<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
F O R M 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1996
Commission file number 0-9099
FLORIDA GAMING CORPORATION
--------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 59-1670533
-------- ----------
(State or other jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
1750 SOUTH KINGS HIGHWAY, FT. PIERCE, FLORIDA 34945-3099
- --------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (407) 464-7500
--------------
Former name, former address and former fiscal year, if changed since last report
N/A
- -----
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
----- -----
3,400,779 Shares of the issuer's Common Stock were outstanding as of the latest
- ---------
practicable date, AUGUST 12, 1996.
-----------------
Transitional Small Business Disclosure Format:
YES NO X .
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<PAGE>
FLORIDA GAMING CORPORATION
INDEX TO FORM 10-QSB
PAGE NUMBER
-----------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of June 30, 1996 (unaudited) and December 31, 1995 3
Statements of Operations (unaudited) three and six months ended
June 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . 5
Statements of Cash Flows (unaudited) three and six months ended
June 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . 6
Notes to Financial Statements (unaudited). . . . . . . . . . . . . . 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . . . 11
PART II. OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . 16
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1.
FLORIDA GAMING CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---- ----
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS:. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents (Note 1) . . . . . . . . . . . . . . . . . $3,364,773 $2,721,865
Accounts receivable & current portion of notes receivable (Note 6). . 1,008,565 382,811
Inventory (Note 2). . . . . . . . . . . . . . . . . . . . . . . . . . 32,616 33,582
Prepaid expense and other . . . . . . . . . . . . . . . . . . . . . . 39,303
---------- ----------
Total current assets . . . . . . . . . . . . . . . . . . . . . . 4,445,257 3,138,258
PROPERTY AND EQUIPMENT:
Land (Notes 2 and 8). . . . . . . . . . . . . . . . . . . . . . . . . 2,744,716 2,732,525
Building and Improvements . . . . . . . . . . . . . . . . . . . . . . 1,937,418 1,898,151
Furniture, fixtures and equipment . . . . . . . . . . . . . . . . . . 668,985 590,405
5,351,119 5,221,081
Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . (432,694) (336,644)
---------- ----------
4,918,425 4,884.437
---------- ----------
GAMING VENTURE INVESTMENTS. . . . . . . . . . . . . . . . . . . . . . . 344,000 323,000
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,148 29,986
---------- ----------
$9,727,830 $8,375,681
---------- ----------
---------- ----------
</TABLE>
continued
3
<PAGE>
FLORIDA GAMING CORPORATION
CONSOLIDATED BALANCE SHEETS
(continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---- ----
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable (Note 2) . . . . . . . . . . . . . . . . . . . . . $ 117,591 $ 138,835
Other accrued expenses. . . . . . . . . . . . . . . . . . . . . . . 245,661 370,880
Short-term borrowing and current portion of long-term debt. . . . . 136,420 131,567
------------ ----------
Total current liabilities. . . . . . . . . . . . . . . . . . 499,672 641,282
LONG-TERM LIABILITIES
Long-term portion note payable. . . . . . . . . . . . . . . . . . . 1,697,856 1,822,447
STOCKHOLDER'S EQUITY (See Notes 2,4,5,7, and 8):
Class A preferred stock, convertible to common stock,
$.10 par value, authorized 1,200,000 shares, 34,735 shares
issued and outstanding, aggregate liquidation preference of
$371,000 at June 30, 1996: 34,735 shares issued and
outstanding at December 31, 1995, aggregate liquidation
preference of $355,000 . . . . . . . . . . . . . . . . . . . . 3,473 3,473
Class B preferred stock, convertible to common stock,
5,000 shares authorized; 3,230 and 2,400 shares issued
and outstanding at June 30, 1996 and December 31, 1995
respectively, aggregate 1996 preference of $3,230,000 . . . . 323 240
Common stock, $.10 par value, authorized 15,000,000 shares,
3,380,396 issued and outstanding at June 30, 1996, and
3,123,586 shares issued and outstanding at December 31, 1995 . 338,040 312,359
Capital in excess of par value. . . . . . . . . . . . . . . . . . . 29,394,045 27,278,152
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . (22,205,579) (21,682,272)
------------ ------------
Total stockholders equity. . . . . . . . . . . . . . . . . 7,530,302 5,911,952
------------ ------------
$ 9,727,830 $ 8,375,681
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
FLORIDA GAMING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
For The Three Months Ended For The Six Months Ended
-------------------------- ------------------------
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
HANDLE:
Jai-Alai $ 795,457 $ 966,672 $ 3,665,582 $ 4,183,844
ITW 5,368,428 4,727,713 11,493,570 10,551,501
---------- ---------- ----------- -----------
Total Pari-Mutuel Handle 6,163,885 5,694,385 15,159,152 14,735,345
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
REVENUE:
Pari-Mutuel Revenues, net of $22,586, $48,691, $ 709,672 $ 689,012 $ 1,948,406 $ 1,954,316
$102,173 and $144,384 pari-mutuel taxes paid to
the State of Florida, respectively
Admissions, net of $5,598, $6,244, $20,580, and 32,822 36,875 77,334 88,483
$17,129 of Admissions & sale taxes paid to the
State of Florida, respectively
Food, Beverage and Other 160,187 193,036 496,565 540,686
---------- ---------- ----------- -----------
Total Revenues 902,681 918,923 2,522,305 2,583,485
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
COSTS AND EXPENSES:
Operating 806,651 733,189 2,139,357 1,979,752
General and Administrative 487,685 233,889 913,911 442,569
Depreciation 48,600 42,300 97,200 84,600
---------- ---------- ----------- -----------
Total Costs and Expenses 1,342,936 1,009,378 3,150,468 2,506,921
---------- ---------- ----------- -----------
Net Income (loss) from operations (440,255) (90,455) (628,163) 76,564
OTHER INCOME (EXPENSES):
Interest Dividend Income, net 60,208 16,129 104,905 52,011
Gain (loss) on net sale of assets -- -- -- --
Realized gain on Marketable Securities -- -- -- 195,939
---------- ---------- ----------- -----------
Net Income (Loss) $(380,047) $ (74,326) $ (523,258) $ 324,514
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Earnings (loss) per common share $(.11) $(.02) $(.16) $.10
(See Note 4)
Weighted average common shares outstanding 3,321,972 3,119,246 3,261,083 3,119,246
(See Note 4)
Fully diluted per share earnings (See Note 4) N/A N/A N/A $.07
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
FLORIDA GAMING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Six Months Ended
------------------------
June 30, June 30,
-------- --------
1996 1995
---- ----
<S> <C> <C>
Net Income $ (523,258) $ 324,515
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation 96,050 84,600
Loss on sale of assets 0 0
Realized gain on sale of marketable securities 0 (195,939)
Decrease (increase) in -
Accounts receivable, net (30,013) (10,705)
Prepaid and other current assets (39,303) (5,758)
Other assets (11,162) (325,007)
Inventories 966 90
Increase (decrease) in -
Accounts payable (21,244) 7,746
Accrued expenses (74,219) (11,789)
----------- -----------
Total adjustments (78,925) (456,762)
Net cash provided (used) by operating activities ($ 602,183) ($ 132,247)
Investing activities:
Loan to affiliated company (572,641) 0
Proceeds from sales and maturities of marketable
securities 0 (1,814,189)
Capital Expenditures (Note 8) (130,038) 1,203,222
----------- -----------
Net cash provided from (used in) investing activities ($702,679) $610,967
Financing activities:
Net proceeds from borrowing/Repayment of Borrowings
(Note 8) (119,738) 744,174
Repayment of borrowings 0 0
Repayment of margin account 0 (1,084,541)
Stockholders Equity:
Issuance of Preferred Stock, net proceeds 2,067,508 0
----------- -----------
Net cash provided (used) from financing activities $1,947,770 ($340,367)
NET INCREASE (DECREASE) IN CASH $ 642,908 $ 138,353
CASH AND EQUIVALENT AT BEGINNING OF YEAR $ 2,721,865 $1,363,174
------------ -----------
CASH AND CASH EQUIVALENTS AT END OF QUARTER $ 3,364,773 $1,501,527
------------ -----------
------------ -----------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $81,750 $79,423
Income Taxes 0 0
Non-cash Expense Items $74,100 0
</TABLE>
The accompanying notes are an integral part of these financial statements
6
<PAGE>
FLORIDA GAMING CORPORATION
NOTES TO FINANCIAL STATEMENTS
June 30, 1996
(unaudited)
(1) BASIS OF PRESENTATION
The financial statements of Florida Gaming Corporation (the "Company") have been
prepared without audit for filing with the Securities and Exchange Commission.
The accompanying unaudited financial statements have been prepared in accordance
with the rules and regulations of the Securities and Exchange Commission for
interim financial information. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting principles
for complete financial statements. Therefore, it is suggested that the
accompanying financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's latest annual report on
Form 10-KSB.
Certain information and notes have been condensed or omitted pursuant to the
rules and regulations of the Commission. The financial information presented
herein, while not necessarily indicative of results to be expected for the year,
reflects all adjustments of a normal recurring nature, which, in the opinion of
the Company, are necessary to a fair statement of the results for the periods
indicated.
(2) SIGNIFICANT ACCOUNTING POLICIES
For purposes of these statements, the Company considers all highly liquid
investments purchased with an original maturity of three months or less to be
cash equivalents.
The Company's investment in undeveloped land ($1,617,495 at December 31, 1995
and June 30, 1996) is carried at cost and is included with land under property,
plant and equipment in the balance sheet.
The Company's inventory, comprising food and beverage products and souvenirs, is
stated at the lower of cost or market.
Revenue is derived from acceptance of wagers under a pari-mutuel wagering
system. The Company accepts wagers on both on-site and simulcasted
Inter-Track Wagering ("ITW") events. On-site wagers are accumulated in
pools with a portion being returned to winning bettors, a portion paid to the
State of Florida and a portion retained by the Company. ITW wagers are also
accepted and forwarded to the "host" facility after retention of the
Company's commissions. The Company's liability to host tracks for ITW
collections totaled $37,957 and are included in accounts payable at June 30,
1996. Unclaimed winnings totaled $75,341 at June 30, 1996.
(3) INCOME TAXES
The provision for income taxes is based on income for financial statement
purposes. Deferred income taxes, which arise from timing differences between
the period in which certain income and expenses are recognized for financial
reporting purposes and the period in which they affect taxable income, are
included in the amounts provided for income taxes. Tax credits are recorded as
a reduction in the provision for federal income taxes in the year the credits
are utilized.
