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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: March 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ___________ to ___________
Commission File Number: 0-11532
INLAND ENTERTAINMENT CORPORATION
(Exact name of small business issuer as specified in its charter)
Utah 33-0618806
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
16868 Via Del Campo Court, Suite 200, San Diego, California 92127
(Address of principal executive offices)
Issuer's telephone number, including area code: (619) 716-2100
__________________________________________
(Former name, former address and former fiscal year, if changed since
last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: as of May 8, 1998,
3,891,348 shares of common stock, $.001 par value per share, were outstanding.
Transitional Small Business Disclosure Format (check one)
Yes [ ] No [X]
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INLAND ENTERTAINMENT CORPORATION
FORM 10-QSB
FOR THE PERIOD ENDED MARCH 31, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
Number
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<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Unaudited):
Balance Sheets -
June 30, 1997 and March 31, 1998............................. 3
Statements of Operations -
Three months ended March 31, 1997 and 1998................... 4
Nine months ended March 31, 1997 and 1998.................... 5
Statements of Cash Flows -
Nine months ended March 31, 1997 and 1998.................... 6
Notes to Interim Financial Statements........................ 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION............................ 14
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION .......................................... 22
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................ 22
SIGNATURES 23
</TABLE>
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
INLAND ENTERTAINMENT CORPORATION
BALANCE SHEETS
JUNE 30, 1997 AND MARCH 31, 1998
<TABLE>
<CAPTION>
June 30, 1997 March 31, 1998
------------- --------------
<S> <C> <C>
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................................... $ 8,004,078 $ 9,151,807
Accounts receivable.......................................... 70,100 146,140
Prepaid expenses and other current assets.................... 58,069 272,289
----------- -----------
Total current assets............................... 8,132,247 9,570,236
RESTRICTED CASH AND OTHER INVESTMENTS 1,981,750 2,115,320
OTHER NON-CURRENT ASSETS
Receivables due after one year.......................... 240,000 481,131
Furniture and equipment, net............................ 159,633 1,000,397
Deferred contract costs, net............................ 5,843,023 4,023,055
Deferred taxes.......................................... 270,183 52,183
Deposits and other assets............................... 87,291 401,014
----------- -----------
$16,714,127 $17,643,336
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Advances of future consulting fees--Barona Casino........... $ 2,173,135 $ 1,902,517
Current portion of long-term debt........................... 1,020,054 400,000
Accounts payable and accrued expenses....................... 975,424 1,176,352
Income taxes payable........................................ 190,737 362,429
----------- -----------
Total current liabilities......................... 4,359,350 3,841,298
----------- -----------
LONG TERM DEBT, LESS CURRENT PORTION.............................. 6,469,591 6,300,000
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $.001 par, 100,000,000 shares authorized,
3,891,348 shares outstanding............................ 3,855 3,891
Additional paid in capital.................................. 122,278
Retained earnings........................................... 5,881,331 7,375,869
----------- -----------
Total shareholders' equity........................ 5,885,186 7,502,038
----------- -----------
$16,714,127 $17,643,336
=========== ===========
</TABLE>
3
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INLAND ENTERTAINMENT CORPORATION
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
CONTRACT REVENUE
Barona Casino................................ $ 4,250,000 $ 3,782,500
Other........................................ 51,663
----------- -----------
4,301,663 3,782,500
----------- -----------
OPERATING EXPENSES:
General and administrative expenses.......... 1,707,361 2,006,464
Amortization of deferred contract costs...... 705,869 407,095
----------- -----------
2,413,230 2,413,559
----------- -----------
Operating profit.................................. 1,888,433 1,368,941
Other income and (expense):
Interest income.............................. 93,737 145,931
Interest expense............................ (103,250) (137,499)
----------- -----------
(9,513) 8,432
----------- -----------
Income before income taxes........................ 1,878,920 1,377,373
Income tax provision.............................. 734,000 561,000
----------- -----------
Net income........................................ $ 1,144,920 $ 816,373
=========== ===========
Earnings per share - basic........................ $ 0.30 $ 0.21
=========== ===========
Earnings per share - diluted...................... $ 0.29 $ 0.20
=========== ===========
Shares used in the computation of income
per share - basic............................. 3,854,548 3,887,015
=========== ===========
Shares used in the computation of income
per share - diluted........................... 3,945,160 3,993,710
=========== ===========
</TABLE>
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INLAND ENTERTAINMENT CORPORATION
STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED MARCH 31, 1997 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1998
------------ ------------
<S> <C> <C>
CONTRACT REVENUE
Barona Casino................................ $ 11,942,500 $ 10,575,000
Other........................................ 117,480 190,469
------------ ------------
12,059,980 10,765,469
------------ ------------
OPERATING EXPENSES:
General and administrative expenses.......... 5,773,983 6,050,788
Amortization of deferred contract costs...... 1,945,960 2,165,888
------------ ------------
7,719,943 8,216,676
------------ ------------
Operating profit.................................. 4,340,037 2,548,793
Other income and (expense):
Interest income.............................. 227,233 454,285
Interest expense............................. (222,250) (400,540)
------------ ------------
4,983 53,745
------------ ------------
Income before income taxes........................ 4,354,020 2,602,538
Income tax provision.............................. 1,851,000 1,108,000
------------ ------------
Net income........................................ $ 2,494,020 $ 1,494,538
============ ============
Earnings per share - basic........................ $ 0.41 $ 0.39
============ ============
Earnings per share - diluted...................... $ 0.40 $ 0.35
============ ============
Shares used in the computation of income
per share - basic............................. 6,130,455 3,872,971
============ ============
Shares used in the computation of income
per share - diluted........................... 6,203,281 4,318,783
============ ============
</TABLE>
5
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INLAND ENTERTAINMENT CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31, 1997 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Net cash generated by (used in) operating activities:
Net income.............................................. $ 2,494,020 $ 1,494,538
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization....................... 1,984,403 2,279,022
Deferred taxes...................................... 153,000 218,000
Changes in assets and liabilities:
Accounts receivable............................. (98,453) (76,040)
Prepaid expenses and other current assets....... (39,190) (214,220)
Deposits and other assets....................... (313,723)
Accounts payable and accrued expenses........... 371,436 200,928
Income taxes payable............................ 30,800 171,692
Advances of future consulting fees.............. 343,431 (270,618)
----------- -----------
Net cash provided by operating activities.................... 5,239,447 3,489,579
----------- -----------
Cash flows provided by (used) in investing activities:
Purchase of furniture and equipment..................... (45,767) (954,469)
Deferred contract costs................................. (1,373,295) (115,511)
Acquisition of revenue bonds and restricted cash........ (2,397,993) (133,000)
----------- -----------
Net cash used in investing activities........................ (3,817,055) (1,202,980)
----------- -----------
Cash flows provided by (used in) financing activities:
Payment of notes payable................................. (279,944) (1,020,054)
Loans to employees....................................... (132,462)
Investments/other loans.................................. (108,669)
Sale of revenue bonds.................................... 195,582
Proceeds from exercise of stock options.................. 122,315
Repurchase and cancellation of common stock.............. (200,000)
----------- -----------
Net cash provided by (used in) financing activities.......... (284,362) (1,138,870)
----------- -----------
Increase (decrease) in cash.................................. 1,138,030 1,147,729
Cash, beginning of period.................................... 4,347,985 8,004,078
----------- -----------
Cash, end of period.......................................... $ 5,486,015 $ 9,151,807
=========== ===========
Supplemental disclosures of cash flow information:
Interest expense paid.................................... $ 63,000 $ 400,942
=========== ===========
Interest income received................................. $ 198,765 $ 431,710
=========== ===========
Income taxes paid........................................ $ 1,668,000 $ 718,308
=========== ===========
Issuance of notes payable in connection
with the repurchase of common stock............. $ 3,500,000
===========
</TABLE>
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INLAND ENTERTAINMENT CORPORATION
NOTES TO INTERIM FINANCIAL STATEMENTS
MARCH 31, 1998
1. PRESENTATION OF INTERIM FINANCIAL INFORMATION.
Basis of Presentation - The accompanying interim unaudited financial statements
have been prepared by Inland Entertainment Corporation, a Utah corporation (the
"Company" or "Inland"), in conformity with generally accepted accounting
principles for interim financial information and with the rules and regulations
of the U.S. Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such regulations. The interim unaudited financial statements reflect
all normal, recurring adjustments and disclosures which are, in the opinion of
management, necessary for a fair presentation. The results of operations for the
interim periods are not necessarily indicative of the results of the full fiscal
year. The interim financial statements should be read in conjunction with the
Company's Annual Report on Form 10-KSB for the fiscal year ended June 30, 1997.
Earnings per share - As of December 31, 1997, the Company adopted the Statement
of Financial Accounting Standards (SFAS) No. 128 "Earnings Per Share." The
Company was required to change the method used to calculate earnings per share
and to restate all comparative prior periods reported. The new requirements
include a calculation of basic earnings per share, using only the weighted
number of shares outstanding ("EPS - basic"), and diluted earnings per share
("EPS - diluted"), in which the dilutive effect of equivalent shares are used
assuming the exercise of all vested stock options.
2. BUSINESS AND BASIS OF ACCOUNTING. The Company provides consulting and
other professional services for gaming operations under consulting agreements
with Native American Tribes. Currently, the Company provides services to The
Barona Group of Capitan Grande Band of Mission Indians (the "Barona Tribe") in
connection with the Barona Tribe's operation of a gaming facility located north
of Lakeside, California, in eastern San Diego County. Additionally, the Company
provided consulting services to tribes in Oregon and New Mexico.
The Company has continued to explore new business opportunities, including the
research and evaluation of other services and products focused primarily on
Internet services. The Company has established a wholly- owned foreign
subsidiary, Worldwide Media Holdings N.V., a Curacao, Netherland Antilles
corporation ("WMH"). WMH has been appointed as a marketing representative for a
gaming license holder in Curacao, Netherland Antilles. In March 1998, the
license holder opened a virtual casino web site accepting wagers only from
non-U.S. citizens named "CasinoAustralia.com" for which WMH is the marketing
representative. (See Note 7. Commitments.)
The Company reports revenues and expenses using the accrual method of
accounting. All of the Company's fee revenue for the nine months ended March 31,
1997 and 1998 was generated from services provided to the Barona Tribe, with the
exception of approximately $117,000 in fees received for work performed for a
tribe in New Mexico for the nine months ended March 31, 1997, and $190,000 in
fees received for work performed for a tribe in Oregon for the nine months ended
March 31, 1998. The operating activity from the online gaming sites has been
insignificant through March 31, 1998.
3. AGREEMENTS WITH THE BARONA TRIBE. The Company has provided services to
the Barona Tribe since 1991. The Company was providing consulting services in
accordance with the terms and conditions of an Amended and Restated Consulting
Agreement (the "Predecessor Agreement"). During February 1998, the Company and
the Barona Tribe executed Modification #1 to the Amended and Restated Consulting
Agreement (the "Modification") which extended the term for providing consulting
services by an additional 60 months. Unless otherwise stated herein, the
Predecessor Agreement, as amended by the Modification,
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INLAND ENTERTAINMENT CORPORATION
NOTES TO INTERIM FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
shall be referred to herein as the "Barona Consulting Agreement" or the
"Consulting Agreement." The Barona Consulting Agreement expires in March 2004.
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, (a
predecessor agreement to the Amended and Restated Consulting Agreement), to the
National Indian Gaming Commission (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"). In July 1997, the BIA reviewed the
Initial Consulting Agreement and determined that no further action by it with
respect to such agreement was required.
In January 1997, the Company entered into a settlement agreement with the NIGC
regarding the Company's relationship with the Barona Tribe which existed prior
to the effective date of the Initial Consulting Agreement. Under the terms of
the settlement agreement, the NIGC held, among other things, that the
relationship between the Barona Tribe and the Company had benefited the Barona
Tribe, and that the Company had not violated any law. The Company agreed to
reimburse the NIGC for administrative, investigative and legal expenses in the
aggregate amount of $250,000. In addition, the Company agreed to contribute $2
million to the Barona Tribe for general improvements on the reservation, payable
in five equal annual installments commencing in January 1997. The Company
accounted for the $2 million commitment as deferred contract costs, which will
be amortized over the remaining term of the Consulting Agreement with the Barona
Tribe.
In January 1997, the Company submitted the Predecessor Agreement to the NIGC. In
April 1997, the Company received a letter from the NIGC questioning whether the
Predecessor Agreement was in fact a management contract. The Company believes
that the NIGC will ultimately determine that the Predecessor Agreement is not a
management contract, based on (i) the May 1996 and July 1997 determinations of
the NIGC and BIA respectively, with respect to the Initial Consulting Agreement,
(ii) the NIGC's findings in the January 1997 settlement agreement and (iii) the
actual elements of the relationship between the Barona Casino and the Company.
However, there is no assurance that the NIGC will determine that the Predecessor
Agreement is not a management contract. If such a determination is not made by
the NIGC, the failure of the NIGC to approve the Predecessor Agreement (and the
Modification) could have a material adverse effect on the business and financial
condition of the Company. If the NIGC concludes that the Predecessor Agreement
(and the Modification) is not a management agreement, the NIGC will forward the
Agreement to the BIA for its review. To the extent that the BIA determines that
its approval is required, there can be no assurance that the BIA will approve
such Agreement, and such failure to approve the Predecessor Agreement (and the
Modification) may have a material adverse effect on the business and financial
condition of the Company. The Company is in the process of submitting the
Modification to the NIGC.
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 liability for any of these obligations, the
Company has capitalized those costs incurred as deferred contract costs since
(i) the Company had the ultimate responsibility for such costs incurred in
connection with developing
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INLAND ENTERTAINMENT CORPORATION
NOTES TO INTERIM FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
the Barona Casino and (ii) management believes that these costs are fully
recoverable over the life of 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, the Company reviews the valuation and
recoverability of these 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.
Amortization of the deferred costs is calculated using the straight-line method
over the remaining term of the Consulting Agreement. Under the terms of the
Consulting Agreement, title to the Barona Casino facilities, furniture and
equipment rests solely with the Barona Tribe, unless the Barona Tribe agrees
otherwise. The Consulting Agreement may be terminated by the Barona Tribe for
any material breach by the Company, as defined in such agreement. Management is
not aware of any material breach of the Consulting Agreement.
5. RESTRICTED CASH AND OTHER INVESTMENTS. From June 1996 to May 1997, the
Company provided consulting services to the Klamath and Modoc Tribes and the
Yahooskin Band of Snake Indians (collectively, the "Klamath Tribes"). The
Klamath Tribes constructed the Kla-Mo-Ya Casino near Chiloquin, in south central
Oregon, a temporary gaming facility funded by revenue bonds issued by the
Klamath Tribes. In connection with such bond financing, the Company has a net
investment of $464,320 in revenue bonds with a principal face amount of
$500,000. In addition, as a condition of the bond financing, the Company agreed
to hold the bonds for a five year period. Pre-opening costs and expenses of
approximately $1.5 million were financed by loans made pursuant to a third-party
bank credit agreement with the Klamath Tribes. The Company pledged to such bank
a certificate of deposit for $1,518,000 as collateral for such loans.
If the Klamath Tribes are unable to pay its obligations, the Company may lose
all or a portion of its investment in the revenue bonds it purchased and its
certificate of deposit pledged as collateral for bank loans to the Klamath
Tribes, which could have a material adverse effect on the financial condition of
the Company.
Additionally, the Company issued an irrevocable letter of credit for $133,000 to
satisfy the terms of the corporate office lease agreement. Such letter of credit
will automatically renew on an annual basis until October 31, 2002 unless
canceled by the lessor.
6. STOCK REPURCHASE/LONG-TERM DEBT.
Stock Repurchase Obligations - In March 1996, the Company repurchased its own
common stock and outstanding options from a former executive officer, director
and principal shareholder of the Company. 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. The notes were paid in full in
September 1997. If the Company's common stock trading price reaches certain
levels during measurement periods prior to March 4, 1998 and 1999, such former
executive officer will be entitled to up to $250,000 in additional compensation
for each measurement period. The Company's stock trading price did not reach the
required levels for payment of additional compensation for the 1998 measurement
period.
In September 1996, the Company entered into a Stock Purchase and Settlement and
Release Agreement with two shareholders, including a former director (the "Stock
Purchase Agreement"). The terms of the Stock Purchase Agreement included (i) an
aggregate cash payment of $200,000 to such shareholders upon closing, (ii) the
issuance of two unsecured promissory notes in the aggregate principal amount of
$3,500,000,
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INLAND ENTERTAINMENT CORPORATION
NOTES TO INTERIM FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
with interest at the rate of 10% per annum, 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 an
aggregate principal amount of $9,856,488 in unsecured promissory notes to such
shareholders 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%, payment of interest only for three years,
followed by three equal annual installments of principal plus interest on the
remaining principal balance, and (iv) another contingent obligation (the "Second
Contingent Obligation") to issue an additional aggregate principal amount of
$3,000,000 in unsecured promissory notes (or cash, if Company has closed a firm
commitment underwritten public offering of securities of not less than $35
million prior to the contingencies being met).
The Initial Contingent Obligations are contingent upon the Company's retained
earnings balance, with certain adjustments, being at least $4,000,000 for the
fiscal year ending immediately prior to the date the notes are to be issued. The
test is to be made each year for eight successive years commencing with the
fiscal year ending June 30, 1997. 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 with the Barona Tribe; 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 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 as each contingency or condition 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.
As of June 30, 1997, the Company's retained earnings exceeded $4,000,000.
Accordingly, a $2,000,000 obligation has been recorded at June 30, 1997, and has
been treated as additional consideration for the common stock repurchased under
the Stock Purchase Agreement.
NIGC Settlement Obligation - In January 1997, the Company entered into a
settlement agreement with the NIGC regarding the Company's relationship with the
Barona Tribe. Under the terms of the agreement, the Company agreed to contribute
$2,000,000 to the Barona Tribe for general improvements on the Barona
reservation, payable in five equal annual installments, commencing in January
1997. Debt at March 31, 1998, includes $1,200,000 relating to the January
Settlement Agreement, of which $400,000 is currently payable.
7. COMMITMENTS. In March 1998, WMH entered a five-year Software License and
Support Agreement (the "Software Agreement") for online casino technology and
support. An initial license fee will be amortized over the life of the Software
Agreement. WMH earns marketing fees of a percentage of the net profits of the
online casinos to promote and market such casinos. The Software Agreement is
subject to termination by the licensor for such reasons as WMH's non-compliance
with gaming and regulatory statutes, improper ownership of universal resource
locators, or the failure of the online casinos to meet certain sales targets.
Additionally, the Software Agreement obligates WMH, as the marketing
representative, to spend a minimum of $10,000 a month for the marketing and
promotion of the online casinos.
WMH is in the process of finalizing a license agreement with entertainer/singer
Kenny Rogers to be the spokesperson for a virtual casino web site it is
marketing entitled "KennyRogersCasino." Terms of such
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INLAND ENTERTAINMENT CORPORATION
NOTES TO INTERIM FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
license agreement currently provide for annual compensation of the greater of a
fixed cash payment or a percentage of the net profits of such virtual casino. An
initial payment of $40,000 was made to Mr. Rogers during March 1998. The
potential cost of this contract to WMH is not known at this time.
The Company has entered into other short-term contracts for consulting services
with commitments to vendors totaling approximately $332,000 as of March 31,
1998.
8. CONTINGENCIES. On June 30, 1994, the U.S. Attorney's Office of the
Southern District of California ("USAO") announced a verbal understanding with a
number of Southern California tribes, including the Barona Tribe (collectively,
the "Southern District Tribes"), that allowed the Barona Tribe to continue to
operate without expansion of gaming activities subject to certain conditions.
In June 1997, as a result of a recent Supreme Court decision, the Southern
District Tribes have acknowledged that certain currently operated video gaming
devices are not within the acceptable/permissible scope of compactible gaming
under present federal and state law and agreed to the commencement of a
voluntary phase-out plan with the USAO. The phase-out plan commenced in August
1997, with the removal of 6% of each Southern District Tribe's existing video
gaming machines and continued in September 1997 with the removal of another 10%
of each Southern District Tribe's video gaming machines. The USAO stated that
the phase-out plan (i) demonstrates a good faith effort by the Southern District
Tribes to continue to cooperate with the USAO and comply with state and federal
laws, (ii) is necessary in order to minimize the impacts to affected Tribal
employees and local negative economic impacts resulting from the reduction in
gaming operations, and (iii) is expected to facilitate negotiations between the
State of California and the Southern District Tribes designed to determine the
type of machine gaming permissible (otherwise referred to as "compactible")
under federal and state laws.
In September 1997, the USAO announced that it would defer further decisions
relating to the phase-out plan until (i) the completion of the ongoing compact
negotiations between the Pala Band of Mission Indians (the "Pala Tribe") and
(ii) the establishment of a framework for future negotiations between the Pala
Tribe and the State of California, and the State of California and the other
California Tribes, including those that are presently engaged in gaming.
In March 1998, a Tribal-State Compact (the "Pala Compact") which approved
certain types of gaming activities was reached between the Pala Tribe and the
State of California. Under the Pala Compact, the Pala Tribe will be permitted to
legally offer for public play, electronic devices which are lottery based, as
well as table games consistent with those permitted in California's card clubs.
On March 13, 1998, the Pala Compact was filed with the U.S. Secretary of the
Interior (the "Secretary") and, with certain amendments, such compact was
approved by the Secretary in April 1998.
The Pala Compact limits the total number of electronic lottery based machines to
19,900, to be divided equally among the 100 federally recognized tribes in
California. Although each tribe is allocated only 199 electronic devices, those
tribes choosing not to utilize their allocation may license it to tribes wishing
to accumulate more than the initial per tribe allocation; however, the maximum
number of electronic devices that one tribe may operate is 975.
Additionally, under the Pala Compact, employees of tribal casinos will be
offered California's worker's compensation, unemployment insurance, disability
insurance and guaranteed the right to engage in collective bargaining
activities. Patrons of such facilities will have the right to require binding
arbitration of player disputes. A tribe entering into a compact must carry
public liability insurance.
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INLAND ENTERTAINMENT CORPORATION
NOTES TO INTERIM FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
Local communities will be given the right to have an advisory vote on whether a
Native American facility should be located within a certain area. Although a
negative vote will not result in preventing the location of a gaming entity on a
reservation, it may prompt negotiations for different conditions in the compact
for that area. Additionally, a tribe with a compact must make arrangements for
mitigation of environmental, police, fire, emergency or other local services.
The Barona Tribe currently operates table games which are consistent with those
permitted in California's card clubs. The Pala Compact lottery-based electronic
devices have not yet been commercially produced or tested in a true casino
environment. There is no current basis to determine whether the compact-defined
devices will produce an income stream consistent with those machines currently
in play at the Barona Casino. In the event the lottery-based devices do not
produce an income stream consistent with that being earned by the machines
currently in play at the Barona Casino, the resulting decline in revenue from
Barona operations may have a materially adverse impact on the consulting fees
paid to the Company under the Consulting Agreement.
Subsequent to the signing of the Pala Compact, the United States Attorneys in
the four California Districts announced that all Indian tribes conducting gaming
operations must decide on or before May 13, 1998 to either (i) agree to adopt a
form of the Pala Compact or (ii) cease all Class III gaming operations. In the
event a Tribe elects to not adopt a form of the Pala Compact, the Department of
Justice has stated that it would require such Tribe to either cease all Class
III gaming activities or agree to terminate Class III gaming as a condition
precedent to initiating compact negotiations with the State. California has
consented to suit from Tribes who contend the State has not engaged in good
faith compact negotiations if acceptable provisions have not been reached after
six months of bargaining. If a Tribe does not consent to either adopt the form
of Pala Compact or to cease all Class III gaming prior to compact negotiations,
the Department of Justice will seek judicial remedies to enjoin such operations.
For those Tribes who elect to be bound by a form of the Pala compact, a sixty
(60) day period from such election has been provided, during which
non-substantive changes to the compact may be negotiated. Class III games may
continue during such negotiations. However, after the compact is signed, such
operations must cease unless they are in conformity with those games permitted
under the compact. If the electronic lottery-based machines described in the
Pala Compact are not available commercially, the Tribe may continue to operate
existing machines until lottery-based machines become available, but in no event
longer than six (6) months after the compact becomes effective. Tribes
exercising this option may seek a ruling from the State as to whether the
electronic machines they operate are Class II or III. While such a ruling is
pending, a Tribe may continue to operate its existing games. The compact
contains provisions permitting amendment by mutual consent of the State and
Tribe during its effective term. However, traditional slot machines would be
prohibited by California law unless future Court decisions allow such games.
The Barona Tribe instituted suit in Federal District Court for the Northern
District of California on May 7, 1998 to seek a declaratory interpretation of
certain provisions of the Indian Gaming Regulatory Act of 1988 (25 U.S.C.
Section 2701, et seq.) and to request an injunction preventing the Department of
Justice from enforcing federal laws which may compel the cessation of Class III
games at the Barona Casino. As of May 14, 1998, there has been no hearing on
this suit. On May 14, 1998, the same Federal District Court denied a request by
another Tribe (instituted in connection with a separate suit) for issuance of a
temporary restraining order.
