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FORM 8-A
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FOR REGISTRATION OF CERTAIN CLASSES OF SECURITIES
PURSUANT TO SECTION 12(b) OR (g) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
NEVSTAR GAMING CORPORATION
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(Exact name of registrant as specified in its charter)
Nevada 88-0309578
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(State of incorporation (I.R.S. Employer
or organization) Identification No.)
6897 West Charleston Boulevard, Las Vegas, Nevada 89117
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(Address of principal executive offices) (Zip code)
Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class to Name of each exchange on which
be so registered each class is to be registered
None
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Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
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(Title of class)
Redeemable Common Stock Purchase Warrants
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(Title of class)
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ITEM 1. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED.
A description of the Common Stock and the Redeemable Common Stock
Purchase Warrants to be registered hereunder is contained in the section
entitled, "Description of Securities" beginning on page 69 of the Preliminary
Prospectus included in the Registrant's Form SB-2 Registration Statement filed
July 19, 1996 (the "Form SB-2 Registration Statement"), and is incorporated
herein by reference.
ITEM 2. EXHIBITS.
Exhibit
Number Description
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3.1 Restated Articles of Incorporation of NevStar Gaming
Corporation [formerly Mesquite Gaming Corporation].
3.2 Bylaws of NevStar Gaming Corporation [formerly Mesquite Gaming
Corporation].
4.1 Warrant Agent Agreement.
4.2 Specimen Stock Certificate.
4.3 Specimen Redeemable Warrant Certificate.
99.1 Amendment No. 3 to Form SB-2 Registration Statement.
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SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the Registrant has caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
Nevstar Gaming Corporation
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(Registrant)
Date: July 19, 1996 By: /s/ Michael Signorelli
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Michael Signorelli
President
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EXHIBIT 3.1
RESTATED ARTICLES OF INCORPORATION
OF
MESQUITE GAMING CORP.
Pursuant to the Nevada Revised Statutes (the "NRS"), Section 78.403,
the undersigned do hereby declare and certify that:
(a) They are the President and Secretary, respectively, of
Mesquite Gaming Corp., a Nevada corporation (the "Corporation");
(b) The original Articles of Incorporation were filed with the
Nevada Secretary of State on December 2, 1993; and
(c) The board of directors of the Corporation has unanimously
approved and the Stockholders of the Corporation owning fifty-three percent
(53%) of the outstanding shares of the Corporation entitled to vote, have
approved the following amended and restated Articles of Incorporation:
RESTATED ARTICLES OF INCORPORATION
OF
MESQUITE GAMING CORP.
The undersigned, for the purpose of forming a corporation, pursuant to
and by virtue of Chapter 78 of the Nevada Revised Statutes (the "NRS"), hereby
adopts and acknowledges the following Articles of Incorporation.
ARTICLE I
NAME
SECTION 1.1. The name of the corporation is NevStar Gaming
Corporation.
ARTICLE II
RESIDENT AGENT AND REGISTERED OFFICE
SECTION 2.1. The name of the resident agent and the street address of
the registered office in the State of Nevada where process may be served upon
the corporation is Sierra Corporate Services, 241 Ridge Street, Post Office Box
2670, Reno, Nevada 89505-2670. The corporation may, from time to time, in the
manner provided by law, change the resident agent and the registered office
within the State of Nevada. The corporation may also maintain an office or
offices for the conduct of its business, either within or without the State of
Nevada.
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ARTICLE III
CAPITAL STOCK
SECTION 3.1. AUTHORIZED SHARES. The aggregate number of shares the
Corporation shall have authority to issue is 100,000,000 shares of capital stock
consisting of having a par value of $.01 per share to be held, sold and paid for
at such times and in such manner as the Board of Directors may from time to time
determine in accordance with the laws of the State of Nevada.
SECTION 3.2. AUTHORITY OF BOARD OF DIRECTORS WITH RESPECT TO SHARES.
The Board of Directors is vested with the authority to authorize by resolution,
from time to time, different classes or series of shares, either common or
preferred, and may fix the voting powers, designations, preferences,
limitations, restrictions, and relative rights of each class or series of
shares, subject to Sections 3.5, 3.6, and 3.7 below. The Board of Directors also
shall have the authority to issue rights to convert any of the Corporations's
securities into shares of stock of any class or classes, and the authority to
issue options to purchase or subscribe for shares of stock of any class or
classes, and the authority to issue warrants or any other evidence of such
option rights which set forth the terms, provisions, and conditions thereof,
including the price or prices at which such shares may be subscribed for or
purchased. Such options, warrants, and rights may be transferable or
nontransferable and separable or inseparable from other securities of the
Corporation. The Board of Directors is authorized to fix the term, provisions,
and conditions of such options, warrants, and rights, including the conversion
basis or bases and the option price or prices at which shares may be subscribed
for or purchased.
SECTION 3.3. SHARE DIVIDENDS. The Board of Directors shall have the
authority to issue shares of a class or series to holders of shares of another
class or series to effectuate share dividends, splits or conversions of its
outstanding shares.
SECTION 3.4. CONSIDERATION FOR SHARES. The shares of the
corporation's stock shall be issued for such consideration as shall be fixed,
from time to time, by the Board of Directors.
SECTION 3.5. ASSESSMENT OF STOCK. The shares of the corporation's
stock, after the amount of the subscription price has been fully paid, shall not
be assessable for any purpose, and no stock issued as fully paid shall ever be
assessable or assessed. No stockholder of the corporation is individually liable
for the debts or liabilities of the corporation.
SECTION 3.6 NO CUMULATIVE VOTING FOR DIRECTORS. No stockholder of
the corporation shall be entitled to cumulative voting of his shares for the
election of directors.
SECTION 3.7. NO PREEMPTIVE RIGHTS. No stockholder of the corporation
shall have any preemptive rights.
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ARTICLE IV
DIRECTORS AND OFFICERS
SECTION 4.1. NUMBER OF DIRECTORS. The members of the governing board
of the corporation are styled as directors. The Board of Directors shall consist
of seven (7) Directors. Thereafter, the number of directors may be changed from
time to time in such manner as shall be provided in the bylaws of the
corporation.
SECTION 4.2. NAME AND ADDRESS OF DIRECTORS. The name and post office
box or street address of the directors currently constituting the Board of
Directors are:
NAME ADDRESS
Michael J. Signorelli Executive Park West
6845 West Charleston, Suite A
Las Vegas, Nevada 89117
The remaining six (6) directors shall be elected by the stockholders
after the filing of these Articles.
SECTION 4.3. CLASSIFIED BOARD.
(a) Commencing with the annual meeting of stockholders in
1995, the directors shall be classified, with respect to the time for which they
severally hold office, into three (3) classes, as nearly equal in number as
possible as the then total number of directors constituting the entire board
permits, pursuant to the provisions of the Corporation's Articles of
Incorporation and its bylaws. The respective classes of directors shall be
elected to terms of one, two and three years. At each subsequent annual meeting
of stockholders, the successors to the class of directors whose term expires at
that meeting shall be elected, by a plurality of the votes cast, to hold office
for a term expiring at the annual meeting of stockholders held in the third year
following the year of their election and until their successors have been duly
elected and qualified. Election of directors need not be by ballot unless the
bylaws so provide.
(b) Except as otherwise fixed by resolution of the Board of
Directors pursuant to these Articles of Incorporation relating to the
authorization of the Board of Directors to provide by resolution for the
issuance of preferred stock and determine the rights of the holders of such
preferred stock to elect directors, newly created directorships resulting from
any increase in the authorized number of directors or any vacancies in the Board
of Directors resulting from death, resignation, retirement, disqualification,
removal from office or other cause shall be filled solely by the Board of
Directors, acting by not less than a majority of the directors then in office or
by a sole remaining director in office. Any director so chosen shall hold office
until the next election of the class for which such director shall have been
chosen and until his successor shall be elected and qualified. No decrease in
the number of directors shall shorten the term of any incumbent director.
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(c) At any annual meeting of stockholders of the
corporation, or at any special meeting of stockholders of the Corporation, the
notice of which shall have stated that the removal of a director or directors is
among the purposes of the meeting, the holders of capital stock entitled to vote
thereon, present in person or by proxy, by vote of a majority of the outstanding
shares thereof, voting together as a single class, may remove such director or
directors for cause, or by vote of at least two-thirds (2/3rds) of the
outstanding shares thereof, voting together as a single class, may remove such
director or directors other than for cause.
(d) Notwithstanding any other provision of these Articles of
Incorporation or the bylaws of the Corporation, and notwithstanding the fact
that a lesser percentage may be specified by law, these Articles of
Incorporation or the bylaws of the Corporation, the affirmative vote of the
holders of at least two-thirds percent (2/3%) of the combined voting power of
the then outstanding shares of stock entitled to vote generally in the election
of directors, voting together as a single class, shall be required to alter,
amend, adopt any provision inconsistent with or repeal this Section 4.3.
SECTION 4.4 LICENSING. Each director and each officer shall meet the
qualifications for a license or finding of suitability as set forth in NRS Sec.
463.170 and shall, in all other respects, comply with all requirements of the
Nevada Gaming Control Act for the filing and processing of licensing
applications. Each director and officer shall also comply with all applicable
state, local and municipal gaming and liquor licensing laws in Nevada and any
other jurisdiction in which the corporation does business.
SECTION 4.5. LIMITED LIABILITY OF DIRECTORS AND OFFICERS. No director
or officer of the corporation shall be personally liable to the corporation or
any of its stockholders for damages for breach of fiduciary duty as a director
or officer; provided, however, that the foregoing provision does not eliminate
or limit the liability of a director or officer of the corporation for (a) acts
or omissions which involve intentional misconduct, fraud or a knowing violation
of law, or (b) the payment of distributions in violation of NRS Sec. 78.300. If
the Private Corporations law of Nevada is hereafter amended or interpreted to
eliminate or limit further the personal liability of directors or officers, then
the liability of all directors and officers shall be eliminated or limited to
the fullest extent then so permitted.
SECTION 4.6. INDEMNIFICATION AND INSURANCE. The corporation to the
full extent of its power to do so, shall indemnify all directors, officers,
employees, and/or agents in accordance with the provisions of the Nevada Revised
Statutes. Further, the corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him in any such capacity or arising out of his status as such, whether or not
the corporation would have the power to indemnify him against such liability
under the provisions of Nevada law.
SECTION 4.7. PAYMENT OF EXPENSES. In addition to any other rights of
indemnification permitted by the law of the State of Nevada as may be provided
for by the corporation in its bylaws or by agreement, the expenses of officers
and directors incurred in
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defending a civil or criminal action, suit or proceeding, involving alleged
acts or omissions of such officer or director in his or her capacity as an
officer or director of the corporation, must be paid, by the corporation or
through insurance purchased and maintained by the corporation or through other
financial arrangements made by the corporation, as they are incurred and in
advance of the final disposition of the action, suit or proceeding, upon receipt
of an undertaking by or on behalf of the director or officer to repay the amount
if it is ultimately determined by a court of competent jurisdiction that he or
she is not entitled to be indemnified by the corporation.
SECTION 4.8. REPEAL AND CONFLICTS. Any repeal or modification of
Section 4.5 or 4.6 approved by the stockholders of the corporation shall be
prospective only. In the event of any conflict between Section 4.5 or 4.6 and
any other Article of the corporation's Articles of Incorporation, the terms and
provisions of Section 4.5 or 4.6, as the case may be, shall control.
SECTION 4.9. INDEMNIFICATION. Each person who is or was a director of
the corporation (including the heirs, executors, administrators or estate of
such person) shall be indemnified by the corporation as of right to the full
extent permitted by Chapter 78 of the Nevada Revised Statutes against any
liability, cost or expense asserted against such director and incurred by such
director by reason of the fact that such person is or was a director. The
expenses of directors, past or present, incurred in defending a civil or
criminal action, suit, or proceeding must be paid by the corporation as incurred
and in advance of the final disposition of the action, suit or proceeding upon
receipt of an undertaking by or on behalf of the director to repay the amount if
it is ultimately determined by a court of competent jurisdiction that he is not
entitled to be indemnified by the corporation.
ARTICLE V
STOCKHOLDER OBLIGATIONS
SECTION 5.1 GOVERNMENTAL AUTHORITIES. Notwithstanding anything to
the contrary in these Articles of Incorporation, if any governmental authority,
including any governmental authority engaged in regulating gaming activities,
which has jurisdiction over the Corporation or any subsidiary of the Corporation
determines that any Stockholder of the Corporation (including any beneficial
owner of stock owned of record by another firm or person) is not licensable,
qualified or suitable to be a Stockholder of the Corporation, or if any
governmental authority determines that a Stockholder of the Corporation is
required to obtain a license or be found suitable or qualified to be a
Stockholder of the Corporation and the Stockholder does not promptly (and in any
event within any period specified by the governmental authority or by any
applicable law or regulation) apply for a license or to be found suitable or
qualified,
(a) beginning on the day the governmental authority makes
the determination, or such later date as is fixed by the governmental authority,
until the determination of the governmental authority is revoked or the
Stockholder is licensed or found suitable or qualified, the Stockholder will not
be entitled to receive any dividends, to exercise, directly or indirectly any
voting rights, or to exercise, directly or indirectly, any
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other rights of a Stockholder, with regard to any stock of the Corporation owned
of record or beneficially by that Stockholder, and no stock owned of record or,
to the knowledge of the Corporation, beneficially by that Stockholder will be
treated as outstanding for the purpose of determining the number of shares
entitled to vote, or required for there to be a quorum, at any meeting of
Stockholders,
(b) the Stockholder will be required to dispose of all stock
of the Corporation which the Stockholder owns of record or of which the
Stockholder is the beneficial owner, within 30 days after the Corporation
notifies the Stockholder of the determination of the governmental authority, and
(c) beginning on the 30th day after the day on which the
Corporation notifies the Stockholder of the determination of the governmental
authority, the Corporation will have the option to redeem at any time, or from
time to time, until the determination of the governmental authority is revoked
or the Stockholder becomes licensed or is found qualified or suitable, any or
all of the stock of the Corporation which the Stockholder owns of record or of
which the Stockholder is the beneficial owner, at the price per share which is
the lower of
(i) the Fair Market Value (as defined below) of a
share of stock of the class to be redeemed on the day the Corporation
notifies the Stockholder of the determination of the governmental
authority, or
(ii) the Fair Market Value of a share of stock of
the class to be redeemed on the day the Corporation notifies the
Stockholder of the Corporation's election to redeem the stock.
SECTION 5.2 DEFINITION OF FAIR MARKET VALUE. For the purposes of
this Article V, the Fair Market Value of a share of a class of stock of the
Corporation on any day will be
(a) the last reported price at which stock of that class is
traded on that day on the principal market for stock of that class (whether that
is a stock exchange, an automated quotation system or another organized market),
or
(b) if the stock of that class is not traded in an organized
market, the Fair Market Value of a share of stock of that class as determined in
good faith by the Corporation's Board of Directors, based upon an evaluation
provided by an investment banking firm or other expert in valuing securities.
SECTION 5.3 NOTICES. A notice of determination of a governmental
authority or of an election to redeem stock will be deemed given to a
Stockholder on the day when it is mailed by first class mail to the Stockholder
at the address shown on the stock records of the Corporation, or, if the
Stockholder is a beneficial but not a record owner of stock of the Corporation,
at any address of the Stockholder shown on any report or other item filed with
the Securities and Exchange Commission or any successor to that agency, or at
the address shown on the stock records of the Corporation of any record owner of
any stock of the Corporation of which the Stockholder is a beneficial owner.
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SECTION 5.4 INJUNCTIVE RELIEF. The Corporation will be entitled to
injunctive relief in any court of competent jurisdiction to enforce the
provisions of this Article V and each holder of stock of the Corporation will be
deemed to have acknowledged by acquiring or retaining stock of the Corporation
that failure to comply with this Article V will expose the Corporation to
irreparable injury for which there is no adequate remedy at law and that the
Corporation is entitled to injunctive relief to enforce the provisions of this
Article V.
ARTICLE VII
INCORPORATOR
SECTION 7.1 The name and post office box or street address of the
Incorporator is:
NAME ADDRESS
Stephanie Syrrakos Seventh Floor, Bank of America Plaza
300 South Fourth Street
Las Vegas, Nevada 89101
[Incorporator's signatures and acknowledgements omitted pursuant to NRS
Sec. 78.403.]
[The Remainder of this Page Intentionally Left Blank.]
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IN WITNESS WHEREOF, we have executed these Restated Articles of
Incorporation of Mesquite Gaming Corp. this 28th of September, 1995.
/s/
--------------------------------
Michael J. Signorelli, President
Attest:
/s/
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Michael J. Signorelli, Secretary
[Signature Page to Restated Articles of Incorporation]
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STATE OF CALIFORNIA )
) ss.
COUNTY OF SAN DIEGO )
On September 28, 1995 before me, Donna J. Pugh, a Notary
Public of the State of California, personally appeared MICHAEL J. SIGNORELLI
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument, and
acknowledged that he executed the same as President and Secretary of Mesquite
Gaming Corp. and that by his signature on the instrument he executed the
instrument.
Witness my hand and official seal.
My commission expires: December 3, 1996
/s/
-------------
Notary Public
(SEAL)
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EXHIBIT 3.2
BYLAWS
OF
MESQUITE GAMING CORPORATION
ARTICLE I
STOCKHOLDERS
SECTION 1.01 ANNUAL MEETING. An annual meeting of the stockholders of
the corporation shall be held on the date and at the time and place as shall be
designated from time to time by the Board of Directors and stated in the notice
of the meeting, for the purpose of electing directors of the corporation to
serve during the ensuing year and for the transaction of such other business as
may properly come before the meeting. If the election of the directors of the
directors is not held on the day designated herein for any annual meeting of the
stockholders, or at any adjournment thereof, the president shall cause the
election to be held at a special meeting of the stockholders as soon thereafter
as is convenient.
SECTION 1.02 SPECIAL MEETINGS.
(a) Special meetings of the stockholders may be called by
the chairman, the president or the Board of Directors and shall be called by the
chairman, the president or the Board of Directors at the written request of the
holders of not less than 51% of the voting power of any class of the
corporation's stock entitled to vote.
(b) No business shall be acted upon at a special meeting
except as set forth in the notice calling the meeting, unless one of the
conditions for the holding of a meeting without notice set forth in Section 1.05
shall be satisfied, in which case any business may be transacted and the meeting
shall be valid for all purposes.
SECTION 1.03 PLACE OF MEETINGS. Any meting of the stockholders of the
corporation may be held at its registered office in the State of Nevada or at
such other place in or out of the United States as the Board of Directors may
designate. A waiver of notice signed by stockholders entitled to vote may
designate any place for the holding of such meeting.
SECTION 1.04 NOTICE OF MEETINGS.
(a) The president, a vice president, the secretary, an
assistant secretary or any other individual designated by the Board of Directors
shall sign and deliver written notice of any meeting at least ten (10) days, but
not more than sixty (60) days, before the date of such meeting. The notice shall
state the place, date and time of the meeting and the purpose or purposes for
which the meeting is called.
(b) In the case of an annual meeting, any proper business
may be presented for action, except that action on any of the following items
shall be taken only if the general nature of the proposal is stated in the
notice:
(1) Action with respect to any contract or
transaction between the corporation and one or more of its directors or officers
or between the corporation and any corporation, firm or association in which one
or more of the corporation's directors or officers is a director or officer or
is financially interested;
(2) Adoption of amendments to the Articles of
Incorporation; or
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(3) Action with respect to a merger, share
exchange, reorganization, partial or complete liquidation, or dissolution of the
corporation.
(c) A copy of the notice shall be personally delivered or
mailed postage prepaid to each stockholder of record entitled to vote at the
meeting at the address appearing on the records of the corporation, and the
notice shall be deemed delivered the date the same is deposited in the United
States mail for transmission to such stockholder. If the address of any
stockholder does not appear upon the records of the corporation, it will be
sufficient to address any such notice to such stockholder at the registered
office of the corporation.
(d) The written certificate of the individual signing a
notice of meeting, setting forth the substance of the notice or having a copy
thereof attached, the date the notice was mailed or personally delivered to the
stockholders and the addresses to which the notice was mailed, shall be prima
facie evidence of the manner and fact of giving such notice.
(e) Any stockholder may waive notice of any meeting by a
signed writing, either before or after the meeting.
SECTION 1.05 MEETING WITHOUT NOTICE.
(a) Whenever all persons entitled to vote at any meEting
consent, either by:
(1) A writing on the records of the meeting or
filed with the secretary; or
(2) Presence at such meeting and oral consent
entered on the minutes; or
(3) Taking part in the deliberations at such
meeting without objection;
the doings of such meeting shall be as valid as if had at a meeting regularly
called and noticed.
(b) At such meeting any business may be transacted that is
not excepted from the written consent or to the consideration of which no
objection for want of notice is made at the time.
(c) If any meeting be irregular for want of notice or of
such consent, provided a quorum was present at such meeting, the proceedings of
the meeting may be ratified and approved and rendered likewise valid and the
irregularity or defect therein waived by a writing signed by all parties having
the right to vote at such meeting.
(d) Such consent or approval may be by proxy or attorney,
but all such proxies and powers of attorney must be in writing.
SECTION 1.06 DETERMINATION OF STOCKHOLDERS OF RECORD.
(a) For the purpose of determining the stockholders entitled
to notice of and to vote at any meeting of stockholders or any adjournment
thereof, or to express consent to corporate action in writing without a meeting,
or entitled to receive payment of any distribution or the allotment of any
rights, or entitled to exercise any rights in respect of any change, conversion,
or exchange of stock or for the purpose of any other lawful action, the
directors may fix, in advance, a record date, which shall not be more than sixty
(60) days nor less than ten (10) days before the date of such meeting, nor more
than sixty (60) days prior to any other action.
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(b) If no record date is fixed, the record for determining
stockholders: (i) entitled to notice of and to vote at a meeting of
stockholders shall be at the close of business on the business day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the business day next preceding the day on which the
meeting is held; (ii) entitled to express consent to corporate action in writing
without a meeting shall be the day on which the first written consent is signed;
and (iii) for any other purpose shall be at the close of business on the day on
which the Board of Directors adopts the resolution relating thereto. A
determination of stockholders of record entitled to notice of or to vote at any
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
SECTION 1.07 QUORUM; ADJOURNED MEETINGS.
(a) Unless the Articles of Incorporation provide for a
different proportion, stockholders holding at least a majority of the voting
power of the corporation's stock, represented in person or by proxy, are
necessary to constitute a quorum for the transaction of business at any meeting.
If, on any issue, voting by classes is required by the laws of the State of
Nevada, the Articles of Incorporation or these Bylaws, at least a majority of
the voting power within each such class is necessary to constitute a quorum of
each such class.
(b) If a quorum is not represented, a majority of the voting
power so represented may adjourn the meeting from time to time until holders of
the voting power required to constitute a quorum shall be represented. At any
such adjourned meeting at which a quorum shall be represented, any business may
be transacted which might have been transacted as originally called. When a
stockholders' meeting is adjourned to another time or place hereunder, notice
need not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken. The stockholders
present at a duly convened meeting may continue to transact business until
adjournment, notwithstanding the withdrawal of enough stockholders to leave less
than a quorum of the voting power.
SECTION 1.08 VOTING.
(a) Unless otherwise provided in the Articles of
Incorporation, or in the resolution providing for the issuance of the stock
adopted by the Board of Directors pursuant to authority expressly vested in it
by the provisions of the Articles of Incorporation, each stockholder of record,
or such stockholder's duly authorized proxy or attorney-in-fact, shall be
entitled to one (1) vote for each share of voting stock standing registered in
such stockholder's name on the record date.
(b) Except as otherwise provided herein, all votes with
respect to shares standing in the name of an individual on the record date
(including pledged shares) shall be cast only by that individual or such
individual's duly authorized proxy, attorney-in-fact, or voting trustee(s)
pursuant to a voting trust. With respect to shares held by a representative of
the estate of a deceased stockholder, or by a guardian, conservator, custodian
or trustee, votes may be cast by such holder upon proof of capacity, even though
the shares do not stand in the name of such holder. In the case of shares under
the control of a receiver, the receiver may cast votes carried by such shares
even though the shares do not stand in the name of the receiver; provided, that
the order of the court of competent jurisdiction which appoints the receiver
contains the authority to cast votes carried by such shares. If shares stand in
the name of a minor, votes may be cast only by the duly appointed guardian of
the estate of such minor if such guardian has provided the corporation with
written proof of such appointment.
(c) With respect to shares standing in the name of another
corporation, partnership, limited liability company or other legal entity on the
record date, votes may be cast: (i) in the case of a
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corporation, by such individual as the bylaws of such other corporation
prescribe, by such individual as may be appointed by resolution of the board of
directors of such other corporation or by such individual (including the officer
making the authorization) authorized in writing to do so by the chairman of the
board of directors, president or any vice-president of such corporation and (ii)
in the case of a partnership, limited liability company or other legal entity,
by an individual representing such stockholder upon presentation to the
corporation of satisfactory evidence of his authority to do so.
(d) Notwithstanding anything to the contrary herein
contained, no votes may be cast for shares owned by this corporation or its
subsidiaries, if any. If shares are held by this corporation or its
subsidiaries, if any, in a fiduciary capacity, no votes shall be casts with
respect thereto on any matter except to the extent that the beneficial owner
thereof possesses and exercises either a right to vote or to give the
corporation holding the same binding instructions on how to vote.
(e) Any holder of shares entitled to vote on any matter may
cast a portion of the votes in favor of such matter and refrain from casting the
remaining votes or cast the same against the proposal, except in the case of
elections of directors. If such holder entitled to vote fails to specify the
number of affirmative votes, it will be conclusively presumed that the holder is
casting affirmative votes with respect to all shares held.
(f) With respect to shares standing in the name of two or
more persons, whether fiduciaries, members of a partnership, joint tenants,
tenants in common, husband and wife as community property, tenants by the
entirety, voting trustees, persons entitled to vote under a stockholder voting
agreement or otherwise and shares held by two or more persons (including proxy
holders) having the same fiduciary relationship in respect to the same shares,
votes may be cast in the following manner:
(1) If only one person votes, the vote of such
person binds all.
(2) If more than one person casts votes, the act
of the majority so voting binds all.
(3) If more than one person casts votes, but the
vote is evenly split on a particular matter,
the votes shall be deemed cast
proportionately, as split.
(g) If a quorum is present, unless the Articles of
Incorporation provide for a different proportion, the affirmative vote of
holders of at least a majority of the voting power represented at the meeting
and entitled to vote on any matter shall be the act of the stockholders, unless
voting by classes is required for any action of the stockholders by the laws of
the State of Nevada, the Articles of Incorporation or these Bylaws, in which
case the affirmative vote of holders of at least a majority of the voting power
of each such class shall be required.
SECTION 1.09 PROXIES. At any meeting of stockholders, any holder of
shares entitled to vote may designate, in a manner permitted by the laws of the
State of Nevada, another person or persons to act as a proxy or proxies. No
proxy is valid after the expiration of six (6) months from the date of its
creation, unless it is coupled with an interest or unless otherwise specified in
the proxy. In no event shall the term of a proxy exceed seven (7) years from the
date of its creation. Every proxy shall continue in full force and effect until
its expiration or revocation in a manner permitted by the laws of the State of
Nevada.
SECTION 1.10 ORDER OF BUSINESS. At the annual stockholders meeting,
the regular order of business shall be as follows:
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1. Determination of stockholders present and existence
of quorum, in person or by proxy;
2. Reading and approval of the minutes of the previous
meeting or meetings;
3. Reports of the Board of Directors, and, if any, of
the president, treasurer and secretary of the corporation;
4. Reports of committees;
5. Election of directors;
6. Unfinished business;
7. New business;
8. Adjournment.
SECTION 1.11 ABSENTEES' CONSENT TO MEETINGS. Transactions of any
meeting of the stockholders are as valid as though had at a meeting duly held
after regular call and notice if a quorum is represented, either in person or by
proxy, and if, either before or after the meeting, each of the persons entitled
to vote, not represented in person or by proxy (and those who, although present,
either object at the beginning of the meeting to the transaction of any business
because the meeting has not been lawfully called or convened or expressly object
at the meeting to the consideration of matters not included in the notice which
are legally required to be included therein), signs a written waiver of notice
or consent to the holding of the meeting or an approval of the minutes thereof.
All such waivers, consents, and approvals shall be filed with the corporate
records and made a part of the minutes of the meeting. Attendance of a person at
a meeting shall constitute a waiver of notice of such meeting, except when the
person objects at the beginning of the meeting to the transaction of any
business because the meeting is not lawfully called or convened and except that
attendance at a meeting is not a waiver of any right to object to the
consideration of matters not properly included in the notice if such objection
is expressly made at the time any such matters are presented at the meeting.
Neither the business to be transacted at nor the purpose of any regular or
special meeting of stockholders need be specified in any written waiver of
notice or consent, except as otherwise provided in Section 1.04(a) and (b) of
these Bylaws.
SECTION 1.12 TELEPHONIC MEETINGS. Stockholders may participate in a
meeting of the stockholders by means of a telephone conference or similar method
of communication by which all individuals participating in the meeting can hear
each other. Participation in a meeting pursuant to this Section 1.12 constitutes
presence in person at the meeting.
SECTION 1.13 ACTION WITHOUT MEETING. Any action required or permitted
to be taken at a meeting of the stockholders may be taken without a meeting if a
written consent thereto is signed by the holders of the voting power of the
corporation that would be required at a meeting to constitute the act of the
stockholders. Whenever action is taken by written consent, a meeting of the
stockholders need not be called or notice given. The written consent may be
signed in counterparts and must be filed with the minutes of the proceedings of
the stockholders.
ARTICLE II
DIRECTORS
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SECTION 2.01 NUMBER, TENURE, AND QUALIFICATIONS. Unless a larger
number is required by the laws of the State of Nevada or the Articles of
Incorporation or until changed in the manner provided herein, the Board of
Directors of the corporation shall consist of at least one (1) individual who
shall be elected at the annual meeting of stockholders of the corporation and
who shall hold office for one (1) year or until his or her successor or
successors are elected anf qualify. A director need not be a stockholder of the
corporation.
SECTION 2.02 CHANGE IN NUMBER. Subject to any limitations in the
laws of the State of Nevada, the Articles of Incorporation or these Bylaws, the
number of directors may be changed from time to time by resolution adopted by
the Board of Directors or the stockholders.
SECTION 2.03 REDUCTION IN NUMBER. No reduction of the number of
directors shall have the effect of removing any director prior to the expiration
of his term of office.
SECTION 2.04 RESIGNATION. Any director may resign effective upon
giving written notice to the chairman of the Board of Directors, the president,
the secretary, or in the absence of all of them, any other officer, unless the
notice specifies a later time for effectiveness of such resignation.
SECTION 2.05 REMOVAL.
(a) The Board of Directors of the corporation, by majority
vote, may declare vacant the office of a director who has been convicted of a
felony or who has been declared incompetent by an order of a court of competent
jurisdiction.
(b) Any director may be removed from office by the vote or
written consent of stockholders representing not less than two-thirds of the
voting power of the issued and outstanding stock entitled to vote, except that
if the corporation's Articles of Incorporation provide for the election of
directors by cumulative voting, no director may be removed from office except
upon the vote of stockholders owning sufficient shares to have prevented such
director's election to office in the first instance.
SECTION 2.06 VACANCIES.
(a) Unless otherwise provided in the Articles of
Incorporation, all vacancies, including those caused by an increase in the
number of directors, may be filled by a majority of the remaining directors,
though less than a quorum unless it is otherwise provided in the Articles of
Incorporation unless, in the case of removal of a director, the stockholders by
a majority of voting power shall have appointed a successor to the removed
director. Subject to the provisions of Subsection (b) below, (i) in the case of
the replacement of a director, the appointed director shall hold office during
the remainder of the term office of the replaced director, and (ii) in the case
of an increase in the number of directors, the appointed director shall hold
office until the next meeting of stockholders at which directors are elected.
(b) If, after the filling of any vacancy by the directors,
the directors then in office who have been elected by the stockholder constitute
less than a majority of the directors then in office, any holder or holders of
an aggregate of five percent (5%) or more of the total voting power entitled to
vote may call a special meeting of the stockholders to elect the entire Board of
Directors. The term of office of any director shall terminate upon such election
of a successor.
SECTION 2.07 ANNUAL AND REGULAR MEETINGS. Immediately following the
adjournment of, and at the same place as, the annual or any special meeting of
the stockholders at which directors are elected other than pursuant to Section
2.06 of this Article, the Board of Directors, including newly elected directors,
shall
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hold its annual meeting without notice, other than this provision, to elect
officers and to transact such further business as may be necessary or
appropriate. The Board of Directors may provide by resolution the place, date,
and hour for holding regular meetings between annual meetings.
SECTION 2.08 SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the chairman, or if there is no chairman, by the
president or secretary, and shall be called by the chairman, the president or
the secretary upon the request of any two (2) directors. If the chairman refuses
or, if there is no chairman, if both the president and secretary refuse or
neglect to call such special meeting, a special meeting may be called by notice
signed by any two (2) directors.
SECTION 2.09 PLACE OF MEETINGS. Any regular or special meeting of the
directors of the corporation may be held at such place as the Board of Directors
may designate or, in the absence of such designation, at the place designated in
the notice calling the meeting. A waiver of notice signed by directors may
designate any place for the holding of such meeting.
SECTION 2.10 NOTICE OF MEETINGS. Except as otherwise provided in
Section 2.07, there shall be delivered to all directors, at least forty-eight
(48) hours before the time of a meeting, a copy of a written notice of the
meeting, by delivery of such notice personally, by mailing such notice postage
prepaid, or by telegram. Such notice shall be addressed in the manner provided
for notice to stockholders in Section 1.04(c). If mailed, the notice shall be
deemed delivered two (2) business days following the date the same is deposited
in the United States mail, postage prepaid. Any director may waive notice of any
meeting, and the attendance of a director at a meeting and oral consent entered
on the Minutes of the meeting or taking part in deliberations of the meeting
without objection shall constitute a waiver of notice of such meeting.
Attendance for the express purpose of objecting to the transaction of business
thereat because the meeting is not properly called or convened shall not
constitute presence nor a waiver of notice for purposes hereof.
SECTION 2.11 QUORUM; ADJOURNED MEETINGS.
(a) A majority of the directors in office, at a meeting duly
assembled, is necessary to constitute a quorum for the transaction of business.
(b) At any meeting of the Board of Directors where a quorum
is not present, a majority of those present may adjourn, from time to time,
until a quorum is present, and no notice of such adjournment shall be required.
At any adjourned meeting where a quorum is present, any business may be
transacted which could have been transacted at the meeting originally called.
SECTION 2.12 BOARD OF DIRECTORS' DECISIONS. The affirmative vote of
a majority of the directors present at a meeting at which a quorum is present is
the act of the Board of Directors.
SECTION 2.13 TELEPHONIC MEETINGS. Members of the Board of Directors
or of any committee designated by the Board of Directors may participate in a
meeting of the Board of Directors or committee by means of a telephone
conference or similar method of communication by which all persons participating
in such meeting can hear each other. Participation in a meeting pursuant to this
Section 2.13 constitutes presence in person at the meeting.
SECTION 2.14 ACTION WITHOUT MEETING. Any action required or permitted
to be taken at a meeting of the Board of Directors or of a committee thereof may
be taken without a meeting if, before or after the action, a written consent
thereto is signed by all of the members of the Board of Directors or the
committee. The written consent may be signed in counterparts and must be filed
with the minutes of the proceedings of
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the Board of Directors or committee.
SECTION 2.15 POWERS AND DUTIES.
(a) Except as otherwise restricted by Nevada law or the
Articles of Incorporation, the Board of Directors has full control over the
affairs of the corporation. The Board of Directors may delegate any of its
authority to manage, control or conduct the business of the corporation to any
standing or special committee, or to any officer or agent, and to appoint any
persons to be agents of the corporation, each with such powers, including the
power to subdelegate, and upon such terms as may be deemed fit.
(b) The Board of Directors may present at annual meetings of
the stockholders, and when called for by a majority vote of the stockholders at
an annual meeting or a special meeting of the stockholders shall present, a full
and clear report of the condition of the corporation to the stockholders.
(c) The Board of Directors, in its discretion, may submit
any contract or act for approval or ratification at any annual meeting of the
stockholders or any special meeting properly called for the purpose of
considering any such contract or act, provided a quorum is present.
SECTION 2.16 COMPENSATION. The directors and members of committees
shall be allowed and paid all necessary expenses incurred in attending any
meetings of the Board of Directors or committees. Subject to any limitations
contained in the laws of the State of Nevada, the Articles of Incorporation or
any contract or agreement to which the corporation is a party, directors may
receive compensation for their services as directors as determined by the Board
of Directors, but only during such times as the corporation may legally declare
and pay distributions on its stock, unless the payment of such compensation is
first approved by the stockholders entitled to vote for the election of
directors.
SECTION 2.17 BOARD OF DIRECTORS' OFFICERS.
(a) At its annual meeting, the Board of Directors may elect,
from among its members, a chairman who shall preside at meetings of the Board of
Directors and may preside at meetings of the stockholders. In the absence of
such election, the president shall serve as chairman of the Board of Directors.
The Board of Directors may also elect such other officers of the Board of
Directors and for such term as it may from time to time deem advisable.
(b) Any vacancy in any office of the Board of Directors
because of death, resignation, removal or otherwise may be filled by the Board
of Directors for the unexpired portion of the term of such office.
SECTION 2.18 ORDER OF BUSINESS. The order of business at any meeting
of the Board of Directors shall be as follows:
1. Determination of members present and existence of
quorum;
2. Reading and approval of the minutes of any previous
meeting or meetings;
3. Reports of officers and committeemen;
4. Election of officers (annual meeting);
5. Unfinished business;
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6. New business;
7. Adjournment.
ARTICLE III
OFFICERS
SECTION 3.01 ELECTION. The Board of Directors, at its annual meeting,
shall elect a president, a secretary and a treasurer to hold office for a term
of one (1) year or until their successors are chosen and qualify. Any individual
may hold two or more offices. The Board of Directors may, from time to time, by
resolution, elect one or more vice-presidents, assistant secretaries and
assistant treasurers and appoint agents of the corporation, prescribe their
duties and fix their compensation.
SECTION 3.02 REMOVAL; RESIGNATION. Any officer or agent elected or
appointed by the Board of Directors may be removed by it with or without cause.
Any officer may resign at any time upon written notice to the corporation. Any
such removal or resignation shall be subject to the rights, if any, of the
respective parties under any contract between the corporation and such officer
or agent.
SECTION 3.03 VACANCIES. Any vacancy in any office because of death,
resignation, removal or otherwise may be filled by the Board of Directors for
the unexpired portion of the term of such office.
SECTION 3.04 PRESIDENT.
(a) Unless otherwise directed by the Board of Directors, the
president shall be the chief executive officer of the corporation, subject to
the supervision and control of the Board of Directors, and shall direct the
corporate affairs, with full power to execute all resolutions and orders of the
Board of Directors not expressly delegated to some other officer or agent of the
corporation and shall perform such other duties as prescribed by the Board of
Directors. If the Board of Directors shall, pursuant to Section 2.17, elect
someone other than the president as chairman of the board of directors and such
chairman elects not to preside or is absent, the president shall preside at
meetings of the stockholders and of the Board of Directors.
(b) The president shall have full power and authority on
behalf of the corporation to attend and to act and to vote, or designate such
other officer or agent of the corporation to attend and to act and to vote, at
any meetings of the stockholders of any corporation in which the corporation may
hold stock and, at any such meetings, shall possess and may exercise any and all
rights and powers incident to the ownership of such stock. The Board of
Directors, by resolution from time to time, may confer like powers on any person
or persons in place of the president to exercise such powers for these purposes.
SECTION 3.05 VICE-PRESIDENTS. The Board of Directors may elect one or
more vice-presidents who shall be vested with all the powers and perform all the
duties of the president whenever the president is absent or unable to act and
such other duties as shall be prescribed by the Board of Directors or the
president.
SECTION 3.06 SECRETARY. The secretary shall keep, or cause to be
kept, the minutes of the proceedings of the stockholders and the Board of
Directors in books provided for that purpose. The secretary shall attend to the
giving and service of all notices of the corporation, may sign with the
president in the name of the corporation all contracts in which the corporation
is authorized to enter, shall have the custody or designate control of the
corporate seal, shall affix the corporate seal to all certificates of stock duly
issued by the corporation, shall have charge or designate control of stock
certificate books, transfer
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books and stock ledgers, and such other books and papers as the Board of
Directors or appropriate committee may direct, and shall, in general, perform
all duties incident to the office of the secretary.
SECTION 3.07 ASSISTANT SECRETARIES. The Board of Directors may
appoint one or more assistant secretaries who shall have such powers and perform
such duties as may be prescribed by the Board of Directors or the secretary.
SECTION 3.08 TREASURER. The treasurer shall be the chief financial
officer of the corporation, subject to the supervision and control of the Board
of Directors, and shall have custody of all the funds and securities of the
corporation. When necessary or proper, the treasurer shall endorse on behalf of
the corporation for collection checks, notes, and other obligations, and shall
deposit all monies to the credit of the corporation in such bank or banks or
other depository as the Board of Directors may designate, and shall sign all
receipts and vouchers for payments made by the corporation. Unless otherwise
specified by the Board of Directors, the treasurer may sign with the president
all bills of exchange and promissory notes of the corporation, shall also have
the care and custody of the stocks, bonds, certificates, vouchers, evidence of
debts, securities, and such other property belonging to the Corporation as the
Board of Directors shall designate, and shall sign all papers required by law,
by these Bylaws, or by the Board of Directors to be signed by the treasurer. The
treasurer shall enter, or cause to be entered, regularly in the financial
records of the corporation, to be kept for that purpose, full and accurate
accounts of all monies received and paid on account of the corporation and,
whenever required by the Board of Directors, the treasurer shall render a
statement of any or all accounts. The treasurer shall at all reasonable times
exhibit the books of account to any director of the corporation and shall
perform all acts incident to the position of treasurer subject to the control of
the Board of Directors.
The treasurer shall, if required by the Board of Directors, give bond
to the corporation in such sum and with such security as shall be approved by
the Board of Directors for the faithful performance of all the duties of
treasurer and for restoration to the corporation, in the event of the
treasurer's death, resignation, retirement or removal from office, of all books,
records, papers, vouchers, money and other property in the treasurer's custody
or control and belonging to the corporation. The expense of such bond shall be
borne by the corporation.
SECTION 3.09 ASSISTANT TREASURERS. The Board of Directors may appoint
one or more assistant treasurers who shall have such powers and perform such
duties as may be prescribed by the Board of Directors or the treasurer. The
Board of Directors may require an assistant treasurer to give a bond to the
corporation in such sum and with such security as it may approve, for the
faithful performance of the duties of assistant treasurer, and for restoration
to the corporation, in the event of the assistant treasurer's death,
resignation, retirement or removal from office, of all books, records, papers,
vouchers, money and other property in the assistant treasurer's custody or
control and belonging to the corporation. The expense of such bond shall be
borne by the corporation.
ARTICLE IV
CAPITAL STOCK
SECTION 4.01 ISSUANCE. Shares of the corporation's authorized stock
shall, subject to any provisions or limitations in Nevada law, the Articles of
Incorporation or any contracts or agreements to which the corporation may be a
party, be issued, or otherwise reserved, in such manner, at such times, upon
such conditions and for such consideration as shall be prescribed by the Board
of Directors.
SECTION 4.02 CERTIFICATES. Ownership in the corporation shall be
evidenced by certificates for shares of stock in such form as shall be
prescribed by the Board of Directors, shall be under the seal of the
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corporation and shall be manually signed by the president or a vice-president
and also by the secretary, an assistant secretary, the treasurer, or an
assistant treasurer; provided, however, whenever any certificate is
countersigned or otherwise authenticated by a transfer agent or transfer clerk,
and by a registrar, then a facsimile of the signatures of said officers, the
transfer agent or transfer clerk or the registrar of the corporation may be
printed or lithographed upon the certificate in lieu of the actual signatures.
If the corporation uses facsimile signatures of its officers and agents on its
stock certificates, it shall not act as registrar of its own stock, but its
transfer agent and registrar may be identical if the institution acting in those
dual capacities countersigns or otherwise authenticates any stock certificates
in both capacities. Each certificate shall contain the name of the record
holder, the number, designation, if any, class or series of shares represented,
a statement or summary of any applicable rights, preferences, privileges or
restrictions thereon, and a statement, if applicable, that the shares are
assessable. All certificates shall be consecutively numbered. If provided by the
stockholder, the name, address and federal tax identification number of the
stockholder, the number of shares, and the date of issue shall be entered in the
stock transfer records of the corporation.
SECTION 4.03 SURRENDERED, LOST OR DESTROYED CERTIFICATES. All
certificates surrendered to the corporation, except those representing shares of
treasury stock, shall be canceled and no new certificate shall be issued until
the former certificate for a like number of shares shall have been canceled,
except that in case of a lost, stolen, destroyed or mutilated certificate, a new
one may be issued therefor. However, any stockholder applying for the issuance
of a stock certificate in lieu of one alleged to have been lost, stolen,
destroyed or mutilated shall, prior to the issuance of a replacement, provide
the corporation with the stockholder's affidavit of the facts surrounding the
loss, theft, destruction or mutilation and, if required by the Board of
Directors, an indemnity bond in an amount not less than twice the current market
value of the stock, and upon such terms as the treasurer or the Board of
Directors shall require, to indemnify the corporation against any loss, damage,
cost or inconvenience arising as a consequence of the issuance of a replacement
certificate.
SECTION 4.04 REPLACEMENT CERTIFICATE. When the Articles of
Incorporation are amended in any way affecting the statements contained in the
certificates for outstanding shares of capital stock of the corporation or it
becomes desirable for any reason, in the discretion of the Board of Directors,
including, without limitation, the merger of the corporation with another
corporation or the reorganization of the corporation, to cancel any outstanding
certificates for shares and issue a new certificate therefor conforming to the
rights of the holder, the Board of Directors may order any holders of
outstanding certificates for shares to surrender and exchange the same for new
certificates within a reasonable time to be fixed by the Board of Directors. The
order may provide that a holder of any certificate(s) ordered to be surrendered
shall not be entitled to vote, receive distributions or exercise any other
rights of stockholders of record until the holder has complied with the order,
but the order operates to suspend such rights only after notice and until
compliance.
SECTION 4.05 TRANSFER OF SHARES. No transfer of stock shall be valid
as against the corporation except on surrender and cancellation of the
certificates therefor accompanied by an assignment or transfer by the registered
owner made either in person or under assignment. Whenever any transfer shall be
expressly made for collateral security and not absolutely, the collateral nature
of the transfer shall be reflected in the entry of transfer in the records of
the corporation.
SECTION 4.06 TRANSFER AGENT; REGISTRARS. The Board of Directors may
appoint one or more transfer agents, transfer clerk and registrars of transfer
and may require all certificates for shares of stock to bear the signature of
such transfer agent, transfer clerk and/or registrar of transfer.
SECTION 4.07 STOCK TRANSFER RECORDS. The stock transfer records shall
be closed for a period
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of at last ten (10) days prior to all meetings of the stockholders and shall be
closed for the payment of distributions as provided in Article V hereof and
during such periods as, from time to time, may be fixed by the Board of
Directors, and, during such periods, no stock shall be transferable for purposes
of Article V and no voting rights shall be deemed transferred during such
periods. Subject to the foregoing limitations, nothing contained herein shall
cause transfers during such periods to be void or voidable.
SECTION 4.08 MISCELLANEOUS. The Board of Directors shall have the
power and authority to make such rules and regulations not inconsistent herewith
as it may deem expedient concerning the issue, transfer, and registration of
certificates for shares of the corporation's stock.
ARTICLE V
DISTRIBUTIONS
SECTION 5.01 Distributions may be declared, subject to the provisions
of the laws of the State of Nevada and the Articles of Incorporation, by the
Board of Directors at any regular or special meeting and may be paid in cash,
property, shares of corporate stock, or any other medium. The Board of Directors
may fix in advance a record date, as provided in Section 1.06, prior to the
distribution for the purpose of determining stockholders entitled to receive any
distribution. The Board of Directors may close the stock transfer books for such
purpose for a period of not more than ten (10) days prior to the date of such
distribution.
ARTICLE VI
RECORDS; REPORTS; SEAL; AND FINANCIAL MATTERS
SECTION 6.01 RECORDS. All original records of the corporation shall
be kept by or under the direction of the secretary or at such places as may be
prescribed by the Board of Directors.
SECTION 6.02 DIRECTORS' AND OFFICERS' RIGHT OF INSPECTION. Every
director and officer shall have the absolute right at any reasonable time for a
purpose reasonably related to the exercise of such individual's duties to
inspect and copy all of the corporation's books, records, and documents of every
kind and to inspect the physical properties of the corporation and its
subsidiary corporations. Such inspection may be made in person or by agent or
attorney.
SECTION 6.03 CORPORATE SEAL. The Board of Directors may, by
resolution, authorize a seal, and the seal may be used by causing it, or a
facsimile, to be impressed or affixed or reproduced or otherwise. Except when
otherwise specifically provided herein, any officer of the corporation shall
have the authority to affix the seal to any document requiring it.
SECTION 6.04 FISCAL YEAR-END. The fiscal year-end of the corporation
shall be such date as may be fixed from time to time by resolution of the Board
of Directors.
SECTION 6.05 RESERVES. The Board of Directors may create, by
resolution, such reserves as the directors may, from time to time, in their
discretion, think proper to provide for contingencies, or to equalize
distributions or to repair or maintain any property of the corporation, or for
such other purpose as the Board of Directors may deem beneficial to the
corporation, and the directors may modify or abolish any such reserves in the
manner in which they were created.
ARTICLE VII
INDEMNIFICATION
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SECTION 7.01 INDEMNIFICATION AND INSURANCE.
(a) INDEMNIFICATION OF DIRECTORS AND OFFICERS.
(i) For purposes of this Article, (A) "Indemnitee"
shall mean each director or officer who was or is a party to, or is threatened
to be made a party to, or is otherwise involved in, any Proceeding (as
hereinafter defined), by reason of the fact that he or she is or was a director
or officer of the corporation or is or was serving in any capacity at the
request of the corporation as a director, officer, employee, agent, partner, or
fiduciary of, or in any other capacity for, another corporation or any
partnership, joint venture, trust, or other enterprise; and (B) "Proceeding"
shall mean any threatened, pending or completed action or suit (including
without limitation an action, suit or proceeding by or in the right of the
corporation), whether civil, criminal, administrative or investigative.
(ii) Each Indemnitee shall be indemnified and held
harmless by the corporation for all actions taken by him or her and for all
omissions (regardless of the date of any such action or omission), to the
fullest extent permitted by Nevada law, against all expense, liability and loss
(including without limitation attorneys' fees, judgments, fines, taxes,
penalties, and amounts paid or to be paid in settlement) reasonably incurred or
suffered by the Indemnitee in connection with any Proceeding.
(iii) Indemnification pursuant to this Section shall
continue as to an Indemnitee who has ceased to be a director or officer and
shall inure to the benefit of his or her heirs, executors and administrators.
(b) INDEMNIFICATION OF EMPLOYEES AND OTHER PERSONS.
The corporation may, by action of its Board of Directors
and to the extent provided in such action, indemnify employees and other persons
as though they were Indemnitees.
(c) NON-EXCLUSIVITY OF RIGHTS.
The rights to indemnification provided in this Article
shall not be exclusive of any other rights that any person may have or hereafter
acquire under any statute, provision of the corporation's Articles of
Incorporation or Bylaws, agreement, vote of stockholders or directors, or
otherwise.
(d) INSURANCE.
The corporation may purchase and maintain insurance or
make other financial arrangements on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise for
any liability asserted against him or her and liability expenses incurred by him
or her in his or her capacity as a director, officer, employee or agent, or
arising out of his or her status as such, whether or not the corporation has the
authority to indemnify him or her against such liability and expenses.
(e) OTHER FINANCIAL ARRANGEMENTS.
The other financial arrangements which may be made by
the corporation may include the following: (i) the creation of a trust find;
(ii) the establishment of a program of self-insurance; (iii) the securing of its
obligation of indemnification by granting a security interest or other lien on
any assets of the corporation; (iv) the establishment of a letter of credit,
guarantee or surety. No financial arrangement made
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<PAGE> 14
pursuant to this subsection may provide protection for a person adjudged by a
court of competent jurisdiction, after exhaustion of all appeals therefrom, to
be liable for intentional misconduct, fraud, or a knowing violation of law,
except with respect to advancement of expenses or indemnification ordered by a
court.
(f) OTHER MATTERS RELATING TO INSURANCE OR FINANCIAL
ARRANGEMENTS.
Any insurance or other financial arrangement made on
behalf of a person pursuant to this section may be provided by the corporation
or any other person approved by the Board of Directors, even if all or part of
the other person's stock or other securities is owned by the corporation. In the
absence of fraud:
(i) the decision of the Board of Directors as to
the propriety of the terms and conditions of any insurance or other financial
arrangement made pursuant to this section and the choice of the person to
provide the insurance or other financial arrangement is conclusive; and
(ii) the insurance or other financial arrangement:
(A) is not void or voidable; and
(B) does not subject any director
approving it to personal liability
for his action,
even if a director approving the insurance or other financial arrangement is a
beneficiary of the insurance or other financial arrangement.
SECTION 7.02 AMENDMENT. The provisions of this Article relating to
indemnification shall constitute a contract between the corporation and each of
its directors and officers, which may be modified as to any director or officer
only with that person's consent or as specifically provided in this Section.
Notwithstanding any other provision of these Bylaws relating to their amendment
generally, any repeal or amendment of this Article which is adverse to any
director or officer shall apply to such director or officer only on a
prospective basis and shall not limit the rights of an Indemnitee to
indemnification with respect to any action or failure to act occurring prior to
the time of such repeal or amendment. Notwithstanding any other provision of
these Bylaws, no repeal or amendment of these Bylaws shall affect any or all of
this Article so to as to limit or reduce the indemnification in any manner
unless adopted by (a) the unanimous vote of the directors of the corporation
then serving, or (b) by the stockholders as set forth in Article VIII hereof;
provided that no such amendment shall have retroactive effect inconsistent with
the preceding sentence.
SECTION 7.03 CHANGES IN NEVADA LAW. References in this Article to
Nevada law or to any provision thereof shall be to such law as it existed on the
date this Article was adopted or as such law thereafter may be changed; provided
that (a) in the case of any change which expands the liability of directors or
officers or limits the indemnification rights or the rights to advancement of
expenses which the corporation may provide, the rights to limited liability, to
indemnification and to the advancement of expenses provided in the corporation's
Articles of Incorporation or these Bylaws or both shall continue as theretofore
to the extent permitted by law; and (b) if such change permits the corporation,
without the requirement of any further action by stockholders or directors, to
limit further the liability of directors (or limit the liability of officers) or
to provide broader indemnification rights or rights to the advancement of
expenses than the corporation was permitted to provide prior to such change,
then liability thereupon shall be so limited and the rights to indemnification
and the advancement of expenses shall be so broadened to the
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<PAGE> 15
extent permitted by law.
ARTICLE VIII
AMENDMENT OR REPEAL
SECTION 8.01 AMENDMENT. Except as otherwise restricted in the
Articles of Incorporation or these Bylaws:
(a) Any provision of these Bylaws may be altered, amended or
repealed at the annual or any regular meeting of the Board of Directors without
prior notice, or at any special meeting of the Board of Directors if notice of
such alteration, amendment or repeal is contained in the notice of such special
meeting.
(b) These Bylaws may also be altered, amended, or repealed at a
duly convened meeting of the stockholders by the affirmative vote of the holders
of 51% of the voting power of the corporation entitled to vote. The stockholders
may provide by resolution that any Bylaw provision repealed, amended, adopted or
altered by them may not be repealed, amended, adopted or altered by the Board of
Directors.
CERTIFICATION
The undersigned duly elected Secretary of the corporation does hereby
certify that the foregoing Bylaws were adopted by the Board of Directors on the
_____ day of __________, 1993.
/s/_______________________________
Illegible _____________, Secretary
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<PAGE> 1
EXHIBIT 4.1
WARRANT AGENT AGREEMENT
NevStar Gaming Corporation, a Nevada corporation (the "Company"), and
Corporate Stock Transfer, 370 17th Street, Suite 2350, Denver, Colorado
80202-4614, a Colorado corporation (the "Warrant Agent"), agree as follows:
1. Purpose. The Company proposes to publicly offer and issue up
to 2,472,500 shares of Company's $0.01 par value Common Stock (the "Common
Stock") and up to 2,472,500 Redeemable Common Stock Purchase Warrants ("Public
Warrants"), each permitting the purchase of one share of Common Stock (the
"Shares"). Also, the Company proposes to issue 215,000 Warrants ("RAF Warrants")
to RAF Financial Corporation ("RAF") or its designees who are officers of RAF.
Unless the context indicates otherwise, as used herein the word "Warrants" will
mean both the Public Warrants and the RAF Warrants. The Common Stock and Public
Warrants must be purchased together, unless waived in writing by RAF Financial
Corporation. Each Public Warrant may be purchased for $.50, with the proceeds
from the sale of the Public Warrants to be deposited in escrow with Tri-State
Bank, pursuant to that certain Escrow Agreement between the Company and
Tri-State Bank, dated July 23, 1996 (the "Escrow Agreement").
2. Warrant. Each Public Warrant will entitle the registered
holder of such Warrant ("Public Warrant Holder") to purchase from the Company
one Share at $6.00 per share, with a credit of $.50 per Public Warrant
surrendered on exercise ("Public Exercise Price"). Each RAF Warrant will entitle
the registered holder of such Warrant ("RAF Warrant Holder") to purchase from
the Company one share at $7.75 per share ("RAF Exercise Price"). Unless the
context indicates otherwise, as used herein the words "Warrant Holder" will mean
both the Public and the RAF Warrant Holders. A Warrant Holder may exercise all
or any number of Warrants resulting in the purchase of a whole number of Shares.
3. Exercise Period. The Public Warrants may be exercised at any
time during the period commencing July ___, 1996, and the RAF Warrants may be
exercised at any time during the period commencing July ____, 1997, ("Exercise
Date") and ending at 3:00 p.m., Denver Colorado time on July ___, 1999
("Expiration Date") except as changed by Section 15 of this Agreement. After the
Expiration Date, any unexercised Warrants will be void and all rights of Warrant
Holders shall cease.
4. Detachability. The Shares and the Warrants are immediately
separable.
5. Certificates. The Warrant Certificates shall be in registered
form only and shall be substantially in the form set forth in Exhibit "A"
attached to this Agreement. Warrant Certificates shall be signed by, or shall
bear the facsimile signature of, the President or a Vice President of the
Company and the Secretary or an Assistant Secretary of the Company and shall
bear a facsimile of the Company's corporate seal. If any person, whose facsimile
signature has been placed upon any Warrant Certificate of the signature of an
officer of the Company, shall cease to be such officer before such Warrant
Certificate shall be countersigned, issued and delivered, such Warrant
Certificate shall be countersigned, issued and delivered with the same effect as
if such person had not ceased to be such officer. Any Warrant Certificate may be
signed by, or made to bear the facsimile signature of, any person who at the
actual date of the preparation of such Warrant
<PAGE> 2
Certificate shall be a proper officer of the Company to sign such Warrant
Certificate even though such person was not such an officer upon the date of the
Agreement.
6. Countersigning. Warrant Certificates shall be manually
countersigned by the Warrant Agent and shall not be valid for any purpose unless
so countersigned. The Warrant Agent hereby is authorized to countersign and
deliver to, or in accordance with the instructions of, any Warrant Holder any
Warrant Certificate which is properly issued.
7. Registration of Transfer and Exchanges. The Warrant Agent
shall from time to time register the transfer of any outstanding Warrant
Certificate upon records maintained by the Warrant Agent for such purpose upon
surrender of such Warrant Certificate to the Warrant Agent for transfer,
accompanied by appropriate instruments of transfer in form satisfactory to the
Company and the Warrant Agent and duly executed by the Warrant Holder or a duly
authorized attorney in fact. Upon any such registration of transfer, a new
Warrant Certificate shall be issued in the name of and to the transferee and the
surrendered Warrant Certificate shall be cancelled. Notwithstanding the
foregoing, the RAF Warrants may only be transferred to persons who are officers
or directors of RAF at the time of the proposed transfer.
8. Transfer of Warrants. The Warrant Agent shall not effect any
transfer of any outstanding Warrant Certificate unless such transfer is in
compliance with all applicable federal and State securities law requirements,
and all applicable requirements of NASDAQ, which compliance shall be to the sole
satisfaction of the Company and its counsel.
9. Redemption of Warrants. Subject to the provisions of this
Agreement, (i) the Public Warrants shall be redeemable by the Company at any
time during the period commencing July __, 1996, and ending at 3:00 p.m.,
Denver, Colorado time on July __, 1998, at a price of $.55 per Warrant, and (ii)
the Public Warrants shall be redeemable by the Company at any time during the
period commencing after 3:00 p.m., Denver, Colorado time, on July __, 1998, and
ending at 3:00 p.m., Denver, Colorado time, on July __, 1999, at a price of $.75
per Warrant. The Public Warrants shall be redeemable as provided in this Section
9 upon not less than thirty (30) days' prior written notice from the Company to
the Public Warrant Holders, provided that the closing bid price per share of the
Company's Common Stock on the NASDAQ Market or the last sale price per share if
listed on the NASDAQ National Market or a national exchange, has been at least
$7.00 for a period of twenty (20) consecutive trading days ending on the third
day prior to the date on which the Company gives notice of redemption. The RAF
Warrants are not subject to redemption by the Company.
10. Surrender of Warrants. To the extent that each Public Warrant
is not exercised or redeemed before the Expiration Date, the Company shall pay
to each Public Warrant Holder, having unexercised or unredeemed Warrants (i) .50
per unexercised or unredeemed Public Warrant held by such Public Warrant Holder
(the "Escrow Proceeds"), plus (ii) accrued interest on such Escrow Proceeds.
