U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark 1) X Annual Report Under Section 13 or 15(d) of The Securities
--- Exchange Act of 1934 (Fee Required) for the Fiscal Year
Ended June 30, 1996
Transition Report Under Section 13 or 15(d) of The
Securities Exchange Act of 1934 (No Fee Required) for the
Transition Period from ________ to ________
Commission file number 0-22450
COUNTRY WORLD CASINOS, INC.
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(Name of Small Business Issuer in its Charter)
Nevada 13-3140389
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4155 E. Jewell Avenue
Suite 1000
Denver, Colorado 80222
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 639-5001
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
$.001 Par Value Common Stock
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(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Sections 13 or 15(d) of the Securities Exchange Act during the past 12 months
(or for such shorter period that the Registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
State Issuer's revenues for its most recent fiscal year - None
The aggregate market value of the approximately 3,400,734 shares of the
Company's voting stock held by nonaffiliates, computed at the average bid and
asked prices of such stock in the over-the-counter market, as quoted on the
Electronic Bulletin Board on October 8, 1996 ($.328125), was $1,115,866.
As of October 8, 1996, the Registrant had outstanding 10,836,187 shares of
its common stock, par value $.001.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
(a) General Development Of Business
Country World Casinos, Inc., the Registrant (the "Company" or "Country
World") was incorporated on November 9, 1982 under the name, Innovative Medical
Technology, Inc. The Company was organized to engage in the medical industry.
The Company effected a public offering in 1983. The Company was essentially
inactive until 1990 when it undertook the manufacturing of monolithic composite
panels for use in the construction of semi-truck trailers, shipping containers
and industrial buildings. The Company discontinued this business in September
1992.
In 1993, the Company changed the focus of its planned business
operations to the construction of a large, full service, first-class casino in
Black Hawk, Colorado. In August, 1993, the Company completed the acquisition
from New Allied Development Corporation and its subsidiary, Tommyknocker Casino
Corp., of certain real property located in Black Hawk, Colorado known as Mill
Sites 12 and 13, and the Smith Lode Mining Claim, U.S. Survey No. 502 (the
"Property"). Except as specifically provided elsewhere herein to the contrary,
New Allied Development Corporation and Tommyknocker Casino Corp. will be
referred to hereinafter collectively as "New Allied." See Item 2.
Since the Company's purchase of the Property in August 1993, the
Company's activities have focused on obtaining the necessary financing and
making preparations for construction of the casino on the Property. The Company
has been able to obtain some financing, but sufficient financing has not been
obtained to commence construction of this project. The Company's efforts have
included the completion of an extensive excavation project consisting of the
removal of approximately 60,000 cubic yards of rock and dirt, preparation of
working drawings for the foundation of the project, design of the interior
casino and entertainment areas of the project, work with the Colorado Department
of Transportation for the redesign of Highway 119, the main access road to the
Property, and work with the Black Hawk-Central City Sanitation District for a
sewer tap and with the City of Black Hawk's Water District to provide a water
tap to the Property. Although these efforts have not been completed, the Company
believes that, if financing were obtainable, it should be in a position to
construct an entertainment and gaming facility on the Property.
In the fiscal year ended June 30,1995, the Company borrowed $1,000,000
from Holly Products, Inc. ("Holly"). On April 20, 1995, the Company issued
5,000,000 shares of its common stock to Holly in exchange for the cancellation
of the $1,000,000 indebtedness, plus interest. The Company also agreed to grant
Holly the right to purchase up to an additional 20,000,000 shares of common
stock at $.20 per share (a total of $4,000,000) if such funding was provided
within a reasonable time and progress continued to be made concerning financing
for the casino project. The Company and Holly agreed that Holly would provide
$250,000 to the Company by no later than June 30, 1995, for which the Company
would issue 1,250,000 shares of its common stock. Holly did not provide the
$250,000 to the Company by June 30, 1995; however, subsequent to the advancement
of the $1,000,000 referred to above, Holly has advanced $285,068 to the Company
through June 30, 1996.
The Company is in need of substantial, additional financing in order to
complete construction and to commence operation of the casino. There can be no
assurance that the Company will be able to obtain the necessary financing. In
addition, the Company's ability to operate the casino will be dependent upon
substantial other conditions, including the obtaining of licenses and compliance
with governmental regulations, grading and construction of the casino, obtaining
the necessary permits and approvals from the City of Black Hawk and other
regulatory bodies, procuring gaming equipment on satisfactory terms, and
accomplishing these objectives in a timely manner. It will be extremely
difficult for the Company to accomplish these objectives in order to commence
operations of the casino in the current fiscal year.
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During the fiscal year ended June 30, 1995, the Company's disagreements
with New Allied intensified. As a result of New Allied's unwillingness to
cooperate with the Company, New Allied's failure to secure a release of the
$475,000 first deed of trust on the Property, New Allied's misrepresentations to
the Company and subsequent legal problems involving New Allied, the Company
instituted litigation against New Allied. See Item 3.
New Allied commenced foreclosure proceedings involving the Property.
Due to the pendency of these proceedings, on October 12, 1995, the Company filed
a Voluntary Petition Under Chapter 11 of the Bankruptcy Code in the United
States Bankruptcy Court, District of Colorado (Case No. 95 20563 RJB). As a
result, all creditors of the Company are stayed from commencing or continuing
any action or enforcing any judgment or lien against the Company or property of
the Company, except as otherwise authorized pursuant to Title 11 U.S.C. 362(b).
Relief may be sought by the filing of a complaint in the Bankruptcy Court,
pursuant to Title 11 U.S.C. 362(d). At present, the effects of the bankruptcy
proceeding on the long term outlook for the Company, and the ability of the
Company to commence development of the Property, are unclear.
In March 1996 the Bankruptcy Court granted the Company's motion to
approve $5 million in financing, which financing was obtained on May 31, 1996.
The $5 million financing was obtained from a group of lenders led by Kennedy
Funding, Inc. and Anglo-American Financial as agent ("Kennedy"). The lending
group included Norlar, Inc. Norlar, Inc. is a closely-held corporation
beneficially owned by Larry Berman and his wife. Mr. Berman is a director of the
Company, and an officer, director and principal shareholder of Holly.
In connection with this financing, the Company made a Promissory Note
effective May 20, 1996 payable to Kennedy in the principal amount of $5 million
with interest payable at the rate of 15% per annum until May 19, 1997 (the
"First Year Interest Obligation") and at a rate of 24% per annum thereafter.
Payments of principal and interest are payable as follows: (a) the First Year
Interest Obligation was prepaid at closing; (b) commencing on May 19, 1997 and
for each month thereafter, the Company is to make interest only payments, in
advance, in the amount of 2% of the then existing principal balance due under
the Note; and (c) the entire outstanding principal balance, together with all
accrued and unpaid interest, if not previously paid, shall be finally due and
payable on May 19, 1999. The holder of the Note may accelerate the due date for
the entire balance of principal, interest and other sums due upon maturity in
the event of default under the Note. The default rate of interest is 24% during
the first loan year and 36% thereafter. The Note is secured by a first deed of
trust on the Property, and any buildings, fixtures and any materials which are
now or may hereafter be located on the Property. The Note has been guaranteed by
Holly. In addition, Holly and the Company have entered into an environmental
indemnity agreement with Kennedy pursuant to which they will defend and hold
harmless the co-lenders from any environmental claims.
The Company received net proceeds of approximately $2,838,000 after
payment of loan commitment fees, loan servicing fees and points to Kennedy of
approximately $824,500 (of which $247,500 was received by Norlar, Inc.), the
First Year Interest Obligation of $750,000 (of which $352,500 was received by
Norlar, Inc.) and $610,000 for release of the prior first deed of trust on the
Property. The holder of that deed of trust was the holder of a note which had
not been paid by New Allied.
Pursuant to the Order of the Bankruptcy Court, the Company will receive
a credit for the amount paid to the holder of the note from New Allied as a
direct offset against the Note made by the Company to New Allied. The note from
the Company to New Allied was secured by a second deed of trust against the
Property. The net proceeds received by the Company from the loan closing have
been paid into an interest bearing account pending further order of the
Bankruptcy Court.
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Gaming has become increasingly popular in the United States, with
substantial new operations commenced in various locales throughout the United
States since 1990. The first full year of gaming operations in Colorado was
1992. However, because of the increased popularity of gaming and the
proliferation of gaming establishments throughout the United States, competition
for funds for new operations is intense. The Company is exploring potential
financing alternatives, including equity offerings, borrowings, joint ventures,
etc. The Company has no commitments for any such financings, and it is presently
unknown whether the Company will be able to complete its casino plans and
commence operations. The Company has incurred substantial net losses, and has a
working capital deficiency of approximately $738,600 at June 30, 1996. Insofar
as the Company has not completed its casino facility, it has received no
revenues from operations from these planned business activities. The Company's
financial statements have been presented on the basis that it is a going
concern, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company's ability to continue
in existence is dependent upon its ability to obtain additional long-term
financing, achieve profitable operations and to finalize a plan satisfactory to
interested parties in the bankruptcy proceeding. The financial statements do not
include any adjustments relating to the recoverability and classification of
recorded asset or liability amounts which might be necessary should the Company
be unable to continue in existence. See Items 6 and 7.
(b) Business of the Company
As stated above, the Company has acquired the Property and has
commenced preliminary work on the construction of a gaming facility thereon. The
Property is more particularly described in Item 2.
The Property is located in Black Hawk, Colorado. Limited stakes gaming
($5.00 or less per bet) was approved in Colorado in November 1990 in two
historic gold mining areas - Black Hawk/Central City and Cripple Creek. Black
Hawk and Central City are contiguous, located approximately 40 miles from Denver
and 10 miles from Interstate Highway 70. Casinos located in Black Hawk/Central
City serve primarily the residents of Denver and Boulder, Colorado and
surrounding communities, an area with a total population of approximately
2,000,000.
The City of Black Hawk is located in a narrow valley in the foothills
of the Colorado Rockies and is serviced by two-lane, winding mountain roads that
require extremely cautious driving, especially in bad weather. Congestion on the
roads leading into Black Hawk is not uncommon during the peak summer season,
holidays, and other times of the year and may discourage potential customers
from traveling to the Company's proposed casino.
Limited stakes gaming did not commence in Colorado until October 1991,
so there is limited experience in Colorado from which to evaluate the likelihood
of success of the Company's proposed gaming operations. Although proceeds from
gaming operations have increased significantly since 1991, the results may
reflect the novelty of limited gaming. In addition, the Black Hawk/Central City
casino market is characterized by intense competition. As the number of gaming
machines in operation has increased over the past three years, average revenues
per machine have declined significantly. A number of small Colorado casinos have
ceased operations, and others have filed for protection under Chapter 11 of the
Bankruptcy Code. Others have closed temporarily or reduced employees, and many
casinos may not be operating profitably. In addition, although Colorado voters
have rejected the expansion of gaming to other markets in Colorado, future
initiatives could expand limited gaming in Colorado to other locations. In
addition to competing with other casinos in Black Hawk/Central City and Cripple
Creek, the Company's proposed Colorado casinos may compete for customers with a
casino located on an Indian reservation in Colorado or with casinos in other
gaming jurisdictions. Furthermore, the Company will be competing with many
established companies, some of which have greater financial resources,
experience and expertise than the Company. The Company is also aware of
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other companies that have announced plans for the development and operation of
gaming and relating facilities in Black Hawk/Central City which are anticipated
to be larger than those presently operated in that area. In general, local,
state and national competition is expected to remain high during the foreseeable
future, as gaming activities expand in traditional gambling cities and in new
jurisdictions, many of which have adopted or are considering gambling
legislation.
The Company believes that its proposed gaming facility may be able to
compete successfully in Black Hawk based on its size, country western theme,
attractive decor and parking availability. The project's projected size of
215,000 square feet will position it as one of the largest casino facilities not
only in Black Hawk/Central City, but in the State of Colorado. The gaming
operation is anticipated to include approximately 1,000 slot machines comprised
of nickel, quarter, dollar and five dollar slots. Plans also include 32
blackjack tables and 15 poker tables.
A country western theme with entertainment and special programs, will
be the cornerstone of the facility which will offer a major entertainment
theater, a large buffet, a down-home country steak house, and ample parking. The
Company does not believe that gaming alone will continue to be the driving
attraction to the present casinos. The Company believes that the lack of other
amusement alternatives contributed to the inability of many small, storefront
casinos to continue in business in the Black Hawk/Central City area. The Company
believes that its country theme will make it a unique operation, and a
destination facility in the Black Hawk/Central City area. The Company will
emphasize service, friendly atmosphere, good food and entertainment provided in
a country music style. The Company's plans are for parking in excess of 400 cars
on site and an additional 700 car parking lot off site. The availability of
parking has been a significant factor in business operations of other casinos in
the Black Hawk/Central City area.
The ownership and operation of gaming facilities is heavily regulated.
No gaming may be conducted in Colorado unless licenses are obtained from the
Colorado Limited Gaming Control Commission (the "Colorado Gaming Commission").
The Division of Gaming of the Department of Revenue of the State of Colorado
(the "Division of Gaming") licenses, implements, regulates and supervises the
conduct of limited stakes gaming. The Director of the Division of Gaming under
the supervision of the Colorado Gaming Commission, has been granted broad powers
to insure compliance with the law and regulations. It is a stated policy of
these authorities that public confidence and trust can be maintained only by
strict regulation of all persons, locations, practices, associations, and
activities related to the operation of licensed gaming establishments and the
manufacture or distribution of gaming devices and equipment.
Prior to commencement of operations of the Company's proposed Country
World Casino, the Company will be required to obtain a retail gaming license and
an operator's gaming license, both of which must be renewed annually. No person,
such as the Company, can have an ownership interest in more than three retail
licenses. Hence, the Company's business opportunities in Colorado could be
limited accordingly.
The Colorado Gaming Commission has the power to deny any license or
renewal thereof to any person that it considers to be "unsuitable". In order to
be found suitable, a person must be of good moral character, honesty, integrity,
and, in general terms, must be free from previous criminal or unsavory
convictions or similar acts. The Colorado Gaming Commission may require
substantial information in connection with a suitability investigation,
including personal background and financial information, source of funding
information, and a sworn statement that such person or entity is not holding the
Company's securities for any other party, and fingerprinting. The expenses of
investigation are borne by the applicant.
During the fiscal year ended June 30, 1995, the Company did substantial
work in preparing the necessary gaming applications. However, due to an
investigation by the SEC which was then pending and other problems involving New
Allied, it was the belief of the Company's management that it would be imprudent
to file the applications. During the fiscal year ended June 30, 1996, the
Company filed its Petition under Chapter 11 of the Bankruptcy Code and was
embroiled in dispute with New Allied. If and when the Company determines to file
the applications, the investigation by the Colorado Gaming Commission may be
extremely lengthy and expensive. Moreover, the Colorado Gaming Commission has
substantial administrative
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discretion. It may choose to inform the Company of defects in its application
(and permit the Company to cure the deficiencies) or simply deny the
applications of persons connected with the Company. The Company is considering
revisions to strengthen its application. However, there can be no assurance that
the persons required to be found suitable will be found suitable by the Colorado
Gaming Commission, or that the Company will be issued a retail gaming license.
In addition, all the Company's employees will be required to apply for
and receive a support or key employee gaming license prior to commencing
employment. All such licenses obtained will be revocable and non-transferable.
If the Company is successful in obtaining a retail gaming license and
opening its casino, it will be subject to comprehensive rules and regulations of
the Colorado Gaming Commission requiring it to maintain adequate books and
records and to comply with operating, security and payoff procedures. Rules
regarding gaming, cheating and other fraudulent practices have also been
adopted, which rules the Company will be obligated to police and enforce. The
Company will also be required to inform the Colorado Gaming Commission of any
changes in its officers or directors or substantial changes in equity ownership
of the Company, and of its intent to make any public offering of its securities.
Other state regulatory agencies will also impact the Company's
operations. It will be particularly important for the Company to obtain a
license to serve alcoholic beverages. Rules and regulations in this regard are
strict, and loss or suspension of a liquor license could significantly impair,
if not ruin, a licensee's operation. Local building, parking and fire codes and
similar regulations could also impact the Company's proposed development and
operation of the Property and other properties the Company may seek to develop
in the future.
Effective October 1 of each year, the Colorado Gaming Commission
establishes the gross gaming revenue tax for the following 12 months. Under the
Colorado Constitution, the Colorado Gaming Commission is authorized to increase
the gaming tax rate to as much as 40%. A recent tax limitation amendment to the
Colorado Constitution, however, provides that neither the State of Colorado nor
any local government may increase the tax rate without an affirmative vote of
the public; therefore, a question exists regarding the Colorado Gaming
Commission's ability under the Colorado Constitution to increase the state
gaming tax above 20% without such a vote. The Colorado Gaming Commission has
determined that, for the year commencing October 1, 1996, the gross gaming
revenue tax will be 2% of the first $2,000,000 of gross gaming revenues; 4% of
the revenues between $2,000,000 and $4,000,000; 14% of the revenues between
$4,000,000 and $5,000,000; 18% of the revenues between $5,000,000 and
$10,000,000; and 20% of the revenues in excess of $10,000,000.
In addition, a "device fee" is required for each gaming device (i.e.,
each gaming machine and each space at a gaming table). Effective October 1,
1994, the annual fee was reduced from $100 to $75 per device and is expected to
remain at this rate through 1996. The City of Black Hawk has established annual
fees per device of $750. The City of Black Hawk also imposes liquor licensing
fees, restaurant fees and parking impact fees.
Insofar as the Company's gaming facility has not been developed, the
Company does not have experience to determine seasonality of operations.
However, it is anticipated that the highest levels of business activities will
occur in the peak summer tourist season. Weather conditions can be expected to
have a significant impact on the Company's operations.
Much of the County in which Black Hawk is located was once active in
the mining industry. The area has been designated by the U.S. Environmental
Protection Agency (the "EPA") as a super-fund site on the National Priorities
List as a result of contamination from the mining activity in the area. The
Company, through independent environmental consultants, has conducted
environmental examinations. The Company has also conducted environmental
remediation pursuant to an administrative consent order with the EPA.
Substantial amounts of tailings and waste rock were removed from the Property.
The remediation was performed in accordance with the approved work plan and is
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now complete and fully paid. A barrier wall was also constructed. The Company
paid $656,000 in connection with this work during the past two fiscal years.
