to be given by either party shall be sent by certified or registered mail
addressed to Lessor at 1328 Starwood Lane, Evergreen, Colorado 80439, and to
Lessee at 2852 West Bowles Avenue, Littleton, Colorado 80123, or at such other
addresses as the parties may designate, in writing, in the future.
THIS LEASE shall be binding on the parties, their personal representatives,
successors and assigns.
IN WITNESS WHEREOF, the parties hereto have executed this Lease to be
effective as of the day and year first written above.
PITCHERS!, INC.
By: /s/ Herbert Lee
-------------------------------------
President
Attest:
/s/ Carol A. VanGytenbeek
- ----------------------------
Secretary
Pitchers!, Inc.
1100 DRAKE, LTD.
Starwood Investments, Inc. as
General Partner
By: /s/ R. Haydn Silleck
-------------------------------------
R. Haydn Silleck, President
6
<PAGE>
Exhibit "A"
Parcel A:
Lot 1B, a Replat of Lots 1 and 2,
Block 1,
Riverfront Subdivision. Filing No. 2,
County of Arapahoe,
State of Colorado.
Parcel B:
Leasehold Estate created by Lease by and between the State of Colorado acting by
and through the Department of Natural Resources for the use and benefit of the
Colorado Water Conservation Board, Lessors, and Riverfront Development
Corporation, a Colorado Corporation, Lessee, created by Lease recorded October
20, 1988 in Book 5556 at Page 545, said Lessee's interest in and to said Lease's
assigned to FC Holding Company, a Delaware Corporation by assignment recorded
October 20, 1988 in Book 5556 at Page 569, said Lessee's interest in and to the
said Lease conveyed to Tass Investments, Inc., a Colorado Corporation by
assignment recorded September 21, 1993 in Book 7145 at Page 39, and Assignment
of Leases to TMP Investments, Inc., a California Corporation, said Assignment of
Leases recorded October 18, 1993 in Book 7194 at Page 491, covering the
following described property:
That part of the Southeast 1/4 of Section 17, Township 5 South, Range 68 West of
the 6th P.M. more particularly described as follows:
Beginning at the Northwest corner of Lot 1, Block 1, Riverfront Subdivision
Filing No. 2, recorded in Plat Book 87 at Page 36 in the County Clerk and
Recorder's Office; Thence Southerly along the Westerly boundary line of said Lot
1, also being said channel's Easterly right of way line, along a curve to the
left, the chord of which bears South 15(degrees) 37' 28" West, having a central
angle of 10(degrees) 01' 13" and a radius of 784.93 feet, an arc length of
137.27 feet to the true point of beginning; Thence continuing along said line
and curve to the left, the chord of which bears South 05(degrees) 17' 33" West,
having a central angle of 10(degrees) 38' 36" and a radius of 784.93 feet, an
arc length of 145.81 feet; Thence departing said line, North 16(degrees) 01' 51"
West, a distance of 123.13 feet; Thence North 28(degrees) 58' 09" East, a
distance of 17.68 feet; Thence North 73(degrees) 58' 09" East, a distance of
40.44 feet to the true point of beginning, County of Arapahoe, State of Colorado
<PAGE>
EXHIBIT 21.1
LIST OF SUBSIDIARIES
--------------------
Cinema Saver Theatre Corporation
Pitchers!, Inc.
<PAGE>
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.
Denver, Colorado
June 23, 1998
/s/ Comiskey & Company
PROFESSIONAL CORPORATION
<PAGE>
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.
Denver, Colorado
June 23, 1998
/s/Comiskey & Company
PROFESSIONAL CORPORATION
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CINEMA SAVER
THEATER CORPORATION. DUE TO THE LIMITATIONS OF THIS SCHEDULE, THE REGISTRANT IS
UNABLE TO PROVIDE SIMILAR INFORMATION FOR PITCHERS!, INC. AT THIS TIME, THE
REGISTRANT HAS NO HISTORICAL FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> MAR-31-1998 DEC-31-1997
<CASH> 315,135 893,513
<SECURITIES> 0 0
<RECEIVABLES> 2,723 0
<ALLOWANCES> 0 0
<INVENTORY> 16,871 16,871
<CURRENT-ASSETS> 357,018 918,633
<PP&E> 4,635,309 4,083,315
<DEPRECIATION> (648,611) (596,142)
<TOTAL-ASSETS> 4,364,690 4,437,441
<CURRENT-LIABILITIES> 350,598 433,925
<BONDS> 0 0
0 0
0 0
<COMMON> 3,290 3,290
<OTHER-SE> 710,214 651,519
<TOTAL-LIABILITY-AND-EQUITY> 4,364,690 4,437,441
<SALES> 627,089 823,312
<TOTAL-REVENUES> 627,089 2,681,545
<CGS> 205,433 2,105,432
<TOTAL-COSTS> 205,433 2,105,432
<OTHER-EXPENSES> 291,685 156,728
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 61,441 309,597
<INCOME-PRETAX> 78,790 342,043
<INCOME-TAX> 20,095 106,248
<INCOME-CONTINUING> 58,695 235,795
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 58,695 235,795
<EPS-PRIMARY> 0.02 0.07
<EPS-DILUTED> 0.02 0.06
</TABLE>