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<PAGE> 3
11. Exercise of Warrants.
a. Any one Warrant or any multiple of one Warrant evidenced
by any Warrant Certificate may be exercised upon any single occasion on or after
the Exercise Date, and on or before the Expiration Date. A Warrant shall be
exercised by the Warrant Holder by surrendering to the Warrant Agent the Warrant
Certificate evidencing such Warrant with the exercise form on the reverse of
such Warrant Certificate duly completed and executed and delivering to the
Warrant Agent the Exercise Price for each Share to be purchased, payable as
follows: For the Public Warrants (i) $5.50, by good check or bank draft payable
to the order of the Company, plus (ii) $.50 previously paid by the Warrant
Holder, which shall be disbursed to the Company from escrow, pursuant to the
terms of the Escrow Agreement; or for the RAF Warrants, $7.75 by good check or
bank draft payable to the order of the Company.
b. Upon receipt of a Warrant Certificate with the exercise
form thereon duly executed together with payment in full of the Exercise Price
for the Shares for which Warrants are then being exercised, the Warrant Agent
shall requisition from any transfer agent for the Shares, and upon receipt shall
make delivery of, certificates evidencing the total number of whole Shares for
which Warrants are then being exercised in such names and denominations as are
required for delivery to, or in accordance with the instructions of, the Warrant
Holder. Such certificates for the Shares shall be deemed to be issued, and the
person whom such Shares are issued of record shall be deemed to have become a
holder of record of such Shares, as of the date of the surrender of such Warrant
Certificate and payment of the Exercise Price, whichever shall last occur,
provided that if the books of the Company with respect to the Shares shall be
deemed to be issued, and the person to whom such Shares are issued of record
shall be deemed to have become a record holder of such Shares, as of the date on
which such books shall next be open (whether before, on or after the Expiration
Date) but at the Exercise Price, whichever shall have last occurred, to the
Warrant Agent.
c. If less than all the Warrants evidenced by a Warrant
Certificate are exercised upon a single occasion, a new Warrant Certificate for
the balance of the Warrants not so exercised shall be issued and delivered to,
or in accordance with, transfer instructions properly given by the Warrant
Holder until the Expiration Date.
d. All Warrant Certificates surrendered upon exercise of
the Warrants shall be cancelled.
e. Upon the exercise, or conversion of any Warrant, the
Warrant Agent shall promptly deposit the payment into an escrow account
established by mutual agreement of the Company and the Warrant Agent at a
federally insured commercial bank. All funds deposited in the escrow account
will be disbursed on a weekly basis to the issuer once they have been determined
by the Warrant Agent to be collected funds. Once the funds are determined to be
collected, the Warrant Agent shall cause the share certificate(s) representing
the exercised warrants to be issued.
f. Expense incurred by Corporate Stock Transfer while
acting in the capacity as Warrant Agent will be paid by the Company. These
expenses, including delivery of exercised
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<PAGE> 4
share certificate to the stockholder, will be deducted from the exercise fee
submitted prior to distribution of funds to the Company. A detailed accounting
statement relating to the number of Warrants exercised, names of registered
Warrant Holder and the net amount of exercised, funds remitted will be given to
the Company with the payment of each exercise amount.
g. At the time of exercise of the Warrant(s), the transfer
fee is to be paid by the Company.
12. Taxes. The Company will pay all taxes attributable to the
initial issuance of Shares upon exercise of Warrants. The Company shall not,
however, be required to pay any tax which may be payable in respect to any
transfer involved in any issue of Warrant Certificates or in the issue of any
certificates of Shares in the name other than that of the Warrant Holder upon
the exercise of any Warrant.
13. Mutilated or Missing Warrant Certificates. If any Warrant
Certificate is mutilated, lost, stolen or destroyed, the Company and the Warrant
Agent may, on such terms as to indemnity or otherwise as they may in their
discretion impose (which shall, in the case of a mutilated Warrant Certificate,
include the surrender thereof), and upon receipt of evidence satisfactory to the
Company and the Warrant Agent of such mutilation, loss, theft or destruction,
issue a substitute Warrant Certificate of like denomination or tenor as the
Warrant Certificate so mutilated, lost, stolen or destroyed. Applicants for
substitute Warrant Certificates shall comply with such other reasonable
regulations and pay any reasonable charges as the Company or the Warrant Agent
may prescribe.
14. Reservation of Shares. For the purpose of enabling the Company
to satisfy all obligation to issue Shares upon exercise of Warrants, the Company
will at all times reserve and keep available free from preemptive rights, out of
the aggregate of its authorized but unissued Shares, the full number of Shares
which may be issued upon the exercise of Warrants will upon issue be fully paid
and nonassessable by the Company and free from all taxes, liens, charges and
security interests with respect to the issue thereof.
15. Governmental Restrictions. If any Shares issuable upon the
exercise of Warrants require registration or approval of any governmental
authority, the Company will endeavor to secure such registration or approval;
provided that in no event shall such Shares be issued, and the Company shall
have the authority to suspend the exercise of all Warrants, until such
registration or approval shall have been obtained; but all Warrants, the
exercise of which is requested during any such suspension, shall be exercisable
at the Exercise Price. If any such period of suspension continues past the
Expiration Date, all Warrants, the exercise of which have been requested on or
prior to the Expiration Date, shall be exercisable upon the removal of such
suspension until the close of business on the business day immediately following
the expiration of such suspension.
16. Adjustment Provisions.
a. Adjustment of the Exercise Price. If the Company
subdivides its outstanding Shares into a greater number of Shares, the Exercise
Price in effect immediately prior to such subdivision shall be proportionately
reduced. Conversely, if the Company combines its outstanding Shares into a
lesser number of Shares, the Exercise Price in effect immediately prior to such
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<PAGE> 5
combination shall be proportionately increased. In case of a subdivision or
combination, the adjustment of the Exercise Price shall be made as of the
effective date of the applicable event. A distribution on Shares, including a
distribution of Convertible Securities, to stockholders of the Company on a pro
rata basis shall be considered as a subdivision of outstanding Shares for the
purposes of this subsection, except that the adjustment will be made as of the
record date of such distribution and any such distribution of Convertible
Securities shall be deemed to be a distribution of the Shares underlying such
Convertible Securities.
b. No Adjustment for Small Amounts. Anything in this
Section to the contrary notwithstanding, the Company shall not be required to
give effect to any adjustment in the Exercise Price unless and until the net
effect of one or more adjustments, determined as above provided, shall have
required a change of the Exercise Price by at least one cent, but when the
cumulative net effect of more than one adjustment so determined shall be to
change the actual Exercise Price by at least one cent, such change in the
Exercise Price shall thereupon be given effect.
c. Number of Shares Adjusted. Upon any adjustment of the
Exercise Price, the Holder of this Warrant shall thereafter (until another such
adjustment) be entitled to purchase, at the new Exercise Price, the number of
shares, calculated to the nearest full share, obtained by multiplying the number
of shares of Common Stock initially issuable upon exercise of this Warrant by
the Exercise Price specified in the first paragraph hereof and dividing the
product so obtained by the new Exercise Price.
d. Definitions.
(1) Whenever reference is made in this Section 16
to the distribution of shares of Common Stock, the term "Common Stock"
shall mean the Common Stock of the Company authorized as of the date
hereof and any other class of stock ranking on a parity with such
Common Stock. However, shares issuable upon exercise hereof shall
include only shares of the class designated as Common Stock of the
Company as of the date hereof.
(2) Whenever reference is made in this Section 16
to the distribution of Convertible Securities, the term "Convertible
Securities" shall mean options or warrants or rights for the purchase
of Common Stock of the Company or for the purchase of any stock or
other securities convertible into or exchangeable for Common Stock of
the Company.
17. Notice to Warrant Holders. Upon any adjustment as described in
Section 16, the Company, within twenty (20) days thereafter shall (i) cause to
be filed with the Warrant Agent a certificate signed by a Company officer
setting forth the details of such adjustment, the method of calculation and the
facts upon which such calculation is based, which certificate shall be
conclusive evidence of the correctness of the matters set forth therein, and
(ii) cause written notice of such adjustments to be given to each Warrant Holder
as of the record date applicable to such adjustment. Also, if the Company
proposes to enter into any reorganization where the Company will not be the
surviving entity; reclassification, sale of substantially all of its assets,
consolidation, merger where the Company will not be the surviving entity;
dissolution, liquidation or winding up, the Company shall give notice of such
fact at least twenty (20) days prior to such action to all Warrant Holders which
notice shall set forth such facts as indicate the effect of such action (to the
extent such effect
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<PAGE> 6
may be known at the date of such notice) on the Exercise Price and the kind and
amount of the shares or other securities and property deliverable upon exercise
of the Warrants. Without limiting the obligation of the Company hereunder to
provide notice to each Warrant Holder, failure of the Company to give notice
shall not invalidate corporate action taken by the Company.
18. No Fractional Warrants or Shares. The Company shall not be
required to issue fractions of Warrants upon the reissue of Warrants, any
adjustments as described in Section 16 or otherwise; but the Company in lieu of
issuing any such fractional interest, shall round up or down to the nearest full
Warrant. If the total Warrants surrendered by exercise would result in the
issuance of a fractional share but rather the aggregate number of shares
issuable will be rounded up or down to the nearest full share.
19. Rights of Warrant Holders. No Warrant Holder, as such, shall
have any rights of a stockholder of the Company, either at law or in equity, and
the rights of the Warrant Holders, as such, are limited to those rights
expressly provided in this Agreement or in the Warrant Certificates. The Company
and the Warrant Agent my treat the registered Warrant Holder in respect of any
Warrant Certificates as the absolute owner thereof for all purposes
notwithstanding any notice to the contrary.
20. Warrant Agent. The Company hereby appoints the Warrant Agent
to act as the agent of the Company and the Warrant Agent hereby accepts such
appointment upon the following terms and conditions by all of which the Company
and every Warrant Holder, by acceptance of his Warrants, shall be bound:
a. Statements contained in this Agreement and in the
Warrant Certificates shall be taken as statements of the Company. The Warrant
Agent assumes no responsibility for the correctness of any of the same except
such as describes the Warrant Agent or for action taken or to be taken by the
Warrant Agent.
b. The Warrant Agent shall not be responsible for any
failure of the Company to comply with any of the Company's covenants contained
in this Agreement or in the Warrant Certificates.
c. The Warrant Agent may consult at any time with counsel
satisfactory to it (who may be counsel for the Company) and the Warrant Agent
shall incur no liability or responsibility to the Company or to any Warrant
Holder in respect of any action taken, suffered or omitted by it hereunder in
good faith and in accordance with the opinion or the advice of such counsel,
provided the Warrant Agent shall have exercised reasonable care in the selection
and continued employment of such counsel.
d. The Warrant Agent shall incur no liability or
responsibility to the Company or to any Warrant Holder for any action taken in
reliance upon any notice, resolution, waiver, consent, order, certificate or
other paper, document or instrument believed by it to be genuine and to have
been signed, sent or presented by the proper party or parties.
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<PAGE> 7
e. The Company agrees to pay to the Warrant Agent
reasonable compensation for all services rendered by the Warrant Agent in the
execution of this Agreement, to reimburse the Warrant Agent for all expenses,
taxes and governmental charges and all other charges of any kind in nature
incurred by the Warrant Agent in the execution of this Agreement and to
indemnify the Warrant Agent and save it harmless against any and all
liabilities, including judgments, costs and counsel fees, for this Agreement
except as a result of the Warrant Agent's negligence or bad faith.
f. The Warrant Agent shall be under no obligation to
institute any action, suit or legal proceeding or to take any other action
likely to involve expense unless the Company or one or more Warrant Holders
shall furnish the Warrant Agent with reasonable security and indemnity for any
costs and expenses which may be incurred in connection with such action, suit or
legal proceeding, but this provision shall not affect the power of the Warrant
Agent to take such action as the Warrant Agent may consider proper, whether with
or without any such security or indemnity. All rights of action under this
Agreement or under any of the Warrants may be enforced by the Warrant Agent
without the possession of any of the Warrant Certificates or the production
thereof at any trial or other proceeding relative thereto, and any such action,
suit or proceeding instituted by the Warrant Agent shall be brought in its name
as Warrant Agent, and any recovery of judgment shall be for the ratable benefit
of the Warrant Holders as their respective rights or interest may appear.
g. The Warrant Agent and any stockholder, director, officer
or employee of the Warrant Agent may buy, sell or deal in any of the Warrants or
other securities of the Company or become pecuniarily interested in any
transaction in which the Company may be interested, or contract with or lend
money to the Company or otherwise act as fully and freely as though it were not
Warrant Agent under this Agreement. Nothing herein shall preclude the Warrant
Agent from acting in any other legal capacity for the Company or for any other
legal entity.
21. Successor Warrant Agent. Any corporation into which the
Warrant Agent may be merged or converted or with which it may be consolidated,
or any corporation resulting from any merger, conversion or consolidation to
which the Warrant Agent shall be a party, or any corporation succeeding to the
corporation trust business of the Warrant Agent, shall be the successor to the
Warrant Agent hereunder without the execution or filing of any paper or any
further act of a party or the parties hereto. In any such event or if the name
of the Warrant Agent is changed, the Warrant Agent or such successor may adopt
the countersignature of the original Warrant Agent and may countersign such
Warrant Certificates either in the name of the predecessor Warrant Agent or in
the name of the successor Warrant Agent.
22. Change of Warrant Agent. The Warrant Agent may resign or be
discharged by the Company from its duties under this Agreement by the Warrant
Agent or the Company, as the case may be, giving notice in writing to the other,
and by giving a date when such resignation or discharge shall take effect, which
notice shall be sent at least thirty (30) days prior to the date so specified.
If the Warrant Agent shall resign, be discharged or shall otherwise become
incapable of acting, the Company shall appoint a successor to the Warrant Agent.
If the Company shall fail to make such appointment within a period of thirty
(30) days after it has been notified in writing of such resignation or
incapacity by the resigning or incapacitated Warrant Agent or by any
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<PAGE> 8
Warrant Holder or after discharging the Warrant Agent, then any Warrant Holder
may apply to the District Court for Denver County, Colorado, for the appointment
of a successor to the Warrant Agent. Pending appointment of a successor to the
Warrant Agent, either by the Company or by such Court, the duties of the Warrant
Agent shall be carried out by the Company. Any successor Warrant Agent, whether
appointed by the Company or by such Court, shall be a bank or a trust company,
in good standing, organized under the laws of the State of Colorado or of the
United States of America, having its principal office in Denver, Colorado, and
having at the time of its appointment as Warrant Agent, a combined capital and
surplus of at least four million dollars. After appointment, the successor
Warrant Agent shall be vested with the same powers, rights, duties and
responsibilities as if it has been originally named as Warrant Agent without
further act or deed and the former Warrant Agent shall deliver and transfer to
the successor Warrant Agent any property at the time held by it thereunder, and
execute and deliver any further assurance, conveyance, act or deed necessary for
effecting the delivery or transfer. Failure to give any notice provided for in
this section, however, or any defect therein, shall not affect the legality or
validity of the resignation or removal of the Warrant Agent or the appointment
of the successor Warrant Agent, as the case may be.
23. Notices. Any notice or demand authorized by this Agreement to
be given or made by the Warrant Agent or by any Warrant Holder to or on the
Company shall be sufficiently given or made if sent by mail, first class,
certified or registered, postage prepaid, addressed (until another address is
filed in writing by the Company with the Warrant Agent), as follows:
NevStar Gaming Corporation
6897 West Charleston Blvd.
Las Vegas, Nevada 89117
Any notice or demand authorized by this Agreement to be given
or made by any Warrant Holder or by the Company to or on the Warrant Agent shall
be sufficiently given or made if sent by mail, first class, certified or
registered, postage prepaid, addressed (until another address is filed in
writing by the Warrant Agent with the Company), as follows:
Corporate Stock Transfer
______________________________
______________________________
Any distribution, notice or demand required or authorized by
this Agreement to be given or made by the Company or the Warrant Agent to or on
the Warrant Holders shall be sufficiently given or made if sent by mail, first
class, certified or registered, postage prepaid, addressed to the Warrant
Holders at their last known addresses as they shall appear on the registration
books for the Warrant Certificates maintained by the Warrant Agent.
24. Supplements and Amendments. The Company and the Warrant Agent
may from time to time supplement or amend this Agreement without the approval of
any Warrant Holders in order to cure any ambiguity or to correct or supplement
any provision contained herein which may be defective or inconsistent with any
other provisions herein, or to make any other provisions in regard
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<PAGE> 9
to matters or questions arising hereunder which the Company and the Warrant
Agent may deem necessary or desirable.
25. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Warrant Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
26. Termination. This Agreement shall terminate thirty (30) days
after the earlier of the Expiration Date or such earlier date upon which all
Warrants have been exercised; provided, however, that if exercise of the
Warrants is suspended pursuant to Section 15 and such suspension continues past
the Expiration Date, this Agreement shall terminate at the close of business on
the business day immediately following expiration of such suspension. The
provisions of Section 20 shall survive such termination.
27. Governing Law. This Agreement and each Warrant Certificate
issued hereunder shall be deemed to be a contract made under the laws of the
State of Nevada and for all purposes shall be construed in accordance with the
laws of said State.
28. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give any person or corporation other than the Company, the Warrant
Agent and the Warrant Holders any legal or equitable right, remedy or claim
under this Agreement; but this Agreement shall be for the sole and exclusive
benefit of the Company, the Warrant Agent and the Warrant Holders.
29. Counterparts. This Agreement may be executed in any number of
counterparts, each of such counterparts shall for all purposes be deemed to be
an original and all such counterparts shall together constitute but one and the
same instrument. This Agreement may be executed by facsimile with original
signatures following by regular mail or overnight courier.
Date: __________________, 199___
NEVSTAR GAMING CORPORATION,
a Nevada corporation
By:__________________________________
Michael J. Signorelli, President
CORPORATE STOCK TRANSFER,
a Colorado corporation
By:__________________________________
Carolyn Bell, President
[Signature Page to Warrant Agent Agreement]
-9-
<PAGE> 1
EXHIBIT 4.2
NUMBER NEVSTAR SHARES
[ ] Gaming Corporation [ ]
INCORPORATED UNDER THE LAWS OF THE STATE OF NEVADA
AUTHORIZED: 50,000,000 COMMON SHARES, $0.01 PAR VALUE
SEE REVERSE FOR
CERTAIN DEFINITIONS
[CUSIP 64156G 10 2]
THIS CERTIFIES THAT
IS THE OWNER OF
Fully Paid and Nonassessable Common Stock, $0.01 Par Value of
NEVSTAR GAMING CORPORATION
transferrable only on the books of the Corporation by the holder hereof in
person or by Attorney upon surrender of this Certificate properly endorsed.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be signed
by the facsimile signatures of its duly authorized officers and to be sealed
with the facsimile seal of the Corporation.
Dated:
_____________________ _____________________
Michael J. Signorelli Michael J. Signorelli
SECRETARY PRESIDENT
<PAGE> 1
Exhibit 4.3
NUMBER VOID AFTER JULY ___, 1999 WARRANTS
[ ] REDEEMABLE WARRANT CERTIFICATE TO PURCHASE [ ]
COMMON STOCK
NEVSTAR GAMING CORPORATION
CUSIP 64156G 11 D
THIS CERTIFIES THAT for value received
as registered assign (the "Registered Holder") is the owner of the number of
Redeemable Warrants (the "Warrants") specified above. Each Warrant initially
entitles the Registered Holder to purchase, subject to the terms and conditions
set forth in this Certificate and the Warrant Agreement (as hereinafter defined)
one fully paid and nonassessable share of Common Stock, $.01 par value, of
Nevstar Gaming Corporation, a Nevada corporation (the "Corporation") at any time
from __________, 1996 and prior to the Expiration Date (as hereinafter defined)
upon the presentation and surrender of this Warrant Certificate with the
Subscription Form on the reverse hereof duly executed, at the corporate office
of Corporate Stock Transfer, Inc., as Warrant Agent, or its successor (the
"Warrant Agent"), accompanied by the exercise price of $6.00, which price shall
consist of the sum of (i) the payment of $5.50 and (ii) a $0.50 credit for each
Warrant surrendered on exercise (the "Purchase Price"). The payment of $5.50
shall be in lawful money of the United States of America in cash or by check
made payable to the Warrant Agent for the account of the Corporation.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Warrant Agreement (the "Warrant Agreement"), dated __________,
1996, by and between the Corporation and the Warrant Agent.
The Warrant Agreement contains provisions that protect the Registered Holder
against dilution by adjustment of the Purchase Price in certain events
including, but not limited to, stock dividends, stock splits, reclassifications
or mergers.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional increments will be issued in the case of
the exercise of less than all the Warrants represented hereby. The Corporation
shall cancel this Warrant Certificate upon the surrender hereof and shall
execute and deliver a new Warrant Certificate or Warrant Certificates of like
tender, which the Warrant Agent shall countersign, for the balance of such
Warrants.
The term "Expiration Date" shall mean 5:00 p.m. (Pacific Time) on
__________, 1999. If such date shall in the State of Nevada be a holiday or a
day on which the banks are authorized to close, then the Expiration Date shall
mean 5:00 p.m. (Pacific Time) the next following day which in the State of
Nevada is not a holiday or a day on which banks are authorized to close.
The Corporation shall not be obligated to deliver any securities pursuant to
the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended (the "Act"), with respect to such securities
is effective or an exemption thereunder is available. The Corporation has
covenanted and agreed that it will file a registration statement under the
Federal securities laws, use its best efforts to cause the same to become
effective, to keep such registration statement current, if required under the
Act, while any of the Warrants are outstanding, and deliver a prospectus which
complies with the terms of the Act to the Registered Holder exercising this
Warrant Certificate. This Warrant Certificate shall not be exercisable by a
Registered Holder in any state where such exercise would be unlawful.
Subject to the provisions of the Warrant Agreement this Warrant Certificate
may be redeemed by the Corporation, at a redemption price of $0.55 per Warrant
during the first and second years after the date of this Warrant Certificate and
$0.75 per Warrant during the third year after the date of this Warrant
Certificate, on not less than 30 days' prior written notice to the Registered
Holder of such Warrants, provided that the closing high bid price of the
Corporation's Common Stock on the National Association of Securities Dealers
Automated Quotation ("NASDAQ") System SmallCap Market, or the last sale price
per share of the Corporation's Common Stock if listed on the NASDAQ National
Market or on a national exchange is at least $7.00 per share (subject to
adjustment in the event of any stock splits or other similar events) for a
period of 20 consecutive trading days ending on the third day prior to the date
the notice of redemption is given. On and after the date fixed for redemption,
the Registered Holder shall have no right with respect to this Warrant
Certificate except to receive the redemption price per Warrant upon surrender of
this Warrant Certificate.
In the event of liquidation, dissolution or winding up of the Corporation,
the Registered Holder will not be entitled to participate in the assets of the
Corporation unless the Registered Holder exercised this Warrant Certificate. The
Registered Holder has no voting, pre-emptive, liquidation or other rights of a
shareholder, and no dividends will be declared on the Warrants.
This Warrant Certificate shall be governed by and construed in accordance
with the laws of the State of Nevada, without regard to the principles of
conflicts of laws.
This Warrant Certificate is not valid unless countersigned by the Warrant
Agent.
IN WITNESS WHEREOF, the Corporation has caused this Warrant Certificate to
be duly executed, manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
CORPORATE STOCK TRANSFER, INC., a Colorado corporation
By:
PRESIDENT
NEVSTAR GAMING CORPORATION, a Nevada corporation
By: By:
PRESIDENT SECRETARY
Dated: July ____, 1996
<PAGE> 2
SUBSCRIPTION
TO: NevStar Gaming Corporation
(1) The undersigned hereby elects to purchase _________________ shares of
Common Stock of NevStar Gaming Corporation pursuant to the terms of this Warrant
Certificate and tenders herewith payment of the purchase price in full, together
with all applicable transfer taxes, if any.
(2) Please issue a certificate or certificates representing said shares of
Common stock in the name of the undersigned or in such other name as is
specified below:
----------------------------------------------
(Name)
----------------------------------------------
(Address)
- --------------------------- ----------------------------
(Date) (Signature)
<PAGE> 3
TRANSFER FEE: $12.00 PER CERTIFICATE
ASSIGNMENT
(Form of Assignment to be Executed if the Warrant Holder
Desires to Transfer Warrants Evidenced Hereby)
FOR VALUE RECEIVED, hereby sells, assigns and transfers to
_________________________________________________________________________
(Please print name and address including zip code)
Please insert social security, federal
tax ID number or other identifying number:
__________________________________________
___________________ Warrants represented by this Warrant Certificate and does
hereby irrevocably constitute and appoint ______________________ , Attorney, to
transfer said Warrants on the books of the Company with full power of
substitution.
Dated: ____________________________ ______________________________
Signature
(Signature must conform in all
respects to name of holder on
the face of this Warrant
Certificate.)
SIGNATURE GUARANTEED:
_____________________
NOTE: Any transfer or assignment of this Warrant Certificate is
subject to compliance with the restrictions on transfer imposed under the
Warrant Agreement.
EXERCISE
(Form of Exercise to be Executed if the Warrant Holder
Desires to Exercise Warrants Evidenced Hereby)
TO THE COMPANY:
The undersigned hereby irrevocably elects to exercise __________
Warrants represented by this Warrant Certificate and to purchase thereunder the
full number of shares of Common Stock issuable upon exercise of said Warrants
and enclose $__________ as the purchase price therefor, and requests that
certificates for such shares be issued in the name of, and cash for any
fractional shares be paid to,
Please insert Social Security Number
or other identifying number:
____________________________________
________________________________________________________________________________
(Please print name and address, including zip code)
and, if said number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate that a new Warrant Certificate for the unexercised number of
Warrants may be assigned under the form of Assignment appearing hereon.
Dated:____________________________ ______________________________
Signature
(Signature must conform in all
respects to name of holder on
the face of this Warrant
Certificate.)
SIGNATURE GUARANTEED:
_____________________
IMPORTANT: Signature guarantee must be made by a participant of STAMP or another
signature guarantee program acceptable to the Securities and Exchange
Commission, the Securities Transfer Association and the Transfer Agent of the
Company or the Company.
<PAGE> 1
EXHIBIT 99.1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 19, 1996
Registration Number 333-518-LA
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Los Angeles, CA 90036
--------------------
AMENDMENT NO. 3
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------
NEVSTAR GAMING CORPORATION
(Exact name of small business issuer in its charter)
<TABLE>
<S> <C> <C>
NEVADA 7011 88-0309578
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
Executive Park West
6897 West Charleston Boulevard
Las Vegas, Nevada 89117
(702) 228-0700
(Address and telephone number of principal executive offices and principal
place of business)
--------------------
Sierra Corporate Services
241 Ridge Street, Fourth Floor
Reno, Nevada 89501
P.O. Box 2670 (89505-2670)
(702) 322-0635
(Name, address and telephone number of agent for service)
--------------------
Copies of all communications to:
John Kanouff, Esq. Kenneth D. Polin, Esq.
Hopper and Kanouff, P.C. Page, Polin & Busch, A.P.C.
1610 Wynkoop Street, Suite 200 350 West Ash Street, Suite 900
Denver, Colorado 80202 San Diego, California 92101-3436
Telephone: (303) 892-6000 Telephone: (619) 231-1822
Facsimile: (303) 892-0457 Facsimile: (619) 231-1875
Approximate date of commencement of proposed sale to public:
As soon as practicable after the effective date of this Registration Statement.
IF ANY OF THE SECURITIES BEING REGISTERED ON THIS FORM ARE TO BE OFFERED
ON A DELAYED OR CONTINUOUS BASIS PURSUANT TO RULE 415
UNDER THE SECURITIES ACT OF 1933, CHECK THE FOLLOWING BOX:/ /
--------------------
<PAGE> 2
<TABLE>
CALCULATION OF REGISTRATION FEE
===================================================================================================================================
<CAPTION>
Proposed
Title of Each Class of Amount Proposed Maximum Maximum Aggregate Amount of
Securities to be Registered to be Registered Offering Price per Share Offering Price(1) Registration Fee
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.01 par value per share 2,472,500(2) $7.00 $17,307,500 $5,968.14
- -----------------------------------------------------------------------------------------------------------------------------------
Redeemable Warrant to purchase one share of Common 2,472,500(3) $0.50 $1,236,250 $426.30
Stock ("Warrant")
- -----------------------------------------------------------------------------------------------------------------------------------
Common Stock issuable upon exercise of the Warrants 2,472,500(4) $5.50 $13,598,750 $4,689.25
- -----------------------------------------------------------------------------------------------------------------------------------
Underwriters' Common Stock Warrants 215,000 $.0002 $50 $0.02
- -----------------------------------------------------------------------------------------------------------------------------------
Common Stock Issuable Upon Exercise of Underwriters' 215,000(5) $8.40 $1,806,000 $622.76
Common Stock Warrants
- -----------------------------------------------------------------------------------------------------------------------------------
Underwriters' Redeemable Warrants 215,000 $.0002 $50 $0.02
- -----------------------------------------------------------------------------------------------------------------------------------
Common Stock Issuable Upon Exercise of Underwriters' 215,000(6) $7.20 $1,548,000 $533.80
Redeemable Warrants
- -----------------------------------------------------------------------------------------------------------------------------------
Total Registration Fee --- --- $35,496,600 $12,240.29
- -----------------------------------------------------------------------------------------------------------------------------------
Amount Previously Paid --- --- --- $14,235.58
- -----------------------------------------------------------------------------------------------------------------------------------
Amount Due --- --- --- $0.00
===================================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457.
(2) Includes 322,500 shares of Common Stock which the Underwriters have the
option to purchase to cover over-allotments, if any.
(3) Includes 322,500 Warrants which the Underwriters have the option to purchase
to cover over-allotments, if any.
(4) Underlying shares of Common Stock issuable upon exercise of the Warrants.
The Warrants are exercisable at $6.00 per share, with a credit of $0.50 per
share. This Registration Statement also covers such additional number of shares
as may become issuable upon exercise of the Warrants by reason of anti-dilution
provisions pursuant to Rule 416.
(5) Underlying shares of Common Stock issuable upon exercise of Underwriters'
Warrants, exercisable at 120% of the Offering Price to the Public.
(6) Underlying shares of Common Stock issuable upon exercise of the Warrants.
Each warrant is exercisable at 120% of the $6.00 exercise price to the Public.
- --------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
================================================================================
<PAGE> 3
Preliminary Prospectus Subject to Completion Dated July 19, 1996
NEVSTAR GAMING CORPORATION
2,150,000 SHARES COMMON STOCK AND 2,150,000 REDEEMABLE COMMON STOCK
PURCHASE WARRANTS
This Prospectus relates to the offering (the "Offering") by NevStar
Gaming Corporation (the "Company") of 2,150,000 shares of Common Stock, $.01 par
value (the "Common Stock"), and 2,150,000 redeemable common stock purchase
warrants (the "Warrants"). The Common Stock and Warrants must be purchased
together (unless waived by the Representative) but will be transferable
separately upon issuance. A primary purpose of the Offering is to return the
funds of previous investors in the Company. See "Shares Eligible for Future
Sale."
Prior to this Offering, there has not been any public market for the
securities of the Company. The initial public offering price of the Common Stock
and the Warrants and the initial exercise price and other terms of the Warrants
have been arbitrarily determined by negotiation between the Company and RAF
Financial Corporation (the "Representative"), as representative of the
participating underwriters (the "Underwriters"). It is anticipated that the
Offering price of the Common Stock will be between $4.00 and $7.00 per share and
the offering price of the Warrants will be $.50. The Common Stock has been
approved for quotation and trading, subject to notice of issuance, on The NASDAQ
SmallCap Market system under the symbol "NVST". The Company is in the process of
applying for quotation and trading of the Warrants on the NASDAQ Small Cap
Market system under the symbol "NVSTW." See "UNDERWRITING."
Each Warrant entitles the registered holder thereof to purchase one
share of Common Stock at an exercise price of $6.00 per share, with a credit of
$0.50 per Warrant surrendered on exercise, subject to adjustment in certain
events, at any time prior to July ____, 1999 [three years after the date of this
Prospectus]. The Warrants are subject to redemption by the Company at $.55 per
Warrant, at any time during the first or second years after the date of this
Prospectus (and at $.75 at any time during the third year after the date of this
Prospectus) and prior to their expiration, on 30 days' prior written notice to
the holders of Warrants, provided the closing bid price per share of Common
Stock if traded on The NASDAQ SmallCap Market ("NASDAQ"), or the last sale price
per share if listed on the NASDAQ National Market or a national exchange, has
been at least $7.00 for a period of 20 consecutive trading days ending on the
third day prior to the date upon which the notice of redemption is given. The
Warrants shall be exercisable until the close of the business day preceding the
date fixed for redemption. See "Description of Securities -- Warrants."
THESE SECURITIES ARE SPECULATIVE AND PROVIDE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION TO INVESTORS. POTENTIAL PURCHASERS SHOULD NOT INVEST IN
THESE SECURITIES UNLESS THEY CAN AFFORD THE RISK OF LOSING THEIR ENTIRE
INVESTMENT. SEE "RISK FACTORS" ON PAGE 7 OF THIS PROSPECTUS AND "DILUTION" ON
PAGE 23 OF THIS PROSPECTUS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
NEITHER THE NEVADA GAMING COMMISSION NOR THE NEVADA STATE GAMING CONTROL BOARD
HAS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS OR THE INVESTMENT
MERITS OF THE SECURITIES OFFERED HEREBY. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
A SUBSTANTIAL PORTION OF THE NET PROCEEDS OF THE OFFERING RELATED TO THESE
SECURITIES WILL BE USED TO REDEEM OR REPURCHASE A CERTAIN NUMBER OF SHARES OF
THE COMPANY'S COMMON STOCK AND SERIES A PREFERRED STOCK.
<PAGE> 4
NEVSTAR GAMING CORPORATION
CROSS REFERENCE SHEET PURSUANT TO ITEM 501(A) OF REGULATION S-B
<TABLE>
<CAPTION>
ITEM
NUMBER DESIGNATION IN FORM SB-2 LOCATION OR DESIGNATION IN PROSPECTUS
- ------ ------------------------ -------------------------------------
<S> <C> <C>
1. Front of Registration Statement and
Outside Front Cover of Prospectus.............. Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus.................................. Inside Front and Outside Back Cover Pages; Additional
Information
3. Summary Information and Risk Factors........... Prospectus Summary; Risk Factors
4. Use of Proceeds................................ Use of Proceeds; Certain Transactions; Bridge Financing;
Business
5. Determination of Offering Price................ Risk Factors; Underwriting; Capitalization
6. Dilution....................................... Risk Factors; Dilution
7. Selling Security Holders....................... None
8. Plan of Distribution........................... Underwriting
9. Legal Proceedings.............................. Business
10. Directors, Executive Officers, Promoters
and Control Persons............................ Management; Principal Shareholders of the Company; Certain
Transactions
11. Security Ownership of Certain Beneficial
Owners and Management.......................... Management; Principal Shareholders of the Company; Certain
Transactions
12. Description of Securities...................... Prospectus Summary; Description of Securities
13. Interest of Named Experts and Counsel.......... Legal Matters; Experts
14. Disclosure of Commission Position on
Indemnification For Securities Act
Liabilities.................................... Management
15. Organization Within the Past Five Years........ Prospectus Summary; Management; Certain Transactions;
Principal Shareholders
16. Description of Business........................ Outside Front Cover Page; Prospectus Summary; Risk Factors;
Use of Proceeds; Dividend Policy; Capitalization; Selected
Financial Data; Management's Discussion and Analysis of
Financial Condition and Results of Operations; Business;
Regulation and Licensing; Management; Certain Transactions;
Principal Shareholders; Description of Securities; Shares
Eligible for Future Sale; Financial Statements; Bridge
Financing; Selected Financial Data
17. Managements' Discussion and Analysis or
Plan of Operation.............................. Management's Discussion and Analysis of Financial Condition
and Results of Operations
18. Description of Property........................ Prospectus Summary; Management's Discussion and Analysis
of Financial Condition and Results of Operations; Business;
Bridge Financing
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
ITEM
NUMBER DESIGNATION IN FORM SB-2 LOCATION OR DESIGNATION IN PROSPECTUS
- ------ ------------------------ -------------------------------------
<S> <C> <C>
19. Certain Relationships and Related
Stockholder Matters............................ Certain Transactions
20. Market for Common Equity and Related
Stockholder Matters............................ Outside Front Cover Page; Dividend Policy; Description of
Securities
21. Executive Compensation......................... Management
22. Financial Statements........................... Financial Statements
23. Changes in and Disagreements With
Accountants on Accounting and Financial
Disclosure..................................... Experts; Change of Accountants
</TABLE>
<PAGE> 6
<TABLE>
<CAPTION>
===================================================================================================================================
PRICE TO UNDERWRITING DISCOUNTS(1)
PUBLIC PROCEEDS TO COMPANY(2)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share $______ $______ $______
- -----------------------------------------------------------------------------------------------------------------------------------
Per Warrant $______ $ -0- $______
- -----------------------------------------------------------------------------------------------------------------------------------
Total(3) $______ $______ $______
===================================================================================================================================
</TABLE>
The information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
[*THE ABOVE GOES DOWN THE SIDE LEFT MARGIN IN RED ON FRONT PAGE*]
THE SECURITIES OFFERED IN THIS OFFERING BY THE UNDERWRITERS ARE SUBJECT TO PRIOR
SALE. THE UNDERWRITERS RESERVE THE RIGHT TO WITHDRAW, CANCEL OR MODIFY SUCH
OFFER (WHICH MAY BE DONE ONLY BY FILING AN AMENDMENT TO THE REGISTRATION
STATEMENT) AND TO REJECT ORDERS IN WHOLE OR IN PART FOR THE PURCHASE OF ANY OF
THE COMPANY'S SECURITIES AND TO CANCEL ANY SALE EVEN AFTER THE PURCHASE PRICE
HAS BEEN PAID IF SUCH SALE, IN THE OPINION OF THE UNDERWRITERS, WOULD VIOLATE
FEDERAL OR STATE SECURITIES LAWS OR A RULE OR POLICY OF THE NATIONAL ASSOCIATION
OF SECURITIES DEALERS, INC. ("NASD").
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SHARES OF
COMMON STOCK AND THE WARRANTS AT LEVELS ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL
IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY
TIME.
THE DRAWING OF THE MESQUITE STAR HOTEL & CASINO PROJECT ON THE INSIDE FRONT
COVER OF THE PROSPECTUS IS AN ARTISTS' RENDERING OF THE PROPOSED PROJECT AND
DOES NOT DEPICT A COMPLETED PROJECT.
[*ABOVE THREE LEGENDS WILL APPEAR WITH THE COLOR MAP ON THE INSIDE FRONT COVER
OF THE PROSPECTUS*]
- -------------------------------
(1) The Company has also agreed to pay the Underwriters a
non-accountable expense allowance equal to 3% of the total Price to Public for
the Common Stock and to issue to the Underwriters (i) Warrants to purchase
215,000 shares of Common Stock at a purchase price equal to 165% of the Offering
Price to Public, and (ii) Warrants to purchase 215,000 shares of Common Stock at
a purchase price equal to 165% of the exercise price of the Warrants
(collectively, the "Underwriters' Warrants"). The shares subject to the
Underwriters' Warrants will be registered under this Offering. Upon exercise of
each Redeemable Warrant, which occurs after one year from the date of this
Prospectus, the Company has also agreed to pay the Underwriters a commission
equal to 10% of the $6.00 exercise price of the Redeemable Warrant. In addition,
the Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
See "Underwriting."
(2) Before deducting expenses of the Offering payable by the Company
estimated at $_________________, which excludes the non-accountable expense
allowance described in Note (1) above, and assumes no exercise of the
Underwriters' over-allotment option. See "USE OF PROCEEDS."
(3) The Company has granted to the Underwriters a 30-day option to
purchase up to 322,500 additional shares of Common Stock and 322,500 additional
Warrants from the Company at the Price to Public, less Underwriting Discount,
solely to cover over-allotments, if any. If the Underwriters exercise such
option in full, the total Price to Public, Underwriting Discounts and Proceeds
to Company will be $___________, $___________ and $___________, respectively.
See "Underwriting."
It is expected that delivery of Common Stock will be made on or about
___________, 1996.
- -------------------------------------------------------------------------------
-2-
<PAGE> 7
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and the
financial statements, including the notes thereto, appearing elsewhere in this
Prospectus. Unless otherwise indicated, all share and per share data in this
Prospectus reflects (i) no exercise of the Underwriters' over-allotment option;
(ii) the conversion of 793,504 shares of Series A Preferred Stock into 1,018,330
shares of Common Stock; (iii) the redemption of 689,840 shares of Series A
Preferred Stock; (iv) the repurchase of 1,636,243 shares of the Company's Common
Stock; (v) no exercise of the 2,150,000 Warrants offered hereby; and (vi) no
exercise of the 215,000 Underwriters' Warrants and 215,000 Underwriters'
Redeemable Warrants.
THE COMPANY
NevStar(TM)(1) Gaming Corporation (the "Company") is a development
stage company formed for the purpose of acquiring, developing, constructing,
owning and managing hotel/casino facilities. The Company's strategy is to
concentrate its efforts on "niche" markets such as "local" or "neighborhood"
casinos, and where the Company can be one of the early companies to enter such
markets. The Company's hotel/casinos will be "theme" based, which will attempt
to distinguish the Company's properties from its competitors.
The Company's initial hotel/casino project will be known as the
Mesquite Star(TM)(1) (the "Mesquite Star") and will be located in Mesquite,
Nevada. At present, the Company's primary asset is a 25.2 acre property zoned
for a hotel/casino commercial development in Mesquite, Nevada (the "Mesquite
Property"). Mesquite is located on Interstate 15 on the border of Nevada and
Arizona, approximately 80 miles from Las Vegas and 37 miles from St. George,
Utah. The Company has commenced construction of the Mesquite Star and upon
completion of the Offering, the Company intends to complete construction of the
Mesquite Star hotel/casino on the Mesquite Property. The Mesquite Star will
consist of 210 hotel rooms and suites, with a swimming pool and spa, and public
area of up to about 34,300 square feet, featuring approximately 12,000 square
feet of casino space initially containing 400 slot machines, 11 table games and
Keno, one gourmet restaurant, one cocktail lounge, one coffee shop/buffet, a
video arcade and a gift shop. See "BUSINESS - Mesquite Star Hotel and Casino -
Government Approvals." The Mesquite Star will be built with an "old west"
architectural theme. To date, the Company has had no revenues from operations.
The Company will attempt to distinguish itself from other casinos in
the Mesquite area by its emphasis on the "old west" and by its casual, friendly
atmosphere catering to middle income, value oriented customers. The "old west"
feel will be evident from a customer's first sight of the Mesquite Star with its
facade resembling a main street in an old west town. The Company plans to
reinforce this western theme throughout the customer's stay with the use of
western memorabilia in its interior decor, country/western music and the
promotion of special events and activities.
The successful (i) completion of this Offering; (ii) receipt of
additional financing necessary for and completion of construction of the
Mesquite Star; (iii) receipt of additional financing for furniture, fixtures and
equipment for the Mesquite Star; (iv) receipt of the necessary gaming licenses
from the Nevada Gaming Commission; (v) implementation of the Company's marketing
plan; and (vi) operation of the Mesquite Star hotel/casino are necessary for the
Company to commence generating operating revenues. The Company's initial
operations will be solely dependent on the Mesquite Star facilities. The
Company's expansion to locations other than Mesquite depends on the Company's
ability to find properties for development or acquisition in other locations
that meet its objectives, to become licensed in such additional other locations,
and to finance such developments or acquisitions. See "RISK FACTORS." The
Company has entered into an Option Agreement to acquire an ownership interest
and management rights to a hotel/casino to be built in North Las Vegas, Nevada.
See "BUSINESS - Facilities & Properties North Las Vegas Option Agreement."
The Company was incorporated under the laws of the State of Nevada on
December 2, 1993 under the name Mesquite Gaming Corp. On October 3, 1995, the
Company filed Restated Articles of Incorporation of Mesquite Gaming Corp.
("Restated Articles"), which changed the Company's name to NevStar Gaming
Corporation. The Company has the authority to issue an aggregate of 100,000,000
shares, of which shares 50,000,000 shares have been designated as Common Stock
with $0.01 par value and 1,500,000 shares have been designated as Series A
Convertible Non-Voting Participating Preferred Stock (the "Preferred Shares")
with a $0.01 par value and a $3.85 stated value. The Company previously raised
$5,710,874 from the sale of 1,483,344 Preferred Shares. The Company's executive
offices are located at Executive Park West, 6897 West Charleston Boulevard, Las
Vegas, Nevada 89117 and its telephone number is (702) 228-0700.
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(1) Federal Trademark Application Pending.
-3-
<PAGE> 8
<TABLE>
THE OFFERING
<S> <C>
SECURITIES OFFERED.............................. 2,150,000(1) shares of Common Stock and 2,150,000 Warrants. Each Warrant
entitles the holder thereof to purchase one share of Common Stock. The
Common Stock and the Warrants are separately tradeable and transferable. See
"Description of Securities" and "Underwriting."
OFFERING PRICES................................. $4.00 - $7.00 per share of Common Stock and $.50 per Warrant.
COMMON STOCK TO BE
OUTSTANDING AFTER THIS OFFERING(2)............ 6,622,087 shares.
REDEEMABLE WARRANTS OUTSTANDING
AFTER THE OFFERING............................ 2,150,000 Warrants.
EXERCISE PRICE.................................. $6.00 per share, with a credit of $0.50 per Warrant surrendered upon exercise,
subject to adjustment in certain circumstances. See "Description of Securities -
- Warrants."
EXPIRATION DATE................................. July_______, 1999 (three years after the date of this Prospectus).
REDEMPTION...................................... Redeemable by the Company at any time during the first and second years after
the date of this Prospectus at a price of $.55 per Warrant and during the third
year after the date of this Prospectus at a price of $.75 per Warrant and prior
to their expiration, upon not less than 30 days' prior written notice to the
holders of Warrants, provided that the closing bid price per share of the
Common Stock on The NASDAQ SmallCap Market, or the last sale price per
share if listed on the NASDAQ National Market or a national exchange, has
been at least $7.00 for a period of 20 consecutive trading days ending on the
third day prior to the date on which the Company gives notice of redemption.
See "Description of Securities -- Warrants."
USE OF PROCEEDS................................. After payment of expenses incurred in connection with this Offering, the net
proceeds, together with the proceeds of two new real estate secured loans and
certain secured equipment financing, will be used (i) to redeem 689,840 Series
A Preferred Shares of the Company and 1,636,243 shares of the Company's
Common Stock, (ii) to fund the completion of construction and development of
the Mesquite Star facilities, (iii) to acquire furniture, fixtures and equipment
for the Mesquite Star, and (iv) for working capital and general corporate
purposes. See "USE OF PROCEEDS", "BRIDGE FINANCING" and "BUSINESS."
RISK FACTORS.................................... The securities offered hereby involve a high degree of risk and immediate
substantial dilution. For a discussion of certain risk factors affecting the
Company, including construction risks, gaming licensing risks and competition.
See "RISK FACTORS" and "DILUTION."
NASDAQ SYMBOLS.................................. Common Stock - NVST; Warrants - NVSTW.
</TABLE>
The continuation of quotations on NASDAQ is subject to certain
conditions. The failure to meet these conditions may prevent the Company's
securities from continuing to be quoted on NASDAQ. Failure to maintain continued
quotations on NASDAQ may have an adverse effect on the market for the Company's
securities.
- --------------------
(1) Does not include up to an additional 322,500 shares of Common Stock
and 322,500 additional Warrants that may be sold by the Company pursuant to the
Underwriter's over-allotment option. See "UNDERWRITING."
(2) Excludes (i) 4,578,778 shares of Common Stock reserved for issuance
upon exercise of outstanding warrants, options and the New Kelley Convertible
Note; (ii) 2,150,000 shares reserved for issuance upon exercise of the Warrants;
(iii) up to an additional 322,500 shares of Common Stock and 322,500 additional
Warrants that may be sold by the Company pursuant to the Underwriters'
over-allotment option; and (iv) up to 430,000 shares of common stock which will
be reserved for issuance upon exercise of warrants issuable to the Underwriters.
-4-
<PAGE> 9
HISTORY OF THE COMPANY
The Company was organized in December 1993 for the purpose of acquiring
the Mesquite Property from PMJ Enterprises, Inc. for cash, assumption of debt
and issuance of shares of Common Stock of the Company. At the time, PMJ
Enterprises, Inc. was owned by Patrick J. Shannon and Michael J. Signorelli. The
Company intended to develop, construct, open and operate a hotel and casino on
the Mesquite Property, which is described in this Prospectus as the Mesquite
Star. Upon formation, the Company also issued founders shares of Common Stock to
a group organized by William Mower and Bradly Olah, who are referred to in this
Prospectus as the Minneapolis Group. The Company raised $5,710,874 from a group
of investors through the sale of the Preferred Shares. The Company used the net
proceeds of the Preferred Shares offering to acquire the Mesquite Property and
continue the development process.
Messrs. Mower and Olah were original founders of the Company when it
was organized in December 1993. At that time, the Company's Board of Directors
consisted of Messrs. Mower, Olah, Signorelli and Shannon. As the Company
proceeded with its development process, it became apparent that a difference of
opinion in management philosophy and approach was developing between Messrs.
Mower and Olah, on the one hand, and Messrs. Signorelli and Shannon, on the
other hand. In addition, certain disputes arose with respect to the performance
of certain obligations attributed to Messrs. Mower and Olah. To resolve these
differences and to allow the Company to proceed with the development of the
Mesquite Star Hotel & Casino, Messrs. Mower and Olah agreed to resign as
directors of the Company and to enter into the Repurchase Options described in
this Prospectus. Since Messrs. Mower and Olah were responsible for all the
founders shares issued to the Minneapolis Group, the Company required that a
certain percentage of the Minneapolis Group likewise agree to sell back a
portion of their shares pursuant to the Minneapolis Option Agreements. Since
Messrs. Mower and Olah were also primarily involved in the sale of the Preferred
Shares, they required that the Company offer to redeem the Preferred Shares as a
condition of the Repurchase Options.
Patrick J. Shannon, an officer, director and principal owner of PMJ
Enterprises, Inc., subsequently determined to not proceed with his director and
principal stockholder position with the Company. Michael J. Signorelli had a
previous business relationship with James M. Shadlaus, a financial and real
estate consultant, who regularly works with Dr. Richard Tam on development
projects in Nevada. Dr. Richard Kelley was interested in pursuing certain
ventures with Dr. Tam in the Las Vegas, Nevada area and was introduced by Mr.
Shadlaus to the Company's Mesquite Star project. In August 1995, Drs. Kelley and
Tam agreed to jointly purchase Common Stock in the Company by entering into the
Kelley Stock Purchase Agreement with PMJ Enterprises, Inc. and to make various
loans to the Company described in this Prospectus. The Company has used the
proceeds of the New Kelley Loan to proceed with the development of the Mesquite
Star and to pay for certain expenses in connection with this Offering.
Following execution of the Kelley Stock Purchase Agreement, the Company
proceeded with its business plan of developing the Mesquite Star project and
pursuing this Offering to efficiently comply with the requirements of Nevada
Gaming Authorities and to generate net proceeds to allow for the completion of
the Mesquite Star. As described in this Prospectus, the Company has arranged for
the Secured Financing and PDS Financing to be used with the net proceeds of this
Offering to complete construction of and commence operations at the Mesquite
Star.
The Company has also hired Jeffrey L. Gilbert, an experienced gaming
industry manager, to assist in the development process and operations of the
Mesquite Star. The Company has made all the necessary initial filings with the
Nevada Gaming Authorities to seek the necessary gaming licenses required for
commencement of operations at the Mesquite Star.
Finally, in pursuit of its business plan to have multiple locations,
the Company has entered into the North Las Vegas Option Agreement relating to a
possible hotel/casino in a shopping center site in North Las Vegas, Nevada.
[Remainder of Page Intentionally Blank]
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<PAGE> 10
SUMMARY FINANCIAL INFORMATION
The summary financial data set forth below are qualified in their
entirety by, and should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Plan of Operation" and the Financial
Statements, the Notes thereto and other financial and statistical information
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31, 3 MONTHS ENDED MARCH 31,
1993 1994 1995 1995 1996
-------------------------------------- ------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue(1)........................................... $ 328 $45,096 $ 9,105 $ 3,835 $ 860
Costs and expenses................................... (9,948) (281,674) (2,126,359)(2) 109,992 375,617
Net (loss)........................................... (9,620) (236,578) (2,117,254)(2) (106,157) (374,757)
Net (loss) per share................................. (.00) (.03) (0.26) (.01) (.05)
Supplemental net (loss) per share(3)................. (0.24) (.04)
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994 December 31, 1995 March 31, 1996
----------------- ----------------- --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents ........................ $ 646,230 $ 7,864 $ 6,736
Property and equipment, net ...................... 6,591,156 8,242,610 9,009,547
Total assets ...................................... 7,282,503 8,721,425 9,756,412
Total current liabilities ......................... 2,339,355 5,062,341 6,472,085
Total long-term debt .............................. 750,030 --- ---
Stockholders' equity .............................. 4,193,118 3,659,084 3,284,327
</TABLE>
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(1) Revenue shown is from interest income only. To date, the Company
has had no revenues from operations.
(2) Includes $1,476,220 in expense recorded for stock, warrants and
options and amortization of original issue discount.
(3) Supplemental net (loss) per share has been calculated using the
weighted-average number of shares outstanding plus 615,932 shares which would be
required to redeem $2,655,884 of Series A Preferred Stock.
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<PAGE> 11
RISK FACTORS
Securities of the Company being offered by this Prospectus involve a
high degree of risk. Accordingly, prospective investors should consider
carefully the following factors, in addition to the other information concerning
the Company and its business contained in this Prospectus, before purchasing the
securities offered hereby. The order in which these considerations are presented
is not intended to represent the rank of importance for the risks described. The
headings are not intended to fully describe the risk, but are intended to alert
readers to the general subject matter of the risks described.
RISK FACTORS RELATING TO BUSINESS OF THE COMPANY
DEVELOPMENT STAGE COMPANY. The Company is a development stage
enterprise, as defined by generally accepted accounting principles, which was
formed in December 1993. The Company has generated no operating revenues to date
and its primary activities have been to (i) acquire the Mesquite Property, (ii)
complete architectural and engineering plans for the Mesquite Star through
outside professionals, (iii) pursue the planning approval and permit process for
the Mesquite Star, (iv) complete offsite and onsite infrastructure for the
Mesquite Star, and (v) grade the Mesquite Star site and complete the foundation
footings for the Mesquite Star public areas. The Company has never been involved
in the construction or operation of a casino or hotel. The Company's success is
dependent upon the successful completion of development and construction of the
Mesquite Star and the successful operation thereof. There is no assurance that
the Company will be successful in completing the construction of the Mesquite
Star or in achieving profitability because unanticipated problems, expenses and
delays are common in the construction and initial operation of a hotel/casino.
The opening of the Mesquite Star will also be contingent upon the hiring and
training of sufficient personnel and receipt of all regulatory licenses,
permits, and authorizations. The scope of the approvals required to construct
and open the Mesquite Star is extensive, and the failure to obtain such
approvals could prevent or delay the completion of construction or opening of
all or part of the Mesquite Star. Potential investors should also be aware that
the Company's operations are subject to significant business, economic,
regulatory and competitive uncertainties and contingencies, many of which are
beyond the Company's control. Some risk factors include, but are not limited to,
competition, the need to develop customer loyalty, market acceptance, sales, and
operating inefficiencies. No assurances can be given that the Company will be
able to manage the Mesquite Star on a profitable basis or be able to attract a
sufficient number of guests, gaming customers and other visitors to the Mesquite
Star to make its various operations profitable independently or as a whole or to
pay the principal and interest on the Company's indebtedness. To date, the
Company has relied entirely on debt and equity financing to meet its capital
requirements.
ADDITIONAL CAPITAL NEEDS. The Company's immediate capital requirements
include the cost of completing and opening the Mesquite Star. The development,
construction and operation of the Mesquite Star is capital intensive. In
addition to the net proceeds of this Offering, the Company has obtained
commitments for $5,000,000 and $3,000,000 real estate secured loans
(collectively, the "Secured Financing") to finance the development and
construction of the Mesquite Star. See "USE OF PROCEEDS." The New Kelley Loan,
which has a balance of $5,750,800 as of May 31, 1996, has been extended for one
year from the closing of this Offering, with interest-only payments due monthly.
The Company also intends to finance significant portions of its furniture,
fixtures and equipment, with equipment financing of approximately $5,788,000,
including, but not limited to, guest room furnishings, kitchen equipment,
computer systems, gaming devices, associated equipment, laundry equipment and
its exterior full-standing highway sign and electronic reader board (defined for
purposes of this paragraph only as "Equipment Financing"). Until such Equipment
Financing is finalized, there is no assurance that such Equipment Financing will
be obtained. See "USE OF PROCEEDS." The total estimated cost of such furniture,
fixtures and equipment is estimated at approximately $6,602,000. Based on the
Company's estimated budget, except for the possible need to repay the PMJ
Enterprises Secured Debt, the Company anticipates that the New Kelley Loan, the
Secured Financing and Equipment Financing, if obtained, together with the net
proceeds of this Offering, will be adequate to satisfy its capital requirements
and operating expenses for at least 10 months after the Offering. See "RISK
FACTORS - Need to Pay PMJ Enterprises Secured Debt." Continued operation of the
Company beyond such period will be dependent on its ability to (i) generate
positive operating revenues from the Mesquite Star, (ii) procure additional
financing, or (iii) obtain additional equity capital from exercise of the
Warrants. Management has prepared the estimated budget based on comparative
costs incurred by other similarly situated properties, and such estimates may
prove to be inaccurate. To the extent that the funds generated by this Offering,
the Secured Financing or Equipment Financing, and the extension of the New
Kelley Loan are insufficient to fund the Company's completion of the Mesquite
Star and commencement of operations, the Company could be required to adopt one
or more alternatives, such as obtaining additional financing, to the extent
permitted by the New Kelley Loan, the Secured Financing and the Equipment
Financing, reducing or delaying planned construction or capital expenditures,
restructuring debt or obtaining additional equity
-7-
<PAGE> 12
capital. There can be no assurance that any of these alternatives could be
obtained on satisfactory terms, and any resort to alternative sources of funds
could impair the Company's competitive position and reduce its future financial
capability. Any equity financing could result in dilution to the Company's
then-existing stockholders. Sources of debt financing may result in higher
interest expense. Any financing, if available, may be on terms unfavorable to
the Company. If adequate funds are not obtained, the Company may be required to
reduce or curtail certain improvements and/or operations. There is no assurance
that any such revenue will be generated or that any such additional financing
can be obtained on terms favorable to the Company. See "USE OF PROCEEDS,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF
OPERATION", "BUSINESS" and "FINANCIAL STATEMENTS."
NEED TO PAY PMJ ENTERPRISES SECURED DEBT. Assuming the sale of the
Underwriters' over-allotment shares, the Company may use the proceeds thereof to
repay all or a portion of the outstanding secured indebtedness in the amount of
$1,058,000 plus interest to PMJ Enterprises, Inc. at such time as the Company
closes the Secured Financing. See "BRIDGE FINANCING - PMJ Enterprises, Inc.
Secured Debt." The current stockholders of PMJ Enterprises, Inc. include a
former officer and director of the Company. Although the PMJ Enterprises Secured
Debt is due on May 30, 1997, unless PMJ Enterprises, Inc. agrees to subordinate
to the Secured Financing, the Company will be required to repay the PMJ
Enterprises Secured Debt at the closing of the Secured Financing. If the
proceeds from sale of over-allotment shares are not available to pay such debt,
the Company will be forced to arrange additional financing. There can be no
assurance that the Company can arrange such financing or that the need to repay
the PMJ Enterprises Secured Debt will not delay the closing of the Secured
Financing and adversely effect the Company and the Mesquite Star project.
REGULATION; NO ASSURANCE OF LICENSING. The ownership and operations of
casinos in Nevada are highly regulated. The Company, its directors, officers and
principal stockholders will need to be licensed and found suitable by the gaming
authorities in Nevada and must provide detailed financial and other reports to
such authorities. The Company, its directors, officers and prospective principal
stockholders have applied for the necessary licenses to own or operate the
Mesquite Star. There can be no assurance, however, that the Company or such
persons will be licensed, found suitable or granted the other approvals that are
necessary to commence gaming operations. The failure of the Company or any one
of the foregoing persons to be registered, licensed or found suitable by the
Nevada gaming authorities will have a material adverse affect on the Company.
Changes in Nevada law or regulations may limit or otherwise materially affect
the types of gaming that may be conducted. The Nevada Gaming Commission has the
power to investigate and require the finding of suitability of any record or
beneficial stockholder of the Company. Any holder of more than 5% of the Common
Stock of the Company is required to report such ownership to the Nevada Gaming
Commission. Any holder of more than 10% of the Common Stock must apply to, be
investigated by, and be found suitable by the Nevada Gaming Commission. Under
certain circumstances, an "institutional investor" (as defined in the Nevada
Gaming Control Act) which acquires more than 10% but not more than 15% of the
voting securities of a "registered corporation" (as defined in the Nevada Gaming
Control Act) may apply to the Nevada Gaming Commission for a waiver of such
finding of suitability if the institutional investor holds the voting securities
for investment purposes only. The Company will also seek to obtain a liquor
license prior to opening the Mesquite Star and no assurance exists that such
license will be obtained. The failure to obtain a liquor license could have a
material adverse effect on the Company's business. See "BUSINESS Regulation and
Licensing."
The regulations of the Nevada Gaming Commission also provide that any
entity that is not a registered corporation or an "affiliated company" (as such
term is defined in the Nevada Gaming Control Act) or that is not otherwise
subject to the provisions of the Nevada Gaming Control Act or such regulations
which plans to make a public offering of securities intending to use the
proceeds from the sale thereof for the construction or operation of gaming
facilities in Nevada, or to retire or extend obligations incurred for such
purposes, may apply to the Nevada Gaming Commission for prior approval of such
offering. The Company is not presently a registered corporation or an affiliated
company. The Nevada Gaming Commission may find an applicant such as the Company
unsuitable to be licensed or registered if, among other things, it did not
submit such an application or obtain from the Nevada State Gaming Control Board
Chairman an administrative ruling that it is not necessary to submit such an
application. This Offering will qualify as a public offering as such term is
defined in the Nevada Gaming Control Act. The Company has received a ruling from
the Nevada State Gaming Control Board Chairman that it is not necessary to
submit this Offering to the Nevada Gaming Commission for prior approval.
It is impossible to predict with any accuracy the potential regulatory
or legislative actions that could affect the Company and the gaming industry in
the future. It is possible, however, that certain laws, rules, regulations or
restrictions could be adopted at the federal and/or state level that would
adversely affect the business opportunities of gaming and casino operations.
-8-
<PAGE> 13
REAL ESTATE INVESTMENT - GENERAL. The Company's development of the
Mesquite Star is a high-risk real estate investment involving many factors
beyond the control of the Company. Such factors could adversely affect the
operation and value of the Mesquite Star and, consequently, the value of the
Company's securities, to an extent not currently ascertainable. These factors
include, but are not limited to, changes in the general or local economic
conditions including changes in interest rate structures; changes in the demand
for use of the Mesquite Star as a result of competition; adjacent land
utilization; demographic trends; increases in real estate taxes; changes in
local, state and federal environmental, energy, and other regulations; possible
restrictive changes in the uses applicable to real estate, zoning and similar
land use and environmental laws and regulations; and acts of God. Furthermore,
expenditures associated with equity investments in real estate (principally
mortgage payments and real estate taxes) are not normally decreased by events
adversely affecting the revenue generated by the real property.
