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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(X) ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period_________to_________.
Commission File Number: 0-26580
AMERICAN COIN MERCHANDISING, INC.
(Name of small business issuer in its charter)
DELAWARE 84-1093721
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
4870 STERLING DRIVE, BOULDER, COLORADO 80301
(Address of principal executive offices)
(Zip Code)
(303) 444-2559
(Registrant's telephone number)
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(Title of class)
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
--- ---
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of the Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. ( )
The registrant's revenue for its most recent fiscal year was: $38,267,000.
The aggregate market value of the registrant's voting stock held as of
February 28, 1997 by nonaffiliates of the issuer was $9,966,000.
As of February 28, 1997, issuer had 5,284,923 shares of its $0.01 par
value common stock outstanding.
Transitional Small Business Disclosure Format. Yes No X
--- ---
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III (Items 9, 10, 11, and 12) is
incorporated by reference to portions of the registrant's definitive proxy
statement for the 1997 Annual Meeting of Stockholders which will be filed with
the Securities and Exchange Commission within 120 days after the close of the
1996 year. Also incorporated by reference is the Company's Registration
Statement on Form SB-2, File No. 33-95446-D.
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AMERICAN COIN MERCHANDISING, INC.
ANNUAL REPORT ON FORM 10-KSB
DECEMBER 31, 1996
TABLE OF CONTENTS
<TABLE>
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PART I
PAGE
<S> <C>
Item 1 Description of Business........................................... 3
Item 2 Description of Property........................................... 11
Item 3 Legal Proceedings................................................. 11
Item 4 Submission of Matters to a Vote of Security Holders............... 11
PART II
Item 5 Market for Common Equity and Related Stockholder Matters.......... 12
Item 6 Management's Discussion and Analysis or Plan of Operation......... 12
Item 7 Financial Statements.............................................. 15
Item 8 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure....................................... 15
PART III
Item 9 Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.............. 16
Item 10 Executive Compensation............................................ 16
Item 11 Security Ownership of Certain Beneficial Owners and Management.... 16
Item 12 Certain Relationships and Related Transactions.................... 16
Item 13 Exhibits and Reports on Form 8-K.................................. 16
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Except for the historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed here. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in the sections entitled
"Operations--Account Acquisition, Location Selection and Shoppe Placement",
"Suppliers--Product", "Competition for Locations", "Franchise Relationship",
and those discussed in the Company's "Management's Discussion and Analysis or
Plan of Operation."
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
American Coin Merchandising, Inc., d/b/a Sugarloaf Creations, Inc. (the
"Company") and its franchisees own and operate coin-operated skill-crane
machines ("Shoppes") that dispense stuffed animals, plush toys, watches,
jewelry and other items. For up to 50 c. a play, customers maneuver the
skill-crane into position and attempt to retrieve the desired item in the
machine's enclosed display area before play is ended. The Company attempts to
place Shoppes in supermarkets, mass merchandisers, bowling centers, bingo
halls, bars, restaurants, warehouse clubs and similar locations to take
advantage of the regular customer traffic at these locations. The Company
utilizes displays of quality merchandise, new product introductions, including
Company-designed products and seasonal items, and other merchandising
techniques to attract customers. The visual appeal of the Company's Shoppes,
the quality of products offered and the Company's operational standards are
important factors in gaining acceptance of the Company's Shoppes by retailers.
The Company was formed in Colorado in July 1988 and was reincorporated in
Delaware in July 1995. At the time the Company was founded, certain of the
founders owned and operated entities that operated skill-crane machines. A
wholly-owned company of one of the founders also had licensed the rights to
operate similar businesses through license, sale and set-up agreements that
were assigned to the Company. The Company was formed to support the license,
sale and set-up agreements and to offer additional license, sale and set-up
arrangements and franchises in new territories. Shortly after the Company was
formed, it began combining the buying power of the affiliated businesses to
purchase products and skill-crane machines at lower prices. In 1990, the
Company began developing its own territories by directly owning and operating
skill-crane machines.
In order to continue to attempt to expand its operations, on August 31,
1995 the Company purchased substantially all of the inventory, property and
equipment and assumed certain facilities leases and contracts of Southwest Coin
Company, Sugarloaf Marketing, Inc., Sugarloaf, Ltd., Chicago Toy Company,
Georgia Toy Company, Inland Merchandising, Inc., Lehigh Valley Toy Company and
Performance Merchandising, Inc. (collectively, the "Affiliated Entities") for
an aggregate purchase price of approximately $9.0 million (the
"Reorganization"). All of the Affiliated Entities previously were franchisees
of the Company and all, except Sugarloaf Marketing, were under common control
with the Company.
On October 13, 1995, the Company completed a public offering of its common
shares, whereby the Company sold 1,700,000 shares at $7.00 per share, with $7.6
million of the proceeds of the offering used to repay certain of the promissory
notes of the Company issued to the Affiliated Entities pursuant to the
Reorganization.
BUSINESS STRATEGY
The Company's business strategy is to differentiate itself from
traditional skill-crane operators and strengthen its position as an owner,
operator and franchisor of skill-crane machines in the U.S. The key elements of
the Company's business strategy are as follows:
Quality Products. The Company's Shoppes offer a mix of products,
including selected products of higher quality than the carnival-type
products traditionally associated with skill-crane and other
prize-dispensing equipment. The plush toys offered in the Company's
Shoppes are made with 100% polyester fiber fill and high-grade outer
covers and the watches include dependable movements. In addition, the
Company's Shoppes offer licensed products featuring recognizable
characters and theme-based items. All products offered in the Shoppes must
adhere to the Company's safety and quality standards.
Machine Appearance, Merchandise and Merchandising Techniques. The
Company's Shoppes are distinctively marked with the SugarLoaf logo and
other signage which is readily identifiable with the Company in order to
create brand awareness. In addition, the Shoppes are well-lit and are
cleaned and serviced regularly to maintain their attractive appearance.
The Shoppes contain an appealing mix of products arranged by size, color,
shape and type. Products with relatively higher perceived values are
prominently displayed, and the Company frequently incorporates new items
into the merchandise mix to maintain the Shoppes' fresh appearance.
Management believes the Shoppes' appearance and the Company's
merchandising techniques are important factors in gaining acceptance
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of the Company's Shoppes by retailers. Consumer preferences are constantly
changing and difficult to predict, and consumer interest in the Company's
Shoppes could decline suddenly or other prize-dispensing equipment or
amusement devices could replace the Shoppes in consumer preference. The
Company's success will depend in part on its ability to offer new and
appealing products and on the continuing appeal of its Shoppes'
skill-crane format in both existing markets and in new markets into which
the Company may expand. There can be no assurance that the use of
skill-crane machines and the Company's ability to profit therefrom will
not be adversely affected by changing consumer trends.
Product Procurement and Company-Designed Product. The Company controls
product cost by purchasing a significant portion of its products directly
from manufacturers in large quantities and acquiring merchandise that has
been discontinued or is subject to substantial "close-out" discounts. The
Company also controls product cost by pre-packing products which it
distributes to Company-owned offices and sells to its franchisees for use
in filling and merchandising the Shoppes. These pre-packed units include a
predetermined mix or "recipe" of different types, sizes, shapes and colors
of product which achieve the Company's merchandising objectives while also
controlling average product cost. The Company is able to frequently
introduce new products in its Toy Shoppes by designing a significant
portion of the products and by purchasing licensed and other product from
suppliers. Designing products at various price points furthers the
Company's objective of controlling product cost. See "Suppliers--Product."
Vend Ratio and Revenue Management. The Company closely monitors the
revenue per product dispensed, or the Vend Ratio, of each of its Shoppes
to maintain customer satisfaction and optimize Shoppe revenue and
profitability. A higher than optimal Vend Ratio reduces customer
satisfaction and results in less frequent plays, resulting in lower
revenue at a given location, while a lower than optimal Vend Ratio
increases the frequency at which products are dispensed and reduces
profitability. If the Vend Ratio falls outside of the Company's target
range, the route merchandiser can influence various factors affecting the
Vend Ratio, including the mix of products by size and weight, the
placement of products within the Shoppe's display area, the number of
products and the density of the products within the Shoppe. Additionally,
the Company monitors each Shoppe's average weekly revenue. If a Shoppe's
weekly revenue consistently falls below the Company's minimum weekly
revenue goal, the Company will consider relocating the Shoppe.
Location Selection. The Company intends to concentrate on placing
Shoppes in supermarkets, mass merchandisers, restaurants and similar
retail businesses. Within these locations, the Company seeks to secure
sites with the greatest visibility and accessibility to potential
customers. See "Operations--Account Acquisition, Location Selection and
Shoppe Placement."
Training. The Company employs a comprehensive training program,
including seminars and field training, for its regional managers, field
office general managers and franchisees. It also provides operations
manuals, training videos and other materials relating to office management
and route merchandising to assure the achievement of the Company's
business objectives. See "Operations--Supervision, Training and Support."
SHOPPES
The Company has sought to position its Shoppes as an entertaining way to
"purchase" quality products. Management believes that the quality of the
Shoppes' products and the entertainment and amusement afforded by their
skill-crane format have broad appeal to adults and adolescents. While
skill-crane machines have been in operation for 75 years, the Company has
incorporated into its Shoppes several improvements and refinements. The Company
increased the size of the Shoppes to enhance their visibility and to display
and vend more products and created bright, distinctive signage which is readily
identifiable with the Company. The Company also added exterior lighting,
brightened interior lighting and selected exterior colors of the machines to
attract and focus customer attention on the products in the Shoppes. In
addition, the Company has upgraded the Shoppes' operating mechanisms to achieve
consistency of play and reliability of performance.
The SugarLoaf Toy Shoppe has been operated by the Company since its
inception. The Company introduced the SugarLoaf Fun Shoppe in 1993 and the
SugarLoaf Treasure Shoppe in 1994. Management believes that the introduction of
new types of skill-crane machines has enabled the Company to capitalize on its
current routes and existing relationships by placing additional machines in
existing locations, thereby increasing revenues at each location with little
incremental servicing costs. The Company also may seek to introduce new types
of vending and amusement machines which management believes may expand the
potential locations and customers for the Company's machines. Currently the
Company operates three different types of Shoppes as described below.
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The SugarLoaf Toy Shoppe. The SugarLoaf Toy Shoppe features a play price
of 50 c. and dispenses stuffed animals, plush toys and other toys. The
estimated retail values of products offered in the SugarLoaf Toy Shoppe
generally range from $4.00 to $30.00. As of December 31, 1996, the Company and
its franchisees were operating approximately 5,600 SugarLoaf Toy Shoppes.
The SugarLoaf Treasure Shoppe. The SugarLoaf Treasure Shoppe features a
play price of 50 c. and dispenses jewelry, watches, bolo ties and belt buckles.
The SugarLoaf Treasure Shoppe improves upon traditional skill-crane machines of
this type by dispensing products with estimated retail values ranging from
$4.00 to $30.00 instead of carnival-type merchandise of low retail value. As of
December 31, 1996, the Company and its franchisees were operating approximately
980 SugarLoaf Treasure Shoppes, approximately 90% of which were placed within
locations in which another Shoppe was already in operation.
The SugarLoaf Fun Shoppe. The SugarLoaf Fun Shoppe features a play price
of 25 c. and dispenses small toys, novelties and candy. The SugarLoaf Fun
Shoppe is designed to appeal primarily to adolescents and young adults. The
retail values of products offered in the SugarLoaf Fun Shoppe are generally
under $5.00. Because the retail value of the products offered in the SugarLoaf
Fun Shoppe are generally lower than the products offered in the SugarLoaf Toy
Shoppe and the SugarLoaf Treasure Shoppe, the SugarLoaf Fun Shoppe dispenses
more frequently than the Company's other Shoppes. As of December 31, 1996, the
Company and its franchisees were operating approximately 1,430 SugarLoaf Fun
Shoppes, approximately 85% of which were placed within locations in which
another Shoppe was already in operation.
OPERATIONS
Management believes that the Company's operations program provides for
efficient and cost-effective purchasing and distribution of product. In
addition, the Company and its franchisees have a route servicing system that
facilitates the development of a good working relationship with location
managers in regional and national chain accounts. The Company offers its
franchisees the same software management tools, training programs and product
and machine purchasing programs used by the Company, and they are required to
use substantially the same procedures, systems and methods the Company employs
in its own operations.
Trade Relations. Currently, the Company's Shoppes are located, in order of
prevalence, in supermarkets, mass merchandisers, bingo halls and bowling
centers, bars and similar locations. In the future, the Company intends to
attempt to place Shoppes in national and regional supermarket, mass merchandise
and restaurant chain accounts to take advantage of the regular customer traffic
of these locations.
The Company or its franchisee provides the machines and pays for certain
installation costs, while the retailer provides a site within the location and
electrical power. The retailers generally are paid periodic commissions based
upon a percentage of Shoppe revenue, generally ranging from 20% to 30%,
depending on the dollar volume, number of Shoppes installed and total number of
locations the retailer controls. Management believes that national and regional
supermarket, mass merchandise and restaurant chain accounts are increasingly
aware of the economic benefits of amusement and vending machines such as the
Company's Shoppes, which can provide retailers greater revenue per square foot
than alternative uses of available floor space. However, there can be no
assurance that retailers will continue to agree to the placement of Shoppes
within their locations, which might decrease the Company's ability to place
Shoppes and would also limit revenue growth.
National and regional supermarket, mass merchandise and restaurant chain
accounts generally do not enter into long-term contracts with vendors. In
single-location accounts, the Company and its franchisees generally place
Shoppes pursuant to oral agreements with location managers. Thus, the Company's
existing and future arrangements with national and regional chain accounts and
other accounts may be terminated at any time.
Account Acquisition, Location Selection and Shoppe Placement. The Company
acquires new single-location accounts for the placement of its Shoppes through
its regional sales managers and field office general managers. To augment its
field office general managers' account acquisition activities, the Company
began a concerted marketing effort in August 1994 to national and regional
chain accounts and has entered into new agreements with national and regional
supermarket and mass merchandise chain accounts covering the placement of
Shoppes within the locations of such accounts. In August 1996, the Company
signed an agreement with Wal-Mart Stores, Inc. appointing the Company as the
principal operator of skill-crane vending machines for Wal-Mart through January
1, 2000. At December 31, 1996, the Company and its franchisees had installed
more than 960 skill-crane machines in approximately 660 Wal-Mart stores
nationwide. Under the terms of the agreement, an estimated 1,250 Wal-Mart
stores will be installed with skill-crane machines by the Company and its
franchisees. In January 1997, the Company signed a three-year agreement with
Safeway Inc. that will make the Company Safeway's domestic skill-crane
operator. Although the Company
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intends to enter into similar arrangements with other national and regional
supermarket, mass merchandise and restaurant chains, there can be no assurance
that it will be able to do so or that, to the extent it does so, it will be
able to persuade a significant number of managers within such chain accounts to
place a Shoppe within their locations.
Once the Company enters into a national or regional chain account
agreement, it contacts each location manager to arrange for a review of the
location to confirm its suitability and to obtain the manager's agreement to
the placement of one or more Shoppes within the location. The Company and its
regional sales manager or franchisee work together to place Shoppes at national
and regional chain account locations.
For accounts other than national chain accounts, the Company's regional
sales and general managers identify viable locations, contact the location's
owner or manager to confirm the suitability of the location and obtain the
owner's or manager's agreement to the placement of the Shoppes and related
compensation arrangements. The suitability of a location is based upon a
thorough assessment by the Company, including an analysis of the surrounding
trade area in order to determine the neighborhood demographics, local
regulations, the level of overall retail activity and the cost-effectiveness of
servicing the location through existing route merchandisers. The Company also
reviews each site within the location for its visibility and accessibility to
customers.
The Company and its franchisees compete for limited sites within
supermarkets with purveyors of seasonal and specialty items and with owners and
operators of other amusement and vending machines. The Company's Shoppes also
compete with vending machine and coin-operated amusement device operators for
sites in mass merchandise and restaurant chains, bowling centers and other
locations. Competition for such sites is based primarily on the amount of
revenue to the location owner that can be generated by a particular use of a
site. Management believes that the revenue potential of the Company's Shoppes
compares favorably to that of competing uses for available sites within retail
locations.
The Company's ability to generate increased revenue and achieve higher
levels of profitability will depend primarily on its success and the success of
its franchisees in continuing to increase the number of Shoppes in operation.
The continued growth in the number of Shoppes will depend, in part, upon the
Company's success in securing national and regional supermarket, mass
merchandise and restaurant chain accounts.
Supervision, Training and Support. The Company's area directors are
primarily responsible for training the Company's regional managers and the
regional managers are responsible for training the field office general
managers and for ongoing support and supervision of the Company's field
offices.
Each Company field office is managed by a general manager who is
responsible for the management of the office, including inventory management,
and training and monitoring route merchandisers. The Company has developed a
comprehensive training program for field office general managers and new
franchisees covering office management, new account acquisition, inventory
control, route merchandising, site selection, machine servicing and all other
aspects of the operation of the business. The general managers attend training
programs at the Company headquarters and receive ongoing field training. The
Company considers its route merchandisers to be a key element of its
merchandising efforts. The Company's general managers provide training of route
merchandisers in all aspects of route management, machine servicing, revenue
collection, Vend Ratio monitoring and product merchandising. See "Employees."
Route Merchandising. Frequent, regular and reliable service and support is
an important element in the operation of the Company's Shoppes. The Company's
route merchandisers and franchisee personnel are trained to perform regularly
scheduled merchandising and service procedures. A route merchandiser has a
route consisting of ten to 33 locations, depending upon volume, which are
visited and serviced two to ten times per week. The route merchandiser cleans
and services the Shoppe, takes inventory of the Shoppe, replaces product as
needed, monitors the Vend Ratio and arranges the product within the Shoppe in
accordance with the Company's merchandising techniques. The route merchandiser
records the number of units of product placed in the machines and the number of
plays from nonresettable meters. The meter readings are subsequently reconciled
against actual collections. All collections are delivered to and verified by a
field office for deposit.
Inventory Management and Distribution. The Company's distribution system
is designed to allow efficient and cost-effective distribution of its product
to Company field offices and franchise offices. After the product is procured
from the Company's suppliers, it is shipped to one of two distribution centers
where it is sorted and readied for pre-packing. The Company maintains inventory
for the products offered through its Toy Shoppes in a public warehousing
facility in Seattle, Washington. An inventory of products offered in Treasure
Shoppes and the Fun Shoppes is maintained in the Company's warehouse in
Boulder, Colorado. The Company communicates appropriate product mix
requirements to the warehouses on a weekly basis. The warehouse sorts the
products according to the Company's
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specified mix requirements and packs the product for each type of Shoppe into
pre-packed units for shipment to Company field offices and franchises on a
weekly basis.
The Company currently has 28 field offices operating in 33 states. The
field offices average approximately 1,800 square feet and comprise a small
office area and a warehouse area where out-of-service Shoppes are repaired and
product inventory is maintained. Part of the route merchandisers daily route
servicing responsibilities is to distribute products to Shoppes. Pre-packing
aids in controlling product cost and facilitates new product introductions.
Pre-packing also substantially reduces the warehouse space required for
inventory, allowing the Company-owned and franchise offices to service a
greater number of Shoppes without a commensurate increase in warehouse space.
In addition, pre-packing significantly reduces the time field office general
managers and franchise personnel spend on inventory management, which allows
more time for acquiring new accounts and monitoring the quality of Shoppe
merchandising in the field.
Management Information Systems. The Company's management information
system utilizes customized software for monitoring field office and franchisee
Shoppe results. The software allows the Company to monitor individual Shoppe
placements, Shoppe revenue, Vend Ratio and tax and commission payments through
reports generated at the Company-owned offices. The software also allows the
Company to monitor total Shoppe revenue, average Shoppe revenue, Shoppes on
location and Vend Ratio and to determine franchisee royalty payments for
franchise offices.
SUPPLIERS
Product. The Company maintains a purchasing and development staff at its
corporate headquarters and contracts with foreign and domestic manufacturers
and outside vendors for the supply of products. The SugarLoaf Toy Shoppes offer
a combination of Company-designed products that are manufactured to the
Company's specifications and "off the shelf" products available from foreign
manufacturers and third-party vendors. Since 1988, all Company-designed toys
have been manufactured to its specifications by foreign manufacturers.
Currently, the Company relies on multiple manufacturers in China to produce its
custom designs, each of whom has the capability to produce a range of the toys
required by the Company. Decisions regarding the choice of manufacturer are
based on price, quality of workmanship, reliability and the ability of a
manufacturer to meet the Company's delivery requirements. The Company purchases
its other products for the SugarLoaf Treasure Shoppe and the SugarLoaf Fun
Shoppe directly from vendors who purchase from foreign and domestic
manufacturers. As a result, the Company is subject to changes in governmental
policies, the imposition of tariffs and import and export controls,
transportation delays and interruptions, political and economic disruptions and
labor strikes which could disrupt the Company's supply of products from foreign
manufacturers. See "Management's Discussion and Analysis or Plan of
Operation--Results of Operations, Year Ended December 31, 1996 vs. December 31,
1995."
In addition, the Company frequently purchases merchandise for its Shoppes
that has been discontinued or is subject to substantial "close-out" discounts.
Discontinued, trendy or fad items that may have limited appeal in many retail
outlets continue to have high appeal in the Shoppes.
Skill-Crane Machines. The majority of the Company's skill-crane machines
purchased during the fiscal year ended December 31, 1996 were purchased from
Rainbow Crane, Inc., one of three suppliers approved by the Company which is
also one of the Company's franchisees. See "Competition for Locations." All
three of the Company's approved suppliers, including one of the leading
manufacturers of skill-crane machines, are located in the U.S. The Company is
currently purchasing the SugarLoaf Treasure Shoppe from one of the Company's
three approved suppliers and is currently purchasing the SugarLoaf Fun Shoppe
and the SugarLoaf Toy Shoppe from two of the approved suppliers. The Company
intends to divide future purchases of its skill-crane machines between at least
two of its approved suppliers and may seek to add new suppliers. Management
believes that suitable skill-crane machines are available from a number of
domestic and foreign manufacturers.
FRANCHISE RELATIONSHIP
The Company currently has franchise agreements in effect with 20
franchisees covering 26 territories in the U.S. and one territory in British
Columbia, Canada.
The Company enters into a franchise agreement with the franchisee for each
separate territory. The Company provides ongoing advice and assistance to
franchisees in connection with the operation and management of each franchise
through training sessions, meetings, seminars, field training and operations
manuals. Franchisees are required to place a minimum number of Shoppes in each
territory depending on the population of the territory. Franchisees are under
no minimum product purchase obligations and are required to pay royalties equal
to a percentage of vending revenue, with no fixed minimum amount required.
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The Company requires its franchisees to meet certain minimum operational
standards in order to maintain consistent quality in the Shoppes. Franchisees
are required to service each Shoppe no less than two times per week, to respond
to service calls within a specified period of time and to maintain certain
size, type and quality standards for the products dispensed in the Shoppes. In
addition, franchisees are required to maintain certain average minimum Vend
Ratios.
The Company offers franchisees a cost-effective means of purchasing both
products and Shoppes. The Company is able to purchase products and Shoppes in
quantity and thereby reduce equipment and product costs to the Company and its
franchisees. The Company offers pre-packed units of product for each of the
Shoppes. The product mix in the pre-packed units is changed on a weekly basis
to maintain the Shoppes' fresh appearance. Franchisees also can create their
own mix of products by purchasing products in bulk from the Company or other
vendors. All products purchased from other vendors must be approved by the
Company.
Although the franchise agreements require franchisees to place a specified
minimum number of Shoppes within their territories and to pay franchise
royalties, franchisees are under no minimum product purchase or minimum annual
royalty payment obligations. There can be no assurance, therefore, that the
Company will continue to realize the same or greater revenue from its
franchisees. The Company also cannot require franchisees to expand operations
within their territories or preclude them from taking actions inconsistent with
the Company's expansion or business strategy.
TERMS OF FRANCHISE AGREEMENT
Following is a summary of certain terms of the Company's franchise
agreements currently in effect.
Fee and Royalty Payments. Current franchise agreements typically provide
for payment of an initial franchise fee which depends on the population of the
franchised territory. A reduced initial fee is available to qualified current
franchisees who purchase rights to operate in a new territory contiguous to
their respective current territories. Initial franchise fees are not a material
source of the Company's revenue. In addition, the franchisee must pay a royalty
fee based on gross machine revenue, subject to quarterly adjustments, a cap on
fees paid annually and a fee reduction program, as described below. The royalty
may be adjusted up or down at the end of each quarter based on that quarter's
average weekly gross revenue from the territory and such adjustment will remain
in effect until adjusted at the end of the next succeeding calendar quarter.
The annual royalties payable on gross revenue from the SugarLoaf Toy Shoppes
and SugarLoaf Treasure Shoppes in a territory are capped at $125,000. There is
no cap on the annual royalty payable on gross revenue from the SugarLoaf Fun
Shoppe. A franchisee is entitled to a reduction in the royalty rate on gross
revenue from the SugarLoaf Treasure Shoppe and the SugarLoaf Toy Shoppe of one
percentage point on gross revenue for a future six-month period based on the
franchisee meeting certain performance standards during the most recently
completed six-month period.
Purchase Requirements. New franchisees are required to make certain
minimal initial purchases of Shoppes from the Company. Additional machines and
spare parts may be purchased from the Company or any Company-approved
alternative sources. Product may be ordered from the Company or from
Company-approved suppliers. The Company offers products through both its
pre-packing programs and a bulk-purchase program whereby volume purchases of
certain designated products are made by the Company.
Territory Requirements. Franchise agreements generally provide for an area
of exclusivity defined by counties in which the Company may neither place or
operate nor grant to others the right to place or operate the same type of
Shoppes operated by the franchisee. The Company retains certain rights under
the franchise agreements to operate other types of amusement devices and
vending machines. Generally, the franchisee is prohibited from operating a
SugarLoaf-marked machine or any similar type of business in any area outside of
its territory without the Company's prior written consent.
Quality Standards. All of the Company's franchise agreements require that
the franchisee comply with the Company's standards and specifications for
products, machines, distribution of products, inventory standards, service,
placement, appearance and maintenance of the machines, product ordering
procedures, installation, minimum average player return, product mix and
customer relations and service calls.
Financing Assistance. The Company has established a third-party equipment
leasing program for qualified franchisees. The leasing program permits
qualified franchisees to lease the machines for their territories. If the
franchisee defaults on the lease, the Company has agreed to purchase the
machines from the leasing company at an agreed upon price. If the Company
agrees to guarantee the lease, the franchisee must pay to the leasing company a
fee of less than one percent of the lease amount, which amount is then remitted
to the Company by the leasing company.
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Right of First Refusal. In the event any franchisee proposes to transfer
to any third party its Sugar Loaf business or any rights or interests granted
by the franchise agreement business, the Company has up to 45 days to exercise
a right of first refusal to purchase such business, rights or interests on the
same terms and conditions as the franchisee's proposed transfer of such
business rights or interests.
COMPETITION FOR LOCATIONS
The skill-crane industry has been in existence for over 75 years and is
highly fragmented. Certain industry publications estimate that there are
approximately 50,000 units of prize-dispensing equipment in operation
nationwide, of which skill-cranes are the most prevalent type. Management
believes that its primary competitors are five regional companies, including a
private company which is a stuffed toy supplier, and other private companies
which own and operate skill-crane machines. In addition, one of the Company's
skill-crane machine suppliers operates SugarLoaf Fun Shoppes in two territories
as a franchisee of the Company and operates other skill-crane machines
independently of the Company. The majority of skill-crane operators are
privately-owned "mom and pop" operations each owning and operating on average
less than 20 skill-crane machines. Many of these competitors are engaged in
aggressive expansion programs, and the Company has experienced and expects to
continue to experience intense competition for new locations. There can be no
assurance that the Company will be able to compete effectively with these
companies in the future. The Company's Shoppes compete with other vending
machines and coin-operated amusement devices and seasonal and bulk merchandise
for sites in retail locations. Competition for sites in retail locations is
based primarily on the amount of revenue that can be generated by a particular
use of a site. There can be no assurance that the Company will be able to
maintain its current sites in the retail locations or that it will be able to
obtain sites in the future on attractive terms if at all. There also are few
barriers to entry in the Company's business, and it would be possible for
well-financed vending machine manufacturers or other vending machine operators
with existing relationships with supermarkets and other venues targeted by the
Company to readily compete with the Company in certain markets.
INTELLECTUAL PROPERTY
The Company has no patents or patent applications pending and relies
primarily on a combination of trademark and unfair competition laws, trade
secrets, confidentiality procedures and agreements to protect its proprietary
rights. The Company seeks to protect its product names under trademark and
unfair competition laws. The Company owns a number of trademarks that have been
registered with the United States Patent and Trademark Office, including
"SugarLoaf", "Toy Shoppe", "Treasure Shoppe" and "Fun Shoppe". In addition, the
Company claims common law trademark protection for the mark "A Test of Skill".
The Company considers its operations manual, training videos, and other related
materials and portions of its licensed methods to be proprietary and
confidential and the terms of the Company's franchise agreements require
franchisees to maintain the confidentiality of such information and procedures
and to adopt reasonable precautions to prevent unauthorized disclosure of these
secrets and information. Despite the Company's efforts to protect its
proprietary rights, unauthorized parties may attempt to copy aspects of the
Company's Shoppes and products or to obtain and use information that the
Company regards as proprietary. The Company also may be involved from time to
time in litigation to determine the enforceability, scope and validity of
proprietary rights. The Company does not have significant intellectual property
protection for its business. Management believes that its success is likely to
depend more upon merchandising skill, location selection and consumer support
than on legal protection of the Company's proprietary rights.
GOVERNMENT REGULATION
The Company's business is subject to extensive federal, state, provincial
and local regulations relating to product labeling and safety, coin-operated
games and franchising. The Federal Hazardous Substances Act, as amended by the
Child Protection Act of 1966, the Child Protection and Toy Safety Act of 1969,
the Toy Safety Act of 1984 and the Child Safety Protection Act of 1994,
requires the labeling of articles which bear or contain a hazardous substance
as defined in these statutes. In addition, the Consumer Product Safety
Commission (the "CPSC") may, under these statutes, ban and exclude from the
market toys or other articles intended for use by children which contain
hazardous substances and require the repurchase and reimbursement of certain
expenses by the manufacturer of such banned toys or other articles. The CPSC
may also exclude, without a hearing, a toy or other article from the market for
a limited period upon a determination that its distribution presents an
imminent hazard to public health and safety standards. If plush toys or watches
were to be banned, permanently or temporarily, the Company's operations and
financial position would be adversely affected.
The distribution and operation of skill-crane machines may be subject to
federal, provincial, state and local regulation, including gaming regulations,
which vary from jurisdiction to jurisdiction. Certain jurisdictions may require
licenses, permits and approvals to be held by companies and their key personnel
in connection with the distribution or
9
<PAGE> 10
operation of skill-crane machines. Management believes that Washington is the
only state in which the Company currently operates Shoppes that requires the
Company to maintain a license with the state's gambling commission. Currently,
the Company believes that it has obtained all necessary governmental licenses,
permits and approvals necessary for the distribution or operation of the
Shoppes in the Company-owned operations. However, no assurance can be given
that such licenses, permits or approvals will be given or renewed in the
future. Franchisees are responsible for their own regulatory compliance. The
rejection or termination of the Company's or any of its franchisees' licenses,
permits or approvals may adversely affect the business of the Company.
Many states and local jurisdictions lack specific laws and regulations
relating to skill-crane machines, and there can be no assurance that existing
state or local laws and regulations, including gaming laws and regulations,
will not be construed or enforced in the future to prohibit the operation of
Shoppes in these jurisdictions or subject the Company and its franchisees to
additional regulations or licensing requirements. Also, there can be no
assurance that new laws and regulations which prevent or restrict the operation
of Shoppes in particular states or local jurisdictions will not be adopted. Any
such actions on the part of states or local jurisdictions could have a material
adverse effect on the Company's business and operations and on its expansion
plans.
The U.S. Federal Trade Commission and certain states require a franchisor
to transmit specified disclosure statements to potential franchisees upon
entering into negotiations to grant a franchise. Additionally, some states
require the franchisor to register its franchise with the state before it may
offer a franchise. The Company believes that its Uniform Franchise Offering
Circular (together with any applicable state versions or supplements) complies
in all material respects with both the Federal Trade Commission guidelines and
all applicable state laws regulating franchising in those states in which it
offers franchises. Although the Company believes it is in material compliance
with such laws in the states in which the Company is currently offering and
selling franchises, the promulgation of new franchising laws and regulations
could increase the administrative burden on the Company and thereby adversely
affect the Company's business and operations.
INSURANCE
The Company carries property, liability, workers' compensation and
directors and officers liability insurance policies, which it believes are
customary for businesses of its size and type. However, there can be no
assurance that the Company's insurance coverage will be adequate or that
insurance will continue to be available to the Company at reasonable rates.
Franchisees are required to maintain certain minimum standards of insurance
pursuant to their franchise agreements. Under the current form of franchise
agreement, such insurance must be issued by a responsible insurance company or
companies acceptable to the Company and must include fire and extended coverage
insurance, comprehensive general liability insurance, general liability motor
vehicle insurance on all vehicles used in the operation of the business and
workers' compensation insurance. The Company must be named as an additional
insured on appropriate policies.
The Company may be subject to claims for personal injuries resulting from
the use of its Shoppes or from products and other merchandise dispensed from
the Shoppes. To date, the Company has not experienced any material product
liability claims or costs, and it currently maintains product liability
insurance which it believes to be adequate. The Company's product liability
insurance coverage is limited, however, and there can be no assurance that the
Company will effectively be insulated from future product liability claims or
costs.
