As filed with the Securities and Exchange Commission on May 12, 2000
Registration Statement No. 333-________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
MOUNTAIN STATES CAPITAL, INC.
(Name of small business issuer in its charter)
ARIZONA 6141 86-0859332
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Classification Identification
organization) Code Number) Number)
1407 EAST THOMAS ROAD, PHOENIX, ARIZONA 85014, (602) 954-4000
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
KIM COLLINS, CHIEF EXECUTIVE OFFICER
MOUNTAIN STATES CAPITAL, INC.
1407 EAST THOMAS ROAD, PHOENIX, ARIZONA 85014, (602) 954-4000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
MARK K. BRIGGS, ESQ.
DAVID G. BEAUCHAMP, ESQ.
QUARLES & BRADY LLP
ONE EAST CAMELBACK ROAD, SUITE 400, PHOENIX, AZ 85012-1649, (602) 230-5500
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis according to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
according 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 according 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 delivery of the prospectus is expected to be made according to Rule 434,
check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
===============================================================================================
<S> <C> <C> <C>
TITLE OF EACH CLASS PROPOSED MAXIMUM AGGREGATE
OF SECURITIES OFFERING PRICE AMOUNT TO BE REGISTRATION
TO BE REGISTERED PER PROMISSORY NOTE REGISTERED FEE
- -----------------------------------------------------------------------------------------------
Outstanding promissory notes(1)(3) $1,000 $ 2,600,000 $ 686.40
18% 12-month new unsecured promissory
notes(2)(3) $5,000 $10,000,000 $2,640.00
===============================================================================================
</TABLE>
(1) These promissory notes are subject to the rescission offer contained in
this registration statement.
(2) The 18% 12-month unsecured promissory notes are being offered for sale by
Mountain States under this registration statement, both to finance the
rescission offer and for general corporate purposes.
(3) Calculated pursuant to Rule 457 at the rate of $264 per $1 million.
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 SECURITIES AND EXCHANGE COMMISSION, ACTING
ACCORDING TO SAID SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE>
PROSPECTUS
[LOGO]
MOUNTAIN STATES CAPITAL, INC.
SECURITIES SUBJECT TO RESCISSION OFFER TO PURCHASE:
$2,600,000 AGGREGATE PRINCIPAL AND INTEREST AMOUNT OF PROMISSORY NOTES
(THE "OUTSTANDING NOTES")
NEW SECURITIES BEING OFFERED:
$10,000,000 AGGREGATE PRINCIPAL AMOUNT OF 18% 12-MONTH PROMISSORY NOTES
(THE "NEW NOTES")
Mountain States Capital, Inc. is offering to the holders of the Outstanding
Notes the opportunity to rescind or void their purchase of the Outstanding
Notes. In addition, Mountain States is offering to sell up to $10,000,000
aggregate principal amount of New Notes at their face amount. Each of the New
Notes will have a $5,000 minimum issue amount and will consist of two types: (1)
accrued interest will be paid in arrears on a monthly basis; and (2) accrued
interest will be compounded monthly and will earn interest until the maturity
date.
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD PURCHASE SHARES
ONLY IF YOU CAN AFFORD A COMPLETE LOSS OF YOUR INVESTMENT. MOUNTAIN STATES URGES
YOU TO CAREFULLY READ THE "RISK FACTORS" SECTION OF THIS PROSPECTUS BEGINNING ON
PAGE 3, ALONG WITH THE REST OF THIS PROSPECTUS, IN DECIDING WHETHER TO ACCEPT
THE RESCISSION OFFER AND WHETHER TO PURCHASE ANY OF THE NEW NOTES.
NEITHER THE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR
DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
MAXIMUM PROCEEDS TO
THE OFFERING PRICE TO PUBLIC COMMISSIONS MOUNTAIN STATES
------------ --------------- ----------- ---------------
Minimum Per New Note $ 5,000 $ 300 $ 4,700
Total Minimum $ 2,200,000 $ 66,000 $2,134,000
Total Maximum $10,000,000 $300,000 $9,700,000
Heritage West Securities, Inc., a registered broker-dealer which is the
lead underwriter, is making this offering of New Notes on a best efforts basis.
Mountain States will pay Heritage West a fee of $25,000 to administer the
rescission offer. This fee will be waived if Heritage West earns more than
$25,000 in commissions from the sale of New Notes to holders of Outstanding
Notes, on which Heritage West will be paid 1.5% annually of the face amount of
such New Notes. Heritage West's commissions for all New Notes will be 3%
annually of the face amount of all New Notes sold to purchasers who are
identified by Heritage West, and 1.5% annually of the face amount of all other
New Notes. Until the earlier of when the minimum amount of the offering is met
or 60 days after the date of this prospectus, the funds from investors in the
New Notes will be held in a separate account of Heritage West and no interest
will be paid on those funds unless and until the minimum is met. If the minimum
is not obtained, the funds received from investors will be refunded without
interest.
The date of this prospectus is ____________________, 2000
<PAGE>
TABLE OF CONTENTS
Page
----
PROSPECTUS SUMMARY......................................................... 1
SUMMARY OF FINANCIAL DATA.................................................. 3
RISK FACTORS ............................................................... 4
FORWARD-LOOKING STATEMENTS.................................................. 6
RESCISSION OFFER ........................................................... 7
USE OF PROCEEDS ............................................................ 13
SELECTED FINANCIAL DATA..................................................... 14
MANAGEMENT'S DISCUSSION AND ANALYSIS ....................................... 15
BUSINESS ................................................................... 19
MANAGEMENT ................................................................. 23
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............................. 24
SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND MANAGEMENT...................... 25
DESCRIPTION OF SECURITIES - THE OUTSTANDING NOTES........................... 26
DESCRIPTION OF SECURITIES - THE NEW NOTES................................... 28
DESCRIPTION OF THE INDENTURE................................................ 30
PLAN OF DISTRIBUTION........................................................ 37
LEGAL MATTERS .............................................................. 38
EXPERTS .................................................................... 38
AVAILABLE INFORMATION....................................................... 38
INDEX TO FINANCIAL STATEMENTS............................................... F-1
<PAGE>
PROSPECTUS SUMMARY
TO UNDERSTAND THIS OFFERING FULLY, YOU SHOULD READ THE ENTIRE PROSPECTUS
CAREFULLY, INCLUDING THE RISK FACTORS, FINANCIAL STATEMENTS AND THE NOTES TO THE
FINANCIAL STATEMENTS.
WHO IS MOUNTAIN STATES?
Mountain States was incorporated in the State of Arizona on March 13, 1997.
Mountain States is in the business of providing "floor planning" for independent
automobile dealers. Floor planning is a type of short-term inventory financing
that offers to independent pre-owned automobile dealers a ready, flexible and
reliable source of funds to purchase automobiles for their inventory. Mountain
States is presently concentrating its activities in the State of Arizona.
Mountain States also conducts additional floor plan financing activities through
its division, SourceOne, which provides a lower cost floor plan program to
independent automobile dealers in order to compete with national floor planning
competitors.
WHAT ARE THE TERMS OF THE RESCISSION OFFER?
If you own Outstanding Notes and would like to retain them, you may reject
the rescission offer and do nothing further. You should be aware, however, that
Mountain States intends to repay any remaining Outstanding Notes shortly after
the recission offer is completed as funds become available. Please refer to the
steps that you must follow to either accept or reject this rescission offer,
which are explained in detail under the caption "Procedures Governing the
Rescission Offer" contained within the section of this prospectus entitled
"Rescission Offer."
If you own Outstanding Notes and decide to accept this rescission offer,
you may either:
* return all, and not less than all, of your Outstanding Notes for cash
and apply some or all of the cash proceeds toward the purchase of New
Notes; or
* return all, and not less than all, of your Outstanding Notes for cash.
In either case, the amount of cash will be equal to the purchase price of
your Outstanding Notes plus accrued and unpaid interest, which will be
calculated from the date of purchase through the date of payment at the stated
interest rate on the face of your Outstanding Notes.
WHY IS MOUNTAIN STATES OFFERING TO RESCIND ITS SALE OF THE OUTSTANDING NOTES?
On the advice of former counsel, Mountain States offered and sold the
Outstanding Notes with the mistaken belief that they were exempt from the
registration requirements of the federal and state securities laws. As a result,
you may have the right under applicable federal and state law to recover the
price that you paid for your Outstanding Notes, plus interest, reduced by any
income received on or from your Outstanding Notes. Mountain States is making
this rescission offer voluntarily to limit, as far as may be permissible under
applicable securities laws, its potential liability stemming from its possible
non-compliance with applicable state and federal securities laws. You should
note, however, that the Commission takes the position that liabilities under the
federal securities laws are not terminated by making a rescission offer. If you
would like more information about the legal consequences of this rescission
offer, please refer to the discussion of this topic following the caption
entitled "Effect of the Rescission Offer" contained within the section of this
prospectus entitled "Rescission Offer."
WHAT ARE THE TERMS OF THE NEW NOTES?
The New Notes are unsecured promissory notes of Mountain States that bear
interest at the rate of 18% per year, or 1.5% per month, and having an initial
maturity date that is 12 months after the date the particular note is issued.
Each of the New Notes will have a $5,000 minimum face value. Two types of New
Notes are being offered: (1) Monthly Payment New Notes, which will receive
1
<PAGE>
interest payments in arrears on a monthly basis; and (2) Accrual New Notes, for
which interest will be compounded monthly and will be paid on the maturity date.
The New Notes are being issued under an indenture, which means there will be an
independent trustee to take actions on behalf of holders of the New Notes. The
trustee is U.S. Bank Trust National Association.
WHO SHOULD INVEST IN THE NEW NOTES?
The New Notes are a speculative and risky investment. Investors not
requiring liquidity and who can afford to lose their entire investment are
appropriate for this offering.
HOW DO I ACCEPT OR REJECT THE RECISSION OFFER, OR PURCHASE NEW NOTES?
To accept or reject the recission offer, complete, sign and return the
Recission Election Form attached as Annex A-1 to this prospectus to Heritage
West Securities, Inc., as agent for Mountain States. If you accept the recission
offer, you must also return your Outstanding Notes with the Recission Election
Form. If you are unable to locate and return your Outstanding Notes with the
Recission Election Form, contact Heritage West Securities at 602-279-1212.
If you wish to purchase New Notes in excess of any proceeds from
Outstanding Notes that you elect to apply to the purchase of New Notes, you must
complete, sign and return the New Investors Election Form attached as Annex A-2
to this prospectus, including the substitute Form W-9 included with that form,
together with your check made payable to "Heritage West Securities, Inc. FBO
Mountain States Capital, Inc." The required forms and check should be sent to
Heritage West Securities, Inc. DO NOT SEND THESE FORMS TO MOUNTAIN STATES.
WHAT HAPPENS TO MY MONEY IF I INVEST BEFORE THE $2,200,000 MINIMUM AMOUNT OF THE
OFFERING IS MET?
Until at least $2,200,000 of New Notes are sold in this offering, all funds
received by Heritage West, as agent for Mountain States, will be placed in a
separate Heritage West bank account for up to 60 days after the date of this
prospectus. No interest will be paid on these funds until the minimum offering
amount is met and New Notes are issued. If the minimum amount is not met within
60 days after the date of this prospectus, all funds will be returned to the New
Notes investors without interest. However, if you own Outstanding Notes and
elect to accept the rescission offer and apply all or some of the cash proceeds
toward the purchase of New Notes, you will continue to receive interest on your
Outstanding Notes until the earlier of the minimum being obtained or 60 days
after the date of this prospectus.
2
<PAGE>
SUMMARY OF FINANCIAL DATA
The selected financial data presented below for the fiscal years ended
December 31, 1997, 1998 and 1999, has been derived from Mountain States'
financial statements, which have been audited by Clancy and Co. P.L.L.C.,
independent public accountants. This financial data does not provide all of the
financial information contained in Mountain States' financial statements and
related notes contained elsewhere in this prospectus. Therefore, this financial
data should be read in conjunction with the "Management's Discussion and
Analysis of Financial Condition and Results of Operations" section of this
prospectus and Mountain States' financial statements and related notes included
elsewhere in this prospectus.
10 MONTHS
ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, -----------------------
1997 1998 1999
---- ---- ----
INCOME STATEMENT DATA:
Total Income $213,320 $907,182 $1,172,968
Cost of Financing 35,791 343,411 514,863
Net Financing Income 177,529 563,771 658,105
Total General and Administrative Expenses 67,298 452,680 608,951
Operating Income 110,231 111,091 49,154
Net Income 110,231 109,708 50,188
BALANCE SHEET DATA: AT DECEMBER 31,
-----------------------------------
1997 1998 1999
---- ---- ----
Accounts Receivable, net of Allowance
for Doubtful Accounts of $0, $25,102
and $25,102, at December 31, 1997,
1998 and 1999 448,487 1,369,141 1,925,665
TOTAL ASSETS 561,666 1,735,635 3,301,014
Total Current Liabilities 450,435 1,554,507 2,072,679
------- --------- ---------
Total Liabilities 450,435 1,576,013 2,718,962
Total Stockholder's Equity 111,231 159,622 582,052
3
<PAGE>
RISK FACTORS
You should be aware that purchasing New Notes or retaining Outstanding
Notes is speculative and risky. Mountain States encourages you to consider
carefully the following risk factors and the other cautionary information
contained elsewhere in this prospectus.
MOUNTAIN STATES MAY BE LIABLE FOR PRIOR VIOLATIONS OF FEDERAL AND STATE
SECURITIES LAWS.
Holders of Outstanding Notes who do not accept the rescission offer, either
because they affirmatively reject it or because they fail to respond to it, may
still attempt to assert claims against Mountain States relating to
non-compliance with the securities laws. Mountain States cannot predict with
certainty that those claims will be barred by the rescission offer because the
legal effect of the rescission offer is uncertain. To the extent those claims
are brought and result in judgments for damages, Mountain States' business,
financial condition and results of operation could all be adversely affected.
Even if Mountain States is successful in defending those claims under applicable
securities laws, their mere assertion could result in costly litigation and
significant diversions of effort by management. At this point, Mountain States
cannot quantify the dollar amount of the Outstanding Notes held by persons who
will accept or reject the rescission offer. Therefore, Mountain States cannot
quantify the potential continuing liability until completion of the rescission
offer. Mountain States intends to repay any remaining Outstanding Notes shortly
after the recission offer is completed as funds become available.
BECAUSE MOUNTAIN STATES DOES NOT HAVE SUFFICIENT LIQUID ASSETS TO FUND THE
RESCISSION OFFER IF IT IS ACCEPTED BY ALL HOLDERS OF OUTSTANDING NOTES, MOUNTAIN
STATES MAY BE REQUIRED TO INCUR ADDITIONAL DEBT OR SELL ASSETS TO FUND THE
RESCISSION OFFER OR TO REDEEM ANY REMAINING OUTSTANDING NOTES.
If all holders of Outstanding Notes accept the rescission offer and do not
purchase any New Notes, Mountain States will have to borrow funds or liquidate
assets to pay off those holders. Mountain States has approximately $600,000 in
current assets that could be used to fund the rescission offer without
materially and adversely affecting Mountain States' operations or financial
condition. Also, Mountain States is offering to sell up to $10,000,000 aggregate
principal amount of New Notes, both to fund the rescission offer and for general
business purposes. However, if not enough New Notes are sold to meet the
$2,200,000 minimum amount of the New Notes offering and repay all Outstanding
Notes holders who accept the rescission offer, Mountain States would have to
liquidate various assets, which could adversely and materially affect Mountain
States' operations and financial condition.
MOUNTAIN STATES IS HIGHLY LEVERAGED, SO IF REVENUES OR PROFITS DECLINE
UNEXPECTEDLY, MOUNTAIN STATES MAY BE UNABLE TO MAKE REQUIRED PAYMENTS ON ITS
PROMISSORY NOTES.
Mountain States has incurred significant debt, primarily in connection with
its Outstanding Notes. After giving effect to this offering and the application
of the net proceeds, Mountain States would have an outstanding indebtedness of
approximately $12,600,000, assuming all $10,000,000 of the New Notes are
purchased and all holders of Outstanding Notes reject the recission offering.
Mountain States' ability to make scheduled principal and interest payments
in respect of, or to refinance, any of its indebtedness, including the
Outstanding Notes and the New Notes, will depend on its future performance,
which is subject to general economic, financial, competitive, regulatory and
other factors beyond its control. Mountain States may need to refinance all or a
portion of the principal of the New Notes at or prior to maturity. There can be
no assurance that Mountain States' business will generate sufficient cash flow
from operations, that anticipated growth will occur or that future borrowings
will be available in an amount sufficient to enable Mountain States to service
or refinance its indebtedness, including the New Notes, or make anticipated
capital expenditures and lease payments. In addition, there can be no assurance
that Mountain States will be able to effect any refinancing on commercially
reasonable terms.
4
<PAGE>
The degree to which Mountain States will be leveraged following this
offering could have important consequences to holders of the Outstanding Notes
and the New Notes. A substantial portion of Mountain States' cash flow from
operations will be dedicated to debt service and will not be available for other
purposes. Mountain States' ability to obtain additional financing in the future
could be limited.
As of May 1, 2000, Mountain States had 22 Outstanding Notes, with
approximately $1,042,096 principal and accrued interest, that have reached
maturity but have not been repaid. Mountain States' has continued to pay
interest to the holders of these past due Outstanding Notes. However, the
holders of these past due Outstanding Notes could demand full repayment of the
principal balances of these Outstanding Notes at any time. If a significant
amount of these Outstanding Notes are called before the conclusion of the
offering of New Notes, Mountain States would suffer an adverse and material
effect on its operations and financial condition. These Outstanding Notes are
incorporated in the Outstanding Note totals reflected in this offering.
IF FINANCED AUTOMOBILES ARE STOLEN OR DAMAGED, MOUNTAIN STATES MIGHT NOT BE
REPAID BY ITS CUSTOMER.
Between the time Mountain States provides financing to its customer for an
automobile, and the time Mountain States receives payment at the close of the
sale of the automobile, there is a risk that the automobile will be damaged or
stolen. Although Mountain States requires that its customers maintain insurance
against those risks, repayment could be delayed or prevented.
THERE IS NO PUBLIC MARKET FOR THE OUTSTANDING NOTES OR THE NEW NOTES AND NO
MARKET IS LIKELY TO DEVELOP, SO YOU PROBABLY WILL NOT BE ABLE TO RESELL THEM
EVEN IF YOU NEED TO DO SO.
There is no public market for the Outstanding Notes or the New Notes. It is
unlikely that a market will develop due to the limited number of investors. No
application will be made by Mountain States to any stock exchange or
inter-dealer trading system to provide for trading of the Outstanding Notes or
the New Notes. Therefore, you probably will not be able to sell your notes.
MOUNTAIN STATES HAS LIMITED OPERATING HISTORY, SO EVALUATION OF COMPANY
PERFORMANCE WILL BE DIFFICULT.
In formulating its business plan, Mountain States has relied on the
judgment of its officers, directors and consultants, and on their research and
experience. No independent market studies concerning the demand for Mountain
States' services have been conducted, nor are any planned.
Mountain States' success depends, in part, upon its ability to achieve
growth and manage this growth effectively. Since its formation, Mountain States
has experienced rapid growth which has challenged Mountain States' management,
personnel, resources and systems. As part of its business strategy, Mountain
States intends to pursue continued growth through its sales and marketing
capabilities and marketing alliances. Although Mountain States has expanded its
management, personnel, resources and systems to manage future growth, there can
be no assurance that Mountain States will be able to maintain or accelerate its
growth in the future or manage this growth effectively. Failure to do so could
materially adversely affect Mountain States' business and financial condition
and its ability to repay the Outstanding Notes or the New Notes.
MOUNTAIN STATES HAS PAID A FINE FOR ALLEGED SECURITIES VIOLATIONS, WHICH MAY
ADVERSELY IMPACT MOUNTAIN STATES' REPUTATION AND RELATIONSHIPS WITH ITS
INVESTORS.
In connection with settling alleged Texas securities law violations,
Mountain States has paid a $30,000 fine in connection with an order by the Texas
Securities and Exchange Commission. This fine arose from advertisements and
disclosures made in newspapers of general circulation that offered the
Outstanding Notes. Publicity relating to this fine could have a negative effect
on Mountain States' reputation and relationships with its investors, which in
turn could materially adversely affect Mountain States' business and financial
condition.
5
<PAGE>
BECAUSE FEDERAL AND STATE FRAUDULENT CONVEYANCE STATUTES MAY BE APPLICABLE TO
NEW NOTES OFFERED BY MOUNTAIN STATES, A NEW NOTE HOLDER MIGHT BE IN A JUNIOR
POSITION TO MOUNTAIN STATES' OTHER INDEBTEDNESS.
Under federal and state fraudulent conveyance statutes or other legal
principals, the New Notes might be subordinated to existing or future
indebtedness of Mountain States, or might be found not to be enforceable in
accordance with their terms. Accordingly, under such fraudulent conveyance
statutes, if a court in a lawsuit on behalf of an unpaid creditor of Mountain
States or a representative of creditors, such as a trustee in bankruptcy, held
that Mountain States incurred the indebtedness represented by the New Notes with
actual intent to hinder, delay or defraud creditors, or received less than a
reasonably equivalent value or fair consideration for any of such indebtedness
or obligation, and at the time of such incurrence
* was insolvent,
* was rendered insolvent by reason of such incurrence,
* was engaged or about to engage in a business or transaction for which
its remaining assets constituted unreasonably small capital to carry
on its business, or
* intended to incur, or believed that it would incur, debts, including
contingent obligations, beyond its ability to pay such debts as they
matured,
then the court might permit the New Notes, and prior payments thereon, to be
subordinated to other obligations and permit prior payments to be recovered from
the Holders of the New Notes, as the case may be.
The measure of insolvency for purposes of the foregoing will vary depending
upon the law of the jurisdiction that is being applied. Generally, however,
Mountain States would be considered insolvent if, at the time it incurred the
indebtedness, either the fair market value, or fair saleable value, of its
assets was less than the amount required to pay its total debts as they mature.
FORWARD-LOOKING STATEMENTS
This prospectus, including information incorporated by reference in this
prospectus, contains forward- looking statements regarding Mountain States'
plans, expectations, estimates and beliefs. Actual results could differ
materially from those discussed in, or implied by, these forward-looking
statements. When used in this prospectus, the words "anticipate," "believe,"
"estimate," and other similar expressions generally identify forward-looking
statements. Forward-looking statements include, among other things:
* statements about the legal effects of the rescission offer,
* the level of acceptance of the rescission offer,
* Mountain States' ability to fund the rescission offer,
* the competitiveness of the automotive floor planning industry,
* potential regulatory obligations,
* business strategies, and
* other statements that are not historical facts.
6
<PAGE>
RESCISSION OFFER
BACKGROUND INFORMATION
Throughout its existence, Mountain States has operated with limited
capital, a significant portion of which has been raised by periodic offerings of
its securities - including the Outstanding Notes that are subject to this
rescission offer. As of May 1, 2000, Mountain States had Outstanding Notes with
aggregate principal and accrued interest of approximately $2,600,000. This
rescission offer covers all of these securities.
At the time of issuance of the Outstanding Notes, Mountain States did not
register the Outstanding Notes with either the Commission or the securities
authorities of the applicable states. Instead, it relied upon an exemption from
the federal registration requirement commonly known as the "commercial paper"
exemption, which requires compliance with Section 3(a)(3) of the Securities Act,
and similar provisions of applicable state laws.
Section 3(a)(3) says that to satisfy the requirements of the commercial
paper exemption, a promissory note must:
* arise out of a current transaction, or the proceeds must be used for a
current transaction, and
* have a maturity at the time of issuance not exceeding nine months.
Mountain States complied with both of these requirements, and relied on
advice of former legal counsel that this exemption from federal and state
securities registration would be available. However, the Commission's published
interpretations indicate that the exemption is available only for prime quality
commercial paper of a type not ordinarily purchased by the general public and
not advertised or offered for sale to the general public. Based on that
interpretation, Texas securities regulators alleged that Mountain States'
offering and sale of the Outstanding Notes was made without an available
exemption from the state securities law registration requirements.
Under federal and applicable state securities laws, Mountain States'
failure to register the Outstanding Notes according to the registration
requirements of the Securities Act and state registration requirements exposes
Mountain States to potential liability. Specifically, holders of the Outstanding
Notes issued by Mountain States may have the right to recover the price paid for
their Outstanding Notes, plus interest, reduced by any income received on or
from the Outstanding Notes. Holders of the Outstanding Notes already have this
right because the Outstanding Notes are repayable at maturity. However, a holder
claiming a right to rescission based on Mountain States' failure to comply fully
with federal and state registration requirements would have the right to demand
immediate repayment of the purchase price of his or her securities, plus any
accrued but unpaid interest. As a practical matter, therefore, Mountain States'
potential liability stemming from a rescission action by the holders of its
Outstanding Notes is an immediate acceleration of the repayment obligations that
already exist under its Outstanding Notes.
This rescission offer is not an admission by Mountain States that it did
not comply with the registration or disclosure requirements of applicable
federal and state securities laws.
TERMS OF THE RESCISSION OFFER
Mountain States' is offering the holders of its Outstanding Notes the
opportunity to rescind their purchase. If an Outstanding Note holder rejects the
recission offer and retains their Outstanding Note, he or she should be aware
that Mountain States intends to repay all of the Outstanding Notes shortly after
the recission offer is completed as funds become available. Holders of
Outstanding Notes may either:
* return all, and not less than all, of your Outstanding Notes for cash
and apply some or all of the cash proceeds toward the purchase of New
Notes, or
* return all, and not less than all, of your Outstanding Notes for cash.
7
<PAGE>
In either case, the amount of the cash proceeds will be the original
purchase price of the Outstanding Notes, plus accrued and unpaid interest, from
the date of purchase through the date of payment, at the applicable stated
interest rate on the face of the Outstanding Notes. Mountain States believes the
amount of the cash being offered is identical to the amount Mountain States
would be required to pay in damages in an action for rescission, exclusive of
attorney's fees, under federal and applicable state securities laws.
REGISTRATION OF THE RESCISSION OFFER
Mountain States is filing this registration statement with the Commission
with respect to the rescission offer because no exemption from registration is
available. In addition, Mountain States is offering to sell up to an aggregate
of $10,000,000 of New Notes under this prospectus. The disclosure in this
prospectus is intended to provide holders of the Outstanding Notes and
prospective holders of the New Notes with the protections and information
required by the Securities Act, and the rules and regulations issued under the
Securities Act, in connection with the investment decisions to be made.
You should be aware that if you reject the rescission offer and retain your
Outstanding Notes, you will most likely be required to hold them until maturity
or until redeemed in accordance with their terms. Mountain States intends to
repay all of the Outstanding Notes shortly after the rescission offer is
completed, as funds become available.
LEGAL EFFECT OF THE RESCISSION OFFER
Mountain States believes that its potential liability under applicable
federal securities laws resulting from its previous offer and sale of the
Outstanding Notes will be eliminated with respect to those security holders who
accept the rescission offer and return their Outstanding Notes for cash, which
they may retain or use to purchase New Notes. The Commission, however, takes the
position that liabilities under the federal securities laws are not terminated
by making a rescission offer. Mountain States believes, however, that acceptance
of the rescission offer and receipt by the Outstanding Notes holder of the cash
consideration to be paid for such person's Outstanding Notes, should have the
effect of terminating liability to that Outstanding Note holder because the
damages element of any claim by the Outstanding Note holder will be eliminated.
If a holder of an Outstanding Note affirmatively rejects or fails to
respond to the rescission offer, Mountain States' potential liability under the
Securities Act may not be completely extinguished. Under those circumstances,
Mountain States may assert that these Outstanding Note holders released any
claims to recover the purchase price of their Outstanding Notes because of their
rejection or inaction. If the affirmative rejection or failure to respond to the
rescission offer does not act as a release of claims, eligible Outstanding Note
holders who have rejected or failed to respond to the rescission offer would
retain any rights of claims they may have under the federal securities laws.
Such claims would be subject to any defenses Mountain States may have, including
the running of the statute of limitations. In general, to sustain a claim based
on violations of the registration provisions of the federal securities laws, the
claim must be brought within one year after discovery of the violation upon
which the claim is based, but in no event more than three years after the
occurrence of the violation.
STATE LAW NOTICES TO HOLDERS
NOTICE TO ARIZONA RESIDENTS
The recission offer for the Outstanding Notes has been registered under the
Securities Act of Arizona, but this registration is not deemed a finding by the
Arizona Corporation Commission or the Director of its Securities Division that
this prospectus is true or accurate, nor does the registration mean that the
Arizona Corporation Commission or the Director has passed on the merits of or
otherwise approved of the securities described in this prospectus.
8
<PAGE>
Mountain States may have incurred liability under Section 44-2001 by
failing to qualify the Outstanding Notes under Sections 44-1841 or 44-1842. If
Mountain States violated either Section 44-1841 or Section 44-1842, the
Outstanding Notes are voidable by the holder of such securities, and may be
liable to the holder for an amount equal to the consideration paid, with
interest thereon, plus taxable court costs and reasonable attorneys' fees, less
the amount of any income received, upon tender of the securities or the
contract, or for damages if the holder no longer owns the securities.
An Outstanding Note holder's right of action, if any, under Section
44-2001, and under common law, is not necessarily foreclosed by acceptance or
rejection of the rescission offer.
THE HOLDER'S RIGHT TO SUE FOR VIOLATIONS OF SECTIONS 44-1841 OR 44-1842
WILL BE LOST IF THE BUYER FAILS TO BRING SUIT AGAINST MOUNTAIN STATES WITHIN ONE
YEAR AFTER THE VIOLATION OCCURS.
The complete text of the foregoing sections of the Arizona Securities Act
is set forth in Annex B attached to this prospectus.
NOTICE OF CALIFORNIA RESIDENTS
Mountain States has submitted this recission offer to the California
Commissioner of Corporations for approval only as to form in accordance with
Section 25507(b) of the Corporate Securities Law of 1968. This approval does not
imply a finding by the California Commissioner that any statements made in this
prospectus or in any accompanying documents are true or complete, nor does it
imply a finding that the amount offered by the seller is equal to the amount
recoverable by the buyer of the security in accordance with Section 25503 in a
suit against the seller, and the California Commissioner does not endorse the
offer and makes no recommendation as to its acceptance or rejection.
Mountain States may have incurred liability under Section 25503 by failing
to qualify the Outstanding Notes under Section 25110. If Mountain States
violated Section 25110, it is liable to the holders of such securities for an
amount equal to the consideration paid with interest thereon at the legal rate,
less the amount of any income received, upon tender of such security. Mountain
States' liability, if any, may be terminated by this rescission offer under
Section 25507(b).
An Outstanding Note holder's right of action, if any, under Sections 25500,
25501 and 25502, and under common law, is not necessarily foreclosed by
acceptance or rejection of the rescission offer.
Under Section 25534, if the California Commissioner determines that the
Outstanding Notes were offered or sold in violation of Section 25110, the
California Commissioner may, by written order to Mountain States and the holders
of the Outstanding Notes, require certificates evidencing the Outstanding Notes
to have stamped or printed prominently on their face a legend, in the form
prescribed by rule of the California Commissioner, restricting the transfer of
such securities.
The complete text of the foregoing sections of the Corporate Securities Law
of 1968 is set forth in Annex B attached to this prospectus.
NOTICE TO COLORADO RESIDENTS
Mountain States may have incurred liability under Section 11-51-604 of the
Colorado Securities Act by failing to register the Outstanding Notes under
Section 11-51-301. A holder of the Outstanding Notes may sue under Section
11-51-604 to recover the consideration paid for the security, together with
interest at the statutory rate from the date of payment, costs and reasonable
attorneys fees, less the amount of any income received on the Outstanding Notes,
upon tender of the Outstanding Notes. In addition, Mountain States can be liable
for damages if the buyer no longer owns the Outstanding Note.
9
<PAGE>
THE HOLDER'S RIGHT TO SUE WILL BE LOST IF THE BUYER, BEFORE THE HOLDER
FILES A LAWSUIT AND WHEN THE BUYER OWNS THE SECURITY, RECEIVES A WRITTEN
RESCISSION OFFER TO REFUND THE CONSIDERATION PAID WITH INTEREST AT THE STATUTORY
RATE, LESS THE AMOUNT OF ANY INCOME RECEIVED ON THE SECURITY, AND THE BUYER DOES
NOT ACCEPT THE OFFER WITHIN THIRTY DAYS OF ITS RECEIPT, UNLESS THE RESCISSION
OFFER IS NOT PERFORMED IN ACCORDANCE WITH ITS TERMS. IN ADDITION, A HOLDER MAY
NOT BE ABLE TO SUE MOUNTAIN STATES MORE THAN TWO YEARS AFTER THE INITIAL SALE OF
THE OUTSTANDING NOTES.
The complete text of the foregoing sections of the Colorado Securities Act
is set forth in Annex B attached to this prospectus.
NOTICE TO FLORIDA RESIDENTS
Mountain States may have violated Section 517.07 and/or Section 517.12 of
the Florida Securities and Investor Protection Act by selling the Outstanding
Notes to Florida residents without registering the Outstanding Notes and
registering or licensing the person selling them under those provisions. If
Mountain States violated either of those sections, it is liable under Section
517.211 to the holders for an amount equal to the consideration paid for the
Outstanding Notes, plus interest thereon at the legal rate, less the amount of
any income received thereon, upon tender of the security, or for damages if the
holder no longer owns the Outstanding Notes. Mountain States' liability, if any,
may be terminated by this rescission offer under Section 517.211(1). The
complete text of these sections of the Florida Securities and Investor
Protection Act is set forth in Annex B attached to this prospectus.
NOTICE TO OREGON RESIDENTS
Mountain States may be liable under Section 59.115 of the Oregon Securities
Law to Oregon residents who purchased any of the Outstanding Notes for an amount
equal to the consideration paid for the security, plus interest at the greater
of the applicable legal rate or the interest rate on the Outstanding Notes, less
any amount received on the Outstanding Notes. Under Section 59.125 of the Oregon
Securities Law, the right of a holder of the Outstanding Notes to sue under
Section 59.115 may be lost unless the holder accepts the rescission offer within
30 days after receipt of this prospectus and has not been paid the full amount
offered, or unless the holder no longer owns the Outstanding Notes and, within
30 days of receipt of the rescission offer, gives Mountain States written notice
of the inability to tender the Outstanding Notes to Mountain States. The
complete text of these sections of the Oregon Securities Law is set forth in
Annex B attached to this prospectus.
NOTICE TO PENNSYLVANIA RESIDENTS
Mountain States may have violated Section 201 and/or Section 301 of the
Pennsylvania Securities Act of 1972 by selling the Outstanding Notes to
Pennsylvania residents without registering the securities and licensing the
person selling them under those provisions. If Mountain States violated either
of these sections, it is liable under Section 501 or Section 502 to the holders
for an amount equal to the consideration paid for the Outstanding Notes, plus
interest on the Outstanding Notes at the legal rate from the date of payment,
less the amount of any income received on the Outstanding Notes, upon tender of
the Outstanding Notes, or for damages if the holder no longer owns the
Outstanding Notes. Mountain States' liability, if any, may be terminated by this
rescission offer under Section 504(d). The complete text of these sections of
the Pennsylvania Securities Act of 1972 is set forth in Annex B attached to this
prospectus.
NOTICE TO TENNESSEE RESIDENTS
Mountain States may have violated Section 48-2-104 of the Tennessee
Securities Act of 1980 by selling Outstanding Notes to Tennessee residents
without registering them under state law. If so, a holder of any of the
Outstanding Notes may sue under Section 48-2-122 to recover the consideration
paid for the Outstanding Notes, together with interest at the legal rate from
the date of payment, less the amount of any income received on the Outstanding
Notes, upon tender of the Outstanding Notes. A holder who no longer owns the
Outstanding Notes may recover the amount that would be recoverable upon a
tender, less the value of the Outstanding Notes when the holder disposed of them
10
<PAGE>
and interest at the legal rate from the date of disposition. Unless a holder
accepts this rescission offer within 30 days of receipt of it, Mountain States
will deem its rescission offer to have been rejected. The complete text of the
foregoing sections of the Tennessee Securities Act of 1980 is set forth in Annex
B attached to this prospectus.
NOTICE TO TEXAS RESIDENTS
Mountain States may have incurred liability under Section 33 of the Texas
Securities Act of 1957 by failing to register the Outstanding Notes in
accordance with Section 7A. A holder purchasing the Outstanding Notes may sue
under Section 33 to recover the consideration paid for the Outstanding Notes,
together with interest at the legal rate from the date of payment, less the
amount of any income received on the Outstanding Notes, upon tender of the
Outstanding Notes.
A HOLDER'S RIGHT TO SUE WILL BE LOST UNLESS THE HOLDER:
* ACCEPTS THE OFFER BUT DOES NOT RECEIVE THE AMOUNT OF THE OFFER, IN
WHICH CASE HE MAY SUE WITHIN THE TIME ALLOWED BY SECTIONS 33h(1)(a) OR
33(2)(a) OR (b), AS APPLICABLE; OR
* REJECTS THE RECISSION OFFER IN WRITING WITHIN 30 DAYS OF ITS RECEIPT
AND EXPRESSLY RESERVES IN THE REJECTION HIS RIGHT TO SUE, IN WHICH
CASE HE MAY SUE WITHIN ONE YEAR AFTER HE SO REJECTS.
The complete text of the foregoing sections of the Texas Securities Act of
1957 is set forth in Annex B attached to this prospectus.
NOTICE TO UTAH RESIDENTS
Mountain States may have violated Section 61-1-7 and/or Section 61-1-3 of
the Utah Uniform Securities Act by selling the Outstanding Notes to Utah
residents without registering the Outstanding Notes and licensing the person
selling them under those provisions. If Mountain States violated either of these
sections, it is liable under Section 61-1-22 to the holders for an amount equal
to the consideration paid for the Outstanding Notes, plus interest at 12% per
year from the date of payment, costs and reasonable attorneys' fees, less the
amount of any income received on the Outstanding Notes, upon tender of the
Outstanding Notes, or for damages if the holder no longer owns the Outstanding
Notes. Mountain States' liability, if any, may be terminated by this rescission
offer under Section 61-1-22(7)(b). The complete text of these sections of the
Utah Uniform Securities Act is set forth in Annex B attached to this prospectus.
PROCEDURES GOVERNING THE RESCISSION OFFER
Heritage West, as underwriter, will oversee the rescission offer. If you
own one or more Outstanding Notes, you will have 30 days from the date of this
prospectus to respond to the rescission offer. The rescission offer will
terminate on the earlier of Heritage West's receiving your response or 12:00
midnight, mountain standard time, on the 30th day after the date of this
prospectus, unless the termination date is extended by Mountain States in
writing.
If you intend to accept the recission offer and return your Outstanding
Notes for cash and apply some or all of these cash proceeds toward the purchase
of New Notes, please mark the form attached to this prospectus as Annex A-1 to
indicate your preferences, and return the form, together with your Outstanding
Notes marked "canceled" to Heritage West at the address listed below. Heritage
West will send you your New Notes within 15 business days after the expiration
date of the recission offer and your Outstanding Notes will be deemed canceled
at that time.
11
<PAGE>
If you intend to accept the rescission offer and return your Outstanding
Notes for cash, complete and sign the form that is attached as Annex A, and
return the form to Heritage West, together with your Outstanding Notes marked
"canceled." You may return the form and the Outstanding Notes to Heritage West
either in person or by mail at the following address: Heritage West Securities,
Inc., Attention: Paul F. Arutt, 3550 North Central Avenue, Suite 1800, Phoenix,
Arizona 85012.
Heritage West will direct Mountain States to send to you your cash payment
within 15 business days after the expiration of the rescission offer date and
your Outstanding Notes will be deemed canceled at that time.
If you intend to reject the rescission offer and retain your Outstanding
Notes, please mark the form that is attached to this prospectus as Annex A-1 to
indicate your rejection of the rescission offer and return it to Heritage West.
You need do nothing further. However, Mountain States intends to repay any
remaining Outstanding Notes shortly after the recission offer is completed as
funds are available. If you do not respond to this rescission offer by returning
your completed election form before the expiration date, you will be deemed to
have rejected the rescission offer.
If you want to return your election form in person, you must do so by the
close of business on the expiration date of the rescission offer. If you intend
to notify Mountain States through Heritage West on or within five days before
the expiration date of the rescission offer, Heritage West recommends that you
use registered mail, return receipt requested.
Mountain States does not intend to extend the expiration date of the
rescission offer for any responses that Mountain States finds deficient.
Heritage West will mail notice of any deficiencies to the eligible holder's last
known address within five business days after Heritage West receives a deficient
response. If the holder does not correct a deficient response within 30 days
from the date of this prospectus, Mountain States may not purchase the
Outstanding Notes from that holder in connection with this recission offer.
PLEASE NOTE: YOUR RESPONSE WILL BE DEEMED TO BE EFFECTIVE UPON RECEIPT IF
YOU DELIVER IT TO HERITAGE WEST IN PERSON, OR AS OF THE DATE POSTMARKED IF YOU
RETURN IT BY MAIL. TO BE EFFECTIVE, YOUR RESPONSE MUST BE EITHER DELIVERED OR
POSTMARKED BY THE EXPIRATION DATE. HERITAGE WEST WILL ACCEPT YOUR ELECTION UPON
RECEIPT, IF IT IS NOT DEFICIENT, AND ONCE ACCEPTED, YOU CANNOT WITHDRAW OR
CHANGE YOUR ELECTION.
Mountain States has not retained nor does it intend to retain any person to
make solicitations or recommendations to eligible security holders in connection
with this rescission offer, except that Heritage West will receive a $25,000 fee
for administering the rescission offer. This fee will be waived if Heritage West
earns more than $25,000 in commissions from the sale of New Notes that are sold
to holders of Outstanding Notes, on which Heritage West will be paid 1.5%
annually of the face amount of such New Notes. Neither Mountain States nor its
officers and directors may make any recommendations to any eligible security
holder with respect to the rescission offer. Each eligible security holder must
make his or her own decision as to whether to accept or reject the rescission
offer.
FUNDING THE RESCISSION OFFER
Mountain States does not have liquid assets sufficient to pay the
approximately $2,600,000 in cash that Mountain States would need to pay if the
rescission offer were accepted by all of the holders of the Outstanding Notes.
Mountain States expects to fund the rescission offer through the sale of New
Notes. However, if Mountain States cannot sell more than the $2,200,000 minimum
amount of New Notes, it likely will have to liquidate some or all of its assets
to fund the rescission offer. Because Mountain States has no way of predicting
the number of holders who will accept the rescission offer or what amount of
Outstanding Notes will be tendered under this recission offer, Mountain States
cannot provide you with a realistic description of the effect that the
rescission offer will have on the financial condition of Mountain States.
Mountain States is offering the New Notes both to fund the rescission offer and
to provide capital for its business operations.
12
<PAGE>
USE OF PROCEEDS
USE OF PROCEEDS
Mountain States expects to receive a minimum of approximately $1,964,000
and a maximum of approximately $9,530,000 in proceeds from the offering of New
Notes. The uses to which Mountain States will put the proceeds will vary
depending on the amount of capital raised. Management will use the proceeds of
this offering of New Notes in any manner they conclude is in the best interests
of Mountain States. It is the current intention of management to use the
proceeds from the offering of New Notes funds received to:
* fund the rescission offer,
* more fully capitalize on expanded dealer funding and floor planning
opportunities,
* expand Mountain States' business into other markets, specifically
initially introducing and supporting the SourceOne product in the
Houston, Texas market,
* grow Mountain States' infrastructure to provide support and controls
for this expansion, and
* develop and test market additional lines of financing products.
The following table summarizes Mountain States' current intentions with
respect to use of proceeds from the offering of New Notes at minimum, estimated
intermediate, and maximum levels of capital raised in the offering. All amounts
set forth in the following table are approximate.
<TABLE>
<CAPTION>
Next $3,836,000 of Next $3,530,000 of
Minimum Proceeds Proceeds (Total of Proceeds (Maximum
Category of Expenditure $1,964,000 $6,000,000) Total of $9,530,000)
- ----------------------- ---------- ----------- --------------------
<S> <C> <C> <C>
Payment of cash in connection with Up to $1,964,000 None additional None additional
Rescission Offer expected expected
Additional Mountain States Floor Depends on amount
Plan Financing provided to Arizona of cash paid in
Market Dealers. rescission offer $ 500,000 $ 250,000
Additional SourceOne Floor Plan Depends on amount
Financing provided to Arizona of cash paid in
Market Dealers. rescission offer $2,000,000 $1,300,000
Capital Provided for Company $ 0 $ 336,000 $ 680,000
Infrastructure and Controls;
Development and Marketing Programs;
Geographic Expansion
SourceOne Floor Plan Financing $ 0 $1,000,000 $1,300,000
provided to Houston Market Dealers.
Sub-Total $1,964,000 $3,836,000 $3,530,000
---------- ---------- ----------
TOTAL $1,964,000 $6,000,000 $9,530,000
========== ========== ==========
</TABLE>
13
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data presented below for the fiscal years ended
December 31, 1997, 1998 and 1999, has been derived from Mountain States'
financial statements, which have been audited by Clancy and Co. P.L.L.C.,
independent public accountants. This financial data does not provide all of the
financial information contained in Mountain States' financial statements and
related notes contained elsewhere in this prospectus. Therefore, this financial
data should be read in conjunction with the "Management's Discussion and
Analysis of Financial Condition or Plan of Operation" section of this prospectus
and Mountain States' financial statements and related notes included elsewhere
in this prospectus.
10 MONTHS
ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, -----------------------
1997 1998 1999
---- ---- ----
INCOME STATEMENT DATA:
Total Income $213,320 $907,182 $1,172,968
Cost of Financing 35,791 343,411 514,863
Net Financing Income 177,529 563,771 658,105
Total General and Administrative Expenses 67,298 452,680 608,951
Operating Income 110,231 111,091 49,154
Net Income 110,231 109,708 50,188
BALANCE SHEET DATA: AT DECEMBER 31,
-----------------------------------
1997 1998 1999
---- ---- ----
Accounts Receivable, net of Allowance
for Doubtful Accounts of $0, $25,102
and $25,102, at December 31, 1997,
1998 and 1999 448,487 1,369,141 1,925,665
TOTAL ASSETS 561,666 1,735,635 3,301,014
Total Current Liabilities 450,435 1,554,507 2,072,679
------- --------- ---------
Total Liabilities 450,435 1,576,013 2,718,962
Total Stockholder's Equity 111,231 159,622 582,052
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS OF MOUNTAIN STATES' FINANCIAL
CONDITION AND RESULTS OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH THE
CONSOLIDATED FINANCIAL STATEMENTS AND THE RELATED NOTES APPEARING ELSEWHERE IN
THIS PROSPECTUS. THIS PROSPECTUS, INCLUDING THE FOLLOWING DISCUSSION, CONTAINS
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. OUR ACTUAL
RESULTS MAY DIFFER SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN THESE
FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES INCLUDE THOSE DISCUSSED IN THE "RISK FACTORS" SECTION OF THIS
PROSPECTUS AS WELL AS THOSE DISCUSSED ELSEWHERE IN THIS PROSPECTUS.
GENERAL
Mountain States was incorporated in the State of Arizona on March 13, 1997.
Mountain States is in the business of providing short-term inventory financing
to independent automobile dealers. Such financing enables the dealers the
ability to offer a greater selection of vehicles to their customers, increasing
their turnover and profit opportunities. In the industry, this type of financing
is referred to as "flooring" or "floor planning." Floor planning provides the
automobile dealer the ability to expand their existing inventory, thus enabling
the dealer to improve sales and income. When a pre-qualified automobile dealer
wishes to purchase a vehicle for resale, that dealer may obtain a loan from
Mountain States for a short term, normally from one to thirty days, for a fee.
During the duration of the loan, Mountain States holds the title to the vehicle
as collateral. Upon settlement of the loan, the vehicle title reverts back to
the dealer. Mountain States reduces its lending risk by performing frequent
inventory audits to ensure that the vehicles being financed have not been sold,
as well as verifying the title that Mountain States holds as being the valid
title to the vehicle being financed.
Currently, Mountain States is conducting all of its floor planning
activities within the State of Arizona. As additional funding is obtained
through the offering of New Notes, Mountain States intends to expand its
operations into the states of Texas, Colorado, and Nevada. Mountain States is in
the process of developing procedures, addressing personnel issues, and assessing
the working capital needs that will be crucial to the success of these
additional locations.
Over the past three years, Mountain States has seen its floor plan loan
volume increase every year. For the year ended December 31, 1997, the year of
inception, Mountain States originated $2,920,649 in new floor plan loans for the
year, which equated to an average of approximately $486,774 per month in new
floor plan loans. In 1998, Mountain States increased its loan volume
$16,131,515, from $2,920,649 to $19,052,164. In 1998 the monthly average for new
floor plan loans was approximately $1,587,680. One of the factors to consider
when comparing this substantial increase in 1998 from 1997 is the fact that 1997
was the year of inception and few loans were originated prior to the beginning
of July of that year. The increase for 1999 over 1998 was $3,143,263 to
$22,195,427, averaging approximately $1,849,618 per month in new floor plan
loans. Floor plan loan volume serves as a key indicator to Mountain States'
management as to the need for its financial services in the automotive
marketplace.
Mountain States generates its income primarily from the finance fees it
charges to its customers on floor plan loans. Due to the short-term nature of
floor plan loans, established industry pricing standards, and the
characteristics of the credits involved, Mountain States is able to charge
finance fees that are significantly above the prime-lending rate. In July 1999,
Mountain States developed and began offering a new floor plan program, which in
many cases is less expensive to the dealer than Mountain States' original
program. This new program, SourceOne, is tailored toward a more
institutionalized form of floor plan lending, representing lower risk loans with
marketability to a broader dealer market.
Mountain States' largest expense is its cost of financing, which primarily
represents interest paid on funds borrowed to underwrite its floor plan
financing operations. These loans to Mountain States were in the form of
promissory notes issued by Mountain States. Interest rates on these promissory
15
<PAGE>
notes have varied from 10% annually to almost 32% annually. Mountain States has
experienced a decline in the average interest rate paid to lenders since
inception, March 13, 1997. Average rates paid were 22.44%, 27.96%, and 31.92%
for the periods ended 1999, 1998, and 1997, respectively. Upon completion of
this offering of New Notes, the average interest rate being paid by Mountain
States to its investors will decline to approximately 18% per year. Management
believes that this decline in the interest rate being paid by Mountain States
will improve its margins and, correspondingly, its net income in future periods.
Mountain States' general and administrative expenses consist mainly of
wages incurred to build the infrastructure of personnel that management deems
necessary to support Mountain States as it progresses into its next growth
phase. Other significant general and administrative expenses include
professional service fees, such as legal fees and outside accounting.
Mountain States is in the early stage of operations and, as a result, the
relationship between total income, cost of financing, and operating expenses
reflected in the financial information included in this prospectus may not
represent future financial relationships. For example, much of Mountain States'
operating expenses, other than the cost of financing, are relatively fixed
costs. Mountain States expects these fixed costs to increase as total income and
floor plan loan volume increases, but at a much slower rate than the
corresponding income and loan volume increases. Given Mountain States' current
stage of operations and relatively short operating history, management does not
believe that period to period comparison of results of operations are meaningful
at this time.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1999.
Total income increased from $907,182 for the year ended December 31, 1998,
to $1,172,962 for the year ended December 31, 1999, an increase of $265,786, or
29%. This significant improvement was primarily due to the increase in the
number of floor plan loans generated, as a result of an increase in available
cash reserves, and the implementation of its floor planning division, SourceOne,
which began limited operations in July 1999, contributing $53,902 in total
income.
Cost of financing was $514,863 in 1999, up from $343,411 in 1998, an
increase of $171,452, or 50%. As a percentage of total income, the cost of
financing increased from 38% in 1998 to 44% in 1999. Cost of financing in the
future will be dependant upon Mountain States' funding cycles and prevailing
interest rates. Mountain States has been successfully retiring promissory notes
with higher coupon rates and replacing the notes with new, lower interest rate
notes. The average interest rate paid by Mountain States dropped for a third
consecutive year from 31.92% in 1997, to 27.96% in 1998, and 22.44% in 1999.
Net financing income increased $94,334 from $563,771 in 1998 to $658,105 in
1999, or 17%. This is primarily due to Mountain States:
* increasing its pool of available funds during the year;
* making more absolute loans;
* experiencing a decline in its cost of capital; and
* achieving better operational efficiency.
General and administrative expenses increased to $608,951 from $452,680 in
1998, an increase of $156,271, or 35%, in 1999. The increase was directly
related to additional salary and operating expenses incurred to develop the
corporate infrastructure necessary to support increased floor plan loan volume.
Additionally, legal and accounting fees increased approximately $40,000,
primarily incurred in connection with this offering.
16
<PAGE>
In addition to the factors described above, Mountain States paid an
administrative fine to the State of Texas in the amount of $30,000 for the
alleged marketing of unregistered securities. Additionally, Mountain States was
unable to enjoy the benefits of its advertising and marketing program, as it
ceased accepting new investor funds after regulatory concerns were expressed,
even though it had incurred the marketing expenditures. Overall, net income
decreased for 1999 to $50,188 from $109,708 in 1998, a negative change of
$59,520, or 55%.
Mountain States' future funding requirements will depend on numerous
factors. These factors include, but are not limited to, Mountain States' ability
to profitably operate its business, to penetrate and successfully obtain working
capital funds from investors, to compete against other, better capitalized
corporations who offer alternative or similar options in this industry, and to
attract and retain qualified management personnel.
PERIOD FROM MARCH 13, 1997, DATE OF INCEPTION, TO DECEMBER 31, 1997 COMPARED TO
THE YEAR ENDED DECEMBER 31, 1998.
As 1997 was Mountain States' initial year of operations, a considerable
portion of management's time and effort was directed toward the development of
its business plan, establishment of procedures and documentation, and raising
capital. Total income increased $693,862, or 325%, to $907,182 for 1998, up from
$213,320 in 1997. This significant increase was primarily due to the increase in
floor plan loans made by Mountain States to its customers, facilitated by its
increased borrowings under its initial short-term promissory notes program. In
1998, the cost of financing increased $307,619, or 859%, to $343,410 from
$35,791 for 1997. The increase was a result of Mountain States' increased
borrowing to fund its floor plan financing activities. As a percentage of total
income, the cost of financing increased in 1998 to 38%, rising from 17% in 1997.
This increase was partially due to the fact that during 1997, Mountain States
derived a substantial percentage of its total income from an affiliation with an
Arizona based floor plan company, Arizona Dealers Fund. Mountain States earned
compensation of $79,734, 37% of its total income, originating and servicing
floor plan loans on behalf of Arizona Dealers Fund. Mountain States terminated
its relationship with Arizona Dealers Fund in January 1998 and received no
income from them for the year.
Mountain States paid its lenders an average interest rate of 27.96% in
1998, a reduction from 1997 when the average interest rate being paid to lenders
was 31.92%. General and administrative expenses rose $385,382, or 573%, from
$67,298 in 1997 to $452,680 in 1998. The increase in general and administrative
expense was primarily a result of Mountain States building an infrastructure to
accommodate its anticipated loan volume and total income growth. During 1998,
Mountain States also had significantly higher occupancy and personnel expenses
as compared to 1997. As a result of the factors described above, Mountain
States' net income remained virtually flat in 1998, decreasing only $523 to
$109,708 from $110,231 in 1997.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW FOR THE YEAR ENDED DECEMBER 31, 1998 AND THE YEAR ENDED DECEMBER 31,
1999.
Net cash used in operating activities for the year ended December 31, 1998,
was $765,898, consisting primarily of an increase of $945,756 in accounts
receivable floor plan loans. This dollar amount was offset by a decrease of
$32,901 in other accounts receivable. For the year ended December 31, 1999, net
cash used in operating activities was $513,140. This change was due to an
increase of $556,524 in accounts receivable as well as an increase in prepaid
expenses of $58,364, and was offset by an increase in accounts payable and
accrued liabilities. Net cash flow used in investing activities for the years
ended December 31, 1998 and 1999 was $47,553, and $75,207, respectively, and
consisted of the purchase of fixed assets. Net cash provided by financing
activities in 1998 was $856,114, primarily consisting of net borrowings under
17
<PAGE>
promissory notes of $1,104,796, and offset by advances under notes receivable of
$165,967 and distributions to a stockholder of $61,317. In 1999, net cash
provided by financing activities was $693,364, consisting of $1,488,049 in net
borrowings under promissory notes, and offset by net repayments under line of
credit of $281,250, as well as advances under notes receivable of $443,265. Cash
and cash equivalents increased in 1998 by $42,663 to $122,941. During 1999, cash
and cash equivalents increased from $122,941 at the beginning of the year to
$227,958 at the end of the year, an increase of $105,017. In November 1999,
Mountain States obtained a line of credit to finance the acquisition of a
building, its current location, and subsequently paid off the line of credit
with its cash reserves. Mountain States maintains the line of credit of $281,250
for working capital needs as deemed necessary.
CASH FLOW FOR THE PERIOD FROM MARCH 13, 1997, DATE OF INCEPTION, TO DECEMBER 31,
1997 AND THE YEAR ENDED DECEMBER 31, 1998
Net cash used in operating activities for the year ended December 31, 1997,
was $371,157, consisting primarily of an increase in accounts receivable floor
plan loans of $448,487 and an increase of $32,901 in other accounts receivable.
For the year ended December 31, 1998, net cash used in operating activities was
$765,898, primarily due to an increase in accounts receivable floor plan loans
of $945,756, and offset by a decrease in other accounts receivable of $32,901.
Net cash flows used in investing activities in 1998 was $47,553, consisting
exclusively of the purchase of fixed assets. In 1997, net cash provided by
financing activities was $451,435, consisting of net borrowings under promissory
notes, less repayment of loans from related parties and proceeds from the
issuance of common stock. Net cash provided by financing activities in 1998 was
$856,114, primarily consisting of net borrowings under promissory notes of
$1,104,796, and offset by advances under notes receivable of $165,967 and
distributions to stockholder in the amount of $61,317. For the year ended 1997,
cash and cash equivalents were $80,278, as compared to 1998 when cash and cash
equivalents increased $42,663 to $122,941.
