UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934 [Fee
Required]
For the fiscal year ended May 31, 1998
Commission file number 33-37968A
Imagica Entertainment, Inc.
---------------------------
(Name of small business issuer in its charter)
Florida 59-2762999
------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1518 SW 12th Ave. Ocala, FL 34474
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number (352) 867-7860
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
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Common Stock; $.001 par value.
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during
the past 12 months (or for such shorter period that the registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days. Yes___ No X
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this form 10-KSB. ______
State issuer's revenues for its most recent fiscal year. $2,908,475
State the aggregate market value for the voting stock held by
non-affiliates computed by reference to the price at which the stock was sold,
or the average bid and asked prices of such stock, as of a specified date within
the past 60 days. (See definition of affiliate in Rule 12b-2 of the Exchange
Act). $1.50 - May 31, 1999, 614,951 shares at $1.56 per share = $ 922,426.50
<PAGE>
(ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Check whether the issuer has filed all documents and reports required to be
filed by Section 12,13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes _____ No _____.
In May 1997 the Company filed for Chapter 11 Bankruptcy. That Bankruptcy was
dismissed in February 1998 with no reorganization plan or stock distribution.
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
Outstanding common shares: 4,293,517 as of May 31, 1999
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly describe
them and identify the part of the Form 10-KSB (e.g., Part I, Part II, etc.) into
which the document is incorporated; (1) any annual report to security holders;
(2) any proxy or information statement; and (3) any prospectus filed pursuant to
Rule 424(b) or (c) of the Securities Act of 1933 ("Securities Act"). The listed
documents should be clearly described for identification purposes (e.g., annual
report to security holders for fiscal year ended December 24, 1990).
None
Transitional Small Business Disclosure Format (Check one): Yes ____; No X
<PAGE>
IMAGICA ENTERTAINMENT, INC.
INDEX
PAGE
Part I
Item 1. Business 1
Item 2. Properties 2
Item 3. Legal Proceedings 3
Item 4. Submission of Matters to a vote of Security Holders 3
Part II
Item 5. Market for Registrants Common Equity and related
Stockholder Matters 3
Item 6. Management's Discussion and Analysis 4
Item 7. Financial Statements 8
Item 8. Changes in and disagreements with Accountants on
Accounting and Financial Disclosure 8
Part III
Item 9. Directors and Executive Officers 8
Item 10. Executive Compensation 9
Item 11. Security ownership of certain beneficial owners and
management 9
Item 12. Certain Relationships and related transactions 10
Item 13. Exhibits and Reports on Form 8-K 11
<PAGE>
Part I
Item 1. Business General
Imagica Entertainment, Inc. (formerly Ranger International, Inc.) was
incorporated under the laws of the State of Florida on January 21, 1987. The
Company's name was changed to Imagica Entertainment, Inc. effective June 10,
1996.
Its Corporate offices are at 1518 SW 12th Ave., Ocala, FL 34474, the telephone
number is (352) 867-7860.
The Company's principal products are large format screen printed banners,
digital banners, signs, and aluminum stands for banners and signs. Much of the
Company's production of banners and signs are used as point of purchase
displays. The Company attempts to create a recognizable image of its products to
its customer base and the general public through its internet web site, mass
mailings and catalogs sent to potential buyers. The Company also exhibits at
trade shows for markets with the greatest potential to use its products.
There is considerable competition in the field of screen graphics and digital
printing. The smaller competitors are also often customers for the Company's
products due to the quantity or complexity of the required product. The Company
believes that its products have received a high degree of customer recognition
and acceptance.
The Company markets its products throughout the United States and many foreign
countries. The Company markets through sales representatives and through its
internet website. The principle markets for the Company's products are;
businesses, charitable and non profit groups, sports organizations and political
individuals and groups. Some of the companys principal accounts are; Arbys,
Acura, Jose Cuervo, Sony, Spaten Beer, Pratt Whitney, Kraft, U.S. Postal Svc.,
Siemens, Marlboro, Olive Garden, Coca Cola, Seagram, Huntington Bank, Epson,
Redman Tobacco, Subway, Osmose wood products, Crown Royal, Cellular One, Wal
Mart, Volvo, CVS Pharmacy, Checkers Restaurants, Micro Soft, Washington Apple
Growers, Congoleum flooring, Pepsi, Mars Candy, Quincy Restaurants, Red Lobster
Restaurants.
The company has made no expenditures for research and development and does not
anticipate making any expenditures in this area.
There is no government approval required for any of the company's products. The
company does not anticipate any government regulation that would have an effect
on the company.
The company has been inspected at its current location for environmental
problems as recently as May 1999 by both Federal and State inspectors. No
problems have been found and the company does not believe that any of its
activities will result in any liabilities in the future.
Page 1
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Each sign and banner is produced using one of three primary production
processes. High volume orders are screen printed. Smaller orders, and very large
scale signs and banners, are produced using a process that integrates
computer-aided design (CAD) with computer-driven plotting equipment. This
process received patent protection as a "banner manufacturing system" on March
20, 1990 ( U.S. Patent #4,909,884). The Company believes this patented process
gives it a competitive advantage in production of both small quantity orders and
very large-scale banners. The third process added in June of 1998 is large scale
photographic quality digital printing. This allows the company to enter into the
arena of quality computer generated digital prints.
Artwork and graphic designs are typically added to the Company's signs and
banners during each of its primary production processes. In most cases, the
Company's art department prepares the artwork or graphic designs in its photo
laboratory, which is capable of producing a film positive as large as 4 feet by
16 feet. Artwork or graphic designs are then used to create a film positive by
means of a large "blow back" style camera. The resulting film positive is then
applied to printing screens through an imag burning process, or digitilized
through computer scanners into CAD systems. These processes permit the Company
to produce sophisticated artwork and detailed graphics on its signs and banners.
Much of the digital artwork the Company works with is received over the
internet. The Company works with the customer over the internet to revise
artwork and to get final approval of the design . This saves time for the
customer.
Banners are made using only the highest quality materials. This includes the
best inks, highest quality paints, strongest thread, and quality rope and brass
grommets to complete each banner. The Company also offers D-ring construction to
increase the life of the banner. D-rings facilitate mounting and also help the
banner lay flat when displayed. In addition the Company believes durability is
greatly enhanced by having all sewing accomplished on high speed, double needle
industrial sewing machines especially designed for banner production.
The Company's principal raw materials are ink, poly reinforced vinyl, poly,
tyvek, thread, rope and packaging. The materials are available from numerous
sources in all of the quantities needed by the Company. The Company does not
rely on any one supplier for any of these materials. Accordingly, the
availability and supply of raw materials is not considered to be a problem by
the Company. The Company's principal suppliers are LG Chemical Inc., Cadallic
Plastics Inc., National UV Inc., Nassimi Inc., Besc Graphic Systems Inc., Laird
Plastics Inc., Trident Industrial Products Inc.
As of April 30, 1999 the Company had approximately 57 employees, of whom 40 were
in manufacturing, 8 in marketing and 9 in administration. The Company is not a
party to any collective bargaining agreement covering its employees. The Company
believes its relationship with its employees is good.
Item 2. Properties
The Company has one manufacturing facility located at 1518 SW 12th Ave., Ocala,
Florida 34474. This facility is 25,000 square feet. The lease on the building
the Company currently occupies will expire at the end of September 1999. The
Company has negotiated a fifteen year lease on a building of 50,000 square feet.
Its new facility will be designed as a state of the art printing facility. The
lease on the new facility commences April 1999 with the first payment due July
16, 1999. The Company anticipates moving into the new facility during August and
September 1999.
Page 2
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Item 3. Legal Proceedings
Litigation
Subsequent to May 31, 1998, a lawsuit was filed against the Company by a
stockholder who is the former wife of the past president (the "plaintiff"). The
plaintiff was owed money from Imagica, Inc., a company owned by the past
president which was merged into Imagica Entertainment, Inc. in May 1996. This
merger was rescinded in September 1997 since the new management and Board of the
Company determined the merger was not done in the best interest of the Company.
During the period between the merger and the rescission of the merger, the past
president, on behalf of the Company, signed an agreement with the plaintiff to
pay her $290,493 (representing amounts due her from Imagica, Inc.) when the
Company raised $4 million in a public offering. This agreement was not
authorized by the Board, and a public offering was never completed. The Company
has filed a motion for summary judgment and plans to file a countersuit against
the plaintiff. The Company and its counsel believe this claim has no merit and
the outcome of this lawsuit will not have a material adverse affect on its
financial position, liquidity or results of operations.
SEC Enforcement
The Company is currently under a private investigatin by the Securities and
Exchange Commission ("SEC") Enforcement Division regarding "In the Matter of
Certain Stock Advertisements." According to the SEC, this investigation is
confidential and should not be construed as an indication by the SEC that any
violations of law have occured, or as an adverse reflection upon any person,
entity or security. The Company and its counsel are unable to predict the
outcome of this investigation but believe any actio taken by the SEC will not
have a material adverse affect on the Company's financial position or results of
operations.
Item 4. Submission of Matters to a vote of security holders
No matters were submitted to a vote of shareholders of Imagica Entertainment
during the fourth quarter of fiscal year 1998.
Part II
Item 5. Market for registrants common equity and related stockholder
matters
The Company's common stock is traded over the counter on the "Bulletin Board"
under the symbol IMEA. The following table presents the quarterly high and low
bid quotations in the over the counter market. These quotations reflect the
inter-dealer prices, without retail mark-up, mark-down or commission and may not
necessarily represent actual transactions.
1998 High Low
- ---- ---- ---
Feb. $.50 $.10
May $1.15 $.75
Aug. $.93 $.75
Nov $.38 $.31
1997
- ----
Feb. $.36 $.28
May $.31 $.15
Aug. $.08 $.06
Nov. $.75 $.13
Page 3
<PAGE>
Shareholders - as of May 31, 1999 the approximate number of shareholders of
record of the Company's common stock was 299.
Dividends - The Company has never declared a cash dividend due to the cash needs
to maintain its operations. The Board of Directors intends to review its
dividend policy regularly with the intent of declaring a cash dividend when
appropriate.
During the fourth quarter of fiscal 1998 pursuant to Item 701 of Regulation S-B
the following equity securities of the registrant were issued by the registrant
to accredited investors under rule 501(a) and rule 144 without registering the
securities under the securities act.
These shares were issued upon conversion of $ 240,000 due the recipients.
Date Shares Recipient
---- ------ ---------
May 27, 1998 600,000 Jeffrey Sedacca
May 27, 1998 600,000 Howard Essenfeld
In May of 1998 the Company issued 150,500 restricted common shares as additional
compensation to employees in recognition of over 5 years of employment and value
to the Company.
Item 6. Management's Discussion and Analysis
The following discussion and analysis of the Company's financial condition and
results of operations should be read in conjunction with the Company's audited
financial statements included elsewhere herein.
Liquidity and Capital Resources
The company finalized a lease with Castro Realty Corporation on April 16, 1999.
Payments begin on July 16, 1999 on this 50,000 square foot facility for the
Companys operations. This facility will be designed for the optimum of
efficiency. There are expected to be $300,000 in improvements in this facility
of which 50% will be paid by the lessor. The lease on the building is for 15
years at a rate of $ 1.50 per square foot initially. This compares to rates of
comparable buildings in the area of $3.35 to $3.50. The building rent is on a
triple net basis. The masonry construction of the building and the fact it has
sprinklers will result in insurance expense of approximately what the company is
currently paying on its existing facility. The company anticipates it's expense
for property tax will increase by approximately $6,000 at the new location .
The company is currently planning to lease approximately $ 500,000 in new
production equipment. This will increase the company's productivity in all
areas. This equipment will increase the company's print lines from 4 to 7. There
will be more efficient equipment in sewing, material preparation, and material
handling.
Page 4
<PAGE>
The addition of UV ovens will increase significantly the company's print
efficiency. Management believes it will see a 33% increase in plant efficiency
from the new equipment. Management believes that with the new production
facility and equipment it can achieve sales in excess of $5,000,000 per year and
improve gross profit margins by 10%.
The company anticipates the additional equipment will require 15 additional
employees. The company believes that with reassignment of current employees to
the increased higher skilled positions it will be able to hire the employees
with the skill level it needs to fill the lower skilled open positions.
The Company experienced significant improvement in its liquidity during the year
ending May 1998 and subsequent periods. At May 31, 1998 the Company had positive
working capital of $122,577.
The Company used $367,712 of cash for operating activities during 1998 as
compared to cash provided by operating activities of $96,771 during 1997. The
increase in cash used for operations in 1998 was a result of the net loss after
adjusted for non-cash charges of $211,571 as well as increases in accounts
receivable and inventory of $243,805 due to the increase in sales activity in
the last quarter of 1998. This was partially offset by an increase in accounts
payable in 1998 of $138,407 due to increased inventory purchases to support the
additional sales in the last quarter of 1998.
Cash used for investing activities during 1998 was $17,783 primarily related to
the purchase of property and equipment as compared to $107,457 of cash used in
1997 as a result of repayments of advances from an affiliate.
Cash provided by financing activities was $318,368 in 1998 as compared to
$77,813 in 1997. The increase in cash provided by financing activities was a
result of the issuance of $30,000 of common stock and $200,000 or convertible
notes payable and $154,000 of advances received from a related party. These
proceeds were partially offset by $96,735 which was used for principal payments
on long-term debt and capital lease obligations.
In 1998 the Company issued convertible notes for $200,000. These notes were
converted into 819,532 shares of common stock during the first quarter of fiscal
1999.
Substantially all of the Company's assets are secured as collateral for a note
with Suntrust Bank. This note was renewed for 3 years effective October 14, 1998
in the amount of $ 353,972 which included $ 200,000 of additional financing.
This note calls for payments of $10,000 per month plus interest at prime plus
1%. This note in addition to having all of the company's assets as security is
guaranteed by Jeffrey Sedacca, Howard Essenfeld and William Klein. The Company
is current on this note.
In fiscal 1998 the Company issued a note payable to its majority stockholder for
$154,000, of which $ 80,000 was converted into 400,000 shares of the Company's
common stock subsequent to May 31, 1998. In addition, an affiliate owned by the
Company's majority stockholder assumed $610,883 of the Company's liabilities. Of
this, $240,000 was converted into 1,200,000 of common stock shares in May, 1998
and $153,526 was converted into 767,630 shares of common stock subsequent to May
31, 1998. The Company had a capital deficit of $411,308 at May 31, 1998.
Page 5
<PAGE>
The companys secured debt at April 30, 1999 was $303,886 to Suntrust Bank and $
322,786 to related parties.
Results of Operations.
The Companys loss from operations in both 1997 and 1998 included significant
non-cash charges of $2,861,406 and $206,640, respectively, related to the
issuance of common stock for compensation and consulting services. The net loss
was further impacted by non-cash interest charges of $167,428 and $1,696,620 in
1997 and 1998 respectively related to debt that was convertable at price below
quoted market prices at the date the convertible debt was issued.
In 1997 the Company wrote-off $206,632 of prior period development costs for a
prototype print machine that was not viable.
In 1998 there were significant extraordinary expenses as a result of the
Companys filing for Chapter 11 Bankruptcy on May 15, 1997. This bankruptcy was
dismissed on February 2, 1998 as being without merit and against the Company's
interest. This lawsuit was filed by the prior board in an effort to block the
Board elected by the stockholders. In excess of $100,000 was spent for legal and
court fees in 1998 for the bankruptcy and it's dismissal.
The company has experienced declining sales since 1996. The Companys sales in
1998 of $2.9 million compares to sales of $3.2 million in 1997 and $4.7 million
in 1996. This was due principally to the loss of outside contractors and lack of
materials caused by the company's severe liquidity problems. These severe
difficulties also caused the company to lose two of its most productive
salespeople. Currently the liquidity problem has been addressed and the company
is obtaining raw materials as needed. Solvin the liquidity problem has had the
effect of increasing employee morale and productivity. This is most notable in
the sales department where being able to meet customer needs on a timely basis
has significantly increased their performance. This ability to meet our customer
needs has also allowed us to put our sales representatives on a total commission
basis which has increased their incentive to succeed. The company believes the
sales trend has turned and expects 1999 sales to be $3,300,000. This turnaround
is evidenced in 4th quarter sales in 1998 of $986,553 compared to $812,006 in
1997. With the new facility and equipment, management expects sales for the year
2000 to be $5,000,000.
The company's gross margin in 1996 was 21% and in 1997 and 1998 was 25%. The
increase was due primarily to a significant reduction in sales of banners
produced by outside contractors. Management believes with the new equipment and
production facility this margin can be increased to 35%.
The Companys operating expenses decreased $97,039 during 1998 as compared to
1997. Operating expenses as a percentage of sales remained constant at 35%
during 1998 and 1997.
In fiscal 1997, the Company wrote off $ 518,788 of uncollectible amounts due
from the companies past president and an affiliated company he controlled and $
72,500 for uncollectible notes receivable related to an employee stock purchase
plan. In addition the Company wrote off during 1997 $206,632 for money expended
on a prototype printing machine that was not a viable project and $95,554 from
the disposal of obsolete equipment.
Page 6
<PAGE>
The Companys actual cash interest expense decreased from $78,309 in 1997 to
$64,184 in 1998 as a result of reductions in long-term debt and capital lease
obligations.This excludes non-cash interest charges of $167,428 and $1,696,620
for 1997 and 1998, respectively, as discussed above.
Due to the current uncertainty of the realization of taxable profits, the
Company does not recognize as an asset the tax benefit of the net operating loss
carry-forwards. Refer to note 8 of the financial statements for a further
discussion.
The Companys net loss amounted to $4.3 million in 1997, and $ 2.2 million in
1998 of which $3.0 million in 1997 and $1.9 million in 1998 relate to non-cash
charges as previously discussed.
Recent Accounting Pronouncements
See the summary of significant accounting policies in the Companys Financial
Statements for information relating to recent accounting pronouncements.
Year 2000
The Company has taken a thorough evaluation of all it's operating systems in
light of the year 2000 problem. This study has determined that all production
equipment is fully functional and there are no computer systems that are date
sensitive. The Company's digital and art design computer systems are less than
one year old and are programmed to recognize properly dates beyond 2000. The
Company's accounting and sales computer systems are either new or have been
updated to configurations that recognize dates properly. The Company's major
problem in this area is with it's quotation system which continues to use the
IBM AS400 which will fail at the end of 1999. The Company has a contract with
EDGE MIS to put in their package software system designed specifically for the
screenprint industry. This system will eliminate the IBM AS400. This system will
encompass all of the Company's quotation, order generation, production and
accounting functions. The Company expects to have this system fully operational
by July 1999. The cost of this system is $35,000 for the software and the
Company anticipates spending approximately $ 15,000 for new hardware. The
Company's management believes it's management information system will be able to
function without a problem in the year 2000 and beyond.
The Company has contacted it's customers and suppliers concerning the year 2000
problem and has received assurances from them that they will be prepared and see
no problem in their continuing relationship with the Company.
The Company currently believes that Year 2000 Issues will not pose significant
operational problems for the Company. However, due to uncertainties associated
with vendors and service providers, the Company is unable to predict whether
Year 2000 Issues involved in its internal computer and software systems will
have a material adverse effect on the Company's business, results of operations,
or financial condition, despite the Company's current assessment to the
contrary.
Page 7
<PAGE>
Item 7. Financial Statements and Supplementary Data
Imagica Entertainment Inc.
Index to Financial Statements
Page
----
Report of Independent Certified Public Accountants F1
Balance Sheet F2-F3
Statements of Operations F4
Statements of Capital Deficit F5
Statements of Cash Flows F6
Summary of Significant Accounting Policies F7-F9
Notes to Financial Statements F10-F15
Item 8. Changes in and Disagreements with Accountants on accounting and
Financial Disclosure.
None
Part III
Item 9. Directors and Executive Officers.
Name Age Position
- ---- --- --------
Braxton P. Jones 59 Chairman and Chief Executive Officer
Tracie M. Dawson 42 Secretary
The executive officers of the Company are elected by the Board of Directors and
serve at the discretion of the Board of Directors.
Braxton P. Jones, President and Chief Executive Officer has served in that
capacity since September 1997. Prior to that he was employed as an independent
commercial insurance agent from 1996 until September 1997. Prior to that he was
employed by Profit Counselors, Inc., a management consulting firm.
Tracie M. Dawson has been employed by the Company since its inception and is one
of the Company's top salespersons.
Directors and compliance with section 16 (a) of the Exchange Acts.
Name Age Position
- ---- --- --------
Howard P. Essenfeld 56 Director
Braxton P. Jones 59 Director
Jeffrey Sedacca 45 Director
William Klein 61 Director
Howard P. Essenfeld is a Certified Public Accountant. He is a plaintiff in a
lawsuit against his former business partner disputing the partners personal
bankruptcy. Mr. Essenfeld does not hold directorships in any other registered
companies.