EMPLOYEES
As of February 28, 1997, the Company had a total of 296 employees,
including 31 employees at its headquarters in Boulder, Colorado. None of the
Company's employees are represented by labor unions or covered by any
collective bargaining contract.
Each of the Company's field offices employs approximately 5 to 15 persons,
including a general manager, an office assistant and an adequate number of
route merchandisers to properly service the Company's Shoppes. The general
manager is responsible for the daily operations of the office, monitoring route
merchandisers and acquiring new accounts. The regional managers oversee the
operations of the Company field offices and report directly to the Company's
area directors.
The Company has an incentive bonus program pursuant to which regional
managers and field office personnel may be eligible to receive incentive
compensation based on office and route profitability. Management believes that
this program rewards excellence in management, gives field office personnel an
incentive to improve operations and results in an overall reduction in the cost
of operations. In addition, regional field managers and other corporate
personnel are eligible to receive options to purchase shares of Common Stock
subject to ongoing service requirements.
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<PAGE> 11
The Company's continued success will depend upon its ability to retain a
number of its current key employees and to attract, train and retain new key
management and operational personnel. There can be no assurance that the
Company will be able to retain its existing key employees or attract and retain
qualified employees in the future. The Company does not maintain any "key man"
insurance. In addition, executives and other key employees with knowledge of
the Company's operations and policies have signed non-compete agreements. There
can be no assurance that the Company would be able to effectively enforce
non-compete provisions against these individuals should they decide to leave
the Company and establish competitive businesses.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company's principal executive offices are located at 4870 Sterling
Drive, Boulder, Colorado, where the Company occupies approximately 4,950 square
feet of office space under a lease that expires April 1, 1998 and calls for
monthly rental payments of approximately $3,500. In January 1997, the Company
signed a lease for new executive offices that will be located at 5660 Central
Avenue, Boulder, Colorado, where the Company, its Treasure and Fun Shoppe
fulfillment warehouse facilities and the Denver, Colorado operation will occupy
approximately 18,000 square feet of office and warehouse space under a lease
that expires January 28, 2002. The Company also is a party to twenty-five other
leases which are used for office and warehouse space which average
approximately 1,800 square feet, provide for monthly rental payments ranging
from $350 to $1,325 and expire at various times over the period March 31, 1997
to September 22, 1999. The Company believes that its facilities are adequate
for its current needs and for the anticipated expansion of its business.
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.
None.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Common Stock Data. The Company's common stock trades on the Nasdaq
National Market tier of The Nasdaq Stock Market under the symbol: AMCN. On
February 28, 1997, the number of record holders was about 25 and the Company
estimates that on that date there were an additional 566 beneficial owners. The
following table sets forth the quarterly high and low closing prices of the
common stock, as reported by Nasdaq, for the calendar quarter indicated.
<TABLE>
<CAPTION>
Quarter Ended High Low
------------- ---- ---
<S> <C> <C>
December 31, 1995 ............ $ 7.375 $ 6.00
March 31, 1996 ............... 6.625 4.875
June 30, 1996 ................ 6.25 4.50
September 30, 1996 ........... 6.50 4.00
December 31, 1996 ............ 6.25 4.75
</TABLE>
Common Stock Dividends. The Company has not declared or paid a cash
dividend on its common stock. The payment of future dividends will be within
the discretion of the Company's Board of Directors and will depend on the
earnings, capital requirements, restrictions in current and future credit
agreements and operating and financial condition of the Company, among other
factors. The Company's current credit facility limits its payment of dividends
while the credit facility is in place. The Company historically made S
corporation distributions to its owners. See "Certain Relationships and Related
Transactions."
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The information that follows should be read in conjunction with Part I to
the Company's 10-KSB and financial statements and notes thereto appearing
elsewhere in this report.
GENERAL
Substantially all of the Company's revenue and gross profit is from
vending revenue and product and services revenue, which is derived from the
operation of Shoppes by the Company and its franchisees. As a result, the
Company's revenue and gross profit in a particular period is directly related
to the number of Shoppes in operation during the period. The Company's vending
and product and services revenue and related gross profit increased 125.5% and
161.3%, respectively, from 1994 to 1996. Over the same period, the average
number of Shoppes owned and operated by the Company and its franchises
increased 174.9%.
The revenue components relating to the operation of Shoppes are vending
revenue, product and services revenue, franchise royalties, initial franchise
fees and equipment sales. Vending revenue represents cash receipts from the
Shoppes owned and operated by the Company. The cost of product vended through
Shoppes, costs associated with the servicing of Shoppes and the commissions
paid to retail locations comprise the majority of the cost of vending. Product
and services revenue consists primarily of product sales to franchisees and
also include related service fees, which are immaterial. Franchise royalties
represent the Company's percentage of gross vending revenue generated by
Shoppes owned and operated by franchisees. Initial franchise fees have not been
material, and the Company does not plan an expansion of its franchise network.
Equipment sales to franchisees during 1996, 1995 and 1994 amounted to
$1,696,000, $659,000 and $818,000, respectively. In 1996, all Shoppes purchased
by franchisees from the Company's primary supplier of equipment were processed
by the Company on a pass through basis. The Company's charge to its franchisees
for this service is minimal and intended to cover the processing costs
associated with coordinating the purchase. The Company negotiated a lower cost
for Shoppes in 1996 as a result of this change in procedure. Prior to 1996,
franchisees purchased only Treasure and Fun Shoppes from the Company.
For the years ended December 31, 1995 and 1994, general and administrative
expenses included $232,000 and $290,000, respectively, of commissions paid to
the Company's two major stockholders. As a result of the Company's initial
public offering, the Company is no longer required to pay commissions to the
two major stockholders.
RESULTS OF OPERATIONS
Prior to October 13, 1995 the Company had elected tax treatment as an S
corporation, while the combined affiliates were each organized as S
corporations, except for Southwest Coin Company which was organized as a
partnership. Accordingly, through October 12, 1995, no provisions were made for
income taxes since all income, deductions, gains, losses and credits were
reported on the tax returns of the owners. The S corporation status of the
Company terminated on October 12, 1995 and, thereafter, the Company became a
taxable entity.
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<PAGE> 13
Year Ended December 31, 1996 vs. Year Ended December 31, 1995
The Company's total revenue increased 48.8% from $25,714,000 in 1995 to
$38,267,000 in 1996. Vending revenue increased $13,408,000 or 78.7% in 1996 to
$30,439,000 primarily as a result of an increase in the average number of
Shoppes in use during 1996, which increased 95.8% over the average number of
Shoppes in use during 1995. Proforma vending revenue for 1995 was $20,972,000,
adjusted for the effect of the August 31, 1995 purchase of Sugarloaf Marketing.
The Company's ability to generate increased revenue and achieve higher levels
of profitability will depend on its success in continuing to increase the
number of Shoppes in operation. The continued growth in the number of Shoppes
will depend, in part, upon the Company's success in securing national and
regional supermarket, mass merchandise and restaurant chain accounts. The
Company began a concerted marketing effort in August 1994 to national and
regional chain accounts and has entered into new agreements with national and
regional supermarket and mass merchandise chain accounts covering the placement
of Shoppes within the locations of such accounts. In August 1996, the Company
signed an agreement with Wal-Mart Stores, Inc. through January 1, 2000. At
December 31, 1996, the Company had installed more than 830 skill-crane machines
in approximately 540 Wal-Mart stores nationwide. Under the terms of the
agreement, an estimated 1,250 Wal-Mart stores will be installed with
skill-crane machines by the Company and its franchisees. In January 1997, the
Company signed a three-year agreement with Safeway Inc. that will make the
Company Safeway's domestic skill-crane operator. Although the Company intends
to enter into similar arrangements with other national and regional supermarket
and mass merchandise chain accounts and with national and regional restaurant
chain accounts, there can be no assurance that it will be able to do so or
that, to the extent it does so, it will be able to persuade a significant
number of managers within such chain accounts to place a Shoppe within their
store or other location.
Product and services revenue decreased $1,738,000 or 26.1% in 1996 as
compared to 1995. Product sales to Sugarloaf Marketing through August 31,1995
amounted to $660,000. The Company also had combined product sales of $621,000
during 1995 to four franchisees that were purchased by the Company during the
third quarter of 1995 and first, second and third quarters of 1996. Franchise
royalties in 1996 decreased $48,000 or 3.8% over amounts realized during 1995.
There were no initial franchise fees in 1996 as compared to $86,000 in 1995.
The cost of vending operations increased $9,582,000 in 1996 to
$21,283,000. The vending operations' contribution to 1996 gross profit
increased to $9,156,000, which represents a 71.8% increase over gross profit
from vending operations realized in 1995. The vending gross profit achieved in
1996 was 30.1% of vending revenue, which represents a decrease from the 31.3%
of vending revenue achieved in 1995. The decline in vending margin in 1996
results primarily from a higher commission rate paid to locations.
Substantially all the Company's plush toys and certain other products dispensed
in the Company's SugarLoaf Toy Shoppes are produced by foreign manufacturers
and a majority are purchased directly by the Company from manufacturers in the
People's Republic of China ("China"). The Company also purchases a substantial
portion of the products for its other Shoppes from vendors who obtain product
from domestic and foreign manufacturers. As a result, the Company is subject to
changes in governmental policies, the imposition of tariffs and import and
export controls, transportation delays and interruptions, political and
economic disruptions and labor strikes which could disrupt the Company's supply
of products from foreign manufacturers. China currently enjoys "most favored
nation" ("MFN") status under U.S. tariff laws, which allows for the most
favorable category of U.S. import duties. The loss of MFN status for China
could result in a substantial increase in the import duty of certain products
manufactured in China, which could result in substantially increased costs for
certain products purchased by the Company. Although the Company would attempt
to mitigate any such increased cost by procuring its product from other
countries, it would likely incur substantially higher costs and temporary
disruptions in supply in the event that it becomes necessary to do so.
Gross profit on product and service revenue in 1996 decreased to $954,000,
or 19.4% of product and service revenue, which is .7% higher than the gross
margin achieved in 1995. The increase in 1996 product gross margin results
primarily from lower import freight costs. The gross profit generated through
equipment sales to franchisees in 1996 decreased to .8% of equipment sales as a
result of the change in the program as discussed above.
General and administrative expenses increased $2,488,000 to $7,053,000 or
18.4% of revenue, as compared to $4,565,000 or 17.8% of revenue in 1995. The
increase in general and administrative expenses results primarily from the
acquisition of Sugarloaf Marketing and other franchisees, additional operating
and satellite offices opened during 1996, the accelerated placement of machines
during 1996 and the additional payroll and other costs associated with being a
public company. General and administrative expenses for 1995 includes $232,000
of commissions paid to the Company's two major stockholders.
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<PAGE> 14
Interest expense decreased $8,000 to $375,000 in 1996 as compared to 1995.
The Company's interest expense is directly related to its level of borrowings
and changes in the underlying interest rates applicable to the borrowings.
Year Ended December 31, 1995 vs. Year Ended December 31, 1994
The Company's total revenue increased 46% from $17,614,000 in 1994 to
$25,714,000 in 1995. Vending revenue increased $5,380,000 or 46.2% in 1995 to
$17,031,000 as a result of an increase in the average number of Shoppes in use
during 1995, which increased 74.6% over the average number of Shoppes in use
during 1994. Shoppes acquired in connection with the purchase of Sugarloaf
Marketing contributed $1,776,000 in vending revenue from September 1, 1995 to
December 31, 1995 with 492 Shoppes added August 31, 1995. Product and services
revenue increased $2,637,000 or 65.4% in 1995 as compared to 1994 as a result
of a 25.1% increase in the average franchisee machines on location in 1995
compared to 1994 and the new plush pre-pack program that mixes and bags product
per the Company's product mix formula. Franchise royalties in 1995 increased
$191,000 or 18% over amounts realized during 1994. Equipment sales to
franchisees during 1995 amounted to $659,000, which represents a 19.4% decline
from equipment sales to franchisees in 1994. Initial franchise fees during 1995
increased $33,000 to $86,000 as compared to 1994.
The cost of vending operations increased $3,302,000 in 1995 to $11,701,000.
The vending operations' contribution to 1995 gross profit increased to
$5,330,000, which represents a 63.9% increase over gross profit from vending
operations realized in 1994. The vending gross profit achieved in 1995 was
31.3% of vending revenue, which represents an increase from the 27.9% of
vending revenue achieved in 1994. The increase is primarily attributable to
lower product costs realized by the Company's vending operation that result
from the significant increase in products procured for the Company's pre-pack
program. Gross profit on product and service revenue in 1995 increased to
$1,249,000, or 18.7% of product and service revenue, which is 3.4% higher than
the gross margin achieved in 1994. The increase in 1995 results from the full
implementation of the pre-pack program during the second quarter of 1995 and
the economies realized from a significant increase in the amount of product
procured for the program The gross profit generated through equipment sales to
franchisees in 1995 increased to 3.5% of equipment sales in 1995 compared to
3.1% achieved in 1994.
General and administrative expenses increased $958,000 in 1995 to
$4,565,000, primarily as a result of the acquisition of Sugarloaf Marketing,
but decreased as a percentage of revenue to 17.8% in 1995 as compared to 20.5%
in 1994 primarily as a result of higher revenue. General and administrative
expenses include $232,000 and $290,000 of commissions paid to the Company's two
major stockholders for 1995 and 1994, respectively.
Interest expense increased $155,000 to $383,000 in 1995 as compared to
1994. The Company's interest expense is directly related to its level of
borrowings and changes in the underlying interest rates applicable to the
borrowings.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity and capital resources
historically have been cash flow from operations, borrowings under the
Company's bank credit facility and borrowings from the Company's majority
stockholders. These sources of cash flow have been offset by cash used for
investment in skill-crane machines and payment of long-term borrowings.
Net cash provided by operating activities was $4,219,000, $2,852,000 and
$1,772,000 in 1996, 1995 and 1994, respectively. The Company anticipates that
cash will continue to be provided by operations as additional skill-crane
machines are placed in service. Cash required in the future is expected to be
funded by existing cash or borrowings under the Company's credit facility.
Net cash used by investing activities was $7,451,000, $5,498,000 and
$1,468,000 in 1996, 1995 and 1994, respectively. Capital expenditures amounted
to $6,098,000, $2,234,000 and $1,549,000 in 1996, 1995 and 1994, respectively,
of which $4,765,000, $1,630,000 and $1,423,000 was represented by the
acquisition of skill-crane machines. Capital expenditures in 1997 are expected
to be approximately $7,543,000, and will be primarily for the acquisition of
skill-crane machines. The acquisition of franchisees other than through the
Reorganization in 1995 used $1,224,000 and $160,000 in 1996 and 1995,
respectively. Payments to the non-control group in the Reorganization were
$3,125,000 in 1995. Additional investing activity results primarily from
collections on notes receivable generated through the partial financing of
machines purchased by franchisees, initial franchise fees and additional notes
issued to related parties.
Net cash provided by financing activities was $2,413,000 and $3,879,000 in
1996 and 1995 respectively, while $256,000 was used by financing activities in
1994. The issuance of common stock primarily in connection with the Company's
initial public offering, provided $10,056,000 in 1995 of which $4,509,000 was
used to pay distributions to
14
<PAGE> 15
the Control Group in connection with the Reorganization. Cash of $326,000 was
retained by the combined affiliates in the Reorganization. Other financing
activities consist of advances and repayments on the Company's credit facility
and other debt obligations and S corporation distributions to owners.
Under its current revolving credit agreement, the Company may borrow up to
the lesser of $6,000,000 or a borrowing base defined by agreement, at the
bank's prime interest rate. The revolving line of credit is available through
September 23, 1998, and at December 31, 1996 there was a principal amount of
approximately $3,787,000 outstanding. The credit agreement provides that
certain financial ratios be met and places restrictions on, among other things,
the incurrence of additional debt financing and the payment of dividends. The
Company was in compliance with such financial ratios and restrictions at
December 31, 1996.
In January 1996, the Company acquired the Indiana-based operations,
including 156 skill-crane machines, of one of its franchisees, Hoosier Coin
Company, Inc., d/b/a Sugarloaf of Indiana. Under the terms of a definitive
purchase agreement, consideration for the acquisition, including inventory,
totaled approximately $495,000. Of this amount, $297,000 was paid in cash with
the balance to be paid over a three year period in accordance with the terms of
a promissory note.
In May 1996, the Company acquired the skill-crane operations of
Colorado-based Northern Coin Company and the operating assets of A.F. Race,
Incorporated, a Colorado based skill-crane machine service company. Under the
terms of a definitive agreement, consideration for the acquisition totaled
approximately $466,000. Of this amount, $301,000 was paid in cash with the
balance to be paid over a two year period in accordance with the terms of a
promissory note.
In July 1996, the Company acquired the Utah-based operations, including
213 skill-crane machines, of one of its franchisees, Sugarloaf of Utah, Inc.
Under the terms of a definitive purchase agreement, consideration for the
acquisition, including inventory, totaled approximately $939,000. Of this
amount, $505,000 was paid in cash with the balance to be paid over a three year
period in accordance with the terms of a promissory note.
In August 1996, the Company acquired the Western-Colorado based
operations, including 37 skill-crane machines, of one of its franchisees,
Sugarloaf West. Under the terms of a definitive purchase agreement,
consideration for the acquisition, including inventory, totaled approximately
$183,000. Of this amount, $101,000 was paid in cash with the balance to be paid
over a three year period in accordance with the terms of a promissory note.
As acquisition opportunities arise, the capital resources of the Company
may be utilized to undertake such opportunities. The timing and nature of these
opportunities cannot be predicted; therefore, the financing of future
acquisitions may take a variety of forms.
Company management believes the Company's financial condition is strong
and that funds generated from operations and borrowings available under its
credit agreement and the Company's ability to negotiate additional and enhanced
credit agreements will be sufficient to meet the Company's foreseeable
operating and capital expenditure needs.
ITEM 7. FINANCIAL STATEMENTS.
The financial statements and related notes thereto required by this item
are listed and set forth herein beginning on page 19.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
15
<PAGE> 16
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
Directors of Registrant. Information as to the names, ages, positions and
offices with the Company, terms of office, periods of service, business
experience during the past five years and other directorships held by each
director of the Company is set forth under the caption ELECTION OF DIRECTORS
appearing on page 2 of the Company's Proxy Statement dated March 28, 1997, and
is incorporated herein by reference.
Executive Officers of the Registrant. At the meeting of the Board of
Directors of the Registrant, which immediately follows the annual meeting of
stockholders, the Board of Directors elects officers of the Registrant. Such
officers hold office until death, resignation, removal from office or until
their successors are chosen and qualified. The names and ages of all executive
officers of the Registrant are set forth under the caption EXECUTIVE OFFICERS
appearing on page 6 of the Company's Proxy Statement dated March 28, 1997, and
are incorporated herein by reference.
Compliance with Section 16(a) of the Exchange Act. Section 16(a) of the
Securities Exchange Act of 1934 requires the Company's officers and directors
and persons who own more than ten percent of the Company's outstanding common
stock to file reports of ownership and changes in ownership with the Securities
and Exchange Commission. Officers, directors and greater than ten percent
shareholders are required by SEC regulations to furnish the Company with copies
of all Section 16(a) forms they file.
To the Company's knowledge, during the fiscal year ended December 31,
1996, all directors, officers or more than ten percent shareholders timely
filed their Form 3's and Form 4's, except for Jerome M. Lapin who failed to
file a timely Form 4 related to the exercise of stock options for 9,500 shares
of common stock.
ITEM 10. EXECUTIVE COMPENSATION.
Information concerning remuneration received by the Company's directors
and executive officers and stock options is set forth under the caption
EXECUTIVE COMPENSATION beginning on page 7 of the Company's Proxy Statement
dated March 28, 1997, and is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information as to the security ownership of certain beneficial owners of
the Company and by each of its directors and officers as of February 28, 1997,
and the amount of such shares with respect to which certain of the directors
and officers have the right to acquire beneficial ownership, is set forth under
the caption SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
appearing on page 5 of the Company's Proxy Statement dated March 28, 1997, and
is incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information concerning transactions with management and others and certain
business relationships is set forth under the caption CERTAIN TRANSACTIONS
beginning on page 9 of the Company's Proxy Statement dated March 28, 1997, and
is incorporated herein by reference.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
2.1+ Memorandum of Terms for the Purchase of Assets between
the Registrant and Chicago Toy Company, Inc., dated July
17, 1995.
2.2+ Memorandum of Terms for the Purchase of Assets between
the Registrant and Georgia Toy Company, dated July 21,
1995.
2.3+ Memorandum of Terms for the Purchase of Assets between
the Registrant and Inland Merchandising, Inc., dated
July 21, 1995.
2.4+ Memorandum of Terms for the Purchase of Assets between
the Registrant and Lehigh Valley Toy Company, dated July
21, 1995.
2.5+ Memorandum of Terms for the Purchase of Assets between
the Registrant and Performance Merchandising, Inc.,
dated July 21, 1995.
2.6+ Memorandum of Terms for the Purchase of Assets between
the Registrant and Southwest Coin Company, dated July
21, 1995.
16
<PAGE> 17
2.7+ Memorandum of Terms for the Purchase of Assets between
the Registrant and Sugarloaf, Ltd. and Sugarloaf
Marketing, Inc., dated May 31, 1995.
2.8+ Asset Purchase Agreement among the Registrant, certain
persons and Chicago Toy Company, Inc., dated August 31,
1995.
2.9+ Asset Purchase Agreement among the Registrant, certain
persons and Georgia Toy Company, dated August 31, 1995.
2.10+ Asset Purchase Agreement among the Registrant, certain
persons and Inland Merchandising, Inc., dated August 31,
1995.
2.11+ Asset Purchase Agreement among the Registrant, certain
persons and Lehigh Valley Toy Company, dated August 31,
1995.
2.12+ Asset Purchase Agreement among the Registrant, certain
persons and Performance Merchandising, Inc., dated
August 31, 1995.
2.13+ Asset Purchase Agreement among the Registrant, certain
persons and Sugarloaf Ltd. and Sugarloaf Marketing,
Inc., dated August 31, 1995.
3.1+ Certificate of Incorporation of the Registrant.
3.2+ Bylaws of the Registrant.
4.1+ Reference is made to Exhibits 3.1 and 3.2.
4.2+ Specimen Stock Certificate.
10.1+ Form of Indemnity Agreement to be entered into between
the Registrant and its directors and executive officers.
10.2+ Amended and Restated Stock Option Plan of the Registrant
(the "Option Plan").
10.3+ Form of Incentive Stock Option under the Option Plan.
10.4+ Form of Nonstatutory Stock Option under the Option Plan.
10.5+ 1995 Non-Employee Director Stock Option Plan (the
"Director Plan").
10.6+ Form of Nonstatutory Stock Option under the Director
Plan.
10.7+ Stockholder Agreement between the Registrant and the
Founders, certain of their spouses and Jerome M. Lapin,
dated as of January 6, 1994, as amended July 21, 1995.
10.8+ Letter Agreement between the Registrant and Norwest Bank
Colorado, N.A., dated as of October 11, 1995.
10.9+ Registrant's Uniform Franchise Offering Circular, dated
August 31, 1995, including forms of the Franchise
Agreement, the National Account Program Agreement,
Pre-Pack Program Agreement and the Bulk Purchasing
Agreement.
10.10+ Amended and Restated Term Loan and Credit Agreement,
including exhibits thereto, between the Registrant and
Norwest Bank Colorado, N.A., dated as of May 1, 1995, as
amended on July 21, 1995.
10.11+ Amended and Restated Promissory Notes between the
Registrant and each of the parties set forth within,
dated as of August 31, 1995.
10.12+ Modification Agreement, dated August 25, 1995, between
the Registrant and Norwest Bank Colorado, N.A.
10.13+ Form of Representative's Warrant.
10.14+ Form of Uniform Commercial Code Security Agreement
between the Registrant and each of the parties listed on
the attached schedule, dated as of August 31, 1995.
10.15+ Form of Noncompetition Agreement between the Registrant
and each of the parties listed on the attached schedule,
dated as of August 31, 1995.
10.16+ Form of Promissory Note between the Registrant and each
of the parties listed on the attached schedule, dated as
of August 31, 1995.
10.17+ Form of Promissory Note between the Registrant and each
of the parties listed on the attached schedule, dated as
of August 31, 1995.
10.18+ Form of Promissory Note between the Registrant and each
of the parties listed on the attached schedule, dated as
of August 31, 1995.
10.19+ Subordination Agreement between the Registrant and
Georgia Toy Company, dated as of August 31, 1995.
10.20+ Subordination Agreement between the Registrant and Inland
Merchandising, Inc., dated as of August 31, 1995.
10.21+ Subordination Agreement between the Registrant and
Lehigh Valley Toy Company, dated as of August 31, 1995.
17
<PAGE> 18
10.22+ Subordination Agreement between the Registrant and
Performance Merchandising, Inc., dated as of August 31,
1995.
10.23+ Subordination Agreement between the Registrant, Sugarloaf
Ltd., Sugarloaf Marketing, Inc. and Southwest Coin
Company, dated as of August 31, 1995.
10.24+ Subordination Agreement between the Registrant and
Chicago Toy Company, Inc., dated as of August 31, 1995.
10.25+ Agreement to Purchase Assets and Release among Pleasant
Valley Toy Company, Inc., Robert G. Kittridge and the
Registrant dated as of September 6, 1995.
10.26 Employment Agreement, dated as of June 1, 1996, between
the Registrant and Jerome M. Lapin.
10.27 Employment Agreement, dated as of June 1, 1996, between
the Registrant and Abbe M. Stutsman.
10.28 Employment Agreement, dated as of June 1, 1996, between
the Registrant and W. John Cash.
10.29* Other Income Vendor Agreement, dated as of July 31, 1996,
between the Registrant and Wal-Mart Stores, Inc.
10.30 Credit Agreement, including exhibits thereto, between the
Registrant and Wells Fargo Bank (Colorado), N.A., dated
as of September 23, 1996.
10.31 Revolving Line of Credit Note, between the Registrant and
Wells Fargo Bank, N.A., dated as of September 23, 1996.
10.32 Continuing Security Agreement: Equipment, Rights to
Payment and Inventory, between the Registrant and Wells
Fargo Bank, N.A., dated as of September 23, 1996.
10.33 Commercial Lease Agreement, between the Registrant and
Technical Building Company, dated as of January 28, 1997.
11.1 Computation of Per Share Earnings.
16.1+ Letter of Gallant & Company, P.C. to the Securities and
Exchange Commission pursuant to the requirements of Item
304(a) (3) of Regulation S-B.
23.1 Consent of KPMG Peat Marwick LLP
27 Financial Data Schedule
+ Incorporated by reference to the Company's Registration Statement on
Form SB-2, File No. 33-95446-D.
* An order seeking confidential treatment for certain portions of the
exhibit has been applied for.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the period covered by this
report.
18
<PAGE> 19
AMERICAN COIN MERCHANDISING, INC.
INDEX TO FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
PAGE
<S> <C>
Independent Auditors' Report ............................... F-1
Financial Statements:
Balance Sheets ........................................ F-2
Statements of Earnings ................................ F-3
Statements of Stockholders' Equity .................... F-4
Statements of Cash Flows .............................. F-5
Notes to Financial Statements ......................... F-6
</TABLE>
All schedules are omitted because of the absence of conditions under which
they are required or because the required information is given in the financial
statements or notes thereto.
19
<PAGE> 20
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
American Coin Merchandising, Inc.:
We have audited the accompanying balance sheets of American Coin
Merchandising, Inc. (formerly American Coin Merchandising, Inc. and affiliates
through August 31, 1995) as of December 31, 1996 and 1995, and the related
statements of earnings, stockholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of American Coin
Merchandising, Inc. as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Boulder, Colorado
February 25, 1997
<PAGE> 21
AMERICAN COIN MERCHANDISING, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1995
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ........................................................... $ 771,000 $ 1,590,000
Trade accounts and other receivables ................................................ 673,000 748,000
Inventories ......................................................................... 4,329,000 3,411,000
Current portion of trade notes receivable ........................................... -- 20,000
Prepaid expenses and other assets ................................................... 180,000 190,000
------------ ------------
Total current assets ............................................................ 5,953,000 5,959,000
------------ ------------
Property and equipment, at cost:
Vending machines .................................................................... 12,446,000 7,051,000
Vehicles ............................................................................ 2,095,000 938,000
Office equipment, furniture and fixtures ............................................ 527,000 306,000
------------ ------------
15,068,000 8,295,000
Less accumulated depreciation ....................................................... (4,697,000) (3,037,000)
------------ ------------
Property and equipment, net ..................................................... 10,371,000 5,258,000
------------ ------------
Placement fees, net of accumulated amortization ........................................ 183,000 20,000
Deferred income taxes .................................................................. 42,000 350,000
Cost in excess of assets acquired, net of accumulated amortization ..................... 3,209,000 2,115,000
------------ ------------
Total assets .................................................................... $ 19,758,000 $ 13,702,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank revolving line of credit ....................................................... $ -- $ 406,000
Current portion of long-term debt ................................................... 435,000 151,000
Current portion of notes payable to Control Group ................................... 674,000 --
Income taxes payable ................................................................ 279,000 188,000
Accounts payable .................................................................... 544,000 1,055,000
Accrued commissions ................................................................. 747,000 525,000
Other accrued expenses .............................................................. 344,000 104,000
Distribution payable ................................................................ -- 634,000
------------ ------------
Total current liabilities ....................................................... 3,023,000 3,063,000
Long-term debt, net of current portion ................................................. 4,384,000 283,000
Notes payable to Control Group ......................................................... 675,000 1,349,000
------------ ------------
Total liabilities ............................................................... 8,082,000 4,695,000
------------ ------------
Stockholders' equity:
Preferred stock, $.10 par value (Authorized 500,000 shares; none issued) ............ -- --
Common stock, $.01 par value (Authorized 7,000,000 shares; issued 5,123,274 shares
in 1996 and 5,081,608 in 1995) .................................................... 51,000 51,000
Additional paid-in-capital .......................................................... 8,407,000 8,355,000
Unearned stock option compensation .................................................. (49,000) (80,000)
Retained earnings ................................................................... 3,267,000 681,000
------------ ------------
Total stockholders' equity ...................................................... 11,676,000 9,007,000
------------ ------------
Commitments
Total liabilities and stockholders' equity ...................................... $ 19,758,000 $ 13,702,000
============ ============
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE> 22
AMERICAN COIN MERCHANDISING, INC. (a)
STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenue:
Vending .................................................. $30,439,000 $17,031,000 $11,651,000
Product and services ..................................... 4,930,000 6,668,000 4,031,000
Franchise royalties ...................................... 1,204,000 1,252,000 1,061,000
Equipment sales and other ................................ 1,694,000 763,000 871,000
----------- ----------- -----------
Total revenue ........................................ 38,267,000 25,714,000 17,614,000
----------- ----------- -----------
Cost of revenue:
Vending .................................................. 21,283,000 11,701,000 8,399,000
Product and services ..................................... 3,976,000 5,419,000 3,414,000
Equipment sales .......................................... 1,683,000 635,000 793,000
----------- ----------- -----------
Total cost of revenue ................................ 26,942,000 17,755,000 12,606,000
----------- ----------- -----------
Gross profit ......................................... 11,325,000 7,959,000 5,008,000
General and administrative expenses ......................... 7,053,000 4,218,000 3,247,000
Commissions and royalties, related parties .................. -- 347,000 360,000
Interest expense, related parties ........................... 108,000 224,000 144,000
Interest expense, other ..................................... 267,000 159,000 84,000
Minority interest in income of combined affiliates .......... -- 80,000 62,000
Share of loss of equity affiliate ........................... -- 27,000 29,000
----------- ----------- -----------
Earnings before taxes ................................ 3,897,000 2,904,000 1,082,000
Provision for income taxes .................................. 1,311,000 329,000 --
----------- ----------- -----------
Net earnings ......................................... $ 2,586,000 $ 2,575,000 $ 1,082,000
=========== =========== ===========
Net earnings per share of common stock ...................... $ 0.48
Weighted average common shares .............................. 5,417,000
Pro forma information:
Historical earnings before taxes ....................... $ 2,904,000
Pro forma adjustments to earnings before taxes ......... 1,207,000
-----------
Pro forma earnings before taxes ........................ 4,111,000
Pro forma income tax expense ........................... (1,562,000)
-----------
Pro forma net earnings ................................. $ 2,549,000
===========
Pro forma earnings per common and common equivalent share
Pro forma net earnings per share ....................... $ 0.55
Weighted average common shares ......................... 4,669,000
</TABLE>
(a) Through August 31, 1995, represents combined financial statements of
American Coin Merchandising, Inc. and Affiliates (see note 1).
See accompanying notes to financial statements.