Mountain States has earned modest net income since inception. Management
expects its expenditure and working capital requirements in the foreseeable
future to increase depending on the rate of Mountain States' expansion, Mountain
States' operating results, and other adjustments in its operating plan as needed
in response to competition or unexpected events. Management believes that the
net proceeds from this offering, together with available borrowings and Mountain
States' current cash and cash equivalents, will be sufficient to meet
anticipated cash needs for working capital, capital expenditures, and required
debt payments through fiscal 2000. If Mountain States is unable to meet its
liquidity requirements or if its liquidity requirements increase, Mountain
States may require additional financing, however there can be no assurance that
Mountain States will be able to access any additional funding.
YEAR 2000
Mountain States experienced no material adverse effects from Year 2000
related problems. Mountain States did not have any significant capital
expenditures in ensuring its operations and equipment were Year 2000 compliant.
18
<PAGE>
BUSINESS
OVERVIEW
Mountain States was incorporated in the State of Arizona on March 13, 1997.
Mountain States provides fee-based inventory financing for independent
automobile dealers. This service is commonly known in the industry as "flooring"
or "floor planning." Floor planning is desirable for independent pre-owned
automobile dealers because it offers a ready, flexible, and reliable source of
funds to purchase automobiles for their inventory. Mountain States' business is
fee-based, so the value added to both Mountain States and their customers is
dependent on the "turn," or minimizing the term of the loan made on each
specific vehicle. Mountain States limits its loans to a thirty day term to
insure efficient velocity of its capital.
Mountain States offers two lending programs: the original floor planning
program offered to all of its qualified dealers and the SourceOne program
offered to its strongest, financially qualified dealers. SourceOne lending rates
are somewhat lower than Mountain States' normal program rates, commensurate with
increased credit quality.
Mountain States is presently concentrating its activities in the Phoenix,
Arizona metropolitan area. Following completion of this offering, Mountain
States intends to expand its business into Texas, Colorado, and Nevada, with
Houston scheduled to be the initial expansion market. Management expects
expansion to commence as the Phoenix area loan demand is satisfied. Management
believes that Mountain States can place floor planning loans of $6 to $8 million
per month in the Phoenix market, with a comparable amount in Houston.
Mountain States currently has four shareholders, and a two-member board of
directors comprised of Messrs. Chad and Kim Collins.
INDUSTRY
The market for floor plan financing has been extremely active during the
past three years and continues to grow with the population expansion in the
State of Arizona. Mountain States has over 60 qualified independent dealer
customers in Maricopa County and over 200 prospective independent dealer
customers throughout the State of Arizona.
OPERATIONS
Mountain States' business involves providing the required financing for the
acquisition of automobile inventory to independent pre-owned automobile dealers.
To utilize Mountain States' funding, each dealer must pass Mountain States'
qualification approval and due diligence process. This ensures the required
procedures are in place prior to lending.
When a pre-qualified automobile dealer wishes to purchase an automobile for
resale, that dealer may obtain a loan from Mountain States for a short term,
normally from one to thirty days, for a fee. This is accomplished using a
security agreement which establishes the terms and conditions of the loans from
Mountain States to the dealer and a dealer promissory note with terms of
repayment of the loan. For the duration of the loan, Mountain States holds the
automobile's title, which is attached to the dealer promissory note. Upon
settlement of the loan, the title reverts back to the dealer. The number and
amount of loans outstanding with a dealer is determined by Mountain States'
lending policy, assessment, and experience with that dealer.
The first step in Mountain States providing floor plan financing to
independent pre-owned automobile dealers involves forecasting the needs of the
local automobile dealer market. This is accomplished by monitoring the market
for the volume of automobile purchases and prices, forecasting the need for
independent dealer loans, and maintaining close contact with current dealer
customers. Closely following the pricing trends in local auto auctions keeps
19
<PAGE>
Mountain States informed as to which makes and models are likely to sell
quickly, and which vehicles maintain the best spreads between wholesale and
retail pricing.
Consistency in conducting normal day-to-day operations is also a key to the
success in the floor planning business. These operations include:
* assessing the individual dealer's needs for inventory loans,
* establishing a security agreement with each qualified dealer,
* maintaining contact with dealers so that Mountain States is ready to
act when funds are needed,
* providing loans when the dealer is ready to purchase, and
* contacting dealers frequently to determine the status of inventory and
outstanding loans.
Loan extensions and adjustments are provided when required and the loan is
collected promptly when the inventory is sold or the loan comes due.
Mountain States' management also evaluates its outstanding loans on a
regular basis and monitors its accounts diligently. This evaluation process
includes the continuous monitoring of all current dealer loans and evaluating
performance as well as loan status. Management maintains records of current
transactions and dealer performance, and monitors these categories regularly.
There is a risk that the dealers who have obtained short-term loans from
Mountain States may not satisfy their outstanding loans, however, Mountain
States' policies and practices have led to a very good collection record to
date.
Upon default by a dealer, Mountain States takes all steps necessary to
recover its capital by taking possession and liquidating the automobile, or by
pursuing its optional remedies against the dealer as described in the security
agreement with the dealer. However, if these collection efforts are unsuccessful
with a material amount of floor plan loans, this may materially adversely impact
Mountain States' ability to meet its obligations under the Outstanding Notes and
New Notes.
Mountain States reduces its lending risk by holding clear titles to all
automobiles against which it lends, regularly monitoring its customer's
inventory, and verifying the validity of the title to each automobile. Mountain
States carefully screens all prospective dealers when pre-qualifying them for
floor plan financing by performing UCC financing statement searches,
verification of dealers' licenses and verification of dealers' bonds. Mountain
States also monitors each dealer's reputation in the automotive marketplace,
adjusting loan terms and conditions, if required, and terminating transactions
with dealers that appear to pose an unacceptable level of risk.
MARKETING
Marketing strategies implemented by Mountain States include compiling lists
of independent dealers with whom management has had previous experience,
surveying all prospective dealers in Arizona, and communicating Mountain States'
ability to perform to the prospective dealers by implementing a successful sales
approach and conducting intensive customer service. Mountain States services
higher volume, more established independent pre- owned automobile dealers
through its division, SourceOne. SourceOne enables Mountain States to attract
the business of these dealers by providing the dealers with lower cost
financing.
20
<PAGE>
COMPETITION
Various short-term, specialized financing arrangements are available to
dealers. Mountain States' primary competition in the floor-planning industry
comes from Automotive Financial Corporation and Manheim Auto Auction, both of
which are large, established financiers. Unlike Mountain States, both Automotive
Financial Corporation and Manheim Auto Auction place restrictions on their
financing by requiring the dealers to purchase their automobile inventory mainly
at automobile auctions. Mountain States, conversely, places no such restrictions
on the dealers, thereby giving the dealers greater flexibility and a reliable
source of funds to purchase automobiles for their inventory from alternative
sources. Both of Mountain States' main competitors have more customers, greater
name recognition, and significantly greater resources than Mountain States.
Competition could materially and adversely affect Mountain States' revenues and
profitability through pricing pressure and loss of sales.
CURRENT FUNDING
In order to implement its marketing and sales plan, Mountain States
historically acquired sufficient funds to accommodate the inventory needs of its
loan customers by securing a group of short-term loans. These loans had a basic
term of nine months and could be renewed by mutual agreement of Mountain States
and the lender. During 1999, these loans paid to the investors an average
monthly simple interest rate of approximately 1.87%. These loans were secured by
all of Mountain States' assets, including the loans to its automobile dealer
customers.
As of April 1, 2000, Mountain States has entered into a variety of loan
agreements with individual lenders and has approximately $2,600,000 in
outstanding debt to holders of the Outstanding Notes, and is currently paying an
average of approximately 1.68% per month in interest on this debt. Mountain
States has paid all interest payments due to its Outstanding Notes holders on
time. The primary purpose of this offering is to offer rescission to the holders
of the Outstanding Notes and to raise additional capital through the sale of the
New Notes.
EMPLOYEES
As of May 1, 2000, Mountain States had 6 employees, all of whom work full
time. None of Mountain States' employees are represented by a union. Management
believes Mountain States' relationship with its employees is good.
LEGAL PROCEEDINGS
Mountain States presently is prosecuting several claims for the collection
of outstanding accounts receivable. In 1998, Mountain States filed a claim in
the amount of $101,073.19 against the Estate of David Graham through the
bankruptcy District Court in Arizona, case number 98-11974-PHX-RTB. Mountain
States believes that the only valuable asset of the estate is a preferential
transfer to an insider creditor. However, despite multiple requests by Mountain
States, the Chapter 7 trustee has taken no action to recover those preferential
payments. In addition, Mountain States obtained a judgment against Mr. Graham
for $67,294, plus annual interest at the rate of 10 percent and attorneys' fees.
The Bankruptcy Court determined the judgment was nondischargeable pursuant to 11
U.S.C. Section 523(a)(2), (4) and (6). If the trustee refrains from pursuing
recovery of the preferential payments, Mountain States intends to purchase the
cause of action within the next 6 months for approximately $2,000. Mountain
States has already reflected the loss associated with this claim in its 1998
audited financial statements.
Mountain States also filed a claim for $150,000 against Max Haechler and
Max, Inc., Maricopa County Superior Court, which is related to its claim against
the Estate of David Graham. Defendants are the owners of the automobile
dealership license under which Mr. Graham operated prior to filing for
bankruptcy protection. Under the dealership license, the defendants remain
liable for all of Mr. Graham's obligations. Although a partial settlement in the
amount of approximately $60,000 was reached between Mountain States and the
defendants, litigation continues as to the balance.
21
<PAGE>
Mountain States has also filed claims against Cars for Less, Inc. and
Delbert Deel in two related proceedings, namely, Maricopa Superior Court Case
No. 99-5879 and Chapter 7 involuntary bankruptcy proceedings, case number
99-14918-PHX-SSC. Through the Superior Court matter, Mountain States obtained a
judgment for $31,152.69 as part of a settlement agreement with the defendants.
The defendants have defaulted under the settlement agreement and Mountain States
made a demand for turnover of defendants' collateral, including inventory.
Mountain States is seeking to have a trustee appointed over the assets. Mountain
States is the sole petitioning creditor under the bankruptcy proceeding and is
secured in substantially all of defendants' assets. Mountain States expects to
be the only creditor to receive a distribution.
Mountain States seized and liquidated all inventory belonging to Rainbow
Auto Sales, consisting of approximately 50 automobiles, pursuant to a Writ of
Replevin executed against Rainbow and its co-defendant, Alexander Ray Soza.
Because Rainbow has failed to file an Answer to the complaint, Mountain States
intends to seek a default judgment. Defendant Soza has evaded service of process
and Mountain States is considering requesting the court to permit it to serve
Mr. Soza by publication.
Mountain States has also filed a quiet title action against interest owned
by Ralph Davis in a cement truck, Maricopa Superior Court Case No. 99-22818. The
defendant is a competing creditor of Mountain States who wrongfully took
possession of the truck. Defendant has been served with the complaint and if he
fails to file an answer, Mountain States will seek a default judgment and
recovery of the truck.
In addition to the foregoing, Mountain States works with several of its
debtors, who are unable to pay their outstanding debts to Mountain States, by
modifying payment schedules, interest rates and terms. Typically, these workouts
involve encumbering additional collateral in order to give Mountain States a
stronger position in the event of insolvency. For example, Mountain States' most
significant pending workout is with three debtors, namely, Chad Walker, the
license holder, Jacob Hood, the dealer, and Parkway Motors, the dealership. The
defendants have surrendered real property in partial satisfaction of their
outstanding liabilities and intend to provide additional payments to Mountain
States. If they fail to make the additional payments, Mountain States will
pursue litigation against them for the remaining outstanding balance.
Mountain States has not been named as a defendant in any pending lawsuit,
nor does it believe that the outcome of the above cases will have a negative
impact on its ability to conduct its business.
FACILITIES
Mountain States owns 6,000 square feet of recently remodeled office space
located at 1407 East Thomas Road, Phoenix, Arizona 85014. This building was
purchased in November 1999 for $375,000. There is a $35,000 mortgage
collateralized by a deed of trust on the building. Also, the building is used as
collateral for a bank credit line of $281,250. As of April 1, 2000, Mountain
States has borrowed approximately $270,000 on this credit line.
22
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
KIM COLLINS. CHIEF EXECUTIVE OFFICER, DIRECTOR. (AGE 51). Mr. Collins has
twelve years' wholesale and retail experience in the automotive industry,
including marketing, finance, and sales. He owned a retail dealership from 1988
to 1992 in Colorado, which had retail sales of approximately sixty automobiles
per month and forty wholesale automobiles per month. The dealership employed
eighteen individuals, including mechanics, sales staff, accountants, and
collectors, who handled retail sales and servicing of an in-house portfolio of
consumer loans in excess of $1.25 million. These loans were originated and
serviced for a period of 30 to 180 days before being marketed into secondary
financial markets. Representing Dealer Fund, Inc. from 1993 through 1994, Mr.
Collins developed the current floor plan financing approach now being used by
Mountain States, including rate structure, procedures, documentation, marketing
strategy, continued dealer relations, origination and repayment, accounting and
accounting controls, and field operations. This approach helped make Dealer Fund
successful in servicing 38 independent automobile dealers throughout Colorado.
In February 1995, Mr. Collins moved to Phoenix to start a similar floor plan
financing operation in Arizona for National Dealer Financial Services, LLC, and
for two-and-a- half years had total responsibility for all facets of National
Dealer Financial Services operations, including dealer marketing, funding of
loans, repayment of loans, inventory control and establishment of credit lines.
In 1997, Mr. Collins elected to direct his attention to Mountain States. Mr.
Collins is the father of Chad Collins.
CHAD COLLINS. PRESIDENT, SECRETARY, TREASURER, DIRECTOR. (AGE 28). Mr.
Collins has eight years' experience in the automotive industry. Prior to
founding Mountain States in March of 1997, Mr. Collins spent a year as a Finance
Representative with National Dealer Financial Services, a Phoenix, Arizona,
dealer floor-plan company. In this position, he pre-qualified dealers,
originated and serviced loans in excess of $700,000 per month and gained the
floor-planning experience he now uses with Mountain States. Mr. Collins spent
one-and-a-half years as an independent automobile wholesaler with Sherman Used
Cars in Denver, Colorado. As a wholesaler, he used floor-planning to finance his
inventory. Mr. Collins also spent three years in retail sales and management
with Colony Auto in Lakewood, Colorado. In that position, Mr. Collins
pre-qualified retail buyers, arranged financing, and supervised a sales staff of
three. Mr. Collins is the son of Kim Collins.
Mountain States' success depends largely on the efforts of Chad Collins,
President and Director, and Kim Collins, Chief Executive Officer and Director.
Mountain States believes its relationships with these individuals are good.
However, Mountain States cannot ensure that the services of these individuals
will continue to be available to it in the future. If Mountain States loses
either of these individuals and cannot find adequate replacements, there could
be a material adverse effect on its business, financial condition and results of
operations.
During the 1980s, Kim Collins was involved in two unsuccessful business
ventures, one of which was real estate oriented and resulted in a judgment lien
of approximately $170,000 against Mr. Collins. Although this lien has not been
paid, it has expired. The other was a state tax lien of $1,585.00, which has
been paid. Neither of these liens are debts or obligations of Mountain States.
EXECUTIVE COMPENSATION
The following table provides summary information concerning compensation
paid to Mountain States' Chief Executive Officer and President. No other
executive officer who was serving as an executive officer on December 31, 1999,
had an aggregate annual salary and bonus exceeding $100,000 for the fiscal year
ended December 31, 1999.
23
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
Annual Compensation Awards
------------------------------- ---------------------------
Securities
Name and Other Annual Underlying All Other
Principal Position Year Salary Bonus Compensation Options/SARs Compensation
- ------------------ ---- ------ ----- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Kim Collins 1999 $104,228
Chief Executive
Officer
1998 $104,083
Chad Collins 1999 $ 89,733
President
1998 $ 86,547
</TABLE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
No executive officer named in the Summary Compensation Table received stock
option grants during the fiscal year ended December 31, 1999.
FISCAL YEAR-END OPTION VALUES
No executive officer named in the Summary Compensation Table had options
outstanding as of December 31, 1999, nor exercised any options during the fiscal
year ended December 31, 1999.
EMPLOYMENT AND CONSULTING AGREEMENTS
Mountain States engaged Arizona Chamber Info., Inc. in May 1999, to provide
business consulting services to Mountain States. As part of its consulting
efforts, Arizona Chamber established telephone appointments for sales units,
coordinated focus groups, targeted subgroup lists for ongoing lead generation as
sales units increased, provided targeted mailings, and created custom databases.
On January 13, 2000, Mountain States and Arizona Chamber Info. terminated their
consulting agreement.
In May 1999, Mountain States entered into a consulting agreement with a
financial consultant, Lex Byers, d.b.a. Xel Marketing Intelligence. Mr. Byers
performed fund-raising activities for Mountain States that were designed to
facilitate investor and lender relations and establish fund development. On
January 12, 2000, Mountain States and Mr. Byers terminated this consulting
agreement.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Chad Collins received a loan from Mountain States in the amount of $31,300
on May 7, 1999. This is a 10% interest bearing loan that is payable on demand,
with a balance due of $33,321.37. Kim Collins received a loan from Mountain
States in the amount of $14,106 on November 15, 1998. This is a 10% interest
bearing loan that is payable on demand, with a balance due of $11,365.29.
24
<PAGE>
SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of the date of this prospectus the
beneficial ownership of Mountain States' common stock and preferred stock as of
May 8, 2000 by:
* each officer,
* each director, and
* each person owning more than five percent of any class of Mountain
States' voting securities.
As of the date of this prospectus, there are no other equity securities
outstanding, other than the common stock and preferred stock. Chad Collins is
the only shareholder who is also a director or officer of Mountain States.
Name and Address of Number of
Beneficial Owner Shares Percentage
---------------- ------ ----------
COMMON STOCK
Chad Collins 1,000,000 100%
1407 East Thomas Road
Phoenix, Arizona 85014
PREFERRED STOCK
Cledis and Patricia Weatherford 294,829 72%(1)
14430 North 44th Street
Phoenix, Arizona 85032
Vivian Collins (2) 85,000 21%(1)
500 Highway #119
Longmont, Colorado 80504
Michael Casey 29,261 7%(1)
3541 East 99th Lane
Thornton, Colorado 80229
- ----------
(1) Percentage of outstanding preferred stock only.
(2) Mother of Kim Collins and grandmother of Chad Collins.
25
<PAGE>
DESCRIPTION OF SECURITIES - THE OUTSTANDING NOTES
GENERAL
Each of the Outstanding Notes was issued using a standard form of
promissory note and security agreement without coupons, a copy of which has been
filed as an exhibit to the registration statement of which this prospectus is a
part. Each Outstanding Note was issued individually, and not as a part of any
series. However, all of the Outstanding Notes are alike except as to interest
rate and maturity dates. Each of the Outstanding Notes, together with all other
Outstanding Notes and all other advances or liabilities owed by Mountain States
to any holder of an Outstanding Note, is secured by a general pledge of all
assets owned or later acquired by Mountain States. The Outstanding Notes are
governed by Arizona law.
INTEREST
The annual rate of interest for each Outstanding Note was set by Mountain
States as of the date each Outstanding Note was issued. The interest rate
remains fixed through the maturity date of the Outstanding Note. Interest on the
principal balance of an Outstanding Note is calculated on a simple interest
basis and is payable monthly on the last day of the month unless the holder has
elected to defer interest payments, in which case interest may be deferred and
compounded monthly until paid. All amounts due for partial months were prorated,
based on the actual number of days the Outstanding Note was outstanding during
that month.
MATURITY; EARLY REDEMPTION
The maturity date of each Outstanding Note was set on the date of issue,
generally for a term of nine months. However, the holder of any Outstanding Note
may require prepayment by Mountain States at any time upon 90 days' written
notice, and Mountain States has the right to prepay the outstanding principal,
in whole or in part, without penalty at any time. All payments by Mountain
States are applied first to interest, then to principal, and then to late
charges, if any.
WARRANTIES
Under the terms of the Outstanding Notes, Mountain States warranted to the
holders of the Outstanding Notes that it owns the collateral, subject to similar
security agreements with holders of other Outstanding Notes and similar
obligations of Mountain States. Mountain States also warranted that it had the
right to enter into the Outstanding Notes, that the collateral was used and
would be used primarily for business purposes, and that the address specified
was Mountain States' only place of business.
EVENTS OF DEFAULT; REMEDIES
Each Outstanding Note specifies that the following, among others, are
events of default:
* nonpayment, when due, of any amount payable on the Outstanding Note or
other amounts owed by Mountain States to the holder, or failure to
observe or perform any term of the Outstanding Note,
* if any covenant, warranty or representation under the Outstanding Note
should prove to be untrue in any material respect,
* if Mountain States becomes insolvent or unable to pay debts as they
mature or makes an assignment for the benefit of creditors, or if any
proceeding is instituted by or against Mountain States alleging that
it is insolvent or unable to pay its debts as they mature,
26
<PAGE>
* entry of any judgment against Mountain States,
* dissolution, merger or consolidation, or transfer of a substantial
part of the property of Mountain States, and
* loss, theft, substantial damage, destruction or encumbrance of any of
the collateral.
In the event of a default, the holder of each Outstanding Note is given the
right, at its option and without demand or notice, to declare all or any part of
the obligations under the Outstanding Note immediately due and payable, and the
right to exercise all of the rights and remedies of a secured party under the
Uniform Commercial Code or any other applicable law. Mountain States agrees in
the Outstanding Notes to pay all costs and expenses, including reasonable
attorneys' fees, in the collection of any of its obligations or the enforcement
of any rights of the holder under the Outstanding Notes. Mountain States also
agrees to make the collateral available in the event of a default to any holder
in a place designated by the holder which is reasonably convenient. Until
default, Mountain States is expressly authorized to retain possession of the
collateral and to use it in any lawful manner not inconsistent with the
Outstanding Notes or the conditions of any policy of insurance on the
collateral.
OTHER PROVISIONS
Mountain States agrees in each Outstanding Note to pay all amounts,
including reasonable attorneys' fees and legal expenses paid by the holder of an
Outstanding Note:
* for taxes, levies, insurance or repairs or maintenance of the
collateral,
* in taking possession of, disposing of, or preserving the collateral,
either before or after default.
The Outstanding Notes also provide that if any legal action is instituted
to enforce or interpret the Outstanding Notes, the prevailing party will be
entitled to recover all expenses reasonably incurred at, before and after trial,
on appeal, and on review, whether or not the expenses are taxable as costs.
ABSENCE OF RESTRICTIONS ON MOUNTAIN STATES INDEBTEDNESS
There are no restrictions or limitations on the issuance of additional
securities or the incurring of additional debt, including the New Notes.
ABSENCE OF TRUSTEE
There is no trustee for the Outstanding Notes. The owners of the
Outstanding Notes must individually or collectively protect their own interests
in the event of a default by Mountain States. Arizona law generally provides
that, in the absence of an agreement to the contrary, the holder of a promissory
note has the right to receive payments on the note as they become due and, upon
default, to demand payment and exercise remedies to secure payment. Because each
of the Outstanding Notes is secured by the same collateral, an action by the
holder of one of the Outstanding Notes to obtain payment upon default by
Mountain States may reduce the collateral or assets available to the holders of
the other Outstanding Notes, or to the holders of the New Notes.
TRANSFER
The Outstanding Notes do not, by their terms, restrict transfers by their
holders. Because the Outstanding Notes were issued without registration under
federal and state securities law there were limitations on the ability of a
holder to sell an Outstanding Note. However, as a result of the registration of
this rescission offer, these limitations on reselling the Outstanding Notes have
now been eliminated. Regardless, no trading markets for the Outstanding Notes
exist, and, as a practical matter, it may be difficult or impossible for a
holder to transfer an Outstanding Note. Mountain States does not intend to apply
for quotation or listing on any securities exchange or quotation system.
27
<PAGE>
DESCRIPTION OF SECURITIES - THE NEW NOTES
Set forth below is a summary of various provisions of the New Notes. The
New Notes will be issued under an indenture to be dated as of _________________,
2000, by and among Mountain States and U.S. Bank Trust National Association, as
trustee. The following summaries of various provisions of the indenture are
summaries only, do not purport to be complete and are qualified in their
entirety by reference to all of the provisions of the indenture. Capitalized
terms used and not otherwise defined will have the meanings assigned to them in
the indenture. Wherever particular provisions of the indenture are referred to
in this summary, the provisions are incorporated by reference as a part of the
statements made and the statements are qualified in their entirety by such
reference. A copy of the form of indenture is available upon request.
GENERAL
The New Notes will be unsecured, general obligations of Mountain States,
ranking PARI PASSU in right of payment with all other senior, unsecured
obligations of Mountain States. The New Notes will be limited in aggregate
principal amount to $10 million and will be issued only in fully registered
form, without coupons.
Each of the New Notes will mature 12 months from their date of issuance,
and will have a $5,000 minimum face value. The New Notes will bear simple
interest at the rate of 18% per year, or 1.5% monthly, from the date of
issuance, to the persons in whose names the New Notes are registered. Interest
will be calculated on the basis of a 360-day year consisting of twelve 30-day
months, and will be payable on the first day of the month, with any partial
months paid on a prorated basis. The New Notes will consist of two types: (1)
accrued interest will be paid on a monthly basis, and (2) accrued interest will
be compounded monthly and will earn interest until the maturity date.
Principal, interest, and liquidated damages, if any, on the New Notes will
be payable, and the New Notes may be presented for registration of transfer or
exchange, at the office of U.S. Bank Trust in St. Paul, Minnesota, except as set
forth below. At the option of Mountain States, payment of interest may be made
by check mailed to the holders of the New Notes at the addresses set forth upon
the registry books of U.S. Bank Trust. No service charge will be made for any
transfer or exchange of New Notes, but the holder of New Notes will pay any tax
or other governmental charge payable in connection with any transfer or exchange
of the New Notes. Until otherwise designated by Mountain States, Mountain
States' office or agency will be the office of U.S. Bank Trust presently located
in St. Paul, Minnesota.
BANKRUPTCY LIMITATIONS
Holders of the New Notes will be direct creditors of Mountain States. In
the event of the bankruptcy or financial difficulty of Mountain States, Mountain
States' obligations may be subject to review and avoidance under state and
federal fraudulent transfer laws. Among other things, Mountain States'
obligations may be avoided if a court concludes that the obligations were
incurred for less than reasonably equivalent value or fair consideration at a
time when Mountain States was insolvent, was rendered insolvent, or was left
with inadequate capital to conduct its business. A court would likely conclude
that Mountain States did not receive reasonably equivalent value or fair
consideration to the extent that the aggregate amount of its liability for its
obligations exceeds the amount of additional capital it receives in the
offering. The obligations of Mountain States will be limited in a manner
intended to cause it not to be a fraudulent conveyance under applicable law,
although no assurance can be given that a court would not give an existing
creditor the benefit of the fraudulent conveyance provisions.
If the obligations of Mountain States were avoided, holders of New Notes
would have no other assets to look to for payment.
28
<PAGE>
OPTIONAL REDEMPTION BY HOLDERS OF NEW NOTES
Holders of New Notes have the right to require Mountain States to
repurchase them on 90 days' advance written notice to U.S. Bank Trust and
Mountain States. In addition, Mountain States reserves the right to exercise its
optional redemption rights as set forth below.
OPTIONAL REDEMPTION BY MOUNTAIN STATES
Mountain States will have the right to redeem any New Notes at its
discretion. The New Notes will be redeemable for cash at the option of Mountain
States, in whole, at any time prior to the New Notes' maturity date, without
penalty, which redemption amount shall include principal and unpaid but accrued
interest, at 100% of the outstanding principal amount plus accrued interest.
The New Notes will not have the benefit of any collateral or sinking fund.
Notice of any redemption will be sent, by first-class mail, at least five
days and not more than 15 days prior to the date fixed for redemption to the
holder of each New Note to be redeemed to the holder's last address as then
shown upon the registry books of U.S. Bank Trust National Association. On and
after the date of redemption, interest will cease to accrue on the New Notes
called for redemption, unless Mountain States defaults in the payment.
DESCRIPTION OF SECURITIES - COMMON AND PREFERRED STOCK
The following description of Mountain States' capital stock does not
purport to be complete and is subject in all respects to applicable Arizona law
and to the provisions of Mountain States' Amended and Restated Articles of
Incorporation, a copy of which is attached as an exhibit to this recission
offering.
The authorized capital stock of Mountain States consists of 25,000,000
shares of Common Stock, no par value, and 1,000,000 shares of Preferred Stock,
no par value. As of the date of this prospectus, 1,000,000 shares of Common
Stock are issued and outstanding, and 409,080 shares of Series A Preferred Stock
are issued and outstanding.
COMMON STOCK
Holders of Common Stock are entitled to receive such dividends as may be
declared from time to time by the Board of Directors out of funds legally
available therefor. Mountain States does not anticipate paying cash dividends in
the foreseeable future. In the event of liquidation, dissolution, or winding up
of Mountain States, the holders of Common Stock are entitled to share ratably in
any corporate assets remaining after payment of all debts, subject to any
preferential rights of any outstanding Preferred Stock.
Holders of Common Stock have no preemptive, conversion, or redemption
rights and are not subject to further calls or assessments by Mountain States.
All of the outstanding shares of Common Stock are, and the shares offered by
Mountain States hereby will be, if issued, validly issued, fully paid and
nonassessable.
PREFERRED STOCK
The Board of Directors of Mountain States has the authority, without
further action by Mountain States' stockholders, to issue from time to time up
to 1,000,000 shares of Preferred Stock in one or more series and to fix the
number of shares, designations, voting powers, preferences, optional and other
special rights, and the restrictions or qualifications thereof. The rights,
preferences, privileges, and restrictions or qualifications of different series
of Preferred Stock may differ with respect to dividend rates, amounts payable on
liquidation, voting rights, conversion rights, redemption provisions, sinking
fund provisions, and other matters. The issuance of Preferred Stock could:
29
<PAGE>
* decrease the amount of earnings and assets available for distribution
to holders of Common Stock;
* adversely affect the rights and powers, including voting rights, of
holders of Common Stock; and
* have the effect of delaying, deferring, or preventing a change in
control of Mountain States. As of the date of this prospectus, the
Board of Directors has designated 500,000 shares of Preferred Stock to
be Series A, of which there are 409,080 shares issued and outstanding.
DESCRIPTION OF THE INDENTURE
The following summaries describe certain provisions of the indenture not
described elsewhere in this prospectus. The summaries do not purport to be
complete and are qualified in their entirety by reference to the provisions of
the indenture. Where particular provisions or terms used in the indenture are
referred to, the actual provisions, including definitions of terms, are
incorporated by reference as part of these summaries. The indenture governs only
the New Notes, and not the Outstanding Notes.
THE TRUSTEE
The trustee under the indenture is U.S. Bank Trust National Association. It
has assets in excess of $150,000 and performs trust services as a part of its
ordinary business. U.S. Bank Trust has no prior relationship with Mountain
States or any of its affiliates.
EVENTS OF DEFAULT AND REMEDIES
The indenture defines an Event of Default as:
* the failure by Mountain States to pay any installment of interest on
the New Notes as and when the same becomes due and payable and the
continuance of any such failure for 60 days;
* the failure by Mountain States to pay all or any part of the
principal, or premium, if any, on the New Notes when and as the same
becomes due and payable at maturity, redemption, by acceleration or
otherwise;
* the failure by Mountain States to observe or perform any other
covenant or agreement contained in the New Notes or the Indenture and,
subject to certain exceptions, the continuance of such failure for a
period of 60 days after written notice is given to Mountain States by
U.S. Bank Trust or to Mountain States and U.S. Bank Trust by the
Holders of at least 33% in aggregate principal amount of the New Notes
outstanding;
* certain events of bankruptcy, insolvency or reorganization in respect
of Mountain States; or
* the failure by Mountain States to redeem New Notes at the written
request of the holders of New Notes as described above.
The indenture provides that if an event of default occurs and is
continuing, U.S. Bank Trust ordinarily must, within 90 days after the occurrence
of such default, give to the Holders notice of such default, unless it has been
cured or waived within that time.
If an event of default occurs and is continuing, then in every such case,
either U.S. Bank Trust or the holders of 33% in aggregate principal amount of
the New Notes then outstanding, by notice in writing to Mountain States, and to
U.S. Bank Trust if given by holders, may declare all principal, determined as
set forth below, and accrued interest thereon to be due and payable immediately.
30
<PAGE>
The holders of a majority in aggregate principal amount of New Notes generally
are authorized to rescind such acceleration if all existing events of default,
other than the nonpayment of the principal of and interest on the New Notes
which have become due solely by such acceleration, have been cured or waived.
Prior to the declaration of acceleration of the maturity of the New Notes,
the holders of a majority in aggregate principal amount of the New Notes at the
time outstanding may waive on behalf of all the holders any default, except a
default in the payment of principal of or interest on any New Note not yet cured
or a default with respect to any covenant or provision which cannot be modified
or amended without the consent of the Holder of each outstanding New Note
affected. Subject to the provisions of the indenture relating to the duties of
U.S. Bank Trust, U.S. Bank Trust will be under no obligation to exercise any of
its rights or powers under the indenture at the request, order or direction of
any of the holders, unless such holders have offered to U.S. Bank Trust
reasonable security or indemnity. Subject to all provisions of the indenture and
applicable law, the holders of a majority in aggregate principal amount of the
New Notes at the time outstanding will have the right to direct the time, method
and place of conducting any proceeding for any remedy available to U.S. Bank
Trust, or exercising any trust or power conferred on U.S. Bank Trust.
Mountain States is required to deliver to U.S. Bank Trust annually a
statement regarding compliance with the indenture.
AMENDMENTS AND SUPPLEMENTS
The indenture will contain provisions permitting Mountain States and U.S.
Bank Trust to enter into a supplemental indenture without the consent of the
holders to set forth the terms of any class of Notes not yet issued, and some
other limited purpose. With the consent of the holders of not less than a
majority in aggregate principal amount of the New Notes at the time outstanding
or with the consent of the holders of a majority in principal amounts of each
class affected, Mountain States and U.S. Bank Trust are permitted to amend or
supplement the Indenture or any supplemental indenture or modify the rights of
the holders; PROVIDED that no such modification may, without the consent of each
holder affected thereby:
* change the stated maturity on any New Note, or reduce the principal
amount thereof or the rate, or extend the time for payment, of
interest thereon or any premium payable upon the redemption thereof,
or change the place of payment where, or the coin or currency in
which, any New Note or any premium or the interest thereon is payable,
or impair the right to institute suit for the enforcement of any such
payment on or after the stated maturity thereof, or alter the
provisions regarding the right of holders to require redemption of
their New Notes in a manner adverse to the holders, or
* reduce the percentage in principal amount of the outstanding New
Notes, the consent of whose holders is required for any such
amendment, supplemental indenture or waiver provided for in the
indenture, or
* modify any of the waiver provisions, except to increase any required
percentage or to provide that certain other provisions of the
indenture cannot be modified or waived without the consent of the
holder of each outstanding New Note affected thereby.
STATEMENT AS TO COMPLIANCE
Mountain States will be required to file annually with U.S. Bank Trust a
written statement of fulfillment of its obligations under the indenture. Failure
to file such a statement, or filing of a false and/or misleading statement,
would constitute an Event of Default if not corrected during a period of 60 days
after notice to Mountain States by U.S. Bank Trust or notice to Mountain States
and U.S. Bank Trust by the holders of at least 33% in principal amount of
outstanding New Notes.
31
<PAGE>
MODIFICATION OF INDENTURE
With the consent of the holders of not less than a majority in principal
amount of all New Notes outstanding under the indenture, or of all outstanding
New Notes affected by a change, U.S. Bank Trust and the issuer may execute a
supplemental indenture to add provisions to, or change in any manner or
eliminate any provisions of, the indenture with respect to all of the
outstanding New Notes or of certain classes of the New Notes, as the case may
be, or modify in any manner the rights of the holders of all of the outstanding
New Notes or of certain classes of the Notes, as the case may be, provided that,
without the consent of the holder of each outstanding Note affected, no
supplemental indenture shall:
* change the maturity of the principal of, or interest on, any New Note,
or reduce the principal amount or the rate of interest of the New
Notes,
* adversely affect the rights of holders of New Notes with respect to
prepayments of principal or redemption of New Notes,
* reduce the percentage of principal amount of New Notes, the holders of
which must consent to authorize any supplemental indenture or for any
waiver of compliance with certain provisions of the indenture or
certain defaults thereunder or their consequences, or
* modify any of the provisions of the indenture with respect to
supplemental indentures with the consent of holders of New Notes,
except to increase the percentage of holders of New Notes whose
consent is required for any such action or to provide that other
provisions of the indenture cannot be modified or waived without the
consent of the holders of each outstanding New Note affected thereby.
SATISFACTION AND DISCHARGE OF THE INDENTURE
The indenture will be discharged upon the cancellation of all of the New
Notes or, with certain limitations, upon deposit with U.S. Bank Trust of funds
sufficient for the payment or redemption of the New Notes.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain federal income tax considerations
which may be relevant to an investment in Outstanding Notes or New Notes. The
discussion is based on the Internal Revenue Code of 1986, as amended to the date
hereof, final and proposed U.S. Treasury Regulations, judicial decisions, and
Internal Revenue Service rulings and other administrative regulations, and
published rulings and procedures, all of which are subject to change, possibly
on a retroactive basis.
The discussion below is general and pertains only to Outstanding Notes and
New Notes held as capital assets within the meaning of Section 1221 of the Code.
Except as specifically stated herein, this summary does not address the federal
income tax consequences of the purchase, ownership or disposition of Outstanding
Notes or New Notes by foreign holders, by holders other than initial purchasers
or by holders that may be subject to special tax treatment, such as dealers in
securities, banks, thrift institutions, real estate investment trusts, regulated
investment companies, insurance companies, other financial institutions, pension
plans or tax exempt organizations. In addition, taxes other than federal income
taxes, such as foreign, state and local taxes, and federal estate and gift
taxes, may affect an investment in Outstanding Notes or New Notes. Controversy
and uncertainty exist in many areas of the federal income tax law which may
affect an investment in Outstanding Notes or New Notes. Accordingly, there can
be no assurance that some of the views expressed herein will not be challenged
by the IRS.
32
<PAGE>
HOLDERS OF OUTSTANDING NOTES OR NEW NOTES ARE URGED TO CONSULT, AND MUST
DEPEND UPON, THEIR OWN TAX ADVISERS WITH RESPECT TO THE TAX CONSEQUENCES OF THE
PURCHASE, OWNERSHIP AND DISPOSITION OF OUTSTANDING NOTES OR NEW NOTES WITH
SPECIFIC REFERENCE TO THEIR OWN TAX SITUATIONS AND POTENTIAL CHANGES IN
APPLICABLE LAW, INCLUDING THE APPLICATION OF STATE AND LOCAL, FOREIGN AND OTHER
TAX CONSIDERATIONS.
TAXATION OF MOUNTAIN STATES
Mountain States, the issuer of the Outstanding Notes and the New Notes, is
a corporation that is taxable for federal income tax purposes at corporate tax
rates. Mountain States' gross income will include interest received from floor
plan loans as well as income from all other sources. Gross income will not
include tax-exempt income. Interest payable by Mountain States on the
Outstanding Notes and the New Notes, and the fees payable to U.S. Bank Trust in
connection with the New Notes, will be deductible from Mountain States' gross
income in calculating its taxable income. The amount of taxes payable by
Mountain States may reduce the availability of funds for other purposes,
including the payment of interest and principal on the Outstanding Notes and the
New Notes.
TAXATION OF NOTE HOLDERS
PAYMENTS OF INTEREST
Interest to be paid to holders of the Outstanding Notes or the New Notes
will be accorded the same tax treatment under the Code as interest payments
received on other taxable corporate notes and will generally be taxable to
holders as interest income at the time the interest accrues or is received, in
accordance with a holder's method of accounting for federal income tax purposes.
Interest income is taxed at ordinary income tax rates.
ORIGINAL ISSUE DISCOUNT
Under the Code and Treasury Regulations, a debt obligation with an issue
price less than its stated redemption price at maturity will generally be
considered to have been issued at an original issue discount for federal income
tax purposes. The issue price of a debt obligation issued for money, such as the
Outstanding Notes and the New Notes, is the first price at which a substantial
amount of the debt obligation was sold. The stated redemption price at maturity
of a debt obligation equals the sum of all payments required under the debt
obligation other than interest that is unconditionally payable, or that will be
treated as constructively received under Section 451 of the Code, at a single
fixed rate at fixed periodic intervals of one year or less. The "original issue
discount" on a debt obligation is equal to the excess of the stated redemption
price at maturity over the issue price of the debt obligation.
The Code contains a number of very complex provisions requiring holders of
debt obligations with original issue discount to include such original issue
discount in income as it accrues economically over the life of the debt
obligation, without regard to the holder's method of accounting or receipt of
payments under the debt obligation. However, because (i) the Outstanding Notes
were issued for an amount equal to their stated redemption price at maturity,
(ii) the New Notes will be issued for an amount equal to their stated redemption
price at maturity, and (iii) the Outstanding Notes and the New Notes both call
for the payment of interest at a single fixed rate and at fixed periodic
intervals of one year or less, neither the Outstanding Notes nor the New Notes
should have original issue discount.
33
<PAGE>
MARKET DISCOUNT
A debt obligation sold on a secondary market after its original issue for a
price lower than its stated redemption price at maturity is generally said to be
acquired at market discount. In general, "market discount" is the excess, if
any, of the debt obligation's stated redemption price at maturity over the
purchaser's initial adjusted basis in the debt obligation. In the case of a
short-term debt obligation, i.e., a debt obligation that matures not more than
one year from the date of issue, market discount is limited to the amount, if
any, of original issue discount on the short-term debt obligation, unless the
holder of the debt obligation elects otherwise.
As with original issue discount, the Code contains a number of very complex
provisions requiring the holders of debt obligations with market discount to
include such market discount in income as it accrues economically over the life
of the debt obligation, without regard to the holder's method of accounting or
receipt of payments under the debt obligation. However, because (i) the
Outstanding Notes and the New Notes mature not more than one year from their
respective dates of issuance, and (ii) the Outstanding Notes and the New Notes
are expected not to have original issue discount, neither the Outstanding Notes
nor the New Notes should be subject to the market discount rules.
BOND PREMIUM
A note issued at a price in excess of the stated redemption price at
maturity, or purchased by a holder at a cost greater than its stated redemption
price at maturity is considered to be purchased at a premium. For federal income
tax purposes, any such premium is called a "bond premium." If a note with a bond
premium is a "capital asset" in the hands of the holder of such note, within the
meaning of Section 1221 of the Code, then the holder of the note has the option
of: (i) amortizing the bond premium until bond maturity and reducing the basis
in the note by the amortized amount, or (ii) not amortizing the bond premium and
treating it as part of the basis of the note. Amortization is allowed only if it
is properly elected. The amount of bond premium that can be amortized for a tax
year is calculated under a constant yield-to-maturity method. The amortizable
premium may be offset against interest income and is otherwise treated as
interest expense for all purposes, including limitations on the deductibility of
interest expense. A holder's basis for determining gain or loss on the sale,
exchange or redemption of a note with a bond premium generally equals the
holder's cost decreased by any amortized bond premium for the period that the
note is held by the holder.
Because (i) the Outstanding Notes were issued for an amount equal to their
stated redemption price at maturity, and (ii) the New Notes will be issued at an
amount equal to their stated redemption price at maturity, neither the
Outstanding Notes nor the New Notes should have bond premium to initial holders.
The Outstanding Notes and the New Notes may have bond premium in the hands of
subsequent purchasers to the extent, if any, that a subsequent purchaser pays
more for the note than its stated redemption price at maturity.
SALE, EXCHANGE OR REDEMPTION OF OUTSTANDING NOTES OR NEW NOTES
The holder of an Outstanding Note or a New Note will recognize taxable gain
or loss equal to the difference between the amount realized, excluding any
amounts attributable to unpaid accrued interest which will be includible in
income as interest in accordance with the holder's method of accounting, on the
sale, exchange or redemption of the note and such holder's adjusted tax basis in
the note subject to the sale, exchange or redemption. A holder's adjusted tax
basis in an Outstanding Note or a New Note will generally equal the cost of such
note to the holder, reduced by any principal payments received by the holder and
any amortizable bond premium. If the holder of an Outstanding Note accepts the
recission offer, receipt of the cash payment therefor, whether or not applied to
the purchase of a New Note, will constitute a sale or exchange of the
Outstanding Note for federal income tax purposes, and will therefore be a
taxable event.
34
<PAGE>
Gain or loss recognized on the sale, exchange or redemption of an
Outstanding Note or a New Note will be capital gain or loss. Such gain or loss
will be short-term unless at the time of sale, exchange or redemption, the note
has been held for more than one year, in which case the gain or loss will be
long-term. A holder's short-term capital gain or loss or long-term capital gain
or loss on the sale, exchange or redemption of an Outstanding Note or a New Note
will be combined with a holder's other long-term capital gains and losses and
short-term capital gains and losses for the year to arrive at an overall, net,
capital gain or loss. If a holder's capital gains exceed capital losses, the
overall gain is included with the holder's other taxable income, if any, and is
taxable at regular tax rates. Under current law, the maximum regular federal
income tax rate for non-corporate taxpayers is 39.6%, except that the maximum
tax rate on any net long-term capital gain of a holder which is an estate, trust
or individual is 20%. In the case of such a holder whose taxable income would
otherwise be taxed at a rate less than 28 percent, the maximum rate on any net
long-term capital gain is 10%. For corporate taxpayers, the maximum regular
corporate federal income tax rate is 35%, and there is no lower long term
capital gains rate. Net capital losses are deductible only to the extent of any
capital gains plus, in the case of non-corporate taxpayers, ordinary income of
up to $3,000. Individuals and other non-corporate taxpayers may carry forward a
net capital loss, subject to the same limitation described above, until the loss
is exhausted. A corporation can use capital losses for a tax year only to offset
capital gains in that year. A corporation cannot offset capital losses against
ordinary income. A corporation may carry back unused capital losses to the three
preceding tax years and may carry forward such losses to five following years.
TAXATION OF QUALIFIED PLANS
Certain entities, including trusts formed as part of corporate pension or
profit-sharing plans that are qualified under Section 401(a) of the Code,
individual retirement accounts, and certain charitable and other organizations
described in Section 501(c), collectively "Qualified Plans", are generally
exempt from federal income tax. Qualified Plans are subject, however, to federal
income tax with respect to any "unrelated business taxable income", "UBTI". UBTI
is income, with specific exceptions, derived from any trade or business
activity, regularly carried on by a tax-exempt entity, or by a partnership of
which it is a member, that is not substantially related to the entity's exempt
purpose.
Notwithstanding the foregoing, income that is interest income or gain from
the sale or exchange of property, is excluded from UBTI, except to the extent
that such income is derived from debt-financed property. In general,
debt-financed property is any property which is held to produce income and with
respect to which there is "acquisition indebtedness" at any time during the tax
year or during the preceding twelve months if the property is disposed of during
the tax year. It is anticipated that the income from an investment in the
Outstanding Notes or the New Notes will constitute either interest income or
gain from the sale or exchange of property. Accordingly, it is not anticipated
that any income from investment in the Outstanding Notes or the New Notes will
constitute UBTI with respect to an investing Qualified Plan, provided that a
Qualified Plan does not incur acquisition indebtedness in connection with its
purchase of Outstanding Notes or New Notes.
35
<PAGE>
If in any year UBTI is realized by reason of an investment in Outstanding
Notes or New Notes, a Qualified Plan would be required to report its income from
investment in the Outstanding Notes or the New Notes that constituted UBTI, but
only to the extent that the Qualified Plan's UBTI from all sources exceeded
$1,000 in such year. The Qualified Plan could incur a tax liability with respect
to such excess at such tax rates that would be applicable if such organization
were not otherwise exempt from taxation. The trustee or custodian of the
Qualified Plan may be required to file form 990-T, Exempt Organization Business
Income Tax Return, with the IRS to report UBTI, regardless of the amount of UBTI
recognized by the Qualified Plan. In addition, the Qualified Plan will be
required to pay from the Qualified Plan the tax on any UBTI in excess of $1,000.
OTHER CONSIDERATIONS APPLICABLE TO QUALIFIED PLANS
The purchase of Outstanding Notes or New Notes by a Qualified Plan is
subject to the Employee Retirement Security Act of 1974, as amended, "ERISA",
and certain restrictions imposted by Section 4975 of the Code. In considering an
investment of a portion of the assets of a Qualified Plan in the Outstanding
Notes or the New Notes, a fiduciary should consider (i) whether the investment
is in accordance with the documents and instruments governing the plan; (ii)
whether the investment satisfies the diversification requirements of Section
404(a)(1)(C) of ERISA; (iii) whether the investment will result in UBTI to the
Qualified Plan; (iv) whether the investment provides sufficient liquidity to
permit benefit payments when due; (v) whether the investment is prudent
considering the nature of the investment; (vi) the fact that there may not be a
market in which the Outstanding Notes or the New Notes can be sold or otherwise
transferred; and (vii) the prohibited transaction and other standards of ERISA
and the Code.
Acceptance of investments on behalf of a Qualified Plan does not constitute
a representation by Mountain States that an investment meets all relevant legal
requirements for any investor or that the investment is appropriate for any
particular Qualified Plan. The person with investment discretion should consult
with legal counsel as to the propriety of such an investment in light of the
circumstances of the particular Qualified Plan.
NON-U.S. INVESTORS
The extent to which any foreign holder's investment in the Outstanding
Notes or the New Notes will be taxed by the United States will depend on the
holder's particular circumstances and is a matter that prospective foreign
holders should discuss with their own tax advisors.
U.S. INCOME TAX WITHHOLDING
Payments of interest or other reportable payments made on the Outstanding
Notes or the New Notes, and proceeds from the sale, including redemption, of the
Notes to or through certain brokers including U.S. Bank Trust, may be subject to
"backup" withholding tax at the rate of 31% unless a holder complies with
certain reporting and/or certification procedures.
In addition, under certain circumstances, non-corporate holders who are
nonresident aliens may be subject to U.S. income tax withholding at the rate of
30% on payments of interest, principal and the proceeds of disposition with
respect to the Outstanding Notes or the New Notes. Nonresident alien holders
should consult their own tax advisors regarding their qualification of reduced
withholding rates or exemption from withholding and the procedure for obtaining
a reduced withholding rate or exemption, if applicable.
The amount of any withholding, backup or withholding from nonresident
aliens, from a payment to a holder will be allowed as a credit against such
holder's U.S. federal income tax liability and may entitle such holder to a
refund, provided that the required information is furnished to the IRS.
36
<PAGE>
OTHER TAX CONSIDERATIONS
Holders may be subject to a variety of state and/or local taxes with
respect to the Outstanding Notes and the New Notes, including, but not limited
to, income taxes and intangible taxes. Holders are urged to discuss these
matters with their own tax advisors.
PLAN OF DISTRIBUTION
This offering is being made by Mountain States. Mountain States, however,
has engaged Heritage West Securities, Inc. to offer Notes on an agency and "best
efforts" basis. Heritage West is a fully licensed NASD and SEC broker-dealer
that is authorized to conduct business in 38 states. Mountain States will pay
directly to Heritage West sales commissions for New Notes sold through the
efforts of Heritage West. Payment of sales commissions will be made to Heritage
West as the offering is successfully completed, and sales commissions will be
paid as the subscription funds are released to Mountain States.
Heritage West will be paid 3% annually of the face amount of all New Notes
sold to purchasers who are identified by Heritage West and 1 1/2% annually of
the face amount of all other New Notes. All fees under this plan will be paid
monthly in arrears, beginning 30 days from the date of Mountain States' receipt
of subscription proceeds for the New Notes. The fees will be paid for such terms
and renewal terms until Mountain States retires the New Notes.
Upon mutual agreement, Mountain States and Heritage West may engage
additional broker-dealers to act on their behalf. Any additional broker-dealers
will be members of the National Association of Securities Dealers, Inc.,
licensed and registered to conduct business in all jurisdictions where the New
Notes are to be offered. If Mountain States and Heritage West agree that other
broker-dealers are to be utilized in the further distribution of the New Notes,
then supplemental fees will be negotiated amongst the parties on a case by case
basis.
Mountain States has agreed to indemnify Heritage West and any additional
broker-dealers against certain civil liabilities, including liabilities under
the Securities Act. In the opinion of the SEC, indemnification for liabilities
arising under the Securities Act is against public policy and therefore
unenforceable. Each broker-dealer may be deemed to be an "underwriter" as that
term is defined in the Securities Act.
Mountain States or certain persons related to or affiliated with Mountain
States or the Soliciting Dealers may purchase New Notes on the same terms and
conditions as any other investor, including sufficient New Notes to allow
Mountain States to reach the minimum. Any such persons may subsequently transfer
New Notes so acquired by them on the same terms and conditions as any other
holder of New Notes.
No New Notes will be sold by Mountain States, and no commissions or fees
will be paid by it unless Mountain States is able to reach the $2,200,000
minimum under this offering. All funds received for the purchase of New Notes
will be held by Mountain States in a separate bank account until the minimum is
met. If the minimum is not met within 60 days of this prospectus, all funds
received will be promptly repaid in full without interest. The Broker/Dealer
Agreement between Mountain States and Heritage West provides that:
* the proceeds received from the sale of New Notes prior to the
disbursement of funds to Mountain States will immediately upon payment
by the investors be delivered by Heritage West to the separate bank
account with a statement setting forth the name and address of each
person investing in Mountain States,
37
<PAGE>
* the monies will be invested by Valley Bank in an interest-bearing
account, and at all times a complete record will be maintained of the
names of the investors and the amount of cash paid by each,
* the proceeds from the sale of such New Notes shall not become the
property of Mountain States or be subject to its debts unless and
until there has been deposited proceeds, including canceled
Outstanding Notes that are investing their cash proceeds in New Notes,
equal to the required $2,200,000 minimum offering amount, and
* accrued interest in New Notes will be distributed within 30 days
following the disbursement of funds to Mountain States.
LEGAL MATTERS
The legality of the New Notes offered will by passed upon for Mountain
States by its general counsel, Quarles & Brady LLP, Phoenix, Arizona.
EXPERTS
The financial statements of Mountain States for the period beginning March
13, 1997, and ending December 31, 1997, and as of December 31, 1998, and
December 31, 1999, and for the year then ended, included in this prospectus have
been audited by Clancy & Co., P.L.L.C., independent auditors, as stated in their
reports appearing in this registration statement, and are so included in
reliance upon the reports of such firm given upon their authority as experts in
accounting and auditing.
AVAILABLE INFORMATION
Mountain States has filed with the Commission, 450 Fifth Street N.W.,
Washington, D.C. 20549, a registration statement under the Securities Act
concerning the New Notes offered by this prospectus, and concerning the
recission offer with respect to the Outstanding Notes. Some portions of the
registration statement have not been included in this prospectus as permitted by
the Commission's regulations. For further information concerning Mountain
States, the New Notes and the recission offer, see the registration statement
and its exhibits, which may be inspected at the offices of the Commission,
without charge. Copies of the material contained in the registration statement
may be obtained from the Commission upon payment of the prescribed fees.
Statements contained in this prospectus as to the contents of any contract or
other documents are not necessarily complete; where such contract or other
document is an exhibit to the registration statement, each statement is
qualified in all respects by the provisions of the exhibit, to which reference
is made for a full statement of the provisions of the exhibit.
After completion of this offering, Mountain States will be subject to the
information requirements of the Securities Exchange Act of 1934 and, in
accordance with that Act, will file reports, proxy statements and other
information with the Commission. These reports, proxy statements and other
information may be read and copied at Public Reference Room of the Commission,
450 Fifth Street N.W., Washington, D.C. 20549. Additionally, the Commission
maintains a web site at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding issuers that file
electronically with the Commission. You may obtain information on the operation
of the Commission Public Reference Room by calling the Commission at
1-800-SEC-0330.
38
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
----
Independent Auditor's Reports............................................. F-2
Financial Statements:
Income Statement for Years Ended December 31, 1997, 1998, and 1999...... F-4
Balance Sheets as of December 31, 1997, 1998, and 1999.................. F-5
Cash Flow Statements for Years Ended December 31, 1997, 1998 and 1999... F-7
Notes to Financial Statements........................................... F-9
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Mountain States Capital, Inc.
Phoenix, Arizona 85016
We have audited the accompanying balance sheet of Mountain States Capital, Inc.,
as of December 31, 1999 and 1998, and the related statements of income,
stockholder's equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principals used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit of the financial statements 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 the Company at December 31,
1999 and 1998, and the results of its operations and its cash flows for the
years ended, in conformity with generally accepted accounting principals.
/s/ Clancy and Co.
Clancy and Co., P.L.L.C.
Phoenix, Arizona
February 8, 2000
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Mountain States Capital, Inc.
Phoenix, Arizona 85016
We have audited the accompanying balance sheet of Mountain States Capital, Inc.,
as of December 31, 1998 and 1997, and the related statements of income,
stockholder's equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principals used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit of the financial statements 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 the Company at December 31,
1998 and 1997, and the results of its operations and its cash flows for the
years ended, in conformity with generally accepted accounting principals.
/s/ Clancy and Co.
Clancy and Co., P.L.L.C.
Phoenix, Arizona
March 5, 1999
F-3
<PAGE>
MOUNTAIN STATES CAPITAL, INC.
