SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
{X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1996
------------------
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period ______________ to _______________
Commission file number 0-5474
NORTH AMERICAN GAMING AND ENTERTAINMENT
- --------------------------------------------------------------------------------
CORPORATION (Exact name of small business issuer as
specified in its charter)
Delaware 75 - 2571032
- ------------------------------------ -------------------
(State of incorporation or
organization) (IRS
Employer
Identification No.)
13150 Coit Road, Suite 125 Dallas, Texas 75240
- ----------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (972) 671-1133
----------------
Former address and telephone number: 777 E. 15th Street
Plano, Texas 75074
(972) 423-9113
Check whether the issuer (1) has filed all reports required to be filed by
Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months, and (2) has been subject to such filing requirements for the past 90
days.
Yes xx No
---- ----
Number of shares of common stock, par value $.01 per share, outstanding as of
September 30, 1996: 19,645,698 ----------
Traditional Small Business Disclosure Format: Yes xx No
---- ----
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PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
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NORTH AMERICAN GAMING AND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
30-Sep-96 31-Dec-95
--------- ---------
ASSETS UNAUDITED
CURRENT ASSETS:
Cash $ 615,354 $ 531,996
Restricted cash 178,305 164,123
Accounts receivable 195,566 92,791
Inventories, at cost 78,558 59,891
Prepaid Insurance
85,768 47,075
Notes receivable - current 266,636 253,035
Income taxes receivable 116,634
Current deferred tax asset 15,421 10,161
------------- ------------
TOTAL CURRENT ASSETS 1,435,608 1,275,706
PROPERTY AND EQUIPMENT, net of accumulated depreciation 1,441,316 1,660,542
OTHER ASSETS:
Deposits 71,940 47,246
Revenue interest rights 299,593 338,113
Goodwill and merger costs 2,399,551 720,451
Notes Receivable-long-term 51,436 57,115
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2,822,520 1,162,925
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TOTAL ASSETS $5,699,444 $4,099,173
============= ============
LIABILITY AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 830,539 $ 795,711
Notes payable - current 1,549,420 2,096,065
Preferred stock dividends payable 780,000 580,000
------------ -----------
TOTAL CURRENT LIABILITIES 3,159,959 3,471,776
NOTES PAYABLE-LONG-TERM 916,035 143,884
NOTES PAYABLE TO CERTAIN STOCKHOLDERS-LONG-TERM 2,011,340 665,450
------------ -----------
TOTAL LIABILITIES $6,087,334 $4,281,110
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value,
10,000,000 shares authorized, 8,000,000 and
-0- Series B shares at 9/30/96 and
12/31/95, respectively $3,881,000 $4,800,000
Class A preferred stock, $3.00 par value, 1,600,000
shares authorized, 1,287,000 and 1,600,000 shares
issued at 9/30/96 and 12/31/95, respectively 80,000 -
Common stock, $.01 par value, 25,000,000 shares
authorized, 19,645,595, and 14,711,589 shares
issued at 9/30/96 and 12/31/95, respectively 196,435 147,094
Additional paid-in-capital (deficit) (2,955,947) (3,334,543)
Retained earnings (deficit) (1,589,378) (1,794,488)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY $ (387,890) $ (181,937)
------------ ------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $5,699,444 $4,099,173
========== ==========
The accompanying notes are an integral part of the financial statements
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NORTH AMERICAN GAMING AND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE QUARTERS AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
QUARTER ENDED NINE MONTHS ENDED
30-Sep-96 30-Sep-95 30-Sep-96 30-Sep-95
--------- --------- --------- ---------
REVENUE:
Video Poker Revenue $3,463,115 $ 2,900,517 $9,516,586 $9,052,929
Truck Stop and Convenience Store 1,600,192 607,085 4,347,478 1,784,582
Cruise Revenue 249,897 308,872
----------- ---------- ---------- ----------
5,313,204 3,507,602 14,172,936 10,837,511
----------- ---------- ---------- ----------
COST AND EXPENSES:
Cost of Revenues 3,311,506 2,314,565 9,061,082 7,131,175
Direct Operating Expenses 1,385,065 868,181 3,408,835 2,544,283
General and Administrative Expenses 140,346 129,384 445,034 440,784
Interest Expense 103,613 36,980 244,746 187,821
Depreciation and Amortization 285,108 188,556 628,051 550,268
----------- ---------- ---------- ----------
5,225,638 3,537,666 13,787,748 10,854,331
----------- ---------- ---------- ----------
OPERATING INCOME (LOSS) 87,566 (30,064) 385,188 (16,820)
----------- ---------- ---------- -----------
OTHER REVENUE (EXPENSE), net 32,635 119,761 122,671 198,363
----------- ---------- ---------- -----------
INCOME BEFORE PROVISION FOR INCOME TAXES 120,201 89,697 507,859 181,543
PROVISION FOR INCOME TAXES (25,000) (34,982) (104,000) (70,802)
----------- ---------- ---------- ----------
NET INCOME $ 95,201 $ 54,715 $ 403,859 $ 110,741
LESS: Preferred Stock Dividends - (120,000) (200,000) (360,000)
----------- --------- ---------- ----------
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK $ 95,201 $ (65,285) $ 203,859 $ (249,259)
============ ========= ========== ===========
EARNINGS PER SHARE - assuming no dilution $ 0.01 $ (0.00) $ 0.01 $ (0.02)
============ ========= ========== ===========
PRO FORMA INFORMATION (UNAUDITED):
Net Income $ 120,201 $ 89,697 $ 507,859 $ 181,543
Provision for Income Taxes (25,000) (34,982) (104,000) (70,802)
Preferred Stock Dividends - (120,000) (200,000) (360,000)
------------ --------- ---------- ----------
Net Income (loss) applicable to common stock $ 95,201 $ (65,285) $ 203,859 $ (249,259)
============= ======== ========== ==========
Net loss per common share - assuming no dilution $ 0.01 $ (0.00) $ 0.01 $ (0.02)
============= ==================== ============ ==========
The accompanying notes are an integral part of the financial statements
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NORTH AMERICAN GAMING AND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
30-Sep-96 30-Sep-95
--------- ---------
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income $ 403,859 $ 181,544
Adjustments to reconcile net income to net cash:
Depreciation and amortization 628,051 550,268
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 12,331 (20,068)
(Increase) decrease in inventories (18,682) (18,283)
(Increase) decrease in prepaid insurance (43,952) (25,599)
(Increase) decrease in deposits (24,693) (42,034)
Increase (decrease) in accounts payable and accrued liabilities 34,916 (345,490)
------------ -----------
Net cash provided (used) by operating activities 991,830 280,338
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment, intangibles:
North American/OM Operating,LLC-equipment 88,552 (53,914)
New Orleans Video Poker-equipment (121,003)
GalaxSea/I.T.Cruise, Inc. acquisition (2,096,188)
---------- -----------
(2,128,639) (53,914)
Proceeds to borrowers (260,351) (235,693)
Repayment by borrowers 334,369 554,559
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Net cash provided (used) by investing activities (2,054,621) 264,952
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on subordinated debt
- (336,820)
Issuance of common stock
49,341 375,741
Issuance of preferred stock 100,000 -
Redemption of preferred stock (939,000) -
Additional paid-in-capital 378,596 -
Increase (decrease) in notes payable 1,571,394 (1,076,182)
------------ -----------
Net cash provided (used) by financing activities 1,160,331 (1,037,261)
------------ -----------
NET INCREASE (DECREASE) IN CASH 97,540 (491,971)
CASH - beginning of period 696,119 1,018,781
------------ -----------
CASH - ending of period $793,659 $ 526,810
============ ===========
The accompanying notes are an integral part of the financial statements
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NORTH AMERICAN GAMING AND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
September 30, 1996 AND 1995
Note 1. OPINION OF MANAGEMENT
- -----------------------------
The preceding financial information has been prepared by the Company pursuant to
the rules and regulations of the Securities and Exchange Commission ("SEC") and,
in the opinion of the Company, includes all normal and recurring adjustments
necessary for a fair statement of the results of each period shown. Certain
information and footnote disclosures normally included in the financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to SEC rules and regulations. The
Company believes that the disclosures made are adequate to make the information
presented not misleading. It is suggested that these financial statements be
read in conjunction with the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1995 and the Company's FORM 8-K dated June 10, 1996, as
amended by Form 8-K/A (Amendment no. One).
Note 2. LEGISLATIVE ACTION
- --------------------------
At the general election held in Louisiana on November 5, 1996, all parishes in
which the Company operates video poker casinos voted to continue truck stop
video poker. The local option initiative gave the voters in each parish the
right to decide what forms of gaming they want to continue in their parish.
Note 3. ACQUISITION OF ASSETS
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On June 10, 1996, Company acquired 100% of the issued and outstanding capital
stock of I.T. Cruise, Inc. ("I.T. Cruise") and 100% of the issued and
outstanding capital stock of GalaxSea Cruises and Tours, Inc. ("GalaxSea") from
International Tours, Inc. ("International"). Both corporations were wholly-owned
subsidiaries of International.
I.T. Cruise is an Oklahoma corporation that was formed in 1993. I.T. Cruise has
served as the cruise marketing division of International since that time. The
principal business of I.T. Cruise is to coordinate cruise marketing programs
between the various major cruise lines and International's network of
approximately 1,400 travel agency locations. I.T. Cruise enters into contracts
with the cruise lines that provide for favorable commission structures and
marketing support for the International network. The contracts also provide for
I.T. Cruise to receive an override payment based on the cruise sales volume of
the International network. I.T. Cruise has a twenty year contract with
International pursuant to which International granted I.T. Cruise the exclusive
right to provide such services to International's network of travel agency
locations. The contracts with the cruise lines generally are negotiated on an
annual basis.
GalaxSea is an Oklahoma corporation that was formed in September 1995. Effective
October 1, 1995, GalaxSea acquired substantially all of the operating assets of
GalaxSea Associates, Inc. (GAI), a Florida corporation. GalaxSea currently has
23 franchisees in its system. Each franchisee pays a monthly license fee, rather
than a royalty percentage based on that agency's annual cruise sales volume. The
principal business of GalaxSea will continue to be the granting of franchises
for the operation of travel vacation stores that specialize in the marketing and
selling of cruise travel, tours and related travel arrangements according to the
concept and business system developed by GalaxSea and GAI. GalaxSea has
contracts with most major cruise lines which provide for GalaxSea to receive
override payments based on the cruise sales of all GalaxSea franchisees. These
contracts also generally provide for favorable commission structures for the
franchisees.
As part of the acquisition of GalaxSea by the Company, GalaxSea and
International entered into a long-term joint marketing agreement, pursuant to
which GalaxSea will have access to market its Add-on franchises to
International's network of approximately 1,400 travel agency locations. The
Company's primary goals with GalaxSea are to expand the system by adding
franchisees and to increase the cruise sales volume of all stores.
As of June 1, 1996 the Company began recording revenue and expense from I.T.
