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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: December 31, 1995
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File Number: 0-11532
INLAND CASINO CORPORATION
(Exact name of small business issuer as specified in its charter)
Utah 33-0618806
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4225 Executive Square, Suite 1650, La Jolla, California 92037
(Address of principal executive offices)
Issuer's telephone number, including area code: (619) 546-9383
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
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
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: as of January 31, 1996,
12,541,657 shares of common stock, $.001 par value per share, were outstanding.
Transitional Small Business Disclosure Format (check one)
Yes No X
--- ---
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INLAND CASINO CORPORATION
TABLE OF CONTENTS
Page
Number
------
PART I. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS (Unaudited):
Balance Sheets -
December 31, 1995 and June 30, 1994 ...................... 3
Statements of Operations -
Three months ended December 31, 1995 and 1994 ............ 4
Six months ended December 31, 1995 and 1994 .............. 5
Statements of Cash Flows -
Six months ended December 31, 1995 and 1994 .............. 6
Notes to Interim Financial Statements .................... 7
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION ........................ 11
PART II. OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K ....................... 16
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
INLAND CASINO CORPORATION
BALANCE SHEETS
DECEMBER 31, 1995 AND JUNE 30, 1995
<TABLE>
<CAPTION>
December 31, 1995 June 30, 1995
----------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 1,456,122 $ 1,423,826
Accounts receivable 74,404 37,404
Refundable income taxes 380,986
Deposits and prepaid expenses 500,536 269,781
----------- -----------
Total current assets 2,412,048 1,731,011
Property and equipment, net 157,993 100,819
Management agreement acquisition costs, net 7,020,360 7,231,011
Deferred taxes and other 875,850 899,261
----------- -----------
Total assets $10,466,251 $ 9,962,102
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Advances of future management fees $ 2,463,059 $ 1,840,184
Notes payable 9,474 29,187
Accounts payable and accrued expenses 436,084 321,077
----------- -----------
Total current liabilities 2,908,617 2,190,448
----------- -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $.001 par, 100,000,000 shares
authorized, 12,541,657 and 12,541,793 shares
outstanding 3,752,555 3,753,875
Retained earnings 3,805,079 4,017,779
----------- -----------
Total shareholders' equity 7,557,634 7,771,654
----------- -----------
Total liabilities and shareholders' equity $10,466,251 $ 9,962,102
=========== ===========
</TABLE>
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INLAND CASINO CORPORATION
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1995 AND 1994
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Revenue from management fees $ 1,688,922 $ 3,311,500
Costs and expenses:
General and administrative expenses 1,874,338 888,986
Amortization of management agreement
acquisition costs 564,180 698,810
------------ ------------
2,438,518 1,587,796
------------ ------------
Operating profit (loss) (749,596) 1,723,704
Other income and (expense):
Interest income 31,311
Interest expense (1,229) (1,983)
------------ ------------
(1,229) 29,328
------------ ------------
Income (loss) before income taxes (750,825) 1,753,032
Income tax provision (credit) (335,000) 887,529
------------ ------------
Net income (loss) $ (415,825) $ 865,503
============ ============
Earnings (loss) per share $ (0.03) $ 0.07
============ ============
Shares used in the computation of income per
common and common equivalent share 12,541,657 11,987,281
============ ============
</TABLE>
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INLAND CASINO CORPORATION
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1995 AND 1994
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Revenue from management fees $ 4,341,216 $ 6,845,875
Costs and expenses:
General and administrative expenses 3,580,487 1,514,297
Amortization of management agreement
acquisition costs 1,102,507 1,442,889
------------ ------------
4,682,994 2,957,186
------------ ------------
Operating profit (loss) (341,778) 3,888,689
Other income and (expense):
Interest income 54,782
Interest expense (2,922) (3,481)
------------ ------------
(2,922) 51,301
------------ ------------
Income (loss) before income taxes (344,700) 3,939,990
Income tax provision (credit) (132,000) 1,712,000
------------ ------------
Net income (loss) $ (212,700) $ 2,227,990
============ ============
Earnings (loss) per share $ (0.02) $ 0.19
============ ============
Shares used in the computation of income per
common and common equivalent share 12,541,657 11,987,281
============ ============
</TABLE>
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INLAND CASINO CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1995 AND 1994
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Net cash generated by (used in) operating activities:
Net income (loss) $ (212,700) $ 2,227,990
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization and depreciation 1,118,861 1,442,889
Deferred taxes 126,000 (466,000)
Deduction of advances from management fees
earned (2,689,790)
Changes in assets and liabilities:
Accounts receivable (37,000) (10,000)
Deposits, prepaid expenses and other assets (333,344) (603,461)
Accounts payable and accrued expenses 115,007 170,709
Income taxes payable (recoverable) (380,986) 1,506,850
----------- -----------
Net cash generated by operating activities 395,838 1,579,187
----------- -----------
Cash used in investing activities:
Purchases of furniture and equipment (73,528)
Management agreement acquisition costs (891,856) (3,572,684)
Net cash used in investing activities (965,384) (3,572,684)
Cash flows generated by (used in) financing activities:
Increase (decrease) in advances of
future management fees 622,875
Payment of loans from shareholders (445,665)
Payment of notes payable (19,713) (68,643)
Collection of stock subscriptions receivable 638
Purchase and cancellation of common stock (1,320)
----------- -----------
Net cash provided by (used in) financing activities 601,842 (513,670)
----------- -----------
Increase (decrease) in cash 32,296 (2,507,167)
Cash, beginning of period 1,423,826 5,428,061
----------- -----------
Cash, end of period $ 1,456,122 $ 2,920,894
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Interest expense paid $ 2,922 $ 3,481
=========== ===========
Interest income received $ -- $ 54,782
=========== ===========
Income taxes paid $ 316,152 $ 671,150
=========== ===========
Income tax refund received $ 192,316 $ --
=========== ===========
</TABLE>
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INLAND CASINO CORPORATION
NOTES TO INTERIM FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. PRESENTATION OF INTERIM FINANCIAL INFORMATION -
Basis of Presentation - The accompanying interim unaudited financial statements
have been prepared by Inland Casino Corporation, a Utah corporation (the
"Company" or "Inland Casino"), in conformity with generally accepted accounting
principles for interim financial information and with the rules and regulations
of the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such regulations. The interim unaudited financial statements reflect
all normal, recurring adjustments and disclosures which are, in the opinion of
management, necessary for a fair presentation. The results of operations for the
interim periods are not necessarily indicative of the results of the full fiscal
year. The interim financial statements should be read in conjunction with the
Company's Annual Report on Form 10-KSB, as amended, for the fiscal year ended
June 30, 1995.
Earnings per share - Earnings per common and common equivalent share are
computed using the weighted average number of shares outstanding for the three
and six month periods ended December 31, 1995 and 1994. Equivalent shares are
those issuable upon the assumed exercise of stock options reflected under the
treasury stock method using the average market price of the Company's shares
during the periods, when their effect is dilutive.
2. REORGANIZATION AND MERGER - Effective July 1, 1994, Inland Casino Partners, a
California general partnership ("ICP"), and its partners, Inland Casino
Corporation, a Nevada Corporation ("ICC I"), and Eagle Edge Partners ("EEP"),
combined to form a new Delaware Corporation, Inland Casino Corporation ("ICC
II"). Such transaction is hereinafter referred to as the "Roll-Up Transaction".
On May 22, 1995 the merger of ICC II into and with Twin Creek Exploration Co.,
Inc. ("Twin Creek"), a Utah corporation, became effective (the "Merger"). To
effect the merger, the common stock of Twin Creek was reverse split 1 for 100
and the shareholders of ICC II received 11,930,406 shares, representing
approximately 95% of the shares outstanding after the merger. The surviving
company was renamed Inland Casino Corporation ("Inland Casino"), and the year
end was changed from September 30 to June 30. The transaction was accounted for
as a recapitalization using the carryover basis of the assets and liabilities of
ICC II. Accordingly, the financial statements reflect the financial condition,
results of operations and cash flows of ICC II, and its predecessors, for
periods prior to the merger date, and combined with Twin Creek from that date
forward.
3. BUSINESS AND BASIS OF ACCOUNTING - The Company manages, operates and
maintains certain gaming and food and beverage operations in California of the
Barona Group of Capitan Grande Band of Mission Indians (the "Barona Tribe") in
accordance with the terms and conditions of a certain Gaming Management
Agreement (the "Agreement") with the Barona Tribe, under a grant of authority
from the Barona Tribe's General Council.
The Company reports revenues and expenses from these services using the accrual
method of accounting. All of the Company's fee revenue is currently generated
from a single Indian gaming operation located in California.
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INLAND CASINO CORPORATION
NOTES TO INTERIM FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
4. MANAGEMENT AGREEMENT - In February 1991, the Company entered into the
Agreement with the Barona Tribe to manage, operate and maintain cardroom
operations. In February 1992, the Agreement was expanded to include food and
beverage operations and other gaming activities, including bingo and electronic
gaming. The Agreement, which expires in February 1999, establishes the Company's
rights, obligations and duties. Under the Agreement, the Company has a
contingent liability for all obligations of the Barona Casino. The Agreement has
not been approved by the necessary regulatory agencies. The Indian Gaming
Regulatory Act ("IGRA") requires that the Agreement be approved by the National
Indian Gaming Commission (the "NIGC") and the assignment of the Agreement (e.g.,
from ICP to ICC II in connection with the Roll-Up Transaction and from ICC II to
the Company in connection with the Merger) also must be approved by the NIGC. If
the Agreement were to be nullified or terminated early, the Company could
recognize a loss for, more than likely, the total amount of the net management
acquisition costs. In addition, the Company may be required to fulfill any
outstanding financial commitments to the Barona Casino. If this were to occur,
the Company would not be profitable, and the financial commitments may exceed
its resources.
