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As filed with the Securities & Exchange Commission on September 17, 1997
Registration No. 333-26677
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
FORM S-1/A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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RENAISSANCE ENTERTAINMENT CORPORATION
(Exact name of issuer as specified in its charter)
COLORADO 7900 81-1094549
(State or other Primary Standard (I.R.S. Employer
jurisdiction of Industrial incorporation or
Identification No.) Classification Code No. organization)
4440 ARAPAHOE ROAD, SUITE 200
BOULDER, CO 80303
(303) 444-8273
(Address and telephone number of principal executive offices)
CHARLES S. LEAVELL
RENAISSANCE ENTERTAINMENT CORPORATION.
4440 ARAPAHOE ROAD, SUITE 200
BOULDER, COLORADO 80303
(303) 444-8273
(Name, address and telephone number of agent for service)
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this registration statement.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /X/
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of earlier effective registration
statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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Calculation of Registration Fee
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Proposed Proposed
Title of Each Maximum Maximum
Class of Amount to be Offering Price Aggregate Amount of
Securities Registered (1) Per Share Offering Price Registration Fee
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<S> <C> <C> <C> <C>
Common Stock, 356,350 Shares $2.125 (2) $757,243.75 (2) $229.47
$.03 par value 1,050,000 Shares $.5625 (2) $590, 625 (2) $184.57
Total $414.04
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(1) Includes 1,400,000 shares which are reserved for issuance pursuant to
currently issued and outstanding Convertible Secured Notes which will be
offered for resale by certain Selling Shareholders.
(2) Estimated solely for purposes of calculating the registration fee. In
accordance with Rule 457(c) of Regulation C, the estimated price for
356,350 of such shares included in the original filing was based on the
average of the high and low reported prices on the Nasdaq National Market
on May 5, 1997 and for the additional 1,050,000 shares included with this
Amendment to the Registration Statement was based on the closing sale price
on the Nasdaq Small Cap Market on September 11, 1997.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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Subject to completion, dated September 17, 1997.
1,406,350 Shares
RENAISSANCE ENTERTAINMENT CORPORATION
Common Stock
The shares offered hereby include up to 1,400,000 shares of Common Stock,
$.03 par value ("Common Stock"), of Renaissance Entertainment Corporation (the
"Company") subject to issuance upon conversion of certain Convertible Secured
Notes (the "Notes") of the Company owned by certain selling securityholders and
6,350 shares of such stock owned by a selling shareholder (the "Selling
Shareholders"), which may be sold from time to time by the Selling Shareholders
for their own accounts. The 1,406,350 shares of Common Stock of the Company are
herein referred to as the "Shares." The Company has been advised that the
Selling Shareholders may from time to time sell the Shares to or through brokers
or dealers in one or more transactions, on the Nasdaq Small Cap Market or
otherwise, at market prices prevailing at the time of sale, at prices relating
to such prevailing market prices, or at negotiated prices.
The Company's Common Stock is listed on the Nasdaq Small Cap Market under
the symbol FAIR. On September 11, 1997, the last reported sale price of Common
Stock, as reported on the Nasdaq Small Cap Market, was $0.5625 per share.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND SHOULD BE
CONSIDERED ONLY BY PERSONS WHO CAN AFFORD TO LOSE THEIR ENTIRE INVESTMENT. SEE
"RISK FACTORS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION NOR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Since the Common Stock registered hereunder is being offered on a delayed
or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as
amended (the "Act"), the Company cannot include herein information about the
price to the public of the Common Stock or the proceeds to the Selling
Shareholders. The Company will receive no proceeds from any sales of Common
Stock by the Selling Shareholders, and the Company is obligated to pay the
expenses of this offering, which are estimated at $25,000. The Selling
Shareholders will pay their own expenses in connection with sales of the Common
Stock. The Selling Shareholders and any brokers or dealers executing selling
orders on their behalf may be deemed "underwriters" within the meaning of the
Act, in which event the usual and customary selling commissions which may be
paid to the brokers or dealers may be deemed to be underwriting commissions
under the Act. There can be no assurance that any or all of the Shares
registered hereunder will be sold. See "PLAN OF DISTRIBUTION."
The date of this Prospectus is __________, 1997.
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PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED
INFORMATION AND FINANCIAL STATEMENTS APPEARING ELSEWHERE IN THIS PROSPECTUS.
ALL SHARE AMOUNTS HAVE, UNLESS INDICATED TO THE CONTRARY, BEEN ADJUSTED FOR A
TWO-FOR-ONE SPLIT OF THE COMPANY'S COMMON STOCK, EFFECTIVE OCTOBER 21, 1996.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. POTENTIAL
INVESTORS SHOULD CAREFULLY REVIEW THE INFORMATION UNDER THE HEADING "RISK
FACTORS."
THE COMPANY
Renaissance Entertainment Corporation operates five Renaissance Faires in
the United States. With these five Faires currently drawing close to 750,000
visitors annually, the Company believes that it is the largest operator of
Renaissance Faires and Renaissance entertainment events in the United States.
The Renaissance entertainment industry consists of over 100 separate events of
varying sizes with a Renaissance theme and has an estimated attendance in excess
of 4,000,000 visitors annually.
The Renaissance Faire is a recreation of a Renaissance village, a fantasy
experience transporting the visitor back into sixteenth century England. This
fantasy experience is created through authentic craft shops, food vendors and
continuous live entertainment throughout the day, both on the street and the
stage including actors, jugglers, jousters, magicians, dancers and musicians.
The Company owns and operates the Bristol Renaissance Faire in Kenosha,
Wisconsin, serving the Chicago/Milwaukee metropolitan region; the Northern
California Renaissance Pleasure Faire in Novato, California, serving the San
Francisco Bay area; the Southern California Renaissance Pleasure Faire in
Devore, California, serving the greater Los Angeles metropolitan area; the New
York Renaissance Faire in Tuxedo, New York, serving the New York City
metropolitan area; and the Virginia Renaissance Faire in Fredericksburg,
Virginia, serving the Washington D.C. and Richmond metropolitan areas. The
Company is currently negotiating for a permanent location for the Southern
California Renaissance Pleasure Faire and is seeking an alternative site for the
Northern California faire. See "Risk Factors."
In July 1995, the Company acquired approximately 250 acres of land in
Fredericksburg, Virginia in order to construct a Renaissance Faire on that site.
The Virginia Renaissance Faire opened in May 1996.
In February 1996, the Company acquired all of the issued and outstanding
stock of Creative Faires, Ltd., which owns and operates the New York Renaissance
Faire. In connection with this acquisition, the Company issued 540,000 shares
of Common Stock.
The Company's strategic plan is to grow through internal growth and by
developing and acquiring additional Renaissance Faires located throughout the
United States. The Company believes that with a long-term strategy of internal
growth and acquisitions, the Company will strengthen its market position.
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The Company maintains its principal executive offices at 4440 Arapahoe
Road, Suite 200, Boulder, Colorado 80303, where its telephone number is (303)
444-8273.
RISK FACTORS
An investment in the securities offered hereby involves a high degree of
risk. See "Risk Factors."
THE OFFERING
Common Stock offered by the
Selling Shareholders. . . . . . . Up to 1,406,350 shares of Common
Stock. See "Description of
Securities."
Common Stock outstanding
before offering (1) . . . . . . . 9,636,262
Common Stock outstanding
after offering. . . . . . . . . . 10,636,262. Assumes that all of
the Convertible Secured Notes are
converted at a conversion rate of
$.35 per share. See "Description
of Securities."
Use of proceeds . . . . . . . . . . The Company will not receive any of
the proceeds from the sale of
Common Stock by the Selling
Shareholders.
Nasdaq Symbols:
Common Stock. . . . . . . . . . . . . . FAIR
Class A Warrants. . . . . . . . . . . . FAIR W
Class B Warrants. . . . . . . . . . . . FAIR Z
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(1) As of September 1, 1997. Does not include shares reserved for issuance
pursuant to exercise of outstanding options and warrants and the conversion
of the Notes and other convertible securities.
SUMMARY FINANCIAL DATA
The following summary financial data was derived from the Company's
financial statements included elsewhere herein and should be read in
conjunction with such financial statements and the notes thereto. On June
21, 1996, the Company changed its fiscal year end from March 31, to December
31. The data presented as of and for the nine months ended December 31,
1996, represents the transition period for the new fiscal year end. All
information is in thousands, except per share amounts.
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STATEMENTS OF OPERATIONS DATA:
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NINE MONTHS ENDED SIX MONTHS ENDED
YEAR ENDED MARCH 31, DECEMBER 31, JUNE 30,
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1994 1995 1996 1995 1996 1996 1997
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Revenue . . . . . . . $ 1,973 $12,540 $12,811 $10,470 $14,554 $ 5,306 $ 4,886
Gross Profit. . . . . 1,694 9,327 8,984 7,265 9,741 3,186 3,055
Net Income (Loss) . . (98) 576 (1,274) 264 (1,852) (2,805) (1,254)
Net Income (Loss) to
Common Stockholders (98) 533 (1,274) 264 (1,852) (2,805) (1,254)
Net Income (Loss) per
Common Share. . . . (.05) .11 (0.16) .03 (.21) (.34) (.13)
Weighted average
number of shares
outstanding . . . . 1,901 4,801 7,824 7,644 8,907 8,187 9,532
</TABLE>
BALANCE SHEET DATA:
June 30, 1997
Working capital (deficit) ($886)
Total assets 10,741
Total liabilities 5,961
Stockholders' equity 4,780
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RISK FACTORS
In addition to the other information contained in this Prospectus,
prospective investors should carefully consider the following risk factors in
evaluating the Company and its business before purchasing the Shares offered
hereby.
RECENT LOSSES. Although the Company was profitable in its fiscal year
ended March 31, 1995, it incurred a net loss of $1,273,671 in the fiscal year
ended March 31, 1996 and a net loss of $1,851,725 for the nine months ended
December 31, 1996. In addition, the Company expects to incur a net loss for the
fiscal year ending December 31, 1997. There is no assurance that the Company
will return to profitability in any subsequent period. The New York and
Virginia Faires each operated at a loss during 1996, the Virginia Faire operated
at a loss during 1997 and the New York Faire is expected to operate at a loss in
1997. If the performance of these Faires does not improve in subsequent
periods, the Company's ability to achieve and sustain profitability in
subsequent periods will be adversely affected. See "POSSIBLE SUSPENSION OF
NORTHERN CALIFORNIA FAIRE FOR 1998."
NEED FOR ADDITIONAL CAPITAL. The Company had a working capital deficit of
($885,556) as of June 30, 1997. During the first five months of fiscal 1997,
the Company has obtained $1,350,000 of additional working capital through the
placement of convertible loans and obtained an extension for the payment of
short-term bank lines of credit. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS." While the Company believes that
it has adequate working capital to fund anticipated operations for fiscal 1997,
there can be no assurance that the Company will not need additional funds to
sustain operations prior to or after that time. In addition, the Company would
require additional funding to move its Southern California Faire to a new
location (see "POSSIBLE RELOCATION OF SOUTHERN CALIFORNIA FAIRE"), and to expand
its business, and may require additional funding in order to develop a new site
for the Northern California Faire (see "POSSIBLE SUSPENSION OF NORTHERN
CALIFORNIA FAIRE FOR 1998"). During July 1997, the Company entered into a
letter of intent for the sale/lease back of its Wisconsin and Virginia Faire
sites. The proposed sale price for the sites is the approximate book value for
the sites and would not result in significant loss or income to the Company,
although the Company believes that the transaction would reduce operating costs
during the first years of the lease. This transaction would, however, result in
an increase of approximately $2,000,000 in the Company's working capital. The
Company believes that this additional working capital would be adequate to fund
its working capital requirements through at least December 31, 1998. This
additional capital would not, however, be sufficient to fund the relocation of
either the Southern or Northern California Faire sites. Therefore, even if the
sale/lease back transaction is closed as anticipated, additional capital may be
sought through borrowings or from additional equity financing. Such additional
equity financing may result in additional dilution to investors. In any case,
there can be no assurance that the sale/lease back transaction will be completed
or that any additional capital can be satisfactorily obtained if and when
required.
POSSIBLE SUSPENSION OF NORTHERN CALIFORNIA FAIRE FOR 1998. The Company
operates its Northern California Faire during the Fall of each year at a site in
Novato, California. The
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Company's current lease for that site, which is on a year-to-year basis, expires
in 1997. The Company understands that the owner of the site is seeking to
develop the site for commercial construction purposes, although the owner's
efforts to do so are currently being blocked by pending litigation in which the
use of the site for such purpose is being challenged. The Company is
investigating new sites for the Faire. There is no assurance that the Company
will be successful in locating a new site for the Northern California Faire for
the 1998 or subsequent faire seasons or, if located, successful in obtaining all
necessary approvals for a site to be available for the Faire in 1998 or any
subsequent period. In addition, the Company estimates that it could be required
to spend from $500,000 to $1,000,000 for development of a site prior to the
opening of the Faire at the new site. See "BUSINESS - EXISTING RENAISSANCE
FAIRES AND SITES - NORTHERN CALIFORNIA RENAISSANCE PLEASURE FAIRE."
POSSIBLE RELOCATION OF SOUTHERN CALIFORNIA FAIRE. Since April 1994, the
Company has operated its Southern California Faire in Devore, California. The
Company has entered into a non-binding letter of intent with the owner of a site
in Pomona, California which contemplates that the Company will commence
operation of the Southern California Faire at that site starting in 1998. The
letter of intent calls for the Company to construct a new village for the Faire.
The Company estimates that the cost of such construction would be approximately
$2,000,000. The Company would need additional funds from one or more third
parties to finance such construction. Subsequent to the execution of the letter
of intent for the new site, the owner of the existing faire site indicated that
it was willing to enter into a long-term lease for the site. This would allow
the Company to construct permanent structures on the site and significantly
reduce setup cost for this faire. As of the date of this Prospectus, the
Company had not decided whether it should enter into a long-term lease for the
current faire site or relocate the faire to the proposed site in Pomona,
California. See "BUSINESS-EXISTING RENAISSANCE FAIRES AND SITES-SOUTHERN
CALIFORNIA RENAISSANCE PLEASURE FAIRE."
DEPENDENCE UPON MANAGEMENT. The Company's future success depends in a
large part on the continued service of its key marketing, sales, promotional and
management personnel and on its ability to continue to attract, motivate and
retain highly qualified employees. The loss of the services of key personnel
could have a material adverse effect upon the Company's operations and
development efforts. There can be no assurance of the continued service to the
Company of its key executive officers. The Company does not have key person
life insurance covering its management personnel or other key employees.
COMPETITION. The Company faces significant competition from numerous
organizations throughout the country which offer Renaissance Faires and other
entertainment events, including amusement parks, theme parks, local and county
fairs and festivals, some of which possess significantly greater resources than
the Company and in many cases greater expertise and industry contacts. The
Company estimates that there are currently 20 major Renaissance Faires produced
each year. In addition, the Company estimates that there are 100 minor
Renaissance Faire events held throughout the United States each year, ranging in
duration from one day to two weekends. See "BUSINESS - COMPETITION."
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LACK OF TRADEMARK PROTECTION. Because of the large number of existing
Renaissance Faires, it is unlikely that the Company will be able to rely upon
trademark or service mark protection for the name "Renaissance Faire." As a
result, there is no protection against others using the name "Renaissance Faire"
for the production of entertainment events similar to those produced by the
Company. The Company's own Faires could be negatively impacted by association
with substandard productions. See "BUSINESS - INTELLECTUAL PROPERTY."
PUBLIC LIABILITY AND INSURANCE. As a producer of a public entertainment
event, the Company has exposure for claims of personal injury and property
damage suffered by visitors to the Faires. To date, the Company has experienced
only minimal claims which it has been able to resolve without litigation. The
Company maintains comprehensive liability insurance which it considers to be
adequate against this risk; however, there can be no assurance that a
catastrophic event or claim which could result in damage or liability in excess
of this coverage will not occur. See "BUSINESS - PUBLIC LIABILITY AND
INSURANCE."
DEPENDENCE UPON VENDORS. A substantial portion of the Company's revenues
generated at each Faire are derived from arrangements that the Company has with
vendors who construct elaborate booths at the Faires and sell a variety of food,
crafts and souvenirs. This arrangement consists of either a fixed rental paid
by the vendors to the Company or a percent of revenues. In either case, the
success of a Faire is dependent upon the Company's ability to attract
responsible vendors who sell high quality goods. See "BUSINESS - VENDORS."
SEASONALITY. The Company's Renaissance Faires are located in traditionally
seasonal areas which attract the greatest number of visitors during the warm
weather months in the spring, summer and early fall. Unless the Company
acquires or develops additional Faire sites in areas which are counter-seasonal
to the present sites located in temperate climates, the Company's revenues and
income will be highly concentrated in the six months ended September 30th of
each year. See "BUSINESS - SEASONALITY AND WEATHER."
DEPENDENCE UPON WEATHER. Each Renaissance Faire operated by the Company is
scheduled for a finite period, typically consecutive weekends during a seven to
nine-week period, which are determined substantially in advance in order to
facilitate advertising and other promotional efforts. The success of each Faire
is directly dependent upon public attendance, which is directly affected by
weather conditions. While each of the Company's faires, other than the Northern
and Southern California faires, are open, rain or shine, poor weather, or even
the forecast of poor weather, can result in substantial declines in attendance
and, as a result, loss of revenues. The Northern and Southern California faires
are closed if it is raining. Further, as the Renaissance Faires are outdoor
events, they are vulnerable to severe weather conditions that can cause damage
to the Faire's infrastructure and buildings, as well as injuries to patrons and
employees. Risks associated with the weather are beyond anyone's control but
have a direct and material impact upon the relative success or failure of a
given Faire. See "BUSINESS - SEASONALITY AND WEATHER."
LICENSING AND OTHER GOVERNMENTAL REGULATION. For each Faire operated by
the Company, it is necessary for the Company to apply for and obtain permits and
other licenses
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from local governmental authorities controlling the conduct of the Faire,
service of alcoholic beverages, service of food, health and sanitation and other
matters at the Faire sites. Each governmental jurisdiction has its own
regulatory requirements which can impose unforeseeable delays or impediments in
preparing for a Faire production. While the Company has been able to obtain all
necessary permits and licenses in the past, there can be no assurance that
future changes in governmental regulation or the adoption of more stringent
requirements may not have a material adverse impact upon the Company's future
operations. See "BUSINESS - GOVERNMENT REGULATION."
FAIRE SITES. While the Company owns the sites at which the Bristol
Renaissance Faire and the Virginia Faire are operated, the Company's Northern
and Southern California Faire sites have been held pursuant to short-term
leases. The New York Faire is also operated on a leased site. It is expected
that future Faires that may be developed by the Company, if any, will also be
presented on leased sites. The terms and conditions of each lease will vary
from location and to a large extent are beyond the control of the Company.
Further, there can be no assurance that the Company will be able to continue to
lease existing Faire sites on terms acceptable to the Company, or be successful
in obtaining other sites on favorable locations. The Company's dependence upon
leasing Faire sites creates a substantial risk of fluctuation in the Company's
operations from year to year. See "POSSIBLE SUSPENSION OF NORTHERN CALIFORNIA
FAIRE FOR 1998" and "POSSIBLE RELOCATION OF SOUTHERN CALIFORNIA FAIRE."
SHARES ELIGIBLE FOR FUTURE SALE UNDER RULE 144. The Company estimates that
in excess of 3,000,000 shares of the Company's Common Stock currently
outstanding are "restricted securities" which can be sold publicly in compliance
with Rule 144 adopted under the Securities Act. The possibility that
substantial amounts of Common Stock may be sold in the public market under Rule
144 may adversely effect the prevailing market price for the Common Stock.
MARKET OVERHANG FROM WARRANTS AND OUTSTANDING OPTIONS AND CONVERTIBLE
SECURITIES. As of September 1, 1997, the Company had outstanding options,
warrants and convertible notes and debentures to purchase a total of 8,495,852
shares, including Class A and Class B warrants to purchase an aggregate of
3,761,558 shares issued in a public offering in 1995 ("Public Warrants"). To
the extent that such stock options or warrants are exercised or the convertible
securities converted, dilution to the interests of the Company's shareholders
may occur. Exercise of these options or warrants or the conversion of the
convertible securities or even the potential of their exercise or conversion may
have an adverse effect on the trading price and market for the Company's Common
Stock. The holders of the options, warrants or convertible securities are
likely to exercise or convert them at times when the market price of the shares
of Common Stock exceeds the exercise price of the options or warrants or the
conversion price of the convertible securities. Accordingly, the issuance of
shares of Common Stock upon exercise of the options or warrants or conversion of
the convertible securities may result in dilution of the equity represented by
the then outstanding shares of Common Stock. Furthermore, holders of such
securities can be expected to exercise or convert them at a time when the
Company would, in all likelihood, be able to obtain any needed capital on terms
which are more favorable to the Company than the exercise or conversion terms
provided by such securities.
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POTENTIAL ADVERSE EFFECT OF REDEMPTION OF PUBLIC WARRANTS. The Public
Warrants may be redeemed by the Company after January 27, 1997, at a price of
$0.01 per Warrant, upon 30 days' notice, mailed within three days after the
closing bid price of the Common Stock has equaled or exceeded 150% of the then
current respective warrant exercise prices (currently $3.00 per share with
respect to the Class A Warrants, and $3.9375 per share with respect to the Class
B Warrants), for a period of 20 or more consecutive trading days.
Warrantholders shall have exercise rights until the close of the business day
preceding the date fixed for redemption. Redemption of the Public Warrants
could have an adverse effect on the prevailing market price of the Common Stock.
PROPOSED NEW LISTING STANDARDS FOR NASDAQ SECURITIES. The Nasdaq Stock
Market recently adopted certain changes to the standards for issuers with
securities listed on Nasdaq. One of the changes included increasing the
maintenance requirements for continued listing in the Nasdaq Small Cap Market,
on which the Company's Common Stock is currently listed. While the Company
currently is in compliance with the new maintenance requirements, it could cease
to be in compliance in the future if it continues to incur substantial losses
from operations. In this event, it is possible that the Common Stock would be
delisted from the Nasdaq Small Cap Market.
Broker-dealer practices in connection with transactions in "penny stocks"
are regulated by certain penny stock rules adopted by the Securities and
Exchange Commission. Penny stocks generally are equity securities with a price
of less than $5.00 (other than securities registered on certain national
securities exchanges or quoted on the Nasdaq system, provided that current price
and volume information with respect to transactions in such securities is
provided by the exchange or system). The penny stock rules require a
broker-dealer, prior to a transaction in a penny stock not otherwise exempt from
the rules, to deliver a standardized risk disclosure document that provides
information about penny stocks and the risks in the penny stock market. The
broker-dealer also must provide the customer with current bid and offer
quotations for the penny stock, the compensation of the broker-dealer and its
salesperson in the transaction, and monthly account statements showing the
market value of each penny stock held in the customer's account. In addition,
the penny stock rules generally require that prior to a transaction in a penny
stock the broker-dealer make a special written determination that the penny
stock is a suitable investment for the purchaser and receive the purchaser's
written agreement to the transaction. These disclosure requirements may have
the effect of reducing the level of trading activity in the secondary market for
a stock that becomes subject to the penny stock rules. If the Company's
securities become subject to the penny stock rules, investors in this offering
may find it more difficult to sell their securities.
SEC INVESTIGATION OF DUKE & CO., INC. The underwriter of the Company's
1995 public offering, Duke & Co., Inc. ("Duke"), is aware that the Securities
and Exchange Commission is investigating certain of Duke's trading practices and
mark-ups in connection with trading in securities of the Company following the
public offering. Historically, Duke has been the principal market maker for the
Company's Common Stock and Public Warrants. There can be no assurance that the
investigation will not adversely and materially affect subsequent trading in the
Company's securities. Gregg Thaler, a director of the Company, is President of
Duke.
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AUTHORIZATION OF PREFERRED STOCK. The Company's Articles of Incorporation,
as amended, authorize the issuance of up to 1,000,000 shares of preferred stock.
The Board of Directors has been granted the authority to fix and determine the
relative rights and preferences of preferred shares, as well as the authority to
issue such shares, without further stockholder approval. As a result, the Board
of Directors could authorize the issuance of a series of preferred stock which
would grant to holders preferred rights to the assets of the Company upon
liquidation, the right to receive dividend coupons before dividends would be
declared to common stockholders, and the right to the redemption of such shares,
together with a premium, prior to the redemption of Common Stock. Common
stockholders have no redemption rights. In addition, the Board could issue
large blocks of voting stock to fend against unwanted tender offers or hostile
takeovers without further shareholder approval.
AUTHORIZATION OF ADDITIONAL SHARES. The Company's Articles of
Incorporation, as amended, authorize the issuance of up to 50,000,000 shares of
Common Stock, of which 9,636,262 shares were outstanding on September 1, 1997.
The Company's Board of Directors has the authority to issue additional shares of
Common Stock and to issue options and warrants to purchase shares of the
Company's Common Stock without shareholder approval. In addition, the Board
could issue large blocks of voting stock to fend off unwanted tender offers or
hostile takeovers without further shareholder approval. In addition, the
Company had outstanding at September 1, 1997 options, warrants and convertible
securities to purchase 8,495,852 shares of Common Stock. Exercise or conversion
of these securities may have a further dilutive effect on existing shareholders
and warrant holders. See "MARKET OVERHANG FROM WARRANTS AND OUTSTANDING OPTIONS
AND CONVERTIBLE SECURITIES."
MARKET FOR THE COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
Since August 21, 1997, the Company's Common Stock has been traded in the
Nasdaq Small Cap Market and form September 1, 1995 to August 21, 1997, it traded
on the Nasdaq National Market. From January 27, 1995 to August 31, 1995, it
traded on the Nasdaq Small-Cap Market and on the Boston Stock Exchange, and
prior to that time, the stock was traded over-the-counter on the OTC Electronic
Bulletin Board. Since December 9, 1996, the Company's Common Stock has also
been traded on the Philadelphia Stock Exchange. The following table reflects the
high and low prices of the Company's Common Stock for each quarterly period of
the two most recent calendar years and the subsequent interim quarter
retroactively adjusted for a 2-for-1 stock split in October 1996. From the
fourth quarter of 1995 forward, the prices reflect the high and low sales
prices. For the first, second and third quarters of 1995, the prices reflect
the high and low bid prices as quoted by the National Quotation Bureau, Inc.
The quotations represent prices between broker-dealers and do not include retail
mark-ups and mark-downs or any commission to the broker-dealer and may not
reflect prices in actual transactions.
-10-
<PAGE>
Calendar Years Ended December 31 High Low
- -------------------------------- ---- ---
1995
First Quarter ended March 31 $4.50 $3.38
Second Quarter ended June 30 4.88 3.63
Third Quarter ended September 30 4.69 3.88
Fourth Quarter ended December 31 6.44 4.00
1996
First Quarter ended March 31 7.19 5.19
Second Quarter ended June 30 6.81 5.63
Third Quarter ended September 30 7.00 5.25
Fourth Quarter ended December 31 7.50 5.00
1997
First Quarter ended March 31 6.88 5.06
Second Quarter ended June 30 5.00 1.00
Third Quarter, July 1 - September 10 1.25 .50
As of September 1, 1997, there were approximately 1,530 shareholders of
record.
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of Common
Stock by the Selling Shareholders.
-11-
<PAGE>
CAPITALIZATION
The following table sets forth (i) the current liabilities and
capitalization of the Company as of June 30, 1997 and (ii) the pro forma
liabilities and capitalization as of June 30, 1997, adjusted to reflect the
conversion of the 9% Convertible Secured Notes (assuming a conversion price
of $.35 per share).
June 30, 1997
--------------------------
Actual As Adjusted
----------- -----------
Current liabilities $2,744,503 $2,394,503
Long-term liabilities, net of current $3,216,550 $3,216,550
----------- -----------
portion
Total liabilities $5,961,053 $5,611,053
Stockholders' equity:
Preferred Stock, $1.00 par value,
1,000,000 shares authorized, none
issued and outstanding -- --
Common Stock, $.03 par value,
50,000,000 shares authorized,
9,636,262 issued and outstanding;
10,636,262 as adjusted (1) $9,327,186 $9,652,186
Accumulated (deficit) ($4,546,794) ($4,546,794)
----------- -----------
Total stockholders' equity $4,780,392 $5,105,392
Total liabilities and stockholders'
equity $10,741,445 $10,716,445
----------- -----------
----------- -----------
- ---------------
(1) Does not include shares issuable upon exercise or conversion of outstanding
options, warrants or convertible securities.
DIVIDEND POLICY
The Company has never paid any cash dividends on its Common Stock and does
anticipate that it will pay cash dividends in the foreseeable future. Instead,
the Company intends to apply any earnings to the development and expansion of
its business.
SELECTED FINANCIAL DATA
The information set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements and related notes included elsewhere in this
Prospectus. Information is not provided for or at the end of fiscal 1993 as the
financial statements for this period, which would be for a predecessor
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<PAGE>
company, are not available to the Company. The information for fiscal 1993
would, as is the information for and at the end of fiscal 1994, be for only one
of the Company's faires (the Bristol Renaissance Faire) and would not be, in the
Company's opinion, material to an understanding of the Company's current
financial information. The acquisition in 1996 of Creative Fairs Ltd. was
accounted for as a pooling of interest. The income statement data for the nine
months ended December 31, 1996 and 1995 include the accounts of Creative Fairs
Ltd. for the year ended December 31, 1996 and 1995 and accounts for the Company
for the nine-month periods ended December 31, 1996 and 1995. The income
statement data for the years ended March 31, 1996 and 1995 include the accounts
of Creative Fairs Ltd. for the two years ended December 31, 1995 and 1994 and
the consolidated accounts of the Company for the years ended March 31, 1996 and
1995, respectively. The balance sheet data as of December 31, 1996 and 1995
include the accounts of Creative Fairs Ltd. as of December 31, 1996 and December
31, 1995, respectively. The balance sheet data as of March 31, 1996 and 1995,
also include the accounts of Creative Fairs Ltd. as of December 31, 1995 and
1994, respectively. The income statement data for the year ended March 31, 1994
and as of March 31, 1994 do not include information regarding Creative Fairs
Ltd.
<TABLE>
<CAPTION>
NINE MONTHS SIX MONTHS
YEARS ENDED MARCH 31, ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------- ------------------- -------------------
INCOME STATEMENT DATA 1994 1995 1996 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Revenue $ 1,973 $12,540 $12,811 $10,470 $14,554 $ 5,306 $ 4,886
Gross Profit 1,694 9,327 8,984 7,265 9,741 3,186 3,055
Net Operating Income (Loss) (39) 757 (1,475) 111 (1,753) (2,758) (1,401)
Net Income (Loss) After Taxes (98) 576 (1,274) 309 (1,852) (2,805) (1,254)
Net Income (Loss) to Common
Shareholders (98) 533 (1,274) 264 (1,852) (2,805) (1,254)
Net Income (Loss) Per Common
Share (.05) .11 (.16) .03 (.21) (.34) (.13)
Weighted Average Common
Shares Outstanding 1,901 4,801 7,824 7,644 8,907 8,187 9,532
<CAPTION>
MARCH 31, DECEMBER 31, JUNE 30,
------------------------------- ------------------- --------
BALANCE SHEET DATA 1994 1995 1996 1995 1996 1997
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Working capital (deficiency) $ (524) $ 3,123 $ 15 $ 768 $(1,506) $ (886)
Total current assets 167 4,012 2,120 1,308 931 1,859
Total assets 1,257 6,853 10,433 8,226 9,872 10,741
Total current liabilities 691 889 2,105 539 2,438 2,74
Long-term debt (less current maturities) 434 451 2,531 846 2,379 3,217
Stockholders' equity 132 5,513 5,797 6,841 5,055 4,780
</TABLE>
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following discussion should be read in conjunction with the Company's
Consolidated Financial Statements, including the footnotes for the fiscal period
ended December 31, 1996. On June 21, 1996, the Company changed its fiscal year
end from March 31 to December 31.
The Company operates five Renaissance Faires in the United States and is engaged
in a strategy to develop and acquire additional Renaissance Faires nationwide.
The Company's newest Faire opened on May 4, 1996 in Fredericksburg, Virginia, a
project which was designed and constructed by the Company. On February 5, 1996,
the Company acquired Creative Faires, Ltd., the owner and operator of the New
York Renaissance Faire. With its five faires currently drawing close to 750,000
visitors annually, the Company believes that it is the largest operator of
Renaissance Faires and Renaissance entertainment events in the United States.
The Renaissance Faire is a re-creation of a Renaissance village, a fantasy
experience transporting the visitor back into sixteenth century England.
Although the Company was profitable in its fiscal year ended March 31, 1995, it
incurred a net loss of ($1,273,671) in the fiscal year ended March 31, 1996, and
a net loss of ($1,851,725) for the nine months ended December 31, 1996. In
addition, the Company expects to incur a net loss for the fiscal year ending
December 31, 1997. The New York and Virginia Faires operated at a loss during
1996. In addition, the Virginia Faire, which ran from April 26, 1997 through
June 8, 1997, operated at a loss in 1997. The Company believes both of these
Faire's results were adversely affected in 1996 and the Virginia Faire in 1997
by unusually inclement weather in their respective areas. It is typical for a
new faire such as the Virginia Faire to operate at a loss for two or more years
until it is able to build a significant customer base and awareness of the
faire. Due to the fact that the New York Faire was acquired in 1996, the
Company had limited ability to affect the operations of this Faire during the
1996 faire season. The Company has hired a new manager for this Faire and has
introduced several new entertainment acts and implemented additional promotional
efforts for this faire's 1997 season, which began on July 26, 1997 and will end
on September 14, 1997. The Company expects the New York Faire to incur an
operating loss in its 1997 season.
The owner of the site for the Company's Northern California Faire is seeking to
develop this site for commercial construction purposes, although the owner's
efforts to do so are currently being blocked by pending litigation in which the
use of the site for such purposes is being challenged. An extension of the
lease for this site for the 1997 faire season has been obtained. While the
Company is investigating new sites for the Northern California Faire, there can
be no assurance that the Company will be able to secure a new site for this
faire for the 1998 or following faire seasons.
The Company is also considering relocation of its Southern California Faire. On
November 4, 1996, the Company entered into a non-binding letter of intent with
the owner of a site in Pomona, California, which contemplated that the Company
would commence operation of the Southern
-14-
<PAGE>
California Faire at that site starting in 1998. Subsequent to the signing of
the letter of intent, the owner of the current site for the Southern California
Faire indicated that it was willing to enter into a long-term lease for the
current site. The ability to enter into a long-term lease for this site
increases its value to the Company, as the Company could construct temporary
structures on the site and significantly reduce setup costs for the faire. As
of the date of this Prospectus, the Company has not decided if it should enter
into a long-term lease for the current site or relocate the Faire to the
proposed site in Pomona. The Company estimates that the cost of the
construction and relocation to the new site would be approximately $2,000,000.
The Company had a working capital deficit ($1,506,284) and ($885,556) as of
December 31, 1996 and June 30, 1997, respectively. During the first five months
of fiscal 1997, the Company obtained $1,350,000 of additional working capital.
While the Company believes that it has adequate working capital to fund
anticipated operations for fiscal 1997, it believes it must obtain additional
working capital for future fiscal periods. See "LIQUIDITY AND CAPITAL
RESOURCES."
PROSPECTIVE INFORMATION
This Prospectus contains certain forward-looking statements and information
relating to the Company that are based on the beliefs and assumptions made by
the Company's management as well as information currently available to
management. When used in this document, the words "anticipate," "believe,"
"estimate," "expect," and similar expressions, are intended to identify
forward-looking statements. Such statements reflect the current views of the
Company with respect to future events and are subject to certain risks,
uncertainties and assumptions. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those described herein as anticipated,
believed, estimated or expected. The Company does not intend to update these
forward-looking statements.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS
ENDED JUNE 30, 1996
Revenues decreased $420,483 or 8% from $5,306,079 in 1996 to $4,885,596 in
1997. This decrease was primarily the result of a decrease in revenues for the
Virginia Faire of approximately $175,000 and a decrease in revenues for the
Southern California Faire of approximately $260,000. The decreased revenues for
the Virginia Faire were due to unusually inclement weather - six of the seven
faire weekends had substantial rain which severely impacted attendance. The
decreased revenues for the Southern California Faire were due to being open one
less weekend in 1997 than in 1996. Although revenues were down in Virginia, the
operating loss was reduced by approximately $190,000, from a loss of
approximately $460,000 for the 1996 period to a loss of approximately $270,000
for the 1997 period, through expense control.
Operating expenses (year-round operating costs and corporate overhead) decreased
$1,488,520 or 25%, from $5,944,353 in 1996 to $4,455,833 in 1997. The primary
causes of this decrease were the $380,000 of goodwill writedown and unusual
expenses of a one time nature of approximately $400,000 applicable to the
initial start-up of the Virginia Faire included in 1996 results. Additionally,
in 1996 the $349,000 rent for the Northern California Faire site was paid and
-15-
<PAGE>
expensed in the second quarter, whereas the rent for this site will be paid and
expensed in the third quarter of 1997.
Of the operating expenses, salaries decreased 8%, from $2,189,322 in 1996 to
$2,019,519 in 1997, reflecting a reduction of personnel for the 1997 period as
compared to the 1996 period.
Advertising expense decreased $198,643, or 22%, from $892,634 in 1996 to
$693,991 in 1997. This decrease was due to spending more in 1996 for
advertising the first year of the Virginia Faire as well as the utilization of
more cost efficient methods of advertising in 1997.
Depreciation and amortization increased 29%, from $266,233 in 1996 to $343,570
in 1997. This increase is primarily the result of depreciation on the
approximately $4,000,000 invested in buildings and improvements to the Virginia
property. This increase would have been greater had the Company not
standardized the depreciable lives used for buildings from a range of between 7
to 30 years in 1996 to 15 years for temporary buildings and 30 years for
permanent buildings in 1997.
Other operating expenses (all other general and administrative expenses of the
Company) decreased $817,411 or 37%, from $2,216,164 in 1996 to $1,398,753 in
1997. Included in this decrease is the $400,000 of one-time expenses discussed
above, incurred in 1996 in connection with the initial start-up of the Virginia
Faire. The balance of the decrease is due to management's implementation of a
variety of cost saving measures.
As a result of the foregoing, net operating income (before interest charges and
other income) increased $1,357,412 from a loss of ($2,758,192) for the 1996
period to a loss of ($1,400,780) for the 1997 period.
A 65% increase in interest expense from $118,795 in 1996 to $196,167 in 1997
resulted from an increase in the Company's borrowing levels throughout the 1997
period as compared to the 1996 period.
Other income/expense increased $513,018, from other expense of ($197,384) in
1996 to other income of $312,634 in 1997. The primary source of the other
income in 1997 was the reversal of $309,694 of expense which had been accrued in
1996 for expenses expected to have been incurred in 1997 to evaluate a new site
for the Northern California Faire. During the second quarter it became apparent
that this site would not be available and that these costs would not be
incurred. In addition, it is not possible at this time to determine what
expenses may be incurred if the Company is required to find a new site for this
Faire. The primary source of the other expense in 1996 was the reversal of
$200,000 of other income which had been recorded in the quarter ended December
31, 1995. In late 1995, the State of Virginia paid the Company $200,000 which
upon initial evaluation was considered income. Upon further review, it was
determined that the more appropriate treatment of this amount was as a reduction
of fixed assets. The appropriate adjustment in the last quarter of the fiscal
year ended March 31, 1996 (which is the first quarter of the calendar year)
resulted in the $200,000 charge to other expense.
-16-
<PAGE>
Combining net operating income with other income/expense resulted in a
$1,790,318 increase in net income before taxes, from a loss of ($3,043,916) for
the 1996 period to a loss of ($1,253,598) for the 1997 period.
As a result of operating losses for the entire fiscal year ended March 31, 1996
(the Company's fiscal year previously ended March 31), a refund of taxes paid in
prior years was available in the 1996 period. This resulted in a credit to
Income Taxes of $239,273 for the six-month period ended June 30, 1996.
Net loss to common stockholders decreased $1,551,045, from a loss of
($2,804,643) for the 1996 period to a loss of ($1,253,598) for the 1997 period.
Finally, net loss per common share decreased from a loss of ($.34) for the 1996
period to a loss of ($.13) for the 1997 period, based on 8,186,540 weighted
average shares outstanding during the 1996 period and 9,531,581 weighted average
shares outstanding during the 1997 period.
NINE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO NINE MONTHS ENDED DECEMBER 31,
1995
On June 21, 1996, the Board of Directors of the Company approved a change in the
Company's fiscal year from April 1 to March 31 to January 1 to December 31. As
a result, the fiscal period ended December 31, 1996 is for a nine-month period,
rather than for a full twelve months. In order to make the comparison of the
fiscal period ended December 31, 1996 with the prior fiscal year more
meaningful, the following discussion compares the results of operations for the
fiscal period ended December 31, 1996 to the results of operations for the nine
months ended December 31, 1995, rather than to the full fiscal year ended March
31, 1996. See "Selected Financial Data," for information regarding the
unaudited results of operations for the nine months ended December 31, 1995, as
well as information for the audited fiscal periods ended March 31, 1995 and 1996
and December 31, 1996.
The results of operations of the Company for the nine-month period ended
December 31, 1996 reflect the nineteen-day run of the Southern California Faire,
the eighteen-day run of the Wisconsin Faire, the fifteen-day run of the Northern
California Faire, the seventeen-day run of the New York Faire and the
fifteen-day run of the Virginia Faire. The comparable period of 1995 included
the same number of days for the Southern California, Wisconsin, and Northern
California Faires, but did not include the New York or Virginia Faires. The New
York Faire was acquired on February 5, 1996, and although accounted for as a
pooling of interest and therefore included in the Company's fiscal year ended
March 31, 1996, due to the different fiscal periods for the Company and the New
York Faire, the entire twelve-month results of operations for the New York Faire
for the year ended December 31, 1995 (the New York Faire's fiscal period) were
reflected in the Company's operating results for the January 1, 1996 through
March 31, 1996 quarter (the Company's fiscal year end prior to its change on
June 21, 1996) and not in the nine-month period ended December 31, 1995. The
Virginia Renaissance Faire, which was under construction as of December 31,
1995, did not generate any revenues during the nine-month period ended December
31, 1995. Thus, these financial statements include the results of five
operating faires for the period in 1996, but only three faires for the same
period in 1995.
-17-
<PAGE>
Revenue increased from $10,469,824 for the nine-month period ended December 31,
1995 to $14,553,577 for the nine-month period ended December 31, 1996, an
increase of $4,083,753 or 39%. The increase in revenues resulted from the
additional revenues of $949,304 and $2,360,941 for the Virginia and New York
Faires, respectively, for the period ended December 31, 1996, as compared to the
same period of 1995. The increased revenues from the new faires were partially
offset by a decrease of approximately $500,000 in revenues for the Southern
California Faire as compared to the same period of 1995. Management believes
that unusually inclement weather in Virginia, New York and Southern California
reduced the expected revenues from these faire operations. In addition, the
Virginia Faire, as is typical of new faires, operated at a loss in 1996, its
first year of operation, and is expected to incur an operating loss in the 1997
faire season. During the 1996 season the Bristol Renaissance Faire revenues
increased approximately $500,000 over the 1995 season due, in part, to good
weather during each of the nine weekends of this faire. This was the eighth
consecutive year that attendance increased at the Bristol faire.
Faire operating expenses (expenses directly related to faire operations, such as
rent, grounds maintenance, contract services, contract entertainment, food,
beverage and merchandise costs) increased $1,607,464 or 50%, from $3,205,152 in
the 1995 period to $4,812,616 in the 1996 period. This increase in expenses
resulted from the additional operation of the Virginia and New York Faires for
the period ended December 31, 1996, as compared to the same period in 1995, plus
higher overall costs related to faire operations. The gross profit,
representing operating income from faire operations before overhead expenses,
increased 34% from $7,264,672 in 1995 to $9,740,961 in 1996. This increase is
attributable to the increased revenues from the Virginia and New York Faires,
partially offset by the higher overall costs related to all faire operations.
Operating expenses (year-round operating costs and corporate overhead) increased
$4,340,783 or 61%, from $7,153,674 in 1995 to $11,494,457 in 1996. Of these
amounts, salaries increased 34% from $3,030,208 in 1995 to $4,048,603 in 1996,
representing the expansion of staffing levels resulting from the two additional
faires. Depreciation and amortization expense increased 88% from $337,208 in
1995 to $633,819 in 1996. This increase is primarily the result of depreciation
on the approximately $3,200,000 investment in buildings and improvements to the
Virginia property, as well as the New York Faire, both of which were not
included in the same period of 1995. Advertising expenditures increased 142%
from $1,036,508 in 1995 to $2,511,973 in 1996, again reflecting the necessary
advertising for the two additional faires as well as moderate increases in
advertising and rates for the other three faires. Additionally, due to
contracting out certain advertising activities previously done by faire
personnel, additional advertising expenses of approximately $136,000 were
charged to advertising expenses during the 1996 period.
The Company wrote down goodwill applicable to the Southern California Faire by
$380,000 in 1996, based on this faire's disappointing performance over the past
two operating seasons. The Company recognized as expense in the nine-month
period ended December 31, 1996, $450,000 of costs originally expected to be
incurred in 1997, which costs are the result of the decision made in 1996 to
examine an alternative site for the Company's Northern California Faire. See
"GENERAL" above regarding the possible relocation of the Northern California
Faire.
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<PAGE>
Other operating expenses (all other general and administrative expenses of the
Company) increased $720,808 or 26%, from $2,749,254 in 1995 to $3,470,062 in
1996. This increase is primarily the result of increased operating expenses
(approximately $570,000) resulting from the two additional faires, and also
greater overhead costs (approximately $100,000 in the aggregate) at each faire
site plus an increase in other corporate activities (approximately $50,000)
which support faire operations and pursue new ventures. As a result of the
foregoing, net operating income (before interest charges and other income)
decreased $1,864,495, from $110,999 in 1995 to a loss of $1,753,496 in 1996.
A 27% decrease in interest income from $94,090 in 1995 to $68,571 in 1996
resulted from a more than 40% decrease in the Company's cash balances during the
1996 period. A 153% increase in interest expense from $100,266 in 1995 to
$253,740 in 1996 resulted from increases in the Company's borrowing levels
throughout the 1996 period as compared to 1995. Combined net interest expense
(interest expense less interest income) reflected an increase of $178,993 for
the period, from $6,176 in 1995 to $185,169 in 1996. Miscellaneous expenses
decreased from $224,612 in 1995 to $86,940 in 1996. Combining net operating
income with other income resulted in a $2,161,159 decrease in net income before
taxes, from income of $309,434 in the 1995 period to a loss of $1,851,725 in the
1996 period.
Although the Company incurred a net loss for the entire fiscal year ended March
31, 1996, for the nine-month period ended December 31, 1995, a provision for
income tax in the amount of $45,470 was recorded. As a result of the Company's
loss for the nine-month period ended December 31, 1996, no income tax expense
was recorded.
Net income to common stockholders decreased $2,115,689, from $263,964 net income
for the 1995 period to a loss of $1,851,725 for the 1996 period. Finally, net
income per common share decreased from $0.03 during the 1995 period to a loss of
$.21 for the 1996 period, based on 7,643,702 weighted average number of shares
outstanding during the 1995 period and 8,907,049 weighted average number of
shares outstanding during the 1996 period.
MARCH 31 FISCAL 1996 COMPARED TO FISCAL 1995
Comparisons of the fiscal year ended March 31, 1996 with the fiscal year ended
March 31, 1995 include Creative Faires, Ltd. (owner of the New York Renaissance
Faire) acquired February 5, 1996. The acquisition has been accounted for as a
pooling of interests, which means that the financial results of Creative Faires,
Ltd. have been retroactively merged into those of the Company. Accordingly, the
Company's results of operations for fiscal 1995 and fiscal 1996 include the
results of Creative Faires. Because the Company's fiscal year previously ended
on March 31 and Creative Faires' fiscal year ended on December 31, the income
statements of Creative Faires for the fiscal years ended December 31, 1994 and
December 31, 1995 have been consolidated into the Company's income statements
for the fiscal years ended March 31, 1995 and March 31, 1996, respectively.
Results of operations for Creative Faires, Ltd. includes three crafts shows and
a Halloween Forest of Fear in addition to the New York Renaissance Faire,
although the Faire represents most of its revenue.
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<PAGE>
The results of operations of the Company for the fiscal year ended March 31,
1996 reflect the nineteen-day run of the Los Angeles Faire, the eighteen-day run
of the Wisconsin Faire, the fifteen-day run of the San Francisco Faire, and the
seventeen-day run of the New York Faire. The comparable period of fiscal 1995
included the same number of days for Los Angeles, Wisconsin and New York Faires,
but included an additional three days for the San Francisco Faire. The Virginia
Renaissance Faire, under construction as of March 31, 1996, did not generate any
revenues during fiscal 1996. Thus, these financial statements include the
results of four operating faires and one faire under construction during fiscal
1996, as against four operating faires during fiscal 1995. As a further note,
as a result of the acquisition of the Los Angeles Faire on April 1, 1994, the
comparable figures for the 1995 fiscal year do not reflect advance ticket sales
and certain prepaid expenses of the Los Angeles Faire which were recognized by
the prior owner.
Revenue increased modestly from $12,539,653 for the fiscal year ended March 31,
1995 to $12,810,617 for the fiscal year ended March 31, 1996, an increase of
$270,964 or 2%. During fiscal 1995 beverage operations for the Los Angeles and
San Francisco Faires were handled by an outside contractor, and accordingly only
the fee earned from that contractor was reported as revenue, whereas in fiscal
1996 the Company ran the beverage operation itself and recorded all revenue.