Cruise and GalaxSea. As a result of this transaction, the Company recorded
$1,629,341 in goodwill which will be amortized over a sixty month period.
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4. SUB-LEASE AND MANAGEMENT AGREEMENT Effective July 1, 1996 the Company
entered into a sub-lease agreement with New Orleans Video Poker, Inc. (NOVP) to
manage the Diamond Jubilee Video Porker Casino and Truck-Stop in New Orleans,
LA. This agreement provides for a 50/50 split between the Company and NOVP of
the net cash flow after debt service generated by the Diamond Jubilee. The
agreement further provides for the Company to assume the outstanding liabilities
of NOVP, exclusive of notes payable to the principals of NOVP, with the
operating assets becoming the property of the Company. The Company has the
option to purchase NOVP's 50% share of the cash flow for the remaining balance
on the notes to NOVP principals which are reduced on a monthly basis from cash
flow distributions. The transaction also included the issuance of 450,000 shares
of common stock in the Company to NOVP.
Donald I. Williams, manager of OM Operating, LLC, is a 51% shareholder in NOVP,
and currently holds a 5.65% ownership in North American Gaming and Entertainment
Corporation.
Note 5. Accounting Policies
- ---------------------------
Cruise operations revenues are comprised of ovrerides and commisssions, monthly
franchise license fees, franchise sales fees, marketing fees and training fees.
Overrides and commissions and marketing fees are estimated and recorded based
on cruise sales volume of the I.T. Cruise and GalaxSea franchisees.
(THIS SPACE WAS INTENTIONALLY LEFT BLANK)
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Liquidity and Capital Resources
The Company ended its third quarter with $793,659 in cash and other current
assets amounting to $641,949, including inventories and prepaid expenses
totaling $179,747 and receivables of $462,202. The Company's liabilities totaled
$6,087,334 at September 30, 1996, including accounts payable and accrued
liabilities of $830,539, current notes payable of $1,549,520, long-term notes
payable of $2,927,375 and preferred stock dividends payable of $780,000. This
represents an increase of $1,806,224 from $4,281,110 at December 31, 1995. This
increase was comprised of reductions totaling $768,956 which were applied to
long and short-term debt to banks and equipment manufacturers amounting to
$310,268, and principal reduction on the Gold Rush casino and truck stop
amounting to $458,688. This was offset by an increase in liabilities recorded at
September 30, 1996, which included an increase in accounts payable and accrued
liabilities totaling $34,828; liabilities related to the acquisition of GalaxSea
Cruises and Tours, Inc. (GalaxSea) and IT Cruise, Inc.(I.T. Cruise) amounting to
$1,414,070, the redemption of Class A Preferred Stock of $926,282 and the final
accrual of preferred dividends payable which added $200,000. This transaction
placed an agreed moratorium on the accrual of dividends for two years, effective
June 1, 1996, and obtained from the holders of Class A Preferred stock the right
to force conversion of the remaining 1,287,000 shares of Class A Preferred Stock
into 8,240,000 shares of Common Stock at any time within the next two years.
Accounts payable and accrued liabilities of $830,539 included $325,595 in trade
payables, payroll and payroll taxes of $121,856, casino distributions of
$180,279, state franchise taxes of $171,049 and accrued interest of $31,755.
The current portion of notes payable totaling $1,549,420, includes: various
notes related to the purchase of I.T. Cruise and GalaxSea totaling $638,710; the
stock purchase resulting from the Gold Rush acquisition amounting to $325,073;
current notes payable of $135,353; video poker machine debt of $81,701; notes
related to the partial redemption of Class A Preferred Stock amounting to
$113,865; equipment leases and other notes totaling $64,180; and $190,538
payable to a bank, originally obtained for the construction of the Pelican
Palace and the purchase of the Lucky Longhorn, which was previously
collateralized by the Pelican Palace, and recently rewritten on a five year
amortization with the Gold Rush being substituted as collateral for the note.
Long-term notes payable of $2,927,375 include: $874,656 payable to a bank,
originally obtained for the construction of the Pelican Palace and the purchase
of the Lucky Longhorn, refinanced as noted above; the stock purchase debenture
related to the acquisition of GalaxSea and I.T. Cruise totaling $775,360; the
debenture for the partial redemption of Class A Preferred Stock amounting to
$812,417; the stock purchase debenture resulting from the Gold Rush acquisition
amounting to $423,563; and equipment leases and other notes totaling $41,379.
The Company believes it will be able to generate cash flow from operations to
service all debt according to the terms and conditions specified in debt
instruments. In addition, the Company believes cash flow from operations will be
sufficient to pay accrued preferred dividends on the Company's Class A Preferred
Stock, totaling $780,000, once current obligations on notes and debentures are
satisfied. The Company also believes that it will be able to generate or obtain
the necessary capital from outside sources for expansion projects, but there are
no assurances that current economic conditions will prevail.
The remaining pre-Merger liabilities of WNGC constitute a note payable with a
remaining balance of $135,353 at September 30, 1996; this note is also
guaranteed by a director of the Company. The amount paid on WNGC pre-Merger
liabilities totaled $58,000 during the nine months ended September 30, 1996.
At September 30, 1996, property and equipment (net) at truck stop, video poker
and office facilities totaled $1,441,316. As of September 30, 1996, the Company
owed video poker equipment manufacturers a total principal amount of $81,701
pursuant to five promissory notes secured by such machines and equipment. The
Company anticipates that these equipment notes will be paid-in-full by the end
of the first quarter of 1997. During the nine months ended September 30, 1996,
promissory notes to equipment manufacturers were reduced by $248,182.
The Company completed truck stop paving in order to maintain video poker
licenses before January 1, 1996 at all locations. State inspectors approved the
Pelican Palace, King's Lucky Lady and the Gold Rush, but did not approve
Stelly's Southern Gold, at which the engineer had certified 51,250 square feet
was paved. State inspectors disallowed 7,800 square feet of parking area at
Stelly's Southern Gold in LeBeau, Louisiana, claiming that additional driveways
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were needed to accommodate easier access to the highway, and therefore suspended
operations of the video poker casino on January 4, 1996. The Company protested
the findings of the State inspectors, and on October 29, 1996 the Louisiana
State Gaming Commission approved the reopening of Stelly's Southern Gold in
LeBeau. Once the Company receives the final documentation from the state a
re-start of operations will be initiated; this is expected sometime during the
month of November 1996.
Effective June 10, 1996, the Company acquired GalaxSea and I.T. Cruise,
companies engaged in the cruise travel industry. Cruise revenue as reported is
presented on an accrual basis, and is estimated based on the receipt of
quarterly cash payments of previous years actual revenue; adjusted for seasonal
variations. Cruise revenue is comprised of overrides and commissions on cruise
sales generated by I.T. Cruise from the International Tours, Inc. network and
GalaxSea's franchise system. The cruise lines make payments of overrides and
commissions on a quarterly basis which are received 30-45 days following the end
of each quarter. Bonus overrides and commissions are paid by the cruise lines on
an annual basis, which are received 30-45 days into the next calendar year.
GalaxSea franchisees are billed monthly for license fees.
The Company will seek to meet its long-term liquidity needs primarily through
cash flow from operations, additional borrowings from the Company's traditional
lending sources and possible sales of equity or debt securities. While the
Company believes it will be able to generate and obtain the necessary capital to
meet such needs, there can be no assurance that all of such capital will be
available on terms acceptable to the Company, which could delay or cause the
Company to postpone certain planned activities.
There has been a significant increase during the last two years in the number of
gaming establishments opening for operation in Louisiana and Mississippi, and
competition for the business of gaming patrons has become very intense. As a
result, it is expected that the profit margins, which may be expected by gaming
establishments like the Company will be adversely affected, and that various
gaming establishments may be forced to close because they cannot compete
effectively at such reduced margins. The Company believes it will be able to
maintain a competitive position by carefully managing expenses and cash flow,
but there can be no assurance.
Results of Operations
Net Income for the nine months ended September 30,1996.
Company operations resulted in net income before income taxes of $507,859 for
the nine months ended September 30,1996, an increase of $326,316, or 180% from
1995's $181,543. The Company recorded the 70% revenue interest it received in
the Pelican Palace as a repayment of a note receivable, which amounted to
$236,616 through May 31,1996. This note receivable has been satisfied, therefore
fifty percent of the operating profit generated at the Pelican Palace after May
31, 1996 is now recorded as income to the Company, which was $230,630 for the
nine months ended September 30, 1996 compared to $126,861 for 1995. Effective
June 1, 1996 the Company began recording income from GalaxSea and IT Cruise
operations, which amounted to $9,309 through September 30, 1996. The Company's
operating profit before administrative charges amounted to $1,703,019 through
September 30,1996, up 47% from 1995's $1,162,053.
Revenues totaled $14,172,936 for the nine months ended September 30, 1996,
compared to $10,837,511 for 1995, up 31%.
Video poker revenues amounted to $9,516,586 through September 30,1996, up 5%
from 1995's $9,052,929. Discontinued operations at Landry's Silver Fox and
Stelly's Southern Gold, and increased competitive pressure at the Lucky
Longhorn, King's Lucky Lady, the Pelican Palace and Route Operations, resulted
in a combined decrease of $2,137,446 in video poker revenue from 1995 to 1996.
This was off-set by the acquisition of the Gold Rush, which generated $2,021,589
through September 30, 1996, and the Diamond Jubilee's $579,514 for the quarter
ended September 30, 1996.
Video poker revenue production by location for the nine months ended September
30, 1996 and 1995 was as follows: Lucky Longhorn, Vinton, LA - $2,761,296 in
1996 and $3,248,321 in 1995; Pelican Palace, Toomey, LA - $2,054,426 in 1996 and
$2,103,820 in 1995; the Gold Rush - Opelousas, LA, generated $2,021,589 in 1996;
King's Lucky Lady,
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Porte Barre, LA - $1,757,903 in 1996 and $1,800,394 in 1995; the Diamond Jubilee
- - New Orleans, LA, generated $579,514 in 1996; Route Operations - South, LA -
$337,009 in 1996 and $474,914 in 1995; Stelly's Southern Gold - LeBeau, LA -
$4,849 in 1996 and $321,884 in 1995; Landry's Silver Fox, Jeanerette, LA -
discontinued operations in 1996 and $1,102,996 in 1995;
Fuel, convenience store, food and beverage operating revenues amounted to
$4,347,478 for the nine months ended September 30, 1996 compared to 1995's
$1,784,582, an increase of 144%. Fuel and convenience store sales amounted to
$3,289,481 for the nine months ended September 30, 1996 compared to $1,063,771
in 1995. Food and beverage sales totaled $1,057,997 for the nine months ended
September 30, 1996 compared to $720,436 in 1995. The Gold Rush generated total
retail revenues of $2,156,777; at King's Lucky Lady, combined retail revenues
were $1,995,043, an increase of 24% over 1995's $1,609,969; and the Pelican
Palace produced retail revenues of $175,075, up 25% from $140,385 in 1995. The
Diamond Jubilee generated total retail revenues from beverage sales of $20,583.
