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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] Annual report under Section 13 of 15(d) of the Securities Exchange Act
of 1934
For the fiscal year ended July 31, 1998
[ ] Transition report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ____________ to _____________
Commission File Number 0-10061
AMERICAN VANTAGE COMPANIES
(Name of Small Business Issuer in its charter)
Nevada 04-2709807
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
6787 West Tropicana, Suite 200, Las Vegas, Nevada 89103
(Address of principal executive offices) (zip code)
(702) 227-9800
(Issuer's telephone number, including area code)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.01 per share
(Title of Class)
Check whether the Issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES X NO ___
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year. $8,565,000.
The aggregate market value of the shares of Common Stock held by
non-affiliates of the Registrant computed by reference to the closing sale price
of $1.00 for the Company's Common Stock, as reported by NASDAQ for October 8,
1998, was $12,391,213 (assuming for purposes of such calculation that all
officers and directors of the Issuer are affiliates).
The number of shares outstanding of the Registrant's Common Stock at
October 8, 1998 was 15,086,463.
Transitional Small Business Disclosure Format (check one):
YES ___ NO X
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PART I
Item 1. Description of Business
Development of Business
American Vantage Companies (the "Company"), a gaming consulting
company, is currently engaged in providing consulting services to Table Mountain
Casino & Bingo, a tribal gaming enterprise on a Federal Indian Rancheria in
Friant, California (the "Table Mountain Casino"). In May 1997, the Company
acquired approximately 40 acres of undeveloped land in North Las Vegas, Nevada
which the Company intends to develop as a funeral home and cemetery. However,
development has been delayed while the Clark County, Nevada government finalizes
its plan for construction of a flood control project for the area. In the event
the flood control project is built as intended, the Company would not have to
build major water control culverts on the cemetery project. The Company is
awaiting additional progress on the construction of the flood control project
before it begins development of the property. In February 1998, the Company
acquired 20 acres of undeveloped land in North Las Vegas, Nevada near the
location of the proposed funeral home and cemetery site which will be held for
future development or sale.
In July 1998, the tribal government leaders of the Table Mountain Tribe
signed a Government to Government Agreement (the "Compact") with the State of
California. On August 27, 1998, the California Legislature approved a bill to
ratify gaming compacts between the tribes and the State of California. On
October 7, 1998, the Department of Interior disapproved the Compact because of
internal election dispute matters. However, they subsequently indicated that if
the entire membership (General Council) voted to approve the Compact, they will
approve it expeditiously. On October 22, 1998, the membership met and voted
overwhelmingly to support the Compact.
The Company was incorporated in Nevada in 1979, under the name Western
Casinos, Inc. The Company changed its name to American Casino Enterprises, Inc.
in 1993 and then changed its name to American Vantage Companies in March 1997.
The Company was originally formed to engage in the business of recreational and
leisure time activities, including casino gaming. In January 1991, the Company
completed the purchase of all of the capital stock of Millerton Games, Inc.,
which held a management consulting contract for the Table Mountain Casino.
The Company signed a new contract with the Table Mountain Band of
Indians (the "Table Mountain Tribe") on February 1, 1996, for a 27 month term,
to serve as a consultant to the Table Mountain Casino. In June 1997, the
consulting agreement was amended retroactive to May 1, 1997, providing for a
revised consulting fee schedule. The consulting agreement was again amended in
November 1997 to extend the consulting period to June 30, 2000 and to modify the
consulting fee schedule for consulting fees earned from May 1, 1998 to June 30,
2000.
The Company is obligated during the period of the consulting agreement,
under certain circumstances, to loan the Table Mountain Tribe up to $4,000,000.
If the loan is made, it will be repaid, with interest, over the remaining period
of the consulting agreement.
All references herein to the Company refer to the Company and its
subsidiaries unless the context otherwise requires. The Company's principal
executive offices are located at 6787 West Tropicana, Suite 200, Las Vegas,
Nevada 89103, and its telephone number is (702)227-9800.
Table Mountain Casino & Bingo
On January 16, 1991, the Company completed the purchase from Maritime
Resorts International, Inc. ("Maritime"), a publicly held Utah corporation, of
100% of the outstanding stock of Millerton Games, Inc. ("Millerton"), a
California corporation which held the management consulting contract to operate
the Table Mountain Casino. The Company issued 2,257,630 shares of its Common
Stock to Maritime in January 1991. An additional
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1,500,000 shares of Common Stock and a note payable ($75,763) were issued to
Maritime in January 1992 to satisfy all provisions of the agreement.
The Table Mountain Casino, opened in 1987, is a high-stakes bingo and
gaming casino which is located on The Table Mountain Tribe's Rancheria in
Friant, California, approximately 17 miles north of Fresno. The Table Mountain
Casino contains approximately 700 bingo seats, seven conventional card tables,
five Asian card tables (where Pai Gow, Asian poker and Super Pan 9 are played),
23 stand-up card tables for Table Mountain Jackpot-21, a non-banking form of
blackjack, and approximately 830 electronic video gaming devices.
The casino is open 24 hours a day, seven days a week. Bingo is offered
Wednesday through Saturday evenings and Sunday afternoons. Cards and electronic
video machines are offered 24 hours a day, seven days a week.
The Table Mountain Casino is currently authorized by Tribal Ordinance
under the National Indian Gaming Act as a Class II enterprise. On February 1,
1996, the Company was granted a new 27-month consulting contract by the Table
Mountain Tribe, which gives the Company the exclusive right to provide
consulting services for the gaming casino. In July, 1998, the tribal government
leaders of the Table Mountain Tribe signed the Compact with the State of
California. The Compact contains various stipulations and regulations regarding
gaming which will be permitted at the Table Mountain Casino.
The Table Mountain Casino also operates two concessions providing fast
food and non-alcoholic drinks on a 24 hour basis. In addition, the Table
Mountain Casino opened a full-service, 150 seat restaurant in September 1994
which is open for business 24 hours per day. There is a population of
approximately one million people located within 100 miles of the Table Mountain
Casino. The Table Mountain Casino attracts players not only from the Fresno
area, but also from other parts of Northern and Central California.
In response to the success of the Table Mountain Casino and customer
demand, the Table Mountain Casino was renovated between 1993 and 1994 and
expanded to its current size. Other improvements include a new facade and
signage, improved air conditioning and ventilation to aid in making the facility
as smoke free as possible, improved septic and restroom facilities, installation
of fire safety features and expanded parking areas. In addition, the Table
Mountain Tribe is now constructing an extensive expansion of the Table Mountain
Casino. Under the terms of the October 1997 amendment to the consulting
agreement with the Table Mountain Tribe, the Company is required to lend up to
$4,000,000 to the Table Mountain Tribe for expansion and other uses. The Table
Mountain Tribe is renovating and expanding the casino facility by approximately
47,000 square feet. The addition will provide more casino gaming space, allow
for relocation of the bingo operation, increase the restaurant size, add an
additional snack bar, add an entertainment area and provide more administrative
office space. The expansion cost is estimated at $6,000,000 to $8,000,000. The
Company agreed to lend the Tribe up to $2,900,000 of the cost. The loan bears
interest at 9.5%, requires interest only payments until April 15, 1999 and
principal and interest payments thereafter until December 31, 1999, the maturity
date of the loan. The loan is secured by revenues from the Table Mountain
Casino. At October 1, 1998, the Company had advanced $55,000 to the Tribe on the
loan. The Company has no other present commitments for construction or
renovation expenditures.
Table Mountain Consulting Contract
On February 1, 1996, the Company entered into a termination agreement
with the Table Mountain Tribe (the "Termination Agreement") which terminated the
Company's 1993 consulting agreement (the "1993 Agreement") and simultaneously
entered into a new consulting agreement (the "1996 Agreement"). Under the
conditions of the Termination Agreement, commencing February 1, 1996, the Table
Mountain Tribe is required to pay the Company 48 monthly installments of
$350,000 in consideration for termination of the 1993 Agreement. However, no
payment is required for any month in which the net revenue of the casino does
not equal or exceed $1 Million. The term of the Termination Agreement shall be
automatically extended by one month for each month that no payment is required
thereunder, for up to a maximum of 12 months.
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The 1996 Agreement requires the Company to consult and provide
technical assistance, training and advice to the Table Mountain Tribe concerning
all matters relating to the operation and business activities of the casino,
including but not limited to organization and administration, planning and
development, gaming activities, internal controls and accounting procedures,
cage operations, engineering and maintenance, housekeeping, human resources,
management information services, marketing and advertising, purchasing,
surveillance, security, and food and beverage. The 1996 Agreement was amended in
both June 1997 and October 1997. The term of the 1996 Agreement, as amended, was
extended to June 30, 2000. For its services under the 1996 Agreement, as
amended, the Company will receive minimum monthly payments of $50,000. The Table
Mountain Tribe is also required to pay the Company additional monies for certain
increments of monthly casino net revenue in excess of the first $1.5 million of
net revenue from casino operations.
The Company has worked to involve tribal members in the management of
the operations and to further such efforts has instituted a management training
program for selected tribal members. Tribal members currently hold key
management positions with the Table Mountain Casino. No employees of the Company
hold management positions with the Table Mountain Casino.
Acquisition and Sale of Las Vegas, Nevada Property
On October 9, 1996, the Company purchased approximately 160 acres of
undeveloped land (the "Property") in Las Vegas, Nevada from Victorson &
Associates and Fred Victorson (the "Sellers"). The Sellers were and continue to
be unrelated to the Company. The total purchase price paid by the Company for
the Property was $5,200,000. The purchase price was comprised of a cash payment
of $3,600,000 and the assumption of a $1,600,000 note (the "Note") and related
mortgage on the Property. The Company used working capital generated from its
operations to pay the cash portion of the purchase price. In connection with the
purchase, the Company granted an option to the Sellers to repurchase the land.
The Sellers exercised the option to repurchase the land in February 1997 and the
Company recognized a gain of approximately $182,000 on the sale.
Acquisition of North Las Vegas, Nevada Property
In May 1997, the Company bought a 40 acre parcel of land in North Las
Vegas, Nevada for approximately $3,500,000 in cash. The Company intends to
develop the property as a funeral home and cemetery. However, development has
been delayed while the Clark County, Nevada government finalizes its plan for
construction of a flood control project for the area. If the flood control
project is built as intended, the Company would not have to build major water
control culverts on the cemetery project. The Company is awaiting additional
progress on the construction of the flood control project before it begins
development of the property. In February 1998, the Company bought a 20 acre
parcel of land in North Las Vegas, Nevada for $1,375,000 in cash which will be
held for future development or sale.
Competition
There are presently casinos on Indian reservations in many states, and
tribes in other states have disclosed plans to open casinos. Under Federal law,
tribes can offer any games already legal in their state, although, among other
things, Indian casinos are not subject to state betting limits. Competition for
gaming customers in California also comes from casino-hotel operations in Nevada
and elsewhere, as well as other forms of wagering permitted in California, such
as card clubs, pari-mutual racing, lottery games and other gambling activities.
The Table Mountain Casino competes with one other Indian gaming
operation within a fifty mile radius of Fresno, California, which was opened by
the Big Sandy Rancheria Indian Tribe during Fiscal 1996. This casino contains
approximately 100 electronic video games. It is located in Auberry, California,
approximately 25 miles from the Table Mountain Casino and approximately 40 miles
from Fresno. Another Indian gaming operation is located approximately 70 miles
from the Table Mountain Casino in Lemoore, California. Management believes the
variety of gaming offered by the Table Mountain Casino gives it a competitive
advantage over the Auberry and Lemoore
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operations. The Company believes that the renovation and expansion of the Table
Mountain Casino has strengthened the Table Mountain Casino's competitive
position.
The Company expects the casino to encounter competition in the form of
state authorized card rooms, one of which was built in Fowler, California
(approximately 35 miles from the Table Mountain Casino), and two of which are in
operation in Fresno and one in Clovis, California, a Fresno suburb. The Fowler
facility, which ceased operations in January 1997, is permitted to have up to 40
tables, and the two Fresno facilities are permitted to have 50 tables in total.
Although these card rooms are smaller than the Table Mountain Casino, the
presence of such facilities has diverted some of the Table Mountain Casino's
card room business.
Government Regulation
The operation of the Table Mountain Casino is subject to regulation
under the Indian Gaming Regulatory Act (the "IGRA"). The United States Supreme
Court has declared that, once a state has legalized any form of gambling, the
Indians in that state have the right to offer the same games, but without
governmental restrictions. California v. Cabazon Band of Mission Indians, 480
U.S. 202 (1987). The basic test under IGRA has been interpreted to be that if
anyone in the state can offer a form of gambling, even though strictly limiting
the game to charities and small wagers, then tribes in that state can offer the
same game with virtually no limits. In California there is authorized off track
pari-mutual horse race wagering, bingo, lottery games (which the tribes believe
includes video gaming) and card rooms. The National Indian Gaming Commission
(the "NIGC") was established in 1988 to enforce IGRA.
The forms of gambling that are considered to be social games and
traditional Indian games are called Class I and are left entirely under Indian
control. Class II games, which are subject to some regulation by the NIGC,
include bingo, non-banking card games, pull tabs, and other similar games
including any electronic or computerized aides used in connection with such
games. A sovereign Indian tribe can operate Class III games, which include all
forms of gaming not identified as Class I or II, including a race track, off
track pari-mutual horse racing or a lottery, only if it enters into a compact
with the state. In July, 1998, the government leaders of the Table Mountain
Tribe signed the Compact with the State of California. The Compact contains
various stipulations and regulations regarding gaming which will be permitted at
the Table Mountain Casino.
The Compact expires January 1, 2009. It contains a renewal option for
two additional five (5) year periods upon written notice of renewal to the
Governor of California prior to the expiration date. The Compact may be
terminated earlier by the Governor of California and the options for renewal may
be denied if the Tribe has been found to have engaged in unauthorized Class III
gaming on two or more occasions or has committed violations of the terms of the
Compact on five or more occasions.
The Compact permits two types of lottery-based machines, the Indian
Video Lottery Match Game and the Indian Video Lottery Scratcher Game. The Table
Mountain Casino will be permitted to operate 975 of these machines in total.
Each California tribe has been allotted 199 of these devices. Additional
machines may be licensed from other Federally recognized California tribes,
which do not have gaming operations, for an annual fee of up to $5,000 per
machine.
The Table Mountain Casino will be permitted to operate existing video
gaming devices for an open-ended transition period so long as new electronic
lottery devices are unavailable or competing tribes continue to operate video
gaming devices without a tribal-state compact. Prototypes of the lottery-based
machines proposed in the Compact are presently undergoing testing at some Indian
casinos, including Table Mountain Casino. Presently, there is no way to confirm
whether the lottery-based machines provided for in the Compact will produce a
revenue stream consistent with that form of device now being played at the Table
Mountain Casino. In the event the new machines do not provide a revenue stream
consistent with that being experienced at the Table Mountain Casino, the
resulting decline in revenue and profit of the Table Mountain Casino may have a
materially adverse effect on the consulting fees earned by the Company under its
consulting agreement with the Table Mountain Tribe.
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The Compact provides that employees of the Table Mountain Casino will
be offered California workers' compensation, unemployment insurance, disability
insurance and guaranteed the right to engage in collective bargaining
activities. Patrons of the casino will have the right to binding arbitration
relating to unresolved player disputes. The casino must also carry public
liability insurance. The Table Mountain Casino offers its employees workers'
compensation, unemployment and disability insurance coverage. It also provides
public liability insurance coverage. The Compact also requires the Table
Mountain Tribe to make arrangements for mitigation of environmental, police,
fire, emergency or other local services.
The Compact contains an option to terminate the Compact and enter into
an alternative compact set out in an initiative on the November, 1998 California
state ballot if that initiative passes and is not held to be unconstitutional.
The Table Mountain Compact has been sent to the Secretary of the Interior for
review and approval.
In November 1998 the residents of California will vote on a referendum
to determine whether the Indian Tribes in California will have more control over
gaming operations on Indian land. In the event the referendum is passed, it is
anticipated that the legality of the referendum will be challenged in the court
system.
Employees
As of October 8, 1998, the Company and its subsidiaries employed seven
persons including its three executive officers, one person in gaming operations,
two full-time administrative employees and one of the Company's Directors as a
gaming consultant on a full-time basis. These persons do not include 830 persons
employed at the Table Mountain Casino, none of whom is on the Company's payroll.
Item 2. Description of Property
The Company's executive offices are located in approximately 5,116
square feet of leased office space at 6787 West Tropicana, Suite 200, Las Vegas,
Nevada 89103. The monthly rental is $8,724. The lease agreement commenced on
June 1, 1996 and expires on June 1, 2001.
See "Item 1. Description of Business - Acquisition of North Las Vegas,
Nevada Property" for a description of undeveloped real estate which the Company
acquired in May 1997 and February 1998.
Item 3. Legal Proceedings
Neither the Company nor any of its subsidiaries is a party to any
material legal proceeding, nor to the knowledge of Management is any litigation
threatened against the Company or its subsidiaries, except as described
hereinafter.
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PART II
Item 5. Market for the Company's Common Stock and Related Stockholder Matters
The Company's Common Stock is traded in the over-the-counter market and
quoted through the Nasdaq Stock Market under the symbol "ACES".
The following table sets forth the range of high and low closing bid
prices of the Company's Common Stock for each quarterly period indicated, as
reported by Nasdaq. The prices represent inter-dealer quotations, without retail
mark-up, mark-down or commission, and may not necessarily represent actual
transactions:
<TABLE>
<CAPTION>
Period High Bid Low Bid
- ------ -------- -------
<S> <C> <C>
Fiscal 1998
First Quarter (August 1, 1997- October 31, 1997) $1.63 $1.00
Second Quarter (November 1, 1997 - January 31, 1998) $1.47 $1.03
Third Quarter (February 1, 1998 - April 30, 1998) $1.69 $1.16
Fourth Quarter (May 1, 1998 - July 31, 1998) $1.53 $1.13
Fiscal 1997
First Quarter (August 1, 1996 - October 31, 1996) $1.84 $1.06
Second Quarter (November 1, 1996 - January 31, 1997) $1.78 $1.06
Third Quarter (February 1, 1997 - April 30, 1997) $1.41 $1.13
Fourth Quarter (May 1, 1997 - July 31, 1997) $1.28 $ .94
</TABLE>
On October 8, 1998, the closing sale price per share for the Company's
Common Stock was $1.00.
On October 8, 1998, there were 917 holders of record of the 15,086,463
shares of the Company's Common Stock outstanding.
Dividend Policy
The Company has not paid any cash dividends on its Common Stock since
its incorporation. The Company anticipates that in the foreseeable future,
earnings, if any, will be retained for use in its business or for other
corporate purposes.
Item 6. Management's Discussion and Analysis or Plan of Operation
The following discussion and analysis should be read in conjunction
with the Consolidated Financial Statements and Notes thereto included elsewhere
in this Report.
Statement on Forward-Looking Statements
Included in this Item 6, and in the Notes to the Consolidated Financial
Statements are certain forward-looking statements reflecting the Company's
current expectations. Although the Company believes that its expectations are
based on reasonable assumptions, there can be no assurance that the Company's
financial goals or expectations will be realized. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors that
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may cause the actual results, performance, or achievements of the Company, or
industry results, to be materially different from future results, performance,
or achievements expressed or implied by such forward-looking statements.
Numerous factors may affect the Company's actual results and may cause results
to differ materially from those expressed in forward-looking statements made by
or on behalf of the Company. These risks and uncertainties include, but are not
limited to, those relating to construction activities, dependence on existing
management, gaming regulation of casinos on Indian land by Federal, state and
Tribal governments, issues related to the Year 2000, domestic and global
economic conditions and changes in Federal and state tax laws or the
administration of such laws. The Company assumes no obligation to update or
revise any such forward-looking statements or the factors listed below to
reflect events or circumstances that may arise after this report is filed, and
that may have an effect on the Company's overall performance.
Overview - Factors That May Affect Future Results
The Company provides consulting services to the Table Mountain Band of
Indians (the "Table Mountain Tribe") for the Table Mountain Casino and Bingo
(the "Table Mountain Casino") - see Item 1. "Description of Business". In Fiscal
1998, the Table Mountain Tribe signed the Compact, which detailed stipulations
and regulations regarding gaming which will be permitted at the Table Mountain
Casino. See Note 3 - "Indian gaming operations - Tribal-State Compact" of Notes
to Consolidated Financial Statements. In November 1998 the residents of
California will vote on a referendum to determine whether the Indian Tribes in
California will have more control over gaming operations on Indian land. In the
event the referendum is passed, it is anticipated that the legality of the
referendum will be challenged in the court system.
The tribal council of the Table Mountain Tribe believes that, because
the Tribe has signed the Compact and reaffirmed the signing of the Compact in a
vote of tribal members, the operations of the Table Mountain Casino will not be
negatively impacted by the outcome of the referendum. As a result of the tribal
vote on acceptance of the Compact, the Tribe anticipates the Department of
Interior will approve the Compact in an expeditious manner.
Due to the uncertainties regarding legislation and regulation of Indian
gaming, reported financial information might not be indicative of future
operating results or financial condition.
The year 2000 presents a potential problem for businesses utilizing
computers in their operations since many computer programs are date sensitive
and will only recognize the last two digits of the year, thereby recognizing the
year 2000 as the year 1900 or not at all (the "Year 2000 Issue"). The Company
has evaluated its internal operating system and is working with companies with
which it transacts business to assess their efforts to comply with the Year 2000
Issue and the Company's resulting exposure. Maintenance or modification costs of
computer programs associated with the Year 2000 Issue will be expensed as
incurred, while the costs of any new software will be capitalized and amortized
over the software's useful life. At this time, it appears the aggregate cost to
the Company relating to the Year 2000 Issue will not be material. The Company
believes that its software programs will be year 2000 compliant, however, there
can be no assurances that the Year 2000 Issue will not adversely affect the
Company.
The Table Mountain Casino is presently undergoing the same process of
evaluating the impact of the Year 2000 Issue. Although the financial impact to
the Casino, if any, is not known, it is not believed to be material.
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Results of Operations
Year Ended July 31, 1998 Compared With The Year Ended July 31, 1997
Revenues
Casino consulting fees for the year ended July 31, 1998 ("Fiscal 1998")
decreased 5.4% to $8,565,000 from the $9,050,000 recorded for the year ended
July 31, 1997 ("Fiscal 1997"), and were derived from the consulting agreement
the Company has with the Table Mountain Band of Indians (the "Tribe") for
providing consulting services to the Table Mountain Casino & Bingo (the "Table
Mountain Casino").
On February 1, 1996, the Company signed a new consulting agreement with
the Table Mountain Tribe for the Table Mountain Casino. The new agreement
provided that the Company will receive a base monthly consulting fee of $90,000,
plus an additional $90,000 for each increment of $500,000 or portion thereof, of
Table Mountain Casino's monthly net income in excess of the first $1.5 million
of net income from casino operations. Additionally, effective February 1, 1996,
the Company and the Table Mountain Tribe signed a termination agreement of the
March 1993 consulting agreement under which a monthly payment of $350,000 will
be paid to the Company through January 2000, subject to the Table Mountain
Casino meeting a certain level of profitability.
In June 1997, the consulting agreement was amended, retroactive to May
1, 1997, to provide a revised consulting fee schedule. The revised schedule
provided for a base monthly consulting fee of $60,000, plus additional fees of
$50,000 to $100,000 for increments of $225,000 to $500,000 or portion thereof,
of monthly Table Mountain Casino net income in excess of the first $1.5 million
of net income from casino operations. A second amendment to the consulting
agreement was signed in November 1997. The consulting fee schedule was adjusted,
effective February 1, 1998, to provide for a base fee of $50,000 and additional
fees of $45,000 to $60,000 for increments of $250,000 to $500,000 or portion
thereof, of monthly casino net income in excess of $1.5 million of net income
from casino operations. The term of the agreement was extended to June 30, 2000.
As a result of the amendments to the consulting agreement, consulting
fee revenues were $485,000 lower in Fiscal 1998 than in Fiscal 1997.
The Company will continue to receive a monthly payment of $350,000 in
accordance with terms of the termination agreement signed in February 1996.
These payments will continue through January 2000.
Costs and Expenses
Casino consulting expenses in Fiscal 1998 increased to $1,709,000, up
7.01%, from $1,597,000 in Fiscal 1997. This increase is due to an increase in
payroll costs and legal expenses.
