<PAGE> 1
As filed with the Securities and Exchange Commission on January 13, 1997
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
Under
The Securities Act of 1933
CREATIVE LEARNING PRODUCTS, INC.
(Exact Name of Small Business Issuer in Its Charter)
NEW JERSEY 7990 22-2930106
(State or Other (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Classi- Identification No.)
Incorporation or fication Code Number)
Organization)
150 MORRIS AVENUE, SPRINGFIELD, NEW JERSEY 07081 (201) 467-0266
(Address and Telephone Number of Principal Executive Offices)
SAME
(Address of Principal Place of Business)
ROBERT W. BEREND, ESQ.
GOLD & WACHTEL, LLP
110 East 59th Street
New York, New York 10022
(212) 909-9602
(Name, Address and Telephone Number of Agent for Service)
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after
this registration statement becomes effective.
<PAGE> 2
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Title of Each Class Amount Proposed Maximum Proposed Maximum Amount of
of Securities to be to be Offering Price Aggregate Offering Registration
Registered Registered Per Unit Price(1) Fee (2)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, no
par value, to be 10,073,102
offered by Selling shares $ .50(3) $5,036,551(3) $1,526
Shareholders
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock, no
par value, issuable 1,411,070
by the registrant shares $ .50(3) $ 705,535(3) $ 214
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock, no
par value, issuable 80,000
upon exercise of shares $1.00(4) $ 80,000(4) $ 24
Warrant
- ------------------------------------------------------------------------------------------------------------------------------------
Total: $1,764
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the
registration fee.
(2) Rounded to the nearest dollar.
(3) The closing sales price of the Common Stock as reported in the
Nasdaq System on January 7, 1997 was taken as the offering
price of the shares for the purpose of calculating the
registration fee in accordance with Rule 457(d) under the
Securities Act of 1933, as amended (the "Securities Act").
(4) The exercise price of the Warrant was taken as the offering
price of the shares for the purpose of calculating the
registration fee in accordance with Rule 457(g)(1) under the
Securities Act.
(5) An indeterminate number of shares of the Common Stock are
being registered pursuant to Rule 416 under the Securities Act
to cover any adjustment in the number of shares issuable as a
result of the anti-dilution provisions of the Warrants and the
Options.
The Registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE> 3
PROSPECTUS
CREATIVE LEARNING PRODUCTS, INC.
-------------------------
10,073,102 SHARES OF COMMON STOCK TO BE OFFERED BY SELLING STOCKHOLDERS,
1,411,070 SHARES OF COMMON STOCK ISSUABLE BY THE COMPANY AND
80,000 SHARES OF COMMON STOCK ISSUABLE UPON
EXERCISE OF A WARRANT
-------------------------
Creative Learning Products, Inc. (the "Company") is offering, by this
Prospectus, an aggregate of 1,491,070 shares of Common Stock, no par value (the
"Common Stock"), consisting of (1) 1,333,333 shares of the Common Stock issuable
to a consultant as a bonus, (2) an aggregate of 22,997 shares of the Common
Stock issuable in settlement of any claim to accumulated but undeclared and
unpaid dividends on its Series A 10% Cumulative Convertible Preferred Stock,
$1.00 par value (the "Series A Preferred Stock"), (3) an aggregate of 54,740
shares of the Common Stock to be issued in settlement of trade creditor claims
against a subsidiary, the operations of which have been discontinued, and (4)
80,000 shares of the Common Stock issuable upon the exercise of a Common Stock
purchase warrant expiring September 18, 1999 (the "September 18 Warrant"). The
Company will receive gross proceeds of $80,000 if the September 18 Warrant is
exercised.
In addition, the shareholders named in the table under the caption
"Selling Shareholders" (the "Selling Shareholders") are offering, by this
Prospectus, an aggregate of 10,073,102 shares of the Common Stock consisting of
(1) an aggregate of 2,184,115 shares of the Common Stock, all of which shares
are currently outstanding, (2) an aggregate of 6,858,987 shares which will be
offered if and only if the other outstanding Common Stock purchase warrants (the
"Other Warrants") as set forth therein are exercised and (3) an aggregate of
1,030,000 shares in stock options (the "Options") as set forth therein are
exercised. The Selling Shareholders have advised the Company that they may, from
time to time, offer the foregoing 10,07355,102 shares at the prices then
prevailing in the over-the-counter market or in isolated transactions, at
negotiated prices, with institutional or other investors. The Company will not
receive any of the proceeds from the sales of the shares of the Common Stock by
the Selling Shareholders. The Company will receive gross proceeds of $8,603,771
if all of the Other Warrants and the Options are exercised.
The Common Stock is traded on the Nasdaq System. On January 7, 1997,
the closing sales price of the Common Stock on the Nasdaq System as reported by
the National Association of Securities Dealers, Inc. (the "NASD") was $.50 per
share. See "Market Information-Market Data."
<PAGE> 4
<TABLE>
<CAPTION>
Underwriting Proceeds
Price to Discounts and Proceeds to to Other
Public Commissions(4) Issuer Persons
------ -------------- ------ -------
<S> <C> <C> <C> <C>
Per share of Common
Stock $ .50 (1) 0 $ .50(1) $.50
Per Warrant share $ 1.00 (2) 0 $ $1.00(2) 0
Total for Common
Stock $5,742,086 0 $ 705,535 $5,036,551
Total for Warrant
shares $ 80,000 (2) 0 $ 80,000(2) 0
</TABLE>
- -----------------------
(1) Based on the closing sales price on January 7, 1997 of the
Common Stock in the Nasdaq System as reported by the NASD.
(2) Based on the average of the exercise price of the
September 18 Warrant.
(3) Excludes expenses estimated at $64,000.
-----------------------
THE SECURITIES OFFERED BY THIS PROSPECTUS ARE SPECULATIVE IN THAT
THEY INVOLVE CERTAIN RISKS. SEE "RISK FACTORS" FOR A DISCUSSION OF
MATTERS WHICH SHOULD BE CONSIDERED BY PURCHASERS OF THESE
SECURITIES.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OR REGULATORY AUTHORITY OF ANY
STATE NOR HAS THE COMMISSION OR THE STATE COMMISSIONS OR AUTHORITIES PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS PROSPECTUS IS ______________, 1997
<PAGE> 5
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy and information statements and other
information with the Securities and Exchange Commission (the "Commission").
Reports, proxy and information statements and other information filed with the
Commission can be inspected and copied at the public reference facilities of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, as well as at the
following regional offices of the Commission: 7 World Trade Center, Suite 1300,
New York, New York 10048 and Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661- 2511. Copies of this material can
also be obtained at prescribed rates from the Public Reference Section of the
Commission at its principal office at 450 Fifth Street, N.W., Washington, D.C.
20549. The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission at the following Web site address:
http://www.sec.gov. Because the Common Stock is traded in the Nasdaq System,
reports, proxy and information material and other information concerning the
Company can also be inspected by contacting the NASD, Nasdaq Reports Section, at
1735 K Street, N.W., Washington, D.C. 20006-1506.
The Company has filed with the Commission a Registration Statement on
Form SB-2, File No. 333- (the "Registration Statement"), under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to (1)
the Company's offer of an aggregate of 1,491,070 shares of the Common Stock
consisting of (a) 1,333,333 shares of the Common Stock issuable as a bonus to a
consultant, (b) an aggregate of 22,997 shares of the Common Stock issuable in
settlement of any claim to accumulated but undeclared and unpaid dividends on
the Series A Preferred Stock, (c) an aggregate of 54,740 shares of the Common
Stock issuable in settlement of trade creditor claims against a subsidiary, the
operations of which have been discontinued, and (c) 80,000 shares of the Common
Stock issuable upon the exercise of the September 18 Warrant and (2) an offer by
the Selling Shareholders of an aggregate of 10,073,102 shares of the Common
Stock consisting of (a) an aggregate of 2,184,115 shares of the Common Stock,
all of which shares are currently outstanding, (b) an aggregate of 6,858,987
shares issuable upon the exercise of the Other Warrants and (c) an aggregate of
1,030,000 shares issuable upon the exercise of the Options. The Other Warrants
are as follows: (a) 3,258,320 shares of the Common Stock issuable upon the
exercise of an Other Warrant expiring March 7, 1998 (the "March 7 Warrant"); (b)
396,519 shares of the Common Stock issuable upon the exercise of an Other
Warrant expiring March 7, 1998 (the "Noteholders Warrant"); (c) 137,587 shares
of the Common Stock issuable upon the exercise of an Other Warrant expiring
November 1, 1999 (the "November 1 Warrant"); (d) 122,453 shares issuable upon
the exercise of an Other Warrant expiring November 6, 1999 (the "Laser
Warrant"); (e) 226,667 shares of the Common Stock issuable upon the exercise of
Other Warrants expiring March 15, 2000 (the "March 15 Warrants"); (f) 83,333
shares of the Common Stock issuable upon the exercise of an Other Warrant
expiring January 24, 1999 (the "January 24 Warrant"); (g) 1,097,517 shares of
the Common Stock issuable upon the exercise of
2
<PAGE> 6
Other Warrants expiring March 5, 1998 (the "March 5 Warrants"); (h) 140,356
shares of the Common Stock issuable upon the exercise of Other Warrants expiring
between July 20 and December 26, 2000 (the "Lenders Warrants"); (i) 10,000
shares of the Common Stock issuable upon the exercise of an Other Warrant
expiring September 11, 2000 (the "September 11 Warrant"); (j) 37,783 shares of
the Common Stock issuable upon the exercise of Other Warrants expiring between
February 28 and May 6, 2001 (the "Second Lenders Warrants"); (k) 393,824 shares
of the Common Stock issuable upon the exercise of an Other Warrant expiring
March 5, 1998 (the "Other March 5 Warrant"); (l) 5,000 shares issuable upon the
exercise of an Other Warrant expiring October 25, 2001 (the "October 25
Warrant"); (m) an aggregate of 74,604 shares of the Common Stock issuable upon
the exercise of Other Warrants expiring [one year from the date of this
Prospectus] (the "Unit Warrants"); (n) 258,7f shares of the Common Stock
issuable upon the exercise of Other Warrants expiring January 7, 1999 (the
"January 7 Warrants"); (o) 61,081 shares of the Common Stock issuable upon the
exercise of an Other Warrant expiring May 26, 1998 (the "Placement Agent's Unit
Warrant"); (p) 61,081 shares issuable upon the exercise of an Other Warrant
expiring July 20, 1997 (the "Placement Agent's Additional Warrant"), which
Placement Agent's Additional Warrant is only issuable if the Placement Agent's
Unit Warrant is exercised; (q) 463,897 shares of the Common Stock issuable upon
the exercise of Other Warrants expiring April 29, 1998 (the "April 29 Warrants")
and (r) 50,000 shares of the Common Stock issuable upon the exercise of an Other
Warrant expiring April 16, 1999 (the "Gaming Consultant Warrant"). The September
18 Warrant and the Other Warrants are collectively referred to herein as the
"Warrants." The Options are as follows: (a) 140,000 shares of the Common Stock
issuable upon the exercise of an Option expiring June 7, 1999 (the "June 7
Option"); (b) 150,000 shares of the Common Stock issuable upon the exercise of
an Option expiring June 12, 1999 (the "June 12 Option"); (c) 150,000 shares of
the Common Stock issuable upon the exercise of an Option expiring November 6,
1999 (the "Loan Option"); (d) 400,000 shares of the Common Stock issuable upon
the exercise of an Option expiring November 6, 1999 (the "Gaming Option"); (e)
50,000 shares of the Common Stock issuable upon the exercise of an Option
expiring November 6, 1999 (the "Retirement Option"); (f) 15,000 shares of the
Common Stock issuable upon the exercise of an Option expiring July 6, 2000 (the
"July 6 Option") and (g) 125,000 shares of the Common Stock issuable upon the
exercise of an Option expiring May 18, 1999 (the "May 18 Option"). This
Prospectus, which is Part I of the Registration Statement, omits certain
information contained in the Registration Statement. For further information
with respect to the Company and the shares of the Common Stock offered by this
Prospectus, reference is made to the Registration Statement, including the
exhibits thereto. Statements in this Prospectus as to any document are not
necessarily complete and, where such document is an exhibit to the Registration
Statement or is incorporated herein by reference, each such statement is
qualified in all respects by the provisions of such exhibit or other document,
to which reference is hereby made for a full statement of the provisions
thereof. A copy of the Registration Statement, with exhibits, may be obtained
from the Commission's office in Washington, D.C. (at the address in the
preceding paragraph) upon payment of the fees prescribed by the rules and
regulations of the Commission, or examined there without charge.
3
<PAGE> 7
The Company will provide without charge to each person to whom a
Prospectus has been delivered, upon the written or oral request of such person,
a copy of any or all of the information that has been incorporated by reference
in the Prospectus (not including exhibits to such information that is
incorporated by reference unless such exhibits are specifically incorporated by
reference into the information that the Prospectus incorporates). Requests for
such copies should be directed to Linda A. Oswald, Assistant Secretary, Creative
Learning Products, Inc., 150 Morris Avenue, Springfield, New Jersey 07081, or
(201) 467-0266.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus.
THE COMPANY
The Company was incorporated on August 31, 1988 under the laws of the
State of New Jersey. The Company's principal executive offices are located at
150 Morris Avenue, Springfield, New Jersey 07081 and its telephone number is
(201) 467-0266.
The Company provides management and administrative services to its
wholly-owned subsidiaries. The Company and all of its operating subsidiaries are
collectively referred to herein as "CLP."
Since February 1994, the Company has been engaged in the process of
attempting to convert CLP from an entity only offering a line of children's
products and writing instruments into an entity which primarily would be
offering gaming facilities and equipment, a hotel convention center, a theme
park and a time sharing facility and entertainment to its customers. Management
intends that the primary future focus of CLP will be on various gaming projects
conducted on behalf of the Company through Creative Gaming International , Inc.
("CGI"), a wholly-owned subsidiary of the Company incorporated in March 1994 or
CGI Vessel, Inc. ("CGV"), a wholly-owned subsidiary of the Company incorporated
in December 1996. CGI and CGV are collectively referred to herein as "Creative
Gaming." The two principal pending projects are (1) refurbishing a vessel on
which gaming would be conducted outside the territorial waters of the United
States and on which entertainment may also be offered (the "Gaming Vessel
Project") and (2) managing a Native American Indian gaming facility and/or
opening a hotel/convention center, a theme park and a time sharing facility (the
"Branson Project"). Assuming that definitive agreements are executed and that
Creative Gaming obtains necessary approvals and adequate financing, as to none
of which there can be any assurance, management believes that the earliest
project (i.e., the Gaming Vessel Project) will not begin to produce revenues for
CLP until September 1997 at the earliest and that most projects (as, for
example, the Branson Project) will take approximately one or two years to
produce revenues, if not longer.
4
<PAGE> 8
For information as to (1) the current and proposed operations of CLP,
see the sections "Existing Operations," "Gaming Vessel Project," "Branson
Project," "Other Gaming Projects" and "Former Operations" under the caption "The
Company" and (2) financing, see "The Company-Financing" and the section
"Liquidity and Capital Resources" under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
CLP has operated at a loss and management believes that the prospective
gaming projects are the means to achieve profitability. There can be no
assurance as to when and if such goal will be achieved. See "Consolidated
Financial Statements" and the section "Results of Operations" under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
In addition, the Company has been restructuring its capitalization
through the issuance of its equity securities in private placements and upon the
exercise of outstanding warrants and the satisfaction of other indebtedness. See
"The Company-Certain Securities Transactions."
THE OFFERING
The Company is offering, by this Prospectus, an aggregate of 1,491,070
shares of the Common Stock consisting of (1) 1,333,333 shares of the Common
Stock issuable to a consultant as a bonus, (2) an aggregate of 22,997 shares
issuable in settlement of dividend claims on the Series A Preferred Stock, (3)
an aggregate of 54,740 shares issuable in settlement of trade creditor claims
against a subsidiary, the operations of which have been discontinued, and (4)
80,000 shares issuable upon the exercise of the September 18 Warrant. The
Selling Shareholders are offering, by this Prospectus, an aggregate of
10,073,102 shares of the Common Stock consisting of (1) an aggregate of
2,184,115 shares of the Common Stock, all of which shares are currently
outstanding, (2) an aggregate of 6,858,987 shares which will be offered if and
only if the Other Warrants are exercised and (3) an aggregate of 1,030,000
shares which will be offered if and only if the Options are exercised. See "Plan
of Distribution" and "Selling Shareholders."
REVERSE STOCK SPLIT AND DILUTION ADJUSTMENTS
The number of shares of the Common Stock and the conversion and
exercise prices stated in this Prospectus have been restated, where appropriate,
to reflect a one-for-four reverse stock split which became effective on January
26, 1994. See "Description of Securities-Common Stock."
In addition, where appropriate, the number of shares and the exercise
prices of certain of the Warrants and certain of the other Common Stock purchase
warrants which are outstanding (the "Additional Warrants") have been adjusted
herein to reflect adjustments as of December 31, 1996 pursuant to the other
anti-dilution provisions of such Warrants and such Additional Warrants.
5
<PAGE> 9
RISK FACTORS
The shares of the Common Stock offered hereby are speculative and
involve a high degree of risk. Therefore, each prospective investor should
consider very carefully the various risks and speculative factors inherent in,
and affecting, the business of CLP prior to the making of an investment in the
Company. Purchase of the Common Stock is not recommended for an investor who
does not have sufficient financial means to sustain the loss of his, her or its
entire investment. Among the risks involved in an investment in the Company are
the following:
OPERATIONS
1. HISTORY OF LOSSES. CLP incurred net losses of $2,008,478 for its
fiscal year ended May 31, 1996 ("fiscal 1996"), $6,037,744 for its fiscal year
ended May 31, 1995 ("fiscal 1995"), and $4,531,852 (of which $3,240,834 was from
continuing operations) for its fiscal year ended May 31, 1994 ("fiscal 1994").
It incurred a net loss of $540,786 for the three months ended August 31, 1996 as
compared with a net loss of $491,175 for the three months ended August 31, 1995.
Although management will attempt to make its current operations operate on a
profitable basis in the balance of the fiscal year ending May 31, 1997 ("fiscal
1997"), even assuming that this result will be achieved, which is not deemed
likely, the revenues therefrom will not, in management's opinion, be sufficient
to offset the expenses required to continue developing the proposed gaming
operations and to meet the corporate overhead required to operate a public
company. Accordingly, in management's opinion, CLP will continue to operate at a
loss for the balance of fiscal 1997 and, because of the expected delay in
obtaining revenues from its prospective gaming operations as discussed in the
next paragraph, probably some time into the fiscal year ending May 31, 1998
("fiscal 1998"), if not longer. There can be no assurance as to when, if at all,
CLP will become profitable. See "Consolidated Financial Statements" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Management is of the opinion that each of the proposed gaming
facilities, if successfully implemented, could result in significant revenues of
a magnitude CLP's current operations would never produce and, as a result, CLP
would ultimately achieve profitability. However, because of the time and expense
involved in obtaining the necessary governmental approvals, particularly those
to operate a Native American Indian gaming facility, the substantial
construction requirements to open any of the Branson Project facilities, the
time delays inherent in opening any new operation before it becomes profitable
and the other factors discussed in this Prospectus, management is of the further
opinion that it is too speculative and too early to project when and if the
Gaming Vessel Project and/or the Branson Project will contribute on a positive
basis to CLP's results of operations, both as to profitability and cash flow
from operations. See the sections "Gaming Vessel Project," "Branson Project" and
"Governmental Regulation" under the caption "The Company."
2. NEED FOR FINANCING. Management believes that the Company has sold,
and will sell during the remainder of fiscal 1997, debt and equity securities
and will have exercises as described in the succeeding paragraph in an amount
sufficient to fund CLP's operations for at
6
<PAGE> 10
least the balance of fiscal 1997. Because the Company has, in management's
opinion, already raised sufficient funds to cover the anticipated shortfall in
cash flow from CLP's existing operations, it is the implementation of the
contemplated gaming proposals, both in fiscal 1997 and fiscal 1998, that will
require the Company to seek additional financing. See "The Company-Gaming
Vessel Project" for information as to the estimated costs to refurbish a hull in
order to implement this project and see also the sections "Branson Project" and
"Other Gaming Projects" under the caption "The Company" for information as to
their potential gaming projects. There can be no assurance, however, that the
Company will effect the contemplated securities sales, have the outstanding
Warrants, Additional Warrants and Options exercised or that other sources of
funding will be available or, if obtained, that it will be on favorable terms.
See the section "Liquidity and Capital Resources" under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." If financing is required and not available, CLP may lose the gaming
projects which management deems necessary to reverse the operational losses.
Even if the financing is made available on favorable terms, there can be no
assurance that the gaming projects will be successfully implemented and thus CLP
achieve the goal of profitability.
If all of (a) the Warrants and the Options and (b) the Additional
Warrants were exercised, the Company would receive gross proceeds of $8,683,771
and $6,377,583, respectively, thereby alleviating any possible cash resources
problem in fiscal 1997 and probably well into fiscal 1998. The Company would
receive gross proceeds of $6,377,583 if all of the Additional Warrants were
exercised. However, because there can be no assurance that any of the Warrants,
the Additional Warrants or the Options will be exercised or as to when the
exercises will occur, the Company will not be able to rely solely on the
exercises of the Warrants, the Additional Warrants and the Options as a source
for financing. See the sections "Common Stock Purchase Warrants" and "Stock
Options" under the caption "Description of Securities."
3. POTENTIAL LOSS OF BRANSON PROJECT INVESTMENTS. CGI has acquired
sites in Christian County, Missouri for which it paid, or has become obligated
to pay, an aggregate of $2,410,452. Unless CGI is able to develop successfully a
hotel/convention center, a theme park and/or a time sharing facility on such
sites, or in the alternative, is able to resell such sites for more than the
purchase prices, as to neither of which there can be any assurance, CLP's
remaining investment could be lost. See "The Company-Branson Project."
4. GAMING VESSEL GOVERNMENTAL REGULATIONS. Although the Gambling Ship
Act (18 U.S.C. Section 1081 et seq.) and the Johnson Act (15 U.S.C. Section 1171
et seq.) generally make shipboard gambling a crime, and subject shipboard gaming
equipment used in violation thereof to forfeiture, gaming is permitted under the
Violent Crime Control & Law Enforcement Act of 1994 (18 U.S.C. Section 1801) if
the U.S. flag vessel sails out of a state's port on a voyage to nowhere, with
gambling occurring while outside the territorial waters of the United States,
and then returns to the same port. Although states are permitted to
legislatively opt out, so that CGV may be prohibited from this type of gambling
operation in certain jurisdictions, CGV will seek to operate out of a site or
sites in Florida and/or New York, which States have not opted out. However, CGV
may have to obtain approval under state or local regulations relating to the
docking facility or to obtain approvals from the state or local government as
the landlord
7
<PAGE> 11
of the docking facility. There can be no assurance that CGV will obtain any of
these state or local approvals or how long the approval process will take.
5. INDIAN GAMING GOVERNMENTAL REGULATIONS. The Indian Gaming Regulatory
Act of 1988 ("IGRA") provides a frame work for the regulation of Class II and
Class III gaming facilities on Indian Land (as such term is defined in IGRA).
Before Class III gaming may be conducted by a Native American Indian Tribe on
Indian Land, IGRA requires that the tribe and the state where the Indian Land is
located negotiate a tribal/state compact authorizing gaming on the tribe's land.
The two sites initially intended by CGI to be used for that purpose (only one of
which is still under consideration) are both located in the State of Missouri.
Tribal/state compacts specify how Class III gaming is to be conducted. A
tribal/state compact is not required for Class II Gaming. Class II gaming
includes bingo and bingo-type games, while Class III gaming includes roulette,
all types of table games and slot machines.
The Company believes that the management and operation of Class III
casinos present significantly greater revenue opportunities than Class II
facilities and, accordingly, CGI will seek to open the remaining facility on
such basis; however, although the Company believes that approval will be
obtained, there can be no assurance that the Eastern Shawnee Tribe of Oklahoma
(the "Tribe"), with which CGI has a management agreement, will be able to reach
an agreement with the State of Missouri for Class III gaming on the proposed
site. See "The Company-Branson Project."
Native American Indian gaming is extensively regulated by federal,
state and tribal governments and additional regulatory developments are
expected. Failure of CGI to comply with applicable laws and regulations could
result in the failure to receive approval initially for gaming or, if approved,
could result in the termination of any gaming management agreement to which CGI
is a party. CGI's management agreement with the Tribe on the land to be
dedicated to the United States Government in trust for the Tribe near Seneca,
Missouri (the "Seneca Facility") is subject to approval, regulation, and
oversight by the Bureau of Indian Affairs, the United States Department of
Interior and the National Indian Gaming Commission ("NIGC").
Even if the Indian Land to be dedicated to the United States Government
in trust for the Tribe is approved for gaming, the development and management of
the gaming facilities on Indian Land is subject to extensive licensing
requirements and there can be no assurance that CGI will be able to obtain all
necessary licenses and approvals from regulatory authorities having jurisdiction
over the sites. The failure of CGI to meet the conditions of a license, or to
obtain a license for the site, or the suspension or non-renewal of any such
license would have a material adverse effect on CGI and, accordingly, on CLP.
6. SPECIAL RISKS RELATING TO TRANSACTIONS WITH NATIVE AMERICAN INDIAN
TRIBES. An investment in Native American Indian gaming facilities on any site
involves numerous special risks not associated with other gaming facilities.
Advances made by CGI (which it has obtained, and will obtain, from the Company)
to develop, construct and equip a Native American Indian gaming facility will
not result in ownership by, or any security interest in favor of, CGI in any
facilities located on Indian Land, including the land itself. Repayment of any
funds
8
<PAGE> 12
advanced by CGI to the Tribe, or on behalf of the Tribe, in connection with the
development of a gaming facility, and any additional return from participation
in payments made under the gaming management agreement, will depend upon (a) the
ability to obtain regulatory approval of the management agreement and (b) the
successful development and operation of such gaming facility. In addition,
Native American Indian tribes are sovereign nations and are, accordingly,
generally immune from legal proceedings commenced in state or federal courts,
and congressional policy has mandated limited liability of Native American
Indian tribes.
During the development of the Tribe's gaming operations, the Tribe will
be in need of financing and it will become necessary for the Company to provide
through CGI loan financing to the Tribe to permit desired start-up activities
and limited operations during the period of review prior to completing the
regulatory approval process. The Company, in advancing these funds through CGI
to the Tribe, assumes a high risk that the underlying agreement to repay the
loan may not be enforceable or that the Tribe would be unable to repay the loan
in the event the related management agreement is not approved.
If the Tribe were to breach a management agreement or otherwise seek to
terminate a management agreement or tribal gaming license, CGI 's and, as a
result, the Company's sole recourse to collect indebtedness or money damages may
be to attach undistributed and/or future proceeds, if any, from the operation of
the Tribe's gaming facilities. If gaming operations fail to develop or, if
developed, cease to operate for any reason, CGI 's and, therefore, the Company's
prospects of receiving payments for damages or repayments of any advances made
to, or on behalf of, the Tribe or any portion of payments due under the related
management agreement are minimal. Accordingly, there is no guarantee that the
Company will be able to recover the significant funds expected to be advanced by
the Company through CGI to the Tribe for the development, construction and
furnishing of the gaming facility. In addition, there can be no certainty that
the management agreement for the Seneca Facility, if approved and implemented,
would be renewed beyond its initial term of seven years.
7. COMPETITION
Gaming
The gaming industry, including the operation of gaming vessels and the
development, operation and management of land-based casinos, is highly
competitive, especially given the rapid rate at which the industry is expanding.
Creative Gaming's proposed gaming activities will compete with other forms of
gaming and with other entities for gaming opportunities. Any gaming facilities
developed, operated or managed by Creative Gaming will compete with gaming
facilities of varying quality and size that already exist or may be built in the
future, including gaming facilities that are part of national or regional
chains. The Company believes that the majority of the companies in the gaming
industry have available to them substantially greater financial resources and
have more experienced personnel than the Company's officers. See the section
"Lack of Experience" under this caption "Risk Factors." Competition in the
future may be affected by periodic overbuilding, which can adversely affect
patronage levels, changes in
9
<PAGE> 13
local market conditions, changes in regional and local population and disposable
income characteristics and changes in travel patterns and preferences.
In addition to local competition in the States of Florida and/or New
York where CGV may seek to dock a gaming vessel and in the State of Missouri
where CGI has an agreement to manage a gaming facility, assuming appropriate
governmental approvals are obtained (see "The Company-Governmental Regulation")
and other problems are resolved (see "The Company-Branson Project"), Creative
Gaming will also compete with well established gaming operations in various
states, including Colorado, Connecticut, Illinois, Louisiana, Minnesota,
Mississippi, Nevada, New Jersey and South Dakota. It is likely that other states
will also approve various forms of gaming, both Native American Indian and
non-Indian, that will compete with Creative Gaming. The legalization or
expansion of gaming in other states may generate additional competition that
could have a material adverse effect upon Creative Gaming's proposed gaming
operations in the States of Florida and/or New York and Missouri. Creative
Gaming will also compete with other forms of gaming, including pull tab games,
card clubs, parimutuel betting on horse racing and dog racing and
state-sponsored lotteries. Finally, Creative Gaming will compete with other
non-gaming forms of entertainment.
Other Operations
Assuming that CGI will open a theme park, management recognizes that
such operation will compete with the Disney, Six Flags and other well
established theme parks in the United States, many of which have greater
financial resources than CGI will have even if the Company raises the required
financing, as to which there can be no assurance. Management also recognizes
that there will be substantial competition for the other contemplated operations
of the Branson Project. Management believes, however, that the contemplated
hotel/convention center, theme park and the time sharing facility, if opened,
will be added attractions to produce revenues from persons otherwise attracted
by the other entertainment attractions of Branson, Missouri not operated by CGI.
Management particularly believes that opening time sharing facilities on the
property acquired in Christian County, Missouri will be an attractive
investment, even though there are four time share facilities already in the
Branson area, because of its proximity to the Branson entertainment center even
if no other aspect of the Branson Project were opened. There can be no
assurance, however, that the Company will obtain the necessary financing or that
management's expectations as to revenues will be realized and, if realized,
when.
See "The Company-Competition" for information as to the competition for
the existing operations of CLP not related to the Gaming Vessel Project or the
Branson Project.
8. LACK OF EXPERIENCE. Although Creative Gaming plans to retain experts
in gaming (including Native American Indian gaming) and land development,
current management has not developed or managed any gaming facility prior to the
date of initiating the gaming project. CLP has been using the services of a
consultant with gaming experience in the Trump Organization (see "The
Company-Gaming Consultant") and intends to seek a person experienced in gaming
to serve as the President of its Creative Gaming subsidiaries and as a director
of the
10
<PAGE> 14
Company, who will play an active role also in the management of Creative Gaming.
There can be no assurance that any such person will be obtained and, if
obtained, when.
9. NEED FOR ADDITIONAL PERSONNEL. CLP will be required to recruit and
obtain a significant number of management, administrative and other employees
for the ownership, development and management of all phases of the gaming
projects. See "The Company-Employees."
COMMON STOCK
1. POSSIBLE DELETION FROM THE NASDAQ SYSTEM. As of May 31, 1995, the
Company did not meet the Nasdaq maintenance requirement of capital and surplus
of at least $1,000,000 (i.e., it had stockholders' equity of $941,296) for
continuance of the Common Stock in the Nasdaq System and had to seek a temporary
exception from the NASD. However, as of August 31, 1995, the Company met such
criteria. On October 19, 1995, the NASD notified the Company that it was in full
compliance with all of the NASD's maintenance criteria for continued listing of
the Common Stock in the Nasdaq System. See "Market Information-Nasdaq
Requirements." As of August 31, 1996, the Company met all of the maintenance
requirements.
If the Common Stock is delisted from the Nasdaq System at a later date
because of a failure then to comply with the NASD's maintenance criteria, the
Common Stock would continue to be traded in the over-the-counter market and
reported in the NASD's OTC Bulletin Board or in the "pink sheets" as reported by
the National Quotation Bureau, Inc. If the Common Stock is so deleted from the
Nasdaq System and if, at such time, its bid price is below $5.00 per share (the
bid price has been consistently below $5.00 per share since the quarter ended
November 30, 1994 - see "Market Information-Market Data"), the security would
become subject to Rule 15g-9 promulgated under the Exchange Act, which Rule
imposes additional sales practices requirements on a broker-dealer which sells
Rule 15g-9 securities to persons other than the broker-dealer's established
customers and institutional accredited investors (as such term is defined in
Rule 501(a) under the Securities Act). For transactions covered under Rule
15g-9, the broker-dealer must make a suitability determination of the purchaser
and receive the purchaser's written agreement to the transaction prior to the
sale. In addition, broker-dealers, particularly if they are market makers in the
Common Stock, have to comply with the disclosure requirements of Rules 15g-2,
15g-3, 15g-4, 15g-5 and 15g-6 under the Exchange Act unless the transaction is
exempt under Rule 15g-1. Consequently, if the foregoing events occur, Rule 15g-9
and these other Rules may adversely affect the ability of broker-dealers to sell
or to make markets in the Common Stock and also may adversely affect the ability
of purchasers in this offering and the Selling Shareholders to sell their shares
in the secondary market. See "Market Information-Nasdaq Requirements."
2. ADVERSE IMPACT OF ADDITIONAL SHARES. The offer pursuant to this
Prospectus in the over-the-counter market by the Selling Shareholders of
2,184,115 outstanding shares of the Common Stock, the possible resale by the
holders of 1,491,070 shares being offered by the Company pursuant to this
Prospectus and the possible offer, both pursuant to this Prospectus and
otherwise, of up to 15,795,592 shares of the Common Stock by the holders who or
which
11
<PAGE> 15
exercise the Other Warrants, the Additional Warrants or the Options would, in
the opinion of management, if a significant number of such shares were offered
at the same time, likely have an adverse effect on the market price for the
Common Stock. In addition, if the market price were to decline because of such
offerings, management is of the opinion that such development may also adversely
affect the ability of the Company to raise additional capital in the equity
markets at prices and at times favorable to the Company. See "Plan of
Distribution" and "The Selling Shareholders."
3. CURRENT REGISTRATION AND QUALIFICATION. The Company has agreed to
keep a registration statement current under Section 10(a)(3) of the Securities
Act and to take action under applicable state "blue sky" or securities laws and
regulations so that, upon the exercise of the Other Warrants and the Options,
the holders may resell the shares of the Common Stock received upon exercise by
delivery of a prospectus. If a registration statement is current under Section
10(a)(3) of the Securities Act with respect to the shares of the Common Stock
underlying the September 18 Warrant, then the holder thereof will receive freely
tradeable shares of the Common Stock without the prospectus delivery requirement
on resale. If the Company fails to keep a registration statement current under
the Securities Act as to shares of the Common Stock underlying the Warrants and
the Options, then any holder thereof must give an investment representation if
he, she or it wishes to exercise and then must hold the shares of the Common
Stock issuable upon the exercise for a period of at least two years after
exercise in order to sell under Rule 144 under the Securities Act or seek
another exemption from registration thereunder. If the Company fails to register
or qualify the shares of the Common Stock issuable upon exercise under, or
otherwise establish an exemption from, the state "blue sky" or securities laws
and regulations, where applicable, the holder will lose his, her or its exercise
rights and would have to sell, if legally possible, to a person in another
jurisdiction the Warrant or the Option for such other person to exercise the
exercise right. See the sections "Common Stock Purchase Warrants" and "Stock
Options" under the caption "Description of Securities."
4. INSUFFICIENT AUTHORIZED SHARES. As of December 31, 1996, there were
25,000,000 shares of the Common Stock authorized, of which 18,398,727 shares
were outstanding and 17,286,662 shares were reserved for issuance. Accordingly,
there were 10,685,389 excess shares to be issued based on the reserve and
assuming that the 150,000 shares held in escrow (see "The Company-Former
Operations") are not cancelled. Although the Company intends to call a meeting
of shareholders to authorize additional shares of the Common Stock, there can be
no assurance that such authorization will have been approved by shareholders at
the time holders of the Warrants, the Additional Warrants and the Options seek
to exercise. If the 25,000,000 authorized shares have become outstanding, any
such holder will have to wait on consummation of the holder's exercise until the
additional share authorization is effected, as to which there can be no
assurance, particularly as to the timing thereof. See "Description of
Securities-Common Stock."
5. DIVIDENDS. In view of the cash requirements of CLP with respect to
its current and contemplated operations and the current and anticipated
operational losses, the Company does not intend to pay dividends on the Common
Stock in the foreseeable future. See "Description of Securities-Dividends."
12
<PAGE> 16
6. ONLY TWO DIRECTORS. Although the Company intends to add additional
directors prior to, or in connection with, the holding of the Annual Meeting of
Shareholders in February or March 1997, only Peter J. Jegou and Carol A.
Kulina-Jegou, who are husband and wife and who have served as directors since
the Company's incorporation in 1988, currently serve as directors. There can be
no assurance that additional directors will be added.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the Consolidated Financial Statements which are included elsewhere in this
Prospectus.
RESULTS OF OPERATIONS
FISCAL 1996 VS. FISCAL 1995
SALES
Sales for fiscal 1996 decreased by $26,531 or 2% as compared with sales
for fiscal 1995. The sales decrease was principally due to an increase in the
sales of video products offset by a larger decrease in children's products and
writing instruments.
GROSS PROFIT
The gross profit for fiscal 1996 decreased by $143,719 or 18% as
compared with the gross profit for fiscal 1995. The gross profit decrease was
the result of sales with reduced gross margins and the adjustment of inventory
to the lower of cost or market and net realizable values.
SELLING EXPENSE
Selling expense decreased for fiscal 1996 by $79,417 or 14% as compared
with this expense in fiscal 1995. The decrease was principally due to a shift in
expenses from marketing current products to emphasis on gaming projects.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses decreased for fiscal 1996 by
$165,884 or 8% as compared with these expenses in fiscal 1995, principally due
to a reduction in professional fees.
RESERVE FOR GAMING PROJECTS
Reserve for gaming projects decreased for fiscal 1996 by $2,614,737 or
89% as compared with reserve for gaming projects in fiscal 1995, primarily due
to the termination of the proposed
13
<PAGE> 17
joint venture and the related theater and play production projects (see "The
Company-Branson Project").
OFFICERS' STOCK OPTION EXPENSE
Officers' stock option expense of $904,688 for fiscal 1995 was due to
the accounting for options granted to officers during the year to reflect the
excess of the then current market values of the Common Stock over the
transaction prices when issued. No officers' stock option expense was recorded
for fiscal 1996.
DEBT CONVERSION EXPENSE
Debt conversion expense of $398,749 for fiscal 1995 was due to the
accounting for debt converted to the Common Stock during the year to reflect the
excess of the then current market values of the Common Stock over the
transaction prices when issued. No debt conversion expense was recorded for
fiscal 1996.
INTEREST EXPENSE
Interest expense for fiscal 1996 decreased by $9,510 or 13% as compared
with interest expense for fiscal 1995. The interest expense decrease was
principally due to less interest on short-term debt in fiscal 1996 offset by
interest on the mortgage on property purchased in fiscal 1996.
NAFTA
The North American Free Trade Act does not have a significant effect on
the consolidated operations.
INFLATION
Inflation does not have an impact on the consolidated operations.
QUARTER ENDED AUGUST 31, 1996 VS. QUARTER ENDED AUGUST 31, 1995
SALES
Sales for the quarter ended August 31, 1996 decreased by $236,019 or
65% as compared with sales for the corresponding prior year period. The decrease
was principally due to lower sales volume resulting from increased competition
and a shift in emphasis from marketing current products to gaming projects.
14
<PAGE> 18
GROSS PROFIT
The gross profit for the quarter ended August 31, 1996 decreased by
$143,609 or 67% as compared with the gross profit for the corresponding prior
year period. The decrease was primarily due to the decrease in sales for the
current period.
SELLING EXPENSES
Selling expenses decreased for the quarter ended August 31, 1996 by
$65,624 or 66% as compared with these expenses for the corresponding prior year
period. The decrease was principally due to a shift in expenses from marketing
current products to emphasis on potential gaming projects which have not as yet
produced revenues.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased for the quarter ended
August 31, 1996 by $25,994 or 6% as compared with these expenses for the
corresponding prior year period. The increase was principally due to financial
consulting costs incurred during the current period.
RESERVE FOR GAMING PROJECTS
Reserve for gaming projects for the quarter ended August 31, 1996
decreased by $18,568 or 25% as compared with this expense for the corresponding
prior year period. The decrease was principally due to the reduction of Seneca
Facility costs during the current period.
DEBT CONVERSION EXPENSE
Debt conversion expense of $42,561 for the quarter ended August 31,
1995 was due to the accounting for debt converted to the Common Stock during the
quarter to reflect the excess of the then current market values of the Common
Stock over the transaction prices when issued.