On May 13, 1998, the Barona Tribe elected not to adopt the Pala Compact. On May
14, 1998, the USAO announced that it had filed a civil forfeiture complaint
against the slot machines operated by the Barona Tribe. The complaint asks that
the "gambling machines" be forfeited because they are being operated by the
Barona Tribe in the absence of a tribal-state compact and, therefore, in
violation of federal and state law. The USAO's position is that, without prior
negotiation of such a compact, the machines are being operated in violation of
federal and state law. United States Attorney Alan D. Bersin stated that the
USAO, aside from filing the above-referenced suit, would not take any action
against the Barona Casino (including taking possession of the "gambling
machines") until after a hearing by the District Court Judge assigned to the
case. Mr. Bersin also stated that the USAO would raise with the District Court
the propriety of the Barona Tribe's continued possession and use of the slot
machines pending the resolution of the forfeiture complaint.
If the USAO prevails and the slot machines are removed from the Barona Casino,
there will be a significant decline in revenue from gaming operations at the
Barona Casino which will have a material adverse impact on the consulting fees
paid to the Company under the Consulting Agreement and a material adverse impact
on the financial condition of the Company.
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Many of the laws and regulations concerning the regulation of the business of
Internet gaming in the United States and in other countries are currently being
developed. The evolution of the laws and statutes regarding Internet gaming will
have a significant impact on the Company's Internet gaming business. It is not
known at what rate or direction the evolution of such gaming regulations and
statutes will take place in the United States or around the world.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
OVERVIEW
Inland Entertainment Corporation (the "Company" or "Inland") provides services
for gaming operations under consulting agreements with Native American Tribes.
The Company has provided services to the Barona Group of Capitan Grande Band of
Mission Indians (the "Barona Tribe"), since 1991. The Company is currently
providing consulting services to the Barona Tribe at the Barona Casino under the
terms of Modification #1 (the "Modification") to the Amended and Restated
Consulting Agreement (as amended by the Modification, the "Barona Consulting
Agreement" or the "Consulting Agreement") which was executed during the quarter
ending March 31, 1998. The Modification, among other things, extended the terms
of the Amended and Restated Consulting Agreement for an additional 60 months.
The Company provided certain personnel, at its expense, to facilitate the
activities at the Barona Casino, and it entered into agreements such as leases
or other contracts for the benefit of the Barona Casino in which the Company was
the obligor (e.g., leases for gaming equipment, the Big Top lease, etc.).
In addition to its obligations under the Consulting Agreement and collateral
contracts for the benefit of the Barona Tribe, the Company's consulting
activities include assisting the Barona Tribe in arranging or providing
financing to support casino construction projects and monitoring of Indian
Gaming legislative and litigation matters. 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 remaining
life of the Consulting Agreement through March 2004. The recovery of these
deferred costs is achieved through the fees earned by Inland pursuant to
agreements with the Barona Tribe.
Over the last year, the Company has been actively researching and evaluating
business opportunities outside of Indian gaming and have focused primarily on
establishing Internet services and products to enable them to benefit from
online gaming. In March 1998, the Company established a wholly-owned foreign
subsidiary, Worldwide Media Holdings N.V. ("WMH"), a Curacao, Netherland
Antilles corporation. WMH has entered into a software license and support
agreement with Intertainet Overseas Licensing Limited, a Cyprus Corporation
("IOL"), which obligates IOL to perform casino technology and support services.
WMH also has entered into an agreement which appoints them as the marketing
representative of a Netherland Antilles company who holds a gaming license (the
"Gaming Licensee") issued by the government of the Netherland Antilles. In March
1998, the gaming licensee opened "CasinoAustralia.com," a virtual casino on the
Internet, accepting wagers only from non-U.S. citizens. WMH earns marketing fees
of a percentage of the net profits of the online casinos to promote and market
such casinos. The operating activity from the online gaming sites has been
insignificant through March 31, 1998.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 COMPARED WITH THE THREE MONTHS ENDED MARCH 31,
1998.
REVENUE. Revenue decreased 12.1% from approximately $4,302,000 for the three
months ended March 31, 1997 to approximately $3,783,000 for the three months
ended March 31, 1998, as a result of lower profit margins at the Barona Casino
due to an increase in operating expenses at their facility. The Company's
revenue for the three months ended March 31, 1997 and 1998 was entirely from
fees earned as a consultant to the Barona Tribe with the exception of
approximately $52,000 in fees received from consulting services provided to a
tribe in New Mexico during the three months ended March 31, 1997.
OPERATING EXPENSES. General and administrative expenses increased 17.5% from
approximately $1,707,000 for the three months ended March 31, 1997 to
approximately $2,006,000 for the three months ended March 31, 1998, resulting
primarily from increases in compensation, computer supplies and software costs
related to the development of new business opportunities primarily focused on
Internet gaming. Facilities costs also increased attributed to the Company's
relocation of its corporate offices. The increased expenses are partially offset
by decreases in charitable contributions. Additionally in the three months
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ended March 31, 1997, the Company incurred unreimbursed marketing expenses
related to consulting engagements in the Northwest which were not incurred
during the three months ended March 31, 1998.
Amortization of deferred contract costs decreased 42.3% from approximately
$706,000 for the three months ended March 31, 1997 to approximately $407,000 for
the three months ended March 31, 1998. The total amount of deferred contract
costs being amortized have increased primarily resulting from the addition of
the $2,000,000 commitment to the Barona Tribe. However, during the quarter ended
March 31, 1998 a new consulting agreement was entered into with the Barona Tribe
that extended the term of the contract by an additional 60 months. Therefore,
the deferred contract costs amortization period has been increased by an
additional 60 months. (See Notes to Interim Financial Statements, Note 3.
Agreements with the Barona Tribe and Note 4. Deferred Contract Costs.)
OTHER INCOME AND EXPENSE. For the three months ended March 31, 1998, interest
income was approximately $146,000 compared to approximately $94,000 for the
three months ended March 31, 1997. The increase was due to the increase in the
Company's investments and cash equivalents.
Interest expense increased from approximately $103,000 for the three months
ended March 31, 1997 to approximately $137,000 for the three months ended March
31, 1998, primarily as a result of an increase in notes payable to two major
shareholders, including a former director of the Company, in connection with the
repurchase of shares of the Company's common stock. (See Notes to Interim
Financial Statements, Note 6. Stock Repurchase/Long-term Debt.)
INCOME TAX PROVISION. The income tax provision decreased 23.6% from $734,000 for
the three months ended March 31, 1997 to $561,000 for the three months ended
March 31, 1998, based on decreased operating profit in the current quarter.
NINE MONTHS ENDED MARCH 31, 1997 COMPARED WITH THE NINE MONTHS ENDED MARCH 31,
1998.
REVENUE. Revenue decreased 10.7% from approximately $12,060,000 for the nine
months ended March 31, 1997 to approximately $10,765,000 for the nine months
ended March 31, 1998, as a result of lower profit margins at the Barona Casino
due to an increase in operating expenses at their facility. The Company's
revenue for the nine months ended March 31, 1997 and 1998 was entirely from fees
earned as a consultant to the Barona Tribe with the exception of approximately
$117,000 in fees received from consulting services provided to a tribe in New
Mexico during the nine months ended March 31, 1997 and approximately $190,000 in
fees received from consulting services provided to a tribe in Oregon during the
nine months ended March 31, 1998.
OPERATING EXPENSES. General and administrative expenses increased 4.8% from
approximately $5,774,000 for the nine months ended March 31, 1997 to
approximately $6,051,000 for the nine months ended March 31, 1998, resulting
primarily from increases in compensation, computer supplies and software costs
related to the development of new business opportunities primarily focused on
Internet gaming. Facilities costs also increased attributed to the Company's
relocation of its corporate offices. The increased expenses are partially offset
by decreases in political contributions as this was not a significant election
year, unreimbursed marketing expenses related to consulting engagements in the
Northwest, decreased business development expenses related to the pursuit of
Indian gaming consulting work, and in the provision for doubtful accounts as
allowances were established to cover anticipated losses resulting from certain
consulting engagements.
Amortization of deferred contract costs increased 11.3% from approximately
$1,946,000 for the nine months ended March 31, 1997 to approximately $2,166,000
for the nine months ended March 31, 1998, as a result of an increase in deferred
contract costs, primarily resulting from the addition of the $2,000,000
commitment to the Barona Tribe. However, the increase has been significantly
offset by a reduction in amortization expense during the quarter ended March 31,
1998 as a new consulting agreement was entered into with the Barona Tribe that
extended the term of the contract by an additional sixty months. (See Notes to
Interim Financial Statements, Note 3. Agreements with the Barona Tribe and Note
4. Deferred Contract Costs.)
OTHER INCOME AND EXPENSE. For the nine months ended March 31, 1998, interest
income was
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approximately $454,000 compared to approximately $227,000 for the nine months
ended March 31, 1997. The increase was due to the increase in the Company's
investments and cash equivalents.
Interest expense increased from approximately $222,000 for the nine months ended
March 31, 1997 to approximately $401,000 for the nine months ended March 31,
1998, primarily as a result of an increase in notes payable to two major
shareholders, including a former director of the Company, in connection with the
repurchase of shares of the Company's common stock. (See Notes to Interim
Financial Statements, Note 6. Stock Repurchase/Long-term Debt.)
INCOME TAX PROVISION. The income tax provision decreased 40.1% from $1,851,000
for the nine months ended March 31, 1997 to $1,108,000 for the nine months ended
March 31, 1998, based on decreased operating profit.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal source of liquidity at March 31, 1998 consisted of cash
of $9,151,807, future revenues generated from operations and advances of future
fees under the Consulting Agreement with the Barona Tribe. The Company finances
its operations through cash provided by its operations and advances of future
fees, all (in the case of future fees) or substantially all (in the case of cash
provided by operations) derived from agreements with the Barona Tribe. The
Company believes that these sources of liquidity will be sufficient to meet the
Company's operating and capital requirements for the foreseeable future.
During the nine months ended March 31, 1998, the Company's cash position
increased approximately $1,148,000 from the June 30, 1997 balance of
approximately $8,004,000, to $9,152,000 at March 31, 1998. The increase was
provided by net cash generated by operating activities of approximately
$3,490,000 during the period, reduced by cash flows used in investing activities
of approximately $1,203,000 and financing activities of approximately
$1,139,000.
Deferred income taxes decreased $218,000 as the amortization of deferred
contract costs for tax purposes exceeded amortization of such costs for
financial statement purposes during the nine months ended March 31, 1998.
Accounts receivable increased approximately $76,000 primarily due to the
purchase and pending sale of a home to facilitate the relocation of an employee.
Prepaid expenses and other current assets increased approximately $214,000
primarily due to the purchase of software and licensing agreements related to
the Company's Internet online gaming activities.
From the inception of the Company, the Company's most significant expenditure
has been the funding of the deferred contract costs related to expansion of the
facilities at the Barona Casino. The Company has received advances against
future fees from the Barona Tribe to assist in financing such activities. The
decrease in net deferred contract costs from approximately $5,843,000 at June
30, 1997 to approximately $4,023,000 at March 31, 1998, resulted from
amortization of approximately $2,166,000, partially offset by a $346,000
increase in deferred contract costs financed by the use of $116,000 in cash flow
and $230,000 in long-term advances of future fees from the Barona Casino during
the same period. At March 31, 1998, outstanding advances of future fees from the
Barona Casino totaled approximately $1,903,000. Advances do not bear interest
and are due on demand. Debt at March 31, 1998 includes $1,200,000 due to the
Barona Tribe related to the NIGC Settlement Obligation of which $400,000 is
currently payable.
Cash flows used in investing activities for the nine months ended March 31, 1998
includes net investments in fixed assets of approximately $954,000 which
consisted primarily of tenant leasehold improvements at the new corporate
facilities and computer software and hardware related to the Company's online
gaming ventures.
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Cash flows used in financing activities include approximately $620,000 for
repayment of promissory note to a former executive officer, director, and
principal shareholder for the repurchase of shares of common stock. This
repayment also decreased the current portion of long-term debt by approximately
$620,000. Additionally, a $400,000 payment was made pursuant to the NIGC
Settlement Obligation. (See Notes to Interim Financial Statements, Note 6. Stock
repurchase/Long-term debt.) For the nine months ended March 31, 1998, the
Company expended approximately $132,000 in loans made to employees and expended
approximately $109,000 in loans to third parties, in part, as investment
opportunities.
Cash flows provided by financing activities of approximately $122,000 is a
result of the exercise of 36,800 stock options during the nine months ended
March 31, 1998.
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 and, 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 outside debt or equity financing. However, outside
sources of financing may be required or sought at any time.
The Barona Casino and all of the related facilities are capital improvements
upon land that belongs to the Barona Tribe. As such, the Company has no
ownership in any of the improvements to such land. All such improvements belong
to the Barona Tribe.
From June 1996 to May 1997, the Company provided consulting services to the
Klamath and Modoc Tribes and the Yahooskin Band of Snake Indians (collectively,
the "Klamath Tribes") to assist with the development, construction and eventual
operation of the Kla-Mo-Ya Casino, near Chiloquin, in south-central Oregon. In
connection with the financing of the Kla-Mo-Ya Casino project, the Company
expended $879,933 to purchase revenue bonds with a principal amount of $900,000,
as part of a $4,735,000 bond financing. In January 1997, the Company sold
$200,000 principal face amount of such bonds for $195,582 and in June 1997 sold
another $200,000 principal face amount of such bonds for $185,500. In addition
to the bond financing, the Company pledged a certificate of deposit for
$1,518,000 as collateral for third-party bank loans to the Klamath Tribes. If
the Kla-Mo-Ya Casino sustains operating losses after opening, the Company may
lose a portion or all of its $464,320 investment in revenue bonds, ($500,000
principal amount), and its pledged $1,518,000 certificate of deposit, which
could have a material adverse effect on the Company's liquidity and financial
condition.
Restricted cash and other investments of approximately $2,115,000 is comprised
of a bank certificate of deposit of $1,518,000 pledged as collateral by the
Company to secure loans made pursuant to a bank credit agreement with the
Klamath Tribes in connection with the development of the Kla-Mo-Ya Casino and
the Company's net investment of $464,000 in revenue bonds issued by the Klamath
Tribes. Additionally, the Company issued an irrevocable letter of credit for
$133,000 to satisfy the terms of the corporate office lease agreement. Such
letter of credit will automatically renew on an annual basis until October 31,
2002 unless canceled by the lessor. (See Notes to Interim Financial Statements,
Note 5. Restricted cash and other investments.)
WMH has entered into a long-term contract which obligates them to purchase
$120,000 a year for marketing services related to the promotion of online
casinos. Additionally, the Company has signed a letter of intent for the
licensing of additional gaming software for $175,000 of which $25,000 has been
paid as of March 31, 1998. The Company has entered into or is in the process of
entering into other miscellaneous short-term contracts for consulting services
with commitments to vendors totaling approximately $582,000 as of March 31,
1998. One of the agreements includes terms for profit sharing of one of the
virtual casinos marketed by WMH. Estimates of such costs to the Company are not
known at this time. (See Notes to Interim Financial Statements, Note 7.
Commitments.)
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FORWARD-LOOKING STATEMENTS AND CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
Included in this Item 2, and in the Notes to the Interim Financial Statements
are certain forward-looking statements reflecting the Company's current
expectations. Although the Company believes that its expectations are based on
reasonable assumptions, there can be no assurance that the Company's financial
goals or expectations will be realized. Such forward-looking statements involve
known and unknown risks, uncertainties and other factors that may cause the
actual results, performance, or achievements of the Company, or industry
results, to be materially different from future results, performance, or
achievements expressed or implied by such forward-looking statements. Numerous
factors may affect the Company's actual results and may cause results to differ
materially from those expressed in forward-looking statements made by or on
behalf of the Company. The Company assumes no obligation to update or revise any
such forward-looking statements or the factors listed below to reflect events or
circumstances that may arise after this report is filed, and that may have an
effect on the Company's overall performance.
- - DEPENDENCY ON REVENUES FROM THE BARONA CASINO
The Company historically and currently has derived substantially all of its
income from services provided to the Barona Tribe. While the Company is taking
steps to diversify its business activities and resulting revenues, those
activities are still in their development stage. Accordingly, any material
reduction in fees payable to the Company from the Barona Casino, whether as a
result of (i) action by regulatory authorities to remove all electronic games
from the Barona Casino deemed by them to be Class III games (See discussion
below regarding "Compact Negotiations"); (ii) a modification to the Consulting
Agreement between the Company and the Barona Tribe as a result of regulatory
compliance requirements; (iii) weakness in the operations in the Barona Casino
or (iv) otherwise, would have a material adverse affect on the business and
financial condition of the Company, if the Company could not either reduce
expenses or increase revenues from other sources.
- - COMPACT NEGOTIATIONS
The State of California is engaged in negotiations with various Indian tribes to
determine what type of gaming is permissible and the circumstances under which
it may be conducted pursuant to the form of tribal-state compact executed in
March of 1998. These negotiations are important to the Barona Tribe, as well as
other California tribes, in connection with establishing a framework for future
permissible gaming activities for Indian tribes in California. (See Notes to
Interim Financial Statement, Note 8. Contingencies.)
As a result of negotiations between the U.S. Attorney's Office of the Southern
District of California ("USAO") and several Southern California Indian tribes,
including the Barona Tribe (the "Southern District Tribes"), each of the
Southern District Tribes agreed to commence a phase-out plan of certain
electronic gaming machines.
The phase-out plan commenced in August 1997, with the removal of 6% of each
Southern District Tribe's existing video gaming machines and continued in
September 1997 with the removal of another 10% of each Southern District Tribe's
video gaming machines. The USAO stated that the phase-out plan (i) demonstrates
a good faith effort by the Southern District Tribes to continue to cooperate
with the USAO and comply with state and federal laws, (ii) is necessary in order
to minimize the impacts to affected Tribal employees and local negative economic
impacts resulting from the reduction in gaming operations, and (iii) is expected
to facilitate negotiations between the State of California and the Southern
District Tribes designed to determine the type of machine gaming permissible
(otherwise referred to as "compactible") under federal and state laws.
In September 1997, the USAO announced that it would defer further decisions
relating to the phase-out plan until (i) the completion of the ongoing compact
negotiations between the Pala Band of Mission Indians (the "Pala Tribe") and
(ii) the establishment of a framework for future negotiations between the Pala
Tribe and
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the State of California, and the State of California and the other California
Tribes, including those that are presently engaged in gaming.
In March 1998, a Tribal-State Compact, which approved certain types of gaming
activities, was reached between the Pala Tribe and the State of California (the
"Pala Compact"). Under the Pala Compact, the Pala Tribe will be permitted to
legally offer for public play, electronic devices which are lottery based, as
well as table games consistent with those permitted in California's card clubs.
On March 13, 1998, the Pala Compact was filed with the U.S. Secretary of the
Interior (the "Secretary") and, with certain amendments, such compact was
approved by the Secretary in April 1998.
The Pala Compact limits the total number of electronic lottery based machines to
19,900, to be divided equally among the 100 federally recognized tribes in
California. Although each tribe is allocated only 199 electronic devices, those
tribes choosing not to utilize their allocation may license it to tribes wishing
to accumulate more than the initial per tribe allocation; however, the maximum
number of electronic devices permissable by one tribe is 975.
Additionally, under the Pala Compact, employees of tribal casinos will be
offered California's worker's compensation, unemployment insurance, disability
insurance and guaranteed the right to engage in collective bargaining
activities. Patrons of such facilities will have the right to require binding
arbitration of player disputes. A tribe entering into a compact must carry
public liability insurance.
Local communities will be given the right to have an advisory vote on whether a
Native American facility should be located within a certain area. Although a
negative vote will not result in preventing the location of a gaming entity on a
reservation, it may prompt negotiations for different conditions in the compact
for that area. Additionally, a tribe with a compact must make arrangements for
mitigation of environmental, police, fire, emergency or other local services.
The Barona Tribe currently operates table games which are consistent with those
permitted in California's card clubs. The Pala Compact lottery-based electronic
devices have not yet been commercially produced or tested in a true casino
environment. There is no current basis to determine whether the compact-defined
devices will produce an income stream consistent with those machines currently
in play at the Barona Casino. In the event the lottery-based devices do not
produce an income stream consistent with that being earned by the machines
currently in play at the Barona Casino, the resulting decline in revenue from
Barona operations may have a materially adverse impact on the consulting fees
paid to the Company under the Consulting Agreement.
Subsequent to the signing of the Pala Compact, the United States Attorneys in
the four California Districts announced that all Indian tribes conducting gaming
operations must decide on or before May 13, 1998 to either (i) agree to adopt a
form of the Pala Compact or (ii) cease all Class III gaming operations. In the
event a Tribe elects to not adopt a form of the Pala Compact, the Department of
Justice has stated that it would require such Tribe to either cease all Class
III gaming activities or agree to terminate Class III gaming as a condition
precedent to initiating compact negotiations with the State. California has
consented to suit from Tribes who contend the State has not engaged in good
faith compact negotiations if acceptable provisions have not been reached after
six months of bargaining. If a Tribe does not consent to either adopt the form
of Pala Compact or to cease all Class III gaming prior to compact negotiations,
the Department of Justice will seek judicial remedies to enjoin such operations.
For those Tribes who elect to be bound by a form of the Pala compact, a sixty
(60) day period from such election has been provided, during which
non-substantive changes to the compact may be negotiated. Class III games may
continue during such negotiations. However, after the compact is signed, such
operations must cease unless they are in conformity with those games permitted
under the compact. If the electronic lottery-based machines described in the
Pala Compact are not available commercially, the Tribe may continue to operate
existing machines until lottery-based machines become available, but in no event
longer than six (6) months after the compact becomes effective. Tribes
exercising this option may seek a ruling from the State as to whether the
electronic machines they operate are Class II or III. While such a ruling is
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pending, a Tribe may continue to operate its existing games. The compact
contains provisions permitting amendment by mutual consent of the State and
Tribe during its effective term. However, traditional slot machines would be
prohibited by California law unless future Court decisions allow such games.
The Barona Tribe instituted suit in Federal District Court for the Northern
District of California on May 7, 1998 to seek a declaratory interpretation of
certain provisions of the Indian Gaming Regulatory Act of 1988 (25 U.S.C.
Section 2701, et seq.) and to request an injunction preventing the Department of
Justice from enforcing federal laws which may compel the cessation of Class III
games at the Barona Casino. As of May 14, 1998, there has been no hearing on
this suit. On May 14, 1998, the same Federal District Court denied a request by
another Tribe (instituted in connection with a separate suit) for issuance of a
temporary restraining order.
On May 13, 1998, the Barona Tribe elected not to adopt the Pala Compact. On May
14, 1998, the USAO announced that it had filed a civil forfeiture complaint
against the slot machines operated by the Barona Tribe. The complaint asks that
the "gambling machines" be forfeited because they are being operated by the
Barona Tribe in the absence of a tribal-state compact and, therefore, in
violation of federal and state law. The USAO's position is that, without prior
negotiation of such a compact, the machines are being operated in violation of
federal and state law. United States Attorney Alan D. Bersin stated that the
USAO, aside from filing the above-referenced suit, would not take any action
against the Barona Casino (including taking possession of the "gambling
machines") until after a hearing by the District Court Judge assigned to the
case. Mr. Bersin also stated that the USAO would raise with the District Court
the propriety of the Barona Tribe's continued possession and use of the slot
machines pending the resolution of the forfeiture complaint.
If the USAO prevails and the slot machines are removed from the Barona Casino,
there will be a significant decline in revenue from gaming operations at the
Barona Casino which will have a material adverse impact on the consulting fees
paid to the Company under the Consulting Agreement and a material adverse impact
on the financial condition of the Company.
- - EXTENSIVE REGULATORY ENVIRONMENT RELATING TO INDIAN GAMING
Gaming on Indian land is extensively regulated by Federal, State and Tribal
governments. In addition to the Compact negotiations with the State of
California referenced above, 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 the Company, 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, all appropriate regulatory authorities have not yet approved the
Consulting Agreement. If the Consulting Agreement is not approved or is
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 Notes to Interim Financial Statements, Note 3. Agreements with
the Barona Tribe.)
- - UNCERTAINTIES CONCERNING INTERNET GAMING
The Company's new business venture to market world-wide Internet gaming is in
its development stage and, to date, has no operating history upon which an
evaluation of the business prospects of this venture can be based.
Many of the laws and regulations concerning the regulation of the business of
Internet gaming in the United States and in other countries are currently being
developed. The evolution of the laws and statutes regarding Internet gaming will
have a significant impact on the Company's Internet gaming business. It is not
known at what rate or direction the evolution of such gaming regulations and
statutes will take place in the United States or around the world.
The Company is competing with other entities, some of which have been in the
market longer than the Company. In addition, certain current competitors and
potential future competitors have, or may have greater resources than the
Company to devote further technologies and new product developments to the
development of Internet gaming. There can be no assurance that existing or
future competitors will not develop or offer technologies that provide
significant economic, technological, creative or strategic advantages over those
offered by the Company. The Company's future success in the Internet gaming
field is dependent on the evolving regulatory and competitive environment. There
is no assurance that the Company's present and contemplated services provided to
"Internet gaming casinos" will achieve or maintain sufficient commercial
acceptance, or if they do, that regulatory developments will not diminish the
20
<PAGE> 21
full economic potential of such virtual gaming sites.
