UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB/A
Amendment No. 1
Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
X Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from January 1, 1998 to June 30, 1998.
Commission File Number 0-21071
NEVSTAR GAMING & ENTERTAINMENT CORPORATION
(Name of Small Business Issuer in its Charter)
Nevada 88-0309578
(State or Other Jurisdiction (IRS Employer Identification No.)
of Incorporation or Organization)
313 Pilot Road, Suite B, Las Vegas Nevada 89119 (702) 269-1325
(Address of Principal Executive Offices) (Issuer's telephone number)
Securities registered under Section 12(b) of the Exchange Act:
Title of Each Class Name of Each Exchange on Which Registered
None None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock $0.01 par value
Redeemable Common Stock Purchase Warrants
(Title of Class)
Check whether the issuer (1) filed all reports to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
Check if there is no disclosure of delinquent filers in response to Rule 405
of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-
KSB or any amendment to this Form 10-KSB. X
The issuer's revenues for the six-month transition period ended June 30, 1998
were: $0.
There were 3,899,672 outstanding shares of common stock, par value $0.01 per
share, as of September 30, 1998. The aggregate market value of the voting
Common Stock of the registrant held by non-affiliates of the registrant, as
of September 30, 1998, was $3,406,000 based on the last sales price on such
date.
Transitional Small Business Disclosure Format: Yes____ No X <PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
DIRECTORS AND EXECUTIVE OFFICERS. The current directors and executive
officers of the Company and their ages are as follows:
Name Age Position
Michael J. Signorelli 53 Chairman, Chief Executive Officer,
President, Secretary and Director
Brent E. Duncan 58 Chief Financial Officer and Treasurer
Dr. Richard Tam 82 Director
James D. Meehan 46 Director
Michael J. Signorelli. Mr. Signorelli is one of the founders of the Company.
He has been a Director and Chief Executive Officer of the Company since its
inception, Chairman since April 1997 and Secretary since August 1995. He was
President of the Company from its inception in 1993 until April 1997 and has
been serving as President since September 25, 1998. Since December 1993, Mr.
Signorelli has devoted substantially all of his business time and attention
to the Company. As Chief Executive Officer, Mr. Signorelli is responsible
for all aspects of the the Company's daily operations, including overall
strategic planning, development, and operations of the Mesquite Star Hotel &
Casino which opened on July 1, 1998. 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, 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 the Paradise Bay, Mr.
Signorelli left Walter Development Corp. 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. Mr. Signorelli's term as a director expires at
the Company's 2000 Annual Meeting of Stockholders.
Brent E. Duncan. Mr. Duncan has served as Chief Financial Officer and
Treasurer of the Company since June 19, 1998, having joined the Company in
February 1998. He served as a consultant from April 1997 to January 1998.
From January 1993 until March 1997, he served in various financial positions
at Elsinore Corporation and its operating subsidiary the Four Queens Hotel
& Casino, and on June 4, 1996, while Elsinore Corporation was engaged in
reorganization proceedings, he was named Treasurer and Secretary of both
corporations and certain other subsidiaries. On March 14, 1997, the
Reorganization plan became effective. Mr. Duncan has many years of Nevada
gaming industry experience, including positions as Vice president, Treasurer
and Director of Del E. Webb Hotels Corporation during 3 years, where his
responsibilities included reporting financial results of operations for
eight hotels, including four Nevada gaming properties. Formerly an audit
manager with the Los Angeles office of KPMG Peat Marwick LLP, for six years,
Mr. Duncan's assignments included two years as resident manager of the firm's
Las Vegas, Nevada office. A Certified Public Accountant in Nevada,
Mr. Duncan is a member of the American Institute and the Nevada Society of
Certified Public Accountants. He also holds a Bachelor's Degree in Business
with a major in Accounting from San Jose State University, where he was a
member of the Accountants Honorary Society. Prior to entering college, Mr.
Duncan served in the United States Navy Submarine Service.
Dr. Richard Tam. Dr. Tam has served as a director since October 1, 1997.
Dr. Tam received his Bachelor of Arts in Civil Engineering from Stanford
University and his Masters in Business Administration from Columbia
University. In 1995, Dr. Tam received an honorary Doctor of Laws degree
from the University of Nevada, Las Vegas. Dr. Tam is currently active as
a private investor and real estate investor and developer. Dr. Tam also
operates and manages his own thoroughbred breeding and racing business.
Dr. Tam is also a principal in Desert Mesa Land Partners, a Nevada limited
partnership which has granted the Company an option to purchase a 20%
indirect ownership interest in a casino site in North Las Vegas, Nevada.
See "Item 1. BUSINESS - North Las Vegas Property" and "Item 12. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS." Dr. Tam's term as a director
expires at the Company's 1999 Annual Meeting of Stockholders.
James D. Meehan. Mr. Meehan has served as a director since October 1,
1997. Since 1983, Mr. Meehan has served as a partner in CM Properties,
Inc., a real estate investment business, with interests in office, retail,
single-family and multi-family housing located in Santa Ana, California.
Mr. Meehan was previously a partner in both Garrett Development, Inc. and
NU West R.E.I., which were both commercial real estate development
entities. From 1978 to 1980, Mr. Meehan was engaged as an investment
banker for Warberg-Parribas-Becker, dealing in corporate and government
notes, bonds and commercial paper. Mr. Meehan received a BA in the honors
program at the undergraduate school of Letters Arts and Sciences from the
University of Southern California in 1975. Mr. Meehan received his MBA in
finance from the graduate school of Business Administration of the
University of Southern California. Mr. Meehan's term as a director expires
at the Company's 1998 Annual Meeting of Stockholders.
The Company's Articles of Incorporation provide for a classified or
"staggered" Board of Directors comprised of three classes of directors
elected for terms expiring at the 1998, 1999 and 2000 Annual Meetings of
Stockholders. 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 full Board of Directors currently consists of five directors. Messers.
Signorelli, Tam and Meehan are currently directors of the Company serving
in the class whose term expires in 2000, 1999, and 1998, respectively.
There are currently two vacancies on the Board.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE. Section 16(a) of
the Exchange Act requires the Company's officers and directors, and persons
who own more than 10% of a registered class of the Company's equity
securities to file reports of ownership and changes in ownership with the
SEC and NASDAQ. These persons are required to furnish the Company with
copies of all reports under Section 16(a) they file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no Forms 5 were
required for those persons, the Company believes that during the period
January 1, 1998 to June 30, 1998, the Company's officers, directors and
greater than 10% beneficial owners complied with all applicable Section
16(a) filing requirements.
ITEM 10. EXECUTIVE COMPENSATION.
The following table sets forth the compensation paid by the Company during
the fiscal years ended December 31, 1995, 1996 and 1997 and the period
January 1, 1998 through June 30, 1998 (the "1998 Transition Period") to the
Company's (i) Chief Executive Officer and (ii) the former President and
Chief Operating Officer (collectively, the "named executive officers").
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
Name and
Principal Other Annual
Position Year Salary Bonus Compensation(1)
Michael J. Signorelli 1998(3) $ 93,590 -0- -0-
(Chairman, Chief Executive 1997 $245,875 -0- -0-
Officer, President 1996 $120,000 -0- $67,600
and Secretary)(2) 1995 $120,000 -0- -0-
Jeffrey L. Gilbert 1998(3) $ 81,891 -0- -0-
(former President and 1997 $222,999 -0- -0-
Chief Operating Officer)(4) 1996 $120,000 -0- -0-
LONG TERM COMPENSATION
Name and Restricted Securities All
Principal Stock Underlying LTIP Other
Position Year Awards Options/SARs Payouts Compensation
Michael J. Signorelli 1998(3) -0- -0- -0- $90,117 (6)
(Chairman,
Chief Executive 1997 -0- 775,000(6) -0- -0-
Officer, President 1996 -0- -0- -0- -0-
and Secretary)(2) 1995 $67,600(5) 125,390(6) -0- -0-
Jeffrey L. Gilbert 1998(3) -0- 15,000 -0- $46,568 (4)
(former President and 1997 -0- 250,000(7) -0- -0-
Chief Operating 1996 -0- -0- (7) -0- -0-
Officer)(4)
(1)See Footnote (5). Management believes that the value of perquisites and
other personal benefits, securities or property, distributed to executive
officers of the Company individually or as a group during each of the years
1995, 1996 and 1997 and the 1998 Transition Period did not exceed the
lesser of $50,000 or 10% of such officer's individual salary and bonus for
that period. This table also does not include repayment of certain
advances made to the Company by both Mr. Signorelli and certain members of
his family.
(2)Mr. Signorelli served as President of the Company from 1993 until August
1997 and has been serving as President since Mr. Gilbert's resignation
which was effective September 25, 1998.
(3)Compensation for the 1998 Transition Period. On April 1, 1998, the
Company's Board of Directors determined to change the Company's fiscal year
from a year ending on December 31, to a year ending on June 30.
(4)Mr. Gilbert resigned as President and Chief Operating Officer and
Director of the Company effective September 25, 1998. Mr. Gilbert joined
the Company as Executive Vice President and Chief Operating Officer on
January 2, 1996.
(5)Pursuant to a Restricted Stock Purchase Agreement dated August 27, 1995,
Mr. Signorelli was granted a right to immediately purchase 4,193 shares of
restricted Common Stock (the "Restricted Stock") at a purchase price of
$2.39 per share. Mr. Signorelli purchased the 4,193 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
$18.51. 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 Other Annual Compensation and Restricted Stock Awards of
this table with respect to the Restricted Stock.
(6)Mr. Signorelli was granted certain stock options in 1995, which are
included in this table. In July 1997, these options were canceled and
replaced by the grant of options to purchase (i) 117,647 shares of Common
Stock for $2.00 per share and (ii) 657,353 shares of Common Stock for $3.50
per share. See "Stock Option Plan" and "Outstanding Stock Options and
Restricted Stock." Other compensation for the 1998 Transition Period
consists the vested portion of options granted in 1997 that were granted
with an exercise price below the initial public offering value.
(7)Mr. Gilbert was granted options to purchase 26,205 shares of Common Stock
in 1995 prior to his becoming an executive officer of the Company. In July
1997, these options were canceled and replaced by the grant of options to
purchase (i) 29,411 shares of Common Stock for $2.00 per share, and (ii)
220,589 shares of Common Stock for $3.50 per share. In January 1998 Mr.
Gilbert was granted options to purchase 15,000 shares of common stock at
$2.00 per share. See "Stock Option Plan" and "Outstanding Stock Options and
Restricted Stock." Other compensation for the 1998 Transition Period
consists of the vested portion of options granted in the prior year that
were granted with an exercise price below the initial public offering value.
OPTIONS GRANT TABLE
The following table sets forth certain information concerning the grant of
stock options made to each of the named executive officers during the 1998
Transition Period.
OPTION GRANTS DURING THE 1998 TRANSITION PERIOD
(Individual Grants)
Name Number of Percent of
Securities total Market
Underlying granted to Price on
Options Employees Exercise Expiration date of
Granted During 1998 Price Date Grant
Michael J. Signorelli -0- - - - --
Jeffrey L. Gilbert 15,000 26.0% $2.00 1/12/2008 $2.19
SIGNORELLI EMPLOYMENT AGREEMENT.
General.
The Company and Mr. Signorelli entered into an Employment Agreement (the
"Signorelli Employment Agreement"), dated effective January 2, 1996 (the
"Effective Date"), as amended on June 30, 1997, pursuant to which Mr.
Signorelli serves as the Chief Executive Officer of the Company. The term
of Mr. Signorelli's employment under the Signorelli Employment Agreement
commenced on the Effective Date and will continue until September 23, 2002
(the "Termination Date"), unless earlier terminated in accordance with the
terms of the Signorelli Employment Agreement; subject to automatic one-year
extensions 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 Employment Agreement, the Company has agreed to pay Mr.
Signorelli a base salary at the minimum annual rate of $120,000, which
minimum annual rate increased to $200,000 on the closing of the Company's
IPO and will increase to $240,000 on the date when the Mesquite Star opens
for business. The agreement also required that, upon the closing of the
Company's IPO, the Company paid to Mr. Signorelli $75,000 as reimbursement
of expenses advanced by Mr. Signorelli in connection with the conception
and development of the Mesquite Star prior to January 2, 1996. 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 described below.
Mr. Signorelli may also receive an additional discretionary bonus based on
criteria established by the Board of Directors. Mr. Signorelli will be
entitled to participate in all employee pension and welfare benefit plans
and programs made available to the Company's senior level executives. Mr.
Signorelli will also be entitled to reimbursement of expenses, car
allowance, 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. Mr. Signorelli is also permitted to continue to participate in PMJ
Enterprises, Inc., which owns approximately 1.1 acres of land contiguous to
the Mesquite Property, subject to any business opportunity with respect
thereto being offered to and rejected by the Company. 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 Mr. Signorelli's expense, for 24
months following the termination date.
Payments Upon Termination of Employment.
a. Death or Disability. Upon death or disability, Mr. Signorelli will be
entitled to his accrued but unpaid base salary and bonus, continued
applicable Company benefits for a one-year period and the right to exercise
any vested stock options for a one-year period after termination. 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.
b. Termination for Cause. If Mr. Signorelli is terminated "for cause," as
defined in the Signorelli Employment Agreement, he is entitled to his
unpaid base salary through the expiration of a 30-day notice period, but
would not be entitled to any further payments.
c. Termination for Nonsuitability. Upon termination of Mr. Signorelli's
employment for failure to meet the licensing requirements or finding of
suitability as set forth in Nevada's gaming law or any other applicable
licensing laws, and, contingent upon Mr. Signorelli's and the Company's
signing a mutual written general release, Mr. Signorelli will be paid his
base salary through the termination date, and an amount equal to 25 months
of base salary, determined at the annual rate of $200,000.
d. No Termination "Without Cause." Until the Mesquite Star is open and
operating, the Company cannot dismiss or terminate Mr. Signorelli for any
reason other than as a result of death or disability, for cause, or as a
result of a failure to satisfy licensing requirements. After the Mesquite
Star is open and operating, Mr. Signorelli's employment with the Company
may be terminated without cause upon 60 days' prior written notice. Upon
termination of Mr. Signorelli's employment without cause, and contingent
upon Mr. Signorelli's signing a release, Mr. Signorelli is entitled to
receive as liquidated damages (i) his base salary through the termination
date, (ii) any bonus, 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, and (iii)
the immediate vesting of Mr. Signorelli's stock options as of the
termination date.
e. Termination of Mr. Signorelli for Good Reason. Upon termination of Mr.
Signorelli's employment for "good reason" (as defined in the Signorelli
Employment Agreement) and, contingent upon the Company's and Mr.
Signorelli's signing a release, Mr. Signorelli would be entitled to the
following: (i) his base salary through the termination date, (ii) an
additional amount equal to 12 months of base salary, (iii) a pro rata
portion of any bonus to which Mr. Signorelli would otherwise be entitled
for the year in which such termination occurs, (iv) all other benefits and
amounts to which Mr. Signorelli is entitled or would be entitled for six
months, and (v) the immediate vesting of all of Mr. Signorelli's stock
options. The definition of "good reason" includes Mr. Signorelli's failure
to be elected to serve on or removal from the Board for any reason other
than death or disability.
f. Termination Upon Change of Control. Upon termination of Mr.
Signorelli's employment upon a change in control of the Company, and
contingent upon Mr. Signorelli's and the Company's signing a 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) the immediate vesting of all stock options, 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.
GILBERT EXECUTIVE SEVERANCE AGREEMENT.
Mr. Gilbert resigned as President and Chief Operating Officer and as a
director of the Company effective September 25, 1998. Mr. Gilbert will,
however, continue to serve NevStar as a consultant to assist the Company in
certain projects and transitional matters. The Company and Mr. Gilbert
entered into an Executive Severance Agreement (the "Severance Agreement")
effective as of September 25, 1998. Pursuant to the Severance Agreement,
the Employment Agreement between Mr. Gilbert and the Company dated
January 2, 1996, as amended, pursuant to which Mr. Gilbert had served as
the President and Chief Operating Officer of the Company and initial
General Manager of the Mesquite Star was terminated effective September 25,
1998. Mr. Gilbert has agreed to certain restrictions on his ability to
disclose confidential and proprietary information with regard to the
Company. In addition, Mr. Gilbert and the Company agreed to release each
other from claims arising out of or in connection with Mr. Gilbert's
employment with the Company.
As part of Mr. Gilbert's Severance Agreement he will receive $100,000 in
severance compensation payable during the six-month period commencing
September 25, 1998 (the "Severance Period"). During the Severance Period
Mr. Gilbert will continue to participate in all employee pension and
welfare benefit plans and programs for the Company's senior level
executives as a group or its employees generally. In addition, the 220,589
stock options granted to Mr. Gilbert under the Company's 1997 Stock
Incentive Plan became fully vested on September 25, 1998 and the 265,000
options held by Mr. Gilbert shall remain exercisable until their respective
expiration dates, notwithstanding Mr. Gilbert's termination of employment.