INTEREST EXPENSE
Interest expense for the quarter ended August 31, 1996 increased by
$6,761 or 32% as compared with interest expense for the corresponding prior year
period. The increase was principally due to the interest on the mortgage on
property purchased in February 1996.
NAFTA
The North American Free Trade Act does not have a significant effect on
the consolidated operations.
INFLATION
Inflation does not have an impact on the consolidated operations.
15
<PAGE> 19
LIQUIDITY AND CAPITAL RESOURCES
The consolidated cash balance increased in the quarter ended August 31,
1996 by $128,753 resulting in an ending cash balance of $670,363. The increase
in cash was due primarily to the proceeds from private placements and the
exercise of warrants. During the quarter ended August 31, 1996, CLP funded its
operations principally from the proceeds received from the sale of equity and
debt securities.
The Company received, as of December 31Octo, 1996, $1,525,000 in gross
proceeds from private placements and the exercises of warrants. The Company also
expects to receive additional funds from private placements and the exercises of
other warrants and options during the balance of fiscal 1997, as to which
exercises there can be no assurance. As a result of these sources of funds the
Company believes that it has sufficient resources to fund its operations,
including those related to the gaming projects, for at least the balance of
fiscal 1997. However, there can be no assurance as to when, if at all, the
gaming projects and other activities will generate sufficient cash flow from
operations so as not to be dependent on additional financing. In addition, to
open and operate all aspects of the gaming projects and other activities may
require additional financing after fiscal 1997, even if the gaming projects and
other activities are then generating sufficient cash flow from operations to
fund CLP's operating requirements, which is not the current projection. Should
additional financing be required, there can be no assurance that it will be
available or, if available, available on acceptable terms. See the sections,
"Gaming Vessel Project," "Branson Project," "Other Gaming Projects" and
"Financing" under the caption "The Company."
As of August 31, 1996 and the date of this filing, there were no
commitments for material capital expenditures other than those related to the
Branson Project (see "The Company-Branson Project"). However, to refurbish the
vessel, CGV estimates expenditures of approximately $15,000,000, assuming that
the gaming equipment is leased.
CLP expects that the proceeds from the planned sales of equity
securities during the next 12 months will provide adequate funds to meet
operating requirements. There can be no assurance, however, that CLP will
consummate such security sales to meet the above.
It is management's position that the effectiveness of this Registration
Statement will encourage the exercise of the Warrants and the Options. There can
be no assurance that the Company will be able to raise this additional
financing.
16
<PAGE> 20
USE OF PROCEEDS
The Company will not receive any proceeds upon any sales of shares of
the Common Stock by the Selling Shareholders. See "Plan of Distribution" and
"The Selling Shareholders."
MARKET INFORMATION
MARKET DATA
The Company's Common Stock is traded on the Nasdaq System under the
symbol "CLPI". See the section "Nasdaq Requirements" under this caption "Market
Information."
Set forth below is the quarterly range of the closing high and low bid
prices for the Common Stock during fiscal 1996 and fiscal 1995 and the first and
second quarters of fiscal 1997:
<TABLE>
<CAPTION>
Fiscal 1997:
High Low
---- ---
<S> <C> <C>
Quarter Ended:
--------------
August 31, 1996 $ 1.969 $ .844
November 30, 1996 $ 1.219 $ .531
Fiscal 1996:
High Low
---- ---
Quarter Ended:
--------------
August 31, 1995 $ 3.25 $ 2.125
November 30, 1995 3.125 2.00
February 29, 1996 2.625 1.563
May 31, 1996 2.00 .656
</TABLE>
17
<PAGE> 21
Fiscal 1995:
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
Quarter Ended:
--------------
August 31, 1994 $3.875 $1.125
November 30, 1994 5.25 3.50
February 28, 1995 3.875 2.25
May 31, 1995 3.125 1.50
</TABLE>
The foregoing quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission, and may not represent actual transactions.
The closing sales price of the Common Stock as reported on the Nasdaq
System on January 7, 1997 was $.50 per share.
NASDAQ REQUIREMENTS
As of May 31, 1995, the Company did not meet the capital and surplus
maintenance requirement of $1,000,000 (i.e., it had a stockholders' equity of
$941,296) of the NASD for continued listing of the Common Stock in the Nasdaq
System and it had to seek a temporary exception, with the result that, on
October 9, 1995, an "E" was placed on the Company's Nasdaq symbol. However, as
of August 31, 1995, the Company met such criteria. Management believed that the
Company was otherwise in compliance with the NASD's maintenance criteria for
continued listing of the Common Stock in the Nasdaq System. On October 19, 1995,
the NASD notified the Company that it concurred with management's opinion and
the "E" was removed for the Company's Nasdaq symbol effective October 23, 1995.
In addition, Nasdaq has recently proposed changes to the maintenance
requirements which, if adopted, would replace the total assets and total equity
requirements with a requirement of net tangible assets (total assets less
liabilities and intangibles) of $2,000,000 or net income of at least $500,000
in two of the last three years or a market capitalization of at least
$35,000,000.
If deletion from the Nasdaq System were to occur in the future because
of the Company's then failure to demonstrate compliance with the NASD's
maintenance criteria, the Common Stock would continue to be traded in the
over-the-counter market and reported in the NASD's OTC Bulletin Board or in the
"pink sheets" reported by the National Quotation Bureau, Inc. However, if, at
the time of deletion, the bid price of the Common Stock is below $5.00 per share
(the bid price has been consistently below $5.00 per share since the quarter
ended November 30, 1994), the Common Stock, when thereafter recommended by a
broker-dealer, will become subject to the limitations of Rule 15g-9 under the
Exchange Act, i.e., the so called "penny stock suitability rule", which Rule
imposes additional sales practice requirements on broker-dealers which sell the
Common Stock (1) to persons other than (a) existing customers with a previous
history of trading through such broker dealer, (b) institutional accredited
investors (for example, a bank or savings and loan association) and (c) a
director and/or officer of the Company and/or the beneficial owner of 5% or more
of the Common Stock or (2) in transactions not exempt by the Rule. For
transactions under Rule 15g-9, the broker-dealer must obtain information from
the prospective purchaser as to his or her financial situation, investment
experience and investment objectives and, based on such information, reasonably
determine that transactions in the security are suitable for that person and
that the prospective investor (or his or her independent adviser) has sufficient
knowledge and experience in financial matters so as to be reasonably expected to
18
<PAGE> 22
be capable of evaluating the risks of transactions in such security. In
addition, broker-dealers, particularly if they are market makers in the Common
Stock, will have to comply with the disclosure requirements of Rules 15g-2,
15g-3, 15g-4, 15g-5 and 15g-6 under the Exchange Act. Consequently, Rule 15g-9
and the other Rules may adversely affect the ability of broker-dealers to sell
the Common Stock in the over-the-counter market and the ability of purchasers in
this offering and the Selling Shareholders pursuant to this Prospectus to sell
their shares in the secondary market if the Common Stock were delisted from the
Nasdaq System.
HOLDERS
The number of holders of record of the Common Stock as of December 31,
1996 was 214. In addition, the Company, based on copies of annual reports and
proxy statements requested in connection with the last Annual Meeting of
Shareholders, believes that there are approximately 600 beneficial owners of the
Common Stock.
DIVIDENDS
The Company has never paid cash or stock dividends and, in view of
CLP's history of losses and the cash requirements to launch its gaming projects,
the Board of Directors does not anticipate the payment of dividends in the
foreseeable future.
THE COMPANY
GENERAL
The Company was incorporated on August 31, 1988 under the laws of the
State of New Jersey to provide management and administrative services to its
wholly-owned subsidiaries.
Since February 1994, the Company has been engaged in the process of
attempting to convert CLP from an entity only offering a line of children's
products and writing instruments into an entity which primarily would be
offering gaming facilities and equipment, a hotel/convention center, a theme
park, a time sharing facility and entertainment to its customers. Management
intends that the primary future focus of CLP will be on various gaming projects
(see the sections "Gaming Vessel Project," "Branson Project" and "Other Gaming
Projects" under this caption "The Company") conducted on behalf of the Company
through CGI, a wholly-owned subsidiary of the Company incorporated in March
1994, or CGV, a wholly-owned subsidiary of the Company incorporated in December
1996. The Company has allocated the Branson Project to CGI and the Gaming Vessel
Project to CGV. Should additional gaming opportunities arise in the future, even
of a similar type, as to which there can be no assurance, the Company may
incorporate other subsidiaries to conduct these new gaming ventures. Assuming
that definitive agreements are executed and that Creative Gaming obtains
necessary governmental approvals and adequate financing, as to none of which
there can be any assurance, management believes that the earliest project (i.e.,
the Gaming Vessel Project) will not begin to produce revenues for CLP until
during September 1997 at the earliest and that most projects (as,
19
<PAGE> 23
for example, the Branson Project) will take approximately one to two years to
produce revenues, if not longer. There can be no assurance that any of these
contemplated timetables will be realized. In addition, the Company has been
restructuring its capitalization through the issuance of its equity securities,
in private placements and upon the exercise of warrants, and the satisfaction of
other indebtedness. See the section "Certain Securities Transactions" under this
caption "The Company".
EXISTING OPERATIONS
As of May 31, 1996, the Company's principal wholly-owned operating
subsidiaries were (1) Kards for Kids, Inc. ("KFK"), an original subsidiary of
the Company, which included its then Congress Entertainment division
("Congress"), (2) John Patrick Productions, Inc. ("JPP"), the net assets of
which were acquired effective July 1, 1994, and (3) CGI. CLP's results of
operations for fiscal 1996 and fiscal 1995 , which are included in the
Consolidated Financial Statements, reflect, in addition to the Company, the
consolidated operations of KFK (including Congress), JPP since its acquisition,
and CGI.
KFK, through its Kards for Kids division ("Kards For Kids"), markets
and distributes products for children between the ages of 18 months and 12
years, including stationery, cards, workbooks, paper activity placemats and
educational video and audio cassettes. See "Management-Certain Transactions" for
information as to the ownership of copyrights and trademarks relating to the
Kards for Kids products. Congress was a distributor of quality sell- through
pre-recorded video cassettes to schools, libraries, specialty retail chains and
the mass merchandising market.
Kards for Kids sells its products directly to the consumer through mail
order and through retailers and distributors. Kards for Kids products are sold
at retail through major national and regional toy chains, supermarkets, mass
market chains, so-called "price clubs", drug chains and individually owned and
operated card and book stores. Management has had preliminary discussions and
negotiations which dealt with a possible sale or license of certain assets
relating to the Kards for Kids business and, in addition, effective during
fiscal 1995, reduced the marketing of such operations to a minimum. However, as
of the date of this Prospectus, no commitment to sell had been made nor were
there any pending negotiations and Kards for Kids' operations were producing
revenues.
The Company and KFK entered into an agreement on October 18, 1996,
effective November 30, 1996, with Nightwing Entertainment Group, Inc.
("Nightwing"), a public corporation, for the purchase by Nightwing of all of the
assets, properties, business and goodwill of Congress in consideration of
Nightwing's issuance to the Company of 2,000,000 shares of Nightwing's common
stock, par value $.001 per share, which shares are to be registered under the
Securities Act, and the assumption by Nightwing of certain liabilities of
Congress as of November 30, 1996.
Effective July 1, 1994, an inactive subsidiary of the Company acquired
the net assets of John Patrick Productions, Inc. (the "Old John Patrick"), which
was engaged in the mail order
20
<PAGE> 24
business, and began to operate the business of the Old John Patrick under JPP.
As consideration for such acquisition, the Company issued 200,000 shares of its
then newly created Series B Preferred Stock, $1.00 par value (the "Series B
Preferred Stock"), to Old John Patrick and 265,000 shares of the Common Stock,
no par value (the "Common Stock"), to the Old John Patrick shareholders. The
Company also issued 18,000 shares of the Common Stock to unaffiliated persons as
finder's fees for the acquisition. In April 1996, Old John Patrick surrendered
the shares of the Series B Preferred Stock to the Company, which the Company
retired in May 1996. JPP is engaged in the mail order business with products
consisting of instructional video tapes and other products related to gaming.
The Company is seeking a potential buyer for the JPP operations. There
can be no assurance that the Company will effectuate a sale of JPP and, if
effected, when and for what sales prices.
GAMING VESSEL PROJECT
Creative Gaming, through CGI, has purchased, for $523,000, a hull for
the purpose of converting the hull into an offshore gaming vessel. Creative
Gaming plans to utilize the vessel for gaming cruises originating in Florida
and/or New York. Creative Gaming is currently evaluating several sites in
Florida and New York to determine where the vessel, when refurbished, will be
docked. Ownership of the vessel has been transferred from CGI to CGV in order to
facilitate financing and to account for its operations as a separate entity. The
Company currently estimates that it will cost approximately $15,000,000 to
implement the Gaming Vessel Project, assuming that the gaming equipment is
leased. Creative Gaming anticipates the vessel to be in service not earlier
than December 31, 1997. Certain governmental approvals will be necessary before
the vessel can be put into service as a gaming vessel and there can be no
assurance that such approvals will be obtained. See the section "Governmental
Regulation" under this caption "The Company." Management contemplates that, if
the governmental approvals are obtained, the vessel will offer dining facilities
and possibly entertainment.
Because the Gaming Vessel Project, if consummated, can create a revenue
stream for CLP at an earlier date than the other contemplated gaming projects
(see the section "Branson Project" under this caption "The Company"), the
Company intends to give priority to this project and, if successful, to consider
other gaming vessel projects. There can be no assurance that management's
expectations will be realized, whether on a timely basis or otherwise.
BRANSON PROJECT
Commencing in February 1994, CLP sought to initiate various projects in
or near Branson, Missouri (in the southwest portion of that State) (i.e., the
Branson Project), none of which has come to fruition as of this date and most of
which, if not all, may never produce revenues for CLP. The Branson Project
contemplated construction, financing and managing of one or two Native American
gaming facilities, production of a musical play, purchase of a theater in
Branson and the opening of a theme park, a hotel/convention center and time
sharing facilities.
21
<PAGE> 25
On March 31, 1995, CGI purchased a 37-acre site in Christian County,
Missouri which abuts the site referred to in the following paragraph. The
purchase price for the land was recorded at $288,664.
On February 28, 1996, CGI purchased a 728-acre site in Christian
County, Missouri, abutting approximately two and a half miles along State
Highway 65, the main road between Springfield, Missouri and Branson, Missouri.
The aggregate purchase price for the land was recorded at $2,121,788. The
sellers of the property have agreed to hold a mortgage in the amount of
$1,072,475 (see Note 7 to Consolidated Financial Statements). This property and
the property in the preceding paragraph are jointly referred to as the
"Christian County Site".
Management's initial intention was to use a portion of the Christian
County Site to construct, finance and manage, under the IGRA, a gaming facility
for the Tribe . For various reasons, such project is no longer under
consideration. However, management is of the opinion that the Christian County
Site can be used for a time sharing facility, a theme park, a hotel/convention
center and/or other activities. Based on management's review of the current real
estate market in Christian County, Missouri, management is of the opinion that
the Christian County Site can be resold for an amount in excess of the aggregate
purchase prices, and has retained a real estate broker in an attempt to sell a
major portion of such Site. There can be no assurance that CGI will be able to
use the Site for the purposes described in this paragraph or, in the
alternative, can resell parts or all of the Site at a later date at a price or
prices in excess of the cost thereof.
CGI had also entered into a management agreement with the Tribe to
construct, finance and manage, pursuant to IGRA, a Class II/Class III gaming
facility near Seneca, Missouri (i.e., the Seneca Facility). The IGRA creates a
three-tiered classification of gaming operations and provides for varying
degrees of federal, state and tribal regulation over each class. Class I gaming,
over which Indian tribes exercise exclusive regulatory control, consists of
social games for minimal prizes or as part of tribal ceremonies or celebrations.
Class II gaming includes bingo, pull tabs and other bingo-type games, while
Class III gaming includes all other forms of gaming, such as video games, slot
machines, table games (i.e., blackjack, craps and roulette) and parimutuel
wagering.
Because of a federal circuit court decision invalidating the statutory
right of the Secretary of the Interior to dedicate land in trust for Native
American Indian tribes under the Indian Reorganization Act, which opinion was
reversed on October 15, 1996, and pending the outcome of a then contest for
internal control of the Tribe, with one of the issues being the management
agreement with CGI, CGI suspended any further action by it with respect to the
Seneca Facility. The Company is currently waiting for a response from the Tribe
to certain inquiries, a favorable answer to which will permit CGI to proceed
with this project. Depending on developments, the Company will review whether it
will attempt to proceed with the project or whether it will seek to recover sums
previously advanced to the Tribe (including $120,000 to an affiliate of the
Tribe to acquire the site), recognizing that, because the Tribe is a sovereign
nation, legal actions against it may be difficult. Even if the Tribe and CGI
proceed with the Seneca Facility, because of the governmental approvals, it
might be two years or more before revenues could be realized from
22
<PAGE> 26
the Seneca Facility. For this reason, management believes it more prudent to
proceed first with other gaming projects. As of May 31, 1996, CLP had fully
charged to operations $261,703 of the costs incurred on the Seneca Facility.
In 1994 CLP intended to implement the Branson Project as a joint
venture with the Bauer Cohen Company, Inc. ("Bauer Cohen"). The proposed joint
venture was evidenced by four agreements. However, negotiations with Bauer Cohen
for a definitive joint venture agreement have terminated, primarily because of
disputes as to the availability of funding. As of the current time, it is highly
unlikely that the proposed joint venture will be revived, especially because
neither of the prospective "partners" are making any effort in that direction.
Peter J. Jegou, the Chief Executive Officer of the Company, and Edward
H. Cohen, a principal of Bauer Cohen, acting as agents for the proposed joint
venture (the "Agents"), entered into an option and purchase agreement dated
March 28, 1994 with Five Star Productions, Inc. ("Five Star Productions") under
the terms of which the Agents agreed to purchase the Five Star Theatre, which is
a 2,700 seat theater, an adjacent 13,000 square foot building and 18 acres of
land owned by the Five Star Productions (the "Theatre"). Under the terms of the
agreement, the Agents paid $150,000 upon execution and subsequently an aggregate
of $625,000. All such funds were advanced by the Company. The closing under the
option/purchase agreement was scheduled for December 31, 1994. The purchase
price was $13,000,000, of which the $775,000 in option payments was to be
credited against the purchase price. On or about October 20, 1994, the Company
became aware of certain allegations relating to the Theatre which placed in
question the safety of the Theatre. The Company, accordingly, asserted that the
proposed joint venture had the right, which Five Star Productions contested, to
extend the closing date under the agreement until a final determination as to
the safety and structural soundness was made based upon an inspection by
qualified engineers. There can be no assurance that, if CGI (to which all rights
to the Theatre were assigned) seeks to pursue purchase, Five Star Productions
will agree or that, if the Company seeks the recovery of the $775,000 in option
payments, it will recover the same from Five Star Productions.
As of May 31, 1996, CLP had fully charged to operations and retired
$2,797,228 of costs incurred on the proposed joint venture and Five Star
Productions portions of the Branson Project.
OTHER GAMING PROJECTS
In March 1995, CGI began negotiations with a privately-held company
headquartered in Ocean Springs, Mississippi which was the lessee of an
approximate 60-acre site located along the Mississippi River in St. Louis,
Missouri and the adjoining county, seeking the right to open a gaming facility
on approximately 15 acres of the site. The negotiations for this project were
terminated during fiscal 1996, including separate negotiations with an unrelated
third party to acquire a vessel for possible use in this project. As of May 31,
1996, CLP had fully charged to operations and retired $31,820 of costs incurred
on this project.
As alternatives or additions to the Branson Project and the Gaming
Vessel Project, Creative Gaming has been exploring the possibility of opening
and operating other gaming
23
<PAGE> 27
facilities, such as an Indian gaming facility in a state other than Missouri and
non-Indian gaming facilities in other states. There can be no assurance that any
of these other gaming prospects will result in a definitive agreement or that
thereafter Creative Gaming will obtain the necessary financing or governmental
approvals to open and operate the same. As of May 31, 1996, CLP had fully
reserved and charged to operations $188,834 of other gaming costs incurred and
retired $172,711 of these costs.
GAMING CONSULTANT
To assist the Company in seeking and negotiating gaming opportunities,
Creative Gaming has been using, since April 1995, the services of Harvey Freeman
as a consultant. Mr. Freeman was formerly Executive Vice President of the Trump
Organization and is familiar with its and other gaming operations. In addition
to monetary compensation, the Company has agreed that, if, as a result of the
efforts of Mr. Freeman, the Company or subsidiary thereof is able to participate
in the ownership of a gaming facility which is open to the public, or is able to
obtain a gaming license with respect to designated gaming projects, the Company
is obligated to pay Mr. Freeman with respect to each such project a bonus of
$1,000,000. Pursuant to an agreement dated December 20, 1996, the Company and
Mr. Freeman agreed that the first bonus, when earned, would be paid by the
issuance of 1,333,333 shares of the Common Stock, which shares are being offered
by the Company pursuant to this Prospectus. The Company has agreed to issue to
Mr. Freeman additional shares of the Common Stock if the Current Market Value
(as defined) of the 1,333,333 shares is not $1,000,000 or if Mr. Freeman
realizes less than $1,000,000.
FORMER OPERATIONS
Until August 1994, Roburn International Corporation, a wholly-owned
subsidiary of the Company ("Roburn"), which acquired its assets and business in
January 1993, engaged in the business of manufacturing, imprinting and selling
writing instruments and other products to the advertising specialty industry.
Roburn was reported in the Company's consolidated financial statements as a
discontinued operation as of May 31, 1994.
Pursuant to an Agreement dated as of June 13, 1994, as amended,
substantially all of Roburn's inventory, equipment and machinery was sold in
August 1994 to Modern Mold International, Inc. ("MMII") for the purchase price
of $465,430. Part of the proceeds were used to facilitate prepayment of the
Company's 10% Convertible Notes due April 30, 1995 (the "April 30 Convertible
Notes") in the principal amount of $500,000 (all of which April 30 Convertible
Notes were either prepaid or converted), thereby releasing the holders' security
interests in the equipment and machinery sold to MMII.
MMII waived compliance with Article 6 of the Uniform Commercial Code as
adopted in the State of New Jersey (the "Bulk Sales Law") in connection with its
purchase of the inventory, machinery and equipment from Roburn. As inducement
for such waiver, the Company issued 150,000 shares of the Common Stock (the
"MMII Indemnity Shares") to MMII's escrow agent. Pursuant to the terms of the
escrow, the MMII Indemnity Shares will be released to MMII to the
24
<PAGE> 28
extent necessary to indemnify MMII for any claims brought against it by Roburn's
creditors as a result of Roburn's and MMII's failure to comply with the Bulk
Sales Law. As of the date of this Prospectus, no shares have been used for such
purpose and the Company is seeking to terminate the escrow.
Pursuant to a letter agreement dated as of August 15, 1994 among
Banker's Pen, Inc., a Delaware corporation ("Banker's"), Roburn and the Company,
and two other contemporaneous letter agreements among Richard Danziger, the then
President of Roburn, the Company and Roburn, the remaining assets of Roburn were
sold to Banker's and arrangements were made to cease the business of Roburn,
including making provisions for its creditors. Banker's waived compliance with
the Bulk Sales Laws in connection with Roburn's sale of assets to Banker's. As
inducement for such waiver, the Company agreed to indemnify and hold harmless
Banker's for all claims of Roburn's creditors, except for the trade creditors
claims, and made available to an escrow agent 150,000 shares (the "Trade
Creditors Shares") of the Common Stock for the benefit of the Roburn trade
creditors whose claims Banker's had assumed. The Company also deposited with the
escrow agent an aggregate of approximately $162,430, the balance of Roburn
accounts receivable after payment to a factor and a note from Banker's for
$15,000. As of December 31, 1996, 95,260 of the Trade Creditors Shares had been
issued to Roburn trade creditors and 54,740 remained for future issuance and
distribution. The Roburn escrow agent had also advised the Company that, as of
December 31, 1996, there remained outstanding approximately $42,000 in claims
from trade creditors and no funds in the Roburn escrow fund, although the escrow
agent still held the note from Banker's. Mr. Danziger, who agreed to be
responsible for implementing the plan to pay the Roburn trade creditors, will
receive the balance of the Trade Creditors Shares to the extent not used to
satisfy Roburn trade creditors' claims.
CERTAIN SECURITIES TRANSACTIONS
On September 8, 1994, in a private placement pursuant to regulation D
under the Securities Act, the Company sold to Bennett Management & Development
Corp. ("Bennett"), for gross proceeds of $2,250,000, 2,250,000 shares of the
Common Stock. The Company also issued to Bennett the March 7 Warrant to purchase
2,250,000 shares of the Common Stock at $1.50 per share. Due to the antidilution
provisions in the March 7 Warrant, as of December 31, 1996, this warrant
represented the right to purchase 3,238,520 shares at $1.042 per share. Bennett
subsequently transferred the shares and the March 7 Warrant to David Slyman. See
"Principal Shareholders."
During October 1994, commencing October 13, 1994, warrant holders
exercised: (1) all of the Common Stock purchase warrants expiring July 20, 1995
(the "Regulation S Unit Warrants") to purchase an aggregate of 1,000,000 shares
at $.75 per share; (2) Additional Warrants expiring July 20, 1997 (the
"Regulation S Additional Warrants") to purchase an aggregate of 485,000 shares
at $1.00 per share; and (3) Additional Warrants expiring March 5, 1998 (i.e.,
Noteholders Warrants) to purchase an aggregate of 437,500 shares at $1.50 per
share. The Company received an aggregate of $1,891,250 in gross proceeds from
these exercises. Per an agreement with its then investment banker to pay 5% of
the gross proceeds for any warrant as to which it solicited an exercise, the
Company paid the investment banker an aggregate of
25
<PAGE> 29
$94,563. After these exercises, there remained outstanding no Regulation S Unit
Warrants and Regulation S Additional Warrants and Noteholders Warrants to
purchase 515,000 and 465,541 shares, respectively. Due to the antidilution
provisions in the Regulation S Additional Warrants, as of December 31, 1996,
these warrants represented the rights to purchase 1,398,050 shares at $.368 per
share. The Noteholders Warrants are further discussed in the following three
paragraphs.
Also during October 1994, the holder of a 10% Promissory Note in the
principal amount of $250,000 (the "October 8 Note") accepted 275,486 shares of
the Common Stock and a Noteholders Warrant to purchase 275,486 shares of the
Common Stock at $1.50 per share in full satisfaction of the principal and
interest due on such Note. Due to the antidilution provisions in the Noteholders
Warrant, as of December 31, 1996, this Noteholders Warrant represented the right
to purchase 396,519 shares of the Common Stock at $1.042 per share.
Also during October 1994, the holders of the Company's 8% Convertible
Notes due August 31, 1994 in the aggregate principal amount of $500,000 accepted
an aggregate of 525,000 shares of the Common Stock and Noteholders Warrants to
purchase an aggregate of 525,000 shares of the Common Stock at $1.50 per share
in full satisfaction of the principal and interest due on such Notes.
Also during October 1994, the holder of the Company's 8% Promissory
Note due June 20, 1995 in the principal amount of $100,000 accepted 102,555
shares of the Common Stock and a Noteholders Warrant to purchase 102,555 shares
of the Common Stock at $1.50 per share in full satisfaction of the principal and
interest due on such Notes. Certain of the Noteholders Warrants described in
this and the preceding paragraph were exercised as described in the third
preceding paragraph so that these former noteholders or their transferees held
Noteholders Warrants to purchase an aggregate of 190,055 shares. Due to the
antidilution provisions in the Noteholders Warrant, as of December 31, 1996,
these Noteholders Warrants represented the right to purchase 273,555 shares of
the Common Stock at $1.042 per share.
On November 7, 1994, the Company issued and Gold & Wachtel, LLP,
general counsel to the Company, accepted 100,000 shares of the Common Stock and
the November 1 Warrant to purchase 100,000 shares of the Common Stock at $1.50
per share in satisfaction of outstanding debt legal fees due the creditor as of
May 31, 1994. Due to the antidilution provisions of the November 1 Warrant, as
of December 31, 1996, this warrant represented the right to purchase 137,587
shares at $1.09 per share.
On January 25, 1995, the Company issued 175,000 shares of the Common
Stock pursuant to a private placement to a private investor for the purchase
price of $262,500. Also, on the same date, the investor exercised a stock option
which would have expired October 15, 1995 at a reduced exercise price and
purchased 25,000 shares of the Common Stock for an aggregate purchase price of
$37,500. On June 8, 1995, the Company issued a 10% Promissory Note due September
7, 1995 (the "Investor's Note") in the principal amount of $50,000 to the
investor. As additional consideration for this loan, the Company reduced the
exercise price of the investor's March 15 Warrant to purchase 66,667 shares of
the Common Stock from $1.50 to $1.00 per
26
<PAGE> 30
share. In consideration of the investor's extension of the maturity date of the
Investor's Note to November 7, 1995, the Company issued to the investor the
September 11 Warrant to purchase 10,000 shares of the Common Stock at $1.00 per
share. The Investor's Note was satisfied by a cash payment of $27,389 ($25,000
for principal and $2,389 for interest) and the issuance of 40,667 shares of the
Common Stock (667 shares in lieu of interest due).
On March 30, April 13, April 19, June 27 and July 21, 1995, the Company
issued to two unaffiliated lenders 10% Promissory Notes due the earlier of (1)
December 29, 1995, January 12, January 18, March 26 and April 21, 1996,
respectively, or (2) a closing of an anticipated private placement as to which
the Company's then investment banker was to act as placement agent, in the
principal amounts of $400,000, $50,000, $75,000, $200,000 and $100,000,
respectively, and the Lenders Warrants expiring September 28, October 12,
October 18, December 26 and July 20, 2000, respectively, to purchase 50,000,
6,250, 9,375, 20,000 and 12,500 shares, respectively, of the Common Stock, at
exercise prices of $2.66, $2.69, $2.47, $2.38 and $2.38 per share, respectively.
Effective August 31, 1995, the holders of these notes accepted an aggregate of
851,230 shares of the Common Stock and the March 5 Warrants to purchase an
aggregate of 851,230 shares of the Common Stock at an exercise price of $1.50
per share in full satisfaction of all principal ($825,000) and interest
($26,230) due. Due to the antidilution provisions in the above warrants, as of
December 31, 1996, the Lenders Warrants represented the right to purchase
68,051, 8,506, 12,760, 34,026 and 17,013 shares, respectively, at $1.954,
$1.977, $1.815, $1.749 and $1.749 per share, respectively, and the March 5
Warrants represented the right to purchase an aggregate of 1,097,517 shares at
$1.163 per share.
On July 24, 1995, the Company issued to a shareholder the January 24
Warrant to purchase 83,333 shares of the Common Stock at $1.00 per share, for
which the shareholder agreed to seek financing for the Company and settled
certain claims against the Company.
On August 30, 1995, a corporate investor exercised its Common Stock
purchase warrant expiring October 27, 1998 to purchase 140,000 shares of the
Common Stock at an exercise price of $1.50. Due to the antidilutive provisions
of this warrant, an aggregate of 143,535 shares of the Common Stock were issued
at the adjusted price of $1.46 for proceeds of $209,590.
On September 5, September 29, October 31 and November 7, 1995, the
Company issued to an unaffiliated lender 10% Promissory Notes due the earlier of
(1) June 5, June 27, July 30 and August 6, 1996, respectively, or (2) a closing
of an anticipated private placement as to which the Company's then investment
banker was to act as placement agent, in the principal amounts of $50,000,
$60,000, $25,000 and $100,000, respectively, and the Second Lenders Warrants
expiring February 28, March 27, April 29 and May 6, 2001, respectively, to
purchase 6,250, 7,500, 3,125 and 12,500 shares, respectively, of the Common
Stock, at exercise prices of $2.19, $2.50, $2.19 and $3.00 per share,
respectively. Effective November 30, 1995, the holder of these notes accepted an
aggregate of 317,529 shares of the Common Stock and the Other March 5 Warrants
to purchase an aggregate of 317,529 shares of the Common Stock at an exercise
price of $1.00 per share in full satisfaction of all principal ($235,000) and
interest ($3,147) due. Due to the antidilution provisions in the above warrants,
as of December 31, 1996, the Second Lenders Warrants represented the right to
purchase 8,058, 9,669, 4,0127 and 16,044 shares, respectively, at
27
<PAGE> 31
$1.699, $1.939, $1.706 and $2.337 per share, respectively, and the Other March 5
Warrants represented the right to purchase an aggregate of 393,824 shares at
$.806 per share.
On November 30, 1995, the Company, in a private placement pursuant to
Regulation S promulgated under the Securities Act, sold to two non-"U.S.
persons" in "off-shore transactions," for gross proceeds of $250,000, 250,000
shares of the Common Stock and Additional Warrants expiring November 29, 1999
(the "November 29 Warrants") to purchase 250,000 shares of the Common Stock at
an exercise price of $1.50 per share. The Company paid a private placement fee
of $25,000 to an agent for this offering. (The terms "U.S. persons" and
"off-shore transactions," as used in this Prospectus, are used as defined in
paragraphs (o) and (i), respectively, of Rule 902 of Regulation S under the
Securities Act.)
On December 6, 1995, the Company, pursuant to Regulation S under the
Securities Act, sold to a non-"U.S. person" in an "off-shore transaction," for
gross proceeds of $200,000, 200,000 shares of the Common Stock and an Additional
Warrant expiring December 5, 1999 (the "December 5 Warrant") to purchase,
commencing December 6, 1996, 200,000 shares of the Common Stock at an exercise
price of $1.00 per share. The Company paid a private placement fee of $20,000 to
an agent for this offering.
On January 3, 1996, the Company, pursuant to Regulation S under the
Securities Act, sold to a non-"U.S. person" in an "off-shore transaction," for
gross proceeds of $100,000, 100,000 shares of the Common Stock and an Additional
Warrant expiring January 2, 2000 (the "January 2 Warrant") to purchase,
commencing January 3, 1997, 100,000 shares of the Common Stock at an exercise
price of $1.50 per share. The Company paid a private placement fee of $10,000 to
an agent for this offering.
On February 6, 1996, the Company, pursuant to Regulation S under the
Securities Act, sold to a non-"U.S. person" in an "off-shore transaction," for
gross proceeds of $200,000, 196,928 shares of the Common Stock. The Company paid
a private placement fee of $23,000 to an agent for this offering.
On February 12, 1996, the Company, pursuant to Regulation S under the
Securities Act, sold to a non-"U.S. person" in an "off-shore transaction," for
gross proceeds of $170,000, 145,299 shares of the Common Stock. The Company paid
a placement fee of $19,600 to an agent for this offering. In addition to the
cash fees paid with respect to the offerings described in this and the preceding
paragraph, the Company issued on November 15, 1996, to three designees of the
agent Additional Warrants expiring January 23, 2002 (the "January 23 Warrants")
to purchase an aggregate of 185,000 shares of the Common Stock at $1.50 per
share.
On May 31, 1996, the Company, pursuant to Regulation S under the
Securities Act, sold to a non-"U.S. person" in an "off-shore transaction", for
gross proceeds of $600,000, 1,200,000 shares of the Common Stock and issued an
Additional Warrant expiring May 23, 2001 (the "May 23 Warrant") to purchase
1,000,000 shares of the Common Stock at an exercise price of $1.00 per share.
The Company paid a placement fee of $100,000 to an agent for this offering.
28
<PAGE> 32
On May 31, 1996, the holder of an aggregate of $48,000 in principal
amount of the Company's 8.5% and 10% Promissory Notes accepted in full
settlement of all principal and interest due, an aggregate of 36,525 shares of
the Common Stock (4,525 shares in lieu of interest due).
On August 7, 1996, the Company entered into a consulting agreement with
an individual, which modified a previous agreement dated April 16, 1996. The
terms of the consulting agreement were for the individual to perform financial
and public relations consulting services for a period of two years at a cost of
$400,000, and included the issuance of Additional Warrants expiring April 15,
1999 (the "April 15 Warrant") and August 6, 1999 (the "Consultant's Warrant") to
purchase, both commencing February 7, 1997, 2,000,000 and 1,000,000 shares,
respectively, of the Common Stock both at $.75 per share. The Consultant's
Warrant was issued in consideration of the consultant's efforts in seeking to
obtain docking facilities for the proposed gaming vessel. The individual also
exercised his Common Stock purchase warrant issued on April 16, 1996 and
expiring April 15, 1999 to purchase 1,000,000 shares of the Common Stock at an
exercise price of $.75 per share for gross proceeds of $750,000. The individual
retained $400,000 in accordance with his consulting agreement and the Company
received net proceeds of $350,000. On November 30, 1996, the consultant
exercised the April 15 Warrant as to 500,000 shares of the Common Stock after
the Company waived the prohibition on exercise and lowered the exercise price to
$.25 per share for such shares.
On August 22, 1996, the Company, pursuant to Regulation S under the
Securities Act, sold to three non-"U.S. persons" in "off-shore transactions,"
for gross proceeds of $500,000, 1,000,000 shares of the Common Stock.
On September 4, 1996, the Company, pursuant to Regulation S under the
Securities Act, sold to a non-"U.S. person" in an "off-shore transaction," for
gross proceeds of $600,000, 1,200,000 shares of the Common Stock and issued an
Additional Warrant expiring September 2, 2001 (the "September 2 Warrant") to
purchase 1,000,000 shares of the Common Stock at an exercise price of $1.00 per
share. The Company paid a private placement fee of $100,000 to an agent for this
offering.
On December 23, 1996, the Company sold to an investor 100,000 shares of
the Common Stock for gross proceeds of $50,000. The Company also issued to the
investor 100,000 shares of the Common Stock for services rendered by the
investor's father to Creative Gaming in connection with the Gaming Vessel
Project.
FINANCING
On October 28, 1994, the Company received a letter (the "Financing
Letter") from Bennett, the investor in the September 1994 private placement (see
the section "Certain Securities Transactions" under this caption "The Company"),
which offered to extend a secured line of credit of up to $20,000,000 for the
purchase, development and construction of approved projects undertaken by the
joint venture relating to the Branson Project. See the section "Branson Project"
under this caption "The Company." The term of the Financing Letter was
subsequently
29
<PAGE> 33
extended to December 15, 1995. Because Bennett and its corporate affiliates, in
March 1996, filed petitions in bankruptcy under the Federal Bankruptcy Code,
this source of potential financing for CLP has ended.
Management believes that, as a result of the cash flow from current
operations and the aggregate of $1,525,000 raised through December 31October 28,
1996 in recent offerings pursuant to Regulation S under the Securities Act and
the exercise of warrants, CLP has sufficient funds to meet its cash requirements
during the next 12 months based on its current level of commitments. Management
also believes that such funds will be supplemented by cash realized from the
sales of equity through private placements and the exercise of the outstanding
Warrants, the Additional Warrants and the Options. Should one of the proposed
gaming projects require funds for implementation, management believes, based on
its discussions with persons in the investment banking community, that any funds
required for such a project can be obtained. There can be no assurance that the
market price of the Common Stock will be conducive to the exercise of the
Warrants, the Additional Warrants and the Options, nor that funds can be
obtained to finance a specific project if required will be available and, if
available, on acceptable terms.
The Company is currently offering in a private placement pursuant to
Regulation D under the Securities Act, for gross proceeds of $4,950,000,
6,600,000 Units at $.75 per Unit, with each Unit consisting of one share of the
Common Stock and one Common Stock purchase warrant to purchase one share of the
Common Stock at an exercise price of $1.00 per share. The net proceeds from this
offering will be used for the Gaming Vessel Project. However, there can be no
assurance that the Company will receive any acceptances or sufficient financing
from this offering to implement the Gaming Vessel Project.
GOVERNMENTAL REGULATION
Creative Gaming, as it attempts to implement the gaming aspects of the
Gaming Vessel Project, the Branson Project and Other Gaming Projects
(collectively the "Gaming Projects"), assuming, where required, definitive
agreements are executed and adequate financing made available, as to neither of
which there can be any assurance, will become subject to extensive governmental
regulations, many of which, in the case of Indian gaming, have not been the
subject of definitive interpretations. In addition, in the case of Indian
gaming, such gaming is regulated by tribal governments and authorities.
Additional regulatory provisions are expected to be adopted as the Indian and
non-Indian gaming industries continue to develop. Failure of Creative Gaming to
comply with applicable laws and regulations could result in, among other things,
the subsidiary not receiving approval of its proposed management agreement with
the Tribe or, if approved, the termination of such gaming management agreement.
Because of CLP's intended future dependence on the Gaming Projects for its
revenues, any such denial of approval or termination of the agreements would
have a material adverse effect on CLP.