Faire operating expenses (expenses directly related to faire operations, such as
rent, grounds maintenance, contract services, contract entertainment, food,
beverage and merchandise costs) increased $614,377 or 19%, from $3,212,491 in
fiscal 1995 to $3,826,868 in fiscal 1996. This increase is partially due to the
inclusion of beverage costs for the Los Angeles and San Francisco Faires, which
were not reported during the previous period when handled by an outside
contractor, plus higher overall costs related to faire operations. The gross
profit, representing operating income from faire operations before overhead
expenses, decreased 4% from $9,327,162 in fiscal 1995 to $8,983,749 in fiscal
1996. This decrease is attributable to the shorter run of the San Francisco
Faire in fiscal 1996 and growing operating costs which were not offset by
increased attendance.
Operating expenses (year-round operating costs and corporate overhead) increased
$1,888,568 or 22%, from $8,570,320 for fiscal 1995 to $10,458,888 for fiscal
1996. Of these amounts, salaries increased 17% from $3,474,799 in fiscal 1995
to $4,082,271 in fiscal 1996, representing a modest expansion of staffing levels
Company wide. Depreciation and amortization expense increased 42% from $351,215
in fiscal 1995 to $500,203 in fiscal 1996. This increase is largely the result
of the Company's increased investment in property and equipment for the expanded
Wisconsin Faire, as well as investment in furniture and equipment for the
corporate office, which moved to new quarters in April 1995. The approximately
$3,200,000 investment in buildings and improvements to the Virginia property
were not subject to depreciation in fiscal 1996, because at March 31, 1996 the
Virginia Faire had not yet opened. Under accounting rules those assets
(categorized on the balance sheet as construction-in-progress) were not yet
depreciable. Advertising expenditures increased 28% from $1,211,798 in fiscal
1995 to $1,546,701 in fiscal 1996.
Other operating expenses (all other general and administrative expenses of the
Company) increased $797,205 or 23%, from $3,532,508 for fiscal 1995 to
$4,329,713 for fiscal 1996. This increase is the result of greater overhead
costs at each faire site plus other corporate activities which support
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<PAGE>
faire operations and pursue new ventures. For example, during the 1996 fiscal
year, approximately $225,000 was spent developing new products and distribution
opportunities. Second, approximately $90,000 in product design costs, which had
been capitalized during the 1995 fiscal year, had to be expensed when changing
circumstances required a different accounting treatment of that transaction.
Third, approximately $160,000 in expenses were incurred searching for and
negotiating for the rights to new sites for the Los Angeles and San Francisco
Faires. Management believes that those Faires have the potential to be more
profitable once they are located on long-term sites with permanent structures,
since the substantial costs of re-establishing the faires each season will be
eliminated and also, the opportunity for revenue enhancement will improve in
conjunction with additional improvements to the property. Fourth, the Company
expensed approximately $300,000 in overhead costs during construction of the new
site in Virginia, including such costs as salaries, office rent and overhead
costs related to overseeing construction. As a result of the foregoing, net
operating income (before interest charges and other income) decreased
$2,231,981, from $756,842 for fiscal 1995 to a loss of $1,475,139 for fiscal
1996.
A 128% increase in interest income from $48,132 in fiscal 1995 to $109,652 in
fiscal 1996 resulted from the investment of cash proceeds from the January 1995
stock offering. Offsetting this was a 159% increase in interest expense from
$53,223 in fiscal 1995 to $138,036 in fiscal 1996. The increase was due to a
new $1,500,000 mortgage and $250,000 note on the Virginia property, plus a
larger mortgage on the Wisconsin property. Combining interest income with
interest expense resulted in an increase in net interest expense from $5,091 in
fiscal 1995 to $28,384 in fiscal 1996. Miscellaneous expenses (primarily loss
on sale of assets) of $28,327 in fiscal 1995 changed to $36,049 in miscellaneous
income (rental income and vendor refunds) in fiscal 1996. Combining net
operating income with other income resulted in a $2,190,898 decrease in net
income before taxes, from income of $723,424 for fiscal 1995 to a loss of
$1,467,474 in fiscal 1996.
Since the Company incurred a net loss for the 1996 fiscal year, it applied that
loss against taxable income during the previous fiscal year, resulting in a
credit of $193,803 in taxes previously booked. The excess in operating losses
above what has been applied against the previous year (approximately $1,400,000)
was carried forward to reduce taxable income in future periods. During the 1995
fiscal year, a year of net income, income tax expense of $147,000 was incurred.
Net income to common stockholders decreased $1,806,980, from $533,309 in fiscal
1995 to a loss of $1,273,671 for fiscal 1996. Net income to common stockholders
for fiscal 1995 is net of $43,115 paid in dividends on preferred stock. The
Company's preferred stock was fully redeemed on January 27, 1995 in conjunction
with the public offering, and there has been no preferred stock outstanding
since that date. Finally, net income per common share decreased from $0.11
during fiscal 1995 to a loss of $0.16 during fiscal 1996, based on 4,801,044
weighted average number of shares outstanding during fiscal 1995 and 7,824,182
weighted average number of shares outstanding during fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital deficit was narrowed during the six months ended
June 30, 1997, from $1,506,284 at December 31, 1996 to $885,556 at June 30,
1997. This improvement resulted
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from a number of cost reductions implemented by management in order to reduce
the Company's working capital requirements and the issuance of $1,000,000 of
convertible debentures during the first five months of the year.
The Company's working capital requirements are greatest during the period from
January 1 through April 30, when it is incurring start-up expenses for its first
faires of the faire season, the Southern California and Virginia Faires. The
Company has historically relied upon various revolving credit facilities to meet
its working capital requirements during this period. At December 31, 1996, the
Company had outstanding $1,000,000 in short-term bank lines of credit borrowings
which was the maximum amount available under the lines and did not therefore
have any unused credit available for the 1997 faire season. Subsequent to year
end, the Company entered into an agreement with the banks which requires the
Company to pay these lines from 1997 operations ($300,000 of which was paid in
the six-month period ended June 30, 1997, leaving a balance of $700,000). Since
December 31, 1996, the Company has also raised $1,000,000 of working capital
through the issuance of convertible debentures, of which $250,000 was issued to
Charles S. Leavell, Chairman of the Board of Directors of the Company and the
balance to Mr. Leavell's father and an unrelated party, and also raised $350,000
of working capital from the sale of convertible notes to a number of private
investors. The debentures are secured by mortgages on the Company's Wisconsin
and Virginia Faire sites, and the notes are secured by a mortgage on the
Company's Wisconsin Faire site. The debentures are convertible into Common
Stock at the lesser of $4.50 per share or 70% of the fair market value of the
Company's Common Stock, and the notes are convertible into Common Stock at the
lesser of $1.75 per share or 50% of the fair market value for the Company's
Common Stock. The debenture holders were also granted warrants to purchase an
aggregate of 200,000 shares of the Company's Common Stock at the lesser of $3.00
per share or 70% of the fair market value of the Company's Common Stock.
Management believes that the Company should raise additional working capital in
order to more adequately fund its operations. During July 1997, the Company
entered into a letter of intent for the sale/leaseback of its Wisconsin and
Virginia Faire sites. The letter contemplates the sale of these properties at
their approximate aggregate book value ($6,000,000) and the leaseback of the
properties for a period of 20 years. Lease payments are scheduled to be
$600,000 per year during each of the first two years, and increasing to $815,000
per year in years 13 through 20. The Company would have the right to reacquire
the properties during the term of the lease at an aggregate price of $6,650,000
during the first three years, increasing to $7,350,000 during years 13 through
20. The sale/leaseback transaction further contemplates that the proceeds,
minus a security deposit of $1,000,000, $500,000 of which is to be released in
four years and the balance released in eight years, will be used to repay all
outstanding indebtedness of the Company other than its trade payables, and that
the purchasers of the property will be granted a six-year warrant representing
the right to acquire an aggregate of 1,100,000 shares of the Company's Common
Stock at an exercise price of $1 per share. The Company estimates that if the
sale/leaseback transaction is completed as contemplated, it will increase the
Company's working capital by approximately $2,000,000, which the Company
believes would be adequate to fund working capital requirements through at least
the fiscal year ending December 31, 1998. Such funds would not, however, be
adequate to fund the relocation of the Company's Northern or Southern California
Faires. The sale/leaseback
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transaction is scheduled to be completed prior to October 15, 1997. However,
the letter of intent is non-binding and there can be no assurance that the
transaction will be completed.
Reviewing the change in financial position over the six months, current assets,
largely comprised of cash and prepaid expenses, increased from $931,451 at
December 31, 1996 to $1,858,947 at June 30, 1997, an increase of $927,496 or
100%. Of these amounts, cash and cash equivalents increased from $374,289 at
December 31, 1996 to $784,582 at June 30, 1997. Accounts receivable increased
from $99,551 at December 31, 1996 to $126,607 at June 30, 1997. Prepaid
expenses increased from $139,167 at December 31, 1996 to $715,966 at June 30,
1997. This is a normal condition, as these costs represent expenses incurred in
advance, on behalf of the Bristol and New York Faires, which are expensed
against operations once those Faires are operating.
Current liabilities increased from $2,437,735 at December 31, 1996 to $2,744,503
at June 30, 1997, an increase of $306,768 or 13%. This increase is due to
increased indebtedness incurred to cover the Company's operating expenses during
the first six months. The current portion of notes payable increased from
$1,209,119 at December 31, 1996 to $1,365,338 at June 30, 1997, primarily as
the result of the issuance of $350,000 of secured notes as described above. This
additional debt was partially offset by payment of $300,000 during the quarter
on the Company's bank lines of credit. Of the $1,365,338, $700,000 was due to
short-term borrowings on the bank lines of credit, which are to be repaid from
operations prior to September 30, 1997, under the terms of an agreement with the
banks. Unearned income, which consists of the sale of admission tickets to
upcoming faires and deposits received from craft vendors for future faires,
increased from $160,588 at December 31, 1996 to $284,430 at June 30, 1997.
Total assets increased from $9,872,349 at December 31, 1996 to $10,741,445 at
June 30, 1997, an increase of $869,096 or 9%. Of this amount, the increase in
current assets of $927,496 was partially offset by moderate decreases in the
other non-current asset categories. Property, plant and equipment (net of
depreciation) decreased by $79,597 or 1% from $7,176,755 at December 31, 1996 to
$7,097,158 at June 30, 1997 as a result of depreciation of assets for the
period. Goodwill, which arose from the purchase of the two California Faires
and is being amortized over 15 years, decreased from $620,826 at December 31,
1996 to $595,488 at June 30, 1997 as the result of normal amortization. Other
miscellaneous assets (organizational costs and vendor deposits) increased from
$253,201 at December 31, 1996 to $274,675 at June 30, 1997.
Total liabilities increased from $4,816,897 at December 31, 1996 to $5,961,053
at June 30, 1997, an increase of $1,144,156 or 24%. Total liabilities at June
30, 1997 include $2,744,503 in current liabilities (discussed above), plus
$3,216,550 from the long-term portion of the following loans: an $800,000
mortgage on the Bristol Faire property, a $1,500,000 mortgage on the Virginia
Faire property, a $1,000,000 mortgage on the Bristol and Virginia Faire
properties and a $250,000 loan for construction of vendor booths in Virginia.
Stockholders' Equity decreased from $5,055,452 at December 31, 1996 to
$4,780,392 at June 30, 1997, a decrease of $275,060 or 5%. This decrease
resulted from the net loss of ($1,253,598), partially offset by additional
contributed capital received as the result of the exercise of 140,292 Class A
Warrants at $2.00 per share, the exercise of 68,000 Class B Warrants at $2.625
per share,
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and the exercise of 111,716 employee stock options at prices ranging from $1.125
to $3.50 per share.
Although inflation can potentially have an effect on financial results, during
1996 and the first six months of fiscal 1997 it caused no material affect on the
Company's operations, since the change in prices charged by the Company and by
Company's vendors has not been significant.
The Company has no significant commitment for capital expenses during the fiscal
year ending December 31, 1997. See "Business - Northern California Renaissance
Pleasure Faire and Southern California Renaissance Pleasure Faire" for
discussions of the possible relocation of the Company's Northern and Southern
California faires.
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BUSINESS
OVERVIEW
Renaissance Entertainment Corporation operates five Renaissance Faires in the
United States, and is engaged in a strategy to develop and acquire additional
Renaissance Faires nationwide. The newest Faire opened on May 4, 1996 in
Fredericksburg, Virginia, a project which was designed and constructed by the
Company. On February 5, 1996, the Company acquired Creative Faires, Ltd., the
owner and operator of the New York Renaissance Faire. With its five Faires
currently drawing close to 750,000 visitors annually, the Company believes that
it is the largest operator of Renaissance Faires and Renaissance entertainment
events in the United States. The Renaissance entertainment industry consists of
over 100 separate events of varying size with a Renaissance theme and has an
estimated attendance in excess of 4,000,000 visitors annually.
The Renaissance Faire is a recreation of a Renaissance village, a fantasy
experience transporting the visitor back into sixteenth century England. This
fantasy experience is created through authentic craft shops, food vendors and
continuous live entertainment throughout the day, both on the street and the
stage, including actors, jugglers, jousters, magicians, dancers and musicians.
STRATEGIC PLAN
The Company's long-term strategic plan is to grow internally as well as through
the acquisition of additional Renaissance Faires located throughout the United
States. At this time, the Company has no agreements or commitments to acquire
additional Renaissance Faires or faire sites.
The Company estimates that there are currently 20 major Renaissance Faires
produced in various locations throughout the country each year which are owned
by approximately 13 different owner/entities. These Faires are predominantly in
major metropolitan areas and in many cases have a history of decades of
profitable operation. Because of the fragmented nature of the industry, the
Company believes that it has an opportunity to acquire existing major Faire
productions as well as develop productions in areas which are not currently
serviced.
EXISTING RENAISSANCE FAIRES AND SITES
The Company presently owns and produces five Renaissance Faires: the Bristol
Renaissance Faire in Kenosha, Wisconsin, serving the Chicago/Milwaukee
Metropolitan region; the Northern California Renaissance Pleasure Faire in
Novato, California, serving the sanfrancisco Bay area; the Southern
California Renaiassance Pleasure Faire in Devore, California serving the
greater Los Angeles metropolitan area; the New York Renaissance Faire serving
the New York City metropolitan area; and the Virginia Renaissance Faire in
Fredericksburg, Virginia, serving the Washington, D.C. and Richmond
metropolitan areas.
The following table shows the attendance, number of vendors and net
operating income for the Company's faires during the 1996 and 1995 faire
seasons.
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Approximate Number
Attendance of Vendors Net Operating Income
----------------- ------------------ ----------------------
1995 1996 1995 1996 1995 1996
------- ------- ---- ----- ---------- ---------
Bristol 165,174 190,604 150 150 $ 422,544 $ 987,660
Northern CA 184,444 184,548 150 150 * 352,964
Southern CA 193,761 166,283 150 150 * 745,634
New York 114,403 150,773 100 100 9,179 (301,291)
Virginia 0 60,943 0 50 -- (644,813)
------- ------- ---------- ---------
Total 657,782 753,151 $1,163,634 $1,140,154
- ---------------
* Combined net operating income for the Northern and Southern California
faires for the 1995 faire season was $731,911.
BRISTOL RENAISSANCE FAIRE. The Bristol Renaissance Faire is conducted at the
Kenosha, Wisconsin site owned by the Company. It has been in existence for 10
years. The Bristol Renaissance Faire is presented annually for nine weekends
beginning the last weekend in June and ending the third weekend in August.
The Bristol Renaissance Faire was originally located on 80 acres. In May 1995,
the Company purchased an adjacent 80 acres of real estate which in the past it
had used under lease, for a purchase price of $850,000. During the first
quarter of fiscal 1996, the Company refinanced both 80 acre parcels with one
loan. The new loan, in the original principal amount of $l million, bears
interest at the rate of 9 1/2% per annum, and calls for annual principal
reduction payments of $100,000 each September through 1997, and, assuming the
Company is current in its obligations to the bank, principal reduction payments
of $50,000 per quarter beginning in March 1998, with the remaining principal
balance of $550,000, together with interest due in December 1998. The loan
balance at December 31, 1996 was $800,000.
As the site of the Bristol Renaissance Faire is owned, the structures and
improvements which have been constructed on the site, including the vendor
booths, are permanent. Craft shops and vendor booths are built by the
individual craft vendors at their cost. In many cases, vendors invest
substantial sums of money in the construction of these shops, which represent
permanent improvements and value added to the Company's real estate.
While the Company believes that the property is amenable to some
income-producing off-season activity, historically, the Company has only
utilized the site for the Renaissance Faire, and the property has been vacant
during the off-season. The Company is considering year-round uses which could
include campgrounds, a micro-brewery, an Octoberfest and music festivals. To
date, however, there exist no agreements, arrangements or other understandings
with respect to alternate year-round uses, and there can he no assurance that
the Company will be successful in developing any income-producing, off-season
activities.
NORTHERN CALIFORNIA RENAISSANCE PLEASURE FAIRE. The Northern Renaissance
Pleasure Faire has been held in the San Francisco Bay area for the past 30
years. This Faire is conducted annually for
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six to seven weekends, typically beginning Labor Day weekend and running through
the first or second weekend of October.
The Northern California Faire is located on leased property in Novato,
California. The lease is currently on a year-by-year basis. The rent was
$350,000 in 1996 and is $300,000 for the 1997 Faire. The Company is
investigating new sites for the Faire which, if acceptable and available, will
not be available until at least 1998. The Company estimates that it will be
required to spend from $800,000 to $1,300,000 for the investigation and
development of a new site prior to the opening of the Faire at the site. Due to
the time required to locate a site, obtain approval to hold a faire on the site
and to prepare the site for a faire, the Company believes it will be difficult
to hold this faire on a new site for the 1998 faire season.
In contrast to the permanent structures constructed at the Bristol Renaissance
Faire, all structures, including the gates, stages, booths, shops and arenas
utilized in the California Renaissance Pleasure Faires are mobile. These props
are loaded into the Company's semi-tractor/trailers and transported between the
Northern and Southern California Renaissance Faires and, during the off-season,
are stored at the Northern Renaissance Faire site. The booths and craft shops
utilized by vendors are owned by the individual vendors and moved onto the site
for the Faire and then removed by them. The Faire is constructed and removed
much in the same way as a circus or traveling carnival.
SOUTHERN CALIFORNIA RENAISSANCE PLEASURE FAIRE. The Southern California
Renaissance Pleasure Faire has been conducted for the past 34 years in the Los
Angeles metropolitan area. This Faire is held annually for eight weekends
beginning the last week of April and ending Mid-June.
The Southern Renaissance Pleasure Faire is held in Glenn Helen Regional Park
located near Devore, California. The site is leased from the San Bernardino
County Parks and Recreation Department, under a one year lease for the 1997
Faire. Rental under the lease is equal to 3.5% of gross revenues. The Company
has the option of leasing the San Bernardino site in the future, but is
currently investigating new sites for the Southern Renaissance Pleasure Faire.
The Southern Renaissance Pleasure Faire site is only occupied during the Faire
season and must be vacated following completion of the Faire. Accordingly, all
structures are mobile and transported to the Northern Renaissance Faire site for
storage during the off-season.
Although the Company has operated that Faire during the past three years at a
profit, management believes that it will either have to relocate the Faire or
obtain a long-term lease for the current faire site in order to improve its
profitability in the future. On November 4, 1996, the Company entered into a
non-binding letter of intent with the owner of a site in Pomona, California
which contemplates that the Company will commence operation of the Southern
California Faire at that site starting in 1998. The letter of intent calls for
the Company to construct a new village for the Faire. The Company estimates
that the cost of such construction would be approximately $2,000,000. The
Company would need additional funds from one or more third parties to finance
such construction. Following execution of the letter of intent, the owner of
the current site for this faire indicated that it would be willing to enter into
a long-term lease for the faire site. With a long-term lease, the Company would
be able to make permanent
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improvements to the site and reduce its annual set-up cost for the faire. The
Company has not, as of the date of this Prospectus, determined whether it should
relocate this faire to the new proposed site in Pomona or enter into a long-term
lease for the existing faire site.
NEW YORK RENAISSANCE FAIRE. The Company acquired Creative Faires, Ltd., the
owner and operator of the New York Renaissance Faire in February of 1996. The
New York Renaissance Faire opened in July 1978 and recreates a 16th century
English country Faire on 65 leased acres in Sterling Forest, Tuxedo, New York.
Creative Faires, Ltd. also produces Sterling Forest's Forest of Fear as well as
other arts and crafts shows in the New York tri-state area. The Company issued
540,000 shares of the Company's Common Stock in consideration for all of the
outstanding shares of Creative Faires, Ltd. The Company valued this faire based
on the Company's estimate of net operating income which could be achieved under
the Company's management, the cost of developing a new faire in the New York
metropolitan area and the benefits of having a renaissance faire in the greater
New York metropolitan area. Since the faire was acquired during the 1996 faire
season, the Company did not have a significant opportunity to affect the results
of this faire during the 1996 faire season. A new manager has been hired for
this faire and a number of new promotional activities and entertainment acts
have been introduced during the 1997 faire season.
VIRGINIA RENAISSANCE FAIRE. The Company's newest Faire is located in
Fredericksburg, Virginia on 250 acres of land purchased by the Company in July
of 1995 for $925,000. Like the Bristol Faire, this is a permanent facility,
which opened for business on May 4, 1996 and operated for seven weekends. All
buildings on the property, including performance stages, restaurants, ale stands
and craft shops, were designed in a unified style appropriate to the Renaissance
period and were constructed by the Company during the year prior to opening.
This is the first time the Company has developed a Faire on its own, since all
other Faires owned by the Company represented acquisitions of existing
businesses. The Virginia Faire, as is typical of new faires, operated at a loss
in 1996, its first year of operation, and incurred an operating loss in the 1997
faire season. These losses may continue for one or more future faire seasons
until the Company is able to establish a regular customer base and increase the
awareness of the faire.
The construction of the Faire was financed with a $1.5 million mortgage,
repayable over 15 years at an initial interest rate of 8.65% annually, plus the
use of corporate funds. The Company also borrowed $250,000 to finance the
construction of buildings for crafts vendors, with repayment over five years at
an interest rate of 9.5% annually. Some vendors have paid for their buildings
outright, others have utilized the financing provided by the Company, while
others rent space with an option to purchase. The Company arranged for vendor
financing in order to attract desirable vendors to the new Faire, and to develop
a permanent contingent of Faire participants.
Some of the management of the Virginia Faire is handled by employees of the
Bristol Faire, including such areas as entertainment and public relations.
Although there are currently no other activities scheduled on the property for
1997 other than the Virginia Renaissance Faire, the Company expects to develop
other income-producing activities, which may include a Halloween forest of
fright, music festivals, Christmas activities and other special events. To
date, however,
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there exist no agreements, arrangements or other understandings with respect to
alternate year-round uses.
VENDORS
Approximately 13% of the revenues realized from presenting the Company's
Renaissance Faires are generated from the Company's relationships with vendors
and craftsmen who sell food and crafts, and offer games and rides. During the
1996 faire season, there were approximately 150 vendors at each of the Bristol,
Northern California and Southern California faires, 100 vendors at the New York
faire and 50 vendors at the Virginia faire. Typically, there is little turnover
in vendors from one faire season to the next. The loss of any one or more
vendors would not have a material adverse effect upon a particular faire.
At the Bristol Renaissance Faire site, the vendors and craftsmen are required to
construct their shops and booths at their own cost and then occupy the
structures on a year-to-year basis for an annual fee of $900. Since the
structures are permanent, once built they become the property of the Company and
increase the value of the Company's asset at that location.
At the Virginia Renaissance Faire site, shops and booths are constructed by the
vendors. All buildings so constructed become a permanent part of the Faire and
are the property of the Company. All vendors at the Virginia Renaissance Faire
pay the Company a fee of 6% to 15% of gross revenues.
At the Northern and Southern California Renaissance Pleasure Faires, craft shops
and booths are owned by the vendors and transported onto the site for the
duration of the Faire and then removed. In lieu of a flat fee to participate,
vendors at the California Faires pay the Company a fee equal to 15% of their
gross revenues.
The decision to charge a flat fee or a percentage of revenues is based on
several factors, including the custom of a particular faire and the extent to
which vendors must invest in the construction of their booths. The advantage to
the Company of the flat fee method is that it is easier to monitor and is more
predictable. The advantage to the Company of the percentage method is that the
Company may participate to a greater extent as attendance at the faire
increases. Vendors occupy their booths and shops pursuant to written lease
agreements with the Company which have a term of one year, and require renewal
by both the vendor and the Company each year. Under these agreements, each
vendor agrees to indemnify and hold harmless the Company from any liability
which may arise by virtue of the vendors' activities at the Faire.
Nevertheless, the Company maintains general public liability insurance which
also provides coverage for such risks.
REVENUE SOURCES
A Renaissance Faire generates revenues from numerous sources, including gate
admissions, beverage sales, parking fees, food sales, craft fees, game fees,
camping fees, souvenir sales and sponsorship fees. The following table shows
the Company's revenues during the past two faire seasons from each of these
activities.
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1995 1996
------------ ------------
Gate Admissions $ 6,143,974 $ 6,443,461
Beverage Revenue 2,495,423 2,797,683
Parking Revenue 833,342 808,008
Food Revenue 1,125,489 1,328,339
Craft Fees 1,072,043 1,319,805
Game Fees 133,327 224,542
Souvenir Revenue 536,972 724,518
Sponsorship Fees 121,540 230,020
Camping Fees 173,688 241,084
Miscellaneous Fees 171,819 436,117
------------ ------------
Total $ 12,810,617 $ 14,553,577
GATE ADMISSIONS. Gate admissions are set from $14.00 to $17.50 for adults,
$5.95 to $6.95 for children, with children under the age of five admitted free.
Discounts for senior's and military personnel are $1.00 to $2.00. Off premises
discount ticket sales are available at Cub Foods, K-Mart, Sentry Foods, Shoprite
and Kits Camera. Discount coupons are available at retail outlets operated by
the Company's sponsors, including McDonalds, Subway, White Castle, Vons super
markets and Amoco Stations. The Company has a large group sale and advance sale
program that provides discounted tickets. Admission provides the guest with
all-day continuous entertainment on multiple stages. Major entertainment acts
include full contact jousting, falconry, variety acts, sword duels,
Shakespearean vignettes and authentic belly-dancing.
BEVERAGE INCOME. The Company sells beer, wine and soft drinks at each Faire.
PARKING INCOME. The California Faires charge $6.00 per car for regular parking
and $10 for preferred close-in parking. The Bristol and New York Faires have
preferred parking for $2.00 and $5.00. The Virginia Faire charges $2 for
regular parking.
FOOD REVENUE. At the California and New York Faires, all food concessions are
run by independent vendors. These vendors pay the Company a commission equal to
approximately 15% of their gross revenues. At the Bristol Faire, the Company
owns certain high volume food items such as turkey legs, pizza, roast beef and
brats (sausages). These items comprise approximately 40% of the total food
sales. Additional food items are sold by independent food vendors who pay the
Company approximately 15% of their gross revenues. At the Virginia Faire, the
Company currently owns all of the food concessions.
CRAFT FEES. Each Faire has from 50 to 150 independent craft vendors who sell
their goods to Faire patrons. Most of the craft items are handmade by the
artists who often demonstrate the making of their wares at the Faire. The
glassblowers and lace-makers are generally very popular. The craft vendors in
California pay the Company a fee of approximately 15% of their gross revenue.
At the Bristol, New York and Virginia Faires, craft vendors are required to
build their own booth or shop, and either pay a flat annual fee or a percentage
of their gross income.
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GAME FEES. Many games and rides are operated by independent contractors. The
Company receives 15% of the gross revenues from these games and rides.
SOUVENIR REVENUE. The sale of souvenir tee-shirts, sweatshirts, beer mugs,
books and other high quality merchandise appropriate to the Renaissance era is
believed by the Company to represent an area of excellent future opportunity.
It is intended that the Company's products will also be sold through other
outlets, such as catalogues, department stores, and on-line via the Company's
Internet Web site. There can, however, be no assurance that the Company will be
successful in marketing its products and memorabilia through alternative means
in the future.
SPONSORSHIP FEES. The Company solicits sponsorship arrangements with major
sponsors including Coca-Cola Company, Anheuser-Busch, Inc., Miller Brewing
Company, Amoco Oil Company, Eastman Kodak Company, Pepsi Cola Company and
Guinness Import Co. The sponsors also participate in joint advertising
campaigns.
CAMPING FEES. The Company allows employees and independent vendors limited
camping at the Faire sites during the Faire season. The Company provides
portable rest room facilities, showers and security for campers. The campers
are charged and pay a fee for these services.
MARKETING
The Company markets its Faires as entertainment events for the whole family,
which also include shopping and food. Marketing is accomplished through local
television and radio stations which, from time-to-time, and, often in
conjunction with other advertisers, conduct live broadcasts from the Faires.
Supplementing this television and radio advertising, newspapers and billboards
provide essential information to the general public regarding the cost of
admission, location and times of operation. Artistic brochures and fliers are
directed toward groups for advanced sales campaigns.
The Company has also undertaken a "Sponsorship" campaign. Major sponsors have
included Eastman Kodak Company, Hyatt Hotels & Resorts, Inc., Coca-Cola
Company, Miller Brewing Company, Amoco Production Company and Sentry Foods, Inc.
Agreements with such sponsors have included joint advertising, sponsorship fees,
and product giveaways.
SEASONALITY AND WEATHER
The Company generates its revenue primarily from the production of Renaissance
Faires. Since, at this point, they are exclusively outdoor events, each Faire
is scheduled for the time of year most likely to minimize the risks and hazards
of inclement weather. With a total of five Faires in various U.S. locations,
the Company has been able to extend the period of revenue generation from late
April (the start of the Southern California and Virginia Faires) through early
October (the end of the Northern California Faire), with the Bristol Renaissance
Faire being held during July and August, and the New York Faire during August
and September. The spread of Faires over a six-month period, and the geographic
spread across the West coast, the East coast and the mid-West, helps to assure
that inclement weather in one particular geographic area at any particular time
does not
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<PAGE>
adversely threaten the Company's entire source of revenue. It is normal,
however, for adverse weather, or even the forecast of adverse weather, to harm
the financial results during certain weekends of any particular Faire.
During the period from the middle of October through the third week of April,
the Company currently has no material income-generating activity and must meet
its working capital requirements from cash flow earned during the Faire season
augmented by short-term debt. Creative Faires, Ltd. operates craft shows and
the Forest of Fear on the New York site during the fall and spring. The Company
plans to continue those events and also to develop fall events at certain of the
Company's other Faire sites.
Each Faire is scheduled for a finite period which is determined substantially in
advance in order to facilitate advertising and other promotional efforts. Since
attendance at each Faire is dependent upon the weather, poor weather conditions
can result in substantial declines in attendance and loss of revenues. The
Bristol, New York and Virginia faires are open "rain or shine." The Northern
and Southern California sites, which have temporary buildings, are closed on
rain days. The Company is also vulnerable to severe climatic events which are
similarly beyond its control but nevertheless could have a direct and material
impact upon the Company's relative success or failure.
COMPETITION
As a promoter and operator of family entertainment events, the Company faces
significant competition from other more traditional entertainment alternatives,
including amusement parks, theme parks, local and county fairs, and specialty
festivals. At each of the markets in which the Company competes, there are many
entertainment events which compete for the consumers' entertainment dollars.
Many of these entertainment events have attendance and revenues substantially
greater than the Company's fairs in such markets. The Company competes on the
basis of entertainment value and uniqueness of the Renaissance event. The
Company emphasizes its fairs as an activity which appeals to the whole family.
While there are more than 100 annual entertainment events produced in the
country with a Renaissance theme, there are only 20 major Renaissance Faire
productions operated in major metropolitan areas throughout the country. As
families typically do not travel to distant metropolitan areas in order to
attend a Renaissance Faire, the Company does not experience direct competition
with those other major productions. More significant competition comes from
other entertainment alternatives and smaller fair events.
Further, by the very nature of Renaissance Faires and the lack of protection
afforded by trademark, service mark and unfair competition laws, there exist few
barriers to entry into the industry, and there can be no assurance that other
companies with substantially greater resources will not develop competing Faires
in the metropolitan areas where the Company has established productions.
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<PAGE>
INTELLECTUAL PROPERTY
Because of the number of existing Faire productions with Renaissance themes, it
is unlikely that the Company will be able to rely upon trademark or service mark
protection for the name "Renaissance Faire" in connection with its business.
However, the Company did obtain in connection with its acquisition of Living
History Center assets an assignment of a California registration of the mark
"Renaissance Pleasure Faire" which applies only to the state of California. The
Company also has a Virginia service mark for the "Virginia Renaissance Faire."
Further, it is possible that the Company could apply for and obtain trademark or
service mark registrations on a state level for its other individual Faires,
such as "Bristol Renaissance Faire" and other name-specific marks associated
with the "Renaissance Faire" description as those names are acquired or
developed. While the Company may be able to protect a site-specific name for
its productions, the Company does not consider this protection a significant
deterrent to the entry of competitors into existing markets, given the limited
barriers to such entry.
PUBLIC LIABILITY AND INSURANCE
As a producer of public entertainment events, the Company has exposure for
claims of personal injury and property damages suffered by visitors to the
Company's Renaissance Faires. To date, however, the Company has experienced
only minimum claims which have been resolved quickly without litigation. The
Company maintains comprehensive public liability insurance in the amount of
$1,000,000 per occurrence and $2,000,000 in the aggregate, which it considers to
be adequate against this exposure. Independent vendors operating food
concessions, games and rides are required to obtain liability insurance
protection, and to provide the Company with proof of such coverage.
GOVERNMENT REGULATION
Since food and alcoholic beverages are sold at the various Faire sites, the
Company, its vendors and/or subsidiaries must comply with all applicable rules,
regulations and/or ordinances pertaining to the handling and sale of such items.
Any material violation of these regulations would subject the Company, its
vendors and/or its subsidiaries to the possibility of having necessary food
service permits and liquor licenses revoked. Material violations may also
result in penalties and fines being assessed against the Company. The Company
must also comply with all state and federal labor laws and regulations,
including all minimum wage and overtime provisions.
The Company believes that it is in compliance with all such laws, and does not
anticipate that any existing law will have a material adverse impact upon the
proposed business and operations of the Company. Although future compliance
cannot be assured in the event of future changes in such laws or the addition of
regulations governing the proposed business and operations of the Company, the
Company will, at all times, endeavor to take all feasible and required actions
necessary to maintain compliance with such laws.
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<PAGE>
EMPLOYEES
The Company presently has 16 full-time employees working in its Colorado
headquarters. Each Faire has its own full-time staff as well as seasonal and
part-time employees who are engaged during the Faire presentation. The Bristol
Faire has 6 full-time employees, the California Faires have 12 full-time
employees, the New York Faire has 6 full-time employees and the Virginia Faire
has 6 full-time employees.
During Faire presentations, there are over 100 street actors interacting with
Faire patrons at any given time, with over 1,000 seasonal employees and
volunteers. The Company trains its professional street actors, who perform
under contract with the Company for a fixed fee. In addition, the Company
invites numerous apprentice actors and actresses to its training programs to
perform during the Faire on a volunteer basis. Only after an actor or actress
has gained a particular proficiency are they invited to become a fully-paid
contract actor for the Company.
The Company has plans for acquisition and growth using the current staff and
management systems of the Faire as a management infrastructure. The creation of
a year-round staff has increased expenses, but will, in management's opinion,
achieve economies of scale as the Company acquires and produces additional Faire
operations. The Company believes that it currently has full-time management
sufficient to operate nine annual Faires.
PROPERTY
The Company's corporate headquarters are located at 4410 Arapahoe Avenue, Suite
200, in Boulder, Colorado. This property measures 3,868 square feet and is
currently leased at $7,854 per month, with increases of 5% per annum each
November 1, expiring October 31, 2001. The Company considers these offices to
be suitable for its needs for the duration of the lease term. The Company has
an option to renew the lease for an additional five year period.
The Company owns approximately 160 acres in Kenosha County, Wisconsin, which is
home to the Bristol Renaissance Faire. The land is subject to mortgages in the
original aggregate principal amount of $1.95 million. On April 11, 1997, the
outstanding balance was $1.7 million, with $200,000 due on June 30, 1997,
$250,000 due on July 31, 1997, $300,000 due on August 31, 1997, $100,000 due on
September 1, 1997, $150,000 due on September 30, 1997, $50,000 due on each of
March 31, June 30 and September 30, 1998 and the balance of $550,000 due on
December 31, 1998. The interest rates for these mortgages are 2% per annum over
the lenders prime rate.
The Company has leased the property where the Northern California Renaissance
Pleasure Faire is held, located at 1410 Highway 37, Novato, California 94945.
Office quarters for all California personnel is included in the overall lease
covering the Faire site, which expires at the end of the 1997 faire season. See
"Business--Existing Renaissance Faires and Sites--Northern California
Renaissance Faire."
The New York Faire is operated on 65 acres of leased land in Tuxedo, New York.
This lease expires December 31, 2000. The Company also leases offices in New
York City.
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<PAGE>
On July 27, 1995, the Company acquired approximately 250 acres of land in
Stafford County, Virginia, for a purchase price of $925,000. The funds for this
purchase were provided from the proceeds of a sale of the Company's Common Stock
early in 1995. This property houses the Virginia Renaissance Faire. The
construction of the Faire was financed with a $1.5 million mortgage, repayable
over 15 years at an initial interest rate of 8.65% annually, plus the use of
corporate funds. The Company also borrowed $250,000 to finance the construction
of buildings for crafts vendors, with repayment over five years at an interest
rate of 9.5% annually.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Name, position with the Company, age of each Director or officer, and the period
during which each Director has served are as follows:
Director
Name Age Position Since
- ---- --- -------- --------
Charles S. Leavell 55 Chairman of the Board of 1993
Directors & Chief Executive
Officer
Sanford L. Schwartz 47 Director 1993
Robert M. Geller 44 Director 1994
Gregg Adam Thaler 31 Director 1996
Dean Petkanas 33 Director 1996
J. Stanley Gilbert 59 President and Chief Operating --
Officer
James R. McDonald 51 Chief Financial Officer --
Howard Hamburg 60 Vice President --
Kevin Patterson 36 Vice President --
Gloria Constantin 46 Secretary --
Sue Brophy 41 Controller --
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CHARLES S. LEAVELL was elected Chief Executive Officer effective June 20,
1996. From April 1993 to March 31, 1995, he was Chief Executive Officer, and
from April 1, 1995 to present he has served as Chairman of the Board of the
Company. From 1988 to present, Mr. Leavell has served as President and Chairman
of the Board of Leavell Management Group, Inc. and Ellora Corporation. In that
capacity, he has acquired, developed, and managed numerous ventures, including
the Bristol Renaissance Faire; the 4UR Guest Ranch in Creede, Colorado, a 3,000
acre luxury ranch; and South Meadow, an exclusive 96 unit single family
development in Boulder, Colorado. Prior to his affiliation with Leavell
Management Group and Ellora Corporation, Mr. Leavell worked with Columbia
Pictures in Los Angeles, California, where he was producer of the feature film,
"The Quick and the Dead," about Grand Prix automobile racing, and was the
executive producer of another film, "Evil Ways," about street gangs in East Los
Angeles. Mr. Leavell also produced a rock musical for the stage entitled
"Goosebumps." Mr. Leavell currently sits on the Board of Directors of The
Leavell Company and CK Properties, L.C., of El Paso, Texas, both of which are
real estate development and management corporations with extensive holdings in
apartments and office buildings. Mr. Leavell's former affiliations include
Board of Directors of the Denver International Film Festival, Denver, Colorado,
and Vice-Chair of Colorado Venture Capital Corporation, a regional investment
firm. Mr. Leavell graduated from Stanford University in 1965 with a Bachelor of
Arts degree in history.
SANFORD L. SCHWARTZ has been a Director of the Company since April, 1993.
Mr. Schwartz has been a founder, senior executive or director of nine
publicly-traded companies over the last nineteen years. From 1992 to present,
Mr. Schwartz has been the Chairman of Creative Business Strategies, Inc.
("CBSI"). Prior to starting CBSI, Mr. Schwartz was, from 1989 to 1991, Chief
Executive Officer of HealthWatch, Inc., a publicly-traded medical equipment
manufacturer. Mr. Schwartz serves on the Board of Directors of HealthWatch,
Inc.
ROBERT M. GELLER has been a Director of the Company since April 1, 1994.
He served as Chief Financial Officer of Online System Services, Inc., a provider
of internet services, from March 1995 to October 1996. Mr. Geller has also
served as the President of The Growth Strategies Group, a consulting firm
specializing in executive/board services for emerging growth companies since
August 1991. From April, 1990 to July, 1991, he was Executive Vice-President
for HealthWatch, Inc., a publicly-traded medical equipment manufacturer. Mr.
Geller is currently a director of Armanino Foods of Distinction, Inc. and Online
System Services, Inc., publicly-held corporations, and Integral Peripherals,
Inc., Requisite, Inc., and Chernow Communications, Inc., all privately-held
corporations. Mr. Geller graduated from the University of Colorado Business
School, summa cum laude, with a Bachelor of Science degree in finance and
organizational behavior in 1976.
GREGG ADAM THALER was elected a director of the Company in 1996. He has
been president of Duke & Company, Inc., a New York investment banking firm since
1993. In 1993 he was a sales manager for Corporate Securities of Los Angeles,
California, and from 1992 - 1993, he was a sales manager for HJ Meyers &
Company, also of Los Angeles. From 1989 to 1992, Mr. Thaler was a broker and
analyst with Stratton Oakmont of Lake Success, New York, a
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<PAGE>
Broker/dealer. Mr. Thaler graduated with honors from the University of
Michigan in 1987, with a Bachelor of Arts degree in Political Science.
DEAN PETKANAS was elected a director of the Company in 1996. He has been
President of Briarwood Investment Counsel, a broker/dealer registered with the
National Association of Securities Dealers since 1981. From 1992 to 1994, Mr.
Petkanas was Director of Corporate Finance for Kensington Wells, Inc. of New
York. From 1989 to 1992, he served as a Vice President of Corporate Finance and
Assistant Director of Research for Stratton Oakmont of Lake Success, New York, a
broker/dealer.
J. STANLEY GILBERT became President and Chief Operating Officer in January,
1997. In 1996 Mr. Gilbert was a Vice President of the Company and he managed
the Bristol Renaissance Faire from 1988 until 1996. Prior to that he worked in
the commercial banking field in senior management. Prior to that, he was senior
vice president of Cinema America, a film and video production company. Mr.
Gilbert is the president of Just in Jest, Inc., an art studio featuring
Renaissance and fantasy handmade sculptures, whose works have been displayed in
galleries and museums, including the Delaware Museum of Fine Art. Mr. Gilbert
has served as a board member of the Kenosha Area Convention and Business Bureau.
He holds a degree in Business Administration.
JAMES R. MCDONALD became Chief Financial Officer of the Company in
November, 1996. From August, 1996 until October, 1996, he served as Chief
Financial Officer of Mountain Solutions, a personal communications services
company. From January, 1994 until August, 1996, Mr. McDonald was Controller of
Omnipoint Corporation, another personal communications services company. Mr.
McDonald also was a principal of James R. McDonald, CPA, from August, 1991 until
December, 1993. Mr. McDonald received a Bachelor of Science degree in
Accounting from California State University at Fullerton in 1978, and a Masters
of Business Administration in Finance from Loyola University of Chicago in 1980.
HOWARD HAMBURG was Chief Operating Officer of the Company from April 1,
1994 to June 20, 1996, at which time he was elected a Vice President of the
Company. From 1989 to March 31, 1994, Mr. Hamburg served as Treasurer and
Planning Director of the Living History Centre, Inc., a California non-profit,
public benefit corporation and producer of the California Renaissance Pleasure
Faires. In addition to his work with LHC, Mr. Hamburg served, from 1990 to
1993, as Vice-President of the Patent Protection Institute, Inc., an
intellectual property licensing and royalty recovery corporation. Mr. Hamburg
graduated from New York City Community College in 1957 with an AA degree in
Engineering. In 1969 Mr. Hamburg received a Bachelor of Arts degree in social
science from California State University at Sonoma.
KEVIN PATTERSON, General Manager of RPFI since April 1, 1994, has 18 years
experience in the administration and production of Renaissance Faires. From
1993 to 1994 he served as Vice President & Assistant General Manager of the
Living History Center, a non-profit public benefit corporation which previously
produced the California Renaissance Pleasure Faires. Mr. Patterson served as
Production Manager of The Living History Centre in 1992, as Community Outreach
Director during 1989 to 1992, and in other positions with the organization
continuously
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<PAGE>
since 1977. Mr. Patterson holds a B.A. degree in Economics from Moorpark
College and attended the B.S.M. program at Pepperdine University. He is a
founding Board Member of the Historic Oaks Foundation and the St. Andrew's
Society of San Francisco.
GLORIA CONSTANTIN has been Secretary of the Company since 1993. She has
also been in-house Investor Relations since 1993. From 1991 to 1993, she was
employed by Leavell Management Group, Inc. Ms. Constantin holds degrees in
English and Theatre, and is an honors graduate of the Denver Paralegal
Institute.
SUE BROPHY has been Controller of the Company since August, 1995. From
1994 until 1995, Ms. Brophy was employed by Clifton, Gunderson & Co., a public
accounting firm in accounting services. From 1990 to 1993, she was
self-employed. From 1991 to 1992, she was an accountant with Rigden, Inc., a
software development company.
Each Director is elected to serve for a term of one year and until the next
Annual Meeting of Shareholders or until a successor is duly elected and
qualified.
EXECUTIVE COMPENSATION
The following table sets forth certain information for the Company's fiscal
periods ended December 31, 1996 (D1996), March 31, 1996 (M1996) and 1995 (M1995)
regarding compensation earned by or awarded to the Company's chief executive
officer and the other executive officers whose total annual salary and bonus
exceeded $100,000 (the "Named Executive Officers").
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<PAGE>
TABLE I
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
---------------------------
Annual Compensation Awards Payouts
-------------------------------------------------------------------
Other All
Annual Restricted Other
Name and Compen- Stock LTIP Compen-
Principal Salary Bonus sation Award(s) Options/ Payouts sation
Position Year ($) ($) ($)(1) ($) SARs ($) ($)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Charles S.
Leavell
Chairman, D1996 -0- -0- -0- -0- -0- -0- -0-
CEO and M1996 -0- -0- $48,000(1) -0- -0- -0- -0-
President M1995 $92,000 $23,894 -0- -0- -0- -0- -0-
Miles
Silverman,
CEO D1996 $95,147 -0- -0- -0- -0- -0- -0-
President M1996 $131,442 -0- -0- -0- -0- -0- -0-
M1995 $80,000 $28,894 -0- -0- 80,000 -0- -0-
Howard
Hamburg,
COO,VP D1996 $78,182 -0- -0- -0- -0- -0- -0-
M1996 $114,391 -0- -0- -0- -0- -0- -0-
M1995 $84,359 -0- -0- -0- 30,000 -0- -0-
</TABLE>
(1) Includes $48,000 received under a Consulting Agreement that terminated
March 31, 1996.
(2) All executive officers of the Company participate in the Company's group
health insurance plan. However, no Named Executive Officer received
perquisites and other personal benefits which, in the aggregate, exceeded
the lesser of either $50,000 or 10% of the total of annual salary and bonus
paid during the respective years.
OPTIONS GRANTED DURING FISCAL 1996
During the Company's fiscal period ended December 31, 1996, no options were
granted to Named Executive Officers
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<PAGE>
AGGREGATED OPTION EXERCISES DURING FISCAL 1996 AND FISCAL YEAR-END OPTION VALUES
The following table provides information related to the number and value of
options held by the Named Executive Officers as of December 31, 1996. The
Company does not have any outstanding stock appreciation rights.
<TABLE>
<CAPTION>
Value Of Number Of Unexercised
Unexercised In-the_Money
Options/SARs at Options/SARs
FY-End(#) at FY-End(#) (1)
Shares Acquired Value Realized Exercisable/ Exercisable/
Name on Exercise (#) ($) Unexerisable Unexerisable
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Charles S. Leavell -0- $-0- 0/0 $0/$0
Miles Silverman -0- $-0- 0/0 $0/$0
Howard Hamburg -0- $-0- 84,266/30,000 $296,502/$67,500
</TABLE>
(1) The value of unexercised options is determined by calculating the
difference between the fair market value of the securities underlying the
options at fiscal period end and the exercise price of the options.
EMPLOYMENT AGREEMENTS
The Company has Employment Agreements with several of its executive officers and
key employees, the material provisions of which are summarized as follows:
HOWARD HAMBURG. Effective April 1, 1994, the Company entered into an
Employment Agreement with Mr. Hamburg as Treasurer of Renaissance Pleasure
Faires, Inc. Effective April 28, 1995, Mr. Hamburg was also appointed the
Company's COO. Effective June 20, 1996, Mr. Hamburg resigned as COO and was
appointed a Vice President. The current Employment Agreement, which supersedes
the agreement dated April 1, 1994, has a term of one year from the date of
termination notice from the Company. His current annual salary is $110,250.
KEVIN PATTERSON. Effective April 1, 1994, the Company entered into an
Employment Agreement with Mr. Patterson as Chief Executive Officer of
Renaissance Pleasure Faires, Inc. Effective August 29, 1994, Mr. Patterson was
also appointed a Vice President of the Company. The current Agreement, which
supersedes the agreement dated April 1, 1994, has a term of one year from the
date of termination notice from the Company. His current base salary is
$78,750.
BARBARA HOPE. On February 5, 1996, the Company entered into an Employment
Agreement with Ms. Hope as an officer of Creative Faires, Ltd. in connection
with the acquisition of Creative Faires, Ltd. The Agreement has a term of two
years and provides for a base salary of $100,000.
DONALD C. GAITI. On February 5, 1996, the Company entered into an
Employment Agreement with Mr. Gaiti as an officer of Creative Faires, Ltd. in
connection with the acquisition of Creative Faires, Ltd. The Agreement has a
term of two years and provides for a base salary of $100,000.
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<PAGE>
DIRECTOR COMPENSATION
During the fiscal period ended December 31, 1996, Directors, other than Mr.