During the Severance Period, Mr. Gilbert will be entitled to receive a
$1,000 monthly automobile allowance. Effective as of September 25, 1998,
the Company has assigned to Mr. Gilbert the "Key Man" term life insurance
policy held by the Company. The Company will pay premiums due on the policy
through March 25, 1999.
EXECUTIVE EMPLOYEE BONUS PLAN. The Company's Board is considering 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 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 would be entitled
to participate in the Plan under the terms of the Signorelli Employment
Agreement.
STOCK OPTION PLAN.
1997 Stock Incentive Plan. The Company's 1997 Stock Incentive Plan (the
"1997 Plan") is intended to serve as the successor equity incentive program
to the Company's 1993 Stock Option and Compensation Plan (the "Predecessor
Plan"). The 1997 Plan became effective on July 1, 1997 upon adoption by
the Board of Directors and has been approved by the stockholders.
1,266,994 shares of Common Stock have initially been authorized for
issuance under the 1997 Plan. However, in no event may any one participant
in the 1997 Plan receive option grants or direct stock issuances for more
than 200,000 shares in the aggregate per year in or after the calendar year
2000.
Outstanding options under the Predecessor Plan were incorporated into the
1997 Plan and no further option grants will be made under the Predecessor
Plan. The incorporated options will continue to be governed by their
existing terms, unless the Plan Administrator elects to extend one or more
features of the 1997 Plan to those options.
The 1997 Plan is divided into two separate components: (i) the
Discretionary Option Grant Program under which eligible individuals in the
Company's employ or service (including officers, non-employee Board members
and consultants) may, at the discretion of the Plan Administrator, be
granted options to purchase shares of Common Stock at an exercise price (at
any date after the Offering) not less than 100% of their fair market value
on the grant date, and (ii) the Stock Issuance Program under which such
individuals may, in the Plan Administrator's discretion, be issued shares
of Common Stock directly, through the purchase of such shares at a price
not less than 100% of their fair market value at the time of issuance or as
a bonus tied to the performance of services.
The Discretionary Option Grant Program and the Stock Issuance Program are
administered by the Compensation Committee. The Compensation Committee as
Plan Administrator has complete discretion to determine which eligible
individuals are to receive option grants or stock issuances, the time or
times when such option grants or stock issuances are to be made, the number
of shares subject to each such grant or issuance, the status of any granted
option as either an incentive stock option or a non-statutory stock option
under the federal tax laws, the vesting schedule to be in effect for the
option grant or stock issuance and the maximum time for which any granted
option is to remain outstanding.
Under the Stock Issuance Program, participants may, in the Plan
Administrator's discretion, be issued shares of Common Stock directly, in
exchange for cash or as a bonus for past services, at a price equal to the
fair market value of the shares on the date of issuance. The shares may,
in the Plan Administrator's discretion, be fully and immediately vested
upon issuance or may vest in one or more installments over the
participant's period of service or upon specified performance objectives.
Should a participant's service with the Company cease before the
individual's shares have vested, then any unvested shares will be
surrendered to the Company and canceled at that time. However, any
unvested shares will vest fully and immediately upon certain changes in the
ownership or control of the Company.
The exercise price for the shares of Common Stock subject to option grants
made under the Plan may be paid in cash or in shares of Common Stock valued
at fair market value on the exercise date. The option may also be
exercised through a same-day sale program without any cash outlay by the
optionee. In addition, the Plan Administrator may authorize the Company to
provide financial assistance to one or more optionees in the exercise of
their outstanding options by allowing such individual to deliver a full-
recourse, interest-bearing promissory note in payment of the exercise price
and any associated withholding taxes incurred in connection with such
exercise.
In the event that the Company is acquired by merger or asset sale, each
outstanding option under the Discretionary Option Grant Program which is
not to be assumed by the successor corporation will automatically
accelerate in full, and all unvested shares under the Stock Issuance
Program will immediately vest, except to the extent the Company's
repurchase rights with respect to those shares are to be assigned to the
successor corporation. The Plan Administrator will have the authority
under the Discretionary Option Grant and Stock Issuance Programs to grant
options and to structure repurchase rights so that the shares subject to
those options or repurchase rights will automatically vest in the event the
individual's service is terminated, whether involuntarily or through a
resignation for good reason, within 18 months following (i) a merger or
asset sale in which those options are assumed or those repurchase rights
are assigned or (ii) a hostile change in control of the Company effected by
a successful tender offer for more than 50% of the outstanding voting stock
or by proxy contest for the election of Board members.
Stock appreciation rights are authorized for issuance under the
Discretionary Option Grant Program which provide the holders with the
election to surrender their outstanding options for an appreciation
distribution from the Company equal to the excess of (i) the fair market
value of the vested shares of Common Stock subject to the surrendered
option over (ii) the aggregate exercise price payable for such shares.
Such appreciation distribution may be made in cash or in shares of Common
Stock. There are currently no outstanding stock appreciation rights.
The Plan Administrator has the authority to effect the cancellation of
outstanding options under the Discretionary Option Grant Program (including
options incorporated from the Predecessor Plan) in return for the grant of
new options for the same or different number of option shares with an
exercise price per share based upon the fair market value of the Common
Stock on the new grant date.
The Board may amend or modify the 1997 Plan at any time. The 1997 Plan
will terminate on July 1, 2007, unless sooner terminated by the Board. As
of June 30, 1998 1,235,096 options have been granted under or incorporated
into and are outstanding under the 1997 Plan.
OPTION HOLDINGS AND VALUES
The following table sets forth the number and value of securities
underlying options held by each of the named executive officers.
JUNE 30, 1998 OPTION VALUES(1)
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at June 30, 1998(2) at June 30, 19983
Name Exercisable Unexercisable Exercisable Unexercisable
Michael J. Signorelli(4) 131,471 643,529 $ -0- $132,941
Jeffrey L. Gilbert(5) 59,118 205,882 $16,950 $ 33,234
(1) No options or Stock Appreciation Rights (SARs) were exercised by any
Company employee during the 1998 Transition Period; No outstanding SARs are
held by any employee or director of the Company.
(2) The sum of the numbers under the Exercisable and Unexercisable columns
of this heading represents each named executive officer's total outstanding
options.
(3) The dollar amounts shown under the Exercisable and Unexercisable
columns of this heading represent the number of exercisable and
unexercisable options, respective, multiplied by the difference, if any,
between the value of the Common Stock on June 30, 1998, which was
$3.13 per share, and the exercise price of the options.
(4) In July 1997, options granted under a prior plan were canceled and
replaced by the grant of options to purchase (i) 117,647 shares of Common
Stock for $2.00 per share and (ii) 657,353 shares of Common Stock for $3.50
per share. See "Stock Option Plan" and "Outstanding Stock Options and
Restricted Stock." 117,647 of Mr. Signorelli's options became exercisable
on July 1, 1998, upon the opening of the Mesquite Star. See "Outstanding
Stock Options and Restricted Stock."
(5) In July 1997, options granted under a prior plan were canceled and
replaced by the grant of options to purchase (i) 29,411 shares of Common
Stock for $2.00 per share, and (ii) 220,589 shares of Common Stock for
$3.50 per share. On January 18, 1998, Mr. Gilbert was granted immediately
exercisable options to purchase 15,000 shares of Common Stock at $2.19 per
share. See "Stock Option Plan" and "Outstanding Stock Options and
Restricted Stock." 29,411 of Mr. Gilbert's options became exercisable on
July 1, 1998, upon the opening of the Mesquite Star. Mr. Gilbert's
remaining options became fully exercisable effective September 25, 1998
pursuant to the Severance Agreement. See "Gilbert Executive Severance
Agreement" and "Outstanding Stock Options and Restricted Stock."
COMPENSATION OF DIRECTORS. Directors receive no additional compensation
for services as a director except that non-employee directors of the
Company are reimbursed for their expenses incurred and grants of Stock
options pursuant to the Company's 1997 Stock Incentive Plan. See
"EXECUTIVE COMPENSATION - STOCK OPTION PLAN."
Outstanding Stock Options and Restricted Stock. The Company has granted to
Mr. Signorelli pursuant to the 1997 Plan, (i) a non-qualified option to
purchase 117,647 shares of the Company's Common Stock at an option price of
$2.00 per share which vested upon the opening of the Mesquite Star on July
1, 1998 and (ii) an incentive stock option to purchase 657,353 shares of
the Company's Common Stock at an option price of $3.50 per share which
vests 20% per year over five years or earlier if the Company achieves
revenues of $30,000,000 or $5,000,000 EBITDA in any fiscal year. Mr.
Signorelli purchased 4,193 shares of restricted stock for a $10,000
promissory note on August 27, 1995. The exercise of Mr. Signorelli's
option shares is contingent upon Mr. Signorelli's continued employment with
the Company. Mr. Signorelli is permitted to exercise all or a portion of
the 775,000 option shares by (i) surrendering some of his 4,193 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.
The Company granted to Mr. Gilbert pursuant to the 1997 Plan, (i) a non-
qualified option to purchase 29,411 shares of the Company's Common Stock
at an option price of $2.00 per share, which vested upon the opening of the
Mesquite Star on July 1, 1998, and (ii) an incentive stock option to
purchase 220,589 shares of the Company's Common Stock at an option price of
$3.50 per share which vested in full effective September 25, 1998 pursuant
to the Severance Agreement. See "Gilbert Executive Severance Agreement."
Mr. Gilbert was also granted an option to purchase 15,000 shares of the
Company's Common Stock at an option price of $2.00 per share, exercisable
immediately, on January 13, 1998.
On December 11, 1997, the Company granted each of Dr. Tam and Mr. Meehan an
option exercisable until December 11, 2007 to purchase 12,500 shares of
Common Stock at a per share exercise price of $2.03. This option is
exercisable after December 11, 1998 provided that (i) Dr. Tam or Mr. Meehan
has, respectively, continued to serve as a director of the Company or at
least agreed to serve and (ii) the Company's shareholders have approved an
increase in the number of shares of Common Stock issuable under the
Company's 1997 Stock Incentive Plan by at least the amount of shares
subject to this option.
On February 2, 1998, Brent Duncan, Chief Financial Officer and Treasurer of
the Company; was granted pursuant to the Plan an incentive stock option to
purchase 25,000 shares of the Company's Common Stock at an option price of
$2.50 per share. The option vests in three equal annual installments
beginning February 2, 1999, or entirely in the event the Company achieves
annual revenues of $30,000,000 or $5,000,000 EBITDA.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
PRINCIPAL STOCKHOLDERS OF THE COMPANY. The following table sets forth
certain information as of October 1, 1998, regarding beneficial ownership
of the Company's Common Stock by (i) each person who is known by the
Company to own beneficially more than five percent of the Company's
outstanding Common Stock, (ii) each of the Company's directors and
nominees, and executive officers, 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.
Title of Name and Address Number of Ownership
Class of Beneficial Owner Shares Percentage(1)
Beneficially
Owned
Common Richard Tam 901,874 (2) 20.6%
2140 W. Charleston Blvd.
Las Vegas, NV 89012
Common Interworld Group LLC 901,874 (2) 20.6%
2140 W. Charleston Blvd.
Las Vegas, NV 89012
Common Valley Star, LLC 901,874 (2) 20.6%
2140 W. Charleston Blvd.
Las Vegas, NV 89102
Common Richard Roy Kelley 549,007 (3) 12.7%
2375 Kuhio Avenue
Honolulu, HI 96815-2939
Common Jeffrey L. Gilbert 265,000 (4) 1.1%
313 Pilot Road, Suite B
Las Vegas, NV 89119
Common James D. Meehan 6,250 (5) *
313 N. Birch St., 1st Flr.
Santa Ana, CA 92701
Common Michael J. Signorelli 121,840 (6) 2.9%
313 Pilot Road, Suite B
Las Vegas, NV 89119
Common Directors and Executive 1,294,964 (2)(4)(5)(6) 27.2%
Officers as a Group
(1) The amount of outstanding securities included in calculating the
percentages is 3,936,020 shares of outstanding Common Stock.
(2) As reported by Dr. Tam, Interworld Group, LLC and Valley Star, LLC
in their Schedule 13D dated April 8, 1998 filed with the Securities Exchange
Commission and based upon the Company's records, includes (i)220,338 shares
held of record by Interworld Group, LLC, of which Dr. Tam is the controlling
managing member, (ii) 185,515 shares held directly by Dr. Tam, (iii) 50,057
shares held of record by Valley Star, LLC, of which Dr. Tam is the
controlling managing member, (iv) a warrant to purchase 200,000
shares held by Dr. Tam, currently exercisable at a price of $2.75 per share
until August 13, 2002, (v) a warrant to purchase 79,839 shares held by Dr.
Tam, currently exercisable at a price of $0.25 per share until September
23, 2002, (vi) a warrant to purchase 37,500 shares held by Dr. Tam,
currently exercisable at a price of $2.00 per share until March 31, 2003 and
(vii) a warrant to purchase 20,000 shares held by Dr. Tam, currently
exercisable at a price of $2.00 per share until September 23, 2002. Also
includes (viii) warrants to purchase 62,500 shares held by Dr. Tam, currently
exercisable at a price of $2.50 per share until June 3, 2003, (ix) warrants
to purchase 16,125 shares held by Dr. Tam, currently exercisable at a price
of $2.50 per share until September 30, 2003, (x) warrants to purchase
30,000 shares held by Dr. Tam, currently exercisable at a price of $2.00
per share until September 30, 2003. Does not include an option to purchase
12,500 shares held by Dr. Tam at a price of $2.05 per share that will become
exercisable upon the following (i) approval of an increase in the shares
subject to the Company's 1997 Stock Incentive Plan, and (ii) Dr. Tam serving
as a director through December 10, 1998.
(3) As reported by Dr. Kelley in his Schedule 13D dated April 10, 1998,
filed with the Securities Exchange Commission and based upon the Company's
records, includes (i) 166,882 shares held directly by Dr. Kelley, (ii) a
warrant to purchase 200,000 shares held by Dr. Kelley, currently exercisable
at a price of $2.75 per share until August 13, 2002, (iii) a warrant to
purchase 37,500 shares held by Dr. Kelley, currently exercisable at a price
of $2.00 per share until March 31, 2003, and (iv) a warrant to purchase
36,000 shares held by Dr. Kelley, currently exercisable at a price of $5.50
per share until September 18, 2002. (v) warrants to purchase 62,500 shares
held by Dr. Kelley, currently exercisable at a price of $2.50 per share
until June 3, 2003, (vi) warrants to purchase 16,125 shares held by Dr.
Kelley, currently exercisable at a price of $2.50 per share until September
30, 2003, (vii) warrants to purchase 30,000 shares held by Dr. Kelley,
currently exercisable at a price of $2.00 per share until September 30, 2003.
(4) Includes options to purchase 15,000 shares of Common Stock at a
price of $2.19, currently exercisable until January 12, 2008; options to
purchase 29,411 shares of Common Stock at a price of $2.00 per share
currently exercisable until June 30, 2007; and options to purchase 220,589
shares of Common Stock at a price of $3.50 per share, currently exercisable
until June 30, 2007. See "MANAGEMENT - Outstanding Stock Options and
Restricted Stock."
(5) Includes 6,250 shares of Common Stock held by the Meehan Family
Trust of which Mr. Meehan is Trustee. Does not include an option to
purchase 12,500 shares held by Mr. Meehan at a price of $2.05 per share
that will become exercisable upon the following (i) approval of an increase
in the shares subject to the Company's 1997 Stock Incentive Plan, and (ii)
Mr. Meehan serving as a director through December 10, 1998.
(6) Includes 4,193 shares of restricted stock held by Mr. Signorelli
and options to purchase 117,647 shares of common stock at a price of $2.00
per share, currently exercisable until June 30, 2007. See "MANAGEMENT -
outstanding Stock Options and Restricted Stock."
* Less than one percent
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The following is a brief description of certain relationships and related
transactions.
KELLEY/TAM LOANS. Dr. Richard Tam is a director and principal stockholder
of the Company and Dr. Richard Kelley is a principal stockholder of the
Company. The loan transactions between the Company and Drs. Kelley and Tam
are described in "Item 1. Description of Busines - Kelley Loan" which
description is incorporated herein by reference. The principal amount
of the Kelley Loan was approximately $7,285,000 at June 30, 1998.
In consideration of the August 1997 extension of the Kelley Loan, each of
Drs. Kelley and Tam has been granted a warrant to purchase 200,000 shares
of Common Stock of the Company at the purchase price of $2.75 per share.
All other warrants, options or equity or conversion rights held by Drs.
Kelley and Tam pursuant to the Kelley Loan, as of the date of issuance of
the 200,000 share warrant, were relinquished.
In addition, in connection with the August 1997 extension of the Kelley
Loan, the Company paid Drs. Kelley and Tam a loan fee of $475,000 in the
form of a secured note payable to Drs. Kelley and Tam. Concurrent with the
closing of the Company's initial public offering in September, 1997,
$450,000 of principal of the note was waived.