FINANCIAL STATEMENTS
TEN MONTHS ENDED DECEMBER 31, 1997,
YEARS ENDED DECEMBER 31, 1998 AND 1999
INCOME STATEMENT
<TABLE>
<CAPTION>
10 MONTHS ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, ---------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Income Statement Data:
Income
Finance Fee Income $ 185,459 $ 749,503 $ 971,350
Document Fee Income 27,861 157,679 201,618
----------- ----------- -----------
Total Income 213,320 907,182 1,172,968
Cost of Financing (35,791) (343,411) (514,863)
----------- ----------- -----------
Net Financing Income 177,529 563,771 658,105
Operating Expenses
General and Administrative Expenses 67,298 452,680 608,951
Operating Income $ 110,231 $ 111,091 $ 49,154
Other Income (Expense)
Interest Income 0 547 4,194
Interest Expense 0 (1,930) (3,160)
----------- ----------- -----------
Total Other Income (Expense) 0 (1,383) 1,034
Net Income Available to Common Stockholders 110,231 109,708 50,188
=========== =========== ===========
Basic and Diluted Income Per Share $ 0.11 $ 0.11 $ 0.05
=========== =========== ===========
Weighted Average Number of Shares Outstanding 1,000,000 1,000,000 1,000,000
=========== =========== ===========
</TABLE>
F-4
<PAGE>
MOUNTAIN STATES CAPITAL, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998 AND 1999
BALANCE SHEET
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------
Balance Sheet Data: 1997 1998 1999
-------- ---------- ----------
<S> <C> <C> <C>
ASSETS
Current Assets
Cash $ 80,278 $ 122,941 $ 227,958
Accounts Receivable, net of Allowance for
Doubtful Accounts of $0, $25,102, and $25,102
at December 31, 1997, 1998 and 1999 448,487 1,369,141 1,925,665
Prepaid Expenses 0 1,422 59,786
Notes Receivable 0 165,967 609,232
Other Accounts Receivable 32,901 0 0
-------- ---------- ----------
Total Current Assets 561,666 1,659,471 2,822,641
Fixed Assets 0 56,895 425,614
Other Assets
Security Deposits 0 5,162 6,412
Employee Receivables / Officer Loans 0 14,107 42,819
Accrued Interest Receivable 0 0 3,528
-------- ---------- ----------
Total Other Assets 0 19,269 52,759
-------- ---------- ----------
TOTAL ASSETS 561,666 1,735,635 3,301,014
======== ========== ==========
LIABILITIES & EQUITY
Current Liabilities
Accounts Payable and Accrued Liabilities 0 0 33,601
Promissory Notes Payable 445,099 1,549,895 2,628,854
Notes Payable, Current Portion 0 4,612 5,224
Notes Payable, Related Parties 5,336 0 0
Notes Payable 0 0 35,000
-------- ---------- ----------
Total Current Liabilities 450,435 1,554,507 2,702,679
Long-Term Liabilities
Notes Payable, Noncurrent Portion 0 21,506 16,283
-------- ---------- ----------
Total Liabilities 450,435 1,576,013 2,718,962
Contingencies and Commitments None None
Stockholder's Equity
Preferred Stock, Authorized 1,000,000 Shares of
No Par Value, Issued and Outstanding, 409,089
Shares at December 31, 1999 0 0 409,089
</TABLE>
F-5
<PAGE>
MOUNTAIN STATES CAPITAL, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998 AND 1999
BALANCE SHEET
AT DECEMBER 31,
------------------------------------
1997 1998 1999
-------- ---------- ----------
Common Stock, Authorized 25,000,000
Shares of $.001 Par Value, Issued
and Outstanding 1,000,000 1,000 1,000 1,000
Retained Earnings 110,231 158,622 171,963
-------- ---------- ----------
Total Stockholder's Equity 111,231 159,622 582,052
TOTAL LIABILITIES & STOCKHOLDER'S EQUITY $561,666 $1,735,635 $3,301,014
======== ========== ==========
F-6
<PAGE>
MOUNTAIN STATES CAPITAL, INC.
FINANCIAL STATEMENTS
TEN MONTHS ENDED DECEMBER 31, 1997,
YEARS ENDED DECEMBER 31, 1998 AND 1999
CASH FLOW STATEMENTS
<TABLE>
<CAPTION>
10 MONTHS ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, ---------------------------
1997 1998 1999
--------- ----------- -----------
<S> <C> <C> <C>
Cash Flow Data:
Cash Flows From Operating Activities
Net Income $ 110,231 $ 109,708 $ 50,188
Adjustments to Reconcile Net Income to
Net Cash Used in Operating Activities
Depreciation 0 18,731 22,737
Allowance for Doubtful Accounts 0 25,102 0
Changes in Assets and Liabilities
(Increase) Decrease in Accounts Receivable (448,487) (945,756) (556,524)
(Increase) Decrease in Prepaid Expenses 0 (1,422) (58,364)
(Increase) Decrease in Other Accounts
Receivable (32,901) 32,901 0
(Increase) Decrease in Security Deposits 0 (5,162) (1,250)
(Increase) Decrease in Accrued Interest
Receivable 0 0 (3,528)
(Increase) Decrease in Accounts Payable and
Accrued Liabilities 0 0 33,601
--------- ----------- -----------
Total Adjustments (481,388) (875,606) (563,328)
Net Cash Used in Operating Activities (371,157) (765,898) (513,140)
Cash Flows from Investing Activities
Purchase of Fixed Assets 0 (47,533) (75,207)
--------- ----------- -----------
Net Cash Flows Used in Investing Activities 0 (47,533) (75,207)
Cash Flows From Financing Activities
Proceeds from the Issuance of Common Stock 1,000 0 0
Advances Under Notes Receivable 0 (165,967) (443,265)
Net Borrowings Under Promissory Notes 445,099 1,104,796 1,488,049
Payments Under Installment Note 0 (1,955) (4,611)
Net Repayments Under Line of Credit 0 0 (281,250)
Net Repayments From Related Parties 5,336 (5,336) 0
Distributions to Stockholder 0 (61,317) (36,847)
Advances to Officers 0 (14,107) (28,712)
--------- ----------- -----------
Net Cash Provided by Financing Activities 451,435 856,114 693,364
Increase in Cash and Cash Equivalents 80,278 42,663 105,017
Cash and Cash Equivalents, Beginning of Year 0 80,278 122,941
--------- ----------- -----------
Cash and Cash Equivalents, End of Year $ 80,278 $ 122,941 $ 227,958
========= =========== ===========
</TABLE>
F-7
<PAGE>
MOUNTAIN STATES CAPITAL, INC.
FINANCIAL STATEMENTS
TEN MONTHS ENDED DECEMBER 31, 1997,
YEARS ENDED DECEMBER 31, 1998 AND 1999
CASH FLOW STATEMENTS
<TABLE>
<CAPTION>
SUPPLEMENTAL INFORMATION:
<S> <C> <C> <C>
Cash paid for
Interest $ 35,791 $ 345,341 $ 518,023
========= =========== ===========
Income Taxes 0 0 0
========= =========== ===========
Noncash Investing and Financing Activities:
Acquisition of Vehicle Financed Through
Installment Notes Payable $ 28,073 0
========= =========== ===========
Acquisition of Building Financed Through
Notes Payable / Line of Credit 0 $ 316,250
========= =========== ===========
Conversion of Promissory Notes Payable to
Preferred Stock 0 $ 409,089
========= =========== ===========
</TABLE>
F-8
<PAGE>
MOUNTAIN STATES CAPITAL, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
NOTE 1 - ORGANIZATION
Mountain States Capital, Inc. (the Company) was formed and organized under
the laws of the State of Arizona on March 13, 1997. The Company has been
established to provide floor planning (inventory financing) for independent
automobile dealers, which is desirable to small dealers because it offers a
ready, flexible, and reliable source of funds to purchase automobiles for
their inventory.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
A. METHOD OF ACCOUNTING
The Company's financial statements are prepared using the accrual method of
accounting.
B. CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments with a maturity of
three months or less to be cash and cash equivalents.
C. CONCENTRATION OF CREDIT RISK
The Company maintains cash balances in excess of $100,000 at a local bank.
The balance is insured by the Federal Deposit Insurance Corporation up to
$100,000.
D. FIXED ASSETS AND DEPRECIATION
Fixed assets are stated at cost and are depreciated on the straight-line
basis over their estimated useful lives, ranging from five to seven years.
E. REVENUES
Revenues consists of providing financing for the acquisition of automobile
inventory and are recognized at the time financing arrangements have been
completed. A pre-qualified automobile dealer obtains a loan from the
Company for a short term (from one to thirty days) for a fee, by executing
a "Security Agreement," which establishes the terms and conditions of loans
by the Company to the dealer, and a "Promissory Note," which has the
automobile title attached to it. The Company holds the automobile title
during the duration of the loan. When the loan is paid off, the title is
returned to the automobile dealer.
The number and amount of loans outstanding with a dealer is determined by
company policy, assessment, and experience with that dealer.
F. ALLOWANCE FOR DOUBTFUL ACCOUNTS
Accounts Receivable are shown net of Allowance for Doubtful Accounts, which
are estimated as a percent of accounts receivable and sales, respectively,
based on prior years experience.
G. INCOME TAXES
The Company is an "S" Corporation, and therefore all taxable income or
losses and available tax credits are passed from the corporate entity to
the individual stockholder. It is the responsibility of the individual
F-9
<PAGE>
MOUNTAIN STATES CAPITAL, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
stockholder to report the taxable income or losses and tax credits, and to
pay any resulting income taxes. Thus, there is no provision for income
taxes included in these financial statements.
H. USE OF ESTIMATES
Management uses estimates and assumptions in preparing financial statements
in accordance with generally accepted accounting principals. Those
estimates and assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities, and the
reported revenues and expenses. Actual results could vary from the
estimates that were assumed in preparing the financial statements.
I. PENDING ACCOUNTING PRONOUNCEMENTS
It is anticipated that current pending accounting pronouncements will not
have an adverse impact on the financial statements of the Company.
J. PRESENTATION
Certain prior year amounts have been reclassified to conform to fiscal 1998
presentation. These changes had no impact on previously reported results of
operations or stockholder's equity.
NOTE 3 - ACCOUNTS RECEIVABLE
Accounts Receivable at December 31, 1998 and 1997, of $1,357,249 and
$448,487, respectively, consists entirely of dealer loans secured by the
automobile title, and are due within thirty days. Included in the balance
are finance fees of approximately $73,900 and $21,300, at December 31, 1998
and 1997.
NOTE 4 - NOTES RECEIVABLE
Notes Receivable at December 31, 1998, consists of the following:
Note dated June 1, 1998 in the original amount of $12,000,
payable in payments of two hundred and fifty dollars ($250)
per automobile funded above current posted rates or as
agreed to by the Company. $ 2,750
Note dated June 30, 1998, in the original amount of $7,311,
plus interest at the rate of thirty two percent per annum,
due on or before January 15, 1999. Principal and interest
payments are due in twelve equal installments as follows:
$250 ($152.50 principal and $97.50 interest) on the first
and fifteenth days of each month commencing July 15, 1998,
with the final installment due and payable on January 1,
1999, and a balloon payment of $5,481 due on January 15,
1999. A UCC-1 has been filed and is personally guaranteed
by the dealer. 5,511
F-10
<PAGE>
MOUNTAIN STATES CAPITAL, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
Note dated November 20, 1998, in the original amount of
$27,189, plus interest at the rate of thirty percent per
annum, due on or before June 1, 1999. Proceeds from other
floored automobiles will be used to reduce the principal
and fees until debt has been repaid. A UCC-1 has been
filed and is personally guaranteed by the dealer. 27,189
Note dated December 28, 1998, in the original amount of
$72,000, plus interest at the rate of thirty percent per
annum, payable in principal payments of $5,000 commencing
January 30, 1999 through March 30, 1999, and $10,000 on
the 30th day of April and May 1999. The note is due before
June 30, 1999. Secured by a quitclaim deed on real property
and personally guaranteed by the dealer. 72,000
---------
Total $ 107,450
=========
NOTE 5 - OTHER ACCOUNTS RECEIVABLE
Other Accounts Receivable totaling $32,901 at December 31, 1997, represent
amounts due under contract from a dealer engaged in the same line of
business for servicing dealer contracts. The amount was paid in 1998.
NOTE 6 - FIXED ASSETS
Fixed Assets consists of the following at December 31, 1998:
Automobiles $66,374
Furniture and Fixtures 4,623
Computer Equipment 4,629
-------
Total 75,626
Less Accumulated Depreciation 18,731
-------
Net Book Value $56,895
=======
Depreciation expense charged to operations during the year ended December
31, 1998, was $18,731.
NOTE 7 - PROMISSORY NOTES PAYABLE
Promissory Notes Payable represents various promissory notes written for a
basic period of nine months, pay simple interest at an average rate of
2.33% and 2.66% per month at December 31, 1998 and 1997, respectively, and
may be renewed by mutual agreement of the Company and the lender. Interest
is paid monthly and the principal is repaid at the end of the period or the
final renewal period. These notes are due on demand after ninety days
F-11
<PAGE>
MOUNTAIN STATES CAPITAL, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
written notice. The following is a summary of notes payable as of December
31, 1998 and 1997:
1998 1997
---------- --------
Number of Notes 42 24
========== ========
Amount $1,549,895 $445,099
========== ========
All notes are secured, and are collateralized by automobile titles and
proceeds of previous loans. Interest on notes payable has been paid through
December 31, 1998.
NOTE 8 - NOTES PAYABLE
Notes Payable at December 31, 1998, represents an automobile loan with
Chrysler Financial Services for a 1998 Dodge Durango. Payments are due in
sixty monthly installments, beginning July 3, 1998, including interest at
12.5%. The loan is secured by the truck itself.
The balance at December 31, 1998 consists of the following:
Notes Payable $26,118
Less Current Portion 4,612
-------
Notes Payable, Noncurrent Portion $21,506
=======
Future minimum payments are due as follows at December 31, 1998:
1999 $4,612
2000 $5,223
2001 $5,393
2002 $6,629
2003 $4,261
NOTE 9 - RELATED PARTY TRANSACTIONS
Employee Receivables of $14,107 at December 31, 1998, consists of advances
to a related party, bear no interest, and are due on demand.
Notes Payable, Related Parties at December 31, 1997, represents loans to
the company and payments for expenses incurred on behalf of the company
from related parties within the Company. No interest is accruing on these
loans. The Company repaid the loans in February 1998.
F-12
<PAGE>
MOUNTAIN STATES CAPITAL, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
NOTE 10 - COMMITMENTS AND CONTINGENCIES
OPERATING LEASE - The Company leases office and equipment under various
noncancellable operating lease agreements which expire through June 2001.
Rent expense charged to operations during 1998 was $15,106.
Future minimum rentals are due as follows:
1999 $ 32,989
2000 $ 9,618
2001 $ 2,696
CONTINGENCIES - The Company is currently pursuing a dealer who had declared
Chapter 11 bankruptcy. Included in other receivables is an amount due from
a dealer of approximately $59,000. There is no evaluation of the likelihood
of any outcome in the litigation, however the Company is committed to
aggressively pursuing its claims.
F-13
<PAGE>
MOUNTAIN STATES CAPITAL, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1999
NOTE 1 - ORGANIZATION
Mountain States Capital, Inc. (the Company) was formed and organized under
the laws of the State of Arizona on March 13, 1997, with an authorized
capital of 25,000,000 shares of no par value common stock. On December 28,
1999, the Company amended its articles of incorporation to increase its
authorized capital by 1,000,000 shares of no par value preferred stock.
The Company is in the business of providing "floor planning" for
independent automobile dealers. Floor planning is a type of short-term
inventory financing that offers to independent pre-owned automobile dealers
a ready, flexible, and reliable source of funds to purchase automobiles for
their inventory. The Company also conducts additional floor plan financing
activities through its division, SourceOne, which provides slightly lower
interest rates on its financing to independent automobile dealers in order
to compete with national floor planning competitors.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
A. METHOD OF ACCOUNTING
The Company's financial statements are prepared using the accrual method of
accounting.
B. CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments with a maturity of
three months or less to be cash and cash equivalents.
C. CONCENTRATION OF CREDIT RISK
The Company maintains cash balances in excess of $100,000 at a local bank.
The balance is insured by the Federal Deposit Insurance Corporation up to
$100,000.
D. FIXED ASSETS AND DEPRECIATION
Fixed assets are stated at cost and are depreciated on the straight-line
basis over their estimated useful lives.
E. REVENUES
Revenues consists of providing financing for the acquisition of automobile
inventory and are recognized at the time financing arrangements have been
completed. A pre-qualified automobile dealer obtains a loan from the
Company for a short-term (from one to thirty days) for a fee, by executing
a "Security Agreement," which establishes the terms and conditions of loans
by the Company to the dealer, and a "Promissory Note," which has the
vehicle title attached to it. The Company holds the vehicle title during
the duration of the loan. When the loan is paid off, the title is returned
to the automobile dealer.
The number and amount of loans outstanding with a dealer is determined by
company policy, assessment, and experience with that dealer.
F-14
<PAGE>
MOUNTAIN STATES CAPITAL, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1999
F. ALLOWANCE FOR DOUBTFUL ACCOUNTS
Accounts Receivable are shown net of Allowance for Doubtful Accounts, which
are estimated as a percent of accounts receivable and sales, respectively,
based on prior years experience.
G. INCOME TAXES
The Company is an "S" Corporation, and therefore all taxable income or
losses and available tax credits are passed from the corporate entity to
the individual stockholder. It is the responsibility of the individual
stockholder to report the taxable income or losses and tax credits, and to
pay any resulting income taxes. Thus, there is no provision for income
taxes included in these financial statements.
H. USE OF ESTIMATES
Management uses estimates and assumptions in preparing financial statements
in accordance with generally accepted accounting principals. Those
estimates and assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities, and the
reported revenues and expenses. Actual results may vary from the estimates
that were assumed in preparing the financial statements.
I. PENDING ACCOUNTING PRONOUNCEMENTS
It is anticipated that current pending accounting pronouncements will not
have an adverse impact on the financial statements of the Company.
J. PRESENTATION
Certain prior year amounts have been reclassified to conform to fiscal 1999
presentation. These changes had no impact on previously reported results of
operations or stockholder's equity.
K. PER SHARE OF COMMON STOCK
Effective March 1997, basic earnings or loss per share has been computed
based on the weighted average number of common shares outstanding. All
earnings or loss per share amounts in the financial statements are basic
earnings or loss per share, as defined by SFAS No. 128, "Earnings Per
Share." Diluted earnings or loss per share does not differ materially from
basic earnings or loss per share for all periods presented. All per share
and per share information are adjusted retroactively to reflect stock
splits and changes in par value.
L. STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." Compensation cost for stock
options, if any, is measured as the excess of the quoted market price of
the Company's stock at the date of grant over the amount an employee must
pay to acquire the stock. SFAS No. 123, "Accounting for Stock-Based
Compensation," established accounting and disclosure requirements using a
fair-value-based method of accounting for stock-based employee compensation
plans. The Company has elected to remain on its current method of
accounting as described above, and has adopted the disclosure requirements
of SFAS No. 123, effective March 1997.
F-15
<PAGE>
MOUNTAIN STATES CAPITAL, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1999
M. CAPITAL STRUCTURE
The Company has implemented SFAS No. 129, "Disclosure of Information about
Capital Structure," effective January 1, 1998, which established standards
for disclosing information about an entity's capital structure. The
implementation of SFAS No. 129 had no effect on the Company's financial
statements
N. COMPREHENSIVE INCOME
The Company has implemented SFAS No. 130, "Reporting Comprehensive Income,"
effective January 1, 1998, which requires companies to classify items of
other comprehensive income by their nature in a financial statement and
display the accumulated balance of other comprehensive income separately
from retained earnings and additional paid in capital in the equity section
of a statement of financial position. The implementation of SFAS No. 130
had no effect on the Company's financial statements.
O. BUSINESS SEGMENT INFORMATION
The Company has implemented SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," effective January 1, 1998. The
implementation of SFAS No. 131 had no effect on the Company's financial
statements.
NOTE 3 - ACCOUNTS RECEIVABLE
Accounts Receivable at December 31, 1999 and 1998, of $1,925,665 and
$1,369,141, respectively, consists entirely of dealer loans secured by the
vehicle title, and are due within thirty days. Included in the balance are
finance fees of approximately $86,000 and $74,000, at December 31, 1999 and
1998, respectively.
NOTE 4 - NOTES RECEIVABLE
Notes Receivable of $609,232 and $165,967 at December 31, 1999 and 1998,
respectively, represent various accounts receivable converted to notes due
to lack of payment on a timely basis. The Company has successfully obtained
a secured interest in all of the property collateralized by the notes and
does not anticipate any losses from these loans. The Company is committed
to protecting its interests.
NOTE 5 - FIXED ASSETS
Fixed Assets consists of the following at December 31:
1999 1998
--------- --------
Building and Improvements $ 375,895
Automobiles 74,874 $ 66,374
Furniture and Fixtures 8,644 4,623
Computer Equipment 7,669 4,629
--------- --------
Total 467,082 75,626
Less Accumulated Depreciation (41,468) (18,731)
--------- --------
Net Book Value $ 425,614 $ 56,895
========= ========
F-16
<PAGE>
MOUNTAIN STATES CAPITAL, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1999
Depreciation expense charged to operations during the year ended December
31, 1999 and 1998, was $22,737 and $18,731, respectively.
NOTE 6 - OFFICER LOANS
Officer loans of $42,189 and $14,107 at December 31, 1999 and 1998,
respectively, represent advances to officers. These loans are unsecured,
bear interest at 10%, and are due on demand. Accrued interest of $3,528 is
due at December 31, 1999.
NOTE 7 - PROMISSORY NOTES PAYABLE
Promissory Notes Payable represents various promissory notes written for a
basic period of nine months, pay simple interest at an average rate of
1.87% and 2.33% per month for 1999 and 1998, respectively, and may be
renewed by mutual agreement of the Company and the lender. Interest is paid
monthly and the principal is repaid at the end of the period or the final
renewal period. These notes are due on demand after ninety days written
notice. All notes are secured, and are collateralized by automobile titles
and proceeds of previous loans.
Promissory Notes Payable at December 31, 1999 and 1998, are $2,628,854
(representing 75 notes) and $1,549,895 (representing 42 notes),
respectively. Interest on notes payable has been paid through December 31,
1999 and 1998.
NOTE 8 - INSTALLMENT NOTES PAYABLE
Installment Notes Payable represents a vehicle loan with Chrysler Financial
Services for a 1998 Dodge Durango. Payments are due in sixty monthly
installments, beginning July 3, 1998, including interest at 12.5%. The loan
is secured by the vehicle.
The balance at December 31, 1998 consists of the following:
Notes Payable $ 21,507
Less Current Portion (5,224)
--------
Notes Payable, Noncurrent Portion $ 16,283
========
F-17
<PAGE>
MOUNTAIN STATES CAPITAL, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1999
Future minimum payments are due as follows at December 31:
2000 $5,224
2001 $5,393
2002 $6,629
2003 $4,261
NOTE 9 - NOTES PAYABLE
Notes Payable at December 31, 1999, represents a carryback loan of $35,000
encumbered to purchase the building located at 1407 E. Thomas Road,
Phoenix, Arizona, the Company's headquarters. The loan is current and is
due in 12 monthly payments of $3,077.06.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
OPERATING LEASE - The Company leases office and equipment under various
noncancellable operating lease agreements which expire through June 2001.
Rent expense charged to operations during 1999 and 1998 was $33,764 and
$15,106, respectively.
Future minimum rentals are due as follows:
2000 $9,618
2001 $2,696
COMMITMENTS - The Company operates under a line of credit dated November 9,
1999, in the original amount of $281,250. Interest payments are due monthly
on the ninth of each month, payable at 9.75% of the unpaid outstanding
principal balance of each advance. The loan is due in full on November 9,
2001. At December 31, 1999, the Company had available $281,250 for
advances.
CONTINGENCIES - On January 21, 2000, the State of Texas Securities Board
entered into an Administrative Order against the Company assessing a
$30,000 administrative fine for the sale of unregistered securities in
Texas in the form of promissory notes. The Company had sold those notes
during 1999 by placing advertisements in publications of general
circulation in Texas. As of the date of these financial statements, the
order has been executed by all of the parties and the Company has paid the
fine. Included in the 1999 financial statements is an accrual of $30,000
for this fine.
NOTE 11 - OTHER
On December 31, 1999, the Company converted certain promissory notes to
equity and issued 409,089 shares of preferred stock at $1.00 per share, or
$409,089, thereby changing its tax status from an "S" Corporation to a "C"
Corporation. The Company has adopted the provision of Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes," and will
account for income taxes under these provisions effective January 1, 2000. Under
SFAS No. 109, deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax basis of assets and
liabilities, using enacted tax rates in effect for the year in which the
differences are expected to reverse.
F-18
<PAGE>
RECISSION ELECTION FORM
I, the undersigned investor, have received the prospectus dated
____________________. I have had an opportunity to review the prospectus and
based upon that review, I hereby make the following selection with regard to my
Outstanding Notes:
[ ] I accept the terms of the recission offer and would like to apply
ALL of the cash proceeds from my Outstanding Note(s) toward the
purchase of a New Note. Please add the enclosed check in the amount of
$_______ to the proceeds of my Outstanding Note(s) and apply it toward
the purchase of a New Note. (Note: minimum amount of New Note is
$5,000 with $1,000 increments above the minimum amount). I am
returning my Outstanding Note(s) with this election form.1
[ ] I accept the terms of the recission offer and would like to apply
$___________________ of the cash proceeds from my Outstanding Note(s)
toward the purchase of a New Note, and receive the remainder in cash.
(Note: minimum amount of New Note is $5,000 with $1,000 increments
above the minimum amount). I am returning my Outstanding Note(s) with
this election form.1
[ ] I reject the terms of the recission offer and would like to retain
my Outstanding Note(s).2
[ ] I accept the terms of the recission offer and would like to receive
ALL of the cash proceeds from my Outstanding Note(s). I am returning
my Outstanding Note(s) with this election form.1
IF YOU, THE INVESTOR, HAVE SELECTED TO APPLY ALL OR A PORTION OF THE CASH
PROCEEDS YOU RECEIVE FOR YOUR OUTSTANDING NOTE(S) TOWARD THE PURCHASE OF A NEW
NOTE, YOU MUST SELECT FROM ONE OF THE FOLLOWING NEW NOTE OPTIONS. Failure to
indicate your New Note preference below will result in your cash proceeds being
applied toward the purchase of a Monthly Payment (New) Note.
[ ] Apply $___________________ toward the purchase of an ACCRUAL (NEW)
NOTE. The Accrual (New) Notes are 12 month Notes that will bear
interest at the rate of 18% per year (1.5% monthly). The interest will
be compounded monthly. The principal and accrued interest will be paid
back to the investor at the end of the term of the Note, which will
create an effective annual yield of 19.56%.
[ ] Apply $___________________ toward the purchase of a MONTHLY PAYMENT
(NEW) NOTE. The Monthly Payment (New) Notes are 12 month Notes that
will bear interest at the rate of 18% per annum (1.5% monthly). The
interest will be paid to the investor on a monthly basis, and the
principal will be paid to the investor at the end of the term of the
Note.
- ----------
(1) If you are unable to locate and forward your Outstanding Note(s), please
call Heritage West Securities, Inc. at (602) 279- 1212.
(2) Please note that Mountain States Capital, Inc. intends to repay all of the
Outstanding Notes shortly after the recission offer is completed and as
soon as sufficient funds become available.
Annex A1 - Page 1 of 4
<PAGE>
INVESTOR STATUS:
<TABLE>
<CAPTION>
<S> <C>
[ ] Individual [ ] KEOGH (HRIO)
[ ] Joint Tenants with Right of Survivorship* [ ] Uniform Gift to Minors - State of ____________
[ ] Tenants in Common* [ ] Living Trust
[ ] Community Property* [ ] Trust
[ ] Corporation** ___________ (Type of Corp) Name of trustee: _____________________________
[ ] Limited Liability Company ** Date established: ____________________________
[ ] Partnership Grantor: _____________________________________
[ ] General [ ] Limited [ ] Other: _______________________________________
[ ] IRA
</TABLE>
* Signatures of ALL parties (ALL co-investors) is required.
** Please contact Heritage West Securities to discuss the form of authorization
that is required.
<TABLE>
<CAPTION>
<S> <C> <C>
- --------------------------------------- --------------------------------------- ---------------------------------------
Print Full Name of Person or Entity Print Full Name of Person or Entity Print Full Name of Person or Entity
- --------------------------------------- --------------------------------------- ---------------------------------------
If entity, print full name of Signatory If entity, print full name of Signatory If entity, print full name of Signatory
- --------------------------------------- --------------------------------------- ---------------------------------------
Title, if applicable Title, if applicable Title, if applicable
- --------------------------------------- --------------------------------------- ---------------------------------------
Address Address Address
- --------------------------------------- --------------------------------------- ---------------------------------------
City/State/Zip Code City/State/Zip Code City/State/Zip Code
- --------------------------------------- --------------------------------------- ---------------------------------------
Telephone Number Telephone Number Telephone Number
- --------------------------------------- --------------------------------------- ---------------------------------------
Social Security No./TIN No. Social Security No./TIN No. Social Security No./TIN No.
</TABLE>
UNDER THE PENALTIES OF PERJURY, I (WE) CERTIFY THAT THE INFORMATION PROVIDED ON
THIS FORM IS TRUE, CORRECT, AND COMPLETE.
- ------------------------- ------------------------- ------------------------
INVESTOR SIGNATURE CO-INVESTOR SIGNATURE CO-INVESTOR SIGNATURE
- ------------------------- ------------------------- ------------------------
DATE DATE DATE
Annex A1 - Page 2 of 4
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER.-Social Security numbers have nine digits separated by two hyphens: i.e.
000-00-0000. Employer identification numbers have nine digits separated by only
one hyphen: i.e. 00-0000000. The table below will help determine the number to
give the payer.
<TABLE>
<CAPTION>
GIVE THE EMPLOYER
GIVE THE SOCIAL IDENTIFICATION
FOR THIS TYPE OF ACCOUNT: SECURITY NUMBER OF- FOR THIS TYPE OF ACCOUNT: NUMBER OF-
- ------------------------- ------------------- ------------------------- ----------
<S> <C> <C> <C>
1. Individual The individual 6. Sole proprietorship The owner(3)
2. Two or more The actual owner of 7. A valid trust, The legal entity(4)
individuals the account or, if estate, or pension
(joint account) combined funds, the trust
first individual on
the account(1) 8. Corporate The corporation
3. Custodian account of The minor(2) 9. Association, club, The organization
a minor (Uniform Gift to religious, charitable,
Minors Act) educational, or other
tax-exempt organization
4. a. The usual The grantor-trustee(1) 10. Partnership The partnership
revocable savings trust
account (grantor is also 11. A broker or The broker or nominee
trustee) registered nominee
b. So-called trust account The actual owner(1) 12. Account with the The public entity
that is not a legal or Department of Agriculture
valid trust under State in the name of a public
law entity (such as a State
or local government,
school district, or
prison) that
receives agricultural
5. Sole proprietorship The owner(3) program payments
</TABLE>
- ----------
(1) List first and circle the name of the person whose number you furnish. If
only one person on a joint account has a social security number, that
person's number must be furnished.
(2) Circle the minor's name and furnish the minor's social security number.
(3) You must show your individual name, but you may also enter your business or
"doing business as" name. You may use either your social security number or
your employer identification number (if you have one).
(4) List first and circle the name of the legal trust, estate, or pension
trust. (Do not furnish the taxpayer identification number of the personal
representative or trustee unless the legal entity itself is not designated
in the account title.)
NOTE: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
Annex A1 - Page 3 of 4
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you do not have a taxpayer identification number or you do not know your
number, apply for one immediately. To apply for a social security number, obtain
Form SS-5, Application for a Social Security Number Card, from your local Social
Security Administration Office. To apply for an employer identification number,
obtain Form SS-4, Application for Employer Identification Number, from the
Internal Revenue Service. If you do not have a taxpayer identification number,
write "Applied For" in the space for the taxpayer identification number. PAYEES
EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding include the
following:
* An organization exempt from tax under section 501(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), an individual retirement
account or a custodial account under section 403(b)(7), if the account
satisfies the requirements of section 401(f)(2).
* The United States or any agency or instrumentality thereof.
* A state, the District of Columbia, a possession of the United States, or
any political subdivision or instrumentality thereof.
* A foreign government or any political subdivision, agency or
instrumentality thereof.
* An international organization or any agency or instrumentality thereof.
Other payees that MAY BE EXEMPT from backup withholding include: o A
corporation.
* A financial institution.
* A dealer in securities or commodities required to register in the U.S., the
District of Columbia or a possession of the U.S.
* A futures commission merchant registered with the Commodity Futures Trading
Commission.
* A real estate investment trust.
* A common trust fund operated by a bank under section 584(a).
* An entity registered at all times during the tax year under the Investment
Company Act of 1940.
* A foreign central bank of issue.
* A middleman known in the investment community as a nominee or who is listed
in the most recent publication of the American Society of Corporate
Secretaries, Inc. Nominee List.
* A trust exempt from tax under section 664 or described in section 4947.
PAYMENTS EXEMPT FROM BACKUP WITHHOLDING
Payments that are not subject to information reporting are also not subject to
backup withholding. Dividends and patronage dividends that generally are exempt
from backup withholding include the following:
* Payments to nonresident aliens subject to withholding under section 1441.
* Payments to partnerships not engaged in a trade or business in the U.S. and
which have at least one nonresident alien partner.
* Payments of patronage dividends where the amount received is not paid in
money.
* Payments made by certain foreign organizations.
* Section 404(k) payments made by an ESOP.
Interest payments that generally are exempt from backup withholding include the
following:
* Payments of interest on obligations issued by individuals.
Note: You may be subject to backup withholding if this interest is $600 or
more and is paid in the course of the payer's trade or business and you
have not provided your correct taxpayer identification number to the payer.
* Payments of tax-exempt interest (including exempt-interest dividends under
section 852).
* Payments described in section 6049(b)(5) to nonresident aliens.
* Payments on tax-free covenant bonds under section 1451.
* Payments made by certain foreign organizations.
* Mortgage interest paid to you.
Certain payments other than interest, dividends, and patronage dividends are
also not subject to backup withholding
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER, WRITE "EXEMPT" IN PART II OF THE FORM, SIGN AND DATE THE
FORM, AND RETURN IT TO THE PAYER.
PRIVACY ACT NOTICE. - Section 6109 of the Code requires most recipients of
dividend, interest, or other payments to give correct taxpayer identification
numbers to payers who must report the payments to the IRS. The IRS uses the
numbers for identification purposes and to help verify the accuracy of your tax
return. The IRS may also provide this information to the Department of Justice
for civil and criminal litigation and to cities, states, and the District of
Columbia to carry out their tax laws. You must provide your taxpayer
identification number whether or not you are required to file tax returns.
Payers must generally withhold 31% of taxable interest, dividend, and certain
other payments to a payee who does not furnish a taxpayer identification number
to a payer. Certain penalties may also apply.
PENALTIES
PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. - If you fail to
furnish your correct taxpayer identification number to a payer, you are subject
to a penalty of $50 for each such failure unless your failure is due to
reasonable cause and not to willful neglect.
CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. - If you make a
false statement with no reasonable basis which results in no imposition of
backup withholding, you are subject to a penalty of $500.
CRIMINAL PENALTY FOR FALSIFYING INFORMATION. - Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
Annex A1 - Page 4 of 4
<PAGE>
NEW INVESTORS ELECTION FORM
I, the undersigned investor, have received the prospectus dated
_____________, 2000. I have had an opportunity to review the prospectus and
based upon that review, I hereby make the following selection:
[ ] I would like to purchase an ACCRUAL (NEW) NOTE in the amount of
$___________________. I understand that by selecting the Accrual (New) Note
as my investment option, I will be receiving a 12 month Note that will bear
interest at the rate of 18% per year (1.5% monthly). The interest will be
compounded monthly, which will create an effective annual yield of 19.56%.
The principal and accrued interest will be paid back to me, the investor,
at the end of the term of the Note. (Note: minimum amount of a New Note is
$5,000 with $1,000 increments above the minimum amount.)
[ ] I would like to purchase a MONTHLY PAYMENT (NEW) NOTE in the amount of
$___________________. I understand that by selecting the Monthly Payment
(New) Note as my investment option, I will be receiving a 12 month Note
that will bear interest at the rate of 18% per year (1.5% monthly). The
interest will be paid to me, the investor, on a monthly basis, and the
principal will be paid to me at the end of the term of the Note. (Note:
minimum amount of a New Note is $5,000 with $1,000 increments above the
minimum amount.)
<TABLE>
<CAPTION>
<S> <C>
[ ] Individual [ ] KEOGH (HRIO)
[ ] Joint Tenants with Right of Survivorship* [ ] Uniform Gift to Minors - State of ____________
[ ] Tenants in Common* [ ] Living Trust
[ ] Community Property* [ ] Trust
[ ] Corporation** ___________ (Type of Corp) Name of trustee: _____________________________
[ ] Limited Liability Company ** Date established: ____________________________
[ ] Partnership Grantor: _____________________________________
[ ] General [ ] Limited [ ] Other: _______________________________________
[ ] IRA
</TABLE>
* Signatures of ALL parties (ALL co-investors) is required.
** Please contact Heritage West Securities to discuss the form of authorization
that is required.
<TABLE>
<CAPTION>
<S> <C> <C>
- --------------------------------------- --------------------------------------- ---------------------------------------
Print Full Name of Person or Entity Print Full Name of Person or Entity Print Full Name of Person or Entity
- --------------------------------------- --------------------------------------- ---------------------------------------
If entity, print full name of Signatory If entity, print full name of Signatory If entity, print full name of Signatory
- --------------------------------------- --------------------------------------- ---------------------------------------
Title, if applicable Title, if applicable Title, if applicable
- --------------------------------------- --------------------------------------- ---------------------------------------
Address Address Address
- --------------------------------------- --------------------------------------- ---------------------------------------
City/State/Zip Code City/State/Zip Code City/State/Zip Code
- --------------------------------------- --------------------------------------- ---------------------------------------
Telephone Number Telephone Number Telephone Number
- --------------------------------------- --------------------------------------- ---------------------------------------
Social Security No./TIN No. Social Security No./TIN No. Social Security No./TIN No.
</TABLE>
UNDER THE PENALTIES OF PERJURY, I (WE) CERTIFY THAT THE INFORMATION PROVIDED ON
THIS FORM IS TRUE, CORRECT, AND COMPLETE.
- ------------------------- ------------------------- ------------------------
INVESTOR SIGNATURE CO-INVESTOR SIGNATURE CO-INVESTOR SIGNATURE
- ------------------------- ------------------------- ------------------------
DATE DATE DATE
Annex A2 - Page 1 of 3
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER.-Social Security numbers have nine digits separated by two hyphens: i.e.
000-00-0000. Employer identification numbers have nine digits separated by only
one hyphen: i.e. 00-0000000. The table below will help determine the number to
give the payer.
<TABLE>
<CAPTION>
GIVE THE EMPLOYER
GIVE THE SOCIAL IDENTIFICATION
FOR THIS TYPE OF ACCOUNT: SECURITY NUMBER OF- FOR THIS TYPE OF ACCOUNT: NUMBER OF-
- ------------------------- ------------------- ------------------------- ----------
<S> <C> <C> <C>
1. Individual The individual 6. Sole proprietorship The owner(3)
2. Two or more The actual owner of 7. A valid trust, The legal entity(4)
individuals the account or, if estate, or pension
(joint account) combined funds, the trust
first individual on
the account(1) 8. Corporate The corporation
3. Custodian account of The minor(2) 9. Association, club, The organization
a minor (Uniform Gift to religious, charitable,
Minors Act) educational, or other
tax-exempt organization
4. a. The usual The grantor-trustee(1) 10. Partnership The partnership
revocable savings trust
account (grantor is also 11. A broker or The broker or nominee
trustee) registered nominee
b. So-called trust account The actual owner(1) 12. Account with the The public entity
that is not a legal or Department of Agriculture
valid trust under State in the name of a public
law entity (such as a State
or local government,
school district, or
prison) that
receives agricultural
5. Sole proprietorship The owner(3) program payments
</TABLE>
- ----------
(1) List first and circle the name of the person whose number you furnish. If
only one person on a joint account has a social security number, that
person's number must be furnished.
(2) Circle the minor's name and furnish the minor's social security number.
(3) You must show your individual name, but you may also enter your business or
"doing business as" name. You may use either your social security number or
your employer identification number (if you have one).
(4) List first and circle the name of the legal trust, estate, or pension
trust. (Do not furnish the taxpayer identification number of the personal
representative or trustee unless the legal entity itself is not designated
in the account title.)
NOTE: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
Annex A2 - Page 2 of 3
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you do not have a taxpayer identification number or you do not know your
number, apply for one immediately. To apply for a social security number, obtain
Form SS-5, Application for a Social Security Number Card, from your local Social
Security Administration Office. To apply for an employer identification number,
obtain Form SS-4, Application for Employer Identification Number, from the
Internal Revenue Service. If you do not have a taxpayer identification number,
write "Applied For" in the space for the taxpayer identification number. PAYEES
EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding include the
following:
* An organization exempt from tax under section 501(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), an individual retirement
account or a custodial account under section 403(b)(7), if the account
satisfies the requirements of section 401(f)(2).
* The United States or any agency or instrumentality thereof.
* A state, the District of Columbia, a possession of the United States, or
any political subdivision or instrumentality thereof.
* A foreign government or any political subdivision, agency or
instrumentality thereof.
* An international organization or any agency or instrumentality thereof.
Other payees that MAY BE EXEMPT from backup withholding include: o A
corporation.
* A financial institution.
* A dealer in securities or commodities required to register in the U.S., the
District of Columbia or a possession of the U.S.
* A futures commission merchant registered with the Commodity Futures Trading
Commission.
* A real estate investment trust.
* A common trust fund operated by a bank under section 584(a).
* An entity registered at all times during the tax year under the Investment
Company Act of 1940.
* A foreign central bank of issue.
* A middleman known in the investment community as a nominee or who is listed
in the most recent publication of the American Society of Corporate
Secretaries, Inc. Nominee List.
* A trust exempt from tax under section 664 or described in section 4947.
PAYMENTS EXEMPT FROM BACKUP WITHHOLDING
Payments that are not subject to information reporting are also not subject to
backup withholding. Dividends and patronage dividends that generally are exempt
from backup withholding include the following:
* Payments to nonresident aliens subject to withholding under section 1441.
* Payments to partnerships not engaged in a trade or business in the U.S. and
which have at least one nonresident alien partner.
* Payments of patronage dividends where the amount received is not paid in
money.
* Payments made by certain foreign organizations.
* Section 404(k) payments made by an ESOP.
Interest payments that generally are exempt from backup withholding include the
following:
* Payments of interest on obligations issued by individuals.
Note: You may be subject to backup withholding if this interest is $600 or
more and is paid in the course of the payer's trade or business and you
have not provided your correct taxpayer identification number to the payer.
* Payments of tax-exempt interest (including exempt-interest dividends under
section 852).
* Payments described in section 6049(b)(5) to nonresident aliens.
* Payments on tax-free covenant bonds under section 1451.
* Payments made by certain foreign organizations.
* Mortgage interest paid to you.
Certain payments other than interest, dividends, and patronage dividends are
also not subject to backup withholding
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER, WRITE "EXEMPT" IN PART II OF THE FORM, SIGN AND DATE THE
FORM, AND RETURN IT TO THE PAYER.
PRIVACY ACT NOTICE. - Section 6109 of the Code requires most recipients of
dividend, interest, or other payments to give correct taxpayer identification
numbers to payers who must report the payments to the IRS. The IRS uses the
numbers for identification purposes and to help verify the accuracy of your tax
return. The IRS may also provide this information to the Department of Justice
for civil and criminal litigation and to cities, states, and the District of
Columbia to carry out their tax laws. You must provide your taxpayer
identification number whether or not you are required to file tax returns.
Payers must generally withhold 31% of taxable interest, dividend, and certain
other payments to a payee who does not furnish a taxpayer identification number
to a payer. Certain penalties may also apply.
PENALTIES
PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. - If you fail to
furnish your correct taxpayer identification number to a payer, you are subject
to a penalty of $50 for each such failure unless your failure is due to
reasonable cause and not to willful neglect.
CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. - If you make a
false statement with no reasonable basis which results in no imposition of
backup withholding, you are subject to a penalty of $500.
CRIMINAL PENALTY FOR FALSIFYING INFORMATION. - Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
Annex A2 - Page 3 of 3
<PAGE>
MOUNTAIN STATES CAPITAL, INC.
ANNEX B TO REGISTRATION STATEMENT ON FORM SB-2
ARIZONA
SEC. 44-1841. [SALE OF UNREGISTERED SECURITIES PROHIBITED-CLASSIFICATION.]
A. It is unlawful to sell or offer for sale within or from this state any
securities unless such securities have been registered by description under
sections 44-1871 through 44-1875 or registered by qualification under sections
14-1891 through 44-1902 or are securities for which a notice filing has been
made under Section 44-3321, except securities exempt under section 44-1843 or
44-1843.01 or securities sold in exempt transactions under section 44-1844.
B. A person violating this section is guilty of a class 4 felony.
SEC. 44-1842. [TRANSACTIONS BY UNREGISTERED DEALERS AND SALESMEN
PROHIBITED-CLASSIFICATION.]
A. It is unlawful for any dealer to sell or purchase or offer to sell or
buy any securities, or for any salesman to sell or offer for sale any securities
within or from this state unless the dealer or salesman is registered as such
pursuant to the provisions of article 9 of this chapter.
B. A person violating this section is guilty of a class 4 felony.
SEC. 44-2001. [VOIDABLE SALE OR CONTRACT FOR SALE OF SECURITIES-REMEDY.]
A. A sale or contract for sale of any securities to any purchaser in
violation of any provision of section 44-1841 or 44-1842 or article 13 of this
chapter is voidable at the election of the purchaser, who may bring an action in
a court of competent jurisdiction to recover the consideration paid for the
securities, with interest thereon, taxable court costs and reasonable attorneys'
fees, less the amount of any income received by dividend or otherwise from
ownership of the securities, upon tender of the securities purchased or the
contract made, or for damages if he no longer owns the securities.
B. A person against whom an action for a violation of section 44-1991 is
brought is not liable under subsection A of this section if the person sustains
the burden of proof that the person did not know and in the exercise of
reasonable care could not have known of the untrue statement or misleading
omission.
SEC. 44-2002. [REMEDY FOR VOIDABLE PURCHASES.]
A. A purchase or contract for purchase from a seller of securities made in
violation of section 44-1842 or 44- 1991, or 44-1994, is voidable at the
election of the seller of such securities, who may bring an action in a court of
competent jurisdiction to recover the amount of his damages, with interest
thereon, taxable court costs and reasonable attorneys' fees.
B. A person against whom an action for a violation of section 44-1991 is
brought is not liable under subsection A of this section if the person sustains
the burden of proof that the person did not know and in the exercise of
reasonable care could not have known of the untrue statement or misleading
omission.
SEC. 44-2004. [LIMITATION OF CIVIL ACTIONS.]
A. No civil action shall be maintained under this article to enforce any
liability based on a violation of section 44-1841 or 44-1842 unless brought
within one year after the violation occurs.
B. Except as provided in subsection C of this section, no civil action
shall be brought under this article to enforce any liability based on a
violation of article 13 unless brought within two years after discovery of the
fraudulent practice on which the liability is based, or after the discovery
should have been made by the exercise of reasonable diligence.
C. No civil action shall be brought under this article to enforce any
liability based on a violation of section 44- 1997 or 44-1998 unless brought
within one year after the discovery of the untrue statement or the omission or
after the discovery should have been made by the exercise of reasonable
diligence. No action shall be brought to enforce a
Annex B-1
<PAGE>
liability created under section 44-1997 more than three years after the security
was bona fidely offered to the public or under section 44-1998 more than three
years after the sale.
SEC. 44-2005. [REMEDY NOT EXCLUSIVE.] Nothing in this article shall limit
any statutory or common law right of any person in any court for any act
involved in the sale of securities.
Annex B-2
<PAGE>
CALIFORNIA
SEC. 25500. [LIABILITY FOR PROHIBITED PRACTICES-DAMAGES.] Any person who
willfully participates in any act or transaction in violation of Section 25400
shall be liable to any other person who purchases or sells any security at a
price which was affected by such act or transaction for the damages sustained by
the latter as a result of such act or transaction. Such damages shall be the
difference between the price at which such other person purchased or sold
securities and the market value which such securities would have had at the time
of his purchase or sale in the absence of such act or transaction, plus interest
at the legal rate.
SEC. 25501. [VIOLATION OF MATERIAL FACTS DISCLOSURE-SUITS FOR RESCISSION OR
DAMAGES.] Any person who violates Section 25401 shall be liable to the person
who purchases a security from him or sells a security to him, who may sue either
for rescission or for damages (if the plaintiff or the defendant, as the case
may be, no longer owns the security), unless the defendant proves that the
plaintiff knew the facts concerning the untruth or omission or that the
defendant exercised reasonable care and did not know (or if he had exercised
reasonable care would not have known) of the untruth or omission. Upon
rescission, a purchaser may recover the consideration paid for the security,
plus interest at the legal rate, less the amount of any income received on the
security, upon tender of the security. Upon rescission, a seller may recover the
security, upon tender of the consideration paid for the security plus interest
at the legal rate, less the amount of any income received by the defendant on
the security. Damages recoverable under this section by a purchaser shall be an
amount equal to the difference between (a) the price at which the security was
bought plus interest at the legal rate from the date of purchase and (b) the
value of the security at the time it was disposed of by the plaintiff plus the
amount of any income received on the security by the plaintiff. Damages
recoverable under this section by a seller shall be an amount equal to the
difference between (1) the value of the security at the time of the filing of
the complaint plus the amount of any income received by the defendant on the
security and (2) the price at which the security was sold plus interest at the
legal rate from the date of sale. Any tender specified in this section may be
made at any time before entry of judgment.
SEC. 25502. [VIOLATION OF INSIDER PROVISION-DAMAGES.] Any person who
violates Section 25402 shall be liable to the person who purchases a security
from him or sells a security to him, for damages equal to the difference between
the price at which such security was purchased or sold and the market value
which such security would have had at the time of the purchase or sale if the
information known to the defendant had been publicly disseminated prior to that
time and a reasonable time had elapsed for the market to absorb the information,
plus interest at the legal rate, unless the defendant proves that the plaintiff
knew the information or that the plaintiff would have purchased or sold at the
same price even if the information had been revealed to him.
SEC. 25503. [VIOLATION OF QUALIFICATION REQUIREMENTS-LIABILITY TO SUIT.]
Any person who violates Section 25110, 25130 or 25133, or a condition of
qualification under Chapter 2 (commencing with Section 25110) of this part,
imposed pursuant to Section 25141, or an order suspending trading issued
pursuant to Section 25219, shall be liable to any person acquiring from him the
security sold in violation of such section, who may sue to recover the
consideration he paid for such security with interest thereon at the legal rate,
less the amount of any income received therefrom, upon the tender of such
security, or for damages, if he no longer owns the security, or if the
consideration given for the security is not capable of being returned. Damages,
if the plaintiff no longer owns the security, shall be equal to the difference
between (a) his purchase price plus interest at the legal rate from the date of
purchase and (b) the value of the security at the time it was disposed of by the
plaintiff plus the amount of any income received therefrom by the plaintiff.
Damages, if the consideration given for the security is not capable of
being returned, shall be equal to the value of that consideration plus interest
at the legal rate from the date of purchase, provided the security is tendered;
and if the plaintiff no longer owns the security, damages in such case shall be
equal to the difference between (a) the value of the consideration given for the
security plus interest at the legal rate from the date of purchase and (b) the
value of the security at the time it was disposed of by the plaintiff plus the
amount of any income received therefrom by the plaintiff. Any person who
violates Section 25120 or a condition of qualification under Chapter 3
(commencing with Section 25120) of this part imposed pursuant to Section 25141,
shall be liable to any person acquiring from him the security sold in violation
of such section who may sue to recover the difference between (a) the value of
the consideration received by the seller and (b) the value of the security at
the time it was received by the buyer, with interest thereon at the legal rate
from the date of purchase. Any person on whose behalf an offering is made and
any underwriter of the offering, whether on a best efforts or a firm commitment
basis, shall be jointly and severally liable under this section, but in no event
shall any underwriter (unless such underwriter shall have knowingly received
from the issuer for acting as an underwriter some benefit, directly or
indirectly, in which all other underwriters similarly situated did not share in
proportion to their respective interest in the underwriting) be liable in any
suit or suits authorized under this section for damages in excess of the total
price at which the securities underwritten by him and distributed to the public
were offered to the public. Any tender specified in this section may be made at
any time before entry of judgment. No person shall be liable under this section
for violation of Section 25110, 25120 or 25130 if the sale of the security is
qualified prior to the payment or receipt of any part of the consideration for
the security sold, even though an offer to sell or a contract of sale may have
been made or entered into without qualification.
Annex B-3
<PAGE>
SEC. 25507. [TIME LIMIT ON ACTIONS- QUALIFICATION VIOLATIONS.]
(b) No buyer may commence an action under Section 25503 (or Section 25504
or Section 25504.1 insofar as they relate to that section) if, before suit is
commenced, such buyer shall have received a written offer approved as to form by
the commissioner (1) stating the respect in which liability under such section
may have arisen, (2) offering to repurchase the security for a cash price
payable upon delivery of the security or offering to pay the buyer an amount in
cash equal in either case to the amount recoverable by the buyer in accordance
with Section 25503, or, offering to rescind the transaction by putting the
parties back in the same position as before the transaction, (3) providing that
such offer may be accepted by the buyer at any time within a specified period of
not less than thirty (30) days after the date of receipt thereof unless rejected
earlier during such period by the buyer, (4) setting forth the provisions of
this subdivision (b), and (5) containing such other information as the
commissioner may require by rule or order, and such buyer shall have failed to
accept such offer in writing within the specified period after receipt thereof.
SEC. 25110. [QUALIFICATION REQUIREMENT.] It is unlawful for any person to
offer or sell in this state any security in an issuer transaction (other than in
a transaction subject to Section 25120), whether or not by or through
underwriters, unless such sale has been qualified under Section 25111, 25112 or
25113 (and no order under Section 25140 or subdivision (a) of Section 25143 is
in effect with respect to such qualification) or unless such security or
transaction is exempted or not subject to qualification under Chapter 1
(commencing with Section 25100) of this part. The offer or sale of such a
security in a manner that varies or differs from, exceeds the scope of, or fails
to conform with either a material term or material condition of qualification of
the offering as set forth in the permit or qualification order, or a material
representation as to the manner of offering which is set forth in the
application for qualification, shall be an unqualified offer or sale.
SEC. 25534. [RESTRICTIVE LEGEND REQUIREMENT-HEARINGS.] Whenever any
securities are issued which the commissioner determines were offered or sold in
violation of Section 25110, 25120, or 25130, the commissioner may, by written
order to the issuer and notice to the holders of such securities, require
certificates evidencing such securities to have stamped or printed prominently
on their face a legend, in the form prescribed by rule of the commissioner,
restricting the transfer of such securities. Upon receipt of the order, the
issuer shall stamp or print such legend prominently on the face of all
outstanding certificates subject to the order. If, after such order or notice
has been given, a request for a hearing is filed in writing by the person or
persons to whom such order or notice was addressed, a hearing shall be held in
accordance with the provisions of the Administrative Procedure Act, Chapter 5
[ADMINISTRATIVE ADJUDICATION] (commencing with Section 11500 [DEFINITIONS]) of
Part 1 [STATE DEPARTMENTS AND AGENCIES] of Division 3 [EXECUTIVE DEPARTMENT] of
Title 2 [GOVERNMENT OF THE STATE OF CALIFORNIA] 2 of the Government Code, and
the commissioner shall have all the powers granted thereunder; unless such
hearing is commenced within fifteen (15) business days after the request for
hearing is received by the commissioner (or the person or persons affected and
the issuer consent to a later date), such order and notice are rescinded.
Annex B-4
<PAGE>
COLORADO
SEC. 11-51-301. REQUIREMENT FOR REGISTRATION OF SECURITIES. It is unlawful
for any person to offer to sell or sell any security in this state unless it is
registered under this article or unless the security or transaction is exempted
under sections 11-51-307, 11-51-308, or 11-51-309.
SEC. 11-51-604. CIVIL LIABILITIES.
(1) Any person who sells a security in violation of section 11-51-301 is
liable to the person buying the security from such seller for the consideration
paid for the security, together with interest at the statutory rate from the
date of payment, costs, and reasonable attorney fees, less the amount of any
income received on the security, upon the tender of the security, or is liable
for damages if the buyer no longer owns the security. Damages are deemed to be
the amount that would be recoverable upon a tender, less the value of the
security when the buyer disposed of it, and interest at the statutory rate from
the date of disposition. No person is liable under this subsection (1) for a
violation of section 11-51-301 due solely to a failure to file the prescribed
notification of exemption or to pay the required exemption fee for an exemption
under section 11-51-308 (1)(p).
(2) (a) Except as provided in paragraph (b) of this subsection (2), any
broker-dealer or sales representative who sells a security in violation of
section 11-51-401 is liable to the person buying the security from such seller
for the consideration paid for the security, together with interest at the
statutory rate from the date of payment, costs, and reasonable attorney fees,
less the amount of any income received on the security, upon the tender of the
security, or is liable for damages if the buyer no longer owns the security.
Damages are deemed to be the amount that would be recoverable upon a tender,
less the value of the security when the buyer disposed of it, and interest at
the statutory rate from the date of disposition.
(b) No broker-dealer or sales representative is liable under this
subsection (2) for a sale of a security exempt from registration under section
11-51-307(1)(g) to (1)(j) or for a sale of a security in a transaction exempt
from registration under section 11-51-308(1)(a), (1)(e) to (1)(l), (1)(o), or
(1)(p); but this paragraph (b) does not apply if at the time of such sale:
(I) In the case of a violation of section 11-51-401 arising from
the failure of a broker-dealer to be licensed under this article, such
broker-dealer was registered as a broker-dealer under the federal "Securities
Exchange Act of 1934", licensed as a broker-dealer or its equivalent under the
laws of another state, or held a limited license under this article; or
(II) In the case of a violation of section 11-51-401 arising from
the failure of a sales representative to be licensed under this article, such
sales representative was licensed as a sales representative or its equivalent
under the laws of another state, held a limited license under this article, or
in connection with such sale was acting for a broker-dealer which was registered
as a broker-dealer under the federal "Securities Exchange Act of 1934", licensed
as a broker-dealer or its equivalent under the laws of another state, or
licensed under this article.