Geller and Mr. Leavell, received no cash compensation for their services as
such, however they were reimbursed for their expenses associated with attendance
at meetings or otherwise incurred in connection with the discharge of their
duties as Directors of the Company. During July 1997, the Board of Directors
authorized the granting of options to outside directors representing the right
to acquire up to 40,000 shares for each year that a director serves on the
Board. These options are to be granted in lieu of cash compensation. Directors
who are also executive officers of the Company receive no additional
compensation for their services as Directors.
GELLER AGREEMENT
Effective April 1, 1994, the Company appointed Robert M. Geller to serve as a
director of the Company and entered into an agreement with him pursuant to which
the Company agreed to include his name on the slate of nominees to be elected to
serve as directors of the Company, and Mr. Geller consented to the inclusion of
his name as a nominee through the 1996 annual meeting of shareholders. Pursuant
to the terms of the agreement, Mr. Geller was granted non-qualified options
exercisable to acquire up to 83,333 shares of the Company's Common Stock at an
exercise price of $2.25 per share. Further, the Company has agreed to pay him
$300 for each Board of Directors meeting he attends and to reimburse him for
out-of-pocket expenses incurred in connection with attending those meetings.
The Company has also agreed to reimburse Mr. Geller for his out-of-pocket
expenses incurred in connection with his services rendered as a consultant to
the Company for which he also receives $75 an hour. Under this agreement, Mr.
Geller received $30,137 in the 1996 fiscal year and $9,421 in the nine-month
period ended December 31, 1996.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of Messrs. Geller, Schwartz and Leavell.
Mr. Leavell, who is Chief Executive Officer and a director of the Company,
participates in all discussions and decisions regarding salaries, benefits and
incentive compensation for all employees of the Company, except discussions and
decisions relating to his own salary, benefits and incentive compensation.
CERTAIN TRANSACTIONS
CONVERTIBLE DEBENTURES
During May 1997, the Company raised $1,000,000 through the issuance of
convertible debentures, of which $250,000 principal amount was issued to Charles
S. Leavell, Chairman of the Board of Directors of the Company, and the balance
to Mr. Leavell's father and an unrelated party. The investments by Mr. Leavell
and his father were made through the conversion of short-
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<PAGE>
term loans they had made to the Company earlier in fiscal 1997. The debentures
are secured by mortgages on the Company's Wisconsin and Virginia faire sites and
are convertible into Common Stock at the lesser of $4.50 per share or 70% of the
fair market value of the Company's Common Stock at the time of conversion. The
debenture holders were also granted warrants to purchase an aggregate of 200,000
shares of the Company's Common Stock at the lesser of $3.00 per share or 70% of
the fair market value of the Company's Common Stock at the date of exercise of
the warrants.
CBSI CONSULTATION AGREEMENT
Sanford L. Schwartz was elected to serve as a member of the Company's Board of
Directors in April, 1993. Mr. Schwartz is President, Director and a principal
stockholder of Creative Business Strategies, Inc., ("CBSI"). The Company had a
Consultation Agreement with CBSI which expired December 31, 1996, pursuant to
which it performed financial and public relations services and assisted in
evaluation of acquisition candidates, including Creative Faires, Ltd. In
consideration of those services, the Company agreed to pay CBSI a fee of $4,500
per month and $200 per hour for services rendered in excess of 20 days per
month. A total of $36,000 was paid to CBSI during the nine months ended
December 31, 1996, pursuant this agreement.
CREATIVE FAIRES, LTD. AGREEMENT
On February 5, 1996, the Company, its newly-created and wholly-owned subsidiary
Cfaires Acquisition Corp., Creative Faires, Ltd., and Barbara Hope and Donald C.
Gaiti, the sole shareholders of Creative Faires, Ltd., entered into an Agreement
and Plan of Merger pursuant to which Cfaires Acquisition Corp. was merged with
and into Creative Faires, Ltd. In connection with the merger, Ms. Hope and Mr.
Gaiti received 540,000 shares of the Company's Common Stock, and the Company
became the sole shareholder of Creative Faires, Ltd. The Company also agreed to
employ Mr. Gaiti and Ms. Hope as officers of Creative Faires, Ltd. for two-year
periods.
The Company believes that the foregoing transactions were on terms as favorable
to the Company as could have been obtained from non-affiliated parties.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock, as of September 1, 1997, by:
(i) each of the directors of the Company, (ii) all officers and directors of the
Company as a group, and (iii) holders of 5% or more of the Company's Common
Stock. Each person has sole voting and investment power with respect to the
shares shown, except as noted.
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<PAGE>
Name and Address Percent of
of Beneficial Owner Number of Shares Class (1)
- ------------------- ---------------- ----------
Charles S. Leavell 1,259,374 (2) 13.1
1881 Ninth Street, Suite 319
Boulder, Colorado 80302
Legacy Fund, LLC 642,857 (3) 6.3
4900 Woodway
Suite 650
Houston, Texas 77056
Robert M. Geller 226,666 (4) 2.3
1402 Kalmia
Boulder, Colorado 80304
Sanford L. Schwartz 6,350 (5) *
5353 Manhattan Circle, #201
Boulder, Colorado 80303
Gregg Adam Thaler 0 *
909 Third Avenue; 7th Floor
New York, NY 10022
Dean Petkanas 0 *
100 Store Hill Road
Old Westbury, NY 11568
All Directors & Officers as a Group 2,920,130 (6) 29.6
(Nine [9] Persons)
* Less than one percent
(1) Shares not outstanding but deemed beneficially owned by virtue of the
individual's right to acquire them as of September 1, 1997, or within 60
days of such date, are treated as outstanding when determining the percent
of the class owned by such individual and when determining the percent
owned by the group.
(2) Includes 880,000 shares of Common Stock held of record by Leavell
Management Group, Inc., a controlled corporation of Mr. Leavell who would
be deemed to exercise the voting and investment power with respect to the
securities held by LMG. 133,334 shares of Common Stock held of record by
LMG are subject to an option granted in favor of Mr. Leavell, exercisable
at a price of $.937 per share. Mr. Leavell disclaims beneficial ownership
of the securities held by LMG for purposes of Section 16 under the Exchange
Act.
(3) Represents shares issuable upon conversion of the Company's 10% Convertible
Secured Notes at an assumed conversion price of $.35 per share. See
"Description of Securities -- Convertible Secured Notes."
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<PAGE>
(4) Includes non-qualified options to purchase 166,666 shares of Common Stock
at an exercise price of $1.125 per share and non-qualified options to
purchase 60,000 shares of Common Stock at an exercise price of $3.50 per
share.
(5) Includes 6,350 shares owned by Creative Business Strategies, Inc., a
corporation of which Mr. Schwartz is an officer, director and shareholder.
(6) Includes 226,666 shares issuable upon exercise of stock options exercisable
within 60 days of September 1, 1997.
DESCRIPTION OF SECURITIES
GENERAL
The Company is authorized to issue 51,000,000 shares of capital stock, including
50,000,000 shares of Common Stock, $.03 par value, and 1,000,000 shares of
Preferred Stock, $1.00 par value. As of September 1, 1997, there were 9,636,262
shares of Common Stock outstanding and no shares of Preferred Stock outstanding.
COMMON STOCK
No share of Common Stock is entitled to preference over any other share of
Common Stock, and each share of Common Stock is equal to every other share of
Common Stock in all respects. Holders are entitled to one vote for each share
of Common Stock held of record at each meeting of the shareholders, and to
receive dividends when and as declared by the Board of Directors. To date, the
Company has not paid cash dividends. There is no cumulative voting for the
election of directors. Accordingly, the owners of a majority of the shares of
Common Stock outstanding may elect all of the directors to be elected by the
holders of the Common Stock, if they choose to do so, and the owners of the
balance of such shares would not be able to elect any directors. The holders of
Common Stock do not have preemptive rights. The shares of Common Stock offered
hereby will be, upon issuance, fully paid and non-assessable.
PREFERRED STOCK
The Board of Directors is authorized to issue up to 1,000,000 shares of
Preferred Stock, in any one or more classes or series, to fix the dividend,
redemption, liquidation, retirement, conversion, voting and other preference
rights for such shares, and to issue options and warrants for the purchase of
such shares, on such terms and for such consideration as the Board may deem
appropriate without further shareholder action. Such additional shares may have
disproportionately higher voting rights or class voting rights, may be
convertible into shares of Common Stock, and may rank prior to the Common Stock
as to payment of dividends or the distribution of assets upon liquidation or
dissolution. The Board of Directors, without shareholder approval can issue
shares of Preferred Stock with voting and conversion rights which could
adversely affect the voting power of the holders of Common Stock. Currently, no
shares of
-44-
<PAGE>
Preferred Stock are outstanding and the Company does not have plans to issue any
Preferred Stock.
CONVERTIBLE SECURED NOTES
During April 1997, the Company issued $350,000 principal amount of its 10%
Convertible Secured Notes due October 31, 1997 (the "Notes"). The Notes are
secured by a mortgage on the Company's faire site in Kenosha, Wisconsin and are
convertible into shares of the Company's Common Stock at the lesser of $1.75 per
share or 50% of the market value of the Company's Common Stock at the time of
conversion.
TRANSFER AGENT AND REGISTRAR
Corporate Stock Transfer, Denver, Colorado, has been appointed as the Transfer
Agent and Registrar for the Common Stock and the A and B Warrants.
SELLING SHAREHOLDERS
The following table sets forth the number of shares of the Company's Common
Stock to be offered by the Selling Shareholder named herein, and, as of
September 1, 1997, the number and percentage of shares beneficially owned prior
to and following completion of the offering made hereby.
<TABLE>
<CAPTION>
Shares Offered After Offering
Name Prior to Offering Pursuant to this ----------------------
---- Number (1) Percentage Prospectus(1) Number Percentage
--------------------- ---------------- ----------------------
<S> <C> <C> <C> <C> <C>
Legacy Fund, LLC 642,857 6.3% 642,857 -0- -0-
Davstar II Managed
Investments Corp. NV 214,286 2.2% 214,286 -0- -0-
Grand Avenue Partners 142,857 1.4% 142,857 -0- -0-
Creative Business
Strategies, Inc. (2) 6,350 * 6,350 -0- -0-
</TABLE>
- ---------------
* Less than one percent
(1) For Legacy Fund, LLC, Davstar II Managed Investment Corp. NV and Grand
Avenue Partners, the number of shares included in the table represent the number
of shares it is estimated would be issued upon conversion of the Company's 10%
Convertible Secured Notes owned by such persons. The Notes are convertible into
shares of the Company's Common Stock at the lesser of $1.75 per share or 50% of
the market value for the Company's Common Stock at the
-45-
<PAGE>
time that the Notes are converted. The information included in the table is
based upon an assumed conversion price of $.35.
(2) Sanford L. Schwartz, a director of the Company, is an officer,
director and major shareholder of Creative Business Strategies, Inc.
PLAN OF DISTRIBUTION
The Shares offered by the Selling Shareholders may be sold from time to
time by the Selling Shareholders, or by pledgees, donees, transferees or other
successors in interest of the Selling Shareholders, at their sole discretion.
Such sales may be made on the NASDAQ Small Cap Market or otherwise at prices and
on terms then prevailing or at prices related to the then current market price,
or in negotiated transactions. The Shares offered by the Selling Shareholders
are not being underwritten.
In general, the Shares may be sold by one or more of the following means:
(a) a block trade in which the broker or dealer so engaged will attempt to sell
the securities as agent but may position and resell a portion of the block as
principal to facilitate the transaction; (b) purchases by a broker or dealer as
principal and resale by such broker or dealer for its account pursuant to this
Prospectus; (c) an exchange distribution in accordance with the rules of such
exchange (if the securities are then listed on an exchange); (d) ordinary
brokerage transactions and transactions in which the broker solicits purchasers;
or (e) other securities transactions. In effecting sales, brokers or dealers
engaged by the Selling Shareholders may arrange for other brokers or dealers to
participate. Brokers or dealers will receive commissions or discounts from the
Selling Shareholders in amounts to be negotiated immediately prior to the sale.
No commissions or other fees shall be payable by the Company to any broker or
dealer in connection with this offering. Such brokers or dealers and any other
participating brokers or dealers may be deemed to be "underwriters" within the
meaning of the Securities Act of 1933, as amended, in connection with such
sales. The Company will pay the expenses of this offering, estimated at
$25,000.
LEGAL MATTERS
The legality of the Common Stock will be passed upon for the Company by the
firm of Gray, Plant, Mooty, Mooty & Bennett, P.A.
EXPERTS
The audited financial statements of the Company for the fiscal periods
ended December 31, 1996 and March 31, 1996, which are included herein have been
examined and reported on by Schumacher and Associates, Inc., as indicated in
their reports with respect thereto, and are incorporated by reference, in
reliance upon the authority of said firm as experts in accounting and auditing.
-46-
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy
statements and other information filed by the Company with the Commission may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street N.W., Washington,
D.C. 20549, and inspected at the Commission's regional offices at Suite 1400,
500 West Madison Street, Chicago, Illinois 60661. Copies of such material can
also be obtained from the Public Reference Section of the Commission, 450 Fifth
Street N.W., Washington, D.C. 20549, at prescribed rates. In addition, the
Commission maintains a web site that contains reports, proxy and information
statements and other information regarding the Company at http://www.sec.gov.
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act of 1933, as amended (the "Act"), with respect to
the securities offered hereby. This Prospectus omits certain information
included in such Registration Statement. For further information about the
Company and its securities, reference is made to such Registration Statement and
to the exhibits filed as part thereof or otherwise incorporated therein. Each
summary in this Prospectus of information included in the Registration Statement
or any exhibit thereto is qualified in its entirety by this reference to such
information or exhibit.
-47-
<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION
AND CONSOLIDATED SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Certified Public Accountants F-2
Audited Financial Statements:
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-5
Consolidated Statement of Changes in Stockholders' Equity F-6
Consolidated Statements of Cash Flows F-8
Notes to Consolidated Financial Statements F-9
Consolidated Balance Sheet as of June 30, 1997 (unaudited) F-28
Consolidated Statements of Operations for the six months ended
June 30, 1997 and 1996 (unaudited) F-29
Consolidated Statements of Cash Flows for the six months ended
June 30, 1997 and 1996 (unaudited) F-30
Notes to Financial Statements (unaudited) F-31
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Renaissance Entertainment Corporation
and Consolidated Subsidiary
We have audited the combined balance sheet of Renaissance Entertainment
Corporation and Consolidated Subsidiary as of March 31, 1996 and December 31,
1996 and the related consolidated statements of operations and changes in
stockholders' equity, and cash flows for the nine month period ended December
31, 1996 and for the years ended March 31, 1995 and 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion of these combined 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 an 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 Renaissance Entertainment
Corporation and Consolidated Subsidiary as of March 31, 1996 and December 31,
1996 and the combined results of operations, changes in stockholders' equity and
cash flows for the nine period ended December 31, 1996 and the years ended March
31, 1995 and 1996 in conformity with generally accepted accounting principles.
Schumacher & Associates, Inc.
Certified Public Accountants
12835 E. Arapahoe Road
Tower II, Suite 110
Englewood, CO 80112
March 31, 1997
F-2
<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION
AND CONSOLIDATED SUBSIDIARY
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1996 1996
------------ ------------
<S> <C> <C>
Current Assets:
Cash and equivalents $ 631,063 $ 374,289
Income tax refunds receivable (Note 6) 323,380 -
Stock subscription receivable (Note 13) - 133,749
Accounts receivable, net of allowance
for doubtful accounts of $8,341 69,434 99,551
Inventory, at lower of cost or market 116,221 184,695
Prepaid expenses and other current assets 979,769 139,167
------------ ------------
Total Current Assets 2,119,867 931,451
Property and equipment, net of accumulated
depreciation of $1,372,060 and $1,982,765
at March 31, 1996 and December 31, 1996
respectively (Note 7) 5,156,217 7,176,755
Construction in progress 1,080,895 -
Goodwill, net of accumulated amortization
of $160,960 and $206,410 at March 31,
1996 and December 31, 1996
respectively (Note 5) 1,046,285 620,826
Covenant not to compete, net of
accumulated amortization of $40,000
and $55,000 at March 31, 1996 and
December 31, 1996 respectively (Note 5) 60,000 45,000
Restricted cash (Note 11) 848,296 890,116
Other assets 121,909 208,201
------------ ------------
Total Assets $ 10,433,469 $ 9,872,349
------------ ------------
------------ ------------
</TABLE>
F-3
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
<S> <C> <C>
Current Liabilities:
Accounts payable and accrued expenses $ 1,181,090 $ ,068,028
Notes payable, current portion (Note 3) 437,956 1,209,119
Unearned income 485,798 160,588
------------ ------------
Total Current Liabilities 2,104,844 2,437,735
Notes payable, net of current
portion (Note 3) 2,531,187 2,341,987
Other - 37,175
------------ ------------
Total Liabilities 4,636,031 4,816,897
------------ ------------
Commitments (Notes 3, 4, 8 and 12) - -
Stockholders' Equity (Notes 2, 8, 10, 12 and 13):
Preferred stock, $1.00 par value, 1,000,000
shares authorized, none issued and
outstanding - -
Common stock, $.03 par value, 50,000,000
shares authorized, 8,721,706 and
9,233,772 issued and outstanding
at March 31, 1996 and December 31, 1996
respectively 130,826 277,013
Additional paid-in capital 7,108,082 8,071,634
Accumulated (deficit) (1,441,470) (3,293,195)
------------ -----------
Total Stockholders' Equity 5,797,438 5,055,452
------------ -----------
Total Liabilities and Stockholders' Equity $ 10,433,469 $ 9,872,349
------------ -----------
------------ -----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION
AND CONSOLIDATED SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended Nine Month Period Ended
------------------------------------- -------------------------------------
March 31, 1995 March 31, 1996 December 31, 1995 December 31, 1996
----------------- ----------------- ----------------- -----------------
(Unaudited)
<S> <C> <C> <C> <C>
REVENUE
Sales $12,539,653 $12,810,617 $10,469,824 $14,553,577
Faire operating costs 3,212,491 3,826,868 3,205,152 4,812,616
----------- ----------- ----------- -----------
Gross Profit 9,327,162 8,983,749 7,264,672 9,740,961
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Salaries and wages 3,474,799 4,082,271 3,030,205 4,048,603
Depreciation and amortization 351,215 500,203 337,708 633,819
Advertising 1,211,798 1,546,701 1,036,508 2,511,973
Other operating expenses 3,532,508 4,329,713 2,749,254 4,300,062
----------- ----------- ----------- -----------
Total Operating Expenses 8,570,320 10,458,888 7,153,674 11,494,457
----------- ----------- ----------- -----------
Net Operating Income (Loss) 756,842 (1,475,139) 110,999 (1,753,496)
----------- ----------- ----------- -----------
Other Income (Expenses):
Interest income 48,312 109,652 94,090 68,571
Interest (expense) (53,223) (138,036) (100,266) (253,740)
Other income (expense) (28,327) (36,049) 204,612 (98,229)
----------- ----------- ----------- -----------
Total Other Income (expenses ) (33,418) 7,665 198,436 (98,229)
----------- ----------- ----------- -----------
Net Income (Loss) before (Provision)
Credit for Income Taxes 723,424 (1,467,474) 309,434 (1,851,725)
(Provision) Credit for Income Taxes (147,000) 193,803 45,470
----------- ----------- ----------- -----------
Net Income (Loss) 576,424 (1,273,671) 263,964 (1,851,725)
----------- ----------- ----------- -----------
Dividends on Preferred Stock (43,115)
----------- ----------- ----------- -----------
Net Income (Loss) to Common
Stockholders $ 533,309 $(1,273,671) $ 263,964 $(1,851,725)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net Income (Loss) per Common Share $ .11 $ (.16) $ .03 $ (.21)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted Average Number of Shares
Outstanding 4,801,044 7,824,182 7,643,702 8,907,049
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION AND CONSOLIDATED SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
From March 31, 1994 through December 31, 1996
<TABLE>
<CAPTION>
Common Stock
------------------------------------- Additional Paid-in Accumulated
Shares Amount Capital (Deficit) Total
------------------ ------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C> <C>
Balance, March 31, 1994 3,204,356 $ 96,130 $ 966,585 $ (701,108) $ 361,607
Common stock issued, acquisition of
assets 1,136,666 34,100 498,711 -- 532,811
Common stock issued, private
placements 800,000 24,000 216,000 -- 240,000
Common stock issued, services 133,384 4,002 120,998 -- 125,000
Common stock issued, public offering,
net of offering costs of $646,056 2,070,000 62,100 2,914,344 -- 2,976,444
Common stock issued in exchange for
preferred stock issued 583,334 17,500 794,695 -- 812,195
Preferred dividends -- -- -- (43,115) (43,115)
Net income for the year ended
March 31, 1995 -- -- -- 576,424 576,424
----------- ----------- ----------- ----------- -----------
Balance March 31, 1995 7,927,740 237,832 5,511,333 (167,799) 5,581,366
Treasury stock acquired and retired (20,626) (618) (81,886) -- (82,504)
Common stock issued for cash 678,200 20,346 1,334,402 -- 1,354,748
Exercise of stock options 136,392 4,092 213,407 -- 217,499
Net Loss for the year ended March 31,
1996 -- -- -- (1,273,671) (1,273,671)
----------- ----------- ----------- ----------- -----------
Balance March 31, 1996 8,721,706 261,652 6,977,256 (1,441,470) 5,797,438
Exercise of Class A warrants at $2.00
per share 125,328 3,760 246,896 -- 250,656
Exercise of Class B warrants at $2.63
per share 34,000 1,020 88,230 -- 89,250
Exercise of stock options 324,998 9,749 610,224 -- 619,973
Issuance of stock for services 27,740 832 151,118 -- 151,950
Fees incurred in connection with
exercising warrants -- -- (2,090) -- (2,090)
Net loss for the nine month period
ended December 31, 1996 -- -- -- (1,851,725) (1,851,725)
----------- ----------- ----------- ----------- -----------
Balance December 31, 1996 $ 9,233,772 $ 277,013 $ 8,071,634 $(3,293,195) $ 5,055,452
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION
AND CONSOLIDATED SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended Nine Month Period Ended
------------------------------------- -------------------------------------
March 31, 1995 March 31, 1996 December 31, 1995 December 31, 1996
----------------- ----------------- ----------------- -----------------
(Unaudited)
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities: $ 576,424 $(1,273,671) $ 263,964 $(1,851,725)
Net Income (loss) -- -- -- --
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 351,214 500,200 337,708 633,819
Impairment of goodwill -- -- -- 380,000
Stock issued for services -- -- -- 151,950
(Increase) decrease in:
Income tax refund receivable -- (323,380) -- 323,380
Accounts receivable (50,124) (19,310) (178,844) (163,866)
Prepaid expenses (570,332) (396,276) 291,995 840,602
Inventory (82,900) (33,321) (13,134) (68,474)
Other assets (49,657) (38,811) -- (86,292)
Increase (decrease) in:
Income taxes payable 48,175 (48,175) (25,738) --
Accounts payable and accrued
expenses 274,940 742,368 (117,449) (113,062)
Unearned revenue and other 322,083 42,681 (313,197) (294,030)
---------- ----------- ----------- -----------
Net Cash Provided by Operating
Activities 821,823 (847,695) 245,305 (247,698)
---------- ----------- ----------- -----------
Cash Flows from Investing Activities:
Investment in restricted cash -- (848,296) (846,449) (41,820)
Repayment of advances 351,150 -- -- --
Acquisition and construction of
property and equipment, goodwill
and covenant note to compete (896,551) (4,920,023) (3,490,356) (1,507,008)
---------- ----------- ----------- -----------
Net Cash (Used in) Investing Activities (545,401) (5,768,319) (4,336,775) (1,548,828)
---------- ----------- ----------- -----------
Cash Flows from Financing Activities:
Common stock issued and additional
paid-in capital 3,403,450 1,489,743 1,100,908 957,789
Preferred dividends paid (43,115) -- (36,458) --
Advances from officers 60,500 -- -- --
Proceeds from notes payable -- 2,518,018 1,068,729 1,000,000
Principal payments on notes payable (438,793) (59,429) (593,340) (418,037)
---------- ----------- ----------- -----------
Other (43,115) -- (36,458) --
---------- ----------- ----------- -----------
Net Cash Provided by (Used in)
Financing Activities 2,982,042 3,948,332 1,539,839 1,539,752
---------- ----------- ----------- -----------
Net Increase (Decrease) in Cash 3,258,464 (2,667,682) (2,551,631) (256,774)
Cash beginning of period 40,281 3,298,745 3,296,652 631,063
---------- ----------- ----------- -----------
Cash, end of period $3,298,745 $ 631,063 $ 745,021 $ 374,289
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
Interest paid $ 54,506 $ 112,248 $ 100,267 $ 268,605
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
Income tax paid $ 98,825 $ 237,752 $ 129,577 $ --
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
</TABLE>
Note: The Company issued common and preferred stock for assets totaling
$1,408,000 during the year ended March 31, 1995. During the year ended March
31, 1996 the Company issued 540,000 shares of its common stock to consummate the
business combination with CFL, which was accounted for as a pooling of
interests, effective for the fiscal year ended March 31, 1995. The accompanying
notes are an integral part of the financial statements.
F-7
<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION
AND CONSOLIDATED SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Renaissance
Entertainment Corporation (Company) (REC) is presented to assist in
understanding the Company's financial statements. The financial statements
and notes are representations of the Company's management who is
responsible for their integrity and objectivity. These accounting policies
conform to generally accepted accounting principles and have been
consistently applied in the preparation of the financial statements.
(a) GENERAL
REC was incorporated under the laws of the State of Colorado on June 24,
1988. On April 6, 1993, REC acquired one hundred percent of the common
stock of Ellora Corporation, a Wisconsin corporation which owned and
operated the Bristol Renaissance Faire located in Kenosha, Wisconsin. In
the acquisition, REC issued a total of 1,784,800 shares of common stock to
the shareholders of Ellora Corporation, representing ninety-one percent of
the total issued and outstanding shares of REC following the exchange. The
acquisition was accounted for as a reverse acquisition since the
controlling shareholders of Ellora became the controlling shareholders of
REC. During the year ended March 31, 1994 REC formed a wholly-owned
subsidiary called Heroes and Villains, Ltd. This entity was formed to
provide entertainment services and had limited activity during the year.
During February, 1994 REC formed Renaissance Pleasure Faires, Inc. (RPFI)
for the purpose of acquiring the assets and the business of two Renaissance
Faires in California. In connection with this acquisition and the
formation of RPFI, the Company issued 1,136,666 shares of its common stock
and 875,000 shares of Series A Convertible Preferred Voting Stock and
assumed certain liabilities and guaranteed certain lease obligations of the
seller. The preferred shares were later exchanged for common stock. Of
the common shares issued, 524,000 common shares were issued to the seller
and 612,666 common shares were issued to shareholders of Western
Renaissance Fair Presentation, Inc. (Western) a newly formed California
corporation, formed for the purpose of providing management services to
operators of renaissance festivals.
Western was owned by certain employees of the seller. Subsequent to its
acquisition,
F-8
<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION
AND CONSOLIDATED SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(a) GENERAL
Western was merged into a subsidiary of REC. For accounting purposes, the
acquisition of the California Faires net assets and business and the
acquisition of Western was treated as one combined acquisition with the
excess of cost over fair value of net assets acquired accounted for as
goodwill. The preferred shares had an annual 6% dividend provision payable
monthly in arrears. The preferred shares had equal voting rights per share
as the common shares outstanding (583,334 votes after giving effect to the
reverse common stock splits described in note 10). The preferred shares
had a conversion provision that they could be converted by the holders at
any time during the first two years into common stock on a one-for-three
basis. REC had the right at any time to redeem these shares at $1.00 per
share. During January, 1995 these preferred shares were converted to
583,334 shares of common stock. The Company also forgave loans to the
seller totaling $62,805 which reduced additional paid-in capital related to
this conversion transaction. Prior to conversion, the Company paid
dividends totaling $43,115 related to these preferred shares. All
documents related to this closing and all shares issued were signed and
dated in March, 1994. The bill of sale related to the transfer of the
assets was effective April 1, 1994. In connection with this transaction,
certain controlling shareholders have entered into a stock pooling and
voting agreement requiring the voting for certain individuals to serve as
directors of the Company. In connection with this acquisition, the Company
incurred approximately $50,000 of legal and professional fees and issued
233,066 shares of common stock valued at $72,833 for consulting services
related to assistance with negotiations regarding the acquisition. The
business combination as of April 1, 1994 was accounted for as a purchase by
REC. See Note 10 for additional information related to this business
combination.
Effective December 31, 1995 REC acquired 100% ownership of Creative Faires,
Ltd. (CFL) in exchange for the issuance of 540,000 restricted common shares
of REC stock. REC entered into employment agreements with the two former
owners of CFL and one of the two former owners became a director of REC.
The business combination with CFL was accounted for as a pooling of
interests. The Company changed its year end to December 31, effective
December 31, 1996. The March 31, 1996 consolidated balance sheet includes
the accounts of
F-9
<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION
AND CONSOLIDATED SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(a) GENERAL
CFL as of December 31, 1995 and the consolidated accounts of REC and
subsidiaries as of March 31, 1996. The consolidated statements of
operations and cash flows include the accounts of CFL for the two years
ended December 31, 1995 and the consolidated accounts of REC and
subsidiaries for the two years ended March 31, 1996. The consolidated
statements of operations and cash flows include the accounts of CFL for the
year ended December 31, 1996 and accounts of REC for the nine month period
ended December 31, 1996. During the three-month period ended March 31,
1996, REC loaned $141,179 to CFL which was not eliminated in the
consolidated financial statements because of the different year ends. The
majority of the advances to CFL were used for start-up costs for the
upcoming New York Faire described in Note 9. The $141,179 has been
included with prepaid expenses in the March 31, 1996 consolidated balance
sheet.
All subsidiaries of the Company were merged into REC as of March 31, 1996
with the exception of Creative Faires, Ltd.
All references to the "Company" refer to REC and its subsidiaries. All
intercompany transactions and account balances have been eliminated in the
financial statements other than as noted above.
(b) PER SHARE INFORMATION
Per share information is determined using the weighted average number of
shares outstanding during the periods after giving effect to the common
stock splits described in Note 10.
(c) PROPERTY AND EQUIPMENT
Property and equipment is carried at cost, net of accumulated depreciation.
Depreciation is computed using principally accelerated methods over the
useful lives of the assets ranging from three to thirty years, as follows:
Useful Lives (Years)
--------------------
Computers 5
Vehicles 5
Trailers 7
Office Furniture 7
Costumes 7
Faire Equipment 7
Buildings - Temporary 15
Buildings - Permanent 30
F-10
<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION
AND CONSOLIDATED SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(d) REVENUE AND EXPENSE RECOGNITION AND COST OF SALES
The Company recognizes revenues from the renaissance fairs as earned during
the period when the fairs are in operation.
These revenues consist principally of gate entrance fees, food and beverage
concessions sales, lease revenue and fees charged to craft vendors. At
various dates subsequent to the end of the operation of the prior years
fairs, and prior to the opening of the next years fairs, the Company
receives deposits from the craft vendors and others. These deposits are
carried as unearned revenue until applied to fees charged and then earned
on a pro-rata basis during the operation of the fair.
Cost of sales as shown in the statement of operations includes all direct
costs associated with the production of the Renaissance Faire, including
cost of food, beverage and merchandise sold, labor costs for seasonal help
and other direct costs of the production. All other expenses related to
operation of the fair are shown as operating expenses in the statement of
operations.
Advertising costs are expensed asincurred. Direct costs related to the
setting up of the fairs are capitalized as prepaid expenses and expensed
during the period of the operation of the applicable fairs. Also, included
in prepaid expenses at March 31, 1996 is $141,179 of advances from REC to
CFL. CFL has a December 31 year end and REC had a March 31 year end, which
was changed to December 31, effective December 31, 1996. These advances
relate principally to cost related to setting up the New York Faire but
also include operating expenses which apply to the short period after the
CFL year end. See a description above of the business combination with CFL
accounts for a pooling of interest.
(e) STOCK SPLIT
During the fiscal year ended March 31, 1995, the Company effected a
one-for-three reverse stock split and changed the par value of the common
stock from $.01 to $.03 per share. During the period ended December 31,
1996, the Company effected a two-for-one stock split. The financial
statements were retroactively adjusted for this split.
F-11
<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION
AND CONSOLIDATED SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(f) CONCENTRATIONS OF CREDIT RISKS
Financial instruments that potentially subject the company to
concentrations of credit risk consist principally of temporary cash
investments and cash equivalents and trade accounts receivables. At March
31, 1996 and December 31, 1996 respectively, the Company had approximately
$1,370,000 and $1,065,000 of its cash and cash equivalents in financial
institutions in excess of amounts insured by agencies of the U.S.
Government. Most of the trade receivables are from customers in one
geographic location, principally California. The Company does not require
collateral for its trade accounts receivables.
(g) CASH EQUIVALENTS
The Company considers all short term investments in securities that mature
in 90 days or less to be cash equivalents.
(h) INVENTORY
The Company's inventory consists principally of merchandise held for sale.
The Company carries its inventory at the lower of cost or market. Cost is
determined on an average cost basis.
(i) ALLOWANCE FOR BAD DEBTS
The Company provides an allowance for bad debts based on prior collection
experience.
(j) USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
F-12
<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION
AND CONSOLIDATED SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(k) GEOGRAPHIC AREA OF OPERATIONS AND INTEREST RATES
The Company owns and operates Renaissance Faires principally in five major
metropolitan areas of the U.S.A. The potential for severe financial impact
can result from negative effects of economic conditions within the markets
or geographic areas. Since the Company's business is principally in five
areas, this concentration of operations results in an associated risk and
uncertainty.
(l) CONSTRUCTION IN PROGRESS
As of March 31, 1996 the Company had incurred $1,080,895 of construction
costs related to the Company building a fair site in Virginia. These
construction costs incurred consisted of buildings and land improvements.
The construction was completed subsequent to March 31, 1996.
(m) IMPAIRMENT OF LONG-LIVED ASSETS
The Company determined that the goodwill associated with its acquisition of
the California Faires net assets and its acquisition of Western was
impaired after estimating the expected gross profit from future revenues,
based on the results for these faires in 1996, as compared to the net book
value. The Company wrote down the intangible assets by $380,000 through a
charge to other operating expenses during the period December 31, 1996. At
December 31, 1996, the remaining goodwill associated with this acquisition
was $620,826.
(2) COMMON AND PREFERRED STOCK
The Articles of Incorporation of the Company authorize issuance of a
maximum of 50,000,000 shares of $.03 par value common stock and 1,000,000
shares of $1.00 par value preferred stock. See note 1 for a description of
the preferred stock issued and then subsequently converted to common stock.
During January, 1995 the Company sold in a public offering 1,035,000 units
of its securities at $3.50 per unit. Each unit consisted of one share of
common stock and one Class A warrant and one Class B warrant. Each Class A
warrant entitles the warrant holder thereof to purchase one share of common
stock at a price of $4.00 per share through January 27, 2000. Each Class B
warrant entitles the holder thereof to
F-13
<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION
AND CONSOLIDATED SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
(2) COMMON AND PREFERRED STOCK, CONTINUED
purchase one share of common stock at a price of $5.25 per share through
January 27, 2000. These warrants were immediately exercisable. The
warrants are redeemable by the Company after 24 months from January 27,
1995, the date of the prospectus, or sooner with the consent of the
Underwriter, at a price of $.01 per warrant upon 30 days' notice mailed
within ten days after the closing bid price of the Company's common stock
has equaled or exceeded 150% of the then current respective warrant
exercise price for a period of 20 consecutive trading days. The holders of
the warrants called for redemption are granted exercise rights until the
close of business on the date preceding the date fixed for redemption.
The Company incurred $646,056 of costs related to this offering. These
offering costs have been offset against the proceeds of the offering.
(3) NOTES PAYABLE
Notes payable at December 31, 1996 and March 31, 1996 are summarized as
follows:
March 31, December 31,
1996 1996
------------ ------------
Note payable to bank at 8.65%,
interest quarterly until June, 1996
then monthly principal and interest
payment of $5,082 through May, 2011
collateralized by land, improvements
and jumbo CD's. See Note 11. $ 1,500,000 $ 1,475,950
Note payable to bank at 9.5%, 60
equal monthly payments of $5,251
through March, 2001 collateralized
by land, improvements and jumbo
CD's. See Note 11. 250,000 219,605
F-14
<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION
AND CONSOLIDATED SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
(3) NOTES PAYABLE, CONTINUED
Mortgage payable to Bank One Kenosha
at 9.5 % at March 31, 1996 and 9.25%
at 9.25% at December 31, 1996;
interest quarterly, two annual
payments of $100,000 each with a
balloon payment of $700,000 due
January, 1998; collateralized by land
and improvements. 900,000 800,000
Note payable to Bank One Colorado at
the bank reference rate plus 1%, 9.25%
at December 31, 1996, due September 1,
1996; collateralized by inventory,
accounts and equipment. - 746,132
Note payable to Bank One Kenosha at
the bank reference rate plus 2% with a
minimum rate of 10.25%; interest paid
monthly with the balance due September
1996, extended to December 15, 1997;
collateralized by equipment, fixtures
and inventory. 250,000 250,000
Various notes payable to financial
institutions collateralized by certain
vehicles. Payable in monthly
installments of principal and interest;
final payments due in 2000, interest
ranging from 10% to 12%. 69,144 59,419
------------ ------------
Total 2,969,144 3,551,106
Less current portion 437,957 1,209,119
------------ ------------
Long-term portion $ 2,531,187 $ 2,341,987
------------ ------------
------------ ------------
In March 1997, the Company entered into a loan workout agreement with Bank
One Colorado and Bank One Kenosha (Bank One Wisconsin). The agreement
provides that
F-15
<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION
AND CONSOLIDATED SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
(3) NOTES PAYABLE, CONTINUED
the Company make principal payments of $50,000 each to Bank One Colorado
and Bank One Wisconsin. Upon execution of this agreement, the Company
executed a real estate mortgage in favor of Bank One Colorado subordinated
to the Bank One Wisconsin's mortgage. Bank One Colorado agreed to
subordinate its mortgage to a potential new loan from a third party lender
to the Company in the amount of from $750,000 to $1.5 million, so long as
the new loan is funded prior to June 1, 1997 and the Company is not
otherwise in default under the loans. As part of this agreement, Bank One
Colorado changed the terms of its loan agreement to provide the Company
interest monthly on its loan starting April 30, 1997 with principal
payments of $150,000 on June 30, 1997, $200,000 on July 31, 1997, $250,000
on August 31, 1997 and final principal payment of $90,189 on September 30,
1997. Additionally Bank One Wisconsin modified the terms of its loan
agreement to provide for monthly interest payments starting April 30, 1997
with four monthly principal payments of $50,000 starting June 30, 1997. If
the Company complies with all terms of this agreement, Bank One Wisconsin
agrees to renew its real estate mortgage to provide for quarterly principal
payments of $50,000 beginning in March 1998 with the remaining balance due
and payable in December 1998. The Company agreed, if it obtains
alternative financing in excess of $2.5 million during calendar year 1997,
then the Company will immediately pay off all amounts then due and owing
Bank One Colorado and Bank One Wisconsin, excluding the Bank One Wisconsin
mortgage.
Maturities of notes payable for each of the next five fiscal years ending
December 31 and in the aggregate thereafter, are as follows:
1997 $ 1,210,214
1998 2,188,583
1999 66,108
2000 68,807
2001 17,394
-----------
$ 3,551,106
-----------
-----------
(4) LEASES
The Company leases a vehicle under a four year lease which commenced June 8,
1992 with monthly lease payments of $336. Effective April 1, 1995 the
Company entered into an operating lease at 4440 Arapahoe in Boulder,
Colorado for office facilities. Initial monthly rental payments are
$3,066 with annual increases of 5% per annum. Commencing November 1, 1996,
F-16
<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION
AND CONSOLIDATED SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
(4) LEASES, CONTINUED
the Company leased additional office space at 4410 Arapahoe in Boulder,
Colorado and subleased its original office space at 4440 Arapahoe. This
lease provides initial monthly lease payments of $5,969 increasing to
$7,255 for the five year term of the lease. In addition the Company will
be allocated certain operating expenses. The Company also leases various
other properties in New York with terms expiring through the year 2001.
Annual lease payments on the New York Faire site range from approximately
$270,000 to $312,000 over the next five years.
Future minimum rentals under all operating leases with terms exceeding
twelve months are as follows:
Year Ending
December 31,
1997 436,177
1998 456,623
1999 476,237
2000 468,370
2001 79,807
-----------
Total $ 1,917,214
-----------
-----------
Effective January 1, 1997, the Company entered into a three year sublease
agreement to sublease its old office space at 4440 Arapahoe. The sublessee
assumes every obligation of the Company under its lease. The Company
remains liable under its lease.
Future minimum sublease rentals are as follows:
Year ending
December 31,
1997 $ 28,979
1998 30,428
1999 31,949
2000 24,849
2001 -
-----------
Total $ 116,205
-----------
-----------
F-17
<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION
AND CONSOLIDATED SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
Rent expense for the nine-month period ended December 31, 1996 and for the
years ended March 31, 1995 and 1996 totaled approximately $431,292,
$404,495 and $788,375, respectively.
(5) GOODWILL AND COVENANT NOT TO COMPETE
The cost of the acquisition of the California Faire assets and business as
described in Notes 1 and 10 in excess of the fair value of assets acquired
has been recorded as goodwill in the accompanying financial statements.
Goodwill is being amortized on a straight-line basis over fifteen years.
Management reviews the carrying value of goodwill on a periodic basis, at
least annually, to determine if there is any impairment in value. If
management determines that the carrying value is not recoverable over the
remaining amortization term, the excess balance, if any, will be expensed.
During the period ended December 31, 1996, the Company determined that the
goodwill was impaired and wrote off $380,000 as a charge to other operating
expenses. As of March 31, 1996 and December 31, 1996 the Company's net
carrying value for goodwill was $1,046,285 and $620,826 after amortization
and write down of $160,960 and $586,419 respectively.
In addition, the Company allocated $100,000 for certain covenants not to
compete for certain officers and employees of The Living History Centre
related to the asset and business acquisition. These covenants not to
compete are being amortized on a straight-line basis over five years.
(6) INCOME TAXES
The Company files income tax returns with its subsidiaries.
During the year ended March 31, 1995 the Company utilized loss carryovers
to offset taxable income totaling approximately $386,000 resulting in
realization of tax benefits of approximately $154,000. During the year
ended March 31, 1996 the Company incurred an operating loss resulting in a
carryback to prior years. As of March 31, 1996 the Company had income tax
refunds receivable resulting from the carryback and refunds receivable from
excess estimated payments which together totaled $323,380.
F-18
<PAGE>
RECONCILIATION OF STATUTORY TAX
TO ACTUAL INCOME TAX EXPENSE (BENEFIT)
The following is a reconciliation of the statutory tax rates to actual income
tax expense:
For the year ended March 31, 1995:
Expected tax at statutory rates $ 311,072
Benefit of Net Operating Loss (93,124)
Benefit of graduated tax rates (28,937)
Benefit of Federal deduction for state income taxes (13,745)
All other differences (28,266)
-----------
Provision for Income Taxes $147,000
-----------
-----------
For the year ended March 31, 1996:
Expected tax at statutory rates $ -0-
Benefit of carryback of Net Operating Loss (193,803)
-----------
Provision (Credit) for Income Taxes ($193,803)
-----------
-----------
F-19
<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION
AND CONSOLIDATED SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
(7) PROPERTY AND EQUIPMENT
December 31, 1996 March 31, 1996
----------------- --------------
Land $ 3,415,798 $ 2,888,350
Buildings and Improvements 3,018,450 1,171,794
Office Furniture and Equipment 490,975 366,171
Costumes, Props and Other Assets 2,180,297 2,101,962
----------------- --------------
Sub-total 9,105,520 6,528,277
Less Accumulated Depreciation (1,928,765) (1,372,060)
----------------- --------------
Total $ 7,176,755 $ 5,156,217
----------------- --------------
----------------- --------------
(8) WARRANTS ISSUED FOR SERVICES AND STOCK OPTIONS
In January, 1994 the Company issued warrants to purchase an aggregate of
266,666 shares of the Company's common stock at an exercise price of $1.87
per share. These warrants were issued pursuant to a Form S-8 registration
statement for various consulting services. These warrants were exercised
during the year ended March 31, 1995. These 266,666 warrants were valued
at $.15 per warrant and expensed in the total amount of $40,000 in the
financial statements.
Pursuant to the Company's stock option plans, the Company has granted
options to acquire 1,186,318 shares of the Company's common stock. Of this
amount 136,392 options have been exercised and 11,998 have expired during
the year ended March 31, 1996. The options are exercisable at prices
ranging from $1.13 per share to $3.50 per share. During the period ended
December 31, 1996, 105,000 options were granted with a weighted average
price of $5.74, 324,998 options were exercised at a weighted average price
of $1.87 and 150,000 options terminated with a weighted average price of
$4.09. The remaining number of options outstanding at December 31, 1996
totaled 571,762 with a weighted average price of $2.60 which are
exercisable at various dates through 2001.
(9) BUSINESS COMBINATION, NEW YORK FAIRE
Effective December 31, 1995 the Company issued 540,000 shares of its
restricted common stock for 100% ownership of Creative Faires, Ltd. (CFL)
The transaction was accounted for as a pooling of interests as described in
Note 1. CFL principally conducted a New York Faire.
F-20
<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION
AND CONSOLIDATED SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
(9) BUSINESS COMBINATION, NEW YORK FAIRE, CONTINUED
REC and consolidated subsidiaries previously reported revenue of
$10,459,476 and net income of $624,609 during the year ended March 31,
1996. The revenues and net loss of CFL included in the combined
statement of operations for the year ended March 31, 1995 amounted to
$2,081,177 and $(48,185), respectively. Revenues of $2,308,378 and a net
loss of $(37,756) of CFL, incurred prior to the business combination have
been included in the combined statement of operations for the year ended
March 31, 1996.
(10) BUSINESS COMBINATION, CALIFORNIA FAIRES
Effective April 1, 1994 the Company acquired the assets and certain
liabilities of The Living History Centre, (LHC) a California,
not-for-profit corporation. The Company issued 1,136,666 shares of its
common stock and 875,000 shares of its preferred stock as consideration for
the net assets acquired. The preferred stock was converted into common
stock during January, 1995. In addition to acquiring certain assets and
liabilities of LHC, the Company has acquired the rights to operate two
California Renaissance Faires.
See Note 1 financial statements for additional information related to the
business combination. The transaction was accounted for as a purchase by
REC. The results of operations of the LHC Faire operations are included in
the income statement of REC commencing April 1, 1994. The cost of this
acquisition was approximately $2,534,000, including assumption of
liabilities and issuance of the common and convertible preferred stock.
The following table shows the allocation of the purchase price assets:
Cash $ 63,000
Prepaid faire costs 318,000
Inventory 56,000
Accounts receivable 87,000
Property and equipment 664,000
Covenant not to compete 100,000
Goodwill 1,207,000
Other assets 39,000
-----------
$ 2,534,000
-----------
-----------
F-21
<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION
AND CONSOLIDATED SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
(10) BUSINESS COMBINATION, CALIFORNIA FAIRES, CONTINUED
Liabilities assumed 640,000
Preferred stock issued 875,000
Common stock issued 533,000
Cash advanced and acquisition
expenses incurred 486,000
-----------
$ 2,534,000
-----------
-----------
Assets and liabilities acquired or assumed were recorded at estimated fair
value at April 1, 1994 the date of acquisition.
The amount assigned to the common stock was $532,812 ($.9375 per share)
approximately one half of the market trading price of the Company's common
stock as of April 1, 1994. This value was used due to the large number of
shares and their restrictive nature. LHC, a non-profit corporation,
obtained an appraisal of its business for the purpose of determining an
approximate valuation necessary to obtain regulatory approval for sale of
its assets. Although this appraisal indicated a valuation in an amount
such that the common stock of REC exchanged for the certain net assets and
the business of LHC would have been recorded at $1.56 per share, management
of REC did not believe that such a valuation was appropriate under the
circumstances. The appraiser based the valuation on projected net income
from the California Faires of $500,000 per year. The California Faires
have not been historically profitable and to assume that the Faires will
earn $500,000 per year is, as explained in the appraisal, inherently highly
speculative. Therefore, management believes that the appraisal is
unsuitable for determining a value of the business acquired. Management
gave consideration to the following transactions and events when it
determined the appropriate valuation of the shares issued in the
acquisition:
a. In the fall of 1993, the Company sold 253,334 shares at a cash price
of $.75 per share. Following this private offering of a small number
of shares, the Company incurred substantial operating losses and
accumulated deficits.
b. For the two years prior to their acquisition, the two California
Renaissance Faires had generated substantial net operating loss of
$(869,953) and $(928,569) in the years 1992 and 1993, respectively.
c. In August 1994, the Company sold in a private offering 800,000 shares
at a price of $.30 per share, principally to raise working capital to
cover the anticipated cost of the public offering.
F-22
<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION
AND CONSOLIDATED SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
(10) BUSINESS COMBINATION, CALIFORNIA FAIRES, CONTINUED
d. The public market of the Company's common stock was highly illiquid,
with only 300,000 shares in the public float eligible for trading.
Management believes that the price of $1.875 per share of the
publicly-traded shares was not indicative of the fair market value of
substantially larger blocks of restricted shares.
e. The Company issued 77,688 shares and warrants to purchase an
additional 133,334 shares at an exercise price of $.9375, to an entity
affiliated with a director of the Company. The shares and the
exercise price of the warrants were valued at 100% of the public
trading price due to (I) the transaction having been between the
Company and a related party, and (ii) the fact that the shares were
registered on a Form S-8 which rendered them free-trading.
f. The Company has granted to executive officers and key employees
incentive stock options at an exercise price of $1.875 per share. In
order to qualify as incentive stock options under Section 422 of the
Internal Revenue Code, the options must be priced at 100% of the
public trading market of the Company's common stock.