On March 31, 1998, Drs. Kelley and Tam executed a financing commitment to
lend to the Company up to $1,000,000 and were each issued warrants to
purchase 37,500 shares of Common Stock, currently exercisable at a price of
$2.00 per share until March 31, 2003.
On June 12, 1998, Drs. Kelley and Tam executed a second financing
commitment to lend the Company up to $1,000,000. As consideration
therefor, the Company granted to each of Drs. Kelley and Tam warrants to
purchase 62,500 shares of Common Stock of the Company currently exercisable
at an exercise price of $2.50 per share until June 3, 2003.
On September 30, 1998 a letter of commitment was entered into with Drs.
Kelley and Tam replacing the March 31, 1998 and June 12, 1998 commitments
(see Note 4 to the Company's Financial Statements). As consideration for
the commitment and the initial advance of 400,000 on October 1, 1998, the
Company granted to each of Drs. Kelley and Tam 16,125 warrants to purchase
shares of the Company's Common Stock currently exercisable at a purchase
price of $2.50 per share until September 30, 2003 and 30,000 warrants to
purchase shares of the Company's Common Stock currently exercisable at a
purchase price of $2.00 per share until September 30, 2003. For each
additional $100,000 advance, each of Drs. Kelley and Tam will receive 7,500
warrants to purchase shares of Common Stock at $2.00 per share.
PURCHASE OF PMJ ENTERPRISES, INC.'S SHARES BY DRS. KELLEY AND TAM. In May
1997, Drs. Kelley and Tam purchased from PMJ Enterprises, Inc. a total of
280,398 shares of Common Stock of the Company, with Dr. Kelley purchasing
60,060 shares and Dr. Tam purchasing 220,338 shares. The purchase price
per share was $1.68 for an aggregate purchase price of $472,057.50. PMJ
Enterprises, Inc. agreed to an extension of the PMJ Debt until September
24, 1999 in connection with Drs. Kelley's and Tam's purchase of such
shares. See "ITEM 1. Business - PMJ 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, as amended, 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 until
December 31, 1998. 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 "Item 1. BUSINESS - North
Las Vegas Property."
The Company believes that all of the above transactions 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,
directors 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 and subject to the approval of a majority of the
disinterested independent members of the Company's Board of Directors.
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K.
(a) EXHIBITS
Exhibit 3 - Articles of Incorporation and By-Laws
3.1. Restated Articles of Incorporation of the Company, filed October 3,
1995 (filed as Exhibit 3.2 to Pre-Effective Amendment No. 2 to Registration
Statement No. 333-518-LA and incorporated herein by reference)
3.2. Certificate of Amendment to Restated Articles of Incorporation of the
Company, filed September 18, 1997 (filed as Exhibit 3.2.1 to Amendment No.
5 to Registration Statement No. 333-518-LA and incorporated herein by
reference)
3.3. Bylaws of the Company, dated December 2, 1993 (filed as Exhibit 3.3
to Amendment No. 2 to Registration Statement No. 333-518-LA and
incorporated herein by reference)
3.4. Certificate of Amendment to Bylaws of the Company, dated July 23,
1997 (filed as Exhibit 3.4 to Amendment No. 5 to Registration Statement No.
333-518-LA and incorporated herein by reference)
Exhibit 10 - Material Contracts
10.1 Employment Agreement between Mr. Signorelli and the Company, dated
January 2, 1996 (filed as Exhibit 10.67 to Amendment No. 2 to
Registration Statement No. 333-518-LA and incorporated herein by
reference)
10.2 First Amendment of Employment Agreement between Michael J. Signorelli
and the Company, dated June 30, 1997 (filed as Exhibit 10.110 to
Amendment No. 5 to Registration Statement No. 333-518-LA and
incorporated herein by reference)
10.3 Employment Agreement between Jeffrey L. Gilbert and the Company,
dated January 2, 1996 (filed as Exhibit 10.68 to Amendment No. 2 to
Registration Statement No. 333-518-LA and incorporated herein by
reference)
10.4 First Amendment of Employment Agreement between Jeffrey L. Gilbert
and the Company, dated June 28, 1996 (filed as Exhibit 10.106 to
Amendment No. 4 to Registration Statement No. 333-518-LA and
incorporated herein by reference)
10.5 Second Amendment of Employment Agreement between Jeffrey L. Gilbert
and the Company, dated August 13, 1996 (filed as Exhibit 10.107 to
Amendment No. 4 to Registration Statement No.333-518-LA and
incorporated herein by reference)
10.6 Third Amendment of Employment Agreement between Jeffrey L. Gilbert
and the Company, dated February 24, 1997 (filed as Exhibit 10.108 to
Amendment No. 4 to Registration Statement No. 333-518-LA and
10.7 Fourth Amendment of Employment Agreement between Jeffrey L. Gilbert
and the Company, dated June 30, 1997 (filed as Exhibit 10.109 to
Amendment No. 5 to Registration Statement No. 333-518-LA and
incorporated herein by reference)
10.8 Standard Form Agreement between Owner and Architect (the Company and
Rissman & Rissman Associates), dated August 23, 1994 (filed as
Exhibit 10.60 to Amendment No. 2 to Registration Statement No. 333-
518-LA and incorporated herein by reference)
10.9 Standard Form of Agreement between Owner and Contractor (the Company
and A.F. Construction Company), dated August 30, 1994 (filed as
Exhibit 10.61 to Amendment No. 2 to Registration Statement No. 333-
518-LA and incorporated herein by reference)
10.10 Warrant Agent Agreement, dated September 18,1997, between the Company
and American Stock Transfer & Trust Company (filed as Exhibit 4.8 to
Amendment No. 5 to Registration Statement No. 333-518-LA and
incorporated herein by reference)
10.11 1997 Stock Incentive Plan (filed as Exhibit 10.103 to Amendment No. 5
to Registration Statement No. 333-518-LA and incorporated herein by
reference)
10.12 Convertible Loan Agreement dated August 14, 1995 between the Company
and Richard Kelley (filed as Exhibit 10.51 to Amendment No. 2 to
Registration Statement No. 333-518-LA and incorporated herein by
reference)
10.13 Amended and Restated Convertible Loan Agreement dated April 18, 1996
among the Company, Richard R. Kelley and Richard Tam (filed as
Exhibit 10.78 to Amendment No. 2 to Registration Statement No. 333-
518-LA and incorporated herein by reference)
10.14 Participation and Intercreditor Agreement, dated April 18, 1996,
between Richard Kelley and Richard Tam (filed as Exhibit 10.53 to
Amendment No. 2 to Registration Statement No. 333-518-LA and
incorporated herein by reference)
10.15 Stock Purchase Agreement dated as of May 9, 1997 by and between the
Company, PMJ Enterprises, Inc., Patrick J. Shannon, Dr. Richard Roy
Kelley and Richard Tam (filed as Exhibit 10.111 to Registration
Statement No. 333-518-LA and incorporated herein by reference)
10.16 First Amendment to Amended and Restated Convertible Loan Agreement
between the Company and Richard R. Kelley dated July 17, 1997 (filed
as Exhibit 10.123 to Amendment No. 6 to Registration Statement No.
333-518-LA and incorporated herein by reference)
10.17 Intercreditor Agreement by and among Richard Kelley, Richard Tam and
PMJ Enterprises, Inc., dated May 1997
10.18 Option Agreement between the Company and Desert Mesa Land Partners,
Ltd., a Nevada limited partnership dated April 23, 1996 (filed as
Exhibit 10.84 to Amendment No. 2 to Registration Statement No. 333-
518-LA and incorporated herein by reference)
10.19 First Amendment dated April 30, 1997 to Option Agreement between the
Company and Desert Mesa Land Partners, Ltd., and High Mesa
Development, Inc., dated April 23, 1996 (filed as Exhibit 10.117 to
Amendment No. 5 to Registration Statement No. 333-518-LA and
incorporated herein by reference)
10.20 Second Amendment dated September 8, 1997 to Option Agreement between
the Company and Desert Land Partners, Ltd. and High Mesa Development,
Inc.(filed as Exhibit 10.20 to Form 10-KSB filed April 15, 1998 and
incorporated herein by reference)
10.21 Third Amendment, dated March 15, 1998 to Option Agreement and
Amendment to Note between the Company and Desert Land Partners, Ltd.
and High Mesa Development, Inc. (filed as Exhibit 10.21 to Form 10-
KSB filed April 15, 1998 and incorporated herein by reference)
10.22 Operating Lease Commitment for $2,100,000 dated April 10, 1996
between the Company and PDS Financial Corporation (filed as
Exhibit 10.87 to Amendment No. 2 to Registration Statement No. 333-
518-LA and incorporated herein by reference)
10.23 Equipment Financing Commitment dated March 12, 1996 between the
Company and PDS Financial Corporation (filed as Exhibit 10.88 to
Amendment No. 2 to Registration Statement No. 333-518-LA and
incorporated herein by reference)
10.24 Operating Lease Commitment for $700,000 dated March 29, 1996 between
the Company and PDS Financial Corporation (filed as Exhibit 10.94 to
Amendment No. 2 to Registration Statement No. 333-518-LA and
incorporated herein by reference)
10.25 Construction Loan Agreement between First Credit Bank and the Company
dated January 27, 1998(filed as Exhibit 10.25 to Form 10-KSB filed
April 15, 1998 and incorporated herein by reference)
10.26 Master Lease Agreement between IGT and the Company, dated April 8,
1998 (filed as Exhibit 10.26 to Form 10-KSB filed April 15, 1998 and
incorporated herein by reference)
10.27 Lease Agreement between Casino Excitement, Inc. dba Mikohn Lighting &
Sign and the Company dated as of February 9, 1998 (filed as Exhibit
10.27 to Form 10-KSB filed April 15, 1998 and incorporated herein by
reference)
10.28 Financing Commitment Letter dated March 31, 1998 by Richard Kelley
and Richard Tam (filed as Exhibit 10.1 to Form 10-QSB filed May 15,
1998 and incorporated herein by reference)
10.29 Financing Commitment Letter dated April 27, 1998 by Sam Hon (filed as
Exhibit 10.2 to Form 10-QSB filed May 15, 1998 and incorporated
herein by reference)
10.30 First Amendment to Construction Loan Agreement between First Credit
Bank and the Company dated June 17, 1998 (filed as Exhibit 10.30 to
Form 10-KSB filed October 14, 1998 and incorporated herein by
reference)
10.31 Amendment dated August 25, 1998 to Hon Financing Commitment Letter
(filed as Exhibit 10.31 to Form 10-KSB filed October 14, 1998 and
incorporated herein by reference)
10.32 Loan Agreement dated September 30, 1998 by and between the Company
and Richard Kelley and Richard Tam (filed as Exhibit 10.32 to Form
10-KSB filed October 14, 1998 and incorporated herein by reference)
10.33 Letter Agreement dated May 14, 1998 by and between the Company and
A.F. Construction Company, Inc. (filed as Exhibit 10.33 to Form 10-
KSB filed October 14, 1998 and incorporated herein by reference)
10.34 Conditional Loan Commitment dated September 30, 1998 between the
Company and CNB Capital, Inc.*
10.35 Fourth Amendment, dated September , 1998 to Option Agreement and
Amendment to Note between the Company and Desert Land Partners, Ltd.
and High Mesa Development, Inc. (filed as Exhibit 10.35 to
Form 10-KSB filed October 14, 1998 and incorporated herein by
reference)
10.36 Executive Severance Agreement dated September 25, 1998, by and
between the Company and Jeffrey L. Gilbert (filed as Exhibit 10.36 to
Form 10-KSB filed October 14, 1998 and incorporated herein by
reference)
10.37 Lease Agreement dated April 23, 1998 between the Company and PDS
Financial Corporation*
10.38 Lease Addendum V dated June 17, 1998 and lease commitment dated April
6, 1998 between the Company and Telerent Leasing Corporation *
*Filed herewith.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on the 27th day of October, 1998.
NEVSTAR GAMING & ENTERTAINMENT CORPORATION
By: /s/ MICHAEL J. SIGNORELLI
Michael J. Signorelli
Chairman of the Board, President,
Secretary and Chief Executive Officer
In accordance with the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons who
include a majority of the Board of Directors on behalf of the Registrant
and in the capacities indicated on October 27, 1998.
Signatures Title Date
James D. Meehan Director
Michael J. Signorelli Director
Richard Tam Director
By:/s/ Michael J. Signorelli October 27, 1998
Michael J. Signorelli, individually,
Chairman of the Board, President, Secretary and
Chief Executive Officer (Principal
Executive Officer) and as attorney-in-fact
for the foregoing Persons
By:/s/ Brent E. Duncan October 27, 1998
Brent E. Duncan
Chief Financial Officer
and Treasurer (Principal Financial
Officer and Principal Accounting Officer)
September 30, 1998
NevStar Gaming & Entertainment Corporation
P.O. Box 96807
Las Vegas, NV 89193-6807
Attention: Mr. Michael Signorelli, Chairman of the Board
Re: Permanent First Mortgage Loan (the "Loan")
Hotel/Casino in Mesquite, Nevada
Dear Mr. Signorelli:
This letter constitutes the Commitment (the "Commitment Letter") of CNB
Capital, Inc. (the "Lender") to make one real estate first mortgage loan to
the entity described below as the borrower (the "Borrower"). On the terms and
conditions of this Commitment Letter, the commitment made herein, is as
follows:
1. Borrower: A single purpose and asset bankruptcy remote entity to
be formed and wholly owned by NevStar Gaming & Entertainment Corp., a Nevada
corporation and publicly held company which Michael Signorelli is the Chairman
of the Board.
2. Purpose of Loan. The purpose of the Loan is to refinance the
current indebtedness of the collateral property as described below and payoff
the following:
(a) To the extent of not more than $5,450,000, a payoff of unpaid
principal balance of Borrower's existing first mortgage loan
on the Real Estate (as hereinafter defined), the existing
first mortgage loan being held by First Credit Bank; and
(b) To the extent of not more than $7,285,000, a payoff of unpaid
promissory notes due, to Kelley-Tam, (as hereinafter
defined), the Kelley-Tam Notes; and
(c) To the extent of not more than $1,099,000, a payoff of unpaid
promissory notes due, to PMJ, (as hereinafter defined), the
PMJ Notes; and
(d) To the extent of not more than $854,000, a payoff of the
construction payables (as hereinafter defined), the existing
payable being owed to A.F. Construction; and
(e) To the extent of not more than $1,215,000, a payoff of the
commitment note due, to Kelley-Tam, plus deferred interest,
(as hereinafter defined), the Kelley-Tam Commitment Notes;
and
(f) To the extent of not more than $250,000, a payoff of the
commitment note due, to Mr. Hon, (as hereinafter defined),
the Hon Commitment Notes; and
(g) The extent of not more than $2,547,000, reimbursement to
Borrower for the construction and pre-opening expenses set
forth in Schedule #1 hereto (any balance thereof not used for
such purpose to be applied to the interest reserve account);
and
(h) To the extent that additional debt exists with other secured
or unsecured creditors, the balance of the loan amount can be
applied to said debt (including any interest accrued on the
principal amount of any of the above loans) once all closing
costs associated with this commitment have been paid.
The proceeds of the Loan (the "Loan Proceeds") may not be used for any
purposes other than as set forth above. In no event shall the Loan Proceeds
be used for personal, family or household purposes.
3. Principal Amount of Loan: The least of the following:
(a) Up to a maximum of Twenty Million Dollars ($20,000,000.00);
(b) 65% of the fair market value of the Real Estate as disclosed by
the Appraisal, including business and service income. The scope
of work for said appraisal shall treat the Collateral (as defined
below) as a business on-going concern;
(c) That maximum loan amount determined in accordance with Lender's
underwriting guidelines to be (in the exercise of reasonable
commercial banking judgment) justified by Borrower's net operating
income from the Real Estate (net operating income being Borrower's
gross income from the Real Estate less all costs and expenses of
owning and operating the Real Estate, including business and
service income);
(d) The maximum loan amount determined in accordance with Lender's
underwriting guidelines to be (in the exercise of reasonable
commercial banking judgment) justified by a Debt Service Coverage
Ratio of not less than 1.40 to 1; or
(e) The actual amount required to pay all of the sums set forth in
paragraph 2 above.
4. Term, Maturity Date and Amortization:
(a) Initially, the term of the Loan shall be approximately three (3)
years commencing on the date of the Closing of the Loan and ending
on the first day of the calendar month next following the third
anniversary date of the Closing of the Loan (the "Maturity Date").
Until the Maturity Date, interest only shall be paid monthly in
arrears on the first day of each calendar month until the Maturity
Date. On the Maturity Date, the entire unpaid principal balance
of Loan, together with all interest and other charges then accrued
or due but unpaid, shall be paid in full in a single Balloon
Payment.
(b) If the Collateral achieves a stabilized twelve (12) month Debt
Service Coverage Ratio of 1 to 1.40 (determined on a trailing
basis) prior to the Maturity Date, and provided that the Borrower
is not then in default under any of the Loan Documents (as defined
below), the Borrower, at Borrowers option, will have the right to
convert the Loan to a fixed term amortizing first mortgage loan on
the Collateral upon and subject to the following general terms and
conditions as the Lender customarily uses for loans of similar
size, quality and type:
Term: 10 years
Amortization: 20 year
Interest Rate: 275 basis points over the corresponding treasury fixed
as of the date of closing of the conversion.