Page 8
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Braxton P. Jones as listed above, Mr. Jones is not a party to any lawsuit nor
does he hold a directorship in any other registered companies.
Jeffrey Sedacca business experience is President of Lumar Lobster & Shrimp a
major seafood distributor. Mr. Sedacca is a plaintiff and defendant in a lawsuit
with Seacoast Seafood Inc. of Seattle, Wa. Mr. Sedacca does not hold
directorships in any other registered companies.
William Klein is an attorney and serves as the Company's legal counsel. He does
not hold directorships in any other registered Companies.
The Company's President Braxton Jones purchased 300,000 restricted shares of the
Company's common stock on Dec. 9, 1997. This was not reported on Form 3 and Form
4 until July 14,1998. There was no short swing profits from this transaction and
Mr. Jones currently retains these shares. There were no other reporting
violations during fiscal 1997 and 1998.
Item 10. Executive Compensation.
During the periods ended May 31, 1996, 1997, and 1998, the Company's former
Chief Executive Officer Robert S. Wormser, (deceased) was the only executive
officer whose compensation exceeded $100,000. His total compensation for 1996
was $272,253. His compensation for the fiscal year end May 31, 1997 was $145,728
from salary. Other compensation he received cannot be accurately determined but
probably exceeds 1996. Braxton Jones Chairman and CEO's compensation as salary
for the nine months ending May 31, 1998 was $24,881. In addition he received
75,000 shares of the Company's restricted stock. The Company has no employment
contracts.
The Company's non-qualified profit bonus plan was established September 17,
1990. No bonuses were paid under the plan and the plan has been terminated.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
As of April 30, 1999 there were 4,308,550 shares of the Company's common stock
outstanding. The following persons were known by the Company to be the
beneficial owners of more than 5% of such outstanding common stock.
Name and Address Number of Shares Percent of Total
- ---------------- ---------------- ----------------
Howard Essenfeld 600,000 14%
277 Indian Head Rd.
Kings Park, NY 11754
Braxton Jones 375,000 9%
3927 Meadow Creek Dr.
Sarasota, FL 34233
Jeffrey Sedacca 1,000,000 24%
3900 Clark Rd.
Suite C1
Sarasota, FL 34233
SE Investments, Inc. 767,630 18%
Owners Jeffrey Sedacca
Howard Essenfeld
Total Group, (all Directors, 2,742,630, 65% and executive officers, 3 persons)
Page 9
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Item 12. Certain Relationships and Related Transactions
The Company issued a note payable to an affiliate owned by the Company's
majority stockholder, which had an outstanding balance at May 31, 1998 of
$154,000.
The note bears interest at 9.75%, is due on demand any time after May 31, 1999
and is collateralized by a second security interest in the Company's accounts
receivable. Subsequent to May 31, 1998, the affiliate converted $80,000 of the
note payable into 400,000 shares of common stock at a conversion price of $.20
per share. The quoted market price at the date of conversion was $.86 per share,
which will result in a charge to operations of $264,000 in fiscal 1999.
This affiliate also assumed $610,883 of the Company's liabilities during fiscal
1998, which is due on demand any time after May 31, 1999. In May 1998, $240,000
was converted into 1,200,000 shares of common stock. The remaining balance of
$370,883 is presented as due to related party on the balance sheet at May 31,
1998. The amount converted was at $.20 per share and the quoted market price was
$1.437 per share on the date of conversion. The difference between the
conversion price and the quoted market price of $1,484,400 was recorded as
interest expense during fiscal 1998 with a corresponding increase to additional
paid-in capital related to the beneficial conversion feature.
Subsequent to May 31, 1998, this affiliate converted an additional $153,526 into
767,630 shares of common stock at a conversion price of $.20 per share. The
quoted market price at the date of conversion was $.86 per share, which will
result in a charge to operations of approximately $507,000 in fiscal 1999.
The Company leases its corporate manufacturing facility from a stockholder of
the Company, J.R. Gunter. The lease provides for $60,000 rent per annum triple
net. The Company believes this to be comparable to other rents in the market.
This lease expires the end of September 1999 and there are no plans to renew it.
Pursuant to the Company's 1994 Employee Stock Option Plan approved by the
shareholders at the 1994 shareholders' meeting, on November 29, 1994, the
Company issued options to purchase common shares at a price of $10.00 per share
to certain officers and directors as follows: Robert S. Wormser - 17,750 shares;
Terry Putty 1,250 shares; William White 1,500 shares; and Tracie Dawson 1,500
shares. During 1995, all options were exercised by the execution of promissory
notes bearing interest at the prime rate payable ten years from execution. In
1997 these promissory notes were written off and canceled.
In 1989 Mr. JR Gunter purchased $100,000 of stock. In connection with this
purchase, the Company agreed to re-purchase such stock for its cost of $100,000
upon the death of said stockholder, provided the beneficiaries wish to sell said
stock.
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On June 1, 1998 the Company entered into a lease with FRL Enterprises, Inc., for
sign making equipment and inkjet graphic equipment. The sign making equipment
calls for a monthly payment of $1,100 for a period of 36 months with options at
the end of the lease to continue the lease at $275 per month or to purchase the
equipment at 35% of the original price. The new equipment runs eight times
faster than the old equipment and will cut 48" ruby versus 28" by the old
equipment. The Company estimates labor savings in the print production area to
be a minimum of three times the cost of the equipment.
The six color inkjet printer lease payments are based on through put at the rate
of one dollar per square foot with a minimum of $5,000 per month. Through put in
excess of $7,000 will be paid in stock options computed on the basis of 1.2
times the square feet in excess of $7,000 divided by the average per share bid
price for Imagica stock on the last five days of the establishing month.
The inkjet printer will allow the Company to produce digital prints up to 54"
wide with photographic quality. With this the Company can expand its core market
of large format prints and banners. Previously the Company spent in excess of
$10,000 per month with an outside supplier for these products. It is the
Company's intention to continue to grow in this area through the acquisition of
additional equipment as business increases.
There are four principals in FRL Enterprises, Inc., one of which is a Company
employee and stockholder, Jeff Reed, Plant Manager.
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
The statements contained in this report that are not purely historical or which
might be considered an opinion or projection concerning the Company or its
business, whether express or implied, are forward looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. These
statements may include statements regarding the Company's expectations,
intentions, plans or strategies regarding the future, including statements
related to the Year 2000 issue. All forward-looking statements included in this
document are based upon information available to the Company on the date hereof,
and the Company assumes no obligation to update any such forward-looking
statements. It is important to note that the Company's actual results could
differ materially from those described or implied in such forward-looking
statements because of, among other factors, the ability of the Company to
execute its expansion plans, a shift in demand for the products offered by the
Company, the Company's ability to obtain raw material at competitive prices, the
effect of national economic conditions and the effect of competitive pressures
from other manufacturers. In addition the reader should consider the risk
factors described from time to time in the Company's other documents and
reports.
Item 13. Exhibits, and Reports on Form 8K
(a) The following documents are filed as part of this report:
Financial Statements. See item 7 for the index to financial statements.
Exhibits The exhibits listed in the exhibit index are filed or incorporated
by reference as a part of this report.
(b) No reports on form 8-K were filed by the Registrant during the fourth
quarter of 1998.
Page 11
<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER TITLE OF EXHIBIT
- -------------- ----------------
3.1 Restated Articles of Incorporation and By-Laws previously
filed as an exhibit to Form S-18 filed January 7, 1991
incorporated herein by reference.
10.1 Facility lease between the Company and GWW Partnership,
dated September 27, 1989, previously filed as an Exhibit to
Form S-18 filed on January 7, 1991, incorporated herein by
reference.
10.2 Stock Re-purchase Agreement between JR Gunter, Robert
Wormser and the Company dated April 27, 1989, previously
filed as an exhibit to Form 10k filed on September 11, 1996,
incorporated herein by reference.
10.3 Lease Agreement between the Company and FRL Enterprises
dated May 6, 1998
10.4 Loan Agreement between the Company and SunTrust Bank dated
December 15, 1998
10.5 Building Lease and Escrow Agreement between the Company and
Castro Realty Corporation dated April 16, 1999
10.6 Settlement agreement between the Company and Phoenix Leasing
dated July 15, 1998
27 Financial Data Schedule
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Imagica Entertainment, Inc.
Date: August 12, 1999 By: /s/ Braxton P. Jones
------------------------
Braxton P. Jones
President, Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Braxton P. Jones
- ---------------------------- Chairman of the Board, August 12, 1999
Braxton P. Jones Director, President
/s/ William Klein
- ---------------------------- Director August 12, 1999
William Klein
/s/ Howard Essenfeld
- ---------------------------- Director August 12, 1999
Howard Essenfeld
/s/ Jeffrey Sedacca
- ---------------------------- Director August 12, 1999
Jeffrey Sedacca
<PAGE>
Report of Independent Certified Public Accountants
To the Board of Directors and Stockholders
Imagica Entertainment, Inc.
We have audited the accompanying balance sheet of Imagica Entertainment, Inc. as
of May 31, 1998, and the related statements of operations, capital deficit and
cash flows for each of the two years in the period ended May 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Imagica Entertainment, Inc. at
May 31, 1998, and the results of its operations and its cash flows for each of
the two years in the period ended May 31, 1998 in conformity with generally
accepted accounting principles.
/s/ BDO Seidman, LLP
--------------------
BDO Seidman, LLP
Orlando, Florida
September 23, 1998, except for Note 6,
as to which the date is October 14, 1998
F1
<PAGE>
Imagica Entertainment, Inc.
Balance Sheet
May 31,
1998
----
Assets (Note 6)
Current:
Accounts receivable, less allowance for
possible losses of $9,616 (Note 5) $495,263
Inventories 194,922
Prepaid expenses 36,588
--------
Total current assets 726,773
Property and equipment, net (Note 2) 172,245
Other assets 12,726
--------
$911,744
========
See accompanying summary of significant accounting policies
and notes to financial statements.
F2
<PAGE>
Imagica Entertainment, Inc.
Balance Sheet
May 31,
1998
----
Liabilities and Capital Deficit
Current liabilities:
Bank overdraft $ 31,103
Accounts payable 211,045
Debenture payable (Note 3) 25,000
Convertible notes payable, net of discount (Note 4) 31,438
Customer deposits 43,373
Accrued expenses
Payroll and related taxes 71,351
Other 56,637
Current maturities of long-term debt (Note 6) 112,904
Current portion of obligations under capital leases (Note 7) 21,345
-----------
Total current liabilities 604,196
Due to related party (Note 5) 370,883
Note payable to related party (Note 5) 154,000
Long-term debt, less current maturities (Note 6) 93,973
-----------
Total liabilities 1,223,052
-----------
Commitments and contingencies (Note 7) --
Redeemable common stock (Note 7) 100,000
Capital deficit (Note 9):
Common stock, $.001 par value, shares authorized
50,000,000; issued 2,161,357
2,162
Additional paid-in capital 7,566,484
Accumulated deficit (7,876,514)
-----------
(307,868)
Less: Treasury stock, at cost, 27,250 shares 103,440
-----------
Total capital deficit (411,308)
-----------
$ 911,744
===========
See accompanying summary of significant accounting policies
and notes to financial statements.
F3
<PAGE>
Imagica Entertainment, Inc.
Statements of Operations
Year ended May 31,
--------------------------
1998 1997
---- ----
Sales $ 2,908,475 $ 3,158,086
Cost of sales 2,161,343 2,376,499
----------- -----------
Gross profit 747,132 781,587
Operating expenses 1,021,185 1,118,224
Compensation and consulting expenses paid by
issuance of common stock 206,640 2,861,406
Write off of due from stockholder and affiliate -- 518,788
Write off of notes receivable -- 72,500
----------- -----------
Loss from operations (480,693) (3,789,331)
----------- -----------
Other income (expenses):
Interest (Notes 4 and 5) (1,760,804) (245,737)
Write off of equipment not yet placed in service -- (206,632)
Loss on disposal of property and equipment (2,098) (95,554)
Other 46,019 474
----------- -----------
(1,716,883) (547,449)
----------- -----------
Net loss $(2,197,576) $(4,336,780)
=========== ===========
Basic loss per share $ (3.33) $ (13.11)
=========== ===========
Weighted average common shares outstanding 660,857 330,711
=========== ===========
See accompanying summary of significant accounting policies
and notes to financial statements.
F4
<PAGE>
<TABLE>
<CAPTION>
Imagica Entertainment, Inc.
Statements of Capital Deficit
Notes
Receivable
Arising
from the
Common Stock Additional Treasury Stock Exercise
---------------------- Paid-in ---------------------- of Stock Accumulated
Shares Amount Capital Shares Amount Options Deficit
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, May 31, 1996 119,524 $ 120 $1,662,593 9,750 $ (91,240) (250,00) (1,342,15)
Sale of common stock 100,000 100 19,900 -- -- -- --
Issuance of common stock for
consulting services 120,541 120 2,861,286 -- -- -- --
Conversion of debentures and
accrued interest 97,667 98 303,749 -- -- -- --
Common stock issued for reduction
in amounts due stockholder 60,000 60 215,940 -- -- -- --
Exercise of stock options 13,125 13 17,312 -- -- -- --
Reduction of note receivable (Note 9) -- -- -- -- -- 177,500 --
Write off of note receivable (Note 9) -- -- -- -- -- 72,500 --
Beneficial conversion feature on
issuance of convertible debentures -- -- 133,333 -- -- -- --
Net loss -- -- -- -- -- -- (4,336,78)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance, May 31, 1997 510,857 511 5,214,113 9,750 (91,240) -- (5,678,93)
Sale of common stock 300,000 300 29,700 -- -- -- --
Issuance of common stock as
compensation to employees 150,500 151 206,489 -- -- -- --
Common stock issued for reduction
in amounts due related party (Note 5) 1,200,000 1,200 238,800 -- -- -- --
Beneficial conversion feature on common
stock issued for reduction in amounts
due related party (Note 5) -- -- 1,484,400 -- -- -- --
Issuance of stock options for purchase
of treasury stock (Note 9) -- -- 12,200 17,500 (12,200) -- --
Beneficial conversion feature on issuance
of convertible notes payable (Note 4) -- -- 380,782 -- -- -- --
Net loss -- -- -- -- -- -- (2,197,57)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance, May 31, 1998 2,161,357 $ 2,162 $7,566,484 27,250 $ (103,440) -- $(7,876,51)
========== ========== ========== ========== ========== ========== ==========
See accompanying summary of significant accounting policies
and notes to financial statements.
F5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Imagica Entertainment, Inc.
Statements of Cash Flows
Year ended May 31,
--------------------------
1998 1997
---- ----
Cash flows from operating activities:
<S> <C> <C>
Net loss $(2,197,576) (4,336,780)
Adjustments to reconcile net loss to net cash provided by
(used for) operating activities:
Depreciation and amortization 82,745 146,482
Interest expense from beneficial conversion features 1,696,620 133,333
Write off of due from stockholder and affiliate -- 518,788
Issuance of common stock for payment of interest -- 48,240
Write off of notes receivable -- 72,500
Issuance of common stock as compensation 206,640 --
Issuance of common stock as payment of consulting services -- 2,861,406
Write off of equipment not yet placed in service -- 206,632
Loss on disposal of property and equipment 2,098 95,554
Cash provided by (used for):
Accounts receivable (178,732) 166,576
Inventories (65,073) 110,697
Prepaid expenses (3,701) 35,936
Accounts payable 138,407 8,593
Customer deposits (4,617) --
Accrued expenses (44,523) 28,814
----------- -----------
Net cash provided by (used for) operating activities (367,712) 96,771
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (11,334) --
Advances to affiliate -- (107,963)
Increase (decrease) in other assets (6,449) 506
----------- -----------
Net cash used for investing activities (17,783) (107,457)
----------- -----------
Cash flows from financing activities:
Increase in bank overdraft 31,103 --
Proceeds from issuance of common stock 30,000 20,000
Proceeds from issuance of convertible notes payable 200,000 --
Proceeds from issuance of debentures payable -- 175,000
Net advances under note payable to related party 154,000 --
Principal payments of stockholder note payable -- (20,040)
Principal payments on long-term debt (76,213) (81,647)
Principal payments on capital lease obligations (20,522) (15,500)
----------- -----------
Net cash provided by financing activities 318,368 77,813
----------- -----------
Net increase (decrease) in cash (67,127) 67,127
Cash, beginning of year 67,127 --
----------- -----------
Cash, end of year $ -- $ 67,127
=========== ===========
See accompanying summary of significant accounting policies
and notes to financial statements.
F6
</TABLE>
<PAGE>
Imagica Entertainment, Inc.
Summary of Significant Accounting Policies
Inventories
- -----------
Inventories are valued at the lower of cost (first-in, first-out) or market and
consist of raw materials.
Property, Equipment and Depreciation
- ------------------------------------
Property and equipment are stated at cost. Depreciation is computed over the
estimated useful lives of the assets by the straight-line method for financial
reporting and by accelerated methods for income tax purposes.
Capital leases are recorded at the lower of fair market value or the present
value of future minimum lease payments. Assets under capital leases are
depreciated by the straight-line method over their useful lives.
Revenue Recognition
- -------------------
Sales are recognized upon shipment of products to customers.
Loss per Share
- --------------
Loss per share is based on the weighted average number of common shares
outstanding during each period after giving effect to the reverse stock splits
(see Note 9). Potential common shares have been excluded from the loss per share
calculations since their effect would be antidilutive.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 "Earnings Per Share" ("SFAS 128"). SFAS
128 establishes new standards for computing and presenting earnings per share
("EPS"). Specifically, SFAS primary EPS with a presentation of basic EPS,
requires dual presentation of basic and diluted EPS on the face of the income
statement for all entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic EPS c denominator
of the diluted EPS computation. SFAS 128 is effective for financial statements
issued for periods ending after December 15, 1997. The adoption of SFAS 128 did
not have a material effect on the Company's EPS presentation for 1998 and 1997
since the effects of potential common shares are antidilutive.
F7
<PAGE>
Imagica Entertainment, Inc.
Summary of Significant Accounting Policies
Taxes on Income
- ---------------
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," which requires
recognition of estimated income taxes payable or refundable on income tax
returns for the current year and f attributable to temporary differences and
carryforwards. Measurement of deferred income tax is based on enacted tax laws
including tax rates, with the measurement of deferred income tax assets being
reduced by available tax benefits not expected to be realized.
Impairments
- -----------
Long-lived assets are evaluated for impairment when events change or changes in
circumstances indicate that the carrying amounts of the assets may not be
recoverable. When any such impairment exists, the related assets will be written
down to fair value.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
- -----------------------------------
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments," requires disclosure of fair value information
about financial instruments. Fair value estimates discussed herein are based
upon certain market assumptions and pertinent information available to
management as of May 31, 1998.
The respective carrying value of certain on-balance-sheet financial instruments
approximated their fair values. These financial instruments include trade
receivables, bank overdraft, accounts payable and accrued expenses. Fair values
were assumed to approximate carrying values for these financial instruments
since they are short term in nature and their carrying amounts approximate fair
values or they are receivable or payable on demand. The Company's long-term debt
is variable rate debt, and accordingly, the carrying amount approximates fair
value.
F8
<PAGE>
Imagica Entertainment, Inc.
Summary of Significant Accounting Policies
Stock-Based Compensation
- ------------------------
The Company adopted Statement of Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123") during 1997. However, as permitted by
SFAS 123, the Company has elected to continue to follow Accounting Principles
Board Opinion No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123")
during 1997. However, as permitted by SFAS 123, the Company has elected to
continue to follow Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB 25) and related interpretations in accounting
for stock-based compensation to employees.
Stock options granted to non-employees are valued using a Black-Scholes option
pricing model with appropriate assumptions for risk free investment rates,
expected lives, dividend yields and volatility factors. The value of options
granted to non-employees is charged to appropriate expense accounts when the
options are granted.
Recent Accounting Pronouncements
- --------------------------------
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income," ("FAS
130") and No. 131, "Disclosure about Segments of an Enterprise and Related
Information," ("FAS 131"). FAS 130 Accounting reporting and displaying
comprehensive income, its components and accumulated balances. FAS 131
establishes standards for the way that public companies report information about
operating segments in annual financial statements and requires reporting of
selected in Pronouncements in interim financial statements issued to the public.
Both FAS 130 and FAS 131 are effective for periods beginning after December 15,
1997. FAS 130 and FAS 131 are not expected to have a material impact on the
Company's financial statements.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (FAS 133). FAS 133 requires companies to recognize all
derivative contracts as either balance sheet and to measure them at fair value.