Management believes that recording the shares issued for the LHC
acquisition at 50% of the publicly traded value is reasonable, appropriate
and normal for this large of a block of restricted securities. Goodwill is
being amortized on a straight-line basis over a fifteen year period and the
covenant not to compete is being amortized on a straight-line basis over a
five year period. The Company believes that a 15 year estimated life over
which goodwill is being amortized is reasonable due to the fact the
California Faires have been in existence approximately 30 years and the
fact that the average life of other currently successful Renaissance Faires
in the United States is over 15 years and there is no reason to believe
that those Faires will not be in existence for another 15 years.
It is the Company's policy that management on a periodic basis, at least
quarterly, will evaluate the Carrying value of goodwill and other
intangibles to determine if there is an impairment of value or the
remaining estimated life is less than the remaining unamortized period. If
the evaluation indicates write-downs or adjustments to the amortization are
necessary, such write-downs or adjustments will be made immediately.
(11) RESTRICTED CASH
Certificates of Deposit in the amount of $890,116 at December 31, 1996 are
collateral to an 8.65% and a 9.5% loan maturing in 2011 and 2001,
respectively, and Certificates of
F-23
<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION
AND CONSOLIDATED SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
(11) RESTRICTED CASH, CONTINUED
Deposit totaling $275,000 may be released annually beginning March 1, 1997
and each year thereafter provided that projected net operating income goals
are realized in each of the three operating seasons commencing in 1996. If
the Certificates of Deposit have not been released for any of the previous
years but the projected income goal for the current year is reached, the
Certificates of Deposit for the previous year and the current year shall be
released. If projected goals are not reached by year three, then the
certificates shall be released in any subsequent year that the third year
goal amount is reached.
(12) COMMITMENTS AND SUBSEQUENT EVENTS
Effective December 16, 1994 the Company entered into an agreement with a
consulting firm to provide to the Company certain promotional services for
the Company's fairs. The Company has agreed to pay commissions to the
consulting firm of 17.65% of the actual net billings by advertisers for
media placed pursuant to plans approved by the Company. The Company has
also agreed to pay $7,500 per month for the five year term of the
agreement. The Company has also granted an option to the consulting firm
to allow the firm to acquire a minimum of 66,000 and a maximum of 132,000
shares of the Company's common stock at $1.625 per share with the increase
depending on the results of the services performed by the consulting firm.
Effective October 1, 1994 the Company entered into a consulting agreement
with a company owned by a director of Renaissance Entertainment
Corporation. The Company has agreed to pay the consulting company $4,500
per month for twenty hours per month for services. Additional hours will
be compensated at $200 per hour. The term of the agreement continues until
December 31, 1996. Effective April 1, 1995 the Company agreed to pay
$4,000 per month for consulting services to a director of the Company which
expired effective December 31, 1995. The Company also has a consulting
agreement with another company that is owned by a director of the Company.
This agreement is for $75 per hour plus $300 per Board meeting and can be
terminated at any time.
On August 1, 1996, the Company entered into a one year agreement with a
consultant. The agreement provides that the Company pay the consultant a
fee equal to 5% of any debt or equity infusion to the Company initiated or
introduced to the Company
F-24
<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION
AND CONSOLIDATED SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
(12) COMMITMENTS AND SUBSEQUENT EVENTS, CONTINUED
by the consultant. Additionally, the Company will pay the consultant a fee
equal to 5% of the total value of the merger or acquisition, including the
value of stock, cash and other assets of the merged entities.
Subsequent to December 31, 1996 the Company issued 54,738 shares of its
common stock as payment of the Company's liabilities.
During the year ended March 31, 1995 the Company adopted a non-qualified
deferred compensation plan for ten employees of the Company. Monthly
contributions to the plan total approximately $3,500. Beginning April 1,
1996 monthly contributions are approximately $1,152.
(13) STOCK SUBSCRIPTIONS RECEIVABLE
At December 31, 1996 the Company had stock subscriptions receivable in the
amount of $133,749 which was collected in full in January, 1997.
(14) SUBSEQUENT EVENTS
The Company incurred substantial losses from operations during 1995 and
1996 and incurred significant cost overruns in the construction of its
Virginia faire. As described in note 3, the Company has entered into loan
workout agreements with two banks which will require total bank principal
loan payments of $1,100,000 during 1997.
Subsequent to December 31, 1996, the Company raised $750,000 from an
officer of the Company and a related party through the issuance of
convertible debt and has commitments from investors for $600,000 of
convertible debt and additional equity capital. In order to reduce the
Company's working capital requirements, management has implemented a number
of cost reductions which it estimates will reduce the Company's operating
expenses by approximately $1,300,000 during the fiscal year ending December
31, 1997.
Management believes that the additional capital raised, plus the additional
capital to be received from investors, in conjunction with the reductions
in operating expenses are sufficient for the Company to be able to meet its
financial commitments in 1997.
F-25
<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION
AND CONSOLIDATED SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
(14) SUBSEQUENT EVENTS, CONTINUED
The Company's lease for the site of its Northern California faire expires
April 30, 1997. While the Company believes that its lease for this site
will be renewed for the 1997 faire, there can be no assurance of such
renewal. If the lease is not renewed, it is doubtful that the Company
would conduct a faire in Northern California in 1997.
(15) FOURTH QUARTER ADJUSTMENTS
The Company recognized as expense in the nine-month period ended December
31, 1996, $450,000 of costs to be incurred in 1997, which costs are the
result of changing conditions at the Company's Northern California Faire
which became apparent to the Company in 1996. This adjustment, which was
made in the fourth quarter, was material to fourth quarter operation.
F-26
<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION AND CONSOLIDATED SUBSIDIARY
BALANCE SHEET
(Unaudited)
ASSETS
June 30,
1997
------------
Current Assets:
Cash and equivalents $ 784,582
Accounts receivable (net) 126,607
Inventory 231,792
Prepaid expenses and other 715,966
------------
Total Current Assets 1,858,947
Property and equipment, net of accumulated depreciation 7,097,158
Covenant not to compete 35,000
Goodwill 595,488
Restricted cash 915,177
Other assets 239,675
------------
TOTAL ASSETS$ 10,741,445
------------
------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 1,094,735
Notes payable, current portion 1,365,338
Unearned income 284,430
------------
Total Current Liabilities 2,744,503
Notes payable, net of current portion, unrelated parties 2,931,174
Notes Payable, related parties 250,000
Other 35,376
------------
Total Liabilities 5,961,053
------------
Stockholders' Equity:
Common stock, $.03 par value, 50,000,000
shares authorized, 9,636,262 shares
issued and outstanding at June 30, 1997 89,088
Additional paid-in capital 9,038,098
Accumulated earnings (deficit) (4,546,794)
------------
Total Stockholders' Equity 4,780,392
------------
Total Liabilities and Stockholders' Equity $ 10,741,445
------------
------------
The accompanying notes are an integral part of the financial statements.
F-27
<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION AND CONSOLIDATED SUBSIDIARY
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30
--------------------------------
1997 1996
------------ ------------
<S> <C> <C>
REVENUE:
Sales $ 4,885,596 $ 5,306,079
Faire operating costs 1,830,543 2,119,918
------------ ------------
Gross Profit 3,055,053 3,186,161
------------ ------------
OPERATING EXPENSES:
Salaries 2,019,519 2,189,322
Depreciation and amortization 343,570 266,233
Goodwill Writedown - 380,000
Advertising 693,991 892,634
Other operating expenses 1,398,753 2,216,164
------------ ------------
Total Operating Expenses 4,455,833 5,944,353
------------ ------------
Net Operating (Loss) Income (1,400,780) (2,758,192)
------------ ------------
Other Income (Expenses):
Interest income 30,715 30,455
Interest (expense) (196,167) (118,795)
Other income (expense) 312,634 (197,384)
------------ ------------
Total Other Income (Expenses) 147,182 (285,724)
------------ ------------
Net Income (Loss) before (Provision)
Credit for Income Taxes (1,253,598) (3,043,916)
(Provision) Credit for Income Taxes - 239,273
------------ ------------
Net Income (Loss) to Common Stockholders $ (1,253,598) $ (2,804,643)
------------ ------------
------------ ------------
Net Income (Loss) per Common Share $ (.13) $ (.34)
------------ ------------
------------ ------------
Weighted Average Number of Common
Shares Outstanding 9,531,581 8,186,540
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-28
<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION AND CONSOLIDATED SUBSIDIARY
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30
--------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (Loss) $ (1,253,598) $ (2,804,643)
Adjustments to reconcile net income (Loss)
to net cash provided by operating
activities:
Depreciation and amortization 343,570 589,294
Gain (loss) on disposal of assets 1,363 23,488
(Increase) decrease in:
Stock subscription receivable 133,749 -
Inventory (47,097) (131,255)
Receivables (27,056) (270,128)
Prepaid expenses and other (608,273) (308,319)
Increase (decrease) in:
Accounts payable and accrued expenses 26,707 1,660,419
Unearned revenue and other 122,043 119,615
------------ ------------
Total adjustments (54,994) 1,683,114
------------ ------------
Net Cash Provided by Operating
Activities (1,308,592) (1,121,529)
------------ ------------
Cash Flows from Investing Activities:
Investment in restricted cash (25,061) (13,923)
Acquisition of property and equipment (229,999) (2,430,241)
------------ ------------
Net Cash (Used in) Investing Activities (255,060) (2,444,164)
------------ ------------
Cash Flows from Financing Activities:
Common stock issued and additional
paid-in capital 978,539 533,430
Proceeds from notes payable 1,350,000 2,717,628
Principal payments on notes payable (354,594) (72,320)
------------ ------------
Net Cash Provided by Financing Activities 1,973,945 3,178,738
------------ ------------
Net Increase (Decrease) in Cash 410,293 (386,955)
Cash, beginning of period 374,289 732,553
------------ ------------
Cash, end of period $ 784,582 $ 345,598
------------ ------------
------------ ------------
Interest paid $ 196,167 $ 117,886
------------ ------------
------------ ------------
Income tax paid $ - $ -
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-29
<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION AND
CONSOLIDATED SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
June 30, 1997 (Unaudited)
1. UNAUDITED STATEMENTS
The balance sheet as of June 30, 1997, the statements of operations and the
statements of cash flows for the six-month periods ended June 30, 1997 and
1996, have been prepared by the Company without audit. In the opinion of
management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position, results of
operations and changes in financial position at June 30, 1997 and for all
periods presented, have been made.
These statements should be read in conjunction with the Company's Annual
Report on Form 10-K for the year ended December 31, 1996 filed with the
Securities and Exchange Commission.
2. CALCULATION OF EARNINGS (LOSS) PER SHARE
The earnings (Loss) per share is calculated by dividing the net income
(loss) to common stockholders by the weighted average number of common
shares outstanding.
3. SUBSEQUENT EVENTS
Subsequent to June 30, 1997, the Company has entered into a letter of
intent for a sale and leaseback of its real properties in Wisconsin and
Virginia. This transaction is expected to close prior to October 15, 1997.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
F-30
<PAGE>
- --------------------------------------------------------------------------------
No dealer, salesman, Selling Shareholder or any other person has been
authorized to give any information or to make any representations other than
those contained in this Prospectus in connection with the offer made by this
Prospectus and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company. This Prospectus does
not constitute an offer to sell or the solicitation of any offer to buy any
security other than the shares of the Common Stock offered by this Prospectus,
nor does it constitute an offer to sell or a solicitation of any offer to buy
the shares of Common Stock by anyone in any jurisdiction in which such offer or
solicitation is not authorized, or in which the person making such offer or
solicitation is not qualified to do so, or to any person to whom it is unlawful
to make such offer or solicitation. Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances, create any implication
that information contained herein is correct as of any time subsequent to the
date hereof.
--------------
TABLE OF CONTENTS
Page
----
Prospectus Summary..........................................................2
Risk Factors................................................................5
Market for the Common Equity and Related Stockholder Matters...............10
Use of Proceeds............................................................11
Capitalization.............................................................12
Dividend Policy............................................................12
Selected Financial Data....................................................12
Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................................14
Business...................................................................25
Management.................................................................35
Certain Transactions.......................................................41
Principal Shareholders.....................................................42
Description of Securities..................................................44
Selling Shareholders.......................................................45
Plan of Distribution.......................................................46
Legal Matters..............................................................46
Experts....................................................................46
Additional Information.....................................................47
Index to Financial Statements.............................................F-1
--------------
1,406,350 Shares
RENAISSANCE
ENTERTAINMENT
CORPORATION
--------------
PROSPECTUS
--------------
September ___, 1997
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED TO BE IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses of the Company in
connection with the sale and distribution of the Common Stock being registered.
All of the amounts shown are estimates, except for the Securities and Exchange
Commission registration fee.
Securities and Exchange Commission fee $ 414
NASD Fee 576
Printing and Edgar expenses 1,000
Accounting fees and expenses 4,000
Legal fees and expenses 18,000
Miscellaneous 510
-------
TOTAL $25,000
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Article VIII of the Company's Amended and Restated Articles of
Incorporation provides that the Company shall indemnify any director,
officer, employee or agent of the corporation made or threatened to be made a
party to a proceeding, by reason of the former or present official act of the
person, against judgments, penalties, fines, settlements and reasonable
expenses incurred by the person in connection with the proceeding if certain
standards are met.
Article XI of the Company's Amended and Restated Articles of Incorporation
eliminates certain personal liability of the directors of the Company for
monetary damages for certain breaches of director's fiduciary duties.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
1. For unregistered sales of the Company's securities prior to
February 27, 1996, reference is made to Item 26 of the Company's
Registration Statement on Form SB-2 (No. 33-85538), declared effective
by the Commission on January 27, 1995, and the post-effective
amendments thereto.
2. During April 1997, the Company issued $350,000 principal amount
of its 10% Convertible Secured Notes to three investors. The Notes
were acquired for investment purposes and were issued without
II-1
<PAGE>
registration under the Securities Act of 1933, in reliance upon Section
4(2) thereof for offerings not involving a public offering of securities.
No underwriters were involved in such offering and no commissions were paid
for the solicitation of the investors. The Notes are convertible into
shares of the Company's Common Stock at the lesser of $1.75 per share or
50% of the market price for such stock at the time of conversion.
3. During May 1997, the Company issued $1,000,000 principal amount of its
9% Convertible Debentures to three investors. The holders of the
Debentures were also granted warrants representing the right to acquire
200,000 shares of the Company's common stock at a warrant exercise price of
the lesser of $3.00 per share or 70% of the market price for such stock at
the time of exercise of the warrants. The securities were acquired for
investment purposes and were issued without registration under the
Securities Act of 1933, in reliance upon Section 4(2) thereof for offerings
not involving a public offering of securities. No underwriters were
involved in such offering and no commissions were paid for the solicitation
of the investors. The Debentures are convertible into shares of the
Company's common stock at the lesser of $4.50 per share or 70% of the
market price for such stock at the time of conversion.
ITEM 16. EXHIBITS
Exhibit No Title
---------- -----
3.0(i) Amended and Restated Articles of Incorporation,
incorporated by reference from the Amendment No. 1 to
Registrant's Registration Statement on Form 8-A filed
with the Commission on April 12, 1994.
3.0(ii) By-Laws, incorporated by reference from the Amendment
No. 1 to Registrant's Registration Statement on Form
8-A filed with the Commission on April 12, 1994.
* 3.1 Articles of Amendment to the Articles of Incorporation.
4.1 Specimen Certificate of Common Stock, incorporated by
reference from the Amendment No. 1 to Registrant's
Registration Statement on Form 8-A filed with the
Commission on April 12, 1994.
* 4.2 Specimen Class A Warrant Certificate.
* 4.3 Specimen Class B Warrant Certificate.
* 4.4 Warrant Agreement.
II-2
<PAGE>
* 4.15 Renaissance Entertainment Corporation 1993 Stock
Incentive Plan.
5.1 Opinion of Gray, Plant, Mooty, Mooty & Bennett,
P.A.--previously filed.
10.1 Employment Agreement with Howard Hamburg, incorporated
by reference from the Registrant's Current Report on
Form 8-K dated December 31, 1995.
10.2 Employment Agreement with Kevin Patterson, incorporated
by reference from the Registrant's Current Report on
Form 8-K dated December 31, 1995.
10.3 Office Lease with Diana Wilkins dated August 15, 1996,
incorporated by reference from the Registrant's Annual
Report on Form 10-K for the nine months ended December
31, 1996.
* 10.4 Consultation Agreement with Creative Business Strategies,
Inc.
* 10.4 Letter Agreement with Rob Geller dated July 19, 1994.
* 10.5 Agreement with The Living History Centre dated August 25,
1994.
* 10.6 Specimen Vendor and Exhibitor Agreement for the Bristol
Renaissance Faire.
* 10.7 Specimen Vendor and Exhibitor Agreement for the Northern
and Southern Renaissance Pleasure Faires.
* 10.8 Specimen Bristol Renaissance Faire Concession Agreement.
* 10.9 Specimen Bristol Renaissance Faire Games Concession
Agreement.
* 10.10 License Agreement and Lease with San Bernardino County
for the Southern Renaissance Pleasure Faire site.
* 10.11 Investment Banking Agreement with Duke & Co., Inc.
10.12 Lease Agreement between Creative Faires, Ltd. and
Sterling Forest Corporation dated June 12, 1996
incorporated by reference from the Registrant's Annual
Report on Form 10-KSB for the year ended March 31,
1996.
10.13 Mortgage dated April 7, 1995 with Bank One, Kenosha N.A.
with respect to Bristol Property, incorporated by
reference from the Registrant's Annual Report on Form
10-KSB for the year ended March 31, 1996.
II-3
<PAGE>
* 10.14 Employment Agreement dated February 5, 1996 with Barbara
Hope.
* 10.15 Employment Agreement dated February 5, 1996 with Donald
C. Gaiti.
10.16 Line of credit with Bank One, Wisconsin in the amount of
$250,000 dated February 6, 1996, incorporated by
reference from the Registrant's Quarterly Report on
Form 10-QSB for the quarter ended December 31, 1995,
filed with the Commission on February 20, 1996.
10.17 Line of credit with Union Bank & Trust in the amount of
$250,000 dated December 29, 1995, incorporated by
reference from the Registrant's Quarterly Report on
Form 10-QSB for the quarter ended December 31, 1995,
filed with the Commission on February 20, 1996.
10.18 Commitment Letter for a line of credit with Bank One
Colorado in the amount of $750,000 dated January 26,
1996, incorporated by reference from the Registrant's
Quarterly Report on Form 10-QSB for the quarter ended
December 31, 1995, filed with the Commission on
February 20, 1996.
10.19 Mortgage with Union Bank & Trust in the amount of
$1,500,000 with respect to the Virginia property,
incorporated by reference from the Registrant's Annual
Report on Form 10-KSB for the year ended March 31, 1996.
10.20 Loan Workout Agreement by and among Renaissance
Entertainment Corporation, Bank One, Colorado, N.A. and
Bank One, Kenosha, N.A., incorporated herein by
reference from the Registrant's Annual Report on Form
10-K for the nine months ended December 31, 1996.
10.21 Subscription and Purchase Agreement for 10% Convertible
Secured Notes--previously filed.
10.22 Subscription and Purchase Agreement for 9% Convertible
Debentures--filed herewith.
10.23 Letter of Intent for Sale/Leaseback of Wisconsin and
Virginia faire sites--filed herewith.
21.0 Subsidiaries, incorporated by reference from the
Registrant's Annual Report on Form 10-KSB for the year
ended March 31, 1996.
23.1 Independent Auditor's Consent--filed herewith.
23.2 Consent of Gray, Plant, Mooty, Mooty & Bennett, P.A.--see
Exhibit 5.1.
II-4
<PAGE>
24.1 Power of Attorney (included on signature page of initial
Registration Statement).
* Incorporated by reference from the Company's Registration Statement on
Form SB-2 (No. 33-85538), declared effective by the Commission on
January 27, 1995, and the Post-Effective amendments thereto.
ITEM 17. UNDERTAKINGS
A. The undersigned registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement : (i) to include any
prospectus required by Section 19(a)(3) of the Securities Act of 1933; (ii) to
reflect in the prospectus any facts or events arising after the effective date
of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement; and (iii) to include
any material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement;
(2) that, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof; and
(3) to remove from registration by means of a post-effective amendment any
of the securities being registered that remain unsold at the termination of the
offering.
B. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers, and controlling
persons of the registrant as discussed above, or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Boulder,
State of Colorado, on September 15, 1997.
RENAISSANCE ENTERTAINMENT
CORPORATION.
By /s/ Charles S. Leavell
--------------------------------
Charles S. Leavell
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on the 15th day of September, 1997,
by the following persons in the capacities indicated:
Signature Position
- --------- --------
/s/ Charles S. Leavell Director and Chairman of the Board
- ----------------------------------- and Chief Executive Officer
Charles S. Leavell
* Chief Financial Officer
- -----------------------------------
James R. McDonald
/s/Sue Brophy Chief Accounting Officer
- -----------------------------------
Sue Brophy
* Director
- -----------------------------------
Sanford L. Schwartz
* Director
- -----------------------------------
Robert M. Geller
II-6
<PAGE>
Director
- -----------------------------------
Gregg Adam Thaler
Director
- -----------------------------------
Dean Petkanas
By /s/ Charles S. Leavell
- -----------------------------------
Charles S. Leavell
Attorney-in-Fact
II-7
<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION
AMENDMENT NO. 1 TO
FORM S-1
INDEX TO EXHIBITS
Exhibit No Title
---------- -----
3.0(i) Amended and Restated Articles of Incorporation,
incorporated by reference from the Amendment No. 1 to
Registrant's Registration Statement on Form 8-A filed
with the Commission on April 12, 1994.
3.0(ii) By-Laws, incorporated by reference from the Amendment
No. 1 to Registrant's Registration Statement on Form 8-A
filed with the Commission on April 12, 1994.
* 3.1 Articles of Amendment to the Articles of Incorporation.
4.1 Specimen Certificate of Common Stock, incorporated by
reference from the Amendment No. 1 to Registrant's
Registration Statement on Form 8-A filed with the
Commission on April 12, 1994.
* 4.2 Specimen Class A Warrant Certificate.
* 4.3 Specimen Class B Warrant Certificate.
* 4.4 Warrant Agreement.
* 4.15 Renaissance Entertainment Corporation 1993 Stock
Incentive Plan.
5.1 Opinion of Gray, Plant, Mooty, Mooty & Bennett,
P.A.--previously filed.
10.1 Employment Agreement with Howard Hamburg, incorporated by
reference from the Registrant's Current Report on Form
8-K dated December 31, 1995.
10.2 Employment Agreement with Kevin Patterson, incorporated
by reference from the Registrant's Current Report on
Form 8-K dated December 31, 1995.
10.3 Office Lease with Diana Wilkins dated August 15, 1996,
incorporated by reference from the Registrant's Annual
Report on Form 10-K for the nine months ended December
31, 1996.
* 10.4 Consultation Agreement with Creative Business Strategies,
Inc.
II-8
<PAGE>
* 10.4 Letter Agreement with Rob Geller dated July 19, 1994.
* 10.5 Agreement with The Living History Centre dated August 25,
1994.
* 10.6 Specimen Vendor and Exhibitor Agreement for the Bristol
Renaissance Faire.
* 10.7 Specimen Vendor and Exhibitor Agreement for the Northern and
Southern Renaissance Pleasure Faires.
* 10.8 Specimen Bristol Renaissance Faire Concession Agreement.
* 10.9 Specimen Bristol Renaissance Faire Games Concession
Agreement.
* 10.10 License Agreement and Lease with San Bernardino County for
the Southern Renaissance Pleasure Faire site.
* 10.11 Investment Banking Agreement with Duke & Co., Inc.
10.12 Lease Agreement between Creative Faires, Ltd. and Sterling
Forest Corporation dated June 12, 1996 incorporated by
reference from the Registrant's Annual Report on Form 10-KSB
for the year ended March 31, 1996.
10.13 Mortgage dated April 7, 1995 with Bank One, Kenosha N.A.
with respect to Bristol Property, incorporated by reference
from the Registrant's Annual Report on Form 10-KSB for the
year ended March 31, 1996.
* 10.14 Employment Agreement dated February 5, 1996 with Barbara
Hope.
* 10.15 Employment Agreement dated February 5, 1996 with Donald C.
Gaiti.
10.16 Line of credit with Bank One, Wisconsin in the amount of
$250,000 dated February 6, 1996, incorporated by reference
from the Registrant's Quarterly Report on Form 10-QSB for
the quarter ended December 31, 1995, filed with the
Commission on February 20, 1996.
10.17 Line of credit with Union Bank & Trust in the amount of
$250,000 dated December 29, 1995, incorporated by reference
from the Registrant's Quarterly Report on Form 10-QSB for
the quarter ended December 31, 1995, filed with the
Commission on February 20, 1996.
10.18 Commitment Letter for a line of credit with Bank One
Colorado in the amount of $750,000 dated January 26, 1996,
incorporated by reference from
II-9
<PAGE>
the Registrant's Quarterly Report on Form 10-QSB for the
quarter ended December 31, 1995, filed with the Commission
on February 20, 1996.
10.19 Mortgage with Union Bank & Trust in the amount of $1,500,000
with respect to the Virginia property, incorporated by
reference from the Registrant's Annual Report on Form 10-KSB
for the year ended March 31, 1996.
10.20 Loan Workout Agreement by and among Renaissance
Entertainment Corporation, Bank One, Colorado, N.A. and Bank
One, Kenosha, N.A., incorporated herein by reference from
the Registrant's Annual Report on Form 10-K for the nine
months ended December 31, 1996.
10.21 Subscription and Purchase Agreement for 10% Convertible
Secured Notes--previously filed.
10.22 Subscription and Purchase Agreement for 9% Convertible
Debentures--filed herewith.
10.23 Letter of Intent for Sale/Leaseback of Wisconsin and
Virginia faire sites--filed herewith.
21.0 Subsidiaries, incorporated by reference from the
Registrant's Annual Report on Form 10-KSB for the year ended
March 31, 1996.
23.1 Independent Auditor's Consent--filed herewith.
23.2 Consent of Gray, Plant, Mooty, Mooty & Bennett, P.A.--see
Exhibit 5.1.
24.1 Power of Attorney (included on signature page of initial
Registration Statement).
* Incorporated by reference from the Company's Registration Statement on Form
SB-2 (No. 33-85538), declared effective by the Commission on January 27,
1995, and the Post-Effective amendments thereto.
II-10
<PAGE>
EXHIBIT 10.22
SUBSCRIPTION AND PURCHASE AGREEMENT
9% Convertible Secured Debentures due 2002
Warrants to Purchase Common Stock
THIS SUBSCRIPTION AND PURCHASE AGREEMENT (the "Agreement") dated as of the
8th day of May, 1997 by and between RENAISSANCE ENTERTAINMENT CORPORATION, a
Colorado corporation (the "Company"), and Charles S. Leavell (the "Investor").
Investor and the other persons who have entered into identical Subscription and
Purchase Agreements with the Company are herein collectively referred to as the
"Investors."
In consideration of the mutual promises, representations, warranties,
covenants and conditions set forth in this Agreement, the Company and the
Investor mutually agree as follows:
ARTICLE 1
DESCRIPTION OF PROPOSED FINANCING
1.1 AUTHORIZATION OF THE DEBENTURES AND WARRANTS. The Company has
authorized the issuance and sale of (i) a maximum of $1,500,000 aggregate
principal amount of nine percent (9%) Convertible Secured Debentures due 2002,
each in the principal amount of Fifty Thousand Dollars ($50,000) or an integral
multiple thereof (the debenture(s) issued pursuant to this Agreement and the
other debentures being issued pursuant to identical Subscription and Purchase
Agreements entered into between the Company and Investors being herein referred
to collectively as the "Debentures"), and (ii) warrants to purchase up to
300,000 shares of the Company's Common Stock (the "Warrants"). The Debentures,
which will be identical in all respects, except as to date, name of Investor and
amount of investment, shall be in the form attached hereto as Appendix A and the
Warrants shall be in the form attached hereto as Appendix B.
1.2 PURCHASE AND SALE OF THE DEBENTURES; ISSUANCE OF WARRANTS. Subject
to the terms and conditions of this Agreement and in reliance upon the
representations and warranties contained herein, the Company agrees to sell to
Investors the principal amount of Debentures for which each such Investor shall
subscribe and to issue to Investor Warrants representing the right to purchase
Ten Thousand (10,000) shares of the Company's Common Stock for each Fifty
Thousand Dollars ($50,000) principal amount of Debentures acquired. Investor,
in reliance upon the representations and warranties of the Company contained
herein, agrees to purchase from the Company the principal amount of the
Debentures set forth in Section 15.2 hereof.
1.3 CLOSING. Closing(s) of the purchase and sale of the Debentures
contemplated by this Agreement (herein the "Closing") shall take place at such
times as agreed between the Company and the Investor. At the Closing, the
Company shall deliver to each Investor (i) one or more Debentures made payable
to the order of such Investor, against delivery to the Company by the Investor
of a certified or cashier's check or other form of payment acceptable to the
Company in the amount of the purchase price of the Debenture(s) subscribed for
in Section 15.2 below, and (ii) one or more Warrants registered in Investor's
name for the Warrants to be issued as described above.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Investors that:
-6-
<PAGE>
2.1 MISLEADING STATEMENTS. No statement by the Company in this
Agreement or in any document, written statement or certificate furnished or to
be furnished to the Investors pursuant to this Agreement (including the
Disclosure Schedule attached hereto and made a part hereof for all purposes) or
in connection with the transactions contemplated by this Agreement, when taken
together, contains or will contain any untrue statement of a material fact or
omits or will omit to state a material fact necessary to make the statements
therein made not misleading.
2.2 CORPORATE ORGANIZATION. (a) Company is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Colorado and has the corporate power and authority to carry on the Company's
business as it is now being conducted and to own and lease the property and
assets that it now owns and leases in connection with the Company's business.
Company is duly licensed or qualified and in good standing as a foreign
corporation in each jurisdiction in which the character of the properties owned
or leased by it or the nature of the business conducted by it makes such
licensing or qualification necessary. The jurisdictions in which the Company
and its subsidiary, Creative Faires Limited, are qualified are listed in Section
2.2 of the Disclosure Schedule.
(b) True, accurate and complete copies of Company's Articles of
Incorporation and By-Laws, as in effect on the date hereof, have heretofore been
delivered to Investor.
2.3 CAPITALIZATION. (a) The authorized capital stock of Company
consists of 1,000,000 shares of Preferred Stock, $1.00 par value, and 50,000,000
shares of Common Stock, $.03 par value, and as of May 5, 1997, no shares of
Preferred Stock and 10,809,362 shares (including 1,173,100 shares being held in
escrow pending the potential sale of such shares to foreign investors
represented by Credit Bancorp) of Common Stock were issued and outstanding. All
of the issued and outstanding shares of Common Stock are validly issued, fully
paid, nonassessable and free of preemptive rights.
(b) As of the date hereof, there are no outstanding subscriptions,
options, calls, contracts, commitments, understandings, restrictions,
arrangements, rights or warrants, including any right of conversion or exchange
under any outstanding security, instrument or other agreement obligating Company
to issue, deliver or sell, or cause to be issued, delivered or sold, additional
shares of the capital stock or obligating Company to grant, extend or enter into
any such agreement or commitment, except as set forth in Section 2.3 to the
Disclosure Schedule, and there are no voting trusts, proxies or other agreements
or understandings to which Company is a party or is bound with respect to the
voting of any shares of its capital stock.
2.4 AUTHORIZATION. (a) Company has all requisite corporate power and
authority to enter into, execute, deliver and consummate the transactions
contemplated by this Agreement, the Debenture, the Warrant, the Mortgage, the
Deed of Trust and any other instruments and agreements contemplated herein
required to be executed and delivered by it pursuant to this Agreement
(collectively, the "Related Instruments"). The Board of Directors of Company
has taken all action required by law, the Articles of Incorporation and By-Laws
of the Company or otherwise to authorize the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby,
including the execution, delivery and consummation of the Related Instruments.
No other corporate act or proceeding on the part of Company is necessary to
authorize this Agreement or any of the Related Instruments or the transactions
contemplated hereby or thereby. This Agreement is, and each of the Related
Instruments, when executed and delivered to Investor by Company, will be, a
valid and binding obligation of Company enforceable against Company in
accordance with its terms.
(b) Company has previously delivered to Investor true and complete
copies, certified by the Secretary or an Assistant Secretary of Company, of the
resolutions duly and validly adopted by the Board of Directors of Company
evidencing its authorization of the execution and delivery of this Agreement and
the Related Instruments and the consummation of the transactions contemplated
hereby and thereby (which resolutions have not been modified, revoked or
rescinded in any respect).
2.5 NO VIOLATION. Neither the execution and delivery by Company of this
Agreement or any of the Related Instruments, nor the consummation by Company, of
the transactions contemplated hereby or thereby will violate any material
provision of the General Corporation Law of the State of Colorado, the Articles
of Incorporation or By-Laws of Company, or, violate, or be in conflict with, or
constitute a default (or an event or condition which,
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with notice or lapse of time or both, would constitute a default) under, or
result in the termination of, or accelerate the performance required by, or
cause the acceleration of the maturity of any liability or obligation pursuant
to, or, violate any statute or law or any judgment, decree, order, writ,
injunction, regulation or rule of any court or governmental authority.
2.6 REPORTS AND FINANCIAL STATEMENTS. Since December 31, 1996, Company
has filed all material forms, statements, reports and documents (including all
exhibits, amendments and supplements thereto) required to be filed by it under
the federal securities laws ("Company's SEC Reports"), copies of which have been
previously delivered to Investor by Company. As of their respective dates, the
Company's SEC Reports did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading. Financial Statements contained in Company's SEC Reports
have been prepared in accordance with Generally Accepted Accounting Principles
(except as may be indicated therein or in the notes thereto) and fairly present
the financial position of Company as of the dates thereof and the results of
their operations and changes in financial position for the periods then ended.
2.7 NO UNDISCLOSED OR CONTINGENT LIABILITIES. Except as and to the
extent set forth in Section 2.7 of the Disclosure Schedule, Company has no
material liabilities or obligations relating to the Company's business of any
nature (whether absolute, secured, contingent or otherwise and whether due or to
become due) which are not fully reflected or reserved against in the financial
statements for the nine-months ended December 31, 1996 (the "Financial
Statements") except for liabilities and obligations incurred in the ordinary
course of business and consistent with past practice since the date thereof.
The reserves for liabilities and obligations reflected in the Financial
Statements have been calculated in accordance with generally accepted accounting
principles.
2.8 ABSENCE OF CERTAIN CHANGES. Except as and to the extent set forth
in Section 2.8 of the Disclosure Schedule, since December 31, 1996, Company in
respect of the Company's business, has not taken any action not in the ordinary
course of business and consistent with past practices.
2.9 LITIGATION. Except as set forth in Section 2.9 of the Disclosure
Schedule, there are no claims, actions, suits, proceedings, investigations or
inquiries pending against the Company's business which would have a material
adverse effect on the Company's business taken as a whole.
2.10 TITLE TO PROPERTY, ENCUMBRANCES. Except as set forth on Section
2.10 to the Disclosure Schedule, Company has good, valid and marketable title to
each parcel of real property owned by it and is in possession of and has good
title to, or has valid leasehold interests in, all tangible personal property
used in or reasonably necessary for the conduct of its business.
2.11 PLANT AND EQUIPMENT. Except as set forth in Section 2.11 of the
Disclosure Schedule, all plants, structures, machinery, equipment and personal
property or real property improvements owned, leased or used by the Company have
no material defects (ordinary wear and tear excepted) and are in good and normal
operating condition and repair, and are adequate for the uses to which they are
being put.
2.12 LEASES. Section 2.12 of the Disclosure Schedule contains an
accurate and complete list of all material leases (including all material
amendments thereof and material modifications thereto) (the "Leases") pursuant
to which Company leases real or personal property for the exclusive use or
benefit of the Company's business. Company has not received any written
notification that it is in default with respect to any of the Leases; and,
except as set forth in Section 2.12 of the Disclosure Schedule, no event or
condition has occurred which (whether with or without notice, lapse of time or
the happening or occurrence of any other event) would constitute a material
default thereunder.
2.13 COMPLIANCE WITH APPLICABLE LAW. Except as set forth in Section 2.13
of the Disclosure Schedule, Company is presently complying in all respects with
all material laws, rules, regulations, orders, ordinances, judgments, decrees,
orders, writs and injunctions of all governmental authorities.
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2.14 TAXES. Company has (i) timely filed all material returns required
to be filed by it with respect to all federal, state and local taxes
(collectively referred to as "Taxes"), (ii) paid all Taxes shown to have become
due pursuant to such returns, including federal and state payroll taxes, and
(iii) paid all other Taxes for which a notice of assessment or demand for
payment has been received.
2.15 EMPLOYEE PLANS. Section 2.15 of the Disclosure Schedule contains an
accurate and complete list of all employee benefit plans ("Plans"). Company has
no commitment to provide any additional Plan, policy or arrangement, or to
modify an existing Plan covering employees engaged in the Company's business.
2.16 LABOR MATTERS. Except as set forth in Section 2.16 of the
Disclosure Schedule, Company is presently complying in all material respects
with all material laws respecting employment and employment practices, and is
not engaged in any unfair labor practice or unlawful employment practice
relating to the Company's business.
2.17 ENVIRONMENTAL PROTECTION. Except as set forth in Section 2.17 of
the Disclosure Schedule, Company has obtained all material permits, licenses and
other authorizations which are required in respect of the operation of the
Company's business under federal, state and local laws relating to pollution or
protection of the environment (the "Environmental Laws"), other than those
permits, licenses and other authorizations, the failure to so have obtained will
not, individually or in the aggregate, have a material adverse effect on the
Company's business taken as a whole.
2.18 CONSENTS AND APPROVALS. Except as set forth in Section 2.18 of the
Disclosure Schedule, Company is not required to obtain, transfer or cause to be
transferred any material consent, approval, license, permit or authorization of,
or make any declaration, filing or registration with, any third party in
connection with (a) the execution and delivery by Company of this Agreement or
the Related Instruments or (b) the consummation by Company of the transaction
contemplated hereby or thereby.
2.19 CONTRACTS AND COMMITMENTS. Except as set forth in Section 2.19 of
the Disclosure Schedule:
(a) Company is not a party to or bound by any agreements, contracts
or commitments which are material to the Company's business taken as a
whole; and
(b) Company is not in default under or in violation of, nor is
there any basis for any valid claim of default under or violation of, any
material contract, agreement or commitment made or obligation relating to
the Company's business.
2.20 INSURANCE. Company's insurance contracts, including those covering
its properties, buildings, fixtures, equipment, inventory and employees, are of
types and in amounts considered adequate for similar businesses. Such insurance
contracts shall be maintained in full force and effect.
2.21 COMPANY COVENANTS. So long as any Debentures are outstanding:
(a) Neither the Company nor any subsidiary (unless it is wholly
owned by the Company) will pay any dividends or distributions to
shareholders, except for dividends or distributions in Common Stock of the
Company;
(b) Company will deliver to the Investor, within 120 days
after the end of each fiscal year, an officer's certificate stating
whether or not to the best knowledge of the signers thereof the
Company is in default in the performance or compliance of any of the
provisions of this Agreement, the Debenture or the Mortgage;
(c) All of the Company's SEC Reports and filings and all of
the Company's communications with shareholders will be furnished to
investor at the same time as they are filed with the SEC or furnished
to shareholders; and
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(d) Notice will be given to Investors of the occurrence of any
Event of Default (as defined in Section 11.1) or any fact, condition
or event that with the giving of notice or passage of time or both
would become an Event of Default or if Company becomes aware of any
material adverse change in the business prospects, financial condition
(including, without limitation, a proceeding in bankruptcy,
insolvency, reorganization or the appointment of a receiver or
trustee).
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE INVESTOR
The Investor represents and warrants that:
3.1 HIGH RISK INVESTMENT. The Investor is aware that investment in the
Debentures (the "Offering") involves risks. The Investor represents that
Investor has read and carefully considered the disclosures set forth in this
Subscription and Purchase Agreement and all documents furnished pursuant to this
Agreement, and understands that an investment in this Offering should be
considered only by a person able to withstand a total loss of such investment.
3.2 BINDING OBLIGATION. This Agreement and any other agreement between
the Company and the Investor expressly contemplated by this Agreement,
constitute a valid and legally binding obligation of the Investor.
3.3 CORPORATE INVESTORS. If the Investor is a corporation, it hereby
represents and warrants that:
(a) ORGANIZATION AND STANDING. The Investor is a corporation
duly and validly existing and in good standing under the laws of its
jurisdiction of incorporation, and has all requisite corporate power and
authority to own its properties and to carry on its business as now
conducted.
(b) AUTHORIZATION. All corporate action on the part of the
Investor, its officers and directors necessary for the authorization,
execution and delivery of this Agreement and all additional agreements
expressly contemplated by this Agreement and the performance of all
obligations of the Investor hereunder have been taken.
ARTICLE 4
FEDERAL AND OTHER SECURITIES LAWS
4.1 INVESTMENT REPRESENTATIONS AND WARRANTIES. The Investor further
represents and warrants that:
(a) INVESTMENT EXPERIENCE. The Investor represents that
Investor is experienced in evaluating and extending financing to companies
such as the Company, has such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks of the
investment, and has the ability to bear the economic risks of the
investment and to make an informed investment decision with respect
thereto. The Investor further represents that Investor has had, during the
course of the transaction and prior to the purchase of the Debentures, the
opportunity to ask questions of, and receive answers from, the Company
concerning the terms and conditions of the Offering and to obtain
additional information (to the extent the Company possessed such
information or could acquire it without unreasonable effort or expense)
necessary to verify the accuracy of any information furnished to or to
which Investor had access.
(b) INVESTOR REPRESENTATIVE. If the Investor has used the
services of a Purchaser Representative, the Investor has received
confirmation in writing from such Purchaser Representative concerning the
specific details of any and all past, present or future relationships,
actual or contemplated, between himself or his affiliates and the Company
or any of its affiliates, and any compensation received or to be received
as a result of any such relationships.
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(c) ACQUISITION FOR INVESTMENT FOR INVESTOR'S OWN ACCOUNT. This
Agreement is made with the Investor in reliance upon Investor's
representation to the Company, which by its acceptance hereof the Investor
hereby confirms and which by acceptance of any Debenture, the Holder
thereof shall also confirm, that the Debentures are being and the shares of
Common Stock issuable upon conversion of the Debentures will be, unless
such shares have been registered pursuant to the Securities Act of 1933, as
amended (the "1933 Act") and applicable state blue sky laws, acquired for
investment for Investor's (Debenture Holder's) own account, not as a
nominee or agent and not with a view to the sale or distribution of any
part thereof, and that Investor (Debenture Holder) has no present intention
of selling, granting participation in, or otherwise distributing the same.
Any resales of the Debentures or any shares of Common Stock issued upon the
conversion thereof will be in conformity with applicable law. By executing
this Agreement (or a Debenture), Investor (Debenture Holder) further
represents that Investor (Debenture Holder) does not have any contract,
undertaking, agreement, or arrangement with any person in violation of any
United States federal or state law to sell, transfer, or grant
participation to such person, or to any third person, with respect to the
Debentures or any shares of Common Stock issued upon the conversion
thereof. Investor (Debenture Holder) realizes that the basis for the
exemption from the registration requirements of the 1933 Act, relied upon
by the Company in connection with the Offering, may not be present if,
notwithstanding such representation, the Investor (Debenture Holder) has in
mind merely acquiring the Debentures for a fixed or determinable period and
selling the Debentures in the future, and Investor hereby confirms the
absence of any such intention.
(d) TRANSFER OR DISPOSITION OF SECURITIES. The Investor
understands that the Debentures and any shares of Common Stock issued upon
the conversion thereof may not be sold, transferred, or otherwise disposed
of without registration under the 1933 Act, and that in the absence of an
effective registration statement, such securities must be held
indefinitely. The Investor represents that, in the absence of an effective
registration statement, it will sell, transfer, or otherwise dispose of
such securities only in a manner consistent with the representations set
forth herein and in accordance with the provisions of this Agreement.
4.2 CERTIFICATE LEGENDS. The Investor agrees that all certificates
evidencing the Debentures, the Warrants and any shares of Common Stock issued in
respect thereto shall bear a legend in substantially the following form, and by
which the Investor agrees to be bound:
THE SECURITY DESCRIBED HEREIN HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT") OR UNDER THE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. NO SALE OR
DISTRIBUTION OF THIS SECURITY MAY BE EFFECTED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED UNDER THE 1933 ACT AND APPLICABLE STATE BLUE SKY LAWS.
4.3 STOP TRANSFER INSTRUCTION. The Company shall make a notation
regarding the restrictions on transfer of the Debentures and Warrants in its
stock books, and the Company shall not be required to transfer on its books any
of such securities that have been sold or transferred in violation of any of the
provisions of this Agreement, or to treat as the owner of such securities any
transferee to whom such securities have been so transferred.
ARTICLE 5
CONDITIONS TO INVESTOR'S OBLIGATIONS AT THE CLOSING
The obligations of the Investor under Section 1.2 of this Agreement are
subject to the fulfillment on or before the Closing of each of the following
conditions:
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5.1 REPRESENTATIONS AND WARRANTIES TRUE ON THE CLOSING DATE. The
representations and warranties of the Company contained in Article 2 shall be
true on and as of the Closing with the same force and effect as if they had been
made at the Closing.
5.2 PERFORMANCE. The Company shall have conformed and complied with all
agreements and conditions contained in this Agreement required to be performed
or complied with by it on or before the Closing.
5.3 QUALIFICATIONS. All authorizations, approvals, or permits, if any,
of any governmental authority or regulatory body of the United States or of any
state, that are required in connection with the lawful issuance and sale of the
Debentures pursuant to this Agreement shall have been duly obtained and shall be
effective on and as of the Closing.
5.4 OPINIONS AND CERTIFICATES. All opinions of counsel to the Company
and all corporate certificates or documents in connection with the transactions
contemplated hereby and all documents and instruments incident to such
transactions shall be in form and substance satisfactory to the Investor, and
the Investor shall have received all such counterpart originals or certified or
other copies of such documents as Investor may reasonably request.
5.5 DELIVERY OF DEBENTURES AND WARRANTS. The Investor shall have
received one or more properly executed Debenture and Warrant certificates
representing the Debentures and Warrants which the Investor is purchasing at the
Closing.
5.6 OFFICERS' CERTIFICATE. Company shall have delivered to the Investor
a certificate, dated the Closing Date, executed by its chief executive and chief
financial officers certifying the fulfillment of the conditions specified in
Sections 5.1 and 5.2 hereof.
5.7 MORTGAGE/TITLE POLICY. The Debentures shall be secured by a valid
Security Agreement and Fixture Financing Statement on the Company's faire sites
in Kenosha, Wisconsin and Fredericksburg, Virginia, including a Mortgage (the
"Mortgage") subject to prior mortgage liens in favor of Bank One, Kenosha N.A.,
with respect to the Wisconsin site, and a Deed of Trust, Assignment of Leases
and Security Agreement (the "Deed of Trust") subject to a prior deed of trust,
assignment of leases and security agreement in favor of Union Bank and Trust
Company, with respect to the Virginia site. The Mortgage shall be insured by
Landmark Title Corporation and evidenced by a Mortgagee's Policy in the amount
of the Debentures.
ARTICLE 6
CONDITIONS TO THE COMPANY'S OBLIGATIONS AT CLOSING
The obligations of the Company under Section 1.2 of this Agreement are
subject to the fulfillment on or before the Closing of each of the following
conditions as to the Investor:
6.1 REPRESENTATIONS AND WARRANTIES TRUE ON THE CLOSING. The
representations and warranties of the Investor contained in Articles 3 and 4
shall be true on and as of the Closing with the same force and effect as if they
had been made at the Closing.
6.2 QUALIFICATIONS. All authorizations, approvals, or permits, if any,
of any governmental authority or regulatory body of the United States or of any
state that are required in connection with the lawful issuance and sale of the
Debentures and Warrants pursuant to this Agreement shall have been duly obtained
and shall be effective on and as of the Closing.
6.3 PAYMENT OF PURCHASE PRICE. Investor shall have delivered to the
Company the total consideration for the Debentures and Warrants which the
Investor is purchasing at the Closing.
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ARTICLE 7
DEBENTURES
7.1 PRINCIPAL AND INTEREST PAYMENTS. The Company shall pay interest to
the registered holders of the Debentures (the "Holders") on the principal amount
of the Debentures on the first business day of each calendar quarter (the
"Interest Payment Dates") of each year commencing on the first such day to occur
after Closing with respect to the purchase of such Debenture, at the rate of
Nine Percent (9%) per annum, accruing from the date of issuance after as well as
before maturity and default and after judgment. Accrued but unpaid interest
shall bear interest at the rate of Nine Percent (9%) per annum until paid,
commencing with the date on which such interest was due and payable. Unless
earlier converted into Common Stock in accordance with Article 8 hereof, or
accelerated in accordance with Article 11, the entire outstanding amount of the
Debentures and all accrued but unpaid interest shall be due and payable in full
on April 1, 2002.
7.2 REISSUE OF DEBENTURES. No Debenture shall be reissued with respect
to the principal amount of any Debentures which are paid pursuant to this
Agreement, and the Company shall cancel and terminate any Debenture which has
been fully paid or presented to it for exchange pursuant to any of the
provisions of this Agreement.
7.3 REGISTRATION AND TRANSFER OF DEBENTURES.
(a) The Company shall, at all times while any Debentures are
outstanding, act as the registrar of the Debentures and shall cause to be
kept at its principal office in the City of Boulder, Colorado, or in such
other place or places and by such other registrar or registrars, if any, as
the Company may designate, a register in which shall be entered the names
and addresses of the Holders of Debentures and particulars of the
Debentures held by them respectively and of all transfers of Debentures.