The Company has net operating loss ("NOL") carryforwards that expire through
fifteen years from the year in which the losses were incurred or at various
intervals through fiscal 2009. However, the bulk of the Company's NOL
carryforwards which can be utilized to offset future taxable income are
limited to approximately $95,000 per fiscal year under section 382 of the
IRC. Operating losses of approximately $1,400,000 are not subject to the
Section 382 limitation.
(4) INCOME PER COMMON SHARE
The income per common share was calculated based upon net income and the
weighted average number of outstanding common shares (3,321,972 and 3,119,246
for the three months ended June 30, 1996, and 1995, respectively, and
3,261,083 and 3,119,246 for the six months ended June 30, 1996 and 1995,
respectively). Options and convertible securities were included in the
computations of income per share on a fully diluted basis for the six month
period ended June 30, 1995. Options and convertible securities were not
included in the computations of loss per shares for all other periods
presented, because their inclusion would be anti-dilutive. Weighted average
equivalent shares on a fully diluted basis for the six months ended June 30,
1995 were 4,752,320 shares, consisting of 74,250 options held by two former
directors, 44,000 in options held by a Vice President of the Company, 9,824
shares of equivalent converted Preferred Class A Stock, 175,000 in options
held by directors and an executive officer under Nonqualified Stock Option
Plans, 1,330,000 in options held by Freedom Financial Corporation, and the
3,119,246 weighted average common shares. Refer to the Company's latest
annual report on Form 10-KSB for more information on outstanding options,
warrants, and conversion features of preferred stock.
7
<PAGE>
(5) PREFERRED STOCK
The Company's Class A preferred stock provides annual dividends, at the rate
of $.90 per share payable in cash, property or common stock, which are
cumulative and have priority over dividends on the common stock. On
September 5, 1995 the Board of Directors declared a preferred dividend for
1995 to holders of record September 21, 1995. As of September 30, 1995,
accrued dividends were $31,712. On October 6, 1995, these dividends were
paid by the issuance of 2,337 common shares and $83 cash in lieu of
fractional shares.
Each share of Class A preferred is convertible into .225 shares of common stock
at the holder's option. During the years ended December 31, 1995 and 1994,
8,929 shares and 1,800 shares of Class A preferred stock were converted into
2,008 shares and 404 shares of common stock, respectively. The Class A
preferred is redeemable at the option to the Company at $10.60 per share. In
the event of dissolution, the holders of Class A preferred are entitled to
receive $10.00 per share, plus accrued dividends, prior to any distribution to
holders of common stock.
The Company's Series B convertible preferred stock provides annual cumulative
dividends at the rate of 8% of the consideration paid for the stock. Such
dividends are payable in shares of the Company's common stock. The
consideration received by the Company upon initial issuance of each share of
the Series B shares was $1,000. Holders of Series B shares may convert all
or any of such Series B shares to the Company's common stock using a ratio
based on the consideration paid for the stock and 80% of the market value of
the common stock at the time of the conversion. Upon liquidation, the
holders of Series B preferred shares shall be entitled to be paid $1,000 per
share plus 8% accrued dividends before any distribution to holders of common
stock. During the year ended December 31, 1995, 2,400 Series B preferred
shares were issued for $2,400,000 to three unrelated parties. Subsequent to
December 31, 1995, the Company issued an additional 2,300 Series B shares at
$1,000 per share and 1,610 Series B shares have been converted into 258,672
shares of Common Stock as of August 13, 1996.
(6) RELATED PARTY TRANSACTIONS
As of August 13, 1996 Freedom Financial Corporation retains an option to
purchase 1,330,000 shares at an exercise price of $1.25 per share. Freedom
Financial is beneficially owned substantially by the Company's Chairman.
The Company has various non-qualified stock option plans and agreements which
grant options with Board approval to employees, officers, and directors. Under
each plan or agreement, the exercise price for each option granted must be at
least 100% of the fair market value of the Company's common stock on the date
the option is granted.
Under three separate agreements during fiscal 1993 the Company entered into
stock option agreements with an independent director and two former directors of
the Company whereby the Company granted to these individuals non-qualified
options to purchase an aggregate 84,250 shares of the Company's common stock at
an exercise price of $2.50 per share. These options are currently exercisable,
expire December 31, 1997, and included certain registration rights for all
shares issued upon exercise.
On April 21, 1994, the Company adopted a new Nonqualified Stock Option Plan,
under which options up to an amount equal to 5% of the Company's issued and
outstanding shares of Common Stock can be issued to the Company's
non-director employees. On April 21, 1994, pursuant to this plan options for
50,000 shares of Common Stock were granted to the Company's Executive
Vice-President (prior to his becoming a director) and options for 25,000
shares were granted to the Company's Chief Financial Officer, each with an
exercise price per share of $7.50.
During August, 1994, the Company initiated a new stock option plan for directors
pursuant to which each current and future director will receive a one-time grant
of options of 25,000 Common Shares. Options for 150,000 shares were granted
under this plan in 1994. The option prices for these shares are the market
value at the respective dates of grant (range of $5.50 to $5.75 in 1994). The
options are not exercisable until one year from the date of election to the
Board.
On November 7, 1994, the Board of Directors granted the Company's Chief
Financial Officer an option to purchase an additional 25,000 shares of common
stock at an exercise price of $5.50 per share, exercisable one year from the
date of grant.
On April 28, 1995, the Company granted a former Director an option to purchase
19,000 common shares at $5.19 per share. The option is exercisable after
October 29, 1995 and expires five years from date of grant. On the same date
the Company granted its Chairman an additional option to purchase 300,000 common
shares at $5.00 per share. The option is exercisable after November 8, 1995 and
also expires five years from date of grant.
In January of 1996 the Board of Directors established the CEO's annual salary at
$360,000, payable monthly. The Chairman had previously received no salary.
Included in notes receivable is a $485,000 line of credit granted to Freedom
Financial Corporation in December of 1995. The credit facility, which is
secured by real property owned by Freedom, is due on demand and bears interest
at 2% above prime. Freedom Financial is beneficially
8
<PAGE>
owned substantially by the Company's Chairman. At June 30, 1996 the balance
draw under this line of credit was $ 922,641. The maximum drawable under this
credit-line is $1,000,000.
(7) COMMITMENTS AND CONTINGENCIES
LITIGATION: On May 13, 1994, American Jai-Alai, Inc. ("American Jai-Alai")
filed suit in the Circuit Court of the Fifteenth Circuit in Florida, Palm Beach
County, against the Company. American Jai-Alai alleges that in August 1993 the
Company entered into a contract with American Jai-Alai that American Jai-Alai
would manage the Fronton if the Company acquired it. American Jai-Alai alleges
that the Company and American Jai-Alai agreed to enter into a five-year
renewable management contract pursuant to which American Jai-Alai would
guarantee a $480,000 annual payment to the Company, $270,000 of the Fronton's
net operating income above $480,000 would be paid to the Company, with American
Jai-Alai receiving 25% of all net operating income above $750,000 annually. In
addition, American Jai-Alai alleges that it has a first right of refusal if the
Company desires to sell the Fronton at anytime during the alleged management
contract. American Jai-Alai also alleges that the Company granted it an option
to purchase 100,000 shares of Common Stock at $2.50 throughout the alleged
management contract, but not to exceed 1997. In addition, American Jai-Alai
alleges that the Company agreed to pay American Jai-Alai 25% of any profit
realized from the sale of the Fronton, if such sale was not to American Jai-Alai
pursuant to its alleged right of first refusal. In the Complaint, American Jai-
Alai alleges, among other claims, breaches of fiduciary duty, breach of contract
and fraud. On May 20, 1994, counsel for American Jai-Alai stated that American
Jai-Alai was exercising its alleged right to purchase the 100,000 shares of
Common Stock for $2.50. The Company has not issued any shares of Common Stock
pursuant to this demand. The Company has filed an Answer to the Complaint and
also filed a motion to move the suit from Palm Beach County to St. Lucie County,
which was granted by the circuit court. The Company denies the allegations and
believes that this proceeding is not likely to result in an adverse judgement
that is material to the results of its operations and financial condition.
On December 16, 1994, General Realty and Finance Co. filed suit in Palm Beach
County against the Company alleging a breach of a commission agreement for the
purchase of the Ft. Pierce Jai-Alai Fronton. The Complaint was filed on
December 16, 1994, and a Motion to Transfer Venue was filed January 30, 1995,
seeking to have venue transferred to St. Lucie County. The Company has
previously paid out a commission to one person and has attempted to pay the
principal of General Realty, Ed Fielding, for a commission; Mr. Fielding
initially rejected payment. The Company denies the allegations and believes the
proceedings are not likely to result in an adverse judgement that is material to
the results of this operation and financial condition.
Compagnie Parisienne De Reescompte owns 450 shares of the Company's Preferred
Class B stock. On April 25, 1996, Compagnie Parisienne De Reescompte, filed
suit in U.S. District Court, District of Delaware, against the Company alleging
the Company improperly failed to convert 450 shares of the Company's Preferred
Class B stock into 156,590 shares of the Company's common stock. The complaint
requests that the Company be required to issue the shares of common stock and/or
that the Company be required to pay damages, including punitive damages if
allowed. The Company believes that it has meritorious defenses, although at
this time the proceedings are in the initial stages of discovery.
CASINO AMERICA: On October 4, 1994, the Company entered into a letter of
intent dated October 4, 1994 (the "Letter of Intent") with Casino America,
Inc. ("Casino America") to form a Joint Venture (the "Joint Venture") to
build and operate a casino at the Ft. Pierce Fronton. If the Joint Venture
is formed before passage of an amendment to the Florida Constitution to
permit casino gaming at the Company's Fronton in Fort Pierce, Florida, the
Company will contribute its interest in the Fronton to the Joint Venture with
a credit to its joint venture capital account of $5,000,000. Casino America
will contribute up to $2,500,000, as needed, to construct a 100,000 square
foot indoor facility suitable for a casino or flea market. If casino gaming
is not permitted in Florida within six years, Casino America has a continuing
option to convert the money contributed to the Joint Venture to a promissory
note from the Joint Venture payable in equal payments over a ten year period
with interest at 8% per annum. If casino gaming is permitted at the Fronton
within six years, the value of the assets contributed by the Company to the
Joint Venture will be adjusted to increase the Company's capital account up
to $22,500,000. Casino America would fund its capital account on an as
needed basis up to $22,500,000. All profits and losses of the Joint Venture
will be allocated between the partners based upon capital accounts.
