<PAGE>
As filed with the Securities & Exchange Commission on May 8, 1997
Registration No.__________
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------
RENAISSANCE ENTERTAINMENT CORPORATION
(Exact name of issuer as specified in its charter)
COLORADO 7900 81-1094630
(State or other Primary Standard I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or 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./ /
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Calculation of Registration Fee
- ------------------------------------------------------------------------------------------------------
Proposed Proposed
Title of Each Amount to be Maximum Maximum
Class of Registered (1) Offering Price Aggregate Amount of
Securities Per Share Offering Price Registration Fee
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, 356,350 Shares $2.125 (2) $757,243.75 (2) $229.47
$.03 par value
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) Shares are reserved for issuance pursuant to currently issued and
outstanding Convertible Secured Notes and 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 is
based on the average of the high and low reported prices on the Nasdaq
National Market on May 5, 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.
-ii-
<PAGE>
Subject to completion, dated May 8, 1997.
356,350 Shares
RENAISSANCE ENTERTAINMENT CORPORATION
Common Stock
The shares offered hereby are up to 350,000 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 security
holders 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 356,350 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
National 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 National Market under
the symbol FAIR. On May 5, 1997, the last reported sale price of Common Stock,
as reported on the Nasdaq National Market, was $2.125 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 $6,000. 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.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BYTHE DETAILED
INFORMATION AND FINANCIAL STATEMENTS APPEARING ELSEWHERE IN THIS PROSPECTUS.
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. In fiscal 1996, the Company operated the Bristol
Renaissance Faire, Northern California Renaissance Faire, Southern California
Renaissance Faire, New York Renaissance Faire and Virginia Renaissance Faire.
With these five Faires, 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.
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 new permanent location for the
Southern California Renaissance Pleasure Faire, although the change in
location is not expected to take place until 1998, at the earliest. In
addition, it is possible that the Company may not be able to operate a Faire
in 1997, because the lease for the site at which the Faire has been operated
(which expires in the Spring of 1997), may not be renewed, and it is
extremely unlikely that an alternative site could be prepared in time. If the
Company were unable to operate a Faire in Northern California in 1997, it
would have a material adverse effect on the Company's results of operations
in 1997. 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
-2-
<PAGE>
with this acquisition, the Company issued 540,000 (adjusted for a two-for-one
stock split effective October 21, 1996) 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.
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 356,350 shares of Common Stock.
See "Description of Securities."
Common Stock outstanding
before offering (1)............. 9,636,262
Common Stock outstanding
after offering (1).............. 9,986,262. Assumes that all of the
Convertible Secured Notes are
converted at a conversion rate of
$1.00 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
- ---------------
(1) As of May 7, 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.
-3-
<PAGE>
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. All
information is in thousands, except per share amounts.
STATEMENTS OF OPERATIONS DATA:
Nine Months Ended
Year Ended March 31, December 31,
------------------------------ --------------------
1994 1995 1996 1995 1996
------ ------ ------ ------- -------
Revenue................ $1,973 $12,540 $12,811 $10,470 $14,554
Gross Profit........... 1,694 9,327 8,984 7,265 9,741
Net Income (Loss)...... (98) 576 (1,274) 264 (1,852)
Net Income (Loss) to
Common Stockholders.. (98) 533 (1,274) 264 (1,852)
Net Income (Loss) per
Common Share......... (.05) .11 (.16) .03 (.21)
Weighted average
number of shares
outstanding.......... 1,901 4,801 7,824 7,644 8,907
BALANCE SHEET DATA:
December 31, 1996
-----------------
Working capital (deficit) ($1,506)
Total assets 9,872
Total liabilities 4,817
Stockholders' equity 5,055
-4-
<PAGE>
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. Each of the
New York and Virginia Faires operated at a loss during 1996, and the Southern
California Faire has been less profitable than anticipated since it commenced
operation in 1994. Furthermore, it is likely that the Virginia Faire will
continue 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. In
addition, if the Company were unable to operate a Faire in Northern
California in 1997, it would have a material adverse effect on the Company's
results of operations in 1997. See "POSSIBLE SUSPENSION OF NORTHERN
CALIFORNIA FAIRE FOR 1997."
NEED FOR ADDITIONAL CAPITAL. The Company had a working capital deficit
of $1,506,284 as of December 31, 1996. Subsequent to December 31, 1997, the
Company has obtained $1,100,000 of additional capital through the placement
of short-term convertible loans and has 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 current operations prior to or after
that time. In addition, the Company will require additional funding to move
its Southern California Faire to a new location (see "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, if
one is required (see "POSSIBLE SUSPENSION OF NORTHERN CALIFORNIA FAIRE FOR
1997"). Additional capital may be sought through borrowings or from
additional equity financing. Future equity financing may occur through the
sale of either unregistered stock in exempt offerings or through the public
offering of registered equity securities. Such additional equity financing
may result in additional dilution to investors. In any case, there can be no
assurance that any additional capital can be satisfactorily obtained if and
when required.
POSSIBLE SUSPENSION OF NORTHERN CALIFORNIA FAIRE FOR 1997. The Company
operates its Northern California Faire during the Fall of each year at a site
in Novato, California. The Company's current lease for that site, which is
on a year-to-year basis, expires in the Spring of 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 believes that its lease
for the site will be renewed for another year unless
-5-
<PAGE>
resolution of the litigation allowing the site owner to proceed with
development is imminent at the time the lease renewal is to be determined.
There is no assurance, however, that the lease will be renewed. If the lease
is not renewed, and since it is extremely unlikely that an alternative site
could be prepared in time, it is doubtful that the Company would conduct a
Faire in Northern California in 1997. This would have a material adverse
effect on the Company's results of operations in 1997. The Company is
investigating a new site 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 approximately $300,000 for an environmental impact
study and other site consideration expenses before necessary governmental
approvals can be obtained. There is no assurance that, if the Company incurs
these and other site consideration expenses, it will be successful in
obtaining all necessary approvals for the site to be available for the Faire
in 1998 or any subsequent period. In addition, the Company estimates that it
will be required to spend from $500,000 to $1,000,000 for development of the
site prior to the opening of the Faire at the new site.
RELOCATION OF SOUTHERN CALIFORNIA FAIRE. Since April 1994, the Company
has operated its Southern California Faire in Devore, California. Although
the Company has operated that Faire during the past two years at a small
profit, management believes that it will have to relocate the Faire in order
to improve its profitability in the future. The Company has entered into a
non-binding letter of intent with the owner of a site in Pomano, 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 will need additional funds from one or more third
parties to finance such construction. If such funds are not available, the
Company would, in all likelihood, continue to operate the Faire at its
current location in 1998 and possibly beyond.
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. While the Company has written employment contracts
with several of its key executive officers, there can be no assurance of
their continued service to the Company. 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.
-6-
<PAGE>
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.
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 only
experienced 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.
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.
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.
DEPENDENCE UPON WEATHER. Each Renaissance Faire operated by the Company
is scheduled for a finite period, typically consecutive weekends during a six
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. Poor weather can result in substantial
declines in attendance and, as a result, loss of revenues. 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.
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 from local governmental authorities controlling the
conduct of the Faire, service of alcoholic beverages, 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
-7-
<PAGE>
necessary permit 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.
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 1997."
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, under certain circumstances,
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. As of March 31,
1997, the Company had outstanding options and warrants to purchase a total of
4,391,654 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,
dilution to the interests of the Company's shareholders may occur. Exercise
of these options or warrants or even the potential of their exercise may have
an adverse effect on the trading price and market for the Company's Common
Stock. The holders of the options or warrants are likely to exercise them at
times when the market price of the shares of Common Stock exceeds the
exercise price of the options or warrants. Accordingly, the issuance of
shares of Common Stock upon exercise of the options or warrants may result in
dilution of the equity represented by the then outstanding shares of Common
Stock. Furthermore, holders of the options or warrants can be expected to
exercise 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 terms provided by such options or warrants.
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.
-8-
<PAGE>
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 NATIONAL MARKET SECURITIES.
The Nasdaq Stock Market recently proposed certain changes to the standards
for issuers with securities listed on Nasdaq. One of the proposed changes
includes increasing the maintenance requirements for continued listing in the
Nasdaq National Market, on which the Company's Common Stock is currently
listed, including the requirement that issuers maintain net tangible assets
of at least $4,000,000. If changes are made to the listing standards and the
Company is unable to comply with such new standards, it is possible that the
Common Stock will be delisted from the Nasdaq National Market. If the Common
Stock is delisted from the National Market, it may qualify for listing on the
Nasdaq SmallCap Market. Nevertheless, delisting from the National Market may
have an adverse effect on the prevailing market price of the Common Stock.
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. Duke is the principal market maker on the
Nasdaq National Market 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.
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 May 7, 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 March 31, 1997 options and warrants to purchase
4,391,654 shares of common stock. Exercise of these options and warrants may
have a further dilutive effect on existing shareholders and warrant holders.
See "MARKET OVERHANG FROM WARRANTS AND OUTSTANDING OPTIONS."
-9-
<PAGE>
MARKET FOR THE COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
On September 1, 1995, the Company's Common Stock began trading 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.
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
As of March 31, 1997, there were approximately 1,529 shareholders of
record.
-10-
<PAGE>
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of Common
Stock by the Selling Shareholders.
CAPITALIZATION
The following table sets forth the current liabilities and
capitalization of the Company as of December 31, 1996.