Cruise revenues for the nine months ended September 30, 1996 totaled $308,872.
This amount represents an accrual of $160,000 for overrides and commissions on
cruise sales volume resulting from I.T. Cruise's contracts with International
Tours, Inc. and marketing fees of $5,939; and the accrual of GalaxSea's
franchise system revenues, comprised of $32,329 in overrides and commissions,
$44,413 in monthly license fees, franchise sales fees of $26,750, marketing fees
totaling $34,212 and training income of $5,229.
Casino Operations:
The Gold Rush generated total revenue of $4,178,366 for the first nine months of
1996. Average daily video poker revenue per device (50 devices) was $148 for the
nine months ended September 30, 1996. Combined retail revenues amounted to
$2,156,777 for the nine months ended September 30, 1996: truck stop -
$1,884,353; food and beverage - $272,424. Operating profit from the Gold Rush
amounted to $734,443, representing 43% of the Company's aggregate operating
profit for the 1996 period, which is defined as Revenues less Cost of Revenues
and Direct Operating Expense as illustrated in the consolidated statement of
operations.
King's Lucky Lady generated total revenue of $3,752,946 for the first nine
months of 1996 compared to $3,410,363 in 1995, up 10%. Average daily video poker
revenue per device (50 devices) was $128 for the nine months ended September
30,1996 compared to 1995's $132. Combined retail revenues were $1,995,043, an
increase of 24% over 1995's $1,609,969: truck stop - $1,405,128, an increase of
32% over 1995's $1,063,771; food and beverage - $589,915, up 8% from $546,198 in
1995. During the third quarter of 1995, another competitor opened 14 miles away
with thirty-five video poker machines. This new casino is promoting heavily to
attract local clientele, and is having a direct impact on King's as well as the
Gold Rush. The Company anticipates continued competitive pressure which will
make it difficult to regain market share. Operating profit from King's amounted
to $381,267, a decrease of 2% from 1995's $389,143; this represents 22% and 33%,
respectively, of the Company's aggregate operating profit.
The Lucky Longhorn generated total revenue of $2,761,296 for the first nine
months of 1996 compared to $3,248,321 in 1995, down 15%. Average daily video
poker revenue per device (50 devices) was $202 for the first nine months
compared to 1995's $238. The Longhorn has eighteen competitors in its market
area, including four riverboats, of which one was licensed in June of 1996 and
two were added during 1995. In addition, after a major full-scale Native
American casino opened in 1994, absorbing a substantial portion of market share,
it then almost doubled its gaming capacity during the third quarter of 1995,
which significantly affected the Longhorn's results for the first nine months of
1996. Operating profit from the Longhorn for the nine months ended September 30,
1996 was $540,578, a decrease of 19% from 1995's $614,205; this represents 32%
and 53%, respectively, of the Company's aggregate operating profit.
The Pelican Palace generated total revenue of $2,229,501 for the first nine
months 1996 compared to $2,243,205 in 1995, down 1%. Average daily video poker
revenue per device (50 devices) was $150 for the first nine months compared to
1995's $154. Combined retail revenues totaled $175,075, up 25% from $140,385 in
1995. The Pelican Palace was subject to the same competitive pressures as the
Lucky Longhorn during the first nine months ended September 30, 1996. Operating
profit from the Pelican Palace was $230,630 for 1996, an increase of 82% from
1995's $126,861; this represents 14% of the Company's aggregate operating profit
for 1996 and 11% for 1995. However, as noted above, the Company also received
distributions of $236,616 of the Pelican Palace's operating profit during 1996
in payment of the Company's note receivable from Curray; which was paid-in-full
as of May 31, 1996. As of June 1, 1996, fifty percent of the operating profit
generated at the Pelican Palace was recorded as income to the Company.
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The Diamond Jubilee generated total revenue of $600,097 for its first quarter of
operations with the Company. Average daily video poker revenue per device (50
devices) was $126 for the three months ended September 30, 1996. Retail beverage
revenues amounted to $20,583 for the period. Operating profit from the Diamond
Jubilee amounted to $44,589, representing 3% of the Company's aggregate
operating profit for the quarter.
Route Operations generated total revenue of $337,009 in 1996 and $474,914 in
1995. Operating profit for the nine months ended September 30, 1996 was $48,668,
a decrease of 13% from 1995's $63,805; this represents 3% and 5%, respectively,
of the Company's aggregate operating profit. Increased competition resulted in
discontinued operations at certain tavern sites, resulting in the sale of
fourteen video poker machines. The Company currently has 27 devices operating
within 12 locations.
Stelly's Southern Gold was closed January 4, 1996 as a result of the truck
parking lot compliance issue discussed above. Only $4,849 in video poker revenue
was recorded in 1996 compared to $321,884 in 1995. A year-to-date operating loss
totaling $25,906 was the result of additional license application fees,
engineering costs, device fees, insurance and property taxes. Operating profit
amounted to $69,072 for the nine months ended September 30,1995, and represented
6% of the Company's aggregate operating profit.
Landry's Silver Fox - operations were discontinued as of December 31, 1995. 1995
revenues for the first, second and third quarters amounted to $1,102,996 for
video poker and $33,842 for retail sales. Operating profit amounted to $139,992
for the nine months ended September 30,1995, and represented 12% of the
Company's aggregate operating profit.
Travel Operations: Cruise revenues recorded for thefour months ended September
30, 1996 totaled $308,872. The resulting operating profit was $9,309 through
September 30, 1996.
Expenses totaled $13,787,748 for the nine months ended September 30, 1996
compared to $10,854,331 for 1995, up 27%.
The direct cost of revenue related to video poker operations includes fees paid
to the state of Louisiana of $3,243,355, up 6% in 1996 from $3,070,303 in 1995,
and profit sharing payments as defined in operating and management contracts of
$2,201,091, down 18% in 1996 from 1995's $2,668,466. This decline in profit
share payments resulted from lower video poker revenue at the Lucky Longhorn,
the Pelican Palace and King's Lucky Lady, and discontinued operations at
Stelly's Southern Gold and Landry's Silver Fox.
The cost of revenue related to retail sales from fuel, convenience store, food
and beverage operations totaled $3,577,670, the cost of goods sold being 83.7%
of retail sales in 1996; compared to 1995's $1,392,406, the cost of goods sold
being 83.5% of retail sales. This increase was mainly due to the addition of the
Gold Rush, which added $1,864,443 to the retail cost of revenues at 86.4% of
retail sales. At King's Lucky Lady, the retail cost of revenue totaled
$1,599,730, or 80.2% of retail sales for the nine months ended September 30,
1996 compared to 1995's $1,286,224 at 79.9% of retail sales. The proportion of
fuel sales at both facilities drives the high margin in cost of sales, which
amounted to $2,754,591 in 1996 compared to $876,725 in 1995, constituting 63.4%
of the Company's retail sales in 1996 versus 49.1% in 1995. In order to comply
with state regulations governing truck stops, the Company is being very
aggressive in its marketing with very competitive fuel prices. The regulations
require a minimum sales level of 100,000 gallons per month per location, in
order to maintain a complement of 50 video poker machines. In addition, food and
beverage operations demonstrated an improvement in the margin of cost of goods
sold to 44.5% in 1996 from 53.2% in 1995. Continued competitive pressure on all
locations requires the marketing of lower price points, which in turn results in
a significant number of sales at a low dollar value. The state regulations
governing truck stops also require the Company to operate three low volume
restaurants on a 24 hour basis in order to maintain a complement of 50 video
poker machines. All of these factors contribute significantly to the Company's
low gross margin on sales.
The cost of revenues also includes promotional and training production costs for
cruise operations, as well as fees shared with business alliances, which
amounted to $38,966 through September 30, 1996.
Direct operating expenses for the nine months ended September 30, 1996 totaled
$3,408,835, up 34%, or $864,552, from 1995's $2,544,283; this represents 24.1%
and 23.5% of total revenue for 1996 and 1995 respectively. The
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<PAGE>
majority of this increase was due to the addition of new operations: the Gold
Rush added $464,209 to payroll related expenses and $287,999 to other direct
operating expenses; cruise operations added $260,595; and the Diamond Jubilee
added $132,595 for its first quarter of operation with the Company. Lower
expense levels as a result of discontinued operations at Landry's Silver Fox and
Stelly's Southern Gold totaled $314,028 and $43,172 respectively for the nine
months ended September 30, 1996. All other operations experienced a 3.5% growth
in the cost of operations, up $74,513, to $2,244,201 in 1996 from $2,119,688 in
1995.
General and administrative expenses for the nine months ended September 30, 1996
totaled $445,034, up 1% from 1995's $440,784; demonstrating an improved cost
margin to 3.1% of total revenue from 4.1% of total revenue in 1995.
Interest expense for the nine months ended September 30,1996 was $244,746 in
1996, up $56,925, or 30%, from 1995's $187,821. This increase was due to the
stock purchase debenture related to the acquisition of GalaxSea and I.T. Cruise,
and the debenture for the partial redemption of Class A Preferred Stock.
Depreciation and amortization of video poker machines, leasehold improvements
and goodwill for the nine months ended September 30, 1996 amounted to $628,051,
up 14% from 1995's $550,268. The increase was due to the amortization of
goodwill related to the acquisition of GalaxSea and I.T. Cruise. Other revenue
and expense, net, of $122,671 in 1996, includes rental income, interest income
and ATM commissions; this compares to $198,363 for 1995.
Forward Looking Statements - Certain statements included in this Management's
Discussion and Analysis are forward looking statements that predict the future
development of the Company. The realization of these predictions will be subject
to a number of variable contingencies, and there is no assurance that they will
occur in the time frame proposed. The risks associated with the potential
actualization of the Company's plans include: regulatory changes, regulatory
approvals, the availability and cost of financing, to name a few.
11
<PAGE>
PART II. OTHER INFORMATION
Items 2, 4 and 5 are omitted from this report as inapplicable.
Item 1. Legal Proceedings
On August 25, 1995, the Company filed a petition for declaratory judgement in
the 14th Judicial District Court, Calcasieu Parish, Louisiana, seeking the
court's interpretation of the Act of Contract and Agreement (the "Contract")
under which Operator operates the Lucky Longhorn video poker casino. At issue is
whether the Operator deducts the full 32.5% net device revenue tax, or only
22.5% (which was the statutory rate prior to the amendment of the statute
effective July 1, 1994), in calculating net revenues for distribution under the
Contract. The other party to the Contract filed an answer to the Company's suit
on November 28, 1995 claiming that only the old rate should be deducted, and
claiming that Operator was in default for deducting the higher rate and that the
Contract should therefore be terminated. No trial date has been set, and
settlement discussions are ongoing. The Company believes the issue will be
resolved satisfactorily, but there can be no assurance in this regard.