The Letter of Intent provides that Casino America will be the manager of the
casino and all casino-related improvements. The Company will manage the
operation of the jai-alai fronton, inter-track wagering and all other
non-casino related activities. Each corporation will receive a management
fee based on costs. The Letter of Intent also provides that Casino America
has the exclusive right to enter into a Joint Venture with the Company for
six years and Casino America has a right of first refusal to enter into other
potential gaming opportunities in Florida with the Company for such period
and during the term of the Joint Venture. The formation of the Joint Venture
is subject to certain conditions, including the satisfactory completion of
due diligence by Casino America, the receipt of all required regulatory
approvals, the approval of each partner's board of directors, the execution
of a definitive joint venture agreement, and the approval of the Company's
stockholders, if required by law. Either party may terminate discussions in
connection with the Joint Venture and neither party shall have any liability
to the other, except as otherwise specified in the Letter of Intent.
Freedom Financial Corporation ("Freedom") has informed the Company that Casino
America has purchased 22,500 shares of Freedom's 7% Series AA Mandatory
Redeemable Preferred Stock (the "Freedom Preferred Stock"). The Freedom
Preferred Stock is convertible into shares of the Company's Common Stock owned
by Freedom at prices ranging from $7.50 per share of Common Stock to $15.00 per
share of Common Stock, depending upon the timing of the conversion and possible
passage of an amendment to the Florida Constitution permitting casino gaming at
the Fronton. The Freedom Preferred Stock is convertible into a minimum of
150,000 shares and a maximum of 300,000 shares of the Common
9
<PAGE>
Stock. On October 12, 1994, Freedom purchased 300,000 shares of Common Stock
from the Company by partial exercise of its option to purchase up to 1,630,000
shares (at that date) of the Company's Common Stock at an exercise price of
$1.25 per share. In addition to its remaining option to purchase 1,330,000
shares of the Company's Common Stock, Freedom now owns directly 1,339,480 shares
of the Company's issued and outstanding Common Stock.
PONCA INDIAN TRIBE: In August 1995, the Company signed a Management Agreement
with the Ponca Indian Tribe of Nebraska to build and operate a casino in Douglas
County (Omaha) for Class II and Class III gaming as authorized by the Indian
Gaming Regulatory Act. Recent developments have adversely affected the
prospects for Indian gaming in the state. On February 6, 1996, the Nebraska
legislature failed to pass legislation that would have authorized a voter
referendum on legalizing casino gaming in the state. In addition, as a result
of a November 1995 federal appeals court decision, the Bureau of Indian Affairs
has indefinitely suspended action on land-in-trust applications from Indian
tribes in Nebraska and certain other states. The Company has terminated this
venture with the Poncas. In June of 1996 the Company issued 6,000 shares of
its common stock with a market value of $51,000 to the tribe's legal counsel
as a termination payment. As of June 30, 1996, the Company had provided $93,388
for predevelopment expenses of the project not including the termination
payment.
RINCON, SAN LUISENO BAND OF MISSION INDIANS: On September 11, 1995, the Company
entered into a Loan Agreement and related agreements with the Rincon, San
Luiseno Band of Mission Indians, which presently owns the River Oaks Casino,
located approximately 40 miles north of San Diego, California. The Loan
Agreement was to take effect when gaming machines commenced operation at the
casino. Initially the Company had agreed to make up to $5 million available to
the Rincon band during the seven year term of the agreement. In lieu of
interest on the loan, the Company was to receive a royalty during the term of
the loan agreement. The Company also agreed to advance short term working
capital funds, which represented initial draws. $344,000 had been advanced
through June 30, 1996.
The operation of gaming machines at the Rincon Casino is currently prohibited by
a preliminary injunction issued by the United States District Court for Southern
California. The injunction was sought by the United States Attorney for
Southern California, based upon federal circuit court decisions that the
operation of gaming machines by Native American tribes in California was
prohibited by the Indian Gaming Regulatory Act, because gaming machines were
prohibited by California law and to date, California Governor Wilson has refused
to enter into gaming compacts with California tribes. Since the date that the
preliminary injunction was imposed on the Rincon Band, the United States Court
of Appeals has agreed to review its prior decisions in light of a recent
California appellate court decision that California law permits the operation of
gaming machines by the California Lottery, contributing to the uncertain
parameters of Indian gaming in California. Based on its belief that it complied
with all conditions for the operation of gaming machines under the Indian Gaming
Regulatory Act, the Rincon Band requested that the injunction be modified to
permit the operation of gaming machines at the tribe's casino. This motion was
not granted. Due to adverse decisions in related cases and continuing delays
in the opening of the Rincon Casino with gaming machines, both Florida Gaming
and the Rincon tribe have requested arbitration relative to the Loan Agreement.
BUSINESS COMBINATION DISCUSSIONS: In the course of its business, the Company has
had numerous discussions, and continues to have discussions, regarding joint
ventures and business combinations related to the pari-mutuel and gaming
industry, including the acquisition of other jai-alai frontons. No assurances
can be given about the likelihood or timing of any such transaction.
BANK OF OKLAHOMA: On July 3, 1996, Florida Gaming signed an agreement to
purchase notes ("the WJA Notes") of WJA Realty Limited Partnership ( "World
Jai-Alai" ), with balances aggregating $20,000,000 from the Bank of
Oklahoma, N. A., Tulsa, Oklahoma. The WJA Notes are secured by real
estate and improvements consisting of three jai-alai pari-mutuel facilities
located in Miami, Tampa and Ocala, Florida. Consideration for the WJA Notes
will be a combination of $8,000,000 in cash, 615,385 shares of Florida
Gaming Common Stock and a $1,000,000 non-interest bearing note. Closing is
scheduled for October 28, 1996, however, the closing is subject to all
approvals required under the State of Florida House Bill #337 to establish
and operate card rooms in Dade County (Miami) and Hillsborough County (Tampa)
Florida, and other approvals required by the State of Florida Department of
Business and Professional Regulation, Division of Pari-Mutuel Wagering.
Florida Gaming and principals of World Jai-Alai are presently engaged in
negotiations concerning a combination of the two companies or their
operations.
REGISTRATION RIGHTS: The Company has made commitments upon various terms and
conditions to register certain shares held by other parties in future
registration statements. These shares total 344,107. Refer to the Company's
latest annual report on Form 10-KSB for more information.
(8) LAND ACQUISITION
In addition to the purchase of the Ft. Pierce Jai Alai, on November 3, 1994, the
Company made three other purchases of undeveloped land during 1994. The three
purchases comprised approximately 20 acres, all of which are adjacent to the Jai
Alai property. The amounts paid for this property totaled $529,864 including
debt assumptions, cash payments, and the issuance of 47,336 shares of the
Company's common stock.
In January 1995, the Company acquired an additional 79 acres of undeveloped land
adjacent to its other properties in Florida at a cost of $1,082,000 through cash
payments of $237,000 and the issuance of first mortgage debt of $845,000. The
$845,000 consists of three separate mortgages with interest rates from 8% to
9.5%, each with a balloon payment due in January, 2000. In aggregate these
balloon payments total approximately $740,000. The Company's plans for this
additional property held for future expansion are still in the formative stages
and could
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include the construction of a flea market and the expansion of ITW facilities.
The possibilities of billboards along the Interstate 95 right of way, a
recreational vehicle park, and a golf driving range have also been discussed.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The Company's principal place of business and principal executive offices are
located at Fort Pierce Jai-Alai, 1750 South Kings Highway, Fort Pierce, Florida
34945-3099. The Company changed its name from Lexicon Corporation to Florida
Gaming Corporation on March 17, 1994. The company was incorporated in Delaware
in 1976.
The Company currently owns and operates a jai-alai fronton and pari-mutuel
wagering facility located in Fort Pierce, Florida (the "Fronton").
The Company's business at the Fronton consists of, among other things, live jai-
alai, inter-track pari-mutuel wagering, and the sale of food and alcoholic
beverages.
The jai-alai industry generally has declined in the last several years due to an
industry-wide strike by jai-alai players and the passage of legislation
authorizing a state-wide lottery in 1987. Average statewide handle per
performance for the State of Florida fiscal years ended June 30, 1995 and 1994
was approximately $102,000 and $101,000, respectively. During the State of
Florida's 1995 fiscal year, handle per performance at the Company's Fronton
increased from $31,918 to $36,090, or 13.1%, compared to the 1994 fiscal year.
There can be no assurance that the jai-alai industry will improve significantly,
if at all, in the future. Because the Company's jai-alai business is tied
directly to many if not all of the factors which influence the jai-alai industry
as a whole, another players strike or the enactment of unfavorable legislation
could have an adverse impact on the Company's operations.
Inter-track wagering has grown significantly since its initiation in the State
of Florida in August 1990. The state-wide ITW handle for the State of Florida's
fiscal year ended June 30, 1991 was approximately $109 million. The state-wide
ITW handle for the State of Florida's fiscal years ended June 30, 1994 and 1995
increased to approximately $383 million and $443 million, respectively. ITW
handle at the Company's Fronton has demonstrated similar growth in recent years,
increasing from $17.2 million in the year ended December 31, 1994 to $20.4
million for the year ended December 31, 1995.
Florida House Bill No. 337 became effective June 1, 1996. This legislation
authorized card rooms at licensed pari-mutuel facilities starting January
1997. The card rooms will be administered and regulated by the State of
Florida Division of Pari-Mutuel Wagering of the Department of Business and
Professional Regulation. Games will be limited to non-banked poker games.
Card room operation is also subject to approval by the county commission in
which the pari-mutuel facility is located. This same bill also authorized
full-card simulcasting of races from out of state tracks such as Belmont,
Meadowlands, Philadelphia Park and Monmouth. The Ft. Pierce ITW facility is
currently carrying several of these signals. Florida Gaming plans to open
its poker room, initially with 18 to 20 poker tables having about 150 gaming
positions, in conjunction with the opening of its next live jai-alai season
beginning January 3, 1997, if local approval is granted .
In the course of its business, the Company has had numerous discussions, and
continues to have discussions, regarding joint ventures and business
combinations related to the pari-mutuel and gaming industry, including the
acquisition of other jai-alai frontons. No assurances can be given about the
likelihood or timing of any such transaction. On July 3, 1996 , Florida Gaming
signed an agreement to purchase notes ("the WJA Notes") of WJA Realty Limited
Partnership ("World Jai-Alai"), with balances aggregating $20,000,000 from
the Bank of Oklahoma, N. A., Tulsa, Oklahoma. The WJA Notes are secured by
real estate and improvements consisting of three jai-alai pari-mutuel facilities
located in Miami, Tampa and Ocala , Florida. Consideration for the WJA Notes
will be a combination of $8,000,000 in cash, 615,385 shares of Florida Gaming
Common Stock and a $1,000,000 non-interest bearing note. Closing is scheduled
for October 28, 1996, however, the closing is subject to all approvals required
under the State of Florida House Bill #337 to establish and operate card rooms
in Dade County (Miami) and Hillsborough County (Tampa) Florida, and other
approvals required by the State of Florida Department of Business and
Professional Regulation, Division of Pari-Mutuel Wagering. Florida Gaming and
principals of World Jai-Alai are presently engaged in negotiations concerning
combination of the two companies.