Based on the work performed to date, and the consulting work performed for the
Company, the Company does not believe that further remedial activity will be
required; however, there can be no assurance what costs, if any, the Company
might be required to incur in the future in connection with environmental
matters relating to the Property or other sites the Company might acquire in the
future. In connection with the $5 million in financing obtained from Kennedy,
the Company and Holly entered into an environmental indemnity agreement with
Kennedy pursuant to which they will defend and hold harmless the co-lenders from
any environmental claims.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's Property is located in the town of Black Hawk. The town
of Black Hawk is part of the Central City and Black Hawk National Historic
Landmark, established in 1989 by the United States Department of Interior,
National Park Service. In conformance with this designation, the town of Black
Hawk in October 1990 established the Architectural and Design Review Guidelines,
authorizing the town to regulate historical and architectural matters within the
town. These guidelines are used by Black Hawk's Historic Architectural Review
Commission ("HARC") to evaluate and approve all applications for construction.
Furthermore, the amendment to the Colorado Constitution authorizing
limited stakes gaming provides that such gaming shall be conducted in structures
which conform, as determined by the respective municipal governing body, to the
architectural styles and designs common to the area prior to World War I and
which conform to the requirements of applicable respective municipal ordinances,
regardless of the age of the structure. Accordingly, the Company has designed
its building in conformance with the requirements of HARC, and the building
design will reflect the architectural style consistent with the guidelines.
The site is located on Colorado State Highway 119, approximately
one-quarter mile past the Gregory Street turn-off that leads to Central City
through Black Hawk. As such, the Company's casino facility will not be
contiguous to the many casinos which are located on Gregory Street and Main
Street in Black Hawk. The facility will be designed to allow for a maximum
exposure to approaching traffic, and will be in a direct site line from the turn
from the Highway into the town of Black Hawk. The Company believes that it is
this ability, and ease of access that should provide a competitive benefit to
the other casinos which are located in the central portion of town. Moreover,
many casinos in Black Hawk/Central City lack contiguous or convenient parking
and, as a result, have had difficulty in attracting and retaining customers. In
contrast, the Company's site will offer convenient parking to its customers.
The Company's Property was acquired in August 1993 from New Allied. The
Company paid to New Allied $550,000 in cash, delivered a promissory note in the
amount of $3,450,000 and issued 2,250,000 shares of a newly created Series A
Preferred Stock, which is convertible to Common Stock on a one-for-one basis.
The Company also obligated itself to file a Registration Statement to cover the
distribution of the Series A Preferred Stock to the shareholders of New Allied.
During the fiscal year ended June 30, 1995, the Company discontinued making
installment payments on the promissory note to New Allied. In addition, the
Company did not file a registration statement on behalf of New Allied. As more
fully discussed in Item 3, the Company initiated litigation against New Allied.
New Allied has filed counterclaims in that litigation, and has instituted
foreclosure proceedings on the Property.
In the fiscal year ended June 30, 1995, the Company continued its
preliminary plans to construct a casino on the Property. At a cost of
approximately $1,000,000, the Company completed the excavation of the site for
the casino in December 1994. The Company has also refined its plans for site
improvement of the casino and gaming facility. Further construction work on the
property will be dependent principally upon the Company's ability to obtain
additional financing. The Company's majority shareholder, Holly, has engaged in
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extensive work to obtain this financing, but currently there are no commitments
to obtain this financing. The Company estimates that additional construction
costs to complete and commence operations of an entertainment and gaming
facility will be approximately $30,000,000.
Due to the substantial amount of construction created by the
legalization of limited stakes gaming in Black Hawk/Central City, the Black
Hawk/Central City Sanitation District's sewage treatment facilities became
inadequate. The District completed an expanded facility in March 1995. The
expansion tripled the District's treatment capacity. The Company has been
informed that the treatment plant is currently operating at approximately 35% of
its capacity, and has been informed by District officials that, as a result of
the expansion, the District will be able to handle growth for approximately the
next five to seven years. The District has informed the Company that the
estimated fee for the sale of a tap to the Company for the connection of
improvements at the Property will be $1,501,875.
In September 1993, the Company entered into a Consulting Agreement with
First Federal Mortgage & Loan Company ("First Federal"), an affiliate of Grady
Sanders. Pursuant to this Agreement, First Federal agreed to assist and advise
the Company in construction and development of the project, including the
selection of the general contractor, architect, interior designer and engineers.
The Company agreed to pay $30,000 to First Federal for these services, plus
50,000 shares of the Company's Common Stock. The Common Stock was not issued. In
March 1995, the Company entered into a new Consulting Agreement with First
Federal. It was agreed that the 50,000 shares would not be issued. As
compensation for the consulting services, the Company agreed to pay a fee equal
to 5% of the gross expenditures (excluding any expenditures for the acquisition
or leasing of gaming devices) paid or incurred by the Company through completion
of construction with respect to any project of the Company for which First
Federal provided services to or on behalf of the Company pursuant to the
Agreement. During the fiscal year ended June 30, 1995, the Company terminated
the Consulting Agreement with First Federal. The Company believes that First
Federal has been fully paid for its services. Although First Federal has
disputed this contention, it is unknown whether any action will be taken.
In August 1993, the Company contracted with New Allied to purchase
vacant land off Colorado Highway 119 near the Property. The Company will be able
to use this land for additional parking. The Company's preliminary, long-term
plans are to consider the construction of a hotel on this property. There can be
no assurance that this property will be developed by the Company.
The Company's executive offices are located in Denver, Colorado. The
Company leases approximately 1,400 square feet at The Colorado Club, 4155 East
Jewell Avenue, Suite 1000, in Denver for $1,543 per month. The Company leases
the office from a non-affiliate and has agreed to this arrangement through
December 1996.
ITEM 3. LEGAL PROCEEDINGS
I. The Company is the plaintiff and a counterclaim defendant in a lawsuit
pending in Denver, Colorado District Court, Case No. 95CV2310, entitled Country
World Casinos, Inc., a Nevada corporation, Plaintiff, v. Tommyknocker Casino
Corp., a Colorado corporation and New Allied Development Corporation, a Colorado
corporation, Defendants, v. Country World Casinos, Inc., a Nevada Corporation,
Holly Products, Inc., a New Jersey corporation, Ronald G. Nathan, Sal Lauria,
Roger D. Leclerc, William H. Patrowicz and David Singer, Counterclaim
Defendants.
This lawsuit was commenced by the Company on May 26, 1995. In the
Company's Amended Complaint, the Company has asserted eight claims against New
Allied Development Corporation ("New Allied") and Tommyknocker Casino Corp.
("TKCC"), as follows:
A. In its First Claim for Relief, the Company seeks a declaration that
it is not obligated to make any additional payments to TKCC under a certain
promissory note until such time as TKCC secures the release of a certain,
prior deed of trust. This claim arises out of a promissory note (the
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"Note" given to TKCC as part of the Company's purchase of certain real
property in Blackhawk, Colorado from TKCC in August, 1993. The Note is
secured by a second deed of trust on the property purchased. The Note
provides that at such time as TKCC received payment of $725,000 in
principal and interest on the Note, TKCC would immediately secure the
release of the first deed of trust on the property. The Company paid said
$725,000 to TKCC in mid-January of 1995. TKCC, however, did not secure, and
still has not secured, the release of the first deed of trust, which
secures a promissory note with an unpaid balance in excess of $500,000.
Accordingly, after making the monthly installment payments of $33,184.30
each under the Note in February, March and April of 1995, the Company has
withheld payments from TKCC until the first deed of trust is released as a
lien on the property. The Company seeks a declaration as to its legal
rights and that it is not in default under the Note due to TKCC's prior
breach of its obligations under the Note.
B. The Company paid over $656,000 to or on behalf of TKCC to clean up
and remediate environmental contamination on the property purchased from
TKCC in August 1993. The Company seeks to recover all or part of this
amount from TKCC under the following legal theories:
1. That the environmental contamination on the property
constitutes an encumbrance, which is in breach of the covenant against
encumbrances contained in the warranty deed by which TKCC conveyed the
property to the Company (Second Claim for Relief).
2. That TKCC and New Allied made fraudulent misrepresentations to
the Company regarding the costs of the environmental clean up and
remediation and that the Company is entitled to recover damages
resulting from these misrepresentations, as well as exemplary damages
(Third Claim for Relief).
3. That TKCC and New Allied made negligent misrepresentations to
the Company regarding the costs of the environmental clean up and
remediation and that the Company is entitled to recover damages
resulting from these misrepresentations, as well as exemplary damages
(Fourth Claim for Relief).
4. That TKCC's and New Allied's actions violated their duties of
good faith and fair dealing (Fifth Claim for Relief).
5. That the misrepresentations of TKCC and New Allied constitute
deceptive trade practices in violation of the Colorado Consumer
Protection Act (Sixth Claim for Relief).
6. That any agreement under which the Company purportedly agreed
to pay for the environmental remediation and clean up costs (which
agreement the Company denies exists) is void and unenforceable under
various principles of law, including the statute of frauds and CERCLA
(Seventh Claim for Relief).
C. TKCC received 2,250,000 shares of non-voting preferred stock in the
Company, which preferred stock was subsequently given voting rights, as
part of the consideration given by the Company to TKCC to purchase the
property. Further, in a subsequent real estate purchase transaction, New
Allied was given 250,000 shares of common stock with voting rights in the
Company. The Company claims that Grady Sanders was involved in and
controlled, directly or indirectly, individually and/or in common control
with others, TKCC and New Allied at all pertinent times. Since Mr. Sanders
has been denied gaming licensure by the State of New Jersey, the Company
claims that Mr. Sanders, and therefore New Allied and TKCC, are persons
whom the Colorado Gaming Commission will determine to be unsuitable.
Therefore, the Company seeks a court order requiring TKCC and New Allied to
sell to the Company their 2.5 million shares of voting stock in the Company
at the price set forth in ss.47.1-4.508 of Rule 4.5 of the Colorado Gaming
Regulations (Fifth Claim for Relief).
9
<PAGE>
D. Lastly, the Company seeks a full accounting and declaration of all
payments which it has made to TKCC under the Note (Eighth Claim for
Relief).
TKCC and New Allied have filed an Answer to some of the Company's
claims, denying liability. In addition, they have filed a Motion to Dismiss
certain of the claims. The Company has filed a Motion for Summary Judgment on
its First and Second Claims for Relief. None of these Motions have been ruled
upon by the Court, and the matter is now stayed as a result of the bankruptcy
filing by the Company.
TKCC and New Allied filed Counterclaims against the Company, as well as
against Holly Products, Inc. ("Holly"), the majority shareholder in the Company,
Ronald G. Nathan ("Nathan"), Sal Lauria ("Lauria"), and David Singer ("Singer")
former directors of the Company, and Roger G. Leclerc ("Leclerc") and William H.
Patrowicz ("Patrowicz"), who are currently officers and directors of the
Company.
The First Counterclaim is only against the Company, and seeks to
recover principal and default interest allegedly due on the Note. The Company
has filed an Answer denying liability on this counterclaim.
In its Second Counterclaim, TKCC alleges that the Company has breached
an agreement to file a registration statement for the preferred stock given to
TKCC as part of the consideration for purchase of the property. The Company has
filed an Answer denying liability on this counterclaim.
In their Third and Fourth Counterclaims, TKCC and New Allied have
asserted that the Company, as well as Holly, Nathan, Lauria, Leclerc, Patrowicz
and Singer, breached their fiduciary duties by the issuance of five million
shares of common stock in the Company to Holly. In the Third Counterclaim, TKCC
and New Allied seek actual and exemplary damages allegedly caused by said
alleged wrongful issuance of stock. In the Fourth Counterclaim, TKCC and New
Allied seek an injunction requiring the Company and its board of directors to
cancel the five million shares of stock issued to Holly.
The Company, as well as Leclerc, Holly, Patrowicz and Singer, have
filed Answers denying any wrongful conduct or any liability to TKCC or New
Allied resulting from said issuance of stock to Holly, and have affirmatively
asserted that said issuance of stock was proper. Neither Nathan nor Lauria has
been served with the summons and counterclaim, and have not yet appeared in this
lawsuit.
This lawsuit has not yet been scheduled for trial, particularly in
light of the bankruptcy stay.
II. TKCC filed a Notice of Election to Foreclose on its Note in the office
of the Gilpin County Public Trustee on or about June 15, 1995. The Company has
denied that it was or is in default under the Note because of TKCC's prior
breach of the terms of the Note by its failure to secure the immediate release
of the first deed of trust on the property upon its receipt of $725,000 in
January 1995. A Denver District Court Magistrate ruled that since the Company
has not paid to TKCC the monthly installments under the Note since May 1995, the
Company is in default, despite TKCC's failure to secure the release of the first
deed of trust. The Magistrate's Order is not appealable to the Colorado
appellate courts and is not binding in any subsequent proceeding. The Company
intends to pursue this issue in Denver District Court Case No. 95CV 2310
described above.
The foreclosure sale was not held due to the bankruptcy petition filed
by the Company.
III. On October 12, 1995, the Company filed a Chapter 11 Petition in
bankruptcy in the United States Bankruptcy Court for the District of Colorado,
Case No. 95-20563 RJB, which is currently pending.
As discussed in "Management's Discussion and Analysis of Financial
Condition or Plan of Operation" in this Report, the Company obtained $5,000,000
in financing which is secured by First Deed of Trust on the Company's Black
Hawk, Colorado property. Pursuant to order of the Bankruptcy Court, New Allied's
security interest has been cancelled. The payoff balance on the note due to New
Allied was in dispute and a claims hearing was held by the Bankruptcy Court in
September 1996 to determine the amount to be paid to New Allied.In November 1996
the Bankruptcy Court Judge issued an Opinion and Order on the various issues
between the Company and New Allied. The Court held that the Company was not
entitled to any offset to New Allied's claim, but that new Allied's claim for a
default rate of interest and attorneys' fees would not be allowed. The Company
has not determined whether it will appeal this ruling. In November 1996 the
Company paid $1,309,000 to New Allied in what it believes is in full settlement
of amounts due to New Allied in connection with the note payable to New Allied.
The Company remains obligated to pay the costs of registration of New Allied's
stockholdings in the Company.
10
<PAGE>
The Company has filed a Plan of Reorganization and a Disclosure Statement
for the Plan of Reorganization with the Bankruptcy Court. The Company intends to
file an Amended Disclosure Statement later this year. A hearing will be
conducted before the Bankruptcy Court to consider the adequacy of the Disclosure
Statement.
IV. In the fiscal year ended June 30, 1994, the Company was informed by the
Securities and Exchange Commission (the "SEC") that the SEC had instituted a
formal order of investigation concerning the possibility of violations of the
federal securities laws by the Company. In August 1996, the Company was advised
that the investigation had been terminated and that, at this time, no
enforcement action has been recommended by the staff of the SEC.
V. The Company is a Defendant in a lawsuit pending in Travis County, Texas
District Court, Cause No. 95-04782, 200th Judicial District, entitled James
Hamilton, Plaintiff v. Robert Todd Financial Corporation; Dean Anthony Esposito;
Marco Guy Fiore, Jr.; Robert Bobak Fallah; Optex Biomedical Inc.; Pacific Rim
Entertainment, Inc.; Country World Casinos, Inc.; Defendants.
The Plaintiff James Hamilton ("Hamilton") contends that Defendants
Robert Todd Financial Corporation, and its agents and/or employees, Defendants
Dean Anthony Esposito, Marco Guy Fiore, Jr. and Robert Bobak Fallah, made
misrepresentations regarding the Company's stock, which allegedly induced
Hamilton's purchase of said stock. Hamilton alleges that Defendants Robert Todd
Financial Corporation, Dean Anthony Esposito, Marco Guy Fiore, Jr. and Robert
Bobak Fallah, were authorized agents of the Company, and, therefore, Hamilton
alleges that the Company is liable for the alleged wrongful conduct of said
Defendants.
The Company has filed a Special Appearance and Answer, objecting to the
jurisdiction of the Travis County, Texas District Court, as well as denying all
material allegations of Hamilton's Original Petition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of the fiscal year
covered by this Report to a vote of security holders.
11
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded in the over-the-counter market,
and is quoted and is listed on the Electronic Bulletin Board under the symbol,
"CWRC". The market for the Company's Common Stock must be characterized as a
limited market due to the relatively low trading volume. Set forth in the
following table are high and low bid quotations for the Company's Common Stock
for the fiscal years ended June 30, 1995 and 1996. All quotations have been
adjusted to reflect the 1-for-35 split of the Company's Common Stock in 1993.
The quotations represent inter-dealer quotations without retail markups,
markdowns or commissions and may not represent actual transactions.
Quarter Ended High Low
- ------------- ---- ---
September 30, 1994 $4.75 $.125
December 31, 1994 4.75 .125
March 31, 1995 1.31 .25
June 30, 1995 .75 .125
September 30, 1995 .31 .03
December 31, 1995 .19 .03
March 31, 1996 .31 .03
June 30, 1996 .56 .06
At May 16, 1996, there were approximately 1,092 record holders of the
Company's Common Stock.
The Company has not paid or declared cash distributions or dividends on
its Common Stock and does not intend to pay cash dividends in the foreseeable
future. Future cash dividends will be determined by the Company's Board of
Directors based on the Company's earnings (if any), financial condition, capital
requirements and other relevant factors. The Company may not pay dividends on
its Common Stock without the consent of the holders of at least a majority of
the outstanding Series A Preferred Stock. In addition, the holders of the Series
A Preferred Stock shall be entitled to receive dividends, when and if declared
by the Board of Directors of the Company, on an equal share-per-share basis with
all outstanding shares of the Company's Common Stock. All of the shares of
Series A Preferred Stock are owned by New Allied, a publicly held company. New
Allied intends to distribute these shares to its shareholders.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
The Company's ability to obtain the additional financing and to proceed
with its plans for a gaming facility has been affected by the Company's disputes
with New Allied, which has culminated in litigation and foreclosure proceedings
on the Property in 1995, and the Company's filing of a bankruptcy petition under
Chapter 11.
12
<PAGE>
Following review and approval of Country World's site and excavation
plans, the City of Black Hawk, Colorado granted the Company a permit to commence
excavation of the site. This segment of construction was completed in December
1994 at a cost of approximately $1,000,000. With the completion of excavation
work, the next step involving the facility would be construction of the
foundation. A foundation permit from the City of Black Hawk must be obtained
prior to commencing this phase of the project. The Company estimates that
expenses for services and materials in connection with constructing the
foundation will be approximately $1,500,000. Country World does not presently
have any of the funding necessary for this phase of the project. The Company has
no firm understandings, agreements or arrangements for obtaining these funds.