- - VOLATILITY OF STOCK PRICE
The trading price of the Company's Common Stock has been, and will likely
continue to be, subject to wide fluctuations in response to Indian gaming
regulatory developments, quarterly variations in the Company's operating
results, announcements of new products or business activities by the Company or
its competitors, general market fluctuations, and other events and factors.
- - YEAR 2000 COMPLIANCE
Many of the world's computer systems currently record years in a two-digit
format. Such computer systems will be unable to properly interpret dates beyond
the year 1999, which could lead to business disruptions in the U.S. and
internationally (the "Year 2000" issue). The potential costs and uncertainties
associated with the Year 2000 issue will depend on a number of factors,
including software, hardware and the nature of the industry in which the Company
operates. Additionally, companies must coordinate with other entities with which
they electronically interact, such as customers and creditors.
The Company and WMH have evaluated all significant internal operating systems
and are actively working with its major suppliers and customers to assess their
Year 2000 compliance efforts and the Company's exposure to them. At this time,
it appears that the aggregate cost related to Year 2000 compliance issues facing
the Company, WMH, and the Company's and WMH's major suppliers and customers will
not be material.
21
<PAGE> 22
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On May 13, 1998, the Barona Tribe elected not to adopt the Pala Compact. On
May 14, 1998, the USAO announced that it had filed a civil forfeiture complaint
against the slot machines operated by the Barona Tribe. The complaint asks that
the "gambling machines" be forfeited because they are being operated by the
Barona Tribe in the absence of a tribal-state compact and, therefore, in
violation of federal and state law. The information set forth under Part I. Item
2. Management's Discussion and Analysis or Plan of Operation under the captions
"Forward-Looking Statements and Certain Factors That May Affect Future
Results--Dependency on Revenues from the Barona Casino" and "--Compact
Negotiation", are hereby incorporated by reference herein.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits. The Exhibits listed below are hereby filed with the U.S.
Securities and Exchange Commission (the "Commission") as part of this Quarterly
Report on Form 10-QSB.
Exhibit No. Description
MATERIAL CONTRACTS RELATING TO MANAGEMENT COMPENSATION PLANS OR
ARRANGEMENTS
10.1 Settlement and Release Agreement by and between the Company and
Duane Eberlein, dated as of February 10, 1998.
10.2 Settlement and Release Agreement by and between the Company and
Art Pfizenmayer, dated as of March 6, 1998.
10.3 Consulting Agreement by and between the Company and Torrey Pines
Consultants Inc., dated as of February 13, 1998.
OTHER MATERIAL CONTRACTS
10.4 Modification No. 1 to Amended and Restated Consulting Agreement
by and between the Company and the Barona Group of Capitan
Grande Band of Mission Indians, dated as of February 17, 1998.
10.5 Software Supply and Support Agreement by and between Worldwide
Media Holdings N.V. and Intertainet Overseas Licensing Limited,
dated as of March 13, 1998.
10.6 This Appointment of Marketing Representative by and between
Worldwide Media Holdings N.V. and Intertainet Overseas Licensing
Limited and Cyberluck Curacao N.V. and Bardenac Holdings N.V.,
dated as of March 13, 1998.
27 Financial Data Schedule.
(b) Reports on Form 8-K. No reports on Form 8-K were filed with the
Commission during the Company's third quarter ended March 31, 1998.
22
<PAGE> 23
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
INLAND ENTERTAINMENT CORPORATION,
a Utah Corporation
Date: May 14, 1998 By: /S/ ANDREW B. LAUB
----------------------------------
Andrew B. Laub
Executive Vice President,
Chief Financial Officer and
Treasurer
(Principal Financial Officer)
23
<PAGE> 24
EXHIBIT INDEX
Exhibit No. Description
MATERIAL CONTRACTS RELATING TO MANAGEMENT COMPENSATION PLANS OR
ARRANGEMENTS
10.1 Settlement and Release Agreement by and between the Company and
Duane Eberlein, dated as of February 10, 1998.
10.2 Settlement and Release Agreement by and between the Company and
Art Pfizenmayer, dated as of March 6, 1998.
10.3 Consulting Agreement by and between the Company and Torrey Pines
Consultants Inc., dated as of February 13, 1998.
OTHER MATERIAL CONTRACTS
10.4 Modification No. 1 to Amended and Restated Consulting Agreement
by and between the Company and the Barona Group of Capitan
Grande Band of Mission Indians, dated as of February 17, 1998.
10.5 Software Supply and Support Agreement by and between Worldwide
Media Holdings N.V. and Intertainet Overseas Licensing Limited,
dated as of March 13, 1998.
10.6 This Appointment of Marketing Representative by and between
Worldwide Media Holdings N.V. and Intertainet Overseas Licensing
Limited and Cyberluck Curacao N.V. and Bardenac Holdings N.V.,
dated as of March 13, 1998.
27 Financial Data Schedule.
<PAGE> 1
EXHIBIT 10.1
SETTLEMENT AND RELEASE AGREEMENT
This Settlement and Release Agreement (the "Agreement") is hereby
entered into by and between Duane M. Eberlein (the "Executive") and Inland
Entertainment Corporation, a Utah corporation (the "Company").
RECITALS
WHEREAS, Executive has been employed by the Company on an at will basis
since 2/13/94, most recently as the Company's Executive Vice President; and
WHEREAS, both the Executive and the Company have determined that it is
in their mutual interests that the Executive resign from his position as
Executive Vice President of the Company, and that his employment relationship be
dissolved; and
WHEREAS, both the Executive and the Company voluntarily elect to
terminate the employment relationships on the terms and conditions hereinafter
set forth and settle any disputes arising from such relationships without resort
to litigation; and
AGREEMENT
NOW THEREFORE, in consideration of the mutual promises contained herein
and for other good and valuable consideration, the receipt and adequacy of which
are hereby acknowledged, the parties hereby agree as follows:
1. Employment Status. The Executive voluntarily resigned from his
position as Executive Vice President of the Company as of 2/6/98 (the
"Resignation Date"). The Executive also voluntarily resigned his employment by
the Company as of the Resignation Date. The Executive was relieved of all duties
effective on the Resignation Date.
2. Compensation,Vacation Pay and Other Benefits Through the Resignation
Date. The Company paid the Executive his current base salary through the
Resignation Date. The Company and the Executive agree that the Executive does
not have any accrued or unused vacation pay earned through the Resignation Date.
The Executive acknowledges and agrees that the payment of the foregoing salary
through the Resignation Date constitutes full payment of any and all monies
(including but not limited to bonus amounts) that he earned during his
employment by the Company through the Resignation Date.
<PAGE> 2
3. Severance Benefits After the Resignation Date. The Company agrees to
make the severance benefits to the Executive as described in this Agreement. The
Executive understands that the Company will deduct from these amounts federal
withholdings taxes and other deductions that the Company is required by law to
make from wage payments to employees. The Executive further understands that
these amounts are all the Executive is entitled to receive from the Company
under this Agreement or otherwise. The Executive will receive no further wage,
vacation or other similar payments from the Company. For purposes of this
Agreement, the "Settlement Date" shall mean the date after the expiration of all
periods of revocation under this Agreement have lapsed.
3.1 Severance Payments. Following the Settlement Date, the Company shall
pay to the Executive in one single payment a net amount equal to $27,936.94
representing three (3) months base salary net of taxes and voluntary 401(k)
contribution.
3.2 Health Insurance Premiums. If the Executive (or any of his eligible
dependents) elects to continue to participate in any of the Company's group
health insurance plans pursuant to COBRA, 29 U.S.C. 1161 et seq., the company
will reimburse the executive, following the Settlement Date, for the premiums
paid by the Executive for such COBRA coverage commencing on the Resignation Date
through 2/28/98. Nothing in this Section 3.2 is intended to alter the terms of
COBRA in any way and those terms shall remain applicable in all respects.
3.3 Stock Options. As of the Resignation Date, the Executive had vested
stock options (the "Vested Options") which enable the Executive to purchase
91,135 shares of common stock, par value $.001 per share, of the Company
("Common Stock"). Prior to the Resignation Date, the Executive had options that
were not vested ("Unvested Options") which enable the Executive to purchase
108,865 shares of common stock, par value $.001 per share, of the Company stock.
Each of the Executive's Stock Option Agreements under (i) the Corporation's 1994
Stock Option Plan and (ii) the Corporation's 1995 Stock Option Plan shall be
amended to provide that as of the Resignation Date all Unvested Options shall
become Vested Options and that the Executive shall have a period of sixty (60)
months after the Resignation Date to exercise all Vested Options.
4. Continuation of Benefits After the Resignation Date. Except as
expressly provided in this agreement or in the plan documents governing the
Company's employee benefit plans, as of the Resignation Date, the Executive will
no longer be eligible for, receive, accrue, or participate in any other benefits
or benefit plans provided by the Company, including, without limitation,
medical, dental and life insurance benefits, the Company's 401(k) retirement
plan, automobile lease reimbursement, the Company's supplemental Executive
Incentive Bonus Plan and any other bonus plan of the Company; provided, however,
that health care coverage for the Executive and the Executive's dependents may
be continued under COBRA for as long as the Executive is eligible for such
coverage and so long as the Executive pays the required premiums.
<PAGE> 3
5. Company/Executive Property. On or before the Settlement Date, the
Executive shall return all property of the Company in the Executive's
possession.
6. General Release by the Executive. In consideration of the payments
specified in Section 3 of this Agreement and the other matters described herein,
the receipt and adequacy of which are hereby acknowledged, the Executive, for
himself and his heirs, executors, administrators, assigns, affiliates,
successors and agents (collectively, the "Affiliates") hereby fully and without
limitation release and forever discharges the Company and its agents,
representatives, stockholders, parents, subsidiaries, divisions, owners,
officers, directors, employees, consultants, attorneys, auditors, accountants,
investigators, affiliates, successors and assigns (collectively the Releasees"),
both individually and collectively, from any and all rights, claims, demands,
liabilities, actions, causes of action, damages, losses, costs, expenses and
compensation, of whatever nature whatsoever, known or unknown, fixed or
contingent ("Claims"), which the Executive or his Affiliates has or may have or
may claim to have against the Releasees by reason of any matter, cause, or thing
whatsoever, from the beginning of time to the date hereof, including, without
limiting the generality of the foregoing, any Claims arising out of, based upon,
or relating to the recruitment, hire, employment, relocation, remuneration,
investigation, or termination of the Executive by the Company or the other
Releasees, the Executive's tenure as a director of the Company , any agreement
or compensation arrangement between the Executive and the Company or the other
Releasees, or any act or occurrence in connection with any actual, existing,
proposed prospective or claimed ownership interest of any nature of the
Executive or the Executive's Affiliates in equity capital or rights in equity
capital or other securities of the Company or the other Releasees to the maximum
extent permitted by law.
The Executive specifically and expressly releases any Claims arising out
of or based on the California Fair Employment and Housing Act, as amended; Title
VII of the Civil rights Act of 1964, as amended; the Age Discrimination in
Employment Act, as amended; the Americans With Disabilities Act; the National
Labors Relations act, as amended; the Equal Pay Act; ERISA; any provision of the
California Labor Code; California common law of fraud, misrepresentation,
negligence, defamation, infliction of emotional distress, or wrongful
termination; state or federal wage and hour laws; or any other state or federal
law, rule, or regulation dealing with the employment relationship.
<PAGE> 4
7. Release of Unknown Claims by Executive. The Executive is aware of
California Civil Code Section 1542, which 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.
With full awareness and understanding of the above provision, the
Executive hereby waives any rights he may have under Section 1542. The Executive
intends to, and hereby does, release Releasees from claims which he does not
presently know or suspect to exist at this time. However, the Executive is not
waiving any rights or claims that may arise out of acts or events that occur
after the Settlement Date.
8. Breach of Release. The Executive agrees that if he hereafter
commences, joins in, or in any manner seeks relief through any suit arising out
of, based upon, or relating to any of the Claims released by the Executive
hereunder, or in any manner asserts against the company or the Releasees any of
the claims released hereunder, the Executive shall pay to Company or such
Releasee, as the case may be, in addition to any other damages caused to the
Company or such Releasee, as the case may be, all attorneys fees incurred in
defending or otherwise responding to said suit or claim.
9. Rights Under the Older Workers Benefit Protection Act. In accordance
with the Older Workers Benefit Protection Act of 1990, the Executive is aware of
the following:
(a) The Executive has the right to consult with an attorney
before signing this Agreement and is hereby advised by the Company to do so;
(b) The Executive has twenty-one (21) days from the receipt of
this document to consider this Agreement; and
(c) The Executive has seven (7) days after signing this Agreement
to revoke this Agreement, and this Agreement will not be effective until that
revocation period has expired. The Executive agrees that in order to exercise
his right to revoke this Agreement within such seven (7) day period, he must do
so in a signed writing delivered to the Company's Controller and Chief
Accounting Officer before the close of business on the seventh calendar day
after signing the Agreement.
10. Confidentiality of Agreement. Except as may be required by law,
neither the Executive, his attorney, nor any person acting by, through, under or
in concert with them, shall disclose any of the terms of or facts relating to
this Agreement or the negotiation thereof to any individual or entity, except
for disclosures made between the Executive, his attorney, spouse, children or
advisors.
<PAGE> 5
11. Proprietary Information. The Executive acknowledges that certain
information, observations, and data obtained by him during the course of or
related to his employment with the Company (including without limitation certain
financial information, intellectual property, stockholder information, product
design information, business plans, marketing plans or proposals, customer lists
and other customer information) are the sole property of the Company and
constitute trade secrets of the Company. The Executive agrees to promptly return
all files, customer lists, financial information and other Company property that
are in the Executive's possession or control without making copies thereof. The
Executive further agrees that he will not disclose to any person or use any such
information, observations or data without the written consent of the Company's
Board of Directors, unless and to the extent that the aforementioned matters
become generally known to and available for use by the public other than as a
result of the Executive's acts or omissions to act, which acts or omissions were
unauthorized by the Company. Further, the Executive acknowledges that any
unauthorized use of trade secrets will cause irreparable harm to the Company and
will give rise to an immediate action by the Company for injunctive relief. If
the Executive is served with a deposition subpoena or other legal process
calling for the disclosure of such information, or if he is contacted by any
third person requesting such information, he will immediately notify the
Company's General Counsel and will fully cooperate with the Company in
minimizing the disclosure thereof.
12. Unfair Competition.
(a) The Executive agrees not to (whether as an employee,
director, owner, stockholder, consultant, limited or general partner, or
otherwise), for himself or for any other person or entity, engage in any unfair
competition with the Company.
(b) The Executive also covenants and agrees not to intentionally
interfere with, disrupt, or attempt to disrupt, the relationship, contractual or
otherwise, between the Company and any customer of the Company as of the
Resignation Date.
(c) The Executive acknowledges that any unfair competition or
misuse of trade secret or proprietary information belonging to the Company, or
any violation of Sections 10 through 12 of this Agreement, will result in
irreparable harm to the Company and will give rise to an immediate action by the
Company for injunctive relief.
13. Cooperation Clause. The Executive agrees to cooperate with the
Company and its counsel (a) in any investigation (including internal
investigations) and audits of the Company's management's current and past
conduct and business and accounting practices and (b) in the Company's defense
of, or other participation in, any administrative, judicial, or other proceeding
arising from any charge, complaint or other action which has been or may be
filed relating to the period during which the Executive was engaged in
employment with the Company. Except as required by law or authorized in advance
by the Company's Board of Directors, the Executive will not communicate,
<PAGE> 6
directly or indirectly, with any third party concerning the management or
governance of the Company, the operations of the Company, the legal positions
taken by the Company, or the financial status of the Company. The Executive
shall direct inquiries from third parties on these issues to the Company. The
Executive acknowledges that any violation of this Section 13 will result in
irreparable harm to the Company and will give rise to an immediate action by the
Company for injunctive relief.
14. Non-disparagement: Employment Reference. Each party to this
Agreement will use his or its best efforts not to disparage or otherwise publish
or communicate derogatory statements or opinions about the other to any third
party for a period of three (3) years after the Resignation Date. It shall not
be a breach of this Section 14 for either party to testify truthfully in any
judicial or administrative proceeding, or to make factual accurate statements in
legal or public filings. If any prospective employers contact the Company
concerning the Executive, they will be told only that the Executive was employed
from 2/13/94 until he voluntarily resigned as of the Resignation Date. The
Company will issue on its letterhead a statement in the form attached hereto as
Exhibit 1 in response to any requests for references or recommendations.
15. Remedies for Breach. If the Executive willfully and materially
breaches his obligations under this Agreement, in addition to whatever other
rights the Company may have, the Executive shall forfeit his right to receive
any further payments or benefits under this Agreement.
16. California Law. This Agreement shall be governed by and interpreted
in accordance with the laws of the State of California, including all maters of
construction, validity, performance and enforcement, without giving effect to
principles of conflict of laws.
17. Attorneys' Fees. In any action, litigation or proceeding between the
parties arising out of or in relation to this Agreement, the prevailing party in
such action will be awarded, in addition to any damages, injunctions or other
relief, and without regard to whether or not such matter is prosecuted to final
judgment, such party's costs and expenses, including reasonable attorneys' fees.
Such award will include post judgement attorneys' fees and costs, which will not
be deemed as merged into the final judgement.
18. Non-Admission Liability. Both the Executive and the Company
understand and agree that neither the payment of any sum of money nor the
execution of this Agreement by the parties will constitute or be construed as ad
admission of any liability whatsoever by either party.
19. Withholding Taxes: Tax Reporting. The Company may, if required in
its reasonable judgment, withhold from any amounts payable under this Agreement
all such Federal, state, city and other taxes, and may file with appropriate
governmental
<PAGE> 7
authorities all such information returns or other reports with respect to the
tax consequences attendant to any amounts payable under this Agreement, as may,
in its reasonable judgment, be required by law.
20. Severability. If any one or more of the provisions contained herein
(or parts thereof), or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity
and enforceability of any such provision in every other respect and of the
remaining provisions hereof will not be in any way impaired or affected, it
being intended that all of the rights and privileges shall be enforceable to the
fullest extent permitted by law.
21. Entire Agreement. This Agreement represents the sole and entire
agreement between the parties and, except as expressly stated herein, supersedes
all prior agreements, negotiations and discussions between the Executive and the
Company with respect to the subject matters contained herein.
22. Waiver. No waiver by any party hereto at any time of any breach of,
or compliance with, any condition or provision of this Agreement to be performed
by any other party hereto may be deemed a waiver of similar or dissimilar
provisions or conditions at the same time or at any prior or subsequent time.
23. Amendment. This Agreement may be modified or amended only if such
modification or amendment is agreed to in writing and signed by duly authorized
representatives of the parties hereto, which writing expressly states the intent
of the parties to modify this Agreement.
24. Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original as against any
party that has signed it, but all of which together will constitute one and the
same instrument.
25. Assignment. This Agreement inures to the benefit of and is binding
upon the Company and its successors and assigns, but the Executive's rights
under this Agreement are not assignable.
26. Notices. All notices or other communications required or permitted
to be given hereunder shall be in writing and shall be delivered by hand or sent
by fax, telex, cable or telecopy, or sent, postage prepaid, by registered,
certified or express mail, or sent by reputable overnight courier service, and
shall be deemed given when so delivered by hand, upon transmission if faxed,
telexed, cabled or telecopied, or if mailed, three days after deposit in a
United States mailbox, one business day in the case of express mail or overnight
courier service, as follows:
If to the Company:
Inland Entertainment Company
16868 Via del Campo Court, Suite 200
San Diego, CA 92127
<PAGE> 8
Fax: (619) 716-2101
Attn: Ms. Mary Jo Boring
Controller and Chief Accounting Officer
If to the Executive:
6105 Pasatiempo
San Diego, CA 92120
Attn: Duane M. Eberlein
or such other address as one party may have furnished to the other party in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
27. Miscellaneous Provisions.
(a) The parties represent that they have read this Agreement and
fully understand all of its terms; that they have conferred with their
attorneys, or have knowingly and voluntarily chosen not to confer with their
attorneys about this Agreement; that they have executed this Agreement without
coercion or duress of any kind; and that they understand any rights that they
have or may have and sign this Agreement with knowledge of any such rights.
(b) The language in all parts of this Agreement must be in all
cases construed simply according to its fair meaning and not strictly for or
against any party. Whenever the context requires, all words used in the singular
must be construed to have been use din the plural, and vice versa, and each
gender must include any other gender. The captions of the Sections of this
Agreement are for convenience only and must not affect the construction or
interpretation of any of the provision herein.
(c) Each provision of this Agreement to be performed by a party
hereto is both a covenant and condition, and is a material consideration for the
other party's performance hereunder, and any breach thereof by the party will be
a mate4rial default hereunder. All rights, remedies, undertakings, obligations,
options, covenants, conditions and agreements contained in this Agreement are
cumulative and no one of them is exclusive of any other. Time is of the essence
in the performance of this Agreement.
(d) Each party acknowledges that no representation, statement or
promise made by any other party, or by the agent or attorney of any other party,
has been relied on by him or it in entering into this Agreement.
(e) Each party understand that the facts with respect to which
this Agreement is entered into may be materially different from those the
parties now believe to be true. Each party accepts and assumes this risk and
agrees that this Agreement and the release in it shall remain in full force and
effect, and legally binding, notwithstanding
<PAGE> 9
the discovery or existence of any additional or different facts, or of any
claims with respect to those facts.
(f) Unless expressly set forth otherwise, all references herein
to a "day" are deemed to be a reference to a calendar day. All references to
"business day" mean any day of the year other than a Saturday, Sunday or a
public or bank holiday in San Diego, California. Unless expressly stated
otherwise, cross-references herein refer to provisions within this Agreement and
are not references to the overall transaction or to any other document.
(g) Each party to this Agreement will cooperate fully in the
execution of any and all other documents and in the completion of any additional
actions that may be necessary or appropriate to give full force and effect to
the terms and intent of this Agreement.
THE EXECUTIVE AND THE COMPANY ACKNOWLEDGE THAT EACH HAS READ THIS
AGREEMENT, UNDERSTANDS IT AND IS VOLUNTARILY ENTERING INTO IT. THE EXECUTIVE
ACKNOWLEDGES AND UNDERSTANDS THAT THIS AGREEMENT INCLUDES A RELEASE OF ALL KNOWN
AND UNKNOWN CLAIMS.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the dates indicated below.
INLAND ENTERTAINMENT CORPORATION,
A Utah corporation
Dated: 2/10/98 By: /S/ L. Donald Speer
---------- --------------------------------------------
L. Donald Speer, II
Chairman of the Board and Chief Executive
Officer, President and Chief Operating Officer
"Executive"
Dated: 2/10/98 /S/ Duane M. Eberlein signature
---------- ----------------------------------
Duane M. Eberlein printed name
--------------------------------
<PAGE> 1
EXHIBIT 10.2
SETTLEMENT AND RELEASE AGREEMENT
This Settlement and Release Agreement (the "Agreement") is hereby
entered into by and between Arthur R. Pfizenmayer (the "Executive") and Inland
Entertainment Corporation, a Utah corporation (the "Company").
RECITALS
WHEREAS, Executive has been employed by the Company on an at will basis
since 2/1/95, most recently as the Company's Executive Vice President; and
WHEREAS, both the Executive and the Company have determined that it is
in their mutual interests that the Executive resign from his position as
Executive Vice President of the Company, and that his employment relationship be
dissolved; and
WHEREAS, both the Executive and the Company voluntarily elect to
terminate the employment relationships on the terms and conditions hereinafter
set forth and settle any disputes arising from such relationships without resort
to litigation; and
AGREEMENT
NOW THEREFORE, in consideration of the mutual promises contained herein
and for other good and valuable consideration, the receipt and adequacy of which
are hereby acknowledged, the parties hereby agree as follows:
1. Employment Status. The Executive voluntarily resigned from his
position as Executive Vice President of the Company as of 2/13/98, (the
"Resignation Date"). The Executive also voluntarily resigned his employment by
the Company as of the Resignation Date. The Executive was relieved of all duties
effective on the Resignation Date.
2. Compensation, Vacation Pay and Other Benefits Through the Resignation
Date. The Company paid the Executive his current base salary through the
Resignation Date. The Company and the Executive agree that the Executive does
not have any accrued or unused vacation pay earned through the Resignation Date.
The Executive acknowledges and agrees that the payment of the foregoing salary
through the Resignation Date constitutes full payment of any and all monies
(including but not limited to bonus amounts) that he earned during his
employment by the Company through the Resignation Date.
3. Severance Benefits After the Resignation Date. The Company agrees to
make the severance benefits to the Executive as described in this Agreement. The
Executive understands that the Company will deduct from these amounts federal
withholdings taxes and other deductions that the Company is required by law to
make from wage payments to employees. The Executive further understands that
these amounts
<PAGE> 2
are all the Executive is entitled to receive from the Company under this
Agreement or otherwise. The Executive will receive no further wage, vacation or
other similar payments from the Company. For purposes of this Agreement, the
"Settlement Date" shall mean the date after the expiration of all periods of
revocation under this Agreement have lapsed.
3.1 Health Insurance Premiums. If the Executive (or any of his
eligible dependents) elects to continue to participate in any of the Company's
group health insurance plans pursuant to COBRA, 29 U.S.C. 1161 et seq., the
Company will reimburse the executive, following the Settlement Date, for the
premiums paid by the Executive for such COBRA coverage commencing on the
Resignation Date through 2/28/98. Nothing in this Section 3.1 is intended to
alter the terms of COBRA in any way and those terms shall remain applicable in
all respects.