Principal Amount: Equal to the unpaid principal balance of the Loan as
of the date of closing of the conversion.
Loan to Value: Loan to Value Ratio of not greater than 60%.
Conversion Fee: 1% of the principal amount of the converted loan in
lieu of the exit fee provided for in paragraph 7(d)below.
Prepayment: Years 1-2, no prepayment allowed; Years 3-9, greater
of 1% or Yield Maintenance (as defined below).
Year 10, no premium or penalty for any prepayment.
Collateral: The Collateral.
5. Interest Rate. As otherwise provided in this paragraph, that fixed
rate of per annum interest which as of the date of the Closing of the Loan is
equal to 3.5 points over the published 6 month LIBOR rate as published
electronically at the time of determination thereof by Lender on either of
the Dow Jones Telerate, Inc. or Bloomberg Financial Markets (collectively, the
"Financial News Wires"), or is such Financial News Wires no longer publish
such information, in another authoritative source selected by the Lender.
However, if within a forty (40) days of Lender's execution of this Commitment
Letter, the Lender has not received all documentation and other information
required to satisfy each of the Conditions Precedent, other than those to be
satisfied by Borrower only as of the date of the Loan Closing, the Lender, in
its sole and absolute discretion, may:
(a) extend the expiration date of this Commitment Letter with such
changes, modifications and/or additions to the terms, covenants,
conditions and other provisions hereof as the Lender, in its sole
discretion, shall determine are necessary to insure that the Loan
provides a yield to the Lender equivalent to interest at that
annual rate equal to 3.5% over the LIBOR rate; or
(b) extend the expiration date of this Commitment Letter with no
changes or additions to the terms, covenants, conditions and other
provisions hereof.
Interest shall be charged and accrued daily on the unpaid principal balance of
the Loan. Interest for each day shall be calculated by multiplying the unpaid
principal balance of the Loan at the end of such day by the interest rate in
effect at the end of such day and then dividing the product thereof by three
hundred sixty (360).
6. Principal and Interest Payments: Interest only shall be paid
monthly in arrears commencing on the first day of the calendar month next
succeeding the date of Closing and so continuing on the first day of each
month thereafter until the Loan is paid in full. Principal shall be paid in
full in a single Balloon Payment due and payable on the Maturity Date.
7. Commitment Fee, Break-Up Fee, Report Deposit Fee and Exit Fee:
(a) Break-Up Fee: In the event that the Loan does not close due to any
material failure of the Borrower or the Guarantor to comply with the
terms of this Commitment Letter or by reason of any
misrepresentation (intentional or unintentional) of the Borrower or
the Guarantor, the Borrower shall forthwith pay the Lender a break-
up fee equal to seventy-five one hundredths of one percent (.75%) of
the Loan Amount.
(b) Origination Fee: At the Closing of the Loan, the Borrower shall pay
the Lender an Origination Fee in an amount equal to two percent
(2.0%) of the Loan Amount (the "Origination Fee"). The Origination
Fee is in addition to the Report Deposit Fee.
(c) Report Deposit Fee: Simultaneously with the Borrower's execution and
delivery of this Commitment Letter to the Lender, the Borrower will
pay to the Lender a Report Deposit Fee in the amount of $25,000.00
(the "Report Deposit Fee") to cover, among other things, the costs
and expenses incurred by the Lender in conducting its due diligence
necessary to underwrite the Loan. Should the Loan not close for any
reason other than Borrower's or Guarantor's failure to comply with
the terms of this Commitment Letter in any material respect or any
misrepresentation (intentional or unintentional) of Borrower or
Guarantor, the Report Deposit Fee remaining after the deduction
therefrom by the Lender of the reasonable costs incurred by Lender
in preparing, negotiating and issuing this Commitment Letter and
preparing to close the Loan (including, but not limited to, legal
fees and expenses of Lender's Counsel and fees in connection with
the Appraisal, the Environmental Report, the A&E Report, the
preparation and delivery of releases or assignments of existing
mortgages or liens, title insurance premiums, survey charges,
mortgages and documentary stamp taxes and recording fees) and the
costs and expenses incurred by Lender in connection with its said
due diligence (including, but not limited to underwriting expense,
expense incurred by Lender for site inspections and travel time and
expenses) shall be refunded by Lender to the Borrower. If the Loan
does not close by reason of Borrower's or Guarantor's failure to
comply with the terms of this Commitment Letter in any material
respect or by reason of any misrepresentation (intentional or
unintentional) of Borrower or Guarantor, then:
(i) the Borrower shall pay all costs and expense incurred by the
Lender in connection with this Commitment Letter and/or the
Loan, including, but not limited to, legal fees and expenses
and fees and costs in connection with the Appraisal, the
Environmental Report, the A&E Report, site inspections, due
diligence, surveys, title insurance premiums, survey charges,
underwriting expenses, travel expenses, recording or filing
fees and documentary taxes;and
(ii) the then unexpended balance of the Report Deposit Fee shall be
applied first against and in reduction of Lender's said costs
and expenses in connection with this Commitment Letter and/or
the Loan and, second, the remainder, if any, against and in
reduction of the Break-Up Fee.
If the Loan closes, the Report Deposit Fee shall be accounted for
at the Closing and credited to Borrower's closing costs.
(d) Exit Fee: Subject to the provisions of paragraph 4(b) above, the
Borrower shall pay to the Lender on the date the Loan is paid in
full (but not later than the Maturity Date) an exit fee equal to
one percent (1%) of the original principal amount of the Loan (the
"Exit Fee").
8. Collateral Security: The Collateral Security for the Loan shall
be:
(a) A perfected first priority mortgage and lien (or, if applicable,
deed of trust) on the real estate, together with the 220 room
hotel/casino in Mesquite, Nevada and other improvements now or
hereafter located thereon (the "Improvements"), and commonly known
as The Mesquite Star Hotel & Casino, Mesquite Blvd. & I-15
Freeway, Mesquite, Nevada, and being more particularly described
as set forth in Exhibit A-1 attached hereto (selectively, the
"Land" and the Land and Improvements being hereinafter on occasion
referred to collectively as the "Real Estate").
(b) Except for any such personal property as is currently leased or
leased prior to Closing subject to an installment purchase
contract or otherwise financed by Borrower from independent third
party lessors (including, normal replacements, substitutions and
improvements of such items), a perfected first priority security
interest in and to all fixtures, equipment, inventory in excess
owed the wholesaler, contract rights, instruments, documents,
accounts and general intangibles of Borrower, whether now owned or
existing or hereinafter arising or acquired, affixed or to be
affixed to or arising out of, as a result of or incidental to or
acquired or to be acquired for use in connection with or otherwise
pertaining to all or any part of the Real Estate, or the use,
ownership, management, development or occupancy of all or any part
thereof or the repair, restoration, replacement or improvement of
all or any part thereof; any and all replacements, substitutions,
exceptions or additions to or for any of the foregoing and all
products and cash and non-cash proceeds of any or all of the
foregoing (selectively, the "Personal Property Collateral"):
(c) Perfected first priority assignment of all the leases, rental
agreements and other occupancy or rental arrangements now or
hereafter in effect with respect to all or any part of the other
Collateral (as hereinafter defined), all guarantees and security
for any thereof and all rents, issues, other revenues, and profits
payable or to become payable thereunder (selectively, the "Leases
and Rents"); and
(d) A first priority assignment of any management agreement in effect
with respect to all or any part of the Collateral, each such
management contract to be in form and substance acceptable to
Lender subordinate to the Loan Documents, the liens thereof and
the rights of Lender hereunder and Lender to have the right to
terminate any such management agreement upon any default by
Borrower under any one or more or all of the Loan Documents
Borrower may change management company with Lender's prior written
approval. Lender may not unreasonably withhold such approval.
The Real Estate, the Personal Property Collateral, the Leases and
Rents and said management contract(s) are hereinafter referred to
collectively as the "Collateral."
9. Guarantor: The following: NevStar Gaming & Entertainment Corporation
and Michael J. Signorelli (individually and jointly and severally)
(collectively, the "Guarantor") but only with respect to the "Recourse
Obligations" described in paragraph 15 below and the Obligations of Borrower
and Guarantor to Lender under the Hazardous Materials Indemnity Agreement to
be executed by them pursuant to the provisions of paragraph 12(f) below.
10. Legal Matters:
(a) Quality of Documents and Items: Each document and item required to
be submitted to the Lender or Lender's Counsel pursuant to the
terms of this Commitment Letter shall be in form and substance
satisfactory to the Lender and Lender's Counsel and for all
purposes shall be deemed submitted to them for their respective
approvals.
(b) Lender's Counsel. Lender's Legal Counsel is Daniel D. Muller,
Esquire of the Manchester, New Hampshire office of the Law Firm of
Peabody & Brown. The address of the Manchester, New Hampshire
office of said law firm is 889 Elm Street, Manchester, NH 03101
(telephone number (603) 628-4000).
(c) Cost of Lender's Counsel: In addition to all other fees, costs and
expenses payable by Borrower pursuant hereto, by reasonable cost o
Lender's Counsel, counsel for Lender's Repurchaser and any local or
special counsel engaged by Lender or Lender's Counsel and all
reasonable expenses charged to Lender by such counsel shall be
charged to, and paid by, the Borrower. Lender, however, agrees
that the fees of Lender's Counsel shall not exceed $25,000.00 in
the aggregate if the transaction contemplated hereby does not
involve any exceptional or unusual problems or unexpected delays in
closing.
11. Loan Closing: The Closing (selectively, the "Closing" or the
"Closing Date") shall take place thirty (30) days following the date all
Conditions Precedent (as defined below) required to be satisfied prior to the
Closing have, to the sole judgment of a Lender and Lender's Counsel, been
fully satisfied and/or waived or on such earlier date as the Lender and
Borrower may hereafter agree upon in writing, time being of the essence
hereof. The Closing shall take place at such location as the parties may
agree upon in writing.
12. Loan Documents. Loan Documents shall consist of the following
(collectively the "Loan Documents");
(a) Loan Agreement: Including provisions for the following:
(i) Reserves shall be deposited by Borrower with the Lender at
Closing (or Lender may withhold from the Loan Proceeds) in
an amount equal to one hundred twenty-five percent (125%) of
the cost of any other immediately needed repairs or
maintenance to the Improvements disclosed by the A&E Report
(as hereinafter defined), such reserves to be released to
Borrower for reimbursement for such maintenance and repair
expenses on terms acceptable to Lender and Lender's Counsel:
(ii) Borrower will submit to Lender within thirty (30) days of
all county, state and municipal taxes and special
assessments, invoices and bills received by Borrower with
respect to the Real Estate or any of the other Collateral
then having been due and payable have been paid in full;
(iii) Borrower will submit to Lender within thirty (30) days of
taxes and insurance becoming due and payable, evidence that
said insurance and tax payments then having become due and
payable, have been paid in full;
(iv) Subject to Borrower's satisfaction of certain conditions as
provided in the Loan Documents (including payment of a 1%
fee prior to sale and securitization of the Loan, or $10,000
fee after sale or securitization), Borrower has a one time
right to transfer title to the Real Estate and the other
Collateral. Otherwise, any sale, transfer or conveyance of
all or part of the Real Estate or the other Collateral shall
give Lender the right to declare the balance of the Loan
immediately due and payable;
(v) Designation and specifications of events of default
satisfactory to Lender and Lender's Counsel;
(vi) The senior management, control and ownership of Borrower
shall not change without the prior written consent of the
Lender and Borrower shall continue to be a single asset
entity. Lender shall not unreasonably withhold such written
consent;
(vii) Lender shall have the right to conduct an environmental
audit at any time during the term of the Loan and, in
addition, such environmental audit shall be conducted at
Borrower's expense in the event Lender has received notice
of an environmental enforcement action, notice, or lien;
(viii)Lender shall have the right, in the exercise of reasonable
commercial banking judgment, to adjust the monthly
contributions to all escrow and/or reserve accounts to such
amounts as Lender deems reasonably prudent to account for
actual or projected increases or decreases in the amounts of
the items to be paid therefrom (such right to be exercisable
by Lender as often as the occasion therefore shall arise but
only after affording Borrower thirty (30)days to cure any
circumstances necessitating any such adjustment that will
result in any increase in such monthly contribution unless
such circumstances are of a nature whose cure is
impossible);
(ix) Borrower shall submit to Lender within one hundred twenty
(120) days following the close of each calendar year
financial statements with respect to the Real Estate in form
and substance satisfactory to Lender prepared by Borrower's
independent certified public accountants. Borrower shall
also submit to Lender such other and further information
with respect to Borrower, Guarantor, the Real Estate or the
business or financial affairs of any of them as the Lender
may reasonably require from time to time; and
(x) A prohibition against any change, modification or
termination to any management agreement in effect with
respect to the Real Estate without prior written consent of
the Lender and a prohibition against any liens on all or
part of the Collateral (whether junior or senior to the Loan
Documents) without the prior written consent of the Lender.
Lender shall not unreasonably withhold such written consent.
The Lender will furnish the Borrower with copies of the Loan Documents for
review within fifteen (15) days following that date Lender completes its
underwriting and receives the approval of its credit committee for the Loan.
(b) Promissory Note: Including provisions for the following:
(i) The Promissory Note shall allow the Lender to collect late
payment charges up to 4% of the amount of any late payment
on that Note;
(ii) After any acceleration of the Maturity Date, the interest
rate in effect at such time shall be increased by the annual
rate of 4%; and
(iii) During the term of the Loan, the Borrower may prepay the
principal amount of the Loan in whole or in part provided
Borrower pays Lender a premium equal to one percent (1%) of
the amount so prepaid;
(c) Guaranty: Direct, unconditional guaranty by the Guarantors of the
complete payment, performance and satisfaction of all the Recourse
Obligations (as hereinafter defined);
(d) Security Instruments: Including the following (all of which may
be combined into one or any other number of documents):
(i) Mortgage Instrument: The Mortgage Instrument shall be a
perfected first priority lien and mortgage (fee or leasehold
where and when it is applicable) and, consistent with the
terms hereof, shall include provisions as to required
insurance, prohibitions on transfer, future mortgaging,
selling, conveying, leasing, and voluntary and involuntary
liens, all as the Lender may require as well as other
provisions reasonably required by Lender or Lender's
Counsel;
(ii) Security Agreement and Financing Statements: The Security
Agreement and Financing Statements shall provide a perfected
first priority security interest in all of the Personal
Property Collateral;
(iii) Assignment of Leases and Rents: A perfected, first priority
assignment of Borrower's interest in all of the Leases and
Rents (including the rights to receive rents); and
(iv) Assignment of Management Contracts. A perfected first
priority assignment of Borrower's rights and interest in all
management agreements in effect with respect to the Real
Estate with the consent of each franchiser, concessionaire
and property manager to the same and also to contain full
and complete subordination and standstill of each such
management agreement and right of the property manager
thereunder to the Loan Documents and the right of the Lender
conditions set forth in Paragraph 12(d) above. Initially,
the property manager shall be the Borrower.
(e) Intentionally Omitted.
(f) Hazardous Materials Indemnity Agreement: An indemnity agreement
executed by Borrower and Guarantor, jointly and severally
indemnifying Lender for any and all liability of the Lender under
any and all state and federal environmental or hazardous materials
laws.
(g) Other Documents: Such other and further documents, instruments
and agreements as the Lender, Lender's Counsel, the Lender's Loan
Repurchaser or its counsel may reasonably require consistent with
the nature of the Loan, the Collateral, the borrowing entity and
prudent and reasonable practices which are not inconsistent with
this Commitment Letter or the transactions contemplated hereby.
13. Availability of Funds: Except for any thereof to be held as a
reserve for the Initial Repairs, the Loan Proceeds should be made available at
the Closing, the recordation and/or filing of the Loan Documents and such
other documents or instruments requiring such filing or recordation and
Lender's receipt of the Loan Proceeds from its funding source for the Loan
less any amounts which Lender, at its sole discretion, may retain therefrom to
pay amounts by Borrower to others as a result of the Closing, including, but
not limited to, those third party expenses described in Paragraph 14 below.
Lender shall have no liability with regard to the time at which its fund wire
transfers are received, and shall not be responsible for any charges incurred,
interest lost, or any other liability due to timing of the wire transfer.
14. Fees and Expenses:
(a) Generally: Borrower will pay, at the Closing, any and all
reasonable, documented charges and fees incurred by Borrower
and/or Lender in connection with the Loan including, but not
limited to title examination and title insurance, surveys,
recording and filing fees, documentary stamps, mortgage recording
taxes and other taxes imposed by reason of the execution and/or
delivery and/or recording of any of the Loan Documents and all
other taxes (other than income taxes of Lender) applicable to the
Loan, legal, engineering, environmental, due diligence, architect,
insurance consultant, appraisal fees and expenses, escrow, license
and permit fees and expenses, insurance premiums, flood search
fees, site inspection, travel time and expenses and such other
expenses as reasonably may be incurred in connection with the
Loan.