General and administrative expenses in Fiscal 1998 increased by $72,000
or 6.4% from Fiscal 1997. The increase resulted from increases in payroll costs,
consulting fees, corporate legal costs and loan commitment fees and a reduction
in insurance costs.
The Company incurred $61,000 in death care operating expenses,
principally payroll costs, in Fiscal 1998.
Amortization and depreciation was $122,000 and $144,000 in Fiscal 1998
and 1997, respectively. Amortization is comprised of consulting agreement
acquisition costs, which were being amortized over a 27- month period that ended
in April 1998.
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Other Operational Items
Interest income from time deposits with financial institutions, totaled
$907,000 and $769,000 in Fiscal 1998 and 1997, respectively.
During the second quarter of Fiscal 1998, the Company charged
operations $861,000 for the write-off of its investment in the proposed Auburn,
California Indian gaming project and advances related to the Auburn Tribe.
The Company refunded minority investors in G & L Acquisition Corp., a
subsidiary, their original investment. In connection with the refund, the
company incurred investor reparation expenses of $550,000.
The Company recorded provisions of $303,000 and $417,000 for State of
California income taxes for Fiscal 1998 and 1997, respectively.
Provisions of $1,604,000 and $2,218,000 were recorded for Federal
income taxes currently payable for Fiscal 1998 and 1997, respectively.
Net income was $3,069,000 ($0.19 diluted earnings per share) and
$4,468,000 ($0.28 diluted earnings per share) for Fiscal 1998 and 1997,
respectively.
Liquidity and Capital Resources
At July 31, 1998, the Company had consolidated working capital of
$15,618,000, as compared with working capital of $13,247,000 at July 31, 1997.
During the year ended July 31, 1998, investing activities used
$1,517,000 as compared to $3,649,000 used by investing activities in Fiscal
1997. The cash used in investing activities in Fiscal 1998 was to purchase
additional office furniture and equipment, capitalized costs related to the
funeral home and cemetery which the Company plans to develop and to acquire 20
acres of undeveloped land in North Las Vegas, Nevada. The land is located near
the site of the planned funeral home and cemetery and will be held for future
development or sale.
Financing activities in the year ended July 31, 1998 were comprised of
the proceeds from the issuance of common stock ($81,000) and cash used to
repurchase Company common stock ($88,000). Additionally, the Company refunded to
minority investors their original investment in G & L Acquisition Corp. This
resulted in a decrease in cash restricted as to use ($2,684,000), which resulted
from the original private placement of stock in G & L Acquisition, and the
elimination of the minority interest in the subsidiary ($2,569,000).
The November 1997 amendment to the Table Mountain Casino consulting
agreement extended the consulting period to June 30, 2000. The Company is
obligated during the period of the consulting agreement, under certain
circumstances, to loan the Table Mountain Tribe up to $4,000,000. If the loan is
made, it will be repaid over the remaining period of the consulting agreement.
In August 1998, the Company committed to lend to the Tribe up to $2,900,000 for
renovation and expansion of the Table Mountain Casino. Interest (at 9.5%) only
payments are required until April 15, 1999 and principal and interest payments
are due thereafter until December 31, 1999, the maturity date of the loan.
Revenues from the Table Mountain Casino secure the loan. At October 1, 1998,
approximately $55,000 had been loaned to the Tribe.
The Company obtained a $2,900,000 line of credit from a bank. The line
is totally secured by certificates of deposit as monies are drawn on the line.
The line bears interest at 6.8%, interest only payments are due monthly and the
line expires and is payable on December 31, 1999. At October 1, 1998,
approximately $55,000 had been drawn on the line of credit.
-10-
<PAGE> 11
In Fiscal 1997, the Company purchased approximately 40 acres of land in
North Las Vegas, Nevada for approximately $3,500,000. The Company plans to
develop the property as a funeral home and cemetery. The estimated cost to build
the project, including the acquisition of the land, ranges from $8,000,000 to
$12,000,000. In connection with the project, the Company has obtained a loan
commitment from a bank to provide up to $4,000,000 for the temporary and
permanent financing of the construction and development of the project. The
commitment expires in December 1998. Interest on the construction loan will be
charged at 1% above the prime rate on funds drawn on the loan. Upon completion
of the project, the bank has committed to provide a seven year permanent loan
with interest at 3% above an interest rate index, which is based on United
States Treasury Securities rates. Additional funds required to construct and
develop the project will be provided from cash on hand, operations, additional
financing or a combination of all three sources. Funds required for the
property's operations, after completion of construction, initially will be
provided by the Company's working capital, which is generated by other sources.
Ultimately, management anticipates that the property will generate sufficient
cash flow to maintain its operations independently. The development of this
property has been delayed while the Clark County, Nevada government finalizes
its plan for construction of a flood control project for the area. In the event
the flood control project is built as intended, the Company would not have to
build major water control culverts on the cemetery project. The Company is
awaiting additional progress on the construction of the flood control project
before it develops the property.
Historically, the Company has provided funds for its operations from
operating activities, financing from financial institutions and stockholders,
and issuance of common stock, and it will likely continue to use these sources
of liquidity in the future. The Company has always sought and will continue to
seek other suitable consulting contracts and/or ownership of casinos and other
gaming opportunities on and off Indian land, as well as recreational, leisure
time and entertainment ventures. Additionally, the Company will continue to
pursue any business venture, including those not previously described, which
management believes affords an opportunity to increase stockholder value. In the
event any of these opportunities come to fruition, management will consider
satisfying financing requirements from working capital, through borrowing or
capital infusion through the public or private placement of common stock of the
Company or its subsidiaries.
At July 31, 1998, the Company had revolving lines of credit totaling
$2,000,000 with two banks. One line for $1,000,000 expires in December 1998 and
bears interest at 2.5% above a referenced prime rate. The line is collateralized
by certificates of deposit totaling $500,000. The other $1,000,000 line of
credit is unsecured, expires in December 1998 and bears interest at 1% above an
indexed prime (8.5% at July 31, 1998). At July 31, 1998, no funds were
outstanding on the lines of credit.
In July 1998, the tribal government leaders of the Table Mountain Tribe
signed the Compact. The Compact contains various stipulations and regulations
regarding gaming which will be permitted at the Table Mountain Casino. The Tribe
has submitted the Compact to the Department of Interior for approval. See Note 3
- -"Indian Gaming Operations - Tribal-State Compact" of Notes to Consolidated
Financial Statements.
The Company historically and currently has derived substantially all of
its revenues and income from services provided to the Table Mountain Tribe. The
Company is taking steps to diversify its business activities and is seeking
other opportunities to provide a means of obtaining other sources of revenues.
Item 7. Financial Statements
The consolidated financial statements of the Company are set forth in a
separate section of this Report following Part III.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
-11-
<PAGE> 12
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act.
Set forth below are the names of all the directors and executive
officers of the Company along with certain information relating to the business
experience of each of the listed officers and directors.
Name Position
- ---- --------
Ronald J. Tassinari Chief Executive Officer, President and Director
Audrey K. Tassinari Executive Vice President and Director
Roy K. Keefer Chief Financial Officer,
Secretary/Treasurer and Director
Jeanne Hood Director
Steven G. Barringer Director
Directors are elected to serve for three years, or until their
successors are elected and qualified (except that at least twenty-five percent
of all Directors must be elected each year). Officers serve at the discretion of
the Board of Directors subject to any contracts of employment. The Board of
Directors has an Audit Committee and a Compensation Committee, each comprised of
Jeanne Hood and Steven G. Barringer. The Board of Directors does not have a
nominating committee. See "Item 10. Executive Compensation."
Ronald J. Tassinari has been Chief Executive Officer, President and a
Director of the Company since its inception in August 1979.
Audrey K. Tassinari has been a Director of the Company since March 1985
and a Vice President since April 1986. Mrs. Tassinari is the wife of Ronald J.
Tassinari, the Company's President.
Roy K. Keefer has been Chief Financial Officer and Secretary/Treasurer
of the Company since April 1992. Mr. Keefer has been a Director of the Company
since December 1992.
Jeanne Hood has been a Director of the Company since February 1994.
Since February 1994, Ms. Hood has served as a gaming consultant to the Company.
See "Item 12. Certain Relationships and Related Transactions." From 1985 to
1993, Ms. Hood served as President and Chief Executive Officer of Elsinore
Corporation, a publicly traded gaming company, and of Four Queens, Inc., a
wholly-owned subsidiary of Elsinore Corporation, which subsidiary owns and
operates the Four Queens Hotel Casino in Las Vegas, Nevada.
Steven G. Barringer has been a Director since February 1998. He is a
member of the law firm of Singer, Brown and Barringer, Las Vegas, Nevada,
practicing natural resources and environmental law. Before forming Singer, Brown
and Barringer in January 1996, Mr. Barringer was a member of the law firm of
Holland & Hart, Washington D.C.
-12-
<PAGE> 13
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Officers, directors and greater than ten percent stockholders are required by
regulation to furnish the Company with copies of all Section 16(a) forms they
file.
Based solely on its review of the copies of such forms received by it,
or written representations from certain reporting persons that no Form 5's were
required for those persons, the Company believes that, during the period from
August 1, 1997 through July 31, 1998, all filing requirements applicable to its
officers, directors, and greater than ten percent beneficial owners were
complied with.
Item 10. Executive Compensation
Summary Compensation Table
The following table sets forth all compensation awarded to, earned by,
or paid for all services rendered to the Company during the last three fiscal
years by the Company's Chief Executive Officer and all other executive officers
whose total compensation exceeded $100,000 in those years.
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
-------------------------------------- ----------------------------------------
Awards
----------------------------------------
Name and Other Annual Restricted Securities
Principal Position Year Salary($) Bonus($) Compensation($) Stock Award(s)($) Underlying Options(#)
- ------------------ ---- --------- -------- --------------- ----------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Ronald J. Tassinari, 1998 $432,635 $288,000 $86,646(1) -0- 150,000(6)
Chief Executive 1997 $417,988 $230,000 $70,281(1) -0- 400,000(3)(4)
Officer and 1996 $375,695 $270,000 $58,905(1) -0- 400,000(2)(4)
President
Audrey K. Tassinari, 1998 $156,785 $142,000 $78,037(1) -0- 100,000(6)
Executive 1997 $153,621 $110,000 $55,840(1) -0- 250,000(3)(4)
Vice President 1996 $132,887 $130,000 $42,392(1) -0- 250,000(2)(4)
Roy K. Keefer 1998 $133,481 $69,000 $68,288(1) -0- --
Chief Financial 1997 $127,768 $ 25,500 $46,599(1) -0- 150,000(5)(4)
Officer 1996 $124,393 $ 60,000 $47,029(1) -0- 150,000(5)(4)
</TABLE>
- ----------
(1) This amount includes, but is not limited to: directors fees;
disability, life and medical insurance premiums; automobile payments
and pension plan payments.
(2) Represents options which were granted in October 1995 at an exercise
price of $1.75 per share, canceled and re-granted in October 1996 at
$1.375 per share.
(3) Represents options which were granted in October 1995 at an exercise
price of $1.75 per share, canceled and re-granted in October 1996 at
$1.375 per share.
(4) The Board re-granted such options at a price closer to the fair market
value of the Company's Common Stock in order to provide a better
incentive to these officers.
(5) Represents options which were granted in October 1995 at an exercise
price of $1.75 per share, canceled and regranted in October 1996 at
$1.25 per share.
(6) Represents options which were granted in December 1997 at an exercise
price of $1.16 per share.
-13-
<PAGE> 14
Option Grants in Last Fiscal Year Table
<TABLE>
<CAPTION>
% of Total
Shares Options Exercise
Underlying Granted to or Base
Options Employees in Price Expiration
Name Granted (#) Fiscal Year ($/Sh) Date
- ---- ----------- ----------- ------ ----
<S> <C> <C> <C> <C>
Ronald J. Tassinari 150,000 43% $1.16 12/17/02
Audrey K. Tassinari 100,000 29% $1.16 12/17/02
</TABLE>
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values Table
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Unexercised In-The-Money
Shares Options at Options at
Acquired FY-End (#) FY-End ($)
on Exer- Value Exercisable/ Exercisable/
Name cise (#) Realized Unexercisable Unexercisable(1)
- ---- -------- -------- ------------- ----------------
<S> <C> <C> <C> <C>
Ronald J. Tassinari 150,000 79,500 1,214,000/100,000 493,040/140,000
Audrey K. Tassinari 100,000 53,000 665,334/66,666 250,187/9,333
Roy K. Keefer 50,000 26,500 557,000/0 255,770/0
</TABLE>
- ----------
(1) The closing price for the Company's Common Shares on July 31, 1998 was
$1.00 per share.
Compensation of Directors
Directors receive $15,000 per annum for meetings of the Board of
Directors. They are also compensated for expenses incurred in attending the
meetings. All of the Company's directors have received stock options from the
Company. See "Item 11. - Certain Relationships and Related Transactions."
Employment Agreements
On July 20, 1995, the Company entered into substantially similar
employment agreements with Ronald J. Tassinari, to serve as the Company's Chief
Executive Officer and President, Audrey K. Tassinari, to serve as the Company's
Executive Vice President, and Roy K. Keefer to serve as the Company's Chief
Financial Officer (collectively, the "Employees"). The employment agreements
provide for a term which concludes on March 31, 2002. The agreements provide for
annual salaries of $430,000, $162,000, and $140,000, respectively, for Mr.
Tassinari, Mrs. Tassinari and Mr. Keefer. The agreements further provide that
the Employees are entitled to receive minimum annual increases in their salaries
every December equal to the greater of (i) the annual increases provided to the
Company's other salaried executives or (ii) the increase in the Annual Average
All Items Index of
-14-
<PAGE> 15
the U.S. City Average Consumer Price Index. Under the agreements, the Employees
are entitled to receive incentive stock options under the Company's stock option
plans, and the Company is required to reimburse Employees for their personal
legal and financial consulting expenses, subject to a maximum of three percent
of their prior calendar year's base salary. Mr. Tassinari is entitled to a term
life insurance policy with a minimum death benefit of $2,000,000, payable to a
beneficiary of Mr. Tassinari's designation. Mrs. Tassinari and Mr. Keefer are
entitled to policies with $1,500,000 and $1,000,000 minimum death benefits,
respectively, payable to beneficiaries of their designation. The Company has
agreed to provide the Employees with an automobile allowance or, in lieu
thereof, will pay them an equal monthly cash stipend. In the event that the
Company requires the Employee to relocate from Las Vegas, Nevada, the Company
has agreed to pay their relocation expenses and to provide second mortgages on
their new permanent residences of up to $100,000. The employment agreements also
provide for indemnification of the Employees in connection with their service to
the Company.
If the employment of any of the Employees is terminated by reason of
death, the Company shall pay the balance of the monies due under the agreement
to the estate of the deceased Employee. If the employment of any of the
Employees is terminated by reason of disability, the Employee shall be entitled
to one year of severance pay at full salary and then severance pay at half
salary for the remainder of the term. If any of the Employees are terminated
without cause, or the Employees terminate their own employment following: (a) a
change in control (as defined below); (b) a significant change in the Employee's
duties under the agreements; (c) a removal of the Employee from the positions or
offices set forth in the agreements; (d) a substantial reduction in
compensation, unless all senior executives receive comparable reductions; (e) a
breach by the Company of the relocation provisions set forth in the agreements;
(f) the refusal of a successor to the Company to assume the Company's
obligations under the agreements; (g) a relocation of the Company's executive
offices without the Employee's consent; (h) a failure by the Company to increase
the Employee's salary; or (i) the Employee remains employed following a change
in control, but then resigns within two years, then the Company shall pay as
liquidated damages, or severance pay, or both to the Employee on the fifth day
following the termination date, a lump sum equal to the product of (i) an amount
equal to the sum of the annual base salary in effect as of the termination date
plus any incentive compensation most recently paid or payable to the Employees,
multiplied by (ii) two and ninety-nine one hundredths (2.99), (iii) plus any and
all accrued salary, accrued vacation pay and accrued bonus in addition to any
other consideration due under the agreements. In addition, the agreements
provide that in the event that an Employee terminates his or her employment
following a change in control, the Company shall make a cash payment on the 91st
day after such termination to the Employee in an amount equal to the excess, if
any, of (1) the number of options then held by the Employee which have not
terminated other than as a result of termination of employment multiplied by the
market price of the Company's common stock as of the date of termination, over
(2) the aggregate exercise price for all options then held by the Employee.
For purposes of the employment agreements, a "change in control of the
Company" shall be deemed to have occurred if (i) a third person becomes the
beneficial owner (as such term is defined in Rule 13d-3 promulgated pursuant to
the Securities Exchange Act of 1934, as amended (the "Act")) of the securities
of the Company having twenty percent (20%) or more of the combined voting power
of all classes of the Company's securities entitled to vote in an election of
Directors of the Company; (ii) there occurs a tender offer or exchange offer by,
a merger or other business combination with, or a sale of substantially all of
the assets of the Company to any third Person; (iii) a stockholder or
stockholders holding five percent (5%) or more of the outstanding common stock
of the Company proposes a reconstitution of additions to or deletions from the
Board and as a result, obtains a majority thereof; or (iv) during any period of
two consecutive years during the term of the agreements, individuals who at the
beginning of such period constitute the Board cease for any reason other than
death or disability to constitute at least a majority thereof.
-15-
<PAGE> 16
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as of the date of
this Report, with respect to the beneficial ownership (as such term is defined
in Rule 13d-3 under the Securities Exchange Act of 1934) of shares of Common
Stock, the Company's sole voting securities, by each person known by the Company
to be the beneficial owner of more than 5% of its Common Stock, by each
executive officer named in the Summary Compensation Table, each director and by
all officers and directors as a group.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percentage
Beneficial Owner Beneficial Ownership(1) of Class(2)
---------------- ----------------------- -----------
<S> <C> <C>
Ronald J. Tassinari 2,338,874 (3) 15.5%
6787 West Tropicana, Suite 200
Las Vegas, NV 89103
Audrey K. Tassinari 1,820,002 (4) 12.1%
6787 West Tropicana, Suite 200
Las Vegas, NV 89103
Roy K. Keefer 619,000 (5) 4.1%
6787 West Tropicana, Suite 200
Las Vegas, NV 89103
Jeanne Hood 150,000 (6) 1.0%
2316 Timberline Way
Las Vegas, NV 89117
Jay H. Brown 1,453,023 (7) 9.6%
520 South Fourth Street
Las Vegas, NV 89101
Steven G. Barringer 75,000 (8) .5%
520 South Fourth Street
Las Vegas, NV 89101
All officers and directors 4,064,303 (9) 26.9%
as a group (5 persons)
</TABLE>
- ----------
(1) Unless otherwise noted, all shares are beneficially owned and the sole
voting and investment power is held by the persons indicated.
(2) Based on 15,086,463 shares outstanding as of the date of October 8,
1998.
(3) Includes 11,094 shares owned of record by Mr. Tassinari as custodian
for his son, 938,573 shares owned by the Tassinari Family Trust and
1,214,100 shares issuable upon exercise of stock options. Such shares
exclude the following shares as to which Mr. Tassinari disclaims
beneficial ownership: 881,429 shares of Common Stock beneficially owned
by Audrey K. Tassinari, Mr. Tassinari's wife. If such excluded shares
were included, Mr. Tassinari would be deemed to hold 21.4% of the
Common Stock.
(4) Includes 938,573 shares owned by the Tassinari Family Trust and an
aggregate of 665,334 shares issuable upon exercise of stock options. In
addition, such shares exclude the following shares as to which Mrs.
-16-
<PAGE> 17
Tassinari disclaims beneficial ownership: 1,389,307 shares of Common
Stock beneficially owned by Ronald J. Tassinari, Mrs. Tassinari's
husband. If such excluded shares were included, Mrs. Tassinari would be
deemed to hold 21.4% of the Common Stock.
(5) Includes 557,000 shares underlying incentive stock options.
(6) Includes options to acquire 120,000 shares.
(7) Includes an aggregate of 73,333 shares of Common Stock and
324,074 Warrants beneficially owned by Mr. Brown's son and 100,616
shares of Common Stock beneficially owned in joint tenancy by Mr. Brown
and Mr. Brown's wife.
(8) Represents options to acquire 75,000 shares.
(9) Includes options to purchase an aggregate of 2,601,334 shares of Common
Stock referred to in notes 3, 4, 5 and 6 above.
Item 12. Certain Relationships and Related Transactions
Jeanne Hood, a Director of the Company, has provided consulting
services to the Company since February 1994. She has been compensated at the
rate of $6,000 per month for such services.
On November 23, 1994, the Board of Directors granted stock options to
Robert J. Michaels, Jeanne Hood and Douglas R. Sanderson, Directors or former
Directors of the Company, to purchase 50,000, 50,000 and 12,500 shares of Common
Stock, respectively. The options were immediately exercisable at $.69 per share
in recognition of prior services rendered to the Company. All of the options
were exercised after July 31, 1997 and prior to December 31, 1997.
On October 19, 1995, the Board of Directors granted stock options to
Robert J. Michaels, Jeanne Hood and Douglas R. Sanderson, Directors or former
Directors of the Company, to purchase 50,000, 100,000 and 15,000 shares of
Common Stock, respectively. The options were immediately exercisable at $1.75
per share in recognition of prior services rendered to the Company and expire on
October 18, 2005. These options were re-granted on October 7, 1996 to Ms. Hood
and Mr. Sanderson at an exercise price of $1.25 per share.
On October 19, 1995, the Board of Directors granted stock options to
Ronald J. Tassinari, Audrey K. Tassinari and Roy K. Keefer, each an Officer and
Director of the Company, to purchase 400,000, 250,000 and 150,000 shares of
Common Stock, respectively. The options were immediately exercisable at $1.75
per share in recognition of prior services rendered to the Company and expire on
October 18, 2005. On October 7, 1996, the foregoing options were canceled and
re-granted at an exercise price of $1.25 per share.
On August 8, 1996, the Company loaned $130,000 to Ronald J. Tassinari,
the Company's President and a Director. Such amount was repaid on October 29,
1996, together with interest of $2,993, which had been accrued at the rate of
ten and one-quarter (10.25%) percent per annum.
On December 12, 1997, the Board of Directors granted stock options to
Ronald J. Tassinari and Audrey K. Tassinari to purchase 150,000 and 100,000
shares of Common Stock, respectively. The options are exercisable at $1.16 per
share and expire on December 17, 2002.
On February 6, 1998 stock options were granted to Steven G. Barringer
to purchase 75,000 shares of Common Stock which was subsequently approved by the
Board of Directors. The options are exercisable at $1.19 per share and expire on
February 6, 2008.
-17-
<PAGE> 18
See "Item 10. Executive Compensation" for the terms of certain stock
options and Employment Agreements between the Company and Ronald J. Tassinari,
Audrey K. Tassinari and Roy K. Keefer, each a Director and officer of the
Company.
Item 13. Exhibits, List and Reports on Form 8-K
(a) Exhibits
3.1 Articles of Incorporation and By Laws of the Company. (1)
3.2 Certificate of Amendment to Articles of Incorporation of the
Company.(5)
3.3 Certificate of Amendment to Articles of Incorporation of the
Company.(6)
4.1 Warrant Certificate between the Company and Jay H. Brown dated
July 23, 1991. (2)
10.1 American Casino Enterprises, Inc. 1991 Officers Stock Option
Plan, as amended. (3)
10.2 American Casino Enterprises, Inc. 1992 Employees Stock Option
Plan. (3)
10.3 American Casino Enterprises, Inc. 1996 Stock Option Plan. (3)
10.4 Management Consultant Contract dated March 27, 1993 between
the Company and the Table Mountain Tribe.(5)
10.5 Employment Agreement between the Company and Ronald J.
Tassinari dated July 20, 1995. (6)
10.6 Employment Agreement between the Company and Audrey K.
Tassinari dated July 20, 1995. (6)
10.7 Employment Agreement between the Company and Roy K. Keefer
dated July 20, 1995. (6)
10.8 Letter Agreement dated September 11, 1995 between the Company
and Table Mountain Rancheria. (6)
10.9 Business Loan Agreement and Promissory Note dated November 15,
1994 between the Company and First Security Bank of Nevada.