F-3
<PAGE> 23
AMERICAN COIN MERCHANDISING, INC. (a)
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNEARNED
STOCK TOTAL
ADDITIONAL OPTION EQUITY STOCK-
COMMON PAID-IN COMPEN- RETAINED OF HOLDERS'
STOCK CAPITAL SATION EARNINGS AFFILIATES EQUITY
------------ ------------ ------------ ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1993 ................ $ 31,000 $ 34,000 $ -- $ 101,000 $ 667,000 $ 833,000
Issuance of common stock ...... -- -- -- -- 4,000 4,000
Net earnings .................. -- -- -- 602,000 480,000 1,082,000
Distributions ................. -- -- -- (260,000) (445,000) (705,000)
------------ ------------ ------------ ------------ ------------ ------------
DECEMBER 31, 1994 ................ 31,000 34,000 -- 443,000 706,000 1,214,000
Issuance of 1,700,000 common
stock in public offering, net 17,000 10,034,000 -- -- -- 10,051,000
Issuance of employee
stock options ............... -- 80,000 (80,000) -- -- --
Exercise of employee stock
options ..................... 2,000 3,000 -- -- -- 5,000
Conversion of stockholder loans 1,000 675,000 -- -- -- 676,000
Net earnings .................. -- -- -- 2,072,000 503,000 2,575,000
Distributions ................. -- -- -- (634,000) (420,000) (1,054,000)
Distribution to Control Group
in conjunction with
Reorganization .............. -- -- -- (4,162,000) (789,000) (4,951,000)
Deferred tax asset
established
in Reorganization ........... -- 491,000 -- -- -- 491,000
Termination of S corporation
tax status .................. -- (2,962,000) -- 2,962,000 -- --
------------ ------------ ------------ ------------ ------------ ------------
DECEMBER 31, 1995 ................ 51,000 8,355,000 (80,000) 681,000 -- 9,007,000
Amortization of deferred
compensation ................ -- -- 26,000 -- -- 26,000
Tax benefit related to
employee stock options ...... -- 57,000 -- -- -- 57,000
Exercise of employee stock
options ..................... -- 1,000 -- -- -- 1,000
Termination of employee
stock options ............... -- (6,000) 5,000 -- -- (1,000)
Net earnings .................. -- -- -- 2,586,000 -- 2,586,000
------------ ------------ ------------ ------------ ------------ ------------
DECEMBER 31, 1996 ................ $ 51,000 $ 8,407,000 $ (49,000) $ 3,267,000 $ -- $ 11,676,000
============ ============ ============ ============ ============ ============
</TABLE>
(a) Through August 31, 1995, represents combined financial statements of
American Coin Merchandising, Inc. and Affiliates (see note 1).
See accompanying notes to financial statements.
F-4
<PAGE> 24
AMERICAN COIN MERCHANDISING, INC. (a)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Operating activities:
Net earnings ............................................................... $ 2,586,000 $ 2,575,000 $ 1,082,000
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization .......................................... 1,891,000 930,000 688,000
Share of loss of equity affiliate ...................................... -- 27,000 29,000
Minority interest in income of combined affiliates,
less distributions ................................................... -- 45,000 5,000
Compensation expense related to stock options .......................... 25,000 -- --
Deferred income tax expense ............................................ 308,000 141,000 --
Provisions for doubtful accounts and notes receivable .................. -- -- 7,000
Loss (gain) on sales of assets ......................................... 3,000 (10,000) --
Changes in operating assets and liabilities, net of Reorganization and
acquisitions:
Trade accounts and other receivables ............................... 53,000 (206,000) (154,000)
Inventories ........................................................ (756,000) (1,650,000) (573,000)
Prepaid expenses and other assets .................................. 10,000 (182,000) 56,000
Income taxes payable ............................................... 148,000 188,000 --
Accounts payable and accrued expenses .............................. (49,000) 994,000 632,000
------------ ------------ ------------
Net cash provided by operating activities ............................ 4,219,000 2,852,000 1,772,000
------------ ------------ ------------
Investing activities:
Acquisitions of property and equipment ..................................... (6,098,000) (2,234,000) (1,549,000)
Acquisitions of franchisees ................................................ (1,224,000) (160,000) --
Acquisition of non-Control Group interests in Reorganization ............... -- (3,125,000) --
Proceeds from sales of property and equipment .............................. 43,000 10,000 78,000
Placement fees ............................................................. (192,000) (20,000) --
Payments received on notes receivable from related parties ................. -- 14,000 --
Payments received on notes receivable ...................................... 20,000 17,000 33,000
Additions to notes receivable from related parties ......................... -- -- (30,000)
------------ ------------ ------------
Net cash used in investing activities ................................ (7,451,000) (5,498,000) (1,468,000)
------------ ------------ ------------
Financing activities:
Net borrowings (payments) on revolving line of credit ...................... 3,381,000 (121,000) (153,000)
Principal payments on notes payable to related parties ..................... -- (167,000) (247,000)
Proceeds from issuance of notes payable to related parties ................. -- 22,000 444,000
Principal payments on long-term debt ....................................... (1,559,000) (1,172,000) (397,000)
Proceeds from issuance of long-term debt ................................... 1,224,000 516,000 802,000
Distributions .............................................................. (634,000) (420,000) (705,000)
Payments to Control Group in Reorganization ................................ -- (4,509,000) --
Cash retained by combined affiliates in Reorganization ..................... -- (326,000) --
Issuance of common stock, net of offering costs ............................ 1,000 10,056,000 --
------------ ------------ ------------
Net cash provided by (used in) financing activities .................. 2,413,000 3,879,000 (256,000)
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents ................. (819,000) 1,233,000 48,000
Cash and cash equivalents at beginning of year ................................ 1,590,000 357,000 309,000
============ ============ ============
Cash and cash equivalents at end of year ...................................... $ 771,000 $ 1,590,000 $ 357,000
============ ============ ============
</TABLE>
(a) Through August 31, 1995, represents combined financial statements of
American Coin Merchandising, Inc. and Affiliates (see note 1).
See accompanying notes to financial statements.
F-5
<PAGE> 25
AMERICAN COIN MERCHANDISING, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
American Coin Merchandising, Inc., d/b/a Sugarloaf Creations, Inc. (the
"Company") and its franchisees own and operate coin-operated skill-crane
machines ("Shoppes") that dispense stuffed animals, plush toys, watches,
jewelry and other items. The Company's Shoppes are placed in supermarkets, mass
merchandisers, bowling centers, bingo halls, bars, restaurants, warehouse clubs
and similar locations. The Company currently has 26 field offices operating in
31 states. The Company also sells products to franchisees. At December 31, 1996
there were 26 Company franchises in operation.
Prior to August 31, 1995, the date of the Reorganization described below,
certain stockholders of the Company, who collectively own a controlling
interest of the Company (the "Control Group"), owned interests in the eight
affiliated entities (the "Affiliated Entities") which were franchisees of the
Company. Except as noted below, each of the Affiliated Entities began
operations prior to January 1, 1993. The Control Group owned greater than 50%
of the outstanding common stock or partnership interests of seven of the
Affiliated Entities and less than 50% of the eighth, as follows:
Affiliated Entities:
Combined affiliates:
Chicago Toy Company
Georgia Toy Company
Inland Merchandising, Inc. (began operations in June 1993)
Lehigh Valley Toy Company
Performance Merchandising, Inc.
Southwest Coin Company
Sugarloaf, Ltd. (began operations in January 1993)
Equity affiliate:
Sugarloaf Marketing, Inc.
Due to the common controlling ownership, the accompanying financial
statements include the accounts of the Company and the combined affiliates
(collectively referred to as the "Combined Companies") through August 31, 1995.
All material intercompany balances and transactions have been eliminated.
Through August 31, 1995 the Control Group's interest has been accounted for as
equity of affiliates and the other stockholders' interest has been reflected as
minority interest. As such, the assets and liabilities of the Combined
Companies have been accounted for in the financial statements based upon their
historical costs through August 31, 1995. The financial statements account for
the Control Group ownership interest in Sugarloaf Marketing, Inc. using the
equity method of accounting through August 31, 1995.
On August 31, 1995, the Company acquired substantially all of the
inventories, property and equipment, and assumed certain facilities leases,
which are operating leases, and contracts of the Affiliated Entities in
exchange for promissory notes in the principal amount of $8,983,000 (the
"Reorganization"), of which $7,634,000 was paid from the proceeds of the
Company's initial public offering in October 1995. The remaining promissory
notes in the principal amount of $1,349,000 are payable in 1997 and 1998. As a
result of the Reorganization, assets attributable to the Control Group's
interest have been accounted for similar to the pooling-of-interests method of
accounting for business combinations. Assets and liabilities included in the
financial statements which were retained by the combined affiliates in the
Reorganization have been accounted for as distributions to the combined
affiliates. Amounts paid to the combined affiliates attributed to the Control
Group interest have been accounted for as a distribution for financial
reporting purposes. Assets transferred attributable to the non-Control Group
members (the minority interest in the combined affiliates and the majority
interest in the equity affiliate) have been accounted for using the purchase
method of accounting for business combinations. The Company has recorded
approximately $1,964,000 of costs in excess of assets acquired as a result of
the transfer of assets attributable to the non-Control Group. The
Reorganization was a taxable transaction for income tax purposes, and
accordingly, the Company has a tax basis in the transferred assets in excess of
that for financial reporting.
F-6
<PAGE> 26
AMERICAN COIN MERCHANDISING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. ACQUISITIONS
In September 1995, the Company acquired certain assets and the business
operation of one of its franchisees for approximately $346,000. Of this amount,
$158,000 was paid in cash with the balance to be paid over a three year period
in accordance with the terms of a promissory note issued in connection with the
acquisition. The Company has recorded approximately $187,000 of costs in excess
of assets acquired as a result of this acquisition which was accounted for
using the purchase method of accounting.
During 1996, the Company acquired in January, July and August certain
assets and the business operations of three of its franchisees and also
acquired the operating assets of a skill-crane service company in May for
approximately $2,103,000. Of this amount, $1,224,000 was paid in cash with the
balance to be paid over a two to three year period in accordance with the terms
of the promissory notes issued in connection with the acquisitions. The Company
has recorded approximately $1,239,000 of costs in excess of assets acquired as
a result of these acquisitions which were accounted for using the purchase
method of accounting.
The pro forma effect of these acquisitions is not material to revenue or
net earnings for the years ended December 31, 1996 and 1995.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
VENDING
Vending revenue represents cash receipts from customers using vending
machines and is recognized when collected. The cost of vending is comprised
primarily of the cost of products vended through the machines, the servicing of
machines and commissions paid to retail locations.
FRANCHISE ROYALTIES AND FEES
Typically, franchisees are required to pay continuing royalties ranging
from 2% to 5% of gross machine revenue.
Franchisees are required to pay an initial nonrefundable franchise fee.
Initial franchise fees are recognized as revenue when the franchise opens.
Included in equipment sales and other revenue is initial franchise fee revenue
of $86,000 and $53,000 during 1995 and 1994, respectively.
INCOME TAXES
Prior to October 13, 1995 the Company had elected tax treatment as an S
corporation, and the combined affiliates were each organized as S corporations,
except for Southwest Coin Company which was organized as a partnership.
Accordingly, through October 12, 1995, no provisions were made for income taxes
since all income, deductions, gains, losses and credits were reported on the
tax returns of the stockholders or partners. The S corporation status of the
Company terminated on October 12, 1995 and, thereafter, the Company became a
taxable entity.
Effective October 13, 1995, the Company adopted the provisions of
Statement of Financial Accounting Standards Statement No. 109, "Accounting for
Income Taxes" (SFAS 109). Under the asset and liability method of accounting
for income taxes as prescribed by SFAS 109, deferred income taxes reflect the
net tax effects of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and amounts used for income
tax purposes. Deferred tax assets and liabilities are measured using enacted
tax rates expected to be in effect for the year in which those temporary
differences are expected to be recovered or settled. The effects on deferred
tax assets and liabilities of a change in tax rates are recognized in income in
the period that includes the enactment date.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect 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 revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH EQUIVALENTS
The Company considers as cash equivalents all highly liquid investments
with an original maturity of three months or less.
F-7
<PAGE> 27
AMERICAN COIN MERCHANDISING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method. Inventories consist of purchased items
ready for resale or use in vending operations.
PROPERTY AND EQUIPMENT
Property, equipment and capital leases are stated at cost. Depreciation is
calculated on the straight-line and accelerated methods over the estimated
useful lives of the assets which range from 3 to 7 years. Amortization expense
related to capital leases is calculated on the straight-line method over the
estimated useful lives of the leased assets which is 7 years.
COST IN EXCESS OF ASSETS ACQUIRED
Cost in excess of assets acquired represents the purchase amount paid in
excess of the fair market value of the tangible assets acquired and is
amortized using the straight-line method over a 20-year period.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Company reviews its long-lived assets and intangibles for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. Recoverability of assets to be held and
used is measured by a comparison of the carrying amount of the asset to the
future net cash flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceed the fair value of the
assets.
NET EARNINGS PER SHARE
Net earnings per share is computed based on the weighted average number of
common and common equivalent shares outstanding during the period. Common
equivalent shares include the dilution from the potential exercise of stock
options when the effect is dilutive. The weighted average number of shares used
in the computation of net earnings per share was 5,417,450 for 1996. Net
earnings per share has been omitted for 1995 and 1994 because through August
31, 1995 the Combined Companies were not a single entity with its own capital
structure.
RECLASSIFICATIONS
Certain amounts for prior periods have been reclassified to conform to the
December 31, 1996 presentation.
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
A schedule of supplemental cash flow information follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Cash paid during the year:
Interest paid ......................................... $ 372,000 $ 370,000 $ 240,000
Income taxes paid ..................................... 858,000 -- --
Significant noncash investing and financing activities:
Equipment purchases financed with debt ................ 54,000 241,000 336,000
Notes payable issued for acquisitions of franchisees... 879,000 188,000 --
Distribution payable .................................. -- 634,000 --
Deferred tax asset established in Reorganization ...... -- 491,000 --
Conversion of stockholder loans into common stock ..... -- 676,000 --
<CAPTION>
Cash paid in Reorganization: 1995
-----------
<S> <C>
Value of tangible assets acquired ..................... $ 983,000
Costs in excess of assets acquired .................... 1,964,000
Net liabilities retained by combined affiliates,
excluding cash retained ............................. 1,310,000
Notes payable to Control Group ........................ (1,349,000)
Net elimination of investment in equity affiliate
and minority interest ............................... 101,000
Distribution to Control Group ......................... 4,951,000
===========
Cash paid and retained (1) ........................ $ 7,960,000
===========
</TABLE>
(1) Includes $326,000 of cash retained by the combined affiliates.
F-8
<PAGE> 28
AMERICAN COIN MERCHANDISING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. INVESTMENT IN EQUITY AFFILIATE
Prior to the Reorganization, investment in equity affiliate consisted of a
48.0% and 48.5% interest in 1995 and 1994, respectively, in Sugarloaf
Marketing, Inc. (Sugarloaf Marketing) which was accounted for using the equity
method (see note 1). On August 31, 1995, in connection with the Reorganization,
the Company acquired the remaining 52% ownership in Sugarloaf Marketing. The
acquisition has been accounted for using the purchase method of accounting for
business combinations. The operating results of Sugarloaf Marketing are
included in the Company's earnings statement from the date of the acquisition.
Pro forma results of operations for 1995, as if the Reorganization, including
the acquisition of Sugarloaf Marketing, had occurred on January 1, 1995 is
presented in note 14.
Summarized financial information of Sugarloaf Marketing is as follows:
<TABLE>
<CAPTION>
EIGHT MONTHS
ENDED YEAR ENDED
AUGUST 31, DECEMBER 31,
1995 1994
---- ----
<S> <C> <C>
Revenue ........................ $ 3,941,000 $ 5,078,000
Net loss ....................... (57,000) (59,000)
</TABLE>
Included in revenue are the following amounts with Sugarloaf Marketing:
<TABLE>
<CAPTION>
EIGHT MONTHS
ENDED YEAR ENDED
AUGUST 31, DECEMBER 31,
1995 1994
---- ----
<S> <C> <C>
Product and service sales .................. $660,000 $603,000
Franchise royalties ........................ 52,000 60,000
</TABLE>
Transactions with Sugarloaf Marketing were conducted on a basis consistent
with that of unaffiliated franchisees.
5. BANK REVOLVING LINE OF CREDIT
The Company has a bank revolving line of credit which expires September
23, 1998. Interest is payable monthly at the bank's prime rate (8.25% at
December 31, 1996). Maximum borrowings on this line cannot exceed the lesser of
$6,000,000 or a borrowing base defined by the agreement. At December 31, 1996,
there was a principal amount of approximately $3,787,000 outstanding on this
facility that is reflected in long-term debt on the accompanying balance sheet.
The credit facility is secured by all business assets, including accounts
receivable, inventories, property and equipment and an assignment of franchise
fees. The line of credit agreement requires that, among other things, the
Company maintain a minimum net worth, meet certain ratios, and limits the
Company's ability to pay dividends and incur additional indebtedness.
At December 31, 1996 approximately $59,000 of the credit facility was
committed on open letters of credit for inventory on order but not yet
received.
F-9
<PAGE> 29
AMERICAN COIN MERCHANDISING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. LONG-TERM DEBT AND NOTES PAYABLE TO CONTROL GROUP
Long-term debt and notes payable to control group consists of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1995
---- ----
LONG-TERM DEBT:
<S> <C> <C>
Bank revolving line of credit (see note 5) ....................................... $ 3,787,000 $ --
Notes payable to former franchisees, in monthly installments with interest
at 8%; final payments at various dates through August 1999, secured
by certain property and equipment ............................................. 871,000 178,000
Capitalized lease obligations .................................................... -- 107,000
Notes payable to banks, in monthly installments with interest ranging from
7% to 12.95%; final payments at various dates through
August 2000; secured by certain property and equipment ......................... 161,000 149,000
----------- -----------
Total long-term debt .......................................................... 4,819,000 434,000
Less current portion ............................................................. (435,000) (151,000)
=========== ===========
Long-term debt, net of current portion ........................................ $ 4,384,000 $ 283,000
=========== ===========
NOTES PAYABLE TO CONTROL GROUP:
Promissory notes to Affiliated Entities, semi-annual principal payments to
commence February 1997 with interest at 8%; notes are secured
by the assets exchanged (see note 1) ........................................... $ 1,349,000 $ 1,349,000
Less current portion ............................................................. (674,000) --
----------- -----------
Notes payable to Control Group, net of current portion ........................ $ 675,000 $ 1,349,000
=========== ===========
</TABLE>
The carrying amount of long-term debt and notes payable to control group
approximates its fair value.
Maturities of long-term debt and notes payable to Control Group as of
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
1997................................................. $ 1,109,000
1998................................................. 4,855,000
1999................................................. 195,000
2000................................................. 9,000
2001................................................. --
------------
$ 6,168,000
============
</TABLE>
7. INCOME TAXES
Prior to October 13, 1995, the Company was an S corporation and was not
subject to income taxes. The S corporation status of the Company terminated on
October 12, 1995. As a result of the termination of the Company's S corporation
status, the Company incurred a one-time deferred tax expense of $141,000.
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 1995
---- ----
<S> <C> <C>
CURRENT
Federal ........................ $ 869,000 $ 160,000
State .......................... 134,000 28,000
---------- ----------
1,003,000 188,000
---------- ----------
DEFERRED
Federal ........................ 267,000 119,000
State .......................... 41,000 22,000
---------- ----------
308,000 141,000
---------- ----------
$1,311,000 $ 329,000
========== ==========
</TABLE>
F-10
<PAGE> 30
AMERICAN COIN MERCHANDISING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
A reconciliation of the expected tax expense, assuming income before taxes
is taxed at the statutory federal tax rate of 34%, and the Company's actual
provision for income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 1995
----------- -----------
<S> <C> <C>
Expected tax expense at the federal statutory rate ... $ 1,325,000 $ 987,000
State income taxes, net of federal taxes ............. 116,000 33,000
Change in valuation allowance ........................ (171,000) --
Termination of S corporation status .................. -- 141,000
S corporation income ................................. -- (811,000)
Other ................................................ 41,000 (21,000)
----------- -----------
$ 1,311,000 $ 329,000
=========== ===========
</TABLE>
The sources and tax effects of temporary differences between financial
statement carrying amounts and the tax bases of assets and liabilities are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 1995
----------- -----------
<S> <C> <C>
DEFERRED TAX ASSETS:
Property and equipment-basis and
depreciation differences ................ $ -- $ 98,000
Costs in excess of assets acquired-basis
and amortization differences ............ 1,157,000 1,255,000
----------- -----------
1,157,000 1,353,000
Valuation allowance ....................... 832,000 1,003,000
----------- -----------
325,000 350,000
DEFERRED TAX LIABILITIES:
Property and equipment-basis and
depreciation differences ................ (283,000) --
----------- -----------
$ 42,000 $ 350,000
=========== ===========
</TABLE>
8. COMMISSIONS AND ROYALTIES TO RELATED PARTIES
The Company recognized commission expense of $232,000 and $290,000 in 1995
and 1994; respectively, for services provided by two other corporations whose
stockholders are also the majority stockholders of the Company. In addition,
the Company recognized royalty expense of $115,000 and $70,000 in 1995 and
1994, respectively, to a trust controlled by a stockholder of one of the
combined affiliates.
9. RETIREMENT PLAN
The Company maintains a 401(k) profit sharing plan, which covers
substantially all employees. Employees are permitted to contribute up to 15% of
their eligible compensation. The Company makes contributions to the plan
matching 50% of the employees' contribution up to 10%. The Company's matching
contributions totaled $49,000, $17,000 and $8,000, in 1996, 1995 and 1994,
respectively.
F-11
<PAGE> 31
AMERICAN COIN MERCHANDISING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
10. COMMITMENTS
LEASES
The Company has several noncancelable operating leases, primarily for
office and warehouse facilities and certain types of equipment. These leases
expire at various times over the next four years. Rent expense under these
leases totaled $275,000, $190,000 and $173,000 for the years ended December 31,
1996, 1995 and 1994, respectively.
Future minimum commitments under operating leasing arrangements as of
December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997 .................................................... $253,000
1998 .................................................... 122,000
1999 .................................................... 43,000
2000 .................................................... 8,000
2001 and thereafter...................................... --
========
Total ................................................. $426,000
========
</TABLE>
GUARANTEES
The Company has established, with a bank, a vending machine leasing
program for qualified franchisees. Under terms of the program, ACMI has agreed
to purchase machines from the bank at an agreed upon price for franchisees who
default on their leases with the bank. At December 31, 1996, franchisees had
$30,000 in outstanding leases guaranteed by the Company.
11. STOCK OPTIONS
The Company has two fixed option plans. Under the terms of the amended and
restated stock option plan (the "Option Plan"), the Company may grant to
employees, consultants and advisors up to 856,132 shares of common stock. Under
the Option Plan, the Company may grant both incentive stock options and
non-statutory stock options, and the maximum term is ten years. Non-statutory
options may be granted at no less than 85% of the fair market value of the
common stock at the date of grant. Stock options granted under the Option Plan
vest over a three to four year period.
Under the 1995 Non-Employee Directors' Stock Option Plan (the "Directors
Plan"), the Company may grant to non-employee directors options to purchase up
to 42,000 shares of common stock. Under the Directors Plan, options granted
vest over a three year period and have a maximum term of ten years.
The Company applies APB Opinion No. 25 and the related Interpretations in
accounting for its plans. Accordingly, no compensation cost has been recognized
for options granted at fair market value under the plans. The compensation cost
that has been charged against income for options granted at a price less than
fair market value was $25,000 in 1996. Had compensation cost for the Company's
stock-based compensation plans been determined consistent with SFAS No. 123,
the Company's net earnings and earnings per share would have been reduced to
the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C> <C>
Net earnings As Reported $ 2,586,000 $ 2,575,000
Pro forma $ 2,482,000 $ 2,561,000
Primary earnings per share As Reported $ 0.48 $ N/A
Pro forma $ 0.46 $ N/A
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 1996 and 1995: no dividend
yield; expected volatility of 81 percent; risk-free interest rates of 6.0
percent; and expected lives of six years.
The effect of applying SFAS No. 123, in the above pro forma disclosure,
does not purport to be representative of the effect on net earnings for future
years.
F-12
<PAGE> 32
AMERICAN COIN MERCHANDISING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
A summary of the status of the Company's two fixed stock option plans as
of December 31, 1996 and 1995, and changes during the years ended on those
dates is presented below:
<TABLE>
<CAPTION>
1996 1995
------------------- ------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
EXERCISE EXERCISE
FIXED OPTIONS SHARES PRICE SHARES PRICE
------------- ------ ----- ------ -----
<S> <C> <C> <C> <C>
Outstanding at beginning
of year.................... 488,463 $1.44 548,132 $ .02
Granted....................... -- -- 123,500 5.61
Exercised..................... (41,666) .02 (183,169) .02
Forfeited..................... (6,000) 5.53 -- --
------- --------
Outstanding at end of year.... 440,797 1.51 488,463 1.44
======= ========
Options exercisable at
year-end................... 360,797 364,943
Weighted-average fair value
of options granted during
the year................... -- $4.68
</TABLE>
The following table summarizes information about fixed stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------- ------------------------------
RANGE WEIGHTED AVERAGE
OF NUMBER REMAINING WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
--------------- ----------- ---------------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
$.02 323,297 2.0 $ .02 323,297 $ .02
4.00 to 7.00 117,500 8.9 5.62 37,500 5.67
------- -------
.02 to 7.00 440,797 3.8 1.51 360,797 .61
======= =======
</TABLE>
12. STOCKHOLDERS' EQUITY
COMMON STOCK
The Company was originally incorporated in Colorado in 1988 and was
reincorporated in Delaware effective July 1995. In July 1995, the Company
effectuated a 2525.9515-for-1 stock split of its common stock. Common stock
information has been restated to give effect to the stock split. In October
1995, the Company completed a public offering of 1,700,000 shares of its common
stock at $7.00 per share. Total proceeds, net of underwriting commission and
other offering costs of $1,849,000, were $10,051,000. Two of the principal
stockholders of the Company and the majority stockholder of Sugarloaf Marketing
acquired 300,000 shares of the Company's common stock at the initial public
offering price of $7.00 per share. In conjunction with the Company's public
offering, $676,000 in notes payable to related parties were converted into
96,571 shares of common stock.
PREFERRED STOCK
The Board of Directors has the authority to issue up to 500,000 shares of
$.10 par value preferred stock in one or more series and to fix the rights,
preferences, privileges and distributions thereof, including dividend rights,
conversion rights, voting rights, terms of redemption, liquidation preferences,
sinking fund terms and the number of shares constituting any series or the
designation of such series, without any further vote or action by stockholders.
No shares of preferred stock have been issued.
WARRANTS
In conjunction with the Company's initial public offering, a warrant to
purchase 125,000 shares of common stock at a purchase price of $8.40 per share
was sold to the Company's underwriter for a nominal amount. The warrant expires
on October 18, 1999.
F-13
<PAGE> 33
AMERICAN COIN MERCHANDISING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
13. CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES
CERTAIN SIGNIFICANT ESTIMATES
At December 31, 1996 the Company has recorded a deferred tax asset of
$325,000, net of a $832,000 valuation allowance, as a result of the benefit
associated with the difference between the tax and financial statement basis of
assets acquired by the Company on August 31, 1995 in connection with the
Reorganization. Realization is dependent on generating sufficient taxable
income prior to the expiration of the benefit. Although realization is not
assured, management believes it is more likely than not that a portion of the
deferred tax asset will be realized. The amount of the deferred tax asset
considered realizable, however, could be increased in the near term if
estimates of future taxable income are increased.
CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS
SUPPLIERS
Substantially all the Company's plush toys and certain other products
dispensed in the Company's SugarLoaf Toy Shoppes are produced by foreign
manufacturers and a majority are purchased directly by the Company from
manufacturers in the People's Republic of China ("China"). China currently
enjoys "most favored nation" ("MFN") status under U.S. tariff laws, which
allows for the most favorable category of U.S. import duties. The loss of MFN
status for China could result in a substantial increase in the import duty of
certain products manufactured in China, which could result in substantially
increased costs for certain products purchased by the Company. Although the
Company would attempt to mitigate any such increased cost by procuring its
product from other countries, it would likely incur substantially higher costs
and temporary disruptions in supply in the event that it becomes necessary to
do so.
The Company also purchases a substantial portion of the products for its
other Shoppes from vendors who obtain product from domestic and foreign
manufacturers. As a result, the Company is subject to changes in governmental
policies, the imposition of tariffs and import and export controls,
transportation delays and interruptions, political and economic disruptions and
labor strikes which could disrupt the Company's supply of products from foreign
manufacturers.
CUSTOMERS
The Company has made available to its franchisees a fee reduction program
whereby a franchisee is entitled to a reduction in the royalty rate on gross
revenue from the Sugarloaf Toy and Treasure Shoppes of one percentage point on
gross revenue for a future six-month period based upon the franchisee meeting
certain performance standards during the most recently completed six-month
period. One of the performance standards relates to the purchase of 30%, up to
a maximum of $250,000, of product used in the Sugarloaf Toy Shoppe program from
the Company. Three franchisees represent 36.4% of the Company's product sales
in 1996.
During 1996, one customer accounted for 11.4% of the Company's revenue.
F-14
<PAGE> 34
AMERICAN COIN MERCHANDISING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
14. UNAUDITED PRO FORMA INFORMATION
The computation of pro forma total revenue, net earnings and net earnings
per share for the year ended December 31, 1995 were prepared on the basis as if
the Reorganization had occurred on January 1, 1995 with an adjustment in the
level of commissions and royalties to related parties that were not paid after
the Reorganization, an adjustment for interest expense related to shareholder
loans converted to common stock in conjunction with the Company's initial
public offering of common stock on October 12, 1995 and the recording of income
tax expense to reflect the conversion of the Company from an S corporation to a
taxable entity on October 12, 1995 follows:
<TABLE>
<S> <C>
Historical total revenue........................................ $25,714,000
Revenue of Sugarloaf Marketing through
the date of acquisition ...................................... 3,941,000
Pro forma adjustment to eliminate intercompany revenue ......... (712,000)
-----------
Pro forma total revenue......................................... $28,943,000
===========
Historical earnings before income taxes......................... $ 2,904,000
Pro forma adjustments:
Net loss of Sugarloaf Marketing through
the date of acquisition .................................... (57,000)
Adjust for change in level of commissions and
royalties to related parties ............................... 1,182,000
Adjust for interest related to stockholder loans
converted to equity ........................................ 61,000
Eliminate minority interest and equity interest through
the date of acquisition as a result of acquiring remaining
ownership interest in affiliated entities .................. 107,000
Record amortization of cost in excess of
assets acquired ............................................ (68,000)
Increase depreciation for assets acquired from
non-control group .......................................... (18,000)
-----------
Total adjustments to earnings before taxes ................. 1,207,000
-----------
Pro forma earnings before income taxes ......................... 4,111,000
Pro forma earnings tax expense at 38% .......................... 1,562,000
-----------
Pro forma net earnings.......................................... $ 2,549,000
===========
Weighted average shares outstanding (1) ........................ 4,669,000
Pro forma net earnings per share ............................... $0.55
=====
</TABLE>
(1) Shares used in computing pro forma net earnings per share are based upon
3,503,102 weighted average shares outstanding, common equivalent shares of
370,332, and 96,571 shares issued in connection with the conversion of
certain stockholder loans at the initial public offering price of $7.00
per share and 699,149 shares issued to pay distributions in conjunction
with the Reorganization. Common equivalent shares consist of stock
options, determined using the treasury stock method. Pursuant to the
Securities and Exchange Commission Staff Accounting Bulletins, common and
common equivalent shares issued at prices below the anticipated public
offering price during a 12-month period prior to the proposed offering
have been included in the calculation as if they were outstanding for the
entire year (using the treasury stock method and the average price of the
common stock from October 16, 1995 through December 31, 1995) and the
shares issued in the initial public offering whose proceeds were used to
pay distributions to Control Group stockholders in connection with the
Reorganization have been included in the calculation (using the initial
public offering price) as if they were outstanding for the entire year.
F-15
<PAGE> 35
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
AMERICAN COIN MERCHANDISING, INC.
By /s/ Jerome M. Lapin
-------------------------------------
Jerome M. Lapin
President and Chief Executive Officer
March 27, 1997
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
Signature and Title Date
------------------- ----
<S> <C>
/s/ Jerome M. Lapin March 27, 1997
- -------------------------------------------------------------------------------
Jerome M. Lapin, Chairman of the Board of Directors,
President and Chief Executive Officer
/s/ W. John Cash March 27, 1997
- -------------------------------------------------------------------------------
W. John Cash, Vice President, Chief Financial Officer and Treasurer
/s/ Randall J. Fagundo March 27, 1997
- -------------------------------------------------------------------------------
Randall J. Fagundo, Vice President of Operations,
Secretary and Director
/s/ Abbe M. Stutsman March 27, 1997
- -------------------------------------------------------------------------------
Abbe M. Stutsman, Vice President of Purchasing
and Product Development and Director
/s/ Richard D. Jones March 27, 1997
- -------------------------------------------------------------------------------
Richard D. Jones, Director
/s/ J. Gregory Theisen March 27, 1997
- -------------------------------------------------------------------------------
J. Gregory Theisen, Director
/s/ Jim D. Baldwin March 27, 1997
- -------------------------------------------------------------------------------
Jim D. Baldwin, Director
/s/ John A. Sullivan March 27, 1997
- -------------------------------------------------------------------------------
John A. Sullivan, Director
</TABLE>
<PAGE> 36
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
2.1+ Memorandum of Terms for the Purchase of Assets between
the Registrant and Chicago Toy Company, Inc., dated July
17, 1995.
2.2+ Memorandum of Terms for the Purchase of Assets between
the Registrant and Georgia Toy Company, dated July 21,
1995.
2.3+ Memorandum of Terms for the Purchase of Assets between
the Registrant and Inland Merchandising, Inc., dated
July 21, 1995.
2.4+ Memorandum of Terms for the Purchase of Assets between
the Registrant and Lehigh Valley Toy Company, dated July
21, 1995.
2.5+ Memorandum of Terms for the Purchase of Assets between
the Registrant and Performance Merchandising, Inc.,
dated July 21, 1995.
2.6+ Memorandum of Terms for the Purchase of Assets between
the Registrant and Southwest Coin Company, dated July
21, 1995.
2.7+ Memorandum of Terms for the Purchase of Assets between
the Registrant and Sugarloaf, Ltd. and Sugarloaf
Marketing, Inc., dated May 31, 1995.