(b) Survival. The provisions of this Paragraph 14 shall survive the
Closing and any termination or expiration of this Commitment
Letter.
15. Non-Recourse Feature: Notwithstanding anything contained in this
Commitment Letter to the contrary, the Lender agrees and (except as
hereinafter set forth) the Loan Documents shall provide, that the Borrower
shall have no personal liability for the repayment of the Loan or the
performance of any of the Borrower's obligations under any of the Loan
Documents except for the following (the "Recourse Obligations"):
(a) The obligation to pay fees and expenses provided for in Paragraph
14 and 7 above;
(b) Misapplication of insurance proceeds, condemnation proceeds, or
tenant security deposits;
(c) Rents collected more than one month in advance not applied to the
repayment of the Loan or the operating expense of the Real Estate;
(d) Rents collected after the occurrence of any event of default under
any of the Loan Documents not applied to the repayment of the Loan
or operating expenses of the Real Estate;
(e) Failure to pay (or deposit into reserves held by the Lender funds
sufficient to pay) taxes or insurance on the Collateral or any part
thereof, any other cost or expense related to the Collateral for
which the Borrower is required to escrow funds hereunder or under
any of the Loan Documents or any liens with priority over any of
the liens created under any one or more all of the Loan Documents;
(f) Damages arising from any fraud or misrepresentation of the
Borrower;
(g) Intentional damage to all or any part of the Collateral;
(h) The obligations of the Borrower to Lender under the Hazardous
Materials Indemnity Agreement be executed by the Borrower and the
Guarantor or any of the provisions of any of the Loan Documents
dealing with hazardous or toxic substances or materials; or
(i) The failure by the Borrower to comply with any applicable federal,
state, county or municipal environmental laws, statutes, codes,
ordinances or regulations.
16. Conditions Precedent: The obligations of Lender hereunder to
close the Loan and disburse the Loan Proceeds are expressly contingent upon
the full and complete satisfaction by the Borrower of each of the following
conditions (collectively, the "Conditions Precedent" and, on occasion
individually as a "Condition Precedent"):
(a) Pre-closing Business Conditions Precedent. Lender shall have
received not more than twenty (20) days after receipt by the
Lender of all of Borrower's Pre-Closing Business Documents (as
hereinafter defined) an agreement from a purchaser of Lender's
choice ("Lender's Repurchaser") to purchase the Loan from the
Lender at the Closing upon terms and conditions satisfactory to
the Lender, in its sole discretion, (the "Loan Repurchase
Agreement"), and Lender shall have completed its underwriting, and
received its Credit Committee's approval, for the Loan not more
than twenty (20) days after the date the Lender receives all of
the Borrower's Pre-Closing Business Documents and the Pre-Closing
Document Notice and such underwriting shall have disclosed the
Loan and the Collateral meet all of Lender's guidelines (whether
underwriting or other). Also, Lender shall have received not more
than thirty (30) days after the Effective Date of this Commitment
Letter each of the following (the "Borrower Pre-Closing Business
Documents") from the Borrower and a notice in writing from the
Borrower to Lender in the form of Exhibit B attached hereto (the
"Pre-Closing Document Notice") which shall be deemed received by
Lender upon the next business day of Lender after Borrower
deposits the same, properly addressed, by Federal Express or other
equally recognized overnight courier:
(i) Current financial statement from the Borrower and Guarantor
prepared and certified by Borrower and Guarantor;
(ii) Complete copies of any tax returns filed by the Borrower
and/or Guarantor with any federal, state or local tax
authority during the past three (3) years together with the
schedules to each thereof;
(iii) Financial, Income and Cash Flow Statements for the
Collateral for fiscal years ending December 31, 1995,
December 31, 1996, December 31, 1997 and the six (6) month
period ending June 30, 1998, prepared and certified by
Borrower's Certified Public Accountant;
(iv) A copy of the Deed to the Real Estate by which Borrower
acquired title thereto and tax identification numbers for
the Borrower and social security number for the Guarantor;
(v) A true and complete copy of each lease, vendor contract and
other contract or agreement effecting all or any part of
the Collateral;
(vi) A policy of hazard insurance with respect to the
Improvements and Personal Property (or certificates
thereof) in an amount equal to the lessor of the full
replacement value of said Improvements and Personal Property
Collateral or the Loan Amount and such policy to:
(a) contain a standard "Mortgagee" clause or endorsement
with respect to the Improvements and a standard
"lender's loss payable" or "lender's loss payee"
clause or endorsement acceptable to Lender and
Lender's Counsel and provisions for a minimum thirty
(30) day advanced written notice to Lender of any
intended policy cancellation or non-renewal,
(b) be issued by an insurer satisfactory to the Lender and
rated "A" or better in the most recent A.M. Best's
Insurance Report and,
(c) be accompanied with proof of full payment of all
premiums (non-financed) for a period to extend at
least one year beyond Closing and a certification
from the insurer in the event Lender obtains title to
the Collateral or otherwise obtains control thereof,
the insurance premiums will be at the same rate as
would have been otherwise paid by the Borrower;
(vii) The policy of general liability insurance (or certificate
thereof) as to the Borrower, with such policy to:
(a) contains coverage types and amounts satisfactory to
Lender and Lender's insurance consultant,
(b) be issued by an insurer satisfactory to the Lender and
Lender's insurance consultant and rated "A" or better
in the most current A.M. Best's Insurance Report and,
(c) be accompanied by proof of full payment of all
premiums (non-financed)for a period to extend at
least one year beyond Closing;
(viii) Evidence satisfactory to Lender and Lender's Counsel as to
whether or not any material part of the Real Estate is
located within an area identified pursuant to the Flood
Disaster Protection Act of 1973 as having special flood
hazards, with the certification that is required with the
surveys required by this Commitment Letter to be permitted
to constitute such evidence, and Lender hereby reserving the
right to make this Commitment Letter void or to require
flood insurance policy naming Lender as Mortgagee if any
Improvements are or will be located in a special flood
hazard zone;
(ix) Policies or certificates with respect to such other and
further insurance as the Lender or Lender's insurance
consultant may specify in writing, each such policy to be
in such amounts and cover such risks as the Lender or its
insurance consultant may reasonably require and issued by an
insurer satisfactory to Lender, be accompanied by proof of
full payment of all premiums (non-financed) for a period to
extend to at least one year beyond Closing and be otherwise
in a form and substance satisfactory to Lender and
Lender's insurance consultant;
(x) A copy of each real estate tax bill for the Real Estate and
each part thereof for the then current real estate tax year
(if available);
(xi) Engineering report (selectively, the "A&E Report") in form
and substance acceptable to Lender with respect to the
structural soundness, condition and state of repair of the
Improvements and the major systems and facilities serving
the same (which report shall be ordered by the Lender, but
paid for the Borrower) and any defects disclosed thereby
(the "Disclosed Structural Defects");
(xii) Phase I Environmental Report with respect to the Real Estate
prepared by duly licensed or registered environmental
engineer satisfactory to Lender (which report shall be
ordered by Lender but paid for by the Borrower) disclosing
the Real Estate to be free from any environmental defects
except as expressly otherwise disclosed thereby (the
"Environmental Report" and the "Disclosed Environmental
Defects" respectively);
(xiii) Evidence satisfactory to the Lender that all Disclosed
Structural Defects and Disclosed Environmental Defects have
been fully and completed remediated or, in the case of any
Disclosed Environmental or Structural Defect which the
Lender (in its sole discretion) permits to be remediated
post-Closing by a date specified in writing by the Lender
for the completion of such remediation, evidence
satisfactory to the Lender and Lender's Counsel that
formal written contractual arrangements of such remediation
approved by the Lender and the Lender's Counsel are in
place, funds are available (by escrow or otherwise specified
by Lender) to pay all of the costs and expenses of
such remediation, and that such remediation can reasonably
be expected to be completed by the completion date for the
same specified by the Lender in its sole discretion;
(xiv) A written appraisal of the Real Estate (the "Appraisal")
prepared by a certified M.A.I. state appraiser licensed in
the State of Nevada satisfactory to the Lender (which
appraisal shall be ordered by the Lender and paid for by
the Borrower), certifying to the Lender and dated not more
than 60 days prior to the Closing Date that the Real Estate
has fair market value that will support a Loan to Value
Ratio ("LTV") of not greater that 65%, it being
expressly agreed that:
(a) if the appraisal shows a fair market value of less
than the amount necessary to achieve an LTV of 65% or
less either Borrower or Lender may terminate this
Commitment Letter within ten (10) days after receipt
of such Appraisal by written notice delivered to the
other; and
(b) Borrower shall order and pay the cost thereof;
(xv) Intentionally Omitted;
(xvi) A detailed description of the Initial Repairs together with
a complete copy of such contract for the installation and
completion thereof;
(xvii) From and after the date hereof and until the date of
Closing, monthly operating statements for the Collateral
prepared and certified by Borrower's management (each
thereof being submitted to Lender for its review and
approval);
(xviii Intentionally Omitted;
(xix) Evidence satisfactory to the Lender that the operating
income from the Real Estate is and will continue to be
sufficient to pay all operating expenses of the Collateral
and all sums payable to Lender on or on account of the Loan
as they become due and payable;
(xx) Complete credit reports for the Borrower and Guarantor for
Lender's review and approval (such credit reports to be
ordered by the Lender and paid for by the Borrower); and
(xxi) Such additional information which may be reasonably required
by Lender or Lender's Counsel evaluating the Borrower, the
Guarantor, the Collateral and/or the Loan contemplated
hereby.
(b) Pre-Closing Legal Conditions: Not later than thirty (30) days
following the Effective Date of this Commitment Letter or at such
other time as is specified with respect to any particular item,
Lender's Counsel shall have received the following from Borrower
or Borrower's Counsel (the "Pre-Closing Legal Documents"):
(i) A Commitment for a policy of Lender's Title Insurance (the
"Title Commitment") effective as of a date not more than
forty (40) days prior to the Closing Date issued by
Fidelity National Title or other title insurer satisfactory
to Lender and Lender's Counsel (the "Title Insurer") naming
the Lender as the proposed insured and Borrower as the owner
of the Real Estate, disclosing that the Borrower is the
owner of fee simple title thereto subject only to such
liens, charges and exceptions (whether general or special),
if any, as are acceptable to Lender and Lender's Counsel in
their sole discretion (the "Approved Exceptions") and
pursuant to which the Title Insurer irrevocably agrees to
issue, subject only to exceptions and conditions acceptable
to Lender and Lender's Counsel, a policy of Lender's Title
Insurance in an amount equal tothe Loan Amount to Lender
insuring, with such endorsements as Lender or Lender's
Counsel may require (the "Insurance Policy") or, in lieu of
the Title Commitment a Preliminary Report on Title
containing the same assurances, that:
(a) Borrower is the owner of good, marketable, insurable
and indefeasible fee simple title to the Real Estate
and the Leases and Rents and/or leasehold title when
and where applicable,
(b) The Mortgage constitutes a valid, enforceable and
perfected first priority mortgage and lien on the
Real Estate, and
(c) The Assignment of Leases and Rents constitutes a
valid, enforceable and perfected first priority
assignment of the Leases and Rents and that there are
no leases other than the leases set forth in the
certified rent roll (each of which shall be subject to
and subordinate to the Mortgage);
(ii) Copies of all instruments effecting the title to the Real
Estate referred to in the Title Commitment;
(iii) Three copies of an "as built" survey of the Real Estate
prepared by a surveyor licensed in the state wherein the
Real Estate is located in accordance with the Minimum
Street Detail Requirements for ALTA/ACSM Land Title Survey
as adopted by the American Land Title Association on October
17, 1992 in the American Congress in Surveying and Mapping
on November 11, 1992(including such optional Survey
responsibilities and Specifications as may be reasonably
required by Lender) and any other survey requirements of the
Lender, Lender's Counsel or the Title Insurer, dated not
more than thirty (30) days prior to the Closing Date,
certified by said surveyor in the manner set forth in
Exhibit C hereto, showing (among other things) the Real
Estate to be free of encroachments, overlaps and other
survey defects and otherwise conforming with the
requirements of Exhibit E attached hereto and also being
in form and substance satisfactory to the Lender, Lender's
Counsel and the Title Insurer;
(iv) A Surveyor's Report prepared and certified by the surveyor
described in "(iii)" above with respect to the Real Estate
in form and substance satisfactory to the Lender, Lender's
Counsel and the Title Insurer;
(v) Evidenced reasonably satisfactory to the Lender and Lender's
Counsel that the Real Estate is in compliance with all
applicable federal, state, county and municipal laws,
statutes, codes, regulations, ordinances and other similar
requirements of all applicable governmental and quasi
governmental authorities, agencies, departments and
inspection organizations, including, but not limited to,
zoning regulations, building restrictions, environmental
requirements, the Americans with Disabilities Act and
occupational safety and health requirements and that the
Real Estate consists of a separate tax lot so that it is
assessed separate and apart from any other property owned by
Borrower or any other person or entities;
(vi) Permanent Certificate of Occupancy acceptable to Lender's
Counsel and such other certificates, approvals, permits,
licenses and approvals of each regulatory and inspection
organization or authority (whether governmental or
private)that is required (or customarily procured)
concerning the construction, use, occupancy or operation of
the Real Estate or any other Collateral, all the foregoing
to be in full force and effect, final and non-appealable;
(vii) Evidence reasonably satisfactory to Lender and Lender's
Counsel that:
(a) There is no outstanding conditional sales contracts,
chattel mortgages, security agreements, mortgages,
deeds of trust, options, financing statements or
other title instruments or lien documents or legal
impediments, mechanics or materialsmen liens or other
encumbrances affecting any of the Collateral, except
as set forth in Schedule #2 hereto, that will not be
repaid at Closing and fully released;
(b) No circumstances or events have occurred at or prior
to the Closing Date which subsequent to the Closing
Date could give rise to an encumbrance on the
Collateral or any part thereof other than those held
by the Lender; and
(c) Except for furniture and equipment leases and
installment contracts listed on Schedule #2 hereto,
that the Personal Property Collateral is owned by the
Borrower free of any and all liens, encumbrances,
security interests, pledges, hypothecations or other
adverse claims;
(viii) Certified copies of Borrower's organizational
documents and all action taken by Borrower to
authorize the procurement of the Loan, the execution,
delivery and performance of the Loan Documents,
together with a Certificate of Good Standing or
Existence from the appropriate governmental authority
in the jurisdiction where Borrower was organized
and each jurisdiction wherein any of the Collateral is
located or wherein the Borrower conducts any material
part of Borrower's business, all of the foregoing to
be issued not more than thirty (30) days prior to the
Closing Date;
(ix) A written opinion from Borrower's Counsel addressed to
Lender and to be provided at the Closing concerning the
following:
(a) The Security Instruments executed by Borrower and
delivered to Lender create a first priority perfected
security interest in favor of the Lender in the
Personal Property Collateral;
(b) Execution of the Loan Documents has been duly
authorized by all necessary actions of Borrower and
Guarantor and such executions have been performed by
the persons authorized to do so;
(c) Each of the Loan Documents are valid, binding and
legal obligations of the Borrower and the Guarantor
and are enforceable against them in accordance with
their respective terms;
(d) Borrower and Guarantor are duly organized and existing
and in good standing under the laws of their
respective jurisdictions of organization and are in
good standing under the laws of each jurisdiction
wherein any part of the Collateral is located or in
which either of them conduct any material part of
their respective businesses;
(e) Neither Borrower or Guarantor is a party to any
pending litigation nor is any litigation threatened
against either of them, which, if adversely
determined, would impair the ability of them to meet
their respective obligations under any of the Loan
Documents;
(f) The fees and interest charged or to be charged by the
Lender in connection with the Loan do not violate any
usury or other similar laws of the State of Nevada;
and
(g) That the Real Estate is in compliance with all
applicable federal, state, county and municipal laws,
statutes, codes, ordinances and regulations and other
similar requirements as contemplated by Paragraph(iv)
above;
(x) A Certificate from Borrower in form and substance acceptable
to Lender and Lender's Counsel and to be provided by
Borrower to Lender at the Closing, certifying that to the
best of Borrower's knowledge and after due diligence and
appropriate inquiry:
(a) No hazardous substances (including, but not limited to
asbestos and the group of organic compounds known as
polychlorinated biphenols) have been generated,
treated, stored or disposed of, or otherwise deposited
in or located on the Real Estate (including, without
limitation, the surface or subsurface waters of the
Real Estate) nor have any activities been undertaken
on the Real Estate which would cause (1) the Real
Estate to become a hazardous waste treatment, storage
or disposal facility within the meaning of, or
otherwise bring the Real Estate into the ambit of, the
Resource Conservation and Recovery Act of 1986
("RCRA"), 42 U.S.C. 6901 et seq., or any similar state
law or local ordinance, (2) a release or threatened
release of hazardous waste from the Real Estate within
the meaning, or otherwise bring the Real Estate within
the ambit of, the Comprehensive Environmental Response
and Liability Act of 1980 ("CERCLA") 42 U.S.C.
