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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED: JUNE 30, 1996
OR
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 0-11532
INLAND CASINO CORPORATION
(Name of Small Business Issuer in its Charter)
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UTAH 33-0618806
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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4225 EXECUTIVE SQUARE, SUITE 1650, LA JOLLA, CALIFORNIA 92037
(Address of principal executive offices) (Zip Code)
ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE: (619) 546-9383
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.001 PAR VALUE
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90
days. Yes /X/ No / /
Check if there is no disclosure of delinquent filers pursuant to Item 405
of Regulation S-B contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. / /
State issuer's revenues for its most recent fiscal year: $11,482,040
As of September 30, 1996, the aggregate market value of the voting stock
held by non-affiliates of the registrant (based on the closing sale price of
such stock on such date) was approximately $3,116,960.
State the number of shares outstanding of each of the registrant's classes
of common equity at September 30, 1996: 3,854,548.
Transitional Small Business Disclosure Format (check one) Yes [ ] No [X]
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Proxy Statement prepared in connection with the Annual
Meeting of Shareholders to be held in 1996 -- Part III.
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TABLE OF CONTENTS
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PART I
ITEM 1: DESCRIPTION OF BUSINESS............................................... 1
ITEM 2: DESCRIPTION OF PROPERTY............................................... 18
ITEM 3: LEGAL PROCEEDINGS..................................................... 18
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................... 18
PART II
ITEM 5: MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.............. 19
ITEM 6: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION............. 20
ITEM 7: FINANCIAL STATEMENTS.................................................. 25
ITEM 8: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.................................................. 40
PART III
ITEM 9: DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT..................... 40
ITEM 10: EXECUTIVE COMPENSATION................................................ 40
ITEM 11: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT........ 40
ITEM 12: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................ 40
ITEM 13: EXHIBITS AND REPORTS ON FORM 8-K...................................... 41
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
Inland Casino Corporation, a Utah corporation ("Inland Casino" or the
"Company") is a gaming management and consulting company in the Indian gaming
industry. Inland Casino is the successor to a corporation organized in June
1994, also known as Inland Casino Corporation, a Delaware corporation ("ICC
II"), to consolidate various entities which were owned by the shareholders of
ICC II.
Effective May 22, 1995, ICC II was merged (the "Merger") into a public
reporting company named Twin Creek Exploration Co., Inc. ("Twin Creek"). Twin
Creek was incorporated on March 6, 1980 under the laws of the State of Utah and
organized for the purpose of engaging primarily in the oil and gas exploration
industry and the acquisition of oil and gas producing properties. Although it
retained some oil and gas interests, it was no longer active in the oil and gas
exploration business at the time of the Merger. Since 1990, it had been involved
in the research, development and marketing of English language instruction
courses for Spanish-speaking and Japanese-speaking people. In anticipation of
the Merger with ICC II, all of the assets of Twin Creek were assigned to
Linguistix, Inc., the sole subsidiary of Twin Creek and subsequently the stock
of Linguistix, Inc. was distributed pro rata to the persons who were
shareholders of Twin Creek prior to the Merger. Following the Merger, the name
of Twin Creek was changed to Inland Casino Corporation.
ICC II was incorporated in the State of Delaware on June 6, 1994 and
commenced operations on July 1, 1994. ICC II was formed to consolidate various
entities which were owned by the shareholders of Inland Casino and which were
engaged in providing gaming operations services and consulting services for the
Barona Group of Capitan Grande Band of Mission Indians (the "Barona Tribe") at
the Barona Casino on the Barona Tribe's reservation land located approximately
30 miles east of San Diego, California. ICC II was capitalized pursuant to the
terms of an Incorporation Agreement (the "Incorporation Agreement") by and among
ICC II, Inland Casino Corporation, a Nevada corporation ("ICC I"), Eagle Edge
Partners, a California limited partnership ("EEP"), Inland Casino Partners, a
California general partnership ("ICP"), Redwood Gaming, Inc., a California
corporation ("Redwood"), L. Donald Speer, II, Jonathan Ungar, Alan Woods, Jack
Smith, Karol M. Schoen and Duncan Edwards. The Incorporation Agreement sets
forth the terms whereby ICC I, EEP, and ICP, each of which was directly or
indirectly involved in the existing operations of ICP, were rolled-up (the
"Roll-Up Transaction") into ICC II.
References to Inland Casino with respect to periods prior to the Merger
should be deemed references to ICC II or its predecessor entities, as the
context requires.
The Company's executive offices are located at 4225 Executive Square, Suite
1650, La Jolla, California 92037. Its telephone number is (619) 546-9383.
BUSINESS OF ISSUER
Business in Fiscal 1996. During the past three years ended June 30, 1996,
the Company and its predecessors have devoted substantially all of their efforts
to providing operating and consulting services to the Barona Tribe at the Barona
Casino. The Barona Casino consists of the "Barona Big Top," a turn-of-the-
century circus theme casino which includes 1,057 video games, 32 table games, a
1,500-seat bingo parlor, a 200-seat buffet restaurant and a 150-seat off-track
betting facility, which is operated by the Barona Tribe. The complex exceeds
100,000 square feet and is located on approximately 15 acres, including parking
for approximately 2,000 cars. The Barona Casino is open 24 hours a day, 365 days
a year.
During the last three fiscal years, with the exception of approximately
$46,000 billed for consulting services in Fiscal 1996 to other Indian tribes,
all fee revenue related to services performed for the Barona Tribe in connection
with the Barona Casino.
Recent Business Developments. Consistent with its business strategy, the
Company recently entered into several consulting agreements with Indian tribes
and Indian organizations other than the Barona Tribe.
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In May 1996, the Company entered into a Marketing Consulting Agreement with
the Confederated Tribes of Siletz Indians of Oregon (the "Siletz Tribe") to
provide marketing and consulting services in connection with the operation by
the Siletz Tribe of the Chinook Winds Gaming and Convention Center (the "Chinook
Winds Property") in Lincoln City, Oregon, approximately 90 miles south-west of
Portland, Oregon. The Chinook Winds property has been in operation since June
1996, and includes a 158,000 square-foot facility, with 817 video lottery
terminals, 16 blackjack tables, 8 poker tables, a 250-seat buffet restaurant, a
150-seat restaurant and lounge, a 24 hour deli-restaurant, and a 750-seat bingo
hall which also serves as a 1,062-seat showroom. The property includes 35,000
square feet of convention and meeting space. The Siletz Tribe operates the
Chinook Winds Property under the provisions of a Tribal-State Compact with the
State of Oregon. In October 1996, the Company advised the Siletz Tribal Council
of the Company's intent to terminate the Marketing Consulting Agreement pursuant
to its terms. See "Summary of Inland Casino Gaming Agreements -- Agreement with
the Siletz Tribe," in this Item 1, herein.
In June 1996, the Company entered into a Consulting Agreement with the
Klamath and Modoc Tribes and the Yahooskin Band of Snake Indians (collectively,
the "Klamath Tribes") to provide consulting services in connection with the
development of the planned Kla-Mo-Ya Casino, to be constructed near Chiloquin,
in south-central Oregon. The Klamath Tribes plan to build and operate a 50,000
square-foot facility, with up to 500 video lottery terminals, 12 blackjack
tables, eight poker tables, a 212-seat buffet, a 108-seat restaurant and lounge,
a 52-seat deli-restaurant and a 430-seat cabaret. The opening date of the
Kla-Mo-Ya Casino has not yet been determined. The Klamath Tribes will operate
the Kla-Mo-Ya Casino under the provisions of a Tribal-State Compact with the
State of Oregon.
Additionally, in June 1996, Inland Casino entered into a short-term
Marketing Consulting Agreement with the Associated Tribes of Northwest Indians
("ATNI") to promote Indian gaming in the Pacific Northwest and in August 1996,
the Company entered into a small, short-term consulting engagement with the
Pueblo of Sandia in New Mexico regarding legislative and public relations
matters. Revenue in the approximate amount of $11,000 was realized from the ATNI
agreement in the fiscal year ended June 30, 1996 ("Fiscal 1996"). Revenue
associated with the Pueblo of Sandia was not earned in Fiscal 1996.
Business Strategy. Inland Casino's basic business strategy is to continue
to pursue marketing its gaming management and consulting services to others, as
well as developing computer applications (both hardware and software) for use in
the gaming industry.
INDUSTRY AND REGULATORY OVERVIEW
General. Gaming is an international industry that is expanding at a rapid
pace in the United States. Gaming activities include traditional full service
casinos, state or national Indian sponsored lotteries, bingo games, riverboat
gaming, small-stakes casino gaming, international gaming, gaming on cruise ships
in international waters, and Indian gaming. Other forms of gaming conducted in
certain areas of the United States include parimutuel betting on horse racing,
dog racing and jai-alai; sports bookmaking; and card rooms. Inland Casino has
sought to position itself to benefit from the emergence of two major gaming
trends: the significant expansion of gaming and the emergence of Indian tribes
as major providers of gaming.
Indian Gaming. Prior to 1981, casino-style gaming in the United States,
such as slot machines, blackjack, poker, roulette and craps, was the province of
the traditional gaming markets of Nevada and Atlantic City, New Jersey. In 1981,
however, the Seminole Tribe of Florida established its right to conduct
high-stakes bingo games on its reservation. Bingo is currently conducted by
Indian tribes throughout the United States. As bingo games on tribal land
expanded, tribes began to offer additional gaming activities, such as draw poker
and other card games. Such expanded activities led to litigation regarding the
permitted scope of Indian gaming. In 1987, the U.S. Supreme Court ruled that if
a state regulates rather than prohibits any form of gaming, Indian tribes have
the right to conduct such gaming on Indian land, free of state restrictions.
Indian Gaming Regulatory Act. In response to this U.S. Supreme Court
decision, the United States Congress enacted the Indian Gaming Regulatory Act,
25 U.S.C. Sec. 2701 et seq. ("IGRA") in 1988, which created the National Indian
Gaming Commission (the "NIGC") to establish basic regulations and provide some
oversight responsibilities for Indian gaming. The IGRA was adopted to promote
tribal economic
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development and self-sufficiency, while attempting to balance these goals with
legitimate federal and state regulatory concerns. Due to their generally remote
locations, Indian tribes have had few opportunities for economic development and
high unemployment has been a significant problem on Indian reservations. Indian
casinos have provided tribal members with jobs and revenue for economic
development and for construction of schools, health care facilities, and water
treatment and sewage systems.
SUMMARY OF INLAND CASINO GAMING AGREEMENTS
Agreements with the Barona Tribe
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The Operations Agreement. Prior to April 1, 1996, the Company provided
operational and other services in accordance with the terms and conditions of a
certain Gaming Management Agreement dated February 1992, as amended (the
"Operations Agreement") with the Barona Tribe, under a grant of authority from
the Barona Tribe's General Council. The Operations Agreement was scheduled to
expire in February 1999 and established the Company's rights, obligations and
duties to the Barona Tribe including the Company's incurrence of a contingent
liability for certain obligations of the Barona Casino.
The Company's revenue was derived from fees based upon a percentage of
profits or the excess of revenue over certain expenses, as defined in the
Operations Agreement, generated from the gaming operations at the Barona Casino.
IGRA requires that management contracts must be approved by the NIGC and
that an assignment of a management 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. The Operations
Agreement has not been approved by the NIGC. The Agreement was submitted to the
Bureau of Indian Affairs (the "BIA") in Riverside, California soon after its
execution in February 1992. In April 1992, the BIA's office in Riverside
notified the Barona Tribe that it had completed its review and was sending it to
the BIA's Sacramento Area Office for approval. In February 1993, the BIA sent
the entire package back to the Barona Tribe with a letter to the effect that,
since the NIGC had begun to function, the BIA was not going to take further
action on any of the various gaming management agreements that it had under
submission. In 1993, the NIGC issued a "call" for all gaming Indian tribes to
submit their gaming ordinances for approval. The Barona Tribe responded and
received such approval. In April 1993, the Barona Tribe, at the request of a
Field Representative of the NIGC, submitted the Operations Agreement to such
Field Representative for NIGC approval. As of September 30, 1996, the NIGC has
not approved or disapproved the Operations Agreement. From February 1992 through
March 1996, the Company operated as manager of the Barona Casino under the terms
of the Operations Agreement with the Barona Tribe. See "Discussion of Regulatory
Matters," under this Item 1 and Item 3. Legal Proceedings, herein.
On March 27, 1996, the Company entered into a Consulting Agreement with the
Barona Tribe with an effective date of April 1, 1996 (the "Initial Consulting
Agreement"). In May 1996, the parties recognized that an inadvertent mistake in
the provision relating to consulting fees had been made and entered into an
Amended and Restated Consulting Agreement (the "Consulting Agreement"). The
Consulting Agreement, by its terms, relates back to March 27, 1996 and
reiterates the April 1, 1996 effective date. Since April 1, 1996, the parties
have been operating under the terms of the Consulting Agreement whose terms are
more specifically defined in this Item 1 under the caption "Summary of Inland
Casino Gaming Agreements -- Agreements with the Barona Tribe -- The Consulting
Agreement." Pursuant to the terms of the Consulting Agreement and the related
Mutual Release dated as of March 27, 1996, the Operations Agreement was
cancelled effective March 31, 1996 and was superseded by the Consulting
Agreement with an effective date of April 1, 1996.
The NIGC does not approve consulting agreements; however, it does review
such agreements to determine whether they are management or consulting
agreements. If a contract is determined to be a consulting contract, the
contract is then forwarded to the BIA for approval.
In March 1996, the Barona Tribe submitted the Initial Consulting Agreement
to the NIGC. In May 1996, the NIGC (i) determined that the Initial Consulting
Agreement was not a management agreement and,
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therefore, not subject to NIGC approval and (ii) forwarded the Initial
Consulting Agreement to the BIA. The Company intends to submit the Consulting
Agreement to the NIGC and the BIA. Although there can be no assurance that the
NIGC will conclude that the Consulting Agreement is not a management agreement,
the Company believes that, based upon its prior ruling with respect to the
Initial Consulting Agreement, the NIGC will make a similar determination with
respect to the Consulting Agreement. In addition, if the BIA determines that the
Initial Consulting Agreement and/or the Consulting Agreement is subject to its
review there can be no assurance that such Agreements will be approved by the
BIA. Failure to approve the Initial Consulting Agreement or the Consulting
Agreement may have a material adverse effect on the business and financial
condition of the Company. See Notes to Financial Statements, Note A -- Summary
of Significant Accounting Policies, 3. Barona Consulting and Operations
Agreements, Note G -- Commitments and Contingencies and Item 6. Management's
Discussion and Analysis or Plan of Operations -- Liquidity and Capital
Resources, herein.
The Consulting Agreement. Pursuant to the terms of the Consulting
Agreement, the Company will (i) consult with and advise the Barona Tribe,
members of the Barona Tribal Council and the Barona Tribal Gaming Committee,
(ii) provide technical assistance and training to the employees and staff of the
Barona Casino, and (iii) provide other services as may be directed by the Barona
Tribe in such areas as organization and administration, financing, planning and
development, gaming activities, internal controls, accounting systems and
procedures, engineering and maintenance, housekeeping, human resources,
marketing and advertising, purchasing, surveillance, security and food and
beverage operations.
The Consulting Agreement provides for an initial term of three (3) years
commencing April 1, 1996, with an option to extend the agreement for an
additional five-year period. At any time after April 1, 1997, the Barona Tribe
may terminate the Consulting Agreement by (i) giving nine months' notice to the
Company, during which time the Consulting Agreement will remain in effect, and
(ii) paying the Company $475,000 per month for each month remaining under the
initial three-year term. Either party may terminate the Consulting Agreement for
(i) committing or knowingly allowing to be committed any act of theft or
embezzlement; however, theft or embezzlement by an officer or employee of the
Company without the Company's knowledge shall not be cause for termination of
the Agreement, as long as the Company repays all sums which may have been stolen
or embezzled as soon as the Company becomes aware of the facts or (ii)
committing a material breach of any of the Company's representations that
adversely affects its ability to carry out its responsibilities under the
Agreement. Remedies for breach include the resolution of any serious problems
with the Company's performance within 10 days of receipt of notice by the
Company, and if the problems are not resolved within 10 days of notice, by the
Company's meeting and conferring in good faith with the Barona Tribal Council or
the Barona Tribal Gaming Committee to determine what remedial action, if any, is
necessary. In addition, disputes arising under the Consulting Agreement and not
resolved with the Tribal Council or Tribal Gaming Committee shall be submitted
to binding arbitration before the American Arbitration Association in San Diego.
For its services, the Company receives a monthly base consulting fee of
$475,000 and may receive additional consulting fees if certain operating levels
are reached by the Barona Casino. Notwithstanding the consulting fees to be paid
under the Consulting Agreement, pursuant to its terms, the Barona Tribe has the
right to draw from the gross revenues of the Barona Casino an annual income
stream at least equal to the distributions received by the Barona Tribe for the
twelve month period ended December 31, 1995. In light of such provision, fees
paid or payable to the Company may be reduced.
The Barona Casino relies extensively on electronic video games, including
video pull-tab games, video poker, video keno, and video bingo (the "video
gaming machines"). Inland Casino does not own any of the video gaming machines.
The Company has entered into three leases (each, a "Video Machine Lease" and
collectively, the "Video Machine Leases") for the video gaming machines. These
agreements are currently in the process of being assigned to the Barona Tribe.
To the extent that the Video Machine Leases are "collateral agreements" to the
Consulting Agreement within the meaning of IGRA, each Lessor is required to
comply with IGRA and its regulations. Neither the Barona Tribe nor Inland Casino
have submitted the Video Machine Leases to the NIGC for its approval as
"collateral agreements". If these Leases are "collateral
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agreements" and are not approved, the Barona Tribe's present intention is to
replace the video gaming machines.
Consulting Agreement with the Siletz Tribe
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In May 1996, the Company entered into a Marketing Consulting Agreement (the
"Siletz Agreement") with the Siletz Tribe to provide consulting services to the
Chinook Winds Property in Lincoln City, Oregon. Under the terms of the Siletz
Agreement, the Company will consult with, provide technical assistance and
training and advice to the Siletz Tribe, to members of the Siletz Tribal Council
and to the Chinook Winds management and employees, in matters relating to the
operation and business activities of the Chinook Winds Property, including
marketing administration, advertising and promotion, including special events,
entertainment, customer service and casino promotions.
The term of the Siletz Agreement is a three year agreement which commenced
June 1996. At any time after the first full year of the Siletz Agreement, the
Siletz Tribe may terminate the Siletz Agreement by giving three months' notice
to the Company, during which time the Siletz Agreement will remain in effect,
and paying the Company an amount equal to three times the most recent monthly
consulting fees paid to the Company.
Either party may terminate the Agreement for (i) committing or knowingly
allowing to be committed any act of theft or embezzlement; (ii) committing a
material breach of the Agreement, defined as a failure of either party to
substantially perform any duty or obligation required under the Agreement, or
(iii) a material breach of any of the Company's representations or failure to
disclose pertinent information that adversely affects its ability to carry out
its responsibilities under the Agreement. Remedies for breach include initial
dispute resolution with the Siletz Tribal Council and binding arbitration before
the American Arbitration Association in Portland, Oregon.
For its performance of services under the Siletz Agreement, the Company
shall receive a monthly base consulting fee of $35,000, and may receive
additional consulting fees if certain operating levels are reached by the
Chinook Winds Property.
The Siletz Tribe operates the Chinook Winds Property under the provisions
of a Tribal-State Compact with the State of Oregon (the "Siletz Compact"). Since
the Siletz Compact permits the Siletz Tribe to offer Class III games, as that
term is defined under IGRA, at the Chinook Winds Property, the Siletz Agreement
must be reviewed by the NIGC. As of September 24, 1996, the Siletz Agreement has
not been submitted to the NIGC for consideration. The Company currently expects
the Siletz Agreement to be submitted to the NIGC within the next several months.
Accordingly, there can be no assurance that all required regulatory approvals
will be granted and no assurance that the Company will qualify as a consultant
or vendor to the Siletz Tribe. For a further discussion of the regulatory
approval process, including required tribal and state approvals, see "Discussion
of Regulatory Matters" in this Item 1, herein.
In October 1996, the Company advised the Siletz Tribal Council of the
Company's intent to terminate the Siletz Agreement pursuant to its terms. The
Siletz Agreement contains certain procedural provisions relating to termination
events. Accordingly, there can be no assurance that the Company will continue to
provide consulting services for the Siletz Tribe.
Consulting Agreement with the Klamath Tribes
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In June 1996, the Company entered into a consulting agreement (the "Klamath
Agreement") with the Klamath Tribes. The Klamath Tribes plan to build and
operate the Kla-Mo-Ya Casino, to be constructed near Chiloquin, in south-central
Oregon. The opening date of the facility has not yet been determined.
Under the terms of the Company's consulting agreement with the Klamath
Tribes, the Company will consult with and advise the Tribes, provide technical
assistance and training, and provide services as may be directed by the Tribes
in such areas as organization and administration, financing, planning and
development, gaming activities, internal controls, accounting systems and
procedures, engineering and maintenance,
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housekeeping, human resources, marketing and advertising, purchasing,
surveillance, security and food and beverage operations.
The Kla-Mo-Ya Casino project is to be constructed on a 42-acre site which
will be acquired by the Klamath Tribes in fee simple and transferred to the U.S.
Government to be held in trust for the benefit of the Klamath Tribes. The
estimated total cost of the project, including land acquisition cost of
$1,083,000, is $12,347,500, which is to be financed through the issuance of
revenue bonds issued by the Klamath Tribes.
The term of the Klamath Agreement is five years, commencing with the date
of opening of the Kla-Mo-Ya Casino. At any time after the first full year of the
Agreement, the Klamath Tribes may terminate the Klamath Agreement by giving 30
days' notice to the Company, during which time the Klamath Agreement will remain
in effect, and pay the Company an amount equal to 12 times the average
consulting fees paid over the past 12 months. The Klamath Tribes will not be
required to make these early termination payments if, upon review and
investigation, the Company does not meet the criteria necessary to qualify as a
vendor to Indian gaming, as determined by the State of Oregon, the Klamath
Tribes or the NIGC.
Either Party may terminate the Agreement for (i) committing or knowingly
allowing to be committed any act of theft or embezzlement; (ii) committing a
material breach of the Agreement, defined as a failure of either party to
perform any duty or obligation required under the Agreement, or (iii) a material
breach of any of the Company's representations or failure to disclose pertinent
information that adversely affects its ability to carry out its responsibilities
under the Agreement. Remedies for breach include initial dispute resolution with
the Klamath Tribe's Executive Committee and binding arbitration before the
American Arbitration Association in the State of Oregon.
For services rendered pursuant to the Klamath Agreement, the Company will
receive a monthly base consulting fee of $25,000, commencing from the opening of
the Kla-Mo-Ya Casino, and will receive additional consulting fees if certain
operating levels are reached. From June 1996 through to the opening of the
casino, the Company will be reimbursed for its out-of-pocket costs and expenses.
Through June 30, and August 31, 1996, the Company incurred approximately $8,000
and $26,000 in costs, respectively, related to the project.
The Klamath Tribes will operate the Kla-Mo-Ya Casino under the provisions
of Tribal-State Compact (the "Klamath Compact") with the State of Oregon. Since
the Klamath Compact permits the Klamath Tribes to offer Class III games at its
casino, as that term is defined in IGRA, the Klamath Consulting Agreement must
be reviewed by the NIGC. The Klamath Consulting Agreement has been submitted by
the Klamath Tribes to the NIGC. As of September 30, 1996, neither the NIGC nor
the BIA have made any determinations with respect to the Klamath Consulting
Agreement. Accordingly, there can be no assurance that all required regulatory
approvals will be granted and no assurance that the Company will qualify as a
consultant or vendor to the Klamath Tribe. For a further discussion of the
regulatory approval process, including required tribal and state approvals see
"Discussion of Regulatory Matters" in this Item 1, herein.
The Kenny Rogers Agreements. In connection with serving its Indian gaming
clients, the Company has entered into contracts with Kenny Rogers and his
production company for the use of his services in promotional events,
commercials and performances at the Barona Casino and at the Chinook Winds
Gaming and Convention Center and in connection with other potential Indian
gaming clients of the Company.
COMPETITION
Inland Casino provides consulting services for the Barona Casino which
operates in an intensely competitive gaming industry. The Barona Casino competes
directly with two other casinos in the San Diego area located on Indian
reservations, the Sycuan Band of Mission Indians (the "Sycuan Tribe") and the
Viejas Band of Kumeyaay (Mission) Indians (the "Viejas Tribe"). In addition,
there are a total of 17 Indian tribes in San Diego county and at least two of
those tribes plan to open casino operations in the near future. Also, to at
least some extent, the Barona Casino's operations compete with Indian gaming
operations in other parts of the State of California, especially in southern
California. Currently, there are Indian gaming operations in the California
counties of San Diego, Riverside, Tuolumne, Colusa, Lake, Amador, Shasta, Yolo,
San Bernardino,
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Santa Barbara, Fresno and Humboldt. In addition, the Barona Casino's operations
compete with facilities in Nevada, Atlantic City, New Jersey and other parts of
the world, and with national or state-sponsored lotteries, a proposed national
Indian sponsored lottery, on- and off-track wagering, card club casinos,
riverboats, other Native American gaming ventures, and other forms of legalized
gambling. Competition is likely to increase as Indian and other forms of gaming
continue to expand.
The Company provides marketing consulting services to the Siletz Tribes and
the Chinook Winds Casino in Lincoln City, Oregon, which is approximately 90
miles south of Portland, Oregon, and competes in roughly the same market area as
the Grand Ronde Tribe's Spirit Mountain Casino, which is closer to Portland,
Oregon. The Company also provides consulting services to the Klamath Tribes. The
Klamath Tribes plan to build and operate the Kla-Mo-Ya Casino, to be constructed
near Chiloquin, in south-central Oregon. The planned Kla-Mo-Ya Casino will
compete in roughly the same market area as the Cow Creek Casino in Canyonville,
Oregon. Both Oregon properties compete or will compete with as many as six or
more Indian gaming operations in Oregon, as well as the Oregon State-run
lottery, and with gaming facilities in Nevada, California and other states with
casino and other gaming facilities, including cardrooms and race tracks.
Inland Casino competes with other consulting and other management companies
for casino clients. Most of Inland Casino's competitors have significantly
greater financial resources than Inland Casino. Currently, gaming management
companies from Nevada have not been active in managing Indian gaming operations
in California. However, certain operators have negotiated agreements with Indian
tribes located in California and it is anticipated that if a tribal-state
compact is reached or if legislation or legal actions clarify the scope of
allowed gaming activities at the Barona Casino, there will be significantly more
competition for Inland Casino from other casino management companies. In
addition, more Indian tribes may choose to develop and manage their casinos
without engaging a management or consulting company. If and when Inland Casino
develops any Indian gaming casinos in the future, such new casinos also may
compete with other casinos constructed in the future, including casinos that are
parts of national or regional chains. Such chains, or other casino development
or management companies may have greater financial resources and personnel with
more experience than Inland Casino. Competition in the future also may be
affected by (i) periodic over-building, which can adversely affect patronage
levels; (ii) changes in regional and local market conditions; (iii) changes in
regional and local population and disposable income characteristics; and (iv)
changes in travel patterns and preferences.
The Indian gaming industry competes with other forms of gaming, including
low-stakes bingo games operated by non-profit organizations and pull-tab games;
sports betting; riverboat gaming; parimutuel betting on horse racing, dog racing
and jai-alai; state sponsored lotteries; and international gaming in Mexico and
gaming on cruise ships in international waters. One consequence of the growth in
Indian gaming has been the increased pressure on state legislatures to allow
competitive gaming activity by non-Indians. Several states, other than
California, have approved or are considering approval of non-Indian, land-based
casinos; riverboat gaming; or dockside casinos. Increased support also is
present in a number of states for approval of video gaming machines for bars,
restaurants and resorts. In addition, non-gaming entertainment competes with the
gaming industry for the public's disposable income. Depending on the extent that
these other forms of entertainment and non-Indian gaming affect the demand for
Indian gaming, the opportunities Inland Casino has to manage Indian gaming
casinos and participate in Indian casino development projects may be adversely
affected.
MARKETING AND SALES STRATEGIES
Inland Casino markets its services as a consultant to the gaming industry
and to prospective Indian gaming clients through continuing personal contact
with industry and tribal leaders, media advertising, sponsorships, attendance at
industry conferences and presentations of the Company's qualifications and
credentials.
In its role as consultant, the Company develops marketing and sales
strategies for its clients, including innovative promotional programs and
focused marketing efforts, which together with significant media advertising
programs emphasize special events, entertainment, casino games offered, food
specials, and special
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drawings for casino customers. To promote repeat business, the Company also
assists its clients in ensuring a high level of customer satisfaction and
loyalty by providing attentive customer service in a friendly, casual and
value-oriented atmosphere. Although perceived value attracts casino customers
initially, actual value generates customer satisfaction and loyalty. The Company
believes that actual value becomes apparent during the customer visit through an
enjoyable and high-quality entertainment experience.
RESEARCH AND DEVELOPMENT
The Company expended $172,000 during Fiscal 1996 with third-party vendors
in the development of hardware and software for proposed new video lottery
terminals primarily for sale to existing and prospective Indian gaming clients.
The Company did not expend any amounts on research and development activities in
Fiscal 1995.
EMPLOYEES
As of June 30, 1996, Inland Casino had 25 full time employees.
DISCUSSION OF REGULATORY MATTERS
General Regulatory Background of Indian Gaming. The operation of any type
of gaming casino on Indian land is subject to extensive Federal, state and
tribal regulation. The current regulatory environment regarding Indian gaming is
evolving rapidly. Changes in federal, state, or tribal law or regulations may
limit or otherwise affect Indian gaming and could therefore have a material
adverse effect on the operations of Inland Casino.
Gaming on American Indian reservations is governed by IGRA. One of the
Congressional purposes in enacting IGRA was to provide a statutory basis for the
operation of gaming by Indian tribes as a means of promoting tribal economic
development, self sufficiency, and strong tribal governments; to provide a
statutory basis for the regulation of gaming by an Indian tribe adequate to
shield it from organized crime and other corrupting influences; to ensure that
the Indian tribe is the primary beneficiary of the gaming operations; and to
assure that gaming is conducted fairly and honestly by both the operator and
players.
IGRA also is subject to judicial and legislative clarification or
amendment. IGRA established the NIGC to regulate Indian gaming. The NIGC has the
power to (i) monitor Class II gaming conducted on Indian lands; (ii) inspect and
examine all premises located on Indian lands on which Class II gaming is
conducted; (iii) conduct or cause to be conducted such background investigations
as may be necessary; (iv) inspect, examine, photocopy and audit all papers,
books and records respecting gross revenues of Class II gaming conducted on
Indian lands; (v) hold such hearings, sit and act at such times and places, take
such testimony, and receive such evidence as the NIGC deems appropriate; and
(vi) promulgate such regulations and guidelines as it deems appropriate to
implement the provisions of IGRA. The NIGC collects an annual fee on each Class
II gaming activity regulated by it, ranging from 0.5% to 2.5% of the first
$1,500,000 of gross revenues and up to 5% of the gross revenues from each
activity in excess of the first $1,500,000.
IGRA categorized gaming activities as Class I, Class II and Class III
activities. Class I gaming is defined as social games solely for prizes of
minimal value or traditional forms of Indian gaming engaged in by individuals as
a part of, or in connection with, tribal ceremonies or celebrations. Included
within Class II gaming are (i) bingo (whether or not electronic, computer, or
other technologic aids are used) including (if played in the same location)
pull-tabs, lotto, punch boards, tip jars, instant bingo, and other games similar
to bingo, and (ii) card games that are explicitly authorized by the laws of the
state, or are not explicitly prohibited by the laws of the state and are played
at any location in the state, but only if such card games are played in
conformity with those laws and regulations (if any) of the state regarding hours
or periods of operation of such card games or limitations on wagers or pot sizes
in such card games. Class II gaming does not include (i) any banking card games,
including baccarat, chemin de fer or blackjack, or (ii) electronic or
electromechanical facsimiles of any games of chance or slot machines of any
kind. Class III gaming means all forms of gaming that are not Class I or Class
II gaming.
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The Chairman of the NIGC has the authority to levy and collect appropriate
civil fines, not to exceed $25,000 per violation, against the tribal operator of
an Indian game or a management contractor engaged in gaming for any violation of
any provision of IGRA. The NIGC also may impose federal criminal sanctions for
illegal gaming on Indian Land and for theft from Indian gaming facilities. The
Chairman also has the power to order temporary closure of an Indian gaming
operation for substantial violation of the provisions of IGRA, or of tribal
regulations, ordinances or resolutions approved in connection with the
applicable provisions of IGRA. After a temporary closure order, the Indian tribe
or management contractor involved has a right to a hearing before the NIGC to
decide whether the NIGC will order a permanent closure of the gaming operation.
IGRA provides that an Indian tribe may engage in, or license and regulate,
Class II gaming on Indian lands within such tribe's jurisdiction if (i) such
Indian gaming is located within a state that permits such gaming for any purpose
by any person, and (ii) the governing body of the Indian tribe adopts an
ordinance or resolution which is approved by the Chairman of the NIGC. Net
revenues received by the Indian tribe may not be used for purposes other than to
(i) fund tribal government operations or programs; (ii) provide for the general
welfare of the Indian tribe and its members; (iii) promote tribal economic
development; (iv) donate to charitable organizations; or (v) help fund
operations of local government agencies.
Any Indian tribe which operates a Class II gaming activity and which (i)
has continuously conducted such activity for a period of not less than three
years, including at least one year after 1988; and (ii) has otherwise complied
with the applicable provisions of the IGRA may petition the NIGC for a
certificate of self-regulation. The NIGC will issue a certificate of
self-regulation if it determines that the Indian tribe has, among other items,
(i) conducted its gaming activity in a manner which has resulted in an effective
and honest accounting of all revenues, has resulted in a reputation for safe,
fair and honest operation of the activity, and has been generally free of
evidence of criminal or dishonest activity; and (ii) adopted and is implementing
adequate systems for accounting for all revenues from the activity, monitoring
of all employees and prosecution of violation of its gaming ordinance and
regulations. An Indian tribe may enter into a management contract for the
operation and management of a Class II gaming activity but the Chairman of the
NIGC must approve the contract.
Unlike Class II gaming, an Indian tribe can only engage in Class III gaming
if it enters into a tribal-state compact with the state in which its gaming will
take place, or agrees to abide by a set of regulatory rules obtained from the
Secretary of the Interior after a federal court has determined that a state has
not negotiated with the Indian tribe in good faith, has declared that a specific
compact should be executed, and the state has refused to do so.
Contracts to manage Class III gaming activities must be approved by the
NIGC under rules nearly identical to those applicable to Class II management
contacts. Of particular significance are the statutes and regulations regarding
approval of Class II and Class III management contracts which place limitations
on the amount of any management fee which is based on a percentage of the
operation's net revenues from gaming. See Summary of Inland Casino Gaming
Management Agreement and Required Approval by Indian Gaming Commission of the
Agreement, herein.
Under IGRA, Indian tribal governments have primary regulatory authority
over gaming on Indian land within the Indian tribe's jurisdiction unless a
tribal-state compact has delegated this authority. Therefore, persons engaged in
gaming activities, including Inland Casino, are subject to the provisions of
tribal ordinances and regulations on gaming. Such ordinances and regulations
must be consistent with the IGRA and the Indian Civil Rights Act of 1968, and
cannot impose criminal penalties upon non-Indians. However, the civil remedies
imposed by such tribal government regulations, if otherwise valid, will apply to
Inland Casino and its employees. IGRA also requires that the NIGC review tribal
gaming ordinances and approve such ordinances only if they meet certain
requirements relating to the ownership, security, personnel background,
recordkeeping and auditing of the tribe's gaming expenses; the use of the
revenues from such gaming, and the protection of the environment and the public
health and safety.
In October 1993, the General Council of the Barona Tribe enacted and
adopted a Gaming Ordinance (the "Ordinance"), authorizing, among other things,
Class II and Class III gaming operations at the Barona Reservation, in
accordance with NIGC regulations. The Ordinance was approved by the NIGC in
February
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1994. The Barona Tribe is required by the Ordinance to conduct a background
investigation of each of its key employees and management officials employed by
the Barona Casino, and a report concerning the background investigation and the
Barona Tribe's determination of eligibility of each such individual must be sent
to the NIGC. The Company, its officers, key employees, directors and
shareholders holding 10% or more of the Company's common stock (collectively,
"Principals") are subject to these background investigations. Unless the NIGC
has an objection, an individual may be licensed as a key employee or management
official of the Barona Casino by the Barona Tribe. Any license so granted may be
suspended if the Tribe receives information from the NIGC that an individual is
not eligible for employment. The Barona Tribe has licensed all key employees and
management officials for ICP, and is in the process of completing such
investigation with respect to Principals of Inland Casino. No licenses have been
suspended or revoked. For a discussion of the similar investigation and
licensing requirements with respect to the Oregon tribes, see "Discussion of
Regulatory Matters -- Effect of Regulation on Existing Gaming
Activities -- Gaming Activities in Oregon" in this Item 1, herein.