2.8+ Asset Purchase Agreement among the Registrant, certain
persons and Chicago Toy Company, Inc., dated August 31,
1995.
2.9+ Asset Purchase Agreement among the Registrant, certain
persons and Georgia Toy Company, dated August 31, 1995.
2.10+ Asset Purchase Agreement among the Registrant, certain
persons and Inland Merchandising, Inc., dated August 31,
1995.
2.11+ Asset Purchase Agreement among the Registrant, certain
persons and Lehigh Valley Toy Company, dated August 31,
1995.
2.12+ Asset Purchase Agreement among the Registrant, certain
persons and Performance Merchandising, Inc., dated
August 31, 1995.
2.13+ Asset Purchase Agreement among the Registrant, certain
persons and Sugarloaf Ltd. and Sugarloaf Marketing,
Inc., dated August 31, 1995.
3.1+ Certificate of Incorporation of the Registrant.
3.2+ Bylaws of the Registrant.
4.1+ Reference is made to Exhibits 3.1 and 3.2.
4.2+ Specimen Stock Certificate.
10.1+ Form of Indemnity Agreement to be entered into between
the Registrant and its directors and executive officers.
10.2+ Amended and Restated Stock Option Plan of the Registrant
(the "Option Plan").
10.3+ Form of Incentive Stock Option under the Option Plan.
10.4+ Form of Nonstatutory Stock Option under the Option Plan.
10.5+ 1995 Non-Employee Director Stock Option Plan (the
"Director Plan").
10.6+ Form of Nonstatutory Stock Option under the Director
Plan.
10.7+ Stockholder Agreement between the Registrant and the
Founders, certain of their spouses and Jerome M. Lapin,
dated as of January 6, 1994, as amended July 21, 1995.
10.8+ Letter Agreement between the Registrant and Norwest Bank
Colorado, N.A., dated as of October 11, 1995.
10.9+ Registrant's Uniform Franchise Offering Circular, dated
August 31, 1995, including forms of the Franchise
Agreement, the National Account Program Agreement,
Pre-Pack Program Agreement and the Bulk Purchasing
Agreement.
</TABLE>
<PAGE> 37
<TABLE>
<S> <C>
10.10+ Amended and Restated Term Loan and Credit Agreement,
including exhibits thereto, between the Registrant and
Norwest Bank Colorado, N.A., dated as of May 1, 1995, as
amended on July 21, 1995.
10.11+ Amended and Restated Promissory Notes between the
Registrant and each of the parties set forth within,
dated as of August 31, 1995.
10.12+ Modification Agreement, dated August 25, 1995, between
the Registrant and Norwest Bank Colorado, N.A.
10.13+ Form of Representative's Warrant.
10.14+ Form of Uniform Commercial Code Security Agreement
between the Registrant and each of the parties listed on
the attached schedule, dated as of August 31, 1995.
10.15+ Form of Noncompetition Agreement between the Registrant
and each of the parties listed on the attached schedule,
dated as of August 31, 1995.
10.16+ Form of Promissory Note between the Registrant and each
of the parties listed on the attached schedule, dated as
of August 31, 1995.
10.17+ Form of Promissory Note between the Registrant and each
of the parties listed on the attached schedule, dated as
of August 31, 1995.
10.18+ Form of Promissory Note between the Registrant and each
of the parties listed on the attached schedule, dated as
of August 31, 1995.
10.19+ Subordination Agreement between the Registrant and
Georgia Toy Company, dated as of August 31, 1995.
10.20+ Subordination Agreement between the Registrant and Inland
Merchandising, Inc., dated as of August 31, 1995.
10.21+ Subordination Agreement between the Registrant and
Lehigh Valley Toy Company, dated as of August 31, 1995.
10.22+ Subordination Agreement between the Registrant and
Performance Merchandising, Inc., dated as of August 31,
1995.
10.23+ Subordination Agreement between the Registrant, Sugarloaf
Ltd., Sugarloaf Marketing, Inc. and Southwest Coin
Company, dated as of August 31, 1995.
10.24+ Subordination Agreement between the Registrant and
Chicago Toy Company, Inc., dated as of August 31, 1995.
10.25+ Agreement to Purchase Assets and Release among Pleasant
Valley Toy Company, Inc., Robert G. Kittridge and the
Registrant dated as of September 6, 1995.
10.26 Employment Agreement, dated as of June 1, 1996, between
the Registrant and Jerome M. Lapin.
10.27 Employment Agreement, dated as of June 1, 1996, between
the Registrant and Abbe M. Stutsman.
10.28 Employment Agreement, dated as of June 1, 1996, between
the Registrant and W. John Cash.
10.29* Other Income Vendor Agreement, dated as of July 31, 1996,
between the Registrant and Wal-Mart Stores, Inc.
10.30 Credit Agreement, including exhibits thereto, between the
Registrant and Wells Fargo Bank (Colorado), N.A., dated
as of September 23, 1996.
10.31 Revolving Line of Credit Note, between the Registrant and
Wells Fargo Bank, N.A., dated as of September 23, 1996.
10.32 Continuing Security Agreement: Equipment, Rights to
Payment and Inventory, between the Registrant and Wells
Fargo Bank, N.A., dated as of September 23, 1996.
10.33 Commercial Lease Agreement, between the Registrant and
Technical Building Company, dated as of January 28, 1997.
11.1 Computation of Per Share Earnings.
16.1+ Letter of Gallant & Company, P.C. to the Securities and
Exchange Commission pursuant to the requirements of Item
304(a) (3) of Regulation S-B.
23.1 Consent of KPMG Peat Marwick LLP
27 Financial Data Schedule
</TABLE>
+ Incorporated by reference to the Company's Registration Statement on
Form SB-2, File No. 33-95446-D.
* An order seeking confidential treatment for certain portions of the
exhibit has been applied for.
<PAGE> 1
EXHIBIT 10.26
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of June
1, 1996, between AMERICAN COIN MERCHANDISING, INC., d/b/a SUGARLOAF CREATIONS,
INC. (hereinafter called "Employer") and JEROME M. LAPIN (hereinafter called
"Employee").
1. Introduction. Employer desires to retain the services and
employment of Employee, and Employee desires to secure or retain employment
from Employer, upon the terms and conditions set forth herein. Therefore, in
consideration of the mutual covenants and agreements contained herein, the
parties to this Agreement do hereby agree as follows. This Agreement replaces
the Employment Agreement between the parties dated January 6, 1994.
2. Term. Employer hereby employs Employee to render services to
Employer as Chief Executive Officer from the date of this Agreement through and
including December 31, 1999.
3. Services. Employee hereby accepts employment under this
Agreement and agrees to devote one hundred percent (100%) of his full time and
attention to the business and affairs of Employer, as such business and affairs
now exist and as they may be hereafter changed or added to, under and pursuant
to the general direction of the Board of Directors of Employer. Employer shall
retain full direction and control of the means and methods by which Employee
performs the services for which he is employed.
4. Compensation. On the date of this Agreement, Employee is
receiving a salary of $160,000.00 per year, payable at the intervals regularly
established for payment of salaries by Employer. Such salary may be increased
from time to time by determination of the Employer's Compensation Committee.
It is anticipated that regular increases will be provided upon the Employer
meeting projections for performance and that annual bonuses will be available
for exceeding such projections; provided, however, that Employer shall have no
obligation to pay any bonuses for the year in which Employee's employment is
terminated.
5. Benefits.
(a) During the period of employment under this Agreement,
Employee shall be entitled to receive all other benefits of employment
generally available to other employees in executive positions with Employer
when and as said Employee becomes eligible for those benefits, in accordance
with the general policy of Employer, including but not limited to, sick leave,
paid holidays, life insurance, health insurance, 401k plan, 125 cafeteria
package and participation in any employee stock option or stock purchase plans.
(b) Employee shall be entitled to four weeks vacation
during each calendar year of employment. Employee shall accrue
<PAGE> 2
days of paid vacation in accordance with Employer's policy on vacation, as that
policy is applied to other employees who hold similar positions and who have
been employed by Employer as long as Employee. Employee shall take all such
accrued vacation days at times which shall not interfere with the normal
business operations of Employer.
(c) Employer will lease or purchase a motor vehicle as
mutually agreed for use by Employee. If Employee should leave employment of
Employer for any reason prior to the expiration of such lease, Employee shall
have the option to assume all obligations under the lease or purchase or to
return the vehicle to Employer.
(d) Employee shall be reimbursed by Employer for
reasonable travel and other business expenses incurred by Employee in the
performance of his duties under this Agreement, in accordance with the general
policy of Employer.
6. Employer's Authority. Employee agrees to observe and comply
with the rules and regulations of Employer as adopted by Employer's Board of
Directors either orally or in writing, respecting performance of Employee's
duties and to carry out and perform orders, directions, and policies stated by
Employer to Employee, from time to time, either orally or in writing; provided,
however, that Employee shall only be obligated to comply with legal and
ethical rules, regulations, orders, directions and policies of Employer.
7. Confidential Information and Noncompetition.
(a) Employee realizes that during this Agreement,
Employee will produce and/or will have access to confidential memoranda, notes,
information, records, maps, research results, business projections, business
and research notebooks, data, formulae, specifications, trade secrets, customer
lists, inventions and processes of Employer, and other information of a
confidential nature (collectively, "Confidential Information").
(b) Both during the term of this Agreement and subsequent
to its termination, Employee agrees to hold all Confidential Information in
confidence and not to disclose, and not directly or indirectly to use, copy,
digest or summarize, any Confidential Information, except to the extent
necessary to carry out Employee's responsibilities as directed or authorized by
Employer and, after termination of Employee's employment hereunder, as
specifically authorized in writing by Employer.
(c) All records in whatsoever form and in whatsoever
medium recorded, and any and all copies thereof (including volatile electronic
or magnetic signals), relating to Employer's business that Employee shall
prepare, or use, or come into contact with in the course of his executing his
duties under this Agreement, shall be and remain the sole property of Employer
and shall not be
2
<PAGE> 3
removed from Employer's premises except as necessary to carry out Employee's
responsibilities as directed and authorized by Employer; and the same shall be
returned promptly to Employer upon termination of Employee's employment
relationship with Employer or upon Employer's request.
(d) Employee agrees that he possesses or will possess
knowledge, skills and reputation in the industry in which Employer operates
which are of material importance to Employer, and which are special, unique and
extraordinary. Employee acknowledges that the loss of his services, or the use
of his services by a competitor, may cause irreparable harm to Employer.
Therefore, for a three (3) year period following termination of employment for
any reason, with or without cause, Employee, individually and personally, shall
not do any of the following:
(i) Canvass, solicit, or accept any business in the
Industry from any present or past customer of Employer or any related
company, if the customer is located in the United States (the
"Territory").
(ii) Aid or assist any other person, entity,
partnership, or corporation in any effort to canvass, solicit, or
accept any business in the amusement vending machine business or
industry (the "Industry") from any past or present customers of
Employer or of any related company, if the customer is located within
the Territory.
(iii) Directly or indirectly request or advise any past
or present customer of Employer, or any past, present, or possible
future customer of any related companies to withdraw, curtail, cancel,
or not undertake business in the Industry with any related company, if
the customer is located within the Territory.
(iv) Directly or indirectly disclose to any other
person, entity, partnership, or corporation the names of past or
present customers of Employer, or of any related company. The parties
agree that the names of these customers are confidential and
proprietary and constitute trade secrets of Employer, and are
confidential and proprietary and constitute trade secrets of Employer
within the meaning of C.R.S. Section 8- 2-113(2)(b) and C.R.S.
Section 7-74-102(4).
(v) Suggest, solicit, or encourage any employee of
Employer or any related company to leave employment; or disparage
Employer or any related company or their conditions of employment; or
disclose to any other person, entity, partnership, or corporation the
names of employees of Employer.
(vi) Directly or indirectly establish, as manager,
employee or owner of greater than 1% of the outstanding ownership
interest, or participate in an enterprise
3
<PAGE> 4
competitive with any business which is conducted at any time during
the term of this Agreement by Employer or any related company, and
which business is in the Industry and in the Territory.
(vii) Provide any product, service, financing, aid, or
assistance of any kind for any person, entity, partnership,
association, or corporation which is competitive with any business
which is conducted at any time during the term of this Agreement by
Employer or any related company, and which business is in the Industry
and in the Territory.
(viii) Compete in any manner with any business which is
conducted at any time during the term of this Agreement by Employer or
any related company, and which business is in the Industry and in the
Territory.
(e) The rights and obligations of this Section 7 shall
survive any expiration or termination of this Agreement.
8. Termination of Employment.
(a) Notwithstanding anything herein to the contrary,
Employer may, without liability, terminate Employee's employment hereunder for
cause at any time and without notice, and thereafter Employer's obligations
hereunder shall cease and terminate. Termination of Employee's employment
hereunder shall be deemed to be for "cause" if such termination is because of
any act, or failure to act, by Employee which is (i) in bad faith and to the
detriment of Employer, (ii) a breach by Employee of any term of this Agreement,
which breach continues for a period of ten (10) days after Employee receives
written notice of such breach from the Board of Directors of Employer, (iii)
not in accordance with his obligations under this Agreement as amounts to an
intentional, extended, or gross neglect of his respective duties to Employer,
(iv) the result of such prolonged or continued use of alcohol or narcotics as
to leave Employee unable or unwilling to fulfill his respective duties, (v) an
act of fraud or embezzlement against Employer by Employee, or (vi) results in
his conviction for commission of a crime involving moral turpitude.
(b) Notwithstanding anything herein to the contrary,
Employer may terminate Employee's employment hereunder at any time without
cause, with sixty (60) days notice. Such termination shall be without
liability and thereafter Employer's obligations hereunder shall cease and
terminate, except that Employer shall continue to pay Employee's salary, less
applicable taxes and other required withholdings, for the remaining term of
this Agreement.
(c) If (i) Employee's employment is terminated without
cause, Employee's responsibilities are materially reduced without consent, or
Employee's duties require a move outside the Boulder, Colorado area, and (ii)
such event occurs within one year after a sale of the business or assets of
Employer, a merger in which
4
<PAGE> 5
Employer is not the surviving corporation, or any other transaction in which
the management or shareholder control of the Employer is changed or materially
modified, Employee's salary, less applicable taxes and other required
withholdings, shall continue for the remaining term of this Agreement.
9. Death or Permanent Disability of Employee. In the event of
the death or permanent disability of Employee (which renders him unable to
satisfactorily perform his employment with Employer) during the period of
employment under this Agreement, an amount equal to twelve months salary
payable hereunder shall be paid to Employee, Employee's surviving spouse, or if
there is no spouse surviving, then to Employee's estate. Thereafter Employer's
obligations hereunder shall cease and terminate.
10. Assignment. Employee's rights and obligations under this
Agreement shall not be transferable by assignment or otherwise, nor shall
Employee's rights hereunder be subject to any encumbrance or claim of
Employee's creditors. Nothing in this Agreement shall prevent the
consolidation of Employer with, or its merger into, any other corporation, or
the sale by Employer of all or substantially all of its properties or assets,
or the assignment by Employer of this Agreement and the performance of its
obligations hereunder to any affiliated company; and this Agreement shall,
subject to the provisions of this paragraph, inure to the benefit of, and be
enforceable by, any corporate successor to or assignee of, Employer.
11. Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto in respect of the employment of Employee
by Employer and the provisions herein shall be regarded as divisible and so far
as they are covenants not to compete shall be operative to the extent both as
to time and area covered that they may be made so applicable, and if any of
said provisions or any part thereof are declared invalid or unenforceable, the
validity and enforceability of the remainder of such provisions or parts
thereof and the applicability thereof shall not be affected thereby.
12. Governing Law and Enforcement. This Agreement and the rights
and obligations hereunder shall be governed by and construed in accordance with
the laws of the State of Colorado. This Agreement may be enforced in any court
of competent jurisdiction in Colorado and the prevailing party, if any, shall
be entitled to recover its reasonable attorneys' fees and expenses in addition
to any other damages.
13. Non-Waiver. The failure of either party at any time to
require performance by the other party of any provision of this Agreement
required to be performed by such other party, will in no way affect the right
of the such party to require such performance at any time thereafter. The
waiver by either party of a breach by the other party of any provision of this
Agreement shall in no way be construed as a waiver of any succeeding breach of
such provision
5
<PAGE> 6
or a waiver of the provision itself.
14. Remedy for Breach. The parties hereto agree that, in the
event of breach or threatened breach of any of the noncompetition covenants of
this Agreement or of any of the covenants respecting Confidential Information,
or of any of the provisions concerning restrictions on the rights and interest
in the in Employer, the damage or imminent damage to the value and the goodwill
of Employer's business shall be inestimable, and that therefore any remedy at
law or in damages shall be inadequate. Accordingly, the parties hereto agree
that Employer shall be entitled to injunctive relief against Employee in the
event of any breach or threatened breach of any of such provisions by Employee,
in addition to any other relief (including damages) available to Employer under
this Agreement or under law.
15. Gender, Number, and Tense. Throughout this Agreement, as the
context may require, the masculine gender includes the feminine and neuter, and
the neuter gender includes the masculine and feminine; singular number includes
the plural and the plural number includes the singular; and the past tense
includes the present and the present tense includes the past.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
EMPLOYER: AMERICAN COIN MERCHANDISING, INC.,
d/b/a SUGARLOAF CREATIONS, INC.
By /s/ Randall J. Fagundo
---------------------------
Its Vice President of Operation
---------------------------
EMPLOYEE: /s/ Jerome M. Lapin
--------------------------------
JEROME M. LAPIN
Address: 3019 So. Lakeridge Tr.
-----------------------
Boulder CO, 80302
-----------------------
6
<PAGE> 1
EXHIBIT 10.27
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of June
1, 1996, between AMERICAN COIN MERCHANDISING, INC., d/b/a SUGARLOAF CREATIONS,
INC. (hereinafter called "Employer") and ABBE M. STUTSMAN (hereinafter called
"Employee").
1. Introduction. Employer desires to retain the services and
employment of Employee, and Employee desires to secure or retain employment
from Employer, upon the terms and conditions set forth herein. Therefore, in
consideration of the mutual covenants and agreements contained herein, the
parties to this Agreement do hereby agree as follows.
2. Term. Employer hereby employs Employee to render services to
Employer as Vice President of Purchasing and Product Development from the date
of this Agreement through and including December 31, 1998.
3. Services. Employee hereby accepts employment under this
Agreement and agrees to devote one hundred percent (100%) of his full time and
attention to the business and affairs of Employer, as such business and affairs
now exist and as they may be hereafter changed or added to, under and pursuant
to the general direction of the Board of Directors of Employer. Employer shall
retain full direction and control of the means and methods by which Employee
performs the services for which he is employed.
4. Compensation. On the date of this Agreement, Employee is
receiving a salary of $110,000.00 per year, payable at the intervals regularly
established for payment of salaries by Employer. Such salary may be increased
from time to time by determination of the Employer's Compensation Committee
after consultation with the Employer's Chief Executive Officer. It is
anticipated that regular increases will be provided upon the Employer meeting
projections for performance and that annual bonuses will be available for
exceeding such projections; provided, however, that Employer shall have no
obligation to pay any bonuses for the year in which Employee's employment is
terminated.
5. Benefits.
(a) During the period of employment under this Agreement,
Employee shall be entitled to receive all other benefits of employment
generally available to other employees in executive positions with Employer
when and as said Employee becomes eligible for those benefits, in accordance
with the general policy of Employer, including but not limited to, sick leave,
paid holidays, life insurance, health insurance, 401k plan, 125 cafeteria
package and participation in any employee stock option or stock purchase plans.
(b) Employee shall be entitled to four weeks vacation
<PAGE> 2
during each calendar year of employment. Employee shall accrue days of paid
vacation in accordance with Employer's policy on vacation, as that policy is
applied to other employees who hold similar positions and who have been
employed by Employer as long as Employee. Employee shall take all such accrued
vacation days at times which shall not interfere with the normal business
operations of Employer.
(c) Employer will purchase a motor vehicle as mutually
agreed for use by Employee. If Employee should leave employment of Employer
for any reason, Employee shall have the option to purchase the motor vehicle or
to return the vehicle to Employer.
(d) Employee shall be reimbursed by Employer for
reasonable travel and other business expenses incurred by Employee in the
performance of his duties under this Agreement, in accordance with the general
policy of Employer.
6. Employer's Authority. Employee agrees to observe and comply
with the rules and regulations of Employer as adopted by Employer's Board of
Directors either orally or in writing, respecting performance of Employee's
duties and to carry out and perform orders, directions, and policies stated by
Employer to Employee, from time to time, either orally or in writing; provided,
however, that Employee shall only be obligated to comply with legal and
ethical rules, regulations, orders, directions and policies of Employer.
7. Confidential Information and Noncompetition.
(a) Employee realizes that during this Agreement,
Employee will produce and/or will have access to confidential memoranda, notes,
information, records, maps, research results, business projections, business
and research notebooks, data, formulae, specifications, trade secrets, customer
lists, inventions and processes of Employer, and other information of a
confidential nature (collectively, "Confidential Information").
(b) Both during the term of this Agreement and subsequent
to its termination, Employee agrees to hold all Confidential Information in
confidence and not to disclose, and not directly or indirectly to use, copy,
digest or summarize, any Confidential Information, except to the extent
necessary to carry out Employee's responsibilities as directed or authorized by
Employer and, after termination of Employee's employment hereunder, as
specifically authorized in writing by Employer.
(c) All records in whatsoever form and in whatsoever
medium recorded, and any and all copies thereof (including volatile electronic
or magnetic signals), relating to Employer's business that Employee shall
prepare, or use, or come into contact with in the course of his executing his
duties under this Agreement, shall be and remain the sole property of Employer
and shall not be
2
<PAGE> 3
removed from Employer's premises except as necessary to carry out Employee's
responsibilities as directed and authorized by Employer; and the same shall be
returned promptly to Employer upon termination of Employee's employment
relationship with Employer or upon Employer's request.
(d) Employee agrees that he possesses or will possess
knowledge, skills and reputation in the industry in which Employer operates
which are of material importance to Employer, and which are special, unique and
extraordinary. Employee acknowledges that the loss of his services, or the use
of his services by a competitor, may cause irreparable harm to Employer.
Therefore, for a three (3) year period following termination of employment for
any reason, with or without cause, Employee, individually and personally, shall
not do any of the following:
(i) Canvass, solicit, or accept any business in the
Industry from any present or past customer of Employer or any related
company, if the customer is located in the United States (the
"Territory").
(ii) Aid or assist any other person, entity,
partnership, or corporation in any effort to canvass, solicit, or
accept any business in the amusement vending machine business or
industry (the "Industry") from any past or present customers of
Employer or of any related company, if the customer is located within
the Territory.
(iii) Directly or indirectly request or advise any past
or present customer of Employer, or any past, present, or possible
future customer of any related companies to withdraw, curtail, cancel,
or not undertake business in the Industry with any related company, if
the customer is located within the Territory.
(iv) Directly or indirectly disclose to any other
person, entity, partnership, or corporation the names of past or
present customers of Employer, or of any related company. The parties
agree that the names of these customers are confidential and
proprietary and constitute trade secrets of Employer, and are
confidential and proprietary and constitute trade secrets of Employer
within the meaning of C.R.S. Section 8- 2-113(2)(b) and C.R.S.
Section 7-74-102(4).
(v) Suggest, solicit, or encourage any employee of
Employer or any related company to leave employment; or disparage
Employer or any related company or their conditions of employment; or
disclose to any other person, entity, partnership, or corporation the
names of employees of Employer.
(vi) Directly or indirectly establish, as manager,
employee or owner of greater than 1% of the outstanding
3
<PAGE> 4
ownership interest, or participate in an enterprise competitive with
any business which is conducted at any time during the term of this
Agreement by Employer or any related company, and which business is in
the Industry and in the Territory.
(vii) Provide any product, service, financing, aid, or
assistance of any kind for any person, entity, partnership,
association, or corporation which is competitive with any business
which is conducted at any time during the term of this Agreement by
Employer or any related company, and which business is in the Industry
and in the Territory.
(viii) Compete in any manner with any business which is
conducted at any time during the term of this Agreement by Employer or
any related company, and which business is in the Industry and in the
Territory.
(e) The rights and obligations of this Section 7 shall
survive any expiration or termination of this Agreement.
8. Termination of Employment.
(a) Notwithstanding anything herein to the contrary,
Employer may, without liability, terminate Employee's employment hereunder for
cause at any time and without notice, and thereafter Employer's obligations
hereunder shall cease and terminate. Termination of Employee's employment
hereunder shall be deemed to be for "cause" if such termination is because of
any act, or failure to act, by Employee which is (i) in bad faith and to the
detriment of Employer, (ii) a breach by Employee of any term of this Agreement,
which breach continues for a period of ten (10) days after Employee receives
written notice of such breach from the Board of Directors of Employer, (iii)
not in accordance with his obligations under this Agreement as amounts to an
intentional, extended, or gross neglect of his respective duties to Employer,
(iv) the result of such prolonged or continued use of alcohol or narcotics as
to leave Employee unable or unwilling to fulfill his respective duties, (v) an
act of fraud or embezzlement against Employer by Employee, or (vi) results in
his conviction for commission of a crime involving moral turpitude.
(b) Notwithstanding anything herein to the contrary,
Employer may terminate Employee's employment hereunder at any time without
cause, with sixty (60) days notice. Such termination shall be without
liability and thereafter Employer's obligations hereunder shall cease and
terminate, except that Employer shall continue to pay Employee's salary, less
applicable taxes and other required withholdings, for a period of twelve months
after such termination.
(c) If (i) Employee's employment is terminated without
cause, Employee's responsibilities are materially reduced without
4
<PAGE> 5
consent, or Employee's duties require a move outside the Boulder, Colorado
area, and (ii) such event occurs within one year after a sale of the business
or assets of Employer, a merger in which Employer is not the surviving
corporation, or any other transaction in which the management or shareholder
control of the Employer is changed or materially modified, Employee's salary,
less applicable taxes and other required withholdings, shall continue for the
remaining term of this Agreement.
9. Death or Permanent Disability of Employee. In the event of
the death or permanent disability of Employee (which renders him unable to
satisfactorily perform his employment with Employer) during the period of
employment under this Agreement, an amount equal to twelve months salary
payable hereunder shall be paid to Employee, Employee's surviving spouse, or if
there is no spouse surviving, then to Employee's estate. Thereafter Employer's
obligations hereunder shall cease and terminate.
10. Assignment. Employee's rights and obligations under this
Agreement shall not be transferable by assignment or otherwise, nor shall
Employee's rights hereunder be subject to any encumbrance or claim of
Employee's creditors. Nothing in this Agreement shall prevent the
consolidation of Employer with, or its merger into, any other corporation, or
the sale by Employer of all or substantially all of its properties or assets,
or the assignment by Employer of this Agreement and the performance of its
obligations hereunder to any affiliated company; and this Agreement shall,
subject to the provisions of this paragraph, inure to the benefit of, and be
enforceable by, any corporate successor to or assignee of, Employer.
11. Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto in respect of the employment of Employee
by Employer and the provisions herein shall be regarded as divisible and so far
as they are covenants not to compete shall be operative to the extent both as
to time and area covered that they may be made so applicable, and if any of
said provisions or any part thereof are declared invalid or unenforceable, the
validity and enforceability of the remainder of such provisions or parts
thereof and the applicability thereof shall not be affected thereby.
12. Governing Law and Enforcement. This Agreement and the rights
and obligations hereunder shall be governed by and construed in accordance with
the laws of the State of Colorado. This Agreement may be enforced in any court
of competent jurisdiction in Colorado and the prevailing party, if any, shall
be entitled to recover its reasonable attorneys' fees and expenses in addition
to any other damages.
13. Non-Waiver. The failure of either party at any time to
require performance by the other party of any provision of this Agreement
required to be performed by such other party, will in no
5
<PAGE> 6
way affect the right of the such party to require such performance at any time
thereafter. The waiver by either party of a breach by the other party of any
provision of this Agreement shall in no way be construed as a waiver of any
succeeding breach of such provision or a waiver of the provision itself.
14. Remedy for Breach. The parties hereto agree that, in the
event of breach or threatened breach of any of the noncompetition covenants of
this Agreement or of any of the covenants respecting Confidential Information,
or of any of the provisions concerning restrictions on the rights and interest
in the in Employer, the damage or imminent damage to the value and the goodwill
of Employer's business shall be inestimable, and that therefore any remedy at
law or in damages shall be inadequate. Accordingly, the parties hereto agree
that Employer shall be entitled to injunctive relief against Employee in the
event of any breach or threatened breach of any of such provisions by Employee,
in addition to any other relief (including damages) available to Employer under
this Agreement or under law.
15. Gender, Number, and Tense. Throughout this Agreement, as the
context may require, the masculine gender includes the feminine and neuter, and
the neuter gender includes the masculine and feminine; singular number includes
the plural and the plural number includes the singular; and the past tense
includes the present and the present tense includes the past.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
EMPLOYER: AMERICAN COIN MERCHANDISING, INC.,
d/b/a SUGARLOAF CREATIONS, INC.
By /s/ Jerome M. Lapin
----------------------------
Its President & CEO
----------------------------
EMPLOYEE: /s/ Abbe M. Stutsman
----------------------------------
ABBE M. STUTSMAN
Address:5696 College Pl.
--------------------------
Boulder CO, 80303
---------------------
6
<PAGE> 1
EXHIBIT 10.28
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of June
1, 1996, between AMERICAN COIN MERCHANDISING, INC., d/b/a SUGARLOAF CREATIONS,
INC. (hereinafter called "Employer") and W. JOHN CASH (hereinafter called
"Employee").
1. Introduction. Employer desires to retain the services and
employment of Employee, and Employee desires to secure or retain employment
from Employer, upon the terms and conditions set forth herein. Therefore, in
consideration of the mutual covenants and agreements contained herein, the
parties to this Agreement do hereby agree as follows.
2. Term. Employer hereby employs Employee to render services to
Employer as Vice President and Chief Financial Officer from the date of this
Agreement through and including December 31, 1998.
3. Services. Employee hereby accepts employment under this
Agreement and agrees to devote one hundred percent (100%) of his full time and
attention to the business and affairs of Employer, as such business and affairs
now exist and as they may be hereafter changed or added to, under and pursuant
to the general direction of the Board of Directors of Employer. Employer shall
retain full direction and control of the means and methods by which Employee
performs the services for which he is employed.
4. Compensation. On the date of this Agreement, Employee is
receiving a salary of $110,000.00 per year, payable at the intervals regularly
established for payment of salaries by Employer. Such salary may be increased
from time to time by determination of the Employer's Compensation Committee
after consultation with the Employer's Chief Executive Officer. It is
anticipated that regular increases will be provided upon the Employer meeting
projections for performance and that annual bonuses will be available for
exceeding such projections; provided, however, that Employer shall have no
obligation to pay any bonuses for the year in which Employee's employment is
terminated.
5. Benefits.
(a) During the period of employment under this Agreement,
Employee shall be entitled to receive all other benefits of employment
generally available to other employees in executive positions with Employer
when and as said Employee becomes eligible for those benefits, in accordance
with the general policy of Employer, including but not limited to, sick leave,
paid holidays, life insurance, health insurance, 401k plan, 125 cafeteria
package and participation in any employee stock option or stock purchase plans.
(b) Employee shall be entitled to four weeks vacation
during each calendar year of employment. Employee shall accrue
<PAGE> 2
days of paid vacation in accordance with Employer's policy on vacation, as that
policy is applied to other employees who hold similar positions and who have
been employed by Employer as long as Employee. Employee shall take all such
accrued vacation days at times which shall not interfere with the normal
business operations of Employer.
(c) Employer will purchase a motor vehicle as mutually
agreed for use by Employee. If Employee should leave employment of Employer
for any reason, Employee shall have the option to purchase the motor vehicle or
to return the vehicle to Employer.
(d) Employee shall be reimbursed by Employer for
reasonable travel and other business expenses incurred by Employee in the
performance of his duties under this Agreement, in accordance with the general
policy of Employer.
6. Employer's Authority. Employee agrees to observe and comply
with the rules and regulations of Employer as adopted by Employer's Board of
Directors either orally or in writing, respecting performance of Employee's
duties and to carry out and perform orders, directions, and policies stated by
Employer to Employee, from time to time, either orally or in writing; provided,
however, that Employee shall only be obligated to comply with legal and
ethical rules, regulations, orders, directions and policies of Employer.
7. Confidential Information and Noncompetition.
(a) Employee realizes that during this Agreement,
Employee will produce and/or will have access to confidential memoranda, notes,
information, records, maps, research results, business projections, business
and research notebooks, data, formulae, specifications, trade secrets, customer
lists, inventions and processes of Employer, and other information of a
confidential nature (collectively, "Confidential Information").
(b) Both during the term of this Agreement and subsequent
to its termination, Employee agrees to hold all Confidential Information in
confidence and not to disclose, and not directly or indirectly to use, copy,
digest or summarize, any Confidential Information, except to the extent
necessary to carry out Employee's responsibilities as directed or authorized by
Employer and, after termination of Employee's employment hereunder, as
specifically authorized in writing by Employer.
(c) All records in whatsoever form and in whatsoever
medium recorded, and any and all copies thereof (including volatile electronic
or magnetic signals), relating to Employer's business that Employee shall
prepare, or use, or come into contact with in the course of his executing his
duties under this Agreement, shall be and remain the sole property of Employer
and shall not be removed from Employer's premises except as necessary to carry
out Employee's responsibilities as directed and authorized by Employer; and the
same shall be returned promptly to Employer upon termination of Employee's
employment relationship with Employer or
2
<PAGE> 3
upon Employer's request.
(d) Employee agrees that he possesses or will possess
knowledge, skills and reputation in the industry in which Employer operates
which are of material importance to Employer, and which are special, unique and
extraordinary. Employee acknowledges that the loss of his services, or the use
of his services by a competitor, may cause irreparable harm to Employer.