In February 1993, the NIGC was formed and was assigned authority over all Indian
gaming activities and contracts. IGRA prescribes, among other things, that
management contracts shall generally have a term of five years and pay
management fees of 30%, except that the term may be extended to seven years and
the management fee increased to 40% under certain circumstances.
The management fees are based upon a percentage of profits or the excess of
revenue over expenses generated from the gaming operations as defined in the
Agreement. The Agreement calls for a minimum monthly advance distribution to the
Tribe of $30,000. Advances are recoverable from future distributions, if any,
exceeding the minimum advance. At the expiration of the Agreement, any
outstanding advance for payment of guaranteed minimums will be forgiven by the
Company.
While management and the Tribe believe that the Agreement meets all requirements
of IGRA, the NIGC, which has been established by the IGRA, may require a change
in the term, the management fee percentage or calculation or nullify the
Agreement which could have a material adverse effect on the Company.
5. MANAGEMENT AGREEMENT ACQUISITION COSTS - The Agreement requires, and any
similar agreements it may enter into in the future with the Barona Tribe would
most likely require, the Company to fund the construction of facility
improvements, furniture and equipment, the establishment of initial working
capital and the losses, if any, of the Barona Casino operations.
Because the Barona Tribe will not allow its land to be encumbered, and has not
assumed any financial liability for costs associated with developing the Barona
Casino, as a condition of its Agreement, the Company assumed all liability for
these obligations. The Company has capitalized those costs incurred as
management agreement acquisition costs, since (i) the Company has the ultimate
responsibility for the costs incurred, and (ii) management believes that these
costs are fully recoverable over the life of the Agreement, through payment of
management fees. However, given the nature of the asset, if the recoverability
is determined to be not probable, the Company will expense the unamortized
portion.
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INLAND CASINO CORPORATION
NOTES TO INTERIM FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
On an ongoing basis, management reviews the valuation and recoverability of the
unamortized management agreement acquisition costs. As part of this review, the
Company estimates the discounted present value of the future projected net
income generated by the Barona Casino and the resulting management fee review to
determine whether impairment has occurred.
Amortization of the management agreement acquisition costs is calculated as the
greater of the amortization using (i) the straight-line method over the
remaining term of the Agreement or (ii) an accelerated method, whichever is
greater. The accelerated amortization is equal to the excess of management fees
earned over 30% of Casino operating income. Under the terms of the Agreement,
title to the Barona Casino facilities, furniture and equipment rests solely with
the Barona Tribe, unless the Barona Tribe agrees otherwise.
6. COMMITMENTS AND CONTINGENCIES - LOAN AGREEMENT - In October 1995, the Company
negotiated a credit facility with a bank which allows for total borrowings of $2
million. The credit agreement expires on October 10, 1998, and is secured by all
of the Company's personal property, including but not limited to bank deposits,
accounts receivable, inventory and equipment. This agreement contains various
covenants including restrictive covenants which require, among other things, the
maintenance of certain financial ratios, maintenance of $1,000,000 in the bank's
deposit accounts, a limitation on the incurrence of future indebtedness and a
prohibition on declaring or making any cash dividends. As of February 14, 1996,
the Company had no outstanding borrowings under this credit facility. Under the
terms of this agreement, amounts drawn on the line will convert into notes
payable over a number of months (the exact number of which depend upon the date
of disbursement) with interest at prime plus 2%. All of such notes become due
and payable no later than October 10, 1998. In connection with this credit
financing, the bank will receive immediately exercisable warrants to purchase
40,000 shares of the Company's common stock, subject to certain anti-dilution
provisions, at an initial exercise price of $5.00. The warrant expires on
October 10, 2000.
7. COMMITMENTS AND CONTINGENCIES - LITIGATION - Indian Gaming is the subject of
numerous lawsuits in various court jurisdictions at both federal and state
levels. These court cases are attempting to define the permissible gaming
activities on Indian reservations, the states' rights or limitations on control
of gaming, the rights of the tribes to compel the states to negotiate compacts
with the tribes, and numerous other issues. The Barona Tribe is not a party to
these cases nor is the Barona Reservation within the jurisdiction of certain
courts in which many of these cases will be decided; therefore, the impact, if
any, on the operations of the Barona Casino cannot be determined at this time.
The impact of decisions in various cases, however, could have a significant
impact on the operations of Barona Casino and the Company when decided.
Specifically, current cases are addressing the legality of electronic gaming
equipment and certain card games in California and whether the State of
California should be required to permit the operation of video gaming equipment.
Various courts have ruled in different cases, or in different hearings on the
same case, both in the states' favor and in the tribes' favor on the same or
similar issues. There are appeals remaining in a number of cases and other cases
may arise. Until the courts make definitive rulings, the legality of the gaming
activities will not be known.
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INLAND CASINO CORPORATION
NOTES TO INTERIM FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
On June 30, 1994, the U.S. Attorney of the Southern District of California
announced a verbal understanding with three San Diego Indian tribes, including
the Barona Tribe, that would allow the Barona Casino to continue to operate
without expansion of gaming activities until one or more of the following
occurs:
- - A compact with the State of California is negotiated or the Secretary of
the Interior expressly authorized gaming, such as certain card or
electronic/video gaming, which have not been previously addressed,
- - Entry of final judgments and exhaustion of all appellate remedies in
certain cited suits pending before federal courts,
- - Enactment of federal legislation that authorizes the operation of the
electronic/video games at issue without a tribal-state compact,
- - Amendment of the NIGC's regulations to include the electronic/video games
within the definition gaming or permissible technologic aids thereto
which are not subject to State compact, or
- - Material breach of the understanding by the Barona Tribe.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
OVERVIEW
Since its formation, the Company has devoted substantially all of its efforts to
provide operational and consulting services for the Barona Tribe at the Barona
Casino, including providing assistance to the Barona Tribe in the development
and expansion of the "Big Top" facility at the Barona Casino. To date, payments
under the Agreement have been Inland Casino's only source of revenue. Pursuant
to the Agreement, as amended, Inland Casino earns fees based upon a percentage
of the "net profits" generated by the Barona Casino. As used in this Report,
solely with respect to the Agreement, the term "net profits" is not intended to
mean net profits as defined by generally accepted accounting principles or by
the Indian Gaming Regulatory Act. Generally, the Agreement defines "net profit"
as the total amount of moneys remaining from monthly gross receipts after
payment of the operating expenses for such month which amount shall be
calculated on a cash basis.
The Company provides executive personnel, at its expense, to operate the
activities, and it enters into agreements such as leases or construction for the
Barona Casino. As part of its contractual obligations, Inland Casino has
provided significant financing for the construction and expansion of the Barona
Casino. The financing costs are recognized as an asset in the financial
statements of the Company, designated as management agreement acquisition costs,
and are expensed over the term of the Agreement. The recovery of this financing
is achieved through the fees paid pursuant to the Agreement to Inland Casino.
Such construction financing obligations are incurred upon the recommendation of
the Company, and subject to acceptance by the Barona Tribe. In the event the
Company finances further expansion at the Barona Casino, Inland Casino
anticipates financing such costs on like terms.
The Company plans to explore the possibility of contracting with other casinos.
The particulars of each such agreement may differ significantly as to the type
and level of services provided, the need for expansion of the facilities and the
responsibilities for financing any such construction. In addition, the
compensation, term and other rights or obligations under these contracts also
may differ significantly from the Agreement with the Barona Tribe.
Inland Casino's corporate activities, besides the duties under the Agreement and
collateral contracts, include arranging financing to support casino construction
projects, the development of other contract opportunities, proactive tracking of
Indian Gaming legislative and litigation matters, and the operation and
administration of the activities of Inland Casino itself.
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1995 COMPARED WITH THE THREE MONTHS ENDED
DECEMBER 31, 1994.
REVENUE. Revenue decreased 49.0% from $3,311,500 for the three months ended
December 31, 1994 to $1,688,922 for the three months ended December 31, 1995,
because of reduced profit margins at the Barona Casino, resulting primarily from
increases in payroll, marketing and administrative costs. The increase in
payroll and administrative costs at the Barona Casino was the result of
management's decision to increase staff levels to provide additional
administrative support and improved service to customers, and increases in
marketing costs resulted from the implementation of new promotions and
advertising programs.
OPERATING EXPENSES. General and administrative expenses increased 110.8% from
$888,986 for the three months ended December 31, 1994 to $1,874,338 for the
three months ended December 31, 1995 primarily as the result of increased
payroll, marketing and administrative costs. Salaries and benefit costs
increased as executive-level employees were hired to provide the professional
staff necessary for the needs of the
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Company, including the duties required of a public company, and marketing of the
Company's services to others.
Other administrative costs increased as a result of increases in sponsorships,
charitable contributions and marketing costs. Professional fees, including legal
and accounting expenses, increased as the Company became public in May of 1995,
and therefore became subject to new compliance and reporting requirements.