HIGH LEVEL OF INDEBTEDNESS OF COMPANY. Subsequent to the Offering, the
Company will be financially leveraged. After giving pro forma effect to the
consummation of the Offering, the repurchase of the Series A Shares and other
transactions to be completed concurrently with the Offering, as of March 31,
1996, the Company's stockholders' equity would have been approximately
$9,490,000. See "USE OF PROCEEDS" and "CAPITALIZATION." The Secured Financing
will also be secured by first and second deeds of trust on the Mesquite
Property. The New Kelley Loan will subordinate to a third lien position on the
Mesquite Property. The ability of the Company to make future principal and
interest payments on its indebtedness will depend on the Company's ability to
generate funds from (i) the net proceeds from exercise of Warrants; (ii)
additional financing; (iii) positive net operating revenues from the Mesquite
Star; or (iv) the sale of additional equity securities. While the Company
believes that, after commencement of operations, it will be able to generate
sufficient cash flow to meet its expenses, including such interest payment
requirements, there can be no assurance with respect thereto. Future operating
results are subject to significant business, economic, regulatory and
competitive uncertainties and contingencies, many of which are beyond the
Company's control. The accrual of interest on such indebtedness will also
adversely affect the Company's earnings before income tax. There can be no
assurance that the Company will be able to attract a sufficient number of
patrons and achieve the level of activity necessary to generate sufficient cash
flow to meet its payment obligations in connection with its indebtedness. If
payments are not made on the New Kelley Loan or the Secured Financing when due,
the subject deeds of trust may be foreclosed and the Company would lose its
interests in the Mesquite Property, which would have a material adverse effect
on the Company and could result in purchasers in this Offering losing a portion
or all of their investment in the Company. In addition, a substantial portion of
the Company's cash flow from operations will be dedicated to the payment of
principal and interest on its indebtedness and would not be available for other
purposes such as maintenance and improvement of casino/hotel facilities or
expansion into other locations. Since the New Kelley Loan is due one year
following the closing of this Offering, absent additional equity capital the
Company may be forced to refinance all or a portion of its real estate secured
debt. There can be no assurance that such secured financing will be available at
such time. Further, the Company's ability to obtain additional financing in the
future for working capital, capital expenditures or acquisitions may be limited
and the Company's level of indebtedness could limit its flexibility in planning
for, or reacting to, changes in its industry. See "BRIDGE FINANCING."
LAND USE / PERMITTING RISKS. Completion of the Mesquite Star will be
dependent on the continued issuance and extensions of permits and approvals from
governmental and quasi-governmental agencies, districts and departments. For
example, the building permits issued to the Company on May 30, 1995 to erect a
new hotel and new casino had a one year term. The Company believes that the
requirement to extend the permits is satisfied by continuing construction of the
Mesquite Star and the City of Mesquite's continued inspections of such
construction work. If the City of Mesquite requires a formal extension, although
the Company reasonably anticipates that extensions will be granted, extensions
are not a matter of right and there is no guaranty extensions will be granted or
granted at a reasonable cost. If such extensions are not granted, the Company
would be forced to pursue such extensions by administrative or judicial action.
No assurance exists that any such action would be successful. Similarly, the
Mesquite Star borders on and has vehicular access from Mesquite Boulevard, a
State of Nevada highway, pursuant to occupancy permits from the Nevada
Department of Transportation ("NDOT"). While management believes it is unlikely
that access from the Mesquite Star to Mesquite Boulevard would ever be
completely denied, the occupancy permits are revocable by the NDOT and it is
possible that in the future access might be curtailed, altered or limited to the
material detriment of the Mesquite Star. In addition, there was a dispute
between the Company and the City of Mesquite in connection with the conditional
use permit (the "CUP") which approved the construction of a casino and hotel on
the Mesquite Property. The Company believes the efficacy of the CUP has been
resolved with the City of Mesquite pursuant to a City Council resolution
approved on October 24, 1995. Although the Casino Building Permit describes only
32,000 square feet of casino and support area, approximately 34,300 square feet
of slab has been poured for the casino and support area. The City previously
reviewed
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<PAGE> 14
and approved the architectural plans which included 34,300 square feet of
building area for the casino and support area. While the Company reasonably
anticipates that the Casino Building Permit can be amended or reissued to
provide for the increased square footage of 34,300, there is no guaranty that
the Casino Building Permit will be so amended or reissued, or, if so amended or
reissued, at what additional cost to the Company. See "BUSINESS - Mesquite Star
Hotel and Casino - Governmental Approvals."
CONSTRUCTION RISKS. Although the Company believes that the opening of
the Mesquite Star will occur within approximately eight months after the
completion of the Offering, no assurances can be given that the opening will
occur at that time or that the budget for the Mesquite Star will not be
exceeded. Real estate development and construction involve significant special
risks. Completion of the Mesquite Star will be affected by factors both within
and beyond the control of the Company. Such factors include, among others, the
performance of the general contractor and subcontractors; unforeseen
construction costs not covered by the construction contract; adverse weather;
strikes; energy shortages; delays; shortages of material for construction or
skilled labor; compliance with federal, state and local laws and regulations;
inflation; nonavailability of construction equipment and unknown contingencies.
The Company is undertaking the construction of the Mesquite Star without a
guaranteed maximum price contract, completion bonds or guarantees from the
general contractor. The Company's construction budget is based upon estimates of
projected costs provided by the general contractor. Because of these estimates
and the lack of a guaranteed maximum price contract, construction is subject to
cost overruns from presently unforeseen difficulties or as the result of delays
or material cost increases. In the event of cost overruns, and in the event that
sufficient additional funds are not available when needed, the Mesquite Star may
not be completed and the Company would not realize the anticipated gross revenue
to be derived from its operations. Moreover, there can be no assurance that,
upon completion, the Mesquite Star will conform to all applicable governmental
requirements, such as building codes. Such a failure to conform to governmental
requirements could result in a loss of revenues from the Mesquite Star until
compliance is achieved.
ENVIRONMENTAL RISKS. Ownership or operation of real estate exposes the
Company to the related risks of compliance with environmental laws, and clean-up
costs and related expenses (which would not be covered by insurance
reimbursement) in the event of environmental contamination, even if such
contamination was not caused by or known to the Company. In addition, the
discovery of such contamination could cause the Company to decline to proceed
with development of the Mesquite Star or, if discovered after development by the
Company, could expose the Company to substantial costs for remediation of the
contamination. The Company obtained a Phase 1 Environmental Site Assessment on
the Mesquite Property on August 30, 1994, which revealed no adverse
environmental impact. The Company has no current knowledge of environmental
problems affecting the Mesquite Property.
POTENTIAL LACK OF ADEQUATE INSURANCE COVERAGE. Although the Company
plans to maintain insurance coverage for the Mesquite Star, coverage under
standard types of policies is typically limited. Coverage for some types of
losses (such as winds, floods, earthquakes and other losses of a catastrophic
nature) is generally inappropriate for this type of investment, being either
completely uninsurable or not economically insurable. It is also possible that
the Mesquite Property, or a part thereof, could be taken by governmental
authorities acting under their power of eminent domain. If an uninsured disaster
should occur, or should the actual loss sustained exceed the amount of insurance
proceeds, or should the property be taken by eminent domain, the Company and,
consequently, the investors in this Offering, might suffer a material loss.
NATURE OF THE GAMING INDUSTRY; DEPENDENCE ON SUCCESSFUL GAMING
OPERATIONS. Unfavorable changes in general and local economic conditions
adversely affect investments in gaming-related enterprises, like other
entertainment investments. The success of the Mesquite Star will depend largely
on the success of gaming operations to be conducted at the Mesquite Star. The
Mesquite Star will initially have 400 slot machines and limited live games and
there can be no assurance that the proposed casino facilities will be sufficient
to produce successful gaming operations. Some of the conditions and other
factors beyond the Company's control that could have a material adverse effect
on the Company include (i) competition from other casinos and non- gaming
recreational, entertainment and resort facilities; (ii) changes in regional and
local population and disposable income composition; (iii) unanticipated
increases in operating costs; (iv) changes in federal, state and local laws,
rules and regulations; (v) legal restrictions as to the use of signs, billboards
and other forms of roadside advertising typically utilized in marketing
entertainment properties; (vi) seasonality; (vii) changes or cancellations in
local tourist, athletic or cultural events; and (viii) changes in travel
patterns or preferences which may be affected by increases in gasoline prices,
changes in airline schedules and fares, strikes, weather patterns and/or
relocation or reconstruction of highways, among other factors. The industry in
which the Company will operate has been generally undergoing significant changes
in operations, amenities and technological advances.
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<PAGE> 15
Given the rapid developments and changes in the industry, it is impossible to
accurately predict future trends or changes in the gaming industry or their
effect on the Company.
DEPENDENCE ON KEY PERSONNEL. The Company is and will be highly
dependent upon the personal efforts and abilities of Michael J. Signorelli and
Jeffrey L. Gilbert, the Company's President and Chief Operating Officer,
respectively. At present, Mr. Signorelli is the sole director of the Company.
The loss of the services of either individual could have a substantial adverse
effect on the Company's ability to achieve its objectives. The Company does not
presently have key person life insurance for its current management. The Company
intends to obtain key man life insurance on the officers following the closing
of the Offering to the extent that the premiums are economically reasonable and
coverage is obtainable. Until construction of the Mesquite Star is closer to
completion, the Company does not believe the Mesquite Star will require
extensive operational management and, accordingly, has kept its staff at
relatively minimal levels. In connection with the anticipated opening estimated
to be within eight months after the closing of this Offering, the Company
intends to begin hiring the necessary staff during months two through four
following the closing of this Offering. There can be no assurance that the
Company will be able to attract and retain a sufficient number of qualified
employees. The failure to obtain, or delays in obtaining, such employees could
have a material adverse effect on the Company. See "MANAGEMENT." The Company has
entered into written employment agreements with Mr. Signorelli and Mr. Gilbert.
See "MANAGEMENT -- Employment Agreements."
LACK OF DIVERSIFICATION. Because the Company's sole source of revenues
will initially come from the Mesquite Star and thereafter from developing,
constructing, owning, operating, and managing other hotel casino projects, an
investment in Common Stock may be adversely affected by a casualty or by
economic, environmental, regulatory or similar problems that may apply only to
the Company, only to a given hotel/casino or only within a particular market
area. The adverse effect of any such problems or events could be more easily
absorbed in a project involved initially in a more geographically diversified
business or one that operates in a different or more diverse industry.
UNCERTAINTY OF EXPANSION PLANS. The Company's management will be
actively evaluating sites in future new locations and gaming jurisdictions for
possible expansion. The Company's ability to expand will depend, however, upon a
number of factors, including the identification and availability of suitable
locations; negotiations of acceptable purchase, lease, joint venture or other
terms; the securing of required state and local licenses, permits and approvals;
the risks typically associated with any new construction; the hiring, training,
and retention of skilled management and other personnel; the availability of
adequate financing on acceptable terms; and other factors, many of which are
beyond the Company's control. As a result, there can be no assurance that the
Company will be able to expand into any new locations or gaming jurisdictions
or, if such expansion occurs, that it will be successful. Although the Company
has been granted an option to purchase an indirect 20% ownership interest in an
approximately 25-acre parcel of unimproved real property currently zoned for
hotel and gaming use located in the city of North Las Vegas, Nevada, the
Company's ability to pursue this opportunity will be dependent upon many of the
above factors. See "BUSINESS - Facilities & Properties: North Las Vegas Option
Agreement."
COMPETITION. The gaming industry is highly fragmented and characterized
by a high degree of competition among a large number of participants, many of
which have significantly greater name recognition and financial and marketing
resources than the Company. In recent years, gaming activities have expanded to
include land-based and riverboat casinos, state sponsored video lotteries, small
stakes casino gaming, and full-scale casinos on Indian land. The Company's
hotel/casino operation will compete, to some extent, with other hotel/casino
facilities located elsewhere in Nevada and with state lotteries and Indian
gaming operations. With respect to Indian gaming in the adjoining states of
California and Arizona in particular, the number of Indian casinos has rapidly
expanded in recent years. Many of these Indian gaming operations are more
established, larger, and better financed than the Company's hotel/casino
project, engage in aggressive marketing practices, and target the same customers
targeted by the Company. The expansion of Indian gaming in these states may
adversely affect the Company's opportunities for expansion to future new
locations and/or the Company's operations at the Mesquite Star project.
In addition, at least 36 states, including California, sponsor
lotteries, and 46 states have legalized bingo games sponsored by charities.
While the Company believes that legalized gaming may in the future present
opportunities for expansion into other states, increased legalized gaming in
other states, particularly in areas close to Nevada, such as California and
Arizona, could adversely affect the Company's operations. Other companies in the
gaming industry, including companies that develop, operate or own casinos or
casino sites, may have available to them far greater financial resources and
personnel with more experience than the Company, may be in more advanced stages
of development or already operating, and may possess or acquire more desirable
gaming sites.
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<PAGE> 16
The Company's Mesquite Star faces competition from all other casinos
and hotels in the Las Vegas area, other gaming operations on Interstate 15, as
well as direct competition from other hotel/casinos in Mesquite, Nevada. Si
Redd's Oasis Resort Hotel/Casino, Virgin River Hotel/Casino and Bingo, and
Player's Island Resort Casino and Spa are three major competitors currently
operating hotel casinos in Mesquite, all of which are established, larger,
better financed and offer more amenities than the Company's Mesquite Star
project. The Rancho Mesquite Hotel and Casino also has commenced construction in
Mesquite of a 215 room hotel and casino, which is planned to carry the Holiday
Inn flag. In addition to the three major casino hotels, there is one small
casino/motel and three small motels located in the Mesquite area. Additional
competitors may also enter the Mesquite market and compete with the Company for
customers and market share. Competition in the future may be affected by
periodic overbuilding, which may adversely affect patronage levels, changes in
local market conditions, changes in regional and local population and disposable
income characteristics, and changes in travel patterns and preferences. The
Company believes that competition in the gaming industry is based on the quality
and location of gaming facilities, the effectiveness of marketing resources and
customer service and satisfaction. See "BUSINESS - Competition."
POSSIBLE CONFLICTS OF INTEREST. Jeffrey Gilbert, Executive Vice
President and Chief Operating Officer of the Company, is actively involved in a
small casino operation located in Las Vegas which may be said to indirectly
compete with The Mesquite Star. Other future directors and officers of the
Company may also become involved in the gaming industry. In addition, the
potential for conflicts of interest exist among the Company, Mr. Gilbert and
such persons with respect to future business opportunities. Messrs. Signorelli
and Gilbert's employment agreements do not permit either Mr. Signorelli or Mr.
Gilbert to participate in outside business endeavors to the extent such
activities restrict or interfere with their respective duties.
POSSIBLE CONFLICT OF INTEREST WITH RESPECT TO PURCHASE OF MESQUITE
PROPERTY. The Company purchased the Mesquite Property from PMJ Enterprises,
Inc., a significant stockholder of the Company, for approximately $5,200,000 in
cash and assumption of debt, together with the issuance of 2,750,000 shares of
the Company's common stock. The terms of this acquisition were negotiated by
officers of the Company and PMJ Enterprises, Inc., and the purchase of the
Mesquite Property was approved by the disinterested directors of the Company.
However, no appraisal or other independent valuation of the Mesquite Property
was obtained at the time of such purchase.
RISK OF INCREASES IN GAMING TAXES. The Company believes that the
prospect of significant tax revenue is one of the primary reasons that many
jurisdictions have legalized gaming. As a result, gaming operators are typically
subject to significant taxes and fees in addition to corporate income taxes,
where applicable, and such taxes and fees are subject to increase at any time.
Any material increase in these taxes or fees could adversely affect the Company.
The Company expects to continue to pay substantial taxes and fees in Nevada and
in any other jurisdiction in which it conducts gaming operations. See
"REGULATION and LICENSING."
LABOR FORCE. The Company will be required to engage suitable senior
management and staff in connection with opening and operating the Mesquite Star.
The pool of experienced gaming personnel is limited and competition to recruit
and retain gaming personnel is likely to intensify as more casinos are opened in
the greater Las Vegas, Nevada area or in other gaming areas along Interstate 15.
The Company's Mesquite Star employees will live primarily in Las Vegas, Nevada
or St. George, Utah, approximately 80 miles and 37 miles away, respectively. The
Mesquite market has limited housing to accommodate an expanding work force.
These commuting distances and the Mesquite housing market could adversely affect
the Company's ability to retain or attract qualified labor, particularly at
supervisory levels. In such an event, the Company may be required to increase
salaries and offer other incentives to supervisory personnel which could
substantially increase its labor costs. The Company intends to enter into
written employment agreements with its executive supervisory personnel. See
"BUSINESS - Property" and "BUSINESS - Employees."
DEPENDENCE ON SITE TRAFFIC. The Company's Mesquite Star location will
be highly dependent on traffic flow on Interstate 15. In the event traffic flow
on Interstate 15 is significantly reduced for an extended period of time or the
offramps providing access to Mesquite were impaired due to poor weather
conditions, road modifications and repairs or other factors, the financial
performance and operation of the Mesquite Star would be adversely affected.
Travel on Interstate 15 could also be adversely affected if alternative forms of
travel become more attractive because of costs, convenience or other factors.
For example, recent increases in gasoline prices could adversely affect traffic
flow on Interstate 15. In addition, because automobile traffic is critical to
the success of the Mesquite Star, any human or naturally caused event or
disaster (such as street closures, construction or earthquakes) could
significantly reduce traffic and therefore adversely impact the revenues
generated by the Mesquite Star.
-12-
<PAGE> 17
EFFECT OF REDEMPTIONS. From December 1993 to February 1994, the Company
issued 1,483,344 Series A Preferred Shares at a price of $3.85 per share for a
total of $5,710,874. The Series A Preferred terms do not provide for redemption.
The Company offered each outstanding Series A shareholder the right to redeem at
$3.85 or the right to convert into shares of Common Stock at a conversion price
of $3.00 per share (the "Redemption Offer"). A total of 689,840 Series A Shares
have elected to be redeemed. Consequently, the Company will use $2,655,884 from
this Offering to redeem such shares concurrently with the closing of this
Offering. See "USE OF PROCEEDS" and "CAPITALIZATION." In addition, on May 24,
1995, the Company entered into various option agreements with certain Common
stockholders of the Company to purchase a total of 1,636,243 shares of the
Company's Common Stock at a price of $0.25 per share. The Company will use
$409,061 from this Offering to repurchase such shares of Common Stock, with such
repurchase to take place concurrent with the closing of this Offering. See
"SHARES ELIGIBLE FOR FUTURE SALE."
VACANCY ON COMPANY'S BOARD OF DIRECTORS. The Company currently has one
member of the Board of Directors and four vacancies on the Board. With only one
director, the operation of the Company's Board of Directors may prove
problematic. In addition, since Mr. Michael Signorelli is the sole director and
is also the Company's President, some decisions of the Company's Board relating
to compensation of management will present a conflict of interest. Until the
Company's stockholders elect additional members to the Company's Board of
Directors, it will be difficult for the Company's Board of Directors to
independently determine the fairness to the Company of compensation arrangements
and other transactions involving Mr. Signorelli. The Company intends to fill
some of the vacancies shortly after the closing of this Offering. Within 90 days
after the date of this Prospectus, at least one disinterested person will be
appointed as a director of the Company.
RISK FACTORS RELATING TO THIS OFFERING
SPECULATIVE NATURE OF THE SHARES. The Company is a development stage
enterprise, and the Company has not previously engaged in the business of
developing, constructing, managing, marketing, or expanding hotel/casinos. The
ability of the Company to establish and operate hotel/casinos that will generate
a sufficient level of revenues to allow the Company to pay its operating
expenses has not been established. For these and other reasons, the purchase of
Common Stock and Warrants must be considered to be highly speculative.
ABSENCE OF PUBLIC MARKETS FOR COMMON STOCK AND WARRANTS. Prior to this
Offering, there has been no public market for the Common Stock or the Warrants.
The initial public offering price of the Common Stock and the Warrants offered
hereby has been determined by negotiation between the Company and the
Representative of the Underwriters. See "UNDERWRITING." There can be no
assurance that the price at which the Common Stock or the Warrants will trade in
the public market after this Offering will not be lower than the initial public
offering prices. The determination of the purchase price for the Common Stock
and the Warrants cannot necessarily be regarded as an accurate indication of the
value or anticipated value of the Common Stock and the Warrants or the value or
anticipated value of the Company.
LACK OF DIVIDENDS. The Company has never paid any cash dividends on its
Common Stock and does not anticipate paying any cash dividends in the future. In
addition, the Secured Financing may prohibit the payment of dividends. Even if
such restrictions were removed, the Company currently intends to retain future
earnings, if any, to fund the development and growth of its business. See
"DIVIDEND POLICY."
IMMEDIATE SUBSTANTIAL DILUTION. Founders and present stockholders own
controlling interests at less cost per share than the public. The present
stockholders of the Company, including officers, directors and founders have
acquired their controlling interest in the Company at an average (weighted) cost
per share of approximately $0.01, which is substantially less than the assumed
public offering price of $5.00 per share. Present stockholders, assuming all
2,150,000 Shares are sold, will own approximately 70.3% of the issued and
outstanding Common Stock of the Company for an aggregate consideration paid by
them of $60,000, whereas public investors will own approximately 29.7% of the
Common Stock for an aggregate cash consideration of $10,750,000 (assuming a
public Offering price of $5.00 per share). The foregoing does not take into
account the issuance of (i) 2,150,000 shares issuable on exercise of the
Warrants, (ii) up to 322,500 shares and 322,500 additional Warrants, which the
Underwriters have the option to purchase to cover over-allotments, (iii) up to
430,000 shares of common stock which will be reserved for issuance upon exercise
of warrants issuable to the Underwriters; and (iv) 4,538,778 shares of Common
Stock reserved for issuance under outstanding options, Warrants and the New
Kelley Convertible Note, which purchases would increase the percentage of shares
owned by present stockholders following this Offering and increase management's
control of the Company and its affairs. If all 2,150,000 Shares are sold,
purchasers of Common Stock in this Offering will experience
-13-
<PAGE> 18
immediate substantial dilution in the offering price per share purchased by them
of $3.58 per share (71.6%). Conversely, the present stockholders of the Company
will receive an immediate benefit of approximately $0.90 per share (173.1%). See
"DILUTION."
PUBLIC WILL BEAR RISK OF LOSS. The capital required by the Company to
redeem the Series A Preferred Shares, repurchase 1,636,243 shares of the
Company's Common Stock, construct the Mesquite Star, commence operations and
carry on the Company's business is being sought principally from the proceeds of
this Offering. Therefore, public investors will bear most of the risk of the
Company's operations until such time as it attains profitable operations, if
ever.
UNSPECIFIED ACQUISITIONS. Although the Company plans to use the
proceeds of this Offering to complete the Mesquite Star, the Company has
retained the discretion to use some proceeds raised by this Offering to pursue
other unspecified business opportunities. See "BUSINESS - Business and Marketing
Strategy - Expansion into Other Markets" and "BUSINESS - North Las Vegas Option
Agreement."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS. Sales of shares
of Common Stock by existing stockholders, or holders of options or Warrants,
under Rule 144 of the Securities Act, pursuant to the exercise of registration
rights or otherwise, could have an adverse effect on the price of the Common
Stock. All persons who own more than 5% of the shares outstanding after this
Offering, as well as certain other stockholders of the Company, have executed
lock-up agreements with the Representative that restrict the sale or disposition
of such shares for 18 months following the date of this Prospectus, or such
earlier date as the Representative may agree. Under the terms of the Redemption
Offer, Series A Preferred stockholders electing to convert their Series A Shares
will be subject to the lock-up restriction, for 180 days following the closing
of this Offering. After 180 days from the closing of this Offering,
approximately 1,018,330 shares of Common Stock (comprising the Series A Shares
subject to conversion under the Redemption Offer), plus an additional 813,757
shares of Common Stock, will be released from the lock-up restriction. The
Representative may consent to a waiver of the lock-up period without prior
public notice. Following the expiration of the lock-up agreements, or such
earlier date as the Representatives may agree, up to approximately 1,657,450
shares may become eligible for sale in the public market subject to compliance
with Rule 144 or Rule 701. In addition, certain affiliates of the Company
holding up to approximately 4,777,994 shares of Common Stock will, subject to
the satisfaction of certain conditions, also be able to sell Common Stock
publicly through the exercise of certain registration rights. No prediction can
be made as to the effect, if any, that future sales of shares of Common Stock,
or the availability of shares of Common Stock for future sales, will have on the
market price of the Common Stock prevailing from time to time. Sales of
substantial amounts of Common Stock, or the perception that such sales may
occur, could adversely affect the prevailing market prices for the Common Stock.
See "DESCRIPTION OF SECURITIES" and "SHARES ELIGIBLE FOR FUTURE SALE
Registration Rights."
SHARES RESERVED FOR EXERCISE AND GRANTING OF OPTIONS AND WARRANTS. The
Company has adopted a Stock Option Plan for employees, officers, directors and
consultants pursuant to which the Company may grant future options to purchase
up to 747,550 shares of Common Stock. Of this total, no more than 250,000
options to purchase shares of Common Stock may be issued without the prior
consent of the Representative. As of the date of this Offering, the Company has
issued and outstanding options and Warrants to purchase 2,525,784 shares at
prices ranging from $0.25 to $4.62 per share. This total excludes the 2,150,000
Warrants offered hereby and the over-allotment Warrants and Underwriters'
Warrants. The holders of outstanding options and Warrants may exercise them at a
time when the Company would otherwise be able to obtain additional equity
capital on terms more favorable to the Company. See "MANAGEMENT - STOCK OPTION
PLAN," "DESCRIPTION OF SECURITIES" and "SHARES ELIGIBLE FOR FUTURE SALE."
CONTROL OF THE COMPANY. Following the completion of this Offering and
the closing of the Kelley Stock Purchase Agreement, Dr. Kelley and Dr. Tam will
each have a right to elect himself as a member of the Board; Messrs. Signorelli
and Gilbert's Employment Agreements entitle each of them to a board seat; and,
the Company's current directors and officers will own beneficially up to
approximately 16.5% of the outstanding shares of Common Stock, assuming the
exercise of options held by them vesting through and including June, 1996. Since
cumulative voting rights are not provided for in the Company's Restated
Articles, these persons are likely to be in a position to effectively control
the election of a majority of the Board of Directors and control most corporate
actions. See "PRINCIPAL STOCKHOLDERS OF THE COMPANY", "KELLEY STOCK PURCHASE
AGREEMENT" and "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
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<PAGE> 19
POSSIBLE EFFECTS OF CERTAIN RESTATED ARTICLES PROVISIONS. The Company's
Restated Articles contain provisions that may discourage acquisition bids for
the Company. Upon completion of this Offering, the Company will have substantial
authorized but unissued capital stock available for issuance. The Company's
Restated Articles contain provisions which authorize the Board of Directors,
without the consent of stockholders, to issue additional shares of Common Stock
and issue shares of Preferred Stock in series, including establishment of the
voting powers, designations, preferences, limitations, restrictions and relative
rights of each series of Preferred Stock. The Company's Restated Articles also
provide for a classified board of directors. Such charter provisions could have
the effect of delaying, deferring or preventing a change in control of the
Company.
REQUIREMENTS FOR LISTING SECURITIES ON THE NASDAQ SYSTEM; POSSIBLE
DELISTING OF COMMON STOCK FROM NASDAQ SYSTEM; RISKS RELATING TO LOW-PRICE
STOCKS. The Securities and Exchange Commission (the "SEC") has approved rules
imposing stringent criteria for listing securities on NASDAQ, as well as
standards for maintenance of such listing. The Company has applied for inclusion
of the Common Stock and the Warrants for listing on the NASDAQ SmallCap Market
system upon the completion of this Offering. If the Company is unable to meet
these criteria for initial listing, this Offering will be terminated. In
addition, if the Company is unable to satisfy NASDAQ's maintenance criteria in
the future, its securities will be subject to being delisted, and trading, if
any, in the Company's securities would thereafter be conducted in the non-NASDAQ
over-the-counter market. As a consequence of such delisting, an investor could
find it more difficult to dispose of, or to obtain accurate quotations as to the
market value of, the Company's securities. In addition, in the absence of the
securities being quoted on NASDAQ, the Company having $2,000,000 in net tangible
assets, or the Common Stock having a market price of at least $3.00 per share,
trading in the Common Stock would be covered by Rule 15c2-6 promulgated under
the Securities Exchange Act of 1934 for non-NASDAQ and non-exchange listed
securities. Under this rule, broker-dealers who recommend such securities must
satisfy burdensome sales practice requirements. The Securities Enforcement and
Penny Stock Reform Act of 1990 (the "Reform Act") also requires additional
disclosure in connection with any trades involving a stock defined as a "penny
stock" (generally, according to recent regulations adopted by the SEC, any
equity security that has a market price of less than $3.00 per share, subject to
certain exceptions), including the delivery, prior to any penny stock
transaction, of a disclosure schedule explaining the penny stock market and the
risks associated therewith. In the event that the Common Stock were delisted
subsequent to becoming characterized as either a low-priced or penny stock, the
market liquidity for the Company's securities would be severely affected. The
regulations governing low-priced or penny stocks could limit the ability of
broker-dealers to sell the Company's securities and thus the ability of the
purchasers of this Offering to sell their securities in the secondary market.
RELATED TRANSACTIONS. The Company has engaged in a number of
transactions with former officers and directors and stockholders of the Company
as well as their affiliated entities. See "CERTAIN TRANSACTIONS." Although the
Company believes that such transactions were in the best interests of the
Company and were entered into on the same or better terms than the Company could
have reached with unaffiliated entities, there can be no assurance as to such
matters. Following the closing of this Offering, all future loans to Company
officials, affiliates and/or shareholders will be approved by a majority of
disinterested directors.
LACK OF VOTING ABILITY ON ACQUISITIONS. Investors who become
stockholders in the Company by virtue of participating in this Offering will own
a minority of the outstanding shares of the Company. As a result, they will not
be in a position to review financial statements and other matters on unspecified
acquisitions to be considered by the Company's Board of Directors. Further, they
will not be able to vote to approve such acquisitions.
BASIS FOR OFFERING PRICES. The initial Offering prices of the Common
Stock and the Warrants have been determined by negotiations between the Company
and the Representative, with consideration being given to the current status of
the Company's business, its financial condition, its present and prospective
operations, the general status of the securities market, and the market
conditions for new offerings of securities. The prices bear no relationship to
the assets, net worth, book value, sales prices of securities issued to
stockholders of the Company, or any other criteria of value.
POTENTIAL ADVERSE EFFECT OF REDEMPTION OF WARRANTS. Under certain
conditions, the Warrants may be redeemed by the Company, prior to their
expiration, at a redemption price of $.55 per Warrant during the first two years
and $.75 per share during the third year following the date of this Prospectus,
upon not less than 30 days' prior written notice to the holders of such
Warrants. Redemption of the Warrants could force the holders to exercise the
Warrants and pay the exercise price at a time when it may be disadvantageous for
the holders to do so, to sell the Warrants at the then current market price when
they might otherwise wish to hold the Warrants or to accept the redemption
price, which is likely to be substantially less than the market value of the
Warrants at the time of redemption. See "DESCRIPTION OF SECURITIES -- Warrants."
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<PAGE> 20
NECESSITY OF CONTINUING POST-EFFECTIVE AMENDMENTS TO THE COMPANY'S
REGISTRATION STATEMENT AND STATE BLUE SKY REGISTRATION; EXERCISE OF WARRANTS.
The Warrants will trade separately upon the completion of the Offering. Although
the Warrants will not knowingly be sold to purchasers in jurisdictions in which
the Warrants are not registered or otherwise qualified for sale, purchasers may
buy Warrants in the after-market or may move to jurisdictions in which the
Warrants and the Common Stock underlying the Warrants are not so registered or
qualified. In this event, the Company would be unable to issue Common Stock to
those persons desiring to exercise their Warrants unless and until the Warrants
and the underlying Common Stock are qualified for sale in jurisdictions in which
such purchasers reside, or an exemption from such qualification exists in such
jurisdictions. There can be no assurance that the Company will be able to effect
any required qualification.
The Warrants will not be exercisable unless the Company maintains a
current Registration Statement on file with the Commission through
post-effective amendments to the Registration Statement containing this
Prospectus. Although the Company has agreed to file appropriate post-effective
amendments to the Registration Statement containing this Prospectus, and to
maintain a current Registration Statement on file with the Commission relating
to the Warrants that are offered hereby, there can be no assurance that such
will be accomplished or that the Warrants will continue to be so registered. See
"DESCRIPTION OF SECURITIES -- Warrants."
POSSIBLE ISSUANCE OF ADDITIONAL PREFERRED STOCK. The Company is
authorized to issue additional shares of preferred stock. See "DESCRIPTION OF
SECURITIES." The shares of preferred stock may be issued from time to time in
one or more series as may be determined by the Company's Board of Directors
without shareholder approval. Further, the voting powers and preferences, the
relative rights of each such series, and the qualifications, limitations and
restrictions may be established by the Company's Board of Directors without
shareholder approval. Any issuance of undesignated shares of preferred stock
could affect the rights of the holders of common stock and, therefore, reduce
the value of the common stock. Holders of the shares of Series A Preferred Stock
are entitled to preferences ahead of holders of common stock as to dividends and
at liquidation and any such preferences could affect the value of the common
stock. Any preferences will be lost if the holders of the outstanding shares of
Series A Preferred Stock convert their Series A Preferred Stock into common
stock. See "DESCRIPTION OF SECURITIES."
[Remainder of Page Intentionally Left Blank.]
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<PAGE> 21
USE OF PROCEEDS(1)
Assuming a public Offering price of $5.00 per share of Common Stock,
the net proceeds to be received by the Company from the sale of the 2,150,000
shares of Common Stock, after deducting the underwriting discount,
Representative's non-accountable expense allowance and estimated offering
expenses payable by the Company, is estimated to be approximately $9,271,000
($10,698,000 if the Underwriters' over-allotment option is exercised in full).
The estimated uses of net proceeds from the Offering are summarized as follows:
<TABLE>
Offering WithOUT Over-Allotment Option
- --------------------------------------
(thousands)
Sources
- -------
<S> <C>
Net Offering Proceeds(2) $ 9,271
Secured Financing(4) 8,000
Equipment Financing(5) 5,788
-------
Total $23,059
=======
Uses
Total Project Budget:
Finance completion of the general
development and construction of the
Mesquite Star facilities $ 9,223
Furniture, fixtures and equipment
for the Mesquite Star facilities 6,602
Financing, professional fees,
licensing and insurance 1,364
Pre-opening expenses 1,450
Working capital and general corporate
purposes 900
Redeem certain Common and
Series A Preferred Shares 3,065
North Las Vegas Option 300
Cash 155
-------
Total $23,059
=======
</TABLE>
<TABLE>
Offering With Over-Allotment Option
- -----------------------------------
(thousands)
Sources
- -------
<S> <C>
Net Offering Proceeds(3) $10,698
Secured Financing(4) 8,000
Equipment Financing(5) 5,788
-------
Total $24,486
=======
Uses
Total Project Budget:
Finance completion of the general
development and construction of
the Mesquite Star facilities $ 9,223
Furniture, fixtures and equipment
for the Mesquite Star facilities 6,602
Financing, professional fees,
licensing and insurance 1,364
Pre-opening expenses 1,450
Working capital and general
corporate purposes 900
Redeem certain Common and 3,065
Series A Preferred Shares
North Las Vegas Option 300
PMJ Enterprises Secured Debt(6) 1,058
Cash 524
-------
Total $24,486
=======
</TABLE>
- --------------------------
(1) The calculations in this Section assume an initial public offering
price of $5.00 per share.
(2) Net of offering expenses and selling commissions aggregating
approximately $1,479,000.
(3) Net of offering expenses and selling commissions aggregating
approximately $1,665,000.
(4) The Company has a commitment from First Credit Bank for a
$5,000,000 construction loan to be secured by a first deed of trust on the
Property. The Company also has a commitment for a $3,000,000 loan from the Bank
of Hawaii, to be secured by a second deed of trust on the Mesquite Property.
(5) The Company has a commitment for $2,100,000 of Equipment Financing.
The Company also has non-binding commitments for $2,345,000 in Equipment
Financing.
(6) A portion of the proceeds may be used to pay all or a portion of
the PMJ Enterprises Secured Debt in the principal amount of $1,058,000, plus
accrued interest thereon. See "RISK FACTORS -- Need to Pay PMJ Enterprises
Secured Debt."
-17-
<PAGE> 22
See "BUSINESS" and "BRIDGE FINANCING." Pending such uses, the Company
will invest the net proceeds in short-term, interest-bearing, investment grade
securities and other money market instruments. Certain of the Bridge Financing
has been provided by Dr. Kelley and Dr. Tam, who are potential affiliates of the
Company. See "BRIDGE FINANCING - Kelley/Tam Secured Debt."
The allocation of net proceeds set forth above represents the Company's
current estimates based upon its current plans and upon certain assumptions
regarding the progress and cost of construction and development of the Mesquite
Star, budgeted start-up costs of the Mesquite Star, and the expenses and results
of operations of the Mesquite Star operation. If any of these factors change,
the Company may reallocate some of the net proceeds of the Offering and the loan
proceeds of the Secured Financing within or between the above-described
categories.
As of May 31, 1996, the Company has fully drawn the New Kelley Loan in
the principal amount of $5,750,800. The Company has drawn $164,329 from an
additional $300,000 loan from Dr. Kelley, and intends to continue to request
draws thereunder until the completion of this Offering. See "BRIDGE FINANCING -
Kelley/Tam Secured Debt."
The Company has obtained a $5,000,000 commitment and a $3,000,000
commitment for real estate secured loans (collectively, the "Secured Financing")
to finance the development and construction of the Mesquite Star. There can be
no assurance that such Secured Financing will be funded in accordance with the
terms of the commitments. The Secured Financing consists of the following: (i) a
$5,000,000 construction loan from First Credit Bank to be secured by a first
deed of trust and UCC-1 fixture filing on the Mesquite Property (the "First
Credit Loan"); and (ii) a $3,000,000 loan from the Bank of Hawaii ("Bank of
Hawaii Loan") to be secured by a second deed of trust on the Mesquite Property.
In connection with the Secured Financing, the New Kelley Loan will subordinate
to the new first and second deeds of trust on the Mesquite Property.
Under the terms of the commitment from First Credit Bank (the "First
Credit Loan Commitment"), the First Credit Loan is an 18-month construction loan
for $5,000,000. The term of the First Credit Loan Commitment expires in August
1996. The closing of the First Credit Loan is subject to numerous conditions,
including: (i) First Credit Bank's approval of the Company's corporate documents
and financial statements, (ii) there being no material adverse change in the
financial position of the Company during the term of the First Credit Loan
Commitment, (iii) the Company not assuming new liabilities other than the First
Credit Loan, furniture, fixtures and equipment financing, secured subordinate
real estate financing (which subordinate financing must be acceptable to First
Credit Bank) for the construction of the Mesquite Star, (iv) First Credit Bank's
receipt and approval of an appraisal of the Mesquite Property acceptable to
First Credit Bank confirming a fair market value of at least $6,000,000 ("as
is") and $20,000,000 (completed), (v) First Credit Bank's receipt and approval
of all necessary environmental assessment reports confirming that the Mesquite
Property is free of all toxic and hazardous substances, (vi) First Credit Bank's
receipt of evidence of adequate insurance coverage in connection with the
construction of the Mesquite Star, and (vii) the Company's receipt of
$10,750,000 in gross proceeds pursuant to this Offering. The conditions
necessary to meet the terms of the First Credit Loan Commitment have not been
met, and there can be no assurance that the First Credit Loan will be made.
Pursuant to the First Credit Loan Commitment, upon maturity of the 18-month
construction loan (if obtained), the Company could request and obtain a
three-year extension of the First Credit Loan (the "Three-Year Loan") if certain
specified conditions are met, including: (i) the timely completion of
construction of the Mesquite Star project, (ii) the Company's full payment and
performance of the Company's loan obligations to First Credit Bank during the
18-month construction phase, and (iii) payment of a loan extension fee of
$50,000 (the "Loan Extension Fee"), plus additional costs and fees associated
with the closing of the Three-Year Loan.
The Company paid a $50,000 fee (the "Loan Commitment Fee") in exchange
for the First Credit Loan Commitment, which is non-refundable regardless of
whether the First Credit Loan is ever made, but is required to be applied as a
credit toward the loan fees payable by the Company if the First Credit Loan is
consummated. Additional terms of the First Credit Loan Commitment are as
follows: (a) the First Credit Loan will bear interest at a fluctuating rate of
interest per annum (the "Base Rate") equal to the sum of (i) the rate as
announced by First Credit Bank from time to time as its "prime rate" in effect
at its office in Los Angeles, California, such Base Rate to change as and when
such reference rate changes, plus (ii) 2.5%; and (b) the Company is required to
pay a loan origination fee of $125,000, a fund control and inspection fee of
$25,000, plus additional costs and fees associated with the closing of the First
Credit Loan, including reasonable attorney's fees. All fees (as reduced by the
amount of the Loan Commitment Fee) are payable by the Company concurrent with
the initial closing of the First Credit Loan. The Company has also agreed to pay
a $50,000 fee to a third party broker who arranged the First Credit Loan at the
closing of the First Credit Loan. Under the First Credit Loan Commitment,
accrued and unpaid interest is payable monthly during the 18-month loan period,
with the outstanding principal balance of the loan, plus accrued and unpaid
interest and any
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<PAGE> 23
other unpaid fees, due at the end of the 18-month period (unless, as specified
above, the First Credit Loan is converted to a Three-Year Loan). If the Company
qualifies for and obtains the Three-Year Loan, then in addition to regular
monthly payments of interest, the Company would be required to make regular
monthly payments of principal in the amount of $30,000 each beginning 30 days
after the extension of the First Credit Loan, with all accrued and unpaid
interest and principal plus any other unpaid fees due upon maturity of the
Three-Year Loan.
The First Credit Loan Commitment conditions disbursements on, among
other things, (i) the Company's execution of loan documentation acceptable to
First Credit Bank, (ii) the Company's expenditure of at least $6,000,000 (not
including the cost of acquisition of land) from the Company's own funds for
construction of the Mesquite Star project (for which contractors' invoices and
releases would be required to be presented to First Credit Bank for review and
approval), and (iii) implementation of the planned construction work in
accordance with the cost breakdown, plans and specifications submitted to and
pre-approved by First Credit Bank.
The Bank of Hawaii loan commitment (the "Bank of Hawaii Loan
Commitment"), provides for a $3,000,000 5-year construction loan ("Bank of
Hawaii Loan"). The Bank of Hawaii Loan Commitment, which expires on July 30,
1996, is subject to numerous customary conditions, including but not limited to
the requirement that the Bank of Hawaii approve the Company's corporate
documents, financial statements, and other requested information, including but
not limited to evidence satisfactory to the Bank of Hawaii that the Company was
successful in raising $10,750,000 in gross proceeds pursuant to this Offering.
The conditions necessary to meet the terms of the Bank of Hawaii Loan Commitment
have not been met, and there can be no assurance that the Bank of Hawaii Loan
will close. Bank of Hawaii can terminate the Bank of Hawaii Loan Commitment and
its obligations thereunder for any one or more of numerous reasons, including
but not limited to: (i) if Company fails to comply with the terms of the Bank of
Hawaii Loan Commitment; (ii) if the Bank of Hawaii finds unacceptable
encumbrances, liens or conditions on the Mesquite Property; (iii) if any
representation made to the Bank of Hawaii by or concerning the Company is
materially misleading or false; (iv) if there is a material adverse change in
the Company's financial condition; or (v) in the event that the Bank of Hawaii
Loan is not closed by July 30, 1996 due to the Company's failure to comply with
the terms of the Bank of Hawaii Loan Commitment.
The terms of the Bank of Hawaii Loan Commitment are as follows: (i) the
Bank of Hawaii Loan will bear interest at a fluctuating rate of interest per
annum (the "Base Rate") equal to the sum of (a) the rate as announced by the
Bank of Hawaii from time to time as its "prime rate" in effect at its office in
Honolulu, Hawaii, such Base Rate to change as and when such reference rate
changes ("Prime Rate"), plus (b) 1%; (ii) the Company has paid a loan
origination fee of $15,000 and a modification fee of $1,000; (iii) the Bank of
Hawaii Loan will be secured by a second deed of trust on the Mesquite Property;
and (iv) the Bank of Hawaii Loan will be payable as follows: (a) interest only
will be payable monthly for the first six months of the Bank of Hawaii Loan; (b)
during the second six months of the Bank of Hawaii Loan, monthly payments would
consist of approximately $83,333 in principal plus accrued and unpaid interest,
and (c) during the second through fifth years of the Bank of Hawaii Loan,
monthly payments would consist of $52,083 in principal plus accrued and unpaid
interest, with the full amount of unpaid principal and accrued interest due on
the fifth-year anniversary of the Bank of Hawaii Loan. Pursuant to the Bank of
Hawaii Loan Commitment draws on the Bank of Hawaii Loan would not be available
until the successful raising of $10,750,000 in gross proceeds through this
Offering, and would be available for one year following the date of the
acceptance of the Bank of Hawaii Loan Commitment.
A further condition of the Bank of Hawaii Loan is that the Company's
repayment of the loan be guaranteed by a Note Purchase Agreement executed by
Drs. Kelley and Tam, which would require Drs. Kelley and Tam to purchase the
Bank of Hawaii Loan in the event of the Company's default or upon maturity of
the Bank of Hawaii Loan (with Drs. Kelley and Tam's purchase obligation referred
to as the "Put"). As consideration for Drs. Kelley and Tam's agreeing to the
Put, pursuant to a Credit Enhancement Agreement between the Company and Drs.
Kelley and Tam, the Company has agreed (i) to pay Drs. Kelley and Tam $25,000
only at the time Bank of Hawaii makes its first disbursement under the Bank of
Hawaii Loan, (ii) that, without Drs. Kelley and Tam's written consent, the
Company would not obtain additional financing (the "Additional Financing")
secured by the Mesquite Property (other than the First Credit Loan and the Bank
of Hawaii Loan) without satisfying all amounts owed under the Bank of Hawaii
Loan with the proceeds of such Additional Financing, and (iii) that, without
Drs. Kelley and Tam's written consent, the Company would not change any material
term of the Bank of Hawaii Loan Commitment.
The Company also intends to obtain furniture, fixtures and equipment
financing from vendors for guest room furnishings, kitchen equipment, computer
systems, gaming devices and associated equipment, laundry equipment and its
exterior free-standing highway sign and electronic reader board for an aggregate
capital cost of approximately $6,602,000, with (i) approximately
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<PAGE> 24
$4,445,000 of such cost to be financed by PDS ("PDS") Financial Corporation (the
"PDS Financing"), (ii) approximately $900,000 of such cost to be financed for
the purchase of a highway sign and an electronic reader board, (iii)
approximately $443,000 in miscellaneous equipment, furnishings, and (iv) the
balance of approximately $814,000 to be paid from proceeds of the Offering. The
PDS Financing is in the form of the following: (i) a $2,100,000 lease commitment
for the purpose of providing leases for 350 gaming devices to be located at the
Mesquite Star (the "PDS Gaming Commitment"); (ii) a $700,000 non-binding
proposal for the purposes of providing leases for 100 gaming devices to be
located at the Mesquite Star; (iii) a $1,351,000 non-binding proposal for gaming
furniture, fixtures and equipment, casino signs, meters, security systems,
casino- related equipment (e.g., slot stands, stools, carts, backroom support
equipment), computer equipment and office furniture (with the aggregate cost of
such financed equipment estimated to be $1,930,000); (iv) a $294,000 non-binding
proposal for hotel-related furniture, fixtures and equipment (with the aggregate
cost of such financed equipment estimated to be $420,000). The conditions
necessary to meet the terms of the PDS Financing proposals have not been met,
and there can be no assurance that the PDS Financing proposals will close. The
Company has not yet obtained any specific arrangements for the financing of
approximately $900,000 to purchase a highway sign and electronic reader board,
and there can be no assurance that such financing will be available.
The PDS Gaming Commitment, which covers 350 new IGT gaming machines
(the "IGT Gaming Equipment"), can be terminated by PDS upon the occurrence of
any one of specified events, such as (i) if any material misrepresentation made
by the Company in connection with the financing is untrue, (ii) if all terms and
conditions of the PDS Gaming Commitment have not been complied with, (iii) upon
any material adverse change in the Company's finances or business or
discontinuance or suspension of the Company's business, (iv) upon any attempt by
the Company to assign its rights under the PDS Gaming Commitment, (v) if any
material facts or information have not been provided to PDS or have been
misrepresented or misstated to PDS and such facts or information would have been
relevant to PDS's decision to make or not enter into the PDS Gaming Commitment,
(vi) if PDS is unable to consummate the purchase of the leased equipment prior
to the anticipated closing date of November, 1996, (vii) if the PDS Gaming
Commitment is not closed by the anticipated closing date, unless extended in
writing, (viii) failure to receive completed lease documentation reasonably
satisfactory to PDS, (ix) failure to receive adequate verification that the
Company has in place adequate sources of all funds necessary to complete the
construction and equipping of the Mesquite Star, or (x) failure to successfully
complete this Offering. The conditions necessary to meet the terms of the PDS
Gaming Commitment have not been met, and there can be no assurance that the
lease will close. The terms of the PDS Gaming Commitment provide for a 3-year
non-cancelable lease of the IGT Gaming Equipment for a monthly rental fee of
$60,677.40 (with the monthly lease payment subject to adjustment if the Wall
Street Journal prime lending rate is adjusted), with the first monthly payment
due within 30 days after the anticipated closing date of November, 1996. A
security deposit equal to $60,677.40 will be due upon closing. The PDS Gaming
Commitment provides that, at the end of the three-year lease term or any
renewal, (i) the Company could renew the lease for an additional year at the IGT
Gaming Equipment's then fair market rental, or, (ii) the Company could purchase
the IGT Gaming Equipment at its fair market value, as determined by an appraiser
selected by PDS. The Company has paid to PDS an origination and processing fee
of $21,000 in connection with the PDS Gaming Commitment.
PDS has also preliminarily committed to lease the Company 100 new
Bally, Universal and Sigma gaming machines (the "Second Gaming Commitment") at a
capital cost of $700,000. The Second Gaming Commitment is a preliminary lease
proposal only and is not intended to legally bind PDS or the Company. Subject to
the foregoing, the Second Gaming Commitment calls for a 3-year non-cancelable
lease of the 100 gaming machines for a monthly rental fee of $20,225.80 (with
the monthly lease payment subject to adjustment if the Wall Street Journal prime
lending rate is adjusted), with the first monthly payment due within 30 days
after the anticipated closing date of November, 1996. A security deposit equal
to $20,225.80 will be due upon closing. The Second Gaming Commitment otherwise
contains terms similar to the PDS Gaming Commitment.
The PDS equipment financing proposals in the amounts of $1,351,000 and
$294,000 (collectively, the "Equipment Financing Proposals"), provide financing
(the "Equipment Financing") for the acquisition of certain furniture, fixtures
and equipment for the Mesquite Star, as described above (the "Equipment"). The
Equipment Financing Proposals are preliminary finance proposals only, and are
not legally binding until definitive documentation is prepared and executed at a
future date. The terms of the Equipment Financing Proposals are as follows: (i)
with respect to the $1,351,000 in financing, (a) the loan amount bears an
interest rate of 12.5%, and (b) the financing calls for a 3-year term, with
monthly payments of $45,195.85, with the first payment estimated to be within 30
days after the closing of the Equipment Financing; and (ii) with respect to the
$294,000 in financing, (a) the loan amount bears an interest rate of 12.5%, and
(b) the financing calls for a 3-year term, with monthly payments of $9,835.37,
with the first payment estimated to begin within 30 days after the closing of
the Equipment Financing. If obtained, the Equipment Financing is estimated to
close in July, 1996. Under the Equipment Financing Proposals, the proceeds
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<PAGE> 25
of $1,645,000 must be used for the acquisition of specified hotel and gaming
furniture, fixtures and equipment costing $2,350,000, with the Company using
$705,000 of its own funds to pay for the unfinanced portion of such equipment.
The payments due under the Equipment Financing Proposals would be secured by a
first priority perfected security interest in the Equipment. In exchange for the
Equipment Financing Proposals, the Company is required to pay a non-refundable
origination and processing fee of $15,000, a placement fee of $16,450, plus
legal fees incurred by PDS in connection with the negotiation and preparation of
definitive documentation in connection with the Equipment Financing. In
addition, under the Equipment Financing Proposals, the Company is able to prepay
the outstanding loan amount upon 30 days' written notice, provided that the
Company paid a 3% premium on the outstanding principal in the first year, a 2%
premium on the outstanding principal balance in the second year, and a 1%
premium on the outstanding principal balance in the third year.
The Company believes that the net proceeds of the Offering, together
with existing cash, the Secured Financing, the PDS Financing, the additional
financing required for the purchase of the highway sign and electronic reader
board, and the extension of the New Kelley Loan will be sufficient to satisfy
its anticipated cash requirements in connection with the construction and
opening of the Mesquite Star. Following the opening of the Mesquite Star, the
Company believes that the Mesquite Star Hotel & Casino facilities will begin to
generate cash flows from operations. The Company's itemized estimated costs for
completion of the development and construction of the Mesquite Star facilities,
totalling $9,223,000, are based on AF Construction Company, Inc.'s itemized
estimate. See "BUSINESS - Completion of the Mesquite Star." In the event (i)
such sources are not sufficient to satisfy cash requirements, including debt
service, or (ii) any of such financing sources are not obtained, the Company
will be required to seek additional financing, and there can be no assurance
that such financing will be available upon terms acceptable to the Company, or
at all. In addition, to repay the PMJ Enterprises Secured Debt and New Kelley
Loan when due, the Company will be required to obtain funds from (i) the net
proceeds from exercise of Warrants; (ii) additional financing; (iii) positive
net operating revenues from the Mesquite Star; or (iv) the sale of additional
equity securities. See "RISK FACTORS"; "BRIDGE FINANCING"; and "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION -
Liquidity and Capital Resources."
The Company, may, when and if the opportunity arises, desire to acquire
other gaming businesses. If such an opportunity arises, the Company may use a
portion of its working capital and/or the issuance of its debt or equity
securities for that purpose. There can be no assurance that such financing will
be available on acceptable terms or at all. Except for the North Las Vegas
Option Agreement (See "BUSINESS - Facilities & Properties - North Las Vegas
Option Agreement"), the Company has no specific arrangements or understanding
with respect to any such acquisition at the present time, and is not presently
involved in any firm negotiations or discussions with respect to any such
acquisition. Further, there is no assurance that any further acquisition will be
made, including, but not limited to, any acquisition under the North Las Vegas
Option Agreement. Although the Company does not currently contemplate any
acquisitions from affiliates other than the North Las Vegas Option Agreement, it
may in the future consider such other acquisitions, which would be made only on
terms no less favorable to the Company than could be obtained from
non-affiliates for comparable properties.
[Remainder of Page Intentionally Blank.]
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<PAGE> 26
CAPITALIZATION(1)
The following table sets forth the short-term debt and capitalization
of the Company as of December 31, 1995 and as adjusted to give effect to (i) the
sale by the Company of 2,150,000 Shares at an assumed offering price of $5.00
per Share, (ii) the redemption by the Company of 689,840 of the Series A
Preferred Shares concurrently with the closing of this Offering, (iii) the
repurchase by the Company of a total of 1,636,243 outstanding shares of Common
Stock from William M. Mower ("Mower"), D. Bradly Olah ("Olah") and the
Minneapolis Group of Stockholders concurrently with the closing of this
Offering, (iv) the conversion of 793,504 shares of Preferred Stock into
1,018,330 shares of Common Stock, (v) the issuance of all shares of Common Stock
issuable upon the exercise of all outstanding Common Stock options and Warrants,
including the Warrants to be sold in this Offering, and (vi) the application of
the net proceeds therefrom as set forth under "USE OF PROCEEDS." See "BRIDGE
FINANCING;" "USE OF PROCEEDS;" and "SHARES ELIGIBLE FOR FUTURE SALE - Mower and
Olah Option Agreement, Minneapolis Option Agreements." Further, this table
should be read in conjunction with the Financial Statements and the Notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1996
(In Thousands)
As Adjusted(2)
Offering and Exercise
of all Outstanding
Actual Offering Options & Warrants(4)
------ -------- ---------------------
<S> <C> <C> <C>
Short-term borrowings $ -- $ -- $ --
Current maturities of long-term debt 5,705 5,705 5,705
---------- ---------- ---------
Total: $ 5,705 $ 5,705 $ 5,705
========== ========== =========
Long-term debt, less current maturities: $ -- $ -- $ --
Stockholders' equity:
Series A Preferred Stock, $.01 par value
per share, 1,500,000 shares
authorized, 1,483,344 shares issued and
outstanding; 0 and 0 as adjusted respectively 15 -- --
Common Stock, $.01 par value per share,
50,000,000 shares authorized, 5,090,000 shares
issued and outstanding; 6,622,087 and 11,247,873 as
adjusted respectively 51 66 113
Additional paid-in capital 5,956 12,162 26,284
Deficit accumulated during development stage (2,738)(3) (2,738)(3) (2,738)(3)
---------- ---------- ---------
Total stockholders' equity $ 3,284 $ 9,490 $ 23,659
========== ========== =========
Total capitalization $ 3,284 $ 9,490 $ 23,659
========== ========== =========
</TABLE>
(1) The calculations in this Section assume an initial public offering
price of $5.00 per share.
(2) Net of estimated expenses of the Offering of approximately
$1,479,000 (assuming the sale of 2,150,000 shares at $5.00 per share, without
exercise of the over-allotment option).
(3) Includes $1,476,220 in expense recorded for stock, Warrants and
options and amortization of original issue discount.
(4) Excludes Underwriters' Warrants and Redeemable Warrants.
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<PAGE> 27
DILUTION(1)
The difference between the public offering price per share of Common
Stock and the net tangible book value per share of Common Stock after this
Offering constitutes the dilution to investors in this Offering.
As of March 31, 1996 the Company had a net tangible book value of
$2,666,137 or $0.52 per share of issued and outstanding Common Stock. "Net
tangible book value" per share represents the total amount of tangible assets
(total assets less $618,190 of deferred offering costs and loan origination
costs) of the Company, less the total amount of liabilities of the Company.
After giving effect to the sale of the shares offered hereby, assuming a per
share price of $5.00 (less underwriting discounts and estimated expenses of this
Offering), the redemption of 689,840 shares of the Series A Preferred Stock, the
conversion of 793,504 shares of Preferred Stock into 1,018,330 shares of Common
Stock and the purchase of 1,636,243 shares of Common Stock from stockholders,
the net tangible book value at that date would have been approximately
$9,388,955, or $1.42 per share. This represents an immediate increase in net
tangible book value of $.90 per share to existing stockholders and an immediate
dilution of $3.58 per share to new investors. The following table illustrates
the dilution in pro forma net tangible book value per share of Common Stock to
new investors:
<TABLE>
<S> <C> <C>
Initial public offering price (per share)................... $ 0.52
Net tangible book value per share at March 31, 1996......... $ 0.90
Increase per share attributable to new investors............ $ 5.00
------
As adjusted net tangible book value
per share after the Offering....................... $ 1.42
------
Dilution of net tangible book value
per share to new investors......................... $ 3.58
======
</TABLE>
Assuming the Underwriters' over-allotment option is exercised in full
and an additional 322,500 shares of Common Stock are sold by the Company, after
deduction of the underwriting discount and expense allowance and the estimated
expenses of the Offering payable by the Company, the pro forma net tangible book
value per share at March 31, 1996 would have been $10,816,018, the immediate
increase in the pro forma net tangible book value per share of shares owned by
the existing stockholders would be $1.04 and the immediate dilution per share to
new investors would be $3.44.
The following table sets forth on a pro forma basis as of March 31,
1996 the differences between existing stockholders and new investors with
respect to the number of shares of Common Stock purchased from the Company, the
total consideration paid to the Company and the average price paid per share
(assuming an initial public offering price of $5.00 per share).
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------- -------------------
NUMBER PERCENT AMOUNT PERCENT AVERAGE PRICE PER SHARE
------ ------- ------ ------- -----------------------
<S> <C> <C> <C> <C>
Existing Stockholders 5,090,000 70.3% $ 60,000 .6% $ 0.01
New Investors 2,150,000 29.7% 10,750,000 99.4% $ 5.00
--------- ----- ------------ -----
Total: 7,240,000 100.0% $ 10,810,000 100.0%
========= ====== ============ =====
</TABLE>
- ----------------------
(1) The calculations in this Section assume an initial public Offering
price of $5.00 per share. The calculations do not reflect exercise of the
Warrants.
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<PAGE> 28
DIVIDEND POLICY
The Company has never paid and has no present plans to pay any cash
dividends on its Common Stock. The Company currently intends to retain its
earnings to finance the growth and development of its business. Further, the
Company anticipates that the Secured Financing will prohibit the payment of
dividends and similar restrictions may be imposed under the terms of future
credit agreements. If such prohibitions are imposed and later removed or
modified in the future, the payment of any dividends will be at the discretion
of the Company's Board of Directors and will depend upon, among other things,
future earnings, operations, capital requirements, the general financial
condition of the Company and general business conditions.
BRIDGE FINANCING
The Company's Bridge Financing consists of three separate short-term
loans, all of which are secured by the Mesquite Property. Substantially all the
proceeds of the New PMJ Enterprises Note in the amount of $500,000 were used by
the Company to pay for expenses related to the obtaining of permits from the
City of Mesquite for development and construction of the Mesquite Star. The
amount of approximately $5,750,800 made available to the Company from August 15,
1995, through May 31, 1996, under the New Kelley Loan has been used by the
Company for operating expenses, construction of the Mesquite Star and expenses
relating to this Offering. In addition, the $5,710,874 in gross proceeds from
the Series A Preferred Stock offering were used as follows: (i) approximately
$614,000 was used to pay broker's commissions and expenses related to the
offering; (ii) approximately $2,200,000 was used to repay indebtedness owed to
PMJ Enterprises, Inc., in connection with the Company's acquisition of the
Mesquite Property; and (iii) the balance of the gross proceeds were used to pay
operating expenses, to continue development of the Mesquite Property (including
architectural and engineering expenses in the amount of approximately $445,000)
and to pay accrued and unpaid interest attributable to portions of the Bridge
Financing. See "SHARES ELIGIBLE FOR FUTURE SALE - Outstanding Series A Shares,
Warrants, Option Agreements, Convertible Promissory Notes, and Other Agreements
Relating to Common Stock."
KELLEY/TAM SECURED DEBT
BOWLIN SECURED DEBT. On January 14, 1991, PMJ Enterprises, Inc., a
company whose common stock is controlled by Patrick J. Shannon, a former
director of the Company, purchased the Mesquite Property from Jim John Slevcove
and Mary Ann Slevcove, Trustees of The Slevcove Family Trust dated April 1, 1984
(the "Slevcove Trust") as to an undivided 24-1/2% interest, Richard Sidney
Bowlin and Marsha Lynn Bowlin, Trustees of The Bowlin Family Trust dated March
15, 1985 (the "Bowlin Trust") as to an undivided 41-1/2% interest; William O.
Kilmer, Jr. and Jake Scott as partial-successor in interest to William O.
Kilmer, Jr. (collectively, "Kilmer and Scott") as to an undivided 34% interest
(the Slevcove Trust, the Bowlin Trust, and Kilmer and Scott herein collectively
known as the "Bowlin Creditors"). Michael J. Signorelli, the Company's
President, was a minority stockholder of PMJ Enterprises, Inc. until June 1,
1995.