The name of the Holder shall be noted on the Debentures by the Company or
other registrar.
(b) No transfer of a Debenture shall be valid unless made by the
Holder or his executors or administrators or other legal representatives or
his or their attorney duly appointed by an instrument in writing in form
and execution satisfactory to the Company, upon compliance with the
provisions of this Agreement and the Debentures and such other requirements
as the Company and/or other registrar may reasonably prescribe, and unless
such transfer shall have been duly entered on the appropriate register
and/or noted on such Debenture by the Company or other registrar. The
person in whose name a Debenture is registered shall be deemed to be the
owner thereof.
7.4 EXCHANGES OF DEBENTURES. Debentures are issuable in denominations
of Fifty Thousand Dollars ($50,000) and integral multiples thereof. Debentures
of any authorized denomination may be exchanged for Debentures of any other
authorized denomination or denominations, any such exchange to be for Debentures
of an equivalent aggregate principal amount, as requested by the Holders, and
bearing the same interest rate and date of maturity as the original Debentures.
Any exchange of Debentures may be made at the offices of the Company or at the
offices of any registrar where a register is maintained for the Debentures
pursuant to the provisions of Section 7.3. Any Debentures tendered for exchange
together with a sum sufficient to cover any tax or other governmental charge
payable in connection with the transfer shall be surrendered to the Company or
appropriate registrar and shall be canceled.
ARTICLE 8
CONVERSION
8.1 RIGHT OF CONVERSION. At any time after April 30, 1998 and prior to
maturity, the Holders of the Debentures shall have the right from time to time
to convert all or a portion of the principal balance thereof unpaid and
outstanding from time to time into shares of the Common Stock of the Company;
such conversion shall be made at the conversion price in effect at the time of
conversion, determined as hereinafter provided (the "Conversion Price"). The
initial Conversion Price shall be Four Dollars Fifty Cents ($4.50) per share
(the "Initial Conversion
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Price"). The Conversion Price shall be the lesser of the Initial Conversion
Price (adjusted as set forth below) or Seventy percent (70%) of the fair market
value (as defined below) of the Company's Common Stock on the Date of Conversion
(as hereinafter defined). Such right of conversion is conditioned upon the
Holder's agreement to convert a minimum principal amount of the Debentures of
Ten Thousand Dollars ($10,000) at any time such Holder elects to exercise
Holder's conversion rights unless, at the time the Holder elects to convert the
Debenture, Holder holds less than Ten Thousand Dollars ($10,000) in principal
amount of the Debentures, in which instance, the entire amount shall be
converted.
The fair market value per share of Common Stock at any date shall be (i)
the average of the mean of the closing bid and asked prices of the Common Stock
for the last 10 consecutive trading days before the relevant date, as reported
in the Wall Street Journal (or, if not so reported, as otherwise reported by the
National Association of Securities Dealers, Inc. (the "NASD") or the NASD's
Automated Quotation System ("NASDAQ")), or, (ii) in the event the Common Stock
is listed on a stock exchange or on the NASDAQ National Market System (or other
national market system), the fair market value per share shall be the average of
the closing prices on the exchange or on the NASDAQ National Market System (or
other national market system), as the case may be, for the last 10 consecutive
trading days before the relevant date, as reported in the Wall Street Journal
(or, if not so reported, as otherwise reported by the stock exchange, NASDAQ or
other national market system).
8.2 EXERCISE OF CONVERSION RIGHT.
(a) In order to exercise the conversion right provided in
Section 8.1, a Holder of the Debentures shall surrender the Debentures at
the office of the Company or other registrar appointed by the Company,
together with a conversion notice in the form attached to the Debenture as
Exhibit A thereto. Such Holder shall thereupon be deemed the holder of the
underlying shares of Common Stock, and the principal amount so converted of
such Debentures shall be deemed to have been paid in full. No adjustments
with respect to interest or dividends shall be made on the portion of any
Debenture converted under this Section. Thereupon such Holder and/or,
subject to the terms of this Agreement, including payment of all applicable
stamp or security transfer taxes or other governmental charges, Holder's
nominee(s) or assignee(s), shall be entitled to be entered in the books of
the Company as of the Date of Conversion (or such later date as is
specified in subsection 8.2(b)) as the holder of the number of shares of
Common Stock into which the applicable principal amount of such Debenture
is convertible in accordance with the provisions of this Article 8 and, as
soon as practicable thereafter, the Company shall deliver to such Debenture
Holder and/or, subject as aforesaid, the Holder's nominee(s) or
assignee(s), a certificate or certificates for such shares of Common Stock
and, if applicable, a check for any amount payable under Section 8.5.
(b) For the purposes of this Article 8, a Debenture shall be
deemed to be surrendered for conversion in the case of Section 8.1, on the
date (herein called "Date of Conversion") on which it is surrendered by
delivery to the Company at its principal office in Boulder, Colorado, or
other registrar, if any, appointed by the Company and of which the Holder
of the Debenture is notified in writing, and, in the case of a Debenture
surrendered by mailing or other means of transmission, on the date on which
it is received by the Company at its principal office in Boulder, Colorado,
or other registrar, if any, appointed by the Company and of which the
Holder of the Debenture is notified in writing; provided that if a
Debenture is surrendered for conversion on a day on which the register of
Common Stock is closed, the person or persons entitled to receive Common
Stock shall become the holder or holders of record of such shares or Common
Stock as at the date on which such register is next reopened.
(c) Except as otherwise provided herein, any part, being Ten
Thousand Dollars ($10,000) or an integral multiple thereof, of a Debenture
of a denomination in excess of Ten Thousand Dollars ($10,000) may be
converted as provided in this Article 8 and all references in this
Agreement to conversion of Debentures shall be deemed to include conversion
of such parts.
(d) The Holder of any Debenture of which part only is converted
shall upon the exercise of its right of conversion, surrender the said
Debenture to the Company or other registrar, if any, and the Company or
other registrar, if any, shall cancel the same and shall without charge
forthwith certify and deliver to the Holder a new Debenture or Debentures
in an aggregate principal amount equal to the unconverted part of the
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principal amount of the Debenture so surrendered, provided that such new
Debenture(s) shall be issued only in denominations of Ten Thousand Dollars
($10,000) or integral multiples thereof.
(e) The Holder of a Debenture surrendered for conversion in
accordance with this Section shall be entitled to receive accrued and
unpaid interest on the principal amount thereof being converted to the
Interest Payment Date on or next preceding the Date of Conversion thereof,
but there shall be no payment or adjustment by the Company on account of
any interest accrued or accruing thereon from the latest Interest Payment
Date and the Common Stock issued upon such conversion shall rank only in
respect of dividends declared in favor of shareholders of record on and
after the Date of Conversion or such later date as such Holder shall become
the holder of record of such Common Stock pursuant to subsection 8.2(b),
from which applicable date they will for all purposes be and be deemed to
be issued and outstanding as fully paid and nonassessable shares of Common
Stock.
8.3 ADJUSTMENT OF CONVERSION PRICE. The Conversion Price shall be
subject to adjustment as follows:
(a) In case the Company shall (i) pay a dividend in shares of
its capital stock (other than an issuance of shares of capital stock to
holders of Common Stock who have elected to receive a dividend in shares in
lieu of cash), (ii) subdivide its outstanding shares of Common Stock, (iii)
reduce, consolidate or combine its outstanding shares of Common Stock into
a smaller number of shares, or (iv) issue by reclassification of its shares
of Common Stock any shares of the Company, the number of shares a Holder of
a Debenture thereafter surrendered for conversion shall be entitled to
receive shall be the number of shares of Common Stock of the Company which
he would have owned or would have been entitled to receive after the
happening of any of the events described above had such Debenture been
converted immediately prior to the happening of such event. Such
adjustment shall be made successively whenever any such effective date or
record date shall occur. An adjustment made pursuant to this subsection
(a) shall become effective retroactively, immediately after the record date
in the case of a dividend and shall become effective immediately after the
effective date in the case of a subdivision, reduction, consolidation,
combination or reclassification.
(b) If the Company shall at any time issue or sell or be deemed
pursuant to the provisions of subsections 8.3(c) and (d) hereof to have
issued or sold shares of its Common Stock for consideration per share less
than the Initial Conversion Price then in effect with respect to such
Common Stock, then the Initial Conversion Price shall be reduced by
multiplying it by a fraction, the numerator of which equals the number of
shares of Common Stock outstanding prior to the sale or issuance plus the
number of shares of Common Stock which would have been issued in the
transaction if the Initial Conversion Price had been applied, and the
denominator of which equals the number of shares of Common Stock
outstanding after the sale or issuance plus the number of shares of Common
Stock actually issued in the transaction.
(c) In case at any time after the date hereof the Company shall
in any manner grant (whether directly or by assumption in a merger or
otherwise) any rights to subscribe for or to purchase, or any options for
the purchase of, Common Stock or any stock or other securities convertible
into or exchangeable for Common Stock (such rights or options being herein
called "Options" and such convertible or exchangeable stock or securities
being herein called "Convertible Securities") at an option or conversion
price per share of Common Stock (determined by dividing: (i) the total
amount, if any, received or receivable by the Company as consideration for
the granting of such Options, plus the minimum aggregate amount of
additional consideration payable upon the exercise of such Options, plus,
in the case of such Options which relate to Convertible Securities, the
minimum aggregate amount of additional consideration, if any, payable upon
the issue or sale of such Convertible Securities and upon the conversion or
exchange thereof, by (ii) the total maximum number of shares of Common
Stock of the Company, issuable upon the exercise of such Options and in the
case of Convertible Securities, upon conversion thereof) less than the
Initial Conversion Price then in effect with respect to such Common Stock,
then the total maximum number of shares of Common Stock issuable upon the
exercise and conversion of such Options and Convertible Securities shall be
deemed to be outstanding and to have been issued and sold by the Company as
of the date of the issue or sale of the Options, for such price per share.
No sale, issuance or transfer of shares of Common Stock shall be deemed
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to have been made upon the actual issuance of such Common Stock except as
otherwise provided in subsection 8.3(e) hereof.
(d) In case at any time after the date hereof the Company shall
in any manner issue or sell (whether directly or by assumption in merger or
otherwise) any Convertible Securities, whether or not the rights to
exchange or convert thereunder are immediately exercisable, and the price
per share of Common Stock issuable upon such conversion or exchange
(determined by dividing: (i) the total amount received or receivable by the
Company, as consideration for the issue or sale of such Convertible
Securities, plus the minimum aggregate amount of additional consideration,
if any, payable to the Company upon the conversion or exchange thereof, by
(ii) the total maximum number of shares of Common Stock issuable upon the
conversion or exchange of all such Convertible Securities) shall be less
than the Initial Conversion Price then in effect with respect to such
Common Stock, then the total maximum number of shares of Common Stock
issuable upon conversion of all such Convertible Securities shall be deemed
to be outstanding and to have been issued and sold by the Company as of the
date of the issue or sale of the Convertible Securities, for such price per
share. No sale, issuance or transfer of shares of Common Stock shall be
deemed to have been made upon the actual issuance of such Common Stock
except as otherwise provided in subsection 8.3(e) hereof.
(e) If the purchase price payable or number of shares of Common
Stock subject to purchase as provided for in any Options referred to in
subsection 8.3(c) hereof, the additional consideration, if any, payable
upon the conversion or exchange of any Convertible Securities referred to
in subsections 8.3(c) or (d), or the rate at which any Convertible
Securities referred to in subsections 8.3(c) or (d) are convertible into
Common Stock shall change so as to reduce the deemed sale price of Common
Stock previously calculated under subsections 8.3(c) and/or (d), then a
sale of shares of Common Stock shall be deemed to have occurred for the
purposes of subsections 8.3(c) and/or (d), as applicable, with appropriate
adjustments to be made to the number of shares of Common Stock deemed to
have been sold to reflect the prior related deemed sale and such
adjustments by the adjustment of the Initial Conversion Rate and Initial
Conversion Price pursuant to subsections 8.3(c) or (d), as applicable.
(f) In case of any consolidation of the Company with or merger
of the Company with or into another corporation or in case of any sale,
transfer or lease to another corporation of all or substantially all of the
property of the Company, the Company or such successor or purchasing
corporation, as the case may be, shall execute an agreement that the Holder
of a Debenture shall have the right thereafter upon payment of the Initial
Conversion Price in effect immediately prior to such action to purchase
upon conversion of the Debenture the kind and amount of shares and other
securities and property which the Holder would have owned or would have
been entitled to receive after the happening of such consolidation, merger,
sale, transfer or lease had the Debenture been converted immediately prior
to such action. The Company shall give prompt written notice of the
execution of any such agreement to the Holder of each Debenture at the
address of such Holder as shown on the records of the Company. Such
agreement shall provide for subsequent adjustments, which shall be as
nearly equivalent as may be practicable to the adjustments provided for in
this Section 8.3, after the happening of such consolidation, merger, sale,
transfer or lease. The provisions of this subsection 8.3(f) shall
similarly apply to successive consolidations, mergers, sales, transfers or
leases.
(g) The provisions of this Section 8.3 shall not apply to any
currently outstanding securities of the Company or any management stock
grants or sales, stock options or shares of Common Stock issued upon
exercise of stock options issued to officers, directors, employees or
consultants of the Company pursuant to a plan heretofore adopted and
approved by the Board of Directors of the Company.
(h) Upon the expiration of any Option or the termination of any
right to convert or exchange any Convertible Securities without the
issuance of shares of Common Stock, the Initial Conversion Price shall be
readjusted to the Initial Conversion Price which would have prevailed
absent the adjustment made as a result of the issuance of such Options or
Convertible Securities.
(i) In case any Options shall be issued in connection with the
issue or sale of other securities of the Company, together comprising one
integral transaction in which no specific consideration is allocated to
such Options by the parties thereto, such Options shall be deemed to have
been issued without consideration.
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(j) In case any shares of Common Stock, Options or Convertible
Securities shall be issued or sold or deemed to have been issued or sold
for cash, the consideration received therefor shall be deemed to be the
amount received therefor by the Company. In case any shares of Common
Stock, Options or Convertible Securities shall be issued or sold for a
consideration other than cash, the amount of the consideration other than
cash received by the Company shall be the fair market value of such
consideration, as determined by the Board of Directors of the Company.
(k) If the Common Stock issuable upon the conversion of the
Debentures shall be changed into the same or a different number of shares
of any class or classes of stock, whether by capital reorganization,
reclassification or otherwise (other than a subdivision or combination of
shares or stock dividend provided for above, or a reorganization, merger,
consolidation or sale of assets provided for in this Section 8.3), then,
and in each such event, each Holder of Debentures shall have the right
thereafter to convert such Debentures into the kind and amount of shares of
Common Stock and other securities and property receivable upon such
reorganization, reclassification, or other change by the Holders of the
number of shares of Common Stock into which such Debentures might have been
converted, as reasonably determined by the Company's board of directors,
immediately prior to such reorganization, reclassification, or change, all
subject to further adjustment as provided herein.
(l) If at any time or from time to time there shall be a capital
reorganization of the Common Stock (other than a subdivision, combination,
reclassification or exchange of shares provided for elsewhere in this
Section 8.3) or a merger or consolidation of the Company with or into
another corporation, or the sale of all or substantially all of the
Company's properties and assets to any other person, then, as a part of
such reorganization, merger, consolidation or sale, provision shall be made
as reasonably determined by the Company's board of directors so that the
Holders of the Debentures shall thereafter be entitled to receive upon
conversion of such Debentures, the number of shares of stock or other
securities or property of the Company or of the successor corporation
resulting from such merger or consolidation or sale, to which a Holder of
Common Stock deliverable upon conversion would have been entitled on such
capital reorganization, merger, consolidation or sale.
(m) The adjustments provided for in this Section 8.3 are
cumulative and shall apply to successive divisions, subdivisions,
reductions, combinations, consolidations, issues, distributions or other
events contemplated herein resulting in any adjustment under the provisions
of this Section, provided that, notwithstanding any other provision of this
Section, no adjustment of the Initial Conversion Price shall be required
unless such adjustment would require an increase or decrease of at least
one (1) percent in the Initial Conversion Price then in effect; provided,
however, that any adjustments which by reason of this subsection (l) are
not required to be made shall be carried forward and taken into account in
any subsequent adjustment.
(n) Upon each adjustment of the Initial Conversion Price, the
Company shall give prompt written notice thereof addressed to the
registered Holders at the address of such Holders as shown on the records
of the Company, which notice shall state the Initial Conversion Price
resulting from such adjustment and the increase or decrease, if any, in the
number of shares issuable upon the conversion of such Holder's Debentures,
setting forth in reasonable detail the method of calculation and the facts
upon which such calculation is based.
(o) In the event of any question arising with respect to the
adjustments provided for in this Section 8.3, such question shall be
conclusively determined by a firm of independent certified public
accountants appointed by the Company (who may be the auditors of the
Company) and acceptable to the holders of at least 50% of the principal
amount of the Debentures outstanding; such accountants shall have access to
all necessary records of the Company and such determination shall be
binding upon the Company, and the Debenture Holders.
8.4 RESERVATION OF SHARES. The Company agrees that, so long as any
Debenture shall remain outstanding, the Company shall at all times reserve and
keep available, free from preemptive rights, out of its
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authorized capital stock for the purpose of issue upon conversion of the
Debentures, the full number of shares of Common Stock then issuable upon
conversion of the Debentures.
8.5 FRACTIONAL SHARES. No fractional shares or scrip representing
fractional shares shall be issued upon the conversion of the Debentures. If,
upon conversion of any Debenture as an entirety, the registered Holder would,
except for the provisions of this Section 8.5, be entitled to receive a
fractional share of Common Stock, then an amount equal to such fractional share
multiplied by the then fair market value of shares of the Company's Common Stock
shall be paid by the Company to such registered Holder. For purposes of such
valuation, fair market value shall be determined as provided by Section 8.1
hereof.
8.6 VALIDITY OF SHARES. The Company agrees that all shares of Common
Stock which may be issued upon conversion of the Debentures will, upon issuance,
be legally and validly issued, fully paid and nonassessable and free from all
taxes, liens and charges with respect to the issue thereof.
8.7 SHAREHOLDER RIGHTS. Until conversion, and then only to the extent
that a portion of the principal of the Debentures remains unconverted, the
Holders of the Debentures (in that capacity) shall have no rights as
shareholders of the Company.
8.8 NOTICE OF CERTAIN EVENTS. If at the time:
(a) the Company shall declare any dividend or distribution
payable to the Holders of its Common Stock;
(b) the Company shall offer for subscription pro rata to the
Holders of Common Stock any additional shares of stock of any class or
other rights;
(c) there shall be any capital reorganization or
reclassification of the capital stock of the Company, or consolidation or
merger of the Company with, or sale of all or substantially all of its
assets to, another corporation or business organization; or
(d) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of said cases, the Company shall give the registered
Holders of the Debentures written notice, by certified or registered mail, of
the date on which a record shall be taken for such dividend, distribution or
subscription rights or for determining shareholders entitled to vote upon such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up and of the date when any such transaction shall take
place, as the case may be. Such notice shall also specify the date as of which
the Holders of Common Stock of record shall participate in such dividend,
distribution or subscription rights, or shall be entitled to exchange their
Common Stock for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation, or winding up, as the case may be. Such written notice shall be
given at least thirty (30) days prior to the transaction in question and not
less than twenty (20) days prior to the record date in respect thereto.
ARTICLE 9
SECURITY AGREEMENT
9.1 GRANT OF SECURITY INTEREST. (a) In order to secure the payment of
the Debentures and the performance by the Company of its obligations hereunder
and such other obligations of the Company to the Debenture Holders which may
arise from time to time during the term of the Debentures (all of which are
referred to herein as the "Obligations") the Company hereby grants to the
Debenture Holders a security interest in two parcels of real estate of the
Company, one situated in the County of Kenosha, State of Wisconsin (the
"Wisconsin real estate"), and the other situated in the County of Stafford,
State of Virginia (the "Virginia real estate"), such security interests to be in
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substantially the form of the Real Estate Mortgage attached hereto as Appendix C
(the "Mortgage") and the Deed of Trust, Assignment of Leases and Security
Agreement attached hereto as Appendix D (the "Trust Agreement") (the Wisconsin
real estate and the Virginia real estate being hereinafter referred to as the
"Collateral").
(b) The Wisconsin real estate is currently subject to three outstanding
mortgages to Bank One, the first in the amount of $1,000,000 (with an
outstanding balance of approximately $800,000), the second in the amount of
$250,000 (with an outstanding balance of approximately $200,000) and the third
in the amount of approximately $690,190, and a mortgage in the amount of
$350,000 with respect to certain outstanding Convertible Secured Notes (the
"Notes") of the Company (the mortgage to be filed with respect to the Notes
being hereinafter referred to as the "Secured Note Mortgage"). Bank One has
agreed to subordinate the third Bank One mortgage to the Mortgage and the
Secured Note Mortgage. Investors acknowledge that while the Secured Note
Mortgage will be filed subsequent to the filing of the Mortgage, the
indebtedness represented by the Notes is pari passu to the indebtedness
represented by the Debentures and that the Wisconsin real estate secures payment
of the Notes and the Debentures on a pro-rata basis. The Company represents and
warrants that the aggregate outstanding balance of the first two mortgages to
Bank One shall not, so long as any Debentures remain outstanding, exceed
$1,000,000.
(c) The Virginia real estate is currently subject to two outstanding Deeds
of Trust, Assignment of Leases and Security Agreements to the Union Bank and
Trust Company in the aggregate amount of $1,750,000 (with an aggregate
outstanding balance of $1,716,753). The Company has also deposited with the
Union Bank and Trust Company as additional security for the bank loans a CD in
the amount of $825,000. The Note holders do not have a security interest in the
Virginia real estate.
9.2 FILINGS. The Company shall, at its expense, execute, deliver, file
and record the Mortgage and Trust Agreement and other documents that are
reasonably required in order to perfect the Debenture Holders' security interest
in the Collateral. In the event that the Mortgage and Trust Agreement initially
filed in connection with the Collateral are in an amount less than One Million
Five Hundred Thousand Dollars ($1,500,000), Investor agrees to consent to and to
provide any and all written agreements necessary to file a new or amended
Mortgage and new or amended Trust Agreement with respect to the Collateral,
provided that such new or amended Mortgage and Trust Agreement are being filed
in connection with the sale of Debentures and are for not more than One Million
Five Hundred Thousand Dollars ($1,500,000).
9.3 TERMINATION/AMENDMENT OF SECURITY INTEREST. Upon full and punctual
payment and performance of the Obligations, the security interest created hereby
shall terminate and all rights of the Debenture Holders in the Collateral shall
revert to the Company.
ARTICLE 10
REDEMPTION
10.1 RIGHT OF REDEMPTION. The Company may, at its option, redeem the
Debentures as a whole or from time to time in part, at Redemption Prices which
shall consist of the applicable percentage of the principal amount of the
Debentures redeemed set forth below.
If redeemed during the periods set forth below:
PERIOD PERCENTAGE
----------------------------------- -------------------------
May 1, 1997 to January 31, 1998 100% plus each Investor shall
relinquish Warrants representing
the right to acquire 5,000 shares
of the Company's Common Stock for
every $50,000 principal amount of
Debentures redeemed
February 1, 1998 to April 29, 1998 110%
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April 30, 1998 to April 29, 1999 107%
April 30, 1999 to April 29, 2000 104%
April 30, 2000 and Thereafter 100%
plus, in each case, any interest accrued on the Debentures so redeemed to the
Redemption Date.
10.2 SELECTION OF DEBENTURES TO BE REDEEMED. If less than all the
Debentures are to be redeemed, the particular Debentures to be redeemed shall be
selected pro-rata not more than 60 days prior to the Redemption Date by the
Company, from the outstanding Debentures not previously called for redemption.
For all purposes of this Agreement, unless the context otherwise requires,
all provisions relating to the redemption of Debentures shall relate, in the
case of any Debenture redeemed or to be redeemed only in part, to the portion of
the principal of such Debentures which has been or is to be redeemed.
10.3 NOTICE OF REDEMPTION; CONVERSION OF DEBENTURES. Notice of redemption
shall be given simultaneously by facsimile transmission or overnight courier and
by certified mail, postage prepaid, return receipt requested, mailed not less
than 30 nor more than 60 days prior to the date selected by the Company for
redemption (the "Redemption Date"), to each Holder of Debentures to be redeemed.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price,
(3) if less than all outstanding Debentures are to be redeemed,
the identification (and, in the case of partial redemption, the respective
principal amounts) of the Debentures to be redeemed from the Holder to whom
the notice is given,
(4) that on the Redemption Date the Redemption Price will become
due and payable upon each such Debenture, and that interest thereon shall
cease to accrue on said date, and
(5) the place where such Debentures are to be surrendered for
payment of the Redemption Price.
10.4 DEBENTURES REDEEMED IN PART. Any Debenture which is to be redeemed
only in part shall be surrendered at the office or agency of the Company and the
Company shall execute and deliver to the Holder of such Debenture without
service charge, a new Debenture or Debentures, of any authorized denomination as
requested by such Holder in aggregate principal amount equal to and in exchange
for the unredeemed portion of the principal of the Debentures so surrendered.
ARTICLE 11
REMEDIES
11.1 EVENTS OF DEFAULT. "Event of Default," wherever used herein, means
any one of the following events (whatever the reason for such Event of Default
and whether it shall be occasioned by the provisions of this Article 11 or be
voluntary or involuntary or be effected by operation of law pursuant to any
judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(1) default in the payment of any interest upon any Debenture
when the same becomes due and payable, and continuance of such default for
a period of ten (10) days;
(2) default in the payment of the principal of any Debenture
when the same becomes due and payable;
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(3) default in the performance, or breach, of any covenant or
warranty of the Company in this Agreement (other than a covenant or
warranty a default in whose performance or whose breach is elsewhere in
this Section specifically dealt with), and continuance of such default or
breach for a period of thirty (30) days after there has been given, by
registered or certified mail, to the Company by the Holders of at least Ten
Percent (10%) in principal amount of the outstanding Debentures, a written
notice specifying such default or breach and requiring it to be remedied
and stating that such notice is a "Notice of Default" hereunder;
(4) a court having jurisdiction in the premises shall enter a
decree or order for relief in respect of the Company in an involuntary case
under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or appointing a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or similar official) of the Company or
for any substantial part of its property, or ordering the winding-up or
liquidation of its affairs and such decree or order shall remain unstayed
and in effect for a period of thirty (30) consecutive days;
(5) the Company shall commence a voluntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, or shall consent to the entry of an order for relief in an
involuntary case under any such law, or shall consent to the appointment of
or taking possession by a receiver, liquidator, assignee, trustee,
custodian, sequestrator (or other similar official) of the Company or for
any substantial part of its property, or shall make any general assignment
for the benefit of creditors, or shall fail generally to pay its debts as
they become due, or shall take any corporate action in furtherance of any
of the foregoing.
(6) the failure of the Company to pay any indebtedness due any
other person or entity and such failure shall continue beyond any
applicable grace period and result in the acceleration of maturity of such
indebtedness;
(7) the Company shall suffer to exist beyond any applicable
grace period any other event of default under any material agreement
binding the Company, provided such event of default has not been waived in
writing by the appropriate party or parties to such agreement; or
(8) the Company shall admit its inability to pay its debts as
they mature or shall make an assignment for the benefit of its creditors.
11.2 ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT. If an Event of
Default occurs and is continuing, then and in every such case the Holders of not
less than Fifteen Percent (15%) in principal amount of the Debentures
outstanding may declare the principal of all the Debentures to be immediately
due and payable, by a notice in writing to the Company and upon any such
declaration such principal shall become immediately due and payable.
At any time after such a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained, the
Holders of a majority in principal amount of Debentures outstanding, by written
notice to the Company, may rescind and annul such declaration and its
consequences if:
(1) the Company has paid or deposited into a trust account a sum
sufficient to pay:
(a) all overdue installments of interest on all Debentures,
(b) the principal of any Debentures which have become due
otherwise than by such declaration of acceleration and interest
thereon at the rate borne by the Debentures,
(c) to the extent that payment of such interest is lawful,
interest upon overdue installments of interest at the rate borne by
the Debentures, and
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(2) all Events of Default, other than the non-payment of the
principal of Debentures which have become due solely by such acceleration,
have been cured or waived as provided in Section 11.8.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
11.3 COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY HOLDERS. The
Company covenants that if:
(1) default is made in the payment of any installment of
interest on any Debenture when such interest becomes due and payable and
such default continues for a period of ten (10) days, or
(2) default is made in the payment of the principal of any
Debenture at the maturity thereof,
the Company, will, upon demand of the Holders hereof pursuant to Section 11.2,
pay to such Holders, the whole amount then due and payable on this Debenture for
principal and interest, with interest upon the overdue principal and, to the
extent that payment of such interest shall be legally enforceable, upon overdue
installments of interest, at the rate borne by the Debenture.
If the Company falls to pay such amounts forthwith upon such demand, the
Holder may institute a judicial proceeding for the collection of the sums so due
and unpaid, and may prosecute such proceeding to judgment or final decree, and
may enforce the same against the Company or any other obligor upon this
Debenture and collect the monies adjudged or decreed to be payable in the manner
provided by law out of the property of the Company or any other obligor upon
this Debenture, wherever situated.
11.4 REMEDIES WITH RESPECT TO COLLATERAL ON DEFAULT. (a) If an Event of
Default occurs and is continuing, then and in every such case the Holders of not
less than Fifteen Percent (15%) in principal of the Debentures outstanding may,
in addition to their other rights hereunder and in the Mortgage and Trust
Agreement, exercise any one of the following rights and remedies with respect to
the Collateral: (1) exercise and enforce any and all of the rights and remedies
available after default to a secured party under the Uniform Commercial Code as
adopted in Wisconsin, with respect to the Wisconsin real estate, and Virginia,
with respect to the Virginia real estate, in which case notice to the Company of
any public or private sale or any other disposition of the Collateral or any
other action shall be deemed commercially reasonable if given at least ten (10)
calendar days prior to the date of such disposition or other action; (2) with
respect to any portion of the Collateral constituting a right to payment, notify
the person or entity obligated to make such payment that such right has been
assigned to the Debenture Holders for security and shall be paid directly to the
nominee of the Debenture Holders. The Company will join in giving such notice
if requested by the Debenture Holders.
(b) At any time after the occurrence of an Event of Default, the
Debenture Holders may, but need not, (i) demand, sue for, collect or receive any
money or property constituting the Collateral which is payable to the Company,
or grant an extension to, compromise, settle, modify, waive, amend or change
such obligation; and (ii) give receipt for any payment received from such
obligor, which receipt shall be deemed conclusive evidence of such payment as
against the Company.
11.5 UNCONDITIONAL RIGHT OF DEBENTURE HOLDERS TO RECEIVE PRINCIPAL AND
INTEREST. Subject to the provisions of this Agreement, the Holder of any
Debenture shall have the right which is absolute and unconditional to receive
payment of the principal of and interest on such Debenture on the respective
dates expressed in such Debenture and to institute suit for the enforcement of
any such payment and such right shall not be impaired without the consent of
such Holder.
11.6 RESTORATION OF RIGHTS AND REMEDIES. If any Debenture Holder has
instituted any proceeding to enforce any right or remedy under this Agreement
and such proceeding has been discontinued or abandoned for any reason, or has
been determined adversely to such Debenture Holder, then and in every such case
the Company and the Debenture Holder shall, subject to any determination in such
proceeding, be restored severally and respectively to their former positions
hereunder, and thereafter all rights and remedies of the Debenture Holder shall
continue as though no such proceeding had been instituted.
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11.7 RIGHTS AND REMEDIES CUMULATIVE. No right or remedy herein conferred
upon or reserved to the Debenture Holders is intended to be exclusive of any
other right or remedy, and every right and remedy shall, to the extent permitted
by law, be cumulative and in addition to every other right and remedy given
hereunder or now or hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment of any other appropriate
right or remedy.
11.8 DELAY OR OMISSION NOT WAIVER. No delay or omission of the Holder of
this Debenture to exercise any right or remedy accruing upon any Event of
Default shall impair any such right or remedy or constitute a waiver of any such
Event of Default or an acquiescence therein. Every right and remedy given by
this Article or by law or the Holder may be exercised from time to time, and as
often as may be deemed expedient, by such Holder.
11.9 WAIVER OF PAST DEFAULTS. The Holders of eighty-five percent (85%) in
principal amount of the outstanding Debentures may on behalf of the Holders of
all the Debentures waive any past default hereunder and its consequences, except
a default
(1) in the payment of the principal of or interest on any
Debenture; or
(2) in respect of a covenant or provision of this Agreement
which under Article 12 cannot be modified or amended without the consent of
the Holder of each outstanding Debenture affected.
Upon any such waiver, such default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every purpose
of this Agreement; but no such waiver shall extend to any subsequent or other
default or impair any right consequent thereon.
ARTICLE 12
SUPPLEMENTAL AGREEMENTS REGARDING DEBENTURES
12.1 SUPPLEMENTAL AGREEMENTS WITH CONSENT OF DEBENTURE HOLDERS. With or
without notice to any Debenture Holder but with the consent of the Holders of
not less than 85% in principal amount of the then outstanding Debentures, the
Company, when authorized by a duly adopted board resolution, and the Debenture
Holders may enter into an agreement or agreements supplemental hereto for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of this Agreement or of modifying in any manner the rights of
the Holders of the Debentures under this Agreement; provided, however, that no
such supplemental agreement as it relates to the Debentures and the terms and
conditions thereof shall, without the consent of the Holder of each outstanding
Debenture affected thereby:
(1) change the date of maturity of the principal of, or any
installment of interest on, any Debenture, or reduce the principal amount
thereof or the rate of interest thereon, or change the coin or currency in
which, the principal of any Debenture or interest thereon is payable, or
impair the right to institute suit for the enforcement of any such payment
on or after the date of maturity thereof;
(2) reduce the percentage in principal amount of the outstanding
Debentures, the consent of whose Holders is required for any such
supplemental agreement or the consent of whose Holders is required for any
waiver (of compliance with certain provisions of this Agreement or certain
defaults hereunder and their consequences) provided for in this Agreement;
(3) modify any of the provisions of this Section or Section
11.5, except to increase any such percentage or to provide that certain
other provisions of this Agreement cannot be modified or waived without the
consent of the Holder of each Debenture affected thereby; or
(4) adversely affect the right to convert the Debentures as
provided in Article 8 hereof.
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It shall not be necessary for any consent or authorization of Debenture
Holders under this Section to approve the particular form of any proposed
supplemental agreement, but it shall be sufficient if such consent or
authorization shall approve the substance thereof.
12.2 EFFECT OF SUPPLEMENTAL AGREEMENTS. Upon the execution of any
supplemental agreement under this Article, this Agreement shall be modified in
accordance therewith, and such supplemental agreement shall form a part of this
Agreement for all purposes; and every holder of Debentures theretofore or
thereafter delivered hereunder shall be bound thereby.
12.3 REFERENCE IN DEBENTURES TO SUPPLEMENTAL AGREEMENTS. Debentures
delivered after the execution of any supplemental agreement pursuant to this
Article may bear a notation as to any matter provided for in such supplemental
agreement. If the Company shall so determine, new Debentures so modified as to
conform, in the opinion of the board of directors, to any such supplemental
agreement may be prepared, executed and delivered by the Company in exchange for
outstanding Debentures.
ARTICLE 13
COVENANTS
13.1 PAYMENT OF PRINCIPAL, PREMIUMS AND INTEREST. The Company will duly
and punctually pay the principal of and interest on the Debentures in accordance
with the terms of the Debentures and this Agreement.
13.2 MONEY FOR DEBENTURE PAYMENTS TO BE HELD IN TRUST.
(a) COMPANY AS PAYING AGENT. While the Company acts as its own
paying agent, it will, on or before each due date of the principal of, and
premium, if any, or interest on any of the Debentures, segregate and hold
in trust for the benefit of the persons entitled thereto a sum sufficient
to pay the principal, and premium, if any, or interest so becoming due
until such sums shall be paid to such persons or otherwise disposed of as
herein provided.
(b) OUTSIDE PAYING AGENT. Whenever the Company shall have one
or more paying agents, it will, on or prior to each due date of the
principal of, and premium, if any, or interest on any Debentures, deposit
with, or make available to, the paying agent a sum sufficient to pay the
principal, or interest so becoming due, such sum to be held in trust for
the benefit of the persons entitled to such principal, or interest.
(c) UNCLAIMED PAYMENTS. If any money deposited with any paying
agent, or then held by the Company, in trust, for the payment of the
principal of or interest on any Debenture is undeliverable and remains
unclaimed for three years after such principal or interest has become due
and payable, such money shall be paid to the Company on the written request
of the Company, or, if then held by the Company, shall be discharged from
such trust; and the Holder of such Debenture shall thereafter, as an
unsecured general creditor, look only to the Company for payment thereof,
and all liability of such paying agent with respect to such trust money,
and all liability of the Company as trustee thereof, shall thereupon cease;
provided, however, that such paying agent, before being required to make
any such repayment, may at the expense of the Company cause to be published
once, in a newspaper of general circulation in the county in which the
Company then has its principal place of business, notice that such money
remains unclaimed and that, after a date specified therein, which shall be
not less than thirty (30) days from the date of such publication, any
unclaimed balance of such money then remaining will be repaid to the
Company.
13.3 CORPORATE EXISTENCE. The Company will do or cause to be done all
things necessary to preserve and keep in full force and effect its corporate
existence, including the corporate existence of any successor corporation,
rights (charter and statutory) and franchises; provided, however, that the
Company shall not be required to preserve any right or franchise if the Company
shall determine that the preservation thereof is no longer desirable in the
conduct of the business of the Company and that the loss thereof is not
disadvantageous in any material respect to the Debenture Holders.
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13.4 OTHER OBLIGATIONS. The Company will perform all of its
undertakings, obligations, and covenants as set forth in this Agreement, the
Debentures and the Warrants.
ARTICLE 14
MISCELLANEOUS
14.1 REGISTRATION RIGHTS. The Company will use its best efforts to cause
the shares of Common Stock issued upon conversion of the Debentures and issuable
upon exercise of the Warrants (the "Registerable Securities") to be registered
with the Securities and Exchange Commission, at the Company's expense, under the
Securities Act of 1933 (the "1933 Act") prior to March 1, 1998. The Company
will use its best efforts to keep such Registration Statement effective until
the earlier of May 1, 2002 or until all of the Registerable Securities have been
sold pursuant to such Registration Statement. In the event that the
Registration Statement to be filed with the Commission as set forth in this
Section 14.1 has not been declared effective by the Commission by March 1, 1998,
(i) the Company will pay Debenture Holder a penalty in cash equal to 2% of the
principal amount of the Debentures relating thereto for every 30 days following
February 1, 1998, until the Registration Statement is declared effective by the
Commission, and (ii) the purchase price of the Warrants shall be reduced as
follows: the Initial Purchase Price shall be reduced by 2% for every 30 days
following February 1, 1998, until the Registration Statement is declared
effective and the alternative percentage of fair market value (initially 70%)
shall be reduced in increments of 2% (e.g., 68%, 66%, etc.) for every 30 days
following February 1, 1998, until the Registration Statement is declared
effective by the Commission. In connection with such registration:
(1) The Company will pay all costs and expenses incurred in
connection with the registration of the Registerable Securities,
including all registration filing fees, printing fees, fees and
disbursements of counsel and accountants of the Company and one set of
counsel for the Investors. Transfer taxes, brokerage commissions and
underwriters' discounts attributable to the Registerable Securities
shall be for the account of the Investors;
(2) The Company will furnish at its expense to the
Investors such number of copies of the preliminary, final,
supplemental or amended prospectus in conformity with the requirements
of the 1933 Act and rules and regulations thereunder, as may be
reasonably required in order to facilitate the disposition of the
Registerable Securities;
(3) Unless preempted by Federal law, the Company will
register or qualify the Registerable Securities under any applicable
state securities or blue sky laws in such jurisdictions as the
Investors shall reasonably request;
(4) The Company will cause the Registerable Securities to
be listed on the NASDAQ National Market (or principal exchange if
applicable) on which the Common Stock is then listed; and
(5) The Company shall indemnify and hold harmless, to the
full extent permitted by law, each Investor, its officers and
directors and each person who controls such Investor within the
meaning of the 1933 Act and any investment adviser against all losses,
claims, damages, liabilities and expenses caused by any untrue or
alleged untrue statement of a material fact contained in any
registration statement, prospectus or preliminary prospectus or any
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, except insofar as the same are caused by or contained in
any information with respect to the Investor furnished in writing to
the Company by such Investor expressly for use therein. The Company
will indemnify the underwriters, if any, of the Registerable
Securities, their officers and directors and each person who controls
any such underwriter to the same extent. The Company will reimburse
each indemnified party for all legal expenses incurred in connection
with investigating or defending any such claims. Each Investor
severally, but not jointly, shall
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indemnify and hold harmless the Company against all losses, claims,
damages, liabilities, and expenses caused by any untrue or alleged untrue
statement or a material fact in any registration statement, prospectus or
preliminary prospectus or any omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading; except that such indemnification shall
be available in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon information and in conformity with
written information furnished to the Company by Investor specifically for
use in the preparation thereof. If the indemnification provided for herein
is unavailable or insufficient to hold harmless an indemnified party, then
each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of the losses, claims, damages, or
liabilities referred to above (a) in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand and
the Investors on the other; or (b) if the allocation provided by clause (a)
above is not permitted by applicable law, in such proportion as is
appropriate to reflect the relative benefits referred to in clause (a)
above but also the relative fault of the Company on the one hand and the
Investors on the other in connection with the statements or omissions which
resulted in such losses, claims, damages, or liabilities, as well as any
other relevant equitable considerations. Relative fault shall be
determined by reference to, among other things, whether the untrue
statement of a material fact or the omission to state a material fact
relates to information supplied by the Company or the Investor and the
parties' relative intent, knowledge, access to information, and opportunity
to correct or prevent such untrue statement or omission. For purposes of
this subsection, the term "damages" shall include any counsel fees or other
expenses reasonably incurred by the Company or the Investors in connection
with investigating or defending any action or claim which is the subject of
the contribution provisions of this section.
Each party entitled to contribution agrees that upon the
service of a summons or other initial legal process upon it in any
action instituted against it in respect of which contribution may be
sought, it shall promptly give written notice of such service to the
party or parties from whom contribution may be sought, but the
omission so to notify such party or parties of any such service shall
not relieve the party from whom contribution may be sought from any
obligation it may have hereunder or otherwise.
14.2 SURVIVAL OF WARRANTIES. The warranties, representations and
covenants contained in or made pursuant to this Agreement shall survive the
execution and delivery of this Agreement and the Closing(s) and shall in no way
be affected by any investigation of the subject matter thereof made by or on
behalf of the Company or the Investors, as the case may be.
14.3 ENTIRE AGREEMENT. This Agreement, the Debentures, the Warrants and
Appendix hereto constitute the entire agreement between the parties, and no
party shall be liable or bound to another party in any manner by any warranties,
representations or covenants except as specifically set forth herein or therein.
The terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties. Nothing in
this Agreement, express or implied, is intended to confer upon any third party
any rights, remedies, obligations, or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement.
14.4 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of Colorado.
14.5 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
14.6 NOTICES. Any notice required or permitted under this Agreement shall
be given in writing and shall be deemed effectively given upon personal delivery
or seven (7) days after deposit with the United States Post Office, by
registered or certified mail, postage prepaid, addressed to the Company at 4440
Arapahoe Road, Suite 200,
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Boulder Colorado 80303, and to the Investor at the address specified below or at
such other address as a party may designate by ten (10) days' advance written
notice to the other parties.
14.7 EXPENSES. The Company shall pay the reasonable costs and expenses
that the Investors shall incur with respect to the negotiation, execution and
delivery of this Agreement.
14.8 EFFECT OF AMENDMENT OR WAIVER. The Investor hereby acknowledges
that, by the operation of Articles 11 and 12 hereof, the Holders of Debentures
have certain rights and powers to diminish or change certain rights of the
Holders of Debentures, including Holders who have not agreed or consented
thereto, under this Agreement.
14.9 RIGHTS OF INVESTORS. Each Holder of Debentures shall have the
absolute right to exercise or refrain from exercising any right or rights that
such holder may have by reason of this Agreement or any Debenture or share of
Common Stock, including without limitation the right to consent to the waiver of
any obligation of the Company under this Agreement and to enter into an
agreement with the Company for the purpose of modifying this Agreement or any
agreement effecting any such modification, and such holder shall not incur any
liability to any other holder or holders of such securities with respect to
exercising or refraining from exercising any such right or rights.
14.10 SEVERABILITY. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, such provisions shall be excluded from
this Agreement, and the balance of this Agreement shall be interpreted as if
such provisions were so excluded and shall be enforceable in accordance with its
terms.
14.11 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. The term this
"Agreement" as used herein includes this and similar Subscription and Purchase
Agreements entered into in connection with the offering of up to $1,500,000
aggregate principal amount of Debentures.
ARTICLE 15
SUBSCRIPTION
15.1 OFFERING. The minimum subscription per Investor permitted in this
Offering is $100,000; provided, however, that the Company may, in its sole
discretion, lower the minimum investment in accordance with applicable law.
15.2 SUBSCRIPTION AMOUNT. The undersigned hereby subscribes for $250,000
in principal amount of Debentures and shall tender at Closing a certified check
or bank draft in the amount of Two Hundred Fifty Thousand Dollars ($250,000)
payable to the Company in full payment for such subscription.
15.3 RESALE COMPLIANCE. The undersigned agrees to comply with the 1933
Act and the rules and regulations promulgated thereunder, and any other relevant
securities legislation and policies governing the purchase, holding and resale
of the Debentures subscribed for, including, without limitation, applicable
state blue sky laws.
The undersigned acknowledges that this subscription shall not be effective
unless accepted by the Company as indicated below.
Entered into this 8th day of May, 1997.
Charles S. Leavell
--------------------------------
(Name) (Please Print)
--------------------------------
(Signature)
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--------------------------------
(Mailing Address)
--------------------------------
(Registration Instructions)
--------------------------------
(Social Security or Tax
Identification No.)
THIS SUBSCRIPTION IS ACCEPTED BY THE COMPANY ON THE
8TH DAY OF MAY, 1997.
RENAISSANCE ENTERTAINMENT
CORPORATION
By:
------------------------------
Charles S. Leavell, Chief
Executive Officer
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<PAGE>
THE SECURITIES DESCRIBED HEREIN HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE 1933 ACT") OR UNDER THE SECURITIES LAWS OF ANY
STATE OF THE UNITED STATES. NO REGULATORY BODY HAS ENDORSED THESE SECURITIES.
NO SALE OR DISTRIBUTION OF THE SECURITIES MAY BE EFFECTED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE
1933 ACT AND APPLICABLE STATE BLUE SKY LAWS.
No. D-1 $500,000.00
RENAISSANCE ENTERTAINMENT CORPORATION
9% CONVERTIBLE SECURED DEBENTURE DUE 2002
THIS DEBENTURE is one of a duly authorized issue of Debentures of
Renaissance Entertainment Corporation, a corporation duly organized and existing
under the laws of the State of Colorado (the "Company"), designated as its 9%
Convertible Secured Debentures Due 2002, in an aggregate principal amount not
exceeding $1,500,000, issued pursuant to that certain Subscription and Purchase
Agreement dated May 8, 1997, between the Company and the original purchasers of
the Debentures (the "Purchase Agreement"). Reference is hereby made to the
Purchase Agreement for a complete description of the rights and obligations of,
and limitations and restrictions on, the Company and the Holder of this
Debenture. The terms and conditions of the Debenture noted hereinafter are
subject in every respect to the terms and conditions of the Purchase Agreement.
In the event of a conflict between the provisions of this Debenture and the
Purchase Agreement, the Purchase Agreement shall control.
FOR VALUE RECEIVED, the Company promises to pay to Charles H. Leavell the
registered holder hereof (the "Holder"), the principal sum of Five Hundred
Thousand Dollars ($500,000.00), on April 1, 2002, subject to acceleration in
certain events, and to pay interest on the principal sum outstanding from time
to time quarterly in arrears on the first business day of each calendar quarter
of each year ("Interest Payment Dates"), after as well as before maturity and
default and after judgment, at the rate of 9% per annum accruing from the date
of initial issuance. Payment of interest shall commence on the first such
business day to occur after the date hereof (and shall be pro rated for such
period from the date of initial issuance) and shall continue on the first
business day of each succeeding calendar quarter until payment in full of the
principal sum has been made or duly provided for. All accrued and unpaid
interest shall bear interest at the same rate as the due date of the interest
payment until paid but shall not be subject to conversion. December 15, March
15, June 15 and September 15 of each year shall serve as the record date (the
"Record Date") for determining ownership of this Debenture with respect to
payments of interest to be made on the following Interest Payment Date. The
interest so payable on any Interest Payment Date will, as provided in the
Purchase Agreement, be paid to the person in whose name this Debenture (or one
or more predecessor Debentures) is registered on the records of the Company
regarding registration and transfers of the Debentures (the "Debenture
Register") at the Record Date for such Interest Payment Date; provided, however,
that the Company's obligation to a transferee of this Debenture arises only if
such transfer, sale or other disposition is made in accordance with the terms
and conditions of the Purchase Agreement. The principal of, and interest on,
this Debenture are payable in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debts, at the address last appearing on the Debenture Register of the
Company as designated in writing by the Holder from time to time. The Company
will pay interest on this Debenture by sending a check for such interest due,
less any amounts required by law to be deducted, to the registered holder of
this Debenture and addressed to such holder at the last address appearing on the
Debenture Register. The forwarding of such check shall constitute a payment of
interest hereunder and shall satisfy and
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discharge the liability for interest on this Debenture to the extent of the sum
represented by such check plus any amounts so deducted unless such check is not
paid at par.
This Debenture is subject to the following additional provisions:
1. All terms used in this Debenture which are defined in the Purchase
Agreement shall have the meanings assigned to them in the Purchase Agreement.