Facilities costs also increased as a result of the Company entering into a lease
for its current offices in January 1995. Amortization of management agreement
acquisition costs decreased 19.3% from $698,810 for the three months ended
December 31, 1994 to $564,180 for the three months ended December 31, 1995.
Amortization of the management agreement acquisition costs is calculated as the
greater of the amortization using the straight-line method over the remaining
term of the Agreement or an accelerated method, whichever is greater. The
accelerated amortization is equal to the excess of management fees earned over
30% of Casino operating income. Since the Company did not earn a management fee
of over 30% of Casino operating income during the three months ended December
31, 1995, the straight-line method was used, compared to use of the accelerated
method for the three months ended December 31, 1994.
For the three months ended December 31, 1994 interest income was $31,311,
compared to none for the three months ended December 31, 1995. Commencing in
Fiscal 1996, it was determined that as long as the Company had outstanding
advances of future management fees due the Barona Casino, interest earned on
excess cash balances should be paid to the Barona Casino.
For the three months ended December 31, 1995, an income tax credit of $335,000
resulted from calculating the estimated amount of income taxes recoverable from
a carry-back of the operating loss of $749,596 for the period to prior years.
For the three months ended December 31, 1994, an income tax provision of
$887,529 was estimated for income taxes on income of $1,753,704.
SIX MONTHS ENDED DECEMBER 31, 1995 COMPARED WITH THE SIX MONTHS ENDED DECEMBER
31, 1994.
REVENUE. Revenue decreased 36.6% from $6,845,875 for the six months ended
December 31, 1994 to $4,341,216 for the six months ended December 31, 1995,
because of reduced profit margins at the Barona Casino, resulting primarily from
increases in payroll, marketing and administrative costs. The increase in
payroll and administrative costs at the Barona Casino was the result of
management's decision to increase staff levels to provide additional
administrative support and improved service to customers, and increases in
marketing costs resulted from the implementation of new promotions and
advertising programs.
OPERATING EXPENSES. General and administrative expenses increased 136.4% from
$1,514,297 for the six months ended December 31, 1994 to $3,580,487 for the six
months ended December 31, 1995 primarily as the result of increased payroll,
marketing and administrative costs. Salaries and benefits increased as the
number of employees of the Company increased from 8 to 22, including key
employees with backgrounds in law, finance, accounting, and investor relations,
hired to perform the duties required of a public company. Key employees with
backgrounds in operations, security and marketing also were added to (i) assist
with enhancement of operations, as well as the development and expansion of the
Barona Casino, and (ii) provide a staff to market the Company's gaming
management and consulting services to others.
Other administrative costs increased as a result of increases in sponsorships,
charitable contributions and marketing costs. Professional fees, including legal
and accounting expenses, increased as the Company became public in May of 1995,
and therefore became subject to new compliance and reporting requirements.
Facilities costs also increased as a result of the Company entering into a lease
for its current offices in January 1995. Amortization of management agreement
acquisition costs decreased 23.6% from $1,442,889 for the six months ended
December 31, 1994 to $1,102,507 for the six months ended December
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31, 1995. Amortization of the management agreement acquisition costs is
calculated as the greater of the amortization using the straight-line method
over the remaining term of the Agreement or an accelerated method, whichever is
greater. The accelerated amortization is equal to the excess of management fees
earned over 30% of Casino operating income. Since the Company did not earn a
management fee of over 30% of Casino operating income during the six months
ended December 31, 1995, the straight-line method was used, compared to use of
the accelerated method for the six months ended December 31, 1994.
For the six months ended December 31, 1994 interest income was $54,782 compared
to none for the six months ended December 31, 1995. Commencing in Fiscal 1996,
it was determined that as long as the Company had outstanding advances of future
management fees due the Barona Casino, interest earned on excess cash balances
should be paid to the Barona Casino.
For the six months ended December 31, 1995, an income tax credit of $132,000
resulted from calculating the estimated amount of income taxes recoverable from
a carry-back of the operating loss of $344,700 for the period to prior years.
For the six months ended December 31, 1994, an income tax provision of
$1,712,000 was estimated for income taxes on income of $3,939,990.
LIQUIDITY AND CAPITAL RESOURCES.
As noted above, Inland Casino's principal source of revenue is fees or advances
of fees from the Agreement to operate the Barona Casino. Over the course of the
period from the start of Fiscal 1993 through Fiscal 1995, in addition to general
and administrative and other miscellaneous expenses, the Company's most
significant expense item has been the funding of construction costs related to
an expansion of the facilities at the Barona Casino. Net cash provided by
operations from management fees during the same period has been insufficient by
itself to fund construction. In addition to fees earned under the Agreement, the
Company also has received advances against future fees from the Barona Tribe and
received capital contributions from its shareholders.
During the six months ended December 31, 1995, the Company's cash position
increased $32,296 from the June 30, 1995 balance of $1,423,826, to $1,456,122 at
December 31, 1995. The increase was principally due to net cash generated by
operating activities of $395,838 during the period, and an increase in advances
of future management fees of $622,875, offset by cash invested in management
agreement acquisition costs of $891,856, purchases of furniture and equipment of
$73,528, payment of notes payable of $19,713 and the redemption of common stock
of $1,320.
Accounts receivable increased $37,000 during the first six months of Fiscal 1996
primarily as a result of an increase in loans to officers and employees. The
increase in refundable income taxes of $348,986 resulted primarily from the
credit income tax provision based on the operating loss for the six months ended
December 31, 1995, realization of deferred income tax credits, and income tax
payments, partially offset by income tax refunds.
The management agreement acquisition costs, totaling $12,368,159 at December 31,
1995, had been financed principally by advances from EEP, which totaled
$4,578,201 from working capital, from advances of future management fees from
the Barona Casino, and from capital contributions by shareholders. At December
31, 1995, outstanding advances of future fees from the Barona Casino were
$2,463,059. Advances from the Barona Tribe are repaid by Inland Casino through
the reduction in payment of future fees earned. Advances do not bear interest
and are due on demand. At some point in the future, if the Agreement is not
approved by the necessary regulatory bodies, Inland Casino will be obligated to
repay such advances to the Barona Casino even if it is not entitled to any
future fees under the Agreement. Likewise, if the Agreement is approved but with
a fee that is lower than presently provided for in the Agreement, Inland
Casino's ability to repay such advances or to fund future expansion could be
adversely
13
<PAGE> 14
affected. Although management believes that it will have the resources
sufficient to make repayment of the advances, there can be no assurance that
Inland Casino will have the resources to repay any outstanding advances, in the
future, if the Agreement is not approved.
It is management's intention to fund future improvements in the Barona Casino
first from working capital and through advances of future fees, whenever
possible, before seeking outside debt or equity financing. However, outside
sources of financing may be required or sought at any time. In October 1995, the
Company negotiated a credit facility with a bank which allows for total credit
of $2 million. The credit agreement expires on October 10, 1998, and is secured
by all of the Company's personal property, including but not limited to bank
deposits, accounts receivable, inventory and equipment. This agreement contains
various covenants including restrictive covenants which require, among other
things, the maintenance of certain financial ratios, maintenance of $1,000,000
in the bank's deposit accounts, a limitation on the incurrence of future
indebtedness and a prohibition on declaring or making any cash dividends. As of
February 14, 1996, the Company had no outstanding borrowings under this credit
facility. The above-mentioned covenants are not expected to affect the ability
of the Company to draw upon this facility or to meet its obligations. Under the
terms of this agreement, amounts drawn on the line will convert into notes
payable over a period of months (the exact number of which is dependent upon the
date of disbursement), with interest at prime plus 2%. All of such notes become
due and payable no later than October 10, 1998. In connection with this credit
financing, the bank will receive immediately exercisable warrants to purchase
40,000 shares of the Company's common stock, subject to certain anti-dilution
provisions, at an initial exercise price of $5.00. The warrant expires on
October 10, 2000. (See Note 6 to the Interim Financial Statements.)
14
<PAGE> 15
Inland Casino has announced plans to spend approximately $17.5 million to expand
and improve the existing facilities at the Barona Casino, which expansion is
subject to the approval of the Barona Tribe. The expansion will not increase the
number of gaming devices, but is expected to expand off-track betting and other
non-gaming activities, as permitted under the verbal agreement with the U.S.
Attorney for the Southern District of California and the compact with the State
of California concerning off-track betting.
The Barona Casino and all of the related facilities are capital improvements
upon land which belongs to the Barona Tribe. As such, the Company has no
ownership whatsoever in any of the improvements to such land. All of these
improvements belong to the Barona Tribe.
SEASONALITY.
The Barona Casino is located approximately 30 miles east of downtown San Diego,
California where the population is relatively stable throughout the year,
although it peaks to some extent due to tourism during the summer months and to
a lesser extent during the winter months. On the basis of its experience to
date, management of Inland Casino anticipates that the Barona Casino's business
may peak in summer and, to some extent, in winter, and may decline somewhat in
early spring and late fall. However, at this time, management cannot accurately
predict the continued effect of seasonality on its business.
INFLATION.
To date, inflation has not had a material impact on the Company's financial
condition or its results of operations.
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS.
Gaming on Indian land is extensively regulated by federal, state, and tribal
governments, and the present regulatory environment is extremely uncertain
because of certain pending litigation and legislation. Adverse findings for any
of the Indian tribes in any of the pending actions could have a material adverse
effect on the operations of Inland Casino, as would criminal and civil
enforcement actions taken by federal agencies which could be commenced before
the outcome of such litigation is known.