(2.5) An investment adviser or investment adviser representative who
violates section 11-51-401 is liable to each person to whom investment advisory
services are provided in violation of such section in an amount equal to the
greater of one thousand dollars or the value of all the benefits derived
directly or indirectly from the relationship or dealings with such person prior
to such time as the violation may be cured, together with interest at the
statutory rate from the date of receipt of such benefits, costs, and reasonable
attorney fees.
(2.6) An investment adviser or investment adviser representative who
provides investment advisory services to another person but who recklessly,
knowingly, or with an intent to defraud fails to furnish to that person a
written disclosure statement as required by section 11-51-409.5 is liable to
such other person in an amount equal to one thousand dollars, the value of all
benefits derived directly or indirectly from the relationship or dealings with
such person, or for actual damages suffered by such other person, whichever is
greatest, plus interest at the statutory rate, costs, reasonable attorney fees,
or such other legal or equitable relief as the court may deem appropriate.
(3) Any person who recklessly, knowingly, or with an intent to defraud
sells or buys a security in violation of section 11-51-501(1) or provides
investment advisory services to another person in violation of section
11-51-501(5) or (6) is liable to the person buying or selling such security or
receiving such services in connection with the violation for such legal or
equitable relief that the court deems appropriate, including rescission, actual
damages, interest at the statutory rate, costs, and reasonable attorney fees.
(4) Any person who sells a security in violation of section 11-51-501
(1)(b) (the buyer not knowing of the untruth or omission) and who does not
sustain the burden of proof that such person did not know, and in the exercise
of reasonable care could not have known, of the untruth or omission is liable to
the person buying the security from such person, who may sue to recover the
consideration paid for the security, together with interest at the statutory
rate from the date of payment, costs, and reasonable attorney fees, less the
amount of any income received on the security, upon the tender of the security,
or is liable for damages if the buyer no
Annex B-5
<PAGE>
longer owns the security. Damages are deemed to be the amount that would be
recoverable upon a tender, less the value of the security when the buyer
disposed of it, and interest at the statutory rate from the date of disposition.
(5) (a) Every person who, directly or indirectly, controls a person liable
under subsection (1), (2), (2.5), (2.6), or (3) of this section is liable
jointly and severally with and to the same extent as such controlled person,
unless the controlling person sustains the burden of proof that such person did
not know, and in the exercise of reasonable care could not have known, of the
existence of the facts by reason of which the liability is alleged to exist.
(b) Every person who, directly or indirectly, controls a person liable
under subsection (3) or (4) of this section is liable jointly and severally with
and to the same extent as such controlled person, unless such controlling person
sustains the burden of proof that such person acted in good faith and did not,
directly or indirectly, induce the act or acts constituting the violation or
cause of action.
(c) Any person who knows that another person liable under subsection
(3) or (4) of this section is engaged in conduct which constitutes a violation
of section 11-51-501 and who gives substantial assistance to such conduct is
jointly and severally liable to the same extent as such other person.
(6) Any tender specified in this section may be made at any time before
entry of judgment.
(7) Every cause of action under this article survives the death of any
individual who might have been a plaintiff or defendant.
(8) No person may sue under subsection (1), (2), (2.5), or (2.6) or
paragraph (a) of subsection (5) of this section more than two years after the
contract of sale, or, as those provisions pertain to investment advisers,
federal covered advisers, investment adviser representatives, and persons who
provide investment advisory services, more than two years after the date of the
violation. No person may sue under subsection (3) or (4) or paragraph (b) or (c)
of subsection (5) of this section more than three years after the discovery of
the facts giving rise to a cause of action under subsection (3) or (4) of this
section or after such discovery should have been made by the exercise of
reasonable diligence and in no event more than five years after the purchase or
sale, or, as those provisions pertain to investment advisers, federal covered
advisers, investment adviser representatives, and persons who provide investment
advisory services, more than five years after the date of the violation.
(9) (a) No buyer may sue under this section:
(I) If the buyer received a written rescission offer, before suit
and at a time when the buyer owned the security, to refund the consideration
paid together with interest at the statutory rate from the date of payment, less
the amount of any income received on the security, and the buyer failed to
accept the offer within thirty days of its receipt; or
(II) If the buyer received such an offer before suit and at a
time when the buyer did not own the security, unless the buyer rejects the offer
in writing within thirty days of its receipt.
(b) If, after acceptance, a rescission offer is not performed in
accordance with its terms, the buyer may obtain relief under this section
without regard to the rescission offer.
(10) No person who has made or engaged in the performance of any contract
in violation of any provision of this article or any rule or order under this
article or who has acquired any purported right under any such contract with
knowledge of the facts by reason of which the making or performance of any such
contract was in violation may base any suit on the contract.
(11) Any condition, stipulation, or provision binding any person acquiring
or disposing of any security to waive compliance with any provision of this
article or any rule or order under this article is void.
(12) The rights and remedies provided by this article may be pleaded and
proved in the alternative and are in addition to any other rights or remedies
that may exist at law or in equity, but this article does not create any cause
of action not specified in this section or section 11-51-602.
(13) Any person liable under this section may seek and obtain contribution
from other persons liable under this section, directly or indirectly, for the
same violation. Contribution shall be awarded by the court in accordance with
the actual relative culpabilities of the various persons so liable.
(14) In the case of a willful violation of or a willful refusal to comply
with or obey an order issued by the securities commissioner to any person
pursuant to section 11-51-410 or 11-51-606, the district court of the city and
county of Denver, upon application by the securities commissioner, may issue to
the person an order requiring that person to appear before the court regarding
Annex B-6
<PAGE>
such violation or refusal. If the securities commissioner establishes by a
preponderance of the evidence that the person willfully violated or willfully
refused to comply with or obey the order, the court may impose legal and
equitable sanctions as are available to the court in the case of contempt of
court and as the court deems appropriate upon such person.
Annex B-7
<PAGE>
FLORIDA
SEC. 517.07. REGISTRATION OF SECURITIES.
(1) It is unlawful and a violation of this chapter for any person to sell
or offer to sell a security within this state unless the security is exempt
under section 517.051, is sold in a transaction exempt under section 517.061, is
a federal covered security, or is registered pursuant to this chapter.
(2) No securities that are required to be registered under this chapter
shall be sold or offered for sale within this state unless such securities have
been registered pursuant to this chapter and unless prior to each sale the
purchaser is furnished with a prospectus meeting the requirements of rules
adopted by the department.
(3) The department shall issue a permit when registration has been granted
by the department. A permit to sell securities is effective for 1 year from the
date it was granted. Registration of securities shall be deemed to include the
registration of rights to subscribe to such securities if the application under
s. 517.081 or s. 517.082 for registration of such securities includes a
statement that such rights are to be issued.
(4) A record of the registration of securities shall be kept in the office
of the department, in which register of securities shall also be recorded any
orders entered by the department with respect to such securities. Such register,
and all information with respect to the securities registered therein, shall be
open to public inspection.
(5) Notwithstanding any other provision of this section, offers of
securities required to be registered by this section may be made in this state
before the registration of such securities if the offers are made in conformity
with rules adopted by the department.
SEC. 517.12. REGISTRATION OF DEALERS, ASSOCIATED PERSONS, INVESTMENT
ADVISERS, AND BRANCH OFFICES.
(1) No dealer, associated person, or issuer of securities shall sell or
offer for sale any securities in or from offices in this state, or sell
securities to persons in this state from offices outside this state, by mail or
otherwise, unless the person has been registered with the department pursuant to
the provisions of this section. The department shall not register any person as
an associated person of a dealer unless the dealer with which the applicant
seeks registration is lawfully registered with the department pursuant to this
chapter.
(2) The registration requirements of this section do not apply to the
issuers of securities exempted by s. 517.051(l)-(8)and (10).
(3) Except as otherwise provided in s. 517.061(11)(a)4, (13), (16), (17),
or (18), the registration requirements of this section do not apply in a
transaction exempted by s. 517.061(l)-(12),(14), and (15).
(4) No investment adviser or associated person of an investment adviser or
federal covered adviser shall engage in business from offices in this state, or
render investment advice to persons of this state, by mail or otherwise, unless
the federal covered adviser has made a notice filing with the department
pursuant to s. 517.1201 or the investment adviser is registered pursuant to the
provisions of this chapter and associated persons of the federal covered adviser
or investment adviser have been registered with the department pursuant to this
section. The department shall not register any person or an associated person of
a federal covered adviser or an investment adviser unless the federal covered
adviser or investment adviser with which the applicant seeks registration is in
compliance with the notice filing requirements of s. 517.1201 or is lawfully
registered with the department pursuant to this chapter. A dealer or associated
person who is registered pursuant to this section may render investment advice
upon notification to and approval from the department.
(5) No dealer or investment adviser shall conduct business from a branch
office within this state unless the branch office is registered with the
department pursuant to the provisions of this section.
(6) A dealer, associated person, investment adviser, or branch office, in
order to obtain registration, must file with the department a written
application, on a form which the department may by rule prescribe, verified
under oath. The department may establish, by rule, procedures for depositing
fees and filing documents by electronic means provided such procedures provide
the department with the information and data required by this section. Each
dealer or investment adviser must also file an irrevocable written consent to
service of civil process similar to that provided for in s. 517.101. The
application shall contain such information as the department may require
concerning such matters as:
(a) The name of the applicant and the address of its principal office
and each office in this state.
Annex B-8
<PAGE>
(b) The applicant's form and place of organization; and, if the
applicant is a corporation, a copy of its articles of incorporation and
amendments to the articles of incorporation or, if a partnership, a copy of the
partnership agreement.
(c) The applicant's proposed method of doing business and financial
condition and history, including a certified financial statement showing all
assets and all liabilities, including contingent liabilities of the applicant as
of a date not more than 90 days prior to the filing of the application.
(d) The names and addresses of all associated persons of the applicant
to be employed in this state and the offices to which they will be assigned.
(7) The application shall also contain such information as the department
may require about the applicant; any partner, officer, or director of the
applicant or any person having a similar status or performing similar functions;
any person directly or indirectly controlling the applicant; or any employee of
a dealer or of an investment adviser rendering investment advisory services.
Each applicant shall file a complete set of fingerprints taken by an authorized
law enforcement officer. Such fingerprints shall be submitted to the Department
of Law Enforcement or the Federal Bureau of Investigation for state and federal
processing. The department may waive, by rule, the requirement that applicants
must file a set of fingerprints or the requirement that such fingerprints must
be processed by the Department of Law Enforcement or the Federal Bureau of
Investigation. The department may require information about any such applicant
or person concerning such matters as:
(a) His or her full name, and any other names by which he or she may
have been known, and his or her age, photograph, qualifications, and educational
and business history.
(b) Any injunction or administrative order by a state or federal
agency, national securities exchange, or national securities association
involving a security or any aspect of the securities business and any injunction
or administrative order by a state or federal agency regulating banking,
insurance, finance, or small loan companies, real estate, mortgage brokers, or
other related or similar industries, which injunctions or administrative orders
relate to such person.
(c) His or her conviction of, or plea of nolo contendere to, a
criminal offense or his or her commission of any acts which would be grounds for
refusal of an application under s. 517.161.
(d) The names and addresses of other persons of whom the department
may inquire as to his or her character, reputation, and financial
responsibility.
(8) The department may require the applicant or one or more principals or
general partners, or natural persons exercising similar functions, or any
associated person to successfully pass oral or written examinations. Because any
principal, manager, supervisor, or person exercising similar functions shall be
responsible for the acts of the associated persons affiliated with a dealer or
investment adviser, the examination standards may be higher for a dealer, office
manager, principal, or person exercising similar functions than for a
nonsupervisory associated person. The department may waive the examination
process when it determines that such examinations are not in the public
interest. The department shall waive the examination requirements for any person
who has passed any tests as prescribed in s. 15(b)(7) of the Securities Exchange
Act of 1934 that relates to the position to be filled by the applicant.
(9) All dealers, except securities dealers who are designated by the
Federal Reserve Bank of New York as primary government securities dealers or
securities dealers registered as issuers of securities, shall comply with the
net capital and ratio requirements imposed pursuant to the Securities Exchange
Act of 1934. The department may by rule require a dealer to file with the
department any financial or operational information that is required to be filed
by the Securities Exchange Act of 1934 or any rules adopted under such act.
(b) The department may by rule require the maintenance of a minimum
net capital for securities dealers who are designated by the Federal Reserve
Bank of New York as primary government securities dealers and securities dealers
registered as issuers of securities and investment advisers, or prescribe a
ratio between net capital and aggregate indebtedness, to assure adequate
protection for the investing public. The provisions of this section shall not
apply to any investment adviser that maintains its principal place of business
in a state other than this state, provided such investment adviser is registered
in the state where it maintains its principal place of business and is in
compliance with such state's net capital requirements.
(10) An applicant for registration shall pay an assessment fee of $200, in
the case of a dealer or investment adviser, or $40, in the case of an associated
person. The assessment fee of an associated person shall be reduced to $30 but
only after the department determines, by final order, that sufficient funds have
been allocated to the Securities Guaranty Fund pursuant to section 517.1203 to
satisfy all valid claims filed in accordance with section 517.1203(2) and after
all amounts payable under any service contract entered into by the department
pursuant to s. 517.1204, and all notes, bonds, certificates of indebtedness,
other obligations, or evidences of indebtedness secured by such notes, bonds,
certificates of indebtedness, or other obligations, have been paid or
Annex B-9
<PAGE>
provision has been made for the payment of such amounts, notes, bonds,
certificates of indebtedness, other obligations, or evidences of indebtedness.
An associated person not having current fingerprint cards filed with the
National Association of Securities Dealers or a national securities exchange
registered with the Securities and Exchange Commission shall be assessed an
additional fee to cover the cost for said fingerprint cards to be processed by
the department. Such fee shall be determined by rule of the department. Each
dealer and each investment adviser shall pay an assessment fee of $100 for each
office in this state, except its designated principal office. Such fees become
the revenue of the state, except for those assessments provided for under s.
517.131(1) until such time as the Securities Guaranty Fund satisfies the
statutory limits, and are not returnable in the event that registration is
withdrawn or not granted.
(11) If the department finds that the applicant is of good repute and
character and has complied with the provisions of this chapter and the rules
made pursuant hereto, it shall register the applicant. The registration of each
dealer, investment adviser, and associated person will expire on December 31,
and the registration of each branch office will expire on March 31, of the year
in which it became effective unless the registrant has renewed its registration
on or before that date. Registration may be renewed by furnishing such
information as the department may require, together with payment of the fee
required in subsection (10) for dealers, investment advisers, associated
persons, or branch offices and the payment of any amount lawfully due and owing
to the department pursuant to any order of the department or pursuant to any
agreement with the department. Any dealer, investment adviser, or associated
person registrant who has not renewed a registration by the time the current
registration expires may request reinstatement of such registration by filing
with the department, on or before January 31 of the year following the year of
expiration, such information as may be required by the department, together with
payment of the fee required in subsection (10) for dealers, investment advisers,
or associated persons and a late fee equal to the amount of such fee. Any
reinstatement of registration granted by the department during the month of
January shall be deemed effective retroactive to January 1 of that year.
(12) (a) The department may issue a license to a dealer, investment
adviser, associated person, or branch office to evidence registration under this
chapter. The department may require the return to the department of any license
it may issue prior to issuing a new license.
(b) Every dealer, investment adviser, or federal covered adviser shall
promptly file with the department, as prescribed by rules adopted by the
department, notice as to the termination of employment of any associated person
registered for such dealer or investment adviser in this state and shall also
furnish the reason or reasons for such termination.
(c) Each dealer or investment adviser shall designate in writing to,
and register with, the department a manager for each office the dealer or
investment adviser has in this state.
(13) Changes in registration occasioned by changes in personnel of a
partnership or in the principals, copartners, officers, or directors of any
dealer or investment adviser or by changes of any material fact or method of
doing business shall be reported by written amendment in such form and at such
time as the department may specify. In any case in which a person or a group of
persons, directly or indirectly or acting by or through one or more persons,
proposes to purchase or acquire a controlling interest in a registered dealer or
investment adviser, such person or group shall submit an initial application for
registration as a dealer or investment adviser prior to such purchase or
acquisition. The department shall adopt rules providing for waiver of the
application required by this subsection where control of a registered dealer or
investment adviser is to be acquired by another dealer or investment adviser
registered under this chapter or where the application is otherwise unnecessary
in the public interest.
(14) Every dealer, investment adviser, or branch office registered or
required to be registered with the department shall keep records of all currency
transactions in excess of $10,000 and shall file reports, as prescribed under
the financial recordkeeping regulations in 31 C.F.R. pt. 103, with the
department when transactions occur in or from this state. All reports required
by this subsection to be filed with the department shall be confidential and
exempt from s. 119.07(1) except that any law enforcement agency or the
Department of Revenue shall have access to, and shall be authorized to inspect
and copy, such reports. This exemption is subject to the Open Government Sunset
Review Act in accordance with s. 119.14.
(15) In lieu of filing with the department the applications specified in
subsection (6), the fees required by subsection (10), and the termination
notices required by subsection (12), the department may by rule establish
procedures for the deposit of such fees and documents with the Central
Registration Depository of the National Association of Securities Dealers, Inc.,
as developed under contract with the North American Securities Administrators
Association, Inc.; provided, however, that such procedures shall provide the
department with the information and data as required by this section.
(16) Except for securities dealers who are designated by the Federal
Reserve Bank of New York as primary government securities dealers or securities
dealers registered as issuers of securities, every applicant for initial or
renewal registration as a securities dealer and every person registered as a
securities dealer shall be registered as a broker or dealer with the Securities
and Exchange Commission and shall be subject to insurance coverage by the
Securities Investor Protection Corporation.
Annex B-10
<PAGE>
(17) (a) A dealer that is located in Canada and has no office or other
physical presence in this state may, provided the dealer is registered in
accordance with this section, effect transactions in securities with or for, or
induce or attempt to induce the purchase or sale of any security by:
1. A person from Canada who temporarily resides in this state and
with whom the Canadian dealer had a bona fide dealer-client relationship before
the person entered the United States; or
2. A person from Canada who is a resident of this state, and
whose transactions are in a self-directed tax advantage retirement plan in
Canada of which the person is the holder or contributor.
(b) An associated person who represents a Canadian dealer registered
under this section may, provided the agent is registered in accordance with this
section, effect transactions in securities in this state as permitted for a
dealer, under subsection (a).
(c) A Canadian dealer may register under this section provided that
such dealer:
1. Files an application in the form required by the jurisdiction
in which the dealer has a head office.
2. Files a consent to service of process.
3. Is registered as a dealer in good standing in the jurisdiction
from which it is effecting transactions into this state and files evidence of
such registration with the department.
4. Is a member of a self-regulatory organization or stock
exchange in Canada.
(d) An associated person who represents a Canadian dealer registered
under this section in effecting transactions in securities in this state may
register under this section provided that such person:
1. Files an application in the form required by the jurisdiction
in which the dealer has its head office.
2. Is registered in good standing in the jurisdiction from which
he or she is effecting transactions into this state and files evidence of such
registration with the department.
(e) If the department finds that the applicant is of good repute and
character and has complied with the provisions of this chapter, the department
shall register the applicant.
(f) A Canadian dealer registered under this section shall:
1. Maintain its provincial or territorial registration and its
membership in a self-regulatory organization or stock exchange in good standing.
2. Provide the department upon request with its books and records
relating to its business in this state as a dealer.
3. Provide the department notice of each civil, criminal, or
administrative action initiated against the dealer.
4. Disclose to its clients in this state that the dealer and its
agents are not subject to the full regulatory requirements under this chapter.
5. Correct any inaccurate information within 30 days, if the
information contained in the application form becomes inaccurate for any reason
before or after the dealer becomes registered.
(g) An associated person of a Canadian dealer registered under this
section shall:
1. Maintain provincial or territorial registration in good
standing.
2. Provide the department with notice of each civil, criminal, or
administrative action initiated against such person.
Annex B-11
<PAGE>
3. Through the dealer, correct any inaccurate information within
30 days, if the information contained in the application form becomes inaccurate
for any reason before or after the associated person becomes registered.
(h) Renewal applications for Canadian dealers and associated persons
under this section must be filed before December 31 each year. Every applicant
for registration or renewal registration under this section shall pay the fee
for dealers and associated persons under this chapter.
(18) Every dealer or associated person registered or required to be
registered with the department shall satisfy any continuing education
requirements established by rule pursuant to law.
(19) The registration requirements of this section which apply to
investment advisers and associated persons do not apply to a commodity trading
adviser who:
(a) Is registered as such with the Commodity Futures Trading
Commission pursuant to the Commodity Exchange Act.
(b) Advises or exercises trading discretion, with respect to foreign
currency options listed and traded exclusively on the Philadelphia Stock
Exchange, on behalf of an "appropriate person" as defined by the Commodity
Exchange Act. The exemption provided in this subsection does not apply to a
commodity trading adviser who engages in other activities that require
registration under this chapter.
SEC. 517.211. REMEDIES AVAILABLE IN CASES OF UNLAWFUL SALE. (1) Every sale
made in violation of either s. 517.07 or s. 517.12 may be rescinded at the
election of the purchaser; and the person making the sale and every director,
officer, partner, or agent of or for the seller, if the director, officer,
partner, or agent has personally participated or aided in making the sale, is
jointly and severally liable to the purchaser in an action for rescission, if
the purchaser still owns the security, or for damages, if the purchaser has sold
the security. No purchaser otherwise entitled will have the benefit of this
subsection who has refused or failed, within 30 days of receipt, to accept an
offer made in writing by the seller, if the purchaser has not sold the security,
to take back the security in question and to refund the full amount paid by the
purchaser or, if the purchaser has sold the security, to pay the purchaser an
amount equal to the difference between the amount paid for the security and the
amount received by the purchaser on the sale of the security, together, in
either case, with interest on the full amount paid for the security by the
purchaser at the legal rate, pursuant to s. 55.03, for the period from the date
of payment by the purchaser to the date of repayment, less the amount of any
income received by the purchaser on the security.
Annex B-12
<PAGE>
OREGON
SEC. 59.115. LIABILITY IN CONNECTION WITH SALE OF SECURITIES - RECOVERY BY
PURCHASER - LIMITATIONS ON PROCEEDING.
(1) A person who sells a security is liable as provided in subsection (2)
of this section to a purchaser of the security if the person:
(a) Sells a security, other than a federal covered security, in
violation of the Oregon Securities Law or of any condition, limitation or
restriction imposed upon a registration or license under the Oregon Securities
Law; or
(b) Sells a security by means of an untrue statement of a material
fact or an omission to state a material fact necessary in order to make the
statements made, in light of the circumstances under which they are made, not
misleading (the buyer not knowing of the untruth or omission), and who does not
sustain the burden of proof that the person did not know, and in the exercise of
reasonable care could not have known, of the untruth of omission.
(2) The purchaser may recover:
(a) Upon tender of the security, the consideration paid for the
security, and interest from the date of payment equal to the greater of the rate
of interest specified in ORS 82.010 for judgments and decrees for the payment of
money or the rate provided in the security if the security is an
interest-bearing obligation, less any amount received on the security; or
(b) If the purchaser no longer owns the security, damages in the
amount that would be recoverable upon a tender, less the value of the security
when the purchaser disposed of it and less interest on such value at the rate of
interest specified in ORS 82.010 for judgments and decrees for the payment of
money from the date of disposition.
(3) Every person who directly or indirectly controls a seller liable under
subsection (1) of this section, every partner, limited liability company
manager, including a member who is a manager, officer or director of such
seller, every person occupying a similar status or performing similar functions,
and every person who participates or materially aids in the sale is also liable
jointly and severally with and to the same extent as the seller, unless the
nonseller sustains the burden of proof that the nonseller did not know, and, in
the exercise of reasonable care, could not have known, of the existence of facts
on which the liability is based. Any person held liable under this section shall
be entitled to contribution from those jointly and severally liable with that
person.
(4) Notwithstanding the provisions of subsection (3) of this section, a
person whose sole function in connection with the sale of a security is to
provide ministerial functions of escrow, custody or deposit services in
accordance with applicable law is liable only if the person participates or
materially aids in the sale and the purchaser sustains the burden of proof that
the person knew of the existence of facts on which liability is based or that
the person's failure to know of the existence of such facts was the result of
the person's recklessness or gross negligence.
(5) Any tender specified in this section may be made at any time before
entry of judgment.
(6) Except as otherwise provided in this subsection, no action or suit may
be commenced under this section more than three years after the sale. An action
under this section for a violation of subsection (1)(b) of this section or ORS
59.135 may be commenced within three years after the sale or two years after the
person bringing the action discovered or should have discovered the facts on
which the action is based, whichever is later. Failure to commence an action on
a timely basis is an affirmative defense.
(7) No action may be commenced under this section solely because an offer
was made prior to registration of the securities.
(8) Any person having a right of action against a broker-dealer, state
investment adviser or against a salesperson or investment adviser representative
acting within the course and scope or apparent course and scope of authority of
the salesperson or investment adviser representative, under this section shall
have a right of action under the bond or irrevocable letter of credit provided
in ORS 59.175.
(9) Subsection (4) of this section shall not limit the liability of any
person:
(a) For conduct other than in the circumstances described in
subsection (4) of this section; or
(b) Under any other law, including any other provisions of the Oregon
Securities Law.
(10) Except as provided in subsection (11) of this section, the court may
award reasonable attorney fees to the prevailing party in an action under this
section.
Annex B-13
<PAGE>
(11) The court may not award attorney fees to a prevailing defendant under
the provisions of subsection (10) of this section if the action under this
section is maintained as a class action pursuant to ORCP 32.
SEC. 59.125. EFFECT OF NOTICE OF OFFER TO REPAY PURCHASER-EXCEPTIONS-
REGISTRATION OF TRANSACTION.
(1) Except as provided in subsection (3) of this section, no action or suit
may be commenced under ORS 59.115 if the purchaser has received before suit a
written notice as outlined in subsection (2) of this section.
(2) The notice shall contain:
(a) An offer to pay the amount specified in ORS 59.115(2)(a) upon
tender of the security; and
(b) A statement of the effect on the purchaser's rights of failure to
respond as required in subsection (3) of this section.
(3) An action or suit under this section may be commenced after receipt of
a notice as outlined in subsection (2) of this section:
(a) If the purchaser owned the security when the notice was received,
accepted the payment offer within 30 days after its receipt, and has not been
paid the full amount offered; or
(b) If the purchaser did not own the security when the notice was
received and, within 30 days after receipt, gave written notice of inability to
tender back the security.
(4) An offer to repay the purchaser pursuant to this section involves the
offer or sale of a security. The transaction must be registered under ORS 59.055
unless there is an exemption from the registration requirement or a notice is
filed under ORS 59.049.
Annex B-14
<PAGE>
PENNSYLVANIA
SEC. 201. [70 P.S. 1-201] REGISTRATION REQUIREMENT. It is unlawful for any
person to offer or sell any security in this State unless the security is
registered under this act, the security or transaction is exempted under section
202 or 203 hereof or the security is a federally covered security.
SEC. 301. [70 P.S. 1-301] REGISTRATION REQUIREMENT. Unless exempted under
section 302 hereof:
(a) It is unlawful for any person to transact business in this State
as a broker-dealer or agent unless he is registered under this act.
(b) It is unlawful for any broker-dealer or issuer to employ an agent
to represent him in this State unless the agent is registered under this act.
The registration of an agent is not effective during any period when he is not
associated with a specified broker-dealer registered under this act or a
specified issuer. No agent shall at any time represent more than one
broker-dealer or issuer, except that where affiliated organizations are
registered broker-dealers, an agent may represent one or more of such
organizations. When an agent begins or terminates a connection with a
broker-dealer or issuer, or begins or terminates those activities which make him
an agent, the agent as well as the broker-dealer or issuer shall promptly notify
the commission. The commission may adopt a temporary registration procedure to
permit agents to change employers without suspension of their registrations
hereunder.
(c) It is unlawful for any person to transact business in this State
as an investment adviser unless he is so registered or registered as a
broker-dealer under this act or unless he is exempted from registration. It is
unlawful for any person to transact business in this State as an investment
adviser representative unless he is so registered or exempted from registration.
(c.1) The following apply:
(1) It is unlawful for any:
(i) person required to be registered as an investment
adviser under this act to employ an investment adviser representative unless the
investment adviser representative is registered under this act or exempted from
registration, provided that the registration of an investment adviser
representative is not effective during any period when he is not employed by an
investment advisor registered under this act; or
(ii) federally covered adviser to employ, supervise or
associate with an investment adviser representative having a place of business
in this Commonwealth, unless such investment adviser representative is
registered under this act or exempted from registration.
(2) If a registered investment adviser representative begins or terminates
employment with an investment adviser or a federally covered adviser, the
investment adviser in the case under paragraph (1)(i), or the investment adviser
representative in the case of paragraph (1)(ii), shall promptly notify the
commission.
(3) The commission may adopt a temporary registration procedure to permit
investment adviser representatives to change employers without suspension of
their registrations under this act.
(d) It is unlawful for any licensed broker-dealer, agent or investment
adviser to effect a transaction in securities, directly or indirectly, in this
State if the registrant is in violation of this act, or any regulation or order
promulgated under this act of which he has notice, if such violation (i) is a
material violation; (ii) relates to transactions effected in this State; and
(iii) has been committed by such registrant, or if the information contained in
his application for registration, as of the date of such transaction, is
incomplete in any material respect or is false or misleading with respect to any
material fact.
(e) Every registration or notice filing expires on December 31 of each
year unless renewed. No registration or notice filing is effective after its
expiration, unless a renewal application has been timely filed, and expiration
of a registration for which no renewal application has been filed is deemed an
application for withdrawal under section 305(f).
(f) It is unlawful for any federally covered adviser to conduct
advisory business in this state, unless such person complies with the provisions
of Section 303(a)(iii).
SEC. 502. [70 P.S. 1-502] VIOLATION OF REGISTRATION REQUIREMENTS. Any
person who violates section 201 or any material condition imposed under section
206 or 207 shall be liable to the person purchasing the security offered or sold
in violation of section 201 from him who may sue either at law or in equity to
recover the consideration paid for the security, together with interest at the
legal rate from the date of payment, less the amount of any income or
distributions, in cash or in kind, received on the security, upon
Annex B-15
<PAGE>
the tender of the security, or for damages if he no longer owns the security.
Damages shall be the amount that would be recoverable upon a tender less the
value of the security when the purchaser disposed of it and interest at the
legal-rate from the date of disposition. Any person on whose behalf an offering
is made and any underwriter of the offering, whether on a best efforts or a firm
commitment basis, shall be jointly and severally liable under this section, but
in no event shall any underwriter be liable in any suit or suits authorized
under this section for damages in excess of the total price at which the
securities underwritten by him and distributed to the public were offered to the
public. Tender requires only notice of willingness to exchange the security for
the amount specified. Any notice may be given by service as in civil actions or
by certified mail addressed to the last known address of the person liable. No
person shall be liable under this section if the sale of the security it
registered prior to the payment or receipt of any part of the consideration for
the security sold, even though an offer to sell or a contract of sale may have
been made or entered into without registration.
SEC. 504. [70 P.S. 1-504] TIME LIMITATIONS ON RIGHTS OF ACTION.
(d) No purchaser may commence an action under section 501, 502 or 503
if, before suit is commenced, the purchaser has received a written offer: (i)
stating the respect in which liability under such section may have arisen and
fairly advising the purchaser of his rights; offering to repurchase the security
for cash, payable on delivery of the security, equal to the consideration paid,
together with interest at the legal rate from the date of payment, less the
amount of any income or distributions, in cash or in kind, received thereon or,
if the purchaser no longer owns the security, offering to pay the purchaser upon
acceptance of the offer an amount in cash equal to the damages computed in
accordance with section 501(a); and (ii) stating that the offer may be accepted
by the purchaser at any time within a specified period of not less than thirty
days after the date or receipt thereof, or such shorter period as the commission
may by rule prescribe; and the purchaser has failed to accept such offer in
writing within the specified period.
Annex B-16
<PAGE>
TENNESSEE
SEC. 48-2-104. SECURITIES REGISTRATION REQUIREMENT. It is unlawful for any
person to sell any security in this state unless:
(1) It is registered under this part;
(2) The security or transaction is exempted under ss.48-2-103; or
(3) the security is a covered security.
SEC. 48-2-122. CIVIL LIABILITIES.
(a) (1) Any person who:
(A) Sells a security in violation of Sections 48-2-104 --
48-2-109, 48-2-110(f), or of any condition imposed under Section 48-2-107(g) or
any rule, or order under this part of which he has notice; or
(B) Sells a security in violation of ss.48-2-121(a) (the
purchaser not knowing of the violation of ss.48-2-121(a), and who does not carry
the burden of proof of showing that the person did not know and in the exercise
of reasonable care could not have known of the violation of ss.48-2-121(a));
shall be liable to the person purchasing the security from the seller to recover
the consideration paid for the security, together with interest at the legal
rate from the date of payment, less the amount of any income received on the
security, upon the tender of the security, or, if the purchaser no longer owns
the security, the amount that would be recoverable upon a tender, less the value
of the security when the purchaser disposed of it and interest at the legal rate
from the date of disposition.
(2) Tender shall require only notice of willingness to exchange the
security for the amount specified.
(3) Any notice may be given by service as in civil actions or by certified
mail addressed to the last known address of the person liable.
(b) (l) Any person who purchases a security in violation of
ss.48-2-121(a) (the seller not knowing of the violation of ss.48-2-121(a), and
who does not carry the burden of proof of showing that he did not know and in
the exercise of reasonable care could not have known of the violation of
ss.48-2-121(a)) shall be liable to the person selling the security to the
purchaser to return the security, plus any income received by the purchaser
thereon, upon tender of the consideration received, or, if the purchaser no
longer owns the security, the excess of the value of the security when the
purchaser disposed of it, plus interest at the legal rate from the date of
disposition, over the consideration paid for the security.
(2) Tender requires only notice of willingness to pay the amount specified
in exchange for the security.
(3) Any notice may be given by service as in civil actions or by certified
mail to the last known address of the person liable.
(c) (l) Any person who willfully engages in any act or conduct which
violates ss.48-2-121 shall be liable to any other person (not knowing that any
such conduct constituted a violation of ss.48-2-121) who purchases or sells any
security at a price which was affected by the act or conduct for the damages
sustained as a result of such act or conduct unless the person sued shall prove
that the person sued acted in good faith and did not know, and in the exercise
of reasonable care could not have known, that such act or conduct violated
ss.48-2-121.
(2) Damages shall be the difference between the price at which the other
person purchased or sold securities and the market value which the securities
would have had at the time of the other person's purchase or sale in the absence
of the act or conduct plus interest at the legal rate.
(d) Any person who shall make or cause to be made any statement in any
application, report, or document filed pursuant to this part or any rule or
order hereunder or any undertaking contained in a registration statement
hereunder, or in any advice given in such person's capacity as an investment
adviser, which statement was at the time and in the light of the circumstances
under which it was made false or misleading with respect to any material fact
shall be liable to any person (not knowing that any such statement was false or
misleading) who, in reliance upon such statement, shall have purchased or sold a
security at a price which was affected by such statement, for damages
(calculated as provided in subsections (a) and (b)) caused by such reliance,
unless the person sued shall prove that the person sued acted in good faith and
had no knowledge that such statement was false or misleading and in the exercise
of reasonable care could not have known that such statement was false or
misleading.
Annex B-17
<PAGE>
(e) A person seeking to enforce any liability under this section may
sue either at law or in equity in any court of competent jurisdiction.
(f) In any such suit under this section, the court may, in its
discretion, require an undertaking for the payment of the costs of such suit,
and assess reasonable cost, including reasonable attorneys' fees, against either
party litigant.
(g) Every person who directly or indirectly controls a person liable
under this section, every partner, principal executive officer, or director of
such person, every person occupying a similar status or performing similar
functions, every employee of such person who materially aids in the act or
transaction constituting the violation, and every broker-dealer or agent who
materially aids in the act or transaction constituting the violation, are also
liable jointly and severally with and to the same extent as such person, unless
the person who would be liable under subsection (d) proves that the person who
would be liable did not know, and in the exercise of reasonable care could not
have known, of the existence of the facts by reason of which the liability is
alleged to exist. There is contribution as in cases of contract among the
several persons so liable.
(h) No action shall be maintained under this section unless commenced
before the expiration of two (2) years after the act or transaction constituting
the violation or the expiration of one (1) year after the discovery of the facts
constituting the violation, or after such discovery should have been made by the
exercise of reasonable diligence, whichever first expires.
(i) Any condition, stipulation or provision binding any person
acquiring any security to waive compliance with any provision of this part or
any rule or order hereunder is void.
(j) The rights and remedies under this part are in addition to any
other rights or remedies that may exist at law or in equity.
(k) The legal rate of interest shall be that as provided by Section
47-14-121.
Annex B-18
<PAGE>
TEXAS
SEC. 33 [681-33]. CIVIL LIABILITIES.
A. Liability of Sellers.
(1) Registration and Related Violations. A person who offers or sells
a security in violation of Section 7, 9 (or a requirement of the Commissioner
thereunder), 12, 23B, or an order under 23A of this Act is liable to the person
buying the security from him, who may sue either at law or in equity for
rescission or for damages if the buyer no longer owns the security.
(2) Untruth or Omission. A person who offers or sells a security
(whether or not the security or transaction is exempt under Section 5 or 6 of
this Act) by means of an untrue statement of a material fact or an omission to
state a material fact necessary in order to make the statements made, in the
light of the circumstances under which they are made, not misleading, is liable
to the person buying the security from him, who may sue either at law or in
equity for rescission, or for damages if the buyer no longer owns the security.
However, a person is not liable if he sustains the burden of proof that either
(a) the buyer knew of the untruth or omission or (b) he (the offeror or seller)
did not know, and in the exercise of reasonable care could not have known, of
the untruth or omission. The issuer of the security (other than a government
issuer identified in Section 5M) is not entitled to the defense in clause (b)
with respect to an untruth or omission (i) in a prospectus required in
connection with a registration statement under Section 7A, 7B, or 7C, or (ii) in
a writing prepared and delivered by the issuer in the sale of a security.
B. Liability of Buyers. A person who offers to buy or buys a security
(whether or not the security or transaction is exempt under Section 5 or 6 of
this Act) by means of an untrue statement of a material fact or an omission to
state a material fact necessary in order to make the statements made, in the
light of the circumstances under which they are made, not misleading, is liable
to the person selling the security to him, who may sue either at law or in
equity for rescission or for damages if the buyer no longer owns the security.
However, a person is not liable if he sustains the burden of proof that either
(a) the seller knew of the untruth or omission, or (b) he (the offeror or buyer)
did not know, and in the exercise of reasonable care could not have known, of
the untruth or omission.
C. Liability of Nonselling Issuers Which Register.
(1) This Section 33C applies only to an issuer which registers under
Section 7A, 7B, or 7C of this Act, or under Section 6 of the U. S. Securities
Act of 1933, its outstanding securities for offer and sale by or for the owner
of the securities.
(2) If the prospectus required in connection with the registration
contains, as of its effective date, an untrue statement of a material fact or an
omission to state a material fact necessary in order to make the statements
made, in the light of the circumstances under which they are made, not
misleading, the issuer is liable to a person buying the registered security, who
may sue either at law or in equity for rescission or for damages if the buyer no
longer owns the securities. However, an issuer is not liable if it sustains the
burden of proof that the buyer knew of the untruth or omission.
D. Rescission and Damages. For this Section 33:
(1) On rescission, a buyer shall recover (a) the consideration he paid
for the security plus interest thereon at the legal rate from the date of
payment by him, less (b) the amount of any income he received on the security,
upon tender of the security (or a security of the same class and series).
(2) On rescission, a seller shall recover the security (or a security
of the same class and series) upon tender of (a) the consideration he received
for the security plus interest thereon at the legal rate from the date of
receipt by him, less (b) the amount of any income the buyer received on the
security.
(3) In damages, a buyer shall recover (a) the consideration he paid
for the security plus interest thereon at the legal rate from the date of
payment by him, less (b) the value of the security at the time he disposed of it
plus the amount of any income he received on the security.
(4) In damages, a seller shall recover (a) the value of the security
at the time of sale plus the amount of any income the buyer received on the
security, less (b) the consideration paid the seller for the security plus
interest thereon at the legal rate from the date of payment to the seller.
(5) For a buyer suing under Section 33C, the consideration he paid
shall be deemed the lesser of (a) the price he paid and (b) the price at which
the security was offered to the public.
(6) On rescission or as a part of damages, a buyer or a seller shall
also recover costs.
Annex B-19
<PAGE>
(7) On rescission or as a part of damages, a buyer or a seller may
also recover reasonable attorney's fees if the court finds that the recovery
would be equitable in the circumstances.
E. Time of Tender. Any tender specified in Section 33D may be made at any
time before entry of judgment.
F. Liability of Control Persons and Aiders.
(1) A person who directly or indirectly controls a seller, buyer, or
issuer of a security is liable under Section 33A, 33B, or 33C jointly and
severally with the seller, buyer, or issuer, and to the same extent as if he
were the seller, buyer, or issuer, unless the controlling person sustains the
burden of proof that he did not know, and in the exercise of reasonable care
could not have known, of the existence of the facts by reason of which the
liability is alleged to exist.
(2) A person who directly or indirectly with intent to deceive or
defraud or with reckless disregard for the truth or the law materially aids a
seller, buyer, or issuer of a security is liable under Section 33A, 33B, or 33C
jointly and severally with the seller, buyer, or issuer, and to the same extent
as if he were the seller, buyer, or issuer.
(3) There is contribution as in cases of contract among the several
persons so liable.
G. Survivability of Actions. Every cause of action under this Act survives
the death of any person who might have been a plaintiff or defendant.
H. Statute of Limitations.
(1) No person may sue under Section 33A(l) or 33F so far as it relates
to Section 33A(1):
(a) more than three years after the sale; or
(b) if he received a rescission offer (meeting the requirements
of Section 33 I) before suit unless he (i) rejected the offer in writing within
30 days of its receipt and (ii) expressly reserved in the rejection his right to
sue; or
(c) more than one year after he so rejected a rescission offer
meeting the requirements of Section 33 I.
(2) No person may sue under Section 33A(2), 33C, or 33F so far as it
relates to 33A(2) or 33C:
(a) more than three years after discovery of the untruth or
omission, or after discovery should have been made by the exercise of reasonable
diligence; or
(b) more than five years after the sale; or
(c) if he received a rescission offer (meeting the requirements
of Section 33 I) before suit, unless he (i) rejected the offer in writing within
30 days of its receipt, and (ii) expressly reserved in the rejection his right
to sue; or
(d) more than one year after he so rejected a rescission offer
meeting the requirements of Section 33 I.
(3) No person may sue under Section 33B or 33F so far as it relates to
Section 33B:
(a) more than three years after discovery of the untruth or
omission, or after discovery should have been made by the exercise of reasonable
diligence; or
(b) more than five years after the purchase; or
(c) if he received a rescission offer (meeting the requirements
of Section 33J) before suit unless he (i) rejected the offer in writing within
30 days of its receipt, and (ii) expressly reserved in the rejection his right
to sue; or
(d) more than one year after he so rejected a rescission offer
meeting the requirements of Section 33J.
I. Requirements of a Rescission Offer to Buyers. A rescission offer under
Section 33H(l) or (2) shall meet the following requirements:
Annex B-20
<PAGE>
(1) The offer shall include financial and other information material
to the offeree's decision whether to accept the offer, and shall not contain an
untrue statement of a material fact or an omission to state a material fact
necessary in order to make the statements made, in the light of the
circumstances under which they are made, not misleading.
(2) The offeror shall deposit funds in escrow in a state or national
bank doing business in Texas (or in another bank approved by the Commissioner)
or receive an unqualified commitment from such a bank to furnish funds
sufficient to pay the amount offered.
(3) The amount of the offer to a buyer who still owns the security
shall be the amount (excluding costs and attorney's fees) he would recover on
rescission under Section 33D(l).
(4) The amount of the offer to a buyer who no longer owns the security
shall be the amount (excluding costs and attorney's fees) he would recover in
damages under Section 33D(3).
(5) The offer shall state:
(a) the amount of the offer, as determined pursuant to Paragraph
(3) or (4) above, which shall be given (i) so far as practicable in terms of a
specified number of dollars and a specified rate of interest for a period
starting at a specified date, and (ii) so far as necessary, in terms of
specified elements (such as the value of the security when it was disposed of by
the offeree) known to the offeree but not to the offeror, which are subject to
the furnishing of reasonable evidence by the offeree.
(b) the name and address of the bank where the amount of the
offer will be paid.
(c) that the offeree will receive the amount of the offer within
a specified number of days (not more than 30) after receipt by the bank, in form
reasonably acceptable to the offeror, and in compliance with the instructions in
the offer, of:
(i) the security, if the offeree still owns it, or evidence
of the fact and date of disposition if he no longer owns it; and
(ii) evidence, if necessary, of elements referred to in
Paragraph (a)(ii) above.
(d) conspicuously that the offeree may not sue on his purchase
under Section 33 unless:
(i) he accepts the offer but does not receive the amount of
the offer, in which case he may sue within the time allowed by Section
33H(l)(a)or 33H(2)(a)or (b), as applicable; or
(ii) he rejects the offer in writing within 30 days of its
receipt and expressly reserves in the rejection his right to sue, in which case
he may sue within one year after he so rejects.
(e) in reasonable detail, the nature of the violation of this Act
that occurred or may have occurred.
(f) any other information the offeror wants to include.
J. Requirements of a Rescission Offer to Sellers. A rescission offer under
Section 33H(3) shall meet the following requirements:
(1) The offer shall include financial and other information material
to the offeree's decision whether to accept the offer, and shall not contain an
untrue statement of a material fact or an omission to state a material fact
necessary in order to make the statements made, in the light of the
circumstances under which they are made, not misleading.
(2) The offeror shall deposit the securities in escrow in a state or
national bank doing business in Texas (or in another bank approved by the
Commissioner).
(3) The terms of the offer shall be the same (excluding costs and
attorney's fees) as the seller would recover on rescission under Section 33D(2).
(4) The offer shall state:
(a) the terms of the offer, as determined pursuant to Paragraph
(3) above, which shall be given (i) so far as practicable in terms of a
specified number and kind of securities and a specified rate of interest for a
period starting at
Annex B-21
<PAGE>
a specified date, and (ii) so far as necessary, in terms of specified elements
known to the offeree but not the offeror, which are subject to the furnishing of
reasonable evidence by the offeree.
(b) the name and address of the bank where the terms of the offer
will be carried out.
(c) that the offeree will receive the securities within a
specified number of days (not more than 30) after receipt by the bank, in form
reasonably acceptable to the offeror, and in compliance with the instructions in
the offer, of:
(i) the amount required by the terms of the offer; and
(ii) evidence, if necessary, of elements referred to in
Paragraph (a)(ii) above.
(d) conspicuously that the offeree may not sue on his sale under
Section 33 unless:
(i) he accepts the offer but does not receive the
securities, in which case he may sue within the time allowed by Section
33H(3)(a) or (b), as applicable; or
(ii) he rejects the offer in writing within 30 days of its
receipt and expressly reserves in the rejection his right to sue, in which case
he may sue within one year after he so rejects.
(e) in reasonable detail, the nature of the violation of this Act
that occurred or may have occurred.
(f) any other information the offeror wants to include.
K. Unenforceability of Illegal Contracts. No person who has made or engaged
in the performance of any contract in violation of any provision of this Act or
any rule or order or requirement hereunder, or who has acquired any purported
right under any such contract with knowledge of the facts by reason of which its
making or performance was in violation, may base any suit on the contract.
L. Waivers Void. A condition, stipulation, or provision binding a buyer or
seller of a security to waive compliance with a provision of this Act or a rule
or order or requirement hereunder is void.
M. Saving of Existing Remedies. The rights and remedies provided by this
Act are in addition to any other rights (including exemplary or punitive
damages) or remedies that may exist at law or in equity.
N. Limitation of Liability in Small Business Issuances.
(1) For purposes of this Section 33N, unless the context otherwise
requires, "small business issuer" means an issuer of securities that, at the
time of an offer to which this Section 33N applies:
(a) has annual gross revenues in an amount that does not exceed
$25 million; and
(b) does not have a class of equity securities registered, or
required to be registered, with the Securities and Exchange Commission under
Section 12 of the Securities Exchange Act of 1934, as amended (15 U.S.C. Section
781).
(2) This Section 33N applies only to:
(a) an offer of securities made by a small business issuer or by
the seller of securities of a small business issuer that is an aggregate amount
that does not exceed $5 million; and
(b) a person who has been engaged to provide services relating to
an offer of securities described by Section 33N(2)(a), including an attorney, an
accountant, a consultant, or the firm of the attorney, accountant, or
consultant.
(3) The maximum amount that may be recovered against a person to which
this Section 33N applies in any action or series of actions under Section 33
relating to an offer of securities to which this Section 33N applies is an
amount equal to three times the fee paid by the issuer or other seller to the
person for the services related to the offer of securities, unless the trier of
fact finds the person engaged in intentional wrongdoing in providing the
services.
(4) A small business issuer making an offer of securities shall
provide to the prospective buyer a written disclosure of the limitation of
liability created by this Section 33N and shall receive a signed acknowledgment
that the disclosure was provided.
Annex B-22
<PAGE>
UTAH
SEC. 61-1-3. LICENSING OF BROKER-DEALERS, AGENTS, AND INVESTMENT ADVISERS.
(1) It is unlawful for any person to transact business in this state as a
broker-dealer or agent unless the person is licensed under this chapter.
(2) (a) It is unlawful for any broker-dealer or issuer to employ or engage
an agent unless the agent is licensed. The license of an agent is not effective
during any period when he is not associated with a particular broker-dealer
licensed under this chapter or a particular issuer.
(b) When an agent begins or terminates a connection with a
broker-dealer or issuer, or begins or terminates those activities which make him
an agent, the agent as well as the broker-dealer or issuer shall promptly notify
the division.
(3) It is unlawful for any person to transact business in this state as an
investment adviser or as an investment adviser representative unless:
(a) the person is licensed under this chapter; or
(b) the person's only clients in this state are investment companies
as defined in the Investment Company Act of 1940 [CCH FEDERAL SECURITIES LAW
REPORTER P. 47,307], other investment advisers, federal covered advisers,
broker-dealers, banks, trust companies, savings and loan associations, insurance
companies, employee benefit plans with assets of not less than $1,000,000, and
governmental agencies or instrumentalities, whether acting for themselves or as
trustees with investment control, or other institutional investors as are
designated by rule or order of the director; or
(c) the person has no place of business in this state and during the
preceding twelve-month period has had not more than five clients, other than
those specified in Subsection (3)(b), who are residents of this state.
(4) (a) It is unlawful for any:
(i) person required to be licensed as an investment adviser under
this chapter to employ an investment adviser representative unless the
investment adviser representative is licensed under this chapter, provided that
the license of an investment adviser representative is not effective during any
period when the person is not employed by an investment adviser licensed under
this chapter; or
(ii) federal covered adviser to employ, supervise, or associate
with an investment adviser representative having a place of business located in
this state, unless such investment adviser representative is licensed under this
chapter or is exempt from licensing.
(b) When an investment adviser representative required to be licensed
under this chapter begins or terminates employment with an investment adviser,
the investment adviser shall promptly notify the division.
(5) Except with respect to investment advisers whose only clients are those
described under Subsections (3)(b) or (3)(c), it is unlawful for any federal
covered adviser to conduct advisory business in this state unless such person
complies with the provisions of Section 61-1-4.
SEC. 61-1-7. REGISTRATION BEFORE SALE. It is unlawful for any person to
offer or sell any security in this state unless it is registered under this
chapter, the security or transaction is exempted under section 61-1-14, or the
security is a federal covered security for which a notice filing has been made
pursuant to the provisions of Section 61-1-15.5.
SEC. 61-1-22. SALES AND PURCHASES IN VIOLATION-REMEDIES-LIMITATION OF
ACTIONS.
(1) (a) A person who offers or sells a security in violation of Subsection
61-1-3(1), Section 61-1-7, Subsection 61-1-17(2), any rule or order under
Section 61-1-15, which requires the affirmative approval of sales literature
before it is used, any condition imposed under Subsection 61-1-10(4) or
61-1-11(7), or offers, sells, or purchases a security in violation of Subsection
61-1-1(2) is liable to the person selling the security to or buying the security
from him, who may sue either at law or in equity to recover the consideration
paid for the security, together with interest at 12% per year from the date of
payment, costs, and reasonable attorney's fees, less the amount of any income
received on the security, upon the tender of the security or for damages if he
no longer owns the security.
Annex B-24
<PAGE>
(b) Damages are the amount that would be recoverable upon a tender
less the value of the security when the buyer disposed of it and interest at 12%
per year from the date of disposition.
(2) The court in a suit brought under Subsection (1) may award an amount
equal to three times the consideration paid for the security, together with
interest, costs, and attorney's fees, less any amounts, all as specified in
Subsection (1) upon a showing that the violation was reckless or intentional.
(3) A person who offers or sells a security in violation of Subsection
61-1-1(2) is not liable under Subsection (l)(a) if the purchaser knew of the
untruth or omission, or the seller did not know and in the exercise of
reasonable care could not have known of the untrue statement or misleading
omission.
(4) (a) Every person who directly or indirectly controls a seller or buyer
liable under Subsection (1), every partner, officer, or director of such a
seller or buyer, every person occupying a similar status or performing similar
functions, every employee of such a seller or buyer who materially aids in the
sale or purchase, and every broker-dealer or agent who materially aids in the
sale are also liable jointly and severally with and to the same extent as the
seller or purchaser, unless the nonseller or nonpurchaser who is so liable
sustains the burden of proof that he did not know, and in exercise of reasonable
care could not have known, of the existence of the facts by reason of which the
liability is alleged to exist.
(b) There is contribution as in cases of contract among the several
persons so liable.
(5) Any tender specified in this section may be made at any time before
entry of judgment.
(6) A cause of action under this section survives the death of any person
who might have been a plaintiff or defendant.
(7) (a) No action shall be maintained to enforce any liability under this
section unless brought before the expiration of four years after the act or
transaction constituting the violation or the expiration of two years after the
discovery by the plaintiff of the facts constituting the violation, whichever
expires first.
(b) No person may sue under this section if: (i) the buyer or seller
received a written offer, before suit and at a time when he owned the security,
to refund the consideration paid together with interest at 12% per year from the
date of payment, less the amount of any income received on the security, and he
failed to accept the offer within 30 days of its receipt; or (ii) the buyer or
seller received such an offer before suit and at a time when he did not own the
security, unless he rejected the offer in writing within 30 days of its receipt.
(8) No person who has made or engaged in the performance of any contract in
violation of this chapter or any rule or order hereunder, or who has acquired
any purported right under any such contract with knowledge of the facts by
reason of which its making or performance was in violation, may base any suit on
the contract.
(9) A condition, stipulation, or provision binding a person acquiring a
security to waive compliance with this chapter or a rule or order hereunder is
void.
(10) (a) The rights and remedies provided by this chapter are in addition
to any other rights or remedies that may exist at law or in equity.
(b) This chapter does not create any cause of action not specified in
this section or Subsection 61-1-4(6).
Annex B-25
<PAGE>
[BACK COVER OF PROSPECTUS]
Until _________ (date), all dealers that effect transactions in these
securities, whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the dealers' obligation to deliver
a prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF OFFICERS AND DIRECTORS
The officers and directors of Mountain States are subject to an
indemnification as stated in the articles of incorporation and bylaws which
would insure or indemnify them in any manner against liability which they may
incur in their capacities as such.
Mountain States' Articles of Incorporation provide that no Director shall
be liable to Mountain States or its stockholders for monetary damages or for any
action taken or any failure to take any action as a director. The Articles
continue that the indemnification of Directors shall be mandatory to the fullest
extent permitted by law. Generally, Arizona statutory law permits
indemnification of an officer or director if such individual acted in good faith
and with respect to conduct of an official capacity, in a manner he or she
reasonably believed to be in the best interests of the corporation and in all
other cases, at least not opposed to the corporation's best interests, and with
respect to any criminal action or proceeding, had no reasonable cause to believe
his or her conduct was unlawful. A corporation may never indemnify any director
who is adjudged liable to the corporation or who is adjudged, regardless of the
nature of the proceeding, liable on the basis that the director received an
improper personal benefit. Unless a corporation's articles of incorporation
provide otherwise, a corporation must indemnify a director or officer who is the
prevailing party on merits or otherwise for the director's or officer's
reasonable expenses in the defense of a proceeding to which the director or
officer was a party because he or she is or was a director or officer of the
corporation.
Mountain States has not entered into any agreement with its current
directors and executive officers pursuant to which it is obligated to indemnify
those persons. At present, Mountain States is not aware of any pending or
threatened litigation or proceeding involving a director, officer, employee or
agent of Mountain States in which indemnification would be required or
permitted. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, offices or 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
Securities 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 hereunder, 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.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses to be born by the
registrant in connection with the issuance and distribution of the securities
offered under this registration statement:
SEC Filing Fee................................................... $ 3,226.00
State Filing Fees................................................ 15,000.00
Printing and Engraving........................................... 7,000.00
Legal Fees and Expenses.......................................... 135,000.00
Accounting Fees and Expenses..................................... 5,000.00
Miscellaneous.................................................... 4,674.00
-----------
Total $170,000.00
===========
II-1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
<TABLE>
<CAPTION>
FROM WHOM
DATE OF CERT. NO. OF SHARES WERE CONSIDERATION
SHAREHOLDER NAME ISSUANCE NO. SHARES TRANSFERRED PAID EXEMPTION
- ---------------- -------- --- ------ ----------- ---- ---------
<S> <C> <C> <C> <C> <C> <C>
Cledis Weatherford 12/31/99 PA-1 294,829 Original Issue $294,829 Rule 506
Patricia Weatherford
Michael Casey 12/31/99 PA-2 29,261 Original Issue $ 29,261 Rule 506
Vivian Collins 12/31/99 PA-3 85,000 Original Issue $ 85,000 Rule 506
</TABLE>
ITEM 27. EXHIBITS
See "Exhibits Index," following the signature page, which is incorporated
here by reference.