(6)
10.10 Settlement Agreement, dated February 1, 1996, between the
Company and the NIGC. (7)
10.11 Termination Agreement, dated February 1, 1996, between the
Company and the Table Mountain Tribe. Exhibit A to the
Termination Agreement is set forth as Exhibit 99.1 below, and
Exhibit B to the Termination Agreement is incorporated herein
by reference from Exhibit 10.3 above.(7)
10.12 Consulting Agreement, dated February 1, 1996, between the
Company and the Tribe. (7)
10.13 Option to Purchase and Escrow Instructions dated as of October
9, 1996, among the Company, Victorson & Associates, Inc., Fred
Victorson and United Title of Nevada. (8)
10.14 Purchase Agreement and Escrow Instructions dated October 9,
1996, among Victorson & Associates, Inc., Fred Victorson and
the Company. (8)
-18-
<PAGE> 19
10.15 Joint Venture Agreement between the Company and the Table
Mountain Tribe, dated as of February 1, 1996.(8)
10.16 Funding and Loan Agreement between the Auburn Tribe and the
Table Mountain/ACES Joint Venture, dated February 1, 1996.(8)
10.17 Lease for the Company's offices dated March 14, 1996, between
the Company and Tropicana Trail Limited Partnership.(8)
10.18 Agreement to terminate Funding and Loan Agreement, dated March
10, 1998, between the Company and the Auburn Tribe.
10.19 Promissory Note, dated March 10, 1998, between the Company and
the Auburn Tribe.
10.20 Promissory Note and Loan Agreement, dated August 24, 1998,
between the Company and the Table Mountain Tribe.
10.21 Promissory Note and Loan Agreement, dated August 24, 1998,
between the Company and United Security Bank.
21.1 Subsidiaries of the Registrant
23.1 Consent of Bradshaw, Smith & Co.
27.1 Financial Data Schedules
99.1 Order of the United States Department of the Interior, dated
February 1, 1996. (7)
- ----------
(1) Incorporated by reference to Exhibit 3(i) to the Company's Annual
Report on Form 10-K for July 31, 1981.
(2) Incorporated by reference to the Company's Annual Report on Form 10-K
for July 31, 1991.
(3) Incorporated by reference to the Company's Registration Statement on
Form S-8 (File No. 333-00905) declared effective on February 13, 1996.
(4) Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the year ended July 31, 1994.
(5) Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the year ended July 31, 1995.
(6) Incorporated by reference from the Company's Current Report on Form 8-K
dated February 1, 1996.
(7) Incorporated by reference from the Company's Current Report on Form 8-K
dated October 9, 1996.
(8) Incorporated by reference from the Company's Annual Report on Form
10-KSB for the year ended July 31, 1996.
(b) Reports on Form 8-K.
On July 16, 1998, the Registrant filed a Report on Form 8-K
reporting that it refunded $3,119,600 to the investors in its 64% owned
subsidiary, G & L Acquisition Corp.
-19-
<PAGE> 20
SIGNATURES
Pursuant to the Requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this Report to be
signed on its behalf by the undersigned, thereunder duly authorized.
Dated: October 28, 1998 AMERICAN VANTAGE COMPANIES
By: /s/ Ronald J. Tassinari
-------------------------------
Ronald J. Tassinari, President
Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the date indicated.
Signature Title Date
--------- ----- ----
/s/ Ronald J. Tassinari Chief Executive Officer, October 28, 1998
Ronald J. Tassinari President and Director
(Principal Executive Officer)
/s/ Audrey K. Tassinari Executive Vice October 28, 1998
Audrey K. Tassinari President and Director
/s/ Roy K. Keefer Chief Financial October 28, 1998
Roy K. Keefer Officer, Secretary/
Treasurer and Director
(Principal Financial and
Accounting Officer)
/s/ Jeanne Hood Director October 28, 1998
Jeanne Hood
/s/ Steven G. Barringer Director October 28, 1998
Steven G. Barringer
<PAGE> 21
AMERICAN VANTAGE COMPANIES
YEARS ENDED JULY 31, 1998 AND 1997
<PAGE> 22
AMERICAN VANTAGE COMPANIES
YEARS ENDED JULY 31, 1998 AND 1997
CONTENTS
PAGE
Independent auditors' report 1
Financial statements:
Consolidated balance sheets 2
Consolidated statements of income 3
Consolidated statements of changes in stockholders' equity 4
Consolidated statements of cash flows 5-6
Notes to consolidated financial statements 7-23
<PAGE> 23
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
American Vantage Companies
We have audited the accompanying consolidated balance sheets
of American Vantage Companies as of July 31, 1998 and 1997, and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial position of
American Vantage Companies as of July 31, 1998 and 1997, and the results of
its operations and cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ BRADSHAW, SMITH & CO.
Las Vegas, Nevada
October 1, 1998
(Except for Note 3 as to which
the date is October 22, 1998)
<PAGE> 24
AMERICAN VANTAGE COMPANIES
CONSOLIDATED BALANCE SHEETS
JULY 31, 1998 AND 1997
<TABLE>
<CAPTION>
ASSETS 1998 1997
---------------- ----------------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 15,371,000 $ 12,588,000
Consulting fee and other receivables 180,000 191,000
Refundable income taxes 311,000 555,000
Deferred tax asset 4,000 2,000
Prepaid expenses 31,000 68,000
---------------- ----------------
Total current assets 15,897,000 13,404,000
---------------- ----------------
PROPERTY AND EQUIPMENT, NET 180,000 212,000
---------------- ----------------
LAND HELD FOR INVESTMENT OR DEVELOPMENT 5,101,000 3,603,000
---------------- ----------------
OTHER ASSETS:
Restricted cash -- 2,684,000
Consulting agreement acquisition costs, net -- 396,000
Deposits and other 9,000 273,000
---------------- ----------------
9,000 3,353,000
---------------- ----------------
$ 21,187,000 $ 20,572,000
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 126,000 $ 56,000
Income taxes payable 10,000 --
Accrued expenses 143,000 101,000
---------------- ----------------
Total current liabilities 279,000 157,000
---------------- ----------------
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY -- 974,000
---------------- ----------------
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY:
Common stock, $.01 par; 30,000,000 shares
authorized; 15,086,463 and 14,867,958 shares
issued and outstanding 151,000 149,000
Preferred stock; $.01 par; 10,000,000 shares
authorized; shares issued and outstanding - none -- --
Capital in excess of par 3,324,000 4,892,000
Retained earnings 17,433,000 14,400,000
---------------- ----------------
20,908,000 19,441,000
---------------- ----------------
$ 21,187,000 $ 20,572,000
================ ================
</TABLE>
See Notes to Consolidated Financial Statements.
2
<PAGE> 25
AMERICAN VANTAGE COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED JULY 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---------------- ----------------
REVENUES:
<S> <C> <C>
Casino consulting fees $ 8,565,000 $ 9,050,000
---------------- ----------------
COSTS AND EXPENSES:
Casino consulting 1,709,000 1,597,000
Death care operations 61,000 --
General and administrative 1,205,000 1,133,000
Amortization and depreciation 122,000 144,000
Minority interest in net income of consolidated subsidiary -- 20,000
---------------- ----------------
3,097,000 2,894,000
---------------- ----------------
INCOME FROM OPERATIONS 5,468,000 6,156,000
OTHER INCOME (EXPENSE):
Interest 907,000 769,000
Loss on disposition of fixed assets -- (4,000)
Gain on sale of land held for investment or development -- 182,000
Miscellaneous 10,000 --
---------------- ----------------
917,000 947,000
---------------- ----------------
INCOME BEFORE WRITE-OFF OF PROJECT COSTS AND ADVANCES,
INVESTOR REPARATION EXPENSE AND INCOME TAXES 6,385,000 7,103,000
WRITE-OFF OF PROJECT COSTS AND ADVANCES 861,000 --
INVESTOR REPARATION EXPENSE 550,000 --
---------------- ----------------
INCOME BEFORE INCOME TAXES 4,974,000 7,103,000
---------------- ----------------
INCOME TAX EXPENSE (BENEFIT):
Current:
State 303,000 417,000
Federal 1,604,000 2,218,000
Deferred:
State -- --
Federal (2,000) --
---------------- ----------------
1,905,000 2,635,000
---------------- ----------------
NET INCOME $ 3,069,000 $ 4,468,000
================ ================
EARNINGS PER COMMON SHARE:
Basic $ 0.20 $ 0.30
================ ================
Diluted $ 0.19 $ 0.28
================ ================
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
AND COMMON SHARE EQUIVALENTS:
Basic 15,040,000 14,868,000
Stock options and warrants 1,171,000 1,187,000
---------------- ----------------
Diluted 16,211,000 16,055,000
================ ================
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE> 26
AMERICAN VANTAGE COMPANIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED JULY 31, 1998 AND 1997
<TABLE>
<CAPTION>
CAPITAL
IN EXCESS RETAINED
COMMON STOCK OF PAR EARNINGS
-------------------------------- ------------ ------------
SHARES AMOUNT
------------ ------------
<S> <C> <C> <C> <C>
BALANCE, JULY 31, 1996 14,367,958 $ 144,000 $ 3,213,000 $ 9,932,000
Issuance of shares 500,000 5,000 120,000 --
Excess of equity in consolidated
subsidiary over cost -- -- 1,559,000 --
Net income -- -- -- 4,468,000
------------ ------------ ------------ ------------
BALANCE, JULY 31, 1997 14,867,958 149,000 4,892,000 14,400,000
Issuance of shares 277,905 3,000 78,000 --
Shares repurchased and retired (59,400) (1,000) (87,000) --
Retirement of minority interest in
subsidiary -- -- (1,559,000) (36,000)
Net income -- -- -- 3,069,000
------------ ------------ ------------ ------------
BALANCE, JULY 31, 1998 15,086,463 $ 151,000 $ 3,324,000 $ 17,433,000
============ ============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE> 27
AMERICAN VANTAGE COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JULY 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 3,069,000 $ 4,468,000
---------------- ----------------
Adjustments to reconcile net income to net cash provided (used) by operating
activities:
Amortization and depreciation 122,000 144,000
Deferred income tax benefit (2,000) --
Minority interest in net income of consolidated
subsidiary -- 20,000
Changes in other assets and liabilities, net 1,003,000 (927,000)
---------------- ----------------
1,123,000 (763,000)
---------------- ----------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,192,000 3,705,000
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of land held for investment or development
and improvements (1,498,000) (3,603,000)
Purchase of property and equipment, net (19,000) (46,000)
---------------- ----------------
NET CASH USED IN INVESTING ACTIVITIES (1,517,000) (3,649,000)
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock
of consolidated subsidiary -- 2,625,000
Decrease (increase) in cash restricted as to use 2,684,000 (2,684,000)
Investment in consolidated subsidiary -- (112,000)
Retirement of minority interest in consolidated subsidiary (2,569,000) --
Proceeds from long-term debt -- 2,073,000
Repayment of long-term debt -- (2,073,000)
Repurchase of common stock (88,000) --
Proceeds from issuance of common stock 81,000 125,000
---------------- ----------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 108,000 (46,000)
---------------- ----------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,783,000 10,000
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 12,588,000 12,578,000
---------------- ----------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 15,371,000 $ 12,588,000
================ ================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for state and federal income taxes $ 1,653,000 $ 3,004,000
================ ================
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE> 28
AMERICAN VANTAGE COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED JULY 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---------------- ----------------
DETAIL OF CHANGES IN OTHER ASSETS AND LIABILITIES:
<S> <C> <C>
Decrease in consulting fee and receivables $ 11,000 $ 11,000
Decrease (increase) in refundable income taxes 244,000 (368,000)
Decrease (increase) in consulting agreement acquisition costs 324,000 (217,000)
Decrease (increase) in prepaid expenses 37,000 (23,000)
Decrease (increase) in deposits and other assets 265,000 (140,000)
Increase in accounts payable 70,000 5,000
Increase (decrease) in accrued expenses 42,000 (195,000)
Increase in income taxes payable 10,000 --
---------------- ----------------
$ 1,003,000 $ (927,000)
================ ================
</TABLE>
See Notes to Consolidated Financial Statements.
6
<PAGE> 29
AMERICAN VANTAGE COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1998 AND 1997
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF BUSINESS:
The Company is currently engaged in providing consulting services to a
gaming facility in central California. The Company acquired 40 acres of
land in North Las Vegas, Nevada on which it plans to develop and
construct a funeral home and cemetery. See Note 8.
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of American
Vantage Companies and its wholly and majority-owned subsidiaries (the
"Company"). All significant intercompany accounts and transactions have
been eliminated.
CASH AND CASH EQUIVALENTS:
The Company maintains cash and cash equivalents, investments with
original maturities of three months or less, with certain financial
institutions. Due to the quality of the financial institutions
involved, they present a low level of risk to the Company. The carrying
amount of cash and cash equivalents approximates their fair value.
ALLOWANCES FOR DOUBTFUL ACCOUNTS:
Consulting fee and other receivables are reported at their fair value and
are, in the opinion of management, collectible and no allowances for
doubtful accounts were established at July 31, 1998 and 1997.
PROPERTY, EQUIPMENT AND DEPRECIATION:
Property and equipment is stated at cost. Depreciation is calculated
using accelerated methods over the estimated useful lives of the
assets.
CONSULTING AGREEMENT ACQUISITION COSTS:
All internal salary and related indirect costs of the Company's
consulting agreement acquisition efforts are expensed as incurred.
Direct costs are capitalized when the Company has a consulting contract
with a federally recognized Indian tribe which is proposing to conduct
authorized gaming activities.
7
<PAGE> 30
AMERICAN VANTAGE COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JULY 31, 1998 AND 1997
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED):
CONSULTING AGREEMENT ACQUISITION COSTS (CONTINUED):
Table Mountain Casino & Bingo:
Consulting agreement acquisition costs are comprised of costs
associated with the acquisition of a subsidiary which previously held
the consulting agreement with the Table Mountain Casino & Bingo (the
"Table Mountain Casino"). They were amortized over a 27-month period
that ended April, 1998.
United Auburn Indian Community:
Certain payments to the United Auburn Indian Community (the "Auburn
Tribe") were capitalized.
See Note 3.
EARNINGS PER SHARE:
During the fiscal year ended July 31, 1998, the Company adopted the
statement of Financial Accounting Standards No. 128, Earnings Per
Share. Accordingly, the computations of basic and diluted earnings per
share have been computed in accordance with this statement. Earnings
per share for the year ended July 31, 1997 have been adjusted to
conform with the provisions of this statement. The computations of
basic earnings per common share are based on the weighted average
number of common shares outstanding. The computations of diluted
earnings per share are based on the weighted average number of common
shares and common share equivalents outstanding. Stock purchase
warrants and options outstanding and exercisable at or below the market
price are considered common share equivalents.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from
those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
Cash and cash equivalents, receivables and accounts payable are carried
at amounts that approximate their fair values.
8
<PAGE> 31
AMERICAN VANTAGE COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JULY 31, 1998 AND 1997
2. PROPERTY AND EQUIPMENT:
Property and equipment is comprised of:
<TABLE>
<CAPTION>
1998 1997
---------------- ----------------
<S> <C> <C>
Furniture, fixtures and office equipment $ 198,000 $ 181,000
Leasehold improvements 115,000 137,000
---------------- ----------------
313,000 318,000
Less accumulated depreciation 133,000 106,000
---------------- ----------------
$ 180,000 $ 212,000
================ ================
</TABLE>
3. INDIAN GAMING OPERATIONS:
TABLE MOUNTAIN CASINO & BINGO:
The Company has a consulting agreement with the Table Mountain Band of
Indians (the "Table Mountain Tribe") for the Table Mountain Casino. On
February 1, 1996, the Company signed a new consulting agreement with
the Table Mountain Tribe for the Table Mountain Casino in Friant,
California. The new consulting agreement provided that the Company
would receive a base monthly consulting fee of $90,000, plus an
additional $90,000 for each increment of $500,000 or portion thereof,
of casino monthly net income in excess of the first $1.5 million of net
income from casino operations. Additionally, effective February 1,
1996, the Company and the Table Mountain Tribe signed a termination
agreement of the March, 1993 agreement under which a monthly payment of
$350,000 will be paid to the Company through January, 2000, subject to
meeting certain thresholds.
In June, 1997, the consulting agreement was amended, retroactive to May
1, 1997, to provide a revised consulting fee schedule. The revised
schedule provided for a base monthly consulting fee of $60,000, plus
additional fees of $50,000 to $100,000 for increments of $225,000 to
$500,000 or portion thereof, of monthly casino net income in excess of
the first $1.5 million of net income from casino operations. A second
amendment to the consulting agreement was signed in November, 1997. The
consulting fee schedule was adjusted, effective February 1, 1998, to
provide for a base fee of $50,000 and additional fees of $45,000 to
$60,000 for increments of $250,000 to $500,000 or portion thereof, of
monthly casino net income in excess of $1.5 million of net income from
casino operations. The term of the agreement was extended to June 30,
2000.
The Company will continue to receive a monthly payment of $350,000 in
accordance with terms of the termination agreement signed in February,
1996. These payments will continue through January, 2000.
The Company is obligated during the period of the consulting agreement,
under certain circumstances, to loan the Table Mountain Tribe up to
$4,000,000. If the loan is made, it will be repaid, with interest, over
the remaining period of the consulting agreement. See Note 11.
9
<PAGE> 32
AMERICAN VANTAGE COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JULY 31, 1998 AND 1997
3. INDIAN GAMING OPERATIONS (CONTINUED):
TRIBAL-STATE COMPACT:
In July, 1998, the tribal government leaders of the Table Mountain Tribe
signed a Tribal-State compact with the State of California. The compact
contains various stipulations and regulations regarding gaming which
will be permitted at the Table Mountain Casino.
The compact agreement expires January 1, 2009. It contains a renewal
option for two additional five (5) year periods upon written notice of
renewal to the Governor of California prior to the expiration date. The
compact may be terminated earlier by the Governor of California and the
options for renewal may be denied if the Tribe has been found to have
engaged in unauthorized Class III gaming on two or more occasions or
has committed violations of the terms of the compact on five or more
occasions.
The compact permits two types of lottery-based machines, the Indian Video
Lottery Match Game and the Indian Video Lottery Scratcher Game. The
Table Mountain Casino will be permitted to operate 975 of these
machines in total. Each California tribe has been allotted 199 of these
devices. Additional machines may be licensed from other Federally
recognized California tribes, which do not have gaming operations, for
an annual fee of up to $5,000 per machine.
The Table Mountain Casino will be permitted to operate existing video
gaming devices for an open-ended transition period so long as new
electronic lottery devices are unavailable or competing tribes continue
to operate video gaming devices without a state compact. Prototypes of
the lottery-based machines proposed in the compact are presently
undergoing testing at some Indian casinos, including Table Mountain
Casino. Presently, there is no way to confirm whether the lottery-based
machines provided for in the compact will produce an income stream
consistent with those devices now being played at the Table Mountain
Casino. In the event the new machines do not produce an income stream
consistent with that being experienced at the Table Mountain Casino,
the resulting decline in revenue and profits of the Casino may have a
materially adverse effect on the consulting fees earned by the Company
under its consulting agreement with the Table Mountain Tribe.
The compact provides that employees of the Table Mountain Casino will be
offered California workers' compensation, unemployment insurance,
disability insurance and guaranteed the right to engage in collective
bargaining activities. Patrons of the casino will have the right to
require binding arbitration of player disputes. The casino must also
carry public liability insurance. The Table Mountain Casino presently
offers its employees workers' compensation, unemployment and disability
insurance coverage. It also provides public liability insurance
coverage. The compact also requires the Table Mountain Tribe to make
arrangements for mitigation of environmental, police, fire, emergency
or other local services.
The compact contains an option to terminate the agreement and enter into
the alternative compact set out in an initiative on the November, 1998
California state ballot if that initiative passes and is not held to be
unconstitutional. The compact has been sent to the Secretary of the
Interior for review and approval.
10
<PAGE> 33
AMERICAN VANTAGE COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JULY 31, 1998 AND 1997
3. INDIAN GAMING OPERATIONS (CONTINUED):
TRIBAL-STATE COMPACT (CONTINUED):
On October 7, 1998, the Department of Interior disapproved the Table
Mountain Compact because of internal election dispute matters. However,
they subsequently indicated that if the entire membership (General
Council) votes to approve the compact, they will approve it
expeditiously. The membership met October 22, 1998 and the majority
voted to support the Compact.
UNITED AUBURN INDIAN COMMUNITY:
In February, 1996, the Company formed a joint venture with the Table
Mountain Tribe to provide consulting services to the United Auburn
Indian Community (the "Auburn Tribe"). The purpose of the joint venture
was to assist in the development of a casino to be built and owned by
the Auburn Tribe near Sacramento, California. The Company had an 80%
interest in the joint venture.
During the period from February, 1996 through January, 1998, the joint
venture provided monthly payments of $22,500 to the Auburn Tribe for
tribal needs. The payments are reported in the accompanying
consolidated balance sheets as consulting agreement acquisition costs.
At July 31, 1997, approximately $324,000 had been capitalized. Also,
the joint venture paid for predevelopment costs incurred in the process
of acquiring land, which would be placed into trust for the Tribe.
These advances to the Auburn Tribe by the Company at July 31, 1997
totaled approximately $263,800 and are reported as deposits and other
in the accompanying consolidated balance sheets. The land was to be
utilized for the casino site and other tribal uses.
In March, 1998, Company management, believing the project could not be
completed in a time frame that was in the best interests of its
stockholders, withdrew with its joint venture partner, the Table
Mountain Tribe, from the arrangement. The joint venture and the Auburn
Tribe in March, 1998 signed an agreement providing that under certain
circumstances advances of $413,000 would be repaid from the future
operations of the planned Auburn casino. The Company wrote off its
investment in the project and the advances made to the Auburn Tribe
($861,000 combined) in the second quarter of Fiscal 1998. The
transaction is reported in the consolidated statements of income as
write-off of project costs and advances.
As of July 31, 1998, the Auburn Tribe had not placed land into trust for
the casino site.
11
<PAGE> 34
AMERICAN VANTAGE COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JULY 31, 1998 AND 1997
4. STOCKHOLDERS' EQUITY:
PREFERRED STOCK:
The Board of Directors has the authority to issue the preferred stock,
the terms of which (including, without limitation, dividend rates,
conversion rights, voting rights, terms of redemption and liquidation
preferences) may be fixed by the Board at its sole discretion. The
holders of the Company's common stock will not be entitled to vote upon
such matters. No shares of preferred stock of any series are
outstanding and the Board of Directors has no present intention to
issue any such shares. Shares of preferred stock issued in the future
could have conversion rights, which may result in the issuance of
additional shares of common stock, which could dilute the interest of
the holders of common stock. Such shares could also have voting rights
and liquidation preferences which are senior to the rights and
preferences of the common stock. Additionally, such shares could have
dividend, redemption or other restrictive provisions.
WARRANTS:
In July, 1991, the Company sold shares of common stock together with
warrants to purchase additional common stock shares. On June 27, 1997,
the Board of Directors granted an extension of the exercise period of
the remaining 972,222 warrants to July, 1999 and increased the exercise
price per share to $.90.
STOCK REPURCHASE PROGRAM:
In Fiscal 1998, the Board of Directors authorized the expenditure of up
to $2,000,000 to repurchase the Company's common stock. If the Company
repurchases shares, it will be done according to applicable securities
laws and at times and in amounts as management deems appropriate.
Shares may be purchased in the open market or privately negotiated
transactions, with the timing and terms of such purchases to be
determined by management based on market conditions. There is no
expiration date for the repurchase program.
In the year ended July 31, 1998, the Company purchased 59,400 shares of
common stock at a cost of $88,000.
12
<PAGE> 35
AMERICAN VANTAGE COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JULY 31, 1998 AND 1997
4. STOCKHOLDERS' EQUITY (CONTINUED):
STOCK OPTION PLANS:
Prior to 1997, the Company's stockholders approved the creation of an
Officers' Stock Option Plan and an Employees' Stock Option Plan. Under
the Officers' Stock Option Plan, 1,500,000 shares of the Company's
common stock are reserved for issuance to Company officers. The
Employees' Stock Option Plan provides for 2,500,000 shares of common
stock which may be issued to key employees, including officers. In
1997, the Company's stockholders approved the creation of the 1996
Stock Option Plan which reserves an additional 2,500,000 shares of the
Company's common stock for issuance to employees, officers and
directors of the Company and others who are involved in the continuing
development and success of the Company or its subsidiaries. The
options, under all plans, are granted at not less than 100% of the
market value of the Company's common stock on the date of grant.