3.2 Stock Options. As of the Resignation Date, the Executive had
vested stock options (the "Vested Options") which enable the Executive to
purchase 210,000 shares of common stock, par value $.001 per share, of the
Company ("Common Stock"). Prior to the Resignation Date, the Executive had
options that were not vested which enable the Executive to purchase 290,000
shares of common stock, par value $.001 per share, of the Company stock. Each of
the Executive's Stock Option Agreements under the Corporation's 1995 Stock
Option Plan shall be amended to extend all provisions of the Stock Option
Agreements through each year the Executive or his wholly owned corporation,
Torrey Pines Consultants, Inc., a California Corporation, is engaged as a
consultant for the Company.
4. Continuation of Benefits After the Resignation Date. Except as
expressly provided in this agreement or in the plan documents governing the
Company's employee benefit plans, as of the Resignation Date, the Executive will
no longer be eligible for, receive, accrue, or participate in any other benefits
or benefit plans provided by the Company, including, without limitation,
medical, dental and life insurance benefits, the Company's 401(k) retirement
plan, automobile lease reimbursement, and any other bonus plan of the Company;
provided, however, that health care coverage for the Executive and the
Executive's dependents may be continued under COBRA for as long as the Executive
is eligible for such coverage and so long as the Executive pays the required
premiums.
5. General Release by the Executive. In consideration of the payments
specified in Section 3 of this Agreement and the other matters described herein,
the receipt and adequacy of which are hereby acknowledged, the Executive, for
himself and his heirs, executors, administrators, assigns, affiliates,
successors and agents (collectively, the "Affiliates") hereby fully and without
limitation release and forever discharges the Company and its agents,
representatives, stockholders, parents, subsidiaries, divisions, owners,
officers, directors, employees, consultants, attorneys, auditors, accountants,
investigators, affiliates, successors and assigns (collectively the Releasees"),
both individually and collectively, from any and all rights, claims, demands,
liabilities, actions, causes of action, damages, losses, costs, expenses and
compensation, of whatever nature whatsoever, known or unknown, fixed or
contingent ("Claims"), which the Executive or
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his Affiliates has or may have or may claim to have against the Releasees by
reason of any matter, cause, or thing whatsoever, from the beginning of time to
the date hereof, including, without limiting the generality of the foregoing,
any Claims arising out of, based upon, or relating to the recruitment, hire,
employment, relocation, remuneration, investigation, or termination of the
Executive by the Company or the other Releasees, the Executive's tenure as a
director of the Company , any agreement or compensation arrangement between the
Executive and the Company or the other Releasees, or any act or occurrence in
connection with any actual, existing, proposed prospective or claimed ownership
interest of any nature of the Executive or the Executive's Affiliates in equity
capital or rights in equity capital or other securities of the Company or the
other Releasees to the maximum extent permitted by law.
The Executive specifically and expressly releases any Claims arising out
of or based on the California Fair Employment and Housing Act, as amended; Title
VII of the Civil rights Act of 1964, as amended; the Age Discrimination in
Employment Act, as amended; the Americans With Disabilities Act; the National
Labors Relations act, as amended; the Equal Pay Act; ERISA; any provision of the
California Labor Code; California common law of fraud, misrepresentation,
negligence, defamation, infliction of emotional distress, or wrongful
termination; state or federal wage and hour laws; or any other state or federal
law, rule, or regulation dealing with the employment relationship.
Rehabilitation of Company, Directors and Officers.Should the Company,
for purposes of rehabilitating the reputation of the Company, its officers and
directors, seek an affirmative statement from the State of Oregon concerning the
licensability for gaming activities in Oregon of the Company's directors or
officers, past or present, the Company will use reasonable efforts therein to
obtain an affirmative statement of the Executive's licensability for gaming
activities in Oregon, notify Executive of such action and provide Executive with
copies of the relative documents. Nothing herein shall be construed to require,
obligate, or compel the Company to seek an affirmative statement from the Oregon
concerning the licensability of either the Company, its directors, officers, or
the Executive.
6. Release of Unknown Claims by Executive. The Executive is aware of
California Civil Code Section 1542, which 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.
With full awareness and understanding of the above provision, the
Executive hereby waives any rights he may have under Section 1542. The Executive
intends to, and hereby does, release Releasees from claims which he does not
presently know or suspect
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to exist at this time. However, the Executive is not waiving any rights or
claims that may arise out of acts or events that occur after the Settlement
Date.
7. Breach of Release. The Company and Executive agrees that if either
hereafter commences, joins in, or in any manner seeks relief through any suit
arising out of, based upon, or relating to any of the Claims released by the
Company or Executive hereunder, or in any manner asserts against the other party
or the Releasees any of the claims released hereunder, the moving party shall
pay to other party or such Releasee, as the case may be, in addition to any
other damages caused to the other party or such Releasee, as the case may be,
all attorneys fees incurred in defending or otherwise responding to said suit or
claim.
8. Rights Under the Older Workers Benefit Protection Act. In accordance
with the Older Workers Benefit Protection Act of 1990, the Executive is aware of
the following:
(a) The Executive has the right to consult with an attorney
before signing this Agreement and is hereby advised by the Company to do so;
(b) The Executive has twenty-one (21) days from the receipt of
this document to consider this Agreement; and
(c) The Executive has seven (7) days after signing this Agreement
to revoke this Agreement, and this Agreement will not be effective until that
revocation period has expired. The Executive agrees that in order to exercise
his right to revoke this Agreement within such seven (7) day period, he must do
so in a signed writing delivered to the Company's Controller and Chief
Accounting Officer before the close of business on the seventh calendar day
after signing the Agreement.
9. Confidentiality of Agreement. Except as may be required by law,
neither the Executive, his attorney, nor any person acting by, through, under or
in concert with them, shall disclose any of the terms of or facts relating to
this Agreement or the negotiation thereof to any individual or entity, except
for disclosures made between the Executive, his attorney, spouse, children or
advisors.
10. Proprietary Information. The Executive acknowledges that certain
information, observations, and data obtained by him during the course of or
related to his employment with the Company (including without limitation certain
financial information, intellectual property, stockholder information, product
design information, business plans, marketing plans or proposals, customer lists
and other customer information) are the sole property of the Company and
constitute trade secrets of the Company. The Executive agrees to promptly return
all files, customer lists, financial information and other Company property that
are in the Executive's possession or control without making copies thereof. The
Executive further agrees that he will not disclose to any person or use any such
information, observations or data without the written consent of the Company's
Board of
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Directors, unless and to the extent that the aforementioned matters become
generally known to and available for use by the public other than as a result of
the Executive's acts or omissions to act, which acts or omissions were
unauthorized by the Company. Further, the Executive acknowledges that any
unauthorized use of trade secrets will cause irreparable harm to the Company and
will give rise to an immediate action by the Company for injunctive relief. If
the Executive is served with a deposition subpoena or other legal process
calling for the disclosure of such information, or if he is contacted by any
third person requesting such information, he will immediately notify the
Company's General Counsel and will fully cooperate with the Company in
minimizing the disclosure thereof. The Executive and or Torrey Pines
Consultants, Inc., his wholly owned corporation, shall be free to associate in
any fashion with any Tribal gaming business outside of San Diego County, State
of California, and use any expertise gained while employed by the Company.
11. Unfair Competition.
(a) The Executive agrees not to (whether as an employee,
director, owner, stockholder, consultant, limited or general partner, or
otherwise), for himself or for any other person or entity, engage in any unfair
competition with the Company. The Company agrees that the Executive or Torrey
Pines Consultants, Inc. may associate with and provide consulting services to
any tribal gaming operation outside of San Diego County, State of California.
(b) The Executive also covenants and agrees not to intentionally
interfere with, disrupt, or attempt to disrupt, the relationship, contractual or
otherwise, between the Company and any customer of the Company, the Barona
Casino and the Barona Band of Mission Indians as of the Resignation Date.
(c) The Executive acknowledges that any unfair competition or
misuse of trade secret or proprietary information belonging to the Company, or
any violation of Sections 10 through 12 of this Agreement, will result in
irreparable harm to the Company and will give rise to an immediate action by the
Company for injunctive relief.
12. Cooperation Clause. The Executive agrees to cooperate with the
Company and its counsel (a) in any investigation (including internal
investigations) and audits of the Company's management's current and past
conduct and business and accounting practices and (b) in the Company's defense
of, or other participation in, any administrative, judicial, or other proceeding
arising from any charge, complaint or other action which has been or may be
filed relating to the period during which the Executive was engaged in
employment with the Company. Except as required by law or authorized in advance
by the Company's Board of Directors, the Executive will not communicate,
directly or indirectly, with any third party concerning the management or
governance of the Company, the operations of the Company, the legal positions
taken by the Company, or the financial status of the Company. The Executive
shall direct inquiries from third parties on these issues to the Company. The
Executive acknowledges that any violation of
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this Section 12 will result in irreparable harm to the Company and will give
rise to an immediate action by the Company for injunctive relief.
13. Non-disparagement: Employment Reference. Each party to this
Agreement will use his or its best efforts not to disparage or otherwise publish
or communicate derogatory statements or opinions about the other to any third
party for a period of one (1) year after the Resignation Date. It shall not be a
breach of this Section 13 for either party to testify truthfully in any judicial
or administrative proceeding, or to make factual accurate statements in legal or
public filings. If any prospective employers contact the Company concerning the
Executive, they will be told only that the Executive was employed from 2/1/95
until he voluntarily resigned as of the Resignation Date. The Company will issue
on its letterhead a statement in the form attached hereto as Exhibit 1 in
response to any requests for references or recommendations.
14. Remedies for Breach. If the Executive willfully and materially
breaches his obligations under this Agreement, in addition to whatever other
rights the Company may have, the Executive shall forfeit his right to receive
any further payments or benefits under this Agreement.
15. California Law. This Agreement shall be governed by and interpreted
in accordance with the laws of the State of California, including all maters of
construction, validity, performance and enforcement, without giving effect to
principles of conflict of laws.
16. Attorneys' Fees. In any action, litigation or proceeding between the
parties arising out of or in relation to this Agreement, the prevailing party in
such action will be awarded, in addition to any damages, injunctions or other
relief, and without regard to whether or not such matter is prosecuted to final
judgment, such party's costs and expenses, including reasonable attorneys' fees.
Such award will include post judgement attorneys' fees and costs, which will not
be deemed as merged into the final judgement.
17. Non-Admission Liability. Both the Executive and the Company
understand and agree that neither the payment of any sum of money nor the
execution of this Agreement by the parties will constitute or be construed as ad
admission of any liability whatsoever by either party.
18. Withholding Taxes: Tax Reporting. The Company may, if required in
its reasonable judgment, withhold from any amounts payable under this Agreement
all such Federal, state, city and other taxes, and may file with appropriate
governmental authorities all such information returns or other reports with
respect to the tax consequences attendant to any amounts payable under this
Agreement, as may, in its reasonable judgment, be required by law.
19. Severability. If any one or more of the provisions contained herein
(or parts thereof), or the application thereof in any circumstances, is held
invalid, illegal or
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unenforceable in any respect for any reason, the validity and enforceability of
any such provision in every other respect and of the remaining provisions hereof
will not be in any way impaired or affected, it being intended that all of the
rights and privileges shall be enforceable to the fullest extent permitted by
law.
20. Entire Agreement. This Agreement represents the sole and entire
agreement between the parties and, except as expressly stated herein, supersedes
all prior agreements, negotiations and discussions between the Executive and the
Company with respect to the subject matters contained herein.
21. Waiver. No waiver by any party hereto at any time of any breach of,
or compliance with, any condition or provision of this Agreement to be performed
by any other party hereto may be deemed a waiver of similar or dissimilar
provisions or conditions at the same time or at any prior or subsequent time.
22. Amendment. This Agreement may be modified or amended only if such
modification or amendment is agreed to in writing and signed by duly authorized
representatives of the parties hereto, which writing expressly states the intent
of the parties to modify this Agreement.
23. Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original as against any
party that has signed it, but all of which together will constitute one and the
same instrument.
24. Assignment. This Agreement inures to the benefit of and is binding
upon the Company and its successors and assigns, but the Executive's rights
under this Agreement are not assignable.
25. Notices. All notices or other communications required or permitted
to be given hereunder shall be in writing and shall be delivered by hand or sent
by fax, telex, cable or telecopy, or sent, postage prepaid, by registered,
certified or express mail, or sent by reputable overnight courier service, and
shall be deemed given when so delivered by hand, upon transmission if faxed,
telexed, cabled or telecopied, or if mailed, three days after deposit in a
United States mailbox, one business day in the case of express mail or overnight
courier service, as follows:
If to the Company: Inland Entertainment Company
16868 Via del Campo Court, Suite 200
San Diego, CA 92127
Fax: (619) 716-2101
Attn: Ms. Mary Jo Boring
Controller and Chief Accounting Officer
If to the Executive: 947 Olive Crest Drive
Encinitas, CA 92024
Attn: Arthur R. Pfizenmayer
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or such other address as one party may have furnished to the other party in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
26. Miscellaneous Provisions.
(a) The parties represent that they have read this Agreement and
fully understand all of its terms; that they have conferred with their
attorneys, or have knowingly and voluntarily chosen not to confer with their
attorneys about this Agreement; that they have executed this Agreement without
coercion or duress of any kind; and that they understand any rights that they
have or may have and sign this Agreement with knowledge of any such rights.
(b) The language in all parts of this Agreement must be in all
cases construed simply according to its fair meaning and not strictly for or
against any party. Whenever the context requires, all words used in the singular
must be construed to have been use din the plural, and vice versa, and each
gender must include any other gender. The captions of the Sections of this
Agreement are for convenience only and must not affect the construction or
interpretation of any of the provision herein.
(c) Each provision of this Agreement to be performed by a party
hereto is both a covenant and condition, and is a material consideration for the
other party's performance hereunder, and any breach thereof by the party will be
a mate4rial default hereunder. All rights, remedies, undertakings, obligations,
options, covenants, conditions and agreements contained in this Agreement are
cumulative and no one of them is exclusive of any other. Time is of the essence
in the performance of this Agreement.
(d) Each party acknowledges that no representation, statement or
promise made by any other party, or by the agent or attorney of any other party,
has been relied on by him or it in entering into this Agreement.
(e) Each party understand that the facts with respect to which
this Agreement is entered into may be materially different from those the
parties now believe to be true. Each party accepts and assumes this risk and
agrees that this Agreement and the release in it shall remain in full force and
effect, and legally binding, notwithstanding the discovery or existence of any
additional or different facts, or of any claims with respect to those facts.
(f) Unless expressly set forth otherwise, all references herein
to a "day" are deemed to be a reference to a calendar day. All references to
"business day" mean any day of the year other than a Saturday, Sunday or a
public or bank holiday in San Diego, California. Unless expressly stated
otherwise, cross-references herein refer to provisions within this Agreement and
are not references to the overall transaction or to any other document.
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(g) Each party to this Agreement will cooperate fully in the
execution of any and all other documents and in the completion of any additional
actions that may be necessary or appropriate to give full force and effect to
the terms and intent of this Agreement.
THE EXECUTIVE AND THE COMPANY ACKNOWLEDGE THAT EACH HAS READ THIS
AGREEMENT, UNDERSTANDS IT AND IS VOLUNTARILY ENTERING INTO IT. THE EXECUTIVE
ACKNOWLEDGES AND UNDERSTANDS THAT THIS AGREEMENT INCLUDES A RELEASE OF ALL KNOWN
AND UNKNOWN CLAIMS.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the dates indicated below.
INLAND ENTERTAINMENT CORPORATION,
A Utah corporation
Dated: 03/6/98 By: /s/ L. DONALD SPEER
------------ ---------------------------------------
L. Donald Speer, II
Chairman of the Board and Chief Executive
Officer, President and Chief Operating Officer
"EXECUTIVE"
Dated: 03/06/98 /s/ ARTHUR R. PFIZENMAYER signature
------------ ---------------------------------------
Arthur R. Pfizenmayer printed name
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EXHIBIT 10.3
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (this "Agreement"), is made and
entered into as of February 13, 1998, by and among Inland Entertainment
Corporation, a Utah corporation (the "Company"), and Torrey Pines Consultants,
Inc., a California corporation (the "Consultant").
1. Consulting Services.
1.1 Scope and Term. During the period from the February 13,
1998, through February 13, 1999, (the "Consultation Period"), the Consultant
agrees to provide consulting services from time to time to the Company. During
the Consultation Period, the Consultant shall be engaged by the Company in a
consulting capacity to render such advisory services and projects as the
Consultant may be assigned from time to time by the Chairman of the Board of the
Company for matters specifically relating to the Barona Casino and the Barona
Band of Mission Indians. The Consultant shall submit a written report regarding
the project assignments and/or services rendered within 15 days of the end of
each month of the Consultation Period (the "Due Date"). If Consultant fails to
submit this written report to the Chairman of the Board within 30 days of the
Due Date, payments to the Consultant under Section 2 shall be suspended. It is
further agreed that either party may terminate this agreement upon 30 days prior
written notice. In the event that Company terminates this agreement prior to end
of the Consultation Period, the Consultant shall receive all unpaid compensation
still due as set forth in Section 2 and shall also receive vesting in the Stock
options as set forth in Section 2.1 as if this agreement was not terminated by
Company.
1.2 Devotion of Time and Effort. The time that the
Consultant shall be obligated to devote to such services shall not exceed
reasonable limits, and to the extent reasonably practicable, the Company on the
one hand, and the Consultant, on the other hand, shall schedule the times at
which its services shall be required to suit their mutual convenience. The
Consultant's inability to be reasonably available to discharge its duties under
Section 1.1 due to the physical or mental disability of its sole shareholder,
its other business or travel commitments, or other causes beyond its reasonable
control, including without limitation, any force majeure, shall not in any
instance or instances be deemed to be a breach of Section 1.1
1.3 Continued Availability and Cooperation. During the
Consultation Period and for the balance of the time referred to in the last
sentence of this Section 1.3, the Consultant and its sole shareholder shall
cooperate fully with the Company and the Company's counsel in connection with
any present or future, actual or threatened, litigation, or administrative
proceeding involving its officers, directors, agents, employees, stockholders,
successors or assigns and relating to events or conduct occurring (or claimed to
have occurred) during the period of the Consultant's service with the Company.
This cooperation shall include but not be limited to (a) making himself
<PAGE> 2
reasonably available for interviews and discussions with the Company and the
Company's counsel as well as for depositions and trial testimony, (b) if
depositions or trial testimony are to occur, making himself reasonably available
and cooperating in the preparation for them and to the extent that the Company
or the Company's counsel reasonably request, (c) refraining from impeding in any
way prosecution or defense of such litigation or administrative proceeding, and
(d) cooperating fully in the development and presentation of the prosecution or
defense of such litigation or administrative proceeding. The Consultant shall be
reimbursed by the Company for his reasonable travel, telephone and similar
expenses incurred in connection with such cooperation, which the Company or the
Company's counsel shall reasonably endeavor to schedule at times not conflicting
with the reasonable requirements of any future employer of the Consultant or
with the requirements or any third party with whom the Consultant has a business
relationship that provides remuneration for the Consultant, and not conflicting
with the Consultant's other business or travel commitments. The Consultant shall
not unreasonably withhold his availability for such cooperation.
2. Compensation During Consultation Period. During the Consultation
Period, so long as its sole shareholder is physically and mentally able, the
Consultant shall render consultative services to the Company as provided in
Section 1 of this Agreement. The Company shall pay the Consultant as
compensation for its services for the one (1) year period commencing on February
13, 1998, and ending February 13, 1999. The amount is $12,500 for the first six
(6) months and $8,000 for the second six (6) months. A retainer in the amount of
$5,500 and the payment for February 13, 1998, to March 31,1998, will be paid
upon Consultant's execution of this Consulting Agreement. All subsequent
payments will be paid on the 10th day following the end of each month of the
Consultation period. Such payments shall not be made in the event of the death
of the Consultant's sole shareholder or his disability during the Consultation
Period. Furthermore, compensation shall cease upon the termination of this
Agreement, except as provided above. The Consultant shall not be entitled to any
payments other than as set forth in this Section 2.
2.1 Stock Options. As additional consideration, the Company
acknowledges that the Consultant's sole shareholder, Arthur R. Pfizenmayer (the
"Executive"), prior to his voluntary resignation (Resignation date) of
employment with the Company, had vested stock options( the "options") which
enabled the then executive and employee, to purchase 210,000 shares of common
stock, par value $.001 per share, of the Company ("Common Stock"). Prior to the
resignation date as set forth in the Settlement and Release Agreement, the
executive had options that were not vested which enable the same to purchase
290,000 shares of common stock, par value $.001 per share, of the Company stock.
Accordingly, and in consideration hereof, each of the executive's "Stock Option
Agreements" under the Company's 1995 Stock Option Plan shall be amended to
extend all provisions of the Stock Option Agreements through the period of time
the Consultant is engaged as a consultant for the company under this agreement.
Upon termination of this agreement the options herein shall terminate.
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3. Confidential Information. The Consultant understands and agrees
that in the course of providing services to the Company, the consultant will
acquire proprietary and confidential information related to the Company's trade
secrets, intellectual property rights, its future plans and its methods of doing
business. The Consultant agrees and understands that it would be extremely
damaging to the Company if the Consultant disclosed such information to a
competitor or made it available to any other person or company. Consultant
further agrees to keep and hold all such confidential information in trust and
confidence, to observe the strictest secrecy with respect to all information
presented by the Company or obtained by Consultant pursuant to this agreement,
and to take all reasonable precautions and measures to protect the secrecy of
and avoid the disclosure or use of the Confidential Information by any
unauthorized persons or in any unauthorized manner and to prevent it form
falling into the public domain or the possession of persons other than those
persons authorized by the Company to have any such information. Accordingly, as
a material condition of this agreement, Consultant and Consultant's sole
shareholder agree to enter into and execute a Confidentiality and Non-Disclosure
Agreement, the same which is attached hereto and incorporated by reference
herein as Exhibit "A".
Except to the extent that this Agreement becomes publicly available
because of a legal requirement that it be filed with a governmental
instrumentality or agency, all provisions of this Agreement and the
circumstances giving rise hereto are and shall remain confidential and shall not
be disclosed by either party to any person not a party hereto except as
necessary to carry out or enforce the provisions of this Agreement or as may be
required by law. Notwithstanding the foregoing, Consultant may disclose the
terms, amounts and fact of this Agreement to Consultant's spouse, attorney,
financial or tax advisor, or taxing authorities. Before Consultant discloses to
his spouse, attorney, financial or tax advisor or taxing authorities anything
about this Agreement, he will inform them of this confidentiality clause and
they must agree (or in the case of any taxing authority, use its best efforts)
to comply with it. Upon request by the Consultant, the Company will make
reasonable efforts to confirm the compensation terms described in Section 2 to
lending institutions which are considering extensions of credit to Consultant.
Each of the parties has read this Agreement, has had the opportunity to consult
with counsel, fully understand this Agreement's terms and enter into this
Agreement freely and voluntarily and intending to be bound hereby.
4. Covenant Not to Compete. During the Consultation Period, the
Consultant shall not, without the written consent of the Chairman of the Board
of the Company and the President of the Company, participate in any business
enterprise providing consulting services to Viejas Casino and Turf Club and or
Sycuan Casino, located in San Diego County, State of California, if such
enterprise engages in direct competition with the Company as the business of the
Company currently is being conducted, with Barona Casino and the Barona Band of
Mission Indians This covenant not to compete shall not preclude the ownership or
acquisition of securities in any enterprise or the exercise of rights
appurtenant thereto, provided that such securities are listed on a national
securities exchange or are regularly quoted in an established over-the-counter
market and provided further that the securities so owned or acquired comprise
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less than 5% percent of the total outstanding voting securities of such
enterprise and do not give the Consultant any meaningful voice in the management
or operation of such enterprise. In addition, this covenant not to compete shall
not preclude the Consultant from (a) serving as an officer or director of the
Consultant's personal investment holding company, (b) service as a director on
the board of a corporation which is not a competitor to the Company or (c)
engagement as a bona fide part-time consultant to a person or entity which is
not a competitor to the Company ("Permissible Employment").
5. Settlement and Release. Notwithstanding anything to the contrary
here, the company's obligation to make any payments under Section 2 herein shall
be dependent on the Consultant executing the Settlement and Release Agreement
and all periods of revocation having lapsed thereunder.
6. Successors and Binding Agreement. (a) This Agreement shall be
binding upon and inure to the benefit of the Consultant and any successor of or
to the Company, including, without limitation, any persons acquiring directly or
indirectly all or substantially all of the business and/or assets of the Company
whether by purchase, merger, consolidation, reorganization or otherwise (and
successor shall thereafter be deemed included in the definition of the Company
for purposes of this Agreement), but shall not otherwise be assignable or
delegable by the Company. Unless the Consultant otherwise agrees the Company's
obligations hereunder shall not be terminated by any such acquisition of all or
substantially all of the business and/or assets of the Company.
(b) This Agreement shall inure to the benefit of and be
enforceable by the Consultant's and its sole shareholder's personal or legal
representatives, executors, administrators, successors, heirs, distributees
and/or legatees.