ITEM 28. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant under the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities 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.
The undersigned registrant undertakes that:
(1) RULE 415 OFFERING. If the small business issuer is registering
securities under Rule 415 of the Securities Act, that the small business
issuer will:
(a) 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.
II-2
<PAGE>
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 the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than a 20
percent change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement; and
(iii) Include any additional or changed material information
on the plan of distribution.
(b) 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.
(c) File a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the offering.
(2) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the registrant according to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of the
registration statement as of the time the Commission declared it effective.
(3) For determining any liability under the Securities Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to 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.
(4) In so far as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the small business issuer pursuant to the foregoing
provisions, or otherwise, the small business issuer has been advised that
in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
In the event that a claim for indemnification against such liabilities,
other than the payment by the small business issuer of expenses incurred or paid
by a director, officer or controlling person of the small business issuer in the
successful defense of any action, suit or proceeding, is asserted by such
director, officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, Mountain
States Capital, Inc. certifies that it has reasonable grounds to believe that it
meets all of the requirements of filing on Form SB-2, and has authorized this
registration statement to be signed on its behalf by the undersigned in the City
of Phoenix, State of Arizona, on May 12, 2000.
MOUNTAIN STATES CAPITAL, INC.
By: /s/ Kim Collins
------------------------------------
Kim Collins
Chief Executive Officer and Director
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 indicated.
Person Title Date
------ ----- ----
/s/ Kim Collins Chief Executive Officer and May 12, 2000
- ------------------ Director (Principal Executive
Kim Collins Officer)
/s/ Chad Collins President, Secretary, Treasurer May 12, 2000
- ------------------ and Director (Principal Financial
Chad Collins Officer)
S-1
<PAGE>
MOUNTAIN STATES CAPITAL, INC.
EXHIBIT INDEX TO REGISTRATION STATEMENT ON FORM SB-2
EXHIBIT NO. DESCRIPTION
- ----------- -----------
1.1 Heritage West Broker Dealer Agreement.
1.2 Separate Account Agreement Between Heritage West Securities, Inc.
and Mountain States Capital, Inc. (to be filed by amendment).
3.1 Amended and Restated Articles of Incorporation of Mountain States
Capital, Inc., as filed December 28, 1999.
4.1 Statement of Mountain States Capital, Inc. Pursuant to Section
10-602 Designating Preferred Stock.
4.2 Trust Indenture.
5.1 Legality Opinion of Quarles & Brady LLP.
5.2 Tax Opinion of Quarles & Brady LLP.
10.1 Form of Outstanding Note.
10.2 Form of Monthly Payment (New) Note.
10.3 Form of Accrual (New) Note.
10.4 Trust Indenture (included in Exhibit 4.2).
23.1 Consent of Clancy & Co., P.L.L.C.
23.2 Consent of Quarles & Brady LLP (included in Exhibit 5.1).
25.1 Statement of Eligibility of U.S. Bank Trust (Form T-1).
27.1 Financial Data Schedule.
EX-1
Promissory Notes, 18% 12 Month Unsecured
MOUNTAIN STATES CAPITAL, INC.
RESCISSION/DISTRIBUTION
BROKER/DEALER AGREEMENT
Dated March 31, 2000
and Amended May 3, 2000
Heritage West Securities, Inc.
3550 North Central Avenue
Suite 1800
Phoenix, Arizona 85012
Dear Sirs:
Mountain States Capital, Inc., an Arizona corporation (the "Company"), is
directing a registered offer of rescission (the "Rescission Offer") to all
persons who are holders of certain promissory notes ("Outstanding Notes")
previously issued by the Company. The current owners of the Outstanding Notes
are listed on the attached "Rescission List" (such persons are referred to
herein as the "Rescission Offerees"). The Company is also offering to sell to
the public newly issued promissory notes (the "New Notes"). The Rescission Offer
and the offering of New Notes are described in that certain Form SB-2
Registration Statement to be filed with the Securities and Exchange Commission
(the "Registration Statement").
Heritage West Securities, Inc. (the "Broker/Dealer") will act as
Broker/Dealer strictly in an agency capacity (i) to transmit the offer of
rescission by the Company, (ii) to effect the consummation of rescission by any
Rescission Offerees who accept such offer, provided that Broker/Dealer's
responsibilities shall be limited to the payment to such exercising Rescission
Offerees of amounts due to them from funds provided by the Company to
Broker/Dealer for such purpose, and in no event shall Broker/Dealer be obligated
to pay any such amounts from any other funds or sources, (iii) to oversee a
separate account for the deposit of the $2,200,000 minimum proceeds to be raised
pursuant to the Company's Registration Statement, and (iv) to distribute the New
Notes on a best efforts basis. Capitalized terms not defined herein shall have
the respective meanings ascribed to them in the Registration Statement.
1. REGISTRATION STATEMENT. The Company has prepared the Registration
Statement and is solely responsible for the contents thereof.
2. PROCEDURE FOR REPAYING OUTSTANDING NOTES. As and when Broker/Dealer
shall receive from Rescission Offerees notices of acceptance of the rescission
offer made in accordance with the terms and conditions of the Registration
Statement, Broker/Dealer shall calculate the amount due under the terms set
forth in the Registration Statement, and shall so inform the Company of such
acceptance(s) (including the names of all accepting Rescission Offerees) and of
1
<PAGE>
such calculation. The Company shall within five (5) business days remit to
Broker/Dealer check(s) (or, in the case of Rescission Offerees who have
subscribed for New Notes, New Notes) in the calculated amount, which
Broker/Dealer shall send to the accepting Rescission Offerees after
Broker/Dealer receives the canceled promissory note(s).
3. PROCEDURE FOR DISTRIBUTION OF NEW NOTES. As and when Broker/Dealer shall
receive acceptances from offerees of the offer of New Notes, Broker/Dealer shall
tender completed documentation with respect thereto to the Company for
acceptance. Funds received by Broker/Dealer shall be held in escrow until the
minimum offering amounts are satisfied, all as described in the Registration
Statement.
4. AGREEMENTS OF THE COMPANY. The Company agrees with Broker/Dealer as
follows:
(a) The Company will furnish to Broker/Dealer one copy of the
Registration Statement and will provide a copy of each amendment to it.
(b) The Company will prepare a prospectus relating to the Registration
Statement in accordance with all applicable SEC and state securities authorities
rules and regulations, and will provide to Broker/Dealer as many copies of such
prospectus as Broker/Dealer may reasonably request for offerees of the New
Notes.
(c) The Company will pay all reasonable and verifiable third-party
costs, expenses, fees and taxes incident to (i) the printing and delivery of the
Registration Statement and all amendments or supplements to it, (ii) the
printing and delivery of all other agreements, memoranda, correspondence and
other documents printed and delivered in connection with the Registration
Statement and the Rescission Offer, (iii) furnishing such copies of the
Registration Statement and all amendments and supplements thereto, (iv) the
performance by the Company of its account set up and Noteholder funds
distribution obligations under this Agreement, and (v) all other reasonable and
necessary third-party hard costs associated with the distribution of the
Registration Statement or the prospectus relating thereto and all expenses
associated with the Rescission Offer, provided that the Company shall have
approved each such cost or expense exceeding $250 prior to the incurrence
thereof.
(d) In addition to the expenses described in Section 4(c) and the
commissions described in Section 4(e) with respect to the New Notes, the Company
shall pay the Broker/Dealer a total fee equal to the greater of $25,000 or One
and One-Half Percent (1 1/2%) of the total amount of the face value of the
Outstanding Notes as to which the Rescission Offer is accepted by Rescission
Offerees who elect to roll their Outstanding Note balances into New Notes. Upon
execution of this Agreement, the sum of $12,500 shall be paid to the
Broker/Dealer for services to be performed.
The remainder of the Broker/Dealer's fee shall be paid as follows:
(i) $10,000 within thirty (30) days of this Agreement; and
(ii) The balance due Broker/Dealer upon conclusion of the Rescission
Offer (at such time as the percentage of the total amount of the face value of
the rescinded Notes can be calculated).
(e) The Broker/Dealer's fee for all New Notes issued pursuant to the
Registration Statement shall be as follows:
2
<PAGE>
(i) Three Percent (3%) annually of the face amount of all New Notes
where the offeree is identified by the Broker-Dealer where the Company does not
have an existing relationship with the offeree.
(ii) One and One Half Percent (1 1/2%) annually of the face amount of
all other New Notes that are issued pursuant to the Registration Statement.
- If the Company and the Broker/Dealer agree that other broker-dealers
are to be utilized in the further distribution of the New Notes, then
supplemental fees will be negotiated amongst the parties on a case by case
basis.
- All fees under this Section 4(e) shall be payable in twelve equal
monthly installments paid monthly in arrears, beginning thirty days after the
date of the Company's receipt of subscription proceeds for the New Notes. The
fees will be paid for such terms and renewal terms as the New Notes are
outstanding. In the event the Company elects to retire any New Notes prior to
their maturity, the Company will be obligated to compensate the Broker/Dealer
only through the end of the monthly installment that would be due for the month
that any New Notes are retired.
(f) The Company will do and perform all things required or necessary
to be done and performed under this Agreement by the Company in connection with
the Rescission Offer to satisfy all conditions precedent to the completion of
the Rescission Offer, including, but not limited to maintaining its existence
and maintaining or providing for adequate assets to fulfill the Company's
responsibilities through the final distribution of funds in connection
therewith.
5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY. The Company
represents and warrants to, and covenants with, the Broker/Dealer that:
(a) The Registration Statement will be prepared in compliance with all
applicable laws, is accurate in all material respects, and does 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 not misleading.
Any prospectus prepared by the Company relating to the Registration Statement,
any amendment to the Registration Statement and any prospectus relating to such
amended Registration Statement will be accurate in all material respects, will
not contain any untrue statement of a material fact and will not omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading.
(b) The financial statements included in the Registration Statement
and any prospectus, together with the related schedules and notes, present
fairly the financial position of the Company at the dates indicated and the
statement of operations, stockholders' equity and cash flows of the Company for
the periods specified; said financial statements have been prepared in
conformity with generally accepted accounting principles ("GAAP") applied on a
consistent basis throughout the periods involved.
(c) Since the dates as of which information is given in the
Registration Statement and any prospectus, except as otherwise stated therein,
(i) there has been no material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of the
Company, whether or not arising in the ordinary course of business (a "Material
Adverse Effect"), and (ii) there have been no transactions entered into by the
Company or any of its subsidiaries, other than those in the ordinary course of
business, which are material with respect to the Company and its subsidiaries
considered as one enterprise.
3
<PAGE>
(d) This Agreement has been duly authorized, executed and delivered by
the Company, and this Agreement constitutes the legal, valid and binding
obligations of the Company, enforceable against the Company in accordance with
its terms, except as enforceability may be limited by applicable bankruptcy,
insolvency or other similar laws affecting the enforcement of creditors' rights
generally and by general principles of equity relating to enforceability. The
Company has full power and authority to enter into and perform its obligations
under this Agreement. The execution, delivery and performance of this Agreement,
the compliance by the Company with all provisions hereof and the consummation of
the transactions contemplated hereby will not conflict with or result in a
breach of any of the terms or provisions of, or a default under, the charter or
by laws of the Company. No consent, approval, authorization or order of any
court or any governmental agency or body is required for the consummation by the
Company of the transactions contemplated hereby, except such as have been
obtained.
6. REPRESENTATIONS AND WARRANTIES OF BROKER/DEALER. The Broker/Dealer
represents and warrants to the Company that:
(a) Broker/Dealer: (i) is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation; (ii) has all requisite corporate power and authority to conduct
the business in which it is currently engaged; (iii) is duly qualified as a
foreign corporation, licensed and in good standing under the laws of each
jurisdiction where the conduct of its business requires such qualification; and
(iv) has the corporate power and authority to execute, deliver and perform its
obligations under this Agreement.
(b) Broker/Dealer is in compliance with, and meets all the applicable
requirements of, the National Association of Securities Dealers and the United
States Securities Exchange Commission. Broker/Dealer is duly registered or
qualified as a broker/dealer and otherwise has the legal ability to perform its
obligations under this Agreement, in Arizona, California, New Mexico, Colorado,
Texas, Kansas, Oregon, Florida and Utah. To the extent necessary to comply with
applicable law, the Broker/Dealer will use its best efforts to register or
qualify as a broker/dealer in Tennessee.
(c) This Agreement has been duly executed and delivered by the
Broker/Dealer, and this Agreement constitutes the legal, valid and binding
obligations of the Broker/Dealer enforceable against the Broker/Dealer in
accordance with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity relating to
enforceability.
(d) Broker/Dealer will engage in the distribution of the New Notes on
a best efforts basis.
7. BLUE SKY QUALIFICATIONS. The Company will use its best efforts, in
cooperation with the Broker/Dealer, to qualify at the Company's expense the
Securities for offering and sale under the applicable securities laws of such
states and other jurisdictions (domestic or foreign) as the Broker/Dealer may
designate and to maintain such qualifications in effect for a period of not less
than one year from the effective date of the Registration Statement.
8. INDEMNIFICATION OF BROKER/DEALER. (a) The Company agrees to indemnify
and hold harmless the Broker/Dealer and each person, if any, who controls the
4
<PAGE>
Broker/Dealer within the meaning of Section 15 of the Securities Act of 1933, as
amended (the "1933 Act"), or Section 20 of the Securities Exchange Act of 1934,
as amended (the "1934 Act"), against any and all loss, liability, claim, damage
and expense whatsoever (including, without limitation, cost of counsel and other
professionals incurred by Broker/Dealer in responding to or investigating any
matter), as incurred, arising out of any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement (or any
amendment thereto), or the omission or alleged omission therefrom of a material
fact required to be stated therein or necessary to make the statements therein
not misleading or arising out of any untrue statement or alleged untrue
statement of a material fact included in any prospectus relating to the
Registration Statement or any amendment thereto, or the omission or alleged
omission therefrom of a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
(b) Broker/Dealer shall give notice as promptly as reasonably
practicable to the Company of any action commenced against it in respect of
which indemnity may be sought hereunder, but failure to so notify the Company
shall not relieve the Company from any liability hereunder to the extent it is
not materially prejudiced as a result thereof and in any event shall not relieve
it from any liability which it may have otherwise than on account of this
indemnity agreement. Counsel to the Broker/Dealer shall be selected by the
Broker/Dealer, although the Company may participate at its own expense in the
defense of any such action. The Company shall not, without the prior written
consent of the Broker/Dealer, settle or compromise or consent to the entry of
any judgment with respect to any litigation, or any investigation or proceeding
by any governmental agency or body, commenced or threatened, or any claim
whatsoever in respect of which indemnification or contribution could be sought
under this Section 7.
9. OPINION OF COUNSEL. The Company shall deliver to the Broker/Dealer the
opinion of Quarles & Brady, LLP, securities counsel to the Company, in form and
substance satisfactory to the Broker/Dealer, addressing the compliance of the
Rescission Offer and the offering of New Notes with applicable securities laws.
10. BROKER/DEALER TO OVERSEE SEPARATE ACCOUNT. The Broker/Dealer agrees to
accept appointment as agent for the deposit funds to a separate account (the
"Separate Account") that will hold the $2,200,000 minimum proceeds to be raised
pursuant to the Company's Registration Statement. The Broker/Dealer and the
Company agree to execute an agreement that more completely describes the
parties' undertakings with regard to the Separate Account (the "Separate Account
Agreement"). A summary of the Broker/Dealers' role in overseeing the Separate
Account will be as follows:
(a) All funds initially received by the Broker/Dealer pursuant to the
Company's Registration Statement will be deposited or wired to the Separate
Account maintained at Valley Bank, 3550 N. Central Ave., Phoenix, Arizona 85012.
The Broker/ Dealer shall cause all checks issued or wires to be sent by New Note
investors to be made payable to Heritage West Securities FBO Mountain States
Capital, Inc.
(b) If the sum of canceled Old Noted (as that term is defined in the
Registration Statement) and New Note investor funds on deposit in the Separate
Account total $2,200,000 at any time prior to the termination of the Separate
Account Agreement, then the Broker/Dealer shall release the Separate Account
funds to the Company. If the minimum amount of canceled Old Noted and New Note
investor funds in the Separate Account has not met or exceeded $2,200,000 prior
to the termination date of the Separate Account Agreement, the Broker/Dealer
shall within a reasonable time following the termination date refund to each of
the New Note investors all sums paid pursuant to their New Note subscription
agreements.
5
<PAGE>
11. TERMINATION. Either party may terminate this Agreement if the other
party has materially breached the terms of this Agreement and has not cured the
breach within thirty days of receiving written notice of the breach from the
non-breaching party. In the event of a breach by Broker/Dealer, any fees paid or
payable by the Company will be equitably adjusted to reflect the Broker/Dealer's
actual performance hereunder.
12. MISCELLANEOUS. Notices given pursuant to any provision of this
Agreement shall be addressed as follows: (a) if to the Company, Mountain States
Capital, Inc., 1407 East Thomas Road, Phoenix, Arizona 85014, and (b) if to you,
do Paul F. Arutt at Heritage West Securities, Inc., 3550 North Central Avenue,
Suite 1800, Phoenix, Arizona 85012, or in any case to such other address as the
person to be notified may have requested in writing.
This Agreement shall be governed and construed in accordance with the laws
of the State of Arizona.
This Agreement may be signed in various counterparts which together shall
constitute one and the same instrument.
Please confirm that the foregoing correctly sets forth the agreement
between the Company and the Broker/Dealer.
Very truly yours,
MOUNTAIN STATES CAPITAL, INC.
By: /s/ Chad Collins
------------------------------
Chad Collins, President
Confirmed in Phoenix, Arizona
on the date first above mentioned.
HERITAGE WEST SECURITIES, INC.
By: /s/ Paul F. Arutt
------------------------------
Paul F. Arutt, President
6
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
MOUNTAIN STATES CAPITAL, INC.
Pursuant to the provisions of Section 10-1006 of the Arizona Revised
Statutes, the undersigned Corporation adopts the following amendment to its
Articles of Incorporation:
FIRST: The name of the Corporation is Mountain States Capital, Inc.
SECOND: The following sets forth the amendment to the following articles:
4.1 AUTHORIZED CAPITAL. The Corporation shall have the authority
to issue 25,000,000 shares of common stock, no par value per share
(the "Common Stock"), and 1,000,000 shares of preferred stock, no par
value per share (the "Preferred Stock").
4.2 PREFERRED STOCK.
A. SERIES. The board of directors is authorized, subject to
limitations prescribed by law and these Articles of Incorporation, to
provide for the issuance of the shares of preferred stock in series,
and by filing a certificate pursuant to the applicable law of the
State of Arizona, to establish from time to time the number of shares
to be included in each such series, and to fix the designation,
powers, preferences and rights of the shares of each such series and
the qualifications, limitations or restrictions thereof.
B. RIGHTS AND LIMITATIONS. The authority of the board of
directors with respect to each series of preferred stock shall
include, without limitation, determination of the following:
(1) The number of shares constituting that series
and the distinctive designation of that series;
(2) The dividend rate on the shares of that
series, whether dividends shall be cumulative, and, if so, from
which date or dates, and the relative rights of priority, if any,
of payment of dividends on shares of that series;
(3) Whether that series shall have voting rights,
in addition to the voting rights provided by law, and if so, the
terms of such voting rights;
(4) Whether that series shall have conversion
privileges, and if so, the terms and conditions of such
conversion, including provisions for adjustment of the conversion
rate in such events as the board of directors shall determine;
1
<PAGE>
(5) Whether or not the shares of that series shall
be redeemable, and if so, the terms and conditions of such
redemption, including the date or dates upon or after which they
shall be redeemable, and the amount per share payable in case of
redemption, which amount may vary under different conditions and
at different redemption dates;
(6) Whether that series shall have a sinking fund
for the redemption or purchase of shares of that series, and if
so, the terms and amount of such sinking fund;
(7) The rights of the shares of that series in the
event of voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, and the relative rights of
priority, if any, of payment of shares of that series; and
(8) Any other relative rights, preferences and
limitations of that series.
THIRD: The amendment was adopted and approved by the shareholders on December
28, 1999.
FOURTH: The number of shares outstanding and entitled to vote at the time of
such adoption was 1,000,000 shares of Common Stock. The total number
of undisputed votes cast for the amendment was 1,000,000. The number
of votes cast for the amendment was sufficient for approval.
FIFTH: These Articles of Amendment are to be effective on December 31, 1999.
DATED: December 28, 1999.
MOUNTAIN STATES CAPITAL, INC.
By: /s/ Chad Collins
------------------------------------
Chad Collins, President
2
STATE OF ARIZONA
STATEMENT OF MOUNTAIN STATES CAPITAL, INC.
PURSUANT TO SECTION 10-602
By the authority of Article 4 of the Articles of Incorporation of Mountain
States Capital, Inc., an Arizona corporation (the "Corporation"), the Board of
Directors of the Corporation duly adopted the following resolution on December
28, 1999, effective December 31, 1999:
RESOLVED, that pursuant to Article 4 of the Articles of Incorporation of
the Corporation, effective December 31, 1999, there be created a series of the
Preferred Stock, no par value per share, of this Corporation consisting of
500,000 shares to be designated as the Series A Preferred Stock (the "Series A
Preferred Stock") and that the holders of such shares shall have the rights,
preferences and privileges set forth on Exhibit A, attached hereto and
incorporated herein by reference.
DATED: December 28, 1999.
MOUNTAIN STATES CAPITAL, INC.
an Arizona corporation
By: /s/ Chad Collins
-------------------------------------
Chad Collins, President
1
<PAGE>
EXHIBIT "A"
Mountain States Capital, Inc.
Designation of Preferred Stock
In accordance with Article 4 of the Articles of Incorporation of Mountain
States Capital, Inc., an Arizona corporation (the "Corporation"), effective
December 31, 1999, there is hereby established one series of preferred stock of
the Corporation, consisting of 500,000 shares, the designation and the powers,
preferences and rights, and the qualifications, limitations or restrictions
thereof are hereby fixed pursuant to this Certificate of Designation (the
"Certificate") as follows:
1. DESIGNATION. The designation of said series of preferred stock of the
Corporation created hereby, consisting of 500,000 shares, shall be Series A
Preferred Stock ("Series A Preferred Stock").
2. DIVIDENDS. Holders of the Series A Preferred Stock shall be entitled to
receive cumulative cash dividends at the rate of 18% per annum, payable monthly
on the notional value thereof of $1.00 per share (the "Notional Value"), through
December 31, 2002. Thereafter, holders of Series A Preferred Stock shall be
entitled to receive cumulative cash dividends at the rate of 9% per annum,
payable monthly on the Notional Value thereof; PROVIDED, HOWEVER, that the
dividend rate shall continue to be 18% per annum with respect to those shares,
if any, for which on or before December 31, 2002, the holder files a written
election with the Corporation granting the Corporation a perpetual right to
redeem such shares upon 30 days prior written notice at the par value thereof.
Dividends on outstanding shares of Series A Preferred Stock shall be paid and
set apart for payment before any dividends shall be paid or set apart for
payment on the common stock of the Corporation (the "Common Stock").
3. REDEMPTION; SINKING FUND. Shares of Series A Preferred Stock shall be
redeemable only if the holder has filed an election permitting redemption as
provided in paragraph 2. The Series A Preferred Stock shall not have a sinking
fund.
4. LIQUIDATION. In case of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Series A
Preferred Stock then outstanding shall be entitled to be paid out of the assets
of the Corporation available for distribution to its stockholders, prior and in
preference to any other distribution to the holders of Common Stock, an amount
equal to $1.00 per share of Series A Preferred Stock. If upon any such
liquidation, dissolution or winding up of the Corporation the remaining assets
of the Corporation available for distribution to its stockholders shall be
insufficient to pay the holders of shares of Series A Preferred Stock the full
amount to which they shall be entitled, the holders of shares of Series A
Preferred Stock and any other series of preferred stock of the Corporation shall
share ratably in any distribution of the remaining assets and funds of the
Corporation in proportion to the respective amounts which would otherwise be
payable in respect of the shares held by them upon such distribution if all
amounts payable on or with respect to such shares were paid in full.
2
<PAGE>
5. CONVERSION.
5A. OPTIONAL CONVERSION. Subject to the provisions of paragraph 4
hereof regarding liquidation, and subject to the terms and conditions of this
paragraph 5, the holder of any share or shares of Series A Preferred Stock shall
have the right, at its option at any time, to convert any such shares of Series
A Preferred Stock (except that upon any liquidation of the Corporation the right
of conversion shall terminate at the close of business on the last full business
day next preceding the date fixed for payment of the amount distributable on the
Series A Preferred Stock) into fully paid and nonassessable whole shares of
Common Stock on a ten (10) shares of Series A Preferred Stock for one (1) share
of Common Stock basis. Such rights of conversion shall be exercised by the
holder thereof by giving written notice that the holder elects to convert a
stated number of shares of Series A Preferred Stock into Common Stock, and by
surrender of a certificate or certificates for the Series A Preferred Stock so
to be converted to the Corporation at its principal office (or such other office
or agency of the Corporation as the Corporation may designate by notice in
writing to the holder or holders of the Series A Preferred Stock) at any time
during its usual business hours on the date set forth in such notice, together
with a statement of the name or names (with address) in which the certificate or
certificates for shares of Common Stock shall be issued.
5B. ISSUANCE OF CERTIFICATES; TIME CONVERSION EFFECTED. Promptly after
receipt of the written notice referred to in paragraph 5A and surrender of the
certificate or certificates for the share or shares of Series A Preferred Stock
to be converted, the Corporation shall issue and deliver, or cause to be issued
and delivered, to the holder, registered in such name or names as such holder
may direct, a certificate or certificates for the number of whole shares of
Common Stock issuable upon the conversion of such share or shares thereof,
subject, in the case of registration in a name other than the holder of the
Series A Preferred Stock so surrendered, to compliance with any agreement
relating to transfer by which such holder is bound. To the extent permitted by
law, such conversion shall be deemed to have been effected as of the close of
business on the date on which such written notice shall have been received by
the Corporation and the certificate or certificates for such share or shares
shall have been surrendered as aforesaid, and at such time the rights of the
holder of such share or shares as such holder shall cease, and the person or
persons in whose name or names any certificate or certificates for shares of
Common Stock shall be issuable upon such conversion shall be deemed to have
become the holder or holders of record of the shares represented thereby.
5C. FRACTIONAL SHARES; DIVIDENDS; PARTIAL CONVERSION. No fractional
shares shall be issued upon conversion of Series A Preferred Stock into Common
Stock and no payment or adjustment shall be made upon any conversion on account
of any cash dividends on the Common Stock issued upon such conversion. At the
time of each conversion, to the extent and as soon as permitted by applicable
law, the Corporation shall pay in cash an amount equal to all dividends declared
and unpaid on the shares surrendered for conversion to the date upon which such
conversion is deemed to take place as provided in paragraph 5B. In case the
number of shares of Series A Preferred Stock represented by the certificate or
certificates surrendered pursuant to paragraph 5A exceeds the number of shares
of such Series converted, the Corporation shall, upon such conversion, execute
and deliver to the holder thereof, at the expense of the Corporation, a new
certificate or certificates for the number of shares of Series A Preferred Stock
of such Series, represented by the certificate or certificates surrendered which
are not to be converted. If any fractional interest in a share of Common Stock
3
<PAGE>
would, except for the provisions of the first sentence of this paragraph 5C, be
deliverable upon any such conversion, the Corporation, in lieu of delivering the
fractional share thereof, shall pay to the holder surrendering Series A
Preferred Stock for conversion an amount in cash equal to the current market
price of such fractional interest as determined by the Board of Directors.
5D. SUBDIVISION OR COMBINATION OF STOCK. In case the Corporation shall
at any time subdivide its outstanding shares of Common Stock into a greater
number of shares, the number of shares of Common Stock into which each share of
Series A Preferred Stock shall be converted shall be proportionately reduced,
and conversely, in case the outstanding shares of Common Stock shall be combined
into a smaller number of shares, the number of Shares of Common Stock into which
each Share of Series A Preferred Stock shall be converted shall be
proportionately increased.
5E. REORGANIZATION, RECLASSIFICATION, MERGER, CONSOLIDATION OR SALE.
If any capital reorganization or reclassification of the capital stock of the
Corporation or any merger or consolidation of the Corporation into or with
another corporation, or the sale of all or substantially all of the
Corporation's assets to another corporation shall be effected in such a way that
holders of Common Stock shall be entitled to receive stock, securities or assets
with respect to or in exchange for Common Stock, then, as a condition of such
reorganization, reclassification, consolidation, merger or sale, lawful and
adequate provisions shall be made whereby each holder of a share or shares of
such respective Series of Series A Preferred Stock shall thereafter have the
right to receive, upon the basis and upon the terms and conditions specified
herein and in lieu of the shares of Common Stock immediately theretofore
receivable upon the conversion of such share or shares of Series A Preferred
Stock (determined in accordance with paragraph 5D, if applicable), 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 said
number of shares of such stock immediately theretofore so receivable had such
reorganization or reclassification not taken place, and in any such case
appropriate provision shall be made with respect to the rights and interests of
such holder to the end that the provisions hereof shall thereafter be
applicable, as nearly as may be, in relation to any shares of stock, securities
or assets thereafter deliverable upon the exercise of such conversion rights.
The Corporation will not effect any such consolidation, merger or sale, unless
prior to the consummation thereof the successor corporation (if other than the
Corporation) resulting from such consolidation or merger or the corporation
purchasing such assets shall assume by written instrument executed and mailed or
delivered to each holder of shares of Series A Preferred Stock at the last
address of such holder appearing on the books of the Corporation, 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
receive.
5F. STOCK TO BE RESERVED. The Corporation will at all times reserve
and keep available out of its authorized Common Stock or its treasury shares,
solely for the purpose of issue upon the conversion of the Series A Preferred
Stock as herein provided, such number of shares of Common Stock as shall then be
issuable upon the conversion of all outstanding shares of Series A Preferred
Stock. The Corporation covenants that all shares of Common Stock which shall be
so issued shall be duly and validly issued and fully paid and nonassessable and
free from all taxes, liens and charges with respect to the issue thereof. The
Corporation will take all such action as may be necessary to assure that all
4
<PAGE>
such shares of Common Stock may be so issued without violation of any applicable
law or regulation, or of any requirements of any national securities exchange
upon which the Common Stock may be listed, provided that it shall not have to
register any shares beyond any separate agreement to do so. If it is in the best
interests of the Corporation as determined by the Board of Directors, the
Corporation will take action to increase the number of authorized shares of
Common Stock if the total number of shares of Common Stock issued and issuable
upon conversion of the Series A Preferred Stock would exceed the total number of
shares of Common Stock then authorized by the Corporation's Articles of
Incorporation.
5G. NO REISSUANCE OF SERIES A PREFERRED STOCK. Shares of Series A
Preferred Stock which are converted into shares of Common Stock as provided
herein shall be restored to the status of authorized and unissued shares of
Preferred Stock, undesignated as to series, and may be reissued as Series A
Preferred Stock.
5H. ISSUE TAX. The issuance of certificates for shares of Common Stock
upon conversions of the Series A Preferred Stock shall be made without charge to
the holders of such Series A Preferred Stock for any issuance tax in respect
thereof, provided that the Corporation shall not be required to pay any tax
which may be payable in respect of any transfer involved in the issuance and
delivery of any certificate in a name other than that of the holder of the
Series A Preferred Stock converted.
5I. CLOSING OF BOOKS. The Corporation will at no time close its
transfer books against the transfer of any Series A Preferred Stock or of any
shares of Common Stock issued or issuable upon the conversion of any shares of
Series A Preferred Stock in any manner which interferes with the timely
conversion of such Series A Preferred Stock.
6. AUTOMATIC CONVERSION. If that at any time while any of the Series A
Preferred Stock shall be outstanding, the Corporation shall complete a firm
commitment underwritten public offering then, all outstanding shares of Series A
Preferred Stock shall, automatically and without further action on the part of
the holders of the Series A Preferred Stock, be converted into shares of Common
Stock in accordance with the terms of paragraph 5 with the same effect as if the
certificates evidencing such shares had been surrendered for conversion, such
conversion to be effective simultaneously with the closing under such
underwritten public offering, PROVIDED, HOWEVER, that certificates evidencing
the shares of Common Stock issuable upon such conversion shall not be issued
except on surrender of the certificates for the shares of Series A Preferred
Stock so converted.
7. NOTICES. In case at any time (a) there shall be any capital
reorganization, or reclassification of the capital stock of the Corporation, or
consolidation or merger of the Corporation with, or sale of all or substantially
all of its assets to, another corporation, or (b) there shall be a voluntary or
involuntary dissolution, liquidation or winding up of the Corporation; then, in
any one or more of said cases, the Corporation shall give, by first class mail,
postage prepaid, addressed to each holder of any shares of Series A Preferred
Stock at the address of such holder as shown on the books of the Corporation, at
least 20 days' prior written notice of the date when the same shall take place.
Such notice shall also specify the date on which the holders of Series A
Preferred Stock shall be entitled to exchange their Series A Preferred Stock for
securities or other property deliverable upon such reorganization,
5
<PAGE>
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, as the case may be.
8. NO GENERAL VOTING RIGHTS. Except as otherwise provided by law and this
Certificate, the holders of Series A Preferred Stock shall have no right to vote
on any matter to be voted on by the holders of Common Stock of the Corporation
(including any election of the directors of the Corporation).
9. NO RESTRICTIONS. Nothing herein contained shall require a class vote or
consent in connection with any increase in the total number of authorized shares
of Common Stock. The provisions of this Certificate shall not in any way limit
the right and power of the Corporation to issue the presently authorized but
unissued shares of its capital stock, or bonds, notes, mortgages, debentures, or
other obligations, or to incur indebtedness to banks or to other lenders.
10. AMENDMENT OF CERTIFICATE. This Certificate constitutes an agreement
between the Corporation and the holders of the Series A Preferred Stock. It may
be amended by vote of the Board of Directors and the holders of a majority of
the outstanding shares of Series A Preferred Stock.
11. OTHER AMENDMENTS. The Corporation will not amend, alter or repeal the
Corporation's Articles of Incorporation or Bylaws in any manner, or file any
certificate pursuant to Section 10-602 of the Arizona Revised Statutes,
containing any provision, in any case, which affects the respective preferences,
qualifications, special or relative rights or privileges of the Series A
Preferred Stock or the Common Stock or which in any manner affects the Series A
Preferred Stock, or the Common Stock or the holders thereof.
6
MOUNTAIN STATES CAPITAL, INC.
ISSUER
AND
U.S. BANK TRUST NATIONAL ASSOCIATION
TRUSTEE
INDENTURE
DATED AS OF _______, 2000
18% 12 MONTH PROMISSORY NOTES
INDENTURE, DATED AS OF _______, 2000
<PAGE>
BETWEEN MOUNTAIN STATES CAPITAL, INC.
AND U.S. BANK TRUST NATIONAL ASSOCIATION, TRUSTEE
Cross-reference sheet showing the location in the Indenture of the
provisions inserted pursuant to Sections 310 through 318(a) inclusive of the
Trust Indenture Act of 1939.
TIA INDENTURE SECTION
--- -----------------
Section 310(a)(1) 7.09
(a)(2) 7.09
(a)(3) Not Applicable
(a)(4) Not Applicable
(b) 7.08
7.10
Section 311(a) 7.13(a)
(b) 7.13(b)
(b)(2) 8.03(a)(2)
8.03(b)
Section 312(a) 8.01
8.02(a)
(b) 8.02(b)
(c) 8.02(c)
Section 313(a) 8.03(a)
(b) 8.03(b)
(c) 8.03(a)
8.03(b)
(d) 8.03(c)
Section 314(a) 8.04
(b) 11.07
(c)(1) 1.02
(c)(2) 1.02
(c)(3) 4.03(4)
(d) 4.03(4)
(e) 1.02
Section 315(a) 7.01(a)
7.01(c)
(b) 7.02
8.03(a)(7)
(c) 7.01(b)
(d) 7.01
2
<PAGE>
(d)(1) 7.01(a)
(d)(2) 7.01(c)(2)
(d)(3) 7.02(c)(3)
(e) 6.16
Section 316(a) 1.01
(a)(1)(A) 6.02
6.14
(a)(1)(B) 6.15
(a)(2) Not Applicable
(b) 6.10
Section 317(a)(1) 6.03
(a)(2) 6.06
(b) 11.03
Section 318(a) 1.07
- ----------
Note: This cross-reference sheet shall not, for any purpose, be deemed to
constitute a part of the Indenture.
3
<PAGE>
PRELIMINARY STATEMENT
ARTICLE ONE
Definitions and Other Provisions of General Application................... 4
Section 1.01. Definitions................................................ 4
Section 1.02. Compliance Certificates and Opinions....................... 10
Section 1.03. Form of Documents Delivered to Trustee..................... 10
Section 1.04. Acts of Noteholders........................................ 11
Section 1.05. Notices, etc., to Trustee and Issuer....................... 12
Section 1.06. Notices to Noteholders; Waivers............................ 12
Section 1.07. Conflict with Trust Indenture Act.......................... 12
Section 1.08. Effect of Headings and Table of Contents................... 13
Section 1.09. Successors and Assigns..................................... 13
Section 1.10. Separability............................................... 13
Section 1.11. Benefits of Indenture...................................... 13
Section 1.12. Legal Holidays............................................. 13
Section 1.13. Governing Law.............................................. 13
Section 1.14. Counterparts............................................... 13
Section 1.15. Recourse on Obligation..................................... 14
Section 1.16. Inspection................................................. 14
ARTICLE TWO
Note Form................................................................. 15
Section 2.01. Forms Generally............................................ 15
Section 2.02. Form of Notes.............................................. 15
ARTICLE THREE
The Notes................................................................. 28
Section 3.01. Amount Unlimited; Notes Issuable in Classes; Certain
Related Provisions....................................... 28
Section 3.02. Denominations.............................................. 29
Section 3.03. Execution, Authentication, Delivery and Dating............. 29
Section 3.04. Temporary Notes............................................ 29
Section 3.05. Registration, Registration of Transfer and Exchange........ 30
Section 3.06. Mutilated, Destroyed, Lost or Stolen Notes................. 31
Section 3.07. Payment of Principal and Interest; Principal and
Interest Rights Preserved.................................. 32
Section 3.08. Persons Deemed Owners...................................... 35
Section 3.09. Cancellation............................................... 35
i
<PAGE>
ARTICLE FOUR
Authentication and Delivery of Notes...................................... 36
Section 4.01. General Provisions......................................... 36
Section 4.02. Execution of a Supplemental Indenture;
Representations and Warranties............................. 36
Section 4.03. No Pledge of Security for Notes............................ 37
Section 4.04. Delivery of Other Documents................................ 37
Section 4.05. Acceptance by Trustee...................................... 38
ARTICLE FIVE
Satisfaction and Discharge................................................ 40
Section 5.01. Satisfaction and Discharge of Indenture.................... 40
Section 5.02. Application of Trust Money................................. 41
ARTICLE SIX
Remedies.................................................................. 42
Section 6.01. Events of Default.......................................... 42
Section 6.02. Acceleration of Maturity: Rescission and Annulment......... 43
Section 6.03. Collection of Indebtedness and Suits for Enforcement
by Trustee............................................... 44
Section 6.04. Remedies................................................... 45
Section 6.05. Optional Preservation of Trust Estate...................... 45
Section 6.06. Trust May File Proofs of Claim............................. 46
Section 6.07. Trustee May Enforce Claims Without Possession of Notes..... 47
Section 6.08. Application of Money Collected............................. 47
Section 6.09. Limitation on Suits........................................ 48
Section 6.10. Unconditional Rights of Noteholders to Receive
Principal and Interest................................... 48
Section 6.11. Restoration of Rights and Remedies......................... 49
Section 6.12. Rights and Remedies Cumulative............................. 49
Section 6.13. Delay or Omission Not Waiver............................... 49
Section 6.14. Control by Noteholders..................................... 50
Section 6.15. Waiver of Past Defaults.................................... 50
Section 6.16. Undertaking for Costs...................................... 50
Section 6.17. Waiver of Stay or Extension Laws........................... 51
Section 6.18. Sale of Trust Estate....................................... 51
Section 6.19. Action on Notes............................................ 52
ii
<PAGE>
ARTICLE SEVEN
The Trustee............................................................... 53
Section 7.01. Certain Duties and Responsibilities........................ 53
Section 7.02. Notice of Default.......................................... 54
Section 7.03. Certain Rights of Trustee.................................. 54
Section 7.04. Not Responsible for Recitals or Issuance of Notes.......... 56
Section 7.05. May Hold Notes............................................. 56
Section 7.06. Money Held in Trust........................................ 56
Section 7.07. Compensation and Reimbursement............................. 56
Section 7.08. Disqualification; Conflicting Interests.................... 57
Section 7.09. Corporate Trustee Required; Eligibility.................... 65
Section 7.10. Resignation and Removal; Appointment of Successor.......... 65
Section 7.11. Acceptance of Appointment by Successor..................... 67
Section 7.12. Merger, Conversion, Consolidation or Succession to
Business of Trustee...................................... 67
Section 7.13. Preferential Collection of Claims Against Issuer........... 68
ARTICLE EIGHT
Noteholders' Lists and Reports by Trustee and Issuer...................... 73
Section 8.01. Issuer to Furnish Trustee Names and Addresses of
Noteholders.............................................. 73
Section 8.02. Preservation of Information; Communications to
Noteholders.............................................. 73
Section 8.03. Reports by Trustee......................................... 75
Section 8.04. Reports by Issuer.......................................... 77
ARTICLE NINE
[Intentionally Omitted.] ................................................. 79
ARTICLE TEN
Supplemental Indentures................................................... 79
Section 10.01. Supplemental Indentures Without Consent of Noteholders..... 79
Section 10.02. Supplemental Indentures With Consent of Noteholders........ 81
Section 10.03. Execution of Supplemental Indentures....................... 81
Section 10.04. Effect of Supplemental Indentures.......................... 81
Section 10.05. Conformity with Trust Indenture Act........................ 83
Section 10.06. Reference in Notes to Supplemental Indentures.............. 83
iii
<PAGE>
ARTICLE ELEVEN
Covenants................................................................. 84
Section 11.01. Payment of Principal and Interest.......................... 84
Section 11.02. Maintenance of Office or Agency............................ 84
Section 11.03. Money for Note Payments to Be Held in Trust................ 84
Section 11.04. Corporate Existence........................................ 86
Section 11.05. Protection of Trust Estate................................. 86
Section 11.06. [Intentionally Omitted.]................................... 87
Section 11.07. Opinions as to Trust Estate................................ 87
Section 11.08. Negative Covenants......................................... 87
Section 11.09. Statement as to Compliance................................. 88
ARTICLE TWELVE
Redemption of Notes......................................................... 89
Section 12.01. Right of Redemption by Holder.............................. 89
Section 12.02. Withdrawal of Requests..................................... 89
Section 12.03. Redemption Register........................................ 89
Section 12.04. Notes Redeemed as a Whole or in Part....................... 90
Section 12.05. Redemption by the Issuer................................... 90
Section 12.06. Election to Redeem; Notice to Trustee...................... 90
Section 12.07. Notice of Redemption by the Issuer......................... 91
Section 12.08. Deposit of Redemption Price................................ 91
Section 12.09. Notes Payable on Redemption Date........................... 92
ARTICLE THIRTEEN
Accounts, Accountings and Releases........................................ 93
Section 13.01. Collection of Money........................................ 93
Section 13.02. Payment of Principal and Interest on the Notes............. 93
ARTICLE FOURTEEN
Noteholders' Meetings..................................................... 94
Section 14.01. Purposes for Which Meetings May Be Called.................. 94
Section 14.02. Manner of Calling Meetings................................. 94
Section 14.03. Call of Meeting by Issuer or Noteholders................... 95
Section 14.04. Who May Attend and Vote at Meetings........................ 95
Section 14.05. Regulations May Be Made by Trustee......................... 95
Section 14.06. Manner of Voting at Meetings and Record to Be Kept......... 96
Section 14.07. Exercise of Rights of Trustee and Noteholders Not
to Be Hindered or Delayed................................ 97
iv
<PAGE>
INDENTURE, dated as of ________, 2000, between MOUNTAIN STATES CAPITAL,
INC., an Arizona corporation, as Issuer, and U.S. Bank Trust National
Association, a national banking association, as trustee.
PRELIMINARY STATEMENT
The Issuer has duly authorized the execution and delivery of this Indenture
to provide for its 18% 12 MONTH PROMISSORY NOTES, issuable as provided in this
Indenture (the "Notes"). The Notes will be issued from time to time only under
Supplements to this Indenture duly executed and delivered by the Issuer and the
Trustee.
All things necessary to make this Indenture a valid agreement of the Issuer
in accordance with its terms have been done.
3
<PAGE>
ARTICLE ONE
Definitions and Other Provisions of General Application
Section 1.01. DEFINITIONS.
Except as otherwise specified or as the context may otherwise require, the
following terms have the respective meanings set forth below for all purposes of
this Indenture, and the definitions of such terms are equally applicable both to
the singular and plural forms of such terms. All other terms used herein that
are defined in the Trust Indenture Act, either directly or by reference therein,
have the meanings assigned to them therein.
"ACCOUNTANT": A person engaged in the practice of accounting who, except
when this Indenture provides that an Accountant must be Independent, may be
employed by or affiliated with the Issuer or an Affiliate of the Issuer.
"ACT": With respect to any Noteholder, the meaning specified in Section
1.04.
"AFFILIATE": of any specified Person: Any other Person controlling or
controlled by or under common control with such specified Person. For the
purposes of this definition, "control" when used with respect to any specified
Person means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise; and the terms "controlling", and "controlled", have
meanings correlative to the foregoing.
"BOARD OF DIRECTORS": Either the Board of Directors of the Issuer or any
duly authorized committee of that Board.
"BOARD RESOLUTION": A copy of a resolution certified by the Secretary or an
Assistant Secretary of the Issuer to have been duly adopted by the Board of
Directors and to be in full force and effect on the date of such certification
and delivered to the Trustee.
"BUSINESS DAY": Any day that is not a Saturday, Sunday or other day on
which commercial banking institutions in St. Paul, Minnesota, or the city in
which the Trustee's Corporate Trust Office is located are authorized or
obligated by law or executive order to be closed.
"CLASS": All Notes with the same Stated Maturity.
"CODE": The Internal Revenue Code of 1986, as it may be amended from time
to time, any successor statutes thereto, and applicable U.S. Department of
Treasury regulations issued pursuant thereto.
4
<PAGE>
"COMMISSION": The Securities and Exchange Commission, as from time to time
constituted, created under the Securities Exchange Act of 1934, or if at any
time such Commission is not existing and performing the duties now assigned to
it under the Trust Indenture Act, then the body performing such duties at such
time under the Trust Indenture Act or similar legislation replacing the Trust
Indenture Act.
"CORPORATE TRUST OFFICE": The principal corporate trust office of the
Trustee located in Phoenix, Arizona, provided that for registration, transfer,
exchange, surrender and payment on the Notes, the term means the corporate trust
office of U.S. Bank Trust National Association in St. Paul Minnesota, or at such
other address as the Trustee may designate from time to time by notice to the
Noteholders and the Issuer, or the principal corporate trust office of any
successor Trustee.
"DATE OF EXECUTION": The actual date of execution of this instrument by the
Issuer and the Trustee as indicated by their respective acknowledgments hereto
annexed, and if the Issuer and the Trustee shall have executed this instrument
at different dates, the later date.
"DEFAULT": Any occurrence that is, or with notice or the lapse of time or
both would become, an Event of Default.
"DEFAULTED P&I": As defined in Section 3.07.
"ELIGIBLE INVESTMENTS": One or more of the following obligations or
securities:
(i) direct obligations of, and obligations fully guaranteed by, the
United States of America, the Federal Home Loan Mortgage Corporation, the
Federal National Mortgage Association or any agency or instrumentality
thereof, the obligations of which are backed by the full faith and credit
of the United States Government;
(ii) certificates of deposit, time deposits, commercial paper and
banker acceptances issued by any trust company or bank situated in the
United States provided that the debt obligations of such bank or trust
company have been given a rating of A by Standard & Poor's Corporation or
whose commercial paper has been assigned a rating of A-1 by Standard &
Poor's or, in the case of a principal bank of a bank holding company
system, the senior debt or commercial paper of whom or of whose holding
company has been so rated (such bank, trust company, or bank holding
company is hereinafter referred to as a "Qualified Bank");
(iii) investments in money market funds or investment funds, including
those managed by a trust company or bank situated in the United States
constituting a Qualified Bank, and provided that the investments held by
such funds constitute Eligible Investments;
5
<PAGE>
(iv) deposits which are fully insured by the Federal Deposit Insurance
Corporation; and
(v) noninterest bearing negotiable certificates of deposit of, or any
deposit with, the Trustee or any bank situated in the United States,
provided that the debt obligations of the Trustee or such bank have been
given a rating of A by Standard & Poor's Corporation;
provided that Eligible Investments shall include only such obligations or
securities that mature in [90 days] or less.
"EVENT OF DEFAULT": As defined in Section 6.01.
"EXECUTIVE OFFICER": With respect to any corporation, the Chairman of the
Board of Directors, the President, any Vice President, the Secretary or the
Treasurer of such corporation; with respect to any partnership, any general
partner thereof; with respect to any bank or trust company acting as trustee of
an express trust or as custodian, any trust officer thereof.
"GRANT": To grant, mortgage, pledge and create a security interest in.
"INDENTURE" OR "THIS INDENTURE": This instrument as originally executed,
and if from time to time supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof,
as so supplemented or amended. All references in this instrument to designated
"Articles," "Sections" "Subsections" and other subdivisions are to the
designated Articles, Sections, Subsections and other subdivisions of this
instrument as originally executed. The words "herein," "hereof," "hereunder" and
other words of similar import refer to this Indenture as a whole and not to any
particular Article, Section, Subsection or other subdivision.
"INDEPENDENT": When used with respect to any specified Person means such a
Person who (1) is in fact independent of the Issuer and any other obligor upon
the Notes or any Affiliate of the Issuer or of such other obligor, (2) does not
have any direct financial interest or any material indirect financial interest
in the Issuer or in any such other obligor or in an Affiliate of the Issuer or
such other obligor, and (3) is not connected with the Issuer or any such other
obligor or any Affiliate of the Issuer or of such other obligor as an officer,
employee, promoter, underwriter, trustee, partner, director or person performing
similar functions. Whenever it is herein provided that any Independent Person's
opinion or certificate shall be furnished to the Trustee, such Person shall be
appointed by an Issuer Order and such opinion or certificate shall state that
the signer has read this definition and that the signer is Independent within
the meaning thereof.
"INITIAL OUTSTANDING AMOUNT": The Outstanding Amount of any Note as of the
date of issuance.
"ISSUE DATE": With respect to any Class, the date on which Notes of such
Class are first executed, authenticated and delivered.
6
<PAGE>
"ISSUER": Mountain States Capital, Inc., an Arizona corporation, until a
successor Person shall have become the Issuer pursuant to the applicable
provisions of this Indenture, and thereafter "Issuer" shall mean such successor
Person or any other obligor under this Indenture.
"ISSUER ORDER" AND "ISSUER REQUEST": A written order or request signed in
the name of the Issuer by two Persons one of which shall be the Chairman,
President, or a Vice President of the Issuer, and one of whom shall be the
Treasurer, an Assistant Treasurer, Secretary, or an Assistant Secretary of the
Issuer, and delivered to the Trustee.
"MATURITY": With respect to any Note, the date on which the unpaid
principal of such Note becomes due and payable as therein or herein provided,
whether at the Stated Maturity or by declaration of acceleration, call for
redemption or otherwise.
"NOTE RATE": The rate of interest payable on the Notes, which is 18% per
annum.
"NOTES": Any Notes authorized by, and authenticated and delivered under,
this Indenture.
"NOTEHOLDER" OR "HOLDER": The Person in whose name a Note is registered in
the Note Register.
"NOTE REGISTER" AND "NOTE REGISTRAR": The respective meanings specified in
Section 3.05.
"OFFICERS CERTIFICATE": A Certificate signed by the Chairman, the Chief
Executive Officer, the President or a Vice President, and by the Treasurer, an
Assistant Treasurer, the Secretary or an Assistant Secretary of the Issuer or
other Person delivering such certificate, and delivered to the Trustee. Unless
otherwise specified, any reference in this Indenture to an Officers Certificate
shall be to an Officers' Certificate of the Issuer.
"OPINION OF COUNSEL": A written opinion of counsel who may, except as
otherwise expressly provided in this Indenture, be counsel for the Issuer.
"OUTSTANDING": With respect to Notes, as of the date of determination, all
Notes theretofore authenticated and delivered under this Indenture except:
(i) Notes theretofore canceled by the Trustee or delivered to the
Trustee for cancellation;
(ii) Notes or portions thereof for whose payment or redemption money
in the necessary amount has been theretofore deposited with the Trustee or
any Paying Agent, other than the Issuer, in trust or set aside and
segregated in trust by the Issuer, if the Issuer shall act as its own
7
<PAGE>
Paying Agent, for the Holders of such Notes; provided that, if such Notes
or portions thereof are to be redeemed, notice of such redemption has been
duly given pursuant to this Indenture or provision therefor satisfactory to
the Trustee has been made;
(iii) Notes in exchange for or in lieu of which other Notes have been
authenticated and delivered pursuant to this Indenture unless proof
satisfactory to the Trustee is presented that any such Notes are held by a
holder in due course;
provided, that in determining whether the Holders of the requisite principal
amount of the Outstanding Notes or of the Outstanding Notes of any Class have
given any request, demand, authorization, direction, notice, consent or waiver
hereunder, Notes owned by the Issuer or any other obligor upon the Notes or any
Affiliate of the Issuer or such other obligor shall be disregarded and deemed
not to be Outstanding, except that, in determining whether the Trustee shall be
protected in relying upon any such request, demand, authorization, direction,
notice, consent or waiver, only Notes that the Trustee knows to be so owned
shall be so disregarded. Notes so owned that have been pledged in good faith may
be regarded as Outstanding if the pledgee establishes to the satisfaction of the
Trustee the pledgee's right so to act with respect to such Notes and that the
pledgee is not the Issuer or any other obligor upon the Notes or any Affiliate
of the Issuer or such other obligor.
"PAYMENT DATE": Any Redemption Date and/or monthly date on which interest
is payable for a Class of Notes.
"PAYING AGENT": Any Person authorized by the Issuer to pay the principal of
or interest on any Notes on behalf of the Issuer.
"PERMITTED ENCUMBRANCES": The lien created by this Indenture.
"PERSON": Any individual, corporation, partnership, joint venture,
association, joint stock company, trust, including any beneficiary thereof,
unincorporated organization, government, or any agency or political subdivision
thereof.
"PREDECESSOR NOTES": With respect to any particular Note, every previous
Note evidencing all or a portion of the same debt as that evidenced by such
particular Note; and, for the purposes of this definition, any Note
authenticated and delivered under Section 3.06 in lieu of a lost, destroyed or
stolen Note shall be deemed to evidence the same debt as the lost, destroyed or
stolen Note.
"PROCEEDING": Any suit in equity, action at law or other judicial or
administrative proceeding.
"QUALIFIED BANK": As defined in the definition of Eligible Investments.
"REDEMPTION DATE": With respect to the Notes of any Class, the date or
dates provided in the Supplemental Indenture for a Class on which Notes shall or
8
<PAGE>
may, at the option of the Issuer or the Holder, be redeemed. Unless otherwise
specified, the Redemption Date for a Note shall be the first day of the first
month beginning at least 90 days after receipt of a written request for
redemption of the Note in accordance with this Indenture.
"REDEMPTION PRICE": With respect to any Note to be redeemed, 100% of the
unpaid principal amount thereof.
"REGULAR RECORD DATE": With respect to the interest or principal payable on
any Payment Date or Redemption Date, the close of business on the 20th day of
the month preceding that in which such Payment Date or Redemption Date occurs.
"RESPONSIBLE OFFICER": With respect to the Trustee, the chairman or
vice-chairman of the board of directors, the chairman or vice-chairman of the
executive committee of the board of directors, the president, any vice
president, the secretary, any assistant secretary, the treasurer, any assistant
treasurer, the cashier, any assistant cashier, any trust officer or assistant
trust officer, the controller, any assistant controller or any other officer of
the Trustee customarily performing functions similar to those performed by any
of the above designated officers and also means, with respect to a particular
corporate trust matter, any other officer to whom such matter is referred
because of his knowledge of and familiarity with the particular subject.
"STATED MATURITY": With respect to any Note, the date specified in such
Note or the Supplemental Indenture for such Class of Notes as the fixed date on
which the principal of such Note is due and payable.
"SUPPLEMENT" OR "SUPPLEMENTAL INDENTURE": An indenture supplemental to this
Indenture that authorized a Class of Notes or is otherwise entered into pursuant
to Article 10.
"TIA": The Trust Indenture Act of 1939, as amended, and applicable rules
and regulations thereunder.
"TRUST ESTATE": All money, instruments and other property subject or
intended to be subject to the lien of this Indenture for the benefit of holders
of the Notes or of any particular Class of Notes as of any particular time. The
Notes are initially being issued without security.
"TRUST INDENTURE ACT" OR "TIA": The Trust Indenture Act of 1939 as in force
at the Date of Execution, unless otherwise specifically provided.
"TRUSTEE": U.S. Bank Trust National Association, a national banking
association, until a successor Person shall become the Trustee pursuant to the
applicable provisions of this Indenture, and thereafter "Trustee" shall mean
such successor Person.
9
<PAGE>
"VICE PRESIDENT": With respect to any Person, any vice president, whether
or not designated by a number or a word or words added before or after the title
"vice president."
"VOTING STOCK": Capital stock of a corporation of any class or classes,
however designated, having ordinary voting power for the election of a majority
of the members of the board of directors, or other governing body, of such
corporation, other than capital stock having such power only by reason of the
happening of a contingency.
Section 1.02. COMPLIANCE CERTIFICATES AND OPINIONS.