In furtherance of its responsibilities, the NIGC has issued a series of
formal regulations as well as several informal "bulletins" which address
implementation of IGRA. The NIGC's rules and directives, together with IGRA and
cases decided under it, the tribal gaming ordinance, and the provisions of any
applicable tribal-state compact, provide the regulatory framework for gaming on
the Barona reservation.
Required Approval of Management and Consulting Agreements. IGRA provides
that an Indian tribe may enter into a contract for the management or operation
of Class II or Class III gaming activity if such contract has been submitted to,
and approved by, the NIGC. IGRA also prohibits a management company from
operating a casino on Indian land without first having its management contract
approved by the NIGC.
The Chairman of the NIGC (or his designee), after notice and hearing, has
the authority to require contract modifications or may void any contract if he
makes certain findings of violations. In addition, pursuant to the regulations
under IGRA (the "Regulations") management agreements that have not been approved
by the Secretary of the Interior or the Chairman of the NIGC in accordance with
the Regulations may be deemed void.
The NIGC does not approve consulting contracts; however the NIGC reviews
such contracts to determine whether they are management or consulting contracts.
If a contract is determined to be a management contract, it is subject to
approval by the NIGC; if determined to be a consulting contract, it is then
forwarded by the NIGC to the BIA for approval.
The regulations under the IGRA (the "Regulations") incorporate and
elaborate upon the contract review requirements imposed by the IGRA. Under IGRA,
a management contract can be approved only after the appropriate federal
authority determines that the contract provides for (i) adequate accounting
procedures and verifiable financial reports, which must be furnished to the
tribe; (ii) tribal access to the daily operations of the gaming enterprise,
including the right to verify daily gross revenues and income; (iii) minimum
guaranteed payments to the tribe, which must have priority over the retirement
of development and construction costs; (iv) a ceiling on the repayment of such
development and construction costs; and (v) a contract term not exceeding five
years and a management fee not exceeding 30% of profits; provided, that the NIGC
may approve up to a seven year term and a management fee not to exceed 40% of
net revenues if the NIGC is satisfied that the capital investment required or
the income projections for the particular gaming activity justify the larger
profit allocation and longer term. No contract term shall exceed five years, and
no fee in excess of 30% of Net Revenues may be approved unless the NIGC is
satisfied that a "very substantial capital investment" will be made by the
management contractor, in relation to the size, cost, location and income
projections for the project.
Under IGRA, the management company must provide the NIGC with background
information on each interested party, including a complete financial statement
and a description of such person's gaming experience. Such a person also must
agree to respond to questions from the NIGC.
The Regulations also impose detailed requirements for background
investigations of each officer, director, key employee and interested party of
Indian gaming management companies, gaming equipment suppliers and
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certain lenders to Indian gaming operations. Key employees are defined by the
Regulations, and all such persons must provide extensive personal background
information to the NIGC, including a credit bureau report and financial
statement for each of the past 10 years, and the fingerprints of each such
person must be submitted to the Federal Bureau of Investigation before a
management contract involving such persons may be approved by the NIGC. The NIGC
will not approve a management company and may void an existing management
contract if an officer, director, key employee or an interested party of the
management company is (i) an elected member of the Indian tribal government that
owns the facility being managed; (ii) has been or is convicted of a felony
gaming offense; (iii) has knowingly and willfully provided materially important
false information to the NIGC or the tribe; (iv) has refused to respond to
questions from the NIGC; or (v) is a person whose prior history, reputation and
associations pose a threat to the public interest or to effective gaming
regulation and control, or create or enhance the chance of unsuitable activities
in gaming or the business and financial arrangements incidental thereto. In
addition, the NIGC will not approve a management contract if the management
company or any of its agents has attempted to unduly influence any decision or
process of tribal government relating to gaming, or if the management company
has materially breached the terms of the management contract, or the tribe's
gaming ordinance, or if a trustee, exercising due diligence, would not approve
such management contract. The Regulations incorporate and elaborate upon these
requirements and provide that a management contract shall be terminated if
certain persons, who are not clearly identified, are convicted of any felony or
misdemeanor offense after the contract becomes effective, or if Inland Casino
has attempted to unduly influence any decision or process of tribal government.
Even after a management contract has been approved, the NIGC has the
authority to void the contract if an interested party engages in certain
activities, including refusing to respond to inquiries of the NIGC, or, in the
opinion of the NIGC, has a reputation that enhances the possibility of
unsuitable activities in gaming. Inland Casino's Amended and Restated Articles
of Incorporation provide that in the event that an interested party fails to
provide information requested by the NIGC or otherwise gives it cause to either
deny approval of or seek to void a management contract to which Inland Casino is
a party, such interested party shall be required to divest all of Inland
Casino's stock owned by him or her within a 90 day period. If the interested
party is unable to sell such stock within this period, Inland Casino must
repurchase it at a designated purchase price below the fair market value of such
stock. As a public company, Inland Casino will be limited in its ability to
regulate who its stockholders may be. In the event that Inland Casino cannot
purchase such shares, whether for financial reasons or because such interested
stockholder refuses to sell his shares to any party, including Inland Casino,
and the NIGC, as a result of such interested stockholder's actions, denies
approval of, or seeks to void the Agreement or other agreements, such action by
the NIGC would have a material adverse effect on Inland Casino.
Federal and State Laws Other than IGRA. In addition to the regulations
imposed by IGRA, tribally owned gaming facilities on Indian land are subject to
a number of other federal statutes, including the Assimilative Crimes Act, which
imposes federal criminal penalties for the violation of state laws on Indian
reservations, and the Johnson Act, which imposes federal criminal penalties for
the operation of mechanical gambling devices on Indian reservations. If gaming
activities on Indian land are in compliance with IGRA, neither the Assimilative
Crimes Act nor the Johnson Act, nor any state criminal or civil law, will
operate to impose penalties on such activities. However, if gaming activities on
Indian land do not comply with the provisions of IGRA, the provisions of the
Assimilative Crimes Act, the Johnson Act and other federal and state law may
impose criminal and civil penalties on such activities. In addition, the
Treasury Department has adopted new regulations under the Bank Secrecy Act which
apply specifically to Indian gaming operations. These regulations impose federal
criminal penalties for the violation of federal regulations requiring the
reporting of information on unusual or large cash transactions. The Barona
Casino and the Chinook Winds Property have implemented procedures and programs
to comply with these new regulations. It is anticipated that prior to its
opening, the Kla-Mo-Ya Casino will have in place such appropriate procedures and
programs.
Indian Nation Sovereignty. Indian tribes are sovereign nations with their
own governmental systems. As such, they enjoy sovereign immunity with respect to
most disputes, claims and demands. However, there is a limited waiver of
sovereign immunity in each of the Company's consulting agreements with respect
only to suits by Inland Casino to enforce such agreements.
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Effect of Regulation on Existing Gaming Activities
--------------------------------------------------
Gaming Activities in California. The Barona Tribe's governmental system
consists of two layers, the Tribal Council and the General Council. The Tribal
Council consists of elected representatives who manage the day-to-day operations
of the Tribe and its land. The General Council consists of all of the members of
the Barona Tribe. The Barona Tribal Council has appointed a gaming commission
(the "Barona Gaming Commission"), which reports to the Tribal Council, to
supervise the day-to-day operations of the gaming activities on the Barona
Tribe's land. The Barona Tribe has undertaken substantial responsibilities as
managers of the Barona Casino and has established policies and procedures for
casino operations to safeguard the assets of the Barona Tribe.
Inland Casino provides consulting services to the Barona Tribe for the
operation of the Barona Casino which includes, among its gaming activities,
various forms of electronic gaming devices. Under NIGC regulations, certain
electronic games may be deemed to be "electronic facsimiles" of games of chance
or slot machines; as such they are defined as Class III gaming and must be
subject of a tribal-state compact to be legally used on Indian lands. In Cabazon
Band of Mission Indians v. National Indian Gaming Commission, 14 F.3d 633 (D.C.
Cir., 1994), the Court agreed with the NIGC that an electronic pull-tab game
played using computers and video screens (the "Video Pull-Tab Game"), a game
similar to electronic games in use at the Barona Casino, to be a Class III game.
Accordingly, some of the Barona Casino's electronic games could be deemed
to be Class III electronic facsimiles or slot machines. If so, those games, to
be lawful under IGRA, must be of the kind permitted by California law and be
subject to a tribal-state compact. The Barona Tribe has no such compact with the
state. Accordingly, if it is finally determined that any of the electronic video
gaming devices operated at the Barona Casino are Class III machines, the Barona
Tribe has expressed its intention to convert them into, or replace them with,
video display paper pull-tab dispensing machines which will qualify as Class II
machines and can be operated without a tribal-state compact.
The Barona Casino's continuing operation of video pull-tab or other
electronic games (except for traditional bingo played with certain electronic
and technologic aids), if deemed illegal, could lead to monetary sanctions and
closure of the Barona Casino by the NIGC and criminal sanctions and confiscation
of equipment by the U.S. Attorney. Because of other pending litigation that
could decide the legality of the Barona Tribe's gaming activities (e.g., Rumsey
Indian Rancheria of Wintun Indians v. Wilson, discussed below) and based upon
the verbal agreement described below and entered into between the Barona Tribe,
two other San Diego County Indian tribes and Alan Bersin, the U.S. Attorney for
the Southern District of California, Inland Casino believes that the parties'
rights will be determined through discussion and civil litigation before resort
is made to criminal prosecution. Nevertheless, no assurances can be given that
the attempts by various federal agencies, such as the NIGC or the Department of
Justice, to invoke one or more of the various sanctions described above, will
not be made without warning.
In at least one criminal case recently brought against a management
company, United States v. E.C. Investments, 77 F.3d 327 (9th Cir., 1996), the
Ninth Circuit Court of appeals reversed the District Court's dismissal of the
indictments against the management company and certain of its principals,
holding that violation of the state law (in this case, California's prohibition
against the use of slot machines) may serve as the predicate offense for federal
prosecution of gambling activities in Indian Country that are in violation of
state law. The case, which was remanded to the District Court for further
proceeding, is significant because the electronic games in question are similar
to those used by the Barona Tribe at the Barona Casino. Also, there is the
possibility that any interested party could bring a civil action under the
federal racketeering and corrupt organization laws.
There also may be a question concerning whether "Jokers Wild 21," a form of
blackjack with a player bank currently being played at the Barona Casino is a
Class II or Class III game. Inland Casino and the Barona Tribe take the position
that it is a Class II game and can be operated by a tribe without a tribal-state
compact. If it is a Class III game, then a tribal-state compact would be
required. The NIGC recently issued an advisory opinion to the Pascua Yaqui Tribe
in Arizona, in connection with a review of a game called "Arizona 21,"
indicating that IGRA classifies all types of "banked" card games, whether house
banked or
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player banked, as Class III games. The NIGC also indicated that it intends to
propose amendments to the Regulations with respect to banking games to provide
it with greater enforcement powers to enforce the Regulations. The advisory
opinion is not directly binding on the Barona Tribe, but it may represent the
position that the NIGC would take with respect "Jokers Wild 21." The NIGC has
asked the California Indian tribes to send it written comments concerning the
manner in which banked and non-banked card games should be treated. The NIGC may
also propose additional regulations further defining these issues.
Inland Casino takes the position that "Jokers Wild 21" is a Class II game
for several reasons, including the position that the term "banking game" as used
in IGRA for Class III games and as used in the California Penal Code refers only
to a "house banking" game, and "Jokers Wild 21" is not a house banking game.
Based on the foregoing, Inland Casino believes "Jokers Wild 21" is a Class II
game which may be played without a tribal-state compact. There can be no
assurance, however, that a court or the NIGC would come to the same conclusion.
If "Jokers Wild 21" is determined to be a Class III game, it could not be
offered at the Barona Casino without a compact with the State of California.
Further, the playing of Jokers Wild 21 without a compact could cause regulatory
sanctions or criminal penalties to be imposed against the Barona Tribe and/or
Inland Casino.
Several lawsuits could materially affect gaming on the Barona reservation.
Cabazon Band of Mission Indians v. National Indian Gaming Commission, 14
F.3d 633 (D.C. Cir., 1994). As noted above, the NIGC has determined that at
least one form of gaming, the Video Pull-Tab Game, which is not currently in use
at the Barona Casino but is substantially similar to some of the electronic
games being utilized there, falls within Class III and must be regulated under a
tribal-state compact. The Court of Appeals for the District of Columbia upheld
the NIGC's determination and the U.S. Supreme Court refused to grant a writ of
certiorari, the effect of which was to affirm the lower court ruling that the
Video Pull-Tab Game is a Class III gaming device.
Sycuan Band of Mission Indians v. Roache, 54 F.3d 535 (9th Cir., 1994). In
1991, sheriff's deputies with search warrants from the San Diego Municipal Court
raided the Barona, Sycuan, and Viejas tribes' gaming centers in San Diego
County. None of ICC I, ICC II, or ICP managed the video gaming operations of
Barona Casino at the time of the raid. The deputies seized gaming machines, cash
and records and the district attorney commenced prosecutions of four persons
employed in the gaming operations. The Indian tribes brought actions in the U.S.
District Court for the Southern District of California for declaratory relief
and injunctions against the state prosecutions. The district court granted
declaratory and injunctive relief in favor of the Indian tribes declaring that
the county officials were precluded by IGRA from executing warrants and
prosecuting the tribal gaming officials. The district court also held that the
federal government has exclusive power to enforce any violation of IGRA on
Indian land. Further, the court found that the confiscated video "pull-tab"
machines were "electronic facsimiles" of games of chance and hence were Class
III gaming devices that could be lawfully operated only if authorized by a
tribal-state compact and that no such compact was in place between the State of
California and any of the tribes. On appeal, the Court of Appeals for the Ninth
Circuit affirmed the district court's decision and the U.S. Supreme Court
refused to grant certiorari, thereby affirming the holdings of both lower
courts. While the Barona Casino's electronic video gaming devices are not the
same as those which were the subject of Sycuan, based on the court's reasoning,
the video gaming devices are likely to be classified as Class III operations
under IGRA.
Rumsey Indian Rancheria of Wintun Indians v. Wilson, 64 F.3d 1250 (Aug. 11,
1995), amending 41 F.3d 421 (Nov. 15, 1994). In Rumsey, the Barona Tribe and
other Indian tribes filed a declaratory judgment action in the United States
District Court for the Eastern District of California seeking a determination
that certain electronic and casino style card games, all acknowledged by the
tribes and the state to be Class III games, were permitted under California law
and hence that the state was required to negotiate a compact with the tribes for
such gaming activities. The Court of Appeals for the Ninth Circuit held that
with the possible exception of slot machines in the form of video lottery
terminals, such games were prohibited. The limited question of whether
California permits the operation of slot machines in the form of the state
lottery or otherwise was remanded to the district court for consideration.
However, by the appellate panel's order in December 1995, a final disposition
and mandate in Rumsey will not issue until after the court
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considers the impact of the California Supreme Court's recent decision in
Western Telcon v. California State Lottery, discussed below.
Western Telcon, Inc. v. California State Lottery, 13 Cal. 4th 475 (1996).
In Western Telcon, the California Supreme Court held that a form of keno
conducted by the California State Lottery was a house-banked game and not a
lottery and hence was not authorized by the California State Lottery Act. In its
decision, the court did not address the positions presented by the plaintiffs
and the intervener, California-Nevada Indian Gaming Association, that the keno
game involved slot machines and that the Lottery Act granted the California
State Lottery a complete exemption from the anti-gaming provisions of the
California Penal Code. A ruling that the game involved slot machines or a form
of electronic gaming authorized by the Lottery Act would have been favorable to
Indian tribes seeking, via Rumsey, a declaration that the state is required by
IRGA to enter into a tribal-state compact governing electronic gaming on tribal
lands. On the other hand, the court noted that the California State Lottery (and
hence by implication, Indian tribes operating with tribal-states compacts) could
legally conduct keno or other numbers game, using video terminals and on-line
computers, provided the games are structured as lotteries rather than
house-banked games.
Because the ruling in Western Telcon is so recent, it is too early to
determine what action the Rumsey litigants will take or what impact Western
Telcon will have on Rumsey. Following the Ninth Circuit's decision, the Indian
tribes may appeal Rumsey to the United States Supreme Court, thus further
delaying final resolution of the case.
If the Indian tribes lose the appeals and if the electronic video gaming
devices and/or "Jokers Wild 21" are deemed to be Class III gaming activities,
such activities could be found to be unlawful because there is no tribal-state
compact between the Barona Tribe and the State of California. Also, it might be
determined that such activities are beyond the scope of what the State of
California can be compelled to include in a tribal-state compact. If this were
to occur, there would be little likelihood that the State of California would
agree to such gaming activities in a compact. This could have a material adverse
effect on the business and financial condition of Inland Casino.
The significance of the uncertainty of result in Rumsey is reflected in the
standstill agreements of 1994 between the U.S. Attorney for the Southern
District of California and the three Indian tribes in that district, including
the Barona Tribe, which are currently conducting large-scale gaming enterprises
which may be affected by an adverse ruling from the Rumsey court. See
"Discussion of Regulatory Matters -- Verbal Agreement with U.S. Attorney for the
Southern District of California," herein.
Seminole Tribe v. Florida, 116 S. Ct. 1114 (1996), aff'g 11 F.3d 1016 (11th
Cir., 1994). Section 11(d)(7)(A)-(B) of IGRA authorized a tribe to bring civil
suit in federal district court if a state refused to negotiate in good faith a
tribal-state compact governing Class III gaming on the tribe's land. If the
tribe prevailed, the court could order the state to conclude a compact within 60
days and if a compact was not concluded within that time, a court-appointed
mediator would select either the tribe's or the state's last best offer. If the
state did not consent to the selected offer within 60 days, the Secretary of the
Interior could prescribe procedures, consistent with the selected offer, IGRA,
and state law, under which the tribe could conduct such gaming.
In Seminole, the U.S. Supreme Court, citing the states' immunity from suit
by private parties in federal courts under the Eleventh Amendment, held that
Congress lacked the power under the Indian Commerce Clause of the U.S.
Constitution to authorize such suit. This leaves open the question whether, when
a state refuses to negotiate in good faith and to consent to federal
jurisdiction, a tribe may proceed directly to the Secretary of Interior. The
Eleventh Circuit so held in Seminole, 11 F.3d at 1029, cert. denied, 116 S. Ct.
1416 (1996), a holding which the Supreme Court declined to review.
Given the uncertainties as to the Barona Tribe's remedies if the State of
California fails to negotiate a compact in good faith, it is unclear if or when
the Tribe will be able to secure a compact or to obtain procedures for Class III
gaming from the Secretary of the Interior.
14
<PAGE> 17
California v. Monteau, No. S-96-797-LKK (E.D. Cal.). In this pending
action, the State of California seeks to enforce an allegedly nondiscretionary
duty on the part of the NIGC and its Chairman, Harold Monteau, to issue orders
of temporary and permanent closure to the various tribal gaming operations in
California where electronic machines or house-banked card games are allegedly
being used or conducted. If the state prevails and the NIGC in response
temporarily or permanently closes any of the Barona Casino's electronic gaming
activities, the business and financial condition of Inland Casino could be
materially and adversely affected.
Verbal Agreement with U.S. Attorney for the Southern District of
California. On June 30, 1994, Alan Bersin, the U.S. Attorney for the Southern
District of California (which includes San Diego), issued a public announcement
that the Barona, Sycuan, and Viejas tribes had entered into a verbal agreement
with him. The agreement provides that the tribes will refrain from adding gaming
devices at their respective casinos until all Ninth Circuit appeals are finally
resolved in Rumsey, Sycuan, and Cabazon(of which only Rumsey is still being
litigated) or until a tribal-state compact or amendment to IGRA specifically
allows such devices. In return, Mr. Bersin promised not to take any enforcement
action against the tribes. Despite the Ninth Circuit ruling in Rumsey described
above, Mr. Bersin announced that he will not immediately force the tribes to
remove their electronic video gaming devices. Instead, he indicated he plans no
action until the matter is finally resolved in the courts. Although no document
was signed to evidence this agreement, Mr. Bersin sent a letter dated October 5,
1994 to the Barona Tribe confirming the existence of the standstill agreement.
Inland Casino is not a party to the verbal agreement and receives no direct
protection from the standstill agreement, but the Company believes that it has
been and will continue to be an indirect beneficiary of the standstill
agreement. Furthermore, by entering into the verbal agreement, the Barona Tribe
has stated that it will remove the electronic gaming machines if they are found
to be illegal. Such removal could have a material adverse effect on the business
and financial condition of Inland Casino. While the Barona Tribe and the
management of Inland Casino believe that they can rely on the personal word of
Mr. Bersin, he is under no legal obligation to honor this agreement, and either
he or his successor, if any, could change his mind at any time. Any such change
could lead to the enforcement actions referred to above.
Gaming Activities in Oregon. Tribal gaming in Oregon is governed by
compacts negotiated between the state and each Indian tribe, pursuant to IGRA.
IGRA, together with the compacts, provides the substantive body of gaming law in
Oregon.
Since 1992, Oregon has negotiated Class III Tribal-State Compacts with the
following tribes: the Cow Creek Band of Umpqua Tribe of Indians, the
Confederated Tribes of the Umatilla Indian Reservation, the Confederated Tribes
of the Grand Ronde Community of Oregon, the Coquille Indian Tribe, the
Confederated Tribes of Coos, Lower Umpqua and Siuslaw Indians, the Klamath
Tribes, the Confederated Tribes of the Warm Springs Reservation of Oregon, and
the Siletz Indian Tribe. All such compacts have been approved by the Secretary
of the Interior.
A compliance audit is conducted annually by the Oregon State Police. In
addition, a tribe's tribal gaming commission monitors compliance with both the
compact and federal gaming law.
Oregon has no statutory approval process, nor is there an independent
gaming commission charged with negotiating tribal compacts. Instead,
negotiations are conducted through the Governor's office in consultation with
the Attorney General. The same procedure applies for formal amendments to
compacts.
Each tribal compact in Oregon is separately negotiated between the tribe
and the state. While there are differences among Oregon's compacts, they tend to
be similar in most significant respects. The Klamath Compact includes a
reciprocity provision that provides for automatic amendments when the state
agrees to amend the compacts of certain other tribes. For example, when the
Siletz Tribe successfully negotiated to add blackjack to its gaming offerings,
the Klamath Tribes were entitled to amend their compact accordingly.
Oregon's compacts typically set forth licensing requirements and procedures
affecting prospective consulting or management companies. The Klamath Tribes are
presently awaiting a determination by the NIGC that their contract with the
Company is for consulting, and not management services. Once received,
15
<PAGE> 18
the Klamath Tribes may proceed with the licensing without the need for NIGC
approval. As stated above, the Siletz Agreement has not yet been submitted by
the Siletz Tribe to the NIGC.
For both the Klamath and Siletz Tribes, the tribe's tribal gaming
commission coordinates the licensing process in cooperation with the state, and
ultimately is responsible for the licensing decision. This process includes a
background investigation of the entity under consideration, including its key
employees. The investigation is conducted by the Tribal Gaming Unit of the
Oregon State Police (the "OSP"). Based on its findings, the OSP will make a
licensing recommendation with regard to approval. Disagreements are resolved
under compact procedures. As of September 30, 1996, the Company has not been
licensed in the State of Oregon.
Pending Legislation
-------------------
Legislation is pending before Congress and the California state legislature
which could either limit or redefine the scope of gaming activities permitted on
Indian reservations. It is unclear whether any of the bills described below or
any amendment or substitution for such bills will be passed by Congress or the
California legislature. Further, it is unclear what, if any, effect these bills
will have on the gaming operations of the Barona Tribe. Some of the proposed
legislation might, if passed in the proposed form, have an adverse effect on the
operations at the Barona Casino and upon the financial condition and operations
of Inland Casino.
Federal. Legislation is pending before Congress which could limit the
scope of gaming activities permitted on Indian reservations to that which is
expressly authorized under state law. Although the retroactive effect on Indian
tribes cannot be determined, Indian tribes which do not now have a compact for
electronic or casino type gaming, such as the Barona Tribe, could be seriously
limited in the scope of activities which might be permitted under new
legislation.
Other bills have been introduced to Congress and each of those bills would
create a federal commission to review national policies toward gambling in light
of the expansion of the gaming industry in general and the Indian gaming
industry in particular. Also, Senators McCain and Inouye have introduced a bill
to comprehensively amend and broaden IGRA. This bill would, among other things,
clarify that electronic video gaming devices are Class III gaming activities and
would provide certain procedural and timing requirements for the negotiation of
tribal-state compacts, including a procedure by which the Secretary of the
Interior could approve a compact that meets the requirements of IGRA after both
the Indian tribe and the state present their respective positions concerning the
proposed compact.
It is unclear whether any of the bills currently pending or any amendment
or substitution for such bills will be passed by Congress. Such legislation
could, if passed, however, have an adverse effect on the operations at the
Barona Casino and upon the financial condition and operations of Inland Casino.
State. In the most recent legislative session of the California
legislature, which concluded in early September 1996, there were numerous bills
which could have had an effect on gaming activities in general and Indian gaming
activities in particular within the State of California. Several of these bills
contained the objective of establishing a new centralized government entity, the
California Gaming (or Gambling Control) Commission, to regulate gambling in the
State of California. One bill would have allowed race tracks, as publicly traded
corporations, to operate cardrooms. Another of the pending bills would have
designated the Governor as responsible for negotiating and executing compacts.
Another bill would have specifically allowed player banked games. Other bills
would provide the opportunity for Indian tribe exclusivity with respect to video
display terminals. In addition, other bills addressed non-Indian gaming such as
horse racing, the California lottery, gaming clubs and non-Indian bingo games,
but each of these bills could have had an effect on Indian gaming activities
either directly or indirectly.
In early September 1996, Governor Wilson of the State of California
announced that his administration would begin negotiations with non-gaming
tribes to create a compact for Indian gaming in California. The negotiations are
to begin in October 1996 with participation by Indian tribes, the Governor's
staff and the staff of the Attorney General for the State of California. If
compacts are eventually completed, negotiations with tribes with gaming
operations may follow. However, the Governor has held the position that he would
not
16
<PAGE> 19
negotiate with tribes operating what were, in his opinion, "illegal machines."
While the Company does not believe that the Barona Casino is operating "illegal
machines," compact negotiations with the Governor's staff may be deferred,
delayed indefinitely, or never completed. If the Barona Tribe agreed to remove
its video machines to begin such compact negotiations, the corresponding
reduction in revenue at the Barona Casino would have a material adverse effect
on the financial condition of the Company.
The Company expects that legislation involving gaming activities in general
and Indian gaming activities in particular will continue to be introduced (or
reintroduced, as the case may be) in the California legislature including some
or all of the above-referenced legislation. It is unclear whether any of these
bills or any amendment or substitution for such bills will be passed by the
California legislature at any time in the future. Further, it is unclear what,
if any, effect these bills, if passed, will have on the gaming operations of the
Barona Tribe. However, it is possible that legislation might, if passed, have an
adverse effect on the operations at the Barona Casino by limiting the amount
and/or type of gaming activities which could be offered or by increasing the
amount of competition from non-Indian gaming activities. Any of these could have
an adverse effect upon the financial condition and operations of Inland Casino.
To the knowledge of the Company, there is no pending legislation in Oregon
relating to Indian gaming.
Conclusion Concerning Indian Gaming Regulation
----------------------------------------------
The State of California has prohibited privately run lotteries and any
banking or percentage game played with cards, dice or any device, for money,
checks, credit or other items of value. Slot or card machines have been deemed
illegal in the State of California. Every district attorney, sheriff, constable
and police officer in the State of California may prosecute offenders of gaming
prohibitions, although no enforcement by state or local officials can occur on
Indian land. As discussed above, if a particular gaming activity is prohibited
in a state, it cannot be operated on an Indian reservation absent a tribal-state
compact. It is unclear whether some of the gaming activities conducted at the
Barona Casino are Class II or Class III gaming activities. If they are deemed to
be Class III games, they are unlawful absent a Tribal-State Compact. However,
since tribal gaming is relatively new, many Federal and state laws, rules and
regulations affecting such operations have not as yet been finally interpreted
by authorities. The ambiguity is magnified because the State of California has
refused to enter into a compact with the Barona Tribe as permitted under IGRA. A
compact would help clarify and resolve much of the uncertainty enveloping tribal
gaming; however, with the exception of the recent limited expression of interest
noted above, the State of California has refused to negotiate such a compact
with any of the Indian tribes located in the State of California. Whether or not
a compact is ever signed between the Barona Tribe and the State of California,
there is no assurance that either the NIGC or the State of California will
ultimately agree with management of Inland Casino that certain gaming activities
currently conducted at Barona Casino are permissible. A finding that certain
gaming activities are impermissible could have a material adverse effect on the
operations of Barona Casino and upon the financial condition of Inland Casino.
There are significant civil and criminal penalties associated with
operating gaming activity on the Barona Tribe's Indian Reservation otherwise
than in strict compliance with relevant law and judicial interpretation thereof.
These penalties may be imposed on both the Barona Tribe and Inland Casino, and
are generally described above. The imposition of some or all of these sanctions
could have a material adverse effect on the operations and financial prospects
of Inland Casino. In light of the uncertainties regarding potential government
action, reported financial information is not necessarily indicative of Inland
Casino's future operating results or financial condition. Any government action,
inquiry and/or investigation could have a material adverse effect on the
competitive position in San Diego County of Inland Casino in relation to other
Indian gaming operations.
Although the management of Inland Casino believes that the gaming
activities conducted at the Barona Casino will eventually be expressly permitted
under IGRA and the laws of the State of California, the present regulatory
environment is extremely uncertain because of pending litigation matters
described above and because the State of California has not entered into a
compact with the Barona Tribe. As noted, a compact would help clarify and
resolve much of the uncertainty surrounding tribal gaming. Thus far, with the
exception
17
<PAGE> 20
of the limited statement by Governor Wilson noted above, the State of California
has refused to negotiate with any of the California Indian tribes concerning
such a compact. Whether or not a compact is ever signed between the Barona Tribe
and the State of California, there can be no assurance that either the NIGC or
the State of California will agree with Inland Casino's management that certain
gaming activities currently conducted at the Barona Casino are permissible. A
finding that certain gaming activities are impermissible could have a material
adverse effect on the business, operations and financial condition of Inland
Casino. Furthermore, changes in such laws, rules and regulations could also have
a material adverse effect on the gaming operations at the Barona Casino.
ITEM 2. DESCRIPTION OF PROPERTY
Executive Offices. The Company's executive offices are located in La
Jolla, California, and consists of approximately 5,000 square feet under a lease
which will expire in August 1997. Management believes that the current space
will accommodate the Company's currently anticipated requirements and that
additional space will be available on commercially reasonable terms if it is
needed.
Lease of "Big Top" Structure. On December 14, 1993, ICP, doing business on
behalf of the Barona Casino, entered into a Lease Agreement (the "Big Top
Lease") with Sprung Instant Structures, Inc. ("Sprung") pursuant to which ICP
agreed to lease the "Big Top" structure which houses the Barona Casino. The Big
Top Lease was assigned to Inland Casino. The original lease term was for 12
months and expired on January 15, 1995 but will continue on a month to month
basis for a monthly lease payment of $20,360 unless the Big Top Lease is
canceled by Inland Casino. The lease payments are a liability of Inland Casino
but are considered to be an operating expense of the Barona Casino. Inland
Casino has an option to purchase the "Big Top" structure for $535,342.
ITEM 3. LEGAL PROCEEDINGS
The General Counsel of the NIGC in a letter to the Chairman of the Barona
Tribe dated May 16, 1996 stated that (i) the Initial Consulting Agreement
submitted by the Barona Tribe to the NIGC is not a management contract and,
accordingly, does not require the approval of the NIGC; (ii) the Operations
Agreement, which was cancelled and superseded by the Initial Consulting
Agreement, should have been submitted to the NIGC for approval; and (iii) by
managing under an unapproved management agreement for over three years, the
Company may have been in violation of the IGRA and its regulations. The NIGC
General Counsel stated that this latter matter has been referred to the NIGC
Division of Enforcement to determine if further action is appropriate.
To the best of management's knowledge, there are no other material pending
legal proceedings of which the Company is a party. The Company is, however,
subject to legal proceedings and claims which have arisen in the ordinary course
of business and have not been finally adjudicated.
Although the Company cannot predict the likely outcome of the current
discussions with the NIGC or any pending lawsuit or claims involving the
Company, management intends to vigorously defend, and, where applicable,
prosecute, each matter or case, and believes that their final outcome will not
have a material adverse effect on the Company's financial condition or results
of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted during the fourth quarter of the fiscal year
covered by this Form 10-KSB to a vote of security holders of the Company.
18
<PAGE> 21
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET FOR COMMON STOCK
The common stock of Inland Casino was accepted for trading on the Nasdaq
National Market System, effective August 24, 1995, where it trades under the
symbol INLD. The Company's Common Stock traded in the over-the-counter market on
the National Association of Securities Dealers, Inc. (the "NASD") Electronic
Bulletin Board under the symbol INLD from May 22, 1995 (the effective date of
the Merger) to August 23, 1995, and under the symbol TWCE prior to the effective
date of the Merger. There was no active trading market for the Company's Common
Stock for more than two years prior to the Merger.
The table below reflects the high and low bid prices of the Company's
common stock as reported by the NASD from July 1, 1994 to August 23, 1995 and
thereafter as reported by The Nasdaq Stock Market. Such quotations are
inter-dealer quotations without retail mark-ups, mark-downs or commissions, and
may not represent actual transactions. The number of shareholders of record as
of September 30, 1996 was 3,294. The effective date of the Merger was May 22,
1995, and prices prior to that date are, accordingly, prices of Twin Creek
Common Stock before consummation of the Merger of ICC II with and into Twin
Creek. In addition, at the time of the Merger, the Company's fiscal year was
changed from a September 30 to a June 30 year-end. Also, such prices prior to
the Merger do not reflect the 1-for-100 reverse stock split of the shares of
Common Stock of Twin Creek effective at the Merger.
<TABLE>
<CAPTION>
FISCAL YEAR 1995(1) HIGH LOW
------------------- ---- ---
<S> <C> <C>
First Quarter................................................ $0.05 $0.04
Second Quarter............................................... 0.05 0.04
Third Quarter................................................ 0.05 0.04
Fourth Quarter............................................... 4.00 0.04
FISCAL YEAR 1996
----------------
First Quarter................................................ $8.32 $4.00
Second Quarter............................................... 6.32 3.16
Third Quarter................................................ 3.56 3.24
Fourth Quarter............................................... 4.00 3.40
September 30, 1996........................................... $3.00 $3.00
</TABLE>
- ---------------
(1) The Merger occurred May 22, 1995, and the fiscal year was changed at that
time from a September 30 to a June 30 year end. Prices prior to the Merger
do not reflect a 1-for-100 reverse stock split that was effective at the
Merger. For purposes of presentation, Fiscal 1995 has been recast as if its
fiscal year-end was June 30 for the entire 12-month period ended June 30,
1995.
DIVIDEND POLICY
To date, the Company has not paid any dividends. The Company is not
currently restricted from paying cash dividends; however, the Company's
$2,000,000 Credit Facility with Imperial Bank provides that, so long as the
Company is indebted to the Bank, it may not, without the written consent of the
Bank, pay cash dividends. As of September 30, 1996, the Company has not utilized
such Credit Facility. Notwithstanding this restriction, the Company presently
plans to reinvest earnings in order to finance the expansion and development of
its business, and it is therefore unlikely that any cash dividends will be
declared in the foreseeable future.
19
<PAGE> 22
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
OVERVIEW
From its formation through March 31, 1996, the Company provided services to
the Barona Tribe at the Barona Casino, under the terms of the Operations
Agreement, including providing assistance to the Barona Tribe in the development
and expansion of the "Big Top" facility at the Barona Casino. Through March 31,
1996, the Company earned fees based upon a percentage of the "net profits"
generated by the Barona Casino. As used in this Report, the term "net profits"
is not intended to mean net profits as defined by generally accepted accounting
principles or by IGRA. Generally, the Operations Agreement defined "net profit"
as the total amount of moneys remaining from monthly gross receipts after
payment of the operating expenses for such month, such amount being calculated
on a cash basis. The Company provided certain personnel, at its expense, to
operate the activities at the Barona Casino, and it entered into agreements for
the Barona Casino in which the Company was the obligor (e.g., leases for gaming
equipment, the big Top Lease, etc.).
Effective April 1, 1996, the Company commenced providing consulting
services to the Barona Tribe pursuant to the Consulting Agreement. The Company
and the Barona Tribe also entered into a Mutual Release, effective April 1,
1996, releasing each other from their respective obligations under the
Operations Agreement. See Item 1. Description of Business -- "Summary of Inland
Casino Gaming Agreements -- Agreements with the Barona Tribe," herein.
As part of its obligation to the Barona Tribe under the Operations
Agreement, Inland Casino provided significant financing for the construction and
expansion of the Barona Casino. The financing costs have been recognized as an
asset in the financial statements of the Company, designated as deferred
contract costs, and are being amortized to expense over the combined lives of
the Operations and Consulting Agreements, through April 1999. The recovery of
these deferred costs are achieved through the fees earned by Inland Casino
pursuant to its agreements with the Barona Tribe. Such construction financing
obligations were incurred upon the recommendation of the Company and subject to
acceptance by the Barona Tribe.