FAS 133 is effective for periods beginning after June 15, 1999. Historically,
the Company has not entered into derivative contracts. Accordingly, FAS 133 is
not expected to affect the Company's financial statements.
"Accounting for Derivative Instruments and Hedging Activities" (FAS 133). FAS
133 requires companies to recognize all derivative contracts as either assets or
liabilities in the balance sheet and to measure them at fair value. FAS 133 is
effective for periods beginning after June 15, 1999. Historically, the Company
has not entered into derivative contracts. Accordingly, FAS 133 is not expected
to affect the Company's financial statements.
Reclassifications
- -----------------
Certain reclassifications have been made to the financial statements for the
year ended May 31, 1997 to conform with classifications used in the financial
statements for the year ended May 31, 1998.
F9
<PAGE>
Imagica Entertainment, Inc.
Notes to Financial Statements
1. Nature of Operations
Imagica Entertainment, Inc. (the "Company"), formerly known as Ranger
International, Inc., was incorporated in January 1987 and is engaged in the
design, manufacturing and marketing of customized signs, banners, flags and
point-of-purchasing ("P-O-P") displays. The Company's headquarters and
manufacturing facilities are located in Ocala, Florida.
2. Property and Equipment
Property and equipment are summarized as follows:
Useful Lives
Furniture, fixtures and equipment 3 - 10 years $ 997,101
Equipment under capital leases 5 - 10 years 198,611
Leasehold improvements 4 years 157,003
Vehicles 5 years 18,763
-----------
1,371,478
Less accumulated depreciation
and amortization 1,199,233
-----------
$ 172,245
===========
Accumulated depreciation on equipment under capital leases was $150,486 and
$160,675 as of May 31, 1998 and 1997, respectively.
All property and equipment is pledged as collateral (see Note 6).
3. Debenture Payable
Debenture note payable amounting to $25,000 as of May 31, 1998 is
unsecured, bears interest at 8% and is currently due to a third party. The
conversion feature of this debenture expired in July 1995.
F10
<PAGE>
Imagica Entertainment, Inc.
Notes to Financial Statements
4. Convertible Notes Payable
The Company issued convertible notes payable in fiscal 1998 amounting to
$200,000. The notes bear interest at 9.5% and are due one year from the
date of issuance. The notes are convertible into common stock of the
Company 90 days after issuance at a conversion price equal to 50% of the
quoted market price on the conversion date. The maximum conversion price is
$.25 per share of common stock. The difference between the conversion price
and the quoted market price of the common stock at the date of issuance was
$380,782. This beneficial conversion feature was recorded as a debt
discount and is being amortized to interest expense from the date of
issuance of the notes to the date the notes first became convertible.
During fiscal 1998, $212,220 was recorded as interest expense. As of May
31, 1998, the unamortized debt discount was $168,562. Subsequent to May 31,
1998, all of these notes were converted into 819,532 shares of common
stock.
5. Related Party Transactions
The Company issued a note payable to an affiliate owned by the Company's
majority stockholder, which had an outstanding balance at May 31, 1998 of
$154,000. The note bears interest at 9.75%, is due on demand any time after
May 31, 1999 and is collateralized by a second security interest in the
Company's accounts receivable. Subsequent to May 31, 1998, the affiliate
converted $80,000 of the note payable into 400,000 shares of common stock
at a conversion price of $.20 per share. The quoted market price at the
date of conversion was $.86 per share, which will result in a charge to
operations of $264,000 in fiscal 1999.
This affiliate also assumed $610,883 of the Company's liabilities during
fiscal 1998, which is due on demand any time after May 31, 1999. In May
1998, $240,000 was converted into 1,200,000 shares of common stock. The
remaining balance of $370,883 is presented as due to related party on the
balance sheet at May 31, 1998. The amount converted was at $.20 per share
and the quoted market price was $1.437 per share on the date of conversion.
The difference between the conversion price and the quoted market price of
$1,484,400 was recorded as interest expense during fiscal 1998 with a
corresponding increase to additional paid-in capital related to the
beneficial conversion feature. Subsequent to May 31, 1998, this affiliate
converted an additional $153,526 into 767,630 shares of common stock at a
conversion price of $.20 per share. The quoted conversion was $.86 per
share, which will result in a charge to operations of approximately
$507,000 in fiscal 1999.
6. Long-Term Debt
Long-term debt consists of the following:
Note payable to bank, bearing interest at prime plus
1%, principal of $10,000 plus interest due monthly
until September 2001 when the remaining outstanding
principal and accrued interest are due, collateralized
by substantially all of the Company's assets,
guaranteed by the Company's majority stockholders and
corporate attorney. On October 14, 1998, when the
outstanding balance of this note was $153,973, the
Company obtained additional financing of $200,000,
which was consolidated into the existing note payable.
The interest rate, monthly principal payments and
maturity date of the note were modified based upon the
terms noted above. $ 173,886
Note payable bearing interest at 8%, principal and
interest payable in monthly installments of $1,000
through December 1998, when the remaining principal is
due, collateralized by equipment. 21,637
Other 11,354
----------
206,877
Less current maturities (112,904)
----------
Total long-term debt $ 93,973
==========
F11
<PAGE>
Imagica Entertainment, Inc.
Notes to Financial Statements
7. Commitments and Contingencies
Leases
------
The Company leases its main operating facility from a partnership that
consists of two of the Company's stockholders. The lease is a five-year
operating lease expiring in September 1999 and contains an option to
purchase the land and building for $500,000 at any time during the lease.
The Company also leases certain equipment under capital and operating
leases, expiring at various dates through 2002.
The following is a schedule by years as of May 31, 1998 of (1) future
minimum lease payments under capital leases, together with the present
value of the net minimum lease payments and (2) future minimum rental
payments required under operating leases that have of one year:
Capital Operating
Leases Leases
------ ------
1999 $ 21,645 $ 127,100
2000 -- 93,200
2001 -- 73,200
2002 -- 6,100
--------- -----------
Total net minimum lease payments 21,645 $ 299,600
===========
Less amount representing interest (300)
---------
Present value of net minimum lease payments 21,345
Less current portion 21,345
---------
Long-term obligations under capital leases
$ --
=========
F12
<PAGE>
Imagica Entertainment, Inc.
Notes to Financial Statements
Rental expense amounted to approximately $63,600 and $140,000 for the years
ended May 31, 1998 and 1997, respectively. The rental expense includes
amounts for leases with its stockholders of approximately $64,000 during
the years ended May 31, 1998 and 1997.
Guarantees
----------
In 1989, a stockholder of the Company purchased $100,000 of common stock.
In connection with the transaction, the Company and its past president have
jointly and severally agreed to repurchase such stock for its cost of
$100,000 upon the death of said stockholder provided the beneficiaries wish
to sell the stock.
Litigation
----------
Subsequent to May 31, 1998, a lawsuit was filed against the Company by a
stockholder who is the former wife of the past president (the "plaintiff").
The plaintiff was owed money from Imagica, Inc., a company owned by the
past president which was merged into Imagica Entertainment, Inc. This
merger was rescinded in September 1997 since the new management and Board
of the Company determined the merger was not done in the best interest of
the Company. During the period between the merger and the rescission of the
merger, the past president, on behalf of the Company, signed an agreement
with the plaintiff to pay her $290,493 (representing amounts due her from
Imagica, Inc.) when the Company raised $4 million in a public offering.
This agreement was not authorized by the Board, and a public offering was
never completed. The Company has and plans to file a countersuit against
the plaintiff. The Company and its counsel believe this claim has no merit
and the outcome of this lawsuit will not have a material adverse affect on
its financial position, liquidity or results of operations.
In the normal course of conducting its business, the Company is involved in
various other litigation. The Company is not a party to any litigation
which its management believes could result in any judgments against it that
would have a material adverse affect on results of operations.
SEC Enforcement
---------------
The Company is currently under a private investigation by the Securities
and Exchange Commission ("SEC") Enforcement Division regarding "In the
Matter of Certain Stock Advertisements." According to the SEC, this
investigation is confidential and should not be construed as an indication
by the SEC that any violations of law have occurred, or as an adverse
reflection upon any person, entity or security. The Company and its counsel
are unable to predict the outcome of this investigation but believe any
action taken by the SEC will not have a material adverse affect on the
Company's financial position or results of operations.
8. Income Taxes
The components of the net deferred income tax assets consist of the
following:
Deferred tax assets:
Net operating loss carryforwards $ 729,000
Inventory 15,000
Other 13,000
---------
Gross deferred income tax assets 757,000
Valuation allowance (757,000)
---------
Net deferred income tax assets $ --
=========
The change in the valuation allowance for deferred tax assets was an
increase of approximately $115,000 during 1998. The deferred tax asset of
approximately $729,000 related to the tax benefit of the net operating
losses has been offset by a valuation allowance realization.
F13
<PAGE>
Imagica Entertainment, Inc.
Notes to Financial Statements
The following summary reconciles differences from taxes at the federal
statutory rate with the effective rate:
1998 1997
---- ----
Federal income taxes at statutory rates (34.0%) (34.0%)
Losses without tax benefits 34.0% 34.0%
---- ----
Income taxes at effective rates 0% 0%
==== ====
Unused net operating losses (NOLs) for income tax purposes, expiring in
various amounts from 2007 to 2013 of approximately $1.9 million, are
available at May 31, 1998 for carryforward against future years' taxable
income. As a result of various stock issuances, under the provisions of
section 382 of the Internal Revenue Code of 1986, as amended.
9. Capital Stock
Nonemployee Stock Options and Treasury Stock
--------------------------------------------
In May 1998, the Company granted stock options to a nonemployee for the
return of 17,500 shares of common stock. The fair value of the options of
$12,200 was recorded as treasury stock. The fair value was determined using
the Black-Scholes option pricing model with the following weighed-average
assumptions: no dividend yield, an expected life of 3.25 years, expected
volatility of 50% and a risk-free interest rate of 5.6%. The options are
exercisable over 3.25 years from the date of grant and are summarized as
follows:
Weighted-Average
Weighted-Average Fair Value of
Shares Exercise Price Options Granted
------ -------------- ---------------
Balance, May 31, 1997 -- $ -- $ --
Granted, at market value 20,000 1.50 .61
------ ----- ----
Balance, May 31, 1998 20,000 $1.50 $.61
====== ===== ====
Employee Stock Options and Notes Receivable
-------------------------------------------
Stock options were granted to certain key employees of the Company under an
incentive stock option plan adopted in 1994. The plan provided for the
granting of up to 25,000 options. During 1995, the Company granted
employees 25,000 options under this plan at a purchase price of $10.00. The
options were granted at or above fair market value, and no compensation
expense was recorded. All of the 25,000 options were exercised during 1995,
and as allowed under the 1994 stock option plan, payment for the shares was
made in the form of ten-year promissory notes. The notes receivable were
reduced by $177,500 during 1997 in the form of a reduction in the amount
due stockholder. The remaining $72,500 was written off during 1997.
Stock Warrants
--------------
During 1995, the Company issued 5,000 common stock warrants in connection
with financial consulting agreements. The warrants were granted at or above
fair market value, and no compensation expense was recorded. The warrants
were exercisable upon issuance and have no expiration date. None of these
warrants have been exercised. Information relating to these warrants is
summarized as follows:
Exercise
Number of Shares Price
---------------- -----
2,500 $ 40.00
2,500 $ 80.00
========
F14
<PAGE>
Imagica Entertainment, Inc.
Notes to Financial Statements
Stock Splits and Authorized Shares
----------------------------------
In July 1996, the Board of Directors authorized an increase in the number
of authorized shares of common stock from 6,250,000 to 50,000,000. In
October 1997, the Board of Directors authorized a 1-for-10 reverse stock
split for shareholders of record as of November 6, 1997. All common shares
and per share amounts have been adjusted to give effect to the reverse
stock split and increase in authorized shares.
10. Supplemental Cash Flow Information
Supplemental cash flow information is as follows:
1998 1997
---- ----
Cash paid for interest $ 22,113 $ 252,789
========== ==========
Noncash financing and investing activities:
Issuance of common stock as payment
for consulting services and compensation $ 206,640 $2,861,406
Reduction of note receivable paid by
increase in amounts due stockholder -- 177,500
Liabilities assumed by related party 610,883 --
Capital lease obligation assumed by related party 24,963 --
Long-term debt assumed by related party 57,342 --
Capital lease obligation incurred for
the purchase of equipment 14,260 --
Exercise of stock options paid by increase
in amount due stockholder -- 17,325
Common stock issued for reduction in
amounts due related party 240,000 216,000
Issuance of stock options for purchase
of treasury stock 12,200 --
Conversion of debentures -- 303,847
Interest expense from beneficial
conversion features 1,696,620 133,333
Debt discount recorded for issuance of
convertible notes payable at a discount 380,782 --
========== ==========
F15
EQUIPMENT LEASE
---------------
This equipment lease is made by and between FRL ENTERPRISES, INC. as Lessor
(hereinafter "FRL") and IMAGICA ENTERTAINMENT, INC. as Lessee (hereinafter
"IMAGICA") who agree as follows:
1. Introduction: FRL shall lease to Imagica certain sign making and inkjet
equipment (sometimes collectively "equipment"), as more particularly described
hereinafter, upon the terms and conditions set forth herein.
2. Sign Making Equipment Defined: The sign making equipment consists of the
following components which shall, for the purpose of this lease, be considered a
single unit:
A. Signmaking System-Computer, Software, Wide Format Plotter with Autofeed.
B. 1 each-Dell Dimension Pentium II @ 300MHz, Mid Tower Case, 128 Mb RAM,
8.4 Gb HDD, 32X Variable Speed CD ROM, Diamond Permedia 8 Mb Video Adapter,
Internal ZIP (EIDE), 17" Trinitron Monitor, U.S. Robotica 33/56K Modem,
Adaptec SCSI II Interface, Windows '95 Operating System, Microsoft Office
Small Business Edition, McAfee Antivirus, 3 year parts, 1 year On-Site
Labor.
C. Upgrade warranty to 3 years On-Site
D. 1 each-CASmate Pro Signmaking Software with Free Inspire Upgrade
includes 1200+ fonts and 2500+ pieces clipart.
E. 1 each-Graphic FC3100-120 Cutter.
3. Inkjet Equipment Defined: The inkjet equipment consists of the following
components which shall, for the purpose of this lease, be considered a single
unit:
A. 1 each MacIntosh Design Station with Unax Supermac 5900 Base/G3 250 MHz
(640E Processor), 166 MHz Cache (1 Mb), Mini Tower Case, 128 Mb RAM, 4 GB
HDD, 3.5" Floppy drive, 24x CD, IMS 128m Graphics Card (Millions of Color),
External lO0 Mb Zip drive, 21" High Resolution Graphics Monitor (.28 Dot
Pitch, 85Hz).
<PAGE>
Equipment Lease
FRL to Imagica
Page --2--
B. Application Software for Mac: Quark Express Version 4.0, Adobe
Illustrator Versions 7.0, Adobe Pagemaker Version 6.5, Macomedia Freehand
Version.8.0.
C. PC Design/RIP Station: Dell Powered Pentium II dual processor @ 300MHz,
tower case, 128 Mb RAM, 9 Gb SCSI HDD, 12-24X SCSI CD-ROM, Matrox Millennium 8
Mb Video Adapter, Internal SCSI Zip drive, 17" Trinitron Monitor, Adaptec SCSI
II interface card, Windows NT Server operating system, External SCSI Support for
printer, 3 years parts, 1 year on-site labor.
D. Application Software for PC: Corel Draw version 8.0 software suite.
E. Networking of the Adobe Systems: 1 each-100 Base-T Networking of Above
PC and MacIntosh Computer, includes network interface cards, 5-port 100 Base-T
hub, and 2X 50' Level II UTP cables.
F. 1 each-additional PC computers (up to total 5 mix/match PC/Mac.
G. Auxiliary Storage/Drive Options: 1 each-2 Gb Iomega External SCSI Jazz
Drive.
H. Piezo Print 5000 ColorBlend Inkjet Printer (MII Demo): 1 each-Large
format color ink jet printer for media from 24" up to 54", using high quality UV
(ultra violet) resistant and water resistant indoor/outdoor inks, 309 DPI, SCSI
II interface Cable, power cord, Bar Coded Reader and User Manual, Installation
included at no additional charge, printing system provides selectable printing
speeds of 90, 180, and 360 square feet hour.
I. 1 each-Onyx PosterShop Pro Software System, includes Size/Crop, tiling,
color correction, color calibration, preview/print, pipeline power surge,
PostScript Level 2 Interpreter, PlezoPrint Drive and manual.
J. 1 each-Option for Onyx Client Server: a powerful and productive queue
based system for stacking jobs, simultaneous job setup, process and printing.
<PAGE>
Equipment Lease
FRL to Imagica
Page --3--
K. 1 each-Installation Supplies Kit (required with all orders):
1. one set of four 1 qt. ink bottles
2. one full of 90G PVK bond media
3. one blotter kit for head cleaning; one - waste ink bottle.
L. Imaging Quality Scanner.
M. 1 each-Seal Image 600 dual Hot Roller Hot/Cold Laminator, 1 pass hot
sealing, requires 50-60 Hz, 208-230V AC single phase @ 30 A.
4. Lease Term: The term of this lease shall commence on
_______________,1998 and continue for a period of thirty-six (36) months unless
earlier terminated in accordance with the provisions of this equipment lease.
5. Security Deposit: At the commencement of this equipment lease, Imagica
shall pay to FRL a security deposit in the total amount of SIX THOUSAND ONE
HUNDRED DOLLARS ($6,100.00). This security deposit shall be held by FRL in a
segregated interest bearing account. In the event of non-payment of rent,
non-payment of taxes, or damage to the leased equipment, FRL may apply the
security deposit against money owed by Imagica. If at the termination of this
equipment lease all rent and taxes have been paid and the equipment returned to
FRL undamaged, ordinary wear and tear excepted, the security deposit and all
accrued interest shall be returned to Imagica within ten days of termination.
<PAGE>
Equipment Lease
FRL to Imagica
Page --4--
6. Rent: As rent for the sign making equipment, Imagica shall pay to FRL a
lump sum of ONE THOUSAND ONE HUNDRED DOLLARS ($1,100.00) per month, payable at
the commencement of this equipment lease (pro-rated) and on the first day of
each month thereafter. This lump sum rent shall not be either increased or
decreased as a result of production or output. As rent for the inkjet equipment,
Imagica shall pay to FRL a variable rent based upon the volume of production or
output produced through the use of the inkjet equipment (hereinafter
"throughput"). This variable rent shall be charged at the rate of ONE DOLLAR
($1.00) per square foot of throughput; provided however, in no event shall the
total rent for the inkjet equipment be less than FIVE THOUSAND DOLLARS
($5,000.00) per month, every month (hereinafter "minimum rent"). Throughput in
excess of 7,000 square feet in any month shall be paid in options to acquire
Imagica common stock rather than in cash. The terms and conditions of this stock
option are:
1) FRL shall be granted a prepaid option to acquire the number of shares
of common stock of Imagica equal to the product of 1.2 multiplied by
the quotient of the number of square feet in excess of 7,000 square
feet for the month (hereinafter "establishing month") divided by the
average per share market price for Imagica common stock during the
last five trading days of the establishing month.
2) All prepaid options to acquire common stock shall be calculated as of
the final day of each month for which throughput exceeds 7,000 square
feet (i.e.: each establishing month).
<PAGE>
Equipment Lease
FRL to Imagica
Page --5--
3) For each monthly option granted to FRL, FRL may for a period of three
years subsequent to the last day of the establishing month acquire
from Imagica all, or any portion, of the shares of common stock which
are subject to each granted option by giving written notice of
exercise of the option to Imagica on or before the last day of the
three year period.
4) Within fifteen days of written notice of exercise, Imagica shall issue
to FRL, at no cost to FRL, those shares of common stock set forth in
the notice of exercise.
Throughput in excess of five thousand square feet in any prior subsequent month
shall not be a credit against the minimum rent due for any month in which
throughput is less than five thousand square feet. The variable rent for the
inkjet equipment shall be payable weekly with each weekly payment being due on
Friday for the throughput produced during the seven day period which concludes
at the close of business on the Wednesday before the Friday upon which payment
is due. Any additional payment necessary to meet the required minimum rent shall
be paid within five days of the end of each calendar month.
7. Initial Month Proration: In the event that commencement of this
equipment lease is on any day other than first day of the calendar month, both
the first and last month of the lease will be pro-rated as to lump sum, variable
and minimum rent based upon the number of total days in that calendar month.
Otherwise, all lump sum, variable, and minimum rent shall be calculated and paid
based upon a calendar month.