(c) This Agreement is personal in nature and neither of the
parties hereto shall, without the consent of the other, assign, transfer or
delegate this Agreement or any rights or obligations hereunder except as
expressly provided in subparagraph (a) of this Paragraph.
(d) This Agreement is intended to be for the exclusive
benefit of the parties hereto, and no third party shall have any rights
hereunder.
7. Publicity. The Consultant shall obtain prior approval from the
Company of the content of any public announcements made by the Consultant with
respect to this Agreement or the transactions contemplated hereby, which
approval shall not be unreasonably withheld or delayed (either as to time or
substance); provided, however, that nothing herein shall prevent the Consultant
from making such announcement to any person or persons (including without
limitation potential future employers, creditors, and others) as the Consultant
may consider necessary in order to satisfy (upon the written advice of counsel)
the Consultant's legal, contractual or other obligations.
8. Injunctive Relief. The Consultant recognizes that any breach or
threatened breach of Sections 3 or 4 of this Agreement is likely to result in
immediate and irreparable
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harm to the Company for which money damages are likely to be inadequate.
Accordingly, the Consultant consents to injunction and other appropriate
equitable relief, subject to the notice requirements of the applicable rules of
civil procedure, upon the institution of proceedings therefore by the Company in
order to protect the Company's rights under any of such Sections. Such relief
shall be in addition to any other relief to which the company be entitled at law
or in equity. Nothing herein shall be construed as prohibiting the Company from
pursuing any other remedies for such breach or threatened breach.
9. Authority. The individual(s) executing this Agreement on behalf
of the Company represent and warrant to the Consultant that the performance of
this Agreement and consummation of the transactions contemplated hereby have
been duly authorized by all requisite action and that each has the power and
authority to execute this Agreement.
10. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be given by hand delivery, telecopy,
overnight, courier service, or by United States certified or registered mail,
return receipt requested. Each such notice, request, demand or other
communication shall be effective (a) if delivered by hand or by overnight
courier service, when delivered at the address specified in this Section; (b) if
given by telecopy, when such telecopy is transmitted to the telecopy number
specified in this Section and confirmation is received; and (c) if given by
certified or registered mail, three (3) days after the mailing thereof.
Address for notices (unless and until written notice is given of any other
address):
If to the Company: INLAND ENTERTAINMENT CORPORATION
16868 Via del Campo Court, Suite 200
San Diego, CA 92127
Attn: Mary Jo Boring
Controller and Chief Accounting Officer
If to the Consultant: TORREY PINES CONSULTANTS, INC.
947 Olive Crest Drive
Encinitas, CA 92024
Attn: Arthur R. Pfizenmayer
President
11. Further Documents and Acts. Each of the parties hereto agrees to
cooperate in good faith with the other and to execute and deliver such further
instruments and perform such other acts as may be reasonably necessary or
appropriate to consummate and carry into effect the transactions contemplated
under this Agreement.
12. Financial Reporting. Any computation pertaining to the Company's
financial affairs to be made hereunder or referenced herein shall be based on
generally accepted accounting principles, applied on a consistent basis.
13. Attorneys' Fee. In any action, litigation or proceeding between
the parties arising out of or in relation to this Agreement, the prevailing
party in such action shall be
5
<PAGE> 6
awarded, in addition to any damages, injunctions or other relief, and without
regard to whether or not such matter be prosecuted to final judgment, such
party's costs and expenses, including reasonable attorneys' fees. Such award
shall include post-judgment attorneys' fees and costs and the same shall not be
deemed as merged into the final judgment.
14. California Law. This Agreement has been negotiated and executed
in the State of California. This Agreement shall be governed by and interpreted
in accordance with the laws of the State of California, including all matters of
construction, validity, performance and enforcement, without giving effect to
principles of conflict of laws. Any dispute, action, litigation or other
proceeding concerning this Agreement shall be instituted, maintained, heard and
decided in the State of California.
15. Amendments/Waiver. This Agreement may be amended, supplemented,
modified and/or rescinded only through an express written instrument signed by
all the parties or their respective successors and assigns. Any party may
specifically and expressly waive in writing any portion of this Agreement or any
breach hereof, but no such waiver shall constitute a further or continuing
waiver of any preceding or succeeding breach of the same or any other provision.
The consent by one party to any act for which such consent was required shall
not be deemed to imply consent or waiver of the necessity of obtaining such
consent for the same or similar acts in the future.
16. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one of the same instruments.
17. Severability. In the event that any one or more of the
provisions contained herein (or parts thereof), or the application thereof in
any circumstances, is held invalid, illegal or unenforceable in any respect for
any reason, the validity and enforceability of any such provision in every other
respect and of the remaining provisions hereof shall not be in any way impaired
or affected, it being intended that all of the rights and privileges shall be
enforceable to the fullest extent permitted by law. Notwithstanding anything to
the contrary, in the event Sections 3 or 4 or any part thereof was held to be
invalid, illegal or unenforceable, the obligation of the Company to make payment
to the Consultant under Section 2 herein would terminate and any amounts paid to
the Consultant shall be returned to the Company, with interest at 7% per annum,
such interest calculated from the time of such payment.
18. Entire Agreement. With the exception of the Settlement and
Release Agreement by and among the parties entered into concurrently herewith,
this Agreement contains the entire and complete understanding among the parties
concerning its subject matter and all representations, agreements, arrangements
and understandings between or among the parties, whether oral or written, have
been fully merged herein and are superseded hereby.
6
<PAGE> 7
19. Remedies. All rights, remedies, undertakings, obligations,
options, covenants, conditions and agreements contained in this Agreement shall
be cumulative and no one of them shall be exclusive of any other.
20. Interpretation. The language in all parts of this Agreement
shall be in all cases construed simply according to its fair meaning and not
strictly for or against any party. Whenever the context requires, all words used
in the singular will be construed to have been used in the plural, and vice
versa, and each gender will include any other gender. The captions of the
Sections of this Agreement are for convenience only and shall not affect the
construction or interpretation of any of the provisions herein.
21. Miscellaneous. Each provision of this Agreement to be performed
by a party hereto shall be deemed both a covenant and condition, and shall be a
material consideration for the other party's performance hereunder, and any
breach thereof by the party shall be deemed a material default hereunder. The
recitals and all other documents referenced in this Agreement are fully
incorporated into this Agreement by reference. Unless expressly set forth
otherwise, all references herein to a "day" shall be deemed to be a reference to
a calendar day. Unless expressly stated otherwise, cross-references herein shall
refer to provisions within this Agreement, and shall not be deemed to be
references to the overall transaction or to any other document. Time is of the
essence in the performance of this Agreement.
22. Withholding of Taxes; Tax Reporting. The Company may withhold
from any amounts payable under this Agreement all such Federal, state, city and
other taxes, and may file with appropriate governmental authorities all such
information returns or other reports with respect to the tax consequences
attendant to any amounts payable under this Agreement, as may, in its reasonable
judgment, be required by law.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement.
INLAND ENTERTAINMENT CORPORATION
Dated: 3/6/98 A Utah Corporation
By: /s/ L. DONALD SPEER
-----------------------------------------
L. Donald Speer, II
Chairman of the Board
Dated: 3/6/98 TORREY PINES CONSULTANTS, INC.
A California Corporation
By: /s/ ARTHUR R. PFIZENMAYER
-----------------------------------------
Arthur R. Pfizenmayer
President
7
<PAGE> 1
EXHIBIT 10.4
MODIFICATION NO. 1 TO
AMENDED AND RESTATED CONSULTING AGREEMENT
of April 29, 1996, effective March 27, 1996
Between Barona Band of Mission Indians
AND INLAND CASINO CORPORATION
JANUARY 6, 1998
State of California, County of San Diego
The parties to this Agreement are the Barona Band of Mission Indians, a
federally recognized Indian Tribe (the "Tribe") whose federal Indian Reservation
is located near the City of Lakeside, County of San Diego, State of California,
as the owner and operator of the Barona Casino, with offices at 1095 Barona
Road, Lakeside, California 92040, and Inland Casino Corporation, a Utah
corporation ("Inland") with offices at 16868 Via del Campo Court, Suite 200, San
Diego, California 92127.
The Tribe acts through its Chairman and Tribal Council under authority
previously granted by the General Council. Inland acts through its Chairman and
Chief Executive Officer under authority granted by its Board of Directors.
This document extends the term of the Amended and Restated Consulting
Agreement (hereafter Amended Consulting Agreement) of April 29, 1996, effective
March 27, 1996, between the Tribe and Inland, in addition to making certain
clarifications to that Agreement. This document will hereafter be referred to as
the "Extension Agreement."
I. Extension of Term
The parties hereby act under paragraph III (B) of the Amended Consulting
Agreement by extending the term thereof for five (5) additional years beyond its
current expiration date of March 31, 1999. This extension begins on April 1,
1999 and continues thereafter until March 31, 2004. This Extension Agreement and
the term of the Amended Consulting Agreement will terminate on March 31, 2004
unless modified or extended by a mutually signed agreement of the parties prior
to
<PAGE> 2
the expiration of this extension.
The performance expected of and the compensation paid to Inland will
continue to be the same as those expressed in the Amended Consulting Agreement,
for those services described in Exhibit A attached thereto. The corresponding
rights, obligations and responsibilities of the Tribe will likewise continue to
be the same as those in the Amended Consulting Agreement. Except as set forth in
this Extension Agreement, all other terms and conditions of the Amended
Agreement shall remain unchanged.
II. Clarification of Accounting Practices
In order to better define and clarify the accounting basis on which
their consulting relationship is based, the parties hereby confirm that certain
expenses of the Barona Casino have been and will continue to be paid by Inland.
In order that the Tribe suffer no detriment under the Amended Consulting
Agreement, the following three expense items shall be added back into operating
income for the calculation of Inland's consulting fee as stated below:
1. The salaries, plus federal, state, and local taxes thereon, paid to the
following employees of the Barona Casino
A) General Manager;
B) Assistant General Manager;
C) Director of Marketing;
D) Director of Food and Beverage;
E) Director of Technology/Communications, except the Tribe shall be
responsible for seventy-eight per cent (78%) of the salary.
2. Depreciation on assets contributed by Inland to the Tribe from April 1, 1996
to the present, (based on attached Exhibit B).
3. The amortization of master plan costs of $1,222,462.44 paid by Inland.
The manner in which the above expenses have been and will continue to be
accounted for as follows: First, the operating profit of the casino in any month
will first be calculated. Second, the above three described amounts will then be
added back. Third, Inland's consulting fee will be based on the sum total of
these amounts just described, and by reference to the formula for such
calculations contained in Paragraph VI of the Amended Consulting Agreement.
Fourth, the above
<PAGE> 3
payroll amounts described in item 1 are subtracted from the consulting fee to be
paid to Inland.
Furthermore, this calculation of the expenses and offsets to the
consulting fee is subject to adjustment or modification on a bookkeeping basis
from time to time as described below. If job classifications associated with the
above list are added or deleted by the parties, it shall not be necessary to
further modify the Amended Consulting Agreement to reflect those changes, as
long as the accounting practices upon which these calculations are made shall be
preserved. For any such modification, Inland shall propose that modification in
writing to the Tribal Council, which shall have ten (10) days from receipt in
which to comment or object to such proposal. Failure to object shall be deemed
as an approval.
III. Reaffirmation of Existing Relationship
This Extension Agreement, when mutually signed by both the Tribe and
Inland, shall be merged with and incorporated in the Amended Consulting
Agreement as if the Amended Consulting Agreement were set forth in its entirety
in this document.
The parties wish to reaffirm their respective positions with regard to
the operations of the Barona Casino on the Barona Indian Reservation. The Tribe
is the owner and manager of the Barona Casino and all of the assets contained
therein. The parties further acknowledge that the Tribe initiates and makes all
material policy-making decisions and exercises day to day control over all
operations of the Barona Casino. Inland is merely providing consulting advice to
the Tribe within those areas described in Exhibit "A" above. It is the option of
the Tribe as to which areas of consulting services the Tribe wishes to request
of Inland.
The parties to this Extension Agreement intend that their mutually
beneficial relationship continue to provide the Tribe with opportunities for
self determination, for improvement to the welfare of the members of the Tribe,
to promote Tribal economic development, Tribal self-sufficiency, strong Tribal
government, and betterment of the general reputation of all Native Americans,
all in concert with federal laws pertaining to gaming on Indian lands.
The execution by Clifford LaChappa, as Chairman of the Tribe is with the
consent and concurrence of the Tribal Council of the Tribe. The execution by L.
Donald Speer as Chairman, Chief Executive Officer and President of Inland Casino
Corporation is with the consent and
<PAGE> 4
concurrence of the Board of Directors.
IN WITNESS WHEREOF, the undersigned have caused this Extension Agreement
to be executed on this 17th day of February, 1998.
BARONA BAND OF MISSION INDIANS
By: /S/ Clifford M. LaChappa
-----------------------------------
Clifford M. LaChappa, Chairman
INLAND CASINO CORPORATION,
A Utah Corporation
By: /S/ L. Donald Speer
-----------------------------------
L. Donald Speer, Chairman,
Chief Executive Officer and
President
<PAGE> 5
EXHIBIT A
SCOPE OF CONSULTING SERVICES
GENERAL CASINO OPERATIONS
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.
<PAGE> 6
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 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.
<PAGE> 7
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.
<PAGE> 8
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.
<PAGE> 9
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.
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.
<PAGE> 10
11. Community relations and political affairs.
12. Signage, both in the casino and outside including information and
directional.
FOOD AND BEVERAGE OPERATION
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.
<PAGE> 11
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.
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, Cal-NIGA, 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.
<PAGE> 12
EXHIBIT B
List of assets contributed by Inland Casino Corporation effective as of
April 1, 1996 to February 15, 1998
<TABLE>
<CAPTION>
Identification of Item Date Acquisition Cost or Basis
---------------------- ---------------- -------------
<S> <C> <C>
Restroom - addition in 02/23/96 $ 10,410.00
old casino
Outside Dining Area 04/01/96 $ 3,572.46
Food Court 07/04/96 $ 179,919.04
Founders Way Road 12/09/97 $2,000,000.00
Founders Way Statues 12/09/97 $ 75,803.54
Restaurant Cashiers 02/01/96 $ 13,973.40
System/MICROS
Computer System upgrade for use 09/01/96 $ 3,485.00
by SCLC
Signage - Directional signs 09/17/96 $ 17,100.00
near front & back entrances &
food court
Total of contributed $2,304,263.44
assets as of February 15, 1998
</TABLE>
<PAGE> 1
EXHIBIT 10.5
THIS SOFTWARE SUPPLY AND SUPPORT AGREEMENT (this "Agreement") IS ENTERED INTO AS
OF THIS 13th DAY OF MARCH, 1998, BY AND BETWEEN:
INTERTAINET OVERSEAS LICENSING LIMITED
a Cyprus corporation,
with its principal place of business at
51 Prodromos Street
Office 101
Strovolos
Nicosia, Cyprus
(referred to in this Agreement as "IOL"),
- and -
WORLDWIDE MEDIA HOLDINGS N.V.
a Netherlands Antilles corporation,
with its principal place of business at
P.O. Box 504
Scharlooweg 81
Curacao, Netherlands Antilles
(referred to in this Agreement as "Marketing Representative")
WHEREAS, Marketing Representative is a party to that certain agreement
entitled "Appointment of Marketing Representative" dated as of March 13, 1998,
by and among Marketing Representative, IOL, Cyberluck Curacao N.V., a
Netherlands Antilles company ("Cyberluck"), and Bardenac Holdings N.V., a
Netherlands Antilles company ("Bardenac") which agreement was amended by that
certain agreement entitled "Amended and Restated Appointment of Marketing
Representative" dated as of March 13, 1998, (collectively the "Appointment
Agreement");
WHEREAS, Cyberluck is the holder of that certain gaming license, License
No. 1668/JAZ (the "Gaming License"), issued by the government of the Netherlands
Antilles, which Gaming License permits, among other things, the appointment of
Information Providers permitted to establish a virtual casino on the Internet
(the "Casino"), with the gaming computer server located in Curacao;
1
<PAGE> 2
WHEREAS, Bardenac is Information Provider to Cyberluck for the Casino
pursuant to that certain written agreement by and among Bardenac, Cyberluck, and
IOL, and is the owner of the Casino;
WHEREAS, IOL is in the business of providing certain software and
software and hardware management services for the operation of software and
hardware in connection with the taking and processing of bets for casino games
offered by virtual casinos on the Internet;
WHEREAS, Marketing Representative wishes to use certain software of IOL
and to obtain certain software and hardware management services from IOL in
connection with its rendering of certain Marketing Services to the Casino as
defined in the Appointment Agreement;
WHEREAS, IOL wishes to permit Marketing Representative to use certain
software and to render certain software management services to Marketing
Representative; and
WHEREAS, Marketing Representative and IOL desire to enter into this
Agreement upon the terms and conditions set forth below.
NOW, THEREFORE, in consideration of the premises and mutual promises and
covenants set forth herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, IOL and Marketing
Representative hereby agree as follows:
1. DEFINITION OF TERMS
As used in this Agreement, the following capitalized terms, not
otherwise defined herein, have the meanings indicated:
ADVERTISING TARGET - the term "Advertising Target" shall mean the
minimum expenditure by Marketing Representative on advertising in each
one-month period during the currency of this Agreement and any renewals,
and shall be the sum set out in Schedule "A" to this Agreement;
COMMENCEMENT DATE - the term "Commencement Date" shall mean March 13,
1998 so long as all of the following have occurred;
(a) IOL has been satisfied that Marketing Representative has been
appointed as a marketing representative under the Appointment
Agreement, that the Gaming License permits the appointment of
marketing representatives, that the Gaming License has been
granted by a governmental authority acceptable to IOL, that the
Appointment Agreement permits Marketing Representative to
provide marketing services to the Casino, that all regulatory
requirements have been complied with (including the approval of
Marketing Representative as a Marketing Representative of the
holder of the Gaming License, if required), and that the Gaming
License is in good standing;
2
<PAGE> 3
(b) Customization has been substantially completed pursuant to
Schedule "B" to the Agreement;
(c) Ninety percent (90%) of the fee for initial Customization has
been paid pursuant to Schedule "B" of the Agreement.
CUSTOMIZATION - the term "Customization" shall mean the provision by IOL
to Marketing Representative of its standard commercial application,
version 2.1 or greater, in which the graphics, sounds and texts have
been customized to the specifications of Marketing Representative based
on replacements (in form, content and quantity reasonably acceptable to
IOL) provided by Marketing Representative to IOL at the time of payment
of the fee for initial Customization ("Custom Client Software
Application").
INTELLECTUAL PROPERTY RIGHTS - the term "Intellectual Property Rights"
shall mean all copyrights (including, without limitation, the exclusive
right to reproduce, distribute copies of, display and perform the
copyrighted work and to prepare derivative works), copyright
registrations and applications, trademark rights (including, without
limitation, registrations and applications), patent rights, trade names,
maskwork rights, trade secrets, moral rights, author's rights,
algorithms, rights in packaging, goodwill and other intellectual
property rights, as may exist now and/or hereafter come into existence,
and all renewals and extensions thereof, regardless of whether any of
such rights arise under the laws of the United States or any other
state, country or jurisdiction, and all derivatives of any of the
foregoing.
IOL SERVICES - the term "IOL Services" shall mean:
(a) the system of services implemented by IOL and its affiliates and
third party providers and used by or on behalf of Marketing
Representative in the provision of the Marketing Services to the
Casino, including a limited license for the Custom Client
Software Application and an electronic cash settlement system
(collectively, the "IOL System");
(b) the provision and operation in the jurisdiction from which the
Gaming License has been issued of a gaming server to operate the
IOL System;
(c) monitoring of the IOL System;
(d) the provision of technical support for the IOL System including
both general computer software and hardware support;
(e) a system of accounting and reporting to Marketing
Representative;
(f) management of the IOL System;
(g) Customization;
3
<PAGE> 4
(h) the provision of all "bug" fixes, modifications, enhancements
and upgrades issued to the standard commercial version of the
Custom Client Software Application;
(i) the provision, if offered by IOL to its customers generally, of
a Web-site design service and maintenance system; and
(j) the provision of support, in English, to the end-users of
Marketing Representative in their use of the IOL System.
IOL USER DATA - The term "IOL User Data" shall mean that portion of the
User Data that is part of the electronic cash settlement system.
MARKETING REPRESENTATIVE USER DATA - The term "Marketing Representative
User Data" shall mean the User Data exclusive of the IOL User Data.
NET WIN - The term "Net Win" shall mean the difference between aggregate
end-user losses and aggregate end-user winnings
SALES TARGET - The term "Sales Target" shall mean the minimum sales
revenue to be generated by Marketing Representative during the currency
of this Agreement and any renewals, and shall be the amount set out in
Schedule "A" to this Agreement.
UNITED STATES END-USER - The term "United States end-user" shall mean
any end-user who indicates on the registration screen of the IOL System
to IOL or Marketing Representative that he has a mailing or billing
address located in the United States or in any district, commonwealth,
territory, or possession of the United States (collectively the "United
States").
USER DATA - The term "User Data" shall mean gaming computer server
records accumulated in the IOL System, including, without limitation,
all information about the end-users and all end-user transactions,
whether gaming or otherwise.
All amounts are in U.S. dollars.
2. IOL SERVICES
During the term of this Agreement and any extensions, IOL shall provide
the IOL Services to Marketing Representative in accordance with the terms set
forth in this Agreement.
(a) RIGHT TO SUB-CONTRACT. - Marketing Representative acknowledges
and agrees that IOL shall have the right at all times to
subcontract to one or more third party providers, whether or not
affiliates of IOL, all or part of the IOL Services, subject to
the same material terms and conditions relating to unauthorized
access and the confidentiality of the User Data and information
relating to Marketing Representative as provided herein;
provided, however, that IOL shall have first
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obtained the written agreement of any affiliated third party
provider that Marketing Representative shall be an intended
third-party beneficiary of any such subcontract with rights,
subject to the limitations of this Agreement, to enforce such
subcontract against the third party provider; and provided,
further, that no such subcontract shall release, or shall be
construed to release, IOL from any of its obligations under this
Agreement.
(b) EFFECT OF MAJOR CHANGE - It is acknowledged and understood that
the IOL System's ability to perform or provide certain financial
functions may be limited by the constraints imposed by IOL's
agreements with banking or financial entities. IOL represents
and warrants that such constraints do not currently materially
interfere with Marketing Representative's use of the IOL System
or with IOL's performance of its obligations under this
Agreement. In the event that any such constraints in the future
materially interfere with Marketing Representative's use of the
IOL System or with IOL's performance hereunder, Marketing
Representative may, in its reasonable discretion, treat any such
constraint as a Major Change as defined in Section 2(h) below.
If Marketing Representative does not terminate this Agreement
under Section 2(h) on account of such constraints, this
Agreement shall be deemed amended to the extent required in
order that IOL may comply with the constraints imposed by such
third party contracts.
(c) ACCESS TO IOL SYSTEM - As of the Commencement Date and subject
to the availability of the computer gaming server and to IOL's
band width capacity on the Internet, IOL shall provide Marketing
Representative's end-users with real-time access to the IOL
System for the purpose of utilizing the IOL Services and
Marketing Representative with real-time access to the logs
generated by the IOL System;
(i) NO DOWN-TIME LIABILITY - IOL shall not be liable to
Marketing Representative or its end-users for any
down-time in the IOL System, whether scheduled or
unscheduled; provided, however, that IOL shall give
Marketing Representative five (5) days prior notice of
any scheduled down-time within IOL's control or of which
IOL is aware.
(ii) STORAGE AND COMPUTER FACILITIES - IOL agrees to provide
an amount of data storage and data processing capacity,
adequate to accommodate the data processing and storage
needs of Marketing Representative.
(iii) RESPONSE TIME - IOL shall not be liable to Marketing
Representative or its end-users for any delay in
response time within the IOL System.
(d) ACCESS TO MARKETING REPRESENTATIVE USER DATA - IOL agrees to
provide Marketing Representative with real-time access by
electronic means to the Marketing Representative User Data. This
access will be by way of personal computer using the Windows NT
Operating System (PC) provided by the Marketing Representative.
IOL further agrees to use its best efforts to provide
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Marketing Representative with copies of all written or
electronic communications between end-users and IOL, provided
that such communications are not related to electronic cash
settlements with end-users.
(e) STORAGE OF USER DATA - IOL agrees to store and maintain at its
expense the Marketing Representative User Data. Marketing
Representative and IOL specifically acknowledge and agree that,
except as authorized in this Agreement, no party other than
Marketing Representative, IOL and any third party provider
reasonably acceptable to Marketing Representative shall have
access to or use of the Marketing Representative User Data. IOL
warrants and represents that the Marketing Representative User
Data shall be kept confidential and shall not be disclosed to
any third party, unless such disclosure is approved in advance
by Marketing Representative.