There can be no assurance that such funding can be obtained, or if obtained,
that the terms and conditions will be favorable to the Company. Moreover, the
Company estimates that the total project costs will approximate $30,000,000. The
Company has no commitments for this funding.
During the fiscal year ended June 30, 1995, the Company's disagreements
with New Allied intensified. As a result of New Allied's unwillingness to
cooperate with the Company, New Allied's failure to secure a release of the
$475,000 first deed of trust on the Property, New Allied's misrepresentations to
the Company and subsequent legal problems involving New Allied, the Company
instituted litigation against New Allied.
New Allied commenced foreclosure proceedings involving the Property.
Due to the pendency of these proceedings, on October 12, 1995, the Company filed
a Voluntary Petition Under Chapter 11 of the Bankruptcy Code in the United
States Bankruptcy Court, District of Colorado (Case No. 95 20563 RJB). As a
result, all creditors of the Company are stayed from commencing or continuing
any action or enforcing any judgment or lien against the Company or property of
the Company, except as otherwise authorized pursuant to Title 11 U.S.C. 362(b).
Relief may be sought by the filing of a complaint in the Bankruptcy Court,
pursuant to Title 11 U.S.C. 362(d). At present, the effects of the bankruptcy
proceeding on the long term outlook for the Company, and the ability of the
Company to commence development of the Property, are unclear.
In March 1996 the Bankruptcy Court granted the Company's motion to
approve $5 million in financing, which financing was obtained on May 31, 1996.
The $5 million financing was obtained from a group of lenders led by Kennedy
Funding, Inc. and Anglo-American Financial as agent ("Kennedy"). The lending
group included Norlar, Inc. Norlar, Inc. is a closely-held corporation
beneficially owned by Larry Berman and his wife. Mr. Berman is a director of the
Company, and an officer, director and principal shareholder of Holly.
In connection with this financing, the Company made a Promissory Note
effective May 20, 1996 payable to Kennedy in the principal amount of $5 million
with interest payable at the rate of 15% per annum until May 19, 1997 (the
"First Year Interest Obligation") and at a rate of 24% per annum thereafter.
Payments of principal and interest are payable as follows: (a) the First Year
Interest Obligation was prepaid at closing; (b) commencing on May 19, 1997 and
for each month thereafter, the Company is to make interest only payments, in
advance, in the amount of 2% of the then existing principal balance due under
the Note; and (c) the entire outstanding principal balance, together with all
accrued and unpaid interest, if not previously paid, shall be finally due and
payable on May 19, 1999. The holder of the Note may accelerate the due date for
the entire balance of principal, interest and other sums due upon maturity in
the event of default under the Note. The default rate of interest is 24% during
the first loan year and 36% thereafter. The Note is secured by a first deed of
trust on the Property, and any buildings, fixtures and any materials which are
now or may hereafter be located on the Property. The Note has been guaranteed by
Holly. In addition, Holly and the Company have entered into an environmental
indemnity agreement with Kennedy pursuant to which they will defend and hold
harmless the co-lenders from any environmental claims.
The Company received net proceeds of approximately $2,838,000 after
payment of loan commitment fees, loan servicing fees and points to Kennedy of
approximately $824,500 (of which $247,500 was received by Norlar, Inc.), the
First Year Interest Obligation of $750,000 (of which $352,500 was received by
Norlar, Inc.) and $610,000 for release of the prior first deed of trust on the
Property. The holder of that deed of trust was the holder of a note which had
not been paid by New Allied.
13
<PAGE>
Pursuant to the Order of the Bankruptcy Court, the Company will
receive a credit for the amount paid to the holder of the note from New Allied
as a direct offset against the Note made by the Company to New Allied. The note
from the Company to New Allied was secured by a second deed of trust against the
Property. The net proceeds received by the Company from the loan closing have
been paid into an interest bearing account pending further order of the
Bankruptcy Court. In November 1996 the Company made a final payment to New
Allied on the Note. See Item 3.
The Company has filed an initial Plan of Reorganization (the "Plan")
with the Bankruptcy Court, which it is currently working to amend. The Company's
current cash resources are less than the Company's expenses incurred during the
bankruptcy proceedings and its other accounts payable. The Plan may not be
acceptable to creditors of the Company for this or other reasons. If the Plan is
not confirmed, a trustee could be appointed to liquidate the Company's property
which could result in no proceeds to holders of the common stock of the Company.
The Company has had no revenues from operations. The Company incurred
a loss from operations of $416,440 in the fiscal year ended June 30, 1996,
$(.04) per share, as compared to a net loss of $(757,659) or $(.11) per share,
for the year ended June 30, 1995. The ability of the Company to achieve revenues
in the future will be dependant upon realization of its plans to develop a
gaming and entertainment facility on the Property.
In addition to obtaining the necessary financing, the Company must
obtain from the Colorado Gaming Commission approval to commence gaming
operations. The Commission's action is predicated upon approval of the
applications of all of the Company's principals. The Company is taking the steps
necessary to go forward with its submission to state authorities of its gaming
application and receive the required approvals to engage in gaming operations
within the State of Colorado. However, there can be no assurance that the
Company will be successful in its efforts. Management believes that the length
of time and disposition of the gaming approval process cannot be accurately
predicted at this point, but that the process could be time consuming and
expensive.
The Company intends to continue with its efforts of securing necessary
construction and pre-opening capital through equity, debt, and/or joint venture
opportunities as may be available. Although the Company is actively pursuing a
number of different options, there can be no assurance that the Company will be
successful in its efforts to raise the funding necessary to complete the
project.
Management continues to be encouraged concerning its planned
development as Black Hawk continues to show its dominance in the Colorado gaming
market. According to Colorado State Gaming Statistics released for August 1996,
Black Hawk produced $20,528,005 of the reported $39,525,185 gaming win for the
entire state representing approximately 52% marketing share with only 20 of the
state's 59 operational casinos.
ITEM 7. FINANCIAL STATEMENTS
The Financial Statements are provided in the accompanying pages F-1
through F-20.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
In September 1994, the Company engaged as its principal accountant the
firm of Ehrhardt Keefe Steiner & Hottman P.C. The former principal accountant
for the Company (when it was known as Monolite Industries) was Schiemann &
Machen. The Report of Schiemann & Machen on the financial statements of the
14
<PAGE>
Company at and for the years ended June 30, 1993 and 1992 provided that the
Company's recurring losses from operations and net capital deficiency raise
substantial doubt about the Company's ability to continue as a going concern
unless the Company obtains future profitable operations and/or obtains
additional financing. The Report of Schiemann & Machen did not otherwise contain
an adverse opinion or disclaimer of opinion, or modification as to uncertainty,
audit scope or accounting principles.
There were no disagreements on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure,
which, if not resolved to the former accountant's satisfaction, would have
caused it to make reference to the subject matter of the disagreement(s) in
connection with its Report. The Company was informed that the firm of Schiemann
& Machen had disbanded. The Company received a letter from Fred V. Schiemann
confirming his lack of knowledge of any disagreements.
In September 1996, the Company engaged as its principal accountant the
firm of Moore Stephens, P.C. Moore Stephens, P.C. replaced the firm of Ehrhardt
Keefe Steiner & Hottman P.C. The report of Ehrhardt Keefe Steiner & Hottman P.C.
on the financial statements of the Company at and for the years ended June 30,
1995 and 1994 did not contain an adverse opinion or disclaimer of opinion, nor
was it modified as to uncertainty, audit scope or accounting principles, with
the exception of the uncertainty regarding the Company's ability to continue as
a going concern. The Company does not believe that there were any disagreements
with Ehrhardt Keefe Steiner & Hottman P.C. on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure, during the past two years which, if not resolved to Erhardt Keefe
Steiner & Hottman P.C.'s satisfaction, would have caused it to make reference to
the subject matter of the disagreement in connection with its Report. The
Company received a letter from Erhardt Keefe Steiner & Hottman P.C. stating that
it was in agreement with the Company regarding these statements.
15
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS OF THE
COMPANY; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The following persons serve as officers and directors of the Company:
Name Position
---- --------
Roger D. Leclerc President, Chief Executive Office
and Director
William H. Patrowicz Secretary, Treasurer and Director
Larry S. Berman Director
Cary B. Berman Director
All of the Company's directors were elected to their positions in the fiscal
year ended June 30, 1995. The directors hold their offices until the next Annual
Meeting of the Shareholders of the Company and until their successors are
elected. Officers serve at the discretion of the Company's Board of Directors.
The following is brief biographical information concerning the
Company's officer, directors and significant employees:
Roger D. Leclerc, age 46, has served as President of the Company since
December 1994. Prior thereto, Mr. Leclerc served as the Company's Project
Manager for its proposed Country World Casino since May 1994. Prior to his
involvement with the Country World Casino project, Mr. Leclerc was the General
Manager for the Bull Durham Casino in Black Hawk. Immediately prior thereto, he
served as a General Manager of the Miner's Pick Casino in Central City. From
March, 1990 to June, 1992, he was the General Manager of A&L Enterprises Inc. in
Deadwood, South Dakota, which operated Ms. Kitty's Wilderness Edge Casino and
Days Inn Hotel and Casino.
William H. Patrowicz, age 48, has served as President, Chief Operating
Officer and Director of Holly since June 1992. From 1982 to December 1991, Mr.
Patrowicz was employed by Gunnebo Fastening Corp., most recently as Senior Vice
President of Operations.
Larry S. Berman, age 61, has served as Chairman of the Board of
Directors, Secretary and Director of Holly since June 1992. Since 1982, Mr.
Berman has been Vice President of Coastal Leasing and Investment, Inc. where he
is responsible for restructuring and otherwise assisting companies to raise debt
and equity funds.
Cary B. Berman, age 35, served as a Sales Representative for Holly from
December 1992 until December 1993 when he was promoted to Vice President of
Retail Sales. Prior to joining Holly, Mr. Berman was President of Active
American Apparel, Inc., a New York based clothing company, from 1985 to December
1992. Cary B. Berman is the son of Larry S. Berman.
Section 16(a) of the Exchange Act requires the Company's officers and
directors and persons who own more than 10% of a registered class of the
Company's equity securities, to file reports of ownership and changes in
ownership to the Securities and Exchange Commission. Officers, directors and
greater than 10% stockholders are required by the regulations of the Commission
to furnish the Company with copies of all Section 16(a) reports they file. Based
solely on its review of copies of such reports received by it, the Company
believes that all filing requirements applicable to its current officers and
directors were complied with for the fiscal year ended June 30, 1996. The
Company is unaware of the compliance of its 10% shareholders and its former
officers and directors.
16
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth all cash compensation paid by the
Company to each Executive Officer whose total annual salary and bonus exceeded
$100,000, including all cash compensation paid the Company's Chief Executive
Officers.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term Compensation
----------------------
Annual Compensation Awards Payouts
------------------- ------ -------
Other
Annual Restricted All Other
Name and Principal Salary compensa- Stock Awards Options/ LTIP Compensa-
Position Year ($) Bonus tion (1) (1) SARs Payouts tion
================== ==== ======= ===== ========= ============ ======== ======= =========
(1)
===
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Suzanne M. Sullivan 1996 -0- -0- -0- -0- -0- -0- -0-
President and Secretary 1995 -0- -0- -0- -0- -0- -0- -0-
1994 -0- -0- -0- -0- -0- 12,500 -0-
Timothy M. Dougall 1996 -0- -0- -0- -0- -0- -0- -0-
Chairman of the Board, 1995 146,000 -0- -0- -0- -0- -0- -0-
President and Chief 1994 -0- -0- -0- -0- 1,250,000 -0- -0-
Executive Officer
Jay R. Roberts 1996 -0- -0- -0- -0- -0- -0- -0-
President and Chief 1995 37,390 -0- -0- -0- -0- -0- -0-
Executive Officer 1994 34,000 14,400 -0- -0- 800,000 -0- -0-
Roger D. Leclerc 1996 63,500 -0- -0- -0- -0- -0- -0-
President and Chief 1995 61,000 -0- -0- -0- -0- -0- -0-
Executive Officer 1994 750 -0- -0- -0- -0- -0- -0-
</TABLE>
- -----------------
(1) The Company's present management has been informed that the Company's
former President, Suzanne M. Sullivan, was issued 714,285 shares (as
adjusted to reflect a reverse stock split) of Common Stock for services
valued at $12,500. There was no active market for the Company's Common
Stock when the issuance of the Common Stock was authorized.
During the fiscal year ended June 30, 1994, the Company entered into a
Management Agreement with WTD Associates, Inc., a company owned by Timothy
M. Dougall, then Chairman of the Board of Directors, President and Chief
Executive Officer of the Company and William M. Dougall, a Director of the
Company. The Agreement required the Company to pay to WTD $20,000 per month
for its services through December 31, 1993, at which time the monthly
payment increased to $27,500. The Agreement granted an option for 250,000
shares of common stock at an exercise price of $.01 per share and a warrant
to purchase 1,000,000 shares of common stock with an exercise price of
$3.50 per share. In March, 1994, the Agreement was terminated. The option
to purchase 250,000 shares of common stock had been exercised, and the
Company repurchased 125,000 shares at the exercise price of $.01 per share.
The warrant to purchase 1,000,000 shares was cancelled. Compensation paid
to WTD Associates has been set forth opposite the name of Timothy M.
Dougall in the Table set forth above. The Company is unaware of what
portion of such compensation was paid to Timothy M. Dougall.
17
<PAGE>
During the fiscal year ended June 30, 1994, the Company entered into an
Employment Agreement with its then President and Chief Executive Officer,
Jay R. Roberts. Pursuant to this Employment Agreement, Mr. Roberts was
entitled to receive an annual salary of $120,000, which would be increased
to $180,000 at the opening of the Country World Casino. In addition, Mr.
Roberts was entitled to incentive compensation equal to 4% of the Company's
earnings before interest, taxes, depreciation and amortization. The Company
also agreed to pay to Mr. Roberts an expense allowance of $57,600 per year.
The Employment Agreement may be terminated for cause, including the failure
of Mr. Roberts to obtain a license from the Colorado Gaming Commission. Mr.
Roberts left the Company's employ in December 1994 and the agreement has
been terminated. In connection with his employment arrangements, Mr.
Roberts was granted options to purchase up to 800,000 shares of the
Company's common stock. Options to purchase 125,000 shares were exercisable
until May 31, 1995, at $.25 per share. Options to purchase 375,000 shares
are exercisable from June 1, 1995 to May 31, 1997, at $3.50 per share.
Options to purchase 300,000 shares are exercisable from June 1, 1997 to May
31, 1999, at $6.00 per share.
During the fiscal year ended June 30, 1994, Stanley Richards, who was then
Secretary-Treasurer of the Company, was also granted options to purchase an
aggregate of 575,000 shares of the Company's common stock, of which options
to purchase 75,000 shares at $.25 per share were exercised by Mr. Richards
in April, 1994. Mr. Richards holds options to purchase 250,000 shares
exercisable from June 1, 1995 to May 31, 1997, at $3.50 per share and
options to purchase 250,000 shares exercisable from June 1, 1997 to May 31,
1999, at $5.00 per share. Options to purchase shares of the Company's
common stock were also granted to Messrs. Cook, Kaplan, and Nation, who
were then Directors of the Company, as set forth in Item 12 below.
18
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the persons known to the Company to own
beneficially more than 5% of the outstanding shares of common stock on October
8, 1996, and information as of October 8, 1996, with respect to the ownership of
common stock by each director of the Company and by all officers and directors
as a group.
Name and Address of Shares Beneficially
Beneficial Owner Owned Percent
--------------------- -------------------- -------
New Allied Development 2,500,000(1) 19.1%
Corporation
3200 Cherry Creek S. Drive
Suite 360
Denver, CO 80209
Holly Products, Inc. 7,185,453(2) 66.3%
360 Crider Avenue
Moorestown, NJ 08057
Cary B. Berman 7,185,453(3) 66.3%
360 Crider Avenue
Moorestown, NJ 08057
Larry S. Berman 7,185,453(3) 66.3%
360 Crider Avenue
Moorestown, NJ 08057
Roger D. Leclerc
3100 S. Cherry Creek Drive South
Denver, Co 80209
William H. Patrowicz 7,185,453(3) 66.3%
360 Crider Avenue
Moorestown, NJ 08057
All Officers and 7,185,453(2)(3) 66.3%
Directors as a Group
(4 Persons)
- ----------
(1) New Allied Development Corporation is the owner of 2,250,000 shares of the
Company's Series A Preferred Stock, which constitutes all of the Company's
outstanding Preferred Stock. The Series A Preferred Stock is convertible
into Common Stock on a one share for one share basis. The Table also
includes 250,000 shares of Common Stock owned by New Allied.
(2) The above does not include an additional 20,000,000 shares of common stock
which are the subject of a letter agreement between the Company and Holly
dated April 17, 1995. See Item 12.
19
<PAGE>
(3) Messrs. Larry B. Berman, Cary S. Berman and William H. Patrowicz are
affiliated with Holly Products, Inc., and therefore may be deemed to be
beneficial owners of the Company's shares held by Holly Products, Inc.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
A former President of the Company, Suzanne M. Sullivan, received
714,285 shares of Common Stock for services valued at $12,500. See Item 10.
As more fully stated in Item 10 above, the Company entered into a
Management Agreement with WTD Associates, Inc., a firm owned by Timothy M.
Dougall, who was then Chairman of the Board of Directors, President and Chief
Executive Officer of the Company, and William M. Dougall, who was then a
Director of the Company. The Agreement was terminated in March, 1994.
The Company entered into an Employment Agreement with Jay R. Roberts
for a term commencing May 1, 1994, as more fully provided in Item 10 above. This
agreement was later terminated.
The Company granted stock options to its officers and directors in the
fiscal year ended June 30, 1994, as discussed in Items 10 and 11 above.
The sole holder of the Company's Series A Convertible Preferred Stock,
New Allied, acquired its shareholdings in connection with a sale to the Company
in August, 1993, of the property upon which the Company proposes to construct
its Country World Casino. New Allied also received cash and a promissory note
(secured by a Deed of Trust on the Property) in connection with this
transaction. In June, 1994, the Company completed the acquisition of an
additional 375,000 square feet of vacant land located in close proximity to the
land which is the site for the proposed Country World Casino. The Company paid
$200,000 to New Allied, delivered a promissory note in the amount of $725,000
and issued 250,000 shares of its common stock. See Items 2 and 7 of this Report.