The Company has terminated discussions relative to gaming ventures with all
Native American tribes except for the Rincon Luiseno Band of the Mission Indians
in San Diego County, California. Due to adverse decisions in other Courts in
related cases, such as Western Telecon in California and the opinion issued by
the U.S. Supreme Court in the Seminole case and continuing delays in the
opening of the Rincon Casino with gaming machines, both Florida Gaming and the
Rincon tribe have requested arbitration relative to the Loan Agreement.
The Company has also terminated discussions relative to gaming ventures with
Gold Star International. The letter of intent signed February 12, 1996 expired
per its terms 90 days from its date of execution.
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RESULTS OF OPERATIONS - THREE AND SIX MONTHS 1996 COMPARED WITH THREE AND SIX
MONTHS 1995
During the quarters and six month periods ended June 30, 1996 and 1995, the
Company's operations reflect one month and four months' operation of live
jai-alai performances respectively, and a full schedule of inter-track
wagering. The live jai-alai season ended April 28, 1996, with the next season
scheduled to begin January 3, 1997 and end April 26, 1997. The Fronton
remains open for inter-track wagering year round.
The Company's pari-mutuel handles for the quarter and six months ended June 30,
1996, were $6,163,885, consisting of $795,457 in live jai-alai wagering and
$5,368,428 in inter-track wagering, and $15,159,152 consisting of $3,665,582 in
live jai-alai wagering and $11,493,570 in inter-track wagering, respectively.
For the quarter and six months ended June 30, 1995, the gross handles were
$5,694,345 and $14,735,345, respectively. These consisted of $966,672 in live
jai-alai wagering for the quarter ended June 30, 1995, and $4,727,713 in ITW
handle. For the six months period ended June 30, 1995, the handle on live jai-
alai wagering represented $4,183,844 while the handle on ITW for this period was
$10,551,501.
The growth in handle for the quarter ended June 30, 1996 compared with June 30,
1995, was $469,500, the bulk of which is attributable to growth in the ITW
segment. For the six months ended June 30, 1996, the handle increased $423,807;
of this growth, an approximately $942,000 increase was attributable to the ITW
segment, while the Jai-Alai handle decreased approximately $518,000. Through
the six months ended June 30, 1996, the ITW handle has increased approximately
8.9% compared to 1995.
The Company's pari-mutuel revenues, net of pari-mutuel taxes for the three
months and six months ended June 30, 1996, were $709,672 and $1,948,406,
respectively. This compares to $689,012 for the three months ended June 30,
1995, and $1,954,316 for the six months period ended June 30, 1995. Of the
$709,672, for the quarter ended June 30, 1996, $533,852 was attributable to
commissions on ITW, and $175,820 was attributable to live jai-alai. Of the
$689,012 in net pari-mutuel revenues for the period ending June 30, 1995,
$475,120 was attributable to commissions on ITW and $213,892 was attributable to
live jai-alai. The $58,732 increase in ITW commissions for the quarter ended
June 30, 1996, was due to the increase in handle as indicated above. Of the
$1,948,406, in net pari-mutuel revenue for the six months ended June 30, 1996,
$1,140,602 was attributable to commissions on ITW and $807,804 was attributable
to live jai-alai. For the six months period ended June 30, 1996, compared to
the six months period ended June 30, 1995, ITW commissions increased
approximately $104,537. This growth was attributable to the 8.9% growth in ITW
handle, as the commission rate remained approximately the same. A $110,447
decrease in net commission in live jai-alai was due to an approximate decrease
in live jai-alai handle of 10.8%.
Admissions income, net of state taxes, for the three and six months periods
ended June 30, 1996, was $32,822 and $77,334 respectively. This compares to
$36,875 and $88,483 for the three and six months periods ended June 30, 1995,
respectively. The decreases for the quarter and six months ended June 30,
1996, were due to a decrease of approximately 5.7% in attendance for live jai-
alai coupled with increased discounts for these periods.
Food, beverage and other income for the three and six months period ended June
30, 1996, was $160,187 and $496,565, respectively. These amounts compare to
$193,036, and $540,686 for the three and six months ended June 30, 1995. The
$32,849 decrease for the three month period ended June 30, 1996, compared to the
same period 1995 was due primarily to decreased food and beverage sales as a
result of the decrease in attendance. The $44,121 decrease in food, beverage
and other income for the six month period ended June 30, 1996, as compared to
the same period 1995, was also due to the decreased food and beverage sales as a
result of the decrease in attendance.
The Company's general and administrative expenses for the three and six
months periods ended June 30, 1996, were $487,685, and $913,911,
respectively. For the three and six months periods ended June 30, 1995,
general and administrative expenses were $233,889, and $442,569,
respectively. The $253,796 increase for the quarter ended June 30, 1996 as
compared to 1995 can be attributed to a $90,000 increase in executive
officer salary, a $21,851 increase in legal expenses, $37,228 in increased
travel costs, approximately $17,000 in increased shareholder related costs,
and an $82,764 increase in legal and other termination costs associated with
Indian gaming ventures and other expansion activities. Approximately $51,000
of the $82,764 is directly attributable to the termination of the Ponca
project. The $471,342 increase for the six months ended June 30, 1996, as
compared to the six months ended June 30, 1995, is attributed to
approximately $180,000 in payroll costs paid to the chief executive officer,
a $63,215 increase in legal expenses, $70,653 in increased travel costs, an
approximate $40,000 increase in shareholder related costs, and an $83,491
increase in legal and other termination costs associated with Indian gaming
ventures and other expansion activities. Approximately $52,000 of the
$83,491 is directly attributable to the termination of the Ponca project.
The Company's operating expenses for the three months ended June 30, 1996 and
June 30, 1995 were $806,651 and $733,189, respectively. Depreciation expense
for the three months ended June 30, 1996, and June 30, 1995, were $48,600 and
$42,300, respectively, for an increase of $6,300. The increase in depreciation
expense is primarily attributable to capital improvements made during 1995. The
operating expenses for the three months ended June 30, 1996, increased $73,462
or 10% compared to the three months ended June 30, 1995. Player
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costs, which include salaries, benefits and support staff, represent a
significant portion of operational expenses. The quarter ending June 30, 1996,
included one month of such expenses totaling $177,320 compared to $144,089 for
the quarter ending June 30, 1995. Rental and service costs for totalizator
wagering equipment and satellite receiving/television equipment also represent a
significant portion of operating expenses. These expenses totaled $90,409, for
the three months ended June 30, 1996, compared to $87,344 for three months ended
June 30, 1995. The $3,065 increase is attributable to an expanded ITW schedule
net of equipment savings generated from a purchase versus rent decision on the
majority of the television equipment. Utilities expense totaled $32,334 and
$36,289, respectively, for the three months ended June 30, 1996 and June 30,
1995. Program costs totaling $28,193, and $28,619, respectively, are also
included in the total operating expenses for the three month periods ended June
30, 1996 and 1995. Interest expense totaled $40,460 and $41,965, for the three
months ended June 30, 1996 and 1995, respectively. Operating expenses for the
bar, restaurant and concessions, which include payroll costs, were $94,680, and
$104,982 for the three month periods which ended June 30, 1996 and June 30,
1995, respectively. Operating payrolls and related costs totaled $234,915 and
$199,616 for the three month periods ended June 30, 1996 and June 30, 1995,
respectively, excluding player costs and payroll costs included in the bar,
restaurant and concessions areas. This increase of approximately $35,000 is
attributable to an increase in office staff and salary increases for the
cashiers.
The Company's operating expenses for the six months ended June 30, 1996 and June
30, 1995 were $2,139,357, and $1,979,752, respectively. Depreciation expense
for the six months ended June 30, 1996, and June 30, 1995, were $97,200, and
$84,600, respectively, for an increase of $12,600. The increase in depreciation
expense is attributable to capital improvements made during 1995. The
operating expense for the six months ended June 30, 1996, increased $159,605
compared to the six months ended June 30, 1995. For the six months ending June
30, 1996, player costs were $669,322 compared to $556,751 for the six months
ending June 30, 1995. The $112,571 increase in player costs is attributable
to the expanded roster which to a large extent was due to the longer season that
began in December of 1995. Rental and service costs for totalizator wagering
equipment and satellite receiving/television equipment totaled $217,057, for the
six months ended June 30, 1996, compared to $212,176 for six months ended June
30, 1995. The $4,881 increase is attributable to an expanded ITW schedule net of
equipment savings generated from a purchase versus rent decision on the majority
of the television equipment. Utilities expense totaled $66,882, and $66,382,
respectively, for the six month periods ended June 30, 1996 and June 30, 1995.
Program costs totaling $68,173, and $79,891, are also included in the total
operating expenses for the six month periods ended June 30, 1996 and 1995,
respectively. Interest expense totaled $81,749 and $83,127, for the six months
ended June 30, 1996 and 1995, respectively. Operating expenses for the bar,
restaurant and concessions which include payroll costs, were $245,423, and
$256,493, for the six month periods which ended June 30, 1996 and June 30, 1995,
respectively. Operating payrolls and related costs totaled $575,906 and
$523,405 for the six month periods ended June 30, 1996 and June 30, 1995,
respectively, excluding player costs and payroll costs included in the bar,
restaurant and concessions areas. This increase of approximately $52,000 is
attributable to an increase in office staff and salary increases in the mutuels
department.
The Company had net interest and dividend income of $60,208 and $104,905 for the
three months and six months ended June 30, 1996, respectively. For the three
month and six month periods ended June 30, 1995, the Company had $16,129 and
$52,011, in net interest and dividend income, respectively. The $44,079
increase for the three months period ended June 30, 1996 as compared to the June
30, 1995 period is attributable to an increase of funds in short term cash
equivalent fund due to the additional equity capital that was injected in
December of 1995 and February of 1996. The $52,894 increase for the six months
ended June 30, 1996, compared to six months ended June 30, 1995, is attributable
to these same factors. The Company also recorded dividend income of
approximately $26,250 received on a short term investment in bank holding
company stock that was held and sold in the first quarter 1995.