Therefore, for a three (3) year period following termination of employment for
any reason, with or without cause, Employee, individually and personally, shall
not do any of the following:
(i) Canvass, solicit, or accept any business in the
Industry from any present or past customer of Employer or any related
company, if the customer is located in the United States (the
"Territory").
(ii) Aid or assist any other person, entity,
partnership, or corporation in any effort to canvass, solicit, or
accept any business in the amusement vending machine business or
industry (the "Industry") from any past or present customers of
Employer or of any related company, if the customer is located within
the Territory.
(iii) Directly or indirectly request or advise any past
or present customer of Employer, or any past, present, or possible
future customer of any related companies to withdraw, curtail, cancel,
or not undertake business in the Industry with any related company, if
the customer is located within the Territory.
(iv) Directly or indirectly disclose to any other
person, entity, partnership, or corporation the names of past or
present customers of Employer, or of any related company. The parties
agree that the names of these customers are confidential and
proprietary and constitute trade secrets of Employer, and are
confidential and proprietary and constitute trade secrets of Employer
within the meaning of C.R.S. Section 8- 2-113(2)(b) and C.R.S.
Section 7-74-102(4).
(v) Suggest, solicit, or encourage any employee of
Employer or any related company to leave employment; or disparage
Employer or any related company or their conditions of employment; or
disclose to any other person, entity, partnership, or corporation the
names of employees of Employer.
(vi) Directly or indirectly establish, as manager,
employee or owner of greater than 1% of the outstanding ownership
interest, or participate in an enterprise competitive with any
business which is conducted at any time during the term of this
Agreement by Employer or any related company, and which business is in
the Industry and in the Territory.
(vii) Provide any product, service, financing, aid, or
3
<PAGE> 4
assistance of any kind for any person, entity, partnership,
association, or corporation which is competitive with any business
which is conducted at any time during the term of this Agreement by
Employer or any related company, and which business is in the Industry
and in the Territory.
(viii) Compete in any manner with any business which is
conducted at any time during the term of this Agreement by Employer or
any related company, and which business is in the Industry and in the
Territory.
(e) The rights and obligations of this Section 7 shall
survive any expiration or termination of this Agreement.
8. Termination of Employment.
(a) Notwithstanding anything herein to the contrary,
Employer may, without liability, terminate Employee's employment hereunder for
cause at any time and without notice, and thereafter Employer's obligations
hereunder shall cease and terminate. Termination of Employee's employment
hereunder shall be deemed to be for "cause" if such termination is because of
any act, or failure to act, by Employee which is (i) in bad faith and to the
detriment of Employer, (ii) a breach by Employee of any term of this Agreement,
which breach continues for a period of ten (10) days after Employee receives
written notice of such breach from the Board of Directors of Employer, (iii)
not in accordance with his obligations under this Agreement as amounts to an
intentional, extended, or gross neglect of his respective duties to Employer,
(iv) the result of such prolonged or continued use of alcohol or narcotics as
to leave Employee unable or unwilling to fulfill his respective duties, (v) an
act of fraud or embezzlement against Employer by Employee, or (vi) results in
his conviction for commission of a crime involving moral turpitude.
(b) Notwithstanding anything herein to the contrary,
Employer may terminate Employee's employment hereunder at any time without
cause, with sixty (60) days notice. Such termination shall be without
liability and thereafter Employer's obligations hereunder shall cease and
terminate, except that Employer shall continue to pay Employee's salary, less
applicable taxes and other required withholdings, for a period of twelve months
after such termination.
(c) If (i) Employee's employment is terminated without
cause, Employee's responsibilities are materially reduced without consent, or
Employee's duties require a move outside the Boulder, Colorado area, and (ii)
such event occurs within one year after a sale of the business or assets of
Employer, a merger in which Employer is not the surviving corporation, or any
other transaction in which the management or shareholder control of the
Employer is changed or materially modified, Employee's salary, less applicable
taxes and other required withholdings, shall continue for the remaining term of
this Agreement.
4
<PAGE> 5
9. Death or Permanent Disability of Employee. In the event of
the death or permanent disability of Employee (which renders him unable to
satisfactorily perform his employment with Employer) during the period of
employment under this Agreement, an amount equal to twelve months salary
payable hereunder shall be paid to Employee, Employee's surviving spouse, or if
there is no spouse surviving, then to Employee's estate. Thereafter Employer's
obligations hereunder shall cease and terminate.
10. Assignment. Employee's rights and obligations under this
Agreement shall not be transferable by assignment or otherwise, nor shall
Employee's rights hereunder be subject to any encumbrance or claim of
Employee's creditors. Nothing in this Agreement shall prevent the
consolidation of Employer with, or its merger into, any other corporation, or
the sale by Employer of all or substantially all of its properties or assets,
or the assignment by Employer of this Agreement and the performance of its
obligations hereunder to any affiliated company; and this Agreement shall,
subject to the provisions of this paragraph, inure to the benefit of, and be
enforceable by, any corporate successor to or assignee of, Employer.
11. Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto in respect of the employment of Employee
by Employer and the provisions herein shall be regarded as divisible and so far
as they are covenants not to compete shall be operative to the extent both as
to time and area covered that they may be made so applicable, and if any of
said provisions or any part thereof are declared invalid or unenforceable, the
validity and enforceability of the remainder of such provisions or parts
thereof and the applicability thereof shall not be affected thereby.
12. Governing Law and Enforcement. This Agreement and the rights
and obligations hereunder shall be governed by and construed in accordance with
the laws of the State of Colorado. This Agreement may be enforced in any court
of competent jurisdiction in Colorado and the prevailing party, if any, shall
be entitled to recover its reasonable attorneys' fees and expenses in addition
to any other damages.
13. Non-Waiver. The failure of either party at any time to
require performance by the other party of any provision of this Agreement
required to be performed by such other party, will in no way affect the right
of the such party to require such performance at any time thereafter. The
waiver by either party of a breach by the other party of any provision of this
Agreement shall in no way be construed as a waiver of any succeeding breach of
such provision or a waiver of the provision itself.
5
<PAGE> 6
14. Remedy for Breach. The parties hereto agree that, in the
event of breach or threatened breach of any of the noncompetition covenants of
this Agreement or of any of the covenants respecting Confidential Information,
or of any of the provisions concerning restrictions on the rights and interest
in the in Employer, the damage or imminent damage to the value and the goodwill
of Employer's business shall be inestimable, and that therefore any remedy at
law or in damages shall be inadequate. Accordingly, the parties hereto agree
that Employer shall be entitled to injunctive relief against Employee in the
event of any breach or threatened breach of any of such provisions by Employee,
in addition to any other relief (including damages) available to Employer under
this Agreement or under law.
15. Gender, Number, and Tense. Throughout this Agreement, as the
context may require, the masculine gender includes the feminine and neuter, and
the neuter gender includes the masculine and feminine; singular number includes
the plural and the plural number includes the singular; and the past tense
includes the present and the present tense includes the past.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
EMPLOYER: AMERICAN COIN MERCHANDISING, INC.,
d/b/a SUGARLOAF CREATIONS, INC.
By /s/ Jerome M. Lapin
----------------------------
Its President & CEO
----------------------------
EMPLOYEE: /s/ W. John Cash
----------------------------------
W. JOHN CASH
Address: 7491 Mt. Sherman Rd.
-------------------------
Longmont CO, 80503
---------------------
6
<PAGE> 1
EXHIBIT 10.29
CERTAIN CONFIDENTIAL
MATERIAL CONTAINED
IN THIS DOCUMENT HAS
BEEN OMITTED AND
FILED SEPARATELY WITH
THE SECURITIES AND
EXCHANGE COMMISSION
PURSUANT TO
RULE 24b-2 OF THE
SECURITIES AND EXCHANGE
ACT OF 1934, AS AMENDED
OTHER INCOME VENDOR AGREEMENT
(MACHINE OPERATOR)
This Agreement is entered into this 28th day of June, 1996 between
WAL*MART STORES, INC. of Bentonville, Arkansas ("Wal*Mart") and American Coin
Merchandising, Inc. dba SUGARLOAF CREATIONS (699-0040) of Boulder, Colorado
("Vendor"). Wal*Mart agrees to provide space for Vendor's crane machines
("Machines") and Vendor agrees to provide service and commissions to Wal*Mart
in accordance with the following terms and conditions:
1. SERVICE. Wal*Mart acknowledges Vendor or its designated franchisee as
the owner/operator of machines. Vendor has been designated as an approved
Wal*Mart Other Income Vendor and will be allowed to operate its machines at
assigned locations under the terms of this Agreement. All store locations will
be assigned by the Other Income Department. The Vendor must not solicit new
locations by contacting the stores. All requests for new locations must be in
writing.
2. TERM. This Agreement shall expire January 1, 2000. Wal*Mart
acknowledges Vendor to be the crane operator in locations where written
authorization has been given. Wal*Mart reserves the right to discontinue
operating cranes in any or all of the assigned stores and terminate this
agreement under the guidelines in Section 11 - Termination.
3. LOCATION. Space within each assigned store shall be allotted by the
Store Manager.
4. INSURANCE. Upon execution of this Agreement, Vendor will present proof
of liability insurance in the form of a Certificate of Insurance in the
following amounts: General Liability (Bodily Injury and Property Damage) in the
amount of $1,000,000. Machines that vend a product must be covered by Product
Liability in the amount of $1,000,000. The Certificate of Insurance must show
Wal*Mart Stores, Inc. as an additional named insured. Vendor agrees to keep
this insurance in full force and effect during the term of this Agreement.
Vendor's initial insurance expiration date must be July 1. The renewal
policy must be an annual policy with a July 1 inception date.
1.
<PAGE> 2
CERTAIN CONFIDENTIAL
MATERIAL CONTAINED
IN THIS DOCUMENT HAS
BEEN OMITTED AND
FILED SEPARATELY WITH
THE SECURITIES AND
EXCHANGE COMMISSION
PURSUANT TO
RULE 24b-2 OF THE
SECURITIES AND EXCHANGE
ACT OF 1934, AS AMENDED
Vendor agrees to indemnify, defend and hold Wal*Mart harmless from any
damage to person or property arising out of the operation of Vendor's machines
while on Wal*Mart premises.
5. VENDOR AND/OR EMPLOYEES. Vendor and/or employees are not Wal*Mart
associates. They will not receive any of the benefits available to Wal*Mart
associates including the associate discount on merchandise purchased at any
Wal*Mart store.
6. TAX NUMBERS AND OPERATOR'S LICENSES. Vendor agrees to secure all sales
tax numbers and operator's licenses required by local, state and federal
authorities. Wal*Mart's tax numbers and licenses shall not be used by Vendor.
Wal*Mart is not responsible for determining which tax numbers and licenses are
required and shall not be liable for any fees, fines or penalties imposed on
Vendor for failure to obtain the necessary licenses and/or tax numbers.
7. ADOPTION OF WAL*MART POLICY. Vendor's employees will at all times,
while on Wal*Mart premises, maintain a pleasant and courteous attitude toward
customers. While on Wal*Mart property, Vendor's employees shall be subject to
Wal*Mart Rules and Regulations. This specifically includes Wal*Mart's refund
and exchange policies. No smoking, food or drink will be allowed on the sales
floor. Personal appearance must be neat and clean.
8. COMMISSION AND REPORT. The commission payable to Wal*Mart shall be the
following rates after applicable sales taxes are deducted: Crane machines -
[ * ]. Commissions are to be paid as outlined in vendor guidelines or as
directed by Wal*Mart.
9. AUDIT. All Vendor's records applicable to Wal*Mart Stores, Inc. are
subject to audit at Wal*Mart's discretion.
10. ASSIGNMENT/TRANSFER. No assignment or transfer of the rights granted
Vendor under this Agreement shall be made without the prior written consent of
Wal*Mart. New Vendors that purchase equipment from Vendor must be approved by
the Wal*Mart Other Income Department in order for the equipment to remain on
Wal*Mart property. Vendor numbers are not assignable or transferable.
2.
<PAGE> 3
CERTAIN CONFIDENTIAL
MATERIAL CONTAINED
IN THIS DOCUMENT HAS
BEEN OMITTED AND
FILED SEPARATELY WITH
THE SECURITIES AND
EXCHANGE COMMISSION
PURSUANT TO
RULE 24b-2 OF THE
SECURITIES AND EXCHANGE
ACT OF 1934, AS AMENDED
TERMINATION. This Agreement may be terminated at any time prior to
January 1, 2000 by Wal*Mart if in its sole discretion it determines to
discontinue the placement of any crane machines at Vendor's assigned location
during the term of this Agreement.
[ * ] All costs of such removal
shall be the responsibility of the Vendor. In the event Vendor fails to remove
its machines within the time period, Wal*Mart may use any reasonable means
necessary to free the space and charge Vendor with all related costs. In the
event litigation arises between Wal*Mart and Vendor due to this Agreement, it
is expressly understood that such dispute will be governed by the law of and
tried in the State of Arkansas.
[ * ]
ATTEST: WAL*MART STORES, INC.
/s/ Lela R. Eh 7/31/96 By:/s/David M. Graham 7/31/96
- --------------------------------------- ------------------------------------
Date David M. Graham Date
Director, Other Income
ATTEST:
/s/ Pamela L. McCowan 8/5/96 By:/s/ Jerome M. Lapin 8/5/96
- --------------------------------------- ------------------------------------
Date Jerome M. Lapin Date
President / C.E.O.
3.
<PAGE> 1
EXHIBIT 10.30
CREDIT AGREEMENT
THIS AGREEMENT is entered into as of September 23, 1996, by and
between AMERICAN COIN MERCHANDISING, INC., a Delaware corporation ("Borrower"),
and WELLS FARGO BANK (COLORADO), NATIONAL ASSOCIATION ("Bank").
RECITAL
Borrower has requested from Bank the credit accommodation described
below ("Credit"), and Bank has agreed to provide the Credit to Borrower on the
terms and conditions contained herein.
NOW, THEREFORE, for valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Bank and Borrower hereby agree as
follows:
ARTICLE I
THE CREDIT
SECTION 1.1 REVOLVING LINE OF CREDIT.
(a) Revolving Line of Credit. Subject to the terms and
conditions of this Agreement, and including, the conversion right set forth in
Section 1.2 hereof, Bank hereby agrees to make advances to Borrower from time
to time up to and including September 23, 1998 not to exceed at any time the
aggregate outstanding principal amount of Six Million Dollars ($6,000,000)
("Revolving Line of Credit"), the proceeds of which shall be used for working
capital, equipment purchases or capital expenditures, letters of credit and
retirement of existing Bank debt. Borrower's obligation to repay advances under
the Revolving Line of Credit shall be evidenced by a promissory note
substantially in a form satisfactory to the Bank ("Revolving Line of Credit
Note"), all terms of which are incorporated herein by this reference.
(b) Limitation on Borrowings. Outstanding borrowings
under the Revolving Line of Credit, to a maximum of the principal amount set
forth above, shall not at any time exceed the Borrowing Base with the Borrowing
Base defined as the aggregate of seventy-five percent (75%) of Borrower's
eligible accounts receivable, plus fifty percent (50%) of the value of
Borrower's eligible inventory (exclusive of work in process and inventory which
is obsolete, unsalable or damaged), with value defined as the lessor of
Borrowers cost or current market value; plus seventy-five percent (75%) of the
net book value of Eligible vending machines (with Eligible vending machines
defined as vending machines with respect to which the Bank has either a lien of
first priority or a second priority lien where the first lien has been
subordinated to the lien of the Bank) and transportation equipment. All of the
foregoing shall be determined by Bank upon receipt and review of all collateral
reports required hereunder and such other documents and collateral information
as Bank may from time to time require.
As used herein, "eligible accounts receivable" shall
consist solely of trade accounts created in the ordinary course of Borrower's
business, upon which Borrower's
<PAGE> 2
right to receive payment is absolute and not contingent upon the fulfillment of
any condition whatsoever, and in which Bank has a perfected security interest
of first priority, and shall not include:
(i) any account which is more than sixty (60)
days past due;
(ii) that portion of any account for which there
exists any right of setoff, defense or discount (except regular
discounts allowed in the ordinary course of business to promote prompt
payment) or for which any defense or counterclaim has been asserted;
(iii) any account which represents an obligation of
any state or municipal government or of the United States government
or any political subdivision thereof (except accounts which represent
obligations of the United States government and for which Bank's forms
N-138 and N-139 have been duly executed and acknowledged);
(iv) any account which represents an obligation of
an account debtor located in a foreign country, other than Canada;
(v) any account which arises from the sale or
lease to or performance of services for, or represents an obligation
of, an employee, affiliate, partner, member, parent or subsidiary of
Borrower; provided, however, receivables from franchisees shall be
"Eligible Accounts" if they meet all the other requirements of
eligible accounts set forth herein;
(vi) that portion of any account which represents
interim or progress billings or retention rights on the part of the
account debtor;
(vii) any account which represents an obligation of
any account debtor when fifty percent (50%) or more of Borrower's
accounts from such account debtor are not eligible pursuant to (i)
above;
(viii) that portion of any account from an account
debtor which represents the amount by which Borrower's total accounts
from said account debtor exceeds twenty-five percent (25%) of
Borrower's total accounts;
(ix) when Bank, in its reasonable discretion,
deems the creditworthiness or financial condition of the account
debtor, or the industry in which the account debtor is engaged, to be
unsatisfactory.
(c) Letter of Credit Subfeature. As a subfeature under
the Revolving Line of Credit, Bank agrees from time to time during the term
thereof to issue letters of credit for the account of Borrower to finance the
purchase of inventory and equipment (each, a "Letter of Credit" and
collectively, "Letters of Credit"); provided, however, that the form and
substance of each Letter of Credit shall be subject to approval by Bank, in its
sole discretion. Letters of Credit which, When issued would cause the total of
principal outstanding and the amount of outstanding Letters of Credit to exceed
the limit on availability under this Agreement, shall be subject to a separate
credit evaluation by the Bank under the credit standards and other eligibility
criteria then in effect and the Bank shall be under no obligation to issue any
such Letters of Credit. Each Letter of Credit shall be issued with an
expiration date not more than one year beyond the maturity date of the
Revolving Line of Credit.
2
<PAGE> 3
The undrawn amount of all Letters of Credit shall be reserved under the
Revolving Line of Credit and shall not be available for borrowings thereunder.
Each Letter of Credit shall be subject to the additional terms and conditions
of the Letter of Credit Agreement and related documents, if any, required by
Bank in connection with the issuance thereof (each, a "Letter of Credit
Agreement" and collectively, "Letter of Credit Agreements"). Each draft paid by
Bank under a Letter of Credit shall be deemed an advance under the Revolving
Line of Credit and shall be repaid by Borrower in accordance with the terms and
conditions of this Agreement applicable to such advances; provided however,
that if advances under the Revolving Line of Credit are not available, for any
reason, at the time any draft is paid by Bank, then Borrower shall immediately
pay to Bank the full amount of such draft, together with interest thereon from
the date such amount is paid by Bank to the date such amount is fully repaid by
Borrower, at the rate of interest applicable to advances under the Revolving
Line of Credit. In such event Borrower agrees that Bank, in its sole
discretion, may debit any demand deposit account maintained by Borrower with
Bank for the amount of any such draft.
(d) Borrowing and Repayment. Borrower may from time to
time during the term of the Revolving Line of Credit borrow, partially or
wholly repay its outstanding borrowings, and reborrow, subject to all of the
limitations, terms and conditions contained herein or in the Revolving Line of
Credit Note; provided however, that the total outstanding borrowings under the
Revolving Line of Credit shall not at any time exceed the maximum principal
amount available thereunder, as set forth above.
(e) Cash Collateral Account. Borrower shall maintain
with Bank, and Borrower hereby grants to Bank a security interest in, a
non-interest bearing deposit account over which Borrower shall have no control
("Cash Collateral Account") and into which the proceeds of all Borrower's
accounts and other rights to payment in which Bank has a security interest
shall be deposited immediately upon their receipt by Borrower. Bank shall, and
Borrower hereby authorizes Bank to, apply all such proceeds immediately upon
their receipt by Bank as a principal reduction on the Revolving Line of Credit.
SECTION 1.2 CONVERSION OR EXTENSION. By written notice to
Borrower made not less than thirty days before September 23, 1997, Bank may at
it sole option: 1) convert the Revolving Line of Credit to a term loan as of
September 23, 1997 ("Conversion Date"); 2) extend the maturity date for the
Revolving Line of Credit to September 23, 1999; or 3) invite Borrower to
negotiate revised terms for the Revolving Line of Credit. If Bank does none of
the above, the Revolving Line of Credit shall remain in place on terms set
forth herein with a September 23, 1998 maturity date.
(a) Term Loan. If Bank elects to convert the Revolving
Line of Credit to a Term Loan:
(1) Amount. The new Term Loan shall be in an
amount equal to principal outstanding on September 23, 1997.
(2) Repayment. Payments of principal and
interest due under the Term Loan shall be made on the last day of each calendar
quarter in installments sufficient to fully amortize the principal outstanding
on the Conversion Date over 36 months commencing October 31, 1997, and
continuing up to and including September 23, 2000, with a final installment
consisting of all remaining unpaid principal and interest on September 23,
2000.
3
<PAGE> 4
(3) Prepayment. Borrower may prepay principal on
the Term Loan at any time, in any amount and without penalty. All prepayments
of principal shall be applied on the most remote principal installment or
installments then unpaid.
(b) Extension of Maturity. If Bank elects to extend the
maturity of the Revolving Line of Credit, the terms of this Credit Agreement
shall remain unchanged except that the Maturity Date shall be September 23,
1999.
(c) Renegotiation. If the Bank invites Borrower to
negotiate a revised credit agreement, the terms of this Agreement shall remain
in place until other terms are agreed upon in writing and signed by the Bank
and Borrower and neither the Bank nor Borrower shall be required to agree to
any changes in the terms hereof. In Borrower's sole discretion, Borrower may
decline the Bank's invitation to negotiate without penalty of any sort.
SECTION 1.3 INTEREST/FEES.
(a) Interest. The outstanding principal balance
of the Revolving Line of Credit shall bear interest at the rate of equal to the
Prime Rate in effect from time to time.
(b) Prime Rate. The term "Prime Rate" shall mean at any
time the rate of interest most recently announced within Bank at its principal
office in Denver, Colorado as its Prime Rate, with the understanding that the
Prime Rate is one of Bank's base rates and serves as the basis upon which
effective rates of interest are calculated for those loans making reference
thereto, and is evidenced by the recording thereof after its announcement in
such internal publication or publications as Bank may designate. Each change
in the rate of interest shall become effective on the date each Prime Rate
change is announced within Bank. The Prime Rate is not necessarily the best
rate offered by the Bank and Bank may make loans at rates greater than or less
than the Prime Rate.
(c) Computation and Payment. Interest shall be computed
on the basis of a 360-day year, actual days elapsed. Interest shall be payable
at the times and place set forth in the Revolving Line of Credit Note (the
"Note").
(d) Letter of Credit Fees. Borrower shall pay to Bank
fees upon the issuance of each Letter of Credit, upon the payment or
negotiation by Bank of each draft under any Letter of Credit and upon the
occurrence of any other activity with respect to any Letter of Credit
(including without limitation, the transfer, amendment or cancellation of any
Letter of Credit) determined in accordance with Bank's standard fees and
charges then in effect for such activity.
SECTION 1.4 COLLECTION OF PAYMENTS. Borrower authorizes Bank to
collect all principal, interest and fees due under this Agreement by charging
Borrower's demand deposit account number ___________ with Bank, or any other
demand deposit account maintained by Borrower with Bank, for the full amount
thereof. Should there be insufficient funds in any such demand deposit account
to pay all such sums when due, the full amount of such deficiency shall be
immediately due and payable by Borrower.
SECTION 1.5 COLLATERAL. As security for all indebtedness of
Borrower to Bank. Borrower hereby grants to Bank security interests of first
priority in all Borrower's accounts, contract rights, bank accounts, general
intangibles, including trademarks, copyrights, and franchise rights and
agreements, inventory, and equipment, including vehicles ("Collateral").
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All of the foregoing shall be evidenced by and
subject to the terms of such security agreements, financing statements, deeds
of trust, notation of liens on vehicle titles and other documents as Bank shall
reasonably require, all in form and substance satisfactory to Bank. Borrower
shall cooperate with Bank to perfect all such liens, including those on titled
motor vehicles and shall reimburse Bank immediately upon demand for all costs
and expenses incurred by Bank in connection with any of the foregoing security,
including without limitation, filing and recording fees and costs of
appraisals, audits and title insurance.
SECTION 1.6 SUBORDINATION OF DEBT. All obligations of Borrower
identified on Exhibit B hereto shall be subordinated in right of repayment to
all obligations of Borrower to Bank, as evidenced by and subject to the terms
of subordination agreements in form and substance satisfactory to Bank.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Borrower makes the following representations and warranties to Bank,
which representations and warranties shall survive the execution of this
Agreement and shall continue in full force and effect until the full and final
payment, and satisfaction and discharge, of all obligations of Borrower to Bank
subject to this Agreement.
SECTION 2.1 LEGAL STATUS. Borrower is a corporation, duly
organized and existing and in good standing under the laws of the State of
Delaware, and is qualified or licensed to do business (and is in good standing
as a foreign corporation, if applicable) in all jurisdictions in which such
qualification or licensing is required or in which the failure to so qualify or
to be so licensed could have a material adverse effect on Borrower.
SECTION 2.2 AUTHORIZATION AND VALIDITY. This Agreement, the
Notes, and each other document, contract and instrument required hereby or at
any time hereafter delivered to Bank in connection herewith (collectively, the
"Loan Documents") have been duly authorized, and upon their execution and
delivery in accordance with the provisions hereof will constitute legal, valid
and binding agreements and obligations of Borrower or the party which executes
the same, enforceable in accordance with their respective terms.
SECTION 2.3 NO VIOLATION. The execution, delivery and
performance by Borrower of each of the Loan Documents do not violate any
provision of any law or regulation, or contravene any provision of the Articles
of Incorporation or By-Laws of Borrower, or result in any breach of or default
under any contract, obligation, indenture or other instrument to which Borrower
is a party or by which Borrower may be bound.
SECTION 2.4 LITIGATION. There are no pending, or to the best of
Borrower's knowledge threatened, actions, claims, investigations, suits or
proceedings by or before any governmental authority, arbitrator, court or
administrative agency which could have a material adverse effect on the
financial condition or operation of Borrower other than those disclosed by
Borrower to Bank in writing prior to the date hereof.
SECTION 2.5 CORRECTNESS OF FINANCIAL STATEMENT. The financial
statement of Borrower dated June 30, 1996, a true copy of which has been
delivered by
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Borrower to Bank prior to the date hereof, (a) is complete and correct and
presents fairly the financial condition of Borrower, (b) discloses all
liabilities of Borrower that are required to be reflected or reserved against
under generally accepted accounting principles, whether liquidated or
unliquidated, fixed or contingent, and (c) has been prepared in accordance with
generally accepted accounting principles consistently applied. Since the date
of such financial statement there has been no material adverse change in the
financial condition of Borrower, nor has Borrower mortgaged, pledged, granted a
security interest in or otherwise encumbered any of its assets or properties
except in favor of Bank or as otherwise permitted by Bank in writing.
SECTION 2.6 INCOME TAX RETURNS. Borrower has no knowledge of any
pending assessments or adjustments of its income tax payable with respect to
any year.
SECTION 2.7 NO SUBORDINATION. There is no agreement, indenture,
contract or instrument to which Borrower is a party or by which Borrower may be
bound that requires the subordination in right of payment of any of Borrower's
obligations subject to this Agreement to any other obligation of Borrower.
SECTION 2.8 PERMITS, FRANCHISES. Borrower possesses, and will
hereafter possess, all permits, franchises and licenses required and rights to
all trademarks, trade names, patents, and fictitious names, if any, necessary
to enable it to conduct the business in which it is now engaged in compliance
with applicable law.
SECTION 2.9 ERISA. Borrower is in compliance in all material
respects with all applicable provisions of the Employee Retirement Income
Security Act of 1974, as amended or recodified from time to time ("ERISA");
Borrower has not violated any provision of any defined employee pension benefit
plan (as defined in ERISA) maintained or contributed to by Borrower (each, a
"Plan"); no Reportable Event as defined in ERISA has occurred and is continuing
with respect to any Plan initiated by Borrower; Borrower has met its minimum
funding requirements under ERISA with respect to each Plan; and each Plan will
be able to fulfill its benefit obligations as they come due in accordance with
the Plan documents and under generally accepted accounting principles.
SECTION 2.10 OTHER OBLIGATIONS. Borrower is not in default on any
obligation for borrowed money, any purchase money obligation or any other
material lease, commitment, contract, instrument or obligation.
SECTION 2.11 ENVIRONMENTAL MATTERS. Except as disclosed by
Borrower to Bank in writing prior to the date hereof, Borrower is in compliance
in all material respects with all applicable Federal or state environmental,
hazardous waste, health and safety statutes, and any rules or regulations
adopted pursuant thereto, which govern or affect any of Borrower's operations
and/or properties, including without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the Superfund
Amendments and Reauthorization Act of 1986, the Federal Resource Conservation
and Recovery Act of 1976, and the Federal Toxic Substances Control Act as any
of the same may be amended, modified or supplemented from time to time. None
of the operations of Borrower is the subject of any Federal or state
investigation evaluating whether any remedial action involving a material
expenditure is needed to respond to a release of any toxic or hazardous waste
or substance into the environment. Borrower has no material contingent
liability in connection with any release of any toxic or hazardous waste or
substance into the environment.
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ARTICLE III
CONDITIONS
SECTION 3.1 CONDITIONS OF INITIAL EXTENSION OF CREDIT. The
obligation of Bank to grant any of the Credit is subject to the fulfillment to
Bank's satisfaction of all of the following conditions:
(a) Approval of Bank Counsel. All legal matters
incidental to the granting of each of the Credit shall be satisfactory to
Bank's counsel in such counsel's sole discretion.
(b) Documentation. Bank shall have received, in form and
substance satisfactory to Bank, each of the following, duly executed:
(i) This Agreement and the Note.
(ii) Security Agreement.
(iii) Borrowing Resolution of Borrower.
(iv) UCC Search.
(v) Release of existing liens as required by
Bank.
(vi) Evidence of Insurance.
(vii) Projected cash flow through December, 1997.
(viii) UCC-1 forms as the Bank shall require.
Such other documents as Bank may require under any other Section of
Agreement.
(c) Financial Condition. There shall have been no
material adverse change, as determined by Bank, in the financial condition or
business of Borrower, nor any material decline, as determined by Bank, in the
market value of any collateral required hereunder or a substantial or material
portion of the assets of Borrower.
(d) Insurance. Borrower shall have delivered to Bank
evidence of insurance coverage on all Borrower's property, in form, substance,
amounts, covering risks and issued by companies satisfactory to Bank, and where
required by Bank, with loss payable endorsements in favor of Bank.
SECTION 3.2 CONDITIONS OF EACH EXTENSION OF CREDIT. The
obligation of Bank to make each extension of credit requested by Borrower
hereunder shall be subject to the fulfillment to Bank's satisfaction of each of
the following conditions:
(a) Compliance. The representations and warranties
contained herein and in each of the other Loan Documents shall be true on and
as of the date of the signing of this
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Agreement and on the date of each extension of credit by Bank pursuant hereto,
with the same effect as though such representations and warranties had been
made on and as of each such date, and on each such date, no Event of Default as
defined herein, and no condition, event or act which with the giving of notice
or the passage of time or both would constitute such an Event of Default, shall
have occurred and be continuing or shall exist.
(b) Documentation. Bank shall have received all
additional documents which may be required in connection with such extension of
credit.
ARTICLE IV
AFFIRMATIVE COVENANTS
Borrower covenants that so long as Bank remains committed to extend
credit to Borrower pursuant hereto, or any liabilities (whether direct or
contingent, liquidated or unliquidated) of Borrower to Bank under any of the
Loan Documents remain outstanding, and until payment in full of all obligations
of Borrower subject hereto, Borrower shall, unless Bank otherwise consents in
writing:
SECTION 4.1 PUNCTUAL PAYMENTS. Punctually pay all principal,
interest, fees or other liabilities due under any of the Loan Documents at the
times and place and in the manner specified therein, and immediately upon
demand by Bank, the amount by which the outstanding principal balance of any of
the Credit at any time exceeds any limitation on borrowings applicable thereto.
SECTION 4.2 ACCOUNTING RECORDS. Maintain adequate books and
records in accordance with generally accepted accounting principles
consistently applied, and permit any representative of Bank, at any reasonable
time, to inspect, audit and examine such books and records, to make copies of
the same, and to inspect the properties of Borrower.
SECTION 4.3 FINANCIAL STATEMENTS. Provide to Bank all of the
following, in form and detail satisfactory to Bank:
(a) not later than 120 days after and as of the end of
each fiscal year, an unqualified financial statement of Borrower, prepared by
certified pubic accountants reasonably satisfactory to the Bank.
(b) not later than 45 days after and as of the end of
each month, a financial statement of Borrower, prepared in accordance with GAAP
by Borrower, to include accounts receivable agings, income and profit and loss
statements;
(c) not later than 45 days after and as of the end of
each month, a borrowing base certificate in the form attached hereto as Exhibit
A, an inventory collateral report, an aged listing of accounts receivable, a
reconciliation of accounts, Borrower's internally prepared ratios described in
paragraph 4.9 hereof and immediately upon each request from Bank, a list of the
names and addresses of all Borrower's account debtors;
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(d) not later than 30 days prior to the end of each year,
projection, prepared by Borrower for the upcoming year(s) to and including the
Maturity Date as it may be extended to include projected income statements,
balance sheets and cash flows;
(e) contemporaneously with each annual and monthly
financial statement and/or projections of Borrower required hereby, a
certificate of the president or chief financial officer of Borrower that said
financial statements are accurate and that to the best of Borrower's knowledge
after appropriate good faith investigation there exists no Event of Default nor
any condition, act or event which with the giving of notice or the passage of
time or both would constitute an Event of Default;
(f) from time to time such other information as Bank may
reasonably request.