The Company has been engaged in litigation with New Allied as described in Item
3.
As more particularly described in Item 2, the Company has entered into
Consulting Agreements with First Federal Mortgage & Loan Company ("First
Federal"). The Agreements with First Federal are described in Item 2 of this
Report. Grady Sanders is the President of First Federal. It is the Company's
understanding that Mr. Sanders has a close personal relationship with Erica
Hull, the President of New Allied. The Company terminated the Consulting
Agreement with First Federal during the fiscal year ended June 30, 1995. First
Federal Disputes this termination, but has not undertaken any action. The
Company has been informed that Mr. Sanders has consented to permanent
injunctions in 1978 and 1989 in connection with actions brought by the
Securities and Exchange Commission. The Company has further been informed that
these injunctions prohibit Mr. Sanders from violating certain provisions of the
federal securities laws and that, in connection with his consent, Mr. Sanders
neither admitted nor denied the allegations made by the Securities and Exchange
Commission.
During the fiscal year ended June 30, 1995, the Company borrowed
$1,000,000 from Holly, which indebtedness plus accrued interest, was then
cancelled by the issuance to Holly of 5,000,000 shares of the Company's common
stock. The Company also agreed with Holly that Holly would have the right to
purchase up to an additional 20,000,000 shares of common stock at $.20 per share
if additional funding were provided within a reasonable time and progress
continued to be made concerning financing for the proposed Country World Casino.
In May 1995 the Company agreed with Holly to pay Holly $15,000 per week
as a management fee. During the bankruptcy proceedings, it was agreed that no
monies would be paid to Holly for management services.
20
<PAGE>
Holly has provided advances to the Company. At June 30, 1996, the
Company was indebted to Holly in the amount of $285,068.
In March 1996, the Bankruptcy Court granted the Company's motion to
approve $5,000,000 in financing, which financing was obtained on May 31, 1996.
The $5,000,000 financing was obtained from a group of lenders led by Kennedy
Funding, Inc., and Anglo-American Financial as agent ("Kennedy"). The lending
group included Norlar, Inc. Norlar, Inc. is a closely-held corporation
beneficially owned by Larry Berman and his wife. Mr. Berman is a director of the
Company, and an officer, director and principal shareholder of Holly. The
Company received net proceeds of approximately $2,838,000 after payment of loan
commitment fees, loan servicing fees and points to Kennedy of approximately
$824,500 (of which $247,500 was received by Norlar, Inc.), the first year
interest obligation of $750,000 (of which $352,500 was received by Norlar, Inc.)
and $610,000 for release of the prior first deed of trust on the Property.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
--------
Exhibit No. Description
- ----------- -----------
3.1 Articles of Incorporation of the Company, as amended, previously filed as
an Exhibit to the Company's Report on Form 10-KSB for the year ended June
30, 1994, is incorporated herein by reference.
3.2 Bylaws of the Company, previously filed as an Exhibit to the Company's
Report on Form 10- KSB for the year ended June 30, 1994, is incorporated
herein by reference.
4.1 Certificate of Designation of Series A Preferred Stock, as amended,
previously filed as an Exhibit to the Company's Report on Form 10-KSB for
the year ended June 30, 1994, is incorporated herein by reference.
10.1 Letter agreement dated July 29, 1993, between the Company and New Allied
Development Corporation, previously filed as an Exhibit to the Company's
Report on Form 10-KSB for the year ended June 30, 1993, is incorporated
herein by this reference. Letter agreements dated February 3, 1994, March
31, 1994 and August 12, 1994, between the Company and New Allied
Development Corporation, amending the July 29, 1993 Letter Agreement,
previously filed as an Exhibit to the Company's Report on Form 10-KSB for
the year ended June 30, 1994 is incorporated herein by reference.
10.2 Letter agreement dated August 25, 1993, between the Company and New Allied
Development Corporation regarding the purchase of vacant land in Black
Hawk, Colorado, previously filed as an Exhibit to the Company's Report on
Form 8-K, filed on or about September 8, 1993, is incorporated herein by
this reference.
10.3 Office Lease between the Company and Rosewood Property Company, dated 1993,
previously filed as an Exhibit to the Company's Report on Form 8-K, filed
on or about October 2, 1993, is incorporated herein by this reference.
10.4 Employment Agreement between the Company and Jay R. Roberts, effective May
1, 1994, previously filed as an Exhibit to the Company's Report on Form
10-KSB for the year ended June 30, 1994, is incorporated herein by
reference.
21
<PAGE>
10.5 Consulting Agreement between the Company and First Federal Mortgage & Loan,
dated March 10, 1994, previously filed as an Exhibit to the Company's
Report on Form 10-KSB for the year ended June 30, 1994, is incorporated
herein by reference.
10.6 Construction Contract between the Company and Haselden Construction, Inc.,
dated July 11, 1994, previously filed as an Exhibit to the Company's Report
on Form 10-KSB for the year ended June 30, 1994, is incorporated herein by
reference.
10.7 Letter Agreement between the Company and Holly Products, Inc., dated April
17, 1995, previously filed as an Exhibit to the Company's Report on Form
8-K, filed on or about May 2, 1995, is incorporated herein by reference.
10.8 Promissory Note, dated May 20, 1996, in the principal amount of $5,000,000
made by the Company to Kennedy Funding, Inc., and Anglo-American Financial.
10.9 Environmental Indemnity Agreement, dated May 17, 1996, made by the Company
and Holly Products, Inc. for the benefit of Kennedy Funding, Inc., and
Anglo-American Financial.
16.1 Letter from Fred V. Schiemann, former accountant, previously filed as an
exhibit to the Company's Report on Form 8-K, filed on or about December 8,
1994, is incorporated herein by this reference.
16.2 Letter from Ehrhardt Keefe Steiner & Hottman P.C., former accountant,
previously filed as an exhibit to the Company's report on Form 8-K, filed
on September 23, 1996 is incorporated herein by this reference.
(b) Reports on Form 8-K
No reports on Form 8-k were filed during the last quarter of the
fiscal year ended June 30, 1996.
22
<PAGE>
COUNTRY WORLD CASINOS, INC.
[DEBTOR-IN-POSSESSION]
[A DEVELOPMENT STAGE COMPANY]
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Page
Report of Independent Auditors .................................... F-2
Independent Auditors' Report ...................................... F-3
Financial Statements:
Balance Sheet as of June 30, 1996............................... F-4 - F-5
Statements of Operations for the years ended
June 30, 1996 and 1995 and for the period from
November 9, 1982 [date of inception] through June 30, 1996 ..... F-6
Statement of Stockholders' Equity for the
period from November 9, 1982 [date of inception]
through June 30, 1996........................................... F-7 - F-9
Statements of Cash Flows for the years ended
June 30, 1996 and 1995 and for the period from
November 9, 1982 [date of inception] through June 30, 1996 ... F-10 - F-11
Notes to Financial Statements..................................... F-12 - F-21
. . . . . . . . .
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
Country World Casinos, Inc.
Denver, Colorado
We have audited the accompanying balance sheet of Country World Casinos,
Inc. [Debtor-in-Possession] [a Development Stage Company] as of June 30, 1996,
and the related statements of operations, stockholders' equity, and cash flows
for the year then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Country World Casinos, Inc.
[Debtor-in-Possession] [a Development Stage Company] as of June 30, 1996, and
the results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles. We express no opinion
on the cumulative period from inception (November 9, 1982)through June 30, 1996.
The accompanying financial statements have been prepared assuming that
Country World Casinos, Inc. will continue as a going concern. As discussed in
Note 1 to the financial statements, the Company has suffered recurring losses
from operations and has filed a voluntary petition for reorganization under
Chapter 11 of the federal bankruptcy laws and is currently operating as a
Debtor-in- Possession. These conditions raise substantial doubt about Country
World Casinos, Inc.'s ability to continue as a going concern. Management's plans
in regard to these matters are also discussed in Note 1. The financial
statements do not include any adjustments that might result from this
uncertainty.
MOORE STEPHENS, P.C.
Certified Public Accountants.
Cranford, New Jersey
September 20, 1996
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Country World Casinos, Inc.
Denver, Colorado
We have audited the statements of operations, stockholders' equity and cash
flows for Country World Casinos, Inc. (a development stage company) for the year
ended June 30, 1995 and the June 30, 1995 amounts included in the cumulative
amounts from inception of the Company. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
missstatements. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by the management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Country World
Casinos, Inc. (a development stage company) for the year ended June 30, 1995 and
the June 30, 1995 amounts included in the cumulative amounts from inception of
the Company, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that Country
World Casinos, Inc. will continue as a going concern. As discussed in Note 1 to
the financial statements, the Company has filed for bankruptcy under Chapter 11,
is in the development stage, and has suffered recurring losses from operations
and has a working capital deficiency that raises substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are discussed in Note 1. The financial statements do not
include any adjustments that might result from this uncertainty.
/S/ EHRHARDT KEEFE STEINER & HOTTMAN PC
----------------------------------------
Ehrhardt Keefe Steiner & Hottman PC
October 5, 1995 (except for Note 1
the date of which is October 12, 1995)
Denver, Colorado
F-3
<PAGE>
COUNTRY WORLD CASINOS, INC.
[DEBTOR-IN-POSSESSION]
[A DEVELOPMENT STAGE COMPANY]
- --------------------------------------------------------------------------------
BALANCE SHEET AS OF JUNE 30, 1996.
- --------------------------------------------------------------------------------
Assets:
Current Assets:
Cash $ 1,773,509
Prepaid Interest 687,500
------------
Total Current Assets 2,461,009
------------
Property and Equipment:
Land 7,475,475
Casino Under Development 4,501,208
Furniture and Equipment 48,068
------------
Total 12,024,751
Less: Accumulated Depreciation (12,900)
------------
Total Property and Equipment 12,011,851
------------
Other Asset:
Deposits 440
Restricted Cash 49,994
------------
Total Other Asset 50,434
------------
Total Assets $ 14,523,294
============
See Notes to Financial Statements.
F-4
<PAGE>
COUNTRY WORLD CASINOS, INC.
[DEBTOR-IN-POSSESSION]
[A DEVELOPMENT STAGE COMPANY]
- --------------------------------------------------------------------------------
BALANCE SHEET AS OF JUNE 30, 1996.
- --------------------------------------------------------------------------------
Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts Payable $ 147,409
Accrued Expenses 100,085
Accrued Interest 146,586
Due to Parent Company 285,068
Capital Lease Obligation 3,155
------------
Total Current Liabilities 682,303
------------
Long-Term Liabilities:
Long-Term Debt - Related Party 2,350,000
Long-Term Debt - Others 2,650,000
Capital Lease Obligations 7,535
------------
Total Long-Term Liabilities 5,007,535
------------
Commitments and Contingencies --
------------
Liabilities Subject to Compromise:
Accounts Payable 415,365
Accrued Expenses 41,937
Notes Payable - Stockholder 1,834,837
Accrued Interest 225,135
------------
Total Liabilities Subject to Compromise 2,517,274
------------
Stockholders' Equity:
Preferred Stock, $.001 Par Value, 25,000,000
Shares Authorized - Convertible Preferred,
2,250,000 Shares Issued and Outstanding
[Liquidation Preference $7,492,500] 2,250
Common Stock, $.001 Par Value, 50,000,000
Shares Authorized,10,836,187 Issued and Outstanding 10,836
Additional Paid-in Capital 9,562,550
Accumulated Deficit (3,259,454)
-----------
Total Stockholders' Equity 6,316,182
-----------
Total Liabilities and Stockholders' Equity $ 14,523,294
============
See Notes to Financial Statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
COUNTRY WORLD CASINOS, INC.
[DEBTOR-IN-POSSESSION]
[A DEVELOPMENT STAGE COMPANY]
- -----------------------------------------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
- -----------------------------------------------------------------------------------------------------------------
For the
period from
November 9,
1982 [Date
of Inception]
Years ended through
June 30, June 30,
------------------------------ --------------
1 9 9 6 1 9 9 5 1 9 9 6
------- ------- -------
<S> <C> <C> <C>
Costs and Expenses:
Research and Development Costs $ -- $ -- $ 122,000
Loss on Non-Marketable Securities -- -- 85,000
Write off of Loan Receivable -- -- 90,000
General and Administrative Expenses 414,930 806,977 2,954,623
Depreciation Expense 6,398 4,903 35,647
------------ ------------ ------------
Totals 421,328 811,880 3,287,270
------------ ------------ ------------
Other Income [Expense]:
Interest Income 6,719 9,095 67,369
Rental Income -- 45,126 45,126
Forfeited Deposit -- -- (100,000)
------------ ------------ ------------
Totals 6,719 54,221 12,495
------------ ------------ ------------
[Loss] Before Bankruptcy Expenses, Extraordinary
Item and Discontinued Operations (414,609) (757,659) (3,274,775)
Bankruptcy Expenses:
Professional Fees 151,831 -- 151,831
------------ ------------ ------------
[Loss] from Continuing Operations Before
Discontinued Operations and Extraordinary Item (566,440) (757,659) (3,426,606)
------------ ------------ ------------
Discontinued Operations:
Gain on Disposal of Subsidiaries -- -- 389,286
[Loss] from Discontinued Operations -- -- (389,286)
------------ ------------ ------------
Total Discontinued Operations -- -- --
------------ ------------ ------------
[Loss] Before Extraordinary Item (566,440) (757,659) (3,426,606)
Extraordinary Item:
Extraordinary Gain on Forgiveness of Debt 150,000 -- 167,152
------------ ------------ ------------
Net [Loss] $ (416,440) $ (757,659) $ (3,259,454)
============ ============ ============
Per Share Data:
Net [Loss] Per Share Before Extraordinary Item $ (.05) $ (.11)
Extraordinary Item Per Share .01 --
------------ ------------
Net [Loss] Per Share $ (.04) $ (.11)
============ ============
Weighted Average Number of Shares 10,836,187 6,694,097
============ ============
See Notes to Financial Statements
</TABLE>
F-6
<PAGE>
<TABLE>
<CAPTION>
COUNTRY WORLD CASINOS, INC.
[DEBTOR-IN-POSSESSION]
[A DEVELOPMENT STAGE COMPANY]
- -------------------------------------------------------------------------------------------------------------------
STATEMENT OF STOCKHOLDERS' EQUITY
- -------------------------------------------------------------------------------------------------------------------
Common Stock
--------------------------------------------
Preferred Stock Subscribed
------------------ ------------------
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
November 9, 1982 [Date of Inception] -- $ -- -- $ -- -- $ --
Issuance of Shares for Cash -- -- 2,971 15 -- --
Issuance of Common Stock to the Public -- -- 1,474 8 -- --
Deferred Offering Costs -- -- -- -- -- --
Cancellation of Common Stock -- -- (800) (4) -- --
Issuance of Shares for Services -- -- 85,714 429 -- --
Issuance of Common Stock at a Discount -- -- 1,339,212 6,696 -- --
Capital Contribution -- -- -- -- -- --
Net Loss for the Period from November 9,
1982 [Date of Inception] Through
June 30, 1992 -- -- -- -- -- --
----- -------- ---------- ---------- ----- ------
Balance - June 30, 1992 -- -- 1,428,571 7,144 -- --
Issuance of Common Stock at a Discount
for Services -- -- 714,287 3,571 -- --
Net Loss for Year Ended June 30, 1993 -- -- -- -- -- --
---- -------- ---------- ---------- ---- ------
Balance - June 30, 1993 - Forward -- $ -- 2,142,858 $ 10,715 -- $ --
Deficit
Accumulated
Additional During the Total
Paid-in Development Stockholders'
Capital Stage Equity
------------ ------------- ---------------
November 9, 1982 (Date of Inception) $ -- $ -- $ --
Issuance of Shares for Cash 1,510 -- 1,525
Issuance of common Stock to the Public 644,992 -- 645,000
Deferred Offering Costs (115,690) -- (115,690)
Cancellation of Common Stock 4 -- --
Issuance of Shares for Services 14,571 -- 15,000
Issuance of Common Stock at a Discount 13,304 -- 20,000
Capital Contribution 2,850 -- 2,850
Net Loss for the Period from November 9,
1982 (Date of Inception) Through
June 30, 1992 -- (221,169) (221,169)
-------- -------- -------- Deficit
Balance - June 30, 1992 561,541 (221,169) 347,516
Issuance of Common Stock at a Discount
for Services 8,929 -- 12,500
Net Loss for Year Ended June 30, 1993 -- (373,401) (373,401)
--------- --------- ---------
See Notes to Financial Statements
</TABLE>
F-7
<PAGE>
<TABLE>
<CAPTION>
COUNTRY WORLD CASINOS, INC.
[DEBTOR-IN-POSSESSION]
[A DEVELOPMENT STAGE COMPANY]
- ---------------------------------------------------------------------------------------------------------------------------------
STATEMENT OF STOCKHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------------------------------------------------
Common Stock
------------------------------------------------
Preferred Stock Subscribed
------------------ ------------------
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C>
Balance - June 30, 1993 - Forwarded -- $ -- 2,142,858 $ 10,715 -- $ --
Change in Par Value from $.005 to $.001 -- -- -- (8,572) -- --
Issuance of Stock for Cash issued September 1993 -- -- 600,000 600 -- --
Issuance of Stock for Cash issued September 1993 -- -- 1,500,000 1,500 -- --
Issuance of Convertible Preferred Stock for
Acquisition of Land Valued at $1.00
Per Share issued July 1993 2,250,000 2,250 -- -- -- --
Issuance of Stock to Related Party for Cash and
Services Pursuant to Exercise of Options -- -- 250,000 250 -- --
Purchase and Cancellation of Treasury Stock -- -- (125,000) (125) -- --
Issuance of Stock for Cash [140,000 Shares and
60,662 Shares issued December 1993 and
January 1994, Respectively] -- -- 200,662 200 -- --
Issuance of Common Stock for Acquisition of Land
Valued at $1.00 Per Share issued June 1994 -- -- 250,000 250 -- --
Issuance of Common Stock for Cash and
Services Pursuant to Exercise of Options
[75,000 Shares and 20,000 Shares issued
April and June 1994, Respectively] -- -- 95,000 95 -- --
Issuance of Common Stock for Services
Rendered Valued at $2.50 Per Share issued
April 1994 -- -- 200,000 200 -- --
Subscription of Common Stock Pursuant to
Private Placement Offering -- -- -- -- 262,667 263
Net Loss for Year Ended June 30, 1994 -- -- -- -- -- --
---------- ---------- ---------- ---------- --------- --------
Balance - June 30, 1994 - Forward 2,250,000 $ 2,250 5,113,520 $ 5,113 262,667 $ 263
F-8 (Continued on following page)
<PAGE>
COUNTRY WORLD CASINOS, INC.