December 31, 1996
-------------------
Current liabilities $2,437,735
Long-term liabilities $2,379,162
----------
Total liabilities $4,816,897
Stockholders' equity:
Preferred Stock, $1.00 parvalue,
1,000,000 shares authorized, none
issued and outstanding (1) --
Common Stock, $.03 par value,
50,000,000 shares authorized,
9,233,772 issued and outstanding (1) $8,348,647
Accumulated (deficit) ($3,293,195)
------------
Total stockholders' equity $5,055,452
Total liabilities and stockholders'
equity $9,872,349
- ----------------
(1) Does not include shares issuable upon exercise of outstanding options or
warrants.
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.
-11-
<PAGE>
<TABLE>
<CAPTION>
NINE-MONTHS
YEARS ENDED MARCH 31, ENDED DECEMBER 31,
---------------------- -------------------
1994 1995 1996 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Revenue $1,973 $12,540 $12,811 $10,470 $14,554
Gross Profit 1,694 9,327 8,984 7,265 9,741
Net Operating Income (Loss) (39) 757 (1,475) 111 (1,753)
Net Income (Loss) before taxes (98) 576 (1,274) 309 (1,852)
Net Income (Loss) to Common Shareholders (98) 533 (1,274) 264 (1,852)
Net Income (Loss) Per Common Share (.05) .11 (.16) .03 (.21)
Weighted Average Common Shares Outstanding 1,901 4,801 7,824 7,644 8,907
MARCH 31, DECEMBER 31,
---------------------- --------------------
BALANCE SHEET DATA 1994 1995 1996 1995 1996
(IN THOUSANDS) ---- ---- ---- ---- ----
Working capital (deficiency) $(524) $3,123 $ 15 $ 768 $(1,506)
Total current assets 167 4,012 2,120 1,308 931
Total assets 1,257 6,853 10,433 8,226 9,872
Total current liabilities 691 889 2,105 539 2,438
Long-term debt (less current maturities) 434 451 2,531 846 2,379
Stockholders' equity 132 5,513 5,797 6,841 5,055
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
Consolidated Financial Statements, including the footnotes.
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.
-12-
<PAGE>
RESULTS OF OPERATIONS - 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 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 fiscal
year ended March 31, 1996, the entire twelve month results of operations for
the calendar year ended December 31, 1995 were reflected in the operating
results for the January 1, 1996 through March 31, 1996 quarter 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.
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 operations of the Virginia and New York Faires 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 in
revenues for the Southern California Faire as compared to the same period of
1995. Unusually inclement weather in Virginia, New York and Southern
California reduced the expected revenues from faire operations. 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 a small operating loss in the
1997 faire season. During the 1996 season the Bristol Renaissance Faire
revenues increased 20%. This was the eighth consecutive year that attendance
increased at this 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
-13-
<PAGE>
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 substantial 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, a change in accounting procedures resulted in
certain expenses being charged to advertising this period which were not
charged to advertising expense in the same period of 1995.
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 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.
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 operating expenses
resulting from the two additional faires, and also greater overhead costs at
each faire site plus other corporate activities 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 the substantially decreased cash position of the Company
throughout the 1996 period as compared to the same period of 1995. A 153%
increase in interest expense from $100,266 in 1995 to $253,740 in 1996
resulted from a large increase 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
-14-
<PAGE>
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 shares outstanding during the 1995 period and 8,907,049 weighted
average shares outstanding during the 1996 period.
RESULTS OF OPERATIONS - 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.
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)
-15-
<PAGE>
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. Substantial 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 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.
-16-
<PAGE>
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 shares outstanding during fiscal
1995 and 7,824,182 weighted average shares outstanding during fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
The most significant events of the past year were the purchase of Creative
Faires, Ltd. (owner of the New York Renaissance Faire), the completion of
construction of the Virginia Renaissance Faire and the first year of
operations of those two faires under the Company's ownership and management.
As a result of significant cost overruns in the construction of the Virginia
Faire due to extremely inclement weather during the construction period,
overall disappointing results from faire operations in 1996 and certain
corporate overhead expenses, the Company's working capital decreased from
$768,213 at December 31, 1995 to a working capital deficit of ($1,406,284) at
December 31, 1996. In order to reduce the Company's working capital
requirements, management has implemented a number of cost reductions which it
estimates will reduce operating expenses by approximately $1,300,000 during
the fiscal year ending December 31, 1997.
The Company's working capital requirements are greatest during the period
from January 1 to 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 line
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 has entered into a loan workout
agreement with respect to the lines of credit which will permit the Company
to pay these lines from 1997 operations. Since December 31, 1996, the
Company has also raised $750,000 of working capital through issuance of
convertible debt to an officer of the Company
-17-
<PAGE>
and a related party and obtained an additional $350,000 of working capital
from the sale of convertible notes to a number of private investors. The
notes are secured by a mortgage on the Company's Kenosha, Wisconsin faire
site and are convertible into shares of Common Stock of the Company at the
lesser of $1.75 per share or 50% of the market value for the Company's Common
Stock at the time the notes are converted. Management believes that the
Company needs to raise an additional $250,000 to fund the opening of the 1997
faire season. In addition, management believes that the Company should raise
additional working capital in order to more adequately fund its operations.
The Company is pursuing various funding alternatives. However, there can be
no assurance that such funds will be available to the Company or, if
available, available on terms acceptable to the Company.
Although inflation can potentially have an effect on financial results,
during 1996 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.
Reviewing the change in financial position over the previous year, current
assets, largely comprised of cash and prepaid expenses, decreased from
$1,307,541 at December 31, 1995 to $931,451 at December 31, 1996, a decrease
of $376,090 or 42%. Of those amounts, cash and cash equivalents decreased
from $745,021 at December 31, 1995 to $374,289 at December 31, 1996, due to
cash outflow from operations during the year, plus the use of cash for
construction of the Virginia Faire. Accounts receivable decreased from
$228,967 at December 31, 1995 to $133,749 at December 31, 1996. Inventory,
comprised of merchandise sold at the faires and various food and beverage
supplies, increased from $96,034 at December 31, 1995 to $184,695 at December
31, 1996, largely reflecting merchandise remaining from the previous season
and the purchase of new products for upcoming faires. Prepaid expenses
decreased from $237,519 at December 31, 1995 to $139,167 at December 31,
1996. These costs represent expenses incurred on behalf of the Southern
California and Virginia Faires, which are expensed once those faires are
operating.
Current liabilities increased from $539,328 at December 31, 1995 to
$2,437,735 at December 31, 1996, an increase of $1,898,407 or 352%. This
increase is largely due to construction spending on the Virginia Faire and
operation of the two additional faires. Accounts payable and accrued
expenses increased from $279,244 at December 31, 1995 to $1,068,028 at
December 31, 1996, an increase of $788,784 or 282%. The current portion of
notes payable increased from $140,064 at December 31, 1995 to $1,209,119 at
December 31, 1996. Of the $1,069,055 increase, $1,000,000 was due to
short-term borrowings on two lines of credit in 1996. Unearned income, which
consists of the sale of admission tickets to upcoming faires and deposits
received from craft vendors for future faires, increased from $120,020 at
December 31, 1995 to $160,588 at December 31, 1996.
Total assets increased from $8,226,264 at December 31, 1995 to $9,872,349 at
December 31, 1996, an increase of $1,646,085 or 20%. Of those amounts,
property and equipment (net of depreciation) increased 49% from $4,819,198 at
December 31, 1995 to $7,176,755 at December 31, 1996. Most of this increase
was the result of the purchase of the New York Faire and the completion of
the construction of the Virginia Faire. Goodwill, which arose from the
purchase of the two California Faires and is being amortized over 15 years,
decreased from $1,066,405 at December 31, 1995 to $620,826 at December 31,
1996. This was primarily due to the Company writing down this
-18-
<PAGE>
account by an additional $380,000 as the result of two consecutive years of
disappointing performance for the Southern California Faire. Other
miscellaneous assets (organizational costs and vendor deposits) increased
from $186,702 at December 31, 1995 to $253,201 at December 31, 1996.
Total liabilities increased from $1,385,208 at December 31, 1995 to
$4,816,897 at December 31, 1996, an increase of $3,431,689 or 248%. This
increase is primarily due to costs incurred in connection with the purchase
and construction of the Virginia Faire site and increased borrowings required
to fund the Company's losses. Total liabilities at December 31, 1996 include
$2,437,735 in current liabilities (discussed above), plus $2,341,987 from the
long-term portion of the following bank loans: an $800,000 mortgage on the
Bristol Faire property, a $1,500,000 mortgage on the Virginia Faire property,
and a $250,000 loan for construction of vendor booths in Virginia.
Stockholders' Equity decreased from $6,841,056 at December 31, 1995 to
$5,055,452 at December 31, 1996, a decrease of $1,785,604 or 26%. This
decrease resulted from the net loss of $1,851,725, partially offset by
additional contributed capital received as the result of the exercise of
125,328 Class A Warrants at $2.00 per share; the exercise of 34,000 Class
B Warrants at $2.625 per share; the exercise of 324,998 employee stock
options at prices ranging from $1.125 to $3.50 per share; the repurchase of
20,626 shares by the Company at $4.00 per share. As of December 31, 1996,
the Company had outstanding 9,233,772 shares of common stock, 1,813,856 Class
A Warrants representing the right to purchase common stock at $2.00 per
share, and 2,049,966 Class B Warrants representing the right to purchase
common stock at $2.625 per share. The book value of a share of common stock
(stockholders' equity divided by number of shares outstanding) as of that
date was $0.55.