<PAGE>
Equipment Lease
FRL to Imagica
Page --6--
8. Taxes: All Federal, State, or local taxes assessed as a result of this
equipment lease or ownership of the equipment (including but not limited to
sales tax and tangible personal property tax) shall be paid by Imagica to FRL at
the time the tax is due and FRL shall remit the tax to the proper authority.
9. Options to Renew: Imagica has the option; but not the obligation, to
renew this equipment lease for an additional thirty-six month period at the end
of its term upon the same terms and conditions as set forth in this equipment
lease except that "minimum rent", as defined in paragraph 6, shall be $1,250.00
per month. Alternatively, at the end of the initial lease term Imagica may
purchase the equipment for a sun equal to thirty-five percent (35%) of the
original purchase price paid by FRL. Provided however, nothing contained herein
shall be construed to convey any present ownership interest in the equipment to
Imagica unless and until the option to purchase is exercised and the purchase
price actually paid. In order to exercise either the option to renew or the
option to purchase, Imagica shall give written notice to FRL within sixty days
of the conclusion of the lease term. Failure to exercise either option within
this said sixty day period shall be deemed a forfeiture of both options.
<PAGE>
Equipment Lease
FRL to Imagica
Page --7-
10. Repair and Maintenance: FRL represents to Imagica that the equipment is
being purchased new by FRL and that Imagica will be the first user of the
equipment. Any eligible repairs or maintenance pursuant to the terms of any
manufacturer's or other warranty shall be made under the warranty and FRL and
Imagica shall cooperate together to facilitate such warranty repair. If extended
warranties are available, Imagica has the option but not the obligation to
purchase such extended warranties at its own expense in which event FRL shall
sign such documents as may reasonably necessary to purchase such extended
warranties which purchase must be prepaid by Imagica. All non-warranty repairs
and maintenance shall be performed by Imagica at its own expense (both as to
labor and material) when recommended by the manufacturer or when reasonable
necessary; whichever occurs first.
11. Termination for Cause: This equipment lease may be terminated by FRL in
the event any rent payment based upon monthly calculation remains unpaid for a
period of five calendar days or any rent payment based upon a weekly calculation
remains unpaid for a period of three calendar days. No notice of non payment
shall be necessary as a condition precedent to termination based upon
<PAGE>
Equipment Lease
FRL to Imagica
Page --8--
non-payment of rent. FRL may terminate this equipment lease in the event that
Imagica fails to maintain or repair the equipment within five calendar days of
written notice of demand for repair or maintenance. Likewise, FRL may terminate,
but is not required to terminate, this equipment lease if both Jeff Reed and
Bill White are discharged or constructively discharged from employment by
Imagica.
12. Surrender of Equipment: Within five calendar days from the date this
equipment lease terminates for any reason, Imagica shall peacefully surrender
the equipment to FRL in as good a condition as when originally delivered by FRL
to Imagica excepting only ordinary wear and tear.
13. Non-Removal: Without the prior consent of FRL, no portion of the
equipment may be removed from the current premises of Imagica located at 1518
S.W. 12th Avenue, Ocala, Florida.
14. Access: Upon reasonable notice and during normal business hours, FRL
shall be given full and complete access to inspect the equipment wherever the
equipment may be located on the premises of Imagica.
<PAGE>
Equipment Lease
FRL to Imagica
Page --9--
15. Non-Assignability: This equipment lease shall not be assigned by
Imagica without the prior written consent of FRL which consent may be granted or
denied in the sole discretion of FRL.
16. Notices: Any notice required to be in writing pursuant to the terms of
this equipment lease shall be deemed delivered when placed in the U.S. mail,
certified mail, return receipt requested, properly addressed with appropriate
postage affixed thereto. Notices required to be in writing shall be addressed as
follows:
as to Imagica:
1518 S.W. 12th Avenue, Ocala, Florida 34474.
As to FRL:
5500 S.E. 8th Street, Ocala, Florida 34471.
17. Attorney Fees: In the event that litigation arises as the result of any
claimed breach of this equipment lease, the prevailing party shall be entitled
to recover all costs of litigation; including a reasonable attorney fee.
FRL ENTERPRISES, INC.
/s/ Carol M. Monise By: /s/ Jeffrey M. Reed
- --------------------------- Name printed:
Witness Title/position: President
/s/ Olga Barrete
- ---------------------------
Witness
<PAGE>
STATE OF FLORIDA
COUNTY OF MARION
The foregoing instrument was acknowledged before me this 6th day of May,
1998 by Jeffrey M. Reed, as authorized representative of FRL ENTERPRISES, INC.,
who is personally known to me or who has produced _______________ as
identification and who did/did not take an oath.
[SEAL] Signature: /s/ Tracie M. Dawson
Print Name: Tracie M. Dawson
Title/ Rank:
My commission expires: 6-12-99
IMAGICA ENTERTAINMENT, INC.
/s/ Carol M. Monise
- -------------------------
Witness
By: /s/ Braxton P. Jones
Name printed: Braxton P. Jones
Title/position: President
- -------------------------
Witness
STATE OF FLORIDA
COUNTY OF MARION
The foregoing instrument was acknowledged before me this 6th day of May,
1998 by Braxton P. Jones, as authorized representative of IMAGICA ENTERTAINMENT,
INC., who is personally known to me or who has produced _______________ as
identification and who did/did not take an oath.
[SEAL] Signature: /s/ Tracie M. Dawson
Print Name:
Title/ Rank:
My commission expires: 6-12-99
RENEWAL NOTE
------------
Date of Note: October 14, 1998
Principal Amount: THREE HUNDRED FIFTY THREE THOUSAND NINE HUNDRED SEVENTY TWO
DOLLARS AND 70 CENTS; US$ 353,972.70
Maturity Date: September 14, 2001
Interest Rate: The annual rate of interest payable during the Amortization
Period, shall be equal to SunTurst Prime Rate + 1.0% per
annum. The interest accruing on the unpaid principal balance
shall be calculated on a daily basis, using a 360 day year,
as follows: For each day interest has accrued, the unpaid
principal balance shall be multiplied by the Interest Rate,
and the product shall then be divided by 360. The total
amount of interest accruing on the unpaid principal balance
shall be the sum of all such calculations.
Amortization
Period: From the date hereof through the Maturity Date.
Installment
Payment: A sum equal to TEN THOUSAND DOLLARS AND 00 CENTS,
($10,000.00) principal, plus all accrued interest at the
Interest Rate specified above for the Amortization Period.
First Installment
Payment Date: December 1, 1998
The Payee: SUNTRUST BANK, NORTH CENTRAL FLORIDA, a Florida banking
corporation
Payee's address: Post Office Box 310, Ocala, Florida 34478
FOR VALUE RECEIVED, the undersigned and if more than one, jointly and
severally (the Maker), does hereby covenant and promise to pay to the order of
the Payee, or to its successors or assigns, at its principal office, or at such
other place as the Payee may designate to the Maker in writing from time to
time, a legal tender of the United States, the Principal Amount together with
interest at the Interest Rate on the unpaid balance of the Principal Amount.
During the Amortization Period, the sums due and owing hereunder shall be
payable in monthly installments, each in the amount of the Installment Payment.
The first such Installment Payment shall be made on the First Installment
Payment Date and subsequent Installment Payments shall be due on the same day of
each month thereafter until the Maturity Date whereupon the entire unpaid
ballance of principal and interest accrued and unpaid thereon shall become due
and payable. Each such Installment Payment when paid shall be applied first to
the payment of interest on the unpaid balance at the Interest Rate and the
remainder thereof to payment on account of the principal.
If any Payment shall not be paid when due, then the entire principal sum
and accrued interest hereunder shall become due and payable at once or
thereafter, at the option of the holder of this Note. The Maker shall pay to the
Note holder a late charge of five percent (5%) of any Payment not received by
the Note holder within ten (10) days after the Payment is due to reimburse the
Payee for expenses of servicing delinquent Payments. Failure to exercise these
options shall not constitute a waiver of the right to exercise the same in the
event of any subsequent default.
It is further agreed that the Maker and each endorser, surety, guarantor,
jointly and severa1ly shall pay all costs of collection of this Note, including
a reasonable and just attorney's fee equal to ten percent (10%) of the original
principal sum named in this Note, and including all coats and expenses for any
retrial, rehearing or appeals, on failure to pay any Payment due hereunder on
the due date thereof. This Note and all sums due herenunder shall bear interest
at the highest lawful rate of interest per annum permitted in the State of
Florida from the date when the principal and accrued interest under this Note
shall be due and payable. Notwithstanding any term, condition, obligation or
provision herein to the contrary, it is the expressed intent of the Payee that
no interest, consideration or charge in excess of that permitted in the State of
Florida may be accrued, charged or taken or become payable hereunder. In the
event it is hereafter determined that the Payee of this Note has taken, charged
or reserved interest in excess of that permitted, whether due to prepayment,
acceleration, or otherwise, such excess shall be refunded to the Maker or
credited against the sums due the Payee hereunder. Such refund or credit shall
be Maker's sole and exclusive remedy for any interest taken, charged or reserved
in excess of that permitted in the State of Florida.
<PAGE>
This Note is secured by all of the following instruments granted in favor
of Payee (all of Which are collectively referred to in this Note as the
"Collateral"):
1. Two (2) Security Agreements dated Match 2, 1987.
2. Security Agreement dated February 11, 1988;
3. Two (2) Security Agreements dated September 24, l990;
4. The Ratification Of Loan Documents dated February 3, 1998 together
with all Loan Documents referenced therein.
5. The Ratification of Loan Documents of even date together with all loan
documents referenced therein.
Reference is hereby made to the Collateral for a description of the property,
the nature and extent of the security, the rights of the Payee in respect
thereof and the terms and conditions upon which this Note is issued.
The Maker agrees that it shall be bound by any agreement extending the time
or modifying the above terms of payment, made by the Payee and the owner or
owners of the properly affected by the Security Agreements and/or Loan Documents
referenced above, whether with or without notice to the Maker, and the Maker
shall continue to be liable to pay the amount due hereunder, but with interest
at a rate no greeter than the Interest Rate, according to the terms of any such
agreement of extension or modification.
The unpaid balance of the Principal Amount, plus accrued Interest, shall
become due and payable at the option of the Payee under the happening of an
event by which said balance shall or may become due and payable under the terms
of the Security Agreements and/or Loan Documents referenced above.
This Note may not be changed orally, but only by an agreement in writing,
signed by the party against whom enforcement of any waiver, change, modification
or discharge is sought.
As used herein, the term "Payment" means any payment which is due under the
terms of this Note.
All parties to this Note, whether Maker, principal, surety, guarantor or
endorser, hereby waive presentment for payment, demand, protest, notice of
protest, and notice of dishonor, and expressly agree jointly and severally to
remain and continue bound for the payment of the principal and interest provided
for by the terms of this Note, notwithstanding any extension or extensions of
the time of, or for the payment of said principal or interest, or any change or
changes in the amount or amounts agreed to be paid under or by virtue of the
obligation to pay provided for in this Note, or any change or changes by way of
release or surrender or substitution of any real property and collateral, or
either, held as security for this Note, and waive all and every kind of notice
of such extension or extensions, change or changes, and agree that the same may
be made without the joinder of the Maker.
This Note is a renewal of the following promissory note (the "Initial
Note"):
Date Original Principal Present Principal
---- ------------------ -----------------
September 23, 1998 $158,972.70 $153,972.70
October 14, 1998 $200,000.00 $200,000.00
Maker represents and warrants to Payee that prior to Maker's execution of this
Note, Maker has independently conducted a diligent search and inquiry to
determine the existence of any facts or circumstances which may, directly or
indirectly, give rise to any defenses to the payment of this Note or the Initial
Notes; any right of set-off or off-set to the amounts due under this Note or the
Initial Notes; or any claims or counter-claims against Payee; and there are no
such defenses, set-offs, off-sets, claims, or counter-claims of any nature
whatsoever.
IMAGICA ENTERTAINMENT, INC., a
Florida corporation f/k/a RANGER
INTERNATIONAL, INC., a Florida
corporation
BY: /s/ Braxton Jones
----------------------------------
Braxton Jones, as President
Maker's Address:
Post Office Box 2121
Ocala, Florida 34478
<PAGE>
SANDWICH NOTE
-------------
Date of Note: October 14, 1998
Principal Amount: TWO HUNDRED THOUSAND AND 00/100 ($200,000.00) DOLLARS
Maturity Date: October 14, 1998
Interest Rate: The annual rate of interest payable during the Amortization
Period shall be equal to SunTrust Prime Rate + 1.0% per
annum, The interest accruing at the unpaid principal balance
shall be calculated on a daily basis, using a 360 day year,
as follows: For each day interest has accrued, the unpaid
principal balance shall be multiplied by the Interest Rate,
and the product shall then be divided by 360. The total
amount of interest accruing on the unpaid principal balance
shall be the sum of all such calculations.
The Payee: SUNTRUST BANK, NORTH CENTRAL FLORIDA, a Florida banking
corporation
Payee's address: Post Office Box 310, Ocala, Florida 34478
FOR VALUE RECEIVED, the undersigned and if more than one, jointly and
severally (the Maker), does hereby covenant and promise to pay to the order of
the Payee, or to its successors or assigns, at its principal office, or at such
other place as the Payee may designate to the Maker in writing from time to
time, in legal test of the United States, the Principal Amount together with
interest at the Interest Rate on the unpaid balance of the Principal Amount.
During the Interest Period, interest from the date of each advance, at the
Interest Rate specified above, shall be payable monthly on the first day of the
month following the month in which the first advance is made and on the first
day of each month thereafter.
The entire unpaid principal balance, plus all unpaid, accrued interest,
shall be due and payable on the Maturity Date.
If any Payment shall not be paid when due, then the entire principal sum
and accrued interest hereunder shall become due and payable at once or
thereafter, at the option of the holder of this Note. The Maker shall pay to the
Note holder a late charge of five percent (5%) of any Payment not received by
the Note holder within ten (10) days after the Payment is due to reimburse the
Payee for expenses of servicing delinquent Payments. Failure to exercise these
options shall not constitute a waiver of the right to exercise the same in the
event of any subsequent default.
The interest accruing on the unpaid principal balance shall be calculated
on a daily basis, using a 360 day year, as follows: For each day interest has
accrued, the unpaid principal balance shall be multiplied by the Interest Rate,
and the product shall then be divided by 360. The total amount of interest
accruing on the unpaid principal balance shall be the sum of all such
calculations.
It is further agreed that the Maker and each endorser, surety, guarantor,
jointly and severally, shall pay all coats of collection of this Note, including
a reasonable and just attorney's fee equal to ten percent (10%) of the original
principal sum named in this Note, and including all costs and expenses for any
retrial, rehearing or appeals, on failure to pay any Payment due hereunder on
the due date thereof. Notwithstanding any rate of interest provided herein, this
Note; and all sums due hereunder and all sums awarded to Payee in any judgment
or decree entered in any action or proceeding based on this Note; shall bear
interest at the highest lawful rate of interest per annum allowed by the State
of Florida from and after the date of any default. Notwithstanding any term,
condition, obligation or provision herein to the contrary, it is the expressed
intent of the Payee that no interest, consideration or charge in excess of that
permitted in the State of Florida may be accrued, charged or taken or become
payable hereunder. In the event it is hereafter determined that the Payee of
this Note has taken, charged or reserved interest in excess of that permitted,
whether due to prepayment, acceleration, or otherwise, such excess shall be
refunded to the Maker or credited against the sums due the Payee hereunder. Such
refund or credit shall be Maker's sole and exclusive remedy for any interest
taken, charged or reserved in excess of that permitted in the State of Florida.
This Note is secured by the following instruments granted in favor of Payee
(all of which are collectively referred to in this Note as the "Collateral"):
1. Two (2) Security Agreements dated March 2, 1987;
2. Security Agreement dated February 11, 1988;
3. Two (2) Security Agreements dated September 24, 1990;
<PAGE>
4. The Ratification Of Loan Documents dated February 3, 1998 together
with all Loan Documents referenced therein.
5. The Ratification of Loan Documents of even date together with all loan
documents referenced therein.
The Maker agrees that it shall be bound by any agreement extending time or
modifying the above terms of payment, made by the Payee and the owner or owners
of the property affected by the Mortgage, whether with or without notice to the
Maker, and the Maker shall continue to be liable to pay the amount due
hereunder, but with interest at a rate no greater than the Interest Rate,
according to the terms of any such agreement of extension or modification.
The unpaid balance of the Principal Amount, plus accrued interest, shall
become due and payable at the option of the Payee under the happening of an
event by which said balance shall or may become due and payable under the terms
of the Security Agreements and/or Loan Documents referenced above.
This Note may not be changed orally, but only by an agreement in writing,
signed by the party against whom enforcement of any waiver, change, modification
or discharge is sought.
As used herein, the term "Payment" means any payment which is due under the
terms of this Note.
Payee is hereby given a lien upon and a security interest in all property
of each Maker now or at any time hereafter in the possession of Payee in any
capacity whatsoever, including but not limited to, any balance or share of any
deposit, trust, or agent account, as security for the payment of this Note, and
a similar lien upon and security interest in all such property of each Maker as
security for the payment of all other liabilities of each Maker to Payee
(including 1iabi1ities of each Maker and any other person); all such property is
referred to herein as the Collateral.
Upon the occurrence of any default hereunder Payee shall have the remedies
of a secured party under the Uniform Commercial Code and, without limiting the
generality of the foregoing, Payee shall have the right, immediately and without
further action by it, to set off against the Note all money owed by Payee in any
capacity to each or any Obligor, whether or not due, and also to set off against
all other liabilities of each Maker to Payee all money owed by Payee in any
capacity to each or any Maker; and Payee shall be deemed to have exercised such
right of set-off and to have made a charge against any such money immediately
upon the occurrence of such default even though such a charge is made or entered
on the books of Payee subsequent thereto. Unless the Collateral is perishable,
or threatens to decline speedily in value or is of a type customarily sold on a
recognised market, the Payee will give Maker reasonable notice of the time and
place of any public sale thereof or of the time after which any private sale or
any other intended disposition thereof is to be made. The requirement of
reasonable notice shall be met if such notice is mailed, postage prepaid, to any
Maker at the address given below or at any other address shown on the records of
the Payee, at least five days before the time of the sale or disposition. Sale
at a wholesale dealers' auction is a commercially reasonable disposition. Upon
disposition of any Collateral after the occurrence of any default hereunder,
Maker shall be and remain liable for any deficiency; and Payee shall account to
Maker for any surplus, but Payee shall have the right to apply all or any part
of such surplus (or to hold the same as a reserve) against any and all other
liabilities of each or any Maker to Payee. The Obligors, jointly and severally,
promise and agree to pay all costs and expenses of collection and reasonable
attorneys' fee, including costs, expenses and reasonable attorneys' fees on
appeal, if collected by legal proceedings or through an attorney at law.
Payee shall exercise reasonable care in the custody and preservation of the
Collateral to the extent required by applicable statute, and sha11 be deemed to
have exercised reasonable care if it takes such action for that purpose as Maker
shall reasonably request in writing, but no omission to do any act not requested
by Maker shall be deemed a failure to exercise reasonable care, and no omission
to comply with any request of Maker shall of itself be deemed a failure to
exercise reasonable care. Payee shall not be bound to take any steps necessary
to preserve any rights in the Collateral against prior parties and Maker shall
take all necessary steps for such purposes. Payee or its nominee need not
collect interest on or principal of any Collateral or give any notice with
respect to it.
Payee shall have the right, which may be exercised at any time whether or
not this Note is due, to notify the Obligors on any Collateral to make payment
to Payee on any amounts due or to become due thereon. In the event of any
default hereunder, Payee shall thereafter have, but shall not be limited to, the
following rights: (i) to pledge or transfer this Note and the Collateral and
Payee shall thereupon be relieved of all duties and responsibilities hereunder
and relieved from any and all liability with respect to any Collateral so
pledged or transferred, and any pledgee or transferee shall for all purposes
stand in the place of Payee hereunder and have all the rights of Payee
hereunder; (ii) to transfer the whole or any part of the Collateral into the
name of itself or its nominee; (iii) to vote the Collateral; (iv) to demand, sue
for, collect, or make any compromise of settlement it deems desirable with
reference to the Collateral; and (v) to take control of any proceeds of
Collateral.
<PAGE>
All parties to this Note, whether Maker, principal, surety, guarantor or
endorser, hereby waive presentment for payment, demand, protest, notice of
protest, and notice of dishonor, and expressly agree jointly and severally to
remain and continue bound for the payment of the principal and interest provided
for by the terms of this Note, notwithstanding any extension or extensions of
the time of, or for the payment of said principal or interest, or any change or
changes in the amount or amounts agreed to be paid under or by virtue of the
obligation to pay provided for in this Note, or any change or changes by way of
release or surrender or substitution of any real property and collateral, or
either, held as security for this Note, and waive all and every kind of notice
of such extension or extensions, change or changes, and agree that the same may
be made without the joinder of the Maker.