[DEBTOR-IN-POSSESSION]
[A DEVELOPMENT STAGE COMPANY]
- ---------------------------------------------------------------------------------------------------------------------------------
STATEMENT OF STOCKHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------------------------------------------------
Deficit
Accumulated
Additional During the Total
Paid-in Development Stockholders'
Capital Stage Equity
------------ ------------- -------------
<S> <C> <C> <C>
Balance - June 30, 1993 - Forwarded $ 570,470 $ (594,570) $ (13,384)
Change in Par Value from $.005 to $.001 8,572 -- --
Issuance of Stock for Cash issued September 1993 599,400 -- 600,000
Issuance of Stock for Cash issued September 1993 1,498,500 -- 1,500,000
Issuance of Convertible Preferred Stock for
Acquisition of Land Valued at $1.00
Per Share issued July 1993 2,247,750 -- 2,250,000
Issuance of Stock to Related Party for Cash and
Services Pursuant to Exercise of Options 249,750 -- 250,000
Purchase and Cancellation of Treasury Stock (124,875) -- (125,000)
Issuance of Stock for Cash [140,000 Shares and
60,662 Shares issued December 1993 and
January 1994, Respectively] 499,800 -- 500,000
Issuance of Common Stock for Acquisition of Land
Valued at $1.00 Per Share issued June 1994 249,750 -- 250,000
Issuance of Common Stock for Cash and
Services Pursuant to Exercise of Options
[75,000 Shares and 20,000 Shares issued
April and June 1994, Respectively] 237,405 -- 237,500
Issuance of Common Stock for Services
Rendered Valued at $2.50 Per Share issued
April 1994 499,800 -- 500,000
Subscription of Common Stock Pursuant to
Private Placement Offering 787,737 -- 788,000
Net Loss for Year Ended June 30, 1994 -- (1,490,785) (1,490,785)
---------- ---------- ---------
Balance - June 30, 1994 - Forward $ 7,324,059 $(2,085,355) $ 5,246,330
See Notes to Financial Statements.
F-8
<PAGE>
COUNTRY WORLD CASINOS, INC.
[DEBTOR-IN-POSSESSION]
[A DEVELOPMENT STAGE COMPANY]
- ----------------------------------------------------------------------------------------------------------------------------
STATEMENT OF STOCKHOLDERS' EQUITY
- ----------------------------------------------------------------------------------------------------------------------------
Common Stock
-----------------------------------------------------
Preferred Stock Subscribed
----------------------- -----------------------
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance - June 30, 1994 - Forwarded 2,250,000 $2,250 5,113,520 $ 5,113 262,667 $ 263
Issuance of Common Stock Pursuant
to Private Placement Offering -- -- 460,000 460 -- --
Issuance of Stock for Outstanding Note
issued April 20, 1995 -- -- 5,000,000 5,000 -- --
Convert Subscribed Stock to Common
And Record Fees -- -- 262,667 263 (262,667) (263)
Net Loss for Year Ended June 30, 1995 -- -- -- -- -- --
----------- -------- ---------- ----------- ----------- -----------
Balance - June 30, 1995 2,250,000 2,250 10,836,187 10,836 -- --
Net Loss for Year Ended June 30, 1996 -- -- -- -- -- --
----------- -------- ---------- ----------- ----------- -----------
Balance - June 30, 1996 2,250,000 $ 2,250 10,836,187 $ 10,836 -- $ --
=========== ======== ========== =========== =========== ===========
Deficit
Accumulated
Additional During the Total
Paid-in Development Stockholders'
Capital Stage Equity
------------ ------------- -------------
<S> <C> <C> <C>
Balance - June 30, 1994 - Forwarded $ 7,324,059 $(2,085,355) $ 5,246,330
Issuance of Common Stock Pursuant
to Private Placement Offering 1,229,040 -- 1,229,500
Issuance of Stock for Outstanding Not
issued April 20, 1995 1,009,451 -- 1,014,451
Convert Subscribed Stock to Common
And Record Fees -- -- --
Net Loss for Year Ended June 30, 1995 -- (757,659) (757,659)
----------- ----------- -----------
Balance - June 30, 1995 9,562,550 (2,843,014) 6,732,622
Net Loss for Year Ended June 30, 1996 -- (416,440) (416,440)
----------- ----------- -----------
Balance - June 30, 1996 $ 9,562,550 $(3,259,454) $ 6,316,182
=========== =========== ===========
See Notes to Financial Statements
F-9
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COUNTRY WORLD CASINOS, INC.
[DEBTOR-IN-POSSESSION]
[A DEVELOPMENT STAGE COMPANY]
- ------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------------------------------------------------
For the
period from
November 9,
1982 [Date
of Inception]
Years ended through
June 30, June 30,
------------------------------ ------------
1 9 9 6 1 9 9 5 1 9 9 6
------- ------- -------
<S> <C> <C> <C>
Operating Activities:
Continuing Operations:
[Loss] Before Extraordinary Item $ (566,440) $ (757,659) $(3,426,606)
---------- ------------ -----------
Adjustments to Reconcile Net [Loss] to Net Cash
[Used for] Operating Activities:
Depreciation 6,398 4,903 35,647
Common Stock Issued for Interest -- 14,451 14,451
Common Stock Issued for Services -- -- 837,500
Loss on Nonmarketable Securities -- -- (85,000)
Write off on Loan Receivable -- -- (90,000)
Extraordinary Item 150,000 -- 167,152
Changes in Assets and Liabilities:
[Increase] Decrease in:
Due from Related Party 16,136 (16,136) --
Noncurrent Assets -- -- 237,000
Prepaid Expenses (687,500) -- (687,500)
Increase [Decrease] in:
Accounts Payable 147,409 -- 147,409
Accounts Payable - Liabilities Subject to
Compromise (253,229) 308,238 415,365
Accrued Expenses 70,315 (126,350) 208,347
Accrued Expenses - Subject to Compromise 41,937 -- 41,937
Due to Parent Company 285,068 -- 285,068
Discontinued Operations:
Net [Loss] -- -- (389,286)
Adjustments to Reconcile Net [Loss] to Net Cash
[Used for] Operating Activities:
Gain on Disposal of Assets -- -- 389,286
----------- ----------- -----------
Total Adjustments (223,466) 185,106 1,527,376
----------- ----------- -----------
Net Cash Used for Operating Activities - Forward (789,906) (572,553) (1,899,230)
----------- ----------- -----------
Investing Activities:
Purchase of Land and Payment of Casino
Development Costs (872,420) (1,956,579) (5,038,225)
Purchase of Furniture and Equipment -- (1,780) (57,406)
Investment in Patent -- -- (62,000)
Deposits and Other 3,363 15,750 (440)
Increase in Restricted Cash (49,994) -- (49,994)
----------- ----------- -----------
Net Cash Used for Investing Activities - Forward $ (919,051) $ (1,942,609) $(5,208,065)
See Notes to Financial Statements
F-10
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COUNTRY WORLD CASINOS, INC.
[DEBTOR-IN-POSSESSION]
[A DEVELOPMENT STAGE COMPANY]
- ----------------------------------------------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
- ----------------------------------------------------------------------------------------------------------------------
For the
period from
November 9,
1982 [Date
of Inception]
Years ended through
June 30, June 30,
---------------------------- --------------
1 9 9 6 1 9 9 5 1 9 9 6
------- ------- -------
<S> <C> <C> <C>
Net Cash Used for Operating Activities -
Forwarded $ (789,906) $ (572,553) $(1,899,230)
----------- ----------- -----------
Net Cash Used for Investing Activities - Forwarded (919,051) (1,942,609) (5,208,065)
----------- ----------- -----------
Financing Activities:
Payment of Capital Lease Obligation (2,718) -- (2,718)
Proceeds from Long-Term Borrowings 5,000,000 1,000,000 6,000,000
Repayments on Long-Term Borrowings - Subject to
Compromise (1,553,027) (387,136) (2,340,163)
Proceeds from Stock Issuance -- 1,229,500 5,220,835
Capital Contribution -- -- 2,850
----------- ----------- -----------
Net Cash Provided for Financing Activities 3,444,255 1,842,364 8,880,804
----------- ----------- -----------
Net Increase [Decrease] in Cash 1,735,298 (672,798) 1,773,509
Cash - Beginning of Years 38,211 711,009 --
----------- ----------- -----------
Cash - End of Years $ 1,773,509 $ 38,211 $ 1,773,509
=========== =========== ===========
</TABLE>
Supplemental Disclosure of Cash Flow Information:
Interest paid in fiscal year ended June 30, 1996 and 1995 was $1,830 and
$-0-, respectively, net of interest capitalized.
Supplemental Disclosure of Non-Cash Investing and Financing Activities:
During the year ended June 30, 1996, the Company capitalized $468,796 in
accrued interest related to the construction of the casino. The Company also
acquired equipment for $13,409, by assuming liability under a capital lease.
During the year ended June 30, 1995, the Company converted a note payable for
$1,000,000 plus accrued interest of $14,451 into 5,000,000 common shares.
See Notes to Financial Statements.
F-11
<PAGE>
COUNTRY WORLD CASINOS, INC.
[DEBTOR-IN-POSSESSION]
[A DEVELOPMENT STAGE COMPANY]
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
[1] Summary of Significant Accounting Policies and Business Activity
Organization and Business - Country World Casinos, Inc. [formerly Monolite
Industries] [the "Company"], a Nevada corporation, was incorporated on November
9, 1982, and is in the development stage. The original planned operation of the
Company was for the purpose of development, licensing and production of products
on a subcontracting basis, and the sale of products and devices in or related to
the medical and/or biotechnical fields. In May of 1990, the Company acquired
another company through the issuance of 1,142,857 shares [restated for reverse
stock split] of its common stock. The newly merged entity formed a subsidiary on
November 29, 1990, called Trail-Lite, Inc. The planned operation through the new
subsidiary was for the purpose of manufacturing monolithic composite panels. In
September 1992, the Company disposed of its subsidiary, Trail-Lite, Inc. [See
Note 6].
In fiscal year 1994, the Company changed its focus of business operations and in
two separate transactions, acquired approximately 79,000 and 375,000 square feet
of vacant land located in the city of Black Hawk, Gilpin County, Colorado and is
in the process of constructing a casino. As of June 30, 1996, the Company has
not completed construction of its planned principle operation nor it has
realized any revenue from its planned operations and, accordingly, is considered
to be in the development stage.
The Company is a majority-owned subsidiary of Holly Products, Inc. [See Note 4].
Reorganization and Business - The accompanying financial statements have been
prepared in conformity with generally accepted accounting principles, which
contemplates continuation of the Company as a going concern and realization of
assets and settlement of liabilities and commitments in the normal course of
business. The Company has suffered recurring losses from operations and on
October 12, 1995 filed a voluntary petition for reorganization under Chapter 11
of the federal bankruptcy laws in the United States Bankruptcy Court for the
District of Colorado. These factors, among others, indicate the Company's
ability to continue as a going concern is dependent on its ability to obtain
additional financing and the outcome of the bankruptcy proceedings. The
financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset or liability amounts which
might be necessary should the Company be unable to continue in existence. The
Company is currently operating the business as Debtor-in-Possession under
supervision of the Bankruptcy Court.
As a result of the Chapter 11 proceedings, the Company may have to sell or
otherwise dispose of assets and liquidate or settle liabilities for amounts
other than those reflected in the accompanying financial statements. In the
event a plan of reorganization is not confirmed by the Bankruptcy Court, the
Company may not be able to continue as a going concern. The financial statements
do not give effect to any adjustments to the carrying value of assets or amounts
and classifications of liabilities that might be necessary as a consequence of
these bankruptcy matters. The appropriateness of using the going concern basis
is dependent upon, among other things, confirmation of a plan of reorganization,
success of future operations, and the ability to generate sufficient cash from
operations and financing sources to meet obligations.
The Company's financial statements as of June 30, 1996 have been presented in
conformity with the American Institute of Certified Public Accountant's
("AICPA") Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code," issued November 19, 1990 ["SOP
90-7"]. The statement requires a segregation of liabilities subject to
compromise by the Bankruptcy Court as of the bankruptcy filing date.
Under Chapter 11 certain claims against the Company prior to the filing of the
petition for relief under the federal bankruptcy laws are stayed while the
Company continues business operations as Debtor-in- Possession. These claims are
reflected in the June 30, 1996 balance sheet as "Liabilities Subject to
Compromise."
F-12
<PAGE>
COUNTRY WORLD CASINOS, INC.
[DEBTOR-IN-POSSESSION]
[A DEVELOPMENT STAGE COMPANY]
NOTES TO FINANCIAL STATEMENTS, Sheet #2
- --------------------------------------------------------------------------------
[1] Summary of Significant Accounting Policies and Business Activity [Continued]
Reorganization and Business [Continued] - As of the petition date, actions to
collect prepetition indebtedness are stayed and other contractual obligations
may not be enforced against the Company. In addition, under the Bankruptcy Code,
the Company may reject executory contracts including lease obligations. Parties
affected by these rejections may file claims with the Bankruptcy Court in
accordance with the reorganization process. Substantially all liabilities as of
the petition date are subject to settlement under a Plan of Reorganization to be
voted on in accordance with the provisions of Chapter 11. The Company
anticipates that all liabilities as of the petition date will be dealt with in a
Plan of Reorganization.
In March 1996, the Bankruptcy Court approved financing of $5,000,000 which was
obtained in May 1996. Pursuant to the financing, the Company was required to
prepay interest totaling $750,000. On May 13, 1996, the Company filed its
initial Plan of Reorganization and Disclosure Statement and subsequently filed
amended plans and disclosure statements.
While the Company's management believes the Bankruptcy case has potential for a
favorable outcome, an unfavorable outcome is still possible and could occur on
several issues. The overall Plan of Reorganization has the possibility of not
being confirmed and creditors may not vote to accept the plan. The possibility
also exists that the Company may be unable to put forth an adequate and
confirmable Plan and/or Disclosure Statement. The Company has represented to the
Bankruptcy Court it intends to pay all allowed claims in full. If the Company
cannot propose an otherwise confirmable Plan of Reorganization, the Bankruptcy
Court would seriously consider the appointment of a Trustee in the Chapter 11
Bankruptcy proceeding. This would generally result in a liquidation of the
Casino Property in the Chapter 11 Bankruptcy proceeding or a more likely
scenario would be that the Bankruptcy Court either before or after appointment
of a trustee, would convert the case to Chapter 7. In a conversion of the case
to Chapter 7, or in the event of a liquidation of the Casino Property, it is
unlikely that any shareholders of the Company would receive any value for their
shares with the exception of the preferred shareholders based upon their
liquidation preference. Similarly, different individual aspects or components of
the case may have an unfavorable outcome. These could include issues on the
various claims hearings, including the stockholder claim [See Note 10].
In the event a Plan of Reorganization is approved by the Bankruptcy court,
continuation of the business after reorganization is dependent upon the
Company's obtaining additional financing for the casino under development [See
Note 2], the obtaining of related licenses, the successful completion of its
construction and success of its future operations. Limited stakes gaming did not
commence in Colorado until October 1991, so there is limited experience in
Colorado from which to evaluate the likelihood of success of the Company's
proposed gaming operations. In addition, the Black Hawk/Central City casino
market is characterized by intense competition. The competition includes
established companies, some of which have greater financial resources,
experience and expertise than the Company.
Concentration of Credit Risk - The Company maintains cash balances in bank
deposit accounts, which, at times, exceed federally insured limits. At June 30,
1996, the Company had approximately $1,672,000 in a financial institution
subject to normal credit risk beyond insured amounts.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and costs and expenses during the
reporting period. Actual results could differ from those estimates.
F-13
<PAGE>
COUNTRY WORLD CASINOS, INC.
[DEBTOR-IN-POSSESSION]
[A DEVELOPMENT STAGE COMPANY]
NOTES TO FINANCIAL STATEMENTS, Sheet #3
- --------------------------------------------------------------------------------
[1] Summary of Significant Accounting Policies and Business Activity [Continued]
Restricted Cash - Restricted cash consists of cash held in escrow and committed
for the payment of long-term debt.
Casino Under Development - The Company's land and development costs are recorded
at cost and no depreciation will be taken until such time as the Company places
the casino into operation.
Furniture and Equipment - Furniture and equipment is stated at cost and is being
depreciated on a straight-line basis over estimated useful lives of five to
seven years.
Loss Per Share - Loss per share of common stock was computed based on the
weighted average number of common shares outstanding during the period. Common
stock equivalents are not included as their effect would be antidilutive.
Cash Equivalents - The Company considers all highly liquid instruments purchased
with a maturity of three months or less to be cash equivalents. The Company did
not have any cash equivalents at June 30, 1996.
[2] Casino Under Development
On August 6, 1993, the Company closed on an acquisition of approximately 79,000
square feet of vacant land from a stockholder [See Notes 3 and 10] ["Parcel
One"] located within the city of Black Hawk, Gilpin County, Colorado. The
Company paid $550,000 cash, delivered a promissory note [See Note 3] in the
amount of $3,450,000, and delivered 2,250,000 shares of its Convertible
Preferred stock [See Note 4] which is convertible to common stock on a 1 for 1
basis valued at $1.00 per share. The Company is obligated to file a registration
statement with the Securities and Exchange Commission ["SEC"] to cover the
distribution of the Convertible Preferred stock to the shareholders of the
selling entity, which is a publicly-held corporation based in Denver, Colorado.
On June 28, 1994, the Company closed on an acquisition of an additional 375,000
square feet of vacant land from a stockholder [See Notes 3 and 10] ["Parcel
Two"] located in close proximity to the original land purchased. The Company
paid $200,000 cash, delivered a promissory note [See Note 3] in the amount of
$725,000, and delivered 250,000 shares of its common stock valued at $1.00 per
share [See Note 4].