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 a discussion of the Company's efforts to find new sites for its
Northern and Southern California faires.
-19-
<PAGE>
BUSINESS
OVERVIEW
Renaissance Entertainment Corporation ("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 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 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 serving
the New York City metropolitan area; and the Virginia Renaissance Faire in
Fredericksburg, Virginia, serving the Washington, D.C. and Richmond
metropolitan areas.
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
-20-
<PAGE>
weekend in August. The Bristol Renaissance Faire attracts approximately
190,000 patrons each year.
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 six to seven weekends, typically
beginning Labor Day weekend and running through the first or second weekend
of October. The Faire typically attracts 200,000 patrons.
The Northern California Faire is located on leased property in Novato,
California. The lease is currently on a year-by-year basis, and the Company
is in the final stages of negotiations of the lease to cover the 1997 Faire.
The rent was $350,000 in 1996 and is expected to be approximately $300,000
for the 1997 Faire. While the Company believes that its lease for the site
will be renewed for another year, there is no assurance that the lease will
be renewed. If the lease is not renewed, and since it is extremely unlikely
that an alternative site could be prepared in time, it is doubtful that the
Company would conduct a Faire in Northern California in 1997. This would
have a material adverse effect on the Company's results of operations in
1997. The Company is investigating a new site 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 approximately $300,000
for an environmental impact study and other site consideration expenses
before necessary governmental approvals can be obtained. There is no
assurance that, if the Company incurs these and other site consideration
expenses, it will be successful in obtaining all necessary
-21-
<PAGE>
approvals for the site to be available for the Faire in 1998 or any
subsequent period. In addition, the Company estimates that it will be
required to spend from $500,000 to $1,000,000 for development of the site
prior to the opening of the Faire at the new site.
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 typically attracts 200,000 patrons
and 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 two years at a
small profit, management believes that it will have to relocate the Faire in
order to improve its profitability in the future. The Company has recently
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 will need additional funds from one or
more third parties to finance such construction. If such funds are not
available, the Company would, in all likelihood, continue to operate the
Faire at its current location in 1998 and possibly beyond.
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.
-22-
<PAGE>
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 Fair, as is
typical of new faires, operated at a loss in 1996, its first year of
operation, and is expected to incur a small operating loss in the 1997 faire
season.
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, 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.
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 substantially 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.
-23-
<PAGE>
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.
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.
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. Gate admissions represent approximately 49% of the Faires'
total revenues.
BEVERAGE INCOME. The Company sells beer, wine and soft drinks at each Faire.
Beverage sales represent approximately 20% of Faire revenues.
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. Parking revenue represents approximately 7%
of Faire revenues.
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.
In the aggregate, food revenues represent approximately 9% of total Faire
income.
-24-
<PAGE>
CRAFT FEES. Each Faire has over 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. Craft fees represent approximately 9% of
total Faire revenues.
GAME FEES. Many games and rides are operated by independent contractors.
The Company receives 15% of the gross revenues from these games and rides,
which represents, in the aggregate, approximately 1% of total Faire revenues.
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. Souvenir sales to date represent
approximately 4% of Faire income.
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. In the past, sponsorship fees have represented approximately 1%
of Faire revenues.
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.
-25-
<PAGE>
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 adversely threaten
the Company's entire source of revenue. It is normal, however, for 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 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
competition from other more traditional entertainment alternatives, including
amusement parks, theme parks, local and county fairs, and specialty festivals.
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.
-26-
<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 naturally 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 only experienced minimum claims which have been resolved quickly without
litigation. The Company maintains comprehensive public liability insurance
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. Alternatively, an independent vendor can be added as
an additional insured under the Company's liability insurance policy for an
additional fee.
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.
-27-
<PAGE>
EMPLOYEES
The Company presently has 16 full-time employees working for 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.
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 expired April 30, 1997. 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.
On July 27, 1995, the Company acquired approximately 250 acres of land in
Stafford County, Virginia, for a purchase price of $925,000. This property
houses the Virginia Renaissance Faire.
-28-
<PAGE>
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 1993
Board of 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 --
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
-29-
<PAGE>
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
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
-30-
<PAGE>
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 of 1996. From August of 1996 until October of 1996, he served as
Chief Financial Officer of Mountain Solutions, a personal communications
services company. From January of 1994 until August of 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 of 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 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.
-31-
<PAGE>
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 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 $100,000 (the "Named Executive Officers").
-32-
<PAGE>
<TABLE>
<CAPTION>
TABLE I
SUMMARY COMPENSATION TABLE
Long Term Compensation
-----------------------------
Annual Compensation Awards Payouts
---------------------------------------------------------
Other All
Annual Restricted Other
Name and Compen- Stock LTIP Compen-
Principal Salary Bonus sation Award(s) Options/ Payouts sation
Position Year ($) ($) ($)(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 $23,894 -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 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 $50,000 or 10% of the total of annual salary and
bonus paid during the respective years.
OPTIONS GRANTED DURING FISCAL 1996
During the Company's fiscal period ended December 31, 1996, no options were
granted to Named Executive Officers
-33-
<PAGE>
AGGREGATED OPTION EXERCISES DURING FISCAL 1996 AND FISCAL YEAR-END OPTION
VALUES
The following table provides information related to the number and value of
options held by the Named Executive Officers as of December 31, 1996. The
Company does not have any outstanding stock appreciation rights.
<TABLE>
<CAPTION>
Value of Number of Unexercised
Unexercised In-the-Money
Options/SARs at Option/SARs
FY-End(#) at FY-End($)(1)
Shares Acquired Value Realized Exercisable/ Exercisable/
Name on Exercise(#) ($) Unexercisable Unexercisable
- --------------------------------------------------------------------------------------------
<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 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 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.
-34-
<PAGE>
DIRECTOR COMPENSATION
During the fiscal period ended December 31, 1996, outside 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. 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
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.
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.
-35-
<PAGE>
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 for two-year
periods.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock, as of May 7, 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.
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
Robert M. Geller 226,666 (3) 2.3%
1402 Kalmia
Boulder, Colorado 80304
Sanford L. Schwartz 6,350 (4) *
5353 Manhattan Circle, #201
Boulder, Colorado 80303
Gregg Adam Thaler
909 Third Avenue; 7th Floor
New York, NY 10022
Dean Petkanas 0 *
100 Store Hill Road
Old Westbury, NY 11568
All Directors & 2,920,130 (5) 29.6%
Officers as a Group
(Nine [9] Persons)
* Less than one percent
-36-
<PAGE>
(1) Shares not outstanding but deemed beneficially owned by virtue of
the individual's right to acquire them as of May 7, 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) 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.
(4) Includes 6,350 shares owned by Creative Business Strategies, Inc., a
corporation of which Mr. Schwartz is an officer, director and shareholder.
(5) Includes 226,666 shares issuable upon exercise of stock options
exercisable within 60 days of May 7, 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 May 7, 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.
-37-
<PAGE>
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 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 May 7, 1997, the number and percentage of shares beneficially owned prior
to and following completion of the offering made hereby.
-38-
<PAGE>
<TABLE>
<CAPTION>
Shares Offered
Prior to Offering Pursuant to this After Offering
Name ----------------- Prospectus(1) --------------
---- Number (1) Percentage ---------------- Number Percentage
--------------------- ---------------------
<S> <C> <C> <C> <C> <C>
Legacy Fund, LLC 225,000 2.3% 225,000 -0- -0-
Davstar II Managed
Investments Corp. NV 75,000 * 75,000 -0- -0-
Grand Avenue Partners 50,000 * 50,000 -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
time that the Notes are converted. The information included in the table is
based upon an assumed conversion price of $1.00.
(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 National 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,
-39-
<PAGE>
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 $6,000.
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 incorporated by
reference 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.
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.
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.