In connection with the purchase of the Mesquite Property, PMJ
Enterprises, Inc. executed a Note Secured by Deed of Trust, dated January 14,
1991 (the "Original Bowlin Note") in favor of the Bowlin Creditors in the
original principal amount of $2,227,000.00 (the "Bowlin Proceeds"), which
Original Bowlin Note was secured by the First Deed of Trust, dated January 14,
1991 (the "Bowlin Deed of Trust"). In consideration of the Bowlin Creditors'
agreeing to loan the Bowlin Proceeds to PMJ Enterprises, Inc., on January 11,
1991, Michael Signorelli executed a personal guaranty of PMJ Enterprises, Inc.'s
obligations under the Original Bowlin Note. On December 26, 1991 an Assignment
of the Beneficial Interest under the Bowlin Deed of Trust was recorded in favor
of Jake Scott, assigning a partial interest of William O. Kilmer, Jr. in the
Original Bowlin Note and the Bowlin Deed of Trust. On April 20, 1992, PMJ
Enterprises, Inc. executed a second promissory note in favor of the Bowlin
Creditors in the original principal amount of $50,000 (the "Second Bowlin
Note"), which was intended to supplement the Original Bowlin Note and change the
payment terms of the Original Bowlin Note. The Original Bowlin Note, the Second
Bowlin Note and the Bowlin Deed of Trust, as amended as described below, will be
sometimes referred to collectively as the "Bowlin Secured Debt."
On December 31, 1993, PMJ Enterprises, Inc. assigned the Mesquite
Property to the Company and the Company assumed all of PMJ Enterprises, Inc.'s
obligations under the Bowlin Secured Debt.
The Bowlin Deed of Trust was amended and extended pursuant to the
Forbearance Agreement, dated April 20, 1992 (the "First Forbearance Agreement")
and the Addendum to the Forbearance Agreement, dated April 20, 1992 (the
"Addendum"). The Bowlin Deed of Trust was further amended and extended pursuant
to the Forbearance Agreement, dated August 22, 1994
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(the "Second Forbearance Agreement"). The Bowlin Deed of Trust was further
amended and extended pursuant to the Forbearance Agreement, dated August 30,
1994 (the "Third Forbearance Agreement"). For and in consideration of the Bowlin
Creditors entering into the Third Forbearance Agreement, the sum of $50,000 was
paid to the Bowlin Creditors on or about June 8, 1994, which represented a
penalty. The Bowlin Deed of Trust was further amended and extended pursuant to
the Forbearance Agreement, dated March 5, 1995 (the "Fourth Forbearance
Agreement") and the Forbearance Agreement, dated August 15, 1995 (the "Fifth
Forbearance Agreement").
In connection with the execution of the Fourth Forbearance Agreement,
the Company delivered (i) a Warrant to purchase 51,875 shares of the Company's
Common Stock for $1.00 per share to the Bowlin Trust, (ii) a Warrant to purchase
42,500 shares of the Company's Common Stock for $1.00 per share to Kilmer, and
(iii) a Warrant to purchase 30,625 shares of the Company's Common Stock for
$1.00 per share to the Slevcove Trust.
In connection with the execution of the Fifth Forbearance Agreement,
the Company delivered (i) a Warrant to purchase 51,875 shares of the Company's
Common Stock for $1.00 per share to the Bowlin Trust which replaced the Warrant
to purchase 51,875 shares of the Company's Common Stock issued in connection
with the Fourth Forbearance Agreement and contained a cashless exercise feature
unlike the original Warrant, (ii) a Warrant to purchase 42,500 shares of the
Company's Common Stock for $1.00 per share to Kilmer to replace the Warrant to
purchase 42,500 shares of the Company's Common stock issued in connection with
the Fourth Forbearance Agreement and contained a cashless exercise feature
unlike the original Warrant, (iii) a Warrant to purchase 30,625 shares of the
Company's Common Stock for $1.00 per share to the Slevcove Trust which replaced
the Warrant to purchase 30,625 shares of the Company's Common Stock issued in
connection with the Fourth Forbearance Agreement and contained a cashless
exercise feature unlike the original Warrant, (iv) a new Warrant to purchase
20,750 additional shares of the Company's Common Stock for $1.94 per share to
the Bowlin Trust, (v) a new Warrant to purchase 17,000 additional shares of the
Company's Common Stock for $1.94 per share to Kilmer, and (vi) a new Warrant to
purchase 12,250 additional shares of the Company's Common Stock for $1.94 per
share to the Slevcove Trust. In addition, the Company issued a Warrant, dated
August 15, 1995 to purchase 200,000 shares of the Company's Common Stock for
$1.94 per share to Richard Sidney Bowlin, individually.
Under the Fifth Forbearance Agreement, the due date for the principal
balance and accrued interest of the Original Bowlin Note and the Second Bowlin
Note (collectively, the "Bowlin Notes") was extended from August 15, 1995 to the
earlier of (i) August 15, 1996, (ii) the date that the Bowlin Notes are
refinanced, (iii) the date that the Mesquite Property is sold, or (iv) ten (10)
business days following the closing date of the Company's initial public
offering. Under the New Kelley Loan Agreement, the due date for the Bowlin Notes
was modified to be concurrent with the closing date of this Offering. See
"Kelley/Tam Secured Debt - Secured Convertible Debt - New Convertible Loan
Agreement."
On or about September 15, 1995, pursuant to the Assignment of Rights
and Related Assets under Fifth Forbearance Agreement, Richard R. Kelley ("Dr.
Kelley") and Richard Tam ("Dr. Tam"), each as to an undivided 50% tenant in
common interest (the "Kelley Group") purchased, and the Bowlin Creditors
assigned to the Kelley Group, all of the Bowlin Creditors' right, title, and
interest (i) in and to the Bowlin Secured Debt; and (ii) under the Fifth
Forbearance Agreement and all prior Forbearance Agreements (collectively, the
"Assigned Interests"). The Assigned Interests were assigned to the Kelley Group
for the purchase price of $2,412,631.
Subsequent to the assignment of the Assigned Interests, the Kelley
Group and the Company amended the Fifth Forbearance Agreement by entering into
the First Amendment to Fifth Forbearance Agreement (First Amendment"), dated
September 15, 1995. The First Amendment changes the applicable annual interest
rate under the Original Bowlin Note and the Second Bowlin Note from 11% to a
fluctuating rate of interest per annum (the "Applicable Rate") equal to (i) the
primary index rate as announced by the Bank of Hawaii (the "Bank") from time to
time for the guidance of its loan officers in pricing all of the Bank's loans
which float with such rate, plus (ii) 3%, but in no event less than 11%. The
First Amendment also eliminated extension penalties that would have been charged
for any satisfaction of the Original Bowlin Note and the Second Bowlin Note past
the agreed upon due date.
SECURED CONVERTIBLE DEBT.
a. Convertible Loan Agreement. The Company and Dr. Kelley entered
into a Convertible Loan Agreement, dated as of August 14, 1995 (the "Loan
Agreement"), as modified by those certain Letter Agreements, dated August 14,
1995 and August 15, 1995 (the "Letter Agreements"), between the Company and Dr.
Kelley (the Loan Agreement and the Letter
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Agreements being collectively referred to as, the "Kelley Loan Agreement"),
pursuant to which Dr. Kelley agreed to loan (the "Kelley Loan") to the Company
up to a maximum of $1,460,000 plus $43,800 as a commitment fee thereunder (for a
total of $1,503,800) to finance certain working capital requirements of the
Company (the "Loan Proceeds"). Pursuant to the Amended and Restated Convertible
Loan Agreement among the Company and Dr. Kelley, the obligations under the
Original Bowlin Note and the Second Bowlin Note, the Kelley Loan, as well as the
additional sum of $1,880,000, have been consolidated into one loan and evidenced
by one promissory note, with the repayment of the consolidated funds secured by
a first lien on all of the assets of the Company, including a deed of trust in
first priority encumbering the Mesquite Property. See "Kelley/Tam Secured Debt
Indebtedness - Secured Convertible Debt - New Convertible Loan Agreement."
The Kelley Loan provided for interest at a fluctuating rate per annum
(the "Base Rate") equal to the sum of (i) the rate as announced by The Bank of
America from time to time as its "reference rate" in effect at its office in Los
Angeles, California, such Base Rate to change as and when such reference rate
changes, plus (ii) 2%. The Kelley Loan was evidenced by a Convertible Promissory
Note (the "Kelley Convertible Note") in the original maximum principal amount of
$1,503,800.
The Kelley Convertible Note was secured by (i) a Deed of Trust, dated
August 15, 1995 (the "Kelley Deed of Trust"), executed by the Company for the
benefit of Dr. Kelley covering the Mesquite Property, and (ii) a first priority
security interest in all other assets of the Company, pursuant to security
documents similar to those existing under the New Kelley Loan Agreement. See
"BRIDGE FINANCING - Kelley/Tam Secured Debt - Secured Convertible Debt - New
Convertible Loan Agreement."
As part of the Kelley Loan Agreement, along with the commitment fee of
3% (or $43,800) the Company delivered to Dr. Kelley a Warrant Agreement, dated
August 15, 1995 (the "Kelley Warrant") pursuant to which Dr. Kelley may purchase
250,000 shares of the Company's Common Stock for a purchase price of $0.97 per
share. The Kelley Warrant may be exercised 5 business days after the earlier to
occur of (i) the date the holders of the warrant actually receive notice from
the Company of the closing of this Offering (as long as this Offering results in
gross proceeds of not less than $12,500,000); or (ii) the date the holders of
the warrant actually receive notice from the Company, certified to be true and
correct by the president thereof, that the Company has withdrawn its
registration statement relating to this Offering from filing with the United
States Securities and Exchange Commission and is abandoning the proposed public
offering. The Kelley Warrant may be exercised in full or in part. The purchase
price is subject to adjustment pursuant to a formula contained in the agreement.
Pursuant to the Participation and Intercreditor Agreement (as discussed below),
Dr. Kelley has assigned 125,000 of these Warrants to Dr. Tam.
b. New Convertible Loan Agreement. Pursuant to the Amended and Restated
Convertible Loan Agreement dated April 18, 1996 between the Company and Dr.
Kelley (the "New Kelley Loan Agreement"), the Company, Dr. Kelley and, pursuant
to the Participation and Intercreditor Agreement (as discussed below), Dr. Tam
have agreed (i) to increase the credit available under the Kelley Loan
Agreement, and (ii) to consolidate the obligations under the Original Bowlin
Note, the Second Bowlin Note and the Kelley Convertible Note into one loan (the
"New Kelley Loan") and one convertible promissory note (the "New Kelley Note").
Under the New Kelley Loan Agreement, the terms of which supersede in its
entirety the Kelley Loan Agreement, the New Kelley Note is in the principal
amount of $5,750,800 (the "New Loan Proceeds"), which consists of: (i) the
aggregate principal amount of the Original Bowlin Note, the Second Bowlin Note
and the reconveyance fees of $60,000 paid by Drs. Kelley and Tam for assignment
of the Assigned Interests (in an amount totalling $2,337,000) (the "Bowlin
Secured Debt"); (ii) the existing credit under the Kelley Loan Agreement of
$1,460,000, (iii) $43,800, which is the existing commitment fee under the Kelley
Loan Agreement; (iv) $1,000,000 (the "Additional Loan Proceeds"), which is one
portion of the additional credit Drs. Kelley and Tam have agreed to make
available under the terms of the New Kelley Loan Agreement; (v) $30,000, which
represents a 3% commitment fee (the "Additional Commitment Fee") for the
Additional Loan Proceeds; and (vi) $880,000, which is the second portion of
additional credit Drs. Kelley and Tam have agreed to make available under the
terms of the New Kelley Loan Agreement. Upon execution and delivery of the New
Kelley Loan Agreement, (i) the originals of the Original Bowlin Note, the Second
Bowlin Note, and the Kelley Convertible Note were cancelled and delivered to the
Company; and (ii) the Bowlin Deed of Trust was reconveyed to the Company.
Pursuant to the Participation and Intercreditor Agreement between Dr.
Kelley and Dr. Tam ("Participation and Intercreditor Agreement"), Dr. Tam agreed
to participate with Dr. Kelley as a lender under the New Kelley Loan Agreement.
Under the Participation and Intercreditor Agreement, Dr. Kelley and Dr. Tam
agreed to each loan 50% of the New Loan Proceeds, on the terms set forth in the
Kelley Loan Agreement. In exchange for Dr. Tam's advancement of 50% of the New
Loan Proceeds, Dr. Tam will receive one-half of the following: (i) all
repayments of the New Loan Proceeds, including accrued
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interest, (ii) all warrants delivered to Dr. Kelley pursuant to the New Kelley
Loan Agreement (the "Kelley Warrant," as discussed below), (iii) all Common
Stock into which the New Kelley Note, together with accrued interest thereunder,
is converted; and (iv) all demand registration rights and piggy-back
registration rights granted to Dr. Kelley under the New Kelley Loan Agreement.
In addition, Dr. Tam has agreed to transfer to Dr. Kelley 50% of certain options
and warrants in Common Stock held by Dr. Tam. See "SHARES ELIGIBLE FOR FUTURE
SALE - Richard Tam Options." Pursuant to the Participation and Intercreditor
Agreement, Dr. Tam has appointed Dr. Kelley as his agent (i) with respect to all
actions under the Kelley Loan Documents deemed necessary to permit Dr. Kelley to
be in full compliance with all of its requirements; (ii) to hold the collateral
securing the Company's repayment of the New Loan Proceeds, and (iii) with
respect to such other rights, powers and duties required under the Participation
and Intercreditor Agreement. However, whenever the New Kelley Loan Agreement
requires any action, decision, notices, votes, elections to convert the New
Kelley Note (discussed below), or consent to be given or taken by Dr. Kelley,
Dr. Kelley and Dr. Tam will attempt to mutually agree upon such action, decision
or consent. In the event Dr. Kelley and Dr. Tam cannot agree, Dr. Kelley's
decisions on such action or decision is final and binding on Dr. Kelley and Dr.
Tam, as long as such decision does not violate the New Kelley Loan Agreement.
The New Loan Proceeds are secured by substantially all the assets of
the Company, including, but not limited to, the following: (i) a first priority
deed of trust encumbering the Mesquite Property pursuant to an Amended and
Restated Kelley Deed of Trust (the "New Kelley Deed of Trust"); (ii) a first
priority deed of trust on the Nevada Lease and the PMJ Option (as discussed
below -- See "BUSINESS - Facilities and Properties"); (iii) an Assignment of
Construction Contract, dated April 18, 1996 (the "Assignment of Construction
Contract"), pursuant to which the Company granted a security interest to Dr.
Kelley in the Standard Form of Agreement between Owner and Contractor, dated
August 30, 1994 (the "Construction Contract"), between the Company and A.F.
Construction Company (the "Contractor"); (iv) an Assignment of Permits, dated
April 18, 1996 (the "Assignment of Permits"), pursuant to which the Company
granted a security interest to Dr. Kelley in all assignable permits
(collectively, the "Permits") obtained by the Company for the construction of
the Mesquite Star, including, without limitation, the City of Mesquite, Nevada
Building Permit Applications, issued May 30, 1995 and various building, sewer
and water permits which were issued on May 30, 1995; (v) an Assignment of Plans
and Architect's Agreement, dated April 18, 1996 (the "Assignment of Architect's
Agreement"), pursuant to which the Company granted a security interest to Dr.
Kelley in the Standard Form of Agreement between Owner and Architect, dated
August 23, 1994 (the "Architect Contract"), between the Company and Rissmam &
Rissmam Associates (the "Architect"); and (vi) a Security Agreement, dated April
18, 1996 (the "Security Agreement"), pursuant to which the Company granted a
security interest to Dr. Kelley in essentially all of the Company's personal
property as more particularly described therein (with the assets set forth in
this sentence referred to as the "New Kelley Security Interest"). Pursuant to
the terms of the First Amendment to Stock Purchase Agreement and Second
Amendment to Promissory Notes, dated December 8, 1995, among the Company,
Kelley, Tam, Patrick J. Shannon and PMJ Enterprises, Inc., PMJ Enterprises, Inc.
agreed to subordinate the PMJ Enterprises Deed of Trust (as discussed below --
See "BRIDGE FINANCING - PMJ Enterprises, Inc. Secured Debt") to the New Kelley
Deed of Trust and the New Kelley Security Interest.
That portion of the New Kelley Note consisting of $2,533,800 (the
"Convertible Loan Proceeds") (which is the aggregate of the Loan Proceeds, the
Additional Loan Proceeds, and the Additional Commitment Fee), plus accrued
interest attributable to the Convertible Loan Proceeds, is convertible, by
payment of cash or retirement of debt, into a maximum amount of 2,052,994 shares
of the Company's Common Stock, plus such additional shares of the Company's
Common Stock attributable to accrued and unpaid interest with respect to the
Convertible Loan Proceeds, calculated as follows: (i) with respect to the
principal balance of $1,503,800 plus accrued interest attributable thereto,
1,022,994 shares of the Company's Common Stock, plus such additional shares of
the Company's Common Stock attributable to unpaid and accrued interest with
respect to the principal balance of $1,503,800, at a conversion price of $1.47
per share; and (ii) with respect to the remaining principal balance of the
Convertible Loan Proceeds of $1,030,000 plus accrued interest attributable
thereto, 1,030,000 shares of the Company's Common Stock, plus such additional
shares of the Company's Common Stock attributable to unpaid and accrued interest
with respect to the principal balance of $1,030,000, at a conversion price of
$1.00 per share. Dr. Kelley is granted certain registration rights in connection
with the Company's Common Stock received upon conversion of the Convertible Loan
Proceeds. See "SHARES ELIGIBLE FOR FUTURE SALE - Registration Rights."
Under the terms of the New Kelley Loan Agreement, a portion of the New
Loan Proceeds are to be disbursed no more frequently than bimonthly in
accordance with a Loan Disbursement Schedule attached to the New Kelley Loan
Agreement. The New Kelley Loan bears interest at a fluctuating rate of interest
per annum equal to the sum of (i) with respect to all amounts other than the
Bowlin Secured Debt, the rate as announced by the Bank of Hawaii from time to
time as its "reference rate" in effect at its office in Honolulu, Hawaii, such
base rate to change as and when such reference rate changes, plus 2% (the "New
Base Rate"), and (ii) in the case of the Bowlin Secured Debt, the New Base Rate
plus 1%. Drs. Kelley and Tam's obligation
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to fund each disbursement of the New Loan Proceeds is dependent upon the
Company's satisfaction of certain conditions set forth in the New Kelley Loan
Agreement, which conditions include, but are not limited to, Dr. Kelley
receiving the following: (i) the Company's request for such disbursement in a
form acceptable to Drs. Kelley and Tam, (ii) conditional lien waivers and
releases prior to payment from the general contractor and certain subcontractors
and materialmen, (iii) copies of any executed change orders not previously
furnished, (iv) copies of all construction contracts, purchase orders, permits,
approvals and licenses to the extent not previously delivered to Drs. Kelley and
Tam, (v) builders' risk or other insurance as required by the New Kelley Deed of
Trust, (vi) a certificate of the Company certifying that no default or event of
default has occurred or is continuing, and (vii) such other instruments,
documents and information as Drs. Kelley and Tam may reasonably request.
Under the New Kelley Loan Agreement, if an "Event of Default" occurs
under the New Kelley Note, (defined as the occurrence of one or more certain
events, including, but not limited to, a failure to pay any interest or
principal amount within five (5) days of when due or an "Event of Default" under
the new Kelley Loan Agreement or a default in the terms of any other agreement
between the Company and Drs. Kelley and/or Tam) overdue principal and overdue
interest shall bear interest at a "Default Rate" equal to the New Base Rate plus
three percent (3%). In addition, if an "Event of Default" occurs, Drs. Kelley
and Tam have the right to declare the entire principal balance of the New Kelley
Note plus all accrued and unpaid interest immediately due and payable and to
pursue all of its available remedies under the New Kelley Loan Agreement
(including all rights with respect to the assets subject to the New Kelley
Security Interest), except as provided in this paragraph. Upon an "Event of
Default" involving the Company's non-payment of money, an "Event of Default"
will not be deemed to occur under the New Kelley Loan Agreement if such default
is cured to the reasonable satisfaction of Drs. Kelley and Tam within 10 days
after Drs. Kelley and Tam give notice of the default. However, if such default
cannot be cured within such 10-day period and it does not affect the security
given to Drs. Kelley and Tam under the New Kelley Loan Agreement, then an "Event
of Default" will not be deemed to have occurred under the New Kelley Loan
Agreement in the event, after notice from Drs. Kelley and Tam, the Company
immediately and diligently pursues activity to cure and cures such default to
the reasonable satisfaction of Drs. Kelley and Tam within 60 days.
In addition, under the New Kelley Deed of Trust, except as provided
below in this paragraph, upon an "Event of Default" under the New Kelley Deed of
Trust, Drs. Kelley and Tam are required to give the Company sixty (60) days'
prior written notice before they would be permitted to file a notice of default
with respect to the Mesquite Property and commence a judicial or non-judicial
foreclosure on the Mesquite Property. Such notice can be given if a default has
occurred even though the time for expiration of notice or any right to cure has
not expired. Notwithstanding the foregoing, however, such 60-day written notice
requirement will be waived, and Drs. Kelley and Tam would have the right to
commence immediately a judicial or non-judicial foreclosure on the Mesquite
Property, upon the occurrence of any one or more of certain events, including
but not limited to the following: (i) if the Company makes an assignment for the
benefit of creditors, (ii) if a receiver, liquidator or trustee of the Company
is appointed or if the Company is adjudicated a bankrupt or insolvent, (iii) if
the Company files for bankruptcy, or a bankruptcy petition is filed against the
Company, (iv) if the Company is generally not able to pay its debts as they
become due, (v) if a default or event of default exists under any other mortgage
or deed of trust or security agreement covering any part of the Mesquite
Property and such default is not cured within the applicable grace period
thereunder, or if the debt secured thereof is accelerated, or (vi) if the
Mesquite Property becomes subject to (a) any lien superior to the New Kelley
Deed of Trust (other than a lien for non-delinquent local real estate taxes and
assessments), or (b) any mechanic's, materialman's or other lien whether or not
asserted to be superior to the New Kelley Deed of Trust, and such lien remains
undischarged or unbonded for 30 days.
Pursuant to the First Modification to the New Kelley Loan Agreement
dated May 31, 1996, accrued and unpaid principal and interest on the New Kelley
Loan will be payable to Drs. Kelley and Tam as follows: accrued and unpaid
interest shall be paid monthly in arrears on the 15th day of each month until
one year from the closing of this Offering, at which time the entire principal
amount of the New Kelley Loan will become due and payable. Notwithstanding the
foregoing sentence, under the First Modification to the New Kelley Loan
Agreement, if this Offering does not occur prior to August 15, 1996, the entire
principal amount of the New Kelley Loan shall become due and payable on August
15, 1996. Under the New Kelley Loan Agreement, the Company granted to Drs.
Kelley and Tam an additional period of time to exercise their existing
conversion rights with respect to the Convertible Loan Proceeds. Such conversion
rights remain exercisable after the closing of the Offering for all or any
portion of the 2,052,994 shares by payment in cash at any time up through August
15, 1998. Under the First Modification to the New Kelley Loan Agreement, Drs.
Kelley and Tam agreed to subordinate the New Kelley Deed of Trust to the liens
of First Credit Bank and the Bank of Hawaii.
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Under the New Kelley Loan Agreement, until the New Kelley Loan
Proceeds, together with accrued interest thereon, are paid in full by the
Company, the Company is not allowed to do any of the following, unless it
obtains the prior written consent of Dr. Kelley: (i) create any voluntary liens
on the Company's assets; (ii) transfer any interest in the Mesquite Property, or
allow any lien to be imposed on the Mesquite Property; (iii) modify or amend any
material agreement, including but not limited to any outstanding stock options
and warrants; (iv) modify, amend, or terminate any documents relating to
construction on the Mesquite Property; (v) enter into any transaction with an
affiliate of the Company, or make any payment or dividend to any stockholder or
affiliate of the Company; (vi) sell any assets of the Company, or of any
subsidiary of the Company, having a book value in excess of $20,000; (vii) issue
any shares of the Company, or of any subsidiary of the Company, except for
shares required to be issued under existing stock options and warrants, under
the Kelley Warrant, upon conversion of the New Kelley Note, or to the public
under this Offering; (viii) liquidate, dissolve, merge or consolidate, (ix)
sell, lease, assign or transfer any substantial part of the Company's business
or assets, (x) declare or pay any dividend or other distributions on any of its
securities, whether now outstanding or issued in the future; (xi) modify, amend,
purchase, redeem or retire any of such securities, except as required under
outstanding warrant and stock options, the New Kelley Note, or with respect to
this Offering; (xii) create, assume, incur, or guarantee any debt, other than
the debt represented by the New Kelley Loan Agreement, the debt secured by
existing deeds of trust on the Mesquite Property, or purchase money loans or
leases on furniture, fixtures, and equipment purchased or leased from persons
other than an affiliate of the Company and which are used in the ordinary course
of the Company's business; and (xii) with respect to the Company or any
subsidiary of the Company, make any loan or advance to any third party, except
for advances in the ordinary course of business and loans to employees not
exceeding $1,000 to any one employee and $10,000 in the aggregate at any time
outstanding.
The New Kelley Loan must be prepaid (i) in the event of the
liquidation, dissolution, merger, consolidation or bankruptcy of the Company,
(ii) in the event of the transfer of any interest in the Mesquite Property or
the Company in violation of the terms of the New Kelley Loan Agreement, (iii) in
the event of certain casualty or condemnation circumstances as set forth in the
New Kelley Deed of Trust, (iv) in the event the Company fails to timely perform
all of its obligations under the PMJ Enterprises Notes (as defined below), or
(v) if the Company fails to use its best efforts to meet the requirements of the
schedule attached to the New Kelley Loan Agreement.
C. Loan Agreement. Dr. Kelley has made an additional loan (the "Kelley
Additional Loan") in an amount equal to $300,000 to the Company which is
evidenced by a promissory Note (the "Kelley Additional Loan Note") in the
original principal amount of $300,000 payable to the order of Dr. Kelley. The
Kelley Additional Loan Note requires the Company to pay interest on the unpaid
balance of the Kelley Additional Loan at a rate per annum equal to the
Additional Loan Base Rate (as defined in the following sentence) plus one
percent (1%); however, in no event will the Additional Loan Base Rate be less
than eleven percent (11%). "Additional Loan Base Rate" means a fluctuating rate
of interest per annum equal to the sum of (a) the rate as announced by the Bank
of Hawaii from time to time as its "reference rate" in effect at its office in
Honolulu, Hawaii, such base rate to change as and when such reference rate
changes, plus (b) two percent (2%). Under the Kelley Additional Loan Agreement,
overdue principal and overdue interest will bear interest at an annual rate
equal to the Additional Loan Base Rate plus three percent (3%).
Pursuant to the Kelley Additional Loan Note, accrued and
unpaid interest attributable to the proceeds of the Kelley Additional Loan will
be payable to Dr. Kelley monthly in arrears on the 15th day of each month. Under
the Kelley Additional Loan Note, the principal balance of the Kelley Additional
Loan is payable in full one year from this Offering, unless this Offering does
not occur prior to August 15, 1996, in which case, the entire principal amount
would become due and payable on August 15, 1996.
The Kelley Additional Loan must be prepaid (i) in the event of
the liquidation, dissolution, merger, consolidation or bankruptcy of the
Company, (ii) in the event of the transfer of any interests in the Mesquite
Property or the Company in violation of the terms of the New Kelley Loan
Agreement, (iii) in the event of certain casualty or condemnation circumstances
as set forth in the New Kelley Deed of Trust, or (iv) if the Company fails to
meet the requirements of the schedule attached to the New Kelley Loan Agreement.
If an "Event of Default" occurs under the Kelley Additional
Loan Note (with an "Event of Default" defined as an Event of Default under the
terms of the New Kelley Loan Agreement, a failure to pay any principal, interest
or other amount within five (5) days of when due under the terms of the Kelley
Additional Loan Note, a default in the terms of the Kelley Stock Purchase
Agreement or in the terms of any other agreement to which the Company and Dr.
Kelley are parties and
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were executed in connection with the New Kelley Loan Agreement), Dr. Kelley is
entitled to declare the Kelley Additional Loan Note to be immediately due and
payable, and to exercise any rights and remedies available to him under the New
Kelley Loan Agreement or the New Kelley Deed of Trust.
PMJ ENTERPRISES, INC. SECURED DEBT
Immediately following its incorporation, the Company delivered
promissory notes to PMJ Enterprises, Inc. in the amount of $2,758,000 in partial
consideration for the transfer of the Mesquite Property to the Company. Within
90 days thereafter, PMJ Enterprises was paid $2,200,000 in cash on these notes,
leaving a single note in the principal amount of $558,000 outstanding (the
"Original PMJ Enterprises Note"). See "BUSINESS - Mesquite Star Hotel and Casino
- - Acquisition and Development of Mesquite Property." The Original PMJ
Enterprises Note required the Company to repay the principal amount of the
Original PMJ Enterprises Note, together with interest thereon at the reference
rate announced by Bank of America from time to time, accruing from and after
December 31, 1993 until paid. The principal, and all accrued interest thereon,
were payable within twenty (20) days following the earliest to occur of (i) the
date that the Company completes an initial public offering of its Common Stock;
or (ii) the date alternative financing is obtained to complete construction of
the Mesquite Star; or (iii) the date the Mesquite Property is sold by the
Company. These provisions were amended as described below. The Original PMJ
Enterprises Note was originally unsecured, but in connection with the New PMJ
Enterprises Loan described below, the PMJ Enterprises Deed of Trust (as defined
below) on the Mesquite Property to secure the New PMJ Enterprises Loan also
secures the amounts owing by the Company to PMJ Enterprises, Inc. under the
Original PMJ Enterprises Note. The Original PMJ Enterprises Note, the New PMJ
Enterprises Note and the PMJ Enterprises Deed of Trust will be sometimes
collectively referred to as the "PMJ Enterprises Secured Debt."
On May 26, 1995, PMJ Enterprises, Inc. made a loan (the "New PMJ
Enterprises Loan") in an amount equal to $500,000 to the Company which is
evidenced by a promissory note (the "New PMJ Enterprises Note") in the original
principal amount of $500,000 payable to the order of PMJ Enterprises, Inc. The
New PMJ Enterprises Note requires the Company to pay 10% interest per annum and
to secure the amounts owed by the Company to PMJ Enterprises, Inc. Pursuant to
the Original PMJ Enterprises Note and the New PMJ Enterprises Note, the Company
executed a deed of trust (the "PMJ Enterprises Deed of Trust"), pursuant to
which PMJ Enterprises, Inc. was granted a junior lien on the Mesquite Property.
(The New PMJ Enterprises Note and the Original PMJ Enterprises Note, as amended
from time to time, are collectively referred to as the "PMJ Enterprises Notes.")
Pursuant to the Amendment No. 1 to Promissory Notes and Deed of Trust,
dated August 15, 1995, between the Company and PMJ Enterprises, Inc., the due
date for the principal balance and accrued interest of the PMJ Enterprises Notes
was modified to be the earlier of: (i) 10 business days following the closing
date of the Company's initial public offering (the "IPO") if the Company
receives $12,500,000 or more in gross proceeds from this Offering; (ii) May 30,
1996; (iii) the date of refinancing of any other liens secured by the Mesquite
Property which is junior in priority to the PMJ Enterprises Deed of Trust; or
(iv) the date that the Mesquite Property is sold (as applicable, the "Modified
Due Date"). These provisions were further amended as described below.
Pursuant to the First Amendment to Stock Purchase Agreement and Second
Amendment to Promissory Notes dated December 8, 1995 among the Company, Kelley,
Tam, Patrick J. Shannon and PMJ Enterprises, Inc. ("Amendment to Stock Purchase
Agreement and Promissory Notes"), the PMJ Enterprises Notes were further amended
as provided in this paragraph. First, unpaid interest under the PMJ Enterprises
Notes accrued through November 30, 1995 in the amount of $110,049.67 will be
amortized over 12 months, and will be paid in full over such 12-month period, as
follows: $9,170.81 shall be paid on December 18, 1995 and the first day of each
month for 11 months thereafter, beginning January 1, 1996. Second, with respect
to interest accruing under the PMJ Enterprises Notes on and after December 1,
1995 ("Accrued Interest"), the Company agreed to pay PMJ Enterprises, Inc. such
Accrued Interest in arrears on a monthly basis, at the rate of $8,235.42 per
month (the "Monthly Payment"), with the first Monthly Payment due on December
18, 1995, and each subsequent Monthly Payment due on the first day of each
month. Further, under the First Amendment to Stock Purchase Agreement and
Promissory Notes, PMJ Enterprises, Inc. has agreed to subordinate the PMJ
Enterprises Deed of Trust to the New Kelley Deed of Trust and the New Kelley
Security Interest. Finally, the First Amendment to Stock Purchase Agreement and
Second Amendment to Promissory Notes extended the Modified Due Date to be the
earlier of: (a) the closing date of the Company's IPO if the Company receives
$12,500,000 or more in gross proceeds from this Offering; (b) May 30, 1997; (c)
the date of refinancing of any other liens secured by the Mesquite Property
which is junior in priority to the Second Deed of Trust; or (d) the date that
the Mesquite
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<PAGE> 35
Property is sold. See "USE OF PROCEEDS;" "BRIDGE FINANCING - Kelley/Tam Secured
Debt - Secured Convertible Debt - New Convertible Loan Agreement."
Assuming the sale of the Underwriters' over-allotment shares, the
Company may use the proceeds thereof to repay all or a portion of the
outstanding secured indebtedness in the amount of $1,058,000 plus interest to
PMJ Enterprises, Inc. at such time as the Company closes the Secured Financing.
Although the PMJ Enterprises Secured Debt is due on May 30, 1997, unless PMJ
Enterprises, Inc. agrees to subordinate to the Secured Financing, the Company
will be required to repay the PMJ Enterprises Secured Debt at the closing of the
Secured Financing. If the proceeds from sale of over-allotment shares are not
available to pay such debt, the Company will be forced to arrange additional
financing. There can be no assurance that the Company can arrange such financing
or that the need to repay the PMJ Enterprises Secured Debt will not delay the
closing of the Secured Financing and adversely effect the Company and the
Mesquite Star project.
HARDY SECURED DEBT
On April 8, 1991, PMJ Enterprises, Inc. executed a Deed of Trust (the
"Hardy Deed of Trust") covering a portion of the Mesquite Property, to secure an
indebtedness of $165,000 owed by PMJ Enterprises, Inc. to Kim M. Hardy and Susan
Hardy (the "Hardy Secured Debt"). The Company assumed the Hardy Secured Debt in
connection with its purchase of the Mesquite Property, and paid all unpaid
principal and accrued interest with respect to the Hardy Secured Debt on May 20,
1996.
USE OF PROCEEDS TO REDEEM SERIES A PREFERRED SHARES AND COMMON SHARES
Concurrent with the closing of this Offering, the Company intends to
use a portion of the proceeds of this Offering (i) to redeem 689,840 Series A
Preferred Shares in the amount of $2,655,884, and (ii) to repurchase a total of
1,636,243 outstanding Shares of Common Stock (the "Minneapolis Stock") from
William M. Mower, D. Bradly Olah and the Minneapolis Group of Stockholders (the
"Minneapolis Group"), for an aggregate purchase price of $409,061. See "USE OF
PROCEEDS."
The Company has agreed to repurchase the Minneapolis Stock from the
Minneapolis Group for $0.25 per share. The Minneapolis Group previously bought
the Common Stock from the Company in April 1994 for $0.01 per share. 865,122
shares of the Minneapolis Stock to be repurchased by the Company is owned by
Messrs. Mower and Olah. With respect to the repurchase of a portion of Messrs.
Mower and Olah's shares of Common Stock, an agreement was reached between Mr.
Signorelli and Mr. Patrick J. Shannon, on the one hand, and Mr. Mower and Mr. D.
Bradly Olah, on the other hand, that Messrs. Mower and Olah would not continue
as officers, directors and stockholders of the Company. In connection with that
decision, Messrs. Mower and Olah agreed to the Company's repurchase of the
865,122 shares for $0.25 per share and resigned as officers and directors of the
Company. As conditions to Messrs. Mower and Olah's agreement to resign as
directors and officers and to permit the repurchase of their Common Stock,
Messrs. Mower and Olah required the Company (i) to repurchase a portion of the
Common Stock owned by other members of the Minneapolis Group of Stockholders;
(ii) to deliver a redemption offer to the Company's Series A Preferred
Stockholders which would allow the Series A Preferred Stockholders to either
convert their Series A Preferred Stock to Common Stock or to have the Company
redeem their Series A Preferred Stock for $3.85 per share; and (iii) to close
the repurchase of the Minneapolis Stock concurrently with the closing of the
redemption of the Series A Preferred Stock.
[Remainder of Page Intentionally Blank.]
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<PAGE> 36
SELECTED FINANCIAL DATA(1)
The following selected financial data are qualified by reference to,
and should be read in conjunction with, the Financial Statements, related Notes
to Financial Statements and Reports of Independent Public Accountants, and
Management's Discussion and Analysis of Financial Condition and Results of
Operations contained elsewhere herein. The following tables summarize certain
selected financial data of the Company for the period from December 2, 1993
(date of incorporation) to December 31, 1993 and the years ended December 31,
1994, and 1995. The 1995 data has been derived from financial statements
included elsewhere in this Prospectus that were audited by McGladrey & Pullen,
LLP, certified public accountants. The 1994 Statement of Operations Data
contained herein has been derived from financial statements audited by Taylor &
Company, certified public accountants. All balance sheet data as of December 31,
1994 has been derived from financial statements audited by Taylor & Company. No
dividends have been paid for any of the periods presented. The data for the
three months ended March 31, 1995 and 1996 has been derived from unaudited
financial statements prepared by the Company.
<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31, 3 MONTHS ENDED MARCH 31,
1993 1994 1995 1995 1996
------------------------------------ -------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue(2)........................................... $ 328 $45,096 $ 9,105 $ 3,835 $ 860
Costs and expenses................................... (9,948) (281,674) (2,126,359)(3) 109,992 375,617
Net (loss)........................................... (9,620) (236,578) (2,117,254)(2) (106,157) (374,757)
Net (loss) per share................................. (.00) (.03) (0.26) (.01) (.05)
Supplemental net (loss) per share(4)................. (0.24) (.04)
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994 December 31, 1995 March 31, 1996
----------------- ----------------- --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents ........................ $ 646,230 $ 7,864 $ 6,736
Property and equipment, net ...................... 6,591,156 8,242,610 9,009,547
Total assets ...................................... 7,282,503 8,721,425 9,756,412
Total current liabilities ......................... 2,339,355 5,062,341 6,472,085
Total long-term debt .............................. 750,030 --- ---
Stockholders' equity .............................. 4,193,118 3,659,084 3,284,327
</TABLE>
- ----------------------
(1) The calculations in this Section assume an initial public offering
price of $5.00 per share.
(2) Revenue shown is from interest income only. To date, the Company
has had no revenues from operations.
(3) Includes $1,476,220 in expense recorded for stock, warrants and
options and amortization of original issue discount.
(4) Supplemental net (loss) per share has been calculated using the
weighted-average number of shares outstanding plus 615,932 shares which would be
required to redeem $2,655,884 of Series A Preferred Stock on December 31, 1995.
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<PAGE> 37
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
The following discussion should be read in conjunction with the
Financial Statements of the Company, related Notes to Financial Statements and
Reports of Independent Public Accountants and Selected Financial Data included
elsewhere in this Prospectus.
OVERVIEW
The Company is a development stage company incorporated in Nevada on
December 2, 1993 for the purpose of developing, constructing, owning and
managing hotel/casino facilities. The Company has no revenues from operations to
date. The Company's only source of revenues since its incorporation has been
interest income. The Company has accumulated losses from operations of
$2,738,209 since its incorporation on December 2, 1993 through March 31, 1996.
The Company's financial statements have been prepared assuming that the Company
will continue as a going concern. The successful completion of this Offering,
development and construction of the Mesquite Star, receipt of necessary gaming
licenses, obtainment of all additional financing necessary for the Company to
commence generating operating revenues, implementation of the Company's
marketing plan and operation of the Mesquite Star are necessary for the Company
to commence generating operating revenues. See "RISK FACTORS"; "BUSINESS:
Business" and "BUSINESS: Marketing Strategy."
PLAN OF OPERATION
The Company's plan of operation for the next twelve months will be
directed toward the development and construction of the Mesquite Star, and the
preparation of the Mesquite Star for opening to the public. For the three months
following the Offering, the Company will pursue obtaining bids for furniture,
fixtures and equipment related to the Mesquite Star's casino, restaurant, and
hotel facilities; researching and locating third party software programs for
accounting, gaming, food and beverage, and the hotel facilities; and developing
and drafting the operating policies and procedures for the Mesquite Star,
employee guidelines and policies, the first year business plan for operations,
and the first year advertising and marketing plan.
During months two through six following the closing of this Offering,
the Company plans to begin hiring senior management in stages, including the
Chief Financial and Accounting Officer for the Company and the Mesquite Star,
the General Manager of the Mesquite Star, the Director of Casino Operations, and
the Director of Human Relations. During this same period, the senior management
will begin staffing the middle management.
During months seven through nine following the closing of this
Offering, the Company anticipates that it will implement a 13-week staffing and
training plan for all other hotel/casino employees for the Mesquite Star, up to
an estimated aggregate of approximately 360 employees. Shortly thereafter, the
Mesquite Star casino and other facilities would be open to the public and the
Company's plan of operations would be followed as an ongoing business in
accordance with the Company's policies and procedures, and management's
strategic plan, business plan, and advertising/marketing plan. Although the
Company estimates that the timetable for the Company's plan of operation and
opening of the Mesquite Star is as set forth above, there can be no assurance
that the Company's plan of operation and opening of the Mesquite Star will be in
accordance with the above timetable. See "RISK FACTORS - Construction Risks."
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995. Revenues of the Company for the fiscal
year ended December 31, 1995, were $9,105, compared to revenues of $45,096 for
the year ended December 31, 1994. The reduction is attributable to less interest
income. Operating expenses were $2,126,359 for the year ended December 31, 1995,
compared to $281,674 for the period ended December 31, 1994. The increase
resulted primarily from compensation expenses recorded for stock, Warrants and
options and amortization of original issue discount. The Tax Reform Act of 1986
includes provisions which may limit the net operating loss carry forwards
available for use in any given year if certain events, including significant
changes in stock ownership. Upon completion of this Offering, utilization of the
Company's net operating loss carry forwards to offset future income may be
limited. The Company's net operating loss carry forward as of December 31, 1995
was approximately $1,033,000.
YEAR ENDED DECEMBER 31, 1994. Revenues of the Company for the fiscal
year ended December 31, 1994 were $45,096, compared to insignificant revenues
for the period from December 2, 1993 (date of incorporation) to December 31,
1993. Almost all revenues were attributable to interest income. Operating
expenses were $281,674, for the year ended
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<PAGE> 38
December 31, 1994 compared to $9,948, for the period ended December 31, 1993.
The increase resulted primarily from increased administrative and professional
expenses.
PERIOD ENDED MARCH 31, 1996 COMPARED TO PERIOD ENDED MARCH 31, 1995.
Revenues for the three months ended March 31, 1996 are down compared to the
three months ended March 31, 1995 due to all cash funds being used in the
construction of the Mesquite Star project or for payment of expenses connected
with this Offering and thus unavailable to earn interest. Almost all revenues
for the three months ended March 31, 1995 were attributable to interest income.
Operating expenses were $375,617 for the three months ended March 31, 1996
compared to $109,992 for the three months ended March 31, 1995. The increase
resulted primarily from increased administrative and professional expenses and
financing costs.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has funded its capital requirements
through the sale of securities to private investors and the proceeds of secured
loans. See "BRIDGE FINANCING." The Company will use the net proceeds of this
Offering, the Secured Financing and Equipment Financing to meet its
significantly greater cash needs in 1996 relating to completion of construction
of the Mesquite Star estimated at $9,223,000, the acquisition of furniture,
fixtures and equipment estimated at $6,602,000 and pre-opening expenses
estimated at $1,450,000. These sums will be used to cover the significant
increase in payroll expenses, as the Company expands from four employees to
approximately 350 employees at opening of the Mesquite Star. The Company
believes that proceeds from this Offering, together with the Secured Financing
and Equipment Financing, will be sufficient to cover working capital
requirements for at least 10 months following the closing of the Offering. See
"USE OF PROCEEDS."
SEASONALITY
The Mesquite Star will be located in Mesquite, Nevada along Interstate
15 where the population has been relatively stable throughout the year. The
Company believes that a significant portion of the Mesquite Star's business will
be drawn from travelers along Interstate 15. The number of travelers along
Interstate 15 peaks to some extent due to tourism during the summer months and
to a lesser extent during the winter months. Accordingly, management of the
Company anticipates that the Mesquite Star's business may peak in summer and, to
some extent, in winter, and may decline somewhat in early spring and late fall.
However, management cannot accurately predict the effect of seasonality on its
business.
INFLATION
To date, inflation has not had a material impact on the Company's
financial results.
CHANGE OF ACCOUNTANTS
During the period ended December 31, 1994 (the "Applicable Period"),
the Company's independent accountant was Taylor & Co. (the "Prior Accountant").
The Company, effective as of September 29, 1995, changed its
independent accounting firm from the Prior Accountant and appointed McGladrey &
Pullen, LLP (the "New Accountant") as its new independent accounting firm to
audit the financial statements for the 12 months ending December 31, 1995.
(i) The appointment of the New Accountant as the new independent
accountant was precipitated by the proposed Offering and the Company desires
that the New Accountant be the independent accountant going forward.
(ii) No adverse opinion or disclaimer of opinion was included in the
Prior Accountant's reports during the Applicable Period.
(iii) The decision to change accountants was approved by the Board of
Directors of the Company.
(iv) During the Applicable Period, the Company did not have any
disagreements with its Prior Accountant as to matters of accounting principles
or practices, financial statement disclosure or auditing scope or procedures
which disagreement, if not resolved to the satisfaction of the Prior Accountant,
would have caused it to make reference to such disagreement in connection with
its report. The Prior Accountant has been provided with a copy of this
Prospectus and has furnished a letter addressed to the Securities and Exchange
Commission stating that it agrees with the disclosures contained in this
section.
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<PAGE> 39
BUSINESS
GENERAL
The Company is a development stage company incorporated in Nevada on
December 2, 1993 under the name Mesquite Gaming Corp. for the purpose of
developing, constructing, owning and managing hotel/casino facilities. On
October 3, 1995, the Company changed its name to NevStar(TM)(1) Gaming
Corporation.
The Company's strategy is to concentrate its efforts where the Company
can be one of the early entrants into such markets and on "niche" markets such
as "local" or "neighborhood" casinos. The Company's hotel/casinos will be
"theme" based, which will attempt to distinguish the Company's hotel/casino
properties from its competitors.
The Company's initial hotel/casino project will be the Mesquite
Star(TM)(1) to be built in Mesquite, Nevada on 25.2 acres adjacent to the
Interstate 15 and East Mesquite Boulevard interchange. The Mesquite Star will be
an "old west" theme hotel/casino, including 210 hotel rooms (including 13
suites), 12,000 square feet of casino space, a gourmet restaurant, a cocktail
lounge, a coffee shop/buffet, video arcade, swimming pool and spa and gift shop.
To date, the Company has no revenues from operations.
LOCATION
The maps on the inside front and back cover of this Prospectus show the
location of the Mesquite Star in relation to the other major Mesquite
hotel/casinos, Interstate 15, the Mesquite area and the location of the Mesquite
Star in relation to metropolitan Las Vegas, Nevada, St. George, Utah, Salt Lake
City, Utah and Arizona, respectively. The Company believes that the Mesquite
Star is strategically located to take advantage of the Mesquite marketplace.
MESQUITE STAR HOTEL AND CASINO
ACQUISITION AND DEVELOPMENT OF MESQUITE PROPERTY. Immediately following
its incorporation, the Company acquired the Mesquite Property from PMJ
Enterprises, Inc. for 2,750,000 shares of Common Stock, assumption by the
Company and indemnification of PMJ's indebtedness of $2,442,000, and notes
payable to PMJ Enterprises, Inc. in the amount of $2,758,000. Within 90 days
thereafter, PMJ Enterprises, Inc. was paid $2,200,000 in cash on these notes,
leaving a single note in the principal amount of $558,000 outstanding. See
"BRIDGE FINANCING - PMJ Enterprises, Inc. Secured Debt." Following its
acquisition of the Mesquite Property in January, 1991, PMJ Enterprises, Inc. was
primarily engaged in (i) obtaining the necessary entitlements, permits,
approvals and licenses from the City of Mesquite in connection with the
development of a hotel/casino on the Mesquite Property, (ii) completing
architectural and engineering plans for the Mesquite Star through outside
architects and engineers, and (iii) pursuing the planning approval and permit
process for the Mesquite Star with the City of Mesquite. Since the Company's
acquisition of the Mesquite Property in December 1993, the Company's primary
activity has been the development of plans and obtaining the necessary
governmental approvals from the City of Mesquite for the Mesquite Star project
and construction of offsite and limited onsite improvements relating to the
project. The Company has paid for construction of an irrigation canal, road,
street lights and other offsite improvements and utility infrastructure at a
cost of $401,630. Since issuance of the grading and foundation permits, the
Mesquite Property has been cleared, graded and improved with the public area
foundation, footings and pilings at an approximate cost of $480,000. In
addition, rough plumbing and underground electrical is completed with respect to
the casino and hotel. Also, elevators for both the hotel and casino have been
drilled and cased. Additional construction is currently underway at the site.
See "BUSINESS - Completion of the Mesquite Star."
GOVERNMENT APPROVALS. The appropriate zoning district for a
hotel/casino in the City of Mesquite is Special District H. The Mesquite
Property is in Zone H. Among the uses permitted in Zone H are hotels and resort
hotels, and, subject to the issuance of a conditional use permit ("CUP"),
"gambling casinos and establishments." The Mesquite Property is designated as
- --------
(1) Federal Trademark Application Pending.
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<PAGE> 40
a "Gaming Enterprise Zone" on the City of Mesquite Long Range Comprehensive
Master Plan. On November 27, 1990, the City Council of Mesquite issued a CUP to
allow for the construction of a hotel, casino, restaurant, bar, retail shops and
stores on the Mesquite Property. The CUP was subject to numerous conditions,
including the commencement of construction within one year. On October 8, 1991,
the City Council of Mesquite granted a one year extension of the CUP. On October
27, 1992, the City Council of Mesquite granted another one year extension of the
CUP. On November 9, 1993, the City Council of Mesquite approved the
"architectural review" of a hotel including restaurant and casino for the
Mesquite Property subject to certain conditions. The CUP was never formally
extended beyond November 27, 1993. Sometime after November 27, 1993 a dispute
arose as to whether the CUP had expired. On March 8, 1995, a Memorandum of
Understanding ("MOU") was entered into with the City of Mesquite, which recited
that "the parties do desire to clarify Mesquite Gaming's right to obtain a
building permit and other related permits necessary for the construction,
completion and operation of the improvements and related facilities authorized
by the Conditional Use Permit."
Pursuant to the terms of the MOU, the Company agreed (A) to pay all
administrative fees as may be properly imposed by the City of Mesquite and which
are in effect on the date that a permit is issued by the City of Mesquite, (B)
to pay such impact fees as may be properly imposed by the City of Mesquite
pursuant to city ordinances existing at the time the Certificate of Occupancy
for the Mesquite Project is issued, (C) to request the issuance of a building
permit for the construction of the Mesquite Project within thirty (30) days
following the approval of the Memorandum of Understanding by the Mesquite City
Council or within thirty (30) days after final approval of the building plans by
the City of Mesquite, whichever is later, and (D) that in the event the Company
has not obtained a building permit for construction of the Mesquite Star on or
before June 1, 1995, then the Memorandum of Understanding would have been null
and void. The Memorandum of Understanding was approved by the City Council of
the City of Mesquite in late February 1995 and was executed by the mayor of
Mesquite on March 9, 1995. At a meeting of the City Council of the City of
Mesquite on October 24, 1995, as confirmed in a letter from the Mayor of
Mesquite, dated November 2, 1995 to the Company, the City Council confirmed that
a valid and existing CUP is presently in full force and effect with respect to
the Mesquite Property and that no other discretionary approvals by the City of
Mesquite are required to construct and complete the hotel/casino in accordance
with the plans and specifications approved by the City of Mesquite.
Since the Memorandum of Understanding was executed, the Company paid
for the building and related permits by June 1, 1995. These permits, costing
approximately $487,000, were paid in a timely manner. Building Permit No.
0-95-186 was issued on May 30, 1995 and recites "Erect New Casino only on this
Building Permit" (two stories, 32,000 square feet) ("Casino Building Permit").
Building Permit No. 0-95-187 was issued on May 30, 1995 and recites "Erect New
Hotel Only on this Building Permit" (three stories, 100,780 square feet; 210
units). Building Permit Nos. 0-95-186 and 0-95-187 are jointly referred to as
"the Building Permits." Construction of the Mesquite Star commenced under the
Building Permits on approximately May 31, 1995. City of Mesquite regulations
require that actual construction work be diligently carried on until completion
of the building or structure involved and that construction be completed within
one year (i.e., May 30, 1996). The Company believes that the requirement to
extend the permits is satisfied by continuing construction of the Mesquite Star
and the City of Mesquite's continued inspections of such construction work. If
the City of Mesquite requires a formal extension, although the Company
reasonably anticipates that extensions of the Building Permits will be granted,
City of Mesquite regulations provide that extensions of building permits are not
approved as a matter of right and there is no guaranty that extensions will be
granted, or, if granted, at what additional cost to the Company.
Although the Casino Building Permit describes only 32,000 square feet
of casino and support area, approximately 34,300 square feet of slab has been
poured for the casino and support area. The City previously reviewed and
approved the architectural plans which included 34,300 square feet of building
area for the casino and support area. While the Company reasonably anticipates
that the Casino Building Permit can be amended or reissued to provide for the
increased square footage of 34,300, there is no guaranty that the Casino
Building Permit will be so amended or reissued, or, if so amended or reissued,
at what additional cost to the Company.
The Mesquite Star borders on and will have vehicular access from
Mesquite Boulevard, a State of Nevada highway, pursuant to Permits for
Occupancy, dated January 10, 1992 and December 5, 1994 (the "Occupancy Permits")
from the Nevada Department of Transportation ("NDOT"). All properties along
Mesquite Boulevard are subject to similar NDOT occupancy permits. Occupancy
permits are subject to terms and conditions issued by the NDOT which provide
inter alia that they are revocable, or subject to modification or abrogation by
the NDOT at any time. While it is unlikely that access from the Mesquite
Property to Mesquite Boulevard would ever be completely denied, the Occupancy
Permits are revocable and subject to
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<PAGE> 41
modification and it is possible that access might be curtailed, altered or
limited to the detriment of the Mesquite Star in the future.
MESQUITE MASTER PLAN. In July 1994, the City of Mesquite adopted a
master plan which includes long-range planning for the City for residential,
commercial, gaming and other districts. The plan includes specific densities and
designated zoning for specific projects.
The master plan takes into consideration the separation of residential
and other land uses. It also includes plans for recreational and other public
land uses. This includes the Park Concept Plan, which entails the development of
a municipal golf course, a fairground, an amphitheater, a rodeo area, a track
and field stadium, a barbecue pit and picnic areas, a small arena with
shuffleboard facilities, horseshoe pits, several ball diamonds and tennis
courts. A trail system that will connect commercial and recreational segments of
the City is also planned.
At the same time that the master plan was developed, a Redevelopment
District was designated for the "downtown" area. The area encompasses
approximately 62.5 acres (approximately five blocks) and is situated near the
east end of the central business district. The boundaries are Desert Drive on
the west, approximately 2nd North on the north, east of North Mesquite Boulevard
on the east and East 1st South on the south. The Downtown Redevelopment
District's purpose is to provide a mix of tourist, commercial, government,
financial, professional, cultural and residential uses.
COMPLETION OF THE MESQUITE STAR. The Company has engaged AF
Construction Company, Inc. to serve as the general contractor pursuant to a
cost-plus contract. AF Construction Company, Inc. is one of Nevada's leading
casino-hotel contractors and has served as general contractor for over 10
casino-hotel projects, including Palace Station Hotel/Casino and Primadonna
Hotel/Casino. The construction contract entitles AF Construction Company, Inc.
to a general contractor's profit equal to 10% of the actual hard construction
costs. The Company is currently proceeding with construction of the masonry,
concrete and utilities phases of the public and hotel areas of the project.
Present construction activity is focused on the public areas, which take longer
to complete than the hotel room portion of the project. The AF Construction
Company, Inc. contract estimates total hard construction costs at $8,400,000,
but such estimate is based on the construction of a 200-room hotel/casino with
30,000 square feet of floor space. At this time, AF Construction Company, Inc.
currently estimates additional total hard construction costs (based on the
current plans for a 210-room hotel casino with approximately 34,300 square feet
of public area, together with the general contractor's profit of 10%) at
$9,223,000.
Since issuance of the grading and foundation permits through May 31,
1996, the Mesquite Property has been cleared, graded and improved with the
public area foundation, footings and pilings and erection of prefabricated steel
for the casino building at an approximate cost of $2,586,600. Up to May 31,
1996, the Company has paid AF Construction Company, Inc. approximately
$1,947,504 of these costs. In addition, rough plumbing and underground
electrical is completed with respect to the casino and hotel. Also, elevators
for both the hotel and casino have been drilled and cased. Additional
construction is currently underway at the site. Following completion of this
Offering, the Company will complete the construction and development of the
Mesquite Star in Mesquite, Nevada as soon as possible. The Mesquite Star is
scheduled to be completed and open to the public within approximately 10 months
after the completion of the Offering.
DESCRIPTION OF MESQUITE STAR. This parcel consists of 25.2 acres
adjacent to the Interstate 15 and East Mesquite Boulevard interchange. Phase I
of the Mesquite Star, which is under construction, will have a casino and
support area of approximately 34,300 square feet (See "BUSINESS - Mesquite Star
Hotel and Casino - Government Approvals") featuring approximately 20,000 square
feet of public area and administrative space and approximately 12,000 square
feet of gaming area initially featuring 400 slot machines, 11 table games and a
Keno area. There will also be one gourmet restaurant, one cocktail lounge area
with performance stage, one coffee shop/buffet, video arcade and gift shop. The
hotel will have 210 rooms, including 13 suites facing a courtyard and swimming
pool and spa area. The Company has created a design on the Mesquite Property to
expand the hotel facility by up to an additional 400 rooms and an additional
55,000 square feet of public area.
Phase I will only utilize about 11.2 of the 25.2 acres with paved
parking for about 624 cars. Phase II will have the remaining 14 acres available
for future development. This future development may include an additional 400
rooms, 55,000 square feet of additional public and gaming area and a
recreational vehicle park. Any future development is dependent upon the Company
obtaining all necessary permits and financing therefor, as well as the
suitability of the market for such development.
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MESQUITE MARKET. Mesquite is an incorporated city within Clark County,
Nevada and is located on Interstate 15 near the banks of the Virgin River and
the Arizona border, 80 miles north of Las Vegas and 37 miles south of St.
George, Utah. Mesquite encompasses approximately 11 square miles and has
traditionally been an agricultural community with farming, ranching and dairying
as the base of its economy. In recent years, travel, tourism, recreation and
retirement have significantly grown in economic importance to this community.
The major street within Mesquite is Mesquite Boulevard, a 4-lane
highway from the west end of the City until it turns to run north at the east
end of Mesquite, where the Mesquite property is located. At the Mesquite
Property, Mesquite Boulevard is presently a two-lane highway. There are two
interchanges with I-15 in Mesquite, one on the west end of Mesquite Boulevard,
and the other on the east end of Mesquite Boulevard directly adjacent to the
Mesquite Property.
Mesquite is rapidly becoming a full-service destination resort area
recognized as an ideal year-round location for visitors and retirees.
Championship golf courses, hunting, fishing and gaming offer Mesquite area
residents and tourists a variety of recreational activities. Other features
include a mild climate, a low tax structure and a favorable cost of living. In
addition, Mesquite is a short driving distance from other major attractions,
including boating and fishing located at Lake Mead National Park and Quail Creek
Reservoir, two presently existing and two planned golf courses located in
Mesquite, and seven additional golf courses located in St. George, Utah,
approximately 37 miles away, ski resorts located approximately 110 miles away,
and various national and state parks located 40 miles away in the case of Snow
Canyon State Park, and approximately 180 miles from Grand Canyon National Park.
The climate in Mesquite is excellent for recreation. The sun shines
approximately 85% of the time and the average daily maximum temperature is 77
degrees and the average daily minimum temperature is 55 degrees. Average annual
rainfall is approximately 4.34 inches. Winter daytime temperatures are pleasant
with an average high of 60 degrees. The temperature on an average summer day
often rises past 100 degrees.
Approximately 5,500 people currently live in the City of Mesquite.
Washington County, where St. George, Utah is located, which is one area the
Company intends to focus its marketing efforts, has grown from a population of
approximately 22,000 in 1980 to approximately 63,400 in 1994 and continues to
enjoy rapid growth. Clark County, where Las Vegas is located, and which the
Company also expects to be a focus of its marketing efforts, has grown from
approximately 460,000 in 1980 to approximately 1,000,000 in 1995 and also
continues to enjoy rapid growth. Also, since the Mesquite Star is strategically
located along Interstate 15, the Company intends to focus marketing efforts
towards the estimated 3,790,000 motor vehicles that will annually pass by the
facility on Interstate 15.
The border town of Mesquite is not unlike other border towns in Nevada,
including Stateline, which is located on Interstate 15 in Southwestern, Nevada
and Wendover which is located on Interstate 80 in northeastern Nevada. Similar
to Mesquite, both Stateline and Wendover started with one casino/motel, rapidly
developed additional properties, and have experienced high occupancy and
increased gaming revenues.
The City of Mesquite is also serviced by Greyhound Bus Lines and a
local airport, two miles north of downtown, which has a 5,100 foot runway. The
airport is a private plane airport, which can bring potential customers through
private air traffic. At present, air service to Mesquite is limited primarily to
private planes and to small charter service. The airport is owned and operated
by the City of Mesquite. There are no plans for major expansions to the airport
in the near future. The City of Mesquite has also announced that it will
construct a recreation facility on property adjacent to the Mesquite Property.
The Las Vegas Convention and Visitors Authority Board has voted to award the
City of Mesquite a $2.5 million grant towards the funding of this recreational
facility. The Mesquite recreational facility is currently in the planning stage
at the City of Mesquite.
BUSINESS AND MARKETING STRATEGY
The Company intends to focus its marketing efforts in the following
markets:
* Interstate 15 Travelers
* St. George, Utah Area
* Las Vegas and Clark County Area
* Mesquite Resident Market
The primary focus of the Company's marketing efforts will be Interstate
15 travelers. At present, Mesquite derives most of its market from the highway
travelers. The driving time from Las Vegas to Mesquite is approximately 1 1/2
hours, and the
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driving time from St. George, Utah to Mesquite is approximately 1/2 hour. The
Company intends to use signage to attract travelers and believes that because of
its accessible location adjacent to Interstate 15 and the Mesquite East
Interchange it is positioned to attract travelers to the Mesquite Star.
The Mesquite Star will be one of the first casinos visible to
southbound traffic on I-15 from Utah and Arizona, but will be one of the last to
be seen by northbound traffic. The extent of its visibility will be determined
by the height and type of electronic sign to be installed on the Mesquite
Property. The Nevada Welcome Center is located across Mesquite Boulevard from
the Mesquite Property. This is the first welcome center that southbound
travelers on I-15 encounter in this area. It attracts travelers off the highway,
which could be an advantage for the Mesquite Property. The extent to which
traffic will be able to easily cross Mesquite Boulevard to the Mesquite Property
is yet to be determined. The ready flow of traffic from the Welcome Center and
the other land uses adjacent to it (including a new Budget Inn) would be
beneficial to the Mesquite Property. Otherwise, most of this traffic is likely
to turn right onto Mesquite Boulevard and proceed under the I-15 bridge to the
Virgin River Hotel/Casino and Rancho Mesquite Hotel and Casino to the north.