9601-9650, or similar state law or local ordinance or
any part other environmental aws, or (3) the
discharge of pollutants or affluence into any water
source or system, the discharge into the air of any
omissions, which would require a permit under the
Federal Water Pollution Control Act, 33 U.S.C. 1251 et
seq. or the Clean Air Act, 42 U.S.C. 7401 et seq. or
any similar state law or local ordinance, (4) there
are no substances or materials on the Real Estate
which would support a claim or cause of action under
RCRA, CERCLA or any other federal, state, county or
local environmental statutes, regulations, ordinances
or other environmental or regulatory requirements and
(5) no underground storage tanks or underground
deposits are located on the Real Estate, except as may
be disclosed in a report prepared by Lender's
environmental consultant and may be normally used in
the operation of the Real Estate at a level or in a
condition so as to have been determined not to
constitute an environmental hazard;
(xi) A Loan Information Form supplied by Lender duly completed;
(xii) A Subordination Agreement from each principal of, or
investor in, the Borrower ("Inside Creditor") who holds
debt from the Borrower subordinating any and all
indebtedness of Borrower to such Inside Creditor to the
payment and performance of the indebtedness, liabilities,
obligations and undertakings of the Borrower to the Lender
under the Loan Documents, and otherwise to be in form and
substance satisfactory to the Lender and Lender's Counsel;
(xiii) Letter from the appropriate county and municipal authorities
certifying that the Real Estate is in compliance with all
applicable zoning and other land use ordinances,
regulations and codes applicable thereto for the use,
occupancy, operation or management thereof;
(xiv) Borrower and, if required by Lender, Borrower's general
partner(s), managing member(s) or principal shareholder(s)
shall be a "Single Purpose Entity."For purposes hereof, a
Single Purpose Entity shall mean a United States
corporation, partnership or other legal business
organization which does not and cannot by virtue of its
organizational documents engage in any business other than
owning and operating the Collateral or acquire or own
material assets other than the Collateral and incidental
personal property, and which(a) maintains its assets in a
way which segregates and identifies such assets separate and
apart from the assets of any other person or entity, (b)
holds itself out to the public as a separate legal entity
from any other person or entity, (c) conducts business
indebtedness other than the Loan and other indebtedness
incurred in the ordinary business provided such other
indebtedness is not evidenced by a note or similar
instrument and, (e) otherwise complies with rating agency
standards for a single purpose entity. Borrower's
organizational documents and the loan documents will
require the unanimous vote of directors and/or members of
Borrower in connection with the filing of a bankruptcy
petition, and other standard bankruptcy remoteness
provisions. The Lender may require such non-consolidation
opinions from Borrower's counsel as it may request;
(xv) Certificate from the Borrower and dated not more than forty-
five (45) days prior to the Closing Date, certifying to the
Lender that the Real Estate and the use, occupancy,
operation and management thereof comply in all respects
with all federal, state, county and municipal laws,
statutes, ordinances, regulations, codes and similar
requirements applicable hereto;
(xvi) Evidence satisfactory to Lender and Lender's Counsel of
Borrower's compliance with the Environmental Clean Up
Responsibility Act and that no action is pending or liens
imposed or threatened under any Spill Compensation and/or
Control Acts;
(xvii) Evidence satisfactory to Lender and Lender's Counsel that
all easements necessary for utilities, public road access,
parking and otherwise are in place and that all necessary
utilities are available on the Land;
(xviii) UCC, litigation and tax lien search acceptable to Lender and
its counsel; and
(xix) A letter addressed to Lender in the form of Exhibit "D"
attached hereto or duly executed by the Borrower (the "Pre-
Closing Legal Conditions Letter").
(c) Closing Date Documentary Conditions: At or before the Closing,
Lender and Lender's Counsel shall have received, or at the
direction of Lender or Lender's Counsel the Title Insurer shall
have received, the following from Borrower or Borrower's Counsel:
(i) The Loan Documents duly executed by the Borrower and
Guarantor and all others whose execution is required and,
where appropriate, duly filed or recorded or accepted by the
Title Insurer;
(ii) The Origination Fee and all other amounts required to be
paid by Borrower or third parties to or for the benefit of
the Lender pursuant to the terms of this Commitment Letter
(the same to be paid from the Loan Proceeds, if there are
such proceeds available for such purposes);
(iii) The original, fully executed releases of all mortgages,
liens and other encumbrances to be discharged in connection
with the Closing, original fully executed UCC-3 Termination
Statements of all financing statements terminated in
connection with Closing and any other appropriate release
documents fully executed by the holders of the instruments
released, together with wiring instructions for the payoff
of each such mortgage, lien, encumbrance, financing
statement or other instrument;
(iv) The Title Insurance Policy conforming with the provisions of
Paragraph 16(b)(1) and Exhibit "F" attached hereto; and
(v) Evidence acceptable to Lender and Lender's Counsel that the
transferor of any real estate involved in the transaction as
contemplated by this Commitment Letter either (a) is not a
foreign entity or (b) if such transferor is a foreign
entity, evidence to assure Lender that transfer of such
property was accomplished in accordance with all applicable
tax codes, especially Section 1445 of the Internal Revenue
Code.
(d) Other Closing Date Conditions: As of the Closing Date:
(i) There shall have been no material adverse changes in the
business condition (financial or otherwise) of the Borrower
or the Guarantor which, in the sole discretion of Lender,
would materially impair either the value of the Collateral
or Borrower's, or Guarantor's ability to perform their
respective obligations under the Loan Documents to any
material extent;
(ii) The Collateral shall be undamaged by fire or other cause and
there shall be no condemnation or eminent domain proceedings
threatened or pending against the Collateral or any part
thereof;
(iii) Borrower's Debt Service Coverage Ratio shall not be less
than 1.40 to 1 [because the final interest rate will not be
set until the business day of Lender next preceding the date
of Closing, should the index rate increase to a level that
causes the Debt Service Coverage Ratio to be below the
minimum Debt Service Coverage Ratio, the Lender may, at its
option, reduce the amount of the Loan to an amount which
will cause the Debt Service Coverage Ratio to be equal to
the minimum Debt Service Coverage Ratio. If pursuant to the
terms hereof, the Lender chooses to reduce the loan amount
to a level unacceptable to the Borrower, the Borrower will
have the option of terminating this commitment and shall be
liable for all Lender's expenses as set forth in Paragraph
7(c)];
(iv) Borrower shall have paid all fees and expenses payable by it
pursuant to this Commitment Letter, including, but not
limited to, third party fees and expenses described in
Paragraph 14 of this Commitment Letter;
(v) No event shall exist or circumstances have occurred which,
with the passage of time or giving notice or both, would
constitute an event of default under any of the Loan
Documents;
(vi) There shall have been no change in the senior management,
ownership or control of the Borrower, without the prior
written consent of the Lender (a provision to this effect to
be included in the Loan Documents);
(vii) Borrower shall be the owner of good, marketable, insurable,
and indefeasible fee simple title to the Real Estate and the
other Collateral and such title shall be unencumbered but
for the Approved Exceptions;
(viii) All of the information, representations, exhibits and
other materials submitted with or in support of the
Loan request are accurate in all material respects and
there must be no adverse change in the set of facts
prior to the disbursement of funds or during the term
of the Loan;
(ix) The Loan and the Closing thereof shall in all respects be
legal and not violate any applicable law or other
requirements of any governmental authority; and
(x) No litigation shall be pending or threatened by, against or
with respect to Borrower, Guarantor or any of the Collateral
which, in the sole judgment of Lender, has or might
reasonably be expected to have a material adverse effect on
the Borrower, the Guarantor or any of the Collateral;
(xi) Lender shall have inspected the Real Estate prior to Closing
and shall have approved the same;
(xii) Lender's Loan Repurchaser completes its purchase of the Loan
pursuant to the Loan Repurchase Agreement, Borrower and
Guarantor hereby expressly acknowledging that Lender has
informed them, and they understand, that Lender will be
unable to close and fund the Loan unless Lender's Loan
Repurchaser funds the same pursuant to the Loan Repurchase
Agreement; and
(xiii) Lender's credit committee shall have approved the Loan by
the time provided for such approval above and Lender shall
have notifies the Borrower in writing of such approval and
any additional terms and conditions required by said
approval; and Borrower shall have accepted the same and
complied with each thereof; and
(xiv) The borrowing entity has conduit acceptable bankruptcy
remoteness language.
17. Advice As to Deficiencies: Upon Lender's receipt of the
Borrower's Pre-Closing Document Notice and the receipt by Lender's Counsel of
the Pre-Closing Legal Conditions Letter described in Paragraph 16(b)(xviii),
Lender and Lender's Counsel shall review all documentation thereto submitted
to them under Paragraphs 16(a) and 16(b) of this Commitment Letter and,
following said review, shall notify the Borrower in writing of any
deficiencies in such documentation.
18. Acceptance By Borrower: This Commitment Letter must be accepted by
Borrower and Guarantor by executing and returning to the Lender a copy of this
Commitment Letter (together with the Report Deposit Fee) on or before 5:00
p.m., local time, on the seventh day following the date hereof, failing which
this Commitment Letter shall be void without recourse to the parties hereto,
time being of the essence. The Effective Date of this Commitment Letter shall
be the date on which the Lender receives such executed copy and the Report
Deposit Fee.
19. General Provisions:
(a) Upon its acceptance of the Commitment Letter by the Borrower and
Guarantor, as, when and in the manner provided for above, this
Commitment Letter and all the terms, covenants, conditions and
other provisions hereof shall be binding upon, and inure to the
benefit of, the parties and their respective executors,
administrators, personal representatives, heirs, successors and,
in the case of Lender, assigns and, in the case of Borrower and
Guarantor, permitted assigns;
(b) Borrower represents and warrants that the statements contained
herein and in all documentation provided to Lender and all other
representations and statements made by or on behalf of Borrower or
Guarantors to Lender in connection with the application for and
closing of the Loan are true and complete and do not omit any fact
or information material to Lender's evaluation of said application
and of Borrower's and Guarantor's credit worthiness or compliance
with the conditions for the closing of the Loan. Borrower
acknowledges that Lender will rely on this warranty and
representation in making the Loan if Borrower or Guarantor has
made any material misrepresentation in connection with this
Commitment for and/or closing of the Loan, and such shall be a
default under the Loan Documents entitling the Lender to exercise
any and all rights upon a default under the Loan Documents. In
addition, if the Loan has not closed and Lender elects to
terminate its commitment to make the Loan due to any material
misrepresentation as provided above, then notwithstanding any
other provision of this Commitment Letter to the contrary, the
Report Deposit Fee shall be retained by Lender as reasonable
liquidated damages and as its sole remedy, other than the right to
collect from Borrower and Guarantors the out-of-pocket costs and
expenses for which Borrower is responsible under the terms of this
Commitment Letter;
(c) Lender reserves the right to waive, in whole or in part, any of
the covenants and obligations on the Borrower's part to be
performed hereunder and any Conditions Precedent to the
obligations of Lender contained herein, all of which have been
inserted for the benefit of the Lender. Borrower shall permit
Lender and its representatives (including, without limitation,
environmental audit agents to inspect the Collateral from time to
time upon reasonable notice to the Borrower) and shall provide
Lender and its representatives with information and documentation
reasonably requested;
(d) This Commitment Letter shall be deemed to contain all of the terms
and understandings between Lender, Borrower and Guarantors with
respect to the Loan and shall supersede any and all prior
understandings, instruments and agreements, written or oral,
relating thereto. The foregoing notwithstanding, this Commitment
Letter is intended to serve only as a substantive outline of the
documentation required by the Lender prior to and at Closing. It
is also possible that substantive terms of this transaction may be
changed in order to reflect or account for changes in the
statutory or regulatory authorities governing the subject matter
of the transaction;
(e) The Lender shall not be bound by any modification, amendment or
change in the terms hereof, and shall not be deemed to have waived
any of its rights or the conditions to its obligations hereunder
unless the same shall be in writing, signed by the Lender and sent
or delivered to the Borrower;
(f) All notices and communications required or permitted to be given
hereunder shall be in writing and sent by certified mail,
overnight courier or facsimile to Borrower and Lender as follows:
Lender: CNB Capital, Inc.
55 Bridge Street
Manchester, NH 03101
Attn: Closing Department
with copy to: Daniel D. Muller, Esquire
PEABODY & BROWN
889 Elm Street
Manchester, NH 03101
Borrower: NevStar Gaming & Entertainment Corporation
P.O. Box 96807
Las Vegas, NV 89193-6807
Attn: Michael Signorelli
with copy to: Kenneth D. Polin, Esquire
ZEVNIK, HORTON, GUIBORD, McGOVERN, PALMER
& FOGNANI, L.L.P.
101 West Broadway
Seventeenth Floor
San Diego, CA 92101
(g) This Commitment Letter shall be governed by, and construed,
interpreted and enforced in accordance with, the laws of the State
of New Hampshire without reference to its principles of conflicts
of laws. The parties hereto further agree that they and all such
disputes to this commitment, and any costs relating to such
disputes, shall be subject to the exclusive jurisdiction of the
courts of the State of New Hampshire. The Mortgage and other Loan
Documents and any subordination agreements and estoppel letters
shall be governed by, and construed, interpreted and enforced in
accordance with the laws of the state in which the Real Estate is
located without reference to its principles of conflicts of laws,
and any disputes regarding the Loan Documents shall be subject to
the exclusive jurisdiction of the courts of the state in which the
Real Estate is located;
(h) Whenever this Commitment Letter or any of the Loan Documents
provide for an election, approval, acceptance or consent by Lender
or that matters shall be satisfactory or acceptable to Lender,
such election, approval, acceptance or consent and such
satisfaction or acceptability may be given, withheld or determined
by Lender or Lender's Counsel in their sole and absolute
discretion unless a different standard (e.g., Lender's reasonable
opinion) is specifically and expressly provided;
(i) In the event of any material default by Borrower and Guarantor
during the term of this Commitment Letter, the Lender, in addition
to all other rights and remedies, may terminate this Commitment
Letter and all rights and obligations of the Lender thereunder;
(j) This Commitment Letter may also be terminated by Lender in the
event of any of the following:
(i) If Borrower or Guarantor shall fail to comply with any of
the terms or conditions hereof;
(ii) In the event of a sale, conveyance or other disposition of
any of the Collateral except as otherwise expressly provided
for herein; or
(iii)In the event of a materially adverse change in the financial
condition of Borrower or the Guarantor;
(k) Borrower and Guarantor expressly acknowledge that this commitment
has been issued before the Lender has had an opportunity to
complete its business, credit and legal analysis of the loan.
Borrower and Guarantor expressly agree that the Lender, in
Lender's sole and absolute discretion, may, as a result of further
investigation, decide to modify any one or more or all of the
terms, conditions, and other provisions hereof or not to proceed
with the loan, that any such decision shall be binding and
conclusive on the Borrower and the Guarantor;
(l) The term "Debt Service Coverage Ratio" shall mean the ratio of the
total of all payments becoming due on the Loan (whether for
principal, interest or other sums or charges for any period to
Borrower's Net Operating Income from the Collateral during the
same period. Net Operating Income for any period is determined by
subtracting the following from gross income:
(i) Reserves for capital expenditures;
(ii) Income from occupied space exceeding the average market rent
and/or average occupancies for the local market in which
this Real Estate is located;
(iii) Required reserves and escrow payments;
(iv) Nonrecurring income and expense items;
(v) Operating and ownership costs for the Collateral for the
period in question;
(vi) Market or standard required underwriting vacancies (normally
5%);
(vii) A reserve for management fees if existing fees are below
market or if there is no third party manager (normally 3%);
(m) Borrower acknowledges that Lender intends to sell the Loan and
securitize the Loan through a real estate mortgage investment
conduit or similar securitization vehicle. All certificates,
opinions, reports, documents and other information supplied to
Lender is deemed to run in favor of any successors and assigns of
the Loan, and any underwriter or purchaser of or any trustee with
respect to securities issued in connection with the sale of this
Loan, or any rating agency responsible for rating such securities
from time to time. At Lender's request, any such documents or
information shall state that they run in favor of such successors
and assigns and Borrower agrees to be bound by any additional
requirements Lender may impose to complete such sale and
securitization; and
(n) All appraisals, reports or opinions to be submitted to the Lender
pursuant to this Commitment Letter shall be addressed to "CNB
Capital, Inc. and its successors and assigns."
Very truly yours,
CNB CAPITAL, INC.
By:
John R. Halle
Its Duly Authorized President
<PAGE>
The foregoing Commitment Letter with all of the exhibits and schedules thereto
are hereby accepted and agreed to and the undersigned expressly agree to be
bound by all of the terms, covenants, conditions and other provisions thereof
this day of September, 1998.