In June 1996, the Company began providing consulting services for the
Siletz Tribe at the Chinook Winds Casino in Lincoln City, Oregon, and the
Associated Tribes of Northwest Indians in Oregon. With the exception of $46,250
billed for these consulting services in June 1996, fees earned pursuant to the
Operations Agreement and the Consulting Agreement were the Company's only source
of revenue for the years ended June 30, 1995 ("Fiscal 1995") and June 30, 1996
("Fiscal 1996").
RESULTS OF OPERATIONS
Revenue. Revenue decreased 18.9% from $14,152,565 for Fiscal 1995 to
$11,482,040 for Fiscal 1996, primarily because of reduced profit margins at the
Barona Casino. With the exception of $46,250 in other consulting fees in Fiscal
1996, the Company's revenue is all from fees received from the Barona Tribe in
connection with the Barona Casino. Through March 31, 1996, such fees were
calculated, in part, based on the profit margins of the Barona Casino. The lower
profit margins at the Barona Casino resulted primarily from increases in
payroll, marketing and administrative costs. The increase in payroll and
administrative costs at the Barona Casino was the result of a decision to
increase staff levels to provide additional administrative support and improved
service to customers. Increases in marketing costs resulted from the
implementation of new promotions and advertising programs.
Operating Expenses. General and administrative expenses increased 63.6%
from $4,032,941 for Fiscal 1995 to $6,597,449 for Fiscal 1996, primarily as a
result of increased payroll, marketing and administrative costs. Salaries and
benefits increased as the number of employees of the Company increased from 14
at Fiscal 1995 year-end to 25 at Fiscal 1996 year-end, 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 at the Barona Casino, 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.
20
<PAGE> 23
Other administrative costs increased as a result of increases in
sponsorships, charitable contributions, marketing costs and business development
costs, partially offset by a reduction in special promotional events and
professional fees. Fiscal 1996 administrative costs also include $172,000 of
research and development costs associated with the development of hardware and
software for proposed new video lottery terminals primarily for sale to existing
and prospective Indian gaming clients. Facilities costs increased as a result of
the Company entering into a lease for its current offices in January 1995.
Office supplies and expense, including telephone service, postage and printing
increased as the corporate staff began to occupy the offices in the Spring of
1995.
Amortization of deferred contract costs decreased 10.0% from $2,677,848 for
Fiscal 1995 to $2,410,333 for Fiscal 1996. Through March 31, 1996, the last
effective date of the Operations Agreement, the amortization of management
agreement acquisition costs was calculated as the greater of the amortization
using (i) the straight-line method over the remaining term of the Operations
Agreement or (ii) an accelerated method, whichever method was greater. The
accelerated amortization was equal to the excess of fees earned over 30% of the
Barona Casino's operating income. Since the Company did not earn fees of over
30% of the Barona Casino's operating income during the nine months ended March
31, 1996, the straight-line method was used, compared to use of the accelerated
method for fiscal 1995.
Beginning April 1, 1996, the effective date of the Consulting Agreement,
these costs, now captioned deferred contract costs, are being amortized using
the straight-line method over the initial three-year term of the Consulting
Agreement. The Company believes that the amounts capitalized as deferred
contract costs will continue to be fully recoverable over the life of the
Consulting Agreement as it did during the periods during which the Operations
Agreement was in force. Management will continue to review the valuation and
recoverability of these deferred costs and make adjustments, as is appropriate.
See Notes to Financial Statements, Note B -- Deferred Contract Costs.
Other Income and Expense. During Fiscal 1995, the Company incurred
$479,247 in costs related to the merger into Twin Creek Exploration Co., Inc.,
in May 1995, and incurred additional costs of the merger of $11,479 during
Fiscal 1996. Interest income decreased from $54,783 in Fiscal 1995 to $36,914 in
Fiscal 1996 due to a decrease in revenue, resulting in lower bank balances. From
April 1, 1995 through March 31, 1996, during which time the Operations Agreement
was in effect, it was decided by Management that interest earned on excess cash
balances should be paid to the Barona Casino. Effective April 1, 1996, the
Company retained interest income earned on its invested cash balances.
Income Tax Provision. The income tax provision decreased 65.9% from
$2,992,000 for Fiscal 1995 to $1,020,000 for Fiscal 1996, primarily as a result
of lower taxable income and a lower effective income tax rate. Deferred income
taxes arise as the result of timing differences between amortization expense for
financial statement purposes and tax purposes.
LIQUIDITY AND CAPITAL RESOURCES
As noted above, substantially all of Inland Casino's revenue is fees from
the Operations and Consulting Agreements with the Barona Casino. From Fiscal
1993 through Fiscal 1996, 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 fees earned during the same
period has been insufficient by itself to fund construction. In addition to fees
earned under the Operations Agreement, the Company also has received advances
against future fees from the Barona Tribe and received capital contributions
from its shareholders.
During Fiscal 1996, the Company's cash position increased $2,924,159 from
the June 30, 1995 balance of $1,423,826, to $4,347,985 at June 30, 1996. The
increase was principally due to net cash generated by operating activities of
$4,711,074 in Fiscal 1996 reduced by cash invested in management agreement
acquisition costs of $1,699,699, purchases of furniture and equipment of
$102,338, and increased by cash flows provided by financing activities of
$15,122. Cash flows provided by financing activities resulted from a net
increase in advances of future consulting fees of $545,630, partially reduced by
repayment of loans from shareholders of $29,187, and payment of $501,321 in debt
resulting from the redemption of 1,908,875 shares of
21
<PAGE> 24
common stock from a former officer and director of the Company. See Notes to
Financial Statements, Note D -- Stock Repurchase/Long-Term Debt.
Accounts receivable increased $62,600 during Fiscal 1996 primarily as a
result of an increase in billings to clients and an increase in loans to
officers and employees.
The deferred contract costs totalling $13,160,953 at June 30, 1996, have
been financed principally by cash generated from operations, advances of future
fees from the Barona Casino, working capital and advances and capital
contributions from shareholders. Through June 30, 1996, accumulated amortization
of these deferred contract costs was $6,655,626, resulting in net deferred
contact costs of $6,505,327 at Fiscal 1996 year-end. At June 30, 1996,
outstanding advances of future fees from the Barona Casino were $2,385,814.
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.
In the future, if the Operations Agreement is successfully challenged by
NIGC, Inland Casino may be obligated to repay such advances, or a portion
thereof, to the Barona Tribe even though the Operations Agreement has been
cancelled. See Item 3. Legal Proceedings, herein. Although the Company 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
It is the Company's intention to assist the Barona Tribe in funding, or
finding acceptable sources of funding for, future improvements in the Barona
Casino. Depending on the nature and extent of the improvement project, to the
extent practicable, it is the Company's intent to first explore funding such
improvement projects from the Company's working capital and through advances of
future fees, before seeking third-party debt or equity financing for the Barona
Tribe. However, outside sources of financing for the Barona Tribe may be
required or sought at any time.
At June 30, 1996, the Company had a credit facility with Imperial Bank (the
"Bank") which allowed for total credit of $2,000,000 (the "Credit Agreement").
Under terms of the Credit Agreement, the facility was to expire in October 1998,
and was secured by all of the Company's personal property, including but not
limited to bank deposits, accounts receivable, inventory and equipment. The
Credit Agreement provides that, so long as the Company is indebted to the Bank,
it must adhere to various 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 occurrence of future
indebtedness and a prohibition on declaring or making any cash dividends. The
Company has had no outstanding borrowings under this Credit Agreement and, as of
September 30, 1996, had not utilized the facility since its inception. Under the
terms of the Credit 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 the Credit
Agreement, the Bank received an immediately exercisable warrant 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 (the "Warrant"). (See Notes to Financial Statements, Note
E -- Line of Credit.)
On September 20, 1996, the Company commenced the process of cancelling the
Credit Agreement. In connection therewith, the Company requested that the Bank
terminate its security interest in the Company's assets and return the Warrant.
Inland Casino has announced plans to expand and improve the existing
facilities at the Barona Casino, which expansion is subject to the approval of
the Barona Tribe and also is subject to obtaining appropriate financing. 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. This
proposed expansion project is estimated to cost up to $17.5 million and the
Company and the Barona Tribe are exploring financing alternatives for the
project.
22
<PAGE> 25
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, the Company 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. The Chinook Winds Property and the planned Kla-Mo-Ya Casino are
both located in the State of Oregon. It is anticipated that tourism will decline
in the Fall and Winter seasons in Oregon, which should result in a corresponding
decline in casino revenues from the tourist market segment. In addition, colder
weather in Winter also may result in a decline in casino revenues for these
Oregon casinos, as a result of fewer customers. At this time, however, the
Company 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.
SUBSEQUENT EVENTS, ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS AND
FORWARD-LOOKING STATEMENTS
Subsequent Events
In September 1996, the Company entered into a Stock Purchase and Settlement
and Release Agreement (the "Repurchase Agreement") to repurchase from two of its
principal shareholders 6,778,244 shares of its common stock. The terms of the
Repurchase Agreement include (i) a cash payment of $200,000 upon closing, (ii)
the issuance of promissory notes in the principal amount of $3,500,000, with
interest at a rate of 10%, payments of interest only for the first three years,
followed by three equal annual installments of principal repayment, with
interest on the remaining balance, commencing September 1997, (iii) a contingent
obligation to issue a total of $9,856,488 in promissory notes, including
$2,000,000 in notes each year for four years, and $1,856,488 in notes to be
issued in a fifth year, each note with interest at 10%, payments of interest
only for the first three years, followed by three equal annual installments of
principal plus interest on the remaining principal balance, and (iv) a
contingent bonus obligation to issue an additional $3,000,000 in promissory
notes (or cash, if the Company has closed a firm commitment underwritten pubic
offering of securities of not less than $35 million prior to the contingencies
being met) when and if certain conditions are met, with interest at the then
rate of interest charged to the Company by the Company's principal bank, with
interest only for three years from date of issuance, followed by two equal
annual installments of principal, plus interest on the remaining balance.
The obligations to issue $2,000,000 in notes for four years and $1,856,488
in notes for a fifth year is contingent upon the Company's retained earnings
balance being at least $4,000,000 for the fiscal year ending immediately prior
to the date the notes are to be issued. Dividends paid by the Company and
certain other payments, if any, are not to be added back to the retained
earnings balance for purposes of this contingency. The period for determining
the Company's obligation to issue each of the $2,000,000 and $1,856,488 in
principal the amount of notes is an eight year period commencing with the fiscal
year ending June 30, 1997. If the $4,000,000 retained earnings test is not met
in one year, the Company is not obligated to issue the notes in that year.
However, the test is to be made each year for eight successive years commencing
with the fiscal year ending June 30, 1997, but each year can be used only once
during the eight year period, and only five out of the eight years may be used.
The contingent bonus obligation is subject to the following conditions: (i) the
Barona Tribe enters into a Class III Gaming Compact (the "Compact") with the
State of California which permits the operation of video gaming machines at the
Barona Casino in San Diego County; (ii) at the time that the Barona Tribe enters
into the Compact, the Company has a consulting agreement or similar
23
<PAGE> 26
contractual arrangement; and (iii) consulting fees paid to the Company by the
Barona Tribe relating to the Barona Casino for any consecutive 12-month period
within five years after the Barona Tribe has entered into the Compact, equals to
or exceeds one and one-half times such consulting fees for the year ended June
30, 1996. The Company intends to record as the additional cost of the repurchase
of its common stock each contingent obligation and the contingent bonus
obligation as each contingency or condition is met.
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.
In addition, the Company's Consulting Agreements with the Barona Tribe, the
Siletz Tribe and the Klamath Tribes have not yet been approved by all applicable
regulatory authorities. If the consulting agreements (particularly the Barona
Consulting Agreement) are not approved or are significantly modified from the
standpoint of consulting revenue, such action would have a material adverse
effect on the business and financial condition of the Company. See "Item 1.
Description of Business -- Summary of Inland Casino Gaming Agreements"; and
" -- Discussion of Regulatory Matters", herein.
In any event, any material reduction in fees payable to the Company,
whether as a result of a modification to the agreements between the Company and
the Barona Tribe as result of regulatory compliance requirements 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.
Forward-looking Statements
Included in the Notes to Financial Statements, Item 1. Description of
Business, this Item 6, Management's Discussion and Analysis or Plan of Operation
and elsewhere in this Report, are certain forward-looking statements reflecting
the Company's current expectations. Although the Company believes that its
expectations are based on reasonable assumptions, there can be no assurance that
the Company's financial goals or expectations will be realized. Numerous factors
may affect the Company's actual results and may cause results to differ
materially from the expressed in forward-looking statements made by or on behalf
of the Company. Some of these factors include the uncertainty involved in the
regulatory approval process relating to the Consulting Agreement, the regulatory
approach taken with respect to the now terminated Operations Agreement; the
outcome of a variety of pending litigation and legislation at the federal and
state levels regarding Indian gaming; the availability of funding alternatives
to fulfill certain contemplated development projects at the Barona Casino; and
the general economic factors affecting the gaming industry in general and Indian
gaming in particular in the geographic market within which the Company competes.
24
<PAGE> 27
ITEM 7. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Certified Public Accountants.................................... 26
Financial Statements:
Balance Sheet -- June 30, 1996................................................... 27
Statements of Operations -- Two Years Ended June 30, 1995 and 1996............... 28
Statement of Shareholders' Equity -- Two Years Ended June 30, 1995 and 1996...... 29
Statements of Cash Flows -- Two Years Ended June 30, 1995 and 1996............... 30
Notes to Financial Statements.................................................... 31
</TABLE>
25
<PAGE> 28
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders of
Inland Casino Corporation
La Jolla, California
We have audited the accompanying balance sheet of Inland Casino Corporation
as of June 30, 1996, and the related statements of operations, shareholders'
equity and cash flows for each of the years in the two year period ended June
30, 1996. These financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Inland Casino Corporation,
as of June 30, 1996, and the results of its operations and its cash flows for
each of the years in the two year period ended June 30, 1996, in conformity with
generally accepted accounting principles.
GRANT THORNTON LLP
Los Angeles, California
August 6, 1996 (except for
Note J, as to which the
date is September 30, 1996)
26
<PAGE> 29
INLAND CASINO CORPORATION
BALANCE SHEET
JUNE 30, 1996
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................................... $ 4,347,985
Accounts receivable:
Trade.................................................................... 57,055
Employees and other related parties...................................... 34,099
Prepaid expenses and other current assets................................... 53,130
-----------
Total current assets................................................ 4,492,269
Furniture and equipment, net.................................................. 167,213
Deferred contract costs, net.................................................. 6,505,327
Deferred taxes................................................................ 462,126
Deposits and other assets..................................................... 145,074
-----------
$11,772,009
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Advances of future consulting fees -- Barona Casino......................... $ 2,385,814
Current portion of long-term debt........................................... 279,946
Accounts payable and accrued expenses....................................... 449,289
Income taxes payable........................................................ 210,880
-----------
Total current liabilities........................................... 3,325,929
LONG-TERM DEBT, LESS CURRENT PORTION.......................................... 620,054
COMMITMENTS AND CONTINGENCIES................................................. --
SHAREHOLDERS' EQUITY:
Common stock, $.001 par value, 100,000,000 shares authorized and 10,632,792
shares outstanding....................................................... 2,352,554
Retained earnings........................................................... 5,473,472
-----------
Total shareholders' equity.......................................... 7,826,026
-----------
$11,772,009
===========
</TABLE>
The accompanying notes are an integral part of these statements.
27
<PAGE> 30
INLAND CASINO CORPORATION
STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Contract revenue
Barona Casino................................................... $14,152,565 $11,435,790
Other........................................................... -- 46,250
----------- -----------
14,152,565 11,482,040
----------- -----------
Operating expenses
General and administrative expenses............................. 4,032,941 6,597,449
Amortization of deferred contract costs......................... 2,677,848 2,410,333
----------- -----------
6,710,789 9,007,782
----------- -----------
Operating profit.................................................. 7,441,776 2,474,258
Other income (expense)
Interest income................................................. 54,783 36,914
Interest expense................................................ (7,533) (24,000)
Merger costs.................................................... (479,247) (11,479)
----------- -----------
(431,997) 1,435
----------- -----------
Income before income taxes........................................ 7,009,779 2,475,693
Income tax provision.............................................. 2,992,000 1,020,000
----------- -----------
Net income........................................................ $ 4,017,779 $ 1,455,693
=========== ===========
Income per common and common equivalent share..................... $ 0.33 $ 0.12
=========== ===========
Shares used in the computation of income per common and common
equivalent share................................................ 12,039,019 12,159,428
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
28
<PAGE> 31
INLAND CASINO CORPORATION
STATEMENT OF SHAREHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1995 AND 1996
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
-------------------------- RETAINED SHAREHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Balance at July 1, 1994................. 48,000 $ 4,090,201 $ 260,511 $ 4,350,712
Reorganization........................ 72,000 (336,964) (260,511) (597,475)
Collection of stock subscriptions
receivable......................... -- 638 -- 638
Stock split of 99.42 for 1............ 11,810,406 -- -- --
Merger with Twin Creek Exploration.... 611,387 -- -- --
Net income............................ -- -- 4,017,779 4,017,779
---------- ----------- ---------- -----------
Balance at June 30, 1995................ 12,541,793 3,753,875 4,017,779 7,771,654
Redemption of common stock............ (1,909,001) (1,401,321) -- (1,401,321)
Net income............................ -- -- 1,455,693 1,455,693
---------- ----------- ---------- -----------
Balance at June 30, 1996................ 10,632,792 $ 2,352,554 $5,473,472 $ 7,826,026
========== =========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
29
<PAGE> 32
INLAND CASINO CORPORATION
STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Increase (decrease) in cash:
Net cash provided by operating activities:
Net income...................................................... $ 4,017,779 $ 1,455,693
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization................................ 2,678,740 2,446,277
Deferred taxes............................................... (666,463) 437,135
Changes in assets and liabilities:
Accounts receivable.......................................... (12,554) (62,600)
Prepaid expenses and other current assets.................... -- 30,747
Deposits and other assets.................................... (131,519) 64,730
Accounts payable and accrued expenses........................ 215,810 129,062
Income taxes payable......................................... (491,150) 210,030
----------- -----------
Net cash provided by operating activities............... 5,610,643 4,711,074
Cash flows used in investing activities:
Purchase of furniture and equipment............................. (101,711) (102,338)
Deferred contract costs......................................... (5,013,035) (1,699,699)
----------- -----------
Net cash used in investing activities................... (5,114,746) (1,802,037)
Cash flows provided by (used in) financing activities:
Advances of future consulting fees, net......................... (3,701,408) 545,630
Loans from shareholders......................................... (715,023) (29,187)
Payment of debt................................................. (84,339) (501,321)
Collection of stock subscriptions receivable.................... 638 --
----------- -----------
Net cash provided by (used in) financing activities..... (4,500,132) 15,122
----------- -----------
Net increase (decrease) in cash......................... (4,004,235) 2,924,159
Cash at beginning of period....................................... 5,428,061 1,423,826
----------- -----------
Cash at end of period............................................. $ 1,423,826 $ 4,347,985
=========== ===========
Supplemental disclosures of cash flow information:
Interest expense paid........................................... $ 7,533 $ 3,001
=========== ===========
Interest income received........................................ $ 54,783 $ 33,611
=========== ===========
Income taxes paid............................................... $ 4,144,150 $ 565,152
=========== ===========
Income tax refund received...................................... $ -- $ 192,316
=========== ===========
Redemption of common stock by issuance of a note payable........ $ -- $ 900,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
30
<PAGE> 33
INLAND CASINO CORPORATION
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1995 AND 1996
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. DESCRIPTION OF BUSINESS
Inland Casino Corporation provides operational and other professional
services for gaming operations under consulting agreements with various tribes
in California and Oregon. Substantially all of its consulting revenues are
earned from an agreement with one tribe.
Operation of any type of gaming on Indian land is subject to Federal, state
and tribal regulation. Changes in regulation may limit or otherwise affect
Indian gaming and therefore could have a material adverse effect on the
operations of the Company. As discussed in Note G, there are various lawsuits
which, if resolved in a manner adverse to Indian gaming, and pending legislation
that, if passed in the proposed form, could have a material adverse effect upon
the financial condition and operations of the Company.
2. BUSINESS AND BASIS OF ACCOUNTING
Reorganization
Effective July 1, 1994, Inland Casino Partners and its partners, Inland
Casino Corporation, a Nevada Corporation, and Eagle Edge Partners, combined to
form a new Delaware Corporation, Inland Casino Corporation. For purposes of
presentation, the financial statements for the Company are combined as if the
companies had always operated as a single entity. At the time of the
combination, the fiscal year end was changed from December 31 to June 30.
Mergers
On May 22, 1995, the merger of Inland Casino Corporation, a Delaware
Corporation ("Inland-Delaware"), into and with Twin Creek Exploration ("Twin
Creek"), a Utah Corporation, became effective. To effect the merger, the common
stock of Twin Creek was reverse split 1 for 100 and the shareholders of
Inland-Delaware received 11,930,406 shares, representing 95% of the shares
outstanding after the merger. The surviving company was renamed Inland Casino
Corporation (the "Company") and the year end was changed from September 30 to
June 30. This transaction was accounted for as a recapitalization using the
carryover basis of Inland-Delaware's assets and liabilities. Accordingly, the
financial statements reflect the financial condition, results of operations and
cash flows of Inland-Delaware and its predecessors, for periods prior to the
merger date and combined with Twin Creek from that date forward. Intercompany
transactions and balances have been eliminated. Since there were no assets or
liabilities of Twin Creek at the date of the merger other than a note payable of
$15,000 due to Inland-Delaware, there is no significant impact on the results of
Inland-Delaware as a result of the merger.
The Company reports revenues and expenses from consulting services to
Indian tribes using the accrual method of accounting. For all periods reported
in these Financial Statements, substantially all of the Company's consulting
revenue has been generated from management and consulting services related to
the Barona Group of Capitan Grande Band of Mission Indians (the "Barona Tribe")
who operate the Barona Casino, a single Indian gaming operation located in
California.
3. BARONA CONSULTING AND OPERATIONS AGREEMENTS
Prior to April 1, 1996, the Company managed, operated and maintained
certain gaming and food and beverage operations in California on behalf of the
Barona Tribe in accordance with the terms and conditions of a certain Gaming
Management Agreement (the "Operations Agreement") with the Barona Tribe, under a
grant of authority from the Barona General Council. The National Indian Gaming
Commission (the "NIGC") has not approved the Operations Agreement. In March
1996, the Company entered into a Consulting Agreement with the Barona Tribe with
an effective date of April 1, 1996 relating to the operations of the Barona
Casino (the "Initial Consulting Agreement"). In May 1996, after the parties
recognized an inadvertent mistake in the provision relating to consulting fees
had been made, the Company and the Barona
31
<PAGE> 34
INLAND CASINO CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Tribe agreed to an Amended and Restated Consulting Agreement (the "Barona
Consulting Agreement" or "Consulting Agreement"). In addition, the Company and
the Barona Tribe entered into a Mutual Release releasing each other from certain
rights, duties and obligations set forth in the Operations Agreement (the
"Release"). The Barona Consulting Agreement and the Release have effective dates
of April 1, 1996.
The Barona Consulting Agreement provides for an initial term of three
years, with an option to extend the agreement for an additional five year
period. Under the terms of the Barona Consulting Agreement, the Barona Tribe has
the right to draw from the gross revenues of the Barona Casino an annual income
stream at least equal to the distributions received by the Barona Tribe for the
twelve month period ended December 31, 1995, and fees paid or payable to the
Company may accordingly be reduced.
In March 1996, the Barona Tribe submitted the Initial Consulting Agreement
to the NIGC and in May 1996, the NIGC determined that the Initial Consulting
Agreement was not a management agreement and, therefore, not subject to NIGC
approval, and forwarded such agreement to the Bureau of Indian Affairs (the
"BIA"). The Company intends to submit the Consulting Agreement to the NIGC and
the BIA. Although there can be no assurance that the NIGC will conclude that the
Consulting Agreement is not a management agreement, the Company believes that,
based upon its prior ruling with respect to the Initial Consulting Agreement,
the NIGC will make a similar determination with respect to the Consulting
Agreement. In addition, if the BIA determines that the Initial Consulting
Agreement and/or the Consulting Agreement is subject to its review there can be
no assurance that such Agreements will be approved by the BIA. Failure to
approve the Initial Consulting Agreement or the Consulting Agreement may have a
material adverse effect on the business and financial condition of the Company.
4. DEFERRED CONTRACT COSTS
Pursuant to oral agreements with the Barona Tribe, the Company has agreed
to fund, or to arrange acceptable financing for, the construction of facility
improvements, furniture and equipment, the establishment of initial working
capital and the losses, if any, of the Barona Casino's 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, the
Company assumed all liability for these obligations. The Company capitalized
those costs incurred as deferred contract costs, since (i) the Company had the
ultimate responsibility for the costs incurred, and (ii) the Company believes
that these costs are fully recoverable over the life of the Operations Agreement
and the Consulting Agreement, through receipt of fee income from the Barona
Casino. However, given the nature of the asset, if the recoverability is
determined to be not probable, the Company will expense the unamortized portion.
On an ongoing basis, management reviews the valuation and recoverability of
the unamortized deferred contract 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 revenue to the Company to
determine whether impairment has occurred.
Through March 31, 1996, amortization of these deferred costs was calculated
as the greater of amortization using (i) the straight-line method over the
remaining term of the Operations Agreement or (ii) an accelerated method,
whichever is greater. The accelerated amortization was equal to the excess of
fees earned over 30% of Casino operating income. Beginning April 1, 1996,
amortization of these deferred costs is calculated using the straight-line
method over the remaining term of the Consulting Agreement. Under the terms of
the Operations Agreement and the Consulting Agreement, the title to the Casino
facilities, furniture and equipment rests solely with the Barona Tribe, unless
the Barona Tribe agrees otherwise.
The Consulting Agreement can be terminated by the Barona Tribe for any
material breach by the Company, as defined in the agreement. Management is not
aware of any material breach of the Consulting Agreement.
32
<PAGE> 35
INLAND CASINO CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. REVENUE RECOGNITION
Contract revenue is recorded as earned under the terms of the Operations
Agreement through March 1996, and as earned under the terms of the Consulting
Agreement thereafter.
6. CREDIT CONCENTRATIONS, CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, cash equivalents include time
deposits and all highly liquid debt instruments with original maturities of
three months or less.
The Company maintains its cash in bank deposit and checking accounts which,
at times, may exceed federally insured limits. The Company has not experienced
any losses in such accounts.
7. FURNITURE AND EQUIPMENT
Furniture and equipment are stated at cost. Depreciation is being provided
by the straight-line method over the estimated useful lives (five years) of the
assets.
8. ADVANCES OF FUTURE CONSULTING FEES
Advances of future consulting fees represent payments made to the Company
in excess of consulting fees earned. The advances were used to fund the cost of
improvements to the Barona Casino. Advances are repaid through reduction in
payment of future consulting fees and are anticipated to be paid within one year
of the advance. These advances are unsecured, noninterest bearing and are due on
demand.
9. DEFERRED INCOME TAXES
The Company has adopted Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes", (SFAS No. 109), which required a change from
the deferred method to the asset and liability method of accounting for income
taxes. Under SFAS No. 109, deferred income taxes are recognized for the tax
consequences of "temporary differences" by applying enacted statutory tax rates
applicable to future years to differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities. The
effect of a change in tax rates is recognized in earnings in the period that
includes the enactment date.
The deferred income tax asset results principally from California franchise
taxes which are deductible when paid and from the excess of accelerated
amortization of consulting agreement acquisition costs for financial statement
purposes over that allowed for income tax purposes.
10. INCOME PER SHARE
Income per common and common equivalent share for the years ended June 30,
1995 and 1996 is calculated using the weighted average number of shares
outstanding during the year. 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 year.
11. RECLASSIFICATIONS
Certain items in the 1995 financial statements have been reclassified to
conform with the 1996 presentation.
12. USE OF ESTIMATES
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
33
<PAGE> 36
INLAND CASINO CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The financial statements include various estimated fair value information
as at June 30, 1996, as required by Statement of Financial Accounting Standards
No. 107, "Disclosures about Fair Value of Financial Instruments", (SFAS No.
107). Such information, which pertains to the Company's financial instruments,
is based on the requirements set forth in that Statement and does not purport to
represent the aggregate net fair value of the Company.
Management has determined that the estimated fair value of the Company's
financial instruments, in accordance with the requirements of SFAS No. 107,
approximates the carrying amount of such financial instruments in all material
respects as of June 30, 1996.
14. CURRENT ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board issued Statement
No. 123, "Accounting for Stock-Based Compensation" which requires entities to
calculate the fair value of stock awards granted to employees; the Company is
required to comply with this disclosure requirement with its fiscal year ending
June 30, 1997. This statement provides entities with the option of either
electing to expense the fair value of employee stock-based compensation, or
continue to recognize compensation expense under existing accounting
pronouncements and provide pro forma disclosures of net income and, if
presented, earnings per share, as if the above mentioned fair value method of
accounting was used in determining compensation expense. Additionally, the
statement requires that all equity awards granted to nonemployees such as
suppliers of goods and services be recognized based on fair value. The Company
has not yet determined the effect the statement will have upon the financial
statements.
NOTE B -- DEFERRED CONTRACT COSTS
Deferred contract costs consist of the following at June 30, 1996:
<TABLE>
<S> <C>
Deferred contract costs under Operations and Consulting Agreements...... $13,160,953
Less: accumulated amortization.......................................... (6,655,626)
-----------
$ 6,505,327
===========
</TABLE>
NOTE C -- FURNITURE AND EQUIPMENT
Furniture and equipment consist of the following at June 30, 1996:
<TABLE>
<S> <C>
Furniture................................................................. $ 94,908
Equipment................................................................. 87,705
Vehicle................................................................... 20,424
--------
203,037
Accumulated depreciation.................................................. (35,824)
--------
$167,213
========
</TABLE>
NOTE D -- STOCK REPURCHASE/LONG-TERM DEBT
In March 1996, the Company entered into an agreement to repurchase
1,908,865 shares of its own common stock and an outstanding option to purchase
894,780 shares of common stock from Jack R. Smith, a former executive officer,
director, and principal shareholder for consideration totaling $1,400,000 and
continued benefits for the three-year period ended February 1999. The purchase
price consisted of a $500,000 cash payment and issuance of a $900,000, 7%
unsecured promissory note, payable in three equal installments of $342,947. In
addition, if the Company's common stock reaches certain levels during
measurement periods prior to March 1998 and 1999 Mr. Smith will be entitled to
up to $250,000 for each measurement period.
34
<PAGE> 37
INLAND CASINO CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE E -- LINE OF CREDIT
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. The agreement contains various covenants which must be met or waived
during any borrowing 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 (during any period in which the Company is
utilizing the facility), a limitation on the incurrence of future indebtedness
and a prohibition on declaring or making any cash dividends. As of June 30,
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
facility, the bank received an immediately exercisable warrant to purchase
40,000 shares of the Company's common stock, subject to certain anti-dilution
provisions, at an initial exercise price of $5. The warrant expires on October
10, 2000.
NOTE F -- INCOME TAXES
Deferred taxes are comprised of the following at June 30, 1996:
<TABLE>
<S> <C>
Excess of financial statement amortization over tax of deferred contract
costs under Operations and Consulting Agreements...................... $315,192
California franchise taxes.............................................. 72,012
Charitable Contributions................................................ 68,903
Allowance for doubtful accounts......................................... 6,019
--------
Deferred tax asset.................................................... $462,126
========
</TABLE>
The composition of the Company's income tax provision is as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------
1995 1996
---------- ----------
<S> <C> <C>
Current tax:
Federal................................................... $2,882,000 $ 404,701
State..................................................... 771,000 178,165
---------- ----------
Current tax....................................... 3,653,000 582,866
---------- ----------
Deferred tax:
Federal................................................... (569,000) 391,558
State..................................................... (92,000) 45,576
---------- ----------
Deferred tax...................................... (661,000) 437,134
---------- ----------
Income tax provision........................................ $2,992,000 $1,020,000
========== ==========
</TABLE>
A reconciliation from the U.S. statutory federal income tax rate to the
effective tax rate follows:
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30,
-------------
1995 1996
---- ----
<S> <C> <C>
U.S. Federal statutory rate............................................ 34.0% 34.0%
State income taxes..................................................... 6.0 6.0
Other.................................................................. 2.7 1.2
---- ----
42.7% 41.2%
==== ====
</TABLE>
35
<PAGE> 38
INLAND CASINO CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE G -- COMMITMENTS AND CONTINGENCIES
Lease Obligations
During fiscal 1996 the Company entered into operating leases for
facilities, vehicles and equipment which expire at various dates through fiscal
2001. The minimum future payments due under operating lease contracts at June
30, 1996 for the years ending June 30 are as follows:
<TABLE>
<S> <C>
1997...................................................................... $132,173
1998...................................................................... 26,988
1999...................................................................... 7,168
2000...................................................................... 5,736
2001...................................................................... 1,603
--------
Net minimum lease payments................................................ $173,668
========
</TABLE>
Rental expense for the years ended June 30, 1995 and 1996 were $72,647 and
$136,235, respectively.
Contingent Lease Obligations
The Company has guaranteed lease obligations of the Barona Casino per the
Agreement. The payments are allowable as operating expenses of the Barona
Casino.
The minimum future payments due under these contracts for the fiscal years
ending June 30 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING TOTAL
LEASES LEASES LEASES
------- --------- -------
<S> <C> <C> <C>
1997.................................................. $ 8,629 $31,687 $40,316
1998.................................................. 8,629 22,937 31,566
1999.................................................. 6,267 13,347 19,614
2000.................................................. 6,262 6,262
2001.................................................. 458 458
------- ------- -------
Net minimum lease payments............................ 23,525 $74,691 $98,216
======= =======
Less amounts representing interest.................... (6,546)
-------
Present value of net minimum lease payments under
capital leases...................................... $16,979
=======
</TABLE>
The Company has guaranteed automobile lease payments on behalf of certain
employees. Assuming that all future payments were to be made by the Company
under this commitment, the Company would be obligated to pay, respectively, as
follows:
<TABLE>
<S> <C>
1997.................................................................... $ 68,819
1998.................................................................... 56,454
1999.................................................................... 26,202
2000.................................................................... 4,981
--------
$156,456
========
</TABLE>
Litigation and Industry Matters
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'
right or limitations on control of gaming, the rights' of the tribes to compel
the states to negotiate compacts with them, and numerous other issues. The
Barona Tribe is not a party to these cases nor is the
36
<PAGE> 39
INLAND CASINO CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 material
adverse effect on the operations of Barona Casino and Inland Casino Corporation
when decided. Specifically, current cases are addressing the legality of
electronic gaming equipment and certain card games in California (currently used
in the Barona Casino) and the enforcement rights applicable to Federal and State
governments. Various courts have ruled in different cases, or in different
hearings on the same case, both in the States' and the Tribes' favor on the same
or similar issues. There are appeals remaining in a number of cases and other
cases may arise. Until there are definitive rulings by the courts, the legality
of the gaming activities will not be known.
On June 30, 1994, the U. S. Attorney of the Southern District of California
announced a verbal understanding with a number of Southern California Indian
tribes, including the Barona Tribe; that would allow the Barona Tribe 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 authorizes 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 tribes.
Management is not aware of any violation of the verbal understanding by the
Barona Tribe or any other Indian tribe which is a party to such understandings.
The Company is also subject to claims and lawsuits which arise in the
ordinary course of business. The Company does not anticipate any material losses
with respect to such existing or pending claims and lawsuits.
NOTE H -- STOCK OPTIONS
In 1994, the Board of Directors and shareholders approved a Stock Option
Plan (the "1994 Plan") under which 27,838 Incentive Stock Options and 41,756
Nonstatutory Stock Options were granted. Upon the merger of ICC into and with
Twin Creek on May 22, 1995, the 1994 Plan was terminated but all options
outstanding under the plan were assumed by the Company, and are immediately
exercisable.
In 1995, the Board of Directors and the shareholders of the Company
approved the Company's 1995 Stock Option Plan (the "1995 Plan"). Under the terms
of the 1995 Plan, options for up to 4,000,000 shares may be granted. Shares
covered by options which terminate without exercise are available for
reissuance. Options may be issued to employees, consultants and directors of the
Company either as (i) Incentive Stock Options; (ii) Nonstatutory Stock Options;
or (iii) as combinations of both types of options.
Stock option grants are determined by the Stock Option Committee of the
Board of Directors. Options granted to any single individual cannot exceed
900,000 shares over any period of three consecutive fiscal years. Except under
certain limited circumstances noted below, Incentive Stock Options have a
maximum term of ten years and must have an exercise price of not less than fair
market value on the date of grant. Options granted under the 1995 Plan are
generally exercisable ratably over a four and one-half or five year period
following the date of grant.
Any officer or key employee who owns more than 10% of the Company's common
stock may be granted an Incentive Stock Option if the exercise price is at least
110% of the fair market value at the date of grant,
37
<PAGE> 40
INLAND CASINO CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
and such option is not exercisable after five years from date of grant.