(i) UNAUTHORIZED ACCESS TO USER DATA - Marketing
Representative hereby acknowledges and agrees that any
attempt by Marketing Representative, its employees,
agents or end-users to access without authority any part
of the User Data or any part of the IOL System, except
as authorized herein, is a direct violation of the terms
and conditions of this Agreement. For purposes of this
Section 2(e)(i), the term "access" shall include,
without limitation, any attempt to copy, download,
manipulate, reverse engineer, export or transfer any
part of the User Data or the IOL System without the
prior written consent of IOL. IOL shall have the right,
its sole and absolute discretion, to stop providing the
IOL Services in the event it reasonably determines that
Marketing Representative, its employees, agents or
end-users have gained unauthorized access to the IOL
System. IOL shall resume providing the IOL Services when
it is reasonably satisfied that such unauthorized access
is no longer available. Continued attempts by Marketing
Representative, its employees, agents or end-users to
gain unauthorized access to the IOL System shall be
considered a breach of this Agreement. IOL shall provide
written notice to Marketing Representative of such
attempts. If an end-user is reasonably determined to be
responsible for such repeated attempts, IOL shall, in
its sole and absolute discretion, have the right to bar
such end-user access to the IOL Services and the IOL
System. If Marketing Representative, its employees, or
its agents are reasonably determined to be responsible
for such repeated attempts, IOL shall have the right, in
its sole and absolute discretion, to terminate this
Agreement immediately with or without notice to
Marketing Representative.
(ii) COMPLIANCE WITH REGULATORY REQUIREMENTS - Marketing
Representative acknowledges and agrees that IOL shall be
under no obligation to disclose any User Data to
Marketing Representative that IOL is precluded from
disclosing by applicable law, statute, or regulation.
Notwithstanding anything foregoing to the contrary, IOL
shall use its best efforts to meet its obligations under
this Agreement regarding the
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User Data, including, without limitation, providing
Marketing Representative with the information that
Marketing Representative requires to comply with any
applicable law, statute, or regulation, including,
without limitation, the reporting requirements of the
Gaming License.
(f) TECHNICAL SUPPORT SERVICES - IOL shall provide Marketing
Representative with start up support without additional charge,
for a period of time up through and including thirty (30) days
following the processing of the first live end-user transaction
through the IOL system. Additional start up support services
will, at the specific request of Marketing Representative, be
provided by IOL for an amount mutually agreed upon by the
parties on a case-by-case basis.
(g) SYSTEM IMPROVEMENTS - IOL reserves the right to improve, change
or otherwise modify the IOL System, the IOL Services, or any
part of them as deemed appropriate by IOL from time to time, and
in the sole and absolute judgment of IOL. Marketing
Representative specifically acknowledges and agrees that IOL may
from time to time make changes to the IOL System and/or the IOL
Services which do not materially affect IOL's performance or the
terms and conditions of this Agreement. IOL will make every
reasonable effort to provide prior written notice of any such
changes to Marketing Representative and will use its best
efforts to minimize the disruption of access to the IOL System
by Marketing Representative and end-users.
(h) CHANGES INDUCED BY THIRD PARTY - IOL shall use its best efforts
to give Marketing Representative thirty (30) days' prior written
notice of the implementation of any changes to the IOL System
and/or the IOL Services which are induced or mandated by a third
party and which substantially, materially or adversely alter the
terms of this Agreement or any of the features of the IOL
Services (hereinafter collectively referred to as a "Major
Change"). Within ten (10) days of receipt of such notice or
implementation of any Major Change, whichever shall first occur,
Marketing Representative may elect to exercise its option
pursuant to Section 11(b) (ii) hereof to terminate this
Agreement. If Marketing Representative does not exercise its
option to terminate this Agreement, then the Major Change,
including any new charges, terms or conditions created thereby,
shall become effective and binding on Marketing Representative
on the date of its implementation.
(i) CUSTOMIZATION - IOL will provide a Custom Client Software
Application pursuant to the delivery schedule attached hereto as
Schedule "B".
(j) NO OBLIGATION TO SERVICE ALL END-USERS - IOL may prohibit
certain end-users access to the IOL System if, in its reasonable
discretion, it deems it necessary, at any time or times, whether
to comply with the laws or regulations of any governmental
agency or authority, for credit risk purposes or for any other
reason; provided, however, that IOL shall use its best efforts
to give Marketing
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Representative prompt written notice of IOL's decision to
prohibit access to certain end-users, which notice shall
include, without limitation, the identity of the end-user and
the facts and circumstances underlying IOL's shall not
unreasonably refuse Marketing Representative's request to
reinstate the access of any end-user if access was denied as a
result of a gaming rather than an electronic cash issue. Nothing
in this Section 2(j) shall limit, or be construed to limit,
IOL's rights under Section 2(e)(i) hereof.
(k) MARKETING REPRESENTATIVE TO SET LIMITS - Betting limits on the
IOL System shall initially be as set out in Schedule "B" to this
Agreement and shall be altered from time to time by Marketing
Representative by notice in writing to IOL, subject to IOL's
approval, which approval may not be unreasonably withheld.
3. COMPENSATION TO IOL
(a) COMPENSATION - In consideration of the supply of the Custom
Client Software Application to Marketing Representative and the
agreement to provide IOL Services to Marketing Representative in
connection with its obligation to supply Marketing Services (as
defined in the Appointment Agreement) to the Casino, Marketing
Representative shall pay to IOL the fees, charges, costs and
other compensation set out in this Agreement and specified in
Schedule "A" to this Agreement and shall include:
(i) CUSTOMIZATION FEE - Fees for initial Customization as
set out in Schedule "A". Should IOL, through no failure
on Marketing Representative's part, fail to commence
operating the Custom Client Software Application within
ninety (90) days of the date of execution of this
Agreement, then IOL shall refund to Marketing
Representative the fee for initial Customization.
(ii) ADDITIONAL CUSTOM PROGRAMMING SERVICES - If Marketing
Representative desires additional custom programming
services and if IOL, acting reasonably, agrees to do so
on a case-by-case basis, then IOL shall provide such
services for an amount mutually agreed upon by the
parties on a case-by-case basis;
(iii) FEES INCURRED IN CONNECTION WITH REGULATORY COMPLIANCE -
All reasonable out-of-pocket charges incurred by IOL on
the Marketing Representative's behalf in connection with
the reporting and filing requirements on Marketing
Representative's behalf mandated by the Gaming License;
and
(iv) ADDITIONAL INCIDENTAL EXPENSES - such additional
incidental expenses as IOL shall reasonably incur on
Marketing Representative's behalf including, without
limiting the generality of the foregoing, wire transfer
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costs and the cost of service and technical support
attributable to Chargebacks, etc.
(b) PAYMENT - Payment shall be made in accordance with the payment
schedule set out in Schedule "A" and this Agreement. IOL
reserves the right to procure payment from Marketing
Representative by invoice by electronic debit, or combination
thereof, as follows:
(i) INVOICE - IOL may invoice Marketing Representative
periodically for the amounts due and owing from
Marketing Representative to IOL. IOL shall credit any
fees and costs that were paid in advance against such
invoice and render a net amount owing for the previous
period in addition to the prepayment of new fees and
costs due in the current period. IOL may deliver such
invoice by facsimile transmission or other written
notice to Marketing Representative. Marketing
Representative shall make payment within fifteen (15)
days after the invoice is received. In addition, all
sums past due for twenty (20) days shall thereafter
accrue interest thereon with such interest at the rate
of the lesser of one and one half percent (1.5%) per
month and the maximum amount allowed by law.
(ii) ELECTRONIC DEBIT - Marketing Representative acknowledges
that, whether or not invoiced IOL shall be entitled to
retain from the Net Win, any and all costs, charges, and
fees provided for in this Agreement. By execution of
this Agreement, Marketing Representative expressly
acknowledges IOL's right to make any and all such debits
from the Net Win of the Casino it has collected for
Bardenac. IOL will provide to Marketing Representative
no later than the fifteenth (15th) business day of each
month, an itemized statement detailing the transactions
and related debits for the calendar month immediately
preceding.
(c) SUSPENSION OF IOL SERVICES - In the event that any undisputed
invoice for a material amount is not paid within twenty-five
(25) days after the date payment is due, and IOL is unable to
electronically debit the payment, IOL may, in addition to any
other rights and remedies it may have under this Agreement, at
law or in equity, suspend Marketing Representative's access to
the IOL Services until such amount is paid in full.
(d) LOCAL TAXES - IOL is not currently subject to any local taxes in
the Netherlands Antilles on account of rendering the IOL
Services under this Agreement. In the event that IOL should
become subject to any such local taxes, IOL shall promptly
notify Marketing Representative in writing, and the parties
shall agree to a mutually acceptable adjustment in the fees to
be received by IOL the IOL Services.
(e) MARKETING REPRESENTATIVE'S INDEMNITY OF IOL - Marketing
Representative acknowledges that, in addition to the obligations
of Marketing Representative to
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pay IOL as set out in this Agreement, IOL is owed an on-going
monthly service fee (the "Monthly Service Fee") by Bardenac for
providing the IOL Services for the Custom Client Software
Application during the term of this Agreement. Marketing
Representative agrees to indemnify and hold IOL harmless from
and against any failure or refusal by Bardenac to pay the
Monthly Service Fee; provided, however, that Marketing
Representative's obligation to indemnify IOL shall be expressly
conditioned upon the following:
(i) The Monthly Service Fee shall not exceed in any given
month;
(ii) IOL shall have given Bardenac written notice of default
in respect of any failure or refusal by Bardenac to pay
the Monthly Service Fee, which notice shall provide a
period of not less than thirty (30) days within which
Bardenac may cure its default;
(iii) IOL shall have sent Marketing Representative a copy of
any notice of default from IOL to Bardenac;
(iv) IOL shall have continued to make all payments of the
Marketing Fee due from Bardenac to Marketing
Representative; and
(v) Upon receipt of any notice of default from IOL to
Bardenac, Marketing Representative shall have the option
to terminate this Agreement if, within sixty (60) days
of its receipt of such notice, Marketing Representative
is not appointed the marketing representative for
another Information Provider reasonably and mutually
acceptable to Marketing Representative and IOL.
4. PAYMENT OF MARKETING FEE
(a) ACKNOWLEDGEMENT OF MARKETING FEE OWED BY BARDENAC - IOL
acknowledges and agrees that the Appointment Agreement provides
for the payment by Bardenac to Marketing Representative of a fee
(the "Marketing Fee") in consideration of the rendering of
Marketing Services equal to *** of the Net Win of the Casino
generated from end-user use of the Custom Client Software
Application.
(b) ACKNOWLEDGMENT OF DIRECTION TO PAY - IOL also acknowledges and
agrees that Bardenac has authorized IOL as its agent to be in
possession of the Net Win of the Casino and to pay the Marketing
Fee directly to Marketing Representative on Bardenac's behalf as
set forth in this Section 4.
(c) PAYMENT OF FEE - IOL shall pay Marketing Representative the
Marketing Fee on behalf of Bardenac on a periodic basis selected
by Marketing Representative, but not more frequently than daily.
Subject to the Rolling Reserve as defined below, the periodic
payments shall be based on the Net Win resulting from the
settlements of end-user transactions. IOL represents and
warrants that the
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*** Confidential information has been omitted and filed separately with the
Commission.
<PAGE> 11
settlement of an end-user transaction will take place no later
than five (5) days following the transaction. All payments of
the Marketing Fee shall be made by wire transfer to an account
specified in writing by Marketing Representative.
(d) ROLLING RESERVE - Subject to a true-up as set out below, IOL
shall be entitled to hold back from each payment of the
Marketing Fee a sum not to exceed five (5%) percent of the
amount otherwise due to Marketing Representative as an estimate
of all end-users' Chargebacks, as defined below. Marketing
Representative acknowledges end-users' Chargebacks may be
incurred after the period in which the Marketing Fee is earned
and, accordingly, authorizes IOL to retain a sum not to exceed
five (5%) percent of the amount that Marketing Representative
would otherwise receive as a reserve for a period of one hundred
and eighty (180) days.
(e) MONTH END TRUE-UP - At the end of each calendar month, IOL shall
perform a reconciliation of the Net Win of the Casino during
that month to determine the actual Marketing Fee due and owing
to Marketing Representative from Bardenac and shall pay to
Marketing Representative by the tenth day of the following
month, the shortfall, if any, between the amounts actually paid
to Marketing Representative during such month and the amount
actually owing to Marketing Representative for such month. The
reconciliation shall include without limitation, the Net Win,
incidental expenses incurred on Representative's behalf, any
interim payments of the Marketing Fee, and the Rolling Reserve.
(f) ACCOUNTING - Unless Marketing Representative, within forty-five
(45) days after delivery of any month end true-up calculation
and payment, if any, notifies IOL in writing that it objects to
any item or computation set forth on the month end true-up, such
month end true-up shall be binding upon the parties. If
Marketing Representative and IOL are unable to agree upon the
computation or calculation of the month end true-up within
thirty (30) days after any notice of objection has been given by
Marketing Representative to IOL and the amount of the dispute
exceeds Twenty-Five Thousand Dollars ($25,000), an independent
accounting firm mutually agreed upon by Marketing Representative
and IOL within 10 days after the expiration of such 30-day
period (the "Accounting Firm") shall resolve the disputed items
and determine the month end true-up within 30 days after its
acceptance of its appointment in such capacity. Any
determination by the Accounting Firm shall be binding upon the
parties. In addition, the Accounting Firm shall be authorized to
determine which of the parties is the prevailing party in any
dispute, and whichever party is not determined to be the
prevailing party shall bear all of the fees, costs, and expenses
of the Accounting Firm. In the event that the Accounting Firm is
appointed, IOL shall cause IOL's then existing independent
auditors to provide the Accounting Firm, Marketing
Representative and its independent auditors full access to all
books and records and working papers to the extent necessary to
enable Marketing Representative and its independent auditors to
verify each month end true-up.
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5. FINANCIAL AND OTHER INFORMATION
IOL shall maintain full and complete books of account and other records
reflecting the results of operations of the Casino in accordance with Canadian
generally accepted accounting principles consistently applied (or such other
accounting method approved in writing by Marketing Representative). The
financial information that IOL shall furnish or cause to be furnished to
Marketing Representative shall include, without limitation, the following: any
and all accounting records necessary to audit and verify the Net Win, the
Marketing Fee, Rolling Reserve, month end true-up calculations, and any other
fees or revenues referred to in the Agreement.
6. CHARGEBACKS
(a) Marketing Representative acknowledges that it is the policy of
IOL's electronic cash settlement system provider to negotiate
and pay, where it in its sole and absolute judgment deems
advisable, all chargebacks received by IOL's clearing bank and
to issue, when it considers it advisable, a credit to any
end-user who questions any IOL transaction appearing on the
end-user's statement (collectively referred to in this Agreement
as "Chargebacks"). Marketing Representative further acknowledges
the full and complete authority of such provider or any
subsequent provider to accept or reject Chargebacks and/or issue
credits, as it in its sole and absolute judgment deems
appropriate, without incurring any liability to Marketing
Representative for any such actions. Marketing Representative
agrees to conduct its activities at all times hereunder in
accordance with the chargeback and credit policies of such
provider and to fully comply with any rules and regulations that
it may issue from time to time relating to the implementation of
such policies.
(b) IOL represents and warrants that its agreements with banks and
other financial institutions permit such banks and financial
institutions to terminate such agreements if the level of
Chargebacks exceeds one percent (1%) of gross credit card
deposits processed for a period of two (2) months or longer.
Marketing Representative agrees that if such banks or financial
institutions terminate their agreements with IOL on this basis
on account of the gross credit card deposits processed under
this Agreement, IOL shall be entitled to terminate this
Agreement in accordance with Section 11(a) (i) below.
7. RIGHTS IN DATA
The parties hereto shall have the below listed rights of ownership in
the User Data.
(a) OWNERSHIP OF USER DATA - Marketing Representative shall own all
right, title, and interest in and to the Marketing
Representative User Data and all data contained therein.
Marketing Representative shall permit IOL access to and use of
the Marketing Representative User Data but only for purposes
that are directly related to the performance of IOL's
obligations under this Agreement.
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IOL agrees that it shall not access or use all or any portion of
the Marketing Representative User Data for any other purpose.
IOL further agrees that it shall not disclose all or any portion
of the Marketing Representative User Data, to any third party,
except as permitted under this Agreement, and shall strictly
maintain the confidentiality of the Marketing Representative
User Data. In the event that IOL is required by applicable law
or otherwise to disclose all or any portion of the Marketing
Representative User Data, IOL shall give Marketing
Representative at least ten (10) days advance written notice of
such required disclosure, if possible, and shall cooperate with
Marketing Representative's efforts, if any, to contest such
disclosure.
Notwithstanding the foregoing, Marketing Representative shall
have no right, title or interest in or access to any User Data,
if such right, title, interest, or access is prohibited by
applicable law; provided, however, that nothing herein shall
relieve, or shall be construed to relieve, IOL of its
obligations to prevent disclosure of all or any portion of the
User Data except as permitted hereunder, or to maintain the
strict confidentiality of the User Data.
(b) DATA SECURITY PROCEDURES - IOL agrees to utilize reasonable
security measures to protect and preserve the integrity of the
User Data and the IOL System and to prevent unauthorized access
to the User Data.
8. RIGHTS IN CASINO
Except as provided for in this Agreement, Marketing Representative shall
have no right, title, or interest in or to the Casino, the Net Win or
any other revenues of the Casino, the Gaming License, the IOL System,
the System Improvements, or the Custom Client Software Application.
Nothing in this Agreement shall create, or shall be construed to create,
any other interest in or on behalf of Marketing Representative. IOL
acknowledges and agrees that Marketing Representative is an independent
contractor and licensee under this Agreement and that IOL shall not make
any statement or take any action which may be construed to imply or
impute any other relationship with or role of Marketing Representative,
whether as a partner, a joint venturer, an owner, or otherwise.
9. REPRESENTATIONS, WARRANTIES AND ADDITIONAL COVENANTS OF MARKETING
REPRESENTATIVE
Marketing Representative represents, warrants, and covenants as follows:
(a) GAMING LICENSE - Marketing Representative is the marketing
representative referred to in the Appointment Agreement. All
regulatory requirements to which Marketing Representative is
subject have been, or within sixty (60) days after the
Commencement Date will be, complied with. To the best of
Marketing Representative's knowledge, the Gaming License is in
good standing, Marketing Representative has full power and
authority to operate pursuant to the Gaming
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License, and the Appointment Agreement and the Gaming License
are in full force and effect. Marketing Representative shall
comply with the requirements of the Gaming License during the
term of this Agreement and any extensions thereof.
(b) AUTHORIZED TO DO BUSINESS - that it is duly incorporated and
existing under the laws of the jurisdiction of its incorporation
and is authorized to do business in the jurisdiction from which
the Gaming License has been issued and the gaming server is to
be located.
(c) MARKETING AND PROMOTION OF THE CUSTOM CLIENT SOFTWARE
APPLICATION -
(i) Marketing Representative acknowledges that it is the
sole responsibility of Marketing Representative to
solicit end-users for the Custom Client Software
Application.
(ii) Marketing Representative hereby agrees to employ its
best efforts to diligently market and promote the Custom
Client Software Application to prospective end-users.
(iii) All marketing and promotional efforts shall be created,
implemented and paid for by Marketing Representative and
shall be submitted to IOL for its approval as to medium
and content before being implemented, which approval IOL
shall not unreasonably withhold. If Marketing
Representative shall not have received IOL's disapproval
of a submission within one (1) business day of IOL's
receipt, IOL shall be deemed to have given its approval.
The parties agree that Marketing Representative shall
make all such submissions to IOL by facsimile
transmission or electronic mail and that IOL may respond
by any method other than electronic mail.
(iv) Before the Commencement Date, IOL will provide Marketing
Representative with its standard guidelines as to
acceptable marketing and promotional efforts, and
Marketing Representative agrees that it will abide by
them (as amended or supplemented from time to time by
IOL).
(v) Marketing Representative agrees to spend a minimum of
the Advertising Target provided for in Schedule "A" to
this Agreement.
(vi) Marketing Representative acknowledges that this
Agreement may be terminated by IOL in accordance with
the termination provisions set out in Section 11(a) (i)
below in the event that the advertising guidelines in
force from time to time are not complied with,
advertising or promotion is undertaken without
requesting IOL's prior written consent or is
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undertaken despite notice of disapproval having been
given or if the Advertising Target is not met.
(vii) Marketing Representative shall provide copies of
receipted invoices at one-month intervals as prima facie
proof that is satisfying its Advertising Target. At
IOL's request, at any time or times, Marketing
Representative will provide such additional independent
verification that it is meeting the Advertising Target
as its auditors may determine is necessary.
(d) TRADEMARKS AND URL - Marketing Representative represents and
warrants that it is the owner or licensee of certain trademarks
and universal resource locators ("URLs"), both registered and
unregistered, in the names set out in Schedule "A", as amended
from time to time, and has the exclusive right to use such
trademarks and URLs in the jurisdiction from which the Gaming
License has been issued and in which the server is to be
located.
(e) SALES TARGET - Marketing Representative represents and warrants
that it intends to meet the Sales Target set out in Schedule "A"
of the Agreement and acknowledges that IOL may terminate this
Agreement in accordance with Section 11(a) (i) below if the
Sales Target is not met.
(f) EXCLUSIVE USE OF IOL SERVICES - Marketing Representative agrees
that at all times during the term of this Agreement it shall
utilize the IOL System exclusively for rendering the Marketing
Services to the Casino; provided, however, that nothing herein
shall prohibit or prevent Marketing Representative from using
all or any portion of the Marketing Representative User Data for
any purpose unrelated to the marketing of any other virtual
casino on the Internet. Should IOL have any reasonable evidence
that any Confidential Information provided to Marketing
Representative has been used by Marketing Representative in the
operation of casino software technology not provided by IOL then
IOL shall have the right to terminate this agreement in
accordance with the termination provisions set out in Section
11(d) below.
(g) UNAUTHORIZED ACCESS TO THE IOL SYSTEM - except as expressly
authorized in this Agreement, Marketing Representative agrees
not to attempt to gain electronic access to the IOL System, or
in any way to use, download or modify any data, files or
software programs incidental to the use of the IOL System or to
permit unauthorized third party access to the IOL System.
(h) PROGRAMMING CONTENT - Marketing Representative agrees to observe
and comply with all local, national and international laws,
rules and regulations (including Internet codes of practice or
conduct), now existing or which may hereafter be enacted,
regarding the transmission, content or advertising of a virtual
casino.
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(i) LIMITED RESALE OF IOL SERVICES - except as expressly provided
herein, Marketing Representative shall not sell, transfer,
publish, disclose, display or otherwise make available to any
third party, any portion of the IOL System or the IOL Services.
IOL acknowledges that Marketing Representative intends to
solicit end-users to use the IOL Services and to provide them
with access to the IOL System. Marketing Representative is
hereby authorized to solicit end-users to use the IOL Services
on a limited, "per transaction" basis. Marketing Representative
is not authorized however, to sell or otherwise permit wholesale
access to the IOL system to any third party which has not itself
directly contracted with IOL, or contracted through an IOL
approved network of entities, for the IOL Services.
(j) SUB-CONTRACTING - Marketing Representative shall not
sub-contract its obligations under this Agreement without the
consent of IOL, which consent may not be unreasonably withheld,
except to a company with which it is affiliated or related and
for whose obligations the Marketing Representative remains
liable.
(k) BETTING LIMITS - The Betting Limits for the games offered on the
Casino shall be as set forth on Schedule "B" to this Agreement.
Marketing Representative shall not increase any of the Betting
Limits without the consent of IOL, which consent shall not be
unreasonably withheld.
10. REPRESENTATIONS, WARRANTIES AND ADDITIONAL COVENANTS OF IOL
IOL represents, warrants, and covenants as follows:
(a) IOL is a corporation duly organized, validly existing and in
good standing under the laws of the Country of Cyprus.
(b) The execution and delivery of this Agreement to Marketing
Representative and the transactions contemplated hereby have
been duly authorized by all necessary corporate action of IOL.
The execution and delivery of this Agreement and the
consummation of the transactions contemplated by it will not
conflict with or result in breach of the terms, conditions or
provisions of or constitute a default under the certificate of
incorporation or bylaws of IOL or any agreement or instrument
under which IOL is obligated. IOL has full legal right, power
and authority to enter into this Agreement and perform its
obligations under this Agreement.
(c) There is no claim, litigation or proceeding, pending or, to the
knowledge of IOL, threatened, and there exists no basis or
grounds for any such suit, action, proceeding, claim or
investigation which prevents or materially affects, or would
prevent or materially affect, the ability of IOL to enter into
this Agreement or to consummate the transactions contemplated
herein.
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(d) IOL is not subject to any charter, bylaw, mortgage, lien,
judgment, contract or other restriction of any kind which would
prevent the consummation of the transactions contemplated by
this Agreement.
(e) No authorization, consent or approval of any public body or
authority, including, without limitation, any state, country, or
jurisdiction regulating gaming or gambling, is necessary on the
part of IOL for the consummation by IOL of the transactions
contemplated by this Agreement. All necessary approvals of the
parties under any contracts, commitments or understandings to
which IOL is, a party required to permit consummation of the
transactions in accordance with this Agreement have been
obtained. IOL 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.
(f) By itself and/or through its subcontractors or affiliates
approved by Marketing Representative, IOL has, and throughout
the term of this Agreement or any renewal will have, all the
necessary technology, licenses, authority, capital, and
qualified personnel to perform its obligations hereunder.
(g) Nothing that IOL provides that is or will be contained in the
IOL System does or will violate or infringe any Intellectual
Property Right of any third party, and the IOL System, the
System Improvements, and the Client Custom Software Application
as and when installed and delivered by IOL to Marketing
Representative shall be free of any third party claim of
infringement of any patent, trademark or copyright.