Upon any application or request by the Issuer to the Trustee to take any
action under any provision of this Indenture, the Issuer shall furnish to the
Trustee an Officers' Certificate stating that all conditions precedent, if any,
provided for in this Indenture relating to the proposed action have been
complied with and an Opinion of Counsel stating that in the opinion of such
counsel all such conditions precedent, if any, have been complied with, except
that in the case of any such application or request as to which the furnishing
of such documents is specifically required by any provision of this Indenture
relating to such particular application or request, no additional certificate or
opinion need be furnished.
Every certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture, other than certificates provided
pursuant to Subsection 8.04(4) of this Indenture, shall include:
(1) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(4) a statement as to whether, in the opinion of each such individual,
such condition or covenant has been complied with.
Section 1.03. FORM OF DOCUMENTS DELIVERED TO TRUSTEE.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
10
<PAGE>
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Issuer may be based,
insofar as it relates to legal matters, upon a certificate of opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or Opinion of Counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Issuer, stating that the
information with respect to such factual matters is in the possession of the
Issuer, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Section 1.04. ACTS OF NOTEHOLDERS.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Noteholders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Noteholders in person or by
agent duly appointed in writing; and, except as herein otherwise expressly
provided, such action shall become effective when such instrument or
instruments are delivered to the Trustee, and, where it is hereby expressly
required, to the Issuer. Such instrument or instruments, and the action
embodied therein and evidenced thereby, are herein sometimes referred to as
the "Act" of the Noteholders signing such instrument or instruments. Proof
of execution of any such instrument or of a writing appointing any such
agent shall be sufficient for any purpose of this Indenture and, subject to
Section 7.01, conclusive in favor of the Trustee and the Issuer, if made in
the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved in any manner that the Trustee deems
sufficient.
(c) The ownership of Notes shall be proved by the Note Register.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Holder of any Notes shall bind the Holder of
every Note issued upon the registration thereof or in exchange therefor or
in lieu thereof, in respect of anything done, omitted or suffered to be
11
<PAGE>
done by the Trustee or the Issuer in reliance thereon, whether or not
notation of such action is made upon such Note.
Section 1.05. NOTICES, ETC., TO TRUSTEE AND ISSUER.
Any request, demand, authorization, direction, notice, consent, waiver or
Act of Noteholders or other documents provided or permitted by this Indenture to
be made upon, given or furnished to, or filed with:
(1) the Trustee by any Noteholder or by the Issuer shall be sufficient
for every purpose hereunder if made, given, furnished or filed in writing
to or with the Trustee at its Corporate Trust Office, or
(2) the Issuer by the Trustee or by any Noteholder shall be sufficient
for every purpose hereunder, except as otherwise expressly provided herein,
if in writing and mailed, first-class postage prepaid, to the Issuer
addressed to it at 1407 E. Thomas Road, Phoenix, Arizona 85014, or at any
other address previously furnished in writing to the Trustee by the Issuer.
Section 1.06. NOTICES TO NOTEHOLDERS; WAIVERS.
Where this Indenture provides for notice to Noteholders of any event, such
notice shall be sufficiently given, unless otherwise herein expressly provided,
if in writing and mailed, first-class postage prepaid, to each Noteholder
affected by such event, at his address as it appears on the Note Register, not
later than the latest date, and not earlier than the earliest date, prescribed
for the giving of such notice. In any case where notice to Noteholders is given
by mail, neither the failure to mail such notice, nor any defect in any notice
so mailed, to any particular Noteholder shall affect the sufficiency of such
notice with respect to other Noteholders, and any notice which is mailed in the
manner herein provided shall be conclusively presumed to have been duly given.
Where this Indenture provides for notice in any manner, such notice may be
waived in writing by any Person entitled to receive such notice, either before
or after the event, and such waiver shall be the equivalent of such notice.
Waivers of notice by Noteholders shall be filed with the Trustee, but such
filing shall not be a condition precedent to the validity of any action taken in
reliance upon such waiver.
In case, by reason of the suspension of regular mail service as a result of
a strike, work stoppage or similar activity, it shall be impractical to mail
notice of any event to Noteholders when such notice is required to be given
pursuant to any provision of this Indenture, then any manner of giving such
notice as shall be satisfactory to the Trustee shall be deemed to be a
sufficient giving of such notice.
12
<PAGE>
Section 1.07. CONFLICT WITH TRUST INDENTURE ACT.
If any provision hereof limits, qualifies or conflicts with another
provision hereof that is required to be included in this Indenture by any of the
provisions of TIA, such required provision shall control.
Section 1.08. EFFECT OF HEADINGS AND TABLE OF CONTENTS.
The Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
Section 1.09. SUCCESSORS AND ASSIGNS.
All covenants and agreements in this Indenture by the Issuer shall bind its
successors and assigns, whether so expressed or not.
Section 1.10. SEPARABILITY.
In case any provision in this Indenture or in the Notes shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
Section 1.11. BENEFITS OF INDENTURE.
Nothing in this Indenture or in the Notes, express or implied, shall give
to any Person, other than the parties hereto and their successors hereunder, and
the Noteholders, any benefit or any legal or equitable right, remedy or claim
under this Indenture.
Section 1.12. LEGAL HOLIDAYS.
In any case where the date of any interest payment date, Redemption Date or
the Stated Maturity of any Note shall not be a Business Day, then,
notwithstanding any other provision of the Notes or this Indenture, payment need
not be made on such date, but may be made on the next succeeding Business Day
with the same force and effect as if made on the nominal date of any such
interest payment, Redemption Date or Stated Maturity, as the case may be, and no
interest shall accrue for the period from and after any such nominal date.
Section 1.13. GOVERNING LAW.
This Indenture, each Supplement and each Note shall be construed in
accordance with and governed by the Laws of the State of Arizona applicable to
agreements made and to be performed therein.
13
<PAGE>
Section 1.14. COUNTERPARTS.
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
Section 1.15. RECOURSE ON OBLIGATION.
Notwithstanding anything to the contrary in this Indenture, recourse on the
Notes of any Class or under the Indenture and Supplemental Indenture for such
Class may be taken against any property of the Issuer not included in the Trust
Estate securing such Notes, it being expressly understood that the Notes of any
Class and the Issuer obligations under this Indenture and the related
Supplemental Indenture are, except as limited by the foregoing, general, full
recourse obligations of the Issuer. No recourse may be taken against any
incorporator, subscriber to the capital stock, stockholder, officer or director
of the Issuer, or of any predecessor or successor of the Issuer with respect to
the Issuer's obligations on the Notes or under this Indenture or any certificate
or other writing delivered in connection herewith or therewith.
Section 1.16. INSPECTION.
The Issuer agrees that, on reasonable prior notice, it will permit any
representative of the Trustee, during the Issuer's normal business hours, to
examine all the books of account, records, reports and other papers of the
Issuer, to make copies and extracts therefrom, to cause such books to be audited
by independent certified public accountants selected by the Trustee, and to
discuss its affairs, finances and accounts with its officers, employees and
independent certified public accountants, and by this provision the Issuer
hereby authorizes its accountants to discuss with such representative such
affairs, finances and accounts, all at such reasonable times and as often as may
be reasonably requested. Any expenses incident to the exercise by the Trustee of
any right under this Section 1.16 shall be borne by the Holders, provided that
if an audit is made during the continuance of an Event of Default, the expense
incident to such audit shall be borne by the Issuer.
14
<PAGE>
ARTICLE TWO
Note Form
Section 2.01. FORMS GENERALLY.
The Notes and the Trustee's certificates of authentication shall be in
substantially the forms set forth in this Article, with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture, or any Supplement, and may have such letters,
numbers or other marks of identification and such legends or endorsements placed
thereon, as may be required to comply with the rules of any securities exchange
on which the Notes may be listed, or as may, consistently herewith, be
determined by the officers executing such Notes, as evidenced by their execution
of the Notes. Any portion of the text of any Note may be set forth on the
reverse thereof, with an appropriate reference thereto on the face of the Note.
The definitive Notes shall be typewritten, printed, lithographed or
engraved or produced by any combination of these methods or may be produced in
any other manner permitted by the Issuer and by the rules of any securities
exchange on which the Notes may be listed, all as determined by the officers
executing such Notes, as evidenced by their execution of such Notes.
No references herein to the Indenture and no provision of any Note or of
the Indenture shall alter or impair the obligation of the Issuer, which is
absolute and unconditional, to pay the principal of and interest on the Notes at
the times, place and rate, and in the coin or currency, herein prescribed.
Section 2.02. FORMS OF NOTES.
[FORM OF FACE OF MONTHLY PAYMENT NOTE]
$__________ No.__________
MOUNTAIN STATES CAPITAL, INC.
18% 12 MONTH PROMISSORY NOTE, SERIES MP-____
STATED FIRST INTEREST
MATURITY: PAYMENT DATE:
__________________ ____________________
Mountain States Capital, Inc., a corporation duly organized and existing
under the laws of the State of Arizona (herein referred to as the "Issuer"), for
value received, hereby promises
15
<PAGE>
to pay to __________ ____________ or registered assigns, upon due presentment of
this Note for payment, the principal sum of ____________ ____________ Dollars on
or prior to the date set forth above (the "Stated Maturity") and to pay interest
on the unpaid portion of said principal sum from the date hereof through the day
immediately preceding the date on which such principal sum becomes due and
payable, on the first day of each month beginning on the date set forth above
with the amount of interest to be paid on any date on which interest or
principal is payable (a "Payment Date") equal to the amount of interest accrued
through the last day of the immediately preceding calendar month, and to pay
interest on any overdue principal and on overdue interest, at the rate per annum
specified in the title of this Note.
The first payment of accrued interest will be made on the first interest
payment date set forth above or upon the earlier redemption of this Note. Except
as herein otherwise provided with respect to interest payable on the date the
principal of this Note becomes due and payable (whether at Stated Maturity, by
redemption or otherwise), the amount of interest payable on each Payment Date
shall be the interest accrued on this Note through the end of the calendar month
immediately preceding each Payment Date. The interest so payable on any Payment
Date, and any redemption of Notes that may be made on any Redemption Date, will,
as provided in the Indenture referred to on the reverse hereof, be paid to the
Person in whose name this Note (or one or more Predecessor Notes) is registered
on the Regular Record Date for such Payment Date or Redemption Date, which shall
be the close of business on the last day of the calendar month preceding that in
which such Payment Date or Redemption Date occurs (whether or not a Business
Day). Any redemption not made on the Redemption Date or interest not so
punctually paid or duly provided for shall forthwith cease to be payable to the
registered Holder on the Regular Record Date, and may be paid to the Person in
whose name this Note (or one or more Predecessor Notes) is registered on a
Special Record Date for the payment of such defaulted redemption, proceeds and
interest to be fixed by the Trustee, notice whereof shall be given to
Noteholders not less than 10 days prior to such Special Record Date, or may be
paid, at any time in any other lawful manner not inconsistent with the
requirements of any securities exchange on which the Notes may be listed, and
upon such notice as may be required by such exchange, all as more fully provided
in said Indenture.
The principal of and interest on this Note are payable in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts, at the office or agency of the
Issuer designated for such purpose in the United States of America; provided
that interest may be paid, at the option of the Issuer, by check mailed to the
Person entitled thereto at his address as it appears on the Note Register.
16
<PAGE>
Reference is made to the further provisions of this Note set forth on the
reverse hereof, which shall have the same effect as though fully set forth at
this place.
Unless the certificate of authentication hereon has been executed by the
Trustee by manual signature, this Note shall not be entitled to any benefit
under the Indenture, or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, Mountain States Capital, Inc., has caused this
instrument to be signed, manually or in facsimile, by its Chief Executive
Officer, President or a Vice President and by its Secretary or an Assistant
Secretary and a facsimile of its corporate seal to be imprinted hereon.
Dated: MOUNTAIN STATES CAPITAL, INC.
By
-------------------------------------
Attest:
- ------------------------------
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This is one of the Series of Notes referred to in the within-mentioned
Indenture.
Dated:__________________
U.S. BANK TRUST NATIONAL ASSOCIATION,
Trustee
By
-------------------------------------
Authorized Officer
17
<PAGE>
[FORM OF REVERSE OF NOTE]
This Note is one of a duly authorized issue of Notes of the Issuer,
designated as its 18% 12 Month Promissory Notes (herein called the "Notes"),
issued and to be issued in one or more Series, and is part of the Series of
Notes designated on the face hereof (herein called the "Notes of this Series"),
all issued and to be issued under an Indenture dated as of __________, 2000, (as
amended, herein called the "Indenture"), between the Issuer and U.S. Bank Trust
National Association (the "Trustee"), which term includes any successor Trustee
under the Indenture, to which Indenture and all indentures supplemental thereto
(including the indenture supplemental thereto that authorized the Notes of this
Series) reference is hereby made for a statement of the respective rights
thereunder of the Issuer, the Trustee and the Holders of the Notes, and the
terms upon which the Notes are, and are to be, authenticated and delivered. All
terms used in this Note that are defined in the Indenture shall have the
meanings assigned to them in the Indenture.
As provided in the Indenture, the Notes are issuable in Series that may
vary as provided or permitted in the Indenture. All Notes of each Series are
equally and ratably secured to the extent provided by the supplemental indenture
authorizing such Series. This Note is one of the Series specified in its title.
Notwithstanding anything to the contrary in this Note, no recourse on this
Note or under the Indenture shall be taken against any property of the Issuer
included in the Trust Estate (if any) for other series of notes under the
Indenture securing the Notes, it being understood that this Note and the
Issuer's duties under the Indenture are obligations that are to be satisfied
solely from the Trust Estate (if any) for the Series MP-____ Notes and from
other assets of the Issuer that are not pledged to secure other series of notes.
The Notes are subject to mandatory redemption under the circumstances
described in the following paragraphs 1 and 2:
1. So long as no Event of Default has occurred and is continuing under the
Indenture, the Issuer will redeem Notes of this Series presented for redemption
at a redemption price equal to 100% of the unpaid principal amount thereof
(hereinafter referred to as the "Redemption Price") plus interest accrued
thereon and unpaid, if any, to but not including the date fixed for redemption
(the "Redemption Date"). Such redemption will be made on dates determined as
follows:
18
<PAGE>
On each Payment Date commencing ____________, 20___, Notes shall be
redeemed in Whole Note (i.e., $1,000) increments upon ninety (90) days' advance
written request of the holder thereof.
Notes sought to be redeemed pursuant to the preceding paragraph may be
presented for redemption by delivery to the Trustee of: (a) the Notes to be
redeemed, and (b) a written request for redemption in form satisfactory to the
Trustee and signed by the Holder or duly authorized representative (with
appropriate evidence of authority). Only Notes presented for redemption at least
ninety days' prior to the Redemption Date will be eligible for redemption on
that Redemption Date. All such Notes presented for redemption will be held by
the Trustee until the Issuer is able to redeem them, unless withdrawn by written
request actually received by the Trustee by the last day of the month preceding
that in which they would otherwise have been redeemed. Notes shall be redeemed
in the order of receipt by the Trustee. The Trustee may establish such
procedures as it may deem fair and equitable in order to determine the order of
receipt of such Notes.
2. So long as no Event of Default has occurred and is continuing under the
Indenture, the Issuer, at its option, may redeem any or all of the Outstanding
Notes of this Series on any Redemption Date at the Redemption Price of the
principal amount thereof (plus interest accrued and unpaid on such Notes to but
not including the Redemption Date).
If an Event of Default as defined in the Indenture shall occur and be
continuing, the principal of all the Notes, or of all the Notes of any Series,
may become or be declared due and payable in the manner and with the effect
provided in the Indenture.
As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Note may be registered on the Note Register of the
Issuer, upon surrender of this Note for registration of transfer at the office
or agency of the Issuer in the United States of America, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Trustee duly executed by, the Holder hereof or his attorney duly authorized in
writing, and thereupon one or more new Notes of the same Series and maturity, of
authorized denominations and for the same aggregate principal amount, will be
issued to the designated transferee or transferees.
Prior to the due presentment for registration of transfer of this Note, the
Issuer, the Trustee and any agent of the Issuer or the Trustee may treat the
Person in whose name this Note is registered as the owner hereof for the purpose
of receiving payment as herein provided and for all other purposes, whether or
not this Note be overdue, and neither the Issuer, the Trustee nor any such agent
shall be affected by notice to the contrary.
19
<PAGE>
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Issuer and the rights of the Holders of the Notes under the Indenture at any
time by the Issuer with the consent of the Holders of a majority in aggregate
principal amount of Notes at the time Outstanding (as defined in the Indenture),
in case Outstanding Notes of all Series are to be affected, or with the consent
of the Holders of a majority in aggregate principal amount of the Notes at the
time Outstanding of each Series to be affected, in case one or more, but less
than all, of the Series of Notes then Outstanding are to be affected. The
Indenture also contains provisions permitting the Holders of specified
percentages in aggregate principal amount of the Notes at the time Outstanding,
and of Notes at the time Outstanding of each Series to be affected in case one
or more, but less than all, such Series are to be affected, on behalf of the
Holders of all the Notes, to waive compliance by the Issuer with certain
provisions of the Indenture and certain past defaults under the Indenture and
their consequences. Any such consent or waiver by the Holder of this Note shall
be conclusive and binding upon such Holder and upon all future Holders of this
Note and of any Note issued upon the registration of transfer hereof or in
exchange herefor or in lieu hereof whether or not notation of such consent or
waiver is made upon this Note.
The term "Issuer" as used in this Note includes any successor under the
Indenture.
The Notes are issuable only in registered form without coupons in original
denominations of $1,000 and any integral multiple thereof ("Whole Notes"), as
provided in the Indenture and subject to certain limitations therein set forth.
The Notes are exchangeable for a like aggregate principal amount of Notes of the
same Series and maturity of a different authorized denomination, as requested by
the Holder surrendering same.
No reference herein to the Indenture and no provision of this Note or of
the Indenture shall alter or impair the obligation of the Issuer, which is
absolute and unconditional, to pay the principal of and interest on this Note at
the times, place and rate, and in the coin or currency, herein prescribed.
20
<PAGE>
REQUEST FOR REDEMPTION
The undersigned Holder, or legal representative of the Holder, hereby
presents the within Note of Mountain States Capital, Inc., for redemption on the
next Redemption Date upon which such Note would be eligible for redemption in
accordance with, and subject to, the terms and conditions of the within Note and
the Indenture.
Dated ____________ ___________________________________
[FORM OF ASSIGNMENT]
The undersigned Holder, or legal representative of the Holder, hereby
assigns this Note to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(print or type name, address and zip code of assignee)
The assignee's Social Security Number or other Taxpayer Identification
Number is: _______________________________.
I hereby appoint the Trustee as my agent, with full power of substitution,
to transfer my Note on the Note Register and the other books and records of the
Issuer.
Dated:___________ Signed: ________________________________
(Please sign exactly as your name
appears on the Note)
21
<PAGE>
[FORM OF FACE OF DEFERRED PAYMENT NOTE]
$__________ No.__________
MOUNTAIN STATES CAPITAL, INC.
18% 12 MONTH PROMISSORY NOTE, SERIES DP-____
STATED
MATURITY:
- ------------
Mountain States Capital, Inc., a corporation duly organized and existing
under the laws of the State of Arizona (herein referred to as the "Issuer"), for
value received, hereby promises to pay to __________ ____________ or registered
assigns, upon due presentment of this Note for payment, the principal sum of
____________ ____________ Dollars on or prior to the date set forth above (the
"Stated Maturity") and to pay interest on the unpaid portion of said principal
sum on the Stated Maturity from the date hereof through the day immediately
preceding the date on which such principal sum becomes due and payable,
compounded on the last day of each month beginning on the date set forth above.
Because of this compounding, the annual yield will be 19.56%. The Issuer shall
also pay interest on any overdue principal and on overdue interest, at the rate
per annum specified in the title of this Note.
The principal and interest so payable on the Maturity Date, and any
redemption of Notes that may be made on any Redemption Date, will, as provided
in the Indenture referred to on the reverse hereof, be paid to the Person in
whose name this Note (or one or more Predecessor Notes) is registered on the
Regular Record Date for the date on which interest or principal is payable (a
"Payment Date"), which shall be the close of business on the last day of the
calendar month preceding that in which such Payment Date or Redemption Date
occurs (whether or not a Business Day). Any redemption not made on the
Redemption Date or interest not so punctually paid or duly provided for shall
forthwith cease to be payable to the registered Holder on the Regular Record
Date, and may be paid to the Person in whose name this Note (or one or more
Predecessor Notes) is registered on a Special Record Date for the payment of
such defaulted redemption proceeds and interest to be fixed by the Trustee,
notice whereof shall be given to Noteholders not less than 10 days prior to such
Special Record Date, or may be paid, at any time in any other lawful manner not
inconsistent with the requirements of any securities exchange on which the Notes
may be listed, and upon such notice as may be required by such exchange, all as
more fully provided in said Indenture.
22
<PAGE>
The principal of and interest on this Note are payable in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts, at the office or agency of the
Issuer designated for such purpose in the United States of America; provided
that interest may be paid, at the option of the Issuer, by check mailed to the
Person entitled thereto at his address as it appears on the Note Register.
Reference is made to the further provisions of this Note set forth on the
reverse hereof, which shall have the same effect as though fully set forth at
this place.
Unless the certificate of authentication hereon has been executed by the
Trustee by manual signature, this Note shall not be entitled to any benefit
under the Indenture, or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, Mountain States Capital, Inc., has caused this
instrument to be signed, manually or in facsimile, by its Chief Executive
Officer, President or a Vice President and by its Secretary or an Assistant
Secretary and a facsimile of its corporate seal to be imprinted hereon.
Dated: MOUNTAIN STATES CAPITAL, INC.
By
-------------------------------------
Attest:
- ------------------------------
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This is one of the Series of Notes referred to in the within-mentioned
Indenture.
Dated:__________________
U.S. BANK TRUST NATIONAL ASSOCIATION,
Trustee
By
-------------------------------------
Authorized Officer
23
<PAGE>
[FORM OF REVERSE OF NOTE]
This Note is one of a duly authorized issue of Notes of the Issuer,
designated as its 18% 12 Month Promissory Notes (herein called the "Notes"),
issued and to be issued in one or more Series, and is part of the Series of
Notes designated on the face hereof (herein called the "Notes of this Series"),
all issued and to be issued under an Indenture dated as of __________, 2000, (as
amended, herein called the "Indenture"), between the Issuer and U.S. Bank Trust
National Association (the "Trustee"), which term includes any successor Trustee
under the Indenture, to which Indenture and all indentures supplemental thereto
(including the indenture supplemental thereto that authorized the Notes of this
Series) reference is hereby made for a statement of the respective rights
thereunder of the Issuer, the Trustee and the Holders of the Notes, and the
terms upon which the Notes are, and are to be, authenticated and delivered. All
terms used in this Note that are defined in the Indenture shall have the
meanings assigned to them in the Indenture.
As provided in the Indenture, the Notes are issuable in Series that may
vary as provided or permitted in the Indenture. All Notes of each Series are
equally and ratably secured to the extent provided by the supplemental indenture
authorizing such Series. This Note is one of the Series specified in its title.
Notwithstanding anything to the contrary in this Note, no recourse on this
Note or under the Indenture shall be taken against any property of the Issuer
included in the Trust Estate (if any) for other series of notes under the
Indenture securing the Notes, it being understood that this Note and the
Issuer's duties under the Indenture are obligations are to be satisfied solely
from the Trust Estate (if any) for the Series DP-____ Notes and from other
assets of the Issuer that are not pledged to secure other series of notes.
The Notes are subject to mandatory redemption under the circumstances
described in the following paragraphs 1 and 2:
1. So long as no Event of Default has occurred and is continuing under the
Indenture, the Issuer will redeem Notes of this Series presented for redemption
at a redemption price equal to 100% of the unpaid principal amount thereof
(hereinafter referred to as the "Redemption Price") plus interest accrued
thereon and unpaid, if any, to but not including the date fixed for redemption
(the "Redemption Date"). Such redemption will be made on dates determined as
follows:
24
<PAGE>
On the first day of each month commencing ____________, 20___, Notes shall
be redeemed in Whole Note (i.e., $1,000, plus interest that has been deferred
and compounded) increments upon ninety (90) days' advance written request of the
holder thereof.
Notes sought to be redeemed pursuant to the preceding paragraph may be
presented for redemption by delivery to the Trustee of: (a) the Notes to be
redeemed, and (b) a written request for redemption in form satisfactory to the
Trustee and signed by the Holder or duly authorized representative (with
appropriate evidence of authority). Only Notes presented for redemption at least
ninety (90) days' prior to the Redemption Date will be eligible for redemption
on that Redemption Date. All such Notes presented for redemption will be held by
the Trustee until the Issuer is able to redeem them, unless withdrawn by written
request actually received by the Trustee by the last day of the month preceding
that in which they would otherwise have been redeemed. Notes shall be redeemed
in the order of receipt by the Trustee. The Trustee may establish such
procedures as it may deem fair and equitable in order to determine the order of
receipt of such Notes.
2. So long as no Event of Default has occurred and is continuing under the
Indenture, the Issuer, at its option, may redeem any or all of the Outstanding
Notes of this Series on any Redemption Date at the Redemption Price of the
principal amount thereof (plus interest accrued and unpaid on such Notes to but
not including the Redemption Date).
If an Event of Default as defined in the Indenture shall occur and be
continuing, the principal of all the Notes, or of all the Notes of any Series,
may become or be declared due and payable in the manner and with the effect
provided in the Indenture.
As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Note may be registered on the Note Register of the
Issuer, upon surrender of this Note for registration of transfer at the office
or agency of the Issuer in the United States of America, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Trustee duly executed by, the Holder hereof or his attorney duly authorized in
writing, and thereupon one or more new Notes of the same Series and maturity, of
authorized denominations and for the same aggregate principal amount, will be
issued to the designated transferee or transferees.
Prior to the due presentment for registration of transfer of this Note, the
Issuer, the Trustee and any agent of the Issuer or the Trustee may treat the
Person in whose name this Note is registered as the owner hereof for the purpose
of receiving payment as herein provided and for all other purposes, whether or
not this Note be overdue, and neither the Issuer, the Trustee nor any such agent
shall be affected by notice to the contrary.
25
<PAGE>
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Issuer and the rights of the Holders of the Notes under the Indenture at any
time by the Issuer with the consent of the Holders of a majority in aggregate
principal amount of Notes at the time Outstanding (as defined in the Indenture),
in case Outstanding Notes of all Series are to be affected, or with the consent
of the Holders of a majority in aggregate principal amount of the Notes at the
time Outstanding of each Series to be affected, in case one or more, but less
than all, of the Series of Notes then Outstanding are to be affected. The
Indenture also contains provisions permitting the Holders of specified
percentages in aggregate principal amount of the Notes at the time Outstanding,
and of Notes at the time Outstanding of each Series to be affected in case one
or more, but less than all, such Series are to be affected, on behalf of the
Holders of all the Notes, to waive compliance by the Issuer with certain
provisions of the Indenture and certain past defaults under the Indenture and
their consequences. Any such consent or waiver by the Holder of this Note shall
be conclusive and binding upon such Holder and upon all future Holders of this
Note and of any Note issued upon the registration of transfer hereof or in
exchange herefor or in lieu hereof whether or not notation of such consent or
waiver is made upon this Note.
The term "Issuer" as used in this Note includes any successor under the
Indenture.
The Notes are issuable only in registered form without coupons in original
denominations of $1,000 and any integral multiple thereof ("Whole Notes"), as
provided in the Indenture and subject to certain limitations therein set forth.
The Notes are exchangeable for a like aggregate principal amount of Notes of
the same Series and maturity of a different authorized denomination, as
requested by the Holder surrendering same.
No reference herein to the Indenture and no provision of this Note or of
the Indenture shall alter or impair the obligation of the Issuer, which is
absolute and unconditional, to pay the principal of and interest on this Note at
the times, place and rate, and in the coin or currency, herein prescribed.
26
<PAGE>
REQUEST FOR REDEMPTION
The undersigned Holder, or legal representative of the Holder, hereby
presents the within Note of Mountain States Capital, Inc., for redemption on the
next Redemption Date upon which such Note would be eligible for redemption in
accordance with, and subject to, the terms and conditions of the within Note and
the Indenture.
Dated ____________ ___________________________________
[FORM OF ASSIGNMENT]
The undersigned Holder, or legal representative of the Holder, hereby
assigns this Note to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(print or type name, address and zip code of assignee)
The assignee's Social Security Number or other Taxpayer Identification
Number is: _______________________________.
I hereby appoint the Trustee as my agent, with full power of substitution,
to transfer my Note on the Note Register and the other books and records of the
Issuer.
Dated:___________ Signed: ________________________________
(Please sign exactly as your name
appears on the Note)
<PAGE>
ARTICLE THREE
The Notes
Section 3.01. AMOUNT UNLIMITED; NOTES ISSUABLE IN CLASSES; CERTAIN RELATED
PROVISIONS.
The aggregate principal amount of Notes that may be authenticated and
delivered under this Indenture is unlimited. The Notes may, at the election of
and as authorized by the Board of Directors, be issued in one or more Classes,
and each Class of Notes may, at the election of and as authorized by the Board
of Directors, be issued in serial maturities. The Notes shall be designated
generally as the "18% 12 Month Promissory Notes" of the Issuer, with such
further particular designations added or incorporated in such title for the
Notes of any particular Class as the Board of Directors may determine. Each Note
shall bear upon the face thereof the designation so selected for the Class and
series to which it belongs. All Notes of any one Class at any time
simultaneously Outstanding shall be identical in respect of date of issuance,
place or places of payment and dates of interest payments. All Notes of the same
Class and Series shall likewise be identical in respect of the date or dates of
mandatory principal payments.
Each Class of Notes shall be created by a Supplement authorized by the
Board of Directors and establishing the terms and provisions of such Class. The
several Classes may differ as between Classes, in respect of any of the
following matters:
(1) designation;
(2) date;
(3) date or dates of maturity and provisions for optional and
mandatory prepayment or redemption;
(4) interest payment dates, including whether accrued interest is
payable monthly or at other stated intervals, or instead accumulates (with
or without periodic compounding) until payment or prepayment of the
principal thereof;
(5) place or places for the payment of principal and interest;
(6) denominations;
27
<PAGE>
(7) limitation upon the aggregate principal amount of Notes of the
particular Class that may be issued;
(8) the Trust Estate (if any); and
(9) any other provisions expressing or referring to the terms and
conditions upon which the Notes of that Class are to be issued under this
Indenture that are not in conflict with the provisions of this Indenture.
In authorizing the issue of any Class, the Board of Directors of the Issuer
shall determine and specify all matters in respect of the Notes of such Class
set forth in clauses (1) to (8) inclusive and shall also determine and specify
the form of Notes of such Class.
Section 3.02. DENOMINATIONS.
The Notes shall be issuable as registered Notes without coupons. Except as
may be specified in any Supplement for a Class, the Notes may be issued in
denominations of $1,000 and integral multiples thereof or in any denominations
approved by the Issuer.
Section 3.03. EXECUTION, AUTHENTICATION, DELIVERY AND DATING.
The Notes shall be executed on behalf of the Issuer by its Chief Executive
Officer, President or one of its Vice Presidents under its corporate seal that
may be in facsimile form and be imprinted or otherwise reproduced thereon and
attested by its Secretary or one of its Assistant Secretaries. The signature of
any of these officers on the Notes may be manual or facsimile.
Notes bearing the manual or facsimile signatures of individuals who were at
any time the proper officers of the Issuer shall bind the Issuer,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Notes or did not hold
such offices at the date of such Notes.
At any time and from time to time after the execution and delivery of this
Indenture, the Issuer may deliver Notes executed by the Issuer to the Trustee
for authentication; and the Trustee shall authenticate and deliver such Notes as
in this Indenture provided and not otherwise.
28
<PAGE>
Each Note of each Class shall be dated as provided in the Supplement for
such Class of Notes or as directed by the Issuer.
No Note shall be entitled to any benefit under this Indenture or be valid
or obligatory for any purpose, unless there appears on such Note a certificate
of authentication substantially in the form provided for herein executed by the
Trustee by the manual signature of one of its authorized officers, and such
certificate upon any Note shall be conclusive evidence, and the only evidence,
that such Note has been duly authenticated and delivered hereunder.
Section 3.04. TEMPORARY NOTES.
Pending the preparation of definitive Notes, the Issuer may execute, and
upon Issuer Order the Trustee shall authenticate and deliver, temporary Notes
that are typewritten, printed, lithographed, mimeographed or otherwise produced,
in any denomination, substantially of the tenor of the definitive Notes in lieu
of which they are issued and with such variations as the officers executing such
Notes may determine, as evidenced by their execution of such Notes.
If temporary Notes are issued, the Issuer will cause definitive Notes to be
prepared without unreasonable delay. After the preparation of definitive Notes,
the temporary Notes shall be exchangeable for definitive Notes upon surrender of
the temporary Notes at the office or agency of the Issuer to be maintained as
provided in Section 11.02, without charge to the Holder. Upon surrender for
cancellation of any one or more temporary Notes, the Issuer shall execute and
the Trustee shall authenticate and deliver in exchange therefor a like principal
amount of definitive Notes of the same Class of authorized denominations. Until
so exchanged the temporary Notes shall in all respects be entitled to the same
benefits under this Indenture as definitive Notes of the same Class.
Section 3.05. REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE.
The Issuer shall cause to be kept a register (the "Note Register") in
which, subject to such reasonable regulations as it may prescribe, the Issuer
shall provide for the registration of Notes and the registration of transfers of
Notes. The Trustee is hereby initially appointed "Note Registrar" for the
purpose of registering Notes and transfers of Notes as herein provided.
29
<PAGE>
Upon surrender for registration of transfer of any Note at the office or
agency of the Issuer to be maintained as provided in Section 11.02, the Issuer
shall execute, and the Trustee shall authenticate and deliver, in the name of
the designated transferee or transferees, one or more new Notes of any
authorized denominations, of a like Class and aggregate principal amount.
At the option of the Holder, Notes may be exchanged for other Notes of any
authorized denominations, of a like Class and maturity and aggregate principal
amount, upon surrender of the Notes to be exchanged at such office or agency.
Whenever any Notes are so surrendered for exchange, the Issuer shall execute,
and the Trustee shall authenticate and deliver, the Notes that the Noteholder
making the exchange is entitled to receive.
All Notes issued upon any registration of transfer or exchange of Notes
shall be the valid obligations of the Issuer, evidencing the same debt, and
entitled to the same benefits under this Indenture, as the Notes surrendered
upon such registration of transfer or exchange.
Every Note presented or surrendered for registration of transfer or
exchange shall, if so required by the Issuer or the Trustee, be duly endorsed,
or be accompanied by a written instrument of transfer in form satisfactory to
the Trustee, duly executed by the Holder thereof or his attorney duly authorized
in writing.
No service charge shall be made for any registration of transfer or
exchange of Notes, but the Issuer may require payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in connection
with any registration of transfer or exchange of Notes, other than exchanges not
involving any transfer.
The Issuer shall not be required to issue, register the transfer of or
exchange any Notes of any Class after the opening of business fifteen (15) days
prior to any date on which the Notes of that Class are to be redeemed.
Section 3.06. MUTILATED, DESTROYED, LOST OR STOLEN NOTES.
If (i) any mutilated Note is surrendered to the Trustee, or the Issuer and
the Trustee receives evidence to its satisfaction of the destruction, loss or
theft of any Note, and (ii) there is delivered to the Issuer and the Trustee
such security or indemnity as may be required by them to save each of them
30
<PAGE>
harmless, then, in the absence of notice to the Issuer or the Trustee that such
Note has been acquired by a bona fide purchaser, the Issuer shall execute and
upon its request the Trustee shall authenticate and deliver, in exchange for or
in lieu of any such mutilated, destroyed, lost or stolen Note, a new Note of
like Class, tenor and principal amount, bearing a number not contemporaneously
outstanding; provided, however, that if any such mutilated, destroyed, lost or
stolen Note shall have become or shall be about to become due and payable, or
shall have been selected or called for redemption, instead of issuing a new
Note, the Issuer may pay such Note without surrender thereof, except that any
mutilated Note shall be surrendered.
Upon the issuance of any new Note under this Section, the Issuer may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other reasonable
expenses, including the fees and expenses of the Trustee, connected therewith.
Every new Note issued pursuant to this Section in lieu of any destroyed,
lost or stolen Note shall constitute an original additional contractual
obligation of the Issuer, whether or not the destroyed, lost or stolen Note
shall be at any time enforceable by anyone, and shall be entitled to all the
benefits of this Indenture equally and proportionately with any and all other
Notes of the same Class duly issued hereunder.
The provisions of this Section are exclusive and shall preclude, to the
extent lawful, all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Notes.
Section 3.07. PAYMENT OF PRINCIPAL AND INTEREST; PRINCIPAL AND INTEREST RIGHTS
PRESERVED.
The Notes of each Class shall bear interest from the respective dates
thereof, which dates shall be determined as provided in Section 3.03, at the
rate or rates per annum specified in the Supplement for such Class, to but not
including the date on which the principal thereof becomes due and payable, and
at such rate on any overdue principal and on overdue interest; provided,
however, that the amount of interest to be paid on any interest payment date
shall be the amount of interest accrued through the last day of the immediately
preceding calendar month.
Whenever the Trustee serves as Paying Agent for a Class of Notes in
accordance with ARTICLE ELEVEN hereunder, the Trustee shall maintain an Interest
31
<PAGE>
Payment Account and a Principal Payment Account for the Class and shall deposit
therein all funds received from the Issuer or from the Trust Estate, if any, for
the payment of interest and principal, respectively, on such Class of Notes. If,
on any interest payment date there are sufficient funds in the Interest Payment
Account, the "Account", for the Notes of a Class to pay the full amount of
interest accrued and currently payable on all of the Outstanding Notes of such
Class on such interest payment date, including all interest on overdue principal
and overdue interest, if any, the Trustee shall pay the balance in the Interest
Payment Account to the Issuer or to such other persons and in such amounts as
the Issuer may designate; provided, that no such payment out of the Interest
Payment Account shall be made unless and until any overdue interest or principal
with respect to the Notes is eliminated.
Except as otherwise provided in the Indenture or applicable Supplemental
Indenture with respect to interest payable upon redemption or at the Stated
Maturity of any Note, accrued interest shall be payable on each monthly payment
date and shall be computed on the basis of a 360-day year consisting of 12
months of 30 days each, provided, however, that for the month in which a Note is
issued and the month in which it matures or is redeemed, interest shall be
payable only for the actual number of days that the Note was outstanding.
Interest shall be payable at the office or agency of the Issuer to be maintained
as provided in Section 11.02; provided that interest may be paid, at the option
of the Issuer, by check mailed to the Person entitled thereto at his address as
it appears on the Note Register.
The Notes of each Class shall be redeemed or prepaid on each Redemption
Date in the manner and amount described in the Indenture and the Supplemental
Indenture. Any Notes that are Outstanding at their Stated Maturity shall be
fully paid as to principal and accrued interest on that date.
Interest on any Notes that are payable, and are punctually paid or duly
provided for, on any interest payment date or Redemption Date shall be paid to
the Person in whose name that Note, or one or more Predecessor Notes, is
registered on the Regular Record Date for such interest.
Any interest or principal on any Note that is payable, but is not
punctually paid or duly provided for, on the interest payment date or Redemption
Date, "Defaulted P&I", shall forthwith cease to be payable to the registered
Holder on the relevant Regular Record Date by virtue of having been such Holder;
and such Defaulted P&I may be paid by the Issuer, at its election in each case,
as provided in clause (1) or clause (2) below:
32
<PAGE>
(1) The Issuer may elect to make payment of any Defaulted P&I to the
Persons in whose names the Notes, or their respective Predecessor Notes,
are registered at the close of business on a record date for the payment of
such Defaulted P&I, the "Special Record Date", which shall be fixed in the
following manner: The Issuer shall notify the Trustee in writing of the
amount of Defaulted P&I proposed to be paid on each Note and the date of
the proposed payment, and at the same time the Issuer shall deposit with
the Trustee an amount of money equal to the aggregate amount proposed to be
paid in respect of such Defaulted P&I or shall make arrangements
satisfactory to the Trustee for such deposit prior to the date of the
proposed payment, such money when deposited to be held in trust for the
benefit of the Persons entitled to such Defaulted P&I as in this clause
provided. Thereupon the Trustee shall fix a Special Record Date for the
payment of such Defaulted P&I that shall be not more than fifteen (15) nor
less than ten (10) days prior to the date of the proposed payment and not
less than ten (10) days after the receipt by the Trustee of the notice of
the proposed payment. The Trustee shall promptly notify the Issuer of such
Special Record Date and, in the name and at the expense of the Issuer,
shall cause notice of the proposed payment of such Defaulted P&I and the
Special Record Date therefor to be mailed, first-class, postage prepaid, to
each Noteholder at his address as it appears in the Note Register, not less
than 10 days prior to such Special Record Date. Notice of the proposed
payment of such Defaulted P&I and the Special Record Date therefor having
been mailed as aforesaid, such Defaulted P&I shall be paid to the Persons
in whose names the Notes, or their respective Predecessor Notes, are
registered at the close of business on such Special Record Date and shall
no longer be payable pursuant to the following Clause (2).
(2) The Issuer may make payment of any Defaulted P&I in any other
lawful manner not inconsistent with the requirements of any securities
exchange on which the Notes may be listed, and upon such notice as may be
required by such exchange, if, after notice given by the Issuer to the
Trustee of the proposed payment pursuant to this clause, such manner of
payment shall be deemed practicable by the Trustee.
33
<PAGE>
Subject to the foregoing provisions of this Section, each Note delivered
under this Indenture upon registration of transfer of or in exchange for or in
lieu of any other Note shall carry the rights to unpaid interest that were
carried by such other Note.
Section 3.08. PERSONS DEEMED OWNERS.
Prior to due presentment for registration of transfer of any Note, the
Issuer, the Trustee and any agent of the Issuer or the Trustee may treat the
Person in whose name any Note is registered as the owner of such Note for the
purpose of receiving payments of principal of and interest on such Note, subject
to Section 3.07, and for all other purposes whatsoever, whether or not such Note
be overdue, and neither the Issuer, the Trustee, nor any agent of the Issuer or
the Trustee shall be affected by notice to the contrary.
Section 3.09. CANCELLATION.
All Notes surrendered for payment, registration of transfer, exchange or
redemption shall, if surrendered to any Person other than the Trustee, be
delivered to the Trustee and shall be promptly canceled by it. The Issuer may at
any time deliver to the Trustee for cancellation any Notes previously
authenticated and delivered hereunder that the Issuer may have acquired in any
manner whatsoever, and all Notes so delivered shall be promptly canceled by the
Trustee. No Notes shall be authenticated in lieu of or in exchange for any Notes
canceled as provided in this Section, except as expressly permitted by this
Indenture. All canceled Notes held by the Trustee shall be destroyed unless the
Issuer shall direct by an Issuer Order that they be returned to it.
34
<PAGE>
ARTICLE FOUR
Authentication and Delivery of Notes
Section 4.01. GENERAL PROVISIONS.
Notes of any one or more Classes may from time to time be executed by the
Issuer and delivered to the Trustee for authentication and thereupon the same
shall be authenticated and delivered by the Trustee upon Issuer Order and upon
compliance with the conditions set forth in this Indenture, including execution
and delivery by the Issuer and the receipt by the Trustee of an indenture
supplemental to the Indenture, the assignment and transfer of the assets of the
Trust Estate for such Class of Notes, and the delivery of such other documents,
instruments and certificates as are required herein.
Section 4.02. EXECUTION OF A SUPPLEMENTAL INDENTURE; REPRESENTATIONS AND
WARRANTIES.
For each Class of Notes, the Issuer and Trustee shall execute and deliver a
Supplemental Indenture that shall designate the terms and conditions of such
Class of Notes and pursuant to which the Issuer shall make, to the best of its
knowledge, the following representations and warranties regarding any collateral
securing the Notes, and any collateral specially securing the Notes of that
Class, and related matters:
(1) As of a specified date within five Business Days, the Issuer is a
corporation validly existing and authorized to do business in Arizona and
each other state in which it has issued material loans;
(2) As of the date of execution and delivery of the Supplemental
Indenture, the issuance and sale of the related Notes has been duly
authorized by all necessary corporate action;
(3) The issuance and sale of the Notes has been registered under the
Securities Act of 1933, as amended, and is registered or exempt from
registration under the laws of the states in which the Notes will be
offered and sold.
It is understood and agreed that the representations and warranties set forth in
a Supplemental Indenture, with respect to representations and warranties that
35
<PAGE>
are as of a particular date, in each case as of such date, shall continue
throughout the term of this Indenture and the Supplemental Indenture.
Section 4.03. NO PLEDGE OF SECURITY FOR NOTES.
The Notes of each Class will be offered and sold without security, except
as may otherwise be provided in the Supplemental Indenture establishing a Class
of Notes.
Section 4.04. DELIVERY OF OTHER DOCUMENTS.
Prior to any authentication and delivery of Notes of a Class, the Trustee
shall have received the following additional documents, instruments and
certificates:
(1) a Board Resolution authorizing the execution, authentication and
delivery of Notes and the Supplement for such Class of Notes and specifying
the principal amount of such Notes to be authenticated and delivered;
(2) either (i) a certificate or other official document evidencing the
due authorization, approval or consent of any governmental body or bodies,
at the time having jurisdiction in the premises, together with an Opinion
of Counsel that the Trustee is entitled to rely thereon and that the
authorization, approval or consent of no other governmental body is
required for the valid issuance of such Class or (ii) an Opinion of Counsel
that no such authorization, approval or consent of any governmental body is
required;
(3) an Opinion of Counsel to the effect that all instruments related
to such Class of Notes that are required to be furnished by this Indenture
have been furnished to the Trustee and comply as to form with the
requirements of this Indenture and constitute sufficient authority
hereunder for the Trustee to authenticate and deliver the Notes then
applied for; that all conditions precedent provided for in this Indenture
relating to the authentication and delivery of the additional Notes then
applied for have been complied with and the Issuer is duly entitled to the
authentication and delivery of such additional Notes in accordance with the
provisions of this Indenture; that all laws and legal requirements with
respect to the form and execution by the Issuer of the Supplement, if any,
36
<PAGE>
and the execution and delivery by the Issuer of the Notes then applied for
have been complied with; that the Issuer has corporate power to execute and
deliver such Supplement, if any, and to issue the Notes and has duly taken
all necessary corporate action for those purposes; that such Supplement, if
any, as executed and delivered and the Notes then applied for, when issued,
will be the valid, legal and binding obligations of the Issuer enforceable
in accordance with their terms, subject to bankruptcy, reorganization,
insolvency and other laws affecting the enforcement of creditors' rights
generally and to general principles of equity, regardless of whether such
enforceability is considered in a proceeding in equity or at law; that the
Notes then applied for, when issued, will be entitled to benefits of this
Indenture, exclusive of collateral securing other Classes of Notes, equally
and ratably with all other Notes theretofore issued and then Outstanding
hereunder; and that the amount of Notes then Outstanding under this
Indenture, including the additional Notes applied for, will not exceed the
amount at the time permitted by law or this Indenture; and
(4) an Officers' Certificate stating that the Issuer is not in default
under this Indenture and that the issuance of the additional Notes applied
for will not result in any breach of any of the terms, conditions or
provisions of, or constitute a default under, the Issuer's Articles of
Incorporation or bylaws or any indenture, mortgage, deed of trust or other
agreement or instrument to which the Issuer is a party or by which it is
bound, or any order of any court or administrative agency entered in any
proceeding to which the Issuer is a party or by which it may be bound or to
which it may be subject; and that all conditions precedent provided in this
Indenture relating to the authentication and delivery of the additional
Notes applied for have been complied with.
Section 4.05. ACCEPTANCE BY TRUSTEE.
The Trustee, by execution and delivery of a Supplemental Indenture,
acknowledges receipt of the documents and other property, if any, required to be
delivered thereby and shall declare that the Trustee holds and will hold such
documents and other property, including property yet to be received in the Trust
Estate, in trust for the benefit of all present and future Noteholders. The
Trustee may rely upon the purported genuineness and due execution of any such
document and on the purported genuineness of any signature thereon. If the
Trustee finds any document or documents not to have been properly executed or
received, or to be missing or defective on its face in any material respect, the
Trustee shall promptly so notify the Issuer in writing.
37
<PAGE>
ARTICLE FIVE
Satisfaction and Discharge
Section 5.01. SATISFACTION AND DISCHARGE OF INDENTURE.
This Indenture shall cease to be of further effect and the Trustee, on
demand of and at the expense of the Issuer, shall execute proper instruments
acknowledging satisfaction and discharge of this Indenture, when
(1) either
(a) all Notes theretofore authenticated and delivered, other than
(i) Notes that have been destroyed, lost or stolen and that have been
replaced, or paid as provided in Section 3.06, and (ii) Notes for
which payment money has theretofore been deposited in trust or
segregated and held in trust by the Issuer and thereafter repaid to
the Issuer or discharged from such trust, as provided in Section
11.03, have been delivered to the Trustee for cancellation; or
(b) all Notes not theretofore delivered to the Trustee for
cancellation
(i) have become due and payable, or
(ii) will become due and payable at their Stated Maturity
within one year, or
(iii) are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice
of redemption by the Trustee in the name, and at the expense, of
the Issuer,
and the Issuer, in the case of (i), (ii) or (iii) above, has deposited
or caused to be deposited with the Trustee, in trust for the purpose,
an amount sufficient to pay and discharge the entire indebtedness on
such Notes not theretofore delivered to the Trustee for cancellation,
for principal and interest to the date of such deposit, in the case of
Notes that have become due and payable, or to the Stated Maturity, as
the case may be;
38
<PAGE>
(2) the Issuer has paid or caused to be paid all other sums payable
hereunder by the Issuer; and
(3) the Issuer has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel each stating that all conditions precedent herein
provided for relating to the satisfaction and discharge of this Indenture
with respect to that Class have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Issuer to the Trustee under Section 7.07 shall survive.
Section 5.02. APPLICATION OF TRUST MONEY.
All money deposited with the Trustee pursuant to Section 5.01 shall be held
in trust and applied by it, in accordance with the provisions of the Notes and
this Indenture, to the payment, either directly or through any Paying Agent,
including the Issuer acting as its own Paying Agent, as the Trustee may
determine, to the Persons entitled thereto, of the principal and interest for
whose payment such money has been deposited with the Trustee; but such money
need not be segregated from other funds except to the extent required by law.
39
<PAGE>
ARTICLE SIX
Remedies
Section 6.01. EVENTS OF DEFAULT.
"Event of Default," wherever used herein, means any one of the following
events, whatever the reason for such Event of Default and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body:
(1) default in the payment of any interest upon any Note when and as
the same becomes due and payable, and continuance of such default for a
period of 60 days; or
(2) default in the payment of any principal of any Note when and as
the same becomes due and payable; or
(3) failure to effect the redemption of Notes as required by Section
12.01 of this Indenture; or
(4) default in the performance, or breach, of any covenant or warranty
of the Issuer in this Indenture, other than a covenant or warranty a
default in the performance of which or breach of which is elsewhere in this
Section specifically dealt with, and continuance of such default or breach
for a period of sixty (60) days after there shall have been given, by
registered or certified mail, to the Issuer by the Trustee or to the Issuer
and the Trustee by the Holders of at least 33% in principal amount of the
Outstanding Notes, a written notice specifying such default or breach and
requiring it to be remedied and stating that such notice is a "Notice of
Default" hereunder; or
(5) the entry of a decree or order for relief by a court having
jurisdiction in the premises adjudging the Issuer as bankrupt or insolvent,
or approving as properly filed a petition seeking reorganization,
arrangement, adjustment or composition of or in respect of the Issuer under
the Federal Bankruptcy Code or any other applicable federal or state law,
40
<PAGE>
or appointing a receiver, liquidator, assignee, or sequestrator, or other
similar official, of the Issuer or of any substantial part of its property,
or ordering the winding up or liquidation of its affairs, and the
continuance of any such decree or order unstayed and in effect for a period
of ninety (90) consecutive days; or
(6) the institution by the Issuer of proceedings to be adjudicated as
bankrupt or insolvent, or the consent by it to the institution of
bankruptcy or insolvency proceedings against it, or the filing by it of a
petition or answer or consent seeking reorganization or relief under the
Federal Bankruptcy Code or any other similar applicable federal or state
law, or the consent by it to the filing of any such petition or to the
appointment of a receiver, liquidator, assignee, trustee or sequestrator,
or other similar official, of the Issuer or of any substantial part of its
property, or the making by it of an assignment for the benefit of
creditors, or the admission by it in writing of its inability to pay its
debts generally as they become due, or the taking of corporate action by
the Issuer in furtherance of any such action.
Section 6.02. ACCELERATION OF MATURITY: RESCISSION AND ANNULMENT.
If an Event of Default occurs and is continuing, then and in every such
case the Trustee or the Holders of not less than 33% in principal amount of the
Outstanding Notes may declare the principal of all the Notes to be immediately
due and payable, by a notice in writing to the Issuer, and to the Trustee if
given by Noteholders, and upon any such declaration such principal shall become
immediately due and payable.
At any time after such a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter in this Article provided, the Holders of a majority
in principal amount of the Outstanding Notes may rescind and annul such
declaration and its consequences if:
(1) the Issuer has paid or deposited with the Trustee a sum sufficient
to pay
41
<PAGE>
(a) all deferred or overdue installments of interest on all
Notes,
(b) the principal of any Notes that have become due otherwise
than by such declaration of acceleration and interest thereon,
(c) interest upon overdue installments of interest on the Notes,
and
(d) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel; and
(2) all Events of Default, other than the nonpayment of the principal
of Notes that have become due solely by such acceleration, have been cured
or waived as provided in Section 6.15.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
The Issuer may set a record date for purposes of determining the identity
of Holders entitled to vote or consent to any action by vote or consent
authorized or permitted under this Section 6.02.
Section 6.03. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE.
The Issuer covenants that if default is made in the payment of the
principal or any interest on any Note when such principal or interest becomes
due and payable and, in the case of a default in the payment of interest, such
default continues for a period of sixty (60) days, the Issuer will, upon demand
of the Trustee, pay to it, for the benefit of the Holder of such Note, the whole
amount then due and payable on such Note for principal and interest, with
interest upon the deferred or overdue principal and upon overdue installments of
interest, at the rate borne by such Note, and, in addition thereto, such further
amount as shall be sufficient to cover the costs and expenses of collection,
including the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel.
42
<PAGE>
If the Issuer fails to pay such amounts forthwith upon such demand, the
Trustee, in its own name and as trustee of an express trust, may institute a
Proceeding for the collection of the sums so due and unpaid, and may prosecute
such Proceeding to judgment or final decree, and may enforce the same against
the Issuer or any other obligor upon the Notes and collect the moneys adjudged
or decreed to be payable in the manner provided by law out of the property of
the Issuer, wherever situated, which is not pledged to secure other Classes of
Notes under the Indenture.
If an Event of Default occurs and is continuing, the Trustee may in its
discretion proceed to protect and enforce its rights and the rights of the
Noteholders by such appropriate Proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
Section 6.04. REMEDIES.
If an Event of Default shall have occurred and be continuing, the Trustee
may do one or more of the following:
(1) institute Proceedings for the collection of all amounts then
payable on the Notes or under this Indenture, whether by declaration or
otherwise, enforce any judgment obtained, and collect from the Trust Estate
securing such Notes, if any, and the Issuer monies adjudged due;
(2) sell the portion of any Trust Estate securing such Notes or any
portion thereof or rights or interest therein, at one or more public or
private sales called and conducted in any manner permitted by law;
(3) institute Proceedings from time to time for the complete or
partial foreclosure of this Indenture with respect to the portion of any
Trust Estate securing such Notes; and
(4) exercise any remedies under the Uniform Commercial Code and take
any other appropriate action to protect and enforce the rights and remedies
of the Trustee or the Holders of the Notes hereunder.
43
<PAGE>
Section 6.05. OPTIONAL PRESERVATION OF TRUST ESTATE.
If the Notes have been declared to be due and payable following an Event of
Default and such declaration and its consequences have not been rescinded and
annulled, the Trustee may take possession of the Trust Estate, if any, and, so
long as the Trust Estate provides and continues to provide sufficient funds for
the payment of principal of, and interest on, the Notes as they would have
become due if there had not been such a declaration, retain such Trust Estate
intact for the benefit of the Holders of the Notes. In such case, the Trustee
may, but need not, obtain and rely upon an opinion of an independent investment
banking firm of national reputation as to the feasibility of such proposed
action and as to the value of such Trust Estate, which opinion shall be
conclusive evidence as to such value.
Section 6.06. TRUST MAY FILE PROOFS OF CLAIM.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial Proceeding relative to the Issuer or any other obligor upon the Notes
or the property of the Issuer or of such other obligor or their creditors, the
Trustee, irrespective of whether the principal of the Notes of any Class or any
interest thereon shall then be due and payable as therein expressed or by
declaration or otherwise, and irrespective of whether the Trustee shall have
made any demand on the Issuer for the payment of overdue principal or interest,
shall be entitled and empowered, by intervention in such Proceeding or otherwise
(i) to file and prove a claim for the whole amount of principal and
interest owing and unpaid in respect of the Notes and to file such other
papers or documents as may be necessary or advisable in order to have the
claims of the Trustee, including any claim for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and
counsel, and of the Noteholders allowed in such judicial Proceeding; and
(ii) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any receiver, assignee, trustee, liquidator, or sequestrator, or other
similar official, in any such judicial Proceeding is hereby authorized by each
Noteholder to make such payments to the Trustee, and in the event that the
44
<PAGE>
Trustee shall consent to the making of such payments directly to the
Noteholders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 7.07.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Noteholder any plan
of reorganization, arrangement, adjustment or composition affecting the Notes or
the rights of any Holder thereof, or to authorize the Trustee to vote in respect
of the claim of any Noteholder in any such Proceeding.
Section 6.07. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF NOTES.
All rights of action and claims under this Indenture or the Notes may be
prosecuted and enforced by the Trustee without the possession of any of the
Notes or the production thereof in any Proceeding relating thereto, and any such
Proceeding instituted by the Trustee shall be brought in its own name as trustee
of an express trust, and any recovery of judgment shall, after provision for the
payment of the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel, be for the ratable benefit of the Holders
of the Notes of the Class in respect of which such judgment has been recovered.