For the three months and six months ended June 30, 1996, the Company had no
gains on the sales of securities. The Company had no securities gains for the
three months ended June 30, 1995, but had a net realized gain on the sale of
securities of $195,939 for the six months ended June 30, 1995. The $195,939
gain resulted from the sale of bank holding company common stock which the
Company had invested in on a short term basis for a dividend yield. These
shares were purchased in December 1994 and sold in February 1995.
At December 31, 1995, the Company had approximately $11,242,000 in net
operating loss carryforwards. However, because IRC Section 382 limitations
due to the change of control that occurred in March 1993, the bulk of these
carryforwards are limited to approximately $95,000 per year. Operating loss
of approximately $1,400,000 attributed to the period after the change of
ownership are not subject to the Section 382 limitations.
The Company had a net loss of $380,047, or ($0.11) per common share for the
three months ended June 30, 1996, compared to a loss of $74,326 or ($0.02)
per common share for the period ended June 30, 1995. The increased loss was
primarily the result of factors discussed above. Among these was the
$253,796 increase in general and administrative costs which resulted from a
$90,000 increase in executive officer salaries and a $21,851 increase in
legal expenses, $37,228 in increased travel costs, approximately $17,000 in
increased shareholder related costs. The Company had an $82,764 increase in
legal and other termination costs associated with Indian gaming ventures and
other expansion activities with approximately $51,000 of the $82,764
directly attributable to the termination of the Ponca project. The Company
had a net loss of $523,258 or $.16 per common share for the six months ended
June 30, 1996, compared to net income of $324,514 or ($0.10) per common share
for the period ended June 30, 1995. The loss was primarily the result of
factors discussed above. Among these was the $471,3426 increase in general
and administrative costs which resulted from a $180,000 increase in executive
officer salaries and a $63,215 increase in legal expenses, $70,653 in
increased travel costs, an approximate $40,000 increase in shareholder
related costs. The Company had an $83,491
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increase in legal and other termination costs associated with Indian gaming
ventures and other expansion activities, with approximately $52,000 of the
$83,491 directly attributable to the termination of the Ponca project and
approximately $63,000 related to pending law suits. These increases were
incurred primarily as the result of management's effort to expand the gaming
products available to the Company. As discussed above, the six months ended
June 30, 1995, included a $195,939 realized gain on the sale of securities.
The Company plans to expend approximately $150,000 during 1996 to bring city
water to the Ft. Pierce property and eliminate the need for the costly
purification system currently in use. Also in February 1996, the Company
terminated certain equipment leases on television monitors. The initial
capital outlay for new television monitors of approximately $65,000 will
reduce expenses approximately $19,000 per year. As described above, Chairman
and Chief Executive Officer, Bennett Collett who has received no cash
compensation for the past 3 years, is now receiving an annual salary of
$360,000 approved by outside board of director members effective January 1,
1996.
LIQUIDITY AND CAPITAL RESOURCES
The balance of the Company's cash and cash equivalents at June 30, 1996 was
$3,364,773. At June 30, 1996, the Company had working capital of $3,945,585, an
increase of $1,448,609 from $2,496,976 at December 31, 1995. The increase was
primarily the result of approximately $2 million in capital raised via the
issuance of preferred convertible stock, net of capital and property
expenditures, debt repayment, and other operational use of funds.
During the six months ended June 30, 1996, net cash used in the Company's
continuing operating activities was $602,183. The Company's continuing
operating expenses consisted principally of office expenses, general
administrative expenses, operating expenses associated with Fronton operations,
and business expansion. Principal revenues were from net commissions on pari-
mutuel wagering on live jai-alai and ITW events. The Company expects net cash
flows from the operation of current business activities will be adequate to meet
operational needs.
During the six months ended June 30, 1996, cash flow used by investing
activities was $702,679. This was the result of capital improvements and
equipment purchases totaling $130,038 and credit line advances of $572,641 .
During the fourth quarter of 1995, the Company lent an affiliated Company
(Freedom Financial) $350,000 on a short-term secured credit line. The balance
of this credit, which bears interest at the prime rate plus 2% (10.25%), was
$922,641 as of June 30, 1996.
During the six months ended June 30, 1996, cash flow from financing activities
was $1,947,770. Cash flow from financing activities consisted primarily of the
$2,067,508 in funds generated from the sale of convertible preferred stock in
February 1996 (see Note 5 to the Financial Statements), and net of $119,738 in
debt reductions.
In the course of its business, the Company has had numerous discussions, and
continues to have discussions, regarding joint ventures and business
combinations related to the pari-mutuel and gaming industry, including the
acquisition of other jai-alai frontons. No assurances can be given about the
likelihood or timing of any such transaction.
On July 3, 1996 , Florida Gaming signed an agreement to purchase notes ("the
WJA Notes") of WJA Realty Limited Partnership ("World Jai-Alai"), with balances
aggregating $20,000,000 from the Bank of Oklahoma, N. A., Tulsa, Oklahoma.
The WJA Notes are secured by real estate and improvements consisting of three
jai-alai pari-mutuel facilities located in Miami, Tampa and Ocala , Florida.
Consideration for the WJA Notes will be a combination of $8,000,000 in cash,
615,385 shares of Florida Gaming Common Stock and a $1,000,000 non-interest
bearing note. Closing is scheduled for October 28, 1996, however, the closing
is subject to all approvals required under the State of Florida House Bill #337
to establish and operate card rooms in Dade County (Miami) and Hillsborough
County (Tampa) Florida, and other approvals required by the State of Florida
Department of Business and Professional Regulation, Division of Pari-Mutuel
Wagering. Florida Gaming and principals of World Jai-Alai are presently engaged
in negotiations concerning combination of the two companies.
In August 1995, the Company signed a Management Agreement with the Ponca Indian
Tribe of Nebraska to build and operate a casino in Douglas County (Omaha) for
Class II and Class III gaming as authorized by the Indian Gaming Regulatory Act.
Recent developments that have adversely affected the prospects for Indian
gaming in the state. On February 6, 1996, the Nebraska legislature failed to
pass legislation that would have authorized a voter referendum on legalizing
casino gaming in the state. In addition, as a result of a November 1995 federal
appeals court decision, the Bureau of Indian Affairs has indefinitely suspended
action on land-in-trust applications from Indian tribes in Nebraska and certain
other states. The Company has terminated this venture with the Poncas. In
June of 1996 the Company issued 6,000 shares of its common stock with a market
value of $51,000 to tribe's legal counsel as a termination payment. As of
June 30, 1996, the Company had provided $93,388 for predevelopment expenses of
the project not including the termination payment.
RINCON, SAN LUISENO BAND OF MISSION INDIANS. On September 11, 1995, the Company
entered into a Loan Agreement and related agreements with the Rincon, San
Luiseno Band of Mission Indians, which presently owns the River Oaks Casino,
located approximately 40 miles north of San Diego, California. The Loan
Agreement was to take effect when gaming machines commenced operation at the
casino. Initially the Company had agreed to make up to $5 million available to
the Rincon band during the seven year term of the agreement. In lieu of
interest on the loan, the Company was to receive a royalty during the term of
the loan agreement. The Company also agreed to advance short term working
capital funds, which will represent initial draws. $344,000 has been advanced
through June 30, 1996.
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The operation of gaming machines at the Rincon Casino is currently prohibited by
a preliminary injunction issued by the United States District Court for Southern
California. The injunction was sought by the United States Attorney for
Southern California, based upon federal circuit court decisions that the
operation of gaming machines by Native American tribes in California was
prohibited by the Indian Gaming Regulatory Act, because gaming machines were
prohibited by California law and to date, California Governor Wilson has refused
to enter into gaming compacts with California tribes. Since the date that the
preliminary injunction was imposed on the Rincon Band, the United States Court
of Appeals has agreed to review its prior decisions in light of a recent
California appellate court decision that California law permits the operation of
gaming machines by the California Lottery, contributing to the uncertain
parameters of Indian gaming in California. Based on its belief that it complied
with all conditions for the operation of gaming machines under the Indian Gaming
Regulatory Act, the Rincon Band requested that the injunction be modified to
permit the operation of gaming machines at the tribe's casino. This motion was
not granted. Due to adverse decisions in related cases and continuing delays
in the opening of the Rincon Casino with gaming machines, both Florida Gaming
and the Rincon tribe have requested arbitration relative to the Loan Agreement.
The purchase of the WJA Notes from the Bank of Oklahoma and expansion of
facilities to accommodate the newly authorized card rooms potentially at Ft.
Pierce, Miami and Tampa will require substantial capital. The Company is
currently negotiating with several prospective investors to place either debt
or equity needed to fund the purchase of the WJA Notes.
The Company believes that its present financial condition provides adequate
capital reserves and liquidity for present operations.
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PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
On May 13, 1994, American Jai-Alai, Inc. ("American Jai-Alai") filed suit in the
Circuit Court of the Fifteenth Circuit in Florida, Palm Beach County, against
the Company. American Jai-Alai alleges that in August 1993 the Company entered
into a contract with American Jai-Alai that American Jai-Alai would manage the
Fronton if the Company acquired it. American Jai-Alai alleges that the Company
and American Jai-Alai agreed to enter into a five-year renewable management
contract pursuant to which American Jai-Alai would guarantee a $480,000 annual
payment to the Company, $270,000 of the Fronton's net operating income above
$480,000 would be paid to the Company, with American Jai-Alai receiving 25% of
all net operating income above $750,000 annually. In addition, American Jai-
Alai alleges that it has a first right of refusal if the Company desires to sell
the Fronton at anytime during the alleged management contract. American Jai-
Alai also alleges that the Company granted it an option to purchase 100,000
shares of Common Stock at $2.50 throughout the alleged management contract, but
not to exceed 1997. In addition, American Jai-Alai alleges that the Company
agreed to pay American Jai-Alai 25% of any profit realized from the sale of the
Fronton, if such sale was not to American Jai-Alai pursuant to its alleged right
of first refusal. In the Complaint, American Jai-Alai alleges, among other
claims, breaches of fiduciary duty, breach of contract and fraud. On May 20,
1994, counsel for American Jai-Alai stated that American Jai-Alai was exercising
its alleged right to purchase the 100,000 shares of Common Stock for $2.50. The
Company has not issued any shares of Common Stock pursuant to this demand. The
Company has filed an Answer to the Complaint and also filed a motion to move the
suit from Palm Beach County to St. Lucie County, which was granted by the
circuit court. The Company denies the allegations and believes that this
proceeding is not likely to result in an adverse judgement that is material to
the results of its operations and financial condition.