Nonstatutory Options have a maximum term of ten years and must have an exercise
price of not less than 85% of the fair market value on the date of grant.
Changes in stock options outstanding were as follows:
<TABLE>
<CAPTION>
OPTIONS OPTION PRICE
OUTSTANDING PER SHARE
----------- -------------
<S> <C> <C>
Outstanding at July 1, 1994.............................. -- --
Granted................................................ 69,594 $1.00
Cancelled.............................................. -- --
---------
Outstanding at June 30, 1995............................. 69,594
Granted................................................ 1,753,306 $3.50 -- $4.00
Cancelled.............................................. (92,278) $3.50
---------
Outstanding at June 30, 1996............................. 1,730,622
=========
</TABLE>
There were no options exercised as of June 30, 1996.
NOTE I -- RELATED PARTY TRANSACTIONS
In May 1995, payments of $40,000 and $193,000 were paid to two principal
shareholders for consulting services provided during the year ended June 30,
1995 under a verbal agreement with Inland.
In March 1996, the Company repurchased 1,908,865 shares of its common stock
from Jack R. Smith, an executive officer, director and principal shareholder of
the Company pursuant to the terms of a Stock Purchase and Settlement and Release
Agreement dated February 23, 1996. The terms of such repurchase are described in
Note D herein.
NOTE J -- SUBSEQUENT EVENTS
On September 30, 1996, pursuant to a Stock Purchase and Settlement and
Release Agreement, dated September 27, 1996 (the "Stock Purchase Agreement"), by
and among Jonathan Ungar, Alan Henry Woods, and the Company, the Company
purchased 3,424,913 shares of its common stock from Mr. Ungar and 3,353,331
shares of its common stock from Mr. Woods. The terms of the Stock Purchase
Agreement include (i) a cash payment of $200,000 upon closing, (ii) the issuance
of unsecured promissory notes in the principal amount of $3,500,000, with
interest at a rate of 10%, payments of interest only for the first three years,
followed by three equal annual installments of principal repayment, with
interest on the remaining balance, commencing September 30, 1997, (iii) a
contingent obligation (the "Initial Contingent Obligations") to issue a total of
$9,856,488 in unsecured promissory notes ($4,981,276 in principal amount to Mr.
Ungar and $4,875,212 in principal amount to Mr. Woods) including $2,000,000 in
principal amount of notes each year for four years, and $1,856,488 in principal
amount of notes to be issued in a fifth year, each note with interest at 10%,
payments of interest only for the first three years, followed by three equal
annual installments of principal plus interest on the remaining principal
balance, and (iv) another contingent obligation to issue an additional
$3,000,000 principal amount ($1,515,000 to Mr. Ungar, $1,485,000 to Mr. Woods)
in unsecured promissory notes (or cash, if the Company has closed a firm
commitment underwritten public offering of securities of not less than $35
million prior to the contingencies being met) when and if certain conditions are
met, with interest at the then "preferred" or "prime" rate of interest charged
to the Company by the Company's principal bank, with interest only for three
years from date of issuance, followed by two equal annual installments of
principal, plus interest on the remaining balance.
The obligations to issue the Initial Contingent Obligations (i.e.,
$2,000,000 in notes for four years and $1,856,488 in notes for a fifth year) are
contingent upon the Company's retained earnings balance being at least
$4,000,000 for the fiscal year ending immediately prior to the date the notes
are to be issued. Dividends paid by the Company and certain other payments, if
any, are not to be added back to the retained earnings
38
<PAGE> 41
INLAND CASINO CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
balance for purposes of this contingency calculation. The period for determining
the Company's obligation to issue each of the $2,000,000 and $1,856,488 in
principal amount of notes is an eight year period commencing with the fiscal
year ending June 30, 1997. If the $4,000,000 retained earnings test is not met
in one year, the Company is not obligated to issue the notes in that year.
However, the test is to be made each year for eight successive years commencing
with the fiscal year ending June 30, 1997, but each year can be used only once
during the eight year period, and only five out of the eight years may be used.
The Second Contingent Obligation is subject to the following conditions: (i) the
Barona Tribe enters into a Class III Gaming Compact (the "Compact") with the
State of California which permits the operation of video gaming machines at the
Barona Casino in San Diego County; (ii) at the time that the Barona Tribe enters
into the Compact, the Company has a consulting agreement or similar contractual
arrangement; and (iii) consulting fees paid to the Company by the Barona Tribe
relating to the Barona Casino for any consecutive 12-month period within five
years after the Barona Tribe has entered into the Compact, equals to or exceeds
one and one-half times such consulting fees for the year ended June 30, 1996.
The Company intends to record as an additional cost of the repurchase of its
common stock each contingent obligation as each contingency is met.
All payments pursuant to the Stock Purchase Agreement are further subject
to compliance with certain state law provisions and the Company's Articles of
Incorporation concerning repurchase transactions.
The proforma effect on stockholders' equity of the Company as if the
repurchase of shares discussed above had occurred on June 30, 1996 is as
follows: $3.5 million increase in long-term debt and a $3.7 million decrease in
stockholders equity.
39
<PAGE> 42
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
During Twin Creek's fiscal year ended September 30, 1994 and the subsequent
period up to May 22, 1995, the effective date of the Merger, Twin Creek's firm
of independent accountants was Tanner + Co. The Board of Directors of the
Company immediately following the Merger dismissed Tanner + Co. and appointed
Grant Thornton LLP ("Grant Thornton") as the Company's firm of independent
accountants for future periods. Grant Thornton also was engaged by ICC II to act
as its independent accounting firm for its fiscal year ended June 30, 1995.
Tanner + Co. is referred to herein as the "Prior Accountant."
No adverse opinion or disclaimer of opinion was included in the Prior
Accountant's report during the Company's two most recent fiscal years or, within
the past two calendar years, or any other fiscal period applicable to the
Company (respectively, the "Applicable Period") and no opinion was qualified or
modified as to uncertainty, audit scope or accounting principles during the
Applicable Period.
During the Applicable Period, Twin Creek (prior to the Merger) and the
Company (from the time of the Merger) did not have any disagreements with the
Prior Accountant as to matters of accounting principles or practices, financial
statement disclosure or auditing scope or procedures, which disagreement, if not
resolved to the satisfaction of the Prior Accountant, would have caused it to
make reference to such disagreement in connection with its reports. The Prior
Accountant has been provided a copy of the disclosures relating to this Item and
has furnished a letter addressed to the Securities and Exchange Commission
stating that it agrees with the disclosures concerning it contained herein. Such
letter is included as Exhibit 16.1 to this Report.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The information set forth under the captions "ELECTION OF DIRECTORS," and
"TRANSACTIONS WITH MANAGEMENT AND OTHERS -- Compliance with Section 16(a) of the
Exchange Act" in Inland Casino's definitive proxy statement (the "Proxy
Statement") for the Annual Meeting scheduled to be held in December 1996 is
incorporated herein by reference. The Proxy Statement will be filed with the
U.S. Securities and Exchange Commission (the "Commission") not later than 120
days after the close of Fiscal 1996.
ITEM 10. EXECUTIVE COMPENSATION
The information set forth under the captions "COMPENSATION OF EXECUTIVE
OFFICERS" and "INFORMATION ABOUT THE BOARD OF DIRECTORS AND COMMITTEES OF THE
BOARD -- Compensation of Directors" in the Proxy Statement is incorporated
herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the caption "SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT" in the Proxy Statement is incorporated herein
by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "TRANSACTIONS WITH MANAGEMENT
AND OTHERS" in the Proxy Statement is incorporated herein by reference.
40
<PAGE> 43
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(A) LIST OF EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO.
- -----------
<C> <S>
3.1 Amended and Restated By-laws of the Company (formerly known as Twin Creek
Exploration Co., Inc.), previously filed as Exhibit 3.1 to the Company's Quarterly
Report on Form 10-QSB for the Quarterly Period Ended March 31, 1996, filed with
the Commission on May 17, 1996 (File No. 0-11532) (the "March 1996 Quarterly
Report"), which is hereby incorporated herein by reference.
MATERIAL CONTRACTS RELATING TO MANAGEMENT COMPENSATION PLANS OR ARRANGEMENTS
10.1 Corporate Guaranty between ICC II and Arthur R. Pfizenmayer, dated February 1,
1995, previously filed as Exhibit 10.1 to the Company's Annual Report on Form
10-KSB for the Fiscal Year Ended June 30, 1995, filed with the Commission on
October 12, 1995 (File No. 0-11532) (the "Fiscal 1995 Annual Report"), which is
hereby incorporated herein by reference.
10.2 Corporate Guaranty between the Company and Fritz Opel, dated August 1, 1995.
10.3 1994 Stock Option Plan of ICC II, previously filed as Exhibit 10.2 to the Fiscal
1995 Annual Report, which is hereby incorporated herein by reference.
10.4 The Company's 1995 Stock Option Plan, previously filed as Appendix A to the
Company's Proxy Statement dated October 30, 1995 filed with the Commission on
October 30, 1995 (File No. 0-11532) (the "1995 Proxy Statement"), which is hereby
incorporated herein by reference.
10.5 Verbal agreement between ICC II and Jonathan Ungar entered into in May 1995,
pursuant to which ICC II paid $40,000 to Mr. Ungar in exchange for market research
consulting services in the United States, previously filed as Exhibit 10.3 to the
Fiscal 1995 Annual Report, which is hereby incorporated herein by reference.
10.6 Verbal agreement between ICC II and Alan Henry Woods entered into in May 1995,
pursuant to which ICC II paid $193,000 to Mr. Woods in exchange for market
research consulting services in overseas markets, previously filed as Exhibit 10.4
to the Fiscal 1995 Annual Report, which is hereby incorporated herein by
reference.
OTHER MATERIAL CONTRACTS
10.7+ Amended and Restated Consulting Agreement by and between the Company and the
Barona Group of Capitan Grande Band of Mission Indians (the "Barona Tribe"), dated
as of April 29, 1996.
10.8 Mutual Release by and between the Company and the Barona Tribe dated as of March
27, 1996.
10.9 Siletz Marketing Consulting Agreement by and between the Company and the
Confederated Tribes of Siletz Indians of Oregon, dated May 28, 1996.
10.10+ Consulting Agreement between the Klamath Tribes and the Company, dated June 1,
1996.
10.11 Assignment and Assumption of Lease between ICC II and Winland Corporation, dated
as of January 1, 1995, previously filed as Exhibit 10.6 to the Fiscal 1995 Annual
Report which is hereby incorporated herein by reference.
10.12 Credit Terms and Conditions dated October 10, 1995 by and between Inland Casino
Corporation and Imperial Bank.
10.13 Note dated October 10, 1995 of Inland Casino Corporation to Imperial Bank, and
Addendum to such Note.
10.14 General Security Agreement dated October 10, 1995 by and between Inland Casino
Corporation and Imperial Bank.
</TABLE>
41
<PAGE> 44
<TABLE>
<CAPTION>
EXHIBIT NO.
- -----------
<C> <S>
10.15 Warrant to Purchase Stock dated October 10, 1995 issued by Inland Casino
Corporation to Imperial Bank.
10.16 Amended and Restated Gaming Machine Location Agreement by and between SSK Game
Enterprises and the Company, dated December 1, 1995.
10.17 Amended and Restated Gaming Machine Location Agreement between Zino, Inc. and the
Company, dated December 1, 1995.
10.18 Amended and Restated Gaming Machine Location Agreement between American Heritage
Amusement Corporation and the Company, dated December 1, 1995.
10.19 Lease Agreement between Sprung Instant Structures, Inc. and Inland Casino Partners
(d/b/a Barona Casino), dated December 14, 1993, previously filed as Exhibit 10.10
to the Fiscal 1995 Annual Report, which is hereby incorporated herein by
reference.
10.20 Stock Purchase and Settlement and Release Agreement by and between the Company and
Jack R. Smith dated February 23, 1996, previously filed as Exhibit 10.1 to the
March 1996 Quarterly Report, which is hereby incorporated herein by reference.
10.21 Promissory Note dated March 4, 1996 in favor of Jack R. Smith in the principal
amount of $900,000, previously filed as Exhibit 10.2 to the March 1996 Quarterly
Report, which is hereby incorporated herein by reference.
10.22 Stock Purchase and Settlement and Release Agreement by and among the Company,
Jonathan Ungar and Alan Henry Woods, dated September 27, 1996, previously filed as
Exhibit 2.1 to the Company's Current Report on Form 8-K dated October 1, 1996,
filed with the Commission on October 1, 1996 (File No. 0-11532) (the "October 1,
1996 Current Report"), which is hereby incorporated herein by reference.
10.23 Promissory Note dated September 30, 1996 in favor of Jonathan Ungar in the
principal amount of $1,768,550, previously filed as Exhibit 2.2 to the October 1,
1996 Current Report, which is hereby incorporated herein by reference.
10.24 Promissory Note dated September 30, 1996 in favor of Alan Henry Woods in the
principal amount of $1,731,450, previously filed as Exhibit 2.3 to the October 1,
1996 Current Report, which is hereby incorporated herein by reference.
10.25 Talent Agreement dated October 30, 1995 by and between Kenny Rogers Productions
and the Company.
16.1 Letter of Tanner + Co. regarding change in certifying accountant.
27 Financial Data Schedule.
</TABLE>
- ---------------
+ Confidential treatment has been requested with respect to certain portions of
this Agreement pursuant to Rule 24b-2 under the Securities Exchange Act of
1934, as amended. Such portions of the Agreement have been omitted and filed
separately with the Commission.
(B) REPORTS ON FORM 8-K
No reports on Form 8-K were filed with the Commission during the Company's
fourth quarter of the fiscal year covered by this Form 10-KSB.
42
<PAGE> 45
SIGNATURES
In accordance with Section 13 or 15(d) 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
Dated: October 14, 1996 By: /s/ L. DONALD SPEER, II
----------------------------------
L. Donald Speer, II
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
<TABLE>
<S> <C>
/s/ L. DONALD SPEER, II October 14, 1996
- ---------------------------------------------
L. Donald Speer, II,
Chairman of the Board, Chief Executive
Officer and Director
(Principal Executive Officer)
/s/ ARTHUR R. PFIZENMAYER October 14, 1996
- ---------------------------------------------
Arthur R. Pfizenmayer
President, Chief Operating Officer and
Director
/s/ ANDREW B. LAUB October 14, 1996
- ---------------------------------------------
Andrew B. Laub
Executive Vice President, Finance and
Development and Director
/s/ G. FRITZ OPEL October 14, 1996
- ---------------------------------------------
G. Fritz Opel
Executive Vice President, Marketing and
Consulting Services and Director
/s/ DUANE M. EBERLEIN October 14, 1996
- ---------------------------------------------
Duane M. Eberlein
Vice President, Chief Financial Officer,
Secretary and Director (Principal Financial
and Accounting Officer)
- ---------------------------------------------
Jana McKeag
Vice President, Governmental Relations
and Director
- ---------------------------------------------
Forrest J. Gerard
Director
/s/ CORNELIUS E. SMYTH October 14, 1996
- ---------------------------------------------
Cornelius E. ("Neil") Smyth
Director
</TABLE>
43
<PAGE> 46
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
- -------- ------------------------------------------------------------------------ --------
<S> <C> <C>
3.1 Amended and Restated Bylaws of the Company (formerly known as Twin Creek
Exploration Co., Inc.), previously filed as Exhibit 3.1 to the Company's
Quarterly Report on Form 10-QSB for the Quarterly Period Ended March 31,
1996, filed with the Commission on May 17, 1996 (File No. 0-11532) (the
"March 1996 Quarterly Report"), which is hereby incorporated herein by
reference.
MATERIAL CONTRACTS RELATING TO MANAGEMENT COMPENSATION PLANS OR ARRANGEMENTS.
10.1 Corporate Guaranty between ICC II and Arthur R. Pfizenmayer, dated
February 1, 1995, previously filed as Exhibit 10.1 to the Company's
Annual Report on Form 10-KSB for the Fiscal Year Ended June 30, 1995,
filed with the Commission on October 12, 1995 (File No. 0-11532) (the
"Fiscal 1995 Annual Report"), which is hereby incorporated herein by
reference.
10.2 Corporate Guaranty between the Company and Fritz Opel, dated August 1,
1995.
10.3 1994 Stock Option Plan of ICC II, previously filed as Exhibit 10.2 to
the Fiscal 1995 Annual Report, which is hereby incorporated herein by
reference.
10.4 The Company's 1995 Stock Option Plan, previously filed as Appendix A to
the Company's Proxy Statement dated October 30, 1995, filed with the
Commission on October 30, 1995 (File No. 0-11532) (the "1995 Proxy
Statement"), which is hereby incorporated herein by reference.
10.5 Verbal agreement between ICC II and Jonathan Ungar entered into in May
1995, pursuant to which ICC II paid $40,000 to Mr. Ungar in exchange for
market research consulting services in the United States, previously
filed as Exhibit 10.3 to the Fiscal 1995 Annual Report, which is hereby
incorporated herein by reference.
10.6 Verbal agreement between ICC II and Alan Henry Woods entered into in May
1995, pursuant to which ICC II paid $193,000 to Mr. Woods in exchange
for market research consulting services in overseas markets, previously
filed as Exhibit 10.4 to the Fiscal 1995 Annual Report, which is hereby
incorporated herein by reference.
OTHER MATERIAL CONTRACTS.
10.7+ Amended and Restated Consulting Agreement by and between the Company and
the Barona Group of Capitan Grande Band of Mission Indians (the "Barona
Tribe"), dated as of April 29, 1996.
10.8 Mutual Release by and between the Company and the Barona Tribe dated as
of March 27, 1996.
10.9 Siletz Marketing and Consulting Agreement by and between the Company and
the Confederated Tribes of Siletz Indians of Oregon, dated May 28, 1996.
10.10+ Consulting Agreement between the Klamath Tribes and the Company dated
June 1, 1996.
10.11 Assignment and Assumption of Lease between ICC II and Winland
Corporation, dated as of January 1, 1995, previously filed as Exhibit
10.6 to the Fiscal 1995 Annual Report, which is hereby incorporated
herein by reference.
10.12 Credit Terms and Conditions dated October 10, 1995 by and between Inland
Casino Corporation and Imperial Bank.
10.13 Note dated October 10, 1995 of Inland Casino Corporation to Imperial
Bank, and Addendum to such Note.
</TABLE>
<PAGE> 47
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
- -------- ------------------------------------------------------------------------ --------
<S> <C> <C>
10.14 General Security Agreement dated October 10, 1995 by and between Inland
Casino Corporation and Imperial Bank.
10.15 Warrant to Purchase Stock dated October 10, 1995 issued by Inland Casino
Corporation to Imperial Bank.
10.16 Amended and Restated Gaming Machine Location Agreement by and between
SSK Game Enterprises and the Company, dated December 1, 1995.
10.17 Amended and Restated Gaming Machine Location Agreement between Zino,
Inc. and the Company, dated December 1, 1995.
10.18 Amended and Restated Gaming Machine Location Agreement between American
Heritage Amusement Corporation and the Company, dated December 1, 1995.
10.19 Lease Agreement between Sprung Instant Structures, Inc. and Inland
Casino Partners (d/b/a Barona Casino), dated December 14, 1993,
previously filed as Exhibit 10.10 to the Fiscal 1995 Annual Report,
which is hereby incorporated herein by reference.
10.20 Stock Purchase and Settlement and Release Agreement by and between the
Company and Jack R. Smith dated February 23, 1996, previously filed as
Exhibit 10.1 to the March 1996 Quarterly Report, which is hereby
incorporated herein by reference.
10.21 Promissory Note dated March 4, 1996 in favor of Jack R. Smith in the
principal amount of $900,000, previously filed as Exhibit 10.2 to the
March 1996 Quarterly Report, which is hereby incorporated herein by
reference.
10.22 Stock Purchase and Settlement and Release Agreement by and among the
Company, Jonathan Ungar and Alan Henry Woods, dated September 27, 1996,
previously filed as Exhibit 2 to the Company's Current Report on Form
8-K dated October 1, 1996, filed with the Commission on October 1, 1996
(File No. 0-11532) (the "October 1, 1996 Current Report"), which is
hereby incorporated herein by reference.
10.23 Promissory Note dated September 30, 1996 in favor of Jonathan Ungar in
the principal amount of $1,768,550, previously filed as Exhibit 2.2 to
the October 1, 1996 Current Report, which is hereby incorporated herein
by reference.
10.24 Promissory Note dated September 30, 1996 in favor of Alan Henry Woods in
the principal amount of $1,731,450, previously filed as Exhibit 2.3 to
the October 1, 1996 Current Report, which is hereby incorporated herein
by reference.
10.25 Talent Agreement dated October 30, 1995 by and between Kenny Rogers
Productions and the Company.
16.1 Letter of Tanner + Company regarding change in certifying accountant.
27 Financial Data Schedule
</TABLE>
- ---------------
+ Confidential Treatment has been requested with respect to certain provisions
of this Agreement pursuant to Rule 24b-2 under the Securities Exchange Act of
1934, as amended. Such portions of the Agreement have been omitted and filed
separately with the Commission.
<PAGE> 1
EXHIBIT 10.2
CORPORATE GUARANTY
State of California
County of San Diego
WHEREAS, Fritz Opel ("Employee") has agreed to become an employee of Inland
Casino Corporation, a Utah corporation ("Inland"), with the title of Vice
President, starting August 12, 1995, with the location of his employment to be
based in San Diego County for the duration of this Guaranty, and
WHEREAS, Inland has agreed to pay Employee an annual base salary of One
Hundred Twenty-Five Thousand Dollars ($125,000.00) for a period of one (1) year
commencing on August 1, 1995, and
WHEREAS, while an employee of Inland, Employee shall be eligible for
certain other benefits including, without limitation, discretionary bonus
compensation, participation in Inland's existing employee stock option plan, use
of an automobile, and participation in Inland's existing health, life and
disability insurance plans (assuming he qualifies for participation in such
plans under the terms as more fully set out in the plan).
NOW THEREFORE, Inland agrees as follows:
1. Subject to all of the terms contained herein, Inland shall guarantee
(the "Guaranty") the payment of the annual base salary and the provision of the
use of an automobile and of participation in Inland's existing health, life and
disability insurance plans for a period one (1) year starting on August 1, 1995.
2. This Guaranty shall be a guaranty only of payment of the annual base
salary for a one-year period commencing August 1, 1995, and of the provision of
the use of an automobile and of participation in Inland's existing health, life
and disability insurance plan; provided, however, that Inland shall not have any
obligation to provide any insurance to employee in the event he does not qualify
for the insurance made available by Inland to its other employees. The annual
base salary for a one-year period commencing August 1, 1995, shall be paid even
if Inland Casino Corporation elects to terminate Employee's employment.
3. This Guaranty is not a guaranty of employment, and it is not a contract
for employment for a term of years. Inland reserves the right to terminate
Employee's employment at any time with or without cause. Employee shall be and
remain an at will employee of Inland throughout his employment.
4. This Guaranty is not a guaranty of any other benefits to which Employee
may be entitled or for which Employee may be eligible as an employee of Inland.
5. The Guaranty shall not be enforceable under any of the following
circumstances:
a. the failure or refusal by Employee to start his employment on
August 1, 1995;
b. the death of the Employee;
c. the termination by Employee of his employment with Inland;
d. court order, or other state, federal or local law enforcement
requirement pertaining to employee personally or Inland generally.
6. This Guaranty shall be governed and interpreted according to the laws of
the State of California and any action to enforce or interpret this Guaranty
shall be brought in San Diego County.
7. This Guaranty sets forth the entire agreement between Inland and
Employee with regard to the subject matter of the Guaranty. Inland and Employee
cannot alter and/or modify this Guaranty except by an instrument in writing
executed by each of them.
8. If any action in law or equity is brought to enforce or interpret the
provision of this Guaranty, the prevailing party shall be entitled to recover
the actual attorney's fees and costs incurred, which may be determined by the
court in the same action or in a separate action brought for that purpose, in
addition to any other relief to which that party may be entitled.
1
<PAGE> 2
NOW THEREFORE, this Corporate Guaranty has been executed on this 1st day of
August, 1995.
INLAND CASINO CORPORATION,
a Utah Corporation
By: /s/ LLOYD D. SPEER, II
---------------------------------
Lloyd D. Speer, II
as Its Chairman
ACKNOWLEDGED AND AGREED:
/s/ FRITZ OPEL
- ---------------------------
Fritz Opel
Dated: August 1, 1995
2
<PAGE> 1
EXHIBIT 10.7
AMENDED AND RESTATED CONSULTING AGREEMENT
This Amended and Restated Consulting Agreement (the "Agreement") is entered
into as of the 29th day of April, 1996, but shall be effective retroactively to
March 27, 1996 (the "Effective Date"), by and between the Barona Group of
Capitan Grande Band of Mission Indians, also known as the Barona Band of Mission
Indians, a federally recognized Indian Tribe (hereinafter "Barona" or the
"Band") and Inland Casino Corporation, a Utah corporation, successor to Inland
Casino Partners, a California partnership, (hereinafter "Consultant").
R E C I T A L S
WHEREAS, the Band is a federally recognized Indian Tribe possessing
sovereign powers over the Barona Indian Reservation located in San Diego County,
California;
WHEREAS, the Band desires to expedite the development of the economy of the
Barona Reservation in order to improve tribal self-government and economic
self-sufficiency, to enable the Band better to serve the social, economic,
educational and health needs of its members and to provide its members with
opportunities to improve their own economic circumstances without having to work
outside of the Reservation community;
WHEREAS, the Band has established and is now operating and managing the
Barona Casino as the best feasible means by which to accomplish the Band's
objectives as described in the preceding paragraph (hereinafter the
"Enterprise");
WHEREAS, the Enterprise is managed by the Band through a Tribal Council
acting through the Band's Gaming Committee, all of whose members are members of
the Band and acting pursuant to the Band's gaming ordinance which was approved
by the Chairman of the National Indian Gaming Commission on February 28, 1994;
WHEREAS, the Band and the Tribal Council require technical assistance,
advice, training and consulting services in connection with the operation and
business affairs of the Enterprise in order to maximize the revenues and
employment opportunities derived by the Band from the Enterprise;
WHEREAS, the Band has determined that Consultant can provide the technical
assistance, advice, training and consulting services required by the Band while
respecting the sovereign rights and authority of the Band, while not assuming an
active management role itself, and while acting solely as a consultant to the
Band without a proprietary interest in the Enterprise;
WHEREAS, the parties executed that certain Consulting Agreement on or about
March 27, 1996 (the "Consulting Agreement");
WHEREAS, the parties acknowledge and agree that under this Agreement,
Consultant shall not manage, direct, control or have a vote concerning any
aspect of the Enterprise, the management of which shall be exercised exclusively
by the Band; and
WHEREAS, the parties now desire to amend, restate and supersede the
Consulting Agreement on the terms and conditions set forth below, with the force
and effect of this Agreement being retroactive to March 27, 1996.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein, the parties hereto agree as follows:
I. ENGAGEMENT OF CONSULTANT AND SCOPE OF CONSULTING SERVICES
A. Engagement of Consultant. The Band has and shall continue to have the
sole proprietary interest in and management responsibility for the conduct of
all gaming activities conducted by the Enterprise. The Band
1
<PAGE> 2
is seeking technical assistance and expertise in the operation of its gaming
activities and hereby retains and engages the Consultant to provide consulting
services to the Band and the Enterprise, and to the Enterprise's management and
employees as specified herein. Notwithstanding the engagement herein made,
Consultant will have no role, responsibility or authority concerning the
operation of the Band's simulcast wagering facilities under the Tribe's present
compact with the State of California for this purpose.
B. Consulting Services. Consultant shall consult with and provide
technical assistance, training and advice to the Band, members of the Band's
Tribal Council, and of the Gaming Committee, and to Enterprise employees and
staff, in accordance with Paragraph E below, concerning all matters relating to
the operation and business activities of the Enterprise including but not
limited to organization and administration, planning and development, gaming
activities, internal controls and accounting procedures, cage operations,
engineering and maintenance, housekeeping, human resources, management
information services, marketing and advertising, purchasing, surveillance,
security, and food and beverage operations, all as set forth in more detail in
Exhibit "A," attached hereto.
C. Expansion of Gaming Facilities. In the event that the Band acts to
expand the Enterprise to or add additional gaming facilities during the term of
this Agreement, Consultant will provide the above-described consulting services
with respect to any new or expanded gaming facilities developed by the Band
during the term of this Agreement.
D. Cooperative Efforts. Both parties to this Agreement shall exercise
their best efforts to fully cooperate with each other in the performance of the
services to be rendered hereunder; provided, however, that it shall be within
the sole discretion of the Band to determine whether or not to act upon or
implement the technical assistance, consultation or advice provided by
Consultant.
E. Services Provided at Direction of Band. The determination as to what
specific consulting services (identified in Exhibit "A") shall be provided by
Consultant, and the format in which the Consultant's reports or recommendations
are to be provided shall be determined exclusively by the Band, and the
consulting services provided hereunder shall be performed by Consultant in
accordance with and under such tribal direction.
1. The Consultant has provided the Band with a list of areas (Exhibit
"A") in which it is prepared to provide consulting services. The Consultant
will update this list as necessary during the term of this Agreement.
2. The Band shall, from time to time and after consultation with the
Consultant, identify and issue consulting assignments for specific tasks to
be performed by the Consultant.
3. The Consultant will perform in accordance with the terms of this
Agreement in order to accomplish the consulting assignments issued by the
Band. Consultant will report to Band on all work performed under each
consulting assignment.
4. Payment under this Agreement shall be conditioned upon compliance
by the Consultant with the terms and conditions of this Agreement. The
Band's Tribal Council shall review the work performed by the Consultant on
a monthly basis, but the decision to adopt, approve or implement any
proposal, suggestion or recommendation made by Consultant shall rest
exclusively with the Band, acting through its Tribal Council or Gaming
Committee.
II. NO MANAGEMENT SERVICES PROVIDED
The parties expressly acknowledge that this is a Consulting Agreement and
that Consultant shall not engage in any management activities or perform any
management services with respect to the Enterprise or any future gaming
facilities of the Band. It is expressly agreed that neither Consultant nor any
of its officers, directors or employees shall serve on the Tribal Council of the
Enterprise or have any vote in the deliberations of the Tribal Council.
2
<PAGE> 3
III. TERM OF AGREEMENT
A. Term. This Agreement shall have a term which commences on the Effective
Date, and which continues for a period of thirty-six (36) months after April 1,
1996, unless sooner terminated under Section III.B or Section VII; provided,
however, that the Agreement may be extended by mutual agreement of the parties.
For the purposes of this Agreement, the parties agree that the accounting and
the calculations contemplated hereunder shall commence with the first full
calendar month following the Effective Date of this Agreement.
B. Option. The Band hereby grants an option to Consultant to extend this
Agreement to act as a consultant for an additional five (5) years after April 1,
1999, upon terms and conditions which will be negotiated on or before the end of
the initial term of this Agreement. At that time, the Band and Consultant agree
to use their best efforts to negotiate in good faith and apply the principles of
fair dealing in reaching a mutually beneficial business arrangement.
C. Early Termination and Buy Out by Band. At any time after the first full
year of this Agreement, the Band, in its sole discretion, may serve notice on
Consultant of its intention to terminate this Agreement without cause under this
Section III.C. Such notice of early termination shall be effective nine (9)
months after its receipt by Consultant, and this Agreement shall remain in full
force and effect during that nine (9) month notice period. After the nine (9)
month notice period, Consultant shall have no further obligation to the Band
under this Agreement including those under Section IV; provided, however, that
the Band shall be obligated to make termination payments to Consultant in the
amount of Four Hundred Seventy Five Thousand Dollars ($475,000) per month for
each and every month remaining under the initial thirty-six (36) month term of
this Agreement.
IV. EXCLUSIVITY
Consultant agrees that during the term of this Agreement, it will not
provide consulting services to the Pechanga Band of Mission Indians or to any
other Indian Tribe or Band engaged in gaming activities located in San Diego
County or in the Coachella Valley located in Riverside County, without the prior
written approval of the Band.
V. CONFIDENTIALITY
The parties agree that they will not disclose the financial terms of this
Agreement to third parties unless such disclosure is required by federal, state
or tribal law or regulation; provided, however, that nothing contained herein
shall be deemed to prohibit Consultant from making public disclosures required
by law as a publicly held corporation. Consultant further agrees that it will
not voluntarily disclose to third parties business and financial information of
a confidential nature concerning the Enterprise that it learns in the course of
carrying out its duties under this Agreement, including, but not limited to,
information concerning revenue, numbers of patrons, expenses, financial plans or
budgets. Upon written request of one party, the requirements of this Section may
be waived by the other party in writing, such waiver to be conditioned on
whatever terms are included in the written waiver.
VI. COMPENSATION OF CONSULTANT
In consideration of the satisfactory performance of the consulting services
as described herein, Consultant shall receive from the Band, on a monthly basis
during the term of this Agreement, compensation payable as follows:
A. Base Consulting Fee. Consultant shall receive a Base Consulting Fee of
Four Hundred Seventy Five Thousand Dollars ($475,000) per calendar month. The
Base Consulting Fee shall be paid to the Consultant by the twentieth (20th) day
of the following calendar month.
B. Additional Consulting Fee. In addition to the Base Consulting Fee,
Consultant shall be paid an Additional Consulting Fee in any calendar month in
which the Net Revenue of the Enterprise (before the payment of any Consulting
Fees) exceeds * * * . The Additional
- ---------------
* Confidential information has been omitted and filed separately with the
Commission.
3
<PAGE> 4
Consulting Fee shall be * for each increment of
* * of Net Revenue for that month, or any
portion thereof in excess of * , commencing when the net
revenue of the Enterprise exceeds the level of * * per month.
Any additional Consulting Fee payable under this Agreement shall be paid to
Consultant by the twentieth (20th) day of the following calendar month.
C. No Percentage Fees. Nothing contained herein shall authorize or permit
the calculation of any Consulting Fee based upon a percentage of gross or net
revenue of the Enterprise. Furthermore, notwithstanding anything to the contrary
contained herein, the Band reserves to itself the right to draw from the gross
revenues of its gaming enterprise an income stream at least equal to the basis
received by the Band for the twelve-month period ended December 31, 1995, and
Consultant agrees that all fees paid or payable to it under this Agreement may
be accordingly reduced.
D. Generally Accepted Accounting Principles. For purposes of this Section
VI, Net Revenue of the Enterprise shall be calculated in accordance with
generally accepted accounting principles consistently applied, but shall not
include any Consulting Fees paid or payable under this Agreement.
VII. TERMINATION
A. Termination for Cause.
1. Either party may terminate this Agreement for the following causes:
a. Committing or knowingly allowing to be committed any act of
theft or embezzlement; however, theft or embezzlement by an officer or
employee of Consultant without Consultant's knowledge shall not be cause
for termination of this Agreement, as long as Consultant repays to the
Enterprise all sums which said officer or employee may have stolen, or
embezzled, as soon as Consultant becomes aware of facts from which a
reasonable person would conclude that such acts occurred.
b. Committing or allowing to be committed any material breach of
the Agreement. A material breach of this Agreement shall be a failure of
either party to perform any duty or obligation required of a party under
this Agreement.
c. A material breach of any of Consultant's representations that
adversely affects its ability to carry out its responsibilities under
this Agreement.
2. Neither party may terminate this Agreement on grounds of material
breach unless it has provided written notice to the other party of its
intention to declare a default and to terminate this Agreement, and the
defaulting party fails to cure or take substantial steps to cure the
default within twenty (20) days of receipt of such notice. The
discontinuance or correction of the material breach shall constitute a cure
thereof.
3. In the event of termination on account of Consultant's breach, all
undistributed Enterprise funds to which Consultant otherwise would be
entitled under this Agreement shall be placed in an interest-bearing escrow
account for an initial period of one hundred twenty (120) days; if
Consultant acts within that time to invoke its remedies under Section VII.B
of this Agreement, such funds shall remain in that account until the
dispute has been resolved.
4. If Consultant fails to invoke its remedies under Section VII.B of
this Agreement within one hundred twenty (120) days after termination on
account of its breach, the funds in said account shall be released to the
Band at the end of that period. Otherwise, the funds shall remain in the
account until the dispute has been finally resolved or adjudicated, at
which time the funds and accrued interest will be released to the
prevailing party. In addition, if the dispute is resolved in favor of the
Band, the Band shall be paid all the sums owed to it by Consultant as of
the date of termination.
- ---------------
* Confidential information has been omitted and filed separately with the
Commission.
4
<PAGE> 5
B. Remedies for Breach.
1. Consultant shall in good faith attempt to resolve any grievances,
complaints or disputes that are brought to its attention by the Tribal
Council and/or Gaming Committee. The Tribal Council and/or Gaming Committee
will also notify Consultant in writing of any serious problems with
Consultant's performance at Consultant's address of record. Within ten (10)
days of receipt of such notice, unless the problem has been resolved,
Consultant shall meet and confer in good faith with the Tribal Council to
determine what remedial action, if any, is necessary.