Item 3. Default Upon Senior Securities
Simultaneously with the acquisition of GalaxSea and I.T. Cruise, the Company
also restructured its existing, outstanding Class A Preferred Stock by redeeming
313,000 of the 1,600,000 outstanding shares for a $939,000 subordinated
debenture, placing an agreed moratorium on the accrual of dividends for two
years and obtaining from the holders of Class A Preferred stock the right to
force conversion of the remaining 1,287,000 shares of Class A Preferred Stock
into 8,240,000 shares of Common Stock at any time within the next two years. In
the event of any such forced conversion, as part of the merger transaction,
International Tours was granted anti-dilution protection and will, upon the
issuance of such shares of Common Stock to the former holders of Class A
Preferred Stock, be entitled to an additional 5,452,854 shares of Common Stock
without further consideration, in order to maintain its percentage ownership of
voting stock at 44%. The $780,000 of dividends on the Class A Preferred Stock
accumulated and accrued through May 31, 1996 will exist as accrued dividends
payable.
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Item 6. Exhibits and Reports on Form 8-K
(a) The following documents are filed as part of this Quarterly Report on Form
10-QSB:
Exhibit
Number Description of Exhibits
3.1.1 Certificate of Incorporation of the Company, as amended, filed as
Exhibit 3.1 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1986 (the "1986 Form 10-K"), and
incorporated herein by reference.
3.1.2 Certificate of Amendment of Certificate of Incorporation of the
Company dated April 18, 1994, filed as Exhibit 3.1.8 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993 (the "1993 Form 10-K"), and incorporated herein
by reference.
3.1.3 Certificate of Amendment of Certificate Incorporation of the
Company effecting one-for-three reverse stock split filed as
Exhibit 3.1 to the Company's Current Report on Form 8-K dated
October 17, 1994, and incorporated herein by reference.
3.1.4 Certificate of Amendment of Certificate Incorporation of the
Company effecting name change, increase of authorized shares,
authorization of Class A preferred stock and stock ownership
limitations filed as Exhibit 3.1 to the Company's Current Report
on Form 8-K dated October 17, 1994, and incorporated herein by
reference.
3.1.5 Form of "Certificate of Designation, Preferences and Rights of
Series B Convertible Preferred Stock" creating the Series B
Preferred Stock, filed as Exhibit 10.1.4 to the Company's Current
Report on Form 8-K dated June 10, 1996, and incorporated herein
by reference.
3.2 Amended and Restated Bylaws of the Company filed as Exhibit
3.3 to the Company's Current Report on Form 8-K dated October 17,
1994, and incorporated herein by reference.
*10.1 Stock Purchase and Registration Rights Agreement dated July 1,
1996 between the Company and New Orleans Video Poker company,
Inc. ("NOVP").
*10.1.2 Sublease Agreement dated July 1, 1996 between OM Operating
Company, LLC ("Operating") and NOVP.
*10.1.3 Consent to Sublease entered into as of October 7, 1996, by and
between Operating, NOVP and Stanley Doussan.
*10.2 License to Operate Video Poker Casino dated effective December
15, 1995 between Operating and Ozdon Investments, Inc. relating
to The Gold Rush Truck Stop.
*27.1 Financial Data Schedule required by Item 601 of Regulation S-B.
- ----------------------
* Filed herewith.
(b) A Form 8-K/A (Amendment No. One) was filed on August 25, 1996, amending the
Form 8-K reporting an event dated June 10, 1996, which Form 8-K/A (Amendment No.
One) covered the following items:
Item 7 - Financial Statements and Exhibits
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NORTH AMERICAN GAMING AND ENTERTAINMENT CORPORATION
SIGNATURES
-------
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
NORTH AMERICAN GAMING AND
ENTERTAINMENT CORPORATION
(Registrant)
By: /s/ George J. Akmon
-------------------
George J. Akmon
Executive Vice-President &
Chief Financial Officer (Principal
Financial and Chief Accounting
Officer)
Date: November 13, 1996
A:\3Q9610Q.WPD
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STOCK PURCHASE AND
REGISTRATION RIGHTS AGREEMENT
This Stock Purchase and Registration Rights Agreement (the "Agreement")
is made and entered into as of the 1st day of July, 1996 by and between NORTH
AMERICAN GAMING AND ENTERTAINMENT CORPORATION (the "Issuer"), and NEW ORLEANS
VIDEO POKER COMPANY, INC. (the "Purchaser").
W I T N E S S E T H:
WHEREAS, the Issuer and Purchaser are entering into a Sublease
Agreement effective as of even date herewith relating to the operation of a
video poker casino; and
WHEREAS, Issuer has agreed to issue 450,000 shares (the "Shares") of
its common stock, par value $.01 per share (the "Common Stock"), as partial
consideration for Purchaser entering into the Sublease Agreement; and
WHEREAS, it is a condition precedent to Issuer's issuance of the Shares
and the Purchaser's execution of the Sublease Agreement, that the Issuer and the
Purchaser shall have entered into this Registration Rights Agreement.
NOW, THEREFORE, in consideration of the premises and mutual agreements
hereinafter set forth, the Issuer and the Purchaser agree as follows:
1. Acquisition of Shares. The Purchaser is aware that the Shares have
not been registered pursuant to either the Securities Act of 1933, as amended
(the "1933 Act"), or the applicable securities acts, rules, or regulations of
any state (the "Blue Sky Laws"), on the ground that the issuance and delivery
thereof are exempt from such registration under certain exemptions contained in
the 1933 Act and applicable Blue Sky Laws. In order to assure the availability
and applicability of such exemptions, the Purchaser hereby represents and
warrants to, and covenants and agrees with, the Issuer that:
(i) The Purchaser is acquiring the Shares for the Purchaser's
own account for investment and not with a view to any sale or
distribution of all or any part thereof.
(ii) The Purchaser will hold the Shares subject to all the
applicable provisions of the 1933 Act and the rules and regulations
promulgated thereunder by the Securities and Exchange Commission
("Commission") and all applicable provisions of the Blue Sky Laws and
will not at any time make any sale, transfer, or other disposition of
the Shares in contravention of the provisions of the 1933 Act or the
Blue Sky Laws.
(iii) In order to permit the Purchaser to evaluate the risks
of and to make an informed investment decision with respect to the
acquisition of the Shares, the Issuer has furnished and/or made
available to the Purchaser (a) information regarding
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<PAGE>
the Issuer, and its business, properties and financial position deemed
necessary by the Purchaser to make an informed investment decision,
(b) such other information as the Purchaser has deemed necessary in
order to verify the information furnished and/or made available, and
(c) the opportunity to ask questions of, and receive answers from, the
Issuer or persons acting on its behalf concerning the Issuer and the
terms and conditions of the Purchaser's acquisition of the Shares.
(iv) The Purchaser is able to bear the economic risks of the
Purchaser's investment in the Shares for an indefinite period of time.
(v) The Purchaser will not make any sale, assignment,
transfer, or other disposition of the Shares unless and until the
Purchaser has given the Issuer written notice of the proposed
disposition and the circumstances relating thereto and either (a) the
Shares shall have been registered pursuant to the 1933 Act and the Blue
Sky Laws or (b) counsel for the Issuer, or counsel satisfactory to the
Issuer, shall have rendered a written opinion satisfactory to the
Issuer that such registration is not required.
(vi) A legend in substantially the following form, in addition
to any legend required by law or agreement to be noted thereon, may be
noted conspicuously on the certificate or certificates evidencing the
Shares:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES
LAWS OF ANY STATE. THESE SHARES MAY NOT BE SOLD, TRANSFERRED,
OR OTHERWISE DISPOSED OF UNLESS THEY ARE FIRST REGISTERED
UNDER SUCH ACTS OR UNLESS COUNSEL FOR THE COMPANY OR OTHER
COUNSEL SATISFACTORY TO THE COMPANY SHALL HAVE RENDERED AN
OPINION SATISFACTORY TO THE COMPANY TO THE EFFECT THAT SUCH
REGISTRATION IS NOT REQUIRED."
(vii) Stop transfer instructions may be issued to the transfer
agent of the Issuer or a notation may be made in the appropriate
records of the Issuer with respect to the Shares.
(viii) The Purchaser further acknowledges its understanding
that, if Rule 144 under the 1933 Act ("Rule 144") is available with
regard to the Shares, any sales pursuant to Rule 144 can only be made
in full compliance with all of the provisions of Rule 144, including
among other things, the following:
(a) the Issuer must be providing adequate public information with respect
to the Issuer during a specified time period immediately prior to the
sale;
(b) a two-year holding period must be satisfied;
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<PAGE>
(c) the amount sold in each 90-day period must not exceed one percent (1%)
of the outstanding shares of the Issuer's Common Stock;
(d) the sales must be made in ordinary broker's transactions as defined in
Rule 144; and
(e) the seller must file a notice of sale with the Commission concurrently
with placing the order to sell.
2. (a) Piggy-Back Registration Right. If the Issuer at any time prior to July
1, 1998 proposes to file a registration statement under the 1933 Act
covering any of its securities other than a registration on Form S-8 or
Form S-4, or any successor or similar forms, for sale for its own account,
it will each such time give prompt written notice of its intention to do so
to the Purchaser and of the Purchaser's rights under this Agreement. Upon
the written request of the Purchaser made within 30 days after the receipt
of any such notice, the Issuer will use its best efforts to effect the
registration under the 1933 Act of all Shares which the Issuer has been so
requested to register by the Purchaser, to the extent requisite to permit
the disposition of the Shares so to be registered, by inclusion of such
Shares in the registration statement which covers the securities which the
Issuer proposes to register; provided, that if, at any time after giving
written notice of its intention to register any securities and prior to the
effective date of the registration statement filed in connection with such
registration, the Issuer shall determine for any reason either not to
register or to delay registration of such securities, the Issuer may, at
its election, give written notice of such determination to the Purchaser
and, thereupon, (i) in the case of a determination not ro register, shall
be relieved of its obligation to register any Shares in connection with
such registration and (ii) in the case of a determination to delay
registering, shall be permitted to delay registering any Shares for the
same period as the delay in registering such other securities.
(b) Priority in Piggy-Back Registrations. If (i) a registration pursuant to
this Section involves an underwritten offering of the securities being
registered to be distributed (on a firm commitment basis) by or through one
or more underwriters of recognized standing under underwriting terms
appropriate for such a transaction, and (ii) the managing underwriter of
such underwritten offering shall inform the Issuer and the Purchaser by
letter of its belief that the distribution of all or a specified number of
such Shares concurrently with the securities being distributed by such
underwriters would interfere with the successful marketing of the
securities being distributed by such underwriters (such writing to state
the basis of such belief and the approximate number of such Shares which
may be distributed without such effect), then the Issuer may, upon written
notice to the Purchaser, reduce pro rata (if and to the extent stated by
such managing underwriter to be necessary to eliminate such effect) the
number of such Shares and securities proposed to be sold by any person
other than the Issuer the registration of which shall have been requested
by the Purchaser and each person other than the Issuer so that the
resultant aggregate number of such Shares so included in such registration
shall be equal to the number of shares stated in such managing
underwriter's letter.