IMAGICA ENTERTAINMENT, INC., a
Florida corporation f/k/a RANGER
INTERNATIONAL, INC., a Florida
corporation
BY: /s/ Braxton Jones
----------------------------------
Braxton Jones, as President
Maker's Address:
Post Office Box 2121
Ocala, Florida 34478
<PAGE>
SunTrust Bank, North Central Florida
Corporate Lending Division
Post Office Box 310
Ocala, Florida 34478-0310
(352)368-6277
The information contained in this facsimile transmission is intended only for
the use of the individual or entity named and may contain information that is
priveledged or confidential. If the reader of this message is not the intended
recipient, or the employee or agent responsible to deliver it to the intended
recipient, you are hereby notified that any dissemination, distribution or
copying of this communication is strictly prohibited. Receipt by anyone other
than the intended recipient is not a waiver of any attorney-client or
work-product privilege. If you have received this communication in error, please
notify us by telephone at (352)368-6277 immediately. We would appreciate your
returning the original transmission to us at the above address via United States
mail.
You should receive 7 page(s) including this cover sheet. If you do not receive
all the pages from this transmission, please call our office at the
aforementioned number.
TO: Mary Collins - Imagica Entertainment, Inc.
Fax # 352-867-1212
FROM: James C. Maguire, Senior Vice President Direct Phone# (352) 368-6277
Mail Code: FL - Ocala -2011
SunTrust Bank, North Central Florida
DATE: January 12, 1999
RE: Loan Documents
Attached for your file is a copy of the executed Promissory Notes & Loan Closing
Statement. If you should have any questions relative to the attached letter,
please feel free to call me.
<PAGE>
RENEWAL LOAN CLOSING STATEMENT
------------------------------
Lender: SUNTRUST BANK, NORTH CENTRAL FLORIDA, a Florida banking
corporation
Borrower: IMAGICA ENTERTAINMENT, INC. a Florida corporation
Guarantors: JEFFREY SEDACCA, HOWARD P. ESSENFELD and WILLIAM R. KLEIN
Date: October 14, 1998
Renewal Loan Amount:
A. Renewal $153,972.70
B. Future Advance $200,000.00
$353,972.70
- --------------------------------------------------------------------------------
Disbursements:
1. Florida Department of Revenue $700.00
A. Documentary Stamps on Transaction $700.00
2. SunTrust Bank, North Central Florida $1,853.27
A. Loan Service Fee $1,000.00
B. $0.00
3. Attorneys' Title Insurance Company $70.00
A. Marion County UCC Search $50.00
B. State of Florida UCC Search $20.00
4. Ayres, Cluster, Curry, McCall & Briggs, P.A.
(Attorneys' Fee and Costs) $900.00
TOTAL DISBURSEMENT DUE AT CLOSING: $2,670.00
Borrower and Guarantors hereby acknowledge receipt of a copy of the Renewal
Note, Sandwich Note, Ratification of Loan Documents, Subordination of Debt to
Bank Loan, Guaranty Agreements, and all other loan documents and approve this
Renewal Loan Closing Statement. Borrower and Guarantors hereby authorize Lender
to disburse all proceeds in accordance with this Renewal Loan Closing Statement.
"BANK"
SUNTRUST BANK, NORTH CENTRAL
FLORIDA, a Florida banking corporation
By: /s/ James C. Maguire
------------------------
James C. Maguire, as Senior Vice President
"GUARANTORS" "BORROWER"
/s/ Jeffrey Sedacca IMAGICA ENTERTAINMENT, INC., a
- ------------------- Florida corporation
JEFFREY SEDACCA
/s/ Howard P. Essenfeld
- ----------------------- By: /s/ Braxton Jones
HOWARD P. ESSENFELD ------------------------
Braxton Jones, as President
/s/ William R. Klein
- --------------------
WILLIAM R. KLEIN (CORPORATE SEAL)
<PAGE>
RATIFICATION OF LOAN DOCUMENTS
The undersigned, IMAGICA ENTERTAINMENT, INC., a Florida corporation f/k/a
RANGER INTERNATIONAL, INC., a Florida corporation (referred to herein as
"Imagica"), the Borrower under the loan documents in favor of SunTrust Bank,
North Central Florida, a Florida banking corporation, formerly known as Sun
Bank/North Central Florida, a Florida banking corporation, formerly known as Sun
Bank Of Ocala, a Florida banking corporation ("SunTrust"), listed below,
acknowledge having received a copy of the Renewal Note in the amount of Three
Hundred Fifty Three Thousand Nine Hundred Seventy Two and 70/100 ($353,972.70)
Dollars, to be executed by Imagica, and further acknowledge:
1. Imagica hereby consents to the execution and delivery of the Renewal
Note and all other documents necessary or appropriate for the renewal.
2. Imagica also hereby ratifies and confirms that the following documents
are, and shall remain, in full force and effect:
a. All documents listed on the attached Exhibit A, and:
b. Any and all documents referred to, referenced by or relating to
the documents listed in the attached Exhibit A.
3. SunTrust and Imagica hereby reinstate, effective October 14, 1998, the
SunTrust Lockbox Agreement dated March 23, 1993 as amended by the Agreement for
Segregation and Use of Cash Collateral dated April 5, 1996.
4. Imagica represents and warrants to SunTrust that prior to executing this
instrument, Imagica has independently conducted a diligent search and inquiry to
determine the existence of any facts or circumstances which may, directly or
indirectly, give rise to any defenses to the payment of this Note or the Initial
Notes; any right of set-off or off-set to the amounts due under this Note or the
Initial Notes; or any claims or counter-claims against Payee; and there are no
such defenses, set-offs, off-sets, claims, or counter-claims of any nature
whatsoever. Notwithstanding, to the extent that Imagica has any such defenses,
claims or counter-claims, Imagica hereby waives and releases any such defenses,
claims or counter-claims may have against SunTrust as of the date of this
agreement.
5. SunTrust and Imagica hereby mutually agree to waive a trial by jury in
any action or proceeding, (including, without limitation, all complaints,
counterclaims and third-party claims),
<PAGE>
arising from or relating to, directly or indirectly, the Loan or the making,
interpretation, administration or enforcement of the Loan. The parties have
specifically discussed this Waiver, and all parties acknowledge that it is a
material inducement for SunTrust's renewing the Loan to Imagica. As used in this
Waiver, the term "Loan" means the loan or loans from SunTrust to Imagica; the
note or notes evidencing the loan; any loan agreement under which the Loan was
made, any and all documents executed or delivered in connection with the Loan;
any future advances, modifications, extensions or renewals of the Loan; any
guaranty agreements, executed by Jeffrey Sedacca or Howard P. Essenfeld or
William R. Klein; and any other documents, communications or representations,
oral or written, that any party makes to the other in connection with the
making, interpretation, administration or enforcement of this Loan. This Waiver
shall be binding upon the parties hereto, their legal representatives,
successors and assigns; and shall be construed and interpreted in accordance
with the laws of the State of Florida.
IN WITNESS WHEREOF, this Ratification of Loan Documents was executed this
15 day of December, 1998.
Signed, sealed and delivered
in our presence as witnesses:
IMAGICA ENTERTAINMENT, INC., a Florida
corporation f/k/a
RANGER INTERNATIONAL, INC.,
a Florida corporation
/s/
- ------------------------------
Name:
------------------------
Please Type or Print
BY: /s/ Braxton Jones
---------------------------------
Braxton Jones, as President
/s/ Olga Barreto
- ------------------------------
Name: Olga Barreto
------------------------
Please Type or Print
SUNTRUST BANK, NORTH CENTRAL FLORIDA,
a Florida Banking corporation, f/k/a
SunBank/North Central Florida, a
Florida banking corporation f/k/a
SunBank of Ocala, a Florida Banking
corporation
/s/
- ------------------------------
Name:
-------------------------
Please Type or Print
BY: /s/ James C. Maguire
---------------------------------
James C. Maguire, as Senior Vice
President
/s/ Olga Barreto
- ------------------------------
Name: Olga Barreto
-----------------------
Please Type or Print
2
<PAGE>
EXHIBIT A TO THAT CERTAIN
-------------------------
RATIFICATION OF LOAN DOCUMENTS DATED October 14, 1998
-----------------------------------------------------
DOCUMENT DATE
- --------------------------------------------------------------------------------
Renewal Note ($487,283.44) 11/17/95
Renewal Note ($242,283.44) 01/13/97
Renewal Note ($188,886.20) 02/03/98
Renewal Note ($158,972.70) 09/23/98
Sandwich Note ($200,000.00) 10/14/98
Renewal Note ($353,972.70) 10/14/98
Security Agreements,
UCC-1 Financing Statements ("USS-1s"),
and UCC-3 Statements of Change ("UCC-3s"):
A. Security agreement (Inventory, Accounts Receivable and Contract
Rights) dated March 2, 1987;
B. Security Agreement (Equipment and Consumer Goods) dated March 2, 1987;
C. Security Agreement (Equipment and Consumer Goods) dated February 11,
1988;
D. Security Agreement (Equipment and consumer Goods) dated September 24,
1990;
E. Security Agreement (Inventory and Accounts dated September 24, 1990;
F. UCC-1 filed on July 17, 1992, with the Secretary of State, State of
Florida under File No. 920000144700;
G. UCC-1 recorded on July 16, 1992, in Official Records Book 1847, Page
1354 of the public records of Marion County, Florida:
H. UCC-3 filed on March 25, 1993, with the Secretary of State, State of
Florida under File No. 93000006394 (relating to that certain UCC-1
filed on July 17, 1992, with the Secretary of State, State of Florida
under File No. 920000144700); and
I. UCC-3 recorded on March 23, 1993, in Official Records Book 1910, page
1506 of the public records of Marion County, Florida (relating to that
certain UCC-1 recorded on July 16, 1992 in Official Records Book 1847,
Page 1354 of the public records of Marion County, Florida;
J. UCC-1 filed on October 21, 1996, with the Secretary of State, State of
Florida under File No. 960000221560-4;
K. UCC-1 recorded on October 18, 1996, in Official Records Book 2298,
Page 1236 of the public records of Marion County, Florida;
Loan Agreement 07/15/92
Modification of Loan Agreement 03/22/93
Second Modification of Loan Agreement 05/27/93
Third Modification of Loan Agreement 08/22/95
Fourth Modification of Loan Agreement 11/17/95
Subordination Of Debt To Bank Loan 11/17/95
Corporate Borrowing Resolution 11/17/95
Affidavit Of Ownership 11/17/95
Loan Closing Agreement 11/17/95
Account Signature Card 01/09/95
Corporate Deposit Account Resolution 01/09/95
Rules and Regulations for Deposit Accounts
SunBank Lockbox Agreement and 03/23/93
Lockbox Operating Instructions
Collateral Assignment 07/15/92
Agreement for Segregation and Use
Of Cash Collateral 04/05/96
Guaranty Agreement 11/17/95
- ---------------------
(1) SunTrust and Imagica agree that the obligations of Imagica are also
governed by all Loan Documents referred to or relating to the Loan
Documents listed on this Exhibit A, which documents may not be listed or
attached as Part of this Exhibit A.
LEASE
THIS LEASE made as of the Lease Date by and between Landlord and Tenant.
W I T N E S S E T H:
--------------------
ARTICLE I
TERMS/PREMISES
--------------
Section 1.01 Terms.
Landlord Name
and Address: Bernadette Castro
95 Forest Avenue
Locust Valley, New York 11560
Tenant Name
and Address: Imagica Entertainment, Inc.
1518 S.W. 12th Avenue
Ocala, Florida
Tenant Trade Name: Imagica Entertainment
Permitted Use: Warehouse/Fabrication of banners for promotional events
Tenant Tax I.D.
Number 59-2762999
Premises: 1420 S.W. 12th Avenue, Ocala Florida, as more particularly
described on Exhibit A attached hereto
Lease Date: Commencement Date
Commencement Date: Effective Date
Rental
Commencement Date: The earlier of (a) the date the tenant shall open for
business or obtain a Certificate of Occupancy or business
license (b) after receipt of construction permit, or (c)
after the date of this lease (d) 90 days from lease signing.
Lease Expiration
Date: December 31, 2014, subject to earlier termination and
Tenant's option to extend the term as set out below
Rent: See Schedule "A" attached
Initial Security
Deposit $7,000.00
Broker None
Section 1.02 Premises.
In consideration of the rents, covenants and agreements made by Tenant,
Landlord leases to Tenant the Premises.
Section 1.03 Terms and Commencement.
(a) The term of this Lease shall commence on the Commencement Date. The
term of this Lease shall end on the Lease Expiration Date without any further
notice.
ARTICLE II
RENT
----
Section 2.01 Payment of Rent.
Tenant shall pay to Landlord, Minimum Rent in equal monthly installments,
in advance on the first day of each and every calendar month as provided in
Schedule "A". Tenant hereby covenants and agrees to pay to Landlord "Minimum
Rent", and other charges, as herein provided which are deemed rent hereunder and
collectively herein called "Rent", without any prior demand, deduction or setoff
whatsoever. Rent shall be paid to the Landlord, at Landlord's Address, or at
such other place or person as may be designated in writing from time to time by
Landlord. Minimum Rent shall adjust as set out herein on each anniversary of the
Rental Commencement Date.
<PAGE>
Any payment not received by Landlord by the date it is due shall be
considered late and a default of the terms hereof.
If Rent is not received by Landlord by ten (10) days after it is due, it
shall be subject to an automatic late charge of 10% of such Rent. After default,
all such charges, along with the late Rent, shall be paid in the form of a
cashier's check, certified check or money order. Acceptance of the Rent or any
portion thereof without the automatic late charge shall not constitute a waiver
of such charges. The payments set out herein are compensation to the Landlord
for risk and effort relating to failure to make timely payment by Tenant and are
not interest. In addition to the payments set out herein any amount due from
Tenant to Landlord hereunder which is not paid when due shall bear interest at
the highest rate of interest allowed by law (but not to exceed eighteen percent
per annum) from the date due until paid unless otherwise specifically provided
herein, but the payment of such interest shall not excuse or cure any default by
Tenant under this Lease.
If Tenant's Rent check is returned for any reason, any applicable late
charge shall continue to accrue and Tenant shall be in default of its
obligations hereunder. Landlord's attempt to redeposit a returned check shall
not be a waiver of the default resulting from the returned check and payment
shall be deemed received when the check is accepted for payment. Returned checks
must be redeemed by cashier's check or money order. In the event more than two
(2) Rent checks are returned, in any 12 month period, then the next 12 Rent
payments must be paid by cashier's check, certified check or money order.
The first rental payment date shall be due on the Rental Commencement Date.
If the Rental Commencement Date is a day other than the first day of the
calendar month, then Tenant shall pay on the first payment date a pro rata
portion of the fixed Minimum Rent and Additional Rent prorated on per diem basis
with respect to the fractional calendar month.
Section 2.02 Security Deposit.
Landlord acknowledges receipt from Tenant of the Initial Security Deposit.
Tenant agrees to execute such documents as reasonably requested by Landlord
to perfect such interest. Tenant shall deliver to Landlord on or before the
Rental Commencement Date a Security Deposit in the amount of $300,000 (the
"Additional Security Deposit"). The Initial Security Deposit and any additional
Security Deposit delivered to Landlord hereunder shall, without interest, be
refunded to Tenant after termination of this Lease, Landlord, at its sole
option, may apply all or part of such Security Deposit to cure any default.
Tenant shall promptly restore any deficiency in the Security Deposit. Tenant
waives the benefit of any law requiring the Security Deposit to be held in
escrow or in trust, and the Security Deposit may be commingled with Landlord's
other fund.
Notwithstanding anything to the contrary contained herein Tenant shall not
be required to deliver to Landlord the Additional Security Deposit if on or
before the Rental Commencement Date, Tenant delivers to Landlord evidence that
it has spent in excess of $300,000 on Building Improvements as hereinafter
defined and that all Building Improvements have been paid for in full. Land1ord
acknowledges a portion of $300,000 will be paid by Landlords funds pursuant to a
separate agreement between Landlord and Tenant.
Provided, Tenant shall have made all payments and performed all its
obligations as set out herein, the Security Deposit, without interest, shall be
refunded to Tenant after termination of this Lease. Landlord, at its sole
option, may apply all or part of such Security Deposit to cure any default.
Tenant shall promptly restore any deficiency in the Security Deposit. Tenant
waives the benefit of any law requiring the Security Deposit to be held in
escrow or in trust, and the Security Deposit may be commingled with Landlord's
other fund.
Section 2.03 Rent.
All other amounts due Landlord by Tenant under this Lease shall be deemed
Rent hereunder including without limitation any monies paid or any expenses
incurred by Landlord in correction of any violation or any covenant of Tenant,
the amounts paid or incurred shall be considered additional rent payable by
Tenant with the first installment of rent thereafter to become due and payable,
and may be collected or enforced as provided in this Lease.
Section 2.04 Sales Taxes.
Tenant shall pay to Landlord or to the appropriate agency any and all
sales, excise, transfer and other taxes (not including, however, Landlord's
income taxes) levied, imposed or assessed by any taxing authority upon this
Lease or Rent payable hereunder.
2
<PAGE>
ARTICLE III
TAXES
-----
Section 3.01. Personal Property Taxes.
Tenant shall pay all personal property taxes levied by any federal, state,
municipal or other authority ("governmental Authority") with respect to its
property located on the Premises.
Section 3.02. Ad Valorem Taxes; Charges and Assessments; and Utility Charges.
(a) In addition to the Minimum Rent referred to above, Tenant shall pay
(and shall provide to Landlord written evidence of such payment) throughout the
term of this Lease, as additional rent hereunder, before any fine, penalty,
interest or cost may be added and taking full advantage of all discounts
theretofore the non-payment thereof or on such earlier date as may be required
by the holder of any mortgage secured by the Premises, but in any event by the
due date thereof:
(i) all ad valorem, levies, taxes (to the extent installments are
allocable to the period during the term hereof), (to the extent
such payments are required to be made in lieu of taxes),
assessments, liens, licenses and permit fees, and charges for
public utilities imposed, assessed or charged on or with respect
to Landlord or the Premises by any Governmental authority or
under any law, ordinance, or regulation of any governmental
Authority ("Law"); and
(ii) any assessments, charges, levies or other impositions imposed,
assessed or charged on or with respect to Landlord or the
Premises pursuant to the terms and provisions of any agreement,
covenant, easement, restriction, declaration binding or effecting
the Premises, or otherwise required by Governmental Authority
(all such terms and provisions referred to in this subsection
(ii) being herein collectively called "recorded agreements");
provided that Tenant shall not be obligated to perform under any
agreements entered into by Landlord from and after the date
hereof.
(iii)All other charges, imports or burdens of whatever kind and
nature under any Governmental or public power or authority
whatsoever for services rendered to Tenant during the term hereof
("Utility Charges"), if, however, at any time during the term
hereof, the methods of taxation prevailing at the Commencement
Date shall be altered so that, by virtue of new legislation which
either specifically provides or demonstrates by its legislative
history that the taxes or fees therein levied, assessed or
imposed are in lieu of or a substitute for the whole or any part
of the taxes then levied, assessed or imposed on real estate and
the improvements thereon, or there shall be levied, assessed and
imposed (a) a tax, wholly or partially as a capital levy or
otherwise, on the rents received therefrom, (b) a tax measured by
or based in whole or in part upon the Premises and imposed upon
Landlord, or (c) a tax or license fee measured by the rent
payable to Landlord hereunder, then to the extent that Landlord
shall be required to pay any such tax which is attributable to
the Premises, Tenant shall pay and discharge the amount thereof
related to the Premises.
All of the items specified in clauses (i), (ii) and (iii) of the
preceding sentence are hereinafter collectively referred to as
"Taxes".
(b) Notwithstanding the provisions of the previous paragraph of this
Article, the term "Taxes" and the obligation of Tenant to pay Taxes, shall not
include any municipal, state or federal taxes assessed against inheritance, or
transfer taxes upon Landlord, or any franchise, taxes imposed upon any
corporation, or any net income, net profits or net revenue tax, assessment or
charge imposed upon the net rent received by Landlord under this Lease.
(c) All Taxes that become payable for the first and last tax years during
the term shall be apportioned between Landlord and the Tenant in such a manner
that Tenant shall only be obligated to pay Taxes applicable to the term. In the
initial year of the Lease Tenant shall be responsible for all taxes relating to
the period from and after the execution of this Lease.