Section 6.08. APPLICATION OF MONEY COLLECTED.
Any money collected by the Trustee with respect to any Notes pursuant to
this Article shall be applied in the following order, at the date or dates fixed
by the Trustee and, in case of the distribution of such money on account of
principal or interest, upon presentation of the Notes and the notation thereon
of the payment if only partially paid and upon surrender thereof if fully paid.
FIRST: To the payment of all amounts due the Trustee under Section 7.07.
SECOND: To the payment of the amounts then due and unpaid upon the Notes
for principal and interest, in respect of which or for the benefit of which such
money has been collected, ratably, without preference or priority of any kind,
according to the amounts due and payable on the Notes for principal and
interest, respectively.
45
<PAGE>
THIRD: To the payment of any surplus to any other Person legally entitled
thereto.
Section 6.09. LIMITATION ON SUITS.
No Holder of any Note shall have any right to institute any Proceedings,
judicial or otherwise, with respect to this Indenture, or for the appointment of
a receiver or trustee, or for any other remedy hereunder, unless:
(1) such Holder has previously given written notice to the Trustee of
a continuing Event of Default in respect of the Notes;
(2) the Holders of not less than 33% in principal amount of the
Outstanding Notes shall have made written request to the Trustee to
institute Proceedings in respect of such Event of Default in its own name
as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(4) the Trustee for sixty (60) days after its receipt of such notice,
request and offer of indemnity has failed to institute any such Proceeding;
and
(5) no direction inconsistent with such written request has been given
to the Trustee during such sixty (60) day period by the Holders of a
majority in principal amount of the Outstanding Notes;
it being understood and intended that no one or more Holders of Notes shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture to affect, disturb or prejudice the rights of any other
Holders of Notes or to obtain or to seek to obtain priority or preference over
any other Holders or to enforce any right under this Indenture, except in the
manner herein provided and for the equal and ratable benefit of all the Holders
of Notes.
46
<PAGE>
Section 6.10. UNCONDITIONAL RIGHTS OF NOTEHOLDERS TO RECEIVE PRINCIPAL AND
INTEREST.
Notwithstanding any other provision in this Indenture, the Holder of any
Note shall have the right, which is absolute and unconditional, to receive
payment of the principal of such Note on or before its Stated Maturity and
payment of interest thereon on or before the dates required by such Note and
this Indenture and to institute suit for the enforcement of any such payment,
and such right shall not be impaired without the consent of such Holder.
Section 6.11. RESTORATION OF RIGHTS AND REMEDIES.
If the Trustee or any Noteholder has instituted any Proceeding to enforce
any right or remedy under this Indenture and such Proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Noteholder, then and in every such case the Issuer, the
Trustee and the Noteholders shall, subject to any determination in such
Proceeding, be restored severally and respectively to their former positions
hereunder, and thereafter all rights and remedies of the Trustee or the
Noteholders shall continue as though no such Proceeding has been instituted.
Section 6.12. RIGHTS AND REMEDIES CUMULATIVE.
No right or remedy herein conferred upon or reserved to the Trustee or to
the Noteholders is intended to be exclusive of any other right or remedy, and
every right and remedy shall, to the extent permitted by law, be cumulative and
in addition to every other right and remedy given hereunder or now or hereafter
existing of law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
Section 6.13. DELAY OR OMISSION NOT WAIVER.
No delay or omission of the Trustee or of any Holder of any Note to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of such Event of Default or an
acquiescence therein. Every right and remedy given by this Article or by law to
the Trustee or to the Noteholders may be exercised from time to time, and as
often as may be deemed expedient, by the Trustee or by the Noteholders, as the
case may be.
47
<PAGE>
Section 6.14. CONTROL BY NOTEHOLDERS.
The Holders of a majority in principal amount of the Outstanding Notes
shall have the right to direct the time, method and place of conducting any
Proceeding for any remedy available to the Trustee with respect to such Notes or
exercising any trust or power conferred on the Trustee with respect to such
Notes; provided that
(1) such direction shall not be in conflict with any rule of law or
with this Indenture, and
(2) the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction; provided, however, that,
subject to Section 7.01, the Trustee need not take any action which it
determines might involve it in liability or be unjustly prejudicial to the
Noteholders not consenting.
Section 6.15. WAIVER OF PAST DEFAULTS.
The Holders of a majority in principal amount of the Outstanding Notes may
waive any past Default or Event of Default and its consequences, except a
Default
(1) in the payment of the principal of or interest on any Note, or
(2) in respect of a covenant or provision hereof which cannot be
modified or amended without the consent of the Holder of each Outstanding
Note affected.
Upon any such waiver, such Default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, and not to have
occurred for every purpose of this Indenture; but no such waiver shall extend to
any subsequent or other Default or Event of Default or impair any right
consequent thereon.
Section 6.16. UNDERTAKING FOR COSTS.
All parties to this Indenture agree, and each Holder of any Note by his
acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right or remedy under
this Indenture, or in any suit against the Trustee for any action taken,
suffered or omitted by it as Trustee, the filing by any party litigant in such
48
<PAGE>
suit of an undertaking to pay the costs of such suit, and that such court may in
its discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to any suit instituted by the
Trustee, to any suit instituted by any Noteholder, or group of Noteholders,
holding in the aggregate more than 10% in principal amount of the Outstanding
Notes, or to any suit instituted by any Noteholder for the enforcement of the
payment of the principal of or interest on any Note on or after the Stated
Maturity expressed in such Note (or, in the case of redemption, on or after the
applicable Redemption Date).
Section 6.17. WAIVER OF STAY OR EXTENSION LAWS.
The Issuer covenants (to the extent that it may lawfully do so) that it
will not at any time insist upon, or plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay or extension law wherever enacted,
now or at any time hereafter in force, which may affect the covenants or the
performance of this Indenture; and the Issuer (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
Section 6.18. SALE OF TRUST ESTATE.
(a) The power to effect any sale (a "Sale") of any portion of the
Trust Estate (if any) pursuant to Section 6.04 shall not be exhausted by
any one or more Sales as to any portion of the Trust Estate remaining
unsold, but shall continue unimpaired until the entire Trust Estate
securing the Notes shall have been sold or all amounts payable on the Notes
and under this Indenture with respect thereto shall have been paid. The
Trustee may from time to time postpone any Sale by public announcement made
at the time and place of such Sale. The Trustee hereby expressly waives its
right to any amount fixed by law as compensation for any Sale.
(b) The Trustee may bid for and acquire any portion of the Trust
Estate in connection with a public Sale thereof, and may pay all or part of
the purchase price by crediting against amounts owing on the Notes or other
amounts secured by this Indenture, all or part of the net proceeds of such
49
<PAGE>
Sale after deducting the costs, charges and expenses incurred by the
Trustee in connection with such Sale. The Notes need not be produced in
order to complete any such Sale, or in order for the net proceeds of such
Sale to be credited against the Notes. The Trustee may hold, lease,
operate, manage or otherwise deal with any property so acquired in any
manner permitted by law.
(c) The Trustee shall execute and deliver an appropriate instrument of
conveyance transferring its interest in any portion of the Trust Estate in
connection with a Sale thereof. In addition, the Trustee is hereby
irrevocably appointed the agent and attorney-in-fact of the Issuer to
transfer and convey its interest in any portion of the Trust Estate in
connection with a Sale thereof, and to take all action necessary to effect
such Sale. No purchaser or transferee at such a sale shall be bound to
ascertain the Trustee's authority, inquire into the satisfaction of any
conditions precedent or see to the application of any moneys.
Section 6.19. ACTION ON NOTES.
The Trustee's right to seek and recover judgment on the Notes or under this
Indenture shall not be affected by the seeking, obtaining or application of any
other relief under or with respect to this Indenture. Neither the lien of this
Indenture nor any rights or remedies of the Trustee or the Noteholders shall be
impaired by the recovery of any judgment by the Trustee against the Issuer or by
the levy of any execution under such judgment upon any portion of the Trust
Estate or upon any of the assets of the Issuer.
50
<PAGE>
ARTICLE SEVEN
The Trustee
Section 7.01. CERTAIN DUTIES AND RESPONSIBILITIES.
(a) Except during the continuance of an Event of Default,
(1) the Trustee undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture, and no implied
covenants or obligations shall be read into this Indenture against the
Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements
of this Indenture; but in the case of any such certificates or
opinions which by any provision hereof are specifically required to be
furnished to the Trustee, the Trustee shall be under a duty to examine
the same to determine whether or not they conform to the requirements
of this Indenture.
(b) In case an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise, as
a prudent man would exercise or use under the circumstances in the conduct
of his own affairs.
(c) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent
failure to act, or its own willful misconduct, except that
(1) this Subsection shall not be construed to limit the effect of
Subsection (a) of this Section;
(2) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it shall be proved
that the Trustee was negligent in ascertaining the pertinent facts;
51
<PAGE>
(3) the Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in good faith in accordance with
the direction of the Holders of a majority in principal amount of the
Outstanding Notes relating to the time, method and place of conducting
any proceeding for any remedy available to the Trustee, or exercising
any trust or power conferred upon the Trustee, under this Indenture;
and
(4) no provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder, or in the
exercise of any of its rights or powers, if it shall have reasonable
grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to
it.
(d) Whether or not therein expressly so provided, every provision of
this Indenture relating to the conduct or affecting the liability of or
affording protection to the Trustee shall be subject to the provisions of
this Section.
Section 7.02. NOTICE OF DEFAULT.
Within 90 days after the occurrence of any Default, the Trustee shall
transmit by mail to all Holders of Notes, as their names and addresses appear on
the Note Register, notice of such Default hereunder known to the Trustee, unless
such Default shall have been cured or waived; provided, however, that, except in
the case of a Default in the payment of the principal of or interest on any
Note, the Trustee shall be protected in withholding such notice if and so long
as the board of directors, the executive committee or a trust committee of
directors and/or Responsible Officers of the Trustee in good faith determine
that the withholding of such notice is in the interests of the Noteholders; and
provided, further, that in the case of any Default of the character specified in
Section 6.01(4) no such notice to Noteholders shall be given until at least 60
days after the occurrence thereof.
Section 7.03. CERTAIN RIGHTS OF TRUSTEE.
Except as otherwise provided in Section 7.01:
(1) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
52
<PAGE>
Note, note or other paper or document believed by it to be genuine and to
have been signed or presented by the proper party or parties;
(2) any request or direction of the Issuer mentioned herein shall be
sufficiently evidenced by an Issuer Request or Issuer Order and any
resolution of the Board of Directors may be sufficiently evidenced by a
Board Resolution;
(3) whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other
evidence be herein specifically prescribed) may, in the absence of bad
faith on its part, rely upon an Officers' Certificate;
(4) the Trustee may consult with counsel and the written advice of
such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon;
(5) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction
of any of the Noteholders pursuant to this Indenture, unless such
Noteholders shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which might be
incurred by it in compliance with such request or direction;
(6) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
Note, note or other paper or document, further inquiry or investigation
into such facts or matters as it may see fit, and, if the Trustee shall
determine to make such further inquiry or investigation, it shall be
entitled to examine the books, records and premises of the Issuer,
personally or by agent or attorney; and
(7) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
53
<PAGE>
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by
it hereunder.
Section 7.04. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF NOTES.
The recitals contained herein and in the Notes, except the certificates of
authentication, shall be taken as the statements of the Issuer, and the Trustee
assumes no responsibility for their correctness. The Trustee makes no
representation as to the validity or sufficiency of this Indenture or of the
Notes. The Trustee shall not be accountable for the use or application by the
Issuer of Notes or the proceeds thereof.
Section 7.05. MAY HOLD NOTES.
The Trustee, any Paying Agent, Note Registrar or any other agent of the
Issuer, in its individual or any other capacity, may become the owner or pledgee
of Notes and, subject to Sections 7.08 and 7.13, may otherwise deal with the
Issuer with the same rights it would have if it were not Trustee, Paying Agent,
Note Registrar or such other agent.
Section 7.06. MONEY HELD IN TRUST.
Money held by the Trustee in trust hereunder need not be segregated from
other funds except to the extent required by law. The Trustee shall be under no
liability for interest on any money received by it hereunder except as otherwise
agreed with the Issuer or as otherwise provided and except to the extent of
income or other gain on investments which are deposits in or certificates of
deposits of the Trustee and income or other gain actually received by the
Trustee on Eligible Investments. All moneys held by the Trustee hereunder (other
than moneys held by the Trustee for payment of principal or interest on Notes on
and after the Stated Maturity thereof or Redemption Date therefor or any monthly
interest payment date or other date on which such moneys are payable to
Noteholders) shall be invested by the Trustee at the direction of the Issuer in
Eligible Investments prior to the disbursement of such moneys and all income
realized from such investments shall be added to the Interest Payment Account.
Section 7.07. COMPENSATION AND REIMBURSEMENT.
The Issuer agrees with respect to the Notes issued hereunder:
54
<PAGE>
(1) to pay the Trustee from time to time reasonable compensation for
all services rendered by it hereunder (which compensation shall not be
limited by any provision of law in regard to the compensation of a trustee
of an express trust);
(2) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Trustee in accordance with any provision
of this Indenture (including the reasonable compensation and the expenses
and disbursements of its agents and counsel), except any such expense,
disbursement or advance as may be attributable to its negligence or bad
faith; and
(3) to indemnify the Trustee (including when acting in any agency
capacity hereunder) and its agents for, and to hold them harmless against,
any loss, liability or expense incurred without negligence or bad faith on
their part, arising out of or in connection with the acceptance or
administration of this trust, including the costs and expenses of defending
themselves against any claim or liability in connection with the exercise
or performance of any of their powers or duties hereunder.
As security for the performance of the Issuer under this Section, the
Trustee shall have a lien prior to the Notes upon all property and funds
held or collected by the Trustee in respect of the Notes as such, except
funds held in trust for the payment of principal of or interest on the
Notes.
Notwithstanding the foregoing, the Trustee, in connection with the failure
to make payments as required under this Section 7.07, shall not institute
bankruptcy proceedings against the Issuer under the Federal Bankruptcy Code or
any similar applicable federal or state law, during the period in which the
Notes are outstanding or 91 days thereafter.
Section 7.08. DISQUALIFICATION; CONFLICTING INTERESTS.
(a) If the Trustee has or shall acquire any conflicting interest with
respect to the Notes, as defined in this Section, it shall, within 90 days
after ascertaining that it has such conflicting interest, either eliminate
such conflicting interest or resign in the manner and with the effect
hereinafter specified in this Article.
55
<PAGE>
(b) In the event that the Trustee shall fail to comply with the
provisions of Subsection (a) of this Section, the Trustee shall, within 10
days after the expiration of such 90-day period, transmit by mail to all
Noteholders, as their names and addresses appear in the Note Register,
notice of such failure.
(c) For the purpose of this Section, the Trustee shall be deemed to
have a conflicting interest if the Notes are in default (as such term is
defined in the Indenture, but exclusive of any period of grace or
requirement of notice) and
(1) the Trustee is trustee under another indenture under which
any other securities, or certificates of interest or participation in
any other securities, of the Issuer are outstanding, unless (A) such
other indenture securities are collateral trust notes under which the
only collateral consists of Notes issued under this Indenture (B) such
other indenture is a collateral trust indenture under which the only
collateral consists of Notes issued under this Indenture or (C) the
Issuer has no substantial unmortgaged assets and is engaged primarily
in the business of owning, or of owning and developing and/or
operating, real estate and this Indenture and such other indenture are
secured by wholly separate and distinct parcels of real estate;
provided that there shall be excluded from the operation of this
paragraph any indenture or indentures under which other securities, or
certificates of interest or participation in other securities, of the
Issuer are outstanding, if the Issuer shall have sustained the burden
of proving, on application to the Commission and after opportunity for
hearing thereon, that trusteeship under this Indenture with respect to
one or more Classes of Notes and such other indenture or indentures is
not so likely to involve a material conflict of interest as to make it
necessary in the public interest or for the protection of investors to
disqualify the Trustee from acting as such under this Indenture and/or
one or more of such other indentures;
(2) by reason of supplements or amendments to this Indenture as
originally executed there shall be created covenants, restrictions,
conditions or additional Events of Default which are applicable to
less than all Classes of Notes and the existence of which (A) would
give the Holders of Notes of any Class any concurrent or overlapping
security interest with respect to any Trust Estate or any other
56
<PAGE>
property held by the Trustee for the benefit of Holders of Notes of
any other Class, (B) would cause the Notes of one or more Classes not
to rank equally or PARI PASSU with the Notes of any other Class, or
(C) is sufficiently likely to involve a material conflict of interest
as between Classes of Notes that it is advisable in the public
interest or for the protection of investors that the Trustee
disqualify itself from acting as such with respect to one or more
applicable Classes of Notes;
(3) the Trustee or any of its directors or executive officers is
an obligor upon the Notes or an underwriter for the Issuer;
(4) the Trustee directly or indirectly controls or is directly or
indirectly controlled by or is under direct or indirect common control
with the Issuer or an underwriter for the Issuer;
(5) the Trustee or any of its directors or executive officers is
a director, officer, partner, employee, appointee or representative of
the Issuer, or of an underwriter (other than the Trustee itself) for
the Issuer who is currently engaged in the business of underwriting,
except that (i) one individual may be a director or an executive
officer, or both, of the Trustee and a director or an executive
officer, or both, of the Issuer but may not be at the same time an
executive officer of both the Trustee and the Issuer; (ii) if and so
long as the number of directors of the Trustee in office is more than
nine, one additional individual may be a director or an executive
officer, or both, of the Trustee and a director of the Issuer; and
(iii) the Trustee may be designated by the Issuer or by any
underwriter for the Issuer to act in the capacity of transfer agent,
registrar, custodian, paying agent, fiscal agent, escrow agent, or
depositary, or in any other similar capacity, or, subject to the
provisions of paragraph (1) of this Subsection, to act as trustee,
whether under an indenture or otherwise;
(6) 10% or more of the voting securities of the Trustee is
beneficially owned either by the Issuer or by any director, partner or
executive officer thereof, or 20% or more of such voting securities is
beneficially owned, collectively, by any two or more of such persons;
57
<PAGE>
or 10% or more of the voting securities of the Trustee is beneficially
owned either by an underwriter for the Issuer or by any director,
partner or executive officer thereof, or is beneficially owned
collectively by any two or more such persons;
(7) the Trustee is the beneficial owner of, or holds as
collateral security for an obligation which is in default, (i) 5% or
more of the voting securities, or 10% or more of any other class of
security, of the Issuer not including the Notes issued under this
Indenture and securities issued under any other indenture under which
the Trustee is also trustee, or (ii) 10% or more of any class of
security of an underwriter for the Issuer;
(8) the Trustee is the beneficial owner of, or holds as
collateral security for an obligation which is in default, 5% or more
of the voting securities of any person who, to the knowledge of the
Trustee, owns 10% or more of the voting securities of, or controls
directly or indirectly, or is under direct or indirect common control
with, the Issuer;
(9) the Trustee is the beneficial owner of, or holds as
collateral security for an obligation which is in default, 10% or more
of any class of security of any person who, to the knowledge of the
Trustee, owns 50% or more of the voting securities of the Issuer;
(10) the Trustee owns, on the date of Default upon the Notes
(exclusive of any period of grace or requirement of notice) or any
anniversary of such Default while such Default upon the Notes remains,
in the capacity of executor, administrator, testamentary or inter
vivos trustee, guardian, committee or conservator, or in any other
similar capacity, an aggregate of 25% or more of the voting
securities, or of any class of security, of any person, the beneficial
ownership of a specified percentage of which would have constituted a
conflicting interest under paragraph (7), (8) or (9) of this
Subsection. As to any such securities of which the Trustee acquired
ownership through becoming executor, administrator, or testamentary
trustee of an estate which included them, the provisions of the
preceding sentence shall not apply, for a period of two years from the
date of such acquisition, to the extent that such securities included
58
<PAGE>
in such estate do not exceed 25% of such voting securities or 25% of
any such class of security. Promptly after the dates of any such
Default upon the Notes and annually in each succeeding year that the
Notes remain in Default, the Trustee shall make a check of its
holdings of such securities in any of the above- mentioned capacities
as of such dates. If the Issuer fails to make payment in full of the
principal of or interest on any of the Notes when and as the same
become due and payable, and such failure continues for 30 days
thereafter, the Trustee shall make a prompt check of its holdings of
such securities in any of the above-mentioned capacities as of the
date of the expiration of such 30-day period, and after such date,
notwithstanding the foregoing provisions of this paragraph, all such
securities so held by the Trustee, with sole or joint control over
such securities vested in it, shall, but only so long as such failure
shall continue, be considered as though beneficially owned by the
Trustee for the purposes of paragraphs (7), (8) and (9) of this
Subsection; or
(11) except under the circumstances described in paragraphs (1),
(3), (5) or (6) of Section 311(b) of the TIA, Trustee shall be or
shall become a creditor of the Issuer.
For purposes of paragraph (2) of this Subsection and of Section 316(a) of
the TIA the term Class means a series, class or group of securities issuable
under the Indenture pursuant to whose terms holders of one such class may vote
to direct the Trustee or otherwise take action pursuant to a vote of such
holders, separately from another such class; provided that Class shall not
include any class issued under the Indenture if all such Classes rank equally
and are wholly unsecured.
The specification of percentages in paragraphs (6) to (10), inclusive, of
this Subsection shall not be construed as indicating that the ownership of such
percentages of the securities of a person is or is not necessary or sufficient
to constitute direct or indirect control for the purposes of paragraph (4) or
(8) of this Subsection.
For the purposes of paragraphs (7), (8), (9) and (10) of this Subsection
only, (i) the terms "SECURITY" and "SECURITIES" shall include only such
securities as are generally known as corporate securities, but shall not include
any note or other evidence of indebtedness issued to evidence an obligation to
59
<PAGE>
repay moneys loaned to a person by one or more banks, trust companies or banking
firms, or any certificate of interest or participation in any such note or
evidence of indebtedness; (ii) an obligation shall be deemed to be "in default"
when a default in payment of principal shall have continued for 30 days or more
and shall not have been cured; and (iii) the Trustee shall not be deemed to be
the owner or holder of (A) any security which it holds as collateral security,
as trustee or otherwise, for an obligation which is not in default as defined in
clause (ii) above, or (B) any security which it holds as collateral security
under this Indenture, irrespective of any default hereunder, or (C) any security
which it holds as agent for collection, or as custodian, escrow agent, or
depositary, or in any similar representative capacity.
(d) For the purposes of this Subsection:
(1) The term "UNDERWRITER" when used with reference to the Issuer
means every person who, within one year prior to the time as of which
the determination is made, was an underwriter of any Security of such
Issuer outstanding at such time, or has participated or has had a
direct or indirect participation in any such undertaking, or has
participated or has had a participation in the direct or indirect
underwriting of any such undertaking, but such term shall not include
a person whose interest was limited to a commission from an
underwriter or dealer not in excess of the usual and customary
distributors' or sellers' commission.
(2) The term "DIRECTOR" means any director of a corporation, or
any individual performing similar functions with respect to any
organization whether incorporated or unincorporated.
(3) The term "PERSON" means an individual, a corporation, a
partnership, an association, a joint stock company, a trust, an
unincorporated organization, or a government or political subdivision
thereof. As used in this paragraph, the term "TRUST" shall include
only a trust where the interest or interests of the beneficiary or
beneficiaries are evidenced by a security.
(4) The term "VOTING SECURITY" means any security presently
entitling the owner or holder thereof to vote in the direction or
management of the affairs of a person, or any security issued under or
60
<PAGE>
pursuant to any trust, agreement or arrangement whereby a trustee or
trustees or agent or agents for the owner or holder of such security
are presently entitled to vote in the direction or management of the
affairs of a person.
(5) The term "ISSUER" means any obligor upon the Notes.
(6) The term "EXECUTIVE OFFICER" means the president, every vice
president, every trust officer, the cashier, the secretary and the
treasurer of a corporation, and any individual customarily performing
similar functions with respect to any organization whether
incorporated or unincorporated, but shall not include the chairman of
the board of directors.
(e) The percentage of voting securities and other securities specified
in this Section shall be calculated in accordance with the following
provisions:
(1) A specified percentage of the voting securities of the
Trustee, the Issuer or any other person referred to in this Section
(each of whom is referred to as a "person" in this paragraph) means
such amount of the outstanding voting securities of such person as
entitles the holder or holders thereof to cast such specified
percentage of the aggregate votes which the holders of all the
outstanding voting securities of such person are entitled to cast in
the direction or management of the affairs of such person.
(2) A specified percentage of a class of securities of a person
means such percentage of the aggregate amount of securities of the
class outstanding.
(3) The term "amount," when used in regard to securities, means
the principal amount if relating to evidences of indebtedness, the
number of shares if relating to capital shares, and the number of
units if relating to any other kind of security.
(4) The term "OUTSTANDING" means issued and not held by or for
the account of the issuer. The following securities shall not be
deemed outstanding within the meaning of this definition:
61
<PAGE>
(i) securities of an issuer held in a sinking fund relating
to securities of the issuer of the same class;
(ii) securities of an issuer held in a sinking fund relating
to another class of securities of the issuer, if the obligation
evidenced by such other class of securities is not in default as
to principal or interest or otherwise;
(iii) securities pledged by the issuer thereof as security
for an obligation of the issuer not in default as to principal or
interest or otherwise; and
(iv) securities held in escrow if placed in escrow by the
issuer thereof;
provided, however that any voting securities of an issuer shall be
deemed outstanding if any person other than the issuer is entitled to
exercise the voting rights thereof.
(5) A security shall be deemed to be of the same class as another
security if both securities confer upon the holder or holders thereof
substantially the same rights and privileges; provided, however, that,
in the case of secured evidences of indebtedness, all of which are
issued under a single indenture, differences in the interest rates or
maturity dates of various series thereof shall not be deemed
sufficient to constitute such series different classes; and provided,
further, that, in the case of unsecured evidences of indebtedness,
differences in the interest rates or maturity dates thereof shall not
be deemed sufficient to constitute them securities of different
classes, whether or not they are issued under a single indenture.
Except in the case of any Event of Default, the Trustee shall not be
required to resign as required by this subsection if Trustee shall have
sustained the burden of proving, on application to the Commission and after
opportunity for hearing thereon that: (i) the Event of Default may be cured or
waived within a reasonable period and under procedures described in such
application, and (ii) a stay of Trustee's duties to resign will not be
inconsistent with the interests of the holders of the Notes. The filing of such
62
<PAGE>
application shall automatically stay the performance of the duty to resign until
the Commission orders otherwise. Any resignation of the Trustee shall become
effective only upon the appointment of a successor trustee and such successor's
acceptance of such an appointment.
Section 7.09. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY.
There shall at all times be a Trustee hereunder which shall be a
corporation organized and doing business under the laws of the United States of
America or of any state, authorized under such laws to exercise corporate trust
powers, having a combined capital and surplus of at least $150,000, subject to
supervision or examination by federal or state authority and having an office
within the United States of America. If such corporation publishes reports of
condition at least annually, pursuant to law or to the requirements of the
aforesaid supervising or examining authority, then for the purposes of this
Section, the combined capital and surplus of such corporation shall be deemed to
be its combined capital and surplus as set forth in its most recent report of
condition so published. If at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section, it shall resign immediately in
the manner and with the effect hereinafter specified in this Article.
Section 7.10. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee under Section 7.11.
(b) The Trustee may resign at any time by giving written notice
thereof to the Issuer. If an instrument of acceptance by a successor
Trustee shall not have been delivered to the Trustee within 30 days after
the giving of such notice of resignation, the resigning Trustee may
petition any court of competent jurisdiction for the appointment of a
successor Trustee. The Trustee covenants and agrees that it will not
institute proceedings to be adjudicated a bankrupt or insolvent or take any
of the other actions which are enumerated in Section 6.01(6) with respect
to itself unless prior thereto the Trustee shall have resigned hereunder
and a successor Trustee shall have accepted appointment under Section 7.11.
(c) The Trustee may be removed at any time by Act of the Holders of a
majority in principal amount of the outstanding Notes delivered to the
Trustee and to the Issuer.
(d) If at any time:
(1) the Trustee shall fail to comply with Section 7.08(a) after
written request therefor by the Issuer or by any Noteholder who has
been a bona fide Holder of a Note for at least six months, or
(2) the Trustee shall cease to be eligible under Section 7.09 and
shall fail to resign after written request therefor by the Issuer or
by any such Noteholder, or
(3) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of
its property shall be appointed or any public officer shall take
charge or control of the Trustee or of its property or affairs for the
purpose of rehabilitation, conservation or liquidation,
then, in any such case, (i) the Issuer by a Board Resolution may remove the
Trustee, or (ii) subject to Section 6.16 any Noteholder who has been a bona fide
Holder of a Note for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of the Trustee for any
cause the Issuer, by a Board Resolution, shall promptly appoint a successor
Trustee. If within one year after such resignation, removal or incapability
or the occurrence of such vacancy, a successor Trustee shall be appointed
by Act of the Holders of a majority in principal amount of the Outstanding
Notes of that Class delivered to the Issuer and the retiring Trustee, the
successor Trustee so appointed shall, forthwith upon its acceptance of such
appointment, become the successor Trustee and supersede the successor
Trustee appointed by the Issuer. If no successor Trustee shall have been so
appointed by the Issuer or the Noteholders and shall have accepted
appointment in the manner hereinafter provided, any Noteholder who has been
a bona fide Holder of a Note for at least six months may, on behalf of
himself and all others similarly situated, petition any court of competent
jurisdiction for the appointment of a successor Trustee.
63
<PAGE>
(f) The Issuer shall give notice of each resignation and each removal
of the Trustee and each appointment of a successor Trustee by mailing
written notice of such event by first-class mail, postage prepaid to the
Holders of Notes as their names and addresses appear in the Note Register.
Each notice shall include the name of the successor Trustee and the address
of its Corporate Trust Office.
Section 7.11. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
Every successor Trustee appointed hereunder shall execute, acknowledge and
deliver to the Issuer and the retiring Trustee an instrument accepting such
appointment, and thereupon the resignation or removal of the retiring Trustee
shall become effective and such successor Trustee, without any further act, deed
or conveyance, shall become vested with all the rights, powers, trusts and
duties of the retiring Trustee; but, on request of the Issuer or the successor
Trustee, such retiring Trustee shall, upon payment of its charges, execute and
deliver an instrument transferring to such successor Trustee all the rights,
powers and trusts of the retiring Trustee, and shall duly assign, transfer and
deliver to such successor Trustee all property and money held by such retiring
Trustee hereunder, subject nevertheless to its lien, if any, provided for in
Section 7.07. Upon request of any such successor Trustee, the Issuer shall
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor Trustee all such rights, powers and trusts.
No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified and eligible under
this Article.
Section 7.12. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS OF
TRUSTEE.
Any corporation into which the Trustee may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any further act on the
part of any of the parties hereto. In case any Notes have been authenticated,
64
<PAGE>
but not delivered, by the Trustee then in office, any successor by merger,
conversion or consolidation to such authenticating Trustee may adopt such
authentication and deliver the Notes so authenticated with the same effect as if
such successor Trustee had itself authenticated such Notes.
Section 7.13. PREFERENTIAL COLLECTION OF CLAIMS AGAINST ISSUER.
(a) Subject to Subsection (b) of this Section, if the Trustee shall be
or shall become a creditor, directly or indirectly, secured or unsecured,
of the Issuer within three months prior to a default, as defined in
Subsection (c) of this Section, or subsequent to such a default, then,
unless and until such default shall be cured, the Trustee shall set apart
and hold in a special account for the benefit of the Trustee individually,
the Holders of the Notes and the holders of other indenture securities (as
defined in Subsection (c) of this Section):
(1) an amount equal to any and all reductions in the amount due
and owing upon any claim as such creditor in respect of principal or
interest, effected after the beginning of such three-month period and
valid as against the Issuer and its other creditors, except any such
reduction resulting from the receipt or disposition of any property
described in paragraph (2) of this Subsection, or from the exercise of
any right of set-off which the Trustee could have exercised if a
petition in bankruptcy had been filed by or against the Company upon
the date of such default; and
(2) all property received by the Trustee in respect of any claim
as such creditor, either as security therefor, or in satisfaction or
composition thereof, or otherwise, after the beginning of such
three-month period, or an amount equal to the proceeds of any such
property, if disposed of, subject, however, to the rights, if any, of
the Issuer and its other creditors in such property or such proceeds.
Nothing herein contained, however, shall affect the right of the Trustee:
(A) to retain for its own account (i) payments made on
account of any such claim by any Person (other than the Issuer)
who is liable thereon, and (ii) the proceeds of the bona fide
sale of any such claim by the Trustee to a third person, and
(iii) distributions made in cash, securities or other property in
65
<PAGE>
respect of claims filed against the Issuer in bankruptcy or
receivership or in proceedings for reorganization pursuant to the
Federal Bankruptcy Code or applicable state law;
(B) to realize, for its own account, upon any property held
by it as security for any such claim, if such property was so
held prior to the beginning of such three-month period;
(C) to realize, for its own account, but only to the extent
of the claim hereinafter mentioned, upon any property held by it
as security for any such claim, if such claim was credited after
the beginning of such three-month period and such property was
received as security therefor simultaneously with the creation
thereof, and if the Trustee shall sustain the burden of proving
that at the time such property was so received the Trustee had no
reasonable cause to believe that a default as defined in
Subsection (c) of this Section would occur within three months;
or
(D) to receive payment on any claim referred to in paragraph
(B) or (C) against the release of any property held as security
for such claim as provided in paragraph (B) or (C), as the case
may be, to the extent of the fair value of such property.
For the purposes of paragraphs (B), (C) and (D), property substituted after
the beginning of such three-month period for property held as security at that
time of such substitution shall, to the extent of the fair value of the property
released, have the same status as the property released, and, to the extent that
any claim referred to in any of such paragraphs is created in renewal of or in
substitution for or for the purpose of repaying or refunding any pre-existing
claim of the Trustee as such creditor, such claim shall have the same status as
such pre-existing claim.
If the Trustee shall be required to account, the funds and property held in
such special account and the proceeds thereof shall be apportioned among the
Trustee, the Noteholders and the holders of other indenture securities in such
manner that the Trustee, the Noteholders and the holders of other indenture
securities realize, as a result of payments from such special account and
payments of dividends on claims filed against the Issuer in bankruptcy or
receivership or in proceedings for reorganization pursuant to the Federal
66
<PAGE>
Bankruptcy Code or applicable state law, the same percentage of their respective
claims, figured before crediting to the claim of the Trustee anything on account
of the receipt by it from the Issuer of the funds and property in such special
account and before crediting to the respective claims of the Trustee and the
Noteholders and the holders of other indenture securities dividends on claims
filed against the Issuer in bankruptcy or receivership or in proceedings for
reorganization pursuant to the Federal Bankruptcy Code or applicable state law,
but after crediting thereon receipts on account of the indebtedness represented
by their respective claims from all sources other than from such dividends and
from the funds and property so held in such special account. As used in this
paragraph, with respect to any claim, the term "DIVIDENDS" shall include any
distribution with respect to such claim, in bankruptcy or receivership or
proceedings for reorganization pursuant to the Federal Bankruptcy Code or
applicable state law, whether such distribution is made in cash, securities, or
other property, but shall not include any such distribution with respect to the
secured portion, if any, of such claim. The court in which such bankruptcy,
receivership or proceedings for reorganization is pending shall have
jurisdiction (i) to apportion between the Trustee and the Noteholders and the
holders of other indenture securities, in accordance with the provisions of this
paragraph, the funds and property held in such special account and proceeds
thereof, or (ii) in lieu of such apportionment, in whole or in part, to give to
the provisions of this paragraph due consideration in determining the fairness
of the distributions to be made to the Trustee and the Noteholders and the
holders of other indenture securities with respect to their respective claims,
in which event it shall not be necessary to liquidate or to appraise the value
of any securities or other property held in such special account or as security
for any such claim, or to make a specific allocation of such distributions as
between the secured and unsecured portions of such claims, or otherwise to apply
the provisions of this paragraph as a mathematical formula.
Any Trustee which has resigned or been removed after the beginning of such
three-month period shall be subject to the provisions of this Subsection as
though such resignation or removal had not occurred. If any Trustee has resigned
or been removed prior to the beginning of such three-month period, it shall be
subject to the provisions of this Subsection if and only if the following
conditions exist:
(1) the receipt of property or reduction of claim, which would
have given rise to the obligation to account, if such Trustee had
67
<PAGE>
continued as Trustee, occurred after the beginning of such three month
period; and
(2) such receipt of property or reduction of claim occurred
within three months after such resignation or removal.
(b) There shall be excluded from the operation of Subsection (a) of
this Section a creditor relationship arising from:
(1) the ownership or acquisition of securities issued under any
indenture, or any security or securities having a maturity of one year
or more at the time of acquisition by the Trustee;
(2) advances authorized by a receivership or bankruptcy court of
competent jurisdiction, or by this Indenture, for the purpose of
preserving any property which shall at any time be subject to the lien
of this Indenture or of discharging tax liens or other prior liens or
encumbrances thereon, if notice of such advances and of the
circumstances surrounding the making thereof is given to the
Noteholders at the time and in the manner provided in this Indenture;
(3) disbursements made in the ordinary course of business in the
capacity of trustee under an indenture, transfer agent, registrar,
custodian, paying agent, fiscal agent or depositary, or other similar
capacity;
(4) an indebtedness created as a result of services rendered or
premises rented; or an indebtedness created as a result of goods or
securities sold in a cash transaction as defined in Subsection (c) of
this Section;
(5) the ownership of stock or of other securities of a
corporation organized under the provisions of Section 25(s) of the
Federal Reserve Act, as amended, which is directly or indirectly a
creditor of the Issuer; or
(6) the acquisition, ownership, acceptance or negotiation of any
drafts, bills of exchange, acceptances or obligations which fall
within the classification of self-liquidating paper as defined in
Subsection (c) of this Section.
68
<PAGE>
(c) For the purposes of this Section only:
(1) The term "DEFAULT" means any failure to make payment in full
of the principal of or interest on any of the Notes or upon the other
indenture securities when and as such principal or interest becomes
due and payable.
(2) The term "OTHER INDENTURE SECURITIES" means securities upon
which the Issuer is an obligor outstanding under any other indenture
(i) under which the Trustee is also trustee, (ii) which contains
provisions substantially similar to the provisions of this Section,
and (iii) under which a default exists at the time of the
apportionment of the funds and property held in such special account.
(3) The term "CASH TRANSACTION" means any transaction in which
full payment for goods or securities sold is made within seven days
after delivery of the goods or securities in currency or in checks or
other orders drawn upon banks or bankers and payable upon demand.
(4) The term "SELF-LIQUIDATING PAPER" means any draft, bill of
exchange, acceptance or obligation which is made, drawn, negotiated or
incurred by the Issuer for the purpose of financing the purchase,
processing, manufacturing, shipment, storage or sale of goods, wares
or merchandise and which is secured by documents evidencing title to,
possession of, or a lien upon, the goods, wares or merchandise or the
receivables or proceeds arising from the sale of the goods, wares or
merchandise previously constituting the security; provided that the
security is received by the Trustee simultaneously with the creation
of the creditor relationship with the Issuer arising from the making,
drawing, negotiating or incurring of the draft, bill of exchange,
acceptance or obligation.
69
<PAGE>
ARTICLE EIGHT
Noteholders' Lists and Reports by Trustee and Issuer
Section 8.01. ISSUER TO FURNISH TRUSTEE NAMES AND ADDRESSES OF NOTEHOLDERS.
The Issuer will furnish or cause to be furnished to the Trustee (a) not
more than five days after each Regular Record Date with respect to each Class of
Notes and in no event less than semiannually, a list, in such form as the
Trustee may reasonably require, of the names and addresses of the Holders of
Notes of such Class as of such Regular Record Date, and (b) at such other times,
as the Trustee may request in writing, within 30 days after receipt by the
Issuer of any such request, a list of similar form and content as of a date not
more than 10 days prior to the time such list is furnished; provided, however,
that so long as the Trustee is the Note Registrar, no such list shall be
required to be furnished.
Section 8.02. PRESERVATION OF INFORMATION; COMMUNICATIONS TO NOTEHOLDERS.
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of the Holders of Notes contained in
the most recent list furnished to the Trustee as provided in Section 8.01
and the names and addresses of the Holders of Notes received by the Trustee
in its capacity as Note Registrar. The Trustee may destroy any list
furnished to it as provided in Section 8.01 upon receipt of a new List so
furnished.
(b) If three or more Holders of Notes ("applicants") apply in writing
to the Trustee, and furnish to the Trustee reasonable proof that each such
applicant has owned a Note for a period of at least six months preceding
the date of such application, and such application states that the
applicants desire to communicate with other Holders of Notes of a
particular Class (in which case the applicants must all hold Notes of such
Class) or with the Holders of all Notes with respect to their rights under
this Indenture or under the Notes and is accompanied by a copy of the form
of proxy or other communication which such applicants propose to transmit,
then the Trustee shall, within five Business Days after the receipt of such
application, at its election, either:
(1) afford such applicants access to the information preserved at
the time by the Trustee in accordance with Subsection (a) of this
Section; or
70
<PAGE>
(2) inform such applicants as to the approximate number of
Holders of Notes of such Class or all Notes, as the case may be, whose
names and addresses appear in the information preserved at the time by
the Trustee in accordance with Subsection (a) of this Section, and as
to the approximate cost of mailing to such Noteholders the form of
proxy or other communication, if any, specified in such application.
If the Trustee shall elect not to afford such applicants access to such
information, the Trustee shall, upon the written request of such applicants,
mail to each Noteholder whose name and address appears in the information
preserved at the time by the Trustee in accordance with Subsection (a) of this
Section, a copy of the form of proxy or other communication which is specified
in such request, with reasonable promptness after a tender to the Trustee of the
material to be mailed and of payment, or provision for the payment, of the
reasonable expenses of mailing, unless within five days after such tender, the
Trustee shall mail to such applicants and file with the Commission, together
with a copy of the material to be mailed, a written statement to the effect
that, in the opinion of the Trustee, such mailing would be contrary to the best
interests of the Holders of Notes of such Class or all Notes, as the case may
be, or would be in violation of applicable law. Such written statement shall
specify the basis of such opinion. If the Commission, after opportunity for a
hearing upon the objections specified in the written statement so filed, shall
enter an order refusing to sustain any of such objections or if, after the entry
of an order sustaining one or more of such objections, the Commission shall
find, after notice and opportunity for hearing, that all the objections so
sustained have been met and shall enter an order so declaring, the Trustee shall
mail copies of such material to all such Noteholders with reasonable promptness
after the entry of such order and the renewal of such tender; otherwise the
Trustee shall be relieved of any obligation or duty to such applicants
respecting their application.
(c) Every Holder of Notes, by receiving and holding the same, agrees
with the Issuer and the Trustee that neither the Issuer nor the Trustee
shall be held accountable by reason of the disclosure of any such
information as to the names and addresses of the Holders of Notes in
accordance with Subsection (b) of this Section, regardless of the source
from which such information was derived, and that the Trustee shall not be
71
<PAGE>
held accountable by reason of mailing any material pursuant to a request
made under Subsection (b) of this Section.
Section 8.03. REPORTS BY TRUSTEE.
(a) With respect to each Class, within 60 days after May 15 of each
year commencing with the year 2001, the Trustee shall transmit by mail to
all Noteholders of such Class, as their names and addresses appear in the
Note Register, a brief report dated as of such May 15 ("reporting date")
with respect to any of the following events which may have occurred within
the previous 12 months (but if no such event has occurred within such
period no report need be transmitted):
(1) any change to its eligibility under Section 7.09 and its
qualifications under Section 7.08;
(2) the creation of or any material change to a relationship
specified in paragraphs (1) through (10) of Section 310(b) of the TIA;
(3) the character and amount of any advances (and if the Trustee
elects so to state, the circumstances surrounding the making thereof)
made by the Trustee (as such) which remain unpaid on the reporting
date, and for the reimbursement of which it claims or may claim a lien
or charge, prior to that of the Notes, on any property or funds held
or collected by it as Trustee, except that the Trustee shall not be
required (but may elect) to report such advances if such advances so
remaining unpaid aggregate not more than 1/2 of 1% of the principal
amount of the Notes Outstanding on the reporting date;
(4) the amount, interest rate and maturity date of all other
indebtedness owing by the Issuer (or by any other obligor on the
Notes) to the Trustee in its individual capacity, on the reporting
date, with a brief description of any property held as collateral
security therefor, except an indebtedness based upon a creditor
relationship arising in any manner described in Subsections
7.13(b)(2), (3), (4) or (6);
(5) any change to the property and funds, if any, physically in
the possession of the Trustee as such on the reporting date;
72
<PAGE>
(6) any change to any release, or release and substitution of
property subject to the lien of this Indenture (and the consideration
therefor, if any) which it has not previously reported;
(7) any additional issue of Notes which the Trustee has not
previously reported; and
(8) any action taken by the Trustee in the performance of its
duties hereunder which it has not previously reported and which in its
opinion materially affects the Notes, except action in respect of a
default, notice of which has been or is to be withheld by the Trustee
in accordance with Section 7.02.
(b) The Trustee shall transmit by mail to all Noteholders, as their
names and addresses appear in the Note Register, a brief report with
respect to (i) the release, or release and substitution, of property
subject to the lien of this Indenture (and consideration therefor if any)
unless the fair value of such property, as set forth in the certificate or
opinion required by the Supplemental Indenture that provides for the pledge
of such property, is less than 10% of the principal amount of the Notes
outstanding at the time of such release, or such release and substitution,
such report to be transmitted within 90 days of such time, and (ii) the
character and amount of any advances (and if the Trustee elects so to
state, the circumstances surrounding the making thereof) made by the
Trustee (as such) since the date of the last report transmitted pursuant to
Subsection (a) of this Section (or if no such report has yet been so
transmitted, since the Date of Execution) for the reimbursement of which it
claims or may claim a lien or charge, prior to that of the Notes, on
property or funds held or collected by it as Trustee, and which it has not
previously reported pursuant to this Subsection, except that the Trustee
shall not be required (but may elect) to report such advances if such
advances remaining unpaid at any time aggregate 10% or less of the
principal amount of the Notes Outstanding at such time, such report to be
transmitted within 90 days after such time.
(c) A copy of each such report shall, at the time of such transmission
to Noteholders, be filed by the Trustee with each securities exchange upon
which the Notes are listed, and also with the Commission. The Issuer will
notify the Trustee when the Notes are listed on any securities exchange.
(d) Upon written request in form satisfactory to the Trustee, the
Trustee will inform Noteholders of a Class of their priority status with
respect to requests for redemption pursuant to Section 12.01.
73
<PAGE>
Section 8.04. REPORTS BY ISSUER.
The Issuer shall:
(1) file with the Trustee, within 15 days after the Issuer is
required to file the same with the Commission, copies of the annual
reports and of the information, documents and other reports (or copies
of such portions of any of the foregoing as the Commission may from
time to time by rules and regulations prescribe) which the Issuer may
be required to file with the Commission pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934; or, if the
Issuer is not required to file information, documents or reports
pursuant to either of said Sections, then it will file with the
Trustee and the Commission, in accordance with rules and regulations
prescribed from time to time by the Commission, such of the
supplementary and periodic information, documents and reports which
may be required pursuant to Section 13 of the Securities Exchange Act
of 1934 in respect of a security listed and registered on a national
securities exchange as may be prescribed from time to time in such
rules and regulations;
(2) file with the Trustee and the Commission, in accordance with
rules and regulations prescribed from time to time by the Commission,
such additional information, documents and reports with respect to
compliance by the Issuer with the conditions and covenants of this
Indenture as may be required from time to time by such rules and
regulations;
(3) transmit by mail to all Noteholders as their names and
addresses appear in the Note Register, within 30 days after the filing
thereof with the Trustee, such summaries of any information, documents
and reports required to be filed by the Issuer pursuant to clauses (1)
and (2) of this Section as may be required by rules and regulations
prescribed from time to time by the Commission; and
(4) furnish to the Trustee, not later than 120 days following the
end of Issuer's fiscal year, a brief certificate from the principal
executive officer or principal accounting officer as to his or her
knowledge of Issuer's compliance with all conditions and covenants
under the Indenture. For purposes of this paragraph, such compliance
shall be determined without regard to any period of grace or
requirement of notice provided under the Indenture.
74
<PAGE>
ARTICLE NINE
[INTENTIONALLY OMITTED.]
ARTICLE TEN
Supplemental Indentures
Section 10.01. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF NOTEHOLDERS.
Without the consent of the Holders of any Notes, the Issuer, when
authorized by a Board Resolution, and the Trustee, at any time and from time to
time, may enter into one or more indentures supplemental hereto, for any of the
following purposes:
(1) to set forth the terms of, and special provisions regarding
security for, any Class; or
(2) to amend any provision of this Indenture, but only with
respect to a Class that has not theretofore been authorized by a
Supplement; or
(3) to evidence the succession of another Person to the Issuer,
and the assumption by any such successor of the covenants of the
Issuer herein and in the Notes contained; or
(4) to add to the covenants of the Issuer, for the benefit of the
Holders of the Notes, or to surrender any right or power herein
conferred upon the Issuer; or
(5) to convey, transfer, assign, mortgage or pledge any property
to or with the Trustee; or
(6) to cure any ambiguity, to correct or supplement any provision
herein or in any supplemental indenture which may be defective or
inconsistent with any other provision herein or in any supplemental
indenture, or to make any other provisions with respect to matters or
questions arising under this Indenture or in any supplemental
indenture, provided that such action shall not adversely affect the
interests of the Holders of the Notes.
75
<PAGE>
Section 10.02. SUPPLEMENTAL INDENTURES WITH CONSENT OF NOTEHOLDERS.
With the consent of the Holders of not less than a majority in principal
amount of the Outstanding Notes, in case Outstanding Notes of all Classes are to
be affected, or with the consent of the Holders of not less than a majority in
principal amount of the Outstanding Notes of each Class to be affected in case
one or more, but less than all, of the Classes of Outstanding Notes are to be
affected, by Act of said Holders delivered to the Issuer and the Trustee, the
Issuer, when authorized by a Board Resolution, and the Trustee may enter into an
indenture or indentures supplemental hereto for the purpose of adding any
provisions to, or changing in any manner or eliminating any of the provisions
of, this Indenture relating to such Classes or of modifying in any manner the
rights of the Holders of the Notes of such Classes under this Indenture;
provided, however, that no such Supplemental Indenture shall, without the
consent of the Holder of each Outstanding Note affected thereby:
(1) change the Stated Maturity of the principal of, or any
installment of interest on, any Note, or reduce the principal amount
thereof or the rate of interest thereon or change any place of payment
where, or the coin or currency in which, any Note or the interest
thereon is payable, or impair the right to institute suit for the
enforcement of any such payment on or after the Stated Maturity
thereof (or, in the case of redemption of Notes, on or after the
applicable Redemption Date); or
(2) reduce the percentage in principal amount of the Outstanding
Notes of any Class, the consent of the Holders of which is required
for any such supplemental indenture, or the consent of the Holders of
which is required for any waiver (of compliance with certain
provisions of this Indenture or certain defaults hereunder and their
consequences) provided for in this Indenture; or
(3) modify any of the provisions of Section 12.01 relating to
redemptions at the option of the Holders, if such modification would
impair such right or the priorities or preferences associated
therewith; or
(4) impair or adversely affect the Trust Estate applicable to a
Class except as otherwise permitted herein; or
76
<PAGE>
(5) change the percentage required to direct the Trustee to sell
or liquidate the Trust Estate pursuant to Section 6.04; or
(6) modify any of the provisions of this Section or Section 6.15,
except to increase any such percentage or to provide that certain
other provisions of this Indenture cannot be modified or waived
without the consent of the Holder of each Outstanding Note affected
thereby.
It shall not be necessary for any Act of Noteholders under this Section to
approve the particular form of any proposed Supplemental Indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
Promptly after the execution by the Issuer and the Trustee of any
Supplemental Indenture pursuant to this Section, the Issuer shall mail to the
Holders of the Notes to which such Supplemental Indenture relates, a notice
setting forth in general terms the substance of such Supplemental Indenture. Any
failure of the Issuer to mail such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such supplemental
Indenture.
Section 10.03. EXECUTION OF SUPPLEMENTAL INDENTURES.
In executing, or accepting the additional trusts created by, any
Supplemental Indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be furnished, and
(subject to Section 7.01) shall be fully protected in relying upon, an Opinion
of Counsel stating that the execution of such Supplemental Indenture is
authorized or permitted by this Indenture. The Trustee may, but shall not be
obligated to, enter into any such Supplemental Indenture which affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise.
Section 10.04. EFFECT OF SUPPLEMENTAL INDENTURES.
Upon the execution of any Supplemental Indenture under this Article, this
Indenture shall be and be deemed to be modified in accordance therewith, and
such Supplemental Indenture shall form a part of this Indenture for all
77
<PAGE>
purposes; and every Holder of Notes theretofore or thereafter authenticated and
delivered hereunder shall be bound thereby.
Section 10.05. CONFORMITY WITH TRUST INDENTURE ACT.
Every Supplemental Indenture executed pursuant to this Article shall
conform to the requirements of TIA as then in effect.
Section 10.06. REFERENCE IN NOTES TO SUPPLEMENTAL INDENTURES.
Notes authenticated and delivered after the execution of any Supplemental
Indenture pursuant to this Article may, and if required by the Trustee shall,
bear a notation in form approved by the Trustee as to any matter provided for in
such Supplemental Indenture. If the Issuer shall so determine, new Notes so
modified as to conform, in the opinion of the Trustee and the Issuer, to any
such Supplemental Indenture may be prepared and executed by the Issuer and
authenticated and delivered by the Trustee in exchange for Outstanding Notes.
78
<PAGE>
ARTICLE ELEVEN
Covenants
Section 11.01. PAYMENT OF PRINCIPAL AND INTEREST.
The Issuer will duly and punctually pay the principal of and interest on
the Notes in accordance with the terms of the Notes and this Indenture.
Section 11.02. MAINTENANCE OF OFFICE OR AGENCY.
The Issuer will maintain an office or agency within the United States of
America where Notes may be presented or surrendered for payment, where Notes may
be surrendered for registration of transfer or exchange and where notices and
demands to or upon the Issuer in respect of the Notes and this Indenture may be
served. The Issuer hereby initially appoints the Trustee such office or agency.
The Issuer will give prompt written notice to the Trustee of the location, and
of any change in the location, of any such office or agency. If at any time the
Issuer shall fail to maintain any such office or agency or shall fail to furnish
the Trustee with the address thereof, such presentations, surrenders, notices
and demands may be made or served at the Corporate Trust Office, and the Issuer
hereby appoints the Trustee at its Corporate Trust Office its agent to receive
all such presentations, surrenders, notices and demands.
Section 11.03. MONEY FOR NOTE PAYMENTS TO BE HELD IN TRUST.
If the Issuer shall at any time act as its own Paying Agent, it will, on or
before each due date of the principal of or interest on any of the Notes,
segregate and hold in trust for the benefit of the Persons entitled thereto a
sum sufficient to pay the principal or interest so becoming due until such sums
shall be paid to such Persons or otherwise disposed of as herein provided, and
will promptly notify the Trustee of its action or failure so to act.
Whenever the Issuer shall have one or more Paying Agents, it will, on or
before the Business Day next preceding each due date of the principal of or
interest on any of the Notes, deposit with a Paying Agent a sum sufficient to
pay the principal or interest so becoming due, such sums to be held in trust for
the benefit of the Persons entitled to such principal or interest, and (unless
such Paying Agent is the Trustee) the Issuer will promptly notify the Trustee of
its action or failure so to act.
79
<PAGE>
The Issuer will cause each Paying Agent other than the Trustee to execute
and deliver to the Trustee an instrument in which such Paying Agent shall agree
with the Trustee, subject to the provisions of this Section, that such Paying
Agent will:
(1) hold all sums held by it for the payment of principal of or
interest on Notes in trust for the benefit of the Persons entitled
thereto until such sums shall be paid to such Persons or otherwise
disposed of as herein provided;
(2) give the Trustee notice of any default by the Issuer (or any
other obligor upon the Notes) in the making of any payment of
principal or interest; and
(3) at any time during the continuance of any such default, upon
the written request of the Trustee, forthwith pay to the Trustee all
sums so held in trust by such Paying Agent.
The Issuer may at any time, for the purpose of obtaining the satisfaction
and discharge of this Indenture or for any other purpose, pay, or by Issuer
Order direct any Paying Agent to pay, to the Trustee all sums held in trust by
the Issuer or such Paying Agent, such sums to be held by the Trustee upon the
same trusts as those upon which such sums were held by the Issuer or such Paying
Agent; and, upon such payment be any Paying Agent to the Trustee, such Paying
Agent shall be released from all further liability with respect to such money.
Any money deposited with the Trustee or any Paying Agent, or then held by
the Issuer, in trust for the payment of the principal of or interest on any Note
and remaining unclaimed for three years after such principal or interest has
become due and payable shall be paid to the Issuer, or (if then held by the
Issuer) shall be discharged from such trust; and the Holder of such Note shall
thereafter, as an unsecured general creditor, look only to the Issuer for
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Issuer as trustee thereof,
shall thereupon cease; provided, however, that the Trustee or such Paying Agent,
before being required to make any such repayment, may at the expense of the
Issuer cause to be published once, in a newspaper published in the English
language, customarily published on each Business Day and of general circulation
in the city in which the Corporate Trust Office is located, notice that such
80
<PAGE>
money remains unclaimed and that, after a date specified therein, which shall
not be less than 30 days from the date of such publication, any unclaimed
balance of such money then remaining will be repaid to the Issuer. The Trustee
may also adopt and employ, at the expense of the Issuer, any other reasonable
means of notification of such repayment (including, but not limited to, mailing
notice of such repayment to Holders whose Notes have been called but have not
been surrendered for redemption or whose right to or interest in moneys due and
payable but not claimed is determinable from the records of any Paying Agent, at
the last address of record for each such Holder).
Section 11.04. CORPORATE EXISTENCE.