On December 16, 1994, General Realty and Finance Co. filed suit in Palm Beach
County against the Company alleging a breach of a commission agreement for the
purchase of the Ft. Pierce Jai-Alai Fronton. The Complaint was filed on
December 16, 1994, and a Motion to Transfer Venue was filed January 30, 1995,
seeking to have venue transferred to St. Lucie County. The Company has
previously paid out a commission to one person and has attempted to pay the
principal of General Realty, Ed Fielding, for a commission; Mr. Fielding
initially rejected payment. The Company denies the allegations and believes the
proceedings are not likely to result in an adverse judgement that is material to
the results of this operation and financial condition.
Compagnie Parisienne De Reescompte owns 450 shares of the Company's Preferred
Class B stock. On April 25, 1996, Compagnie Parisienne De Reescompte, filed
suit in U.S. District Court, District of Delaware, against the Company alleging
the Company improperly failed to convert 450 shares of the Company's Preferred
Class B stock into 156,590 shares of the Company's common stock. The complaint
requests that the Company be required to issue the shares of common stock and/or
that the Company be required to pay damages, including punitive damages if
allowed. The Company believes that it has meritorious defenses, although at
this time the proceedings are in the initial stages of discovery.
Item 2. CHANGES IN SECURITIES.
None
Item 3. DEFAULTS UPON SENIOR SECURITIES.
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
Item 5. OTHER INFORMATION.
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
LIST OF EXHIBITS FILED.
Exhibit 10.1 WJA Note Purchase Agreement
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K.
None
16
<PAGE>
FLORIDA GAMING CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FLORIDA GAMING CORPORATION
--------------------------
(Registrant)
Date: AUGUST 13, 1996 By: W. B. COLLETT
------------------- -------------
W. B. Collett
Chairman of the Board and Chief
Executive Officer
(Principal Executive Officer)
Date: AUGUST 13, 1996 By: TIMOTHY L. HENSLEY
------------------- ------------------
Timothy L. Hensley
Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting
Officer)
17
<PAGE>
LOAN SALE AGREEMENT
This agreement (the "Agreement") is made this 3rd day of July, 1996
between:
(i) Florida Gaming Corporation ("FGC");
(ii) Bank of Oklahoma, National Association ("BOK"); and,
(iii) BOK DPC Asset Holding Corporation, an Oklahoma Corporation
("DPC").
In consideration of the mutual promises and covenants hereinafter set forth
(the adequacy of which FGC, BOK and DPC hereby expressly acknowledge), and
intending to be legally bound hereby, FGC, BOK, and DPC agree as follows:
(1) PURPOSE OF THIS AGREEMENT. WJA Realty Limited Partnership ("WJA") has
heretofore made and issued those certain promissory notes and loan
agreements ("WJA Notes") all of which are described on Exhibit A attached
hereto and by this reference made a part hereof. In connection with the
making and issuance of the WJA Notes, WJA executed and delivered various
collateral and security interests (the "WJA Collateral") securing payment
and performance of the WJA Notes all of which are described on Exhibit B
attached hereto and by this reference made a part hereof. BOK is the owner
of the WJA Notes and the WJA Collateral. DPC is a wholly-owned subsidiary
of BOK. FGC desires to purchase the WJA Notes and WJA Collateral from BOK.
The purpose of this Agreement is to set forth the terms and conditions on
which BOK shall sell the WJA Notes and WJA Collateral to FGC.
(2) AGREEMENT TO PURCHASE AND SELL WJA NOTES. On the terms and conditions set
forth in this Agreement, BOK shall sell to FGC, and FGC shall buy from BOK,
the WJA Notes and WJA Collateral (the "Purchase").
(a) The purchase price ("Purchase Price") shall be:
(i) Eight Million United States Dollars (the "Cash
Consideration"); and,
(ii) Six Hundred Fifteen Thousand Three Hundred and
Eighty-five (615,385) shares, subject to
adjustment as hereafter provided, of $0.10 par
value common stock of FGC (the "FGC Common Stock"
or the "Stock Consideration").
(iii) A non-interest bearing promissory note (the "FGC
Note") in the principal amount of One Million
United States Dollars ($1,000,000)
<PAGE>
which note shall be in the form and content of Exhibit C
attached hereto.
(b) The Cash Consideration shall be paid at Closing by the wire
transfer on the Closing Date (as hereafter defined) of United
States Dollars immediately available in Tulsa, Oklahoma in
accordance with the following wire transfer instructions:
Bank of Oklahoma, National Association
ABA Routing Number: 103900036
Reference: WJA Realty
For Credit To: Tulsa Loan Operations
(c) In the event the Reference Price of FGC Common Stock (as
hereafter determined) is less than $6.50 per share, FGC shall, at
FGC's option, do one of the following (the "Repricing Option") :
(i) increase the number of shares which shall constitute
the Stock Consideration to an amount determined by
dividing Four Million and Three Dollars ($4,000,003) by
the Reference Price; or,
(ii) pay BOK Four Million and Three United States Dollars
(US$4,000,003) in funds immediately available in Tulsa,
Oklahoma.
(iii) The Reference Price shall be the average of the mid-
points of the daily high and low prices of FGC Common
Stock for each of the ten trading days immediately
preceding the Closing.
(d) If there are any changes in the capitalization of FGC occasioned
by reorganization, combination of shares, declaration or payment
of stock dividends, stock splits, reverse stock splits,
reclassifications or recapitalization of such stock, the merger
or consolidation of FGC with some other corporation or any other
transaction having comparable effect, then in that event the
number and kind of shares constituting the Stock Consideration
shall be appropriately adjusted and in such adjustments DPC shall
not be adversely affected by such transaction.
(e) The Stock Consideration shall be paid at the Closing by the
delivery of usual and customary certificates in good form
acceptable to counsel for BOK (provided such acceptance shall not
be unreasonably withheld or delayed) representing
2
<PAGE>
the Stock Consideration duly registered in the name of DPC.
(f) The FGC Note shall be executed and delivered to BOK at the
Closing.
(3) DELIVERY OF WJA NOTES AND WJA COLLATERAL. At the Closing BOK shall:
(a) Endorse (the "Endorsement") each promissory note which is one of
the WJA Notes in the following manner:
"WITHOUT RECOURSE AND WITHOUT ANY REPRESENTATIONS OR WARRANTIES
(except as expressly set forth in that certain Loan Sale
Agreement dated July 3rd, 1996 between Bank of Oklahoma, National
Association and Florida Gaming Corporation), pay to the order of
Florida Gaming Corporation:
Bank of Oklahoma, National Association
By______________________________________
Its ______________________________(Title)
____________________________(Print Name)"
(b) Assign (the "Assignments") the WJA Collateral (and the documents
evidencing the WJA Collateral) to FGC WITHOUT RECOURSE AND
WITHOUT ANY REPRESENTATIONS OR WARRANTIES (except as expressly
set forth in that certain Loan Sale Agreement dated July ___,
1996 between Bank of Oklahoma, National Association and Florida
Gaming Corporation). The Assignments shall be in usual and
customary form acceptable to counsel to FGC (provided such
acceptance is not unreasonably withheld or delayed) and to
counsel to BOK (provided such acceptance is not unreasonably
withheld or delayed). The Assignments shall include the execution
and delivery (WITHOUT RECOURSE AND WITHOUT ANY REPRESENTATIONS OR
WARRANTIES except as expressly set forth in that certain Loan
Sale Agreement dated July ___, 1996 between Bank of Oklahoma,
National Association and Florida Gaming Corporation) of such
financing statements and other documents reasonably required to
evidence ownership of the WJA Collateral by FGC.
(c) Deliver to FGC copies of all note and collateral files relating
to the WJA Notes and the WJA Collateral in the possession of BOK.
(d) The provisions of sub-paragraph (a) above
3
<PAGE>
notwithstanding, if, in the event any original promissory note is
lost, BOK may, in lieu of delivery of the original, deliver to FGC a
commercially reasonable affidavit of lost note executed by the
custodian of such note at the time of the loss thereof and the
Endorsement shall be by separate allonge to the promissory note.
(e) The Purchase shall be FINAL, WITHOUT RECOURSE, AND WITHOUT ANY
REPRESENTATIONS OR WARRANTIES (except as expressly set forth in
this Agreement).
(f) Without limiting the generality of the provisions of subparagraph
(e) of the paragraph, BOK advises FGC that the original of one of
the WJA Notes and the original of certain documents evidencing
the WJA Collateral were lost by the prior custodian thereof.
(4) STATUS OF WJA NOTES PRIOR TO CLOSING. From the date hereof until the
Closing:
(a) All payments received by BOK in respect of the WJA Notes shall
reduce the Purchase Price. Interest accrued, but unpaid, under
the WJA Notes as of the Closing shall be for the account of FGC.
(b) BOK shall not take any steps to realize the value of any of the
Collateral without the prior written consent of FGC which FGC
may, in its sole discretion and without limitation, grant or
withhold.
(5) REPRESENTATIONS AND WARRANTIES OF FGC. FGC hereby represents,
warrants, and promises to BOK that:
(a) At the time of its execution and delivery, this Agreement and all
other documents executed by FGC and delivered by FGC to BOK in
accordance with this Agreement are and shall be (i) duly
authorized, executed and delivered by FGC, (ii) legal, valid and
binding obligations of FGC and (iii) enforceable in accordance
with their respective terms, subject to bankruptcy, insolvency,
reorganization or other similar laws relating to creditors'
rights generally.
(b) FGC has the legal power, right and authority to enter into this
Agreement and the instruments referenced herein, and to
consummate the transaction contemplated hereby.
(c) All requisite action (corporate, trust,
4
<PAGE>
partnership or otherwise) has been taken by FGC in connection with the
entering into this Agreement, the instruments referenced herein, and
the consummation of the transaction contemplated hereby. Except as
contemplated by this Agreement, no consent of any partner,
shareholder, creditor, investor, judicial or administrative body,
governmental authority or other party is required to enter into and
consummate this Agreement.
(d) The individuals executing this Agreement and the instruments
referenced herein on behalf of the FGC have the legal power,
right, and actual authority to bind FGC to the terms and
conditions hereof and thereof.
(e) This Agreement and all documents required hereby to be executed
by the FGC are and shall be valid, legally binding obligations of
and enforceable against FGC in accordance with their terms.
(f) The Stock Consideration when issued and delivered to DPC shall be
fully paid and non-assessable and free and clear of all liens,
claims, and encumbrances, subject to compliance with applicable
securities laws as contemplated by this Agreement.
(g) FGC is current in all filings required by the rules and
regulations of the Securities and Exchange Commission and shall,
so long as BOK owns any shares of the Stock Consideration, remain
current in all such filings.
(h) FGC shall use its best efforts to cause all conditions precedent
to its obligations to close the transaction contemplated by this
Agreement to be fulfilled as soon as reasonably practicable and,
in all events, on or before October 11, 1996.