(d) If any holder of Mortgage on the Premises requires monthly escrow of
Taxes, Tenant shall make such payments on behalf of Landlord to such mortgage
holder upon notice of its address and shall receive a credit for amounts paid to
such mortgage holder against amount due under Section 3.02(a).
3
<PAGE>
ARTICLE 1V
IMPROVEMENTS, REPAIRS AND ALTERATIONS
-------------------------------------
Section 4.01 Tenant's Work.
Landlord shall not be responsible for any improvements to the Premises.
Tenant takes the Premises in "AS IS" condition. Tenant, at its own cost and
expense, shall be responsible for all improvements necessary to prepare the
Premises to open for its Permitted Use including, without limitation, trade
fixtures, furnishing and equipment, connection and submetering of all utilities
to the space including without limitation water, as well as any improvements
Tenant is otherwise authorized to make during the term of the Lease
(collectively "Tenant's Work"). All Tenant's Work shall be diligently performed
in a good and workmanlike fashion. Before any such improvements are made, Tenant
shall submit its plans, drawings, specifications, the name of its general
contractor together with its insurance coverage for Landlord's approval which
shall not be unreasonably withheld. Tenant shall be responsible for the
reasonable cost of professionals retained by Landlord to review said plans,
drawings and specifications. Landlord shall not mark up the cost of said review
by professionals and the cost of such review shall not exceed $2,500.00. Tenant
may not do any work, as part of Tenant's Work which requires permits without
Landlord's approval. If Tenant's Work is not completed as required herein,
subject to Notice and Cure provisions as provided herein, Landlord may enter
upon the Premises and do what is required to complete Tenant's Work, including
without limitation, proceeding with Tenant's contracts, contractors and
equipment. Landlord shall have no liability to Tenant for any loss or damage
resulting from such action and Tenant shall pay to Landlord upon demand any
expense incurred in taking such action. Any work done by Landlord in the
Premises on the Tenant's behalf shall upon Landlord's request, be paid for by
the Tenant in advance.
Section 4.02 Plan for Tenant Work Schedule
Within thirty (30) days after the Effective Date, Tenant, at Tenant's sole
cost and expense shall cause to be prepared and delivered to Landlord for
Landlord's approval three (3) copies of detailed plans of the interior of the
Premises showing all improvements Tenant intends to make. The Landlord shall
promptly notify the Tenant of the respects, if any, in which the plans are
disapproved and Landlord will mark its comments thereon. Tenant shall, within
twenty (20) days after Landlord's request, at its sole cost and expense, make
the revisions necessary to incorporate Landlords's comments and deliver the
revised plans to Landlord for Landlord's approval. The Landlord's approval shall
be evidenced by the Landlord causing one (1) set of the plans to be initialed on
its behalf and returned to Tenant. After the Landlord has approved the plans,
then, within twenty (20) days thereafter, at the Tenant's sole cost and expense,
Tenant shall cause to be prepared and delivered to Landlord, four (4) sets of
working drawings and specifications (the "working drawings") prepared by a
registered and licensed architect approved by the Landlord indicating the
specific requirements of Tenant's space. The Landlord shall promptly notify
Tenant of the respects, if any, in which the working drawings fail to conform to
the approved preliminary plans or are otherwise unacceptable and Tenant shall
promptly make any revisions necessary to correct such matters and obtain
Landlord's approval. The Landlord's approval shall be evidenced by the Landlord
causing one (1) set of the working drawings to be initialed on its behalf and
returned to Tenant.
After Landlord's approval of the working drawings, no material changes
shall be made therein except with the prior written consent of Landlord. All
construction work necessitated by any change shall be performed at the expense
of Tenant. As part of the consideration to induce Landlord to enter into this
Lease but not a requirement of Landlord or Tenant under this Lease, Tenant
covenants and represents that Tenant's Work for base building which includes
interior and exterior improvements, electrical, mechanical and plumbing work
exclusive of trade fixtures, equipment, millwork and signage (the base building
work excluding the items set out being sometimes referred to herein as the
"Building Improvements") shall be not less than $300,000 which shall be free of
all liens and third party financing which relates to or can attach to the
Premises. Other then trade fixtures, all Building Improvements and other
improvements placed in the Premises shall upon installation belong to Landlord.
Tenant shall provide Landlord with evidence of such expenditures and that the
Building Improvements have been fully paid for. For purposes of this section
material shall be defined as any change which requires approval of the building
department, decreases of the cost of the work to be performed or changes the
dimension or esthetics of the premises.
Tenant's general contractor shall be subject to Landlord's approval and shall
provide a completion bond for all work to be performed.
Contemporaneous with the execution of this Lease, Landlord, Tenant and Advance
Homestead Title, Inc. shall enter into an Escrow Agreement in the form attached
hereto as Exhibit "B" and Tenant shall contemporaneously fund such Escrow.
A default under the Escrow Agreement shall be a default hereunder, pursuant to
the terms of the Escrow Agreement Landlord will make a contribution to the cost
of Tenants's work. Tenant agrees that if Tenant defaults in its obligations
under this Lease, that in addition to any other damages provided for herein the
amount of Landlord's contribution shall be paid to Tenant.
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Section 4.03 Landlord's Duty to Repair.
None. Landlord shall not be responsible to keep or maintain any portion of
the Premises. It is the intention of the parties that Tenant shall have full and
complete responsibility for maintenance and repair of the Premises. Landlord
shall not be called upon to make any other improvements or repairs of any kind
upon the Premises and appurtenances.
Section 4.04 Tenant's Duty to Repair.
Tenant shall keep and maintain in good order, condition and repair
(including any such replacement and restoration as is required for that purpose)
the Premises and every part thereof and any and all appurtenances thereto
wherever located ("Repairs"), including, without limitation, the roof, structure
and HVAC system and any sidewalks, parking areas, curbs and access ways upon or
adjoining the premises, and keep them in good condition and repair and in
compliance with all of the terms and provisions of all laws and any recorded
agreements, and promptly at Tenant's own cost and expense make all repairs
necessary to maintain such good condition, repair and compliance, whether such
repairs be interior or exterior, structural or non-structural, ordinary or
extraordinary, foreseen or unforeseen. The term "repairs" shall include
replacements and renewals when necessary to maintain the Premises in as good
condition and repair as of the date of completion of Tenant's Work and in
compliance with all laws and recorded agreement, and all such repairs made by
Tenant shall be of good quality and usefulness equal or greater than existing
equipment when installed. Tenant shall keep and maintain all portions of the
Premises in a commercially reasonable manner, in a clean and orderly condition,
free of accumulation of dirt, rubbish, snow, ice and water.
Section 4.05 Alterations.
Other than Repairs, Tenant's Work and the installation of unattached trade
fixtures and furniture, Tenant shall not make any alteration of, or addition or
improvement (collectively "Alterations") to the Premises without obtaining the
Landlord's prior written consent.
Section 4.06 Mechanic's Liens.
All Alterations, Repairs, and Tenant's Work (hereinafter collectively
"Improvements") shall become the property of the Landlord upon installation and
shall not be removed by Tenant unless otherwise required to do so.
No Improvements performed by Tenant pursuant to this Lease, shall be deemed
to be required by or for the immediate use and benefit of Landlord. No Notice of
Commencement, mechanic's or other lien shall be allowed against the estate of
Landlord by reason of any consent given by Landlord to Tenant to make any
Improvements. Tenant shall pay promptly all persons furnishing labor or
materials with respect to any Improvements. In the event any Notice of
Commencement, mechanic's or other lien shall at any time be filed against any
portion of the Premises by reason of work, labor, services or materials
performed or furnished, or alleged to have been performed or furnished, to
Tenant or to anyone holding the Premises through or under Tenant, Tenant shall
immediately cause the same to be discharged of record or bonded to the
satisfaction of Landlord. If Tenant shall fail to cause such lien to be
discharged or bonded immediately after being notified of the filing thereof,
then, in addition to any other right or remedy of Landlord, Landlord may bond or
discharge the same by paying the amount claimed to be due, and the amount so
paid by Landlord including reasonable attorney's fees incurred by Landlord
either in defending against such lien or in procuring the bonding or discharge
of such lien, together with interest thereon, shall be due and payable by Tenant
to Landlord.
ARTICLE V
CONDUCT OF BUSINESS BY TENANT
-----------------------------
Section 5.01 Operations.
Tenant shall conduct its business at all times in a first class and
business like manner. The Premises shall be used and occupied by Tenant solely
for the Permitted Use and for no other use. Tenant will conduct its business
under Tenant's Trade Name and no other name. Landlord acknowledges Tenant does
business under multiple fictitious names and consents to the use of such names
provided Tenant remains unchanged and Landlord is notified in advance of such
names. Landlord acknowledges Tenant has advised Landlord of its use of the
following names: Banner Barn, IMEA.
Tenant shall not violate and shall comply with all laws, ordinances, rules
and regulations of all governmental authorities having jurisdiction over the
Premises, and with such standards established and recommendations, made from
time-to-time or requirements of all carriers of insurance on the Premises and
any Board of Underwriters, Rating Bureau or similar body standards which are
applicable to the Premises or the use and occupancy thereof by Tenant. Tenant
will not allow the Premises to be used for any illegal or immoral purpose.
Tenant shall, at Tenant's sole cost and expense, make all changes to the
Premises which are or hereafter may be required in order to comply with the
foregoing. Tenant shall employ, at Tenant's sole cost and expense, such pest
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extermination at such times as is necessary to keep the Premises free from pests
and vermin. Tenant shall not commit or suffer to be committed any waste upon the
Premises. Tenant shall not allow or permit any occurrence which constitutes a
nuisance, or otherwise interferes with the safety, comfort or convenience of
Landlord, or anyone lawfully using the Premises. Tenant shall have no claim
against Landlord for any damages nor shall any of Tenant's obligations hereunder
be affected should the use and occupancy of the Premises for the Permitted Use
be prohibited or impaired by reason of act of any governmental authority.
Section 5.02 Utilities.
Tenant shall be solely responsible for all utilities used or consumed in
the Premises.
Section 5.03 Increased Cost of Insurance.
Tenant will not use or occupy the Premises or do or permit anything to be
done which will violate the provisions of any casualty, liability or other
insurance carried by Landlord or will prevent Landlord from obtaining such
insurance with carriers acceptable to Landlord. If Tenant shall use or occupy
the Premises or do or permit anything to be done which increases the cost, of
any casualty, liability or other insurance coverage carried by Landlord, the
Tenant shall pay the cost of any such increase in premiums on demand.
Section 5.04 Signs.
All signs shall comply with applicable ordinances or other governmental
restrictions. The determination of such governmental restrictions and the prompt
compliance therewith shall be the responsibility of the Tenant. All signs of
Tenant shall be in good taste and shall conform to the standards of design
motif, decor and all other criteria from time-to-time established by Landlord
for the Premises.
Section 5.05 Surrender.
On the Lease Expiration Date, Tenant shall surrender all keys to the
Premises to Landlord and shall deliver the Premises clean and neat and in the
same condition and repair which they are required to be kept by Tenant
throughout the term hereof, except to the extent Tenant is required by Landlord
or is permitted to and does elect to remove any Improvements. Prior to the
expiration of the lease term, Tenant shall remove all its trade fixtures from
the Premises and repair any damage to the Premises caused by removal of trade
fixtures or Improvements required or permitted to be removed hereunder. Tenant's
obligation to observe or perform this covenant shall survive the expiration or
other termination of the lease term. Any items remaining in the Premises on the
Lease Expiration Date shall be deemed abandoned for all purposes and shall
become the property of Landlord and the latter may dispose of the same without
liability of any type or nature.
ARTICLE VI
INDEMNIFICATION AND INSURANCE
-----------------------------
Section 6.01 Indemnification.
Tenant indemnifies Landlord and saves Landlord harmless from and against
any and all claims, actions, damages, liability and expense (including but not
limited to attorneys' fees and disbursements) in connection with the loss of
life, personal injury or damage to property or business arising from, related
to, or in connection with the occupancy or use of the Premises.
Section 6.02 Landlord Not Responsible for Acts of Others.
Landlord shall not be responsible or liable to Tenant, or to those claiming
by, through or under Tenant, for any loss or damage which may be occasioned by
or through the acts or omissions of persons occupying or using any other part of
the Premises, or otherwise, or for any loss or damage resulting to Tenant, or
those claiming by, through or under Tenant, or its or heir property, from any
defect in the construction or maintenance of the Premises, the Premises or any
utility line serving the Premises. To the maximum extent permitted by law,
Tenant agrees to use and occupy the Premises, at Tenant's own risk.
Section 6.03 Required Insurance.
(a) At all times after the execution of this Lease, Tenant shall carry and
maintain at Tenant's sole cost and expense:
(i) Comprehensive public liability insurance with respect to the
Premises and the sidewalks immediately adjacent thereto with
minimum limits of Two Million Dollars ($2,000,000) on account of
personal injuries to or death per occurrence; and comprehensive
property damage insurance with minimum limits of Two Million
Dollars ($2,000,000) per occurrence.
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(ii) Fire insurance, with such extended coverage endorsements
including but not limited to, vandalism, malicious mischief,
sprinkler leakage, water damage, plate and other glass coverage,
and other endorsements as Landlord may from time-to-time
reasonably require, covering all of Tenant's stock in trade
Improvements and Signs to the extent of at least one hundred
percent (100%) of their replacement cost.
(iii) Business Interruption Insurance for not less then one (1) year.
(iv) If and to the extent required by law, workmen's compensation or
similar insurance in form and amounts required by law.
(v) From the inception of any construction, the Tenant will cause
"builder's risk" insurance policies to be written, in compliance
with the provisions of this Article
(vi) Flood insurance if required.
Landlord may increase amount or type of insurance to amounts or types generally
required by Landlord's of similar tenant's in the area.
(b) The company or companies writing any insurance which Tenant is required
to carry and maintain as well as the form of such insurance shall at all times
be subject to Landlord's insurance requirements and to Landlord's approval. Any
such company or companies shall be licensed to do business where the Premises is
located. Such insurance shall name Landlord and/or its designee as additional
insured and contain a provision by which the insurer agrees that such policy
shall not be canceled except after thirty (30) day's written notice to the
additional insured(s). Promptly upon commencement of Tenant's obligation to
procure the same, Tenant shall deposit with Landlord evidence that the insurance
required to be maintained by Tenant hereunder is in full force and effect. If
Tenant shall fail to perform any of its obligations with regard to obtaining or
evidencing its obtaining insurance, Landlord may immediately perform the same
and the cost of same shall be payable upon Landlord's demand.
Section 6.04 No Concurrent Insurance.
Tenant shall not take out separate insurance on the Premises concurrent in
form or contributing, in the event of loss, with that required to be furnished
by Tenant, or increase the amounts of any existing insurance by securing an
additional policy or additional policies without naming Landlord and all other
persons and entities then required to be named as additional insured pursuant
hereto as additional insured parties thereunder.
Section 6.05 Waiver of Subrogation.
Each party agrees that, in the event that the contents of the Premises or
any other property of either party shall be damaged or destroyed by fire or
other insured casualty, the rights, if any, of one party, against the other
party or its principals, agents, servants or employees with respect to such
damage or destruction are waived; and that, if available, all policies of fire
and/or extended coverage or other insurance covering the property of each party,
shall contain a clause or endorsement providing in substance that the insurance
shall not be prejudiced if the insured have waived right or recovery from any
person or persons prior to the time of loss or damage, if any.
ARTICLE VII
EMINENT DOMAIN/CASUALTY
-----------------------
Section 7.01 Eminent Domain
(a)(i) In the event of a taking by any public or quasi-public authority
under the power of eminent domain, condemnation or expropriation or in
the event of a conveyance in lieu thereof (which events are herein
collectively referred to as a "Taking") of the whole or substantially
all of the Premises, then this Lease shall terminate as of the date of
such Taking or such earlier date as Landlord notifies Tenant. Landlord
shall be entitled to receive all compensation from any such authority.
A. In the event of a Taking of less than substantially all of the
Premises this Lease shall continue in full force and effect
without limitation or abatement except as specifically provided
herein.
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(ii) In the event less than substantially all of the Premises but more then
twenty percent (20%) or more of the parking or the building on the
Premises shall be taken by public authority under the power of eminent
domain, Landlord or Tenant shall have the option to terminate this
Lease by written notice within fifteen (15) days of such taking.
B. In the event of a partial taking of less then twenty percent
(20%) of the parking or the building on the Premises, or any
other taking where this Lease is not terminated, this Lease shall
continue in effect as to the remainder of the Premises, and if
the actual space within the building on the Premises is
decreased, then the monthly rental shall be proportionately
decreased.
(b) Tenant hereby irrevocably assigns to Landlord any award, compensation
to which Tenant may become entitled by reason of Tenant's interest in the
Premises if the use, occupancy or title of the Premises or any part thereof, is
taken, requisitioned or sold in, by or on account of any actual or threatened
eminent domain proceeding or other action by any person or entity having the
power of eminent domain ("Condemnation")
All awards, compensations on account of any Condemnation are herein collectively
called "Compensation" Landlord may appear in any such proceeding or action to
negotiate, prosecute and adjust any claim for any compensation and Landlord
shall collect any such Compensation. Tenant shall not be entitled to participate
in any such proceeding, action, negotiation, prosecution or adjustment.
Notwithstanding anything to the contrary contained in this Section 7.01, if
permissible under applicable law, any separate compensation made to Tenant for
its moving and relocation expenses, anticipated loss of business profits, loss
of goodwill or equipment and other severable property paid for by Tenant and
which are not part of the Premises, shall be paid directly to and shall be
retained by Tenant if and to the extent such separate compensation shall not
reduce the Compensation otherwise payable to Landlord pursuant hereto. All
Compensation shall be applied pursuant to this Section 7.01, and all such
Compensation (less the expense of collecting such Compensation) is herein called
the "Net Proceeds." All Compensation received by Landlord or Tenant shall be
deposited with Landlord.
Section 7.02 Casualty
If the Premises or any portion thereof shall be damaged or destroyed by
fire or other casualty, then Tenant shall promptly give notice thereof to
Landlord; and, except as hereinafter otherwise provided, Tenant shall, within a
reasonable time thereafter, repair or restore the Premises to substantially the
same condition they were in prior to the casualty, and there shall be no
abatement of rent. It is agreed and understood that if during the last year of
the term of this Lease the Premises shall be damaged or destroyed as aforesaid
to the extent of twenty (20%) percent or more of its insurable value, Landlord
or Tenant, at either party's election, may terminate this Lease by notice to the
other party within thirty (30) days after such damage or destruction. In the
event of any termination of the term of this Lease pursuant to the provisions of
this Section, Tenant shall assign all applicable insurance proceeds to Landlord
and remit to Landlord the amount of any shortfall between insurance proceeds and
cost of reconstructing the Premises, including without limitation, any
deductibles. The termination shall become effective on the fifteenth day after
the giving of the notice of termination. Landlord's approval is required for all
plans, specifications, contractor and schedule of construction. Such approval
not to be unreasonably withheld.
ARTICLE VIII
ASSIGNMENTS AND SUBLETTING
--------------------------
Section 8.01 Landlord's Consent Required
Tenant will not voluntarily, involuntarily, by operation of law or
otherwise assign, sublet, license, mortgage or otherwise transfer this Lease in
whole or in part, or permit the Premises or any part thereof to be used or
occupied by others without first obtaining the consent of Landlord, such consent
shall not be unreasonably withheld, provided it may be a condition of Landlord's
approval of any assignment, sublet, license, mortgage or other transfer that
Landlord be reimbursed for Landlord's contribution to Tenant improvements in the
amount of $150,000. Tenant acknowledges it shall be reasonable for Landlord to
require financial confirmation of any prospective assignee, sublessee, licensee
or other transferee and to require the guaranty of the principals of such
organization.
Consent by Landlord to any assignment or subletting shall not constitute a
waiver of the requirement for such consent to any subsequent assignment or
subletting. No consent by Landlord to an assignment shall release Tenant from
its obligations under this Lease, except as specifically provided herein.
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Section 8.02 Transfer of Ownership of Tenant.
If Tenant is a corporation limited liability company or a partnership and
if at any time after execution of this Lease any part or all of any interest in
Tenant shall be transferred by sale, assignment, bequest, inheritance, operation
of law or other disposition (including a transfer to or by a receiver or trustee
in Federal or State bankruptcy, insolvency, or other proceedings), so as to
result in a change in the control of Tenant, shall constitute an assignment of
this Lease for all purposes. Tenant shall provide a current list of beneficial
owners of Tenant and the percentage ownership of each beneficial owner as of the
Lease Commencement Date and as subsequently requested by Landlord.