Subject to future financing and other factors, the Company intends to construct
a casino on Parcel One. The Company has capitalized the following costs related
to the casino construction through June 30, 1996:
Interest on Long-Term Debt $ 999,796
Architectural Fees and Fees for Construction
and Design Services 3,501,412
------------
$ 4,501,208
============
F-14
<PAGE>
COUNTRY WORLD CASINOS, INC.
[DEBTOR-IN-POSSESSION]
[A DEVELOPMENT STAGE COMPANY]
NOTES TO FINANCIAL STATEMENTS, Sheet #4
- --------------------------------------------------------------------------------
[3] Long-Term Debt
Long-term debt consists of:
June 30,
1 9 9 6
-------
$5,000,000 note payable, interest at 15% for
year one, and 24% thereafter; due on May
31, 1999. The note has no set
installments and no amounts are expected
to be paid within one year. The note is
collateralized by a first lien and deed
of trust on real property with a net
book value of $6,300,475. The loan is
fully guaranteed by the Company's parent
company. $ 5,000,000
The financing was obtained from a group of
lenders which included Norlar, Inc.
Norlar, Inc. is a closely-held
corporation beneficially owned by a
director of the Company. The Norlar,
Inc. portion of the financing amounted
to $2,350,000 and is classified as
related party indebtedness. 2,350,000
----------
Others $ 2,650,000
===========
Subject to Compromise -
$3,450,000 note payable - stockholder,
interest at 8%, payable in equal monthly
installments over ten [10] years
commencing with the earliest of the
completion of the casino or 15 months
from August 6, 1993. $ 1,109,837
$725,000 note payable - stockholder, interest
at 8%, payable in monthly installments
over ten [10] years starting 15 months
after the June 28, 1994 closing. The
note is collateralized by a first deed
of trust on real property with a net
book value of approximately $1,175,000 725,000
-----------
Total Long-Term Debt Subject to Compromise $ 1,834,837
===========
[4] Stockholders' Equity
Issuance of Common Stock at a Discount - On May 31, 1993, the Company authorized
the issuance of its remaining authorized, but unissued, common stock to the
Company's former president as compensation, which the Company valued at $12,500.
Reverse Stock Split - During the year ended June 30, 1994, the Company declared
a 1 for 35 reverse stock split. This split was effective with the commencement
of business on August 9, 1993, with respect to all shares which were issued and
outstanding as of August 6, 1993. The Company also changed its par value per
share of common stock from $.005 to $.001 per share. All share and per share
amounts have been restated to retroactively reflect the stock split.
F-15
<PAGE>
COUNTRY WORLD CASINOS, INC.
[DEBTOR-IN-POSSESSION]
[A DEVELOPMENT STAGE COMPANY]
NOTES TO FINANCIAL STATEMENTS, Sheet #5
- --------------------------------------------------------------------------------
[4] Stockholders' Equity [Continued]
Preferred Stock - In July 1993, the Company amended its Articles of
Incorporation to provide for 25,000,000 shares of preferred stock, $.001 par
value, with such rights, preferences, designations and to be issued in such
series as to be determined by the Company's Board of Directors.
In August 1993, the Board of Directors created a series of Class A convertible
preferred ["Convertible Preferred"] stock valued at $1.00 per share. The maximum
issuable shares under the series is 2,250,000 shares. Holders of the Convertible
Preferred shares shall be entitle to dividends as declared by the Board of
Directors.
The Convertible Preferred stockholders, in the event of liquidation of the
Company will receive an amount equal to $3.33 per share plus declared and unpaid
dividends before any holder of common stock. A sale, lease, or transfer of all
or substantially all of the Company's assets shall be deemed to be a liquidation
for purposes of the liquidation preference.
Each Convertible Preferred share is convertible into one share of common stock
at any time or automatically upon the conversion of the majority of the
Convertible Preferred stock or in the event of a public offering of the
Company's common stock at not less than $6.66 per share.
Casino Property - In connection with the acquisition of the Casino property, the
Company issued 2,250,000 shares of Convertible Preferred stock to a third party.
At the date of the acquisition, the Company's stock was selling at $1.00 per
share and therefore, the transaction was recorded at the fair value of the
stock, $1.00 per share as determined by the Board of Directors.
In order to raise funds to make the down payment for the purchase of the casino
property [See Note 2], the Company sold 600,000 shares of its common stock at
$1.00 per share in conjunction with two private placement offerings. The shares
are restricted.
Sales of Common Stock - In August 1993, the Company sold five units of Company
stock to offshore investors for $300,000 per unit. Each unit consisted of
300,000 shares of the Company's common stock and warrants to purchase 300,000
shares of common stock at $3.50 per share within two years of August 31, 1993.
As of August 31, 1995, all warrants had expired unexercised.
During November and December of 1993, the Company sold an additional 140,000
shares of common stock at $2.50 per share for a total of $350,000, pursuant to a
private offering. During January 1994, the Company sold an additional 60,662
shares at $2.47 per share for a total of $150,000 pursuant to a private
offering.
Issuances of Stock for Services - The Company entered into a management
agreement with a company owned by certain stockholders and officers of the
Company [See Note 7]. In conjunction with the agreement, the Company paid the
related company approximately $146,000 in fees, granted an option to acquire
250,000 shares of common stock at $.01 and granted a warrant to purchase
1,000,000 shares of common stock at $3.50 per share.
The related company exercised its option to purchase the 250,000 shares at $.01
with the difference between fair market value of the stock on the date of grant
of $1.00 and the exercise price of $.01 or $247,500, capitalized in construction
in progress. Subsequently, the agreement with the company was terminated and the
former President and Secretary/Treasurer of the Company resigned. As stipulated
in the agreement, the Company repurchased 125,000 shares of common stock at $.01
and canceled the shares.
F-16
<PAGE>
COUNTRY WORLD CASINOS, INC.
[DEBTOR-IN-POSSESSION]
[A DEVELOPMENT STAGE COMPANY]
NOTES TO FINANCIAL STATEMENTS, Sheet #6
- --------------------------------------------------------------------------------
[4] Stockholders' Equity [Continued]
Issuances of Stock for Services [Continued] - The financial statements reflect a
reduction of $247,500 in construction in progress [$124,875 against additional
paid in capital for the difference between the fair market value of the 125,000
shares repurchased and the original exercise price, with the remainder and
$123,750 as compensation expenses as the construction project will no longer
benefit from the management agreement]. Additionally, the 1,000,000 share
warrant was canceled.
In April 1994, the Company issued 200,000 shares of common stock in conjunction
with a financial advisory and investment banking agreement. The shares had a
fair market value of $2.50 resulting in compensation expense to the Company of
$500,000.
Issuance/Exchange of Stock - On April 20, 1995, a $1,000,000 note payable by the
Company and accrued interest of $14,451 owed to Holly Products, Inc. [which
subsequently became the Parent Company] was converted into 5,000,000 shares of
common stock.
In addition, Holly Products, Inc. [See Note 1] acquired an additional 2,250,453
shares of the Company's common stock from certain existing shareholders of
Country World, in exchange for 744,592 shares of its common stock. Holly
Products, Inc. also acquired 16,667 shares of Country World common stock in a
separate transaction for $50,000. As of June 30, 1996, Holly Products, Inc. owns
66.9% of the outstanding shares of Country World common stock and 55.4% of the
total voting stock [common and preferred] of Country World.
Additional Land Acquisition - In August 1993, the Company entered into a letter
of intent to acquire vacant land when the fair market value of the Company's
common stock was $1. The Company closed the acquisition in June 1994, and in
conjunction with the acquisition, issued 250,000 shares of common stock to the
seller. The transaction was recorded at the fair market value of the stock at
the date the letter of intent was signed, $1 per share, as determined by the
Board of Directors.
Exercise of Options - Two stockholders and officers of the Company exercised
options to acquire 95,000 shares of common stock for $.25. The options were
granted at a time when the fair market value of the stock was $2.50. The
difference between the fair market value and the exercise price of $.25 is
reflected as compensation expense in the financial statements.
Private Placement Offering - In June 1994, the Company undertook a private
placement offering for up to 5,000,000 shares of common stock at $3 per share.
At December 31, 1995, the Company had received $2,017,500, net of offering costs
of $150,000 for 722,667 shares.
[5] Income Taxes
Effective July 1, 1993, the Company adopted SFAS No. 109, "Accounting for Income
Taxes," which requires recognition of deferred tax liabilities and assets for
the expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax liabilities
and assets are determined based on the difference between the financial
statement and tax basis of assets and liabilities using expected tax rates in
effect for the year in which the differences are expected to reverse. The
measurement of deferred tax assets is reduced, if necessary, by the amount of
any tax benefits that, based on available evidence, are not expected to be
realized.
The Company has not generated taxable income since its inception, and therefore,
no provision for income taxes has been made.
F-17
<PAGE>
COUNTRY WORLD CASINOS, INC.
[DEBTOR-IN-POSSESSION]
[A DEVELOPMENT STAGE COMPANY]
NOTES TO FINANCIAL STATEMENTS, Sheet #7
- --------------------------------------------------------------------------------
[5] Income Taxes [Continued]
At June 30, 1996, the Company had net operating loss carryforwards for income
tax purposes of approximately $3,260,000 which expire through 2012. The Company
has an approximate $1,110,000 deferred tax asset, an increase of approximately
$142,000 over the preceding year, as a result of the net operating losses which
has been fully reserved due to uncertainty as to its utilization. The net
operating losses are limited, however due to a more than 50% change in
ownership.
[6] Discontinued Operations
On September 15, 1992, the Company entered into an agreement to transfer
ownership in its subsidiary, Trail-Lite, Inc. for a general release agreement of
existing claims to the former shareholders of Trail-Lite, Inc. This represented
a reduction of accounts payable, short-term borrowings and other related debt in
the amount of $389,286, which is the full amount of losses incurred by the
Company to date from the operations of the subsidiary.
The decision was precipitated by the large losses incurred from the business of
manufacturing monolithic composite panels. Based on the initial operations of
the business, the Board of Directors and management determined that profitable
operations would not be realized from the business as it was then structured and
decided to sell the subsidiary. Management determined the subsidiary had no
value and it was transferred to an entity controlled by the prior principal
shareholders, officer and director of the Company for the related debt that had
been incurred.
[7] Related Party Transactions
Management Agreement - In May 1995, the Company made an arrangement with the
majority shareholder whereby the Company agreed to pay the related party $15,000
per week for a management fee. As of June 30, 1995, the Company had not made any
payments related to the arrangement and accordingly owed the related party
$150,000. This agreement was canceled in the Chapter 11 proceeding. It was
agreed that there will be no monies due the related party. In February 1996, the
$150,000 accrual was reversed and the arrangement was terminated. This
forgiveness of debt is reflected as an extraordinary item in the statements of
operations.
Consulting Agreements - The Company entered into an agreement with a company
related through common ownership to serve as consultants with respect to the
operation of the casino in Black Hawk, Colorado. The agreement required the
Company to pay the related entity $20,000 per month for its services [which
includes reimbursement for expenses] through December 31, 1993, at which time
the monthly payment increased to $27,500. The agreement granted an option for
250,000 shares of common stock at an exercise price of $.01 per share and a
warrant to purchase 1,000,000 shares of common stock with an exercise price of
$3.50 per share. On March 2, 1994, the agreement was terminated.
As a result of the closing of the $5,000,000 loan [See Notes 1 and 3], loan
servicing fees and prepaid interest payments were made to Norlar, Inc.
aggregating $600,000. This amount was capitalized to casino under development.
In April 1996, the Company entered into a month to month, $1,583 bi-weekly
employment agreement with the President of the Company.
Stockholder Funding - In March 1995, the Company entered into an agreement with
their parent company whereby the parent company will receive the right to
purchase up to 20,000,000 shares of common stock at $.20 per share if specified
funding is provided according to the agreement.
F-18
<PAGE>
COUNTRY WORLD CASINOS, INC.
[DEBTOR-IN-POSSESSION]
[A DEVELOPMENT STAGE COMPANY]
NOTES TO FINANCIAL STATEMENTS, Sheet #8
- --------------------------------------------------------------------------------
[7] Related Party Transactions [Continued]
Stockholder Funding [Continued] - The parent company's funding of monthly
expenses is classified as Due to Parent Company for financial statement
purposes. The amount due at June 30, 1996 was $285,068. There are no set
repayment terms and the advances are non-interest bearing.
Indemnification - The Company and its parent, Holly Products, Inc., have entered
into an environmental indemnity agreement with the co-lenders of the $5,000,000
loan [See Notes 1 and 3] pursuant to which they will defend and hold harmless
the co-lenders from any environmental claims connected to the property which
collateralizes the loan. The Company, through independent environmental
consultants, has conducted environmental examinations on the property and has
made environmental remediation pursuant to an administrative consent order with
the U.S. Environmental Protection Agency. The remediation was performed in
accordance with the approved work plan. Based upon the work performed, the
Company does not believe that further remedial activity will be required.
However, there can be no assurance what costs, if any, the Company might incur
in the future in connection with environmental matters related to the property.
[8] Fair Value of Financial Instruments
Generally accepted accounting principles require disclosing fair value to the
extent practicable for financial instruments which are recognized or
unrecognized in the balance sheet. The fair value of the financial instruments
disclosed herein is not necessarily representative of the amount that could be
realized or settled, nor does the fair value amount consider the tax
consequences of realization or settlement. The Company's principal long-term
financial instrument has an interest rate which approximates the Company's cost
of capital, and therefore its carrying value approximates its fair value.
For certain instruments, including cash, and trade payables, it was estimated
that the carrying amount approximated fair value for the majority of these
instruments because of their short maturities.
The fair value of amounts classified as liabilities subject to compromise may be
affected by the Company's petition for reorganization under Chapter 11 of the
federal bankruptcy laws [See Note 1]. The fair value of these liabilities may
differ from those recorded in the financial statements. It is not practicable to
estimate what those amounts might be. Also, due to unspecified repayment terms
of the amounts due to the parent company, it is not practicable to determine the
fair value of the non-interest amount due to parent.
[9] Commitment and Contingencies
In addition to the commitment and contingencies discussed below, the Company is
party to litigation and bankruptcy proceedings [See Notes 1 and 10].
Consulting Agreements - In September 1993, the Company entered into a consulting
agreement with a company to assist and advise the Company in construction and
development of the hotel and casino project as well as selection of the general
contractor, architect, interior designer and engineers. The Company began paying
the company $5,000 per month in October, 1993 for six months and capitalized the
costs as construction in progress. In addition, the Company was to issue 50,000
shares of common stock to the company. On March 10, 1994, the Company
renegotiated the consulting and construction management agreement and the 50,000
shares of stock previously due were canceled. Further, compensation for the
consultant services pursuant to the agreement shall be paid equal to five
percent of the gross expenditures [excluding any expenditures for the
acquisition or leasing of gaming devices] paid or incurred by the Company
[including the value of any in-kind services or materials contributed by any
person] through completion of construction with respect to any project of the
Company for which consultant provides services to or on behalf of the Company
pursuant to the agreement. In fiscal year ended June 30, 1995, the consulting
agreement was terminated.
F-19
<PAGE>
COUNTRY WORLD CASINOS, INC.
[DEBTOR-IN-POSSESSION]
[A DEVELOPMENT STAGE COMPANY]
NOTES TO FINANCIAL STATEMENTS, Sheet #9
- --------------------------------------------------------------------------------
[9] Commitment and Contingencies [Continued]
Consulting Agreements [Continued] - In April 1994, the Company entered a three
year agreement with an entity to advise the Company in financial matters. The
agreement requires the Company to make equal monthly payments over three years
of $2,770 and to issue 200,000 shares of the Company's common stock. This
agreement was canceled.
Employee Agreement - In May, 1994, the Company entered into a three year,
$120,000 per year employment agreement with an officer of the Company. The
agreement granted the officer options to purchase 800,000 shares of the
Company's common stock over a 5 year period at exercise prices ranging from $.25
to $6.00 per share. Employment was terminated during the year ended June 30,
1995 and pursuant to the employment agreement, the options expired 30 days after
termination.
SEC Investigation - In the fiscal year ended June 30, 1994, the Company was
informed by the Securities and Exchange Commission [the "SEC"] that the SEC had
instituted a formal order of investigation concerning the possibility of
violations of the federal securities laws by the Company. As of June 30, 1996,
the Company had not been notified of any action being instituted by the SEC
against the Company [See Note 11].
Operating Lease - The Company leases office space under operating leases
expiring through January 1997. Rent expense was $40,766 and $47,370 for the
years ended June 30, 1996 and 1995, respectively. The Company does not intend to
renew this lease and will relocate during February 1997.
Capital Leases - The Company is the lessee of office equipment under a capital
lease expiring in June 1, 1999. The assets and liabilities under capital leases
are recorded at the present value of the net minimum lease payments. The asset
is amortized over its estimated useful life. Amortization of the asset under
capital lease is included in depreciation expense.
The following is a summary of equipment held under capital leases:
Furniture and Equipment $ 13,409
Less: Accumulated Amortization 2,682
--------
Total $ 10,727
========
Minimum future lease payments under this capital lease for the next five years
and in the aggregate are:
1997 $ 4,548
1998 4,548
1999 4,169
Thereafter --
-------
Net Minimum Lease Payments 13,265
Less: Amount Representing Interest (2,575)
-------
Present Value of Net Minimum Lease Payments $ 10,690
========
F-20
<PAGE>
COUNTRY WORLD CASINOS, INC.
[DEBTOR-IN-POSSESSION]
[A DEVELOPMENT STAGE COMPANY]
NOTES TO FINANCIAL STATEMENTS, Sheet #10
- --------------------------------------------------------------------------------
[10] Litigation
Notes Payable - In July 1995, Tommyknocker Casino Corp. ["TKCC"], the note
holder, on the $3,450,000 note payable [See Note 3] declared the note in default
and began foreclosure proceedings on the real property collateralizing the note.
In addition, payments due on a related $725,000 note due to New Allied
Development Corporation. ["NADC"] had not been made and accordingly NADC
considered the note in default. The Company is a plaintiff and a counterclaim
defendant in a lawsuit against NADC and its wholly owned subsidiary, TKCC. In
1993, TKCC sold to the Company the land in Black Hawk, Colorado upon which the
Company plans to construct a gaming entertainment facility. The Company believes
that TKCC committed wrongful acts in connection with the land purchase. The
lawsuits and the foreclosure proceedings have been stayed by the Bankruptcy
filing [See Note 11].