A new Smith's grocery store will be located to the southeast of the
subject site on Mesquite Boulevard. The development of this store at this
location is anticipated to increase residential traffic in the proximate area,
which could be an advantage for the Mesquite Property. It will be important to
have access to the Mesquite Property from several locations to enhance
accessibility by traffic in both directions on Mesquite Boulevard.
The Company expects to position itself between Si Redd's Oasis Resort
Hotel/Casino and the Virgin River Hotel/Casino and Bingo, on the one hand, which
are low-rise, properties with detached rooms, and Player's Island Resort Casino
and Spa, on the other hand, which is a high-rise hotel resort. The Company
believes it will attract customers who will enjoy the Company's hotel and casino
as an alternative to the motel environment and the increased cost of the resort
alternative. The Company's room rates are expected to be competitive with the
room rates currently charged by all the other hotel/casino properties in
Mesquite.
Washington County, Utah, which contains the City of St. George, is a
rapidly growing retirement and resort community. The St. George, Utah area has
been recognized as a fast growing and desirable retirement area in the
Southwestern United States. The Company believes that a significant segment of
the current customers of Si Redd's Oasis Resort Hotel/Casino, Virgin River
Hotel/Casino and Bingo and Player's Island Resort Casino and Spa currently come
from the Utah markets. The State of Utah has no present, or to the Company's
knowledge, proposed gaming activities.
Another significant segment of Si Redd's Oasis Resort Hotel/Casino,
Virgin River Hotel/Casino and Bingo and Player's Island Resort Casino and Spa's
customers currently come from the Nevada market, including the Las Vegas area.
The Company believes that Mesquite is a recognized weekend retreat for people in
Las Vegas because of its recreational attractions, and quiet resort-like
atmosphere, which compares favorably to the Palm Springs area of California. The
weekend rates and occupancy for Si Redd's Oasis Resort Hotel/Casino, Virgin
River Hotel/Casino and Bingo and Player's Island Resort Casino and Spa are
higher than weekday rates. The Company intends to also focus on this market and
to entice customers from Las Vegas during weekdays, with special promotional
packages.
The Company also anticipates attracting local customers comprised of
Mesquite residents and hotel/casino employees.
The top three employers in Mesquite as of September 1, 1995 were
Player's Island Resort Casino & Spa, Si Redd's Oasis Resort Hotel/Casino, and
Virgin River Hotel/Casino and Bingo, which collectively employed approximately
2,860 people.
The Company also intends to promote special events, as well as the
existing attractions and amenities located in the Mesquite area, including the
championship golf courses, which are open to the public, as well as a local
horseback riding ranch, gun club and a petting zoo.
The Company believes that the recent opening of Player's Island Resort
Casino and Spa and the prospective opening of the Mesquite Star and the Rancho
Mesquite Hotel and Casino create critical mass in the Mesquite area, which will
enable Mesquite Star to become more recognized and attractive as a destination
resort area, and attract more customers to Mesquite. See "Competition."
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Representative elements of the Company's strategy as currently
identified, include, but are not limited to the following key principles:
* STRATEGIC LOCATION. Management believes that its location,
convenient access and ample parking are critical factors in
attracting interstate traffic, local patronage and repeat
visitors. The Mesquite Star will be strategically located as
the moderately priced hotel/casino on Interstate 15 and the
Mesquite East Interchange and management believes that the
location will provide the Company with a competitive advantage
over other Mesquite hotel/casinos. Travelers along Interstate
15 will be targeted through signage along Interstate 15. The
Company will also promote the City of Mesquite and the
Mesquite Star as a weekend retreat (e.g., the "Palm Springs of
Southern Nevada") for people in Las Vegas because of its
recreational attraction and quiet resort-like atmosphere.
* DIFFERENTIATING ITS PRODUCT FROM COMPETITION. Management
intends to focus the Company's marketing efforts of the
Mesquite Star towards attempting to differentiate its
advantages apart from other hotel/casinos in Mesquite, with a
particular emphasis on a new moderately priced hotel,
providing quality services and the "old west" theme and its
related special events and promotions.
* FOCUS ON REPEAT CUSTOMERS. Management believes generating
customer satisfaction and loyalty is a critical component of
the Company's business strategy. The Company intends to
attract customers from the areas of St. George, Utah and Las
Vegas, Nevada, as well as Mesquite residents, through
promotional programs, focused marketing efforts and convenient
location. Although perceived value will attract a customer to
the Mesquite Star initially, actual value will generate
customer satisfaction and loyalty. Management believes that
actual value will become apparent during the customer's visit
through an enjoyable and high quality entertainment
experience.
* AFFORDABLE QUALITY. Management is committed to providing a
quality entertainment experience for its customers at a
moderate price. Management believes that the value offered by
the Mesquite Star's hotel, restaurants and buffet will be a
major factor in attracting gaming customers. The Company
intends to offer generous portions of high quality food and
specialty menu items at reasonable prices. In addition, the
Company will provide a high level of value to its hotel guests
by offering moderately priced rooms which are well-appointed
relative to comparably priced hotels in Mesquite. Management
believes that providing affordable quality to customers
contributes significantly to casino patronage.
* EMPHASIS ON SLOT PLAY. An integral part of the Company's
business strategy is an emphasis on slot machine play in a
friendly and convenient atmosphere. In addition, the Company
intends to install wide area linked progressive games, which
offer players significantly higher jackpots. The Company also
expects to offer casino gaming tournaments to attract and
retain frequent gaming customers.
* EXPANSION INTO OTHER MARKETS. Management would like to expand
in a responsible manner into other market areas in Nevada and
other states in the United States and will investigate the
expansion possibilities in other jurisdictions. As of the date
of this Prospectus, however, the Company has no definitive
expansion plans for any other projects. The Company does have
an option to purchase an indirect 20% ownership interest in an
approximately 25-acre parcel of undeveloped property in North
Las Vegas currently zoned for hotel and gaming use; however,
the Company presently has no definitive plans with respect to
such option. See "Facilities and Properties - North Las Vegas
Option Agreement." Such other proposed projects involve many
risks, including, without limitation, financing requirements,
difficulties in obtaining requisite licenses, and the
Company's lack of experience in new markets. In addition,
problems may arise in the development of such other projects,
including, without limitation, construction, equipment and
staffing problems, permits, allocations, authorizations and
approvals from regulatory authorities (including zoning
variances), all of which could delay or terminate any such
expansion plans.
COMPETITION
GENERAL. Gaming is an international industry that is expanding at a
rapid pace in the United States. Gaming activities include traditional full
service casinos, state or national Indian sponsored lotteries, bingo games,
riverboat gaming, small-stakes casino gaming, international gaming, gaming on
cruise ships in international waters, and Indian gaming. Other forms of gaming
conducted in certain areas of the United States include parimutuel betting on
horse racing, dog racing and jai-alai; sports
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bookmaking; and card rooms. The gaming industry, including the development,
operation and management of gaming sites and casinos, is highly competitive. The
Company's proposed gaming-related activities, including casino site development,
operation and management will compete with other forms of gaming in Mesquite,
Nevada, as well as in Las Vegas, throughout the State of Nevada and California,
and throughout the United States. The gaming industry is currently undergoing
significant changes in operations, amenities and technological advances, and it
is impossible to accurately predict future trends or changes in the industry.
The gaming industry in Mesquite also competes with other forms of
gaming, including low-stakes bingo games operated by non-profit organizations
and pull-tab games; sports betting; riverboat gaming; parimutuel betting on
horse racing, dog racing and jai-alai; state sponsored lotteries; and
international gaming on cruise ships in international waters. One consequence of
the growth in the gaming industry has been the increased pressure on state
legislatures to allow competitive gaming activity in one form or another.
Several states have approved or are considering approval of land-based casinos,
riverboat gaming or dockside casinos. Increased support is also present in a
number of states for approval of video slot machines for bars, restaurants and
resorts. In addition, non-gaming entertainment competes with the gaming industry
for the public's disposable income. These other forms of entertainment and
gaming affect the demand for gaming in Mesquite and the opportunities the
Company has to develop other hotel/casinos. As a result of such competition, the
business and financial condition of the Company's Mesquite Star project and
other projects may be adversely affected.
OTHER COMPETITION IN NEVADA. The Mesquite Star also faces competition
from all other casinos and hotels in the greater Las Vegas area. The Las Vegas
competitors generally have substantially greater name recognition and financial
marketing resources than the Company. The Company will also compete with gaming
establishments in Laughlin, Nevada, as well as other stateline locations in
Stateline and Wendover, Nevada. In addition, a new proposed development for two
to four casinos situated in a 275-acre river front village scene has been
proposed for the town of Glendale, Nevada, which is 54 miles northeast of Las
Vegas on the Interstate 15. This development, if completed, along with any
future casino developments in other cities or towns on the Interstate 15, will
compete with the Company's Mesquite Star and, consequently, may adversely affect
the business of the Company.
COMPETITION IN MESQUITE, NEVADA. Currently, there are three other
hotel/casinos in Mesquite, including Si Redd's Oasis Resort Hotel/Casino, Virgin
River Hotel/Casino and Bingo and Player's Island Resort Casino and Spa. In
addition to these existing competitors, Rancho Mesquite Hotel and Casino is
completing construction of a four-story, 215 room hotel on Mesa Boulevard in
Mesquite, Nevada across from the Virgin River Hotel/Casino and Bingo. In
addition to the three existing major casino hotels, there is one small casino
motel and three small motels located in the Mesquite area. In addition, the
Budget Inn is currently under construction and is expected to be completed
sometime in 1996. Additional competitors may enter this market and compete with
the Company for customers and market share if the City of Mesquite changes its
zoning and allows additional properties to be used for hotel/casino operations.
Si Redd's Oasis Resort Hotel/Casino has grown from 28 rooms in 1981 to
728 rooms in 1995. Si Redd's Oasis Resort Hotel/Casino contains eight hotel
buildings, six swimming pools, and three spas, two 18 hole championship golf
courses, trap, skeet, and sporting clays, the Arvada Ranch, rodeo area, tennis
courts, health club and spa, three whirlpool spas, four restaurants, two casino
bars, a video arcade, miniature golf, gift shop, an R.V. Park, 10,276 square
feet of meeting facilities, and a 24 hour full-service 40,000 square foot casino
featuring over 700 slot and poker machines, two crap tables, two roulette
wheels, 22 blackjack tables, four poker tables and other betting games. Si
Redd's Oasis Resort Hotel/Casino has completed an additional 300 rooms, which
are now open to the public.
Virgin River Hotel/Casino and Bingo is located directly across
Interstate 15 from the proposed the Mesquite Star. Virgin River Hotel/Casino and
Bingo was built in 1991 with 264 rooms, has subsequently expanded to 723 rooms.
Virgin River Hotel/Casino and Bingo features two outdoor pools and three spas,
live entertainment, dancing, a restaurant, two movie theaters, an R.V. Park,
3,300 square feet of convention/meeting facilities, and an approximately 27,900
square foot casino with approximately 600 slot machines, more than 10 table
games, a 500-seat bingo area and a race and sports book.
Player's Island Resort Casino and Spa, which opened in July 1995,
consists of a 40,000 square foot casino, 500 rooms, 18 suites with Jacuzzi tubs,
four three-bedroom detached bungalows, an 18 hole championship golf course under
development, four restaurants, a 450 seat show room, full-service spa and
mineral bath, tennis courts, swimming pool, gift and retail stores, arcades,
8,850 square feet of banquet and conference facilities, a 50 unit full-service
R.V. park and a parking lot with a capacity
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for 1800 automobiles. While the opening of Player's Island may result in an
increase in gaming revenue for 1995, it has had a negative effect on revenues
for the other existing casinos.
Si Redd's Oasis Resort Hotel/Casino, the Virgin River Hotel/Casino and
Bingo and Player's Island Resort Casino and Spa are already established, have
larger facilities and more amenities than are planned for the Company's Mesquite
Star. Therefore, they will provide significant competition for the Mesquite
Star.
Rancho Mesquite Hotel and Casino, which is currently under
construction, will consist of 217 hotel rooms, a 35,000 square foot casino,
seven restaurants and a 500 seat outdoor amphitheater. Rancho Mesquite Hotel and
Casino will be part of the Holiday Inn chain and will be direct competition for
the Mesquite Star in Mesquite, Nevada. Rancho Mesquite Hotel and Casino is
scheduled to be open in the fall of 1996 and, like the Mesquite Star, is located
near Mesquite's eastern interchange to the I-15.
DEMAND. The Las Vegas Convention & Visitors Authority ("LVCVA")
recently completed an analysis of lodging and meeting demand in Mesquite for the
City of Mesquite. In their report, the LVCVA estimated that occupancy for the
local rooms supply generally was in the 70 percent range during the week (Sunday
through Thursday) and in the 90 percent range on weekends and holiday periods.
These ranges equate to an annual occupancy average in the mid 70 percent range.
This estimate corresponds with the types of marketing programs being offered by
the casino hotels in Mesquite. Discounted rooms and additional premiums, such as
food discounts, passes for recreational facilities, and special events are
generally being offered during the weekday periods. This demand trend is further
supported by quoted room rates for the casinos and small motels in Mesquite, as
shown below. This rate survey was conducted by telephone in April 1996 with
requested room rates for the same month. The rates shown below are for double
occupancy.
<TABLE>
<CAPTION>
Casino hotel/motel Weekday Weekend
------------------ ------- -------
<S> <C> <C>
Si Redd's Oasis Resort $39.00 $59.00
Virgin River Hotel/Casino/Bingo $29.99 $45.00
Player's Island Resort $45.00+ $65.00+
Desert Palms $35.00 $45.00
Stateline Motel and Casino $26.00 $26.00
Valley Inn $34.00 $60.00
</TABLE>
These quoted rates do not include special promotion or group package
discounts. The Company believes that its weekday/weekend rates will be
comparable to those of Virgin River Hotel/Casino.
[Remainder of Page Intentionally Blank.]
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EMPLOYEES
As of May 31, 1996, the Company had only four employees, (i) Michael J.
Signorelli, the Company's President, Treasurer and Secretary, (ii) Jeffrey L.
Gilbert, the Company's Executive Vice President and Chief Operating Officer,
(iii) a secretary, and (iv) a bookkeeper. The Company expects to employ
approximately 350 employees for the Mesquite Star including managers, casino
personnel, restaurant personnel, facilities personnel, security and surveillance
personnel, housekeeping personnel and administrative personnel. The Company
anticipates that it will occasionally employ part-time workers as needed. None
of the Company's employees are represented by a labor union. Management
considers its labor relations to be good. As appropriate in connection with the
development of the Mesquite Star, the Company will employ other key personnel,
including a chief financial officer, casino manager, marketing manager, food and
beverage manager, assistant hotel manager and human resources director.
FACILITIES AND PROPERTIES
The Company presently owns one parcel of real property, the Mesquite
Property, which consists of approximately 25.2 acres in Mesquite, Nevada. The
Company also holds a lease from the State of Nevada (the "Nevada Lease") for
property consisting of 1.1 acres. The Nevada Lease may be terminated at any time
by the State of Nevada upon 90 days' notice to the Company. The leased property
is located east of the Company's property on Mesquite Boulevard and may be used
solely for parking and landscaping. The Company intends to use the leased
property for valet parking and landscaping. In addition, the Company has a NDOT
right-of-way occupancy permit dated May 23, 1995 which allows ingress and egress
into and from the Mesquite Property. The Company's executive offices are located
in Las Vegas, Nevada. The executive office facility consists of approximately
900 square feet and is occupied under a Lease that will expire on October 31,
1996. The Company intends to continue its occupancy of the Las Vegas facility,
but anticipates the need to lease additional space for its operations within the
existing building and or elsewhere. The Company believes that such additional
space will be available on reasonable terms.
Pursuant to the First Amendment to Stock Purchase Agreement and Second
Amendment to Promissory Notes, dated December 8, 1995, by and among the Company,
Kelley, Tam, Patrick J. Shannon and PMJ Enterprises, Inc. ("Amendment to Stock
Purchase Agreement and Promissory Notes"), PMJ Enterprises, Inc. granted the
Company an option (the "PMJ Option") to purchase an additional 1.1 acres of real
property currently owned by PMJ Enterprises, Inc. (the "PMJ Property"), for the
total purchase price of $1,200,000 (the "Property Purchase Price"). The PMJ
Property is adjacent to the Mesquite Property and is zoned for gaming use. As
consideration for the grant of the Option, the Company agreed to pay PMJ
Enterprises, Inc. four installment payments (the "Option Installments") of
$25,000 each. The Company timely paid the first two Option Installments, but
declined to make the third Option Installment. As a result of such nonpayment,
the PMJ Option terminated on February 6, 1996.
NORTH LAS VEGAS OPTION AGREEMENT
Pursuant to the Option Agreement ("North Las Vegas Option Agreement")
among the Company, Desert Mesa Land Partners, Ltd., a Nevada limited partnership
("Desert Mesa"), and High Mesa Development, Inc., a Nevada corporation ("High
Mesa"), dated April 23, 1996, Desert Mesa has granted the Company an option (the
"Option") to purchase from Desert Mesa an indirect 20% ownership interest in an
approximately 25-acre parcel of unimproved real property located in the city of
North Las Vegas, Nevada (the "North Las Vegas Property"). The Company would be
entitled to acquire the 20% ownership interest in the North Las Vegas Property
indirectly through ownership of a membership interest in a newly-formed Nevada
limited liability company (the "LLC"), which LLC would purchase direct title to
the North Las Vegas Property. Desert Mesa's general partner is a Nevada
corporation in which Dr. Tam is an officer and a 35% stockholder. Dr. Tam is
also an officer and 52.7% stockholder of High Mesa. The North Las Vegas Property
is currently zoned for hotel and gaming use. Desert Mesa intends that the LLC
will develop and construct an approximately 200 room hotel on the North Las
Vegas Property, which will include approximately 30,000 to 40,000 square feet of
public area space, containing a casino, restaurants and other amenities (the
"Project"). The North Las Vegas Property is one portion of an approximately
118-acre parcel of commercially zoned real property owned directly or indirectly
by Desert Mesa (the "Parcel"). A limited partnership affiliated with Desert Mesa
and High Mesa has received conditional approval from the City of North Las Vegas
for an approximately 500,000 square foot shopping center to be developed on 55
acres of the 118-acre parcel.
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The North Las Vegas Option Agreement grants the Company an option to
purchase a 20% membership interest in the LLC (the "Twenty Percent Interest")
for 20% times the product of (i) $10.00 times (ii) the total square footage
included within the Property as reflected on the Final Commercial Subdivision
Map, including 50% of any abutting internal streets within the Parcel and 50% of
any common abutting internal driveways within the Parcel (the "Option Purchase
Price"). As the Final Commercial Subdivision Map has not yet been approved by
the City of North Las Vegas, the Option Purchase Price has not yet been finally
determined, but is currently estimated to be approximately $2,178,000. No
appraisal of the North Las Vegas Property was conducted in order to determine
the Option Purchase Price; instead, the Option Purchase Price was determined
based on arms'-length negotiation and comparison to completed real estate
purchases in the vicinity.
Under the North Las Vegas Option Agreement, as consideration for the
grant of the Option, the Company agreed to pay Desert Mesa (i) up to $200,000
for planning, engineering, promotional expenses and design work with respect to
the Project (the "Development Funds") pursuant to an agreed-upon budget; and
(ii) roughly 21.2% of all property taxes and assessments accruing with respect
to the Parcel after the date of the North Las Vegas Option Agreement through the
earlier of termination of the Option or closing of the Company's purchase of the
Twenty Percent Interest (collectively, the "Option Consideration"). Under the
North Las Vegas Option Agreement, the Company is required to deposit the
Development Funds in a bank account designated for the Project on the earlier of
(i) 15 business days following the completion of this Offering, or (ii)
September 1, 1996. If the Company fails to deposit the Development Funds by
September 1, 1996, the Option will automatically terminate and be null and void
for all purposes and, upon any such termination, neither party will have any
further liability to the other party with respect to the Option. Pursuant to the
North Las Vegas Option Agreement, the Development Funds are non-refundable and
will not be applied to the Option Purchase Price, but are reimbursable from the
LLC to the Company in connection with the development and financing of the
Project. Under the North Las Vegas Option Agreement, the parties acknowledged
(i) that preliminary development of the Project will require funds substantially
in excess of the Development Funds, and (ii) that the Company can elect, in its
sole discretion, to advance additional development funds pursuant to budgets
approved by Desert Mesa, in which case, any additional advances would be
reimbursed from the LLC to the Company in connection with the development and
financing of the Project.
The term of the Option commences on the closing of this Offering and
expires on November 1, 1997, subject to extension by mutual written agreement of
the Company and Desert Mesa ("Option Term"). If the Company exercises the
Option, the Option Consideration would not be credited against the Option
Purchase Price. Except in the event of Desert Mesa's material default under the
North Las Vegas Option Agreement, if the Company fails to exercise the Option,
the North Las Vegas Option Agreement provides that Desert Mesa is entitled (i)
to retain the balance of the Initial Option Consideration, and (ii) to receive
all work product, reports, and other materials relating to the Project paid for
with the Development Funds.
Under the North Las Vegas Option Agreement, if the Company consummates
the purchase of the Twenty Percent Interest, Desert Mesa will concurrently sell
the North Las Vegas Property to the LLC, which would be owned as follows: (i)
20% by the Company, (ii) 15% by Desert Mesa, (iii) 25% by High Mesa, and (iv)
40% by future equity investors ("Equity Investors") contributing equity to the
LLC in the minimum amount of $18,000,000 in cash. Such Equity Investors have not
been located, and there can be no assurance that such Equity Investors will be
located at any time in the future. Pursuant to the North Las Vegas Option
Agreement, the Company has a first right of refusal to acquire up to an
additional 30% ownership interest in the LLC on the same terms as the Equity
Investors or any other future equity investor. If either any investor group
contributing equity to the Company requires an ownership percentage in excess of
40% or the Company requires additional capital in the future, all the then
existing members of the LLC would be diluted on a pro-rata basis. The Company
and High Mesa would be co-managing members of the LLC ("Managing Members"), with
the remaining members having non-managing membership interests in the LLC. As
Managing Members, the Company and High Mesa would jointly manage the overall
activities of the LLC, including but not limited to, development and
construction of the Project. After approval by the Managing Members of a
pre-development budget, operating budget, construction budget, development plan
and/or marketing plan, including any modifications thereto, however, the Company
would be authorized to operate and control the LLC's affairs in accordance with
those approved budgets and plans. Any material change to those budgets or plans
would require approval of a majority of the Managing Members, with any budget
line items exceeding the amount previously approved by greater than 10%
considered a material change.
Pursuant to the North Las Vegas Option Agreement, Desert Mesa also
granted to the Company a first right of refusal to acquire an additional 30%
ownership interest in the LLC to increase its aggregate interest to 50% on the
terms set forth in the North Las Vegas Option Agreement and this paragraph. If,
at any time during the Option Term or following the Company's exercise of the
Option, the LLC intends to sell equity interest(s) in the LLC, the North Las
Vegas Option Agreement provides
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<PAGE> 49
that the Company would have forty-five (45) days from the date the Company and
High Mesa agree on the terms and conditions of such proposed equity investment
in which to confirm in writing to High Mesa its intent to purchase a portion of
such equity investment up to an amount that would enable the Company to acquire
up to 50% ownership in the LLC (the "First Right Notice"). Under the North Las
Vegas Option Agreement, if the Company delivers the First Right Notice, the
Company would acquire the additional equity interest on the same terms and at
the same time as a third party investor makes the equity investment.
If the Company exercises the Option, the Company has agreed to exert
its best efforts to arrange for $25 million of capital for construction of the
Project from a reputable financing source ("Construction Financing") within 360
days of the closing of the Company's purchase of the Twenty Percent Interest. If
the Company exercises the Option and consummates the purchase of the Twenty
Percent Interest, then the Company will be entitled to the following rights
under the North Las Vegas Option Agreement: (i) with respect to the period
before the Project is open to the public ("Opening"), the Company would have the
right to co-develop and co-manage the Project with High Mesa pursuant to the
terms of the LLC's Operating Agreement; and (ii) with respect to the period
after the Opening, the Company would have the right to be hired by the LLC as
manager of the Project pursuant to the terms of a Letter of Intent attached to
the Desert Mesa Option Agreement ("LLC Letter of Intent") and a definitive
Management Agreement mutually acceptable to both Desert Mesa and the Company.
The Company will receive no compensation for preopening co-development and
co-management services. The LLC Letter of Intent will be executed concurrent
with the Company's purchase of the Twenty Percent Interest.
Pursuant to the LLC Letter of Intent, with respect to the period after
the Opening, the Company will supervise the management of the Project,
including, but not limited to, supervision of the appointed managers for the
day-to-day operations of the hotel, restaurant, casino and other aspects of the
Project. The LLC Letter of Intent provides that the expenses for the Project
would be established each year pursuant to operating and capital budgets
("Budgets") prepared by the Company and approved by the LLC, which would
include, among other things, marketing expenses, bad debt allowances, food cost
expenses, a line item for complementary rooms, food and beverages, a charge for
the Company's provision of certain management and administrative services to the
Project, including, but not limited to, accounting, advertising and promotion,
sales and information services. Under the LLC Letter of Intent, the charges for
such "chain services" to be provided by the Company to the Project would be
mutually agreed upon using applicable industry standards for such services.
In consideration for the Company's management services, the LLC Letter
of Intent provides that the Company would receive the following compensation:
(i) 3% of net sales (comprised of gross revenues (including revenues from all
non-gaming sources and net gaming wins) less promotional allowances, sales,
occupancy and use taxes, gaming taxes assessed on revenues and license fees paid
on gaming equipment), payable monthly; (ii) 5% of earnings before interest,
taxes, depreciation and amortization ("EBITDA") before provision for the EBITDA
based management fee but after deducting the 3% management fee ("Adjusted
EBITDA"), payable quarterly, with such management fee to be adjusted annually
based on the LLC's fiscal year end figures, as certified by the LLC's
independent accountants; and (iii) incentive compensation, which would be a
percentage of the Adjusted EBITDA in excess of the projected budgeted amount,
which the parties would negotiate in connection with the preparation of a
definitive Management Agreement.
Under the LLC Letter of Intent, the initial term of the Management
Agreement would commence on execution of the Management Agreement and continue
for five years thereafter, with automatic renewals for additional one-year terms
(each a "Renewal Term") unless either party gave notice six months prior to any
termination date. If the LLC gives notice of the termination of the Management
Agreement at the expiration of the initial term or any Renewal Term, the LLC
Letter of Intent provides that the Company would continue to receive a
management fee for the next five years payable annually in arrears based on the
total fees paid to the Company for the full fiscal year prior to termination
("Base Year") as follows:
Year 1 100% of fees for the Base Year
Year 2 80% of fees for the Base Year
Year 3 60% of fees for the Base Year
Year 4 40% of fees for the Base Year
Year 5 20% of fees for the Base Year
The LLC Letter of Intent provides that, notwithstanding the foregoing,
no termination penalty would be incurred if the ratio of Adjusted EBITDA to all
equity invested by the LLC in the Project is less than an average cumulative
simple interest
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<PAGE> 50
return of 15% during the period from commencement of the first Renewal Term
through the date the LLC gives notice of termination.
The LLC Letter of Intent states that the Management Agreement may be
terminated by the LLC "for cause," as a result of which the Company would not be
entitled to any management fees after such termination. "For cause" termination
includes, without limitation, the Company's breach of the Management Agreement
(subject to the Company's right to cure any such breach within 60 days after
notice thereof, unless such cure is not reasonably possible within such 60-day
period, in which case, the Company would have a longer period to cure the
breach, provided that it diligently proceeded to cure the breach to the
reasonable satisfaction of the LLC), the bankruptcy or insolvency of the
Company, the failure to retain licensing required for the Company's performance
of its services under the Management Agreement, or a final determination by a
court of competent jurisdiction that the Company has engaged in fraud,
misappropriation of funds or intentional wrongdoing in the performance of its
services under the Management Agreement. The terms of the LLC Letter of Intent
are non-binding, and the parties intend that the Company and the LLC will
prepare and execute a definitive Management Agreement within approximately 45
days after the LLC Letter of Intent.
The Company believes the rights granted to the Company under the North
Las Vegas Option Agreement create an additional hotel/casino management
opportunity. Under the North Las Vegas Option Agreement, the Company's
management rights with respect to the Project vest upon the Company's purchase
of the Twenty Percent Interest. The Company's decision whether or not to
exercise the Option and manage the Project is subject to the Company's further
due diligence investigation into all business, financial and legal aspects of
the North Las Vegas Property, the Parcel, and the Project.
LITIGATION
No material legal proceedings to which the Company is a party or to
which the property of the Company is subject are pending and no such proceedings
are known by the Company to be contemplated.
[Remainder of Page Intentionally Left Blank.]
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<PAGE> 51
REGULATION AND LICENSING
The ownership and operation of casino gaming facilities in Nevada are
subject to: (i) the Nevada Gaming Control Act and the regulations promulgated
thereunder (collectively, the "Nevada Act"); and (ii) various local regulation.
The Company's gaming operations are subject to the licensing and regulatory
control of the Nevada Gaming Commission ("Nevada Commission"), the Nevada State
Gaming Control Board ("Nevada Board"), and the City of Mesquite, Nevada. The
Nevada Commission, the Nevada Board and the City of Mesquite, Nevada are
collectively referred to as the "Nevada Gaming Authorities."
As of the closing of this Offering, the Company will not have obtained
the license and related approvals from the Nevada Commission to conduct gaming
at the Mesquite Star. The Company, its directors, officers and principal
stockholders have applied for the necessary licenses, approvals and findings of
suitability to own and operate the Mesquite Star. However, there can be no
assurance that the Company and such persons will be licensed, found suitable, or
granted the other approvals that are necessary to commence gaming operations.
See "RISK FACTORS - Regulation; No Assurance of Licensing."
The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy which are concerned
with, among other things: (i) the prevention of unsavory or unsuitable persons
from having a direct or indirect involvement with gaming at any time or in any
capacity; (ii) the establishment and maintenance of responsible accounting
practices and procedures; (iii) the maintenance of effective controls over the
financial practices of licensees, including the establishment of minimum
procedures for internal fiscal affairs and the safeguarding of assets and
revenues, providing reliable record keeping and requiring the filing of periodic
reports with the Nevada Gaming Authorities; (iv) the prevention of cheating and
fraudulent practices; and (v) to provide a source of state and local revenues
through taxation and licensing fees. Changes in such laws, regulations and
procedures could have an adverse effect on the Company's gaming operations.
The Company, as the proposed operator of the casino, is required to be
licensed by the Nevada Gaming Authorities. The gaming license requires the
periodic payment of fees and taxes and is not transferable. The Company has
applied for registration with the Nevada Commission as a publicly traded
corporation (a "Registered Corporation") and for licensure as a corporate gaming
licensee. If these approvals are obtained, the Company will be required to
periodically submit detailed financial and operating reports to the Nevada
Commission and furnish any other information which the Nevada Commission may
require. Registration with and licensure by the Nevada Commission are privileges
under Nevada law and may be denied for any cause deemed reasonable by the Nevada
Commission. Appeals of licensing decisions by the Nevada Commission are not
permitted under Nevada law.
The Nevada Gaming Authorities may investigate any individual who has a
material relationship to, or material involvement with, the Company in order to
determine whether such individual is suitable or should be licensed as a
business associate of a gaming licensee. Officers, directors and certain key
employees of the Company must file applications with the Nevada Gaming
Authorities and may be required to be licensed or found suitable by the Nevada
Gaming Authorities. The Nevada Gaming Authorities may deny an application for
licensing for any cause which they deem reasonable. A finding of suitability is
comparable to licensing, and both require submission of detailed personal and
financial information followed by a thorough investigation. Changes in licensed
positions must be reported to the Nevada Gaming Authorities and in addition to
their authority to deny an application for a finding of suitability or
licensure, the Nevada Gaming Authorities have jurisdiction to disapprove a
change in a corporate position.
If the Nevada Gaming Authorities were to find an officer, director or
key employee unsuitable for licensing or unsuitable to continue having a
relationship with the Company, the Company would have to sever all relationships
with such person. In addition, the Nevada Commission may require the Company to
terminate the employment of any person who refuses to file appropriate
applications. Determinations of suitability or of questions pertaining to
licensing are not subject to judicial review in Nevada.
If licensed by the Gaming Authorities, the Company will be required to
submit detailed financial and operating reports to the Nevada Commission.
Substantially all material loans, leases, sales of securities and similar
financing transactions by the Company will be reported to, or approved by, the
Nevada Commission.
If, after being licensed, it were determined that the Nevada Act was
violated by the Company, its gaming licenses and approvals could be limited,
conditioned, suspended or revoked, subject to compliance with certain statutory
and regulatory procedures. In addition, the Company and the persons involved
could be subject to substantial fines for each separate violation
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of the Nevada Act at the discretion of the Nevada Commission. Further, a
supervisor could be appointed by the Nevada Commission to operate the Company's
gaming properties and, under certain circumstances, earnings generated during
the supervisor's appointment (except for the reasonable rental value of the
Company's gaming properties) could be forfeited to the State of Nevada.
Limitation, conditioning or suspension of any gaming license or the appointment
of a supervisor could (and revocation of any gaming license would) materially
adversely affect the Company's gaming operations.
Any beneficial holder of the Company's voting securities, regardless of
the number of shares owned, may be required to file an application, be
investigated, and have his suitability as a beneficial holder of the Company's
voting securities determined if the Nevada Commission has reason to believe that
such ownership would otherwise be inconsistent with the declared policies of the
State of Nevada. The applicant must pay all costs of investigation incurred by
the Nevada Gaming Authorities in conducting any such investigation.
The Nevada Act requires any person who acquires more than 5% of the
Company's voting securities to report the acquisition to the Nevada Commission.
The Nevada Act requires that beneficial owners of more than 10% of the Company's
voting securities apply to the Nevada Commission for a finding of suitability
within thirty days after the Chairman of the Nevada Board mails the written
notice requiring such filing. Under certain circumstances, an "institutional
investor", as defined in the Nevada Act, which acquires more than 10%, but not
more than 15%, of the Company's voting securities may apply to the Nevada
Commission for a waiver of such finding of suitability if such institutional
investor holds the voting securities for investment purposes only. An
institutional investor shall not be deemed to hold voting securities for
investment purposes unless the voting securities were acquired and are held in
the ordinary course of business of an institutional investor and not for the
purpose of causing, directly or indirectly, the election of a majority of the
members of the board of directors of the Company, any change in the Company's
corporate charter, bylaws, management, policies or operations of the Company, or
any of its gaming affiliates, or any other action which the Nevada Commission
finds to be inconsistent with holding the Company's voting securities for
investment purposes only. Activities which are not deemed to be inconsistent
with holding voting securities for investment purposes only include: (i) voting
on all matters voted on by stockholders; (ii) making financial and other
inquiries of management of the type normally made by securities analysts for
informational purposes and not to cause a change in its management, policies or
operations; and (iii) such other activities as the Nevada Commission may
determine to be consistent with such investment intent. If the beneficial holder
of voting securities who must be found suitable is a corporation, partnership or
trust, it must submit detailed business and financial information including a
list of beneficial owners. The applicant is required to pay all costs of
investigation.
Any person who fails or refuses to apply for a finding of suitability
or a license within thirty days after being ordered to do so by the Nevada
Commission or the Chairman of the Nevada Board, may be found unsuitable. The
same restrictions apply to a record owner if the record owner, after request,
fails to identify the beneficial owner. Any stockholder found unsuitable and who
holds, directly or indirectly, any beneficial ownership of the common stock of
the Company beyond such period of time as may be prescribed by the Nevada
Commission may be guilty of a criminal offense. The Company is subject to
disciplinary action if, after it receives notice that a person is unsuitable to
be a stockholder or to have any other relationship with the Company, the Company
(i) pays that person any dividend or interest upon voting securities of the
Company, (ii) allows that person to exercise, directly or indirectly, any voting
right conferred through securities held by that person, (iii) pays remuneration
in any form to that person for services rendered or otherwise, or (iv) fails to
pursue all lawful efforts to require such unsuitable person to relinquish his
voting securities for cash at fair market value.
The Nevada Commission may, in its discretion, require the holder of any
debt security of the Company to file applications, be investigated and be found
suitable to own the debt security. If the Nevada Commission determines that a
person is unsuitable to own such security, then pursuant to the Nevada Act, the
Company can be sanctioned, including the loss of its approvals, if without the
prior approval of the Nevada Commission, it: (i) pays to the unsuitable person
any dividend, interest, or any distribution whatsoever; (ii) recognizes any
voting right by such unsuitable person in connection with such securities; (iii)
pays the unsuitable person remuneration in any form; or (iv) makes any payment
to the unsuitable person by way of principal, redemption, conversion, exchange,
liquidation, or similar transaction.
The Company will be required to maintain a current stock ledger in
Nevada which may be examined by the Nevada Gaming Authorities at any time. If
any securities are held in trust by an agent or by a nominee, the record holder
may be required to disclose the identity of the beneficial owner to the Nevada
Gaming Authorities. A failure to make such disclosure may be grounds for finding
the record holder unsuitable. The Company will also be required to render
maximum assistance in determining the identity of the beneficial owner. The
Nevada Commission has the power to require the Company's stock certificates to
bear a legend indicating that the securities are subject to the Nevada Act.
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The Nevada Act also provides that any entity that is not a registered
corporation or an affiliated company or that is not otherwise subject to the
provisions of the Nevada Act, which plans to make a public offering of
securities intending to use the proceeds from the sale thereof for the
construction or operation of gaming facilities in Nevada, or to retire or extend
obligations incurred for such purposes, may apply to the Nevada Commission for
prior approval of such offering. The Company is not presently a registered
corporation or an affiliated company. The Nevada Commission may find an
applicant such as the Company unsuitable to be licensed or registered if, among
other things, it did not submit such an application or obtain from the Nevada
Board Chairman an administrative ruling that it is not necessary to submit such
an application. This Offering will qualify as a public offering as such term is
defined in the Nevada Act. The Company has received a ruling from the Nevada
Board Chairman that it is not necessary to submit this Offering to the Nevada
Commission for prior approval.
After the Company has been registered with and licensed by the Nevada
Commission, the Company may not make a public offering of its securities without
the prior approval of the Nevada Commission if the securities or proceeds
therefrom are intended to be used to construct, acquire or finance gaming
facilities in Nevada, or to retire or extend obligations incurred for such
purposes. Any such approval, if granted, does not constitute a finding,
recommendation or approval by the Nevada Commission or the Nevada Board as to
the accuracy or adequacy of the prospectus or the investment merits of the
securities offered. Any representation to the contrary is unlawful.
Changes in control of the Company through merger, consolidation, stock
or assets acquisitions, management or consulting agreements, or any act or
conduct by a person whereby he obtains control, may not occur without the prior
approval of the Nevada Commission. Entities seeking to acquire control must
satisfy the Nevada Board and Nevada Commission in a variety of stringent
standards prior to assuming control. The Nevada Commission may also require
controlling stockholders, officers, directors and other persons having a
material relationship or involvement with the entity proposing to acquire,
control, to be investigated and licensed as part of the approval process
relating to the transaction.
The Nevada legislature has declared that some corporate acquisitions
opposed by management, repurchases of voting securities and corporate defense
tactics affecting Nevada gaming licensees may be injurious to stable and
productive corporate gaming. The Nevada Commission has established a regulatory
scheme to ameliorate the potentially adverse effects of these business practices
upon Nevada's gaming industry and to further Nevada's policy to: (i) assure the
financial stability of corporate gaming operators and their affiliates; (ii)
preserve the beneficial aspects of conducting business in the corporate form;
and (iii) promote a neutral environment for the orderly governance of corporate
affairs. Approvals are, in certain circumstances, required from the Nevada
Commission before the Company can make exceptional repurchases of voting
securities above the current market price thereof and before a corporate
acquisition opposed by management can be consummated. The Nevada Act also
requires prior approval of a plan of recapitalization proposed by the Company's
Board of Directors in response to a tender offer made directly to the Company's
stockholders for the purposes of acquiring control of the Company.
License fees and taxes, computed in various ways depending on the type
of gaming or activity involved, are payable to the State of Nevada and to the
counties and cities in which the Nevada licensee's respective operations are
conducted. Depending upon the particular fee or tax involved, these fees and
taxes are payable either monthly, quarterly or annually and are based upon
either: (i) a percentage of the gross revenues received; (ii) the number of
gaming devices operated; or (iii) the number of table games operated. A casino
entertainment tax is also paid by casino operations where entertainment is
furnished in connection with the selling of food or refreshments. Nevada
licensees that hold a license as an operator of a slot route, or a
manufacturer's or distributor's license, also pay certain fees and taxes to the
State of Nevada.
Any person who is licensed, required to be licensed, registered,
required to be registered, or is under common control with such persons
(collectively, "Licensees"), and who proposes to become involved in a gaming
venture outside of Nevada is required to deposit with the Nevada Board, and
thereafter maintain, a revolving fund in the amount of $10,000 to pay the
expenses of investigation of the Nevada Board of their participation in such
foreign gaming. The revolving fund is subject to increase or decrease in the
discretion of the Nevada Commission. Thereafter, Licensees are required to
comply with certain reporting requirements imposed by the Nevada Act. Licensees
are also subject to disciplinary action by the Nevada Commission if it knowingly
violates any laws of the foreign jurisdiction pertaining to the foreign gaming
operation, fails to conduct the foreign gaming operation in accordance with the
standards of honesty and integrity required of Nevada gaming operations, engages
in activities that are harmful to the State of Nevada or its ability to collect
gaming taxes and fees, or employs a person in the foreign operation who has been
denied a license or finding of suitability in Nevada on the ground of personal
unsuitability.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Company's governing corporate documents currently provide for a
Board of Directors consisting of five members. Michael J. Signorelli is the
current sole director of the Company and there are four vacancies. Mr. Gilbert
is a nominee for the Board of Directors and has agreed to join the Board at the
first meeting of the Board following the closing of this Offering. The current
directors and executive officers of the Company and their ages as of May 31,
1996 are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Michael J. Signorelli 50 President, Chief Executive Officer, Secretary, Treasurer and Director
Jeffrey L. Gilbert 49 Executive Vice President, Chief Operating Officer and Director Nominee
</TABLE>
MICHAEL J. SIGNORELLI. Mr. Signorelli is one of the founders of the
Company and has been a director and President of the Company since its inception
in 1993. Since December, 1993, Mr. Signorelli has devoted substantially all of
his business time and attention to the Company. As President, Mr. Signorelli is
responsible for the daily operations associated with the development and
construction of the Mesquite Star. From 1990 through 1993, Mr. Signorelli was
also the Executive Vice President of PMJ Enterprises, Inc. As such Executive
Vice President, Mr. Signorelli was responsible for the daily operations
associated with the development of the Mesquite Property, which included
obtaining the necessary entitlements, permits and approvals and licenses from
the City of Mesquite, assisting in the development of architectural and
landscaping plans for the hotel/casino and locating long-term and interim
financing sources for the initial development costs associated with the
hotel/casino. From 1989 through 1990, he was Vice President of Walter
Development Corp. in Las Vegas, Nevada. In this position, he was responsible for
directing all Nevada operations of Walter Development Corp., which included the
development, construction, financing and administration of the Paradise Bay, a
1,000-room hotel/casino in Laughlin, Nevada. During the construction of Paradise
Bay, Mr. Signorelli left Walter Development Company to join PMJ Enterprises,
Inc. with Mr. Patrick Shannon. Due to the financial insolvency of Walter
Development Corp., the Paradise Bay was never fully developed and did not open.
Prior to his employment with Walter Development Corp., Mr. Signorelli was
Director of Project Development for Lincoln Management, a company involved in
the management of hotel/casino properties located in Reno and Las Vegas, Nevada,
including Fitzgerald's Hotel & Casino in Las Vegas, Nevada. Mr. Signorelli
attended the University of Rhode Island where he received his B.S. degree in
Business Administration with an emphasis in accounting and economics in 1968. He
received his M.S. degree in Psychological Research from the University of Nevada
in 1973; and his Ed.D degree from the University of Nevada in 1978.
JEFFREY L. GILBERT. Mr. Jeffrey L. Gilbert was elected as Executive
Vice President and Chief Operating Officer effective January 2, 1996. From March
1990 through April 1995, Mr. Gilbert was Executive Vice-President and Chief
Operating Officer of Jackpot Enterprises, Inc. ("Jackpot"), a New York Stock
Exchange company, which operated four casinos and approximately 4,000 gaming
machines at approximately 500 locations. While employed with Jackpot, Mr.
Gilbert was responsible for various aspects of administration and management, as
well the operations of the casinos and gaming route. Mr. Gilbert also served as
a member of Jackpot's regulatory compliance committee. For seven years prior to
joining Jackpot, Mr. Gilbert held various positions with Bally Manufacturing
Corporation, including Vice President and General Manager of Bally Gaming's Las
Vegas operations. Mr. Gilbert has been licensed by the Nevada Commission as an
equity owner, officer, director, and key employee; by Mississippi's Gaming
Commission as a officer, director, and managing board member; and by the South
Dakota Commission on Gaming as an owner, operator and director.
Each of Messrs. Signorelli and Gilbert expects to devote substantially
all of his business time, attention, and energy to his duties to the Company as
set forth in his Employment Agreement, although Mr. Gilbert is involved as the
owner of a small casino in Las Vegas. See "MANAGEMENT - Employment Agreements."
Pursuant to the Company's Restated Articles, the Board of Directors
must consist of seven directors, unless changed as provided in the Company's
Bylaws. Under the Bylaws, the number of directors may be changed by a resolution
of the Board
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or the stockholders. By resolution of the Company's Board, the number of
directors was decreased to five. There are currently four vacancies on the
Board. The Company expects to fill these vacancies after the closing of this
Offering.
Certain prospective stockholders have the right to nominate directors
to the Company's Board after the closing of this Offering. Specifically, after
the closing of this Offering, pursuant to the Kelley Stock Purchase Agreement,
each of Dr. Kelley and Dr. Tam has a right, which he may exercise or fail to
exercise in his sole discretion, to cause himself to be appointed or elected to
the Board. In addition, Dr. Kelley, if he so elects, has the right to cause the
Board to elect him as Chairman of the Board of the Company. See "SELLING
SECURITY HOLDER - Kelley Stock Purchase Agreement." Each of Drs. Kelley and Tam
have advised the Company that he does not presently intend to exercise his right
to appoint himself as a director unless (i) this Offering by the Company is
successful and the after market trading is acceptable; (ii) both Drs. Kelley and
Tam become substantial shareholders of the Company by virtue of a closing of the
Kelley Stock Purchase Agreement with PMJ Enterprises, Inc.; (iii) adequate
insurance is obtained by the Company insuring directors and officers of the
Company against liability which may be incurred in connection with public
filings or statements by the Company under securities laws; and (iv) there is no
unacceptable adverse change concerning the Company or its business. Dr. Kelley
and Dr. Tam each reserves the right to modify his present intent at any time.
OPERATION OF THE BOARD OF DIRECTORS
As provided by the law of the State of its incorporation, the Company's
business is managed under the direction of the Board of Directors. The Company
was formed under Nevada law in December, 1993 and since then, there have been
two meetings of the Board of Directors. The current sole director attended both
of those meetings. In addition, the Board of Directors has taken certain actions
by unanimous written consent since its formation.
All directors hold office until the next annual meeting of stockholders
and the election and qualification of their successors, or until death,
resignation, or removal. Subject to the terms of applicable employment
agreements, the executive officers serve at the discretion of the Board of
Directors. Beginning with the 1996 Annual Meeting of Stockholders, the Company's
Articles of Incorporation provides for a classified or "staggered" Board of
Directors. The classified or "staggered" Board of Directors is comprised of
three classes of directors elected for initial terms expiring at the 1996, 1997,
and 1998 Annual Meeting of Stockholders. Thereafter, each class is elected for a
term of three years. By reason of the classified Board of Directors, one class
of the Board comes up for re-election each year. Any further amendment to the
Company's Articles of Incorporation affecting the classified Board may only be
adopted upon the affirmative vote of not less than two-thirds of the issued and
outstanding shares entitled to vote thereon.
The Board of Directors intends to establish an Audit Committee and
Compensation Committee. The Board of Directors may, from time to time, establish
certain other committees to facilitate the management of the Company.
The Company has adopted a resolution which provides that all future
transactions between the Company and its officers, directors or principal
stockholders, or any affiliate of any such person, must be approved or ratified
by a majority of the disinterested directors of the Company, and the terms of
such transaction must be no less favorable to the Company than could have been
realized by the Company in an arms-length transaction with an unaffiliated
person.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Nevada General Corporation Law and the Company's Articles of
Incorporation and Bylaws provide for indemnification of the Company's directors
for liabilities and expenses that they may incur in such capacities. In general,
directors and officers are indemnified with respect to actions taken in good
faith in a manner reasonably believed to be in, or not opposed to, the best
interests of the Company, and with respect to any criminal action or proceeding,
actions that the indemnitee had no reasonable cause to believe were unlawful.
Furthermore, the personal liability of the directors is limited as provided in
the Company's Restated Articles.
The Company has agreed to indemnify Mr. Signorelli and Mr. Gilbert to
the fullest extent allowed by applicable law pursuant to (i) the Indemnification
Agreement, dated as of May 24, 1995, between Mr. Signorelli and the Company; and
(ii) the Indemnification Agreement, dated January 2, 1996, between Mr. Gilbert
and the Company. The Company intends that all future
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directors will receive Indemnification Agreements substantially similar to those
already provided to Messrs. Signorelli and Gilbert. Messrs. Signorelli, Gilbert
and all future directors will be covered by the Company's director and officer
liability insurance policy, if any. In addition, pursuant to the Company's
Articles of Incorporation, the Company has agreed to indemnify all directors of
the Company to the fullest extent allowed by applicable law. The Company has
also entered into Indemnification Agreements with certain former officers and
directors of the Company. See "CERTAIN TRANSACTIONS."
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the Company has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer or controlling person of the small business issuer
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy (as expressed in the Securities Act) and will be governed
by the final adjudication of such issue.
COMPENSATION OF DIRECTORS
The employee directors of the Company have received no additional
compensation for their services as directors since the Company's formation in
December, 1993. The Company intends that non-employee directors of the Company
will be reimbursed for their expenses incurred and may receive compensation for
each meeting of the Board of Directors attended and for each telephonic meeting
of the Board of Directors in which he or she participates.
COMPENSATION OF MR. JAMES SHADLAUS
Since August, 1995 through the present, the Company has paid James
Shadlaus $2,000 per month as consideration for his consulting services to the
Company. Mr. Shadlaus provides financial consulting services as an independent
contractor to the Company, including assistance on secured finance commitments,
internal financial statements, development and operating budgets, and
administration of the New Kelley Loan. Mr. Shadlaus does not regularly provide
similar financial consulting services to other companies contemplating public
offerings of securities.
[Remainder of Page Intentionally Blank.]
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<PAGE> 57
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Company
during the calendar years ended December 31, 1994 and December 31, 1995, the
only completed calendar years since the Company's incorporation, to the Chief
Executive Officer and President, who was the only person compensated as an
executive officer during the last two completed calendar years:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Securities
Name and Other Annual Restricted Stock Underlying All Other
Principal Compen- Award(s) Options/SARs LTIP Payouts Compensation
Position Year Salary($)(1) Bonus($) sation ($)(2) ($)(3) (#)(4) ($)(5) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Michael J. Signorelli, 1995 $120,000 -- $67,600 $67,600 1,196,225 -- --
President
1994 $120,000 -- -- -- -- -- --
</TABLE>
- --------
(1) The compensation for Mr. Signorelli, the President and Chief
Executive Officer, for the calendar years ending December 31, 1994 and 1995 was
a flat salary based on the stage of development of the Company. Since Mr.
Gilbert was appointed as an executive officer of the Company in 1996, he is not
included in this table.
(2) See Footnote (3). The table does not include reimbursements for
automobile mileage paid to the sole executive officer of the Company, since the
specific dollar amount of such reimbursement cannot be ascertained. Management
believes that the value of non-cash benefits and compensation distribution to
executive officers of the Company individually or as a group during each of the
calendar years 1994 and 1995 did not exceed the lesser of $50,000 or 10% of such
officer's individual cash compensation or, with respect to a group, the lesser
of $50,000 times the number of persons in the group or 10% of the group's
aggregate cash compensation.
(3) Pursuant to a Restricted Stock Purchase Agreement dated August 27,
1995, Mr. Signorelli was granted a right to immediately purchase 40,000 shares
of restricted Common Stock (the "Restricted Stock") at a purchase price of $0.25
per share. Mr. Signorelli purchased the 40,000 shares for a $10,000 promissory
note on August 27, 1995. The Company believes that for purposes of recording
compensation in accordance with APB No. 25, the per share fair market value of
the Company's Common Stock on August 27, 1995 was equal to $1.94. Therefore, the
difference between the aggregate fair market value on the date of grant and the
purchase price of the Restricted Stock is includable in both column (e) and
column (f) of this table with respect to the Restricted Stock. As of December
31, 1995, the per share value of the Restricted Stock is estimated to be
$77,600, for an aggregate net year-end value of the Restricted Stock (after
taking into account the $10,000 purchase price) of $67,600. Currently, the
Company does not intend to pay dividends on such Restricted Stock. See also
Table entitled "Option/SAR Grants in Last Fiscal Year."
(4) Mr. Signorelli was granted certain stock options in 1995, which are
included in this table. See also Table entitled "Option/SAR Grants in Last
Fiscal Year." The table includes options to purchase (i) 1,000,000 shares of the
Company's Common Stock for $0.25 per share, (ii) 96,225 shares of the Company's
Common Stock for $1.94 per share, and (iii) 100,000 shares of the Company's
Common Stock for $3.85 per share. These stock grants were granted under federal
and state securities law exemptions under the Company's Stock Option Plan. See
"MANAGEMENT - Stock Option Plan" for a discussion of the terms of these options.
(5) The Company did not make any payouts to Mr. Signorelli pursuant to
long-term incentive plans ("LTIPs") in either 1994 or 1995. However, the Company
plans to adopt an Executive Employee Bonus Plan after the closing of this
Offering which will relate to the Company's financial performance and provide
incentives to executives participating in the Plan. See "MANAGEMENT - Executive
Employee Bonus Plan."
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<PAGE> 58
COMPENSATION ELEMENTS. Mr. Signorelli's salary shown on the Summary
Compensation Table above was not determined pursuant to a written employment
agreement, although his future salary will be determined pursuant to the
Signorelli Employment Agreement. It is expected that the Board will establish
salaries each fiscal year at a level intended to be competitive with the average
salaries of executive officers in comparable companies with comparable financial
results. At the end of each year, the Board of Directors will establish a salary
and a bonus range for each executive officer for the following year. After
year-end results are reported, the Board will determine each officer's
discretionary bonus, if any, based on its assessment of the Company's
profitability during the year as well as each executive officer's individual
performance during the year.
EMPLOYEE BENEFITS. The Company currently does not presently maintain
any medical plan, dental plan, disability plan, or life insurance for its
employees. However, the Company expects to implement some or all of such
employee benefits plans in the future.
EMPLOYMENT AGREEMENTS
SIGNORELLI EMPLOYMENT AGREEMENT.
IN GENERAL. The Company and Mr. Signorelli entered into an Employment
Agreement (the "Signorelli Employment Agreement"), dated effective January 2,
1996 (the "Effective Date"), pursuant to which Mr. Signorelli agrees to continue
as the President of the Company. The term of Mr. Signorelli's employment under
the Signorelli Employment Agreement commenced on the Effective Date and will
continue until three (3) years from the earlier of the date on which the
Mesquite Star opens for business or the expiration of one year following the
consummation of this Offering (the "Termination Date"), unless earlier
terminated in accordance with the terms of the Signorelli Employment Agreement;
provided, however, that the term of Mr. Signorelli's employment will be
automatically extended without further action of either party for additional one
year periods unless written notice of either party's intention not to extend has
been given to the other party at least six months prior to the expiration of the
then effective term (the "Employment Term").
Pursuant to the Signorelli Employment Agreement, Mr. Signorelli will
serve as President of the Company during the Employment Term. He will perform
such executive-level employment duties as President of the Company as the Board
of Directors of the Company shall assign to him from time to time. Under the
Signorelli Employment Agreement, Mr. Signorelli is required to meet the
licensing requirements or finding of suitability as set forth in Nevada's gaming
law and all other applicable state, local or municipal gaming or liquor
licensing laws. During the term of the Signorelli Employment Agreement, the
Company has agreed to pay Mr. Signorelli a base salary ("Base Salary") at the
minimum annual rate of $120,000, which minimum annual rate will increase to
$160,000 on the closing of this Offering and will increase to $240,000 on the
date when the Mesquite Star opens for business. The Signorelli Employment
Agreement also requires that, upon the closing of this Offering, the Company pay
to Mr. Signorelli $75,000 as reimbursement of expenses advanced by Mr.
Signorelli in connection with the conception and development of the Mesquite
Star. The $75,000 is payable in three equal monthly installments of $25,000
payable contemporaneously with the payment of his Base Salary. Mr. Signorelli's
Base Salary may be increased (but not decreased) by the Board of Directors based
upon performance review. Following commencement of operations at the Mesquite
Star, Mr. Signorelli is also entitled to participate in the Company's Executive
Employee Bonus Plan (the "Plan"). Upon implementation, the Plan will entitle a
specified group of executives to each receive an annual cash bonus ("Bonus")
equal to a percentage of the Company's earnings before interest, taxes,
depreciation and amortization ("EBITDA"). The specific terms of the Plan will be
developed and adopted by the Company's Board after the closing of this Offering,
but generally will use a sliding scale approach measured against a targeted
budget number (the "Budget"), with an increased percentage of EBITDA paid to
each executive participating in the Plan as the Budget is met and exceeded. In
addition to the Bonus under the Plan, pursuant to a plan approved by the Board
of Directors of the Company, Mr. Signorelli may also receive an annual cash
bonus based on criteria established and consistently applied by the Board on a
non-discriminatory basis from time to time, with such bonus, if any, payable not
later than 60 days following the close of the Company's fiscal year ("Annual
Bonus"). Mr. Signorelli will also be entitled to participate in all employee
pension and welfare benefit plans and programs made available to the Company's
senior level executives as a group or to its employees generally, as such plans
or programs may be in effect from time to time (the "Benefit Coverages"),
including, without limitation, pension, profit sharing, savings and other
retirement plans or programs, medical, dental, hospitalization, short-term and
long-term disability and life insurance plans, accidental death and
dismemberment protection and travel accident insurance. Upon termination of the
Signorelli Employment Agreement for any reason, the Signorelli Employment
Agreement requires the Company to continue to provide health insurance coverage
to Mr. Signorelli, at
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<PAGE> 59
Mr. Signorelli's expense, for 24 months following the termination date. Mr.
Signorelli will also be entitled to a monthly $850 car and gas allowance, as
well as reimbursement of expenses related to his employment by the Company, and
will be entitled to vacation, holidays and other perquisites in accordance with
the Company's normal personnel policies for senior level executives of the
Company, including, without limitation, complementary rooms at the Mesquite
Star. Under the Signorelli Employment Agreement, the Company agrees that, during
the Employment Term, Mr. Signorelli will not be required to relocate his
residence from the Las Vegas, Nevada area, or from any subsequent mutually
agreed upon location, without Mr. Signorelli's prior written consent, which may
be given or withheld by Mr. Signorelli in his sole discretion.
Pursuant to the Signorelli Employment Agreement, Mr. Signorelli is
required to devote substantially all of his business time, attention and energy
to his duties and responsibilities under the Signorelli Employment Agreement.
Pursuant to the Signorelli Employment Agreement, Mr. Signorelli is permitted to
continue to participate in the following business endeavors, so long as they do
not interfere with the performance of Mr. Signorelli's duties under the
Signorelli Employment Agreement: (i) PMJ Enterprises, Inc., which owns
approximately 1.1 acres of land contiguous to the Mesquite Property (the "PMJ
Property"), subject to the opportunity first being offered to and rejected by
the Company, and (ii) such other ventures and businesses which are not in the
geographical area of Mesquite, Nevada, and are not competitive with the Mesquite
Star, and which do not require the devotion of time or effort which would limit,
restrict or interfere with the duties and responsibilities of Mr. Signorelli
pursuant to the Signorelli Employment Agreement.
PAYMENTS UPON TERMINATION OF EMPLOYMENT.
a. Disability or Death. Under the Signorelli Employment
Agreement, upon Mr. Signorelli's disability, the Company would be permitted to
terminate Mr. Signorelli's employment upon 90 days' written notice to Mr.
Signorelli. In the case of disability, the date which is 90 days after the date
of delivery of such written notice, or in the case of death, the date of Mr.
Signorelli's death, shall be referred to in this paragraph as the "Termination
Date." Upon the death or disability (as defined in this paragraph) of Mr.
Signorelli during the term of the Signorelli Employment Agreement, Mr.
Signorelli will be entitled to (i) a Pro Rata Share (as defined below) of any
Bonus and Annual Bonus for the year in which the death or, in the case of
disability, the Termination Date, occurs, (ii) any portion of his Base Salary,
plus other benefits or compensation listed above, which are accrued and unpaid
(with the Base Salary payable in the case of disability to be reduced by the
amount of any disability payments received by Mr. Signorelli pursuant to the
Benefit Coverages, and the Base Salary payable in the case of death equal to the
installment of his Base Salary for the month in which Mr. Signorelli dies),
(iii) the continued right to exercise any vested stock options for a period of
one year following the Termination Date, and (iv) any other benefits in
accordance with the applicable plans and programs of the Company. If disability
insurance is provided by the Company, Mr. Signorelli would be entitled to elect
to continue the disability insurance, at Mr. Signorelli's expense, following
termination of the Signorelli Employment Agreement for any reason. In addition,
if Mr. Signorelli's employment is terminated due to his disability, Mr.
Signorelli will also be entitled to continue to participate, through the
Termination Date, in those Benefit Coverages in which Mr. Signorelli was
participating, to the extent the Benefit Coverages permit a former employee to
participate. The Signorelli Employment Agreement defines "disability" to occur
when Mr. Signorelli is unable to substantially perform his duties and
responsibilities under the Signorelli Employment Agreement to the full extent
required by the Board by reason of illness, injury or incapacity for 6
consecutive months, or for more than 6 months in the aggregate during any
12-month period. In addition, the Signorelli Employment Agreement requires that
the Company acquire and maintain a policy of life insurance in the face amount
equal to 12 months' Base Salary (determined as if the Mesquite Star were open
for business) covering the life of Mr. Signorelli, the proceeds of which would
be payable to Mr. Signorelli's spouse, or such other person designated by Mr.
Signorelli, on Mr. Signorelli's death. For purposes of the Signorelli Employment
Agreement, "Pro Rata Share" is determined by dividing (1) the total number of
days of the year in which the Termination Date occurs through the Termination
Date by (2) the total number of days in such year.
b. Termination for Cause. Mr. Signorelli's employment may be
terminated upon 30 days' written notice "for cause" (which is defined as (i)
conviction of a felony involving dishonesty, theft, misappropriation, or fraud,
(ii) material breach of the Signorelli Employment Agreement, (iii) failure to
carry out any reasonable lawful instructions of the Company's Board of Directors
which are in the Company's best interests, or (iv) engaging in conduct which
materially threatens or impairs the Company's business ("Misconduct"), if the
Company gives Mr. Signorelli written notice of such Misconduct and Mr.