NevStar Gaming & Entertainment NevStar Gaming & Entertainment
Corporation Corporation
By://Brent Duncan By://Michael Signorelli
Witness Treasurer and Michael Signorelli, its
Chief Financial Officer Chairman of the Board
By: By:
Witness Brent Duncan Michael Signorelli (Individually)
MASTER LEASE AGREEMENT
THIS MASTER LEASE AGREEMENT ("Lease") is made and entered into
this 23rd day of April, 1998, by and between PDS Financial Corporation -
Nevada, a Nevada corporation ("Lessor"), whose address is 6171 McLeod Drive,
Las Vegas, Nevada 89120-4048 and NevStar Gaming and Entertainment
corporation, a Nevada corporation, d.b.a. Mesquite Star Hotel & Casino
("Lessee"), whose address is 3175 West Post Road, Las Vegas, NV 89193.
Lessor desires to lease to Lessee, and Lessee desires to lease from Lessor
in accordance with the terms and conditions contained herein, certain
equipment more full described in the Lease Schedule or Schedules, referred
to herein as a "Lease Schedule," as may from time to time be executed by
Lessee. All equipment described in such Lease Schedules shall be
collectively referred to as the "Equipment" and individually referred to as
a "Unit" and is to be in stalled in and to be used in connection with the
business location described in a particular Lease Schedule ("Premises").
NOW THEREFORE, Lessor and Lessee agree as follows:
1. LEASE. This Lease establishes the general terms and conditions by which
Lessor shall lease the equipment to Lessee. Each Lease Schedule shall be in
the form provided by Lessor and shall incorporate by reference the terms of
this Lease.
2. TERM: RENT AND PAYMENT.
2.1 Term. The term of this Lease shall commence on the date set
forth in each Lease Schedule (the "Commencement Date") and continue as
specified in such Lease Schedule ("Term").
2.2 Rent and Payment. Lessee's obligation to pay rent for the
Equipment shall commence on the Commencement Date and continue for the Term.
The Basic Rent set forth on the Lease Schedule shall be payable on the
Commence Date and on the same day of each month thereafter ("Rent Date").
Any amounts payable by Lessee, other than Basic Rent, shall be deemed
Additional Charges and shall be payable on the Rent Date next following the
date upon which they accrue or the last day of the Term, whichever is
earlier. Lessee shall make all payments at the address of Lessor set forth
above or at such other address as Lessor may designate in writing. As used
herein, the term "Rent" shall mean all Basic Rent and Additional Charges.
2.3 Late Charge. If any Rent is not received by Lessor or its
assignees within thirty (30) days of when due, a late charge on such Rent
shall be due and payable with such Rent in an amount equal to four percent
(4%) of the amount past due or any part thereof, as reimbursement for
administrative costs and not as a penalty.
2.4 Lessor's Performance of Lessee's Obligations. If lessee fails
to comply with any of its covenants or obligations herein, Lessor may, at
its option, perform such covenants or obligations on Lessee's behalf without
thereby waiving such conditions or obligations or the failure to comply
therewith and all sums advanced by Lessor in connection therewith shall be
repayable by Lessee as Additional Charges. No such performance shall be
deemed to relieve Lessee of its obligations herein.
3. CERTIFICATE OF ACCEPTANCE. Lessee shall deliver to Lessor a certificate
of delivery, installation and acceptance ("Certificate of Acceptance") in
the form provided by the Lessor.
4. NET LEASE. This Lease including each Lease Schedule is a net lease and
Lessee's obligation to pay all Rent due and the rights of Lessor or its
assignees in, and to, such Rent shall be absolute and unconditional under
all circumstances, notwithstanding: (i) any setoff, abatement, reduction,
counterclaim, recoupment, defense or other right which Lessee may have
against Lessor, its assignees, the manufacturer or seller of any Unit, or
any other person for any reason whatsoever, including, without limitation,
any breach by Lessor of this Lease; (ii) any defect in title, condition,
operation, fitness for use, or any damage to or destruction of, the
Equipment; (iii) any interruption or cessation of use or possession of the
Equipment for any reason whatsoever; or (iv) any insolvency, bankruptcy,
reorganization or similar proceedings instituted by or against Lessee.
5. LOCATION: USE: MAINTENANCE; IDENTIFICATION AND INSPECTION.
5.1 Location, Use, Maintenance and Repairs. A) Lessee shall keep
and use the Equipment on the Premises and shall not relocate or remove any
Unit unless Lessor consents, in writing, prior to its relocation or removal.
B) Lessee shall at all times and, at its sole cost and expense, properly use
and maintain the Equipment in good operating condition, other than the
normal wear and tear, and make all necessary repairs, alterations and
replacements thereto (collectively, "Repairs"), all of which shall
immediately become the property of Lessor and subject to this Lease. Lessee
shall comply with the manufacturer instructions relating to the Equipment,
and any applicable laws and governmental regulations. c) Lessee shall pay
all costs and expenses associated with removal and return of the Equipment.
5.2 Identification and Inspection. Upon request by Lessor, Lessee
shall mark each Unit conspicuously with appropriate labels or tags furnished
by Lessor and maintain such markings through the Term to clearly disclose
that said Unit is being leased from Lessor. Subject to Lessee's reasonable
security requirements, Lessee shall permit Lessor's representatives to enter
the Premises where any Unit is located to inspect such Unit.
6. LOCATION: LIENS AND ENCUMBRANCES.
6.1 Personal Property. Each Unit is personal property and Lessee
shall not affix any Unit to realty so as to change its nature to a fixture
or real property and agrees that each Unit shall remain personal property
during the Term. Lessor expressly retains ownership and title to the
Equipment. Lessee hereby agrees that it shall be responsible for all of
Lessors obligations as required by the state gaming laws and regulations
regarding maintenance, use, possession and operation of the Equipment.
Lessee hereby authorizes, empowers, and grants a limited power of attorney
to Lessor to record and/or execute and file, on Lessee's behalf, any
certificates, memorandums, statements, refiling, and continuations thereof
as Lessor deems reasonably necessary or advisable to preserve and protect
its interest hereunder. The parties intend to create a lease agreement and
the relationship of lessor and lessee between themselves. Nothing in this
Lease shall be construed or interpreted to create or imply the existence of
a finance lease or installment lease contract. Lessor makes no
representation regarding the treatment of this Lease, the Equipment or the
payment of obligations under this Lease for financial statement reporting or
tax purposes.
6.2 Liens and Encumbrances. Unless otherwise provided herein,
Lessee shall not directly or indirectly create, incur or suffer a mortgage,
claim, lien, charge, encumbrance or the legal process of a creditor of
Lessee of any kind upon or against this Lease or any Unit. Lessee shall at
all times protect and defend, at its own cost and expense, the title of
Lessor from and against such mortgages, claims, liens, charges, encumbrances
and legal processes of creditors of Lessee and shall keep all the Equipment
free and clear from all such claims, liens and legal processes. If any such
lien or encumbrance is incurred, Lessee shall immediately notify Lessor and
shall take all actions required by Lessor to remove the same.
7. RETURN OF EQUIPMENT.
7.1 Duty of Return. At the expiration of the Term or upon
termination of the Lease, Lessee at its expense shall return each Unit to
Lessor or its designee at the Lessor's place of business in Las Vegas,
Nevada, in accordance with appropriate gaming laws and regulations. Each
Unit shall conform to all of the manufacturer's specifications and gaming
laws and regulations with respect to normal function, capability, design and
condition (less normal wear and tear).
7.2 Failure to Return. If lessee fails to return the Equipment or
any portion thereof, as provided above, within fourteen (14) days following
expiration of the term or termination of the Lease, then Lessee shall pay to
Lessor an additional month's Rent for each month, or any portion thereof,
that Lessee fails to comply with the terms of this return provision, until
all of the Equipment is returned, as provided herein.
8. RISK OF LOSS: INSURANCE.
8.1 Risk of Loss. Lessee shall bear the risk of all loss or
damage to any Unit or caused by any Unit during the period from the time the
Unit is shipped by its vendor until the time it is returned as provided
herein.
8.2 Unit Replacement. If any Unit is lost, stolen, destroyed,
seized by governmental action or, in Lessee's opinion or Lessor's opinion,
damaged ("Event of Loss"), this Lease shall remain in full force and effect
without abatement of Rent and Lessee shall promptly replace such Unit at its
sole expense with a Unit of equivalent value and utility, and similar kind
and in substantially the same condition as the replaced Unit immediately
prior to the Event of Loss. Title to such replacement unit immediately
shall vest and remain in Lessor, and such unit shall be deemed a Unit under
this Lease. Upon such vesting of title and provided Lessee is not in
default under this Lease, Lessor shall cause to be paid to Lessee or the
vendor of the replacement unit any insurance proceeds actually received by
Lessor for the replacement Unit. Lessee shall promptly notify Lessor of any
Event of Loss and shall provide Lessor with and shall enter into, execute
and deliver such documentation as Lessor shall request with respect to the
replacement of any such Unit.
8.3 Insurance. Lessee shall obtain and maintain in full force and
effect all risk, full replacement cost property damage insurance on the
Premises: (i) comprehensive personal liability, (ii) all risk property
damage on the Equipment in amounts reasonably acceptable to Lessor, and
(iii) workers compensation insurance. Such insurance shall: (i) name Lessor
and its Assignees, if any, as additional insureds and first loss payees as
their interests may appear; and (ii)provide that the policy may not be
canceled or materially altered without thirty (30) days prior written notice
to Lessor and its Assignees. All such insurance shall be placed with
companies having a rating of at least A, Class XII or better by Best's
rating service. Lessee shall furnish to Lessor, upon request and throughout
the Term, insurance certificates of a kind satisfactory to Lessor and its
Assignees showing the existence of the insurance required hereunder and
premium paid.
9. LESSOR'S PURCHASE AND PERFORMANCE. Upon receipt of a Lease Schedule
executed and delivered by Lessee, Lessee shall bear all responsibilities and
perform all obligations of Lessor thereunder other than payment of the
purchase price.
10. TAXES.
10.1 Taxes. Lessee agrees to report, file, pay promptly when due
to the appropriate taxing authority and indemnify, defend, and hold Lessor
harmless from and against any and all taxes (including gross receipts),
assessments, license fees and other federal, state or local governmental
charges of any kind or nature, together with any penalties, interest or
fines related thereto (collectively, "Taxes") that pertain to the Equipment,
its purchase, or this Lease, except such Taxes based solely upon the net
income of Lessor.
10.2 Lessor's Filing of Taxes. Notwithstanding the foregoing,
Lessor at its election may report and file sales and/or use taxes which are
filed and paid periodically through the Term, and the amounts so due may be
invoiced to Lessee and payable as specified therein.
11. INDEMNIFICATION. Except for the negligence of Lessor, its employees or
agents and assigns, Lessee hereby assumes liability for and agrees to
indemnify, defend, protect, save and hold harmless the Lessor, its agents,
employees, directors and assignees from and against any and all losses,
damages, injuries, claims, penalties, demands and all expenses, legal or
otherwise (including reasonable attorneys' fees) of whatever kind and nature
arising from the purchase, ownership, use, condition, operation or
maintenance of the Equipment, until the Equipment is returned to Lessor.
Any claim, defense, setoff, or other right of Lessee against any such
indemnified party shall not in any way affect, limit or diminish Lessee's
indemnity obligations hereunder. Lessee shall notify Lessor immediately as
to any claim, suit, action, damage, or injury related to the Equipment of
which Lessee has actual or other notice and shall, at its own cost and
expense, defend any and all suits which may be brought against Lessor, shall
satisfy, pay and discharge any and all judgments and fines that may be
recovered against Lessor in any such action or actions, provided, however,
that Lessor shall give Lessee written notice of any such claim or demand.
Lessee agrees that its obligations under this Section 11 shall survive the
expiration or termination of this Lease.
12. REPRESENTATIONS AND WARRANTIES. Lessee represents and warrants to
Lessor that: (i) the making of this Lease and any Lease Schedule executed by
Lessee is duly authorized on the part of Lessee and that upon due execution
thereof by Lessee and Lessor they shall constitute valid obligations binding
upon, and enforceable against, Lessee in accordance with their terms; (ii)
neither the making of this Lease or such Lease Schedule, nor the due
performance by Lessee, including the commitment and payment of the Rent,
shall result in any breach of, or constitute a default under, or violation
of, Lessee's articles of incorporation, by-laws, or any agreement to which
Lessee is a party or by which Lessee is bound; (iii) no approval or consent
not already obtained or withholding of objection is required from any
governmental authority with respect to the entering into, or performance of
this Lease or any Lease Schedule by Lessee; (iv) Lessee has obtained all
licenses and permits required applicable laws or regulations (the "Gaming
Laws") for the operation of its business.
13. DISCLAIMERS; MANUFACTURERS WARRANTIES. LESSEE ACKNOWLEDGES THAT EACH
UNIT IS OF THE DESIGN, CAPACITY AND MANUFACTURE SPECIFIED FOR AND BY THE
LESSEE AND THAT LESSEE IS SATISFIED THAT THE SAME IS SUITABLE FOR LESSEE'S
PURPOSES. LESSEE AGREES, REGARDLESS OF CAUSE, NOT TO ASSERT ANY CLAIM
WHATSOEVER AGAINST LESSOR FOR LOSS OF ANTICIPATORY PROFITS OR CONSEQUENTIAL
DAMAGES. LESSOR EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES WITH RESPECT TO
THE EQUIPMENT WHETHER EXPRESSED OR IMPLIED. Without limiting the generality
of the foregoing it is intended by the parties to exclude any and all
implied warranties of merchantability and fitness for particular purposes.
NO SALESMAN OR AGENT OF LESSOR IS AUTHORIZED TO WAIVE OR ALTER ANY TERM OF
THIS LEASE OR MAKE ANY REPRESENTATION REGARDING THE EQUIPMENT.
14. ASSIGNMENT OF LEASE.
14.1 Assignment by Lessor. Lessee acknowledges and agrees that
Lessor may assign, mortgage, or otherwise transfer its interest thereunder
and/or in the Equipment to others ("Assignees") without consent of Lessee,
provided however that Lessee shall be notified of any assignment.
Accordingly, Lessee and Lessor agree that upon such assignment, Lessee (i)
shall acknowledge such assignment in writing by executing a Notice, Consent
and Acknowledgment of Assignment furnished by Lessor; (ii) shall promptly
pay all Rent when due to the designated Assignees, notwithstanding any
defense, setoff, abatement, recoupment, reduction or counterclaim whatsoever
that Lessee may have against Lessor; (iii) shall not permit the Lease or
Lease Schedule so assigned to be amended or the terms thereof waived without
the prior written consent of the Assignees; (iv) shall not require the
Assignees to perform any obligations of Lessor under such Lease Schedule;
(v) shall not terminate or attempt to terminate the Lease or Lease Schedule
on account of any default by Lessor; and (vi) acknowledges that any Assignee
may reassign its rights and interest with the same force and effect as the
assignment described herein.
14.2 Assignment or Sublease by Lessee. Lessee shall not assign
this Lease or any Lease Schedule or assign its rights in or sublet the
Equipment, or any interest therein without Lessor's and its Assignee's prior
written consent, which consent shall not be unreasonably withheld.
15. FINANCIAL INFORMATION; FURTHER ASSURANCES.
15.1 Financial Information. Throughout the Term, Lessee shall
deliver to Lessor copies of the Lessee's quarterly reports (Form 10-QSB),
annual reports (Form 10-KSB) and monthly Condensed Financial Statements
(NGCB Form ER101), as well as such other information regarding Lessee
reasonably requested by Lessor or its Assignees.
15.2 Further Assurances. Lessee shall execute and deliver to
Lessor, such other documents, and take such further action as Lessor may
request, in order to effectively carry out the intent and purposes of this
Lease and the Lease Schedules. All documentation shall be in a form
acceptable to Lessor and its Assignees.
15.3 Lease Agreement. If any court of competent jurisdiction
should determine that this Lease constitutes a security arrangement as
opposed to a true lease, the parties then agree that this Lease shall
constitute a security agreement within the meaning of the Uniform Commercial
Code and that the Lessor shall be considered a secured party under the
provisions thereof and shall be entitled to all the rights and remedies of a
secured party and Lessee, as debtor, grants to Lessor, as secured party, a
security interest in the Equipment; provided nothing herein shall be
construed nor shall the inclusion of this paragraph be interpreted as
derogating from the stated intent and contractual understanding of the
parties that this is a true lease.
16. DEFAULT BY LESSEE; REMEDIES.
16.1 Default by Lessee. Lessee shall be in default upon the
occurrence of any one of the following events ("Event of Default"): (a)
failure to pay Rent when due; (b) failure to perform any other term,
condition or covenant of this Lease or any Lease Schedule; (c) Lessee ceases
or is enjoined, restrained or in any way prevented from conducting business
as a going concern; (d) if any proceeding is filed by or against the Lessee
for an assignment for the benefit of creditors, a voluntary or involuntary
petition in bankruptcy, or if Lessee is adjudicated a bankrupt or an
insolvent; (e) Lessee attempts to remove, sell, transfer, encumber, part
with possession or sublet the Equipment or any Unit thereof; (f) any Unit is
attached, levied upon, encumbered, pledged, or seized under any judicial
process; (g) any warranty or representation made or furnished to the Lessor
by or on behalf of the Lessee is false in any material respect when made or
furnished; (h) failure to maintain in full force and effect the licenses and
permits required under the Gaming Laws for the operation of Lessee's
business; (i) failure to comply with all gaming regulations; or (j) any
change in control of the Lessee or its business unless approved by Lessor,
which approval will not be unreasonably withheld.