Litigation - The Company is a defendant in a lawsuit pending in Travis County,
Texas District Court. The plaintiff contends that several defendants made
misrepresentations regarding the Company's stock, which allegedly induce the
plaintiff to purchase the Company's stock. The plaintiff alleges that the
Company is liable for the alleged wrongful conduct of the defendants. The
plaintiff has additionally filed a Proof of Claim in the Bankruptcy Court
setting forth a claim of approximately $40,000.
There are various mechanic liens litigations totaling approximately $325,000. An
issue exists as to whether the mechanic liens claims are in fact secured or
unsecured claims. These liens are included in the liabilities subject to
compromise.
The management of Country World Casinos, Inc. has responded vigorously to the
defense of and prosecution of the Bankruptcy Court litigation [See Note 1].
Management has on numerous occasions attempted to seek a settlement of the
issues with the Company's major opposition. The Company's efforts to reach
settlement on a reasonable basis have been rebuffed. Accordingly, the Company
will continue to vigorously pursue the reorganization.
[11] Subsequent Events
In August 1996, the Company was advised by the SEC that the SEC's investigation
had been terminated and that no enforcement action has been recommended by staff
of SEC.
[12] Subsequent Events [Unaudited] Subsequent to the Date of the Report of the
Independent Auditors
A claims hearing for the TKCC $3,450,000 note was held in September 1996 to
determine the settlement of the debt [See Note 10]. In November 1996, the
Company received final rulings from the court. The Court's order finds that TKCC
and NADC were not entitled to default interest at the rate of 18%, however
Country World was ordered to pay 8% per annum on the unpaid balance.
In November 1996, the Company tendered an amount of approximately $1,309,000 to
TKCC in what it believes is full settlement of the remaining amount of the
$3,450,000 note including accrued interest.
. . . . . . . . . . .
F-21
<PAGE>
SIGNATURES
In accordance with the requirements of Sections 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, the Registrant has caused this
Report to be signed on its behalf by the undersigned, thereunto duly authorized.
COUNTRY WORLD CASINOS, INC.
Dated: November 22, 1996 By: /s/Roger D. Leclerc
---------------------------
Roger D. Leclerc, President
and Chief Executive Officer
In accordance with the Securities Exchange Act of 1934, as amended,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Dated: November 22, 1996 /s/ Roger D. Leclerc
-----------------------------------
Roger D. Leclerc, President,
Chief Executive Officer and
Director
Dated: November 22, 1996 /s/ William H. Patrowicz
-----------------------------------
William H. Patrowicz, Secretary,
Treasurer and Director
Dated: November 22, 1996 /s/ Larry S. Berman
-----------------------------------
Larry S. Berman, Director
Dated: November 22, 1996 /s/ Cary B. Berman
-----------------------------------
Cary B. Berman, Director
Exhibit 10-8
PROMISSORY NOTE
(Country World Casinos, Inc.)
$5,000,000.00 May 20, 1996
THIS PROMISSORY NOTE (this "Note") shall be effective as of the 20th day of
May, 1996, and is executed by COUNTRY WORLD CASINOS, INC., a Nevada corporation
("Maker"), whose address is 4155 East Jewell Avenue, Suite 1000, Denver,
Colorado 80222, Attn: Roger Leclerc in favor of KENNEDY FUNDING, INC., a New
Jersey corporation, whose address is Two University Plaza, Suite 402,
Hackensack, New Jersey, 07601, Attn: Joseph Wolfer, and ANGLO-AMERICAN
FINANCIAL, a New York limited partnership, Attn: Robin Rodriquez, 55 John
Street, 17th Floor, New York, New York 10038, as agent for the co-lenders set
forth on Exhibit A hereto (collectively, "Holder"):
1. Promise to Pay. For value received, Maker hereby promises to pay to the
order of Holder the principal sum of $5,000,000.00 ("Loan Amount"), together
with interest thereon at the rate as hereinafter specified, all in lawful money
of the United States of America which constitutes legal tender for payment of
debts, public and private, at the time of payment.
2. Interest Rate. Interest on the unpaid principal balance of this Note
outstanding from the effective date hereof shall be paid at the rate of 15% per
annum from the effective date of this Note until May 19, 1997 (the "First Year
Interest Obligation") and at a rate of 24% per annum thereafter until the Due
Date (as defined below) (collectively, the "Interest Rate").
3. Payment Schedule. Payments of principal and interest shall be payable as
follows: (a) the First year Interest Obligation shall be prepaid to Holder upon
delivery of this Note to Holder; (b) commencing on May 19, 1997 and continuing
on the 19th day of each month thereafter, Maker shall make interest only
payments, in advance, in the amount of 2% of the then existing principal balance
of the Loan Amount; and (c) the entire outstanding principal balance, together
with all accrued and unpaid interest, if not previously paid, shall be finally
due and payable on May 19, 1999, (the "Due Date"). By acceptance of this
Promissory Note, Holder acknowledges that Maker has prepaid the First Year
Interest Obligation.
4. Place and Manner of Payment. Payment shall be made by Maker to Holder by
wire transfer of the required funds to Kennedy Funding, Inc., as agent, in
accordance with the wiring instructions set forth on Exhibit B attached hereto
and incorporated herein by this reference or at such other address and in such
other manner be designated from time to time by Holder by written notice to
Maker.
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<PAGE>
5. Prepayment Privilege. Maker shall have the right, at any time and
without premium or fee, to prepay this Note in whole or in part. Notwithstanding
the foregoing, it is hereby specifically acknowledged and agreed by Maker that
Holder shall be entitled to retain one-half of the First Year Interest
Obligation upon any prepayment of this Note by Maker prior to November 19, 1996.
However, Holder acknowledges and agrees that in the event that this Note is
repaid prior to May 19, 1997, that portion of the First Year Interest Obligation
which represents interest that has not accrued from November 19, 1996 through
the date of such repayment, if any, shall be refunded to Maker.
6. Related Documents. "Related Documents" shall mean the Deed of Trust,
Assignment of Rents and Security Agreement securing this Note ("Deed of Trust")
which encumbers certain property in Gilpin County, Colorado described on Exhibit
B hereto ("Property") and related financing documents; the Environmental
Indemnity Agreement; all other documents executed or delivered by maker in
connection with the indebtedness evidenced by this Note; and any and all
amendments of any of the foregoing documents which may be executed from time to
time.
7. Application of Payments. Prior to any acceleration of all amounts due
hereunder pursuant to Section 10 below, all payments hereunder shall be applied
first to the repayment of sums, if any, advanced by Holder under the provisions
of the Related Documents, including sums advanced for the payment of taxes,
assessments, insurance premiums, or maintenance with respect to any of the
property encumbered by the Deed of Trust, together with interest on the sums
advanced at the Default Rate, as hereinafter defined, such interest to accrue
from the date of any advance until the advance is repaid; second, to late
charges on defaulted payments as hereinafter provided; third, to the payment of
accrued and unpaid interest on the principal of this Note, including interest
accrued at the Default Rate as hereinafter provided; and fourth, to the
reduction of principal of this Note. After any such acceleration, or in the
event any amounts are received as a prepayment of the Loan from any source
whatsoever, except a voluntary prepayment in full by Maker of this Note without
default, all amounts received by Holder shall be applied in Holder's sole
discretion.
8. Late Charge on Late Payments - Default Interest. In the event that any
payment to be made hereunder is not made within five (5) days of the date that
such payment is due hereunder, a late charge of ten percent (10%) of such
payment will be due (the "Late Charge"). In addition, any payment that is not
made within five (5) days of the date that such payment is due hereunder,
including sums, if any, advanced under the provisions of the Deed of Trust, and
including the entire balance of principal, interest, and other sums due upon the
maturity hereof, by acceleration or otherwise, shall bear interest at a rate of
24% during the first loan year and 36% thereafter ("Default Rate"), such
interest to accrue from the date due until paid.
9. Default. Each of the following shall constitute an "Event of Default"
under this Note:
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<PAGE>
(a) The failure of Maker to pay in full any amount due hereunder or
under the Deed of Trust by the date which is five days after the same is due as
provided herein or in the Deed of Trust (a "Late Payment"); provided, however if
Maker pays a Late Payment, and the Late Charge and interest computed at the
Default Rate associated therewith, on or before the date which is 15 days after
such payment was otherwise due then Holder agrees to treat the Event of Default
as having been cured;
(b) The failure of Maker to perform, satisfy, and observe in full,
when due, any of the obligations, covenants, conditions, and restrictions under
this Note, or under the Related Documents, not involving the payment of money,
and such failure shall continue for 30 days after written notice from Holder to
Maker of such failure, or if said failure cannot reasonably be cured within said
30-day period, if Maker shall not in good faith commence to cure such failure
within such 30-day period or shall not diligently proceed therewith to
completion.
10. Right to Accelerate on Event of Default. Upon the occurrence of any
Event of Default hereunder or under the Deed of Trust or any other Related
Documents, which has not been cured within applicable cure periods the entire
balance of principal, accrued interest, any other sums owing hereunder or under
the Deed of Trust shall, at the option of Holder, become at once due and payable
without prior notice or demand.
11. Waivers of Demand, Etc. Maker and all parties now or hereafter liable
for the payment hereof, primarily or secondarily, directly or indirectly, and
whether as endorser, guarantor, surety, or otherwise, severally waive demand,
presentment, notice of dishonor or nonpayment, protest and notice of protest,
and diligence in collecting, and consent to substitution, release, or impairment
of collateral, the taking of additional collateral, extensions of time for
payment, renewals of this Note and acceptance of partial payments, whether
before, at, or after maturity, all or any of which may be made without notice to
any of said parties and without affecting their liability to Holder.
12. Costs of Collection. Maker and all parties now or hereafter liable for
the payment hereof agree to pay all costs and expenses, including reasonable
attorneys' fees, incurred in collecting this Note or any part thereof or in
preserving, securing possession of, and realizing upon any security for this
Note whether or not legal proceedings are commenced.
13. No Usury Payable. The provisions of this Note and of all agreements
between Maker and Holder are hereby expressly limited so that in no contingency
or event whatsoever shall the amount paid, or agreed to be paid, to Holder for
the use, forbearance, or retention of the Loan Amount ("Interest") exceed the
maximum amount permissible under applicable law. If, from any circumstance
whatsoever,the performance or fulfillment of any provision hereof or of any
other agreement between Maker and Holder shall, at the time performance or
fulfillment of such provision shall be due, exceed that limit for Interest
prescribed by law, then, ipso facto, the obligation to be performed or fulfilled
shall be reduced to such limit, and if, from any circumstance whatsoever, Holder
should ever receive as Interest an amount which would exceed the highest lawful
rate, the amount which would be excessive Interest shall be applied to the
reduction of the principal balance owing hereunder (or, at Holder's option, be
paid over to Maker) and not to the payment of Interest.
3
<PAGE>
14. Severability of Provisions. If any provision hereof or of the Deed of
Trust shall, for any reason and to any extent, be invalid or unenforceable, then
the remainder of the instrument in which such provision is contained, the
application of the provision to other persons, entities, or circumstances, and
any other instrument referred to herein shall not be affected thereby but
instead shall be enforceable to the maximum extent permitted by law.
15. Successors to Maker or Holder. The term "Maker" as used herein shall
include the original Maker of this Note and any party who may subsequently
become primarily liable for the payment hereof. The term "Holder" as used herein
shall mean the original payee of this Note or, if this Note is transferred, the
then holder of this Note, provided that, until written notice is given to Maker
designating another party as Holder, Maker may consider the Holder to be the
original payee or the party last designated as Holder in a written notice to
Maker.
16. Notices. All notices, consents, or other instruments or communications
provided for under this Note be in writing, signed by the party giving the same,
and shall be deemed properly given and received when actually delivered and
received or three business days after mailed, if sent by registered or certified
mail, postage prepaid, to the addresses set forth in the first paragraph of this
Note, or to such other address as a party may designate by written notice to the
other party.
17. Captions for Convenience. The captions to the sections hereof are for
convenience only and shall not be considered in interpreting the provisions
hereof.
18. Governing Law. Regardless of the place of its execution, this Note
shall be construed and enforced in accordance with the laws of the State of
Colorado.
COUNTRY WORLD CASINOS, INC.,
a Nevada corporation
By:
----------------------------------------
Title:
-------------------------------------
4
<PAGE>
EXHIBIT A
List of co-lenders:
- -------------------
Norlar, Inc.
Anglo-American Financial
19 Gorge Acquisition, Corp.
Ashton Global Enterprises, Inc.
K-Squared, Inc.
Kuba Moran
Kennedy Funding Financial Corp.
19 Gorge Money Purchase Plan
<PAGE>
EXHIBIT B
Wiring Instructions for Payments to Agent
-----------------------------------------
Wire to: Independence Bank of New Jersey
1100 Lake Street
Ramsey, NJ 07446
(201) 825-1000
Fed. Reserve Short Name: Independ Allendale
ABA Number: 021200957
Account Name: KENNEDY FUNDING INVESTMENTS, INC.
Account Number: 881005766
Exhibit 10-9
ENVIRONMENTAL INDEMNITY AGREEMENT
THIS ENVIRONMENTAL INDEMNITY AGREEMENT (this "Agreement"), dated as of
May 17, 1996, is made by COUNTRY WORLD CASINOS, INC., a Nevada corporation
("Borrower") and HOLLY PRODUCTS, INC., a New Jersey corporation ("Guarantor" and
together with Borrower, the "Indemnitor") for the benefit of KENNEDY FUNDING,
INC., a New Jersey corporation, and ANGLO-AMERICAN FINANCIAL, a New York limited
partnership, as agent for the co-lenders set forth on Exhibit A attached hereto
("Lender").
RECITALS
A. Lender has agreed to make a loan to Borrower in the amount of
$5,000,000.00 (the "Loan") to be evidenced by a Promissory Note of even date
herewith made by Borrower to the order of Lender (the "Note") and secured by a
Deed of Trust, Assignment of Rents and Security Agreement of even date herewith
granted by Borrower for the benefit of Lender (the "Deed of Trust") covering
certain real property more specifically described therein (the "Property") and
guaranteed by a Guaranty Agreement of even date by Guarantor for the benefit of
Lender (the "Guaranty"). All capitalized terms used herein without definition
shall have the meanings given to such terms in the Deed of Trust.
B. Borrower is the owner of a fee simple estate in the Property. C. As a
condition precedent to making the Loan, Lender requires that Indemnitor enter
into this Agreement, whose covenants and obligations are independent of and in
addition to Borrower's obligations under the Note, Deed of Trust and the other
documents governing, evidencing and securing the Loan and Guarantor's
obligations under the Guaranty.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Indemnitor hereby represents, warrants and covenants to Lender and
Lender's officers, directors, employees, agents, affiliates, successors and
assigns (collectively, the "Indemnitees") as follows:
Section 1. Representations and Warranties. Except as otherwise disclosed in
certain separate documentation provided to Lender by Borrower, which such
documentation is specifically identified on Exhibit B attached hereto and
incorporated herein by this reference as though fully set forth, Indemnitor
represents and warrants to the Indemnitees that to the best of Indemnitor's
knowledge:
(a) Hazardous Substances have not at any time been generated, used, treated
or stored on, or transported to or from the Property in any quantity or manner
which violated any Environmental Law;
<PAGE>
(b) Hazardous Substances have not at any time been Released or disposed of
on the Property in any quantity or manner which violates any Environmental Law;
(c) Borrower has not received notice of any violation of applicable
Environmental Laws with respect to the Property or the requirements of any
permits issued under such Environmental laws with respect to the Property;
(d) There are no past, pending or threatened Environmental Claims against
Indemnitor or the Property;
(e) There are not now and never have been any underground storage tanks
located on the Property;
(f) Indemnitor has the power to execute, deliver and perform the terms and
provisions of this Agreement and has taken all necessary action to authorize the
execution, delivery and performance by it of this Agreement;
(g) Indemnitor has duly executed and delivered this Agreement, and this
Agreement constitutes its legal, valid and binding obligation enforceable
against Indemnitor in accordance with its terms, except as such enforcement may
be limited by bankruptcy, insolvency, reorganization and other laws affecting
creditors' rights generally and by principles of equity;
(h) Neither the execution, delivery or performance by Indemnitor of this
Agreement, nor compliance by it with the terms and provisions hereof, will (i)
contravene any provisions of any law, statute, rule or regulation or any order,
writ, injunction or decree of any court or governmental instrumentality, (ii)
result in any breach of any of the terms, covenants, conditions or provisions
of, or constitute a default under, or result in the creation or imposition of
(or the obligation to create or impose) any lien upon any of its property or
assets pursuant to the terms of any indenture, mortgage, deed of trust, credit
agreement, loan agreement or any other agreement, contract or instrument to
which it is a party or by which it or any of its property or assets is bound or
to which it may be subject, or (iii) violate any provision of its Articles of
Incorporation, Bylaws or other organizational documents; and
(i) No order, consent, approval, license, authorization or validation of,
or filing, recording or registration with, or exemption by, any governmental or
public body or authority, or any subdivision thereof, is required to authorize,
or is required in connection with, the execution, delivery and performance by
Indemnitor of this Agreement or the legality, validity, binding effect or
enforceability of this Agreement.
Section 2. Covenants. Indemnitor covenants and agrees as follows:
(a) Indemnitor will (i) take all action required by applicable
Environmental Laws relating to the ownership or use of the Property, (ii)
immediately pay or cause to be paid all costs and expenses incurred in such
compliance, and (iii) take such actions as are necessary to prevent enforcement
of any liens imposed on the Property pursuant to any Environmental Laws.
2
<PAGE>
(b) Indemnitor will not generate, use, treat, store, Release or dispose of,
or permit the generation, use, treatment, storage, Release or disposal of, any
Hazardous Substances on the Property, or transport or permit the transportation
of any Hazardous Substances to or from the Property in violation of
Environmental Laws, in each case in any quantity or manner which violates any
Environmental Law.
(c) Lender has received an environmental site assessment report concerning
the Property, prepared by an environmental consulting firm acceptable to Lender.
Such environmental site assessment report was conducted at no cost or expense to
Lender. Upon reasonable request by Lender, Indemnitor will obtain an update or
endorsement to such audit. If Indemnitor fails to deliver to Lender any such
updated or endorsed environmental site assessment report within thirty (30) days
after being requested to do so by Lender pursuant to this Section, Lender may
obtain the same, and Indemnitor hereby grants to Lender and its agents access to
the Property and specifically grants to Lender an irrevocable nonexclusive
license to undertake such an updated or endorsed assessment, and the reasonable
cost thereof (together with interest thereon at the Default Rate as defined in
the Note) will be payable by Indemnitor on demand.