Further, if the Agreement is terminated or fails to receive approval from the
National Indian Gaming Commission (the "NIGC"), or if the assignments of the
Agreement from Inland Casino Partners ("ICP") to Inland Casino Corporation, a
Delaware corporation ("ICC II"), and from ICC II to Inland Casino, fail to
receive approval from the NIGC, any such event would have a material adverse
effect on the business and financial condition of the Company.
In any event, any material reduction in the management fee payable to the
Company, whether as a result of a modification to the Agreement or weakness in
the operations of the Barona Casino could have a material adverse effect on the
business and financial condition of the Company, if the Company could not either
reduce expenses or increase revenues from other sources.
15
<PAGE> 16
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit No.
10.1 Credit Terms and Conditions dated October 10, 1995 by
and between Inland Casino Corporation and Imperial
Bank.
10.2 Note dated October 10, 1995 of Inland Casino
Corporation to Imperial Bank, and Addendum to such
Note.
10.3 General Security Agreement dated October 10, 1995 by
and between Inland Casino Corporation and Imperial
Bank.
10.4 Warrant to Purchase Stock dated October 10, 1995
issued by Inland Casino Corporation to Imperial Bank.
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the Company's second quarter ended
December 31, 1995.
16
<PAGE> 17
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
INLAND CASINO CORPORATION,
a Utah Corporation
(Registrant)
Date: February 14, 1996 /s/ Duane M. Eberlein
---------------------
Duane M. Eberlein
Vice President,
Chief Financial Officer
(Principal Financial and
and Accounting Officer)
17
<PAGE> 1
EXHIBIT 10.1
IMPERIAL BANK October 10, 1995
701 B. Street
San Diego, California 92101
Subject: CREDIT TERMS AND CONDITIONS
Gentlemen:
To induce you ("Bank") to make loans to Inland Casino Corporation (herein
called "Borrower"), and in consideration of any loan or loans you, in your sole
discretion, may make to Borrower, Borrower warrants and agrees as follows:
A. Borrower Represents and Warrants that:
1. EXISTENCE AND RIGHTS. Borrower is a Corporation. Borrower is duly
organized and existing and in good standing under the laws of the State of
California without limit as to the duration of its existence and is authorized
and in good standing to do business in the State of California; Borrower has
powers and adequate authority, rights and franchises to own its property and to
carry on its business as now conducted, and is duly qualified and in good
standing in each State in which the character of the properties owned by it
therein or the conduct of its business makes such qualification necessary; and
Borrower has the power and adequate authority to make and carry out this
Agreement. Borrower has no investment in any other business entity.
2. AGREEMENT AUTHORIZED. The execution, delivery and performance of
this Agreement are duly authorized and do not require the consent or approval
of any governmental body or other regulatory authority; are not in
contravention of or in conflict with any law or regulation or any term or
provision of Borrower's articles of incorporation, by-laws, or Articles of
Association, as the case may be, and this Agreement is the valid, binding and
legally enforceable obligation of Borrower in accordance with its terms.
3. NO CONFLICT. The execution, delivery and performance of this
Agreement are not in contravention of or in conflict with any agreement,
indenture or undertaking to which Borrower is a party or by which it or any of
its property may be bound or affected, and do not cause any lien, charge or
other encumbrance to be created or imposed upon any such property by reason
thereof.
4. LITIGATION. There is no litigation or other proceeding pending or
threatened against or affecting Borrower, and Borrower is not in default with
respect to any order, writ, injunction, decree or demand of any court or other
governmental or regulatory authority. Borrower also agrees to notify you in
writing of any future litigation threatened against or affecting borrower.
5. FINANCIAL CONDITION. The balance sheet of Borrower as of June 30,
1995 and the related profit and loss statement for the quarter ended on that
date, a copy of which has heretofore been delivered to you by Borrower, and all
other statements and data submitted in writing by Borrower to you in connection
with this request for credit are true and correct, and said balance sheet and
profit and loss statement truly present the financial condition of Borrower as
of the date thereof and the results of operations for the period covered
thereby, and has been prepared in accordance with generally accepted accounting
principles on a basis consistently maintained. Since such date there have been
no material adverse changes in the ordinary course of business. Borrower has no
knowledge or any liabilities, contingent or otherwise, at such date not
reflected in said balance sheet, and Borrower has not entered into any special
commitments or substantial contracts which are not reflected in said balance
sheet, other than in the ordinary and normal course of its business, which may
have a materially adverse effect upon its financial condition, operations or
business as now conducted.
6. TITLE TO ASSETS. Borrower has good title to its assets, and the
same are not subject to any liens or encumbrances other than those permitted by
Section C.3 hereof.
7. TAX STATUS. Borrower has no liability for any delinquent state,
local or federal taxes, and, if Borrower has contracted with any government
agency, Borrower has no liability for renegotiation of profits.
8. TRADEMARKS, PATENTS. Borrower, as of the date hereof, possesses
all necessary trademarks, trade names, copyrights, patents, patent rights, and
licenses to conduct its business as now operated, without any known conflict
with the valid trademarks, trade names, copyrights, patents and license rights
of others.
9. REGULATION U. The proceeds of the notes have not been used to
purchase or carry margin stock (as defined within Regulation U of the Board of
Governors of the Federal Reserve system).
<PAGE> 2
B. Borrower agrees that so long as it is indebted to you, under
borrowings, or other indebtedness, it will, unless you shall otherwise consent
in writing:
1. RIGHTS AND FACILITIES. Maintain and preserve all rights, franchises
and other authority adequate for the conduct of its business; maintain its
properties, equipment and facilities in good order and repair; conduct its
business in an orderly manner without voluntary interruption and, if a
corporation or partnership, maintain and preserve its existence.
2. INSURANCE. Maintain public liability, property damage and workers'
compensation insurance and insurance on all its insurable property against fire
and other hazards with responsible insurance carriers to the extent usually
maintained by similar businesses and/or in the exercise of good business
judgment.
3. TAXES AND OTHER LIABILITIES. Pay and discharge, before the same
become delinquent and before penalties accrue thereon, all taxes, assessments
and governmental charges upon or against it or any of its properties, and all
its other liabilities at any time existing, except to the extent and so long as:
(a) The same are being contested in good faith and by appropriate
proceedings in such manner as not to cause any materially adverse effect upon
its financial condition or the loss of any right of redemption from any sale
thereunder; and
(b) It shall have set aside on its books reserves (segregated to the
extent required by generally accepted accounting practice) deemed by it
adequate with respect thereto.
4. CASH FLOW COVERAGE. Maintain a minimum ratio of cash flow, defined
as net profits plus management agreement acquisition cost amortization expense,
to current portion of long-term debt and current portion of capitalized leases
of 3.0 to 1.0. This ratio shall be calculated quarterly with the then current
item as the denominator and the rolling previous four quarters cash flow as the
numerator.
5. RESTRICTED CASH. Maintain a minimum daily collected balance of
$1,000,000 in total in all Borrower's deposit accounts.
6. NOTICE OF DEFAULT. Promptly notify the Bank in writing of the
occurrence of any event of default hereunder or event which upon the giving
notice and lapse of time would be an event of default.
7. RECORDS AND REPORTS. Maintain a standard and modern system of
accounting in accordance with generally accepted accounting principles on a
basis consistently maintained; permit your representatives to have access to,
and to examine its properties, books and records at all reasonable times during
normal business hours; and furnish you:
(a) As soon as available, and in any event within 45 days after the
close of each quarter of each fiscal year of Borrower, commencing
with the quarter next ending, a balance sheet, profit and loss
statement and reconciliation of Borrower's capital accounts as of
the close of such period and covering operations for the portion of
Borrower's fiscal year ending on the last day of such period, all
in reasonable detail and stating in comparative form the figures
for the corresponding date and period in the previous fiscal year,
prepared in accordance with generally accepted accounting
principles on a basis consistently maintained by Borrower and
certified by an appropriate officer of Borrower, subject, however,
to year-end audit adjustments;
(b) As soon as available, and in any event within 90 days after the
close of each fiscal year of Borrower, a report of audit of Company
as of the close of and for such fiscal year, all in reasonable
detail and stating in comparative form the figures as of the close
of and for the previous fiscal year, with the unqualified opinion
of accountants satisfactory to you.
(c) Within ninety (90) days after the end of each fiscal year of
Borrower, a certificate of chief financial officer of Borrower,
stating that Borrower has performed and observed each and every
covenant contained in this Letter to be performed by it and that no
event has occurred and no condition than exists which constitutes
an event of default hereunder or would constitute such an event of
default upon the lapse of time or upon the giving of notice and the
lapse of time specified herein; or, if any such event has occurred
or any such condition exists, specifying the nature thereof;
(d) Promptly after the receipt thereof by Borrower, copies of any
detailed audit reports submitted to Borrower by independent
accountants in connection with each annual or interim audit of the
accountants of Borrower made by such accountants;
2
<PAGE> 3
(e) Promptly after the same are available, copies of all
such proxy statements, financial statements and reports as
Borrower shall send to its stockholders, if any, and copies of
all reports which Borrower may file with the Securities and
Exchange Commission or any governmental authority at any time
substituted therefor; and (f) Such other information relating
to the affairs or Borrower as you reasonably may request from
time to time.