(c) Demand Registration Rights. The Issuer will, as soon as possible following
a written request by Purchaser received by the Issuer prior to July 1,
1988, file a shelf registration statement on Form S-3 covering the Shares
and thereafter shall use its best efforts to cause the shelf registration
statement to be declared effective as soon as practicable following such
filing and to take any and all reasonable action within the Issuer's
control (provided that such registration statement
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<PAGE>
may be unusable during periods (which shall not exceed one hundred
twenty consecutive days or an aggregate of one hundred eighty days
within any three hundred sixty five day period) of pending
acquisitions or other material events which would require a
post-effective amendment or supplement to the shelf registration
statement, it being agreed that the Issuer shall use its best efforts
to file a post-effective amendment at the earliest practicable date so
that the shelf registration statement will be useable), as may be
necessary or appropriate to maintain such effectiveness until such
time as neither the Purchaser nor any of its assignees own any Shares.
Purchaser will cooperate fully with Issuer by filing comments or other
documents with the SEC which may be required by the SEC, or by
providing such documents as may be reasonably required by the Issuer.
If the Purchaser proposes to dispose of any of the Shares pursuant to
an underwritten offering the Purchaser shall have the right to select
the underwriter.
3. Indemnification. In connection with the registration of any of the
Shares under the 1933 Act:
(a) Issuer's Indemnification. The Issuer will indemnify and hold harmless
the Purchaser, each person who controls the Purchaser within the
meaning of the 1933 Act and the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the Purchaser' s officers and
directors against any losses, claims, expenses, damages or liabilities
(including reasonable attorney's fees) , joint or several, to which
the Purchaser, its controlling persons or such officers and directors
become subject under the 1933 Act, insofar as such losses, claims,
expenses, damages or liabilities (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement
in which the Shares are included (the "Registration Statement"), in
any prospectus forming a part of the Registration Statement (the
"Prospectus") or any amendment or supplement thereof, or arise out of
or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Purchaser,
each such controlling person or such officers and directors for any
legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, expense, damage,
liability or action; provided, however, that the Issuer will not be
liable in any such case if but only to the extent that any such loss,
claim, expense, damage or liability arises out of our is based upon an
untrue statement or alleged untrue statement or omission or alleged
omission so made in conformity with information furnished in writing
to the Issuer by the Purchaser or Purchaser's underwriter expressly
for inclusion in the Registration Statement.
(b) Purchaser's Indemnification. The Purchaser will indemnify and hold
harmless the Issuer and each underwriter of the Shares and each person
who controls the Issuer or any such underwriter within the meaning of
the 1933 Act and the Exchange Act, each officer of the Issuer who
signs the Registration Statement and each director of the Issuer,
against all losses, claims, expenses, damages or liabilities
(including reasonable attorneys, fees), joint or several, to which the
Issuer, any such underwriter or such officer or director or
controlling person become subject under the Act, but only insofar as
such losses, claims, expenses, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact made in reliance on
and in conformity with information relating to the Purchaser furnished
in writing to the Issuer expressly for inclusion in the Registration
Statement.
4
<PAGE>
(c) Notification. Promptly after receipt by an indemnified party hereunder
of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the
indemnifying party hereunder, notify the indemnifying party in writing
thereof; provided, however, that any failure to give such notice will
not waive any rights of the indemnified party except to the extent the
rights of the indemnifying party are materially prejudiced. In case
any such action shall be brought against any indemnified party and it
shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in the defense
thereof.
(d) If the indemnification provided for in this Section 3 is unavailable
or insufficient to hold harmless an indemnified party in respect of
any losses, claims, expenses, damages or liabilities or actions in
respect thereof, then each indemnifying party shall in lieu of
indemnifying such indemnified party contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims,
expenses, damages, liabilities or actions in such proportion as is
appropriate to reflect the relative fault of the Issuer, on the one
hand, and the Purchaser, on the other, in connection with the
statements or omissions which resulted in such losses, claims,
expenses, damages, liabilities or actions as well as any other
relevant equitable considerations, including the failure to give any
required notice. The relative fault shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Issuer, on the
one hand, or the Purchaser, on the other, and the parties, relative
intent, knowledge, access to information and opportunity to correct or
present such statement or omission. The Issuer and the Purchaser agree
that it would not be just and equitable if contribution pursuant to
this Section 3 (d) were determined by pro rata allocation or by any
other method of allocation which does not take account of the
equitable considerations referred to above in this Section 3 (d) . The
amount paid or payable to an indemnified party as a result of the
losses, claims, expenses, damages, liabilities or actions in respect
thereof referred to above in this Section 3(d) shall be deemed to
include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any
such action or claim. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
4. Expenses. In connection with a piggy-back Registration Statement in which
the Shares are included pursuant to Section 2(a), the Issuer shall pay all
expenses incident to the Issuer's performance of or compliance with its
obligations hereunder, including, without limitation, all registration,
filing and National Association of Securities Dealers, Inc. fees, all fees
and expenses of complying with securities or Blue Sky Laws, all word
processing, duplicating and printing expenses, messenger and delivery
expenses, and the reasonable fees and disbursements of the Issuer's counsel
and of its independent public accountants; and Purchaser will be
responsible for any expenses incurred by it, including for its own counsel,
accountants, underwriters and representatives. In connection with a demand
Registration Statement in which the Shares are included pursuant to Section
2(c), Purchaser shall pay all expenses incident to the Issuer's performance
of or compliance with its obligations hereunder, including internal and
external legal, accounting and administrative costs.
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<PAGE>
5. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the internal laws of the State of Texas,
without regard to the conflict of law principles thereof.
6. Binding Effect. The obligations of this Agreement shall be binding upon the
parties, their heirs, successors and legal representatives.
7. Assignment. This Agreement may not be assigned by any party without the
prior written consent of the other party hereto, except that the Purchaser
may assign all or any portion of its rights under this Agreement to a
stockholder of Purchaser to which it transfers Shares in a private
transaction exempt from the registration and prospectus delivery
requirements of the 1933 Act, provided, at such time, Purchaser furnishes
an opinion of counsel to such effect reasonably acceptable to the Issuer.
9. Amendment. Amendments to this Agreement may only be made in writing signed
by each of the parties.
10. Entire Agreement. This Agreement contains the entire understanding of the
parties and there are no other agreements, written or oral, regarding the
subject matter hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
NORTH AMERICAN GAMING AND
ENTERTAINMENT CORPORATION
By:________________________________
George J. Akmon,
Executive Vice President
NEW ORLEANS VIDEO POKER
COMPANY, INC.
By:_________________________________
Its:________________________________
6
A:\REGISRTS.3
<PAGE>
SUBLEASE AGREEMENT
THIS SUBLEASE AGREEMENT ("Sublease") is entered into effective as of
July 1, 1996 (the "Effective Date") by and between NEW ORLEANS VIDEO POKER
COMPANY, INC. (hereafter "Sublessor") and OM OPERATING, L.L.C. (hereafter
"Sublessee").
WHEREAS, Sublessor and Stanley Doussan (hereafter "Doussan") and
certain other parties entered into that certain Assignment of Agreements and
Releases in December 1992 relating to a Lease Agreement, Addendum to Lease, and
Sublease and Operator's Agreement dated July 10, 1992, pursuant to which
Sublessor assumed all of the responsibilities and obligations under such Lease
Agreement, Addendum to Lease, and Sublease and Operator's Agreement and Doussan
consented to such assumption of duties by Sublessor and the assignment of such
agreements to Assignor; and
WHEREAS, Sublessor and Doussan entered into that certain Amendment to
Lease and Addendum to Lease dated December 15, 1992, which amended the Lease
Agreement dated July 10, 1992 and the Addendum to Lease dated July 10, 1992; and
WHEREAS, the Lease Agreement, Addendum to Lease, and Sublease and
Operator's Agreement dated July 10, 1992, as amended by the Amendment to Lease
and Addendum to Lease dated December 15, 1992, are hereinafter referred to as
the "Operator's Agreements"; and
WHEREAS, Sublessor desires to sublease to Sublessee and Sublessee
desires to sublease from Sublessor the properties, rights, privileges and
benefits to which Sublessor is entitled under the Operator's Agreements relating
to the video poker casino, bar, related parking area and gasoline pump located
on the back parking lot of the video poker casino building; and
WHEREAS, Sublessor desires to continue to retain the properties,
rights, privileges and benefits, as well as the obligations, relating to all
other aspects of the Operator's Agreements, specifically the truck stop and
restaurant located in the separate building and the related fuel operations; and
WHEREAS, capitalized terms used herein shall have the same meaning as
in the Operator's Agreements except where the context herein clearly indicates
otherwise, or except where there is a conflict, in which case the term as used
in the Lease Agreement shall control; and
WHEREAS, this Sublease is contingent upon the consent of Doussan and
Sublessee's obligations hereunder shall not commence until such written consent
has been obtained and delivered to Sublessee.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises and covenants set forth herein, together with other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
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Demise and Description of Property
1. Sublessor leases to Sublessee and Sublessee leases from Sublessor
that portion of the Property, as described in the Lease, constituting the
separate building housing the video poker casino and bar, together with the
related parking lot and one gas pump located at the back of said parking lot
(the "Subleased Premises"), and all of Sublessor's rights, privileges and
benefits under the Operator's Agreements relating to the Subleased Premises,
including, without limitation, the right to operate the video poker casino, the
bar, the parking lot and the gas pump, it being understood that Sublessee shall
be responsible for operating and managing the video poker casino, bar, related
parking area and the gas pump located in the parking area, and Sublessor shall
be responsible for all other operations and activities under the Operator's
Agreements relating to the Property.
Term
2. The term of this Sublease shall be for a period of one year from the
Effective Date, subject to automatic renewal, at the election of Sublessee, upon
thirty days' advance written notice to Sublessor prior to the expiration of the
initial term or any renewal term; provided, however, Sublessee may terminate
this Sublease at any time upon thirty days' written notice to Sublessor; and,
provided, further, that Sublessee may terminate this Sublease immediately upon
written notice to Sublessor in the event (i) any of the Operator's Agreements
are in default or are terminated, or (ii) Sublessor is in default under any of
its obligations to Sublessee hereunder; and, provided, further, that the maximum
number of renewals shall be thirty (30) one year renewals; and, provided,
further, that Sublessor may terminate this Sublease immediately upon written
notice to Sublessee if, after payment of all indebtedness assumed by Sublessee
set forth in Section 3 hereof, the rental payments to Sublessor set forth in the
first paragraph of Section 3 hereof are less than $5,000 per month for five
consecutive months.
Consideration to Sublessor
3. As consideration for the Sublease, Sublessee hereby agrees during
the term of this Sublease to assume and be bound by all the terms, conditions,
provisions and obligations of Sublessor under the Operator's Agreements relating
to the Subleased Premises, and Sublessee agrees to pay to Sublessor within
twenty (20) days following the end of each calendar month an amount equal to
fifty (50%) of the net operating cash flow from the operations of the truck stop
and casino after deduction for (i) all cash costs and expenses paid by Sublessee
for the month, (ii) any reserves deemed appropriate by Sublessee for such month
and (iii) interest and principal on any indebtedness of Sublessee on any
furniture, fixtures or equipment purchased by Sublessee and placed in the video
poker casino, bar or on the parking lot, including, without limitation, the
fifty (50) video poker machines and automated teller machine to be purchased by
Sublessee in accordance with the following paragraph. Sublessor hereby
acknowledges that such consideration is adequate and that Sublessor is not
entitled to any further rent or lease payments during the term of this Sublease.