The following is a summary of activity of outstanding stock options under
the Officers' Stock Option Plan:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------------------
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
---------------- ----------------
<S> <C> <C>
Balance, July 31, 1996 1,031,266 $ 0.47
Exercised (500,000) 0.25
---------------- ----------------
Balance, July 31, 1997 531,266 0.68
Exercised (250,000) 0.53
---------------- ----------------
Balance, July 31, 1998 281,266 $ 0.69
================ ================
Exercisable, July 31, 1998 281,266 $ 0.69
================ ================
</TABLE>
The following is a summary of information about the Officers' Stock
Option Plan options outstanding at July 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ---------------------------------------------------------------------- ----------------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
- ---------------- ---------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
$ 0.69 281,266 2.0 $ 0.69 281,266 $ 0.69
================ ================ ================ ================ ================ ================
</TABLE>
13
<PAGE> 36
AMERICAN VANTAGE COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JULY 31, 1998 AND 1997
4. STOCKHOLDERS' EQUITY (CONTINUED):
STOCK OPTION PLANS (CONTINUED):
Activity of the Employees' Stock Option Plan is summarized as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
---------- ----------
<S> <C> <C>
Balance, July 31, 1996 2,208,734 $ 1.10
Granted 800,000 1.36
Canceled (820,000) 1.72
---------- ----------
Balance, July 31, 1997 2,188,734 0.96
Exercised (50,000) 0.53
---------- ----------
Balance, July 31, 1998 2,138,734 $ 0.90
========== ==========
Exercisable, July 31, 1998 2,138,734 $ 0.90
========== ==========
</TABLE>
The following is a summary of information about the Employees' Stock
Option Plan options outstanding at July 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ---------------------------------------------------------------------- ----------------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
- ---------------- ---------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
$ 0.69 1,338,734 2.3 $ 0.69 1,338,734 $ 0.69
1.25 800,000 3.3 1.25 800,000 1.25
- ---------------- ---------------- ---------------- ---------------- ---------------- ----------------
$ 0.69-1.25 2,138,734 2.4 $ 0.90 2,138,734 $ 0.90
================ ================ ================ ================ ================ ================
</TABLE>
14
<PAGE> 37
AMERICAN VANTAGE COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JULY 31, 1998 AND 1997
4. STOCKHOLDERS' EQUITY (CONTINUED):
STOCK OPTION PLANS (CONTINUED):
Activity of the 1996 Stock Option Plan is summarized as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------------------
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
---------------- ----------------
<S> <C> <C>
Balance, July 31, 1996 -- $ --
Balance, July 31, 1997 -- --
Granted 350,000 1.17
---------------- ----------------
Balance, July 31, 1998 350,000 $ 1.17
================ ================
Exercisable, July 31, 1998 98,334 $ 1.16
================ ================
</TABLE>
The following is a summary of information about the 1996 Stock Option
Plan options outstanding at July 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ---------------------------------------------------------------------- ----------------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
- ---------------- ---------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
$ 1.16-1.19 350,000 6.0 $ 1.17 98,334 $ 1.16
================ ================ ================ ================ ================ ================
</TABLE>
15
<PAGE> 38
AMERICAN VANTAGE COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JULY 31, 1998 AND 1997
4. STOCKHOLDERS' EQUITY (CONTINUED):
OTHER OPTIONS GRANTED:
Other options were granted to outside members of the Board of Directors
and to the Table Mountain Tribe. The options were granted at the market
value of the Company's common stock at the date of grant. Activity of
other options granted is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------------------
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
---------------- ----------------
<S> <C> <C>
Balance, July 31, 1996 415,000 $ 1.06
Granted 115,000 1.25
Canceled (127,500) 1.63
---------------- ----------------
Balance, July 31, 1997 402,500 0.93
Granted 75,000 1.19
Exercised (92,500) 0.58
---------------- ----------------
Balance, July 31, 1998 385,000 $ 1.06
================ ================
Exercisable, July 31, 1998 325,000 $ 1.03
================ ================
</TABLE>
The following is a summary of information about other options outstanding
at July 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ---------------------------------------------------------------------- ----------------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
- ---------------- ---------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
$ 0.53-0.69 145,000 1.0 $ 0.61 145,000 $ 0.61
1.19-1.25 190,000 8.0 1.23 130,000 1.23
1.75 50,000 2.0 1.75 50,000 1.75
- ---------------- ---------------- ---------------- ---------------- ---------------- ----------------
$ 0.53-1.75 385,000 3.4 $ 1.06 325,000 $ 1.03
================ ================ ================ ================ ================ ================
</TABLE>
16
<PAGE> 39
AMERICAN VANTAGE COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JULY 31, 1998 AND 1997
4. STOCKHOLDERS' EQUITY (CONTINUED):
OTHER OPTIONS GRANTED (CONTINUED):
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123 - Accounting for Stock-Based Compensation
("SFAS 123"), which provides that companies may elect to account for
employee stock options using a fair value-based method or continue to
apply the intrinsic value-based method prescribed by Accounting
Principals Board Opinion No. 25 ("APB 25").
Under the fair value-based method prescribed by SFAS 123, all employee
stock option grants are considered compensatory. Compensation cost is
measured at the date of grant based on the estimated fair value of the
options determined using an option pricing model. The model takes into
account the stock price at the grant date, the exercise price, the
expected life of the option, the volatility of the stock, expected
dividends on the stock and the risk-free interest rate over the
expected life of the option. Under APB 25, generally only stock options
that have intrinsic value at the date of grant are considered
compensatory. Intrinsic value represents the excess, if any, of the
market price of the stock at the grant date over the exercise price of
the options.
As permitted by SFAS 123, the Company accounts for these plans under APB
25, under which no compensation cost has been recognized.
The following table discloses the Company's proforma net income and net
income per share assuming compensation cost for employee stock options
and warrants had been determined using the fair value-based method
prescribed by SFAS 123.
<TABLE>
<CAPTION>
1998 1997
---------------- ----------------
Net income:
<S> <C> <C>
As reported $ 3,069,000 $ 4,468,000
Proforma 3,011,000 4,454,000
Earnings per share:
Basic:
As reported 0.20 0.30
Proforma 0.20 0.30
Diluted:
As reported 0.19 0.28
Proforma 0.19 0.28
</TABLE>
17
<PAGE> 40
AMERICAN VANTAGE COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JULY 31, 1998 AND 1997
4. STOCKHOLDERS' EQUITY (CONTINUED):
OTHER OPTIONS GRANTED (CONTINUED):
The fair value of each award under the stock option plans is estimated on
the date of grant using the Black-Scholes option pricing model. The
following assumptions were used to estimate the fair value of the
options and warrants with extension of exercise periods:
<TABLE>
<CAPTION>
1998 1997
---------------------- ----------------------
EMPLOYEE STOCK
EMPLOYEE STOCK OPTION PLAN, OTHER
OPTION PLAN AND OPTIONS AND
OTHER OPTIONS WARRANTS
---------------------- ----------------------
<S> <C> <C>
Expected stock price volatility 75.5% and 76.1% 83.4% and 97.8%
Expected option/warrant lives 5 and 10 2 and 5
Expected dividend yield -- --
Risk-free interest rates 5.6% and 5.8-5.9% 6.2% and 6.3%
Weighted-average fair value of
warrants/options granted during year $ 0.76 and 0.99 $ 0.56 and 0.94
</TABLE>
5. INCOME TAXES:
The income tax expense for 1998 and 1997 differs from the amount of
income tax determined by applying the applicable U.S. statutory federal
income tax rate to pre-tax income as a result of the following
differences:
<TABLE>
<CAPTION>
1998 % 1997 %
---------------- ------ ---------------- -----
<S> <C> <C> <C> <C>
Statutory federal tax rate $ 1,691,000 34 $ 2,415,000 34
Change in net deferred tax assets (2,000) -- -- --
State income tax, net of federal benefit 200,000 4 275,000 4
Utilization of capital loss carryforward -- -- (60,000) (1)
Other 16,000 -- 5,000 --
---------------- ------ ---------------- -----
Effective tax expense $ 1,905,000 38 $ 2,635,000 37
================ ====== ================ =====
</TABLE>
18
<PAGE> 41
AMERICAN VANTAGE COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JULY 31, 1998 AND 1997
6. SEGMENT INFORMATION:
Revenues, operating income (loss) (excluding amortization and
depreciation and minority interest), identifiable assets, capital
expenditures, and depreciation and amortization are as follows:
<TABLE>
<CAPTION>
1998 1997
---------------- ----------------
Revenues:
<S> <C> <C>
Casino consulting $ 8,565,000 $ 9,050,000
================ ================
Operating income (loss):
Casino consulting $ 6,784,000 $ 7,358,000
Death care (61,000) --
Corporate (1,255,000) (1,182,000)
---------------- ----------------
$ 5,468,000 $ 6,176,000
================ ================
Identifiable assets:
Casino consulting $ 15,456,000 $ 15,768,000
Death care 3,750,000 3,603,000
Corporate 1,981,000 1,201,000
---------------- ----------------
$ 21,187,000 $ 20,572,000
================ ================
Capital expenditures:
Death care $ 148,000 $ 3,603,000
Corporate 1,369,000 46,000
---------------- ----------------
$ 1,517,000 $ 3,649,000
================ ================
Depreciation and amortization:
Casino consulting $ 72,000 $ 95,000
Corporate 50,000 49,000
---------------- ----------------
$ 122,000 $ 144,000
================ ================
</TABLE>
There were no intersegment sales during 1998 and 1997.
7. FORMATION OF NEW SUBSIDIARY:
In September, 1996, the Company formed a new subsidiary, G & L
Acquisition Corp. ("G & L"). G & L sought business opportunities
involving the establishment or acquisition of a California card room, a
gaming business located on a ship which sails to international waters
from home ports in the United States or elsewhere and/or a leisure
business ("Target Business").
G & L sold additional shares of its common stock through a private
placement to "accredited investors" as such term is defined in
Regulation D under the Securities Act of 1933. The private placement
resulted in the sale of 1,992,000 shares at a price of $1.55 per share.
The net proceeds from the sale, after the costs of the offering, and
the capital contributed by the initial investors, totaled approximately
$2,625,000.
19
<PAGE> 42
AMERICAN VANTAGE COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JULY 31, 1998 AND 1997
7. FORMATION OF NEW SUBSIDIARY (CONTINUED):
The Company was not able to find, within an 18-month period as provided
in the private placement memorandum, an investment which met specific
investment criteria. As a result, in the year ended July 31, 1998,
investors were given a refund of their original investment. In
connection with the refund, the Company incurred investor reparation
expenses of $550,000. The Company also recorded a reduction of its
capital in excess of par by $1,559,000 and retained earnings by $36,000
in connection with the refund. The transaction resulted in G & L
becoming a wholly-owned subsidiary at July 31, 1998. It was 64% owned
at July 31, 1997.
At July 31, 1997, G & L had $2,684,000 of cash and cash equivalents,
which is reported as restricted cash in the accompanying consolidated
balance sheets and could only be used for the purposes specified
previously.
8. LAND TRANSACTIONS:
In October, 1996, the Company purchased approximately 162 acres of land
in Las Vegas, Nevada. In connection with the purchase, the Company
granted an option to the seller of the land to repurchase the land. The
option holder exercised the option in February, 1997 and the Company
recognized a gain of approximately $182,000.
In May, 1997, the Company purchased approximately 40 acres of land in
North Las Vegas, Nevada for approximately $3,500,000. The Company
intends to develop the property as a funeral home and cemetery.
However, development has been delayed while the Clark County, Nevada
government finalizes its plan for construction of a flood control
project for the area. In the event the flood control project is built
as intended, the Company would not have to build major water control
culverts on the cemetery project. The Company is awaiting additional
progress on the construction of the flood control project before it
begins development of the property. See Note 9.
In February, 1998, the Company acquired an additional 20 acre parcel of
undeveloped land in North Las Vegas, Nevada for $1,350,000. The land
will be held for future development or sale.
9. COMMITMENTS AND CONTINGENCIES:
a) COMMITMENTS:
1) Operating leases:
The Company leases automobiles and office space under operating
leases expiring in various years through 2001.
20
<PAGE> 43
AMERICAN VANTAGE COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JULY 31, 1998 AND 1997
9. COMMITMENTS AND CONTINGENCIES (CONTINUED):
a) COMMITMENTS (CONTINUED):
1) Operating leases (continued):
Minimum future rental payments under non-cancelable operating
leases having remaining terms in excess of one year as of July
31, 1998 for each of the next five years are:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ------------------ ----------------
<S> <C>
1999 $ 164,000
2000 130,000
2001 90,000
2002 --
2003 --
----------------
$ 384,000
================
</TABLE>
Lease expense was $154,000 and $163,000 for the years ended July
31, 1998 and 1997, respectively.
2) Lines of credit:
At July 31, 1997, the Company had revolving lines of credit
totaling $2,000,000 with two banks. One line for $1,000,000
expires in December, 1998 and bears interest at 2.5% above a
referenced prime rate. Certificates of deposit totaling
$500,000 collateralize the line. The other $1,000,000 line of
credit is unsecured, expires in December, 1998 and bears
interest at 1% above an indexed prime rate. At July 31, 1998,
no funds were outstanding on the lines of credit. See Note 11.
3) Construction loan commitment:
The Company has a construction loan commitment from a financial
institution to provide temporary and permanent financing for
up to $4,000,000 of the costs to develop and construct the
planned funeral home and cemetery. Interest on the
construction loan will be charged at 1% above the prime rate
on funds drawn on the loan. Upon completion of the project,
the financial institution has committed to provide a seven
year permanent loan with interest at 3% above an interest rate
index, which is based on United States Treasury Securities
rates. The commitment expires in December, 1998.
21
<PAGE> 44
AMERICAN VANTAGE COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JULY 31, 1998 AND 1997
9. COMMITMENTS AND CONTINGENCIES (CONTINUED):
b) CONCENTRATIONS OF CREDIT RISK:
The Company's cash, cash equivalents and restricted cash are on
deposit with two financial institutions which are FDIC insured on
amounts up to $100,000.
Virtually all the Company's revenues and related receivables are
derived from the consulting agreement with the Table Mountain
Casino. Generally, these receivables are unsecured. The carrying
value of receivables approximates their fair value.
c) EMPLOYMENT AGREEMENTS:
In July, 1995, the Company entered into employment agreements with
certain key executives which expire in 2002. The employment
agreements provide for, among other things, annual base
compensation, participation in bonus plans and life insurance. The
agreements also contain severance provisions which provide for
payments to the executives in the event of their termination after
a change in control, as defined. The severance provisions provide
for a compensation payment equal to 2.99 times the annual salary
paid to the executive at the time of the change of control, as
well as accelerated payment of accrued bonuses payable to the
executives under the Company's compensation policies and an
additional payment based on the number of stock options which the
key executives have not exercised within three months of their
termination of employment. Aggregate annual salaries guaranteed by
the agreements are $732,000. At July 31, 1998, the estimated
amount that would have been payable as severance compensation
under the agreements to these executives based on compensation and
stock options was $3,188,000.
10. RETIREMENT PLAN:
All of the Company's employees participate in a simplified employee
pension plan. Employer contributions to the Plan are made on a
discretionary basis and were $104,000 and $93,000 for the years ended
July 31, 1998 and 1997, respectively.
11. SUBSEQUENT EVENT:
In August, 1998, the Company obtained a $2,900,000 line of credit with a
bank. The line is totally secured by certificates of deposit as monies
are drawn on the line. The line bears interest at 6.8%, interest only
payments are due monthly and the line expires and is payable on
December 31, 1999. At October 1, 1998, approximately $55,000 had been
drawn on the line of credit.
22
<PAGE> 45
AMERICAN VANTAGE COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JULY 31, 1998 AND 1997
11. SUBSEQUENT EVENT (CONTINUED):
In August, 1998, the Company committed to lend to the Table Mountain
Tribe up to $2,900,000 for renovation and expansion of the Table
Mountain Casino. The expansion will increase the Casino by
approximately 47,000 square feet. Interest (at 9.5%) only payments are
required until April 15, 1999 and principal and interest payments are
due thereafter until December 31, 1999, the maturity date of the loan.
The loan is secured by revenues from the Table Mountain Casino.
23
<PAGE> 46
EXHIBIT INDEX
Exhibit
No. Description
- ------- -----------
3.1 Articles of Incorporation and By Laws of the Company. (1)
3.2 Certificate of Amendment to Articles of Incorporation of the
Company.(5)
3.3 Certificate of Amendment to Articles of Incorporation of the
Company.(6)
4.1 Warrant Certificate between the Company and Jay H. Brown dated July
23, 1991. (2)
10.1 American Casino Enterprises, Inc. 1991 Officers Stock Option Plan, as
amended. (3)
10.2 American Casino Enterprises, Inc. 1992 Employees Stock Option Plan.
(3)
10.3 American Casino Enterprises, Inc. 1996 Stock Option Plan. (3)
10.4 Management Consultant Contract dated March 27, 1993 between the
Company and the Table Mountain Tribe.(5)
10.5 Employment Agreement between the Company and Ronald J. Tassinari
dated July 20, 1995. (6)
10.6 Employment Agreement between the Company and Audrey K. Tassinari
dated July 20, 1995. (6)
10.7 Employment Agreement between the Company and Roy K. Keefer dated July
20, 1995. (6)
10.8 Letter Agreement dated September 11, 1995 between the Company and
Table Mountain Rancheria. (6)
10.9 Business Loan Agreement and Promissory Note dated November 15, 1994
between the Company and First Security Bank of Nevada. (6)
10.10 Settlement Agreement, dated February 1, 1996, between the Company and
the NIGC. (7)
10.11 Termination Agreement, dated February 1, 1996, between the Company
and the Table Mountain Tribe. Exhibit A to the Termination Agreement
is set forth as Exhibit 99.1 below, and Exhibit B to the Termination
Agreement is incorporated herein by reference from Exhibit 10.3
above.(7)
10.12 Consulting Agreement, dated February 1, 1996, between the Company and
the Tribe. (7)
10.13 Option to Purchase and Escrow Instructions dated as of October 9,
1996, among the Company, Victorson & Associates, Inc., Fred Victorson
and United Title of Nevada. (8)
10.14 Purchase Agreement and Escrow Instructions dated October 9, 1996,
among Victorson & Associates, Inc., Fred Victorson and the Company.
(8)
<PAGE> 47
Exhibit
No. Description
- ------- -----------
10.15 Joint Venture Agreement between the Company and the Table Mountain
Tribe, dated as of February 1, 1996(8).
10.16 Funding and Loan Agreement between the Auburn Tribe and the Table
Mountain/ACES Joint Venture, dated February 1, 1996(8).
10.17 Lease for the Company's offices dated March 14, 1996, between the
Company and Tropicana Trail Limited Partnership(8).
10.18 Agreement to terminate Funding and Loan Agreement, dated March 10,
1998, between the Company and the Auburn Tribe.
10.19 Promissory Note, dated March 10, 1998, between the Company and the
Auburn Tribe.
10.20 Promissory Note and Loan Agreement, dated August 24, 1998, between
the Company and the Table Mountain Tribe.
10.21 Promissory Note and Loan Agreement, dated August 24, 1998, between
the Company and United Security Bank.
21.1 Subsidiaries of the Registrant
23.1 Consent of Bradshaw, Smith & Co.
27.1 Financial Data Schedules
99.1 Order of the United States Department of the Interior, dated February
1, 1996. (7)
- ----------
(1) Incorporated by reference to Exhibit 3(i) to the Company's Annual
Report on Form 10-K for July 31, 1981.
(2) Incorporated by reference to the Company's Annual Report on Form 10-K
for July 31, 1991.
(3) Incorporated by reference to the Company's Registration Statement on
Form S-8 (File No. 333-00905) declared effective on February 13, 1996.
(4) Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the year ended July 31, 1994.
(5) Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the year ended July 31, 1995.
(6) Incorporated by reference from the Company's Current Report on Form 8-K
dated February 1, 1996.
(7) Incorporated by reference from the Company's Current Report on Form 8-K
dated October 9, 1996.
(8) Incorporated by reference from the Company's Annual Report on Form
10-KSB for the year ended July 31, 1996.
<PAGE> 1
Exhibit 10.18
AGREEMENT TO TERMINATE
FUNDING AND LOAN AGREEMENT
This Termination Agreement is made this 10th day of March, 1998, by
and between the United Auburn Indian Community, 661 Newcastle Road, #1,
Newcastle, California 95658, a federally recognized Indian Tribe (hereinafter
"Auburn" or the "Community") and Table Mountain/ACES Joint Venture, a joint
venture between American Casino Enterprises, Inc., 6243 Industrial Road, Las
Vegas, Nevada 89918, a Nevada corporation, and the Table Mountain Band of
indians of the Table Mountain Rancheria, P.O. Box 410, Friant, California
93623, a federally recognized Indian Tribe (hereinafter "Lender").
RECITALS
WHEREAS, the Community and Lender entered into a Funding and Loan
Agreement on February 1, 1996, which provided that Lender would lend to
Community up to Fifteen Million Dollars ($15,000,000.00) for various purposes
including the acquisition of land and the construction of a tribal gaming
enterprise; and
WHEREAS, Lender advanced to the Community the principal sum of Four
Hundred Thirteen Thousand, Three Hundred Twelve Dollars and Fifty-Four Cents
($413,312.54) pursuant to a line of credit Promissory Note which provides for
repayment of principal and interest to begin following the commencement of the
official opening of the gaming enterprise; and
WHEREAS, the Lender retained the right, during the term of the Funding
and Loan Agreement, to terminate its obligation to fund the loan under that
Agreement; and
WHEREAS, no land has been acquired and the gaming enterprise has not
been constructed; and
WHEREAS, Lender desires to terminate the Agreement and all obligations
it has under the Funding and Loan Agreement.
NOW, THEREFORE, it is agreed as follows:
1. The Funding and Loan Agreement is terminated effective the
date of this Termination Agreement.
2. The Community will execute and deliver to Lender a Promissory
Note in the form attached hereto as Exhibit "A" which provides that the
Community will repay to Lender the principal sum of Four Hundred Thirteen
Thousand, Three Hundred Twelve Dollars and Fifty-Four Cents ($413,312.54),
together with all interest earned by the Community after payment of all
operating costs, management
<PAGE> 2
and/or consulting fees and the amortization of any land acquisition costs,
construction costs and attorney's fees, provided that payments shall begin only
after the gaming enterprise net income has exceeded Five Hundred Thousand
Dollars ($500,000.00) in six (6) consecutive months. Payments shall first be
credited to interest and then to principal provided that the maximum payable in
any one (1) month will be twenty-five percent (25%) of the Community's net
income during that month or Two Hundred Thousand Dollars ($200,000.00),
whichever is less.
3. Lender hereby relinquishes, waives, abandons and gives up any
rights or claims it might otherwise have under the Funding and Loan Agreement
or any agreement executed to effectuate the terms and conditions of that
Funding and Loan Agreement.
4. The Community hereby relinquishes, waives, abandons and gives up
any and all claims it might otherwise have under the Funding and Loan Agreement
against the Lender.
WHEREFORE, this Agreement is effective the date first above written.
UNITED AUBURN INDIAN COMMUNITY,
a federally recognized Indian Tribe
/s/ Jessica Tavares
-----------------------------
By Jessica Tavares, President
TABLE MOUNTAIN/ACES JOINT VENTURE
/s/ Ronald J. Tassinari
-----------------------------
By Ronald J. Tassinari
<PAGE> 3
EXHIBIT "A"
PROMISSORY NOTE
<PAGE> 4
PROMISSORY NOTE
$413,312.54 March 10, 1998
FOR VALUE RECEIVED, the United Auburn Indian Community, a federally
recognized Indian tribe ("Maker"), promises to pay to Table Mountain/ACES Joint
Venture, or order ("Holder"), at Table Mountain Casino, 8184 Table Mountain
Road, Post Office Box 445, Friant, California 93626, or at such other place as
Holder may designate in writing, the principal balance of Four Hundred Thirteen
Thousand, Three Hundred Twelve Dollars and Fifty-Four Cents ($413,312.54), plus
interest on the principal balance from time to time outstanding, calculated on a
daily basis (based on a 360-day year), at the rate of interest per annum which
is one and one-half (1.5) percentage points greater than the rate of interest
publicly announced, quoted or published by Wells Fargo Bank, from time to time,
at its Sacramento, California office as its "Prime Rate" ("Stated Interest"),
adjusted quarterly, commencing on the date identified as the commencement date
in paragraph (a) immediately below, principal and interest payable as follows:
(a) Fully amortizing payments of principal and interest shall be paid
monthly, commencing on the first day subsequent to the date that the Maker's
gaming enterprise has earned Five Hundred Thousand Dollars ($500,000.00), net
income to the Maker, for each of six (6) consecutive months, and continuing on
the first (1st) of each month thereafter at the rate of Two Hundred Thousand
Dollars ($200,000.00) per month or twenty-five percent (25%) of the Maker's net
monthly income from the gaming enterprise, whichever is less, until the
principal and interest are paid in full.