C. Borrower agrees that so long as it is indebted to you, it will not, without
your written consent:
1. TYPE OF BUSINESS: Management; Executives' Compensation. Make any
substantial change in the character of its business; or make any change in its
executive management; or allow the salary, bonuses or other compensation of any
of its executives, to exceed $800,000 per annum.
2. OUTSIDE INDEBTEDNESS. Create, incur, assume or permit to exist any
indebtedness (including without limitation, any indebtedness described in
paragraph C3 below) in excess of $2,000,000, for borrowed moneys other than
loans from you except obligations now existing as shown in the financial
statement dated June 30, 1995 excluding those being refinanced by your bank; or
sell or transfer, either with or without recourse, any accounts or notes
receivable or any moneys due to become due. All Imperial Bank debt will be
senior to any and all other debt.
3. LIENS AND ENCUMBRANCES. No more than $2MM in addition to Imperial
Bank indebtedness over the life of loan. Create, incur, or assume any mortgage,
pledge, encumbrance, lien or charge of any kind (including the charge upon
property at any time purchased or acquired under conditional sale or other
title retention agreement) upon any asset now owned or hereafter acquired by
it, other than liens for taxes not delinquent, liens in your favor and liens to
third parties in the Maximum aggregate sum of $2,000,000.
4. OFFICER LOANS. Make any loans or advances to any person or other
entity other than in the ordinary course of its business as now conducted.
5. ACQUISITION OR SALE OF BUSINESS; MERGER OR CONSOLIDATION.
Liquidate, dissolve, merge or consolidate, or commence any proceedings
therefor; or sell any assets except in the ordinary and normal course of its
business as now conducted; or sell, lease, assign, or transfer any substantial
part of its business or fixed assets, or any property or other assets necessary
for the continuance of its business as now conducted, including without
limitation the selling of any property or other asset accompanied by the
leasing back of the same.
6. DIVIDENDS, STOCK PAYMENTS. If a corporation, declare or pay any
dividend (other than dividends payable in common stock of Borrower) or make any
other distribution on any of its capital stock now outstanding or hereafter
issued or purchase, redeem or retire any of such stock; except, however,
Borrower may pay a cash dividend to its shareholders in an amount not to exceed
0% of net after tax earnings for such dividend period.
7. CAPITAL EXPENDITURES. Make or incur obligations for capital
expenditures in excess of $10,000,000 during the period from the date hereof to
9/30/96 or in excess of $10,000,000 in any one fiscal year thereafter.
8. LEASE LIABILITY. Make or incur liability for payments of rent under
leases of real property in excess of $1,000,000 and personal property in excess
of $1,000,000 in any one fiscal year.
D. The occurrence of any of the following events of default shall, at your
option, terminate your commitment to lend and make all sums of principal and
interest then remaining unpaid on all Borrower's indebtedness to you
immediately due and payable, all without demand, presentment or notice, all of
which are hereby expressly waived;
1. FAILURE TO PAY NOTE. Failure to pay any installment of principal of
or interest on any indebtedness of Borrower to you.
2. BREACH OF COVENANT. Failure of Borrower to perform any other term
or condition of this Letter of Inducement binding upon Borrower.
3. BREACH OF WARRANTY. Any of Borrower's representations or warranties
made herein or any statement or certificate at any time given in writing
pursuant hereto or in connection herewith shall be false or misleading in any
material respect.
3
<PAGE> 4
4. INSOLVENCY; RECEIVER OR TRUSTEE. Borrower shall become insolvent; or
admit its inability to pay its debts as they mature; or make an assignment for
the benefit of creditors; or apply for or consent to the appointment of a
receiver or trustee for it or for a substantial part of its property or
business.
5. JUDGMENTS, ATTACHMENTS. Any money judgment, writ or warrant of
attachment, or similar process shall be entered or filed against Borrower or
any of its assets and shall remain unvacated, unbonded or unstayed for a period
of 10 days or in any event later than five days prior to the date of any
proposed sale thereunder.
6. BANKRUPTCY. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against Borrower and, if
instituted against it, shall be consented to.
7. BALANCE ACTION. Borrower initiating or otherwise taking any action
to cause restricted cash balances required under B.5. above to fall below
$1,000,000.
8. OTHER EVENT. Any action or event, whether within or outside
Borrower's control, which in Bank's sole opinion jeopardizes Borrower's ability
to conduct normal operations.
E. Miscellaneous Provisions.
1. FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of
Imperial Bank or any holder of Notes issued hereunder, in the exercise of any
power, right or privilege hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such power, right or privilege
preclude other or further exercise thereof or of any other right, power or
privilege. All rights and remedies existing under this agreement or any note
issued in connection with a loan that Imperial Bank may make hereunder, are
cumulative to, and not exclusive of, any rights or remedies otherwise
available.
2. WARRANTS. As a condition to Bank's obligation to disburse any loan
proceeds to Borrower, Borrower shall execute and deliver to Bank an agreement,
in form and content acceptable to Bank, granting to Bank a 5 year Warrant to
purchase 40,000 shares of Common Stock of Borrower at an exercise price of
$5.00 per share.
3. DOCUMENTATION FEE. $250.00 due upon execution of this agreement.
INLAND CASINO CORPORATION
BY: ______________________
Title:
Date:
4
<PAGE> 1
EXHIBIT 10.2
[IMPERIAL BANK LOGO]
NOTE
$2,000,000.00 SAN DIEGO, California OCTOBER 10, 1995
On OCTOBER 10, 1998, and as hereinafter provided, for value received, the
undersigned promises to pay to IMPERIAL BANK ("Bank"), a California banking
corporation, or order, at its SAN DIEGO REGIONAL office, the principal sum of
$ or such sums up to the maximum if so stated, as the
Bank may now or hereafter advance to or for the benefit of the undersigned in
accordance with the terms hereof, together with interest from date of
disbursement or , whichever is later, on the unpaid principal
balance / / at the rate of % per year /X/ at the rate of 2.000% per year
in excess of the rate of interest which Bank has announced as its prime
lending rate (the "Prime Rate"), which shall vary concurrently with any change
in such Prime Rate, or $250.00, whichever is greater. Interest shall be
computed at the above rate on the basis of the actual number of days during
which the principal balance is outstanding, divided by 350, which shall, for
interest computation purposes, be considered on year.
Interest shall be payable /X/ monthly / / quarterly / / included with
principal /X/ in addition to principal / / , beginning *
, and if not so paid shall become a part of the principal. All
payments shall be applied first to interest, and the remainder, if any, on
principal. /x/ (if checked), Principal shall be payable in installments of
$ * , or more, each installment on the * day of each * ,
beginning * . Advances not to exceed any unpaid balance owing at any
one time equal to the maximum amount specified above, may be made at the option
of Bank.
Any partial prepayment shall be applied to the installments, if any, in
inverse order of maturity. Should default be made in the payment of principal
or interest when due, or in the performance or observance, when due, of any
item, covenant or condition of any deed of trust, security agreement or other
agreement (including amendments or extensions thereof) securing or pertaining
to this note, at the option of the holder hereof and without notice or demand,
the entire balance of principal and accrued interest then remaining unpaid
shall (a) become immediately due and payable, and (b) thereafter bear interest,
until paid in full, at the increased rate of 5% per year in excess of the rate
provided for above, as it may vary from time to time.
Defaults shall include, but not be limited to, the failure of the
maker(s) to pay principal or interest when due; the filing as to each person
obligated hereon, whether as maker, co-maker, endorser or guarantor
(individually or collectively referred to as the "Obligor") of a voluntary or
involuntary petition under the provisions of the Federal Bankruptcy Act; the
issuance of any attachment or execution against any asset of any Obligor; the
death of any Obligor; or any deterioration of the financial condition of any
Obligor which results in the holder hereof considering itself, in good faith,
insecure.
/ / If any installment payment or principal balance payment due hereunder is
delinquent ten or more days, Obligor agrees to pay a late charge in the amount
of 5% of the payment so due and unpaid, in addition to the payment; but nothing
in this paragraph is to be construed as any obligation on the part of the
holder of this note to accept payment of any installment past due or less than
the total unpaid principal balance after maturity.
If this note is not paid when due, each Obligor promises to pay all
costs and expenses of collection and reasonable attorney's fees incurred by the
holder hereof on account of such collection, plus interest at the rate
applicable to principal, whether or not suit is filed hereon. Each Obligor
shall be jointly and severally liable hereon and consents to renewals,
replacements and extensions of time for payment hereof, before, at, or after
maturity; consents to the acceptance, release or substitution of security for
this note; and waives demand and protest and the right to assert any statute of
limitations. Any married person who signs this note agrees that recourse may be
had against separate property for any obligations hereunder. The indebtedness
evidenced hereby shall be payable in lawful money of the United States, in any
action brought under or arising out of this note, each Obligor, including
successor(s) or assign(s) hereby consents to the application of California
law, to the jurisdiction of any competant court within the State of California,
and to service of process by any means authorized by California law.
No single or partial exercise of any power hereunder, or under any deed
of trust, security agreement or other agreement in connection herewith shall
preclude other or further exercises thereof or the exercise of any other such
power. The holder hereof shall at all times have the right to proceed against
any portion of the security for this note in such order and in such manner as
such holder may consider appropriate, without waiving any rights with respect
to any of the security. Any delay or omission on the part of the holder hereof
in exercising any right hereunder, or under any deed of trust, security
agreement or other agreement, shall not operate as a waiver of such right, or
of any other right, under this note or any deed of trust, security agreement or
other agreement in connection herewith.