(d) Except for those matters disclosed in the environmental site assessment
provided to Lender by Borrower, Indemnitor will advise Lender in writing
immediately upon learning of any of the following: (i) any pending or threatened
Environmental Claim against Indemnitor or the Property; (ii) any condition or
occurrence on the Property that (A) results in noncompliance by Indemnitor with
any applicable Environmental Law, or (B) could reasonably be anticipated to form
the basis of an Environmental Claim against Indemnitor or the Property; (iii)
any condition or occurrence on the Property that could reasonably be anticipated
to cause the Property to be subject to any restrictions on the ownership,
occupancy, use or transferability of the Property under any Environmental law;
and (iv) the taking of any removal or remedial action in response to the actual
or alleged presence, in any quantity or manner which violates any Environmental
Law, of any Hazardous Substances on the Property. Each such notice shall
describe in reasonable detail the nature of the claim, investigation, condition,
occurrence or removal or remedial action and Indemnitor's response thereto. In
addition, Indemnitor will provide Lender with copies of the all communications
to or from Indemnitor and any governmental agency relating to Environmental
Laws, all communications to or from Indemnitor and any person relating to
Environmental Claims, and such detailed reports of any Environmental Claim as
may be requested by Lender.
(e) Without Lender's prior written consent, not be unreasonably withheld,
Indemnitor shall not enter into any settlement, consent or compromise with
respect to any Environmental Claim that might impair the value of the Property.
3
<PAGE>
(f) At no cost or expense to Lender, if requested to do so by applicable
law or order, Indemnitor will conduct any investigation, study, sampling and
testing, and undertake any cleanup, removal, remedial or other action necessary
to remove and clean up all Hazardous Substances from the Property which must be
so removed or cleaned up in accordance with the requirements of any applicable
Environmental Laws, in accordance with all such requirements and with orders and
directives of all governmental authorities. If all or any portion of the Loan
shall be outstanding, Indemnitor may prepay the Loan in full, together with all
applicable prepayment penalties, in lieu of complying with the preceding
sentence.
(g) At no cost to Lender, if requested to do so by applicable law or order,
Indemnitor shall comply with any and all orders and/or requests of the
Environmental Protection Agency ("EPA") to remove any fill material deposited
into North Clear Creek when the retaining wall was constructed on the Property;
which such matters may be determined by an inspection of the Property to be
conducted by EPA on or about June 3, 1996. In addition, Indemnitor shall pay or
cause to be paid all costs and expenses relating to EPA and State of Colorado
oversight costs with respect to the remediation conducted on the Property.
Indemnitor shall comply with all ongoing obligations contained in the
Recordkeeping Provisions of the Administrative Order on Consent with respect to
the Property and shall perform all maintenance and upkeep with respect to
maintaining the viability of the retaining wall constructed on the Property.
Section 3. Indemnity.
(a) Indemnitor agrees to defend (with attorneys reasonably satisfactory to
the Indemnities), protect, indemnify and hold harmless each of the Indemnitees
and its respective officers, directors, employees, attorneys and agents from and
against any and all liabilities, obligations (including removal and remedial
actions), losses, damages (including foreseeable and unforeseeable consequential
damages and punitive damages), penalties, actions, judgments, suits, claims,
costs, expenses and disbursements (including reasonable attorneys' and
consultants' fees and disbursements) of any kind or nature whatsoever that may
at any time be incurred by, imposed on or asserted against any of them directly
or indirectly based on, or arising or resulting from (i) the actual or alleged
presence of Hazardous Substances on the Property in any quantity or manner which
violates Environmental Law, or the removal, handling, transportation, disposal
or storage of such Hazardous Substances, (ii) any Environmental Claim with
respect to Indemnitor or the Property, or (iii) the exercise of any Indemnitee's
rights under this Agreement (collectively, the "Indemnified Matters"),
regardless of when such Indemnified Matters arise, but excluding any Indemnified
Matter with respect to Hazardous Substances first placed or Released on the
Property after the later of (1) the date neither Indemnitor nor any of its
affiliates holds title to or any other interest in or lien on the Property, or
(2) the payment in full of the Secured Obligations (as defined in the Deed of
Trust). To the extent that this indemnity is unenforceable because it violates
any law or public policy, Indemnitor agrees to contribute the maximum portion
that it is permitted to contribute under applicable law to the payment and
satisfaction of all Indemnified Matters.
4
<PAGE>
(b) Indemnitor agrees to reimburse each Indemnitee for all reasonable sums
paid and costs incurred by such Indemnitee with respect to any Indemnified
Matter within ten (10) days following written demand therefor, with interest
thereon at the Default Rate (as defined in the Note) if not paid within such ten
(10) day period.
(c) Should any Indemnitee institute any action or proceeding at law or in
equity, or in arbitration, to enforce any provision of this Agreement (including
an action for declaratory relief or for damages by reason of any alleged breach
of any provision of this Agreement) or otherwise in connection with this
Agreement or any provision hereof, it shall be entitled to recover from
Indemnitor its reasonable attorneys' fees and disbursements incurred in
connection therewith if its is the prevailing party in such action or
proceeding.
Section 4. Events of Default. Upon the occurrence of any of the following
specified events (each an "Event of Default"):
(a) If any of the representations and warranties contained in Section 1
shall prove to be untrue in any respect; or
(b) If Indemnitor fails to perform any of its obligations under this
Agreement within fifteen (15) days following notice thereof from Lender;
provided that if such nonperformance is incapable of cure within such 15-day
period, no Event of Default shall occur hereunder if Indemnitor has commenced a
program to perform such obligations, which program is satisfactory to Lender in
its reasonable discretion and is in accordance with applicable law, and is
diligently pursuing such program to completion; and provided further that if a
shorter cure period or notice requirement for any particular failure to perform
is provided by applicable law or this Agreement, such specific provisions shall
control; then and in any such event, and at any time thereafter, if any Event of
Default shall then be continuing, Lender may do or cause to be done whatever is
reasonably necessary to cause the Property to comply with applicable
Environmental laws (provided that such actions shall not go beyond what is
reasonably required to bring the Property into compliance with the applicable
Environmental Laws), and the cost thereof (together with interest thereon at the
Default Rate, as defined in the Note) shall become immediately due and payable
by Indemnitor without notice. Indemnitor shall and does hereby grant to Lender
and its agents access to the Property and hereby specially grants to Lender an
irrevocable, non-exclusive license to cause the Property to so comply,
including, without limitation, to enter the Property and remove therefrom any
Hazardous Substances. Lender agrees to use reasonable efforts to avail itself of
provisions, if any, now or hereafter contained in the Environmental Laws, and
any rules and regulations enacted in connection therewith, and which are
available to a secured party as a means of mitigating its damage.
Section 5. Obligations. The liability of Indemnitor under this Agreement
shall in no way be limited to or impaired by any amendment or modification of
the provisions of the Loan Documents unless such amendment or modification
expressly refers to this Agreement. In addition, the liability of Indemnitor
under this Agreement shall in no way be limited or impaired by (i) any
extensions of time for performance required by any of the Loan Documents,
5
<PAGE>
(ii) any sale, assignment or foreclosure of the Note or any sale or transfer of
all or any part of the Property, (iii) any exculpatory provision in any of the
Loan Documents limiting any Indemnitee's recourse to property encumbered by the
Deed of Trust or to any other security, or limiting the Indemnitees' rights to a
deficiency judgment against Indemnitor, (iv) the accuracy or inaccuracy of the
representations and warranties made by Indemnitor or any other person from
performance or observance of any of the agreements, covenants, terms or
conditions contained in any of the Loan Documents (other than this Agreement) by
operation of law, any Indemnitee's voluntary act, or otherwise, (vi) the release
or substitution in whole or in part of any security for the Note (vii) Lender's
failure to record the Deed of Trust or file any Financing Statements (or
Lender's improper recording or filing of any thereof) or to otherwise perfect,
protect, secure or insure any security interest or lien given as security for
the Note; and, in any such case, whether with or without notice to Indemnitor
and with or without consideration.
Section 6. Independent Obligations. This Agreement is intended to create
obligations that are separate and independent of Indemnitor's obligations under
the Note, Deed of Trust and other Loan Documents. Indemnitor's obligations
hereunder are, however, secured by the Deed of Trust and the other Loan
Documents.
Section 7. Survival.
(a) Subject to Paragraph 3(a), the representations, warranties, covenants
and indemnities set forth in this Agreement shall survive the repayment of the
Loan, the release of the lien of the Deed of Trust, any foreclosure of the Deed
of Trust or the delivery of a deed or assignment in lieu of foreclosure or
otherwise, and the transfer of any interest in and to the Property.
(b) This Agreement shall be binding on and inure to the benefit of
Indemnitor, the Indemnities, and their respective successors and assigns.
Without limiting the generality of the foregoing, this Agreement shall inure to
the benefit of each assignee or holder of the Note and each of such assignee's
or holder's officers, directors, employees, agents and affiliates.
Notwithstanding the foregoing, Indemnitor, without the prior written consent of
Lender in each instance, may not assign, transfer or set over in whole or in
part, all or any part of its benefits, rights, duties and obligations hereunder.
Section 8. Definitions. As used in this Agreement, the following terms
shall have the following meanings:
"Hazardous Substances" means (a) any chemicals, materials or substances
defined as or included in the definition of "hazardous substances," "hazardous
wastes," "hazardous materials," "extremely hazardous wastes," "restricted
hazardous wastes," "toxic substances," "toxic pollutants," "contaminants" or
"pollutants," or words or similar import, under any applicable Environmental
Law; and (b) any other chemical, material or substance, exposure to which is
prohibited, limited or regulated by any governmental authority, including,
without limitation, asbestos and asbestos-containing materials in any form,
lead-based paint, any radioactive materials and polychlorinated byphenyls
("PCB's"), or substances or compounds contained PCB's.
6
<PAGE>
"Environmental Law" means any federal, state or local law, whether common
law, court or administrative decision, statute, rule, regulation, ordinance,
court order or decree, or administrative order or any administrative policy or
guidelines concerning action levels of a governmental authority (federal, state
or local) now or hereafter in effect relating to the environment, public health,
occupational safety, industrial hygiene, any Hazardous Substance (including,
without limitation, the disposal, generation, manufacture, presence, processing,
production, Release, storage, transportation, treatment or use thereof), or the
environmental conditions on, under or about the Property, as amended and as in
effect from time to time (including, without limitation, the following statutes
and all regulations thereunder as amended and in effect from time to time: the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended, 42 U.S.C. ss.ss. 9601, et seq.; the Superfund Amendments and
Reauthorization Act of 1986, Title III, 42 U.S.C. ss.ss. 11001, et seq.; the
Clean Air Act, 42 U.S.C. ss.ss. 7401 et seq.; the Safe Drinking Water Act, 42
U.S.C. ss.ss. 300(f), et seq.; the Solid Waste Disposal Act, 42 U.S.C. ss.ss.
3251, et seq.; the Hazardous Materials Transportation Act, as amended, 49 U.S.C.
ss.ss. 1801, et seq.; the Resource Conservation and Recovery Act, as amended, 42
U.S.C. ss.ss. 6901, et seq.; the Federal Water Pollution Control Act, as
amended, 33 U.S.C. ss.ss. 1251, et seq.; the Toxic Substances Control Act of
1976, 15 U.S.C. ss.ss. 2601, et seq.; and the Occupational Safety and Health
Act, 29 U.S.C. ss.ss. 651, et seq.; and any successor statutes and regulations
to the foregoing.
"Environmental Claims" means any and all administrative, regulatory or
judicial actions, suits, demands, demand letters, claims, liens, notices of
non-compliance or violation, investigations or proceedings relating in any way
to any Environmental Law (hereafter "Claims") or any permit issued under any
such Environmental Law, including without limitation (a) any and all Claims by
governmental or regulatory authorities for enforcement, cleanup, removal,
response, remedial or other actions or damages, contribution, indemnification,
cost recovery, compensation or injunctive relief resulting from Hazardous
Substances or arising from alleged injury or threat of injury to health, safety
or the environment.
"Release" means disposing, discharging, injecting, spilling, leaking,
leaching, dumping, emitting, escaping, emptying, seeping, placing and the like,
into or upon any land or water or air, or otherwise entering into the
environment.
Section 9. Miscellaneous.
(a) If Indemnitor is more than one person or entity, then (i) all persons
or entities comprising Indemnitor are jointly and severally liable for all of
the Indemnitor's obligations hereunder; (ii) all representations, warranties,
and covenants made by Indemnitor shall be deemed representations, warranties,
and covenants of each of the persons or entities comprising Indemnitor; (iii)
any breach, Default or Event of Default by any of the persons or entities
comprising Indemnitor hereunder shall be deemed to be a breach, Default, or
Event of Default of Indemnitor; and (iv) any reference herein contained to the
knowledge or awareness of Indemnitor shall mean the knowledge or awareness of
any of the persons or entities comprising Indemnitor.
7
<PAGE>
(b) Indemnitor waives any right or claim of right to cause a marshalling of
its assets or to cause any Indemnitee to proceed against any of the security for
the Loan before proceeding under this Agreement. Indemnitor expressly waives and
relinquishes all present or future rights, remedies, or circumstances which
might constitute a legal or equitable discharge of Indemnitor or which might
otherwise impair the validity or enforceability of this Agreement. Indemnitor
hereby agrees to postpone the exercise of any and all rights of subrogation to
the rights of any Indemnitee against Indemnitor hereunder and any rights of
subrogation to any collateral securing the Loan, until all obligations or
Indemnitor to the Indemnitees hereunder have been performed in full and all
principal, interest and other sums evidenced or secured by the Loan Documents
shall have been paid in full.
(c) Any party liable upon or in respect of this Agreement or the Loan may
be released without affecting the liability of any party not so released.
(d) No failure or delay on the part of any of the Indemnitees in exercising
any right, power or privilege hereunder or under any other Loan Document and no
course of dealing between Indemnitor and the Indemnitees (or any of them) shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right, power or privilege hereunder or under any other Loan Document preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege hereunder or thereunder. The rights, powers and remedies herein or
in any other Loan Documents expressly provided are cumulative with and not
exclusive of any rights, powers or remedies which the Indemnitees or any of them
would otherwise have. No notice to or demand on Indemnitor in any case shall,
ipso facto, entitle Indemnitor to any other or further notice or demand in
similar or other circumstances or constitute a waiver of the rights of the
Indemnitees to any other or further action in any circumstances without notice
or demand where notice or demand is not otherwise required.
(e) All notices hereunder shall be writing and shall be delivered in
accordance with the provisions of the Deed of Trust.
(f) Neither this Agreement nor any term hereof may be changed, waived,
discharged or terminated unless such change, waiver, discharge or termination is
in writing and signed by each of the parties hereto.
(g) LENDER AND INDEMNITOR KNOWINGLY, IRREVOCABLY, VOLUNTARILY AND
INTENTIONALLY WAIVE ANY RIGHT EITHER MAY HAVE TO A TRIAL BY JURY IN RESPECT OF
ANY ACTION, PROCEEDING OR COUNTERCLAIM BASED ON THIS AGREEMENT, OR ARISING OUT
OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE
OF DEALING, STATEMENT (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY
HERETO. THIS PROVISION IS A MATERIAL INDUCEMENT FOR LENDER AND INDEMNITOR TO
ENTER INTO THE LOAN TRANSACTION EVIDENCED BY THE NOTE.
8
<PAGE>
(h) This Agreement and the rights and obligations of the parties hereunder
shall be construed in accordance with and be governed by the law of the State of
Colorado.
(i) All pronouns and any variations of pronouns herein shall be deemed to
refer to the masculine, feminine, or neuter, singular or plural, as the identity
of the parties may require. Whenever the terms herein are singular, the same
shall be deemed to mean the plural, as the identity of the parties or the
context requires and vice versa.
(j) This Agreement may be executed in multiple counterparts, each of which
shall constitute a duplicate original, but all of which together shall
constitute one and the same instrument.
(k) Notwithstanding any other term or provision contained within this
Agreement, Borrower hereby reserves all rights, actions, allegations, claims
and/or demands which Borrower may have, or which may accrue in favor of Borrower
in the future ("Claims"), against and/or with respect to New Allied Development
Corporation and/or its wholly owned subsidiary Tommyknocker Casino Corp.; which
such Claims shall not, in any way, be affected (or be construed to be affected)
by the execution of this Agreement.
IN WITNESS WHEREOF, Indemnitor has caused its duly authorized
representative to execute and deliver this Agreement as of the date first above
written.
COUNTRY WORLD CASINOS, INC.,
a Nevada corporation
By:
--------------------------------------
Title:
------------------------------------
HOLLY PRODUCTS, INC.,
a New Jersey corporation
By:
---------------------------------------
Title:
-----------------------------------
9
<PAGE>
EXHIBIT A
List of co-lenders:
-------------------
Norlar, Inc.
Anglo-American Financial
19 Gorge Acquisition, Corp.
Ashton Global Enterprises, Inc.
K-Squared, Inc.
Kuba Moran
Kennedy Funding Financial Corp.
19 Gorge Money Purchase Plan
<PAGE>
EXHIBIT B
Environmental Documentation Provided
------------------------------------
by Borrower to Lender
---------------------
1. Corrective Action Plan for Mill Sites 12 and 13. Stewart Environmental
Consultants, Inc., July 1992.
2. Final Report for the Remediation Project at Mill Sites 12 and 13. Stewart
Environmental Consultants, Inc., July 1994 (Amended October 1994).
3. Administrative Order on Consent for Removal Action. EPA Docket No. CERCLA
VIII-93-12, In the Matter of: Clear Creek/Central City - Golden Gilpin Mill
Sites 12 and 13, Superfund Site, Site No. 13, February 11, 1993.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS AS OF JUNE 30, 1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,823,503
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,823,503
<PP&E> 12,260,744
<DEPRECIATION> 14,135
<TOTAL-ASSETS> 14,758,052
<CURRENT-LIABILITIES> 1,597,577
<BONDS> 6,845,528
0
2,250
<COMMON> 10,836
<OTHER-SE> 5,301,862
<TOTAL-LIABILITY-AND-EQUITY> 14,758,052
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 417,675
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,830
<INCOME-PRETAX> (417,675)
<INCOME-TAX> 0
<INCOME-CONTINUING> (417,675)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (417,675)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