CGI's proposed business operations on land to be dedicated to the
United States Government in trust for the Tribe are subject to approval,
regulation and oversight by, among others, the Bureau of Business Affairs, the
Secretary of the United States Department of Interior, the NIGC and the Tribe
authorities. For example, CGI's proposed management agreement for
30
<PAGE> 34
the Seneca Facility must be approved by the NIGC and the terms of the management
agreement must conform to NIGC requirements. In addition, in order to conduct
Class III gaming for the Branson Project there must be a tribal compact between
the Tribe and the State of Missouri. (For an explanation of the difference
between Class II gaming and Class III gaming, see the section "Branson Project"
under this caption "The Company.") In addition to these requirements, a
management agreement will not be approved by the NIGC unless federally conducted
background checks of the directors and certain officers of CGI , certain holders
of CGI 's equity interests and certain "interested parties" in the management
agreement have been substantially completed. If there is a tribal compact
between the Tribe and the State of Missouri under which CGI may manage a Class
III casino, there may be even more stringent requirements for background checks.
Background checks and NIGC approvals may take several months to complete.
Inquiries by the NIGC and the State of Missouri may not be limited to CGI, but
may extend to the Company's directors, certain officers and certain
shareholders.
Although the Gambling Ship Act (18 U.S.C. Section 1081 et seq.) and the
Johnson Act (15 U.S.C. Section 1171 et seq.) generally make shipboard gambling a
crime, and subject shipboard gaming equipment used in violation thereof to
forfeiture, gaming is permitted under the Violent Crime Control & Law
Enforcement Act of 1994 (18 U.S.C. Section 1801) if the U.S flag vessel sails
out of a state's port on a voyage to nowhere, with gambling occurring while
outside the territorial waters of the United States, and then returns to the
same port. Although states are permitted to legislatively opt out, so that CGV
may be prohibited from this type of gambling operation in certain jurisdictions,
CGV will seek to operate out of a site or sites in Florida and/or New York,
which States have not opted out. However, CGV may have to obtain approval under
state or local regulations relating to the docking facility or to obtain
approvals from the state or local government as the landlord of the docking
facility. There can be no assurance that CGV will obtain any of these state or
local approvals or how long the approval process will take.
COMPETITION
GAMING
The gaming industry is highly competitive, especially given the rapid
rate at which the industry is expanding. Creative Gaming's proposed gaming
activities, including operation of gaming vessels and casino development,
operation and management, will compete with other forms of gaming and with other
entities for gaming opportunities. Any gaming facilities developed, operated or
managed by Creative Gaming will compete with gaming facilities of varying
quality and size that already exist or may be built in the future, including
gaming facilities that are part of national or regional chains. Any facilities
of Creative Gaming will compete with well established gaming operations in
various states, including Colorado, Connecticut, Minnesota, Mississippi, Nevada,
New Jersey and South Dakota. It is likely that other states will also approve
various forms of gaming. The Company believes that the majority of the companies
in the gaming industry, have available to them substantially greater financial
resources with more experienced personnel than Creative Gaming. Competition in
the future may be affected by periodic overbuilding, which can adversely affect
patronage levels, changes in local market
31
<PAGE> 35
conditions, changes in regional and local population and disposable income
characteristics, and changes in travel patterns and preferences.
Creative Gaming will also compete with other forms of gaming, including
pull tab games, card clubs, parimutuel betting on horse racing and dog racing
and state-sponsored lotteries. Finally, Creative Gaming will compete with other,
non-gaming forms of entertainment.
OTHER OPERATIONS
Assuming that CGI will open a theme park in Christian County, Missouri,
management recognizes that such operation will compete with the Disney, Six
Flags and other well established theme parks in the United States, many of which
have greater financial resources than CLP will have even if the Company raises
the required financing, as to which there can be no assurance. Management also
recognizes that there will be substantial competition for the other contemplated
operations of the Branson Project, such as the time sharing facility and the
hotel/convention center. Management believes, however, that the contemplated
hotel/convention center, theme park and/or the time sharing facility, if opened,
will be added attractions to produce revenues from persons otherwise attracted
by the contemplated gaming facilities, if opened, and the other entertainment
attractions of Branson, Missouri not affiliated with Creative Gaming.
The children's products and mail order business markets, in which the
operations of Kards for Kids and JPP, respectively, are concentrated, are both
highly competitive markets, in which neither of the entities is a major
competitive factor.
EFFECT ON ENVIRONMENTAL REGULATIONS
With the change in CLP's business, CLP does not believe that compliance
with federal, state and local laws and regulations which have been enacted or
adopted regulating the discharge of materials into the environment will have, in
the foreseeable future, any material effect upon the capital expenditures,
earnings or competitive position of CLP. Even with respect to its existing and
former businesses, CLP does not believe that compliance with such laws and
regulations had any material effect on CLP.
32
<PAGE> 36
EMPLOYEES
As of December 31, 1996, CLP employed 5 persons, all of whom were full
time.
To the extent that the Company is successful in implementing the Gaming
Projects, Creative Gaming's personnel requirements will increase significantly.
The Company also anticipates CGI may be required to develop and undertake a
major training program at the Seneca Facility if all governmental approvals are
obtained for CGI to open the same. In addition, with regard to gaming facilities
on Indian Land, the management company will generally be required to recruit and
give preference in hiring and promotion to individuals of Native American
heritage in order to comply with Tribal Employment Rights Ordinances (ordinances
adopted by most tribes, including the Tribe). While the Company believes that
Creative Gaming will be able to attract and retain a sufficient number of
employees to satisfy its future requirements, the competition for such
employees, particularly at management levels, will increase significantly in the
future if gaming expands throughout the United States. As indicated under
"Management- Directors and Officers," the Company is seeking a President for its
Creative Gaming subsidiaries even prior to launching the operational aspects of
the Gaming Projects.
To the extent that Creative Gaming obtains a partner to operate any of
the Gaming Projects, its personnel requirements may be reduced.
DESCRIPTION OF PROPERTY
CLP currently leases 2,800 square feet of space at 150 Morris Avenue,
Springfield, New Jersey pursuant to a lease expiring March 31, 1998 at a monthly
base rental of $2,750, which increases to $3,000 effective April 1, 1997. The
Company currently uses 1,100 square feet of such space and subleases the
remaining.
CLP leases 4,400 square feet of office and warehouse space at 604 Route
611, Tannersville, Pennsylvania pursuant to leases which expire on December 31,
1996 and March 31, 1997 at a monthly rental of $1,000 and $1,600, respectively.
As part of the Branson Project, Creative Gaming acquired in Christian
County, Missouri a 37-acre site for $288,664 on March 31, 1995 and a 728-acre
site for $2,121,788 on February 28, 1996. See the section "Branson Project"
under this section "The Company."
LEGAL PROCEEDINGS
On July 18, 1995, Westminster Securities Corporation ("Westminster"),
nine of the former holders (the "Noteholders") of the April 30 Convertible Notes
and Generation Capital Associates as assignee of certain of the Noteholders, as
plaintiffs, served the Company in an action in the Supreme Court of the State of
New York, New York County, against the Company and Royce Investment Group, Inc.
("Royce"), the Company's then investment banker, alleging as the first cause of
action that the Company had failed to file on or before February 23, 1994 a
registration statement under the Securities Act with respect to the shares of
the Common Stock
33
<PAGE> 37
issuable upon the conversion of the April 30 Convertible Notes and the shares
issuable upon the exercise of the Common Stock purchase warrants which expired
April 30, 1996 (the "April 30 Warrants") to purchase 500,000 shares of the
Common Stock at $1.125 per share and, as a result, had breached its obligations
under the Placement Agent Agreement dated April 30, 1993 (the "Placement Agent's
Agreement") between the Company and Westminster and the Warrant Agreement dated
May 1, 1993 (the "Warrant Agreement") among the Company, Westminster
and the Noteholders, as a result of which breaches the plaintiffs are alleged to
have suffered damages of no less than $3.00 per share and/or April 30 Warrant,
as the case may be. Westminster acted as the placement agent for the private
placement of the April 30 Convertible Notes and the April 30 Warrants and, as
part of its compensation therefor, received a Common Stock purchase warrant
which also expired April 30, 1996 to purchase 50,000 shares of the Common Stock
at $1.125 per share and a stock option which also expired April 30, 1996 to
purchase 24,999 shares of the Common Stock at $1.50 per share, which warrant and
option were subdivided and issued to three designees of Westminster. The
plaintiffs as their second cause of action alleged that Royce tortuously
interfered with the Placement Agent's Agreement, the Warrant Agreement and the
Note Purchase Agreement dated May 1, 1993 among the Company and the Noteholders,
thereby depriving the plaintiffs of a substantial profit because the plaintiffs'
securities could not be freely traded. The plaintiffs seek damages of not less
than $2,000,000, plus interest, on each of the two causes of action and punitive
damages against Royce in an amount to be determined. The Company and Royce have
answered the complaint and discovery has been completed. The Company has
asserted certain affirmative defenses to the complaint and intends to contest
this litigation vigorously. The action has been set for trial on January 14,
1997. Because the decision will be determined at trial, no definitive opinion as
to the outcome of this litigation can be given as of the date of this
Prospectus.
There are no other pending legal proceedings against the Company and/or
its subsidiaries in which the claim for damages, exclusive of interests and
costs, exceeds 10% of the current assets of CLP.
MANAGEMENT
DIRECTORS AND OFFICERS
As of December 31, 1996, the directors and executive officers of the
Company were as follows:
34
<PAGE> 38
<TABLE>
<CAPTION>
Year First
Became
Director or
Position(s) Executive
Name Age with Company Officer
- ---- --- ------------ -------
<S> <C> <C> <C>
Peter J. Jegou 49 Chairman of the Board 1988
of Directors; President
and Chief Executive
Officer
Carol A. Kulina-Jegou 47 Executive Vice President; 1988
Secretary and Director
Walter J. Krzanowski 54 Treasurer, Chief Financial 1995
and Chief Accounting Officer
</TABLE>
Mr. Jegou and Ms. Kulina-Jegou were elected as directors by the
shareholders at the Annual Meeting held on January 12, 1994. Each director
serves until the next Annual Meeting of Shareholders and until his or her
respective successor is duly elected and qualifies. Executive officers are
elected by the Board to serve at the discretion of the directors.
As a result of the consummation of the private placement in September
1994, the Board agreed to increase the number of directors from two to seven and
to add a designee of the investor in the private placement, the placement agent
in such offering, and a designee of the Company's then investment banker.
Although the Company believes that these rights to designate directors may no
longer be effective, the Board intends to increase the number of directors later
in fiscal 1997 and is seeking appropriate candidates. In addition, the Company
is seeking a person experienced in the gaming industry to serve as the President
of its Creative Gaming subsidiaries and as a director of the Company. There can
be no assurance that the Company will increase the number of directors or that
the Company will obtain a person experienced in the gaming industry to serve as
the President of its Creative Gaming subsidiaries and as a director of the
Company and, if obtained, when.
BUSINESS HISTORY
Each of Peter J. Jegou and Carol A. Kulina-Jegou has had as his or her
principal occupation for more than the past five years an executive position
with the Company and/or its then subsidiaries. Effective December 31, 1995, Ms.
Kulina-Jegou ceased to serve CLP as an executive officer and an employee.
Walter J. Krzanowski has been Chief Financial Officer and Chief
Accounting Officer of the Company since July 7, 1995 and Treasurer of the
Company since November 4, 1996. From January to June 1995, Mr. Krzanowski served
as an independent consultant providing financial services to the Company. From
September 1993 to December 1994, Mr. Krzanowski was self-
35
<PAGE> 39
employed, acting as a consultant to a number of companies providing accounting,
financial reporting and data processing services. From April 1986 to August
1993, Mr. Krzanowski was Director of Finance for Zenith Laboratories, Inc., a
generic pharmaceutical company. Prior to joining Zenith Laboratories, Mr.
Krzanowski held various financial positions with Hoffmann-LaRoche, Inc., a
major pharmaceutical company, from 1966 to 1986.
No director serves as a director of another company which has a
security registered under Section 12(b) or (g) of the Exchange Act or which is
an investment company registered under the Investment Company Act of 1940, as
amended.
FAMILY RELATIONSHIPS
Peter J. Jegou and Carol A. Kulina-Jegou are husband and wife. There
are no other family relationships among the directors and executive officers of
the Company.
EXECUTIVE COMPENSATION
The Company has not adopted any plan providing for stock appreciation
rights, restricted stock, stock options, phantom stock or similar type of stock
benefits and has no other long-term incentive plan in effect. The Company has,
from time to time, issued to employees of CLP shares of the Common Stock as
additional compensation for their services, including 10,000 shares to the Chief
Executive Officer of the Company in fiscal 1996. See, however, the section
"Options and Warrants to Directors and Certain Officers" under this caption
"Management." There was no other executive officer whose compensation exceeded
$100,000 in fiscal 1996. As indicated in the ensuing tables, only the Chief
Executive Officer of the Company had been granted options through the end of
fiscal 1995. On July 7, 1995, Walter J. Krzanowski, the Chief Financial and
Chief Accounting Officer of the Company, was granted the July 6 Option to
purchase 15,000 shares of the Common Stock at $1.50 per share. See also the
section "Options and Warrants to Directors and Certain Officers" under this
caption "Management."
SUMMARY COMPENSATION TABLE
The following table sets forth summary compensation information paid or
awarded for fiscal 1996, fiscal 1995 and fiscal 1994 by the Company to its Chief
Executive Officer and each of CLP's most highly compensated executive officers
who served at the end of fiscal 1996 whose total annual salary and bonus
exceeded $100,000 (there being none):
36
<PAGE> 40
<TABLE>
<CAPTION>
Long-Term Compensation
Annual Compensation --------------------------------------------------------
-------------------------------------------
Awards Payouts
-------------------------- -----------------------
Other
Name and Annual LTIP
Principal Compen- Restricted Options Payouts All Other
Position Year Salary Bonus sation(1) Stock Award (#) ($) Compensation
- -------- ---- ------ ----- --------- ----------- --- --- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Peter J. Jegou, 1996 $ 159,346 0 $11,807 10,000 0 0 0
Chief Executive Officer 1995 $ 152,957 0 $15,921 0 550,000 0 0
1994 $141,633(2) 0 $14,595 0 125,000 0 0
</TABLE>
- ---------------------
(1) Automobile expenses.
(2) Mr. Jegou was entitled to receive $171,357 in salary during fiscal
1994. Due to the serious financial constraints under which the Company
was then operating, Mr. Jegou waived $29,724 in compensation, which
amount was credited to additional paid-in capital.
OPTION GRANTS FOR FISCAL YEAR ENDED MAY 31, 1996
No grants of stock options were made during fiscal 1996 to the sole
executive officer named in the Summary Compensation Table.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
No options were exercised during fiscal 1996 by any person named in the
Summary Compensation Table holding options which were eligible to be exercised.
The following table sets forth the fiscal 1996 ending option values of the sole
executive officer named in the Summary Compensation Table:
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Unexercised in the Money
Options Options at
at FY-End FY-End
Shares Value Exercisable/ Exercisable/
Name Acquired Received Unexercisable Unexercisable Unexercisable
- ---- -------- -------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Peter J. Jegou 0 0 0 $325,000/ $262,813/0 (1)
$350,000
</TABLE>
(1) Based on the closing price on May 31, 1996 ($1.8125) as quoted in the
Nasdaq System and reported by the NASD.
37
<PAGE> 41
OPTIONS AND WARRANTS TO DIRECTORS AND CERTAIN OFFICERS
During fiscal 1995 and fiscal 1997, the Company issued the Options and
the Warrant hereinafter described to Peter J. Jegou, its Chairman of the Board,
President and Chief Executive Officer and a director, and Carol A. Kulina-Jegou,
its Secretary and a director and, until December 31, 1995, its Executive Vice
President. The exercise prices of all of the Options and the Warrants were below
the fair market value of the Common Stock on the respective date of grant.
1. On November 7, 1994, the Company granted to Mr. Jegou the Loan
Option to purchase 150,000 shares of the Common Stock at $.75 per share. The
consideration for this grant was Mr. Jegou's agreement not to have his 10% Note
due April 29, 1995 (the "10% Note") in the then principal amount of $167,000
prepaid in March 1994 as were the 10% Notes of the other noteholders. During
fiscal 1994 and fiscal 1995, payments of $70,150 and $96,850, respectively, were
made to Mr. Jegou with respect to the 10% Note.
2. On November 7, 1994, the Company granted to Mr. Jegou the Gaming
Option to purchase 400,000 shares of the Common Stock at $1.00 per share. The
consideration for this grant was Mr. Jegou's services in connection with the
Branson Project. The Gaming Option became exercisable as to 50,000 shares on May
7, 1995 and the balance was to become exercisable in installments based upon the
occurrence of specified developments in the Branson Project. On September 3,
1996, in consideration of the fact that consummation of the Branson Project was
not likely to occur, at least not during the next two years, the Gaming Option
was amended to become exercisable as to the remaining 350,000 shares whenever a
gaming vessel was to be put into service. For information as to the Branson
Project and the Gaming Vessel Project, see the sections "Gaming Vessel Project"
and "Branson Project" under the caption "The Company."
3. On November 7, 1994 the Company granted to Ms. Kulina-Jegou the
Retirement Option to purchase 50,000 shares of the Common Stock at $1.00 per
share. The consideration for the Retirement Option was her years of service to
CLP and her then contemplated retirement. The Retirement Option first became
exercisable on December 31, 1995 when Ms. Kulina-Jegou resigned as Executive
Vice President, and retired as an employee, of the Company.
4. August 7, 1996, the Company granted to Mr. Jegou an Additional
Warrant expiring August 6, 1999 (the "August 6 Warrant") to purchase, commencing
February 7, 1997, 1,500,000 shares of the Common Stock at $.75 per share. The
consideration for the August 6 Warrant was Mr. Jegou's services in developing
alternative gaming projects for Creative Gaming. On December 26, 1996, Mr. Jegou
exercised the August 6 Warrant as to 500,000 shares at $.25 per share after the
Board on November 29, 1996 lowered the exercise price to $.25 per share and
waived the prohibition on exercise until February 7, 1996 at to such shares.
38
<PAGE> 42
COMPENSATION TO DIRECTORS
No compensation is paid to a director, as such, for his or her
services, but, by resolution of the Board of Directors, a fixed sum and expenses
for actual attendance at each regular or special meeting of the Board may be
authorized.
EMPLOYMENT AGREEMENTS
On September 25, 1996, the Company entered into a three-year employment
agreement with Peter J. Jegou, its Chairman of the Board, President and Chief
Executive Officer, providing for a base annual salary of $200,000 and an
incentive bonus arrangement to be determined.
CERTAIN TRANSACTIONS
Carol Kulina-Jegou, the Secretary and director of the Company, owns the
copyrights for Kards for Kids' children's stationery, card and paper activity
products. Ms. Kulina-Jegou also owns the following registered trademarks: "Mommy
I Can Do It Myself," "Kards for Kids" and "Mommy I Can Learn Myself." Pursuant
to a Trademark License Agreement dated January 15, 1987, effective retroactive
to May 18, 1986 (the "Trademark License"), Ms. Kulina-Jegou retains the right to
inspect the materials, manufacturing and recording processes employed by Kards
for Kids in the manufacturing of the prerecorded video cassette tapes in order
to maintain quality control over the products. The Trademark License has
remained effective subsequent to the resignation of Ms. Kulina-Jegou effective
December 31, 1995. See the section "Business History" under this caption
"Management." Ms. Kulina-Jegou is in the process of negotiating with Kards for
Kids a royalty for the copyrights and trademarks, which royalty will not exceed
5% of gross revenues as previously agreed.
PRINCIPAL SHAREHOLDERS
The following table sets forth information, as of December 31, 1996,
with respect to (1) any person or "group" known to the Company to be the
beneficial owner of more than five percent of the Common Stock; (2) each
director of the Company; (3) the Chief Executive Officer of the Company; (4)
each other executive officer who earned more than $100,000 in fiscal 1996 (of
which there were none); and (5) all directors and executive officers as a group.
Each beneficial owner has advised the Company that he or she has sole voting and
investment power as to the shares of the Common Stock reported in the table,
except that the Warrants, the Additional Warrants and the Options described in
the notes below do not have any voting power until exercised and may not be sold
or otherwise transferred except in compliance with the Securities Act.
39
<PAGE> 43
<TABLE>
<CAPTION>
Amount and
Nature of
Name and Address of Beneficial Percent of
Beneficial Owner Ownership Class(1)
- ---------------- --------- --------
<S> <C> <C>
David Slyman 5,488,520(2) 25.4%
2019 Ford Road
Sheffield, AL 35660
Lee S. Rosen 2,850,000(3) 13.6%
17332 Saint James Court
Boca Raton, FL 33496
Zimco S.A. 2,200,000(4) 11.3%
Rue de Neuchatel 8
CH-2034
Peseux, Switzerland
Patyam Stiftung 2,200,000(5) 11.3%
Aeulestrasse 38
FL-9490 Vaduz
Liechtenstein
Waal Investments Ltd. 1,589,058(6) 8.2%
c/o Royce Investments Group, Inc.
199 Crossways Park Drive
Woodbury, NY 11797
North West Holding, Ltd. 1,249,181(7) 6.5%
c/o Royce Investment Group, Inc.
199 Crossways Park Drive
Woodbury, NY 11797
Peter J. Jegou(8)(9) 2,253,898(10) 11.3%
150 Morris Avenue
Springfield, NJ 07081
Carol A. Kulina-Jegou(9)(11) 220,000(12) 1.2%
150 Morris Avenue
Springfield, NJ 07081
All directors and 2,538,898(10)(12)(13) 12.7%
executive officers as
a group (3 persons)
</TABLE>
40
<PAGE> 44
- ----------
1. The percentages computed in this column of the table are based upon
18,398,727 shares of the Common Stock outstanding as of December 31,
1996, which amount includes 150,000 shares (i.e., the MMII Indemnity
Shares) held in escrow as security in the event a creditor of Roburn
asserts a claim against MMII as the purchaser of the Roburn assets and
is not otherwise satisfied (see "The Company-Former Operations") and
excludes (a) 1,333,333 shares to be issued to a consultant as a bonus
(see "The Company-Gaming Consultant"), (b) 22,997 shares to be issued
in satisfaction of claims to dividends upon conversion of the Series A
Preferred Stock and (c) 54,740 shares to be issued as Trade Creditors
Shares (see Notes 1 and 27 to the table under "The Selling
Shareholders"). Effect is given, where appropriate, pursuant to Rule
13d-3(d)(3)(i) under the Exchange Act, to shares issuable upon the
exercise of the Warrants, Additional Warrants and Options which are
currently exercisable or exercisable within 60 days of December 31,
1996. Effect is also given, where appropriate in the following notes,
to the antidilution provisions of Warrants and Additional Warrants as
of December 31, 1996. All Warrants, Additional Warrants and Options in
the following notes are currently exercisable unless otherwise stated.
2. According to a Schedule 13D filed by the holder under the Exchange Act,
the holder acquired the shares reported in the table from Bennett, the
purchaser in the September 1994 private placement. See "The
Company-Certain Securities Transactions." The shares include 3,238,520
shares of the Common Stock issuable upon the exercise of the March 7
Warrant.
3. The shares reported in the table include (a) 1,500,000 shares issuable
upon the exercise of the April 15 Warrant and (b) 1,000,000 shares
issuable upon the exercise of the Consultant's Warrant, both of which
become exercisable on February 7, 1997. See "The Company-Certain
Securities Transactions."
4. The shares reported in the table include 1,000,000 shares issuable upon
the exercise of the May 23 Warrant.
5. The shares reported in the table include 1,000,000 shares issuable upon
the exercise of the September 2 Warrant.
6. The shares reported in the table include (a) 106,330 shares issuable
upon the exercise of Lenders Warrants and (b) 835,059 shares issuable
upon the exercise of a March 5 Warrant.
7. The shares reported in the table include (a) 34,026 shares issuable
upon the exercise of a Lenders Warrant, (b) 262,458 shares issuable
upon the exercise of a March 5 Warrant, (c) 37,783 shares issuable upon
the exercise of Second Lenders Warrants and (d) 393,824 shares
issuable upon the exercise of the Other March 5 Warrant.
8. Chairman of the Board, President and Chief Executive Officer of the
Company.
9. Peter J. Jegou and Carol A. Kulina-Jegou are husband and wife. Each
disclaims beneficial ownership of the other's shares.
41
<PAGE> 45
10. The shares reported in the table include those issuable upon the
exercise of (a) the May 18 Option to purchase 125,000 shares of the
Common Stock, (b) the Loan Option to purchase 150,000 shares of the
Common Stock, (c) the Gaming Option to purchase 50,000 shares of the
Common Stock, (d) the Unit Warrant to purchase 16,000 shares of the
Common Stock, (e) an April 29 Warrant to purchase 231,948 shares and
(f) 1,000,000 shares issuable upon the exercise of the August 6
Warrant, which becomes exercisable on February 7, 1997. The shares
reported in the table do not include (a) 350,000 shares issuable upon
the exercise of the Gaming Option as to which the Gaming Option is not
currently exercisable or exercisable within 60 days of December 31,
1996 and (b) 3,856 shares of the Common Stock to be issued to Mr. Jegou
in lieu of any claim by him to accumulated but undeclared and unpaid
dividends on the Series A Preferred Stock, 51,412 shares of which he
converted as of May 31, 1994 into 12,853 shares of the Common Stock.
11. A director and the Secretary of the Company.
12. The shares reported in the table include those issuable upon the
exercise of the Retirement Option to purchase 50,000 shares of the
Common Stock.
13. The amount reported in the table include (a) 50,000 shares of the
Common Stock beneficially owned by an executive officer of the Company
and (b) 15,000 shares issuable upon the exercise of the July 6 Option
held by such officer.
PLAN OF DISTRIBUTION
The holders of 2,184,115 shares of the Common Stock, all of which
shares are currently outstanding, have advised the Company that they may, from
time to time, offer these shares pursuant to the Prospectus as Selling
Shareholders at the prices then prevailing in the over-the-counter market or in
isolated transactions, at negotiated prices, with institutional or other
investors and that they have engaged no underwriter to act for them, although
sales may be effected for each of such holders through his, her or its personal
broker-dealer. See "The Selling Shareholders."
In addition, the holders of the Other Warrants and the Options have
advised the Company that, when and if they exercise their respective securities,
they may, from time to time, sell the underlying shares of the Common Stock (an
aggregate of 6,858,987 shares in the case of the Other Warrants and an aggregate
of 1,030,000 shares in the case of the Options) at the prices then prevailing in
the over-the-counter market or in isolated transactions, at negotiated prices,
with institutional or other investors. See "The Selling Shareholders."
Of the three holders receiving an aggregate of 22,997 shares to be
issued in settlement of any claim to dividends on the Series A Preferred Stock,
only Peter J. Jegou, the principal executive officer and a director of the
Company, who will receive 3,856 shares, is, in the opinion of Gold & Wachtel,
LLP, counsel to the Company, an affiliate of the Company and would require a
prospectus complying with Section 10(a)(3) of the Securities Act and naming him
as a
42
<PAGE> 46
Selling Shareholder to resell such shares; however, he has elected not to offer
any shares at this time. Mr. Jegou has advised the Company that he will rely on
the Rule 144 exemption when and if he elects to sell these shares of the Common
Stock. The other recipients of shares are Banque Scandinave en Suisse, S.A.
(13,172 shares) and Shirley A. Walker (5,969 shares). The former has advised the
Company that none of the beneficial owners for which it acts is the holder of 5%
or more of the outstanding shares of the Common Stock or an officer or a
director of the Company. Ms. Walker is not an officer or director of the Company
and has advised the Company that she is the beneficial owner of less than 10% of
the Common Stock (see "The Selling Shareholders"). Accordingly, Gold & Wachtel,
LLP has advised the Company that, in its opinion, these other holders would not
require a prospectus complying with Section 10(a)(3) of the Securities Act and
naming them as Selling Shareholders in order to resell these shares.
The Company is not aware of any director or officer of the Company or
the holder of 10% or more of the Common Stock who or which is a trade creditor
of Roburn, whether individually or through an entity, and, accordingly, no such
person will receive any of the 54,740 shares of the Trade Creditors Shares to be
issued pursuant to this Prospectus to Roburn trade creditors and/or to Richard
Danziger, the former President of Roburn. Mr. Danziger is not a director or an
officer of the Company and has advised the Company that, even if all 54,740
shares were issued to him, he would not be a 10% holder of the Common Stock.
Accordingly, in the opinion of Gold & Wachtel, LLP, there will be no necessity
for a prospectus complying with Section 10(a)(3) of the Securities Act and
naming a trade creditor or Mr. Danziger as a Selling Shareholder to resell such
shares. The Company and its counsel will review the situation whenever any of
the 54,740 shares are issued and, if necessary, supplement this Prospectus to
name the additional Selling Shareholder or Shareholders. See "The Company-Former
Operations."
The shares of the Common Stock offered by the Selling Shareholders,
including those issued after the exercise of the Other Warrants and the Options,
may be sold pursuant to this Prospectus by one or more of the following methods,
without limitation: (a) a block trade on which the broker-dealer so engaged will
attempt to sell the shares of the Common Stock as agent, but may position and
resell a portion of the block as principal to facilitate the transaction; (b)
purchases by a broker-dealer as principal and resale by such broker-dealer for
its account pursuant to this Prospectus; (c) ordinary brokerage transactions and
transactions in which the broker solicits purchasers; and (d) face-to-face
transactions between the Selling Shareholder and purchasers without a
broker-dealer. In effecting sales, a broker-dealer engaged by the Selling
Shareholder may arrange for other brokers or dealers to participate. Such
brokers or dealers may receive commissions or discounts from the Selling
Shareholder in amounts to be negotiated immediately prior to sale. Brokers or
dealers and any participating brokers or dealers acting as described in this
paragraph may be deemed to be "underwriters" within the meaning of Section 2(11)
of the Securities Act in connection with such sales.
Upon the Company being notified by a Selling Shareholder that any
material arrangement has been entered into with a broker-dealer for the sale of
shares of the Common Stock through a block trade, special offering, exchange
distribution or secondary distribution or a purchase by a broker or dealer, a
supplement to the Prospectus will be filed, if required, pursuant to Rule 424(c)
43
<PAGE> 47
under the Securities Act, disclosing (a) the name of each such broker-dealer,
(b) the number of shares involved, (c) the price at which such shares were sold,
(d) the commissions paid or discounts or concessions allowed to such
broker-dealer(s), where applicable, (e) that such broker-dealer(s) did not
conduct any investigation to verify the information set out or incorporated by
reference in this Prospectus, as supplemented, and (f) other facts material to
the transaction.
Because the Selling Shareholders may be deemed to be "underwriters"
within the meaning of Section 2(11) of the Securities Act, the Company will
advise the Selling Shareholders of the requirement under the Securities Act that
each of them, or any broker-dealer acting for him, her or it, must deliver a
copy of this Prospectus in connection with any sale by such Selling Shareholder
of shares of the Common Stock registered hereunder. The Company will also
undertake, if, in the future in the opinion of the Company, this Prospectus no
longer complies with Section 10(a)(3) of the Securities Act, to advise the
Selling Shareholders of this opinion, to request that the Selling Shareholders
cease use of this Prospectus and to confirm the Company's then intention to
amend the Registration Statement in order to effect such compliance. In
addition, the Company will inform the Selling Shareholders that Rules 10b-6 and
10b-7 under the Exchange Act may be applicable to any sale by them, or by any
broker-dealer acting for them, or by any "affiliated purchaser" (as such term is
defined in Rule 10b-6(c)(6)(i)), of shares of the Common Stock registered
hereunder and will furnish the Selling Shareholders with copies of these Rules.
Rule 10b-6 under the Exchange Act generally prohibits purchases, bids and
attempts to induce purchases of securities during a distribution by certain
specified parties, subject to exemptions for specified categories of securities
transactions, and Rule 10b-7 under the Exchange Act prohibits any "stabilizing
bid" or "stabilizing purchase" for the purpose of pegging, fixing or stabilizing
the price of the security being offered.
Most of the Selling Shareholders as to the shares offered pursuant to
this Prospectus have as yet held such shares of the Common Stock for more than
the holding period required by paragraph (d) of Rule 144 under the Securities
Act. However, each of the Selling Shareholders has advised the Company that,
whenever in the future he, she or it may rely on the exemption of Rule 144 to
sell shares of the Common Stock, such Selling Shareholder may elect to sell such
shares pursuant to Rule 144 under the Securities Act and not pursuant to this
Prospectus. Although not limited to this situation, a sale in such manner is
most likely to occur during a period in which there is no Prospectus complying
with Section 10(a)(3) of the Securities Act, but the Company is up to date in
its filing of periodic reports pursuant to Section 13 of the Exchange Act.
In addition, the Company will be offering, pursuant to this Prospectus,
an aggregate of 1,491,070 shares of the Common Stock consisting of (1) 1,333,333
shares payable to Harvey Freeman as a bonus (see "The Company-Gaming
Consultant"), (2) 22,997 shares in settlement of any claim to accumulated but
undeclared and unpaid dividends on the Series A Preferred Stock, (3) an
aggregate of 54,740 shares to be issued as Trade Creditor Shares and (4) 80,000
shares upon the exercise of the September 18 Warrant. The date of exercise, or
whether the exercise is as to all or part of the shares subject to the September
18 Warrant, is at the election of the holder thereof. See "Description of
Securities-Common Stock Purchase Warrants."
44
<PAGE> 48
THE SELLING SHAREHOLDERS
Each of the Selling Shareholders named in the following table has
advised the Company that he, she or it may, from time to time, offer all of the
shares shown next to his, her or its name at the prices then prevailing in the
over-the-counter market or in isolated transactions, at negotiated prices, with
institutional or other investors. Each Selling Shareholder has advised the
Company that he, she or it individually has sole voting and investment power
with respect to his, her or its shares of the Common Stock, except that the
holder has no voting power with respect to the shares of the Common Stock
issuable upon the exercise of a Warrant or Option until the respective security
is exercised.
The Selling Shareholders are offering, by this Prospectus, an aggregate
of 10,073,102 shares of the Common Stock, of which 2,184,115 shares are
currently outstanding, 6,858,987 shares are issuable upon the exercise of the
Other Warrants and 1,030,000 shares are issuable upon the exercise of the
Options. The 2,184,115 outstanding shares of the Common Stock consist of (1)
30,000 shares issued to designees of the Cook Hollow Company in connection with
the acquisition of the Christian County Site as part of the Branson Project; (2)
an aggregate of 588,991 shares issued for services (other than as an employee)
on behalf of the Company or a subsidiary; (3) an aggregate of 4,173 shares
representing the Trade Creditors Shares that have been issued and are not
eligible for sale at the current time pursuant to Rule 144 under the Securities
Act; (4) 3,000 shares issued in settlement of a claim; (5) an aggregate of
1,257,951 shares issued upon the conversion of debt; (6) an aggregate of 275,000
shares issued as a result of private placements pursuant to Regulation D under
the Securities Act; and (7) 25,000 shares issued upon the exercise of an
option.. For information as to the issuance of most of these securities, see the
sections "Branson Project," "Former Operations" and "Certain Securities
Transactions" under the caption "The Company," "Management-Options and Warrants
to Directors and Certain Officers" and "Legal Matters."
The reoffers or resales described in the second preceding paragraph may
require qualification or registration under state "blue sky" laws unless an
appropriate exemption exists. The Company currently intends to take such
reasonable actions, if any, as may be necessary for the securities to be
reoffered or resold in the States of Alabama, California, Connecticut, Delaware,
Florida, Missouri, New Jersey and New York, but, depending on the circumstances,
may not take any action to qualify or register the securities for reoffer or
resale in any other jurisdiction. In addition, there can be no assurance as to
whether the shares will be cleared for sale in any of the enumerated states as
to which the Company will seek clearance for sale.
The Company will pay all of the expenses related to this offering and
the sole expenses of the Selling Shareholders will relate to fees and
disbursements arising from their use of their own counsel, if any, and any
commissions, discounts or fees paid by them to broker/dealers which sell for
them.
The Company has agreed to indemnify many of the Selling Shareholders in
certain circumstances against certain liabilities, including liabilities arising
under the Securities Act. Each such Selling Shareholder has agreed to indemnify
the Company and its directors and its
45
<PAGE> 49
officers who sign the Registration Statement against certain liabilities,
including liabilities arising under the Securities Act insofar as such
liabilities relate to information furnished by such Selling Shareholder.
The next following table reports, for each Selling Shareholder, the
shares of the Common Stock beneficially owned as at December 31, 1996, the
shares being offered pursuant to this Prospectus by the Selling Shareholder and
the shares owned after such sale. The table also reports, for each of the
Selling Shareholders, the percentage of beneficial ownership before and after
the sales pursuant to this Prospectus.
<TABLE>
<CAPTION>
Percentage of
Beneficial
Number of Shares Ownership(1)
----------------------------------------------- --------------------
Name and Address of Before After Before After
Selling Shareholder Sale Offered Sale Sale Sale
- ------------------- ---- ------- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Peter J. Jegou(2)(3) 2,603,898(4) 922,948 1,680,950 12.8% 8.7%
150 Morris Avenue
Springfield, NJ 07081
Carol A. Kulina-Jegou(3)(5) 220,000(6) 50,000 170,000 1.2% nil
150 Morris Avenue
Springfield, NJ 07081
Walter Krzanowski(7) 65,000(8) 15,000 50,000 nil nil
150 Morris Avenue
Springfield, NJ 07081
Harvey Freeman 110,000(9) 110,000 -0- nil -0-
137 East 94th Street
New York, NY 10028
Shirley A. Walker 430,834(10) 267,334 163,500 2.3% nil
5198 NW 25th Way
Boca Raton, FL 33436
Kimberly Walker 250,000(11) 250,000 -0- 1.4% -0-
20937 St. Andrews Blvd.
Unit #14
Boca Raton, FL 33433
Royce Investment 122,162(12) 122,162 -0- nil -0-
Group, Inc.
199 Crossways Park Drive
Woodbury, NY 11797
</TABLE>
46
<PAGE> 50
<TABLE>
<CAPTION>
Percentage of
Beneficial
Number of Shares Ownership(1)
----------------------------------------------- --------------------
Name and Address of Before After Before After
Selling Shareholder Sale Offered Sale Sale Sale
- ------------------- ---- ------- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Squadron Associates LP 81,250(13) 75,000 6,250 nil nil
c/o Calo Agostino Merkin
14 Bergen Street
Hackensack, NJ 07601
Greenbaum, Rowe, Smith, 100,000(13) 100,000 -0- nil -0-
Ravin, Davis & Himmel
99 Wood Avenue South
Islen, NJ 08830
Creative Media 47,000(13) 47,000 -0- nil -0-
International, Inc.
Raritan Corporate Plaza
Fieldcrest Avenue
Edison, NJ 08837
Gerald Menard 130,000(14) 100,000 30,000 nil nil
Mt. 8, Box 375
Plattsburgh, NY 12901
Gold & Wachtel, LLP 523,328(15) 344,578 178,750 2.8% nil
110 East 59th Street
New York, NY 10022
John Higgins, Sr. 122,453(16) 122,453 -0- nil -0-
c/o Royce Investment
Group, Inc.
199 Crossways Park Drive
Woodbury, NY 11797
Mark Berg 83,333(17) 33,333 50,000 nil -0-
209-21 26th Avenue
Bayside, NY 11360
Herman Henin 50,000(17) 50,000 -0- nil -0-
9140 NW 13th Street
Plantation, FL 33322
</TABLE>
47
<PAGE> 51
<TABLE>
<CAPTION>
Percentage of
Beneficial
Number of Shares Ownership(1)
--------------------------------------------- --------------------
Name and Address of Before After Before After
Selling Shareholder Sale Offered Sale Sale Sale
- ------------------- ---- ------- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Dorothea G. Davis 83,333(17) 33,333 50,000 nil -0-
c/o John G. Davis,
Conservator
180 East 79th Street
New York, NY 10021
John Patrick 172,000(18) 26,667 145,333 nil nil
209 East Northfield Road
Livingston, NJ 07039
Guaranty and Trust 930,770(19) 655,284 275,486 4.9% 1.46%
Company
FBO Jesse Greenfield IRA
P.O. Box 8963
Wilmington, DE 19889
Carol Abramson 69,585(20) 69,585 -0- nil -0-
3 Howard Drive
Muttontown, NY 11791
Robert DiSimone 92,779(20) 92,779 -0- nil -0-
3 Libby Drive
Glen Cove, NY 11542
John DiMarco 69,585(20) 69,585 -0- nil -0-
40 Swarthmore Road
Linden, NJ 07036
Jerry G. Abrahamson 2,812(21) 2,812 -0- nil -0-
550 King Street
Littleton, MA 01460
Peter J. Kramarich 2,812(21) 2,812 -0- nil -0-
87 Knickerbocker Drive
Belle Meade, NJ 08502
</TABLE>
48
<PAGE> 52
<TABLE>
<CAPTION>
Percentage of
Beneficial
Number of Shares Ownership(1)
--------------------------------------------- --------------------
Name and Address of Before After Before After
Selling Shareholder Sale Offered Sale Sale Sale
- ------------------- ---- ------- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gilbert J. Phillips 5,625(21) 5,625 -0- nil -0-
2 Clerico Lane
Belle Meade, NJ 08502
James T. Cannon 2,812(21) 2,812 -0- nil -0-
107 Horseshoe Rd
Stirrup Farms
Newark, DE 19711
Mark T. Cannon 4,429(21) 4,429 -0- nil -0-
107 Horseshoe Rd
Stirrup Farms
Newark, DE 19711
Martin J. Kovach 646(21) 646 -0- nil -0-
2301 Northhampton Ave.
Northhampton, PA 18086
John O'Connor 1,968(21) 1,968 -0- nil -0-
RDH4, Box 203
Washington, NJ 07882
Richard A. Hansen, Jr. 25,000(21) 25,000 -0- nil -0-
1153 Evergreen Parkway
Evergreen, CO 80439
Eugene De Blasio 12,500(22) 12,500 -0- nil -0-
20 Addison Place
Valley Stream, NY 14580
Ronald K. Stenger 10,000(22) 10,000 -0- nil -0-
Revocable Trust
dated June 10, 1988
c/o Ronald K. Stenger
Companies
1910 East Battlefield
Suite E
Springfield, MO 65804
</TABLE>
49
<PAGE> 53
<TABLE>
<CAPTION>
Percentage of
Beneficial
Number of Shares Ownership(1)
----------------------------------------------- --------------------
Name and Address of Before After Before After
Selling Shareholder Sale Offered Sale Sale Sale
- ------------------- ---- ------- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Anise C. Brasher and 10,000(22) 10,000 -0- nil -0-
Richard A. Pendleton
as Trustees under the
Anise C. Brasher
Revocable Trust UTA
dated August 1, 1995
c/o Richard Pendleton
1655 South Enterprise
Suite B-1
Springfield, MO 65804
Brooke Lane Lorance 5,000(22) 5,000 -0- nil -0-
3711 Castlebay Court
Springfield, MO 65809
Tyler Lee Lorance 5,000(22) 5,000 -0- nil -0-
3711 Castlebay Court
Springfield, MO 65809
Waal Investments Ltd. 1,589,058(23) 1,589,058 -0- 8.2% -0-
c/o Royce Investment
Group, Inc.