(b) If during any month following the Maker's earning net income in excess
of Five Hundred Thousand Dollars ($500,000.00) from its gaming enterprise for
six (6) consecutive months, the Maker's net income from the gaming enterprise
drops below Five Hundred Thousand Dollars ($500,000.00) then the payment of the
interest and principal then due on this Note, if any, shall be excused that
month and no payment shall be made until the net income to Maker from its gaming
enterprise exceeds Five Hundred Thousand Dollars ($500,000.00).
(c) Maker shall have the right to pay all or any portion of this Promissory
Note without penalty.
(d) This Promissory Note is not secured.
<PAGE> 5
(e) This Promissory Note shall be construed in accordance with and
governed by federal law, and to the extent not inconsistent therewith, the laws
of the State of California.
IN WITNESS WHEREOF, Maker has executed this Promissory Note at
Sacramento, California, this 10th day of March, 1998.
MAKER:
UNITED AUBURN INDIAN COMMUNITY,
a federally recognized Indian Tribe
/s/ Jessica Tavares
-----------------------------
By Jessica Tavares, President
<PAGE> 1
Exhibit 10.19
PROMISSORY NOTE
$413,312.54 March 10, 1998
FOR VALUE RECEIVED, the United Auburn Indian Community, a federally
recognized Indian tribe ("Maker"), promises to pay to Table Mountain/ACES Joint
Venture, or order ("Holder"), at Table Mountain Casino, 8184 Table Mountain
Road, Post Office Box 445, Friant, California 93626, or at such other place as
Holder may designate in writing, the principal balance of Four Hundred Thirteen
Thousand, Three Hundred Twelve Dollars and Fifty-Four Cents ($413,312.54), plus
interest on the principal balance from time to time outstanding, calculated on a
daily basis (based on a 360-day year), at the rate of interest per annum which
is one and one-half (1.5) percentage points greater than the rate of interest
publicly announced, quoted or published by Wells Fargo Bank, from time to time,
at its Sacramento, California office as its "Prime Rate" ("Stated Interest"),
adjusted quarterly, commencing on the date identified as the commencement date
in paragraph (a) immediately below, principal and interest payable as follows:
(a) Fully amortizing payments of principal and interest shall be paid
monthly, commencing on the first day subsequent to the date that the Maker's
gaming enterprise has earned Five Hundred Thousand Dollars ($500,000.00), net
income to the Maker, for each of six (6) consecutive months, and continuing on
the first (1st) of each month thereafter at the rate of Two Hundred Thousand
Dollars ($200,000.00) per month or twenty-five percent (25%) of the Maker's net
monthly income from the gaming enterprise, whichever is less, until the
principal and interest are paid in full.
(b) If during any month following the Maker's earning net income in excess
of Five Hundred Thousand Dollars ($500,000.00) from its gaming enterprise for
six (6) consecutive months, the Maker's net income from the gaming enterprise
drops below Five Hundred Thousand Dollars ($500,000.00) then the payment of the
interest and principal then due on this Note, if any, shall be excused that
month and no payment shall be made until the net income to Maker from its gaming
enterprise exceeds Five Hundred Thousand Dollars ($500,000.00).
(c) Maker shall have the right to pay all or any portion of this Promissory
Note without penalty.
(d) This Promissory Note is not secured.
<PAGE> 2
(e) This Promissory Note shall be construed in accordance with and governed
by federal law, and to the extent not inconsistent therewith, the laws of the
State of California.
IN WITNESS WHEREOF, Maker has executed this Promissory Note at Sacramento,
California, this 10th day of March, 1998.
MAKER:
UNITED AUBURN INDIAN COMMUNITY,
a federally recognized Indian Tribe
/s/ Jessica Tavares
-----------------------------------
By Jessica Tavares, President
<PAGE> 1
Exhibit 10.20
PROMISSORY NOTE
<TABLE>
<CAPTION>
Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$2,900,000.00 8/24/98 12/31/99
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
Borrower: Table Mountain Band of Indians of the
Table Mountain Rancheria
8184 Table Mountain Road
Friant, CA 93626
Lender: American Vantage Companies
6787 West Tropicana, Ste 200
Las Vegas, NV 89103
- -------------------------------------------------------------------------------
PRINCIPAL AMOUNT: $2,900,000.00 DATE OF NOTE: August 24, 1998
PROMISE TO PAY. Table Mountain Band of Indians of the Table Mountain Rancheria
("Borrower") promises to pay to American Vantage Companies ("Lender"), or
order, in lawful money of the United States of America, the principal amount of
Two Million Nine Hundred Thousand and 00/100 Dollars ($2,900,000.00), together
with interest on the unpaid principal balance from August 24, 1998, until paid
in full.
PAYMENT. Borrower will pay this loan on demand, or if no demand is made, in
accordance with the following payment schedule:
7 CONSECUTIVE MONTHLY INTEREST PAYMENTS, BEGINNING SEPTEMBER 15, 1998, WITH
INTEREST CALCULATED ON THE UNPAID PRINCIPAL BALANCES AT AN INTEREST RATE OF
9.500%; 8 CONSECUTIVE MONTHLY PRINCIPAL AND INTEREST PAYMENTS OF
$133,382.27 EACH, BEGINNING APRIL 15, 1999, WITH INTEREST CALCULATED ON THE
UNPAID PRINCIPAL BALANCES AT AN INTEREST RATE OF 9.500%; AND 1 PRINCIPAL
AND INTEREST PAYMENT OF $2,019,350.58 ON DECEMBER 31, 1999, WITH INTEREST
CALCULATED ON THE UNPAID PRINCIPAL BALANCES AT AN INTEREST RATE OF 9.500%.
THIS ESTIMATED FINAL PAYMENT IS BASED ON THE ASSUMPTION THAT ALL PAYMENTS
WILL BE MADE EXACTLY AS SCHEDULED; THE ACTUAL FINAL PAYMENT WILL BE FOR ALL
PRINCIPAL AND ACCRUED INTEREST NOT YET PAID, TOGETHER WITH ANY OTHER UNPAID
AMOUNTS UNDER THIS NOTE. PAYMENTS ARE TO BE SENT TO UNITED SECURITY BANK,
FRESNO, CALIFORNIA FOR THE ACCOUNT OF AMERICAN VANTAGE COMPANIES.
The annual interest rate for this Note is computed on a 365/360 basis; that is,
by applying the ratio of the annual interest rate over a year of 365 days
multiplied by the outstanding principal balance, multiplied by the actual
number of days the principal balance is outstanding. Borrower will pay Lender
at Lender's address shown above or at such other place as Lender may designate
in writing. Unless otherwise agreed or required by applicable law, payments
will be applied first to accrued unpaid interest, then to principal, and any
remaining amount to any unpaid collection costs and late charges.
PREPAYMENT: MINIMUM INTEREST CHARGE. Other than Borrower's obligation to pay
any minimum interest charge, Borrower may pay without penalty all or a portion
of the amount owed earlier than it is due. Early payments will not, unless
agreed to by Lender in writing, relieve Borrower of Borrower's obligation to
continue to make payments under the payment schedule. Rather, they will reduce
the principal balance due and may result in Borrower making fewer payments.
LATE CHARGE. If a payment is 10 DAYS OR MORE LATE, Borrower will be charged
5.000% OF THE REGULARLY SCHEDULED PAYMENT OF $15.00, WHICHEVER IS GREATER.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform
when due any other term, obligation, covenant, or condition contained in this
Note or any agreement related to this Note, or in any other agreement or loan
Borrower has with Lender. (c) Borrower defaults under any loan, extension of
credit, security agreement, purchase or sales agreement, or any other
agreement, in favor of any other creditor or person that may materially affect
any of Borrower's property or Borrower's ability to repay this Note or perform
Borrower's obligations under this note or any of the Related Documents. (d) Any
representation or statement made or furnished to Lender by Borrower or on
Borrower's behalf is false or misleading in any material respect either now or
at the time made or furnished. (e) Borrower becomes insolvent, a receiver is
appointed for any part of Borrower's property, Borrower makes an assignment for
the benefit of creditors, or any proceeding is commenced either by Borrower or
against Borrower under any bankruptcy or insolvency laws. (f) Any creditor tries
to take any of Borrower's property on or in which Lender has a lien or security
interest. This includes a garnishment of any of Borrower's accounts with
Lender. (g) Any guarantor dies or any of the other events described in this
default section occurs with respect to any guarantor of this Note. (h) A
material adverse change occurs in Borrower's financial condition, or Lender
believes that prospect of payment or performance of the indebtedness is
impaired.
If any default, other than a default in payment, is curable and if Borrower has
not been given a notice of a breach of the same provision of this Note within
the preceding twelve (12) months, it may be cured (and no event of default will
have occurred) if Borrower, after receiving written notice from Lender
demanding cure of such default: (a) cures the default within fifteen (15) days;
or (b) if the cure requires more than fifteen (15) days, immediately initiates
steps which Lender deems in Lender's sole discretion to be sufficient to cure
the default and thereafter continues and completes all reasonable and necessary
steps sufficient to produce compliance as soon as reasonably practical.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon Borrower's failure to pay
all amounts declared due pursuant to this section, including failure to pay upon
final maturity, Lender, at its option, may also, if permitted under applicable
law, do one or both of the following: (a) increase the interest rate on this
Note 3.000 percentage points, and (b) add any unpaid accrued interest to
principal and such sum will bear interest therefrom until paid at the rate
provided in this Note (including any increased rate). Lender may hire or pay
someone else to help collect this Note if Borrower does not pay. Borrower also
will pay Lender that amount. This includes, subject to any limits under
applicable law, Lender's attorneys' fees and Lender's legal expenses whether or
not there is a lawsuit, including attorneys' fees and legal expenses for
bankruptcy proceedings (including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post-judgment collection services.
Borrower also will pay any court costs, in addition to all other sums provided
by law. THIS NOTE HAS BEEN DELIVERED TO LENDER AND ACCEPTED BY LENDER IN THE
STATE OF NEVADA. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE ADDENDUM ATTACHED HERETO AND MADE A PART HEREOF.
DISHONORED ITEM FEE.
LINE OF CREDIT. This Note evidences a straight line of credit. Once the total
amount of principal has been advanced, Borrower is not entitled to further loan
advances. Advances under this Note, as well as directions for payment from
Borrower's accounts, may be requested orally or in writing by Borrower or by an
authorized person. Lender may, but need not, require that all oral requests be
confirmed in writing. The following party or parties are authored to request
advances under the line of credit until lender receives from Borrower at
Lender's address shown above written notice of revocation of their authority:
Vern Castro, Chairman. Borrower agrees to be liable for all sums either: (a)
advance in accordance with the instructions of an authorized person or (b)
credited to any of Borrower's accounts with Lender. The unpaid principal balance
owing in this Note at any time may be evidenced by endorsements on this Note or
by Lender's internal records, including daily computer print-outs. Lender will
also have no obligation to advance funds under this Note if: (a) Borrower or any
guarantor is in default under the terms of this Note or any agreement that
Borrower or any guarantor has with Lender, including any agreement made in
connection with the signing of this Note; (b) Borrower or any guarantor ceases
doing business or is insolvent; (c) any guarantor seeks, claim or otherwise
attempt to limit, modify or revoke such guarantor's guarantee of this Note or
any other loan with Lender; or (d) Borrower has applied funds provided pursuant
to this Note for purposes other than those authorized by Lender.
<PAGE> 2
PROMISSORY NOTE
(Continued)
GENERAL PROVISIONS. This Note is payable on demand. The inclusion of specific
default provisions or rights of Lender shall not preclude Lender's right to
declare payment of this Note on its demand. Lender may delay or forgo enforcing
any of its rights or remedies under this Note without losing them. Borrower and
any other person who signs, guarantees or endorses this Note, to the extent
allowed by law, waive any applicable statute of limitations, presentment,
demand for payment, protest and notice of dishonor. Upon any change in the
terms of this Note, and unless otherwise expressly stated in writing, no party
who signs this Note, whether as maker or guarantor, accommodation maker or
endorser, shall be released from liability. All such parties agree that Lender
may renew or extend (repeatedly and for any length of time) this loan, or
release any party or guarantor or collateral; or impair, fail to realize upon
or perfect Lender's security interest in the collateral; and take any other
action deemed necessary by Lender without the consent of or notice to anyone.
All such parties also agree that Lender may modify this loan without the
consent of or notice to anyone other than the party with whom the modification
is made.
- -------------------------------------------------------------------------------
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE. BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF
A COMPLETED COPY OF THE NOTE.
BORROWER:
Table Mountain Band of Indians
of the Table Mountain Rancheria
By: /s/ Vern Castro, Chairman
--------------------------------
Vern Castro, Chairman
- -------------------------------------------------------------------------------
<PAGE> 3
BUSINESS LOAN AGREEMENT
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$2,900,000.00 8/24/98 12/31/99
- ------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability
of this document to any particular loan or item.
- ------------------------------------------------------------------------------------------
Borrower: Table Mountain Band of Indians of the Lender: American Vantage Companies
Table Mountain Rancheria 6787 West Tropicana, Ste 200
8184 Table Mountain Road Las Vegas, NV 89103
Friant, CA 93626
- ------------------------------------------------------------------------------------------
</TABLE>
THIS BUSINESS LOAN AGREEMENT BETWEEN TABLE MOUNTAIN BAND OF INDIANS OF THE TABLE
MOUNTAIN RANCHERIA ("BORROWER") AND AMERICAN VANTAGE COMPANIES ("LENDER") IS
MADE AND EXECUTED ON THE FOLLOWING TERMS AND CONDITIONS. BORROWER HAS RECEIVED
PRIOR LOANS FROM LENDER OR HAS APPLIED TO LENDER FOR A LOAN OR LOANS AND OTHER
FINANCIAL ACCOMMODATIONS, INCLUDING THOSE WHICH MAY BE DESCRIBED ON ANY EXHIBIT
OR SCHEDULE ATTACHED TO THIS AGREEMENT. ALL SUCH LOANS AND FINANCIAL
ACCOMMODATIONS, TOGETHER WITH ALL FUTURE LOANS AND FINANCIAL ACCOMMODATIONS FROM
LENDER TO BORROWER, ARE REFERRED TO IN THIS AGREEMENT INDIVIDUALLY AS THE "LOAN"
AND COLLECTIVELY AS THE "LOANS." BORROWER UNDERSTANDS AND AGREES THAT: (a) IN
GRANTING, RENEWING OR EXTENDING ANY LOAN, LENDER IS RELYING UPON BORROWER'S
REPRESENTATIONS, WARRANTIES, AND AGREEMENTS, AS SET FORTH IN THIS AGREEMENT; (b)
THE GRANTING, RENEWING, OR EXTENDING OF ANY LOAN BY LENDER AT ALL TIMES SHALL BE
SUBJECT TO LENDER'S SOLE JUDGEMENT AND DISCRETION; AND (c) ALL SUCH LOANS SHALL
BE AND SHALL REMAIN SUBJECT TO THE FOLLOWING TERMS AND CONDITIONS OF THIS
AGREEMENT.
TERM. This Agreement shall be effective as of AUGUST 24, 1998, and shall
continue thereafter until all indebtedness of Borrower to Lender has been
performed in full and the parties terminate this Agreement in writing.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All references
to dollar amounts shall mean amounts in lawful money of the United States of
America.
AGREEMENT. The word "Agreement" means this Business Loan Agreement, as this
Business Loan Agreement may be amended or modified from time to time,
together with all exhibits and schedules attached to this Business Loan
Agreement from time to time.
BORROWER. The word "Borrower" means Table Mountain Band of Indians of the
Table Mountain Rancheria. The word "Borrower" also includes, as applicable,
all subsidiaries and affiliates of Borrower as provided below in the
paragraph titled "Subsidiaries and Affiliates."
CERCLA. The word "CERCLA" means the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended.
COLLATERAL. The word "Collateral" means and includes without limitation all
property and assets granted as collateral security for a Loan, whether real
or personal property, whether granted directly or indirectly, whether
granted now or in the future, and whether granted in the form of a security
interest, mortgage, deed of trust, assignment, pledge, chattel mortgage,
chattel trust, factor's lien, equipment trust, conditional sale, trust
receipt, lien, charge, lien or title retention contract, lease or
consignment intended as a security device, or any other security or lien
interest whatsoever whether created by law, contract, or otherwise.
ERISA. The word "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
EVENT OF DEFAULT. The words "Event of Default" means and include without
limitation any of the Events of Default set forth below in the section
titled "EVENTS OF DEFAULT."
GRANTOR. The word "Grantor" means and includes without limitation each and
all of the guarantor, sureties, and accommodation parties in connection
with any indebtedness.
INDEBTEDNESS. The word "indebtedness" means and includes without limitation
all Loans, together with all other obligations, debts and liabilities of
Borrower to Lender, or any one or more of them, as well as all claims by
Lender against Borrower, or any one or more of them; whether now or
hereafter existing, voluntary or involuntary, due or not due, absolute or
contingent, liquidated or unliquidated; whether Borrower may be liable
individually or jointly with others; whether Borrower may be obligated as a
guarantor, surety, or otherwise; whether recovery upon such indebtedness
may be or hereafter may become barred by any statute of limitations; and
whether such indebtedness may be or hereafter may become otherwise
unenforceable.
LENDER. The word "Lender" means American Vantage Companies, its successors
and assigns.
LOAN. The word "Loan" or "Loans" means and includes without limitation any
and all commercial loans and financial accommodations from Lender to
Borrower, whether now or hereafter existing, and however evidenced,
including without limitation those loans and financial accommodations
described herein or described on any exhibit or schedule attached to this
Agreement from time to time.
NOTE. The word "Note" means and includes without limitation Borrower's
promissory note or notes, if any, evidencing Borrower's Loan obligations in
favor or Lender, as well as any substitute, replacement or refinancing note
or notes therefor.
PERMITTED LIENS. The words "Permitted Liens" mean: (a) liens and security
interests securing indebtedness owed by Borrower to Lender; (b) liens for
taxes, assessments, or similar charges either not yet due or being
contested in good faith; (c) liens of materialmen, mechanics, warehousemen,
or carriers, or other like liens arising in the ordinary course of business
and securing obligations which are not yet delinquent; (d) purchase money
liens or purchase money security interests upon or in any property acquired
or held by Borrower in the ordinary course of business to secure
indebtedness outstanding on the date of this Agreement or permitted to be
incurred under the paragraph of this Agreement titled "Indebtedness and
Liens"; (e) liens and security interests which, as of the date of this
Agreement, have been disclosed to and approved by the Lender in writing;
and (f) those liens and security interests which in the aggregate
constitute an immaterial and insignificant monetary amount with respect to
the net value of Borrower's assets.
RELATED DOCUMENTS. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the indebtedness.
SECURITY AGREEMENT. The words "Security Agreement" mean and include without
limitation any agreements, promises, covenants, arrangements,
understandings or other agreements, whether created by law, contract, or
otherwise, evidencing, governing, representing, or creating a Security
Interest.
SECURITY INTEREST. The words "Security Interest" mean and include without
limitation any type of collateral security, whether in the form of a lien,
charge, mortgage, deed of trust, assignment, pledge, chattel mortgage,
chattel trust, factor's lien, equipment trust, conditional sale, trust
receipt, lien or title retention contract, lease or consignment intended as
security device or any other security or lien interest whatsoever, whether
created by law, contract, or otherwise.
SARA. The word "SARA" means the Superfund Amendments and Reauthorization
Act of 1986 as now or hereafter amended.
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the initial
Loan Advance and each subsequent Loan Advance under this Agreement shall be
subject to the fulfillment to Lender's satisfaction of all of the conditions set
forth in this Agreement and in the Related Documents.
LOAN DOCUMENTS. Borrower shall provide to Lender in form satisfactory to
Lender the following documents for the Loan: (a) the Note; (b) Security
Agreements granting to Lender security interests in the Collateral; (c)
Financing Statements perfecting Lender's Security Interests; (d) evidence
of insurance as required below; and (e) any other documents required under
this Agreement or by Lender or its counsel.
BORROWER'S AUTHORIZATION. Borrower shall have provided in form and
substance satisfactory to Lender properly certified resolutions, duly
authorizing the execution and delivery of this Agreement, the Note and the
Related Documents, and such other authorizations and other documents and
instruments as Lender or its counsel, in their sole discretion, may
require.
PAYMENT OF FEES AND EXPENSES. Borrower shall have paid to Lender all fees,
charges, and other expenses which are then due and payable as specified in
this Agreement or any Related Document.
<PAGE> 4
BUSINESS LOAN AGREEMENT
(Continued)
8/24/98 Page 2
- --------------------------------------------------------------------------------
REPRESENTATIONS AND WARRANTIES. The representations and warranties set
forth in this Agreement, in the Related Documents, and in any document or
certificate delivered to Lender under this Agreement are true and correct.
NO EVENT OF DEFAULT. There shall not exist at the time of any advance a
condition which would constitute an Event of Default under this Agreement.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as
of the date of this Agreement, as of the date of each disbursement of Loan
proceeds, as of the date of any renewal, extension or modification of any Loan,
and at all times any indebtedness exists:
ORGANIZATION. Borrower is a federally recognized Indian Tribe, which is
duly organized, validly existing, and in good standing under the laws of
the United States. Borrower has the full power and authority to own its
properties and to transact the businesses in which it is presently engaged
or presently proposes to engage.
AUTHORIZATION. The execution, delivery, and performance of this Agreement
and all Related Documents by Borrower, to the extent to be executed,
delivered or performed by Borrower, have been duly authorized by all
necessary action by Borrower; do not require the consent or approval of any
other person, regulatory authority or governmental body; and do not
conflict with, result in a violation of, or constitute a default under (a)
any provision of its articles of incorporation or organization, or bylaws,
or any agreement or other instrument binding upon Borrower or (b) any law,
governmental regulation, court decree, or order applicable to Borrower.
FINANCIAL INFORMATION. Each financial statement of Borrower supplied to
Lender truly and completely disclosed Borrower's financial condition as of
the date of the statement, and there has been no material adverse change in
Borrower's financial condition subsequent to the date of the most recent
financial statement supplied to Lender. Borrower has no material contingent
obligations except as disclosed in such financial statements.
LEGAL EFFECT. This Agreement constitutes, and any instrument or agreement
required hereunder to be given by Borrower when delivered will constitute,
legal, valid and binding obligations of Borrower enforceable against
Borrower in accordance with their respective terms.
PROPERTIES. Except as contemplated by this Agreement or as previously
disclosed in Borrower's financial statements or in writing to Lender and as
accepted by Lender, Borrower owns and has good title to all of Borrower's
properties free and clear of all Security Interests, and has not executed
any security documents or financing statements relating to such properties.
All of Borrower's properties are titled in Borrower's legal name, and
Borrower has not used, or filed a financing statement, under any other name
for at least the last five (5) years.
HAZARDOUS SUBSTANCES. The terms "hazardous waste," "hazardous substance,"
"disposal," "release," and "threatened release," as used in this Agreement,
shall have the same meanings as set forth in the "CERCLA," "SARA," the
Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et. Seq.,
the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et
seq., Chapters 6.5 through 7.7 of Division 20 of the California Health and
Safety Code, Section 25100, et seq., or other applicable state or Federal
laws, rules, or regulations adopted pursuant to any of the foregoing.
Except as disclosed to and acknowledged by Lender in writing, Borrower
represents and warrants that: (a) During the period of Borrower's ownership
of the properties, there has been no use, generation, manufacture, storage,
treatment, disposal, release or threatened release of any hazardous waste
or substance by any person on, under, about or from any of the properties.