2. The Debentures are issuable in denominations of Fifty Thousand
Dollars ($50,000) and integral multiples thereof. As provided in the Purchase
Agreement, the Debentures are exchangeable for an equal aggregate principal
amount of Debentures of different authorized denominations, as requested by the
Holders surrendering the same. No service charge will be made for such
registration of transfer or exchange; however, the Company may require payment
of a sum sufficient to cover any tax or other governmental charge payable in
connection with the transfer or exchange of this Debenture.
3. The Company shall be entitled to withhold from all payments of
principal of, and interest on, this Debenture any amounts required to be
withheld under the applicable provisions of the United States income tax laws or
other applicable laws at the time of such payments.
4. This Debenture has been issued and, subject to the exercise of
certain registration rights as provided in the Purchase Agreement, any shares of
Common Stock issued upon conversion hereof, will be issued subject to investment
representations and may be transferred or exchanged only as provided in the
Purchase Agreement. Prior to due presentment for transfer of this Debenture,
the Company and any agent of the Company may treat the Person in whose name this
Debenture is duly registered on the Company's Debenture Register as the owner
hereof for the purpose of receiving payment as herein provided and for all other
purposes, whether or not this Debenture be overdue, and neither the Company nor
any such agent shall be affected by notice to the contrary.
5. If an Event of Default occurs and is continuing, the Holders of not
less than Fifteen Percent (15%) in principal amount of the 9% Convertible
Secured Debentures then outstanding may declare the principal of all such
Debentures to be immediately due and payable in the manner and to the extent
provided in the Purchase Agreement, and such declarations may be in certain
events rescinded, in the manner and with the effect provided in the Purchase
Agreement.
6. Subject to the provisions of the Purchase Agreement, the Holder of
this Debenture is entitled, at its option, at any time after April 30, 1998,
until maturity hereof to convert the principal amount of this Debenture or any
portion of the principal amount hereof which is at least Ten Thousand Dollars
($10,000) or, if at the time of such election to convert the aggregate principal
amount of all Debentures registered to the Holder is less than Ten Thousand
Dollars ($10,000), then the whole amount thereof, into shares of Common Stock of
the Company at the lesser of Four Dollars Fifty Cents ($4.50) per share (subject
to adjustment as provided in the Purchase Agreement) or Seventy (70) percent of
the fair market value (as defined) of the Company's Common Stock on the Date of
Conversion, upon surrender of this Debenture to the Company at its office in
Boulder, Colorado, with the form of conversion notice attached hereto as Exhibit
A executed by the Holder of this Debenture evidencing such Holder's intention to
convert this Debenture or a specified portion (as above provided) hereof, and
accompanied, if required by the Company, by proper assignment hereof in blank.
No amount of accrued but unpaid interest shall be subject to conversion. As
provided in the Purchase Agreement, the conversion price is subject to
adjustment in certain events.
7. The Purchase Agreement contains provisions permitting the Holders of
a majority of the aggregate principal amount of all such Debentures at the time
outstanding, on behalf of the Holders of all the Debentures, to waive compliance
by the Company with certain provisions of the Purchase Agreement and certain
past defaults under the Purchase Agreement and their consequences. Any such
consent or waiver shall be conclusive and binding upon all Holders and upon all
future Holders of this Debenture and of any debenture issued upon registration
of transfer hereof or in exchange herefor or in lieu hereof whether or not
notation of such consent or waiver is made upon this Debenture.
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8. No reference herein to the Purchase Agreement and no provision of
this Debenture or of the Purchase Agreement shall alter or impair the obligation
of the Company, which is absolute and unconditional, to pay the principal of,
and interest on, this Debenture at the time, place and rate, and in the coin or
currency, herein prescribed. This Debenture and all other Debentures now or
hereafter issued under the Purchase Agreement are direct obligations of the
Company. This Debenture ranks equally and ratably with all other Debentures now
or hereafter issued under the Purchase Agreement.
9. No recourse shall be had for the payment of the principal of, or the
interest on, this Debenture, or for any claim based hereon, or otherwise in
respect hereof, or based on or in respect of the Purchase Agreement or any
Purchase Agreement supplemental thereto, against any incorporator, shareholder,
officer or director, as such, past, present or future, of the Company or any
successor corporation, whether by virtue of any constitution, statute or rule of
law, or by the enforcement of any assessment or penalty or otherwise, all such
liability being, by the acceptance hereof and as part of the consideration for
the issue hereof, expressly waived and released.
10. The Holder of this Debenture, by acceptance hereof, agrees that this
Debenture is being and any shares of Common Stock acquired pursuant to the
conversion of this Debenture will, unless such condition is waived by the
Company, be acquired for investment and that such Holder will not offer, sell or
otherwise dispose of this Debenture or such Common Stock except under
circumstances which will not result in a violation of the 1933 Act or any
applicable state Blue Sky law. This Debenture and any certificate for shares of
Common Stock issued upon conversion hereof, unless such requirement is waived by
the Company, shall bear a legend in substantially the following form:
THE SECURITIES DESCRIBED HEREIN, HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT",) OR UNDER THE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. NO SALE OR
DISTRIBUTION OF THESE SECURITIES MAY BE EFFECTED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED UNDER THE 1933 ACT AND APPLICABLE STATE BLUE SKY LAWS.
11. This Debenture shall be governed by and construed in accordance with
the laws of the State of Colorado.
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IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
RENAISSANCE ENTERTAINMENT CORPORATION
By:
----------------------------------
James R. McDonald
Chief Financial Officer
Dated May 14, 1997
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EXHIBIT A
NOTICE OF CONVERSION
TO: RENAISSANCE ENTERTAINMENT CORPORATION
The undersigned Holder of this Debenture hereby irrevocably elects to
convert this Debenture, or portion hereof (which is at least $10,000, unless the
undersigned holds Debentures aggregating less than $10,000, in which event, the
amount converted shall be the entire amount of principal of such Debentures)
below designated, into shares of Common Stock of Renaissance Entertainment
Corporation in accordance with the terms of the Purchase Agreement dated May 8,
1997, and directs that the shares issuable and deliverable upon such conversion,
together with any check in payment for fractional shares and any Debentures
representing any unconverted principal amount hereof, be issued and delivered to
the undersigned unless a different name has been indicated below. If shares are
to be issued in the name of a person other than the undersigned, the undersigned
will pay all transfer taxes, if any, payable with respect thereto.
Dated______________
--------------------------------
Signature of Holder
Principal Amount to be Converted
--------------------------------
THE DEBENTURES AND SHARES OF COMMON STOCK ACQUIRED UPON CONVERSION THEREOF ARE
TRANSFERABLE ONLY AS PROVIDED IN THE PURCHASE AGREEMENT.
Provide the following information if shares of Common Stock and/or Debentures
are to be issued otherwise than to the Holder. Please print name and address
(including zip code) of other person.
--------------------------------
--------------------------------
--------------------------------
--------------------------------
Social Security or Other
Taxpayer Identifying Number
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EXHIBIT D
No. W-SLB-
Warrant to
Purchase _______ Shares
WARRANT TO PURCHASE COMMON STOCK OF
RENAISSANCE ENTERTAINMENT CORPORATION
THIS CERTIFIES THAT for value received ____________________ is entitled,
subject to the terms and conditions hereinafter set forth, to purchase from
RENAISSANCE ENTERTAINMENT CORPORATION, a Colorado corporation (the "Company"),
__________ fully paid and non-assessable shares of Common Stock of the Company
(herein called the "Common Stock"), upon presentation and surrender of this
Warrant with the Subscription Form duly executed, at any time during the term
hereof, at the principal office of the Company or at such other office as shall
have theretofore been designated by the Company by notice pursuant hereto and
upon payment therefor of the Purchase Price, in lawful money of the United
States of America, determined as set forth below. The term of this Warrant
shall commence on the date hereof, and terminate, if not exercised prior
thereto, at 5:00 p.m. Mountain Time, on September ___, 2003 (the "Expiration
Date").
This Warrant is one of a series of Warrants issued pursuant to that certain
Purchase Agreement dated September ___, 1997, (the "Purchase Agreement").
This Warrant is subject to the following terms and conditions:
1. The purchase rights represented by this Warrant are exercisable at
any time after September ___, 1998 and prior to 5:00 p.m. Mountain Time on the
Expiration Date, at the option of the registered holder hereof (the "Holder"),
in whole or in part (but not as to a fractional share of Common Stock). In the
case of the purchase of less than all the shares purchasable under this Warrant,
the Company shall cancel this Warrant upon the surrender hereof and shall
execute and deliver a new Warrant of like tenor for the balance of the shares
purchasable hereunder.
2. The purchase price for each share of Common Stock purchasable
pursuant to the exercise of this Warrant shall be One Dollar ($1.00) per share
(the "Initial Purchase Price") or the adjusted price, if applicable, determined
as set forth in Section 9 hereof. The Initial Purchase Price, and from time to
time the number of shares of Common Stock subject to purchase hereunder are
subject to adjustment in certain circumstances provided for below. The purchase
price, as defined above, is hereinafter referred to as the "Purchase Price".
(a) In case the Company shall (i) pay a dividend in shares
of its capital stock (other than an issuance of shares of capital
stock to holders of Common Stock who have elected to receive a
dividend in shares in lieu of cash), (ii) subdivide its outstanding
shares of Common Stock, (iii) reduce, consolidate or combine its
outstanding shares of Common Stock into a smaller number of shares, or
(iv) issue by reclassification of its shares of Common Stock any
shares of the Company, the number of shares of Common Stock issuable
upon exercise of this Warrant shall be the number of shares of Common
Stock of the Company which the Warrant Holder would have owned or
would have been entitled to receive after the happening of any of the
events described above had this Warrant been exercised immediately
prior to the happening of such event. Such adjustment shall be made
successively whenever any such effective date or record date shall
occur. An adjustment made pursuant to this subsection (a) shall
become effective retroactively, immediately after the record date in
the case of a dividend and shall become effective immediately after
the effective date in the case of a subdivision, reduction,
consolidation, combination or reclassification.
(b) If the Company shall at any time issue or sell or be
deemed pursuant to the provisions of subsections 2(c) and (d) hereof
to have issued or sold shares of its Common Stock for consideration
per share less than the Initial Purchase Price then in effect with
respect to such Common Stock, then the Initial Purchase Price shall be
reduced by multiplying it by a fraction, the
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numerator of which equals the number of shares of Common Stock outstanding
prior to the sale or issuance plus the number of shares of Common Stock
which would have been issued in the transaction if the Initial Purchase
Price had been applied, and the denominator of which equals the number of
shares of Common Stock outstanding after the sale or issuance plus the
number of shares of Common Stock actually issued in the transaction.
(c) In case at any time after the date hereof the Company
shall in any manner grant (whether directly or by assumption in a
merger or otherwise) any rights to subscribe for or to purchase, or
any options for the purchase of, Common Stock or any stock or other
securities convertible into or exchangeable for Common Stock (such
rights or options being herein called "Options" and such convertible
or exchangeable stock or securities being herein called "Convertible
Securities") at an option or conversion price per share of Common
Stock (determined by dividing: (i) the total amount, if any, received
or receivable by the Company as consideration for the granting of such
Options, plus the minimum aggregate amount of additional consideration
payable upon the exercise of such Options, plus, in the case of such
Options which relate to Convertible Securities, the minimum aggregate
amount of additional consideration, if any, payable upon the issue or
sale of such Convertible Securities and upon the conversion or
exchange thereof, by (ii) the total maximum number of shares of Common
Stock of the Company, issuable upon the exercise of such Options and
in the case of Convertible Securities, upon conversion thereof) less
than the Initial Purchase Price then in effect with respect to such
Common Stock, then the total maximum number of shares of Common Stock
issuable upon the exercise and conversion of such Options and
Convertible Securities shall be deemed to be outstanding and to have
been issued and sold by the Company as of the date of the issue or
sale of the Options, for such price per share. No sale, issuance or
transfer of shares of Common Stock shall be deemed to have been made
upon the actual issuance of such Common Stock except as otherwise
provided in subsection 2(e) hereof.
(d) In case at any time after the date hereof the Company
shall in any manner issue or sell (whether directly or by assumption
in merger or otherwise) any Convertible Securities, whether or not the
rights to exchange or convert thereunder are immediately exercisable,
and the price per share of Common Stock issuable upon such conversion
or exchange (determined by dividing: (i) the total amount received or
receivable by the Company, as consideration for the issue or sale of
such Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Company upon the
conversion or exchange thereof, by (ii) the total maximum number of
shares of Common Stock issuable upon the conversion or exchange of all
such Convertible Securities) shall be less than the Initial Purchase
Price then in effect with respect to such Common Stock, then the total
maximum number of shares of Common Stock issuable upon conversion of
all such Convertible Securities shall be deemed to be outstanding and
to have been issued and sold by the Company as of the date of the
issue or sale of the Convertible Securities, for such price per share.
No sale, issuance or transfer of shares of Common Stock shall be
deemed to have been made upon the actual issuance of such Common Stock
except as otherwise provided in subsection 2(e) hereof.
(e) If the purchase price payable or number of shares of
Common Stock subject to purchase as provided for in any Options
referred to in subsection 2(c) hereof, the additional consideration,
if any, payable upon the conversion or exchange of any Convertible
Securities referred to in subsections 2(c) or (d), or the rate at
which any Convertible Securities referred to in subsections 2(c) or
(d) are convertible into Common Stock shall change so as to reduce the
deemed sale price of Common Stock previously calculated under
subsections 2(c) and/or (d), then a sale of shares of Common Stock
shall be deemed to have occurred for the purposes of subsections 2(c)
and/or (d), as applicable, with appropriate adjustments to be made to
the number of shares of Common Stock deemed to have been sold to
reflect the prior related deemed sale and such adjustments by the
adjustment of the Initial Purchase Rate and Initial Purchase Price
pursuant to subsections 2(c) or (d), as applicable.
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(f) In case of any consolidation of the Company with or
merger of the Company with or into another corporation or in case of
any sale, transfer or lease to another corporation of all or
substantially all of the property of the Company, the Company or such
successor or purchasing corporation, as the case may be, shall execute
an agreement that the Holder of a Warrant shall have the right
thereafter upon payment of the Initial Purchase Price in effect
immediately prior to such action to purchase upon exercise of the
Warrant the kind and amount of shares and other securities and
property which the Holder would have owned or would have been entitled
to receive after the happening of such consolidation, merger, sale,
transfer or lease had the Warrant been exercised immediately prior to
such action. The Company shall give prompt written notice of the
execution of any such agreement to the Holder of each Warrant at the
address of such Holder as shown on the records of the Company. Such
agreement shall provide for subsequent adjustments, which shall be as
nearly equivalent as may be practicable to the adjustments provided
for in this section 2, after the happening of such consolidation,
merger, sale, transfer or lease. The provisions of this subsection
2(f) shall similarly apply to successive consolidations, mergers,
sales, transfers or leases.
(g) The provisions of this section 2 shall not apply to any
currently outstanding securities of the Company or any management
stock grants or sales, stock options or shares of Common Stock issued
upon exercise of stock options issued to officers, directors,
employees or consultants of the Company pursuant to a plan heretofore
adopted and approved by the Board of Directors of the Company.
(h) Upon the expiration of any Option or the termination of
any right to convert or exchange any Convertible Securities without
the issuance of shares of Common Stock, then with respect to any
Warrants which then remain outstanding, the Initial Purchase Price
shall be readjusted to the Initial Purchase Price which would have
prevailed absent the adjustment made as a result of the issuance of
such Options or Convertible Securities.
(i) In case any Options shall be issued in connection with
the issue or sale of other securities of the Company, together
comprising one integral transaction in which no specific consideration
is allocated to such Options by the parties thereto, such Options
shall be deemed to have been issued without consideration.
(j) In case any shares of Common Stock, Options or
Convertible Securities shall be issued or sold or deemed to have been
issued or sold for cash, the consideration received therefor shall be
deemed to be the amount received therefor by the Company. In case any
shares of Common Stock, Options or Convertible Securities shall be
issued or sold for a consideration other than cash, the amount of the
consideration other than cash received by the Company shall be the
fair market value of such consideration, as determined by the Board of
Directors of the Company.
3. In case at any time:
(a) The Company shall declare any cash dividend on its
Common Stock at a rate in excess of the rate of the last cash dividend
theretofore paid;
(b) The Company shall pay any dividend payable in stock
upon its Common Stock or make any distribution (other than regular
cash dividends) to the holders of its Common stock;
(c) The Company shall offer for subscription pro rata to
the holders of its Common Stock any additional shares of stock of any
class or other rights;
(d) There shall be any capital reorganization, or
reclassification of the capital stock of the Company or consolidation
or merger of the Company with, or sales of all or substantially all of
its assets to, another corporation; or
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<PAGE>
(e) There shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of said cases, the Company shall give written notice,
by first class mail, postage prepaid, addressed to the Holder at the address of
such holder as shown on the books of the Company, of the date on which (1) the
books of the Company shall close or a record shall be taken for such dividend,
distribution or subscription rights, or (2) such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up shall take place, as the case may be. Such notice shall also specify
the date as of which the holders of Common Stock of record shall participate in
such dividend, distribution or subscription rights, or shall be entitled to
exchange their Common Stock for securities or other property deliverable upon
such reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation, or winding up, as the case may be. Such written notice shall be
given at least 20 days prior to the action in question and not less than 20 days
prior to the record date or the date on which the Company's transfer books are
closed in respect thereto.
4. If any event occurs as to which, in the sole opinion of the Board of
Directors of the Company, the other provisions of this Warrant are not strictly
applicable or if strictly applicable would not fairly protect the rights of the
Holder in accordance with the essential intent and principles of such
provisions, then the Board of Directors shall make such adjustment in the
application of such provisions as may be necessary, in the sole judgment of such
Board, in accordance with such essential intent and principles, to protect such
rights as aforesaid.
5. Exercise of this Warrant shall be made by the surrender hereof by
the Holder to the Company at its principal office together with (i) the attached
Subscription Form designating the number of shares of Common Stock being
purchased, (ii) a certified check or cash in payment for such shares and (iii) a
letter of transmittal setting forth the computation of the amount of said
payment. The Company shall thereafter promptly (in any event within seven (7)
business days after such exercise) issue certificates for the number of shares
of the Common Stock of the Company purchased at the Purchase Price in effect at
the time of such exercise. The Holder shall be deemed to be the record owner of
such shares of Common Stock as of the close of business on the date of such
exercise. The Holder shall not be entitled to receive a fractional share, but
in lieu thereof the Company shall pay in cash an amount equal to the market
value of such fractional share if the Common Stock has a market value, or if
not, the book value of such fractional share. The Company shall thereupon
cancel this Warrant; and in the event that less than the entire number of shares
purchasable are purchased, shall issue a new Warrant for the number not so
purchased.
6. The Company covenants and agrees that all shares which may be issued
upon the exercise of this Warrant will, upon issuance, be duly and validly
authorized and issued, fully paid and nonassessable, and free from all taxes,
liens and charges with respect to the issue thereof; and without limiting the
generality of the foregoing, the Company covenants and agrees that it will, from
time to time, take all such action as may be requisite to assure that the par
value or stated value per share of the Common Stock to be acquired upon the
exercise of this Warrant is at all times equal to or less than the then
effective Purchase Price per share of the Common Stock issuable pursuant to
exercise of this Warrant. The Company further covenants and agrees that during
the period within which this Warrant may be exercised, the Company will at all
times have authorized and reserved for the purpose of the issue upon exercise of
this Warrant a sufficient number of shares of its Common Stock to provide for
such exercise.
7. (a) The Holder represents that he is acquiring this Warrant
and, in the absence of an effective registration statement under the
Securities Act of 1993 (the "1933 Act") for the shares of Common Stock
issuable hereunder, such shares for the purpose of investment and not
with a view to or for sale in connection with any distribution
thereof. The Holder and the holder of any shares of Common Stock
issued upon exercise hereof, by his acceptance hereof, agrees that he
will notify the Company in writing before selling or otherwise
disposing of this Warrant or any shares of Common Stock issued to him
upon exercise hereof, describing briefly the nature of any such sale
or other disposition, and no such sale or other disposition shall be
made unless and until (i) the Company has received an opinion of
counsel reasonably acceptable to it that no registration (or
perfection of an exemption) under the 1933 Act is required with
respect to such sale or disposition (which opinion may be conditioned
upon the transferee's assuming the Holder's obligation under this
section 7) or (ii) an appropriate registration statement with respect
to such Warrant or such Common Stock, or both, has been filed with the
Securities and Exchange Commission (the
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"Commission") and declared effective by the Commission. The Company
may require that this Warrant and certificates representing shares of
Common Stock issued upon exercise hereof be stamped or imprinted with
an appropriate legend reflecting the foregoing restrictions. For the
purposes of this section 7, the term "Securities" shall include this
Warrant and the shares of Common Stock issued or issuable upon the
exercise hereof.
(b) The restrictions imposed by this section 7 on the
transfer of the Securities shall terminate as to any portion of the
Securities when:
(i) Such portion of the Securities shall have been
effectively registered under the 1933 Act and sold by the
holder thereof in accordance with such registration or
exemption; or
(ii) Written opinions to the effect that such a
registration is no longer required or necessary under any
Federal or State law or regulation of governmental
authority shall have been received from legal counsel for
the Company and counsel for the holder of such portion of
the Securities; or, if a favorable opinion is obtained
from holder's counsel, and counsel for the Company
declines to render such an opinion, upon the holder's
undertaking to indemnify the Company, on terms
satisfactory to the Company, against all liability or
loss the Company may sustain in connection with such
transfer; or
Whenever the restrictions imposed by this section 7 shall
terminate, as provided above, any holder of the Securities as to which
such restrictions shall have terminated shall be entitled to receive
promptly from the Company, without expense to him, a new certificate,
not bearing the restrictive legend referred to in clause (a) hereof.
8. The Company will use its best efforts to cause the shares of Common
Stock issuable upon exercise of the Warrants (the "Registerable Securities") to
be registered with the Securities and Exchange Commission, at the Company's
expense, under the Securities Act of 1933 (the "1933 Act") prior to September
___, 1998. The Company will use its best efforts to keep such Registration
Statement effective until the earlier of September ___, 2003 or until all of the
Registerable Securities have been sold pursuant to such Registration Statement.
In the event that the Registration Statement to be filed with the Commission as
set forth in this section 8 has not been declared effective by the Commission by
September ___, 1998, the purchase price of the Warrants shall be reduced as
follows: the Initial Purchase Price shall be reduced by 2% for every 30 days
following September ___, 1998, until the Registration Statement is declared
effective. In connection with such registration:
(a) The Company will pay all costs and expenses incurred in
connection with the registration of the Registerable Securities,
including all registration filing fees, printing fees, fees and
disbursements of counsel and accountants of the Company and one set of
counsel for the Investors. Transfer taxes, brokerage commissions and
underwriters' discounts attributable to the Registerable Securities
shall be for the account of the Investors;
(b) The Company will furnish at its expense to the
Investors such number of copies of the preliminary, final,
supplemental or amended prospectus in conformity with the requirements
of the 1933 Act and rules and regulations thereunder, as may be
reasonably required in order to facilitate the disposition of the
Registerable Securities;
(c) Unless preempted by Federal law, the Company will
register or qualify the Registerable Securities under any applicable
state securities or blue sky laws in such jurisdictions as the
Investors shall reasonably request;
(d) The Company will cause the Registerable Securities to
be listed on the NASDAQ Small Cap Market (or principal exchange if
applicable) on which the Common Stock is then listed; and
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(e) The Company shall indemnify and hold harmless, to the
full extent permitted by law, each Investor, its officers and
directors and each person who controls such Investor within the
meaning of the 1933 Act and any investment adviser against all losses,
claims, damages, liabilities and expenses caused by any untrue or
alleged untrue statement of a material fact contained in any
registration statement, prospectus or preliminary prospectus or any
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, except insofar as the same are caused by or contained in
any information with respect to the Investor furnished in writing to
the Company by such Investor expressly for use therein. The Company
will indemnify the underwriters, if any, of the Registerable
Securities, their officers and directors and each person who controls
any such underwriter to the same extent. The Company will reimburse
each indemnified party for all legal expenses incurred in connection
with investigating or defending any such claims. Each Investor
severally, but not jointly, shall indemnify and hold harmless the
Company against all losses, claims, damages, liabilities, and expenses
caused by any untrue or alleged untrue statement or a material fact in
any registration statement, prospectus or preliminary prospectus or
any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading; except that such indemnification shall be
available in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon information and in
conformity with written information furnished to the Company by
Investor specifically for use in the preparation thereof. If the
indemnification provided for herein is unavailable or insufficient to
hold harmless an indemnified party, then each indemnifying party shall
contribute to the amount paid or payable by such indemnified party as
a result of the losses, claims, damages, or liabilities referred to
above (a) in such proportion as is appropriate to reflect the relative
benefits received by the Company on the one hand and the Investors on
the other; or (b) if the allocation provided by clause (a) above is
not permitted by applicable law, in such proportion as is appropriate
to reflect the relative benefits referred to in clause (a) above but
also the relative fault of the Company on the one hand and the
Investors on the other in connection with the statements or omissions
which resulted in such losses, claims, damages, or liabilities, as
well as any other relevant equitable considerations. Relative fault
shall be determined by reference to, among other things, whether the
untrue statement of a material fact or the omission to state a
material fact relates to information supplied by the Company or the
Investor and the parties' relative intent, knowledge, access to
information, and opportunity to correct or prevent such untrue
statement or omission. For purposes of this subsection, the term
"damages" shall include any counsel fees or other expenses reasonably
incurred by the Company or the Investors in connection with
investigating or defending any action or claim which is the subject of
the contribution provisions of this section.
Each party entitled to contribution agrees that upon the
service of a summons or other initial legal process upon it in any
action instituted against it in respect of which contribution may be
sought, it shall promptly give written notice of such service to the
party or parties from whom contribution may be sought, but the
omission so to notify such party or parties of any such service shall
not relieve the party from whom contribution may be sought from any
obligation it may have hereunder or otherwise.
9. This Warrant is exchangeable, upon the surrender hereof by the
Holder at the principal office of the Company, for new warrants of like tenor
and date representing in the aggregate the right to purchase the number of
shares purchasable hereunder, each of such new Warrants to represent the right
to purchase such number of shares as shall be designated by said Holder at the
time of such surrender. Subject to section 7 hereof, this Warrant and all
rights hereunder are transferable in whole or in part by the Holder, in person
or by duly authorized attorney, upon surrender of this Warrant duly endorsed, at
the principal office of the Company.
10. Upon the receipt by the Company of evidence reasonably satisfactory
to it of the loss, theft, destruction or mutilation of this Warrant, and, in
case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and
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upon surrender and cancellation of this Warrant, if mutilated, the Company will
make and deliver a new Warrant of like tenor, in lieu of this Warrant.
11. All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been made when delivered or
mailed first-class postage prepaid or delivered to a telegraph office for
transmission:
(a) If to the Holder at such address as may have been
furnished by such holder to the Company in writing; and
(b) If to the Company at such address as may have been
furnished by the Company to the Holder of this Warrant in writing.
12. This Warrant shall be binding upon any successors or assigns of the
Company.
13. This Warrant shall be construed in accordance with and governed by
the laws of the State of Colorado.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed
and delivered as of the date set forth below by one of its officers thereunto
duly authorized.
Dated: September ___, 1997.
RENAISSANCE ENTERTAINMENT CORPORATION
By
-----------------------------------
Its
------------------------------
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---------------------------
SUBSCRIPTION FORM
To be signed only upon exercise of Warrant
The undersigned the holder of the within Warrant, hereby irrevocably elects
to exercise the purchase right represented by such Warrant for, and to purchase
thereunder, __________ of the shares of Common Stock of RENAISSANCE
ENTERTAINMENT CORPORATION to which such Warrant relates and herewith makes
payment of $__________, therefor in cash or by certified check and requests that
the certificates for such shares be issued in the name of, and be delivered to,
______________________________, the address for which is set forth below the
signature of the undersigned.
Dated: ____________________
----------------------------------
(Signature)
----------------------------------
----------------------------------
(Address)
----------------------------------
To be signed only upon transfer of Warrant
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto _______________ ______________________________ the right to purchase shares
of Common Stock of RENAISSANCE ENTERTAINMENT CORPORATION to which the within
Warrant relates and appoints ______________________________, attorney, to
transfer said right on the books of RENAISSANCE ENTERTAINMENT CORPORATION with
full power of substitution in the premises.
Dated: ____________________
----------------------------------
(Signature)
----------------------------------
----------------------------------
(Address)
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MORTGAGE DEED
AND
SECURITY AGREEMENT
AND
FIXTURE FINANCING STATEMENT
THIS INDENTURE, made as of the 14th day of May, 1997, by and between
Renaissance Entertainment Corporation, a Colorado corporation, having its
principal office at 4410 Arapahoe Avenue, Suite 200, Boulder, Colorado 80303
("Mortgagor"), and Dorsar Partners, L.P., a Texas Limited Partnership having an
address at c/o Steven L. Feinberg, 1855 North Mesa, Suite 120, El Paso, Texas
79912-5939, Charles H. Leavell having an address at c/o The Leavell Company,
4487 North Mesa, Suite 204, El Paso, Texas 79902 and Charles S. Leavell having
an address at c/o Renaissance Entertainment Corporation, 4440 Arapahoe Avenue,
Suite 200, Boulder, Colorado 80303 (collectively, "Mortgagee"),
W I T N E S S E T H:
That Mortgagor, in consideration of the sum of ONE MILLION and 00/100THS
($1,000,000.00) DOLLARS, the receipt whereof is hereby acknowledged, and all
additions, increases, modifications and renewals thereof does hereby GRANT,
BARGAIN, SELL, MORTGAGE, WARRANT AND CONVEY unto Mortgagee, its successors and
assigns, forever, all that tract or parcel of land situate in the County of
Kenosha, and State of Wisconsin, described in Exhibit A attached hereto and by
this reference made a part hereof, (the "Land");
TOGETHER with all of the buildings and improvements of every kind and
description now or hereafter located on the Land (the "Improvements");
TOGETHER with all of the following property, rights and interests (the
Land, the Improvements and such property, rights and interests being
collectively called the "Premises"):
(a) Mortgagor's right, title and interest, including all mineral
and water rights as well as any after-acquired title or reversion, in and
to the beds of the ways, roads, streets, avenues and alleys adjoining the
Land; and
(b) all and singular the tenements, hereditaments, easements,
appurtenances, passages, waters, water rights, water courses, riparian
rights, other rights, liberties and privileges thereof or in any way now or
hereafter appertaining thereto, including homestead and any other claim at
law or in equity as well as any after-acquired title, franchise or license
and the reversion and reversions and remainder and remainders thereof; and
(c) all rents, issues, proceeds and profits accruing and to
accrue from the Premises; and
(d) all materials intended for construction, reconstruction,
alteration and repair of the Improvements, all of which materials shall be
deemed to be included within the Premises immediately upon the delivery
thereof to the Premises and all fixtures and articles of personal property
now or hereafter owned by Mortgagor and attached to or contained in and
used in connection with the Premises, including, but not limited to, all
furniture, furnishings, apparatus, machinery, motors, transformers,
elevators, fittings, radiators, gas ranges, ovens, dishwashers, ice boxes,
mechanical refrigerators, awnings, shades,
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<PAGE>
screens, blinds, office equipment, carpeting, furniture and other
furnishings, and all plumbing, heating, fireplaces, and fireplace
equipment, lighting, cooking, laundry, ventilating, refrigerating,
incinerating, air-conditioning and sprinkler equipment, cabanas, swimming
pool equipment and fixtures and all appurtenances to any of the foregoing;
and all renewals or replacements thereof or articles in substitution
therefor, whether or not the same are or shall be attached to the
Improvements in any manner; it being mutually agreed that all the aforesaid
property owned by Mortgagor and placed by it on the Premises shall, so far
as permitted by law, be deemed to be affixed to the realty, security for
the said indebtedness and covered by this Mortgage.
(e) All proceeds of any insurance payable to Mortgagor and all
subsequent owners of the Premises as a result of the damage or destruction
thereto.
(f) Together with all awards and other compensation hereafter
paid to Mortgagor and all subsequent owners of the Premises for any taking
by eminent domain or condemnation, either permanent or temporary, of all or
any part of the Premises or any easement or appurtenance thereof, including
severance and consequential damages and change in grade of streets, and any
conveyance by private sale in lieu thereof.
This Mortgage shall also constitute a security agreement as defined in the
Uniform Commercial Code with respect to (and the Mortgagor hereby grants
Mortgagee a security interest in) all personal property and fixtures owned by
Mortgagor and included in the Premises. The Mortgagor shall, from time to time,
at the request of Mortgagee, execute any and all financing statements covering
such personal property and fixtures (in a form satisfactory to Mortgagee) which
Mortgagee may reasonably consider necessary or appropriate to perfect its
security interest. The Mortgagor will pay to Mortgagee, on demand, the amount
of any and all costs and expenses (including reasonable attorneys' fees and
legal expenses) paid or incurred by Mortgagee in connection with the exercise of
any right or remedy referred to in this paragraph. As to those items of
collateral described in this Mortgage that are or are to become fixtures, it is
intended that THIS MORTGAGE SHALL BE EFFECTIVE AS A FINANCING STATEMENT FILED AS
A FIXTURE FILING from the date of its filing in the real estate records of the
County where the Premises are situated. The name of the record owner of the
Premises is the Mortgagor set forth in page one of this Mortgage. Information
concerning the security interest created by this instrument may be obtained from
Mortgagee, as secured party, at its address as set forth in page one of this
Mortgage. The address of the Mortgagor, as debtor, is as set forth in page one
to this Mortgage. The Mortgagor's federal identification number is 84-1094630.
This document covers goods which are or are to become fixtures. Upon the
occurrence of a default, the giving of any required notice and the expiration of
any applicable grace or cure period, Mortgagee may, at its option, sell or
otherwise dispose of such personal property and fixtures by public or private
proceedings, separate from or together with the sale of the Premises, in
accordance with the provisions of the Wisconsin Uniform Commercial Code, and
Mortgagee may with respect to such fixtures or personal property, exercise any
other rights or remedies of a secured party under the Wisconsin Uniform
Commercial Code. Unless such personal property and/or fixtures are perishable
or threatened to decline speedily in value or are of a type customarily sold on
a recognized market, Mortgagee shall give Mortgagor at least ten (10) days prior
written notice of the time and place of any public sale of such fixtures or
personal property or other intended disposition thereof. Upon occurrence of any
event of default, the Mortgagee reserves the option, pursuant to the appropriate
provisions of the Wisconsin Uniform Commercial Code to proceed with respect to
such personal property and/or fixtures as part of the Premises in accordance
with its rights and remedies with respect to the Premises, in
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which event the default provisions of the Wisconsin Uniform Commercial Code
shall not apply.
TO HAVE AND TO HOLD the same unto Mortgagee and its successors and assigns
forever.
AND MORTGAGOR COVENANTS AND WARRANTS that Mortgagor is lawfully seized of
an indefeasible estate in fee simple of the Premises; that the same is free from
all encumbrances and liens whatsoever, except the "Permitted Exceptions"
identified on Exhibit B hereto, that Mortgagor has good and legal right, power
and authority to so convey the same and that Mortgagor and its successors and
assigns in interest will forever WARRANT AND DEFEND the title of the Premises
and the lien and priority of this Mortgage against the lawful claims and demands
of all persons whomsoever, subject to the Permitted Exceptions; and that
Mortgagor will execute, acknowledge and deliver all and every such further
assurances unto Mortgagee of the title to all and singular the Premises hereby
conveyed and intended so to be, or which Mortgagor may be or shall become
hereinafter bound so to do. All such covenants and warranties shall run with
the land solely for the benefit of Mortgagee, its successors and assigns.
PROVIDED, NEVERTHELESS, that if Mortgagor shall well and truly pay to
Mortgagee, or order, the principal sum of ONE MILLION and 00/100THS
($1,000,000.00) DOLLARS, evidenced by: (i) that certain 9% Convertible Secured
Debenture Due 2002 dated May 14, 1997 and issued by Mortgagor to Dorsar
Partners, L. P.; (ii) that certain 9% Convertible Secured Debenture Due 2002
dated May 14, 1997 and issued by Mortgagor to Charles S. Leavell and (iii) that
certain 9% Convertible Secured Debenture Due 2002 dated May 14, 1997 and issued
by Mortgagor to Charles H. Leavell (collectively the "Debentures") with interest
on such principal sum from the date of the Debentures at the rate specified in
the Debentures. The Debentures are being issued, respectively, pursuant to: (i)
that certain Subscription and Purchase Agreement dated as of May 8, 1997 and
executed between Mortgagor and Dorsar Partners, L. P.; (ii) that certain
Subscription and Purchase Agreement dated May 8, 1997 and executed between
Mortgagor and Charles S. Leavell and (iii) that certain Subscription and
Purchase Agreement dated as of May 8, 1997 and executed between Mortgagor and
Charles H. Leavell (collectively the "Subscription Agreements"). The Debentures
mature not later than April 1, 2002. The provisions of the Debentures are
incorporated herein by reference.
AND PROVIDED, that if Mortgagor shall fully perform all of the terms,
covenants, conditions and warranties of this Mortgage, then this indenture is to
be NULL AND VOID and shall be released of record at the expense of Mortgagor,
OTHERWISE to remain in full force and effect.
MORTGAGOR FURTHER COVENANTS AND AGREES AS FOLLOWS:
1. To pay promptly the principal of, premium, if any, and interest,
fixed, contingent or otherwise, on the indebtedness evidenced by the Debentures
together with all other sums arising under the Debentures, the Subscription
Agreements and this Mortgage and secured hereby, at the times and in the manner
herein and in the Debentures provided.
2. To keep the Premises free from statutory liens of every kind; to
pay, (except when payment for all such items has been made under Paragraph 3
hereof) before delinquent and before any interest or penalty for non-payment
attaches thereto, all taxes, assessments, water rates, sewer rentals and other
governmental charges, fines, or impositions of every nature and to whomever
assessed that may now or hereafter be levied or assessed upon the Premises or
any part thereof, or upon the rents, issues, income or profits thereof, whether
any or all said taxes, assessments, water rates, sewer rentals or
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charges, fines or impositions be levied directly or indirectly or as excise
taxes or income taxes; to deliver to Mortgagee, at least ten (10) days before
delinquent, receipted bills evidencing payment therefor; to pay in full, under
protest in the manner provided by statute, any tax, assessment, rate, rental,
fine, imposition or charge aforesaid which Mortgagor may desire to contest; and
in the event of the passage, after the date of this Mortgage, of any law of the
State of Wisconsin, deducting from the value of land for the purpose of
taxation, any lien thereon or changing in any way the laws for the taxation of
mortgages or debts secured by mortgage for state or local purposes, or the
manner of the collection of any such taxes, so as to impose a tax or otherwise
to affect this Mortgage, or upon the rendition of any Court of competent
jurisdiction of a decision that any undertaking by Mortgagor as in this
paragraph or elsewhere in this Mortgage provided is legally inoperative, then
the principal indebtedness together with accrued interest and all other sums due
hereunder (but not including any prepayment premium) and under the Debentures
will be due and payable at the election of Mortgagee thirty (30) days' after
written notice to the Mortgagor, of such election, provided, however, said
option and right shall be unavailing and the Debentures and Mortgage shall
remain in effect as though said law had not been enacted, if, notwithstanding
such law, Mortgagor lawfully may pay any such tax or taxes assessment, rate,
rental, fine, imposition or charge to or for Mortgagee and does in fact pay same
when payable. An assessment which is payable in installments at the application
of Mortgagor or any lessee of the Premises shall nevertheless, for the purpose
of this paragraph, be deemed due and payable in its entirety on the day the
first installment becomes due and payable or a lien unless Mortgagee agrees that
such assessment may be paid in installments, which agreement shall not be
unreasonably withheld. Except when payment has been made under Paragraph 3
hereof, Mortgagor shall deliver to Mortgagee receipted bills evidencing payment
of such installments at least ten (10) days before delinquent. In the event of
a default under this Mortgage, including a default under the foregoing,
Mortgagee shall have the option, in addition to its other remedies, to require
the Mortgagor to pay immediately the outstanding balance of any assessments
being paid in installments.
3. To keep the Improvements insured against loss or damage resulting
from fire, windstorm and other hazards, casualties and contingencies (including
but not limited to War Risk Insurance, if available) in an amount equal to the
replacement cost thereof, and to pay promptly, when due, any premiums on such
insurance. All insurance policies shall be in such form and with such
endorsements as shall be reasonably acceptable to Mortgagee and shall be carried
in companies approved by Mortgagee and policies and renewals, marked 'Paid',
shall be delivered to Mortgagee at least ten (10) days before the expiration of
the old policies and shall have attached thereto standard non-contributing
mortgagee clause (in favor of and, subject to the rights of the prior mortgage
holder, entitling Mortgagee to collect any and all of the proceeds payable under
all such insurance) as well as standard waiver of subrogation endorsement, all
to be in form acceptable to Mortgagee. In the event of a change in ownership or
occupancy of the Premises immediate notice thereof by mail shall be delivered by
Mortgagor to all insurers and in the event of loss, Mortgagor will give
immediate notice by mail to Mortgagee. The Mortgagor hereby authorizes
Mortgagee, at its option, but subject to the rights of the prior mortgage
holder, to collect, adjust and compromise any losses under any of the insurance
aforesaid and after deducting costs of collection to apply the proceeds at its
option as follows: (1) As a credit upon any portion as selected by Mortgagee,
of the indebtedness secured hereby, or (2) To restoring the improvements in
which event Mortgagee shall not be obligated to see the proper application
thereof nor shall the amount so released or used be deemed a payment on any
indebtedness secured hereby, or (3) To deliver same to the owner of the
premises. In the event of foreclosure of this Mortgage, or other transfer of
title to the Premises in extinguishment of the indebtedness secured hereby, all
right, title and interest of Mortgagor
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in and to any insurance policies then in force shall pass to the purchaser or
grantee of the Premises subject to the rights of the prior mortgage holder.
Mortgagor shall not carry separate insurance, concurrent in kind or form and
contributing, in the event of loss, with any insurance policies required
hereunder. Mortgagor shall at all times be in compliance with the terms and
provisions of all insurance policies required hereunder or in fact maintained by
Mortgagor with respect to the Premises whether or not required hereunder.
That notwithstanding any provisions herein to the contrary and in
particular the foregoing provisions of this Section 3, in the event of any such
loss or damage as therein described to the improvements upon the Premises, it is
hereby understood, covenanted and agreed that, subject to the rights of the
prior mortgage holder, the Mortgagee shall make the proceeds received under any
such insurance policies as therein described available for the restoration of
the improvements so damaged, subject to the following conditions: (a) that
Mortgagor is not then in default under any of the terms, covenants and
conditions hereof; (b) that Mortgagee shall first be given satisfactory proof
that such improvements have been fully restored or that by the expenditure of
such money will be fully restored, free and clear of all liens, except as to the
lien of this Mortgage; (c) that in the event such proceeds shall be insufficient
to restore or rebuild the said improvements, Mortgagor shall deposit promptly
with Mortgagee funds which, together with the insurance proceeds, shall be
sufficient to restore and rebuild the said Premises; (d) that in the event
Mortgagor shall fail within a reasonable time, subject to delays beyond its
control, to restore or rebuild the said improvements, then Mortgagee, at its
option, may restore or rebuild the said improvements for or on behalf of the
Mortgagor and for such purpose may do all necessary acts; (e) that the excess of
said insurance proceeds above the amount necessary to complete such restoration
shall be applied as hereinbefore provided as a credit upon any portion as
selected by Mortgagee, of the indebtedness secured hereby; and (f) the holder of
the prior mortgage on the Premises, if the same remains unsatisfied at such
time, has consented to making such proceeds available for restoration. In the
event any of the said conditions are not or cannot be satisfied, then the
alternate disposition of such insurance proceeds as provided above in this
Section 3 shall again become applicable.
Under no circumstances shall Mortgagee become personally obligated to take
any action to restore or rebuild the said improvements. In the event of
foreclosure of this Mortgage, or other transfer of title to the Premises in
extinguishment of the indebtedness secured hereby, subject to the rights of the
prior mortgage holder, all right, title and interest of the Mortgagor, in and to
any insurance policies then in force, and to the proceeds of any such policies,
shall pass to the purchaser or grantee.
4. The Premises are subject to prior Real Estate Mortgages and an
Assignment of Rents in favor of Bank One, Kenosha, NA more fully described in
Exhibit B hereto. Mortgagor agrees that it will timely pay and perform all
things required to be paid and performed pursuant to said Real Estate Mortgages
and the note or notes secured thereby. In the event that Mortgagor shall fail
to pay or perform anything so required pursuant to said Real Estate Mortgages
and note or notes, Mortgagee shall have the right, but shall have no obligation,
to pay or perform the same and the amount so paid or the cost of any such
performance together with interest thereon at the rate provided in the
Debentures, shall be repayable by the Mortgagor without demand and shall be an
additional lien upon the Premises prior to any right, title, interest or claim
attaching or accruing subsequent to the lien of this Mortgage and shall be
secured by and collectible as a part of this Mortgage.
5. To carry and maintain such liability and indemnity insurance
(including, but without limitation, water damage and the so-called assumed and
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contractual liability coverage) as may reasonably be required from time to time
by Mortgagee in forms, amounts and with companies satisfactory to Mortgagee.
Such insurance policies shall name Mortgagee as an additional insured.
Certificates of such insurance, premiums prepaid, shall be deposited with
Mortgagee and shall contain provision for thirty (30) days' notice to Mortgagee
prior to any cancellation thereof.
6. That none of the Improvements shall be altered, removed or
demolished nor shall any fixtures, appliances or articles of personal property
on, in or about the Improvements be severed, removed, sold or mortgaged, without
the consent of Mortgagee which may be withheld in Mortgagee's sole discretion
except that such consent of Mortgagee shall not be required in the case of: (i)
the severance, removal or sale of any fixtures, chattels or articles of personal
property, provided that they are promptly replaced by similar fixtures, chattels
and articles of personal property, at least equal in quality and condition as
those replaced, free from any security interest in or encumbrance thereon or
reservation of title thereto; and (ii) alterations, removals or demolitions done
for the purpose of making improvements done in the ordinary course of operating
the Premises as income producing property provided that any such alteration,
removal or demolition costs less than $25,000; to permit, commit or suffer no
waste, impairment or deterioration of the Premises or any part thereof; to keep
and maintain the Premises and every part thereof in thorough repair and
condition; to effect such repairs as Mortgagee may reasonably require and from
time to time to make all needful and proper replacements so that the Premises
will, at all times, be in good condition, fit and proper for the respective
purposes for which they were originally erected or installed; to comply with all
statutes, orders, requirements or decrees relating to the Premises by any
federal, state or municipal authority; to observe and comply with all conditions
and requirements necessary to preserve and extend any and all rights, licenses,
permits (including but not limited to zoning variances, special exceptions and
non-conforming uses), privileges, franchises and concessions which are
applicable to the Premises or which have been granted to or contracted for by
Mortgagor in connection with any existing or presently contemplated use of the
Premises; and to permit Mortgagee or its agents, at all reasonable times, to
enter upon and inspect the Premises.
7. To save Mortgagee harmless from all costs and expenses, including
reasonable attorneys' fees, and costs of a title search, continuation of
abstract and preparation of survey, incurred by reason of any action, suit,
proceeding, hearing, motion or application before any court or administrative
body (excepting an action to foreclose or to collect the debt secured hereby) in
and to which Mortgagee may be or become a party by reason hereof, including but
not limited to condemnation, bankruptcy and administrative proceedings, as well
as any other of the foregoing wherein proof of claim is by law required to be
filed or in which it becomes necessary to defend or uphold the terms of and the
lien created by this Mortgage, and all money paid or expended by Mortgagee in
that regard, together with interest thereon from date of such payment at the
rate set forth in the Debentures shall be so much additional indebtedness
secured hereby and shall be immediately and without notice due and payable by
Mortgagor.
8. That Mortgagor will give Mortgagee immediate written notice of the
actual or threatened commencement of any proceedings under eminent domain
affecting all or any part of the Premises or any easement therein or
appurtenance thereof, including severance and consequential damage and change in
grade of streets, and will deliver to Mortgagee copies of any and all papers
served in connection with any such proceedings. Mortgagor further covenants and
agrees, subject to the rights of the prior mortgage holder, to make, execute and
deliver to Mortgagee, at any time or times upon request, free, clear and
discharged of any encumbrances of any kind whatsoever except
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the rights of the holder of the prior mortgage, any and all further assignments
and/or other instruments deemed necessary by Mortgagee for the purpose of
validly and sufficiently assigning all awards and other compensation heretofore
and hereafter to be made to Mortgagor (including the assignment of any award
from the United States Government at any time after the allowance of the claim
therefor, the ascertainment of the amount thereof and the issuance of the
warrant for payment thereof) for any taking, either permanent or temporary,
under any such proceedings.
Mortgagor further agrees that should the Premises or any part thereof,
including any easement or appurtenance thereof, be taken or damaged, permanently
or temporarily, by reason of any public improvement or condemnation proceedings,
including severance and consequential damage and change in grade of streets, or
damage by earthquake or in any other manner, subject to the rights of the prior
mortgage holder, Mortgagee shall be entitled to any compensation, award, payment
or relief therefor and Mortgagor does hereby appoint Mortgagee its
Attorney-in-Fact, coupled with an interest, and authorizes, directs and empowers
such Attorney, at the option of the Attorney on behalf of the Mortgagor, its
successors or assigns, to commence, appear in and prosecute, in its own name,
any action or proceedings, to adjust or compromise any claim therefor and to
collect and receive proceeds thereof, and to give proper receipts and
acquittances therefor and after deducting expenses of collection, to apply the
net proceeds as a credit on any portion, as selected by Mortgagee, of the
indebtedness secured hereby notwithstanding the fact that the amount owing
thereon may not then be due and payable hereunder or that the indebtedness is
otherwise adequately secured, provided, however, that no prepayment premium
shall be due in connection with any net proceeds applied to the indebtedness.