(i) FGC shall indemnify BOK and DPC, and hold BOK and DPC harmless
from, all loss, cost, and expense arising out of the assertion by
any person or entity of a claim based on the ownership of the WJA
Note and the WJA Collateral by FGC and/or the exercise by FGC of
any rights arising by virtue of such ownership, to the extent
such claim relates to actions taken by FGC after the Closing.
(j) The representations and warranties of FGC set forth in this
Agreement, whether set forth in this paragraph or elsewhere,
shall survive the
5
<PAGE>
Closing.
(k) FGC shall uses its best efforts to assist DPC in DPC's effort to
obtain any required approval of the acquisition of the Stock
Consideration by DPC by the Division of Pari-mutuel Wagering with
the Florida Department of Business and Professional Regulation.
(l) FGC shall indemnify BOK and DPC, and hold BOK and DPC harmless
from, all loss, cost, and expense (including reasonable
attorney's fees and expert's fees whether incurred before or
after the commencement of litigation and all litigation costs)
arising out of the breach by FGC of any covenant, representation,
or warranty of FGC set forth in this or any other paragraph of
this Agreement.
(6) REPRESENTATIONS AND WARRANTIES BY BOK. BOK hereby represents and
warrants to FGC that:
(a) At the time of its execution and delivery, this Agreement and all
other documents executed by BOK and delivered by BOK to FGC in
accordance with this Agreement are and shall be (i) duly
authorized, executed and delivered by BOK, (ii) legal, valid and
binding obligations of BOK and (iii) enforceable in accordance
with their respective terms, subject to bankruptcy, insolvency,
reorganization or other similar laws relating to creditors'
rights generally.
(b) BOK has the legal power, right and authority to enter into this
Agreement and the instruments referenced herein, and to
consummate the transaction contemplated hereby.
(c) All requisite action (corporate, trust, partnership or otherwise)
has been taken by BOK in connection with the entering into this
Agreement, the instruments referenced herein, and the
consummation of the transaction contemplated hereby. No consent
of any partner, shareholder, creditor, investor, judicial or
administrative body, governmental authority or other party is
required to enter into and consummate this Agreement.
(d) The individuals executing this Agreement and the instruments
referenced herein on behalf of BOK have the legal power, right,
and actual authority to bind BOK to the terms and conditions
hereof and thereof.
6
<PAGE>
(e) This Agreement and all documents required hereby to be executed
by the BOK are and shall be valid, legally binding obligations of
and enforceable against BOK in accordance with their terms.
(f) BOK shall indemnify FGC, and hold FGC harmless from, all loss,
cost, and expense arising out of the assertion by any person of
entity of a claim based on the ownership of the WJA Note and the
WJA Collateral by BOK and/or the exercise by BOK of any rights
arising by virtue of such ownership, to the extent such claim
relates to actions taken by BOK.
(g) BOK has, and at the Closing BOK will transfer to FGC, all of
BOK's right, title and interest in and to the WJA Notes and WJA
Collateral, free and clear of all mortgages, pledges, security
interests, liens, encumbrances, and other interests, to the
extent and only to the extent they arise by reason of any claim
asserted by, through, or under BOK.
(h) Paul D. Mesmer has been the principal officer of BOK responsible
for the administration of the WJA Notes and WJA Collateral. To
the best knowledge of Paul D. Mesmer, there has been no claim
made or threatened against BOK, or against any of the prior
holders of any of the WJA Notes (or any prior notes which were
restated or refinanced by any of the WJA Notes) by WJA (or any
general or limited partner of affiliate of WJA) including,
without limitation, any so called lender liability claim.
(i) FGC has had access to substantially all the loan documentation in
the possession of BOK respecting the WJA Notes and WJA
Collateral.
(j) Attached to this Agreement as Exhibit D is a statement of the
collective interest balances, collective principal balances,
collective payment amounts, and payment dates for the WJA Notes
from January 15, 1994, excluding as payments any proceeds from
the sale of the Ft. Pierce Fronton to Lexicon Corporation (which
payments were applied retroactively to January 15, 1994). Exhibit
D is materially correct and complete and has been calculated
using the reduced interest rate as provided in paragraph (8) of
the Second Forbearance Agreement between WJA and the lending
banks as of January 15, 1994 for the entire period of time.
7
<PAGE>
(k) BOK has no knowledge of any fact or circumstance which in the
opinion of BOK indicates that the documents which create the WJA
Collateral do not represent bona fide, legally binding
obligations of the parties thereto enforceable in accordance with
their terms or which would, by reason of any waiver, estoppel or
the like, impair the holder of the WJA Notes and the documents
evidencing the WJA Collateral from enforcing them in accordance
with their terms
(l) To the best knowledge of Paul D. Mesmer, neither WJA nor any of
the general or limited partners of WJA or their affiliates have
indicated to BOK while BOK has held the WJA Notes that WJA has
any defense against its obligation to pay the WJA Notes in
accordance with their terms or to comply with its obligations
under the WJA Collateral Documents.
(m) BOK shall indemnify FGC, and hold FGC harmless from, all loss,
cost, and expense (including reasonable attorney's fees and
expert's fees whether incurred before or after the commencement
of litigation and all litigation costs) arising out of the breach
by BOK of any covenant, representation, or warranty of BOK set
forth in this or any other paragraph of this Agreement.
(n) BOK is the owner of the WJA Notes and the WJA Collateral, has not
assigned (neither voluntarily nor involuntarily) any rights
arising thereunder to any other party, and shall assign to FGC at
the Closing all right, title and interest in the WJA Notes free
of all pledges, security interests, liens, encumbrances or other
interests in the WJA Notes. To the best knowledge of Paul D.
Mesmer, the WJA Collateral constitutes a first lien in the assets
described therein.
(o) To the best knowledge of Paul D. Mesmer, the documents listed on
Exhibit B include all the material property, licenses, and
contracts used in connection with the operation of the WJA Jai
Alai frontons in Miami, Tampa, and Ocala, Florida other than (i)
player and employee contracts, (ii) contracts for services and
material, and (iii) leased equipment.
(7) REPRESENTATIONS AND WARRANTIES BY DPC. DPC hereby represents and
warrants to FGC that:
8
<PAGE>
(a) At the time of its execution and delivery, this Agreement and all
other documents executed by DPC and delivered by DPC to FGC in
accordance with this Agreement are and shall be (i) duly
authorized, executed and delivered by DPC, (ii) legal, valid and
binding obligations of DPC and (iii) enforceable in accordance
with their respective terms, subject to bankruptcy, insolvency,
reorganization or other similar laws relating to creditors'
rights generally.
(b) DPC has the legal power, right and authority to enter into this
Agreement and the instruments referenced herein, and to
consummate the transaction contemplated hereby.
(c) All requisite action (corporate, trust, partnership or otherwise)
has been taken by DPC in connection with the entering into this
Agreement, the instruments referenced herein, and the
consummation of the transaction contemplated hereby. No consent
of any partner, shareholder, creditor, investor, judicial or
administrative body, governmental authority or other party is
required to enter into and consummate this Agreement.
(d) The individuals executing this Agreement and the instruments
referenced herein on behalf of the have the legal power, right,
and actual authority to bind DPC to the terms and conditions
hereof and thereof.
(e) This Agreement and all documents required hereby to be executed
by the DPC are and shall be valid, legally binding obligations of
and enforceable against DPC in accordance with their terms.
(f) DPC shall use its best efforts to obtain any required approval of
the acquisition of the Stock Consideration by DPC by the Division
of Pari-mutuel Wagering with the Florida Department of Business
and Professional Regulation.
(g) DPC shall indemnify FGC, and hold FGC harmless from, all loss,
cost, and expense (including reasonable attorney's fees and
expert's fees whether incurred before or after the commencement
of litigation and all litigation costs) arising out of the breach
by DPC of any covenant, representation, or warranty of DPC set
forth in this or any other paragraph of this Agreement.
9
<PAGE>
(8) PROVISIONS RESPECTING STOCK CONSIDERATION. The following provisions
shall apply to all shares constituting the Stock Consideration
issued in accordance with this Agreement (the Shares"):
(a) DPC represents and warrants to FGC that:
(i) DPC is acquiring the Shares for its own account without
a view to further distribution.
(ii) DPC is the wholly-owned operating subsidiary of a
national bank and an institutional investor within the
meaning of Section 401(b)(9) of the Oklahoma Securities
Act.
(iii) DPC has reviewed the offering materials prepared by FGC
dated July 3, 1996. DPC has reviewed all information
respecting FGC which it deems relevant or material to a
decision whether to acquire the Shares.
(iv) DPC has the knowledge and experience necessary to
analyze the business and affairs of FGC and to
determine whether to acquire the Shares.
(v) DPC is financially able to assume any risk of loss
respecting the Shares.
(b) FGC shall, on or before August 15, 1996, file with the United
States Securities and Exchange Commission and the applicable
state securities commissions of Florida, Oklahoma, New York,
Illinois, and five other states selected by DPC such
registration statements (other than California and Texas),
applications for approval, notices, or other filings as shall be
reasonably necessary to permit the lawful sale by DPC of the
Shares under federal law and the laws of such states (hereafter
individual and collectively called the "registration" or
"registration statement").
(c) The registration statement shall be filed in compliance with the
Securities Act of 1933, Rule 415 of the Securities and Exchange
Commission, and the laws of each state in which the registration
is filed.
(d) FGC shall use FGC's best efforts to cause the registration
statement to become effective permitting the resale of the Stock
Consideration by DPC without restriction
10
<PAGE>
forthwith upon the Closing (as herein defined) or as soon as possible
following the Closing.
(e) FGC shall pay all costs of the registration (including filing
fees, legal, accounting, printing, and transfer agent costs),
excluding DPC's legal fees and underwriting discounts,
commissions, and fees.
(f) FGC shall submit all registration documents to DPC reasonably in
advance of filing or finalizing such documents and shall receive,
consider and accept or reject (in FGC's reasonable discretion)
such comments as DPC shall timely make. FGC shall file the
registration statement in accordance with all applicable laws.
(g) FGC represents and warrants that the registration statement
(including any prospectus) will (i) contain all statements which
are required to be stated therein, including all such statements
respecting FGC (and its subsidiaries) and the sale by DPC of the
Shares, by the Securities Act of 1933 and any applicable state
securities law, (ii) conform in all material respects with the
applicable requirements of such acts, and (iii) will not contain
any untrue statement of a material fact or fail to state any
material fact necessary to make the statements therein not
misleading.
(h) DPC shall advise, cooperate and consult with FGC in the
registration as may be appropriate.