(b) Borrower has no knowledge of, or reason to believe that there has been
(i) any use, generation, manufacture, storage, treatment, disposal,
release, or threatened release of any hazardous waste or substance on,
under, about or from the properties by any prior owners or occupants of any
of the properties, or (ii) any actual or threatened litigation or claims of
any kind by any person relating to such matters. (c) Neither Borrower nor
any tenant, contractor, agent or other authorized user of any of the
properties shall use, generate, manufacture, store, treat, dispose of, or
release any hazardous waste or substance on, under, about or from any of
the properties; and any such activity shall be conducted in compliance with
all applicable federal, state, and local laws, regulations, and ordinances,
including without limitation those laws, regulations and ordinances
described above. Borrower authorizes Lender and its agents to enter upon
the properties to make such inspections and tests as Lender may deem
appropriate to determine compliance of the properties with this section of
the Agreement. Any inspections or tests made by Lender shall be at
Borrower's expense and for Lender's purposes only and shall not be
construed to create any responsibility or liability on the part of Lender
to Borrower or to any other person. The representations and warranties
contained herein are based on Borrower's due diligence in investigating the
properties for hazardous waste and hazardous substances. Borrower hereby
(a) releases and waives any future claims against Lender for indemnity or
contribution in the event Borrower becomes liable for cleanup or other
costs under any such laws, and (b) agrees to indemnify and hold harmless
Lender against any and all claims, losses, liabilities, damages, penalties,
and expenses which Lender may directly or indirectly sustain or suffer
resulting from a breach of this section of the Agreement or as a
consequence of any use, generation, manufacture, storage, disposal, release
or threatened release of a hazardous waste or substance on the properties.
The provisions of this section of the Agreement, including the obligation
to indemnify, shall survive the payment of the indebtedness and the
termination or expiration of this Agreement and shall not be affected by
Lender's acquisition of any interest in any of the properties, whether by
foreclosure or otherwise.
LITIGATION AND CLAIMS. No litigation, claim, investigation, administrative
proceeding or similar action (including those for unpaid taxes) against
Borrower is pending or threatened, and no other event has occurred which
may materially adversely affect Borrower's financial condition or
properties, other than litigation, claims, or other events, if any, that
have been disclosed to and acknowledged by Lender in writing.
TAXES. To the best of Borrower's knowledge, all tax returns and reports of
Borrower that are or were required to be filed, have been filed, and all
taxes, assessments and other governmental charges have been paid in full,
except those presently being or to be contested by Borrower in good faith
in the ordinary course of business and for which adequate reserves have
been provided.
LIEN PRIORITY. Unless otherwise previously disclosed to Lender in writing,
Borrower has not entered into or granted any Security Agreements, or
permitted the filing or attachment of any Security Interests on or
affecting any of the Collateral directly or indirectly securing repayment
of Borrower's Loan and Note, that would be prior or that may in any way be
superior to Lender's Security Interests and rights in and to such
Collateral.
BINDING EFFECT. This Agreement, the Note, all Security Agreements directly
or indirectly securing repayment of Borrower's Loan and Note and all of the
Related Documents are binding upon Borrower as well as upon Borrower's
successors, representatives and assigns, and are legally enforceable in
accordance with their respective terms.
COMMERCIAL PURPOSES. Borrower intends to use the Loan proceeds solely for
business or commercial related purposes.
EMPLOYEE BENEFIT PLANS. Each employee benefit plan as to which Borrower may
have any liability complies in all material respects with all applicable
requirements of law and regulations, and (i) no Reportable Event nor
Prohibited Transaction (as defined in ERISA) has occurred with respect to
any such plan, (ii) Borrower has not withdrawn from any such plan or
initiated steps to do so, (iii) no steps have been taken to terminate any
such plan, and (iv) there are no unfunded liabilities other than those
previously disclosed to Lender in writing.
LOCATION OF BORROWER'S OFFICES AND RECORDS. Borrower's place of business,
or Borrower's Chief executive office, if Borrower has more than one place
of business, is located at 8184 Table Mountain Road, Friant, CA 93626.
Unless Borrower has designated otherwise in writing this location is also
the office or offices where Borrower keeps its records concerning the
Collateral.
YEAR 2000. Borrower warrants and represents that all software utilized in
the conduct of Borrower's business will have appropriate capabilities and
compatibility for operation to handle calendar dates falling on or after
January 1, 2000, and all information pertaining to such calendar dates, in
the same manner and with the same functionality as the software does
respecting calendar dates falling on or before December 31, 1999. Further
Borrower warrants and represents that the data-related user interface
functions, data-fields, and date-related program instructions and functions
of the software include the indication of the century.
INFORMATION. All information heretofore or contemporaneously herewith
furnished by Borrower to Lender for the purposes of or in connection with
this Agreement or any transaction contemplated hereby is, and all
information hereafter furnished by or on behalf of Borrower to lender will
be, true and accurate in every material respect on the date as of which
such information is dated or certified; and none of such information is or
will be incomplete by omitting to state any material fact necessary to make
such information not misleading.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Borrower understands and agrees
that Lender, without independent investigation, is relying upon the above
representations and warranties in making the above referenced Loan to
Borrower. Borrower further agrees that the foregoing
<PAGE> 5
BUSINESS LOAN AGREEMENT
(Continued)
8/24/98 Page 3
- --------------------------------------------------------------------------------
representations and warranties shall be continuing in nature and shall
remain in full force and effect until such time as Borrower's indebtedness
shall be paid in full, or until this Agreement shall be terminated in the
manner provided above, whichever is the last to occur.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:
LITIGATION. Promptly inform Lender in writing of (a) all material adverse
changes in Borrower's financial condition, and (b) all existing and all
threatened litigation, claims, investigations, administrative proceedings
or similar actions affecting Borrower or any Guarantor which could
materially affect the financial condition of Borrower or the financial
condition of any Guarantor.
FINANCIAL RECORDS. Maintain its books and records in accordance with
generally accepted accounting principles, applied on a consistent basis,
and permit Lender to examine and audit Borrower's books and records at all
reasonable times.
FINANCIAL STATEMENTS. Furnish Lender with, as soon as available, but in no
event later than one hundred twenty (120) days after the end of each fiscal
year, Borrower's balance sheet and income statement for the year ended,
audited by a certified public accountant satisfactory to Lender. All
financial reports required to be provided under this Agreement shall be
prepared in accordance with generally accepted accounting principles,
applied on a consistent basis, and certified by Borrower as being true and
correct.
ADDITIONAL INFORMATION. Furnish such additional information and statements,
lists of assets and liabilities, agings or receivables and payables,
inventory schedules, budgets, forecasts, tax returns, and other reports
with respect to Borrower's financial condition and business operations as
Lender may request from time to time.
INSURANCE. Maintain fire and other risk insurance, public liability
insurance, and such other insurance as Lender may require with respect to
Borrower's properties and operations, in form, amounts, coverages and with
insurance companies reasonably acceptable to Lender. Borrower, upon request
of Lender, will deliver to Lender from time to time the policies or
certificates of insurance in form satisfactory to Lender, including
stipulations that coverages will not be cancelled or diminished without at
least thirty (30) days' prior written notice to Lender. Each insurance
policy also shall include an endorsement providing that coverage in favor
of Lender will not be impaired in any way by any act, omission or default
of Borrower or any other person. In connection with all policies covering
assets in which Lender holds or is offered a security interest for the
Loans, Borrower will provide Lender with such loss payable or other
endorsements as Lender may require.
INSURANCE REPORTS. Furnish to Lender, upon request of Lender, reports on
each existing insurance policy showing such information as Lender may
reasonably request, including without limitation the following: (a) the
name of the insurer; (b) the risks insured; (c) the amount of the policy;
(d) the properties insured; (e) the then current property values on the
basis of which insurance has been obtained, and the manner of determining
those values; and (f) the expiration date of the policy. In addition, upon
request of Lender (however not more often than annually), Borrower will
have an independent appraiser satisfactory to Lender determine, as
applicable, the actual cash value or replacement cost of any Collateral.
The cost of such appraisal shall be paid by Borrower.
OTHER AGREEMENTS. Comply with all terms and conditions of all other
agreements, whether now or hereafter existing, between Borrower and any
other party and notify Lender immediately in writing of any default in
connection with any other such agreements.
LOAN FEES AND CHARGES.
LOAN PROCEEDS. Use all Loan proceeds solely for Borrower's business
operations, unless specifically consented to the contrary by Lender in
writing.
TAXES, CHARGES AND LIENS. Pay and discharge when due all of its
indebtedness and obligations, including without limitation all assessments,
taxes, governmental charges, levies and liens, of every kind and nature,
imposed upon Borrower or its properties, income, or profits, prior to the
date on which penalties would attach, and all lawful claims that, if
unpaid, might become a lien or charge upon any of Borrower's properties,
income, or profits. Provided however, Borrower will not be required to pay
and discharge any such assessment, tax, charge, levy, lien or claim so long
as (a) the legality of the same shall be contested in good faith by
appropriate proceedings, and (b) Borrower shall have established on its
books adequate reserves with respect to such contested assessment, tax,
charge, levy, lien, or claim in accordance with generally accepted
accounting practices. Borrower, upon demand of Lender, will furnish to
Lender evidence of payment of the assessments, taxes, charges, levies,
liens and claims and will authorize the appropriate governmental official
to deliver to Lender at any time a written statement of any assessments,
taxes, charges, levies, liens and claims against Borrower's properties,
income, or profits.
PERFORMANCE. Perform and comply with all terms, conditions and provisions
set forth in this Agreement and in the Related Documents in a timely
manner, and promptly notify Lender if Borrower learns of the occurrence of
any event which constitutes an Event of Default under this Agreement or
under any of the Related Documents.
OPERATIONS. Maintain executive and management personnel with substantially
the same qualifications and experience as the present executive and
management personnel; provide written notice to Lender of any change in
executive and management personnel; conduct its business affairs in a
reasonable and prudent manner and in compliance with all applicable
federal, state and municipal laws, ordinances, rules and regulations
respecting its properties, charters, businesses and operations, including
without limitation, compliance with the Americans With Disabilities Act and
with all minimum funding standards and other requirements of ERISA and
other laws applicable to Borrower's employee benefit plans.
INSPECTION. Permit employees or agents of Lender at any reasonable time to
inspect any and all Collateral for the Loan or Loans and Borrower's other
properties and to examine or audit Borrower's books, accounts, and records
and to make copies and memoranda of Borrower's books, accounts, and
records. If Borrower now or at any time hereafter maintains any records
(including without limitation computer generated records and computer
software programs for the generation of such records) in the possession of
a third party, Borrower, upon request of Lender, shall notify such party to
permit Lender free access to such records at all reasonable times and to
provide Lender with copies of any records it may request, all at Borrower's
expense.
COMPLIANCE CERTIFICATE. Unless waived in writing by Lender, provide Lender
at least annually and at the time of each disbursement of Loan proceeds
with a certificate executed by Borrower's chief financial officer, or other
officer or person acceptable to Lender, certifying that the representations
and warranties set forth in this Agreement are true and correct as of the
date of the certificate and further certifying that, as of the date of the
certificate, no Event of Default exists under this Agreement.
ENVIRONMENTAL COMPLIANCE REPORTS. Borrower shall comply in all respects
with all environmental protection federal, state and local laws, statutes,
regulations and ordinances; not cause or permit to exist, as a result of an
intentional or unintentional action or omission on its part or on the part
of any third party, on property owned and/or occupied by Borrower, any
environmental activity where damage may result to the environment, unless
such environmental activity is pursuant to and in compliance with the
conditions of a permit issued by the appropriate federal, state or local
governmental authorities; shall furnish to Lender promptly and in any event
within thirty (30) days after receipt thereof a copy of any notice,
summons, lien, citation, directive, letter or other communication from any
governmental agency or instrumentality concerning any intentional or
unintentional action or omission on Borrower's part in connection with any
environmental activity whether or not there is damage to the environment
and/or other natural resources.
ADDITIONAL ASSURANCES. Make, execute and deliver to Lender such promissory
notes, mortgages, deeds of trust, security agreements, financing
statements, instruments, documents and other agreements as Lender or its
attorneys may reasonably request to evidence and secure the Loans and to
perfect all Security Interests.
RECOVERY OF ADDITIONAL COSTS. If the imposition of or any change in any law,
rule, regulation or guideline, or the interpretation or application of any
thereof by any court or administrative or governmental authority (including any
request or policy not having the force of law) shall impose, modify or make
applicable any taxes (except U.S. federal, state or local income or franchise
taxes imposed on Lender), reserve requirements, capital adequacy requirements or
other obligations which would (a) increase the cost to Lender for extending or
maintaining the credit facilities to which this Agreement relates, (b) reduce
the amounts payable to Lender under this Agreement or the Related Documents, or
(c) reduce the rate of return on Lender's capital as a consequence of Lender's
obligations with respect to the credit facilities to which this Agreement
relates, then Borrower agrees to pay Lender such additional amounts as will
compensate Lender therefor, within five (5) days after Lender's written demand
for such payment, which demand shall be accompanied by an explanation of such
imposition or charge and a calculation in reasonable detail of the additional
amounts payable by Borrower, which explanation and calculations shall be
conclusive in the absence of manifest error.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent of
Lender:
<PAGE> 6
8-24-98 BUSINESS LOAN AGREEMENT PAGE 4
(Continued)
================================================================================
INDEBTEDNESS AND LIENS. (a) Except for trade debt incurred in the normal
course of business and indebtedness to Lender contemplated by this
Agreement, create, incur or assume indebtedness for borrowed money,
including capital leases, (b) except as allowed as a Permitted Lien, sell,
transfer, mortgage, assign, pledge, lease, grant a security interest in, or
encumber any of Borrower's assets, or (c) sell with recourse any of
Borrower's accounts, except to Lender.
CONTINUITY OF OPERATIONS.
LOANS, ACQUISITIONS AND GUARANTIES. (a) Loan, invest in or advance money or
assets, (b) purchase, create or acquire any interest in any other
enterprise or entity, or (c) incur any obligation as surety or guarantor
other than in the ordinary course of business.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds if:
(1) Borrower or any Guarantor is in default under the terms of this Agreement or
any of the Related Documents or any other agreement that Borrower or any
Guarantor has with Lender; (b) Borrower or any Guarantor becomes insolvent,
files a position in bankruptcy or similar proceedings, or is adjudged a
bankrupt; (c) there occurs a material adverse change in Borrower's financial
condition, in the financial condition of any Guarantor, on in the value of any
Collateral securing any Loan; or (d) any Guarantor seeks, claims or otherwise
attempts to limit, modify or revoke such Guarantor's guaranty of the Loan or any
other loan with Lender.
RIGHT OF SETOFF.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
DEFAULT ON INDEBTEDNESS. Failure of Borrower to make any payment when due
on the Loans.
OTHER DEFAULTS. Failure of Borrower or any Grantor to comply with or to
perform when due any other term, obligation, covenant or condition
contained in this Agreement or in any of the Related Documents, or failure
of Borrower to comply with or to perform any other term, obligation,
covenant or condition contained in any other agreement between Lender and
Borrower.
DEFAULT IN FAVOR OF THIRD PARTIES. Should Borrower or any Grantor default
under any loan, extension of credit, security agreement, purchase or sales
agreement, or any other agreement, in favor of any other creditor or person
that may materially affect any of Borrower's property or Borrower's or any
Grantor's ability to repay the Loans or perform their respective
obligations under this Agreement or any of the Related Documents.
FALSE STATEMENTS. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Borrower or any Grantor under this
Agreement or the Related Documents is false or misleading in any material
respect at the time made or furnished, or becomes false or misleading at
any time thereafter.
DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related Documents
ceases to be in full force and effective (including failure of any Security
Agreement to create a valid and perfected Security Interest) at any time
and for any reason.
INSOLVENCY. The dissolution or termination of Borrower's existence as a
going business, the insolvency of Borrower, the appointment of a receiver
for any part of Borrower's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Borrower.
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Borrower, any creditor
of any Grantor against any collateral securing the indebtedness, or by any
governmental agency. This includes a garnishment, attachment, or levy on or
of any of Borrower's deposit accounts with Lender. However, this Event of
Default shall not apply if there is a good faith dispute by Borrower or
Grantor, as the case may be, as to the validity or reasonableness of the
claim which is the basis of the creditor or forfeiture proceeding, and if
Borrower or Grantor gives Lender written notice of the creditor or
forfeiture proceeding and furnishes reserves or a surety bond for the
creditor or forfeiture proceeding satisfactory to Lender.
EVENTS AFFECTING GUARANTOR. Any of the proceeding events occurs with
respect to any Guarantor of any of the indebtedness or any Guarantor dies
or becomes incompetent, or revokes or disputes the validity of, or
liability under, any Guaranty of the indebtedness. Lender, at its option,
may, but shall not be required to, permit the Guarantor's estate to assume
unconditionally the obligations arising under the guaranty in a manner
satisfactory to Lender, and, in doing so, cure the Event of Default.
CHANGE IN OWNERSHIP.
ADVERSE CHANGE. A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of the
indebtedness is impaired.
RIGHT TO CURE. If any default, other than a Default on Indebtedness, is
curable and if Borrower or Grantor, as the case may be, has not been given
a notice of a similar default within the preceding twelve (12) months, it
may be cured (an no Event of Default will have occurred) if Borrower or
Grantor, as the case may be, after receiving written notice from Lender
demanding cure of such default; (a) cures the default within fifteen (15)
days; or (b) if the cure requires more than fifteen (15) days, immediately
initiates steps which Lender deems in Lender's sole discretion to be
sufficient to cure the default and thereafter continues and completes all
reasonable and necessary steps sufficient to produce compliance as soon as
reasonably practical.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where
otherwise provided in this Agreement or the Related Documents, all commitments
and obligations of Lender under this Agreement or the Related Documents or any
other agreement immediately will terminate and, at Lender's option, all
indebtedness immediately will become due and payable, all without notice of any
kind to Borrower, except that in the case of an Event of Default of the type
described in the "Insolvency" subsection above, such acceleration shall be
automatic and not optional. In addition, Lender shall have all the rights and
remedies provided in the Related Documents or available at law, in equity, or
otherwise. Except as may be prohibited by applicable law, all of Lender's rights
and remedies shall be cumulative and may be exercised singularly or
concurrently. Election by Lender to pursue any remedy shall not exclude pursuit
of any other remedy, and an election to make expenditures or to take action to
perform an obligation of Borrower or of any Grantor shall not affect Lender's
right to declare a default and to exercise its rights and remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
matters set forth in this Agreement. No alternation of or amendment to this
Agreement shall be effective unless given in writing and signed by the
party or parties sought to be charged or bound by the alteration or
amendment.
APPLICABLE LAW. THIS AGREEMENT HAS BEEN DELIVERED TO LENDER AND ACCEPTED BY
LENDER IN THE STATE OF CALIFORNIA. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE ADDENDUM ATTACHED TO THE PROMISSORY NOTE
AND MADE A PART HEREOF.
CAPTION HEADINGS. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.
<PAGE> 7
BUSINESS LOAN AGREEMENT
(CONTINUED)
8/24/98 PAGE 5
- -----------------------------------------------------------------------------
CONSENT TO LOAN PARTICIPATION. Borrower agrees and consents to Lender's sale
or transfer, whether now or later, of one or more participation interests in
the Loans to one or more purchasers, whether related or unrelated to Lender.
Lender may provide, without any limitation whatsoever, to any one or more
purchasers, or potential purchasers, any information or knowledge Lender may
have about Borrower or about any other matter relating to the Loan, and
Borrower hereby waives any rights to privacy it may have with respect to such
matters. Borrower additionally waives any and all notices of sale of
participation interests, as well as all notices of any repurchase of such
participation interests. Borrower also agrees that the purchasers of any such
participation interests will be considered as the absolute owners of such
interests in the Loans and will have all the rights granted under the
participation agreement or agreements governing the sale of such participation
interests. Borrower further waives all rights of offset or counterclaim that it
may have now or later against Lender or against any purchaser of such a
participation interest and unconditionally agrees that either Lender or such
purchaser may enforce Borrower's obligation under the Loans irrespective of the
failure or insolvency of any holder of any interest in the Loans. Borrower
further agrees that the purchaser of any such participation interests may
enforce its interests irrespective of any personal claims or defenses that
Borrower may have against Lender.
COSTS AND EXPENSES. Borrower agrees to pay upon demand all of Lender's
expenses, including without limitation attorneys' fees, incurred in connection
with the preparation, execution, enforcement, modification and collection of
this Agreement or in connection with the Loans made pursuant to this Agreement.
Lender may pay someone else to help collect the Loans and to enforce this
Agreement, and Borrower will pay that amount. This includes, subject to any
limits under applicable law, Lender's attorneys' fees and Lender's legal
expenses, whether or not there is a lawsuit, including attorneys' fees for
bankruptcy proceedings (including efforts to modify or vacate any automatic
stay or injunction), appeals, and any anticipated post-judgment collection
services. Borrower also will pay any court costs, in addition to all other sums
provided by law.
NOTICES. All notices required to be given under this Agreement shall be given
in writing, may be sent by telefacsimile (unless otherwise required by law),
and shall be effective when actually delivered or when deposited with a
nationally recognized overnight courier or deposited in the United States mail,
first class, postage prepaid, addressed to the party to whom the notice is to
be given at the address shown above. Any party may change its address for
notices under this Agreement by giving formal written notice to the other
parties, specifying that the purpose of the notice is to change the party's
address. To the extent permitted by applicable law, if there is more than one
Borrower, notice to any Borrower will constitute notice to all Borrowers. For
notice purposes, Borrower will keep Lender informed at all times of
Borrower's current address(es).
SEVERABILITY. If a court of competent jurisdiction finds any provision of this
Agreement to be invalid or unenforceable as to any person or circumstance, such
finding shall not render that provision invalid or unenforceable as to any
other persons or circumstances. If feasible, any such offending provision shall
be deemed to be modified to be within the limits of enforceability or validity;
however, if the offending provision cannot be so modified, it shall be stricken
and all other provisions of this Agreement in all other respects shall remain
valid and enforceable.
SUBSIDIARIES AND AFFILIATES OF BORROWER. To the extent the context of any
provisions of this Agreement makes it appropriate, including without limitation
any representation, warranty or covenant, the word "Borrower" as used herein
shall include all subsidiaries and affiliates of Borrower. Notwithstanding the
foregoing however, under no circumstances shall this Agreement be construed to
require Lender to make any Loan or other financial accommodation to any
subsidiary or affiliate of Borrower.
SUCCESSORS AND ASSIGNS. All covenants and agreements contained by or on behalf
of Borrower shall bind its successors and assigns and shall inure to the
benefit of Lender, its successors and assigns. Borrower shall not, however,
have the right to assign its rights under this Agreement or any interest
therein, without the prior written consent of Lender.
SURVIVAL. All warranties, representations, and covenants made by Borrower in
this Agreement or in any certificate or other instrument delivered by Borrower
to Lender under this Agreement shall be considered to have been relied upon by
Lender and will survive the making of the Loan and delivery to Lender of the
Related Documents, regardless of any Investigation made by Lender or on
Lender's behalf.
TIME IS OF THE ESSENCE. Time is of the essence in the performance of this
Agreement.
WAIVER. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No delay
or omission on the part of Lender in exercising any right shall operate as a
waiver of such right or any other right. A waiver by Lender of a provision of
this Agreement shall not prejudice or constitute a waiver of Lender's right
otherwise to demand strict compliance with that provision or any other
provision of this Agreement. No prior waiver by Lender, nor any course of
dealing between Lender and Borrower, or between Lender and any Grantor, shall
constitute a waiver of any of Lender's rights or of any obligations of Borrower
or of any Grantor as to any future transactions. Whenever the consent of Lender
is required under this Agreement, the granting of such consent by Lender in any
instance shall not constitute continuing consent in subsequent instances where
such consent is required, and in all cases such consent may be granted or
withheld in the sole discretion of Lender.
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN
AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF JULY
15, 1998.
BORROWER:
TABLE MOUNTAIN BAND OF INDIANS OF THE TABLE MOUNTAIN RANCHERIA
By: /s/ Vern Castro
-------------------------------------
VERN CASTRO, CHAIRMAN
LENDER:
AMERICAN VANTAGE COMPANIES
By: /s/ Ronald J. Tassinari
--------------------------------------
RONALD J. TASSINARI, PRESIDENT AND CEO
<PAGE> 8
ADDENDUM
THIS ADDENDUM is executed on August 24, 1998 by and between AMERICAN VANTAGE
COMPANIES (Herein "Lender"), TABLE MOUNTAIN BAND OF INDIANS OF THE TABLE
MOUNTAIN RANCHERIA, (herein "Tribe")(Borrower), and is with reference to the
following specific documents, all of which are dated August 24, 1998, to wit:
A. $2,900,000 promissory note, executed by borrower, as promissors, and
which is payable to the order of Lender (herein "Promissory Note")
B. Business Loan Agreement, executed by Borrower
This addendum is executed by the parties simultaneously with the execution
of the above-described specific documents.