199 Crossways Park Drive
Woodbury, NY 11797
North West Holding, Ltd. 1,249,181(24) 1,249,181 -0- 6.5% -0-
c/o Royce Investment
Group, Inc.
199 Crossways Park Drive
Woodbury, NY 11797
Frederick P. Ost 52,333(25) 5,000 47,333 nil nil
221 Long Hill Drive
Short Hills, NJ 07078
</TABLE>
50
<PAGE> 54
<TABLE>
<CAPTION>
Percentage of
Beneficial
Number of Shares Ownership(1)
----------------------------------------------- --------------------
Name and Address of Before After Before After
Selling Shareholder Sale Offered Sale Sale Sale
- ------------------- ---- ------- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Trio Graphics, Inc. 13,900(26) 1,400 12,500 nil nil
226 Old New Brunswick Road
Piscataway, NJ 08854
Standard 11,725(27) 929 10,796 nil nil
c/o Racon Sales Co.
240A Moonachie Avenue
Moonachie, NJ 07074
Quality Carton 295(27) 295 -0- nil -0-
101 Sterling Mine Road
Sloatsburg, NY 10974
Graining Equipment Co. 461(27) 461 -0- nil -0-
525 Fifth Avenue South
Nashville, TN 37203
Impact Advertising 80(27) 80 -0- nil -0-
P.O. Box 1767
Dunedin, FL 34698
Alex Krever 640(27) 640 -0- nil -0-
5038 Hazeltine - Suite 301
Sherman Oaks, CA 91423
Majestech Corporation 108(27) 108 -0- nil -0-
P.O. Box 440 - Route 100
Somers, NY 10589
American Filtrona Company 260(27) 260 -0- nil -0-
8401 Jefferson Davis Highway
Richmond, VA 23237
Dwight F. Davis 142,859(28) 48,525 94,334 nil nil
#2E
333 Palmer Hill Road
Riverside, CT 06878
</TABLE>
51
<PAGE> 55
<TABLE>
<CAPTION>
Percentage of
Beneficial
Number of Shares Ownership(1)
----------------------------------------------- --------------------
Name and Address of Before After Before After
Selling Shareholder Sale Offered Sale Sale Sale
- ------------------- ---- ------- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Dennis Burnham 3,000(29) 3,000 -0- nil nil
824 Tamarack Drive
San Rafael, CA 94903
David Slyman 5,488,520(30) 3,238,520 2,250,000 25.4% 10.4%
2019 Ford Road
Sheffield, AL 33660
Robert Fain 290,000(31) 290,000 -0- 1.6% -0-
6301 Elton Avenue
Las Vegas, NV 89107
</TABLE>
- --------------------
(1) The percentages computed in this column of the table are based upon
18,398,727 shares of the Common Stock outstanding as of December 31,
1996 and effect being given, where appropriate, pursuant to Rule
13d-3(d)(3)(i) under the Exchange Act, to shares issuable upon the
exercise of the Warrants and the Options which are currently
exercisable or exercisable within 60 days of December 31, 1996, except
as indicated in Notes (4) and (12) to the table. The number of shares
outstanding include the MMII Indemnity Shares (150,000 shares of the
Common Stock) which may be cancelled if not required to satisfy a claim
to MMII. See "The Company-Former Operations." The outstanding amount
does not reflect (a) 1,333,333 shares to be issued to a consultant as a
bonus (see "The Company-Gaming Consultant") (b) 22,997 shares to be
issued in settlement of claims to dividends upon the conversion of the
Series A Preferred Stock or (c) 54,740 shares to be issued as the
remaining shares of the Trade Creditors Shares (see Note 27 to this
table). Effect is given, where appropriate in the following notes, to
the antidilution provisions of the Warrants as of December 31, 1996.
(2) Chairman of the Board, President, Chief Executive Officer and a
director of the Company.
(3) Peter J. Jegou and Carol Kulina-Jegou are husband and wife. Each
disclaims beneficial ownership of the other's shares.
(4) The shares reported in the table as being beneficially owned include
(a) 125,000 shares issuable upon the exercise of the May 18 Option, (b)
150,000 shares issuable upon the exercise of the Loan Option, (c)
400,000 shares issuable upon the exercise of the Gaming Option (even
though it is currently exercisable or exercisable within 60 days of
December 31, 1996 only as to 50,000 shares), (d) 16,000 shares issuable
upon the exercise of a Unit
52
<PAGE> 56
Warrant, (e) 231,948 shares issuable upon the exercise of an April 29
Warrant and (f) 1,000,000 shares issuable upon the exercise of the
August 6 Warrant. When and if he exercises such Options and Warrants,
he will offer the underlying shares, except those described in (f) (an
aggregate of 916,757 shares), pursuant to this Prospectus. The shares
issuable upon the exercise of the August 6 Warrant have been registered
under the Securities Act in the Company's Registration Statement on
Form S-8, File No. 333- 13347. The shares reported in the table as
being beneficially owned do not include the 3,856 shares to be issued
to Mr. Jegou pursuant to this Prospectus in lieu of any claim by him to
accumulated and unpaid dividends on the Series A Preferred Stock,
51,412 shares of which he converted as of May 31, 1994 into 12,853
shares of the Common Stock.
(5) Secretary and a director of the Company.
(6) The shares reported in the table as being beneficially owned include
50,000 shares issuable upon the exercise of the Retirement Option,
which are the shares being offered by Ms. Kulina-Jegou pursuant to this
Prospectus.
(7) Chief Financial Officer and Chief Accounting Officer of the Company.
(8) The shares reported in the table as being beneficially owned include
15,000 shares issuable upon the exercise of the July 6 Option, which
are the shares being offered by Mr. Krzanowski pursuant to this
Prospectus.
(9) The shares reported in the table as being beneficially owned and being
offered reflect (a) 60,000 shares and (b) 50,000 shares issuable upon
the exercise of the Gaming Consultant Warrant, which securities were
issued to Mr. Freeman for his consulting services relating to
prospective gaming operations. The shares in the table do not include
1,333,333 shares issuable as a bonus (see "The Company-Gaming
Consultant").
(10) The shares reported in the table as being beneficially owned include
(a) 100,000 shares acquired in a private placement initiated in
February 1994, (b) 125,000 shares acquired in a private placement on
January 25, 1995, (c) 25,000 shares acquired upon the exercise of an
option which would have expired October 15, 1995 also on January 25,
1995, (d) 10,000 shares issuable upon the exercise of the September 11
Warrant, (e) 66,667 shares issuable upon the exercise of a March 15
Warrant and (f) 40,667 shares issued in payment of principal and
interest on a note for $25,000 on January 31, 1996 (see "The Company-
Certain Securities Transactions"). The shares reported in the table as
being offered are all of the foregoing except those described in (a).
The shares reported in the table do not include 5,969 shares of the
Common Stock to be issued to Ms. Walker pursuant to this Prospectus in
lieu of any claim by her to accumulated but undeclared and unpaid
dividends on the Series A Preferred Stock, 80,000 shares of which she
converted as of May 31, 1994 into 20,000 shares of the Common Stock.
The shares reported in the table also do not include the shares
beneficially owned by her daughter Kimberly Walker (see Note (11) to
this table), as to which shares Shirley A. Walker disclaims beneficial
ownership.
(11) The shares reported as being beneficially owned and as being offered
include (a) 50,000 shares acquired in a private placement on January
25, 1995, (b) 100,000 shares acquired in a private placement on
December 23, 1996 and (c) 100,000 shares acquired for
53
<PAGE> 57
services in connection with the Gaming Vessel Project. The investment
in (a) was made, and the services in (c) were performed, by Dr. Robert
Walker who requested that the shares be issued instead to his daughter
Kimberly Walker, the Selling Shareholder. Kimberly Walker disclaims
beneficial ownership in any of the shares owned by her mother Shirley
A. Walker (see note (10) to this table).
(12) The shares reported in the table as being beneficially owned and as
being offered reflect those issuable upon the exercise of (a) the
Placement Agent's Unit Purchase Warrant to purchase 61,081 shares and
(b) the Placement Agent's Additional Warrant to purchase 61,081 shares,
even though the latter Warrant may be exercised only if the former
Warrant is exercised. The former was sold to the holder which acted as
the placement agent in the Company's July 1993 offering pursuant to
Regulation S under the Securities Act.
(13) The shares reported in the table as being beneficially owned and being
offered reflect shares acquired in consideration of services rendered
or to be rendered on behalf of CLP.
(14) The shares reported in the table as being beneficially owned reflect
(a) an aggregate of 30,000 shares acquired for services rendered on
behalf of the Company or in settlement of a claim, (b) 16,667 shares
issuable upon the exercise of a March 15 Warrant and (c) 83,333 shares
issuable upon the exercise of a January 24 Warrant. Mr. Menard is not
offering the outstanding shares described in (a) pursuant to this
Prospectus.
(15) The shares reported in the table as being beneficially owned reflect
(a) 137,587 shares issuable upon the exercise of the November 1 Warrant
and (b) 385,741 shares, which shares and the November 1 Warrant having
been issued to this law firm, which is general counsel to the Company,
in lieu of cash payments for legal services on behalf of CLP. See
"Legal Matters." The firm is not offering 178,750 of the shares of the
Common Stock which it owns pursuant to this Prospectus.
(16) The shares reported in the table as being beneficially owned and being
offered reflect those shares issuable upon the exercise of the Laser
Warrant.
(17) The shares reported in the table as being beneficially owned reflect
(a) shares acquired in a private placement initiated in February 1994
and/or (b) shares issuable upon the exercise of a March 15 Warrant. The
holder is offering pursuant to this Prospectus only the shares
described in (b).
(18) The shares reported in the table as being beneficially owned reflect
(a) 82,333 shares issued in connection with the acquisition of the
assets of Old John Patrick (see "The Company-Existing Operations"); (b)
40,000 shares acquired in a private placement initiated in February
1994; (c) 26,667 shares issuable upon the exercise of a March 15
Warrant; and (d) 28,000 shares issued in payment for merchandise
purchased by CLP for resale. The shares reported in the table as being
offered reflect only those described in (c).
(19) The shares reported in the table as being beneficially owned reflect
(a) 275,486 shares issued in payment of principal and interest on the
October 8 Note, (b) 258,765 shares issuable upon the exercise of the
January 7 Warrants and (c) 396,519 shares issuable upon
54
<PAGE> 58
the exercise of a Noteholders Warrant. See "The Company-Certain
Securities Transactions." The shares reported in the table as being
offered pursuant to this Prospectus are all of the foregoing shares
except those described in (a).
(20) The shares reported in the table as being beneficially owned and being
offered reflect shares issuable upon the exercise of an April 29
Warrant.
(21) The shares reported in the table as being beneficially owned and being
offered reflect or include shares issuable upon the exercise of a Unit
Warrant.
(22) The shares reported in the table as being beneficially owned and being
offered reflect shares received in connection with the purchase from
the Cook Hollow Company by CGI of the Christian County Site as part of
the Branson Project. See "The Company-Branson Project."
(23) The shares reported in the table as being beneficially owned and being
offered reflect (a) 647,669 shares received upon the conversion of
debt, (b) 835,059 shares issuable upon the exercise of a March 5
Warrant and (c) an aggregate of 106,330 issuable upon the exercise of
Lenders Warrants.
(24) The shares reported in the table as being beneficially owned and being
offered reflect (a) 521,090 shares received upon the conversion of
debt, (b) 262,458 shares issuable upon the exercise of a March 5
Warrant, (c) 393,824 shares issuable upon the exercise of the Other
March 5 Warrant, (d) 34,026 shares issuable upon the exercise of a
Lenders Warrant and (e) an aggregate of 37,783 shares issuable upon the
exercise of the Second Lenders Warrants.
(25) The shares reported in the table as being beneficially owned reflect
(a) 82,333 shares received upon the acquisition of the assets of the
Old John Patrick (see "The Company-Existing Operations") and (b) 5,000
shares issuable upon the exercise of the October 25 Warrant. The holder
is offering only the shares described in (b).
(26) The shares reported in the table as being beneficially owned reflect
(a) 12,500 shares received for services and (b) 1,400 shares received
as a creditor of Roburn as part of the Trade Creditor Shares (see note
(27) to this table). The holder is only offering the Trade Creditor
Shares pursuant to this Prospectus.
(27) The shares reported in the table as being beneficially owned and being
offered reflect shares issued to a creditor of Roburn as part of the
Trade Creditors Shares. As of December 31, 1996, 95,260 shares had been
released from escrow to Trade Creditors, of which 4,173 shares are
being offered pursuant to this Prospectus, and 54,740 shares were to be
issued. See "The Company-Former Operations" and Note (1) to the table.
(28) The shares reported in the table as being beneficially owned reflect
(a) 82,334 shares received upon the acquisition of the assets of the
Old John Patrick (see "The Company-Existing Operations"), (b) 12,000
shares received for services rendered to CLP and (c) 48,525 shares
received upon conversion of his loan to the Company. Mr. Davis is
offering pursuant to this Prospectus only the shares described in (c).
(29) The shares reported in the table as being beneficially owned and as
being offered reflect shares received in settlement of litigation.
55
<PAGE> 59
(30) The shares reported in the table as being beneficially owned reflect
(a) 2,250,000 shares acquired in the September 1994 private placement
(see "The Company-Certain Securities Transactions") and (b) 3,238,520
shares issuable upon the exercise of the March 7 Warrant. Mr. Slyman is
offering pursuant to this Prospectus only the shares described in (b).
(31) The shares reported in the table as being beneficially owned and being
offered reflect (a) 140,000 shares issuable upon the exercise of the
June 7 Option and (b) 150,000 shares issuable upon the exercise of the
June 12 Option. Both Options were issued for consulting services.
DESCRIPTION OF SECURITIES
GENERAL
The Company believes that the following description of the outstanding
securities of the Company describes the material terms thereof. Copies of the
Certificate of Incorporation which is the governing document for the Common
Stock and the Preferred Stock, the warrant agreements which are the governing
documents for the Warrants and the Additional Warrants and the option agreements
which are the governing documents for the Options are filed, or are incorporated
by reference, as exhibits to the Registration Statement.
COMMON STOCK
The Company's Certificate of Incorporation currently authorizes
25,000,000 shares of the Common Stock, no par value, and is one of the two
classes of capital stock authorized and outstanding. On January 12, 1994, at the
Annual Meeting of Shareholders, the shareholders approved amendments to the
Company's Articles of Incorporation which (1) effected a one-for-four reverse
stock split of the Common Stock by changing the authorized shares from 9,000,000
to 2,250,000 and reclassifying and combining each old share into one-fourth of a
new share and (2) then increased the authorized shares from 2,250,000 to
25,000,000. There was no change in the par value of the Common Stock which
remained as no par value shares. The changes became effective on January 26,
1994 when an Amendment to the Articles of Incorporation was filed in the State
of New Jersey.
As of December 31, 1996, there were 18,398,727 shares of the Common
Stock outstanding, which amount gives effect to 150,000 shares (i.e., the MMII
Indemnity Shares) which are being held in escrow for release to MMII to the
extent necessary to indemnify MMII against any claims brought against it by
Roburn's creditors as a result of Roburn's and MMII's failure to comply with the
bulk sales law (see "The Company-Former Operations"), and there were reserved,
as of such date, an aggregate of 17,286,662 shares of the Common Stock,
consisting of (1) 14,845,592 shares reserved for the exercise of the Warrants
and the Additional Warrants; (2) 1,030,000 shares reserved for the exercise of
the Options; (3) 1,333,333 shares reserved to be issued to a consultant as a
bonus; (4) 22,997 shares reserved to be issued in lieu of claims to dividends on
the Series A Preferred Stock; and (5) 54,740 shares to be issued as part of
56
<PAGE> 60
the Trade Creditors Shares (see Notes (1) and 27 to the table under "The Selling
Shareholders"). For information as to the outstanding Warrants and Additional
Warrants, see the section "Common Stock Purchase Warrants" under this caption
"Description of Securities." None of the Warrants or Additional Warrants are
owned by executive officers or directors of the Company except that Peter J.
Jegou, the principal executive officer and a director of the Company, holds an
April 29 Warrant to purchase 231,948 shares, a Unit Warrant to purchase 16,000
shares and the August 6 Warrant to purchase 1,000,000 shares. For information as
to the outstanding Options, see the section "Stock Options" under this caption
"Description of Securities." Mr. Jegou holds the May 18 Option, the Loan Option
and the Gaming Option. Carol Kulina-Jegou, a director, holds the Retirement
Option. Walter J. Krzanowski, the principal financial officer of the Company,
holds the July 6 Option. 22,997 shares are reserved to be issued in settlement
of any claim by the holder of the Series A Preferred Stock for accumulated but
undeclared and unpaid dividends, of which Mr. Jegou would receive 3,856 shares
as a result of his conversion of 51,412 shares of the Series A Preferred Stock
into 12,853 shares of the Common Stock. Due to the antidilution provisions in
certain of the aforementioned Warrants and Additional Warrants, the number of
shares of the Common Stock reserved for issuance may in the future be further
adjusted. An aggregate of 35,685,389 shares of the Common Stock would be
outstanding (including the MMII Indemnity Shares) if all of the shares reserved
as of December 23, 1996 were issued. Because there were only 25,000,000 shares
of the Common Stock authorized, the Company will be required to call a meeting
of shareholders to increase the number of authorized shares so as to cover at
least the 10,685,389 excess shares reserved for issuance. In addition, because
of the Company's financing requirements (see the section "Liquidity and Capital
Requirements" under the caption "Management's Analysis and Discussion of
Financial Condition and Results of Operations"), additional shares will likely
be issued, whether made subject to additional Common Stock purchase warrants and
stock options or issued directly.
Each holder of the Common Stock is entitled (1) to one vote for each
share held of record, (2) to notice of any meeting of the shareholders of the
Company and (3) to a pro rata share of any dividends declared on the Common
Stock by the Board of Directors. Upon liquidation of the Company, each
shareholder is entitled to share ratably any assets available for distribution
after payment of all debts and any distribution in respect of the then
outstanding shares of Preferred Stock, of which no shares were outstanding as of
December 31, 1996. Shareholders have no preemptive, subscription or conversion
rights. All outstanding shares of the Common Stock are, and all shares to be
issued upon the exercise of the Warrants, the Additional Warrants and the
Options will be, fully paid and nonassessable.
NON-CUMULATIVE VOTING
The holders of shares of the Common Stock do not have cumulative voting
rights, which means that the holders of more than 50% of such outstanding shares
voting for the election of directors of the Company can elect all of the
directors to be elected, if they so choose, and, in such event, the holders of
the remaining shares will not be able to elect any of the Company's directors.
57
<PAGE> 61
DIVIDENDS
The payment by the Company of all dividends, if any, in the future
rests within the discretion of the Board of Directors and will depend, among
other things, upon CLP's earnings, its capital requirements, its financial
condition and the status of dividends on any outstanding shares of Preferred
Stock (of which, as of December 31, 1996, there were none outstanding), as well
as other relevant factors. The Company has never paid or declared any dividends.
Based upon the Board's current intention of using funds for the Gaming Projects,
to furnish working capital for its other operating subsidiaries, as well as to
make acquisitions in related businesses, and the current operational losses, the
Company does not contemplate or anticipate paying any dividends on the Common
Stock in the foreseeable future.
TRANSFER AGENT
Continental Stock Transfer & Trust Company, Two Broadway, New York, New
York 10004, is the Transfer Agent for the Common Stock.
PREFERRED STOCK
The other authorized class of capital stock is the Preferred Stock,
$1.00 par value (the "Preferred Stock"), consisting of 2,000,000 shares, to be
issued in such series and with such designations of rights, preferences,
limitations and restrictions as the Board of Directors, prior to the issuance of
any such series thereof, may specify. On September 12, 1991, the Company filed a
Certificate of Designations designating 1,000,000 of such shares as the Series A
10% Cumulative Convertible Preferred Stock (the "Series A Preferred Stock"). An
aggregate of 651,412 shares of the Series A Preferred Stock were subsequently
issued. As of December 31, 1996, there were no shares of the Series A Preferred
Stock outstanding, the 651,412 shares having been converted prior thereto into
162,853 shares of the Common Stock.
As of September 1, 1993, the Company had not declared or paid three
annual dividends on the Series A Preferred Stock of $.10 per share because they
were not legally payable under the Business Corporation Act of the State of New
Jersey (the "BCA"). Although the holders were entitled to voting rights, as a
class, to elect one director, the holders never sought to exercise such right.
In connection with the conversion in December 1993 of 250,000 shares of the
Series A Preferred Stock, the Company issued 12,250 shares of the Common Stock
in settlement of any claim for accumulated but undeclared and unpaid dividends
on such shares of the Series A Preferred Stock. The Company acted because of a
conflict between the dividend and conversion provisions of the Certificate of
Designations relating to the Series A Preferred Stock. The Company is offering
by this Prospectus to the former holders of the remaining 331,412 shares of the
Series A Preferred Stock (of which 131,412 shares were converted by the holders
in May 1994 and 200,000 shares were converted in November 1994) an aggregate of
22,997 shares of the Common Stock in settlement of any claim by such holders for
accumulated but undeclared and unpaid dividends. Each holder has agreed to
accept such shares following the effectiveness of this Registration Statement.
58
<PAGE> 62
On August 12, 1994, the Company filed a Certificate of Designations
(which was subsequently amended on February 14, 1995) designating 500,000 of the
remaining 1,000,000 shares of the Preferred Stock as the Series B 12% Cumulative
Redeemable Preferred Stock (the "Series B Preferred Stock"). 200,000 shares of
the Series B Preferred Stock were issued in August 1994 in connection with the
acquisition of the assets of the Old John Patrick. See "The Company-Existing
Operations." In April 1996, the shareholder surrendered its 200,000 shares of
the Series B Preferred Stock to the Company, which the Company retired in May
1996. The rights to dividends on the Series B Preferred Stock had been waived by
the shareholder since issuance. See Note 12 to Consolidated Financial Statements
for fiscal 1996.
Unlike the Series A Preferred Stock, the Series B Preferred Stock is
not convertible into shares of the Common Stock.
The Series B Preferred Stock is junior to the Series A Preferred Stock,
so that preference would have to be given to the latter series in the event of
dividends, liquidation, dissolution or winding up of the Company or redemptions.
COMMON STOCK PURCHASE WARRANTS
As of December 31, 1996, there were outstanding (1) Warrants to
purchase an aggregate of 6,938,987 shares and (2) Additional Warrants to
purchase an aggregate of 7,906,605 shares, or an aggregate of 14,845,592 shares
if all of the Warrants and the Additional Warrants were exercised. As of such
date, the aggregate number of shares of the Common Stock issuable upon the
exercise of each class of the Warrants and the Additional Warrants, its
respective expiration date and its respective per share exercise price were as
follows:
<TABLE>
<CAPTION>
Number of Exercise
Warrant Shares Expiration Date Price
- ------- --------- --------------- --------
<S> <C> <C> <C>
April 29 463,897 April 29, 1998 $ .943
Regulation S Additional 1,398,050 July 20, 1997 $ .368
Placement Agent's Unit 61,081(1) May 26 1998 $ .884
Placement Agent's Additional 61,081 July 20, 1997 $ 1.105
January 7 258,765 January 7, 1999 $ .725
Unit 74,604 _______ __, 1998(2) $ 4.00
Noteholders 670,074 March 7, 1998 $ 1.042
March 7 3,238,520 March 7, 1998 $ 1.042
November 1 137,587 November 1, 1999 $ 1.09
Laser 122,453 November 6, 1999 $ .727
March 15 160,000 March 15, 2000 $ 1.50
66,667 March 15, 2000 $ 1.00
January 24 83,333 January 24, 1999 $ 1.00
March 5 1,097,517 March 5, 1998 $ 1.163
Lenders 68,051 September 28, 2000 $ 1.954
</TABLE>
59
<PAGE> 63
<TABLE>
<CAPTION>
Number of Exercise
Warrant Shares Expiration Date Price
- ------- ---------- --------------- --------
<S> <C> <C> <C>
8,506 October 12, 2000 $ 1.977
12,760 October 18, 2000 $ 1.815
17,013 July 20, 2000 $ 1.749
34,026 December 26, 2000 $ 1.749
September 11 10,000 September 11, 2000 $ 1.00
Second Lenders 8,058 February 20, 2001 $ 1.699
9,669 March 27, 2001 $ 1.939
4,012 April 29, 2001 $ 1.706
16,044 May 6, 2001 $ 2.337
Other March 5 393,824 March 5, 1998 $ .806
November 29 250,000 November 29, 1999 $ 1.50
December 5 200,000 December 5, 1999 $ 1.00
January 2 100,000 January 2, 2000 $ 1.00
October 25 5,000 October 25, 2001 $ 3.06
Gaming Consultant 50,000 April 15, 1999 $ 1.00
April 16 1,500,000 April 15, 1999 $ .75
Consultant's 1,000,000 August 6, 1999 $ .75
August 6 1,000,000 August 6, 1999 $ .75
May 23 1,000,000 May 23, 2001 $ 1.00
September 2 1,000,000 September 2, 2001 $ 1.00
September 18 80,000 September 18, 1999 $ 1.00
January 23 185,000 January 23, 2002 $ 1.50
----------
Total 14,845,592
</TABLE>
- ----------
(1) The holder, upon exercise, also receives a Placement Agent's Additional
Warrant to purchase 618,520,081 shares of the Common Stock, which
Warrant is also reflected in the table.
(2) Expiration date will be one year after the date of this Prospectus.
The Company would receive gross proceeds of $13,928,404 if all of the foregoing
Warrants and Additional Warrants were exercised. There can be no assurance that
any of the Warrants or the Additional Warrants will be exercised and, if
exercised, when.
The Regulation S Additional Warrants can only be exercised on 90 days'
prior notice to the Company; however, the Company waived such provision in
October 1994 to permit the exercises of Regulation S Additional Warrants as to
485,000 shares of the Common Stock. See "The Company-Certain Securities
Transactions." Because the Placement Agent's Unit Warrant represents the
immediate right (since May 27, 1994) to acquire units consisting of shares of
the
60
<PAGE> 64
Common Stock and the Placement Agent's Additional Warrant as indicated in the
preceding table and Note (1) thereto, the Placement Agent's Unit Warrant must be
exercised first or the Placement Agent's Additional Warrant cannot be exercised.
All of the remaining Warrants or Additional Warrants listed in the above table
were initially or had become, as of December 31,1996, immediately exercisable
into shares of the Common Stock except that (1) the January 2 Warrant does not
become exercisable January 3, 1997; (2) the April 16 Warrant, the Consultant's
Warrant and the August 6 Warrant do not become exercisable until February 7,
1997; (3) the September 18 Warrant does not become exercisable until March 19,
1997; and (4) the January 23 Warrants do not become exercisable until January
24, 1997.
The expiration date of the Warrants and the Additional Warrants may be
extended, and the exercise price may be reduced, by the Board of Directors of
the Company. On April 4, 1994, the expiration date of the Unit Warrants was
extended to expire one year from the date of this Prospectus. For information as
to the Board's reduction of the exercise price of certain of the warrants, see
"The Company-Certain Securities Transactions." For information as to when many
of the Warrants and the Additional Warrants were issued, see "The
Company-Certain Securities Transactions."
Provision is made in the Warrants and the Additional Warrants for
adjustment of the price and number of shares of the Common Stock issuable upon
exercise in order to protect the holders thereof against dilution in the event
of stock splits, reclassifications, reorganizations, consolidations, mergers or
stock dividends. In addition, certain of the Warrants and the Additional
Warrants contain provisions requiring adjustment to their exercise prices and
the number of shares of the Common Stock subject thereto in those circumstances,
subject to certain exceptions, where the Company issues, subsequent to the date
of issuance of the respective Warrant or Additional Warrant, securities at a
price less than the then respective exercise price of the Warrant or the
Additional Warrant or the then market price. All of these adjustments have been
reflected as of December 31, 1996 with respect to outstanding securities in this
Prospectus. Holders of the Warrants and the Additional Warrants have no rights
as shareholders of the Company until the Warrants and the Additional Warrants
have been duly exercised and the exercise price received by the Company and then
only as holders of the purchased shares of the Common Stock.
The Company has the right, upon 30 days' prior notice, to redeem
certain of the Warrants and the Additional Warrants at a specified rate per
share of the Common Stock then issuable upon the exercise thereof provided that
the closing bid price of the Common Stock reported in the Nasdaq System or, if
not so reported, the closing sales price if quoted on a national securities
exchange or the high bid price as reported in the NASD's OTC Bulletin Board or
in the "pink sheets" as reported by the National Quotation Bureau, Inc. is at
least a specified amount per share on each day during a 20-day or a 30-day
trading period immediately preceding the date of notice. During the 30-day
notice period, a holder may exercise his, her or its Warrant or Additional
Warrant called for redemption. Any of the foregoing Warrants or Additional
Warrants called for redemption and not either exercised or tendered back to the
Company by the date specified in the notice will expire and may not thereafter
be exercised.
61
<PAGE> 65
The following table summarizes the redemption provisions:
<TABLE>
<CAPTION>
Price Per Trading Market
Warrant Share Days Price
- ------- --------- ------- ------
<S> <C> <C> <C>
April 29 .05 20 $5.25
Regulation S Additional .05 20 5.25
January 7 .05 20 5.25
Unit .05 30 4.50
</TABLE>
The remaining Warrants and Additional Warrants do not have any redemption
provisions.
The Company has undertaken to maintain a current registration statement
under the Securities Act throughout the exercise period of the September 18
Warrant to permit its exercise so long as counsel to the Company is of the
opinion that such registration statement is required. If no current registration
statement is in effect, the holder could, prior to the expiration date, exercise
the September 18 Warrant by giving an investment representation as to the
underlying shares; however, in such event, the holder would have to hold the
shares of the Common Stock issuable upon exercise thereof for at least two years
if he wishes to sell in the over-the-counter market pursuant to Rule 144 under
the Securities Act or seek another exemption from registration thereunder. So
long as there is in effect a Prospectus complying with Section 10(a)(3) of the
Securities Act, the holders of the Other Warrants may sell the underlying shares
after exercise by delivery of such Prospectus. If no such Prospectus is in
effect, the holders will have to rely on Rule 144 or another exemption. Various
state securities laws relating to qualification of securities for sale in such
states may also be applicable and require registration or qualification.
Necessarily there can be no assurance that the Company will, at all times during
the life of the Warrants, be able to secure or maintain such state registration
or qualification and, in the event it is unable to do so, the Warrants will not
be exercisable and will be valueless. If the Company is unable to register or
qualify the shares of Common Stock underlying the Warrants for sale, assuming no
exemption from such requirement, in particular states, holders in those states
will have no choice but to sell, if legally possible, their Warrants to a person
in another jurisdiction or let them expire. See "Plan of Distribution" for
information as to the states in which the Company will seek an exemption or
qualify or register the underlying shares for resale.
STOCK OPTIONS
As of December 31, 1996, the aggregate number of shares of the Common
Stock issuable upon the exercise of each class of Options, its respective
expiration date and its respective per share exercise price were as follows:
<TABLE>
<CAPTION>
Number of Exercise
Option Shares Expiration Date Price
- ------ --------- --------------- --------
<S> <C> <C> <C>
May 18 125,000 May 18, 1999 $1.31
</TABLE>
62
<PAGE> 66
<TABLE>
<CAPTION>
Number of Exercise
Option Shares Expiration Date Price
- ------ --------- --------------- --------
<S> <C> <C> <C>
June 7 140,000 June 7, 1999 $1.33
June 12 150,000 June 12, 1999 $1.32
Loan 150,000 November 6, 1999 $ .75
Gaming 400,000 November 6, 1999 $1.00
Retirement 50,000 November 6, 1999 $1.00
July 6 15,000 July 6, 2000 $1.50
---------
Total 1,030,000
</TABLE>
As of December 31, 1996, the Company would issue an aggregate of
1,030,000 shares of the Common Stock if all of the Options indicated in the
preceding table were exercised and would receive gross proceeds of $1,132,950.
There can be no assurance that any of the Options will be exercised and, if
exercised, when.
The Options were initially or had become, as of December 31, 1996, all
immediately exercisable, except as provided in the succeeding paragraph, and
contain anti-dilution provisions similar to the Warrants in the event of stock
splits, reclassifications, reorganizations, consolidations, mergers or stock
dividends. There is no provision for redemption as there is in certain of the
Warrants and Additional Warrants. See the section "Common Stock Purchase
Warrants" under this caption "Description of Securities."
The Gaming Option first became exercisable as to 50,000 shares of the
Common Stock on May 7, 1995 and only becomes exercisable as to the balance in
installments based on the achievement of certain milestones relating to the
Gaming Vessel Project.
OFFICER AND DIRECTOR INDEMNIFICATION
Article VI of the Articles of Incorporation of the Company provides for
indemnification of persons (including directors and officers) to the fullest
extent provided by the BCA. Section 14A:3-5 of the BCA permits a corporation to
indemnify a corporate agent (i.e., a director, officer, employee or agent)
against his or her expenses and liabilities in connection with any proceeding
involving the corporate agent by reason of his or her being or having been such
a corporate agent, other than a proceeding by or in the right of the
corporation, if such corporate agent acted in good faith and in a manner he or
she reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal proceeding, such corporate agent
had no reasonable cause to believe his or her conduct was unlawful. Section
14A:3-5 of the BCA permits similar indemnification in a proceeding by or in the
right of the corporation, but only if approved by a specified court. In
addition, Section 14A:3-5 of the BCA also provides for the procedures to secure
indemnification, advancement of expenses and the obtaining of insurance by the
corporation.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing
63
<PAGE> 67
provisions, or otherwise, the Company has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Company of expenses incurred or paid by a director, officer
or controlling person in connection with the securities being registered), the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification is contrary to public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for
the Company by Gold & Wachtel, LLP, 110 East 59th Street, New York, New York
10022. Gold & Wachtel, LLP, as partial payments due to the firm from the Company
for legal services rendered to CLP, received from the Company (a), in March
1992, 18,750 shares of the Common Stock in lieu of $70,000 due to the firm; (b),
in April 1994, 60,000 shares of the Common Stock in lieu of $60,000 due to the
firm; (c), in November 1994, 100,000 shares of the Common Stock and the November
1 Warrant to purchase (as of December 31, 1996) 137,587 shares of the Common
Stock at $1.09 per share in lieu of $207,157 due to the firm; and (d), in
November 1996, 206,991 shares of the Common Stock in lieu of $206,991 due to the
firm. Gold & Wachtel, LLP is offering, pursuant to this Prospectus as a Selling
Shareholder the 206,991 shares described in (d) and the 137,587 shares issuable
upon the exercise of the November 1 Warrant. See "The Selling Shareholders."
EXPERTS
The consolidated financial statements of Creative Learning Products,
Inc. at May 31, 1996 and for the two years ended May 31, 1996 appearing in this
Prospectus and the Registration Statement have been audited by BDO Seidman, LLP,
independent auditors, as set forth in their report thereon appearing elsewhere
herein and in the Registration Statement, and are included in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
64
<PAGE> 68
INDEX TO FINANCIAL STATEMENTS
Audited
- -------
Item Page
- ---- ----
1. Report of Independent Certified Public Accountants F-1
2. Consolidated Balance Sheet as of May 31, 1996 F-2
3. Consolidated Statements of Operations for the Years Ended
May 31, 1996 and 1995 F-4
4. Consolidated Statements of Stockholders' Equity for the
Years Ended May 31, 1996 and 1995 F-5
5. Consolidated Statements of Cash Flows for the Years Ended
May 31, 1996 and 1995 F-6
6. Notes to Consolidated Financial Statements F-7
Unaudited
- ---------
Item Page
- ---- ----
1. Consolidated Balance Sheet as of August 31, 1996 F-17
2. Consolidated Statements of Operations for the Quarters Ended
August 31, 1996 and 1995 F-19
3. Consolidated Statements of Cash Flows for the Quarters
Ended August 30, 1996 and 1995 F-20
4. Notes to Unaudited Consolidated Financial Statements F-21
65
<PAGE> 69
[BDO LETTERHEAD]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Creative Learning Products, Inc.
Springfield, New Jersey
We have audited the accompanying consolidated balance sheet of Creative
Learning Products, Inc. and Subsidiaries as of May 31, 1996, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the two years in the period ended May 31, 1996. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Creative Learning
Products, Inc. and Subsidiaries as of May 31, 1996, and the results of their
operations and their cash flows for each of the two years in the period ended
May 31, 1996 in conformity with generally accepted accounting principles.
/s/ BDO Seidman, LLP
- -----------------------------
BDO Seidman, LLP
New York, New York
September 10, 1996
<PAGE> 70
CREATIVE LEARNING PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MAY 31, 1996
ASSETS
<TABLE>
<S> <C>
Current Assets:
Cash...................................................... $ 541,610
Accounts receivable - net of allowance for doubtful
accounts of $5,219.................................... 111,299
Inventories (Note 4)...................................... 209,447
Receivable from officers (Note 5)......................... 89,128
Prepaid expenses and other current assets................. 98,269
-----------
Total current assets.................................. 1,049,753
-----------
Property and Equipment:
Land (Note 6)............................................. 2,410,452
Machinery and equipment................................... 83,137
Furniture and fixtures.................................... 39,323
-----------
2,532,912
Less accumulated depreciation............................. 81,152
-----------
Property and equipment-net............................. 2,451,760
-----------
Other Assets:
Intangibles, net of accumulated amortization of $404,295.. 643,056
Miscellaneous............................................. 111,682
-----------
Total other assets................................... 754,738
-----------
$ 4,256,251
===========
</TABLE>
See Notes to Consolidated Financial Statements.
F - 2
<PAGE> 71
CREATIVE LEARNING PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MAY 31, 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C>
Current Liabilities:
Current maturities of long-term debt............................ $ 121,884
Accounts payable................................................ 1,129,492
Accrued expenses and other current liabilities.................. 141,604
------------
Total current liabilities.................................. 1,392,980
------------
Long-term Debt (Note 7):
Long-term debt, less current maturities of $121,884............. 950,591
------------
Commitments and Contingencies (Note 9)
Stockholders' Equity:
12% Cumulative redeemable preferred stock (2,000,000
shares authorized): Series B, par value $1.00; issued and
outstanding: none (Note 12)................................ --
Common stock, no par value; authorized: 25,000,000 shares;
issued and outstanding: 13,312,383 shares (Note 11)........ 16,047,291
Additional paid-in capital...................................... 2,879,541
Accumulated deficit............................................. (17,014,152)
------------
Total stockholders' equity................................... 1,912,680
------------
$ 4,256,251
============
</TABLE>
See Notes to Consolidated Financial Statements.