SECTION 4.4 COMPLIANCE. Preserve and maintain all licenses,
permits, governmental approvals, rights, privileges and franchises necessary
for the conduct of its business; and comply with the provisions of all
documents pursuant to which Borrower is organized and/or which govern
Borrower's continued existence and with the requirements of all laws, rules,
regulations and orders of any governmental authority applicable to Borrower
and/or its business.
SECTION 4.5 INSURANCE. Maintain and keep in force insurance of
the types and in amounts customarily carried in lines of business similar to
that of Borrower, including but not limited to fire, extended coverage, public
liability, flood, property damage and workers' compensation, with all such
insurance carried with companies and in amounts satisfactory to Bank, and
deliver to Bank from time to time at Bank's request schedules setting forth all
insurance then in effect.
SECTION 4.6 FACILITIES. Keep all properties useful or necessary
to Borrower's business in good repair and condition, and from time to time make
necessary repairs, renewals and replacements thereto so that such properties
shall be fully and efficiently preserved and maintained.
SECTION 4.7 TAXES AND OTHER LIABILITIES. Pay and discharge when
due any and all indebtedness, obligations, assessments and taxes, both real or
personal, including without limitation Federal and state income taxes and state
and local property taxes and assessments, except such (a) as Borrower may in
good faith contest or as to which a bona fide dispute may arise, and (b) for
which Borrower has made provision, to Bank's satisfaction, for eventual payment
thereof in the event Borrower is obligated to make such payment.
SECTION 4.8 LITIGATION. Promptly give notice in writing to Bank
of any litigation pending or threatened against Borrower with a claim in excess
of $100,000.
SECTION 4.9 FINANCIAL CONDITION. Maintain Borrower's financial
condition as follows using generally accepted accounting principles
consistently applied and used consistently with prior practices (except to the
extent modified by the definitions herein):
(a) Current Ratio not at any quarter end less than 1.0 to
1.0, with "Current Ratio" defined as total current assets divided by total
current liabilities.
(b) Total Liabilities divided by Tangible Net Worth not
greater than 1.0 to 1.0, as of each quarter end, with "Total Liabilities"
defined as the aggregate of current liabilities
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and non-current liabilities, and with "Tangible Net Worth" defined as the
aggregate of total stockholders' equity less costs in excess of assets
acquired.
(c) Debt Service Coverage Ratio defined as EBITDA divided
by Debt Service not less than 1.75 to 1.0 as of each quarter end with "EBITDA"
defined as the prior four quarters net profit before tax plus interest expense,
depreciation and amortization expense and with "Debt Service" defined as prior
four quarter interest expense plus $2,000,000 as determined at the end of each
quarter.
SECTION 4.10 NOTICE TO BANK. Promptly (but in no event more than
five (5) days after the occurrence of each such event or matter) give written
notice to Bank in reasonable detail of: (a) the occurrence of any Event of
Default, or any condition, event or act which with the giving of notice or the
passage of time or both would constitute an Event of Default; (b) any change in
the name of Borrower; (c) the occurrence and nature of any Reportable Event or
Prohibited Transaction, each as defined in ERISA, or any funding deficiency
with respect to any Plan; or (d) any termination or cancellation of any
insurance policy which Borrower is required to maintain, or any uninsured or
partially uninsured loss through liability or property damage, or through fire,
theft or any other cause affecting Borrower's property in excess of an
aggregate of $100,000.
SECTION 4.11 PERFECTION OF COLLATERAL. Cooperate fully and
promptly with the Bank in taking all steps necessary to perfect the Bank's
first priority lien position in the Collateral, including execution of
appropriate UCC-1 forms and assisting in having the Bank's lien noted on the
title to vehicles owned by Borrower.
ARTICLE V
NEGATIVE COVENANTS
Borrower further covenants that so long as Bank remains committed to
extend credit to Borrower pursuant hereto, or any liabilities (whether direct
or contingent, liquidated or unliquidated) of Borrower to Bank under any of the
Loan Documents remain outstanding, and until payment in full of all obligations
of Borrower subject hereto, Borrower will not without Bank's prior written
consent:
SECTION 5.1 USE OF FUNDS. Use any of the proceeds of any of the
Credit except for the purposes stated in Article I hereof.
SECTION 5.2 OTHER INDEBTEDNESS. Except as permitted under
Section 5.6 below, create, incur, assume or permit to exist any indebtedness or
liabilities resulting from borrowings, loans or advances, whether secured or
unsecured, matured or unmatured, liquidated or unliquidated, joint or several,
except (a) the liabilities of Borrower to Bank, and (b) any other liabilities
of Borrower existing as of, and disclosed to Bank prior to, the date hereof
without the prior written consent of the Bank, which may be conditioned on
subordination of the indebtedness to which consent is given to the Borrower's
indebtedness to Bank, or become liable on any capital leases. Make any loans
or advances to or investments in any person or entity, except any of the
foregoing existing as of, and disclosed to Bank prior to, the date hereof not
to exceed an aggregate of $50,000 in any fiscal year.
SECTION 5.3 MERGER, CONSOLIDATION, TRANSFER OF ASSETS. Merge into
or consolidate with any other entity; make any substantial change in the nature
of Borrower's
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business as conducted as of the date hereof; nor sell, lease, transfer or
otherwise dispose of all or a substantial or material portion of Borrower's
assets except in the ordinary course of its business.
SECTION 5.4 GUARANTIES. Guarantee or become liable in any way as
surety, endorser (other than as endorser of negotiable instruments for deposit
or collection in the ordinary course of business), accommodation endorser or
otherwise for, nor pledge or hypothecate any assets of Borrower as security
for, any liabilities or obligations of any other person or entity, except any
of the foregoing in favor of Bank.
SECTION 5.5 DIVIDENDS, DISTRIBUTIONS. Declare or pay any
dividend or distribution either in cash, stock or any other property on
Borrower's stock now or hereafter outstanding, nor redeem, retire, repurchase
or otherwise acquire any shares of any class of Borrower's stock now or
hereafter outstanding.
SECTION 5.6 PLEDGE OF ASSETS. Mortgage, pledge, grant or permit
to exist a security interest in, or lien upon, all or any portion of Borrower's
assets now owned or hereafter acquired, except any of the foregoing in favor of
Bank or which is existing as of, and disclosed to Bank in writing prior to, the
date hereof and liens on vending machines purchased from franchises or
affiliates in bona fide arms-length transactions, if the debts associated with
such liens are subordinate to Borrower's debt of the Bank pursuant to a
subordination agreement satisfactory to the Bank and the value of such vending
machines are not included in the Borrowing Base hereunder.
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.1 The occurrence of any of the following shall
constitute an "Event of Default" under this Agreement:
(a) Borrower shall fail to pay when due any principal,
interest, fees or other amounts payable under any of the Loan Documents.
(b) Any financial statement or certificate furnished to
Bank in connection with, or any representation or warranty made by Borrower or
any other party under this Agreement or any other Loan Document shall prove to
be incorrect, false or misleading in any material respect when furnished or
made.
(c) Any default in the performance of or compliance with
any obligation, agreement or other provision contained herein or in any other
Loan Document (other than those referred to in subsections (a) and (b) above),
and with respect to any such default which by its nature can be cured, such
default shall continue for a period of twenty (20) days from the time Borrower
discovered or with appropriate good faith investigation Borrower should
reasonably have discovered such default.
(d) Any default in the payment or performance of any
obligation, or any defined event of default, under the terms of any contract or
instrument (other than any of the Loan Documents) pursuant to which Borrower
has incurred any debt or other liability to any person or entity, including
Bank.
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(e) The filing of a notice of judgment lien in a material
amount in Bank's sole opinion against Borrower; or the recording of any
abstract of judgment against Borrower in any county in which Borrower has an
interest in real property; or the service of a notice of levy and/or of a writ
of attachment or execution, or other like process, against the assets of
Borrower; or the entry of a judgment against Borrower.
(f) Borrower shall become insolvent, or shall suffer or
consent to or apply for the appointment of a receiver, trustee, custodian or
liquidator of itself or any of its property, or shall generally fail to pay its
debts as they become due, or shall make a general assignment for the benefit of
creditors; Borrower shall file a voluntary petition in bankruptcy, or seeking
reorganization, in order to effect a plan or other arrangement with creditors
or any other relief under the Bankruptcy Reform Act, Title 11 of the United
States Code, as amended or recodified from time to time ("Bankruptcy Code"), or
under any state or Federal law granting relief to debtors, whether now or
hereafter in effect; or any involuntary petition or proceeding pursuant to the
Bankruptcy Code or any other applicable state or Federal law relating to
bankruptcy, reorganization or other relief for debtors is filed or commenced
against Borrower, or Borrower shall file an answer admitting the jurisdiction
of the court and the material allegations of any involuntary petition; or
Borrower shall be adjudicated a bankrupt, or an order for relief shall be
entered against Borrower by any court of competent jurisdiction under the
Bankruptcy Code or any other applicable state or Federal law relating to
bankruptcy, reorganization or other relief for debtors.
(g) There shall exist or occur any event or condition
which Bank in good faith believes impairs, or is substantially likely to
impair, the prospect of payment or performance by Borrower of its obligations
under any of the Loan Documents.
SECTION 6.2 REMEDIES. Upon the occurrence of any Event of
Default: (a) all indebtedness of Borrower under each of the Loan Documents,
any term thereof to the contrary notwithstanding, shall at Bank's option and
without notice become immediately due and payable without presentment, demand,
protest or notice of dishonor, all of which are hereby expressly waived by
Borrower; (b) Bank shall have the right to immediately cease or terminate the
obligation, if any, of Bank to extend any further credit under any of the Loan
Documents shall immediately cease and terminate; and (c) Bank shall have all
rights, powers and remedies available under each of the Loan Documents, or
accorded by law, including without limitation the right to resort to any or all
security for any of the Credit and to exercise any or all of the rights of a
beneficiary or secured party pursuant to applicable law. All rights, powers
and remedies of Bank may be exercised at any time by Bank and from time to time
after the occurrence of an Event of Default, are cumulative and not exclusive,
and shall be in addition to any other rights, powers or remedies provided by
law or equity.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1 NO WAIVER. No delay, failure or discontinuance of
Bank in exercising any right, power or remedy under any of the Loan Documents
shall affect or operate as a waiver of such right, power or remedy; nor shall
any single or partial exercise of any such right, power or remedy preclude,
waive or otherwise affect any other or further exercise thereof or the exercise
of any other right, power or remedy. Any waiver, permit, consent or approval
of any kind by Bank of any
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breach of or default under any of the Loan Documents must be in writing and
shall be effective only to the extent set forth in such writing.
SECTION 7.2 NOTICES. All notices, requests and demands which any
party is required or may desire to give to any other party under any provision
of this Agreement must be in writing delivered to each party at the following
address:
BORROWER: American Coin Merchandising, Inc.
4870 Sterling Drive
Boulder, Colorado 80301
Attn: W. John Cash
BANK: WELLS FARGO BANK (COLORADO),
NATIONAL ASSOCIATION
633 Seventeenth Street
Denver, Colorado 80202
Attn: Blake Peterson
or to such other address as any party may designate by written notice to all
other parties. Each such notice, request and demand shall be deemed given or
made as follows: (a) if sent by hand delivery, upon delivery; (b) if sent by
mail, upon the earlier of the date of receipt or three (3) days after deposit
in the U.S. mail, first class and postage prepaid; and (c) if sent by telecopy,
upon receipt.
SECTION 7.3 COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall
pay to Bank immediately upon demand the full amount of all payments, advances,
charges, costs and expenses, including reasonable attorneys' fees (to include
outside counsel fees and all allocated costs of Bank's in-house counsel),
incurred by Bank in connection with (a) the negotiation and preparation of this
Agreement and the other Loan Documents, Bank's continued administration hereof
and thereof, and the preparation of any amendments and waivers hereto and
thereto, (b) the enforcement of Bank's rights and/or the collection of any
amounts which become due to Bank under any of the Loan Documents, and (c) the
prosecution or defense of any action in any way related to any of the Loan
Documents, including without limitation, any action for declaratory relief, and
including any of the foregoing incurred in connection with any bankruptcy
proceeding relating to Borrower so long as the Bank prevails in any of its
claims or defenses.
SECTION 7.4 SUCCESSORS, ASSIGNMENT. This Agreement shall be
binding upon and inure to the benefit of the heirs, executors, administrators,
legal representatives, successors and assigns of the parties; provided however,
that Borrower may not assign or transfer its interest hereunder without Bank's
prior written consent. Bank reserves the right to sell, assign, transfer,
negotiate or grant participations in all or any part of, or any interest in,
Bank's rights and benefits under each of the Loan Documents. In connection
therewith, Bank may disclose all documents and information which Bank now has
or may hereafter acquire relating to any of the Credit, Borrower or its
business, or any collateral required hereunder.
SECTION 7.5 ENTIRE AGREEMENT; AMENDMENT. This Agreement and the
other Loan Documents constitute the entire agreement between Borrower and Bank
with respect to the Credit and supersede all prior negotiations,
communications, discussions and correspondence concerning the subject matter
hereof. This Agreement may be amended or modified only by a written instrument
executed by each party hereto.
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SECTION 7.6 NO THIRD PARTY BENEFICIARIES. This Agreement is made
and entered into for the sole protection and benefit of the parties hereto and
their respective permitted successors and assigns, and no other person or
entity shall be a third party beneficiary of, or have any direct or indirect
cause of action or claim in connection with, this Agreement or any other of the
Loan Documents to which it is not a party.
SECTION 7.7 TIME. Time is of the essence of each and every
provision of this Agreement and each other of the Loan Documents.
SECTION 7.8 SEVERABILITY OF PROVISIONS. If any provision of this
Agreement shall be prohibited by or invalid under applicable law, such
provision shall be ineffective only to the extent of such prohibition or
invalidity without invalidating the remainder of such provision or any
remaining provisions of this Agreement.
SECTION 7.9 GOVERNING LAW. Except as specifically provided for
in Section 7.11 below, this Agreement shall be governed by and construed in
accordance with the laws of the State of Colorado, except to the extent Bank
has greater rights or remedies under Federal law, whether as a national bank or
otherwise, in which case such choice of Colorado law shall not be deemed to
deprive Bank of any such rights and remedies as may be available under Federal
law.
SECTION 7.10 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which when executed and delivered shall be
deemed to be an original, and all of which when taken together shall constitute
one and the same Agreement.
SECTION 7.11 ARBITRATION PROGRAM.
(a) Binding Arbitration. Upon the demand of any party
bound to the terms of this Arbitration Program (collectively the "parties"),
whether made before the institution of any judicial proceeding or not more than
60 days after service of a complaint, third party complaint, cross-claim or
counterclaim or any answer thereto or any amendment to any of the above, any
Dispute (as defined below) shall be resolved by binding arbitration in
accordance with the terms of this arbitration clause. A "Dispute" shall
include any action, dispute, claim, or controversy of any kind, whether founded
in contract, tort, statutory or common law, equity, or otherwise, now existing
or hereafter occurring between the parties arising out of, pertaining to or in
connection with this Agreement or any related agreements, documents, or
instruments (the "Documents"). The parties understand that by this Agreement
they have decided that the Disputes may be submitted to arbitration rather than
being decided through litigation in court and that once decided by an
arbitrator the claims involved cannot later be brought, filed, or pursued in
court.
(b) Governing Rules. Arbitrations conducted pursuant to
this Agreement, including selection of arbitrators, shall be administered by
the American Arbitration Association ("Administrator") pursuant to the
Commercial Arbitration Rules of the Administrator. Arbitrations conducted
pursuant to the terms hereof shall be governed by the laws of the State of
Colorado, including the provisions of CRS 13-22-201 et seq, and CRS 13-21-102
(5). Judgment upon any award rendered hereunder may be entered in any court
having jurisdiction; provided, however, that nothing contained herein shall be
deemed to be a waiver by any party that is a bank of the protections afforded
to it under 12 U.S.C. Section 91 or similar governing state law. Any party
who fails to submit to binding arbitration following a lawful demand by the
opposing party shall bear all costs and expenses, including reasonable
attorney's fees, incurred by the opposing party in compelling arbitration of
any Dispute.
14
<PAGE> 15
(c) No Waiver, Preservation of Remedies, Multiple
Parties. No provision of this arbitration clause, nor the exercise of any
rights hereunder, shall limit the right of any party to (1) foreclose against
any real or personal property collateral or other security, (2) exercise
self-help remedies (including repossession and setoff rights), (3) interplead
the instructing parties and deposit the property described in the Agreement in
court, or (4) obtain provisional or ancillary remedies such as injunctive
relief, sequestration, attachment, replevin, garnishment, or the appointment of
a receiver from a court having jurisdiction. Such rights can be exercised at
any time except to the extent such action is contrary to a final award or
decision in any arbitration proceeding. The institution and maintenance of an
action as described above shall not constitute a waiver of the right of any
party, including the plaintiff, to submit the Dispute to arbitration, nor
render inapplicable the compulsory arbitration provisions hereof. Any claim or
Dispute related to exercise of any self-help, auxiliary or other exercise of
rights under this section (c) shall be a Dispute hereunder.
(d) Arbitrator Powers and Qualifications; Awards.
Arbitrators shall resolve all Disputes in accordance with the applicable
substantive law. Arbitrator may make an award of attorneys' fees and expenses
if permitted by law or the agreement of the parties. All statutes of
limitation applicable to any Dispute shall apply to any proceeding in
accordance with this arbitration clause. Any arbitrator selected to act as the
only arbitrator in a Dispute shall be required to be a practicing attorney with
not less than 10 years practice in commercial law in the State of Colorado.
With respect to a Dispute in which the claims or amounts in controversy do not
exceed five hundred thousand dollars ($500,000), a single arbitrator shall be
chosen and shall resolve the Dispute. In such case the arbitrator shall have
authority to render an award up to but not to exceed five hundred thousand
dollars ($500,000) including all damages of any kind whatsoever, costs, fees
and expenses. Submission to a single arbitrator shall be a waiver of all
parties' claims to recover more than five hundred thousand dollars ($500,000).
A Dispute involving claims or amounts in controversy exceeding five hundred
thousand dollars ($500,000) shall be decided by a majority vote of a panel of
three arbitrators ("Arbitration Panel"). An Arbitration Panel shall be
composed of one arbitrator who would be qualified to sit as a single arbitrator
in a Dispute decided by one arbitrator, one who has at least ten years
experience in banking matters and one who has at least ten years experience in
the manufacturing and franchising industries. Arbitrator(s) may, in the
exercise of their discretion to, at the written request of a party in any
Dispute, 1) consolidate in a single proceeding any multiple party claims that
are substantially identical and all claims arising out of a single loan or
series of loans including claims by or against borrower(s), guarantors,
sureties and or owners of collateral if different from the borrower, and 2)
administer multiple arbitration claims as class actions in accordance with Rule
23 of the Federal Rules of Civil Procedure. The arbitrator(s) shall be
empowered to resolve any dispute regarding the terms of this Agreement or the
arbitrability of any dispute or any claim that all or any part (including this
provision) is void or voidable but shall have no power to change or alter the
terms of this Agreement. The award of the arbitrator(s) shall be in writing
and shall specify the factual and legal basis for the award.
(e) Miscellaneous. To the maximum extent practicable,
the Administrator, the Arbitrator(s) and the parties shall take any action
necessary to require that an arbitration proceeding hereunder be concluded
within 180 days of the filing of the Dispute with the Administrator. The
Arbitrator(s) shall be empowered to impose sanctions for any party's failure to
proceed within the times established herein. Arbitration proceedings hereunder
shall be conducted in Denver, Colorado metropolitan area, at a location
determined by the Administrator. In any such proceeding the doctrines of res
judicata and collateral estoppel shall apply and a party shall state as a
counterclaim any claim which arises out of the transaction or occurrence or is
in any way related to the Documents or the Dispute which does not require the
presence of a third party which could not be joined as a party in the
proceeding. The provisions of this arbitration clause shall survive any
termination,
15
<PAGE> 16
amendment, or expiration of the Documents and repayment in full of sums owed to
Bank by Borrower unless the parties otherwise expressly agree in writing. Each
party agrees to keep all Disputes and arbitration proceedings strictly
confidential, except for disclosures of information required in the ordinary
course of business of the parties or as required by applicable law or
regulation.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the day and year first written above.
BORROWER:
AMERICAN COIN MERCHANDISING, INC.,
a Delaware corporation
By: /s/ Jerome M. Lapin
--------------------------
Title: President & CEO
-----------------
BANK:
WELLS FARGO BANK (COLORADO), NATIONAL
ASSOCIATION
By: /s/ Blake Peterson
--------------------------
Title: Vice President
------------------
16
<PAGE> 17
EXHIBIT A
---------
(Form of Borrowing Base Certificate)
17
<PAGE> 18
American Coin Merchandising, Inc.
Borrowing Base & Financial Covenant Compliance Certificate
<TABLE>
<S> <C>
BORROWING BASE CERTIFICATE: - July 31, 1996
Accounts, Inventory, and Equipment
(Provided Monthly)
1 Accounts Receivable $ 771,078.54
2 Less Ineligible Accounts $ 99,167.62
-------------------
3 Total Eligible Accounts $ 671,910.92
4 Applicable Margin 75%
-------------------
5 Accounts Receivable Total $ 503,933.19
6 Inventory Balance $ 3,680,780.86
7 Less Ineligible Inventory $ 841,683.40
-------------------
8 Total Eligible Inventory $ 2,839,097.46
9 Applicable Margin 50.00%
-------------------
10 Inventory Total $ 1,419,548.73
11 Net Book Value of Equipment $ 8,005,219.61
12 Less Ineligible Equipment $ 1,516,264.54
-------------------
13 Total Eligible Equipment $ 6,488,955.07
14 Applicable Margin 75.00%
-------------------
15 Equipment Total $ 4,866,716.30
16 Total Accounts, Inventory, and Equipment $ 6,790,198.22
-------------------
17 Total Availability $ 6,000,000.00
Sum of Lines 5, 10, 15 (Not More than 6000000)
18 Current Loan Balance $ -
19 New Advance Request $ -
20 Outstanding Letters of Credit $ -
21 Net Loan Availability $ 6,000,000.00
Line 17 less lines 18, 19, 20
</TABLE>
FINANCIAL COVENANT COMPLIANCE: - June 30, 1996
(Provided Quarterly)
<TABLE>
<CAPTION>
Required Actual
<S> <C> <C>
Current Ratio Not Less Than 1.0 to 1 1.08
Total Liabilities to Tangible New Worth Not More Than 1.0 to 1 0.86
Debt Service Coverage Ratio Not Less Than 1.75 to 1 2.03
</TABLE>
The above listed collateral is subject to a security agreement in favor of
wells Fargo Bank (Colorado), National Association. The undersigned represents
that the above calculations are in accordance with the credit agreement and
that the undersigned is in full compliance with the terms of the Credit
Agreement and other Loan Documents.
American Coin Merchandising, Inc.
- ---------------
/s/ W. John Cash
Chief Financial Officer and Vice President
September 23, 1996
<PAGE> 19
EXHIBIT B
---------
(Schedule of Subordinated Debt)
<PAGE> 20
AMERICAN COIN MERCHANDISING, INC.
SUBORDINATED DEBT SCHEDULE
<TABLE>
<CAPTION>
LEHIGH
CHICAGO GEORGIA INLAND VALLEY PERFORMANCE
TOY TOY MERCHANDISING, TOY MERCHANDISING
CREDITOR COMPANY, INC COMPANY INC. COMPANY INC.
<S> <C> <C> <C> <C> <C>
Randall J. Fagundo 52,627.85
John Greg Theisen
T. R. Baron & Associates, Inc.
Richard D. Jones and Melinda K. Jones 84,676.50
John Greg Theisen and Carol Ann Theisen 84,676.50
Randall J. Fagundo and Lisa Ann Iacofano 16,133.62 84,676.50 33,066.50
Carol A. Theisen 52,627.85 16,133.63
Melinda K. Jones 56,073.06
Abbe M. Stutsman and Kent D. Stutsman 59,518.28 16,133.62 33,066.50
Richard D. Jones 16,133.63 33,066.51
Abbe M. Stutsman 515,295.00
Scott and Sean's Toy Company Inc.
Hayden S. Howard
Sean K. Forey
Redlands Toy Co., Inc.
Total 220,847.04 64,534.50 254,029.50 99,199.51 515,295.00
</TABLE>
<TABLE>
<CAPTION>
SOUTHWEST SUGARLOAF
COIN OF UTAH, HOOSIER COIN REDLANDS
CREDITOR COMPANY INC. COMPANY TOY CO., INC. TOTAL
<S> <C> <C> <C> <C> <C>
Randall J. Fagundo 97,358.00 149,985.85
John Greg Theisen 48,679.00 48,679.00
T. R. Baron & Associates, Inc. 48,679.00 48,679.00
Richard D. Jones and Melinda K. Jones 84,676.50
John Greg Theisen and Carol Ann Theisen 84,676.50
Randall J. Fagundo and Lisa Ann Iacofano 133,876.62
Carol A. Theisen 56,073.06
Melinda K. Jones
Abbe M. Stutsman and Kent D. Stutsman 108,718.40
Richard D. Jones 49,200.14
Abbe M. Stutsman 515,295.00
Scott and Sean's Toy Company Inc. 434,000.00 99,000.00 499,000.00
Hayden S. Howard
Sean K. Forey 99,000.00 99,000.00
Redlands Toy Co., Inc. 81,850.00 81,850.00
Total 194,716.00 434,000.00 198,000.00 81,850.00 2,062,471.55
</TABLE>
<PAGE> 1
EXHIBIT 10.31
REVOLVING LINE OF CREDIT NOTE
$6,000,000.00 Denver, Colorado
September 23, 1996
FOR VALUE RECEIVED, the undersigned AMERICAN COIN MERCHANDISING, INC.,
("Borrower") promises to pay to the order of WELLS FARGO BANK (COLORADO),
NATIONAL ASSOCIATION ("Bank") at its office at 633 Seventeenth Street, Denver,
Colorado, or at such other place as the holder hereof may designate, in lawful
money of the United States of America and in immediately available funds, the
principal sum of SIX MILLION AND NO/100 DOLLARS ($6,000,000.00) or so much
thereof as may be advanced and be outstanding, with interest thereon, to be
computed on each advance from the date of its disbursement (computed on the
basis of a 360-day year, actual days elapsed) at a fluctuating rate per annum
equal to the Prime Rate in effect from time to time. Each change in the rate
of interest hereunder shall become effective on the date each Prime Rate change
is announced within Bank.
A. DEFINITIONS:
As used herein, the following terms shall have the meanings set forth
after each:
1. "Business Day" means any day except a Saturday, Sunday or any
other day designated as a holiday under Federal or Colorado statute or
regulation.
2. "Prime Rate" means at any time the rate of interest most recently
announced within Bank at its principal office in Denver, Colorado as its Prime
Rate, with the understanding that the Prime Rate is one of Bank's base rates
and serves as the basis upon which effective rates of interest are calculated
for those loans making reference thereto, and is evidenced by the recording
thereof after its announcement in such internal publication or publications as
Bank may designate. Each change in the rate of interest shall become effective
on the date each Prime Rate change is announced within the Bank. The Prime
Rate is not necessarily the best rate offered by Bank and Bank may make loans
at rates greater than or less than the Prime Rate.
B. INTEREST:
1. Payment of Interest. Interest accrued on this Note shall be
payable on the last day of each month commencing October 31, 1996, or as
otherwise provided in the Credit Agreement of even date herewith executed by
Borrower and Bank.
2. Default Interest. From and after the maturity date of this Note,
or such earlier date as all principal owing hereunder becomes due and payable
by acceleration or otherwise, the outstanding principal balance of this Note
shall bear interest until paid in full at an increased rate per annum (computed
on the basis of a 360-day year, actual days elapsed) equal to four percent (4%)
above the rate of interest from time to time applicable to this Note.
<PAGE> 2
C. BORROWING AND REPAYMENT:
1. Borrowing and Repayment. Borrower may from time to time during
the term of this Note borrow, partially or wholly repay its outstanding
borrowings, and reborrow, subject to all of the limitations, terms and
conditions of this Note and of any document executed in connection with or
governing this Note; provided however, that the total outstanding borrowings
under this Note shall not at any time exceed the principal amount stated above.
The unpaid principal balance of this obligation at any time shall be the total
amounts advanced hereunder by the holder hereof less the amount of principal
payments made hereon by or for any Borrower, which balance may be endorsed
hereon from time to time by the holder. The outstanding principal balance of
this Note shall be due and payable in full on September 23, 1998, or as
otherwise provided in the Credit Agreement of even date herewith executed by
Borrower and Bank.
2. Advances. Advances hereunder, to the total amount of the
principal sum stated above, may be made by the holder at the oral or written
request of (a) Jerome M. Lapin; (b) W. John Cash; (c) Michael D'Angelo together
with either Randall J. Fagundo or Abbe M. Stutsman who are authorized to
request advances and direct the disposition of any advances until written
notice of the revocation of such authority is received by the holder at the
office designated above, or (d) any person, with respect to advances deposited
to the credit of any account of any Borrower with the holder, which advances,
when so deposited, shall be conclusively presumed to have been made to or for
the benefit of each Borrower regardless of the fact that persons other than
those authorized to request advances may have authority to draw against such
account. The holder shall have no obligation to determine whether any person
requesting an advance is or has been authorized by the Borrower.
3. Application of Payments. Each payment made on this Note, other
than by the daily sweep of funds in the Cash Collateral Account as provided for
in Section 1.1(e) of the Credit Agreement between Borrower and Bank, shall be
credited first, to any costs, expenses or fees due, second to interest then due
and third to the outstanding principal balance hereof.
4. Prepayment. Borrower may prepay principal on any portion of this
Note which bears interest determined in relation to the Prime Rate at any time,
in any amount and without penalty.
D. EVENTS OF DEFAULT:
The occurrence of any of the following shall constitute an "Event of
Default" under this Note:
1. The failure to pay any principal, interest, fees or other charges
when due hereunder or under any contract, instrument or document executed in
connection with this Note.
2. The filing of a petition by or against any Borrower, any
guarantor of this Note or any general partner or joint venturer in any Borrower
which is a partnership or a joint venture (with each such guarantor referred to
herein as a "Third Party Obligor") under any provisions of the Bankruptcy
Reform Act, Title 11 of the United States Code, as amended or recodified from
time to time, or under any similar or other law relating to bankruptcy,
insolvency, reorganization or other relief for debtors; provided, however, that
if the petition or other filing is not made by Borrower, it shall be an Event
of Default if the filing has not been dismissed within sixty (60) days of its
filing; the appointment of a receiver, trustee, custodian or liquidator of or
for any part of the assets or property of any Borrower; Borrower becomes
insolvent, makes a general assignment for the benefit of creditors or is
generally not paying its debts as they become due; or any attachment or like
levy on any property of any Borrower or Third Party Obligor.
2
<PAGE> 3
3. The death or incapacity of any individual, Third Party Obligor,
or the dissolution or liquidation of Borrower.
4. Any default in the payment, in performance of any obligation
(subject to any applicable cure period), or any defined event of default, under
any provisions of any contract, instrument or document pursuant to which any
Borrower or Third Party Obligor has incurred any obligation for borrowed money,
any purchase obligation, or any other liability of any kind to any person or
entity, including the holder.
5. Any representation or warranty made by Borrower or any Party
Obligor to Bank proves false or misleading, in any material respect when
provided.
6. Any sale or transfer of all or a substantial or material part of
the assets of any Borrower or Third Party Obligor other than in the ordinary
course of its business.
7. Any violation or breach of any provision of, or any defined event
of default under, any addendum to this Note or any loan agreement, guaranty,
security agreement, deed of trust or other document executed in connection with
or securing this Note.
E. MISCELLANEOUS:
1. Remedies. Upon the occurrence of any Event of Default, the
holder of this Note, at the holder's option, may declare all sums of principal
and interest outstanding hereunder to be immediately due and payable without
presentment, demand, protest or notice of dishonor, all of which are expressly
waived by Borrower, and the obligation, if any, of the holder to extend any
further credit hereunder shall, at holder's option, cease and terminate. Each
Borrower shall pay to the holder immediately upon demand the full amount of all
payments, advances, charges, costs and expenses, including reasonable
attorneys' fees (to include outside counsel fees and all allocated costs of the
holder's in-house counsel), incurred by the holder in connection with the
enforcement of the holder's rights and/or the collection of any amounts which
become due to the holder under this Note, and the prosecution or defense of any
action in any way related to this Note, including without limitation, any
action for declaratory relief, and including any of the foregoing incurred in
connection with any bankruptcy proceeding relating to any Borrower.
2. Obligations Joint and Several. Should more than one person or
entity sign this Note as a Borrower, the obligations of each such Borrower
shall be joint and several.
3. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of Colorado, except to the extent Bank
has greater rights or remedies under Federal law, whether as a national bank or
otherwise, in which case such choice of Colorado law shall not be deemed to
deprive Bank of any such rights and remedies as may be available under Federal
law.
BORROWER:
AMERICAN COIN MERCHANDISING, INC.