-40-
<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION
AND CONSOLIDATED SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
with
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
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
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
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 1,181,090 $ 1,068,028
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 - -
F-3
<PAGE>
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>
Nine Month
Year Ended Year Ended Period Ended
March 31, March 31, December 31,
1995 1996 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
REVENUE:
Sales $ 12,539,653 $ 12,810,617 $ 14,553,577
Faire operating costs 3,212,491 3,826,868 4,812,616
------------ ------------ ------------
Gross Profit 9,327,162 8,983,749 9,740,961
------------ ------------ ------------
OPERATING EXPENSES:
Salaries and wages 3,474,799 4,082,271 4,048,603
Depreciation and amortization 351,215 500,203 633,819
Advertising 1,211,798 1,546,701 2,511,973
Other operating expenses 3,532,508 4,329,713 4,300,062
------------ ------------ ------------
Total Operating Expenses 8,570,320 10,458,888 11,494,457
------------ ------------ ------------
Net Operating Income (Loss) 756,842 (1,475,139) (1,753,496)
------------ ------------ ------------
Other Income (Expenses):
Interest income 48,132 109,652 68,571
Interest (expense) (53,223) (138,036) (253,740)
Other income (expense) (28,327) 36,049 86,940
------------ ------------ ------------
Total Other Income (Expenses) (33,418) 7,665 (98,229)
------------ ------------ ------------
Net Income (Loss) before (Provision)
Credit for Income Taxes 723,424 (1,467,474) (1,851,725)
(Provision) Credit for Income Taxes (147,000) 193,803 -
------------ ------------ ------------
Net Income (Loss) 576,424 (1,273,671) (1,851,725)
------------ ------------ ------------
Dividends on preferred stock (43,115) - -
------------ ------------ ------------
Net Income (Loss) to Common
Stockholders $ 533,309 $ (1,273,671) $ (1,851,725)
------------ ------------ ------------
------------ ------------ ------------
Net Income (Loss) per Common Share $ .11 $ (.16) $ (.21)
------------ ------------ ------------
------------ ------------ ------------
Weighted Average Number of
Shares Outstanding 4,801,044 7,824,182 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>
Additional
Common Stock Paid-in Accumulated
--------------------------
Shares Amount Capital (Deficit) Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, March 31, 1994 2,664,356 $ 79,930 $ 795,994 $ (631,226) $ 244,698
Common stock issued, private placements and
acquisition of assets 2,070,050 62,102 835,709 - 897,811
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,
excluding loss of $48,185 of CFL included in
accumulated deficit below - - - 624,609 624,609
----------- ----------- ----------- ----------- -----------
Balance March 31, 1995 7,387,740 221,632 5,340,742 (49,732) 5,512,642
Treasury stock acquired and retired (20,626) (618) (81,886) - (82,504)
Common stock issued for cash 814,592 24,438 1,547,809 - 1,572,247
Common stock issued for CFL 540,000 16,200 170,591 (118,067) 68,724
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
F-6
<PAGE>
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-7
<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION
AND CONSOLIDATED SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months
Year Ended Year Ended Year Ended
March 31, March 31, December 31,
1995 1996 1996
---------- ---------- ------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income (loss) $ 576,424 $(1,273,671) $(1,851,725)
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 351,214 500,200 633,819
Impairment of goodwill - - 380,000
(Increase) decrease in:
Income tax refund receivable - (323,380) 323,380
Accounts receivable (50,124) (19,310) (163,866)
Prepaid expenses (570,332) (396,276) 840,602
Inventory (82,900) (33,321) (68,474)
Other assets (47,657) (38,811) (86,292)
Increase (decrease) in:
Income taxes payable 48,175 (48,175) -
Accounts payable and accrued
expenses 274,940 742,368 (113,062)
Unearned revenue and other 322,083 42,681 (294,030)
----------- ---------- -----------
Net Cash Provided by Operating
Activities 821,823 (847,695) (399,648)
----------- ---------- -----------
Cash Flows from Investing Activities:
Investment in restricted cash - (848,296) (41,820)
Repayment of advances 351,150 - -
Construction in progress costs - (1,046,285) 1,080,895
Acquisition of property and
equipment, goodwill and covenant
not to compete (896,551) (3,873,738) (2,587,903)
----------- ---------- -----------
Net Cash (Used in) Investing
Activities (545,401) (5,768,319) (1,548,828)
----------- ---------- -----------
Cash Flows from Financing Activities:
Common stock issued and additional
paid-in capital 3,403,450 1,489,743 1,109,739
Preferred dividends paid (43,115) - -
Advances from officers 60,500 - -
Proceeds from notes payable - 2,518,018 1,000,000
Principal payments on notes
payable (438,793) (59,429) (418,037)
----------- ---------- -----------
Net Cash Provided by (Used in)
Financing Activities 2,982,042 3,948,332 1,691,702
----------- ---------- -----------
Net Increase (Decrease) in Cash 3,258,464 (2,667,682) (256,774)
Cash, beginning of period 40,281 3,298,745 631,063
----------- ---------- -----------
Cash, end of period $ 3,298,745 $ 631,063 $ 374,289
----------- ---------- -----------
----------- ---------- -----------
Interest paid $ 54,506 $ 112,248 $ 268,605
----------- ---------- -----------
----------- ---------- -----------
Income tax paid $ 98,825 $ 237,752 $ -
----------- ---------- -----------
----------- ---------- -----------
</TABLE>
Note: The Company issued common and preferred stock for assets totalling
$1,408,000 during the year ended March 31, 1995. During the year ended March
31, 1996 the Company issued 270,000 shares of its common stock to consummate
the business combination with CFL. The accompanying notes are an integral
part of the financial statements.
F-8
<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 owns
and operates 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-9
<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 totalling $62,805 which
reduced additional paid-in capital related to this conversion
transaction. Prior to conversion, the Company paid dividends totalling
$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. The March 31, 1996 consolidated balance sheet
includes the accounts of
F-10
<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.
F-11
<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 as incurred. 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 has a
March 31 year end. 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-12
<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-13
<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 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.
(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-14
<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-15
<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-16
<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 of 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-17
<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-18
<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 totalled 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 totalling 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 totalled
$323,380.
F-19
<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION
AND CONSOLIDATED SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
(7) PROPERTY AND EQUIPMENT
Land $3,415,798
Buildings and Improvements 3,018,450
Office Furniture and Equipment 490,975
Costumes, Props and Other Assets 2,180,297
---------
Sub-total 9,105,520
Less Accumulated Depreciation (1,928,765)
----------
Total $7,176,755
----------
----------
(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 1,081,318 shares of the Company's common stock. Of
this amount 133,724 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, 452,558 options were exercised at a
weighted average price of $1.87 and 161,998 options terminated with a
weighted average price of $4.09. The remaining number of options
outstanding at December 31, 1996 totalled 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 totalling $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>
- ---------------------------------------- ----------------------------------
- ---------------------------------------- ----------------------------------
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 356,350 Shares
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 RENAISSANCE
herein is correct as of any time ENTERTAINMENT
subsequent to the date hereof. CORPORATION
_______________
TABLE OF CONTENTS
Page
----
Prospectus Summary..................2
Risk Factors........................5
Market for the Common Equity ______________
and Related Stockholder Matters...10
Use of Proceeds....................11 PROSPECTUS
Capitalization.....................11 ______________
Dividend Policy....................11
Selected Financial Data............11
Management's Discussion and
Analysis of Financial Condition
and Results of Operations.........12
Business...........................20
Management.........................29
Certain Transactions...............35
Principal Shareholders.............36
Description of Securities..........37
Selling Shareholders...............38
Plan of Distribution...............39
Legal Matters......................40
Experts............................40
Additional Information.............40
Index to Financial Statements.....F-1
_______________ May ___, 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 $ 230
NASD Fee 576
Printing and Edgar expenses 500
Accounting fees and expenses 400
Legal fees and expenses 4,000
Miscellaneous 294
------
TOTAL $6,000
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.
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.
* 4.15 Renaissance Entertainment Corporation 1993 Stock Incentive Plan.
5.1 Opinion of Gray, Plant, Mooty, Mooty & Bennett, P.A.--filed
herewith.
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.
II-2
<PAGE>
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.
* 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
II-3
<PAGE>
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--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.
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
II-4
<PAGE>
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 May 6, 1997.
RENAISSANCE ENTERTAINMENT CORPORATION.
By /s/ Charles S. Leavell
-------------------------------------
Charles S. Leavell
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Charles S. Leavell and James R.
McDonald, and each of them, his/her true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution for him/her and in
his/her name, place, and stead, in any and all capacities, to sign any and
all amendments (including post-effective amendments) to this Registration
Statement and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of
them, full powers and authority to do and perform each and every act and
thing requisite or necessary to be done in and about the premises, as fully
to all intents and purposes as he/she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or their
or his/her substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on the 6th day of May, 1997, by
the following persons in the capacities indicated:
Signature Position
--------- --------
/s/ Charles S. Leavell Director and Chairman of the
- ----------------------------------- Board and Chief Executive
Charles S. Leavell Officer
II-6
<PAGE>
/s/ James R. McDonald Chief Financial Officer
- -----------------------------------
James R. McDonald
/s/ Sue Brophy Chief Accounting Officer
- -----------------------------------
Sue Brophy
/s/ Sanford L. Schwartz Director
- -----------------------------------
Sanford L. Schwartz
/s/ Robert M. Geller Director
- -----------------------------------
Robert M. Geller
- ----------------------------------- Director
Gregg Adam Thaler
Director
- -----------------------------------
Dean Petkanas
II-7
<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION
FORM S-1
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No Title
- ---------- -----
<S> <C>
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.(1)
5.1 Opinion of Gray, Plant, Mooty, Mooty & Bennett, P.A.--filed herewith.
10.1 Employment Agreement with Howard Hamburg, incorporated by reference
from the Registrant's Current Report on Form 8-K dated December 31,
1995.(1)
10.2 Employment Agreement with Kevin Patterson, incorporated by reference
from the Registrant's Current Report on Form 8-K dated December 31,
1995.(1)
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.(1)
</TABLE>
II-8
<PAGE>
<TABLE>
<S> <C>
*10.4 Letter Agreement with Rob Geller dated July 19, 1994.(1)
*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
</TABLE>
II-9
<PAGE>
<TABLE>
<S> <C>
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--
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).
</TABLE>
* Incorporated by reference from the Company's Registration Statement on
Form SB-2, declared effective by the Commission on January 27, 1995,
and the Post-Effective amendments thereto.
II-10
<PAGE>
LINDLEY S. BRANSON
612 343-2827
May 7, 1997
EXHIBIT 5.1
Securities and Exchange Commission
450 5th Street N.W.