F - 3
<PAGE> 72
CREATIVE LEARNING PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended May 31,
------------------
1996 1995
---- ----
<S> <C> <C>
Net sales............................. $ 1,461,906 $ 1,488,437
Cost of goods sold.................... 792,679 675,491
----------- ------------
Gross profit.......................... 669,227 812,946
----------- ------------
Selling expenses...................... 480,028 559,445
General and administrative expenses... 1,804,262 1,970,146
Reserve for gaming projects (Note 2).. 332,424 2,947,161
Officers' stock option expense........ -- 904,688
Debt conversion expense............... -- 398,749
Interest expense...................... 60,991 70,501
----------- ------------
2,677,705 6,850,690
----------- ------------
Net loss.............................. $(2,008,478) $ (6,037,744)
=========== ============
Net loss per share.................... $ (.18) $ ( .81)
=========== ============
</TABLE>
See Notes to Consolidated Financial Statements.
F - 4
<PAGE> 73
CREATIVE LEARNING PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE TWO YEARS ENDED MAY 31, 1996
<TABLE>
<CAPTION>
Additional
Preferred Common Stock Paid-In Accumulated Subscriptions
Stock (a) Shares Amount Capital Deficit Receivable
--------- ------ ------ ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, May 31, 1994.................. $ 200,000 2,996,782 $ 5,971,855 $ 1,376,104 $ (8,967,930) $ (33,750)
Issuances of preferred stock........... 200,000
Issuances of common stock.............. 6,581,038 6,925,574
Conversions of preferred stock......... (200,000) 50,000 200,000
Reduction of subscriptions receivable.. 3,750
Additions to paid-in capital........... 1,303,437
Net loss for year ended May 31, 1995... (6,037,744)
---------- ---------- ----------- ----------- ------------ -----------
Balance, May 31, 1995.................. 200,000 9,627,820 13,097,429 2,679,541 (15,005,674) (30,000)
Issuances of common stock.............. 3,684,563 2,949,862
Retirement of preferred stock.......... (200,000) 200,000
Reduction of subscriptions receivable.. 30,000
Net loss for year ended May 31, 1996... (2,008,478)
---------- ---------- ----------- ----------- ------------ -----------
Balance, May 31, 1996.................. $ 0 13,312,383 $16,047,291 $ 2,879,541 $(17,014,152) $ 0
========== ========== =========== =========== ============ ===========
</TABLE>
a) All Preferred Stock transactions represented shares of the Preferred Stock at
$1.00 per share.
See Notes to Consolidated Financial Statements.
F - 5
<PAGE> 74
CREATIVE LEARNING PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended May 31,
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss .................................................. $(2,008,478) $(6,037,744)
----------- -----------
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization ........................... 273,849 229,186
Reserve for gaming projects ............................. 332,424 2,947,161
Stock option and debt conversion expenses ............... -- 1,303,437
Other non-cash operating expenses ....................... 30,000 7,375
Changes to operating assets and liabilities:
Accounts receivable .................................... (18,235) 13,786
Inventories ............................................ 65,208 (31)
Receivable from officer ................................ 2,925 (92,053)
Prepaid expenses and other assets ...................... (102,180) (867)
Accounts payable ....................................... 476,290 202,125
Accrued expenses and other current liabilities ......... 36,151 (151,718)
----------- -----------
Total adjustments .................................... 1,096,432 4,458,401
----------- -----------
Net cash used in operating activities .............. (912,046) (1,579,343)
----------- -----------
Cash flows from investing activities:
Increase in gaming project costs .......................... (332,423) (3,160,661)
Additions to property and equipment ....................... (1,491,605) (314,737)
Net proceeds from sale of Roburn .......................... -- 282,520
----------- -----------
Net cash used in investing activities .............. (1,824,028) (3,192,878
----------- -----------
Cash flows from financing activities:
Repayment of short-term borrowings ........................ (74,000) (789,500)
Proceeds from short-term borrowings ....................... 625,000 1,374,000
Proceeds from long-term borrowings ........................ 1,072,475 --
Repayment of long-term debt ............................... -- (100,608)
Repayment of convertible notes ............................ -- (312,500)
Proceeds from issuances of stock .......................... 1,531,960 4,612,938
----------- -----------
Net cash provided by financing activities .......... 3,155,435 4,784,330
----------- -----------
Net increase in cash .......................................... 419,361 12,109
Cash at beginning of year ..................................... 122,249 110,140
----------- -----------
Cash at end of year ........................................... $ 541,610 $ 122,249
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest .................... $ 11,858 $ 54,265
=========== ===========
Supplemental schedule of non-cash financing activities:
Debt and other liabilities converted to Common Stock ...... $ 1,417,902 $ 2,013,761
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE> 75
CREATIVE LEARNING PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TWO YEARS ENDED MAY 31, 1996
NOTE 1 - PRINCIPLES OF CONSOLIDATION AND ORGANIZATION
Creative Learning Products, Inc. (the "Company") was formed in August 1988 to
provide management and administrative services to its wholly-owned subsidiaries.
The Company and its operating subsidiaries are collectively referred to herein
as "CLP".
The operating subsidiaries of the Company sell their products, consisting of
educational videos, books, gaming related items and children's paper products,
through mail order and through retailers, brokers and distributors. The Company
also is attempting to convert to an entity offering gaming facilities and
equipment, a hotel convention center, a theme park, a time sharing facility and
entertainment. A former business, which was sold in August 1994, was engaged in
the manufacturing, imprinting and selling of writing instruments and other
products to the advertising specialty industry.
The consolidated financial statements include the accounts of the Company and
its subsidiaries, all of which are wholly owned. Significant intercompany
accounts and transactions have been eliminated in consolidation.
The Company's accompanying consolidated financial statements have been
prepared on a going concern basis which contemplates continued future revenues
from operations and proceeds from sales of debt and equity securities and the
exercise of warrants and options. Management of the Company believes the sales
from operations together with its ability to raise additional capital will
provide sufficient cash for the Company to meet its operating requirements for
the year ending May 31, 1997.
To facilitate comparison with the current year, certain amounts in the prior
year have been reclassified.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A) INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market and reflect write-downs to net realizable value.
B) PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation was provided at
rates designed to recover the cost of property and equipment over their
estimated service lives. Depreciation expense for the years ended May 31, 1996
and 1995 was $44,514 and $34,388, respectively. Expenditures for maintenance and
repairs are charged to expense as incurred, whereas expenditures for renewals
and betterments are generally capitalized. Major classifications of property and
equipment and their estimated useful lives were as follows:
F-7
<PAGE> 76
<TABLE>
<CAPTION>
Classification Useful Lives
-------------- ------------
<S> <C> <C>
Machinery and equipment................................................ 3 - 10 years
Furniture and fixtures................................................. 3 - 5 years
</TABLE>
C) OTHER ASSETS
Gaming project amounts are recorded at cost and when deemed appropriate are
reclassified in the balance sheet or reserved and charged to operations on a
project-by-project basis. Gaming projects deemed unlikely to materialize are
retired. Gaming project costs reserved and charged to operations for the years
ended May 31, 1996 and 1995 were $332,424 and $2,947,161, respectively. For the
year ended May 31, 1996, gaming projects in the amount of $3,001,759 were
retired and all remaining gaming projects were fully reserved.
Intangibles, including customer lists and goodwill, are recorded at their
determined value at time of purchase and are amortized over five years.
Amortization expense for the years ended May 31, 1996 and 1995 was $209,470 and
$194,825, respectively. The Company assesses the recoverability of goodwill
based upon several factors, including management's intention with respect to the
acquired operations and those operations' projected undiscounted cash flows.
D) PER SHARE AMOUNTS
Per share amounts are based upon the weighted average Common Stock shares
outstanding of 10,996,147 and 7,432,471 for the years ended May 31, 1996 and
1995, respectively. Losses per share of Common Stock were computed by dividing
the corresponding loss for each year by the weighted average number of shares of
Common Stock outstanding for each year. Common stock equivalents are not
included because the effect would be anti-dilutive.
Fully diluted computations are not shown because all potentially dilutive
securities would have an anti-dilutive effect on per share amounts.
E) 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 revenues and expenses during the reporting period.
Actual results could differ from those estimates.
F) RECENT ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long- Lived Assets and for Long-Lived Assets to be Disposed
Of." The Company will adopt SFAS No. 121 as of June 1, 1996 and its
implementation is not expected to have a material effect on the consolidated
financial statements.
In October 1995, FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 establishes a fair value method for accounting for
stock-based compensation plans
F-8
<PAGE> 77
either through recognition or disclosure. The Company intends to adopt the
employee stock-based compensation provisions of SFAS No. 123 by disclosing the
pro forma net income and pro forma net income per share amounts assuming the
fair value method was adopted June 1, 1995. The adoption of this standard will
not impact the Company's consolidated results of operations, financial position
or cash flows.
G) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of financial instruments including cash, accounts
receivable and accounts payable approximate fair value due to the relatively
short maturities of these instruments. The carrying value of the long-term debt
approximates fair value.
NOTE 3 - ACQUISITIONS
Effective July 1, 1994, the Company purchased certain assets and the business
of John Patrick Productions, Inc., which was engaged in the mail order business
selling instructional videos and other products relating to gaming, for 200,000
shares of the Series B Preferred Stock valued at $200,000, 283,000 shares of the
Common Stock valued at $495,250, and the assumption of $429,150 of liabilities.
The acquisition has been accounted for by the purchase method of accounting. The
operating results of such acquisition are included in the Company's consolidated
results of operations from the date of acquisition.
The following unaudited pro forma summary presents the consolidated results of
operations as if the above acquisition had occurred at the beginning of the
period presented and does not purport to be indicative of what would have
occurred had the acquisition been made as of that date.
<TABLE>
<CAPTION>
Year Ended May 31, 1995
(Unaudited)
<S> <C> <C>
Sales......................................................... $ 1,528,291
Cost of goods sold............................................ 684,531
--------------
Gross profit.................................................. 843,760
Expenses...................................................... 6,928,106
-------------
Net loss...................................................... $ (6,084,346)
=============
</TABLE>
NOTE 4 - INVENTORIES
Inventories of continuing operations consisted of the following at May 31,
1996:
<TABLE>
<S> <C> <C>
Raw materials........................................ $ 112,912
Work-in-process...................................... 9,656
Finished goods....................................... 86,879
-----------
$ 209,447
===========
</TABLE>
NOTE 5 - RECEIVABLE FROM OFFICERS
In December 1994, the Company paid $92,053 as part of the liquidation of the
indebtedness on property, formerly leased to the Company and of which the
Company was a guarantor, owned
F-9
<PAGE> 78
by Peter J. Jegou and Carol A. Kulina-Jegou, the officers and directors of the
Company, and with other net advances, resulted in a balance of $89,128
receivable from officers as of May 31, 1996.
NOTE 6 - PURCHASE OF LAND
On February 28, 1996, the Company purchased a 728-acre parcel of land at an
aggregate purchase price of $2,121,788. The sellers of the property have agreed
to hold a mortgage in the amount of $1,072,475 (see Note 7).
NOTE 7 - LONG-TERM DEBT
Long-term debt consisted of the following at May 31, 1996:
<TABLE>
<S> <C> <C>
10% note payable due
February 28, 1998 (a)................................ $1,072,475
Less current portion................................. (121,884)
------------
$ 950,591
============
</TABLE>
(a) On February 28, 1996, the Company, as part of its purchase of property
(see Note 6), was issued a 10% mortgage from the sellers in the
principal amount of $1,072,475, with payments of $50,000 (including
interest) due every three months and a final payment of principal and
interest due at the end of two years. The Company made the first
mortgage payment on June 6, 1996.
NOTE 8 - INCOME TAXES
The Company has adopted SFAS No. 109, "Accounting for Income Taxes." Under
this method, deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's current deferred tax assets as of May 31, 1996 are
as follows:
<TABLE>
<S> <C> <C>
Difference between book and tax reserves, net ................ $ 184,000
Net operating loss carryforward............................... 6,258,000
Valuation allowance........................................... (6,442,000)
-----------
$ 0
===========
</TABLE>
At May 31, 1996, the Company has a total net operating loss ("NOL")
carryforward of $15,770,000 which expires as follows: 2004 ($77,000), 2005
($465,000), 2006 ($1,113,000), 2007 ($1,361,000), 2008 ($979,000), 2009
($3,281,000), 2010 ($4,040,000) and 2011 ($4,454,000).
As a result of various "ownership changes" occurring prior to fiscal 1996,
future utilization of the Company's NOL carryforwards are subject to certain
limitations under Section 382 of the Internal Revenue Code.
The deferred tax benefit related to the NOL carryforward has been fully
reserved.
F-10
<PAGE> 79
NOTE 9 - COMMITMENTS AND CONTINGENCIES
A) LEASES
The Company leases its office and warehouse facilities and equipment pursuant
to non-cancelable operating leases expiring through October 1999. The following
are the future minimum annual rental payments:
<TABLE>
<CAPTION>
Year ended May 31,
------------------
<S> <C> <C>
1997...................... 77,500
1998...................... 38,200
1999...................... 5,100
2000...................... 1,200
</TABLE>
Rent expense was approximately $103,000 and $69,000 for the years ended May
31, 1996 and 1995, respectively.
B) LITIGATION
During June 1993, an action was instituted against the Company, two
subsidiaries and two officers/directors seeking (1) compensatory damages of
$125,000 for allegedly diverting printing work from the plaintiff; (2)
liquidated damages of $125,000 on the same cause of action; (3) compensatory
damages aggregating $38,500 for printing work performed by the plaintiff; and
(4) compensatory damages aggregating $15,500 relating to finance charges, plus
counsel fees and interest. The officers/directors are being sued as guarantors
of the Company's and its subsidiaries' obligations to the plaintiff. The court
has stayed proceedings against them pending resolution of the claim against the
other defendants. Such defendants are vigorously contesting the plaintiff's
claims and believe that they have valid defenses to some or all of the
plaintiff's allegations. Motions for summary judgment by both the plaintiff and
the defendants have been denied by the court and the action is in the early
stages of discovery.
The Company is, and has been from time to time, a defendant in various legal
actions, including the matters discussed in the preceding paragraphs. Management
believes that the ultimate outcome of these pending actions or claims will not
have a material adverse effect on the Company's consolidated financial position.
On July 18, 1995, a placement agent and ten other persons served the Company
in an action in the Supreme Court of the State of New York, New York County,
against the Company and its investment banker alleging as the first cause of
action that the Company had failed to file on or before February 23, 1994 a
registration statement under the Securities Act with respect to the shares of
the Common Stock issuable upon the conversion of the Company's 10% Convertible
Notes due April 30, 1995 and the shares issuable upon the exercise of the Common
Stock purchase warrants expiring April 30, 1996 and, as a result, had breached
its obligations under the Placement Agent Agreement dated April 30, 1993 (the
"Placement Agent's Agreement") between the Company and the placement agent and
the Warrant Agreement dated May 1,1993 (the "Warrant Agreement") among the
Company, the placement agent and the noteholders, as a result of which breaches
the plaintiffs are alleged to have suffered damages of no less than $3.00
F-11
<PAGE> 80
per share and/or warrant, as the case may be. The plaintiffs, as their second
cause of action, alleged that the investment banker tortuously interfered with
the Placement Agent's Agreement, the Warrant Agreement and the Note Purchase
Agreement dated May 1, 1993 among the Company and the noteholders, thereby
depriving the plaintiffs of a substantial profit because the plaintiffs'
securities could not be freely traded. The plaintiffs seek damages of not less
than $2,000,000, plus interest, on each of the two causes of action and punitive
damages against the investment banker in an amount to be determined. The Company
has asserted certain affirmative defenses to the complaint and intends to
contest this litigation vigorously. The Company and its investment banker have
answered the complaint and discovery has been completed. The parties are
awaiting a trial date. Consequently, the ultimate resolution of the above claim
cannot presently be determined, and the consolidated financial statements do not
include any adjustment that may result from the ultimate outcome.
C) CONSULTING AGREEMENTS
On April 16, 1996, the Company entered into consulting agreements with two
individuals. The terms of the consulting agreements were for the individuals to
perform financial and public relation consulting services for a period of two
years at costs of $133,000 and $267,000, respectively, payable to the
individuals no later than September 30, 1996, and included the issuance of
warrants expiring April 15, 1999 to purchase 1,000,000 and 2,000,000 shares,
respectively, of the Common Stock at an exercise price of $.75 per share. On
August 7, 1996, the second consulting agreement ($267,000) was canceled, the
second warrant (2,000,000 shares) was rescinded, and the first consulting
agreement was modified (see Note 14).
NOTE 10 - MAJOR CUSTOMERS
During the years ended May 31, 1996 and 1995, an individual customer accounted
for approximately 42% and 21%, respectively, of sales from operations. No other
customers accounted for 10% or more of sales from operations during such
periods.
NOTE 11 - COMMON STOCK
On July 24, 1995, the Company issued to a shareholder a Common Stock purchase
warrant expiring January 24, 1999 to purchase 83,333 shares of the Common Stock
at an exercise price of $1.00 commencing January 24, 1996, for which the
shareholder agreed to seek financing for the Company and settled certain claims
against the Company.
On August 30, 1995, a corporate investor exercised its warrant expiring
October 27, 1998 to purchase 140,000 shares of the Common Stock at an exercise
price of $1.50. Due to the antidilutive provisions of this warrant, an aggregate
of 143,535 shares of the Common Stock were issued at the adjusted price of $1.46
for proceeds of $209,590.
On August 31, 1995, the holders of an aggregate of $825,000 in principal
amount of the Company's short-term 10% Promissory Notes accepted, in full
settlement of all principal and interest due, an aggregate of 851,230 shares of
the Common Stock (26,230 shares in lieu of interest due) and Common Stock
purchase warrants expiring March 5, 1998 to purchase an aggregate of 851,230
shares of the Common Stock at an exercise price of $1.50 per share commencing
August 31, 1996.
F-12
<PAGE> 81
On November 30, 1995, the Company, in a private placement pursuant to
Regulation S promulgated under the Securities Act of 1933, as amended (the
"Securities Act"), sold to two non-"U.S. persons" in "off-shore transactions",
for gross proceeds of $250,000, 250,000 shares of the Common Stock and Common
Stock purchase warrants expiring November 29, 1999 to purchase, commencing
November 30, 1996, 250,000 shares of the Common Stock at an exercise price of
$1.50 per share. The Company paid a private placement fee of $25,000 to an agent
for this offering. (The terms "U.S. persons" and "off-shore transactions", as
used in this Report, are used as defined in paragraphs (o) and (i),
respectively, of Rule 902 of Regulation S under the Securities Act).
On November 30, 1995, the holder of an aggregate of $235,000 in principal
amount of the Company's short-term 10% Promissory Notes accepted, in full
settlement of all principal and interest due, an aggregate of 317,529 shares of
the Common Stock (4,196 shares in lieu of interest due) and a Common Stock
purchase warrant expiring March 5, 1998 to purchase, commencing November 30,
1996, an aggregate of 317,529 shares of the Common Stock at an exercise price of
$1.00 per share.
On December 6, 1995, the Company, pursuant to Regulation S under the
Securities Act, sold to a non-"U.S. person" in an "off-shore transaction", for
gross proceeds of $200,000, 200,000 shares of the Common Stock and a Common
Stock purchase warrant expiring December 5, 1999 to purchase, commencing
December 6, 1996, 200,000 shares of the Common Stock at an exercise price of
$1.00 per share. The Company paid a private placement fee of $20,000 to an agent
for this offering.
On January 3, 1996, the Company, pursuant to Regulation S under the Securities
Act, sold to a non-"U.S. person" in an "off-shore transaction", for gross
proceeds of $100,000, 100,000 shares of the Common Stock and a Common Stock
purchase warrant expiring January 2, 2000 to purchase, commencing January 3,
1997, 100,000 shares of the Common Stock at an exercise price of $1.50 per
share. The Company paid a private placement fee of $10,000 to an agent for this
offering.
On January 31, 1996, the holder of an aggregate of $25,000 in principal amount
of the Company's 10% Promissory Note due November 7, 1995 accepted, in full
settlement of all principal and interest due, an aggregate of 40,667 shares of
the Common Stock (667 shares in lieu of interest due).
On February 6, 1996, the Company, pursuant to Regulation S under the
Securities Act, sold to a non-"U.S. person" in an "off-shore transaction", for
gross proceeds of $200,000, 196,928 shares of the Common Stock. The Company paid
a private placement fee of $23,000 to an agent for this offering.
On February 12, 1996, the Company, pursuant to Regulation S under the
Securities Act, sold to a non-"U.S. person" in an "off-shore transaction", for
gross proceeds of $170,000, 145,299 shares of the Common Stock. The Company paid
a private placement fee of $19,600 to an agent for this offering.
On February 28, 1996, the Company, as part of its purchase of a 728-acre
parcel of land, issued 30,000 shares of the Common Stock to the sellers of the
property.
F-13
<PAGE> 82
On May 31, 1996, the Company, pursuant to Regulation S under the Securities
Act, sold to a non-"U.S. person" in an "off-shore transaction", for gross
proceeds of $600,000, 1,200,000 shares of the Common Stock and a Common Stock
purchase warrant expiring May 23, 2001 to purchase, commencing May 31, 1996,
1,000,000 shares of the Common Stock at an exercise price of $1.00 per share.
The Company paid a private placement fee of $100,000 to an agent for this
offering.
On May 31, 1996, the holder of an aggregate of $48,000 in principal amount of
the Company's 8.5% and 10% Promissory Notes accepted, in full settlement of all
principal and interest due, an aggregate of 36,525 shares of Common Stock (4,525
shares in lieu of interest due).
During the year ended May 31, 1996, the Company issued 172,850 shares of the
Common Stock in exchange for various services rendered. The stock was valued at
the value of the services rendered.
At May 31, 1996, an aggregate of 11,185,118 shares of Common Stock were
issuable upon (i) the exercise of warrants (10,132,121 shares), (ii) the
exercise of options (1,030,000 shares) and (iii) the issuance of shares (22,997)
in lieu of dividends on the conversion of Convertible Preferred Stock.
The following is a summary of options and warrants to purchase shares of the
Common Stock as of May 31, 1996:
<TABLE>
<CAPTION>
Outstanding
Shares Purchasable Exercise Price
Options Warrants (a) Per Share (a)
------- ------------ -------------
<S> <C> <C> <C> <C>
May 31, 1995................. 1,089,999 5,759,364 $ .75 - $4.00
Granted...................... 15,000 3,883,967 $ .75 - $3.06
Exercised.................... (143,535) $ 1.46
Canceled..................... (74,999) (550,000)
Dilutions.................... ________ 1,182,325
---------
May 31, 1996................. 1,030,000 10,132,121 $ .75 - $4.00
========= ==========
Exercisable as of
May 31, 1996............... 555,000 8,238,674 $ .75 - $3.50
========== =========
</TABLE>
(a) Various warrants contain antidilutive provisions, for which the cumulative
additional shares reserved are included. The price for warrants exercised
reflect the antidilutive shares issued. All other prices per share are shown
before allowing for their antidilutive provisions.
NOTE 12 - SERIES B PREFERRED STOCK
In August 1994 the Company issued 200,000 shares of the Series B $1.00 par
value, 12% Cumulative Redeemable Preferred Stock valued at $200,000. In April
1996, the shareholder surrendered its 200,000 shares of the Series B Preferred
Stock to the Company, which the Company retired in May 1996. The rights to the
Series B Preferred Stock dividends had been
F-14
<PAGE> 83
waived by the shareholder since issuance. The $200,000 value of the retired
Series B Preferred Stock was applied to additional paid-in capital.
NOTE 13 - BUSINESS SEGMENTS
The primary business segments of the Company consist of 1) gaming projects and
2) the distribution of educational and entertainment videos and other related
products. Information concerning the Company's business segments in fiscal 1996
and 1995 is as follows:
<TABLE>
<CAPTION>
Video and Other
Gaming Projects Product Distribution
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales.......................................... $ -- $ -- $1,461,906 $1,488,437
Operating Loss................................. (676,269) (3,328,004) (751,497) (564,415)
Identifiable Assets............................ 2,413,534 878,572 1,157,738 1,462,658
Depreciation and Amortization ................. 2,801 -- 269,971 229,186
Capital Expenditures........................... 1,481,305 288,664 10,300 11,768
</TABLE>
NOTE 14 - SUBSEQUENT EVENTS
In June 1996, the Company issued to an individual for services rendered 50,000
shares of the Common Stock and a Common Stock purchase warrant expiring June 11,
2001 to purchase 50,000 shares of Common Stock at an exercise price of $1.50 per
share commencing December 12, 1996.
On June 27, 1996, the Company issued and a creditor accepted 47,000 shares of
the Common Stock in satisfaction of outstanding debt of $63,296 as of May 31,
1996.
On August 7, 1996 the Company issued to an officer of the Company a Common
Stock purchase warrant expiring April 15, 1999 to purchase, commencing February
7, 1997, 1,500,000 shares of the Common Stock at $.75 per share.
On August 7, 1996, the Company entered into a consulting agreement with an
individual, which modified a previous agreement (see Note 9). The terms of the
consulting agreement were for the individual to perform financial and public
relation consulting services for a period of two years at a cost of $400,000,
and included the issuance of Common Stock purchase warrants expiring April 16
and August 6, 1999, respectively, to purchase, both commencing August 7, 1996,
2,000,000 and 1,000,000 shares, respectively, of the Common Stock both at $.75
per share. The individual also exercised his warrant expiring April 15, 1999 to
purchase 1,000,000 shares of the Common Stock at an exercise price of $.75 per
share for gross proceeds of $750,000. The individual retained $400,000 in
accordance with his consulting agreement and the Company received net proceeds
of $350,000.
On August 22, 1996, the Company, pursuant to Regulation S under the
Securities Act, sold to three non-"U.S. persons" in "off-shore transactions",
for gross proceeds of $500,000, 1,000,000 shares of the Common Stock.
F-15
<PAGE> 84
On September 4, 1996, the Company, pursuant to Regulation S under the
Securities Act, sold to a non-"U.S. person" in an "off-shore transaction", for
gross proceeds of $600,000, 1,200,000 shares of the Common Stock and issued a
Common Stock purchase warrant expiring September 2, 2001 to purchase 1,000,000
shares of the Common Stock at an exercise price of $1.00 per share. The Company
paid a private placement fee of $100,000 to an agent for this offering.
F-16
<PAGE> 85
CREATIVE LEARNING PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AUGUST 31, 1996
(UNAUDITED)
ASSETS
<TABLE>
<S> <C>
Current Assets:
Cash................................................................................ $ 670,363
Accounts receivable - net of allowance for doubtful
accounts of $1,871.............................................................. 99,071
Inventories......................................................................... 233,177
Receivable from officers............................................................ 118,687
Prepaid expenses and other current assets........................................... 493,929
-----------
Total current assets.......................................................... 1,615,227
-----------
Property and Equipment:
Land................................................................................ 2,410,452
Machinery and equipment............................................................. 83,137
Furniture and fixtures.............................................................. 39,323
-----------
2,532,912
Less accumulated depreciation....................................................... 84,038
-----------
Property and equipment-net..................................................... 2,448,874
-----------
Other Assets:
Investment in gaming projects, net of reserve of $333,611 .......................... 103,566
Intangibles, net of accumulated amortization of $456,664 ........................... 590,687
Miscellaneous....................................................................... 117,425
-----------
Total other assets........................................................... 811,678
-----------
$ 4,875,779
===========
</TABLE>
See Notes to Unaudited Consolidated Financial Statements.
F-17
<PAGE> 86
CREATIVE LEARNING PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AUGUST 31, 1996
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C>
Current Liabilities:
Current maturities of long-term debt............................................... $ 101,163
Short-term notes payable........................................................... 67,657
Accounts payable................................................................... 893,435
Accrued expenses and other current liabilities .................................... 157,291
-----------
Total current liabilities................................................. 1,219,546
-----------
Long-term Debt:
Long-term debt, less current maturities of $101,163 ............................... 924,356
-----------
Stockholders' Equity:
12% Cumulative redeemable preferred stock (2,000,000
shares authorized): Series B, par value $1.00; issued and
outstanding: none................................................................... --
Common stock, no par value; authorized: 25,000,000 shares;
issued and outstanding: 15,434,383 shares....................................... 17,407,274
Additional paid-in capital.......................................................... 2,879,541
Accumulated deficit................................................................. (17,554,938)
Total stockholders' equity.................................................... 2,731,877
-----------
$ 4,875,779
===========
</TABLE>
See Notes to Unaudited Consolidated Financial Statements.
F-18
<PAGE> 87
CREATIVE LEARNING PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended August 31,
1996 1995
---- ----
<S> <C> <C>
Net sales.............................................................. $ 127,174 $ 363,193
Cost of goods sold 57,291 149,701
----------- -----------
Gross profit........................................................... 69,883 213,492
----------- -----------
Selling expenses....................................................... 34,069 99,693
General and administrative expenses.................................... 493,057 467,063
Reserve for gaming projects............................................ 55,785 74,353
Debt conversion expense................................................ -- 42,561
Interest expense....................................................... 27,758 20,997
----------- -----------
610,669 704,667
----------- -----------
Net loss............................................................... $ (540,786) $ (491,175)
=========== ===========
Net loss per share..................................................... $ (.04) $ (.05)
=========== ==========
</TABLE>
See Notes to Unaudited Consolidated Financial Statements.
F-19
<PAGE> 88
CREATIVE LEARNING PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended August 31,
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss....................................................... $ (540,786) $ (491,175)
----------- -----------
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization................................ 61,375 65,070
Reserve for gaming projects.................................. 55,785 74,353
Debt conversion expenses..................................... -- 42,561
Changes to operating assets and liabilities:
Accounts receivable......................................... 12,228 (5,886)
Inventories................................................. (23,730) 2,813
Prepaid expenses and other current assets .................. (437,082) 29,163
Accounts payable............................................ (126,074) (68,121)
Accrued expenses and other current liabilities ............. 15,687 44,921
----------- -----------
Total adjustments......................................... (441,811) 184,874
----------- -----------
Net cash used in operating activities .................. (982,597) (306,301)
----------- -----------
Cash flows from investing activities:
Increase in gaming projects.................................... (159,351) (174,353)
Additions to property and equipment............................ -- (5,717)
----------- -----------
Net cash used in investing activities .................. (159,351) (180,070)
----------- -----------
Cash flows from financing activities:
Repayment of short-term borrowings............................. (8,458) (6,000)
Proceeds from short-term borrowings............................ 76,115 350,000
Repayment of long-term debt.................................... (46,956) --
Proceeds from issuances of stock............................... 1,250,000 209,590
----------- -----------
Net cash provided by financing activities .............. 1,270,701 553,590
----------- -----------
Net increase in cash............................................... 128,753 67,219
Cash at beginning of the period.................................... 541,610 122,249
----------- -----------
Cash at end of the period.......................................... $ 670,363 $ 189,468
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest ...................... $ 53,405 $ 2,051
=========== ===========
Supplemental schedule of non-cash financing activities:
Debt and other liabilities converted to Common Stock .......... $ 109,983 $ 851,230
=========== ===========
</TABLE>
See Notes to Unaudited Consolidated Financial Statements.
F-20
<PAGE> 89
CREATIVE LEARNING PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1996
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
Creative Learning Products, Inc. (the "Company") was formed in August
1988 to provide management and administrative services to its wholly-owned
subsidiaries. The consolidated unaudited financial statements include the
accounts of the Company and its operating subsidiaries, collectively referred to
herein as "CLP". Significant intercompany accounts and transactions have been
eliminated in consolidation.
The operating subsidiaries of the Company sell their products,
consisting of educational videos, books, gaming related items and children's
paper products, through mail order and through retailers, brokers and
distributors. The Company also is attempting to convert to an entity offering
gaming facilities, a hotel convention center, a theme park, a time sharing
facility and entertainment.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles. In the
opinion of management of the Company, all material adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been made. Results of operations for the quarter ended August 31, 1996 are not
necessarily indicative of the results which may be expected for any other
interim period or for the year as a whole. To facilitate comparison with the
current periods, certain amounts in the prior periods have been reclassified.
It is suggested that the unaudited financial statements and notes
thereto in this Report be read in conjunction with the financial statements and
notes thereto in the Company's Annual Report on Form 10-KSB for the fiscal year
ended May 31, 1996 (the "Form 10-KSB"), which was previously filed.
The Company's accompanying consolidated financial statements have been
prepared on a going concern basis which contemplates continued future revenues
from operations and proceeds from sales of debt and equity securities and the
exercise of warrants and options. Management of the Company believes the sales
from continuing operations, together with its ability to raise additional
capital, will provide sufficient cash for the Company to meet its operating
requirements for the year ending May 31, 1997 ("fiscal 1997").
NOTE 2 - GAMING PROJECTS AND OTHER ACTIVITIES
CLP owns 756 acres in Christian County, Missouri, along the main
highway between Springfield, Missouri and Branson, Missouri (the "Christian
County Site"). Management is of the opinion that the Christian County Site can
be used for a time sharing facility, a theme park, a hotel/convention center
and/or other activities. Based on management's review of the current real estate
market in Christian County, Missouri, management is of the opinion that the
Christian
F-21
<PAGE> 90
County Site can be resold for an amount in excess of the aggregate purchase
price, and has retained a real estate broker in an attempt to sell a major
portion of such site.
CLP and the Eastern Shawnee Tribe of Oklahoma (the "Tribe"), entered
into a management agreement to develop and operate a Class A/Class III gaming
facility near Seneca, Missouri (the "Seneca Facility"). Because of a federal
circuit court decision invalidating the statutory right of the Secretary of the
Interior to dedicate land in trust for Native American Indian tribes under the
Indian Reorganization Act and a pending battle for control of the Tribe, with
one of the issues being the management agreement with CLP, CLP has suspended any
further action by it with respect to the Seneca Facility. Depending on
developments, the Company will review whether it will attempt to proceed with
the Seneca Facility.
CLP is negotiating to purchase a hull for the purpose of converting the
hull into an offshore gaming vessel. CLP plans to utilize the vessel for gaming
cruises originating in Southern Florida for part of the year and possibly New
York during the summer months. CLP is currently evaluating several sites in
Southern Florida and New York to determine where the vessel, if purchased, will
be docked. Inspection and other costs incurred through August 31, 1996 for the
potential purchase of a vessel have been deferred.
NOTE 3 - ISSUANCE OF SHORT-TERM DEBT
During July 1996, the Company entered into unsecured installment loan
agreements with two vendors in the aggregate principal amount of $76,115 at an
average annual interest rate of 10.13%, due in aggregate monthly installments of
$8,818, including interest, through April 1997.
NOTE 4 - LONG-TERM DEBT
Long-term debt consisted of the following at August 31, 1996:
<TABLE>
<CAPTION>
<S> <C> <C>
10% note payable due
February 28, 1998 (a) ............................... $1,025,519
Less current portion................................. 101,163
----------
$ 924,356
==========
</TABLE>
(a) On February 28, 1996, the Company, as part of its purchase of property,
was issued a 10% mortgage from the sellers in the principal amount of
$1,072,475, with payments of $50,000 (including interest) due every
three months and a final payment of principal and interest due at the
end of two years.
NOTE 5 - COMMON STOCK
Per share amounts are based upon the weighted average Common Stock
shares outstanding of 14,426,079 and 9,632,206 for the quarters ended August 31,
1996 and 1995, respectively. Losses per share of Common Stock were computed by
dividing the corresponding loss for each quarter by the weighted average number
of shares of Common Stock outstanding for each quarter. Common stock equivalents
are not included because the effect would be anti-dilutive. Fully diluted
computations are not shown because all potentially dilutive securities would
have an anti-dilutive effect on per share amounts.
F-22
<PAGE> 91
In June 1996, the Company issued to an individual for services rendered
50,000 shares of the Common Stock and a Common Stock purchase warrant expiring
June 11, 2001 to purchase 50,000 shares of Common Stock at an exercise price of
$1.50 per share commencing December 12, 1996.
On June 27, 1996, the Company issued and a creditor accepted 47,000
shares of the Common Stock in satisfaction of outstanding debt of $63,296 as of
May 31, 1996.
On August 7, 1996 the Company issued to an officer of the Company, as
consideration for the officer's services in securing gaming opportunities for
CLP and part of an employment agreement dated as of September 25, 1996, a Common
Stock purchase warrant expiring August 6, 1999 to purchase, commencing February
7, 1997, 1,500,000 shares of the Common Stock at $.75 per share.
On August 7, 1996, the Company entered into a consulting agreement with
an individual, which modified a previous agreement dated April 16, 1996. A
separate consulting agreement dated April 16, 1996 with a second individual,
which included a Common Stock purchase warrant expiring April 15, 1999 to
purchase 2,000,000 shares of the Common Stock, was canceled. The terms of the
modified consulting agreement were for the individual to perform financial,
public relation and gaming related consulting services for a period of two years
at a cost of $400,000, and included the issuance of Common Stock purchase
warrants expiring April 16 and August 6, 1999, respectively, to purchase, both
commencing February 7, 1997, 2,000,000 and 1,000,000 shares, respectively, of
the Common Stock both at $.75 per share. The individual also exercised his
warrant expiring April 15, 1999 to purchase 1,000,000 shares of the Common Stock
at an exercise price of $.75 per share for gross proceeds of $750,000. The
individual retained $400,000 in accordance with his consulting agreement and the
Company received net proceeds of $350,000.
On August 22, 1996, the Company, pursuant to Regulation S under the
Securities Act, sold to three non-"U.S. persons" in "off-shore transactions",
for gross proceeds of $500,000, 1,000,000 shares of the Common Stock.
During the quarter ended August 31, 1996, the Company issued 25,000
shares of the Common Stock in exchange for various services rendered. The stock
was valued at the value of the services rendered.
NOTE 6 - SUBSEQUENT EVENTS
On September 4, 1996, the Company, pursuant to Regulation S under the
Securities Act, sold to a non-"U.S. person" in an "off-shore transaction", for
gross proceeds of $600,000, 1,200,000 shares of the Common Stock and issued a
Common Stock purchase warrant expiring September 2, 2001 to purchase 1,000,000
shares of the Common Stock at an exercise price of $1.00 per share. The Company
paid a private placement fee of $100,000 to an agent for this offering.
F-23
<PAGE> 92
No dealer, salesman or other person has been authorized to give any information
or to make any representation other than those contained in this Prospectus,
and, if given or made, such information must not be relied on as having been
authorized by the Company. This Prospectus does not constitute an offer of any
securities other than those to which it specifically relates, or a solicitation
of and offer to buy from any person in any jurisdiction in which such offer or
solicitation is unlawful. The delivery of this Prospectus at any time does not
imply the information herein is correct as of any time subsequent to this date.
______________________
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Available Information ....................... 2
Prospectus Summary .......................... 4
Risk Factors ................................ 6
Management's Discussion and
Analysis of Financial Condition
and Results of Operations ................ 13
Use of Proceeds ............................. 17
Market Information .......................... 17
The Company ................................. 19
Management .................................. 34
Principal Shareholders ...................... 39
Plan of Distribution ........................ 42
The Selling Shareholders .................... 45
Description of Securities ................... 56
Officer and Director Indemnification ........ 63
Legal Matters ............................... 64
Experts ..................................... 64
Financial Statements ........................ 65
</TABLE>
CREATIVE LEARNING PRODUCTS, INC.
10,073,102 Shares of Common Stock to be
Offered by the Selling Shareholders, 1,411,070 Shares
Issuable by the Company and 80,000 Shares Issuable
upon Exercise of a Warrant
PROSPECTUS
CREATIVE LEARNING PRODUCTS, INC.
150 Morris Avenue
Springfield, NJ 07081
(201) 467-0266
, 1997
<PAGE> 93
Part II - Information Not Required in the Prospectus
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article VI of the Articles of Incorporation of Creative Learning
Products, Inc. (the "small business issuer" or the "Company") provides
indemnification of persons to the fullest extent provided by the Business
Corporation Act of the State of New Jersey (the "BCA"). Subsection 14A:3-5(2) of
the BCA empowers a corporation to indemnify a corporate agent (which term
includes a director or officer) against his or her expenses and liabilities in
connection with any proceeding involving the corporate agent by reason of his or
her being or having been such a corporate agent, other than a proceeding by, or
in the right of, the corporation, if such corporate agent acted in good faith
and in a manner he or she reasonably believed to be in, or not opposed to, the
best interests of the corporation and, with respect to a criminal proceeding,
such agent has no cause to believe his or her conduct was unlawful. Subsection
14A:3-5(3) of the BCA provides for similar indemnification of a corporate agent
in a proceeding by, or in the right of, the corporation, but requires court
approval of the actual indemnification. Subsections 14A:3-5(5) through
Subsection 14A:3(5)(12) of the BCA further define the procedures relating to
indemnification.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act"), may be permitted to directors,
officers or persons controlling the small business issuer pursuant to the
foregoing provisions, or otherwise, the small business issuer has been informed
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the small business issuer of
expenses incurred or paid by a director, officer or controlling person of the
small business issuer in the successful defense of an action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the small business issuer will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.*
<TABLE>
<S> <C> <C>
Securities and Exchange Commission fee................................. $ 1,764
NASD fee for additional shares......................................... 7,500
Accountants' fees...................................................... 7,000
Legal fees and expenses................................................ 30,000
Blue sky fees and expenses............................................. 5,000
Printing and engraving expenses........................................ 10,000
Miscellaneous.......................................................... 2,736
-------
Total $64,000
</TABLE>
II-1
<PAGE> 94
- -------------------------
* Estimated, except for the Securities and Exchange Commission and the
NASD fee. The NASD fee is estimated on the basis that at least one
warrant and one option in each series of warrants and options is
exercised.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
During the three-year period commencing January 1, 1994 and continuing
through the date of the filing of this Registration Statement, the small
business issuer sold or issued the securities hereinafter described in the
ensuing numbered paragraphs which were not registered under the Securities Act.