Sublessee hereby agrees to purchase from Sublessor, and Sublessor hereby agrees
to sell to Sublessee, (i) the fifty (50) existing video poker machines and (ii)
the automated teller machine located in the Subleased Premises effective as of
the Effective Date in consideration of Sublessee assuming the existing
indebtedness on such machines payable to (i) Prime Finance Corporation and
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(ii) Equitable Trust Savings Bank, respectively, having unpaid principal
balances as of the Effective Date of $41,674.55 and $11,262.60, respectively;
provided, however, upon termination of this Sublease by Sublessee in accordance
with Section 2, said fifty (50) video poker machines and automated teller
machine shall revert back to Sublessor and be deemed to be owned by Sublessor
without further consideration; provided, further, that if the fuel requirements
for the Property are not met so that any of the video poker machines are
required to be removed from the Property or the operation thereof is required to
be terminated, such machines shall also revert back to Sublessor and be deemed
to be owned by Sublessor without further consideration; provided, further, at
such time as any of the video poker machines or automated teller machine revert
back to Sublessor for any reason, Sublessor shall be responsible for assuming
and resuming payment of any of the foregoing indebtedness payable to Prime
Finance Corporation or Equitable Trust Savings Bank which remains unpaid at such
time, and shall hold Sublessee harmless from any liability for any continuing
payments thereof. Sublessor hereby represents and warrants to Sublessee that the
fifty (50) video poker machines and the automated teller machine are free and
clear of all liens, claims and encumbrances except for the indebtedness payable
to Prime Finance Corporation and Equitable Trust Savings Bank set forth in this
Section 3.
Use of Subleased Premises
4. The Subleased Premises shall be used by Sublessee for the purposes
which Sublessor is allowed to use them under the Operator's Agreement and for
uses normally incident to those purposes.
Limited Assumption Agreement and Covenants
5. The Sublessee shall comply with all of the provisions of the
Operator's Agreements that relate to the Subleased Premises and are to be
performed by the Sublessor during the term of this Sublease, and the rent and
other expenditures made thereunder by Sublessee shall be considered operating
expenses for purposes of net operating cash flow under Section 3 of this
Sublease. However, it is expressly understood and agreed between Sublessor and
Sublessee that this Sublease does not constitute an assumption of, and does not
relate to, any portion of the Lease, Operator's Agreements or the Property,
other than the Subleased Premises, notwithstanding any provision to the contrary
contained in the Lease or any of the Operator's Agreements.
Payment/Collection of Rent on Behalf of Sublessor
6. Sublessor hereby appoints Sublessee as its limited agent for
purposes of making all of the rental payments under the Lease and Operator's
Agreements to Doussan and for collecting from F&F Enterprises, a Louisiana
partnership, the rent and other amounts payable to Sublessor under the
Operator's Agreement. Sublessor hereby authorizes Sublessee to offset the amount
collected from F&F Enterprises against the payments made by Sublessee to Doussan
on behalf of Sublessor and the negative resulting balance shall be deemed a cash
operating expense under Section 3 and shall be split 50/50 between Sublessee and
Sublessor.
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Option to Acquire Remainder of Lease and Operator's Agreements
7. Sublessor hereby grants to Sublessee the option, exercisable upon
thirty days' advance written notice, to sublease the remainder of the Property
and obtain all of Sublessor's rights, privileges and benefits under the
Operator's Agreements, and undertake all of the responsibilities and obligations
and duties of Sublessor under the Operator's Agreements. Such option shall
expire upon termination of this Sublease. In the event Sublessee exercises said
option, this Sublease shall be deemed amended so that the Subleased Premises
shall mean all of the Property, the Sublease shall relate to all portions of the
Operator's Agreement, and Sublessee shall be entitled to all of Sublessor's
rights, privileges and benefits under the Operator's Agreements and be
responsible for performing Sublessor's obligations and duties thereunder,
without further need for amending this Sublease or entering into any further
agreements. As a condition precedent to exercising such option, Sublessee agrees
to assume payment of any remaining principal balance owing by Sublessor at the
date of exercise of such option to the existing stockholders of Sublessor
(hereinafter referred to collectively as the "Shareholder Notes"), which have an
aggregate outstanding principal balance as of the Effective Date of $569,816.84,
and which are generally referred to as being payable to three separate groups of
shareholders, as follows: (i) $187,438.73 payable to the "Keith Group", (ii)
$187,980.83 payable to the "Peaks Group", and (iii) $194,397.28 payable to the
"Hampton Group". It is also expressly understood and agreed by Sublessor and
Sublessee that the balance of the Shareholder Notes required to be assumed by
Sublessee upon exercise of such option shall be reduced monthly by 91% of each
dollar paid to Sublessor by Sublessee under this Sublease, regardless whether
such amount is applied by Sublessor against payment of the Shareholder Notes; it
being understood that the other 9% is the interest rate payable by Sublessor on
the Shareholder Notes; it being the intention that the principal balance of the
Shareholder Notes to be assumed by Sublessee shall be deemed to be reduced by a
deemed principal payment each month equal to 91% of the amount of all payments
to Sublessor by Sublessee pursuant to this Sublease. Further, it is agreed that
if any of the video poker machines revert back to Sublessor because the fuel
requirements at the Property are not met, those video poker machines will be
sold by Sublessor and 91% of the proceeds thereof (after payment of any portion
of the indebtedness required to be paid thereon by Sublessor in accordance with
Section 3) shall be deemed to be applied against payment of the Shareholder
Notes.
Moreover, Sublessee and Sublessor hereby agree that if Sublessee sales
all or substantially all of its assets in Louisiana, Sublessee shall be
obligated to exercise such purchase option concurrently with such sale.
Furniture and Fixtures
8. Except with regard to the fifty (50) video poker machines and the
automated teller machine purchased from Sublessor hereunder pursuant to Section
3, all furniture and fixtures and equipment placed in the leased premises by
Sublessee shall remain the property of Sublessee. The Sublessee may, at the
expiration of the term of this Sublease, remove such furniture and fixtures
(other than said fifty (50) video poker machines and the automated teller
machine) if removal is done so as not to damage the leased premises.
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Miscellaneous Provisions
Texas Law to Apply
9.(a) This Sublease shall be construed under and in accordance with the
laws of the State of Texas, and all obligations of the parties created hereunder
are performable in Collin County, Texas as it relates to Sublessor and Sublessee
only. Nothing herein shall be construed to subject or require Doussan to submit
to the laws of the State of Texas.
Parties Bound
(b) This Sublease shall be binding on and inure to the benefit of the
parties and their respective heirs, executors, administrators, legal
representatives, successors, and assigns except as otherwise expressly provided
in this Sublease. Notwithstanding the foregoing sentence, this Sublease may not
be assigned by Sublessor or Sublessee without the prior express written consent
of the other party.
Legal Construction
(c) In case any one or more of the provisions contained in this
Sublease shall for any reason be held to be invalid, illegal, or unenforceable
in any respect, that invalidity, illegality, or unenforceability shall not
affect any other provision and this Sublease shall be construed as if such
invalid, illegal, or unenforceable provision had never been included.
Prior Agreements Superseded
(d) This Sublease constitutes the sole agreement of the parties and
supersedes any prior understandings or written or oral agreements between the
parties respecting this subject matter.
Attorney's Fees
(e) If any action at law or in equity, including an action for
declaratory relief, is brought to enforce or interpret the provisions of this
Sublease, the prevailing party shall be entitled to recover reasonable
attorney's fees from the other party, which fees may be set by the court in the
trial of such action or may be enforced in a separate action brought for that
purpose, and which fees shall be in addition to any other relief which may be
awarded.
Specific Performance
(f) The parties declare that it is impossible to measure in money the
damages which will accrue to either party, their heirs, executors,
administrators, legal representatives, successors, or assigns by reason of a
failure to perform any of the obligations under this Sublease. Therefore, if a
party, its heirs, executors, administrators, legal representatives, successors,
or assigns shall institute any action or proceeding to enforce the provisions of
this Sublease, any person against whom such action or proceedings is brought
agrees that specific performance may be sought and obtained for any breach of
this agreement.
Counterparts, One Agreement
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(g) This Sublease and all other copies of this Sublease, insofar as
they relate to the rights, duties, and remedies of the parties, shall be deemed
to be one agreement. This Sublease may be executed concurrently in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Notice
(h) Unless otherwise provided in this Sublease, any notice, tender, or
delivery to be given by either party to the other may be effected by personal
delivery in writing or by registered or certified mail, postage prepaid, return
receipt requested, and shall be deemed received as of the time of actual receipt
or three days following mailing if delivered by registered or certified mail,
return receipt requested.
Time of Essence
(i) Time is of the essence in this Sublease.
Dated effective as of the Effective Date first written above.
SUBLESSOR:
NEW ORLEANS VIDEO POKER
COMPANY, INC.
By: ______________________________
Its: ______________________________
SUBLESSEE:
OM OPERATING, L.L.C.
By: ______________________________
Don Williams, Manager
A:\SUBLEASE.3
6
<PAGE>
CONSENT TO SUBLEASE
THIS CONSENT TO SUBLEASE (the "Consent") is entered into by and among OM
OPERATING, L.L.C. ("Sublessee"), NEW ORLEANS VIDEO POKER COMPANY, INC.