Washington, D.C. 20549
RE: RENAISSANCE ENTERTAINMENT CORPORATION
REGISTRATION STATEMENT ON FORM S-1
Dear Sir or Madam:
We are securities counsel for Renaissance Entertainment Corporation, a
Colorado corporation (the "Company") in connection with the filing with the
Commission of a Registration Statement on Form S-1 (the "Registration
Statement") for the registration of 356,350 shares of the common stock of the
Company, $.03 par value ("Common Stock"), 350,000 of such shares issuable upon
conversion of certain outstanding Convertible Secured Notes (the "Notes") and
6,350 of such shares currently outstanding.
We are admitted to practice only in the State of Minnesota and have
examined and are familiar with such documents and corporate records of the
Company as we have deemed necessary and appropriate for the purpose of rendering
the following opinion. Based on the foregoing, we are of the opinion that the
6,350 shares of previously issued Common Stock are, and the 350,000 shares will
be when issued upon conversion of the Notes as described in the Registration
Statement, validly issued, fully paid and nonassessable.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Registration Statement and Prospectus.
Very truly yours,
GRAY, PLANT, MOOTY,
MOOTY & BENNETT, P.A.
By /s/ Lindley S. Branson
------------------------------
Lindley S. Branson
LSB:mjo
GP:382317 v1
<PAGE>
EXHIBIT 10.21
SUBSCRIPTION AND PURCHASE AGREEMENT
10% Convertible Secured Notes
THIS SUBSCRIPTION AND PURCHASE AGREEMENT (the "Agreement") dated as of the
____day of April, 1997 by and between RENAISSANCE ENTERTAINMENT CORPORATION, a
Colorado corporation (the "Company"), and _______________________ (the
"Investor"). Investor and the other persons who have entered into similar
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 NOTES. The Company has authorized the issuance
and sale of a maximum of $350,000 aggregate principal amount of ten percent
(10%) Convertible Secured Notes each in the principal amount of Ten Thousand
Dollars ($10,000) or an integral multiple thereof (the note(s) issued pursuant
to this Agreement and the other notes being issued pursuant to similar
Subscription and Purchase Agreements entered into between the Company and
Investors being herein referred to collectively as the "Notes"). The Notes
shall be in substantially the form attached hereto as Appendix A.
1.2 PURCHASE AND SALE OF THE NOTES. 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 Notes for which each such Investor shall subscribe. The exact
amount of each Investor's subscription is set forth in Section 15.2 hereof.
1.3 CLOSING. Closing(s) of the purchase and sale of the Notes
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 one or more Notes 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 Note(s) subscribed for in
Section 15.2 below.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Investors that:
2.1 MISLEADING STATEMENTS. No representation or warranty by the Company
in this Agreement, or in any written statement or certificate furnished or to
be furnished to the Investors pursuant to this Agreement 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 DISCLOSURE. The Company has fully provided the Investor with all the
information which the Investor has requested for deciding whether to purchase
the Notes, and all information which the Company reasonably believes is
necessary to enable the Investor to make an informed decision.
<PAGE>
2.3 BINDING OBLIGATION. This Agreement and each additional agreement
expressly contemplated by this Agreement, constitute a valid and legally
binding obligation of the Company.
2.4 COMPANY UNDERTAKINGS. The Company hereby agrees that it shall not
permit any of the following to occur prior to July 31, 1997: (i) wave any
of the terms or conditions of any outstanding "lock-up agreements"
(agreements limiting or restricting sales of the Company's securities) with
any of the Company's securities holders; (ii) issue shares of its common
stock to consultants, employees or others which are subject to an effective
registration statement with the Securities and Exchange Commission on Form
S-8, except such shares, if any, which may be issued pursuant to exercise of
outstanding stock options; and (iii) in connection with any additional
funding by the Company, issue any shares of its common stock or any of its
securities which are convertible into shares of common stock prior to
July 31, 1997.
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
Notes involves risks. The Investor represents that Investor has read and
carefully considered the disclosures set forth in this Subscription and
Purchase Agreement and in the Company's filings with the Securities and
Exchange Commission and in the other information furnished by the Company,
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 each additional agreement
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 an accredited investor as defined in Rule 501 of Regulation
D promulgated by the Securities and Exchange Commission, 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
-2-
<PAGE>
investment decision with respect thereto. The Investor further
represents that Investor has reviewed the Company's filings with the
Securities and Exchange Commission and such other information regarding
the Company, its business and financial condition, that Investor deems
to be important to making an informed decision with respect to the
purchase of the Notes and that Investor has had, during the course of
the transaction and prior to the purchase of the Notes, 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.
(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 Note, the Holder
thereof shall also confirm, that the Notes are being and the shares of
Common Stock issuable upon conversion of the Notes 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 (Note 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 (Note Holder) has no present intention
of selling, granting participation in, or otherwise distributing the
same. Any resales of the Notes or any shares of Common Stock issued
upon the conversion thereof will be in conformity with applicable law.
By executing this Agreement (or a Note), Investor (Note Holder) further
represents that Investor (Note 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
participations to such person, or to any third person, with respect to
the Notes or any shares of Common Stock issued upon the conversion
thereof. Investor (Note 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 (Note Holder) has
in mind merely acquiring the Notes for a fixed or determinable period
and selling the Notes in the future, and Investor hereby confirms the
absence of any such intention.
(d) TRANSFER OR DISPOSITION OF SECURITIES. The Investor
understands that the Notes 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 Notes and any shares of Common Stock issued upon the
conversation thereof 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.
-3-
<PAGE>
4.3 STOP TRANSFER INSTRUCTION. The Company shall make a notation
regarding the restrictions on transfer of the Notes in its stock books and
records, 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:
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 Notes 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 CERTIFICATES. The Investor shall have received one or
more Note certificates representing the Notes which the Investor is purchasing
at the Closing.
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 Notes pursuant to this Agreement shall have been duly obtained and shall
be effective on and as of the Closing.
-4-
<PAGE>
6.3 PAYMENT OF PURCHASE PRICE. Investor shall have delivered to the
Company the total consideration for the Notes which the Investor is
purchasing at the Closing.
ARTICLE 7
NOTES
7.1 PRINCIPAL AND INTEREST PAYMENTS. The Company shall pay interest to
the registered holders of the Notes (the "Holders") on the principal amount
of the Notes outstanding from time to time at the time of the payment of the
principal of the Notes commencing on the first such day to occur after
Closing with respect to the purchase of such Note, at the rate of Ten Percent
(10%) 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 Ten Percent (10%) 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 Notes and all accrued but unpaid interest shall be due and payable in
full on October 31, 1997.
7.2 REISSUE OF NOTES. No Note shall be reissued with respect to the
principal amount of any Notes which are paid pursuant to this Agreement, and
the Company shall cancel and terminate any Note 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 NOTES.
(a) The Company shall, at all times while any Notes are
outstanding, act as the registrar of the Notes 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 Notes and particulars of the
Notes held by them respectively and of all transfers of Notes. The name
of the Holder shall be noted on the Notes by the Company or other
registrar.
(b) No transfer of a Note 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 Notes 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 Note by the Company or other registrar.
The person in whose name a Note is registered shall be deemed to be the
owner thereof.
7.4 EXCHANGES OF NOTES. Notes are issuable in denominations of Five
Thousand Dollars ($5,000) and integral multiples thereof. Notes of any
authorized denomination may be exchanged for Notes of any other authorized
denomination or denominations, any such exchange to be for Notes of an
equivalent aggregate principal amount, as requested by the Holders, and
bearing the same interest rate and date of maturity as the original Notes.
Any exchange of Notes may be made at the offices of the Company or at the
offices of any registrar where a register is maintained for the Notes
pursuant to the provisions of Section 7.3. Any Notes 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.
-5-
<PAGE>
ARTICLE 8
CONVERSION
8.1 RIGHT OF CONVERSION. At any time after issuance and prior to
maturity, the Holders of the Notes shall have the right from time to time to
convert all or a portion of the principal balance and interest 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 One Dollar Seventy-Five Cents
($1.75) per share; provided, however, at any time that the market value of a
share of the Company's Common Stock as defined in Section 8.3(d) is less than
Three Dollars Fifty Cents ($3.50), the Conversion Price shall be fifty
percent (50%) of such market value. Such right of conversion is conditioned
upon the Holder's agreement to convert a minimum principal amount of the
Notes of Five Thousand Dollars ($5,000) at any time such Holder elects to
exercise Holder's conversion rights unless, at the time the Holder elects to
convert the Note, Holder holds less than Five Thousand Dollars ($5,000) in
principal amount of the Notes, in which instance, the entire amount shall be
converted.
8.2 EXERCISE OF CONVERSION RIGHT.
(a) In order to exercise the conversion right provided in
Section 8.1, a Holder of the Notes shall surrender the Notes at the
office of the Company or other registrar appointed by the Company,
together with a conversion notice in the form attached to the Note 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 Notes 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 Note 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 Note is convertible in accordance with the provisions of
this Article 8 and, as soon as practicable thereafter, the Company shall
deliver to such Note 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 Note 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 Note is notified in writing, and, in the case of a Note
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 Note is notified in writing; provided that if a
Note 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 Five
Thousand Dollars ($5,000) or an integral multiple thereof, of a Note of
a denomination in excess of Five Thousand Dollars ($5,000) may be
converted as provided in this Article 8 and all references in this
Agreement to conversion of Notes shall be deemed to include conversion
of such parts.