Signorelli fails to cease engaging in such Misconduct within 30 days of such
notice). If Mr. Signorelli is terminated "for cause," he would be entitled to
his unpaid Base Salary through the expiration of the 30-day notice period, but
he would not be entitled to any Bonus or Annual Bonus for the year in which such
termination "for cause" occurs.
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c. Termination for Nonsuitability. Mr. Signorelli's employment
may be terminated if he fails to meet the licensing requirements or finding of
suitability as set forth in Nevada's gaming law or any other applicable state,
local or municipal gaming or liquor licensing laws. Such termination would be
effective upon 30 days' written notice to Mr. Signorelli, in which event Mr.
Signorelli would be released from employment within 30 days following the date
of such written notice (the "Termination Date") and, contingent upon Mr.
Signorelli's and the Company's signing a mutual written general release (the
"Release") of any and all claims each party may then have against the other
party and the other party's affiliates and their respective directors, officers,
employees and agents, the Signorelli Employment Agreement requires that Mr.
Signorelli be paid the following: (i) his Base Salary through the Termination
Date, and (ii) as additional severance in connection with the termination, an
amount equal to 25 months of Base Salary, determined at the annual rate of
$160,000.
d. No Termination "Without Cause". Until the Mesquite Star
hotel/casino is open and operating, the Signorelli Employment Agreement does not
allow the Company to dismiss or terminate or cause the termination of the
services of Mr. Signorelli for any other reason other than as a result of death
or disability, for cause, or as a result of a failure to satisfy licensing
requirements as set forth in the paragraphs above. The Signorelli Employment
Agreement provides that in the event of any breach or threatened breach of the
Signorelli Employment Agreement by the Company, in addition to all other
remedies available at law or in equity, the Company agrees that Mr. Signorelli
will be entitled to the remedies of specific performance and injunctive relief,
mandatory or prohibitory, temporary, preliminary or permanent. After the
Mesquite Star is open and operating, Mr. Signorelli's employment with the
Company may be terminated without cause prior to the end of the Employment Term
upon 60 days' prior written notice (with the date of expiration of such 60-day
period referred to as the "Termination Date"). Upon the Company's actual
termination of Mr. Signorelli without cause as provided in the preceding
sentence, and contingent upon Mr. Signorelli's signing a Release, Mr. Signorelli
is entitled to receive as liquidated damages for the Company's failure to
continue to employ Mr. Signorelli: (i) Mr. Signorelli's Base Salary through the
Termination Date; (ii) any Bonus, Annual Bonus, Base Salary, and all other
benefits and amounts to which Mr. Signorelli is entitled or would be entitled,
but for the acceleration of the Termination Date, through the balance of his
Employment Term, irrespective of the acceleration of the Termination Date, and
(iii) the immediate vesting of Mr. Signorelli's stock options as of the
Termination Date.
e. Termination by Mr. Signorelli for Good Reason. The Signorelli
Employment Agreement provides that Mr. Signorelli may terminate his employment
with the Company at any time for "good reason" (as defined below) upon 30 days'
written notice, in which case Mr. Signorelli would be relieved of all duties and
responsibilities to the Company upon the expiration of such 30-day period (the
"Termination Date") and, contingent upon the Company's and Mr. Signorelli's
signing the Release, the Company would be required to pay to Mr. Signorelli the
following: (i) Mr. Signorelli's Base Salary through the Termination Date, (ii)
an additional amount equal to 12 months of Base Salary; (iii) a Pro Rata Share
of any Bonus and Annual Bonus to which Mr. Signorelli would otherwise be
entitled for the year in which such termination occurs (collectively, the "Pro
Rata Bonus"), (iv) all other benefits and amounts to which Mr. Signorelli is
entitled or would be entitled under the Signorelli Employment Agreement (but for
the acceleration of the Termination Date) through the sixth monthly anniversary
date following the Termination Date, and (v) effective as of the Termination
Date, the immediate vesting of all of Mr. Signorelli's stock option shares. The
Signorelli Employment Agreement requires that the Pro Rata Bonus be paid not
later than 60 days following the close of the Company's fiscal year in which Mr.
Signorelli's employment was terminated. The Signorelli Employment Agreement
defines "good reason" as (1) the failure of the Company to timely and fully pay
or perform any material obligation pursuant to or comply with any material
provision of the Signorelli Employment Agreement, (2) any action of the Company
which results in a material diminution of Mr. Signorelli's title or authority,
(3) if Mr. Signorelli is not elected to serve on or is removed from the Board
for any reason other than death or disability.
f. Termination Upon Change of Control. Under the Signorelli
Employment Agreement, upon Mr. Signorelli's Termination Upon a Change in Control
(as defined below), and contingent upon Mr. Signorelli's and the Company's
signing the Release, Mr. Signorelli is entitled to receive (i) all benefits
which would be due to him under clauses (i) through (iv) of paragraph e. above,
or the amounts specified in clauses (i) and (ii) of paragraph d. above,
whichever is greater, (ii) effective as of the Termination Date (as defined in
this paragraph), the immediate vesting of all stock options belonging to Mr.
Signorelli, and (iii) any amount of Mr. Signorelli's Base Salary accrued and
unpaid through the Termination Date and an additional amount equal to Mr.
Signorelli's Base Salary in lieu of unused vacation pay, if any, both calculated
at the Base Salary rate in effect as of the Termination Date and payable within
15 days after the Termination Date. For purposes of any Termination Upon a
Change of Control, "Termination Date" is defined to mean the date of receipt by
the Company or Mr. Signorelli of a written notice of termination (or any later
date specified in the notice, which date cannot be more than 15 days after the
giving of such notice) which specifies the reason for termination and indicates
the specific termination provision in the Signorelli Employment
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Agreement relied upon. Under the Signorelli Employment Agreement, "Termination
Upon a Change of Control" means a termination of Mr. Signorelli's employment
with the Company upon or within 1 year after a Change of Control (i.e., the
occurrence of any event or series of events which results in a change of more
than 50% of the voting rights of the Company's Shareholders (as the Shareholders
are constituted following the consummation of this Offering) either initiated by
the Company for any reason permitted under the Signorelli Employment Agreement
other than Mr. Signorelli's death, disability, "for cause," or failure to
satisfy licensing requirements, or initiated by Mr. Signorelli. ")
GILBERT EMPLOYMENT AGREEMENT.
IN GENERAL. The Company and Mr. Gilbert have entered into an Employment
Agreement (the "Gilbert Employment Agreement"), dated effective as of January 2,
1996 (the "Effective Date"), the date upon which Mr. Gilbert agreed to become
the Executive Vice President and Chief Operating Officer of the Company. The
term of Mr. Gilbert's employment under the Gilbert Employment Agreement
commenced on the Effective Date and will continue for three (3) years from the
Effective Date (the "Termination Date"), unless earlier terminated in accordance
with the terms of the Gilbert Employment Agreement; provided, however, that the
term of Mr. Gilbert's employment will be automatically extended without further
action of either party for additional one year periods, unless written notice of
either party's intention not to extend has been given to the other party at
least 6 months prior to the expiration of the then effective term (the
"Employment Term"). In addition, if this Offering has not closed by June 30,
1996 and the Company has abandoned proceeding with this Offering, the Company
may terminate Mr. Gilbert's employment upon 90 days' notice to Mr. Gilbert. In
the event of a termination of Mr. Gilbert's employment for the reasons set forth
in the preceding sentence, Mr. Gilbert's rights upon termination will be the
same as if Mr. Gilbert had been terminated "for cause." Such rights are
discussed in paragraph b. below.
During the Employment Term, pursuant to the Gilbert Employment
Agreement, Mr. Gilbert will serve as (i) Executive Vice-President and Chief
Operating Officer of the Company; and (ii) initial General Manager of the
Mesquite Star. Under the Gilbert Employment Agreement, Mr. Gilbert is required
to perform such executive-level employment duties as Vice-President and Chief
Operating Officer of the Company as Mr. Signorelli and the Board of Directors of
the Company shall assign to him from time to time. The Gilbert Employment
Agreement provides that Mr. Gilbert will be a nominee for the Company's Board,
with the director election related to Mr. Gilbert's nomination to be effective
following the later of (i) the closing of this Offering; and (ii) the Company's
obtaining adequate insurance for the liabilities, acts and omissions of its
directors and officers. Under the Gilbert Employment Agreement, Mr. Gilbert is
required to meet the licensing requirements or finding of suitability as set
forth in Nevada's gaming law and all other applicable state, local or municipal
gaming or liquor licensing laws. During the Employment Term, the Company has
agreed to pay Mr. Gilbert a base salary (the "Base Salary") as follows: (i) for
the first 12 months of the Gilbert Employment Agreement, at the annual rate of
$120,000 ("Base Salary"), which annual rate will increase to $150,000 upon the
closing of this Offering, (ii) for the second 12 months of the Gilbert
Employment Agreement, at the annual rate of $175,000, and (iii) for the
remaining term of the Gilbert Employment Agreement, at the annual rate of
$200,000. Mr. Gilbert's Base Salary may be increased (but not decreased) by the
Board of Directors based upon performance review. Following commencement of
operations at the Mesquite Star, Mr. Gilbert is also entitled to participate in
the Executive Employee Bonus Plan (the "Plan"), as described above (with any
bonus payable to Mr. Gilbert under the Plan to be referred to as the "Bonus").
See "Signorelli Employment Agreement." Under the Gilbert Employment Agreement,
Mr. Gilbert's annual compensation under the Plan is not permitted to be less
than 1/2% of the Company's EBITDA. In addition to the Bonus under the Plan,
pursuant to a plan approved by the Board of Directors of the Company, Mr.
Gilbert may also receive an annual cash bonus based on criteria established and
consistently applied by the Board on a non-discriminatory basis from time to
time, with such bonus, if any, payable not later than 60 days following the
close of the Company's fiscal year ("Annual Bonus"). Mr. Gilbert will also be
entitled to participate in the Benefit Coverages, and will be entitled to a
monthly $850 car and gas allowance, as well as reimbursement of expenses related
to his employment by the Company, and will be entitled to vacation, holidays,
and other perquisites in accordance with the Company's normal personnel policies
for senior level executives of the Company, including, without limitation,
complimentary rooms at the Mesquite Star. Under the Gilbert Employment
Agreement, the Company agrees that during the Employment Term, Mr. Gilbert will
not be required to relocate his residence from the Las Vegas, Nevada area, or
from any subsequent mutually agreed upon location, without Mr. Gilbert's prior
written consent, which may be given or withheld by Mr. Gilbert in his sole
discretion.
Pursuant to the Gilbert Employment Agreement, Mr. Gilbert is required
to devote substantially all of his business time, attention and energy to his
duties and responsibilities under the Gilbert Employment Agreement. Mr. Gilbert
is permitted to
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continue to participate in the following business endeavors, so long as they do
not interfere with the performance of Mr. Gilbert's duties under the Gilbert
Employment Agreement: (i) Lotsaslots, Inc., a Nevada Corporation and a gaming
operator of multiple restricted locations and a non-restricted gaming route
operator and gaming rights holder, as an officer, director and 12.5%
stockholder; (ii) Vegas Corners, a limited partnership and a number of related
corporations involved in the development and operation of convenience centers,
shopping centers and commercial real estate developments, as an officer,
director and 25% stockholder; (iii) Paradise Gaming Company, a Nevada
corporation which operates the Metropolitan Casino in Clark County, Nevada, as
an officer, director and 100% stockholder; (iv) Preferred Gaming and
Entertainment, Inc., a Nevada corporation involved in the development of two
small casino operations in the Nye County, Nevada, and a distributor of gaming
devices and related equipment as an officer, director and 100% stockholder; and
(v) such other ventures and businesses which are not in the geographical area of
Mesquite, Nevada and are not competitive with the Mesquite Star, and which do
not require the devotion of time or effort which would materially limit,
restrict or interfere with the duties and responsibilities of Mr. Gilbert
pursuant to the Gilbert Employment Agreement.
PAYMENTS UPON TERMINATION OF EMPLOYMENT.
a. Termination Due to Death or Disability. Under the Gilbert
Employment Agreement, the payments due to Mr. Gilbert upon termination of Mr.
Gilbert's employment due to disability or death are determined according to
provisions identical to those set forth in Mr. Signorelli's Employment
Agreement, except that (i) the Company is not required to maintain a life
insurance policy on Mr. Gilbert's life, and (ii) the Company is not required to
continue disability insurance coverage following the date of termination. See
"Signorelli Employment Agreement - Payments Upon Termination of Employment."
b. Termination for Cause. Under the Gilbert Employment Agreement,
Mr. Gilbert may be terminated "for cause." Events constituting "for cause," and
Mr. Gilbert's rights upon termination "for cause," are identical to those in the
Signorelli Employment Agreement. See "Signorelli Employment Agreement - Payments
Upon Termination of Employment."
c. Termination for Nonsuitability. Mr. Gilbert's employment may
be terminated if he fails to meet the licensing requirements or finding of
suitability as set forth in Nevada's gaming law or any other applicable state,
local or municipal gaming or liquor licensing laws. Such termination would be
effective upon 30 days' written notice to Mr. Gilbert, in which event Mr.
Gilbert would be released from employment within 30 days following the date of
such written notice (the "Termination Date") and, contingent upon Mr. Gilbert's
and the Company's signing the Release, the Gilbert Employment Agreement requires
that Mr. Gilbert be paid the following: (i) his Base Salary through the
Termination Date, and (ii) the Pro Rata Bonus (as defined in paragraph d.
below). As a condition of the termination of Mr. Gilbert's employment for
nonsuitability, the Gilbert Employment Agreement requires that all of Mr.
Gilbert's stock options immediately vest upon termination.
d. Termination "Without Cause". Mr. Gilbert's employment with the
Company may be terminated without cause upon 60 days' prior written notice (with
the date of expiration of such 60-day period referred to as the "Termination
Date"). Upon the Company's actual termination of Mr. Gilbert without cause, and
contingent upon Mr. Gilbert's and the Company's signing the Release, Mr. Gilbert
is entitled to receive as liquidated damages for the Company's failure to
continue to employ Mr. Gilbert: (i) Mr. Gilbert's Base Salary through the
Termination Date, (ii) the Pro Rata Share of any Bonus and Annual Bonus to which
Mr. Gilbert would otherwise be entitled for the year in which such termination
occurs (collectively, the "Pro Rata Bonus"), payable 60 days following the close
of the Company's fiscal year in which Mr. Gilbert's employment was terminated,
(iii) $100,000, payable in six equal consecutive monthly installments over a
six-month period, (iv) all other accrued benefits and amounts to which Mr.
Gilbert is entitled or would be entitled under the Gilbert Employment Agreement
(but for the acceleration of the Termination Date) through the sixth monthly
anniversary date following the Termination Date, (v) the immediate vesting of
Mr. Gilbert's 250,000 stock options as of the Termination Date, and (vi)
payments or benefits under then existing Benefit Coverages in which he is
participating as of the Termination Date, in accordance with the respective
terms of the Benefit Coverages.
e. Termination by Mr. Gilbert for Good Reason. The Gilbert
Employment Agreement provides that Mr. Gilbert may terminate his employment with
the Company at any time for "good reason" (as defined below) upon 30 days'
written notice, in which case Mr. Gilbert would be relieved of all duties and
responsibilities to the Company upon the expiration of such 30-day period (the
"Termination Date") and, contingent upon Mr. Gilbert's and the Company's signing
the Release, the Company would be required to pay to Mr. Gilbert the following:
(i) Mr. Gilbert's Base Salary through the Termination Date, (ii) $100,000,
payable in six equal consecutive monthly installments, (iii) the Pro Rata Bonus,
(iv) all other benefits and amounts to which Mr.
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<PAGE> 63
Gilbert is entitled or would be entitled under the Gilbert Employment Agreement
(but for the acceleration of the Termination Date) through the sixth monthly
anniversary date following the Termination Date, and (v) effective as of the
Termination Date, the immediate vesting of all of Mr. Gilbert's 250,000 stock
option shares. The Gilbert Employment Agreement requires that the Pro Rata Bonus
be paid not later than 60 days following the close of the Company's fiscal year
in which Mr. Gilbert's employment was terminated. The Gilbert Employment
Agreement defines "good reason" as (1) the failure of the Company to timely and
fully pay or perform any material obligation pursuant to or comply with any
material provision of the Gilbert Employment Agreement, (2) any action of the
Company which results in a material diminution of Mr. Gilbert's title or
authority, (3) if Mr. Gilbert is not elected to serve on or is removed from the
Board for any reason other than death or disability.
f. Voluntary Termination. Mr. Gilbert may voluntarily terminate
his employment with the Company for any reason upon 180 days' advance written
notice to the Company. However, upon the expiration of such 180-day period, Mr.
Gilbert would not be entitled to any further payments under the Employment
Agreement.
g. Termination Upon Change of Control. Under the Gilbert
Employment Agreement, upon Mr. Gilbert's Termination Upon a Change in Control
(as defined below), and only upon Mr. Gilbert's and the Company's execution of
the Release, Mr. Gilbert is entitled to receive (i) all benefits which would be
due to him under clauses (i) through (iv) of paragraph e. above, and (ii)
effective as of the Termination Date (as defined in this paragraph), the
immediate vesting of the 250,000 in stock options belonging to Mr. Gilbert. In
addition, in the event of Mr. Gilbert's Termination Upon a Change of Control,
the Gilbert Employment Agreement requires the Company to pay to Mr. Gilbert any
amount of Mr. Gilbert's Base Salary accrued and unpaid through the Termination
Date, and an additional amount equal to Mr. Gilbert's Base Salary in lieu of
unused vacation pay, if any, both calculated at the Base Salary rate in effect
as of the Termination Date and payable within 15 days after the Termination
Date. For purposes of any Termination Upon a Change of Control, "Termination
Date" is defined to mean the date of receipt by the Company or Mr. Gilbert of a
written notice of termination (or any later date specified in the notice, which
date cannot be more than 15 days after the giving of such notice) which
specifies the reason for termination and indicates the specific termination
provision in the Gilbert Employment Agreement relied upon. Under the Gilbert
Employment Agreement, "Termination Upon a Change of Control" means a termination
of Mr. Gilbert's employment with the Company upon or within 1 year after a
Change of Control (i.e., the occurrence of any event or series of events which
results in a change of more than 50% of the voting rights of the Company's
Shareholders (as the Shareholders are constituted following the consummation of
this Offering) either initiated by the Company for any reason other than Mr.
Gilbert's death, disability, "for cause," or failure to satisfy licensing
requirements, or initiated by Mr. Gilbert.
EXECUTIVE EMPLOYEE BONUS PLAN
After the closing of this Offering, the Company's Board will consider
the adoption of an Executive Employee Bonus Plan (the "Plan"), which will relate
to the Company's financial performance, and provide incentives to the executives
participating in the Plan. Upon implementation, the Plan will entitle a
specified group of executives to each receive an annual cash bonus ("Bonus")
equal to a percentage of the Company's earnings before interest, taxes,
depreciation and amortization ("EBITDA"). It is proposed that the Plan will use
a sliding scale approach measured against a targeted budget number (the
"Budget"), with an increased percentage of EBITDA paid to each executive
participating in the Plan as the Budget is met and exceeded. Bonuses are
intended to provide executives with an opportunity to receive additional cash
compensation based upon the financial performance of the Company. Messrs.
Signorelli and Gilbert will be entitled to participate in the Plan under the
terms of the Signorelli Employment Agreement and Gilbert Employment Agreement,
respectively.
STOCK OPTION PLAN
The Company has adopted the 1993 Stock Option and Compensation Plan
(the "1993 Plan"), pursuant to which options and other awards to acquire an
aggregate of 500,000 shares of Common Stock may be granted. In May, 1995, the
Board of Directors of the Company authorized the amendment of the 1993 Plan (as
amended, the "Stock Option Plan") to increase the number of shares which may be
granted under the Stock Option Plan to 2,500,000 shares, of which the Board has
granted restricted stock and stock options covering 1,752,450 shares of Common
Stock. Of the remaining 747,550 options available to grant, the Company may only
grant up to 250,000 without the prior consent of the Representative. Stock
options, stock appreciation rights, restricted stock, deferred stock and other
stock-based awards and cash awards may be granted under the Stock
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<PAGE> 64
Option Plan. The Stock Option Plan is administered by the Board of Directors,
but the Board of Directors may appoint a Stock Option Committee in the future to
administer the Stock Option Plan. Awards under the Stock Option Plan may be made
to Company employees, including directors and officers of, and consultants to
the Company, its subsidiaries and affiliates. The Stock Option Plan confers upon
the Board or the Stock Option Committee thereof, as applicable (referred to
herein as the "Board"), discretion to determine the number and purchase price of
the shares applicable to each option, the term of each option, and the time or
times during its term when the option becomes exercisable. No options may be
granted under the Stock Option Plan after March 31, 2006.
Employees of the Company, including officers, and directors, who the
Board determines are responsible in some significant way for the success of the
Company will be eligible to receive incentive stock options or non-qualified
stock options. In addition to employees of the Company, a director, consultant,
or other person who is not an employee of the Company, but performs services of
significance with respect to the management, operations and/or development of
the Company, will be eligible to receive non-qualified stock options under the
Stock Option Plan.
Under the Stock Option Plan, each incentive stock option will have a
maximum term of 10 years and an exercise price of not less than 100% of the fair
market value of the Common Stock on the date of grant, except for 10% or greater
stockholders whose exercise price must be at least 110% of the fair market value
of the Common Stock on the date of grant, and whose maximum option terms cannot
be in excess of 5 years from the date of grant. Generally, the holder of an
incentive stock option must exercise any option, or portion thereof, while he is
an employee or shortly after his employment is terminated.
By resolution, the Board has agreed that all non-qualified options
issued by the Company will provide an exercise price of at least 85% of the fair
market value of the underlying stock on the date of the grant.
Under the Stock Option Plan, non-qualified stock options may also be
granted for a term of up to 10 years at an exercise price determined by the
Board.
The holder of a stock option will have the right to exercise the option
on such terms and conditions as the Board may determine at the time of grant,
including the requirement that the holder remain employed by the Company for
some period from the date of grant.
During the life of a person (an "Optionee") granted stock options under
the Stock Option Plan, such options are only exercisable by the Optionee and no
assignment or transfer of such options will be permitted. Upon the death of an
Optionee, the unexpired stock options previously granted to the deceased
Optionee by the Surviving Corporation may be transferred by will or through the
laws of descent and distribution.
The Board has discretion to provide that the period during which stock
options issued pursuant to the Stock Option Plan may be exercised is subject to
early termination if the Optionee ceases to be a director, officer, employee or
consultant of the Surviving Corporation due to death, disability, termination of
employment or otherwise.
Subject to compliance with applicable securities laws and regulations,
the Board may, in its sole discretion and upon such terms as it may establish,
allow for acceleration of all or a portion of the stock options outstanding
under the Stock Option Plan to the extent not previously exercised or assumed by
a successor corporation at the time of the merger, consolidation or acquisition
of the Surviving Corporation, upon the sale, transfer or other disposition of
all or substantially all of the assets of the Company, or another significant
corporate transaction involving the Company.
The Stock Option Plan also contains certain "anti-dilution" provisions
which will serve to protect each Optionee's respective percentage ownership and
economic interest in the Company's Common Stock issued, in the event of a stock
split, stock dividend, recapitalization, merger or consolidation, or certain
other specified events.
The Board will be able to amend or terminate the Stock Option Plan at
any time, subject to the rights of Optionees who then hold unexpired stock
options. Stockholder approval will be required, however, to (i) increase the
maximum number of shares issuable under the Stock Option Plan, (ii) materially
increase the benefits accruing to individuals who participate in the Stock
Option Plan, or (iii) modify the eligibility requirements for the grant of
options or other participation under the Stock Option Plan.
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<PAGE> 65
As of December 31, 1995, 1,712,450 incentive stock options and 40,000
shares of restricted stock were outstanding under the Stock Option Plan. The
following table sets forth certain information concerning options held by
executive officers and directors of the Company as of December 31, 1995.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
INDIVIDUAL GRANTS
- ------------------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
- ------------------------------------------------------------------------------------------------------------------------------------
% of Total Options/
Number of Securities SARs Granted to Exercise or
Under-lying Options/ Employees in Fiscal Base Price
Name SARs Granted (#)(1) Year ($/Sh) Expiration Date
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Michael J. Signorelli 1,000,000 67.3% 0.25 5/24/2005
40,000 2.7% 0.25 Exercised 8-27-95
96,225 6.5% 1.94 8/15/2005
100,000 6.7% 3.85 8/15/2005
Jeffrey L. Gilbert 250,000 16.8% 1.94 1/02/2001
All Executive Officers as a Group 1,486,225 100% 0.25 and
1.94 and
3.85
</TABLE>
The following table contains information relating to the number and
value of unexercised options held by the named executive officers and directors
of the Company as of December 31, 1995.
FISCAL YEAR-END OPTION VALUES(2)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at Fiscal Year-End(3) at Fiscal Year-End(4)
- --------------------------------------------------------------------------------------------------------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Michael J. Signorelli 1,196,225 -0- $1,690,000 $0.00
Jeffrey L. Gilbert -0- 250,000 $0.00 $0.00
</TABLE>
- --------
(1) The material terms of each stock option granted are discussed on
the following page. See "MANAGEMENT - Outstanding Stock Options and Restricted
Stock." -
(2) No Stock Appreciation Rights (SARs) were exercised by any Company
employee in 1995, and there are no outstanding SARs held by any employee or
director of the Company.
(3) The sum of the numbers under the Exercisable and Unexercisable
columns of this heading represents each named executive officer's total
outstanding options.
(4) The dollar amounts shown under the Exercisable and Unexercisable
columns of this heading represent the number of exercisable and unexercisable
options, respectively, multiplied by the difference, if any, between the value
of the Common Stock on December 31, 1995, which was $1.94 per share, and the
exercise price of the options.
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<PAGE> 66
OUTSTANDING STOCK OPTIONS AND RESTRICTED STOCK. As described above,
pursuant to the terms of the Plan, the Company has granted to Mr. Signorelli (i)
an option to purchase 1,000,000 shares of the Company's Common Stock at an
option price of $0.25 per share, pursuant to a Stock Option Agreement dated May
24, 1995, as amended on August 14, 1995, and vested as described below, (ii) an
option to purchase 96,225 shares of the Company's Common Stock at an option
price of $1.94 per share, pursuant to an amendment to the Stock Option Agreement
dated August 15, 1995, and vested as described below (with the stock option
agreements set forth in subsections (i) and (ii) collectively referred to as the
"Signorelli Stock Option Agreement"), (iii) a vested option to purchase 100,000
shares of the Company's Common Stock at an option price of $3.85 per share, and
(iv) a right to immediately purchase 40,000 shares of restricted stock at a
purchase price of $0.25 per share, pursuant to a Restricted Stock Purchase
Agreement dated August 27, 1995. Mr. Signorelli purchased the 40,000 shares of
restricted stock for a $10,000 promissory note on August 27, 1995. In addition,
the Company has granted to Mr. Gilbert a non-qualified option to purchase
250,000 shares of the Company's Common Stock at an option price of $1.94 per
share, pursuant to a Stock Option Agreement dated January 2, 1996 (the "Gilbert
Stock Option Agreement"). The material terms of the stock options are discussed
below.
SIGNORELLI STOCK OPTION AGREEMENT. Pursuant to the Signorelli
Stock Option Agreement, as amended, the 1,096,225 option shares (the "Signorelli
Option Shares") vested in full on December 31, 1995.
The exercise of the Signorelli Option Shares is contingent
upon Mr. Signorelli's continued employment with the Company. Subject to the
foregoing sentence, 1,000,000 of the Signorelli Option Shares are exercisable
until May 24, 2005 and 196,225 of the Signorelli Option Shares are exercisable
until August 15, 2005. Under the Signorelli Stock Option Agreement and the Stock
Option Plan, Mr. Signorelli is permitted to exercise all or a portion of the
1,000,000 option shares by (i) surrendering some of his 40,000 shares of
restricted stock to the Company at their fair market value as of the exercise
date; and (ii) delivering a promissory note to the Company for the balance of
the exercise price. See "BRIDGE FINANCING - Kelley/Tam Secured Debt
Indebtedness" for a discussion of the Kelley Loan Agreement, and "SHARES
ELIGIBLE FOR FUTURE SALE - Kelley Stock Purchase Agreement" for a discussion of
the Kelley Stock Purchase Agreement.
SIGNORELLI DIRECTOR OPTION. Under an Amended and Restated
Stock Option Agreement between Mr. Signorelli and the Company dated August 15,
1995 (the "Director Stock Option Agreement"), Mr. Signorelli was granted a stock
option (the "Director Stock Option") to purchase 100,000 shares of the Company's
Common Stock for $3.85 per share ("Director Stock Option Shares"). The Director
Stock Option Shares vested as of the date of the Director Stock Option
Agreement. The exercise of the Director Option is contingent upon Mr.
Signorelli's continued employment with the Company. Subject to the foregoing
sentence, the Director Option is exercisable until August 15, 2005.
GILBERT STOCK OPTION AGREEMENT. As described above, pursuant
to the terms of the Stock Option Plan, the Company has agreed to grant to Mr.
Gilbert an option to purchase 250,000 shares of the Company's Common Stock at an
option price of $1.94 per share, vested as described below. Under the Gilbert
Stock Option Agreement, Mr. Gilbert's stock options are non-qualified, and the
vesting and exercisability of the options are contingent upon Mr. Gilbert's
continued employment with the Company. Subject to the foregoing, the options
vest as follows: (i) 25% will vest upon the commencement of operation of the
Mesquite Star; (ii) 8 1/3% will vest 120 days after the effective date of the
Gilbert Stock Option Agreement ("Effective Date"); and (iii) the final 66 2/3%
will vest as follows: from February, 1996, through and including September,
1998, 2 1/12% will vest monthly on the monthly anniversary of the Effective
Date. In addition, the vesting of Mr. Gilbert's stock options will accelerate
and be exercisable upon the effective date of one of the following transactions
(a "Corporate Transaction"): (A) a merger or acquisition in which the Company is
not the surviving entity, except for a transaction the principal purpose of
which is to change the State of the Company's incorporation, (B) the sale,
transfer or other disposition of all or substantially all of the assets or stock
of the Company, or, (C) any other corporate reorganization or business
combination in which 50% or more of the Company's outstanding voting stock is
transferred to different holders in a single transaction or a series of related
transactions. As long as Mr. Gilbert remains employed with the Company, the
option is exercisable until January 2, 2001.
[Remainder of Page Intentionally Blank.]
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<PAGE> 67
PRINCIPAL STOCKHOLDERS OF THE COMPANY
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of May 31, 1996 by (i) each person
who is known by the Company to own beneficially more than 5% of the Company's
outstanding Common Stock, (ii) each of the Company's directors, including the
chief executive officer, and (iii) the directors and executive officers of the
Company as a group. Unless otherwise provided, the percentages set forth in this
Section are calculated with respect to each person as follows: (i) using a
denominator equal to the amount of outstanding Common Stock plus, for each
person, any Common Stock that person has the right to acquire within 60 days
pursuant to options, warrants, conversion privileges and other rights; and (ii)
using a numerator equal to any Common Stock actually owned by that person plus
any Common Stock that person has the right to acquire within 60 days pursuant to
options, warrants, conversion privileges and other rights.
<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF SHARES OWNERSHIP OWNERSHIP
NAME AND ADDRESS BENEFICIALLY OWNED BENEFICIALLY PERCENTAGE PERCENTAGE
TITLE OF CLASS OF BENEFICIAL OWNER (PRE-OFFERING) OWNED (POST- (PRE- (POST-
OFFERING) OFFERING)(1) OFFERING)(2)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Common Michael J. Signorelli 1,236,225(3) 1,236,225 19.7% 15.8%
Executive Park West
6897 West Charleston Boulevard
Las Vegas, Nevada 89117
Common Richard Roy Kelley 2,474,609(4) 2,474,609 39.1% 31.5%
2375 Kuhio Avenue
Honolulu, Hawaii 96815-2939
Common Richard Tam 2,474,610(5) 2,474,610 39.1% 31.5%
2140 West Charleston Boulevard
Las Vegas, Nevada 89102
Common Jeffrey L. Gilbert 250,000(6) 250,000 * *
Executive Park West
6897 West Charleston Boulevard
Las Vegas, Nevada 89117
Common PMJ Enterprises, Inc. 2,675,000(7) 200,000 52.6% *
9901 South Western Avenue, Suite 205
Chicago, Illinois 60643
Common William M. Mower 495,000(8) 49,994 9.7% *
Maslon, Edelman, Borman & Brand
3300 Norwest Center
Minneapolis, Minnesota 55402-4140
Common D. Bradly Olah 478,250(9) 53,134 9.4% *
12700 Industrial Park Blvd, No. 60
Plymouth, Minnesota 55441
DIRECTORS AND EXECUTIVE OFFICERS 1,486,225 1,486,225 20.5% 16.5%
AS A GROUP(10)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Represents beneficial ownership of less than 1%
[Footnotes to Follow on Next Page.]
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<PAGE> 68
(1) The amount of outstanding securities included in calculating the
pre-Offering percentages is all 5,090,000 shares of outstanding Common Stock.
(2) In addition to the 1,018,330 shares of Common Stock issuable upon
conversion of 793,504 shares of Series A Preferred Stock, the amount of
outstanding securities included in calculating the post-Offering percentages is
as follows: 5,603,757 shares of outstanding Common Stock (calculated as follows:
2,150,000 shares of Common Stock to be sold in this Offering (not including the
underwriter's overallotment of 332,500 shares or the 2,150,000 shares issuable
on exercise of the Warrants), plus 5,090,000 shares of Common Stock minus
1,636,243 shares of Common Stock to be repurchased by the Company from the
Minneapolis Group).
(3) Includes (i) an incentive stock option to purchase 1,000,000 shares
of Common Stock for $0.25 per share pursuant to the Stock Option Plan on May 26,
1995, (ii) an incentive stock option to purchase 96,225 shares for $1.94 per
share on August 15, 1995, and (iii) an incentive option to purchase 100,000
shares of Common Stock for $3.85 per share on August 15, 1995. Mr. Signorelli
purchased 40,000 shares of restricted stock for $0.25 per share pursuant to the
Stock Option Plan on August 27, 1995.
(4) Includes (i) a Warrant to purchase 125,000 shares of Common Stock
pursuant to the Kelley Loan Agreement; (ii) 1,237,500 shares to be purchased by
Dr. Kelley from PMJ Enterprises concurrently with the closing of this Offering
pursuant to the terms of the Kelley/PMJ Stock Purchase Agreement; (iii) the
right to convert the Convertible Loan Proceeds into 1,026,497 shares of Common
Stock, pursuant to the New Kelley Loan Agreement, (excluding additional shares
on conversion of any accrued and unpaid interest thereunder); and (iv) stock
options to purchase 85,612 shares of the Company's Common Stock at an exercise
price of $0.25 per share. See "SHARES ELIGIBLE FOR FUTURE SALE - Kelley Stock
Purchase Agreement." With respect to each of Drs. Kelley and Tam, the
denominator used to calculate the ownership percentages was not increased by the
1,237,500 shares to be purchased from PMJ Enterprises, Inc., as those shares are
already included in the denominator as outstanding shares.
(5) Includes (i) a Warrant to purchase 125,000 shares of Common Stock
pursuant to the Kelley Loan Agreement; (ii) 1,237,500 shares to be purchased by
Dr. Tam from PMJ Enterprises concurrently with the closing of this Offering
pursuant to the terms of the Kelley/PMJ Stock Purchase Agreement; (iii) the
right to convert the Convertible Loan Proceeds into 1,026,497 shares of Common
Stock, pursuant to the New Kelley Loan Agreement, (excluding additional shares
on conversion of any accrued and unpaid interest thereunder); and (iv) stock
options to purchase 85,613 shares of the Company's Common Stock at an exercise
price of $0.25 per share. See "SHARES ELIGIBLE FOR FUTURE SALE - Kelley Stock
Purchase Agreement." With respect to each of Drs. Kelley and Tam, the
denominator used to calculate the ownership percentages was not increased by the
1,237,500 shares to be purchased from PMJ Enterprises, Inc., as those shares are
already included in the denominator as outstanding shares.
(6) Includes a non-qualified stock option to purchase 250,000 shares of
Common Stock for $1.94 per share. Percentages assume 62,484 shares will vest
under the stock option through and including September, 1996.
(7) PMJ Enterprises, Inc. is owned by Patrick J. Shannon and certain
members of his immediate family. PMJ Enterprises, Inc. and Dr. Kelley have
entered into a Stock Purchase Agreement dated as of August 14, 1995, as amended
(50% of which has been assigned to Dr. Tam), pursuant to which PMJ Enterprises,
Inc. has agreed to sell, and Dr. Kelley has agreed to buy, 2,475,000 shares of
Common Stock of the Company. Such sale to Drs. Kelley and Tam is to be
consummated concurrent with the consummation of this Offering. See "SHARES
ELIGIBLE FOR FUTURE SALE - Kelley Stock Purchase Agreement"; "SELLING SECURITY
HOLDER." Post-Offering percentage assumes (i) sale will be consummated, and (ii)
after such sale, PMJ Enterprises, Inc. will own 200,000 shares of Common Stock
(8) William M. Mower and D. Bradly Olah have entered into an Option
Agreement with the Company pursuant to which (i) Mr. Mower granted to the
Company the exclusive right and option to repurchase 440,006 of his shares of
Common Stock of the Company for a purchase price of $0.25 per share, and (ii)
Olah granted to the Company the exclusive right and option to repurchase 425,116
of his shares of Common Stock of the Company for a purchase price of $0.25 per
share. The Company gave notice of its exercise of the Mower and Olah Repurchase
Options before the Option Termination Date of December 31, 1995 and is now
required to purchase said shares within fifteen (15) business days after the
closing of this Offering. The Company intends to close the purchase of the
shares subject to the Mower and Olah Repurchase Options concurrent with the
closing of this Offering. See "SHARES ELIGIBLE FOR FUTURE SALE - Mower and Olah
Option Agreement."
(9) See Footnote (8) above.
(10) At this time, the Company's directors and executive officers
consist of Messrs. Signorelli and Gilbert. See "MANAGEMENT."
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<PAGE> 69
CERTAIN TRANSACTIONS
The following is a brief description of certain relationships and
related transactions.
THE COMPANY'S PURCHASE OF THE MESQUITE PROPERTY FROM PMJ ENTERPRISES, INC.
On December 31, 1993, the Company purchased the Mesquite Property from
PMJ Enterprises, Inc. in exchange for the Company's assumption of PMJ
Enterprises, Inc.'s indebtedness of approximately $2,442,000, and promissory
notes payable to PMJ Enterprises, Inc. in the amount of $2,758,000, and
2,750,000 shares of the Company's Common Stock. Within 90 days thereafter, PMJ
Enterprises, Inc. was paid $2,200,000 in cash on these notes, leaving a single
note in the principal amount of $558,000 outstanding. The amount of
consideration paid to PMJ Enterprises, Inc. for the Mesquite Property was
determined based upon arms-length negotiations between PMJ Enterprises, Inc. and
the independent members of the Company's Board on December 31, 1993, taking into
account the then fair market value of the Mesquite Property and the expenditures
incurred through 1993 with respect to the Mesquite Property. See "BUSINESS -
Mesquite Star Hotel and Casino - Acquisition and Development of Mesquite
Property" and "BRIDGE FINANCING - PMJ Enterprises, Inc. Secured Debt." At the
time of the purchase, Messrs. Signorelli and Shannon were both members of the
Company's board of directors and the principal owners of PMJ Enterprises, Inc.
In addition, on December 8, 1995, PMJ Enterprises, Inc. granted the Company an
option (the "PMJ Option") to purchase an additional 1.1 acres of real property
currently owned by PMJ Enterprises, Inc. for the total purchase price of
$1,200,000. The Company timely paid the first two option installments of $25,000
each, but declined to make the third option installment as a result of which,
the PMJ Option terminated. See "BUSINESS - Facilities and Properties."
PMJ Enterprises had earlier acquired the Mesquite Property in
approximately January, 1991 for a total acquisition cost of approximately
$3,083,000. Following its acquisition of the Mesquite Property in January, 1991,
PMJ Enterprises, Inc. was primarily engaged in (i) obtaining the necessary
entitlements, permits, approvals and licenses from the City of Mesquite in
connection with the development of a hotel/casino on the Mesquite Property, (ii)
completing architectural and engineering plans for the Mesquite Star through
outside architects and engineers, (iii) pursuing the planning approval and
permit process for the Mesquite Star with the City of Mesquite, and (iv)
locating long-term and interim financing sources for the initial development
costs associated with the hotel/casino.
MOWER'S INTEREST WITH REGARD TO THE MOWER AND OLAH OPTION AGREEMENT.
William B. Mower is a former officer and director of the Company. At a
time when Mr. Mower was no longer a director of the Company but was an officer
of the Company, Mr. Mower granted an option to the Company to repurchase 440,006
of Mr. Mower's shares of Common Stock of the Company pursuant to the Mower and
Olah Option Agreement. On December 27, 1995, the Company exercised this option.
See "SHARES ELIGIBLE FOR FUTURE SALE - Mower and Olah Option Agreement." With
respect to the repurchase of a portion of Messrs. Mower and Olah's shares of
Common Stock, an agreement was reached between Mr. Signorelli and Mr. Patrick J.
Shannon, on the one hand, and Mr. Mower and Mr. D. Bradly Olah, on the other
hand, that Messrs. Mower and Olah would not continue as officers, directors and
stockholders of the Company. In connection with that agreement, Messrs. Mower
and Olah entered into the Mower and Olah Option Agreement and resigned as
officers and directors of the Company.
OLAH'S INTEREST WITH REGARD TO THE MOWER AND OLAH OPTION AGREEMENT.
D. Bradly Olah is a former director of the Company. While he was a
director of the Company, Mr. Olah granted an option to the Company to repurchase
425,116 of Mr. Olah's shares in the Company pursuant to the terms of the Mower
and Olah Option Agreement. On December 27, 1995, the Company exercised this
option. See "SHARES ELIGIBLE FOR FUTURE SALE - Mower and Olah Option Agreement."
See the preceding paragraph regarding the circumstances surrounding the
repurchase of a portion of Mr. Olah's shares of Common Stock.
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COX'S INTEREST IN THE MOWER AND OLAH OPTION AGREEMENT.
James W. Cox is a former director of the Company. Mr. Cox resigned as a
director of the Company in connection with the execution and delivery of the
Mower and Olah Repurchase Options. Mr. Cox was nominated to the Board of
Directors by Mr. Mower who resigned from the Board for personal reasons. The
Company and Mr. Cox entered into a stock option agreement dated May 24, 1995
pursuant to which Mr. Cox was granted an option to purchase 10,000 shares of
Common Stock of the Company for $1.94 per share pursuant to the terms of the
Mower and Olah Option Agreement. See "SHARES ELIGIBLE FOR FUTURE SALE - Mower
and Olah Option Agreement." Pursuant to the terms of the Mower and Olah Option
Agreement, Mr. Cox resigned as director of the Company.
SHANNON AND SIGNORELLI'S INTEREST IN THE MOWER AND OLAH OPTION AGREEMENT.
Patrick J. Shannon is a former officer and director of the Company. Mr.
Shannon resigned as an officer and director of the Company by agreement in
connection with the signing of the Kelley Stock Purchase Agreement. See "SHARES
ELIGIBLE FOR FUTURE SALE - Kelley Stock Purchase Agreement." While he was an
officer and director of the Company, the Company agreed, pursuant to the Mower
and Olah Option Agreement, to certain covenants prohibiting the Company from
distributing funds to Mr. Signorelli, Mr. Shannon or PMJ Enterprises, Inc. or
their affiliates or relatives, but there is a specific exception for payments of
up to Two Thousand Dollars ($2,000) per month to Claddagh Holdings, Inc., a
company owned by Mr. Shannon. See "SHARES ELIGIBLE FOR FUTURE SALE - Mower and
Olah Option Agreement." Claddagh Holdings, Inc. previously provided bookkeeping
services for the Company.
INTEREST OF MOWER, COX, OLAH, SIGNORELLI, SHANNON AND PMJ ENTERPRISES, INC. IN
THE MOWER AND OLAH OPTION AGREEMENT - MUTUAL RELEASE.
Mr. Mower, Mr. Olah, Mr. Cox, and Mr. Shannon are former officers
and/or directors of the Company. Mr. Signorelli is the President and a director
of the Company. PMJ Enterprises, Inc. is a corporation controlled by Mr.
Shannon. While Mr. Mower was an officer of the Company and while Mr. Cox, Mr.
Shannon and Mr. Signorelli were officers and/or directors of the Company,
pursuant to the Mower and Olah Option Agreement the Company entered into a
Mutual Release with Mr. Mower, Mr. Cox, Mr. Olah, Mr. Signorelli, Mr. Shannon
and PMJ Enterprises, Inc. releasing them from certain liabilities to the
Company. See "SHARES ELIGIBLE FOR FUTURE SALE - Mower and Olah Option
Agreement."
THE INTEREST OF MOWER, COX, OLAH, SIGNORELLI AND SHANNON IN THE MOWER AND OLAH
OPTION AGREEMENT - INDEMNIFICATION AGREEMENTS.
Mr. Mower, Mr. Cox, Mr. Shannon are former officers and/or directors of
the Company. Mr. Signorelli is the President and a director of the Company.
While Mr. Mower was an officer of the Company and while Mr. Cox, Mr. Shannon and
Mr. Signorelli were officers and/or directors of the Company, pursuant to the
Mower and Olah Option Agreement, the Company entered into an Indemnification
Agreement with each of Mower, Cox, Olah, Signorelli and Shannon, pursuant to
which each such party will be indemnified by the Company for certain claims and
liabilities. See "SHARES ELIGIBLE FOR FUTURE SALE - Mower and Olah Option
Agreement."
SHANNON'S INTEREST WITH REGARD TO THE ORIGINAL PMJ ENTERPRISES LOAN AND THE NEW
PMJ ENTERPRISES, INC. LOAN.
Mr. Shannon is a former officer and director of the Company and is the
controlling stockholder of PMJ Enterprises, Inc. In May, 1995, while Shannon was
still an officer and director of the Company, PMJ Enterprises, Inc. loaned
$500,000 to the Company, which loan was evidenced by the New PMJ Enterprises
Note. Both the Original PMJ Enterprises Note in the amount of $558,000 and the
New PMJ Enterprises Note were secured by the PMJ Enterprises Deed of Trust which
was executed in May, 1995. See "BRIDGE FINANCING - PMJ Enterprises, Inc. Secured
Debt."
SIGNORELLI'S INTEREST WITH REGARD TO THE SIGNORELLI STOCK OPTIONS AND THE
SIGNORELLI RESTRICTED STOCK.
Mr. Signorelli is an officer and director of the Company. In May, 1995,
the Company granted to Mr. Signorelli an incentive option to purchase 1,000,000
shares of the Company's Common Stock at an option price of $0.25 per share. In
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August, 1995, (i) the Company granted to Mr. Signorelli an incentive option to
purchase an additional 96,225 shares of the Company's Common Stock at an option
price of $1.94 per share, (ii) the Company and Mr. Signorelli entered into a
Restricted Stock Purchase Agreement pursuant to which Mr. Signorelli purchased
40,000 shares of restricted Common Stock at a purchase price of $0.25 per share
for a $10,000 promissory note, and (iii) the Company granted to Mr. Signorelli
an incentive option to purchase an additional 100,000 shares at an option price
of $3.85 per share. See "MANAGEMENT - Outstanding Stock Options and Restricted
Stock."
KELLEY/TAM SECURED LOANS
Pursuant to the New Kelley Loan Agreement and the Participation and
Intercreditor Agreement, Drs. Kelley and Tam have loaned the Company $5,750,800
(the "New Loan Proceeds"), which consists of: (i) the aggregate principal amount
of the Original Bowlin Note, the Second Bowlin Note and the reconveyance fees of
$60,000 paid by Drs. Kelley and Tam for assignment of the Assigned Interests (in
an amount totalling $2,337,000); (ii) the existing credit under the Kelley Loan
Agreement of $1,460,000; (iii) $43,800, which is the existing commitment fee
under the Kelley Loan Agreement (with the total of (ii) and (iii) referred to as
the "Loan Proceeds"); (iv) $1,000,000 (the "Additional Loan Proceeds"), which
are a portion of the additional funds Drs. Kelley and Tam have agreed to advance
under the terms of the New Kelley Loan Agreement; (v) $30,000, which represents
a 3% commitment fee (the "Additional Commitment Fee") for the Additional Loan
Proceeds; and (vi) $880,000, which is the second portion of additional credit
Drs. Kelley and Tam made available under the terms of the New Kelley Loan
Agreement. Drs. Kelley and Tam have also made a $300,000 loan to the Company
secured by the Mesquite property. See "BRIDGE FINANCING - Kelley/Tam Secured
Debt Indebtedness - Secured Convertible Debt."
THE COMPANY'S OPTION TO PURCHASE AN INTEREST IN NORTH LAS VEGAS REAL PROPERTY
FROM DESERT MESA LAND PARTNERS, LTD.
Pursuant to the Option Agreement between the Company, Desert Mesa and
High Mesa, Desert Mesa has granted the Company an option to purchase from Desert
Mesa an indirect 20% ownership interest in the North Las Vegas Property. Desert
Mesa's general partner is a Nevada corporation in which Dr. Tam is an officer
and a 35% stockholder. Dr. Tam is also an officer and 52.7% stockholder of High
Mesa. See "BUSINESS - Facilities and Properties: North Las Vegas Option
Agreement."
* * * *
The Company believes that all of the above transactions with present or
former officers, directors and stockholders of the Company and/or their
affiliated companies were made on terms no less favorable to the Company than
those available from unaffiliated parties. The Company plans to engage in
transactions with officers and stockholders, if at all, in the future, on terms
no less favorable to the Company than those which would be available from
unaffiliated parties.
[Remainder of Page Intentionally Blank.]
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DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 100,000,000
shares of Stock, $0.01 par value, of which 50,000,000 shares have been
designated as Common Stock and 1,500,000 shares have been designated as Series A
Convertible Non-Voting Participating Preferred Stock. The Company's Transfer
Agent and Registrar for the Common Stock and the Warrants is Corporate Stock
Transfer, Inc., 370 17th Street, Suite 2350, Denver, Colorado, 80202. Its
telephone number is (303) 595- 3300.
The following summary of certain terms of the Warrants, Common Stock
and Preferred Stock does not purport to be complete and is subject to, and
qualified in its entirety by, the provisions of the Company's Restated Articles
and Bylaws, which are included as exhibits to the Registration Statement of
which this Prospectus is a part, and the provisions of applicable law.
WARRANTS
The Warrants will be issued in registered form under, governed by and
subject to the terms of a Warrant Agreement (the "Warrant Agreement") between
the Company and Corporate Stock Transfer, Inc., Denver, Colorado, as Warrant
agent (the "Warrant Agent"). The following statements are qualified in their
entirety by reference to the Warrant Agreement and also the detailed provisions
of the form of Warrant attached to the Warrant Agreement. Copies of the Warrant
Agreement may be obtained from the Company or the Warrant Agent and have been
filed with the Commission as an exhibit to the Registration Statement of which
this Prospectus is a part. See "ADDITIONAL INFORMATION." The Warrants are in
registered form and may be presented to the Warrant Agent for transfer, exchange
or exercise at any time prior to their expiration date three years from the date
of this Prospectus, at which time the Warrants become wholly void and of no
value. If a market for the Warrants develops, the holder may sell the Warrants
instead of exercising them. There can be no assurance, however, that a market
for the Warrants will develop or continue.
Each Warrant entitles its holder to purchase, at any time from the date
of this Prospectus through the third anniversary of the date of this Prospectus,
one share of Common Stock at a price of $6.00 per share, with a $0.50 credit for
each Warrant surrendered on exercise, subject to adjustment in certain events.
The right to exercise the Warrants will terminate at the close of business on
the third anniversary of the date of this Prospectus. The Warrants contain
provisions that protect the Warrantholders against dilution by adjustment of the
exercise price in certain events including, but not limited to, stock dividends,
stock splits, reclassifications or mergers. In the event of liquidation,
dissolution or winding up of the Company, holders of the Warrants, unless
exercised, will not be entitled to participate in the assets of the Company.
Holders of the Warrants will have no voting, preemptive, liquidation or other
rights of a shareholder, and no dividends will be declared on the Warrants. The
Company has authorized and reserved for issuance a sufficient number of shares
of Common Stock to accommodate the exercise of all Warrants to be issued in this
Offering. The shares of Common Stock, when issued upon the exercise of the
Warrants in accordance with the terms thereof, will be fully paid and
non-assessable.
The holder of any Warrant may exercise such Warrant by surrendering the
certificate representing the Warrant to the Warrant Agent, with the subscription
form on the reverse side of such certificate properly completed and executed,
together with payment of the exercise price. The Warrants may be exercised at
any time in whole or in part at the applicable exercise price until expiration
of the Warrants three years from the date of this Prospectus. No fractional
shares will be issued upon the exercise of the Warrants.
The Warrants may be redeemed by the Company at any time prior to
expiration, at a redemption price of $0.55 per Warrant during the first and
second years after the date of this Prospectus, and $0.75 per Warrant during the
third year after the date of this Prospectus, on not less than 30 days' prior
written notice to the holders of such Warrants, provided that the closing high
bid price of the Common Stock on the NASDAQ SmallCap Market, or the last sale
price per share of the Common Stock if listed on the NASDAQ National Market or
on a national exchange is at least $7.00 per share (subject to adjustment) for a
period of 20 consecutive trading days ending on the third day prior to the date
the notice of redemption is given. Holders of Warrants shall have exercise
rights until the close of the business day preceding the date fixed for
redemption. If any Warrant called for redemption is not exercised by such time,
it will cease to be exercisable and the holder will be entitled only to the
redemption price. Redemption of the Warrants could force Warrantholders either
to (i) exercise the Warrants and pay the exercise price thereof at a time when
it may be less advantageous economically to do so, or (ii) accept the redemption
price in consideration for cancellation of the Warrant, which could be
substantially less than the market value thereof at the time of
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redemption redeemed without consent. The exercise price of the Warrants is
subject to adjustment upon the occurrence of certain events, including the
issuance of dividends payable in Common Stock and subdivisions or combinations
of the Common Stock.
At any time when the Warrants are exercisable, the Company is required
to have a current registration statement on file with the Commission and to
effect appropriate qualifications under the laws and regulations of the states
in which the holders of Warrants reside in order to comply with applicable laws
in connection with the exercise of the Warrants and the resale of the Common
Stock issued upon such exercise. So long as the Warrants are outstanding, the
Company has undertaken to file all post-effective amendments to the Registration
Statement required to be filed under the Securities Act, and to take appropriate
action under federal and state securities laws to permit the issuance and resale
of Common Stock issuable upon exercise of the Warrants. There can be no
assurance, however, that the Company will be in a position to effect such action
under the federal and applicable state securities laws, and the failure of the
Company to effect such action may cause the exercise of the Warrants and the
resale or other disposition of the Common Stock issued upon such exercise to
become unlawful. The Company may amend the terms of the Warrants but only by
extending the termination date or lowering the exercise price thereof. The
Company has no present intention of amending such terms.
If the Representative, at its election, solicits the exercise of the
Warrants, the Company will be obligated, subject to certain conditions, to pay
the Representative a solicitation fee equal to 10% of the aggregate proceeds
received by the Company as a result of the solicitation. The Representative may
reallow a portion of the fee to soliciting broker-dealers. Because the
Representative is a member of the National Association of Securities Dealers,
Inc. ("NASD"), any such solicitation by the Representative must comply with the
requirements of Section 44(c)(6)(B)(x) of Article III of the NASD Rules of Fair
Practice.
The entire proceeds from sale of the Warrants will be placed in an
interest-bearing escrow account established with Tri-State Bank, Denver,
Colorado, during the three-year term of the Warrants. The escrow proceeds,
together with accrued interest, will be released to the Company or to the
Warrantholders, as follows: (i) upon exercise of each Warrant, $0.50 will be
credited to the $6.00 Warrant exercise price and will be released to the
Company; (ii) upon redemption of the Warrants, the escrow proceeds relating to
such redemption will be released to the Company; and (iii) to the extent that
the Warrants are not exercised or redeemed within the three-year Warrant period,
then the remaining escrow proceeds, plus accrued interest thereon, will be
returned to those Warrantholders owning unexercised or unredeemed Warrants.
Tri-State Bank is located at 616 East Speer Boulevard, Denver, Colorado 80203.
Its telephone number is (303) 778-0303.
COMMON STOCK
As of the date of this Prospectus, there are 5,090,000 shares of Common
Stock outstanding, and after completion of this Offering, 6,622,087 shares of
Common Stock will be issued and outstanding, assuming no exercise of the
Over-allotment Option. Holders of Common Stock are entitled to one vote for each
share held of record on all matters submitted to a vote of the stockholders.
Subject to preferences that may be applicable to any then outstanding Series A
Shares, holders of Common Stock are entitled to receive ratably such dividends
as may be declared by the Board of Directors out of funds legally available
therefor. See "DIVIDEND POLICY." In the event of a liquidation, dissolution or
winding up of the Company, holders of Common Stock are entitled to share ratably
in all assets remaining after payment of liabilities and the liquidation
preference of any then outstanding Series A Shares. Holders of Common Stock have
no right to convert their Common Stock into any other securities. The Common
Stock has no preemptive or other subscription rights. There are no redemption or
sinking fund provisions applicable to the Common Stock. All outstanding shares
of Common Stock are, and the Common Stock to be outstanding upon completion of
this Offering will be, duly authorized, validly issued, fully paid and
nonassessable.
SERIES A SHARES
The Restated Articles of the Company permit the Board of Directors to
authorize different classes or series of shares, either common or preferred, and
to fix the voting powers, designations, preferences, limitations, restrictions,
and relative rights of each class or series of shares. On April 6, 1994, the
Company filed a Certificate of Designation of Common Stock and Series A
Convertible Non-Voting Participating Preferred Stock (the "Certificate of
Designation") setting forth the powers, designations, preferences, limitations,
restrictions, and relative rights of such series of common and preferred stock.
Pursuant to the Certificate of Designation, the Board of Directors authorized
the Company to issue a maximum of 1,500,000 Series A Shares, $0.01 par value
with a stated value of $3.85, of which there are currently issued and
outstanding 1,483,344 shares. With respect to rights on liquidation,
dissolution, or winding up, the Series A Shares rank prior to the Common Stock.
The holders of the Series A Shares are entitled to receive, when, as, and if
declared by the Board of Directors, out of the assets of the Corporation legally
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available therefor, dividends and distributions on par with the holders of the
Common Stock. The Series A shares shall not entitle the holders thereof to any
voting rights except as otherwise required by law.
On December 15, 1995, the Company delivered the Redemption Offer to the
holders of the Company's Series A Shares, which allowed the holders of the
Series A Shares the option of either converting their Series A Shares to shares
of Common Stock in the Company at a conversion price of $3.00 per share of
Common Stock (or 1.2833 shares of Common Stock for each Series A Share) or to
have the Company redeem their shares for cash consideration equal to the $3.85
redemption value thereof. By noticed announcement, the Company notified its
Series A Stockholders that, as of January 16, 1996 (the "Offer Deadline"), the
Offer closed and the Company would no longer accept elections to redeem or
convert the Series A Shares. As of the Offer Deadline, holders of 507,944 of the
Series A Shares gave notice to the Company that they intend to convert their
Series A Shares into shares of Common Stock and holders of 689,840 of the Series
A Shares gave notice to the Company that they intend to have the Company redeem
their shares for cash consideration equal to the $3.85 redemption value thereof.
All redeemed Series A Shares will be retired. The remaining 285,560 outstanding
Series A Shares have also been granted the right to convert at $3.00 per share
(or 1.2833 shares of Common Stock for each Series A Share). The Board of
Directors has the ability without further action by the stockholders, to
authorize the issuance of up to an additional 16,656 shares of Preferred Stock,
$.01 par value. The Board of Directors currently has no plans to authorize the
issuance of any additional Series A Preferred Stock.
PREFERRED SHARES
The Board of Directors of the Company has the ability to issue all or
any portion of the authorized but unissued additional preferred stock in one or
more series and to fix the rights, preferences, privileges and restrictions
thereof, including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences and the number of shares constituting any
series or the designation of such series. If the Company issues additional
preferred stock and the Company is required to obtain the consent of such
additional preferred stockholders before taking certain specified actions
(including, but not limited to, effecting a change in control of the Company or
redeeming shares of the Company's stock), the issuance of additional preferred
stock could adversely affect the voting power of holders of the Common Stock and
could have the effect of delaying, deferring or preventing a change in control
of the Company. The Board of Directors currently has no plans to authorize the
issuance of any additional preferred stock.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have outstanding
6,622,087 shares of Common Stock without taking into account shares of Common
Stock issuable upon exercise of outstanding options, outstanding warrants issued
in earlier transactions, the Warrants to be issued in this Offering and without
giving effect to the exercise of the over-allotment option granted to the
Representative. All shares acquired in this Offering, other than shares that may
be acquired by "affiliates" of the Company as defined by Rule 144 under the
Securities Act, will be freely transferable without restriction or further
registration under the Securities Act.
All of the 5,090,000 shares outstanding prior to this Offering were
issued by the Company and sold by the Company in private transactions in
reliance on an exemption from registration. Accordingly, such shares are
"restricted shares" within the meaning of Rule 144 and cannot be resold without
registration, except in reliance on Rule 144 or another applicable exemption
from registration. The directors and officers of the Company and stockholders
who own 5% or more of the Company's Common Stock, have agreed that they will
not, with certain exceptions, sell any of their shares for a period of 18 months
from the date of this Prospectus without the prior consent of the
Representative.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are required to be aggregated), including any affiliate of the
Company, who beneficially owns "restricted shares" for a period of at least two
years, is entitled to sell within any three month period, shares equal in number
to the greater of (i) 1% of the then outstanding shares of Common Stock or (ii)
the average weekly trading volume of the Common Stock during the four calendar
weeks preceding the filing of the required notice of sale with the Securities
and Exchange Commission. The seller also must comply with the notice and manner
of sale requirements of Rule 144, and there must be current public information
available about the Company. In addition, any person (or persons whose shares
are aggregated) who is not, at the time of the sale, nor during the preceding
three months, an affiliate of the Company, and who has beneficially owned
restricted shares for at least three years, can sell such shares under Rule 144
without regard to notice, manner of sale, public information or the volume
limitations described above.