9. That Mortgagor within five (5) days upon request by mail, will
furnish a written statement duly acknowledged confirming the amount of the
principal balance of the Debentures and all interest accrued thereon and all
other amounts due upon this Mortgage and whether any offsets or defenses exist
against the mortgage debt.
10. That upon default by Mortgagor in the performance or observance of
any of the terms, covenants, conditions or warranties herein or in the
Debentures contained, after any notice required by the terms of the Debentures
and the expiration of any applicable cure or grace period, Mortgagee may, at its
option, and whether electing to declare the whole indebtedness due and payable
or not, perform the same without waiver of any other remedy, and any amount paid
or advanced by Mortgagee in connection therewith or any other costs, charges or
expenses incurred in the protection of the Premises and the maintenance of this
lien including reasonable attorneys' fees, with interest thereon, at the rate
set forth in the Debentures shall be repayable by the Mortgagor without demand
and shall be an additional lien upon the Premises prior to any right, title,
interest or claim attaching or accruing subsequent to the lien of this Mortgage
and shall be secured by and collectible as a part of this Mortgage.
11. That upon any default by Mortgagor in the payment of the principal
sum secured hereby or of any installment thereof, or of interest thereon, as
they severally become due, or any default, in the performance or observance of
any other term, covenant or condition in this Mortgage or in the Debentures or
in any instrument now or hereafter evidencing or securing said debt, and the
continuance of any such default after the giving of any required notice and the
expiration of any applicable grace period provided in Paragraph 33 of this
Mortgage, then in any or either of said events, the whole indebtedness secured
hereby together with accrued interest and all other sums due hereunder or under
the Debentures, shall, at the option of Mortgagee, become immediately due and
payable together with interest at the rate set forth in the Debentures
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and together with reasonable attorneys' fees and without relief from valuation
or appraisement laws, and thereupon, or at any time during the existence of any
such default, Mortgagee may exercise with respect to all personal property and
fixtures which are a part of the Premises, all the rights and remedies accorded
upon default to a secured party under the Uniform Commercial Code as in effect
in the State of Wisconsin, and may proceed to foreclose this Mortgage by
judicial proceedings, anything hereinbefore or in said Debentures contained to
the contrary notwithstanding, and any failure to exercise said option shall not
constitute a waiver of the right to exercise the same at any other time.
Mortgagee may become the purchaser at any such foreclosure sale, and for the
purpose of making settlement or payment of the purchase price, shall be entitled
to use the Debentures and any claims for interest accrued and unpaid thereon,
together with all other sums, with interest, advanced and unpaid hereunder, and
all statutory charges for such foreclosure, including maximum attorney's fees
allowed by law in order that there may be credited as paid on the purchase price
the sums then due under the Debentures including principal and interest thereon
and all other sums, with interest, advanced and unpaid hereunder, and all
charges and expenses of such foreclosure including attorneys' fees allowed by
law.
12. That upon default by Mortgagor as aforesaid and the election of
acceleration by Mortgagee as aforesaid, Mortgagor does hereby authorize and
empower Mortgagee forthwith to foreclose this Mortgage by sale of the Premises
at public auction according to the statute in such case provided, and to apply
the proceeds of the sale to pay all amounts then due on this Mortgage, including
principal, interest and the amount of any taxes, assessments and insurance
premiums and any other sum which may then be due to Mortgagee, and also to pay
all costs and expenses of such foreclosure sale, including but not limited to
attorneys' fees, cost of continuation of abstract, examination of title and
title insurance, all of which costs, expenses and fees the Mortgagor agrees to
pay.
13. That in case of foreclosure of this Mortgage in any court of law or
equity, whether or not any order or decree shall have been entered therein, and
to the extent permitted by law, a reasonable sum as aforesaid shall be allowed
for attorneys' fees of the plaintiff in such proceeding, for stenographers' fees
and for all moneys expended for documentary evidence and the cost of a complete
abstract of title and title report for the purpose of such foreclosure, such
sums to be secured by the lien hereunder; and, to the extent permitted by law,
there shall be included in any judgment or decree foreclosing this Mortgage and
be paid out of said rents, issues and profits from the Premises or the proceeds
of any sale made in pursuance of any such judgment or decree: (1) all costs and
expenses of such suit or suits, advertising, sale and conveyance, including
reasonable attorneys', solicitors' and stenographers' fees, outlays for
documentary evidence and the cost of said abstract, examination of title and
title report; (2) all moneys advanced by Mortgagee, if any, for any purpose
authorized in this Mortgage, with interest as herein provided; (3) all the
accrued interest and Default Interest remaining unpaid on the indebtedness
hereby secured; (4) any Acceleration Premium then arising; and (5) all the said
principal money remaining unpaid. The overplus of the proceeds, if any, shall
be paid to the said Mortgagor on reasonable request, or as the court may direct.
14. That in case of any foreclosure sale of the Premises, the same may
be sold in one or more parcels. Mortgagor, for Mortgagor and all who may claim
through or under Mortgagor, waives any and all right to have the Premises
marshaled upon foreclosure of the lien hereof and agrees that any court having
jurisdiction to foreclose such lien may order the Premises sold as an entirety.
Mortgagor agrees that to the extent permitted by law, this Mortgage may be
foreclosed by Mortgagee at Mortgagee's option, pursuant to the
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provisions of Section 846.101, 846.102 and/or 846.103 of the Wisconsin statutes
or any successor thereof.
15. That the failure of Mortgagee to exercise the option for
acceleration of maturity and/or foreclosure following any default as aforesaid
or to exercise any other option granted to Mortgagee hereunder in any one or
more instances, or the acceptance by Mortgagee of partial payments hereunder
shall not constitute a waiver of any such default, but such option shall remain
continuously in force. Acceleration of maturity, once claimed hereunder by
Mortgagee, may, at the option of Mortgagee, be rescinded by written
acknowledgment to that effect by Mortgagee, but the tender and acceptance of
partial payments alone shall not in any way affect or rescind such acceleration
of maturity.
16. That in the event of foreclosure of this Mortgage, Mortgagor does
hereby authorize and empower Mortgagee, its successors and assigns: (a) to pay
all taxes, special assessments, assessments, water rates, sewer rentals and
other governmental charges of every kind and nature that may then have been or
that thereafter during the period of redemption from sale under such foreclosure
may be levied or assessed upon the Premises or any part thereof; (b) to keep the
Improvements insured and to pay the premiums therefor as required hereunder
during the period of redemption from the sale under such foreclosure; and (c) to
keep the Premises in thorough repair as required hereunder during the period of
redemption of the sale from such foreclosure, and any amount so paid or advanced
by Mortgagee under the authority of this paragraph, together with interest
thereon at the rate set forth in the Debentures, shall be an additional lien
upon the Premises prior to any right, title, interest or claim thereon attaching
or accruing subsequent to the lien of this Mortgage and shall be secured by and
collectible as part of the within Mortgage.
17. That at the option of Mortgagee, this Mortgage shall become subject
and subordinate, in whole or in part (but not with respect to priority of
entitlement to any insurance proceeds, award in condemnation or any intervening
judgment lien) to any and all Leases of all or any part of the Premises upon the
execution and recording in the offices of the County Recorder in and for Kenosha
County, Wisconsin, by Mortgagee of a unilateral declaration to that effect.
18. That the rights and remedies herein provided are cumulative and
Mortgagee may recover judgment thereon, issue execution therefor, and resort to
every other right or remedy available at law or in equity, without first
exhausting and without affecting or impairing the security or any right or
remedy afforded by this Mortgage and no enumeration of special rights or powers
by any provisions of this Mortgage shall be construed to limit any grant of
general rights or powers, or to take away or limit any and all rights granted to
or vested in Mortgagee by virtue of the laws of Wisconsin.
19. The Mortgagor hereby waives, to the extent permitted by law, the
benefits of all valuation, appraisement, homestead, exemption, stay and
moratorium laws, now in force or which may hereafter become laws.
20. That Mortgagee, without notice, and without regard to the
consideration, if any, paid therefor, and notwithstanding the existence at that
time of any inferior liens thereon, may release any part of the security
described herein or any person liable for any indebtedness secured hereby
without in any way affecting the priority of the lien of this Mortgage, to the
full extent of the indebtedness remaining unpaid hereunder upon any part of the
security not expressly released and may agree with any party obligated on said
indebtedness or having any interest in the security described herein to extend
the time for payment of any part or all of the indebtedness secured
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hereby. Such agreement shall not, in any way, release or impair the lien
hereof, but shall extend the lien hereof as against the title of all parties
having any interest in said security which interest is subject to said lien.
21. In the event Mortgagee (a) releases, as aforesaid, any part of the
security described herein or any person liable for any indebtedness secured
hereby, (b) grants an extension of time of any payments of the debt secured
hereby; (c) takes other or additional security for the payment thereof; (d)
waives or fails to exercise any right granted herein or in the Debentures, said
act or omission shall not release the Mortgagor, subsequent purchasers of the
Premises or any part thereof, or makers or sureties of this Mortgage or of the
Debentures, under any covenant of this Mortgage or of the Debentures, nor
preclude Mortgagee from exercising any right, power or privilege herein granted
or intended to be granted in the event of any other default then made or any
subsequent default.
22. That nothing herein contained nor any transaction related thereto
shall be construed or so operate as to require the Mortgagor to make any payment
or to do any act contrary to law; that if any clauses or provisions herein
contained operate or would prospectively operate to invalidate this Mortgage in
whole or in part then such clauses and provisions only shall be held for naught,
as though not herein contained, and the remainder of this Mortgage shall remain
operative and in full force and effect. All notices, approvals, consents,
requests and other communications required to be given hereunder shall be in
writing and mailed postage prepaid by certified or registered mail, return
receipt requested, or by personal delivery, to the addressees indicated in the
opening paragraph of this Mortgage (or at such other place as either Mortgagor
or Mortgagee, as the case may be, may, from time to time, designate in a written
notice given to the other) and shall be deemed sufficiently served on the date
of mailing thereof or on the date of personal delivery.
23. That the Premises herein mortgaged being located in the State of
Wisconsin, this Mortgage and the rights and indebtedness hereby secured shall,
without regard to the place of contract or payment, be construed and enforced
according to the internal laws of the State of Wisconsin.
24. Mortgagor agrees that upon or any time (i) after the occurrence of a
default hereunder, or (ii) during the period of redemption after foreclosure of
this then in any such event, Mortgagee, shall upon application to the district
court where the Premises or any part thereof is located by an action separate
from the foreclosure or in the foreclosure action (it being understood and
agreed that the existence of a foreclosure is not a prerequisite to any action
for a receiver hereunder), be entitled to the appointment of a receiver for the
Rents, profits and all other income of every kind which shall accrue and be
owing for the use or occupation of the Premises or any part thereof. Mortgagee
shall be entitled to the appointment of a receiver without regard to waste,
adequacy of the security or solvency of Mortgagor or without the requirement of
posting of any bond or security and without regard to the then value of the
Premises. The Mortgagee hereunder or any holder of the Debentures may be
appointed as the receiver. The receiver, who shall be an experienced property
manager, shall collect (until the indebtedness secured hereby is paid in full
and, in the case of a foreclosure sale, during the entire redemption period)
the Rents, profits and all other income of every kind, manage the Premises so to
prevent waste, execute Leases within or beyond the period of the receivership if
approved by the court and apply all Rents, profits and other income collected by
the receiver to the following in such order as may be designated by Mortgagee:
A. To the payment of all reasonable fees of the receiver, if any,
approved by the court;
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B. To the repayment of tenant security deposits, with interest
thereon, if required by applicable statutes;
C. To the payment when due of, delinquent or current, real estate
taxes or special assessments with respect to the Premises, or the periodic
escrow for the payment of the same;
D. To the payment when due of premiums for insurance of the type
required hereby, or the periodic escrow for payment of the same, if any;
E. To the payment of expenses for normal maintenance of the
Premises; and
F. If received prior to any foreclosure sale of the said Premises,
to Mortgagee for payment of the indebtedness secured by this Mortgage, but
no such payment made after acceleration of the indebtedness shall affect
such acceleration;
G. If received during or with respect to the period of redemption
after a foreclosure sale of the said Premises:
(1) If the purchaser at the foreclosure sale is not Mortgagee,
first to Mortgagee to the extent of any deficiency of the sale
proceeds to repay the indebtedness secured by this Mortgage, second
to the purchaser as a credit to the redemption price, but if the
said Premises are not redeemed, then to the purchaser of the said
Premises;
(2) If the purchaser at the foreclosure sale is Mortgagee, to
Mortgagee, to the extent of any deficiency of the sale proceeds to
repay the indebtedness secured by this Mortgage and the balance to
be retained by Mortgagee as a credit to the redemption price, but if
the said Premises are not redeemed, then to Mortgagee, whether or
not any such deficiency exists.
As provided in applicable statutes, Mortgagee shall have the right at any
time and without limitation to advance money to the receiver to pay any part of
or all of the items which the receiver should otherwise pay if cash were
available from the Premises and sums so advanced with interest at the rate
provided in the Debentures, shall be secured hereby, or if advanced during the
period of redemption, shall be a part of the sum required to be paid to redeem
from the sale.
Mortgagor for itself and any subsequent owner of the Premises hereby waives
any and all defenses to the application for a receiver and hereby specifically
consents to such appointment without notice but nothing herein contained is to
be construed to deprive the holder of this Mortgage of any other right, remedy
or privilege it may have under the law to have a receiver appointed. The
provision for the appointment of a receiver and the assignment of such rents,
issues and profits is an express condition upon which the loan hereby secured is
made. The rights and remedies herein provided for shall be deemed to be
cumulative and in addition to, and not in limitation of, those provided by law,
and if there be no receiver so appointed, Mortgagee may proceed to collect the
rents, issues and profits from the Premises.
25. That in the event of the sale or transfer by operation of law, or
otherwise, of all or any part of the Premises, Mortgagee is hereby authorized
and empowered to deal with such vendee or transferee with reference to the
Premises, or the debt secured hereby, or with reference to any of the terms or
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conditions hereof, as fully and to the same extent as it might with Mortgagor,
without in any way releasing or discharging Mortgagor from its liability or
undertaking hereunder.
26. Mortgagor shall maintain and keep in full force and effect its legal
existence, its right to carry on its business, and all franchises, rights and
privileges heretofore or hereafter granted to or for Mortgagor, and shall file
within the prescribed time any and all franchise tax reports and any other tax
reports or returns, and pay all such taxes when due and payable all in
compliance with the provisions of any present or future law.
27. Mortgagor represents and warrants that on the date on which this
Mortgage is executed and delivered, neither it, this Mortgage, nor the Premises,
nor the contemplated use of the Improvements on the Premises are in violation of
any easements, covenants and whether restrictions of record or not, affecting or
binding on the Premises. Mortgagor further covenants that Mortgagor shall at
all times faithfully and timely perform or cause to be performed all of the
terms, covenants and conditions, on Mortgagor's part to be performed, contained
in any agreements, easements, permits or other instruments affecting the
Premises. Mortgagor covenants and agrees that it will not waive or modify any
of the terms of any of such agreements, easements, permits or other instruments
or the rights or easements created thereby or cancel or surrender same or
release or discharge any party thereunder or person bound thereby of or from any
of the terms, covenants or conditions thereof or permit the release or discharge
of any party thereunder in a manner that adversely affects mortgagee's security,
without, in each instance, the prior written consent of Mortgagee. Mortgagor
shall take all necessary action to effect the performance of all of the
obligations of the other parties to and the persons bound by the said
agreements, easements, permits and other instruments.
Mortgagor will promptly give to Mortgagee copies of all notices, advices,
demands, requests, consents, statements, approvals, disapprovals,
authorizations, determinations, satisfactions, waivers, designations, refusals,
confirmations or denials which it shall give or receive under any of the
aforesaid agreements, easements, permits and other instruments to the extent any
of the foregoing adversely affect Mortgagee's security.
28. Mortgagor hereby represents and warrants that:
(a) the Premises and the operations presently conducted
thereon are not in violation of any zoning ordinances, building codes
or Environmental laws;
(b) neither Mortgagor nor to the knowledge of Mortgagor,
after due inquiry, any other person or entity has ever caused or
permitted any hazardous substance to be placed, held, located,
generated, treated or disposed of, on, under or at the Premises except
in conformance with applicable law;
(c) Mortgagor has not received any notice from any
governmental agency that the Premises and the operations presently
conducted thereon are the subject of any pending or threatened
investigation, inquiry or proceeding under any Environmental laws;
(d) neither Mortgagor, nor to the knowledge of Mortgagor,
after due inquiry, any other person, has ever caused or permitted any
asbestos to be located on the Premises;
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(e) to Mortgagor's knowledge, after due inquiry, no
hazardous substance has ever migrated in, on, about or under the
Premises;
(f) Mortgagor has no knowledge of any use of the Premises
by any prior owner which violated any applicable Environmental laws;
and
(g) Mortgagor has duly obtained or secured all necessary
permits, licenses, and other governmental authorizations either
necessary or appropriate under Environmental Laws.
29. Mortgagor hereby covenants and agrees that:
(a) its own use of the Premises and the operations and
activities conducted thereon will at all times be in compliance with
all Environmental laws and that it will exercise its best efforts to
secure compliance by other users of the Premises with all
Environmental Laws;
(b) Mortgagor will not cause or permit any hazardous
substance ever to be generated, handled, used, stored treated or
placed on, under or at, or to escape, leak, seep, spill or be
discharged, emitted or released from, the Premises or any part
thereof, except in compliance with Environmental laws, PROVIDED,
HOWEVER, that Mortgagor may store reasonable quantities of chemicals,
cleansers and other materials reasonably required for maintenance and
operation of the Premises provided the same are properly stored, are
used in the ordinary course of business, and in compliance with all
applicable laws;
(c) the use of the Premises by Mortgagor of the Premises
will not result in the unlawful release or presence of any hazardous
substance or solid waste in, on or under the Premises and Mortgagor
will exercise its best efforts to assure that the use of the Premises
by any tenant, licensee or other occupant will not result in the
unlawful release or presence of any hazardous substance or solid waste
in, on or under the Premises;
(d) Mortgagor shall immediately notify Mortgagee of the
occurrence of any violation or receipt of any notice or complaint of
any violation or alleged violation of any Environmental Laws and shall
give immediate notice to the Mortgagee of any violation, or receipt of
any notice or complaint of any violation or alleged violation, of any
Environmental Laws. Mortgagor will, at the Mortgagor's expense,
furnish Mortgagee with any and all environmental reports, tests,
analyses, and studies reasonably requested by Mortgagee to determine
whether the Premises has been or is being used for the handling,
generation, disposal, storage, or transportation of any hazardous
substances, and whether the Premises and all activities conducted
thereon are in compliance with all Environmental Laws.
(e) Mortgagee, its agents and representatives, may from
time to time make periodic inspections of the Premises and in
connection therewith may make such tests of the air, soil,
groundwater, and building materials, as Mortgagee, its agents and
representatives, shall deem necessary;
(f) Mortgagor shall use its best efforts to cause any and
all tenants, licensees and other occupants of the Premises to
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conduct their respective businesses and uses of the Premises so as to
comply in all respects with Environmental Laws; and
(g) In the event reasonable evidence exists of the
occurrence or existence of the violation of any Environmental Law on
the Premises, Mortgagee (by its officers, employees and agents) at any
time and from time to time may contract for the services of persons
(the "Site Reviewers") to perform such environmental site assessments
("Site Assessments") on the Premises as are reasonably necessary for
the purpose of determining whether there exists on the Premises any
environmental condition which could reasonably be expected to result
in any liability, cost or expense to the owner, occupier or operator
of the Premises arising under any of the Environmental Laws. The Site
Reviewers are hereby authorized to enter upon the Premises for
purposes of conducting Site Assessments. The Site Reviewers are
further authorized to perform both above and below the ground testing
for environmental damage or the presence of hazardous materials on the
Premises and such other tests on the Premises as may be reasonably
necessary to conduct the Site Assessments in the reasonable opinion of
the Site Reviewers. Mortgagor agrees to supply to the Site Reviewers
such historical and operational information regarding the Premises as
may be reasonably requested by the Site Reviewers to facilitate the
Site Assessments and will make available for meetings with the Site
Reviewers appropriate personnel having knowledge of such matters. The
results of Site Assessments shall be furnished to Mortgagor upon
request. The reasonable cost of performing such Site Assessments
shall be paid by Mortgagor.
For purposes of this section, the term "Environmental Laws" shall mean and
include any and all laws, statutes, ordinances, rules, regulations, orders, or
determinations of any governmental authority pertaining to health or to the
environment, and relating to the Premises, including without limitation, the
Clean Air Act, as amended, the Comprehensive Environmental Response,
Compensation and Liability act of 1980, as amended by the Superfund Amendments
and Reauthorization Act of 1986 ("SARA"), and as may be further amended
(collectively "CERCLA"), the Federal Water Pollution Control Act Amendments, the
Occupational Safety Health Act of 1970, as amended, the Resource Conservation
and Recovery Act of 1976, as amended ("RCRA"), the Hazardous Materials
Transportation Act of 1975, as amended, the Safe Drinking Water Act, as amended,
and the Toxic Substances Control Act, as amended. Likewise, the terms
"hazardous substance" and "Release" shall have the meanings specified in CERCLA
and the terms "solid Waste" and "disposal" (or "disposed") shall have the
meanings specified in RCRA; PROVIDED, HOWEVER, in the event either CERCLA or
RCRA is amended so as to broaden the meaning of any term defined therein, such
broader meaning shall apply subsequent to the effective date of such amendment,
AND PROVIDED FURTHER that, to the extent the laws of the state in which the
mortgaged premises is located establish a meaning for "hazardous substance,"
"release," "solid waste" or "disposal" which is broader than that specified in
either CERCLA or RCRA, such broader meaning shall apply with regard to the
Premises.
30. Mortgagor covenants and warrants that the Premises are and will be
the subject of validly issued and outstanding permits and that the Premises are
(and Mortgagor covenants that they will remain) permitted by and are consistent
with any and all zoning, ecological, environmental and use restrictions and all
other governmental laws, rules and regulations applicable to the Premises and
Mortgagor agrees that these covenants and warranties shall be fully accurate and
in force continually hereafter for so long as the indebtedness secured hereby is
unpaid.
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31. Mortgagor covenants not to initiate, join in, or consent to any
change in any zoning ordinance, private restrictive covenants or other public
or private restriction changing, limiting or restricting the uses which may be
made of the Premises or any part thereof, without the prior written consent of
Mortgagee in each instance. Without limiting the generality of the foregoing,
(a) Mortgagor shall not by act or omission permit all or any part of the
Premises to be availed of to qualify for fulfillment of any municipal or
governmental requirements for the construction or maintenance of any building or
other improvements on premises not part of the Premises, and (b) Mortgagor shall
not by act or omission impair the integrity of the Premises as zoning lots
separate and apart from all other premises not subject to this Mortgage. Any
attempt by Mortgagor to take any action which would violate any of the foregoing
provisions of this paragraph 31 shall be void.
32. Notwithstanding anything herein or in the Debentures secured hereby
to the contrary, it is hereby agreed that in no event shall the amount paid, or
agreed to be paid, to Mortgagee as interest pursuant to the terms of the
Debentures exceed the highest lawful rate permissible under applicable usury
laws if any. If Mortgagee would, but for the operation of this paragraph, ever
receive as interest an amount which would exceed the highest lawful rate, such
amount which would be excessive interest shall be applied to the reduction of
the unpaid principal balance due hereunder and not to the payment of interest.
Mortgagor covenants and agrees that the indebtedness secured by this
Mortgage and the proceeds of such indebtedness are for business purposes only.
Mortgagor hereby represents and warrants that no portion of the Premises is
homestead property of Mortgagor.
33. Upon the occurrence of: (a) default in the payment of any interest
upon any Debenture when the same becomes due and payable, and continuance of
such default for a period of ten (10) days; (b) default in the payment of the
principal of any Debenture when the same becomes due and payable; (c) default in
the performance, or breach, of any covenant or warranty of the Mortgagor in this
Mortgage (other than a covenant or warranty a default in whose performance or
whose breach is elsewhere in this Section specifically dealt with), and
continuance of such default or breach for a period of thirty (30) days after
there has been given, by registered or certified mail, to the Mortgagor by the
Holders of at least Ten Percent (10%) in principal amount of the outstanding
Debentures, a written notice specifying such default or breach and requiring it
to be remedied and stating that such notice is a "Notice of Default" hereunder;
(d) a court having jurisdiction in the premises shall enter a decree or order
for relief in respect of the Mortgagor in an involuntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, or appointing a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or similar official) of the Mortgagor or for any substantial part
of its property, or ordering the winding-up or liquidation of its affairs and
such decree or order shall remain unstayed and in effect for a period of thirty
(30) consecutive days; (e) the Mortgagor shall commence a voluntary case under
any applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, or shall consent to the entry of an order for relief in an involuntary
case under any such law, or shall consent to the appointment of or taking
possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator
(or other similar official) of the ;Mortgagor or for any substantial part of its
property, or shall make any general assignment for the benefit of creditors, or
shall fail generally to pay its debts as they become due, or shall take any
corporate action in furtherance of any of the foregoing. (f) the failure of the
Mortgagor to pay any indebtedness due any other person or entity and such
failure shall continue beyond any applicable grace period and result in the
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acceleration of maturity of such indebtedness; (g) the Mortgagor shall suffer to
exist beyond any applicable grace period any other event of default under any
material agreement binding the Mortgagor, provided such event of default has not
been waived in writing by the appropriate party or parties to such agreement; or
(g) the Mortgagor shall admit its inability to pay its debts as they mature or
shall make an assignment for the benefit of its creditors: then at such time, or
upon the happening of any such event, or at any time thereafter unless cured to
Mortgagee's satisfaction, as the case may be, the entire principal sum secured
hereby, together with accrued interest or any portion thereof as selected by
Mortgagee and all other sums due hereunder, under the Debentures and any other
document, instrument or agreement now or hereafter evidencing or securing the
indebtedness, shall, at the option of Mortgagee, become immediately due and
payable and shall thereupon be collectible by exercise of any remedy available
under this Mortgage or any other document given as additional security for the
indebtedness secured hereby as fully and completely as if all of the said sums
of money were originally stipulated to be paid on such day, anything in said
Debentures or in this Mortgage to the contrary notwithstanding, with reasonable
attorneys' fees and other costs and charges and without relief from valuation or
appraisement laws. In addition, such principal sum and all such other sums
shall bear interest from the date of such default until paid at the rate
provided in the Debentures, such interest to be paid on demand. The remedies
provided under this paragraph shall be in addition to and not a limitation on
any other rights or remedies contained in this Mortgage or available as a result
of any default by Mortgagor hereunder. Thereupon, or at any time during the
existence of any such default, Mortgagee may proceed to foreclose this Mortgage,
anything herein or in said Debentures contained to the contrary notwithstanding,
including a partial foreclosure. Any failure of Mortgagee to exercise any
option which Mortgagee may have hereunder, under the documents and instruments
evidencing and securing the debt, or at law or in equity, shall not constitute a
waiver of the right to exercise the same at any other time.
34. That all covenants hereof shall run with the land solely for the
benefit of Mortgagor and its successors and assigns.
35. That this Mortgage and the rights and indebtedness hereby secured,
without regard to the place of contract or payments, be construed and enforced
according to the laws of the State of Wisconsin.
36. That Mortgagor will do, execute, acknowledge and deliver such
further reasonable acts, deeds, conveyances, transfers and assurances necessary
or proper, in the reasonable judgment of Mortgagee, for the better assuring,
conveying, mortgaging, assigning and confirming unto the Mortgagee all property
mortgaged hereby or property intended so to be; whether now owned by Mortgagor
or hereafter acquired.
37. Each right, power and remedy herein conferred upon Mortgagee is
cumulative and in addition to every other right, power or remedy, existing or
implied, given now or hereafter existing at law or in equity, except as
specifically restricted herein and each and every right, power and remedy herein
set forth or otherwise so existing may be exercised from time to time as often
and in such order as may be deemed expedient by Mortgagee, and the exercise or
the beginning of the exercise of one right, power or remedy shall not be a
waiver of the right to exercise at the same time or thereafter any other right,
power or remedy; and no delay or omission of Mortgagee in the exercise of any
right, power or remedy accruing hereunder or arising otherwise shall impair any
such right, power or remedy, or be construed to be a waiver of any default or
acquiescence therein.
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38. Nothing in this Mortgage shall be construed as constituting the
Mortgagee a mortgagee in possession.
39. The unenforceability or invalidity of any provision or provisions
hereof shall not render any other provision or provisions herein contained
unenforceable or invalid.
40. The individuals identified as Mortgagee hereunder shall hold their
right, title and interest in and under this Mortgage and the Premises as tenants
in common, with Charles H. Leavell having an undivided 50% interest and Dorsar
Partners, L.P. and Charles S. Leavell each having an undivided 25% interest.
All money and other proceeds from the exercise of the rights and remedies of
Mortgagee granted pursuant to this Mortgage shall belong 50% to each of said
individuals.
IT IS SPECIFICALLY AGREED that time is of the essence of this contract and
that the waiver of the options, or obligations secured hereby, shall not, at any
time thereafter, be held to be abandonment of such rights. Notice of the
exercise of any option granted to Mortgagee herein, or in the Debentures secured
hereby, is not required to be given.
ALL OF THE COVENANTS herein contained shall bind, and the benefits and
advantages thereof shall also inure to the respective heirs, executors,
administrators, successors and assigns of the parties hereto. Whenever used,
the singular number shall include the plural, the plural the singular and the
use of any gender shall include all genders.
IN WITNESS WHEREOF, the Mortgagor has signed and delivered this writing the
day and year first above written.
Renaissance Entertainment Corporation
By
----------------------------
James R. McDonald
Its Chief Financial Officer
STATE OF COLORADO )
) ss.
COUNTY OF __________ )
On this ____ day of May, 1997, before me, a Notary Public within and for
said County, personally appeared James R. McDonald, to me personally known, who,
being by me duly sworn did say that he is the Chief Financial Officer of
Renaissance Entertainment Corporation, the corporation named as Mortgagor in the
foregoing instrument, and that he signed said instrument on behalf of said
corporation and as the free act and deed of said corporation.
_____________________________________________
Print Name________________________________
Notary Public, ________ County, Colorado
My Commission
[Expires]___________________
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This instrument was drafted by and after recording should be returned to:
GRAY, PLANT, MOOTY, MOOTY & BENNETT, P.A.
3400 City Center
33 South Sixth Street
Minneapolis, Minnesota 55402
JWT
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EXHIBIT A
LEGAL DESCRIPTION
PARCEL I:
Part of the Southeast Quarter and part of the Northeast Quarter of Section 36,
Town 1 North, Range 21 East of the Fourth Principal Meridian, lying and being in
the Town of Bristol, Kenosha County, Wisconsin, and being more particularly
described as: Beginning on the South line of the Southeast Quarter of said
Section at a point 600.7 feet South 89 degrees 24 minutes 50 seconds West from
the Southeast corner of said Quarter Section; thence South 89 degrees 24 minutes
50 seconds West along the South line of said Quarter Section 729.8 feet and to
the West line of the East half of said Quarter Section; thence North 1 degree 53
minutes 10 seconds West along the West line of the East Half of said Quarter
Section 2675.0 feet and to the North line of said Quarter Section; thence North
1 degree 46 minutes 40 seconds West along the West line of the Southeast Quarter
of the Northeast Quarter of said Section 1325.36 feet and to the North line of
said Quarter Quarter Section; thence North 89 degrees 02 minutes East along the
North line of said Quarter Quarter Section 1051.34 feet and to the Westerly
right-of-way line of Interstate Highway 94; thence South 2 degrees 03 minutes
East along said right-of-way line 131.93 feet; thence South 21 degrees 06
minutes West along said right-of-way line 788.49 feet; thence South 2 degrees 03
minutes East along said right-of-way line 700 feet; thence South 17 degrees 45
minutes 50 seconds East along said right-of-way line 1167.69 feet; thence South
10 degrees 58 minutes 40 seconds East along said right-of-way line 482.66 feet;
thence South 89 degrees 24 minutes 50 seconds West parallel to the South line of
the Southeast Quarter of said Section 395.04 feet; thence South 0 degree 35
minutes 10 seconds East at right angles to the South line of said Quarter
Section 851.72 feet to the point of beginning.
PARCEL II:
The East Half of the West Half of the Southeast Quarter and the Southwest
Quarter of the Northeast Quarter of Section Thirty-six (36), in Town One (1)
North, Range Twenty-one (21) East of the Fourth Principal Meridian; in the Town
of Bristol, County of Kenosha and State of Wisconsin.
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EXHIBIT B
PERMITTED ENCUMBRANCES
1. Real Estate Mortgage from Ellora Corporation to Bank One, Kenosha, NA dated
April 7, 1995 and recorded in the Kenosha County Register of Deeds office
on April 12, 1995 as Document No. 988507, securing $1,000,000.00.
2. Possible special charges by reason of any disallowance of any lottery tax
credit claimed for taxes levied or to be levied.
3. General and special taxes and assessments not yet due.
4. Public or private rights, if any, in such portions of the insured premises
as may be used, laid out, taken or dedicated in any manner whatsoever for
highway or road purposes.
5. Right of Way Authorization from Theodore Dooper to General Telephone
Company of Wisconsin, dated September 21, 1965 and recorded in the office
of the Register of Deeds for Kenosha County, Wisconsin on October 12, 1965
in Volume 713 of Records at page 504, as Document No. 479482 (as to Parcel
I).
6. Easement from Theodore E. Dooper to Wisconsin Electric Power Company, dated
July 23, 1963 and recorded in said Register's office on August 14, 1963 in
Volume 645 of Records at page 235-36, as Document No. 453071 (as to Parcel
I).
7. Distribution Easement granted Wisconsin Electric Power Company and
Wisconsin Bell, Inc. dated November 9, 1993 and recorded in the Kenosha
County Register of Deeds office on November 17, 1993 in Volume 1637 of
Records, Page 434-35, as Document No. 945420 (as to Parcel I).
8. Holding Tank Agreement recorded in the Kenosha County Register of Deeds
office on March 30, 1982 in Volume 1109 of Records, page 865, as Document
No. 688487; and on June 30, 1988 in Volume 1316 of Records, Page 607, as
Document No. 803280 (as to Parcel II).
9. Easement granted by Victoria Slavik to Wisconsin Gas and Electric Company
by instrument dated December 7, 1936 and recorded in said Register's office
July 10, 1937 in Volume 198 of Deeds, Page 528 (as to Parcel II).
10. Terms and conditions contained in Holding Tank Agreement dated 3/28/95 and
recorded in said Register's office on April 6, 1995 as Document No. 988072.
11. Real Estate Mortgage from Renaissance Entertainment Corporation to BankOne,
Colorado, NA dated March 31, 1997 and recorded in the Kenosha County
Register of Deeds Office on April 11, 1997 as Document No. 1054187,
securing a loan in the original principal amount of $690,188.55.
12. Real Estate Mortgage from Ellora Corporation to BankOne, Kenosha, NA dated
May 1, 1995 and recorded in the Kenosha County Register of Deeds Office on
June 19, 1995 as Document No. 993640, securing $250,000; together with
Assignment of Leases, Rents and Profits dated May 1, 1995 and recorded in
said Register's Office on June 19, 1995 as Document No. 993641.
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DEED OF TRUST, ASSIGNMENT OF LEASES
AND SECURITY AGREEMENT
THIS DEED OF TRUST, ASSIGNMENT OF LEASES AND SECURITY AGREEMENT (this "Deed
of Trust"), dated as of the 14th day of May, 1997, by and between RENAISSANCE
ENTERTAINMENT CORPORATION, a Colorado Corporation (the "Grantor"); Lawyers Title
Realty Services, Inc., a Virginia corporation located in Henrico County
Virginia, as trustee hereunder (the "Trustee"); and Dorsar Partners, L.P., a
Texas limited partnership, having an address at c/o Steven L. Feinberg, General
Partner, 1855 North Mesa, Suite 120, El Paso, Texas 79912-5939, Charles H.
Leavell having an address at c/o The Leavell Company, 4487 North Mesa, Suite
204, El Paso, Texas 79902 and Charles S. Leavell having an address at c/o
Renaissance Entertainment Corporation, 4440 Arapahoe Avenue, Suite 200, Boulder,
Colorado 80303 (collectively, together with any subsequent holder or holders of
the "Debentures" (defined below) are hereinafter referred to as the
"Beneficiary").
1. Grantor is indebted to Beneficiary on account of loans
(collectively the "Loan") in the principal sum of ONE MILLION and 00/100THS
($1,000,000.00) DOLLARS, as evidenced by: (i) that certain 9% Convertible
Secured Debenture Due 2002 dated May 14, 1997 and issued by Grantor to Dorsar
Partners, L.P.; (ii) that certain 9% Convertible Secured Debenture Due 2002
dated May 14, 1997 and issued by Grantor to Charles S. Leavell and (iii) that
certain 9% Convertible Secured Debenture Due 2002 dated May 14, 1997 and issued
by Grantor to Charles H. Leavell (collectively the "Debentures") with interest
on such principal sum from the date of the Debentures at the rate specified in
the Debentures. The Debentures are being issued, respectively, pursuant to: (i)
that certain Subscription and Purchase Agreement dated as of May 8, 1997 and
executed between Grantor and Dorsar Partners, L.P.; (ii) that certain
Subscription and Purchase Agreement dated May 8, 1997 and executed between
Grantor and Charles S. Leavell and (iii) that certain Subscription and Purchase
Agreement dated as of May 8, 1997 and executed between Grantor and Charles H.
Leavell (collectively the "Subscription Agreements"). The Debentures mature not
later than April 1, 2002. The provisions of the Debentures are incorporated
herein by reference.
2. As a condition to making the Loan, the Beneficiary has required, in
order to secure the repayment of the Debentures, that the Grantor, among other
things, convey the "Property" (defined below) to the Trustee and assign its
interest in leases of the Property pursuant to this Deed of Trust. The
Debentures, this Deed of Trust and every other document further evidencing,
securing the repayment of, executed in connection with or otherwise related to
the Loan are hereinafter referred to as the "Loan Documents".
DEED OF TRUST AND ASSIGNMENT OF LEASES:
SECTION 1. CONVEYANCE IN TRUST AND ASSIGNMENT OF LEASES
1.1 CONVEYANCE OF THE PROPERTY IN TRUST. For and in consideration of the
premises and the making of the Loan, and in order to secure the Indebtedness
(hereinafter defined), the Grantor hereby grants and conveys to the Trustee,
with General Warranty and English covenants of title, all of the following
described property, whether now owned or held or hereafter acquired by the
Grantor:
ALL that certain land situated in the County of Stafford, Virginia, and
more particularly described on Exhibit "A", and all rights, appurtenances,
easements, privileges, remainders and reversions now or hereafter appertaining
thereto, including, without limitation, all right, title, interest, property,
claim and demand of the Grantor, if any, in and to the land lying in the bed
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of any street, road, avenue or alley adjacent thereto, either at law or in
equity, in possession or expectancy, now existing or hereafter acquired
(collectively, the "Land") subject, however, to the Permitted Exceptions
described in Exhibit "B";
TOGETHER WITH all building and improvements now or hereafter erected on the
land (the "Improvements");
TOGETHER WITH all fixtures and tangible personal property owned by the
Grantor and now or hereafter attached to the land or the Improvements, and
replacements thereof, including, but not limited to, all plumbing and electrical
apparatus and equipment, cleaning and maintenance equipment, all boilers, tanks,
engines, motors, incineration and power equipment, laundry equipment, conduits,
switchboards, lifting, cleaning, fire-prevention, fire-extinguishing,
refrigeration, ventilation and communications apparatus, elevators, escalators,
shades, drapes, awnings, signs, screens, storm doors and windows, stoves,
cabinets, partitions, ducts and compressors, piping and plumbing fixtures,
pumps, heating, air conditioning and air cooling systems, fixtures and equipment
and lighting and air cooling systems, fixtures and equipment and lighting
systems, fixtures and all right, title and interest of Borrower in and to any
such personal property and fixtures that may be subject to any lease, title
retention or security agreement or other instrument (collectively, the
"Equipment"). All Equipment is part and parcel of the Land and appropriated to
the use of the Land and, whether affixed or annexed or not, shall for the
purpose of this Deed of Trust be deemed conclusively to be conveyed hereby.
TOGETHER WITH the Grantor's interest in all leases, subleases, service or
operating agreements and contracts of or relating to the Land, the Improvements
or the Equipment, whether now existing or hereafter entered into; and all rent,
income, revenues, royalties, issues and profits (collectively, the "Rents and
Profits") now or hereafter arising from the Land, the Improvements or the
Equipment; provided that, until the occurrence of an "Event of Default" (as
hereinafter defined), and the election of the Beneficiary to collect the Rents
and Profits after such Event OF Default, the Grantor shall have a license to
collect and dispose of the Rents and Profits subject to the provisions of 1.2
below, and provided further that such assignment shall not impose on the Trustee
or the Beneficiary of the Grantor's obligations under such leases, sublease,
service or operating agreements and contracts.
TOGETHER WITH all proceeds of the conversion, whether voluntary or
involuntary, of any of the foregoing real or personal property into cash or
other liquid claims, including, without limitation, all awards, payments or
proceeds, and any interest thereon, and the right to receive the same, that may
be made as the result of any casualty, any exercise of the right of eminent
domain or deed in lieu thereof, the alteration of the grade of any street and
any injury to or decrease in the value of such property, together with the
counsel fees, costs and disbursements incurred by the Beneficiary in connection
with the collection of such awards, payments and proceeds (collectively, the
"Proceeds"). The Grantor agrees to execute and deliver, from time to time such
further instruments as maybe requested by the Beneficiary to confirm such
assignment to the Beneficiary of the Proceeds.
The Land, the Improvements, the Equipment, the Rents and Profits and the
Proceeds, together with any substitutions therefore, replacements thereof and
additions or attachments thereto, are sometimes hereinafter referred to
collectively as the "Property". Nothing herein shall be deemed to be an
authorization by the Beneficiary to the Grantor to sell, assign or otherwise
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dispose of the Property, except in accordance with the provisions of this Deed
of Trust.
1.2 ASSIGNMENT OF RENTS AND LEASES. The Grantor also irrevocably and
absolutely assigns the Rents and Profits to the Beneficiary. Notwithstanding any
contrary provisions hereof, this assignment is intended to effect an absolute
and immediate assignments from the Grantor to the Lender of the Rents and
Profits and not merely the creation of a lien thereon or a security interest
therein. The Grantor shall have a license (the "Grantor's License") to manage
and operate the Project and to collect, receive and apply for its own account
all Rents as they become due; provided, however, that the Grantor's License
shall cease and terminate upon the occurrence of an "Event of Default' (as
defined below). Upon the termination of the Grantor's License, the Beneficiary,
its agents and employees are hereby expressly and irrevocably authorized before,
in conjunction with, or after acceleration of the Debentures, at the
Beneficiary's option, to enter and take possession of the Property (a) by entry
at the business or rental office of the Grantor, if any, located upon the
Property, or (b) by written notice served personally upon or sent by registered
or certified mail to the Grantor in accordance with the provisions of Section
6.2 of this Deed of Trust, as the Beneficiary may elect, and no further
authorization shall be required. The Grantor irrevocably appoints the
Beneficiary through any of its authorized officers as the Grantor's
attorney-in-fact to do, upon and during any termination of the Grantor's
license, all things which the Grantor might otherwise do with respect to the
Property and the Rents and Profits thereon, including, without limitation,
collecting rents, issues and profits with or without suit and applying the same,
less expenses of collection, to cure a default under the Indebtedness (defined
below) or to cure any "Event of Default" (defined below), in such manner as the
Beneficiary may elect, leasing, in the name of the Grantor, the whole or any
part of the Property which may become vacant, and employing agents therefore and
paying such agents reasonable compensation for their services. The foregoing
appointment of the Beneficiary as the attorney-in-fact for the Grantor
constitutes a power coupled with an interest and, as such, is irrevocable. The
powers and rights granted in this section shall be other remedies provided in
this Deed of Trust upon the occurrence of an Event of Default and may be
exercised independently of or concurrently with any of such remedies.
1.3 INDEBTEDNESS SECURED. The foregoing conveyance of the Property,
creation of security interest and assignment are made IN TRUST to secure to the
Beneficiary the following (sometimes hereinafter referred to collectively as the
"Indebtedness"): (i) the payment of all sums becoming due and payable by the
Grantor under the Debentures in the aggregate original principal amount of
$1,000,000.00 and evidencing the Loan, (ii) the payment of all sums becoming due
and payable by the Grantor under the terms of this Deed of Trust and of each of
the other "Loan Documents" (as hereinafter defined), and (iii) the performance
of each and every covenant, agreement, term and condition of the Grantor that is
set forth in this Deed of Trust and in each of the other Loan Documents.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE GRANTOR
The Grantor hereby represents and warrants that:
2.1 FORMATION AND AUTHORITY OF THE GRANTOR: VALIDITY OF THE LOAN
DOCUMENTS.
2.1.1 (1) It is a corporation dully formed, validly existing and
in good standing under the laws of the State of Colorado, (2) it has all
requisite power and authority (i) to execute and deliver this Deed of Trust
and all of the other Loan
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Documents, (ii) to enter into, perform, observe and otherwise comply fully
with the provisions of this Deed of Trust and all of the other Loan
Documents and (iii) to own and operate the Property and (3) all necessary
actions have been taken by Grantor to confer upon the persons executing
this Deed of Trust and all of the other Loan Documents on the Grantor's
behalf the power and authority to do so.
2.1.2 Neither the execution and delivery on behalf of the Grantor
of, or the performance by the Grantor of its obligations under, this Deed
of Trust or any of the other Loan Documents will conflict with or violate,
or constitute a default or require any consent or waiver under, any
provisions of any mortgage, deed of trust, indenture, evidence of
indebtedness, agreement, or governmental or quasi-governmental order,
decree, ruling or directive to which the Grantor is a party or by which the
Grantor or the Property is bound.
2.2 NO DEFAULTS OR LITIGATION.
2.2.1 There are no material actions, suits or proceedings pending
or overtly threatened against the Grantor, any Co-maker or the Property.
2.2.2 Neither the Grantor nor Co-maker is in default with respect
to any material judgment, order, writ, injunction, decree or demand of any
court, arbitrator, administrative agency or any governmental or
quasi-governmental authority.
2.3 USE OF THE PROPERTY. The use of the Property as an entertainment
faire complies with all applicable zoning ordinances, subdivision ordinances,
land use regulations and restrictive covenants affecting the Property, and all
statutes, laws, ordinances, rules, orders and regulations of all governmental or
quasi-governmental authorities with respect to such use have been satisfied.
2.4 UTILITIES. That all utility services and facilities necessary for
the operation of the Property as an entertainment Faire, including, without
limitation, public water, storm and sanitary sewer facilities, and electric,
telephone and other utility facilities necessary for the operation of the
Property, are available at the boundaries of the Land, may be extended to and
connected with the Property upon payment of standard tap-on or connection fees
and are adequate to serve the Property.
2.5 TAXES. The Land and the Improvements are assessed for taxation
separately without regard to any other property, and that, for all purposes, the
Land and the Improvements may be mortgaged, conveyed and otherwise dealt with as
a separate lot or parcel.
2.6 ENVIRONMENTAL MATTERS.
2.6.1 The Property and the Grantor are not in violation of,
or subject to, any existing, pending or threatened investigation by
any federal, state or local governmental authority under any law,
statute, ordinance, or regulation pertaining to health, industrial
hygiene or the environment (collectively, "Environmental Laws"),
including without limitation (i) the Comprehensive Environmental
Response, Compensation, and Liability
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act of 1980, as amended, 42 U.S.C. {9601 ET SEQ. ("CERCLA"), and (ii) the
Resource Conservation and Recovery act of 1976, 41 U.S.C. {6901 ET SEQ.
("RCRA").
2.6.2 The Grantor's use of the Property does not and will not
result in the release or disposal of any Hazardous Substance onto the
Property.
2.6.3 To the Grantor's best knowledge and belief, there is no
occurrence or condition on any other real property that could cause
the Property or any part thereof to be subject to any restrictions on
ownership, occupancy, transferability or use.
2.7 PERMITS. All permits, licenses, registrations, certificates,
authorizations and approvals required to have been obtained as of the date
hereof have been obtained for the execution and delivery of the Loan Documents
by the Grantor, the performance and enforcement of the obligations of the
Grantor thereunder and the construction, ownership, operation and use of the
Property by the Grantor, and the Grantor knows of no reason why any future
required permits or approvals cannot be obtained as needed.
2.8 ACCESS. The Property fronts on, and has unencumbered legal and
physical access to, a publicly dedicated and maintained roadway.
2.9 OTHER INDEBTEDNESS. As of the date hereof the Grantor is not in
default in the payment of the principal of or interest on any of its
indebtedness for borrowed money and is not in default under any instrument under
or subject to which indebtedness has been incurred, and no event has occurred
and is continuing under the provisions of any such agreement that, with notice
or the passage of time or both, would constitute a default thereunder.
2.10 SURVIVAL OF THE GRANTOR'S REPRESENTATIONS AND WARRANTIES. The
representations and warranties made in this Deed of Trust shall remain true and
correct in all material respects and shall survive so long as any of the
Indebtedness shall remain unsatisfied or otherwise outstanding.
SECTION 3. COVENANTS OF THE GRANTOR
The Grantor covenants and agrees as follows:
3.1 PAYMENT OF THE INDEBTEDNESS. The Grantor shall (a) pay the
obligations evidenced by the Debentures as therein provided, (b) pay and perform
when due all payments and obligations required under any lien that may now or
hereafter have priority over the lien of this Deed of Trust, and (c) pay all
sums due under and perform all of its obligations under the Debentures, this
Deed of Trust and the other Loan Documents.