*SEE ATTACHED ADDENDUM
INLAND CASINO CORPORATION
- ------------------------------------ -------------------------------------
BY: /s/
- ------------------------------------ -------------------------------------
/s/
- ------------------------------------ -------------------------------------
<PAGE> 2
ADDENDUM TO NOTE:
Disbursements under the Note shall be available only through October 10, 1996.
Each disbursement shall be payable in equal monthly payments of principal to
maturity plus accrued interest, commencing on the 10th day of the first month
following the disbursement date, with all principal and accrued interest due
and payable on October 10, 1998.
INLAND CASINO CORPORATION
by: /s/
________________________
/s/
<PAGE> 1
EXHIBIT 10.3
[IMPERIAL BANK LOGO]
GENERAL SECURITY AGREEMENT
(TANGIBLE AND INTANGIBLE PERSONAL PROPERTY)
This Agreement is executed on October 10, 1995, by INLAND CASINO CORPORATION
(hereinafter called "Obligor"). In consideration of financial accommodations
given, to be given or continued, the Obligor grants to IMPERIAL BANK
(hereinafter called "Bank") a security interest in (a) all property (i)
delivered to Bank by Obligor, (ii) which shall be in Bank's possession or
control in any matter or for any purpose, (iii) described below, (iv) now
owned or hereafter acquired by Obligor of the type or class described below
and/or in any supplementary schedule hereto, or in any financing statement
filed by Bank and executed by or on behalf of Obligor, (b) the proceeds,
increase and products of such property, all accessions thereto, and all
property which Obligor may receive on account of such collateral which Obligor
will immediately deliver to Bank (collectively referred to as "Collateral") to
secure payment and performance of all of Obligor's present or future debts or
obligations to Bank, whether absolute or contingent (hereafter referred to as
"Debt"). Unless otherwise defined, words used herein have the meanings given
them in the California Uniform Commercial Code.
Collateral:
A. VEHICLE, VESSEL, AIRCRAFT:
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Identification License or
Year Make/Manufacturer Model and Serial No. Registration No. New or Used
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Engine or other equipment: ___________________________________________________
(For aircraft - original ink signature on copy to FAA)
B. DEPOSIT ACCOUNTS:
Type____________________________Account Number__________________Amount $_______
In name of ___________________________Depository_______________________________
AND ALL EXTENSIONS OR RENEWALS THEREOF.
C. ACCOUNTS, INTANGIBLES AND OTHER: (Describe)
All personal property, whether presently existing or hereafter created or
acquired, including but not limited to: All accounts, chattel paper, documents,
instruments, money, deposit accounts and general intangibles including returns,
repossessions, books and records relating thereto, and equipment containing
said books and records. All goods including equipment and inventory. All
proceeds including, without limitation, insurance proceeds. All guarantees and
other security therefor.
The collateral not in Bank's possession will be located at: 4225 Executive
Square, Ste. 1650, La Jolla, Ca. 92037
/ / If checked, the Obligor is executing this Agreement as an Accommodation
Debtor only and the Obligor's liability is limited to the security interest
granted in the Collateral described herein. The party being accommodated is
("Borrower").
All the terms and provisions on the reverse side hereof are incorporated herein
as though set forth in full, and constitute a part of this Agreement.
<TABLE>
<S> <C> <C>
Signature
Name (Indicate title, if applicable) Address
INLAND CASINO CORPORATION BY: 4225 Executive Square,
Ste. 1650
La Jolla, Ca. 92037
- -------------------------- ------------------------------ ---------------------
</TABLE>
<PAGE> 2
SECURITY AGREEMENT CONTINUED
Obligor represents, warrants and agrees:
1. Obligor will immediately pay (a) any Debt when due, (b) Bank's costs
of collecting the Debt, of protecting, insuring or realizing on Collateral, and
any expenditure of Bank pursuant hereto, including attorney's fees and
expenses, with interest at the rate of 24% per year, or the rate applicable to
the Debt, whichever is less, from the date of expenditure, and (c) any
deficiency after realization of Collateral.
2. Obligor will use the proceeds of any loan that becomes Debt
hereunder for the purpose indicated on the application therefore, and will
promptly contract to purchase and pay the purchase price of any property which
becomes Collateral hereunder from the proceeds of any loan made for that
purpose.
3. As to all Collateral in Obligor's possession (unless specifically
otherwise agreed by Bank in writing), Obligor will:
(a) Have, or has, possession of the Collateral at the location
disclosed to Bank and will not remove the Collateral from the
location.
(b) Keep the Collateral separate and identifiable.
(c) Maintain the Collateral in good and saleable condition, repair it
if necessary, clean, feed, shelter, water, medicate, fertilize,
cultivate, irrigate, prune and otherwise deal with the Collateral in
all such ways as are considered good practice by owners of like
property, use it lawfully and only as permitted by insurance
policies, and permit Bank to inspect the Collateral at any reasonable
time.
(d) Not sell, contract to sell, lease, encumber or transfer the
Collateral (other than inventory Collateral) until the Debt has been
paid, even though Bank has a security interest in proceeds of such
Collateral.
4. As to Collateral which is inventory and accounts, Obligor:
(a) May, until notice from Bank, sell, lease or otherwise dispose of
inventory Collateral in the ordinary course of business only, and
collect the cash proceeds thereof.
(b) Will, upon notice from Bank, deposit all cash proceeds as
received in a demand deposit account with Bank containing only such
proceeds and deliver statements identifying units of inventory
disposed of, accounts which gave rise to proceeds, and all
acquisitions and returns of inventory, as required by Bank.
(c) Will receive in trust, schedule on forms satisfactory to the Bank
and deliver to Bank all noncash proceeds other than inventory
received in trade.
(d) If not in default, may obtain release of Bank's interest in
individual units of inventory upon request, therefore, payment to
Bank of the release price of such units shown on any Collateral
schedule supplementary hereto, and compliance herewith as to proceeds
thereof.
5. As to Collateral which is accounts, chattel paper, general
intangibles and proceeds described in 4(c) above, Obligor warrants, represents
and agrees:
(a) All such Collateral is genuine, enforceable in accordance with
its terms, free from default, prepayment, defense and conditions
precedent (except as disclosed to and accepted by Bank in writing)
and is supported by consecutively numbered invoices to, or rights
against, the debtors thereon. Obligor will supply Bank with duplicate
invoices or other evidence of Obligor's rights on Bank's request;
(b) All persons appearing to be obligated on such Collateral have
authority and capacity to contract;
(c) All chattel paper is in compliance with law as to form, content
and manner of preparation and execution and has been properly
registered, recorded, and/or filed to protect Obligor's interest
thereunder;
(d) If an account debtor shall also be indebted to Obligor on another
obligation, any payment made by him not specifically designated to be
applied on any particular obligation shall be considered to be a
payment on the account in which Bank has a security interest. Should
any remittance include a payment not on an account, it shall be
delivered to Bank and if no event of default has occurred, Bank shall
pay Obligor the amount of such payment;
(e) Obligor agrees not to compromise, settle or adjust any account or
renew or extend the time of payment thereof without Bank's prior
written consent.
6. Obligor owns all Collateral absolutely and no other person has or
claims any interest in any Collateral, except as disclosed to and accepted by
Bank in writing. Obligor will defend any proceeding which may affect title to
or Bank's security interest in any Collateral, and will indemnify and hold Bank
free and harmless from all costs and expenses of Bank's defense.
7. Obligor will pay when due all existing or future charges, liens or
encumbrances on and all taxes and assessments now or hereafter imposed on or
affecting the Collateral and, if the Collateral is in Obligor's possession, the
realty on which the Collateral is located.
8. Obligor will insure the Collateral with Bank as loss payee, in form
and amounts, with companies, and against risks and liability satisfactory to
Bank, and hereby assigns such policies to Bank, agrees to deliver them to Bank
at Bank's request, and authorizes Bank to make any claim thereunder, to cancel
the insurance of Obligor's default, and to receive payment of and endorse any
instrument in payment of any loss or return premium. If Obligor should fail to
deliver the required policy or policies to the Bank, Bank may, at Obligor's
cost and expense, without any duty to do so, get and pay for insurance naming
as the insured, at Bank's option, either both Obligor and the Bank, or only
the Bank, and the cost thereof shall be secured by this security agreement,
and shall be repayable as provided in Paragraph 1 above.
9. Obligor will give Bank any information it requires. All information
at any time supplied to Bank by Obligor (including, but not limited to, the
value and condition of Collateral, financial statements, financing statements,
and statements made in documentary Collateral), is correct and complete, and
Obligor will notify Bank of any adverse change in such information. Obligor
will promptly notify Bank of any change of Obligor's residence, chief executive
office or mailing address.
10. Bank is irrevocably appointed Obligor's attorney-in-fact to do any
act which Obligor is obligated hereby to do, to exercise such rights as Obligor
may exercise, to use such equipment as Obligor might use, to enter Obligor's
premises to give notice of Bank's security interest in, and to collect
Collateral and proceeds and to execute and file in Obligor's name any financing
statements and amendments thereto required to perfect Bank's security interest
hereunder, all to protect and preserve the Collateral and Bank's rights
hereunder. Bank may:
(a) Endorse, collect and receive delivery or payment of instruments
and documents constituting Collateral;
(b) Make extension agreements with respect to or affecting
Collateral, exchange it for other Collateral, release persons liable
thereon or take security for the payment thereof, and compromise
disputes in connection therewith;
(c) Use or operate Collateral for the purpose of preserving
Collateral or its value and for preserving or liquidating
Collateral.