OUTSTANDING SERIES A SHARES, WARRANTS, OPTION AGREEMENTS, CONVERTIBLE PROMISSORY
NOTES, AND OTHER AGREEMENTS RELATING TO COMMON STOCK
OUTSTANDING SERIES A SHARES; PRIOR PRIVATE OFFERING OF SERIES A SHARES;
OFFER FOR REDEMPTION OF SERIES A SHARES. The Restated Articles of the Company
authorize issuance of a maximum of 1,500,000 Series A Shares. Pursuant to a
Confidential Private Offering Memorandum, dated December 2, 1993 (the "Private
Offering Memorandum"), the Company conducted a limited private placement
offering of Series A Shares intended to be exempt from the registration
requirements of the Securities Act pursuant to Rule 506 of Regulation D which
resulted in proceeds of $5,710,874 to the Company. Each Series A Share was
convertible to one share of Common Stock at any time after 21 days following the
effectiveness of the Company's initial public offering. In addition, the
purchasers of the Series A Shares agreed not to sell, transfer or otherwise
dispose of their Series A Shares and the shares of Common Stock issuable upon
conversion of the Series A Shares for up to 180 days after the conclusion of the
initial public Offering. See "DESCRIPTION OF SECURITIES."
On December 15, 1995, the Company delivered the Redemption Offer to the
holders of the Company's Series A Shares, which allows the holders of the Series
A Shares the option of either converting their Series A Shares to shares of
Common Stock in the Company at a conversion price of $3.00 per share of Common
Stock (or 1.2833 shares of Common Stock for each Series A Share) or to have the
Company redeem their shares for cash consideration equal to the $3.85 redemption
value thereof. As of the Offer Deadline, the holders of 507,944 of the Series A
Shares gave notice to the Company that they intend to convert their Series A
Shares into shares of Common Stock and holders of 689,840 of the Series A Shares
gave notice to the Company that they intend to have the Company redeem their
shares for cash consideration equal to the $3.85 redemption value thereof. The
redemption will be consummated concurrent with the closing of this Offering, at
which time the redeemed Series A Shares will be retired. The remaining 285,560
outstanding Series A Shares remain outstanding and are convertible into Common
Stock at the rate of 1.2833 shares of Common Stock for each Series A Share. The
Company believes that the remaining 285,560 Series A Shares will convert into
Common Stock following closing of the Offering and, accordingly, certain figures
contained in this Prospectus have been adjusted to reflect the conversion of all
Series A Shares that did not elect to redeem.
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EXISTING WARRANTS.
A. Warrants Issued In Connection with the Private Placement of
the Series A Shares. The following Common Stock Purchase Warrants were issued in
connection with the private placement of the Series A Shares and are outstanding
as of September 30, 1995:
(i) Common Stock Purchase Warrant, dated December 30,
1993 issued to R.J. Steichen & Company, to purchase 93,458 shares of the
Company's Common Stock for a purchase price of $4.62 per share.
(ii) Common Stock Purchase Warrant, dated December 30,
1993 issued to John G. Kinnard and Company to purchase 9,500 shares of the
Company's Common Stock for a purchase price of $4.62 per share.
(iii) Common Stock Purchase Warrant, dated February 28,
1994 issued to R.J. Steichen & Company, to purchase 41,476 shares of the
Company's Common Stock for a purchase price of $4.62 per share.
(iv) Common Stock Purchase Warrant, dated March 16, 1994
issued to R. J. Steichen & Company to purchase 3,900 shares of the Company's
Common Stock for a purchase price of $4.62 per share.
B. Warrants Issued in Connection with the Bowlin Secured Debt.
The following Common Stock Purchase Warrants were issued in connection with the
Bowlin Secured Debt and are outstanding as of September 30, 1995.
(i) Common Stock Purchase Warrant, dated August 14, 1995
issued to The Bowlin Family Trust, to purchase 51,875 shares for a purchase
price of $1.00 per share.
(ii) Common Stock Purchase Warrant, dated August 14, 1995
issued to Kilmer, to purchase 42,500 shares for a purchase price of $1.00 per
share.
(iii) Common Stock Purchase Warrant, dated August 14, 1995
issued to The Slevcove Trust, to purchase 30,625 shares for a purchase price of
$1.00 per share.
(iv) Common Stock Purchase Warrant, dated August 14, 1995
issued to The Bowlin Trust, to purchase 20,750 shares for a purchase price of
$1.94 per share.
(v) Common Stock Purchase Warrant, dated August 14, 1995
issued to Kilmer, to purchase 17,000 shares for a purchase price of $1.94 per
share.
(vi) Common Stock Purchase Warrant, dated August 14, 1995
issued to The Slevcove Trust, to purchase 12,250 shares for a purchase price of
$1.94 per share.
(vii) Common Stock Purchase Warrant, dated August 14, 1995
issued to Richard Bowlin, to purchase 200,000 shares for a purchase price of
$1.94 per share.
C. Warrant Issued in Connection with the Kelley Secured Debt. In
connection with the Kelley Loan Agreement (as defined above in "BRIDGE
FINANCING: Kelley/Tam Secured Debt"), Dr. Kelley was issued a Common Stock
Purchase Warrant, dated August 15, 1995, as amended, to purchase 250,000 shares
for a purchase price of $0.97 per share (the "Kelley Warrant"). 125,000 shares
of the Kelley Warrant has been assigned to Dr. Richard Tam.
KELLEY STOCK PURCHASE AGREEMENT
The Company entered into a Stock Purchase Agreement, dated August 14,
1995, with PMJ, Shannon and Dr. Kelley, as modified by letter agreement dated
August 14, 1995 and the Amendment to Stock Purchase Agreement and Promissory
Notes (collectively, the "Kelley Stock Purchase Agreement"), pursuant to which
PMJ has agreed to sell to Dr. Kelley 2,475,000 shares of the Common Stock of the
Company currently owned by PMJ (the "PMJ Stock") for $3,465,000 or $1.40 per
share. The
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closing of the stock purchase (the "Kelley Closing Date") is scheduled to occur
concurrent with the closing of this Offering. See "BRIDGE FINANCING - Kelley/Tam
Secured Debt - Secured Convertible Debt - New Convertible Loan Agreement.
Originally, Dr. Kelley was the sole purchaser under the Kelley Stock Purchase
Agreement; however, pursuant to the Tam Stock Purchase Agreement (as defined
below), Kelley (i) has assigned 50% of his rights and obligations with respect
to the PMJ Stock to Dr. Richard Tam and (ii) has been released from 50% of his
obligations under the Kelley Stock Purchase Agreement. In particular, in
October, 1995, Dr. Kelley assigned 50% of his rights and obligations under the
Kelley Stock Purchase Agreement to Richard Tam, pursuant to the Assignment of
Rights and Obligations Under Stock Purchase Agreement (the "Tam Stock Purchase
Agreement") among the Company and Drs. Tam and Kelley. Under the Tam Stock
Purchase Agreement, Dr. Tam is obligated to purchase 50% of the PMJ Stock (the
"Tam Stock"), in accordance with the terms of the Kelley Stock Purchase
Agreement, and Dr. Kelley is under no further obligation to purchase the Tam
Stock from PMJ. Under the Tam Stock Purchase Agreement, in the event that Dr.
Kelley elects to exercise the Kelley Call Option, Dr. Tam is required to pay 50%
of the amount due to exercise the Call Option. Further, if PMJ exercises the PMJ
Put Option (as discussed below), Dr. Tam is obligated to purchase 50% of the
shares subject to the PMJ Put Option. In addition, whenever the Kelley Stock
Purchase Agreement requires any action, decision or consent to be given or taken
by Dr. Kelley, Dr. Kelley and Dr. Tam will attempt to mutually agree upon such
action, decision or consent. In the event Dr. Kelley and Dr. Tam cannot agree,
Dr. Kelley's decisions on such action, decision or consent is final and binding
on Dr. Kelley and Dr. Tam, as long as such decision does not violate the Kelley
Stock Purchase Agreement. Finally, the Tam Stock Purchase Agreement provides
that Dr. Tam is assigned Dr. Kelley's right to designate one of the two Kelley
Directors.
The Kelley Stock Purchase Agreement provides that the closing of the
purchase of the PMJ Stock is contingent on this Offering resulting in gross
proceeds (total shares times the price per share) of not less than $12,500,000;
however, Drs. Kelley and Tam have agreed to waive this condition.
In connection with the execution of the Kelley Stock Purchase
Agreement, Dr. Kelley and Dr. Tam paid to PMJ a non-refundable deposit in the
amount of $150,000. The balance of the purchase price, $3,315,000 (the
"Remaining Principal Payment"), is to be paid in equal proportions by Dr. Kelley
and Dr. Tam as follows: (i) $850,000 on the Kelley Closing Date, (ii) the
remaining $2,465,000 of the purchase price by Dr. Kelley and Dr. Tam each
executing a promissory note (the "Kelley Stock Purchase Notes") in the amount of
$1,232,500, due 24 months following the Kelley Closing Date, with interest only
payable monthly at the rate of 8% per annum. Dr. Kelley's and Dr. Tam's
obligations under the Kelley Stock Purchase Note will be secured by a pledge of
the PMJ Stock to be purchased (the "Stock Pledge"), pursuant to a Stock Pledge
Agreement; however, upon Dr. Kelley's and Dr. Tam's delivery of the $150,000
deposit and $850,000 on the Closing Date, 714,286 shares of the PMJ Stock will
not be subject to the Stock Pledge. In addition, under the Stock Pledge
Agreement, for every $2.50 in the principal balance of the Kelley Stock Purchase
Note paid to PMJ, PMJ has agreed to release from the Stock Pledge one share of
the PMJ Stock (plus any cash, property or securities delivered as additional
collateral on account of such released share of stock).
If an "Initial Public Offering" (which is defined in the Kelley Stock
Purchase Agreement as a public offering of securities of the Company resulting
in gross proceeds (total shares sold times the price per share) of not less than
$12,500,000) is not completed and Dr. Kelley and Dr. Tam still elect to purchase
the PMJ Stock, then the Remaining Principal Payment will be due 24 months
following the Kelley Closing Date together with interest at 8% per annum,
payable monthly; however, if during such 24-month period, the Company effects a
public offering of securities that, together with any previous public offering
results in gross proceeds of at least $12,500,000, (i) Dr. Kelley and Dr. Tam
have agreed to prepay $850,000 of the Remaining Principal Payment within 10
business days of the closing of such subsequent public offering, and (ii) PMJ
has agreed to release from the Stock Pledge 714,285 shares of the PMJ Stock.
The Kelley Stock Purchase Agreement provides that Dr. Kelley also has a
call option (the "Kelley Call Option") exercisable by written notice at any time
before the Kelley Closing Date, to purchase from PMJ up to an additional 200,000
shares of Common Stock ("Seller's Remaining Stock") for a purchase price of
$3.48 per share. So long as (i) PMJ or Mr. Shannon is not otherwise in breach or
default of the Kelley Stock Purchase Agreement, (ii) the Kelley Closing has
occurred and Dr. Kelley and Dr. Tam have purchased the PMJ Stock thereunder, and
(iii) the underwriters do not exercise their over-allotment option with respect
to 100,000 shares owned by PMJ, then PMJ shall have a put option (the "PMJ Put
Option") entitling PMJ to require Dr. Kelley and Dr. Tam to purchase from PMJ
the Unexercised Remaining Stock at a per share purchase price of $3.48 per
share, one-half of which amount will be added to each of the Kelley Stock
Purchase Notes and paid when the Remaining Principal Payment is due thereunder.
The Representative does not intend to sell shares for PMJ from its
over-allotment option.
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The Kelley Stock Purchase Agreement, as amended by the Tam Stock
Purchase Agreement, also provides that, upon the closing of any public offering
of securities under the 1933 Act, at the option of Dr. Kelley, the Company will
(i) cause to be appointed or elected to the five-member Board Dr. Kelley and Dr.
Tam; and (ii) cause the Board to elect Dr. Kelley as Chairman of the Board of
the Company.
Pursuant to the terms of the Kelley Stock Purchase Agreement, the
Company is not permitted to do any of the following prior to the closing of the
Kelley Stock Purchase Agreement without the prior written consent of Dr. Kelley:
(i) make any loan or advance to any third party, except for advances in the
ordinary course of business and loans to employees not exceeding $500 to any one
employee and $5,000 in the aggregate at any time outstanding; (ii) guarantee or
agree to guarantee, or permit or agree to permit directly or indirectly, any
indebtedness; (iii) sell, transfer, lease or encumber any assets of the Company
having a book value in excess of $10,000; (iv) issue, reserve or agree to issue
any securities of the Company, excluding those which may be issued under the
Kelley Loan Agreement; (v) liquidate, dissolve, merge or consolidate; (vi) sell,
lease, assign or transfer any substantial part of the Company's business or
assets, or the Mesquite Property or any other property or assets necessary for
the continuance of the Company's business; (vii) declare or pay any dividend or
other distributions on any of its securities, whether now outstanding or issued
in the future; (viii) modify, amend, purchase, redeem or retire any of such
securities, except as contemplated under the Kelley Stock Purchase Agreement and
the repurchase options between the Company and the Minneapolis Shareholders;
(ix) create, issue, assume or incur, or guarantee or otherwise become or be
liable (directly or indirectly) in respect of any borrowed funds other than the
indebtedness incurred by the Company pursuant to the Kelley Loan Agreement and
any extensions, renewals, or refinancing thereof; (x) amend or modify the Kelley
Loan Agreement; and (xi) enter into any contract material to the business or
financial condition of the Company, or which may affect the Mesquite Property or
the Project.
Dr. Kelley has also been granted registration rights pursuant to the
terms of the Kelley Stock Purchase Agreement with respect to the Common Stock to
be purchased and the Company has agreed to make and keep public information
available and to file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the Exchange Act. This
is done so that Dr. Kelley will have the benefits of Rule 144 which permit the
sale of securities to the public without registration upon certain terms and
conditions.
In addition to the partial assignment to Dr. Tam, Dr. Kelley may assign
his rights to purchase shares of Common Stock under the Kelley Stock Purchase
Agreement and Dr. Kelley will be released from any liability thereunder with
respect to an assignment to (i) any person consented to by PMJ, which consent
shall not be unreasonably withheld, or (ii) to any person who has a net worth of
$15,000,000 or more.
The Kelley Stock Purchase Agreement also requires the Company to bear
the costs, fees and expenses (including reasonable attorneys' fees) incurred in
connection with any necessary applications with gaming authorities relating to
Dr. Kelley, Dr. Tam or any assignees or nominees to the board designated by
them.
For the past 16 years, Dr. Kelley has been the President and Chief
Executive Officer of Outrigger Enterprises, which owns or manages over 50 hotels
in the United States. Since 1994, Dr. Kelley has served as Outrigger's Chairman
of the Board of Directors. Dr. Tam has 40 years of experience in the development
and management of commercial real estate. Dr. Tam was previously licensed by the
Nevada Commission as an owner and operator of a casino.
In addition to the execution and delivery of certain documents by the
parties to the Kelley Stock Purchase Agreement, the conditions to closing of the
Kelley Stock Purchase Agreement include, but are not limited to, the following:
(i) the Company is not in default under the Kelley Loan Agreement (discussed
above), (ii) all representations and warranties are true and correct, all
pre-closing covenants and agreements performed and all consents received, (iii)
the Company obtains insurance policies covering its properties and assets,
public liability, errors and omissions, and directors' and officers' liability,
in amounts and against losses and risks as are mutually acceptable to the
Company and Dr. Kelley, and such policies are in force and effect with premiums
paid as of the closing, (iv) Dr. Kelley approves all material agreements entered
or to be entered into by the Company or its stockholders, or by which they may
be bound, (v) the Company submits a complete application for all required
permits or licenses for the Company and the Mesquite Project to all governing
gaming authorities, and (vi) the closing of this Offering shall have occurred
resulting in gross proceeds of at least $12,500,000 to the Company. See "BRIDGE
FINANCING - PMJ Enterprises, Inc. Secured Debt" for a discussion of the PMJ
Enterprises Notes and the subordination of the PMJ Enterprises Deed of Trust;
"BRIDGE FINANCING - Kelley/Tam Secured Debt - Secured Convertible Debt - New
Convertible Loan Agreement" for a discussion of the New Kelley Deed of Trust and
the New Kelley Security Interest; and "BUSINESS - Facilities and Properties" for
a discussion of the PMJ Option.
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KELLEY CONVERTIBLE PROMISSORY NOTE
Pursuant to the terms of the New Kelley Loan Agreement, the increased
Loan Proceeds of up to $2,533,800 (the "Convertible Loan Proceeds"), together
with accrued interest attributable to this amount, are convertible, by payment
of cash or retirement of debt, into a maximum of 2,052,994 shares of the
Company's Common Stock, plus such additional shares of the Company's Common
Stock attributable to accrued and unpaid interest with respect to the
Convertible Loan Proceeds. See "BRIDGE FINANCING - Kelley/Tam Secured Debt -
Secured Convertible Debt - New Convertible Loan Agreement."
AMERICAN CAPITAL AGREEMENT
Pursuant to a Settlement Agreement entered into effective January 31,
1996, between the Company and American Capital Investors Corporation ("American
Capital"), the Company issued 50,000 shares of the Company's Common Stock to
American Capital, in consideration for consulting services previously rendered
by American Capital to the Company.
KELLEY / TAM OPTIONS
Pursuant to the Stock Option Agreement, dated August 20, 1995, the
Company granted to Dr. Tam options to purchase 85,613 shares of the Company's
Common Stock at an exercise price of $0.25 per share. Pursuant to the Stock
Option Agreement, dated August 20, 1995, the Company granted to Dr. Kelley
options to purchase 85,612 shares of the Company's Common Stock at an exercise
price of $0.25 per share.
JAMES M. SHADLAUS OPTIONS
Pursuant to the Stock Option Agreement, dated August 20, 1995 (the
"Shadlaus Option"), the Company granted to Mr. Shadlaus options to purchase
75,000 shares of the Company's Common Stock at an exercise price of $0.25 per
share.
MOWER AND OLAH OPTION AGREEMENT
The Company has entered into an Option Agreement (the "Mower and Olah
Option Agreement") with Mower and Olah pursuant to which, among other things,
(i) Mower granted to the Company the exclusive right and option to repurchase
440,006 of his shares of Common Stock of the Company for a purchase price of
$0.25 per share, and (ii) Olah granted to the Company the exclusive right and
option to repurchase 425,116 of his shares of Common Stock of the Company for a
repurchase price of $0.25 per share (all such options herein collectively, the
"Mower and Olah Repurchase Options"). Thus, a total of 865,122 shares are
subject to the Mower and Olah Repurchase Options. Mower and Olah deposited all
865,122 shares which are subject to the Company's repurchase option into escrow
in accordance with the terms of the Mower and Olah Option Agreement.
On December 27, 1995, the Company gave notice of its exercise of the
Mower and Olah Repurchase Options by delivery of written notice to Mower and
Olah and will, therefore, be required to purchase their shares within 15
business days after the closing of this Offering. Because the closing of the
Mower and Olah Repurchase Options is contingent on the closing of the Company's
redemption offer to its Series A Preferred Shareholders, the Repurchase Closing
Date is the same date as the closing of the Company's redemption offer to its
Series A Preferred Shareholders. See "USE OF PROCEEDS" and "CAPITALIZATION." The
Company intends to use a portion of the proceeds of this Offering to purchase
the shares subject to the Mower and Olah Repurchase Options and intends to close
the purchase of such shares concurrent with the closing of this Offering.
Mower, Olah and James W. Cox ("Cox") executed and delivered their
written resignations as an officer and/or a director, as the case may be, of the
Company, which resignations were effective on the effective date of the Mower
and Olah Option Agreement. See "MANAGEMENT."
In connection with the Mower and Olah Option Agreement, the Company
granted Cox a nonqualified option to purchase 10,000 shares of the Common Stock
of the Company for $1.94 per share.
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<PAGE> 80
Also in connection with the Mower and Olah Option Agreement, the
Company, PMJ, Patrick J. Shannon ("Shannon"), Signorelli, Olah, Mower and Cox
executed a Mutual Release pursuant to which: (i) the Company, PMJ, Shannon and
Signorelli release, and forever discharge, subject to certain exceptions, Mower,
Olah and Cox, and all of their respective representatives, of and from any and
all actions, causes of actions, liabilities, suits, debts, sums of money,
accounts, bonds, bills, covenants, contracts, controversies, agreements,
promises, damages, judgments, claims and demands whatsoever, state or federal,
in law or in equity, whether known or unknown, asserted or unasserted, suspected
or unsuspected, which the Company, PMJ, Signorelli or Shannon may now have or
claim to have against Mower, Olah or Cox, or any or all of them arising prior to
the signing of the Mutual Release; (ii) Mower, Olah and Cox release, and forever
discharge (a) the Company, PMJ, Signorelli and Shannon and all of their
respective representatives, and (b) Signorelli and Shannon, and their respective
representatives, of and from any and all actions, causes of actions,
liabilities, suits, debts, sums of money, accounts, bonds, bills, covenants,
contracts, controversies, agreements, promises, damages, judgments, claims and
demands whatsoever, state or federal, in law or in equity, whether known or
unknown, asserted or unasserted, suspected or unsuspected, which Mower, Olah or
Cox, any or all of them, may now have or claim to have against the Company, PMJ,
Signorelli or Shannon, or any or all of them, arising prior to the signing of
the Mutual Release.
Pursuant to the Mower and Olah Option Agreement, the Company agreed to
indemnify Messrs. Olah, Cox, Mower, Signorelli, and Shannon to the fullest
extent allowed by applicable law, pursuant to Indemnification Agreements, dated
as of May 24, 1995, between the Company and each of Messrs. Olah, Cox, Mower,
Signorelli, and Shannon. Insofar as indemnification for liabilities arising
under the Securities Act of 1933 (the "Act") may be permitted to directors,
officers and controlling persons of the small business issuer pursuant to the
foregoing provisions, or otherwise, the Company has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
See "MANAGEMENT - Indemnification of Directors and Officers."
Mower and Olah were each entitled to 25,000 options to purchase Common
Stock of the Company. By executing the Mower and Olah Option Agreement, Mower
and Olah thereby forfeited any and all of their respective rights to any and all
director or other options held by each of them to purchase any shares of stock
of the Company. Pursuant to the Mower and Olah Option Agreement, such forfeiture
was effective on the date the repurchase closed (the "Mower and Olah Repurchase
Closing Date").
Pursuant to the terms of the Mower and Olah Option Agreement, until the
Mower and Olah Repurchase Closing, unless otherwise consented to in writing by
Mower and Olah, (i) the Company agreed to use all future funds raised by the
Company for proper corporate purposes subject to any restrictions on the use
thereof imposed by the source of the funds; (ii) the Company agreed to
distribute no funds to Signorelli, Shannon, PMJ or their affiliates or relatives
in the form of dividends, retirement of debt and/or the redemption of their
stock; provided, however, this restriction shall not apply to (A) the current
salary, perquisites and expense reimbursements paid to Signorelli as President
and an employee of the Company, (B) the expense reimbursements paid to Shannon
incurred while engaging in the Company's business, (C) the repayment of the
Original PMJ Enterprises Note, plus accrued and unpaid interest, out of the
proceeds of a bridge loan or this Offering, (D) the repayment of the New PMJ
Enterprises Note plus accrued and unpaid interest, out of the proceeds of a
bridge loan or this Offering, and/or (E) up to the Two Thousand Dollars
($2,000.00) per month which may be paid by the Company to Claddagh Holdings,
Inc. ("Claddagh"), a company owned by Shannon, for certain administrative
services performed by Claddagh for the Company; (iii) the Company agreed not to
enter into any transaction or agreement in conflict with the terms and
provisions of this Agreement; and (iv) the Company agreed that any person (each,
a "New Director") who is elected to the board of directors of the Company upon
the resignation of Olah and Cox shall be required to acknowledge in writing that
such New Director shall be bound by the terms of the Mower and Olah Option
Agreement as it pertains to their position as a director of the Company.
MINNEAPOLIS OPTION AGREEMENTS
On May 24, 1995, the Company offered to enter into various Option
Agreements (each, a "Minneapolis Option Agreement" and collectively, the
"Minneapolis Option Agreements") with various stockholders of the Company (who
will be sometimes collectively referred to as the "Minneapolis Group"). The
entire Minneapolis Group currently owns 2,250,000 shares in the aggregate of the
currently issued and outstanding shares of the Common Stock of the Company. In
consideration of the agreement by the Company to execute and deliver a release,
certain members (the "Participating Members") of the Minneapolis Group granted
to the Company on a pro rata basis the right and option to the Company to
purchase a total of 88.89% of the shares of Common Stock owned by such
Participating Member for a purchase price of $0.25 per share (each, a
"Minneapolis
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<PAGE> 81
Repurchase Options" and collectively, the "Minneapolis Repurchase Options"). The
Participating Members of the Minneapolis Group in the aggregate, together with
Mower and Olah, have granted options to the Company to purchase a total of
1,636,243 shares of the Company's Common Stock. To evidence such agreement, the
Company has entered into several Option Agreements (each, a "Minneapolis Option
Agreement" and collectively, the "Minneapolis Option Agreements") with each
Participating Member of the Minneapolis Group. The Minneapolis Group has
deposited all of the shares subject to the Minneapolis Repurchase Options into
escrow, as required by the Minneapolis Option Agreements.
The Minneapolis Option Agreements include the following: (i) Option
Agreement, dated as of May 24, 1995, by and among Russell F. Lederman
("Lederman") and the Company, pursuant to which, among other things, Lederman
has granted an option to the Company to repurchase 75,557 of his shares; (ii)
Option Agreement, dated as of May 24, 1995, by and among Barry Fentz ("Fentz")
and the Company, pursuant to which, among other things, Fentz has granted an
option to the Company to repurchase 17,778 of his shares; (iii) Option
Agreement, dated as of May 24, 1995, by and among Jeffrey J. Sjobeck ("Sjobeck")
and the Company, pursuant to which, among other things, Sjobeck has granted an
option to the Company to repurchase 8,889 of his shares; (iv) Option Agreement,
dated as of May 24, 1995, by and among James and Barbara Bowman, Joint Tenants
(the "Bowmans") and the Company, pursuant to which, among other things, the
Bowmans have granted an option to the Company to repurchase 66,668 of their
shares; (v) Option Agreement, dated as of May 24, 1995, by and among William E.
and Joan B. Mower, Joint Tenants (the "Mowers") and the Company, pursuant to
which, among other things, the Mowers have granted an option to the Company to
repurchase 66,668 of their shares; (vi) Option Agreement, dated as of May 24,
1995, by and among Dick L. Wright, Trustee of Nicole E. Mills 1993 Irrevocable
Trust ("Wright, as Trustee") and the Company, pursuant to which, among other
things, Wright has granted an option to the Company to repurchase 8,889 of the
shares owned by the Nicole E. Mills 1993 Irrevocable Trust; (vii) Option
Agreement, dated as of May 24, 1995, by and among Wayne W. Mills ("Mills") and
the Company, pursuant to which, among other things, Mills has granted an option
to the Company to repurchase 124,446 of his shares; (viii) Option Agreement,
dated as of May 24, 1995, by and among John T. Kubinski ("Kubinski") and the
Company, pursuant to which, among other things, Kubinski has granted an option
to the Company to repurchase 66,668 of his shares; (ix) Option Agreement, dated
as of May 24, 1995, by and among Delanor P. Johnson ("Johnson") and the Company,
pursuant to which, among other things, Johnson has granted an option to the
Company to repurchase 180,000 of his shares; (x) Option Agreement, dated as of
May 24, 1995, by and among Timothy E. and Patricia L. Buffham, Joint Tenants
(the "Buffhams") and the Company, pursuant to which, among other things, the
Buffhams have granted an option to the Company to repurchase 88,890 of their
shares; (xi) Option Agreement, dated as of May 24, 1995, by and among Raymond
Dykema ("Dykema") and the Company, pursuant to which, among other things, Dykema
has granted an option to the Company to repurchase 66,668 of his shares.
On December 27, 1995, the Company exercised the Minneapolis Repurchase
Options by delivery of written notice to the Participating Members. The December
27, 1995 Notice set forth the proposed closing date for the exercise of the
Minneapolis Repurchase Options (the "Repurchase Closing Date"), which closing
date is set for within 15 business days after the closing of this Offering.
Because (i) the Minneapolis Repurchase Options must be exercised concurrently
with the Mower and Olah Repurchase Options and (ii) the closing of the Mower and
Olah Repurchase Options is contingent on the closing of the Company's redemption
offer to its Series A Preferred Shareholders, the Repurchase Closing Date is the
same date as the closing of the Company's redemption offer to its Series A
Preferred Shareholders. See "USE OF PROCEEDS" and "CAPITALIZATION." The Company
intends to use a portion of the proceeds of this Offering to purchase the shares
subject to the Minneapolis Repurchase Options and intends to close the purchase
of the shares subject to the Minneapolis Repurchase Options concurrent with the
closing of this Offering.
REGISTRATION RIGHTS
Pursuant to the New Kelley Loan Agreement, the Convertible Loan
Proceeds, plus accrued interest attributable to the Convertible Loan Proceeds,
will be convertible by payment or cash or retirement of debt into a maximum
amount of 2,052,994 shares of the Company's Common Stock, plus such additional
shares of the Company's Common Stock attributable to accrued and unpaid interest
with respect to the Convertible Loan Proceeds. See "BRIDGE FINANCING -
Kelley/Tam Secured Debt Secured Convertible Debt - New Convertible Loan
Agreement." If Dr. Kelley or Dr. Tam desire to subsequently sell the Converted
Shares or the Kelley Option Shares (with either to be referred to as the "Kelley
Shares"), they are first obligated to give written notice to the Company. If in
the opinion of counsel to the Company the proposed sale of the Kelley Shares may
not be effected without registration of the Kelley Shares under the 1933 Act or
the registration or qualification thereof under any applicable blue sky or state
securities laws then in effect, then, upon the election of the holders of not
less than 50% of the Kelley
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Shares to be sold, the Company shall be obligated to file and shall cause to
become effective under the 1933 Act an appropriate Registration Statement and
shall register and qualify such Kelley Shares proposed to be sold under any
applicable blue sky or state securities laws then in effect. The Company is
obligated to pay all costs in connection with such a registration. Dr. Kelley
and Dr. Tam (and their assignees) shall each have the right to two such
mandatory registrations.
In addition, the Company has agreed to take certain acts to register
the shares of the Company's Common Stock purchased pursuant to the Kelley Stock
Purchase Agreement and any common stock of the Company issued as a dividend or
other distribution with respect to or in exchange for or in replacement of, the
PMJ Stock purchased pursuant to the Kelley Stock Purchase Agreement (the
"Registrable Securities"), in compliance with the 1933 Act, upon the request of
any holder of record of the Registrable Securities who acquired said Registrable
Securities in a transaction or series of transactions not involving any public
offering then holding not less than 25% of said Registrable Securities (the
"Initiating Holders"). Upon the written request of the Initiating Holders, the
Company is obligated to use its best efforts to effect all such registrations,
qualifications and compliances (including, without limitation, the execution of
an undertaking to file post-effective amendments, appropriate qualification
under applicable blue sky or other state securities laws and appropriate
compliance with exemptive regulations issued under the 1933 Act and any other
governmental requirements or regulations) as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of such
Initiating Holder's Registerable Securities as are specified in such request
together with all or such portion of the Registerable Securities of any holder
or holders joining in such request. The Company is obligated to effect two
registrations for each of Dr. Kelley and Dr. Tam. In addition to the
registration obligations set forth above, in the event, after the closing of the
Kelley's Stock Purchase Agreement, that, after the Company has effected a
registration under the 1933 Act, the Company shall receive, at any time other
than within 12 months after any registration is effected by the Company as set
forth above, from any holder a written request that the Company effect a
registration on Form S-3 and any related qualification or compliance with
respect to all or part of the Registerable Securities owned by such holder, the
Company is obligated to effect as soon as practicable such registration and all
such qualifications and compliances as may be so requested as would permit or
facilitate the sale and distribution of all or such portion of such holder's
Registerable Securities as are specified in such request together with all or
such portion of the Registerable Securities of any holder joining in such
request; provided, however, that the Company shall not be obligated to effect
any such registration, qualification or compliance that the Company is not
qualified as a registrant entitled to use Form S-3, or, if the Company cannot
use available audited financial statements in connection with such offering.
Such Form S-3 registrations shall not count against the two registrations Drs.
Kelley and Tam are entitled to as first set forth above. There is no limit on
the number of Form S-3 registrations that may be requested by holders, provided,
however, that no more than one such registration may be effected in any 12 month
period. Finally, if, after the closing of the Kelley Stock Purchase Agreement,
at any time or from time to time the Company shall determine to register any of
its securities, either for its own account or the account of a security holder
or holders other than (i) a registration relating solely to employee benefit
plans, (ii) a registration relating solely to a transaction pursuant to Rule 145
under the 1933 Act , or, (iii) a registration as set forth above in this
section, the Company is obligated to include in such registration all
Registerable Securities specified in any written request by any holder or
holders received by the Company within 20 days after such written notice is
given. All expenses incurred in connection with any of the registrations,
qualifications or compliances specified above, shall be paid by the Company
(except that the holder shall pay the fees and disbursements of their special
counsel as well as the filing and registration fees payable to the Securities
and Exchange Commission, the NASD or State Securities authorities for the
Registerable Securities). In addition, the Company has agreed to indemnify and
hold harmless each holder of a Registerable Securities with respect to
registration statements filed under the 1933 Act, against all losses, claims,
damages expenses and litigation expenses arising out of any untrue statement or
alleged untrue statement of material fact contained in such registration
statement or the omission or alleged omission therefrom of a material fact. Each
holder agrees that it will indemnify and hold the Company harmless from all
loss, liability, claim, damage and expense with respect to statements or
omissions or alleged statements or omissions made in such registration statement
in reliance upon and in conformity with written information furnished to the
Company by such holder expressly for use in such registration statement. In
addition, the Company has agreed to make and keep public information available
and on file with the SEC in a timely manner all reports and other documents
required of the Company under the 1933 Act and the Exchange Act so that Drs.
Kelley and Tam will have the benefits of Rule 144 which permit the sale of
securities to the public without registration upon certain terms and conditions.
[Remainder of Page Intentionally Left Blank]
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UNDERWRITING
The Underwriters named below, acting through RAF Financial Corporation,
as a representative (the "Representative"), have jointly and severally agreed,
subject to the terms and conditions of the Underwriting Agreement, to purchase
from the Company and the Company has agreed to sell to the Underwriters, the
respective number of shares of Common Stock and Warrants set forth opposite
their names below at the offering price less the underwriting discount set forth
on the cover page of this Prospectus:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES AND WARRANTS
- ----------- -----------------------------
<S> <C>
RAF Financial Corporation............................. 2,150,000
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters to pay for and accept delivery of the securities offered hereby are
subject to the approval of certain legal matters by their counsel and to certain
other conditions. The Underwriters are obligated to purchase 2,150,000 shares of
Common Stock and Warrants, if any are purchased.
The Underwriters propose to offer part of the Common Stock and Warrants
offered hereby directly to the public at the offering price and part of the
Shares and Warrants to certain dealers at a price that represents a concession
within the discretion of the Representative. The Underwriters do not intend to
confirm sales to accounts over which they exercise discretionary authority. The
Underwriters may allow, and such dealers may re-allow, a concession within the
discretion of the Representative. After the initial offering, the offering price
and the selling terms may be changed by the Underwriters.
The Common Shares and Warrants offered by the Underwriters are subject
to prior sale. The Underwriters reserve the right to withdraw, cancel or modify
such offer (which may be done only by filing an amendment to the Registration
Statement) and to reject orders in whole or in part for the purchase of any of
the Common Shares and Warrants and to cancel any sale even after the purchase
price has been paid if such sale, in the opinion of the Underwriters, would
violate federal or state securities laws or a rule or policy of the National
Association of Securities Dealers, Inc.
The Company and the Underwriters have agreed to indemnify each other
and related persons against certain liabilities, including liabilities under the
Securities Act, and, if such indemnifications are unavailable or are
insufficient, the Company and the Underwriters have agreed to damage
contribution arrangements between them based upon the relative benefits received
from the Offering and the relative fault resulting in such damages. Such
relative benefits and relative fault would be determined in legal actions among
the parties. Under such contribution arrangements, the maximum amount payable by
any Underwriter would be the public offering price of the Common Shares and
Warrants underwritten and distributed by such Underwriter.
The Underwriting Agreement requires that the officers and directors of
the Company and holders of 5% or more of the outstanding Common Shares prior to
this Offering enter into lockup agreements providing they will not sell or
otherwise transfer their Common Shares for a period of 18 months after the date
of this Prospectus, except with the consent of the Representative.
See "SHARES ELIGIBLE FOR FUTURE SALE."
The Company has granted to the Representative an option, exercisable
within 30 days from the date of this Prospectus, to purchase up to an additional
322,500 shares and 322,500 Warrants (approximately 15% of the original
issuances), at the initial public Offering prices, solely for the purpose of
covering over-allotments, if any (the "Over-allotment Option"). In addition, the
Company has agreed to pay to the Representative at the closing of the Offering a
non-accountable expense allowance of 3% of the aggregate public offering price
of the Common Stock to cover expenses incurred by the Representative in
connection with this Offering, reduced by amounts advanced by the Company which,
as of the date of this Prospectus, are $65,000.
The Company has agreed to issue for $50.00, the Representative's
Warrants to the Representative as of the date of this Prospectus. The
Representative's Warrants are exercisable at any time during the period
beginning one year and ending five years after the date of this Prospectus to
purchase up to 215,000 shares of Common Stock (10% of the original issuance) for
$__________ per share (165% of the initial public offering price). The
Representative's Warrants are not transferable except to an officer of the
Representative. During the term of the Representative's Warrants, the holders
thereof are given the opportunity to profit from a rise in the market price of
the Company's securities. The Company may find it more difficult to
-79-
<PAGE> 84
raise additional equity capital while the Representative's Warrants are
outstanding. At any time at which the Representative's Warrants are likely to be
exercised, the Company would probably be able to obtain additional equity
capital on more favorable terms. Any profit realized on the sale of the
underlying Shares may be deemed additional underwriting compensation. The shares
of Common Stock issuable upon the exercise of the Representative's Warrants have
been registered by the Company in connection with this Offering.
In addition to the Representative's Warrants, the Company has agreed
upon completion of this Offering to issue to the Representative, for $50.00,
Warrants to purchase 215,000 shares of Common Stock. These Warrants contain the
same terms and conditions as the Warrants except that (i) the exercise price
will be 165% of the exercise price of the Warrants, (ii) the Warrants issuable
to the Representative are not transferable except to an officer of the
Representative and (iii) the Warrants issuable to the Representative are not
redeemable.
The warrants issued to the Representative will expire unless exercised
within five years of issuance.
The initial Offering prices of the Common Stock and Warrants has been
determined by negotiations between the Company and the Representative, with
consideration being given to the current status of the Company's business, its
financial condition, its present and prospective operations, the general status
of the securities market, and the market conditions for new offerings of
securities. The price bears no relationship to the assets, net worth, book
value, sales price of securities issued to shareholders of the Company, or any
other criteria of value.
The Company and its officers, directors and each holder of 5% or more
of the Common Stock outstanding immediately prior to this Offering have agreed
with the Representative that, without the Representative's consent (which may
not be unreasonably withheld) they will not sell any equity securities of the
Company for a period of 18 months from the date of this Prospectus, subject to
certain exceptions. The Company has also agreed to give the Representative
notice of meetings of its Board of Directors and to grant access to such
meetings to a representative of the Representative. Any such representative will
have no official status or voting rights at any such meeting. The Company has
agreed to indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act, or to contribute to payments that any
Underwriter may be required to make in respect thereof.
For a period of five years after the date of this Prospectus, the
Company has agreed to pay the Representative a consulting fee in connection with
any merger, consolidation, stock exchange or acquisition or sale of all or a
material part of the assets or business of any entity, if such transaction
involves the Company, its parent company, or any of its subsidiaries, if such
transaction was initiated by the Representative. The total fee will be from 1%
to 5% of the value of the transaction. In connection with any such transaction,
the Representative has agreed to provide consulting services which are customary
in the industry. If the Company, its parent company, or any of its subsidiaries,
proposes to engage in any such type of transaction which is not initiated by the
Representative, but in connection with which the Company, its parent company, or
any of its subsidiaries, proposes to obtain services from an investment banker,
the Company has agreed that the Representative will have the first opportunity
to provide consulting services which are customary in the industry in connection
therewith. In such event, the fee to be paid to the Representative will be
determined based upon the fair market value of the services to be performed by
the Representative.
If the Representative, at its election at any time after one year from
the date of this Prospectus, solicits the exercise of the Warrants, the Company
will be obligated, subject to certain conditions, to pay the Representative a
solicitation fee equal to 10% of the aggregate proceeds received by the Company
as a result of the solicitation. No warrant solicitation fees will be paid
within 12 months following the date of this Prospectus. The Representative may
reallow a portion of the fee to soliciting broker-dealers. Because the
Representative is a member of the National Association of Securities Dealers,
Inc. ("NASD"), any such solicitation by the Representative must comply with the
requirements of Section 44(c)(6)(B)(x) of Article III of the NASD Rules of Fair
Practice.
-80-
<PAGE> 85
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for
the Company by Page, Polin & Busch, San Diego, California. The law firm of
Hopper and Kanouff, P.C., Denver, Colorado, has acted as legal counsel to the
Representative in connection with certain legal matters relating to this
Offering.
EXPERTS
The financial statements of the Company included herein and elsewhere
in the Prospectus and registration statement, for the year ended December 31,
1995 and the related statements of operations, stockholders' equity and cash
flows from the date of inception to December 31, 1995, have been audited by
McGladrey & Pullen, LLP, independent certified public accountants, as stated in
such firm's report appearing herein and elsewhere in the Prospectus and
registration statement, are included in reliance upon the report of such firm
given their authority as experts in accounting and auditing. The financial
statements of the Company included herein and elsewhere in the Prospectus and
registration statement for the year ended December 31, 1994, have been audited
by Taylor & Co., independent certified public accountants, as stated in such
firm's report appearing herein are included in reliance upon the report of such
firm given their authority as experts in accounting and auditing.
CHANGE IN ACCOUNTANTS
The Company's Board of Directors appointed McGladrey & Pullen, LLP, as
the independent auditors for the Company on September 29, 1995, to replace
Taylor & Co. During the period Taylor & Co. was retained by the Company, there
were no disagreements between Taylor & Co. and the Company on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreements, if not resolved to the satisfaction of
Taylor & Co., would have caused them to make reference to the disagreement in
any of their reports to the Company. In addition, no report on the financial
statements of the Company rendered by Taylor & Co. contained an adverse opinion
or a disclaimer of opinion or was qualified or modified as to uncertainty, the
scope of the audit performed or accounting principles.
ADDITIONAL INFORMATION
With respect to securities offered hereby, the Company has filed with
the Los Angeles Regional office of the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form SB-2 under the Securities Act of
1933, as amended (the "Securities Act"). For the purposes hereof, the term
"Registration Statement" means the original Registration Statement and any and
all amendments thereto. This Prospectus does not contain all of the information
set forth in the Registration Statement and the exhibits thereto, to which
reference hereby is made. Each statement made in this Prospectus concerning a
document filed as an exhibit to the Registration Statement is not necessarily
complete and is qualified in its entirety by reference to such exhibit for a
complete statement of its provisions. Any interested party may inspect the
Registration Statement and its exhibits, without charge, at the public reference
facilities maintained by the Commission at its principal office at Judiciary
Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the
Commission's regional offices located at 7 World Trade Center, 13th Floor, New
York, New York 10048; Northwest Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511; and 5670 Wilshire Boulevard, 11th Floor, Los
Angeles California 90036. Any interested party may obtain copies of all or any
portion of the Registration Statement and its exhibits at prescribed rates from
the Public Reference Branch of the SEC at Judiciary Plaza, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549.
The Company is not presently a reporting company subject to certain
information requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and does not file reports and other information with the
Commission. As a result of this Offering, the Company will become subject to
such requirements and will file periodic reports with the Commission.
The Company intends to distribute to its stockholders annual reports
containing financial statements audited by its independent public accountants.
-81-
<PAGE> 86
INDEX TO FINANCIAL STATEMENTS
Page
----
Independent Auditors' Reports
McGladrey & Pullen, LLP F-1
Taylor & Company F-2
Financial Statements
Balance Sheet F-3
Statements of Operations F-4
Statements of Stockholders' Equity F-5
Statements of Cash Flows F-6
Notes to Financial Statements F-8
-82-
<PAGE> 87
[LOGO]
MCGLADREY & PULLEN, LLP
-----------------------
CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
NEVSTAR GAMING CORPORATION
Las Vegas, Nevada
We have audited the accompanying balance sheet of NevStar Gaming Corporation, a
development stage company, as of December 31, 1995, and the related statements
of operations, stockholders' equity and cash flows for the year then ended and
from the date of inception to December 31, 1995. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit. The statements of
operations, stockholders' equity and cash flows of NevStar Gaming Corporation
for the year ended December 31, 1994 were audited by other auditors whose
report, dated January 27, 1995, expressed an unqualified opinion on those
statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1995 and inception to December 31, 1995 financial statements
referred to above present fairly, in all material respects, the financial
position of NevStar Gaming Corporation as of December 31, 1995, and the results
of its operations and its cash flows for the year then ended and from the date
of inception to December 31, 1995 in conformity with generally accepted
accounting principles.
Las Vegas, Nevada
February 29, 1996 /s/ McGladrey & Pullen, LLP
F-1
<PAGE> 88
[TAYLOR & COMPANY LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
Board of Directors
Mesquite Gaming Corp.
Las Vegas, Nevada
We have audited the accompanying balance sheet of Mesquite Gaming Corp. (a
development stage enterprise), as of December 31, 1994, and 1993, and the
related statements of operations, shareholders' equity and cash flows for the
periods then ended and for the period from December 2, 1993 (inception) to
December 31, 1994. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Mesquite Gaming Corp., as of
December 31, 1994 and 1993, and the results of its operations and its cash flows
for the periods then ended and for the period from December 2, 1993 (inception)
to December 31, 1994 in conformity with generally accepted accounting
principles.
/s/ Taylor & Company
January 27, 1995
F-2
<PAGE> 89
NEVSTAR GAMING CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
MARCH 31, 1996 AND DECEMBER 31,1995
<TABLE>
<CAPTION>
December 31,
March 31, December 31, 1995
ASSETS 1996 1995 "Pro Forma"
- ---------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
(Note 10)
<S> <C> <C>
Cash $ 6,736 $ 7,864
Property and equipment, net (Notes 2 and 4) 9,009,547 8,242,610
Prepaid and other assets (Note 3) 740,129 470,951
-----------------------------
$ 9,756,412 $ 8,721,425
=============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts payable $ 103,514 $ 255,288
Accrued expenses 663,208 110,690
Notes payable (Note 4) 5,705,363 4,696,363
-----------------------------
6,472,085 5,062,341
-----------------------------
Stockholders' Equity
Series A Convertible Non-Voting Preferred stock,
$.01 par value, issued and outstanding
1,483,344 shares (Note 5) $ 14,834 14,834 --
Common stock $.01 par value; issued and
outstanding 5,090,000 shares (Notes 6 and 7) 50,900 50,900 44,721
Additional paid-in capital 5,956,802 5,956,802 2,912,870
Deficit accumulated during the development stage (2,738,209) (2,363,452) (2,363,452)
----------------------------- -----------
3,284,327 3,659,084 594,139
----------------------------- ===========
$ 9,756,412 $ 8,721,425
=============================
</TABLE>
See Notes to Financial Statements.
F-3
<PAGE> 90
NEVSTAR GAIMING CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Inception Three Months Ended Inception
Years Ended December 31, (December 2, 1993) March 31, (December 2, 1993)
--------------------------- to ----------------------- to
1995 1994 December 31, 1995 1996 1995 March 31, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Interest income $ 5,256 $ 42,873 $ 48,457 $ -- $ 3,235 $ 48,457
Other income 3,849 2,223 6,072 860 600 6,932
---------------------------------------------------------------------------------------
9,105 45,096 54,529 860 3,835 55,389
---------------------------------------------------------------------------------------
Expenses:
Compensation and related payroll costs 970,733 151,203 1,131,885 70,214 38,921 1,202,099
Depreciation and amortization 175,046 -- 175,046 101,157 1,770 276,203
Original issue discount expense 145,500 -- 145,500 97,000 -- 242,500
Outside consulting 538,215 -- 538,215 12,300 -- 550,515
Other expenses 296,854 130,471 427,335 94,946 69,301 522,281
---------------------------------------------------------------------------------------
2,126,359 281,674 2,417,981 375,617 109,992 2,793,598
---------------------------------------------------------------------------------------
NET LOSS $(2,117,254) $(236,578) $(2,363,452) $(374,757) $(106,157) $(2,738,209)
=======================================================================================
Net loss per common share: $ (0.26) $ (0.03) $ (0.05) $ (0.01)
========================== =========================
Number of common shares outstanding 8,145,844 8,145,844 8,145,844 8,145,844
========================== =========================
Supplemental net loss per common share $ (0.24) $ (0.04)
============ ==========
Supplemental numnber of common shares
outstanding 8,761,776 8,761,776
============ ==========
</TABLE>
See Notes to Financial Statements
F-4
<PAGE> 91
NEVSTAR GAMING CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995 AND 1994 AND FOR THE PERIOD
FROM THE DATE OF INCEPTION (DECEMBER 2, 1993) TO DECEMBER 31, 1993
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
-------------------- -------------------- Paid-In Accumulated
Shares Dollars Shares Dollars Capital Deficit Total
------ ------- ------ ------- ---------- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Shares issued at inception:
For cash -- $ -- 2,250,000 $22,500 $ -- $ -- $22,500
Exchange for property (Note 8) -- -- 2,750,000 27,500 -- -- 27,500
Preferential dividend to majority
stockholder (Note 8) -- -- -- -- (588,456) -- (588,456)
Net loss for period -- -- -- -- -- (9,620) (9,620)
--------- ------- --------- ------- -------- -------- -------
Balance, December 31, 1993 -- -- 5,000,000 50,000 (588,456) (9,620) (548,076)
Proceeds from private placement
offering, net of offering
expenses (Note 5) 1,483,344 14,834 -- -- 4,962,938 -- 4,977,772
Net loss -- -- -- -- -- (236,578) (236,578)
--------- ------- --------- ------- -------- -------- -------
Balance, December 31, 1994 1,483,344 14,834 5,000,000 50,000 4,374,482 (246,198) 4,193,118
Sale of common stock -- -- 40,000 400 9,600 -- 10,000
Issuance of common stock, stock
warrants and options,
including expense recorded
for $1,330,720 (Note 7) -- -- 50,000 500 1,572,720 -- 1,573,220
Net loss -- -- -- -- -- (2,117,254) (2,117,254)
--------- ------- --------- ------- ---------- ----------- ----------
Balance, December 31, 1995 1,483,344 $14,834 5,090,000 $50,900 $5,956,802 $(2,363,452) $3,659,084
========= ======= ========= ======= ========== =========== ==========
STATEMENT OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1996
Balance, December 31, 1995 1,483,344 $14,834 5,090,000 $50,900 $5,956,802 $(2,363,452) $3,659,084
Net loss (unaudited) -- -- -- -- -- (374,757) (374,757)
--------- ------- --------- ------- ---------- ----------- ----------
Balance, March 31, 1996 (unaudited) 1,483,344 $14,834 5,090,000 $50,900 $5,956,802 $(2,738,209) $3,284,327
========= ======= ========= ======= ========== =========== ==========
</TABLE>
F-5
<PAGE> 92
NEVSTAR GAMING CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Inception Inception
(December 2, Three Months Ended (December 2,
Years Ended December 31, 1993) to March 31, 1993) to
------------------------- December 31, --------------------- March 31,
1995 1994 1995 1996 1995 1996
- --------------------------------------------------------------------------------------------- ------------------------------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities
Net (loss) $(2,117,254) $ (236,578) $(2,363,452) $(374,757) $(106,157) (2,738,209)
Adjustments to reconcile net (loss) to
net cash (used in) operating acrivities:
Expense for stock warrants and options 1,330,720 -- 1,330,720 -- -- 1,330,720
Amortization of original issue discount 145,500 -- 145,500 97,000 -- 242,500
Loss on investment 34,200 -- 34,200 -- -- 34,200
Depreciation and amortization 175,046 -- 175,046 101,157 1,770 276,203
Change in assets and liabilities:
Increase in prepaid and other assets (524,995) (10,917) (535,912) (334,363) (8,839) (870,275)
Increase (decrease) in accounts payable 232,676 22,612 255,288 (151,774) (1,974) 103,514
Increase in accrued expenses 28,917 81,773 110,690 552,518 19,684 663,208
----------------------------------------- -----------------------------------
Net cash (used in) operating activities (695,190) (143,110) (847,920) (110,219) (95,516) (958,139)
----------------------------------------- ------------------------------------
Cash Flows from Investing Activities
Construction costs incurred (1,657,739) (1,952,112) (3,609,851) (797,093) (178,175) (4,406,944)
Purchase of investment -- (34,200) (34,200) -- -- (34,200)
Purchase of equipment -- -- -- (5,816) (522) (5,816)
----------------------------------------- ------------------------------------
Net cash (used in) investing activities (1,657,739) (1,986,312) (3,644,051) (802,909) (178,697) (4,446,960)
</TABLE>
F-6
<PAGE> 93
NEVSTAR GAMING CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
Inception Three Months Ended
Years Ended December 31, (December 2, 1993) March 31, Inception
------------------------ -------------------- (December 2, 1993)
1995 1994 to December 31, 1995 1996 1995 to March 31, 1996
------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Cash Flows from Financing
Activities
Proceeds allocated to
warrants 242,500 - 242,500 - - 242,500
Proceeds allocated to
convertible notes 962,063 - 962,063 - - 962,063
Proceeds from notes
payable 500,000 - 500,000 912,000 - 1,412,000
Principal payments
on notes payable - (2,215,000) (2,215,000) - - (2,215,000)
Proceeds from preferred
stock offering - 4,977,772 4,977,772 - - 4,977,772
Proceeds from common stock
issued 10,000 - 32,500 - - 32,500
------------------------------------------------------------------------------------------------------
NET CASH PROVIDED
BY FINANCING
ACTIVITIES 1,714,563 2,762,772 4,499,835 912,000 - 5,411,835
-----------------------------------------------------------------------------------------------------
NET INCREASE
(DECREASE)
IN CASH (638,366) 633,350 7,864 (1,128) (274,213) 6,736
Cash, beginning 646,230 12,880 - 7,864 646,230 -
----------------------------------------------------------------------------------------------------
Cash, ending $ 7,864 $646,230 $7,864 $ 6,736 $372,017 6,736
====================================================================================================
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Acquisition of property:
Assumption of notes
payable $ - $ - $2,442,000 $ - $ - $ 2,442,000
Issuance of notes
payable - - 2,758,000 - - 2,758,000
Issuance of common
stock - - 27,500 - - 27,500
Preferential dividend - - (588,456) - - (588,456)
--------------------------------------------------------------------------------------------------
$ - $ - $2,442,000 $ - $ - $ 4,639,044
==================================================================================================
Commitment fees on notes
payable $ 103,800 $ - $ 103,800 $ - $ - $ 103,800
==================================================================================================
</TABLE>
See Notes to Financial Statements.
F-7
<PAGE> 94
NEVSTAR GAMING CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of business
NevStar Gaming Corporation (formerly Mesquite Gaming Corp.) is a development
stage company which was formed in December 1993 to develop, construct and
operate a casino hotel facility in Mesquite, Nevada. The proposed casino hotel
is expected to feature approximately 34,300 square feet of public area including
two restaurants, a video arcade, a gift shop, and 12,000 square feet of gaming.
The hotel will contain 210 rooms.
The Company estimates it will need approximately S20 million of additional
financing to develop, construct, complete and provide working capital for the
project, however, the Company does not have a fixed price contract for the
completion of the development. The source of this financing is expected to come
from both debt and equity securities. The Company plans to conduct an initial
public offering (IPO) of its common stock. A portion of the proceeds will be
used to redeem certain common and preferred stock as discussed further in these
Notes to financial statements. The Company is negotiating with two financial
institutions to provide construction financing and a finance company to provide
equipment financing in the form of leases or notes. If the Company is
unsuccessful in completing its financing plan, it will seek other sources of
financing to complete the project.
The Company has obtained the appropriate permits for the construction of the
proposed casino, however, the construction will not be completed within the time
allowed by the permits. Management intends to seek an extension of the allowable
time frame and does not anticipate significant problems in obtaining such
extension.
With high regulation involved in the ownership and operation of a casino, the
company, its directors, officers, and principal shareholders will need to be
licensed after construction of the facility is complete, but before operations
are commenced, The estimated cost of licensing is included in the above costs
needed to be financed.
Interim financial statements
The accompanying balance sheet as of March 31, 1996 and the statements of
operations and cash flows for the three month periods ended March 31, 1995 and
1996, respectively, have not been audited. However, these financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-QSB of
Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In management's opinion, the accompanying interim
financial statements reflect all material adjustments (consisting only of normal
recurring accruals) necessary for a fair statement of the results for the
interim periods presented. The results for the three months ended March 31, 1996
are not necessarily indicative of the results which will be reported for the
entire year.
F-8
<PAGE> 95
NEVSTAR GAMING CORPORATION
NOTES TO FINANCIAL STATENZNTS
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Use of estimates in the preparation of financial statements
The preparation of financud statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statement and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
A summary of the Company's significant accounting policies follow:
Cash
The Company maintains cash in a bank account which, at times, exceeds federally
insured limits.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is provided using the
straight-line method over the estimated useful lives of assets currently in
service of 3 to 5 years.
Loan origination costs
Loan origination costs are amortized over the term of the corresponding debt.
Income taxes
Deferred taxes are provided on a liability method whereby deferred tax assets
are recognized for deductible temporary differences and operating loss and tax
credit carryforwards and deferred tax liabilities are recognized for taxable
temporary difference. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax basis. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for the
effect of changes in tax laws and rates on the date of enactment.
As of December 31, 1995 the Company has federal net operating loss carryforwards
of approximately $1,033,000 which are available to offset to future taxable
earnings of the Company. The majority of these carryforwards expire in 2010. Tbe
tax benefit of the $1,033,000 loss carryforward has been offset by a valuation
allowance of the same amount because the Company is uncertain as to the
likelihood of utilization of the carryforward. In addition, there were temporary
differences of approximately $1,331,000 related to compensation and consulting
expenses recorded for financial statement purposes that are not currently
deductible for tax purposes. The deferred tax asset related to these differences
has also been offset by a valuation allowance.
F-9
<PAGE> 96
NEVSTAR GAMING CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Authorized shares
The Company has authority to issue an aggregate of 100,000,000 shares, of which
50,000,000 shares some have been designated as Common Stock with S0.01 par value
and 1,500,000 shares have been designated as Series A Convertible Non-Voting
Preferred Stock with a $0.01 par value.
Net loss per common share
Net loss per common share is based on the weighted average number of shares of
common stock outstanding of 8,145,844 during 1996, 1995 and 1994. The Company
has common stock equivalents consisting of stock options, warrants and
convertible debt, as disclosed in Note 7. These common stock equivalents have
been included in the weighted average number of shares as if they had been
exercised or converted at January 1, 1994.
Supplemental net loss per common share
The supplemental net loss per common share had been calculated using the number
of shares used to calculate the net loss per common share, plus the effect of
the estimated additional shares to be issued in the IPO (615,932) which would be
necessary to redeem 689,840 shares of the Series A Preferred Stock.
Fair value of financial instruments
The Financial Accounting Standards Board issued SFAS No. 107, Disclosures about
Fair Value of Financial Statements, which is effective December 31, 1995. This
statement requires the disclosure of estimated fair values for all financial
instruments for which it is practicable to estimate fair value.
The carrying amounts of financial instruments including cash, accounts payable
and accrued expenses, approximate fair value because of their short maturity.
The carrying amount of notes payable are considered to approximate fair value
because the debt bears interest at rates that approximate the market rates at
December 3 1, 1995 on debt with similar terms.
F-10
<PAGE> 97
NEVSTAR GAMING CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In October 1995, the FASB issued Stamment No. 123, Accounting for Stock-Based
Compensation. Statement No. 123 establishes financial accounting and reporting
standards for stock-based employee compensation plans, such as stock options and
stock purchase plans. The statement generally suggests but does not require
stock-based compensation arrangements for employees be accounted for based on
the fair value of the consideration received or the fair value of the equity
instruments issued, whichever is more reliably measurable. Stock-based
compensation for nonemployees is required to be accounted for at the fair value
of the instruments issued. Statement No. 123 will first be required for the
Company's year ending December 31, 1996. Companies that do not elect to change
their accounting for stock-based compensation for employees will be required to
disclose the effect on net income and earnings per share as if the provision of
Statement No. 123 were applied. The Company has decided not to adopt the
accounting provisions of this statement for employees' stock-based compensation
arrangements.
Note 2. Property and Equipment
Property and equipment at December 31, 1995 and March 31, 1996 consists of the
following:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---------------------------
(Unaudited)
<S> <C> <C>
Land $4,710,358 $4,710,358
Cost of construction (estimated additional obligations under
construction contracts $8,859,000 as of December 31, 1995) 4,276,269 3,513,098
Furniture and equipment 31,403 25,439
--------------------------
9,018,030 8,248,895
Less accumulated depreciation 8,483 6,285
--------------------------
$9,009,547 $8,242,610
==========================
</TABLE>
The land represents a 25.2 acre site in Mesquite, Nevada being developed for a
casino (Mesquite land). The cost of construction includes architectural and
engineering plans, permits and approval costs, on and off-site infrastructure
improvements, and grading and foundation work at the site. Interest capitalized
during the years ended December 31, 1995, 1994 and inception to December 31,
1995 totaled approximately $423,000, $561,000 and $984,000, respectively.
F-11
<PAGE> 98
NEVSTAR GAMING CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 3. PREPAID AND OTHER ASSETS
Prepaid and other assets consist of the following at December 31, 1995 and March
31, 1996:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---------------------------
(Unaudited)
<S> <C> <C>
Deferred offering costs $517,013 $324,995
Other, primarily loan origination costs 223,116 145,956
------------------------
$740,129 $470,951
========================
</TABLE>
NOTE 4. NOTES PAYABLE
Notes payable consist of the following at December 31, 1995 and March 31, 1996:
See Note 11 for subsequent change in the terms of certain notes.
<TABLE>
<CAPTION>
Much 31, December 31,
1996 1995
---------------------------
(Unaudited)
<S> <C> <C>
Note payable (purchased from former note holders by an investor in
1995), secured by a trust deed on the Mesquite land, interest at
the prime rate (8.5% at December 31, 1995) plus 3%, but not less
than 11%, intercst payable monthly, principal due the earlier of
(a) August 15, 1996, (b) refinancing of the note, (c) sale of the
land, or (d) ten business days following the closing of the IPO $2,337,000 $2,337,000
Convertible notes payable to an investors, secured by a trust
deed on the Mesquite land, interest at prime plus 2% payable
monthly, principal due twenty four equal monthly payments
beginning September, 1996 but due in full upon the
closing of an IPO. The unpaid principal and accrued interest is
convertible into common shares at S.47 per share. The note
holder has been granted certain registration rights (Note 7).