The number of shares of the Common Stock, no par value (the "Common Stock"), and
the prices per share of the Common Stock have been restated to reflect the
one-for-four reverse stock split which became effective on January 26, 1994, but
not the effect of any other anti-dilution provisions in certain of the Common
Stock purchase warrants. The term "affiliate" as used herein shall have the
definition as set forth in Rule 405, the term "U.S. person" as defined in Rule
902(o) and the term "offshore transaction" as defined in Rule 902(i), all under
the Securities Act.
1. On May 30 and August 30, 1991, the small business issuer issued
250,000 shares of its Series A 10% Cumulative Convertible Preferred Stock, $1.00
par value (the "Series A Preferred Stock"), in satisfaction of its obligation to
a company, which was not an affiliate of the small business issuer, for future
printing services valued at $250,000, which shares were issued, at the
unaffiliated company's request, to three persons affiliated with it, but not
affiliates of the small business issuer (Nolan Russo as to 150,000 shares, Jay
Fabrikant as to 60,000 shares and Ashley Starr Fabricant as to 40,000 shares).
Between May 30 and August 30, 1991, the small business issuer sold an aggregate
of 350,000 shares of the Series A Preferred Stock for $350,000 to Rock-A-Bye
Baby, Inc. ("RABB") (70,000 shares), which was not an affiliate of the small
business issuer, Shirley A. Walker, then the beneficial owner of 5% or more of
the Common Stock (80,000 shares), and to Banque Scandinave en Suisse, S.A.
(200,000 shares). Banque Scandanive en Suisse, S.A. advised the small business
issuer that each of the beneficial owners for which it acted as the record
holder for the shares of the Series A Preferred Stock at the dates of
acquisition and conversion was not, and currently is not, a U.S. person or an
affiliate of the small business issuer. As of May 31, 1991, the small business
issuer issued 51,412 shares of the Series A Preferred Stock in satisfaction of
the outstanding balance of a loan from Peter J. Jegou, the Chairman, the
President, the Chief Executive Officer and a director of the small business
issuer. Accordingly, an aggregate of 651,452 shares of the Series A Preferred
Stock were issued.
The Series A Preferred Stock was convertible into shares of the Common
Stock on the basis of one share of the Common Stock for each four shares of the
Series A Preferred Stock. On March 25, 1993, RABB converted its 70,000 shares of
the Series A Preferred Stock into 17,500 shares of the Common Stock and also
received 3,500 shares of the Common Stock as part of a
II-2
<PAGE> 95
settlement of its law suit against the Company. On December 14, 1993, Nolan
Russo, for himself and as transferee from two other holders, converted an
aggregate of 250,000 shares of the Series A Preferred Stock into an aggregate of
62,500 shares of the Common Stock. Mr. Russo received 12,250 shares of the
Common Stock in settlement of any claim by him for accumulated but undeclared
and unpaid dividends upon his conversion of the 250,000 shares of the Series A
Preferred Stock. On May 31, 1994, Mr. Jegou and Ms. Walker converted 80,000 and
51,412 shares, respectively, of the Series A Preferred Stock into 20,000 and
12,853 shares, respectively, of the Common Stock. On November 9, 1994, Banque
Scandinave en Suisse, S.A. converted its 200,000 shares of the Series A
Preferred Stock into 50,000 shares of the Common Stock. Accordingly, as of the
date of filing of this Registration Statement, there were no shares of the
Series A Preferred Stock outstanding. The Company will issue 3,856 shares of the
Common Stock to Mr. Jegou, 5,969 shares to Ms. Walker and 13,172 shares to
Banque Scandinave en Suisse, S.A. in settlement of any claim by any such holder
for accumulated but undeclared and unpaid dividends as a result of their
conversions, and such issuances will be made pursuant to this Registration
Statement.
2. Between May 18, 1994 and November 27, 1996, the law firms or
attorney hereinafter listed received an aggregate of 545,491 shares of the
Common Stock in payment of legal fees. Each of such firms is not an affiliate of
the small business issuer. Gold & Wachtel, LLP has served since 1989 as general
counsel to the small business issuer and is serving as counsel to the small
business issuer in connection with this Registration Statement. Jerold K.
Levien, although not at the time he rendered the services for which he received
shares, had been a partner of Gold & Wachtel, LLP from January 1, 1988 to
December 31, 1992. Gold & Wachtel, LLP also received on November 7, 1994 a
Common Stock purchase warrant expiring November 1, 1999 to purchase 100,000
shares of the Common Stock at $1.50 per share.
<TABLE>
<CAPTION>
Law Firm/Attorney Number of Shares
----------------- ----------------
<S> <C> <C>
Gold & Wachtel, LLP 366,991
Greenbaum, Rowe, Smith,
Ravin, Davis & Himmel 100,000
Jerold K. Levien 4,000
Squadron Associates LP 75,000
-------
Total 545,991
</TABLE>
3. Between April 19, 1994 and December 23, 1996, the small business
issuer issued an aggregate of 403,450 shares of the Common Stock in payment (a)
of consulting, printing and other non-employment services and (b) for
merchandise for resale. Each of the persons or entities at the time of
acquisition was not, and currently is not, an affiliate of the small business
issuer. The persons or entities receiving shares were:
II-3
<PAGE> 96
<TABLE>
<CAPTION>
Name Number of Shares
---- ----------------
<S> <C> <C>
Creative Media International 47,000
Daniel Crognale 22,500
Harvey Freeman 60,000
Alyse Jegou 2,100
Boris Kirilloff 50,000
John Kulina 24,000
Alan H. Lapidus 25,000
Gerald Menard 14,000
Ram Narayanan 2,000
Kenneth Olsen 5,350
John Patrick 28,000
Sal Potenzano 9,000
Joseph H. Straughan 2,000
Trio Graphics, Inc. 12,500
Kimberly Walker 100,000
-------
Total 403,450
</TABLE>
On June 16, 1994, Mr. Menard received an additional 16,000 shares of
the Common Stock in settlement of a claim against the small business issuer. On
June 12, 1996, Mr. Freeman also received a Common Stock purchase warrant
expiring April 16, 1996 to purchase 50,000 shares of the Common Stock at an
exercise price of $1.00 per share in consideration of his services as a
consultant to the small business issuer on gaming matters.
4. On February 26, 1994, as consideration for being granted
distribution rights to products, the small business issuer issued an aggregate
of 50,000 shares of the Common Stock to Gold Communications, Inc., which at the
date of acquisition was not, and currently is not, an affiliate of the small
business issuer:
5. During March and April, 1993, the small business issuer sold,
pursuant to Regulation D under the Securities Act, through Royce Investment
Group, Inc. ("Royce") as the Placement Agent, $500,000 of its 10% Notes due
April 29, 1995 (the "10% Notes") and Common Stock purchase warrants expiring
April 29, 1998 (the "April 29 Warrants") to purchase 125,000 shares of the
Common Stock at an exercise price of $3.50 per share. There were four
purchasers, including Mr. Jegou who acquired $250,000 in principal amount of the
10% Notes and an April 29 Warrant to purchase 62,500 shares of the Common Stock.
Royce received a promissory note in the principal amount of $25,000 as payment
of its placement fee, which note was subsequently paid. On July 27, 1993,
$166,000 in principal amount of the 10% Notes was prepaid ($83,000 in principal
amount was paid to Mr. Jegou) from the proceeds of the Regulation S offering
described in paragraph 8 of this Item 26. The three purchasers of these
securities other
II-4
<PAGE> 97
than Mr. Jegou, all of whom at the dates of acquisition were not, and currently
are not, affiliates of the small business issuer, were:
<TABLE>
<CAPTION>
Number of
Principal Shares
Name of Amount of Subject to
Purchaser 10% Notes Warrant
--------- --------- -------
<S> <C> <C> <C>
Carol Abramson $ 37,500 18,750
Robert DiMarco 37,500 18,750
John DiSimone 50,000 25,000
------- ------
Total $125,000 62,500
</TABLE>
The $125,000 in principal amount of the 10% Notes was prepaid in March
1994, leaving a 10% Note outstanding in the principal amount of $167,000 held by
Mr. Jegou. In October 1994, an additional $70,150 was paid to Mr. Jegou and,
during the fiscal year ended May 31, 1995, the balance was paid to Mr. Jegou.
6. Between February 23, 1994 and December 12, 1996, the small business
issuer issued an aggregate of 125,500 shares of the Common Stock in
consideration of employment services by 20 employees of the small business
issuer or subsidiaries thereof. Except for (a) Peter J. Jegou, who has served as
Chairman, Chief Executive Officer and President since the commencement of
operations, who received 10,000 shares, (b) Walter J. Krzanowski, who became the
Chief Financial and Chief Accounting Officer on July 7, 1995 and the Treasurer
on November 4, 1996, who received an aggregate of 50,000 shares and (c) Dwight
F. Davis, who served as Acting Chief Financial Officer from June 20, 1994 until
July 7, 1995 and as the Treasurer from July 7 until December 31, 1995, who
received 12,000 shares, each of the other employees at the respective dates of
issuance was not, and currently is not, an executive officer or a director of
the small business issuer. Such other employees are:
<TABLE>
<CAPTION>
Name of Employee Number of Shares
---------------- ----------------
<S> <C> <C>
Hilary Angstadt 200
Linda A. Artale (nee Oswald) 22,250
Carolyn Staley Baines 300
Debra Lynn Chimento 250
Elizabeth Cooke 125
Elizabeth Fudger 125
Josephine Matala 125
Michael Rubenfeld 250
Barbara Rubin 125
John R. Sokol 250
</TABLE>
II-5
<PAGE> 98
<TABLE>
<CAPTION>
Name of Employee Number of Shares
---------------- ----------------
<S> <C> <C>
Charles Staley 27,000
Julie Anne Sussman 1,500
Terry Thomas 500
Bonita Ann Vaccaro 250
Joanne von Graevenitz 250
Colleen M. Wills 1,000
-----
Total 54,500
</TABLE>
On July 7, 1995, Mr. Krzanowski also received a stock option expiring
July 6, 2000 to purchase 15,000 shares of the Common Stock at $1.50 per share.
7. In May, June and July, 1993, the small business issuer received
proceeds of $500,000 as the result of a private placement pursuant to Regulation
D under the Securities Act and issued $500,000 in principal amount of its 10%
Convertible Notes due April 30, 1995 (the "April 30 Convertible Notes") and
Common Stock purchase warrants expiring April 30, 1995 (the "April 30 Warrants")
to purchase 200,000 shares of the Common Stock at $3.50 per share. The April 30
Convertible Notes, which were secured by a pledge of certain equipment of Roburn
International Corporation ("Roburn"), a subsidiary of the small business issuer,
were initially convertible into 250,000 shares of the Common Stock on the basis
of one share of the Common Stock for each $2.00 in principal amount. There were
12 purchasers, including Mr. Jegou who acquired $25,000 in principal amount of
the April 30 Convertible Notes and an April 30 Warrant to purchase 10,000 shares
of the Common Stock. The small business issuer paid a placement fee of $25,000
to Westminster Securities Corporation ("Westminster"), the Placement Agent, and,
at Westminster's request, issued Options expiring April 30, 1995 (the
"Westminster Options") to purchase an aggregate of 24,999 shares of the Common
Stock at $2.00 per share and Warrants also expiring April 30, 1995 (the
"Westminster Warrants") to purchase an aggregate of 20,000 shares of the Common
Stock at $3.50 per share to three principals of Westminster (John O'Shea, Henry
P. Krauss and Daniel Luskind), all of whom at the date of acquisition were not,
and currently are not, affiliates of the small business issuer. The eleven
purchasers of these securities other than Mr. Jegou, all of whom at the date of
acquisition were not, and currently are not, affiliates of the small business
issuer, were:
<TABLE>
<CAPTION>
Number of
Principal Amount Shares
Name of of April 30 Subject to
Purchaser Convertible Note Warrant
- --------- ---------------- -------
<S> <C> <C>
Charles W. Barkley $ 12,500 5,000
Stanley S. Becker 25,000 10,000
First Trust Corp., TTEE
Stanley S. Becker IRA 50,000 20,000
</TABLE>
II-6
<PAGE> 99
<TABLE>
<CAPTION>
Number of
Principal Amount Shares
Name of of April 30 Subject to
Purchaser Convertible Note Warrant
- --------- ---------------- -------
<S> <C> <C>
Samuel E. Benjamin 87,500 35,000
Samuel E. Benjamin, M.D.,
Inc. Pension Plan and Trust 62,500 25,000
George E. Groehsl 25,000 10,000
John D. Kilmartin, Jr. 100,000 40,000
Frank Lloyd Kramer 12,500 5,000
Manzi Investments Inc. 25,000 10,000
Jeffrey J. McLaughlin 25,000 10,000
Frederick M. Wittenstein 50,000 20,000
------ ------
Total $475,000 190,000
</TABLE>
Pursuant to a settlement agreement dated as of March 17, 1994, (1) the
exercise price of the April 30 Warrants and the Westminster Warrants was
decreased from $3.50 to $1.125 per share; (2) the number of shares to be issued
upon exercise of each of such Warrants was increased by 250%; and (3) the
conversion price of the April 30 Convertible Notes and the exercise price of the
Westminster Options was decreased from $3.50 to $1.50 per share. In addition,
the small business issuer issued an aggregate of 25,000 shares of the Common
Stock in payment of the interest payment due on April 1, 1994 with respect to
the April 30 Convertible Notes. On June 8, 1994, the expiration date of the
April 30 Warrants, the Westminster Warrants and the Westminster Options was
extended until April 30, 1996, at which time all expired without being
exercised.
On October 8, 1994, the Company called the April 30 Convertible Notes
for prepayment and, on or prior to November 7, 1994, the holders of $187,500 in
principal amount of the April 30 Convertible Notes converted their April 30
Convertible Notes into 124,997 shares of the Common Stock, while the other
holders were prepaid. The holders who converted were Messrs. Groehsl (16,666
shares), Kilmartin (66,666 shares), Kramer (8,333 shares) and McLaughlin (16,666
shares) and Manzi Investments Inc. (16,666 shares), all of which 124,997 shares
were issued to their transferee (Generation Capital Associates) which at the
date of acquisition was not, and currently is not, an affiliate of the small
business issuer.
8. On July 21, 1993, the small business issuer sold, pursuant to
Regulation S under the Securities Act, 10 units (the "Regulation S Units") at
$75,000 per Regulation S Unit for a gross sales price of $750,000. Each
Regulation S Unit consisted of (1) 50,000 shares of the Common Stock and (2) a
Common Stock purchase warrant expiring July 20, 1995 (the "Regulation S Unit
Warrant") to purchase at an exercise price of $2.00 per unit a unit consisting
of (a) 100,000 shares of the Common Stock and (b) a Common Stock purchase
warrant expiring July 20, 1997 (the "Regulation S Additional Warrant")
exercisable at $2.50 per share to purchase
II-7
<PAGE> 100
100,000 shares of the Common Stock. At the closing Royce, the Placement Agent,
purchased, for $1.00, a Common Stock purchase warrant expiring May 20, 1998 (the
"Placement Agent's Unit Purchase Warrant") exercisable at $2.40 per unit to
purchase (a) 22,500 shares of the Common Stock and (b) a Common Stock purchase
warrant expiring July 20, 1997 (the "Purchase Agent's Additional Warrant") to
purchase 22,500 shares of the Common Stock at $3.00 per share. The small
business issuer also paid to Royce at the closing (1) a commission of $75,000,
of which $37,500 was paid in cash and $37,500 by delivery of a promissory note,
(2) a non-accountable expense allowance of $25,000 and (3) a fee of $7,500 for a
six-month consulting agreement. The note to Royce was paid on March 15, 1994.
Neither of the two entities which purchased these securities at the date of
acquisition was, or currently is, an affiliate of the small business issuer. The
purchasers were Frisian Holdings Ltd. ("Frisian") as to seven Regulation S Units
and Noord Holdings Ltd. ("Noord") as to three Regulation S Units. Each
represented that it was not a U.S. person and that the purchase was made in an
offshore transaction.
On February 28, 1994, the small business issuer issued its 8%
Convertible Notes due August 31, 1994 (the "August 31 Convertible Notes") in the
principal amount of $500,000 to Frisian and Noord. The August 31 Convertible
Notes were issued to Frisian in the principal amount of $350,000 and Noord in
the principal amount of $150,000. The 8% Convertible Notes were convertible into
shares of the Common Stock on the basis of one share of the Common Stock for
each $1.25 in principal amount of the August 31 Convertible Notes. As additional
consideration for the loans, the exercise prices of the Regulation S Unit
Warrants and the Regulation S Additional Warrants were reduced to $1.00 and
$1.25 per share, respectively, for a period of one year. None of the August 31
Convertible Notes could be converted, nor any of the Regulation S Warrants and
the Regulation S Additional Warrants exercised, except on 90 days' prior notice
to the small business issuer. Effective October 13, 1994, although agreed to on
September 8, 1994, Frisian and Noord accepted an aggregate of 525,000 shares of
the Common Stock and Noteholders Warrants to purchase 525,000 shares of the
Common Stock in full satisfaction of the principal and the interest on the
August 31 Convertible Notes. Frisian requested that the shares and the
Noteholders Warrant be issued to two transferees of its interest in its 8%
Convertible Note (i.e., Cornelia Company Limited and Ginzel Finance Corp.) and
Noord requested that one half of its shares and the related Noteholders Warrant
be issued to the transferee of its interest in its 8% Convertible Note (i.e.,
Ashdown Holdings, Ltd.). Each of the transferees represented to the small
business issuer that it was not a U.S. person, that the issuance would be in an
offshore transaction and that it was not an affiliate of the small business
issuer.
On June 20, 1994, the small business issuer issued its 8% Promissory
Note due June 20, 1995 (the "June 20 Note") in the principal amount of $100,000
to Frisian. As additional consideration for this loan, the small business issuer
reduced the exercise prices of Frisian's Regulation S Unit Warrant and
Regulation S Additional Warrant to $.75 and $1.00 per share, respectively,
provided that these Warrants were exercised on or prior to July 19, 1995. The
small business issuer subsequently similarly reduced the exercise prices of
Noord's Regulation S Unit Warrant and Regulation S Additional Warrant because of
an advance by Noord. Effective October 13, 1994, although agreed to on September
8, 1994, Frisian accepted 102,555 shares of
II-8
<PAGE> 101
the Common Stock and a Common Stock purchase warrant expiring March 7, 1998 (the
"Noteholders Warrant") to purchase 102,555 shares of the Common Stock in full
satisfaction of the principal and the interest on the June 20 Note. Frisian
requested that the shares and the Noteholders Warrants be issued to the
transferees (i.e., Cornelia Company Limited and Ginzel Finance Corp.) of its
interest in the June 20 Note. Each of such transferees represented that it was
not a U.S. person, that the issuance would be in an offshore transaction and
that it was not an affiliate of the small business issuer.
See paragraph 19 of this Item 26 for information as to the exercises of
Warrants described in this paragraph 8.
9. On October 8, 1993, the small business issuer borrowed $250,000 from
an IRA of Jesse Greenfield evidenced by a promissory note (the "October 8
Note"). Mr. Greenfield at the dates of acquisition mentioned in this paragraph
was not, and currently is not, an affiliate of the small business issuer. In
consideration of the loan, the small business issuer issued to the lender a
Common Stock purchase warrant expiring October 7, 1998 to purchase 62,500 shares
of the Common Stock purchase warrant at $2.00 per share. On January 8, 1994, in
consideration of the lender's extension of the term of the October 9 Note, the
small business issuer extended the expiration date of the foregoing warrant to
January 7, 1999 and issued to the lender a Common Stock purchase warrant
expiring January 7, 1999 to purchase 31,250 shares of the Common Stock at $2.00
per share. (The two warrants are collectively referred to herein as the "January
7 Warrants"). Effective October 13, 1994, although agreed to on September 8,
1994, Mr. Greenfield accepted 275,486 shares of the Common Stock and a
Noteholders Warrant to purchase 275,486 shares of the Common Stock at $1.50 per
share in full satisfaction of the principal and the interest on the October 8
Note.
10. Effective August 15, 1994, Richard Danziger, then the President of
Roburn, accepted 50,000 shares of the Common Stock in consideration of the
termination of the guaranty by the small business issuer of Roburn's obligations
under his employment agreement dated January 21, 1993.
11. Between June 8, 1994 and November 7, 1994, the small business
issuer granted stock options to purchase shares of the Common Stock to (1)
Robert Fain, a consultant to the small business issuer, (2) Peter J. Jegou, the
principal executive officer and a director of the small business issuer, and (3)
Carol A. Kulina-Jegou, then an executive officer and still a director of the
small business issuer. The date of grant of these stock options, the number of
shares subject thereto, the exercise price thereof and the expiration date for
each such option were as follows:
<TABLE>
<CAPTION>
Name of Date of Number Exercise Expiration
Optionee Grant of Shares Price Date
- -------- ----- --------- ----- -----------
<S> <C> <C> <C> <C>
Robert Fain 6/08/94 140,000 $1.33 6/07/99
</TABLE>
II-9
<PAGE> 102
<TABLE>
<CAPTION>
Name of Date of Number Exercise Expiration
Optionee Grant of Shares Price Date
- -------- ----- --------- ----- -----------
<S> <C> <C> <C> <C>
Robert Fain 6/13/94 150,000 $1.32 6/12/99
Peter J. Jegou 5/19/94 125,000 $1.31 5/18/99
Peter J. Jegou 11/07/94 150,000 $ .75 11/06/99
Peter J. Jegou 11/07/94 400,000 $1.00 11/06/99
Carol A. Kulina-Jegou 11/07/94 50,000 $1.00 11/06/99
</TABLE>
Mr. Fain's options were granted to him in consideration of consulting
services to be rendered by him on behalf of the small business issuer, the later
option with respect to milestones in its Branson Project. Mr. Jegou's options
were granted to him for the following reasons: (1) the first option was granted
to him in consideration of his prior guaranty of various obligations of the
small business issuer; (2) the second option was granted in consideration of his
agreeing not to have his 10% Note due April 29, 1995 in the then principal
amount of $167,000 prepaid as were the Notes of the other holders (see paragraph
5 above); and (3) the third option (the "Gaming Option") was granted to him in
consideration of his services to be performed with respect to the Branson
Project. The Gaming Option became exercisable as to 50,000 shares on May 7, 1995
and the balance was to become exercisable in installments based upon the
occurrence of specified developments in the small business issuer's Branson
Project. On September 3, 1996, in consideration of the fact that consummation of
the Branson Project was not likely to occur, at least not during the next two
years, the Gaming Option was amended to become exercisable as to the remaining
350,000 shares whenever a gaming vessel was to be put into service. Ms. Kulina-
Jegou's option was granted to her in consideration of her years of service to
the small business issuer and became exercisable on December 31, 1995, her date
of retirement as an executive officer and employee of the small business issuer.
On August 7, 1996, the small business issuer issued to Mr. Jegou a
Common Stock purchase warrant expiring August 6, 1999 to purchase, commencing
February 7, 1997, 1,500,000 shares of the Common Stock, which underlying shares
have been registered under the Securities Act in the small business issuer's
Registration Statement on Form S-8, File No. 333-13347. On November 29, 1996,
the Board of Directors of the small business issuer authorized the exercise by
Mr. Jegou of this warrant as to 500,000 shares at an exercise price of $.25 per
share.
12. On January 11, 1994, the small business issuer issued an aggregate
of 33,750 shares of the Common Stock to the shareholders of Congress
Entertainment, Ltd. ("Congress"), Charles Staley (25,000 shares) and Barry
Hirschberg (8,750 shares), in consideration of the sale by Congress of its
assets to Kards for Kids, Inc., a subsidiary of the small business issuer.
13. Effective February 15, 1994, the small business issuer initiated a
private placement pursuant to Regulation D under the Securities Act to
accredited investors of up to 600,000 shares of the Common Stock at $1.00 per
share. As of July 24, 1994, the private placement had terminated and an
aggregate of 340,000 shares had been sold to the following
II-10
<PAGE> 103
investors, none of whom were at the respective dates of acquisition, or
currently are, affiliates of the small business investor:
<TABLE>
<CAPTION>
Name of Investor Number of Shares
---------------- ----------------
<S> <C> <C>
Mark Berg 50,000
Herman Henin 75,000
Shirley A. Walker 100,000
Gerald Menard 25,000
Dorothea G. Davis 50,000
John Patrick 40,000
-------
Total 340,000
</TABLE>
On March 16, 1995, the small business issuer issued to each of the
investors in the February 15, 1994 private placement a Common Stock purchase
warrant expiring March 15, 2000 (the "March 15 Warrant") to purchase at $1.50
per share the number of shares of the Common Stock set forth below opposite his
or her name in full and final settlement of any claim to damages allegedly
incurred by any of the investors as a result of the small business issuer's not
filing to date a registration statement under the Securities Act:
<TABLE>
<CAPTION>
Name of Investor Number of Shares
---------------- ----------------
<S> <C> <C>
Mark Berg 33,333
Herman Henin 50,000
Shirley A. Walker 66,667
Gerald Menard 16,667
Dorothea G. Davis 33,333
John Patrick 26,667
-------
Total 226,667
</TABLE>
See paragraph 23 of this Item 26 for information as to a change in Ms.
Walker's March 15 Warrant.
14. On May 18, 1994, the small business issuer issued to Alexa Lin
Garcia 25,000 shares of the Common Stock in payment of a loan by Abe Garcia, a
consultant to Roburn, in the principal amount of $40,000 made on September 17,
1993.
15. On June 13, 1994, in connection with the sale of assets of Roburn
to Modern Molds International, Inc. ("MMII"), the small business issuer issued
150,000 shares of the Common Stock to be held in escrow in the event any
creditor of Roburn asserted a claim against MMII as a result of the failure to
comply with the Bulk Sales Law. On August 8, 1994, the small business issuer
issued 30,000 shares of the Common Stock to MMII to resolve a discrepancy in
II-11
<PAGE> 104
the inventory transferred from Roburn to MMII. MMII at the time of acquisition
of the shares was not, and currently is not, an affiliate of the small business
user.
On August 15, 1994, the small business issuer authorized the issuance
of 150,000 shares of the Common Stock to be held in escrow and to be used,
together with, or in lieu of, cash payments to settle claims of trade creditors
against Roburn. To the extent any of such shares are not so used, they will be
issued to Richard Danziger, the former President of Roburn, as additional
consideration for his effecting the settlements with trade creditors of Roburn.
As of December 31October 23, 1996, 95,260 of the foregoing 150,000 shares of the
Common Stock had been issued to trade creditors of Roburn.
16. Effective as of June 30, 1994, the small business issuer issued
200,000 shares of its Series B 12% Cumulative Preferred Stock, $1.00 par value
(the "Series B Preferred Stock"), to John Patrick Productions, Inc. ("Old John
Patrick") and (b) 265,000 shares of the Common Stock to the shareholders of Old
John Patrick, none of whom at the time of issuance were affiliates of the small
business issuer, in consideration of the sale by Old John Patrick of its assets
to a subsidiary of the small business issuer. The small business issuer
subsequently issued on August 31, 1994 an aggregate of 18,000 shares of the
Common Stock as a finder's fee to two persons (Jeffrey Hodde - 15,000 shares and
Richard Margulies - 3,000 shares) who, at the date of acquisition were not, and
currently are not, affiliates of the small business issuer. The shares of Old
John Patrick and the shares of the Common Stock which they received were:
<TABLE>
<CAPTION>
Name Number of Shares
---- ----------------
<S> <C> <C>
Dwight F. Davis 82,334
Frederick P. Ost 82,333
John Patrick 82,333
Salvatore Potenzano 6,000
Anthony DiNardi 6,000
Lewis G. Martin 6,000
--------
265,000
</TABLE>
Mr. Davis subsequently served as Acting Chief Financial Officer of the
Company from June 20, 1994 until July 7, 1995 and as its Treasurer from July 7
until December 31, 1995. See paragraphs 6 and 22 of this Item 26 relating to Mr.
Davis and paragraph 27 of this Item 26 relating to Mr. Ost.
In April 1996, Old John Patrick surrendered its 200,000 shares of the
Series B Preferred Stock to the small business issuer, which the small business
issuer retired in May 1996.
17. On September 8, 1994, the small business issuer sold, for
$2,250,000, 2,250,000 shares of the Common Stock to Bennett Management &
Development Corp. ("Bennett") which also received a Warrant expiring March 7,
1998 (the "March 7 Warrant") to purchase 2,250,000
II-12
<PAGE> 105
shares of the Common Stock at $1.50 per share. Americorp Securities, Inc. was
paid $225,000 by the small business issuer as a placement fee. Bennett
represented to the small business issuer that it was not an affiliate thereof.
Bennett subsequently transferred the shares and the March 7 Warrant to David
Slyman.
18. On September 23, 1994, Donald Raphael, the holder of an aggregate
of $20,000 in principal amount of the small business issuer's Convertible Note
(the "$20,000 Note"), converted the $20,000 Note into 5,000 shares of the Common
Stock.
19. On various dates in October 1994, the holders of the Warrants
indicated below exercised their Warrants and received the shares indicated
below:
<TABLE>
<CAPTION>
Number of
Warrantholders Warrant Shares
- -------------- ------- ------
<S> <C> <C>
Frisian Holdings, Ltd. Regulation S Unit 250,000
" " " Regulation S Additional 135,000
Noord Holdings, Ltd. Regulation S Unit 150,000
" " Regulation S Additional 60,000
" " Noteholders 78,750
Ashdown Holdings, Ltd. Regulation S Unit 150,000
" " Regulation S Additional 60,000
" " Noteholders 78,750
Edmonson International, Ltd. Regulation S Unit 200,000
" " Regulation S Additional 140,000
Tropical Union Group, Inc. Regulation S Unit 250,000
" " Regulation S Additional 90,000
Ginzel Finance Corp. Noteholders 140,000
Cornelia Company Limited Noteholders 140,000
</TABLE>
Each of the Warrantholders represented that it was not a U.S. person,
the shares were acquired in an offshore transaction and it was not an affiliate
of the small business issuer. As a result of these exercises, the Regulation S
Unit Warrants at $.75 per share, the Regulation S Additional Warrants at $1.00
per share and the Noteholders Warrants at $1.50 per share, the small business
issuer received $1,891,250 in gross proceeds and issued 1,922,500 shares of the
Common Stock (also Additional Warrants to purchase 1,000,000 shares of the
Common Stock, some of which were subsequently exercised as indicated above). The
small business issuer had agreed to pay Royce a fee of 5% of the cash
consideration received for all Warrants as to which it solicits an exercise. The
small business issuer paid Royce $94,562.50 for the foregoing exercises. As a
result of these exercises, there were outstanding, as of October 31, 1994, no
Regulation S Unit Warrants, Regulation S Additional Warrants to purchase 515,000
shares of the Common Stock and Noteholders Warrants to purchase 465,541 shares
of the Common Stock. None of such Warrants were subsequently exercised and,
accordingly, are still outstanding.
II-13
<PAGE> 106
20. On October 28, 1994, the small business issuer settled an action by
Faxfleet Holdings, Ltd., a Hong Kong corporation ("Faxfleet"), by confirming the
sale to Faxfleet, pursuant to Regulation S under the Securities Act, as of
August 12, 1994, of 360,000 shares of the Common Stock at $1.00 per share and
issuing a Common Stock purchase warrant expiring October 27, 1998 (the "October
27 Warrant") to purchase 140,000 shares of the Common Stock at $1.50 per share,
the purchase price having been held in escrow pending resolution initially of a
dispute as to the offering and subsequently of the resulting lawsuit by Faxfleet
against the small business issuer and Royce. Faxfleet represented to the small
business issuer that it was not a U.S. person, that the acquisition of the
securities was in an offshore transaction and that it is not an affiliate of the
small business issuer. The October 27 Warrant was subsequently exercised on
August 30, 1995 for 143,535 shares of the Common Stock, the increase in shares
being due to the anti-dilution provision of the October 27 Warrant.
21. On February 22, 1994, the small business issuer issued 5,000 shares
to John D. Higgins, Sr. in settlement of his claim relating to an expired Common
Stock purchase warrant. On November 7, 1994, the small business issuer granted
him a Common Stock purchase warrant expiring November 6, 1999 to purchase 89,000
shares at $1.00 per share in consideration of his having released his lease of
laser printing equipment to Roburn as part of the sale of Roburn's assets to
MMII (see paragraph 15 of this Item 26). Mr. Higgins was at the dates of
acquisition was not, and currently is not, an affiliate of the small business
issuer.
22. On December 15, 1994, Dwight F. Davis, then the acting Chief
Financial Officer of the small business issuer (see paragraphs 6 and 16 of this
Item 26), agreed to convert $22,000 due to him pursuant to a demand note into
12,000 shares of the Common Stock.
On May 31, 1996, Mr. Davis, the holder of an aggregate of
$48,000 in principal amount of the small business issuer's Convertible Note (the
"$48,000 Note"), exercised his option to convert the $48,000 Note into 36,525
shares of the Common Stock. Mr. Davis at the date of acquisition was not, and
currently is not, an affiliate of the small business issuer.
23. On January 25, 1995, the small business issuer sold to Shirley A.
Walker and Kimberly Walker 125,000 and 50,000 shares, respectively, of the
Common Stock at $1.50 per share. The small business issuer simultaneously
lowered the exercise price of Shirley A. Walker's stock option then expiring
October 15, 1995 to purchase 25,000 shares of the Common Stock from $3.25 to
$1.50 per share and she exercised the same. Each of Shirley A. and Kimberley
Walker at the respective dates of acquisition set forth in this Item 26 was not,
and currently is not, an affiliate of the small business issuer.
On June 8, 1995, the small business issuer issued to Shirley
A. Walker its 10% Promissory Note (the "Walker Note") for a 50,000 loan due the
earlier of September 7, 1995 or a closing with respect to an anticipated private
placement as to which Royce was to act as the placement agent. As additional
consideration for this $50,000 loan, the small business issuer
II-14
<PAGE> 107
reduced the exercise price of Ms. Walker's March 15 Warrant (see paragraph 13 of
this Item 26) from $1.50 per share to $1.00 per share. On January 31, 1996 the
small business issuer paid Ms. Walker $25,000 plus interest on the Walker Note
and in lieu of paying the balance due on the Walker Note issued to her 40,667
shares of the Common Stock.
On September 12, 1995, the small business issuer issued to
Shirley A. Walker a Common Stock purchase warrant expiring November 11, 2000 to
purchase, commencing September 12, 1996, 10,000 shares of the Common Stock at
$1.00 per share in consideration for Ms.Walker's extension of the due date of
the June 8, 1995 $50,000 loan from September 7, 1995 to November 7, 1995.
24. On March 30, 1995, the small business issuer issued to Waal
Investments ("Waal") its 10% Promissory Note due the earlier of December 29,
1995 or a closing with respect to an anticipated private placement as to which
Royce was to act as the placement agent. As additional consideration for this
$400,000 loan, the small business issuer granted to Waal a Common Stock purchase
warrant expiring September 28, 2000 to purchase 50,000 shares of the Common
Stock at $2.66 per share. Waal at the respective dates of acquisition set forth
in this Item 26 was not, and currently is not, an affiliate of the small
business issuer.
On April 13, 1995, the small business issuer issued to Waal
its 10% Promissory Note due the earlier of January 12, 1996 or a closing with
respect to an anticipated private placement as to which Royce was to act as the
placement agent. As additional consideration for this $50,000 loan, the small
business issuer granted to Waal a Common Stock purchase warrant expiring October
12, 2000 to purchase 6,250 shares of the Common Stock at $2.69 per share.
On April 19, 1995, the small business issuer issued to Waal
its 10% Promissory Note due the earlier of January 18, 1996 or a closing with
respect to an anticipated private placement as to which Royce was to act as the
placement agent. As additional consideration for this $75,000 loan, the small
business issuer granted to Waal a Common Stock purchase warrant expiring October
18, 2000 to purchase 9,375 shares of the Common Stock at $2.47 per share.
On July 21, 1995, the small business issuer issued to Waal its
10% Promissory Note due the earlier of April 21, 1996 or a closing with respect
to an anticipated private placement as to which Royce was to act as the
placement agent. As additional consideration for this $100,000 loan, the small
business issuer granted to Waal a Common Stock purchase warrant expiring July
20, 2000 to purchase 12,500 shares of the Common Stock at $2.38 per share.
On August 31, 1995, the small business issuer issued to Waal
647,669 shares of the Common Stock and a Common Stock purchase warrant expiring
March 5, 1998 to purchase 647,669 shares of the Common Stock at $1.50 per share
in lieu of paying $647,669 in indebtedness with respect to the Waal loans
extended on March 30, 1995, April 13, 1995, April 19, 1995 and July 21, 1995 in
the amounts of $400,000, $50,000, $75,000 and $100,000, respectively.
II-15
<PAGE> 108
25. On June 27, 1995, the small business issuer issued to North West
Holding, Ltd. ("North West") its 10% Promissory Note due the earlier of March
26, 1996 or a closing with respect to an anticipated private placement as to
which Royce was to act as the placement agent. As additional consideration for
this $200,000 loan, the small business issuer granted to North West a Common
Stock purchase warrant expiring December 26, 2000 to purchase 25,000 shares of
the Common Stock at $2.38 per share. North West at the respective dates of
acquisition set forth in this Item 26 was not, and currently is not, an
affiliate of the small business issuer.
On August 31, 1995, the small business issuer issued to North
West 203,561 shares of the Common Stock and a Common Stock purchase warrant
expiring March 5, 1998 to purchase 203,561 shares of the Common Stock at $1.50
per share in lieu of paying $203,561 in indebtedness with respect to the North
West loan extended on June 27, 1995 in the amount of $200,000.
On September 1, 1995, the small business issuer issued to
North West its 10% Promissory Note due the earlier of June 5, 1996 or a closing
with respect to an anticipated private placement as to which Royce was to act as
the placement agent. As additional consideration for this $50,000 loan, the
small business issuer granted to North West a Common Stock purchase warrant
expiring February 28, 2001 to purchase 6,250 shares of the Common Stock at $2.19
per share.
On September 28, 1995, the small business issuer issued to
North West its 10% Promissory Note due the earlier of June 27, 1996 or a closing
with respect to an anticipated private placement as to which Royce was to act as
the placement agent. As additional consideration for this $60,000 loan, the
small business issuer granted to North West a Common Stock purchase warrant
expiring March 27, 2001 to purchase 7,500 shares of the Common Stock at $2.50
per share.
On October 31, 1995, the small business issuer issued to North
West its 10% Promissory Note due the earlier of July 30, 1996 or a closing with
respect to an anticipated private placement as to which Royce was to act as the
placement agent. As additional consideration for this $25,000 loan, the small
business issuer granted to North West a Common Stock purchase warrant expiring
April 29, 2001 to purchase 3,125 shares of the Common Stock at $2.19 per share.
On November 7, 1995, the small business issuer issued to North
West its 10% Promissory Note due the earlier of August 6, 1996 or a closing with
respect to an anticipated private placement as to which Royce was to act as the
placement agent. As additional consideration for this $100,000 loan, the small
business issuer granted to North West a Common Stock purchase warrant expiring
May 6, 2001 to purchase 12,500 shares of the Common Stock at $3.00 per share.
II-16
<PAGE> 109
On November 30, 1995, the small business issuer issued to
North West 317,529 shares of the Common Stock and a Common Stock purchase
warrant expiring March 5, 1998 to purchase, commencing November 30, 1996,
317,529 shares of the Common Stock at $1.00 per share in lieu of paying $238,147
in indebtedness with respect to the North West loans extended on September 1,
1995, September 28, 1995, October 31, 1995 and November 7, 1995 in the amounts
of $50,000, $60,000, $25,000 and $100,000, respectively.
26. On July 24, 1995, the small business issuer granted to Gerald
Menard a Common Stock purchase warrant expiring January 24, 1999 to purchase
83,333 shares of the Common Stock at $1.00 per share in consideration of Mr.
Menard agreeing to seek financing for the small business issuer and in
settlement of certain claims by him against the small business issuer. Mr.
Menard at the date of acquisition was not, and currently is not, an affiliate of
the small business issuer.
27. On October 26, 1995, the small business issuer issued to Frederick
P. Ost a Common Stock purchase warrant expiring October 25, 2001 to purchase
5,000 shares of the Common Stock at $3.06 per share as compensation for
assisting the small business issuer in obtaining funding for John Patrick
Productions, Inc., a subsidiary of the small business issuer. See paragraph 16
of this Item 26.