(d) The Holder of any Note of which part only is converted
shall upon the exercise of its right of conversion, surrender the said
Note 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 Note or Notes in an
aggregate principal amount equal to the unconverted part of the
principal amount of
-6-
<PAGE>
the Note so surrendered, provided that such new Note(s) shall be
issued only in denominations of Five Thousand Dollars ($5,000) or
integral multiples thereof.
(e) The Holder of a Note surrendered for conversion in
accordance with this Section shall be entitled to receive accrued and
unpaid interest on the principal amount thereof being converted, such
interest to be paid at the time of the conversion of the Note either in
cash or through the conversion thereof into Common Stock at the
Conversion Price and as otherwise provided herein. 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 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 conversion
price in effect immediately prior thereto shall be adjusted to that
amount determined by multiplying the Conversion Price in effect
immediately prior to such date by a fraction, of which the numerator
shall be the number of shares of Common Stock outstanding on such date
before giving effect to such division, subdivision, reduction,
combination or consolidation or stock dividend and of which the
denominator shall be the number of shares of Common Stock after giving
effect thereto. 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) In case the Company shall issue rights or warrants to all
or substantially all holders of its Common Stock entitling them (for a
period expiring within 45 days after the record date mentioned below) to
subscribe for or purchase shares of Common Stock (or securities
convertible into Common Stock) at a price per share (the "Offering
Price") less than the Conversion Price at the record date mentioned
below, the price per share at which the Notes may thereafter be
converted into Common Stock shall be determined by dividing the price
per share for which the Notes were theretofore convertible into Common
Stock by a fraction of which the numerator shall be the number of shares
of Common Stock outstanding on the date of issuance of such rights or
warrants plus the number of additional shares of Common Stock offered
for subscription or purchase, and of which the denominator shall be the
number of shares of Common Stock outstanding on the date of issuance of
such rights or warrants plus the number of shares which the aggregate
Offering Price of the total number of shares so offered would purchase
at such Conversion Price. Such adjustment shall be made whenever such
rights or warrants are issued, and shall become effective retroactively,
immediately after the record date for the determination of shareholders
entitled to receive such rights or warrants.
(c) In case the Company shall distribute to all or
substantially all holders of its Common Stock evidences of its
indebtedness, shares of any class of the Company's stock other than
Common Stock or assets (excluding cash dividends) or rights or warrants
to subscribe (excluding those referred to in subsection (b) above), then
in each such case the price per share at which the Notes may thereafter
be converted into Common Stock shall be determined by dividing the price
per share for which the Notes were theretofore convertible into Common
Stock by a fraction, of which the numerator shall be the fair market
value per share of Common Stock (as defined in subsection (d) below) on
the date of such distribution and of which the denominator shall be such
fair market value per share of the Common Stock, less the then fair
market value (as determined by the board of directors of the Company,
whose determination shall be conclusive, and described in a statement,
which will have the applicable resolutions of the board of directors
attached
-7-
<PAGE>
thereto, filed with the Company) of the portion of the assets or
evidences of indebtedness or shares so distributed or of such
subscription rights or warrants applicable to one share of the Common
Stock. Such adjustment shall be made whenever any such distribution is
made and shall become effective retroactively immediately after the
record date for the determination of stockholders entitled to receive
such distribution.
(d) For the purpose of any computation under subsections 8.1
and 8.3(c), 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 any 10 consecutive trading days commencing not
more than 30 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 ("NASDAQ")), or, (ii) in the event the Common
Stock is listed on a stock exchange or on the NASDAQ National Market (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 any 10 consecutive trading days commencing not more than
30 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).
(e) If the Common Stock issuable upon the conversion of the
Notes 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 Notes shall
have the right thereafter to convert such Notes 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 Notes
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.
(f) 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 Notes shall thereafter be
entitled to receive upon conversion of such Notes, 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.
(g) 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 Conversion Price shall
be required unless such adjustment would require an increase or decrease
of at least one (1) percent in the Conversion Price then in effect;
provided, however, that any adjustments which by reason of this
subsection (g) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment.
(h) Upon each adjustment of the 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 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 Notes, setting
forth in reasonable detail the method of calculation and the facts upon
which such calculation is based.
-8-
<PAGE>
(i) 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 Notes outstanding; such accountants shall have access to
all necessary records of the Company and such determination shall be
binding upon the Company, and the Note Holders.
8.4 RESERVATION OF SHARES. The Company agrees that, so long as any Note
shall remain outstanding, the Company shall at all times reserve and keep
available, free from preemptive rights, out of its authorized capital stock
for the purpose of issue upon conversion of the Notes, the full number of
shares of Common Stock then issuable upon conversion of the Notes.
8.5 FRACTIONAL SHARES. No fractional shares or scrip representing
fractional shares shall be issued upon the conversion of the Notes. If, upon
conversion of any Note 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
subsection 8.3(d) hereof.
8.6 VALIDITY OF SHARES. The Company agrees that all shares of Common
Stock which may be issued upon conversion of the Notes 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 Notes remains unconverted, the Holders
of the Notes 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 Notes 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.
-9-
<PAGE>
ARTICLE 9
SECURITY AGREEMENT
9.1 GRANT OF SECURITY INTEREST. In order to secure the payment of the
Notes and the performance by the Company of its obligations hereunder and
such other obligations of the Company to the Note Holders which may arise
from time to time during the term of the Notes (all of which are referred to
herein as the "Obligations") the Company hereby grants to the Note Holders a
security interest in certain real estate of the Company situated in the
County of Kenosha, State of Wisconsin, such security interest to be in
substantially the form of the Real Estate Mortgage attached hereto as
Appendix B (the "Mortgage") (such property being hereinafter referred to as
the "Collateral").
9.2 FILINGS. The Company shall, at its expense, execute, deliver, file
and record the Mortgage and other documents that are reasonably required in
order to perfect the Note Holders' security interest in the Collateral. In
the event that the Mortgage initially filed in connection with the Collateral
is in an amount less than Three Hundred Fifty Thousand Dollars ($350,000),
Investor agrees to consent to and to provide any and all written agreements
necessary to file a new or amended Mortgage with respect to the Collateral,
provided that such new or amended Mortgage is being filed in connection with
the sale of Notes and is not more than Three Hundred FiftyThousand Dollars
($350,000).
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 Note Holders in the Collateral
shall revert to the Company. In the event that the Notes shall be amended to
secure the payment of additional principal and interest on Pari Passu
Indebtedness as provided in Article 10 below, the Note Holders' rights and
interests in the Collateral shall be amended, all as more fully set forth in
Article 10.
ARTICLE 10
PARI PASSU INDEBTEDNESS
10.1 PARI PASSU INDEBTEDNESS. In the event that the Company has obtained
a commitment for funding in addition to the funding to be provided by the
issuance of the Notes in an amount not to exceed Two Million Five Hundred
Thousand Dollars ($2,500,000) (such additional indebtedness being herein
referred to as the "Pari Passu Indebtedness") and such commitment is
contingent upon the Pari Passu Indebtedness being secured by a mortgage on
the property subject to the Mortgage, Note Holder shall, as long as any such
indebtedness is not convertible into shares of the Company's Common Stock
prior to July 31, 1997, agree and consent to an amendment to the Mortgage or
the issuance of a new or substituted mortgage with respect thereto, which
amended, new or substituted mortgage provides that the subject property shall
secure payment of the Pari Passu Indebtedness as well as the Note on a
pro-rata basis, so long as Note Holder is given an equal and pro-rata
interest in any additional security interest to be made available to the
holders of the Pari Passu Indebtedness.
10.2 TERMS OF PARI PASSU INDEBTEDNESS. It shall not be necessary for any
consent of Note Holders under this Article 10 to approve the particular form
of any proposed Pari Passu Indebtedness, but it shall be sufficient if such
consent approves the substance thereof.
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
-10-
<PAGE>
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 Note when
the same becomes due and payable, and continuance of such default for a
period of thirty (30) days;
(2) default in the payment of the principal of any Note when
the same becomes due and payable;
(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 Notes, a
written notice specifying such default or breach and requiring it to be
remedied and stating that such notice is a "Notice of Default" hereunder;
(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; or
(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.
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 Twenty-five Percent (25%) in principal amount of the Notes
outstanding may declare the principal of all the Notes 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.
11.3 COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY HOLDERS.
The Company covenants that if:
(1) default is made in the payment of interest on any Note
when such interest becomes due and payable, or
(2) default is made in the payment of the principal of any
Note 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 Note 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
Note.
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 Note 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 Note, wherever situated.
-11-
<PAGE>
11.4 REMEDIES WITH RESPECT TO COLLATERAL ON DEFAULT. If an Event of
Default occurs and is continuing, then and in every such case the Holders of
not less than Twenty-five Percent (25%) in principal of the Notes outstanding
may, in addition to their other rights hereunder and in the Mortgage,
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. For the purposes hereof, 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 Note Holders for security and shall be paid
directly to the nominee of the Note Holders. The Company will join in giving
such notice if requested by the Note Holders. At any time after the
occurrence of an Event of Default, the Note 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 NOTE HOLDERS TO RECEIVE PRINCIPAL AND
INTEREST. Subject to the provisions of this Agreement, the Holder of any
Note shall have the right which is absolute and unconditional to receive
payment of the principal of and interest on such Note on the respective dates
expressed in such Note 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 Note 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 Note Holder, then and in every such case
the Company and the Note 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 Note Holder shall
continue as though no such proceeding had been instituted.