Section 8.03 Acceptance of Rent from Transferee.
The acceptance by Landlord of the payment of Rent following any assignment
or other transfer prohibited by this Article shall not be deemed to be a consent
by Landlord to any such assignment or other transfer nor shall the same be
deemed to be a waiver of any right or remedy of Landlord hereunder.
Section 8.04 Assignments of Rights.
As security for the obligations of Tenant under this Lease, Tenant does
hereby assign, transfer and set over unto Landlord all of the rights, title and
interest of Tenant in and to any sublease by Tenant. Neither an assignment by
Tenant nor an agreement by Landlord to accept any subtenant as a tenant of
Landlord in the event of a termination of this Lease nor in any manner as a
waiver by Landlord of the provisions and limitations or to constitute an
agreement by Landlord to perform any of the obligations of Tenant under any
sublease of the Premises. Tenant shall indemnify, defend, save and hold Landlord
harmless of and from any and all loss, cost, expense or liability pursuant to
any sublease. Until the occurrence of default by Tenant under this Lease, Tenant
may continue to collect the rent and other sums payable under the sublease(s)
assigned hereby; but from and after the occurrence of an event of default all
such rent and other sums shall be paid to Landlord and applied by Landlord on
account of rent and other sums due by Tenant to Landlord pursuant to this and
shall be (and may be) relied upon by the subtenant in making payments to
Landlord. No subtenant shall be liable to Tenant for any payment made by the
subtenant to Landlord pursuant to the paragraph. No sublease shall be valid or
effective unless it shall expressly restate therein the provisions of this
paragraph.
ARTICLE IX
ESTOPPEL AND SUBORDINATION
--------------------------
Section 9.01 Execution of Estoppel Certificate.
Tenant shall, at any time, and from time-to-time, within five (5) days
after written request by Landlord, execute, acknowledge and deliver to Landlord
a written instrument in recordable form: (i) ratifying this Lease; (ii)
confirming the Commencement Date and the expiration date of the term hereof;
(iii) certifying that this Lease is in full force and effect and has not been
assigned, modified, supplemented or amended, except by such writings as shall be
stated therein and attached thereto; (iv) certifying that to the best knowledge
of the signer of such certificate, all conditions and agreements in this Lease
to be satisfied or performed by Landlord have been satisfied and performed
(except as shall be stated) and certifying that Landlord is not in default under
this Lease and that there are no defenses or offsets against the enforcement of
this Lease by Landlord (or stating the defaults and/or defenses claimed by
Tenant); (v) certifying the amount of security deposit, advance rent, if any,
paid by Tenant and the date to which rent has been paid and (vi) any other
information which Landlord shall require. Tenant agrees that any such statement
may be relied upon by any prospective purchaser of the Premises or any interest
therein or any Mortgagee or prospective Mortgagee of the Premises of any
interest therein or any assignee of Landlord's interest in this Lease or any
part thereof.
Section 9.02 Subordination.
Tenant hereby subordinates all of its right, title and interest in and
under this Lease to the lien of any mortgage or mortgages, or the lien resulting
from any other method of financing or refinancing, now or hereafter in force
against the real estate and/or buildings of which the Premises is a part or
against any buildings hereafter placed upon said real estate of which the
Premises is a part. Any Lender of Landlord may elect to subordinate its loan to
this Lease. Landlord agrees to obtain a subordination nondisturbance agreement
from any future Lender in such Lender's standard form.
Section 9.03 Attornment.
Tenant shall, in the event any proceedings are brought for the foreclosure
of or in the event of exercise of the power of sale under any mortgage made by
Landlord covering the Premises, attorn to the purchaser upon any such
foreclosure or sale and recognize such purchaser as the Landlord under this
Lease.
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ARTICLE X
TENANT DEFAULTS, REMEDIES
-------------------------
Section 10.01 Default.
In the event the Premises becomes deserted, or stands vacant, or if Tenant
defaults, in the payment of rent or in the performance of any covenant,
agreement, obligation, or in the event the Tenant or any Guarantor shall become
insolvent, or file a petition in voluntary bankruptcy, or have an involuntary
petition in bankruptcy filed against it, Landlord may at Landlord's option and
without notice to Tenant, which is hereby expressly waived, immediately or at
any time thereafter exercise the remedies set out herein or available at law or
in equity.
Section 10.02 Remedies.
Following the occurrence of a default hereunder Landlord may:
A. Declare this lease terminated and this Lease shall expire as fully and
completely as if that day were the date herein originally fixed for the
expiration of the term and Tenant shall quit and surrender the Premises to
Landlord, but Tenant shall nevertheless continue to remain liable
hereunder.
B. Accelerate all or any of the Rent due for the unexpired balance of the
term of this Lease.
C. Re-enter the Premises and remove all persons and all or any property
therefore by any suitable action or proceedings at law or in equity, or by
force or otherwise, without being liable for any prosecution therefor or
damages therefrom, and repossess and enjoy the Premises, together with all
additions, alterations and improvements. Such re-entry shall not relieve
Tenant from the obligation to make the rental payments required by this
Lease at the time and in the manner provided herein. Upon such re-entry
Landlord may acting in good faith, but shall not be required to, repair,
remodel and/or change the character of the Premises as Landlord may see
fit, and/or at any time relet the Premises in whole or in part, as the
agent of Tenant, or otherwise, in the name of Landlord or of Tenant, as
Landlord shall see fit, and Landlord may receive the rents therefor,
applying the same first to the payment of such reasonable expenses as
Landlord may have incurred in entering, dispossessing, reletting, repairing
or altering the Premises and then to the fulfillment of the covenants of
Tenant herein, including but not limited to, the rental payments required
hereunder, retaining any balances until the date the term of this Lease
would otherwise have expired as security for the payment of all obligations
of Tenant which may arise and be unpaid during such period. If Landlord,
after such re-entry shall be unable to obtain sufficient rent from the
Premises to pay the amount of expenses herein above specified in addition
to the payment of the rent required hereunder, and fulfillment of the
covenants of Tenant herein, Tenant shall pay to Landlord such difference at
the end of each month during the remainder of the term. In attempting to
relet the Premises, Landlord shall acting reasonably be the sole judge as
to whether or not a proposed tenant is suitable and acceptable.
D. Cure the default at Tenant's cost and expense.
Landlord shall not, by receiving partial payments of rent in arrears, be deemed
to have waived any rights herein for non-payment of rent, or for any other
default on the part of Tenant. In addition to all of the remedies granted
Landlord in this respect, Landlord shall also have the right to invoke any
remedy allowed at law or equity to enforce Landlord's rights hereunder or any of
them, as if re-entry and other remedies were not herein provided for.
Tenant specifically waives its right to assert any counter claims in any action
brought by Landlord for eviction, such waiver shall not limit or preclude
Tenants ability to assert such rights in a separate action. All remedies
available to the Landlord hereunder and at law are and shall be non exclusive
and cumulative.
Section 10.03 Notice to Tenant.
Notwithstanding anything herein above stated, Landlord agrees that Landlord
will not exercise any right or remedy provided for in this Lease or allowed by
law because of any default of Tenant, unless Landlord shall have first given
written notice thereof to Tenant and Tenant, within a period of five (5) days
thereafter shall have failed to pay the sum or sums due if the default consists
of the failure to pay money, or if the default consists of something other than
the failure to pay, Tenant shall have failed within ten (10) days thereafter to
cure such default, provided, however, that no such notice from Landlord shall be
required nor shall Landlord be required to allow any part of the said notice
period if Tenant shall have filed a petition in bankruptcy or made an assignment
for the benefit of creditors or shall otherwise initiate proceedings for the
appointment of a receiver of Tenant's assets, or if a receiver or trustee is
appointment for Tenant or the Guarantor and such appointment and such
receivership or trusteeship is not terminated within thirty (30) days and
provided further that Landlord shall not be required to give any notice with
regard to a default of the same character called for by this Section 10.03 more
than two (2) times in any twelve (12) month period.
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If the performance of any covenant, agreement, obligation or undertaking
(exclusive of payment or monetary obligations of Lessee hereunder) required
hereunder is delayed, hindered or prevented by reason of strikes, lock-outs,
labor troubles, wars, civil commotions, Acts of God, governmental restrictions
or regulations or interferences, fires or other casualty, or any circumstances
beyond the control of the party obligated or permitted under the terms hereof to
do or perform the same, the performance of such covenant, agreement, obligation
or undertaking shall be excused and extended and shall not be an Event of
Default for the period of such delay, hindrance or prevention.
ARTICLE XI
MISCELLANEOUS
-------------
Section 11.01 Landlord's Right of Entry.
Landlord reserves the right at all reasonable times during the term of this
Lease for Landlord or Landlord's agents to enter the Premises for the purpose of
inspecting and examining the same, and to show the same to prospective
purchasers or tenants, and to make such repairs, alterations, improvements or
additions as Landlord may deem reasonably necessary. During the one hundred
twenty (120) days prior to the expiration of the term of this Lease or any
renewal term, Landlord may exhibit the Premises to prospective tenants or
purchasers, and place upon the Premises the usual notices advertising the
Premises for sale or lease, as the case may be, which notices Tenant shall
permit to remain thereon without molestation.
Section 11.02 Landlord's Exculpatory Clause.
It is specifically understood and agreed that there shall be no personal
liability of Landlord in respect to any of the covenants, conditions, or
provisions of this lease. In the event of a breach or default by Landlord of any
of its obligations under this lease, Tenant shall look solely to any right of
offset allowed by law against any amounts due hereunder or to the equity of the
Landlord in the Premises for the satisfaction of Tenant's remedies, it being
understood and agreed that the exculpation of Landlord (and its successors and
assigns) shall be absolute.
In the event of any transfer or transfers of Landlord's interest in the
Premises, the transferor shall be automatically relieved of any and all
obligations and liabilities on the part of the Landlord accruing from and after
the date of such transfer.
Section 11.03 Landlord's Defaults.
Landlord shall in no event be in default in the performance of any of its
obligations in this Lease contained unless and until Landlord or the holder of
any mortgage on the Premises shall have failed to commence to perform such
obligation within thirty (30) days after notice by Tenant to Landlord and to
such mortgagee properly specifying wherein Landlord has failed to perform any
such obligation or shall have failed to proceed thereafter with reasonable
diligence to complete such performance.
Section 11.04 Landlord's Covenant.
Upon payment by Tenant of the rents herein provided, and upon the
observance and performance of all the covenants, terms and conditions on
Tenant's part to be observed and performed, Tenant shall peaceably and quietly
enjoy the Premises for the term hereby demised without hindrance or interruption
by Landlord or any other person or persons lawfully or equitably claiming by,
through or under the Landlord, subject, nevertheless, to the terms and
conditions of this Lease, and any mortgages to which this Lease is subordinate.
Section 11.05 Rules and Regulations.
Tenant agrees to comply with and observe all written rules and regulations
established by Landlord from time to time which are constant with rules and
regulations promulgated by the Landlord for similar properties. Landlord shall
provide Tenant with copies of any new rules and regulations, or modifications to
the same, at least thirty (30) days prior to the effective date of such rules
and regulations. Tenant's failure to keep and observe said rules and regulations
shall constitute a breach of the terms of this Lease in the manner as if the
same were contained herein as covenants.
Section 11.06 Notices.
Any notice, demand, request or other instrument which may be or is required
to be given under this Lease shall be given by United States certified mail,
return receipt requested, postage prepaid or by overnight courier service which
provides receipt upon delivery and shall be addressed (a) if to Landlord, at its
principal place of business or at such other address as Landlord may designate
by written notice, from time to time, and (b) if Tenant at the Premises or at
such other address as Tenant shall designate by written notice, from time to
time. All notices shall be deemed given when deposited, properly addressed, in
the United State mail, as herein provided, regardless of whether such notice is
undelivered or the addressee should refuse to accept delivery thereof for any
reason. Notice provided by any other means shall be effective upon delivery to
the address set out above.
11
<PAGE>
Section 11.07 Recording.
Tenant shall not record this Lease without the written consent of Landlord.
Section 11.08 Furnishing of Financial Statements.
Upon Landlord's written request, in order to aid Landlord in the sale,
financing or refinancing the Premises, Tenant shall promptly furnish Landlord,
within thirty (30) days of request from Landlord, financial statements
reflecting the financial condition of Tenant and any guarantors.
Section 11.09 Accord and Satisfaction.
No payment by Tenant or receipt by Landlord of a lesser amount than the
monthly rent herein stipulated or any other amount required to be paid under
this Lease shall be deemed to be other than on account of the amount payable by
the Tenant, nor shall any endorsement or statement on any check or any letter
accompanying any check or payment be deemed an accord and satisfaction and
Landlord shall accept such check or payment without prejudice to Landlord's
right to recover the balance of the amount due or pursue any other remedy in
this Lease provided.
Section 11.10 Laws to Govern.
This Lease shall be governed by, and construed in accordance with, the laws
of Florida. If any provision of this Lease or the application thereof to any
person or circumstances shall, to any extent, be invalid or unenforceable, the
remainder of this Lease shall not be affected thereby and each provision of the
Lease shall be valid and enforceable to the fullest extent permitted by the law.
Section 11.11 Successors.
All rights and liabilities herein given to, or imposed upon, the respective
parties hereto shall extend to and bind the several respective heirs,
administrators, successors and assigns of the said parties; and if there shall
be more than one Tenant, they shall all be bound jointly and severally by the
terms, covenants and agreements herein. No rights, however, shall inure to the
benefits of any assignee of Tenant unless the assignment to such assignee has
been approved by Landlord in writing as provided in this Lease.
Section 11.12 Time of Essence.
It is understood and agreed between the Landlord and Tenant that time is of
the essence with respect to all terms and provisions of this Lease.
Section 11.13 Waiver of Jury Trial.
Both Landlord and Tenant agree to and do hereby waive trial by jury in any
action, proceeding or counter-claim brought by either of the parties hereto
under or in connection with this Lease.
Section 11.14 Entire Lease.
It is expressly understood and acknowledged by and between the parties
hereto that this Lease and the Riders and s attached hereto and forming apart
hereof as forth all of the promises, agreements, conditions and understandings
between Landlord and Tenant relating to the Premises and the demise, and that
there are no promises, agreements, conditions or understandings, either oral or
written, between them other than are herein set forth. It is further understood
and agreed that, except as herein otherwise provided, no subsequent alteration,
amendment, change or addition to this Lease shall be binding upon Landlord or
Tenant unless reduced to writing and signed by them.
Section 11.15 Brokers.
Each party represents and warrants to the other party that it has had no
dealings, negotiations or consultations with respect to the Premises or this
transaction with any broker or other intermediary other than the Broker and that
no other broker or other intermediary called the Premises to Tenant's attention
for lease. In the event that any broker or finder other than the Broker claims
to have submitted the Premises or any other space in the Premises to Tenant or
for Landlord, to have induced Tenant to lease the Premises or to have taken part
in any dealings, negotiations, or consultations with respect to the Premises,
the Premises or this transaction, each party shall be responsible for and will
indemnify and save harmless the other party from and against any and all costs,
fees (including, without limitation, attorney's fees), expenses, liabilities and
claims incurred or suffered by the other party as a result thereof.
12
<PAGE>
Section 11.16 Construction.
It is the intent of the parties hereto that if any term, covenant or
condition of this Lease is capable of two constructions, one of which would
render the provision void and the other of which would render the provision
valid, then the provision shall have the meaning which shall render it valid.
Printed parts of this Lease shall be as binding upon the parties hereto as other
parts hereof. parts of this Lease which are written or typewritten shall have no
grater force or effect than and shall not control parts which are printed, but
all parts shall be given equal effect. Tenant declares that Tenant has read and
understands all parts of this Lease, including all printed parts hereof.
Section 11.17 Attorneys' Fees
In the event of any controversy arising under or relating to the
interpretation or implementation of this Lease or any breach thereof, the
prevailing party shall be entitled to payment for all costs and attorneys' fees
(both trial and appellate) incurred in connection therewith.
ARTICLE XII
ENVIRONMENTAL LAWS AND HAZARDOUS WASTE COMPLIANCE
-------------------------------------------------
Section 12.01 Compliance.
Tenant acknowledges the Premises are clean from any environmental
contamination at the commencement of the term and that Tenant has had the
opportunity to inspect the Premises and obtain any and all environmental
inspections Tenant believes are necessary or appropriate.
Tenant shall strictly comply, at its sole cost and expense, with any and
all applicable federal, state and local environmental laws, rules, regulations,
permits and orders affecting the Premises and the business operation of Tenant
conducted in the Premises, whether now in effect or as may be promulgated
hereafter, and as may be amended from time to time (hereinafter referred to as
"Environmental Laws"), and Tenant shall obtain and strictly comply with, at its
sole cost and expense, all federal, state and local permits and other
governmental approvals in connection with Tenant's use and occupancy of the
Premises.
Section 12.02 Hazardous Materials.
Without limiting the generality of Section 12.01, Tenant, at its sole cost
and expense, shall strictly comply with any and all applicable Environmental
Laws relating to the recycling, reuse, storage, handling, disposal and presence
of any "Hazardous Materials" (as hereinafter defined) in or about the Premises.
Tenant shall not permit or allow any "Hazardous Materials" in or about the
Premises except when necessary in the operation of Tenant's business. As used in
this Section, the term "Hazardous Material(s)" shall mean any substances defined
as or included in the definition of "hazardous substances," "hazardous wastes,"
"hazardous materials," "toxic substances," "contaminants" or other pollution
under any applicable Environmental Laws. Tenant shall not permit or allow, and
shall take all actions necessary to avoid, the occurrence of any spills of
Hazardous Materials in or about the Premises. Tenant shall promptly advise
Landlord in writing immediately upon becoming aware of:
(i) the existence of any spills, releases or discharges of Hazardous
Materials that occur in or about the Premises, on or away from the
Premises as the result of any use of the Premises, and of any existing
or threatened violation of this Section;
(ii) any and all enforcement, cleanup, removal or other governmental or
regulatory actions instituted, completed or threatened by any
governmental authority with respect to the Premises from time to time
under any applicable Environmental Laws;
(iii)any and all claims made or threatened by any non governmental party
against Tenant or the Premises relating to damage, contribution,
costs, recovery, compensation, loss or injury resulting from any
Hazardous Materials or any violation of applicable Environmental Laws;
and
13
<PAGE>
(iv) Tenant's discovery of any occurrence or condition on any real property
adjoining or in the immediate vicinity of the Premises that could
cause the Premises or any part thereof to be subject to any
restrictions on the ownership, occupancy, transferability or use of
the Premises under any Environmental Laws.
Section 12.03 Waste Discharge.
Without limiting the generality of Section 12.01, at all times during the
term of this Lease and any renewals or extension hereof, Tenant, at its sole
cost and expense, shall comply with any and all applicable laws, regulations,
ordinances, permits and orders regulating the type and quantity of waste that
may be discharged into the sanitary sewer system serving the Premises. Tenant
agrees to limit its discharges of waste into the sanitary sewer system to
"Domestic Waste Water," as such term is defined by Rule 17-6.030(22) of the
Florida Administrative Code as amended from time to time, or as the term may be
defined by other laws, regulations, ordinances, permits or orders presently in
effect or hereafter enacted, as such laws, regulations, ordinances, permits or
orders may be amended from time to time. In no event, however, shall Domestic
Waste Water be construed to mean or include any "Non-Domestic Waste Water" that
has undergone "Pretreatment" as the latter term is defined in Rule 17-6.030(63)
of the Florida Administrative Code or as defined by other laws, regulations,
ordinances, orders or permits presently in effect or hereafter enacted, as such
laws, regulations, ordinances, orders or permits may be amended from time to
time.
Section 12.04 Environmental Claims.
Without Landlord's prior written consent, Tenant shall not enter into any
settlement, consent or compromise with respect to any "Environmental Claim(s)",
as hereinafter defined, provided, however, the Landlord's prior consent shall
not be necessary for Tenant to take any remedial action if order by a court of
competent jurisdiction or if the presence of Hazardous Materials at the Premises
poses an immediate, significant threat to the health, safety or welfare of any
individual otherwise requires an immediate remedial response. As used in this
Section, "Environmental Claim(s)" shall mean any claim(s) or cause(s) of action
resulting from the failure of Tenant or the Premises to comply with any
Environmental law relating to Hazardous Materials, industrial hygiene, or
environmental conditions. In any event, Tenant shall promptly notify Landlord of
any action so taken.
Section 12.05 Energy Efficiency.
Tenant is advised that pursuant to Florida Statutes section 553.996, Tenant
may have the energy efficiency rating of the building determined.
Section 12.06 Radon Gas.