The parties agree that all references to "Corporation" or "Borrower" in
the above documents or any other documents dated August 24, 1998, relating to
this agreement, will in fact mean TABLE MOUNTAIN BAND OF INDIANS OF THE TABLE
MOUNTAIN RANCHERIA, a federally recognized Indian Tribe.
The parties agree that all references to secretary or assistant secretary
in the above documents or any other documents dated August 24, 1998, relating
to this agreement, will in fact mean Chairman or Vice Chairman.
The parties agree that the provisions of this Addendum are intended to,
and shall amend said documents as hereinafter set forth. If there is any
conflict between the terms and provisions on any of said above-described
documents, and the terms of this Addendum, this Addendum shall control.
LIMITED WAIVER OF SOVEREIGN IMMUNITY. If the parties to this agreement are
unable to resolve any dispute arising under the Agreement, the matter shall be
submitted to binding arbitration in accordance with the commercial arbitration
rules of the American Arbitration Association. Any party desiring arbitration
shall give the other party ten-(10) days' notice of intent to arbitrate. The
decision of the arbitrator or arbitrators shall be binding upon all parties and
shall be subject to enforcement in any court of competent jurisdiction. The
tribe hereby expressly waives its sovereign immunity from suit should an action
be commenced on this Note or regarding subject matter of this Note; provided
that this waiver and consent is not, and shall not be deemed to be, a consent
by Tribe to the levy of any judgment, lien or attachment upon any property or
income of Tribe other than that specifically pledged and assigned in the Loan
Agreement, and the Security Agreement. This limited waiver of sovereign
immunity shall extend both to the entry of judgment enforcing the award and to
the enforcement of collection of judgment. The limited waiver applies only to
remedies against, and assets of, the Borrower, including Gross Casino Revenues,
and shall not otherwise operate as a waiver by the Table Mountain Rancheria, a
federally recognized Indian tribe, for any other purpose. No Rancheria assets
(other than those
<PAGE> 9
listed in this Agreement) shall be subject to collection in satisfaction of any
judgment entered hereunder against Borrower. The limited waiver shall commence
as of the effective date of this Agreement and shall continue only until the
date upon which all of Grantor and Borrower's obligations under the Agreement
have been discharged and satisfied (whether or not the term of the Agreement
has expired). This agreement may not be rescinded or amended except with the
prior written approval of the Lender; and shall be subject to the governing
laws as set forth above.
TABLE MOUNTAIN BAND OF INDIANS OF THE TABLE
MOUNTAIN RANCHERIA
By: /s/
-----------------------------------
Dated: 8/24/98
--------------------------------
AMERICAN VANTAGE COMPANIES
By: /s/
----------------------------------
Dated: 8-24-98
-------------------------------
<PAGE> 1
Exhibit 10.21
PROMISSORY NOTE
<TABLE>
<CAPTION>
PRINCIPAL LOAN DATE MATURITY LOAN NO. CALL COLLATERAL ACCOUNT OFFICER INITIALS
<C> <C> <C> <C> <C> <C> <C> <C> <C>
$2,900,000.00 08-24-1998 12-31-1999 80519302 040 024 600252 900 RW
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
BORROWER: AMERICAN VANTAGE COMPANIES LENDER: UNITED SECURITY BANK, N.A.
6787 W. TROPICANA BLVD., SUITE #200 MAIN OFFICE
LAS VEGAS, NV 89103 2151 W. SHAW AVENUE
P.O. BOX 9546
FRESNO, CA 93793
<TABLE>
<S> <C> <C>
PRINCIPAL AMOUNT: $2,900,000.00 INTEREST RATE: 6.800% DATE OF NOTE: AUGUST 24, 1998
</TABLE>
PROMISE TO PAY. AMERICAN VANTAGE COMPANIES ("BORROWER") PROMISES TO PAY TO
UNITED SECURITY BANK, N.A. ("LENDER"), OR ORDER, IN LAWFUL MONEY OF THE UNITED
STATES OF AMERICA, THE PRINCIPAL AMOUNT OF TWO MILLION NINE HUNDRED THOUSAND &
00/100 DOLLARS ($2,900,000.00) OR SO MUCH AS MAY BE OUTSTANDING, TOGETHER WITH
INTEREST AT THE RATE OF 6.800% ON THE UNPAID OUTSTANDING PRINCIPAL BALANCE OF
EACH ADVANCE.
PAYMENT. BORROWER WILL PAY THIS LOAN IN ONE PAYMENT OF ALL OUTSTANDING PRINCIPAL
PLUS ALL ACCRUED UNPAID INTEREST ON DECEMBER 31, 1999. IN ADDITION, BORROWER
WILL PAY REGULAR MONTHLY PAYMENTS OF ACCRUED UNPAID INTEREST BEGINNING SEPTEMBER
15, 1998, AND ALL SUBSEQUENT INTEREST PAYMENTS ARE DUE ON THE SAME DAY OF EACH
MONTH AFTER THAT. The annual interest rate for this Note is computed on a
365/360 basis; that is, by applying the ratio of the annual interest rate over a
year of 360 days, multiplied by the outstanding principal balance, multiplied by
the actual number of days the principal balance is outstanding. Borrower will
pay Lender at Lender's address shown above or at such other place as Lender may
designate in writing. Unless otherwise agreed or required by applicable law,
payments will be applied first to accrued unpaid interest, then to principal,
and any remaining amount to any unpaid collection costs and late charges.
PREPAYMENT; MINIMUM INTEREST CHARGE. Borrower agrees that all loan fees and
other prepaid finance charges are earned fully as of the date of the loan and
will not be subject to refund upon early payment (whether voluntary or as a
result of default), except as otherwise required by law. In any event, even upon
full prepayment of this Note, Borrower understands that Lender is entitled to a
MINIMUM INTEREST CHARGE OF $150.00. Other than Borrower's obligation to pay any
minimum interest charge, Borrower may pay without penalty all or a portion of
the amount owed earlier than it is due. Early payments will not, unless agreed
to by Lender in writing, relieve Borrower of Borrower's obligation to continue
to make payments of accrued unpaid interest. Rather, they will reduce the
principal balance due.
LATE CHARGE. If a payment is 10 DAYS OR MORE LATE, Borrower will be charged
5.000% OF THE REGULARLY SCHEDULED PAYMENT OR $15.00, WHICHEVER IS GREATER.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this Note or
any agreement related to this Note, or in any other agreement or loan Borrower
has with Lender. (c) Borrower defaults under any loan, extension of credit,
security agreement, purchase or sales agreement, or any other agreement, in
favor of any other creditor or person that may materially affect any of
Borrower's property or Borrower's ability to repay this Note or perform
Borrower's obligations under this Note or any of the Related Documents. (d) Any
representation or statement made or furnished to Lender by Borrower or on
Borrower's behalf is false or misleading in any material respect either now or
at the time made or furnished. (e) Borrower becomes insolvent, a receiver is
appointed for any part of Borrower's property, Borrower makes an assignment for
the benefit of creditors, or any proceeding is commenced either by Borrower or
against Borrower under any bankruptcy or insolvency laws. (f) Any creditor tries
to take any of Borrower's property on or in which Lender has a lien or security
interest. This includes a garnishment of any of Borrower's accounts with Lender.
(g) Any guarantor dies or any of the other events described in this default
section occurs with respect to any guarantor of this Note. (h) A material
adverse change occurs in Borrower's financial condition, or Lender believes the
prospect of payment or performance of the indebtedness is impaired.
If any default, other than a default in payment, is curable and if Borrower has
not been given a notice of a breach of the same provision of this Note within
the preceding twelve (12) months, it may be cured (and no event of default will
have occurred) if Borrower, after receiving written notice from Lender demanding
cure of such default: (a) cures the default within fifteen (15) days; or (b) if
the cure requires more than fifteen (15) days, immediately initiates steps which
Lender deems in Lender's sole discretion to be sufficient to cure the default
and thereafter continues and completes all reasonable and necessary steps
sufficient to produce compliance as soon as reasonably practical.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon Borrower's failure to pay
all amounts declared due pursuant to this section, including failure to pay upon
final maturity, Lender, at its option, may also, if permitted under applicable
law, do one or both of the following: (a) increase the interest rate on this
Note 3.000 percentage points, and (b) add any unpaid accrued interest to
principal and such sum will bear interest therefrom until paid at the rate
provided in this Note (including any increased rate). Lender may hire or pay
someone else to help collect this Note if Borrower does not pay. Borrower also
will pay Lender that amount. This includes, subject to any limits under
applicable law, Lender's attorneys' fees and Lender's legal expenses whether or
not there is a lawsuit, including attorneys' fees and legal expenses for
bankruptcy proceedings (including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post-judgment collection services.
Borrower also will pay any court costs, in addition to all other sums provided
by law. THIS NOTE HAS BEEN DELIVERED TO LENDER AND ACCEPTED BY LENDER IN THE
STATE OF CALIFORNIA. IF THERE IS A LAWSUIT, BORROWER AGREES UPON LENDER'S
REQUEST TO SUBMIT TO THE JURISDICTION OF THE COURTS OF FRESNO COUNTY, THE STATE
OF CALIFORNIA. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF CALIFORNIA.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $15.00 if Borrower
makes a payment on Borrower's loan and the check or preauthorized charge with
which Borrower pays is later dishonored.
RIGHT OF SETOFF. Borrower grants to Lender a contractual security interest in,
and hereby assigns, conveys, delivers, pledges, and transfers to Lender all
Borrower's right, title and interest in and to, Borrower's accounts with Lender
(whether checking, savings, or some other account), including without limitation
all accounts held jointly with someone else and all accounts Borrower may open
in the future, excluding however all IRA and Keogh accounts, and all trust
accounts for which the grant of a security interest would be prohibited by law.
Borrower authorizes Lender, to the extent permitted by applicable law, to charge
or setoff all sums owing on this Note against any and all such accounts.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under
this Note, as well as directions for payment from Borrower's accounts, may be
requested orally or in writing by Borrower or by an authorized person. Lender
may, but need not, require that all oral requests be confirmed in writing. The
following party or parties are authorized to request advances under the line of
credit until Lender receives from Borrower at Lender's address shown above
written notice of revocation of their authority: RONALD J. TASSINARI, PRESIDENT.
Borrower agrees to be liable for all sums either: (a) advanced in accordance
with the instructions of an authorized person or (b) credited to any of
Borrower's accounts with Lender. The unpaid principal balance owing on this Note
at any time may be evidenced by endorsements on this Note or by Lender's
internal records, including daily computer print-outs. Lender will have no
obligation to advance funds under this Note if: (a) Borrower or any guarantor is
in default under the terms of this Note or any agreement that Borrower or any
guarantor has with Lender, including any agreement made in connection with the
signing of this Note; (b) Borrower or any guarantor ceases doing business or is
insolvent; (c) any guarantor seeks, claims or otherwise attempts to limit,
modify or revoke such guarantor's guarantee of this Note or any other loan with
Lender; or (d) Borrower has applied funds provided pursuant to this Note for
purposes other than those authorized by Lender.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person who
signs, guarantees or endorses this Note, to the extent allowed by law, waive any
applicable statute of limitations, presentment, demand for payment, protest and
notice of dishonor. Upon any change in the terms of this Note, and unless
otherwise expressly stated in writing, no party who signs this Note, whether as
maker, guarantor, accommodation maker or endorser, shall be released from
liability. All such parties agree that Lender may renew or extend (repeatedly
and for any length of time) this loan, or release any party or guarantor or
collateral; or impair, fail to realize upon or perfect Lender's security
interest in the collateral; and take any other action deemed necessary by Lender
without the consent of or notice to anyone. All such parties also agree that
Lender may modify this loan without the consent of or notice to anyone other
than the party with whom the modification is made.
<PAGE> 2
08-24-1998 PROMISSORY NOTE Page 2
(Continued)
================================================================================
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE. BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF
A COMPLETED COPY OF THE NOTE.
BORROWER:
American Vantage Companies
By: /s/ Ronald J. Tassinari
-------------------------------------
Ronald J. Tassinari, President
================================================================================
<PAGE> 3
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials
$2,900,000.00 08-24-1998 12-31-1999 80519302 040 024 600252 900 RB
</TABLE>
- --------------------------------------------------------------------------------
Borrower: American Vantage Companies
6787 W. Tropicana Blvd., Suite #200
Las Vegas, NV 89103
Lender: United Security Bank, N.A.
Main Office
2151 W. Shaw Avenue
P.O. Box 9546
Fresno, CA 93793
================================================================================
THIS BUSINESS LOAN AGREEMENT between American Vantage Companies ("Borrower")
and United Security Bank, N.A. ("Lender") is made and executed on the following
terms and conditions. Borrower has received prior commercial loans from Lender
or has applied to Lender for a commercial loan or loans and other financial
accommodations, including those which may be described on any exhibit or
schedule attached to this Agreement. All such loans and financial
accommodations, together with all future loans and financial accommodations
from Lender to Borrower, are referred to in this Agreement individually as the
"Loan" and collectively as the "Loans." Borrower understands and agrees that:
(a) in granting, renewing, or extending any Loan, Lender is relying upon
Borrower's representations, warranties, and agreements, as set forth in this
Agreement; (b) the granting, renewing, or extending of any Loan by Lender at
all times shall be subject to Lender's sole judgment and discretion; and (c)
all such Loans shall be and shall remain subject to the following terms and
conditions of this Agreement.
TERM. This Agreement shall be effective as of August 24, 1998, and shall
continue thereafter until all Indebtedness of Borrower to Lender has been
performed in full and the parties terminate this Agreement in writing.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All
references to dollar amounts shall mean amounts in lawful money of the United
States of America.
AGREEMENT. The word "Agreement" means this Business Loan Agreement, as this
Business Loan Agreement may be amended or modified from time to time,
together with all exhibits and schedules attached to this Business Loan
Agreement from time to time.
BORROWER. The word "Borrower" means American Vantage Companies. The word
"Borrower" also includes, as applicable, all subsidiaries and affiliates of
Borrower as provided below in the paragraph titled "Subsidiaries and
Affiliates."
CERCLA. The word "CERCLA" means the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended.
COLLATERAL. The word "Collateral" means and includes without limitation all
property and assets granted as collateral security for a Loan, whether real
or personal property, whether granted directly or indirectly, whether
granted now or in the future, and whether granted in the form of a security
interest, mortgage, deed of trust, assignment, pledge, chattel mortgage,
chattel trust, factor's lien, equipment trust, conditional sale, trust
receipt, lien, charge, lien or title retention contract, lease or
consignment intended as a security device, or any other security or lien
interest whatsoever, whether created by law, contract, or otherwise.
ERISA. The word "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
EVENT OF DEFAULT. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "EVENTS OF DEFAULT."
GRANTOR. The word "Grantor" means and includes without limitation each and
all of the persons or entities granting a Security Interest in any
Collateral for the Indebtedness, including without limitation all Borrowers
granting such a Security Interest.
GUARANTOR. The word "Guarantor" means and includes without limitation each
and all of the guarantors, sureties, and accommodation parties in
connection with any Indebtedness.
INDEBTEDNESS. The word "Indebtedness" means and includes without limitation
all Loans, together with all other obligations, debts and liabilities of
Borrower to Lender, or any one or more of them, as well as all claims by
Lender against Borrower, or any one or more of them; whether now or
hereafter existing, voluntary or involuntary, due or not due, absolute or
contingent, liquidated or unliquidated; whether Borrower may be liable
individually or jointly with others; whether Borrower may be obligated as a
guarantor, surety, or otherwise; whether recovery upon such Indebtedness
may be or hereafter may become barred by any statute of limitations; and
whether such Indebtedness may be or hereafter may become otherwise
unenforceable.
LENDER. The word "Lender" means United Security Bank, N.A., its successors
and assigns.
LOAN. The word "Loan" or "Loans" means and includes without limitation any
and all commercial loans and financial accommodations from Lender to
Borrower, whether now or hereafter existing, and however evidenced,
including without limitation those loans and financial accommodations
described herein or described on any exhibit or schedule attached to this
Agreement from time to time.
NOTE. The word "Note" means and includes without limitation Borrower's
promissory note or notes, if any, evidencing Borrower's Loan obligations in
favor of Lender, as well as any substitute, replacement or refinancing note
or notes therefor.
PERMITTED LIENS. The words "Permitted Liens" mean: (a) liens and security
interests securing Indebtedness owned by Borrower to Lender; (b) liens for
taxes, assessments, or similar charges either not yet due or being
contested in good faith; (c) liens of materialmen, mechanics, warehousemen,
or carriers, or other like liens arising in the ordinary course of business
and securing obligations which are not yet delinquent; (d) purchase money
liens or purchase money security interests upon or in any properly acquired
or held by Borrower in the ordinary course of business to secure
indebtedness outstanding on the date of this Agreement or permitted to be
incurred under the paragraph of this Agreement titled "Indebtedness and
Liens"; (e) liens and security interests which, as of the date of this
Agreement, have been disclosed to and approved by the Lender in writing;
and (f) those liens and security interests which in the aggregate
constitute an immaterial and insignificant monetary amount with respect to
the net value of Borrower's assets.
RELATED DOCUMENTS. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Indebtedness.
SECURITY AGREEMENT. The words "Security Agreement" mean and include without
limitation any agreements, promises, covenants, arrangements,
understandings or other agreements, whether created by law, contract, or
otherwise, evidencing, governing, representing, or creating a Security
Interest.
SECURITY INTEREST. The words "Security Interest" mean and include without
limitation any type of collateral security, whether in the form of a lien,
charge, mortgage, deed of trust, assignment, pledge, chattel mortgage,
chattel trust, factor's lien, equipment trust, conditional sale, trust
receipt, lien or title retention contract, lease or consignment intended as
a security device, or any other security or lien interest whatsoever,
whether created by law, contract, or otherwise.
SARA. The word "SARA" means the Superfund Amendments and Reauthorization
Act of 1986 as now or hereafter amended.
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the initial
Loan Advance and each subsequent Loan Advance under this Agreement shall be
subject to the fulfillment to Lender's satisfaction of all of the conditions
set forth in this Agreement and in the Related Documents.
LOAN DOCUMENTS. Borrower shall provide to Lender in form satisfactory to
Lender the following documents for the Loan: (a) the Note, (b) Security
Agreements granting to Lender security interests in the Collateral, (c)
Financing Statements perfecting Lender's Security Interests; (d) evidence
of Insurance as required below; and (e) any other documents required under
this Agreement or by Lender or its counsel.
BORROWER'S AUTHORIZATION. Borrower shall have provided in form and
substance satisfactory to Lender properly certified resolutions, duly
authorizing the execution and delivery of this Agreement, the Note and the
Related Documents, and such other authorizations and other documents and
instruments as Lender or its counsel, in their sole discretion, may
require.
PAYMENT OF FEES AND EXPENSES. Borrower shall have paid to Lender all fees,
charges, and other expenses which are then due and payable as specified in
this Agreement or any Related Document.
REPRESENTATIONS AND WARRANTIES. The representations and warranties set
forth in this Agreement, in the Related Documents, and in any document or
certificate delivered to Lender under this Agreement are true and correct.
NO EVENT OF DEFAULT. There shall not exist at the time of any advance a
condition which would constitute an Event of Default under this Agreement.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as
of the date of this Agreement, as of the date of each disbursement of Loan
proceeds, as of the date of any renewal, extension or modification of any Loan,
and at all times any Indebtedness exists:
<PAGE> 4
08-24-1998 BUSINESS LOAN AGREEMENT Page 2
(Continued)
===============================================================================
ORGANIZATION. Borrower is a corporation which is duly organized, validly
existing, and in good standing under the laws of the State of California
and is validly existing and in good standing in all states in which
Borrower is doing business. Borrower has the full power and authority to
own its properties and to transact the businesses in which it is presently
engaged or presently proposes to engage. Borrower also is duly qualified as
a foreign corporation and is in good standing in all states in which the
failure to so qualify would have a material adverse effect on its
businesses or financial condition.
AUTHORIZATION. The execution, delivery, and performance of this Agreement
and all Related Documents by Borrower, to the extent to be executed,
delivered or performed by Borrower, have been duly authorized by all
necessary action by Borrower; do not require the consent or approval of any
other person, regulatory authority or governmental body; and do not
conflict with, result in a violation of, or constitute a default under (a)
any provision of its articles of incorporation or organization, or bylaws,
or any agreement or other instrument binding upon Borrower or (b) any law,
governmental regulation, court decree, or order applicable to Borrower.
FINANCIAL INFORMATION. Each financial statement of Borrower supplied to
Lender truly and completely disclosed Borrower's financial condition as of
the date of the statement, and there has been no material adverse change in
Borrower's financial condition subsequent to the date of the most recent
financial statement supplied to Lender. Borrower has no material contingent
obligations except as disclosed in such financial statements.
LEGAL EFFECT. This Agreement constitutes, and any instrument or agreement
required hereunder to be given by Borrower when delivered will constitute,
legal, valid and binding obligations of Borrower enforceable against
Borrower in accordance with their respective terms.
PROPERTIES. Except as contemplated by this Agreement or as previously
disclosed in Borrower's financial statements or in writing to Lender and as
accepted by Lender, and except for property tax liens for taxes not
presently due and payable, Borrower owns and has good title to all of
Borrower's properties free and clear of all Security Interests, and has not
executed any security documents or financing statements relating to such
properties. All of Borrower's properties are titled in Borrower's legal
name, and Borrower has not used, or filed a financing statement under, any
other name for at least the last five (5) years.
HAZARDOUS SUBSTANCES. The terms "hazardous waste," "hazardous substance,"
"disposal," "release," and "threatened release," as used in this Agreement,
shall have the same meanings as set forth in the "CERCLA," "SARA," the
Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq.,
the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et
seq., Chapters 6.5 through 7.7 of Division 20 of the California Health and
Safety Code, Section 25100, et seq., or other applicable state or Federal
laws, rules, or regulations adopted pursuant to any of the foregoing.
Except as disclosed to and acknowledged by Lender in writing, Borrower
represents and warrants that: (a) During the period of Borrower's ownership
of the properties, there has been no use, generation, manufacture, storage,
treatment, disposal, release or threatened release of any hazardous waste
or substance by any person on, under, about or from any of the properties.
(b) Borrower has no knowledge of, or reason to believe that there has been
(i) any use, generation, manufacture, storage, treatment, disposal,
release, or threatened release of any hazardous waste or substance on,
under, about or from the properties by any prior owners or occupants of any
of the properties, or (ii) any actual or threatened litigation or claims of
any kind by any person relating to such matters. (c) Neither Borrower nor
any tenant, contractor, agent or other authorized user of any of the
properties shall use, generate, manufacture, store, treat, dispose of, or
release any hazardous waste or substance on, under, about or from any of
the properties; and any such activity shall be conducted in compliance with
all applicable federal, state, and local laws, regulations, and ordinances,
including without limitation those laws, regulations and ordinances
described above. Borrower authorizes Lender and its agents to enter upon
the properties to make such inspections and tests as Lender may deem
appropriate to determine compliance of the properties with this section of
the Agreement. Any inspections or tests made by Lender shall be at
Borrower's expense and for Lender's purposes only and shall not be
construed to create any responsibility or liability on the part of Lender
to Borrower or to any other person. The representations and warranties
contained herein are based on Borrower's due diligence in investigating the
properties for hazardous waste and hazardous substances. Borrower hereby
(a) releases and waives any future claims against Lender for indemnity or
contribution in the event Borrower becomes liable for cleanup or other
costs under any such laws, and (b) agrees to indemnify and hold harmless
Lender against any and all claims, losses, liabilities, damages, penalties,
and expenses which Lender may directly or indirectly sustain or suffer
resulting from a breach of this section of the Agreement or as a
consequence of any use, generation, manufacture, storage, disposal, release
or threatened release of a hazardous waste or substance on the properties.
The provisions of this section of the Agreement, including the obligation
to indemnify, shall survive the payment of the Indebtedness and the
termination or expiration of this Agreement and shall not be affected by
Lender's acquisition of any interest in any of the properties, whether by
foreclosure or otherwise.
LITIGATION AND CLAIMS. No litigation, claim, investigation, administrative
proceeding or similar action (including those for unpaid taxes) against
Borrower is pending or threatened, and no other event has occurred which
may materially adversely affect Borrower's financial condition or
properties, other than litigation, claims, or other events, if any, that
have been disclosed to and acknowledged by Lender in writing.