11.7 RIGHTS AND REMEDIES CUMULATIVE. No right or remedy herein
conferred upon or reserved to the Note 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 Note to exercise any right or remedy accruing upon any Event of
Default shall impair any such right or remedy or constitute a waiver of 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 a majority in principal
amount of the outstanding Notes may on behalf of the Holders of all the Notes
waive any past default hereunder and its consequences, except a default
(1) in the payment of the principal of or interest on any Note; or
(2) in respect of a covenant or provision of this Agreement
which under Article 12 cannot be modified or amended without the consent
of the Holder of each outstanding Note affected.
Upon any such waiver, such default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every
purpose of this Agreement; but no such waiver shall extend to any subsequent
or other default or impair any right consequent thereon.
-12-
<PAGE>
ARTICLE 12
SUPPLEMENTAL AGREEMENTS REGARDING NOTES
12.1 SUPPLEMENTAL AGREEMENTS WITH CONSENT OF NOTE HOLDERS. With or
without notice to any Note Holder but with the consent of the Holders of not
less than 75% in principal amount of the then outstanding Notes, the Company,
when authorized by a duly adopted board resolution, and the Note 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 Notes under this Agreement; provided, however, that no such
supplemental agreement as it relates to the Notes and the terms and
conditions thereof shall, without the consent of the Holder of each
outstanding Note affected thereby:
(1) change the date of maturity of the principal of, or any
installment of interest on, any Note, or reduce the principal amount
thereof or the rate of interest thereon, or change the coin or currency
in which, the principal of any Note 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 Notes, 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 11.2, 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 Note affected thereby; or
(4) adversely affect the right to convert the Notes as
provided in Article 8 hereof.
It shall not be necessary for any consent or authorization of Note
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 Notes theretofore or
thereafter delivered hereunder shall be bound thereby.
12.3 REFERENCE IN NOTES TO SUPPLEMENTAL AGREEMENTS. Notes 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 Notes 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 Notes.
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 Notes in accordance
with the terms of the Notes and this Agreement.
-13-
<PAGE>
13.2 MONEY FOR NOTE 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 Notes, 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 Notes, 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.
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 Note Holders.
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 Notes (the
"Registerable Securities") to be registered with the Securities and Exchange
Commission, at the Company's expense, under the 1933 Act prior to May 31,
1997. The Company will use its best efforts to keep such Registration
Statement effective until the earlier of April 30, 1999 or until all of the
Registerable Securities have been sold pursuant to such Registration
Statement.
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 constitutes 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 (other then Appendix B) shall be
governed by and construed under the laws of the State of Colorado as applied
to agreements among Colorado residents entered into and to be performed
entirely within 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,
-14-
<PAGE>
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 EFFECT OF AMENDMENT OR WAIVER. The Investor hereby acknowledges
that, by the operation of Articles 10, 11 and 12 hereof, the Holders of Notes
have certain rights and powers to diminish or change certain rights of the
Holders of Notes, including Holders who have not agreed or consented thereto,
under this Agreement.
14.8 RIGHTS OF INVESTORS. Each Holder of Notes 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 Note 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.
14.9 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.
14.10 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
$350,000 aggregate principal amount of Notes.
ARTICLE 15
SUBSCRIPTION
15.1 OFFERING. The minimum subscription per Investor permitted in this
Offering is $10,000; 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
$_____________ in principal amount of Notes and shall tender at Closing a
certified check or bank draft in such amount 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 Notes subscribed for, including, without limitation,
applicable state blue sky laws.
-15-
<PAGE>
The undersigned acknowledges that this subscription shall not be
effective unless accepted by the Company as indicated below.
Entered into this ____ day of April, 1997.
---------------------------------------------
(Name) (Please Print)
---------------------------------------------
(Signature)
---------------------------------------------
(Mailing Address)
---------------------------------------------
(Registration Instructions)
---------------------------------------------
(Social Security or Tax Identification No.)
THIS SUBSCRIPTION IS ACCEPTED BY THE COMPANY ON THE _____ DAY OF APRIL
1997.
RENAISSANCE ENTERTAINMENT CORPORATION
By:
------------------------------------------
Charles S. Leavell
Chief Executive Officer
-16-
<PAGE>
APPENDIX A
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.
THIS NOTE IS TRANSFERABLE ONLY IN THE NOTE REGISTER OF THE COMPANY, UPON
SURRENDER OF THIS NOTE FOR THE TRANSFER TO THE NOTE REGISTRAR DULY ENDORSED
BY, OR ACCOMPANIED BY A WRITTEN INSTRUMENT OF TRANSFER IN FORM SATISFACTORY
TO THE NOTE REGISTRAR DULY EXECUTED BY, THE REGISTERED HOLDER HEREOF OR HIS
ATTORNEY DULY AUTHORIZED IN WRITING, AND THEREUPON, SUBJECT TO THE TERMS
HEREOF, ONE OR MORE NEW NOTES FOR THE SAME AGGREGATE PRINCIPAL AMOUNT WILL BE
ISSUED TO THE DESIGNATED TRANSFEREE OR TRANSFEREES.
No A- $__________
RENAISSANCE ENTERTAINMENT CORPORATION
10% CONVERTIBLE SECURED NOTE
THIS NOTE is one of a duly authorized issue of Notes of Renaissance
Entertainment Corporation, a corporation duly organized and existing under
the laws of the State of Colorado (the "Company"), designated as its 10%
Convertible Secured Notes, in an aggregate principal amount not exceeding
$350,000, issued pursuant to that certain Subscription and Purchase Agreement
dated April __, 1997, between the Company and the original purchasers of the
Notes (the "Purchase Agreement"). Reference is hereby made to the Purchase
Agreement for a complete description of the rights and obligations of, and
limitations and restrictions on, the Company and the Holder of this Note.
The terms and conditions of the Note noted hereinafter are subject in every
respect to the terms and conditions of the Purchase Agreement. In the event
of a conflict between the provisions of this Note and the Purchase Agreement,
the Purchase Agreement shall control.
FOR VALUE RECEIVED, the Company promises to pay to ____________________
the registered holder hereof (the "Holder"), the principal sum of
______________________________________ ($___________), on October 31, 1997,
subject to acceleration in certain events, and to pay interest on October 31,
1997 on the principal sum outstanding from time to time after as well as
before maturity and default and after judgment, at the rate of 10% per annum
accruing from the date of initial issuance. 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. The interest and
principal so payable on October 31, 1997, will, as provided in the Purchase
Agreement, be paid to the person in whose name this Note (or one or more
predecessor Notes) is registered on the records of the Company regarding
registration and transfers of the Notes (the "Note Register") on the Payment
Date; provided, however, that the Company's obligation to a transferee of
this Note 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 Note are payable in such coin or currency
of the United States of America as at the time of payment is legal tender for
payment of public and private debts, at the address last appearing on the
Note Register of the Company as designated in writing by the Holder from time
to time. The Company will pay principal and interest on this Note by
A-1
<PAGE>
sending a check for such interest due, less any amounts required by law to be
deducted, to the registered holder of this Note and addressed to such holder
at the last address appearing on the Note Register. The forwarding of such
check shall constitute a payment of principal and interest hereunder unless
such check is not paid at par.
This Note is subject to the following additional provisions:
1. The Notes are issuable in denominations of Ten Thousand Dollars
($10,000) and integral multiples thereof. As provided in the Purchase
Agreement, the Notes are exchangeable for an equal aggregate principal amount
of Notes 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 Note.
2. The Company shall be entitled to withhold from all payments of
principal of, and interest on, this Note 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.
3. This Note 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 Note, the Company and any agent of the Company may treat the Person in
whose name this Note is duly registered on the Company's Note Register as the
owner hereof for the purpose of receiving payment as herein provided and for
all other purposes, whether or not this Note be overdue, and neither the
Company nor any such agent shall be affected by notice to the contrary.
4. If an Event of Default occurs and is continuing, the Holders of not
less than Twenty-five Percent (25%) in principal amount of the 10%
Convertible Secured Notes then outstanding may declare the principal of all
such Notes 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.
5. Subject to the provisions of the Purchase Agreement, the Holder of
this Note is entitled, at its option, at any time until maturity hereof to
convert the principal amount of this Note and any accrued interest with
respect thereto or any portion of the principal amount hereof and interest
payable thereon which is at least Five Thousand Dollars ($5,000) or, if at
the time of such election to convert the aggregate principal amount of all
Notes registered to the Holder is less than Five Thousand Dollars ($5,000),
then the whole amount thereof, into shares of Common Stock of the Company at
a conversion price equal to the lesser of One Dollar Seventy-Five Cents
($1.75) per share or 50% of the then market price (as defined in the Purchase
Agreement) of a share of Common Stock (or at the current adjusted conversion
price if an adjustment has been made as provided in the Purchase Agreement),
upon surrender of this Note 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 Note evidencing such Holder's intention to
convert this Note or a specified portion (as above provided) hereof, and
accompanied, if required by the Company, by proper assignment hereof in
blank. Accrued but unpaid interest is subject to conversion. As provided in
the Purchase Agreement, the conversion price is subject to adjustment in
certain events. Subject to the foregoing, no adjustment is to be made upon
any conversion for dividends on securities issued on such conversion or for
interest accrued hereon. As further provided in the Purchase Agreement, in
the case of any capital reorganization, certain reclassifications of the
Common Stock, the consolidation or merger of the Company with or into any
other corporation or the disposition of the properties and assets of the
Company, as, or substantially as, an entirety to any other corporation, this
Note shall thereafter cease to be convertible into Common Stock and shall be
convertible into the shares of stock or other securities or property
(including cash) to which the holders of Common Stock are entitled upon such
capital reorganization, reclassification, consolidation, merger or
disposition. No fractions of shares or scrip representing fractions of
shares will be issued on conversion, but an adjustment in cash will be made
for any fractional interest as provided in the Purchase Agreement.