By: /s/ Jerome M. lapin
------------------------------------------
Title: President & CEO
---------------------------------------
3
<PAGE> 1
EXHIBIT 10.32
CONTINUING SECURITY AGREEMENT:
EQUIPMENT, RIGHTS TO PAYMENT AND INVENTORY
1. GRANT OF SECURITY INTEREST. For valuable consideration, the
undersigned, American Coin Merchandising, Inc., a Delaware corporation
("Debtor"), hereby grants and transfers to WELLS FARGO BANK (COLORADO),
NATIONAL ASSOCIATION ("Bank") a security interest in all accounts, deposit
accounts, accounts receivable, chattel paper, instruments, documents and
general intangibles (collectively called "Rights to Payment"), now existing or
at any time hereafter, and prior to the termination hereof, arising (whether
they arise from the sale, lease or other disposition of inventory or from
performance of contracts for service, manufacture, construction, repair or
otherwise or from any other source whatsoever), including all securities,
guaranties, warranties, indemnity agreements, insurance policies, franchise
agreements, copyrights, patents, trademarks, service marks and other agreements
pertaining to the same or the property described therein, and in all goods
returned by Debtor's customers, together with a security interest in all
inventory, goods held for sale or lease or to be furnished under contracts for
service, goods so leased or furnished, raw materials, component parts, work in
process or materials used or consumed in Debtor's business and all warehouse
receipts, bills of lading and other documents evidencing goods owned or
acquired by Debtor, and all goods covered thereby, now or at any time
hereafter, and prior to the termination hereof, whether or not delivered by
Debtor to another under any contract for sale or service, in hands of
manufacturers or suppliers or in process of delivery or in hands of any agent
or representative, owned or acquired by Debtor, wherever located, and all
products thereof (collectively called "Inventory"), and all tools, machinery,
including vehicles (whether titled or untitled), furnishings, furniture and
other equipment now or at any time owned or acquired by Debtor, and all
accessions or additions thereto (collectively called "Equipment") whether in
the possession of Debtor, warehousemen, bailees or any other person and whether
located at Debtor's places of business or elsewhere (with all Rights to Payment
Inventory and Equipment referred to herein collectively as the "Collateral"),
together with whatever is receivable or received when any of the Collateral or
proceeds thereof are sold, leased, collected, exchanged or otherwise disposed
of, whether such disposition is voluntary or involuntary, including without
limitation, all Rights to Payment, including returned premiums, with respect to
any insurance relating to any of the foregoing, and all Rights to Payment with
respect to any cause of action affecting or relating to any of the foregoing
(hereinafter called "Proceeds").
2. OBLIGATIONS SECURED. The obligations secured hereby are the
payment and performance of: (a) all present and future Indebtedness of Debtor
to Bank; (b) all obligations of Debtor and rights of Bank under this Agreement;
and (c) all present and future obligations of Debtor to Bank of other kinds.
The word "Indebtedness" is used herein in its most comprehensive sense and
includes any and all advances, debts, obligations and liabilities of Debtor, or
any of them, heretofore, now or hereafter made, incurred or created, whether
voluntary or involuntary and however arising, whether due or not due, absolute
or contingent, liquidated or unliquidated, determined or undetermined, and
whether Debtor may be liable individually or jointly with others, or whether
recovery upon such Indebtedness may be or hereafter becomes unenforceable.
3. TERMINATION. This Agreement will terminate upon the
performance of all obligations of Debtor to Bank, including without limitation,
the payment of all Indebtedness of Debtor to Bank existing or committed by Bank
and the termination of all commitments, credit agreements or other
<PAGE> 2
obligations of Bank to extend credit to Debtor which exist at the time Bank
receives written notice from Debtor of the termination of this Agreement.
4. OBLIGATIONS OF BANK. Bank has no obligation to make any loans
hereunder. Any money received by Bank in respect of the Collateral may be
deposited, at Bank's option, into a non-interest bearing account over which
Debtor shall have no control, and the same shall, for all purposes, be deemed
Collateral hereunder.
5. REPRESENTATIONS AND WARRANTIES. Debtor represents and
warrants to Bank that: (a) Debtor is the owner and has possession or control
of the Collateral and Proceeds; (b) Debtor has the right to grant a security
interest in the Collateral and Proceeds; (c) all Collateral and Proceeds are
genuine, free from liens, adverse claims, setoffs, default, prepayment,
defenses and conditions precedent of any kind or character, except for the lien
created hereby and as heretofore disclosed to Bank in writing; (d) all
statements contained herein and, where applicable, in the Collateral, including
the amount of any account debtor's obligation, are true and complete in all
material respects; (e) no financing statement covering any of the Collateral or
Proceeds, and naming any secured party other than Bank, is on file in any
public office except as disclosed to the Bank in writing heretofore and as
hereafter consented to by the Bank in writing or as permitted by Section 5.6 of
the Credit Agreement between Debtor and Bank of even date herewith ("Credit
Agreement"); (f) all persons appearing to be obligated on Rights to Payment and
Proceeds have authority and capacity to contract and are bound as they appear
to be; (g) all property subject to chattel paper has been properly registered
and filed in compliance with law and to perfect the interest of Debtor in such
property; and (h) all Rights to Payment and Proceeds comply with all applicable
laws concerning form, content and manner of preparation and execution,
including, where applicable Federal Reserve Regulation Z and any State consumer
credit laws.
6. COVENANTS OF DEBTOR.
(a) Debtor Agrees in General: (i) to pay Indebtedness
secured hereby when due; (ii) to indemnify Bank against all losses, claims,
demands, liabilities and expenses of every kind caused by property subject
hereto; (iii) to pay all costs and expenses, including reasonable attorneys'
fees, incurred by Bank in the perfection, preservation, realization, of the
collateral or its interest in the collateral and/or the enforcement and
exercise of its rights, powers and remedies hereunder so long as the Bank
prevails in any of its claims or defenses; (iv) to permit Bank to exercise its
powers; (v) to execute and deliver such documents as Bank deems necessary to
create, perfect and continue the security interests contemplated hereby; and
(vi) not to change its chief place of business or the places where Debtor keeps
any of the Collateral or Debtor's records concerning the Collateral and
Proceeds without first giving Bank written notice of the address to which
Debtor is moving same.
(b) Debtor Agrees with Regard to the Collateral and
Proceeds: (i) to insure Inventory and, where applicable, Rights to Payment
with Bank as loss payee, in form and amounts, under agreements, against risks
and liabilities, and with insurance companies satisfactory to Bank and which
require notification to the Bank ten (10) days prior to cancellation; (ii) not
to use any Inventory for any unlawful purpose or in any way that would void any
insurance required to be carried in connection therewith; (iii) not to remove
Inventory from Debtor's premises without Bank's prior written consent and upon
such terms and conditions as Bank may require, except for sales in the ordinary
course of Debtor's business and except Inventory which consists of mobile goods
as defined in the Colorado Uniform Commercial Code, in which case Debtor agrees
not to remove or permit the removal of the Inventory from its state of domicile
for a period in excess of thirty (30) calendar days; (iv) not to permit any
lien on the
2
<PAGE> 3
Collateral or Proceeds, including without limitation, liens arising from the
storage of Inventory, except in favor of Bank or as permitted under Sections
5.3 and 5.6 of the Credit Agreement; (v) not to sell, hypothecate or dispose of
any of the Collateral or Proceeds, or any interest therein, except sales of
Inventory to buyers in the ordinary course of Debtor's business, without Bank's
prior written consent; (vi) to furnish reports to Bank of all acquisitions,
returns, sales and other dispositions of Inventory in such form and detail and
at such times as Bank may require; (vii) to permit Bank to inspect the
Collateral at any time; (viii) to keep, in accordance with generally accepted
accounting principles, complete and accurate records regarding all Collateral
and Proceeds, and to permit Bank to inspect the same and make copies thereof at
any reasonable time; (ix) if requested by Bank, to receive and use reasonable
diligence to collect Rights to Payment and Proceeds, in trust and as the
property of Bank, and to immediately endorse as appropriate and deliver such
Rights to Payment and Proceeds to Bank daily in the exact form in which they
are received together with a collection report in form satisfactory to Bank;
(x) not to commingle Rights to Payment, Proceeds or collections thereunder with
other property; (xi) to give only normal allowances and credits and to advise
Bank thereof immediately in writing if individually or collectively they affect
any Rights to Payment or Proceeds in any material respect; (xii) on demand, to
deliver to Bank returned property resulting from, or payment equal to, such
allowances or credits on any Rights to Payment or Proceeds or to execute such
documents and do such other things as Bank may reasonably request for the
purpose of perfecting, preserving and enforcing its security interest in such
returned property; (xiii) from time to time, when requested by Bank, and
without respect to whether or not a default has occurred or is continuing, to
prepare and deliver a schedule of all Collateral and Proceeds subject to this
Agreement, to assign in writing and deliver to Bank all accounts, contracts,
leases and other chattel paper, instruments, documents and other evidences
thereof to mark or stamp each of its individual ledger sheets or cards
pertaining to Accounts with the legend "For value received, this Account has
been assigned to Wells Fargo Bank," and to give such written notice to Account
Debtors as Bank shall require; (xiv) in the event Bank elects to receive
payments of Rights to Payment or Proceeds hereunder, to pay all expenses
incurred by Bank in connection therewith, including expenses of accounting,
correspondence, collection efforts, reporting to account or contract debtors,
filing, recording, record keeping and expenses incidental thereto; and (xv) to
provide any service and do any other acts which may be necessary to maintain,
preserve and protect all Collateral and, as appropriate and applicable, to keep
all Collateral in good and saleable condition, to deal with the Collateral in
accordance with the standards and practices adhered to generally by users and
manufacturers of like property, and to keep all Collateral and Proceeds free
and clear of all defenses, rights of offset and counterclaims.
7. POWERS OF BANK. Debtor appoints Bank its true attorney in
fact to perform any of the following powers, which are coupled with an
interest, are irrevocable until termination of this Agreement and may be
exercised from time to time by Bank's officers and employees, or any of them,
whether or not Debtor is in default: (a) to perform any obligation of Debtor
hereunder in Debtor's name or otherwise; (b) to give notice of Bank's rights in
the Collateral and Proceeds to account debtors or others, to enforce the same
and make extension agreements with respect thereto; (c) to release persons
liable on Collateral or Proceeds and to give receipts and acquittances and
compromise disputes in connection therewith; (d) to release security; (e) to
resort to security in any order; (f) to prepare, execute, file, record or
deliver notes, assignments, schedules, designation statements, financing
statements, continuation statements, termination statements, statements of
assignment, applications for registration or like papers to perfect, preserve
or release Bank's interest in the Collateral and Proceeds; (g) to receive, open
and read mail addressed to Debtor; (h) to take cash, instruments for the
payment of money and other property to which Bank is entitled; (i) to verify
facts concerning the Collateral and Proceeds by inquiry of obligors thereon, or
otherwise; (j) to endorse, collect, deliver and receive payment under
instruments for the payment of money constituting or relating to Proceeds; (k)
to prepare, adjust, execute, deliver and receive payment under
3
<PAGE> 4
insurance claims, and to collect and receive payment of and endorse any
instrument in payment of loss or returned premiums or any other insurance
refund or return, and to apply such amounts received by Bank, at Bank's sole
option, toward repayment of the Indebtedness or replacement of the Collateral;
(l) to exercise all rights, powers and remedies which Debtor would have, but
for this Agreement, with respect to all Collateral and Proceeds subject hereto;
(m) to enter onto Debtor's premises in inspecting the Collateral; (n) to make
withdrawals from and to close deposit accounts or other accounts with any
financial institution, wherever located, into which Proceeds may have been
deposited, and to apply funds so withdrawn to payment of the Indebtedness; (o)
to preserve or release the interest evidenced by chattel paper to which Bank is
entitled hereunder and to endorse and deliver evidences of title incidental
thereto; and (p) to do all acts and things and execute all documents in the
name of Debtor or otherwise, deemed by Bank as necessary, proper and convenient
in connection with the preservation, perfection or enforcement of its rights
hereunder.
8. PAYMENT OF PREMIUMS, TAXES, CHARGES, LIENS AND ASSESSMENTS.
Subject to its right to contest or dispute taxes that may exist in other
documents relates to the indebtedness, Debtor agrees to pay, prior to
delinquency, all insurance premiums, taxes, charges, liens and assessments
against the Collateral and Proceeds, and upon the failure of Debtor to do so,
Bank at its option may pay any of them and shall be the sole judge of the
legality or validity thereof and the amount necessary to discharge the same.
Any such payments made by Bank shall be obligations of Debtor to Bank, due and
payable immediately upon demand, together with interest at a rate determined in
accordance with the provisions of Section 12 hereof, and shall be secured by
the Collateral and Proceeds, subject to all terms and conditions of this
Agreement.
9. EVENTS OF DEFAULT. The occurrence of any of the following
shall constitute an "Event of Default" under this Agreement: (a) any default
in the payment or performance, subject to any applicable cure period, of any
obligation, or any defined event of default, under (i) any contract or
instrument evidencing any Indebtedness, or (ii) any other agreement between any
Debtor and Bank, including without limitation any loan agreement, relating to
or executed in connection with any Indebtedness; (b) any representation or
warranty made by any Debtor herein shall prove to be incorrect, false or
misleading in any material respect when made; (c) any Debtor shall fail to
observe or perform, subject to any applicable cure period, any obligation or
agreement contained herein; (d) any attachment or like levy on any property of
any Debtor; and (e) Bank, in good faith, believes any or all of the Collateral
and/or Proceeds to be in danger of misuse, dissipation, commingling, loss,
theft, damage or destruction, or otherwise in jeopardy or unsatisfactory in
character or value.
10. REMEDIES. Upon the occurrence of any Event of Default, Bank
shall have the right to declare immediately due and payable all or any
Indebtedness secured hereby and to terminate any commitments to make loans or
otherwise extend credit to Debtor. Bank shall have all other rights, powers,
privileges and remedies granted to a secured party upon default under the
Colorado Uniform Commercial Code or otherwise provided by law, including
without limitation, the right to contact all persons obligated to Debtor on any
Collateral or Proceeds and to instruct such persons to deliver all Collateral
and/or Proceeds directly to Bank. All rights, powers, privileges and remedies
of Bank shall be cumulative. No delay, failure or discontinuance of Bank in
exercising any right, power, privilege or remedy hereunder shall affect or
operate as a waiver of such right, power, privilege or remedy; nor shall any
single or partial exercise of any such right, power, privilege or remedy
preclude, waive or otherwise affect any other or further exercise thereof or
the exercise of any other right, power, privilege or remedy. Any waiver,
permit, consent or approval of any kind by Bank of any default hereunder, or
any such waiver of any provisions or conditions hereof, must be in writing and
shall be effective only to the extent set forth in writing. It is
4
<PAGE> 5
agreed that public or private sales, for cash or on credit, to a wholesaler or
retailer or investor, or user of property of the types subject to this
Agreement, or public auction, are all commercially reasonable since differences
in the sales prices generally realized in the different kinds of sales are
ordinarily offset by the differences in the costs and credit risks of such
sales. While an Event of Default exists: (a) Debtor will deliver to Bank from
time to time, as requested by Bank, current lists of all Collateral and
Proceeds; (b) Debtor will not dispose of any of the Collateral or Proceeds
except on terms approved by Bank; (c) at Bank's request, Debtor will assemble
and deliver all Collateral and Proceeds, and books and records pertaining
thereto, to Bank at a reasonably convenient place designated by Bank; and (d)
Bank may, without notice to Debtor, enter onto Debtor's premises and take
possession of the Collateral. With respect to any sale by Bank of any
Collateral subject to this Agreement, Debtor hereby expressly grants to Bank
the right to sell such Collateral using any or all of Debtor's trademarks,
trade names, trade name rights and/or proprietary labels or marks.
11. DISPOSITION OF COLLATERAL AND PROCEEDS. Upon the transfer of
all or any part of the Indebtedness, Bank may transfer all or any part of the
Collateral or Proceeds and shall be fully discharged thereafter from all
liability and responsibility with respect to any of the foregoing so
transferred, and the transferee shall be vested with all rights and powers of
Bank hereunder with respect to any of the foregoing so transferred; but with
respect to any Collateral or Proceeds not so transferred, Bank shall retain all
rights, powers, privileges and remedies herein given. Any proceeds of any
disposition of any of the Collateral or Proceeds, or any part thereof, may be
applied by Bank to the payment of expenses incurred by Bank in connection with
the foregoing, including reasonable attorneys' fees, and the balance of such
proceeds may be applied by Bank toward the payment of the Indebtedness in such
order of application as Bank may from time to time elect.
12. COSTS, EXPENSES AND ATTORNEYS' FEES. Debtor shall pay to Bank
immediately upon demand the full amount of all payments, advances, charges,
costs and expenses, including reasonable attorneys' fees (to include outside
counsel fees and all allocated costs of Bank's in-house counsel), incurred by
Bank in exercising any right, power, privilege or remedy conferred by this
Agreement so long as the Bank prevails in any of its claims or defenses or in
the enforcement thereof, including any of the foregoing incurred in connection
with any bankruptcy proceeding relating to Debtor or the valuation of the
Collateral and/or Proceeds, including without limitation, the seeking of relief
from or modification of the automatic stay or the negotiation and drafting of a
cash collateral order. All of the foregoing shall be paid by Debtor with
interest at a rate per annum equal to four percentage points (4%) per annum
above the Prime Rate in effect from time to time. The "Prime Rate" is a base
rate that Bank from time to time establishes and which serves as the basis upon
which effective rates of interest are calculated for those loans making
reference thereto, so long as the Bank prevails in any of its claims or
defenses.
13. STATUTE OF LIMITATIONS. Until all Indebtedness shall have
been paid in full, the power of sale and all other rights, powers, privileges
and remedies granted to Bank hereunder shall continue to exist and may be
exercised by Bank at any time and from time to time irrespective of the fact
that the Indebtedness or any part thereof may have become barred by any statute
of limitations, or that the personal liability of Debtor may have ceased,
unless such liability shall have ceased due to the payment in full of all
Indebtedness secured hereunder.
14. MISCELLANEOUS. The obligations of Debtor are joint and
several; presentment, protest, notice of protest, notice of dishonor and notice
of nonpayment are waived with respect to any Proceeds to which Bank is entitled
hereunder; any right to direct the application of payments or
5
<PAGE> 6
security for any Indebtedness of Debtor, or indebtedness of customers of
Debtor, and any right to require proceedings against others or to require
exhaustion of security are waived; and consent to extensions, forbearances or
alterations of the terms of Indebtedness, the release or substitution of
security, and the release of guarantors is given with respect to Proceeds
subject to this Agreement Until all Indebtedness shall have been paid in full,
no Debtor shall have any right of subrogation or contribution, and each Debtor
hereby waives any benefit of or right to participate in any of the Collateral
or Proceeds or any other security now or hereafter held by Bank.
15. NOTICES. All notices, requests and demands required under
this Agreement must be in writing, addressed to Bank at the address specified
in any other loan documents entered into between Debtor and Bank and to Debtor
at the address of its chief executive office (or personal residence, if
applicable) specified below or to such other address as any party may designate
by written notice to each other party, and shall be deemed to have been given
or made as follows: (a) if personally delivered, upon delivery; (b) if sent by
mail, upon the earlier of the date of receipt or three (3) days after deposit
in the U.S. mail, first class and postage prepaid; and (c) if sent by telecopy,
upon receipt.
16. GOVERNING LAW; SUCCESSORS, ASSIGNS. This Agreement shall be
governed by and construed in accordance with the laws of the State of Colorado,
and shall be binding upon and inure to the benefit of the heirs, executors,
administrators, legal representatives, successors and assigns of the parties.
17. SEVERABILITY OF PROVISIONS. If any provision of this
Agreement shall be held to be prohibited by or invalid under applicable law,
such provision shall be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or any
remaining provisions of this Agreement.
Debtor warrants that its chief executive office is located at the
following address: 4870 Sterling Drive, Boulder, Colorado 80301.
IN WITNESS WHEREOF, this Agreement has been duly executed as of
September 23, 1996.
DEBTOR:
AMERICAN COIN MERCHANDISING, INC., a
Delaware corporation
By: /s/Jerome M. Lapin
--------------------------
Title: President & CEO
--------------------------
6
<PAGE> 1
EXHIBIT 10.33
==================================================================
_____________________________________
LEASE AGREEMENT
_____________________________________
Property Located at
5660 Central Avenue,
Boulder, Colorado 80301
Between
Technical Building Company ("Landlord")
and
American Coin Merchandising, Inc. ("Tenant")
==================================================================
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. PROPERTY - LEASED PREMISES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
3. OPTION TO EXTEND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
4. RENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(a) Base Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(b) Annual Escalation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(c) Minimum Rent Increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
5. SECURITY DEPOSIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
6. TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
7. UTILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
8. MAINTENANCE AND REPAIRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(a) Landlord Direct Maintenance Responsibilities . . . . . . . . . . . . . . . . . . . . . 4
(b) Tenant Direct Maintenance Responsibilities . . . . . . . . . . . . . . . . . . . . . . 4
9. HOLDING OVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
10. MODIFICATIONS OR EXTENSIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
11. ALTERATION - CHANGES AND ADDITIONS - RESPONSIBILITY . . . . . . . . . . . . . . . . . . . . . 5
12. APPROVAL OF CHANGES - SIGNS - LIENS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
13. USE OF PREMISES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
14. PROTECTIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
15. LIABILITY FOR OVERLOAD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
16. INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
17. FIRE REGULATIONS - RESPONSIBILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
18. ASSIGNMENT OR SUBLETTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
19. REPLACEMENT OF BUILDING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
20. INSPECTION BY LANDLORD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
21. DEFAULT - REMEDIES OF LANDLORD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
22. DEFAULT AND ABANDONMENT - REMEDIES OF LANDLORD . . . . . . . . . . . . . . . . . . . . . . . . 10
23. BANKRUPTCY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
24. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
25. WARRANTY OF TITLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
26. ACCESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
27. DEVELOPMENT OF PROPERTY - RIGHTS OF LANDLORD . . . . . . . . . . . . . . . . . . . . . . . . . 11
28. EMINENT DOMAIN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
29. SUBORDINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
30. INTEREST ON PAST DUE OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
31. LATE CHARGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
32. MEMORANDUM OF LEASE - RECORDING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
33. ENVIRONMENTAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(a) Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(1) Hazardous Material . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(2) Environmental Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(3) Environmental Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(b) Tenant's Obligation to Indemnify, Defend and Hold Harmless . . . . . . . . . . . . . . 14
(c) Notification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(d) Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(1) No Hazardous Material on Premises . . . . . . . . . . . . . . . . . . . . . . 15
(2) No Violations of Environmental Requirements . . . . . . . . . . . . . . . . . 15
(e) Right to Inspect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
(f) Right to Remediate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(g) Obligation to Remediate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(h) Landlord's Obligation to Indemnify, Defend and Hold Harmless . . . . . . . . . . . . . 16
34. NO WAIVER OF BREACH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
35. NOTICE PROCEDURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
36. CONTROLLING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
37. BINDING UPON SUCCESSORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
38. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
39. ADDITIONAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(a) Parking; Resurfacing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(b) Option on Adjacent Space . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(c) Condition of Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(d) Attorney Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(e) Approval of Tenant Finish . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
40. DEFAULT BY LANDLORD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
</TABLE>
-ii-
<PAGE> 4
LEASE AGREEMENT
THIS LEASE AGREEMENT is dated effective as of January 28, 1997,
between TECHNICAL BUILDING COMPANY ("Landlord") and AMERICAN COIN
MERCHANDISING, INC., d/b/a SUGARLOAF CREATIONS, INC. ("Tenant").
W I T N E S S E T H:
In consideration of the covenants, terms, conditions, agreements, and
payments as hereinafter set forth, the parties hereto covenant and agree as
follows:
I. PROPERTY - LEASED PREMISES. Upon the terms and conditions set
forth herein, Landlord hereby leases unto Tenant and Tenant leases from
Landlord that certain commercial / office / warehouse property located at 5660
Central Avenue, Boulder, CO 80301, as schematically represented on "Exhibit A"
attached hereto and incorporated herein by reference, consisting of
approximately 18,176 square feet (measured to the outside of exterior walls,
the center of interior perimeter walls, exclusive of mechanical or plumbing
chases, inclusive of the first floor stair well and staircase footprint and
exclusive of the second floor stair well and footprint) (hereafter referred to
as the "Premises").
2. TERM. The term of this Lease shall commence on the later to
occur of (i) at 12:01 a.m. on January 15, 1997, (ii) five (5) business days
following the vacation of the Premises by Etta Industries, Inc. (if Etta
Industries has not vacated the premises by January 15, 1997), or (iii) receipt
of the City of Boulder building permit discussed at Section 11.(a) below (the
"Lease Commencement Date"). Tenant acknowledges that the Premises are as of
the date of this Lease occupied by Etta, which has indicated to Landlord that
it will vacate the Premises and relocate to space adjoining the Premises on or
before January 15, 1997. Landlord and Tenant acknowledge that this Lease shall
terminate without liability to either party if Etta should fail to vacate the
Premises on or before February 15, 1997. Unless terminated as herein provided
for, or extended pursuant to Section 0 of this Lease, this Lease shall end five
years after the Lease Commencement Date.
3. OPTION TO EXTEND. Upon full and complete performance by
Tenant of all the terms, covenants, and conditions herein contained and payment
of all rent due under the terms hereof, Tenant shall be given the option to
renew this Lease for an additional term of five (5) years, on the terms and
conditions set forth in this Lease, except that the base monthly rent shall be
adjusted as set forth below. In the event Tenant desires to exercise said
option, Tenant shall give written notice of such fact to Landlord not less than
six (6) months prior to the expiration of the primary term of this Lease. Upon
Landlord's receipt of Tenant's election to extend the term for an additional
five year period, Landlord and Tenant shall negotiate in good
<PAGE> 5
faith regarding the base rent for such extended term. If the parties reach
agreement on such revised base rent for the extended term, they shall execute
an amendment to this Lease stating the base rent through the extended term. If
Landlord and Tenant are unable to agree on the base rent for the extended term
within thirty (30) days of Tenant's written election to extend the Lease term,
then at the written election of either Landlord or Tenant, the parties shall
within ten (10) business days of such election select a mutually acceptable
appraiser (skilled in the appraisal of Boulder commercial office/industrial
real estate) to determine the then fair market base monthly gross rent for the
Premises. The appraiser so selected shall render such appraisal with thirty
(30) days of selection, which appraisal shall be binding on the parties, and
with the cost of such appraisal to be split equally between the parties. If
Landlord and Tenant cannot agree upon a mutually acceptable appraiser within
the ten (10) business day period following election to submit the matter to
appraisal, then Tenant's election to extend the term shall be of no effect and
this Lease shall expire at the end of the initial term.
The base monthly rent as determined under this Section 0 shall be
subject to adjustment as provided in Section 0 below, and shall be payable as
herein provided for. In the event of an extended term, any funds retained by
Landlord at the end of the initial term as herein provided for shall continue
to be so held subject to the same terms and conditions.
4. RENT. Subject to suspension as set forth in Section 0(a)
below, Tenant shall pay the base rent including any escalation provided for in
Section 0, at the address set forth in Section 0 of this Lease, without prior
notice or demand, on the Lease Commencement Date (prorated for any partial
month) and on or before the first day of each successive calendar month during
the Lease term. Tenant shall pay to Landlord, at the address of Landlord as
herein set forth, the following as rent for the Premises:
(a) Base Rent. The base rent for the initial five (5)
year term hereof shall be $677,056.00, payable in monthly installments (base
monthly rent of $11,284.27) in advance on the first day of each month during
the term hereof. The base rent for the extended term (if this Lease is
extended under Section 0 above) shall be the aggregate base monthly rent for
such extended term.
(b) Annual Escalation. Subject to the minimum rent
increase per Section 0 below, as of each annual anniversary date of this Lease,
the base monthly rent due under the terms hereof shall be increased by an
amount equal to the amount arrived at by multiplying the percentage increase in
(i) the Cost of Living Index for "All Urban Consumers, All Items,
Boulder/Denver" (the "Index") for the six-month period (January-June) preceding
the anniversary date, from (ii) the Index for the six-month period,
-2-
<PAGE> 6
January-June 1996, times the then payable monthly rent. The increased monthly
rent as so determined shall commence as of the first day of the month
immediately following the annual anniversary date and shall continue until
readjusted as herein provided. In the event of an extended term pursuant to
Section 0 above, the percentage increase in the "Index" shall be measured from
the Index for the six-month period, January-June, 2001.
(c) Minimum Rent Increase. Notwithstanding any provision
herein contained, the base monthly rent due under the terms hereof shall at no
time be less than, as to the initial term, the original base rent provided for
in Section 0 above and as to an extended term, the base rent determined under
Section 0 above, and the annual adjustment in the base monthly rent as set
forth in Section 0 above shall at no time be less than four percent (4%) per
year over the previous year's base monthly rent.
5. SECURITY DEPOSIT. Upon execution of this Lease, Tenant shall
deposit with Landlord the sum of $10,000 as a security deposit. This security
deposit shall be held by Landlord in an interest-bearing account as security
for the faithful performance of Tenant of all the terms, covenants and
conditions of this Lease to be kept and performed by Tenant during the Lease
term. Any accrued interest shall be paid to Tenant at each anniversary of this
Lease by applying such amount as a credit toward the next payment of base rent
under this Lease. If Tenant defaults with respect to any provision of this
Lease, including, but not limited to the provisions relating to the payment of
rent or any other sum in default, or for the payment of any amount which
Landlord may spend or become obligated to spend by reason of Tenant's default,
or to compensate Landlord for any other loss or damage which Landlord may
suffer by reason of Tenant's default, Landlord shall be entitled to satisfy any
monetary damage or expense suffered thereby from the security deposit. If
Tenant fully and faithfully performs every provision of this Lease to be
performed by it, the security deposit or any balance remaining and all accrued
interest shall be returned to Tenant on termination of the Lease.
6. TAXES.
(a) Landlord shall pay all general real estate taxes
which are assessed, imposed or become a lien upon the Premises.
(b) Tenant covenants and agrees to pay, or cause to be
paid, before any fine, penalty, interest or cost may be added thereto, all
license and franchise taxes of Tenant.
(1) Tenant shall pay prior to delinquency all
taxes assessed against and levied upon trade fixtures, furnishings,
equipment and all other personal property of Tenant contained in the
Premises or elsewhere.
(2) If any of Tenant's personal property shall be
-3-
<PAGE> 7
assessed with Landlord's real property, Tenant shall pay to Landlord
the taxes attributable to Tenant's personal property within ten (10)
business days after receipt of written statement setting forth the
taxes applicable to Tenant's property.
7. UTILITIES. Utility services to the Premises, including gas,
electricity and telecommunications, shall be contracted directly in the name of
Tenant, and Tenant shall be solely responsible for the direct payment of all
utility fees and service charges for such utilities. Landlord, however, shall
contract for and pay for the cost of water and sewer service to the Premises.
8. MAINTENANCE AND REPAIRS.
(a) Landlord Direct Maintenance Responsibilities.
Landlord shall be responsible for and shall pay for all maintenance and repairs
to the following elements of the Premises: roof, the exterior walls, the
common areas, the equipment used exclusively for the common areas, the heating,
air conditioning, electrical, plumbing and non-Tenant installed building
ventilation systems, and items of a purely structural nature ("Landlord's
Elements"), unless caused in part or in whole by the act, neglect, fault or
omission of any duty by Tenant, its agents, servants, employees, and invitees,
in which case Tenant shall at Tenant's sole cost and expense, make such repairs
and replacements as are necessary to maintain such structural portions in a
good condition. Landlord shall also be responsible for maintenance and repairs
to the parking lot and landscaping adjacent to the Premises and for snow and
ice removal. There shall be no abatement of rent or liability to Tenant on
account of interference with Tenant's business with respect to any
improvements, alterations or repairs made by Landlord to the Premises in
connection with its duties under this Section 0. Tenant may give written
notice to Landlord of Landlord's failure to perform its required duties under
this Section 0. If after thirty (30) days' written notice, Landlord fails to
commence such necessary maintenance and repairs and diligently pursue
completion of same, Tenant may elect to effect the maintenance and repairs in a
reasonable manner and the reasonable costs of the maintenance and/or repairs
shall be reimbursed by Landlord within five (5) working days of Landlord's
receipt from Tenant of a statement of such costs. If, however, Landlord's
failure to repair, replace or maintain Landlord's Elements to which a notice of
failure to perform has been delivered by Tenant, unreasonably interferes with
Tenant's business, then such costs of maintenance or repairs may be applied by
Tenant to reduce the base rent due to Landlord for the following month.
(b) Tenant Direct Maintenance Responsibilities. Subject
to the provisions of Section 0 above, Tenant shall at its expense keep in good
order, condition and repair the Premises and every part thereof, including all
lighting facilities and
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equipment within the Premises, fixtures, built-ins, interior walls and interior
surface of exterior walls, floor coverings, ceilings, windows, doors and plate
glass located within the Premises. Tenant agrees, in its normal course of
business, not to do anything to damage or deteriorate the structure, plumbing,
electrical, heating and ventilation systems, fixtures, windows, doors and
interior of the Premises (normal wear and tear excluded), and agrees to return
the Premises at lease termination in substantially as good condition as when
received (normal wear and tear excluded). Landlord may give written notice to
Tenant of Tenant's failure to perform its required duties under this Section 0.
If after thirty (30) days' written notice, Tenant fails to diligently perform
and complete its required duties under Section 0, Landlord may elect to perform
such duties and the reasonable costs incurred shall constitute additional rent
due and payable to Landlord within five (5) business days after such amounts
are disclosed to Tenant.