2. Subject to the limitations set forth in subsection 1, any dispute
relating to and/or arising under this Agreement and/or the transactions
contemplated herein shall be submitted to binding arbitration before the
American Arbitration Association (the "AAA") in San Diego, California, and
decided under the AAA's Commercial Arbitration Rules. The prevailing party
shall be entitled to seek confirmation and enforcement of any arbitration
award in any court of competent jurisdiction located in San Diego County,
California. The limitations on remedies for beach are as follows:
a. The only breaches by the Band for which an action may be brought
hereunder by Consultant shall be the failure to pay compensation when
and in amounts due, and the premature termination of this Agreement
without good cause unless authorized under Section III.B.
b. The Band's limited waiver of its sovereign immunity as provided
in Part X hereof in favor of Consultant only extends only to a direct
action by Consultant for money damages, specific performance, injunctive
relief, and/or declaratory relief for the Band's breach of this
Agreement.
c. The Band's maximum liability for money damages for beach of this
Agreement shall not exceed an amount equal to what Consultant reasonably
could be expected to have earned as compensation between the date of the
Band's breach and the remainder of the term of this Agreement.
d. The only assets or income of the Band which may be subject to
levy and execution in the event that a judgment in favor of Consultant
is entered against the Band for its breach of this Agreement shall be
revenues of the Enterprise during the term of this Agreement which, but
for the Band's breach, would have been paid to Consultant as
compensation during the remainder of the term of this Agreement had it
not been breached.
3. In the event of any disputes relating to and/or arising under this
Agreement and/or the transactions contemplated herein, the prevailing party
shall be entitled to receive its reasonable attorneys' fees and its costs
and expenses of arbitration or litigation, in addition to any other relief
to which such party may be entitled.
VIII. NOTICES
Any notice required to be given pursuant to this Agreement shall be
delivered by Express Mail or overnight courier service, addressed as follows:
to the Band at: Chairman Clifford LaChappa
Barona Group of Capitan Grande
Band of Mission Indians
1000 Barona Road
Lakeside, California 92040
with a copy to: Art Bunce, Esq.
Post Office Box 1416
Escondido, California 92033
and to Consultant at: Lloyd D. Speer II
Inland Casino Corporation
4225 Executive Square, Suite 1650
La Jolla, California 92037
5
<PAGE> 6
with a copy to: Bill C. Hammer, Esq.
General Counsel
Inland Casino Corporation
4225 Executive Square, Suite 1650
La Jolla, California 92037
or to their designees.
IX. COVENANT OF GOOD FAITH AND FAIR DEALINGS
Consultant and the Band hereby specifically warrant and represent to each
other that neither shall act in any manner which would cause this Agreement to
be altered, amended, modified, canceled, or terminated (except for cause)
without the consent of the other.
X. WAIVER OF SOVEREIGN IMMUNITY
By this Agreement the Band does not in any way limit, impair or waive its
sovereign immunity from unconsented suit or arbitration, except as specifically
provided herein. The Band does waive sovereign immunity from suit or arbitration
by Consultant only as provided herein and solely for purposes of enforcement of
the terms of this Agreement. This waiver is a limited waiver of immunity, and
any damages which may arise as a result of the Band's or its officially
recognized representatives' action shall be limited exclusively to the Band's
interest in revenues derived from the operation of the Enterprise as provided in
Section VII(B)(2)(d) above. This limited waiver of sovereign immunity is granted
solely to Consultant for purposes of Consultant only implementing this Agreement
and shall be regarded as a limited waiver of sovereign immunity according to its
terms in any subsequent arbitration or court proceeding commenced by Consultant
for purposes of enforcing the terms of this Agreement. Nothing contained in this
limited waiver shall be construed to confer any benefit, tangible or intangible,
or standing on any person or entity not a party to this Agreement or as a wavier
with respect to any third person or entity.
XI. ASSIGNMENT, SUBCONTRACTS AND REPRESENTATIONS
A. Consultant shall not assign or subcontract any of its obligations under
this Agreement without the Band's prior written consent, provided that
Consultant may assign this contract unilaterally to a wholly owned subsidiary of
Consultant as long as said subsidiary does not involve any change in principals,
directors, partners or ownership.
B. The Band and Consultant further warrant and represent that they shall
take all actions necessary to insure that this Agreement shall remain in good
standing at all times and will fully cooperate with each other in achieving the
goals of this Agreement.
C. Consultant further specifically warrants that no officer, director, or
employee of Consultant, is presently charged with or has been convicted of any
crime involving theft, fraud, misrepresentation, embezzlement or other acts of
dishonesty, and that no person convicted of any such act knowingly will be
allowed to become an officer, director or employee of Consultant.
XII. AUTHORITY TO EXECUTE
Each party warrants to the other that it has full authority to execute this
Agreement and will, upon written request by the other party, provide
satisfactory written evidence thereof.
XIII. NO LEASE OR POSSESSORY INTEREST
The parties to this Agreement agree and expressly warrant that this
Agreement is not a lease and does not convey any present interest whatever in
the building or property on which the Band's Enterprise is located, or any
proprietary or possessory interest in the Enterprise itself. The Band maintains
the sole proprietary and possessory interest in the Enterprise. Moreover, the
parties to this Agreement further warrant and understand that this Agreement is
for consulting services only and does not relate to the management of the
Enterprise;
6
<PAGE> 7
does not grant to Consultant the exclusive right to operate the Enterprise; does
not prohibit the Band from encumbering its lands; and that the Agreement is not
"relative to Indian lands" within the meaning of 25 U.S.C. Section 81.
XIV. CONFLICT OF INTEREST PROHIBITIONS
A. The parties represent that no payments have been made and agree that no
payment will be made to any elected member of the Band's tribal government or
relative of any elected member of the Band's tribal government for the purpose
of obtaining or maintaining this Agreement or any other privilege for
Consultant. For purposes of this paragraph, "relative" means an individual who
is related to and lives in the immediate household of an elected member of the
Band's tribal government.
B. No party in interest in Consultant is an elected member of the
government of the Band, or a relative of said member as defined by the Secretary
of the Interior.
XV. MODIFICATION
This Agreement may be modified only with the formal written agreement of
both parties.
XVI. SEVERABILITY
In the event any provision of this Agreement is for any reason held to be
illegal or unenforceable, such provision will be severed or otherwise modified
as may best preserve the intention of the parties hereto, and the Agreement as
so modified will remain in full force and effect.
XVII. RECITALS INCORPORATED
The recitals set forth above are a material part of this Agreement, and are
incorporated herein as if fully set forth herein.
XVIII. GOVERNING LAW
This Agreement shall be governed by the laws of the United States.
XIX. ENTIRE AGREEMENT
This Agreement is the entire agreement between the parties with respect to
the subject matter of this Agreement. It is expressly understood that this
Agreement supersedes in its entirety the Consulting Agreement and that there are
no oral, written or collateral agreements between the parties or other parties
with a financial interest in the subject matter of this Agreement.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
7
<PAGE> 8
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed as of the day and year first above written.
BARONA GROUP OF CAPITAN
GRANDE BAND OF MISSION INDIANS
By: /s/ CLIFFORD LA CHAPPA
------------------------------------
Clifford LaChappa
Its: Chairman
INLAND CASINO CORPORATION, a
Utah corporation
By: /s/ LLOYD D. SPEER, II
------------------------------------
Lloyd D. Speer, II
Its: Chairman
8
<PAGE> 9
EXHIBIT "A"
SCOPE OF CONSULTING SERVICES
GENERAL CASINO OPERATIONS
<TABLE>
<C> <S>
1. Organization including organization chart defining reporting deadlines.
2. General operating policies.
3. Access to sensitive areas.
4. Key controls.
5. Internal audit.
6. Human resources.
7. Housekeeping operations.
8. Management information systems, including hardware and software.
9. Engineering and maintenance.
10. Job descriptions and employee training seminars.
11. Internal control procedures for all aspects of gaming to conform with applicable
requirements.
12. Physical controls.
13. Recording income of all departments.
14. Recording and analysis of promotional and complimentary allowances.
15. Auditing income of all departments.
16. Data processing control procedures.
17. Forms control and use.
18. Design and implementation of payroll preparation and reporting.
19. Design and implementation of accounts payable systems.
20. Procedures for reconciliation and analysis of all bank accounts.
21. Procedures for collection and analysis of accounts receivable.
22. Design and implementation of all revenue recording procedures.
23. Preparation and maintenance of a general ledger.
24. Procedures for analysis and scheduling of general ledger accounts.
25. Preparation of daily cash report.
26. Preparation of daily management report.
27. Preparation of financial statements and other reports as requested.
28. Design of procedures for safeguarding of all enterprise assets.
29. Preparation of all federal, state and county tax returns.
30. Design of all related accounting forms.
31. Development of audit procedures for all accounting functions.
32. Analysis of all appropriate insurance coverages.
33. Analysis and review of all accounting equipment design and use.
34. Annual budget preparation and an ongoing analysis as to whether the operations are
meeting budget expectations.
35. Establish and maintain banking relationships.
36. Provide working papers and required documentation to firm of independent certified
public accountants.
37. Purchasing and warehousing.
38. Staff training and professional development.
39. Emergency medical technicians ("EMTs") and facility for customers.
40. Construction accounting.
</TABLE>
<PAGE> 10
CARDROOM
<TABLE>
<C> <S>
1. Purchasing of equipment and supplies.
2. Developing new cardroom games which comply with class II operations standards.
3. Presenting a professional image to the public.
4. Scheduling of employees.
5. Introduction and operation of tournaments.
6. Operations of other casinos.
7. Casino layout.
8. Gaming incentives for players.
9. Alerting casino management of undesirable persons.
10. Dealing precision.
11. Seeking new clientele.
12. Possible problems in other departments that could affect cardroom operations.
13. Analyzing daily, weekly and other periodic reports.
</TABLE>
VIDEO DEPARTMENT
<TABLE>
<C> <S>
1. Video department staffing.
2. Video supervisors job description.
3. Video techs/mechanics job description.
4. Video clerks/change persons job description.
5. Video department procedure manual.
6. Video supervisors incident log.
7. Video tech/mechanic incident log.
8. Video clerks/change persons memo book.
9. Video department pay structure.
10. Video department staff counseling and progressive discipline policy.
11. Video department attendance policy.
12. Video clerks/change persons variance policy.
13. Video department staff scheduling.
14. Layout of work areas.
15. Asset safeguard procedures.
16. Video clerks/change persons accountabilities.
</TABLE>
BINGO
<TABLE>
<C> <S>
1. Purchasing of equipment and supplies.
2. Employee conduct and appearance.
3. Scheduling of employees.
4. Procedures, including paper handling.
5. Analyzing daily, weekly and other reports.
</TABLE>
CAGE, VAULT AND COUNT ROOM
<TABLE>
<C> <S>
1. Cage -- design, size and layout.
2. Vault -- design, size and layout.
3. Count room -- design, size and layout.
4. Video booths (satellite cages) -- design, size and layout.
5. Surveillance cameras.
6. Staffing, supervision for cage, vault and count room.
</TABLE>
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<TABLE>
<C> <S>
7. Soft count money handling equipment.
8. Exchanges with video booths (satellite cages).
9. Supervisors job description.
10. Main bank job description.
11. Cashiers job description.
12. Casino cage procedure manual.
13. Cashiers memo book.
14. Supervisors daily incident log.
15. Main bank opening and closing.
16. Handling of the daily bank deposit.
17. Cage and vault staff counseling and progressive discipline policy.
18. Cage and vault attendance policy.
19. Cage and vault variance policy.
20. Cage and vault staff scheduling.
21. Cage and vault inventory forms.
22. Cage and vault revenue summary.
23. Cage and vault accountability reporting.
24. Imprest banks in video booths (satellite cages).
25. Individual cashiers banks in cage.
</TABLE>
SURVEILLANCE DEPARTMENT
<TABLE>
<C> <S>
1. Camera layout in casino, video, cage, soft count and kitchen areas.
2. Layout of surveillance room.
3. General surveillance procedures and key objectives.
4. Daily shift operations.
5. Procedure violations and reporting.
6. Incident investigation.
7. The drop.
8. Multiplexer playback.
9. Money transfers.
10. Confidential information.
11. Close watch procedures.
12. Power outage procedures.
13. All cage operations and soft count.
14. Armed robbery response.
</TABLE>
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SECURITY DEPARTMENT
<TABLE>
<C> <S>
1. Security coverage requirements.
2. Scheduling number of officers needed to supply coverage.
3. General security procedures and policies.
4. Power failure policy.
5. Customer escort policy.
6. Radio usage procedures.
7. Found property procedures.
8. Incident report procedure.
9. Tower coverage.
10. Gaming floor security measures.
11. Special security requirements including:
A. Front doors.
B. Time clocks.
C. Employee entrance.
D. Parking lots.
E. Cage and vault.
12. Use of roaming officers.
</TABLE>
MARKETING AND ADVERTISING
<TABLE>
<C> <C> <S>
1. Marketing Plan.
A. Marketing and advertising budgets.
B. Goals and objectives.
C. Strategies and tactics.
D. Evaluation and measurement.
2. Research projects and analysis of data.
3. Assistance with staffing, recruiting and training.
4. Customer service and employee training attitudes.
5. Media negotiations and placement.
A. Identify target market.
B. Recommend reach and frequency media goals.
C. Evaluation advertising proposals from radio, television, outdoor, newspaper,
magazine and display companies.
D. Recommend schedules and budgets for each medium, including duration and detail of
contracts with all of the above.
6. Advertising/Promotion.
A. Direction, tone and quality of advertising and marketing programs.
B. Assist with selection of advertising agencies and consultants with strong Indian
gaming background.
C. Guiding the creative output with respect to gaming casino advertising.
D. Specific concept and production for television and radio commercials.
E. Developing outdoor advertising, newspaper, television and radio campaigns.
F. Photo shoots for all creative designs for advertising.
7. Special Events and Entertainment.
A. Developing event calendars and strategy for implementing them.
B. Developing concepts for entertainment, special events and promotions.
C. In house and market wide promotions.
D. Marketing ideas within the casino to increase gaming activity.
8. Collateral materials, brochures and direct mail, design production and distribution.
9. Strategies for public relations, publicity and community relations.
10. Uniforms.
</TABLE>
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<TABLE>
<C> <C> <S>
11. Community relations and political affairs.
12. Signage, both in the casino and outside including information and directional.
</TABLE>
FOOD AND BEVERAGE OPERATION
<TABLE>
<S> <C> <C> <C>
1. Kitchen Design and Planning.
A. Space Planning.
B. Equipment Analysis.
2. Management Information Systems.
A. Computer Applications.
i. Sales-analysis.
ii. Purchasing.
iii. Inventory.
iv. Food production.
v. Recipe costing.
vi. Production scheduling.
vii. Labor costs.
viii. Back office/accounting.
ix. Point-of-sale systems.
3. Food-Cost Control.
A. Food Purchasing.
i. Purchasing methods.
ii. Contract purchasing.
iii. Purchase size determination.
iv. Standard specifications.
v. Forecasting food needs.
vi. Procedures.
B. Receiving.
i. Receiving procedures.
ii. Effective reporting.
C. Food Storage Management, Issuing, and Inventory Control.
i. Storage evaluation.
(1) Dry.
(2) Refrigerated.
(3) Frozen.
ii. Issuing.
iii. Inventory controls.
D. Preparation and Portion Controls.
i. Forecasting.
ii. Portion control.
E. Beverage Control.
i. General beverage control practices.
4. Menu Planning and Control.
A. Menu Pricing Factors.
B. Menu Pricing Methods.
C. Labor and Energy Cost Calculations.
D. Measuring Menu and Menu Specials Effectiveness.
E. Menu Profitability and Popularity Comparisons.
5. Labor.
A. Labor Costs.
i. Actual labor costs.
ii. Productivity.
</TABLE>
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<TABLE>
<S> <C> <C> <C>
iii. Cost-solving approaches.
iv. Management.
B. Analyzing Labor Costs.
i. Determine work production standards.
ii. Percentage of sales.
iii. Payroll analyses.
C. Staffing and Scheduling.
i. Staffing.
ii. Scheduling and schedule patterns.
</TABLE>
ARCHITECTURE, INTERIOR DESIGN AND CONSTRUCTION
<TABLE>
<S> <C>
1. Provide alternative plans for review.
2. Technical support in contracting.
3. Bidding procedures.
4. Progress payments.
5. Contract administration.
6. Evaluate technical requirements and make recommendations.
</TABLE>
GOVERNMENTAL AFFAIRS
<TABLE>
<C> <S>
1. Liaison with Tribal, State and Federal agencies.
2. Representation before Congress and key Congressional committees.
3. Monitoring Federal and State legislation.
4. Development and implementation of legislative strategy.
5. Coordination with appropriate special interest groups (NIGA, AGA, NCAI, SCLC, Cal-NIGA,
etc.)
</TABLE>
REGULATORY MATTERS
<TABLE>
<C> <S>
1. Liaison with Tribal, State and Federal regulatory agencies.
2. Development of Tribal regulatory structures.
3. Assist with Federal, State and Tribal regulatory requirements.
4. Development of Tribal gaming commissions.
</TABLE>
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<PAGE> 1
EXHIBIT 10.8
MUTUAL RELEASE
This Mutual Release (the "Release") is entered into and effective this 27th
day of March, 1996 (the "Effective Date"), by and between the Barona Group of
Capitan Grande Band of Mission Indians also known as the Barona Band of Mission
Indians, a federally recognized Indian Tribe (hereinafter "Barona" or the
"Band") and Inland Casino Corporation, a Utah corporation, successor to Inland
Casino Partners, a California partnership (hereinafter "Inland").
RECITALS
WHEREAS, the Band is a federally recognized Indian Tribe possessing
sovereign powers over the Barona Indian Reservation in San Diego County,
California;
WHEREAS, the Band desires to expedite the development of the economy of the
Barona Reservation in order to improve tribal self-government and economic
self-sufficiency, to enable the Band better to serve the social, economic,
educational and health needs of its members and to provide its members with
opportunities to improve their own economic circumstances without having to work
outside of the Reservation community;
WHEREAS, the Band has established and is now operating and managing the
Barona Casino as the best feasible means by which to accomplish the Band's
objectives as described in the preceding paragraph (hereinafter the
"Enterprise");
WHEREAS, in furtherance of the above goals, the Band and Inland entered
into that certain agreement entitled "Gaming Management Agreement" dated
February, 1992, as amended, for the term of seven (7) years and under which
Inland would receive a fee equal to certain percentages of the net revenue of
the Enterprise, in the form attached hereto as Exhibit "A" (the "Gaming
Agreement");
WHEREAS, pursuant to the Gaming Agreement, Inland provided the Band the
technical assistance, advice, training and consulting services required by the
Band, while respecting the sovereign rights and authority of the Band;
WHEREAS, the Band and Inland have now mutually agreed to release and
extinguish their mutual rights, duties, and obligations as described and found
in the Gaming Agreement, and have agreed simultaneously to enter into a
Consulting Agreement, substantially in the form attached hereto as Exhibit "B."
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein, the parties hereto agree as follows:
1. Release of Current Gaming Agreement. The Band and Inland hereby, and
pursuant to the terms of this Release, release and extinguish the Gaming
Agreement, and the rights, duties, and obligations of each as described and
found in that contract, as of the effective date of this Mutual Release.
2. Waiver and Release. By and through this Release, the Band and Inland
hereby waive, release and forever discharge each other from any and all claims,
actions, causes of action and/or liabilities arising under, or in connection
with, the Gaming Agreement, as described more fully in paragraph five (5)
hereto.
3. Contemporaneous Execution of Consulting Agreement. Contemporaneous with
the execution of this Release, and as a material element of the consideration
herein, the Band and Inland agree to enter into, execute and be bound by the
Consulting Agreement, dated and effective as of March 27, 1996, substantially in
the form attached hereto as Exhibit "B."
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4. Representations, Warranties and Covenants. Both the Band and Inland
hereby represent and warrant that they have full power and authority to execute
and deliver this Release and to perform the obligations herein, and that the
execution and delivery of this Release, and the performance of the obligations
herein, have been duly authorized and approved by all necessary entities or
officials, including Inland's Board of Directors, and the Band's General
Council.
5. Extent of Waiver and Release. Consistent with the "Waiver and Release"
section of this Release in paragraph two (2) hereto, the Band and Inland hereby
acknowledge that each releases and forever discharges the other, and their
respective officials, shareholders, officers, directors, agents, employees,
successors and assigns from any and all obligations and defaults, acts, actions,
causes of action, suits, proceedings, disputes, rights, claims and demands, at
law or in equity (whether real or contingent, known or unknown), that each has
ever had, now has or may hereafter have, arising from or related to the Gaming
Agreement or the actions or omissions of any of their respective officials,
officers, directors, agents, employees, successors and assigns which are
related, whether directly or indirectly, to that contract, whether such actions
or omissions were willful, wanton, intentional, negligent or otherwise, except
as may be required by applicable federal law. The parties expressly waive all
rights under Section 1542 of the Civil Code of the State of California,
including any successor statute and under any similar or equivalent provision of
federal law. The parties understand that Section 1542 provides as follows:
A general release does not extend to claims which the creditor does not
know or suspect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his
settlement with the debtor.
Nothing herein shall, or shall be construed to, release or waive any
obligations of either party under this Release, under the Consulting Agreement,
or in connection with any financial adjustments arising out of the annual audit
for the current fiscal year.
6. Further Assurances. Each of the parties hereto shall execute and
deliver all other instruments and take all other actions that the other party
may reasonably request from time to time to effectuate the transactions provided
for herein.
7. Notices. Any notice required to be given pursuant to this Release shall
be delivered by Express Mail or overnight courier service, addressed as follows:
<TABLE>
<S> <C>
to the Band at Chairman Clifford LaChappa
Barona Group of Capitan Grande
Band of Mission Indians
1000 Barona Road
Lakeside, California 92040
with a copy to: Art Bunce, Esq.
Post Office Box 1416
Escondido, California 92033
and to Inland at: Lloyd D. Speer, II
Inland Casino Corporation
4225 Executive Square, Suite 1650
La Jolla, California 92037
with a copy to: Bill Hammer, Esq.
General Counsel
Inland Casino Corporation
4225 Executive Square, Suite 1650
La Jolla, California 92037
or to their designees.
</TABLE>
8. Waiver of Sovereign Immunity. The Band waives its sovereign immunity
from suit solely for purposes of enforcement of the terms of this Release. This
waiver is a limited waiver of immunity, and any
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damages which may arise as a result of the Band's or its officially recognized
representatives' action shall be limited exclusively to the Band's interest in
revenues derived from the operation of the Enterprise. This limited waiver of
sovereign immunity is granted solely for purposes of implementing this Release
and shall be regarded as a limited waiver of sovereign immunity in any
subsequent court proceeding commenced for purposes of enforcing the terms of
this Release. Nothing contained in this limited waiver shall be construed to
confer any benefit, tangible or intangible, on any person or entity not a party
to this Release or as a waiver with respect to any third person or entity.
9. Attorneys' Fees and Costs. Each party shall bear its own attorneys'
fees and costs in connection with the preparation and execution of the Release.
In the event of any disputes relating to and/or arising under this Release
and/or the transactions contemplated herein, the prevailing party shall be
entitled to receive its reasonable attorneys' fees and its costs and expenses of
arbitration or litigation, in addition to any other relief to which such party
may be entitled.
10. Arbitration. Any dispute relating to and/or arising under this Release
and/or the transactions contemplated herein shall be submitted to binding
arbitration before the American Arbitration Association (the "AAA") in San
Diego, California, and decided under the AAA's Commercial Arbitration Rules. The
prevailing party shall be entitled to seek confirmation and enforcement of any
arbitration award in any court of competent jurisdiction located in San Diego
County, California.
11. No Lease or Possessory Interest. The parties to this Release agree and
expressly warrant that this Release is not a lease and does not convey any
present interest whatever in the building or property on which the Band's
Enterprise is located, or any proprietary or possessory interest in the
Enterprise itself. The Band maintains the sole proprietary and possessory
interest in the Enterprise. Moreover, the parties to this Release further
warrant and understand that this Release does not relate to the management of
the Enterprise; does not grant to Consultant the exclusive right to operate the
Enterprise; does not prohibit the Tribe from encumbering its lands; and that the
Release is not "relative to Indian lands" within the meaning of 25 U.S.C.
Section 81.
12. Conflict of Interest Prohibitions.
A. The parties represent that no payments have been made and agree that no
payment will be made to any elected member of the Band's tribal government or
relative of any elected member of the Band's tribal government for the purpose
of obtaining or maintaining this Release or any other privilege for Inland. For
purposes of this paragraph, "relative" means an individual who is related to and
lives in the immediate household of an elected member of the Band's tribal
government.
B. No party interest in Inland is an elected member of the government of
the Band, or a relative of said member as defined by the Secretary of the
Interior.
13. Modification. This Release may be modified only with the formal
written agreement of both parties.
14. Severability. In the event any provision of this Release is for any
reason held to be illegal or unenforceable, such provision will be severed or
otherwise modified as may best preserve the intention of the parties hereto, and
the Release as so modified will remain in full force and effect.
15. Recitals Incorporated. The recitals set forth above are a material
part of this Release, and are incorporated herein as if fully set forth herein.
16. Governing Law. This Release shall be governed by the laws of the
United States.
17. Entire Agreement. This Release is the entire agreement between the
parties with respect to the subject matter of this Release and it is expressly
understood that there are no oral, written, or collateral agreements between the
parties or other parties with a financial interest in the subject matter of this
Release.
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IN WITNESS WHEREOF, the undersigned have caused this Release to be executed
and delivered as of the day and year first above written.
BARONA GROUP OF CAPITAN GRANDE
BAND OF MISSION INDIANS, aka BARONA
BAND OF MISSION INDIANS
By: /s/ CLIFFORD LACHAPPA
------------------------------------
Clifford LaChappa
Its: Chairman
INLAND CASINO CORPORATION,
a Utah corporation
By: /s/ LLOYD D. SPEER, II
------------------------------------
Lloyd D. Speer, II
Its: Chairman
4
<PAGE> 1
EXHIBIT 10.9
SILETZ MARKETING CONSULTING AGREEMENT
This Marketing Consulting Agreement (the "Agreement") is entered into and
effective as of this 28th day of May, 1996 (the "Effective Date"), by and
between the Confederated Tribes of Siletz Indians of Oregon, a federally
recognized Indian Tribe (hereinafter the "Tribe"), and Inland Casino
Corporation, a Utah corporation (hereinafter "Consultant").
R E C I T A L S
WHEREAS, the Tribe is a federally recognized Indian Tribe possessing
sovereign powers over the Confederated Tribes of the Siletz located in Oregon;
WHEREAS, the Tribe desires to expedite the development of the economy of
the Confederated Tribes of the Siletz in order to improve tribal self-government
and economic self-sufficiency, to enable the Tribe better to serve the social,
economic, educational and health needs of its members and to provide its members
with opportunities to improve their own economic circumstances without having to
work outside of the Reservation community;
WHEREAS, the Tribe has established and is now operating and managing the
Chinook Winds Gaming & Convention Center as the best feasible means by which to
accomplish the Tribe's objectives as described in the preceding paragraph
(hereinafter the "Enterprise");
WHEREAS, the Enterprise is managed on a day to day basis by a general
manager who is an employee of the Tribe, under delegated authority from the
Tribal Council, which is comprised solely of members of the Tribe;
WHEREAS, the Enterprise is currently located in a temporary facility while
the Tribe completes the construction of a permanent facility (the "Permanent
Facility") which is scheduled to open on or about June 28, 1996;
WHEREAS, the Tribe and the Tribal Council require technical assistance,
advice, training and consulting services in connection with the operation and
business affairs of the Enterprise in order to maximize the revenues and
employment opportunities derived by the Tribe from the Enterprise;
WHEREAS, the Tribe entered into that certain marketing consulting agreement
with Fritz Opel ("Opel") pursuant to that certain letter agreement dated
(the "Opel Agreement") and the Tribe desires to consent to Opel's
assignment of the Opel Agreement to Consultant pursuant to the terms and
conditions of this Agreement;
WHEREAS, the Tribe has determined that Consultant can provide the technical
assistance, advice, training and consulting services required by the Tribe while
respecting the sovereign rights and authority of the Tribe;
WHEREAS, the parties acknowledge and agree that under this Agreement,
Consultant shall not manage, direct, control or have a voice concerning any
aspect of the Enterprise, the management of which shall be exercised exclusively
by the Tribe, and that this Agreement in no way encumbers the Tribe's trust
property or prohibits the Tribe from encumbering its property;
WHEREAS, the Tribe acknowledges and agrees that this Agreement is not in
conflict with any other agreement between the Tribe and any other entity
(including, without limitation, that certain Consulting Agreement (the "Comstock
Consulting Agreement") dated February 23, 1996 between the Tribe and The
Comstock Hotel and Casino, a Nevada limited partnership), and that the Tribe is
not bound by any agreement that would conflict with this Agreement;
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NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein, the parties hereto agree as follows:
I. ENGAGEMENT OF CONSULTANT AND SCOPE OF CONSULTING SERVICES
A. Engagement of Consulting. The Tribe has and shall continue to have the
sole proprietary interest in and management responsibility for the conduct of
all gaming activities conducted by the Enterprise. The Tribe is seeking
technical assistance and expertise in the operation of its marketing activities
and hereby retains and engages Consultant to provide consulting services to the
Tribe and the Enterprise, and to the Enterprise's management and employees as
specified in Exhibit "A" herein.
B. Consulting Services. Consultant shall consult with and provide
technical assistance, training and advice to the Tribe, to members of the Tribal
Council, to management of the Enterprise, and to Enterprise employees and staff,
in accordance with Paragraph E below, concerning certain matters relating to the
operation and business activities of the Enterprise including marketing
administration, advertising/promotion, (special events and entertainment,
customer service, and casino promotions) as set forth in more detail in Exhibit
"A", attached hereto (the "Services").
C. Expansion of Gaming Facilities. In the event that the Tribe acts to
expand the Enterprise or add additional gaming facilities during the term of
this Agreement, Consultant will provide the Services with respect to any new or
expanded gaming facilities developed by the Tribe during the term of this
Agreement.
D. Cooperative Efforts. Both parties to this Agreement shall exercise
their best efforts to fully cooperate with each other in the performance of the
Services to be rendered hereunder; provided, however, that it shall be within
the sole discretion of the Tribe to determine whether or not to act upon or
implement the technical assistance, consultation or advice provided by
Consultant.
E. Services Provided at Direction of Tribe. The determination as to what
specific consulting services shall be provided by Consultant, and the format in
which the Consultant's reports or recommendations are to be provided shall be
determined exclusively by the Tribe, and the Services provided hereunder shall
be performed by Consultant in accordance with and under such tribal direction.
1. Consultant has provided the Tribe with a description of the
Services which it is prepared to provide. Consultant will update the
description of the Services as necessary during the term of this Agreement.
2. The Tribe shall, from time to time and after consultation with
Consultant, identify consulting assignments for specific tasks to be
performed by Consultant.
3. Consultant will perform in accordance with the terms of this
Agreement in order to accomplish the consulting assignments issued by the
Tribe. Consultant will report to the Tribe on all work performed under each
consulting assignment.
4. Consultant shall have a representative on-site at the Enterprise
reporting to the Tribe for such periods of time as are needed. The
representative shall be an employee of Consultant and not of the Tribe.
5. Payment under this Agreement shall be conditioned upon compliance
by Consultant with the terms and conditions of this Agreement. The Tribe's
Council shall review the work performed by Consultant on a monthly basis,
but the decision to adopt, approve or implement any proposal, suggestion or
recommendation made by Consultant shall rest exclusively with the Tribe.
II. NO MANAGEMENT SERVICES PROVIDED
The parties expressly acknowledge that this is a Consulting Agreement and
that Consultant shall not engage in any management activities or perform any
management services with respect to the Enterprise or any future gaming
facilities of the Tribe. It is expressly agreed that neither Consultant nor any
of its officers,
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directors or employees shall serve on the Tribal Council or have any vote in the
deliberations of the Tribal Council.
III. COMPENSATION OF CONSULTANT
In consideration of the satisfactory performance of the consulting services
as described herein, Consultant shall receive from the Tribe, on a monthly basis
during the term of this Agreement, compensation payable as follows:
A. Base Consulting Fee. Consultant shall receive a Base Consulting Fee of
Thirty-Five Thousand Dollars ($35,000) per month; provided, however, that the
Tribe shall not be obligated to pay the Base Consulting Fee until July 15, 1996.
Thereafter, the Base Consulting Fee shall be paid to the Consultant by the tenth
(10th) day of each and every month and continuing during the term of this
Agreement.
B. Additional Consulting Fee. In addition to the Base Consulting Fee,
Consultant shall be paid an Additional Consulting Fee after the opening of the
Permanent Facility, which fee shall be negotiated in good faith by the parties
within ninety (90) days of the Commencement Date. The Additional Consulting Fee
shall be a sum certain for each certain increment that the Gross Revenue of the
Enterprise exceeds a certain amount each month, all of which shall negotiate in
good faith and shall be mutually acceptable to Consultant and the Tribe. The
parties agree to amend this Agreement (the "Amendment") immediately following
their mutual determination of the method of calculating the Additional
Consulting Fee. The Additional Consulting Fee shall be calculated retroactively
to the opening of the Permanent Facility, and any Additional Consulting Fee
payable for such period shall be paid to Consultant within ten (10) days of the
execution of the Amendment. Any Additional Consulting Fee payable thereafter
shall be paid by the tenth (10th) day of the following month.
C. No Percentage Fees. Nothing contained herein shall authorize or permit
the calculation of any Consulting Fee based upon a percentage of gross or net
revenue of the Enterprise.
D. Gross Revenue. For purposes of this Section III, Gross Revenue of the
Enterprise shall be calculated in accordance with generally accepted accounting
principles consistently applied.
E. Expenses. The Tribe shall reimburse Consultant for out-of-pocket
expenses, including, without limitation, expenses for travel, lodging, and
meals, that Consultant reasonably and actually incurs in connection with the
rendering of the Services. Consultant shall submit monthly reports of such
expenses to the Tribe, which shall reimburse Consultant for such expenses on the
tenth (10th) day of the following month.
IV. TERM OF AGREEMENT
A. Term. This Agreement shall have a term which commences on the Effective
Date, and which continues for a period of thirty-six (36) months thereafter,
unless sooner terminated under Section VI; provided, however, that the Agreement
may be extended by mutual agreement of the parties.
B. Early Termination and Buy Out By Tribe. At any time after the first
full year of this Agreement, the Tribe, in its sole discretion, may serve notice
on Consultant of its intention to terminate this Agreement without cause under
this Section IV. Such notice of early termination shall be effective three (3)
months after its receipt by Consultant in writing, and this Agreement shall
remain in full force and effect during that 3-month notice period. After the
3-month notice period, Consultant shall have no further obligation to the Tribe
under this Agreement including those under Section V; provided, however, that
the Tribe shall be obligated to make monthly termination payments to Consultant
in an amount equal to three (3) times the most recent monthly Consulting Fee
paid to Consultant.
V. CONFIDENTIALITY
The parties agree that they will not disclose the financial terms of this
Agreement to third parties unless such disclosure is required by federal, state
or tribal law or regulation; provided, however, that nothing contained herein
shall be deemed to prohibit Consultant from making public disclosures required
by law as a
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publicly held corporation. Consultant further agrees that it will not disclose
to third parties business and financial information of a confidential nature
concerning the Enterprise that it learns in the course of carrying out its
duties under this Agreement, including, but not limited to, information
concerning revenue, numbers of patrons, expenses, financial plans or budgets.
Upon written request of one party, the requirements of this Section may be
waived by the other party in writing, such waiver to be conditioned on whatever
terms are included in the written waiver.
VI. EXCLUSIVE RIGHT
In the event that the Comstock Consulting Agreement is terminated,
Consultant shall have the exclusive right to perform the consulting services
contemplated by the Comstock Consulting Agreement for a fee no less than that to
be paid to Comstock under the Comstock Consulting Agreement. Consultant and the
Tribe agree to amend this Agreement to provide for such additional services and
consulting fees as soon as practicable following the termination of the Comstock
Consulting Agreement. Any such amendment shall provide that the term of this
Agreement shall conform to the term of the Comstock Consulting Agreement.
VII. TERMINATION
A. Termination for Cause.
1. Either party may terminate this Agreement for the following causes:
a. Committing or knowingly allowing to be committed any act of
theft or embezzlement; however, theft or embezzlement by an officer or
employee of Consultant without Consultant's knowledge shall not be cause
for termination of this Agreement, so long as Consultant repays to the
Enterprise all sums which said officer or employee may have stolen, or
embezzled, as soon as Consultant becomes aware of facts from which a
reasonable person would conclude that such acts occurred.
b. Committing or allowing to be committed any material breach of
the Agreement. A material breach of this Agreement shall include a
failure of either party to substantially perform any duty or obligation
required of a party under this Agreement.
c. A material breach of any Consultant's representations that
materially and adversely affects its ability to carry out its
responsibilities under this Agreement.
2. Neither party may terminate this Agreement on grounds of material
breach unless it has provided written notice to the other party of its
intention to declare a default and to terminate this Agreement, and the
defaulting party fails to cure or take substantial steps to cure the
default within twenty (20) days of receipt of such notice. The
discontinuance or correction of the material breach shall constitute a cure
thereof.