(h) IOL has, and throughout the term of this Agreement or any
renewal will have, good title to the IOL System, the System
Improvements, and the Custom Client Software Application and has
the right to sell and/or to license them to Marketing
Representative free of any proprietary rights of any other party
or any other encumbrance of any kind or description.
(i) IOL has not sold, assigned, leased, licensed or in any other way
disposed of or encumbered all or any portion of the rights
granted to Marketing Representative hereunder.
(j) IOL is solely responsible for and shall pay all sums due any and
all parties engaged by IOL in connection with the installation
and delivery of the IOL System, the System Improvements, and the
Custom Client Software Application who are entitled to receive
compensation in respect thereof.
(k) The IOL System, the System Improvements, and the hardware
recommended by IOL are each merchantable and fit for the purpose
for which Marketing Representative is purchasing, licensing, or
using them under this Agreement
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(l) The IOL System conforms to IOL's published functional
specifications. IOL shall, at its own expense, correct any
defects in the IOL System that cause the IOL System to fail to
conform to IOL's published functional specifications and that
significantly affect its performance in accordance with those
specifications, provided that Marketing Representative has
notified IOL of any such defects. IOL's published functional
qualifications for the IOL System include, without limitation,
the following:
(i) The random number generator is a UNIX based 32-bit
application, normally distributed, and unpredictable.
(ii) Only one (1) random number generator is used for all
end-users connected to the Custom Client Software
Application at any given time.
(iii) Eight (8) decks of cards are used for each card game,
which decks are shuffled after each hand. The IOL System
may accommodate more or fewer decks of cards and
shuffles, as may be requested by Marketing
Representative, which request IOL shall not unreasonably
refuse.
(iv) For all games, whether card or otherwise, the rules of
play of the New Jersey Gaming Commission are in force.
The IOL System may accommodate and operate according to
the rules of play of other jurisdictions or regulatory
authorities, including the Nevada Gaming Commission and
the Australian Gaming Regulations, where needed for a
particular game.
(v) Only non-United States end-users shall be able to obtain
access to, play on, and/or place bets with the Casino,
and all United States end-users will be prohibited and
prevented from obtaining access to, playing on, and/or
placing bets with the Casino.
(m) IOL shall not, by any means or method, send, or cause to be
sent, to any end-user any money to any address located in the
United States.
(n) The Custom Client Software Application is fit for the purpose
for which Marketing Representative is purchasing, licensing,
and/or intending to use it under this Agreement. IOL shall, at
its own expense, correct any defects in the Custom Client
Software Application that significantly affect the performance
of the Custom Client Software Application in accordance with
Marketing Representative's intended purpose, provided that
Marketing Representative has notified IOL of any such defects.
(o) Upon the request of Marketing Representative and/or any
regulatory authority or agency of any state, country, or
jurisdiction, IOL shall, at no cost to IOL, make the random
number generator(s) and the games' logic of the IOL System, the
System Improvements, and the Custom Client Software Application
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available to independent computer hardware and software
laboratories or agencies for testing and verification of, among
other things, the published functional specifications and the
representations, warranties, and covenants in respect of the IOL
System and System Improvements set forth herein. Nothing in this
Section 10(o) shall relieve Marketing Representative of its
obligations to maintain the confidentiality of the aspects of
the IOL System and the System Improvements that are propriety to
IOL as provided for under this Agreement. Any such laboratories
or agencies shall be required to enter into a confidentiality
agreement in respect of the IOL System and the portions being
tested.
11. TERM AND TERMINATION
Subject to the provisions for termination set forth below, this
Agreement shall become effective upon execution by both parties hereto and shall
expire five (5) years from the Commencement Date, after the expiration of which,
this Agreement shall automatically be renewed for consecutive additional one (1)
year terms upon the same terms and conditions (with the exception of payment of
the fee for initial Customization) unless either party provides the other with
no more than ninety (90) and not less than sixty (60) days written notice prior
to the expiration of the term or any additional term of its intention to
terminate this Agreement.
(a) IMMEDIATE TERMINATION BY EITHER PARTY - In addition to any other
remedies provided herein, either party may terminate this
Agreement during its initial term or any renewal term
immediately upon written notice to the other party, in the event
of any of the following:
(i) MATERIAL BREACH - the other party commits a material
breach of any term or condition of this Agreement
(including but not limited to a breach for nonpayment of
any fees and charges due under this Agreement), and the
breach cannot be cured or can be cured but is not cured
within (i) thirty (30) days after receipt of notice in
writing from the non-breaching party; or (ii) in the
event that any such breach (other than a breach for
nonpayment of fees and charges) can be cured but cannot
reasonable be cured within thirty (30) days, then within
such longer period of time (not to exceed sixty (60)
days as is required to cure the breach, provided the
breaching party promptly commences and diligently
pursues remedial action to completion.
(ii) INSOLVENCY - the other party files a voluntary petition
in bankruptcy or files a petition seeking or acquiescing
in any relief for itself under any present or future
statute or law relating to bankruptcy, insolvency or
other relief by debtors; or seeks or consents to or
acquiesces in the appointment of any trustees, receiver
or liquidator of all or any part of its property, or
admits in writing its inability to pay its debts
generally as they become due.
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(iii) DISSOLUTION - the other party is dissolved (other than
by way of a re-organization) or otherwise ceases to
engage in its normal business operations and is unable
thereby to fulfill its obligations under this Agreement.
(b) TERMINATION BY MARKETING REPRESENTATIVE - In addition to any
other remedies provided herein, including the remedy for
material breach provided for in Section 11(a) (i), Marketing
Representative shall have the right to terminate this Agreement
as follows:
(i) NON-PERFORMANCE - Immediately upon written notice to IOL
in the event that IOL fails to provide the IOL Services
pursuant to the provisions of Section 2 of this
Agreement and such failure results in Marketing
Representative not having access to the IOL Services
during any continuous twenty-one (21) day period. It is
understood and agreed that the provisions of this
Section 11(c) (i) shall not apply to any failure to
perform on the part of IOL resulting from "force
majeure," as defined in Section {-417(g), provided that
such "force majeure" does not result in a continuous
interruption of the business operations of IOL for a
period of time exceeding thirty (30) days.
(ii) MAJOR CHANGES - Within a period of thirty (30) days
following receipt of notice or the implementation of a
Major Change in accordance with the provisions of
Section 2(f), Marketing Representative shall have the
option to immediately terminate this Agreement.
(iii) VIOLATION OF LAWS - Immediately upon written notice to
IOL in the event that IOL is convicted of violating in
the course of its performance hereunder, any local,
state or federal laws, rules and regulations pertaining
to gambling on the Internet.
(iv) CRIMINAL CONVICTION - Immediately upon written notice to
IOL in the event that any principal of IOL is convicted
in a criminal proceeding and Marketing Representative
determines in its sole discretion, that such conviction
has harmed the general goodwill of Marketing
Representative, or the general goodwill of the Internet
gambling industry as a whole.
(v) VIOLATION OF LAW BY MARKETING REPRESENTATIVE
-Immediately upon written notice to IOL that Marketing
Representative has determined in its sole discretion
that rendering all or any portion of the Marketing
Services would be a violation of civil or criminal laws
of any state, country, or jurisdiction, including,
without limitation, the laws of the United States.
(c) TERMINATION BY IOL - In addition to any other remedies provided
herein, including the remedy for material breach provided for in
Section 11(a) (i), IOL shall have the right to terminate this
Agreement as follows:
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(i) GAMING LICENSE - Should Cyberluck lose, terminate or fail to
renew the Gaming License, or should Bardenac lose, terminate, or
fail to renew its agreement with Cyberluck or any regulatory
authority, the effect of which is to terminate the ability of
Marketing Representative to provide the Marketing Services, then
Marketing Representative shall be entitled, within sixty (60)
days of such occurrence, to transfer its services to another
holder of a valid and acceptable gaming license (or provider of
services to such holder), upon the reasonable approval of IOL,
failing which IOL shall be entitled to terminate this Agreement
in accordance with the provisions of Section 11(a) (i). IOL
shall not provide the IOL Services to the Marketing
Representative at any time that it is not providing its services
to or on behalf of the holder of a valid gaming license.
(ii) VIOLATION OF LAWS - Immediately upon written notice to Marketing
Representative in the event that Marketing Representative is
convicted of violating in the course of its performance
hereunder, any local, state or federal laws, rules and
regulations pertaining to gambling on the Internet, including
any violation which would constitute a breach of Marketing
Representative's warranty and representation set forth in
Section 9(h) hereof.
(iii) CRIMINAL CONVICTION - Immediately upon written notice to
Marketing Representative in the event that any principal of
Marketing Representative is convicted in a criminal proceeding
and IOL reasonably determines in its sole discretion, that such
conviction has harmed the general goodwill of IOL, or the
general goodwill of the Internet gambling industry as a whole.
(iv) UNAUTHORIZED ACCESS - Immediately upon written notice to
Marketing Representative, in the event of repeated attempts to
gain unauthorized electronic access to the IOL System, as set
forth in Section 2(c) (i) hereof.
(v) LOSS OF GAMING LICENSE - Immediately upon written notice to
Marketing Representative, in the event the Gaming License is
lost or is in default and, if as a result of that default, the
holder of the Gaming License is precluded from operating a
virtual casino.
(vi) CHANGE OF LICENSING JURISDICTION'S REQUIREMENTS - Immediately
upon written notice to Marketing Representative, in the event
that the licensing jurisdiction is no longer acceptable to IOL.
(vii) TERMINATION OF APPOINTMENT OF MARKETING REPRESENTATIVE -
Immediately on termination of Marketing Representative's
appointment under the Appointment Agreement or Bardenac's loss
of status as the Information Provider of Cyberluck.
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(viii) VIOLATION OF LAW BY IOL - Immediately upon written notice to
Marketing Representative that IOL has determined in its sole
discretion that rendering all or any portion of the IOL Services
would be a violation of civil or criminal laws of any state,
country, or jurisdiction, including, without limitation, the
laws of the United States.
(d) EFFECT OF TERMINATION -
(i) Except as set out below, no termination hereunder shall
have the effect of relieving either party of its
obligation to pay to the other party any and all fees,
charges and costs and allocations which have accrued
prior to such termination.
(ii) In the event that either party terminates this Agreement
within ninety (90) days of the Commencement Date because
of any action by any gaming regulatory authority, IOL
shall return to Marketing Representative the sum of One
Hundred Twenty-Five Thousand Dollars ($125,000), and the
Agreement shall have no further force or effect.
(iii) In the event of any termination, other than a
termination related to the termination of the Gaming
License, IOL shall continue to operate the Casino for
ninety (90) days after the termination, and shall pay
Marketing Representative the Marketing Fee as provided
for in this Agreement. During such 90-day period, IOL
shall accept no new end-users as players at the Casino.
During and for a reasonable time after such 90-day
period, IOL shall cooperate with any effort by Marketing
Representative to transfer its end-users to another
virtual casino, including, without limitation,
transferring the Marketing Representative User Data and
account information and balances as instructed by
Marketing Representative.
12. CUSTOMER'S EQUIPMENT
Marketing Representative shall be responsible, at its expense, for the
procurement of all equipment and related software which are required in order
for Marketing Representative to have access to the IOL System.
(a) TITLE TO SOFTWARE AND GRANT OF LIMITED LICENSE - Marketing
Representative hereby acknowledges and agrees that the ownership
of each non-commercial program of operating and/or application
software, including source codes provided to Marketing
Representative under this Agreement, is and, at all times under
this Agreement, shall remain in the name of IOL or its third
party provider, as the case may be, and that no ownership
interest in or to such software is transferred to Marketing
Representative by this Agreement. Marketing Representative
understands and agrees that Marketing Representative is
prohibited from sub-licensing, reselling or distributing such
software to any third party without the express written consent
of IOL. IOL hereby grants to
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Marketing Representative during the term of this Agreement a
personal, non-transferable and non-exclusive right to use the
software solely for the purposes of accessing the IOL Services
and solely on Marketing Representative's equipment. Upon
termination of this Agreement, Marketing Representative shall
immediately return to IOL all copies of such software including
any back-up copies, and shall destroy any copies of such
software stored in any computer memory or storage medium.
(b) LIABILITY FOR DOWNTIME OR LOSS OF DATA NO - Notwithstanding
anything contained herein to the contrary IOL shall have no
liability during any period of downtime of the IOL System and/or
Marketing Representative's equipment or during delays in the
providing of the IOL Services or for any loss of User Data
caused by or resulting from:
(i) Failure in computers or computer-related equipment
maintained solely by Marketing Representative;
(ii) computers, computer-related equipment or software used
by IOL in the performance of its obligations hereunder
being taken down or made inoperable pursuant to a
request by Marketing Representative;
(iii) any defects or changes in Marketing Representative-owned
or leased software;
(iv) Marketing Representative's request to discontinue use of
any IOL provided or non-infringing third-party software;
or
(v) any act categorized and defined as "force majeure" in
Section 17(g) herein or any other failure in electrical,
lighting, air conditioning, data processing,
telecommunication equipment or telecommunication
networks that is beyond IOL's reasonable control, and in
any such case, whether or not such failure results from
the gross negligence or intentional misconduct of IOL.
13. PROPRIETARY RIGHTS, CONFIDENTIALITY, SECURITY AND ACCESS
The rights, duties and obligations of the parties hereto with respect to
intellectual property rights, confidentiality, security and access, shall be as
set forth herein below.
(a) INTELLECTUAL PROPERTY RIGHTS - Marketing Representative
acknowledges and agrees that the software that operates the IOL
System (including all non-commercial operating and/or
application software for accessing the IOL Services), except any
such software which is a commercially available product or in
the public domain, is propriety to IOL and all applicable rights
thereto to patents, copyrights, trade marks, trade secrets
(including, but not limited to algorithms, routines, screen
formats and displays, and communications techniques) and all
other proprietary rights embodied or contained in the IOL
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System is, and shall remain, the sole and exclusive property of
IOL. Marketing Representative further acknowledges and agrees
that, by obtaining access to the IOL System, Marketing
Representative is not receiving any interest in, or title to,
any part thereof, including, but not limited to, hardware,
software, operating systems, profiling techniques or any other
proprietary methods embodied in the IOL System.
(b) Marketing Representative Confidential Information - IOL agrees
to use commercially reasonable best efforts to maintain the
confidentiality of any information regarding the business
affairs of Marketing Representative which is (a) disclosed to
IOL by Marketing Representative and clearly designated in
writing as "Confidential", or (b) which is transmitted
electronically from Marketing Representative to IOL pursuant to
this Agreement; provided, however, that IOL shall only maintain
the same standards of confidentiality with respect to such
confidential information as IOL maintains for the same or
similar confidential data relating to its own business affairs
and provided further, if such data or information is in, or
enters the public domain, or is already within IOL's knowledge
or possession prior to disclosure from Marketing Representative
to IOL, then IOL shall not be liable to Marketing Representative
for its unauthorized disclosure. Marketing Representative
acknowledges and agrees that no right of confidentiality shall
apply to:
(i) any information that was developed by IOL prior to the
disclosure of similar information by Marketing
Representative to IOL;
(ii) any information which is, or subsequently becomes part
of the public domain;
(iii) any information or intellectual property which is
independently developed by IOL, and
(iv) any information or intellectual property that is
lawfully obtained by IOL from third parties.
(c) IOL CONFIDENTIAL INFORMATION - Marketing Representative shall
maintain the confidentiality of (a) the IOL System; (b) any
information which is disclosed by IOL to Marketing
Representative which is clearly designated by IOL in writing as
"Confidential"; and (c) the business terms (including quantum of
fees and payment terms) of this Agreement and the Appointment
Agreement, except in all cases such disclosures that Marketing
Representative or its affiliates may be required to make
pursuant to applicable securities laws and regulations. It is
mutually agreed and understood that no claim of confidentiality
will apply to any information that,
(i) was developed by Marketing Representative or rightfully
in its possession prior to the disclosure to Marketing
Representative of similar information by IOL;
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(ii) is or subsequently becomes a part of the public domain;
(iii) is independently developed by Marketing Representative;
or
(iv) that is lawfully obtained by Marketing Representative
from third parties.
(d) GOVERNMENTAL AND REGULATORY DISCLOSURE - in the event that IOL
is compelled to disclose any information relating to Marketing
Representative as the result of any bona fide written order from
any government agency, regulatory body of court of law, IOL
shall have the right, upon no less than ten (10) business days
written notice to Marketing Representative, if possible, to
release the information requested in any such order and to fully
cooperate with any such governmental agency, regulatory body or
court of law.
(e) BANKING NETWORK DISCLOSURE - IOL reserves the right, in the sole
and absolute discretion of IOL, to disclose any and all
information regarding transactions settled through the
electronic cash software to: (a) any acquiring or issuing bank
which settles credit card, debit card, check transactions or
other financial transactions on behalf of Marketing
Representative and/or its end-users; (b) any of the bank card
associations (including, but not limited to, VISA, MasterCard,
Discover and American Express); (c) any third party processor
which provides computer processing services to the acquiring or
issuing bank, and (d) any agent of Marketing Representative
under contract with the acquiring or issuing bank, or any of the
bank card associations.
(f) INDUSTRIAL DISCLOSURE - IOL reserves the right, in the sole and
absolute discretion of IOL, to disclose information regarding
the IOL Services rendered by IOL to Marketing Representative to
various industry trade groups or associations, provided that
such information shall be in a statistical format only, and not
discernible as information specifically relating to Marketing
Representative, any end-user of Marketing Representative, or any
individual sales transaction.
(g) ENFORCEMENT PROVISIONS - if either Marketing Representative or
IOL commits a breach, or threatens to commit a breach of any of
the provisions of this Section 13, then the party against whom
the breach has been committed or threatened shall have the right
to bring an action for injunctive relief or any other action at
law or equity to specifically enforce the terms of this section,
it being acknowledged and agreed that any such breach, or
threatened breach could cause irreparable injury and that money
damages would not provide an adequate remedy to the injured
party.
14. STANDARD OF CARE AND REMEDIES
(a) STANDARD OF CARE OF IOL - IOL agrees to use reasonable care in
providing the Services pursuant to the terms of this Agreement.
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(b) MARKETING REPRESENTATIVE'S SOLE REMEDY FOR IOL'S FAILURE TO
PERFORM - Except as expressly provided in this Agreement to the
contrary, Marketing Representative's damages for any failure on
the part of IOL, for a reason within IOL's control, to perform
the IOL Services with reasonable care, shall be limited to
Marketing Representative's reasonable out-of-pocket expenses, as
could not have been reasonably mitigated by Marketing
Representative, to a maximum of the Marketing Fee earned in the
three months prior to termination or the fee for initial
Customization, whichever is greater. Should IOL, through no
failure on Marketing Representative's part and except for
reasons beyond its control, fail to commence operating the
Custom Client Software Application within ninety (90) days of
the date of execution of this Agreement, then IOL shall refund
to Marketing Representative the fee for initial Customization.
(c) NOTICE OF CLAIMS - It is a condition precedent to Marketing
Representative's right to receive any amounts pursuant to this
paragraph 14 that any claims made by Marketing Representative be
asserted in writing, within eighteen (18) months of the date on
which Marketing Representative first knew, or should reasonable
have known, of the damages alleged in the claim.
15. INDEMNIFICATION
(a) Each party (the "Indemnifying Party") will indemnify, defend and
hold harmless the other party and its affiliates and their
respective officers, directors, employees and agents (the
"Indemnified Party") from and against any and all losses,
liabilities, claims, obligations, costs and expenses (including
reasonable attorneys' fees and the cost and expenses of
litigation), which result from, arise in connection with or are
related in any way to any breach by the Indemnifying Party of
any of its representations, warranties, and covenants set forth
herein.
(b) If a third party asserts any claim or allegation which, if
proven, would constitute a breach by the Indemnifying Party of
any of its representations, warranties or covenants set forth in
this Agreement, the Indemnifying Party shall be promptly
notified of such claim by the Indemnified Party and given
control of the defense and/or settlement thereof. If any such
claim or action shall be brought against an Indemnified Party
and it shall notify the Indemnifying Party thereof, the
Indemnifying Party shall be entitled to participate therein and,
to the extent that it wishes, to assume the defense thereof with
counsel reasonably satisfactory to the Indemnified Party. After
notice from the Indemnifying Party to the Indemnified Party of
its election to assume the defense of such claim or action, the
Indemnifying Party shall not be liable to the Indemnified Party
under this Section 15(b) for any legal or other expenses
subsequently incurred by Indemnified Party in connection with
the defense thereof.
(c) No Indemnifying Party shall, without the prior written consent
of the Indemnified Party, effect any settlement of any pending
or threatened proceeding in respect of which any Indemnified
Party is a party and indemnity
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could have been sought hereunder by such Indemnified Party,
unless such settlement includes an unconditional release of such
Indemnified Party from all such liability on claims that are the
subject matter of such proceeding. The foregoing states the
entirety of the parties' obligations (contractual, common-law or
otherwise) with respect to any claim by any third-party;
provided, however, nothing in this Section shall limit either
Marketing Representative's or IOL's rights in case of any breach
of any covenant contained in this Agreement.
(d) Notwithstanding anything in this Section 15 to the contrary, in
the event that, by reason of a claim by a third party of
infringement by IOL (or by Marketing Representative arising from
the IOL System, the System Improvements, or the Custom Client
Software Application provided by IOL under this Agreement),
Marketing Representative is temporarily or preliminarily
enjoined from using all or any portion of the IOL System, then,
if IOL is unable, within ten (10) days from the signing of the
order of injunction, to provide Marketing Representative with
non-infringing software or software applications, Marketing
Representative shall, in addition to all other available
remedies, have the right to obtain a license from the third
party to continue with the use of the IOL System, the System
Improvements, and/or the Custom Client Software Application, and
IOL shall reimburse Marketing Representative for any
license/settlement fee paid by Marketing Representative to the
third party.
(e) Notwithstanding anything in this Section 15 to the contrary,
each party's obligation to indemnify the other party shall be
limited by the damage provision set forth in Section 14 hereof.
16. DISCLAIMER OF WARRANTIES AND LIMITATIONS OF LIABILITY
(a) OTHER THAN AS SPECIFICALLY EXPRESSED IN THIS AGREEMENT, IOL
MAKES NO WARRANTIES REGARDING THE SERVICES, EITHER EXPRESSED OR
IMPLIED, INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE
(b) MARKETING REPRESENTATIVE'S SOLE AND EXCLUSIVE REMEDY, AND IOL'S
SOLE AND EXCLUSIVE LIABILITY, FOR ANY AND ALL DAMAGES ARISING
OUT OF THIS AGREEMENT, WHETHER FOR BREACH OF CONTRACT, BREACH OF
WARRANTY, NEGLIGENCE, OR OTHERWISE, SHALL BE AS EXPRESSLY
PROVIDED HEREIN.
(c) IN NO EVENT SHALL IOL BE LIABLE FOR ANY INDIRECT, CONSEQUENTIAL,
INCIDENTAL OR SPECIAL DAMAGES INCURRED BY MARKETING
REPRESENTATIVE OR ANY THIRD PARTY AS A RESULT OF THE PROVIDING
BY IOL OF IOL SERVICES PURSUANT TO THIS AGREEMENT, REGARDLESS OF
WHETHER THE POSSIBILITY OF SUCH DAMAGES WAS DISCLOSED TO, OR
COULD HAVE BEEN REASONABLY FORESEEN, BY IOL.
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(d) EXCEPT AS OTHERWISE PROVIDED FOR IN THIS AGREEMENT, IN NO EVENT
SHALL IOL BE LIABLE FOR ANY DAMAGES INCURRED BY MARKETING
REPRESENTATIVE OR ANY THIRD PARTY (AS A RESULT OF TERMINATION OF
THIS AGREEMENT OR OTHERWISE) ARISING FROM MATTERS OUTSIDE OF
IOL'S DIRECT CONTROL OR ON ACCOUNT OF THE ACTIONS OF ANY GAMING
REGULATORY AGENCY.
17. GENERAL PROVISIONS
(a) ENTIRE AGREEMENT - this Agreement and its incorporated Schedules
constitute the entire agreement between IOL and Marketing
Representative, and supersedes all previous communications and
negotiations, whether written or oral. The terms and conditions
of this Agreement shall prevail over any additional or
conflicting terms of any purchase order, letter or memorandum
submitted to IOL by Marketing Representative. No modification of
this Agreement shall be binding unless it is in writing and
signed by both parties hereto.
(b) NO PARTNERSHIP OR JOINT VENTURE - Marketing Representative and
IOL are independent contractors and neither party is the legal
representative, agent, joint venturer, partner, or employee of
the other party under this Agreement or for any purpose
whatsoever. Except as permitted under this Agreement, neither
party has any right or authority to assume or create any
obligations of any kind or to make any representation or
warranty on behalf of the other party, whether express or
implied, or to bind the other party in any respect whatsoever
(c) FURTHER DOCUMENTS - Each party agrees to,
(i) perform any further acts and execute and deliver any
further documents which may be reasonably necessary to
carry out the provisions of this Agreement, and
(ii) at all times act in good faith so as to preserve for the
other party the benefits intended under this Agreement.
(d) REPRESENTATIONS AND WARRANTIES TO SURVIVE - Any representations
and warranties in this Agreement shall survive the signing of
this Agreement. Each of the agreements, rights, duties and
obligations of the parties contained in this Agreement shall
survive the termination of this Agreement to the extent
necessary to fulfill its purpose, including to permit end-users
to withdraw their funds from the IOL System.