TAXES. To the best of Borrower's knowledge, all tax returns and reports of
Borrower that are or were required to be filed, have been filed, and all
taxes, assessments and other governmental charges have been paid in full,
except those presently being or to be contested by Borrower in good faith
in the ordinary course of business and for which adequate reserves have
been provided.
LIEN PRIORITY. Unless otherwise previously disclosed to Lender in writing,
Borrower has not entered into or granted any Security Agreements, or
permitted the filing or attachment of any Security Interests on or
affecting any of the Collateral directly or indirectly securing repayment
of Borrower's Loan and Note, that would be prior or that may in any way be
superior to Lender's Security Interests and rights in and to such
Collateral.
BINDING EFFECT. This Agreement, the Note, all Security Agreements directly
or indirectly securing repayment of Borrower's Loan and Note and all of the
Related Documents are binding upon Borrower as well as upon Borrower's
successors, representatives and assigns, and are legally enforceable in
accordance with their respective terms.
COMMERCIAL PURPOSES. Borrower intends to use the Loan proceeds solely for
business or commercial related purposes.
EMPLOYEE BENEFIT PLANS. Each employee benefit plan as to which Borrower
may have any liability complies in all material respects with all
applicable requirements of law and regulations, and (i) no Reportable Event
nor Prohibited Transaction (as defined in ERISA) has occurred with respect
to any such plan, (ii) Borrower has not withdrawn from any such plan or
initiated steps to do so, (iii) no steps have been taken to terminate any
such plan, and (iv) there are no unfunded liabilities other than those
previously disclosed to Lender in writing.
LOCATION OF BORROWER'S OFFICES AND RECORDS. Borrower's place of business,
or Borrower's Chief executive office, if Borrower has more than one place
of business, is located at 6787 W. Tropicana Blvd., Suite #200, Las Vegas,
NV 89103. Unless Borrower has designated otherwise in writing this location
is also the office or offices where Borrower keeps its records concerning
the Collateral.
YEAR 2000. Borrower warrants and represents that all software utilized in
the conduct of Borrower's business will have appropriate capabilities and
compatibility for operation to handle calendar dates falling on or after
January 1, 2000, and all information pertaining to such calendar dates, in
the same manner and with the same functionality as the software does
respecting calendar dates falling on or before December 31, 1999. Further,
Borrower warrants and represents that the data-related user interface
functions, data-fields, and data-related program instructions and functions
of the software include the indication of the century.
INFORMATION. All information heretofore or contemporaneously herewith
furnished by Borrower to Lender for the purposes of or in connection with
this Agreement or any transaction contemplated hereby is, and all
information hereafter furnished by or on behalf of Borrower to Lender will
be, true and accurate in every material respect on the date as of which
such information is dated or certified; and none of such information is or
will be incomplete by omitting to state any material fact necessary to make
such information not misleading.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Borrower understands and
agrees that Lender, without independent investigation, is relying upon the
above representations and warranties in extending Loan Advances to
Borrower. Borrower further agrees that the foregoing representations and
warranties shall be continuing in nature and shall remain in full force and
effect until such time as Borrower's Indebtedness shall be paid in full, or
until this Agreement shall be terminated in the manner provided above,
whichever is the last to occur.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:
LITIGATION. Promptly inform Lender in writing of (a) all material adverse
changes in Borrower's financial condition, and (b) all existing and all
threatened litigation, claims, investigations, administrative proceedings
or similar actions affecting Borrower or any Guarantor which could
materially affect the financial condition of Borrower or the financial
condition of any Guarantor.
FINANCIAL RECORDS. Maintain its books and records in accordance with
generally accepted accounting principles, applied on a consistent basis,
and permit Lender to examine and audit Borrower's books and records at all
reasonable times.
FINANCIAL STATEMENTS. Furnish Lender with, as soon as available, but in no
event later than one hundred twenty (120) days after the end of each fiscal
year, Borrower's balance sheet and income statement for the year ended,
compiled by a certified public accountant satisfactory to Lender. All
financial reports required to be provided under this Agreement shall be
prepared in accordance with generally accepted accounting principles,
applied on a consistent basis, and certified by Borrower as being true and
correct.
ADDITIONAL INFORMATION. Furnish such additional information and
statements, lists of assets and liabilities, agings of receivables and
payables, inventory schedules, budgets, forecasts, tax returns, and other
reports with respect to Borrower's financial condition and business
operations as Lender may request from time to time.
INSURANCE. Maintain fire and other risk insurance, public liability
insurance, and such other insurance as Lender may require with respect to
<PAGE> 5
08-24-1998 BUSINESS LOAN AGREEMENT PAGE 3
(Continued)
================================================================================
Borrower's properties and operations, in form, amounts, coverages and with
insurance companies reasonably acceptable to Lender. Borrower, upon request
of Lender, will deliver to Lender from time to time the policies or
certificates of insurance in form satisfactory to Lender, including
stipulations that coverages will not be cancelled or diminished without at
least thirty (30) days' prior written notice to Lender. Each insurance
policy also shall include an endorsement providing that coverage in favor
of Lender will not be impaired in any way by any act, omission or default
of Borrower or any other person. In connection with all policies covering
assets in which Lender holds or is offered a security interest for the
Loans, Borrower will provide Lender with such loss payable or other
endorsements as Lender may require.
INSURANCE REPORTS. Furnish to Lender, upon request of Lender, reports on
each existing insurance policy showing such information as Lender may
reasonably request, including without limitation the following: (a) the
name of the insurer; (b) the risks insured; (c) the amount of the policy;
(d) the properties insured; (e) the then current property values on the
basis of which insurance has been obtained, and the manner of determining
those values; and (f) the expiration date of the policy. In addition, upon
request of Lender (however not more often than annually), Borrower will
have an independent appraiser satisfactory to Lender determine, as
applicable, the actual cash value or replacement cost of any Collateral.
The cost of such appraisal shall be paid by Borrower.
OTHER AGREEMENTS. Comply with all terms and conditions of all other
agreements, whether now or hereafter existing, between Borrower and any
other party and notify Lender immediately in writing of any default in
connection with any other such agreements.
LOAN FEES AND CHARGES. In addition to all other agreed upon fees and
charges, pay the following: $0.00.
LOAN PROCEEDS. Use all Loan proceeds solely for Borrower's business
operations, unless specifically consented to the contrary by Lender in
writing.
TAXES, CHARGES AND LIENS. Pay and discharge when due all of its
indebtedness and obligations, including without limitation all assessments,
taxes, governmental charges, levies and liens, of every kind and nature,
imposed upon Borrower or its properties, income, or profits, prior to the
date on which penalties would attach, and all lawful claims that, if
unpaid, might become a lien or charge upon any of Borrower's properties,
income, or profits. Provided however, Borrower will not be required to pay
and discharge any such assessment, tax, charge, levy, lien or claim so long
as (a) the legality of the same shall be contested in good faith by
appropriate proceedings, and (b) Borrower shall have established on its
books adequate reserves with respect to such contested assessment, tax,
charge, levy, lien, or claim in accordance with generally accepted
accounting practices. Borrower, upon demand of Lender, will furnish to
Lender evidence of payment of the assessments, taxes, charges, levies,
liens and claims and will authorize the appropriate governmental official
to deliver to Lender at any time a written statement of any assessments,
taxes, charges, levies, liens and claims against Borrower's properties,
income, or profits.
PERFORMANCE. Perform and comply with all terms, conditions, and provisions
set forth in this Agreement and in the Related Documents in a timely
manner, and promptly notify Lender if Borrower learns of the occurrence of
any event which constitutes an Event of Default under this Agreement or
under any of the Related Documents.
OPERATIONS. Maintain executive and management personnel with substantially
the same qualifications and experience as the present executive and
management personnel; provide written notice to Lender of any change in
executive and management personnel; conduct its business affairs in a
reasonable and prudent manner and in compliance with all applicable
federal, state and municipal laws, ordinances, rules and regulations
respecting its properties, charters, businesses and operations, including
without limitation, compliance with the Americans With Disabilities Act and
with all minimum funding standards and other requirements of ERISA and
other laws applicable to Borrower's employee benefit plans.
INSPECTION. Permit employees or agents of Lender at any reasonable time to
inspect any and all Collateral for the Loan or Loans and Borrower's other
properties and to examine or audit Borrower's books, accounts, and records
and to make copies and memoranda of Borrower's books, accounts, and
records. If Borrower now or at any time hereafter maintains any records
(including without limitation computer generated records and computer
software programs for the generation of such records) in the possession of
a third party, Borrower, upon request of Lender, shall notify such party to
permit Lender free access to such records at all reasonable times and to
provide Lender with copies of any records it may request, all at Borrower's
expense.
COMPLIANCE CERTIFICATE. Unless waived in writing by Lender, provide Lender
at least annually and at the time of each disbursement of Loan proceeds
with a certificate executed by Borrower's chief financial officer, or other
officer or person acceptable to Lender, certifying that the representations
and warranties set forth in this Agreement are true and correct as of the
date of the certificate and further certifying that, as of the date of the
certificate, no Event of Default exists under this Agreement.
ENVIRONMENTAL COMPLIANCE AND REPORTS. Borrower shall comply in all respects
with all environmental protection federal, state and local laws, statutes,
regulations and ordinances; not cause or permit to exist, as a result of an
intentional or unintentional action or omission on its part or on the part
of any third party, on property owned and/or occupied by Borrower, any
environmental activity where damage may result to the environment, unless
such environmental activity is pursuant to and in compliance with the
conditions of a permit issued by the appropriate federal, state or local
governmental authorities; shall furnish to Lender promptly and in any event
within thirty (30) days after receipt thereof a copy of any notice,
summons, lien, citation, directive, letter or other communication from any
governmental agency or instrumentality concerning any intentional or
unintentional action or omission on Borrower's part in connection with any
environmental activity whether or not there is damage to the environment
and/or other natural resources.
ADDITIONAL ASSURANCES. Make, execute and deliver to Lender such promissory
notes, mortgages, deeds of trust, security agreements, financing
statements, instruments, documents and other agreements as Lender or its
attorneys may reasonably request to evidence and secure the Loans and to
perfect all Security Interests.
RECOVERY OF ADDITIONAL COSTS. If the imposition of or any change in any law,
rule, regulation or guideline, or the interpretation or application of any
thereof by any court or administrative or governmental authority (including any
request or policy not having the force of law) shall impose, modify or make
applicable any taxes (except U.S. federal, state or local income or franchise
taxes imposed on Lender), reserve requirements, capital adequacy requirements or
other obligations which would (a) increase the cost to Lender for extending or
maintaining the credit facilities to which this Agreement relates, (b) reduce
the amounts payable to Lender under this Agreement or the Related Documents, or
(c) reduce the rate of return on Lender's capital as a consequence of Lender's
obligations with respect to the credit facilities to which this Agreement
relates, then Borrower agrees to pay Lender such additional amounts as will
compensate Lender therefor, within five (5) days after Lender's written demand
for such payment, which demand shall be accompanied by an explanation of such
imposition or charge and a calculation in reasonable detail of the additional
amounts payable by Borrower, which explanation and calculations shall be
conclusive in the absence of manifest error.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds if:
(a) Borrower or any Guarantor is in default under the terms of this Agreement or
any of the Related Documents or any other agreement that Borrower or any
Guarantor has with Lender; (b) Borrower or any Guarantor becomes insolvent,
files a petition in bankruptcy or similar proceedings, or is adjudged a
bankrupt; (c) there occurs a material adverse change in Borrower's financial
condition, in the financial condition of any Guarantor, or in the value of any
Collateral securing any Loan; or (d) any Guarantor seeks, claims or otherwise
attempts to limit, modify or revoke such Guarantor's guaranty of the Loan or any
other loan with Lender.
RIGHT OF SETOFF. Borrower grants to Lender a contractual security interest in,
and hereby assigns, conveys, delivers, pledges, and transfers to Lender all
Borrower's right, title and interest in and to, Borrower's accounts with Lender
(whether checking, savings, or some other account), including without limitation
all accounts held jointly with someone else and all accounts Borrower may open
in the future, excluding however all IRA and Keogh accounts, and all trust
accounts for which the grant of a security interest would be prohibited by law.
Borrower authorizes Lender, to the extent permitted by applicable law, to charge
or setoff all sums owing on the Indebtedness against any and all such accounts.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
DEFAULT ON INDEBTEDNESS. Failure of Borrower to make any payment when due
on the Loans.
<PAGE> 6
08-24-1998 BUSINESS LOAN AGREEMENT Page 4
(Continued)
================================================================================
OTHER DEFAULTS. Failure of Borrower or any Grantor to comply with or to
perform when due any other term, obligation, covenant or condition contained
in this Agreement or in any of the Related Documents, or failure of Borrower
to comply with or to perform any other term, obligation, covenant or
condition contained in any other agreement between Lender and Borrower.
DEFAULT IN FAVOR OF THIRD PARTIES. Should Borrower or any Grantor default
under any loan, extension of credit, security agreement, purchase or sales
agreement, or any other agreement, in favor of any other creditor or person
that may materially affect any of the Borrower's property or Borrower's or
any Grantor's ability to repay the Loans or perform their respective
obligations under this Agreement or any of the Related Documents.
FALSE STATEMENTS. Any warranty, representation or statement made or furnished
to Lender by or on behalf of Borrower or any Grantor under this Agreement or
the Related Documents is false or misleading in any material respect at the
time made or furnished, or becomes false or misleading at any time
thereafter.
DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related Documents
ceases to be in full force and effect (including failure of any Security
Agreement to create a valid and perfected Security Interest) at any time and
for any reason.
INSOLVENCY. The dissolution or termination of Borrower's existence as a going
business, the insolvency of Borrower, the appointment of a receiver for any
part of Borrower's property, any assignment for the benefit of creditors, any
type of creditor workout, or the commencement of any proceeding under any
bankruptcy or insolvency laws by or against Borrower.
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or forfeiture
proceedings, whether by judicial proceeding, self-help, repossession or any
other method, by any creditor of Borrower, any creditor of any Grantor
against any collateral securing the Indebtedness, or by any governmental
agency. This includes a garnishment, attachment, or levy on or of any of
Borrower's deposit accounts with Lender. However, this Event of Default shall
not apply if there is a good faith dispute by Borrower or Grantor, as the
case may be, as to the validity or reasonableness of the claim which is the
basis of the creditor or forfeiture proceeding, and if Borrower or Grantor
gives Lender written notice of the creditor or forfeiture proceeding and
furnishes reserves or a surety bond for the creditor or forfeiture proceeding
satisfactory to Lender.
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with respect
to any Guarantor of any of the Indebtedness or any Guarantor dies or becomes
incompetent, or revokes or disputes the validity of, or liability under, any
Guaranty of the Indebtedness. Lender, at its option, may, but shall not be
required to, permit the Guarantor's estate to assume unconditionally the
obligations arising under the guaranty in a manner satisfactory to Lender,
and, in doing so, cure the Event of Default.
CHANGE IN OWNERSHIP. Any change in ownership of twenty-five percent (25%) or
more of the common stock of Borrower.
ADVERSE CHANGE. A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness in impaired.
RIGHT TO CURE. If any default, other than a Default on Indebtedness, is
curable and if Borrower or Grantor, as the case may be, has not been given a
notice of a similar default within the preceding twelve (12) months, it may
be cured (and no Event of Default will have occurred) if Borrower or Grantor,
as the case may be, after receiving written notice from Lender demanding cure
of such default: (a) cures the default within fifteen (15) days; or (b) if
the cure requires more than fifteen (15) days, immediately initiates steps
which Lender deems in Lender's sole discretion to be sufficient to cure the
default and thereafter continues and completes all reasonable and necessary
steps sufficient to produce compliance as soon as reasonably practical.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except
where otherwise provided in this Agreement or the Related Documents, all
commitments and obligations of Lender under this Agreement or the Related
Documents or any other agreement immediately will terminate (including any
obligation to make Loan Advances or disbursements), and, at Lender's option,
all Indebtedness immediately will become due and payable, all without notice of
any kind to Borrower, except that in the case of an Event of Default of the
type described in the "Insolvency" subsection above, such acceleration shall be
automatic and not optional. In addition, Lender shall have all the rights and
remedies provided in the Related Documents or available at law, in equity, or
otherwise. Except as may be prohibited by applicable law, all of Lender's
rights and remedies shall be cumulative and may be exercised singularly or
concurrently. Election by Lender to pursue any remedy shall not exclude pursuit
of any other remedy, and an election to make expenditures or to take action to
perform an obligation of Borrower or of any Grantor shall not affect Lender's
right to declare a default and to exercise its rights and remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
AMENDMENTS. This Agreement, together with any Related Documents, constitutes
the entire understanding and agreement of the parties as to the matters set
forth in this Agreement. No alteration of or amendment to this Agreement
shall be effective unless given in writing and signed by the party or parties
sought to be charged or bound by the alteration or amendment.
APPLICABLE LAW. THIS AGREEMENT HAS BEEN DELIVERED TO LENDER AND ACCEPTED BY
LENDER IN THE STATE OF CALIFORNIA. IF THERE IS A LAWSUIT, BORROWER AGREES
UPON LENDER'S REQUEST TO SUBMIT TO THE JURISDICTION OF THE COURTS OF FRESNO
COUNTY, THE STATE OF CALIFORNIA. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.
CAPTION HEADINGS. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions of
this Agreement.
CONSENT TO LOAN PARTICIPATION. Borrower agrees and consents to Lender's sale
or transfer, whether now or later, of one or more participation interests in
the Loans to one or more purchasers, whether related or unrelated to Lender.
Lender may provide, without any limitation whatsoever, to any one or more
purchasers, or potential purchasers, any information or knowledge Lender may
have about Borrower or about any other matter relating to the Loan, and
Borrower hereby waives any rights to privacy it may have with respect to such
matters. Borrower additionally waives any and all notices of sale of
participation interests, as well as all notices of any repurchase of such
participation interests. Borrower also agrees that the purchasers of any such
participation interests will be considered as the absolute owners of such
interests in the Loans and will have all the rights granted under the
participation agreement or agreements governing the sale of such
participation interests. Borrower further waives all rights of offset or
counterclaim that it may have now or later against Lender or against any
purchaser or such a participation interest and unconditionally agrees that
either Lender or such purchaser may enforce Borrower's obligation under the
Loans irrespective of the failure or insolvency of any holder of any interest
in the Loans. Borrower further agrees that the purchaser of any such
participation interests may enforce its interests irrespective of any
personal claims or defenses that Borrower may have against Lender.
COSTS AND EXPENSES. Borrower agrees to pay upon demand all of Lender's
expenses, including without limitation attorney's fees, incurred in
connection with the preparation, execution, enforcement, modification and
collection of this Agreement or in connection with the Loans made pursuant to
this Agreement. Lender may pay someone else to help collect the Loans and to
enforce this Agreement, and Borrower will pay that amount. This includes,
subject to any limits under applicable law, Lender's attorneys' fees and
Lender's legal expenses, whether or not there is a lawsuit, including
attorneys' fees for bankruptcy proceedings (including efforts to modify or
vacate any automatic stay or injunction), appeals, and any anticipated
post-judgment collection services. Borrower will also pay any court costs, in
addition to all other sums provided by law.
NOTICES. All notices required to be given under this Agreement shall be given
in writing, may be sent by telefacsimile (unless otherwise required by law),
and shall be effective when actually delivered or when deposited with a
nationally recognized overnight courier or deposited in the United States
mail, first class, postage prepaid, addressed to the party to whom the notice
is to be given at the address shown above. Any party may change its address
for notices under this Agreement by giving formal written notice to the other
parties, specifying that the purpose of the notice is to change the party's
address. To the extent permitted by applicable law, if there is more than one
Borrower, notice to any Borrower will constitute notice to all Borrowers. For
notice purposes, Borrower will keep Lender informed at all times of
Borrower's current address(es).
SEVERABILITY. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any such
offending provision shall be deemed to be modified to be within the limits of
enforceability or validity; however, if the offending provision cannot be so
modified, it shall be stricken and all other provisions of this Agreement in
all other respects shall remain valid and enforceable.
SUBSIDIARIES AND AFFILIATES OF BORROWER. To the extent the context of any
provisions of this Agreement makes it appropriate, including without
limitation any representation, warranty or covenant, the word "Borrower" as
used herein shall include all subsidiaries and affiliates of Borrower.
Notwithstanding the foregoing however, under no circumstances shall this
Agreement be construed to require Lender to make any Loan or other financial
accommodation to any subsidiary or affiliate of Borrower.
SUCCESSORS AND ASSIGNS. All covenants and agreements contained by or on
behalf of Borrower shall bind its successors and assigns and shall inure to
the benefit of Lender, its successors and assigns. Borrower shall not,
however, have the right to assign its rights under this Agreement or any
interest therein, without the prior written consent of Lender.
SURVIVAL. All warranties, representations, and covenants made by Borrower in
this Agreement or in any certificate or other instrument delivered by
Borrower to Lender under this Agreement shall be considered to have been
relied upon by Lender and will survive the making of the Loan and delivery to
Lender of the Related Documents, regardless of any investigation made by
Lender or on Lender's behalf.
TIME IS OF THE ESSENCE. Time is of the essence in the performance of this
Agreement.
WAIVER. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by
<PAGE> 7
08-24-1998 Page 5
BUSINESS LOAN AGREEMENT
(Continued)
================================================================================
Lender. No delay or omission on the part of Lender in exercising any right
shall operate as a waiver of such right or any other right. A waiver by
Lender of a provision of this Agreement shall not prejudice or constitute a
waiver of Lender's right otherwise to demand strict compliance with that
provision or any other provision of this Agreement. No prior waiver by
Lender, nor any course of dealing between Lender and Borrower, or between
Lender and any Grantor, shall constitute a waiver of any of Lender's rights
or of any obligations of Borrower or of any Grantor as to any future
transactions. Whenever the consent of Lender is required under this
Agreement, the granting of such consent by Lender in any instance shall not
constitute continuing consent in subsequent instances where such consent is
required, and in all cases such consent may be granted or withheld in the
sole discretion of Lender.
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN
AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF
AUGUST 24, 1998.
BORROWER:
American Vantage Companies
By: /s/ Ronald J. Tassinari
------------------------------------
Ronald J. Tassinari, President
LENDER:
United Security Bank, N.A.
By: /s/
------------------------------------
Authorized Officer
================================================================================
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Name State of Incorporation Percentage Owned
- ---------------------------- ---------------------- ----------------
<S> <C> <C>
American Casino Enterprises, Inc. Nevada 100%
American Care Group, Inc. Nevada 100%
Diversy Enterprises, Inc. Nevada 100%
F.A.S.T., Inc. Nevada 100%
Fowler Card Club, Inc. California 100%
G & L Acquisition Corp. Nevada 100%
Las Vegas Ad-Ventures Nevada 100%
Nevada Publishing, Inc. Nevada 100%
Millerton Games, Inc. California 100%
Motel Development, Inc. Nevada 100%
Reservation Connection, Inc. Nevada 100%
Royal Reservation, Inc. Nevada 100%
Trinidad Management, Inc. Nevada 100%
</TABLE>
<PAGE> 1
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
American Vantage Companies
We consent to incorporation by reference in registration statement No.
333-00905 on Form S-8 of American Vantage Companies of our report dated October
1, 1998 (except for Note 3 as to which the date is October 22, 1998), relating
to the consolidated balance sheets of American Vantage Companies as of July 31,
1998 and 1997, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for the years then ended, which report
appears in the July 31, 1998 annual report on Form 10-KSB of American Vantage
Companies.
/s/ BRADSHAW, SMITH & CO.
Las Vegas, Nevada
October 28, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> JUL-31-1998
<EXCHANGE-RATE> 1
<CASH> 15,371,000
<SECURITIES> 0
<RECEIVABLES> 180,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 15,897,000
<PP&E> 180,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 21,187,000
<CURRENT-LIABILITIES> 279,000
<BONDS> 0
0
0
<COMMON> 151,000
<OTHER-SE> 20,908,000
<TOTAL-LIABILITY-AND-EQUITY> 21,187,000
<SALES> 8,565,000
<TOTAL-REVENUES> 8,565,000
<CGS> 0
<TOTAL-COSTS> 3,097,000
<OTHER-EXPENSES> 1,411,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,974,000
<INCOME-TAX> 1,905,000
<INCOME-CONTINUING> 3,069,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,069,000
<EPS-PRIMARY> 0.20
<EPS-DILUTED> 0.19
</TABLE>