B. Remedies for Breach.
1. Consultant shall in good faith attempt to resolve any grievances,
complaints or disputes that are brought to its attention by the Tribal
Council. The Tribal Council will also notify Consultant in writing of any
serious problems with Consultant's performance at Consultant's address of
record. Within ten (10) days of receipt of such notice, unless the problem
has been resolved, Consultant shall meet and confer in good faith with the
Tribal Council to determine what remedial action, if any, is necessary.
2. Subject to the limitations set forth in subsection 1, any dispute
relating to and/or arising under this Agreement and/or the transactions
contemplated herein shall be submitted to binding arbitration before the
American Arbitration Association (the "AAA") located in Portland, Oregon,
and decided under the AAA Commercial Arbitration Rules. The prevailing
party shall be entitled to seek confirma-
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tion and enforcement of any arbitration award in any court of competent
jurisdiction located in Oregon. The limitations on remedies for breach are
as follows:
a. The Tribe's limited waiver of its sovereign immunity hereunder
in favor of Consultant extends only to a direct action by Consultant for
money damages, specific performance, injunctive relief and/or
declaratory relief for the Tribe's breach of this Agreement.
b. The only asset or income of the Tribe which may be subject to
levy and execution in the event that a judgment is entered against the
Tribe for its breach of this Agreement shall be revenues of the
Enterprise.
3. In the event of any disputes relating to and/or arising under this
Agreement and/or the transactions contemplated herein, the prevailing party
shall be entitled to receive its reasonable attorney's fees and its costs
and expenses of arbitration or litigation, in addition to any other relief
to which such party may be entitled.
VIII. LICENSING
Consultant agrees to obtain a tribal license from the Siletz Tribal Gaming
Commission, and to undergo any necessary background checks and investigations
from relevant state, federal and tribal authorities, and to maintain its
licensing status in good standing throughout the term of this Agreement. In the
event that Consultant does not qualify for such licensing, fails to meet the
requirements of any background checks and investigations, or fails to maintain
its licensing status in good standing, such non-qualification or failure shall
be considered grounds for material breach of the Agreement.
IX. CONSULTANT'S REPRESENTATIONS, WARRANTIES AND COVENANTS
Consultant represents, warrants and covenants as follows:
A. Organization and Standing of Consultant. Consultant is a corporation
duly organized, validly existing and in good standing under the laws of the
state of its incorporation, and the execution and delivery of this Agreement to
the Tribe and the transactions contemplated hereby have been duly authorized by
all necessary corporate action.
B. Claims and Litigation. There is no claim, litigation or proceeding,
pending or, to Consultant's knowledge, threatened, and there exists no basis or
grounds for any such suit, action, proceeding, claim or investigation which
prevents or materially effects, or would prevent or materially effect,
Consultant's ability to enter into this Agreement or to perform its obligations
contemplated hereby.
C. No Restrictions. Consultant is not subject to any charter, bylaw,
mortgage, lien, lease, judgment, contract or other restriction of any kind which
would prevent Consultant's performance of the Services contemplated by this
Agreement.
X. REPRESENTATIONS, WARRANTS AND COVENANTS OF THE TRIBE
The Tribe represents, warrants, and covenants to Consultant as follows:
A. Organization of the Tribe. The Tribe is a federally recognized Indian
Tribe possessing sovereign powers over the Confederated Tribes of the Siletz
located in the State of Oregon. The execution and delivery of this Agreement to
Consultant have been duly authorized by all necessary governmental action. The
execution and delivery of this Agreement and the Tribe's performance of its
obligations contemplated herein will not conflict with or result in breach of
the terms, conditions or provisions of or constitute a default under any
governing document of the Tribe or any agreement or instrument under which the
Tribe is now obligated, including, without limitation, the Comstock Consulting
Agreement. The Tribe has full legal right, power and authority to enter into
these transactions and perform its obligations under this Agreement.
B. Claims and Litigation. There is no claim, litigation or proceeding,
pending or, to the Tribe's knowledge, threatened, and there exists no basis or
grounds for any such suit, action, proceeding, claim or
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investigation which prevents or materially effects, or would prevent or
materially affect, the Tribe's ability to enter into this Agreement or to
perform its obligations contemplated herein.
C. No Restrictions. Except as disclosed to Consultant, the Tribe is not
subject to any charter, bylaw, mortgage, lien, lease, judgment, contract or
other restriction of any kind which would prevent consummation of the
transactions contemplated by this Agreement.
D. Miscellaneous Consents. No authorization, consent or approval of any
public body or authority is necessary to the validity of the transactions
contemplated by this Agreement. All necessary approvals of the parties under any
contracts, commitments or understandings to which the Tribe is a party required
to permit consummation of the transactions in accordance with this Agreement
have been obtained. Except as disclosed to Consultant, the Tribe is not
otherwise a party to any contract or subject to any other legal restriction that
would prevent or restrict complete fulfillment of any terms and conditions of
this Agreement or compliance with any of the obligations under it.
XI. INDEMNIFICATION BY CONSULTANT
A. Consultant shall indemnify and hold harmless the Tribe against and in
respect of all damages, loss, cost or expenses of the Tribe resulting from any
misrepresentation, breach of warranty or non-fulfillment of any agreement on the
part of Consultant under this Agreement, or from any misrepresentation in, or
omission from, any certificate or other instrument furnished or to be furnished
by Consultant to the Tribe under this Agreement; and all actions, suits,
proceedings, demands, assessments, judgments, costs and expenses incident to any
of the foregoing.
B. Consultant shall reimburse the Tribe on demand for any payment made by
it in respect of any liability, obligation or claim to which the foregoing
indemnity relates. Should any claim covered by the foregoing indemnity be
asserted against the Tribe, the Tribe shall notify Consultant promptly and give
it an opportunity to defend the same, and the Tribe shall extend reasonable
cooperation to Consultant in connection with such defense. In the event that
Consultant fails to defend the same within a reasonable time, the Tribe shall be
entitled to assume the defense thereof, and Consultant shall be liable to repay
the Tribe for all its expenses reasonably incurred in connection with the
defense (including reasonable attorneys' fees and settlement payments).
C. In the event Consultant does not reimburse the tribe as set forth above,
then the Tribe shall have a right to set off the amount of such liability,
obligation or claim, including the Tribe's other expenses as set forth above,
against any and all other amounts due from the Tribe to Consultant, until such
indemnified amount is repaid to the Tribe in full. Consultant's obligation to
indemnify or reimburse the Tribe shall not exceed an amount equal to that which
Consulting could be reasonably expected to have earned under this Agreement
between the date that the Tribe demands indemnity and the remainder of the term
of this Agreement.
XII. INDEMNIFICATION BY THE TRIBE
A. The Tribe shall indemnify and hold harmless Consultant against and in
respect of all damages, loss, cost or expense of Consultant resulting from any
misrepresentation, breach of warranty or non-fulfillment of any agreement on the
part of the Tribe under this Agreement, from any misrepresentation in, or
omission from, any certificate or other instrument furnished or to be furnished
by the Tribe to Consultant under this Agreement, or from any claim or dispute
arising under or related to the Comstock Consulting Agreement; and all actions,
suits, proceedings, demands, assessments, judgments, costs and expenses incident
to any of the foregoing.
B. The Tribe shall reimburse Consultant on demand for any payment made by
it at any time in respect of any liability, obligation or claim to which the
foregoing indemnity relates. Should any claim covered by the foregoing be
asserted against Consultant, Consultant shall notify the Tribe promptly and give
it an opportunity to defend the same, and Consultant shall extend reasonable
cooperation to the Tribe in connection with such defense. In the event the Tribe
fails to defend the same within a reasonable time, Consultant shall be entitled
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to assume the defense thereof, and the Tribe shall be liable to repay Consultant
for all its expenses reasonably incurred in connection with the defense
(including reasonable attorneys' fees and settlement payments).
XIII. NOTICES
Any notice required to be given pursuant to this Agreement shall be
delivered by Express Mail or overnight courier service, addressed as follows:
<TABLE>
<S> <C>
to the Tribe at: Confederated Tribes of Siletz
Indians of Oregon
P.O. Box 549
Siletz, Oregon 97380
and to Consultant at: Fritz Opel, Vice President
Inland Casino Corporation
4225 Executive Square, Suite 1650
La Jolla, California 92037
or to their designees.
</TABLE>
XIV. WAIVER OF SOVEREIGN IMMUNITY
The Tribe waives its sovereign immunity from suit solely for purposes of
enforcement of the terms of this Agreement. The waiver is a limited waiver of
immunity, and any damages which may arise as a result of Tribe's or its
officially recognized representatives' action shall be limited exclusively to
the Tribe's interest in revenues derived from the operation of the Enterprise.
This limited waiver of sovereign immunity is granted solely for the purposes of
implementing this Agreement and shall be regarded as a limited waiver of
sovereign immunity in any subsequent court proceeding commenced for purposes of
enforcing the terms of this Agreement. Nothing contained in this limited waiver
shall be construed to confer any benefit, tangible or intangible, on any person
or entity not a party to this Agreement or as a waiver with respect to any third
person or entity.
XV. ASSIGNMENT AND SUBCONTRACTS
Consultant shall not assign or subcontract any of its obligations under
this Agreement without the Tribe's written consent; provided, however, that
Consultant may assign this Agreement unilaterally to an affiliate or a wholly
owned subsidiary of Consultant as long as said affiliate or subsidiary does not
involve any substantial change in principals, directors, partners or ownership.
Consultant further specifically warrants that no officer, director, or
employee of Consultant, presently is charged with or has been convicted of any
crime involving theft, fraud, misrepresentation, embezzlement or other acts of
dishonesty, and that no person convicted of any such act knowingly will be
allowed to become an officer, director or employee of Consultant.
XVI. AUTHORITY TO EXECUTE
Each party warrants to the other that it has full authority to execute this
Agreement and will, upon written request by the other party, provide
satisfactory written evidence thereof.
XVII. NO LEASE OR POSSESSORY INTEREST
The parties to this Agreement agree and expressly warrant that this
Agreement is not a lease and does not convey any present interest whatever in
the building or property on which the Tribe's Enterprise is located, or any
proprietary or possessory interest in the Enterprise itself. The Tribe maintains
the sole proprietary and possessory interest in the Enterprise. Moreover, the
parties to this Agreement further warrant and understand that this Agreement is
for consulting services only and does not relate to the management of the
Enterprise; does not grant to Consultant the exclusive right to operate the
Enterprise; does not prohibit the Tribe from
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encumbering its lands; and that the Agreement is not "relative to Indian lands"
within the meaning of 25 U.S.C. Section 81.
XVIII. CONFLICT OF INTEREST PROHIBITIONS
A. The parties represent that no payments have been made and agree that no
payment will be made to any elected member of the Tribe's tribal government or
relative of any elected member of the Tribe's tribal government for the purpose
of obtaining or maintaining this Agreement or any other privilege for
Consultant. For purposes of this paragraph, "relative" means an individual who
is related to and lives in the immediate household of an elected member of the
Tribe's tribal government.
B. No employee of Consultant is an elected member of the government of the
Tribe, or a relative of said member as defined by the Secretary of the Interior.
XIX. MODIFICATION
This agreement may be modified only with the formal written agreement of
both parties.
XX. SEVERABILITY
In the event any provision of this Agreement is for any reason held to be
illegal or unenforceable, such provision will be severed or otherwise modified
as may best preserve the intention of the parties hereto, and the Agreement as
so modified will remain in full force and effect.
XXI. RECITALS INCORPORATED
The recitals set forth above are a material part of this Agreement, and are
incorporated herein as if fully set forth herein.
XXII. GOVERNING LAW
This Agreement shall be governed by the laws of the United States.
XXIII. ENTIRE AGREEMENT
This Agreement is the entire agreement between the parties with respect to
the subject matter of this Agreement and it is expressly understood that there
are no oral, written or collateral agreements between the parties or other
parties with a financial interest in the subject matter of this Agreement.
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IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed and delivered as of the day and year first above written.
CONFEDERATED TRIBES OF
SILETZ INDIANS OF OREGON
By: /s/ DELORES PRESLEY
------------------------------------
Delores Presley
Its: Chairman
INLAND CASINO CORPORATION,
a Utah corporation
By:. /s/ ARTHUR R. PFIZENMAYER
-----------------------------------
Arthur R. Pfizenmayer
Its: President and Chief Operating
Officer
[SIGNATURE PAGE TO MARKETING CONSULTING AGREEMENT]
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EXHIBIT "A"
SCOPE OF MARKETING CONSULTING SERVICES
MARKETING ADMINISTRATION
1. Marketing Plan.
2. Marketing and advertising budgets.
3. Goals and objectives.
4. Strategies and tactics.
5. Evaluation and measurement.
6. Research projects and analysis of data.
7. Assistance with staffing, recruiting and training.
8. Media negotiations and placement.
9. Identify target market.
10. Recommend reach and frequency media goals.
11. Evaluation of advertising proposals from radio, television, outdoor,
newspaper, magazine and display companies.
12. Recommend schedules and budgets for each medium, including duration and
detail of contracts with all of the above.
13. Signage, both in the casino and outside including information and
directional.
14. Marketing organization including organization chart defining reporting
deadlines.
15. General marketing policies.
16. Marketing job descriptions and employee training seminars.
17. Recording and analysis of promotional and complementary allowances.
ADVERTISING/PROMOTION
1. Direction, tone and quality of advertising and marketing programs.
2. Assist with selection of advertising agencies and consultants with strong
Indian gaming background.
3. Guiding the creative output with respect to gaming casino advertising.
4. Specific concept and production for television and radio commercials.
5. Developing outdoor advertising, newspaper, television and radio campaigns.
6. Photo shoots for all creative designs and advertising.
7. Collateral materials, brochures and direct mail, design production and
distribution.
SPECIAL EVENTS AND ENTERTAINMENT
1. Developing event calendars and strategy for implementing them.
2. Developing concepts for entertainment, special events and promotions.
3. In house and market wide promotions.
4. Marketing ideas within the casino to increase gaming activities.
<PAGE> 1
EXHIBIT 10.10
CONSULTING AGREEMENT BETWEEN THE KLAMATH TRIBES
AND INLAND CASINO CORPORATION
This Consulting Agreement (hereinafter "Agreement") is entered into and
effective this 1st day of June, 1996 (the "Effective Date"), by and between the
Klamath and Modoc Tribes and the Yahooskin Band of Snake Indians, a federally
recognized Indian Tribe ("Tribes"), and Inland Casino Corporation,
("Consultant").
R E C I T A L S
WHEREAS, the Tribes are a federally recognized Indian Tribe possessing
sovereign powers over the Klamath Indian Reservation located in Klamath County,
Oregon; and
WHEREAS, the Tribes desire to expedite the development of the economy of
the Tribes to improve tribal self-government and economic self-sufficiency, to
enable the Tribes better to serve the social, economic, educational and health
needs of its members and to provide its members with opportunities to improve
their own economic circumstances within the Tribal community; and
WHEREAS, the Tribes intend to establish and manage the initial gaming
facility ("Enterprise") as the best feasible means by which to accomplish the
Tribes' objectives as described in the preceding paragraph; and
WHEREAS, the Enterprise will be managed by the Tribes through the Tribes
Executive Committee ("Executive Committee") or other Tribal body formally
delegated Management Responsibility, and acting pursuant to the Tribes' gaming
ordinance which was approved by the Chairman of the National Indian Gaming
Commission on May 10, 1995; and
WHEREAS, the Tribes and the Executive Committee require technical
assistance, advice, training and consulting services in connection with the
operation and business affairs of the proposed Enterprise to maximize the
revenues and employment opportunities derived by the Tribes from the Enterprise;
and
WHEREAS, the Tribes determined that Consultant can provide the technical
assistance, advice, training and consulting services required by the Tribes
while respecting the sovereign rights and authority of the Tribes, while not
assuming an active management role as a consultant to the Tribes and without a
proprietary interest in the Enterprise; and
WHEREAS, the parties acknowledge and agree that under this Agreement,
Consultant shall not manage, direct, control or have a vote concerning any
aspect of the Enterprise, the management of which shall be exercised exclusively
by the Tribes.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein, the parties hereto agree as follows:
I. ENGAGEMENT OF CONSULTANT AND SCOPE OF CONSULTING SERVICES
A. Engagement of Consultant. The Tribes have and shall continue to have
the sole proprietary interest in and management responsibility for the conduct
of all gaming activities conducted by the Enterprise. The Tribes are seeking
technical assistance and expertise in development and operation of its gaming
activities and hereby retains and engages the Consultant to provide consulting
services to the Tribes and the Enterprise, and to the Enterprise's management
and employees as specified herein.
B. Consulting Services. The Consultant shall consult with and advise the
Tribes, members of the Executive Committee and Enterprise management and shall
provide technical assistance and training to Enterprise employees in
coordination with Enterprise management, and in accordance with paragraph E
below, concerning all matters relating to the operation and business activities
of the Enterprise, including but not limited to, organization and
administration, financing, planning and development, gaming activities,
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internal controls and accounting procedures, cage operations, engineering and
maintenance, housekeeping, human resources, management information services,
marketing and advertising, purchasing, surveillance, security, and food and
beverage operations, all as set forth in more detail in Exhibit "A" attached
hereto.
C. Expansion of Gaming Facilities. In the event that the Tribes act to
expand the Enterprise or add additional gaming facilities during the term of
this Agreement, Consultant, upon formal request of the Tribes, will provide the
above described consulting services with respect to any new or expanded gaming
facilities developed by the Tribes during the term of this Agreement.
D. Cooperative Efforts. Both parties to this Agreement shall exercise
their best efforts to fully cooperate with each other in the performance of the
services to be rendered hereunder provided, however, that it shall be within the
sole discretion of the Tribes to determine whether to act upon or implement the
technical assistance, consultation or advice provided by Consultant. The
Consultant shall use its best efforts to provide all consulting services
requested by the Tribes pursuant to the terms of this Agreement.
E. Services Provided at Discretion of Tribes. The determination of what
specific consulting services (identified in Exhibit "A") shall be provided by
Consultant, and the format in which Consultant's reports or recommendations are
to be provided shall be determined exclusively by the Tribes, and the consulting
services provided hereunder shall be performed by Consultant in accordance with
and under the Tribes directions.
1. Consultant has provided the Tribes with a list of areas (Exhibit
"A") in which it is prepared to provide consulting services. The Consultant
will update this list as necessary during the term of this Agreement.
2. The Tribes shall, as appropriate, after consultation with the
Consultant, identify and issue consulting assignments for specific tasks to
be performed by Consultant based on detailed staffing and project charts.
3. Consultant will perform in accordance with the terms of this
Agreement to accomplish promptly, the consulting assignments issued by the
Tribes. Consultant will report to the Executive Committee on all work
performed under each consulting assignment.
4. Payment under this Agreement shall be conditioned upon compliance
by Consultant with the terms and conditions of this Agreement. The
Executive Committee shall review the work performed by Consultant on a
monthly basis, with the decision to adopt, approve or implement any
proposal, suggestions or recommendation made by Consultant, resting
exclusively with the Tribes, acting through its Executive Committee.
II. NO MANAGEMENT SERVICES PROVIDED BY CONSULTANT
The parties expressly acknowledge that this is a Consulting Agreement and
that Consultant shall not engage in any management activities or perform any
management services with respect to the Enterprise or any future gaming
facilities of the Tribes. It is expressly agreed that neither Consultant nor any
of its officers, directors or employees shall engage in any aspect of Tribal
politics.
III. TERM OF AGREEMENT
A. Term. This Agreement shall have a term which commences on the Effective
Date, and concludes sixty (60) months from the date the Enterprise is open for
business, to the public, unless terminated under Section III.B, III.C or Section
VI, provided, however, that the Agreement may be extended by mutual agreement of
the parties. For the purposes of this Agreement, the parties agree that the
Effective Date of this Agreement shall be the date upon which it is executed by
the Tribes upon General Council approval. Compensation to Consultant shall
become payable as set out in Section V.A of this Agreement.
B. Early Termination and Buy Out by Tribes. At any time after the first
full year of this Agreement, the Tribes, in their sole discretion, may serve
notice on Consultant of their intention to terminate this Agreement without
cause under this Section III.B. Such notice of early termination shall be
effective thirty (30) days after its receipt by Consultant, and this Agreement
shall remain in full force and effect during that
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thirty (30) day notice period. After the notice period, Consultant shall have no
further obligation to the Tribes under this Agreement including those under
Section IV; provided, however, that the Tribes shall be obligated to make
termination payments to Consultant in an amount equal to twelve (12) times the
amount of the monthly average calculated over the past twelve (12) months
(average fee), discounted 8% for cash payment, during the second (2nd), third
(3rd) and fourth (4th) years; and an amount equal to the number of remaining
months under this Agreement times the Average Fee, discounted 8% for cash
payment, for termination anytime during the fifth year of this Agreement.
C. Termination Without Buy Out by Tribes.
1. The Tribes may terminate this Agreement without penalties and
without making the payments required by Section III.B, if the Tribes
determine that Consultant either:
(a) Does not meet the criteria necessary to comply with Section XIV
with regard to background, NIGC review, and investigation, or
(b) Does not remit to Tribes the required costs of the background
and financial investigation as required by Section XIV.B.
2. As a condition to termination under this Section, the Tribes must
notify Consultant in writing of any deficiency as determined by the Tribes.
Consultant shall have fourteen days (14) days from receipt of written
notice in which to respond to the concerns of the Tribes. If the concerns
of the Tribes cannot be remedied or satisfied by Consultant within a
reasonable length of time as set out in Section XIV.D of this Agreement,
then in that event, this Agreement may be terminated by the Tribes without
payment of the Early Termination and Buy Out amounts allowed for in Section
III.B of this Agreement.
3. In case of termination under this Section III.C of this Agreement,
the Tribes shall only owe Consultant those amounts which have been earned
by virtue of the consulting services that have been requested by the Tribes
and have been provided by Consultant up to the Termination Date, and the
Tribes will not be required to buy out the Consultant for any remaining
period of this Agreement. In addition, in case of termination under this
Section III.C of this Agreement, should the Tribes have any loans for
start-up expenses outstanding, the Tribes would continue to repay said loan
according to the terms and conditions of such loan for start-up expenses
agreement. Termination under this Section III.C will not be subject to the
terms of either Section III.B (Early Termination and Buy Out By Tribes) or
Section VI (Termination) of this Agreement.
IV. CONFIDENTIALITY
The parties agree that they will not disclose the financial terms of this
Agreement to third parties, except agents, attorneys, the National Indian Gaming
Commission ("NIGC"), Bureau of Indian Affairs and the Klamath Tribes General
Council, unless such disclosure is required by federal, state, or tribal law or
regulation; provided, however, that nothing contained herein shall be deemed to
prohibit Consultant from making public disclosures required by law as a publicly
held corporation. Consultant further agrees that it will not voluntarily
disclose to third parties business, proprietary and financial information of a
confidential nature concerning the enterprise that it learns in the course of
carrying out its duties under this Agreement, including, but not limited to,
information concerning revenue, numbers of patrons, expenses, financial plans,
budgets, internal controls, and marketing strategies. Upon written request of
one party, the requirements of this Section may be waived by the other party in
writing, such waiver to be conditioned on whatever terms are included in the
written waiver.
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V. COMPENSATION OF CONSULTANT
In consideration of the satisfactory performance of the consulting services
as described herein, Consultant shall receive from the Tribes, on a monthly
basis, commencing on the date the Enterprise is open for business to the public,
compensation payable during the term of this Agreement as follows:
A. Base Consulting Fee. Consultant shall receive a Base Consulting Fee of
Twenty Five Thousand Dollars ($25,000) per calendar month, commencing on the
date the Enterprise is open for business to the public. The Base Consulting Fee
shall be paid to the Consultant by the twentieth (20th) day of the following
calendar month, subject to the following limitations:
Notwithstanding anything herein to the contrary, and to assure
income to the Tribes, distributions from the Operating Profit of the
Enterprise to the Consultant will not exceed fifty percent (50%) of
Operating Profits, as defined in Section V.E of this Agreement, in any
given month. Any compensation due to Consultant for the first month or
partial month under this Agreement shall not be payable until the
twentieth (20th) day following the first full calendar month after the
Enterprise opens. If the Enterprise is opened for business to the
public on a day other than the first day of the month, the Base
Consulting Fee earned by the Consultant will be prorated by the number
of days from the Enterprise opening date to the end of the month.
B. Additional Consulting Fee.
1. In addition to the Base Consulting Fee, Consultant shall be paid an
Additional Consulting Fee in any calendar month in which the Operating
Profit of the Enterprise, as defined in V.E, exceeds * .
The Additional Consulting Fee shall be * for each
complete increment of * of operating profit over the
initial * of operating profit for that month. This
Additional Consulting Fee shall apply during any month in which gross
revenues for the year-to-date period are * or less. The
year-to-date period shall begin on the date the Enterprise is open for
business to the public and shall end 365 days later.
2. For any month in which gross revenues for the year-to-date period
beginning from the date the Enterprise is open for business to the public
and ending 365 days later exceeds * , the Additional
Consulting Fee shall be * per complete increment of
* of additional Operating Profit over the initial
* .
3. Any Additional Consulting Fee payable under this Agreement shall be
paid to Consultant by the twentieth (20th) day of the following calendar
month.
C. Start-Up Expenses. Consultant will prepare a budget for necessary
start-up expenses related to the opening of the initial casino for submission to
the Tribes for approval. Such start-up expenses shall include, but not be
limited to, pre-opening consulting fees paid to consultant, professional service
fees of the Tribes, marketing and public relations expenses, recruiting and
training. The funds for such expenses shall be provided as "start up" expenses
to the Tribes from Inland Casino Corporation which later will be repaid from the
proceeds of the permanent financing for the initial casino.
D. No Percentage Fees. Nothing contained herein shall authorize or permit
the calculation of any Consulting Fee based upon a percentage of gross or net
revenue of the Enterprise.
E. Operating Profit. Operating Profit is defined as gross revenue and
sales from the Enterprise less operating costs and expenses of the Enterprise,
in accordance with generally accepted accounting principles ("GAAP")
consistently applied. For purposes of calculating the compensation of Consultant
under this Section V, operating costs and expenses shall not include consulting
fees paid or payable under this Agreement.
- ---------------
* Confidential information has been omitted and filed separately with the
Commission.
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VI. TERMINATION
A. Termination for Cause.
1. Either party may terminate this Agreement for the following causes:
a. Committing or knowingly allowing to be committed any act of
theft or embezzlement.
b. Committing or allowing to be committed any material breach of
the Agreement. A material breach of this Agreement shall be a failure of
either party to perform any duty or obligation required of a party under
this Agreement including actions in clear violation of Section XIII.C.
c. A material breach of any of Consultant's representations or
failure to fully disclose pertinent information that adversely affects
its ability to carry out its responsibilities under this Agreement.
2. Neither party may terminate this Agreement on grounds of material
breach unless it has provided written notice to the other party of its
intention to declare a default and to terminate this Agreement, and the
defaulting party fails to cure or take substantial steps to cure the
default within twenty (20) days of receipt of such notice. The
discontinuance or correction of the material breach shall constitute a cure
thereof.
3. In the event of termination on account of Consultant's breach, all
undistributed Enterprise funds to which Consultant otherwise would be
entitled under this Agreement shall be placed in an interest-bearing escrow
account for an initial period of one hundred twenty (120) days; if
Consultant acts within that time to invoke its remedies under Section VI.B
of this Agreement, such funds shall remain in that account until the
dispute has been resolved.
4. If Consultant fails to invoke its remedies under Section VI.B of
this Agreement within one hundred twenty (120) days after termination on
account of its breach, the funds in said account shall be released to the
Tribes at the end of that period. Otherwise, the funds shall remain in the
account until the dispute has been finally resolved or adjudicated, at
which time the funds and accrued interest will be released to the
prevailing party. In addition, if the dispute is resolved in favor of the
Tribes, the Tribes shall be paid all the sums owed to it by Consultant as
of the date of termination.
B. Remedies for Breach
1. Consultant shall in good faith attempt to resolve any grievances,
complaints or disputes that are brought to its attention by the Executive
Committee. The Executive Committee will also notify Consultant in writing
of any serious problems with Consultant's performance at Consultant's
address of record. Within fourteen (14) days of receipt of such notice,
unless the problem has been resolved, Consultant shall meet and confer in
good faith with the Executive Committee to determine what remedial action,
if any, is necessary. Failure to comply with this Section VI.B.1 will not
result in forfeiture of the right to terminate the Agreement under Section
III.B (early termination), Section III.C (termination without buy out) or
Section VI.A (termination for cause), or to arbitrate disputes under
Section VI.B.2.
2. Any controversy or claim arising out of or relating to this
Agreement, or the breach thereof, shall be settled by arbitration
administered by the American Arbitration Association acting under its
Oregon Business Arbitration Rules, and judgment on the award rendered by
the arbitrator(s) may be entered in any court having jurisdiction thereof.
The limitations on remedies for breach are as follows:
a. The only breach by the Tribes for which an action may be brought
hereunder by Consultant shall be the failure to pay compensation when
and in amounts due, and the premature termination of this Agreement
without good cause unless authorized under Section III.B or III.C.
b. The Tribes limited waiver of its sovereign immunity as provided
in Part IX hereof in favor of Consultant only extends to a direct action
by Consultant for money damages, specific performance, injunctive
relief, and/or declaratory relief for the Tribes' breach of this
Agreement as limited by Section VI.B.2 above.
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c. The Tribes' maximum liability for money damages for breach of
this Agreement, shall not exceed an amount equal to what Consultant,
could be expected to have earned as compensation per the Buy Out
provision of Section III.B. Any compensation shall be computed in
accordance with Section III.B.
d. The only assets or income of the Tribes which may be subject to
levy and execution in the event that a judgment in favor of Consultant
is entered against the Tribes for its breach of this Agreement shall be
revenues of the Enterprise during the term of this Agreement which, but
for the Tribes' breach, would have been paid to Consultant as
compensation during the remainder of the term of this Agreement had it
not been breached.
3. In the event of any disputes relating to and/or arising under this
Agreement and/or the transactions contemplated herein, the prevailing party
shall be entitled to receive its reasonable attorneys' fees and its costs
and expenses of arbitration or litigation, in addition to any other relief
to which such party may be entitled.
VII. NOTICES
Any notice required to be given pursuant to this Agreement shall be
delivered by Express mail or overnight courier service, addressed as follows:
to the Tribes at:
Jeff C. Mitchell, Chairman
The Klamath Tribes
P.O. Box 436
Chiloquin, OR 97642
and to Consultant at:
Lloyd D. Speer II
Inland Casino Corporation
4225 Executive Square, Suite 1650
La Jolla, California 92037
VIII. COVENANT OF GOOD FAITH AND FAIR DEALINGS
Neither the Consultant nor the Tribes shall act in any manner which would
cause this Agreement to be altered, amended, modified, canceled or terminated
(except for cause or pursuant to the terms of Section III.B or Section III.C of
this Agreement) without the consent of the other.
IX. WAIVER OF SOVEREIGN IMMUNITY
By this Agreement the Tribes do not in any way limit, impair or waive its
sovereign immunity from unconsented suit or arbitration, except as specifically
provided herein. The Tribes do waive sovereign immunity from suit or arbitration
by Consultant only as provided herein and solely for the purpose of enforcement
of the terms of this Agreement. This waiver is a limited waiver of immunity, and
any damages which may arise as a result of the Tribes or its officially
recognized representatives' action shall be limited exclusively to the Tribes'
interest in revenues derived from the operation of the Enterprise as provided in
Section VI(B)(2)(d) above. This limited waiver of sovereign immunity is granted
solely to Consultant, only for purposes of Consultant implementing this
Agreement. This waiver shall be regarded as a limited waiver of sovereign
immunity according to its terms in any subsequent arbitration or court
proceeding commenced by consultant for purposes of enforcing the terms of this
Agreement. Nothing contained in this limited waiver shall be construed to confer
any benefit, tangible or intangible, or standing on any person or entity not a
party to this Agreement or as a waiver with respect to any third person or
entity.
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X. ASSIGNMENT SUBCONTRACTS AND REPRESENTATIONS
A. Consultant shall not assign or subcontract any of its obligation under
this Agreement without the Tribes' prior written consent, which consent shall
not be unreasonably withheld.
B. The Tribes and Consultant further warrant and represent that they shall
take all actions necessary to insure that this Agreement shall remain in good
standing at all times and will fully cooperate with each other in achieving the
goals of this Agreement.
C. Consultant further specifically warrants and represents that no officer,
director, or employee of Consultant, is presently charged with or has been
convicted of any crime involving theft, fraud, misrepresentation, embezzlement
or other acts of dishonesty. Consultant shall not knowingly allow any person
convicted of such acts to become an officer, director or employee of Consultant.
XI. AUTHORITY TO EXECUTE
Each party warrants and represents to the other that it has full authority
to execute and deliver this Agreement and will upon written request by the other
party, provide satisfactory written evidence thereof.
XII. NO LEASE OR POSSESSORY INTEREST
The parties to this Agreement agree and expressly warrant that this
Agreement is not a lease and does not convey any present interest whatever in
the building or property on which the Tribes' Enterprise is or will be located,
or any proprietary or possessory interest in the Enterprise itself. The Tribes
maintain the sole proprietary and possessory interest in the Enterprise.
Moreover, the parties to this Agreement further warrant and understand that this
Agreement is for consulting services only and does not relate to the management
of the Enterprise; does not grant to Consultant the exclusive right to operate
the Enterprise; does not prohibit the Klamath Tribes from encumbering its lands.
XIII. CONFLICT OF INTEREST AND INTERFERENCE PROHIBITIONS
A. The parties represent that no payments have been made and agree that no
payment will be made to any member or employee of the Tribes without the
Executive Committee's express written approval, for the purpose of obtaining or
maintaining this Agreement or any other privilege for Consultant.
B. No party in interest in Consultant is an elected member of the
government of the Tribes, or a relative of said member as defined as a kinsman;
a person connected with another by blood or infinity as well as consanguinity
within the third (3rd) degree.
C. The Scope of this Non-Interference Clause shall include no involvement
directly or indirectly in any Tribal Constitutional decision or in any Tribal
governmental process, including but not limited to referendums, petitions,
recalls and elections.
XIV. BACKGROUND AND FINANCIAL INVESTIGATION; NIGC REVIEW
A. The parties recognize that for Consultant to conduct business with the
Tribes, the State of Oregon requires a Letter of Intent from the Tribes
requesting to do business with Consultant, and requesting the State conduct a
comprehensive background investigation of Consultant prior to the Tribes doing
business with Consultant. The Tribes has the right to supplement such background
and financial investigations to be conducted by the Tribes, or by governmental
or private investigating services.
B. Consultant shall pay for all costs associated with all required
background and financial investigations contemplated or allowed by Section XIV.A
of this Agreement. The required background and financial data necessary to
comply with a demand by the Tribes or governmental or private investigative
services shall be tendered by Consultant in an expeditious manner, not to exceed
thirty (30) days of receipt of written request.
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C. The parties also recognize that the parties may submit this Agreement to
the NIGC for review to confirm that it is not a "Management Contract" subject to
NIGC approval under the Indian Gaming Regulatory Act, 25 U.S.C. sec. 2701 et
seq. and its implementing regulations.
D. If the Tribes, in their sole discretion, determine that (a) as result
the Tribes' review of any background and financial investigations of Consultant
contemplated or allowed by Section XIV.A of this Agreement or (b) as a result of
NIGC's review of this Agreement, they do not want to continue doing business
with Consultant, the Tribes may terminate this Agreement, without penalty, under
the terms of Section III.C of this Agreement. The Tribes shall before
termination, give written notice to Consultant allowing fourteen (14) days from
receipt of notice to respond. The Tribes may, at its sole discretion, after
review of the response, provide for additional time to cure the finding of the
Tribes.
XV. MODIFICATION
This Agreement may be modified only with the formal written agreement of
both parties.
XVI. SEVERABILITY
In the event any provision of this Agreement is for any reason held to be
illegal or unenforceable, such provision will be severed or otherwise modified
as may best preserve the intentions of the parties hereto, and the Agreement as
so modified will remain in full force and effect.
XVII. GOVERNING LAW
This Agreement shall be governed by the law of the Tribes. Disputes between
Tribes and Consultant shall first be submitted to informal resolution through a
Tribal mediation process. If a dispute or clarification cannot be resolved by
Tribal mediation, then disputes shall be submitted to arbitration by the
American Arbitration Association acting under its Oregon Business Arbitration
Rules, with enforcement of any decision rendered by the arbitrator(s) to be
through a court of competent jurisdiction. Any action, after exhaustion of the
above stated remedies, may be adjudicated in the Federal District Court for
Oregon, Portland, as the Court of competent jurisdiction.
XVIII. ENTIRE AGREEMENT
This Agreement is the entire agreement between the parties with respect to
the subject matter of this Agreement and it is expressly understood that there
are no oral, written or collateral agreements between the parties or other
parties with a financial interest in the subject matter of this Agreement.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed and delivered as of the day and year first above written.