The Issuer will keep in full effect its existence, rights and franchises as
a corporation under the laws of Arizona (unless it becomes incorporated under
the laws of and other State or the United States of America), and will obtain
and preserve its qualification to do business as a foreign corporation in each
jurisdiction in which such qualification is or shall be necessary to protect the
validity and enforceability of this Indenture or the Notes.
Section 11.05. PROTECTION OF TRUST ESTATE.
The Issuer will from time to time execute and deliver all such supplements
and amendments hereto and all such financing statements, continuation
statements, instruments of further assurance and other instruments, and will
take such other action as the Trustee deems necessary or advisable to:
(1) grant more effectively all or any portion of the Trust Estate
(if any);
(2) maintain or preserve the lien of this Indenture (if any) in
any Trust Estate or carry out more effectively the purposes hereof;
(3) perfect, publish notice of, or protect the validity of any
grant made or to be made by this Indenture; or
(4) preserve and defend title to the Trust Estate (if any) and
the rights of the Trustee and the Noteholders therein against the
claims of all persons and parties.
81
<PAGE>
The Issuer hereby designates the Trustee its agent and attorney-in-fact to
execute any financing statement, continuation statement or other instrument
required by the Trustee pursuant to this Section 11.05.
Section 11.06. [INTENTIONALLY OMITTED.]
Section 11.07. OPINIONS AS TO TRUST ESTATE.
(a) If and so long as any Class of Notes hereunder is secured by a
pledge of assets of the Issuer, promptly (and in any event within 90 days)
after the Issue Date for each such Class, the Issuer shall furnish to the
Trustee an Opinion of Counsel either stating that, in the opinion of such
counsel, such action has been taken with respect to the recording and
filing of this Indenture, any indentures supplemental hereto and any other
requisite documents as is necessary to make effective the lien and security
interest of this Indenture and reciting the details of such action, or
stating that, in the opinion of such counsel, no such action is necessary
to make such lien and security interest effective. HOWEVER, NO OPINION OF
COUNSEL SHALL BE REQUIRED UNDER THIS SECTION 11.07(a) IF AND SO LONG AS ALL
OF THE NOTES ARE UNSECURED.
(b) If and so long as any Class of Notes hereunder is secured by a
pledge of assets of the Issuer, on or before April 30 in each calendar year
commencing with 2001, the Issuer shall furnish to the Trustee an Opinion of
Counsel either stating that, in the opinion of such counsel, such action
has been taken with respect to the recording, filing, re-recording and
refiling of this Indenture, any indentures supplemental hereto and any
other requisite documents as is necessary to maintain the lien and security
interest created by this Indenture (except with respect to any portion of
the Trust Estate securing a Class with an Issue Date less than 90 days
prior to the date of such Opinion of Counsel) and reciting the details of
such action or stating that in the opinion of such counsel no such action
is necessary to maintain such lien and security interest. Such Opinion of
Counsel shall also describe the recording, filing, rerecording and refiling
of this Indenture, any indentures supplemental hereto and any other
requisite documents that will, in the opinion of such counsel, be required
to maintain the lien and security interest of this Indenture until April 30
in the following calendar year. HOWEVER, NO OPINION OF COUNSEL SHALL BE
REQUIRED UNDER THIS SECTION 11.07(b) IF AND SO LONG AS ALL OF THE NOTES ARE
UNSECURED.
82
<PAGE>
Section 11.08. NEGATIVE COVENANTS.
The Issuer will not:
(1) sell, transfer, exchange or otherwise dispose of any of the
Trust Estate except in the ordinary course of its business or as
expressly permitted by this Indenture; or
(2) claim any credit on, or make any deduction from, the
principal, or interest payable in respect of the Notes by reason of
the payment of any taxes levied or assessed upon any of the Trust
Estate.
Section 11.09. STATEMENT AS TO COMPLIANCE.
The Issuer will deliver to the Trustee, within 120 days after the end of
each calendar year (commencing with the calendar year ending on December 31,
2000), a written statement signed by the Chief Executive Officer, the President
or a Vice President and by the Treasurer or an Assistant Treasurer of the
Issuer, stating, as to each signer thereof, that:
(1) a review of the activities of the Issuer during such year and
of performance under this Indenture has been made under his
supervision; and
(2) to the best of his knowledge, based on such review, the
Issuer has fulfilled all its obligations under this Indenture
throughout such year, or, if there has been a default in the
fulfillment of any such obligation, specifying each such default known
to him and the nature and status thereof.
83
<PAGE>
ARTICLE TWELVE
Redemption of Notes
Section 12.01. RIGHT OF REDEMPTION BY HOLDER.
(a) Unless the Notes of a Class have been declared due and payable
prior to their stated maturity by reason of an Event of Default, the
Issuer, acting through the Paying Agent shall redeem Notes of a Class at
the request of the Holders in accordance with, and only as provided by the
terms of, the Supplemental Indenture creating such Class.
(b) In order to obtain redemption, at least 90 days prior to the
requested redemption date the Holder must deliver: (i) to the Trustee, the
Notes to be redeemed, and (ii) to both the Trustee and the Issuer, a
written request for redemption in form satisfactory to the Issuer, signed
by the Holder or duly authorized representative (with appropriate evidence
of authority). No particular forms of request for redemption or authority
to request redemption are necessary. Once such delivery is made, the
Trustee shall hold the Notes submitted for redemption until paid unless
sooner withdrawn by the Holder. Only Notes in authorized denominations may
be redeemed.
Section 12.02. WITHDRAWAL OF REQUESTS.
Any Notes presented for redemption pursuant to Section 12.01 may be
withdrawn by the persons presenting same upon delivery of a written request for
such withdrawal received by the Trustee and the Issuer not later than the last
day of the month preceding that in which such Notes would otherwise be redeemed.
Section 12.03. REDEMPTION REGISTER.
The Trustee shall maintain at its Corporate Trust Office a register in
which it shall record, in the order of receipt, all requests for redemption
received by the Trustee under Section 12.01. The Trustee may establish such
procedures as it may deem fair and equitable in order to determine the order of
receipt of Notes received (or deemed received) by it on a single day and any
such determination shall be conclusive. Unless withdrawn as provided in Section
12.02, all such requests shall remain in effect until the Notes which are the
subject of such request have been redeemed.
84
<PAGE>
Section 12.04. NOTES REDEEMED AS A WHOLE OR IN PART.
Notes to be redeemed pursuant to Sections 12.01 or 12.05 shall be redeemed
as a whole (except that if a Note called for redemption is of such a
denomination that its redemption in whole would cause the principal amount of
Notes being redeemed to exceed the principal amount of Notes called for
redemption, such Note may be redeemed in part). In the event any Note is
redeemed in part only, such Note shall be surrendered (with, if the Issuer or
the Trustee so requires, due endorsement by, or a written instrument of transfer
in form satisfactory to the Issuer and the Trustee duly executed by, the Holder
thereof or his attorney duly authorized in writing) and the Issuer shall execute
and the Trustee shall authenticate and deliver to the Holder of such Note
without service charge, a new Note or Notes of the same Class, of any authorized
denomination as requested by such Holder in aggregate principal amount equal to
and in exchange for the unredeemed portion of the principal of the Note so
surrendered. For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of Notes shall relate, in
the case of any Note redeemed or to be redeemed only in part, to the portion of
the principal of such Note which has been or is to be redeemed.
Section 12.05. REDEMPTION BY THE ISSUER.
(a) As to any Class, the Issuer may call for redemption Notes in whole
or in part at any time. Notes to be redeemed by the Issuer hereunder shall
be redeemed as a whole (except that if a Note called for redemption is of
such denomination that its redemption in whole would cause the principal
amount of Notes being redeemed to exceed the principal amount of Notes
being called for redemption, such Note may be redeemed in part). If the
principal amount of the Notes to be redeemed shall be less than the total
outstanding Notes of any Class then Outstanding the Trustee shall choose by
lot the Notes to be redeemed in the manner provided in the Supplemental
Indenture for that Class.
(b) Interest on any Note redeemed pursuant to this Article Twelve may
be paid at the option of the Issuer, by check mailed to the person entitled
thereto at his address as it appears on the Note Register.
Section 12.06. ELECTION TO REDEEM; NOTICE TO TRUSTEE.
In case of any redemption at the election of the Issuer pursuant to Section
12.05, the Issuer shall, at least 15 days prior to the date of redemption fixed
85
<PAGE>
by the Issuer (unless a shorter notice shall be satisfactory to the Trustee in
its sole discretion), notify the Trustee of such date of redemption, the Class
and the principal amount of Notes to be redeemed.
Section 12.07. NOTICE OF REDEMPTION BY THE ISSUER.
Notice of redemption pursuant to Section 12.05 shall be given by
first-class mail, postage prepaid, mailed not less than 5 days prior to the
applicable Redemption Date, to each Holder of Notes to be redeemed pursuant to
Section 12.05, at his address appearing in the Note Register.
All notices of redemption shall state:
(1) the Class (and if less than all of the Notes of such Class
are to be redeemed, the serial numbers of the Notes to be redeemed) of
Notes to be redeemed;
(2) the Redemption Date;
(3) that on the Redemption Date, 100% of the principal amount of
the Notes being redeemed will become due and payable upon each such
Note, and that interest thereon will cease to accrue as of the date
immediately preceding the Redemption Date; and
(4) the place where such Notes are to be surrendered for payment,
which shall be the office or agency of the Issuer to be maintained as
provided in Section 11.02.
Notice of redemption of Notes to be redeemed pursuant to Section 12.05
shall be given by the Issuer or, at the Issuer's request, by the Trustee in the
name and at the expense of the Issuer. Failure to give notice of redemption, or
any defect therein, to any Holder of any Note selected for redemption shall not
impair or affect the validity of the redemption of any other Note.
Section 12.08. DEPOSIT OF REDEMPTION PRICE.
On or before the Business Day next preceding any Redemption Date or date on
which redemptions will be made pursuant to Section 12.05 hereof, the Issuer
shall deposit with the Trustee or with a Paying Agent (or, if the Issuer is
acting as its own Paying Agent, segregate and hold in trust as provided in
86
<PAGE>
Section 11.03) an amount of money sufficient to pay 100% of the principal of,
and accrued interest on, all of the Notes which are to be redeemed on such date
(unless such payment is to be made from amounts already in the possession of the
Trustee in a Principal Payment Account and/or Interest Payment Account).
Section 12.09. NOTES PAYABLE ON REDEMPTION DATE.
Notice of redemption having been given as provided in Section 12.07, the
Notes so to be redeemed shall, on the applicable Redemption Date, become due and
payable at the Redemption Price (plus interest accrued thereon to but not
including the Redemption Date) and on such Redemption Date (unless the Issuer
shall default in the payment of the Redemption Price and/or accrued interest)
such Notes shall cease to bear interest. Upon surrender of such Notes for
redemption in accordance with said notice, such Notes shall be paid by the
Issuer at the Redemption Price (plus interest accrued thereon to but not
including the Redemption Date); provided, however, that installments of interest
shall be payable to the Holders of such Notes, or one or more Predecessor Notes,
registered as such on the relevant Regular Record Dates according to their terms
and the provisions of Section 3.07.
If any Note called for redemption shall not be so paid upon surrender
thereof for redemption, the principal shall, until paid, continue to bear
interest at the rate borne by such Note.
87
<PAGE>
ARTICLE THIRTEEN
Accounts, Accountings and Releases
Section 13.01. COLLECTION OF MONEY.
Except as otherwise expressly provided herein, the Trustee may demand
payment or delivery of, and shall receive and collect, directly and without
intervention or assistance of any fiscal agent or other intermediary, all money
and other property payable to or receivable by the Trustee pursuant to this
Indenture. Any such action shall be without prejudice to any right to claim a
Default or Event of Default under this Indenture and to proceed thereafter as
provided in Article Six.
Section 13.02. PAYMENT OF PRINCIPAL AND INTEREST ON THE NOTES.
Not later than the 26th day of every month, the Issuer shall, by first
class mail, postage prepaid, transmit to the Holders of all Outstanding Notes
for which a payment of interest is due on the first day of the following month,
a check in the amount of the interest accrued on such Notes through the last day
of the month in which the mailing occurs. In addition, not later than the 26th
day of the month immediately preceding the maturity Date of any Outstanding
Notes, the Issuer shall, by first class mail, postage prepaid, against receipt
of the certificates representing the Notes, transmit the principal and all
accrued but unpaid interest to the Holders of such Notes. Not later than the
first business day after mailing the payments described in the preceding
sentences, the Issuer shall deliver to the Trustee a report concerning such
payments.
88
<PAGE>
ARTICLE FOURTEEN
Noteholders' Meetings
Section 14.01. PURPOSES FOR WHICH MEETINGS MAY BE CALLED.
A meeting of Noteholders or the Holders of Notes of any Class may be called
at any time and from time to time pursuant to the provisions of this Article
Fourteen for any of the following purposes:
(1) to give any notice to the Issuer or to the Trustee, or to
give any directions to the Trustee, or to consent to the waiving of
any default hereunder and its consequences, or to take any other
action authorized to be taken by Noteholders pursuant to any of the
provisions of Article Six;
(2) to remove the Trustee and appoint a successor trustee
pursuant to the provisions of Article Seven;
(3) to consent to the execution of an indenture or indentures
supplemental hereto pursuant to the provisions of Article Ten; or
(4) to take any other action authorized to be taken by or on
behalf of the holders of any specified aggregate principal amount of
the Notes or of any Class under any other provision of this Indenture
or under applicable law.
Section 14.02. MANNER OF CALLING MEETINGS.
The Trustee may at any time call a meeting of Noteholders to take any
action specified in Section 14.01, to be held at such time and at such place in
the United States of America as the Trustee shall determine. Notice of every
meeting of the Noteholders or of the Holders of any Class, setting forth the
time and the place of such meeting and in general terms the action proposed to
be taken at such meeting shall be mailed not less than 20 nor more than 60 days
prior to the date fixed for the meeting to such Noteholders as provided in
Section 1.06. The Trustee may fix, in advance, a date as the record date for
determining the Noteholders entitled to notice of or to vote at any such meeting
not less than 35 nor more than 75 days prior to the date fixed for such meeting.
89
<PAGE>
Section 14.03. CALL OF MEETING BY ISSUER OR NOTEHOLDERS.
In case at any time the Issuer, pursuant to a Board Resolution, or the
Holders of at least ten percent in aggregate principal amount of the Notes then
outstanding, shall have requested the Trustee to call a meeting of Noteholders
to take any action authorized in Section 14.01 by written request setting forth
in reasonable detail the action proposed to be taken at the meeting, and the
Trustee shall not have mailed notice of such meeting within 20 days after
receipt of such request, then the Issuer or the Holders of Notes in the amount
above specified may determine the time and the place for such meeting, the
record date for determining the Noteholders entitled to notice of or to vote at
such meeting, and may call such meeting to take any action authorized in Section
14.01, by mailing notice thereof as provided in Section 14.02.
Section 14.04. WHO MAY ATTEND AND VOTE AT MEETINGS.
To be entitled to vote at any meeting of Noteholders a Person shall (a) be
a Holder of one or more Notes of the Class with respect to which such meeting
was called or (b) be a Person appointed by an instrument in writing as proxy by
a Holder of one or more such Notes. The only persons who shall be entitled to be
present or to speak at any meeting of Noteholders shall be the persons entitled
to vote at such meeting and their counsel, any representatives of the Trustee
and its counsel and any representatives of the Issuer and its counsel.
Section 14.05. REGULATIONS MAY BE MADE BY TRUSTEE.
Notwithstanding any other provisions of this Indenture, the Trustee may
make such reasonable regulations as it may deem advisable for any meeting of
Noteholders, in regard to proof of the holding of Notes and of the appointment
of proxies, and in regard to the appointment and duties of inspectors of votes,
the submission and examination of proxies, certificates and other evidence of
the right to vote, and such other matters concerning the conduct of the meeting
as it shall think fit. Except as otherwise permitted or required by any such
regulations, the holding of Notes shall be proved in the manner specified in
Section 1.04 and the appointment of any proxy shall be proved in the manner
specified in said Section 1.04; provided, however, that such regulations may
provide that written instruments appointing proxies regular on their face may be
presumed valid and genuine without the proof hereinabove or in said Section 1.04
specified.
90
<PAGE>
The Trustee shall, by an instrument in writing, appoint a temporary
chairman of the meeting, unless the meeting shall have been called by the Issuer
or by Noteholders as provided in Section 14.03, in which case the Issuer or the
Noteholders calling the meeting, as the case may be, shall in like manner
appoint a temporary chairman. A permanent chairman and a permanent secretary of
the meeting shall be elected by vote of the Holders of a majority in principal
amount of the Notes represented by the meeting and entitled to vote.
At any meeting each Holder or proxy shall be entitled to one vote for each
$1,000 of Outstanding principal amount of Notes held or represented by him;
provided, however, that no vote shall be cast or counted at any meeting in
respect of any Note challenged as not Outstanding and ruled by the chairman of
the meeting to be not Outstanding. The chairman of the meeting shall have no
right to vote other than by virtue of Notes held by him or instruments in
writing as aforesaid duly designating him as the person to vote on behalf of
other Noteholders. Any meeting of Noteholders duly called pursuant to the
provisions of Section 14.02 or 14.03 may be adjourned from time to time, and the
meeting may be held as so adjourned without further notice.
At any meeting of Noteholders, the presence of persons holding or
representing Notes in an aggregate principal amount sufficient to take action on
the business for the transaction of which such meeting was called shall
constitute a quorum, but, if less than a quorum is present, the persons holding
or representing a majority in aggregate principal amount of the Notes
represented at the meeting may adjourn such meeting with the same effect, for
all intents and purposes, as though a quorum had been present, and the meeting
may be held as so adjourned without further notice.
Section 14.06. MANNER OF VOTING AT MEETINGS AND RECORD TO BE KEPT.
The vote upon any matter submitted to any meeting of Noteholders shall be
by written ballots on which shall be subscribed the signatures of the Holders of
Notes or of their representatives by proxy and the serial number or numbers of
the Notes held or represented by them. The permanent chairman of the meeting
shall appoint two inspectors of votes who shall count all votes cast at the
meeting for or against any resolution and who shall make and file with the
secretary of the meeting their verified written reports in duplicate of all
votes cast at the meeting. A record in duplicate of the proceedings of each
meeting of Noteholders shall be prepared by the secretary of the meeting and
91
<PAGE>
there shall be attached to said record the original reports of the inspectors of
votes on any vote by ballot taken thereat and affidavits by one or more persons
having knowledge of the facts setting forth a copy of the notice of the meeting
and showing that said notice was mailed as provided in Section 14.02. The record
shall show the serial numbers of the Notes voting in favor of and against any
resolution. The record shall be signed and verified by the affidavits of the
permanent chairman and secretary of the meeting and one of the duplicates shall
be delivered to the Issuer and the other to the Trustee to be preserved by the
Trustee.
Any record so signed and verified shall be conclusive evidence of the
matters therein stated.
Section 14.07. EXERCISE OF RIGHTS OF TRUSTEE AND NOTEHOLDERS NOT TO BE HINDERED
OR DELAYED.
Nothing in this Article Fourteen contained shall be deemed or construed to
authorize or permit, by reason of any call of a meeting of Noteholders or any
rights expressly or impliedly conferred hereunder to make such call, any
hindrance or delay in the exercise of any right or rights conferred upon or
reserved to the Trustee or to the Noteholders under any of the provisions of
this Indenture or of the Notes.
92
<PAGE>
In Witness Whereof, the parties hereto have executed this Indenture as of
the date first written above.
MOUNTAIN STATES CAPITAL, INC.
By: ____________________________________
Name: __________________________________
Title: _________________________________
U.S. BANK TRUST NATIONAL ASSOCIATION
By: ____________________________________
Name: __________________________________
Title: _________________________________
ACKNOWLEDGMENT OF ______________________
State of )
)ss.
County of )
On this ____ day of _______________, 2000, before me, a Notary Public in
and for said County, appeared ____________________ ____________________ and
____________________ of_____________, Trustee, to me personally known, who being
by me duly sworn, did say that they are the ____________________ and
____________________ respectively, of ____________, __________, ___________, and
that said instrument was signed and sealed on behalf of the said Association by
authority of its Board of Directors, and that the said ____________________ and
____________________ acknowledged said instrument to be the free act and deed of
said Association.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
----------------------------------------
Notary Public, __________________ County
My Commission __________________________
[NOTARIAL SEAL]
93
[LETTERHEAD OF QUARLES & BRADY LLP]
May 12, 2000
Mountain States Capital, Inc.
1401 East Thomas Road
Phoenix, Arizona 85014
Re: Form SB-2 Registration Statement
Dear Sirs:
We refer to the Registration Statement on Form SB-2 of Mountain States
Capital, Inc., an Arizona corporation (the "Company") to be filed on the date
hereof with the Securities and Exchange Commission under the Securities Act of
1933, as amended (the "Registration Statement"), relating to the recission
offering for approximately $2.6 million in outstanding promissory notes (the
"Outstanding Notes") and the sale of up to $10 million in new promissory notes
of the Company (the "New Notes" and, collectively with the Outstanding Notes,
the "Notes"), pursuant to the Broker/ Dealer Agreement, as amended, to be filed
as Exhibit 1.1 to the Registration Statement (the "Broker/ Dealer Agreement").
We have reviewed the General Corporation Law of the State of Arizona and
examined originals, or copies certified or otherwise identified to our
satisfaction, of such documents, and such corporate and other records and
proceedings of the Company, and made such other investigation and inquiries of
public officials and the officers of the Company, as we deemed necessary for the
opinions hereinafter expressed. On the basis of the foregoing, we are of the
opinion that:
1. The Company is a corporation validly existing and in good standing under
the laws of the State of Arizona.
2. The Outstanding Notes are legally issued, fully paid and non-assessable.
The New Notes covered by the Registration Statement, when issued and delivered
by the Company against payment therefor as provided in the Registration
Statement and the Broker/ Dealer Agreement, will be legally issued, fully paid
and non-assessable.
<PAGE>
3. The Outstanding Notes are, and the New Notes covered by the Registration
Statement will be, when issued and delivered by the Company against payment
therefor as provided in the Registration Statement and the Broker/ Dealer
Agreement, binding obligations of the Company.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm appearing under the
caption "Legal Matters" in the Prospectus constituting part of the Registration
Statement; provided however, that by so consenting, we do not admit that we are
within the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission.
Sincerely,
/s/ QUARLES & BRADY LLP
[LETTERHEAD QUARLES & BRADY LLP]
May 12, 2000
Mountain States Capital, Inc.
1407 East Thomas Road
Phoenix, Arizona 85014
RE: FEDERAL INCOME TAX ISSUES CONCERNING RECISSION OFFER TO PURCHASE
OUTSTANDING NOTES AND OFFERING OF NEW NOTES
Ladies and Gentlemen:
You have requested our opinion with respect to certain federal income tax
issues in connection with: (i) the offer, in the aggregate amount of $2,600,000
representing principal and interest, to holders of promissory notes (the
"Outstanding Notes") the opportunity to rescind or void their purchase of the
Outstanding Notes, and (ii) the offer, in the aggregate principal amount of
$10,000,000, to sell new promissory notes (the "New Notes"). All capitalized
terms used but not otherwise defined in this letter will have the same meaning
as in the Prospectus included in the Company's Registration Statement on Form
SB-2 (the "Prospectus").
For purposes of rendering our opinions, we have examined and relied upon
(i) the Prospectus, (ii) the Internal Revenue Code of 1986, as amended through
the date hereof (the "Code"), the Treasury Regulations issued thereunder,
Revenue Rulings and Revenue Procedures issued by the Internal Revenue Service
(the "Service") and applicable case law, and (iii) such other documents as we
have considered necessary in order for us to render the opinions contained
herein. For purposes of this examination, we have assumed the authenticity of
original documents, the conformity to original documents of all documents
submitted to us as copies, the genuineness of all signatures, and the capacity
of each party executing a document to so execute such document.
In rendering our opinions, we have also made the following assumptions with
respect to the Outstanding Notes and the New Notes: (i) the Outstanding Notes
were issued for and the New Notes will be issued for an amount equal to their
stated redemption price at maturity, (ii) the Outstanding Notes and the New
Notes both call for the payment of interest at a fixed rate, and at fixed
<PAGE>
Mountain States Capital, Inc.
May 12, 2000
Page 2
periodic intervals of one year or less, and (iii) the Outstanding Notes and New
Notes have fixed maturity dates of one year or less.
Based on our interpretation of the currently applicable sections of the
Code, the Treasury Regulations issued thereunder, Revenue Rulings and Revenue
Procedures issued by the Service and applicable case law, and assumptions
described above, and subject to the qualifications and discussion in the
"Certain Federal Income Tax Consequences" section of the Prospectus, in our
opinion, it is more likely than not that:
(A) The interest to be paid to a holder of the Outstanding Notes or the
New Notes will be taxable to the holder as interest income at the time the
interest accrues or is received by the holder in accordance with the holder's
method of accounting for federal income tax purposes.
(B) Neither the Outstanding Notes nor the New Notes should have
original issue discount or market discount. Neither the Outstanding Notes nor
the New Notes should have bond premium in the hands of the initial holders. We
express no opinion as to whether the Outstanding Notes or the New Notes will
have bond premium in the hands of subsequent purchasers.
(C) If the holder of an Outstanding Note accepts the recission offer,
receipt of a cash payment in consideration for the Outstanding Note, whether or
not applied to the purchase of a New Note, will be treated as a sale or exchange
and therefore, will be a taxable event.
(D) The holder of an Outstanding Note or a New Note will recognize
taxable gain or loss equal to the difference between the amount realized
(excluding any amounts attributable to unpaid accrued interest which will be
includible in income as interest in accordance with the holder's method of
accounting) on the sale, exchange or redemption of the note and such holder's
adjusted tax basis in the note subject to the sale, exchange or redemption.
(E) A holder's adjusted tax basis in an Outstanding Note or New Note
will generally equal the cost of such note to the holder, reduced by any
principal payments received by the holder and any amortizable bond premium.
(F) Assuming that the Outstanding Notes or the New Notes are held as
capital assets within the meaning of Section 1221 of the Code, gain or loss on
the sale, exchange or redemption of an Outstanding Note or a New Note will be
capital gain or loss.
<PAGE>
Mountain States Capital, Inc.
May 12, 2000
Page 3
(G) In our opinion, the statements made in the Prospectus under
"Certain Federal Income Tax Consequences" are correct as to matters of law as of
the date of this letter.
Our opinions are based on our current understanding of the applicable
federal law. There can, of course, be no assurance that a court or the Service,
when faced with the same facts, will reach the same conclusions as we have or
that the law will not be changed after the date of this letter. The information
and opinions given in this letter are effective as of the date of this letter.
This opinion is rendered as of the date hereof and we disclaim any
obligations to advise you of any events hereafter arising which may adversely
affect such opinion.
Except as specifically provided herein, we do not express any opinion
in this letter with respect to any issues pertaining to state, local or foreign
tax law that might affect the taxation of Mountain States or the holders of the
Outstanding Notes or the New Notes.
Very truly yours,
/s/ Quarles & Brady LLP
QUARLES & BRADY LLP
PROMISSORY NOTE AND SECURITY AGREEMENT
DATE: ___________ $______________
DEBTOR:
CREDITOR/SECURED PARTY:
Mountain States Capital, Inc.
2601 East Thomas Road, Suite 117 --------------------------------
Phoenix, Arizona 85016
--------------------------------
PROMISE TO PAY
--------------------------------
Mountain States Capital, Inc. ("Debtor") hereby promises to pay upon demand
to the order of the CREDITOR/SECURED PARTY listed above ("Creditor") at the
above address, the sum indicated above, with interest at the rate of
____________ percent per month until paid. This Promissory Note and Security
Agreement ("Agreement") is made in Phoenix, Arizona and shall be for a period of
_______________ months at which time all interest and principal then remaining
shall be due and payable. The Agreement may be called by the Creditor with 90
days written notice. Monthly interest payments will be made on the last day of
the month. All amounts due for partial months will be prorated based upon the
number of days in that month. Debtor shall have the option of prepaying the
principal under this Agreement in whole or part, without penalty it any time.
All payments hereunder shall be applied first to interest, then to principal,
then to late charges. Debtor shall pay, upon demand, any and all expenses,
including reasonable attorney fees, incurred or paid by Creditor without suit or
action in attempting to collect funds due under this Agreement. In the event an
action is instituted to enforce or interpret any of the terms of this Agreement
including but not limited to any action or participation by Debtor, the
prevailing party shall be entitled to recover all expenses reasonably incurred
at, before and after trial, on appeal, and on review whether or not taxable as
costs, including, without limitation, attorney fees, witness fees (expert and
otherwise), deposition costs, copying charges and other expenses.
SECURITY AGREEMENT
Debtor, does hereby grant unto the Secured Party, its successors and
assigns, a security interest in the assets of the corporation, Mountain States
Capital, Inc., together with all increases, intangible assets, equipment,
renewals and replacements of all or any part thereof, and other assets whether
now owned or hereafter acquired by Debtor (all hereinafter called "Collateral"),
and all proceeds of the Collateral, to secure prompt payment when due of this
Promissory Note and Security Agreement, executed and delivered by Debtor to
Secured Party, and any and all extensions and renewals thereof, and any and all
future advances made by Secured Party to Debtor at Secured Party's option,
together with all other liabilities to Secured Party (primarily, secondarily,
direct, contingent, sole, joint, or several) due or to become due or which may
be hereafter contracted or acquired and the performance by Debtor of all of the
terms and conditions of this Agreement.
DEBTOR WARRANTS: 1. Debtor is or will be the owner of the Collateral subject to
similar secured agreements; 2. Debtor has the right to make this agreement; 3.
the Collateral is used or bought for use and will be used primarily for business
purposes and that the location specified above is Debtor's only place of
business.
THIS AGREEMENT IS SUBJECT TO THE ADDITIONAL TERMS ON THE BACK OF THIS PAGE,
WHICH ARE MADE A PART HEREOF.
- ----------------------------------- ----------------------------------------
SECURED PARTY Date MOUNTAIN STATES CAPITAL, INC. Date
- -----------------------------------
SECURED PARTY Date
<PAGE>
DEBTORS FURTHER COVENANTS, WARRANTS AND AGREES THAT:
1. Debtor will pay the Secured Party all amounts payable on the note or
notes mentioned above and all other notes held by Secured Party as and when the
same shall be due and payable, whether at maturity, by acceleration or
otherwise, and will perform all terms of said notes and this or any other
security or loan agreement between Debtor and Secured Party, and will discharge
all said liabilities.
2. Debtor will defend the Collateral against all persons claiming an
interest adverse to that of the Secured Party and pay promptly when due all
taxes and assessments upon the Collateral.
3. Debtor will keep the Collateral in good condition and repair, reasonable
wear and tear excepted, and will permit Secured Party to enter upon any lands
owned, leased or otherwise controlled by the Debtor at reasonable times for the
purpose of examining the Collateral.
4. Debtor will pay as part of the debt hereby secured all amounts,
including reasonable attorney's fees and legal expenses, with interest thereon,
paid by Secured Party (a) for taxes, levies, insurance, repairs to, or
maintenance of the Collateral, and (b) in taking possession of disposing of or
preserving the Collateral, and (b) in taking possession of, disposing of or
preserving the Collateral after any default hereinafter described.
5. Debtor will immediately notify Secured Party of any change in Debtor's
residence or place of business.
6. Debtor will without the prior written consent of Secured Party provide
for additional notes and security agreements at the sole discretion of Debtor.
The Secured Party may be over or under secured.
7. Debtor hereby authorizes Secured Party at Debtor's expense, to do all
acts and things which Secured Party may deem necessary to perfect and continue
perfected the security interest created by this security agreement and to
protect the Collateral.
S. Any notice form Secured Party to Debtor, if mailed, shall be deemed
given when mailed, certified mail, postage prepaid, addressed to Debtor either
at Debtor's address specified above, or such other address of Debtor as may from
time to time be shown on Secured Party's records.
9. UNTIL DEFAULT, Debtor may retain possession of the Collateral and use
it in any lawful manner not inconsistent with the agreements herein, or with the
terms and conditions of any policy of insurance thereon.
10. DEFAULT-Debtor shall be in default under this agreement upon the
happening of any of the following events: (a) nonpayment, when due, of any
amount payable on any of the liabilities or failure to observe or perform any
term hereof; (b) if any covenant, warranty or representation shall prove to be
untrue in any material respect; (c) any Debtor becomes insolvent or unable to
pay debts as they mature or makes an assignment for the benefit of creditors, or
any proceeding is instituted by or against any Debtor alleging that such
Debtor is insolvent or unable to pay debts as they mature; (d) entry of any
judgement against any Debtor; (e) death of any Debtor who is a natural person,
or of any partner of any Debtor which is a partnership; (f) dissolution, merger
or consolidation, or transfer of substantial part to the property of any Debtor
which is a corporation or a partnership; or (g) loss, theft, substantial damage,
destruction or encumbrance of any of the Collateral.
In the event of a default, Secured Party shall have the right, at its
option and without demand or notice, to declare all or any part of the
obligations immediately due and payable; and in addition, Secured Party may
exercise, in addition to the rights and remedies granted hereby, all of the
rights and remedies of a Secured Party under the Uniform Commercial Code or any
other applicable law. Debtor agrees in the event of a default, to make the
Collateral available to Secured Party at a place to be designated by Secured
Party which is reasonably convenient. Debtor further agrees to pay all cost and
expenses of Secured Party, including reasonable attorneys' fees, in the
collection of any of the Obligations or the enforcement of any of Secured
Party's rights. If any notice of sale, disposition or other intended action by
Secured Party is required by law to be given to Debtor, such notice shall be
deemed reasonably and properly given if mailed to Debtor at the address
specified above, or such other address of Debtor as may be shown on Secured
Party's records, at least (10) days before such sale, disposition or other
intended action. Waiver of any default hereunder by Secured Party shall not be
waiver of any other default or of a same default on a later occasion. No delay
or failure by Secured Party to exercise any right or remedy shall be a waiver of
such right or remedy and no single, or partial exercise by Secured Party of any
right or remedy shall preclude other or further exercise thereof or the exercise
of any other right or remedy at any other time.
11. This agreement and all rights and obligations hereunder, including
matters of construction, validity and performance, shall be governed by the laws
of Arizona. If any part of this contract shall be adjudged invalid, the
remainder shall not thereby be invalidated.
12. If more than one party shall sign this Security Agreement, the term
"Debtor" shall mean all such parties and each of them and all such parties shall
be jointly and severally obligated hereunder. All rights of Secured Party shall
inure to the benefit of its successors and assigns, and all obligations of
Debtor shall bind Debtor's heirs, executors, administrators, successors and
assigns.
13. Additional provisions of this agreement (if none insert
"NONE"):__________________________
[FORM OF FACE OF MONTHLY PAYMENT NOTE]
$__________ No.__________
MOUNTAIN STATES CAPITAL, INC.
18% 12 MONTH PROMISSORY NOTE, SERIES MP-____
STATED FIRST INTEREST
MATURITY: PAYMENT DATE:
- ------------ --------------
Mountain States Capital, Inc., a corporation duly organized and existing
under the laws of the State of Arizona (herein referred to as the "Issuer"), for
value received, hereby promises to pay to __________ ____________ or registered
assigns, the principal sum of ____________ ____________ Dollars on or prior to
the date set forth above (the "Stated Maturity") and to pay interest on the
unpaid portion of said principal sum from the date hereof through the day
immediately preceding the date on which such principal sum becomes due and
payable, on the first day of each month beginning on the date set forth above
with the amount of interest to be paid on any Payment Date equal to the amount
of interest accrued through the last day of the immediately preceding calendar
month, and to pay interest on any overdue principal and on overdue interest, at
the rate per annum specified in the title of this Note.
The first payment of accrued interest will be made on the first interest
payment date set forth above or upon the earlier redemption of this Note. Except
as herein otherwise provided with respect to interest payable on the date the
principal of this Note becomes due and payable (whether at Stated Maturity, by
redemption or otherwise), the amount of interest payable on each Payment Date
shall be the interest accrued on this Note through the end of the calendar month
immediately preceding each Payment Date. The interest so payable on any Payment
Date, and any redemption of Notes that may be made on any Redemption Date, will,
as provided in the Indenture referred to on the reverse hereof, be paid to the
Person in whose name this Note (or one or more Predecessor Notes) is registered
on the Regular Record Date for such Payment Date or Redemption Date, which shall
be the close of business on the last day of the calendar month preceding that in
which such Payment Date or Redemption Date occurs (whether or not a Business
Day). Any redemption not made on the Redemption Date or interest not so
punctually paid or duly provided for shall forthwith cease to be payable to the
registered Holder on the Regular Record Date, and may be paid to the Person in
whose name this Note (or one or more Predecessor Notes) is registered on a
Special Record Date for the payment of such defaulted redemption proceeds and
interest to be fixed by the Trustee, notice whereof shall be given to Note
holders not less than 10 days prior to such Special Record Date, or may be paid,
at any time in any other lawful manner not inconsistent with the requirements of
any securities exchange on which the Notes may be listed, and upon such notice
as may be required by such exchange, all as more fully provided in said
Indenture.
The principal of and interest on this Note are payable in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts, at the office or agency of the
Issuer designated for such purpose in the United States of America; provided
<PAGE>
that interest may be paid, at the option of the Issuer, by check mailed to the
Person entitled thereto at his address as it appears on the Note Register.
Reference is made to the further provisions of this Note set forth on the
reverse hereof, which shall have the same effect as though fully set forth at
this place.
Unless the certificate of authentication hereon has been executed by the
Trustee by manual signature, this Note shall not be entitled to any benefit
under the Indenture, or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, Mountain States Capital, Inc., has caused this
instrument to be signed, manually or in facsimile, by its President or a Vice
President and by its Secretary or an Assistant Secretary and a facsimile of its
corporate seal to be imprinted hereon.
Dated: MOUNTAIN STATES CAPITAL, INC.
By
--------------------------------------
Attest:
- ------------------------------
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This is one of the Series of Notes referred to in the within-mentioned
Indenture.
U.S. BANK NATIONAL ASSOCIATION,
Trustee
By
--------------------------------------
Authorized Officer
<PAGE>
[FORM OF REVERSE OF NOTE]
This Note is one of a duly authorized issue of Notes of the Issuer,
designated as its 18% 12 Month Promissory Notes (herein called the "Notes"),
issued and to be issued in one or more Series, and is part of the Series of
Notes designated on the face hereof (herein called the "Notes of this Series"),
all issued and to be issued under an Indenture dated as of __________, 2000 (as
amended, herein called the "Indenture"), between the Issuer and U.S. Bank
National Association (the "Trustee"), which term includes any successor Trustee
under the Indenture, to which Indenture and all indentures supplemental thereto
(including the indenture supplemental thereto which authorized the Notes of this
Series) reference is hereby made for a statement of the respective rights
thereunder of the Issuer, the Trustee and the Holders of the Notes, and the
terms upon which the Notes are, and are to be, authenticated and delivered. All
terms used in this Note which are defined in the Indenture shall have the
meanings assigned to them in the Indenture.
As provided in the Indenture, the Notes are issuable in Series which may
vary as in the Indenture provided or permitted. All Notes of each Series are
equally and ratably secured to the extent provided by the supplemental indenture
authorizing such Series. This Note is one of the Series specified in its title.
Notwithstanding anything to the contrary in this Note, no recourse on this
Note or under the Indenture shall be taken against any property of the Issuer
included in the Trust Estate (if any) for other series of notes under the
Indenture securing the Notes, it being understood that this Note and the
Issuer's duties under the Indenture are obligations which are to be satisfied
solely from the Trust Estate (if any) for the Series MP-____ Notes and from
other assets of the Issuer that are not pledged to secure other series of notes.
The Notes are subject to mandatory redemption under the circumstances
described in the following paragraphs 1 and 2:
1. So long as no Event of Default has occurred and is continuing under the
Indenture, the Issuer will redeem Notes of this Series presented for redemption
at a redemption price equal to 100% of the unpaid principal amount thereof
(hereinafter referred to as the "Redemption Price") plus interest accrued
thereon and unpaid, if any, to but not including the date fixed for redemption
(the "Redemption Date"). Such redemption will be made on dates determined as
follows:
On each Payment Date commencing ______________, 20___, Notes shall be
redeemed in Whole Note (i.e., $1,000) increments upon ninety (90) days' advance
written request of the holder thereof.
Notes sought to be redeemed pursuant to the preceding paragraph may be
presented for redemption by delivery to the Trustee of: (a) the Notes to be
redeemed, and (b) a written request for redemption in form satisfactory to the
Trustee and signed by the Holder or duly authorized representative (with
appropriate evidence of authority). Only Notes presented for redemption at least
ninety days' prior to the Redemption Date will be eligible for redemption on
that Redemption Date. All such Notes presented for redemption will be held by
the Trustee until the Issuer is able to redeem them, unless withdrawn by written
request actually received by the Trustee by the last day of the month preceding
that in which they would otherwise have been redeemed. Notes shall be redeemed
<PAGE>
in the order of receipt by the Trustee. The Trustee may establish such
procedures as it may deem fair and equitable in order to determine the order of
receipt of such Notes.
2. So long as no Event of Default has occurred and is continuing under the
Indenture, the Issuer, at its option, may redeem any or all of the Outstanding
Notes of this Series on any Redemption Date at the Redemption Price of the
principal amount thereof (plus interest accrued and unpaid on such Notes to but
not including the Redemption Date).
If an Event of Default as defined in the Indenture shall occur and be
continuing, the principal of all the Notes, or of all the Notes of any Series,
may become or be declared due and payable in the manner and with the effect
provided in the Indenture.
As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Note may be registered on the Bond Register of the
Issuer, upon surrender of this Note for registration of transfer at the office
or agency of the Issuer in the United States of America, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Issuer and the Trustee duly executed by, the Holder hereof or his attorney duly
authorized in writing, and thereupon one or more new Notes of the same Series
and maturity, of authorized denominations and for the same aggregate principal
amount, will be issued to the designated transferee or transferees.
Prior to the due presentment for registration of transfer of this Note, the
Issuer, the Trustee and any agent of the Issuer or the Trustee may treat the
Person in whose name this Note is registered as the owner hereof for the purpose
of receiving payment as herein provided and for all other purposes, whether or
not this Note be overdue, and neither the Issuer, the Trustee nor any such agent
shall be affected by notice to the contrary.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Issuer and the rights of the Holders of the Notes under the Indenture at any
time by the Issuer with the consent of the Holders of a majority in aggregate
principal amount of Notes at the time Outstanding (as defined in the Indenture),
in case Outstanding Notes of all Series are to be affected, or with the consent
of the Holders of a majority in aggregate principal amount of the Notes at the
time Outstanding of each Series to be affected, in case one or more, but less
than all, of the Series of Notes then Outstanding are to be affected. The
Indenture also contains provisions permitting the Holders of specified
percentages in aggregate principal amount of the Notes at the time Outstanding,
and of Notes at the time Outstanding of each Series to be affected in case one
or more, but less than all, such Series are to be affected, on behalf of the
Holders of all the Notes, to waive compliance by the Issuer with certain
provisions of the Indenture and certain past defaults under the Indenture and
their consequences. Any such consent or waiver by the Holder of this Note shall
be conclusive and binding upon such Holder and upon all future Holders of this
Note and of any Note issued upon the registration of transfer hereof or in
exchange herefor or in lieu hereof whether or not notation of such consent or
waiver is made upon this Note.
The term "Issuer" as used in this Note includes any successor under the
Indenture.
The Notes are issuable only in registered form without coupons in original
denominations of $1,000 and any integral multiple thereof ("Whole Bonds"), as
provided in the Indenture and subject to certain limitations therein set forth.
The Notes are exchangeable for a like aggregate principal amount of Notes of the
same Series and maturity of a different authorized denomination, as requested by
the Holder surrendering same.
<PAGE>
No reference herein to the Indenture and no provision of this Note or of
the Indenture shall alter or impair the obligation of the Issuer, which is
absolute and unconditional, to pay the principal of and interest on this Note at
the times, place and rate, and in the coin or currency, herein prescribed.
<PAGE>
REQUEST FOR REDEMPTION
The undersigned Holder, or legal representative of the Holder, hereby
presents the within Note of Mountain States Capital, Inc., for redemption on the
next Redemption Date upon which such Note would be eligible for redemption in
accordance with, and subject to, the terms and conditions of the within Note and
the Indenture.
Dated
--------------------------- ----------------------------------------
[FORM OF FACE OF ACCRUAL PAYMENT NOTE]
$__________ No.__________
MOUNTAIN STATES CAPITAL, INC.
18% 12 MONTH PROMISSORY NOTE, SERIES DP-____
STATED
MATURITY:
- ------------
Mountain States Capital, Inc., a corporation duly organized and existing
under the laws of the State of Arizona (herein referred to as the "Issuer"), for
value received, hereby promises to pay to __________ ____________ or registered
assigns, the principal sum of ____________ ____________ Dollars on or prior to
the date set forth above (the "Stated Maturity") and to pay interest on the
unpaid portion of said principal sum on the Stated Maturity from the date hereof
through the day immediately preceding the date on which such principal sum
becomes due and payable, COMPOUNDED on the first day of each month beginning on
the date set forth above. The Issuer shall also pay interest on any overdue
principal and on overdue interest, at the rate per annum specified in the title
of this Note.
The principal and interest so payable on the Maturity Date, and any
redemption of Notes that may be made on any Redemption Date, will, as provided
in the Indenture referred to on the reverse hereof, be paid to the Person in
whose name this Note (or one or more Predecessor Notes) is registered on the
Regular Record Date for such Payment Date or Redemption Date, which shall be the
close of business on the last day of the calendar month preceding that in which
such Payment Date or Redemption Date occurs (whether or not a Business Day). Any
redemption not made on the Redemption Date or interest not so punctually paid or
duly provided for shall forthwith cease to be payable to the registered Holder
on the Regular Record Date, and may be paid to the Person in whose name this
Note (or one or more Predecessor Notes) is registered on a Special Record Date
for the payment of such defaulted redemption proceeds and interest to be fixed
by the Trustee, notice whereof shall be given to Note holders not less than 10
days prior to such Special Record Date, or may be paid, at any time in any other
lawful manner not inconsistent with the requirements of any securities exchange
on which the Notes may be listed, and upon such notice as may be required by
such exchange, all as more fully provided in said Indenture.
The principal of and interest on this Note are payable in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts, at the office or agency of the
Issuer designated for such purpose in the United States of America; provided
that interest may be paid, at the option of the Issuer, by check mailed to the
Person entitled thereto at his address as it appears on the Note Register.
Reference is made to the further provisions of this Note set forth on the
reverse hereof, which shall have the same effect as though fully set forth at
this place.
<PAGE>
Unless the certificate of authentication hereon has been executed by the
Trustee by manual signature, this Note shall not be entitled to any benefit
under the Indenture, or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, Mountain States Capital, Inc., has caused this
instrument to be signed, manually or in facsimile, by its President or a Vice
President and by its Secretary or an Assistant Secretary and a facsimile of its
corporate seal to be imprinted hereon.
Dated: MOUNTAIN STATES CAPITAL, INC.
By
Attest: --------------------------------------
- ------------------------------
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This is one of the Series of Notes referred to in the within-mentioned
Indenture.
U.S. BANK NATIONAL ASSOCIATION,
Trustee
By
--------------------------------------
Authorized Officer
<PAGE>
[FORM OF REVERSE OF NOTE]
This Note is one of a duly authorized issue of Notes of the Issuer,
designated as its 18% 12 Month Promissory Notes (herein called the "Notes"),
issued and to be issued in one or more Series, and is part of the Series of
Notes designated on the face hereof (herein called the "Notes of this Series"),
all issued and to be issued under an Indenture dated as of __________, 2000 (as
amended, herein called the "Indenture"), between the Issuer and U.S. Bank
National Association (the "Trustee"), which term includes any successor Trustee
under the Indenture, to which Indenture and all indentures supplemental thereto
(including the indenture supplemental thereto which authorized the Notes of this
Series) reference is hereby made for a statement of the respective rights
thereunder of the Issuer, the Trustee and the Holders of the Notes, and the
terms upon which the Notes are, and are to be, authenticated and delivered. All
terms used in this Note which are defined in the Indenture shall have the
meanings assigned to them in the Indenture.
As provided in the Indenture, the Notes are issuable in Series which may
vary as in the Indenture provided or permitted. All Notes of each Series are
equally and ratably secured to the extent provided by the supplemental indenture
authorizing such Series. This Note is one of the Series specified in its title.
Notwithstanding anything to the contrary in this Note, no recourse on this
Note or under the Indenture shall be taken against any property of the Issuer
included in the Trust Estate (if any) for other series of notes under the
Indenture securing the Notes, it being understood that this Note and the
Issuer's duties under the Indenture are obligations which are to be satisfied
solely from the Trust Estate (if any) for the Series DP-____ Notes and from
other assets of the Issuer that are not pledged to secure other series of notes.
The Notes are subject to mandatory redemption under the circumstances
described in the following paragraphs 1 and 2:
1. So long as no Event of Default has occurred and is continuing under the
Indenture, the Issuer will redeem Notes of this Series presented for redemption
at a redemption price equal to 100% of the unpaid principal amount thereof
(hereinafter referred to as the "Redemption Price") plus interest accrued
thereon and unpaid, if any, to but not including the date fixed for redemption
(the "Redemption Date"). Such redemption will be made on dates determined as
follows:
On the first day of each month commencing ____________, 20___, Notes shall
be redeemed in Whole Note (i.e., $1,000, plus interest that has been deferred
and compounded) increments upon ninety (90) days' advance written request of the
holder thereof.
Notes sought to be redeemed pursuant to the preceding paragraph may be
presented for redemption by delivery to the Trustee of: (a) the Notes to be
redeemed, and (b) a written request for redemption in form satisfactory to the
Trustee and signed by the Holder or duly authorized representative (with
appropriate evidence of authority). Only Notes presented for redemption at least
ninety days' prior to the Redemption Date will be eligible for redemption on
that Redemption Date. All such Notes presented for redemption will be held by
the Trustee until the Issuer is able to redeem them, unless withdrawn by written
request actually received by the Trustee by the last day of the month preceding
that in which they would otherwise have been redeemed. Notes shall be redeemed
<PAGE>
in the order of receipt by the Trustee. The Trustee may establish such
procedures as it may deem fair and equitable in order to determine the order of
receipt of such Notes.
2. So long as no Event of Default has occurred and is continuing under the
Indenture, the Issuer, at its option, may redeem any or all of the Outstanding
Notes of this Series on any Redemption Date at the Redemption Price of the
principal amount thereof (plus interest accrued and unpaid on such Notes to but
not including the Redemption Date).
If an Event of Default as defined in the Indenture shall occur and be
continuing, the principal of all the Notes, or of all the Notes of any Series,
may become or be declared due and payable in the manner and with the effect
provided in the Indenture.
As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Note may be registered on the Bond Register of the
Issuer, upon surrender of this Note for registration of transfer at the office
or agency of the Issuer in the United States of America, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Issuer and the Trustee duly executed by, the Holder hereof or his attorney duly
authorized in writing, and thereupon one or more new Notes of the same Series
and maturity, of authorized denominations and for the same aggregate principal
amount, will be issued to the designated transferee or transferees.
Prior to the due presentment for registration of transfer of this Note, the
Issuer, the Trustee and any agent of the Issuer or the Trustee may treat the
Person in whose name this Note is registered as the owner hereof for the purpose
of receiving payment as herein provided and for all other purposes, whether or
not this Note be overdue, and neither the Issuer, the Trustee nor any such agent
shall be affected by notice to the contrary.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Issuer and the rights of the Holders of the Notes under the Indenture at any
time by the Issuer with the consent of the Holders of a majority in aggregate
principal amount of Notes at the time Outstanding (as defined in the Indenture),
in case Outstanding Notes of all Series are to be affected, or with the consent
of the Holders of a majority in aggregate principal amount of the Notes at the
time Outstanding of each Series to be affected, in case one or more, but less
than all, of the Series of Notes then Outstanding are to be affected. The
Indenture also contains provisions permitting the Holders of specified
percentages in aggregate principal amount of the Notes at the time Outstanding,
and of Notes at the time Outstanding of each Series to be affected in case one
or more, but less than all, such Series are to be affected, on behalf of the
Holders of all the Notes, to waive compliance by the Issuer with certain
provisions of the Indenture and certain past defaults under the Indenture and
their consequences. Any such consent or waiver by the Holder of this Note shall
be conclusive and binding upon such Holder and upon all future Holders of this
Note and of any Note issued upon the registration of transfer hereof or in
exchange herefor or in lieu hereof whether or not notation of such consent or
waiver is made upon this Note.
The term "Issuer" as used in this Note includes any successor under the
Indenture.
The Notes are issuable only in registered form without coupons in original
denominations of $1,000 and any integral multiple thereof ("Whole Bonds"), as
provided in the Indenture and subject to certain limitations therein set forth.
The Notes are exchangeable for a like aggregate principal amount of Notes of the
same Series and maturity of a different authorized denomination, as requested by
the Holder surrendering same.
<PAGE>
No reference herein to the Indenture and no provision of this Note or of
the Indenture shall alter or impair the obligation of the Issuer, which is
absolute and unconditional, to pay the principal of and interest on this Note at
the times, place and rate, and in the coin or currency, herein prescribed.
<PAGE>
REQUEST FOR REDEMPTION
The undersigned Holder, or legal representative of the Holder, hereby
presents the within Note of Mountain States Capital, Inc., for redemption on the
next Redemption Date upon which such Note would be eligible for redemption in
accordance with, and subject to, the terms and conditions of the within Note and
the Indenture.
Dated
------------------------- ----------------------------------------
CONSENT OF INDEPENDENT AUDITORS
As independent auditors, we hereby consent to the inclusion in this Form SB-2,
and any amendments to such forms, our report relating to the financial
statements of Mountain States Capital, Inc., for the years ended December 31,
1999, 1998, and 1997. We also consent to the reference to this firm under the
heading "Experts" in this statement.
/s/ Clancy and Co., P.L.L.C.
----------------------------------------
CLANCY AND CO., P.L.L.C.
Certified Public Accountants
May 10, 2000
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM T-1
Statement of Eligibility and Qualification under the
Trust Indenture Act of 1939, as amended by
Trust Indenture Reform Act of 1990 ("TIRA") of a Corporation
Designated to Act as Trustee
----------
U.S. BANK TRUST NATIONAL ASSOCIATION
(Exact name of trustee as specified in its charter)
81-0816461
(I.R.S. employer Identification No.)
7310 North 16th Street, Suite 275
Phoenix, Arizona 85020
(Address of principal executive offices and zip code)
MOUNTAIN STATES CAPITAL, INC.
(Exact name of obligor as specified in its charter)
ARIZONA 86-0859332
(State or other jurisdiction of (I.R.S. employer
Incorporation or organization) Identification No.)
1407 East Thomas Road
Phoenix, Arizona 85014
(Address of principal executive offices) (Zip code)
MOUNTAIN STATES CAPITAL, INC.
18% 12 MONTH PROMISSORY NOTE
(Title of the indenture securities)
<PAGE>
GENERAL
1. GENERAL INFORMATION Furnish the following information as to the trustee.
(a) Name and address of each examining or supervising authority to which
it is subject.
Comptroller of the Currency
Washington D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Yes
2. AFFILIATIONS WITH OBLIGOR AND UNDERWRITERS If the obligor or any
underwriter for the obligor is an affiliate of the trustee, describe each
such affiliation.
None
See Note following Item 16.
ITEMS 3-15 ARE NOT APPLICABLE BECAUSE TO THE BEST OF THE TRUSTEE'S
KNOWLEDGE THE OBLIGOR IS NOT IN DEFAULT UNDER ANY INDENTURE FOR WHICH THE
TRUSTEE ACTS AS TRUSTEE.
16. LIST OF EXHIBITS List below all exhibits filed as a part of this statement
of eligibility and qualification.
1. Copy of Articles of Association
2. Copy of Certificate of Authority to Commence Business
3. Copy of Trust Permit authorizing the exercise of corporate trust
powers
4. Copy of existing By-Laws
5. Copy of each Indenture referred to in item 4. - N/A
6. The consents of the trustee required by Section 321(b) of the Act
7. Copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or examining
authority
<PAGE>
NOTE
The answers to this statement insofar as such answers relate to what persons
have been underwriters for any securities of the obligor within three years
prior to the date of filing this statement, or what persons are owners of 10% or
more of the voting securities of the obligor, or affiliates, are based upon
information furnished to the trustee by the obligor. While the trustee has no
reason to doubt the accuracy of any such information, it cannot accept any
responsibility therefor.
SIGNATURE
Pursuant to the requirements of the TIRA, the Trustee, U.S. Bank Trust National
Association, an Association organized and existing under the laws of the United
States, has duly caused this statement of eligibility and qualification to be
signed on its behalf by the undersigned, thereunto duly authorized and attested,
all in the City of Phoenix and State of Arizona on the 5th day of May, 2000.
U.S. BANK TRUST
NATIONAL ASSOCIATION
/s/ Robert L. Von Hess
----------------------------------------
Robert L. Von Hess
Assistant Vice President
Attest: /s/ Brad Stevenson
----------------------------
Brad Stevenson
Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 227,958
<SECURITIES> 0
<RECEIVABLES> 2,534,897
<ALLOWANCES> 25,102
<INVENTORY> 0
<CURRENT-ASSETS> 2,822,641
<PP&E> 467,082
<DEPRECIATION> 41,468
<TOTAL-ASSETS> 3,301,014
<CURRENT-LIABILITIES> 2,702,679
<BONDS> 2,685,361
0
409,089
<COMMON> 1,000
<OTHER-SE> 171,963
<TOTAL-LIABILITY-AND-EQUITY> 3,301,014
<SALES> 1,172,968
<TOTAL-REVENUES> 1,172,968
<CGS> 514,863
<TOTAL-COSTS> 514,863
<OTHER-EXPENSES> 609,951
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,160
<INCOME-PRETAX> 50,188
<INCOME-TAX> 0
<INCOME-CONTINUING> 50,188
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 50,188
<EPS-BASIC> 0.05
<EPS-DILUTED> 0.05
</TABLE>