Stated net of unamortized discount. 2,160,363 1,151,363
-------------------------
4,497,363 3,488,363
</TABLE>
F-12
<PAGE> 99
NEVSTAR GAMING CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 4. NOTES PAYABLE (CONTINUED)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
------------------------------
(Unaudited)
<S> <C> <C>
BALANCE FORWARD $4,497,363 $3,488,363
Notes payable to a related party (Note 8) secured by a second trust
deed on the Mesquite land subordinated to the above note
payable to an investor, interest at prime rate to 1O% interest
payable monthly, principal and remaining interest payable at
maturity. Matures an the earlier of (a) closing date of an IP0 with
$12,500,000 or more in gas proceeds, (b) May 30, 1997; (c) date
of refinancing of any other liens secured a trust deed which is
junior in priority to the second trust deed or (d) sale of the
Mesquite land 1,058,000 1,058,000
Note payable secured by a trust deed on a portion of the Mesquite
land, interest payable semi-annually at 9% per annum, due
April 30, 1996 150,000 150,000
-----------------------------
$5,705,363 $4,696,363
=============================
</TABLE>
In 1995, two investors purchased the S2,337,000 notes and agreed to loan the
Company an additional S1,503,800 under the terms described above under
convertible note payable of which $1,248,363 was outstanding at December 31,
1995. The investors were also granted warrants to purchase 250,000 shares of
common stock at $.97 per share (Note 7). These investors also have an agreement
to acquire 2,475,000 shares of common stock from an existing stockholder which
is scheduled to occur concurrent with the closing of the IPO,
Pursuant to a letter of intent dated December 1995, the investors noted above
have agreed to loan the Company an additional $1,910,000 which includes a
$30,000 commitment fee. The loan will be secured by a trust deed on the Mesquite
land. $1,030,000 of the loan plus accrued interest is convertible into common
shares at $1.00 per share. (Note 7). This commitment is subject to completion of
a definitive agreement. (Note 1).
Total interest and fees paid or accrued to related parties and investors was
$345,141 and $42,030 for the year ended December 31, 1995 and 1994,
respectively.
F-13
<PAGE> 100
NEVSTAR GAMING CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 5. PREFERRED STOCK
The original terms of the Series A preferred stock provide that each share is
convertible into one share of common stock on the 21st day following the
effective date of an IPO.
On December 15, 1995, the Company delivered a Redemption Offer to the holders of
the Company's Series A Shares which allowed the holders the option of either
converting their Series A Shares to shares of Common Stock in the Company at a
conversion price of $3.00 per share or to have the Company redeem their shares
for cash equal to $3.85 per share, which is equal to the original per share
offering price. The Company notified its Series A Stockholders that, as of
January 16, 1996 the Offer closed. As of the Offer deadline, holders of 507,944
of the Series A shares gave notice to the Company that they intend to convert
their shares into Common Stock and holders of 689,840 of the Series A shares
gave notice to the Company that they intend to have the Company redeem their
shares for cash consideration. All redeemed shares will be retired. The
remaining 285,560 outstanding Series A shares have also been granted the right
to convert at $3.00 per share. The redemption and conversion is contingent on
and will be consummated concurrent with the closing of an IPO.
NOTE 6. COMMON STOCK REPURCHASE OPTION
Certain stockholders of the Company have granted the Company an option to
purchase a total of 1,636,243 shares of the Company's Common Stock for a
purchase price of $0.25 per share. On December 27, 1995, the Company exercised
that options subject to the closing of an IPO. The closing date for the
repurchase is set for within 15 business days after the closing of an IPO.
NOTE 7. STOCK OPTIONS, WARRANTS AND OTHER RIGHTS
Stock options
The Company adopted the 1993 Stock Option and Compensation Plan ("the Plan"),
pursuant to which options to acquire an aggregate of 2,500,000 shares of common
stock may be granted. Awards under the Plan may be made to Company employees,
including directors, officers and consultants of the Company. The Plan confers
upon the Stock Option Committee the discretion to determine the number and
purchase price of the shares applicable to each option, the term of each
option, and the time or times during its term when the option becomes
exercisable. No option may be granted under the plan after December 2002.
F-14
<PAGE> 101
NEVSTAR GAMING CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 7. STOCK OPTIONS, WARRANTS AND OTHER RIGHTS (CONTINUED)
The following is a summary of option activity for each of the two years ended
December 31, 1995 and 1994:
<TABLE>
<CAPTION>
OPTIONS AVAILABLE OPTION
FOR GRANT PRICE
------------------------------
<S> <C> <C>
December 31, 1993 500,000 $ --
Granted -- --
------------------------------
December 31, 1994 500,000 --
Additional shares reserved 2,000,000 --
Granted (1,752,450) .25-3.85
------------------------------
December 31, 1995 747,550 $ --
==============================
</TABLE>
Of the shares granted in 1995, 40,000 shares represent an immediate right to
purchase shares of restricted stock, which occurred in August 1995. At December
31, 1995, options covering 1,712,450 shares are outstanding, of which 1,483,283
are exercisable. At December 31, 1995 the Company recognized $817,600 of
compensation expense and $513,120 of other consulting expense for options
granted at an option price below estimated fair value when granted.
WARRANTS
In connection with the convertible note payable discussed in Note 4, the
Company issued warrants to purchase 250,000 shares of the Company's common stock
at $0.97 per share. The Company allocated $242,500 of the proceeds to the
warrants and recorded a corresponding original issue discount on the
convertible note. The proceeds allocated to the warrants were determined based
on the difference between the purchase price and the estimated fair value when
issued. As of December 31, 1995, $145,000 of the discount had been recognized
as expense by accretion.
In connection with the private placement of the Series A preferred stock, the
Company issued warrants to purchase 148,334 shares of the Company's common
stock at $4.62 per share.
Warrants to purchase 125,000 and 250,000 shares of the Company's common stock at
$1.00 and $1.94 per share respectively were issued in connection with a note
payable which was later purchased by an investor.
OTHER RIGHTS
As part of the convertible note agreement and the additional loan of $1,030,000
as discussed in Note 4, the Company agreed, should the notes be prepaid with
the proceeds of an IPO, the investors would retain the right to acquire the
equivalent number of shares at the conversion rates.
F-15
<PAGE> 102
NEVSTAR GAMING CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 7. STOCK OPTIONS, WARRANTS AND OTHER RIGHTS (CONTINUED)
The following is a summary of all stock options, warrants and other rights to
acquire shares as of December 31, 1995;
<TABLE>
<CAPTION>
Number
of Shares
---------
<S> <C>
Stock options 1,712,450
Warrants 773,334
Convertible notes:
Based on outstanding balance at
December 31, 1995 849,227
Additional shares based on commitments
to lend* 173,767
---------
Total 3,508,778
=========
</TABLE>
* Excluding conversion rights covering 1,030,000 shares on additional lending
arrangements that have been agreed in principle, but not executed (see
Note 11).
NOTE 8. RELATED PARTY TRANSACTIONS
The Mesquite land was acquired from a company related through common ownership
on December 2, 1993 in exchange for 2,750,000 shares of common stock,
assumption of $2,442,000 of notes payable and the issuance of an additional
note payable for $2,758,000.
The historical cost of the land acquired from the related company was $4,639,044
which includes the original purchase price of $3,082,866 plus improvements and
capitalized costs of $1,556,178. The difference between the historical cost
basis and the cost to the Company to acquire the property of $588,456 has been
treated as a preferential dividend. The land costs have been reduced by this
amount with a corresponding reduction to additional paid-in capital.
This same related party loaned the Company $500,000 in 1995.
F-16
<PAGE> 103
NEVSTAR GAMING CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 9. COMMITMENTS
Lease
The Company leases property near the proposed casino hotel facility under a
noncancelable lease which expires in May 2000. The lease requires annual rental
payments of $42,750 and has a total remaining commitment of approximately
$185,000. The Company also has an option to renew the lease for three
additional 5-year terms.
Employment agreements
The Company has employment agreements with two of its officers. The terms of
the agreements are for three years and require payments of approximately
$280,000, $415,000 and $440,000 in the years ended December 31, 1996, 1997 and
1998, respectively.
NOTE 10. PRO FORMA PRESENTATION
The pro forma presentation is presented to reflect the redemption of 689,840
shares of the Series A Preferred Stock for $2,655,884, the conversion of
793,504 shares (including 285,560 shares whose holders have not indicated their
intention to convert) of Preferred Stock into 1,018,330 shares of Common Stock
and the purchase of 1,636,243 shares of Common Stock from stockholders, for
$409,061.
NOTE 11. SUBSEQUENT EVENTS (UNAUDITED)
Investor note commitment
The Company entered into a definitive agreement on April 18, 1996 for
additional financing with the investors, as discussed in Note 4.
Revisions to terms of notes payable
On May 31, 1996 certain modifications were executed to the investor notes
described in Note 4. The modifications primarily involve changing the due date
to one year from the closing of an IPO, or if an IPO does not occur prior to
August 15, 1996, the entire principal is due at that date. In addition, the
investors subordinated their interests in the Mesquite land to the lenders
discussed below.
Lender commitments
In April and subsequently modified on May 31, 1996 the Company received
conditional commitments from two separate lenders for $3,000,000 and $5,000,000
of construction financing to be secured by first and second trust deeds on the
Mesquite property. The commitments are subject to a number of conditions,
including the receipt of at least $10,750,000 from the Company's planned IPO
and the repayment or subordination or any other obligations secured by the
Mesquite land.
F-17
<PAGE> 104
[LOCAL AREA MAP OF MESQUITE, NEVADA]
<PAGE> 105
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the offer made by this Prospectus and, if given or
made, such information or representations must not be relied upon as having been
authorized by the Company or the Representative. Neither the delivery of this
Prospectus nor any sale made hereunder shall under any circumstances create any
implication that there has been no change in the affairs of the Company since
the date hereof. This Prospectus does not constitute an offer or solicitation by
anyone in any jurisdiction in which such offer or solicitation is not authorized
or in which the person making such offer or solicitation is not qualified to do
so or to anyone to whom it is unlawful to make such offer or solicitation.
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUMMARY.................................................. 3
RISK FACTORS........................................................ 7
USE OF PROCEEDS..................................................... 17
CAPITALIZATION...................................................... 22
DILUTION ........................................................... 23
DIVIDEND POLICY..................................................... 24
BRIDGE FINANCING.................................................... 24
SELECTED FINANCIAL DATA............................................. 32
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS................................................. 33
CHANGE OF ACCOUNTANTS............................................... 34
BUSINESS ........................................................... 35
REGULATION AND LICENSING............................................ 47
MANAGEMENT.......................................................... 50
PRINCIPAL STOCKHOLDERS OF THE COMPANY............................... 63
CERTAIN TRANSACTIONS................................................ 65
DESCRIPTION OF SECURITIES........................................... 68
SHARES ELIGIBLE FOR FUTURE SALE..................................... 71
UNDERWRITING........................................................ 79
LEGAL MATTERS....................................................... 81
EXPERTS ........................................................... 81
ADDITIONAL INFORMATION ............................................. 81
INDEPENDENT AUDITORS' REPORTS
MCGLADREY & PULLEN, LLP.................................... F-1
TAYLOR & COMPANY........................................... F-2
FINANCIAL STATEMENTS
BALANCE SHEET ............................................. F-3
STATEMENTS OF OPERATIONS .................................. F-4
STATEMENTS OF STOCKHOLDERS' EQUITY ........................ F-5
STATEMENTS OF CASH FLOW ................................... F-6
NOTES TO FINANCIAL STATEMENTS ............................. F-8
</TABLE>
Until _______________, 1996 (_____ days after the date of this Prospectus), all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This delivery requirement is in addition to the obligation of dealers to deliver
a Prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
Neither the Nevada Gaming Commission nor the Nevada State Gaming Control Board
has passed upon the accuracy or the adequacy of this Prospectus or the
investment merits of the securities offered thereby. Any representation to the
contrary is unlawful.
NEVSTAR GAMING CORPORATION
2,150,000 Shares of Common Stock
PROSPECTUS
RAF FINANCIAL CORPORATION
July ____, 1996
<PAGE> 106
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 78.751 of the Nevada Revised Statutes, Article 4 of the
Company's Restated Articles of Incorporation, and the Company's Bylaws contain
provisions for indemnification of officers and directors of the Company. The
Restated Articles of Incorporation require the Company to indemnify such persons
to the fullest extent permitted by Nevada Law. Generally, directors and officers
are indemnified with respect to actions taken in good faith in a manner
reasonably believed to be in, or not opposed to, the best interests of the
Company, and with respect to any criminal action or proceedings, actions that
the indemnitee had no reasonable cause to believe were unlawful. Indemnification
would cover expenses, including attorney's fees, judgments, fines, taxes, and
amounts paid in settlement.
The Company's Restated Articles of Incorporation and Bylaws also
provide that the Company is permitted to purchase and maintain insurance on
behalf of any present or past director or officer of the Company insuring
against any liability asserted against such person incurred in the capacity of
director or officer or arising out of such status, whether or not the Company
has the authority to indemnify him or her against such liability and expenses.
The Company does not carry liability insurance currently for its directors and
officers, but is evaluating whether to do so in the future.
As permitted by Section 78.037 of the Nevada Revised Statutes, the
Restated Articles of Incorporation provide that a director or officer shall not
be liable for monetary damages for breach of his fiduciary duty as a director or
officer, except in certain limited circumstances.
Further, pursuant to Indemnification Agreements between the Company and
each of (i) Michael J. Signorelli, and (ii) Jeffrey L. Gilbert, the Company has
agreed to indemnify Messrs. Signorelli and Gilbert, as officer and directors of
the Company, to the fullest extent allowable by applicable law. Future board
members and officers of the Company will receive Indemnification Agreements
substantially similar to those already provided to Messrs. Signorelli and
Gilbert.
In addition, the Underwriting Agreement provides for reciprocal
indemnification and contribution between the Company and the Underwriters as to
certain liabilities, including liabilities under the Securities Act of 1933, as
amended.
Insofar as indemnification for liabilities under the Securities Act of
1933 (the "Act") may be permitted to directors, officers and controlling persons
of the Company pursuant to the foregoing provisions, or otherwise, the Company
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-1
<PAGE> 107
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses, other than underwriting
discounts and commissions, payable by the Company in connection with the
issuance and distribution of the securities being registered hereby. With the
exception of the registration fee and the NASD filing fee, all amounts indicated
are estimates.
<TABLE>
<S> <C>
SEC Registration Fee............................................................................ $ 14,235.58
NASD Filing Fee................................................................................. 4,303.31
NASDAQ Small Cap Index Filing Fee............................................................... 8,600.00
Boston Stock Exchange Filing Fee................................................................ 7,500.00
Printing & Engraving Expenses................................................................... 45,000.00
Legal Fees and Expenses (other than Blue Sky)................................................... 100,000.00
Accounting Fees & Expenses
Taylor & Co. .......................................................................... ________*
McGladrey & Pullen, LLP................................................................ 15,000.00
Underwriters' Expense Allowance................................................................. 451,500.00(1)
Transfer Agent Fees............................................................................. 5,000.00
Blue Sky Fees & Expenses (including legal and filing fees)...................................... 15,000.00
Miscellaneous Expenses (including travel and promotional expenses).............................. 10,000.00
Premiums for Indemnification Insurance for Directors and Officers............................... ________*
TOTAL.................................................................................. ________*
</TABLE>
- -----------------
* To be filed by amendment.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
Since the Company's incorporation on December 2, 1993, the Company has
sold securities to a limited number of persons, as described below.(2) Except as
indicated, there were no underwriters involved in the transactions and there
were no underwriting discounts or commissions paid in connection therewith. The
purchasers of securities in each such transaction represented their intention to
acquire the securities for investment only and not with a view to or for sale in
connection with the distribution thereof, and appropriate legends were affixed
to the certificates for the securities issued in such transactions. Further,
each purchaser represented that he was aware that the shares were not registered
under the Securities Act of 1933 as amended, and cannot be reoffered or sold
until they have been so registered or until the availability of the exemption
therefrom has been established to the satisfaction of the Company. Accordingly,
the Company believes that the transactions listed in this section are exempt
from registration pursuant to Section 4(2) of the Securities Act of 1933, as
amended, and the regulations promulgated thereunder, as private transactions
which did not involve a public offering of securities. All purchasers of
securities in each such transaction had adequate access to information about the
Company.
- --------
(1) The Company has agreed to pay the Underwriters 3% of the total price
of the Common Stock sold to the Public (the "Underwriter Compensation"). The
above figure assumes (i) an Offering Price per share of Common Stock of $7.00;
and (ii) the sale of 2,150,000 shares of Common Stock. If the Underwriters
exercise the over-allotment option of 322,500 additional shares of Common Stock,
the Underwriter Compensation will increase by $67,725.
(2) The securities described in this Section do not include (i) unexercised
Stock Options or Warrants granted by the Company, or (ii) securities which will
be sold or redeemed upon or after the closing of this offering. See "Outstanding
Stock Options and Restricted Stock"; "Outstanding Warrants"; "PRINCIPAL
SHAREHOLDERS OF THE COMPANY"; "USE OF PROCEEDS."
II-2
<PAGE> 108
Common Stock Sold.
1. From December 31, 1993 to April 3, 1995, the Company sold 5,000,000
shares of Common Stock to the Shareholders described in this paragraph, for the
consideration and on the dates indicated herein. In addition to being exempt
from registration pursuant to Section 4(2) of the Securities Act of 1933 (the
"Securities Act"), the Company believes that the sale of the Series A Shares was
also in compliance with Rule 504 of Regulation D under the Securities Act.
<TABLE>
<CAPTION>
Name Shares of Common Stock Date of Purchase Total Purchase Price
- ---- ---------------------- ---------------- --------------------
<S> <C> <C> <C>
PMJ Enterprises, Inc. 2,750,000 12/31/93 see footnote(1)
William M. Mower 495,000 4/8/94 $ 4,950.00
D. Bradly Olah 478,250 4/8/94 (229,125) 4,582.50
3/16/95 (10,000) 200.00
Russell F. Lederman 85,000 4/7/94 850.00
Barry Fentz 20,000 4/7/94 200.00
Jeffrey J. Sjobeck 10,000 4/7/94 100.00
James and Barbara Bowman 75,000 4/7/94 750.00
William E. and Joan B. Mower 75,000 4/7/94 750.00
Dick L. Wright, trustee
of Nicole E. Mills
1993 Irrevocable Trust 10,000 4/7/94 100.00
Wayne W. Mills 140,000 4/7/94 1,400.00
John T. Kubinski 75,000 4/7/94 750.00
Delanor P. Johnson 252,500 4/8/94 (124,000) 2,480.00
4/3/95 (2,250) 45.00
Edward and Patricia Dowse 30,000 4/8/94 300.00
Rita Wanner 2,500 4/8/94 25.00
Rick Moncrief 5,000 4/8/94 50.00
Sandra Johnson 10,000 4/7/94 100.00
Kim Johnson, trustee of the
Jim Laing Family Trust 6,000 4/7/94 (2,750) 55.00
4/8/94 (250) 5.00
Judith Edith Weiss 25,000 4/8/94 250.00
Debra Bayerle 2,500 4/8/94 25.00
Anne Townsend 2,000 4/8/94 20.00
Jorn Hubertus Weiss 25,000 4/8/94 250.00
Scott Grams 10,000 4/8/94 100.00
Russell C. Mix 10,000 4/8/94 100.00
Janine Moncrief 2,500 4/8/94 25.00
Steven H. Neren 100,000 4/7/94 1,000.00
Raymond Dykema 75,000 4/7/94 750.00
</TABLE>
- --------
(1) PMJ Enterprises acquired 2,750,000 shares (the "Acquired Shares") of the
Company's Common Stock in exchange for the following consideration: (i) PMJ
Enterprises' transfer of the Mesquite Property to the Company; (ii) assumption
by the Company of PMJ Enterprises' indebtedness related to the Mesquite Property
of $2,442,000, and (iii) promissory notes from the Company to PMJ Enterprises in
the aggregate principal amount of $2,758,000 (the "PMJ Notes"). Within 90 days
of the issuance of the PMJ Notes, the Company paid $2,200,000 of the principal
balance of the PMJ Notes, leaving a single promissory note in the principal
amount of $558,000 outstanding at that time. Upon PMJ Enterprises' acquisition
of the Acquired Shares, 75,000 shares of the Acquired Shares were immediately
transferred to Messrs. Anthony Rose and Arthur Olsen for cash consideration. PMJ
currently owns a total of 2,675,000 shares of the outstanding Common Stock of
the Company, of which 2,475,000 Shares (the "PMJ Stock") is subject to a Stock
Purchase Agreement, dated August 14, 1995, among the Company, PMJ Enterprises,
Patrick J. Shannon, and Dr. Kelley, as modified by (i) those certain letter
agreements dated August 14, 1995 and August 15, 1995 and (ii) the First
Amendment to Stock Purchase Agreement and Second Amendment to Promissory Notes
(the "Kelley Stock Purchase Agreement"). Pursuant to the Kelley Stock Purchase
Agreement, PMJ Enterprises, Inc. has agreed to sell to Dr. Kelley the PMJ Stock
for $3,465,000 or approximately $1.40 per share. The closing of the stock
purchase (the "Kelley Closing Date") is scheduled to occur concurrent with the
closing of this Offering. See "SHARES ELIGIBLE FOR FUTURE SALE -- Kelley Stock
Purchase Agreement; "BRIDGE FINANCING - Kelley/Tam Secured Indebtedness -Secured
Convertible Debt - New Convertible Loan Agreement. Pursuant to that certain
Assignment of Rights and Obligations Under Stock Purchase Agreement, Dr. Kelley
has assigned 50% of his rights and obligations with respect to the PMJ Stock to
Dr. Richard Tam.
II-3
<PAGE> 109
<TABLE>
<S> <C> <C> <C>
Ralph Mack 10,000 4/8/94 100.00
Donnell Mack 3,750 4/8/94 37.50
Alan R. Gingold 12,500 4/7/94 125.00
James R. Canine 12,500 4/7/94 125.00
Timothy E. and Patricia L. Buffham 100,000 4/7/94 1,000.00
Timothy E. and Patricia L. Buffham, trustee of
the William W. Mower Irrevocable Trust 61,250 4/7/94 (25,000) 500.00
4/8/94 (5,625) 112.50
Patricia L. Buffham, Trustee of the
Hale Children's Trust 28,750 4/7/94 287.50
---------
TOTAL: 5,000,000(1)
=========
</TABLE>
2. Pursuant to a Settlement Agreement entered into January 31, 1996,
between the Company and American Capital Investors Corporation ("American
Capital"), and as compensation for American Capital's consulting services to the
Company, the Company has agreed to issue 50,000 shares of the Company's Common
Stock to American Capital.
3. On August 27, 1995, the Company granted to Michael J. Signorelli a
right to immediately purchase 40,000 shares of restricted Common Stock at a
purchase price of $0.25 per share. Mr. Signorelli purchased the 40,000 shares on
August 27, 1995, for an aggregate purchase price of $10,000.
4. The Company and Dr. Richard Kelley entered into a Convertible Loan
Agreement, dated as of August 14, 1995 (the "Loan Agreement"), as modified by
that certain Letter Agreement, dated August 14, 1995 (the "Letter Agreement"),
between the Company and Dr. Kelley, and as restated by the Amended and Restated
Convertible Loan Agreement dated April 18, 1996 (the Loan Agreement and the
Letter Agreement, as amended and restated by the Amended and Restated
Convertible Loan Agreement, being collectively referred to as, the "Kelley Loan
Agreement"), pursuant to which (i) Dr. Kelley and, (ii) pursuant to a
Participation and Intercreditor Agreement between Dr. Kelley and Dr. Richard Tam
entered into in October, 1995, Dr. Tam, have agreed to loan (the "Kelley Loan")
to the Company a maximum of $5,750,800 (including the amount of the commitment
fee thereunder) (the "Kelley Loan Proceeds") to finance certain working capital
requirements of the Company. The Kelley Loan is evidenced by a Convertible
Promissory Note (the "New Kelley Note") in the original maximum principal amount
of $5,750,800. That portion of the New Kelley Note consisting of $2,533,800 (the
"Convertible Loan Proceeds"), plus accrued interest attributable to the
Convertible Loan Proceeds, is convertible into a maximum amount of 2,052,994
shares of the Company's Common Stock, plus such additional shares of the
Company's Common Stock attributable to accrued and unpaid interest with respect
to the Convertible Loan Proceeds, calculated as follows: (i) with respect to the
principal balance of $1,503,800 plus accrued interest attributable thereto,
1,022,994 shares of the Company's Common Stock, plus such additional shares of
the Company's Common Stock attributable to unpaid and accrued interest with
respect to the principal balance of $1,503,800, at a conversion price of $1.47
per share; and (ii) with respect to the remaining principal balance of the
Convertible Loan Proceeds of $1,030,000 plus accrued interest attributable
thereto, 1,030,000 shares of the Company's Common Stock, plus such additional
shares of the Company's Common Stock attributable to unpaid and accrued interest
with respect to the principal balance of $1,030,000, at a conversion price of
$1.00 per share.2 Such conversion rights are exercisable after the closing of
the Offering for all or any portion of the 2,052,994 shares by payment in cash
at any time up through August 15, 1998. Pursuant to the Participation and
Intercreditor Agreement between Dr. Kelley and Richard Tam, Dr. Tam has been
assigned fifty percent (50%) of Dr. Kelley's rights and obligations under the
Kelley Loan Agreement, including all Common Stock into which the New Kelley
Note, together with accrued interest thereunder, is converted. See "BRIDGE
FINANCING -Kelly/Tam Secured Indebtedness - Secured Convertible Debt - New
Convertible Loan Agreement."
- --------
(1) The total amount does not include amounts paid by PMJ Enterprises for its
shares. See Footnote 3.
(2) As required by the Kelley Loan Agreement, the Company delivered to Dr.
Kelley a Warrant Agreement, dated August 15, 1995 (the "Kelley Warrant")
pursuant to which Dr. Kelley may purchase 250,000 shares of the Company's Common
Stock for a purchase price of $0.97 per share. Dr. Tam has been assigned 125,000
shares of the Kelley Warrant.
II-4
<PAGE> 110
Series A Preferred Stock Sold.
1. From December 2, 1993 to March 16, 1994, the Company issued
1,483,344 Series A Preferred Shares at a price of $3.85 per share to a total of
179 investors (the "Series A Offering"), for an aggregate purchase price of
$5,710,874.40. In addition to being exempt from registration pursuant to Section
4(2) of the Securities Act of 1933 (the "Securities Act"), the Company believes
that the sale of the Series A Shares was also in compliance with Rule 506 of
Regulation D under the Securities Act. Pursuant to the terms of the Series A
Offering, each Series A Share is convertible to one share of Common Stock within
111 days following the effectiveness of the Company's initial public offering.
The shares were issued to the following persons:
<TABLE>
<CAPTION>
Shares of
Name Series A Stock Purchase Price
---- -------------- --------------
<S> <C> <C>
Floyd R. Adelman, trustee, Floyd R. Adelman Revocable Trust 5,000 $ 19,250.00
Curtis Amundson 5,000 19,250.00
David W. and Kathryn W. Anderson 65,000 250,250.00
H. Charles Anderson 10,000 38,500.00
Amy Baratz 10,000 38,500.00
R.T. Bennett 10,000 38,500.00
Kenneth G. Benson 10,000 38,500.00
Frederick C. Boos 5,000 19,250.00
Thomas H. Borman 13,000 50,050.00
Roger Bredesen 6,200 23,870.00
Steve Bruggeman 5,000 19,250.00
Kuo Chang 8,000 30,800.00
Richard J. Cohen 2,500 9,625.00
CRM Leasing Ltd. 2,500 9,625.00
David C. Curry 5,000 19,250.00
David J. Curry 2,500 9,625.00
Craig Randall Dean 5,000 19,250.00
Paul M. Dean 10,000 38,500.00
Robert J. Dondelinger 5,000 19,250.00
Margaret Ann Doyle 10,000 38,500.00
Deborah R. Dykema 5,000 19,250.00
Raymond Dykema 75,000 288,750.00
Piper Jaffray, Inc., trustee, FBO Raymond Dykema IRA 10,000 38,500.00
Darrell A. Fencil 7,500 28,875.00
Johan P. Finley 2,500 9,625.00
First Trust National Association, trustee, FBO James Deanovic IRA 5,000 19,250.00
First Trust National Association, trustee, FBO James P. Gearen IRA 2,500 9,625.00
First Trust National Association, trustee, FBO Richard P. Meyers IRA 5,000 19,250.00
First Trust National Association, trustee, FBO Robert S. Zakheim IRA 10,000 38,500.00
First Trust National Association, trustee, FBO Stanley Zakheim IRA 5,000 19,250.00
Timothy M. Fleming 5,000 19,250.00
James H. Frazee 5,000 19,250.00
James M. Gayes 1,000 3,850.00
Kidder, Peabody & Co, custodian, Northwest Anesthesia P/S/P,
FBO James Gayes 10,000 38,500.00
Craig R. Geller 1,000 3,850.00
Ronald L. Glassman 10,000 38,500.00
Donald J. Grissom 5,000 19,250.00
Donald F. Hagen 20,000 77,000.00
James E. Haglund 20,000 77,000.00
Gerry Lester Hansen 15,000 57,750.00
Sam S. Hong 5,000 19,250.00
</TABLE>
II-5
<PAGE> 111
<TABLE>
<CAPTION>
Shares of
Name Series A Stock Purchase Price
---- -------------- --------------
<S> <C> <C>
Robert Houston 10,000 $ 38,500.00
Bradley A. Hoyt 5,000 19,250.00
Francis Husnik 10,000 38,500.00
William D. Jeatran 5,000 19,250.00
Delanor P. Johnson 10,000 38,500.00
Dennis B. Johnson 5,000 19,250.00
Gregory C. Jones 5,000 19,250.00
Robert J. Korkowski and Phyllis M. Korkowski 6,500 25,025.00
James S. Kowalski and Mary Anne Kowalski 5,000 19,250.00
Joseph I. Langer 5,000 19,250.00
Stephen A. Lawrence and Marilyn R. Lawrence 5,000 19,250.00
David S. Lilja 10,000 38,500.00
Richard C. Lockwood 10,000 38,500.00
Bryand S. Loving and Peggy J. Loving 10,000 38,500.00
Robert T. Lund 5,000 19,250.00
Raphael M. Mack 10,000 38,500.00
Edward N. Mansur 5,000 19,250.00
MARU Investments 10,000 38,500.00
James M. Meehan 5,000 19,250.00
John C. Miller 22,100 85,085.00
Bruce J. Moss 5,000 19,250.00
Robert J. Murray 10,000 38,500.00
Ronald S. Musich 10,000 38,500.00
Roger Bredesen, trustee, Northstar Computer Forms, P/S/P & trust,
FPO Rogert Bredesen 2,800 10,780.00
Paul T. Ogdahl 2,500 9,625.00
Justin H. Perl 2,500 9,625.00
Daniel B. Peterson 5,000 19,250.00
Richard Proman 5,000 19,250.00
Francis F. Quinn 10,000 38,500.00
RANCO International, Inc. 5,000 19,250.00
Thomas A. Ries, trustee, James A. Lamson, trustee,
Realty Center Inc. P/1/T 3,500 13,475.00
Raymond D. Rossini 5,000 19,250.00
Charles W. Russell 5,000 19,250.00
Gregg J. Sammons, trustee, Gregg J. Sammons, rev. trust 10,000 38,500.00
Lawrence M. Shapiro 5,000 19,250.00
Ronald J. Shimek 15,000 57,750.00
John P. Sieff 5,000 19,250.00
Robert A. Skartvedt 5,000 19,250.00
Michael L. Snow 19,480 74,998.00
Leon I. Steinberg and Susan S. Steinbert 5,000 19,250.00
Algis Strikas 10,000 38,500.00
Peter Taykalo and Charlotte Taykalo 10,000 38,500.00
William Thomas 10,000 38,500.00
Matthew J. Tikalsky and Patricia A. Tikalsky 20,000 77,000.00
James G. Tomczik 5,000 19,250.00
Christopher A. Twomey 5,000 19,250.00
Vance G. Viner and Barbara A. Vinar 25,000 96,250.00
Norman Vogelpohl and Patricia Vogelpohl 16,000 61,600.00
Frederick O. Watson, trustee, Frederick O. Watson Trust 10,000 38,500.00
Donna L. Welsh 20,000 77,000.00
Daryl J. Werneke 10,000 38,500.00
</TABLE>
II-6
<PAGE> 112
<TABLE>
<CAPTION>
Shares of
Name Series A Stock Purchase Price
---- -------------- --------------
<S> <C> <C>
Richard F. Wulff, trustee, Richard F. Wulff Trust 5,000 $ 19,250.00
Michael Younge 12,500 48,125.00
W. S. Zarry 10,000 38,500.00
599743 Saskatchewan Ltd. 52,500 202,125.00
Herman Albers 5,000 19,250.00
Pamela E. Anderson 5,000 19,250.00
Donald W. Beaupre 5,000 19,250.00
Neal L. Broten 5,000 19,250.00
Timothy D. Burns 5,000 19,250.00
John A. Commers 10,000 38,500.00
Guarantee & Trust Co., trustee, FBO Howard Cox 10,000 38,500.00
Robert L. Gearou 10,000 38,500.00
Thomas W. Gearou and Robert D. Gearou, tenants in common 5,000 19,250.00
Craig Hartsburg 5,000 19,250.00
Darrell Heuer 10,000 38,500.00
Robert M. Sinko 10,000 38,500.00
Thomas A. Wiskow 10,000 38,500.00
Robert P. Abdo 5,000 19,250.00
Kenneth Anacker and Janyce Anacker 1,000 3,850.00
Gary Banson 19,480 74,998.00
Bowmans Medical Center Pharmacy, Inc. 2,500 9,625.00
Joyce M. Brakemeier 10,000 38,500.00
Gene S. Bula 1,000 3,850.00
John G. Commers 5,000 19,250.00
Equitex, Inc. 10,000 38,500.00
First Trust National Association, trustee,
FBO Mark D. Cates SEP/IRA 10,000 38,500.00
First Trust National Association, trustee,
FBO Scott Timothy Frederikson 1,000 3,850.00
First Trust National Association, trustee,
FBO William John Ritter IRA 1,000 3,850.00
Julie A. Flaherty and Edward F. Flaherty 10,000 38,500.00
Karl Fromm 3,000 11,550.00
William E. Garber, trustee, MacQueen Equipment, Inc. 5,000 19,250.00
Robert E. Glesne 2,000 7,700.00
Steven Graybow 2,960 11,396.00
Kenneth L. Heinsch 10,000 38,500.00
Kenneth Heinsch, trustee, Gephart Electric Co., Inc. P/S/P 10,000 38,500.00
Edward L. Hennen and Judith C. Hennen 2,000 7,700.00
Marjorie A. Hockert 2,500 9,625.00
Lester W. Hoeft and Bonnie B. Hoeft 2,000 7,700.00
Thomas L. Holtz 5,000 19,250.00
Bradley A. Hoyt 5,000 19,250.00
Mary Sue Kiland 5,000 19,250.00
Kurt Knoff 5,000 19,250.00
John A. Koep 1,000 3,850.00
Jerome V. Lavin and Ellen Lavin 20,000 77,000.00
Joel A. Lebewitz and Susan H. Lebewitz 2,000 7,700.00
David Mackmiller and Janis Mackmiller 1,500 5,775.00
Nicholas A. Marzilli 10,000 38,500.00
Mark R. Menth and Barbara J. Menth 1,000 3,850.00
James J. Overzet 2,500 9,625.00
Colin Piper, Lyle Tollefsrud, Andrew Wright, tenants in common 2,500 9,625.00
</TABLE>
II-7
<PAGE> 113
<TABLE>
<CAPTION>
Shares of
Name Series A Stock Purchase Price
---- -------------- --------------
<S> <C> <C>
Kent A. Rodriguez 3,000 11,550.00
Fritz C. Rohkohl 5,000 19,250.00
Donald J. Savitski 1,000 3,850.00
John T. Sosniecki 2,500 9,625.00
Robert A. Spence 5,000 19,250.00
Charles E. Stromgren 5,000 19,250.00
Ken L. Stuntebeck 2,000 7,700.00
Steven Allan Weisman 2,600 10,010.00
Daniel M. Welle and Arlene J. Welle 5,000 19,250.00
Keith A. Westbrook 1,250 4,812.50
William J. Wilson 5,000 19,250.00
Frank W. DeLuca 5,000 19,250.00
Terrance W. Oliver, trustee Oliver Family Trust dated 07/29/88 6,500 25,025.00
Max L. Page 2,600 10,010.00
Anthony J. Rose, Jr. 10,000 38,500.00
Shirley M. Johnson 3,000 11,550.00
Sophie Reuben 5,000 19,250.00
Robert Burns and Patricia R. Burns 2,500 9,625.00
Classic Enterprises Ltd. 4,000 15,400.00
C.L.F.S., Ltd. 5,000 19,250.00
John N. Conovaloff 19,500 75,075.00
Paul E. Daker 2,900 11,165.00
Paul E. Daker, trustee, Paul E. Daker Money Purchase Pension Plan 7,500 28,875.00
First Trust Corp., trustee,Equity Concepts Realty P/S/P
FBO Leslie Y. Johnson 15,000 57,750.00
Robert Greenlee 25,974 99,999.90
Roderic E. Kirk 5,000 19,250.00
Howard Layman and Debra Layman-Weiler, tenants in common 5,000 19,250.00
Gary Leger 5,000 19,250.00
Jay A. Leger 5,000 19,250.00
David H. Loggins 10,000 38,500.00
Joe Pike and Patty Pike 10,000 38,500.00
Richard P. Reed 10,000 38,500.00
Kenneth M. Robins 12,500 48,125.00
Juli Ann Slevcove 19,500 75,075.00
Alva Terry Staples 5,000 19,250.00
Berman, DeValerio & Pease 13,000 50,050.00
William P. DeLuca 26,000 100,100.00
---------- --------------
TOTAL 1,483,344 $ 5,710,874.40
</TABLE>
In addition, in connection with the Series A Offering, Warrants to
purchase the Company's Common Stock were issued to the placement agents for
nominal consideration. These warrants allow the buyers to purchase 148,334
shares of Common Stock at an exercise price of $4.62 per share.
2. On December 15, 1995, the Company delivered a Redemption/Conversion
Offer (the "Offer") to the holders of the Company's Series A Shares, which
allowed the holders of the Series A Shares the option of either converting their
Series A Shares to shares of Common Stock in the Company at a conversion price
of $3.00 per share of Common Stock (or 1.283 shares of Common Stock for each
Series A Share) or to have the Company redeem their shares for cash
consideration equal to
II-8
<PAGE> 114
the $3.85 redemption value thereof. The Series A Preferred Stockholders
participating in the Offer irrevocably elected to redeem or convert their Series
A Shares by signing a "Series A Offer Election Form" and delivering such form to
the Company. By noticed announcement, the Company notified its Series A
Preferred Stockholders that, as of January 16, 1996 (the "Offer Deadline"), the
Offer closed and the Company would no longer accept elections to redeem or
convert the Series A Shares. Before the Offer Deadline, holders of 507,944 of
the Series A Shares gave notice to the Company that they intend to convert their
Series A Shares into shares of Common Stock and holders of 689,840 of the Series
A Shares gave notice to the Company that they intend to have the Company redeem
their shares for cash consideration equal to the $3.85 redemption value thereof.
All redeemed Series A Shares will be retired. The closing of the Offer (i.e.,
the payment of money to those electing to redeem their Series A Shares, and the
transfer of Common Stock certificates to those electing to convert their Series
A Shares) will take place within 15 business days after the closing of the
Company's initial public offering, and is only contingent upon the closing of
the Company's initial public offering.
In addition to being exempt from registration pursuant to Section 4(2)
of the Securities Act, the Company believes that the conversion of the Series A
Shares to Common Stock (the "Private Placement") was in compliance with Section
3(a)(9) of the Securities Act and Rule 506 of Regulation D under the Securities
Act. In addition, because (i) each holder of the Series A Shares electing before
the Offer Deadline to convert their Series A Shares into Common Stock (a
"Converting Stockholder") has made a binding, irrevocable investment decision
with respect to conversion, and (ii) the closing of the conversion is subject
only to conditions precedent not within the control of the Converting
Stockholders (i.e., the closing of this Offering), the Private Placement has
been "completed" for purposes of Rule 152 as of the Offer Deadline. As the
Private Placement was completed before the filing of the Company's Registration
Statement with respect to this Offering, the Private Placement will not be
integrated with this Offering. See Black Box, Inc. (publicly available June 26,
1990).
Those shareholders electing to convert all or a portion of their Series
A Shares into shares of Common Stock as of January 16, 1996 are as follows:
<TABLE>
<CAPTION>
Name Number of Shares of Series A Stock Converted
---- --------------------------------------------
<S> <C>
Robert P. Abdo 5,000
Herman Albers 5,000
Kenneth Anacker &
Janyce Anacker, JTWROS 1,000
H. Charles Anderson 5,000
Pamela E. Anderson 2,500
Gary Benson 19,480
R.T. Bennett 5,000
Neal L. Broten 2,500
Gene S. Bula 1,000
Robert Burns &
Patricia R. Burns 2,500
Timothy D. Burns 5,000
Kuo Chang 8,000
Evelyn Commers & John A.
Commers & John G. Commers,
Trustee of the John A.
Commers Revocable Trust 10,000
John G. Commers 5,000
Jerome (Jerry) Condon 1,250
John N. Conovaloff 19,500
Frank W. DeLuca 5,000
Margaret Ann (Megan) Doyle 2,500
Johan P. Finley 500
First Trust National Association,
Trustee FBO James P. Gearen IRA 2,500
</TABLE>
II-9
<PAGE> 115
<TABLE>
<CAPTION>
Name Number of Shares of Series A Stock Converted
---- --------------------------------------------
<S> <C>
First Trust National Association,
Trustee FBO Scott Timothy
Frederikson IRA 1,000
First Trust National Association,
Trustee FBO William John Ritter IRA 1,000
Julie A. Flaherty &
Edward F. Flaherty, JTWROS 1,500
Timothy M. Fleming 2,500
James H. Frazee 5,000
Karl Fromm 3,000
William E. Garber, Trustee 5,000
Dr. James M. Gayes 1,000
Robert L. Gearou 10,000
Thomas W. Gearou &
Robert D. Gearou, JTWROS 5,000
Ronald L. Glassman 5,000
Robert E. Glesne, M.D. 2,000
Robert Greenlee 25,974
Donald J. Grissom 5,000
Donald F. Hagen 10,000
James E. Haglund 7,500
Michael (Mike) Haglund 1,250
Gerry Lester Hansen 2,500
Craig Hartsburg 2,500
Kenneth L. Heinsch 5,000
Kenneth Heinsch, Trustee
Gephart Electric Co., Inc. P/S/P 5,000
Edward L. Hennen &
Judith C. Hennen, JTWROS 1,000
Darrell W. Heuer 10,000
Marjorie A. Hockert 1,250
Lester W. Hoeft & Bonnie B.
Hoeft, JTWROS 2,000
Sam S. Hong 2,500
William D. Jeatran 2,500
Dennis B. Johnson 5,000
Shirley M. Johnson 1,500
Mary Sue Kiland 5,000
Roderic E. Kirk 5,000
John A. Koep 500
Robert J. Korkowski &
Phyllis M. Korkowski, JTWROS 6,500
Joseph I. Langer 5,000
Stephen A. Lawrence &
Marilyn R. Lawrence, JTWROS 3,000
Howard Layman & Debra Layman-
Weiler, Tenants-in-Common 5,000
Gary Leger 5,000
David S. Lilja 10,000
Richard C. Lockwood 5,000
</TABLE>
II-10
<PAGE> 116
<TABLE>
<CAPTION>
Name Number of Shares of Series A Stock Converted
---- --------------------------------------------
<S> <C>
Bryant S. Loving & Peggy J.
Loving, Joint Tenants 5,000
Edward N. Mansur, Esq. 2,500
MARU Investments 5,000
Nicholas A. Marzilli 10,000
James M. Meehan 5,000
Mark R. Menth &
Barbara J. Menth, JTWROS 1,000
John C. Miller 11,050
Herbert G. Miller, III 1,300
Northstar Computer Forms Profit
Sharing Plan and Trust, FBO
Roger Bredesen 1,400
Paul T. Ogdahl 2,500
Terrance W. Oliver, Trustee
Oliver Family Trust DTD 07/29/88 6,500
James J. Overzet 2,500
Colin Piper 1,250
Sophie Reuben 5,000
Thomas A. Ries, Trustee
James A. Lamson, Trustee
Realty Center Inc. P/S/T 1,750
Fritz C. Rohkohl 5,000
Raymond D. Rossini 3,000
Charles W. Russell 5,000
Lawrence M. Shapiro 2,500
John P. Sieff 2,500
Robert M. Sinko 5,000
Robert A. Skartvedt 2,500
Juli Ann Slevcove 19,500
Michael L. Snow 9,740
John T. Sosniecki 1,800
Robert A. Spence 2,500
Leon I. Steinberg & Susan S.
Steinberg, JTWROS 2,500
Peter Taykalo & Charlotte
Taykalo, JTWROS 10,000
Matthew J. Tikalsky &
Patricia A. Tikalsky, Joint Tenants 20,000
Christopher A. Twomey 2,500
Daniel M. Welle & Arlene J.
Welle, JTWROS 5,000
Keith A. Westbrook 1,250
William J. Wilson 2,500
Richard F. Wulff, Trustee
Richard F. Wulff Trust 5,000
Michael J. Younge 12,500
W.S. Zarry 5,000
599743 Saskatchewan Ltd.
c/o: Don Olah, President 31,500
-------
TOTAL 507,944
=======
</TABLE>
II-11
<PAGE> 117
ITEM 27. EXHIBITS. Exhibits marked with two asteriks (**) are filed as part of
this amendment. Exhibits marked with an asterisk (*) will be filed with an
amendment to this Registration Statement. All other exhibits were previously
filed.
<TABLE>
<S> <C>
1.1. Letter of Intent with RAF Financial Corporation, dated September 19, 1995
1.2.** Form of Underwriting Agreement, dated __________, 1996
1.3. [Intentionally Omitted]
1.4. [Intentionally Omitted]
1.5.** Form of Representative's Warrants to Purchase Common Shares, dated ____________, 1996
1.6. [Intentionally Omitted]
1.7. [Intentionally Omitted]
3.1. Articles of Incorporation of the Company, filed December 2, 1993
3.2. Restated Articles of Incorporation of the Company, filed October 3, 1995
3.3. Bylaws of the Company, dated December 2, 1993
4.1. Shareholders Agreement between the Company and William M. Mower, D. Bradly Olah, et al., dated December 2, 1993
4.2. Mesquite Gaming Corp. Certificate of Designation of Common Stock and Series A Convertible Non-Voting Participating
Preferred Stock, Setting Forth the Powers, Designations, Preferences, Limitations, Restrictions and Relative Rights of
such Series of Common and Preferred Stock, dated December 9, 1993
4.3. NevStar Gaming Corporation First Amendment to Certificate of Designation of Common Stock and Series A Convertible
Non-Voting Participating Preferred Stock, Setting Forth the Powers, Designations, Preferences, Limitations, Restrictions
and Relative Rights of such Series of Common and Preferred Stock, filed March 7, 1996
4.4** NevStar Gaming Corporation Second Amendment to Certificate of
Designation of Common Stock and Series A Convertible Non-Voting
Participating Preferred Stock, Setting Forth the Powers, Designations,
Preferences, Limitations, Restrictions and Relative Rights of such
Series of Common and Preferred Stock, dated _________________, 1996
4.5.** Form of Warrant
4.6.** Form of Warrant Agreement dated July ___, 1996 between the Company and Corporate Stock Transfer
4.7.** Form of Escrow Agreement between the Company and Tri-State Bank
5.1.* Legal Opinion of Page, Polin & Busch, A.P.C.
10.1. 1993 Stock Option and Compensation Plan
10.2. Amendment No. 1 to 1993 Stock Option and Compensation Plan
10.3. [Intentionally omitted]
</TABLE>
II-12
<PAGE> 118
<TABLE>
<S> <C>
10.4. Stock Option Agreement (1,000,000 shares), dated as of May 26, 1995, between Michael J. Signorelli and the Company
10.5. Amendment No. 1 to Stock Option Agreement (96,225 shares), dated as of August 14, 1995, between Mr. Signorelli
and the Company
10.6. Letter Agreement re: Stock Option Agreement between Mr. Signorelli and the Company, dated August 15, 1995
10.7. Restricted Stock Purchase Agreement (40,000 shares), dated as of May 26, 1995, between Mr. Signorelli and the
Company
10.8. Amended and Restated Director Stock Option Agreement (100,000 shares), dated as of August 15, 1995, between
Michael J. Signorelli and the Company
10.9.** Stock Option Agreement (250,000 shares), dated as of January 2, 1996 between Jeffrey L. Gilbert and the Company
10.10.** Stock Option Agreement (85,613 shares), dated August 20, 1995, between Richard Tam and the Company
10.11.** Stock Option Agreement (85,612 shares), dated August 20, 1995, between Richard Kelley and the Company
10.12.** Stock Option Agreement (75,000 shares), dated August 20, 1995, between Jim Shadlaus and the Company
10.13. Option Agreement, dated as of May 24, 1995, by and among William M. Mower, D. Bradly Olah and the Company
10.14. Option Agreement, dated as of May 24, 1995, by and among Russell F. Lederman and the Company
10.15. Option Agreement, dated as of May 24, 1995, by and among Barry Fentz and the Company
10.16. Option Agreement, dated as of May 24, 1995, by and among Jeffrey J. Sjobeck and the Company
10.17. Option Agreement, dated as of May 24, 1995, by and among James and Barbara Bowman, Joint Tenants and the
Company
10.18. Option Agreement, dated as of May 24, 1995, by and among William E. and Joan B. Mower, Joint Tenants and the
Company
10.19. Option Agreement, dated as of May 24, 1995, by and among Dick L. Wright, Trustee of Nicole E. Mills 1993
Irrevocable Trust and the Company
10.20. Option Agreement, dated as of May 24, 1995, by and among Wayne W. Mills and the Company
10.21. Option Agreement, dated as of May 24, 1995, by and among John T. Kubinski and the Company
10.22. Option Agreement, dated as of May 24, 1995, by and among Delanor P. Johnson and the Company
10.23. Option Agreement, dated as of May 24, 1995, by and among Timothy E. and Patricia L. Buffham, Joint Tenants and
the Company
10.24. Option Agreement, dated as of May 24, 1995, by and among Raymond Dykema and the Company
10.25.** Common Stock Purchase Warrant (250,000 shares) between Richard Kelley
and the Company, dated as of August 14, 1995
10.26. Stock Purchase Agreement ("Stock Purchase Agreement"), dated August 14, 1995, among the Company, PMJ
Enterprises, Inc., Patrick J. Shannon and Richard Kelley.
10.27. Letter Agreement between the Company and PMJ Enterprises, Inc. relating to Stock Purchase Agreement, dated
August 14, 1995.
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10.28. Letter Agreement relating to Stock Purchase Agreement between Mr. Signorelli and Richard Kelley, dated August 15,
1995.
10.29. Note Secured by Deed of Trust, dated January 14, 1991 (the "Original Note"), executed by PMJ Enterprises, Inc. in
favor of the Slevcove Family Trust, the Bowlin Family Trust, William O. Kilmer, and Jake Scott (collectively, the
"Bowlin Creditors") in the original principal amount of $2,227,000.00
10.30. First Deed of Trust, dated January 14, 1991 (the "Original Deed of
Trust"), executed by PMJ Enterprises, Inc. in favor of the Bowlin
Creditors recorded in Book 910114 as instrument number 00364, Office of
the Clark County Recorder, State of Nevada
10.31. Partial Assignment of Mortgage by Jake Scott dated November 20, 1991; and Partial Assignment of Mortgage by
William O. Kilmer dated January 19, 1991.
10.32. Promissory Note, dated April 20, 1992 (the "Second Note"), executed by PMJ Enterprises, Inc. in favor of the Bowlin
Creditors in the original principal amount of $50,000
10.33. [Intentionally Omitted]
10.34. Forbearance Agreement between the Company and the Bowlin Creditors (the "First Forbearance Agreement"), dated
April 20, 1992
10.35. Addendum to the Forbearance Agreement between the Company and the Bowlin Creditors, dated April 20, 1992
10.36. Forbearance Agreement between the Company and the Bowlin Creditors, dated August 22, 1994 (the "Second
Forbearance Agreement")
10.37. Forbearance Agreement between the Company and the Bowlin Creditors, dated August 30, 1994 (the "Third Forbearance
Agreement")
10.38. Forbearance Agreement between the Company and the Bowlin Creditors, dated March 5, 1995 (the "Fourth Forbearance
Agreement")
10.39. Forbearance Agreement between the Company and the Bowlin Creditors, dated August 15, 1995 (the "Fifth Forbearance
Agreement")
10.40. Assignment of Rights and Related Assets Under Fifth Forbearance Agreement between Bowlin Creditors, the Company,
Richard Kelley, and Richard Tam, dated September 14, 1995
10.41. First Amendment to Fifth Forbearance Agreement between Richard Tam, Richard Kelley, and the Company, dated
September 15, 1995
10.42. Blanket Assignment of Interest in Deed of Trust by Bowlin Creditors to
Richard Kelley and Richard Tam, recorded on September 22, 1995 in Book
950922 as instrument number 00968, Office of the Clark County Recorder,
State of Nevada
10.43. Absolute Assignment of Notes between the Bowlin Creditors and Richard Kelley and Richard Tam, dated September 14,
1995
10.44. [Intentionally Omitted]
10.45. Promissory Note in the amount of $558,000 executed by the Company in favor of PMJ Enterprises, Inc., dated
December 31, 1993
10.46. Secured Promissory Note in the amount of $500,000 by the Company to PMJ Enterprises, Inc., dated May 26, 1995
</TABLE>
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10.47. Deed of Trust, dated May 26, 1995 (the "PMJ Deed of Trust") executed by the Company in favor of PMJ Enterprises,
Inc.
10.48. First Amendment to Note and Deed of Trust, dated August 15, 1995, executed between PMJ Enterprises, Inc. and the
Company
10.49. Secured Promissory Note in the amount of $165,000 executed by the PMJ Enterprises, Inc. in favor of Kim M. Hardy
and Susan Hardy, dated April 8, 1991
10.50. Deed of Trust by PMJ Enterprises, Inc. to Kim M. Hardy and Susan Hardy, recorded on April 30, 1991 in Book 910430
as instrument number 00489, Office of the Clark County Recorder, State of Nevada
10.51. Convertible Loan Agreement dated August 14, 1995 between the Company and Richard Kelley
10.52. Convertible Promissory Note, dated as of August 15, 1995, made by the Company to Richard Kelley in the amount of
$1,503,800
10.53. Participation and Intercreditor Agreement, dated April 18, 1996, between Richard Kelley and Richard Tam
10.54. Deed of Trust from the Company to Richard Kelley, recorded on August 15, 1995 in Book 950815 as instrument
number 01498, Office of the Clark County Recorder, State of Nevada
10.55. Assignment of Construction Contract; Consent dated April 18, 1996 by the Company to Richard Kelley.
10.56. General Assignment of Agreements, Permits, Licenses, Warranties, Franchises and Authorizations dated April 18, 1996
by the Company to Richard Kelley.
10.57. Assignment of Agreement with Architect and of Drawings and Specifications; Consent dated April 18, 1996 by the
Company to Richard Kelley.
10.58. Preliminary Title Report (Fourth Amendment), dated June 20, 1995
10.59. Preliminary Title Report (Fifth Amendment), dated June 20, 1995
10.60. Standard Form of Agreement between Owner and Architect (the Company and
Rissman & Rissman Associates), dated August 23, 1994.
10.61. Standard Form of Agreement between Owner and Contractor (the Company and A.F. Construction Company), dated
August 30, 1994.
10.62. City of Mesquite, Nevada Building Permit Application (Hotel), issued May 30, 1995.
10.63. City of Mesquite, Nevada Building Permit Application (Casino), issued May 30, 1995.
10.64. Lease between Executive Park West Joint Venture and the Company
regarding general office use, dated August 19, 1994.
10.65. Multi-Use Commercial Lease (Highway Agreement No. R238-95-030) between the Company and State of Nevada
Department of Transportation, dated May 9, 1995.
10.66. Xerox Equipment Reseller Lease Agreement between Sun Office Systems and the Company, dated September 23, 1994.
10.67. Employment Agreement between Mr. Signorelli and the Company, dated January 2, 1996
10.68. Employment Agreement between Jeffrey L. Gilbert and the Company, dated January 2, 1996
10.69. Indemnification Agreement between Mr. Signorelli and the Company, dated May 24, 1995
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10.70.** Indemnification Agreement between Jeffrey L. Gilbert and the Company, dated January 2, 1996
10.71. Indemnification Agreement between William P. Mower and the Company, dated May 24, 1995
10.72. Indemnification Agreement between Patrick J. Shannon and the Company, dated May 24, 1995
10.73. Indemnification Agreement between Bradly D. Olah and the Company, dated May 24, 1995
10.74. Memorandum of Understanding between the City of Mesquite, Nevada and the Company, dated March 8, 1995
10.75. Letter dated February 2, 1996 from Nevada Gaming Control Board to the Company re: Request for Administrative
Determination.
10.76. Letter of Intent dated December 1, 1995 among the Company, Richard R. Kelley and Richard Tam
10.77. First Amendment to Stock Purchase Agreement and Second Amendment to Promissory Notes dated December 8, 1995
among the Company, Richard R. Kelley, Richard Tam, Patrick J. Shannon and PMJ Enterprises
10.78. Amended and Restated Convertible Loan Agreement dated April 18, 1996 between the Company and Richard R. Kelley
10.79.** Consulting Agreement between Jeffrey Gilbert and the Company, dated January 3, 1996
10.80.** Agreement Re: Review of Employment Agreement between Jeffrey Gilbert and the Company, dated January 3, 1996
10.81. Assignment of Rights and Obligations Under Stock Purchase Agreement, dated September ___, 1995, among Richard
Kelley, Richard Tam and the Company
10.82. Settlement Agreement between American Capital Investors Corporation and the Company, dated January 31, 1996
10.83. Letter from City of Mesquite dated November 2, 1995 re: conditional use permit
10.84. Option Agreement between the Company and Desert Mesa Land Partners, Ltd., a Nevada limited partnership dated April
23, 1996
10.85. Subordination Agreement between Richard Kelley, PMJ Enterprises, Inc., and the Company, recorded on April 23, 1996 in
Book 960423 as instrument number 00684, Office of the Clark County Recorder, State of Nevada
10.86. Construction Loan Commitment dated April 19, 1996 between the Company and First Credit Bank
10.87. Operating Lease Commitment for $2,100,000 dated April 10, 1996 between the Company and PDS Financial
Corporation
10.88. Equipment Financing Commitment dated March 12, 1996 between the Company and PDS Financial Corporation
10.89. Loan Commitment dated April 16, 1996 between the Company and Bank of Hawaii
10.90. Substitution of Trustee and Special Full Reconveyance by Richard R. Kelley, recorded on April 23, 1996 in Book
960423 as instrument number 00685, Office of the Clark County Recorder, State of Nevada
10.91. Substitution of Trustee and Special Full Reconveyance by Dr. Richard R. Kelley and Dr. Richard Tam, both recorded
on April 23, 1996 in Book 960423 as instrument number 00686, Office of the Clark County Recorder, State of Nevada
10.92. Promissory Note dated April 18, 1996 by the Company to Richard R. Kelley in the principal amount of $5,750,800
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10.93. Amended and Restated Deed of Trust, Assignment of Leases and Rents, Security Agreement, Fixture Filing and Financing
Statement by the Company to Richard R. Kelley, recorded on April 23, 1996 in Book 960423 as instrument number 00683, Office
of the Clark County Recorder, State of Nevada
10.94. Operating Lease Commitment for $700,000 dated March 29, 1996 between the Company and PDS Financial Corporation
10.95. [Intentionally Omitted] This agreement was never entered into
10.96. [Intentionally Omitted] This agreement was never entered into
10.97. First Modification to Promissory Note dated May 31, 1996 between the Company and Richard R. Kelley
10.98. Promissory Note by the Company to Richard R. Kelley in the principal amount of $300,000
10.99.** Letter Agreement dated May 31, 1996 between the Company and PDS Financial Corporation
10.100. Letter Agreement dated May 31, 1996 between the Company and First Credit Bank
10.101. Letter Agreement May 31, 1996 between the Company and Bank of Hawaii
10.102.* Rescission of Signorelli August 15, 1996 Letter Agreement (Exhibit 10.6)
16.1. Letter Re: Change in Certifying Accountant
23.1.** Consent of Page Polin & Busch, A.P.C.
23.2. Consent of Taylor & Co., previous independent public accountants for the Company
23.3.** Consent of McGladrey & Pullen, current independent public accountants for the Company
</TABLE>
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* To be filed by future amendment.
** Filed with this amendment.
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ITEM 28. UNDERTAKINGS.
(a) Rule 415 Offering.
The undersigned small business issuer hereby undertakes that it will:
(1) File during any period in which it offers or sells securities
a post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3)
of the Securities Act;
(ii) Reflect in the prospectus any facts or events which
individually or together represent a fundamental
change in the information in the registration
statement;
(iii) Include any additional or changed material
information on the plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of
the securities offered, and the offering of the securities at
that time to be the initial bona fide offering thereof.
(3) File a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the
offering.
(d) Equity Offerings by Non-Reporting Small Business Issuers.
The undersigned small business issuer hereby undertakes that
it will provide to the Underwriters at the closing specified in the
Underwriting Agreement certificates in such denominations and
registered in such names as required by the Underwriters to permit
prompt delivery to each purchaser.
(e) Request for Acceleration of Effective Date.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors,
officers and controlling persons of the small business issuer pursuant
to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and
is, therefore, unenforceable.
In the event that a claim for indemnification against such
liabilities (other than the payment by the small business issuer of
expenses incurred or paid by a director, officer or controlling person
of the small business issuer in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered,
the small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question of whether such
indemnification by it is against public policy (as expressed in the
Securities Act) and will be governed by the final adjudication of such
issue.
(f) Rule 430A Offering.
The undersigned small business issuer hereby undertakes that
it will:
(1) For determining any liability under the Securities
Act, treat the information omitted from the form of
prospectus filed as part of this registration
statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the small business
issuer under Rule 424(b)(1), or (4), or 497(h) under
the Securities Act as part of this registration
statement as of the time the Commission declared it
effective.
(2) For determining any liability under the Securities
Act, treat each post-effective amendment that
contains a form of prospectus as a new registration
statement for the securities offered in the
registration statement, and that offering of the
securities at that time as the initial bona fide
offering of those securities.
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SIGNATURES
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE
REGISTRANT HEREBY CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT
MEETS ALL OF THE REQUIREMENTS FOR FILING ON FORM SB-2 AND AUTHORIZED THIS
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, IN THE
CITY OF LAS VEGAS, STATE OF NEVADA ON JULY 18, 1996.
NEVSTAR GAMING CORPORATION
BY:/s/ Michael J. Signorelli
-----------------------------------
MICHAEL J. SIGNORELLI
PRESIDENT & CHIEF EXECUTIVE OFFICER
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT WAS SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND
ON THE DATES STATED.
/s/ Michael J. Signorelli PRESIDENT & CHIEF EXECUTIVE OFFICER JULY 18, 1996
- ------------------------- (PRINCIPAL EXECUTIVE OFFICER), TREASURER -------------
MICHAEL J. SIGNORELLI (PRINCIPAL FINANCIAL OFFICER & PRINCIPAL (DATE)
ACCOUNTING OFFICER), AND SOLE DIRECTOR
(TITLE)
II-19