3.2 FURTHER ASSURANCES. The Grantor shall, at its cost and without
expense to the Trustee or the Beneficiary, do every such further act and
execute, acknowledge and deliver every such further deed, conveyance, document,
instrument, mortgage, assignment, notice of assignment, transfer and assurance
as the Trustee or the Beneficiary shall reasonably require, at any time and from
rime to time, in order to more fully convey, assign, transfer and confirm unto
the Trustee or the Beneficiary the property and rights hereby conveyed or
assigned, or which the Grantor may be or may hereafter become bound to convey or
assign to the Trustee or the Beneficiary. The Grantor shall execute, acknowledge
and deliver such financing statements or comparable security instruments as the
Beneficiary may request, at any time and from time to time, in order to evidence
more effectively, to perfect or to continue the perfection of the security
interest created hereunder. If, in the opinion of the Beneficiary, it becomes
necessary or desirable to file additional Financing or continuation statements
in any jurisdiction in order to preserve,
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perfect or protect the security interest created under this Deed of Trust, the
Grantor agrees, upon the written request of the Beneficiary, to execute such
statements and cause them to be filed in such jurisdictions.
3.3 RECORDATION OF INSTRUMENTS. The Grantor shall pay all filing and
recordation taxes and fees and any other expenses incident to the execution,
acknowledgment, filing and recordation of this Deed of Trust, any Financing
statements, each of the other Loan Documents and any instruments of further
assurance and any instruments of release, partial release, termination or
partial termination, as applicable.
3.4 SUBSTITUTIONS. Immediately upon the acquisition, construction,
assembly, placement or conversion of any extensions, improvements, renewals,
substitutions or replacements of, or any additions or appurtenance to, the Land,
the improvements or the Equipment, as the case may be, and, in each such case,
without further deed of trust, conveyance, assignment or other act by the
Grantor, such extensions, improvements, renewals, substitutions, replacements,
additions and appurtenances shall become subject to and encumbered by the liens
and assignments contained in this Deed of Trust as fully and completely, and
with the same effect, as though now owned by the Grantor and specifically
described in Section 1, such encumbrance to be effective and self-operative
without the necessity of any further action by the parties hereto.
3.5 TAXES, ASSESSMENTS AND LIENS.
3.5.1 The Grantor, from time to time when the same shall
become due, shall pay and discharge all taxes of every kind and nature
including, without limitation, real property taxes and assessments,
general and special (collectively, the "Property Taxes"), all general
and special levies, permits, inspection and license fees, all water
and sewer rents and charges, and all other public charges of every
nature, imposed upon or assessed against the Property. The Grantor,
promptly upon the request of the Beneficiary, shall deliver to the
Beneficiary receipts evidencing the payment of all such taxes,
assessments, levies, fees, rents and other public charges.
3.5.2 The Grantor, from time to time when the same shall
become due, shall pay all lawful claims and demand of mechanics,
materialmen, laborers, and others that, if unpaid, might result in, or
permit the creation of, a mechanic's materialmen, laborers, and others
that, if unpaid, might result in, or permit the creation of, a
mechanic's materialmen's, judgment or other lien on the Property or
any part thereof, or on the rents, and, if any such lien is filed,
docketed or otherwise recorded, the Grantor shall notify the
Beneficiary promptly and, at the sole cost of the Grantor, shall
promptly "bond off' or satisfy and effect the release of such lien or
shall provide affirmative title insurance coverage satisfactory to the
Beneficiary.
3.6 INSURANCE.
3.6.1 The Grantor, at its expense and for the benefit of the
Beneficiary (subject to the rights of the prior deed of trust holder),
shall keep the Improvements and the Equipment insured, to the extent
of full replacement cost, against loss by fire, casualty, and such
other hazards and risks as are customarily insured against in
connection with the ownership, operation and use of projects of like
size and character as the Property. All such insurance shall be
written in forms and amounts satisfactory
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to the Beneficiary, shall name Beneficiary as an additional insured under a
standard mortgagee loss payable endorsement and shall be issued by
companies having a rating of A:XII or better in Best's Key Rating Guide,
shall be licensed to do business in the Commonwealth of Virginia and shall
be satisfactory to the Beneficiary. Each such policy shall provide that it
shall not be canceled (including, without limitation, any cancellation or
lapse for nonpayment of premium), and that coverage thereunder shall not be
reduced materially, without at least thirty (30) days prior written notice
to the Beneficiary.
3.6.2 The Grantor shall promptly notify the Beneficiary of
any loss covered by such insurance. The Grantor hereby authorizes
Beneficiary, at its option, but subject to the rights of the prior
deed of trust holder, to collect, adjust and compromise any losses
under any of the insurance aforesaid and after deducting costs of
collection to apply the proceeds at its option as follows: (a) As a
credit upon any portion as selected by Beneficiary, of the
indebtedness secured hereby, or (b) To restoring the improvements in
which event Beneficiary shall not be obligated to see the proper
application thereof nor shall the amount so released or used be deemed
a payment on any indebtedness secured hereby, or (c) To deliver same
to the owner of the premises.
3.6.3 The Grantor shall not take out separate insurance
concurrent in form or contributing in the event of loss with the
insurance required to be maintained under this Section 3.6, unless the
Beneficiary is included thereon as a named payee under a standard
mortgagee endorsement. The Grantor shall immediately notify the
Beneficiary whenever any such separate insurance is taken out and
shall promptly deliver to the Beneficiary the policy or policies of
such insurance.
3.6.4 All of the Grantor's rights, title and interest in and
to all insurance policies described in this Section 3.6 are hereby
assigned to the Beneficiary. Upon the occurrence of an Event of
Default, the Beneficiary, on behalf of the Grantor, may adjust and
compromise any claims under such insurance policies and collect,
receive and apply the proceeds thereof as the Beneficiary shall see
fit. The Beneficiary is hereby irrevocably appointed as the Grantor's
attorney-in-fact, coupled with an interest, for such purposes, and may
deduct from such proceeds any expenses incurred by the Beneficiary in
connection therewith.
3.6.5 Notwithstanding any provisions herein to the contrary
and in particular the foregoing provisions of this Section 3.6, in the
event of any such loss or damage as therein described to the
improvements upon the Property, it is hereby understood, covenanted
and agreed that, subject to the rights of the prior deed of trust
holder, the Beneficiary shall make the proceeds received under any
such insurance policies as therein described available for the
restoration of the improvements so damaged, subject to the following
conditions: (a) that Grantor is not then in default under any of the
terms, covenants and conditions hereof; (b) that Beneficiary shall
first be given satisfactory proof that such improvements have been
fully restored or that by the expenditure of such money will be fully
restored, free and clear of all liens, except as to the liens of this
Deed of Trust and the deeds of trust which are prior to this Deed of
Trust; (c) that in the event such proceeds shall be insufficient to
restore
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or rebuild the said improvements, Grantor shall deposit promptly with
Beneficiary funds which, together with the insurance proceeds, shall be
sufficient to restore and rebuild the said Property; (d) that in the event
Grantor shall fail within a reasonable time, subject to delays beyond its
control, to restore or rebuild the said improvements, then Beneficiary, at
its option, may restore or rebuild the said improvements for or on behalf
of the Grantor and for such purpose may do all necessary acts; (e) that the
excess of said insurance proceeds above the amount necessary to complete
such restoration shall be applied as hereinbefore provided as a credit upon
any portion as selected by Beneficiary, of the indebtedness secured hereby;
and (f) the holder of any prior deed of trust on the Property, if the same
remains unsatisfied at such time, has consented to making such proceeds
available for restoration. In the event any of the said conditions are not
or cannot be satisfied, then the alternate disposition of such insurance
proceeds as provided above in this Section 3.6 shall again become
applicable.
3.6.6 Under no circumstances shall Beneficiary become
personally obligated to take any action to restore or rebuild the said
improvements. In the event of foreclosure of this Deed of Trust, or
other transfer of title to the Property in extinguishment of the
indebtedness secured hereby, subject to the rights of the prior deed
of trust holder, all right, title and interest of the Grantor, in and
to any insurance policies then in force, and to the proceeds of any
such policies, shall pass to the purchaser or grantee.
3.7 RIGHT TO CURE. If the Grantor shall fail to perform any of the
covenants contained in this Deed of Trust or in any of the other Loan Documents,
or shall fail to observe or perform any covenant, term or condition under any
other instrument creating a lien or encumbrance on the Property, or shall fail
to observe or perform any provision of any lease, restrictive covenant or other
agreement affecting the Property, each of the Beneficiary and the Trustee shall
have the option, but not the obligation, to advance funds for and otherwise
cause the observance or performance of the same on the Grantor's behalf, and all
monies so advanced shall be added to the principal balance of the Debentures,
shall be payable by the Grantor to the Beneficiary on demand, and shall bear
interest at the rate provided in the Debentures, and the payment thereof shall
be secured hereby. No action taken by the Beneficiary or the Trustee pursuant to
the provisions of this Section 3.7 shall constitute, nor be deemed to
constitute, a waiver or cure of any Event of Default.
3.8 CONFIRMING; STATEMENT. The Grantor, as often as the Beneficiary may
reasonably request in writing, within ten (10) days after such request, shall
promptly furnish a written statement, duly authorized and acknowledged, setting
forth (1) the amount due, whether of principal, interest or otherwise, under the
Note, this Deed of Trust and any of the other Loan documents, (2) the date to
which payments of principal and interest have been made, (3) whether the Grantor
has any defenses against or rights of setoff with respect to the payment or
performance thereof, and (4) such other information with respect to the Loan as
the Beneficiary may request
3.9 MAINTENANCE OF THE PROPERTY. The Grantor shall not commit, permit
or suffer any material waste on the Property or make any change in the operation
or use of the Property' that will in anyway create or materially increase any
fire or other hazard. At all times, the Grantor shall maintain and keep the
Property in good operating order and condition and shall promptly make, from
time to time, all necessary repairs, renewals, replacements, additions and
improvements in connection therewith, including, without limitation, all
repairs, renewals, replacements, additions, improvements and
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rebuilding that may be required as a result of damage or loss to the Property
occasioned by fire or other casualty, by the exercise of the power of eminent
domain or by conveyance thereof. The Improvements and the Equipment shall not be
removed, demolished or materially altered without the prior written consent of
the Beneficiary, in its discretion.
3.10 REMOVAL OF EQUIPMENT FIXTURE FILING.
3.10.1 The Grantor shall not remove any Equipment from the
Property, nor sell or otherwise dispose of the same, unless the
Grantor replaces such Equipment prior to or promptly after each such
removal, sale or disposal with property of a like kind and having a
fair market value at least equal to the replacement value of the
Equipment so removed. The liens and security interests created herein
shall forthwith attach to all of such replacement property without the
necessity of any further action by the parties hereto; provided.
however, that the Grantor shall execute such additional Financing
statements and security agreements, renewals thereof and amendments
thereto and such other documents and instruments as may be required by
the Beneficiary to perfect or continue the security interests created
hereunder.
3.10.2 The parties hereto agree that this Deed of Trust shall
constitute a "security agreement" and that the recordation of this
Deed of Trust shall constitute a "fixture filing" (as both of such
terms are defined in the Uniform Commercial Code as adopted in the
Commonwealth of Virginia, as amended from time to time (the "UCC")).
3.11 EMINENT DOMAIN. The Grantor shall notify the Beneficiary promptly
upon learning of any action or proceeding relating to any condemnation or other
taking or conveyance in lieu thereof, whether direct or indirect, of the
Property, or any part thereof, and the Grantor shall appear in and prosecute any
such action or proceeding. In the event of any such condemnation, taking or
conveyance, and to the extent practicable, the Grantor, at its own expense,
shall promptly rebuild, restore and repair the Property to the same condition as
existed immediately prior to such condemnation, taking or conveyance. The
Trustee and the Beneficiary may participate in any such action or proceeding,
and the Grantor, from time to time, shall execute and deliver to the Trustee and
the Beneficiary any and all instruments requested by them in order to permit
such participation. In any such action or proceeding, the Trustee and the
Beneficiary may be represented by counsel selected by them, and the Grantor
shall reimburse the Beneficiary and the Trustee for all fees, costs and expenses
incurred by them in connection with such representation promptly upon demand
therefore. Any award or compensation payable in connection with such action or
proceeding is hereby assigned to and shall be paid to the Beneficiary, subject
to the rights of the prior deed of trust holders. Grantor further covenants and
agrees, subject to the rights of the prior deed of trust holder, to make,
execute and deliver to Beneficiary, at any time or times upon request, free,
clear and discharged of any encumbrances of any kind whatsoever except the
rights of the holder of the prior deed of trust, any and all further assignments
and/or other instruments deemed necessary by Beneficiary for the purpose of
validly and sufficiently assigning all awards and other compensation heretofore
and hereafter to be made to Grantor (including the assignment of any award from
the United States Government at any time after the allowance of the claim
therefor, the ascertainment of the amount thereof and the issuance of the
warrant for payment thereof) for any taking, either permanent or temporary,
under any such proceedings. Grantor
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further agrees that should the Property or any part thereof, including any
easement or appurtenance thereof, be taken or damaged, permanently or
temporarily, by reason of any public improvement or condemnation proceedings,
including severance and consequential damage and change in grade of streets, or
damage by earthquake or in any other manner, subject to the rights of the prior
deed of trust holder, Beneficiary shall be entitled, subject to the rights of
the prior deed of trust holders, to any compensation, award, payment or relief
therefor and Grantor does hereby appoint Beneficiary its Attorney-in-Fact,
coupled with an interest, and authorizes, directs and empowers such Attorney, at
the option of the Attorney on behalf of the Grantor, its successors or assigns,
to commence, appear in and prosecute, in its own name, any action or
proceedings, to adjust or compromise any claim therefor and to collect and
receive proceeds thereof, and to give proper receipts and acquittances therefor
and after deducting expenses of collection, to apply the net proceeds as a
credit on any portion, as selected by Beneficiary, of the indebtedness secured
hereby notwithstanding the fact that the amount owing thereon may not then be
due and payable hereunder or that the indebtedness is otherwise adequately
secured, provided, however, that no prepayment premium shall be due in
connection with any net proceeds applied to the indebtedness.
3.12 COSTS AND EXPENSES: INDEMNITY. The Grantor shall pay all reasonable
costs, fees and expenses of the Beneficiary in connection with approval,
documentation, closing, disbursement, administration and collection of the Loan,
including, without limitation, all appraisal fees, inspection fees, recording
costs and fees. charges and expenses of legal counsel, architects, engineers and
other consultants retained by the Beneficiary in connection with the Loan. The
Grantor shall indemnify against and hold the Beneficiary harmless from any
liability whatsoever for the costs, fees and expenses described in this Section
3.12. in the event the Beneficiary or the Trustee or both is made a party to or
appears, either voluntarily or involuntarily, in any action or proceeding
affecting or relating to any of the Property or any of the Indebtedness, or the
validity or priority of any of the Loan Documents or any lien, right, title or
security interest intended thereby, then the Grantor shall, upon demand,
reimburse the Beneficiary or the Trustee or both, as applicable, for all costs,
expenses, and liabilities incurred by the Beneficiary or the Trustee or both, as
applicable, by reason thereof, including, without limitation, costs of
litigation and attorney's fees, and the same shall be secured by this Deed of
Trust.
3.13 OPERATION OF THE PROPERTY. The Grantor shall operate the Property
as an entertainment faire center in strict compliance with all applicable
governmental and quasi-governmental statutes, laws, ordinances, rules and
regulations and orders.
3.14 ENVIRONMENTAL COMPLIANCE.
3.14.1 Neither the Grantor nor any third party will use,
generate. manufacture, produce, store, release. discharge, or dispose
of on, under or about the Property or transport to or from the
Property any Hazardous Substance except limited amounts of any
Hazardous Substance used by Grantor in the operation of the Property.
For the purposes of this Deed of Trust, a Hazardous Substance shall be
any substance that is regulated by or defined as being harmful to the
environment or public health in any Environmental Laws.
3.14.2 The Grantor shall give prompt written notice to the
Beneficiary of:
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3.14.2.1 any proceeding or inquiry by and governmental
authority with respect to the presence of any Hazardous Substance on
the Property or the migration thereof from or to other real property;
3.14.2.2 all claims made or overtly threatened by any third
party against the Grantor or the Property relating to any loss or
injury resulting from any Hazardous Substance; and
3.14.2.3 the Grantor's discovery of any occurrence or
condition on any real property adjoining or in the vicinity of the
Property that could cause the Property or any part thereof to be
subject to any restrictions on the ownership, occupancy,
transferability or use of the Property under any Environmental Laws.
3.14.3 The Beneficiary shall have the right to join and
participate in, as a party if it so elects, any legal proceedings or
actions initiated in connection with any Environmental Laws.
3.14.4 In the event that any such Hazardous Substances are
hereafter found on, under or about the Property, the Grantor shall
take all necessary and appropriate actions and shall spend all
necessary sums to cause the same to be cleaned up and/or removed in
accordance with any Environmental Laws, and the Beneficiary shall in
no event be liable or responsible for any costs or expenses incurred
in so doing.
3.14.5 The Grantor shall at all times observe and satisfy the
requirements of, and maintain the Property in compliance with, all
Environmental Laws.
3.14.6 Should the Grantor at any time default in or fail to
perform or observe any of its obligations under this Section 3.14, the
Beneficiary shall have the right, but not the duty, without limitation
upon any of the Beneficiary's rights pursuant hereto, to perform the
same, and the Grantor agrees to pay to the Beneficiary, on demand, all
costs and expenses incurred by the Beneficiary in connection
therewith, including, without limitation, reasonable attorney's fees,
together with interest from the date of expenditure at the rate
provided in the Debentures. The Grantor hereby agrees to indemnify
against and hold the Beneficiary harmless from any loss,, liability,
claim, demand, damage, suit, action, cost and expense, including,
without limitation, attorneys' fees, incurred by or imposed on the
Beneficiary by reason of the Grantor's failure to perform or observe
any of its obligations or agreements under this Section 3.14.
3.14.7 The obligations and indebtedness of the Grantor under
this Section 3.14, notwithstanding anything contained herein or in any
other document or agreement which may be construed to the contrary,
shall survive the foreclosure of this Deed of Trust, the repayment of
the Loan and the termination of the Debentures and the other Loan
Documents.
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SECTION 4. SECURITY AGREEMENT
4.1 CREATION OF A SECURITY INTEREST. The Grantor hereby grants and
conveys to the Beneficiary as security for the Indebtedness a security interest
(a) in the Equipment, including, without limitation, any and all property of a
similar type or kind hereafter located on or at the Property and owned by the
Grantor, and (b) in any and all intangible property of the Grantor now or
hereafter used in, arising out of, or relating to the ownership, development,
management, operation or use of the Property, including, without limitation, (1)
documents, instruments, accounts, chattel paper, general intangibles and
proceeds (as each of such terms is defined in the UCC), (2) architectural and
engineering plans and specifications for the Property or any portion thereof,
(3) escrow accounts, insurance policies and business records of or with respect
to the Property, (4) any and all of the Grantor's rights, if any to (i) all
warranties and guarantees by manufacturers, suppliers and installers pertaining
to any of the Improvements or the Equipment, for the purpose of securing all of
the indebtedness.
4.2 REPRESENTATION. WARRANTIES AND COVENANTS. The Grantor hereby
represents, warrants and covenants that, except for the security interest
granted hereby, the Grantor is and, as to items of the Equipment to be acquired
after the date hereof, shall be the sole owner of the Equipment free from any
adverse liens, security interests, encumbrances or claims thereon or thereto of
any kind whatsoever. The Grantor shall notify the Beneficiary of, and shall
defend the Equipment against, all claims and demands of all persons at any rime
claiming the same or any interest therein.
SECTION 5. EVENTS OF DEFAULT: REMEDIES
5.1 EVENTS OF DEFAULT. That (a) default in the payment of any interest
upon any Debenture when the same becomes due and payable, and continuance of
such default for a period of ten (10) days; (b)default in the payment of the
principal of any Debenture when the same becomes due and payable; (c) default in
the performance, or breach, of any covenant or warranty of the Grantor in this
Deed of Trust (other than a covenant or warranty a default in whose performance
or whose breach is elsewhere in this Section specifically dealt with), and
continuance of such default or breach for a period of thirty (30) days after
there has been given, by registered or certified mail, to the Grantor by the
holders of at least Ten Percent (10%) in principal amount of the outstanding
Debentures, a written notice specifying such default or breach and requiring it
to be remedied and stating that such notice is a "Notice of Default" hereunder;
(d) a court having jurisdiction in the premises shall enter a decree or order
for relief in respect of the Grantor in an involuntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, or
appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator
(or similar official) of the Grantor or for any substantial part of its
property, or ordering the winding-up or liquidation of its affairs and such
decree or order shall remain unstayed and in effect for a period of thirty (30)
consecutive days; (e) the Grantor shall commence a voluntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, or shall consent to the entry of an order for relief in an involuntary
case under any such law, or shall consent to the appointment of or taking
possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator
(or other similar official) of the ;Grantor or for any substantial part of its
property, or shall make any general assignment for the benefit of creditors, or
shall fail generally to pay its debts as they become due, or shall take any
corporate action in furtherance of any of the foregoing. (f) the failure of the
Grantor to pay any indebtedness due any other person or entity and such failure
shall continue beyond any applicable grace period and result in the acceleration
of maturity of such indebtedness; (g) the Grantor shall suffer to exist beyond
any applicable grace period any other event of default under any material
agreement binding the Grantor, provided such event of default has not been
waived in writing by the appropriate party or parties to such agreement; or
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(g) the Grantor shall admit its inability to pay its debts as they mature or
shall make an assignment for the benefit of its creditors: the happening of any
such event shall be an Event of Default hereunder.
5.2 REMEDIES UPON AN EVENT OF DEFAULT.
5.2.1 Upon the occurrence of an Event of Default, the
Beneficiary, by written notice given to the Grantor, may, at its
option, declare the entire unpaid principal balance of the Debentures,
all accrued but unpaid interest and all unpaid late charges thereunder
to be due and payable immediately, and, upon any such declaration,
such principal balance, accrued but unpaid interest and unpaid late
charges shall become and be due and payable immediately, and upon any
such declaration, such principal balance, accrued but unpaid interest
and unpaid late charges shall become and be due and payable
immediately, without presentment, demand, protest of notice of
dishonor, all of which are hereby waived by the Grantor, anything
contained in the Debentures or in this Deed of Trust to the contrary
notwithstanding. The Grantor further waives the benefits of the
Homestead Exemption and any other exemptions provided by law.
5.2.2 Upon the occurrence of an Event of Default, the
Beneficiary, at its option, may invoke the power of sale and any other
remedies permitted by applicable law or provided herein. The
Beneficiary shall be entitled to collect all costs and expenses
incurred by it in pursuing such remedies, including, but not limited
to, attorney's fees
This Deed of Trust shall be governed by and construed in
accordance with the applicable provisions of Sections 55-59.1,
55-59.2, 55-59.3, 55-59.4, 55-60 and, to the extent not inconsistent
with the provisions hereof, Section 55-59 of the Code of Virginia,
1950, as amended and in effect on the date of this Deed of Trust, with
the following further understanding as in such sections provided:
Advertisement Required: Sale to be for cash on the Property or
any part thereof, or at such other place as the Trustee shall select
after first advertising the time, place and terms of sale once a week
for three (3) weeks in a newspaper having general circulation in the
County of Stafford, VA.
Exemptions Waived.
Subject to All upon Default.
Substitution of Trustee Permitted, With or Without Cause.
Right of Anticipation Reserved as provided in the Debentures.
Renewal, Reinstatement or Extension Permitted.
Any Trustee May Act.
5.2.3 Upon the occurrence of an Event of Default, the
Beneficiary, with or without entry, personally or by its agents or
attorneys, insofar as applicable, may:
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5.2.3.1 Exercise any or all of the remedies
available to a secured party under the UCC;
5.2.3.2 Direct the Grantor to assemble the
Equipment and make it available to the Beneficiary at the
place designated by the Beneficiary, and the Grantor
hereby covenants and agrees to do so promptly. The
Beneficiary shall have the right to sell, assign and
deliver all or any part of the Equipment at public or
private sale, without advertisement, and to bid and
become the purchaser thereof at any such public or
private sale. If the provisions of the UCC require that
notice of a public sale of any part of the Equipment be
given to the Grantor, the Beneficiary shall give the
Grantor such notice of sale as may be required under the
UCC. If the provisions of the UCC impose no such notice
requirement, the Beneficiary shall give the Grantor
notice of such public or private sale at least ten (10)
days before the time of such sale or other disposition.
The proceeds of any such sale shall be applied First to
the costs of such sale, including, without limitation,
advertising costs, if any, and attorneys' fees, and
second to all or any portion of the Indebtedness as the
Beneficiary shall determine; and
5.2.3.3 Take such steps to protect and enforce its
rights, whether by action, suit or proceeding in equity
or at law, for the specific performance of any covenant,
term, condition or agreement set forth in the Debentures,
in this Deed of Trust or in any other Loan Document, or
in furtherance of the execution of any power herein or
therein granted, or for any foreclosure hereunder, or for
the enforcement of any other appropriate legal or
equitable remedies or otherwise, as the Beneficiary shall
elect
In no event shall the Beneficiary, in the exercise of
the remedies provided in this Deed of Trust, be deemed to
be a "mortgagee in possession", and neither the
Beneficiary nor the Trustee shall in any way be liable
for any act, either of commission or omission, in
connection with the exercise of such remedies.
5.2.4 After the exercise by the Trustee of their power of
sale pursuant to this Deed of Trust and pending the exercise by the
Trustee or the Beneficiary or their agents or attorneys of their right
to exclude the Grantor from all or any part of the Property, the
Grantor agrees to pay the fair and reasonable rental value for the use
and occupancy of the Property or any portion thereof that is in its
possession for such period and, upon default in making any such
payment, will vacate and surrender possession of the Property to the
Trustee or the Beneficiary, as the case may be, or to a receiver, if
any, and in default thereof may be evicted by any summary action or
proceeding for recovery or repossession of premises for nonpayment of
rent, however designated.
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5.2.5 Upon the occurrence of an Event of Default and upon
written demand from the Beneficiary, the Grantor shall pay to the
Beneficiary the whole amount which then shall have become due and
payable under the Debentures, for principal, interest and late
charges, as the case may be, and all sums required to be paid by the
Grantor pursuant to any provision of this Deed of Trust and of any
other Loan Document and, in addition thereto, such further amount as
shall be sufficient to cover the costs and expenses of collection,
including, without limitation, reasonable compensation to the Trustee
and the Beneficiary, and to their respective agents and counsel, and
any expenses incurred by the Trustee and the Beneficiary hereunder. In
the event that the Grantor shall fail forthwith to pay such amounts
upon demand, the Beneficiary shall be entitled and empowered to
institute such actions or proceedings at law or in equity as may be
advised by its legal counsel for the collection of the sums due and
unpaid, and may prosecute any such action or proceedings to judgment
or final decree, and may enforce any such judgment or final decree
against the Grantor and collect, out of the property of the Grantor,
wherever situated, as well as out of the Property, in any manner
provided by law, monies so adjudged or decreed to be due and payable.
The Beneficiary shall be entitled to recover judgment as
aforesaid either before, after or during the pendency of any
proceedings for the enforcement of the provisions of this Deed of
Trust, and the right of the Beneficiary to recover such judgment shall
not be affected by any entry or sale hereunder, or by the exercise of
any other right, power or remedy for the enforcement of the provisions
of this Deed of Trust, or of any other Loan document, or the
foreclosure of the lien hereof; and, in the event of a sale of the
Property, or any part thereof, and of the application of the proceeds
of such sale to the payment of the indebtedness, the Beneficiary shall
be entitled to enforce payment of and to receive all amounts then
remaining due and unpaid upon, the Debentures, and to enforce payment
of all other charges, payments and costs due under this Deed of Trust
and under any other Loan Documents, and shall be entitled to recover
judgment for any portion of the indebtedness remaining unpaid, with
interest. In case of proceedings against the Grantor in insolvency or
bankruptcy or involving the liquidation of any of its assets, then the
Beneficiary shall be entitled to prove the whole amount of principal,
interest and late charges due under the Debentures in the full amount
thereof, and all other payments, charges and costs due under this Deed
of Trust and under any other Loan Documents in the full amount
thereof, and all other payments, charges and costs due under this Deed
of Trust and under any other Loan Documents, without deducting
therefrom any proceeds obtained from the sale of the whole or any part
of the Property; provided, however, that in no event shall the
Beneficiary receive a greater amount than such principal, interest and
late charges and such other payments, charges and costs from the
aggregate amount of the proceeds of the sale of the Property and the
distributions from the insolvent or bankrupt estate of the Grantor.
No recovery of any judgment by the Beneficiary and no levy of
execution under any judgment upon the Property or upon any other
property of the Grantor shall affect, in any manner or to any extent,
the lien of this Deed of Trust upon the Property or any part thereof,
or any liens, rights,
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powers or remedies of the Trustee or the Beneficiary hereunder, but such
liens, rights, powers and remedies of the Trustee and the Beneficiary shall
continue unimpaired as before.
5.2.6. Immediately upon the commencement of any action, suit
or other legal proceeding by the Beneficiary to obtain judgment for
all or any portion of the Indebtedness, or for the enforcement of the
provisions of the Debentures, of this Deed of Trust or of any other
Loan Document and following the occurrence of an Event of Default and
the failure of the Grantor to cure such Event of Default within any
applicable cure period, the Grantor shall, if required by the
Beneficiary, consent to the appointment of a receiver or receivers for
the Property and of all of the Rents. Upon the occurrence of an Event
of Default and the failure of the Grantor to cure such Event of
Default within any applicable cure period provided herein, and upon
the commencement of any proceedings to foreclose this Deed of Trust,
or to enforce any of the provisions hereof, of the Debentures or of
any other Loan Document, or upon the commencement of any other
judicial proceedings to enforce any right of the Trustee or the
Beneficiary hereunder, under the Debentures or under any other Loan
Documents, the Trustee, the Beneficiary or both of them shall be
entitled, as a matter of right, if it or they shall so elect, without
giving notice to any other party and without regard to the adequacy or
inadequacy of the security of the Property, forthwith, either before
or after declaring the unpaid balance of the Debentures to be due and
payable, to effect the appointment of a receiver or receivers.
Notwithstanding the appointment of any receiver, liquidator or trustee
of the Grantor or of any of its property, or of the Property or any
part thereof, the Trustee and the Beneficiary shall be entitled to
retain possession and control of all property now or hereafter held
under this Deed of Trust.
5.3 SALE OF THE PROPERTY.
5.3.1 Upon completion of any sale or sales made by the
Trustee under or by virtue of this Deed of Trust, the Trustee, or an
officer of any court empowered to do so, shall execute and deliver to
the accepted purchaser or purchasers a good and sufficient instrument,
or good and sufficient instruments, conveying, assigning and
transferring all estate, right, title and interest in and to the
property and rights sold. The Trustee are hereby irrevocably appointed
the true and lawful attorney-in-fact of the Grantor, in its name and
stead, to make all necessary conveyances, assignments, transfers and
deliveries of the Property and rights so sold, and for that purpose
the Trustee may execute all necessary instruments of conveyance,
assignment and transfer, and may substitute one or more persons with
like power, the Grantor hereby ratifying and confirming all that such
attorney-in-fact or such substitute or substitutes shall lawfully do
by virtue hereof. Nevertheless, the Grantor shall ratify and confirm
any such sale or sales by executing and delivering to the Trustee or
to such purchaser or purchasers all such instruments as may be
advisable, in the judgment of the Trustee of the Beneficiary, if so
requested by the Trustee or the Beneficiary, for the purpose, and may
be designated in such request. Any such sale or sale made under or by
virtue of this Section 5, whether made under the power of sale herein
granted or under or by virtue of judicial proceedings or a judgment or
decree of foreclosure and sale, shall operate to divest all of the
estate, right, title, interest, claim and demand whatsoever, whether
at law or in equity, of the Grantor
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in and to the properties and rights so sold, and shall be a perpetual bar,
both at law and in equity, against the Grantor and against any and all
persons claiming or who may claim the same or any part hereof from, through
or under the Grantor.
5.3.2 Upon any sale made under or by virtue of this Section
5, whether made under the power of sale herein granted or under or by
virtue of judicial proceedings or of a judgment or decree of
foreclosure and sale, the Beneficiary may bid for and acquire the
Property or any part thereof and, in lieu of paying cash therefore,
may make settlement for the purchase price by crediting against the
Indebtedness the net sales price after deducting therefrom the
expenses of the sale and the costs of the action and any other sums
that the Trustee or the Beneficiary are authorized to deduct under
this Deed of Trust.
5.4 Waiver of Rights. The Grantor shall not at any time insist upon, or
plead in any manner whatsoever, claim or take any benefit or advantage of any
moratorium law or any exemption from execution or sale of the Property or any
part thereof, wherever enacted, now or at any time hereafter enforced, that may
affect the covenants and terms of performance of this Deed of Trust or of any
other Loan document, nor claim, take or insist upon any benefit or advantage of
any law now or hereafter enacted providing for the valuation or appraisal of the
Property, or any part thereof, prior to any sale or sales thereof that may be
made pursuant to any provision contained herein, or pursuant to any decree,
judgment or order of any court of competent jurisdiction; nor, after any such
sale or sale, claim or exercise any right under any statute heretofore or
hereafter enacted to redeem the property so sold or any part thereof, and the
Grantor hereby expressly waives all benefit or advantage of any such law or
laws. The Grantor, for itself and all who claim under it, hereby waives, to the
extent that it lawfully may, all right to have the Property marshalled upon any
sale or foreclosure hereunder.
5.5 TRUSTEE.
5.5.1 The Trustee shall be under no duty (i) to take any
action hereunder except as expressly set forth herein, (ii) to perform
any act that would involve them in expense of liability or to
institute or defend any suit or action in respect hereof, unless
properly indemnified to their satisfaction, or (iii) to account for
the use or application of any payments under this Deed of Trust, under
the Debentures or under any of the other Loan Documents, except as may
otherwise be expressly provided by applicable law. The Trustee shall
not be required to take notice, nor shall they be deemed to have
knowledge, of any Event of Default or any event that, with notice or
the passage of time or both, would constitute an Event of Default, and
the Trustee may assume conclusively that there has been no such Event
of Default or event that might constitute an Event of Default unless
and until they shall have been notified thereof in writing by the
Beneficiary.
5.5.2 The Grantor shall pay the Trustee just compensation for
any and all services performed and all their expenses, charges,
counsel fees and other disbursements incurred on and about the
administration and execution of the trust hereby created, and the
performance of their duties and powers hereunder, which compensation,
expenses, fees and disbursements shall constitute a part of the
Indebtedness. The Grantor agrees to indemnify against and hold the
Trustee harmless from any loss,
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claim, demand, suit, action, liability, damage, cost and expense,
including, without limitation, attorneys' fees, incurred in the exercise
and performance of their powers and duties hereunder.
5.6 EXERCISE OF RIGHTS. Any rights that may be exercised by the Trustee
or the Beneficiary or both pursuant to the provisions of this Section 5 upon the
occurrence of an Event of Default, any be exercised by the Trustee, the
Beneficiary or both, as the case may be, for so long as such Event of Default
shall continue thereafter.
5.7 REMEDIES CUMULATIVE: NO WAIVERS. No remedy conferred upon or
reserved to the Trustee, the Beneficiary or both of them herein or in any of the
other Loan Documents is intended to exclusive of any other remedy or remedies,
and each and every such remedy shall be cumulative and shall be in addition to
every other remedy given hereunder or under any of the other Loan Documents or
now or hereafter existing at law, in equity or by statute. Every power and
remedy given to the Trustee, the Beneficiary or both of them pursuant to the
provisions of this Deed of Trust may be exercised from time to time and as often
as may be deemed expedient by the Trustee of the Beneficiary. No delay by or
omission of the Trustee or the Beneficiary in the exercise of any right or power
accruing upon any Event of Default or upon any event that, with notice or the
passage of time or both would constitute and Event of Default, shall impair any
such right or power nor be construed to be a waiver of any such Event of Default
or any acquiescence therein. A waiver of the breach of any covenant, term or
condition contained herein or in any of the other Loan documents shall not be
construed as a waiver any subsequent breach of the same covenant, term or
condition. The acceptance by the Beneficiary of any sum in an amount less than
the sum then due shall be deemed an acceptance on account only and upon the
condition that it shall not constitute a waiver of the obligation of the Grantor
to pay the entire sum then due. The Grantor's failure to pay the entire sum then
due shall be and continue to be an Event of Default notwithstanding such
acceptance of such amount on account, and, at all times thereafter and until the
entire sum ten due shall have been paid, and notwithstanding the acceptance by
the Beneficiary thereafter of further sums on account or otherwise, the
Beneficiary and the Trustee shall be entitled to exercise all rights conferred
upon them, or either of them, in this Deed of Trust and in every other Loan
Document upon the occurrence of an Event of Default, or upon the occurrence of
an event that, with notice or the passage of time or both, would constitute an
Event of Default, and the right to whether any of such amounts are received
prior or subsequent to notice of such sale. Consent by the Beneficiary to any
transaction or action for which consent or approval of the Beneficiary is
required hereunder or under any of the other Loan Documents shall not be deemed
a waiver of the right to require such consent or approval with respect to future
or successive transactions or actions.
SECTION 6. MISCELLANEOUS PROVISIONS
6.1 SAVINGS CLAUSE. Nothing contained herein, nor any transaction related
hereto, shall be construed or shall so operate either presently or prospectively
(a) to require the Grantor to make any payment or to take any action contrary to
law, or (b) to permit the Trustee to take any action contrary to law. Should any
one or more of the terms, provision, covenants or conditions of this Deed of
Trust or any of the other Loan Documents be held to be void, invalid, illegal or
unenforceable in any respect, the same shall, at the option of the Beneficiary,
not affect any other term, provision, covenant or condition of this Deed of
Trust, but the remainder hereof shall be effective as though such term,
provisions, covenant or condition had never been contained herein.
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6.2 NOTICES. All notices, requests, demands and other communications
with respect to this Deed of Trust shall be in writing and shall be delivered by
hand, sent prepaid by UPS Next Day Air (or a comparable overnight delivery
service) or sent by United States mail, certified, postage prepaid, return
receipt requested, to the following addresses:
(a) If to the Grantor:
Renaissance Entertainment Corporation
4440 Arapaho Road, Suite 200
Boulder, Colorado 30303
Attn: James R. McDonald, C.F.O.
(b) If to the Beneficiary:
Dorsar Partners, L.P.
c/o Steven L. Feinberg, General Partner
1855 North Mesa, Suite 120
El Paso, Texas 79902-5939
Charles H. Leavell
c/o The Leavell Company
4487 North Mesa, Suite 204
El Paso, Texas 79902
Charles S. Leavell
c/o Renaissance Entertainment Corporation
4440 Arapahoe Avenue, Suite 200
Boulder, Colorado 80303
Any notice, request, demand or other communication delivered or sent in the
manner aforesaid shall be deemed given or made (as the case may be) (i) on the
day on which it is actually delivered or delivery refused of (ii) on the second
(2nd) business day after the day on which it is deposited in the United States
mail, or an overnight delivery service, whichever first occurs. Any party to
this Deed of Trust may change its address by notifying the other party hereto of
the new address in manner permitted by this Section 6.2.
6.3 CHOICE OF LAW. This Deed of Trust shall be executed, construed,
performed and enforced in accordance with the laws of the Commonwealth of
Virginia.
6.4 SUCCESSORS AND ASSIGNS. To the extent not prohibited hereunder, all
of the grants, covenants, terms provisions and conditions herein contained shall
run with the Land shall apply to, bind and inure to the benefit of the
successors and assigns of the Grantor, the successor in trust of the Trustee,
and the endorsees, transferees, successors and assigns of the Beneficiary.
6.5 AMENDMENTS. Neither this Deed of Trust nor any provision hereof may
be amended, waived, discharged or terminated orally, but only by an instrument
in writing and signed by the parties hereto.
6.6 RULES OF CONSTRUCTION. The following rules of construction shall
apply to this Deed of Trust unless the context otherwise requires:
6.6.1 Singular words shall connote the plural as well as the
singular, and vice versa, and the neuter gender shall connote the
masculine and the feminine genders, and vice versa, as the context may
require.
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6.6.2 All references herein to particular articles, sections
or exhibits are references to the respective articles, sections or
exhibits of or attached to this Deed of Trust.
6.6.3 The article and section headings set forth herein are
solely for convenience of reference and shall not constitute a part of
this Deed of Trust nor shall they affect its meaning, construction or
effect.
6.6.4 Each party hereto and its counsel have reviewed and
revised (or requested revision of) this Deed of Trust and the Loan
Documents, and the normal rule of construction that any ambiguities
are to be resolved against the drafting party shall not be applicable
in the construction and interpretation of this Deed of Trust or the
Loan Documents or any amendments or exhibits hereto.
6.7 RIGHT TO RELEASE PERSONS LIABLE. Without affecting the liability of
the Grantor or any other person (except any person released in writing) for
payment or performance of any of the Indebtedness, and without affecting the
rights of the Beneficiary or the Trustee with respect to any security not
expressly released in writing, the Beneficiary, at any time and from time to
time, either before or after the maturity of the Debentures, and without notice
or consent may:
6.7.1 Release any person or persons liable for payment or
performance of any of the Indebtedness:
6.7.2 Make any agreement extending the time or otherwise
altering the terms of payment or performance of all or any part of the
Indebtedness, or modifying or waiving any of the Indebtedness, or
subordinating, modifying or otherwise dealing with the lien hereof or
of any of the other Loan Documents;
6.7.3 Exercise or refrain from exercising or waive any right
that the Beneficiary may have;
6.7.4 Accept additional security of any kind; and
6.7.5 Release or otherwise deal with any property, real or
personal, securing the Indebtedness, including, without limitation,
all or any part of the Property.
6.8 NO JOINT VENTURE. Nothing contained in this Deed of Trust or in any
of the other Loan Documents shall create a partnership or joint venture or
principal-agent relationship between the Grantor and the Beneficiary or between
the Beneficiary and any other party, or cause the Beneficiary to be liable in
any way for the debts or obligations of the Grantor or any other party.
6.9 WAIVER. The Grantor and Beneficiary hereby irrevocably waive the
right to trial by jury in any suit' action or other proceeding, now pending or
hereafter instituted, concerning or arising out of this Deed of Trust, any of
the other Loan Documents or the loan transaction contemplated hereunder and
thereunder, or the actions of Beneficiary in the enforcement hereof or thereof.
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WITNESS the following signatures:
RENAISSANCE ENTERTAINMENT CORPORATION, a
Colorado corporation
By
----------------------------------
James R. McDonald
Its Chief Financial Officer
STATE OF COLORADO )
) ss.
COUNTY OF ________________ )
The foregoing instrument was acknowledged before me this day of May,
1997, by James R. McDonald, the Chief Financial Officer of Renaissance
Entertainment Corporation, a Colorado corporation in the County of
_____________, State of Colorado.
----------------------------------
Notary Public
My commission expires:
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EXHIBIT A
LEGAL DESCRIPTION
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EXHIBIT B
PERMITTED EXCEPTIONS
1 Deed of Trust, Assignment of Leases, and Security Agreement from
Renaissance Entertainment Corporation to Beale and Sasser, Trustee,
dated November 7, 1995, recorded in Deed Book 1153, page 495.
2. Deed of Trust from Renaissance Entertainment Corporation to Sasser
and Beale, Trustee, dated January 22, 1996, recorded as LR960001577.
3. Disclosure Statement regarding Mechanics' Lien filed by Wise Guys
Contracting, Inc., recorded as LR960009403.
4. Memorandum for Mechanics' Lien filed by Wise Guys Contracting, Inc.,
recorded as LR960009404.
5. Memorandum for Mechanics' Lien filed by Wise Guys Contracting, Inc.,
recorded as LR960009405.
6. Matters shown or noted on plat entitled "Boundary Survey of the
Property of Sherwood Forest Associates," made by Greenhorne &
O'Mara, dated 29 March 1995, and recorded in Plat Book 27, pages
278-279 and Plat Book 28, pages 168-169, including:
a. steams and creeks affecting property;
b. fences do not coincide with boundaries;
c. power pole and ex. overhead powerline (VEPCO DB 79, Pg 48);
d. CSX Railroad bisects property;
e. approximate location of abandoned dirt road.
7. VEPCO easement recorded in Deed Book 79, at Page 48.
8. Maintenance Agreement for Stormwater Detention Systems, dated July
24, 1995, recorded in Deed Book 1130, page 537.
9. Easement granted Bell-Atlantic-VA dated November 1, 1995, and
recorded in Deed Book 1153, page 280.
10. Easement granted Bell Atlantic-VA dated November 1, 1995, and
recorded in Deed Book 1153, page 284.
11. Lack of a located and recorded right of access to and from the land
described as Parcel B, which is separated from other land of the
insured and a public right of way by the CSX Railroad property.
12. Rights of others thereto entitled in and to the continued
uninterrupted flow of streams or creeks running along boundaries or
through the property (White Oak Run is designated on survey).
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EXHIBIT 10.23
August 4, 1997
Mr. Steve Feinberg or Assigns
128 Grant Avenue, Suite 300
Santa Fe, New Mexico 87501
RE: Sale/Lease Back of Wisconsin and Virginia Faire Sites
Dear Steve:
The purpose of this letter is to confirm the terms upon which an investment
group headed by you has offered to acquire the Company's Wisconsin and Virginia
faire sites and to lease the sites to the Company.
TERMS OF SALE/LEASE BACK
1. Purchase Price - $6,000,000 to be paid at closing.
2. Lease Terms:
(i) Term - 20 years;
(ii) Annual Lease Rate:
YEARS ANNUAL LEASE PAYMENT
---------------- --------------------------------
1 $600,000
2 600,000
3-6 660,000
7-9 730,000
10-12 800,000
13-20 815,000
Company will also be responsible for payment
of property taxes, insurance and maintenance
of faire sites.
(iii) First year lease payment of $600,000 to be prepaid at closing.
Thereafter (beginning in Year 2) lease payment will be made on a
monthly basis.
(iv) Company Purchase Option:
YEARS PURCHASE PRICE
---------------- --------------------------------
1-3 $6,650,000
4 6,716,500
5 6,783,665
6 6,851,501
7 6,920,017
8 6,989,217
9 7,059,109
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10 7,129,700
11 7,200,997
12 7,273,007
13-20 7,350,000
Option is for both properties. Company will
not have the option to purchase only one of the
two sites.
(v) Security Deposit:
The Company will make a security deposit with the investment group of
$1,000,000; $500,000 of which will be repaid at the end of four (4)
years and the remaining $500,000 of which shall be repaid at the end
of eight (8) years. The security deposit, which will bear interest at
6% (paid monthly), may be used by the investment group for its
business purposes, provided that repayment of the security deposit is
guaranteed by the investment group. The Company shall forfeit any
right to the return of the deposit in the event that it defaults for a
period of 60 days or more in the payment of rent pursuant to the
lease, which default is not cured within 20 days written notice
thereof.
(vi) Conditions:
(a) Proceeds of purchase used to retire all outstanding
Company indebtedness other than trade payables, specifically
including convertible notes and convertible debentures.
Consent of holders of these securities to payment at closing
to be obtained, if necessary.
(b) Exercise price for warrants granted to holders of
convertible debentures fixed at $1.00 per share.
(c) Current Phase I Environmental Report for both sites,
showing no material environmental problems.
(d) Current appraisal for Virginia site.
(e) Company will not incur indebtedness in excess of
$500,000 without prior written consent of investment group.
(f) No distributions will be made to the shareholders
without prior written consent of investment group.
(g) Immediately following closing. Company will call all
outstanding warrants, if any, then subject to redemption.
(h) The Company will pay first year's lease at closing,
subsequent years to be paid monthly.
(i) All outstanding debt of the Company (other than normal
trade debt) will be either paid off or converted to common
stock at the time of closing, with the exception of the 10%
debentures that will be converted to common stock or paid off
or a combination of both by October 31, 1997.
3. Warrant - Investment group will be issued warrants representing the
right to purchase 1,000,000 shares of the Company's common stock at $1.00 per
share. Warrants will be for a term of 6 years but will not be exercisable
during the first year. The Company will register the shares issuable upon the
exercise of the warrants pursuant to the Securities Act of 1933 with one (1)
year of closing. If shares are not so registered, the purchase price
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of the warrants shall be reduced by 2% for every 30 days following the 1-year
period until the registration statement is declared effective. Warrants will
be assignable to individual members of the investment group.
4. Expenses - Company shall pay all transaction expenses of the
investment group up to a maximum of $25,000, including reasonable attorneys'
fees for investment group.
5. Closing - Closing shall occur within sixty (60) days of acceptance of
this letter of intent. Closing is subject to preparation, execution and
delivery of the definitive Sale/Lease Back and Warrant Agreements, acceptable to
the investment group and the Company. The Agreements will contain normal
representations and warranties.
Please acknowledge your agreement to the foregoing terms by signing the
enclosed copy of this letter in the space provided and returning to the company.
Sincerely,
RENAISSANCE ENTERTAINMENT
CORPORATION
By /s/ Charles S. Leavell
------------------------------
Charles S. Leavell
Chairman and CEO
Agreed to and accepted this 5th day of August, 1997.
RENAISSANCE PARTNERS, LTD.
By /s/ Steve Feinberg
------------------------------
Steve Feinberg, Trustee
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Exhibit 23.1
INDEPENDENT AUDITOR'S CONSENT
We hereby consent to the use of our report dated March 31, 1997,
accompanying the consolidated financial statements of Renaissance
Entertainment Corporation as of March 31, 1996 and December 31, 1996 and for
the periods ended March 31, 1995, March 31, 1996 and December 31, 1996
included in the Company's Registration Statement on Form S-1 and to the
reference made to our firm under the caption "Experts" in the Registration
Statement.
/s/ Schumacher & Associates, Inc.
Schumacher & Associates, Inc.
September 15, 1997