KLAMATH TRIBES
By: /s/ JEFF C. MITCHELL
------------------------------------
Jeff C. Mitchell
Chairman
INLAND CASINO CORPORATION, a Utah
Corporation
By: /s/ ARTHUR PFIZENMAYER
------------------------------------
Arthur Pfizenmayer
President
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EXHIBIT "A"
SCOPE OF CONSULTING SERVICES
GENERAL CASINO OPERATIONS
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1. Organization including organization chart defining reporting deadlines.
2. General operating policies.
3. Access to sensitive areas.
4. Key controls.
5. Internal audit.
6. Human resources.
7. Housekeeping operations.
8. Management information systems, including hardware and software.
9. Engineering and maintenance.
10. Job descriptions and employee training seminars.
11. Internal control procedures for all aspects of gaming to conform with applicable
requirements.
12. Physical controls.
13. Recording income of all departments.
14. Recording and analysis of promotional and complimentary allowances.
15. Auditing income of all departments.
16. Data processing control procedures.
17. Forms control and use.
18. Design and implementation of payroll preparation and reporting.
19. Design and implementation of accounts payable systems.
20. Procedures for reconciliation and analysis of all bank accounts.
21. Procedures for collection and analysis of accounts receivable.
22. Design and implementation of all revenue recording procedures.
23. Preparation and maintenance of a general ledger.
24. Procedures for analysis and scheduling of general ledger accounts.
25. Preparation of daily cash report.
26. Preparation of daily operations report.
27. Preparation of financial statements and other reports as requested.
28. Design of procedures for safeguarding of all enterprise assets.
29. Preparation of all federal, state and county tax returns.
30. Design of all related accounting forms.
31. Development of audit procedures for all accounting functions.
32. Analysis of all appropriate insurance coverages.
33. Analysis and review of all accounting equipment design and use.
34. Annual budget preparation and an ongoing analysis as to whether the operations are
meeting budget expectations.
35. Establish and maintain banking relationships.
36. Provide working papers and required documentation to firm of independent certified
public accountants.
37. Purchasing and warehousing.
38. Staff training and professional development.
39. Emergency medical technicians ("EMTs") and facility for customers.
40. Construction accounting.
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CARDROOM
1. Purchasing of equipment and supplies.
2. Developing new cardroom games which comply with class II operations standards.
3. Presenting a professional image to public.
4. Scheduling of employees.
5. Introduction and operation of tournaments.
6. Monitor other casinos.
7. Casino layout.
8. Gaming incentives for players.
9. Alerting casino management of undesirable persons.
10. Dealing precision.
11. Seeking new clientele.
12. Possible problems in other departments that could affect cardroom operations.
13. Analyzing daily, weekly and other periodic reports.
VIDEO DEPARTMENT
1. Video department staffing.
2. Video supervisors job description.
3. Video techs/mechanics job description.
4. Video clerks/change persons job description.
5. Video department procedure manual.
6. Video supervisors incident log.
7. Video tech/mechanic incident log.
8. Video clerks/change persons memo book.
9. Video department pay structure.
10. Video department staff counseling and progressive discipline policy.
11. Video department attendance policy.
12. Video clerks/change persons variance policy.
13. Video department staff scheduling.
14. Layout of work areas.
15. Asset safeguard procedures.
16. Video clerks/change persons accountabilities.
BINGO
1. Purchasing of equipment and supplies.
2. Employee conduct and appearance.
3. Scheduling of employees.
4. Procedures, including paper handling.
5. Analyzing daily, weekly and other reports.
CAGE, VAULT AND COUNT ROOM
1. Cage -- design, size and layout.
2. Vault -- design, size and layout.
3. Count room -- design, size and layout.
4. Video booths (satellite cages) -- design, size and layout.
5. Surveillance cameras.
6. Staffing, supervision for cage, vault and count room.
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7. Soft count money handling equipment.
8. Exchanges with video booths (satellite cages).
9. Supervisors job description.
10. Main bank job description.
11. Cashiers job description.
12. Casino cage procedure manual.
13. Cashiers memo book.
14. Supervisors daily incident log.
15. Main bank opening and closing.
16. Handling of the daily bank deposit.
17. Cage and vault staff counseling and progressive discipline policy.
18. Cage and vault attendance policy.
19. Cage and vault variance policy.
20. Cage and vault staff scheduling.
21. Cage and vault inventory forms.
22. Cage and vault revenue summary.
23. Cage and vault accountability reporting.
24. Imprest banks in video booths (satellite cages).
25. Individual cashiers banks in cage.
SURVEILLANCE DEPARTMENT
1. Camera layout in casino, video, cage, soft count and kitchen areas.
2. Layout of surveillance room.
3. General surveillance procedures and key objectives.
4. Daily shift operations.
5. Procedure violations and reporting.
6. Incident investigation.
7. The drop.
8. Multiplexer playback.
9. Money transfers.
10. Confidential information.
11. Close watch procedures.
12. Power outage procedures.
13. All cage operations and soft count.
14. Armed robbery response.
SECURITY DEPARTMENT
1. Security coverage requirements.
2. Scheduling number of officers needed to supply coverage.
3. General security procedures and policies.
4. Power failure policy.
5. Customer escort policy.
6. Radio usage procedures.
7. Found property procedures.
8. Incident report procedure.
9. Tower coverage.
10. Gaming floor security measures.
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11. Special security requirements including:
A. Front doors.
B. Time clocks.
C. Employee entrance.
D. Parking lots.
E. Cage and vault.
12. Use of roaming officers.
MARKETING AND ADVERTISING
1. Marketing Plan.
A. Marketing and advertising budgets.
B. Goals and objectives.
C. Strategies and tactics.
D. Evaluation and measurement.
2. Research projects and analysis of data.
3. Assistance with staffing, recruiting and training.
4. Customer service and employee training attitudes.
5. Media negotiations and placement.
A. Identify target market.
B. Recommend reach and frequency media goals.
C. Evaluation advertising proposals from radio, television, outdoor, newspaper,
magazine and display companies.
D. Recommend schedules and budgets for each medium, including duration and detail of
contracts with all of the above.
6. Advertising/Promotion.
A. Direction, tone and quality of advertising and marketing programs.
B. Assist with selection of advertising agencies and consultants with strong Indian
gaming background.
C. Guiding the creative output with respect to gaming casino advertising.
D. Specific concept and production for television and radio commercials.
E. Developing outdoor advertising, newspaper, television and radio campaigns.
F. Photo shoots for all creative designs for advertising.
7. Special Events and Entertainment.
A. Developing event calendars and strategy for implementing them.
B. Developing concepts for entertainment, special events and promotions.
C. In house and market wide promotions.
D. Marketing ideas within the casino to increase gaming activity.
8. Collateral materials, brochures and direct mail, design production and distribution.
9. Strategies for public relations, publicity and community relations.
10. Uniforms.
11. Community relations and political affairs.
12. Signage, both in the casino and outside including information and directional.
FOOD AND BEVERAGE OPERATION
2. Kitchen Design and Planning.
A. Space planning.
B. Equipment analysis.
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3. Management Information Systems.
A. Computer applications.
i. Sales-analysis.
ii. Purchasing.
iii. Inventory.
iv. Food production.
v. Recipe costing.
vi. Production scheduling.
vii. Labor costs.
viii. Back office/accounting.
ix. Point-of-sale systems.
2. Food Cost Control.
A. Food Purchasing.
i. Purchasing methods.
ii. Contract purchasing.
iii. Purchase size determination.
iv. Standard specifications.
v. Forecasting food needs.
vi. Procedures.
B. Receiving.
i. Receiving procedures.
ii. Effective reporting.
C. Food Storage Management, Issuing, and Inventory Control.
i. Storage evaluation.
(1) Dry.
(2) Refrigerated.
(3) Frozen.
ii. Issuing.
iii. Inventory controls.
D. Preparation and Portion Controls.
i. Forecasting.
ii. Portion control.
E. Beverage Control.
i. General beverage control practices.
3. Menu Planning and Control.
A. Menu Pricing Factors.
B. Menu Pricing Methods.
C. Labor and Energy Cost Calculations.
D. Measuring Menu and Menu Specials Effectiveness.
E. Menu Profitability and Popularity Comparisons.
4. Labor.
A. Labor Costs.
i. Actual labor costs.
ii. Productivity.
iii. Cost-solving approaches.
iv. Management.
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B. Analyzing Labor Costs.
i. Determine work production standards.
ii. Percentage of sales.
iii. Payroll analyses.
C. Staffing and Scheduling.
i. Staffing.
ii. Scheduling and schedule patterns.
ARCHITECTURE, INTERIOR DESIGN AND CONSTRUCTION
1. Provide alternative plans for review.
2. Technical support in contracting.
3. Bidding procedures.
4. Progress payments.
5. Contract administration.
6. Evaluate technical requirements and make recommendations.
GOVERNMENTAL AFFAIRS
1. Liaison with Tribal, State and Federal agencies.
2. Representation before Congress and key Congressional committees.
3. Monitoring Federal and State legislation.
4. Development and implementation of legislative strategy.
5. Coordination with appropriate special interest groups (NIGA, AGA, NCAI, SCLC, CalNIGA,
etc.)
REGULATORY MATTERS
1. Liaison with Tribal, State and Federal regulatory agencies.
2. Development of Tribal regulatory structures.
3. Assist with Federal, State and Tribal regulatory requirements.
4. Development of Tribal gaming commissions.
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EXHIBIT 10.12
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;
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(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: /s/ A.B. LAUB
----------------------------
A.B. Laub
Title: Executive Vice President
Date: October 10, 1995
4
<PAGE> 1
EXHIBIT 10.13
[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 competent 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
Initial Here: /s/ L.D.S. BY: /s/ L. DONALD SPEER, II
- ------------------------------- ------------------------------
L. Donald Speer, II
/s/ A.L. /s/ A.B. LAUB
- ------------------------------- ------------------------------
A.B. Laub
<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
Initial Here:
By: /s/ L. DONALD SPEER, II /s/ L.D.S.
--------------------------
L. Donald Speer, II
/s/ A.B. LAUB /s/ A.L.
--------------------------
A.B. Laub
<PAGE> 1
EXHIBIT 10.14
[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: /s/ L. DONALD SPEER, II 4225 Executive Square,
----------------------------- Ste. 1650
L. Donald Speer, II La Jolla, Ca. 92037
Chairman and Chief
Executive Officer
/s/ A.B. LAUB
----------------------------
A.B. Laub
Executive Vice President
</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 10.15
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/ L. DONALD SPEER, II
---------------------------------------
L. Donald Speer, II
Name
-----------------------------------
(Print)
Title: Chairman of the Board, President,
or Vice President
By /s/ DUANE M. EBERLEIN
---------------------------------------
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
<PAGE> 1
EXHIBIT 10.16
AMENDED AND RESTATED GAMING MACHINE LOCATION AGREEMENT
THIS AMENDED AND RESTATED GAMING MACHINE LOCATION AGREEMENT (the
"Agreement") is entered into as of this 1st day of December, 1995 (the
"Effective Date"), between SSK GAME ENTERPRISES, a Delaware corporation
("Lessor"), and INLAND CASINO CORPORATION, a Utah corporation, or its successor
("Lessee").
RECITALS
WHEREAS, Lessor is in the business of leasing video machines and games; and
WHEREAS, Lessor and Lessee entered into that certain Gaming Machine
Location Agreement dated as of August 13, 1993, and now desire to amend,
restate, and supersede such agreement as set forth below.
AGREEMENT
NOW THEREFORE, in consideration of the premises and of the mutual covenants
and agreements contained herein, the parties hereto do hereby represent,
warrant, covenant, and agree as follows:
1. Lessor will lease to Lessee on a non-exclusive basis Machines comprised
of those Machines more particularly described in Exhibit "A" attached hereto and
incorporated herein by this reference. The total number of Machines and the
types of Machines to be leased shall be in the sole discretion of Lessee.
2. The parties agree that Lessee shall pay Lessor rent for the lease of the
Machines at the rate of Two Hundred Dollars ($200.00) per month per fully
operational Machine. If, for any reason, a Machine is inoperable, the lease
payment for such Machine shall be pro rated based on the total number of days in
a given month that such Machine was fully operational. Each monthly lease
payment shall be paid in arrears, shall be due on the first (1st) day of the
following month, but shall not be deemed late unless the Lessor has not received
the payment by the tenth (10th) day of the month or, if the 10th day is a
Saturday, Sunday, or a holiday, by the first business day following the 10th day
of the month. Lessor acknowledges and agrees that Lessor shall not have any
interest in the proceeds of the Machines. A Machine shall be deemed to be
"inoperable" if the Machine is not operating properly and Lessee, through no
fault of its own, is unable to repair the Machine within a period of twenty-four
(24) hours.
3. Lessee at its sole expense shall be responsible for maintaining and
repairing the Machines and for providing all supplies and accessories necessary
to operate the Machines. Nothing in this paragraph shall be construed to prevent
Lessee from returning to Lessor any inoperable Machine. In the event of such a
return, Lessor shall promptly provide Lessee with a replacement Machine of
Lessee's choice.
4. The parties acknowledge and agree that if the Barona Band of Mission
Indians requests Lessee to remove certain machines in order to meet the
requirements of any compact between the Barona Band of Mission Indians and the
State of California, in order to induce the State of California to enter into
such a compact, or for any other reason determined sufficient by the Barona Band
of Mission Indians, Lessor will immediately remove some or all such machines as
specified by the Barona Band of Mission Indians. Lessee shall not suffer any
penalty, loss, or detriment of any kind, including, without limitation, any
further obligation to pay rent to Lessor, by or as a result of any such action.
5. To the extent that this Agreement constitutes a "collateral agreement"
within the meaning of the Indian Gaming Regulatory Act, its regulations, and/or
any successor statute or regulation, Lessor shall, at its sole expense, take any
and all action necessary to obtain any and all approvals required by or from the
National Indian Gaming Commission for Lessor and/or this Agreement. If Lessor
does not obtain such approvals within thirty (30) days of the Effective Date of
this Agreement or such other time period as may be specified by the National
Indian Gaming Commission or any other agency or commission with authority to do
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<PAGE> 2
so, whichever is later, Lessee may, in its sole discretion, terminate this
Agreement without further obligation or liability whatsoever to Lessor.
6. The premises upon which the Machines will be located is known as the
Barona Casino on the reservation of the Barona Band of Mission Indians located
at 1000 Wildcat Canyon Road, Lakeside, California, 92040.
7. It is agreed between the parties that, except as otherwise provided for
in this Agreement, Lessor shall retain title to all of the Machines placed at
the above location and shall have the right to inspect the Machines during
normal business hours and upon reasonable prior notice to Lessee.
8. The term of this Agreement shall be for two (2) years commencing as of
the Effective Date; provided, however, that Lessee may terminate this Agreement,
with or without cause, by giving Lessor thirty (30) days prior written notice.
Immediately following the expiration of the 30-day period, this Agreement shall
terminate.
9. In the event that Lessee, the Barona Band of Mission Indians, the United
States Attorney for the Southern District of California, any governmental
official or agency with authority to do so, or any court of competent
jurisdiction determines that Lessee may not use the Machines described in this
Agreement until there is a compact in effect between the Barona Band of Mission
Indians and the State of California covering either the initial Machines
supplied by Lessor or replacements thereto as described above, Lessee shall give
Lessor written notice of such determination. In the event of such notice, Lessee
may elect to immediately terminate this Agreement and to remove all of the
Machines from the premises. Neither the determination that Lessee may not use
the Machines described in this Agreement until there is such a compact in effect
nor the termination of this Agreement under this paragraph shall result in any
liability of Lessee to Lessor, including, without limitation, any liability to
pay further rent.
10. Lessor represents and warrants as follows:
a. Lessor has the corporate power and authority and all licenses,
certificates and permits required by governmental authority to enter into
this Agreement.
b. Lessor owns all right, title, and interest in and to the Machines
and their component parts, and Lessor's ownership is free and clear of any
and all liens, encumbrances, and interests of any other person or entity.
c. No other person or entity, without limitation, has any right,
title, interest, or claim in or to Lessor, this Agreement, the Machines, or
component parts of the Machines.
d. The execution, delivery and performance of this Agreement, and the
execution of any other document related hereto, will not conflict with, or
constitute a default or a condition which with the giving of notice or the
passing of time or both would constitute a default under any term or
provision of any contract, instrument, mortgage, loan, law, trust,
judgment, regulation or other restriction to which Lessor is a party or
which is applicable to Lessor.
e. To the best of Lessor's knowledge, there is no litigation pending
or threatened against Lessor that would materially affect Lessor's ability
to perform each and every of its obligations under this Agreement or any
instrument or agreement related hereto.
f. To the best of Lessor's knowledge, neither Lessor, nor any of its
agents, employees, or representatives, have engaged in any conduct that may
result in civil or criminal liability with regard to this Agreement or the
provision of the Machines to Lessee for the purposes contemplated
hereunder.
g. The representations and warranties contained herein shall be deemed
to be continuing covenants of Lessor and shall continue beyond the term of
this Agreement or any extension or termination of this Agreement.
11. Lessor agrees to indemnify and to hold Lessee, the Barona Band of
Mission Indians, and their respective agents, directors, officers, employees,
attorneys, successors, and assigns harmless from and against
2
<PAGE> 3
any and all claims, losses, liabilities, and expenses, including, without
limitation, attorney's fees and the costs and expenses of litigation, arising
from or in connection with, directly or indirectly, any of Lessor's
representations and warranties.
12. Lessor for itself, its successors, and assigns, fully releases and
discharges Lessee, Barona Band of Mission Indians, and their respective
officers, directors, employees, shareholders, attorneys, accountants, other
professionals, insurers and agents of the other (collectively "Agents"), and all
related entities, including but not limited to heirs, executors, administrators,
personal representatives, assigns, parent subsidiary and sister corporations,
affiliates, partners and co-venturers (collectively the "Released Parties"),
from all rights, claims, demands, actions or causes of action which Lessor now
has or may have against the Released Parties from any source whatsoever, whether
or not arising from or related to that certain Gaming Machine Location Agreement
dated as of August 13, 1993, except those rights and obligations arising out of
this Agreement. Lessor expressly waives all rights under Section 1542 of the
Civil Code of the State of California, which Lessor understands provides as
follows:
A general release does not extend to claims which the creditor does not
know or suspect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his
settlement with the debtor.
13. General Provisions.
a. Incorporation By Reference. The recitals contained herein are
incorporated herein by reference as if set forth in full herein.
b. Effective Date. The "Effective Date" of this Agreement shall be
the date first set forth above.
c. Removal of Machines. Except as provided for in paragraph 4, in the
event of any termination of this Agreement by and upon the written request
of Lessee, Lessor shall remove all of the Machines from the premises not
later than thirty (30) days after such notice of termination. If Lessor
fails or refuses to remove the Machines within such 30-day period, Lessee
may, in its sole discretion and at Lessor's sole expenses, remove and store
the Machines. Following any termination of this Agreement and until such
time as all of the Machines are removed from the premises, Lessee may
continue to use the Machines as provided herein, and Lessee and Lessor
shall remain subject to all of the terms and conditions of this Agreement
for so long as any of the Machines remain on the premises.
d. Notices. All notices, requests, demands, directions, and other
communications provided for hereunder (a "Notice") must be in writing and
must be sent via certified mail (return receipt requested), personally
delivered, or sent by overnight courier to the appropriate party at its or
his respective address set forth below or, as to any party, at any other
address as may be designated by it in a written notice sent to the other
parties in accordance with this paragraph. If any Notice is given by mail
it will be effective three (3) calendar days after being deposited in the
mails with postage prepaid; if given by overnight mail, when delivered as
evidenced by a receipt or if given by person delivery, when delivered.
Lessor's Address for Notice:
SSK Game Enterprises
9544 Topanga Canyon Boulevard
Chatsworth, California 91311
Attn: Ronald C. Clapper
Phone: (818) 727-7286
Fax: (818) 727-7289
3
<PAGE> 4
with a copy to:
Stephen A. Lenske, Esq.
Lenske, Lenske & Abramson
6400 Canoga Avenue, Suite 315
Woodland Hills, California 91367
Phone: (818) 716-1444
Fax: (818) 883-9260
Lessee's Address for Notice:
Lloyd D. Speer, II
Inland Casino Corporation
4225 Executive Square, Suite 1650
La Jolla, California 92037
Phone: (619) 546-9383
Fax: (619) 546-9373
with a copy to:
Robert K. Edmunds, Esq.
Page, Polin, Busch & Boatwright
350 West Ash Street, Suite 900
San Diego, California 92101
Phone: (619) 231-1822
Fax: (619) 231-1996
e. Headings. The captions and paragraph headings used in this
Agreement are inserted for convenience of reference only and are not
intended to define, limit or affect the interpretation or construction of
any term or provision hereof.
f. Entire Agreement. This Agreement, together with all exhibits
attached hereto and other agreements expressly referred to herein,
constitutes the entire agreement between the parties with respect to the
subject matter of this Agreement. All prior or contemporaneous agreements,
understandings, representations, warranties and statements, oral or
written, relating to the subject matter hereof are superseded.
g. Modification: No Waiver. No modification, amendment or discharge
of this Agreement shall be valid unless the same is in writing and signed
by both Lessor and Lessee. No failure of Lessee to enforce its rights,
remedies, or options in hereunder shall be deemed to be a waiver of any of
its rights, remedies or options hereunder or at law, and Lessee may at any
time that a default or breach exists or continues to exist, enforce any or
all of its rights, remedies and options arising by reason of such or any
other default.
h. Severability. If any term, provision, covenant or condition of
this Agreement is held to be invalid, void or otherwise unenforceable, to
any extent, by any court of competent jurisdiction, the remainder of this
Agreement shall not be affected thereby, and each term, provision, covenant
or condition of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
i. Arm's Length Agreement. This Agreement has been negotiated at
arm's length and between persons sophisticated and knowledgeable in the
matters dealt with in this Agreement. In addition, each party has been
represented by experienced and knowledgeable legal counsel. Accordingly,
any rule of law (including, without limitation, California Civil Code
section 1654) or legal decision that would require interpretation of any
ambiguities in this Agreement against the party that has drafted it is not
applicable
4
<PAGE> 5
and is waived. The provisions of this Agreement shall be interpreted in a
reasonable manner to effect the purpose of the parties and this Agreement.
j. Governing Law. This Agreement shall be governed, construed and
enforced in accordance with applicable federal law and, to the extent there
is no applicable federal law, then in accordance with the laws of the State
of California as applicable to contracts made wholly between residents of
California, regardless of the laws that otherwise may be applicable under
principles of conflicts of law.
k. Successors and Assignment. Lessor may not assign this Agreement or
any of its rights or obligations hereunder without the prior written
consent of Lessee, which consent shall not be unreasonably withheld. Any
such assignment in violation of this provision shall be null and void.
Subject to the foregoing, all terms of this Agreement shall be binding
upon, inure to the benefit of, and be enforceable by the parties hereto and
their respective heirs, legal representatives, successors and permitted
assigns. The parties hereto acknowledge and agree that this Agreement and
all related agreements attached to this Agreement as exhibits are not,
either individually or collectively, executory contracts and cannot be
either assumed or assigned, or both, pursuant to section 365(e)(2) of the
United States Bankruptcy Code, 11 U.S.C. sec. 365(e)(2).
l. Further Assurances. The parties agree to take such further action
and execute such documents and instruments as may reasonably be required in
order to more effectively carry out the terms of this Agreement and the
intentions of the parties.
m. Attorneys' Fees. In the event any action of brought for
enforcement or interpretation of this Agreement, the prevailing party shall
be entitled to recover reasonable attorneys' fees and costs incurred in
said action, including enforcement and collection of any judgment or award
rendered therein. Said costs and attorneys' fees shall be included as part
of the judgment in any such action.
n. Counterparts. This Agreement may be executed in one or more
identical counterparts, all of which shall together constitute one and the
same instrument when each party has signed one counterpart.
o. Time of the Essence. Time is of the essence under this Agreement
and any amendment, modification or revision of it.
IN WITNESS WHEREOF, the parties have entered into this Amended and Restated
Gaming Machine Location Agreement as of the date first written above.
"LESSEE"
INLAND CASINO CORPORATION, a Utah
corporation
By: /s/ LLOYD D. SPEER, II
------------------------------------
Lloyd D. Speer, II
Its: Chairman
"LESSOR"
SSK GAME ENTERPRISES, a Delaware
corporation
By: /s/ RONALD C. CLAPPER
------------------------------------
Ronald C. Clapper
Its: President
[SIGNATURE PAGE TO AMENDED AND RESTATED GAMING
MACHINE LOCATION AGREEMENT DATED AS OF DECEMBER 1, 1995]
5
<PAGE> 6
EXHIBIT "A"
VIDEO MACHINES
1. SSK Nickels (256 Machines)
Machine Numbers: 1001-1016, 1025-1051, 1131-1133, 1140-1144, 1300-1382,
1608-1699, 1900-1999
2. SSK Dimes White 8 Line (88 Machines)
Machine Numbers: 2007-2024, 2039-2044, 2301-2332, 2600-2631
3. SSK Quarters Keno (12 Machines)
Machine Numbers: 3600-3611
4. SSK Quarters Ramstar (16 Machines)
Machine Numbers: 3001-3016
5. SSK Quarters Poker (67 Machines)
Machine Numbers: 3500-3524, 3612-3635, 3638-3639, 3642, 3654, 3656, 3658,
3660-3661, 3663, 3665, 3675-3682
6. SSK Quarters 8 Line (80 Machines)
Machine Numbers: 3201-3224, 3301-3320, 3453-3457, 3463, 3465-3466, 3468,
3640-3641, 3643-3653, 3655, 3657, 3659, 3662, 3664,
3666-3674
7. SSK Fifty Cents (32 Machines)
Machine Numbers: 4001-4016, 4600-4615
8. SSK One Dollar (32 Machines)
Machine Numbers: 5600-5615, 5624-5631, 5654-5661
<PAGE> 1
EXHIBIT 10.17
AMENDED AND RESTATED GAMING MACHINE LOCATION AGREEMENT
THIS AMENDED AND RESTATED GAMING MACHINE LOCATION AGREEMENT (the
"Agreement") is entered into as of this 1st day of December, 1995 (the
"Effective Date"), between ZINO, INC., a California corporation ("Lessor"), and
INLAND CASINO CORPORATION, a Utah corporation, or its successor ("Lessee").
RECITALS
WHEREAS, Lessor is in the business of leasing video machines and games; and
WHEREAS, Lessor and Lessee entered into that certain Gaming Machine
Location Agreement dated as of July 2, 1993, and now desire to amend, restate,
and supersede such agreement as set forth below.
AGREEMENT
NOW THEREFORE, in consideration of the premises and of the mutual covenants
and agreements contained herein, the parties hereto do hereby represent,
warrant, covenant, and agree as follows:
1. Lessor will lease to Lessee on a non-exclusive basis machines comprised
of, among other types, video pull-tab games, video poker, video keno, and video
bingo. The total number of Machines and the types of Machines to be leased shall
be in the sole discretion of Lessee.
2. The parties agree that Lessee shall pay Lessor rent for the lease of the
Machines at the rate of Two Hundred Dollars ($200.00) per month per fully
operational Machine. If, for any reason, a Machine is inoperable, the lease
payment for such Machine shall be pro rated based on the total number of days in
a given month that such Machine was fully operational. Each monthly lease
payment shall be paid in arrears, shall be due on the first (1st) day of the
following month, but shall not be deemed late unless the Lessor has not received
the payment by the tenth (10th) day of the month or, if the 10th day is a
Saturday, Sunday, or a holiday, by the first business day following the 10th day
of the month. Lessor acknowledges and agrees that Lessor shall not have any
interest in the proceeds of the Machines. A Machine shall be deemed to be
"inoperable" if the Machine is not operating properly and Lessee, through no
fault of its own, is unable to repair the Machine within a period of twenty-four
(24) hours.
3. Lessee at its sole expense shall be responsible for maintaining and
repairing the Machines and for providing all supplies and accessories necessary
to operate the Machines. Nothing in this paragraph shall be construed to prevent
Lessee from returning to Lessor any inoperable Machine. In the event of such a
return, Lessor shall promptly provide Lessee with a replacement Machine of
Lessee's choice.
4. The parties acknowledge and agree that if the Barona Band of Mission
Indians requests Lessee to remove certain machines in order to meet the
requirements of any compact between the Barona Band of Mission Indians and the
State of California, in order to induce the State of California to enter into
such a compact, or for any other reason determined sufficient by the Barona Band
of Mission Indians, Lessor will immediately remove some or all such machines as
specified by the Barona Band of Mission Indians. Lessee shall not suffer any
penalty, loss, or detriment of any kind, including, without limitation, any
further obligation to pay rent to Lessor, by or as a result of any such action.
5. To the extent that this Agreement constitutes a "collateral agreement"
within the meaning of the Indian Gaming Regulatory Act, its regulations, and/or
any successor statute or regulation, Lessor shall, at its sole expense, take any
and all action necessary to obtain any and all approvals required by or from the
National Indian Gaming Commission for Lessor and/or this Agreement. If Lessor
does not obtain such approvals within thirty (30) days of the Effective Date of
this Agreement or such other time period as may be specified by the National
Indian Gaming Commission or any other agency or commission with authority to do
1
<PAGE> 2
so, whichever is later, Lessee may, in its sole discretion, terminate this
Agreement without further obligation or liability whatsoever to Lessor.
6. The premises upon which the Machines will be located is known as the
Barona Casino on the reservation of the Barona Band of Mission Indians located
at 1000 Wildcat Canyon Road, Lakeside, California, 92040.
7. It is agreed between the parties that, except as otherwise provided for
in this Agreement, Lessor shall retain title to all of the Machines placed at
the above location and shall have the right to inspect the Machines during
normal business hours and upon reasonable prior notice to Lessee.
8. The term of this Agreement shall be for two (2) years commencing as of
the Effective Date; provided, however, that Lessee may terminate this Agreement,
with or without cause, by giving Lessor thirty (30) days prior written notice.
Immediately following the expiration of the 30-day period, this Agreement shall
terminate.
9. In the event that Lessee, the Barona Band of Mission Indians, the United
States Attorney for the Southern District of California, any governmental
official or agency with authority to do so, or any court of competent
jurisdiction determines that Lessee may not use the Machines described in this
Agreement until there is a compact in effect between the Barona Band of Mission
Indians and the State of California covering either the initial Machines
supplied by Lessor or replacements thereto as described above, Lessee shall give
Lessor written notice of such determination. In the event of such notice, Lessee
may elect to immediately terminate this Agreement and to remove all of the
Machines from the premises. Neither the determination that Lessee may not use
the Machines described in this Agreement until there is such a compact in effect
nor the termination of this Agreement under this paragraph shall result in any
liability of Lessee to Lessor, including, without limitation, any liability to
pay further rent.
10. Lessor represents and warrants as follows:
a. Lessor has the corporate power and authority and all licenses,
certificates and permits required by governmental authority to enter into
this Agreement.
b. Lessor owns all right, title, and interest in and to the Machines,
their component parts, and patents covering the Machines, both issued and
pending, including, without limitation, the computer software necessary to
operate games on the Machines and that Lessor's ownership is free and clear
of any and all liens, encumbrances, and interests of any other person or
entity.
c. No other person or entity, without limitation, has any right,
title, interest, or claim in or to Lessor, this Agreement, the Machines,
any component parts of the Machines, patents covering the Machines, both
issued and pending, as well as any other form of intellectual property.
d. The execution, delivery and performance of this Agreement, and the
execution of any other document related hereto, will not conflict with, or
constitute a default or a condition which with the giving of notice or the
passing of time or both would constitute a default under any term or
provision of any contract, instrument, mortgage, loan, law, trust,
judgment, regulation or other restriction to which Lessor is a party or
which is applicable to Lessor.
e. There is no litigation pending or threatened against Lessor that
would materially affect Lessor's ability to perform each and every of its
obligations under this Agreement or any instrument or agreement related
hereto.
f. Neither Lessor, nor any of its agents, employees, or
representatives, have engaged in any conduct that may result in civil or
criminal liability with regard to this Agreement or the provision of the
Machines to Lessee for the purposes contemplated hereunder.
g. The representations and warranties contained herein shall be deemed
to be continuing covenants of Lessor and shall continue beyond the term of
this Agreement or any extension or termination of this Agreement.
2
<PAGE> 3
11. Lessor agrees to indemnify and to hold Lessee, the Barona Band of
Mission Indians, and their respective agents, directors, officers, employees,
attorneys, successors, and assigns harmless from and against any and all claims,
losses, liabilities, and expenses, including, without limitation, attorney's
fees and the costs and expenses of litigation, arising from or in connection
with, directly or indirectly, any of Lessor's representations and warranties.
12. All of Lessor's obligations under this Agreement shall be personally
guaranteed by Howard Starr ("Guarantor") who shall execute a personal guarantee
in favor of Lessee in substantially the same form as the personal guarantee
attached hereto as Exhibit "A". Guarantor shall execute the personal guarantee
concurrently with Lessor's execution of this Agreement. Lessee's obligations
under this Agreement shall be conditioned upon receipt of Guarantor's executed
personal guarantee.
13. Lessor for itself, its successors, and assigns, fully releases and
discharges Lessee, Barona Band of Mission Indians, and their respective
officers, directors, employees, shareholders, attorneys, accountants, other
professionals, insurers and agents of the other (collectively "Agents"), and all
related entities, including but not limited to heirs, executors, administrators,
personal representatives, assigns, parent subsidiary and sister corporations,
affiliates, partners and co-venturers (collectively the "Released Parties"),
from all rights, claims, demands, actions or causes of action which Lessor now
has or may have against the Released Parties from any source whatsoever, whether
or not arising from or related to that certain Gaming Machine Location Agreement
dated as of July 2, 1993, except those rights and obligations arising out of
this Agreement. Lessor expressly waives all rights under Section 1542 of the
Civil Code of the State of California, which Lessor understands provides as
follows:
A general release does not extend to claims which the creditor does not
know or suspect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his
settlement with the debtor.
14. General Provisions.
a. Incorporation By Reference. The recitals contained herein are
incorporated herein by reference as if set forth in full herein.
b. Effective Date. The "Effective Date" of this Agreement shall be
the date first set forth above.
c. Removal of Machines. Except as provided for in paragraph 4, in the
event of any termination of this Agreement by and upon the written request
of Lessee, Lessor shall remove all of the Machines from the premises not
later than thirty (30) days after such notice of termination. If Lessor
fails or refuses to remove the Machines within such 30-day period, Lessee
may, in its sole discretion and at Lessor's sole expenses, remove and store
the Machines. Following any termination of this Agreement and until such
time as all of the Machines are removed from the premises, Lessee may
continue to use the Machines as provided herein, and Lessee and Lessor
shall remain subject to all of the terms and conditions of this Agreement
for so long as any of the Machines remain on the premises.
d. Notices. All notices, requests, demands, directions, and other
communications provided for hereunder (a "Notice") must be in writing and
must be sent via certified mail (return receipt requested), personally
delivered, or sent by overnight courier to the appropriate party at its or
his respective address set forth below or, as to any party, at any other
address as may be designated by it in a written notice sent to the other
parties in accordance with this paragraph. If any Notice is given by mail
it will be effective three (3) calendar days after being deposited in the
mails with postage prepaid; if given by overnight mail, when delivered as
evidenced by a receipt or if given by person delivery, when delivered.
Lessor's Address for Notice: Zino, Inc.