9. HOLDING OVER. If, after expiration of the term of this Lease,
Tenant shall remain in possession of the Premises and continue to pay rent
without a written agreement as to such possession, then Tenant shall be deemed
a month-to-month Tenant and the rent rate during such holdover tenancy shall be
equivalent to the monthly rent paid for the last month of tenancy under this
Lease.
10. MODIFICATIONS OR EXTENSIONS. No holding over by Tenant shall
operate to renew or extend this Lease without the written consent of Landlord
given in conformity with requirements of any provision of the laws of the State
of Colorado which may relate to such renewal or extension. No modification of
this Lease shall be binding unless endorsed hereon or attached hereto and
signed by the respective parties.
11. ALTERATION - CHANGES AND ADDITIONS - RESPONSIBILITY.
(a) Tenant shall not make any alterations, additions, or
improvements to the exterior, roof or structural elements of the Premises
(including, but not limited to, painting and signs) without Landlord's prior
written consent, which may not be unreasonably withheld or delayed. Tenant
will be making internal alterations and improvements to the Premises, at
Tenant's expense, and subject to Landlord's prior written approval (not to be
unreasonably withheld) commencing with the Lease Commencement Date ("Tenant
Finish"). All work done by Tenant shall conform to appropriate federal, city,
county and state building codes and health standards and Tenant shall be
responsible for obtaining and paying for building permits. If in connection
with construction of Tenant Finish, it shall become necessary to make
improvements or repairs to the Premises, other than such Tenant Finish, in
order to bring the Premises (or the building in which the Premises are located)
into compliance with currently applicable federal, city, county or state
building codes or health standards,
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including but not limited to, fire sprinklers and other fire code requirements
(collectively, "Code Mandated Improvements"), and any ADA compliance matters
(as set forth in Section 11.(c) below) ("ADA Improvements"), such additional
Code Mandated Improvements and ADA Improvements shall be paid by Landlord.
Landlord and Tenant agree that to the extent reasonably possible all Tenant
Finish and Code Mandated Improvements and ADA Improvements shall be completed
at the same time. If such Code Mandated Improvements and ADA Improvements
cannot be completed at the same time as Tenant Finish, then the rent due
hereunder shall be suspended until any Code Mandated Improvements and ADA
Improvements which would unreasonably interfere with Tenant Finish are
completed.
(b) At the end of this Lease, Tenant shall, if it is not
then in default hereunder, have the right to remove its inventory, furnishings,
equipment and trade fixtures from the Premises provided that it repair all
damage done to the Premises in accomplishing removal so as to leave the
Premises in good condition. Landlord shall have the option to require Tenant
to remove any or all such fixtures, equipment, additions, and/or alterations,
whether to the exterior or interior, which were not approved in writing by
Landlord and restore the Premises to the condition existing immediately prior
to such unapproved change and/or installation, normal wear and tear excepted,
all at Tenant's cost and expense.
(c) Landlord shall be solely responsible for complying
with all requirements relating to new construction and alterations to public
accommodations and commercial facilities as described and defined in Subchapter
III of the Americans with Disabilities Act of 1990 and the regulations
promulgated thereunder, as they may be amended (the "ADA"), with respect to the
Premises. Tenant shall be solely responsible for complying with all such ADA
requirements with respect to Tenant's furniture, fixtures and equipment, and
for providing auxiliary aids and services to accommodate specific needs of
disabled employees, licensees, and invitees of Tenant.
12. APPROVAL OF CHANGES - SIGNS - LIENS.
(a) Landlord must approve in writing any sign to be
placed on the Premises, regardless of size or value, and any improvements,
additions, alterations and/or changes to the Premises in excess of Two Thousand
Dollars ($2,000.00), which approval shall not be unreasonably withheld.
Landlord shall have the right to require Tenant's contractor(s) to furnish
adequate lien waivers on work completed to both Tenant and Landlord. Landlord
reserves the right to post notice in the Premises that Landlord is not
responsible for payment of the work performed.
(b) Tenant expressly covenants and agrees that it will,
during the term hereof, promptly remove or release, by the posting of a bond or
otherwise, as required or permitted by law,
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any lien attached to or upon the Premises or any portion thereof by reason of
any act or omission on the part of Tenant, and it hereby expressly agrees to
save and hold harmless Landlord from or against any such lien or claim of lien.
In the event any such lien does attach, or any claim of lien is made against
the Premises, which may be occasioned by any act or omission upon the part of
Tenant, and it is not thus released within thirty (30) days after notice
thereof, Landlord, in its sole discretion, (but nothing herein contained shall
be construed as requiring it so to do) may pay and discharge such lien and
relieve the Premises from such lien, and Tenant agrees to pay and reimburse
Landlord upon demand for any expense which may be incurred by Landlord in
connection with such lien or claim, including reasonable attorney's fees.
13. USE OF PREMISES. Tenant shall use the Premises for office,
manufacturing and warehouse space and other related uses and shall not use or
permit the Premises to be used for any other purpose without the prior written
consent of Landlord. Tenant shall not do or permit anything to be done in or
about the Premises nor bring or keep anything on the Premises which will in any
way increase the existing rate of or affect any fire or other insurance upon
the building or any of its contents, or cause cancellation of any insurance
policy covering the building or Premises or any part thereof or any of its
contents. Tenant shall not allow the Premises to be used for any improper,
unlawful or objectionable purposes, nor shall Tenant cause, maintain or permit
any nuisance in, on or about the Premises. Any items stored outside on the
Premises, and the manner of storage thereof, shall be in strict compliance with
the Declaration referenced in Section 0 below.
14. PROTECTIVE COVENANTS. Tenant shall be bound by all of the
terms, conditions, and restrictions set forth in the Declaration of Covenants
of Flatiron Industrial Park, Filing No. 1, recorded February 8, 1972, at Film
760, Reception No. 06743 of the Boulder County Records, a complete copy of
which Declaration has been provided to Tenant by Landlord. In the event of any
such violation by Tenant, Landlord may, at its option, take any action,
reasonable or appropriate, to correct such violation, and Tenant shall be
responsible for all costs and expenses incurred by Landlord to correct such
violations. In the alternative, Landlord may, at its option, notify Tenant in
writing of such violation. In the event Tenant fails to correct such violation
within ten (10) business days from the date of mailing of such written notice
to Tenant, Landlord may terminate this Lease.
15. LIABILITY FOR OVERLOAD. Tenant shall be liable for the cost
of any damage to the Premises or the building or the sidewalks and pavements
adjoining the same which results from the movement of heavy articles. Tenant
shall not overload the floors or any part of the Premises.
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16. INSURANCE.
(a) Landlord shall obtain and keep in force during the
term of this Lease policies insuring Landlord for:
(1) Comprehensive public liability, insuring
against any liability arising out of the ownership, use, occupancy or
maintenance of the Premises and all areas appurtenant thereto, in an
amount of not less than $1,000,000 for injury or death of one person
and $2,000,000 aggregate and not less than $100,000 for personal
property damage per accident; and
(2) Fire and extended coverage, covering the
Premises against loss or damage by fire and against loss or damage by
other risks now or hereafter embraced by "extended coverage."
(b) Tenant shall carry and pay for comprehensive public
liability insurance including property damage and worker's compensation
insurance, insuring Tenant against liability for injury to persons or property
occurring in or about the Premises leased by Tenant or arising out of the
ownership, maintenance, use or occupancy thereof. The liability under such
insurance shall not be less than $1,000,000 for any one person injured or
killed and not less than $2,000,000 aggregate and not less than $100,000 for
personal property damage per accident.
(c) All such policies of insurance shall be from carriers
having a rating of A+ or better in "Best's Insurance Guide". Landlord and
Tenant shall provide to the other copies of policies of insurance required
herein or certificates evidencing the existence and amounts of such insurance.
No policy shall be cancelable or subject to reduction of coverage except after
ten (10) business days prior written notice to Landlord and Tenant. Landlord
shall be listed as an additional insured and additional loss payee on the
insurance required to be maintained by Tenant. All such policies shall be
written as primary policies not contributing with and not in excess of coverage
which Landlord may carry.
(d) Landlord and Tenant each hereby release and relieve
the other and waive their entire right of recovery against the other for loss
or damage arising out of or incident to the perils insured against under this
Section 0, which perils occur in, on or about the Premises, whether due to the
negligence of Landlord or Tenant or their agents, employees, contractors or
invitees. Landlord and Tenant shall, upon obtaining the policies of insurance
required hereunder, give notice to the insurance carrier or carriers that the
foregoing mutual waiver of subrogation is contained in this Lease.
17. FIRE REGULATIONS - RESPONSIBILITY. Subject to
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Landlord's obligation to pay for Code Mandated Improvements, it shall be
Tenant's sole and exclusive responsibility to meet all fire regulations of any
governmental unit having jurisdiction over the Premises as such regulations
affect Tenant's operations, at Tenant's sole expense.
18. ASSIGNMENT OR SUBLETTING.
(a) Except as provided in Section 0, Tenant may not
assign the Lease or sublet the Premises without the written consent of
Landlord, which consent shall not be unreasonably withheld.
(b) Tenant may assign this Lease to any entity which
controls, is controlled by or is under common control with Tenant, or to any
entity resulting from the merger or consolidation with Tenant, or to any entity
which acquires all the assets of Tenant as a going concern of the business
being conducted on the Premises, provided that said assignee assumes, in full,
the obligations of Tenant under this Lease.
(c) No such assignment or subletting pursuant to this
Section 0 shall relieve Tenant of any of its obligations hereunder, and
performance of the covenants herein by assignees or subtenants shall be
considered as performance pro tanto by Tenant.
19. REPLACEMENT OF BUILDING. If the Premises are damaged or
destroyed by fire at any time after the date of this Lease, or if, after such
date, said Premises are damaged or destroyed through any cause not directly
attributable to the negligence of Tenant, Landlord shall proceed with due
diligence to repair or restore the same to the same condition as existed before
such damage or destruction, and as soon as possible thereafter will give
possession to Tenant of the Premises without diminution or change of location.
Notwithstanding the foregoing, in case of the total destruction of the Premises
by fire, or in case the Premises are so badly damaged that, in the opinion of
Landlord, it is not feasible to repair or rebuild the same, then, and in that
event, Landlord shall have the right to terminate this Lease instead of
rebuilding the improvements; provided, however, that Landlord shall give Tenant
written notice of Landlord's intention to terminate, such notice to be served
not later than thirty (30) business days after the occurrence of the damage to
the Premises. In the event the Premises are rendered temporarily untenantable
because of fire or other casualty, base monthly rent shall abate until the
Premises are restored to their former condition. It is further agreed,
however, that the replacement or repair of any portion of the Premises damaged
in connection with any burglary or other forcible entry into the Premises or
damage directly attributable to the negligence of Tenant other than damage
caused by fire, shall be at the sole expense of Tenant.
20. INSPECTION BY LANDLORD. Landlord, or its authorized
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representative, and/or any lender or prospective lender, shall have the right
to enter the Premises during the Lease term at all reasonable times during
usual business hours for purposes of inspection, and/or the performance of any
work therein. Landlord shall have the right to enter the Premises and show the
same to a prospective tenant during the last ninety (90) days of this Lease.
21. DEFAULT - REMEDIES OF LANDLORD.
(a) If after thirty (30) business days written notice of
default (ten (10) business days in the case of a monetary default) Tenant shall
remain in default in the payment of rent or in the keeping of any of the terms,
covenants, or conditions of this Lease to be kept and/or performed by Tenant,
Landlord may immediately, or at any time thereafter declare this Lease
terminated and reenter the Premises, remove all persons and property therefrom,
without being liable to indictment, prosecution for damage therefor, or for
forcible entry and detainer, and repossess and enjoy the Premises, together
with all additions thereto or alterations and improvements thereof. Landlord
may, at its option, elect to treat this Lease as still in effect and relet the
Premises or any part thereof for the account of Tenant. Landlord shall receive
and collect the rents therefor and apply the same first to the payment of such
expenses as Landlord may have incurred in recovering possession and for putting
the same in good order and condition for rerent, and expense and commissions
and charges paid by Landlord in reletting the Premises. Any such reletting may
be for the remainder of the term of this Lease or for a longer or shorter
period. Whether or not the Premises or any part thereof be relet, Tenant shall
pay Landlord the rent and all other charges required to be paid by Tenant up to
the time of the expiration of this Lease or of such recovered possession, as
the case may be, and thereafter, Tenant, if required by Landlord, shall pay to
Landlord until the end of the term of this Lease, the equivalent of the amount
of all rent reserved herein and all other charges required to be paid by
Tenant, less the net amount received by Landlord for such reletting, if any.
If the Premises shall be reoccupied by Landlord, then, from and after the date
of repossession, Tenant shall be discharged of any obligations to Landlord
under the provisions hereof for the payment of rent.
(b) In the event of any default by Tenant which is not
timely cured, and regardless of whether the Premises shall be relet or
possessed by Landlord, any fixtures, additions, furniture, and the like then on
the Premises may be retained by Landlord.
(c) In the event of a default by Tenant in the
performance of any of its duties and obligations hereunder, Tenant shall pay
all costs incurred by Landlord in the enforcement of the provisions of this
Lease (including this provision) as against said Tenant, said costs to include
reasonable attorneys' fees
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whether or not litigation is commenced.
22. DEFAULT AND ABANDONMENT - REMEDIES OF LANDLORD. In the event
Tenant is in default under the terms hereof, and has abandoned the Premises,
Landlord shall have the right to remove all Tenant's property from the Premises
and dispose of said property in a commercially reasonable manner , all at the
cost and expense of Tenant and without liability of Landlord for the actions so
taken.
23. BANKRUPTCY. If at any time during the term hereof Tenant
shall file a voluntary petition in Bankruptcy, or if an involuntary petition in
Bankruptcy shall be filed against Tenant if the same shall not be dismissed
within thirty (30) days, or if Tenant makes an assignment for the benefit of
creditors, or if a receiver shall be appointed for Tenant, then Landlord may,
at its option, in any of such events, immediately take possession of the
Premises and terminate this Lease. Upon such termination, all installments of
rent earned to the date of termination and unpaid shall at once become due and
payable, and in addition thereto Landlord shall have all rights provided by the
Bankruptcy Code relative to the proof of claims on an anticipatory breach on an
executory contract.
24. INDEMNIFICATION. Tenant agrees to indemnify and hold Landlord
harmless from any claims, damages, liens, or judgments that may be filed,
entered or asserted against it by virtue of Tenant's use of the Premises or by
virtue of any act of Tenant, its agents, servants, contractors, licensees,
invitees, or employees. Landlord agrees to indemnify and hold Tenant harmless
from any claims, damages, liens, or judgments that may be filed, entered or
asserted against it by virtue of Landlord's use of the Premises or by virtue of
any act of Landlord, its agents, servants, contractors, licensees, invitees, or
employees. The obligations of Landlord and Tenant in this Section 0 shall
survive the expiration or termination of this Lease.
25. WARRANTY OF TITLE. Landlord covenants it has the legal right
to lease the Premises in the manner described herein and that Tenant shall
peaceably and quietly have, hold, occupy, and enjoy the Premises during the
term of the Lease.
26. ACCESS. Landlord shall provide Tenant non-exclusive access
through and across land owned by Landlord to the Premises. Landlord shall have
the right to designate, during the term of this Lease, non-exclusive roadways,
sidewalks, and other common facilities of which the Premises are a part.
27. DEVELOPMENT OF PROPERTY - RIGHTS OF LANDLORD. Landlord does
reserve, during the term of this Lease, the right to go upon and deal with the
Premises or part thereof for the purpose of implementing a common development
plan for the project of which the Premises are a part, and to install
non-exclusive roadways and
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other street improvements for use by vehicles, pedestrians, and for parking; to
undertake such drainage programs to handle underground and surface drainage
water and to make any other changes and/or improvements as Landlord shall deem
advisable in the exercise of its sole discretion; provided, however, any such
action by Landlord shall not unreasonably interfere with the rights of Tenant
hereunder.
28. EMINENT DOMAIN. The parties agree that Landlord shall have
complete freedom of negotiation and settlement of all matters pertaining to the
acquisition of all or part of Premises by any public or quasi-public authority.
It is understood and agreed that any financial settlement respecting land
and/or building to be taken, whether resulting from negotiation and agreement
or condemnation proceedings, shall be the exclusive property of Landlord, there
being no sharing whatsoever between Landlord and Tenant of any sum received in
settlement. If any part of the Premises in excess of twenty-five percent (25%)
of the area of the Premises is taken or condemned for a public or quasi-public
use (or any transfer is made in lieu thereof), either party hereto shall have
the right, at its option, to terminate this Lease. If either (i) less than
twenty-five percent (25%) of the land area of the Premises is taken, or (ii)
more than twenty-five (25%) percent of the land area of the Premises is taken
and neither party elects to terminate the Lease, the rent payable hereunder
shall be equitably adjusted. Neither Landlord nor Tenant shall have any claim
against each other for the value of the unexpired Lease. The taking of land,
as noted herein, shall not be considered as a breach of this Lease by Landlord,
nor give rise to any claims in Tenant for damages or compensation from
Landlord.
29. SUBORDINATION. Tenant agrees that its Lease rights will be
subordinate to those of any lending institution making any loan upon the real
property which is part of the Premises. Tenant further agrees to sign
reasonable documents reflecting this subordination when and if requested by
Landlord. If Tenant fails to execute and deliver such documents, Tenant
irrevocably constitutes and appoints Landlord as Tenant's special
attorney-in-fact to execute and deliver such documents on Tenant's behalf. In
the event of subordination of this Lease, at Tenant's request, Landlord shall
obtain a nondisturbance agreement from the superior lien holder protecting
Tenant's rights under this Lease.
30. INTEREST ON PAST DUE OBLIGATIONS. Any amount due to Landlord
not paid within five (5) business days of when due shall bear interest at one
and one-half (1 1/2) percent per month computed on a daily basis from due date
until paid. Payment of such interest shall not excuse or cure any default by
Tenant under this Lease.
31. LATE CHARGE. If any rent, additional rent or other charges
due to Landlord are not paid within five (5) business days of when due,
Landlord and Tenant agree that Landlord will incur
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additional administration and economic expenses and inconvenience, the amount
of which will be difficult to determine. Accordingly, notwithstanding the
interest charge payable pursuant to Section 0, Tenant shall pay Landlord an
additional late charge in the amount of $500.00.
32. MEMORANDUM OF LEASE - RECORDING. This Lease shall not be
recorded in the office of the County Clerk and Recorder of Boulder County. In
order to effect public recordation, the parties hereto may, at the time this
Lease is executed, agree to execute a Memorandum of Lease incorporating therein
by reference the terms of this Lease, but deleting therefrom any expressed
statement or mention of the amount of rent herein reserved, which instrument
may be recorded by either party in the office of the Clerk and Recorder of
Boulder County.
33. ENVIRONMENTAL MATTERS.
(a) Definitions.
(1) Hazardous Material. Hazardous Material means
any substance:
(i) which is or becomes defined as a
"hazardous material," "hazardous waste," "hazardous
substance," "regulated substance," pollutant or contaminant
under any federal, state or local statute, regulation, rule,
order, or ordinance or amendments thereto; or
(ii) the presence of which on the
Premises causes or threatens to cause a nuisance upon the
Premises or to adjacent properties or poses or threatens to
pose a hazard to the health or safety of persons on or about
the Premises or requires investigation or remediation under
any federal, state or local statute, regulation, rule, order,
or ordinance or amendments thereto.
(2) Environmental Requirements.
Environmental Requirements means all applicable present and future
statutes, regulations, rules, ordinances, codes, licenses, permits,
orders, approvals, plans, authorization, concessions, franchises, and
similar items, of all governmental agencies, departments, commissions,
boards, bureaus, or instrumentalities, of the United States, states
and political subdivisions thereof and all applicable judicial,
administrative, and regulatory decrees, judgments, and orders relating
to the protection of human health or the environment.
(3) Environmental Damages.
Environmental Damages means all claims, judgments, injuries, damages
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(including without limitation damages for diminution in the value of
the Premises and adjoining property and for the loss of business from
the Premises and adjoining property), losses, penalties, fines,
liabilities (including strict liability), encumbrances, liens, costs,
and expenses of investigation and defense of any claim, and of any
good faith settlement of judgment, of whatever kind or nature,
contingent or otherwise, matured or unmatured, foreseeable or
unforeseeable, including without limitation reasonable attorneys' fees
and disbursements and consultants' fees, any of which are incurred at
any time as a result of the existence of "Hazardous Material" upon,
about, beneath the Premises or migration or threatening to migrate to
or from the Premises or the existence of a violation of "Environmental
Requirements" pertaining to the Premises.
(b) Tenant's Obligation to Indemnify, Defend and Hold
Harmless.
(1) Tenant, its successors, assigns and
guarantors, agree to indemnify, defend, reimburse and hold harmless
the following persons from and against any and all "Environmental
Damages" arising from activities of Tenant or its employees, agents,
or invitees which (a) result in the presence of "Hazardous Materials"
upon, about or beneath the Premises or migrating to or from the
Premises, or (b) result in the violation of any "Environmental
Requirements" pertaining to the Premises and the activities thereon:
(i) Landlord;
(ii) any other person who acquires a
portion of the Premises in any manner, including but
not limited to through purchase, at a foreclosure
sale or otherwise through the exercise of the rights
and remedies of Landlord under this Agreement; and
(iii) the directors, officers, shareholders,
employees, partners, members, managers, agents,
affiliates, lessees, mortgagees, trustees, heirs,
devisees, successors, and assigns of such persons.
(2) This obligation shall include, but not be
limited to, the burden and expense of defending all claims, suits and
administrative proceedings (with counsel reasonably approved by the
indemnified parties), and conducting all negotiations of any
description, and paying and discharging, when and as the same become
due, any and all judgments, penalties or other sums due against such
indemnified persons. Tenant, at its sole expense, may employ
additional counsel of its choice to associate with counsel
representing Landlord.
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(3) The obligations of Tenant in this Section 0
shall survive the expiration or termination of this Lease.
(c) Notification. If Tenant shall become aware of or
receive notice or other communication concerning any actual, alleged, suspected
or threatened violation of "Environmental Requirements," or liability of Tenant
for "Environmental Damages" in connection with the Premises or past or present
activities of any person thereon, or that any representation set forth in this
Agreement is not or is no longer accurate, then Tenant shall deliver to
Landlord, within ten (10) business days of the receipt of such notice, or
communication or correcting information by Tenant, a written description of
such information or condition, together with copies of any documents evidencing
same.
(d) Negative Covenants.
(1) No Hazardous Material on Premises. Except in
strict compliance with all Environmental Requirements, Tenant shall
not cause, permit or suffer any "Hazardous Material" to be brought
upon, treated, kept, stored, disposed of, discharged, released,
produced, manufactured, generated, refined or used upon, about or
beneath the Premises or any portion thereof by Tenant, its agents,
employees, contractors, tenants or invitees, or any other person
without prior written consent of Landlord.
(2) No Violations of Environmental Requirements.
Tenant shall not cause, permit or suffer the existence or the
commission by Tenant, its agents, employees, contractors, or invitees,
or by any other person of a violation of any "Environmental
Requirements" upon, about or beneath the Premises or any portion
thereof.
(e) Right to Inspect. Landlord shall have the right in
its sole and absolute discretion, but not the duty, to enter and conduct an
inspection of the Premises at any reasonable time to determine whether Tenant
is complying with the terms of this Lease, including but not limited to the
compliance of the Premises and the activities thereon with "Environmental
Requirements" and the existence of "Environmental Damages." Tenant hereby
grants to Landlord the right to enter the Premises and to perform such tests on
the Premises as are reasonably necessary in the opinion of Landlord to conduct
such reviews and investigations. Landlord shall use its best efforts to
minimize interference with the business of Tenant but Landlord shall not be
liable for any interference caused thereby.
(f) Right to Remediate. Should Tenant fail to perform or
observe any of its obligations or agreements pertaining to "Hazardous
Materials" or "Environmental Requirements," then Landlord shall have the right,
but not the duty, without
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limitation upon any of the rights of Landlord pursuant to this Agreement, to
enter the Premises personally or through its agents, consultants or contractors
and perform the same. Tenant agrees to indemnify Landlord for the costs
thereof and liabilities therefrom as set forth in Section 0 above.
(g) Obligation to Remediate.
(1) Notwithstanding the obligation of Tenant to
indemnify Landlord pursuant to this Lease Agreement, Tenant shall,
upon demand of Landlord, and at its sole cost and expense, promptly
take all actions reasonably necessary to remediate all Environmental
Damages, excluding, however, any Environmental Damages which Landlord
is required to remediate pursuant to Section 33(g)(2) below.
(2) Landlord agrees to remediate all
Environmental Damages (a) caused by Landlord, its agents, employees or
invitees, or (b) not so caused but arising prior to the Lease
Commencement Date hereof and not caused by Tenant, its agents,
employees or invitees.
(h) Landlord's Obligation to Indemnify, Defend and Hold
Harmless.
(1) Landlord, its successors, assigns and
guarantors, agree to indemnify, defend, reimburse and hold harmless
the following persons from and against any and all "Environmental
Damages" arising from activities of Landlord or its employees, agents,
or invitees, or which occurred prior to the Lease Commencement Date
(and were not caused by Tenant, its agents, employees or invitees),
which (a) result in the presence of "Hazardous Materials" upon, about
or beneath the Premises or migrating to or from the Premises, or (b)
result in the violation of any "Environmental Requirements" pertaining
to the Premises and the activities thereon:
(i) Tenant; and
(ii) the directors, officers, shareholders,
employees, partners, members, managers, agents,
affiliates, lessees, mortgagees, trustees, heirs,
devisees, successors, and assigns of such persons.
(2) This obligation shall include, but not be
limited to, the burden and expense of defending all claims, suits and
administrative proceedings (with counsel reasonably approved by the
indemnified parties), and conducting all negotiations of any
description, and paying and discharging, when and as the same become
due, any and all judgments, penalties or other sums due against such
indemnified persons. Landlord, at its sole expense, may employ
additional counsel
-16-
<PAGE> 20
of its choice to associate with counsel representing Tenant.
(3) The obligations of Landlord in this
Section 33(h) shall survive the expiration or termination of this
Lease.
34. NO WAIVER OF BREACH. No assent, expressed or implied, to any
breach of any one or more of the covenants or agreements herein shall be deemed
or taken to be a waiver of any succeeding or additional breach.
35. NOTICE PROCEDURE. All notices, demands, and requests which
may or are required to be given by either party to the other shall be in
writing and shall be deemed to have been properly given if served on the other
party or sent to the other party by United States certified mail, return
receipt requested, properly sealed, stamped and addressed as follows:
Landlord: Technical Building Company
c/o Mr. Gebhard Buggel
P.O. Box 4792
Boulder, CO 80306-4792
Tenant: American Coin Merchandising, Inc.
d/b/a Sugarloaf Creations, Inc.
c/o Jerome M. Lapin
5660 Central Avenue
Boulder, CO 80301
or at such other place as the parties may from time to time designate in a
writing. Any notice given by mail shall be effective as of the date of mailing
as shown by the receipt given therefor.
36. CONTROLLING LAW. This Lease and all terms hereunder shall be
construed consistent with the laws of the State of Colorado. Any dispute
resulting in litigation hereunder shall be resolved in court proceedings
instituted in Colorado and in no other jurisdiction.
37. BINDING UPON SUCCESSORS. The covenants and agreements herein
contained shall bind and inure to the benefit of Landlord and Tenant and their
respective successors. This Lease shall be signed by the parties in duplicate,
each of which shall be a complete and effective original Lease.
38. MISCELLANEOUS. All marginal notations and section headings
are for the purposes of reference and shall not affect the true meaning and
intent of the terms hereof. Throughout this Lease, wherever the words,
"Landlord" and "Tenant" are used they shall include and imply to the singular,
plural, persons both male and female, companies, partnerships and corporations,
and in reading said Lease, the necessary grammatical changes required to
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<PAGE> 21
make the provisions hereof mean and apply as aforesaid shall be made in the
same manner as though originally included in said Lease.
39. ADDITIONAL PROVISIONS.
(a) Parking; Resurfacing. Tenant shall be entitled to a
minimum of two-thirds of the parking spaces in the parking lot immediately
adjacent to the Premises. Landlord shall specify the location of such parking
spaces on the lot after consultation with Tenant. Landlord agrees to resurface
the parking lot on or before June 30, 1997.
(b) Option on Adjacent Space. Tenant shall have the
first right to lease any additional space in the subject property. Landlord
shall notify Tenant when a vacancy occurs and Tenant shall have fifteen (15)
business days to accept the vacant space, under market terms and conditions.
If Tenant does not notify Landlord in writing of its intent to lease the
additional space, Landlord shall be free to begin negotiation with any other
prospective tenant.
(c) Condition of Premises. Landlord agrees that, after
the current tenant vacates the Premises and prior to the commencement date of
this Lease, the carpets in the Premises will be steam-cleaned and appropriate
touch-up painting will be done in the office areas. Landlord further agrees to
remove any trash or rubbish and otherwise deliver the Premises to Tenant in a
clean and useable condition on the commencement date of this Lease.
(d) Attorney Fees. In the event of any dispute arising
out of or in connection with this Lease, the prevailing party shall be entitled
to all reasonable costs and expenses incurred by such prevailing party,
including reasonable attorney's fees.
(e) Approval of Tenant Finish. Tenant has together with
Landlord prepared and submitted to the City of Boulder a building permit
application regarding the Tenant Finish desired to be constructed by Tenant on
the Property, and the City of Boulder has issued a letter indicating its
approval of the building permit application, subject only to delivery of the
name of the licensed contractor who will perform the work. Landlord may
terminate this Lease if Tenant fails to submit the name of the licensed
contractor who will perform the Tenant Finish installation to the City of
Boulder on or before January 22, 1997. If after due submission of a licensed
contractor name, the City of Boulder does not issue a building permit by
January 24, 1997, or if the City of Boulder or other applicable governmental
authorities reject Tenant's plans for Tenant Finish or require such
modifications which are unacceptable to Tenant, then Tenant shall have the
right to terminate this Lease by written notice to Landlord no later than
January 28, 1997. Upon delivery of a notice of termination,
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<PAGE> 22
this Lease shall be null and void and of no further force and effect, Landlord
shall return any security deposit plus all accrued interest to Tenant, and
Tenant shall have no further rights, duties or obligations hereunder.
40. DEFAULT BY LANDLORD. If after thirty (30) days' written
notice of default, Landlord shall remain in default in the keeping of the
terms, covenants, or conditions contained in Sections 0, 0(a), 0(c), and 0 of
this Lease to be kept by and/or performed by Landlord, Tenant may immediately
terminate this Lease by written notice to Landlord. Tenant may, at its option,
pay or perform such obligations of Landlord hereunder to which default has been
declared, and withhold the amount or value of such payment or performance from
any rent due Landlord hereunder.
IN WITNESS WHEREOF, the parties have executed this Lease as of the
date hereof.
LANDLORD: TECHNICAL BUILDING COMPANY
By: /s/ Gebhard Buggel
-------------------------------
Gebhard Buggel, Managing Agent
TENANT: AMERICAN COIN MERCHANDISING, INC.
By: /s/ Jerome M. Lapin
-------------------------------
Jerome M. Lapin, President
-19-
<PAGE> 1
EXHIBIT 11.1
AMERICAN COIN MERCHANDISING, INC.
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
YEAR
ENDED
DECEMBER 31,
1996
----
<S> <C>
EARNINGS PER SHARE:
NET EARNINGS . . . . . . . . . . . . . . $ 2,586,000
-------------
COMMON SHARES OUTSTANDING
AT BEGINNING OF PERIOD . . . . . . . . 5,081,608
EFFECT OF SHARES ISSUED DURING
THE PERIOD . . . . . . . . . . . . . . 10,474
EFFECT OF SHARES ISSUABLE UNDER
STOCK OPTIONS USING THE
TREASURY STOCK METHOD . . . . . . . . . 325,368
-------------
SHARES USED IN COMPUTING
EARNINGS PER SHARE . . . . . . . . . . 5,417,450
=============
EARNINGS PER COMMON SHARE . . . . . . . . $ 0.48
=============
</TABLE>
(a) Primary and fully diluted earnings per share are the same.
(b) Net earnings per share for the years ended December 31, 1995 and 1994 has
been omitted because through August 31, 1995 the Combined Companies were
not a single entity with its own capital structure.
<PAGE> 1
EXHIBIT 23.1
THE BOARD OF DIRECTORS AND STOCKHOLDERS
AMERICAN COIN MERCHANDISING, INC.:
We consent to the incorporation by reference in the registration statement (No.
33-98888) on Form S-8 of American Coin Merchandising, Inc. of our report dated
February 25, 1997, relating to the balance sheets of American Coin
Merchandising, Inc. as of December 31, 1996 and 1995, and the related
statements of earnings, stockholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1996, which report appears in
the December 31, 1996, annual report on Form 10-KSB of American Coin
Merchandising, Inc.
/S/ KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
Boulder, Colorado
March 27, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 771
<SECURITIES> 0
<RECEIVABLES> 673
<ALLOWANCES> 0
<INVENTORY> 4,329
<CURRENT-ASSETS> 5,953
<PP&E> 15,068
<DEPRECIATION> 4,697
<TOTAL-ASSETS> 19,758
<CURRENT-LIABILITIES> 3,023
<BONDS> 0
0
0
<COMMON> 51
<OTHER-SE> 11,625
<TOTAL-LIABILITY-AND-EQUITY> 19,758
<SALES> 37,065
<TOTAL-REVENUES> 38,267
<CGS> 13,502
<TOTAL-COSTS> 26,942
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 382
<INCOME-PRETAX> 3,897
<INCOME-TAX> 1,311
<INCOME-CONTINUING> 2,586
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,586
<EPS-PRIMARY> 0.48
<EPS-DILUTED> 0.48
</TABLE>