(hereinafter "Sublessor), and STANLEY DOUSSAN (hereafter "Doussan") who agrees
as follows:
WHEREAS, Sublessor and Doussan and certain other parties entered into
that certain Assignment of Agreements and Releases in December 1992 relating to
a Lease Agreement, Addendum to Lease, and Sublease and Operator's Agreement
dated July 10, 1992, pursuant to which Sublessor assumed all of the
responsibilities and obligations under such Lease Agreement, Addendum to Lease,
and Sublease and Operator's Agreement and Doussan consented to such assumption
of duties by Sublessor and the assignment of such agreements to Sublessor; and
WHEREAS, Sublessor and Doussan entered into that certain Amendment to
Lease and Addendum to Lease dated December 15, 1992, which amended the Lease
Agreement dated July 10, 1992 and the Addendum to Lease dated July 10, 1992; and
WHEREAS, the Lease Agreement, Addendum to Lease, and Sublease and
Operator's Agreement dated July 10, 1992, as amended by the Amendment to Lease
and Addendum to Lease dated December 15, 1992, are hereinafter referred to as
the "Operator's Agreements"; and
WHEREAS, Sublessor and Sublessee have entered into a Sublease
Agreement, a true and correct copy of which is attached hereto as Exhibit "A"
and incorporated herein for all purposes by this reference (the "Sublease"),
pursuant to which Sublessee will perform the obligations of Sublessor under the
Operator's Agreements relating to the video poker casino, bar, related parking
area and one gasoline pump (the "Subleased Premises") for the term of the
Sublease and in accordance with the terms and conditions of the Sublease; and
WHEREAS, the Sublease is contingent upon Doussan's consent, and
Sublessor and Sublessee have requested Doussan to signify his consent to the
Sublease; and
WHEREAS, Sublessee desires to perform the obligations and
responsibilities of Sublessor under the Operator's Agreements, and be entitled
to the rights, benefits and privileges inuring to Sublessor under the Operator's
Agreements, relating to the Subleased Premises, for the term of, and in
accordance with the terms and conditions of, the Sublease; and
WHEREAS, Doussan desires to grant his consent to the Sublease and to
Sublessee's right to perform the obligations and responsibilities of Sublessor,
and be entitled to the rights, benefits and privileges of Sublessor, under the
Operator's Agreements relating to the Subleased Premises; provided, however,
Doussan does not hereby release Sublessor from any liability or claims arising
out of the Operator's Agreements; and
WHEREAS, Sublessor has granted to Sublessee the option to sublease the
additional rights of Sublessor under the Operator's Agreements and Doussan
desires to grant his consent to such option and the exercise of such option in
the event it is exercised by Sublessee.
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NOW, THEREFORE, for and in consideration of the benefits to be derived
by all of the parties herein, Sublessor, Sublessee and Doussan agree as follows:
1. Effective as of the Effective Date (as therein defined) of the
Sublease, Sublessor hereby subleases to Sublessee and grants unto Sublessee all
of Sublessor's right, title and interest in and to the Operator's Agreements
relating to the Subleased Premises for the term of the Sublease.
2. Effective upon the Effective Date of the Sublease, Sublessee hereby
agrees to assume and be bound by all the terms, conditions, provisions and
obligations of Sublessor under the Operator's Agreements relating to the
Subleased Premises during the term of the Sublease; provided, however, it is
acknowledged, understood and agreed among the parties hereto that Sublessee's
agreement to assume and be bound by such terms, conditions, provisions and
obligations shall not constitute an assumption of, and does not relate to, any
portion of the Lease, Operator's Agreements or the Property, as described in the
Lease, other than the Subleased Premises.
3. Effective as of the Effective Date of the Sublease, Doussan hereby
consents to the Sublease of the Operator's Agreements from Sublessor to
Sublessee relating to the Subleased Premises, and hereby consents to the
granting of an option by Sublessor to Sublessee to a sublease of the remainder
of the Operator's Agreements and Property from Sublessor to Sublessee and the
exercise of such option without need for further consent from Doussan; provided,
it is acknowledged, understood and agreed among the parties hereto that upon the
exercise of such option, the Sublease shall be deemed to govern such new
relationship and shall be deemed amended to cause the Subleased Premises to mean
the entire Property and to cause the Sublease to relate to the entire Operator's
Agreements.
4. It is hereby acknowledged, understood and agreed by the parties
hereto that the consent for the Sublease given by Doussan shall not, in any way,
be interpreted as a release of Sublessor under the Operator's Agreements or a
release or waiver of any claims, rights of action, and causes of action he has
or may have against Sublessor under the Operator's Agreements.
5. All parties to this Consent agree that the laws of the State of
Louisiana shall be applied, and that in the event any matter is disputed the
proper jurisdiction shall be Orleans Parish, Louisiana.
IN WITNESS WHEREOF, the parties have executed this Consent on the date
and place hereinafter set forth after due reading of the whole by all parties.
WITNESSES: SUBLESSOR:
NEW ORLEANS VIDEO POKER
COMPANY, INC.
______________________________ By: ______________________________
Its: ______________________________
Date: ______________________________
Place: ______________________________
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SUBLESSEE:
OM OPERATING, L.L.C.
______________________________ By: ______________________________
Don Williams, Manager
Date: ______________________________
Place: ______________________________
DOUSSAN:
- ------------------------------- ------------------------------------
STANLEY DOUSSAN
Date: ______________________________
Place: ______________________________
A:\SUBLEASE.5
3
<PAGE>
EXHIBIT A
SUBLEASE AGREEMENT
THIS SUBLEASE AGREEMENT ("Sublease") is entered into effective as of
July 1, 1996 (the "Effective Date") by and between NEW ORLEANS VIDEO POKER
COMPANY, INC. (hereafter "Sublessor") and OM OPERATING, L.L.C. (hereafter
"Sublessee").
WHEREAS, Sublessor and Stanley Doussan (hereafter "Doussan") and
certain other parties entered into that certain Assignment of Agreements and
Releases in December 1992 relating to a Lease Agreement, Addendum to Lease, and
Sublease and Operator's Agreement dated July 10, 1992, pursuant to which
Sublessor assumed all of the responsibilities and obligations under such Lease
Agreement, Addendum to Lease, and Sublease and Operator's Agreement and Doussan
consented to such assumption of duties by Sublessor and the assignment of such
agreements to Assignor; and
WHEREAS, Sublessor and Doussan entered into that certain Amendment to
Lease and Addendum to Lease dated December 15, 1992, which amended the Lease
Agreement dated July 10, 1992 and the Addendum to Lease dated July 10, 1992; and
WHEREAS, the Lease Agreement, Addendum to Lease, and Sublease and
Operator's Agreement dated July 10, 1992, as amended by the Amendment to Lease
and Addendum to Lease dated December 15, 1992, are hereinafter referred to as
the "Operator's Agreements"; and
WHEREAS, Sublessor desires to sublease to Sublessee and Sublessee
desires to sublease from Sublessor the properties, rights, privileges and
benefits to which Sublessor is entitled under the Operator's Agreements relating
to the video poker casino, bar, related parking area and gasoline pump located
on the back parking lot of the video poker casino building; and
WHEREAS, Sublessor desires to continue to retain the properties,
rights, privileges and benefits, as well as the obligations, relating to all
other aspects of the Operator's Agreements, specifically the truck stop and
restaurant located in the separate building and the related fuel operations; and
WHEREAS, capitalized terms used herein shall have the same meaning as
in the Operator's Agreements except where the context herein clearly indicates
otherwise, or except where there is a conflict, in which case the term as used
in the Lease Agreement shall control; and
WHEREAS, this Sublease is contingent upon the consent of Doussan and
Sublessee's obligations hereunder shall not commence until such written consent
has been obtained and delivered to Sublessee.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises and covenants set forth herein, together with other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
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Demise and Description of Property
1. Sublessor leases to Sublessee and Sublessee leases from Sublessor
that portion of the Property, as described in the Lease, constituting the
separate building housing the video poker casino and bar, together with the
related parking lot and one gas pump located at the back of said parking lot
(the "Subleased Premises"), and all of Sublessor's rights, privileges and
benefits under the Operator's Agreements relating to the Subleased Premises,
including, without limitation, the right to operate the video poker casino, the
bar, the parking lot and the gas pump, it being understood that Sublessee shall
be responsible for operating and managing the video poker casino, bar, related
parking area and the gas pump located in the parking area, and Sublessor shall
be responsible for all other operations and activities under the Operator's
Agreements relating to the Property.
Term
2. The term of this Sublease shall be for a period of one year from the
Effective Date, subject to automatic renewal, at the election of Sublessee, upon
thirty days' advance written notice to Sublessor prior to the expiration of the
initial term or any renewal term; provided, however, Sublessee may terminate
this Sublease at any time upon thirty days' written notice to Sublessor; and,
provided, further, that Sublessee may terminate this Sublease immediately upon
written notice to Sublessor in the event (i) any of the Operator's Agreements
are in default or are terminated, or (ii) Sublessor is in default under any of
its obligations to Sublessee hereunder; and, provided, further, that the maximum
number of renewals shall be thirty (30) one year renewals; and, provided,
further, that Sublessor may terminate this Sublease immediately upon written
notice to Sublessee if, after payment of all indebtedness assumed by Sublessee
set forth in Section 3 hereof, the rental payments to Sublessor set forth in the
first paragraph of Section 3 hereof are less than $5,000 per month for five
consecutive months.
Consideration to Sublessor
3. As consideration for the Sublease, Sublessee hereby agrees during
the term of this Sublease to assume and be bound by all the terms, conditions,
provisions and obligations of Sublessor under the Operator's Agreements relating
to the Subleased Premises, and Sublessee agrees to pay to Sublessor within
twenty (20) days following the end of each calendar month an amount equal to
fifty (50%) of the net operating cash flow from the operations of the truck stop
and casino after deduction for (i) all cash costs and expenses paid by Sublessee
for the month, (ii) any reserves deemed appropriate by Sublessee for such month
and (iii) interest and principal on any indebtedness of Sublessee on any
furniture, fixtures or equipment purchased by Sublessee and placed in the video
poker casino, bar or on the parking lot, including, without limitation, the
fifty (50) video poker machines and automated teller machine to be purchased by
Sublessee in accordance with the following paragraph. Sublessor hereby
acknowledges that such consideration is adequate and that Sublessor is not
entitled to any further rent or lease payments during the term of this Sublease.
Sublessee hereby agrees to purchase from Sublessor, and Sublessor
hereby agrees to sell to Sublessee, (i) the fifty (50) existing video poker
machines and (ii) the automated teller machine located in the Subleased Premises
effective as of the Effective Date in consideration of Sublessee assuming the
existing indebtedness on such machines payable to (i) Prime Finance Corporation
and
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(ii) Equitable Trust Savings Bank, respectively, having unpaid principal
balances as of the Effective Date of $41,674.55 and $11,262.60, respectively;
provided, however, upon termination of this Sublease by Sublessee in accordance
with Section 2, said fifty (50) video poker machines and automated teller
machine shall revert back to Sublessor and be deemed to be owned by Sublessor
without further consideration; provided, further, that if the fuel requirements
for the Property are not met so that any of the video poker machines are
required to be removed from the Property or the operation thereof is required to
be terminated, such machines shall also revert back to Sublessor and be deemed
to be owned by Sublessor without further consideration; provided, further, at
such time as any of the video poker machines or automated teller machine revert
back to Sublessor for any reason, Sublessor shall be responsible for assuming
and resuming payment of any of the foregoing indebtedness payable to Prime
Finance Corporation or Equitable Trust Savings Bank which remains unpaid at such
time, and shall hold Sublessee harmless from any liability for any continuing
payments thereof. Sublessor hereby represents and warrants to Sublessee that the
fifty (50) video poker machines and the automated teller machine are free and
clear of all liens, claims and encumbrances except for the indebtedness payable
to Prime Finance Corporation and Equitable Trust Savings Bank set forth in this
Section 3.
Use of Subleased Premises
4. The Subleased Premises shall be used by Sublessee for the purposes
which Sublessor is allowed to use them under the Operator's Agreement and for
uses normally incident to those purposes.