(e) NOTICE - any notice, and copy thereof, that a party to this
Agreement is required or may desire to deliver to the other
party, shall be delivered by facsimile to the phone number set
out below with a confirming copy sent by mail, certified or
registered, return receipt requested, proper postage prepaid to
the other party.
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Such notice shall be deemed delivered on the first (lst)
business day following the facsimile transmission provided that
the sender can reasonably demonstrate its receipt.
IF TO IOL:
Intertainet Overseas Licensing Limited
51 Prodromos Street, Office 101
Strovolos
Nicosia, Cyprus
Telephone:
Facsimile 011-357-2-313 916
With a copy to:
CryptoLogic Inc.
1867 Yonge Street
Toronto, Ontario
M4S 1Y5
Attention: President
Telephone: 416 545-1455
Facsimile: 416 454-1454
IF TO MARKETING REPRESENTATIVE:
Worldwide Media Holdings N.V.
P.O. Box 504
Scharlooweg 81
Curacao, Netherlands Antilles
Telephone:
Facsimile:
With a copy to :
Lorenz Alhadeff Cannon & Rose, LLP
550 West "C" Street, 19th Floor
San Diego, CA 92101
Attention: Robert K. Edmunds, Esq.
Telephone: (619) 231-8700
Facsimile: (619) 238-8323
(f) TIME LIMITATION - No action, regardless of form, arising out of
this Agreement, may be brought by either party more than three
(3) years after such cause of action has accrued.
29
<PAGE> 30
(g) FORCE MAJEURE - The parties shall not be liable for any failure
to perform its obligations under this Agreement because of acts
of God, nature, or a federal, state or local government agency,
war, civil disturbance, labor disputes, the inability or refusal
of a common carrier to provide communications capabilities, or
of an arm's length third party provider to continue to provide
service or any other cause beyond the parties' control.
(h) GOVERNING LAW/VENUE - If, at any time, there is any dispute,
question, or difference of opinion between the parties
concerning or arising out of (i) this Agreement, (ii) the
construction, meaning, operation or effect of any provision of
this Agreement, or (iii) concerning the rights, duties, or
liabilities of any party under this Agreement, the parties shall
without delay confer in good faith to settle it, but if they
fail to settle it, then upon application of either party, the
matter shall be submitted to International Arbitration of the
American Arbitration Association for binding arbitration before
three (3) arbitrators, one to be chosen by each of the parties
and the third by the two thus chosen The arbitrators shall be
bound by, and shall determine the factual and legal issues
presented at the arbitration according to, the substantive law
of the country of Bermuda ("Bermuda"). The parties further agree
that the arbitration shall take place in Bermuda. Each of the
parties hereby irrevocably and unconditionally waives any
objection to personal jurisdiction and the laying of venue of
any transactions contemplated hereby in binding arbitration in
Bermuda as set forth above, and hereby further irrevocably and
unconditionally waives and agrees not to plead or claim in any
court in any state, country, or jurisdiction that any such
arbitration has been brought in an inconvenient forum or in
violation of any rights protected by any constitutional,
statutory, or other body or provision of law of any state,
country, or jurisdiction.
(i) SUCCESSORS AND ASSIGNS - No interest or right of any party under
this Agreement shall be assigned or transferred in any manner by
such party to any person or entity unless wholly owned by the
parent of the assignor, except as permitted under this Agreement
or otherwise without the express written consent of the other
party, which consent may not be unreasonably withheld, and any
such attempted unpermitted or consented to assignment or
transfer shall be null and
(j) WAIVER - No waiver of any term, covenant, condition or
obligation of this Agreement or any breach thereof shall be
effective unless granted in writing. The waiver by any of the
parties of any term, covenant, condition or obligation contained
in this Agreement or any breach thereof, shall not be deemed to
be a waiver of any other term, covenant, condition or obligation
contained in this Agreement.
(k) INVALIDITY - Should any portion of this Agreement be held to be
invalid, unenforceable or void, such holding shall not have the
effect of invalidating or voiding the remainder of this
Agreement and the parties hereby agree that the
30
<PAGE> 31
portion held invalid, unenforceable or void, shall, if possible,
be deemed amended or reduced in scope, or otherwise be stricken
from the Agreement, to the extent required for the purposes of
the validity and enforcement hereof.
(l) DELAY NOT A WAIVER - Any delay, waiver or omission by either
party to exercise any right or power arising from any breach or
default of the other party of any of the terms, provisions or
covenants of this Agreement shall not be construed to be a
waiver of any subsequent breach or default of the same or any
other term, provision or covenant of this Agreement.
(m) CONSTRUCTION - The captions contained in this Agreement are for
the convenience of the parties and shall not be construed to
limit or otherwise define the scope of this Agreement. This
Agreement shall not be deemed to have originated with either
party. Words used herein in the singular, where the context so
permits, shall be deemed to include the plural and vice versa.
The words 'and' and 'or' have both conjunctive and disjunctive
meanings, and 'each', 'any' and 'all' mean 'each and every'
(n) COUNTERPARTS - This Agreement may be executed in one or more
counterparts, by facsimile, each of which shall be deemed an
original and all of which, taken together, shall constitute a
single agreement. All signatories agree to execute a conformed
copy of this Agreement within thirty (30) days of the execution
of counterparts thereto; provided however that the parties'
failure to do so shall have no effect upon the validity of this
Agreement.
[Remainder of Page Intentionally Left Blank]
31
<PAGE> 32
IN WITNESS WHEREOF each of the parties hereto has caused this
Agreement to be executed on its behalf by a duly authorized officer as of the
date first set forth above.
"IOL"
INTERTAINET OVERSEAS LICENSING LIMITED,
a Cyprus corporation
By: /s/ PARIS LENAS
----------------------------------------
Name: Paris Lenas
--------------------------------------
Title:
-------------------------------------
"MARKETING REPRESENTATIVE"
WORLDWIDE MEDIA HOLDINGS N.V.,
a Netherlands Antilles corporation
By: /S/ Equity Trust (Curacao) nv
--------------------------------------
Name: Evert Rakers
Title: Managing Director
[Signature Page to Software Supply and Support Agreement]
32
<PAGE> 33
SCHEDULE "A" TO THE SOFTWARE SUPPLY AND SUPPORT AGREEMENT BETWEEN:
INTERTAINET OVERSEAS LICENSING LIMITED AND
WORLDWIDE MEDIA HOLDINGS N.V.
This schedule is to be read in conjunction with the Agreement
between the two parties noted above. Where there are any differences between the
text of the Agreement and the contents of this Schedule A, this Schedule A shall
take precedence.
FEES, CHARGES AND ALLOCATIONS
(a) All fees and amounts are in U.S. dollars.
(b) FEE FOR INITIAL CUSTOMIZATION: *** paid or payable as
follows:
(i) *** already paid as good faith deposit before the
execution of this Agreement;
(ii) *** payable on the Commencement Date; and
(iii) *** payable thirty (30) days after the Commencement
Date.
(c) Fee for subsequent Customization (i.e. after delivery of the
Custom Client Software Application): - Marketing Representative
will pay IOL a fee for such subsequent Customization in an amount
mutually agreed upon by the parties on a case-by-case basis. Fees
for subsequent Customization will be payable on installation;
provided, however, that ten percent (10%) of the fees for
subsequent Customization shall not be due to IOL until thirty
(30) days after the installation.
(d) Interest will be charged on any past due balances of the parties
at the rate of 1.5% per month on the outstanding balance
including any interest previously assessed. Initial betting
limits: See Schedule "B."
(e) INITIAL BETTING LIMITS: See Schedule "B".
A-1
- --------------
*** Confidential information has been omitted and filed separately with the
Commission.
<PAGE> 34
TARGETS
ADVERTISING TARGET - Throughout the term of this Agreement and any
renewal, Marketing Representative shall spend Ten Thousand Dollars
($10,000) per month in respect of the Marketing Services.
SALES TARGET - Sales Revenue of Two Hundred Fifty Thousand Dollars
($250,000) per calendar quarter , which target shall not be in effect or
enforceable until January 1, 1999.
URL AND TRADEMARK INFORMATION
Marketing Representative is licensed to use the trademark:
Casino Australia
IOL acknowledges and agrees that Marketing Representative may use
or develop universal resource locators (URL) and trademarks of its own in
connection with its rendering of the Marketing Services and that IOL shall nor
have any right, title, or interest in or to any such URL or trademarks. Such URL
and trademarks include, without limitation:
1. Casino Australia
A-2
<PAGE> 35
SCHEDULE "B" TO THE SOFTWARE SUPPLY AND SUPPORT
AGREEMENT BETWEEN:
INTERTAINET OVERSEAS LICENSING LIMITED AND
WORLDWIDE MEDIA HOLDINGS N.V.
Contract Deliverables
All of the following shall be included within the Fee for Initial
Customization and shall be substantially installed by March 13, 1998, and the
balance shall be installed no later than April 12, 1998:
A. Available For March 13th Launch
ECASH
1. Disallow all accounts with mailing or billing addresses in the
USA, from purchasing ECASH to play live gambling.
DOWNLOAD FILES
Provide a self-extracting installation file for the single-game of
Blackjack.
Provide a self-extracting installation file for the standard 5-game
suite of games Caribbean Poker, Slots, Blackjack, Video Poker and
Roulette (no Sports Book).
Provide self-extracting installation files with modular, individual-game
download for each of Craps and Baccarat.
Replace the screens ccw2.bmp, casi_int.bmp and backgrnd.bmp (along with
associated image files) with files provided by Worldwide.
Remove all MIDI files.
Replace the sound files f57.wav, f86.wav and f87.wav with files provided
by Worldwide.
Remove all references to "InterCasino" in each file that is part of the
installation.
Replace "InterCasino" on Desktop icon with "Casino"
B-1
<PAGE> 36
ALL GAMES
(iv) Implement keyboard play that is consistent in all games. See
Attachment A for the Unified Keyboard Interface with
CryptoLogic.
(v) Modify the "HELP" navigation button and the "Rules" menubar
selection on each game to refer to web page help.
(vi) Remove all references to "InterCasino" in game text and images.
(vii) Remove crown logo.
CRAPS
No change to play of game.
Change Default Limits to the following:
Minimum Maximum
$1.00 $500
ROULETTE
Remove "00" from table and wheel. Reconfigure the numbers on the wheel
and the table layout to conform to the Standard European table.
Continue to provide the American Roulette variation with both "0" and
"00".
Incorporate a dialog box that explains how to decrease the bet when the
maximum bet is exceeded.
Change Default Limits to the following:
Minimum Maximum
$1.00 $100
B-2
<PAGE> 37
BLACKJACK
No change to play of game.
Change Default Limits to the following:
Minimum Maximum
$1.00 $500
KENO
Not offered a March 13th.
VIDEO POKER
Change the "Max Bet" button functionality to play properly (auto-deal) .
Modify the button display on "Deal/Draw" to only display "Deal" or
"Draw" at the proper time.
Add "10's or Better" as a fifth video poker variation.
Include denominations of lc, 5c and 10c as allowable bets.
Change Default Limits to the following:
Minimum Maximum
$0.01 $5 x 5 coins
CARIBBEAN POKER
1) No change to play of game.
2) Change Default Limits to the following:
Minimum Maximum
$1.00 $100
B-3
<PAGE> 38
RED DOG
Not offered on March 13th.
PAI GOW POKER
Not offered on March 13th.
SLOTS
1) Include denominations of lc, 5c and 10c as allowable bets.
2) Change Default Limits to the following:
Minimum Maximum
$0.01 $5 x 3 coins
BACCARAT
No change to limits or play of game.
No change to Default Limits:
Minimum Maximum
$5.00 $100
B. AVAILABLE 30 DAYS AFTER MARCH 13TH LAUNCH
DOWNLOAD FILES
1) Provide self-extracting installation files with modular
individual-game download for each of Video Poker, Slots,
Caribbean Poker, Roulette Keno, Red Dog, Pai Gow, and Sports
Book.
B-4
<PAGE> 39
ALL GAMES
Modify the use of "Chips-In-Hand" to something less confusing.
Display winnings in dollars and not just betting units. For example,
"You Win 9" should read, "You Win $45" if the betting unit is $5.
CRAPS
Change Default Limits to the following:
Minimum Maximum
$0.25 $100 inside bets
$1.00 table min. No max on aggregate inside bets
$1.00 outside bets. $300 outside bets
$25 max on each ___________
ROULETTE
1) Leave winning bids on the table.
2) The marker needs to be placed on top of the winning bids (i.e.
indicating winning bets).
3) Provide $0.05 and $0.25 chips
4) Change Default Limits to the following:
Minimum Maximum
$0.25 $100 inside bets
$1.00 table min. No max on aggregate inside bets
$1.00 outside bets. $300 outside bets
$25 max on each ___________
BLACKJACK
1. No change from March 13th.
B-5
<PAGE> 40
KENO
1. Change pay table per input from Worldwide
2. Make noise when numbers hit,
VIDEO POKER
1) Change "Jacks or Better" variation to play 9/6 instead of 8/5 or
provide a 8/5 progressive.
2) Change deuces on "Deuces Wild" game to make them standout.
CARIBBEAN POKER
RED DOG
A raise should trigger a draw, but will not implement because we need to
let the player change his/her mind to increase or decrease the amount of
the ante.
PAI GOW POKER
Change the play of the game so that the hand is not forfeit if the
player attempts to use a two-card low hand that is higher than the rank
of the five-card hand. Instead, display a message and require the player
to correct the mistake.
SLOTS
Change pay tables per input from Worldwide.
Remove "ghosting" on the reels.
Add five and eight-line slots.
Light-up pay table according to the number of coins played (may be in
CDROM distribution only).
Allow number of active symbols to vary per reel (e.g., cherries on first
reel, 2 cherries on second reel and 8 cherries on third reel).
B-6
<PAGE> 41
Modify the symbols on the reels so that the red 7s (light versus dark
color) are easier to distinguish from each other.
Implement the odds/payout tables so that they can be denomination
dependent.
BACCARAT
1. No change from March 13th.
B-7
<PAGE> 1
EXHIBIT 10.6
THIS APPOINTMENT OF MARKETING REPRESENTATIVE (THE
"APPOINTMENT") IS ENTERED INTO BY AND AMONG:
INTERTAINET OVERSEAS LICENSING LIMITED
a Cyprus company
("IOL")
AND
CYBERLUCK CURACAO N.V.
a Netherlands Antilles company
("Cyberluck")
AND
BARDENAC HOLDING N.V.
a Netherlands Antilles company
("Bardenac")
AND
WORLDWIDE MEDIA HOLDINGS N.V.
a Netherlands Antilles company
("Marketing Representative")
WHEREAS, Cyberluck holds a license from the government of the Netherland
Antilles (the "Government") being license 1668/JAZ (the "License") entitling it
to exploit gaming and wagering services on the international market by way of
service lines;
AND WHEREAS, Bardenac is the Information Provider of Cyberluck pursuant to an
agreement between them and IOL, their provider of software supply and support:
<PAGE> 2
AND WHEREAS, as contemplated by the Agreement Appointing Information Provider,
Bardenac now wishes to appoint a Marketing Representative;
NOW THEREFORE, in consideration of the mutual covenants and the payment of the
sum of ten ($10) dollars paid by each party to the others, the receipt and
sufficiency of which is acknowledged, parties mutually covenant and agree as
follows;
1. Appointment of Marketing Representative -- Bardenac hereby appoints
Marketing Representative to operate a casino marketing its Internet gaming
products using software supplied by IOL on a server located in the insular
territory of Curacao (the "Casino").
2. Appointment Conditional -- this Appointment is conditional on Marketing
Representative entering into a Marketing Representative Software Supply
and Support Agreement with IOL within ten (10) days of the date hereof
failing which this Appointment shall be at an end.
3. Consent of Cyberluck and IOL -- subject to the satisfaction of the
condition in paragraph 2 above and to the obtaining of any requisite
Government approval of this appointment, Cyberluck and IOL consent to the
appointment of Marketing Representative.
4. Term -- The term of the Appointment shall be for one (1) year and may be
renewed for further consecutive one year terms at the option of IOL or
Bardenac on thirty (30) days written notice given before expiration of this
Appointment. If the Software Supply and Support Agreement between IOL and
Cyberluck or the Agreement Appointing Information Provide between IOL,
Cyberluck and Bardenac, shall be terminated, whether within the first year
of the Appointment or at any time thereafter, the Appointment shall also
terminate. Bardenac and Cyberluck shall forthwith notify Marketing
Representative (with a copy to IOL) upon receipt of any notification by
2
<PAGE> 3
any party, supplier, governmental authority or subcontractor of any matter
which may have the effect of terminating its license, its corporate
existence or its ability to continue the efficacy of this Appointment.
5. GAMING LICENSE - Cyberluck represents and warrants that it is the holder of
a good and valid License granted by the Government, that the License
permits it to operate a virtual casino and to appoint Bardenac to operate
the Casino and to appoint the Marketing Representative as contemplated by
the Agreement Appointing Information Provider and that the License is in
good standing and full force and effect.
6. OBLIGATION TO REMIT AND REPORT TO THE GOVERNMENT - IOL shall supervise the
performance of Marketing Representative and shall remit, as and when
required, from the monies otherwise payable to Marketing Representative and
on Marketing Representative's account, those monies required to be paid to
the Government on account of its operation of a Casino pursuant to the
provisions of this Appointment.
7. COMPLIANCE WITH LEGISLATION - The parties shall be obligated at all times
to comply with the rules of the License and as promulgated under the
Offshore Games of Chance Act and Article 1 of the Telecommunication
Facilities Act of the Government.
8. CAPITALIZED TERMS - All capitalized terms shall have the meaning ascribed
thereto by the Marketing Representative Software Supply and Support
Agreement or as specifically defined herein.
9. ENTIRE AGREEMENT - This Appointment is subject to the terms and provisions
of the Marketing Representative Software Supply and Support Agreement and,
together with the Marketing Representative Software Supply and Support
Agreement constitutes the entire agreement regarding the appointment of
Marketing Representative. It supersedes all previous communications and
negotiations, whether written or oral. The terms and conditions of the
Marketing Representative Software
3
<PAGE> 4
Supply and Support Agreement and this Appointment shall prevail over any
additional or conflicting terms of any letter or memorandum. In the event
of a conflict between this Appointment and the Marketing Representative
Software Supply and Support Agreement, the Marketing Representative
Software Supply and Support Agreement shall govern. No modification of this
Appointment shall be binding unless it is in writing and signed by the
parties hereto.
10. NO PARTNERSHIP -- Nothing contained in this Appointment shall constitute or
be construed to create a partnership, joint venture or agency relationship
between IOL, Cyberluck, Bardenac and Marketing Representative or any two of
them. As a result, except as specifically provided in the Marketing
Representative Software Supply and Support Agreement or this Appointment,
no party shall have the right or authority to incur expenses or enter into
any agreement in the name of either of the other parties.
11. FURTHER DOCUMENTS -- Each party agrees to (i) perform any further acts and
execute and deliver any further documents which may be reasonably necessary
to carry out the provisions of this Appointment and (ii) at all times act
in good faith so as to preserve for the other parties the benefits intended
under this Appointment.
12. REPRESENTATIONS AND WARRANTIES TO SURVIVE -- Any representations and
warranties in this Appointment shall survive the signing of this
Appointment. Each of the agreements, rights, duties and obligations of the
parties contained in this Appointment shall survive the termination of this
Appointment to the extent necessary to fulfill its purpose, including to
permit end-users of the Casino to withdraw their funds from the IOL System.
13. NOTICE -- Any notice that a party to this Appointment is required or may
desire to deliver to any other party, shall be delivered by facsimile to
the facsimile number set out below with a confirming copy sent by mail,
certified or registered, return receipt requested, proper postage prepaid
to the other party with a copy sent in the same manner to the third party.
Such notice shall be deemed delivered on the first (1st)
4
<PAGE> 5
business day following the facsimile transmission, provided that the sender
can reasonably demonstrate its receipt. A copy of any notice to IOL shall
also be sent to CryptoLogic Inc. at the following facsimile number and
address:
CryptoLogic Inc.
1867 Yonge Street
Toronto, Ontario
M4S 1Y5
Telephone: 416 545-1455
Facsimile: 416 545-1454
13. TIME LIMITATION -- No action, regardless of form, arising out of this
Appointment, may be brought by either party more than two (2) years after
such cause of action has accrued.
14. FORCE MAJEURE -- The parties shall not be liable for any failure to perform
its obligations under this Appointment because of acts of God, nature, or a
federal, state or local government agency, war, civil disturbance, labor
disputes, the inability or refusal of a common carrier to provide
communications capabilities, or of an arm's length third party provider to
continue to provide service or any other cause beyond the parties' control.
15. GOVERNING LAW/VENUE -- All issues regarding the subject matter of this
Appointment shall be construed and enforced in accordance with the laws of
Netherland Antilles. Each party hereto expressly designates its respective
signatory of this Appointment as an authorized agent on which any and all
legal process may be served in any action, suit or proceeding brought
pursuant to this Appointment.
16. SUCCESSORS AND ASSIGNS -- No interest or right of Marketing Representative
under this Appointment shall be assigned or transferred in any manner by
and Marketing
5
<PAGE> 6
Representative to any person or entity without the express written consent
of IOL Cyberluck and Bardenac, who may arbitrarily withhold their consent,
and any such attempted assignment or transfer without their express written
consent shall be null and void. IOL may assign this Appointment at any time
without prior written notice to the parties, however IOL will use best
efforts to provide written notice of such an assignment. Subject to the
foregoing, this Appointment shall be binding upon and inure to the benefit
of the parties and their successors and assigns.
17. WAIVER - No waiver of any term, covenant, condition or obligation of this
Appointment or any breach thereof shall be effective unless granted in
writing. The waiver by any of the parties of any term, covenant, condition
or obligation contained in this Appointment or any breach thereof, shall
not be deemed to be a waiver of any other term, covenant, condition or
obligation contained in this Appointment.
18. INVALIDITY - Should any portion of this Appointment be held to be invalid,
unenforceable or void, such holding shall not have the effect of
invalidating or voiding the remainder of this Appointment and the parties
hereby agree that the portion held invalid, unenforceable or void, shall,
if possible, be deemed amended or reduced in scope, or otherwise be
stricken from the Appointment, to the extent required for the purposes of
the validity and enforcement hereof.
19. DELAY NOT A WAIVER - Any delay, waiver or omission by either party to
exercise any right or power arising from any branch or default of the other
party of any of the terms, provisions or covenants of this Appointment
shall not be construed to be a waiver of any subsequent breach or default
of the some or other term, provisions or covenants of this Appointment.
20. CONSTRUCTION - The captions contained in this Appointment are for the
convenience of the parties and shall not be construed to limit or otherwise
define
6
<PAGE> 7
the scope of this Appointment. This Appointment shall not be deemed to have
originated with any party. Words used herein in the singular, where the
context so permits, shall be deemed to include the plural and vice versa.
The words "and" and "or" have both conjunctive and disjunctive meanings,
and "each", "any" and "all" mean "each and every".
21. COUNTERPARTS -- This Appointment may be executed in one or more
counterparts, by facsimile, each of which shall be deemed an original and
all of which, taken together, shall constitute a single agreement. All
signatories agree to execute a conformed copy of this Appointment within
thirty (30) days of the execution of counterparts thereto; provided however
that the parties' failure to do so shall have no effect upon the validity
of this Appointment.
IN WITNESS WHEREOF, each of the parties hereto has caused this Appointment to be
executed on its behalf by a duly authorized officer as of the 13th day of
March, 1998.
INTERTAINET OVERSEAS LICENSING LIMITED
per:
----------------------------------
authorized signing officer
address and facsimile number for notice:
Intertainet Overseas Licensing Limited
51 Prodramos Street
Office 101
Strovolos
Nicosia, Cyprus
Fax: 011-357-2-313 916
7
<PAGE> 8
CYBERLUCK CURACAO N.V.
per: /s/ STEVE BOOM
------------------------------------
address and facsimile number for notice:
----------------------------------------
----------------------------------------
----------------------------------------
----------------------------------------
Facsimile:
------------------------------
BARDENAC HOLDING N.V.
By: /s/ Equity Trust (Curacao)nv
-------------------------------------
Name: Evert Rakers
Title: Managing Director
WORLDWIDE MEDIA HOLDINGS N.V.
By: /s/ Equity Trust (Curacao)nv
Name: Evert Rakers
Title: Managing Director
8
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 9,151,807
<SECURITIES> 0
<RECEIVABLES> 146,140
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,570,236
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 17,643,336
<CURRENT-LIABILITIES> 3,841,298
<BONDS> 6,300,000
126,169
0
<COMMON> 0
<OTHER-SE> 7,375,869
<TOTAL-LIABILITY-AND-EQUITY> 17,643,336
<SALES> 3,782,500
<TOTAL-REVENUES> 3,782,500
<CGS> 0
<TOTAL-COSTS> 2,413,559
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 137,499
<INCOME-PRETAX> 1,377,373
<INCOME-TAX> 561,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 816,373
<EPS-PRIMARY> .21<F1>
<EPS-DILUTED> .20
<FN>
<F1> FOR PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC.
</FN>
</TABLE>