11. If more than one Obligor signs this agreement, their liability is
joint and several. Any Obligor who is married, agrees that recourse may be had
against separate property for the Debt. Discharge of any Obligor except for full
payment, or any extension, forbearance, change of rate of interest, or
acceptance, release or substitution of Collateral or any impairment or
suspension of Bank's rights against an Obligor, or any transfer of an Obligor's
interest to another shall not affect the liability of any other Obligor. Until
the Debt shall have been paid or performed in full, Bank's rights shall continue
even if the Debt is outlawed. All Obligor's waive: (a) any right to require Bank
to proceed against any Obligor before any other, or to pursue any other remedy;
(b) presentment, protest and notice of protest, demand and notice of nonpayment,
demand or performance, notice of sale, and advertisement of sale; (c) any right
to the benefit of or to direct the application of any Collateral until the Debt
shall have been paid; (d) and any right of subrogation to Bank until Debt shall
have been paid or performed in full.
12. Upon default, at Bank's option without demand or notice, all or any
part of the Debt shall immediately become due. Bank shall have all rights given
by law, and may sell, in one or more sales, Collateral in any county where Bank
has an office. Bank may purchase at such sale. Sales for cash or on credit to a
wholesaler, retailer or user of the Collateral, or at public or private
auction, are all to be considered commercially reasonable. Bank may require
Obligor to assemble the Collateral and make it available to Bank at the
entrance to the location of the Collateral, or a place designated by Bank.
Defaults shall include:
(a) Obligor's failure to pay or perform this or any agreement with
Bank or breach of any warranty herein, or Borrower's failure to pay
or perform any agreement with Bank,
(b) Any change in Obligor's or Borrower's financial condition which
in Bank's judgment impairs the prospect of Borrower's payment or
performance,
(c) Any actual or reasonably anticipated deterioration of the
Collateral or in the market price thereof which causes it in Bank's
judgment to become unsatisfactory as security,
(d) Any levy or seizure against Borrower or any of the Collateral,
(e) Death, termination of business, assignment for creditors,
insolvency, appointment of receiver, or the filing of any petition
under bankruptcy or debtor's relief laws of, by or against Obligor or
Borrower or any guarantor of the Debt,
(f) Any warranty or representation is false or is believed in good
faith by Bank to be false.
13. Bank's acceptance of partial or delinquent payments or the failure
of Bank to exercise any right or remedy shall not waive any obligation of
Obligor or Borrower or right of Bank or modify this agreement, or waive any
other similar default.
14. On transfer of all or any part of the Debt, Bank may transfer all or
any part of the Collateral. Bank may deliver all or any part of the Collateral
to any Obligor at any time. Any such transfer or delivery shall discharge Bank
from all liability and responsibility with respect to such Collateral
transferred or delivered. This agreement benefits Bank's successors and assigns
and binds Obligor's heirs, legatees, personal representatives, successors and
assigns. Obligor agrees not to assert against any assignee of Bank any claim or
defense that may exist against Bank. Time is of the essence. This agreement and
supplementary schedules hereto contain the entire security agreement between
Bank and Obligor. Obligor will execute any additional agreements, assignments
or documents reasonably required by Bank to carry this agreement into effect.
15. This agreement shall be governed by and construed in accordance with
the laws of the State of California, to the jurisdiction of whose courts the
Obligor hereby agrees to submit. Obligor agrees that service of process may be
accomplished by any means authorized by California law. All words used herein
in the singular shall be considered to have been used in the plural where the
context and construction so require.
<PAGE> 1
EXHIBIT 10.4
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE STOCK
Corporation: Inland Casino Corporation, a Utah corporation
Number of Shares: 40,000
Class of Stock: Common
Initial Exercise Price: $5.00 per share
Issue Date: October 10, 1995
Expiration Date: October 10, 2000 (subject to Article 4.1)
THIS WARRANT CERTIFIES THAT, in consideration of an extension of credit
to Corporation and for other good and valuable consideration, IMPERIAL BANK
("Holder") is entitled to purchase the number of fully paid and nonassessable
shares of the class of securities (the "Shares") of the corporation (the
"Company") at the initial exercise price per Share (the "Warrant Price") all as
set forth above and as adjusted pursuant to Article 2 of this Warrant, subject
to the provisions and upon the terms and conditions set forth in this Warrant.
ARTICLE 1. EXERCISE
1.1 Method of Exercise. Holder may exercise this Warrant by delivering
this Warrant and a duly executed Notice of Exercise in substantially the form
attached as Appendix 1 to the principal office of the Company. Unless Holder is
exercising the conversion right set forth in Section 1.2, Holder shall also
deliver to the Company a check for the aggregate Warrant Price for the Shares
being purchased.
1.2 Conversion Right. In lieu of exercising this Warrant as specified
in Section 1.1, Holder may from time to time convert this Warrant, in whole or
in part, into a number of Shares determined by dividing (a) the aggregate fair
market value of the Shares or other securities otherwise issuable upon
exercise of this Warrant minus the aggregate Warrant Price of such Shares by
(b) the fair market value of one Share. The fair market value of the Shares
shall be determined pursuant to Section 1.3.
1.3 Fair Market Value. If the Shares are traded regularly in a public
market, the fair market value of the Shares shall be the closing price of the
Shares (or the closing price of the Company's stock, into which the Shares are
convertible) reported for the business day immediately before Holder delivers
its Notice of Exercise to the Company. If the Shares are not regularly traded
in a public market, the Board of
<PAGE> 2
Directors of the Company shall determine fair market value in its reasonable
good faith judgment. The foregoing notwithstanding, if Holder advises the Board
of Directors in writing that Holder disagrees with such determination, then the
Company and Holder shall promptly agree upon a reputable investment banking
firm to undertake such valuation. If the valuation of such investment banking
firm is greater than that determined by the Board of Directors, then all fees
and expenses of such investment banking firm shall be paid by the Company. In
all other circumstances, such fees and expenses shall be paid by Holder.
1.4 Delivery of Certificate and New Warrant. Promptly after Holder
exercises or converts this Warrant, the Company shall deliver to Holder
certificates for the Shares acquired and, if this Warrant has not been fully
exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired.
1.5 Replacement of Warrants. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of mutilation, or surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant,
a new warrant of like tenor.
1.6 Repurchase on Sale, Merger or Consolidation of the Company.
1.6.1. "Acquisition". For the purpose of this Warrant,
"Acquisition" means any sale, license, or other disposition of all or
substantially all of the assets (including intellectual property) of the
Company, or any reorganization, consolidation, or merger of the Company where
the holders of the Company's securities before the transaction beneficially own
less than 50% of the outstanding voting securities of the surviving entity
after the transaction.
1.6.2. Assumption of Warrant. If upon the closing of any
Acquisition the successor entity assumes the obligations of this Warrant, then
this Warrant shall be exercisable for the same securities, cash, and property
as would be payable for the Shares issuable upon exercise of the unexercised
portion of this Warrant as if such Shares were outstanding on the record date
for the Acquisition and subsequent closing. The Warrant Price shall be adjusted
accordingly. The Company shall use reasonable efforts to cause the surviving
corporation to assume the obligations of this Warrant.
1.6.3. Nonassumption. If upon the closing of any Acquisition the
successor entity does not assume the obligations of his Warrant and Holder has
not otherwise exercised this Warrant in full, then the unexercised portion of
this Warrant shall be deemed to have been automatically converted pursuant to
Section 1.2 and
2
<PAGE> 3
thereafter Holder shall participate in the acquisition on the same terms as
other holders of the same class of securities of the Company.
ARTICLE 2. ADJUSTMENTS TO THE SHARES.
2.1 Stock Dividends, Splits, Etc. If the Company declares or pays a
dividend on its common stock (or the Shares if the Shares are securities other
than common stock) payable in common stock, or other securities, subdivides the
outstanding common stock into a greater amount of common stock, or, if the
Shares are securities other than common stock, subdivides the Shares in a
transaction that increases the amount of common stock into which the Shares are
convertible, then upon exercise of this Warrant, for each Share acquired,
Holder shall receive, without cost to Holder, the total number and kind of
securities to which Holder would have been entitled had Holder owned the Shares
of record as of the date the dividend or subdivision occurred.
2.2 Reclassification, Exchange or Substitution. Upon any
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise or
conversion of this Warrant, Holder shall be entitled to receive, upon exercise
or conversion of this Warrant, the number and kind of securities and property
that Holder would have received for the Shares if this Warrant had been
exercised immediately before such reclassification, exchange, substitution, or
other event. Such an event shall include any automatic conversion of the
outstanding or issuable securities of the Company of the same class or series
as the Shares to common stock pursuant to the terms of the Company's Articles
of Incorporation upon the closing of a registered public offering of the
Company's common stock. The Company or its successor shall promptly issue to
Holder a new Warrant for such new securities or other property. The new Warrant
shall provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Article 2 including,
without limitation, adjustments to the Warrant Price and to the number of
securities or property issuable upon exercise of the new Warrant. The
provisions of this Section 2.2 shall similarly apply to successive
reclassifications, exchanges, substitutions, or other events.