Radon is a naturally occurring radioactive gas that, when it has
accumulated in a building in sufficient quantities, may present health risks to
persons who are exposed to it over a period of time. Levels of radon that exceed
federal and state guidelines have been found in buildings in Florida. Additional
information regarding radon and radon testing may be obtained from the Public
Health Unit of the County in which the Premises is located.
LANDLORD:
BERNADETTE CASTRO
/s/ on file
- ----------------------- ---------------------------
By: /s/ on file
- ----------------------- ---------------------------
AS TO LANDLORD Its: President
---------------------------
TENANT:
IMAGICA ENTERTAINMENT, INC.
14
<PAGE>
ESCROW AGREEMENT
----------------
THIS ESCROW AGREEMENT ("Escrow Agreement") is made and entered into between
IMAGICA ENTERTAINMENT, INC. ("Tenant") and BERNADETTE CASTRO ("Landlord").
Tenant and Landlord are hereinafter collectively referred to as "Principals" and
ADVANCE HOMESTEAD TITLE, INC., is hereinafter referred to as "Escrow Agent".
Principals desire that Escrow Agent hold certain property as described on
EXHIBIT "A" hereto ("Escrowed Property") pursuant to the Escrow Instructions
described on EXHIBIT "B" hereto, ("Instructions").
Escrow Agent has agreed to act as escrow agent for the Escrowed Property on
the terms and conditions set forth in the "General Conditions of Escrow" as
described in "EXHIBIT C" hereto.
In consideration of the covenants and agreement herein set forth and other
good and lawful consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto, intending to be legally bound, agree that the
Escrowed Property shall be held and disbursed in accordance with the
Instructions, subject to the General Conditions of Escrow, incorporated herein
by reference.
IN WITNESS WHEREOF, the parties hereto have caused these presents to be
executed this -- day of March, 1999.
PRINCIPALS:
LANDLORD:
/s/ Bernadette Castro
----------------------------
BERNADETTE CASTRO
TENANT:
IMAGICA ENTERTAINMENT, INC.
----------------------------
By: /s/ Signature on file
----------------------------
It: President
----------------------------
ESCROW AGENT:
ADVANCE HOMESTEAD TITLE, INC.
By: /s/ Patti Sweet
----------------------------
Authorized Agent
<PAGE>
EXHIBIT "A" TO ESCROW AGREEMENT
"ESCROWED PROPERTY"
The sum of Three Hundred Thousand Dollars ($300,000.00), One Hundred Fifty
Thousand Dollars ($150,000.00) paid by Tenant to Escrow Agent and One Hundred
Fifty Thousand Dollars ($150,000.00), pursuant to Paragraph 4 of that certain
Lease by and between the Principals for the premises known as 1420 SW 12th
Street, Ocala, Florida. Said Escrowed Property is hereby received by Escrow
Agent (subject to clearance) and shall be held in an interest bearing account.
Tenant's FEI Number is 59-2762999.
<PAGE>
EXHIBIT "B" ESCROW AGREEMENT
----------------------------
"INSTRUCTIONS"
--------------
The following constitutes Instructions to Escrow Agent regarding the
folding and disbursement of the Escrowed Property:
Landlord and Tenant are parties to the certain Lease for the property
located on l42O SW. 12th Street, Ocala, Florida, and in accordance with Article
4 of the Lease between Landlord and Tenant, Tenant has agreed to perform certain
construction work for the Premises, known as "Tenant's Work," and further,
Tenant has covenanted that a certain portion of Tenant's Work for the Base
Building, specifically defined as "Building Improvements," shall be at a cost
not less than Three Hundred Thousand Dollars ($300,000.00). The parties have
agrees that Tenant shall escrow One Hundred Fifty Thousand Dollars ($150,000.00)
with Escrow Agent and Landlord will contribute and deposit with Escrow Agent One
Hundred Fifty Thousand Dollars ($150,000.00). Tenant estimates and has
represented to Landlord that it will spend not less than Three Hundred Thousand
Dollars ($300,000.00) for "Building Improvements," as defined in the Lease and
the parties agree that the Escrowed Property may be disbursed by Escrow Agent as
follows:
1. Tenant agrees that a request for disbursement of these Escrowed
Property shall be only for "Hard Costs" which shall be defined as
follows: the actual cost and expense to Tenant for the "Building
Improvements" but excluding therefrom all costs and expense of Tenant
pertaining to architectural fees, engineering fees, attorney's fees,
permit fees and any interest costs of Tenant or penalties or late fees
associated with the cost of the "Building Improvements"; "Hard Costs"
are specifically deemed to include payments to Tenant's general
contractor and its subcontractors, materialmen, and laborers, as
pertains to the installation and construction of the "Building
Improvements."
2. Tenant shall submit to Landlord and Escrow Agent a written request for
a disbursement of monies as are permitted in accordance with the
provisions hereof which request shall specify the party or parties to
be paid and the costs of the Work for which the disbursed funds are
intended to pay, and each request shall be accompanied by a personal
notarized certification ("Certification") of Howard Essenfeld and the
general contractor confirming said costs together with estimated
budget to complete remaining work.
3. Upon receipt of such written request and Certification, Escrow Agent
shall after confirming the disbursement with Landlord and determining
the balance of escrow funds are sufficient to complete the remaining
work, make the disbursement either to Tenant or directly to the party
to be paid such cost, and Escrow Agent shall have no duty to inquire
as to any information set forth in the application ro Certification.
4. Contemporaneously with each disbursement by Escrow Agent, Tenant shall
deliver, or cause to be delivered, to Escrow Agent (with copy to
Landlord) an originally executed partial release of lien, executed by
the party or parties identified in Tenant's Certification providing
the Work for which such disbursement is to be paid as set forth in
Tenant's Certification for such disbursement.
5. Any interest earned on the Escrowed Property shall be disbursed as
part of the Escrow.
6. To the extent any portion of the Escrow is not disbursed by September
30, 1999 any balance of such funds shall be paid to Landlord.
<PAGE>
EXHIBIT "C"
-----------
GENERAL CONDITIONS OF ESCROW
----------------------------
Except as specifically modified by written agreement executed by all
parties hereto and accepted by Escrow Agent, these General Conditions of Escrow
shall apply to this Escrow and the Escrowed Property received hereunder:
I. Escrow
A. Escrow Agent shall not be deemed to have knowledge of any matter
or thing unless and until Escrow Agent has actual knowledge or
has actually received written notice of such matter or thing and
Escrow Agent shall not be charged with any constructive notice
whatsoever.
B. In the event instructions from Principals would require Escrow
Agent to expend any monies or incur any cost, Escrow Agent shall
be entitled to refrain from taking any action until it received
payment for such costs.
C. Principals acknowledge and agree that nothing in this Escrow
Agreement shall prohibit Escrow Agent from (1) serving in a
similar capacity on behalf of others or (2) acting in the
capacity of attorneys for one or more Principals in connection
with any matter.
II. Release of Escrowed Property
A. Escrow Agent agrees to release the Escrowed Property in
accordance with the terms and conditions set forth in the
Instructions, and this Escrow Agreement.
B. If all or any portion of the Escrowed Property delivered to
Escrow Agent is in the form of a check or in any form other than
cash, Escrow Agent shall deposit same as required but shall not
be liable for the non-payment thereof nor responsible to enforce
collection thereof. If such check or other instrument other than
cash representing the Escrowed Property is returned to Escrow
Agent unpaid, Escrow Agent shall notify the applicable Principals
for further instructions.
III. Liability of Escrow Agent
It is agreed that the duties of Escrow Agent are purely ministerial in
nature and shall be expressly limited to the safekeeping of the Escrowed
Property and for the disposition of same in accordance with the Instructions,
and this Escrow Agreement. Each Principal hereby indemnifies Escrow Agent and
holds it harmless from and against any and all claims, liabilities, damages,
costs, penalties, losses, actions, suits or proceedings at law or in equity, or
any other expenses, fees, or charges of any character or nature, which it may
incur or with which it may be threatened directly or indirectly arising from or
in any way connected with this Escrow Agreement or which may result from Escrow
Agent's complying with the Instructions, and in connection therewith,
indemnifies Escrow Agent arising any and all expenses, including attorneys' fees
and the cost of defending any action, suit, or proceeding or resisting any
claim, whether or not litigation is instituted. Escrow Agent shall be vested
with a lien on all Escrowed Property held hereunder which is deliverable to
Principals under the terms of this Escrow Agreement, for indemnification,
attorneys' fees, court costs arising from any suit, interpleader or otherwise,
or other expenses, fees or charges of any character or nature, which may be
incurred by Escrow Agent by reason of disputes arising between Principals and/or
any third party as to the correct interpretation of this Escrow Agreement
hereunder, or otherwise, with the right of Escrow Agent, regardless of the
instructions aforesaid and without the necessity of instituting any action, suit
or proceeding, to hold the Escrowed Property until and unless said additional
expenses, fees and charges shall be fully paid.
IV. Disputes
A. In the event Escrow Agent is joined as a party to a lawsuit by
virtue of the fact that it is holding the Escrowed Property,
Escrow Agent shall, at its option, either (1) tender the Escrowed
Property to the registry of the appropriate court or (2) disburse
the Escrowed Property in accordance with the court's ultimate
disposition of the case, and Principals hereby, jointly and
severally, indemnify and hold Escrow Agent harmless from and
against any damages or losses in connection therewith including,
but not limited to, reasonable attorneys; fees and court costs at
all trial and appellate levels.
<PAGE>
B. In the event Escrow Agent tenders the Escrowed Property to the
registry of the appropriate court and files and action of
interpleader naming the Principals and any affected third parties
of whom Escrow Agent has received actual notice, Escrow Agent
shall be released and relieved from any and all further
obligations and liability hereunder or in connection herewith and
Principals hereby, jointly and severally, indemnify and hold
Escrow Agent harmless from and against any damages or losses
arising in connection therewith including, but not limited to,
all costs and expenses incurred by Escrow Agent in connection
with the filing of such action including, but not limited to,
reasonable attorneys' fees and court costs at all trial and
appellate levels.
V. Term of Agreement
A. This Escrow Agreement shall remain in effect unless and until it
is canceled in any of the following manners:
1. Upon written notice given by all Principals of cancellation
of designation of Escrow Agent to act and serve in said
capacity, in which event, cancellation shall take effect no
earlier than five (5) days after notice to Escrow Agent of
such cancellation; or
2. Escrow Agent may resign as escrow agent at any time upon
giving notice to Principals of its desire to so resign;
provided, however, that resignation of Escrow Agent shall
take effect no earlier than five (5) days after the giving
of notice of resignation; or
3. Upon compliance with all escrow provisions as set forth in
this Escrow Agreement and in the Instructions.
B. In the event Principals fail to agree to a successor escrow agent
within the period described herein above, Escrow Agent shall have
the option: i) to deposit all of the Escrowed Property held
hereunder into the registry of an appropriate court and request
judicial determination of the rights between Principals, by
interpleader or other appropriate action, and Principals hereby,
jointly and severally, indemnify and hold escrow Agent harmless
from and against any damages or losses in connection therewith
including, but not limited to, reasonable attorneys' fees and
court costs at all trial and appellate levels; or ii) continue to
act as Escrow Agent until a successor is appointed. Escrow Agent
shall be deemed to have elected to continue to act as Escrow
Agent until successor is appointed or money is deposited in the
Court Registry.
C. Upon termination of the duties of Escrow Agent in either manner
set forth in subparagraphs 1. and 2. of Paragraph A. of this
Article V., Escrow Agent shall deliver all of the Escrowed
Property to the newly appointed escrow agent designated by the
Principals, and, except for rights of Escrow Agent specified in
Paragraph A. of Article III. of this Escrow Agreement, Escrow
Agent shall not otherwise have the right to withhold Escrowed
Property from said newly appointed escrow agent.
D. Escrow Agent shall not be bound by any modification, cancellation
or rescission of this Escrow Agreement unless in writing and
signed by all Principals and Escrow Agent. In no event shall any
modification of this Escrow Agreement, shall affect the rights or
duties of Escrow Agent, be binding on Escrow Agent unless it
shall have given is prior written consent.
VI. Notices
All notices, certificates, requests, demands, materials and other
communications hereunder shall be in writing and deemed to have been duly given
(1) upon delivery by hand to the appropriate address of each Principal or Escrow
Agent as set forth in this Escrow Agreement or in the Documents, if any, or (2)
on the third business day after mailing by United States registered or certified
mail, return receipt requested, or Federal Express, next day delivery, or
similar service, postage prepaid to such address. All notices to the parties
shall be addressed to the person hereinafter indicated at the following address:
<PAGE>
Tenant: Landlord:
- ------- ---------
Imagica Entertainment, Inc. Bernadette Castro
1518 S.W. l2th Avenue c/o Austin International
Ocala, FL 95 Forest Avenue
Locust Valley, NY 11560
With copy to:
William Klein, Esquire With copy to:
1900 Main Street Lloyd Granet, Esq.
Sarasota, FL 34236 1900 NW Corporate Blvd., Suite 100W
Boca Raton, FL 33431
Escrow Agent:
Advance Homestead Title, Inc.
1203 S.W. 12th Street
Ocala, FL 34474
VII. Choice of Law and Venue
This Escrow Agreement shall be governed by and construed in accordance with
the laws of the State of Florida. In the event any action, suit or proceeding is
instituted as a result of any matter or thing affecting this Escrow Agreement
the parties hereto hereby designate Palm Beach County, Florida, as the proper
jurisdiction and the venue in which same is to the instituted.
VIII. Cumulative Rights
No right, power or remedy conferred upon Principals or Escrow Agent by this
Escrow Agreement is exclusive of any other right, power or remedy, but each and
every such right, power or remedy shall be cumulative and concurrent and shall
be in addition to any other right, power or remedy Principals or Escrow Agent
may have under the Escrow Agreement or now or hereafter existing at law, in
equity or by statute, and the exercise of one right, power or remedy by
Principals or Escrow Agent shall not be construed or considered as a waiver of
any other right, power or remedy.
IX. Binding Agreement
This Escrow Agreement shall be binding upon the Principals and Escrow Agent
and their respective successors and assigns.
X. Escrow Agent Fees
The fees and costs of Escrow Agent for acting hereunder shall be paid by
Tenant.
<PAGE>
SCHEDULE "A"
------------
BASE RENT
---------
RENTAL COMMENCEMENT DATE PER ANNUM MONTHLY
- ------------------------ --------- -------
December 31, 2000 $ 75,000 $6,250
January 1, 2001 - December 31, 2003 $ 90,000 $7,500
January 1, 2004 - December 31, 2004 $100,000 $8,333.33
January 1, 2005 and each January 1 thereafter CPI increase as provided in the
Lease.
The Minimum Rent shall adjust on the first day of the day of the month occurring
one year after the Commencement Date, and each year thereafter. The increase
shall be determined based on the change in the Consumer Price Index, under "All
cities" from the base month and year (December 1998) to current December. The
increase shall be not less than a three percent (3%) increase or more than a
five percent (5%) per year increase on a cumulative basis from the initial
Minimum Rent. In no event shall Minimum Rent paid in any year be reduced in the
following year by application of this Article.
<PAGE>
EXHIBIT "A"
Commence at the NW corner of Section 19, Township 15 South, Range 22 East,
INDUSTRIAL PARK, City of Ocala, Marion County, Florida, thence S.02 degrees
01'30''W. 112.01 feet along the West boundary of said Section 19 to a cross in
the brass plate of a found 8 inch octagon concrete monument; thence continuing
S.02 degrees 01'3O''W. 879.17 feet to a 4 X 4 concrete monument; thence East
777.09 feet; thence S.00 degrees 30'30''W. 228.43 feet to the Point of
Beginning, (1) thence continuing S.00 degrees 30'30''W. 171.57 feet; thence West
382.00 feet; thence N.00 degrees 30'30''E. 171.57 feet; thence East 382.0O feet
to the Point of Beginning;
AND
Commence at the NW corner of Section 19, Township 15 South, Range 22 East,
thence S.02 degrees 0l'30''W. 112.01 feet to an 8 inch octagonal concrete
monument being the NE corner of the airport; thence continue S.02 degrees
01'30''W. 879.17 feet to a 4 X 4 concrete monument; thence East 420.09 feet to a
Point of Beginning; thence continue East 357 feet; thence S.00 degrees 30'30''W.
228.43 feet; thence West 382 feet; thence N.0 degrees 30'30''E. 203.43 feet to a
point of curve; said curve being concave having a radius of 25 feet; thence
continue around said curve to the Point of Beginning.
BUCHALTER, NEMER, FIELDS & YOUNGER
A Professional Corporation
DENNIS D. MILLER (#138669)
JAMES B. WRIGHT (#063241)
333 Market Street, 29th Floor
San Francisco, California 94105-2130
Telephone: (415) 227-0900
Facsimile: (415) 227-0770
Attorneys for Plaintiff
PHOENIX LEASING INCORPORATED
SUPERIOR COURT OF CALIFORNIA
COUNTY OF MARIN
PHOENIX LEASING INCORPORATED, a
California corporation,
Plaintiff,
v.
RANGER INTERNATIONAL, INC., a Case No. 168802
Florida corporation, aka and dba IMAGICA
ENTERTAINMENT, INC., a Florida COMPLAINT FILED: 10/10/96
corporation; ROBERT WORMSER, aka
ROBERT S. WORMSER, an individual, and AMENDED JUDGMENT BY COURT
DOES 1-10, inclusive, AFTER DEFAULT; EXHIBIT 1
Defendants.
- -----------------------------------------
The defendants Robert Wormser, aka Robert S. Wormser, an individual, and
Ranger International, Inc., a Florida corporation, aka and dba Imagica
Entertainment, Inc., a Florida corporation were served with copies of the
summons and complaint and failed to appear and answer plaintiff Phoenix Leasing
Incorporated's ("Phoenix") complaint within the time allowed by law. The default
of said defendants has been duly entered upon the application of plaintiff to
this Court.
Phoenix applied to this Court and was granted a several judgment against
Robert Wormser and reserving its rights to amend the judgment against Ranger
International, Inc., in the event of the dismissal of Ranger's bankruptcy case.
After considering Phoenix's ex parte application, the declarations in support
thereof, the Court finds good cause to enter the following amended judgment.
1. IT IS HEREBY ORDERED, ADJUDGED AND DECREED that plaintiff Phoenix
Leasing Incorporated ("Phoenix") shall recover from defendants Robert Wormser,
aka Robert S. Wormser, an individual, and Ranger International, Inc., a Florida
corporation, aka and dba Imagica Entertainment, Inc., a Florida corporation, a
judgment in the sum of 51,388.63, plus attorneys' fees in the sum of $14,278.33
plus costs of suit incurred in the sum of $885.86 for a total amended judgment
of $66,552.82 with interest accruing at the legal rate until payment in full.
IT IS FURTHER ORDERED, ADJUDGED AND DECREED that plaintiff, Phoenix, is
entitled to the possession of all equipment leased pursuant to Equipment Lease
Agreement No. 112AB-ILL-2005701 dated August 12, 1991 and accompanying Addendum
including, but not limited to, the equipment described in Exhibit 1 attached
hereto (the "Equipment"), and incorporated herein by this reference. Phoenix may
sell and/or re-lease said Equipment. The net proceeds of said sale, and/or said
re-lease, after deduction of reasonable expenses of retaking, holding, preparing
for sale, selling and the like, shall be applied to the judgment.
IT IS FURTHER ORDERED, ADJUDGED AND DECREED that the levying officer may
enter the following private place, to wit: 1518 SW 12th Avenue, Ocala, FL
32678-2121 to take possession of the above-described Equipment.
Dated:
----------------------------------
JUDGE OF THE SUPERIOR COURT
<PAGE>
EXHIBIT 1
1 Viking LS-52X192" Long Stroke Printer with Takeoff S/N 26595-00
1 Model 60-20 Aerojet Class II Dryer, 230V,30'Feed, 10, Del. SN 18578
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> MAY-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 504,879
<ALLOWANCES> (9,616)
<INVENTORY> 194,922
<CURRENT-ASSETS> 726,773
<PP&E> 1,371,478
<DEPRECIATION> 1,199,233
<TOTAL-ASSETS> 911,744
<CURRENT-LIABILITIES> 604,196
<BONDS> 0
0
0
<COMMON> 2,162
<OTHER-SE> (313,470)
<TOTAL-LIABILITY-AND-EQUITY> 911,744
<SALES> 2,908,475
<TOTAL-REVENUES> 2,908,475
<CGS> 2,161,343
<TOTAL-COSTS> 2,161,343
<OTHER-EXPENSES> 1,021,185
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,760,804
<INCOME-PRETAX> (2,197,576)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,197,576)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,197,576)
<EPS-BASIC> (3.33)
<EPS-DILUTED> (3.33)
</TABLE>