A-2
<PAGE>
6. The Purchase Agreement contains provisions permitting the Holders of
a majority of the aggregate principal amount of all such Notes at the time
outstanding, on behalf of the Holders of all the Notes, 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 Note and of any note 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 Note.
7. No reference herein to the Purchase Agreement and no provision of
this Note 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 Note at the time, place and rate, and in the coin or
currency, herein prescribed. This Note and all other Notes now or hereafter
issued under the Purchase Agreement are direct obligations of the Company.
This Note ranks equally and ratably with all other Notes now or hereafter
issued under the Purchase Agreement.
8. No recourse shall be had for the payment of the principal of, or the
interest on, this Note, 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.
9. The Holder of this Note, by acceptance hereof, agrees that this Note
is being and any shares of Common Stock acquired pursuant to the conversion
of this Note 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 Note 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 Note 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.
10. All terms used in this Note which are defined in the Purchase
Agreement shall have the meanings assigned to them in the Purchase Agreement.
11. This Note shall be governed by and construed in accordance with the
laws of the State of Colorado.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
RENAISSANCE ENTERTAINMENT CORPORATION
By:__________________________________
Charles S. Leavell
Chairman of the Board of Directors
and Chief Executive Officer
Dated April ___, 1997
GP:375352 v1
A-3
<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
TO: RENAISSANCE ENTERTAINMENT CORPORATION
The undersigned Holder of this Note hereby irrevocably elects to convert
this Note, or portion hereof (which is at least $5,000, unless the undersigned
holds Notes aggregating less than $5,000, in which event, the amount converted
shall be the entire amount of principal of such Notes) below designated, into
shares of Common Stock of Renaissance Entertainment Corporation in accordance
with the terms of the Purchase Agreement dated April 14, 1997, and directs that
the shares issuable and deliverable upon such conversion, together with any
check in payment for fractional shares and any Notes representing any
unconverted principal amount hereof, be issued and delivered to the undersigned
unless a different name has been indicated below. If shares are to be issued in
the name of a person other than the undersigned, the undersigned will pay all
transfer taxes, if any, payable with respect thereto.
Dated _____________________
_______________________________________
Signature of Holder
Principal Amount to be Converted
_______________________________________
THE NOTES AND SHARES OF COMMON STOCK ACQUIRED UPON CONVERSION THEREOF ARE
TRANSFERABLE ONLY AS PROVIDED IN THE PURCHASE AGREEMENT.
Provide the following information if shares of Common Stock and/or Notes are
to be issued otherwise than to the Holder. Please print name and address
(including zip code) of other person.
_______________________________________
_______________________________________
_______________________________________
_______________________________________
Social Security or Other Taxpayer
Identifying Number
GP:375352 v1
A-4
<PAGE>
APPENDIX B
MORTGAGE DEED
AND
SECURITY AGREEMENT
AND
FIXTURE FINANCING STATEMENT
THIS INDENTURE, made this _______ day of _______, 1997, by and between
Renaissance Entertainment Corporation, a Colorado corporation, having its
principal office at 4410 Arapahoe Avenue, Suite 200, Boulder, Colorado 80303
("Mortgagor"), and _____________________, ____________________ and
___________________ (collectively "Mortgagee"),
W I T N E S S E T H:
That Mortgagor, in consideration of the sum of _________________________
and 00/100THS ($__________________) 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
B-1
<PAGE>
(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,
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
B-2
<PAGE>
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 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 ____________________________ and
00/100THS ($________________) DOLLARS, evidenced by: (i) that certain 10%
Convertible Secured Note dated _____________, 1997 and issued by Mortgagor to
__________________________ ; (ii) that certain 10% Convertible Secured Note
dated ___________, 1997 and issued by Mortgagor to __________________; and (iii)
that certain 10% Convertible Secured Note dated __________, 1997 and issued to
_________________ (collectively the "Notes") with interest on such principal sum
from the date of the Notes at the rate specified in the Notes. The Notes are
being issued, respectively, pursuant to: (i) that certain Subscription and
Purchase Agreement dated as of _____________ , 1997 and executed between
Mortgagor and ___________________; (ii) that certain Subscription and Purchase
Agreement dated as of ___________, 1997 and executed between Mortgagor and
__________________; and that certain Subscription and Purchase Agreement dated
_____________, 1997 and executed between Mortgagor and _____________________
(collectively the "Subscription Agreements"). The Notes mature not later than
October 31, 1997. The provisions of the Notes are incorporated herein by
reference.
B-3
<PAGE>
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 Notes
together with all other sums arising under the Notes, the Subscription
Agreements and this Mortgage and secured hereby, at the times and in the manner
herein and in the Notes 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 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 Notes 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 Notes 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
B-4
<PAGE>
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
Mortgagee 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 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
B-5
<PAGE>
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 a prior Real Estate Mortgage 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 Mortgage 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 Mortgage 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 Notes, 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 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
B-6
<PAGE>
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 Notes 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
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
B-7
<PAGE>
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 Notes 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 Notes
contained, after any notice required by the terms of the Notes 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 Notes 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 Notes 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 Notes, shall, at the option of Mortgagee, become
immediately due and payable together with interest at the rate set forth in
the Notes 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 Notes contained to the contrary notwithstanding,
B-8
<PAGE>
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
Notes 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 Notes 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 provisions of Section 846.101, 846.102 and/or 846.103 of the Wisconsin
statutes or any successor thereof.
B-9
<PAGE>
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 Notes, 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
B-10
<PAGE>
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 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 Notes, 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
Notes, under any covenant of this Mortgage or of the Notes, 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
B-11
<PAGE>
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 Notes
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;
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
B-12
<PAGE>
receiver should otherwise pay if cash were available from the Premises and
sums so advanced with interest at the rate provided in the Notes, 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
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,
B-13
<PAGE>
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;
(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
B-14
<PAGE>
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 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
B-15
<PAGE>
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.
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
B-16
<PAGE>
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 Notes 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
Notes 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. That (a) if default be made in the payment of the principal sum
secured hereby or of any installment thereof, or of interest thereon, or of
any other sum due hereunder, under the Notes or in any other document,
instrument, or agreement now or hereafter evidencing or securing said debt as
they severally become due and such default shall continue uncured for 30 days
beyond the due date thereof; (b) if default be made in the performance or
observance of any other term, covenant, or condition in this Mortgage or in
the Notes or in any document, instrument or agreement now or hereafter
evidencing or securing said debt and such default shall continue uncured for
a period of 30 days after notice to Mortgagor unless such default is of such
nature as cannot be cured within such 30 day period but can be cured during a
longer period and Mortgagor has initiated action to cure such default and
diligently pursues the curing of such default, in which case, such 30 day
period shall be extended for a time that is reasonably necessary to cure such
default; (c) if default be made in any payment or performance due under the
Notes, this Mortgage or any other document, instrument or agreement now or
hereafter evidencing or securing said debt and it is expressly stated herein
or therein that there is no applicable grace period; (d) if proceedings be
instituted for the foreclosure or collection of any mortgage, judgment or
lien prior or subordinate to the lien of this Mortgage affecting the
Premises; (e)if Mortgagor shall make a general assignment for the benefit of
creditors, or shall file a voluntary petition in bankruptcy, or shall be
adjudicated a bankrupt or insolvent, or shall file any petition or answer
seeking, consenting to, or acquiescing in, reorganization, arrangement,
adjustment, composition, liquidation, dissolution or similar relief, under
any present or future statute, law or regulation relating to bankruptcy,
insolvency, reorganization or relief of debtors or if Mortgagor shall file an
answer admitting or shall fail to deny the material allegations of a petition
against Mortgagor seeking any such relief shall not have been dismissed
within sixty (60) days after the commencement thereof; or (f) if a trustee,
receiver or liquidator of Mortgagor or any substantial part of its properties
or assets shall be appointed with the consent or acquiescence of Mortgagor or
if any such appointment, if not so consented to or acquiesced in, shall
remain unvacated or unstayed for an aggregate of sixty (60) days: then at
such time, or upon
B-17
<PAGE>
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 Notes 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 Notes 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 Notes, 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
Notes 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.
B-18
<PAGE>
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, each with an undivided 50% 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 Notes 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 ____________________________
Its ____________________________
B-19
<PAGE>
STATE OF _____________ )
) ss.
COUNTY OF __________ )
On this ____ day of ____________, 1997, before me, a Notary Public within
and for said County, personally appeared _____________, to me personally
known, who, being by me duly sworn did say that he is the ___________________
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, ___
My Commission [Expires]____________________
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
GP:369850 v1
B-20
<PAGE>
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.
GP:369850 v1
B-21
<PAGE>
EXHIBIT B
PERMITTED ENCUMBRANCES
1. Real Estate Mortgages to Bank One, Kenosha, NA and Bank One Boulder, NA,
securing up to $1,950,000.
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.
GP:369850 v1
B-22
<PAGE>
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.
Schumacher & Associates, Inc.
May 6, 1997