16.2 Lessor Remedies. Lessee acknowledges that the enforcement of
this Lease may require approval of certain regulatory authorities and that
copies of all Default Notices, legal proceedings, etc. will be forwarded to
the appropriate agency as required by state law or regulation. Lessee
further acknowledges that upon any Event of Default, and at any time
thereafter, Lessor, may in addition to any and all rights and remedies it
may have at law or in equity, without notice to or demand upon Lessee at its
sole option: (i) declare the aggregate Rent then accrued and unpaid together
with the balance of any Rent to be immediately due and payable; (ii) proceed
by appropriate court action or other proceeding, either at law or in equity
to enforce performance by Lessee of any and all covenants of this Lessee;
(iii) on written notice to Lessee, terminate any of Lessee's rights under
this Lease or Schedule in which event Lessee shall immediately surrender and
return the Equipment to Lessor pursuant to the provisions hereof; and (iv)
subject to appropriate Gaming Laws, rules, laws and regulations, and
required approvals, take possession, sell and/or re-lease any Unit as Lessor
may desire, in its sole discretion.
Lessor's rights and remedies herein are cumulative and in addition
to any rights or remedies available at law or in equity including the
Uniform Commercial Code, and may be exercised concurrently or separately.
Lessee shall pay all costs, expenses, losses, damages and legal costs
(including reasonable attorneys' fees) incurred by Lessor and its Assignees
as a result of enforcing any terms or conditions of the Lease or any
Schedules. A termination hereunder shall occur only upon written notice by
Lessor to Lessee and no repossession or other act by Lessor after default
shall relieve Lessee from any of its obligations to Lessor hereunder unless
Lessor so notifies Lessee in writing.
16.3 Article 2A Waivers. In th4 event that Article 2A of the
Uniform Commercial Code is adopted under applicable law and applies to this
Lease, then Lessee, to the extent permitted by law, waives any and all
rights and remedies conferred upon a lessee by Sections 2A-508 through 2A-
522 of such Article 2A, including, but not limited to Lessee's rights to:
(i) cancel or repudiate this Lease; (ii) reject or revoke acceptance of the
Equipment; (iii) claim, grant or permit a security interest in the Equipment
in Lessee's possession or control for any reason; (iv) deduct from Rent all
or any part of any claimed damages resulting from Lessor's default, if any,
under this Lease; (v) accept partial delivery of the Equipment; (vi) "cover"
by making any purchase or lease of or contract to purchase or lease
equipment in substitution for Equipment designated in this Lease; and (vii)
obtain specific performance, replevin, detinue, sequestration, claim and
delivery or the like for any Equipment identified to this Lease. To the
extent permitted by applicable law, Lessee also hereby waives any rights now
or hereafter conferred by statute otherwise which may require Lessor to
sell, lease or otherwise use any Equipment in mitigation of Lessor's damages
or which may otherwise limit or modify any of Lessor's rights or remedies,
including, without limitation, any limit on the determination of the amount
of Lessor's Loss provided in Article 2A of the Uniform Commercial Code.
17. MISCELLANEOUS.
17.1. Notices. Except as otherwise required by law, all notices
required herein shall be in writing and sent by prepaid certified mail or by
courier, addressed to the party at the address of the party specified herein
or such other address designated in writing. Notice shall be effective upon
the earlier of its receipt or four (4) days after it is sent.
17.2 Survival of Indemnities. All indemnities of Lessee shall
survive and continue in full force and effect for events occurring prior to
the return of the Equipment to the Lessor, notwithstanding the expiration or
termination of the Term.
17.3 Counterparts. Each Lease and any Lease Schedule may be
executed in counterparts.
17.4 Multiple Lessees. If more than one Lessee is named in this
Lease or a Lease Schedule the liability of each shall be joint and several.
17.5 Titles. Section titles are not intended to have legal effect
or limit or otherwise affect the interpretation of this Lease or any Lease
Schedule.
17.6 Waiver. No delay or omission in the exercise of any right or
remedy herein provided or otherwise available to Lessor, or prior course of
conduct, shall impair or diminish Lessor's rights to exercise the same or
any other right of Lessor; nor shall any obligation of Lessee hereunder be
deemed waived. The acceptance of rent by Lessor after it is due shall not
be deemed to be a waiver of any breach by Lessee of its obligations under
this Lease or any Lease Schedule.
17.7 Successors. This Lease and each Lease Schedule shall inure
to the benefit of and be binding upon Lessor and Lessee and their respective
successors in interest.
17.8 Not an Offer. Neither this Lease nor any Lease Schedule
shall be deemed to constitute an offer or be binding upon Lessor until
executed by Lessor's authorized officer.
17.9 Severability. If any provisions of this Lease or any Lease
Schedule shall be held to be invalid or unenforceable, the validity and
enforceability of the remaining provision thereof shall not be affected or
impaired in any way.
17.10 Modification. Lessor and Lessee agree that any
modifications to this Lease or any Lease Schedule shall be in writing and
shall be signed by both parties and their last known assignees, if any.
17.11 Lease Irrevocable. This Lease is irrevocable for the full
Term hereof and the Rent shall not abate by reason of termination of
Lessee's right of possession and/or the taking of possession by the Lessor
or for any other reason.
17.12 Governing Law. This Lease and each Lease Schedule are
entered into under and shall be construed in accordance with, and governed
by the laws of the State of Nevada.
17.13 Riders. In the event that any riders are attached hereto
and made a part hereof and if there is a conflict between the terms and
provisions of any rider, including any Lease Schedule and the terms and
provisions herein, the terms and provisions of the rider or Lease Schedule
shall control to the extent of such conflict.
17.14 Entire Agreement. LESSEE REPRESENTS THAT IT HAS READ,
RECEIVED, RETAINED A COPY OF AND UNDERSTANDS THIS LEASE, AND AGREES TO BE
BOUND BY ITS TERMS AND CONDITIONS. LESSOR AND LESSEE AGREE THAT THIS LEASE,
ALL RIDERS, LEASE SCHEDULES, OR EXHIBITS HERETO, AND THE LEASE SCHEDULES
SHALL CONSTITUTE THE ENTIRE AGREEMENT AND SUPERSEDE ALL PROPOSALS, ORAL OR
WRITTEN, ALL PRIOR NEGOTIATIONS AND ALL OTHER COMMUNICATIONS BETWEEN LESSOR
AND LESSEE WITH RESPECT TO ANY UNIT.
IN WITNESS WHEREOF, the parties hereto have caused this Lease to
be duly executed on the date set forth by their authorized representatives.
LESSEE: LESSOR:
NEVSTAR GAMING & ENTERTAINMENT CORP. PDS FINANCIAL CORPORATION - NEVADA,
a Nevada corporation a Nevada corporation
By://Jeffrey L Gilbert By://Robert Mann
Its: COO, President Its: Executive Vice President
Jeffrey L Gilbert Robert Mann
<PAGE>
LEASE SCHEDULE NO. 1 TO MASTER LEASE AGREEMENT
This Lease Schedule No. 1 is attached to and made a part of the
Master Lease Agreement ("Lease") between PDS Financial Corporation - Nevada,
a Nevada corporation ("Lessor"), and NevStar Gaming and Entertainment
Corporation, a Nevada corporation d.b.a. Mesquite Star Hotel & Casino
("Lessee"), dated April 23, 1998.
1. Description of Equipment: The Equipment listed on Attachment "A" to
this Lease Schedule is added to the Equipment leased under the
Lease and made subject to the provisions of the Lease.
2. Commencement Date: The commencement Date for the Equipment leased
under this Schedule will be the date the Equipment is delivered and
accepted by the Lessee.
3. Term: The Term shall commence on the Commencement Date and shall
continue for 36 consecutive months.
4. The Basic Rent due each month during the Term for the Equipment
described herein is as follows:
a. The first payment of Basic Rent under this Lease Schedule in an
amount equal to $25,351.27 shall be due and payable on August 1,
1998.
b. Payment of the Basic Rent in the amount of $25,351.27 shall be due
and payable on August 1, 1998 and on the 1st day of each month
thereafter for 35 consecutive months through and including July 1,
2001.
c. In addition to the monthly Basic Rent due as set forth above,
Lessee shall pay Lessor an amount equal to all taxes which may be
imposed by any Federal, State or local authority from time to time.
5. Security Deposit: Lessee shall pay to Lessor, due upon execution of
this Schedule, a Security Deposit in the amount of $25,351.27. The
Security Deposit will be held by the Lessor for the Term of the
Lease and will be returned to Lessee upon satisfactory completion
of the terms and conditions of the Lease.
6. All of the provisions of the Lease are incorporated by reference
herein as if set forth fully herein.
Dated: 5/7 ,1998
LESSEE: LESSOR:
NevStar Gaming & Entertainment Corp. PDS Financial Corporation - Nevada
a Nevada corporation a Nevada corporation
By://Jeffrey L. Gilbert By:// Robert Mann
Its: COO, President Its: Executive Vice President
Jeffrey L. Gilbert Robert Mann
<PAGE>
LEASE SCHEDULE NO. 1 TO MASTER LEASE AGREEMENT
This Lease Schedule No. 1 is attached to and made a part of the
Master Lease Agreement ("Lease") between PDS Financial Corporation - Nevada,
a Nevada corporation ("Lessor"), and NevStar Gaming and Entertainment
Corporation, a Nevada corporation d.b.a. Mesquite Star Hotel & Casino
("Lessee"), dated April 23, 1998.
1. Description of Equipment: The Equipment listed on Attachment "A" to
this Lease Schedule is added to the Equipment leased under the
Lease and made subject to the provisions of the Lease.
2. Commencement Date: The commencement Date for the Equipment leased
under this Schedule will be the date the Equipment is delivered and
accepted by the Lessee.
3. Term: The Term shall commence on the Commencement Date and shall
continue for 36 consecutive months.
4. The Basic Rent due each month during the Term for the Equipment
described herein is as follows:
a. The first payment of Basic Rent under this Lease Schedule in an
amount equal to $16,247.47 shall be due and payable on August 1,
1998.
b. Payment of the Basic Rent in the amount of $16,247.47 shall be due
and payable on August 1, 1998 and on the 1st day of each month
thereafter for 35 consecutive months through and including July 1,
2001.
c. In addition to the monthly Basic Rent due as set forth above,
Lessee shall pay Lessor an amount equal to all taxes which may be
imposed by any Federal, State or local authority from time to time.
5. Security Deposit: Lessee shall pay to Lessor, due upon execution of
this Schedule, a Security Deposit in the amount of $16,247.47. The
Security Deposit will be held by the Lessor for the Term of the
Lease and will be returned to Lessee upon satisfactory completion
of the terms and conditions of the Lease.
6. All of the provisions of the Lease are incorporated by reference
herein as if set forth fully herein.
Dated: 5/7 ,1998
LESSEE: LESSOR:
NevStar Gaming & Entertainment Corp. PDS Financial Corporation - Nevada
a Nevada corporation a Nevada corporation
By://Jeffrey L. Gilbert By: Robert Mann
Its: COO, President Its: Executive Vice President
Jeffrey L. Gilbert Robert Mann
Date: June 17, 1998
LEASE ADDENDUM V
Addendum V to Lease Agreement No. 9727 Dated March 10, 1998
By and Between NevStar Gaming and Entertainment Corporation
T/A Mesquite Star Hotel and Casino
And Telerent Leasing Corporation, Raleigh, North Carolina
IT IS MUTUALLY AGREED AND UNDERSTOOD that the following shall become a part
of the above lease agreement:
A. The term of the lease agreement is sixty (60) months with
Lessee's monthly payment being $33,979.87 plus tax for the
first thirty-six (36) months and $12,916.78 plus tax for
the remaining twenty-four (24)months.
B. Lessee shall remit the following advance payments which
include tax: $36,029.95 and $13,820.95 for a total of
$49,850.90 as a condition of approval of this lease.
C. Lessee shall remit a one (1%) origination fee in the amount of
$12,253.15 as a condition of approval of this lease.
IT IS FURTHER AGREED AND UNDERSTOOD that there will be an automatic two (2%)
percent rate increase anytime two payments are not paid within the month
billed. The rate will revert to the original rate when twelve (12)
consecutive payments are paid within the month billed. Any reoccurrence of
the above during the term of the lease will follow the same rules.
The above noted lease agreement includes the following lease schedules:
Lease Addendum II & IV, 2, 4, 4 addendum 1, 9, 11, 15, 16, 16 addendum 1,
17, 17 addendum 1, 18, 23, 26, 27, 28, 29, 30, 31, 32, 33, 34, 35, 36, 37,
38. The following lease schedules shall be deleted: 1, 3, 5, 6, 7, 8, 10,
12, 13, 14, 19, 20, 21, 22, 24, 25.
IT IS FURTHER AGREED AND UNDERSTOOD that the Lessee is responsible for all
freight, installation, service and insurance.
This addendum V supercedes addendum III dated June 9, 1998.
All other terms and conditions shall remain the same.
LESSEE: LESSOR:
NevStar Gaming & Entertainment Corporation Telerent Leasing Corporation
T/A: Mesquite Star Hotel & Casino
Mesquite, Nevada
//Jeffrey L. Gilbert
By: Jeffrey L. Gilbert By:
Title: Chief Operating Officer, President Title:
Date: Date:
TELERENT COMMITMENT LETTER
April 6, 1998
Mr. Jeffrey L. Gilbert, President
NevStar Gaming & Entertainment Corporation
3175 West Post Road
Las Vegas, NV 89118
RE: Mesquite Star Hotel and Casino - Mesquite, NV
Dear Mr. Gilbert:
Telerent Leasing Corporation is pleased to offer the following lease
financing commitment:
Lessee: NevStar Gaming & Entertainment Corporation
Amount: Approximately $1,168,168.00
Equipment: "Hard Costs included in the various FF&E Vendor Quotes
previously submitted to Telerent for consideration and
various "Soft Costs".
Term: 36 months at $33,903.44 plus tax
24 months at $11,568.00 plus tax
1 payment at $33,903.44 plus tax and 1 payment at
Advance $11,568.00 plus tax for a total of $45,471.44 plus
Payments: tax.
Co-Lessees: None
Documentation
& Conditions: Properly executed lease agreement and appropriate
addenda. UCC-1 forms, mortgagee's waiver, equipment
vendor cost quotes, and other required documents as
specified on attached Schedule A. 1% origination fee
in the amount of $11,681.66.
Commitment
Expiration: This financing commitment shall remain open through
April 17, 1998. Evidence of your acceptance shall be
acknowledged in the space provided below and returned
to Telerent within the time frame indicated above.
<PAGE>
The attached Schedule A shall become part of this commitment letter. Please
initial where indicated.
We sincerely appreciate the opportunity of submitting this commitment letter
to you and look forward to the opportunity of providing some of your
equipment needs.
Thank you.
Very truly yours,
TELERENT LEASING CORPORATION
Claude Felmet, Assistant Vice President
Credit/Portfolio Manager
RW/mrc
cc: Ralph Webb, VP Sales
Stuart Austin, Assistant RVP
ACKNOWLEDGEMENT: THE TERMS AND CONDITIONS OF THIS LETTER SHALL BE VALID FOR
A PERIOD OF 10 DAYS AND BY YOUR ACKNOWLEDGMENT BELOW, YOU AGREE TO THE
CONFIDENTIALITY OF THE INFORMATION CONTAINED HEREIN, ONCE ACCEPTED, THIS
CONSTITUTES A NON-CANCELABLE AGREEMENT.
LESSEE: NEVSTAR GAMING & ENTERTAINMENT CORPORATION
By: //Jeffrey L. Gilbert
Jeffrey L. Gilbert
TITLE: President, Chief Operating Officer
DATE: 4/12/98<PAGE>
SCHEDULE A TO COMMITMENT LETTER DATED 4/6/98
SUPPLEMENTAL DOCUMENTATION & CONDITIONS:
1. Mortgagee Waiver
2. Title search must be performed confirming clear title to real
estate held by Lessee.
3. Opinion letter required from Lessee's attorney stating that
Telerent will have first lien rights to equipment being leased.
4. A non-refundable one (1%) percent commitment fee is required at the
time of acceptance of this commitment.
5. Hard Cost totaling $511,863.00; Soft Cost totaling $656,305.00
6. Automatic two (2%) percent rate increase anytime two payments are
not paid within the month billed. The rate will revert to the
original rate when twelve (12) consecutive payments are paid within
the month billed. Any reoccurrence of the above during the term of
the lease will follow the same rules.
Initials: JLG
Date: 4/12/98<PAGE>