(i) FGC shall keep DPC reasonably advised of the status of the
registration.
(j) If at any time, FGC has material information not publicly
disclosed which, under the applicable regulations of the
Securities and Exchange Commission precludes the sale of Shares
without an effective amendment thereto:
(i) FGC shall promptly advise DPC and DPC shall cease
effecting sales of the Shares until an appropriate
amendment becomes effective;
(ii) FGC shall withhold such information from the public for
only so long as the shortest reasonable period of time
a valid reason for such non-disclosure exists; and,
11
<PAGE>
(iii) FGC shall promptly file an appropriate amendment and
use its best efforts to cause the amendment to become
effective on the same terms and conditions as provided
above for the registration statement.
(k) FGC shall use its best efforts to maintain the effectiveness of
the registration statement for two years following the Closing.
(9) CONDITIONS PRECEDENT TO OBLIGATIONS OF BOK. The obligation of BOK to
close the transaction contemplated by this Agreement shall be subject
to each and all of the following conditions precedent:
(a) FGC shall have performed and complied with, in all material
respects, all of its obligations under this Agreement which are
to be performed or complied with prior to or at the Closing.
(b) The representations and warranties of FGC set forth in this
Agreement shall be true and correct as of the Closing.
(c) The acquisition of the Stock Consideration by DPC shall have been
approved, if required, by the Division of Pari-mutuel Wagering
with the Florida Department of Business and Professional
Regulation.
(d) The Closing shall have been consummated on or before October 28,
1996.
(10) CONDITIONS PRECEDENT TO OBLIGATIONS OF FGC. The obligation of FGC to
close the transaction contemplated by this Agreement shall be subject
to each and all of the following conditions precedent:
(a) BOK shall have performed and complied with, in all material
respects, all of its obligations under this Agreement which are
to be performed or complied with prior to or at the Closing.
(b) DPC shall have performed and complied with, in all material
respects, all of its obligations under this Agreement which are
to be performed or complied with prior to or at the Closing.
(c) WJA shall have obtained, not later than October 7, 1996, all
approvals required under the laws of the State of Florida to
establish and operate card rooms as authorized in 1996 State of
Florida House Bill 337 from the Dade County (Florida) Commission
for the Miami Jai-Alai Fronton owned by WJA and from the
12
<PAGE>
Hillsborough County (Florida) Commission for the Tampa Jai-Alai
Fronton owned by WJA.
(d) The representations and warranties of BOK and DPC set forth in
this Agreement shall be true and correct as of the Closing.
(e) The acquisition of the Stock Consideration by DPC shall have been
approved, if required, by the Division of Pari-mutuel Wagering
with the Florida Department of Business and Professional
Regulation.
(f) The Closing shall have been consummated on or before October 28,
1996.
(g) WJA shall not have experienced a material property loss in excess
of any applicable insurance or a forfeiture of its gaming license
at one or more of its Florida frontons.
(11) THE CLOSING. The closing (the "Closing") of the Purchase shall take
place on the eleventh business day following the first day on which
all conditions precedent to the obligations of FGC, BOK and DPC shall
have been fulfilled or waived (the "Closing Date"). At the Closing:
(a) BOK shall perform the obligations required of BOK by the
provisions of paragraph 3 above.
(b) FGC shall pay the Purchase Price to BOK as provided by paragraph
2 above.
(12) DISCLOSURE OF THIS AGREEMENT. No public disclosure of this Agreement
shall be made by FGC, BOK or DPC without prior notice to and the
approval of the content of such disclosure by all parties hereto
(provided such approval shall not be unreasonably withheld or
delayed); provided nothing in this paragraph shall preclude FGC from
having private discussion with WJA respecting the subject matter of
this Agreement.
(13) MISCELLANEOUS PROVISIONS. The following miscellaneous provisions
shall apply to this Agreement:
(a) All notices or advices required or permitted to be given by or
pursuant to this Agreement, shall be given in writing. All such
notices and advices shall be (i) delivered personally,
(ii) delivered by facsimile or delivered by U.S. Registered or
Certified Mail, Return Receipt Requested mail, or (iii) delivered
for overnight delivery by a nationally recognized overnight
courier service. Such notices
13
<PAGE>
and advices shall be deemed to have been given (i) the first business
day following the date of delivery if delivered personally or by
facsimile, (ii) on the third business day following the date of
mailing if mailed by U.S. Registered or Certified Mail, Return Receipt
Requested, or (iii) on the date of receipt if delivered for overnight
delivery by a nationally recognized overnight courier service. All
such notices and advices and all other communications related to this
Agreement shall be given as follows:
If to FGC: Mr. W. Bennett Collett
Chairman and Chief Executive
Officer
Florida Gaming Corporation
P.O. Box 3027
Louisville, Kentucky
40201
502-589-2000 - Telephone
502-945-7717 - Facsimile
With copy to: James Huguenard, Esquire
Brown, Todd & Heyburn, PLLC
3200 Providian Center
400 West Market
Louisville, Kentucky
40202
502-589-5400 - Telephone
502-581-1087 - Facsimile
If to BOK or DPC: Mr. Paul D. Mesmer, SVP
Bank of Oklahoma,
National Association
Bank of Oklahoma Tower
P.O. Box 2300
Tulsa, Oklahoma 74192
918-588-6491 - Telephone
918-588-8251 - Facsimile
With Copy to: Frederic Dorwart
Old City Hall
124 East Fourth Street
Tulsa, OK 74103
(918) 583-9945 - Telephone
(918) 583-8251 - Facsimile
or to such other address as the party may have furnished to the other
parties in accordance herewith, except that notice of change of
addresses shall be effective only upon receipt.
(b) This Agreement shall be subject to, and interpreted by and in
accordance with, the laws (excluding conflict of law provisions)
14
<PAGE>
of the State of Oklahoma.
(c) This Agreement is the entire Agreement of the parties respecting the
subject matter hereof. There are no other agreements, representations
or warranties, whether oral or written, respecting the subject matter
hereof.
(d) This Agreement, and all the provisions of this Agreement, shall
be deemed drafted by all of the parties hereto.
(e) This Agreement shall not be interpreted strictly for or against
any party, but solely in accordance with the fair meaning of the
provisions hereof to effectuate the purposes and interest of this
Agreement.
(f) Each party hereto has entered into this Agreement based solely
upon the agreements, representations and warranties expressly set
forth herein and upon his own knowledge and investigation.
Neither party has relied upon any representation or warranty of
any other party hereto except any such representations or
warranties as are expressly set forth herein.
(g) Each of the persons signing below on behalf of a party hereto
represents and warrants that he or she has full requisite power
and authority to execute and deliver this Agreement on behalf of
the parties for whom he or she is signing and to bind such party
to the terms and conditions of this Agreement.
(h) This Agreement may be executed in counterparts, each of which
shall be deemed an original. This Agreement shall become
effective only when all of the parties hereto shall have executed
the original or counterpart hereof. This agreement may be
executed and delivered by a facsimile transmission of a
counterpart signature page hereof.
(i) In any action brought by a party hereto to enforce the
obligations of any other party hereto, the prevailing party shall
be entitled to collect from the opposing party to such action
such party's reasonable litigation costs and attorneys fees and
expenses (including court costs, reasonable fees of accountants
and experts, and other expenses incidental to the litigation).
(j) This Agreement shall be binding upon and shall inure to the
benefit of the parties and their respective successors and
assigns.
15
<PAGE>
(k) This is not a third party beneficiary contract. No person or entity
other than a party signing this Agreement shall have any rights under
this Agreement.
(l) This Agreement may be amended or modified only in a writing which
specifically references this Agreement.
(m) This Agreement may not be assigned by any party hereto.
(n) Nothing in this Agreement shall be construed to create a
partnership or joint venture, nor to authorize any party hereto
to act as agent for or representative of any other party hereto.
Each party hereto shall be deemed an independent contractor and
no party hereto shall act as, or hold itself out as acting as,
agent for any other party hereto.
(o) A party to this Agreement may decide or fail to require full or timely
performance of any obligation arising under this Agreement. The
decision or failure of a party hereto to require full or timely
performance of any obligation arising under this Agreement (whether on
a single occasion or on multiple occasions) shall not be deemed a
waiver of any such obligation. No such decisions or failures shall
give rise to any claim of estoppel, laches, course of dealing,
amendment of this Agreement by course of dealing, or other defense of
any nature to any obligation arising hereunder.
(p) The repudiation, breach, or failure to perform any obligation arising
under this Agreement by a party after reasonable notice thereof shall
be deemed a repudiation, breach, and failure to perform all of such
party's obligations arising under this Agreement.
(q) Time is of the essence with respect to each obligation arising
under this Agreement. The failure to timely perform an obligation
arising hereunder shall be deemed a failure to perform the
obligation.
(r) In the event any provision of this Agreement, or the application
of such provision to any person or set of circumstances, shall be
determined to be invalid, unlawful, or unenforceable to any extent
for any reason, the remainder of this Agreement, and the application
of such provision to persons or circumstances other than those as to
which it is determined to be invalid,
16
<PAGE>
unlawful, or unenforceable, shall not be affected and shall
continue to be enforceable to the fullest extent permitted by law.
Dated and effective the date first set forth above.
"FGC"
Florida Gaming Corporation
by W. B. COLLETT
-----------------------------------
Chairman and Chief Executive
Officer
"BOK"
Bank of Oklahoma,
National Association
by PAUL D. MESMER
-----------------------------------
Senior Vice President
"DPC"
DPC Asset Holding Corporation
by PAUL D. MESMER
-----------------------------------
Vice President
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS AND STATEMENTS OF OPERATIONS PAGES 3, 4 AND 5 OF THE COMPANY'S FORM 10QSB
FOR THE YEAR-TO-DATE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 3,365
<SECURITIES> 0
<RECEIVABLES> 1,009
<ALLOWANCES> 0
<INVENTORY> 33
<CURRENT-ASSETS> 4,445
<PP&E> 5,351
<DEPRECIATION> (432)
<TOTAL-ASSETS> 9,728
<CURRENT-LIABILITIES> 500
<BONDS> 0
4
0
<COMMON> 338
<OTHER-SE> 7,188
<TOTAL-LIABILITY-AND-EQUITY> 9,728
<SALES> 0
<TOTAL-REVENUES> 2,522
<CGS> 0
<TOTAL-COSTS> 3,150
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 82
<INCOME-PRETAX> (523)
<INCOME-TAX> 0
<INCOME-CONTINUING> (523)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (523)
<EPS-PRIMARY> (.16)
<EPS-DILUTED> 0
</TABLE>