28. On November 30, 1995, the small business issuer sold, pursuant to
Regulation S under the Securities Act, two units (the "Units") at $125,000 per
Unit for a gross sales price of $250,000. Each Unit consisted of (1) 125,000
shares of the Common Stock and (2) a warrant expiring November 29, 1999 to
purchase 125,000 shares of Common Stock at an exercise price of $1.50 per share.
At the closing, the small business issuer paid to First Hanover Securities,
Inc., the placement agent, a commission of $25,000 in cash. The investors were
Spellord, Inc. and Nicholas Robinson, each purchasing one Unit. Each represented
that it was not a U.S. person and that the purchase was made in an offshore
transaction. Neither Spellord, Inc. nor Nicholas Robinson was at the date of
acquisition, nor is either currently, an affiliate of the small business issuer.
29. On December 6, 1995, the small business issuer sold, pursuant to
Regulation S under the Securities Act, for a gross sales price of $200,000 (1)
200,000 shares of the Common Stock, and (2) a warrant expiring December 5, 1999
to purchase 200,000 shares of Common Stock at an exercise price of $1.00 per
share. The entity which purchased these securities, Merchant Enterprises, Ltd.
("Merchant"), at the respective dates of acquisition set forth in this Item 26
was not, and currently is not, an affiliate of the small business issuer.
Merchant represented that it was not a U.S. person and that the purchase was
made in an offshore transaction.
On January 3, 1996, the small business issuer sold to
Merchant, pursuant to Regulation S under the Securities Act, for a gross sales
price of $100,000 (1) 100,000 shares of the Common Stock, and (2) a warrant
expiring January 2, 2000 to purchase 100,000 shares of
II-17
<PAGE> 110
Common Stock at an exercise price of $1.00 per share. Merchant represented that
it was not a U.S. person and that the purchase was made in an offshore
transaction.
30. On February 6, 1996, the small business issuer sold to an
international purchaser, Angelina Panvini ("Panvini"), pursuant to Regulation S
under the Securities Act, for a gross sales price of $200,000, 196,928 shares of
the Common Stock. Panvini represented that she was not a U.S. person and that
the purchase was made in an offshore transaction. The small business issuer paid
a placement fee of $23,000 to an agent for this offering. See paragraph 31 of
this Item 26 for information as to an additional placement fee.
31. On February 16, 1996, the small business issuer sold to an
international purchaser, Tusany Invest & Trade ("Tusany"), pursuant to
Regulation S under the Securities Act, for a gross sales price of $200,000,
145,299 shares of the Common Stock. Tusany represented that it was not a U.S.
person and that the purchase was made in an offshore transaction. The small
business issuer paid a placement fee of $19,600 to an agent for this offering.
In addition to the cash fees described in this paragraph 31 and paragraph 30,
the small business issuer issued on November 15, 1996 to three designees of the
agent Common Stock purchase warrants expiring January 23, 2002 to purchase an
aggregate of 185,000 shares of the Common Stock at $1.50 per share. The
designees were not at the date of issuance, nor are they currently, affiliates
of the small business issuer. The designees, were:
<TABLE>
<CAPTION>
Name Number of Shares
---- ----------------
<S> <C> <C>
Colone Holdings Ltd. 82,500
Holborn Associates Inc. 82,500
Steven Schuster 20,000
-------
Total 185,000
</TABLE>
32. On February 29, 1996, the small business issuer issued an aggregate
of 30,000 shares of the Common Stock, to the persons set forth below, each of
whom was not, and currently is not, an affiliate of the small business issuer,
in connection with a loan as partial consideration for the purchase of certain
property.
<TABLE>
<CAPTION>
Name Number of Shares
---- ----------------
<S> <C> <C>
Anise C. Brasher and Richard Pendleton
as Trustees under the Anise C. Brasher
Revocable Trust UTA dated August 1,
1995 10,000
Brook Lane Lorance 5,000
Tyler Lee Lorance 5,000
Ronald K. Stenger 10,000
</TABLE>
II-18
<PAGE> 111
33. On April 16, 1996, the small business issuer, pursuant to a
consulting agreement for financial and public relations services, issued to Lee
S. Rosen a Common Stock purchase warrant expiring April 15, 1999. The underlying
shares were subsequently registered under the Securities Act in the small
business issuer's Registration Statement on Form S-8, File No. 333-05441.
Mr. Rosen at the dates of acquisition set forth in this Item 26 was not,
currently is not, an affiliate of the small business issuer.
On August 7, 1996, the small business issuer entered into a new
consulting agreement with Mr. Rosen pursuant to which Mr. Rosen agreed to assume
the financial and public relations services to be performed by another person
and to assist in obtaining docking for the small business issuer's gaming vessel
project. The small business issuer issued to Mr. Rosen Common Stock purchase
warrants expiring April 15, 1999 and August 6, 1999 to purchase, commencing
February 7, 1997, 2,000,000 and 1,000,000 shares, respectively, of the Common
Stock at $.75 per share. The underlying shares were subsequently registered in
the small business issuer's Registration Statement on Form S-8, File No.
333-13343.
34. On May 31, 1996, the small business issuer sold to an international
purchaser, Zimco S.A., pursuant to Regulation S under the Securities Act, for a
gross sales price of $600,000, 1,200,000 shares of the Common Stock and Zimco,
S.A. received a Common Stock purchase warrant expiring May 30, 2001 to purchase
1,000,000 shares of the Common Stock at an exercise price of $1.00 per share.
The small business issuer paid a private placement fee of $100,000 to an agent
for this offering. Zimco S.A. represented that it was not a U.S person and that
the purchase was made in an offshore transaction.
35. On August 22, 1996, the small business issuer sold to the
international purchasers set forth below, pursuant to Regulation S under the
Securities Act, the number of shares of the Common Stock set forth opposite
their names at a purchase price of $.50 per share. Each of such purchasers
represented that it, he or she was not a U.S. person and that the purchase was
made in an offshore transaction.
<TABLE>
<CAPTION>
Name Number of shares
---- ----------------
<S> <C> <C>
Cliveden Capital Offshore Fund Ltd. 370,000
Michael F. Howard 370,000
Sue Townsend 260,000
---------
Total 1,000,000
</TABLE>
36. On September 3, 1996, the small business issuer sold to an
international purchaser, Patyam Stiftung, pursuant to Regulation S under the
Securities Act, for gross proceeds of $600,000, 1,200,000 shares of the Common
Stock and issued a Common Stock purchase warrant expiring September 2, 2001 to
purchase 1,000,000 shares of the Common Stock at an exercise price of $1.00 per
share. The small business issuer paid a private placement fee of
II-19
<PAGE> 112
$100,000 to an agent for this offering. Patyam Stiftung represented that it was
not a U.S person and that the purchase was made in an offshore transaction.
37. On September 9, 1996, the small business issuer issued 3,000 shares
of the Common Stock to Dennis Burnham as full and complete settlement of all
claims Mr. Burnham may have had against the small business issuer pursuant to a
settlement agreement between the parties. Mr. Burnham at the date of acquisition
was not, and currently is not, an affiliate of the small business issuer.
38. On September 13, 1996, the small business issuer issued to George
Spitzer & Associates, Inc. ("Spitzer") 45,000 shares of the Common Stock in
settlement of litigation relating to the former Congress Entertainment Division
of a subsidiary of the small business issuer. The shares are being held in
escrow by the small business issuer's counsel. If, at the end of a four-year
period, Spitzer has not been compensated as provided in the settlement agreement
through business with the purchaser of the assets of such Division, then, to the
extent necessary, the shares will be released from escrow to Spitzer; otherwise,
they will be returned to the small business issuer for cancellation during the
four-year period.
39. On December 23, 1996, the small business issuer sold to Kimberly
Walker 100,000 shares of the Common Stock for gross proceeds of $50,000.
The above transactions are claimed to be exempt from registration under
the Securities Act pursuant to Section 4(2) thereof as transactions by an issuer
not involving any public offering. The small business issuer also relied for
certain transactions (i.e., paragraphs 5, 7, 13, 17 and 23) in compliance with
Regulation D and, in the case of the transactions described in paragraphs 8, 20,
28, 29, 30, 31, 34, 35 and 36 on Regulation S under the Securities Act. Each
purchaser represented to the small business issuer that he, she or it acquired
his, her or its securities for investment, and not with a view to, or in
connection with, a distribution thereof. The certificates evidencing the shares
of the Common Stock when issued generally had a legend restricting the transfer
except in compliance with the Securities Act. There were no underwriting
discounts or commissions except as indicated in paragraphs 5, 7, 8, 17, 19, 28,
30, 31, 34 and 36.
The small business issuer is registering under the Securities Act in
this Registration Statement the shares of the Common Stock for issuance by the
small business issuer in lieu of claims for dividends upon the conversion of the
Series A Preferred Stock as described in paragraph 1. The small business issuer
is also registering in this Registration Statement shares of the Common Stock
for sale by the holders in certain of the above transactions (i.e., paragraphs
2, 3, 5, 6, 9, 11, 13, 15, 17, 21, 22, 23, 24, 25, 26, 27, 32, 37 and 39).
II-20
<PAGE> 113
ITEM 27. EXHIBITS
All of the following exhibits designated with a footnote reference are
incorporated herein by reference to a prior registration statement filed under
the Securities Act or a periodic report filed by the Company pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934, as amended. If no footnote
reference is made, the exhibit is filed with this Registration Statement on Form
SB-2.
Number Exhibit
2(a) Copy of Agreement and Plan of Reorganization dated as of November 30,
1992 by and between the Company and Roburn International Corporation,
as amended on April 8, 1993 and April 19, 1993. (1)
2(a)(1) Copy of Agreement and Plan of Reorganization dated as of May 27, 1994
by and among the Company, Creative Crafts Acquisition Corporation, a
subsidiary of the Company, John Patrick Productions, Inc., John
Patrick, Dwight F. Davis and Frederick P. Ost. (2)
3(a) Copy of Certificate of Incorporation as initially filed on August 31,
1988. (3)
3(a)(1) Copy of Amendment to Certificate of Incorporation filed on December 30,
1988. (3)
3(a)(2) Copy of Amendment to Certificate of Incorporation filed on September
12, 1991 (4)
3(a)(3) Copy of Certificate of Designations and Preferences of the Series A
Preferred Stock filed on September 12, 1991. (4)
3(a)(4) Copy of Amendment to Certificate of Incorporation filed on May 22,
1992. (4)
3(a)(5) Copy of Amendment to Certificate of Incorporation filed on June 23,
1992. (4)
3(a)(6) Copy of Amendment to Certificate of Incorporation filed on August 25,
1993. (4)
3(a)(7) Copy of Amendment to Certificate of Incorporation filed on January 26,
1994. (5)
3(a)(8) Copy of Certificate of Designations and Preferences of the Series B
Preferred Stock filed on August 12, 1994. (2)
3(a)(9) Copy of Amendment to Certificate of Designations and Preferences of the
Series B Preferred Stock filed on February 14, 1995. (6)
II-21
<PAGE> 114
Number Exhibit
3(b) Copy of By-Laws as initially adopted. (3)
3(b)(1) Copy of Amended and Restated By-Laws as adopted by shareholders on
January 12, 1994. (5)
4(a) Specimen of Common Stock certificate. (5)
4(b) Form of Common Stock Purchase Warrant issued in connection with
February 1992 private placement. (2)
The Company's Common Stock Purchase Warrants expiring April 4, 1997,
January 24, 1999, April 15, 1999, April 16, 1999, August 6, 1999,
September 18, 1999, November 29, 1999, December 5, 1999, January 2,
2000, March 15, 2000, September 11, 2000, May 23, 2001, September 2,
2001, October 25, 2001 and January 23, 2002 are substantially identical
to the form of Common Stock Purchase Warrant filed as Exhibit 4(b)
hereto except as to the name of the holder, the expiration date and the
exercise price and, accordingly, pursuant to Instruction 2 to Item 601
of Regulation S-K under the Securities Act are not individually filed.
4(c) Form of 10% Note due April 29, 1995 of the Company. (4)
4(c)(1) Form of Common Stock Purchase Warrant expiring April 29, 1998 issued by
the Company. (4)
The Company's Common Stock Purchase Warrants expiring July 20, 1995,
July 20, 1997, March 5, 1998, March 7, 1998, May 26, 1998, October 27,
1998, January 7, 1999, November 1, 1999, November 6, 1999, July 20,
2000, September 28, 2000, October 12, 2000, October 18, 2000, December
26, 2000, February 20, 2001, March 27, 2001, April 29, 2001 and May 6,
2001 are substantially identical to the form of Common Stock Purchase
Warrant filed (by incorporation by reference) as Exhibit 4(c)(1) hereto
except as to the name of the holder, the expiration date and the
exercise price and, accordingly, pursuant to Instruction 2 to Item 601
of Regulation S-K under the Securities Act are not individually filed.
4(d) Copy of Placement Agent Agreement dated as of May 27, 1993 by and
between the Company and Royce Investment Group, Inc. ("Royce"). (7)
4(e) Form of 10% Promissory Note dated October 8, 1993 issued by the
Company. (8)
II-22
<PAGE> 115
Number Exhibit
4(e)(1) Copy of Consent dated October 13, 1994 exchanging Note filed as Exhibit
10(e) hereto for shares of the Common Stock of the Company and a Common
Stock Purchase Warrant expiring March 7, 1998. (2)
4(f) Copy of Option expiring May 18, 1999 issued by the Company to Peter J.
Jegou. (2)
The Company's Options expiring June 8, 1999, June 12, 1999, November 6,
1999 and July 6, 2000 are substantially identical to the form of Option
filed (by incorporation by reference) as Exhibit 4(f) hereto except as
to the name of the holder, the expiration date and the exercise price
and, accordingly, pursuant to Instruction 2 to Item 601 of Regulation
S-K under the Securities Act are not individually filed.
4(g) Copy of 10% Promissory Note due March 26, 1996. (9)
4(g)(1) Copy of Letter dated August 31, 1995 exchanging 10% Promissory Note
filed as Exhibit 4(h) hereto for shares of the Common Stock of the
Company and a Common Stock Purchase Warrant expiring March 5, 1998. (9)
4(h) Copy of 10% Promissory Note due September 7, 1995 (and subsequently
extended to November 7, 1995). (9)
4(i) Copy of 10% Promissory Note due December 29, 1995. (10)
4(i)(1) Copy of 10% Promissory Note due January 12, 1996. (10)
4(i)(2) Copy of 10% Promissory Note due January 18, 1996. (10)
4(i)(3) Copy of 10% Promissory Note due April 21, 1996. (10)
4(i)(4) Copy of Letter dated August 31, 1995 exchanging Notes filed as Exhibits
10(i), 10(i)(1), 10(i)(2), and 10(i)(3) for shares of the Common Stock
of the Company and a Common Stock Purchase Warrant expiring March 5,
1998. (10)
4(j) Copy of 10% Promissory Note due June 5, 1996. (11)
4(j)(1) Copy of Common Stock Purchase Warrant expiring March 27, 2001. (11)
4(j)(2) Copy of 10% Promissory Note due July 30, 1996. (11)
4(j)(3) Copy of 10% Promissory Note due August 6, 1996. (11)
II-23
<PAGE> 116
Number Exhibit
4(j)(4) Copy of Letter dated November 30, 1995 exchanging 10% Promissory Notes
(filed as Exhibits 4(j), 4(j)(1), 4(j)(2) and 4(j)(3) for shares of the
Common Stock and a Common Stock Purchase Warrant expiring March 5,
1998. (11)
4(k) Copy of Consulting Agreement dated as of April 20, 1995 between the
Company and Harvey Freeman.
4(k)(1) Amendment dated as of December 20, 1996 to the Consulting Agreement
filed as Exhibit 4(k) hereto.
5 Opinion of Gold & Wachtel, LLP as to legality.
10(a) Form of Warrant Agency Agreement dated as of April 27, 1989 between the
Company and Continental Stock Transfer & Trust Company as Warrant
Agent. (3)
10(a)(1) Form of Common Stock Purchase Warrant expiring April 27, 1995
(originally April 27, 1994 until extended by the Board of Directors of
the Company) issued by the Company. (12)
10(b) Copy of Purchase Agreement dated as of February 6, 1991 among the
Company and the purchasers listed therein. (5)
10(b)(1) Form of 10% Convertible Note due March 1, 1996 of the Company is
Exhibit B to Exhibit 10(b) hereto. (5)
10(b)(2) Copy of Purchase Agreement dated as of February 28, 1994 among the
Company and the purchasers listed therein. (5)
10(b)(3) Form of 8% Convertible Note due August 31, 1994 of the Company is
Exhibit A to Exhibit 10(b) hereto. (5)
10(b)(4) Copies of Consents dated October 13, 1994 exchanging Notes filed as
Exhibit 10(b)(1) hereto for shares of the Common Stock of the Company
and Common Stock Purchase Warrants expiring March 7, 1998. (2)
10(c) Copy of 8% Promissory Note due June 20, 1995. (5)
10(c)(1) Copy of Letter dated June 20, 1994 modifying Common Stock Purchase
Warrants expiring July 20, 1995 and July 20, 1997 for one of the
holders. (2)
II-24
<PAGE> 117
Number Exhibit
10(c)(2) Copy of Consent dated October 13, 1994 exchanging Note filed as
Exhibit 10(c) hereto for shares of the Common Stock of the Company
and a Common Stock Purchase Warrant expiring March 7, 1998. (5)
10(d) Copy of Placement Agent Agreement dated April 30, 1993 by and
between the Company and Westminster Securities Corporation
("Westminster"). (4)
10(d)(1) Copy of letter agreement dated March 17, 1994 between the Company
and Westminster as placement agent. (5)
10(d)(2) Form of Note Purchase Agreement dated May 1, 1993 among the Company
and the listed purchasers. (4)
10(d)(3) Form of 10% Convertible Promissory Note due April 30, 1995 of the
Company is Exhibit B to Exhibit 10(d)(2) hereto. (4)
10(d)(4) Copy of Security Agreement dated as of May 1, 1993 by and between
Roburn International Corporation, a subsidiary of the Company, and
Westminster as designated agent for the Noteholders. (4)
10(d)(5) Copy of Warrant Agreement dated May 1, 1993 among the Company,
Westminster, as agent, and the warrant holders to be named. (10)
10(d)(6) Form of Common Stock Purchase Warrant of the Company expiring April
30, 1995. (4)
10(d)(7) Copy of letter dated June 8, 1994 from the Company to Westminster
extending expiration date of Warrant filed as Exhibit 10(d)(6)
hereto to April 30, 1996. (2)
10(d)(8) Form of Common Stock Purchase Warrant expiring April 30, 1995 issued
by the Company to the Westminster designees is the same as Exhibit
10(d)(6) hereto. (4)
10(d)(9) Copy of Option expiring April 30, 1995 issued by the Company to the
Westminster designees. (2)
10(d)(10) Copy of letter dated February 10, 1995 to Westminster's counsel
confirming that extension of expiration date from April 30, 1995 to
April 30, 1996 effected by Exhibit 10(d)(7) hereto was also intended
to apply to the Warrants and Options copies of which are filed as
Exhibits 10(d)(8) and 10(d)(9) hereto. (10)
II-25
<PAGE> 118
Number Exhibit
10(e) Copy of Lease dated January 1, 1989 by Peter J. Jegou and Carol A.
Jegou to the Company for the premises located at 3567 Kennedy Road,
South Plainfield, New Jersey together with amendments dated June 1,
1990 and March 1, 1991. (4)
10(e)(1) Copy of Mortgage dated December 19, 1989 by Peter J. Jegou and Carol
A. Jegou to The Howard Savings Bank with respect to property located
at 3567 Kennedy Road, South Plainfield, New Jersey. (4)
10(e)(2) Copy of Guaranty by the Company dated June 20, 1990 of payment by
Peter J. Jegou and Carol A. Jegou under Mortgage dated December 19,
1989 by Peter J. Jegou and Carol A. Jegou to The Howard Savings
Bank. (4)
10(e)(3) Copy of Contract dated June 10, 1993 between Peter J. Jegou and
Carol A. Jegou, as seller, and Robert Mikuski, as buyer of property
located at 3567 Kennedy Road, South Plainfield, New Jersey. (4)
10(f) Copy of Employment Agreement dated as of January 11, 1989 between
the Company and Peter J. Jegou. (13)
10(f)(1) Copy of Employment Agreement dated as of September 25, 1996 by and
between the Company and Peter J. Jegou. (14)
10(g) Copy of Employment Agreement dated as of January 11, 1989 between
the Company and Carol A. Kulina-Jegou. (13)
10(h) Copy of Employment Agreement dated as of January 21, 1993 by and
between Richard Danziger and Roburn International Corporation
("Roburn"). (1)
10(i) Copy of Employment Agreement dated as of January 21, 1993 by and
between Abraham Garcia and Roburn. (1)
10(j) Copy of Distribution Agreement dated February 27, 1992 by and
between Creative Learning Products, Inc. and Medical Insights, Inc.
(15)
10(k) Copy of Distribution Agreement dated as of February 27, 1992 by and
between Creative Learning Products, Inc. and Remarkable Products,
Inc. (15)
10(k)(1) Copy of Memorandum of Joint Venture dated May 21, 1992 between
Creative Learning Products, Inc. and Remarkable Products, Inc. (15)
II-26
<PAGE> 119
Number Exhibit
10(l) Copy of Assignment dated May 12, 1993 by Gold Communications, Inc.
("Gold"), to the Company of an agreement dated January 5, 1993 among
Gold, 2 C Co. Corp. and 3 CPCO Corp. (the "Agreement"), together
with a copy of the Agreement. (4)
10(m) Copy of Financial Consulting Agreement dated July 21, 1993 by and
between the Company and Royce. (7)
10(n) Copy of Lease dated May 1, 1987 between Central Bergen Properties
and Roburn International Corporation for premises located at 170
Kipp Avenue, Elmwood Park, New Jersey, together with Lease Extension
and Amendment dated October 18, 1991. (4)
10(o) Copy of Security Agreement (Accounts Receivable) dated December 27,
1993 by and between Roburn and Ambassador Factors Division of Fleet
Corp. ("Ambassador"). (16)
10(o)(1) Copy of Security Agreement (Inventory) dated December 27, 1993 by
and between Roburn and Ambassador. (16)
10(o)(2) Copy of Agreement of Guaranty of all Liability with Collateral dated
December 27, 1993 by and between the Company and Ambassador. (16)
10(o)(3) Copy of Agreement of Guaranty of all Liability with Collateral dated
December 27, 1993 by and between Peter J. Jegou and Carol A.
Kulina-Jegou and Ambassador. (16)
10(p) Copy of letter agreement dated February 28, 1994 between the Company
and Bauer Cohen Company, Inc. ("Bauer Cohen"). (5)
10(p)(1) Copy of letter agreement dated February 26, 1994 between Bauer Cohen
and The Eastern Shawnee Tribe of Oklahoma. (2)
10(p)(2) Copy of letter agreement dated March 1, 1994 between FK Capital,
Inc. and Bauer Cohen. (2)
10(p)(3) Copy of letter agreement dated June 9, 1994 between the Company and
Bauer Cohen. (2)
10(p)(4) Copy of letter agreement dated August 4, 1994 between the Company
and Bauer Cohen. (2)
II-27
<PAGE> 120
Number Exhibit
10(q) Copy of Option to Purchase Real Estate dated March 28, 1994 by and
between Five Star Productions, Inc., as Optionor, and Edward H.
Cohen and Peter Jegou, as Optionees. (2)
10(r) Copy of Real Estate Contract dated March 16, 1994 between Peter
Jegou and Edward Cohen, as Buyer, and Cook Hollow Company, as
Seller. (2)
10(r)(1) Copy of Special Agreements Addendum dated March 17, 1994 to Exhibit
10(r) hereto. (2)
10(r)(2) Copy of Change Addendum dated November 17, 1994 to Exhibit 10(r)
hereto. (2)
10(r)(3) Copy of Letter dated December 13, 1995 extending option terms of
Exhibit 10(r) hereto. (16)
10(r)(4) Copy of Letter dated January 5, 1995 extending option terms of
Exhibit 10(r) hereto. (16).
10(r)(5) Copy of Closing Agreement dated as of February 28, 1996 relating to
Exhibit 10(r) hereto. (17)
10(r)(6) Copy of Assignment dated as of January 5, 1996 between CGI Joint
Venture, CGI and the Company. (17)
10(r)(7)) Copy of Agreement dated February 28, 1996 between Cook Hollow
Company as Seller, and CGI and the Company as Buyer. (17)
10(r)(8) Copy of Promissory Note dated February 28, 1996 from CGI to Cook
Hollow Company is Exhibit B to Exhibit 10(r)(7)) hereto. (17)
10(r)(9) Copy of Future Advance Obligation Wraparound Deed of Trust dated as
of February 28, 1996 between CGI, Gary A. Powell, as Trustee, and
Cook Hollow Company is Exhibit C to Exhibit 10(r)(7) hereto. (17)
10(r)((10) Copy of Wraparound Mortgage Agreement effective February 28, 1996
between CGI, as Borrower, and Cook Hollow Company, as Lender, is
Exhibit D to Exhibit 10(r)(7) hereto. (17)
10(r)(11) Copy of Indemnity Agreement effective February 28, 1996 among CGI
and the Company, as Indemnitors, and Cook Hollow Company, as
Indemnitee, is Exhibit E to Exhibit 10(ii) hereto. (17)
II-28
<PAGE> 121
Number Exhibit
10(s) Management Agreement dated as of October 20, 1995 between Eastern
Shawnee Tribe of Oklahoma (the "Tribe") and CGI. (16)
10(s)(1) Option Agreement dated as of November 8, 1995 between the Tribe and
CGI. (16)
10(s)(1) Copy of Letter dated December 13, 1995 extending option terms of
Exhibit 10(s) hereto. (16)
10(s)(2) Copy of Letter dated January 5, 1996 extending option terms of
Exhibit 10(s) hereto. (16)
10(s)(3) Copy of Loan Agreement relating to Exhibit 10(s) hereto. (18)
10(t) Copy of Lease dated February 26, 1993 between MAP Investment Co., as
landlord, and John Patrick Productions, Inc., as tenant. (2)
10(t)(1) Copy of Lease dated May 13, 1995 between Rambo Realty, Inc., as
landlord, and John Patrick Productions, Inc., as tenant. (10)
10(u) Copy of Agreement dated June 13, 1994 between Roburn and National
Pen Corporation (later changed to Modern Mold International, Inc.
("MMII")). (2)
10(u)(1) Copy of Amendment No. 1 to the Agreement filed as Exhibit 10(u)
hereof. (2)
10(u)(2) Copy of Amendment No. 2 dated August 8, 1994 to the Agreement filed
as Exhibit 10(u) hereof. (2)
10(u)(3) Copy of Amendment No. 3 dated October 6, 1994 to the Agreement filed
as Exhibit 10(u) hereof. (2)
10(u)(4) Copy of Escrow Agreement dated July 25, 1994 among Mission Valley
Escrow, MMII and Roburn. (2)
10(u(5) Copy of Amendment No. 1 dated August 8, 1994 to the Escrow Agreement
filed as Exhibit 10(u)(4) hereof. (2)
10(u)(6) Copy of Amendment No. 2 dated October 6, 1994 to the Escrow
Agreement filed as Exhibit 10(u)(4) hereof. (2)
II-29
<PAGE> 122
Number Exhibit
10(v) Copy of Agreement dated August 15, 1994 among Banker's Pen, Inc.
("Banker's), the Company and Roburn. (2)
10(v)(1) Copy of Agreement dated as of August 15, 1994 among Richard
Danziger, the Company and Roburn. (2)
10(v)(2) Copy of Agreement dated August 10, 1994 among Richard Danziger, the
Company and Roburn. (2)
10(v)(3) Copy of Escrow Agreement dated August 9, 1994 among the Company,
Roburn, Richard Danziger and Uscher, Quiat, Uscher & Strull as
Escrow Agent. (2)
10(v)(4) Copy of Agreement dated August 15, 1994 among the Company, Banker's,
Richard Danziger and Gold. (2)
10(w) Copy of Agreement dated January 11, 1994 among Congress
Entertainment, Ltd., Charles Staley, Barry Hirschberg, Hirschberg
Productions, Inc., the Company, and Kards for Kids. (2)
10(w)(1) Copy of Agreement dated January 11, 1994 between Hirschberg
Productions, Inc. and Kards for Kids. (2)
10(w)(2) Copy of Employment Agreement effective as of January 11, 1994
between Charles Staley and Kards for Kids. (2)
10(w)(3) Copy of Consulting Agreement effective as of January 11, 1994
between Barry Hirschberg and Kards for Kids. (2)
10(w)(4) Copy of Letter Agreement dated January 11, 1994 among Barry
Hirschberg, Charles Staley and Kards for Kids. (2)
10(w)(5) Copy of Lease dated June 30, 1995 between Grant Holmes, Inc., as
landlord, and Congress Entertainment, Ltd., as tenant. (10)
10(x) Copy of Trademark License Agreement dated January 15, 1987 between
Carol Kulina-Jegou and Kards for Kids, Inc. (3)
10(y) Copy of Common Stock Purchase Warrant expiring October 27, 1998. (3)
10(z) Copy of Lease dated January 7, 1994 between John Higgins, Sr. and
Roburn. (2)
II-30
<PAGE> 123
Number Exhibit
10(z)(1) Copy of Guaranty dated February 20, 1994 by the Company of Roburn's
obligations under the Lease filed as Exhibit 10(y) hereto. (2)
10(aa) Copy of Real Estate Sales Contract dated April 11, 1994 between
Peter J. Jegou and Edward Cohen, Buyer, and Wayne and Levita
Lindsey, Seller. (2)
10(bb) Copy of Letter dated October 28, 1994 between Bennett Management &
Development Corporation and the Company. (2)
10(bb)(1) Copy of Letter dated January 20, 1995 extending term of Letter filed
as Exhibit 10(bb) hereto. (10)
10(bb)(2) Copy of Letter dated April 10, 1995 extending term of Letter filed
as Exhibit 10(bb) hereto. (10)
10(bb)(3) Copy of Letter dated September 20, 1995 extending term of Letter
filed as Exhibit 10(bb) hereto. (10)
10(cc) Copy of Letter dated April 1, 1995 by and among MAO, Inc. the
Company, CGI and Gold & Wachtel, LLP. (10)
10(cc)(1) Copy of Letter of Intent dated August 1995 by and among 9400
Riverview, L.L.C., the Company and CGI. (10)
10(cc)(2) Copy of proposed lease between 9400 Riverview, L.L.C. and CGI. (10)
10(dd) Copy of Letter dated October 6, 1995 between Royce Investment Group,
Inc. and the Company. (10)
10(ee) Copy of Letter dated October 6, 1995 between Americorp Securities,
Inc. and the Company. (10)
10(ff) Copy of Subscription Agreement dated January 25, 1995 between
Shirley A. Walker and the Company. (10)
10(gg) Copy of Consulting Agreement dated as of April 16, 1996 between the
Company and Lee S. Rosen. (19)
10(gg)(1) Copy of Consulting Agreement dated as of August 7, 1996 between the
Company and Lee S. Rosen. (20)
II-31
<PAGE> 124
Number Exhibit
10(ii) Copy of Agreement dated as of October 18, 1996 by and among the
Company, Kards for Kids, Inc. and Nightwing Entertainment Group,
Inc.
10(jj) Copy of Purchase and Sale Agreement dated as of October ___, 1996 by
and among Jerry Ward Cars, Inc., Edward Lockel, Jim's Truct and
Equipment, Inc. and CGI.
21 List of Subsidiaries of the Company. (10)
23(a) Consent of BDO Seidman, LLP.
23(b) Consent of Gold & Wachtel, LLP is included in its opinion filed as
Exhibit 5.
(1) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q
for the quarter ended February 28, 1993 and incorporated herein by
this reference.
(2) Filed as an exhibit to the Company's Annual Report on Form 10-KSB
for the year ended May 31, 1994 and incorporated herein by this
reference.
(3) Filed as an exhibit to the Company's Registration Statement on Form
S-18, File No. 33-27027, and incorporated herein by this reference.
(4) Filed as an exhibit to the Company's Annual Report on Form 10-KSB
for the year ended May 31, 1993 and incorporated herein by this
reference.
(5) Filed as an exhibit to the Company's Quarterly Report on Form 10-QSB
for the quarter ended February 28, 1994 and incorporated herein by
this reference.
(6) Filed as an exhibit to the Company's Quarterly Report on Form
10-QSB/A for the quarter ended February 28, 1995 and incorporated
herein by this reference.
(7) Filed as an exhibit to the Company's Current Report on Form 8-K
dated July 21, 1993 and incorporated herein by this reference.
(8) Filed as an exhibit to the Company's Quarterly Report on Form 10-QSB
for the quarter ended August 31, 1993 and incorporated herein by
this reference.
II-32
<PAGE> 125
(9) Filed as an exhibit to the Company's Quarterly Report on Form 10-QSB
for the quarter ended August 31, 1995 and incorporated herein by
this reference.
(10) Filed as an exhibit to the Company's Annual Report on Form 10-KSB
for the year ended May 31, 1995 and incorporated herein by this
reference.
(11) Filed as an exhibit to the Company's Quarterly Report on Form 10-QSB
for the quarter ended November 30, 1995 and incorporated herein by
this reference.
(12) Filed as an exhibit to the Company's Current Report on Form 8-K
filed on May 16, 1995 and incorporated herein by this reference.
(13) Filed as an exhibit to the Company's Annual Report on Form 10-K for
the year ended May 31, 1992 and incorporated herein by this
reference.
(14) Filed as an exhibit to the Company's Registration Statement on Form
S-8, File No. 333-13343, filed on October 3, 1996 with respect to
Employment Agreement dated as of September 25, 1996, and
incorporated herein by this reference.
(15) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q
for the quarter ended February 29, 1992 and incorporated herein by
this reference.
(16) Filed as an exhibit to the Company's Quarterly Report on Form 10-QSB
for the quarter ended November 30, 1993 and incorporated herein by
this reference.
(17) Filed as an exhibit to the Company's Quarterly Report on Form 10-QSB
for the quarter ended February 29, 1996 and incorporated herein by
this reference.
(18) Filed as an exhibit to the Company's Annual Report on Form 10-KSB
for the fiscal year ended May 31, 1996 and incorporated herein by
this reference.
(19) Filed as an exhibit to the Company's Registration Statement on Form
S-8 filed on June 7, 1996 and incorporated herein by this reference.
(20) Filed as an exhibit to the Company's Registration Statement on Form
S-8, File No. 333-13343, filed on October 3, 1996 with respect to
the Consulting Agreement dated as of August 7, 1996 and incorporated
herein by this reference.
(b) Reports on Form 8-K
None
II-33
<PAGE> 126
ITEM 28. UNDERTAKINGS
The undersigned small business issuer hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereto) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the Registration
Statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
The undersigned Registrant hereby undertakes, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's Annual Report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act that is incorporated by reference in the Registration
Statement shall be deemed a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the small business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the small business
issuer
II-34
<PAGE> 127
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
II-35
<PAGE> 128
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
small business issuer certifies that it has reasonable grounds to believe that
it meets all of the requirements of filing on Form SB-2 and authorized this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Springfield, State of New Jersey, on January 12,
1997.
CREATIVE LEARNING PRODUCTS, INC.
(SMALL BUSINESS ISSUER)
BY:/s/ Peter J. Jegou
----------------------------------
PETER J. JEGOU
CHAIRMAN AND PRESIDENT
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on January 12, 1997.
Signature Title
- --------- -----
/s/ Peter J. Jegou Chairman of the Board and President
- ------------------------------- (Principal Executive Officer) and a director
Peter J. Jegou
/s/ Walter J. Krzanowski Treasurer (Principal Financial and
- ------------------------------- Accounting Officer)
Walter J. Krzanowski
/s/ Carol A. Kulina-Jegou Director
- -------------------------------
Carol A. Kulina-Jegou
II-36
<PAGE> 129
EXHIBIT INDEX
CREATIVE LEARNING PRODUCTS, INC.
REGISTRATION STATEMENT ON FORM SB-2
EXHIBITS FILED WITH FORM SB-2 REGISTRATION STATEMENT
Page
Number Exhibits Number
- ------ -------- ------
4(k) Copy of Consulting Agreement dated as of April 20, 1995 E-2
between the Company and Harvey Freeman
4(k)(1) Copy of Amendment dated as of December 20, 1996 to E-15
the Consulting Agreement filed as Exhibit 4(l) hereto
5 Opinion of Gold & Wachtel, LLP. E-17
10(ii) Copy of Agreement dated as of October 18, 1996 by and E-19
among the Company, Kards for Kids, Inc. and Nightwing
Entertainment Group, Inc.
10(jj) Copy of Purchase and Sale Agreement dated as of E-24
October ___, 1996 by and among Jerry Ward Cars, Inc.,
Edward Lockel, Jim's Truck and Equipment, Inc. and CGI.
23(a) Consent of BDO Seidman, LLP. E-31
E-1
<PAGE> 1
EXHIBIT 4(K)
CONSULTING AGREEMENT
AGREEMENT made as of this 20th day of April, 1995 by and
between Creative Learning Products, Inc., a New Jersey corporation (the
"Corporation"), having its principal office at 150 Morris Avenue, Suite 205,
Springfield, New Jersey 07081, and Harvey Freeman (the "Consultant"), having an
address at 137 East 94th Street, New York, NY 10028.
WHEREAS, the Corporation, through a wholly-owned subsidiary,
is currently in the business of pursuing the development and operation of gaming
facilities;
WHEREAS, the Consultant is experienced in the development and
operation of gaming facilities and in real estate transactions;
WHEREAS, the Corporation desires to obtain the Consultant's
consulting services in connection with the Corporation's program to seek,
develop and operate gaming facilities, and the Consultant is willing to render
such services as hereinafter more fully set forth;
NOW, THEREFORE, in consideration of the mutual promises and
agreements herein contained and upon the terms and conditions hereinafter set
forth, the parties hereto agree as follows:
1. The Corporation hereby engages and retains the Consultant,
and the Consultant hereby agrees to use his best efforts, to render to the
Corporation the consulting services hereinafter described in Section 2 hereof
for a period of four (4) months (the "Term"), commencing as of the date hereof
and terminating on the 19th day of August, 1995 (the "Termination Date"). On
notice delivered pursuant to Section 12 hereof not less than ten days prior to
the Termination Date, either party may communicate his or its
E-2
<PAGE> 2
intention to extend the Term, in which event the parties shall in good faith
negotiate the length of the extension and the monthly compensation therefor.
2. During the Term, the Consultant agrees to render his
consulting services (i) upon the request of the Corporation or (ii) from time to
time as is reasonably necessary to advance the Corporation's program to seek,
develop, finance and operate gaming facilities. The Consultant's services
hereunder shall consist of (a) consulting with respect to developing, financing,
constructing and managing the proposed gaming or real estate operations of the
Corporation and its subsidiaries which are currently under consideration or
which may hereafter be introduced to the Corporation or a subsidiary thereof,
whether by the Consultant or another person or entity; (b) the introduction to
the Corporation or a subsidiary thereof of a new opportunity to open a gaming
facility; and (c) the introduction to the Corporation of a person or entity that
will become an appropriate partner, by reason of financial contribution or
otherwise, to a gaming opportunity. There shall be no minimum number of hours of
service in any month that the Consultant is required to devote to the business
of the Corporation and its subsidiaries except that number which a reasonable
person would deem appropriate to accomplish and effectuate the purposes of this
Agreement. The Corporation acknowledges that the Consultant acts as a consultant
to other companies, so that this is not an exclusive engagement and, because of
these other commitments, the Consultant may not always be available when
requested.
3. (a) In full consideration for the services to be rendered
by the Consultant to the Corporation, the Corporation shall pay to the
Consultant a fee of Forty Thousand ($40,000) Dollars (the "Fee"), payable in
equal monthly installments of Ten Thousand
E-3
<PAGE> 3
($10,000) Dollars, payable on the 20th day of each month (or, if not a business
day, on the next business day) during the Term.