Limited Assumption Agreement and Covenants
5. The Sublessee shall comply with all of the provisions of the
Operator's Agreements that relate to the Subleased Premises and are to be
performed by the Sublessor during the term of this Sublease, and the rent and
other expenditures made thereunder by Sublessee shall be considered operating
expenses for purposes of net operating cash flow under Section 3 of this
Sublease. However, it is expressly understood and agreed between Sublessor and
Sublessee that this Sublease does not constitute an assumption of, and does not
relate to, any portion of the Lease, Operator's Agreements or the Property,
other than the Subleased Premises, notwithstanding any provision to the contrary
contained in the Lease or any of the Operator's Agreements.
Payment/Collection of Rent on Behalf of Sublessor
6. Sublessor hereby appoints Sublessee as its limited agent for
purposes of making all of the rental payments under the Lease and Operator's
Agreements to Doussan and for collecting from F&F Enterprises, a Louisiana
partnership, the rent and other amounts payable to Sublessor under the
Operator's Agreement. Sublessor hereby authorizes Sublessee to offset the amount
collected from F&F Enterprises against the payments made by Sublessee to Doussan
on behalf of Sublessor and the negative resulting balance shall be deemed a cash
operating expense under Section 3 and shall be split 50/50 between Sublessee and
Sublessor.
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Option to Acquire Remainder of Lease and Operator's Agreements
7. Sublessor hereby grants to Sublessee the option, exercisable upon
thirty days' advance written notice, to sublease the remainder of the Property
and obtain all of Sublessor's rights, privileges and benefits under the
Operator's Agreements, and undertake all of the responsibilities and obligations
and duties of Sublessor under the Operator's Agreements. Such option shall
expire upon termination of this Sublease. In the event Sublessee exercises said
option, this Sublease shall be deemed amended so that the Subleased Premises
shall mean all of the Property, the Sublease shall relate to all portions of the
Operator's Agreement, and Sublessee shall be entitled to all of Sublessor's
rights, privileges and benefits under the Operator's Agreements and be
responsible for performing Sublessor's obligations and duties thereunder,
without further need for amending this Sublease or entering into any further
agreements. As a condition precedent to exercising such option, Sublessee agrees
to assume payment of any remaining principal balance owing by Sublessor at the
date of exercise of such option to the existing stockholders of Sublessor
(hereinafter referred to collectively as the "Shareholder Notes"), which have an
aggregate outstanding principal balance as of the Effective Date of $569,816.84,
and which are generally referred to as being payable to three separate groups of
shareholders, as follows: (i) $187,438.73 payable to the "Keith Group", (ii)
$187,980.83 payable to the "Peaks Group", and (iii) $194,397.28 payable to the
"Hampton Group". It is also expressly understood and agreed by Sublessor and
Sublessee that the balance of the Shareholder Notes required to be assumed by
Sublessee upon exercise of such option shall be reduced monthly by 91% of each
dollar paid to Sublessor by Sublessee under this Sublease, regardless whether
such amount is applied by Sublessor against payment of the Shareholder Notes; it
being understood that the other 9% is the interest rate payable by Sublessor on
the Shareholder Notes; it being the intention that the principal balance of the
Shareholder Notes to be assumed by Sublessee shall be deemed to be reduced by a
deemed principal payment each month equal to 91% of the amount of all payments
to Sublessor by Sublessee pursuant to this Sublease. Further, it is agreed that
if any of the video poker machines revert back to Sublessor because the fuel
requirements at the Property are not met, those video poker machines will be
sold by Sublessor and 91% of the proceeds thereof (after payment of any portion
of the indebtedness required to be paid thereon by Sublessor in accordance with
Section 3) shall be deemed to be applied against payment of the Shareholder
Notes.
Moreover, Sublessee and Sublessor hereby agree that if Sublessee sales
all or substantially all of its assets in Louisiana, Sublessee shall be
obligated to exercise such purchase option concurrently with such sale.
Furniture and Fixtures
8. Except with regard to the fifty (50) video poker machines and the
automated teller machine purchased from Sublessor hereunder pursuant to Section
3, all furniture and fixtures and equipment placed in the leased premises by
Sublessee shall remain the property of Sublessee. The Sublessee may, at the
expiration of the term of this Sublease, remove such furniture and fixtures
(other than said fifty (50) video poker machines and the automated teller
machine) if removal is done so as not to damage the leased premises.
8
<PAGE>
Miscellaneous Provisions
Texas Law to Apply
9.(a) This Sublease shall be construed under and in accordance with the
laws of the State of Texas, and all obligations of the parties created hereunder
are performable in Collin County, Texas as it relates to Sublessor and Sublessee
only. Nothing herein shall be construed to subject or require Doussan to submit
to the laws of the State of Texas.
Parties Bound
(b) This Sublease shall be binding on and inure to the benefit of the
parties and their respective heirs, executors, administrators, legal
representatives, successors, and assigns except as otherwise expressly provided
in this Sublease. Notwithstanding the foregoing sentence, this Sublease may not
be assigned by Sublessor or Sublessee without the prior express written consent
of the other party.
Legal Construction
(c) In case any one or more of the provisions contained in this
Sublease shall for any reason be held to be invalid, illegal, or unenforceable
in any respect, that invalidity, illegality, or unenforceability shall not
affect any other provision and this Sublease shall be construed as if such
invalid, illegal, or unenforceable provision had never been included.
Prior Agreements Superseded
(d) This Sublease constitutes the sole agreement of the parties and
supersedes any prior understandings or written or oral agreements between the
parties respecting this subject matter.
Attorney's Fees
(e) If any action at law or in equity, including an action for
declaratory relief, is brought to enforce or interpret the provisions of this
Sublease, the prevailing party shall be entitled to recover reasonable
attorney's fees from the other party, which fees may be set by the court in the
trial of such action or may be enforced in a separate action brought for that
purpose, and which fees shall be in addition to any other relief which may be
awarded.
Specific Performance
(f) The parties declare that it is impossible to measure in money the
damages which will accrue to either party, their heirs, executors,
administrators, legal representatives, successors, or assigns by reason of a
failure to perform any of the obligations under this Sublease. Therefore, if a
party, its heirs, executors, administrators, legal representatives, successors,
or assigns shall institute any action or proceeding to enforce the provisions of
this Sublease, any person against whom such action or proceedings is brought
agrees that specific performance may be sought and obtained for any breach of
this agreement.
5
<PAGE>
Counterparts, One Agreement
(g) This Sublease and all other copies of this Sublease, insofar as
they relate to the rights, duties, and remedies of the parties, shall be deemed
to be one agreement. This Sublease may be executed concurrently in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Notice
(h) Unless otherwise provided in this Sublease, any notice, tender, or
delivery to be given by either party to the other may be effected by personal
delivery in writing or by registered or certified mail, postage prepaid, return
receipt requested, and shall be deemed received as of the time of actual receipt
or three days following mailing if delivered by registered or certified mail,
return receipt requested.
Time of Essence
(i) Time is of the essence in this Sublease.
Dated effective as of the Effective Date first written above.
SUBLESSOR:
NEW ORLEANS VIDEO POKER
COMPANY, INC.
By: ______________________________
Its: ______________________________
SUBLESSEE:
OM OPERATING, L.L.C.
By: ______________________________
Don Williams, Manager
A:\SUBLEASE.5
<PAGE>
LICENSE TO OPERATE VIDEO POKER CASINO
THIS LICENSE TO OPERATE VIDEO POKER CASINO ("License") is made and entered
into effective December 15, 1995 by and between OZDON INVESTMENTS, INC.
("Licensor") and OM OPERATING, L.L.C. ("Licensee").
Licensor hereby licenses to Licensee the right and obligation to
operate the video poker casino and bar at the truck stop commonly known as The
Gold Rush Truck Stop. Licensee hereby accepts such license and the related
responsibilities and duties and agrees to comply with all applicable laws, rules
and regulations in connection therewith. Licensor and Licensee agree that
Licensee will be responsible for all costs, fees, taxes and expenses relative to
such operations and shall be entitled to all income generated therefrom.
Licensor hereby further licenses to Licensee the right and obligation
to operate and sell all beer, wine and liquor from the convenience store and
restaurant operations at The Gold Rush Truck Stop. Licensee hereby further
accepts such license and the related responsibilities and duties and agrees to
comply with all applicable laws, rules and regulations in connection therewith.
Licensor and Licensee agree that Licensee will be responsible for all costs,
fees, taxes and expenses relative to such operations and shall be entitled to
all income generated therefrom.
This License may be terminated by Licensor or Licensee upon 120 days' prior
written notice to the other party.
EXECUTED as of the date and year first above written.
OM OPERATING, L.L.C.
By: ______________________________
Don Williams, Manager
OZDON INVESTMENTS, INC.
By: ______________________________
Its: ______________________________
A:\LICENSE.2
<PAGE>
GLAST, PHILLIPS & MURRAY
A PROFESSIONAL CORPORATION
2200 ONE GALLERIA TOWER
ATTORNEYS AND COUNSELORS 13355 NOEL ROAD, L.B. 48
MICHAEL D. PARSONS, P.C. DALLAS, TEXAS 75240-6657
DIRECT DIAL NUMBER: TELEPHONE: (972) 419-8300
(972) 419-8311 FAX: (972) 419-8329
November 12, 1996
SECURITIES AND EXCHANGE COMMISSION
450 5th Street, N.W.
Judiciary Plaza
Washington, D.C. 20549-1004
Re: North American Gaming and Entertainment Corporation (the "Company")
Form 10-QSB for the Quarter Ended September 30, 1996
Commission File No. 0-5474
Our File No.: 15006-160
Ladies and Gentlemen:
On behalf of the Company, enclosed for electronic filing please find
one copy of Form 10-QSB for the quarter ended September 30, 1996.
Please call the undersigned with any questions or comments. Collect calls will
be accepted at 972/419-8311.
Yours truly,
Mike Parsons
MDP/lds
Enclosures
S:\CLIENT-O\15006\160\SEC11.12
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet at September 30, 1996 and the consolidated statements
of operations and cash flows for the quarter ended September 30, 1996, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 793,659
<SECURITIES> 0
<RECEIVABLES> 462,202
<ALLOWANCES> 0
<INVENTORY> 78,558
<CURRENT-ASSETS> 1,435,608
<PP&E> 3,144,140
<DEPRECIATION> 1,702,828
<TOTAL-ASSETS> 5,699,444
<CURRENT-LIABILITIES> 3,159,959
<BONDS> 2,927,375
0
3,881,000
<COMMON> 196,435
<OTHER-SE> (4,545,325)
<TOTAL-LIABILITY-AND-EQUITY> (387,890)
<SALES> 14,172,936
<TOTAL-REVENUES> 14,172,936
<CGS> 9,061,082
<TOTAL-COSTS> 13,787,748
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 244,746
<INCOME-PRETAX> 507,859
<INCOME-TAX> 104,000
<INCOME-CONTINUING> 403,859
<DISCONTINUED> 0
<EXTRAORDINARY> 200,000
<CHANGES> 0
<NET-INCOME> 203,859
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