2539 North Balboa Avenue
Tucson, Arizona 85705
Attn: Howard Starr
Phone: (520) 622-5377
Fax:
3
<PAGE> 4
with a copy to: Attn:
Phone:
Fax:
Lessee's Address for Notice: Lloyd D. Speer, II
Inland Casino Corporation
4225 Executive Square, Suite 1650
La Jolla, California 92037
Phone: (619) 546-9383
Fax: (619) 546-9373
with a copy to: Robert K. Edmunds
Page, Polin, Busch & Boatwright
350 West Ash Street, Suite 900
San Diego, California 92101
Phone: (619) 231-1822
Fax: (619) 231-1996
e. Headings. The captions and paragraph headings used in this
Agreement are inserted for convenience of reference only and are not
intended to define, limit or affect the interpretation or construction of
any term or provision hereof.
f. Entire Agreement. This Agreement, together with all exhibits
attached hereto and other agreements expressly referred to herein,
constitutes the entire agreement between the parties with respect to the
subject matter of this Agreement. All prior or contemporaneous agreements,
understandings, representations, warranties and statements, oral or
written, relating to the subject matter hereof are superseded.
g. Modification: No Waiver. No modification, amendment or discharge
of this Agreement shall be valid unless the same is in writing and signed
by both Lessor and Lessee. No failure of Lessee to enforce its rights,
remedies, or options in hereunder shall be deemed to be a waiver of any of
its rights, remedies or options hereunder or at law, and Lessee may at any
time that a default or breach exists or continues to exist, enforce any or
all of its rights, remedies and options arising by reason of such or any
other default.
h. Severability. If any term, provision, covenant or condition of
this Agreement is held to be invalid, void or otherwise unenforceable, to
any extent, by any court of competent jurisdiction, the remainder of this
Agreement shall not be affected thereby, and each term, provision, covenant
or condition of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
i. Arm's Length Agreement. This Agreement has been negotiated at
arm's length and between persons sophisticated and knowledgeable in the
matters dealt with in this Agreement. In addition, each party has been
represented by experienced and knowledgeable legal counsel. Accordingly,
any rule of law (including, without limitation, California Civil Code
section 1654) or legal decision that would require interpretation of any
ambiguities in this Agreement against the party that has drafted it is not
applicable and is waived. The provisions of this Agreement shall be
interpreted in a reasonable manner to effect the purpose of the parties and
this Agreement.
j. Governing Law. This Agreement shall be governed, construed and
enforced in accordance with applicable federal law and, to the extent there
is no applicable federal law, then in accordance with the laws of the State
of California as applicable to contracts made wholly between residents of
California, regardless of the laws that otherwise may be applicable under
principles of conflicts of law.
k. Successors and Assignment. Lessor may not assign this Agreement or
any of its rights or obligations hereunder without the prior written
consent of Lessee, which consent shall not be unreasona-
4
<PAGE> 5
bly withheld. Any such assignment in violation of this provision shall be
null and void. Subject to the foregoing, all terms of this Agreement shall
be binding upon, inure to the benefit of, and be enforceable by the parties
hereto and their respective heirs, legal representatives, successors and
permitted assigns. The parties hereto acknowledge and agree that this
Agreement and all related agreements attached to this Agreement as exhibits
are not, either individually or collectively, executory contracts and
cannot be either assumed or assigned, or both, pursuant to section
365(e)(2) of the United States Bankruptcy Code, 11 U.S.C. sec. 365(e)(2)
l. Further Assurances. The parties agree to take such further action
and execute such documents and instruments as may reasonably be required in
order to more effectively carry out the terms of this Agreement and the
intentions of the parties.
m. Attorneys' Fees. In the event any action of brought for
enforcement or interpretation of this Agreement, the prevailing party shall
be entitled to recover reasonable attorneys' fees and costs incurred in
said action, including enforcement and collection of any judgment or award
rendered therein. Said costs and attorneys' fees shall be included as part
of the judgment in any such action.
n. Counterparts. This Agreement may be executed in one or more
identical counterparts, all of which shall together constitute one and the
same instrument when each party has signed one counterpart.
o. Time of the Essence. Time is of the essence under this Agreement
and any amendment, modification or revision of it.
IN WITNESS WHEREOF, the parties have entered into this Amended and Restated
Gaming Machine Location Agreement as of the date first written above.
"LESSEE"
INLAND CASINO CORPORATION, a Utah
corporation
By: /s/ LLOYD D. SPEER, II
--------------------------------------
Lloyd D. Speer, II
Its: Chairman
"LESSOR"
ZINO, INC., a California corporation
By: /s/ HOWARD STARR
--------------------------------------
Howard Starr
Its: President
[SIGNATURE PAGE TO AMENDED AND RESTATED GAMING
MACHINE LOCATION AGREEMENT DATED AS OF DECEMBER 1, 1995]
5
<PAGE> 1
EXHIBIT 10.18
AMENDED AND RESTATED GAMING MACHINE LOCATION AGREEMENT
THIS AMENDED AND RESTATED GAMING MACHINE LOCATION AGREEMENT (the
"Agreement") is entered into as of this 1st day of December, 1995 (the
"Effective Date"), between AMERICAN HERITAGE AMUSEMENT CORPORATION, a California
corporation ("Lessor"), and INLAND CASINO CORPORATION, a Utah corporation, or
its successor ("Lessee").
RECITALS
WHEREAS, Lessor is in the business of leasing video machines and games; and
WHEREAS, Lessor and Lessee entered into that certain Gaming Machine
Location Agreement dated as of July 15, 1993, and now desire to amend, restate,
and supersede such agreement as set forth below.
AGREEMENT
NOW THEREFORE, in consideration of the premises and of the mutual covenants
and agreements contained herein, the parties hereto do hereby represent,
warrant, covenant, and agree as follows:
1. Lessor will lease to Lessee on a non-exclusive basis machines comprised
of, among other types, video pull-tab games, video poker, video keno, and video
bingo. The total number of Machines and the types of Machines to be leased shall
be in the sole discretion of Lessee.
2. The parties agree that Lessee shall pay Lessor rent for the lease of the
Machines at the rate of Two Hundred Dollars ($200.00) per month per fully
operational Machine. If, for any reason, a Machine is inoperable, the lease
payment for such Machine shall be pro rated based on the total number of days in
a given month that such Machine was fully operational. Each monthly lease
payment shall be paid in arrears, shall be due on the first (1st) day of the
following month, but shall not be deemed late unless the Lessor has not received
the payment by the tenth (10th) day of the month or, if the 10th day is a
Saturday, Sunday, or a holiday, by the first business day following the 10th day
of the month. Lessor acknowledges and agrees that Lessor shall not have any
interest in the proceeds of the Machines. A Machine shall be deemed to be
"inoperable" if the Machine is not operating properly and Lessee, through no
fault of its own, is unable to repair the Machine within a period of twenty-four
(24) hours.
3. Lessee at its sole expense shall be responsible for maintaining and
repairing the Machines and for providing all supplies and accessories necessary
to operate the Machines. Nothing in this paragraph shall be construed to prevent
Lessee from returning to Lessor any inoperable Machine. In the event of such a
return, Lessor shall promptly provide Lessee with a replacement Machine of
Lessee's choice.
4. The parties acknowledge and agree that if the Barona Band of Mission
Indians requests Lessee to remove certain machines in order to meet the
requirements of any compact between the Barona Band of Mission Indians and the
State of California, in order to induce the State of California to enter into
such a compact, or for any other reason determined sufficient by the Barona Band
of Mission Indians, Lessor will immediately remove some or all such machines as
specified by the Barona Band of Mission Indians. Lessee shall not suffer any
penalty, loss, or detriment of any kind, including, without limitation, any
further obligation to pay rent to Lessor, by or as a result of any such action.
5. To the extent that this Agreement constitutes a "collateral agreement"
within the meaning of the Indian Gaming Regulatory Act, its regulations, and/or
any successor statute or regulation, Lessor shall, at its sole expense, take any
and all action necessary to obtain any and all approvals required by or from the
National Indian Gaming Commission for Lessor and/or this Agreement. If Lessor
does not obtain such approvals within thirty (30) days of the Effective Date of
this Agreement or such other time period as may be specified by the National
Indian Gaming Commission or any other agency or commission with authority to do
so, whichever is later, Lessee may, in its sole discretion, terminate this
Agreement without further obligation or liability whatsoever to Lessor.
1
<PAGE> 2
6. The premises upon which the Machines will be located is known as the
Barona Casino on the reservation of the Barona Band of Mission Indians located
at 1000 Wildcat Canyon Road, Lakeside, California, 92040.
7. It is agreed between the parties that, except as otherwise provided for
in this Agreement, Lessor shall retain title to all of the Machines placed at
the above location and shall have the right to inspect the Machines during
normal business hours and upon reasonable prior notice to Lessee.
8. The term of this Agreement shall be for two (2) years commencing as of
the Effective Date; provided, however, that Lessee may terminate this Agreement,
with or without cause, by giving Lessor thirty (30) days prior written notice.
Immediately following the expiration of the 30-day period, this Agreement shall
terminate.
9. In the event that Lessee, the Barona Band of Mission Indians, the United
States Attorney for the Southern District of California, any governmental
official or agency with authority to do so, or any court of competent
jurisdiction determines that Lessee may not use the Machines described in this
Agreement until there is a compact in effect between the Barona Band of Mission
Indians and the State of California covering either the initial Machines
supplied by Lessor or replacements thereto as described above, Lessee shall give
Lessor written notice of such determination. In the event of such notice, Lessee
may elect to immediately terminate this Agreement and to remove all of the
Machines from the premises. Neither the determination that Lessee may not use
the Machines described in this Agreement until there is such a compact in effect
nor the termination of this Agreement under this paragraph shall result in any
liability of Lessee to Lessor, including, without limitation, any liability to
pay further rent.
10. Lessor represents and warrants as follows:
a. Lessor has the corporate power and authority and all licenses,
certificates and permits required by governmental authority to enter into
this Agreement.
b. Lessor owns all right, title, and interest in and to the Machines,
their component parts, and patents covering the Machines, both issued and
pending, including, without limitation, the computer software necessary to
operate games on the Machines and that Lessor's ownership is free and clear
of any and all liens, encumbrances, and interests of any other person or
entity.
c. No other person or entity, without limitation, has any right,
title, interest, or claim in or to Lessor, this Agreement, the Machines,
any component parts of the Machines, patents covering the Machines, both
issued and pending, as well as any other form of intellectual property.
d. The execution, delivery and performance of this Agreement, and the
execution of any other document related hereto, will not conflict with, or
constitute a default or a condition which with the giving of notice or the
passing of time or both would constitute a default under any term or
provision of any contract, instrument, mortgage, loan, law, trust,
judgment, regulation or other restriction to which Lessor is a party or
which is applicable to Lessor.
e. There is no litigation pending or threatened against Lessor that
would materially affect Lessor's ability to perform each and every of its
obligations under this Agreement or any instrument or agreement related
hereto.
f. Neither Lessor, nor any of its agents, employees, or
representatives, have engaged in any conduct that may result in civil or
criminal liability with regard to this Agreement or the provision of the
Machines to Lessee for the purposes contemplated hereunder.
g. The representations and warranties contained herein shall be deemed
to be continuing covenants of Lessor and shall continue beyond the term of
this Agreement or any extension or termination of this Agreement.
11. Lessor agrees to indemnify and to hold Lessee, the Barona Band of
Mission Indians, and their respective agents, directors, officers, employees,
attorneys, successors, and assigns harmless from and against any and all claims,
losses, liabilities, and expenses, including, without limitation, attorney's
fees and the costs
2
<PAGE> 3
and expenses of litigation, arising from or in connection with, directly or
indirectly, any of Lessor's representations and warranties.
12. All of Lessor's obligations under this Agreement shall be personally
guaranteed by Fred Gillmann ("Guarantor") who shall execute a personal guarantee
in favor of Lessee in substantially the same form as the personal guarantee
attached hereto as Exhibit "A". Guarantor shall execute the personal guarantee
concurrently with Lessor's execution of this Agreement. Lessee's obligations
under this Agreement shall be conditioned upon receipt of Guarantor's executed
personal guarantee.
13. Lessor for itself, its successors, and assigns, fully releases and
discharges Lessee, Barona Band of Mission Indians, and their respective
officers, directors, employees, shareholders, attorneys, accountants, other
professionals, insurers and agents of the other (collectively "Agents"), and all
related entities, including but not limited to heirs, executors, administrators,
personal representatives, assigns, parent subsidiary and sister corporations,
affiliates, partners and co-venturers (collectively the "Released Parties"),
from all rights, claims, demands, actions or causes of action which Lessor now
has or may have against the Released Parties from any source whatsoever, whether
or not arising from or related to that certain Gaming Machine Location Agreement
dated as of July 15, 1993, except those rights and obligations arising out of
this Agreement. Lessor expressly waives all rights under Section 1542 of the
Civil Code of the State of California, which Lessor understands provides as
follows:
A general release does not extend to claims which the creditor does not
know or suspect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his
settlement with the debtor.
14. General Provisions.
a. Incorporation By Reference. The recitals contained herein are
incorporated herein by reference as if set forth in full herein.
b. Effective Date. The "Effective Date" of this Agreement shall be
the date first set forth above.
c. Removal of Machines. Except as provided for in paragraph 4, in the
event of any termination of this Agreement by and upon the written request
of Lessee, Lessor shall remove all of the Machines from the premises not
later than thirty (30) days after such notice of termination. If Lessor
fails or refuses to remove the Machines within such 30-day period, Lessee
may, in its sole discretion and at Lessor's sole expenses, remove and store
the Machines. Following any termination of this Agreement and until such
time as all of the Machines are removed from the premises, Lessee may
continue to use the Machines as provided herein, and Lessee and Lessor
shall remain subject to all of the terms and conditions of this Agreement
for so long as any of the Machines remain on the premises.
d. Notices. All notices, requests, demands, directions, and other
communications provided for hereunder (a "Notice") must be in writing and
must be sent via certified mail (return receipt requested), personally
delivered, or sent by overnight courier to the appropriate party at its or
his respective address set forth below or, as to any party, at any other
address as may be designated by it in a written notice sent to the other
parties in accordance with this paragraph. If any Notice is given by mail
it will be effective three (3) calendar days after being deposited in the
mails with postage prepaid; if given by overnight mail, when delivered as
evidenced by a receipt or if given by personal delivery, when delivered.
Lessor's Address for Notice:
American Heritage Amusement Corporation
2414 Hoover Avenue, Suite E
National City, California 91950
Attn: Fred Gillmann
Phone: (619) 474-5400
Fax: (619) 474-5300
3
<PAGE> 4
with a copy to:
John M. Schau
110 West C Street, Suite 1407
San Diego, California 92101
Phone: (619) 231-9931
Fax: (619) 231-9932
Lessee's Address for Notice:
Lloyd D. Speer, II
Inland Casino Corporation
4225 Executive Square, Suite 1650
La Jolla, California 92037
Phone: (619) 546-9383
Fax: (619) 546-9373
with a copy to:
Robert K. Edmunds
Page, Polin, Busch & Boatwright
350 West Ash Street, Suite 900
San Diego, California 92101
Phone: (619) 231-1822
Fax: (619) 231-1996
e. Headings. The captions and paragraph headings used in this
Agreement are inserted for convenience of reference only and are not
intended to define, limit or affect the interpretation or construction of
any term or provision hereof.
f. Entire Agreement. This Agreement, together with all exhibits
attached hereto and other agreements expressly referred to herein,
constitutes the entire agreement between the parties with respect to the
subject matter of this Agreement. All prior or contemporaneous agreements,
understandings, representations, warranties and statements, oral or
written, relating to the subject matter hereof are superseded.
g. Modification: No Waiver. No modification, amendment or discharge
of this Agreement shall be valid unless the same is in writing and signed
by both Lessor and Lessee. No failure of Lessee to enforce its rights,
remedies, or options hereunder shall be deemed to be a waiver of any of its
rights, remedies or options hereunder or at law, and Lessee may at any time
that a default or breach exists or continues to exist, enforce any or all
of its rights, remedies and options arising by reason of such or any other
default.
h. Severability. If any term, provision, covenant or condition of
this Agreement is held to be invalid, void or otherwise unenforceable, to
any extent, by any court of competent jurisdiction, the remainder of this
Agreement shall not be affected thereby, and each term, provision, covenant
or condition of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
i. Arm's Length Agreement. This Agreement has been negotiated at
arm's length and between persons sophisticated and knowledgeable in the
matters dealt with in this Agreement. In addition, each party has been
represented by experienced and knowledgeable legal counsel. Accordingly,
any rule of law (including, without limitation, California Civil Code
section 1654) or legal decision that would require interpretation of any
ambiguities in this Agreement against the party that has drafted it is not
applicable and is waived. The provisions of this Agreement shall be
interpreted in a reasonable manner to effect the purpose of the parties and
this Agreement.
4
<PAGE> 5
j. Governing Law. This Agreement shall be governed, construed and
enforced in accordance with applicable federal law and, to the extent there
is no applicable federal law, then in accordance with the laws of the State
of California as applicable to contracts made wholly between residents of
California, regardless of the laws that otherwise may be applicable under
principles of conflicts of law.
k. Successors and Assignment. Lessor may not assign this Agreement or
any of its rights or obligations hereunder without the prior written
consent of Lessee, which consent shall not be unreasonably withheld. Any
such assignment in violation of this provision shall be null and void.
Subject to the foregoing, all terms of this Agreement shall be binding
upon, inure to the benefit of, and be enforceable by the parties hereto and
their respective heirs, legal representatives, successors and permitted
assigns. The parties hereto acknowledge and agree that this Agreement and
all related agreements attached to this Agreement as exhibits are not,
either individually or collectively, executory contracts and cannot be
either assumed or assigned, or both, pursuant to section 365(e)(2) of the
United States Bankruptcy Code, 11 U.S.C. Section 365(e)(2).
l. Further Assurances. The parties agree to take such further action
and execute such documents and instruments as may reasonably be required in
order to more effectively carry out the terms of this Agreement and the
intentions of the parties.
m. Attorneys' Fees. In the event any action is brought for
enforcement or interpretation of this Agreement, the prevailing party shall
be entitled to recover reasonable attorneys' fees and costs incurred in
said action, including enforcement and collection of any judgement or award
rendered therein. Said costs and attorneys' fees shall be included as part
of the judgment in any such action.
n. Counterparts. This Agreement may be executed in one or more
identical counterparts, all of which shall together constitute one and the
same instrument when each party has signed one counterpart.
o. Time of the Essence. Time is of the essence under this Agreement
and any amendment, modification or revision of it.
IN WITNESS WHEREOF, the parties have entered into this Amended and Restated
Gaming Machine Location Agreement as of the date first written above.
"LESSEE"
INLAND CASINO CORPORATION, a Utah
corporation
By: /s/ LLOYD D. SPEER, II
-----------------------------------
Lloyd D. Speer, II
Its: Chairman
"LESSOR"
AMERICAN HERITAGE AMUSEMENT
CORPORATION, a California corporation
By: /s/ FRED GILLMANN
------------------------------------
Fred Gillmann
Its: President
[SIGNATURE PAGE TO AMENDED AND RESTATED GAMING
MACHINE LOCATION AGREEMENT DATED AS OF DECEMBER 1, 1995]
5
<PAGE> 1
EXHIBIT 10.25
TALENT AGREEMENT
This Talent Agreement (the "Agreement") is entered into and made effective
as of this 30th day of October 1995, by and between Kenny Rogers Productions, a
California corporation ("KRP"), and Inland Casino Corporation, a Utah
corporation ("ICC").
1. PURPOSE OF AGREEMENT. ICC shall engage KRP to provide the services of
Kenny Rogers ("Rogers"), and KRP shall cause Rogers to act and Rogers shall
agree to act as the spokesman in a promotional and advertising campaign for the
Barona Casino to be developed by ICC (the "Project"). The Project shall include,
but shall not be limited to, television, radio, outdoor billboards, newspapers,
magazines, direct mail, and transit buses. ICC agrees that Rogers shall have
prior approval of the creative concepts of the Project; provided, however, that
Rogers shall not unreasonably withhold his approval.
2. SCOPE OF SERVICES. Rogers shall act in the Project, shall personally
appear at the Barona Casino for two (2) full days on October 30 and 31, 1995,
and shall perform the following services related to the Project: be photographed
in still photography sessions, act in filming sessions, and voice recording. For
the purposes of this Agreement, it is understood that the Project shall include
the following original songs to be sung and recorded by Rogers:
a. Song No. 1 -- the slow version recorded in Branson, Missouri on
October 15, 1995.
b. Song No. 2 -- the upbeat tempo version to be recorded in San Diego,
California.
3. USE OF ROGERS' LIKENESS.
a. During the term of this Agreement, ICC shall have the right to the
use of Rogers' name, voice, likeness, sound and similar characteristics
("Rogers' Likeness") for the purpose of advertising, promoting, selling,
and otherwise merchandising the Barona Casino. Except as provided for in
subparagraph b. below, ICC shall not be restricted in its use of Rogers'
Likeness, including, without limitation, the number, design and format of
television commercials, radio commercials, outdoor billboards, newspaper or
magazine advertisements, direct mail pieces, and transit buses, so long as
the film, photographic, and audio elements of such uses are limited solely
to those recorded, filmed, and/or photographed on October 15, 1995 in
Branson, Missouri and/or on October 30 and 31, 1995 in San Diego,
California.
b. Prior to the use of Rogers' Likeness, ICC shall submit an example
of the still photograph, print layout, television advertisement, or other
proposed uses of KRP, which shall have forty-eight (48) hours from receipt
to approve the proposed use(s); provided, however, that KRP shall not
unreasonably withhold its approval; and provided, further, that KRP shall
approve no less than fifty percent (50%) of the proposed uses. If KRP does
not object to a proposed use within the 48-hour period, KRP will be deemed
to have approved such use. After KRP has approved a proposed use, ICC shall
be free to use such use in its sole discretion. For the purposes of this
subparagraph, ICC shall submit the proposed use(s) to KRP in care of Kragen
& Company at the address indicated in paragraph 18 below.
4. COMPENSATION. For the services and other consideration that Rogers is
to render and/or give under this Agreement, ICC shall pay the sum of Two Hundred
Fifty Thousand Dollars ($250,000.00), payable as follows: One Hundred
Twenty-Five Thousand Dollars ($125,000.00) upon execution of this Agreement and
One Hundred Twenty-Five Thousand Dollars ($125,000.00) upon completion of the
services. Each such payment shall be paid as follows: One Hundred Twelve
Thousand Five Hundred Dollars ($112,500.00) to Kenny Rogers Productions and
Twelve Thousand Five Hundred Dollars ($12,500.00) to Kragen & Company.
5. TERM OF AGREEMENT. This Agreement shall commence as of the date that
the Project first appears in a public medium and shall continue for the
following one-year period. ICC shall have the option to extend this Agreement
for one additional 30-day period upon the payment of Twenty-Five Thousand
Dollars ($25,000.00) to KRP. ICC shall notify KRP of the date that Project first
appears in a public medium. ICC
1
<PAGE> 2
shall have an option to use the services of Rogers for an additional year on
terms and conditions mutually acceptable to the parties.
6. SERVICES USED AT DISCRETION OF ICC. No provision of this Agreement
shall be construed to require that ICC include the services rendered by Rogers
in the completed project for which those services have been retained. The
compensation paid to Rogers under paragraph 4 above shall be deemed to
constitute the total consideration for Rogers' services.
7. EXCLUSIVITY. During the term of this Agreement, Rogers shall not accept
employment as a spokesman for any other casino or gaming enterprise advertising
and/or promoting itself in San Diego County. Rogers shall not, without the
express prior written authorization of ICC, make any such arrangements or
undertake any such employment that may in any way conflict with his obligations
to ICC as set forth in this Agreement.
8. COOPERATION OF ROGERS. During the term of this Agreement, KRP shall
cause Rogers to, and Rogers shall, comply with all directions and reasonable
requests of ICC in relation to Rogers' services. Rogers shall at all times
attempt to perform to the best of his ability.
9. SUSPENSION.
a. ICC shall have the right to suspend this Agreement if Rogers
suffers any physical, mental, or other disability on or before October 31,
1995, including but not limited to, changes in his physical appearance or
voice, that will, in the judgment of ICC, interfere with Rogers' services,
or if Rogers fails, refuses or neglects to perform any duties set forth in
this Agreement, or declares either personally or through a representative
that he does not intend to perform those duties.
b. If ICC suspends the operation of this Agreement as provided in
section a. of this paragraph, the compensation provided for in paragraph 4
above shall be suspended accordingly.
c. Upon the cessation of the event or condition causing the suspension
of this Agreement, Rogers shall be obligated to complete his services;
provided, however, that ICC may, in its sole discretion, elect to rescind
the Agreement in which case KRP shall be obligated to return to ICC all
payments made under paragraph 4 above.
10. OWNERSHIP RIGHTS. ICC shall have sole ownership of all rights in the
Project and may, but shall not be required to, secure a copyright to protect its
interests against infringement. ICC shall have the right to do all of the
following with respect to the Project and Rogers' work in the Project:
distribute, show and adapt it or any portion of it for any medium; cut, edit,
add to, subtract from, arrange, rearrange, and revise any or all of it; and
promote it in any manner ICC desires.
11. TERMINATION. ICC shall have the right to terminate this Agreement upon
any permanent change in Rogers' ability to perform or upon conduct of Rogers
which results in a violation of the law or adverse publicity which ICC
reasonably believes may reflect badly on Rogers, the Barona Casino, and/or the
Project. During the term of this Agreement, Rogers agrees that he shall not
engage in any conduct which results in a violation of the law or adverse
publicity which, in the sole discretion of ICC, reflects badly on Rogers, the
Barona Casino, and/or the Project.
12. INDEPENDENT CONTRACTORS. KRP's and Rogers' relationships with ICC are
and shall be that of independent contractors, and nothing in this Agreement
shall be construed as creating an employer-employee relationship between KRP and
Rogers, on the one hand, and ICC, on the other hand. No party is authorized to
nor shall act as the agent of any other party. It is acknowledged that KRP and
Rogers shall not be entitled to any of ICC's employee benefits, nor will any
part of the compensation payable to KRP or Rogers be subject to withholding by
ICC for the payment of any federal or state social security or other employee
payroll taxes. KRP and Rogers shall be solely responsible for the payment of any
federal or state social security or other employment taxes associated with KRP's
and/or Rogers' services under this Agreement, but shall not be responsible for
the payment of any federal or state social security or other employment taxes or
fringe benefits, including, without limitation, pension or welfare benefits,
payable by or on behalf of any other person or entity associated with ICC or the
Project.
2
<PAGE> 3
13. REPRESENTATIONS AND WARRANTIES OF KRP AND ROGERS. KRP and Rogers
covenant, represent, and warrant as follows:
a. KRP is a corporation duly organized, existing and in good standing
under the laws of the State of California. The execution and delivery of
this Agreement and the consummation of this transaction by KRP have been
duly authorized, and no further corporate authorization is necessary on the
part of the KRP.
b. Rogers' has the right, power, legal capacity and authority to enter
into and perform his obligations under this Agreement and no approvals or
consents of any person or entity other than Rogers is necessary in
connection with it.
c. Neither KRP's nor Rogers' execution, delivery and performance of
this Agreement will not result in or constitute (1) a breach of any term or
provision of any agreement or obligation binding on KRP or Rogers; (2) a
default or an event that, with notice or lapse of time or both, would be a
default, breach or violation of any lease, license, promissory note,
conditional sales contracts, commitment, franchise, permit or indenture or
other agreement, instrument or arrangement to which KRP or Roger is a party
or by which KRP or Rogers is bound or affected; or (3) any breach or
violation of any law, rule or regulation of any governmental authority, or
any order, injunction or decree.
14. ICC'S REPRESENTATIONS AND WARRANTIES. ICC is a corporation duly
organized, existing and in good standing under the laws of the State of Utah.
The execution and delivery of this Agreement and the consummation of this
transaction by ICC have been duly authorized, and no further corporate
authorization is necessary on the part of the ICC.
15. INDEMNITY BY KRP AND ROGERS. KRP and Rogers shall each jointly and
severally indemnify, save and hold harmless ICC and the Barona Band of Mission
Indians, their respective affiliates and subsidiaries, and their respective
employees, representatives, officers, directors and agents from and against any
and all costs, losses (including, without limitation diminutions in value),
liabilities, damages, lawsuits, deficiencies, claims and expenses (whether or
not arising out of third party claims), including, without limitation, interest,
penalties, reasonable attorneys' fees and all amounts paid in investigation,
defense or settlement of any of the foregoing (collectively referred to herein
as the "Losses"), incurred in connection with or arising out of or resulting
from or incident to: (i) any breach of any covenant or warranty, or the
inaccuracy of any representation, made by KRP or Rogers in or pursuant to this
Agreement and (ii) any liability, obligation or commitment of any nature
(absolute, accrued, contingent or otherwise) arising from or in connection with
any acts or omissions of KRP or Rogers.
16. INDEMNITY BY ICC. ICC shall indemnify, save and hold harmless KRP and
Rogers, and their respective employees, representatives, officers, directors and
agents from and against any and all costs, losses (including, without limitation
diminutions in value), liabilities, damages, lawsuits, deficiencies, claims and
expenses (whether or not arising out of third party claims), including, without
limitation, interest, penalties, reasonable attorneys' fees and all amounts paid
in investigation, defense or settlement of any of the foregoing (collectively
referred to herein as the "Losses"), incurred in connection with or arising out
of or resulting from or incident to: (i) any breach of any covenant or warranty,
or the inaccuracy of any representation, made by ICC in or pursuant to this
Agreement and (ii) any liability, obligation or commitment of any nature
(absolute, accrued, contingent or otherwise) arising from or in connection with
any acts or omissions of ICC.
17. NOTICE OF INDEMNITY CLAIM. The Indemnified Party shall promptly notify
the Indemnifying Party in writing of the existence of any claim, demand or other
matter which could give rise to a right of indemnification pursuant to
paragraphs 14 or 15 above. The Indemnifying Party shall have the right, at its
and/or their option, and with the consent of the Indemnified Party as referred
to hereinbelow, to compromise or defend, at its and/or their own expense and by
its and/or their own counsel, any such matter involving the asserted liability
of the Indemnified Party. If the Indemnifying Party undertakes to compromise or
defend any such asserted liability, it and/or they shall promptly notify the
Indemnified Party of its and/or their intention to do so, and the Indemnified
Party agrees to cooperate fully with the Indemnifying Party and its and/or their
counsel in the compromise of, or defense against, any such asserted liability.
All costs and expenses incurred in
3
<PAGE> 4
connection with such cooperation shall be borne by the Indemnifying Party. If
the Indemnifying Party elects not to compromise or defend the asserted
liability, fails to notify the Indemnified Party of this election as herein
provided or contests his obligations to indemnify under this Agreement, the
Indemnified Party shall have the right, but not the obligation to undertake the
defense of, and to compromise or settle (exercising reasonable business
judgment), the claim or other matter on behalf, for the account, and at the
risk, of the Indemnifying Party. Notwithstanding the foregoing, the Indemnifying
Party may not settle or compromise any claim over the objection of the
Indemnified Party; provided, however, that consent to settlement or compromise
shall not unreasonably be withheld. Nothing contained in this paragraph 16 shall
limit the Indemnified Party's right to participate, at its own expense, in the
defense of such asserted liability.
18. MISCELLANEOUS PROVISIONS.
a. The subject headings of the paragraphs of this Agreement are
included for convenience only and shall not affect the construction or
interpretation of any of its provisions.
b. This Agreement constitutes the entire agreement between the parties
pertaining to the subject matter contained in it and supersedes all prior
and contemporaneous agreements, representations and understandings of the
parties. No supplement, modification or amendment of this Agreement shall
be binding unless executed in writing by all the parties. No waiver of any
of the provisions of this Agreement shall be deemed, or shall constitute a
waiver of any other provisions, whether or not similar, nor shall any
waiver constitute a continuing waiver. No waiver shall be binding unless
executed in writing by the party making the waiver.
c. Except as otherwise provided for in this Agreement, nothing in this
Agreement, whether express or implied, is intended to confer any rights or
remedies under or by reason of this Agreement on any persons other than the
parties to it and their respective successors and assigns, nor is anything
in this Agreement intended to relieve or discharge the obligation or
liability of any third persons to any party to this Agreement, nor shall
any provision give any third persons any right of subrogation or action
over or against any party to this Agreement.
d. Any controversy, claim or dispute between the parties, directly or
indirectly, concerning this Agreement or the breach hereof or the subject
matter hereof, including questions concerning the scope and applicability
of this arbitration clause shall be finally settled by arbitration held in
San Diego, California pursuant to the rules of the American Arbitration
Association. The parties severally agree to expedite the arbitration
proceedings in every way, so that the arbitration proceedings shall be
commenced within 30 days after request therefor is made, and shall continue
thereafter, without interruption, and that the decision of the arbitrator
should be handed down within 30 days after the hearings in the arbitration
proceedings are closed. The arbitrator shall have the right and authority
to assess the cost of the arbitration proceedings, including, but not
limited to, an award of attorneys' fees of the prevailing party, and to
determine how his decision or determination as to each issue or matter in
dispute may be implemented or enforced. The decision in writing of the
arbitrator shall be binding and conclusive on all of the parties to this
Agreement. Any decision or award of the arbitrator shall be final and
conclusive on the parties to this Agreement; judgment upon such decision or
award may be entered in any competent Federal or state court located in the
court for confirmation of such decision or award for an order of
enforcement and for any other legal remedies that may be necessary to
effectuate such decision or award. The arbitrator shall be required to
apply the substantive law of the State of California, and any arbitration
hereunder shall be conducted pursuant to section 1280 et. seq. of the
California Code of Civil Procedure. Nothing herein shall preclude any party
from seeking or obtaining any provisional remedy from a court of competent
jurisdiction located in San Diego, California whether or not such remedy is
included within the meaning of section 1281.8 of the California Code of
Civil Procedure or any successor statute.
e. If any legal action or other proceeding is brought for the
enforcement of this Agreement, or because of an alleged dispute, breach,
default or misrepresentation in connection with any of the provisions of
this Agreement, the successful or prevailing party or parties shall be
entitled to recover reasonable attorneys' fees and other costs incurred in
that action or proceedings, in addition to any other relief to which it or
they may be entitled.
4
<PAGE> 5
f. All notices, requests, demands and other communications under this
Agreement shall be in writing and shall be deemed to have been duly given
on the date of service if served personally on the party to whom notice is
to be given, or on the fifth (5th) day after mailing if mailed to the party
to whom notice is to be given, by first class mail, registered or
certified, postage prepaid and properly addressed as follows:
<TABLE>
<S> <C>
To KRP or Rogers: Kenny Rogers Productions
747 Third Avenue, 33rd Floor
New York, New York 10017
Attn: Bob LaRosa
With Copies to: Ken Kragen
Kragen & Company
1112 North Sherbourne Drive
Los Angeles, California 90069
Myman, Abell, Fineman, Greenspan & Rowan
11777 San Vicente Boulevard
Suite 880
Los Angeles, California 90049-5061
Attn: Thomas P. Rowan, Esq.
To ICC: Inland Casino Corporation
4225 Executive Square, Suite 1650
La Jolla, California 92037
Attn: Fritz Opel
With Copy to: Page, Polin, Busch & Boatwright
350 West Ash Street, Suite 900
San Diego, California 92101-3404
Attn: Robert K. Edmunds, Esq.
</TABLE>
Any party may change its address for purposes of this paragraph by
giving the other parties written notice of the new address in the manner
set forth above.
g. Each party to this Agreement shall be responsible for, and shall
pay, all of its own fees and expenses, including those of its counsel,
incurred in the negotiation, preparation and consummation of this Agreement
and the transactions described herein. The parties to this Agreement are
represented by counsel. This Agreement, and related agreements executed in
connection with this Agreement, shall not be construed against any party on
the basis that such party or its agents drafted parts of, or the entirety
of such documents.
h. If any provision of this Agreement is held invalid or unenforceable
by any court of final jurisdiction, it is the intent of the parties that
all other provisions of this Agreement be construed to remain fully valid,
enforceable and binding on the parties.
i. This Agreement shall bind and inure to the benefit of each party
hereto and their respective successors, heirs and assigns.
j. This Agreement may be executed simultaneously in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. This Agreement may
be executed by facsimile, with originals to follow by overnight courier.
k. This agreement shall be construed in accordance with, and governed
by, the internal laws of the State of California. Any legal proceeding to
enforce any provision of this Agreement shall be maintained only in San
Diego, California.
5
<PAGE> 6
IN WITNESS WHEREOF, the parties have executed this Talent Agreement as of
the date first written above.
ROGERS
/s/ KENNY ROGERS
------------------------------------
Kenny Rogers
KRP
KENNY ROGERS PRODUCTIONS,
a California corporation
By: /s/ KENNY ROGERS
--------------------------------
Kenny Rogers
Title:
-----------------------------
ICC
INLAND CASINO CORPORATION,
a Utah corporation
By: /s/ LINDA DEVINE
--------------------------------
Linda Devine
Title: Director of Marketing
-----------------------------
6
<PAGE> 1
EXHIBIT 16.1
[LETTERHEAD]
October 10, 1996
Securities and Exchange Commission
450 Fifth Street, N.W.
Judiciary Plaza
Washington, D.C. 20549
Re: Inland Casino Corporation, formerly Twin Creek Exploration
Company, Inc., File Ref. No. 0-11532
Ladies and Gentlemen:
We were previously the principal accountants for Inland Casino Corporation,
formerly Twin Creek Exploration Company, Inc. and, under the date of October 20,
1994, we reported on the consolidated financial statements of Twin Creek
Exploration Company, Inc., and subsidiary as of and for the years ended
September 30, 1994 and 1993. On May 23, 1995 our appointment as principal
accountant was terminated.
We have read the disclosures set forth under (i) Item 8 of the Annual
Report on Form 10-KSB of Inland Casino Corporation (the "Company") for the
fiscal year ended June 30, 1996 and (ii) the caption "Relationship of the
Company with Independent Public Accountants" in the Company's definitive Proxy
Statement relating to the Annual Meeting of Shareholders scheduled to be held in
December 1996, regarding the change in accountants and are in agreement with the
statements contained therein insofar as they relate to our firm.
Sincerely,
Tanner + Co.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 4347985
<SECURITIES> 0
<RECEIVABLES> 91154
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4492269
<PP&E> 203037
<DEPRECIATION> 35824
<TOTAL-ASSETS> 11772009
<CURRENT-LIABILITIES> 3325929
<BONDS> 0
0
0
<COMMON> 2352554
<OTHER-SE> 5473472
<TOTAL-LIABILITY-AND-EQUITY> 11772009
<SALES> 11482040
<TOTAL-REVENUES> 11482040
<CGS> 0
<TOTAL-COSTS> 9019261
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24000
<INCOME-PRETAX> 2475693
<INCOME-TAX> 1020000
<INCOME-CONTINUING> 1455693
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1455693
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</TABLE>