2.3 Adjustments for Combinations, Etc. If the outstanding Shares are
combined or consolidated, by reclassification or otherwise, into a lesser
number of shares, the Warrant Price shall be proportionately increased.
2.4 Adjustments for Diluting Issuances. The Warrant Price and the
number of Shares issuable upon exercise of this Warrant or, if the Shares are
Preferred Stock, the number of shares of common stock issuable upon conversion
of the Shares, shall be subject to the adjustment, from time to time, in the
manner set forth on Exhibit B, if attached, in the event of Diluting Issuances
(as defined on Exhibit A).
3
<PAGE> 4
2.5 No impairment. The Company shall not, by amendment of its
Articles of Incorporation or through a reorganization, transfer of assets,
consolidation, merger, dissolution, issue, or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any
of the terms to be observed or performed under this Warrant by the Company, but
shall at all times in good faith assist in carrying out all the provisions of
this Article 2 and in taking all such action as may be necessary or appropriate
to protect Holder's rights under this Article against impairment. If the
Company takes any action affecting the Shares or its common stock other than as
described above that adversely affects Holder's rights under this Warrant, the
Warrant Price shall be adjusted downward and the number of Shares issuable upon
exercise of this Warrant shall be adjusted upward in such a manner that the
aggregate Warrant Price of this Warrant is unchanged.
2.6 Certificate as to Adjustments. Upon each adjustment of the
Warrant Price, the Company at its expense shall promptly compute such
adjustment, and furnish Holder with a certificate of its Chief Financial
Officer setting forth such adjustment and the facts upon which such adjustment
is based. The Company shall, upon written request, furnish Holder a certificate
setting forth the Warrant Price in effect upon the date thereof and the series
of adjustments leading to such Warrant Price.
ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
3.1 Representations and Warranties. The Company hereby represents and
warrants to the Holder as follows:
(a) The initial Warrant Price referenced on the first page of
this Warrant is not greater than (i) the price per share at which the Shares
were last issued in an arms-length transaction in which at least $50,000 of the
Shares were sold and (ii) the fair market value of the Shares as of the date of
this Warrant.
(b) All Shares which may be issued upon the exercise of the
purchase right represented by this Warrant, and all securities, if any,
issuable upon conversion of the Shares, shall, upon issuance, be duly
authorized, validly issued, fully paid and nonassessable, and free of any liens
and encumbrances except for restrictions on transfer provided for herein; or
under applicable federal and state securities laws.
3.2 Notice of Certain Events. If the Company proposes at any time (a)
to declare any dividend or distribution upon its common stock, whether in cash,
property, stock, or other securities and whether or not a regular cash
dividend; (b) to offer for subscription pro rata to the holders of any class or
series of its stock any additional shares of stock of any class or series or
other rights; (c) to effect any reclassification or recapitalization of common
stock; (d) to merge or consolidate with or into any other corporation, or sell,
lease, license, or convey all or substantially all of its assets, or to
4
<PAGE> 5
liquidate, dissolve or wind up; or (e) offer holders of registration rights the
opportunity to participate in an underwritten public offering of the company's
securities for cash, then, in connection with each such event, the Company
shall give Holder (1) at least 20 days prior written notice of the date on
which a record will be taken for such dividend, distribution, or subscription
rights (and specifying the date on which the holders of common stock will be
entitled thereto) or for determining rights to vote, if any, in respect to
the matters referred to in (c) and (d) above; (2) in the case of the matters
referred to in (c) and (d) above at least 20 days prior written notice of the
date when the same will take place (and specifying the date on which the
holders of common stock will be entitled to exchange their common stock for
securities or other property deliverable upon the occurrence of such event);
and (3) in the case of the matter referred to in (e) above, the same notice as
is given to the holders of such registration rights.
3.3 Information Rights. So long as the Holder holds this Warrant
and/or any of the Shares, the Company shall deliver to the Holder (a) promptly
after mailing, copies of all communiques to the shareholders of the Company,
(b) within ninety (90) days after the end of each fiscal year of the Company,
the annual audited financial statements of the Company certified by independent
public accountants of recognized standing and (c) within forty-five (45) days
after the end of each of the first three quarters of each fiscal year, the
Company's quarterly, unaudited financial statements.
3.4 Registration Under Securities Act of 1933, as amended. The Company
agrees that the Shares or, if the Shares are convertible into common stock of
the Company, such common stock, shall be subject to the registration rights set
forth on Exhibit B, if attached.
ARTICLE 4. MISCELLANEOUS.
4.1 Term: Notice of Expiration. This Warrant is exercisable, in whole
or in part, at any time and from time to time on or before the Expiration Date
set forth above.
4.2 Legends. This Warrant and the Shares (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) shall be
imprinted with a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED
WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO
RULE 144 OR AN OPTION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
5
<PAGE> 6
4.3 Compliance with Securities Laws on Transfer. This Warrant and the
Shares issuable upon exercise this Warrant (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) may not be
transferred or assigned in whole or in part without compliance with applicable
federal and state securities laws by the transferor and the transferee
(including, without limitation, the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company). The Company
shall not require Holder to provide an opinion of counsel if the transfer is to
an affiliate of Holder or if there is no material question as to the
availability of current information as referenced in Rule 144(c), Holder
represents that it has complied with Rule 144(d) and (e) in reasonable detail,
the selling broker represents that it has complied with Rule 144(f), and the
Company is provided with a copy of Holder's notice of proposed sale.
4.4 Transfer Procedure. Subject to the provisions of Section 4.2,
Holder may transfer all or part of this Warrant or the Shares issuable upon
exercise of this Warrant (or the securities issuable, directly or indirectly,
upon conversion of the Shares, if any) by giving the Company notice of the
portion of the Warrant being transferred setting forth the name, address and
taxpayer identification number of the transferee and surrendering this Warrant
to the Company for reissuance to the transferee(s) (and Holder, if applicable).
Unless the Company is filing financial information with the SEC pursuant to the
Securities Exchange Act of 1934, the Company shall have the right to refuse to
transfer any portion of this Warrant to any person who directly competes
with the Company.
4.5 Notices. All notices and other communications from the Company to
the Holder, or vice versa, shall be deemed delivered and effective when given
personally or mailed by first-class registered or certified mail, postage
prepaid, at such address as may have been furnished to the Company or the
Holder, as the case may be, in writing by the Company or such Holder from time
to time.
4.6 Waiver. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
4.7 Attorneys' Fees. In the event of any dispute between the parties
concerning the terms and provisions of this Warrant, the party prevailing in
such dispute shall be entitled to collect from the other party all costs
incurred in such dispute, including reasonable attorneys' fees.
4.8 Governing Law. This Warrant shall be governed by and construed in
accordance with the laws of the State of California, without giving effect to
its principles regarding conflicts of law.
6
<PAGE> 7
Inland Casino Corporation
---------------------------------------
By /s/
---------------------------------------
Name
-----------------------------------
(Print)
Title: Chairman of the Board, President,
or Vice President
By /s/ Duane M. Eberlein
---------------------------------------
Name
-----------------------------------
(Print)
Title: Chief Financial Officer, Secretary,
Assistant Treasurer or Assistant
Secretary
7
<PAGE> 8
EXHIBIT A
Anti-Dilution Provisions
In the event of the issuance (a "Diluting Issuance") by the Company,
after the Issue Date of the Warrant, of Common Shares or equity securities
convertible into Common Shares at a price per share less than the Warrant
Price, the number of Shares issuable such that the Holder shall receive
additional shares of Common Stock such that the effective Warrant Price shall
be no greater than the price at which the Diluting Issuance was made.
Under no circumstances shall the aggregate Warrant Price payable by the
Holder upon exercise of the Warrant increase as a result of any adjustment
arising from a Diluting Issuance.
Notwithstanding anything to the contrary, Company may issue options to
employees for up to 500,000 shares per year but not to exceed 1,000,000 shares
in total without such options being Diluting Issuances.
<PAGE> 9
EXHIBIT B
Registration Rights
The Shares shall be deemed "registrable securities" or otherwise
entitled to "piggy back" registration rights in accordance with the terms of
any agreement between the Company and any of its investors (the "Agreement"),
provided Holder shall not exercise such registration rights more than twice.
The Company agrees that no amendments will be made to the Agreement
which would have an material adverse impact on Holder's registration rights
thereunder without the consent of Holder. By acceptance of the Warrant to which
this Exhibit B is attached, Holder shall be deemed to be a party to the
Agreement for solely for purposes of the registration rights.
If no Agreement exists, then the Company and the Holder shall enter
into a form of Registration Rights Agreement which shall be no less favorable
than any such agreement subsequently entered into between the Company and any
investors and in no event providing less than piggy back registration rights.
9
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> DEC-31-1995
<CASH> 1,456,122
<SECURITIES> 0
<RECEIVABLES> 74,404
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,412,048
<PP&E> 175,239
<DEPRECIATION> 17,246
<TOTAL-ASSETS> 10,466,251
<CURRENT-LIABILITIES> 2,908,617
<BONDS> 0
0
0
<COMMON> 3,752,555
<OTHER-SE> 3,805,079
<TOTAL-LIABILITY-AND-EQUITY> 10,466,251
<SALES> 4,341,216
<TOTAL-REVENUES> 4,341,216
<CGS> 0
<TOTAL-COSTS> 4,682,994
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,922
<INCOME-PRETAX> (344,700)
<INCOME-TAX> (132,000)
<INCOME-CONTINUING> (212,700)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (212,700)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