(b) In addition to the compensation payable pursuant to
subsection (a) of this Section 3, if during the Term, as a result of the efforts
of the Consultant, whether as a licensee or through his contacts, the
Corporation or a subsidiary thereof is able to participate in the ownership or
operation of a gaming facility which is open to the public, or is able to obtain
a gaming license, with respect to (i) any of the projects set forth in Schedule
A hereof, (ii) any future project as which to the Corporation requests the
Consultant's services and which, by that request, shall be automatically added
to Schedule A hereof; or (iii) any project which, by mutual consent of the
parties, is later added to Schedule A hereof, the Corporation shall pay to the
Consultant, with respect to each such project that results in such participation
in a gaming facility or obtaining of a gaming license, an additional One Million
($1,000,000) Dollars (the "Bonus"), payable in a combination of cash and that
number of shares of the Corporation's Common Stock, no par value (the "Common
Stock"), which has a Current Market Value which, when combined with the cash,
has a then value of $1,000,000. The Bonus shall be payable within 30 days after
the opening of the gaming facility or casino to the public. The "Current Market
Value" of the Common Stock shall be the mean between the high bid and low asked
prices of the Common Stock on the date of the issuance of the shares as reported
in the National Association of Securities Dealers Automated Quotation ("NASDAQ")
System or, if the Common Stock is not then traded in the NASDAQ System, in the
over-the counter market as reported by the OTC Bulletin Board of the National
Association of Securities Dealers, Inc. or in the pink sheets by the National
Quotation Bureau, Inc. If there are no such quotes reported for that date, the
quotes on
E-4
<PAGE> 4
the first prior trading date on which there are such quotations shall be used.
The Corporation shall make the decision as to which portion of the Bonus is paid
in shares of the Common Stock; provided, however, that the Bonus must be paid
entirely in cash if the shares of the Common Stock are not then registered under
the Securities Act of 1933, as amended (the "Securities Act"), and are not then
"freely tradeable" because there is no prospectus then complying with Section
10(a)(3) of the Securities Act or an exemption from registration under the
Securities Act.
(c) If, at any time within two years after the end of the
Term, the Corporation or a subsidiary shall either (i) participate in the
ownership or operation of a gaming facility or (ii) file for a gaming license
and shall thereafter obtain such license, with respect to any of the projects
listed in Schedule A as to which the Consultant has performed services, then the
Consultant shall be entitled to receive the Bonus as provided in subsection (b)
of this Section 3.
(d) The Corporation agrees to negotiate in good faith with the
Consultant appropriate compensation for any other gaming opportunity introduced
to the Corporation or a subsidiary thereof by the Consultant.
4. The Consultant shall also be entitled to receive reimbursement by
the Corporation for all reasonable expenses incurred at the written request of
the President of the Corporation in rendering services under this Agreement,
provided that the Consultant accounts therefor in such format and detail as to
comply with the requirements of the Internal Revenue Code of 1986, as amended,
and the Internal Revenue Service regulations promulgated thereunder.
5. All final decisions with respect to consultations or services
E-5
<PAGE> 5
rendered by the Consultant hereunder shall be those of the Corporation and there
shall be no liability on the part of the Consultant with respect to any advice
provided hereunder by the Consultant, except for his gross negligence, willful
misconduct or intentional misconduct. In the event that a suit, action, claim or
proceeding is begun, made or instituted against the Consultant as a result of
advice provided by the Consultant hereunder, provided that such advice does not
result from the Consultant's gross negligence, willful misconduct or intentional
misconduct, the Corporation shall indemnify, save and hold harmless the
Consultant from any and all liabilities resulting therefrom, including, without
limitation, reasonable attorneys' fees, disbursements and all amounts paid by
the Consultant as a result of such suit, action, claim, proceeding, compromise
or settlement thereof.
6. (a) The Corporation shall promptly, after completion of the
audit for its fiscal year ending May 31, 1995 and the filing of the related
Annual Report on Form 10-KSB or, if applicable, Form 10-K, file a registration
statement under the Securities Act registering the shares of the Common Stock to
be issued to the Consultant pursuant to Section 3(b) hereof (the "Shares") for
issuance by the Corporation and, if the Consultant at the time of the proposed
sale is an "affiliate" of the Corporation as such term is defined in Rule 405
under the Securities Act, for resale by the Consultant. The Corporation shall
thereafter use its best efforts to have such registration statement declared
effective and thereafter to file such amendments as counsel to the Corporation
shall advise is necessary in order to have a prospectus relating to the issuance
or the resale complying with Section 10(a)(3) of the Securities Act; provided,
however, that if the Consultant is to be named as a selling shareholder in the
registration statement, he shall provide to the Corporation such information as
to his intended method of distribution of the Shares or
E-6
<PAGE> 6
otherwise as counsel to the Corporation may request for disclosure in the
registration statement. The Corporation shall also use its best efforts to
qualify or register the Shares for resale under the securities or "blue sky"
laws of the State of New York, the then state of residence of the Consultant (if
not New York) and one or two other states designated by the Consultant for a
total of three states (including New York).
(b) If the Consultant is a named as a selling shareholder in
the registration statement filed pursuant to subsection (a) of this Section 6,
then the Corporation agrees to indemnify the Consultant in the manner an issuer
traditionally indemnities a selling shareholder except as to information
furnished by the Consultant, as to which the Consultant shall indemnify the
Corporation.
(c) Anything in this Section 6 to the contrary
notwithstanding, the Corporation may register under the Securities Act shares of
the Common Stock for its own account and use the proceeds therefrom as the cash
payment pursuant to Section 3(b) hereof.
7. The Corporation represents and warrants to the Consultant that:
(a) The Corporation is a corporation duly organized and
existing in good standing under the laws of the State of New Jersey, with full
power and authority to enter into this Agreement and to perform its obligations
hereunder.
(b) The Shares when delivered to the Consultant will be duly
authorized, fully paid and nonassessable.
(c) The Corporation has taken all actions necessary to
authorize it to enter into, and to perform its obligations under, this Agreement
and to consummate the transactions contemplated herein.
E-7
<PAGE> 7
(d) Neither the execution and delivery of this Agreement, nor
the consummation of the transactions herein contemplated, nor compliance with
the terms and conditions hereof, will conflict with, or result in a breach of,
the terms and conditions of. or constitute any default under. the certificate of
incorporation or bylaws of the Corporation or of any agreement or instrument to
which the Corporation is now a party.
8. The Consultant represents and warrants to the Corporation that:
(a) Neither the execution and delivery of this Agreement, nor
the consummation of the transactions herein contemplated, nor compliance with
the terms and conditions hereof, will conflict with, or result in a breach of,
the terms and conditions of, or constitute any default under, any agreement or
instrument to which he is now a party.
9. This Agreement shall terminate prior to the expiration of the Term
upon the earliest of the following events:
(a) upon the death of the Consultant;
(b) termination by the Corporation upon notice to the
Consultant pursuant to Section 12 hereof, in the event that, as a result of an
accident or illness or otherwise incapacitating event, the Consultant becomes
unable for a period of four consecutive calendar weeks to perform substantially
the services for which he is engaged herein;
(c) termination by the Corporation upon notice to the
Consultant pursuant to Section 12 hereof, for "cause", which for purposes of
this subsection (c) shall be defined to be the following:
(i) the Consultant has embezzled funds of, misappropriated
other property of, or engaged in fraudulent conduct with respect to the
Corporation;
E-8
<PAGE> 8
(ii) the Consultant has violated any
federal or state statute or regulation thereunder of such a nature as to require
disclosure thereof in a filing with the Securities and Exchange Commission under
the Securities Act or the Securities Exchange Act of 1934, as amended;
(iii) the Consultant has wilfully
disobeyed the lawful directives of the Board of Directors of the Corporation,
whether through commission or omission, and the Corporation has given notice of
this determination to the Consultant pursuant to Section 12 hereof, and such
breach has not been cured within a two-week period after such notice; or
(iv) the Consultant has breached this
Agreement in any material respect and the Corporation has given notice of this
determination to the Consultant pursuant to Section 12 hereof, and such breach
has not been cured within a two-week period after such notice;
(d) termination by the Consultant upon notice to the
Corporation pursuant to Section 12 hereof, if the Corporation has breached this
Agreement in any material respect and such breach has not been cured within a
two week period after such notice; or
(e) termination by the Consultant upon notice to the
Corporation pursuant to Section 12 hereof if the Corporation shall file, or
consent to the filing of, a petition in bankruptcy or a petition to take
advantage of any insolvency act, make an assignment for the benefit of
creditors, consent to the appointment of a receiver of itself or of the whole or
any substantial part of its property, or, on a petition in bankruptcy filed
against it, be adjudicated a bankrupt or fail to discharge such petition within
60 days.
E-9
<PAGE> 9
10. The Consultant shall not disclose or use for his own
benefit or the benefit of a third party any confidential or proprietary
information regarding the Corporation or the subsidiaries thereof which the
Consultant may come in contact with during the course of his employment
hereunder.
11. This Agreement constitutes the entire agreement of the
parties with respect to the subject matter hereof. The representations and
agreements set forth in this Agreement and in any schedules delivered pursuant
hereto constitute all the representations and agreements of the parties hereto
and upon which the parties have relied and, except as may be specifically
provided herein, no change, modification, amendment, addition or termination of
this Agreement or any part thereof shall be valid unless in writing and signed
by, or on behalf of, the party to be charged therewith.
12. Any and all notices or other communications or deliveries
required or permitted to be given or made hereunder shall be in writing and
delivered personally, or sent by certified or registered mail, return receipt
requested and postage prepaid, or sent by overnight courier service as follows:
If to the Corporation, at:
Creative Learning Products, Inc.
150 Morris Avenue
Springfield, NJ 07081
Attention: Peter J. Jegou, President
With a copy to:
Gold & Wachtel, LLP
110 East 59th Street
New York, NY 10022
E-10
<PAGE> 10
Attention: Robert W. Berend, Esq.
If to the Consultant, at:
Harvey Freeman
137 East 94th Street
New York, NY 10028
or at such other address as any party may specify by notice given to such other
party in accordance with this Section 12. The date of giving of any such notice
shall be the date of hand delivery, two days after the posting of the mail or
the date when deposited with the overnight courier.
13. No waiver of the provisions hereof shall be effective
unless in writing and signed by the party to be charged with such waiver. No
waiver shall be deemed a continuing waiver or waiver in respect of any
subsequent breach or default, either of similar or different nature, unless
expressly so stated in writing.
14. Each party will be, and act as, an independent contractor
and not as an agent or partner of, or joint venturer with, the other party for
any purpose, and no party by virtue of this Agreement shall have any right,
power or authority to act or create any obligation, express or implied, on
behalf of the other party.
15. This Agreement shall be construed (both as to validity and
performance) and enforced in accordance with, and governed by, the laws of the
State of New Jersey applicable to contracts to be performed entirely within that
State, without giving effect to the principles of conflicts of law. The parties
hereto agree that any suit or proceeding arising out of this Agreement or the
consummation of the transactions contemplated hereby shall be brought only in a
federal or state court located in the State of New Jersey or the State of New
York. The
E-11
<PAGE> 11
parties hereto each waive any claim that either such jurisdiction is not a
convenient forum for any such suit or proceeding and the defense of lack of
personal jurisdiction, except that nothing herein shall prohibit a party from
moving any proceeding from the state to the federal court or vice versa. Should
any clause, section or part of this Agreement be held, or declared to be, void
or illegal for any reason, all other clauses, sections or parts of this
Agreement which can be effected without such illegal clause, section or part
shall nevertheless continue in full force and effect.
16. This Agreement shall be binding upon, and inure to the
benefit of, the parties hereto and their respective successors and assigns or
heirs and legal representatives; provided, however, that, except as otherwise
provided herein, no party may assign any of its rights or delegate any of its
duties under this Agreement without the prior written consent of the other
parties hereto.
17. The Corporation agrees to cause any of its subsidiaries
that becomes the operational party with respect to a project in Schedule A
hereof to guaranty the payments by the Corporation hereunder and to issue
written confirmation thereof to the consultant.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be signed as of the date and year first above written.
CREATIVE LEARNIING PRODUCTS,
INC.
By:__________________________________
Peter J. Jegou, President
E-12
<PAGE> 12
__________________________________
Harvey Freeman
CLPI\Agmnt\Harvey Freeman
E-13
<PAGE> 13
SCHEDULE A
PROJECTS SUBJECT TO BONUS COMPENSATION
1. St. Louis Riverview Landing
2. St. Regis, Mohawk Tribe
3. Mesquite, Nevada
E-14
<PAGE> 1
EXHIBIT 4(K)(1)
AMENDMENT made as of this 20th day of December, 1996 by and between
Creative Learning Products, Inc., a New Jersey corporation (the "Corporation"),
and Harvey Freeman (the "Consultant").
WHEREAS, the Corporation and the Consultant have entered into a
Consulting Agreement dated as of April 20, 1995 (the "Consulting Agreement") and
now desire to clarify the implementation of Section 3(b) of the Consulting
Agreement;
NOW, THEREFORE, in consideration of the mutual promises and agreements
herein contained, the parties hereto agree as follows (All capitalized terms as
used herein shall have the same meaning as defined in the Consulting Agreement):
1. If the Corporation becomes obligated to pay to the Consultant
the Bonus as provided in Section 3(b) of the Consulting Agreement, then the
Corporation shall satisfy such obligation by delivery to the Consultant of
1,333,333 shares of the Common Stock. If the Current Market Value is less than
$.75 per share, the Corporation shall issue to the Consultant such number of
additional shares of the Common Stock as is necessary so that the product of the
total number of shares issued and the Current Market Value of the Common Stock
is $1,000,000. For the purpose of Section 3(b) of the Consulting Agreement, the
Corporation will direct the Transfer Agent for the Common Stock to issue the
shares as the Bonus (the "Bonus Shares") within two business days after the
Bonus is earned. Anything in Section 3(b) of the Consulting Agreement to the
contrary notwithstanding, the Corporation shall include the Bonus Shares in a
Registration Statement on Form SB-2 under the Securities Act which it intends to
file not later than January 15, 1997 and as to which it shall use its best
efforts to have declared effective under the Securities Act. Upon such effective
date, the Corporation shall be deemed to have complied with the requirement set
forth in the last sentence of Section 3(b) of the Consulting Agreement.
E-15
<PAGE> 2
2. If the Consultant issues the Bonus Shares and, as a result of
sales by the Consultant of the Bonus Shares, he does not realize $1,000,000 in
gross proceeds from such sales, then the Corporation, in its sole discretion in
order to satisfy its obligation to the Consultant that he receive a Bonus of
$1,000,000, shall (a) issue to the Consultant such number of additional shares
of the Common Stock (the "Additional Shares") as shall have, on the effective
date of a registration statement under the Securities Act registering the
Additional Shares, a value equal to the difference between $1,000,000 and the
gross proceeds the Consultant has received or (b) pay the difference in cash.
The foregoing procedure shall be repeated until the Consultant shall have
realized from sales of shares of the Common Stock and/or payments in cash the
sum of $1,000,000 as a Bonus.
3. Except as modified by the foregoing two paragraphs, the
Consulting Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have caused this Amendment to be signed
as of the date and year first above written.
CREATIVE LEARNING PRODUCTS, INC.
By:_____________________________________
President
_____________________________________
Harvey Freeman
E-16
<PAGE> 1
EXHIBIT 5
January 12, 1997
Creative Learning Products, Inc.
150 Morris Avenue
Suite 205
Springfield, NJ 07081
Dear Sirs:
We refer to the Registration Statement on Form SB-2 (the "Registration
Statement") to be filed by Creative Learning Products, Inc. ("CLP") under the
Securities Act of 1933, as amended (the "Securities Act"), relating to (1) (a)
an aggregate of 1,333,333 shares of CLP's Common Stock, no par value (the
"Common Stock"), issuable as a bonus (the "Bonus Shares") to a consultant (the
"Consultant"), (b) an aggregate of 22,997 shares of the Common Stock issuable in
settlement of any claim to accumulated but undeclared and unpaid dividends
Shares on its Series A 10% Cumulative Convertible Preferred Stock, $1.00 par
value (the "Dividend Claims"), (c) an aggregate of 54,740 shares of the Common
Stock issuable in settlement of trade creditor claims against a subsidiary (the
"Trade Creditor Claims"), the operations of which subsidiary having been
discontinued, and (d) 80,000 shares of the Common Stock issuable upon the
exercise of a Common Stock purchase warrant expiring September 18, 1999 (the
"September 18 Warrant") and (2) the shareholders named in the table under the
caption "Selling Shareholders" offer of (a) an aggregate of 2,184,115 shares of
the Common Stock, all of which shares are currently (the "Outstanding Shares"),
(b) an aggregate of 6,858,987 shares of the Common Stock which will be offered
if, and only if, the other outstanding Common Stock purchase warrants (the
"Other Warrants") as set forth in the Registration Statement are exercised, and
(c) an aggregate of 1,030,000 shares of the Common Stock in stock options (the
"Options").
As counsel to CLP, we have examined the Certificate of Incorporation of
CLP, its By-Laws, its minutes and other corporate proceedings and corporate
records relating to the authorization of and, where applicable, the issuance of
the Bonus Shares, the Dividend Claim Shares, the Trade Creditor Shares, the
September 18 Warrant, the Outstanding Shares, the Other Warrants and the Options
and have reviewed the Registration Statement in the form intended to be filed.
In our opinion, we have made such an investigation and examination as we have
deemed necessary for the purposes of expressing an informed opinion on the
matters hereafter discussed.
Based upon such examination, it is our opinion that:
E-17
<PAGE> 2
Creative Learning Products, Inc.
January 12, 1997
Page Two
1. CLP is duly organized and validly existing under the laws of
the State of New Jersey; and
2. The Bonus Shares issuable to the Consultant, the shares of the
Common Stock issuable in settlement of the Dividend Claims and the shares of the
Common Stock issuable to satisfy the Trade Creditor Claims and upon exercise of
the September 18 Warrant, the Other Warrants and the Options will be, when
issued, validly issued, fully paid and non-assessable;
3. The Outstanding Shares being offered by the Selling
Stockholders are validly issued, fully paid and non-assessable.
In addition, we hereby consent to the filing of this opinion as an
Exhibit to the Registration Statement and to the references to our firm under
the captions "Plan of Distribution" and "Legal Matters" included in the
Prospectus which constitutes Part I of the Registration Statement.
Very truly yours,
/s/ Gold & Wachtel, LLP
E-18
<PAGE> 1
EXHIBIT 10(ii)
AGREEMENT dated as of October 18, 1996, by and among CREATIVE LEARNING
PRODUCTS, INC., a New Jersey corporation ("CLP"), and KARDS FOR KIDS, INC., a
New Jersey corporation ("KFK"), each having its principal office at 150 Morris
Avenue, Springfield, New Jersey 07081, NIGHTWING ENTERTAINMENT GROUP, INC., a
Nevada Corporation ("NEG"), having its principal office at 1000 Universal
Studios Plaza, Bldg. 22, Suite 202, Orlando, Florida 32819.
W I T N E S S E T H:
WHEREAS, NEG desires to acquire from KFK, and KFK desires to transfer
to NEG, all the assets, properties, business and good will of Congress
Entertainment ("CE"), a division of a wholly-owned subsidiary of CLP, located at
604 Route 611, P.O. Box 845, Tannersville, Pennsylvania 18372, for the
consideration set forth herein from NEG, which acquisition shall simultaneously
include the assumption by NEG of all liabilities of CE provided in Schedule "A",
all upon the terms and conditions hereinafter set forth.
WHEREAS, in order to carry out the foregoing objectives, CLP, KFK, and
NEG desire to enter into and adopt this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
representations, warrants, and agreements herein contained, the parties hereto
do hereby agree as follows:
1. Assets to be Transferred.
(a) Subject to the terms and conditions set forth herein, on the
Closing Date (as hereinafter defined) KFK shall sell, assign, transfer and
convey to NEG all of the business, properties, and assets of CH of every kind,
nature and description (real, personal and mixed, both tangible and nontangible
and every interest therein, wheresoever located, including, with limitation, all
rights to the name "Congress Entertainment" and all other names used by CE in
its business, which assets of CE shall be free and clear of all security
interests, liens, charges and encumbrances, except those liabilities assumed by
NEG as set forth in Section 2(b) hereto and as shall be set forth on Schedule
"A" to be appended hereto (the "CE Transfer").
2. Consideration for CE Transfer.
(a) On the Closing Date, NEG will cause to be issued and delivered
to CLP, certificates representing 2,000,000 shares of the Common Stock, par
value $.001 (the "NEG Common Stock"), of NEG.
(b) As further consideration for said assets, NEG and KFK will
execute and deliver at the Closing an Assignment and Assumption Agreement, in
form reasonably satisfactory to
E-19
<PAGE> 2
counsel for CLP, pursuant to which NEG shall assume all of the debts and
obligations of CE that are specifically set forth in Exhibit "A" to be attached.
(c) All shares of the NEG Common Stock delivered under this
Agreement shall be delivered pursuant to Section 4(2) of the Securities Act of
1933, as amended (the "Act"), and, accordingly, may not be transferred unless
registered under the Act or there is an opinion that the shares may be sold
pursuant to an exemption such as Rule 144 pursuant to the Act.
(d) NEG agrees to use its best efforts to register the shares of
the amended Common Stock issued to CLP by the filing of an appropriate
Registration Statement on Form S-1 or such other forms as may be appropriate
under the Act. The Company will exert its best efforts to obtain effectiveness
of such Registration Statement on or prior to the 200th day after the closing.
In order to effect the purpose and intent of this Section 2,
NEG shall obtain and deliver at the closing, a letter signed by Mr. Philip
Cohen, President, and/or other principal shareholders of NEG owning or
controlling an aggregate 50.1% or more of the outstanding voting shares of NEG
to the effect that said registration will be promptly undertaken.
3. The Closing.
The closing of the transactions contemplated by this Agreement shall
take place before October 31, 1996 on such date as CLP and NEG may agree (the
"Closing Date") at 10:00 A.M., at the offices of CLP or at such other time and
place upon which CLP and NEG hereto may agree.
4. Conditions Precedent.
(a) NEG agrees, before the Closing, to provide CLP with a copy of
the latest draft of NEG's Form 10 or other form registering the NEG Common Stock
pursuant to Section 12(g) of the Securities Exchange Act of 1934, as amended,
and a representation that NEG will become a reporting company and its shares are
traded on the Nasdaq OTC Bulletin Board system.
(b)(i) CLP agrees to allow NEG and its representatives reasonable
access to CE's financial data and personnel.
(ii) CLP will deliver a full, complete and accurate schedule A that
will disclose all liabilities to be agreed to and assumed by
NEG.
(c) NEG agrees to use its best efforts to reach an agreement with
Charles Staley of CE as it pertains to the account of
Publishers Clearing House.
5. Representations and Warranties.
In order to induce CLP and KFK to execute and perform this Agreement,
NEG does hereby, represent, warrant, and agree (which representations,
warranties, and agreements shall be
E-20
<PAGE> 3
and be designed to be, continuing and survive the execution and delivery of this
Agreement and the Closing Date) as follows:
(a) NEG is a corporation duly organized, validly existing and in
good standing under the laws of the State of Nevada, with full power and
authority, corporate and otherwise, and with all licenses, permits,
certifications, registrations, approvals, consents and franchises necessary to
own or lease and operate its properties and to conduct its business as such
business currently is being conducted.
(b) NEG has the full power and authority, corporate and otherwise,
to execute, deliver and perform this Agreement and to consummate the
transactions contemplated hereby:
(c) The execution, delivery and performance of this Agreement by
NEG, the consummation by NEG of the transactions herein contemplated and the
compliance by NEG with the terms and conditions of this Agreement have been duly
authorized by all necessary corporate action.
(d) This Agreement is the valid and binding obligation of NEG,
enforceable in accordance with its terms, subject, as to enforcement or
remedies, to applicable bankruptcy, insolvency, reorganization, moratorium and
other laws affecting the rights of creditors generally and the discretion of
courts in granting equitable remedies;
(e) At the closing, all of the shares of the NEG Common Stock to
be issued by NEG pursuant to this Agreement shall be deemed to be duly and
validly authorized and, when issued to CLP, duly and validly issued, fully paid
and nonassessable and free and clear of all federal and state issuance taxes,
security interests, liens, claims, encumbrances and charges, subject to NEG's
obligation to register the shares under the Act.
6. CLPI Representations and Warranties.
In order to induce NEG to execute and perform this Agreement, CLP does
hereby represent, warrant, covenant and agree (which representations,
warranties, covenants and agreements shall be, and be deemed to be, continuing
and survive the execution and delivery of this Agreement, and the Closing) as
follows:
(a) Each of CLP and KFK is a corporation duly organized, validly
existing and in good standing under the laws of the State of New Jersey, CLP's
shares are publicly traded on the Nasdaq Small-cap System under the symbol
"CLPI" and each of CLP and KFK has full power and authority, corporate and
otherwise, and with all licenses, permits, certifications, registrations,
approvals, consents and franchises necessary to own or lease and operate its
properties and to conduce its business as currently being conducted.
(b) Each of CLP and KFK has the full power and authority,
corporate and otherwise, to execute, deliver and perform this Agreement and to
consummate the transactions contemplated hereby, including the CE Transfer.
E-21
<PAGE> 4
(c) The execution, delivery and performance of this Agreement by
each of CLP and KFK, the consummation by KFK of the transactions herein
contemplated and the compliance by each of CLP and KFK with the terms of this
Agreement have been duly authorized by all necessary corporate action, and this
Agreement has been duly and properly authorized, executed and delivered by CLP
and KFK.
(d) This Agreement is the valid and binding obligation of each CLP
and KFK, enforceable in accordance with its terms, subject, as to enforcement or
remedies, to applicable bankruptcy, insolvency, reorganization, moratorium and
the other laws affecting the rights of creditors generally and the discretion of
courts in granting equitable remedies.
7. Notices.
Any and all notices, requests or instructions desired or required to be
given by any party hereto to any other party hereto shall be in writing, sent by
nationally recognized overnight courier or mailed to the recipient first class,
postage prepaid, certified, return receipt requested at the addresses set forth
in the introductory paragraph hereof or to such other address as each party may
notify the other parties.
8. Amendments.
This Agreement may be amended at any time prior to the Closing Date by
a writing executed by the respective officers of CLP, KFK and NEG.
9. Governing Law.
This Agreement shall be governed by, and constructed in accordance
with, the laws of the State of New Jersey applicable to contracts executed and
to be fully performed therein and without regard to principles of conflicts of
laws.
10. Effectiveness.
This Agreement shall inure to the benefit of, and be binding upon, the
parties hereto and their respective successors, transferees, heirs, assigns and
beneficiaries.
11. Integration.
This Agreement (including the Exhibits hereto, the documents and
instruments delivered by the parties hereto as herein provided and any other
documents executed and delivered or to be executed and delivered pursuant to the
provisions of this Agreement as here provided) sets forth the entire agreement
among the parties hereto with respect to the subject matter herein contained.
There are no covenants, promises, agreements, conditions or understandings,
either oral or written, between or among the parties hereto with respect to the
subject matter hereof except as herein and in such ancillary documents. This
Agreement can only be altered, amended, modified, terminated or rescinded by a
writing executed by the party to be charged.
E-22
<PAGE> 5
12. Counterparts.
This Agreement may be executed in multiple copies, each of which shall
constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to
be executed as of the date first above written.
CREATIVE LEARNING
PRODUCTS, INC.
Witness:________________________ By:________________________________
Peter J. Jegou, President
Dated: October 18, 1996
KARDS FOR KIDS, INC.
Witness: ________________________ By:________________________________
Peter J. Jegou, President
Dated: October __, 1996
NIGHTWING ENTERTAINMENT
GROUP, INC.
Witness: ________________________ By:________________________________
Philip Cohen, President
Dated: October 10, 1996
E-23
<PAGE> 1
EXHIBIT 10(jj)
PURCHASE AND SALE AGREEMENT
THIS AGREEMENT is made this ___ day of October, 1996 between JERRY WARD
and CARS, INC., of Route 7, Box 516, Conroe, Texas, EDWARD LOCKEL, of P.0. Box
19681, Houston Texas 77224, and Jim's TRUCK AND EQUIPMENT, INC., of 3202
Hardrock Road, Grand Prairie, Texas 75050 all of whom are citizens of the United
States of America and/or are wholly owned by citizens of the United States, as
applicable, (hereinafter jointly and severally, referred to as the "Seller") and
CREATIVE GAMING INTERNATIONAL, INC., a New Jersey corporation, with offices
located at 150 Morris Avenue, Springfield, New Jersey 07081 (hereinafter
referred to as the "Purchaser").
WHEREAS, the Seller is the owner of M/V Cone Johnson (hereinafter
sometimes referred to as the "Vessel") which is described as follows:
BUILT: 1950
PLACE BUILT: Galveston, Texas USA
FLAG: United States of America
HOME PORT: Galveston, Texas USA
OFFICIAL No: 259819
GROSS/NET TONS: 797/542
LENGTH/BEAM/DRAFT: 237' 6"/6' '0"/13" 0"
CLASSIFICATION SOCIETY: American Bureau of Shipping
AI River Service (AMS)
(vessel is presently out
of class)
WHEREAS, the Seller is desirous of selling M/V Cone Johnson and the
Purchaser is desirous of purchasing M/V Cone Johnson;
IT IS THEREFORE AGREED as follows:
1. PURCHASE PRICE. The Seller hereby agrees to sell M/Y Cone
Johnson to the Purchaser for the Purchase Price of FOUR HUNDRED SIXTY FIVE
THOUSAND AND 00/100 ($465,000.00) DOLLARS. The Purchase Price shall be paid as
follows:
a. $25,000.00 cash presently being held in the
Goldring & Goldring, P.A. Attorney Trust Account,
subject to the terms and conditions of Term Sheet
previously executed between Seller and Purchaser and
this Agreement; and,
E-24
<PAGE> 2
b. $440,000.00 in certified or wire transferred
funds subject to the terms of this Agreement.
2. PAYMENT. The Purchase Price shall be paid to the Jim Jones
Attorney Trust Account contemporaneously with the delivery of the Vessel to the
Purchaser. The Purchase Price shall, however, be held and remain in escrow until
the Vessel has left the waters of the State of Texas; with the Purchaser
obligated to remove the Vessel from said waters with all due diligence and
dispatch. If, however, the Purchaser is reasonably able to remove the Vessel
from said waters, but fails to do so within forty eight (48) hours of the
delivery of the Vessel to it, the escrowed funds shall be released to the
Seller; provided, however, that the Seller, its agents, employees,
representatives and/or principals have done nothing to prevent, hinder or
otherwise delay the Purchaser's removal of the Vessel from said waters
(including the Seller's failure to remove any and all liens of any kind from the
Vessel and/or any claims of such a lien).
3. REPRESENTATIONS. a. The Seller represents that the Vessel
includes all tackle, apparel. furniture and equipment, bunkers and lubricating
oils, wherever same may be, including, but not limited to:
Two Cooper-Bessemer JS-6-T Diesel Electric Propulsion Engines
All generators
All pumps
All electrical equipment
All propellers
Two magnetic compasses
Two Raytheon 6410 radars
Life saving equipment
Firefighting equipment
All spares
b. The Seller further expressly represents and warrants
that M/Y Cone Johnson was constructed in the United States of America and that
neither its present or any prior ownership is of such character as to jeopardize
or prohibit the vessel from operating as a United States documented vessel with
coastwise trade endorsement. The Seller shall, in that regard, provide the
Purchaser with a complete, current and up-to-date: Certificate of Documentation
and Certificate of Ownership with General Index of Abstract of Title within ten
(10) days of the full execution of this Agreement or as soon as possible
thereafter; same shall reflect the ultimate title holder of the Vessel such that
all interim title holders since the Vessel was owned by the State of Texas
(whether they be including within the definition of the Seller herein or not)
are reflected on the subject documents.
E-25
<PAGE> 3
c. The Seller further represents that:
i. It, and each individual and entity
which is included within the definition of the Seller, has the full power and
legal authority to execute and fully perform this Agreement;
ii. It has good and marketable title to
the Vessel;
iii. It has or will obtain permission
from any required authority to sell the vessel;
iv. The Vessel will be sold free and
clear of any and all mortgages, liens, bills, encumbrances or claims whatsoever-
(Any such items in relation to M/Y Cone Johnson may be paid off from the
proceeds from this sale.);
v. It shall deliver the Vessel and its
inventory at the time of the closing;
vi. It shall pay any and all taxes,
fees, or other charges assessed against the Vessel or this transaction by any
governmental authority prior to or at the closing, shall hold the Purchaser
harmless against any claims for same and shall provided proof of the payment of
same, upon the request of the Purchaser, no later than ten (10) days after the
closing;
vii. It shall hold the Purchaser and the
Vessel harmless and defend same against any and all claims incurred prior to, or
regarding the period prior to, the closing that may impair or adversely affect
the Purchaser's receipt, use and possession of the Vessel, including its good
and absolute title thereto, and to indemnify the Purchaser and the Vessel and to
assume all costs incident to defending them against any and all such claims,
including their reasonable attorneys fees and costs;
viii. It shall pay all sales and/or use
taxes previously, now or hereafter imposed or assessed upon the Vessel as a
result of this sale, or a prior transfer/sale and/or operations of said Vessel
and to indemnify and hold the Purchaser and the Vessel harmless from any
obligation to pay any such taxes; and,
ix. It shall not claim any ownership or
possessory interest in the Vessel after the completion of the closing.
d. The Seller makes no representations whatsoever as to
the Vessel's quality, condition, seaworthiness, or fitness for any particular
purpose except as expressly set forth herein.
e. This Paragraph and the representations, warranties
and covenants shall survive the closing.
4. SURVEYS AND TRIALS. a. The Purchaser shall have the right to
perform whatever tests and inspections it deems necessary or appropriate to
determine both the quality of the Vessel, its tackle, apparel, and equipment and
its fitness of the Purchaser's specific intended purpose (which generally is as
an offshore gaming vessel).
a. The Purchaser agrees that the surveyor(s) it selects
shall be employed and/or retained by it and that as a condition of said
employment/retention all work performed
E-26
<PAGE> 4
shall be for the its account and not, under any circumstances, for the account
of the Vessel or the Seller.
b. All trials shall be at the expense of the Purchaser.
The Vessel shall, however, at all times during the sea trial be under the care
and control of the owner or owner's captain, or such other qualified person
which the Seller may require to be present, who shall accommodate any and all
reasonable and customary requests by the Purchaser and/or its agents.
c. All inspections and trials shall be completed within
no later than OCTOBER 29, 1996.
d. The party making the survey and/or trial shall
indemnify and hold the Seller and the Vessel harmless from any and all damages
or claims made as a result of same.
e. The parties shall fully cooperate with each other
both as to the surveying and trialing of the Vessel.
5. ACCEPTANCE OF VESSEL. If the Purchaser, in its sole and
absolute discretion, determines by OCTOBER 29, 1996 that the Vessel, its
tackle, apparel, or equipment is not of the quality it desires or is not fit for
its specific intended purpose, the Purchaser shall have the option to terminate
the transaction without having any further obligation or liability to Seller. If
the Purchaser does not so notify the Seller of its rejection of the Vessel then
it shall been deemed to have accepted same.
b. If the Purchaser elects to terminate this transaction
on or before OCTOBER 29, 1996 the Purchaser have returned to it the $25,000.00
being held in escrow, this Agreement shall terminate and neither party shall
have any further obligation to the other.
c. The Purchaser's acceptance or rejection of the Vessel
shall be made in its sole and absolute discretion.
6. DELIVERY OF VESSEL. The Vessel shall be delivered at the time
of the closing, with all of its tackle, apparel, furniture and equipment,
bunkers and lubricating oils on board, at the dock where it is was located at
the time of the execution of the Term Sheet-, provided however that it shall be
safely afloat, fully accessible, and with free, clear and readily navigable
access to the open waters of the Gulf of Mexico.
7. CLOSING. The closing shall take place on or before NOVEMBER
14, 1996 at a time and place to be agreed upon by the parties. The closing shall
be deemed completed upon the following having occurred:
a. All documents necessary to transfer good and absolute
title to the Vessel have been received by the Purchaser, including, but not
necessarily limited to:
E-27
<PAGE> 5
i. Coast Guard Bill of Sale;
ii. Original Coast Guard Document,
Certificate of Inspection and Abstract;
iii. Quit Claim Bills of Sale from each
individual or entity defined as a Seller herein-, and,
iv. Such other documents and things
which are customarily provided by a Seller to a Buyer in such a transaction.
b. The Seller's attorney, Jim Jones, Esquire, has
received into his trust account $465,000.00 in certified or wire transferred
funds.
8. RISK OF LOSS. Except as otherwise provided for herein the
Seller shall bear all risk of loss or damage to the Vessel, or to any person or
property on the Vessel, until the closing. Any damage to the, Vessel subsequent
to the acceptance of the Vessel by the Purchaser shall be repaired by the Seller
at the Seller's sole and absolute expense or Seller shall credit Purchaser
against the Purchase Price an amount equal to the cost of the repairs, subject
however to the reasonable approval by the Purchaser. If the cost to reasonably
repair any such damage exceeds $50,000.00 the Purchaser shall have the right to
terminate this Agreement in accordance with Paragraph 5 hereof. If the Vessel
becomes an actual, constructive or compromised total loss before delivery, the
monies held in escrow shall be returned to the Buyer and this Agreement shall be
terminated without cost to either party.
9. DEFAULT. If either party fails or refuses to perform in
accordance with the terms and conditions of this Agreement it shall be liable to
the other party for, among other things, all of the other party's costs
associated with the surveying and trialing of the Vessel, actual and
consequential damages and attorneys fees and costs. The defaulting party shall
also indemnify and hold the other party harmless for any and all claims for
brokerage commissions, whether actually due and payable or not. Due to the
unique characteristics of each of the Vessel which is the subject of this
Agreement, the parties hereto agree that they would not be fully compensated by
a monetary award and therefore enforcing this Agreement by way of specific
performance is an appropriate remedy.
10. BROKERAGE. The parties hereto acknowledge that the only
brokers they have utilized in relation to this transaction are:
Crozier Fox, of Northrup & Johnson
Edward Lockel
Jim's Truck and Equipment, Inc.
Marcon International
The Seller is solely and exclusively obligated to pay it a commission as is set
forth in a separate agreement; same to be paid out of the escrowed funds which
are to be held by the Seller's attorney
E-28
<PAGE> 6
after same are released from escrow as set forth herein. The Seller indemnifies
and holds the Buyer and the Vessel harmless for any commissions which may be due
in relation to this transaction. Each party agrees to indemnify and hold the
other party harmless for any claims for a commission, fee or other compensation
in relation to, or in connection with, this transaction. by any undisclosed
broker it utilized, as well as for reasonable attorneys fees and costs.
11. NO ASSIGNMENT. This Agreement may not be assigned without the
express written consent of the other party.
12. NOTICES. All notices required by, or otherwise given under,
this Agreement must be in writing and transmitted to the other party overnight
or same day via a nationally recognized courier service such as Federal Express
or United Parcel Service and to their respective attorneys as follows:
As to the Seller:
Mr. Jerry Ward
Route 7, Box 516
Conroe, Texas 77384
Jim Jones, Esquire
130 Catalpa
Lake Jackson, Texas 77566
As to the Purchaser:
Peter Jegou, C.E.O.
Creative Gaming International, Inc.
150 Morris Avenue
Springfield, New Jersey 07081
Eric J. Goldring, Esquire
Goldring & Goldring, P.A.
125 Half Mile Road
Red Bank, New Jersey 07701-6749
(908) 530-5400
and, simultaneously via facsimile transmission to the respective facsimile
numbers noted below:
Seller: (713) 351-7763
Seller's Attorney: (409) 265-2304
E-29
<PAGE> 7
Purchaser: (908) 467-5650
Purchaser's Attorney: (908) 530-0614
All notices shall be deemed effective upon actual receipt and, as such,
confirmation that a notice has been sent via facsimile is not conclusive that
the transmission has, in fact, been received or that it has been received in
sufficiently legible and complete condition. In the event that a party, or its
attorney, does not receive either the written notice and/or the facsimile
transmission because it either is not available to accept or receive, or does
not accept or receive, same, notice shall be deemed effective upon depositing
same with the nationally recognized courier service and a documented attempt to
transmit the facsimile copy of same.
13. ENTIRE AGREEMENT. This Agreement embodies the entire agreement
between the parties. Each party agrees that it has not relied upon any
representations made to it other than as is set forth in this Agreement and the
exhibits attached hereto.
14. NO MODIFICATION. This Agreement may only be modified in
writing signed by each of the parties. No purported oral modification of this
Agreement shall be of any force or effect.
IN WITNESS WHEREOF the parties hereto set their hand and seal on the
date first written above.
CREATIVE GAMING INTERNATIONAL, INC., PURCHASER
By:__________________________________ ________________________________________
Peter Jegou, C.E.O. JERRY WARD, Seller
CARS, INC., Seller
By:_____________________________________
Jerry Ward, President
JIM'S TRUCK AND EQUIPMENT, INC., SELLER
By:_____________________________________
James Elmore, President
________________________________________
EDWARD LOCKEL, Seller
E-30
<PAGE> 1
EXHIBIT 23(a)
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Creative Learning Products, Inc.
We hereby consent to the incorporation by reference in this Registration
Statement on Form SB-2 of our report dated September 10, 1996,
relating to the consolidated financial statements of Creative Learning Products,
Inc. and Subsidiaries, appearing in the Company's Annual Report on Form 10-KSB
for the year ended May 31, 1996. We also consent to the reference to us under
the captions "Experts."
/s/ BDO Seidman, LLP
New York, New York
January 13, 1997
E-31
